File No. 33-24962
Investment Company No. 811-5186
As filed with the Securities and Exchange Commission on April 28, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
Registration Statement under The Securities Act of 1933
Post-Effective Amendment No. 30
Registration Statement under The Investment Company Act of 1940
Amendment No. 32
AMERICAN SKANDIA TRUST
(Exact Name of Registrant as Specified in Charter)
One Corporate Drive, Shelton, Connecticut 06484
(Address of Principal Executive Offices) (Zip Code)
(203) 926-1888
(Registrant's Telephone Number, Including Area Code)
ERIC C. FREED, ESQ., SECRETARY
AMERICAN SKANDIA TRUST
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484
(Name and Address of Agent for Service)
Copies to:
ROBERT K. FULTON, ESQ.
WERNER & KENNEDY
1633 BROADWAY, 46TH FLOOR, NEW YORK, NEW YORK 10019
It is proposed that this filing will become effective (check appropriate
space)
_____ immediately upon filing pursuant to paragraph (b).
_____ on _______ pursuant to paragraph (b) of rule 485.
X 60 days after filing pursuant to paragraph (a)(1).
_____ on _______ pursuant to paragraph (a)(1).
_____ 75 days after filing pursuant to paragraph (a)(2).
_____ on pursuant to paragraph (a)(2) of rule 485.
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Shares of Beneficial Interest of the Various Series of American Skandia Trust
(Title of Securities Being Registered)
<PAGE>
PROSPECTUS May 3, 1999
AMERICAN SKANDIA TRUST
One Corporate Drive, Shelton, Connecticut 06484
- --------------------------------------------------------------------------------
American Skandia Trust (the "Trust") is an investment company made up of the
following 28 separate portfolios ("Portfolios"):
AST Founders Passport Portfolio
AST T. Rowe Price International Equity Portfolio
AST AIM International Equity Portfolio
AST Janus Overseas Growth Portfolio
AST American Century International Growth Portfolio
AST Janus Small-Cap Growth Portfolio
AST Kemper Small-Cap Growth Portfolio
AST Lord Abbett Small Cap Value Portfolio
AST T. Rowe Price Small Company Value Portfolio
AST Neuberger Berman Mid-Cap Growth Portfolio
AST Neuberger Berman Mid-Cap Value Portfolio
AST T. Rowe Price Natural Resources Portfolio
AST Oppenheimer Large-Cap Growth Portfolio
AST Marsico Capital Growth Portfolio
AST JanCap Growth Portfolio
AST Bankers Trust Enhanced 500 Portfolio
AST Cohen & Steers Realty Portfolio
AST American Century Income & Growth Portfolio
AST Lord Abbett Growth and Income Portfolio
AST INVESCO Equity Income Portfolio
AST AIM Balanced Portfolio
AST American Century Strategic Balanced Portfolio
AST T. Rowe Price Asset Allocation Portfolio
AST T. Rowe Price International Bond Portfolio
AST Federated High Yield Portfolio
AST PIMCO Total Return Bond Portfolio
AST PIMCO Limited Maturity Bond Portfolio
AST Money Market Portfolio
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Trust is an investment vehicle for life insurance companies ("Participating
Insurance Companies") writing variable annuity contracts and variable life
insurance policies. Shares of the Trust may also be sold directly to certain
tax-deferred retirement plans. Each variable annuity contract and variable life
insurance policy involves fees and expenses not described in this Prospectus.
Please read the Prospectus for the variable annuity contract and variable life
insurance policy for information regarding the contract or policy, including its
fees and expenses and the Portfolios available for investment through that
contract or policy.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Caption Page
<S> <C> <C>
Risk/Return Summary...............................................................................................3
Past Performance.................................................................................................15
Fees and Expenses of the Portfolios..............................................................................29
Investment Objectives and Policies...............................................................................32
AST Founders Passport Portfolio.............................................................................33
AST T. Rowe Price International Equity Portfolio............................................................35
AST AIM International Equity Portfolio......................................................................37
AST Janus Overseas Growth Portfolio.........................................................................39
AST American Century International Growth Portfolio.........................................................41
AST Janus Small-Cap Growth Portfolio........................................................................43
AST Kemper Small-Cap Growth Portfolio.......................................................................45
AST Lord Abbett Small Cap Value Portfolio...................................................................47
AST T. Rowe Price Small Company Value Portfolio.............................................................48
AST Neuberger Berman Mid-Cap Growth Portfolio...............................................................50
AST Neuberger Berman Mid-Cap Value Portfolio................................................................52
AST T. Rowe Price Natural Resources Portfolio...............................................................54
AST Oppenheimer Large-Cap Growth Portfolio..................................................................55
AST Marsico Capital Growth Portfolio........................................................................56
AST JanCap Growth Portfolio.................................................................................58
AST Bankers Trust Enhanced 500 Portfolio....................................................................60
AST Cohen & Steers Realty Portfolio.........................................................................62
AST American Century Income & Growth Portfolio..............................................................64
AST Lord Abbett Growth and Income Portfolio.................................................................65
AST INVESCO Equity Income Portfolio.........................................................................66
AST AIM Balanced Portfolio..................................................................................67
AST American Century Strategic Balanced Portfolio...........................................................69
AST T. Rowe Price Asset Allocation Portfolio................................................................71
AST T. Rowe Price International Bond Portfolio..............................................................73
AST Federated High Yield Portfolio..........................................................................75
AST PIMCO Total Return Bond Portfolio.......................................................................77
AST PIMCO Limited Maturity Bond Portfolio...................................................................80
AST Money Market Portfolio..................................................................................83
Portfolio Turnover...............................................................................................85
Net Asset Values.................................................................................................85
Purchase and Redemption of Shares................................................................................85
Management of the Trust..........................................................................................86
Tax Matters......................................................................................................93
Financial Highlights.............................................................................................94
Certain Risk Factors and Investment Methods.....................................................................102
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
American Skandia Trust (the "Trust") is comprised of twenty-eight
investment portfolios (the "Portfolios"). The Portfolios are designed to provide
a wide range of investment options. Each Portfolio has its own investment goal
and style (and, as a result, its own level of risk). Some of the Portfolios
offer potential for high returns with correspondingly higher risk, while others
offer stable returns with relatively less risk. It is possible to lose money
when investing even in the most conservative of the Portfolios. Investments in
the Portfolios are not bank deposits and are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
It is not possible to provide an exact measure of the risk to which a
Portfolio is subject, and a Portfolio's risk will vary based on the securities
that it holds at a given time. Nonetheless, based on each Portfolio's investment
style and the risks typically associated with that style, it is possible to
assess in a general manner the risks to which a Portfolio will be subject. The
following discussion highlights the investment strategies and risks of each
Portfolio. Additional information about each Portfolio's potential investments
and its risks is included in this Prospectus under "Investment Objectives and
Policies."
<TABLE>
<CAPTION>
International Portfolios:
Portfolio: Investment Goal: Primary Investments:
<S> <C> <C>
Founders Passport Capital growth The Portfolio invests primarily in equity
securities of small capitalization
foreign companies.
T. Rowe Price Int'l Equity Total return on assets The Portfolio invests primarily in marketable equity
from long-term growth of securities of foreign companies.
capital and income
AIM International Capital growth The Portfolio invests primarily in equity
securities of foreign companies.
Janus Overseas Growth Long-term capital growth The Portfolio invests primarily in common
stocks of foreign companies.
American Century Int'l Capital growth The Portfolio invests primarily in equity
Growth securities of foreign companies.
</TABLE>
Principal Investment Strategies:
The AST Founders Passport Portfolio normally invests primarily in securities
issued by foreign companies that have market capitalizations or annual revenues
of $1 billion or less. These securities may represent companies in both
established and emerging economies throughout the world. At least 65% of the
Portfolio's total assets normally will be invested in foreign securities
representing a minimum of three countries. The Portfolio may invest in larger
foreign companies or in U.S.-based companies if, in the Sub-advisor's opinion,
they represent better prospects for capital growth.
The Sub-advisor to the Portfolio looks for companies whose fundamental strengths
indicate potential for growth in earnings per share. The Sub-advisor generally
takes a "bottom up" approach to building the Portfolio, which means that the
Sub-advisor will search for individual companies that demonstrate the best
potential for significant earnings growth, rather than choose investments based
on broader economic characteristics of countries or industries.
The Sub-advisor to the AST T. Rowe Price International Equity Portfolio expects
to invest substantially all of the Portfolio's assets (with a minimum of 65%) in
established foreign companies. Geographic diversification will be wide,
including both developed and developing countries, and there will normally be at
least three different countries represented in the Portfolio. Stocks can be
purchased without regard to a company's market capitalization, but the
Sub-advisor's focus typically will be on large and, to a lesser extent,
medium-sized companies.
The Fund will invest in stocks that have the potential for growth of capital or
income or both. Stocks are selected by using a "bottom-up" approach (an approach
based on the Sub-advisor's fundamental research on particular companies) in an
effort to identify companies capable of achieving and sustaining above-average
long-term earnings growth. The Sub-advisor seeks to purchase stocks at
reasonable prices in relation to anticipated earnings, cash flow or book value.
Valuation factors often influence the Sub-advisor's allocations among large-,
mid-, and small-cap companies.
While bottom-up stock selection is the focus of its decision making, the
Sub-advisor also invests with an awareness of the global economic backdrop and
its outlook for individual companies. Country allocation is driven largely by
stock selection, though the Sub-advisor may limit investments in markets that
appear to have poor overall prospects.
The AST AIM International Equity Portfolio seeks to meet its investment
objective by investing, normally, at least 70% of its assets in marketable
equity securities of foreign companies that are listed on a recognized foreign
securities exchange or traded in a foreign over-the-counter market. The
Portfolio will normally invest in a diversified portfolio that includes
companies located in at least four countries outside the United States,
emphasizing investment in companies in the developed countries of Western Europe
and the Pacific Basin. The Sub-advisor does not intend to invest more than 20%
of the Portfolio's total assets in companies located in developing countries.
The Sub-advisor focuses on companies that have experienced above-average,
long-term growth in earnings and have strong prospects for future growth. In
selecting countries in which the Portfolio will invest, the Sub-advisor also
considers such factors as the prospect for relative economic growth among
countries or regions, economic or political conditions, currency exchange
fluctuations, tax considerations and the liquidity of a particular security. The
Sub-advisor considers whether to sell a particular security when any of those
factors materially changes.
The AST Janus Overseas Growth Portfolio pursues its objective primarily through
investments in common stocks of issuers located outside the United States. The
Portfolio has the flexibility to invest on a worldwide basis in companies and
organizations of any size, regardless of country of organization or place of
principal business activity. The Portfolio normally invests at least 65% of its
total assets in securities of issuers from at least five different countries,
excluding the United States. Although the Portfolio intends to invest
substantially all of its assets in issuers located outside the United States, it
may at times invest in U.S. issuers and it may at times invest all of its assets
in fewer than five countries or even a single country.
The Portfolio invests primarily in stocks selected for their growth potential.
The Sub-advisor generally takes a "bottom up" approach to choosing investments
for the Portfolio. In other words, the Sub-advisor seeks to identify individual
companies with earnings growth potential that may not be recognized by the
market at large, regardless of where the companies are organized or where they
primarily conduct business. Although themes may emerge in the Portfolio,
securities are generally selected without regard to any defined allocation among
countries, geographic regions or industry sectors, or other similar selection
procedure.
The AST American Century International Growth Portfolio will seek to achieve its
investment objective by investing primarily in equity securities of
international companies that the Sub-advisor believes will increase in value
over time. The Sub-advisor uses a growth investment strategy it developed that
looks for companies with earnings and revenue growth. Ideally, the Sub-advisor
looks for companies whose earnings and revenues are not only growing, but are
growing at an accelerating pace. For purposes of the Portfolio, equity
securities include common stocks, preferred stocks and convertible securities.
The Sub-advisor tracks financial information for thousands of companies to
research and select the stocks it believes will be able to sustain accelerating
growth. This strategy is based on the premise that, over the long term, the
stocks of companies with accelerating earnings and revenues have a
greater-than-average chance to increase in value.
The Sub-advisor recognizes that, in addition to locating strong companies with
accelerating earnings, the allocation of assets among different countries and
regions also is an important factor in managing an international portfolio. For
this reason, the Sub-advisor will consider a number of other factors in making
investment selections, including the prospects for relative economic growth
among countries or regions, economic and political conditions, expected
inflation rates, currency exchange fluctuations and tax considerations. Under
normal conditions, the Portfolio will invest at least 65% of its assets in
equity securities of issuers from at least three countries outside of the United
States. While the Portfolio's focus will be on issuers in developed markets, the
Sub-advisor expects to invest to some degree in issuers in developing countries.
<PAGE>
Principal Risks:
o All five of the international portfolios are equity funds, and the
primary risk of each is that the value of the stocks they hold will
decline. Stocks can decline for many reasons, including reasons related to
the particular company, the industry of which it is a part, or the
securities markets generally.
o The level of risk of the international portfolios will generally be higher
than the level of risk associated with domestic equity funds. Foreign
investments involve risks such as fluctuations in currency exchange rates,
less liquid and more volatile securities markets, unstable political and
economic structures, reduced availability of information, and lack of
uniform financial reporting and regulatory practices such as those that
apply to U.S. issuers. While none of the international portfolios invest
primarily in companies located in developing countries, each may invest in
those companies to some degree, and the risks of foreign investment may be
accentuated by investment in developing countries.
o As a fund that invests primarily in the securities of smaller foreign
issuers, the AST Founders Passport Portfolio may be subject to a greater
level of risk than the other international funds. Securities of smaller
companies tend to be subject to more abrupt and erratic price movements
than securities of larger companies, in part because they may have limited
product lines, markets, or financial resources.
Capital Growth Portfolios:
<TABLE>
<CAPTION>
Portfolio: Investment Goal: Primary Investments:
<S> <C> <C>
Janus Small-Cap Capital growth The Portfolio invests primarily in common
Growth stocks of small capitalization companies.
Kemper Small-Cap Growth Maximum capital growth The Portfolio invests primarily in equity securities of small
capitalization companies.
Lord Abbett Small Cap Value Long-term capital growth The Portfolio invests primarily in equity securities small
capitalization companies that are believed to be undervalued.
T. Rowe Price Small Long-term capital growth The Portfolio invests primarily in stocks and equity-related
Company Value securities of small capitalization companies that appear to
be undervalued.
Neuberger Berman Mid-Cap Capital growth The Portfolio invests primarily in common stocks of medium
Growth capitalization companies.
Neuberger Berman Mid-Cap Capital growth The Portfolio invests primarily in common stocks of medium
Value capitalization companies, using a value-oriented investment
approach.
T. Rowe Price Natural Long-term capital growth The Portfolio invests primarily in common stocks of companies
Resources that own or develop natural resources and other basic
commodities.
Oppenheimer Large-Cap Capital growth The Portfolio invests primarily in common stocks of large
Growth capitalization growth companies.
Marsico Capital Growth Capital growth The Portfolio invests primarily in common stocks, with the majority of
the Fund's assets in large capitalization stocks.
JanCap Growth Capital growth The Portfolio invests primarily in common stocks.
Bankers Trust Enhanced 500 To outperform the S&P 500 The Portfolio invests primarily in common stocks included in
Stock Index the S&P 500.
</TABLE>
<PAGE>
Principal Investment Strategies:
The AST Janus Small-Cap Growth Portfolio pursues its objective by normally
investing at least 65% of its total assets in the common stocks of small-sized
companies. For purposes of the Portfolio, small-sized companies are those that
have market capitalizations of less than $1.5 billion or annual gross revenues
of less than $500 million. To a lesser extent, the Portfolio may also invest in
stocks of larger companies with potential for capital appreciation.
The Sub-advisor generally takes a "bottom up" approach to building the
Portfolio. In other words, it seeks to identify individual companies with
earnings growth potential that may not be recognized by the market at large.
Although themes may emerge in the Portfolio, securities are generally selected
without regard to any defined industry sector or other similar selection
procedure.
At least 65% of the AST Kemper Small-Cap Growth Portfolio's total assets
normally will be invested in the equity securities of smaller companies, i.e.,
those having a market capitalization of $1.5 billion or less at the time of
investment, many of which would be in the early stages of their life cycle.
Equity securities include common stocks and securities convertible into or
exchangeable for common stocks, including warrants and rights. The Portfolio
intends to invest primarily in stocks of companies whose earnings per share are
expected by the Sub-advisor to grow faster than the market average ("growth
stocks").
In managing the Portfolio, the Sub-advisor emphasizes stock selection and
fundamental research. The Sub-advisor considers a number of factors in
considering whether to invest in a growth stock, including high return on equity
and earnings growth rate, low level of debt, strong balance sheet, good
management and industry leadership. Other factors are patterns of increasing
sales growth, the development of new or improved products or services, favorable
outlooks for growth in the industry, the probability of increased operating
efficiencies, emphasis on research and development, cyclical conditions, or
other signs that a company may grow rapidly. The Portfolio seeks attractive
areas for investment that arise from factors such as technological advances, new
marketing methods, and changes in the economy and population.
The AST T. Rowe Price Small Company Value Portfolio will invest at least 65% of
its total assets in stocks and equity-related securities of small companies ($1
billion or less in market capitalization). Reflecting a value approach to
investing, the Portfolio will seek the stocks of companies whose current stock
prices do not appear to adequately reflect their underlying value as measured by
assets, earnings, cash flow or business franchises. The Sub-advisor's research
team seeks to identify companies that appear to be undervalued by various
measures, and may be temporarily out of favor, but have good prospects for
capital appreciation. In selecting investments, the Sub-advisor generally looks
to the following:
(1) Above-average dividend yield (the stock's annual dividend divided by
the stock price) relative to a company's peers or its own historic norm.
(2) Low price/earnings, price/book value or price/cash flow ratios relative
to the S&P 500 Index, the company's peers, or its own historic norm.
(3) Low stock price relative to a company's underlying asset values.
(4) A plan to improve the business through restructuring.
(5) A sound balance sheet and other positive financial characteristics.
The Portfolio may sell securities for a variety of reasons, such as to secure
gains, limit losses or re-deploy assets into more promising opportunities. The
Portfolio may on occasion purchase companies with a market cap more than $1
billion.
To pursue its objective, the AST Neuberger Berman Mid-Cap Growth Portfolio
primarily invests in the common stocks of mid-cap companies. Companies with
equity market capitalizations from $300 million to $10 billion at the time of
investment are considered mid-cap companies for purposes of the Portfolio. Some
of the Portfolio's assets may be invested in the securities of large-cap
companies as well as in small-cap companies. The Portfolio seeks to reduce risk
by diversifying among many companies and industries.
The Portfolio is normally managed using a growth-oriented investment approach.
The Sub-advisor looks for fast-growing companies that are in new or rapidly
evolving industries. Factors in identifying these companies may include
above-average growth of earnings or earnings that exceed analysts' expectations.
The Sub-advisor may also look for other characteristics in a company, such as
financial strength, a strong position relative to competitors and a stock price
that is reasonable in light of its growth rate.
The Sub-advisor follows a disciplined selling strategy, and may sell a stock
when it reaches a target price, fails to perform as expected, or appears
substantially less desirable than another stock.
To pursue its objective, the AST Neuberger Berman Mid-Cap Value Portfolio
primarily invests in the common stocks of mid-cap companies. Some of the
Portfolio's assets may be invested in the securities of large-cap companies as
well as in small-cap companies. The Portfolio seeks to reduce risk by
diversifying among many companies and industries.
Under the Portfolio's value-oriented investment approach, the Sub-advisor looks
for well-managed companies whose stock prices are undervalued and that may rise
in price when other investors realize their worth. Factors that the Sub-advisor
may use to identify these companies include strong fundamentals, such as a low
price-to-earnings ratio, consistent cash flow, and a sound track record through
all phases of the market cycle. The Sub-advisor may also look for other
characteristics in a company, such as a strong position relative to competitors,
a high level of stock ownership among management, or a recent sharp decline in
stock price that appears to be the result of a short-term market overreaction to
negative news.
The Sub-advisor generally considers selling a stock when it reaches a target
price, when it fails to perform as expected, or when other opportunities appear
more attractive.
The AST T. Rowe Price Natural Resources Portfolio normally invests at least 65%
of its total assets in the common stocks of natural resource companies whose
earnings and tangible assets could benefit from accelerating inflation. The
Portfolio also may invest in growth companies with strong potential for earnings
growth. When selecting stocks, we look for companies that have the ability to
expand production, to maintain superior exploration programs and production
facilities, and the potential to accumulate new resources. Natural resource
companies in which the Portfolio invests generally own or develop energy
sources, precious metals, nonferrous metals, forest products, real estate,
diversified resources and other basic commodities that can be produced and
marketed profitably when both labor costs and prices are rising.
The Portfolio may sell securities for a variety of reasons, such as to secure
gains, limit losses or re-deploy assets into more promising opportunities.
The AST Oppenheimer Large-Cap Growth Portfolio seeks its investment objective by
emphasizing investment in common stocks issued by established
large-capitalization "growth companies" that, in the opinion of the Sub-advisor,
have above average earnings prospects but are selling at below normal prices. At
least 65% of the Portfolio's assets normally will be invested in companies that
have market capitalizations greater than $3 billion, and the Portfolio will
normally maintain a median market capitalization greater than $5 billion.
"Growth companies" may be developing new products or services, or expanding into
new markets for their products. While they will have what the Sub-advisor
believes to be favorable long-term prospects, they normally retain a large part
of their earnings for research, development and investment in capital assets.
Therefore, they tend not to emphasize the payment of dividends. Investment
opportunities may be sought among securities of smaller, less well-known
companies, although the Portfolio's emphasis is on large-cap issuers.
The AST Marsico Capital Growth Portfolio will pursue its objective by investing
primarily in common stocks. The Sub-advisor expects that the majority of the
Portfolio's assets will be invested in the common stocks of larger, more
established companies.
In selecting investments for the Portfolio, the Sub-advisor uses an approach
that combines "top down" economic analysis with "bottom up" stock selection. The
"top-down" approach takes into consideration such macro-economic factors as
interest rates, inflation, the regulatory environment, and the global
competitive landscape. In addition, the Sub-advisor examines such factors as the
most attractive global investment opportunities, industry consolidation, and the
sustainability of economic trends. As a result of this "top down" analysis, the
Sub-advisor identifies sectors, industries and companies that should benefit
from the trends the Sub-advisor has observed.
The Sub-advisor then looks for individual companies with earnings growth
potential that may not be recognized by the market at large. In determining
whether a particular company is appropriate for investment by the Portfolio, the
Sub-advisor focuses on a number of different attributes, including the company's
specific market expertise or dominance, its franchise durability and pricing
power, solid fundamentals (e.g., a strong balance sheet, improving returns on
equity, and the ability to generate free cash flow), strong management, and
reasonable valuations in the context of projected growth rates.
The AST JanCap Growth Portfolio will pursue its objective by investing primarily
in common stocks. Common stock investments will be in 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. The Sub-advisor generally takes a "bottom up" approach to choosing
investments for the Portfolio. In other words, the Sub-advisor seeks to identify
individual companies with earnings growth potential that may not be recognized
by the market at large.
The AST Bankers Trust Enhanced 500 Portfolio seeks to outperform the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500(R)") through stock
selection resulting in different weightings of common stocks relative to the
index. The S&P 500 is an index of 500 common stocks, most of which trade on the
New York Stock Exchange Inc. (the "NYSE").
In seeking to outperform the S&P 500, the Sub-advisor starts with a portfolio of
stocks representative of the holdings of the index. It then uses a set of
quantitative criteria that are designed to indicate whether a particular stock
will predictably perform better or worse than the S&P 500. Based on these
criteria, the Sub-advisor determines whether the Portfolio should over-weight,
under-weight or hold a neutral position in the stock relative to the proportion
of the S&P 500 that the stock represents. The majority of the issues held by the
Portfolio will have neutral weightings, but approximately 100 will be over- or
under-weighted relative to the index. In addition, the Sub-advisor may determine
based on the quantitative criteria that certain S&P 500 stocks should not be
held by the Portfolio in any amount.
As part of a strategy used to attempt to outperform the S&P 500, the Portfolio
may also invest up to 15% of its total assets in equity securities of companies
not included in the S&P 500.
Principal Risks:
o All of the capital growth portfolios are equity funds, and the primary risk
of each is that the value of the stocks they hold will decline. Stocks can
decline for many reasons, including reasons related to the particular
company, the industry of which it is a part, or the securities markets
generally. These declines can be substantial.
o The risk to which the capital growth portfolios are subject depends in part
on the size of the companies in which the particular portfolio invests.
Securities of smaller companies tend to be subject to more abrupt and
erratic price movements than securities of larger companies, in part
because they may have limited product lines, markets, or financial
resources. Market capitalization, which is the total market value of a
company's outstanding stock, is often used to classify companies based on
size. Therefore, the AST Janus Small-Cap Growth Portfolio, the AST Kemper
Small-Cap Growth Portfolio, the AST Lord Abbett Small Cap Value Portfolio,
and the AST T. Rowe Price Small Company Value Portfolio can be expected to
be subject to the highest degree of risk relative to the other capital
growth funds. The AST Neuberger Berman Mid-Cap Growth Portfolio and the AST
Neuberger Berman Mid-Cap Value Portfolio can be expected to be subject to
somewhat less risk, and the AST Oppenheimer Large-Cap Growth Portfolio, the
AST Marsico Capital Growth Portfolio, the AST JanCap Growth Portfolio, and
the AST Bankers Trust Enhanced 500 Portfolio to somewhat less risk than the
mid-cap funds. The AST T. Rowe Price Natural Resources Portfolio invests in
companies of all sizes in order to take advantage of the opportunities in
the natural resources sector, but generally invests mostly in large and
medium-sized companies.
o The AST Janus Small-Cap Growth Portfolio, the AST Kemper Small-Cap Growth
Portfolio, the AST Neuberger Berman Mid-Cap Growth Portfolio, the AST
Oppenheimer Large-Cap Growth Portfolio, the AST Marsico Capital Growth
Portfolio and the AST JanCap Growth Portfolio generally take a growth
approach to investing, while the AST Lord Abbett Small Cap Value Portfolio,
the AST T. Rowe Price Small Company Value Portfolio and the AST Neuberger
Berman Mid-Cap Value Portfolio generally take a value approach. Value
stocks are believed to be selling at prices lower than what they are
actually worth, while growth stocks are those of companies that are
expected to grow at above-average rates. A portfolio investing primarily in
growth stocks will tend to be subject to more risk than a value fund,
although this will not always be the case.
o The AST T. Rowe Price Natural Resources Portfolio is subject to an
additional risk factor because it is less diversified than most equity
funds and could therefore experience sharp price declines when conditions
are unfavorable in the natural resources sector. The rate of earnings
growth of natural resource companies may be irregular because these
companies are strongly affected by natural forces, global economic cycles
and international politics.
Growth and Income Portfolios:
<TABLE>
<CAPTION>
Portfolio: Investment Goal: Primary Investments:
<S> <C> <C>
Cohen & Steers Realty Maximize total return The Portfolio invests primarily in equity securities of real
estate companies.
American Century Income & Capital growth and, The Portfolio invests primarily in stocks of large U.S.
Growth secondarily, current income companies selected through quantitative investment techniques.
Lord Abbett Growth and Long term capital growth The Portfolio invests primarily in common stocks that are
Income and income believed to be selling at reasonable prices in relation to
value.
INVESCO Equity Income High current income and, The Portfolio invests primarily in dividend-paying common
secondarily, capital growth stocks that, over a period of years, may also provide capital
appreciation, and to a lesser extent in fixed income securities.
AIM Balanced Capital growth and current The Portfolio normally invests 30-70% of its total assets in
income equity securities and 30-70% in debt securities.
American Century Strategic Capital growth and current The Portfolio normally invests approximately 60% of its
Balanced income assets in equity securities and the remainder in bonds and
other fixed income securities.
T. Rowe Price Asset A high level of total The Portfolio normally invests 50-70% of its total assets in
Allocation return equity securities and 30-50% in fixed income securities.
</TABLE>
Principal Investment Strategies:
The AST Cohen & Steers Realty Portfolio pursues its investment objective of
maximizing total return by seeking, with approximately equal emphasis, capital
growth and current income. Under normal circumstances, the Portfolio will invest
substantially all of its assets in the equity securities of real estate
companies. Such equity securities will consist of common stocks, rights or
warrants to purchase common stocks, securities convertible into common stocks
where the conversion feature represents, in the Sub-advisor's view, a
significant element of the securities' value, and preferred stocks.
For purposes of the Portfolio's investment policies, a "real estate company" is
one that derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of real estate or that has at least 50% of its
assets in real estate. The Portfolio may invest up to 10% of its total assets in
securities of foreign real estate companies. Real estate companies may include
real estate investment trusts ("REITs"). REITs pool investors' funds for
investment primarily in income producing real estate or real estate related
loans or interests.
The AST American Century Income & Growth Portfolio's investment strategy
utilizes quantitative management techniques in a two-step process that draws
heavily on computer technology. In the first step, the Sub-advisor ranks stocks,
primarily the 1,500 largest publicly traded U.S. companies (measured by market
capitalization), from most attractive to least attractive. These rankings are
determined by using a computer model that combines measures of a stock's value
and measures of its growth potential. To measure value, the Sub-advisor uses
ratios of stock price to book value and stock price to cash flow, among others.
To measure growth, the Sub-advisor uses, among others, the rate of growth in a
company's earnings and changes in its earnings estimates.
In the second step, the Sub-advisor uses a technique called portfolio
optimization. In portfolio optimization, the Sub-advisor uses a computer to
build a portfolio of stocks from the ranking described earlier that it thinks
will provide the best balance between risk and expected return. The goal is to
create an equity portfolio that provides better returns than the S&P 500 Index
without taking on significant additional risk. The Sub-advisor attempts to
create a dividend yield for the Portfolio that will be greater than that of the
S&P 500.
The AST Lord Abbett Growth and Income Portfolio normally will invest in common
stocks (and securities convertible into common stocks). The Sub-advisor will
take a value-oriented approach, in that it will try to keep the Portfolio's
assets invested in securities that are selling at reasonable prices in relation
to their 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 that it believes will benefit most from these changes.
The stocks that the Portfolio will normally invest in are those of seasoned
companies that are expected to show above-average growth and that the
Sub-advisor believes are in sound financial condition. The Sub-advisor will be
constantly balancing the opportunity for profit against the risk of loss for the
Portfolio. 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 that the Sub-advisor believes offer better values.
The AST INVESCO Equity Income Portfolio seeks to achieve its objective by
investing in securities that will provide a relatively high yield and stable
return and that, over a period of years, may also provide capital appreciation.
The Portfolio normally will invest at least 65% of its assets in dividend-paying
common stocks of domestic and foreign issuers. Up to 10% of the Portfolio's
assets may be invested in equity securities that do not pay regular dividends.
In addition, the Portfolio normally will have some portion of its assets
invested in debt securities, convertible bonds, or preferred stocks.
The AST AIM Balanced Portfolio attempts to meet its objective by investing,
normally, a minimum of 30% and a maximum of 70% of its total assets in equity
securities and a minimum of 30% and a maximum of 70% of its total assets in
non-convertible debt securities. The Portfolio may invest up to 25% of its total
assets in convertible securities. The Portfolio may invest up to 10% of its
total assets in high-yield debt securities rated below investment grade or
deemed to be of comparable quality ("junk bonds"). The Portfolio may also invest
up to 20% of its total assets in foreign securities.
In selecting the percentages of assets to be invested in equity or debt
securities, the Sub-advisor considers such factors as general market and
economic conditions, as well as market, economic and industry trends, yields,
interest rates and changes in fiscal and monetary policies. The Sub-advisor will
primarily purchase equity securities for growth of capital and debt securities
for income purposes. However, the Sub-advisor will focus on companies whose
securities have the potential for both capital appreciation and income
generation. The Sub-advisor considers whether to sell a security when it
believes that the security no longer has that potential.
The Sub-advisor to the AST American Century Strategic Balanced Portfolio intends
to maintain approximately 60% of the Portfolio's assets in equity securities and
the remainder in bonds and other fixed income securities. With the equity
portion of the Portfolio, the Sub-advisor utilizes quantitative management
techniques in a two-step process that draws heavily on computer technology. In
the first step, the Sub-advisor ranks stocks, primarily the 1,500 largest
publicly traded U.S. companies as measured by market capitalization. These
rankings are determined by using a computer model that combines measures of a
stock's value and measures of its growth potential. To measure value, the
Sub-advisor uses ratios of stock price to book value and stock price to cash
flow, among others. To measure growth, the Sub-advisor uses, among others, the
rate of growth in a company's earnings and changes in its earnings estimates.
In the second step, the Sub-advisor uses a technique called portfolio
optimization. In portfolio optimization, the Sub-advisor uses a computer to
build a portfolio of stocks from the ranking described earlier that it thinks
will provide the best balance between risk and expected return. The goal is to
create an equity portfolio that provides better returns than the S&P 500 Index
without taking on significant additional risk.
The Sub-advisor intends to maintain approximately 80% of the Portfolio's fixed
income assets in domestic fixed income securities and approximately 20% in
foreign fixed income securities. This percentage will fluctuate and may be
higher or lower depending on the mix the Sub-advisor believes will be most
appropriate for achieving the Portfolio's objectives. The fixed income portion
of the Portfolio is invested in a diversified portfolio of government
securities, corporate fixed income securities, mortgage-backed and asset-backed
securities, and similar securities. The Sub-advisor's strategy is to actively
manage the Portfolio by investing the Portfolio's fixed income assets in sectors
it believes are undervalued (relative to the other sectors) and which represent
better relative long-term investment opportunities.
The Sub-advisor will adjust weighted average portfolio maturity in response to
expected changes in interest rates. Under normal market conditions, the weighted
average maturity of the fixed income portion of the Portfolio will range from 3
to 10 years.
The AST T. Rowe Price Asset Allocation Portfolio normally invests approximately
60% of its total assets in equity securities and 40% in fixed income securities.
This mix may vary over shorter time periods; the equity portion may range
between 50-70% and the fixed income portion between 30-50%.
The Sub-advisor concentrates common stock investments in larger, more
established companies, but the Portfolio may include small and medium-sized
companies with good growth prospects. The Portfolio's exposure to smaller
companies is not expected to be substantial, and will not constitute more than
30% of the equity portion of the Portfolio. Up to 35% of the equity portion may
be invested in foreign (non-U.S. dollar denominated) equity securities. The
fixed income portion of the Portfolio will be allocated among investment grade
securities (50-100% of the fixed income portion); high yield or "junk" bonds (up
to 30%); foreign (non-U.S. dollar denominated) high quality debt securities (up
to 30%); and cash reserves (up to 20%).
Bond investments may include U.S. Treasury and agency issues, corporate debt
securities, mortgage-backed securities (including derivatives such as
collateralized mortgage obligations and stripped mortgage-backed securities) and
asset-backed securities. While the weighted average maturities of each component
of the fixed income portion (i.e., investment grade, high yield, etc.) of the
Portfolio will differ, the weighted average maturity of the fixed income portion
as a whole (except for the cash reserves component) is expected to be in the
range of 7 to 12 years.
The precise mix of equity and fixed income investments will depend on the
Sub-advisor's outlook for the markets. The Portfolio's investments in foreign
equity and debt securities are intended to provide additional diversification,
and the Sub-advisor will normally have at least three different countries
represented in both the foreign equity and foreign debt portions of the
Portfolio.
Securities may be sold for a variety of reasons, such as to effect a change in
asset allocation, to secure gains or limit losses, or to re-deploy assets to
more promising opportunities.
Principal Risks:
o Both equity securities (e.g., stocks) and fixed income securities (e.g.,
bonds) can decline in value, and the primary risk of each of the growth and
income portfolios is that the value of the securities they hold will
decline. The degree of risk to which the growth and income portfolios are
subject is likely to be somewhat less than a portfolio investing
exclusively for capital growth. Nonetheless, the share prices of the growth
and income portfolios can decline substantially.
o The AST Cohen & Steers Realty Portfolio, the AST American Century Income &
Growth Portfolio, and the AST Lord Abbett Growth and Income Portfolio
invest primarily in equity securities. The AST INVESCO Equity Income
Portfolio invests primarily in equity securities, but will normally invest
some of its assets in fixed income securities. The AST AIM Balanced
Portfolio, the AST American Century Strategic Balanced Portfolio, and the
AST T. Rowe Price Asset Allocation Portfolio generally invest in both
equity and fixed income securities. The values of equity securities tend to
fluctuate more widely than the values of fixed income securities.
Therefore, those growth and income portfolios that invest primarily in
equity securities will likely be subject to somewhat higher risk than those
portfolios that invest in both equity and fixed income securities.
o Each of the Portfolios that makes significant investments in fixed income
securities may invest to some degree in lower-quality fixed income
securities, which are subject to greater risk that the issuer may fail to
make interest and principal payments on the securities when due. Each of
these Portfolios generally invests in intermediate- to long-term fixed
income securities. Fixed income securities with longer maturities are
generally subject to greater risk than fixed income securities with shorter
maturities, in that their values will fluctuate more in response to changes
in market interest rates.
o The AST Cohen & Steers Realty Portfolio is subject to an additional risk
factor because it is less diversified than most equity funds and could
therefore experience sharp price declines when conditions are unfavorable
in the real estate sector. Real estate securities may be subject to risks
similar to those associated with direct ownership of real estate. These
include risks related to economic conditions, heavy cash flow dependency,
overbuilding, extended vacancies of properties, changes in neighborhood
values, and zoning, environmental and housing regulations.
<PAGE>
<TABLE>
<CAPTION>
Fixed Income Portfolios:
<S> <C> <C>
Portfolio: Investment Goal: Primary Investments:
T. Rowe Price High current income and The Portfolio invests primarily in high-quality foreign
International Bond capital growth government and corporate bonds.
Federated High Yield High current income The Portfolio invests primarily in lower-quality fixed income
securities.
PIMCO Total Return Bond Maximize total return, The Portfolio invests primarily in higher-quality fixed
consistent with income securities of varying maturities, so that the
preservation of capital Portfolio's expected average duration will be from three to six years.
PIMCO Limited Maturity Bond Maximize total return, The Portfolio invests primarily in higher-quality fixed
consistent with income securities of varying maturities, so that
the preservation of capital Portfolio's expected average duration will be from one to three years.
Money Market Maximize current income The Portfolio invests in high-quality, short-term, U.S.
and maintain high levels dollar-denominated instruments.
of liquidity
</TABLE>
Principal Investment Strategies:
To achieve its objectives, the AST T. Rowe Price International Bond
Portfolio will invest at least 65% of its assets in high-quality, non-U.S.
dollar denominated government and corporate bonds. The Portfolio seeks to
moderate price fluctuation by actively managing its maturity structure and
currency exposure. The Sub-advisor bases its investment decisions on fundamental
market factors, currency trends, and credit quality. The Portfolio generally
invests in countries where the combination of fixed-income returns and currency
exchange rates appears attractive, or, if the currency trend is unfavorable,
where the Sub-advisor believes that the currency risk can be minimized through
hedging.
Although the Portfolio expects to maintain an intermediate-to-long
weighted average maturity, there are no maturity restrictions on the overall
portfolio or on individual securities. While the Portfolio may engage in foreign
currency transactions such as forward foreign currency exchange contracts, the
Portfolio normally does not hedge its foreign currency exposure back to the
dollar. Nor will the Portfolio normally involve more than 50% of its total
assets in hedging Portfolio holdings against other foreign currencies
("cross-hedging"). The Sub-advisor attempts to reduce currency risks through
diversification among foreign securities and active management of maturities and
currency exposures.
The Portfolio may also invest up to 20% of its assets in below
investment-grade, high-risk bonds ("junk bonds"), including bonds in default or
those with the lowest rating. Defaulted bonds are acquired only if the
Sub-advisor foresees the potential for significant capital appreciation. Up to
20% of the Portfolio's assets may be invested in foreign bonds denominated in
U.S. dollars, including certain emerging market bonds.
The AST Federated High Yield Portfolio will invest at least 65% of its assets in
lower-rated corporate fixed income securities ("junk bonds"). These fixed income
securities may include preferred stocks, convertible securities, bonds,
debentures, notes, equipment lease certificates and equipment trust
certificates. The securities in which the Portfolio invests usually will be
rated below the three highest rating categories of a nationally recognized
rating organization (AAA, AA, or A for Standard & Poor's Corporation ("Standard
& Poor's") and Aaa, Aa or A for Moody's Investors Service, Inc. ("Moody's")) or,
if unrated, are of comparable quality. There is no lower limit on the rating of
securities in which the Portfolio may invest.
Methods by which the Sub-advisor attempts to reduce the risks involved in
lower-rated securities include:
Credit Research. The Sub-advisor will perform its own credit analysis
in addition to using rating organizations and other sources, and may have
discussions with the issuer's management or other investment analysts regarding
issuers. The Sub-advisor's credit analysis will consider the issuer's financial
soundness, its responsiveness to changing business and market conditions, and
its anticipated cash flow and earnings. In evaluating an issuer, the Sub-advisor
places special emphasis on the estimated current value of the issuer's assets
rather than their historical cost.
Diversification. The Sub-advisor invests in securities of many different
issuers, industries, and economic sectors.
Economic Analysis. The Sub-advisor will analyze current developments and
trends in the economy and in the financial markets.
The AST PIMCO Total Return Bond Portfolio will invest at least 65% of its
assets in the following types of fixed income securities:
(1) securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
(2) corporate debt securities, including convertible securities and
commercial paper;
(3) mortgage and other asset-backed securities;
(4) structured notes, including hybrid or "indexed" securities, and loan
participations;
(5) delayed funding loans and revolving credit securities;
(6) bank certificates of deposit, fixed time deposits and bankers'
acceptances;
(7) repurchase agreements and reverse repurchase agreements;
(8) obligations of foreign governments or their subdivisions, agencies and
instrumentalities; and
(9) obligations of international agencies or supranational entities.
Portfolio holdings will be concentrated in areas of the bond market that the
Sub-advisor believes to be relatively undervalued. In selecting fixed income
securities, the Sub-advisor uses economic forecasting, interest rate
anticipation, credit and call risk analysis, foreign currency exchange rate
forecasting, and other securities 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 management of duration is one of the fundamental tools
used by the Sub-advisor.
The Portfolio will invest in fixed-income securities of varying maturities. The
average portfolio duration of the Portfolio generally will vary within a three-
to six-year time frame based on the Sub-advisor's forecast for interest rates.
The Portfolio can and routinely does invest in certain complex fixed income
securities (including mortgage-backed and asset-backed securities) and engage in
a number of investment practices (including futures, swaps and dollar rolls)
that many other fixed income funds do not utilize. The Portfolio may invest up
to 10% of its assets in fixed income securities that are rated below investment
grade ("junk bonds") (or, if unrated, determined by the Sub-advisor to be of
comparable quality).
The AST PIMCO Limited Maturity Bond Portfolio will invest at least 65% of
its assets in the following types of fixed income securities:
(1) securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
(2) corporate debt securities, including convertible securities and
commercial paper;
(3) mortgage and other asset-backed securities;
(4) structured notes, including hybrid or "indexed" securities, and loan
participations;
(5) delayed funding loans and revolving credit securities;
(6) bank certificates of deposit, fixed time deposits and bankers'
acceptances;
(7) repurchase agreements and reverse repurchase agreements;
(8) obligations of foreign governments or their subdivisions, agencies and
instrumentalities; and
(9) obligations of international agencies or supranational entities.
Portfolio holdings will be concentrated in areas of the bond market that the
Sub-advisor believes to be relatively undervalued. In selecting fixed income
securities, the Sub-advisor uses economic forecasting, interest rate
anticipation, credit and call risk analysis, foreign currency exchange rate
forecasting, and other securities 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 management of duration is one of the fundamental tools
used by the Sub-advisor.
The Portfolio will invest in fixed-income securities of varying maturities. The
average portfolio duration of the Portfolio generally will vary within a one- to
three-year time frame based on the Sub-advisor's forecast for interest rates.
The Portfolio can and routinely does invest in certain complex fixed income
securities (including mortgage-backed and asset-backed securities) and engage in
a number of investment practices (including futures, swaps and dollar rolls)
that many other fixed income funds do not utilize. The Portfolio may invest up
to 10% of its assets in fixed income securities that are rated below investment
grade ("junk bonds") (or, if unrated, determined by the Sub-advisor to be of
comparable quality).
The AST Money Market Portfolio will invest in high-quality, short-term, U.S.
dollar denominated corporate, bank and government obligations. Under the
regulatory requirements applicable to money market funds, the Portfolio must
maintain a weighted average portfolio maturity of not more than 90 days and
invest in securities that have effective maturities of not more than 397 days.
In addition, the Portfolio will limit its investments to those securities that,
in accordance with guidelines adopted by the Directors of the Company, present
minimal credit risks. The Portfolio will not purchase any security (other than a
United States Government security) unless:
(1) if rated by only one nationally recognized statistical rating
organization (such as Moody's and Standard & Poor's), such
organization has rated it with the highest rating assigned to
short-term debt securities;
(2) if rated by more than one nationally recognized statistical rating
organization, at least two rating organizations have rated it with the
highest rating assigned to short-term debt securities; or
(3) it is not rated, but is determined to be of comparable quality in
accordance with the guidelines noted above.
Principal Risks:
o The risk of a fund or portfolio investing primarily in fixed income
securities is determined largely by the quality and maturity
characteristics of its portfolio securities. Lower-quality fixed income
securities are subject to greater risk that the company may fail to make
interest and principal payments on the securities when due. Fixed income
securities with longer maturities (or durations) are generally subject to
greater risk than securities with shorter maturities, in that their values
will fluctuate more in response to changes in market interest rates.
o While the AST T. Rowe Price International Bond Portfolio invests primarily
in high-quality fixed income securities, its focus on foreign fixed income
securities and relatively long average maturity will tend to increase its
level of risk. Like foreign equity investments, foreign fixed income
investments involve risks such as fluctuations in currency exchange rates,
unstable political and economic structures, reduced availability of
information, and lack of uniform financial reporting and regulatory
practices such as those that apply to U.S. issuers. The AST T. Rowe Price
International Bond Portfolio can invest to some degree in securities of
issuers in developing countries, and the risks of foreign investing may be
accentuated by these holdings.
o As a fund that invests primarily in lower-quality fixed income securities,
the AST Federated High Yield Portfolio will be subject to a level of risk
that is high relative to other fixed income funds, and which may be
comparable to or higher than some equity funds. Like equity securities,
lower-quality fixed income securities tend to reflect short-term market
developments to a greater extent than higher-quality fixed income
securities. An economic downturn may adversely affect the value of
lower-quality securities, and the trading market for such securities is
generally less liquid than the market for higher-quality securities.
o As portfolios that invest primarily in high-quality fixed income securities
of medium duration, the level of risk to which the AST PIMCO Total Return
Bond Portfolio and AST PIMCO Limited Maturity Bond Portfolio are subject
can be expected to be less than most equity funds. Nonetheless, the fixed
income securities held by these Portfolios can decline in value because of
changes in their quality, in market interest rates, or for other reasons.
Because the average duration of the AST PIMCO Total Return Bond Portfolio
generally will be longer than that of the AST PIMCO Limited Maturity Bond
Portfolio, it is expected that the former Portfolio will be subject to a
greater level of risk. While the complex fixed income securities invested
in and investment practices engaged in by both Portfolios are designed to
increase its return or hedge its investment, these securities and practices
may increase the risk to which the Portfolio is subject.
o The AST Money Market Portfolio seeks to preserve the value of your
investment at $1.00 per share, but it is still possible to lose money by
investing in the Portfolio. An investment in the Portfolio is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. In addition, the income earned by the Portfolio will
fluctuate based on market conditions and other factors.
<PAGE>
Past Performance
The Bar chart shows the performance of each Portfolio for each full
calendar year the Portfolio has been in operation. The tables below each bar
chart show each such Portfolio's best and worst quarters during the periods
included in the bar chart, as well as average annual total returns for each
Portfolio since inception. This information may help provide an indication of
each Portfolio's risks by showing changes in performance from year to year and
by comparing the Portfolio's performance with that of a broad-based securities
index. The performance figures do not reflect any charges associated with the
variable insurance contracts through which Portfolio shares are purchased; and
would be lower if they did. All figures assume reinvestment of dividends. Past
performance does not necessarily indicate how a Portfolio will perform in the
future.
AST Founders Passport Portfolio*
_________________________
60.00%
40.00%
16.91% 20.00%
13.93% 10.92%
0.00%
_________________________-20.00%
1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 13.90%, 1st quarter 1998 Down 20.03%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Morgan Stanley Capital
For periods ending International (MSCI) EAFE
12/31/98 Index
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 10.92% 20.00%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since inception 7.86% 8.73%
---------------------- --------------------- ----------------------------
*Prior to October 15, 1996, the AST Founders Passport Portfolio was known
as the Seligman Henderson International Small-Cap Portfolio, and Seligman
Henderson Co. served as Sub-advisor to the Portfolio.
<PAGE>
AST T. Rowe Price International Equity Portfolio
60.00%
14.03% 40.00%
11.09% 14.17% 20.00%
1.36% 0.00%
__________________________________-20.00%
1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 16.94%, 4th quarter 1998 Down 13.58%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- -------------------- -----------------------------
Average annual total Portfolio Index:
returns Morgan Stanley Capital
For periods ending International (MSCI) EAFE
12/31/98 Index
---------------------- -------------------- -----------------------------
---------------------- -------------------- -----------------------------
1 year 14.03% 20.00%
---------------------- -------------------- -----------------------------
---------------------- -------------------- -----------------------------
Since Inception 7.12% 9.16%
---------------------- -------------------- -----------------------------
AST AIM International Equity Portfolio*
__________________________________________________________
60.00%
36.11% 40.00%
18.15% 20.10% 20.00%
7.01% 10.00% 9.65%
-2.97% -8.35% 2.64% 0.00%
_____________________________________________________________-20.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 23.21%, 4th quarter 1998 Down 19.79%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Morgan Stanley Capital
For periods ending International (MSCI) EAFE
12/31/98 Index
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 20.10% 20.00%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
5 year 11.93% 8.75%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 7.12% 9.16%
---------------------- --------------------- ----------------------------
*As of May 4, 1999, A I M Capital Management, Inc. will serve as
Sub-advisor for the AST AIM International Equity Portfolio. Prior to that time,
Putnam Investment Management, Inc. served as Sub-advisor to the Portfolio, which
was known as the AST Putnam International Equity Portfolio.
AST Janus Overseas Growth Portfolio
_________________________
60.00%
40.00%
18.70% 20.00%
16.22%
0.00%
_________________________-20.00%
1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 15.85%, 4th quarter 1998 Down 18.54%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Morgan Stanley Capital
For periods ending International (MSCI) EAFE
12/31/98 Index
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 16.22% 20.00%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since inception 17.45% 10.45%
---------------------- --------------------- ----------------------------
AST American Century International Growth Portfolio
_________________________
60.00%
40.00%
18.68% 20.00%
15.10%
0.00%
_________________________-20.00%
1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 17.90%, 1st quarter 1998 Down 17.66%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Morgan Stanley Capital
For periods ending International (MSCI) EAFE
12/31/98 Index
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 18.68% 20.00%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 16.88% 10.45%
---------------------- --------------------- ----------------------------
AST Janus Small-Cap Growth Portfolio*
____________________________________
60.00%
32.65% 40.00%
20.05% 20.00%
8.40% 6.01% 3.48%
0.00%
____________________________________-20.00%
1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 31.12%, 4th quarter 1998 Down 23.95%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 3.49% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
5 year 13.62% 24.06%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 13.62% 24.06%
---------------------- --------------------- ----------------------------
*Prior to January 1, 1999, the AST Janus Small-Cap Portfolio was known as
the Founders International Equity Portfolio, and Founders Asset Management LLC
served as Sub-advisor to the Portfolio.
AST Lord Abbett Small Cap Value Portfolio
_________________________
60.00%
40.00%
20.00%
-0.10% 0.00%
___________________________-20.00%
1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 18.22%, 4th quarter 1998 Down 22.12%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year -0.10% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception -0.10% 28.57%
---------------------- --------------------- ----------------------------
AST T. Rowe Price Small Company Value Portfolio
_________________________
60.00%
40.00%
28.80% 20.00%
-10.53% 0.00%
_________________________-20.00%
1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 15.42%, 2nd quarter 1997 Down 19.88%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year -10.53% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 7.35% 30.77%
---------------------- --------------------- ----------------------------
AST Neuberger Berman Mid-Cap Growth Portfolio*
_______________________________
60.00%
40.00%
24.42% 20.65% 20.00%
16.34% 16.68%
0.00%
______________________________-20.00%
1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 28.14%, 4th quarter 1998 Down 20.62%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 20.65% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 18.37% 28.30%
---------------------- --------------------- ----------------------------
*Prior to May 1, 1998, the AST Neuberger Berman Mid-Cap Growth Portfolio
was known as the Berger Capital Growth Portfolio, and Berger Associates, Inc.
served as Sub-advisor to the Portfolio.
AST Neuberger Berman Mid-Cap Value Portfolio*
___________________________________
60.00%
40.00%
26.13% 26.42% 20.00%
11.53%
- -6.95% -2.33% 0.00%
___________________________________ -20.00%
1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 15.95%, 4th quarter 1998 Down 14.02%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year -2.33% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
5 year 10.08% 24.06%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 10.31% 22.62%
---------------------- --------------------- ----------------------------
*Prior to May 1, 1998, the AST Neuberger Berman Mid-Cap Value Portfolio was
known as the Federated Utility Income Portfolio, and Federated Investment
Counseling served as Sub-advisor to the Portfolio.
AST T. Rowe Price Natural Resources Portfolio
_________________________
60.00%
30.74% 40.00%
20.00%
11.83%
-3.39% 0.00%
_________________________-20.00%
1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 13.45%, 3rd quarter 1997 Down 14.04%, 4th quarter 1997
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year -11.83% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 7.95% 29.29%
---------------------- --------------------- ----------------------------
AST Oppenheimer Large-Cap Growth Portfolio*
60.00%
27.34% 40.00%
20.00%
14.83%
0.00%
_________________________-20.00%
1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 24.19%, 4th quarter 1998 Down 14.56%, 4th quarter 1997
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 27.34% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 19.45% 28.90%
---------------------- --------------------- ----------------------------
*Prior to December 31, 1998, the AST Oppenheimer Large-Cap Growth Portfolio
was known as the Robertson Stephens Value + Growth Portfolio, and Robertson
Stephens & Company served as Sub-advisor to the Portfolio.
AST Marsico Capital Growth Portfolio
60.00%
41.59%
40.00%
20.00%
0.00%
_________________________-20.00%
1998
------------------------------------- -------------------------------------
Best Quarter Worst Quarter
------------------------------------- -------------------------------------
------------------------------------- -------------------------------------
Up 23.37%, 4th quarter 1998 Down 12.80%, 3rd quarter 1998
------------------------------------- -------------------------------------
----------------------- --------------------- -----------------------------
Average annual total Portfolio Index:
returns for periods ending Standard & Poors 500 Index
12/31/98
---------------------------- --------------------- ------------------------
---------------------------- --------------------- ------------------------
1 year 41.59% 28.57%
---------------------------- --------------------- ------------------------
---------------------------- --------------------- ------------------------
Since Inception 40.69% 31.86%
---------------------------- --------------------- ------------------------
<PAGE>
AST JanCap Growth Portfolio
_________________________________________________
68.26% 60.00%
40.00%
11.87% 37.98% 28.66% 20.00%
28.36%
-4.51% 0.00%
________________________________________________-20.00%
1993 1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 32.62%, 4th quarter 1998 Down 5.95%, 2nd quarter 1994
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 68.26% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
5 year 29.63% 24.06%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 26.80% 21.88%
---------------------- --------------------- ----------------------------
AST Banker Trust Enhanced 500 Portfolio
_________________________
60.00%
40.00%
27.90% 20.00%
0.00%
_________________________-20.00%
1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 21.58%, 4th quarter 1998 Down 10.09%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 27.90% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 27.81% 28.57%
---------------------- --------------------- ----------------------------
AST Cohen & Steers Realty Portfolio
AST COHEN & STEERS REALTY PORTFOLIO
_________________________
60.00%
40.00%
20.00%
0.00%
-16.00%
_________________________-20.00%
1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up -0.71%, 4th quarter 1998 Down 10.76%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns NAREIT Equity REIT Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year -16.00% -17.50%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception -15.96% -17.50%
---------------------- --------------------- ----------------------------
AST American Century Income & Growth Portfolio*
60.00%
40.00%
22.30% 12.27% 20.00%
0.00%
_________________________-20.00%
1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 16.72%, 4th quarter 1998 Down 11.30%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 12.27% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 17.18% 30.77%
---------------------- --------------------- ----------------------------
*As of May 4, 1999, American Century Investment Management, Inc. will serve
as Sub-advisor for the AST American Century Income & Growth Portfolio. Prior to
that time, Putnam Investment Management, Inc. served as Sub-advisor to the
Portfolio, which was known as the AST Putnam Value Growth and Income Portfolio.
AST Lord Abbett Growth and Income Portfolio
_________________________________________________
60.00%
12.48% 40.00%
13.69% 28.91% 23.92% 20.00%
18.56%
2.22% 0.00%
________________________________________________-20.00%
1993 1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 16.94%, 4th quarter 1998 Down 12.26%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 12.48% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
5 year 16.84% 24.06%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 15.71% 20.49%
---------------------- --------------------- ----------------------------
AST INVESCO Equity Income Portfolio
_________________________________________________
60.00%
40.00%
30.07% 23.33% 20.00%
17.09% 13.34%
-2.50% 0.00%
________________________________________________-20.00%
1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 12.32%, 4th quarter 1998 Down 8.68%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 13.34% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
5 year 15.74% 24.06%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 15.74% 24.06%
---------------------- --------------------- ----------------------------
AST AIM Balanced Portfolio*
________________________________________________ 60.00%
40.00%
22.60% 26.42% 20.00%
11.23% 12.86%
0.09% 0.00%
________________________________________________-20.00%
1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 11.88%, 4th quarter 1998 Down 7.13%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Standard & Poors 500 Index
For periods ending
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 12.86% 28.57%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
5 year 12.75% 24.06%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 12.26% 22.62%
---------------------- --------------------- ----------------------------
*As of May 4, 1999, A I M Capital Management, Inc. will serve as
Sub-advisor for the AST AIM Balanced Portfolio. From October 15, 1996 until May
3, 1999, Putnam Investment Management, Inc. served as Sub-advisor to the
Portfolio, which was known as the AST Putnam International Equity Portfolio.
Prior to October 15, 1996, the Portfolio was known as the AST Phoenix Balanced
Asset Portfolio and Phoenix Investment Counsel, Inc. served as Sub-advisor.
AST American Century Strategic Balanced Portfolio
AST AMERICAN CENTURY STRATEGIC BALANCED PORTFOLIO
_________________________
60.00%
40.00%
21.29% 20.00%
13.40%
0.00%
_________________________-20.00%
1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 14.12%, 4th quarter 1998 Down 6.56%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Blended Index (60%
For periods ending Standard & Poors 500, 40%
12/31/98 Lehman Brothers Government/
Corporate Index)
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 21.29% 21.35%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 17.28% 22.47%
---------------------- --------------------- ----------------------------
AST T. Rowe Price Asset Allocation Portfolio
_________________________________________________
60.00%
40.00%
23.36% 18.40% 18.36% 20.00%
12.14%
-0.60% 0.00%
________________________________________________-20.00%
1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 11.92%, 4th quarter 1998 Down 4.58%, 3rd quarter 1998
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Blended Index (60%
For periods ending Standard & Poors 500, 40%
12/31/98 Lehman Brothers Government/
Corporate Index)
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 18.36% 21.35%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
5 year 14.24% 17.28%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 14.24% 17.28%
---------------------- --------------------- ----------------------------
AST T. Rowe Price Interational Bond Portfolio*
_________________________________________________
60.00%
14.72% 40.00%
11.10% 20.00%
5.98%
-3.42% 0.00%
________________________________________________-20.00%
1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 6.31%, 4th quarter 1998 Down 5.43%, 1st quarter 1997
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns J.P. Morgan Non-U.S.
For periods ending Government Bond Index
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 14.72% 18.31%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 5.13% 9.06%
---------------------- --------------------- ----------------------------
*Prior to May 1, 1996, the AST T. Rowe Price International Bond Portfolio
was known as the AST Scudder International Bond Portfolio, and Scudder, Stevens
& Clark, Inc. served as Sub-advisor to the Portfolio.
AST Federated High Yield Bond Portfolio
_________________________________________________
60.00%
40.00%
19.57% 20.00%
13.58% 13.58%
-3.10% 2.61% 0.00%
________________________________________________-20.00%
1994 1995 1996 1997 1998
-------------------------------------- ------------------------------------
Best Quarter Worst Quarter
-------------------------------------- ------------------------------------
-------------------------------------- ------------------------------------
Up 5.73%, 1st quarter 1995 Down 4.21%, 3rd quarter 1998
-------------------------------------- ------------------------------------
--------------------- --------------------- -------------------------------
Average annual total Portfolio Index:
returns Merrill Lynch High Yield Index
For periods ending
12/31/98
--------------------- --------------------- -------------------------------
--------------------- --------------------- -------------------------------
1 year 2.61% 3.86%
--------------------- --------------------- -------------------------------
--------------------- --------------------- -------------------------------
5 year 8.94% 9.30%
--------------------- --------------------- -------------------------------
--------------------- --------------------- -------------------------------
Since Inception 8.94% 9.30%
--------------------- --------------------- -------------------------------
AST PIMCO Total Return Bond Portfolio
_________________________________________________
60.00%
40.00%
18.78% 9.87% 9.46% 20.00%
3.42%
-2.40% 0.00%
________________________________________________-20.00%
1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 5.07%, 3rd quarter 1998 Down 2.54%, 1st quarter 1996
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns LB
For periods ending Aggregate Index
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 9.46% 8.69%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
5 year 7.58% 7.26%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 7.58% 7.26%
---------------------- --------------------- ----------------------------
AST PIMCO Limited Maturity Bond Portfolio
________________________________________
60.00%
40.00%
20.00%
7.46% 5.72%
3.90% 0.00%
________________________________________-20.00%
1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 2.95%, 4th quarter 1998 Down 0.52%, 1st quarter 1996
------------------------------------- -----------------------------------
---------------------- --------------------- ----------------------------
Average annual total Portfolio Index:
returns Merrill Lynch 1-3 Year
For periods ending Index
12/31/98
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
1 year 5.72% 7.00%
---------------------- --------------------- ----------------------------
---------------------- --------------------- ----------------------------
Since Inception 5.94% 6.95%
---------------------- --------------------- ----------------------------
AST Money Market Portfolio
_________________________________________________
60.00%
40.00%
20.00%
3.75% 5.05% 5.08% 5.18% 5.14%
2.55% 0.00%
________________________________________________-20.00%
1993 1994 1995 1996 1997 1998
------------------------------------- -----------------------------------
Best Quarter Worst Quarter
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Up 1.38%, 2nd quarter 1995 Down 0.62%, 2nd quarter 1993
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
7-day yield (as of 12/31/98) 4.78%
------------------------------------- -----------------------------------
<PAGE>
FEES AND EXPENSES OF THE PORTFOLIOS: The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Portfolios. Unless
otherwise indicated, the expenses shown below are for the year ending December
31, 1998.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment):
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases NONE*
Maximum Deferred Sales Charge (Load) NONE*
Maximum Sales Charge (Load) Imposed on Reinvested Dividends NONE*
Redemption Fees NONE*
Exchange Fee NONE*
</TABLE>
* Because shares of the Portfolios may be purchased through variable insurance
products, the prospectus of the relevant product should be carefully reviewed
for information on the charges and expenses of those products. This table does
not reflect any such charges.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Portfolio
assets, in %):
Management Other Total Annual Fee Waivers Net Annual
Fees Expenses Portfolio and Expense Fund
Operating Reimbursement(5) Operating
Expenses Expenses
Portfolio:
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AST Founders Passport 1.00 0.30 1.30 N/A 1.30
AST T. Rowe Price International Equity 1.00 0.25 1.25 N/A 1.25
AST AIM International Equity 0.87 0.26 1.13 N/A 1.13
AST Janus Overseas Growth 1.00 0.27 1.27 N/A 1.27
AST American Century International 1.00 0.65 1.65 N/A 1.65
Growth
AST Janus Small-Cap Growth 0.90 0.22 1.12 N/A 1.12
AST Kemper Small-Cap Growth(1) 0.95 0.60 1.55 0.20 1.35
AST Lord Abbett Small Cap Value 0.95 0.36 1.31 N/A 1.31
AST T. Rowe Price Small Company Value 0.90 0.21 1.11 N/A 1.11
AST Neuberger Berman Mid-Cap Growth(2) 0.90 0.17 1.07 N/A 1.07
AST Neuberger Berman Mid-Cap Value(3) 0.90 0.15 1.05 N/A 1.05
AST T. Rowe Price Natural Resources 0.90 0.26 1.16 N/A 1.16
AST Oppenheimer Large-Cap Growth(4) 0.90 0.22 1.12 N/A 1.12
AST Marsico Capital Growth 0.90 0.21 1.11 N/A 1.11
AST JanCap Growth 0.90 0.14 1.04 0.02 1.02
AST Bankers Trust Enhanced 500 0.60 0.26 0.86 0.06 0.80
AST Cohen & Steers Realty 1.00 0.30 1.30 N/A 1.30
AST American Century Income & Growth 0.75 0.25 1.00 N/A 1.00
AST Lord Abbett Growth and Income 0.75 0.16 0.91 N/A 0.91
AST INVESCO Equity Income 0.75 0.18 0.93 N/A 0.93
AST AIM Balanced 0.74 0.26 1.00 N/A 1.00
AST American Century Strategic Balanced 0.85 0.28 1.13 N/A 1.13
AST T. Rowe Price Asset Allocation 0.85 0.24 1.09 N/A 1.09
AST T. Rowe Price International Bond 0.80 0.31 1.11 N/A 1.11
AST Federated High Yield 0.75 0.20 0.95 N/A 0.95
AST PIMCO Total Return Bond 0.65 0.18 0.83 N/A 0.83
AST PIMCO Limited Maturity Bond 0.65 0.21 0.86 N/A 0.86
AST Money Market 0.50 0.16 0.66 0.06 0.60
</TABLE>
(1) This Portfolio commenced operations in January 1999. "Other expenses" shown
are based on estimated amounts for the fiscal year ending December 31, 1999. (2)
Prior to May 1, 1998, the Investment Manager had engaged Berger Associates, Inc.
as Sub-advisor for the Portfolio, and the total Investment Management fee was at
the annual rate of .75% of the average daily net assets of the Portfolio. As of
May 1, 1998, the Investment Manager engaged Neuberger Berman Management
Incorporated as Sub-advisor for the Portfolio, and the Investment Management fee
is payable at the annual rate of 0.90% of the average daily net assets of the
Portfolio. The Management Fee in the above chart reflects the current Investment
Management fee payable to the Investment Manager. (3) Prior to May 1, 1998, the
Investment Manager had engaged Federated Investment Counseling as Sub-advisor
for the Portfolio, and the total Investment Management fee was at the annual
rate of .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. As of May 1, 1998, the Investment Manager engaged Neuberger Berman
Management Incorporated as Sub-advisor for the Portfolio, and the Investment
Management fee is payable at the annual rate of 0.90% of the average daily net
assets of the Portfolio. The Management Fee in the above chart reflects the
current Investment Management fee payable to the Investment Manager. (4) Prior
to December 31, 1998, the Investment Manager had engaged Robertson, Stephens &
Company Investment Management, L.P. as Sub-advisor for the Portfolio, and the
total Investment Management fee was at the annual rate of 1.00% of the average
daily net assets of the Portfolio. As of December 31, 1998, the Investment
Manager engaged OppenheimerFunds, Inc. as Sub-advisor for the Portfolio, and the
Investment Management fee is payable at the annual rate of 0.90% of the first $1
billion of the average daily net assets of the Portfolio, plus .85% of the
Portfolio's average daily net assets in excess of $1 billion. The Management Fee
in the above chart reflects the current Investment Management fee payable to the
Investment Manager. (5) The Investment Manager has agreed to reimburse and/or
waive fees for certain Portfolios. The caption "Total Annual Fund Operating
Expenses" reflects the Portfolios' fees and expenses before such waivers and
reimbursements, while the caption "Net Annual Fund Operating Expenses" reflects
the effect of such waivers and reimbursements.
<PAGE>
EXPENSE EXAMPLES:
This example is intended to help you compare the cost of investing in
the Portfolios with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Portfolio for the time
periods indicated. The Example also assumes that your investment has a 5% return
each year, that the Portfolios' total operating expenses remain the same, and
that any expense waivers and reimbursements remain in effect only for the
periods during which they are binding. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
After:
Portfolio: 1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
AST Founders Passport $132 $412 $713 $1568
AST T. Rowe Price International Equity 127 397 686 1511
AST AIM International Equity 115 359 622 1375
AST Janus Overseas Growth 129 403 697 1534
AST American Century International Growth 168 520 897 1955
AST Janus Small-Cap Growth 114 356 617 1363
AST Kemper Small-Cap Growth 137 470 N/A N/A
AST Lord Abbett Small Cap Value 133 415 718 1579
AST T. Rowe Price Small Company 113 353 612 1352
AST Neuberger Berman Mid-Cap Growth 109 340 590 1306
AST Neuberger Berman Mid-Cap Value 107 334 579 1283
AST T. Rowe Price Natural Resources 118 368 638 1409
AST Oppenheimer Large-Cap Growth 114 356 617 1363
AST Marsico Capital Growth 113 353 612 1352
AST JanCap Growth 104 329 572 1269
AST Bankers Trust Enhanced 500 82 268 471 1055
AST Cohen & Steers Realty 132 412 713 1568
AST American Century Income & Growth 102 318 552 1225
AST Lord Abbett Growth and Income 93 290 504 1120
AST INVESCO Equity Income 95 296 515 1143
AST AIM Balanced 102 318 552 1225
AST American Century Strategic Balanced 115 359 622 1375
AST T. Rowe Price Asset Allocation 111 347 601 1329
AST T. Rowe Price International Bond 113 353 612 1352
AST Federated High Yield 97 303 526 1166
AST PIMCO Total Return Bond 85 265 460 1025
AST PIMCO Limited Maturity Bond 88 274 477 1061
AST Money Market 61 203 357 806
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES:
The investment objective, policies and limitations for each of the
Portfolios are described below. While certain policies apply to all Portfolios,
generally each Portfolio has a different investment objective and investment
focus. As a result, the risks, opportunities and returns of investing in each
Portfolio may differ. Those investment policies specifically labeled as
"fundamental" may not be changed without shareholder approval. The investment
objectives of some of the Portfolios are not fundamental policies and may be
changed by the Trustees without shareholder approval. Similarly, most of the
Portfolios' investment policies and limitations are not fundamental policies.
There can be no assurance that the investment objective of any
Portfolio will be achieved. Risks relating to certain types of securities and
instruments in which the Portfolios may invest are described in this Prospectus
under "Certain Risk Factors and Investment Methods."
If approved by the Trustees, the Trust may add more Portfolios and may
cease to offer any existing Portfolios in the future.
<PAGE>
AST FOUNDERS PASSPORT PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth. This is a fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
To achieve its objective, the Portfolio normally invests primarily in
securities issued by foreign companies that have market capitalizations or
annual revenues of $1 billion or less. These securities may represent companies
in both established and emerging economies throughout the world.
At least 65% of the Portfolio's total assets normally will be invested
in foreign securities representing a minimum of three countries. The Portfolio
may invest in larger foreign companies or in U.S.-based companies if, in the
Sub-advisor's opinion, they represent better prospects for capital appreciation.
The Sub-advisor looks for companies whose fundamental strengths indicate
potential for growth in earnings per share. The Sub-advisor generally takes a
"bottom up" approach to building the Portfolio, searching for individual
companies that demonstrate the best potential for significant earnings growth,
rather than choose investments based on broader economic characteristics of
countries or industries.
As discussed below, foreign securities are generally considered to
involve more risk than those of U.S. companies, and securities of smaller
companies are generally considered to be riskier than those of larger companies.
Therefore, because the Portfolio's investment focus is on securities of small
and medium-sized foreign companies, the risk of loss and share price fluctuation
of this Portfolio likely will be high relative to most of the other Portfolios
of the Trust and popular market averages.
Foreign Securities. For purposes of the Portfolio, the term "foreign
securities" refers to securities of issuers, that, in the judgment of the
Sub-advisor, have their principal business activities outside of the United
States, and may include American Depositary Receipts. 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
(specifically on whether more than 50% of the issuer's assets are located, or
more than 50% of the issuer's gross income is earned, outside of the United
States) or on whether the issuer's sole or principal stock exchange listing is
outside of the United States. The foreign securities in which the Portfolio will
invest typically will be traded on the applicable country's principal stock
exchange but may also be traded on regional exchanges or over-the-counter.
Investments in foreign securities involve different risks than U.S.
investments, including fluctuations in currency exchange rates, unstable
political and economic structures, reduced availability of public information,
and lack of uniform financial reporting and regulatory practices such as those
that apply to U.S. issuers. Foreign investments of the Portfolio may include
securities issued by companies located in developing countries. Developing
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
Portfolio is permitted to use forward foreign currency contracts in connection
with the purchase or sale of a specific security or for hedging purposes.
For an additional discussion of the risks involved in foreign
securities, see this Prospectus under "Certain Risk Factors and Investment
Methods."
Small and Medium-Sized Companies. Investments in small and medium-sized
companies involve greater risk than is customarily associated with more
established companies. Generally, small and medium-sized companies are still in
the developing stages of their life cycles and are attempting to achieve rapid
growth in both sales and earnings. While these companies often have growth rates
that exceed those of large companies, smaller companies often have limited
operating histories, product lines, markets, or financial resources, and they
may be dependent upon one-person management. These companies may be subject to
intense competition from larger entities, and the securities of such companies
may have a limited market and may be subject to more abrupt or erratic movements
in price.
Other Investments:
In addition to investing in common stocks, the Portfolio may invest in
other types of securities and may engage in certain investment practices. The
Portfolio may invest in convertible securities, preferred stocks, bonds,
debentures, and other corporate obligations when the Sub-advisor believes that
these investments offer opportunities for capital appreciation. Current income
will not be a substantial factor in the selection of these securities.
The Portfolio will only invest in bonds, debentures, and corporate
obligations (other than convertible securities and preferred stock) rated
investment grade at the time of purchase. Convertible securities and preferred
stocks purchased by the Portfolio may be rated in medium and lower categories by
Moody's or S&P, but will not be rated lower than B. The Portfolio may also
invest in unrated convertible securities and preferred stocks if the Sub-advisor
believes that the financial condition of the issuer or the terms of the
securities limits risk to a level similar to that of securities rated B or
above.
In addition, the Portfolio may enter into stock index, interest rate
and foreign currency futures contracts (or options thereon) for hedging
purposes. The Portfolio may write covered call options on any or all of its
portfolio securities as the Sub-advisor considers appropriate. The Portfolio
also may purchase options on securities and stock indices for hedging purposes.
The Portfolio may buy and sell options on foreign currencies for hedging
purposes in a manner similar to that in which futures on foreign currencies
would be utilized.
For more information on these securities and investment practices and
their risks, see this Prospectus under "Certain Risk Factors and Investment
Methods."
Temporary Investments. Up to 100% of the assets of the Portfolio may be
invested temporarily in cash or cash equivalents if the Sub-advisor determines
that it would be appropriate for purposes of increasing liquidity or preserving
capital in light of market or economic conditions. Temporary investments may
include U.S. government obligations, commercial paper, bank obligations, and
repurchase agreements. While the Portfolio is in a defensive position, the
opportunity to achieve its investment objective of capital growth will be
limited.
<PAGE>
AST T. ROWE PRICE INTERNATINAL EQUITY PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek total
return 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. This is a
fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
The Sub-advisor expects to invest substantially all of the Portfolio's
assets (with a minimum of 65%) in established foreign companies. Geographic
diversification will be wide, including both developed and developing countries,
and there will normally be at least three different countries represented in the
Portfolio. Stocks can be purchased without regard to a company's market
capitalization, but the Sub-advisor's focus typically will be on large and, to a
lesser extent, medium-sized companies. Investment in foreign companies may be
made through American Depositary Receipts (ADRs) and the securities of foreign
investment funds or trusts (including passive foreign investment companies).
The Portfolio will invest in stocks that have the potential for growth
of capital or income or both. Stocks are selected by using a "bottom-up"
approach (an approach based on the Sub-advisor's fundamental research on
particular companies) in an effort to identify companies capable of achieving
and sustaining above-average long-term earnings growth. The Sub-advisor seeks to
purchase stocks at reasonable prices in relation to anticipated earnings, cash
flow or book value. Valuation factors often influence the Sub-advisor's
allocations among large-, mid-, and small-cap companies.
While bottom-up stock selection is the focus of its decision making,
the Sub-advisor also invests with an awareness of the global economic backdrop
and its outlook for individual companies. Country allocation is driven largely
by stock selection, though the Sub-advisor may limit investments in markets that
appear to have poor overall prospects.
In selecting stocks, the Sub-advisor generally favors companies with
one or more of the following characteristics:
o leading market position;
o attractive business niche;
o strong franchise or natural monopoly;
o technological leadership or proprietary advantages;
o seasoned management;
o earnings growth and cash flow sufficient to support growing dividends; and o
healthy balance sheet with relatively low debt.
As with all stock funds, the Portfolio's share price can fall because
of weakness in one or more securities markets, particular industries or specific
holdings. As a stock fund investing primarily in foreign securities, the
Portfolio may be subject to greater risk of loss and price fluctuation than
domestic funds. The risks of foreign investing, which are described in more
detail below under "Certain Risk Factors and Investment Methods," include
varying stages of economic and political development of foreign countries,
differing regulatory and accounting standards in non-U.S. markets, and higher
transaction costs. In addition, the Portfolio's investments in foreign
securities will be subject to the risks of currency fluctuations, in which a
decline in the value of a foreign currency versus the U.S. dollar can reduce the
dollar value of securities denominated in that currency. While the Portfolio may
engage in forward foreign currency exchange contracts and futures and options on
foreign currencies, the Portfolio does not engage in extensive currency hedging
under normal conditions. To the extent that the Portfolio has investments in
developing countries, the risks of foreign investing will be accentuated.
Other Investments:
In addition to common stocks, the Portfolio may also purchase a variety
of other equity-related securities, such as preferred stocks, warrants and
convertible securities, as well as investment grade corporate and governmental
debt securities, when considered consistent with the Portfolio's investment
objectives and program. The Portfolio may enter into stock index or currency
futures contracts (or options thereon) for hedging purposes or to provide an
efficient means of regulating the Portfolio's exposure to the equity markets.
The Portfolio may write covered call options and purchase put and call options
on foreign currencies, securities, and stock indices. As part of its investment
program and to maintain greater flexibility, the Portfolio may invest up to 10%
of its total assets in hybrid instruments, which combine the characteristics of
futures, options and securities. For additional information about these
investments and their risks, see this Prospectus under "Certain Risk Factors and
Investment Methods."
Temporary Investments. 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.
While the Portfolio is in a defensive position, the opportunity to achieve its
investment objective will be limited. The Portfolio's cash reserves may be
invested in high-quality domestic and foreign money market instruments. In
addition to enabling the Portfolio to take defensive positions, cash reserves
also provide flexibility in meeting redemptions and paying expenses.
<PAGE>
AST AIM INTERNATIONAL EQUITY PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth. This is a fundamental policy of the Portfolio.
Principal Investment Objectives and Risks:
The Portfolio seeks to meet its investment objective by investing,
normally, at least 70% of its assets in marketable equity securities of foreign
companies that are listed on a recognized foreign securities exchange or traded
in a foreign over-the-counter market. The Portfolio will normally invest in a
diversified portfolio that includes companies located in at least four countries
outside the United States, emphasizing investment in companies in the developed
countries of Western Europe and the Pacific Basin. The Sub-advisor does not
intend to invest more than 20% of the Portfolio's total assets in companies
located in developing countries (i.e., those that are in the initial stages of
their industrial cycles).
The Sub-advisor focuses on companies that have experienced
above-average, long-term growth in earnings and have strong prospects for future
growth. In selecting countries in which the Portfolio will invest, the
Sub-advisor also considers such factors as the prospect for relative economic
growth among countries or regions, economic or political conditions, currency
exchange fluctuations, tax considerations and the liquidity of a particular
security. The Sub-advisor considers whether to sell a particular security when
any of those factors materially changes.
As with any equity fund, the fundamental risk associated with the
Portfolio is the risk that the value of the securities it holds might decrease.
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity.
As a fund that invests primarily in the securities of foreign issuers,
the risk and degree of share price fluctuation of the Portfolio may be greater
than a fund investing primarily in domestic securities. The risks of investing
in foreign securities, which are described in more detail below under "Certain
Risk Factors and Investment Methods," include political and economic conditions
and instability in foreign countries, less available information about foreign
companies, lack of strict financial and accounting controls and standards, less
liquid and more volatile securities markets, and fluctuations in currency
exchange rates. To the extent the Portfolio invests in securities of issuers in
developing countries, the Portfolio may be subject to even greater levels of
risk and share price fluctuation. Transaction costs are often higher in
developing countries and there may be delays in settlement of transactions.
Other Investments:
The Portfolio may invest up to 20% of its total assets in debt or
preferred equity securities exchangeable for or convertible into marketable
equity securities of foreign companies. In addition, the Portfolio may regularly
invest up to 20% of its total assets in high-grade short-term debt securities,
including U.S. Government obligations, investment grade corporate bonds or
taxable municipal securities, whether denominated in U.S. dollars or foreign
currencies. The Portfolio also may purchase and write (sell) covered call and
put options on securities and stock indices. The Portfolio may also purchase and
sell stock and interest rate futures contracts and options on these futures
contracts. The purpose of these transactions is to hedge against changes in the
market value of the Portfolio's portfolio securities caused by changing interest
rates and market conditions, and to close out or offset existing positions in
options or futures contracts.
Additional information about convertible securities, options, futures
contracts and other investments that the Portfolio may make is included in this
Prospectus under "Certain Risk Factors and Investment Methods."
Short Sales "Against the Box." The Portfolio may from time to time make
short sales of securities that it owns or that it has the right to acquire
without additional payment through the conversion or exchange of other
securities it owns. This is a technique known as selling short "against the
box." In a short sale, the Portfolio does not immediately deliver the securities
sold. The Portfolio may make a short sale against the box as a hedge when it
believes that the price of a security held by the Portfolio may decline.
Temporary Investments. In addition to regularly investing up to 20% of
its total assets in short-term debt securities as noted above, the Portfolio may
hold all or a significant portion of its assets in cash, money market
instruments, bonds or other debt securities in anticipation of or in response to
adverse market conditions or for cash management purposes. While the Portfolio
is in such a defensive position, the opportunity to achieve its investment
objective of capital growth may be limited.
<PAGE>
AST JANUS OVERSEAS GROWTH PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
long-term growth of capital. This is a fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
The Portfolio pursues its objective primarily through investments in
common stocks of issuers located outside the United States. The Portfolio has
the flexibility to invest on a worldwide basis in companies and organizations of
any size, regardless of country of organization or place of principal business
activity.
The Portfolio normally invests at least 65% of its total assets in
securities of issuers from at least five different countries, excluding the
United States. Although the Portfolio intends to invest substantially all of its
assets in issuers located outside the United States, it may at times invest in
U.S. issuers and it may at times invest all of its assets in fewer than five
countries or even a single country.
The Portfolio invests primarily in stocks selected for their growth
potential. The Sub-advisor generally takes a "bottom up" approach to choosing
investments for the Portfolio. In other words, the Sub-advisor seeks to identify
individual companies with earnings growth potential that may not be recognized
by the market at large, regardless of where the companies are organized or where
they primarily conduct business. Although themes may emerge in the Portfolio,
securities are generally selected without regard to any defined allocation among
countries, geographic regions or industry sectors, or other similar selection
procedure. Current income is not a significant factor in choosing investments,
and any income realized by the Portfolio will be incidental to its objective.
As with any common stock fund, the fundamental risk associated with the
Portfolio is the risk that the value of the stocks it holds might decrease.
Stock values may fluctuate in response to the activities of an individual
company or in response to general market and/or economic conditions. As a fund
that invests primarily in the securities of foreign issuers, the risk associated
with the Portfolio may be greater than a fund investing primarily in domestic
securities. For a further discussion of the risks involved in investing in
foreign securities, see this Prospectus under "Certain Risk Factors and
Investment Methods." In addition, the Portfolio may invest to some degree in
smaller or newer issuers, which are more likely to realize substantial growth as
well as suffer significant losses than larger or more established issuers.
The Portfolio generally intends to purchase securities for long-term
investment rather than short-term gains. However, short-term transactions may
occur as the result of liquidity needs, securities having reached a desired
price or yield, anticipated changes in interest rates or the credit standing of
an issuer, or by reason of economic or other developments not foreseen at the
time the investment was made. To a limited extent, the Portfolio may purchase
securities in anticipation of relatively short-term price gains. The Portfolio
may also sell one security and simultaneously purchase the same or a comparable
security to take advantage of short-term differentials in bond yields or
securities prices.
Special Situations. The Portfolio may invest in "special situations"
from time to time. A special situation arises when, in the opinion of the
Sub-advisor, the securities of a particular issuer will be recognized and
increase in value due to a specific development with respect to that issuer.
Developments creating a special situation might include a new product or
process, a technological breakthrough, a management change or other
extraordinary corporate event, or differences in market supply of and demand for
the security. Investment in special situations may carry an additional risk of
loss in the event that the anticipated development does not occur or does not
attract the expected attention.
Other Investments:
The Portfolio may invest to a lesser degree in types of securities
other than common stocks, including preferred stocks, warrants, convertible
securities and debt securities. The Portfolio is subject to the following
percentage limitations on investing in certain types of debt securities:
-- 35% of its assets in lower-rated fixed income securities ("junk" bonds).
-- 25% of its assets in mortgage- and asset-backed securities.
-- 10% of its assets in zero coupon, pay-in-kind and step coupon
securities (securities that do not, or may not under certain circumstances, make
regular interest payments).
In addition, the Portfolio may invest in the following types of securities and
engage in the following investment techniques:
Futures, Options and Other Derivative Instruments. The Portfolio may
enter into futures contracts on securities, financial indices and foreign
currencies and options on such contracts and may invest in options on
securities, financial indices and foreign currencies, forward contracts and
interest rate swaps and swap-related products (collectively "derivative
instruments"). The Portfolio intends to use most derivative instruments
primarily to hedge the value of its portfolio against potential adverse
movements in securities prices, foreign currency markets or interest rates. To a
limited extent, the Portfolio may also use derivative instruments for
non-hedging purposes such as seeking to increase income. The Portfolio may also
use a variety of currency hedging techniques, including forward currency
contracts, to manage exchange rate risk with respect to investments exposed to
foreign currency fluctuations.
Index/structured Securities. The Portfolio may invest in
indexed/structured securities, which typically are short- to intermediate-term
debt securities whose value at maturity or interest rate is linked to
currencies, interest rates, equity securities, indices, commodity prices or
other financial indicators. Such securities may offer growth potential because
of anticipated changes in interest rates, credit standing, currency
relationships or other factors
For more information on the types of securities and instruments other
than common stocks in which the Portfolio may invest and their risks, see this
Prospectus under "Certain Risk Factors and Investment Methods."
Temporary Investments. When the Sub-advisor believes that market
conditions are not favorable for profitable investing or when the Sub-advisor is
otherwise unable to locate favorable investment opportunities, the Portfolio's
investments may be hedged to a greater degree and/or its cash or similar
investments may increase. In other words, the Portfolio does not always stay
fully invested in stocks and bonds. The Portfolio's cash and similar investments
may include high-grade commercial paper, certificates of deposit, repurchase
agreements and money market funds managed by the Sub-advisor. While the
Portfolio is in a defensive position, the opportunity to achieve its investment
objective of long-term growth of capital will be limited.
<PAGE>
AST AMERICAN CENTURY INTERNATIONAL GROWTH PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth. This is a fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
The Portfolio will seek to achieve its investment objective by
investing primarily in equity securities of international companies that the
Sub-advisor believes will increase in value over time. The Sub-advisor uses a
growth investment strategy it developed that looks for companies with earnings
and revenue growth. Ideally, the Sub-advisor looks for companies whose earnings
and revenues are not only growing, but are growing at an accelerating pace.
Accelerating growth is shown, for example, by growth that is faster this quarter
than last or faster this year than the year before. For purposes of the
Portfolio, equity securities include common stocks, preferred stocks and
convertible securities.
The Sub-advisor tracks financial information for thousands of companies
to research and select the stocks it believes will be able to sustain
accelerating growth. This strategy is based on the premise that, over the long
term, the stocks of companies with accelerating earnings and revenues have a
greater-than-average chance to increase in value.
The Sub-advisor recognizes that, in addition to locating strong
companies with accelerating earnings, the allocation of assets among different
countries and regions also is an important factor in managing an international
portfolio. For this reason, the Sub-advisor will consider a number of other
factors in making investment selections, including the prospects for relative
economic growth among countries or regions, economic and political conditions,
expected inflation rates, currency exchange fluctuations and tax considerations.
Under normal conditions, the Portfolio will invest at least 65% of its assets in
equity securities of issuers from at least three countries outside of the United
States. In order to maintain investment flexibility, the Portfolio has not
otherwise established geographic requirements for asset distribution.
While the Portfolio's focus will be on issuers in developed markets,
the Sub-advisor expects to invest to some degree in issuers in developing
countries. The Portfolio may make foreign investments either directly in foreign
securities, or indirectly by purchasing depositary receipts. Securities
purchased in foreign markets may either be traded on foreign securities
exchanges or in the over-the-counter markets.
As with all stocks, the value of the stocks held by the Portfolio can
decrease as well as increase. As a fund investing primarily in equity securities
of foreign issuers, the Portfolio may be subject to a level of risk and share
price fluctuation higher than most funds that invest primarily in domestic
equities. Foreign companies may be subject to greater economic risks than
domestic companies, and foreign securities are subject to certain risks relating
to political, regulatory and market structures and events that domestic
securities are not subject to. To the extent the Portfolio invests in securities
of issuers in developing counties, the Portfolio may be subject to even greater
levels of risk and share price fluctuation.
Other Investments:
Securities of U.S. issuers may be included in the Portfolio from time to
time. The Portfolio also may invest in bonds, notes and debt securities of
companies and obligations of domestic or foreign governments and their agencies.
The Portfolio will limit its purchases of debt securities to investment grade
obligations.
Forward Currency Exchange Contracts. As a fund investing primarily in
foreign securities, the value of the Portfolio will be affected by changes in
the exchange rates between foreign currencies and the U.S. dollar. To protect
against adverse movements in exchange rates, the Portfolio may, for hedging
purposes only, enter into forward foreign currency exchange contracts. The
Portfolio may enter into a forward contract to "lock-in" an exchange rate for a
specific purchase or sale of a security. Less frequently, the Portfolio may
enter into a forward contract to seek to protect its holdings in a particular
currency from a decline in that currency. Predicting the relative future values
of currencies is very difficult, and there is no assurance that any attempt to
reduce the risk of adverse currency movements through the use of forward
contracts will be successful.
Indirect Foreign Investments. The Portfolio may invest up to 10% of its
assets in certain foreign countries indirectly through investment funds and
registered investment companies that invest in those countries. If the Portfolio
invests in investment companies, it will bear its proportionate share of the
costs incurred by such companies, including any investment advisory fees.
Short Sales "Against the Box." The Portfolio may make short sales
"against the box." This technique involves selling a security that the Portfolio
owns, or has the right to obtain without additional cost, for delivery at a
specified date in the future. The Portfolio may make a short sale against the
box to hedge against anticipated declines in the market price of a portfolio
security. If the value of the security sold short increases instead, the
Portfolio loses the opportunity to participate in the gain.
Additional information about the securities that the Portfolio may
invest in and their risks is included below under "Certain Risk Factors and
Investment Methods."
Temporary Investments. Under exceptional market or economic conditions,
the Portfolio may temporarily invest all or a substantial portion of its assets
in cash or investment-grade short-term securities. While the Portfolio is in a
defensive position, the ability to achieve its investment objective of capital
growth may be limited.
<PAGE>
AST JANUS SMALL-CAP GROWTH PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is capital
growth.
Principal Investment Policies and Risks:
The Portfolio pursues its objective by normally investing at least 65%
of its total assets in the common stocks of small-sized companies. For purposes
of the Portfolio, small-sized companies are those that have market
capitalizations of less than $1.5 billion or annual gross revenues of less than
$500 million. To a lesser extent, the Portfolio may also invest in stocks of
larger companies with potential for capital growth.
The Sub-advisor generally takes a "bottom up" approach to building the
Portfolio. In other words, it seeks to identify individual companies with
earnings growth potential that may not be recognized by the market at large.
Although themes may emerge in the Portfolio, securities are generally selected
without regard to any defined industry sector or other similar selection
procedure. Current income is not a significant factor in choosing investments.
Because the Portfolio invests primarily in common stocks, the
fundamental risk of investing in the Portfolio is that the value of the stocks
it holds might decrease. Stock values may fluctuate in response to the
activities of an individual company or in response to general market or economic
conditions. As a Portfolio that invests primarily in smaller or newer issuers,
the Portfolio may be subject to greater risk of loss and share price fluctuation
than funds investing primarily in larger or more established issuers. Smaller
companies are more likely to realize substantial growth as well as suffer
significant losses than larger issuers. Smaller companies may lack depth of
management, they may be unable to generate funds necessary for growth or
potential development internally or to generate such funds through external
financing on favorable terms, or they may be developing or marketing products or
services for which there are not yet, and may never be, established markets. In
addition, such companies may be subject to intense competition from larger
competitors, and may have more limited trading markets than the markets for
securities of larger issuers.
While the Sub-advisor tries to reduce the risk of the Portfolio by
diversifying its assets among issuers (so that the effect of any single holding
is reduced), and by not concentrating its assets in any particular industry,
there is no assurance that these effort will be successful in reducing the risks
to which the Portfolio is subject.
The Portfolio generally intends to purchase securities for long-term
investment rather than short-term gains. However, short-term transactions may
occur as the result of liquidity needs, securities having reached a desired
price or yield, anticipated changes in interest rates or the credit standing of
an issuer, or by reason of economic or other developments not foreseen at the
time the investment was made. To a limited extent, the Portfolio may purchase
securities in anticipation of relatively short-term price gains. The Portfolio
may also sell one security and simultaneously purchase the same or a comparable
security to take advantage of short-term differentials in bond yields or
securities prices.
Special Situations. The Portfolio may invest in "special situations"
from time to time. A special situation arises when, in the opinion of the
Sub-advisor, the securities of a particular issuer will be recognized and
increase in value due to a specific development with respect to that issuer.
Developments creating a special situation might include a new product or
process, a technological breakthrough, a management change or other
extraordinary corporate event, or differences in market supply of and demand for
the security. Investment in special situations may carry an additional risk of
loss in the event that the anticipated development does not occur or does not
attract the expected attention.
Other Investments:
The Portfolio may invest to a lesser degree in types of securities
other than common stocks, including preferred stocks, warrants, convertible
securities and debt securities. The Portfolio is subject to the following
percentage limitations on investing in certain types of debt securities:
-- 35% of its assets in lower-rated fixed income securities ("junk" bonds).
-- 25% of its assets in mortgage- and asset-backed securities.
-- 10% of its assets in zero coupon, pay-in-kind and step coupon
securities (securities that do not, or may not under certain circumstances, make
regular interest payments).
In addition, the Portfolio may invest in the following types of securities and
engage in the following investment techniques:
Index/structured Securities. The Portfolio may invest in
indexed/structured securities, which typically are short- to intermediate-term
debt securities whose value at maturity or interest rate is linked to
currencies, interest rates, equity securities, indices, commodity prices or
other financial indicators. Such securities may offer growth potential because
of anticipated changes in interest rates, credit standing, currency
relationships or other factors.
Foreign Securities. The Portfolio may invest without limit in foreign
equity and debt securities. The Portfolio may invest directly in foreign
securities denominated in foreign currencies, or may invest through depositary
receipts or passive foreign investment companies. Generally, the same criteria
are used to select foreign securities as domestic securities. The Sub-advisor
seeks companies that meet these criteria regardless of country of organization
or principal business activity. However, certain factors such as expected
inflation and currency exchange rates, government policies affecting businesses,
and a country's prospects for economic growth may warrant consideration in
selecting foreign securities.
Futures, Options and Other Derivative Instruments. The Portfolio may
enter into futures contracts on securities, financial indices and foreign
currencies and options on such contracts, and may invest in options on
securities, financial indices and foreign currencies, forward contracts and
interest rate swaps and swap-related products (collectively "derivative
instruments"). The Portfolio intends to use most derivative instruments
primarily to hedge the value of its portfolio against potential adverse
movements in securities prices, currency exchange rates or interest rates. To a
limited extent, the Portfolio may also use derivative instruments for
non-hedging purposes such as seeking to increase income.
Short Sales "Against the Box." The Portfolio may make short sales
"against the box." This technique involves selling a security that the Portfolio
owns, or has the right to obtain without additional cost, for delivery at a
specified date in the future. The Portfolio may make a short sale against the
box to hedge against anticipated declines in the market price of a portfolio
security. If the value of the security sold short increases instead, the
Portfolio loses the opportunity to participate in the gain.
For more information on the types of securities other than common
stocks in which the Portfolio may invest, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Temporary Investments. When the Sub-advisor believes that market
conditions are not favorable for profitable investing or when the Sub-advisor is
otherwise unable to locate favorable investment opportunities, the Portfolio's
investments may be hedged to a greater degree and/or its cash or similar
investments may increase. In other words, the Portfolio does not always stay
fully invested in stocks and bonds. The Portfolio's cash and similar investments
may include high-grade commercial paper, certificates of deposit, repurchase
agreements and money market funds managed by the Sub-advisor. While the
Portfolio is in a defensive position, the opportunity to achieve its investment
objective of capital growth will be limited.
<PAGE>
AST KEMPER SMALL-CAP GROWTH PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
maximum growth of investors' capital from a portfolio primarily of growth stocks
of smaller companies.
Principal Investment Policies and Risks:
At least 65% of the Portfolio's total assets normally will be invested
in the equity securities of smaller companies, i.e., those having a market
capitalization of $1.5 billion or less at the time of investment, many of which
would be in the early stages of their life cycle. Equity securities include
common stocks and securities convertible into or exchangeable for common stocks,
including warrants and rights.
The Portfolio intends to invest primarily in stocks of companies whose
earnings per share are expected by the Sub-advisor to grow faster than the
market average ("growth stocks"). Growth stocks tend to trade at higher price to
earnings (P/E) ratios than the general market, but the Sub-advisor believes that
the potential for above average earnings of the stocks in which the Portfolio
invests more than justifies their price.
In managing the Portfolio, the Sub-advisor emphasizes stock selection
and fundamental research. The Sub-advisor considers a number of factors in
considering whether to invest in a growth stock, including high return on equity
and earnings growth rate, low level of debt, strong balance sheet, good
management and industry leadership. Other factors are patterns of increasing
sales growth, the development of new or improved products or services, favorable
outlooks for growth in the industry, the probability of increased operating
efficiencies, emphasis on research and development, cyclical conditions, or
other signs that a company may grow rapidly.
The Portfolio seeks attractive areas for investment that arise from
factors such as technological advances, new marketing methods, and changes in
the economy and population. Currently, the Sub-advisor believes that such
investment opportunities may be found among:
o companies engaged in high technology fields such as electronics, medical
technology and computer software and specialty retailing;
o companies whose earnings outlooks have improved as the result of changes in
the economy, acquisitions, mergers, new management, changes in corporate
strategy or product innovation;
o companies supplying new or rapidly growing services to consumers and
businesses in such fields as automation, data processing, communications,
and marketing and finance; and
o companies that have innovative concepts or ideas.
In the selection of investments, long-term capital appreciation will
take precedence over short range market fluctuations. However, the Portfolio may
occasionally make investments for short-term capital appreciation. Current
income will not be a significant factor in selecting investments.
Like all common stocks, the market values of the common stocks held by
the Portfolio can fluctuate significantly, reflecting the business performance
of the issuing company, investor perception or general economic or financial
market movements. Because of the Portfolio's focus on the stocks of smaller
growth companies, investment in the Portfolio may involve substantially greater
than average share price fluctuation and investment risk. A fund focusing on
growth stocks will generally involve greater risk and share price fluctuation
than a fund investing primarily in value stocks.
In addition, investments in securities of smaller companies are
generally considered to offer greater opportunity for appreciation and to
involve greater risk of depreciation than securities of larger companies.
Smaller companies often have limited product lines, markets or financial
resources, and they may be dependent upon one or a few key people for
management. Because the securities of small-cap companies are not as broadly
traded as those of larger companies, they are often subject to wider and more
abrupt fluctuations in market price. Additional reasons for the greater price
fluctuations of these securities include the less certain growth prospects of
smaller firms and the greater sensitivity of small companies to changing
economic conditions.
<PAGE>
Other Investments:
In addition to investing in common stocks, the Portfolio may also
invest to a limited degree in preferred stocks and debt securities when they are
believed by the Sub-advisor to offer opportunities for capital growth. Other
types of securities in which the Portfolio may invest include:
Foreign Securities. The Portfolio may invest in securities of foreign
issuers in the form of depositary receipts. Foreign securities in which the
Portfolio may invest include any type of security consistent with its investment
objective and policies. The prices of foreign securities may be more volatile
than those of domestic securities.
Depositary receipts do not eliminate all the risk inherent in investing
in the securities of foreign issuers, including changes in foreign currency
exchange rates. However, by investing in depositary receipts rather than
directly in foreign issuers' stock, the Portfolio avoids currency risks during
the settlement period. In general, there is a large, liquid market in the United
States for many depositary receipts.
Options, Financial Futures and Other Derivatives. The Portfolio may
deal in options on securities and securities indices, which options may be
listed for trading on a national securities exchange or traded over-the-counter.
The ability to engage in options transactions enables a Portfolio to pursue its
investment objective and also to hedge against currency and market risks but is
not intended for speculation. The Portfolio may engage in financial futures
transactions on commodities exchanges or boards of trade in an attempt to hedge
against market risks.
In addition to options and financial futures, the Portfolio may invest
in a broad array of other "derivative" instruments in an effort to manage
investment risk, to increase or decrease exposure to an asset class or benchmark
(as a hedge or to enhance return), or to create an investment position
indirectly. The types of derivatives and techniques used by the Portfolio may
change over time as new derivatives and strategies are developed or as
regulatory changes occur.
Additional information about the other investments that the Portfolio
may make and their risks is included below under "Certain Risk Factors and
Investment Methods."
Temporary Investments. When a defensive position is deemed advisable
because of prevailing market conditions, the Portfolio may invest without limit
in high grade debt securities, commercial paper, U.S. Government securities or
cash or cash equivalents, including repurchase agreements. While the Portfolio
is in a defensive position, the opportunity to achieve its investment objective
of maximum capital growth will be limited.
<PAGE>
AST LORD ABBETT SMALL CAP VALUE PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
long-term capital growth. This is a fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
The Portfolio will seek its objective through investments primarily in
equity securities that are believed to be undervalued in the marketplace. The
Portfolio primarily seeks companies that are small-sized, based on the value of
their outstanding stock. Specifically, under normal circumstances, at least 65%
of the Portfolio's total assets will be invested in common stocks issued by
smaller, less well-known companies (with market capitalizations of less than $1
billion) selected on the basis of fundamental investment analysis.
The stocks in which the Portfolio generally invests are those which, in
the Sub-advisor's judgment, are selling below their intrinsic value and at
prices that do not adequately reflect their long-term business potential.
Selected smaller stocks may be undervalued because they are often overlooked by
many investors, or because the public is overly pessimistic about a company's
prospects. Accordingly, their prices can rise either as a result of improved
business fundamentals, particularly when earnings grow faster than general
expectations, or as more investors come to recognize the company's underlying
potential. The price of shares in relation to book value, sales, asset value,
earnings, dividends and cash flow, both historical and prospective, are key
determinants in the security selection process. These criteria are not rigid,
and other stocks may be included in the Portfolio if they are expected to help
it attain its objective. Dividend and investment income is of incidental
importance.
Although the Portfolio typically will hold a large number of securities
and follow a relatively conservative value-driven investment strategy, the
Portfolio does entail above-average investment risk and share price fluctuation
compared to the overall U.S. stock market. The small capitalization companies in
which the Portfolio primarily invests may offer significant appreciation
potential. However, smaller companies may carry more risk than larger companies.
Generally, small companies rely on limited product lines, markets and financial
resources, and these and other factors may make them more susceptible to
setbacks or economic downturns. Smaller companies normally have fewer shares
outstanding and trade less frequently than large companies. Therefore, the
securities of smaller companies may be subject to wider price fluctuations.
Other Investments:
The Portfolio may engage in various portfolio strategies to reduce
certain risks of its investments and to enhance income, but not for speculation.
The Portfolio may purchase and write (sell) put and covered call options on
equity securities or stock indices that are traded on national securities
exchanges. The Portfolio may purchase and sell stock index futures for certain
hedging and risk management purposes. New financial products and risk management
techniques continue to be developed and the Portfolio may use these new
investments and techniques to the extent consistent with its investment
objective and policies.
The Portfolio may invest up to 35% of its net assets (at the time of
investment) in securities (of the type described above) that are primarily
traded in foreign countries. The Portfolio may enter into forward foreign
currency exchange contracts in connection with its investments in foreign
securities. The Portfolio also may purchase foreign currency put options and
write foreign currency call options on U.S. exchanges or U.S. over-the-counter
markets. The Portfolio may write a call option on a foreign currency only in
conjunction with a purchase of a put option on that currency.
The Portfolio also may invest in preferred stocks and bonds that either
have attached warrants or are convertible into common stocks.
Additional information about these investments and investment
techniques and their risks is included below under "Certain Risk Factors and
Investment Methods."
Temporary Investments. For temporary defensive purposes or pending other
investments, the Portfolio may invest in high-quality, short-term debt
obligations of banks, corporations or the U.S. Government. While the Portfolio
is in a defensive position, its ability to achieve its investment objective of
long-term capital growth will be limited.
<PAGE>
AST T. ROWE PRICE SMALL COMPANY VALUE PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to
provide long-term capital growth by investing primarily in small-capitalization
stocks that appear to be undervalued. This is a fundamental policy of the
Portfolio.
Principal Investment Policies and Risks:
The Portfolio will normally invest at least 65% of its total assets in
stocks and equity-related securities of small companies ($1 billion or less in
market capitalization). Reflecting a value approach to investing, the Portfolio
will seek the stocks of companies whose current stock prices do not appear to
adequately reflect their underlying value as measured by assets, earnings, cash
flow or business franchises. The Sub-advisor's research team seeks to identify
companies that appear to be undervalued by various measures, and may be
temporarily out of favor, but have good prospects for capital appreciation. In
selecting investments, the Sub-advisor generally looks to the following:
(1) Above-average dividend yield (the stock's annual dividend divided
by the stock price) relative to a company's peers or its own historic norm.
(2) Low price/earnings, price/book value or price/cash flow ratios
relative to the S&P 500 Index, the company's peers, or its own historic norm.
(3) Low stock price relative to a company's underlying asset values.
(4) A plan to improve the business through restructuring.
(5) A sound balance sheet and other positive financial characteristics.
The Portfolio may sell securities for a variety of reasons, such as to
secure gains, limit losses or re-deploy assets into more promising
opportunities. The Portfolio will not sell a stock just because the company has
grown to a market capitalization of more than $1 billion, and it may on occasion
purchase companies with a market cap more than $1 billion.
As with all stock funds, the Portfolio's share price can fall because
of weakness in the securities market as a whole, in particular industries or in
specific holdings. Investing in small companies involves greater risk of loss
than is customarily associated with more established companies. Stocks of small
companies may be subject to more abrupt or erratic price movements than larger
company stocks. Small companies often have limited product lines, markets, or
financial resources, and their management may lack depth and experience. While a
value approach to investing is generally considered to involve less risk than a
growth approach, investing in value stocks carries the risks that the market
will not recognize the stock's intrinsic value for a long time, or that a stock
judged to be undervalued may actually be appropriately priced.
Other Investments:
Although the Portfolio will invest primarily in U.S. common stocks, it
may also purchase other types of securities, for example, preferred stocks,
convertible securities, warrants and bonds when considered consistent with the
Portfolio's investment objective and policies. The Portfolio may purchase
preferred stock for capital appreciation where the issuer has omitted, or is in
danger of omitting, payment of the dividend on the stock. Debt securities would
be purchased in companies that meet the investment criteria for the Portfolio.
The Portfolio may invest up to 20% of its total assets in foreign
securities, including American Depositary Receipts and securities of companies
in developing countries, and may enter into forward foreign currency exchange
contracts. (The Portfolio may invest in foreign cash items as described below in
excess of this 20% limit.) The Portfolio may enter into stock index or currency
futures contracts (or options thereon) for hedging purposes or to provide an
efficient means of regulating the Portfolio's exposure to the equity markets.
The Portfolio may also write (sell) call and put options and purchase put and
call options on securities, financial indices, and currencies. The Portfolio may
invest up to 10% of its total assets in hybrid instruments, which combine the
characteristics of futures, options and securities. For additional information
about these investments and their risks, see this Prospectus under "Certain Risk
Factors and Investment Methods."
<PAGE>
Temporary Investments. The Portfolio may establish and maintain cash
reserves without limitation for temporary defensive purposes. The Portfolio's
reserves may be invested in high-quality domestic and foreign money market
instruments, including repurchase agreements. Cash reserves also provide
flexibility in meeting redemptions and paying expenses. While the Portfolio is
in a defensive position, the opportunity to achieve its investment objective of
long-term capital growth may be limited.
<PAGE>
AST NEUBERGER BERMAN MID-CAP GROWTH PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth.
Principal Investment Policies and Risks:
To pursue its objective, the Portfolio primarily invests in the common
stocks of mid-cap companies. Companies with equity market capitalizations from
$300 million to $10 billion at the time of investment are considered mid-cap
companies for purposes of the Portfolio. The Trust may revise this definition
based on market conditions. Some of the Portfolio's assets may be invested in
the securities of large-cap companies as well as in small-cap companies. The
Portfolio seeks to reduce risk by diversifying among many companies and
industries. The Portfolio does not seek to invest in securities that pay
dividends or interest, and any such income is incidental.
The Portfolio is normally managed using a growth-oriented investment
approach. For growth investors, the aim is to invest in companies that are
already successful but could be even more so. The Sub-advisor looks for
fast-growing companies that are in new or rapidly evolving industries. Factors
in identifying these companies may include above-average growth of earnings or
earnings that exceed analysts' expectations. The Sub-advisor may also look for
other characteristics in a company, such as financial strength, a strong
position relative to competitors and a stock price that is reasonable in light
of its growth rate.
The Sub-advisor follows a disciplined selling strategy, and may sell a
stock when it reaches a target price, fails to perform as expected, or appears
substantially less desirable than another stock.
As a fund that invests primarily in mid-cap companies, the Portfolio's
risk and share price fluctuation can be expected to be more than that of many
funds investing primarily in large-cap companies, but less than that of many
funds investing primarily in small-cap companies. Mid-cap stocks may fluctuate
more widely in price than the market as a whole, may underperform other types of
stocks when the market or the economy is not robust, or fall in price or be
difficult to sell during market downturns. In addition, the Portfolio's growth
investment program will generally involve greater risk and price fluctuation
than funds that invest in more undervalued securities. Because the prices of
growth stocks tend to be based largely on future expectations, these stocks
historically have been more sensitive than value stocks to bad economic news and
negative earnings surprises.
Other Investments:
Although equity securities are normally the Portfolio's primary
investments, it may invest in preferred stocks and convertible securities, as
well as the types of securities described below. Additional information about
these investments and the special risk factors that apply to them is included in
this Prospectus under "Certain Risk Factors and Investment Methods."
Fixed Income Securities. The Portfolio may invest up to 35% of its
total assets, measured at the time of investment, in investment grade fixed
income or debt securities. If the quality of any fixed income securities held by
the Portfolio deteriorates so that they are no longer investment grade, the
Portfolio will sell such securities in an orderly manner so that its holdings of
such securities do not exceed 5% of its net assets.
Foreign Securities. The Portfolio may invest up to 10% of the value of
its total assets, measured at the time of investment, in equity and debt
securities that are denominated in foreign currencies. There is no limitation on
the percentage of the Portfolio's assets that may be invested in securities of
foreign companies that are denominated in U.S. dollars. In addition, the
Portfolio may enter into foreign currency transactions, including forward
foreign currency contracts and options on foreign currencies, to manage currency
risks, to facilitate transactions in foreign securities, and to repatriate
dividend or interest income received in foreign currencies.
Covered Call Options. The Portfolio may try to reduce the risk of
securities price or exchange rate changes (hedge) or generate income by writing
(selling) covered call options against securities held in its portfolio, and may
purchase call options in related closing transactions.
Temporary Investments. When the Portfolio anticipates unusual market or
other conditions, it may temporarily depart from its objective of capital growth
and invest substantially in high-quality short-term investments. This could help
the Portfolio avoid losses but may mean lost opportunities.
<PAGE>
AST NEUBERGER BERMAN MID-CAP VALUE PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth.
Principal Investment Policies and Risks:
To pursue its objective, the Portfolio primarily invests in the common
stocks of mid-cap companies. Some of the Portfolio's assets may be invested in
the securities of large-cap companies as well as in small-cap companies. The
Portfolio seeks to reduce risk by diversifying among many companies and
industries.
Under the Portfolio's value-oriented investment approach, the
Sub-advisor looks for well-managed companies whose stock prices are undervalued
and that may rise in price before other investors realize their worth. Fund
managers may identify value stocks in several ways, including based on earnings,
book value or other financial measures. Factors that the Sub-advisor may use to
identify these companies include strong fundamentals, including a low
price-to-earnings ratio, consistent cash flow, and a sound track record through
all phases of the market cycle.
The Sub-advisor may also look for other characteristics in a company,
such as a strong position relative to competitors, a high level of stock
ownership among management, or a recent sharp decline in stock price that
appears to be the result of a short-term market overreaction to negative news.
The Sub-advisor generally considers selling a stock when it reaches a
target price, when it fails to perform as expected, or when other opportunities
appear more attractive.
As a fund that invests primarily in mid-cap companies, the Portfolio's
risk and share price fluctuation can be expected to be more than that of many
funds investing primarily in large-cap companies, but less than that of many
funds investing primarily in small-cap companies. Mid-cap stocks may fluctuate
more widely in price than the market as a whole, may underperform other types of
stocks when the market or the economy is not robust, or fall in price or be
difficult to sell during market downturns. While value investing historically
has involved less risk than investing in growth companies, the stocks purchased
by the Portfolio will remain undervalued during a short or extended period of
time. This may happen because value stocks as a category lose favor with
investors compared to growth stocks, or because the Sub-advisor failed to
anticipate which stocks or industries would benefit from changing market or
economic conditions.
Other Investments:
Although equity securities are normally the Portfolio's primary
investment, it may invest in preferred stocks and convertible securities, as
well as the types of securities described below. Additional information about
these investments and the special risk factors that apply to them is included in
this Prospectus under "Certain Risk Factors and Investment Methods."
Fixed Income Securities. The Portfolio may invest up to 35% of its
total assets, measured at the time of investment, in fixed income or debt
securities. The Portfolio may invest up to 15% of its total assets, measured at
the time of investment, in debt securities that are rated below investment grade
or comparable unrated securities. There is no minimum rating on the fixed income
securities in which the Portfolio may invest.
Foreign Securities. The Portfolio may invest up to 10% of the value of
its total assets, measured at the time of investment, in equity and debt
securities that are denominated in foreign currencies. There is no limitation on
the percentage of the Portfolio's assets that may be invested in securities of
foreign companies that are denominated in U.S. dollars. In addition, the
Portfolio may enter into foreign currency transactions, including forward
foreign currency contracts and options on foreign currencies, to manage currency
risks, to facilitate transactions in foreign securities, and to repatriate
dividend or interest income received in foreign currencies.
Covered Call Options. The Portfolio may try to reduce the risk of
securities price changes (hedge) or generate income by writing (selling) covered
call options against securities held in its portfolio, and may purchase call
options in related closing transactions. The value of securities against which
options will be written will not exceed 10% of the Portfolio's net assets.
Temporary Investments. When the Portfolio anticipates unusual market or
other conditions, it may temporarily depart from its objective of capital growth
and invest substantially in high-quality short-term investments. This could help
the Portfolio avoid losses but may mean lost opportunities.
<PAGE>
AST T. ROWE PRICE NATURAL RESOURCES PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
long-term capital growth primarily through the common stocks of companies that
own or develop natural resources (such as energy products, precious metals, and
forest products) and other basic commodities.
Principal Investment Policies and Risks:
The Portfolio normally invests primarily (at least 65% of its total
assets) in the common stocks of natural resource companies whose earnings and
tangible assets could benefit from accelerating inflation. The Portfolio also
may invest in growth companies with strong potential for earnings growth. When
selecting stocks, the Sub-advisor looks for companies that have the ability to
expand production, to maintain superior exploration programs and production
facilities, and the potential to accumulate new resources. Natural resource
companies in which the Portfolio invests generally own or develop energy
sources, precious metals, nonferrous metals, forest products, real estate,
diversified resources and other basic commodities that can be produced and
marketed profitably when both labor costs and prices are rising.
The Portfolio may sell securities for a variety of reasons, such as to
secure gains, limit losses or re-deploy assets into more promising
opportunities.
As with all stock funds, the Portfolio's share price can fall because
of weakness in one or more securities markets, particular industries or specific
holdings. In addition, the Portfolio is less diversified than most stock funds
and could therefore experience sharp price declines when conditions are
unfavorable in the natural resources sector. For instance, while the Portfolio
attempts to invest in companies that may benefit from accelerating inflation,
inflation has slowed considerably in recent years. The rate of earnings growth
of natural resource companies may be irregular because these companies are
strongly affected by natural forces, global economic cycles and international
politics. For example, stock prices of energy companies can fall sharply when
oil prices fall. Real estate companies are influenced by interest rates and
other factors.
Other Investments:
Although the Portfolio will invest primarily in U.S. common stocks, it
may also purchase other types of securities, for example, preferred stocks,
convertible securities and warrants, when considered consistent with the
Portfolio's investment objective and policies. The Portfolio may purchase
preferred stock for capital appreciation where the issuer has omitted, or is in
danger of omitting, payment of the dividend on the stock. The Portfolio may
invest in debt securities, including up to 10% of its total assets in debt
securities rated below investment grade. The Portfolio may invest in
mortgage-backed securities, including stripped mortgage-backed securities. The
Portfolio may invest up to 10% of its total assets in hybrid instruments, which
combine the characteristics of futures, options and securities.
Foreign Securities. The Portfolio may invest up to 50% of its total
assets in foreign securities, including American Depositary Receipts and
securities of companies in developing countries, which offer increasing
opportunities for natural resource-related growth. The Portfolio may enter into
forward foreign currency exchange contracts in connection with its foreign
investments. The Portfolio's investments in foreign securities, or even in U.S.
companies with significant overseas investments, may decline in value because of
declining foreign currencies or adverse political and economic events overseas,
although currency risk may be somewhat reduced because many commodities markets
are dollar based.
Futures and Options. The Portfolio may enter into stock index or
currency futures contracts (or options thereon) for hedging purposes or to
provide an efficient means of regulating the Portfolio's exposure to the equity
markets. The Portfolio may write covered call options and purchase put and call
options on foreign currencies, securities, and stock indices.
For additional information about these investments and their risks, see
this Prospectus under "Certain Risk Factors and Investment Methods."
Temporary Investments. The Portfolio may establish and maintain cash
reserves without limitation for temporary defensive purposes. The Portfolio's
reserves may be invested in high-quality domestic and foreign money market
instruments, including repurchase agreements. Cash reserves also provide
flexibility in meeting redemptions and paying expenses. While the Portfolio is
in a defensive position, the opportunity to achieve its investment objective of
long-term capital growth may be limited.
<PAGE>
AST OPPENHEIMER LARGE-CAP GROWTH PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth.
Principal Investment Policies and Risks:
The Portfolio seeks its investment objective by emphasizing investment
in common stocks issued by established large-capitalization "growth companies"
that, in the opinion of the Sub-advisor, have above average earnings prospects
but are selling at below normal prices. At least 65% of the Portfolio's assets
normally will be invested in companies that have market capitalizations greater
than $3 billion, and the Portfolio will normally maintain a median market
capitalization greater than $5 billion.
"Growth companies" may be developing new products or services, or
expanding into new markets for their products. While they will have what the
Sub-advisor believes to be favorable long-term prospects, they normally retain a
large part of their earnings for research, development and investment in capital
assets. Therefore, they tend not to emphasize the payment of dividends.
Investment opportunities may be sought among securities of smaller, less
well-known companies, although the Portfolio's emphasis is on large-cap issuers.
Because the Portfolio invests a substantial portion (or all) of its
assets in stocks, the Portfolio is subject to the risks associated with stock
investments, and the Portfolio's share price therefore may fluctuate
substantially. This is true despite the Portfolio's focus on the stocks of
larger more-established companies. The Portfolio's share price will be affected
by changes in the stock markets generally, and factors specific to a company or
an industry will affect the prices of particular stocks held by the Portfolio
(for example, poor earnings, loss of major customers, major litigation against
an issuer, or changes in government regulations affecting an industry). Because
of the types of securities it invests in, the Portfolio is designed for those
who are investing for the long term. While the Sub-advisor tries to reduce risks
by diversifying its investments, by carefully researching securities before they
are purchased, and in some cases by using hedging techniques such as futures
contracts, there is no assurance that these efforts to reduce risk will be
successful.
Other Investments:
While the Sub-advisor will invest the Portfolio's assets primarily in
domestic equity securities, it also may invest in other types of securities and
employ special investment techniques. The Portfolio may purchase securities of
foreign companies or governments, including those in developing countries. The
Portfolio may purchase and sell futures contracts on securities indices. It may
do so to try to reduce its exposure to a decline in the prices of its portfolio
securities, or to establish a position in the securities market as a temporary
substitute for purchasing individual securities. In addition to the futures
contracts, the Portfolio may invest in specially designed derivative investments
for hedging purposes or to enhance total return. The Portfolio may invest a
portion of its assets in cash, cash equivalents and U.S. Government securities
for liquidity purposes, but will not invest a significant portion of its assets
in these instruments for temporary defensive purposes. For additional
information about these investments and their risks, see this Prospectus under
"Certain Risk Factors and Investment Methods."
<PAGE>
AST MARSICO CAPITAL GROWTH PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth. This is a fundamental policy of the Portfolio. Income is not an
investment objective and any income realized on the Portfolio's investments,
therefore, will be incidental to the Portfolio's objective.
Principal Investment Policies and Risks:
The Portfolio will pursue its objective by investing primarily in
common stocks. The Sub-advisor expects that the majority of the Portfolio's
assets will be invested in the common stocks of larger, more established
companies.
In selecting investments for the Portfolio, the Sub-advisor uses an
approach that combines "top down" economic analysis with "bottom up" stock
selection. The "top down" approach takes into consideration such macro-economic
factors as interest rates, inflation, the regulatory environment, and the global
competitive landscape. In addition, the Sub-advisor examines such factors as the
most attractive global investment opportunities, industry consolidation, and the
sustainability of economic trends. As a result of this "top down" analysis, the
Sub-advisor identifies sectors, industries and companies that should benefit
from the trends the Sub-advisor has observed.
The Sub-advisor then looks for individual companies with earnings
growth potential that may not be recognized by the market at large. In
determining whether a particular company is appropriate for investment by the
Portfolio, the Sub-advisor focuses on a number of different attributes,
including the company's specific market expertise or dominance, its franchise
durability and pricing power, solid fundamentals (e.g., a strong balance sheet,
improving returns on equity, and the ability to generate free cash flow), strong
management, and reasonable valuations in the context of projected growth rates.
This is called "bottom up" stock selection.
The primary risk associated with investment in the Portfolio will be
the risk that the equity securities held by the Portfolio will decline in value.
The risk of the Portfolio is expected to be commensurate with that of other
funds using a growth strategy to invest in the stocks of large and medium-sized
companies.
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 desired price, or by reason of
developments not foreseen at the time of the investment was made.
Special Situations. 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
increase in value due to a specific development, such as a technological
breakthrough, management change or new product at that company. Investment in
"special situations" carries an additional risk of loss in the event that the
anticipated development does not occur or does not attract the expected
attention.
Other Investments:
The Portfolio may also invest to a lesser degree in preferred stocks,
convertible securities, warrants, and debt securities when the Portfolio
perceives an opportunity for capital growth from such securities. The Portfolio
may invest up to 10% of its total assets in debt securities, which may include
corporate bonds and debentures and government securities.
The Portfolio may also purchase securities of foreign issuers,
including foreign equity and debt securities and depositary receipts. Foreign
securities are selected primarily on a stock-by-stock basis without regard to
any defined allocation among countries or geographic regions. The Portfolio may
also use a variety of currency hedging techniques, including forward currency
contracts, to manage exchange rate risk with respect to investments exposed to
foreign currency fluctuations.
Index/structured Securities. The Portfolio may invest without limit in
index/structured securities, which are debt securities whose value at maturity
or interest rate is linked to currencies, interest rates, equity securities,
indices, commodity prices or other financial indicators. Such securities may be
positively or negatively indexed (i.e., their value may increase or decrease if
the reference index or instrument appreciates). Index/structured securities may
have return characteristics similar to direct investments in the underlying
instruments, but may be more volatile than the underlying instruments. The
Portfolio bears the market risk of an investment in the underlying instruments,
as well as the credit risk of the issuer of the index/structured security.
Futures, Options and Other Derivative Instruments. The Portfolio may
purchase and write (sell) options on securities, financial indices, and foreign
currencies, and may invest in futures contracts on securities, financial
indices, and foreign currencies, options on futures contracts, forward contracts
and swaps and swap-related products. These instruments will be used primarily to
hedge the Portfolio's positions against potential adverse movements in
securities prices, foreign currency markets or interest rates. To a limited
extent, the Portfolio may also use derivative instruments for non-hedging
purposes such as increasing the Portfolio's income or otherwise enhancing
return.
For an additional discussion of many of these types of securities and
their risks, see this Prospectus under "Certain Risk Factors and Investment
Methods."
Temporary Investments. 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 believes that appropriate
investment opportunities for capital growth with desirable risk/reward
characteristics are unavailable. Cash and similar investments (whether made for
defensive purposes or to receive a return on idle cash) will include high-grade
commercial paper, certificates of deposit and repurchase agreements. While the
Portfolio is in a defensive position, the opportunity to achieve its investment
objective of capital growth will be limited.
<PAGE>
AST JANCAP GROWTH PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
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 policy of the Portfolio.
Principal Investment Policies and Risks:
The Portfolio will pursue its objective by investing primarily in
common stocks. Common stock investments will be in 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. The Sub-advisor generally takes a "bottom up" approach to choosing
investments for the Portfolio. In other words, the Sub-advisor seeks to identify
individual companies with earnings growth potential that may not be recognized
by the market at large.
Because the Portfolio invests a substantial portion (or all) of its
assets in stocks, the Portfolio is subject to the risks associated with stock
investments, and the Portfolio's share price therefore may fluctuate
substantially. This is true despite the Portfolio's focus on the stocks of
larger more-established companies. The Portfolio's share price will be affected
by changes in the stock markets generally, and factors specific to a company or
an industry will affect the prices of particular stocks held by the Portfolio
(for example, poor earnings, loss of major customers, major litigation against
an issuer, or changes in government regulations affecting an industry). Because
of the types of securities it invests in, the Portfolio is designed for those
who are investing for the long term.
The Portfolio generally intends to purchase securities for long-term
investment rather than short-term gains. However, short-term transactions may
occur as the result of liquidity needs, securities having reached a desired
price or yield, anticipated changes in interest rates or the credit standing of
an issuer, or by reason of economic or other developments not foreseen at the
time the investment was made.
Special Situations. 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 new product at that company. Investment in
"special situations" carries an additional risk of loss in the event that the
anticipated development does not occur or does not attract the expected
attention.
Other Investments:
Although the Sub-advisor expects to invest primarily in equity
securities, the Portfolio may also invest to a lesser degree in preferred
stocks, convertible securities, warrants, and debt securities when the Portfolio
perceives an opportunity for capital growth from such securities. The Portfolio
is subject to the following percentage limitations on investing in certain types
of debt securities:
-- 35% of its assets in lower-rated fixed income securities ("junk" bonds).
-- 25% of its assets in mortgage- and asset-backed securities.
-- 10% of its assets in zero coupon, pay-in-kind and step coupon
securities (securities that do not, or may not under certain circumstances, make
regular interest payments).
In addition, the Portfolio may invest in the following types of securities and
engage in the following investment techniques:
Foreign Securities. The Portfolio may also purchase securities of
foreign issuers, including foreign equity and debt securities and depositary
receipts. Foreign securities are selected primarily on a stock-by-stock basis
without regard to any defined allocation among countries or geographic regions.
No more than 25% of the Portfolio's assets may be invested in foreign securities
denominated in foreign currencies and not publicly traded in the United States.
Futures, Options and Other Derivative Instruments. The Portfolio may
enter into futures contracts on securities, financial indices and foreign
currencies and options on such contracts and may invest in options on
securities, financial indices and foreign currencies, forward contracts and
interest rate swaps and swap-related products (collectively "derivative
instruments"). The Portfolio intends to use most derivative instruments
primarily to hedge the value of its portfolio against potential adverse
movements in securities prices, foreign currency markets or interest rates. To a
limited extent, the Portfolio may also use derivative instruments for
non-hedging purposes such as seeking to increase income. The Portfolio may also
use a variety of currency hedging techniques, including forward foreign currency
exchange contracts, to manage exchange rate risk with respect to investments
exposed to foreign currency fluctuations.
For more information on the types of securities other than common
stocks in which the Portfolio may invest, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Temporary Investments. 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. Cash and similar investments
(whether made for defensive purposes or to receive a return on idle cash) will
include high-grade commercial paper, certificates of deposit, repurchase
agreements and money market funds managed by the Sub-advisor. While the
Portfolio is in a defensive position, the opportunity to achieve its investment
objective of capital growth will be limited.
<PAGE>
AST BANKERS TRUST ENHANCED 500 PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to outperform
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500(R)") through
stock selection resulting in different weightings of common stocks relative to
the index.
Principal Investment Policies and Risks:
The Portfolio will invest in the common stocks of companies included in
the S&P 500. The S&P 500 is an index of 500 common stocks, most of which trade
on the New York Stock Exchange Inc. (the "NYSE"). The Sub-advisor believes that
the S&P 500 is representative of the performance of publicly traded common
stocks in the U.S. in general.
In seeking to outperform the S&P 500, the Sub-advisor starts with a
portfolio of stocks representative of the holdings of the index. It then uses a
set of quantitative criteria that are designed to indicate whether a particular
stock will predictably perform better or worse than the S&P 500. Based on these
criteria, the Sub-advisor determines whether the Portfolio should over-weight,
under-weight or hold a neutral position in the stock relative to the proportion
of the S&P 500 that the stock represents. The majority of the issues held by the
Portfolio will have neutral weightings, but approximately 100 will be over- or
under-weighted relative to the index. In addition, the Sub-advisor may determine
based on the quantitative criteria that certain S&P 500 stocks should not be
held by the Portfolio in any amount.
As a mutual fund investing primarily in common stocks, the Portfolio is
subject to the risk that common stock prices will decline over short or even
extended periods. The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. The
Sub-advisor believes that the various quantitative criteria used to determine
which stocks to over- or under-weight will balance each other so that the
overall risk of the Portfolio will not differ materially from the risk of the
S&P 500 itself.
Unlike other stock funds, the Portfolio is not "actively" managed based
on the Sub-Advisor's economic, financial or market analysis or its investment
judgment. Instead, the Portfolio primarily utilizes a "quantitative" investment
approach to invest among a limited number of stocks (i.e., those in the S&P
500).
About the S&P 500. The S&P 500 is a well-known stock market index that
includes common stocks of 500 companies from several industrial sectors
representing a significant portion of the market value of all common stocks
publicly traded in the United States. Stocks in the S&P 500 are weighted
according to their market capitalization (the number of shares outstanding
multiplied by the stock's current price). The composition of the S&P 500 is
determined by S&P based on such factors as market capitalization, trading
activity, and whether the stock is representative of stocks in a particular
industry group. The composition of the S&P 500 may be changed from time to time.
"Standard & Poor's(R)", "S&P 500(R)", "Standard & Poor's 500", and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
the Investment Manager and Sub-advisor.
The Portfolio is not sponsored, endorsed, sold or promoted by Standard
&Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the shareholders of the
Portfolio or any member of the public regarding the advisability of investing in
securities generally or in the Portfolio particularly or the ability of the S&P
500 to track general stock market performance. S&P's only relationship to the
Investment Manager or the Sub-advisor is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 which is determined, composed and
calculated by S&P without regard to the Investment Manager, Sub-advisor, or
Portfolio. S&P has no obligation to take the needs of the Investment Manager,
Sub-advisor or the shareholders of the Portfolio into consideration in
determining, composing or calculating the S&P 500. S&P is not responsible for
and has not participated in the determination of the prices and amount of the
Portfolio or the timing of the issuance or sale of the Portfolio, or in the
determination or calculation of the Portfolio's net asset value. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Portfolio.
S&P does not guarantee the accuracy and/or the completeness of the S&P
500 or any data included therein and shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or implied,
as to the results to be obtained by the Portfolio, shareholders of the
Portfolio, or any other person or entity from the use of the S&P 500 or any data
included therein. S&P makes no express or implied warranties and expressly
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the S&P 500 or any data included therein. Without
limiting any of the foregoing, in no event shall S&P have any liability for any
special, punitive, indirect or consequential damages (including lost profits),
even if notified of the possibility of such damages.
Other Equity Securities. As part of one of the strategies used to
outperform the S&P 500, the Portfolio may invest in the equity securities of
companies that are not included in the S&P 500. These equity securities may
include securities of companies that are the subject of publicly announced
acquisitions or other major corporate transactions. Securities of some of these
companies may perform much like fixed income investments because the market
anticipates that the transaction will occur and result in a cash payment for the
securities. When investing in these companies, the Portfolio may enter into
securities index futures contracts and/or related options as described below in
order to maintain its exposure to the equity markets. While this strategy is
intended to generate additional gains without materially increasing risk, there
is no assurance that the strategy will achieve its intended results. The
Portfolio will not invest more than 15% of its total assets in equity securities
of companies not included in the S&P 500.
Other Investments:
Derivatives. The Portfolio may invest in various instruments that are
or may be considered derivatives, including securities index futures contracts
and related options, warrants and convertible securities. These instruments may
be used for several reasons: to simulate full investment in the S&P 500 while
retaining cash for fund management purposes, to facilitate trading, to reduce
transaction costs or to seek higher investment returns when the futures
contract, option, warrant or convertible security is priced more attractively
than the underlying equity security or the S&P 500. The Portfolio will not use
derivatives for speculative purposes or to leverage its assets. The Portfolio
will limit its use of securities index futures contracts and related options so
that, at all times, margin deposits for futures contracts and premiums on
related options do not exceed 5% of the Portfolio's assets and provided that the
percentage of the Portfolio's assets being used to cover its obligations under
futures and options does not exceed 50%.
Additional information about these derivative instruments and their
risks is included in this Prospectus under "Certain Risk Factors and Investment
Methods."
Temporary Investments. The Portfolio may maintain up to 25% of its
assets in short-term debt securities and money market instruments to meet
redemption requests or to facilitate investment in the securities of the S&P
500. These securities include obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities or by any of the states,
repurchase agreements, commercial paper, and certain bank obligations. The
Portfolio will not invest in these securities as part of a temporary defensive
strategy to protect against potential market declines.
<PAGE>
AST COHEN & STEERS REALTY PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to
maximize total return through investment in real estate securities. This is a
fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
The Portfolio pursues its investment objective of maximizing total return by
seeking, with approximately equal emphasis, capital growth and current income.
Under normal circumstances, the Portfolio will invest substantially all of its
assets in the equity securities of real estate companies. Such equity securities
will consist of:
o common stocks (including shares in real estate investment trusts),
o rights or warrants to purchase common stocks,
o securities convertible into common stocks where the conversion feature
represents, in the Sub-advisor's view, a significant element of the
securities' value, and
o preferred stocks.
For purposes of the Portfolio's investment policies, a "real estate
company" is one that derives at least 50% of its revenues from the ownership,
construction, financing, management or sale of real estate or that has at least
50% of its assets in real estate. The Portfolio may invest up to 10% of its
total assets in securities of foreign real estate companies.
Real estate companies may include real estate investment trusts
("REITs"). REITs pool investors' funds for investment primarily in income
producing real estate or real estate related loans or interests. REITs can
generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity
REITs, which invest the majority of their assets directly in real property,
derive their income primarily from rents. Equity REITs can also realize capital
gains or losses by selling properties. Mortgage REITs, which invest the majority
of their assets in real estate mortgages, derive their income primarily from
interest payments. Hybrid REITs combine the characteristics of both Equity REITs
and Mortgage REITs.
As a fund that invests primarily in equity securities, the Portfolio
will be subject to many of the same risks as other equity funds. The Portfolio
also will be subject to certain risks related specifically to real estate
securities, and may be subject to greater risk and share price fluctuation than
other equity funds because of the concentration of its investments in a single
industry.
While the Portfolio will not invest in real estate directly, securities
of real estate companies may be subject to risks similar to those associated
with the direct ownership of real estate. These include risks related to general
and local economic conditions, dependence on management skill, heavy cash flow
dependency, possible lack of available mortgage funds, overbuilding, extended
vacancies of properties, increases in property taxes and operating expenses,
changes in zoning laws, losses due to costs resulting from environmental
problems, casualty or condemnation losses, limitations on rents, and changes in
neighborhood values, the appeal of properties to tenants and interest rates.
In general, Equity REITs may be affected by changes in the value of the
underlying property owned by the trusts, while Mortgage REITs may be affected by
the quality of any credit extended. In the event of a default by a borrower or
lessee, a REIT may experience delays and may incur substantial costs in
enforcing its rights as a mortgagee or lessor.
Non-Diversified Status. The Portfolio is classified as a
"non-diversified" investment company under the 1940 Act, which means the
Portfolio is not limited by the 1940 Act in the proportion of its assets that
may be invested in the securities of a single issuer. However, the Portfolio
intends to meet certain diversification standards under the Internal Revenue
Code that must be met to relieve the Portfolio of liability for Federal income
tax if its earnings are distributed to shareholders. As a non-diversified fund,
a price decline in any one of the Portfolio's holdings may have a greater effect
on the Portfolio's value than on the value of a fund that is more broadly
diversified.
Other Investments:
The Portfolio may write (sell) put and covered call options and
purchase put and call options on securities or stock indices that are listed on
a national securities or commodities exchange. The Portfolio may buy and sell
financial futures contracts, stock and bond index futures contracts, foreign
currency futures contracts and options on the foregoing. The Portfolio may enter
into forward foreign currency exchange contracts in connection with its
investments in foreign securities. The Portfolio may also enter into short
sales, which are transactions in which the Portfolio sells a security it does
not own at the time of the sale in anticipation that the market price of the
security will decline. The Sub-advisor expects that the Portfolio will use these
techniques on a relatively infrequent basis.
Additional information about these techniques and their risks is
included below under "Certain Risk Factors and Investment Methods."
Temporary Investments. When the Sub-advisor believes that market or
general economic conditions justify a temporary defensive position, the
Portfolio will invest all or a portion of its assets in high-grade debt
securities, including corporate debt securities, U.S. government securities, and
short-term money market instruments, without regard to whether the issuer is a
real estate company. While the Portfolio is in a defensive position, the
opportunity to achieve its investment objective of maximum total return will be
limited. The Portfolio may also invest funds awaiting investment or funds held
to satisfy redemption requests or to pay dividends and other distributions to
shareholders in short-term money market instruments.
<PAGE>
AST AMERICAN CENTURY INCOME & GROWTH PORTFOLIO:
Investment Objective: The primary investment objective of the Portfolio is
to seek capital growth. Current income is a secondary investment objective.
These are fundamental policies of the Portfolio.
Principal Investment Policies and Risks:
The Portfolio's investment strategy utilizes quantitative management
techniques in a two-step process that draws heavily on computer technology. In
the first step, the Sub-advisor ranks stocks, primarily the 1,500 largest
publicly traded U.S. companies (measured by market capitalization), from most
attractive to least attractive. These rankings are determined by using a
computer model that combines measures of a stock's value and measures of its
growth potential. To measure value, the Sub-advisor uses ratios of stock price
to book value and stock price to cash flow, among others. To measure growth, the
Sub-advisor uses, among others, the rate of growth in a company's earnings and
changes in its earnings estimates.
In the second step, the Sub-advisor uses a technique called portfolio
optimization. In portfolio optimization, the Sub-advisor uses a computer to
build a portfolio of stocks from the ranking described earlier that it thinks
will provide the best balance between risk and expected return. The goal is to
create an equity portfolio that provides better returns than the S&P 500 Index
without taking on significant additional risk. The Sub-advisor attempts to
create a dividend yield for the Portfolio that will be greater than that of the
S&P 500.
The Sub-advisor does not attempt to time the market. Instead, it
intends to keep the Portfolio essentially fully invested in stocks regardless of
the movement of stock prices generally.
Like any fund investing primarily in common stocks, the Portfolio is
subject to the risk that the value of the stocks it invests in will decline.
These declines could be substantial.
Because the Portfolio is managed to an index (the S&P 500), its
performance will be closely tied to the performance of the index. If the S&P 500
goes down, it is likely that the Portfolio's share price will also go down. The
Portfolio's investments in income-producing stocks may reduce to some degree the
Portfolio's level of risk and share price fluctuation (and its potential for
gain) relative to the S&P 500. However, if the stocks that make up the S&P 500
do not have a high dividend yield at a given time, then the Portfolio's dividend
yield also will not be high.
Other Investments:
When the Sub-advisor believes that it is prudent, the Portfolio may
invest in securities other than stocks, such as convertible securities, foreign
securities, short-term instruments and non-leveraged stock index futures
contracts. Stock index futures contracts can help the Portfolio's cash assets
remain liquid while performing more like stocks. Additional information on these
types of investments is included in this Prospectus under "Certain Risk Factors
and Investment Methods."
Short Sales "Against the Box." The Portfolio may make short sales
"against the box." This technique involves selling a security that the Portfolio
owns, or has the right to obtain without additional cost, for delivery at a
specified date in the future. The Portfolio may make a short sale against the
box to hedge against anticipated declines in the market price of a portfolio
security. If the value of the security sold short increases instead, the
Portfolio loses the opportunity to participate in the gain.
<PAGE>
AST LORD ABBETT GROWTH AND INCOME PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is
long-term growth of capital and income while attempting to avoid excessive
fluctuations in market value. This is a fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
The Portfolio normally will invest in common stocks (and securities
convertible into common stocks). The Sub-advisor will take a value-oriented
approach, in that it will try to keep the Portfolio's assets invested in
securities that are selling at reasonable prices in relation to their 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
that it believes will benefit most from these changes.
The stocks that the Portfolio will normally invest in are those of
seasoned companies that are expected to show above-average growth and that the
Sub-advisor believes are in sound financial condition. The Sub-advisor will be
constantly balancing the opportunity for profit against the risk of loss for the
Portfolio. In light of the Portfolio's value approach and its focus on income
producing stocks, its risk and share price fluctuation (and potential for gain)
may be less than many other stock funds. Of course, the prices of the common
stocks that the Portfolio invests in will fluctuate, and their dividends will
vary.
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 that the Sub-advisor believes offer better values.
Other Investments:
Consistent with the Portfolio's investment objective, the Portfolio, in
addition to investing in common stocks and convertible securities, may write
covered call options with respect to securities in the Portfolio. 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
net assets at the time an option is written. The Portfolio may also invest up to
10% of its net assets (at the time of investment) in foreign securities, and
invest in straight bonds and other debt securities.
Temporary Investments. The Portfolio may invest in short-term debt and
other high quality fixed-income securities to create reserve purchasing power
and also for temporary defensive purposes. While the Portfolio is in a defensive
position, the opportunity to achieve its investment objective may be limited.
<PAGE>
AST INVESCO EQUITY INCOME PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek high
current income while following sound investment practices. This is a fundamental
policy of the Portfolio. Capital growth potential is an additional, but
secondary, consideration in the selection of portfolio securities.
Principal Investment Policies and Risks:
The Portfolio seeks to achieve its objective by investing in securities
that will provide a relatively high yield and stable return and that, over a
period of years, may also provide capital appreciation. The Portfolio normally
will invest at least 65% of its assets in dividend-paying common stocks of
domestic and foreign issuers. Up to 10% of the Portfolio's assets may be
invested in equity securities that do not pay regular dividends. In addition,
the Portfolio normally will have some portion of its assets invested in debt
securities, convertible bonds, or preferred stocks. The Portfolio may invest up
to 25% of its total assets in foreign securities, including securities of
issuers in countries considered to be developing. These foreign investments may
serve to increase the overall risks of the Portfolio.
The Portfolio's investments in common stocks may, of course, decline in
value, which will result in declines in the Portfolio's share price. Such
declines could be substantial. To minimize the risk this presents, the
Sub-advisor only invests in common stocks and equity securities of domestic and
foreign issuers that 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. In light of the Portfolio's focus on
income producing stocks, its risk and share price fluctuation (and potential for
gain) may be less than many other stock funds.
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 or Moody's
Investors Services, Inc., or equivalent unrated debt securities ("junk bonds").
In order to decrease its risk in investing in debt securities, the
Portfolio will invest no more than 15% of its assets in junk bonds, 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. 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. For a discussion of the
special risks involved in lower-rated bonds, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Temporary Investments:
In periods of uncertain market and economic conditions, the Portfolio
may assume a defensive position with up to 100% of its assets temporarily
invested in high quality corporate bonds or notes or government securities, or
held in cash. While the Portfolio is in a defensive position, the opportunity to
achieve its investment objective may be limited.
<PAGE>
AST AIM BALANCED PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to provide a
well-diversified portfolio of stocks that will produce both capital growth and
current income. This is a fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
The Portfolio attempts to meet its objective by investing, normally, a
minimum of 30% and a maximum of 70% of its total assets in equity securities and
a minimum of 30% and a maximum of 70% of its total assets in non-convertible
debt securities. The Portfolio may invest up to 25% of its total assets in
convertible securities (which, depending on the nature of the convertible
security, may be considered equity securities for purposes of the Portfolio's
30-70% range for investments in equity securities). The Portfolio may invest up
to 10% of its total assets in high-yield debt securities rated below investment
grade or non-rated debt securities deemed to be of comparable quality ("junk
bonds"). The Portfolio may also invest up to 20% of its total assets in foreign
securities.
In selecting the percentages of assets to be invested in equity or debt
securities, the Sub-advisor considers such factors as general market and
economic conditions, as well as market, economic, industry and company trends,
yields, interest rates and changes in fiscal and monetary policies. The
Sub-advisor will primarily purchase equity securities for growth of capital and
debt securities for income purposes. However, the Sub-advisor will focus on
companies whose securities have the potential for both capital appreciation and
income generation. The Sub-advisor considers whether to sell a security when it
believes that the security no longer has that potential.
As a fund that invests both in equity and debt securities, the
Portfolio's risk of loss and share price fluctuation (and potential for gain)
may be less than funds investing primarily in equity securities and more than
funds investing in primarily in debt securities. Of course, both equity and debt
securities may decline in value. Prices of equity securities fluctuate in
response to many factors, including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions and market liquidity. Prices of debt securities
fluctuate in response to market factors such as changes in interest rates and in
response to changes in the credit quality of specific issuers. The Portfolio's
level of risk will increase to the extent it invests more heavily in long-term
debt securities or lower-rated debt securities.
The values of the convertible securities in which the Portfolio may
invest will be affected by market interest rates, the risk that the issuer may
default on interest or principal payments, and the value of the underlying
common stock into which these securities may be converted. Specifically, because
the convertible securities the Portfolio purchases typically pay fixed interest
and dividends, their values may fall if market interest rates rise and rise if
market interest rates fall. Additionally, an issuer may have the right to buy
back convertible securities at a time and price that is unfavorable to the
Portfolio.
Foreign securities have additional risks, including exchange rate
changes, political and economic upheaval, the relative lace of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
Other Investments:
The Portfolio may write call options on securities, but only on a
covered basis; that is, the Portfolio will own the underlying security. In
addition, the Portfolio may purchase put options or write call options on
securities indices for the purpose of providing a partial hedge against a
decline in the value of its portfolio securities. The Portfolio may purchase and
sell stock index and interest rate futures contracts and related options in
order to hedge the value of its investments against changes in market
conditions. The Portfolio may also engage in various types of foreign currency
hedging transactions in connection with its foreign investments.
Additional information about options, futures contracts, convertible
securities, lower-rated debt securities, foreign securities and other
investments that the Portfolio may make is included in this Prospectus under
"Certain Risk Factors and Investment Methods."
Short Sales "Against the Box." The Portfolio may from time to time make
short sales of securities that it owns or that it has the right to acquire
without additional payment through the conversion or exchange of other
securities it owns. This is a technique known as selling short "against the
box." In a short sale, the Portfolio does not immediately deliver the securities
sold. The Portfolio may make a short sale against the box as a hedge when it
believes that the price of a security held by the Portfolio may decline.
Temporary Investments. In anticipation of or in response to adverse
market conditions or for cash management purposes, the Portfolio may hold all or
a portion of its assets in cash, money market instruments, bonds or other debt
securities. While the Portfolio is in such a defensive position, the opportunity
to achieve its investment objective of both capital growth and current income
may be limited.
<PAGE>
AST AMERICAN CENTURY STRATEGIC BALANCED PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth and current income. This is a fundamental policy of the
Portfolio.
Principal Investment Policies and Risks:
The Sub-advisor intends to maintain approximately 60% of the
Portfolio's assets in equity securities and the remainder in bonds and other
fixed income securities. Both the Portfolio's equity and fixed income
investments will fluctuate in value. The equity securities will fluctuate
depending on the performance of the companies that issued them, general market
and economic conditions, and investor confidence. The fixed income investments
will be affected primarily by rising or falling interest rates and the credit
quality of the issuers. As a fund that invests both in equity and fixed income
securities, the Portfolio's risk of loss and share price fluctuation will tend
to be less than funds investing primarily in equity securities and more than
funds investing primarily in fixed income securities.
Equity Investments. With the equity portion of the Portfolio, the
Sub-advisor utilizes quantitative management techniques in a two-step process
that draws heavily on computer technology. In the first step, the Sub-advisor
ranks stocks, primarily the 1,500 largest publicly traded U.S. companies as
measured by market capitalization. These rankings are determined by using a
computer model that combines measures of a stock's value and measures of its
growth potential. To measure value, the Sub-advisor uses ratios of stock price
to book value and stock price to cash flow, among others. To measure growth, the
manager uses, among others, the rate of growth in a company's earnings and
changes in its earnings estimates.
In the second step, the Sub-advisor uses a technique called portfolio
optimization. In portfolio optimization, the Sub-advisor uses a computer to
build a portfolio of stocks from the ranking described earlier that it thinks
will provide the best balance between risk and expected return. The goal is to
create an equity portfolio that provides better returns than the S&P 500 Index
without taking on significant additional risk.
Fixed Income Investments. The Sub-advisor intends to maintain
approximately 40% of the Portfolio's assets in fixed income securities,
approximately 80% of which will be invested in domestic fixed income securities
and approximately 20% of which will be invested in foreign fixed income
securities. This percentage will fluctuate and may be higher or lower depending
on the mix the Sub-advisor believes will be most appropriate for achieving the
Portfolio's objectives. A minimum of 25% of the Portfolio's assets will be
invested in fixed income senior securities.
The fixed income portion of the Portfolio is invested in a diversified
portfolio of government securities, corporate fixed income securities,
mortgage-backed and asset-backed securities, and similar securities. The
Sub-advisor's strategy is to actively manage the Portfolio by investing the
Portfolio's fixed income assets in sectors it believes are undervalued (relative
to the other sectors) and which represent better relative long-term investment
opportunities.
The Sub-advisor will adjust the weighted average portfolio maturity in
response to expected changes in interest rates. Under normal market conditions,
the weighted average maturity of the fixed income portion of the Portfolio will
range from 3 to 10 years. During periods of rising interest rates, the weighted
average maturity may be reduced in order to reduce the effect of bond price
declines on the Portfolio's net asset value. When interest rates are falling and
bond prices are rising, the Portfolio may be moved toward the longer end of its
maturity range.
Debt securities that comprise the Portfolio's fixed income portfolio
will primarily be investment grade obligations. However, the Portfolio may
invest up to 10% of its fixed income assets in high-yield securities or "junk
bonds." Regardless of rating levels, all debt securities considered for purchase
by the Portfolio are analyzed by the Sub-advisor to determine, to the extent
reasonably possible, that the planned investment is sound, given the investment
objective of the Portfolio. For an additional discussion of lower-rated
securities and their risks, see this Prospectus under "Certain Risk Factors and
Investment Methods."
In determining the allocation of assets among U.S. and foreign capital
markets, the Sub-advisor considers the condition and growth potential of the
various economies; the relative valuations of the markets; and social,
political, and economic factors that may affect the markets. The Sub-advisor
also considers the impact of foreign exchange rates in selecting securities
denominated in foreign currencies.
Foreign Securities. The Portfolio may invest up to 25% of its total
assets in equity and debt securities of foreign issuers, including foreign
governments and their agencies, when these securities meet its standards of
selection. (As noted above, approximately 20% of the fixed income portion of the
Portfolio normally will be invested in foreign securities.) These investments
will be made primarily in issuers in developed markets. The Portfolio may make
such investments either directly in foreign securities, or by purchasing
depositary receipts for foreign securities. To protect against adverse movements
in exchange rates between currencies, the Portfolio may, for hedging purposes
only, enter into forward currency exchange contracts and buy put and call
options relating to currency futures contracts.
Other Investments:
Derivative Securities. The Portfolio may invest in derivative
securities. Certain of these derivative securities may be described as
"index/structured" securities, which are securities whose value or performance
is linked to other equity securities (as in the case of depositary receipts),
currencies, interest rates, securities indices or other financial indicators
("reference indices"). The Portfolio may not invest in a derivative security
unless the reference index or the instrument to which it relates is an eligible
investment for the Portfolio. For example, a security whose underlying value is
linked to the price of oil would not be a permissible investment because the
Portfolio may not invest in oil and gas leases or futures.
Short Sales "Against the Box." The Portfolio may make short sales
"against the box." This technique involves selling a security that the Portfolio
owns, or has the right to obtain without additional cost, for delivery at a
specified date in the future. The Portfolio may make a short sale against the
box to hedge against anticipated declines in the market price of a portfolio
security. If the value of the security sold short increases instead, the
Portfolio loses the opportunity to participate in the gain.
For further information on these securities and investment practices,
see this Prospectus under "Certain Risk Factors and Investment Methods."
<PAGE>
AST T. ROWE PRICE ASSET ALLOCATION PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek a
high level of total return by investing primarily in a diversified portfolio of
fixed income and equity securities. This is a fundamental policy of the
Portfolio.
Principal Investment Policies and Risks:
The Portfolio normally invests approximately 60% of its total assets in
equity securities and 40% in fixed income securities. This mix may vary over
shorter time periods; the equity portion may range between 50-70% and the fixed
income portion between 30-50%.
The Sub-advisor concentrates common stock investments in larger, more
established companies, but the Portfolio may include small and medium-sized
companies with good growth prospects. The Portfolio's exposure to smaller
companies is not expected to be substantial, and will not constitute more than
30% of the equity portion of the Portfolio. Up to 35% of the equity portion may
be invested in foreign (non-U.S. dollar denominated) equity securities. The
fixed income portion of the Portfolio will be allocated among investment grade
securities (50-100% of the fixed income portion); high yield or "junk" bonds (up
to 30%); foreign (non-U.S. dollar denominated) high quality debt securities (up
to 30%); and cash reserves (up to 20%).
The precise mix of equity and fixed income investments will depend on
the Sub-advisor's outlook for the markets. Shifts between stocks and bonds will
normally be done gradually and the Sub-advisor will not attempt to precisely
"time" the market. The Portfolio's investments in foreign equity and debt
securities are intended to provide additional diversification, and the
Sub-advisor will normally have at least three different countries represented in
both the foreign equity and foreign debt portions of the Portfolio.
Securities may be sold for a variety of reasons, such as to effect a
change in asset allocation, to secure gains or limit losses, or to re-deploy
assets to more promising opportunities.
As a fund that invests both in equity and fixed income securities, the
Portfolio risk of loss and share price fluctuation (and potential for gain) will
tend to be less than funds investing primarily in equity securities and more
than funds investing primarily in fixed income securities. Of course, both
equity and fixed income securities may decline in value.
Equity securities may decline because the stock market as a whole
declines, or because of reasons specific to the company, such as disappointing
earnings or changes in its competitive environment. The Portfolio's level of
risk will increase if a significant portion of the Portfolio is invested in
securities of small-cap companies. Like other fixed income funds, the fixed
income portion of the Portfolio is subject to changes in market interest rates
and changes in the credit quality of specific issuers. Because of the
Portfolio's focus on fixed income securities with intermediate to long
maturities, changes in market interest rates may cause substantial declines in
the Portfolio's share price. The Portfolio's level of risk will increase if a
significant portion of the Portfolio is invested in lower-rated high yield bonds
or in foreign securities.
Equity Securities. Investments in non-U.S. dollar denominated stocks
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. Stocks
of companies in developing countries may be included. The equity portion of the
Portfolio also may include convertible securities, preferred stocks and
warrants.
Investments in small companies involve both higher risk and greater
potential for appreciation. 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 move more abruptly than securities of larger companies.
Fixed Income Securities. Bond investments may include U.S. Treasury and
agency issues, corporate debt securities (including non-investment grade "junk"
bonds), mortgage-backed securities (including derivatives such as collateralized
mortgage obligations and stripped mortgage-backed securities) and asset-backed
securities. While the weighted average maturities of each component of the fixed
income portion (i.e., investment grade, high yield, etc.) of the Portfolio will
differ, the weighted average maturity of the fixed income portion as a whole
(except for the cash reserves component) is expected to be in the range of 7 to
12 years. The cash reserves component will consist of liquid short-term
investments of one year or less rated within the top two credit categories by at
least one established rating organization or, if unrated, of equivalent
investment quality as determined by the Sub-advisor.
Other Investments:
The Portfolio may enter into stock index, interest rate or currency
futures contracts (or options thereon) for hedging purposes or to provide an
efficient means of adjusting the Portfolio's exposure to the equity markets. The
Portfolio may write covered call options and purchase put and call options on
foreign currencies, securities, and financial indices. The Portfolio may invest
up to 10% of its total assets in hybrid instruments, which combine the
characteristics of futures, options and securities. To the extent the Portfolio
uses these investments, it will be exposed to additional volatility and
potential losses. The Portfolio may enter into forward foreign currency exchange
contracts in connection with its foreign investments.
For an additional discussion of these other investments and their
risks, see this Prospectus under "Certain Risk Factors and Investment Methods."
Temporary Investments. As noted above, up to 20% of the fixed income
portion of the Portfolio normally may consist of cash reserves. In addition, the
Portfolio may maintain cash reserves without limitation for temporary defensive
purposes. While the Portfolio is in a defensive position, the opportunity to
achieve its investment objective of a high level of total return may be limited.
Cash reserves also provide flexibility in meeting redemptions and paying
expenses.
<PAGE>
AST T. ROWE PRICE INTERNATIONAL BOND PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to provide
high current income and capital growth by investing in high-quality, non
dollar-denominated government and corporate bonds outside the United States.
This is a fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
To achieve its objectives, the Portfolio will invest at least 65% of
its assets in high-quality, non-U.S. dollar denominated government and corporate
bonds outside the United States. The Portfolio seeks to moderate price
fluctuation by actively managing its maturity structure and currency exposure.
The Sub-advisor bases its investment decisions on fundamental market factors,
currency trends, and credit quality. The Portfolio generally invests in
countries where the combination of fixed-income returns and currency exchange
rates appears attractive, or, if the currency trend is unfavorable, where the
Sub-advisor believes that the currency risk can be minimized through hedging.
Although the Portfolio expects to maintain an intermediate-to-long
weighted average maturity, there are no maturity restrictions on the overall
portfolio or on individual securities. While the Portfolio may engage in foreign
currency transactions such as forward foreign currency exchange contracts, the
Portfolio normally does not hedge its foreign currency exposure back to the
dollar. Nor will the Portfolio normally involve more than 50% of its total
assets in hedging Portfolio holdings against other foreign currencies
("cross-hedging"). The Sub-advisor attempts to reduce currency risks through
diversification among foreign securities and active management of maturities and
currency exposures.
The Portfolio may also invest up to 20% of its assets in below
investment-grade, high-risk bonds ("junk bonds"), including bonds in default or
those with the lowest rating. Defaulted bonds are acquired only if the
Sub-advisor foresees the potential for significant capital appreciation. Up to
20% of the Portfolio's assets may be invested in foreign bonds denominated in
U.S. dollars, such as Brady Bonds and other emerging market bonds.
Like any fixed income fund, the value of the Portfolio will fluctuate
in response to changes in market interest rates and the credit quality of
particular companies. International fixed income investing, however, involves
additional risks that can increase the potential for losses. These additional
risks include varying stages of economic and political development of foreign
countries, differing regulatory and accounting standards in non-U.S. markets,
and higher transactions cost. Because the Portfolio's investments are primarily
denominated in foreign currencies, exchange rates are also likely to have a
significant impact on total Portfolio performance. For example, a rise in the
U.S. dollar's value relative to the Japanese yen will decrease the U.S. dollar
value of a Japanese bond held in the Portfolio, even though the price of that
bond in yen remains unchanged. Therefore, because of these currency risks and
the risks of investing in foreign securities generally, the Portfolio will
involve a greater degree of risk and share price fluctuation than a fund
investing primarily in domestic fixed income securities. In addition, the
Portfolio's focus on longer maturity bonds will tend to cause greater
fluctuations in value when interest rates change.
Types of Debt Securities. The Portfolio's investments in debt
securities may include securities issued or guaranteed by foreign governments,
their agencies, instrumentalities or political subdivisions, securities issued
or guaranteed by supranational organizations (e.g., European Investment Bank,
InterAmerican Development Bank or the World Bank), bank or bank holding company
securities, and convertible debt securities.
The Portfolio may invest in zero coupon securities, which are
securities that are purchased at a discount from their face value, but that do
not make cash interest payments. Zero coupon securities are subject to greater
fluctuation in market value as a result of changing interest rates than debt
obligations that make current cash interest payments.
The Portfolio may invest in Brady Bonds, which are used to as a means
of restructuring the external debt burden of certain emerging countries. Even if
the bonds are collateralized, they are often considered speculative investments
because of the country's credit history or other factors. The Portfolio may
purchase the securities of certain foreign investment funds or trusts called
passive foreign investment companies. Such trusts have been the only or primary
way to invest in certain countries. In addition to bearing their proportionate
share of the Trust's expenses, shareholders will also indirectly bear similar
expenses of such trusts.
Nondiversified Investment Company. The Portfolio intends to select its
investments from a number of country and market sectors, and intends to have
investments in securities of issuers from a minimum of three different
countries. However, the Portfolio is considered a "nondiversified" investment
company for purposes of the Investment Company Act of 1940. As such, the
Portfolio may invest more than 5% of its assets in the fixed-income securities
of individual foreign governments. The Portfolio generally will not invest more
than 5% of its assets in any individual corporate issuer, except with respect to
certain short-term investments. As a nondiversified fund, a price decline in any
one of the Portfolio's holdings may have a greater effect on the Portfolio's
value than on the value of a fund that is more broadly diversified.
Other Investments:
The Portfolio may buy and sell futures contracts (and related options)
for a number of reasons including: to manage exposure to changes in interest
rates, securities prices and currency exchange rates; as an efficient means of
adjusting overall exposure to certain markets; to earn income; to protect the
value of portfolio securities; and to adjust the portfolio's duration. The
Portfolio may purchase or write call and put options on securities, financial
indices, and foreign currencies. The Portfolio may invest up to 10% of its total
assets in hybrid instruments, which combine the characteristics of futures,
options and securities.
Additional information on the securities in which the Portfolio may
invest and their risks in included below under "Certain Risk Factors and
Investment Methods."
Temporary Investments. To protect against adverse movements of interest
rates, the Portfolio may invest without limit in short-term obligations
denominated in U.S. and foreign currencies such as certain bank obligations,
commercial paper, short-term government and corporate obligations, and
repurchase agreements. Cash reserves also provide flexibility in meeting
redemptions and paying expenses. While the Portfolio is in a defensive position,
the opportunity to achieve its investment objective of high current income and
capital growth may be limited.
<PAGE>
AST FEDERATED HIGH YIELD PORTFOLIO:
Investment Objective: The investment objective of the 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 Fund intends to invest are
lower-rated corporate debt obligations. This is a fundamental policy of the
Portfolio.
Principal Investment Policies and Risks:
The Portfolio will invest at least 65% of its assets in lower-rated
corporate fixed income securities ("junk bonds"). These fixed income securities
may include preferred stocks, convertible securities, bonds, debentures, notes,
equipment lease certificates and equipment trust certificates. The securities in
which the Portfolio invests usually will be rated below the three highest rating
categories of a nationally recognized rating organization (AAA, AA, or A for
Standard & Poor's Corporation ("Standard & Poor's") and Aaa, Aa or A for Moody's
Investors Service, Inc. ("Moody's")) or, if unrated, are of comparable quality.
There is no lower limit on the rating of securities in which the Portfolio may
invest. The Portfolio may purchase or hold securities rated in the lowest rating
category or securities in default.
A fund that invests primarily in lower-rated fixed income securities
will be subject to greater risk and share price fluctuation than a typical fixed
income fund, and may be subject to an amount of risk that is comparable to or
greater than many equity funds. Lower-rated securities will usually offer higher
yields than higher-rated securities, but with more risk of loss of principal and
interest. This is because of the reduced creditworthiness of the securities and
the increased risk of default. Like equity securities, lower-rated fixed income
securities tend to reflect short-term corporate and market developments to a
greater extent than higher-rated fixed income securities, which tend to react
primarily to fluctuations in market interest rates.
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 industries sensitive to market cycles, where deterioration in a
company's cash flow may impair its ability to meet its obligations under the
bonds. From time to time, 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, the value of the securities may
fall, and the Portfolio may bear 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. Adverse
publicity and the perception of investors relating to these securities and their
issuers, whether or not warranted, may also affect the price or liquidity of
lower-rated bonds. For an additional discussion of the risks involved in
lower-rated securities, see this Prospectus under "Certain Risk Factors and
Investment Methods."
Methods by which the Sub-advisor attempts to reduce the risks involved
in lower-rated securities include:
Credit Research. The Sub-advisor will perform its own credit
analysis in addition to using rating organizations and other sources, and may
have discussions with the issuer's management or other investment analysts
regarding issuers. The Sub-advisor's credit analysis will consider the issuer's
financial soundness, its responsiveness to changing business and market
conditions, and its anticipated cash flow and earnings. In evaluating an issuer,
the Sub-advisor places special emphasis on the estimated current value of the
issuer's assets rather than their 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.
Other Investments:
Under normal circumstances, the Portfolio will not invest more than 10%
of its total assets in equity securities. The Portfolio may own zero coupon
bonds or pay-in-kind securities, which are fixed income securities that do not
make regular cash interest payments. The prices of these securities are
generally more sensitive to changes in market interest rates than are
conventional bonds. Additionally, interest on zero coupon bonds and pay-in-kind
securities must be reported as taxable income to the Portfolio even though it
receives no cash interest until the maturity of such securities.
The Portfolio may invest in securities issued by real estate investment
trusts, which are companies that hold real estate or mortgage investments.
Usually, real estate investment trusts are not diversified, and, therefore, are
subject to the risks of a single project or a small number of projects. They
also may be heavily dependent on cash flows from the property they own, may bear
the risk of defaults on mortgages, and may be affected by changes in the value
of the underlying property.
Temporary Investments. The Portfolio may also invest all or a part of
its assets temporarily in cash or cash items for defensive purposes during times
of unusual market conditions or to maintain liquidity. Cash items may include
certificates of deposit and other bank obligations; commercial paper (generally
lower-rated); short-term notes; obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities; and repurchase agreements.
While the Portfolio is in a defensive position, the opportunity to achieve its
investment objective of high current income will be limited.
<PAGE>
AST PIMCO TOTAL RETURN BOND PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
to maximize total return, consistent with preservation of capital and prudent
investment management.
Principal Investment Policies and Risks:
The Portfolio will invest at least 65% of its assets in the following
types of fixed income securities;
o securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities;
o corporate debt securities, including convertible securities and commercial
paper;
o mortgage and other asset-backed securities;
o structured notes, including hybrid or "indexed" securities, and loan
participations;
o delayed funding loans and revolving credit securities;
o bank certificates of deposit, fixed time deposits and bankers' acceptances;
o repurchase agreements and reverse repurchase agreements;
o obligations of foreign governments or their subdivisions, agencies and
instrumentalities; and
o obligations of international agencies or supranational entities.
Portfolio holdings will be concentrated in areas of the bond market (based on
quality, sector, interest rate or maturity) that the Sub-advisor believes to be
relatively undervalued. In selecting fixed income securities, the Sub-advisor
uses economic forecasting, interest rate anticipation, credit and call risk
analysis, foreign currency exchange rate forecasting, and other securities
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 management of
duration (a measure of a fixed income security's expected life that incorporates
its yield, coupon interest payments, final maturity and call features into one
measure) is one of the fundamental tools used by the Sub-advisor.
The Portfolio will invest in fixed-income securities of varying
maturities. The average portfolio duration of the Portfolio generally will vary
within a three- to six-year time frame based on the Sub-advisor's forecast for
interest rates. The Portfolio may invest up to 10% of its assets in fixed income
securities that are rated below investment grade ("junk bonds") but are 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).
Generally, over the long term, the return obtained by a portfolio
investing primarily in fixed income securities such as the Portfolio is not
expected to be as great as that obtained by a portfolio investing in equity
securities. At the same time, the risk and price fluctuation of a fixed income
fund 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.
However, the Portfolio can and routinely does invest in certain complex fixed
income securities (including various types of mortgage-backed and asset-backed
securities) and engage in a number of investment practices (including futures,
swaps and dollar rolls) as described below, that many other fixed income funds
do not utilize. These investments and practices are designed to increase the
Portfolio's return or hedge its investments, but may increase the risk to which
the Portfolio is subject.
Like other fixed income funds, the Portfolio is subject to market risk.
Bond values fluctuate based on changes in interest rates, market conditions,
investor confidence and announcements of economic, political or financial
information. Generally, the value of fixed income securities will change
inversely with changes in market interest rates. As interest rates rise, market
value tends to decrease. This risk will be greater for long-term securities than
for short-term securities. Certain mortgage-backed and asset-backed securities
and derivative instruments in which the Portfolio may invest may be particularly
sensitive to changes in interest rates. The Portfolio is also subject to credit
risk, which is the possibility that an issuer of a security (or a counterparty
to a derivative contract) will default or become unable to meet its obligation.
Generally, the lower the rating of a security, the higher its degree of credit
risk.
The following paragraphs describe some specific types of fixed-income
investments that the Portfolio may invest in, and some of the investment
practices that the Portfolio will engage in. More information about some of
these investments, including futures, options and mortgage-backed and
asset-backed securities, is included below under "Certain Risk Factors and
Investment Methods."
U.S. Government Securities. The Portfolio may invest in various types
of U.S. Government securities, including those that are supported by the full
faith and credit of the United States; those that are supported by the right of
the issuing agency to borrow from the U.S. Treasury; those that are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others that are supported only by the credit of the
instrumentality.
Corporate Debt Securities. Corporate debt securities include corporate
bonds, debentures, notes and other similar instruments, including convertible
securities and preferred stock. Debt securities may be acquired with warrants
attached. The rate of return or return of principal on some debt obligations may
be linked or indexed to exchange rates between the U.S. dollar and a foreign
currency or currencies.
While the Sub-advisor may regard some countries or companies as
favorable investments, pure fixed income opportunities may be unattractive or
limited due to insufficient supply or legal or technical restrictions. In such
cases, the Portfolio may consider equity securities or convertible bonds to gain
exposure to such investments.
Variable and Floating Rate Securities. Variable and floating rate
securities provide for a periodic adjustment in the interest rate paid on the
obligations. The interest rates on these securities are tied to other interest
rates, such as money-market indices or Treasury bill rates, and reset
periodically. While these securities provide the Portfolio with a certain degree
of protection against losses caused by rising interest rates, they will cause
the Portfolio's interest income to decline if market interest rates decline.
Inflation-Indexed Bonds. Inflation-indexed bonds are fixed income
securities whose principal value is periodically adjusted according to the rate
of inflation. The interest rate on these bonds is fixed at issuance, and is
generally lower than the interest rate on typical bonds. Over the life of the
bond, however, this interest will be paid based on a principal value that has
been adjusted for inflation. Repayment of the adjusted principal upon maturity
may be guaranteed, but the market value of the bonds is not guaranteed, and will
fluctuate. The Portfolio may invest in inflation-indexed bonds that do not
provide a repayment guarantee. While these securities are expected to be
protected from long-term inflationary trends, short-term increases in inflation
may lead to losses.
Catastrophe Bonds. Catastrophe bonds are fixed income securities for
which the return of principal and payment of interest is contingent upon the
non-occurrence of a specific "trigger" event. The trigger event may be, for
example, a hurricane or an earthquake in a specific geographic region that
causes losses exceeding a specific amount. If the trigger event occurs, the
Portfolio may lose all or a portion of the amount it invested in the bond.
Catastrophe bonds may also expose the Portfolio to certain other risks,
including default, adverse regulatory interpretation, and adverse tax
consequences.
Mortgage-Related and Other Asset-Backed Securities. The Portfolio may
invest all of its assets in mortgage-backed and other asset-backed securities,
including collateralized mortgage obligations. The value of some mortgage-backed
and asset-backed securities in which the Portfolio invests may be particularly
sensitive to changes in market interest rates.
Reverse Repurchase Agreements and Dollar Rolls. In addition to entering
into reverse repurchase agreements (as described below under "Certain Risk
Factors and Investment Methods"), the Portfolio may also enter into dollar
rolls. In a dollar roll, the Portfolio sells mortgage-backed or other securities
for delivery in the current month and simultaneously contracts to purchase
substantially similar securities on a specified future date. The Portfolio
forgoes principal and interest paid on the securities sold in a dollar roll, but
the Portfolio is compensated by the difference between the sales price and the
lower price for the future purchase, as well as by any interest earned on the
proceeds of the securities sold. The Portfolio also could be compensated through
the receipt of fee income. Reverse repurchase agreements and dollar rolls can be
viewed as collateralized borrowings and, like other borrowings, will tend to
exaggerate fluctuations in Portfolio's share price and may cause the Portfolio
to need to sell portfolio securities at times when it would otherwise not wish
to do so.
Foreign Securities. The Portfolio may invest up to 20% of its assets in
securities denominated in foreign currencies and may invest beyond this limit in
U.S. dollar-denominated securities of foreign issuers. The Portfolio may invest
up to 10% of its assets in securities of issuers based in developing countries
(as determined by the Sub-advisor). The Portfolio may buy and sell foreign
currency futures contracts and options on foreign currencies and foreign
currency futures contracts, and enter into forward foreign currency exchange
contracts for the purpose of hedging currency exchange risks arising from the
Portfolio's investment or anticipated investment in securities denominated in
foreign currencies.
Derivative Instruments. The Portfolio may purchase and write call and
put options on securities, securities indices and on foreign currencies. 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 U.S. or foreign exchanges or boards of trade. The Portfolio may also
enter into swap agreements with respect to foreign currencies, interest rates
and securities indices. The Portfolio may use these techniques to hedge against
changes in interest rates, currency exchange rates or securities prices or as
part of its overall investment strategy.
For a discussion of futures and options and their risks, see this
Prospectus under "Certain Risk Factors and Investment Methods." The Portfolio's
investments in swap agreements are described directly below.
Swap Agreements. The Portfolio may enter into interest rate, index and
currency exchange rate swap agreements for the purposes of attempting to obtain
a desired return at a lower cost 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, the
two parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular investments or instruments. The returns to be
exchanged between the parties are calculated with respect to a "notional
amount," i.e., a specified dollar amount that is hypothetically 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.
Under most swap agreements entered into by the Portfolio, the parties'
obligations are determined on a "net basis." Consequently, the Portfolio's
obligations (or rights) under a swap agreement will generally be equal only to a
net amount based on the relative values of the positions held by each party.
Whether the Portfolio's use of swap agreements will be successful will
depend on the sub-advisor's ability to predict that certain types of investments
are likely to produce greater returns than other investments. Moreover, the
Portfolio may not receive the expected amount under a swap agreement if the
other party to the agreement defaults or becomes bankrupt. The swaps market is
relatively new and is largely unregulated.
<PAGE>
AST PIMCO LIMITED MATURITY BOND PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
to maximize total return, consistent with preservation of capital and prudent
investment management. This is a fundamental policy of the Portfolio.
Principal Investment Policies and Risks:
The Portfolio will invest at least 65% of its assets in the following
types of fixed income securities;
o securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities;
o corporate debt securities, including convertible securities and commercial
paper;
o mortgage and other asset-backed securities;
o structured notes, including hybrid or "indexed" securities, and loan
participations;
o delayed funding loans and revolving credit securities;
o bank certificates of deposit, fixed time deposits and bankers' acceptances;
o repurchase agreements and reverse repurchase agreements;
o obligations of foreign governments or their subdivisions, agencies and
instrumentalities; and
o obligations of international agencies or supranational entities.
Portfolio holdings will be concentrated in areas of the bond market
(based on quality, sector, interest rate or maturity) that the Sub-advisor
believes to be relatively undervalued. In selecting fixed income securities, the
Sub-advisor uses economic forecasting, interest rate anticipation, credit and
call risk analysis, foreign currency exchange rate forecasting, and other
securities 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
management of duration (a measure of a fixed income security's expected life
that incorporates its yield, coupon interest payments, final maturity and call
features into one measure) is one of the fundamental tools used by the
Sub-advisor.
The Portfolio will invest in fixed-income securities of varying
maturities. The average portfolio duration of the Portfolio generally will vary
within a one- to three-year time frame based on the Sub-advisor's forecast for
interest rates. The Portfolio may invest up to 10% of its assets in fixed income
securities that are rated below investment grade ("junk bonds") but are 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).
Generally, over the long term, the return obtained by a portfolio
investing primarily in fixed income securities such as the Portfolio is not
expected to be as great as that obtained by a portfolio investing in equity
securities. At the same time, the risk and price fluctuation of a fixed income
fund 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.
However, the Portfolio can and routinely does invest in certain complex fixed
income securities (including various types of mortgage-backed and asset-backed
securities) and engage in a number of investment practices (including futures,
swaps and dollar rolls) as described below, that many other fixed income funds
do not utilize. These investments and practices are designed to increase the
Portfolio's return or hedge its investments, but may increase the risk to which
the Portfolio is subject.
Like other fixed income funds, the Portfolio is subject to market risk.
Bond values fluctuate based on changes in interest rates, market conditions,
investor confidence and announcements of economic, political or financial
information. Generally, the value of fixed income securities will change
inversely with changes in market interest rates. As interest rates rise, market
value tends to decrease. This risk will be greater for long-term securities than
for short-term securities. Therefore, the Portfolio's share price is expected to
fluctuate less than the AST PIMCO Total Return Bond Portfolio, because its
average duration will be shorter. Certain mortgage-backed and asset-backed
securities and derivative instruments in which the Portfolio may invest may be
particularly sensitive to changes in interest rates. The Portfolio is also
subject to credit risk, which is the possibility that an issuer of a security
(or a counterparty to a derivative contract) will default or become unable to
meet its obligation. Generally, the lower the rating of a security, the higher
its degree of credit risk.
The following paragraphs describe some specific types of fixed-income
investments that the Portfolio may invest in, and some of the investment
practices that the Portfolio will engage in. More information about some of
these investments, including futures, options and mortgage-backed and
asset-backed securities, is included below under "Certain Risk Factors and
Investment Methods."
U.S. Government Securities. The Portfolio may invest in various types
of U.S. Government securities, including those that are supported by the full
faith and credit of the United States; those that are supported by the right of
the issuing agency to borrow from the U.S. Treasury; those that are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others that are supported only by the credit of the
instrumentality.
Corporate Debt Securities. Corporate debt securities include corporate
bonds, debentures, notes and other similar instruments, including convertible
securities and preferred stock. Debt securities may be acquired with warrants
attached. The rate of return or return of principal on some debt obligations may
be linked or indexed to exchange rates between the U.S. dollar and a foreign
currency or currencies.
While the Sub-advisor may regard some countries or companies as
favorable investments, pure fixed income opportunities may be unattractive or
limited due to insufficient supply or legal or technical restrictions. In such
cases, the Portfolio may consider equity securities or convertible bonds to gain
exposure to such investments.
Variable and Floating Rate Securities. Variable and floating rate
securities provide for a periodic adjustment in the interest rate paid on the
obligations. The interest rates on these securities are tied to other interest
rates, such as money-market indices or Treasury bill rates, and reset
periodically. While these securities provide the Portfolio with a certain degree
of protection against losses caused by rising interest rates, they will cause
the Portfolio's interest income to decline if market interest rates decline.
Inflation-Indexed Bonds. Inflation-indexed bonds are fixed income
securities whose principal value is periodically adjusted according to the rate
of inflation. The interest rate on these bonds is fixed at issuance, and is
generally lower than the interest rate on typical bonds. Over the life of the
bond, however, this interest will be paid based on a principal value that has
been adjusted for inflation. Repayment of the adjusted principal upon maturity
may be guaranteed, but the market value of the bonds is not guaranteed, and will
fluctuate. The Portfolio may invest in inflation-indexed bonds that do not
provide a repayment guarantee. While these securities are expected to be
protected from long-term inflationary trends, short-term increases in inflation
may lead to losses.
Catastrophe Bonds. Catastrophe bonds are fixed income securities for
which the return of principal and payment of interest is contingent upon the
non-occurrence of a specific "trigger" event. The trigger event may be, for
example, a hurricane or an earthquake in a specific geographic region that
causes losses exceeding a specific amount. If the trigger event occurs, the
Portfolio may lose all or a portion of the amount it invested in the bond.
Catastrophe bonds may also expose the Portfolio to certain other risks,
including default, adverse regulatory interpretation, and adverse tax
consequences.
Mortgage-Related and Other Asset-Backed Securities. The Portfolio may
invest all of its assets in mortgage-backed and other asset-backed securities,
including collateralized mortgage obligations and stripped mortgage-backed
securities. The value of some mortgage-backed and asset-backed securities in
which the Portfolio invests may be particularly sensitive to changes in market
interest rates.
Reverse Repurchase Agreements and Dollar Rolls. In addition to entering
into reverse repurchase agreements (as described below under "Certain Risk
Factors and Investment Methods"), the Portfolio may also enter into dollar
rolls. In a dollar roll, the Portfolio sells mortgage-backed or other securities
for delivery in the current month and simultaneously contracts to purchase
substantially similar securities on a specified future date. The Portfolio
forgoes principal and interest paid on the securities sold in a dollar roll, but
the Portfolio is compensated by the difference between the sales price and the
lower price for the future purchase, as well as by any interest earned on the
proceeds of the securities sold. The Portfolio also could be compensated through
the receipt of fee income. Reverse repurchase agreements and dollar rolls can be
viewed as collateralized borrowings and, like other borrowings, will tend to
exaggerate fluctuations in Portfolio's share price and may cause the Portfolio
to need to sell portfolio securities at times when it would otherwise not wish
to do so.
Foreign Securities. The Portfolio may invest up to 20% of its assets in
securities denominated in foreign currencies and may invest beyond this limit in
U.S. dollar-denominated securities of foreign issuers. The Portfolio may buy and
sell foreign currency futures contracts and options on foreign currencies and
foreign currency futures contracts, and enter into forward foreign currency
exchange contracts for the purpose of hedging currency exchange risks arising
from the Portfolio's investment or anticipated investment in securities
denominated in foreign currencies.
Derivative Instruments. The Portfolio may purchase and write call and
put options on securities, securities indices and on foreign currencies. 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 U.S. or foreign exchanges or boards of trade. The Portfolio may also
enter into swap agreements with respect to foreign currencies, interest rates
and securities indices. The Portfolio may use these techniques to hedge against
changes in interest rates, currency exchange rates or securities prices or as
part of its overall investment strategy.
For a discussion of futures and options and their risks, see this
Prospectus under "Certain Risk Factors and Investment Methods." The Portfolio's
investments in swap agreements are described directly below.
Swap Agreements. The Portfolio may enter into interest rate, index and
currency exchange rate swap agreements for the purposes of attempting to obtain
a desired return at a lower cost 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, the
two parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular investments or instruments. The returns to be
exchanged between the parties are calculated with respect to a "notional
amount," i.e., a specified dollar amount that is hypothetically 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.
Under most swap agreements entered into by the Portfolio, the parties'
obligations are determined on a "net basis." Consequently, the Portfolio's
obligations (or rights) under a swap agreement will generally be equal only to a
net amount based on the relative values of the positions held by each party.
Whether the Portfolio's use of swap agreements will be successful will
depend on the sub-advisor's ability to predict that certain types of investments
are likely to produce greater returns than other investments. Moreover, the
Portfolio may not receive the expected amount under a swap agreement if the
other party to the agreement defaults or becomes bankrupt. The swaps market is
relatively new and is largely unregulated.
<PAGE>
AST MONEY MARKET PORTFOLIO:
Investment Objective: The investment objective of the Fund is to seek high
current income and maintain high levels of liquidity. This is a fundamental
policy of the Portfolio.
Principal Investment Policies and Risks:
As a money market fund, the Portfolio seeks to maintain a stable net
asset value of $1.00 per share. In other words, the Portfolio attempts to
operate so that shareholders do not lose any of the principal amount they invest
in the Portfolio. Of course, there can be no assurance that the Portfolio will
achieve its goal of a stable net asset value, and shares of the Portfolio are
neither insured nor guaranteed by the U.S. government or any other entity. For
instance, the issuer or guarantor of a portfolio security or the other party to
a contract could default on its obligation, and this could cause the Portfolio's
net asset value to fall below $1. In addition, the income earned by the
Portfolio will fluctuate based on market conditions and other factors.
Under the regulatory requirements applicable to money market funds, the
Portfolio must maintain a weighted average portfolio maturity of not more than
90 days and invest in high quality U.S. dollar-denominated securities that have
effective maturities of not more than 397 days. In addition, the Portfolio will
limit its investments to those securities that, in accordance with guidelines
adopted by the Trustees of the Trust, present minimal credit risks. The
Portfolio will not purchase any security (other than a United States Government
security) unless:
o if rated by only one nationally recognized statistical rating organization
(such as Moody's and Standard & Poor's), such organization has rated it
with the highest rating assigned to short-term debt securities;
o if rated by more than one nationally recognized statistical rating
organization, at least two rating organizations have rated it with the
highest rating assigned to short-term debt securities; or
o it is not rated, but is determined to be of comparable quality in accordance
with procedures noted above.
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 Directors that
disposing of the investment would not be in the Portfolio's best interest.
Subject to the above requirements, 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 and instrumentalities either
directly or through repurchase agreements. U.S. Government obligations 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. Some 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 are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others are supported only
by the credit of the agency. There is no assurance that the U.S. Government will
provide financial support to one of its agencies if it is not obligated to do so
by law.
Bank Obligations. The Portfolio may invest in high quality United
States dollar-denominated negotiable certificates of deposit, time deposits and
bankers' acceptances of U.S. and foreign banks, savings and loan associations
and savings banks meeting certain total asset minimums. 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 commitments of their member countries, and there is no assurance
these commitments will be undertaken or met.
Commercial Paper; Bonds. The Portfolio may invest in high quality
commercial paper and corporate bonds issued by United States corporations. The
Portfolio may also invest in bonds and commercial paper of foreign issuers if
the obligation is U.S. dollar-denominated and is not subject to foreign
withholding tax.
Asset-Backed Securities. As may be permitted by current laws and
regulations, the Portfolio may invest in asset-backed securities up to 10% of
its net assets.
Synthetic Instruments. As may be permitted by current laws and
regulations and if expressly permitted by the Directors of the Company, the
Portfolio may invest in certain synthetic instruments. Such instruments
generally involve the deposit of asset-backed securities in a trust arrangement
and the issuance of certificates evidencing interests in the trust. The
Sub-advisor will review the structure of synthetic instruments to identify
credit and liquidity risks and will monitor such risks.
Foreign Securities. Foreign investments must be denominated in U.S. dollars
and may be made directly in securities of foreign issuers or in the form of
American Depositary Receipts and European Depositary Receipts.
For more information on certain of these investments, see this
Prospectus under "Certain Risk Factors and Investment Methods."
<PAGE>
PORTFOLIO TURNOVER:
Each Portfolio may sell its portfolio securities, regardless of the
length of time that they have been held, if the Sub-advisor and/or the
Investment Manager determines that it would be in the Portfolio's best interest
to do so. It may be appropriate to buy or sell portfolio securities due to
economic, market, or other factors that are not within the Sub-advisor's or
Investment Manager's control. Such transactions will increase a Fund's
"portfolio turnover." A 100% portfolio turnover rate would occur if all of the
securities in a portfolio of investments were replaced during a given period.
Although turnover rates may vary substantially from year to year, it is
anticipated that the following Portfolios regularly may have annual rates of
turnover exceeding 100%:
AST Founders Passport Portfolio
AST Janus Overseas Growth Portfolio
AST American Century International Growth Portfolio
AST Janus Small-Cap Growth Portfolio
AST Kemper Small-Cap Growth Portfolio
AST Neuberger Berman Mid-Cap Growth Portfolio
AST Neuberger Berman Mid-Cap Value Portfolio
AST Marsico Capital Growth Portfolio
AST JanCap Growth Portfolio
AST Cohen & Steers Realty Portfolio
AST T.Rowe Price International Bond Portfolio
AST PIMCO Total Return Bond Portfolio
AST PIMCO Limited Maturity Bond Portfolio
A high rate of portfolio turnover involves correspondingly higher
brokerage commission expenses and other transaction costs, which are borne by a
Portfolio and will reduce its performance.
NET ASSET VALUE:
The net asset value per share ("NAV") of each Portfolio is determined
as of the close of the New York Stock Exchange (the "NYSE") (normally 4:00 p.m.
Eastern Time) on each day that the NYSE is open for business. NAV is determined
by dividing the value of a Portfolio's total assets, less any liabilities, by
the number of total shares of that Portfolio outstanding. In general, the assets
of each Portfolio (except the AST Money Market Portfolio) are valued on the
basis of market quotations. However, in certain circumstances where market
quotations are not readily available or are believed to be inaccurate, assets
are valued by methods that are believed to accurately reflect their fair value.
The assets of the AST Money Market Portfolio are valued by the amortized cost
method, which is intended to approximate market value. Because NAV is calculated
and purchases may be made only on business days, and because securities traded
on foreign exchanges may trade on other days, the value of a Portfolio's
investments may change on days when shares cannot be purchased or redeemed.
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 investing
assets attributable to variable annuity contracts and variable life insurance
policies ("contractholders"), 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 to be effected on
that day under the variable annuity contracts and variable life insurance
policies. Orders are effected on days on which the NYSE is open for trading.
Orders received before 4:00 P.M. Eastern time are effected at the NAV 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 NAV calculated the next business day. Payment
for redemptions will be made 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. However, 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. Please refer to
the prospectuses for the variable annuity contracts and variable insurance
policies for further information on these fees.
As of the date of this Prospectus, American Skandia Life Assurance
Corporation ("ASLAC") and Kemper Investors Life Insurance Company are the only
Participating Insurance Companies. The profit sharing plan covering employees of
ASLAC and its affiliates, which is a retirement plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended, also may directly own
shares of the Trust. Certain conflicts of interest may arise as a result of
investment in the Trust by various insurance companies for the benefit of their
contractholders and by various qualified plans. These conflicts could arise
because of differences in the tax treatment of the various investors, because of
actions of the Participating Insurance Companies and/or the qualified plans, or
other reasons. The Trust does not currently expect that any material conflicts
of interest will arise. Nevertheless, the Trustees intend to monitor events in
order to identify any material irreconcilable conflicts and to determine what
action, if any, should be taken in response to such conflicts. Should any
conflict arise that would require a substantial amount of assets to be withdrawn
from the Trust, orderly portfolio management could be disrupted.
MANAGEMENT OF THE TRUST:
Investment Manager: American Skandia Investment Services, Incorporated
("ASISI"), One Corporate Drive, Shelton, Connecticut, acts as Investment Manager
to the Trust. ASISI has served as Investment Manager since 1992, and currently
serves as Investment Manager to a total of 44 investment company portfolios
(including the Portfolios of the Trust). ASISI is an indirect wholly-owned
subsidiary of 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 Trust's Investment Management Agreements with ASISI (the
"Management Agreements") provide that ASISI will furnish each applicable
Portfolio with investment advice and administrative services 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 Sub-advisors to
conduct the investment programs of each Portfolio, including the purchase,
retention and sale of portfolio securities. The Investment Manager is
responsible for monitoring the activities of the Sub-advisors and reporting on
such activities to the Trustees. The Investment Manager must also provide, or
obtain and supervise, the executive, administrative, accounting, custody,
transfer agent and shareholder servicing services that are deemed advisable by
the Trustees.
The Trust has filed with the Securities and Exchange Commission an
application for an order which, if granted, would permit ASISI, subject to
approval by the Board of Trustees of the Trust, to change sub-advisors for a
Portfolio in the future, and to permit ASISI to enter into new sub-advisory
agreements, without obtaining shareholder approval of the changes. This order
(which has been granted to other investment companies that are organized in a
similar manner as the Trust) is intended to facilitate the efficient supervision
and management of the sub-advisors by ASISI and the Trustees.
Sub-advisors:
Founders Asset Management LLC ("Founders"), Founders Financial Center,
2930 East Third Avenue, Denver, Colorado 80206, serves as Sub-advisor for the
AST Founders Passport Portfolio. Founders and its predecessor companies have
acted as investment advisors since 1938, and serves as investment advisor to a
number of other investment companies and private accounts. Founders managed
assets aggregating approximately $7.6 billion as of December 31, 1998.
Michael W. Gerding, a Vice President of Investments of Founders, has
been responsible for management of the AST Founders Passport Portfolio since
Founders became the Portfolio's Sub-advisor in October 1996. Mr. Gerding is a
chartered financial analyst who has been part of Founders' investment department
since 1990.
Rowe Price-Fleming International, Inc. ("Price-Fleming"), 100 East Pratt
Street, Baltimore, Maryland 21202, serves as Sub-advisor for the AST T. Rowe
Price International Equity Portfolio and the AST T. Rowe Price International
Bond Portfolio. Price-Fleming was founded in 1979 as a joint venture between T.
Rowe Price Associates, Inc. and Robert Fleming Holdings Limited. Price-Fleming
is one of the world's largest international mutual fund asset managers with
approximately $32 billion under management as of December 31, 1998 in its
offices in Baltimore, London, Tokyo, Hong Kong, Singapore and Buenos Aires. Each
Portfolio has an investment advisory group that has day-to-day responsibility
for managing the Portfolio and developing and executing the Portfolio's
investment program.
The advisory group for the AST T. Rowe Price International Equity Portfolio
consists of Martin G. Wade, Mark C.J. Bickford-Smith, Robert W. Smith, John R.
Ford, James B.M. Seddon, and David J.L. Warren. Martin Wade joined Price-Fleming
in 1979 and has 27 years of experience with Fleming Group (Fleming Group
includes Robert Fleming Holdings Ltd. and/or Jardine Fleming International
Holdings Ltd.) in research, client service and investment management. Mark C.J.
Bickford-Smith joined Price-Fleming in 1995 has 14 years experience with the
Fleming Group in research and financial analysis. Robert W. Smith joined
Price-Fleming in 1996, and had been with T. Rowe Price since 1992. He has 12
years experience in financial analysis. John R. Ford joined Price-Fleming in
1982 and has 17 years of experience with Fleming Group in research and portfolio
management. James B.M. Seddon joined Price-Fleming in 1987 and has 12 years of
experience in investment management. David J.L. Warren joined Price-Fleming in
1984 and has 17 years experience in equity research, fixed income research and
portfolio management.
The advisory group for the AST T. Rowe Price International Bond
Portfolio consists of Peter Askew, Christopher Rothery and Michael Conelius.
Peter Askew joined Price-Fleming in 1988 and has 22 years of experience managing
multi-currency fixed-income portfolios. Christopher Rothery joined Price-Fleming
in 1994 and has 9 years of experience managing multi-currency fixed-income
portfolios. Prior to joining Price-Fleming, he worked with Fleming International
Fixed Income Management Limited. Michael Conelius joined Price-Fleming in 1995.
Prior to that, he had been with T. Rowe Price since 1988.
A I M Capital Management, Inc. ("AIM"), 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173, serves as Sub-advisor for the AST AIM International
Equity Portfolio and the AST AIM Balanced Portfolio. AIM has acted as an
investment advisor since 1986 and, together with its parent, A I M Advisors,
Inc., advises or manages over 110 investment portfolios encompassing a broad
range of investment objectives. As of December 31, 1998, AIM managed
approximately $109 billion in assets.
It is anticipated that AIM will become the Sub-advisor of the
Portfolios on May 4, 1999 upon the resignation of Putnam Investment Management,
Inc., the current Sub-advisor for the Portfolios. (The AST AIM International
Portfolio has been known as the AST Putnam International Equity Portfolio, and
the AST AIM Balanced Portfolio has been known as the AST Putnam Balanced
Portfolio.) Under an exemptive order from the Securities and Exchange
Commission, AIM will serve as Sub-advisor under interim sub-advisory agreements
until shareholder approval of new sub-advisory agreements between AIM and ASISI
can be obtained. Meetings of shareholders of the Portfolios for the purposes of
voting on these new sub-advisory agreements are planned for September 1999.
AIM uses a team approach to investment management. The members of the team
responsible for the management of the AST AIM International Equity Portfolio are
A. Dale Griffin, III, Clas G. Olsson and Barrett K. Sides. The members of the
team have managed the Portfolio since AIM became the Portfolio's Sub-Advisor in
May 1999, and are all officers of AIM. Mr. Griffin, Senior Portfolio Manager,
has been associated with AIM and/or its affiliates since 1989. Mr. Olsson,
Portfolio Manager, has been associated with AIM and/or its affiliates since
1994. Mr. Sides, Portfolio Manager, has been associated with AIM and/or its
affiliates since 1990.
The members of the team responsible for the management of the AST AIM
Balanced Portfolio are Claude C. Cody IV, Robert G. Alley, Craig A. Smith,
Carolyn L. Gibbs and Meggan M. Walsh. The members of the team have managed the
Portfolio since AIM became the Portfolio's Sub-advisor in May 1999, and are all
officers of AIM. Mr. Cody, Senior Portfolio Manager, has been associated with
AIM and/or its affiliates since 1992. Mr. Alley, Senior Portfolio Manager, has
been associated with AIM and/or its affiliates since 1992. Mr. Smith, Portfolio
Manager, has been associated with AIM and/or its affiliates since 1989. Ms.
Gibbs, Senior Portfolio Manager, has been associated with AIM and/or its
affiliates since 1992. Ms. Walsh, Portfolio Manager, has been associated with
AIM and/or its affiliates since 1991.
Janus Capital Corporation ("Janus"), 100 Fillmore Street, Denver,
Colorado 80206-4923, serves as Sub-advisor for the AST Janus Overseas Growth
Portfolio, the AST Janus Small-Cap Growth Portfolio and the AST JanCap Growth
Portfolio. Janus serves as 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, 1998, Janus managed
assets worth over $106 billion.
The portfolio manager responsible for management of the AST Janus Overseas
Growth Portfolio is Helen Young Hayes, Vice President of Janus. Ms. Hayes joined
Janus in 1987.
The AST Janus Small-Cap Growth Portfolio is managed by a management
team consisting of James P. Craig, William Bales and Jonathan Coleman. The
management team has managed the Portfolio since Janus became the Portfolio's
sub-advisor in January 1999. James P. Craig, III is Chief Investment Officer of
Janus Capital. He joined Janus in May 1983. William H. Bales has been a research
analyst with Janus since 1993, focusing primarily on the transportation,
consumer products and restaurant industries. He joined Janus in September 1991.
Jonathan D. Coleman has been a research analyst with Janus since July 1994,
focusing primarily on the railroad, computer, healthcare and financial services
industries. Prior to joining Janus, Mr. Coleman was a Fulbright Fellow from
August 1993 until June 1994.
The portfolio manager responsible for management of the AST JanCap Growth
Portfolio is Scott W. Schoelzel. Mr. Schoelzel, a Senior Portfolio Manager at
Janus who has managed the Portfolio since August, 1997, joined Janus in January,
1994 as Vice President of Investments.
American Century Investment Management, Inc. ("American Century")
(formerly, Investors Research Corporation), American Century Tower, 4500 Main
Street, Kansas City, Missouri 64111, serves as Sub-advisor for the AST American
Century International Growth Portfolio, the AST American Century Income & Growth
Portfolio and the AST American Century Strategic Balanced Portfolio. American
Century has been providing investment advisory services to investment companies
and institutional clients since 1958. As of December 31, 1998, American Century
and its affiliates managed assets totaling approximately $80 billion.
American Century utilizes a team of portfolio managers, assistant
portfolio managers and analysts acting together to manage the assets of the
Portfolios.
The portfolio manager members of the portfolio team responsible for
management of the AST American Century International Growth Portfolio are Henrik
Strabo and Mark S. Kopinski. Henrik Strabo joined American Century in 1993 as an
investment analyst, has been a portfolio manager member of the international
team since 1994 and has managed the Portfolio since its inception. Mark S.
Kopinski, Vice President and Portfolio Manager for American Century, rejoined
American Century in April 1997 and has co-managed the Portfolio since that time.
From June 1995 to March 1997, Mr. Kopinski served as Vice President and
Portfolio Manager for Federated Investors, Inc. Prior to June 1995, Mr. Kopinski
was a Vice President and Portfolio Manager for American Century.
The portfolio manager members of the portfolio team responsible for the
day-to-day management of the AST American Century Income & Growth Portfolio are
John Schniedwind, Kurt Borgwardt, Jeffrey R. Tyler and William Martin. Mr.
Schniedwind is Senior Vice President and Group Leader -- Quantitative Equity for
American Century, and has been with American Century since 1982. Mr. Borgwardt
is Vice President, Portfolio Manager and Director of Quantitative Equity
Research for American Century, and has been with American Century since 1990.
Mr. Tyler, Senior Vice President and Portfolio Manager, joined American Century
in 1988. William Martin, Vice President and Senior Portfolio Manager, joined
American Century in 1989.
It is anticipated that American Century will become the Sub-advisor of the
AST American Century Income & Growth Portfolio on May 4, 1999 upon the
resignation of Putnam Investment Management, Inc., the current Sub-advisor for
the Portfolio. (The AST American Century Income & Growth Portfolio has been
known as the AST Putnam Value Growth & Income Portfolio.) Under an exemptive
order from the Securities and Exchange Commission, American Century will serve
as Sub-advisor under an interim sub-advisory agreement until shareholder
approval of a new sub-advisory agreement between American Century and ASISI can
be obtained. A meeting of the shareholders of the American Century Income &
Growth Portfolio for the purposes of voting on the new sub-advisory agreement is
planned for September 1999.
The portfolio manager members of the team responsible for the
day-to-day management of the equity portion of the AST American Century
Strategic Balanced Portfolio are the same as the individuals noted above who
manage the AST American Century Income & Growth Portfolio. The fixed income
portion of the AST American Century Strategic Balanced Portfolio is managed by a
team of portfolio managers with expertise in different areas of fixed income
investing. The portfolio manager leader of the team responsible for the
day-to-day management of the fixed income portion of the Portfolio is Brian
Howell. Mr. Howell joined American Century in 1987 as a research analyst and was
promoted to his current position as portfolio manager in January 1994.
Scudder Kemper Investments, Inc. ("Scudder Kemper"), 345 Park Avenue,
New York, New York, serves as Sub-advisor of the AST Kemper Small-Cap Growth
Portfolio. Scudder Kemper is one of the largest investment managers in the
country with more than $280 billion under management as of December 31, 1998 and
has been engaged in the management of investment funds for more than seventy
years.
David H. Burshtan is the lead portfolio manager for the Portfolio, and
Kurt R. Stalzer is the other portfolio manager. Both have managed the Portfolio
since its inception. Mr. Burshtan joined Scudder Kemper in 1995, where he is a
senior vice president and has been a lead portfolio manager since January 1996.
From 1993 to 1995, Mr. Burshtan was employed as a senior securities analyst, and
prior thereto as a senior portfolio manager for an unaffiliated investment
management company. Mr. Stalzer joined Scudder Kemper in January 1997, where he
is a managing director and has been a portfolio manager since joining Scudder
Kemper. From 1992 to January 1997, Mr. Stalzer was a senior portfolio manager
for an unaffiliated investment management company.
Lord Abbett & Co. ("Lord Abbett"), The General Motors Building, 767
Fifth Avenue, New York, New York 10153-0203, serves as Sub-advisor for the AST
Lord Abbett Small Cap Value Portfolio and the AST Lord Abbett Growth and Income
Portfolio. Lord Abbett has been an investment manager for over 68 years. As of
December 31, 1998, Lord Abbett managed approximately $28 billion in a family of
mutual funds and other advisory accounts.
The portfolio manager responsible for management of the AST Lord Abbett
Small Cap Value Portfolio is Robert P. Fetch. Mr. Fetch, who has managed the
Portfolio since its inception, joined Lord Abbett as a Portfolio Manager in
August, 1995. From 1989 to 1995, Mr. Fetch was a Managing Director of Prudential
Investment Advisors.
The portfolio manager responsible for management of the AST Lord Abbett
Growth and Income 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 positions in the equity research department of Lord Abbett since
1982.
T. Rowe Price Associates, Inc. ("T. Rowe Price"), 100 East Pratt
Street, Baltimore, Maryland 21202, serves as Sub-advisor for the AST T. Rowe
Price Small Company Value Portfolio, the AST T. Rowe Price Natural Resources
Portfolio and the AST T. Rowe Price Asset Allocation Portfolio. T. Rowe Price
was founded in 1937 by the late Thomas Rowe Price, Jr. As of December 31, 1998,
the firm and its affiliates managed approximately $148 billion for approximately
six million individual and institutional accounts.
T. Rowe Price manages each Portfolio through an Investment Advisory
Committee. 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.
The Investment Advisory Committee for the AST T. Rowe Price Asset
Allocation Portfolio is 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. Mr. Notzon joined T. Rowe Price in 1989, has
been managing investments since 1991 and has been Chairman of the Portfolio's
Investment Advisory Committee since the Portfolio's inception.
The Investment Advisory Committee for the AST T. Rowe Price Natural
Resources Portfolio is composed of the following members: David J. Wallack,
Chairman, Charles M. Ober, David M. Lee, Hugh M. Evans III, Richard P. Howard
and James A.C. Kennedy. Mr. Wallack joined T. Rowe Price in 1990, is a Vice
President of T. Rowe Price and an Investment Analyst for the firm's Equity
Research Division and has been Chairman of the Portfolio's Investment Advisory
Committee since March 1997.
The Investment Advisory Committee for the AST T. Rowe Price Small Company
Value Portfolio is composed of the following members: Preston G. Athey,
Chairman, Hugh M. Evans III and Gregory A. McCrickard. Mr. Athey joined T. Rowe
Price in 1978, has been managing investments since 1982 and has been Chairman of
the Investment Advisory Committee since the Portfolio's inception in December,
1996.
Neuberger Berman Management Inc. ("NB Management"), 605 Third Avenue,
New York, NY 10158, serves as sub-advisor for the AST Neuberger Berman Mid-Cap
Growth Portfolio and the AST Neuberger Berman Mid-Cap Value Portfolio. NB
Management and its predecessor firms have specialized in the management of
mutual funds since 1950. Neuberger Berman, LLC, an affiliate of NB Management,
acts as a principal broker in the purchase and sale of portfolio securities for
the Portfolios for which it serves as Sub-advisor, and provides NB Management
with certain assistance in the management of the Portfolios without added cost
to the Portfolios or ASISI. NB Management and its affiliates manage securities
accounts, including mutual funds, that had approximately $55 billion of assets
as of December 31, 1998.
Jennifer K. Silver and Brooke A. Cobb have been primarily responsible
for the day-to-day management of the AST Neuberger Berman Mid-Cap Growth
Portfolio since NB Management became the Portfolio's Sub-advisor in May 1998.
Ms. Silver is Director of the Neuberger Berman Growth Equity Group, and both she
and Mr. Cobb are Vice Presidents of NB Management. Prior to joining NB
Management in 1997, Ms. Silver was a portfolio manager for several large mutual
funds managed by a prominent investment adviser. Prior to joining NB Management,
Mr. Cobb was the chief investment officer for an investment advisory firm
managing individual accounts from 1995 to 1997 and, from 1992 to 1995, a
portfolio manager of a large mutual fund managed by a prominent adviser.
The portfolio managers responsible for the day-to-day management of AST
Neuberger Berman Mid-Cap Value Portfolio are Michael M. Kassen, Robert I.
Gendelman and S. Basu Mullick. Mr. Kassen and Mr. Gendelman have been managing
the Portfolio since NB Management became the Portfolio's Sub-Advisor in May
1998, and Mr. Mullick has been managing the Portfolio since October 1998. Mr.
Kassen has been a Vice President of NB Management since December 1992, and was
an employee of NB Management from 1990 to December 1992. Mr. Gendelman joined NB
Management in 1994, where he is currently a Vice President. Mr. Mullick has been
a Vice President of NB Management since October 1998. From 1993 to 1998, Mr.
Mullick was a portfolio manager for a prominent investment adviser.
OppenheimerFunds, Inc. ("OppenheimerFunds"), Two World Trade Center,
New York, New York 10048-0203, serves as Sub-advisor for the AST Oppenheimer
Large-Cap Growth Portfolio. OppenheimerFunds has operated as an investment
adviser since 1959. OppenheimerFunds and its subsidiaries currently manage
investment companies with assets of more than $95 billion as of December 31,
1998.
Robert C. Doll, Jr. has been the portfolio manager responsible for
management of the Portfolio since OppenheimerFunds became the Portfolio's
Sub-advisor in December 1998. Mr. Doll is Executive Vice President, Chief
Investment Officer and Director of Equity Investments of OppenheimerFunds, and
has been with OppenheimerFunds since January 1987.
Marsico Capital Management, LLC ("Marsico Capital"), 1200 17th Street,
Suite 1300, Denver, CO 80202, serves as Sub-advisor for the AST Marsico Capital
Growth Portfolio. Thomas F. Marsico, President of Chief Executive Officer of
Marsico Capital, has had primary responsibility for management of the Portfolio
since its inception. Prior to forming Marsico Capital in September, 1997, Mr.
Marsico served as Executive Vice President and Portfolio Manager at Janus
Capital Corporation ("Janus"). Mr. Marsico joined Janus in March, 1986. As of
December 31, 1998, Marsico Capital managed over $3.9 billion in assets.
Bankers Trust Company ("Bankers Trust") is the Sub-advisor to the AST
Bankers Trust Enhanced 500 Portfolio. Bankers Trust conducts a variety of
general banking and trust activities and is a major supplier of financial
services to the international and domestic institutional markets. Bankers Trust
is one of the nation's largest and most experienced investment managers with
approximately $362 billion in assets under management globally as of December
31, 1998.
Bankers Trust is a wholly owned subsidiary of Bankers Trust
Corporation. On November 30, 1998, Bankers Trust Corporation entered into an
Agreement and Plan of Merger with Deutsche Bank AG under which Bankers Trust
Corporation would merge with and into a subsidiary of Deutsche Bank AG. Deutsche
Bank AG is a global banking institution that is engaged in a wide range of
financial services. The transaction is contingent upon various regulatory
approvals. If the transaction is approved and completed, Deutsche Bank AG, as
Bankers Trust's new parent company, will control the operations of Bankers
Trust. Bankers Trust believes that, under this new arrangement, the services
provided to the Portfolio will be maintained at their current level. Shareholder
approval of the continuation of Bankers Trust's service as sub-advisor to the
Portfolio will be sought in the near future.
On March 11, 1999, Bankers Trust announced that it had reached an
agreement with the United States Attorney's Office in the Southern District of
New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related record-keeping problems that occurred between 1994
and early 1996. Pursuant to its agreement with the U.S. Attorney's Office,
Bankers Trust agreed to pay a $60 million fine to federal authorities.
Separately, Bankers Trust agreed to pay a $3.5 million fine to the State of New
York. The events leading up to the guilty pleas did not arise out of the
investment advisory or mutual fund management activities of Bankers Trust or its
affiliates.
As a result of the plea, absent an order from the Securities and
Exchange Commission, Bankers Trust would not be able to continue to provide
sub-advisory services to the Portfolio. The Commission has granted a temporary
order to permit Bankers Trust to do so, but there is no assurance that the
Commission will grant a permanent order.
Frank Salerno, Managing Director of Bankers Trust, has been responsible
for the day-to-day management of the Portfolio since its inception. Mr. Salerno
oversees administration, management and trading of international and domestic
equity index strategies. He has been employed by Bankers Trust since 1981.
Cohen & Steers Capital Management, Inc. ("Cohen & Steers"), 757 Third
Avenue, New York, New York 10017, acts as the Sub-advisor for the AST Cohen &
Steers Realty Portfolio. Cohen & Steers is the leading U.S. manager of
portfolios dedicated to investments in real estate investment trusts ("REITS").
As of December 31, 1998, Cohen & Steers managed approximately $4 billion in
assets.
Robert H. Steers, Chairman, and Martin Cohen, President formed Cohen &
Steers in 1986 and have been responsible for the day-to-day management of the
AST Cohen & Steers Realty Portfolio since its inception.
INVESCO Funds Group, Inc. ("INVESCO"), 7800 East Union Avenue, P.O. Box
173706, Denver, Colorado 80217-3706, serves as Sub-advisor for the AST INVESCO
Equity Income Portfolio. INVESCO was established in 1932. AMVESCAP PLC, the
parent of INVESCO, is one of the largest independent investment management
businesses in the world and managed approximately $258 billion of assets as of
December 31, 1998.
The portfolio managers responsible for management of the Portfolio are
Charles P. Mayer and Donovan J. (Jerry) Paul. Mr. Mayer has served as Co-Manager
of the Portfolio since April, 1993. Mr. Mayer began his investment career in
1969 and is now a director and senior vice president of INVESCO. From 1993 to
1994, he was vice president of INVESCO. Mr. Paul has served as Co-Manager of the
Portfolio since May 1994. Mr. Paul entered the investment management industry in
1976, and has been a senior vice president of INVESCO since 1994. From 1993 to
1994, he was president of Quixote Investment Management, Inc.
Federated Investment Counseling ("Federated Investment"), Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779, serves as Sub-advisor for
the AST Federated High Yield Portfolio. Federated was organized in 1989, and
Federated and its affiliates serve as investment advisors to a number of
investment companies and private accounts. Total assets under management or
administration by Federated and its affiliates as of December 31, 1998 was over
$140 billion.
Mark E. Durbiano and Constantine J. Kartsonas are primarily responsible
for the day-to-day management of the AST Federated High Yield Portfolio. Mr.
Durbiano, who has managed the Portfolio since it commenced operations in 1994,
joined Federated Investors in 1982 and has been a Senior Vice President of an
affiliate of Federated Investment since January 1996. From 1988 to 1995, Mr.
Durbiano was a Vice President of an affiliate of Federated Investment. Mr.
Kartsonas, who has co-managed the Portfolio since August 1998, joined Federated
Investors in 1994 as an Investment Analyst and has been an Assistant Vice
President of Federated Investment since March 1997.
Pacific Investment Management Company ("PIMCO"), 840 Newport Center
Drive, Suite 300, Newport Beach, California 92660 serves as Sub-advisor for the
AST PIMCO Total Return Bond Portfolio and the AST PIMCO Limited Maturity Bond
Portfolio. PIMCO is an investment counseling firm founded in 1971 and, as of
December 31, 1998, had approximately $158 billion of assets under management.
The portfolio manager responsible for management of the AST PIMCO Total
Return Bond Portfolio and the AST PIMCO Limited Maturity Bond Portfolio is
William H. Gross. Mr. Gross is managing director of PIMCO has been associated
with the firm since 1971, and has managed each Portfolio since their respective
commencement of operations.
J.P. Morgan Investment Management Inc. ("J.P. Morgan"), with principal
offices at 522 Fifth Avenue, New York, New York 10036, serves as Sub-advisor for
the AST Money Market Portfolio. J.P. Morgan and its affiliates offer a wide
range of services to governmental, institutional, corporate and individual
customers, and act as investment advisor to individual and institutional clients
with combined assets under management of approximately $310 billion as of
December 31, 1998. J.P. Morgan has managed investments for clients since 1913,
and has managed short-term fixed income assets since 1969.
<PAGE>
Fees and Expenses:
Investment Management Fees. ASISI receives a fee, payable each month,
for the performance of its services. ASISI pays each Sub-advisor a portion of
such fee for the performance of the Sub-advisory services at no additional cost
to any Portfolio. The Investment Management fee for each Portfolio will differ,
reflecting the differing objectives, policies and restrictions of each
Portfolio. Each Portfolio's fee is accrued daily for the purposes of determining
the sale and redemption price of the Portfolio's shares. The fees paid to ASISI
for the fiscal year ended December 31, 1998 by each Portfolio that was in
operation for that entire fiscal year, stated as a percentage of the Portfolio's
average daily net assets, were as follows:
<TABLE>
<CAPTION>
Portfolio: Annual Rate:
<S> <C>
AST Founders Passport Portfolio: 1.00%
AST T. Rowe Price International Equity Portfolio: 1.00%
AST AIM International Equity Portfolio: 0.87%
AST Janus Overseas Growth Portfolio: 1.00%
AST American Century International Growth Portfolio: 1.00%
AST Janus Small-Cap Growth Portfolio: 0.90%
AST Lord Abbett Small Cap Value Portfolio: 0.95%
AST T. Rowe Price Small Company Value Portfolio: 0.90%
AST Neuberger Berman Mid-Cap Growth Portfolio:1 0.85%
AST Neuberger Berman Mid-Cap Value Portfolio:2 0.82%
AST T. Rowe Price Natural Resources Portfolio: 0.90%
AST Oppenheimer Large-Cap Growth Portfolio:3 1.00%
AST Marsico Capital Growth Portfolio: 0.90%
AST JanCap Growth Portfolio: 0.87%
AST Bankers Trust Enhanced 500 Portfolio: 0.60%
AST Cohen & Steers Realty Portfolio: 1.00%
AST American Century Income & Growth Portfolio: 0.75%
AST Lord Abbett Growth and Income Portfolio: 0.75%
AST INVESCO Equity Income Portfolio: 0.75%
AST AIM Balanced Portfolio: 0.74%
AST American Century Strategic Balanced Portfolio: 0.85%
AST T. Rowe Price Asset Allocation Portfolio: 0.85%
AST T. Rowe Price International Bond Portfolio: 0.80%
AST Federated High Yield Portfolio: 0.75%
AST PIMCO Total Return Bond Portfolio: 0.65%
AST PIMCO Limited Maturity Bond Portfolio: 0.65%
AST Money Market Portfolio: 0.45%
</TABLE>
1 Prior to May 1, 1998, Berger Associates, Inc. served as Sub-advisor
for the Portfolio (formerly the Berger Capital Growth Portfolio). Under the new
Investment Management Agreement for the Portfolio, fees are payable at an annual
rate of .90% of the portion of the average daily net assets of the Portfolio not
in excess of $1 billion; plus .85% of the portion of the net assets over $1
billion.
2 Prior to May 1, 1998, Federated Investment Counseling served as
Sub-advisor for the Portfolio (formerly the Federated Utility Income Portfolio).
Under the new Investment Management Agreement for the Portfolio, fees are
payable at an annual rate of .90% of the portion of the average daily net assets
of the Portfolio not in excess of $1 billion; plus .85% of the portion of the
net assets over $1 billion.
3 Prior to December 31, 1998, Robertson, Stephens & Company Investment
Management, L.P. served as Sub-advisor for the Portfolio (formerly the Robertson
Stephens Value + Growth Portfolio). Under the new Investment Management
Agreement for the Portfolio, fees are payable at an annual rate of .90% of the
portion of the average daily net assets of the Portfolio not in excess of $1
billion; plus .85% of the portion of the net assets over $1 billion.
The investment management fee rate for the AST Kemper Small-Cap Growth
Portfolio, which commenced operations on January 4, 1999, is as follows: An
annual rate of .95% of the portion of the average daily net assets of the
Portfolio not in excess of $1 billion; plus .90% of the portion of the net
assets over $1 billion.
For more information about investment management fees, including
voluntary fee waivers and the fee rates applicable at various asset levels, and
the fees payable by ASISI to each of the Sub-advisors, please see the Trust's
SAI under "Investment Advisory and Other Services."
Other Expenses. In addition to Investment Management fees, each
Portfolio pays other expenses, including costs incurred in connection with the
maintenance of its securities law registrations, printing and mailing
prospectuses and statements of additional information to shareholders, certain
office and financial accounting services, taxes or governmental fees, brokerage
commissions, 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. The Trust may also pay
Participating Insurance Companies for printing and delivery of certain documents
(including prospectuses, semi-annual and annual reports and any proxy materials)
to holders of variable annuity contracts and variable life insurance policies
whose assets are invested in the Trust. Expenses not directly attributable to
any specific Portfolio or Portfolios are allocated on the basis of the net
assets of the Portfolios.
Distribution Plan. Subject to shareholder approval, the Trust has
adopted a Distribution Plan (the "Distribution Plan") to permit the American
Skandia Marketing, Inc. ("ASM"), an affiliate of ASISI, to receive brokerage
commissions in connection with purchases and sales of securities held by the
Portfolios, and to use these commissions to promote the sale of shares of the
Portfolios. Under the Distribution Plan, transactions for the purchase and sale
of securities for a Portfolio may be directed to certain brokers for execution
("clearing brokers") who have agreed to pay part of the brokerage commissions
received on these transactions to ASM for "introducing" transactions to the
clearing broker. In turn, ASM will use the brokerage commissions received as an
introducing broker to pay various distribution-related expenses, such as
advertising, printing of sales materials, and payments to dealers. No Portfolio
will pay any new fees or charges resulting from the Distribution Plan, nor is it
expected that the brokerage commissions paid by a Portfolio will increase as the
result of implementation of the Distribution Plan.
TAX MATTERS:
Each Portfolio intends to distribute substantially all its net
investment income. Dividends from investment income are expected to be declared
and distributed annually (except in the case of the AST Money Market Portfolio,
where dividends will be declared daily and paid monthly), although the Trustees
of the Trust may decide to declare dividends at other intervals. Similarly, any
net realized long- and short-term capital gains of each Portfolio will be
declared and distributed at least annually either during of after the close of
the Portfolio's fiscal year. Distributions will be made to the various separate
accounts of the Participating Insurance Companies and to qualified plans (not to
holders of variable insurance contracts or to plan participants) in the form of
additional shares (not in cash). The result is that the investment performance
of the Portfolios, either in the form of dividends or capital gains, will be
reflected in the value of the variable contracts or the qualified plans.
Holders of variable annuity contracts or variable life insurance
policies should consult the prospectuses of their respective contracts or
policies for information on the federal income tax consequences to such holders,
and plan participants should consult any applicable plan documents for
information on the federal income tax consequences to such participants. In
addition, variable contract owners and qualified plan participants may wish to
consult with their own tax advisors as to the tax consequences of investments in
the Trust, including the application of state and local taxes.
<PAGE>
FINANCIAL HIGHLIGHTS: The financial highlights table is intended to help you
understand the Portfolios' financial performance for the past five years (or,
for Portfolios that have not been in operation for five years, since their
inceptions). Certain information reflects financial results for a single
Portfolio share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment on an investment in a
Portfolio. The information has been audited by Deloitte & Touche LLP, the
Trust's independent auditors. The report of the independent auditors, along with
the Portfolios' financial statements, are included in the annual reports of the
separate accounts funding the variable annuity contracts and variable life
insurance policies, which are available without charge upon request to the Trust
at One Corporate Drive, Shelton, Connecticut or by calling (800) 752-6342. No
financial information is included for the AST Kemper Small-Cap Growth Portfolio,
which had not commenced operations prior to January 1, 1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM
______INVESTMENT OPERATIONS___ _______LESS DISTRIBUTIONS_______
Net Asset Net Net Asset
Year Value Investment Net Realized Total From From Net From Net Value
Ended Beginning Income & Unrealized Investment Investment Realized Total End
Portfolio December 31, of Period (Loss) Gain (Loss) Operations Income Gains Distributions of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AST AIM 1998 $21.29 $0.20 $3.81 $4.01 $(0.67) $(1.96) $(2.63) $22.67
International Equity* 1997 19.22 0.36 2.96 3.32 (0.30) (0.95) (1.25) 21.29
1996 18.20 0.16 1.55 1.71 (0.32) (0.37) (0.69) 19.22
1995 17.61 0.14 1.44 1.58 -- (0.99) (0.99) 18.20
1994 17.34 0.10 0.36 0.46 (0.03) (0.16) (0.19) 17.61
AST Lord Abbett 1998 $20.53 $0.25 $2.23 $2.48 $(0.25) $(1.08) $(1.33) $21.68
Growth and Income 1997 17.17 0.24 3.76 4.00 (0.23) (0.41) (0.64) 20.53
1996 14.98 0.23 2.48 2.71 (0.17) (0.35) (0.52) 17.17
1995 12.00 0.16 3.22 3.38 (0.20) (0.20) (0.40) 14.98
1994 12.06 0.20 0.06 0.26 (0.12) (0.20) (0.32) 12.00
AST JanCap Growth 1998 $23.15 $0.04 $15.10 $15.14 $(0.08) $(1.21) $(1.29) $37.00
1997 18.79 0.06 5.16 5.22 (0.05) (0.81) (0.86) 23.15
1996 15.40 0.02 4.19 4.21 (0.02) (0.80) (0.82) 18.79
1995 11.22 0.06 4.18 4.24 (0.06) -- (0.06) 15.40
1994 11.78 0.06 (0.59) (0.53) (0.03) -- (0.03) 11.22
AST Money Market 1998 $1.00 $0.0502 $0.0002 $0.0504 $(0.0502) $(0.0002) $(0.0504) $1.00
1997 1.00 0.0507 0.0002 0.0509 (0.0507) (0.0002) (0.0509) 1.00
1996 1.00 0.0492 0.0005 0.0497 (0.0492) (0.0005) (0.0497) 1.00
1995 1.00 0.0494 -- 0.0494 (0.0494) -- (0.0494) 1.00
1994 1.00 0.0367 0.0002 0.0369 (0.0367) (0.0002) (0.0369) 1.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
* Prior to May 4, 1999, Putnam Investment Management, Inc. served as
Sub-advisor to the AST AIM International Equity Portfolio (formerly, the AST
Putnam International Equity Portfolio). A I M Capital Management, Inc. will
serve as Sub-advisor to the Portfolio as of May 4, 1999.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Ratios of Expenses Ratios of Net Investment Income
___________________Supplemental Data________________ ______to Average Net Assets______ ____(Loss) to Average Net Assets__
After Advisory Before Advisory After Advisory Before Advisory
Net Assets at Portfolio Fee Waiver Fee Waiver Fee Waiver Fee Waiver
Total End of Period Turnover and Expense and Expense and Expense and Expense
Return (in 000's) Rate Reimbursement Reimbursement Reimbursement Reimbursement
<S> <C> <C> <C> <C> <C> <C> <C>
20.10% $497,461 117% 1.13% 1.13% 0.69% 0.69%
18.15% 412,270 116% 1.15% 1.15% 1.04% 1.04%
9.65% 346,211 124% 1.16% 1.26% 0.88% 0.78%
10.00% 268,056 59% 1.17% 1.27% 0.88% 0.78%
2.64% 238,050 49% 1.22% 1.32% 0.55% 0.46%
12.48% $1,181,909 78% 0.91% 0.91% 1.32% 1.31%
23.92% 936,986 41% 0.93% 0.93% 1.60% 1.60%
18.56% 530,497 43% 0.97% 0.97% 1.92% 1.92%
28.91% 288,749 50% 0.99% 0.99% 2.50% 2.50%
2.22% 92,050 60% 1.06% 1.06% 2.45% 2.45%
68.26% $3,255,658 42% 1.02% 1.04% 0.16% 0.13%
28.66% 1,511,563 94% 1.07% 1.08% 0.24% 0.23%
28.36% 892,324 79% 1.10% 1.10% 0.25% 0.25%
37.98% 431,321 113% 1.12% 1.12% 0.51% 0.51%
(4.51%) 245,645 94% 1.18% 1.18% 0.62% 0.62%
5.14% $967,733 N/A 0.60% 0.66% 4.99% 4.93%
5.18% 759,888 N/A 0.60% 0.69% 5.06% 4.98%
5.08% 549,470 N/A 0.60% 0.71% 4.87% 4.76%
5.05% 344,225 N/A 0.60% 0.72% 5.38% 5.26%
3.75% 288,588 N/A 0.64% 0.76% 3.90% 3.78%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM
______INVESTMENT OPERATIONS___ _______LESS DISTRIBUTIONS_______
Net Asset Net Net Asset
Year Value Investment Net RealizedTotal From From Net From Net Value
Ended Beginning Income & Unrealized Investment Investment Realized Total End
Portfolio December 31, of Period (Loss) Gain (Loss) Operations Income Gains Distributions of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AST Neuberger Berman 1998 $15.15 $0.21 $(0.52) $(0.31) $(0.36) $(1.32) $(1.68) $13.16
Mid-Cap Value* 1997 12.83 0.32 2.87 3.19 (0.36) (0.51) (0.87) 15.15
1996 11.94 0.36 0.97 1.33 (0.44) -- (0.44) 12.83
1995 9.87 0.40 2.09 2.49 (0.42) -- (0.42) 11.94
1994 10.79 0.46 (1.20) (0.74) (0.16) (0.02) (0.18) 9.87
AST AIM Balanced** 1998 $13.64 $0.34 $1.31 $1.65 $(0.35) $(0.81) $(1.16) $14.13
1997 13.19 0.33 1.85 2.18 (0.31) (1.42) (1.73) 13.64
1996 12.53 0.32 1.02 1.34 (0.25) (0.43) (0.68) 13.19
1995 10.49 0.26 2.06 2.32 (0.28) -- (0.28) 12.53
1994 10.57 0.27 (0.26) 0.01 (0.07) (0.02) (0.09) 10.49
AST Federated High 1998 $13.11 $0.40 $0.12 $0.52 $(0.76) $(0.04) $(0.80) $12.83
Yield 1997 12.13 0.75 0.83 1.58 (0.54) (0.06) (0.60) 13.11
1996 11.14 0.56 0.90 1.46 (0.47) -- (0.47) 12.13
1995 9.69 0.38 1.46 1.84 (0.39) -- (0.39) 11.14
1994(2) 10.00 0.55 (0.86) (0.31) -- -- -- 9.69
AST T. Rowe Price 1998 $15.13 $0.35 $2.38 $2.73 $(0.33) $(0.06) $(0.39) $17.47
Asset Allocation 1997 13.27 0.33 2.03 2.36 (0.26) (0.24) (0.50) 15.13
1996 12.01 0.27 1.28 1.55 (0.25) (0.04) (0.29) 13.27
1995 9.94 0.26 2.02 2.28 (0.21) -- (0.21) 12.01
1994(2) 10.00 0.21 (0.27) (0.06) -- -- -- 9.94
AST PIMCO Total 1998 $11.72 $0.49 $0.56 $1.05 $(0.51) $(0.24) $(0.75) $12.02
Return Bond 1997 11.11 0.48 0.58 1.06 (0.45) -- (0.45) 11.72
1996 11.34 0.46 (0.10) 0.36 (0.28) (0.31) (0.59) 11.11
1995 9.75 0.25 1.55 1.80 (0.21) -- (0.21) 11.34
1994(2) 10.00 0.26 (0.51) (0.25) -- -- -- 9.75
AST INVESCO Equity 1998 $16.51 $0.31 $1.81 $2.12 $(0.32) $(0.81) $(1.13) $17.50
Income 1997 13.99 0.31 2.84 3.15 (0.26) (0.37) (0.63) 16.51
1996 12.50 0.27 1.79 2.06 (0.24) (0.33) (0.57) 13.99
1995 9.75 0.25 2.65 2.90 (0.15) -- (0.15) 12.50
1994(2) 10.00 0.16 (0.41) (0.25) -- -- -- 9.75
AST Janus 1998 $17.81 $(0.05) $0.73 $0.65 $-- $(0.85) $(0.85) $17.61
Small-Cap Growth*** 1997 16.80 (0.05) 1.06 1.01 -- -- -- 17.81
1996 14.25 (0.03) 2.85 2.82 -- (0.27) (0.27) 16.80
1995 10.84 (0.04) 3.54 3.50 (0.09) -- (0.09) 14.25
1994(2) 10.00 0.11 0.73 0.84 -- -- -- 10.84
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) Commenced operations on January 4, 1994.
* Prior to May 1, 1998, Federated Investment Counseling served as
Sub-advisor to the AST Neuberger Berman Mid-Cap Value Portfolio (formerly, the
Federated Utility Income Portfolio). Neuberger Berman Management, Incorporated
has served as Sub-advisor to the Portfolio since May 1, 1998.
** Prior to May 4, 1999, Putnam Investment Management, Inc. served as
Sub-advisor to the AST AIM Balanced Portfolio (formerly, the AST Putnam Balanced
Portfolio). A I M Capital Management, Inc. will serve as Sub-advisor to the
Portfolio as of May 4, 1999.
*** Prior to January 1, 1998, Founders Asset Management LLC served as
Sub-advisor to the AST Janus Small-Cap Growth Portfolio (formerly, the Founders
Capital Appreciation Portfolio). Janus Capital Corporation has served as
Sub-advisor to the Portfolio since January 1, 1998.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Ratios of Expenses Ratios of Net Investment Income
___________________Supplemental Data________________ ______to Average Net Assets______ ____(Loss) to Average Net Assets___
After Advisory Before Advisory After Advisory Before Advisory
Net Assets at Portfolio Fee Waiver Fee Waiver Fee Waiver Fee Waiver
Total End of Period Turnover and Expense and Expense and Expense and Expense
Return (in 000's) Rate Reimbursement Reimbursement Reimbursement Reimbursement
<S> <C> <C> <C> <C> <C> <C> <C>
(2.33%) $271,968 208% 1.05% 1.05% 1.83% 1.83%
26.42% 201,143 91% 0.90% 0.90% 3.34% 3.34%
11.53% 123,138 73% 0.93% 0.93% 3.14% 3.14%
26.13% 107,399 71% 0.93% 0.93% 4.58% 4.58%
(6.95%) 71,205 54% 0.99% 0.99% 5.11% 5.11%
12.86% $409,335 139% 1.00% 1.00% 2.55% 2.55%
18.28% 357,591 170% 1.03% 1.03% 2.81% 2.81%
11.23% 286,479 276% 0.94% 0.94% 2.66% 2.66%
22.60% 255,206 161% 0.94% 0.94% 3.28% 3.28%
0.09% 145,624 87% 0.99% 0.99% 3.08% 3.08%
2.61% $595,680 36% 0.95% 0.95% 8.64% 8.64%
13.59% 434,420 28% 0.98% 0.98% 8.83% 8.83%
13.58% 205,262 43% 1.03% 1.03% 8.02% 8.02%
19.57% 83,692 30% 1.11% 1.11% 8.72% 8.72%
(3.10%) 21,308 41% 1.15%(1) 1.34%(1) 9.06%(1) 8.87%(1)
18.36% $344,197 8% 1.09% 1.09% 2.70% 2.70%
18.40% 213,075 10% 1.13% 1.13% 2.95% 2.95%
13.14% 120,149 31% 1.20% 1.20% 3.02% 3.02%
23.36% 59,399 18% 1.25% 1.29% 3.53% 3.49%
(0.60%) 23,463 32% 1.25%(1) 1.47%(1) 3.64%(1) 3.42%(1)
9.46% $896,497 231% 0.83% 0.83% 5.24% 5.24%
9.87% 572,100 320% 0.86% 0.86% 5.56% 5.56%
3.42% 360,010 403% 0.89% 0.89% 5.38% 5.38%
18.78% 225,335 124% 0.89% 0.89% 5.95% 5.95%
(2.50%) 46,493 139% 1.02%(1) 1.02%(1) 5.57%(1) 5.57%(1)
13.34% $831,482 67% 0.93% 0.93% 2.17% 2.17%
23.33% 602,105 73% 0.95% 0.95% 2.54% 2.54%
17.09% 348,680 58% 0.98% 0.98% 2.83% 2.83%
30.07% 176,716 89% 0.98% 0.98% 3.34% 3.34%
(2.50%) 65,201 63% 1.14%(1) 1.14%(1) 3.41%(1) 3.41%(1)
3.49% $285,847 100% 1.12% 1.12% (0.53%) (0.53%)
6.01% 278,258 77% 1.13% 1.13% (0.32%) (0.32%)
20.05% 220,068 69% 1.16% 1.16% (0.38%) (0.38%)
32.56% 90,460 68% 1.22% 1.22% (0.28%) (0.28%)
8.40% 28,559 198% 1.30%(1) 1.55%(1) 2.59%(1) 2.34%(1)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM
______INVESTMENT OPERATIONS___ _______LESS DISTRIBUTIONS_______
Net Asset Net Net Asset
Year Value Investment Net RealizedTotal From From Net From Net Value
Ended Beginning Income & Unrealized Investment Investment Realized Total End
Portfolio December 31, of Period (Loss) Gain (Loss) Operations Income Gains Distributions of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AST T. Rowe Price 1998 $12.09 $0.08 $1.59 $1.67 $(0.14) $(0.23) $(0.37) $13.39
International Equity 1997 12.07 0.09 0.08 0.17 (0.07) (0.08) (0.15) 12.09
1996 10.65 0.06 1.44 1.50 (0.08) -- (0.08) 12.07
1995 9.62 0.07 0.99 1.06 (0.01) (0.02) (0.03) 10.65
1994(3) 10.00 0.02 (0.40) (0.38) -- -- -- 9.62
AST T. Rowe Price 1998 $10.11 $0.52 $0.94 $1.46 $(0.03) $(0.08) $(0.11) $11.46
International Bond 1997 10.90 0.20 (0.57) (0.37) (0.16) (0.26) (0.42) 10.11
1996 10.60 0.23 0.38 0.61 (0.14) (0.17) (0.31) 10.90
1995 9.68 0.31 0.75 1.06 (0.14) -- (0.14) 10.60
1994(4) 10.00 0.27 (0.59) (0.32) -- -- -- 9.68
AST Neuberger Berman 1998 $16.61 $(0.05) $3.31 $3.26 $(0.01) $(2.60) $(2.61) $17.26
Mid-Cap Growth* 1997 14.39 0.01 2.36 2.37 (0.02) (0.13) (0.15) 16.61
1996 12.40 0.01 2.01 2.02 (0.03) -- (0.03) 14.39
1995 9.97 0.04 2.40 2.44 (0.01) -- (0.01) 12.40
1994(5) 10.00 0.01 (0.04) (0.03) -- -- -- 9.97
AST Founders Passport 1998 $11.78 $0.05 $1.24 $1.29 $(0.03) $ -- $(0.03) $13.04
1997 11.63 0.03 0.21 0.24 (0.08) (0.01) (0.09) 11.78
1996 10.33 0.09 1.24 1.33 (0.03) -- (0.03) 11.63
1995(6) 10.00 0.03 0.30 0.33 -- -- -- 10.33
AST T. Rowe Price 1998 $14.57 $0.19 $(1.78) $(1.59) $(0.14) $(0.87) $(1.01) $11.97
Natural Resources 1997 14.47 0.14 0.35 0.49 (0.07) (0.32) (0.39) 14.57
1996 11.11 0.05 3.35 3.40 (0.02) (0.02) (0.04) 14.47
1995(6) 10.00 0.04 1.07 1.11 -- -- -- 11.11
AST PIMCO Limited 1998 $11.02 $0.56 $0.03 $0.59 $(0.53) $ -- $(0.53) $11.08
Maturity Bond 1997 10.81 0.55 0.22 0.77 (0.56) -- (0.56) 11.02
1996 10.47 0.56 (0.15) 0.41 (0.05) (0.02) (0.07) 10.81
1995(6) 10.00 0.05 0.42 0.47 -- -- -- 10.47
AST Oppenheimer 1998 $12.62 $(0.10) $3.55 $3.45 $ -- $ -- $-- $16.07
Large-Cap Growth** 1997 10.99 (0.05) 1.68 1.63 -- -- -- 12.62
1996(7) 10.00 (0.01) 1.00 0.99 -- -- -- 10.99
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(3) Commenced operations on January 4, 1994.
(4) Commenced operations on May 3, 1994.
(5) Commenced operations on October 20, 1994.
(6) Commenced operations on May 2, 1995.
(7) Commenced operations on May 2, 1996.
* Prior to May 1, 1998, Berger Associates, Inc. served as Sub-advisor to
the AST Neuberger Berman Mid-Cap Growth Portfolio (formerly, the Berger Capital
Growth Portfolio). Neuberger Berman Management, Incorporated served as
Sub-advisor to the Portfolio since May 1, 1998.
** Prior to December 31, 1998, Robertson, Stephens & Company Investment
Management, L.P. served as Sub-advisor to the AST Oppenheimer Large-Cap Growth
Portfolio (formerly, the Robertson Stephens Value + Growth Portfolio).
OppenheimerFunds, Inc. has served as Sub-advisor to the Portfolio since December
31, 1998.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Ratios of Expenses Ratios of Net Investment Income
___________________Supplemental Data________________ ______to Average Net Assets_____ ____(Loss) to Average Net Assets___
After Advisory Before Advisory After Advisory Before Advisory
Net Assets at Portfolio Fee Waiver Fee Waiver Fee Waiver Fee Waiver
Total End of Period Turnover and Expense and Expense and Expense and Expense
Return (in 000's) Rate Reimbursement Reimbursement Reimbursement Reimbursement
<S> <C> <C> <C> <C> <C> <C> <C>
14.03% $472,161 32% 1.25% 1.25% 0.60% 0.60%
1.36% 464,456 19% 1.26% 1.26% 0.71% 0.71%
14.17% 402,559 11% 1.30% 1.30% 0.84% 0.84%
11.09% 195,667 17% 1.33% 1.33% 1.03% 1.03%
(3.80%) 108,751 16% 1.75%(1) 1.77%(1) 0.45%(1) 0.43%(1)
14.72% $147,973 136% 1.11% 1.11% 4.78% 4.78%
(3.42%) 130,408 173% 1.11% 1.11% 4.73% 4.73%
5.98% 98,235 241% 1.21% 1.21% 5.02% 5.02%
11.10% 45,602 325% 1.53% 1.53% 6.17% 6.17%
(3.20%) 15,218 163% 1.68%(1) 1.68%(1) 7.03%(1) 7.03%(1)
20.65% $261,792 228% 1.07% 1.07% (0.34%) (0.34%)
16.68% 185,050 305% 0.99% 0.99% 0.07% 0.07%
16.34% 136,247 156% 1.01% 1.01% 0.24% 0.24%
24.42% 45,979 84% 1.17% 1.17% 0.70% 0.70%
(0.30%) 3,030 5% 1.25%(1) 1.70%(1) 1.41%(1) 0.97%(1)
10.92% $119,997 46% 1.30% 1.30% 0.32% 0.32%
2.03% 117,938 73% 1.35% 1.35% 0.43% 0.43%
12.91% 117,643 133% 1.36% 1.36% 1.25% 1.25%
3.30% 28,455 4% 1.46%(1) 1.46%(1) 0.94%(1) 0.94%(1)
(11.83%) $74,126 55% 1.16% 1.16% 1.14% 1.14%
3.39% 111,954 44% 1.16% 1.16% 0.98% 0.98%
30.74% 88,534 31% 1.30% 1.30% 1.08% 1.08%
11.10% 9,262 2% 1.35%(1) 1.80%(1) 1.28%(1) 0.83%(1)
5.72% $349,707 263% 0.86% 0.86% 5.70% 5.70%
7.46% 288,642 54% 0.88% 0.88% 5.71% 5.71%
3.90% 209,013 247% 0.89% 0.89% 5.69% 5.69%
4.70% 161,940 205% 0.89%(1) 0.89%(1) 4.87%(1) 4.87%(1)
27.34% $300,924 252% 1.22% 1.22% (0.70%) (0.70%)
14.83% 235,648 219% 1.23% 1.23% (0.59%) (0.59%)
9.90% 48,790 77% 1.33%(1) 1.33%(1) (0.56%)(1) (0.56%)(1)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM
______INVESTMENT OPERATIONS___ _______LESS DISTRIBUTIONS_______
Net Asset Net Net Asset
Year Value Investment Net RealizedTotal From From Net From Net Value
Ended Beginning Income & Unrealized Investment Investment Realized Total End
Portfolio December 31, of Period (Loss) Gain (Loss) Operations Income Gains Distributions of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AST Janus Overseas 1998 $11.87 $0.04 $1.88 $1.92 $(0.05) $ -- $(0.05) $13.74
Growth 1997(8) 10.00 0.02 1.85 1.87 -- -- -- 11.87
AST American Century 1998 $12.23 $0.11 $1.38 $1.49 $(0.07) $(0.18) $(0.25) $13.47
Income & Growth* 1997(8) 10.00 0.07 2.16 2.23 -- -- -- 12.23
AST American Century 1998 $11.34 $0.11 $2.29 $2.40 $(0.08) $ -- $(0.08) $13.66
Strategic Balanced 1997(8) 10.00 0.11 1.23 1.34 -- -- -- 11.34
AST American Century 1998 $11.52 $0.03 $2.12 $2.15 $(0.01) $ -- $(0.01) $13.66
International Growth 1997(8) 10.00 (0.03) 1.55 1.52 -- -- -- 11.52
AST T. Rowe Price Small 1998 $12.88 $0.09 $(1.42) $(1.33) $(0.05) $(0.06) $(0.11) $11.44
Company Value 1997(8) 10.00 0.06 2.82 2.88 -- -- -- 12.88
AST Marsico Capital Growth 1998 $10.03 $0.00 $4.17 $4.17 $ -- $ -- $ -- $14.20
1997(9) 10.00 0.01 0.02 0.03 -- -- -- 10.03
AST Cohen & Steers 1998(10) $10.00 $0.28 $(1.87) $(1.59) $ -- $ -- $ -- $8.41
Realty
AST Lord Abbett 1998(10) $10.00 $(0.01) $ -- $(0.01) $ -- $ -- $ -- $9.99
Small Cap Value
AST Bankers Trust 1998(10) $10.00 $0.06 $2.72 $2.78 $ -- $ -- $ -- $12.78
Enhanced 500
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(8) Commenced operations on January 2, 1997.
(9) Commenced operations on December 22, 1997.
(10) Commenced operations on January 2, 1998.
* Prior to May 4, 1999, Putnam Investment Management, Inc. served as
Sub-advisor to the AST American Century Income & Growth Portfolio (formerly, the
AST Putnam Value Growth & Income Portfolio). American Century Investment
Management, Inc. will serve as Sub-advisor to the Portfolio as of May 4, 1999.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Ratios of Expenses Ratios of Net Investment Income
___________________Supplemental Data________________ ______to Average Net Assets______ ___(Loss) to Average Net Assets____
After Advisory Before Advisory After Advisory Before Advisory
Net Assets at Portfolio Fee Waiver Fee Waiver Fee Waiver Fee Waiver
Total End of Period Turnover and Expense and Expense and Expense and Expense
Return (in 000's) Rate Reimbursement Reimbursement Reimbursement Reimbursement
<S> <C> <C> <C> <C> <C> <C> <C>
16.22% $607,206 97% 1.27% 1.27% 0.32% 0.32%
18.70% 255,705 94% 1.35%(1) 1.35%(1) 0.36%(1) 0.36%(1)
12.27% $189,871 87% 1.00% 1.00% 1.05% 1.05%)
22.30% 117,438 81% 1.23%(1) 1.23%(1) 1.24%(1) 1.24%(1)
21.29% $91,043 95% 1.16% 1.13% 1.68% 1.71%
13.40% 28,947 76% 1.25%(1) 1.35%(1) 2.02%(1) 1.92%(1)
18.68% $77,733 220% 1.65% 1.65% 0.10% 0.10%
15.10% 33,125 171% 1.75%(1) 1.75%(1) (0.58%)(1) (0.58%)(1)
(10.53%) $304,072 10% 1.11% 1.11% 0.93% 0.93%
28.80% 199,896 7% 1.16%(1) 1.16%(1) 1.20%(1) 1.20%(1)
41.59% $594,966 213% 1.11% 1.11% 0.16% 0.16%
0.30% 7,299 -- 1.00%(1) 1.00%(1) 3.62%(1) 3.62%(1)
(16.00%) $33,025 18% 1.30%(1) 1.30%(1) 5.02%(1) 5.02%(1)
(0.10%) $41,788 58% 1.31%(1) 1.31%(1) (0.21%)(1) (0.21%)(1)
27.90% $289,551 162% 0.80%(1) 0.86%(1) 1.07%(1) 1.01%(1)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CERTAIN RISK FACTORS AND INVESTMENT METHODS:
The following is a description of certain securities and investment
methods that the Portfolios may invest in or use, and certain of the risks
associated with such securities and investment methods. The primary investment
focus of each Portfolio is described above under "Investment Objective and
Policies" and an investor should refer to that section to obtain information
about each Portfolio. In general, whether a particular Portfolio may invest in a
specific type of security or use an investment method is described above or in
the Company's SAI under "Investment Programs of the Funds." As noted below,
however, certain risk factors and investment methods apply to all or most of the
Portfolios.
DERIVATIVE INSTRUMENTS:
To the extent permitted by the investment objectives and policies of a
Portfolio, a Portfolio may invest in securities and other instruments that are
commonly referred to as "derivatives." For instance, a Portfolio may purchase
and write (sell) call and put options on securities, securities indices and
foreign currencies, enter into futures contracts and use options on futures
contracts, and enter into swap agreements with respect to foreign currencies,
interest rates, and securities indices. In general, derivative instruments are
securities or other instruments whose value is derived from or related to the
value of some other instrument or asset.
There are many types of derivatives and many different ways to use
them. Some derivatives and derivative strategies involve very little risk, while
others can be extremely risky and can lead to losses in excess of the amount
invested in the derivative. A Portfolio may use derivatives to hedge against
changes in interest rates, foreign currency exchange rates or securities prices,
to generate income, as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities, or for other
reasons.
The use of these strategies involves certain special risks, including
the risk that the price movements of derivative instruments will not correspond
exactly with those of the investments from which they are derived. In addition,
strategies involving derivative instruments that are intended to reduce the risk
of loss can also reduce the opportunity for gain. Furthermore, regulatory
requirements for a Portfolio to set aside assets to meet its obligations with
respect to derivatives may result in a Portfolio being unable to purchase or
sell securities when it would otherwise be favorable to do so, or in a Portfolio
needing to sell securities at a disadvantageous time. A Portfolio may also be
unable to close out its derivatives positions when desired. There is no
assurance that a Portfolio will engage in derivative transactions. Certain
derivative instruments and some of their risks are described in more detail
below.
Options. Most of the Portfolios may purchase or write (sell) call or
put options on securities, financial indices or currencies. The purchaser of an
option on a security or currency obtains the right to purchase (in the case of a
call option) or sell (in the case of a put option) the security or currency at a
specified price within a limited period of time. Upon exercise by the purchaser,
the writer (seller) of the option has the obligation to buy or sell the
underlying security at the exercise price. An option on a securities index is
similar to an option on an individual security, except that the value of the
option depends on the value of the securities comprising the index, and all
settlements are made in cash.
A Portfolio will pay a premium to the party writing the option when it
purchases an option. In order for a call option purchased by a Portfolio to be
profitable, the market price of the underlying security must rise sufficiently
above the exercise price to cover the premium and other transaction costs.
Similarly, in order for a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and other transaction costs.
Generally, the Portfolios will write call options only if they are
covered (i.e., the Fund owns the security subject to the option or has the right
to acquire it without additional cost). By writing a call option, a Portfolio
assumes the risk that it may be required to deliver a security for a price lower
than its market value at the time the option is exercised. Effectively, a
Portfolio that writes a covered call option gives up the opportunity for gain
above the exercise price should the market price of the underlying security
increase, but retains the risk of loss should the price of the underlying
security decline. A Portfolio will write call options in order to obtain a
return from the premiums received and will retain the premiums whether or not
the options are exercised, which will help offset a decline in the market value
of the underlying securities. A Portfolio that writes a put option likewise
receives a premium, but assumes the risk that it may be required to purchase the
underlying security at a price in excess of its current market value.
A Portfolio may sell an option that it has previously purchased prior
to the purchase or sale of the underlying security. Any such sale would result
in a 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 option. A
Portfolio may terminate an option it has written by entering into a closing
purchase transaction in which it purchases an option of the same series as the
option written.
Futures Contracts and Related Options. Each Portfolio (except the AST
Neuberger Berman Mid-Cap Value Portfolio, the AST Lord Abbett Growth and Income
Portfolio, the AST INVESCO Equity Income Portfolio, the AST Federated High Yield
Portfolio, and the AST Money Market Portfolio) may enter into financial futures
contracts and related options. The seller of a futures contract agrees to sell
the securities or currency called for in the contract and the buyer agrees to
buy the securities or currency at a specified price at a specified future time.
Financial futures contracts may relate to securities indices, interest rates or
foreign currencies. Futures contracts are usually settled through net cash
payments rather than through actual delivery of the securities underlying the
contract. For instance, in a stock index futures contract, the 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 when the contract expires and
the price specified in the contract. A Portfolio may use futures contracts to
hedge against movements in securities prices, interest rates or currency
exchange rates, or as an efficient way to gain exposure to these markets.
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in the contract at the
exercise price at any time during the life of the option. The writer of the
option is required upon exercise to assume the opposite position.
Under regulations of the Commodity Futures Trading Commission ("CFTC"),
no Portfolio will:
(i) 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) 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.
Risks of Options and Futures Contracts. Options and futures contracts
can be highly volatile and their use can reduce a Portfolio's performance.
Successful use of these strategies requires the ability to predict future
movements in securities prices, interest rates, currency exchange rates, and
other economic factors. If a Sub-advisor seeks to protect a Portfolio against
potential adverse movements in the relevant financial markets using these
instruments, and such markets do not move in the predicted direction, the
Portfolio could be left in a less favorable position than if such strategies had
not been used. A Portfolio's potential losses from the use of futures extends
beyond its initial investment in such contracts.
Among the other risks inherent in the use of options and futures are
(a) the risk of imperfect correlation between the price of options and futures
and the prices of the securities or currencies to which they relate, (b) the
fact that skills needed to use these strategies are different from those needed
to select portfolio securities and (c) the possible need to defer closing out
certain positions to avoid adverse tax consequences. With respect to options on
stock indices and stock index futures, the risk of imperfect correlation
increases the more the holdings of the Portfolio differ from the composition of
the relevant index. These instruments may not have a liquid secondary market.
Option positions established in the over-the-counter market may be particularly
illiquid and may also involve the risk that the other party to the transaction
fails to meet its obligations.
FOREIGN SECURITIES:
Investments in securities of foreign issuers may involve risks that are
not present with domestic investments. While investments in foreign securities
can reduce risk by providing further diversification, such investments involve
"sovereign risks" in addition to the credit and market risks to which securities
generally are subject. Sovereign risks 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. 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. In some
countries, there may also be the possibility of expropriation or confiscatory
taxation, difficulty in enforcing contractual and other obligations, political
or social instability or revolution, or diplomatic developments that could
affect investments in those countries.
Securities of some foreign issuers are less liquid and their prices are
more volatile than securities of comparable domestic issuers. Further, it may be
more difficult for the Trust's agents to keep currently informed about corporate
actions and decisions that may affect the price of portfolio securities.
Brokerage commissions on foreign securities exchanges, which may be fixed, may
be higher than in the United States. Settlement of transactions in some foreign
markets may be less frequent or less reliable than in the United States, which
could affect the liquidity of investments. For example, securities that are
traded in foreign markets may trade on days (such as Saturday or Holidays) when
a Portfolio does not compute its price or accept purchase or redemption orders.
As a result, a shareholder may not be able to act on developments taking place
in foreign countries as they occur.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs"), and International Depositary
Receipts ("IDRs"). ADRs are U.S. dollar-denominated receipts generally issued by
a domestic bank evidencing its ownership of a security of a foreign issuer. ADRs
generally are publicly traded in the United States. ADRs are subject to many of
the same risks as direct investments in foreign securities, although ownership
of ADRs may reduce or eliminate certain risks associated with holding assets in
foreign countries, such as the risk of expropriation. EDRs, GDRs and IDRs are
receipts similar to ADRs that typically trade in countries other than the United
States.
Depositary receipts may be issued as sponsored or unsponsored programs.
In sponsored programs, the issuer makes arrangements to have its securities
traded as depositary receipts. In unsponsored programs, the issuer may not be
directly involved in the program. Although regulatory requirements with respect
to sponsored and unsponsored programs are generally similar, the issuers of
unsponsored depositary receipts are not obligated to disclose material
information in the United States and, therefore, the import of such information
may not be reflected in the market value of such securities.
Developing Countries. Although none of the Portfolios invest primarily
in securities of issuers in developing countries, many of the Funds may invest
in these securities to some degree. Many of the risks described above with
respect to investing in foreign issuers are accentuated when the issuers are
located in developing countries. Developing countries may be politically and/or
economically unstable, and the securities markets in those countries may be less
liquid or subject to inadequate government regulation and supervision.
Developing countries have often experienced high rates of inflation or sharply
devalued their currencies against the U.S. dollar, causing the value of
investments in companies located in these countries to decline. Securities of
issuers in developing countries may be more volatile and, in the case of debt
securities, more uncertain as to payment of interest and principal. Investments
in developing countries may include securities created through the Brady Plan,
under which certain heavily-indebted countries have restructured their bank debt
into bonds.
Currency Fluctuations. Investments in foreign securities may be
denominated in foreign currencies. The value of a Portfolio's investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
exchange rates and exchange control regulations. A Portfolio's share price may,
therefore, also be affected by changes in currency exchange rates. Foreign
currency exchange rates generally are determined by the forces of supply and
demand in foreign exchange markets, including perceptions of the relative merits
of investment in different countries, actual or perceived changes in interest
rates or other complex factors. Currency exchange rates also can be affected
unpredictably by the intervention or the failure to intervene by U.S. or foreign
governments or central banks, 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.
While the introduction of a single currency, the euro, on January 1,
1999 for participating nations in the European Economic and Monetary Union
generally occurred without significant market or operational disruption, the
euro still presents certain political and operational uncertainties. These
uncertainties may include political reaction against the euro in participating
nations and operational difficulties as the result of the fact that some
securities still pay dividends and interest in the old currencies. These
uncertainties could cause market disruptions, and could adversely affect the
value of securities held by the Portfolios.
Foreign Currency Transactions. A Portfolio that invests in securities
denominated in foreign currencies will need to engage in foreign currency
exchange transactions. Such transactions may occur on a "spot" basis at the
exchange rate prevailing at the time of the transaction. Alternatively, a
Portfolio may enter into forward foreign currency exchange contracts. A forward
contract involves an obligation to purchase or sell a specified currency at a
specified future date at a price set at the time of the contract. A Portfolio
may enter into a forward contract when it wishes to "lock in" the U.S. dollar
price of a security it expects to or is obligated to purchase or sell in the
future. This practice may be referred to as "transaction hedging." In addition,
when a Portfolio's Sub-advisor believes that the currency of a particular
country may suffer or enjoy a significant movement compared to another currency,
the Portfolio may enter into a forward contract to sell or buy the first foreign
currency (or a currency that acts as a proxy for such currency). This practice
may be referred to as "portfolio hedging." In any event, the precise matching of
the forward contract amounts and the value of the securities involved generally
will not be possible. No Portfolio will enter into a forward contract if it
would be obligated to sell an amount of foreign currency in excess of the value
of the Fund's securities or other assets denominated in that currency, or will
sell an amount of proxy currency in excess of the value of securities
denominated in the related currency. The effect of entering into a forward
contract on a Portfolio's share price will be similar to selling securities
denominated in one currency and purchasing securities denominated in another.
Although a forward contract may reduce a Portfolio's losses on securities
denominated in foreign currency, it may also reduce the potential for gain on
the securities if the currency's value moves in a direction not anticipated by
the Sub-advisor.
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 the company's income for purposes of receiving dividend payments
and on the company's assets in the event of liquidation. (Some of the
Sub-advisors consider preferred stocks to be equity securities for purposes of
the various Portfolios' investment policies and restrictions, while others
consider them fixed income securities.) 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.
FIXED INCOME SECURITIES:
Most of the Portfolios, including the Portfolios that invest primarily
in equity securities, may invest to some degree in bonds, notes, debentures and
other obligations of corporations and governments. Fixed-income securities are
generally subject to two kinds of risk: credit risk and market risk. Credit risk
relates to the ability of the issuer to meet interest and principal payments as
they come due. The ratings given a security by Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation ("S&P"), which are described in
detail in the Appendix to the Company's SAI, provide a generally useful guide as
to such credit risk. The lower the rating, the greater the credit risk the
rating service perceives to exist with respect to the security. Increasing the
amount of Portfolio assets invested in lower-rated securities generally will
increase the Portfolio's income, but also will increase the credit risk to which
the Portfolio is subject. Market risk relates to the fact that the prices of
fixed income securities generally will be affected by changes in the level of
interest rates in the markets generally. An increase in interest rates will tend
to reduce the prices of such securities, while a decline in interest rates will
tend to increase their prices. In general, the longer the maturity or duration
of a fixed income security, the more its value will fluctuate with changes in
interest rates.
Lower-Rated Fixed Income Securities. Lower-rated high-yield bonds
(commonly known as "junk bonds") are those that are rated lower than the four
highest categories by a nationally recognized statistical rating organization
(for example, lower than Baa by Moody's or BBB by S&P), or, if not rated, are of
equivalent investment quality as determined by the Sub-advisor. Lower-rated
bonds are generally considered to be high risk investments as they are subject
to greater credit risk than higher-rated bonds. In addition, the market for
lower-rated bonds may be thinner and less active than the market for
higher-rated bonds, and the prices of lower-rated high-yield bonds may fluctuate
more than the prices of higher-rated bonds, particularly in times of market
stress. Because the risk of default is higher in lower-rated bonds, a
Sub-advisor's research and analysis tend to be very important ingredients in the
selection of these bonds. In addition, the exercise by an issuer of redemption
or call provisions that are common in lower-rated bonds may result in their
replacement by lower yielding bonds.
Bonds rated in the four highest ratings categories are frequently
referred to as "investment grade." However, bonds rated in the fourth category
(Baa or BBB) are considered medium grade and may have speculative
characteristics.
MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities are securities representing interests in
"pools" of mortgage loans on residential or commercial real property and that
generally provide for monthly payments of both interest and principal, in effect
"passing through" monthly payments made by the individual borrowers on the
mortgage loans (net of fees paid to the issuer or guarantor of the securities).
Mortgage-backed securities are frequently issued by U.S. Government agencies or
Government-sponsored enterprises, and payments of interest and principal on
these securities (but not their market prices) may be guaranteed by the full
faith and credit of the U.S. Government or by the agency only, or may be
supported by the issuer's ability to borrow from the U.S. Treasury.
Mortgage-backed securities created by non-governmental issuers may be supported
by various forms of insurance or guarantees.
Like other fixed-income securities, the value of a mortgage-backed
security will generally decline when interest rates rise. However, when interest
rates are declining, their value may not increase as much as other fixed-income
securities, because early repayments of principal on the underlying mortgages
(arising, for example, from sale of the underlying property, refinancing, or
foreclosure) may serve to reduce the remaining life of the security. If a
security has been purchased at a premium, the value of the premium would be lost
in the event of prepayment. Prepayments on some mortgage-backed securities may
necessitate that a Portfolio find other investments, which, because of
intervening market changes, will often offer a lower rate of return. In
addition, the mortgage securities market may be particularly affected by changes
in governmental regulation or tax policies.
Collateralized Mortgage Obligations (CMOs). CMOs are a type of mortgage
pass-through security that are typically issued in multiple series with each
series having a different maturity. Principal and interest payments from the
underlying collateral are first used to pay the principal on the series with the
shortest maturity; in turn, the remaining series are paid in order of their
maturities. Therefore, depending on the type of CMOs in which a Portfolio
invests, the investment may be subject to greater or lesser risk than other
types of mortgage-backed securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities are mortgage pass-through securities that have been divided into
interest and principal components. "IOs" (interest only securities) receive the
interest payments on the underlying mortgages while "POs" (principal only
securities) receive the principal payments. The cash flows and yields on IO and
PO classes are extremely sensitive to the rate of principal payments (including
prepayments) on the underlying mortgage loans. If the underlying mortgages
experience higher than anticipated prepayments, an investor in an IO class of a
stripped mortgage-backed security may fail to recoup fully its initial
investment, even if the IO class is highly rated or is derived from a security
guaranteed by the U.S. Government. Conversely, if the underlying mortgage assets
experience slower than anticipated prepayments, the price on a PO class will be
affected more severely than would be the case with a traditional mortgage-backed
security. Unlike other fixed-income and other mortgage-backed securities, the
value of IOs tends to move in the same direction as interest rates.
ASSET-BACKED SECURITIES:
Asset-backed securities conceptually are similar to mortgage
pass-through securities, but they are secured by and payable from payments on
assets such as credit card, automobile or trade loans, rather than mortgages.
The credit quality of these securities depends primarily upon the quality of the
underlying assets and the level of credit support or enhancement provided. In
addition, asset-backed securities involve prepayment risks that are similar in
nature to those of mortgage pass-through securities.
CONVERTIBLE SECURITIES AND WARRANTS:
Certain of the Portfolios may invest in convertible securities.
Convertible securities are bonds, notes, debentures and preferred stocks that
may be converted into or exchanged for shares of common stock. Many convertible
securities are rated below investment grade because they fall below ordinary
debt securities in order of preference or priority on the issuer's balance
sheet. Convertible securities generally participate in the appreciation or
depreciation of the underlying stock into which they are convertible, but to a
lesser degree. Frequently, convertible securities are callable by the issuer,
meaning that the issuer may force conversion before the holder would otherwise
choose.
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 the
warrants. A warrant will expire without value if the rights under such warrant
are not exercised prior to its expiration date.
<PAGE>
WHEN-ISSUED, DELAYED-DELIVERY AND FORWARD COMMITMENT TRANSACTIONS:
The Portfolios (other than the AST Founders Passport Portfolio, the AST
Kemper Small-Cap Growth Portfolio, the AST Oppenheimer Large-Cap Growth
Portfolio, the AST Cohen & Steers Realty Portfolio, the AST Lord Abbett Growth
and Income Portfolio, and the AST INVESCO Equity Income Portfolio) may purchase
securities on a when-issued, delayed-delivery or forward commitment basis. These
transactions generally involve the purchase of a security with payment and
delivery due at some time in the future. A Portfolio does not earn interest on
such securities until settlement and bears the risk of market value fluctuations
in between the purchase and settlement dates. If the seller fails to complete
the sale, the Fund may lose the opportunity to obtain a favorable price and
yield. The AST Money Market Portfolio will not enter into these commitments if
they would exceed 15% of the value of the Fund's total assets less its
liabilities other than liabilities created by these commitments.
The AST AIM International Equity Portfolio, the AST Lord
Abbett Small Cap Value Portfolio, the AST AIM Balanced Portfolio, the AST PIMCO
Total Return Bond Portfolio and the AST PIMCO Limited Maturity Bond Portfolio
may also sell securities on a when-issued, delayed-delivery or forward
commitment basis. If the Portfolio does so, it will not participate in future
gains or losses on the security. If the other party to such a transaction fails
to pay for the securities, the Portfolio could suffer a loss.
ILLIQUID AND RESTRICTED SECURITIES:
Subject to guidelines adopted by the Trustees of the Trust, each
Portfolio may invest up to 15% of its net assets in illiquid securities (except
for the AST Money Market Portfolio, which is limited to 10% of its net assets,
and the AST Oppenheimer Large-Cap Growth Portfolio, which is limited to 5% of
its net assets). Illiquid securities are those that, because of the absence of a
readily available market or due to legal or contractual restrictions on resale,
cannot be sold within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the investment. Therefore,
a Portfolio may find it difficult to sell illiquid securities at the time
considered most advantageous by its Sub-advisor and may incur expenses that
would not be incurred in the sale of securities that were freely marketable.
Certain securities that would otherwise be considered illiquid because
of legal restrictions on resale to the general public may be traded among
qualified institutional buyers under Rule 144A of the Securities Act of 1933.
These Rule 144A securities, and well as commercial paper that is sold in private
placements under Section 4(2) of the Securities Act, may be deemed liquid by the
Portfolio's Sub-advisor under the guidelines adopted by the Directors of the
Company. However, the liquidity of a Portfolio's investments in Rule 144A
securities could be impaired if trading does not develop or declines.
REPURCHASE AGREEMENTS:
Each Portfolio (other than the AST Lord Abbett Growth and Income
Portfolio) may enter into 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.
Under guidelines adopted by the Trustees of the Trust, repurchase agreements
must be fully collateralized and can be entered into only with well-established
banks and broker-dealers that meet the specific requirements in the guidelines
and otherwise have been deemed creditworthy by the Sub-advisor. Repurchase
transactions are intended to be short-term transactions, usually with the seller
repurchasing the securities within seven days. Repurchase agreements that mature
in more than seven days are subject to a Portfolio's limit on illiquid
securities.
A Portfolio that enters into a repurchase agreement may lose money in
the event that the other party defaults on its obligation and the Portfolio is
delayed or prevented from disposing of the collateral. A Portfolio also might
incur a loss if the value of the collateral declines, and it might incur costs
in selling the collateral or asserting its legal rights under the agreement. If
a defaulting seller filed for bankruptcy or became insolvent, disposition of
collateral might be delayed pending court action.
The AST Neuberger Berman Mid-Cap Growth Portfolio will not invest more than
25% of its net assets in repurchase agreements.
<PAGE>
REVERSE REPURCHASE AGREEMENTS:
Certain Portfolios (specifically, the AST Janus Overseas Growth
Portfolio, the AST Janus Small-Cap Growth Portfolio, the AST Neuberger Berman
Mid-Cap Growth Portfolio, the AST Neuberger Berman Mid-Cap Value Portfolio, the
AST Marsico Capital Growth Portfolio, the AST JanCap Growth Portfolio, the AST
PIMCO Total Return Bond Portfolio, the AST PIMCO Limited Maturity Bond Portfolio
and the AST Money Market Portfolio) may enter into reverse repurchase
agreements. In a reverse repurchase agreement, a Portfolio sells a portfolio
instrument and agrees to repurchase it at an agreed upon date and price, which
reflects an effective interest rate. It may also be viewed as a borrowing of
money by the Portfolio and, like borrowing money, may increase fluctuations in a
Portfolio's share price. When entering into a reverse repurchase agreement, a
Portfolio must set aside on its books cash or other liquid assets in an amount
sufficient to meet its repurchase obligation.
BORROWING:
Each Portfolio may borrow money from banks. 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, such
Portfolio must reduce such borrowings so as to meet the necessary test within
three business days. The AST Money Market Portfolio will not purchase securities
when outstanding borrowings are greater than 5% of the Portfolio's total assets,
and the AST AIM Balanced Portfolio will not purchase securities when any
borrowings are outstanding. If a Portfolio borrows money, its share price may
fluctuate more widely until the borrowing is repaid.
LENDING PORTFOLIO SECURITIES:
Each Portfolio may lend securities with a value of up to 33 1/3% of its
total assets to broker-dealers, institutional investors, or others for the
purpose of realizing additional income. Voting rights on loaned securities
typically pass to the borrower, although a Portfolio has the right to terminate
a securities loan, usually within three business days, in order to vote on
significant matters or for other reasons. All securities loans will be
collateralized by cash or securities issued or guaranteed by the U.S. Government
or its agencies at least equal in value to the market value of the loaned
securities. Nonetheless, lending securities involves certain risks, including
the risk that the Portfolio will be delayed or prevented from recovering the
collateral if the borrower fails to return a loaned security.
OTHER INVESTMENT COMPANIES:
The Company has made arrangements with certain money market mutual
funds so that the Sub-advisors for the various Portfolios can "sweep" excess
cash balances of the Portfolios to those funds for temporary investment
purposes. In addition, certain Sub-advisors may invest Portfolio assets in money
market funds that they advise. Mutual funds pay their own operating expenses,
and the Portfolios, as shareholders in the money market funds, will indirectly
pay their proportionate share of such funds' expenses.
YEAR 2000 RISKS:
Many services provided to the Trust and its Portfolios by the
Investment Manager, the Sub-advisors, and the Trust's other service providers
(collectively, the "Service Providers") rely on the functioning of their
respective computer systems. Many computer systems cannot distinguish the year
2000 from the year 1900, with resulting potential difficulty in performing
various systems functions (the "Year 2000 Issue"). The Year 2000 Issue could
potentially have an adverse impact on the handling of security trades, the
payment of interest and dividends, pricing, account services and other Trust
operations.
The Service Providers recognize the importance of the Year 2000 Issue
and have advised the Trust that they are taking appropriate steps in preparation
for the year 2000. At this time, there can be no assurance that the actions
taken by the Service Providers, who are generally not affiliated with the
Investment Manager, will be sufficient to avoid any adverse impact on the
Portfolios, nor can there be any assurance that the Year 2000 Issue will not
have an adverse effect on the Portfolios' investments or on global markets or
economies generally. In addition, it has been reported that foreign institutions
have made less progress in addressing the Year 2000 Issue than major U.S.
entities, which could adversely effect the Portfolios' foreign investments.
The Investment Manager and the Trust are seeking further assurances
from the Service Providers that all of the systems they use in connection with
the Portfolios will be adapted in time for the year 2000. The Investment Manager
will continue to monitor the Year 2000 Issue in an effort to confirm appropriate
preparation by the Service Providers, and is attempting to develop contingency
plans in the event that the Service Providers' systems are not adapted in time.
<PAGE>
This page has been intentionally left blank.
<PAGE>
This page has been intentionally left blank.
<PAGE>
Mailing Address
American Skandia Trust
One Corporate Drive
Shelton, CT 06484
Investment Manager
American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, CT 06484
Sub-Advisors
A I M Capital Management, Inc.
American Century Investment Management, Inc.
Bankers Trust Company
Cohen & Steers Capital Management, Inc.
Federated Investment Counseling
Founders Asset Management LLC
INVESCO Funds Group, Inc.
Janus Capital Corporation
J.P. Morgan Investment Management Inc.
Lord, Abbett & Co.
Marsico Capital Management, LLC
Neuberger Berman Management Inc.
OppenheimerFunds, Inc.
Pacific Investment Management Company
Rowe Price-Fleming International, Inc.
Scudder Kemper Investments, Inc.
T. Rowe Price Associates, Inc.
Custodians
PFPC Trust Company
Airport Business Center, International Court 2
200 Stevens Drive
Philadelphia, PA 19113
The Chase Manhattan Bank
One Pierrepont Plaza
Brooklyn, NY 11201
Administrator
Transfer and Shareholder Servicing Agent
PFPC Inc.
103 Bellevue Parkway
Wilmington, DE 19809
Independent Accountants
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
Legal Counsel
Werner & Kennedy
1633 Broadway
New York, NY 10019
INVESTOR INFORMATION SERVICES:
Shareholder inquiries should be made by calling (800) 752-6342 or by
writing to the American Skandia Trust at One Corporate Drive, Shelton,
Connecticut 06484.
Additional information about the Portfolios is included in a Statement
of Additional Information, which is incorporated by reference into this
Prospectus. Additional information about the Portfolios' investments is
available in the annual and semi-annual reports to holders of variable annuity
contracts and variable life insurance policies. In the annual reports, you will
find a discussion of the market conditions and investment strategies that
significantly affected each Portfolio's performance during its last fiscal year.
The Statement of Additional Information and additional copies of annual and
semi-annual reports are available without charge by calling the above number.
The information in the Company filings with the Securities and Exchange
Commission (including the Statement of Additional Information) is available from
the Commission. Copies of this information may be obtained, upon payment of
duplicating fees, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. The information can also be reviewed and copied at
the Commission's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling the Commission
at 1-800-SEC-0330. Finally, information about the Company is available on the
Commission's Internet site at http://www.sec.gov.
Investment Company Act File No. 811-5186
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION May 3, 1999
AMERICAN SKANDIA TRUST
One Corporate Drive, Shelton, Connecticut 06484
- --------------------------------------------------------------------------------
American Skandia Trust (the "Trust") is a managed, open-end investment company
whose separate portfolios ("Portfolios") are diversified, unless otherwise
indicated. The Trust seeks to meet the differing objectives of its Portfolios.
Currently, these Portfolios are the AST Founders Passport Portfolio, the AST T.
Rowe Price International Equity Portfolio, the AST AIM International Equity
Portfolio, the AST Janus Overseas Growth Portfolio, the AST American Century
International Growth Portfolio, the AST Janus Small-Cap Growth Portfolio, the
AST Kemper Small-Cap Growth Portfolio, the AST Lord Abbett Small Cap Value
Portfolio, the AST T. Rowe Price Small Company Value Portfolio, the AST
Neuberger Berman Mid-Cap Growth Portfolio, the AST Neuberger Berman Mid-Cap
Value Portfolio, the AST T. Rowe Price Natural Resources Portfolio, the AST
Oppenheimer Large-Cap Growth Portfolio, the AST Marsico Capital Growth
Portfolio, the AST JanCap Growth Portfolio, the AST Bankers Trust Enhanced 500
Portfolio, the AST Cohen & Steers Realty Portfolio, the AST American Century
Income & Growth Portfolio, the AST Lord Abbett Growth and Income Portfolio, the
AST INVESCO Equity Income Portfolio, the AST AIM Balanced Portfolio, the AST
American Century Strategic Balanced Portfolio, the AST T. Rowe Price Asset
Allocation Portfolio, the AST T. Rowe Price International Bond Portfolio, the
AST Federated High Yield Portfolio, the AST PIMCO Total Return Bond Portfolio,
the AST PIMCO Limited Maturity Bond Portfolio and the AST Money Market
Portfolio.
American Skandia Investment Services, Incorporated ("ASISI") is the
investment manager ("Investment Manager") for the Trust. Currently, ASISI
engages a sub-advisor ("Sub-advisor") for each Portfolio. The Sub-advisor for
each Portfolio is as follows: (a) Founders Asset Management LLC: AST Founders
Passport Portfolio; (b) Rowe Price-Fleming International, Inc.: AST T. Rowe
Price International Equity Portfolio, AST T. Rowe Price International Bond
Portfolio; (c) A I M Capital Management, Inc.: AST AIM International Equity
Portfolio, AST AIM Balanced Portfolio; (d) Janus Capital Corporation: AST JanCap
Growth Portfolio, AST Janus Overseas Growth Portfolio, AST Janus Small-Cap
Growth Portfolio; (e) American Century Investment Management, Inc.: AST American
Century International Growth Portfolio, AST American Century Income & Growth
Portfolio, AST American Century Strategic Balanced Portfolio; (f) Scudder Kemper
Investments, Inc.: AST Kemper Small-Cap Growth Portfolio; (g) Lord, Abbett &
Co.: AST Lord Abbett Growth and Income Portfolio, AST Lord Abbett Small Cap
Value Portfolio; (h) T. Rowe Price Associates, Inc.: AST T. Rowe Price Asset
Allocation Portfolio, AST T. Rowe Price Natural Resources Portfolio, AST T. Rowe
Price Small Company Value Portfolio; (i) Neuberger Berman Management,
Incorporated: AST Neuberger Berman Mid-Cap Value Portfolio, AST Neuberger Berman
Mid-Cap Growth Portfolio; (j) OppenheimerFunds, Inc.: AST Oppenheimer Large-Cap
Growth Portfolio; (k) Marsico Capital Management, LLC: AST Marsico Capital
Growth Portfolio; (l) Bankers Trust Company: AST Bankers Trust Enhanced 500
Portfolio; (m) Cohen & Steers Capital Management, Inc.: AST Cohen & Steers
Realty Portfolio; (n) INVESCO Funds Group, Inc.: AST INVESCO Equity Income
Portfolio; (o) Federated Investment Counseling: AST Federated High Yield
Portfolio; (p) Pacific Investment Management Company: AST PIMCO Total Return
Bond Portfolio, AST PIMCO Limited Maturity Bond Portfolio; and (q) J.P. Morgan
Investment Management Inc.: AST Money Market Portfolio.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Trust's current Prospectus, a copy of which may be
obtained by writing the Trust's administrative office at One Corporate Drive,
Shelton, Connecticut 06484 or by calling (203) 926-1888.
This Statement relates to the Trust's Prospectus dated May 3, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Caption Page
<S> <C>
General Information and History......................................................................................3
Investment Objectives and Policies...................................................................................3
AST Founders Passport Portfolio.................................................................................3
AST T. Rowe Price International Equity Portfolio...............................................................11
AST AIM International Equity Portfolio.........................................................................20
AST Janus Overseas Growth Portfolio............................................................................27
AST American Century International Growth Portfolio............................................................30
AST Janus Small-Cap Growth Portfolio...........................................................................33
AST Kemper Small-Cap Growth Portfolio..........................................................................36
AST Lord Abbett Small Cap Value Portfolio......................................................................40
AST T. Rowe Price Small Company Value Portfolio................................................................43
AST Neuberger Berman Mid-Cap Growth Portfolio..................................................................53
AST Neuberger Berman Mid-Cap Value Portfolio...................................................................59
AST T. Rowe Price Natural Resources Portfolio..................................................................66
AST Oppenheimer Large-Cap Growth Portfolio.....................................................................76
AST Marsico Capital Growth Portfolio...........................................................................78
AST JanCap Growth Portfolio....................................................................................80
AST Bankers Trust Enhanced 500 Portfolio.......................................................................83
AST Cohen & Steers Realty Portfolio............................................................................87
AST American Century Income & Growth Portfolio.................................................................91
AST Lord Abbett Growth and Income Portfolio....................................................................96
AST INVESCO Equity Income Portfolio............................................................................97
AST AIM Balanced Portfolio.....................................................................................98
AST American Century Strategic Balanced Portfolio.............................................................103
AST T. Rowe Price Asset Allocation Portfolio..................................................................109
AST T. Rowe Price International Bond Portfolio................................................................118
AST Federated High Yield Portfolio............................................................................127
AST PIMCO Total Return Bond Portfolio.........................................................................130
AST PIMCO Limited Maturity Bond Portfolio.....................................................................142
AST Money Market Portfolio....................................................................................155
Investment Restrictions............................................................................................157
Certain Risk Factors and Investment Methods........................................................................173
Portfolio Turnover.................................................................................................188
Organization and Management of the Trust...........................................................................189
Investment Advisory and Other Services.............................................................................192
Brokerage Allocation...............................................................................................202
Allocation of Investments..........................................................................................203
Computation of Net Asset Values....................................................................................203
Sale of Shares.....................................................................................................204
Description of Shares of the Trust.................................................................................204
Underwriter........................................................................................................205
Tax Matters........................................................................................................205
Performance........................................................................................................206
Custodian..........................................................................................................209
Other Information..................................................................................................209
Financial Statements...............................................................................................209
Appendix A Financial Statements for American Skandia Trust.........................................................A-1
Appendix B Definition of Certain Debt Securities Ratings...........................................................B-1
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY:
Prior to May 1, 1992, the Trust was known as the Henderson International
Growth Fund, which consisted of only one portfolio. This Portfolio is now known
as the AST AIM International Equity Portfolio (formerly, the AST Putnam
International Equity Portfolio and the Seligman Henderson International Equity
Portfolio). The AST Lord Abbett Growth and Income Portfolio was first offered as
of May 1, 1992. The AST JanCap Growth Portfolio and the AST Money Market
Portfolio were first offered as of November 4, 1992. The AST Neuberger Berman
Mid-Cap Value Portfolio (formerly, the Federated Utility Income Portfolio) and
the AST AIM Balanced Portfolio (formerly, the AST Putnam Balanced Portfolio and
the AST Phoenix Balanced Asset Portfolio) were first offered as of May 1, 1993.
The AST Federated High Yield Portfolio, the AST T. Rowe Price Asset Allocation
Portfolio, the AST T. Rowe Price International Equity Portfolio, the AST Janus
Small-Cap Growth Portfolio (formerly, the Founders Capital Appreciation
Portfolio), the AST INVESCO Equity Income Portfolio and the AST PIMCO Total
Return Bond Portfolio were first offered as of December 31, 1993. The AST T.
Rowe Price International Bond Portfolio (formerly, the AST Scudder International
Bond Portfolio) was first offered as of May 1, 1994. The AST Neuberger Berman
Mid-Cap Growth Portfolio (formerly, the Berger Capital Growth Portfolio) was
first offered as of October 19, 1994. The AST Founders Passport Portfolio
(formerly, the Seligman Henderson International Small Cap Portfolio), the AST T.
Rowe Price Natural Resources Portfolio and the AST PIMCO Limited Maturity Bond
Portfolio were first offered as of May 2, 1995. The AST Oppenheimer Large-Cap
Growth Portfolio (formerly, the Robertson Stephens Value + Growth Portfolio) was
first offered as of May 2, 1996. The AST Janus Overseas Growth Portfolio, the
AST T. Rowe Price Small Company Value Portfolio, the AST American Century
International Growth Portfolio, the AST American Century Strategic Balanced
Portfolio and the AST American Century Income & Growth Portfolio (formerly, the
AST Putnam Value Growth & Income Portfolio) were first offered as of January 2,
1997. The AST Marsico Capital Growth Portfolio was first offered as of December
22, 1997. The AST Lord Abbett Small Cap Value Portfolio, the AST Cohen & Steers
Realty Portfolio, the AST Stein Roe Venture Portfolio, and the AST Bankers Trust
Enhanced 500 Portfolio were first offered as of January 2, 1998. The AST Kemper
Small-Cap Growth Portfolio was first offered as of January 4, 1999.
INVESTMENT OBJECTIVES AND POLICIES:
.........The following information supplements, and should be read in
conjunction with, the discussion in the Trust's Prospectus of the investment
objective and policies of each Portfolio. The investment objective and
supplemental information regarding the investment policies for each of the
Portfolios are described below and should be considered separately. Each
Portfolio has a different investment objective and certain policies may vary. As
a result, the risks, opportunities and return in each Portfolio may differ.
There can be no assurance that any Portfolio's investment objective will be
achieved. Certain risk factors in relation to various securities and instruments
in which the Portfolios may invest are described in this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
.........The investment objective and the investment policies and
limitations of each Portfolio, unless otherwise specified, are not "fundamental"
policies and may be changed by the Board of Trustees of the Trust without
approval of the shareholders of the affected Portfolio. Those investment
policies specifically labeled as fundamental, including those described in the
"Investment Restrictions" section of this Statement. may not be changed without
shareholder approval. Fundamental investment policies of a Portfolio may be
changed only with the approval of at least the lesser of (1) 67% or more of the
total shares of the Portfolio represented at a meeting at which more than 50% of
the outstanding shares of the Portfolio are represented, or (2) a majority of
the outstanding shares of the Portfolio.
AST Founders Passport Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
capital appreciation. This is a fundamental objective of the Portfolio.
Investment Policies:
Options On Stock Indices and Stocks. An option is a right to buy or
sell a security at a specified price within a limited period of time. The
Portfolio may write ("sell") covered call options on any or all of its portfolio
securities. In addition, the Portfolio may purchase options on securities. The
Portfolio may also purchase put and call options on stock indices.
The Portfolio may write ("sell") options on any or all of its portfolio
securities and at such time and from time to time as the Sub-advisor shall
determine to be appropriate. No specified percentage of the Portfolio's assets
is invested in securities with respect to which options may be written. The
extent of the Portfolio's option writing activities will vary from time to time
depending upon the Sub-advisor's evaluation of market, economic and monetary
conditions.
When the Portfolio purchases a security with respect to which it
intends to write an option, it is likely that the option will be written
concurrently with or shortly after purchase. The Portfolio will write an option
on a particular security only if the Sub-advisor believes that a liquid
secondary market will exist on an exchange for options of the same series, which
will permit the Portfolio to enter into a closing purchase transaction and close
out its position. If the Portfolio desires to sell a particular security on
which it has written an option, it will effect a closing purchase transaction
prior to or concurrently with the sale of the security.
The Portfolio may enter into closing purchase transactions to reduce
the percentage of its assets against which options are written, to realize a
profit on a previously written option, or to enable it to write another option
on the underlying security with either a different exercise price or expiration
time or both.
Options written by the Portfolio will normally have expiration dates
between three and nine months from the date written. The exercise prices of
options may be below, equal to or above the current market values of the
underlying securities at the times the options are written. From time to time
for tax and other reasons, the Portfolio may purchase an underlying security for
delivery in accordance with an exercise notice assigned to it, rather than
delivering such security from its portfolio.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the stocks included in the index. The Portfolio
purchases put options on stock indices to protect the portfolio against decline
in value. The Portfolio purchases call options on stock indices to establish a
position in equities as a temporary substitute for purchasing individual stocks
that then may be acquired over the option period in a manner designed to
minimize adverse price movements. Purchasing put and call options on stock
indices also permits greater time for evaluation of investment alternatives.
When the Sub-advisor believes that the trend of stock prices may be downward,
particularly for a short period of time, the purchase of put options on stock
indices may eliminate the need to sell less liquid stocks and possibly
repurchase them later. The purpose of these transactions is not to generate
gain, but to "hedge" against possible loss. Therefore, successful hedging
activity will not produce net gain to the Portfolio. Any gain in the price of a
call option is likely to be offset by higher prices the Portfolio must pay in
rising markets, as cash reserves are invested. In declining markets, any
increase in the price of a put option is likely to be offset by lower prices of
stocks owned by the Portfolio.
The Portfolio may purchase only those put and call options that are
listed on a domestic exchange or quoted on the automatic quotation system of the
National Association of Securities Dealers, Inc. ("NASDAQ"). Options traded on
stock exchanges are either broadly based, such as the Standard & Poor's 500
Stock Index and 100 Stock Index, or involve stocks in a designated industry or
group of industries. The Portfolio may utilize either broadly based or market
segment indices in seeking a better correlation between the indices and the
portfolio.
Transactions in options are subject to limitations, established by each
of the exchanges upon which options are traded, governing the maximum number of
options which may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options are held in one or more
accounts. Thus, the number of options the Portfolio may hold may be affected by
options held by other advisory clients of the Sub-advisor. As of the date of
this Statement, the Sub-advisor believes that these limitations will not affect
the purchase of stock index options by the Portfolio.
One risk of holding a put or a call option is that if the option is not
sold or exercised prior to its expiration, it becomes worthless. However, this
risk is limited to the premium paid by the Portfolio. Other risks of purchasing
options include the possibility that a liquid secondary market may not exist at
a time when the Portfolio may wish to close out an option position. It is also
possible that trading in options on stock indices might be halted at a time when
the securities markets generally were to remain open. In cases where the market
value of an issue supporting a covered call option exceeds the strike price plus
the premium on the call, the Portfolio will lose the right to appreciation of
the stock for the duration of the option. For an additional discussion of
options on stock indices and stocks and certain risks involved therein, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Futures Contracts. The Portfolio may enter into futures contracts (or
options thereon) for hedging purposes. U.S. futures contracts are traded on
exchanges which have been designated "contract markets" by the Commodity Futures
Trading Commission and must be executed through a futures commission merchant
(an "FCM") or brokerage firm which is a member of the relevant contract market.
Although futures contracts by their terms call for the delivery or acquisition
of the underlying commodities or a cash payment based on the value of the
underlying commodities, in most cases the contractual obligation is offset
before the delivery date of the contract by buying, in the case of a contractual
obligation to sell, or selling, in the case of a contractual obligation to buy,
an identical futures contract on a commodities exchange. Such a transaction
cancels the obligation to make or take delivery of the commodities.
The acquisition or sale of a futures contract could occur, for example,
if the Portfolio held or considered purchasing equity securities and sought to
protect itself from fluctuations in prices without buying or selling those
securities. For example, if prices were expected to decrease, the Portfolio
could sell equity index futures contracts, thereby hoping to offset a potential
decline in the value of equity securities in the portfolio by a corresponding
increase in the value of the futures contract position held by the Portfolio and
thereby prevent the Portfolio's net asset value from declining as much as it
otherwise would have. The Portfolio also could protect against potential price
declines by selling portfolio securities and investing in money market
instruments. However, since the futures market is more liquid than the cash
market, the use of futures contracts as an investment technique would allow the
Portfolio to maintain a defensive position without having to sell portfolio
securities.
Similarly, when prices of equity securities are expected to increase,
futures contracts could be bought to attempt to hedge against the possibility of
having to buy equity securities at higher prices. This technique is sometimes
known as an anticipatory hedge. Since the fluctuations in the value of futures
contracts should be similar to those of equity securities, the Portfolio could
take advantage of the potential rise in the value of equity securities without
buying them until the market had stabilized. At that time, the futures contracts
could be liquidated and the Portfolio could buy equity securities on the cash
market.
The Portfolio may also enter into interest rate and foreign currency
futures contracts. Interest rate futures contracts currently are traded on a
variety of fixed-income securities, including long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, U.S. Treasury Bills, bank certificates of deposit
and commercial paper. Foreign currency futures contracts currently are traded on
the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark
and on Eurodollar deposits.
The Portfolio will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of its
total assets after taking into account unrealized profits and losses on options
entered into. In the case of an option that is "in-the-money," the in-the-money
amount may be excluded in computing such 5%. In general a call option on a
future is "in-the-money" if the value of the future exceeds the exercise
("strike") price of the call; a put option on a future is "in-the-money" if the
value of the future which is the subject of the put is exceeded by the strike
price of the put. The Portfolio may use futures and options thereon solely for
bona fide hedging or for other non-speculative purposes. As to long positions
which are used as part of the Portfolio's strategies and are incidental to its
activities in the underlying cash market, the "underlying commodity value" of
the Portfolio's futures and options thereon must not exceed the sum of (i) cash
set aside in an identifiable manner, or short-term U.S. debt obligations or
other dollar-denominated high-quality, short-term money instruments so set
aside, plus sums deposited on margin; (ii) cash proceeds from existing
investments due in 30 days; and (iii) accrued profits held at the futures
commission merchant. The "underlying commodity value" of a future is computed by
multiplying the size of the future by the daily settlement price of the future.
For an option on a future, that value is the underlying commodity value of the
future underlying the option.
Unlike the situation in which the Portfolio purchases or sells a
security, no price is paid or received by the Portfolio upon the purchase or
sale of a futures contract. Instead, the Portfolio is required to deposit in a
segregated asset account an amount of cash or qualifying securities (currently
U.S. Treasury bills), currently in a minimum amount of $15,000. This is called
"initial margin." Such initial margin is in the nature of a performance bond or
good faith deposit on the contract. However, since losses on open contracts are
required to be reflected in cash in the form of variation margin payments, the
Portfolio may be required to make additional payments during the term of a
contract to its broker. Such payments would be required, for example, where,
during the term of an interest rate futures contract purchased by the Portfolio,
there was a general increase in interest rates, thereby making the Portfolio's
securities less valuable. In all instances involving the purchase of financial
futures contracts by the Portfolio, an amount of cash together with such other
securities as permitted by applicable regulatory authorities to be utilized for
such purpose, at least equal to the market value of the future contracts, will
be deposited in a segregated account with the Portfolio's custodian to
collateralize the position. At any time prior to the expiration of a futures
contract, the Portfolio may elect to close its position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
Because futures contracts are generally settled within a day from the
date they are closed out, compared with a settlement period of three business
days for most types of securities, the futures markets can provide superior
liquidity to the securities markets. Nevertheless, there is no assurance a
liquid secondary market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish daily price
fluctuation limits for futures contracts and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it would be impossible
for the Portfolio to enter into new positions or close out existing positions.
If the secondary market for a futures contract were not liquid because of price
fluctuation limits or otherwise, the Portfolio would not promptly be able to
liquidate unfavorable futures positions and potentially could be required to
continue to hold a futures position until the delivery date, regardless of
changes in its value. As a result, the Portfolio's access to other assets held
to cover its futures positions also could be impaired. For an additional
discussion of futures contracts and certain risks involved therein, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Options on Futures Contracts. The Portfolio may purchase put and call
options on futures contracts. An option on a futures contract provides the
holder with the right to enter into a "long" position in the underlying futures
contract, in the case of a call option, or a "short" position in the underlying
futures contract, in the case of a put option, at a fixed exercise price to a
stated expiration date. Upon exercise of the option by the holder, a contract
market clearing house establishes a corresponding short position for the writer
of the option, in the case of a call option, or a corresponding long position,
in the case of a put option. In the event that an option is exercised, the
parties will be subject to all the risks associated with the trading of futures
contracts, such as payment of variation margin deposits.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. See
"Options on Foreign Currencies" below. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying instrument, ownership of the option may or may not
be less risky than ownership of the futures contract or the underlying
instrument. As with the purchase of futures contracts, when the Portfolio is not
fully invested it could buy a call option on a futures contract to hedge against
a market advance. The purchase of a put option on a futures contract is similar
in some respects to the purchase of protective put options on portfolio
securities. For example, the Portfolio would be able to buy a put option on a
futures contract to hedge the Portfolio against the risk of falling prices. For
an additional discussion of options on futures contracts and certain risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risks Factors and Investment Methods."
Options on Foreign Currencies. The Portfolio may buy and sell options
on foreign currencies for hedging purposes in a manner similar to that in which
futures on foreign currencies would be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated would reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remained constant. In order to protect against
such diminutions in the value of portfolio securities, the Portfolio could buy
put options on the foreign currency. If the value of the currency declines, the
Portfolio would have the right to sell such currency for a fixed amount in U.S.
dollars and would thereby offset, in whole or in part, the adverse effect on the
Portfolio which otherwise would have resulted. Conversely, when a rise is
projected in the U.S. dollar value of a currency in which securities to be
acquired are denominated, thereby increasing the cost of such securities, the
Portfolio could buy call options thereon. The purchase of such options could
offset, at least partially, the effects of the adverse movements in exchange
rates.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities, and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices, or prohibitions on exercise.
Risk Factors of Investing in Futures and Options. The successful use of
the investment practices described above with respect to futures contracts,
options on futures contracts, and options on securities indices, securities, and
foreign currencies draws upon skills and experience which are different from
those needed to select the other instruments in which the Portfolio invests.
Should interest or exchange rates or the prices of securities or financial
indices move in an unexpected manner, the Portfolio may not achieve the desired
benefits of futures and options or may realize losses and thus be in a worse
position than if such strategies had not been used. Unlike many exchange-traded
futures contracts and options on futures contracts, there are no daily price
fluctuation limits with respect to options on currencies and negotiated or
over-the-counter instruments, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In addition, the
correlation between movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
The Portfolio's ability to dispose of its positions in the foregoing
instruments will depend on the availability of liquid markets in the
instruments. Markets in a number of the instruments are relatively new and still
developing and it is impossible to predict the amount of trading interest that
may exist in those instruments in the future. Particular risks exist with
respect to the use of each of the foregoing instruments and could result in such
adverse consequences to the Portfolio as the possible loss of the entire premium
paid for an option bought by the Portfolio and the possible need to defer
closing out positions in certain instruments to avoid adverse tax consequences.
As a result, no assurance can be given that the Portfolio will be able to use
those instruments effectively for the purposes set forth above.
In addition, options on U.S. Government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be affected adversely by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume. For an additional discussion of
certain risks involved in investing in futures and options, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Foreign Securities. Investments in foreign countries involve certain risks
which are not typically associated with U.S. investments. For a discussion of
certain risks involved in foreign investing, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Forward Contracts for Purchase or Sale of Foreign Currencies. The
Portfolio generally conducts its foreign currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
currency market. When the Portfolio purchases or sells a security denominated in
a foreign currency, it may enter into a forward foreign currency contract
("forward contract") for the purchase or sale, for a fixed amount of dollars, of
the amount of foreign currency involved in the underlying security transaction.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. The Portfolio generally will not enter into forward contracts with a
term greater than one year. In this manner, the Portfolio may obtain protection
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the foreign currency during the period between the
date the security is purchased or sold and the date upon which payment is made
or received. Although such contracts tend to minimize the risk of loss due to
the decline in the value of the hedged currency, at the same time they tend to
limit any potential gain which might result should the value of such currency
increase. The Portfolio will not speculate in forward contracts.
Forward contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Generally a forward contract has no deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the difference between
the prices at which they buy and sell various currencies. When the Sub-advisor
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar (or sometimes against another
currency), the Portfolio may enter into a forward contract to sell, for a fixed
dollar or other currency amount, foreign currency approximating the value of
some or all of the Portfolio's securities denominated in that currency. In
addition, the Portfolio may engage in "proxy-hedging," i.e., entering into
forward contracts to sell a different foreign currency than the one in which the
underlying investments are denominated with the expectation that the value of
the hedged currency will correlate with the value of the underlying currency.
The Portfolio will not enter into forward contracts or maintain a net exposure
to such contracts where the fulfillment of the contracts would require the
Portfolio to deliver an amount of foreign currency or a proxy currency in excess
of the value of its portfolio securities or other assets denominated in the
currency being hedged. Forward contracts may, from time to time, be considered
illiquid, in which case they would be subject to the Portfolio's limitation on
investing in illiquid securities.
At the consummation of a forward contract for delivery by the Portfolio
of a foreign currency, the Portfolio may either make delivery of the foreign
currency or terminate its contractual obligation to deliver the foreign currency
by purchasing an offsetting contract obligating it to purchase, at the same
maturity date, the same amount of the foreign currency. If the Portfolio chooses
to make delivery of the foreign currency, it may be required to obtain such
currency through the sale of portfolio securities denominated in such currency
or through conversion of other Portfolio assets into such currency.
Dealings in forward contracts by the Portfolio will be limited to the
transactions described above. Of course, the Portfolio is not required to enter
into such transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by the Sub-advisor. It
also should be realized that this method of protecting the value of the
Portfolio's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to the decline in the value of the hedged currency, at the same time they
tend to limit any potential gain which might result should the value of such
currency increase. For an additional discussion of forward foreign currency
contracts and certain risks involved therein, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Illiquid Securities. As discussed in the Prospectus, the Portfolio may
invest up to 15% of the value of its net assets, measured at the time of
investment, in investments which are not readily marketable. Restricted
securities are securities that may not be resold to the public without
registration under the Securities Act of 1933 (the "1933 Act"). Restricted
securities (other than Rule 144A securities deemed to be liquid, discussed
below) and securities which, due to their market or the nature of the security,
have no readily available markets for their disposition are considered to be not
readily marketable or "illiquid." These limitations on resale and marketability
may have the effect of preventing the Portfolio from disposing of such a
security at the time desired or at a reasonable price. In addition, in order to
resell a restricted security, the Portfolio might have to bear the expense and
incur the delays associated with effecting registration. In purchasing illiquid
securities, the Portfolio does not intend to engage in underwriting activities,
except to the extent the Portfolio may be deemed to be a statutory underwriter
under the Securities Act in purchasing or selling such securities. Illiquid
securities will be purchased for investment purposes only and not for the
purpose of exercising control or management of other companies. For an
additional discussion of illiquid or restricted securities and certain risks
involved therein, see the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Rule 144A Securities. In recent years, a large institutional market has
developed for certain securities that are not registered under the 1933 Act.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend on an efficient institutional
market in which such unregistered securities can readily be resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. The Portfolio may invest in Rule 144A securities
which, as disclosed in the Trust's Prospectus, are restricted securities which
may or may not be readily marketable. Rule 144A securities are readily
marketable if institutional markets for the securities develop pursuant to Rule
144A which provide both readily ascertainable values for the securities and the
ability to liquidate the securities when liquidation is deemed necessary or
advisable. However, an insufficient number of qualified institutional buyers
interested in purchasing a Rule 144A security held by the Portfolio could affect
adversely the marketability of the security. In such an instance, the Portfolio
might be unable to dispose of the security promptly or at reasonable prices.
The Sub-advisor will determine that a liquid market exists for
securities eligible for resale pursuant to Rule 144A under the 1933 Act, or any
successor to such rule, and that such securities are not subject to the
Portfolio's limitations on investing in securities that are not readily
marketable. The Sub-advisor will consider the following factors, among others,
in making this determination: (1) the unregistered nature of a Rule 144A
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
additional potential purchasers; (4) dealer undertakings to make a market in the
security; and (5) the nature of the security and the nature of market place
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfers).
Lower-Rated or Unrated Fixed-Income Securities. The Portfolio may
invest up to 5% of its total assets in fixed-income securities which are unrated
or are rated below investment grade either at the time of purchase or as a
result of reduction in rating after purchase. (This limitation does not apply to
convertible securities and preferred stocks.) Investments in lower-rated or
unrated securities are generally considered to be of high risk. These debt
securities, commonly referred to as junk bonds, are generally subject to two
kinds of risk, credit risk and market risk. Credit risk relates to the ability
of the issuer to meet interest or principal payments, or both, as they come due.
The ratings given a security by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's ("S&P") provide a generally useful guide as to such credit
risk. For a description of securities ratings, see the Appendix to this
Statement. The lower the rating given a security by a rating service, the
greater the credit risk such rating service perceives to exist with respect to
the security. Increasing the amount of the Portfolio's assets invested in
unrated or lower grade securities, while intended to increase the yield produced
by those assets, will also increase the risk to which those assets are subject.
Market risk relates to the fact that the market values of debt
securities in which the Portfolio invests generally will be affected by changes
in the level of interest rates. An increase in interest rates will tend to
reduce the market values of such securities, whereas a decline in interest rates
will tend to increase their values. Medium and lower-rated securities (Baa or
BBB and lower) and non-rated securities of comparable quality tend to be subject
to wider fluctuations in yields and market values than higher rated securities
and may have speculative characteristics. In order to decrease the risk in
investing in debt securities, in no event will the Portfolio ever invest in a
debt security rated below B by Moody's or by S&P. Of course, relying in part on
ratings assigned by credit agencies in making investments will not protect the
Portfolio from the risk that the securities in which they invest will decline in
value, since credit ratings represent evaluations of the safety of principal,
dividend, and interest payments on debt securities, and not the market values of
such securities, and such ratings may not be changed on a timely basis to
reflect subsequent events.
Because investment in medium and lower-rated securities involves
greater credit risk, achievement of the Portfolio's investment objective may be
more dependent on the Sub-advisor's own credit analysis than is the case for
funds that do not invest in such securities. In addition, the share price and
yield of the Portfolio may fluctuate more than in the case of funds investing in
higher quality, shorter term securities. Moreover, a significant economic
downturn or major increase in interest rates may result in issuers of
lower-rated securities experiencing increased financial stress, which would
adversely affect their ability to service their principal, dividend, and
interest obligations, meet projected business goals, and obtain additional
financing. In this regard, it should be noted that while the market for high
yield debt securities has been in existence for many years and from time to time
has experienced economic downturns in recent years, this market has involved a
significant increase in the use of high yield debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may not,
therefore, provide an accurate indication of future performance of the high
yield debt securities market, particularly during periods of economic recession.
Furthermore, expenses incurred in recovering an investment in a defaulted
security may adversely affect the Portfolio's net asset value. Finally, while
the Sub-advisor attempts to limit purchases of medium and lower-rated securities
to securities having an established secondary market, the secondary market for
such securities may be less liquid than the market for higher quality
securities. The reduced liquidity of the secondary market for such securities
may adversely affect the market price of, and ability of the Portfolio to value,
particular securities at certain times, thereby making it difficult to make
specific valuation determinations. The Portfolio does not invest in any medium
and lower-rated securities which present special tax consequences, such as
zero-coupon bonds or pay-in-kind bonds. For an additional discussion of certain
risks involved in lower-rated securities, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
The Sub-advisor seeks to reduce the overall risks associated with the
Portfolio's investments through diversification and consideration of factors
affecting the value of securities it considers relevant. No assurance can be
given, however, regarding the degree of success that will be achieved in this
regard or that the Portfolio will achieve its investment objective.
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with respect to money market instruments eligible for investment by the
Portfolio with member banks of the Federal Reserve system, registered
broker-dealers, and registered government securities dealers. A repurchase
agreement may be considered a loan collateralized by securities. Repurchase
agreements maturing in more than seven days are considered illiquid and will be
subject to the Portfolio's limitation with respect to illiquid securities.
The Portfolio has not adopted any limits on the amounts of its total
assets that may be invested in repurchase agreements which mature in less than
seven days. The Portfolio may invest up to 15% of the market value of its net
assets, measured at the time of purchase, in securities which are not readily
marketable, including repurchase agreements maturing in more than seven days.
For an additional discussion of repurchase agreements and certain risks involved
therein, see the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Convertible Securities. The Portfolio may buy securities convertible
into common stock if, for example, the Sub-advisor believes that a company's
convertible securities are undervalued in the market. Convertible securities
eligible for purchase include convertible bonds, convertible preferred stocks,
and warrants. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specific amount of the corporation's capital
stock at a set price for a specified period of time. Warrants do not represent
ownership of the securities, but only the right to buy the securities. The
prices of warrants do not necessarily move parallel to the prices of underlying
securities. Warrants may be considered speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of a
corporation issuing them. Warrant positions will not be used to increase the
leverage of the Portfolio; consequently, warrant positions are generally
accompanied by cash positions equivalent to the required exercise amount.
Temporary Defensive Investments. Up to 100% of the assets of the
Portfolio may be invested temporarily in U.S. government obligations, commercial
paper, bank obligations, repurchase agreements, negotiable U.S.
dollar-denominated obligations of domestic and foreign branches of U.S.
depository institutions, U.S. branches of foreign depository institutions, and
foreign depository institutions, in cash, or in other cash equivalents, if the
Sub-advisor determines it to be appropriate for purposes of enhancing liquidity
or preserving capital in light of prevailing market or economic conditions. 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 Portfolio also may invest in
obligations issued by the International Bank for Reconstruction and Development
(IBRD or "World Bank"). For more information on mortgage-backed securities, see
this Statement and the Company's Prospectus under "Certain Risk Factors and
Investment Methods."
Investment Policies Which May be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Founders Passport Portfolio.
These limitations are not "fundamental" restrictions, and may be changed by the
Trustees without shareholder approval. The Portfolio will not:
1. Invest more than 15% of the market value of its net assets in
securities which are not readily marketable, including repurchase agreements
maturing in over seven days;
2. Purchase securities of other investment companies except in
compliance with the 1940 Act;
3. Invest in companies for the purpose of exercising control or
management.
4. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions (and provided that
margin payments and other deposits in connection with transactions in options,
futures and forward contracts shall not be deemed to constitute purchasing
securities on margin); or
5. Sell securities short.
In addition, in periods of uncertain market and economic conditions, as
determined by the Sub-advisor, the Portfolio may depart from its basic
investment objective and assume a defensive position with up to 100% of its
assets temporarily invested in high quality corporate bonds or notes and
government issues, or held in cash.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage beyond the specified limit that results
from a change in values or net assets will not be considered a violation.
AST T. Rowe Price International Equity Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek a
total return on its assets from long-term growth of capital and income
principally through investments in common stocks of established, non-U.S.
companies. Investments may be made solely for capital appreciation or solely for
income or any combination of both for the purpose of achieving a higher overall
return. This is a fundamental objective of the Portfolio.
Investment Policies: The Sub-advisor regularly analyzes a broad range of
international equity and fixed-income markets in order to assess the degree of
risk and level of return that can be expected from each market. Based upon its
current assessment, Sub-advisor believes long-term growth of capital may be
achieved by investing in marketable securities of non-U.S. companies which have
the potential for growth of capital. Of course, there can be no assurance that
the Sub-advisor's forecasts of expected return will be reflected in the actual
returns achieved by the Portfolio.
The Portfolio's share price will fluctuate with market, economic and
foreign exchange conditions, and your investment may be worth more or less when
redeemed than when purchased. The Portfolio should not be relied upon as a
complete investment program, nor used to play short-term swings in the stock or
foreign exchange markets. The Portfolio is subject to risks unique to
international investing. Further, there is no assurance that the favorable
trends discussed below will continue, and the Portfolio cannot guarantee it will
achieve its objective.
It is the present intention of the Sub-advisor to invest in companies
based in (or governments of or within) the Far East (for example, Japan, Hong
Kong, Singapore, and Malaysia), Western Europe (for example, United Kingdom,
Germany, Netherlands, France, Spain, and Switzerland), South Africa, Australia,
Canada, and such other areas and countries as the Sub-advisor may determine from
time to time.
In determining the appropriate distribution of investments among
various countries and geographic regions, the Sub-advisor ordinarily considers
the following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors.
In analyzing companies for investment, the Sub-advisor ordinarily
looks for one or more of the following characteristics: an above-average
earnings growth per share; high return on invested capital; healthy balance
sheet; sound financial and accounting policies and overall financial strength;
strong competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management; and
general operating characteristics which will enable the companies to compete
successfully in their market place. While current dividend income is not a
prerequisite in the selection of portfolio companies, the companies in which the
Portfolio invests normally will have a record of paying dividends, and will
generally be expected to increase the amounts of such dividends in future years
as earnings increase.
The Portfolio will invest in securities denominated in currencies
specified elsewhere herein.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market.
The Portfolio may invest in investment funds which have been
authorized by the governments of certain countries specifically to permit
foreign investment in securities of companies listed and traded on the stock
exchanges in these respective countries. The Portfolio's investment in these
funds is subject to the provisions of the 1940 Act discussed below. If the
Portfolio invests in such investment funds, the Portfolio's shareholders will
bear not only their proportionate share of the expenses of the Portfolio
(including operating expenses and the fees of the Investment Manager), but also
will bear indirectly similar expenses of the underlying investment funds. In
addition, the securities of these investment funds may trade at a premium over
their net asset value.
Apart from the matters described herein, the Portfolio is not aware at
this time of the existence of any investment or exchange control regulations
which might substantially impair the operations of the Portfolio as described in
the Trust's Prospectus and this Statement. It should be noted, however, that
this situation could change at any time.
The Portfolio may invest in companies located in Eastern Europe. The
Portfolio will only invest in a company located in, or a government of, Eastern
Europe or Russia, if the Sub-advisor believes the potential return justifies the
risk. To the extent any securities issued by companies in Eastern Europe and
Russia are considered illiquid, the Portfolio will be required to include such
securities within its 15% restriction on investing in illiquid securities.
Risk Factors of Foreign Investing. There are special risks in
investing in the Portfolio. Certain of these risks are inherent in any
international mutual fund; others relate more to the countries in which the
Portfolio will invest. Many of the risks are more pronounced for investments in
developing or emerging countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a per capita gross
national product of less than $8,000.
Investors should understand that all investments have a risk factor.
There can be no guarantee against loss resulting from an investment in the
Portfolio, and there can be no assurance that the Portfolio's investment
policies will be successful, or that its investment objective will be attained.
The Portfolio is designed for individual and institutional investors seeking to
diversify beyond the United States in an actively researched and managed
portfolio, and is intended for long-term investors who can accept the risks
entailed in investment in foreign securities. For a discussion of certain risks
involved in foreign investing see this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
The Portfolio may also invest in the following:
Writing Covered Call Options. The Portfolio may write (sell) "covered"
call options and purchase options to close out options previously written by the
Portfolio. In writing covered call options, the Portfolio expects to generate
additional premium income which should serve to enhance the Portfolio's total
return and reduce the effect of any price decline of the security or currency
involved in the option. Covered call options will generally be written on
securities or currencies which, in Sub-advisor's opinion, are not expected to
have any major price increases or moves in the near future but which, over the
long term, are deemed to be attractive investments for the Portfolio.
The Portfolio will write only covered call options. This means that
the Portfolio will own the security or currency subject to the option or an
option to purchase the same underlying security or currency, having an exercise
price equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash or other liquid assets having a value equal to the
fluctuating market value of the optioned securities or currencies.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objective. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, the Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely, retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligations as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency. The Portfolio does not consider a security or
currency covered by a call "pledged" as that term is used in the Portfolio's
policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, the Sub-advisor,
in determining whether a particular call option should be written on a
particular security or currency, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options. The premium received by the Portfolio for writing covered
call options will be recorded as a liability of the Portfolio. This liability
will be adjusted daily to the option's current market value, which will be the
latest sale price at the time at which the net asset value per share of the
Portfolio is computed (close of the New York Stock Exchange), or, in the absence
of such sale, the average of the latest bid and asked price. The option will be
terminated upon expiration of the option, the purchase of an identical option in
a closing transaction, or delivery of the underlying security or currency upon
the exercise of the option.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The Portfolio will effect closing transactions in order to realize a
profit on an outstanding call option, to prevent an underlying security or
currency from being called, or, to permit the sale of the underlying security or
currency. The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
The Portfolio will not write a covered call option if, as a result,
the aggregate market value of all portfolio securities or currencies covering
call or put options exceeds 25% of the market value of the Portfolio's net
assets. In calculating the 25% limit, the Portfolio will offset, against the
value of assets covering written calls and puts, the value of purchased calls
and puts on identical securities or currencies with identical maturity dates.
Writing Covered Put Options. Although the Portfolio has no current
intention in the foreseeable future of writing American or European style
covered put options and purchasing put options to close out options previously
written by the Portfolio, the Portfolio reserves the right to do so.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" options at all
times while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where the Sub-advisor wishes to purchase the underlying security
or currency for the Portfolio's portfolio at a price lower than the current
market price of the security or currency. In such event the Portfolio would
write a put option at an exercise price which, reduced by the premium received
on the option, reflects the lower price it is willing to pay. Since the
Portfolio would also receive interest on debt securities or currencies
maintained to cover the exercise price of the option, this technique could be
used to enhance current return during periods of market uncertainty. The risk in
such a transaction would be that the market price of the underlying security or
currency would decline below the exercise price less the premiums received. Such
a decline could be substantial and result in a significant loss to the
Portfolio. In addition, the Portfolio, because it does not own the specific
securities or currencies which it may be required to purchase in exercise of the
put, cannot benefit from appreciation, if any, with respect to such specific
securities or currencies.
The Portfolio will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies covering put or
call options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates. For a
discussion of certain risks involved in options, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Purchasing Put Options. The Portfolio may purchase American or
European style put options. As the holder of a put option, the Portfolio has the
right to sell the underlying security or currency at the exercise price at any
time during the option period (American style) or at the expiration of the
option (European style). The Portfolio may enter into closing sale transactions
with respect to such options, exercise them or permit them to expire. The
Portfolio may purchase put options for defensive purposes in order to protect
against an anticipated decline in the value of its securities or currencies. An
example of such use of put options is provided in this Statement under "Certain
Risk Factors and Investment Methods."
The premium paid by the Portfolio when purchasing a put option will be
recorded as an asset of the Portfolio. This asset will be adjusted daily to the
option's current market value, which will be the latest sale price at the time
at which the net asset value per share of the Portfolio is computed (close of
New York Stock Exchange), or, in the absence of such sale, the latest bid price.
This asset will be terminated upon expiration of the option, the selling
(writing) of an identical option in a closing transaction, or the delivery of
the underlying security or currency upon the exercise of the option.
Purchasing Call Options. The Portfolio may purchase American or
European style call options. As the holder of a call option, the Portfolio has
the right to purchase the underlying security or currency at the exercise price
at any time during the option period (American style) or at the expiration of
the option (European style). The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could reduce its current
return. The Portfolio may also purchase call options in order to acquire the
underlying securities or currencies. Examples of such uses of call options are
provided in this Statement under "Certain Risk Factors and Investment Methods."
The Portfolio may also purchase call options on underlying securities
or currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses.
The Portfolio will not commit more than 5% of its total assets to
premiums when purchasing call or put options.
Dealer Options. The Portfolio may engage in transactions involving
dealer options. Certain risks are specific to dealer options. While the
Portfolio would look to a clearing corporation to exercise exchange-traded
options, if the Portfolio were to purchase a dealer option, it would rely on the
dealer from whom it purchased the option to perform if the option were
exercised. While the Portfolio will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of entering into
closing transactions with the Portfolio, there can be no assurance that the
Portfolio will be able to liquidate a dealer option at a favorable price at any
time prior to expiration. Failure by the dealer to perform would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
Futures Contracts.
Transactions in Futures. The Portfolio may enter into
financial futures contracts, including stock index, interest rate and currency
futures ("futures" or "futures contracts"); however, the Portfolio has no
current intention of entering into interest rate futures. The Portfolio,
however, reserves the right to trade in financial futures of any kind.
Stock index futures contracts may be used to attempt to provide a
hedge for a portion of the Portfolio, as a cash management tool, or as an
efficient way for the Sub-advisor to implement either an increase or decrease in
portfolio market exposure in response to changing market conditions. Stock index
futures contracts are currently traded with respect to the S&P 500 Index and
other broad stock market indices, such as the New York Stock Exchange Composite
Stock Index and the Value Line Composite Stock Index. The Portfolio may,
however, purchase or sell futures contracts with respect to any stock index
whose movements will, in its judgment, have a significant correlation with
movements in the prices of all or portions of the Portfolio's portfolio
securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges and are standardized as to maturity date
and underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission ("CFTC"). Although techniques other than the sale and
purchase of futures contracts could be used for the above-referenced purposes,
futures contracts offer an effective and relatively low cost means of
implementing the Portfolio's objectives in these areas. For a discussion of
futures transactions and certain risks involved therein, see this Statement and
the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Regulatory Limitations. The Portfolio will engage in
transactions in futures contracts and options thereon only for bona fide
hedging, yield enhancement and risk management purposes, in each case in
accordance with the rules and regulations of the CFTC.
The Portfolio may not enter into futures contracts or options thereon
if, with respect to positions which do not qualify as bona fide hedging under
applicable CFTC rules, the sum of the amounts of initial margin deposits on the
Portfolio's existing futures and premiums paid for options on futures would
exceed 5% of the net asset value of the Portfolio after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into; provided however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in calculating the
5% limitation.
In instances involving the purchase of futures contracts or call
options thereon or the writing of put options thereon by the Portfolio, an
amount of cash or other liquid assets equal to the market value of the futures
contracts and options thereon (less any related margin deposits), will be
identified by the Portfolio to cover the position, or alternative cover (such as
owning an offsetting position) will be employed.
Options on Futures Contracts. As an alternative to writing or
purchasing call and put options on stock index futures, the Portfolio may write
or purchase call and put options on financial indices. Such options would be
used in a manner similar to the use of options on futures contracts. From time
to time, a single order to purchase or sell futures contracts (or options
thereon) may be made on behalf of the Portfolio and other mutual funds or
portfolios of mutual funds managed by the Sub-Advisor or AST T. Rowe Price
Associates, Inc. Such aggregated orders would be allocated among the Portfolio
and such other portfolios in a fair and non-discriminatory manner. See this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods" for a description of certain risks involved in options and futures
contracts.
Additional Futures and Options Contracts. Although the Portfolio has
no current intention of engaging in futures or options transactions other than
those described above, it reserves the right to do so. Such futures or options
trading might involve risks which differ from those involved in the futures and
options described above.
Foreign Futures and Options. The Portfolio is permitted to invest in
foreign futures and options. For a description of foreign futures and options
and certain risks involved therein as well as certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Foreign Currency Transactions. The Portfolio will generally enter into
forward foreign currency exchange contracts under two circumstances. First, when
the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. Second, when the Sub-advisor believes that the currency
of a particular foreign country may suffer or enjoy a substantial movement
against another currency, including the U.S. dollar, it may enter into a forward
contract to sell or buy the amount of the former foreign currency, approximating
the value of some or all of the Portfolio's securities denominated in such
foreign currency. Alternatively, where appropriate, the Portfolio may hedge all
or part of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Portfolio may enter
into a forward contract where the amount of the foreign currency to be sold
exceeds the value of the securities denominated in such currency. The use of
this basket hedging technique may be more efficient and economical than entering
into separate forward contracts for each currency held in the Portfolio. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Other than as set forth above
and immediately below, the Portfolio will also not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Portfolio to deliver an amount of foreign
currency in excess of the value of the Portfolio's securities or other assets
denominated in that currency. The Portfolio, however, in order to avoid excess
transactions and transaction costs, may maintain a net exposure to forward
contracts in excess of the value of the Portfolio's securities or other assets
to which the forward contracts relate (including accrued interest to the
maturity of the forward on such securities) provided the excess amount is
"covered" by liquid, high-grade debt securities, denominated in any currency, at
least equal at all times to the amount of such excess. For these purposes "the
securities or other assets to which the forward contracts relate" may be
securities or assets denominated in a single currency, or where proxy forwards
are used, securities denominated in more than one currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the Sub-advisor believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served. The
Portfolio will generally not enter into a forward contract with a term of
greater than one year.
At the maturity of a forward contract, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver. However, as noted, in
order to avoid excessive transactions and transaction costs, the Portfolio may
use liquid, high-grade debt securities denominated in any currency, to cover the
amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer. For an additional
discussion of certain risks involved in foreign investing, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward
Foreign Exchange Contracts. The Portfolio may enter into certain option,
futures, and forward foreign exchange contracts, including options and futures
on currencies, which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain (taxable at a maximum rate of 20%)
or loss and 40% short-term capital gain or loss regardless of the holding period
of the instrument (or, in the case of foreign exchange contracts, entirely as
ordinary income or loss). The Portfolio will be required to distribute net gains
on such transactions to shareholders even though it may not have closed the
transaction and received cash to pay such distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. The holding period of the security offsetting
an "in-the-money qualified covered call" option on an equity security will not
include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Tax regulations could be issued limiting the
extent that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement.
As a result of the "Taxpayer Relief Act of 1997," entering into certain
option, futures contracts, or forward contracts may be deemed a "constructive
sale" of offsetting securities, which could result in a taxable gain from the
sale being distributed to shareholders. The Portfolio would be required to
distribute any such gain even though it would not receive proceeds from the sale
at the time the option, futures or forward position is entered into.
Hybrid Commodity and Security Instruments. Instruments have been
developed which combine the elements of futures contracts or options with those
of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Often these hybrid instruments are indexed to the price of a
commodity or particular currency or a domestic or foreign debt or equity
securities index. Hybrid instruments may take a variety of forms, including, but
not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
at a future point in time, preferred stock with dividend rates determined by
reference to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity. For a discussion of certain
risks involved in hybrid instruments, see this Statement under "Certain Risk
Factors and Investment Methods."
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
through which an investor (such as the Portfolio) purchases a security (known as
the "underlying security") from a well-established securities dealer or a bank
that is a member of the Federal Reserve System. Any such dealer or bank will be
on T. Rowe Price Associates, Inc. ("T. Rowe Price") approved list and have a
credit rating with respect to its short-term debt of at least A1 by Standard &
Poor's Corporation, P1 by Moody's Investors Service, Inc., or the equivalent
rating by T. Rowe Price. At that time, the bank or securities dealer agrees to
repurchase the underlying security at the same price, plus specified interest.
Repurchase agreements are generally for a short period of time, often less than
a week. Repurchase agreements which do not provide for payment within seven days
will be treated as illiquid securities. The Portfolio will only enter into
repurchase agreements where (i) the underlying securities are of the type
(excluding maturity limitations) which the Portfolio's investment guidelines
would allow it to purchase directly, (ii) the market value of the underlying
security, including interest accrued, will be at all times equal to or exceed
the value of the repurchase agreement, and (iii) payment for the underlying
security is made only upon physical delivery or evidence of book-entry transfer
to the account of the custodian or a bank acting as agent. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Portfolio
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the underlying security
during the period while the Portfolio seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income during this
period; and (c) expenses of enforcing its rights.
Illiquid and Restricted Securities. The Portfolio may not invest in
illiquid securities including repurchase agreements which do not provide for
payment within seven days, if as a result, they would comprise more than 15% of
the value of the Portfolio's net assets.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where
registration is required, the Portfolio may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in accordance with procedures
prescribed by the Trust's Board of Trustees. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the Portfolio
should be in a position where more than 15% of the value of its net assets are
invested in illiquid assets, including restricted securities, the Portfolio will
take appropriate steps to protect liquidity.
Notwithstanding the above, the Portfolio may purchase securities which
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers, such as
the Portfolio, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Sub-advisor, under the
supervision of the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination Sub-advisor will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, Sub-advisor could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, (4) and the nature of the security and
of market place trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities would be monitored and, if as a result of changed
conditions, it is determined that a Rule 144A security is no longer liquid, the
Portfolio's holdings of illiquid securities would be reviewed to determine what,
if any, steps are required to assure that the Portfolio does not invest more
than 15% of its net assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of a Portfolio's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Lending of Portfolio Securities. For the purpose of realizing
additional income, the Portfolio may make secured loans of portfolio securities
amounting to not more than 33 1/3% of its total assets. This policy is a
"fundamental policy." Securities loans are made to broker-dealers, institutional
investors, or other persons pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent, marked to market on a daily basis. The collateral received
will consist of cash, U.S. government securities, letters of credit or such
other collateral as may be permitted under its investment program. While the
securities are being lent, the Portfolio will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Portfolio has a right to call each loan and obtain the securities on three
business days' notice or, in connection with securities trading on foreign
markets, within such longer period of time which coincides with the normal
settlement period for purchases and sales of such securities in such foreign
markets. The Portfolio will not have the right to vote securities while they are
being lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission, the Portfolio may make loans to, or borrow funds from,
other mutual funds sponsored or advised by the Sub-advisor or T. Rowe Price
Associates, Inc. The Portfolio has no current intention of engaging in these
practices at this time.
When-Issued Securities and Forward Commitment Contracts. The Portfolio
may purchase securities on a "when-issued" or delayed delivery basis and may
purchase securities on a forward commitment basis. Any or all of the Portfolio's
investments in debt securities may be in the form of when-issueds and forwards.
The price of such securities, which may be expressed in yield terms, is fixed at
the time the commitment to purchase is made, but delivery and payment take place
at a later date. Normally, the settlement date occurs within 90 days of the
purchase for when-issueds, but may be substantially longer for forwards. The
Portfolio will cover its commitments with respect to these securities by
maintaining cash and/or other liquid assets with its custodian bank equal in
value to these commitments during the time between the purchase and the
settlement. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date. For a discussion of these securities and
the risks involved therein, see this Statement under "Certain Risk Factors and
Investment Methods."
Cash Reserves. The Portfolio's cash reserves may be invested in
domestic and foreign money market instruments rated within the top two credit
categories by a national rating organization, or if unrated, of equivalent
investment quality as determined by the Sub-advisor.
Investment Policies Which May Be Changed Without Shareholder Approval. The
following limitations are applicable to the AST T. Rowe Price International
Equity Portfolio. These limitations are not "fundamental" restrictions, and can
be changed by the Trustees without shareholder approval. The Portfolio will not:
1. Purchase additional securities when money borrowed exceeds 5% of the
Portfolio's total assets.
2. Invest in companies for the purpose of exercising management or control;
3. Purchase illiquid securities if, as a result, more than 15% of its net
assets would be invested in such securities. Securities eligible for resale
under Rule 144A of the Securities Act of 1933 may be subject to this 15%
limitation;
4. Purchase securities of open-end or closed-end investment companies
except in compliance with the 1940 Act;
5. Invest in puts, calls, straddles, spreads, or any combination thereof,
except to the extent permitted by the Trust's Prospectus and this Statement;
6. Purchase securities on margin, except (i) for use of short-term credit
necessary for clearance of purchases of portfolio securities and (ii) the
Portfolio may make margin deposits in connection with futures contracts and
other permissible investments;
7. Mortgage, pledge, hypothecate or, in any manner, transfer any security
owned by the Portfolio as a security for indebtedness except as may be necessary
in connection with permissible borrowings or investments and then such
mortgaging, pledging, or hypothecating may not exceed 33 1/3% of the Portfolio's
total assets at the time of borrowing or investment;
8. Effect short sales of securities;
9. Invest in warrants if, as a result thereof, more than 10% of the value
of the total assets of the Portfolio would be invested in warrants, except that
this restriction does not apply to warrants acquired as a result of the purchase
of another security. For purposes of these percentage limitations, the warrants
will be valued at the lower of cost or market; or
10. Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such positions would
exceed 5% of the Portfolio's net assets.
Notwithstanding anything in the above fundamental and operating
restrictions to the contrary, the Portfolio may, as a fundamental policy, invest
all of its assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objectives, policies
and restrictions as the Portfolio subject to the prior approval of the
Investment Manager. The Investment Manager will not approve such investment
unless: (a) the Investment Manager believes, on the advice of counsel, that such
investment will not have an adverse effect on the tax status of the annuity
contracts and/or life insurance policies supported by the separate accounts of
the Participating Insurance Companies which purchase shares of the Trust; (b)
the Investment Manager has given prior notice to the Participating Insurance
Companies that it intends to permit such investment and has determined whether
such Participating Insurance Companies intend to redeem any shares and/or
discontinue purchase of shares because of such investment; (c) the Trustees have
determined that the fees to be paid by the Trust for administrative, accounting,
custodial and transfer agency services for the Portfolio subsequent to such an
investment are appropriate, or the Trustees have approved changes to the
agreements providing such services to reflect a reduction in fees; (d) the
Sub-advisor for the Portfolio has agreed to reduce its fee by the amount of any
investment advisory fees paid to the investment manager of such open-end
management investment company; and (e) shareholder approval is obtained if
required by law. The Portfolio will apply for such exemptive relief under the
provisions of the 1940 Act, or other such relief as may be necessary under the
then governing rules and regulations of the 1940 Act, regarding investments in
such investment companies.
In addition to the restrictions described above, some foreign
countries limit, or prohibit, all direct foreign investment in the securities of
their companies. However, the governments of some countries have authorized the
organization of investment portfolios to permit indirect foreign investment in
such securities. For tax purposes these portfolios may be known as Passive
Foreign Investment Companies. The Portfolio is subject to certain percentage
limitations under the 1940 Act relating to the purchase of securities of
investment companies, and may be subject to the limitation that no more than 10%
of the value of the Portfolio's total assets may be invested in such securities.
AST AIM International Equity Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth. This is a fundamental policy of the Portfolio.
Investment Policies:
In managing the Portfolio, the Sub-advisor seeks to apply to the
Portfolio the same investment strategy that it applies to several of its other
managed portfolios that have similar investment objectives but that invest
primarily in United States equities markets. The Portfolio will utilize to the
extent practicable a fully managed investment policy providing for the selection
of securities which meet certain quantitative standards determined by the
Sub-advisor. The Sub-advisor reviews carefully the earnings history and
prospects for growth of each company considered for investment by the Portfolio.
It is anticipated that common stocks will be the principal form of investment of
the Portfolio. The Portfolio is primarily comprised of securities of two basic
categories of companies: (a) "core" companies, which the Sub-advisor considers
to have experienced above-average and consistent long-term growth in earnings
and to have excellent prospects for outstanding future growth, and (b) "earnings
acceleration" companies, which the Sub-advisor believes are currently enjoying a
dramatic increase in earnings.
If a particular foreign company meets the quantitative standards
determined by the Sub-advisor, its securities may be acquired by the Portfolio
regardless of the location of the company or the percentage of the Portfolio's
investments in the company's country or region. However, the Sub-advisor will
also consider other factors in making investment decisions for the Portfolio,
including such factors as the prospects for relative economic growth among
countries or regions, economic and political conditions, currency exchange
fluctuations, tax considerations and the liquidity of a particular security.
The Sub-advisor recognizes that often there is less public information
about foreign companies than is available in reports supplied by domestic
companies, that foreign companies are not subject to uniform accounting and
financial reporting standards, and that there may be greater delays experienced
by the Portfolio in receiving financial information supplied by foreign
companies than comparable information supplied by domestic companies. In
addition, the value of the Portfolio's investments that are denominated in a
foreign currency may be affected by changes in currency exchange rates. For
these and other reasons, the Sub-advisor from time to time may encounter greater
difficulty applying its disciplined stock selection strategy to an international
equity investment portfolio than to a portfolio of domestic equity securities.
Any income realized by the Portfolio will be incidental and will not be
an important criterion in the selection of portfolio securities.
Under normal market conditions the Portfolio will invest at least 70%
of its total assets in marketable equity securities, including common stock,
preferred stock, and other securities having the characteristics of stock (such
as an equity or ownership interest in a company) of foreign companies that are
listed on a recognized foreign securities exchange or traded on a foreign
over-the-counter market. The Portfolio may also satisfy the foregoing
requirement in part by investing in the securities of foreign issuers in the
form of ADRs, EDRs, or other securities representing underlying securities of
foreign issuers.
The Portfolio will emphasize investment in foreign companies in the
developed countries of Western Europe (such as Germany, France, Switzerland, the
Netherlands and the United Kingdom) and the Pacific Basin (such as Japan, Hong
Kong and Australia), but the Portfolio may also invest in the securities of
companies located in developing countries (such as Turkey, Malaysia and Mexico)
in various regions of the world. The risks of investment in the equity markets
of developing countries are described in more detail immediately below and in
this Statement under "Certain Risk Factors and Investment Methods."
Real Estate Investment Trusts ("REITs"). The Portfolio may invest in
equity and/or debt securities issued by REITs. Such investments will not exceed
5% of the total assets of the Portfolio.
REITs are trusts that sell equity or debt securities to investors and
use the proceeds to invest in real estate or interests therein. A REIT may focus
on particular types of projects, such as apartment complexes, or geographic
regions, such as the Southeastern United States, or both.
To the extent that the Portfolio invests in REITs, it could conceivably
own real estate directly as a result of a default on the securities it owns. The
Portfolio, therefore, may be subject to certain risks associated with the direct
ownership of real estate, including difficulties in valuing and trading real
estate, declines in the value of real estate, environmental liability risks,
risks related to general and local economic conditions, adverse change in the
climate for real estate, increases in property taxes and operating expenses,
changes in zoning laws, casualty or condemnation losses, limitations on rents,
changes in neighborhood values, the appeal of properties to tenants, and
increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, and are generally
not diversified and therefore are subject to the risk of financing single or a
limited number of projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility that
the REIT will fail to maintain its exemption from the 1940 Act. Changes in
interest rates may also affect the value of debt securities of REITs held by the
Portfolio. By investing in REITs indirectly through the Portfolio, a shareholder
will bear not only his/her proportionate share of the expenses of the Portfolio,
but also, indirectly, similar expenses of the REITs.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements. A repurchase agreement is collateralized by the security acquired by
the Portfolio and the value of the acquired security is marked to market daily
in order to minimize the Portfolio's risk. Repurchase agreements usually are for
short periods, such as one or two days, but may be entered into for longer
periods of time. Repurchase agreements will be secured by U.S. Treasury
securities, U.S. Government agency securities (including, but not limited to
those which have been stripped of their interest payments and mortgage-backed
securities) and commercial paper. In the event of bankruptcy or other default of
a seller of a repurchase agreement, the Portfolio may experience losses,
including possible reduced levels of income and lack of access to income during
this period.
Additional information about repurchase agreements and their risks are
included in the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Lending of Portfolio Securities. While securities are being lent, the
Portfolio will continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities, as well as interest on the investment of
the collateral or a fee from the borrower. The Portfolio has the right to call
its loans and obtain the securities on three business days' notice or, in
connection with securities trading on foreign markets, within such longer period
of time that coincides with the normal settlement period for purchases and sales
of such securities in such foreign markets. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of possible
delay in receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.
Additional information about the lending of portfolio securities is included in
this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Borrowings. The Portfolio may borrow money to a limited extent from
banks for temporary or emergency purposes subject to the limitations under the
1940 Act. In addition, the Portfolio does not intend to engage in leverage;
therefore, consistent with current interpretations of the SEC, the Portfolio
will not purchase additional securities while borrowings exceed 5% of the
Portfolio's total assets. Additional information about borrowing is included in
the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Securities Issued on a When-Issued or Delayed-Delivery Basis. The
Portfolio may purchase securities on a "when-issued" basis, that is, delivery of
and payment for the securities is not fixed at the date of purchase, but is set
after the securities are issued (normally within forty-five days after the date
of the transaction). The Portfolio also may purchase or sell securities on a
delayed-delivery basis. The payment obligation and the interest rate that will
be received on the delayed delivery-securities are fixed at the time the buyer
enters into the commitment. If the Portfolio purchases a when-issued security or
enters into a delayed-delivery agreement, the Portfolio's custodian bank will
segregate cash or other liquid assets in an amount at least equal to the
when-issued commitment or delayed-delivery agreement commitment. Additional
information about when-issued and delayed-delivery transactions and their risks
is included in this Statement and in the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Short Sales "Against the Box." As described in the Trust's Prospectus,
the Portfolio may make short sales against the box. To secure its obligation to
deliver the securities sold short, the Portfolio will deposit in escrow in a
separate account with its custodian an equal amount of the securities sold short
or securities convertible into or exchangeable for such securities. Since the
Portfolio ordinarily will want to continue to receive interest and dividend
payments on securities in its portfolio that are convertible into the securities
sold short, the Portfolio will normally close out a short position covered by
convertible securities by purchasing and delivering an equal amount of the
securities sold short, rather than by delivering securities that it already
holds.
The Portfolio will make a short sale, as a hedge, when it believes that
the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio or a security convertible into or exchangeable
for such security. In such case, any future losses in the Portfolio's long
position should be reduced by a gain in the short position. Conversely, any gain
in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Portfolio owns, either
directly or indirectly, and, in the case where the Portfolio owns convertible
securities, changes in the conversion premium. In determining the number of
shares to be sold short against a Portfolio's position in a convertible
security, the anticipated fluctuation in the conversion premium is considered.
The Portfolio may also make short sales to generate additional income from the
investment of the cash proceeds of short sales. In no event may more than 10% of
the value of the Portfolio's total assets be deposited or pledged as collateral
for short sales at any time.
Rule 144A Securities. The Portfolio may purchase privately placed
securities that are eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). This Rule permits certain qualified
institutional buyers, such as the Portfolio, to trade in securities that have
not been registered under the 1933 Act. The Sub-advisor, under the guidelines
adopted by the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its net assets in illiquid
securities. The determination of whether a Rule 144A security is liquid is a
question of fact. In making this determination, the Sub-advisor will consider
the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, the Sub-advisor will
consider, as it deems appropriate under the circumstances, the (i) frequency of
trades and quotes, (ii) number of dealers and potential purchasers, (iii) dealer
undertakings to make a market, and (iv) nature of the security and of
marketplace trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities will also be monitored by the Sub-advisor and, if as a
result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, the Portfolio's holdings of illiquid securities will be reviewed
to determine what, if any, action is required to assure that the Portfolio does
not invest more than 15% of its net assets in illiquid securities. Additional
information about illiquid and Rule 144A securities is included in the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Foreign Securities. The Portfolio normally invests primarily in foreign
securities, including American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"). Generally, ADRs, in registered form, are designed
for use in the United States securities markets, and EDRs, in bearer form, are
designed for use in European securities markets. ADRs and EDRs may be listed on
stock exchanges, or traded in OTC markets in the United States or Europe, as the
case may be. ADRs, like other securities traded in the United States, will be
subject to negotiated commission rates.
To the extent the Portfolio invests in securities denominated in
foreign currencies, the Portfolio bears the risk of changes in the exchange
rates between U.S. currency and the foreign currency, as well as the
availability and status of foreign securities markets. The Portfolio's
investments in securities denominated in foreign currencies generally will be
marketable equity securities (including common and preferred stock, depositary
receipts for stock and fixed income or equity securities exchangeable for or
convertible into stock) of foreign companies that generally are listed on a
recognized foreign securities exchange or traded in a foreign over-the-counter
market. The Portfolio may also invest in foreign securities listed on recognized
U.S. securities exchanges or traded in the U.S. over-the-counter market.
Investments by the Portfolio in foreign securities, whether denominated
in U.S. currencies or foreign currencies, may entail risks that are greater than
those associated with domestic investments. The risks of investing in foreign
securities are discussed in detail in this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods." Investment by the Portfolio
in ADRs, EDRs and similar securities also may entail some or all or these risks.
The Sub-advisor seeks to mitigate the risks associated with foreign investment
through diversification and active professional management.
Developing Countries. A developing country or emerging market
country can be considered to be a country that is in the initial stages of its
industrialization cycle. Currently, emerging markets generally include every
country in the world other than the developed European countries (primarily in
Western Europe), the United States, Canada, Japan, Australia, New Zealand, Hong
Kong and Singapore. The characteristics of markets can change over time.
Currently, the Sub-advisor believes that investing in many emerging markets is
not desirable or feasible because of the lack of adequate custody arrangements
for the Portfolio's assets, overly burdensome repatriation and similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks or other reasons. As desirable opportunities to invest in
securities in emerging markets develop, the Portfolio may expand and further
broaden the group of emerging markets in which it invests.
Many of the risks relating to foreign securities generally will be
greater for emerging markets than for developed countries. Many emerging markets
have experienced substantial rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have very
negative effects on the economies and securities markets for certain developing
markets. Economies in emerging markets generally are heavily dependent upon
international trade and accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be affected adversely by economic conditions in the countries with which they
trade. There also may be a lower level of securities market monitoring and
regulation of developing markets and the activities of investors in such
markets, and enforcement of existing regulations has been extremely limited. The
possibility of revolution and the dependence on foreign economic assistance may
be greater in these countries than in developed countries.
In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets may be particularly high with respect
to emerging markets. Such markets have different settlement and clearance
procedures. In certain markets there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such settlement problems may cause
emerging market securities to be illiquid. The inability of the Portfolio to
make intended securities purchases due to settlement problems could cause the
Portfolio to miss attractive investment opportunities. Inability to dispose of a
portfolio security caused by settlement problems could result in losses to the
Portfolio due to subsequent declines in value of the portfolio security or, if
the Portfolio has entered into a contract to sell the security, could result in
liability to the purchaser. Certain emerging markets may lack clearing
facilities equivalent to those in developed countries. Accordingly, settlements
can pose additional risks in such markets and ultimately can expose the
Portfolio to the risk of losses resulting from its inability to recover from a
counterparty.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for the Portfolio's portfolio
securities in such markets may not be readily available. The Portfolio's
portfolio securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Trust's Board of
Trustees.
Portfolio Turnover. Any particular security will be sold, and the
proceeds reinvested, whenever such action is deemed prudent from the viewpoint
of the Portfolio's investment objectives, regardless of the holding period of
that security. Additional information about portfolio turnover is included in
this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Hedging Strategies. The Portfolio may seek to hedge its portfolio
against movements in the equity markets, interest rates and exchange rates
between currencies, and to close out or offset existing positions in options or
futures contracts, through the use of options, futures transactions, options on
futures and forward foreign currency exchange transactions. The Portfolio has
authority to write (sell) covered call and put options, and to purchase call and
put options, on its portfolio securities. The Portfolio may also purchase and
sell (i) options on foreign currencies, (ii) stock index options, (iii) stock,
currency, stock index and interest rate futures, (iv) options on stock,
currency, stock index and interest rate futures and (v) forward foreign currency
exchange contracts. The Portfolio is authorized to enter into such options and
futures transactions either on exchanges or in the OTC markets. The purpose of
such transactions is to hedge against changes in the market value of the
Portfolio's securities caused by fluctuating interest rates, fluctuating
currency exchange rates and changing market conditions, and to close out or
offset existing positions in such options or futures contracts. The Portfolio
will not engage in such transactions for speculative purposes. In addition, the
Funds will not engage in these transactions if the cost of the transactions
exceed the expected benefits. Although certain risks are involved in all options
and futures transactions, the Sub-advisor believes that, because the Portfolio
will only engage in these transactions for hedging purposes, the options and
futures strategies of the Portfolio will not subject it to the risks frequently
associated with the speculative use of options and futures transactions. While
the Portfolio's use of hedging strategies is intended to reduce the volatility
of the net asset value of the Portfolio's shares, the Portfolio's net asset
value will nevertheless fluctuate. There can be no assurance that the hedging
transactions of the Portfolio will be effective.
Options. The Portfolio will write (sell) put or call options only if
such options are covered. A put option is considered "covered" if a Portfolio
segregates cash or other liquid assets with a value equal to the exercise price
of the put option. If the covered call option is exercised, the writer realizes
either gain or loss from the sale or purchase of the underlying security with
the proceeds to the writer being increased by the amount of the premium. If the
covered put option is exercised, the writer's cost of purchasing the underlying
security is reduced by the amount of the premium received from the initial sale
of the put option.
Additional information about options transactions and their risks is
included in this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods." In general, options whose strike prices are
close to their underlying securities' current values will have the highest
trading value, while options whose strike prices are further away may be less
liquid.
The Portfolio will not write options if, immediately after such sale,
the aggregate value of the securities or obligations underlying the outstanding
options exceeds 20% of the Portfolio's total assets.
The Portfolio may write put options as an alternative to purchasing
actual securities. If security prices rise, the Portfolio would expect to profit
from a written put option, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the Portfolio will also profit, because it should be able to close
out the option at a lower price. If security prices fall, the Portfolio would
expect to suffer a loss. This loss should be less than the loss the Portfolio
would have experienced from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.
Purchasing Put and Call Options. Prior to its expiration, a
put option purchased by the Portfolio may be sold in a closing sale transaction
and profit or loss from the sale will depend on whether the amount received is
more or less than the premium paid for the put option plus the related
transaction costs. The Portfolio will not purchase options on securities
(including stock index options discussed below) if, at the time of the
investment, the aggregate premiums paid for the options will exceed 5% of the
Portfolio's total assets,
Combined Option Positions. The Portfolio, for hedging
purposes, may purchase and write options in combination with each other to
adjust the risk and return characteristics of the Portfolio's overall position.
For example, the Portfolio may purchase a put option and write a covered call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contact. This technique, called a "straddle," would enable the Portfolio to
offset the cost of purchasing a put option with the premium received from
writing the call option. However, by selling the call option, the Portfolio
gives up the ability to profit fully from the put option. Another possible
combined position would involve writing a covered call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
OTC Options. Options purchased or written by the Portfolio may
be traded on national securities exchanges or negotiated with a dealer. Options
traded in the over-the-counter market may not be as actively traded as those
traded on an exchange, so it may be more difficult to value such options. The
Portfolio will engage in transactions involving OTC options only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
securities or with affiliates of such banks or dealers that have capital of at
least $50 million or whose obligations are guaranteed by an entity having
capital of at least $50 million. The Portfolio will acquire only those OTC
options for which the Sub-advisor believes the Portfolio can receive on each
business day at least two independent bids or offers (one of which will be from
an entity other than a party to the option).
The Staff of the SEC has taken the position that purchased OTC options
and the assets used as cover for written OTC options generally are illiquid
securities. Therefore, the Portfolio will not purchase or sell OTC options
(including OTC options on futures contracts) if, as a result of such a
transaction, the sum of (i) the market value of OTC options currently
outstanding that are held by the Portfolio, (ii) the market value of the
underlying securities covered by OTC call options currently outstanding that
were sold by the Portfolio, (iii) margin deposits on the Portfolio's existing
OTC options on futures contracts, and (iv) the market value of all other assets
of the Portfolio that are illiquid, would exceed 15% of the net assets of the
Portfolio. However, if an OTC option is sold by the Portfolio to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York,
and the Portfolio has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Portfolio will treat
as illiquid such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is "in-the-money" (current
market value of the underlying security minus the option's strike price). The
repurchase price with primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money."
Financial Futures and Stock Index Options. The Portfolio may enter into
stock, stock index, interest rate, and currency futures contracts and related
options in order to hedge the value of its portfolio against changes in market
conditions or in exchange rates between currencies (including the U.S. dollar).
Futures contracts are traded on U.S. and foreign exchanges and generally contain
standardized strike prices and expiration dates. The Portfolio may effect
transactions in stock index futures contracts in connection with equity
securities in which it invests and in financial futures contracts in connection
with the debt securities in which it invests, if any. No more than 5% of the
Portfolio's total assets will be committed to initial margin deposits required
pursuant to futures contracts. Percentage investment limitations on the
Portfolio's investment in options on futures contracts requirements are set
forth above under "Options." Although the Portfolio is authorized to invest in
foreign futures contracts and related options, the Portfolio will limit such
investments to those which have been approved by the Commodity Futures Trading
Commission ("CFTC") for investment by United States investors.
The Portfolio may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the
Portfolio's securities portfolio that might otherwise result. When the Portfolio
is not fully invested in the securities markets and anticipates a significant
market advance, the Fund may purchase futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of securities
that the Portfolio intends to purchase. As such purchases are made, an
equivalent amount of futures contracts will be terminated by offsetting sales.
The Portfolio does not consider purchases of futures contracts to be a
speculative practice under these circumstances. It is anticipated that, in a
substantial majority of these transactions, the Portfolio will purchase such
securities upon termination of the long futures position, whether the long
position results from the purchase of a futures contract or the purchase of a
call option. Under unusual circumstances (e.g., the Portfolio experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Portfolio is also authorized to purchase and write call and put
options on futures contracts and stock indices in connection with their hedging
activities. Generally, these strategies would be utilized under the same market
and market sector conditions (i.e., conditions relating to specific types of
investments) in which the Portfolio enters into futures transactions. The
Portfolio may purchase put options or write call options on futures contracts
and stock indices rather than selling the underlying futures contract in
anticipation of a decrease in the market value of securities. Similarly, the
Portfolio can purchase call options, or write put options on futures contracts
and stock indices, as a substitute for the purchase of such futures to hedge
against the increased cost resulting from an increase in the market value of
securities that the Fund intends to purchase.
The Portfolio may invest in stock index options based on a broad market
index, such as the S&P 500 Index, or on a narrow index representing an industry
or market segment, such as the AMEX Oil & Gas Index. Additionally, with respect
to the Portfolio's investments in foreign options, unless such options are
specifically authorized for investment by order of the CFTC or meet the
definition of "trade option" as set forth in CFTC Regulation 32.4, the Portfolio
will not make such investments.
The Portfolio will not incur potential net liabilities of more than 25%
of its total assets from foreign security or currency options, futures or
options on futures. Additional information about futures contracts, options on
futures contracts and options on stock indices, and the risks of these
practices, is included in this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Asset Coverage for Futures and Options Positions. The
Portfolio will hold securities or other options or futures positions whose
values are expected to offset its obligations under the hedge strategies. The
Portfolio will not enter into an option or futures position that exposes it to
an obligation to another party unless it owns either (i) an offsetting position
in securities or other options or futures contracts or (ii) liquid assets with a
value sufficient to cover its potential obligations.
Foreign Exchange Transactions. Purchases and sales of foreign
securities are usually made with foreign currencies, and consequently the
Portfolio may from time to time hold cash balances in the form of foreign
currencies and multinational currency units. Such foreign currencies and
multinational currency units will usually be acquired on a spot (i.e. cash)
basis at the sport rate prevailing in foreign exchange markets and will result
in currency conversion costs to the Portfolio. The Portfolio attempts to
purchase and sell foreign currencies on as favorable a basis as practicable;
however, some price spread on foreign exchange transactions (to cover service
charges) may be incurred, particularly when the Portfolio changes investments
from one country to another, or when U.S. dollars are used to purchase foreign
securities.
In attempting to manage its currency exposure, the Portfolio may buy
and sell currencies through forward contracts. The Portfolio may enter into
forward contracts with respect to a specific purchase or sale of a security, or
with respect to its portfolio positions generally. The Portfolio may enter into
forward contracts with respect to specific purchases or sales ("transaction
hedging") in connection with all or a substantial portion of its trades. The
Portfolio will not hedge a currency substantially in excess of the market value
of securities that the Portfolio has committed or anticipates to purchase that
are denominated in such currency, or, in the case of securities that have been
sold by the Portfolio but not yet delivered, in excess of the proceeds of the
sale. In addition to hedging specific securities transactions, the Portfolio may
also generally hedge its holdings denominated in a particular currency. This
practice is sometimes referred to as "position hedging." The Portfolio may not
position hedge with respect to the currency of a particular country to an extent
greater than the aggregate market value (at the time of making such sale) of the
securities held by the Portfolio denominated or quoted in that particular
foreign currency. The Portfolio will not enter into a position hedging
commitment if, as a result thereof, it would have more than 10% of the value of
its total assets committed to such contracts. The Portfolio will not enter into
a forward contract with a term of more than one year.
In addition to the forward exchange contracts, the Portfolio may also
purchase or sell listed or OTC foreign currency options, and foreign currency
futures and related options as a short or long hedge against possible variations
in foreign exchange rates. Such transactions could be effected with respect to
hedges on non-U.S. dollar denominated securities owned by the Portfolio, sold by
the Portfolio but not yet delivered, or committed or anticipated to be purchased
by the Portfolio. As an illustration, the Portfolio can hedge the value in U.S.
dollars of an investment in a yen-denominated security by purchasing a foreign
currency put option enabling it to sell a specified amount of yen for U.S.
dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in the value of the yen relative to the U.S. dollar will tend
to be offset by an increase in the value of the put option.
The cost to the Portfolio of engaging in foreign currency transactions
varies with such factors as the currencies involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
foreign currency exchange usually are conducted on a principal basis, no fees or
commissions are involved.
Additional information about the various foreign currency transactions
that the Portfolio may enter into and their risks is included in this Statement
and in the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Risk Factors in Options, Futures, and Forward Transactions. There are
risks associated with the use of futures and forward contracts and options
thereon for hedging purposes. During certain market conditions, sales of these
instruments may not completely offset a decline or rise in the value of the
securities or currency against which the futures or forward contract or option
thereon are being sold. In the futures and options on futures markets, it may
not always be possible to execute a buy or sell order at the desired price, or
to close out an open position due to market conditions, or limits on open
positions and/or daily price fluctuations.
The use of options and futures transactions to hedge the Portfolio's
portfolio involves the risk of imperfect correlation in movements in the price
of options and futures and movements in the price of securities or currencies
that are the subject of the hedge. If the price of the option or future moves
more or less than the price of hedged securities or currencies, the Portfolio
will experience a gain or loss that will not be completely offset by movements
in the price of the subject of the hedge. To compensate for this imperfect
correlation, the Portfolio may purchase or sell stock index options or futures
contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the stock index options or futures contracts. Conversely, the Portfolio may
purchase or sell fewer stock index options or futures contracts if the
historical price volatility of the hedged securities is less than that of the
stock index options or futures contracts. The risk of imperfect correlation
generally tends to diminish as the maturity date of the stock index option or
futures contract approaches.
The Portfolio intends to enter into options and futures transactions,
on an exchange or in the OTC market, only if there appears to be a liquid
secondary market for such options or futures. The Sub-advisor does not believe
that trading and position limits established by the exchanges on which options
are traded will have any adverse impact on the Portfolio's hedging strategies.
Because the Portfolio will engage in the options and futures
transactions described above solely in connection with their hedging activities,
the Sub-advisor does not believe such options and futures transactions
necessarily will have any significant effect on the portfolio turnover rate of
the Portfolio.
Other Hedging Techniques. For hedging purposes, the Portfolio may also
purchase foreign currencies in the form of bank deposits as well as other
foreign money market instruments, including, but not limited to, bankers'
acceptances, certificates of deposit, commercial paper, short-term government
and corporate obligations and repurchase agreements.
Other Investment Companies. The Portfolio may invest in other
investment companies to the extent permitted by the 1940 Act and rules and
regulations thereunder, and, if applicable, exemptive orders granted by the SEC.
Investment Policy Which May Be Changed Without Shareholder Approval.
The following limitation is applicable to the AST AIM International Equity
Portfolio. This limitation is not a "fundamental" restriction, and may be
changed by the Trustees without shareholder approval. The Portfolio will not:
1. Make investments for the purpose of gaining control of a company's
management.
AST Janus Overseas Growth Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
long-term growth of capital. This is a fundamental objective of the Portfolio.
Investment Policies:
The portfolio pursues its objective by investing primarily in common
stocks of foreign issuers of any size. The Portfolio normally invests at least
65% of its total assets in issuers from at least five different countries
excluding the United States. The Portfolio may invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and restrictions as the
Portfolio subject to the prior approval of the Investment Manager. The
Investment Manager will not approve such investment unless: (a) the Investment
Manager believes, on the advice of counsel, that such investment will not have
an adverse effect on the tax status of the annuity contracts and/or life
insurance policies supported by the separate accounts of the Participating
Insurance Companies which purchase shares of the Trust; (b) the Investment
Manager has given prior notice to the Participating Insurance Companies that it
intends to permit such investment and has determined whether such Participating
Insurance Companies intend to redeem any shares and/or discontinue the purchase
of shares because of such investment; (c) the Trustees have determined that the
fees to be paid by the Trust for administrative, accounting, custodial and
transfer agency services for the Portfolio subsequent to such an investment are
appropriate, or the Trustees have approved changes to the agreements providing
such services to reflect a reduction in fees; (d) the Sub-advisor has agreed to
reduce its fee by the amount of any investment advisory fees paid to the
investment manager of such open-end management investment company; and (e)
shareholder approval is obtained if required by law. The Portfolio will apply
for such exemptive relief under the provisions of the 1940 Act, or other such
relief as may be necessary under the then governing rules and regulations of the
1940 Act, regarding investments in such investment companies.
Futures, Options and Other Derivative Instruments. The Portfolio may
enter into futures contracts on securities, financial indices, and foreign
currencies and options on such contracts, and may invest in options on
securities, financial indices and foreign currencies, forward contracts and
swaps. The Portfolio will not enter into any futures contracts or options on
futures contracts if the aggregate amount of the Portfolio's commitments under
outstanding futures contracts positions and options on futures contracts written
by the Portfolio would exceed the market value of the total assets of the
Portfolio. The Portfolio may invest in forward currency contracts with stated
values of up to the value of the Portfolio's assets.
The Portfolio may buy or write options in privately negotiated
transactions on the types of securities and indices based on the types of
securities in which the Portfolio is permitted to invest directly. The Portfolio
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy, and only pursuant to procedures adopted, by the Sub-advisor for
monitoring the creditworthiness of those entities. To the extent that an option
bought or written by the Portfolio in a negotiated transaction is illiquid, the
value of an option bought or the amount of the Portfolio's obligations under an
option written by the Portfolio, as the case may be, will be subject to the
Portfolio's limitation on illiquid investments. In the case of illiquid options,
it may not be possible for the Portfolio to effect an offsetting transaction at
a time when the Sub-advisor believes it would be advantageous for the Portfolio
to do so. For a description of these strategies and instruments and certain
risks involved therein, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Eurodollar Instruments. The Portfolio may make investments in
Eurodollar instruments. Eurodollar instruments are U.S. dollar-denominated
futures contracts or options thereon which are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency-denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. The Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. The Portfolio may enter into interest
rate swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with the Portfolio receiving or paying, as the case may
be, only the net amount of the two payments). The net amount of the excess, if
any, of the Portfolio's obligations over its entitlement with respect to each
interest rate swap will be calculated on a daily basis and an amount of cash or
high-grade liquid assets having an aggregate net asset value at least equal to
the accrued excess will be maintained in a segregated account by the custodian
of the Portfolio. If the Portfolio enters into an interest rate swap on other
than a net basis, it would maintain a segregated account in the full amount
accrued on a daily basis of its obligations with respect to the swap. The
Portfolio will not enter into any interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in one of the three highest rating categories of at least one
nationally recognized statistical rating organization at the time of entering
into such transaction. The Sub-advisor will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other party to
such a transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. The Sub-advisor has determined
that, as a result, the swap market has become relatively liquid. Caps and floors
are more recent innovations for which standardized documentation has not yet
been developed and, accordingly, they are less liquid than swaps. To the extent
the Portfolio sells (i.e., writes) caps and floors, it will segregate cash or
high-grade liquid assets having an aggregate net asset value at least equal to
the full amount, accrued on a daily basis, of its obligations with respect to
any caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the Portfolio
or its counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
The Portfolio may buy and sell (i.e., write) caps and floors without limitation,
subject to the segregation requirement described above. For an additional
discussion of these strategies, see this Statement under "Certain Risk Factors
and Investment Methods."
Illiquid Investments. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest up to 15% of its net assets in
illiquid investments (i.e., securities that are not readily marketable). The
Sub-advisor will make liquidity determinations with respect to the Portfolio
securities, including Rule 144A Securities and commercial paper. Under the
guidelines established by the Trustees, the Sub-advisor will consider the
following factors: 1) the frequency of trades and quoted prices for the
obligation; 2) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; 3) the willingness of dealers to
undertake to make a market in the security; and 4) the nature of the security
and the nature of marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
In the case of commercial paper, the Sub-advisor will also consider whether the
paper is traded flat or in default as to principal and interest and any ratings
of the paper by an NRSRO.
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Zero-Coupon, Pay-In-Kind and Step Coupon Securities. The Portfolio may
invest up to 10% of its assets in zero-coupon, pay-in-kind and step coupon
securities. For a discussion of zero-coupon debt securities and the risks
involved therein, see this Statement under "Certain Risk Factors and Investment
Methods."
Pass-Through Securities. The Portfolio may invest in various types of
pass-through securities, such as mortgage-backed securities, asset-backed
securities and participation interests. A pass-through security is a share or
certificate of interest in a pool of debt obligations that have been repackaged
by an intermediary, such as a bank or broker-dealer. The purchaser of a
pass-through security receives an undivided interest in the underlying pool of
securities. The issuers of the underlying securities make interest and principal
payments to the intermediary which are passed through to purchasers, such as the
Portfolio. For an additional discussion of pass-through securities and certain
risks involved therein, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Depositary Receipts. The Portfolio may invest in sponsored and
unsponsored American Depositary Receipts ("ADRs"), which are receipts issued by
an American bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer. ADRs, in registered form, are designed for use in
U.S. securities markets. Unsponsored ADRs may be created without the
participation of the foreign issuer. Holders of these ADRs generally bear all
the costs of the ADR facility, whereas foreign issuers typically bear certain
costs in a sponsored ADR. The bank or trust company depositary of an unsponsored
ADR may be under no obligation to distribute shareholder communications received
from the foreign issuer or to pass through voting rights. The Portfolio may also
invest in European Depositary Receipts ("EDRs"), receipts issued by a European
financial institution evidencing an arrangement similar to that of ADRs, Global
Depositary Receipts ("GDRs") and in other similar instruments representing
securities of foreign companies. EDRs, in bearer form, are designed for use in
European securities markets. GDRs are securities convertible into equity
securities of foreign issuers.
Other Income-Producing Securities. Other types of income producing
securities that the Portfolio may purchase include, but are not limited to, the
following types of securities:
Variable and Floating Rate Obligations. These types of
securities are relatively long-term instruments that often carry demand features
permitting the holder to demand payment of principal at any time or at specified
intervals prior to maturity.
Standby Commitments. These instruments, which are similar to a
put, give the Portfolio the option to obligate a broker, dealer or bank to
repurchase a security held by that Portfolio at a specified price.
Tender Option Bonds. Tender option bonds are relatively
long-term bonds that are coupled with the agreement of a third party (such as a
broker, dealer or bank) to grant the holders of such securities the option to
tender the securities to the institution at periodic intervals.
Inverse Floaters. Inverse floaters are debt instruments whose
interest bears an inverse relationship to the interest rate on another security.
The Portfolio will not invest more than 5% of its assets in inverse floaters.
The Portfolio will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of the Portfolio.
Repurchase and Reverse Repurchase Agreements. Subject to guidelines
promulgated by the Board of Trustees of the Trust, the Portfolio may enter into
repurchase agreements. Repurchase agreements that mature in more than seven days
will be subject to the 15% limit on illiquid investments. While it is not
possible to eliminate all risks from these transactions, it is the policy of the
Sub-advisor to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by Sub-advisor.
Pursuant to an exemptive order granted by the Securities and Exchange
Commission, the Portfolio and other funds advised or sub-advised by the
Sub-advisor may invest in repurchase agreements and other money market
instruments through a joint trading account. The Portfolio may also enter into
reverse repurchase agreements. The Portfolio will enter into such agreements
only to provide cash to satisfy unusually heavy redemption requests and for
other temporary or emergency purposes, rather than to obtain cash to make
additional investments. While a reverse repurchase agreement is outstanding, the
Portfolio will maintain cash and appropriate liquid assets in a segregated
custodial account to cover its obligation under the agreement. The Portfolio
will enter into reverse repurchase agreements only with parties that Sub-advisor
deems creditworthy. For an additional description of these investment
techniques, see the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Investment Policies Which May be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Janus Overseas Growth
Portfolio. These limitations are not "fundamental" restrictions and may be
changed by the Trustees without shareholder approval:
1. The Portfolio will not (i) enter into any futures contracts and
related options for purposes other than bona fide hedging transactions within
the meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions will exceed 5% of the fair market value of the
Portfolio's net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; and (ii) enter into
any futures contracts if the aggregate amount of the Portfolio's commitments
under outstanding futures contracts positions would exceed the market value of
its total assets.
2. The Portfolio does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
3. The Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing securities on
margin.
4. The Portfolio does not currently intend to purchase securities of
other investment companies, except in compliance with the 1940 Act.
5. The Portfolio may not mortgage or pledge any securities owned or
held by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net asset value, provided that this limitation does not apply to
reverse repurchase agreements, deposits of assets to margin, guarantee positions
in futures, options, swaps or forward contracts, or the segregation of assets in
connection with such contracts.
6. The Portfolio does not currently intend to purchase any security or
enter into a repurchase agreement if, as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Trustees, or the Sub-Advisor acting pursuant
to authority delegated by the Trustees, may determine that a readily available
market exists for securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities"), or any successor to such rule,
and Section 4(2) commercial paper. Accordingly, such securities may not be
subject to the foregoing limitation.
7. The Portfolio may not invest in companies for the purpose of
exercising control of management.
AST American Century International Growth Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth. This is a fundamental objective of the Portfolio.
Investment Policies:
In general, within the restrictions outlined herein, the Portfolio has
broad powers with respect to investing funds or holding them uninvested.
Investments are varied according to what is judged advantageous under changing
economic conditions. It will be the Sub-advisor's policy to retain maximum
flexibility in management without restrictive provisions as to the proportion of
one or another class of securities that may be held, subject to the investment
restrictions described below. It is the Sub-advisor's intention that the
Portfolio will generally consist of common stocks. However, the Sub-advisor may
invest the assets of the Portfolio in varying amounts in other instruments and
in senior securities, such as bonds, debentures, preferred stocks and
convertible issues, when such a course is deemed appropriate in order to attempt
to attain its financial objective.
Forward Currency Exchange Contracts. The Portfolio conducts its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward currency exchange contracts to purchase or sell foreign currencies.
The Portfolio expects to use forward contracts under two circumstances:
(1) when the Sub-advisor wishes to "lock in" the U.S. dollar price of a security
when the Portfolio is purchasing or selling a security denominated in a foreign
currency, the Portfolio would be able to enter into a forward contract to do so
("transaction hedging"); (2) when the Sub-advisor believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, the Portfolio would be able to enter into a forward contract to sell
foreign currency for a fixed U.S. dollar amount approximating the value of some
or all of the Portfolio's securities either denominated in, or whose value is
tied to, such foreign currency ("portfolio hedging"). It's anticipated that the
Fund will enter into portfolio hedges much less frequently than transaction
hedges.
As to transaction hedging, when the Portfolio enters into a trade for
the purchase or sale of a security denominated in a foreign currency, it may be
desirable to establish (lock in) the U.S. dollar cost or proceeds. By entering
into forward contracts in U.S. dollars for the purchase or sale of a foreign
currency involved in an underlying security transaction, the Portfolio will be
able to protect itself against a possible loss between trade and settlement
dates resulting from the adverse change in the relationship between the U.S.
dollar and the subject foreign currency.
Under portfolio hedging, when the Sub-advisor believes that the
currency of a particular country may suffer a substantial decline relative to
the U.S. dollar, the Portfolio could enter into a forward contract to sell for a
fixed dollar amount the amount in foreign currencies approximating the value of
some or all of its portfolio securities either denominated in, or whose value is
tied to, such foreign currency. The Portfolio will place cash or high-grade
liquid securities in a separate account with its custodian in an amount
sufficient to cover its obligation under the contract entered into under the
second circumstance. If the value of the securities placed in the separate
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account equals the amount of the
Portfolio's commitments with respect to such contracts. At any given time, no
more than 10% of the Portfolio's assets will be committed to a segregated
account in connection with portfolio hedging transactions.
The precise matching of forward contracts in the amounts and values of
securities involved would not generally be possible since the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of short-term hedging strategy
is highly uncertain. Normally, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
respect to overall diversification strategies. However, the Sub-advisor believes
that it is important to have flexibility to enter into such forward contracts
when it determines that the Portfolio's best interests may be served.
Generally, the Portfolio will not enter into a forward contract with a
term of greater than one year. At the maturity of the forward contract, the
Portfolio may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate the obligation to
deliver the foreign currency by purchasing an "offsetting" forward contract with
the same currency trader obligating the Portfolio to purchase, on the same
maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the forward contract. Accordingly,
it may be necessary for the Portfolio to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency the Portfolio is obligated to deliver. For an
additional discussion of forward currency exchange contracts and the risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Investments in Companies with Limited Operating History. The Portfolio
may invest in the securities of issuers with limiting operating history. The
Sub-advisor considers an issuer to have a limited operating history if that
issuer has a record of less than three years of continuous operation.
Investments in securities of issuers with limited operating history may
involve greater risks than investments in securities of more mature issuers. By
their nature, such issuers present limited operating history and financial
information upon which the manager may base its investment decision on behalf of
the Portfolio. In addition, financial and other information regarding such
issuers, when available, may be incomplete or inaccurate.
The Portfolio will not invest more than 5% of its total assets in the
securities of issuers with less than a three-year operating history. The
Sub-advisor will consider periods of capital formation, incubation,
consolidation, and research and development in determining whether a particular
issuer has a record of three years of continuous operation.
Repurchase Agreements. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest in repurchase agreements. The
Portfolio will limit repurchase agreement transactions to securities issued by
the U.S. government, its agencies and instrumentalities.
Short Sales. The Portfolio may engage in short sales if, at the time of
the short sale, the Portfolio owns or has the right to acquire an equal amount
of the security being sold short at no additional cost.
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. To make delivery to the purchaser, the executing broker borrows the
securities being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If the Portfolio engages in a short sale the collateral account will be
maintained by the Portfolio's custodian. While the short sale is open the
Portfolio will maintain in a segregated custodial account an amount of
securities convertible into or exchangeable for such equivalent securities at no
additional cost. These securities would constitute the Portfolio's long
position.
If the Portfolio sells short securities that it owns, any future gains
or losses in the Portfolio's long position should be reduced by a gain or loss
in the short position. The extent to which such gains or losses are reduced
would depend upon the amount of the security sold short relative to the amount
the Portfolio owns. There will be certain additional transaction costs
associated with short sales, but the Portfolio will endeavor to offset these
costs with income from the investment of the cash proceeds of short sales.
Sovereign Debt Obligations. The Portfolio may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their agencies,
including debt of emerging market countries. Sovereign debt may be in the form
of conventional securities or other types of debt instruments such as loans or
loan participations. Sovereign debt of developing countries may involve a high
degree of risk and may present a risk of default or renegotiation or
rescheduling of debt payments.
Portfolio Turnover. The Sub-advisor will purchase and sell securities
without regard to the length of time the security has been held and,
accordingly, it can be expected that the rate of portfolio turnover may be
substantial.
The Sub-advisor intends to purchase a given security whenever the
Sub-advisor believes it will contribute to the stated objective of the
Portfolio, even if the same security has only recently been sold. The Portfolio
will sell a given security, no matter for how long or for how short a period it
has been held, and no matter whether the sale is at a gain or at a loss, if the
Sub-advisor believes that such security is not fulfilling its purpose, either
because, among other things, it did not live up to the Sub-advisor's
expectations, or because it may be replaced with another security holding
greater promise, or because it has reached its optimum potential, or because of
a change in the circumstances of a particular company or industry or in general
economic conditions, or because of some combination of such reasons.
When a general decline in security prices is anticipated, the Portfolio
may decrease or eliminate entirely its equity position and increase its cash
position, and when a rise in price levels is anticipated, the Portfolio may
increase its equity position and decrease its cash position. However, it should
be expected that the Portfolio will, under most circumstances, be essentially
fully invested in equity securities.
Since investment decisions are based on the anticipated contribution of
the security in question to the Portfolio's objectives, the rate of portfolio
turnover is irrelevant when the Sub-advisor believes a change is in order to
achieve those objectives, and the Portfolio's annual portfolio turnover rate
cannot be anticipated and may be comparatively high. Since the Sub-advisor does
not take portfolio turnover rate into account in making investment decisions,
(1) the Sub-advisor has no intention of accomplishing any particular rate of
portfolio turnover, whether high or low, and (2) the portfolio turnover rates
should not be considered as a representation of the rates that will be attained
in the future.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST American Century
International Growth Portfolio. These limitations are not "fundamental"
restrictions and may be changed by the Trustees without shareholder approval.
The Portfolio will not:
1. Invest more than 15% of its assets in illiquid investments;
2. Invest in the securities of other investment companies except in
compliance with the 1940 Act;
3. Buy securities on margin or sell short (unless it owns or by virtue
of its ownership of other securities has the right to obtain securities
equivalent in kind and amount to the securities sold); however, the Portfolio
may make margin deposits in connection with the use of any financial instrument
or any transaction in securities permitted under its investment policies;
4. Invest in oil, gas or other mineral leases;
5. Invest for control or for management.
AST Janus Small-Cap Growth Portfolio:
Investment Objective: As stated in the Prospectus, the Portfolio's investment
objective is capital appreciation. Realization of income is not a significant
investment consideration and any income realized on the Portfolio's investments
therefore will be incidental to the Portfolio's objective.
Investment Policies:
Illiquid Investments. The Portfolio may invest up to 15% of its net
assets in illiquid investments (i.e., securities that are not readily
marketable). The Trustees have authorized the Sub-advisor to make liquidity
determinations with respect to certain securities, including Rule 144A
Securities and commercial paper purchased by the Portfolio. Under the guidelines
established by the Trustees, the Sub-advisor will consider, among other factors:
1) the frequency of trades and quoted prices for the obligation; 2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers; 3) the willingness of dealers to undertake to make a
market in the security; 4) the nature of the security and the nature of
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer; and 5) any rating
of the security by a Nationally Recognized Statistical Rating Organization
("NRSRO"). In the case of commercial paper, the Sub-advisor will also determine
that the paper is not traded flat or in default as to principal and interest. A
foreign security that may be freely traded on or through the facilities of an
offshore exchange or other established offshore securities market is not
considered an illiquid security.
Investment Company Securities. From time to time, the Portfolio may
invest in securities of other investment companies, subject to the provisions of
Section 12(d)(1) of the 1940 Act. The Portfolio may invest in securities of
money market funds managed by the Sub-advisor subject to the terms of an
exemptive order obtained by the Sub-advisor and the funds that are advised or
sub-advised by the Sub-advisor. Under such order, the Portfolio will limit its
aggregate investment in a money market fund managed by the Sub-adviser to the
greater of (i) 5% of its total assets or (ii) $2.5 million, although the Trust's
Board of Trustees may increase this limit up to 25% of the Trust's total assets.
Depositary Receipts. The Portfolio may invest in sponsored and
unsponsored American Depositary Receipts ("ADRs"), which are described in the
Trust's Prospectus under "Certain Risk Factors and Investment Methods." Holders
of unsponsored ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depositary of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights. The Portfolio may also invest in European Depositary
Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and in other similar
instruments representing securities of foreign companies.
Income-Producing Securities. Types of income producing securities that
the Portfolio may purchase include, but are not limited to, (i) variable and
floating rate obligations, which are securities having interest rates that are
adjusted periodically according to a specified formula, usually with reference
to some interest rate index or market interest rate, (ii) standby commitments,
which are instruments similar to puts that give the holder the option to
obligate a broker, dealer or bank to repurchase a security at a specified price,
and (iii) tender option bonds, which are securities that are coupled with the
option to tender the securities to a bank, broker-dealer or other financial
institution at periodic intervals and receive the face value of the bond. The
Portfolio will purchase standby commitments, tender option bonds and instruments
with demand features primarily for the purpose of increasing the liquidity of
its portfolio. The Portfolio may also invest in inverse floaters, which are debt
instruments the interest on which varies in an inverse relationship to the
interest rate on another security. For example, certain inverse floaters pay
interest at a rate that varies inversely to prevailing short-term interest
rates. Some inverse floaters have an interest rate reset mechanism that
multiplies the effects of changes in an underlying index. Such a mechanism may
increase fluctuations in the security's market value. The Portfolio will not
invest more than 5% of its assets in inverse floaters.
High-Yield/High-Risk Securities. The Portfolio intends to invest less
than 35% of its net assets in debt securities that are rated below investment
grade (e.g., securities rated BB or lower by Standard & Poor's Ratings Services
("Standard & Poor's") or Ba or lower by Moody's Investors Service, Inc.
("Moody's")). Lower rated securities involve a higher degree of credit risk,
which is the risk that the issuer will not make interest or principal payments
when due. In the event of an unanticipated default, the Portfolio would
experience a reduction in its income, and could expect a decline in the market
value of the securities so affected.
The Portfolio may also invest in unrated debt securities of foreign and
domestic issuers. Unrated debt, while not necessarily of lower quality than
rated securities, may not have as broad a market. Sovereign debt of foreign
governments is generally rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, the Sub-advisor may treat such securities as unrated debt. Because of
the size and perceived demand of the issue, among other factors, certain
municipalities may not incur the costs of obtaining a rating. The Sub-advisor
will analyze the creditworthiness of the issuer, as well as any financial
institution or other party responsible for payments on the security, in
determining whether to purchase unrated municipal bonds. Unrated debt securities
will be included in the 35% limit unless the portfolio managers deem such
securities to be the equivalent of investment grade securities.
The Portfolio may purchase defaulted securities subject to the above
limits, but only when the Sub-advisor believes, based upon its analysis of the
financial condition, results of operations and economic outlook of an issuer,
that there is potential for resumption of income payments and that the
securities offer an unusual opportunity for capital appreciation.
Notwithstanding the Sub-advisor's belief as to the resumption of income,
however, the purchase of any security on which payment of interest or dividends
is suspended involves a high degree of risk. Such risk includes, among other
things, the following:
Financial and Market Risks. Investments in securities that are
in default involve a high degree of financial and market risks that can result
in substantial or, at times, even total losses. Issuers of defaulted securities
may have substantial capital needs and may become involved in bankruptcy or
reorganization proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain information about their
condition. The market prices of securities of such issuers also are subject to
abrupt and erratic movements and above average price volatility, and the spread
between the bid and asked prices of such securities may be greater than normally
expected.
Disposition of Portfolio Securities. Although the Portfolio
generally will purchase securities for which the Sub-advisor expects an active
market to be maintained, defaulted securities may be less actively traded than
other securities and it may be difficult to dispose of substantial holdings of
such securities at prevailing market prices. The Portfolio will limit holdings
of any such securities to amounts that the Sub-advisor believes could be readily
sold, and holdings of such securities would, in any event, be limited so as not
to limit the Portfolio's ability to readily dispose of securities to meet
redemptions.
Other. Defaulted securities require active monitoring and may, at times,
require participation in bankruptcy or receivership proceedings on behalf of the
Portfolio.
Repurchase and Reverse Repurchase Agreements. The Portfolio may enter
into repurchase agreements. While it is not possible to eliminate all risks from
repurchase agreement transactions, the Portfolio will limit repurchase
agreements to those parties whose creditworthiness has been reviewed and found
satisfactory by the Sub-advisor under guidelines established by the Board of
Trustees of the Trust. Pursuant to an exemptive order granted by the Securities
and Exchange Commission, the Portfolio and other funds advised or sub-advised by
the Sub-advisor may invest in repurchase agreements and other money market
instruments through a joint trading account.
The Portfolio may use reverse repurchase agreements to provide cash to
satisfy unusually heavy redemption requests or for other temporary or emergency
purposes without the necessity of selling portfolio securities, rather than to
obtain cash to make additional investments. The Portfolio will enter into
reverse repurchase agreements only with parties that the Sub-advisor deems
creditworthy. Using reverse repurchase agreements to earn additional income
involves the risk that the interest earned on the invested proceeds is less than
the expense of the reverse repurchase agreement transaction. This technique may
also have a leveraging effect on the Portfolio, although the requirement for the
Portfolio to segregate assets in the amount of the reverse repurchase agreement
minimizes this effect.
For an additional discussion of repurchase agreements and reverse
repurchase agreements and their risks, see the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Futures, Options and Forward Contracts. The Portfolio may enter into
futures contracts on securities, financial indices, and foreign currencies and
options on such contracts, and may invest in options on securities, financial
indices, and foreign currencies, and forward contracts. The Portfolio will not
enter into any futures contracts or options on futures contracts if the
aggregate amount of the Portfolio's commitments under outstanding futures
contract positions and options on futures contracts written by the Portfolio
would exceed the market value of the Portfolio's total assets. The Portfolio may
invest in forward currency contracts with stated values of up to the value of
the Portfolio's assets.
The Portfolio may buy or write options in privately negotiated
transactions on the types of securities, and on indices based on the types of
securities, in which the Portfolio is permitted to invest directly. The
Portfolio will effect such transactions only with investment dealers and other
financial institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by the Sub-advisor pursuant to procedures
adopted by the Sub-advisor for monitoring the creditworthiness of those
entities. To the extent that an option purchased or written by the Portfolio in
a negotiated transaction is illiquid, the value of the option purchased or the
amount of the Portfolio's obligations under an option it has written, as the
case may be, will be subject to the Portfolio's limitation on illiquid
investments. In the case of illiquid options, it may not be possible for the
Portfolio to effect an offsetting transaction when the Sub-advisor believes it
would be advantageous for the Portfolio to do so. For a description of these
strategies and instruments and certain of their risks, see this Statement and
the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Eurodollar Instruments. The Portfolio may make investments in
Eurodollar instruments. Eurodollar instruments are U.S. dollar-denominated
futures contracts or options thereon that are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency-denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. The Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. The Portfolio may enter into interest
rate swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with the Portfolio receiving or paying, as the case may
be, only the net amount of the two payments). The net amount of the excess, if
any, of the Portfolio's obligations over its entitlement with respect to each
interest rate swap will be calculated on a daily basis and an amount of cash or
other liquid assets having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Portfolio's
custodian. If the Portfolio enters into an interest rate swap on other than a
net basis, it would maintain a segregated account in the full amount accrued on
a daily basis of its obligations with respect to the swap. The Portfolio will
not enter into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other party thereto is
rated in one of the three highest rating categories of at least one NRSRO at the
time of entering into such transaction. The Sub-advisor will monitor the
creditworthiness of all counterparties on an ongoing basis. If there is a
default by the other party to such a transaction, the Portfolio will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. The Sub-advisor has determined
that, as a result, the swap market has become relatively liquid. Caps and floors
are more recent innovations for which standardized documentation has not yet
been developed and, accordingly, are less liquid than swaps. To the extent the
Portfolio sells (i.e., writes) caps and floors, it will segregate cash or other
liquid assets having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of its obligations with respect to any caps or
floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the Portfolio
or its counterparty to collateralize obligations under the swap. The Portfolio
bears the risk of loss of any payments it is contractually obligated to make in
connection with interest rate swaps. In addition, if the other party to an
interest rate swap that is not collateralized defaults, the Portfolio would risk
the loss of the payments that it contractually is entitled to receive. The
Portfolio may buy and sell (i.e., write) caps and floors without limitation,
subject to the segregation requirement described above.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the Janus Small-Cap Growth
Portfolio. These limitations are not "fundamental" restrictions, and may be
changed by the Trustees without shareholder approval.
1. The Portfolio does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
2. The Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing securities on
margin.
3. The Portfolio does not currently intend to purchase any security or
enter into a repurchase agreement if, as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Trustees, or the Portfolio's Sub-advisor
acting pursuant to authority delegated by the Trustees, may determine that a
readily available market exists for securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"), or any
successor to such rule, Section 4(2) commercial paper and municipal lease
obligations. Accordingly, such securities may not be subject to the foregoing
limitation.
4. The Portfolio may not invest in companies for the purpose of
exercising control of management.
AST Kemper Small-Cap Growth Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
maximum appreciation of investors' capital from a portfolio primarily of growth
stocks of smaller companies.
Investment Policies:
Options. The Portfolio may write (sell) call options on securities as
long as it owns the underlying securities subject to the option, or an option to
purchase the same underlying securities having an exercise price equal to or
less than the exercise price of the option, or will establish and maintain with
the Portfolio's custodian for the term of the option a segregated account
consisting of cash or other liquid securities ("eligible securities") to the
extent required by applicable regulation in connection with the optioned
securities. The Portfolio may write put options provided that, so long as the
Portfolio is obligated as the writer of the option, the Portfolio owns an option
to sell the underlying securities subject to the option having an exercise price
equal to or greater than the exercise price of the option, or it deposits and
maintains with the custodian in a segregated account eligible securities having
a value equal to or greater than the exercise price of the option. The premium
received for writing an option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to such market price, the price volatility of the underlying security, the
option period, supply and demand and interest rates. The Portfolio may write or
purchase spread options, which are options for which the exercise price may be a
fixed dollar spread or yield spread between the security underlying the option
and another security that is used as a benchmark. The exercise price of an
option may be below, equal to or above the current market value of the
underlying security at the time the option is written. The Portfolio may write
(sell) call and put options on up to 25% of net assets and may purchase put and
call options provided that no more than 5% of its net assets may be invested in
premiums on such options.
If a secured put option expires unexercised, the writer realizes a gain
from the amount of the premium, plus the interest income on the securities in
the segregated account. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received and
any interest income earned on the securities in the segregated account.
For an additional discussion of investing in options and the risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Over-the-Counter Options. The Portfolio may deal in
over-the-counter traded options ("OTC options"). Unlike exchange-traded options,
OTC options are transacted directly with dealers and not with a clearing
corporation. Since there is no exchange, pricing is normally done by reference
to information from market makers, which information is carefully monitored by
the Sub-advisor and verified in appropriate cases. In writing OTC options, the
Portfolio receives the premium in advance from the dealer. OTC options are
available for a greater variety of securities or other assets, and for a wider
range of expiration dates and exercise prices, than exchange traded options.
The staff of the Securities and Exchange Commission ("SEC") takes the
position that purchased OTC options and the assets used as "cover" for written
OTC options are illiquid securities. Accordingly, the Portfolio will only engage
in OTC options transactions with dealers that have been specifically approved by
the Sub-advisor. The Sub-advisor believes that the approved dealers should be
able to enter into closing transactions if necessary and, therefore, present
minimal credit risks to the Portfolio. The Sub-advisor will monitor the
creditworthiness of the approved dealers on an on-going basis. The Portfolio
currently will not engage in OTC options transactions if the amount invested by
the Portfolio in OTC options, plus a "liquidity charge" related to OTC options
written by the Portfolio, plus the amount invested by the Portfolio in other
illiquid securities, would exceed 15% of the Portfolio's net assets. The
"liquidity charge" referred to above is computed as described below.
The Portfolio anticipates entering into agreements with dealers to
which the Portfolio sells OTC options. Under these agreements the Portfolio
would have the absolute right to repurchase the OTC options from the dealer at
any time at a price no greater than a price established under the agreements
(the "Repurchase Price"). The "liquidity charge" referred to above for a
specific OTC option transaction will be the Repurchase Price related to the OTC
option less the intrinsic value of the OTC option. The intrinsic value of an OTC
call option for such purposes will be the amount by which the current market
value of the underlying security exceeds the exercise price. In the case of an
OTC put option, intrinsic value will be the amount by which the exercise price
exceeds the current market value of the underlying security. If there is no such
agreement requiring a dealer to allow the Portfolio to repurchase a specific OTC
option written by the Portfolio, the "liquidity charge" will be the current
market value of the assets serving as "cover" for such OTC option.
Options on Securities Indices. The Portfolio, as part of its
options transactions, may also use options on securities indices in an attempt
to hedge against market conditions affecting the value of securities that the
Portfolio owns or intends to purchase, and not for speculation. When the
Portfolio writes an option on a securities index, it will be required to deposit
with its custodian and mark-to-market eligible securities to the extent required
by applicable regulation. In addition, where the Portfolio writes a call option
on a securities index at a time when the contract value exceeds the exercise
price, the Portfolio will segregate and mark-to-market, until the option expires
or is closed out, cash or cash equivalents equal in value to such excess. The
Portfolio may also purchase and sell options on indices other than securities
indices, as available, such as foreign currency indices. Because index options
are settled in cash, a call writer cannot determine the amount of its settlement
obligations in advance and, unlike call writing on specific securities, cannot
cover its potential settlement obligations by acquiring and holding the
underlying securities. Index options involve risks similar to those risks
relating to transactions in financial futures contracts described below.
For an additional discussion of investing in OTC options and options on
securities indices, and the risks involved therein, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Financial Futures Contracts and Related Options. The Portfolio may
enter into financial futures contracts. This investment technique is designed
primarily to hedge (i.e. protect) against anticipated future changes in market
conditions or foreign exchange rates which otherwise might affect adversely the
value of securities or other assets which the Portfolio holds or intends to
purchase. For example, when the near-term market view is bearish but the
portfolio composition is judged satisfactory for the longer term, exposure to
temporary declines in the market may be reduced by entering into futures
contracts to sell securities or the cash value of an index. Conversely, where
the near-term view is bullish, but the Portfolio is believed to be well
positioned for the longer term with a high cash position, the Portfolio can
hedge against market increases by entering into futures contracts to buy
securities or the cash value of an index. In either case, the use of futures
contracts would tend to minimize portfolio turnover and facilitate the
Portfolio's pursuit of its investment objective. Also, if the Portfolio owned
long-term bonds and interest rates were expected to rise, it could sell
financial futures contracts. If interest rates did increase, the value of the
bonds held by the Portfolio would decline, but this decline would be offset in
whole or in part by an increase in the value of the Portfolio's futures
contracts. If, on the other hand, long-term interest rates were expected to
decline, the Portfolio could hold short-term debt securities and benefit from
the income earned by holding such securities, while at the same time the
Portfolio could purchase futures contracts on long-term bonds or the cash value
of a securities index. Thus, the Portfolio could take advantage of the
anticipated rise in the value of long-term bonds without actually buying them.
The futures contracts and short-term debt securities could then be liquidated
and the cash proceeds used to buy long-term bonds. At the time of delivery, in
the case of fixed income securities pursuant to the contract, adjustments are
made to recognize differences in value arising from the delivery of securities
with a different interest rate than that specified in the contract. In some
cases, securities to be delivered under a futures contract may not have been
issued at the time the contract was written.
The market prices of futures contracts may be affected by certain
factors. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin requirements,
distortions in the normal relationship between the assets and futures market
could result. Price distortions also could result if investors in futures
contracts decide to make or take delivery of underlying securities or other
assets rather than engage in closing transactions because of the resultant
reduction in the liquidity of the futures market. In addition, because margin
requirements in the futures market are less onerous than margin requirements in
the cash market, increased participation by speculators in the futures market
could cause temporary price distortions. Due to the possibility of these price
distortions and because of the imperfect correlation between movements in the
prices of securities or other assets and movements in the prices of futures
contracts, a correct forecast of market trends by the Sub-advisor still may not
result in a successful hedging transaction.
The Portfolio may purchase and write call and put options on financial
futures contracts. Options on futures contracts involve risks similar to those
risks relating to transactions in financial futures contracts. The Portfolio
will not enter into any futures contracts or options on futures contracts if the
aggregate of the contract value of the outstanding futures contracts of the
Portfolio and futures contracts subject to outstanding options written by the
Portfolio would exceed 50% of the total assets of the Portfolio. For an
additional discussion of investing in financial futures contracts and options on
financial futures contracts and the risks involved therein, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Section 4(2) Paper. The Portfolio may invest in commercial paper issued
by major corporations under the Securities Act of 1933 in reliance on the
exemption from registration afforded by Section 3(a)(3) thereof. Such commercial
paper may be issued only to finance current transactions and must mature in nine
months or less. Such commercial paper is traded primarily by institutional
investors through investment dealers, and individual investor participation in
the commercial paper market is very limited. The Portfolio also may invest in
commercial paper issued in reliance on the so-called "private placement"
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 ("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition
under the federal securities laws, and generally is sold to institutional
investors, such as the Portfolio, who agree that they are purchasing the paper
for investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. Section 4(2) paper will be considered illiquid, and subject
to the Portfolio's limitation on investing in illiquid securities, unless the
Sub-advisor determines such Section 4(2) paper to be liquid under guidelines
established by the Board of Trustees of the Trust.
Collateralized Obligations. The Portfolio may invest in asset-backed
and mortgage-backed securities, including interest only ("IO") and principal
only ("PO") securities (collectively, "collateralized obligations"). A
collateralized obligation is a debt security issued by a corporation, trust or
custodian, or by a U.S. Government agency or instrumentality, that is
collateralized by a portfolio or pool of mortgages, mortgage pass-through
securities, U.S. Government securities or other assets. Collateralized
obligations, depending on their structure and the rate of prepayments, can be
volatile.
The Portfolio will currently invest in only those
collateralized obligations that are fully collateralized and that meet the
quality standards otherwise applicable to the Portfolio's investments. Fully
collateralized means that the collateral will generate cash flows sufficient to
meet obligations to holders of the collateralized obligations under even the
most conservative prepayment and interest rate projections. Thus, the
collateralized obligations are structured to anticipate a worst case prepayment
condition and to minimize the reinvestment rate risk for cash flows between
coupon dates for the collateralized obligations. A worst case prepayment
condition generally assumes immediate prepayment of all securities purchased at
a premium and zero prepayment of all securities purchased at a discount.
Reinvestment rate risk may be minimized by assuming very conservative
reinvestment rates and by other means such as by maintaining the flexibility to
increase principal distributions in a low interest rate environment. The
effective credit quality of the collateralized obligations in such instances is
the credit quality of the issuer of the collateral. The requirements as to
collateralization are determined by the issuer or sponsor of the collateralized
obligation in order to satisfy rating agencies, if rated. The Portfolio does not
currently intend to invest more than 5% of its total assets in collateralized
obligations.
Because some collateralized obligations are issued in classes with
varying maturities and interest rates, the investor may obtain greater
predictability of maturity through these collateralized obligations than through
direct investments in mortgage pass-through securities. Classes with shorter
maturities may have lower volatility and lower yield while those with longer
maturities may have higher volatility and higher yield. Payments of principal
and interest on the underlying collateral securities are not passed through
directly to the holders of these collateralized obligations. Rather, the
payments on the underlying portfolio or pool of obligations are used to pay
interest on each class and to retire successive maturities in sequence. These
relationships may in effect "strip" the interest payments from principal
payments of the underlying obligations and allow for the separate purchase of
either the interest or the principal payments, sometimes called interest only
("IO") and principal only ("PO") securities. By investing in IOs and POs, an
investor has the option to select from a pool of underlying collateral the
portion of the cash flows that most closely corresponds to the investor's
forecast of interest rate movements.
Collateralized obligations are designed to be retired as the underlying
obligations are repaid. In the event of prepayment on or call of such
securities, the class of collateralized obligation first to mature generally
will be paid down first. Although in most cases the issuer of collateralized
obligations will not supply additional collateral in the event of such
prepayment, there generally will be sufficient collateral to secure
collateralized obligations that remain outstanding. Governmentally-issued and
privately-issued IO's and PO's will be considered illiquid for purposes of the
Portfolio's limitation on illiquid securities unless they are determined to be
liquid under guidelines established by the Board of Trustees.
In reliance on an interpretation by the SEC, the Portfolio's
investments in certain qualifying collateralized obligations are not subject to
the limitations in the 1940 Act regarding investments by a registered investment
company, such as the Portfolio, in another investment company.
The Portfolio may also invest in "inverse floaters." These inverse
floaters are more volatile than conventional fixed or floating rate
collateralized obligations, and their yield and value will fluctuate in inverse
proportion to changes in the index upon which rate adjustments are based. As a
result, the yield on an inverse floater will generally increase when market
yields (as reflected by the index) decrease and decrease when market yields
increase. The extent of the volatility of inverse floaters depends on the extent
of anticipated changes in market rates of interest. Generally, inverse floaters
provide for interest rate adjustments based upon a multiple of the specified
interest index, which further increases their volatility. The degree of
additional volatility will be directly proportional to the size of the multiple
used in determining interest rate adjustments. Currently, the Portfolio does not
intend to invest more than 5% of its net assets in inverse floaters.
For an additional discussion of investing in collateralized obligations
and the risks involved therein, see this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval. The
following limitations are applicable to the AST Kemper Small-Cap Growth
Portfolio. These limitations are not "fundamental" restrictions and may be
changed without shareholder approval.
The Portfolio will not:
1. Invest for the purpose of exercising control or management of another
issuer.
2. Purchase securities of other investment companies, except in compliance
with the 1940 Act.
3. Invest more than 15% of its net assets in illiquid securities.
AST Lord Abbett Small Cap Value Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
long-term capital appreciation. This is a fundamental objective of the
Portfolio.
Investment Policies:
Repurchase Agreements. If the Portfolio enters into repurchase
agreements, it will do so only with those primary reporting dealers that report
to the Federal Reserve Bank of New York and with the 100 largest U.S. commercial
banks and the underlying securities purchased under the agreements will consist
only of those securities in which the Portfolio otherwise may invest.
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Foreign Currency Hedging Techniques. The Portfolio expects to enter
into forward foreign currency contracts in primarily 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 management believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar, the
Portfolio may enter into a forward contract to sell the amount of foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency or, in the alternative, the Portfolio may
use a cross-hedging technique whereby it sells another currency which the
Portfolio expects to decline in a similar way but which has a lower transaction
cost. The Portfolio does not intend to enter into forward contracts under this
second circumstance on a continuous basis. For an additional discussion of
forward foreign currency contracts and certain risks involved therein, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
The Portfolio also may purchase foreign currency put options and write
foreign currency call options on U.S. exchanges or U.S. over-the-counter
markets. Exchange-listed options markets in the United States include several
major currencies, and trading may be thin and illiquid. A number of major
investment firms trade unlisted options which are more flexible than
exchange-listed options with respect to strike price and maturity date. Unlisted
options generally are available in a wider range of currencies. Unlisted foreign
currency options are generally less liquid than listed options and involve the
credit risk associated with the individual issuer. Unlisted options, together
with other illiquid securities, are subject to a limit of 15% of the Portfolio's
net assets. The premiums paid for foreign currency put options will not exceed
5% of the net assets of the Portfolio.
The Portfolio may write a call option on a foreign currency only in
conjunction with a purchase of a put option on that currency. Such a strategy is
designed to reduce the cost of downside currency protection by limiting currency
appreciation potential. The face value of such call writing may not exceed 90%
of the value of the securities denominated in such currency invested in by the
Portfolio or in such cross currency (referred to above) to cover such call
writing. For an additional discussion of foreign currency options and certain
risks involved therein, see this Statement under "Certain Risk Factors and
Investment Methods."
Call Options on Stock. The Portfolio may, from time to time, write call
options on its portfolio securities. The Portfolio may write only call options
which are "covered," meaning that the Portfolio either owns the underlying
security or has an absolute and immediate right to acquire that security,
without additional cash consideration, upon conversion or exchange of other
securities currently held in its portfolio. In addition, the Portfolio will not
permit the call to become uncovered prior to the expiration of the option or
termination through a closing purchase transaction.
The Portfolio would not be able to effect a closing purchase
transaction after it had received notice of exercise. In order to write a call
option, the Portfolio is required to comply with the rules of The Options
Clearing Corporation and the various exchanges with respect to collateral
requirements. The Portfolio may not purchase call options except in connection
with a closing purchase transaction. It is possible that the cost of effecting a
closing purchase transaction may be greater than the premium received by the
Portfolio for writing the option.
Generally, the Portfolio intends to write listed covered call options
during periods when it anticipates declines in the market values of portfolio
securities because the premiums received may offset to some extent the decline
in the Portfolio's net asset value occasioned by such declines in market value.
Except as part of the "sell discipline" described below, the Portfolio will
generally not write listed covered call options when it anticipates that the
market values of its portfolio securities will increase.
One reason for the Portfolio to write call options is as part of a
"sell discipline." If the Portfolio decides that a portfolio security would be
overvalued and should be sold at a certain price higher than the current price,
it could write an option on the stock at the higher price. Should the stock
subsequently reach that price and the option be exercised, the Portfolio would,
in effect, have increased the selling price of that stock, which it would have
sold at that price in any event, by the amount of the premium. In the event the
market price of the stock declined and the option were not exercised, the
premium would offset all or some portion of the decline. It is possible that the
price of the stock could increase beyond the exercise price; in that event, the
Portfolio would forego the opportunity to sell the stock at that higher price.
In addition, call options may be used as part of a different strategy
in connection with sales of portfolio securities. If, in the judgment of the
Sub-advisor, the market price of a stock is overvalued and it should be sold,
the Portfolio may elect to write a call option with an exercise price below the
current market price. As long as the value of the underlying security remains
above the exercise price during the term of the option, the option will, in all
probability, be exercised, in which case the Portfolio will be required to sell
the stock at the exercise price. If the sum of the premium and the exercise
price exceeds the market price of the stock at the time the call option is
written, the Portfolio would, in effect, have increased the selling price of the
stock. The Portfolio would not write a call option in these circumstances if the
sum of the premium and the exercise price were less than the current market
price of the stock. For an additional discussion of call options and certain
risks involved therein, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Put Options on Stock. The Portfolio may also write listed put options.
Writing listed put options is a useful portfolio investment strategy when the
Portfolio has cash or other reserves available for investment as a result of
sales of Portfolio shares or, more importantly, because the Sub-advisor believes
a more defensive and less fully invested position is desirable in light of
market conditions. If the Sub-advisor wishes to invest its cash or reserves in a
particular security at a price lower than current market value, it may write a
put option on that security at an exercise price which reflects the lower price
it is willing to pay. The buyer of the put option generally will not exercise
the option unless the market price of the underlying security declines to a
price near or below the exercise price. If the Portfolio writes a listed put,
the price of the underlying stock declines and the option is exercised, the
premium, net of transaction charges, will reduce the purchase price paid by the
Portfolio for the stock. The price of the stock may decline by an amount in
excess of the premium, in which event the Portfolio would have foregone an
opportunity to purchase the stock at a lower price.
If, prior to the exercise of a put option, the Portfolio determines
that it no longer wishes to invest in the stock on which the put option had been
written, the Portfolio may be able to effect a closing purchase transaction on
an exchange by purchasing a put option of the same series as the one which it
has previously written. The cost of effecting a closing purchase transaction may
be greater than the premium received on writing the put option and there is no
guarantee that a closing purchase transaction can be effected. For an additional
discussion of put options and certain risks involved therein, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Stock Index Options. Except as describe below, the Portfolio will write
call options on indices only if on such date it holds a portfolio of stocks at
least equal to the value of the index times the multiplier times the number of
contracts. When the Portfolio writes a call option on a broadly-based stock
market index, the Portfolio will segregate or put into escrow with its
custodian, or pledge to a broker as collateral for the option, one or more
"qualified securities" with a market value at the time the option is written of
not less than 100% of the current index value times the multiplier times the
number of contracts.
Trading in index options commenced in April 1983 with the S&P 100
option (formerly called the CBOE 100). Since that time a number of additional
index option contracts have been introduced including options on industry
indices. Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively illiquid. The
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid secondary market. It is not certain
that this market will develop in all index option contracts. The Portfolio will
not purchase or sell any index option contract unless and until, in the
Sub-advisor's opinion, the market for such options has developed sufficiently
that such risk in connection with such transactions in no greater than such risk
in connection with options on stocks. For an additional discussion of stock
index options and certain risks involved therein, see this Statement under
"Certain Risk Factors and Investment Methods."
Segregated Accounts. If the Portfolio has written an option on an
industry or market segment index, it will segregate or put into escrow with its
custodian, or pledge to a broker as collateral for the option, at least ten
different "qualified securities," which are securities of an issuer in such
industry or market segment, with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a national securities exchange or listed on the National
Association of Securities Dealers Automated Quotation System against which the
Portfolio has not written a stock call option and which has not been hedged by
the Portfolio by the sale of stock index futures. Such securities will include
stocks which represent at least 50% of the weighting of the industry or market
segment index and will represent at least 50% of the Portfolio's holdings in
that industry or market segment. No individual security will represent more than
25% of the amount so segregated, pledged or escrowed. If at the close of
business on any day the market value of such qualified securities so segregated,
escrowed or pledged falls below 100% of the current index value times the
multiplier times the number of contracts, the Portfolio will so segregate,
escrow or pledge an amount in cash or other liquid assets equal in value to the
difference. In addition, when the Portfolio writes a call on an index which is
in-the-money at the time the call is written, the Portfolio will segregate with
its custodian or pledge to the broker as collateral cash or other liquid assets
equal in value to the amount by which the call is in-the-money times the
multiplier times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to the Portfolio's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. However, if the Portfolio holds a call on the
same index as the call written where the exercise price of the 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 or other liquid assets in a segregated account with its
custodian, it will not be subject to the requirements describe in this
paragraph. In instances involving the purchase of stock index futures contracts
by the Portfolio, an amount of cash or permitted securities equal to the market
value of the futures contracts will be deposited in a segregated account with
the its custodian and/or in a margin account with a broker to collateralize the
position and thereby insure that the use of such futures are unleveraged.
Stock Index Futures. The Portfolio will engage in transactions in stock
index futures contracts as a hedge against changes resulting from market
conditions in the values of securities which are held in the Portfolio's
portfolio or which it intends to purchase. The Portfolio will engage in such
transactions when they are economically appropriate for the reduction of risks
inherent in the ongoing management of the Portfolio. The Portfolio may not
purchase or sell stock index futures if, immediately thereafter, more than
one-third of its net assets would be hedged and, in addition, except as
described above in the case of a call written and held on the same index, will
write call options on indices or sell stock index futures only if the amount
resulting from the multiplication of the then current level of the index (or
indices) upon which the option or future contract(s) is based, the applicable
multiplier(s), and the number of futures or options contracts which would be
outstanding, would not exceed one-third of the value of the Portfolio's net
assets.
Limitations on Stock Options, Options on Stock Indices and Stock Index
Futures Transactions. The Portfolio may write put and call options on stocks
only if they are covered, and such options must remain covered so long as the
Portfolio is obligated as a writer. The Portfolio does not currently intend to
write covered call options with respect to securities with an aggregate market
value of more than 5% of its gross assets at the time an option is written. The
Portfolio will not (a) write puts having an aggregate exercise price greater
than 25% of the Portfolio's net assets; or (b) purchase (i) put options on
stocks not held in the Portfolio's portfolio, (ii) put options on stock indices,
or (iii) call options on stocks or stock indices if, after any such purchase,
the aggregate premiums paid for such options would exceed 20% of the Portfolio's
net assets.
Special Risks of Writing Calls on Indices. Because exercises of index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific stocks,
cannot provide in advance for, or cover, its potential settlement obligations by
acquiring and holding the underlying securities. However, the Portfolio will
write call options on indices only under the circumstances described above under
"Limitations on Stock Options, Options on Stock Indices and Stock Index Futures
Transactions."
Unless the Portfolio has other liquid assets that are sufficient to
satisfy the exercise of a call, the Portfolio would be required to liquidate
portfolio securities in order to satisfy the exercise. Because an exercise must
be settled within hours after receiving the notice of exercise, if the Portfolio
fails to anticipate an exercise, it may have to borrow (in amounts not exceeding
20% of the Portfolio's total assets) pending settlement of the sale of
securities in its portfolio and would incur interest charges thereon.
When the Portfolio has written a call, there is also a risk that the
market may decline between the time the call is written and the time the
Portfolio is able to sell stocks in its portfolio. As with stock options, the
Portfolio will not learn that an index option has been exercised until the day
following the exercise date but, unlike a call on stock where the Portfolio
would be able to deliver the underlying securities in settlement, the Series may
have to sell part of its stock portfolio in order to make settlement in cash,
and the price of such stocks might decline before they can be sold. This timing
risk makes certain strategies involving more than one option substantially more
risky with index options than with stock options. For example, even if an index
call which the Portfolio has written is "covered" by an index call held by the
Portfolio with the same strike price, the Portfolio will bear the risk that the
level of the index may decline between the close of trading on the date the
exercise notice is filed with the clearing corporation and the close of trading
on the date the Portfolio exercises the call it holds or the time the Portfolio
sells the call which in either case would occur no earlier than the day
following the day the exercise notice was filed.
Short Sales. The Portfolio may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Portfolio owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further consideration,
for an equal amount of the securities of the same issuer as the securities sold
short (a "short sale against-the-box"), and that not more than 25% of the
Portfolio's net assets (determined at the time of the short sale) may be subject
to such sales. Notwithstanding this 25% limitation, the Portfolio does not
currently intend to have more than 5% of its net assets (determined at the time
of the short sale) subject to short sales against-the-box.
Debt Securities. The Portfolio may invest in straight bonds or other
debt securities, including lower rated, high-yield bonds. Neither an issuer's
ceasing to be rated investment grade nor a rating reduction below that grade
will require elimination of a bond from the Portfolio's portfolio. The Portfolio
has no present intention to commit more than 5% of gross assets to investing in
debt securities. For a discussion of debt securities, including lower rated,
high-yield bonds, see this Statement under "Certain Risk Factors and Investment
Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Lord Abbett Small Cap Value
Portfolio. The limitations are not "fundamental" restrictions and may be changed
by the Trustees without shareholder approval. The Portfolio will not:
1. Pledge its assets (other than to secure borrowings or to the extent
permitted by the Portfolio's investment policies as permitted by applicable
law);
2. Make short sales of securities or maintain a short position except to
the extent permitted by applicable law;
3. Invest knowingly more than 15% of its net assets (at the time of
investment) in illiquid securities, except for securities qualifying for resale
under Rule 144A of the Securities Act of 1933, deemed to be liquid by the Board
of Trustees;
4. Invest in the securities of other investment companies except as
permitted by applicable law;
5. Invest in real estate limited partnership interests or interests in oil,
gas or other mineral leases, or exploration or other development programs,
except that the Portfolio may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or other development activities;
or
6. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except to the extent permitted in this Statement and the Trust's
Prospectus, as they may be amended from time to time.
AST T. Rowe Price Small Company Value Portfolio:
Investment Objective: The investment objective of the Portfolio is to
provide long-term capital appreciation by investing primarily in
small-capitalization stocks that appear to be undervalued. This is a fundamental
objective of the Portfolio.
Investment Policies:
Although primarily all of the Portfolio's assets are invested in common
stocks, the Portfolio may invest in convertible securities, corporate debt
securities and preferred stocks. The fixed-income securities in which the
Portfolio may invest include, but are not limited to, those described below. See
this Statement under "Certain Risk Factors and Investment Methods," for an
additional discussion of debt obligations.
U.S. Government Obligations. Bills, notes, bonds and other debt securities
issued by the U.S. Treasury. These are direct obligations of the U.S. Government
and differ mainly in the length of their maturities.
U.S. Government Agency Securities. Issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These include securities
issued by the Federal National Mortgage Association, Government National
Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business Association, and
the Tennessee Valley Authority. Some of these securities are supported by the
full faith and credit of the U.S. Treasury; and the remainder are supported only
by the credit of the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
Bank Obligations. Certificates of deposit, bankers' acceptances, and other
short-term debt obligations. Certificates of deposit are short-term obligations
of commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with international commercial
transactions. Certificates of deposit may have fixed or variable rates. The
Portfolio may invest in U.S. banks, foreign branches of U.S. banks, U.S.
branches of foreign banks, and foreign branches of foreign banks.
Short-Term Corporate Debt Securities. Outstanding nonconvertible
corporate debt securities (e.g., bonds and debentures) which have one year or
less remaining to maturity. Corporate notes may have fixed, variable, or
floating rates.
Commercial Paper. Short-term promissory notes issued by corporations
primarily to finance short-term credit needs. Certain notes may have floating or
variable rates.
Foreign Government Securities. Issued or guaranteed by a foreign
government, province, instrumentality, political subdivision or similar unit
thereof.
Savings and Loan Obligations. Negotiable certificates of deposit and other
short-term debt obligations of savings and loan associations.
Supranational Entities. The Portfolio may also invest in the securities of
certain supranational entities, such as the International Development Bank.
Lower-Rated Debt Securities. The Portfolio's investment program permits
it to purchase below investment grade securities, commonly referred to as "junk
bonds." The Portfolio will not purchase a junk bond if immediately after such
purchase the Portfolio would have more than 5% of its total assets invested in
such securities. Since investors generally perceive that there are greater risks
associated with investment in lower quality securities, the yields from such
securities normally exceed those obtainable from higher quality securities.
However, the principal value of lower-rated securities generally will fluctuate
more widely than higher quality securities. Lower quality investments entail a
higher risk of default -- that is, the nonpayment of interest and principal by
the issuer than higher quality investments. Such securities are also subject to
special risks, discussed below. Although the Portfolio seeks to reduce risk by
portfolio diversification, credit analysis, and attention to trends in the
economy, industries and financial markets, such efforts will not eliminate all
risk. There can, of course, be no assurance that the Portfolio will achieve its
investment objective.
After purchase by the Portfolio, a debt security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event will require a sale of such security by the Portfolio.
However, the Sub-advisor will consider such event in its determination of
whether the Portfolio should continue to hold the security. To the extent that
the ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, the Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the Trust's Prospectus.
Junk bonds are regarded as predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments. Because
investment in low and lower-medium quality bonds involves greater investment
risk, to the extent the Portfolio invests in such bonds, achievement of its
investment objective will be more dependent on the Sub-advisor's credit analysis
than would be the case if the Portfolio was investing in higher quality bonds.
For a discussion of the special risks involved in low-rated bonds, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Mortgage-Backed Securities. Mortgage-backed securities are securities
representing interests in a pool of mortgages. After purchase by the Portfolio,
a security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event will require a sale of
such security by the Portfolio. However, the Sub-advisor will consider such
event in its determination of whether the Portfolio should continue to hold the
security. To the extent that the ratings given by Moody's or S&P may change as a
result of changes in such organizations or their rating systems, the Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in the Trust's Prospectus. For
a discussion of mortgage-backed securities and certain risks involved therein,
see this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
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
the Portfolio invests, the investment may be subject to a greater or lesser risk
of prepayment than other types of mortgage-related securities. For an additional
discussion of CMOs and certain risks involved therein, see the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Stripped Agency Mortgage-Backed Securities. Stripped Agency
Mortgage-Backed securities represent interests in a pool of mortgages, the cash
flow of which has been separated into its interest and principal components.
"IOs" (interest only securities) receive the interest portion of the cash flow
while "POs" (principal only securities) receive the principal portion. Stripped
Agency Mortgage-Backed Securities may be issued by U.S. Government Agencies or
by private issuers similar to those described above with respect to CMOs and
privately-issued mortgage-backed certificates. As interest rates rise and fall,
the value of IOs tends to move in the same direction as interest rates. The
value of the other mortgage-backed securities described herein, like other debt
instruments, will tend to move in the opposite direction compared to interest
rates. Under the Internal Revenue Code of 1986, as amended, POs may generate
taxable income from the current accrual of original issue discount, without a
corresponding distribution of cash to the Portfolio.
The cash flows and yields on IO and PO classes are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying mortgage assets. For example, a rapid or slow rate of principal
payments may have a material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, an investor may fail to recoup fully its
initial investment in an IO class of a stripped mortgage-backed security, even
if the IO class is rated AAA or Aaa or is derived from a full faith and credit
obligation. Conversely, if the underlying mortgage assets experience slower than
anticipated prepayments of principal, the price on a PO class will be affected
more severely than would be the case with a traditional mortgage-backed
security.
The Portfolio will treat IOs and POs, other than government-issued IOs
or POs backed by fixed rate mortgages, as illiquid securities and, accordingly,
limit its investments in such securities, together with all other illiquid
securities, to 15% of the Portfolio's net assets. The Sub-advisor will determine
the liquidity of these investments based on the following guidelines: the type
of issuer; type of collateral, including age and prepayment characteristics;
rate of interest on coupon relative to current market rates and the effect of
the rate on the potential for prepayments; complexity of the issue's structure,
including the number of tranches; size of the issue; and the number of dealers
who make a market in the IO or PO. The Portfolio will treat
non-government-issued IOs and POs not backed by fixed or adjustable rate
mortgages as illiquid unless and until the Securities and Exchange Commission
modifies its position.
Asset-Backed Securities. The Portfolio may invest a portion of its
assets in debt obligations known as asset-backed securities. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets
which in turn may be affected by a variety of economic and other factors. As a
result, the yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than the anticipated
yield to maturity.
Automobile Receivable Securities. The Portfolio may invest in
asset-backed securities which are backed by receivables from motor vehicle
installment sales contracts or installment loans secured by motor vehicles
("Automobile Receivable Securities").
Credit Card Receivable Securities. The Portfolio may invest in
asset-backed securities backed by receivables from revolving credit card
agreements ("Credit Card Receivable Securities").
Other Assets. The Sub-advisor anticipates that asset-backed
securities backed by assets other than those described above will be issued in
the future. The Portfolio may invest in such securities in the future if such
investment is otherwise consistent with its investment objective and policies.
For a discussion of these securities, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Writing Covered Call Options. The Portfolio may write (sell) American
or European style "covered" call options and purchase options to close out
options previously written by a Portfolio. In writing covered call options, the
Portfolio expects to generate additional premium income which should serve to
enhance the Portfolio's total return and reduce the effect of any price decline
of the security or currency involved in the option. Covered call options will
generally be written on securities or currencies which, in the Sub-advisor's
opinion, are not expected to have any major price increases or moves in the near
future but which, over the long term, are deemed to be attractive investments
for the Portfolio.
The Portfolio will write only covered call options. This means that the
Portfolio will own the security or currency subject to the option or an option
to purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash or other liquid assets having a value equal to the
fluctuating market value of the optioned securities or currencies.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objective. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, the Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency. The Portfolio does not consider a security or
currency covered by a call to be "pledged" as that term is used in the
Portfolio's policy which limits the pledging or mortgaging of its assets.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, the Sub-advisor,
in determining whether a particular call option should be written on a
particular security or currency, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options. The premium received by the Portfolio for writing covered
call options will be recorded as a liability of the Portfolio. This liability
will be adjusted daily to the option's current market value, which will be the
latest sale price at the time at which the net asset value per share of the
Portfolio is computed (close of the New York Stock Exchange), or, in the absence
of such sale, the latest asked price. The option will be terminated upon
expiration of the option, the purchase of an identical option in a closing
transaction, or delivery of the underlying security or currency upon the
exercise of the option.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
The Portfolio will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities or currencies covering call
or put options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written calls and puts, the value of purchased calls and puts on
identical securities or currencies with identical maturity dates.
Writing Covered Put Options. The Portfolio may write American or
European style covered put options and purchase options to close out options
previously written by the Portfolio.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" option at all times
while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where the Sub-advisor wishes to purchase the underlying security
or currency for the Portfolio at a price lower than the current market price of
the security or currency. In such event the Portfolio would write a put option
at an exercise price which, reduced by the premium received on the option,
reflects the lower price it is willing to pay. Since the Portfolio would also
receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Portfolio. In
addition, the Portfolio, because it does not own the specific securities or
currencies which it may be required to purchase in exercise of the put, cannot
benefit from appreciation, if any, with respect to such specific securities or
currencies.
The Portfolio will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies covering put or
call options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates.
Purchasing Put Options. The Portfolio may purchase American or European
style put options. As the holder of a put option, the Portfolio has the right to
sell the underlying security or currency at the exercise price at any time
during the option period (American style) or at the expiration of the option
(European style). The Portfolio may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. The Portfolio
may purchase put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies. An example of
such use of put options is provided in this Statement under "Certain Risk
Factors and Investment Methods."
The premium paid by the Portfolio when purchasing a put option will be
recorded as an asset of the Portfolio. This asset will be adjusted daily to the
option's current market value, which will be the latest sale price at the time
at which the net asset value per share of the Portfolio is computed (close of
New York Stock Exchange), or, in the absence of such sale, the latest bid price.
This asset will be terminated upon expiration of the option, the selling
(writing) of an identical option in a closing transaction, or the delivery of
the underlying security or currency upon the exercise of the option.
Purchasing Call Options. The Portfolio may purchase American or
European style call options. As the holder of a call option, the Portfolio has
the right to purchase the underlying security or currency at the exercise price
at any time during the option period (American style) or at the expiration of
the option (European style). The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could reduce its current
return. The Portfolio may also purchase call options in order to acquire the
underlying securities or currencies. Examples of such uses of call options are
provided in this Statement under "Certain Risk Factors and Investment Methods."
The Portfolio may also purchase call options on underlying securities
or currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses.
Dealer (Over-the-Counter) Options. The Portfolio may engage in
transactions involving dealer options. Certain risks are specific to dealer
options. While the Portfolio would look to a clearing corporation to exercise
exchange-traded options, if the Portfolio were to purchase a dealer option, it
would rely on the dealer from whom it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as loss of the expected benefit of
the transaction. For a discussion of dealer options, see this Statement under
"Certain Risk Factors and Investment Methods."
Futures Contracts.
Transactions in Futures. The Portfolio may enter into futures
contracts, including stock index, interest rate and currency futures ("futures"
or "futures contracts"). The Portfolio may also enter into futures on
commodities related to the types of companies in which it invests, such as oil
and gold futures. Otherwise the nature of such futures and the regulatory
limitations and risks to which they are subject are the same as those described
below.
Stock index futures contracts may be used to attempt to hedge a portion
of the Portfolio, as a cash management tool, or as an efficient way for the
Sub-advisor to implement either an increase or decrease in portfolio market
exposure in response to changing market conditions. The Portfolio may purchase
or sell futures contracts with respect to any stock index. Nevertheless, to
hedge the Portfolio successfully, the Portfolio must sell futures contacts with
respect to indices or subindices whose movements will have a significant
correlation with movements in the prices of the Portfolio's securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges, and are standardized as to maturity date
and underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the CFTC. Although
techniques other than the sale and purchase of futures contracts could be used
for the above-referenced purposes, futures contracts offer an effective and
relatively low cost means of implementing the Portfolio's objectives in these
areas.
Regulatory Limitations. The Portfolio will engage in futures
contracts and options thereon only for bona fide hedging, yield enhancement, and
risk management purposes, in each case in accordance with rules and regulations
of the CFTC.
The Portfolio may not purchase or sell futures contracts or related
options if, with respect to positions which do not qualify as bona fide hedging
under applicable CFTC rules, the sum of the amounts of initial margin deposits
and premiums paid on those positions would exceed 5% of the net asset value of
the Portfolio after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into; provided, however, that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in calculating the 5% limitation. For purposes of this
policy options on futures contracts and foreign currency options traded on a
commodities exchange will be considered "related options." This policy may be
modified by the Board of Trustees of the Trust without a shareholder vote and
does not limit the percentage of the Portfolio's assets at risk to 5%.
In instances involving the purchase of futures contracts or the writing
of call or put options thereon by the Portfolio, an amount of cash or other
liquid assets equal to the market value of the futures contracts and options
thereon (less any related margin deposits), will be identified by the Portfolio
to cover the position, or alternative cover (such as owning an offsetting
position) will be employed. Assets used as cover or held in an identified
account cannot be sold while the position in the corresponding option or future
is open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of the Portfolio's assets to cover or identified
accounts could impede portfolio management or the Portfolio's ability to meet
redemption requests or other current obligations.
Options on Futures Contracts. The Portfolio may purchase and sell
options on the same types of futures in which it may invest. As an alternative
to writing or purchasing call and put options on stock index futures, the
Portfolio may write or purchase call and put options on financial indices. Such
options would be used in a manner similar to the use of options on futures
contracts. From time to time, a single order to purchase or sell futures
contracts (or options thereon) may be made on behalf of the Portfolio and other
mutual funds or portfolios of mutual funds managed by the Sub-advisor or Rowe
Price-Fleming International, Inc. Such aggregated orders would be allocated
among the Portfolio and such other portfolios in a fair and non-discriminatory
manner. See this Statement and Trust's Prospectus under "Certain Risk Factors
and Investment Methods" for a description of certain risks in options and future
contracts.
Additional Futures and Options Contracts. Although the Portfolio has no
current intention of engaging in futures or options transactions other than
those described above, it reserves the right to do so. Such futures and options
trading might involve risks which differ from those involved in the futures and
options described above.
Foreign Futures and Options. The Portfolio is permitted to invest in
foreign futures and options. For a description of foreign futures and options
and certain risks involved therein as well as certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
and non-U.S. dollar-denominated securities of foreign issuers. There are special
risks in foreign investing. Certain of these risks are inherent in any
international mutual fund while others relate more to the countries in which the
Portfolio will invest. Many of the risks are more pronounced for investments in
developing or emerging countries, such as many of the countries of Southeast
Asia, Latin America, Eastern Europe and the Middle East. For an additional
discussion of certain risks involved in investing in foreign securities, see
this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Foreign Currency Transactions. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are principally traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
The Portfolio may enter into forward contracts for a variety of
purposes in connection with the management of the foreign securities portion of
its portfolio. The Portfolio's use of such contracts would include, but not be
limited to, the following. First, when the Portfolio enters into a contract for
the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. Second, when the
Sub-advisor believes that one currency may experience a substantial movement
against another currency, including the U.S. dollar, it may enter into a forward
contract to sell or buy the amount of the former foreign currency, approximating
the value of some or all of the Portfolio's securities denominated in such
foreign currency. Alternatively, where appropriate, the Portfolio may hedge all
or part of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Portfolio may enter
into a forward contract where the amount of the foreign currency to be sold
exceeds the value of the securities denominated in such currency. The use of
this basket hedging technique may be more efficient and economical than entering
into separate forward contracts for each currency held in the Portfolio. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall diversification
strategies. However, Sub-advisor believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Portfolio will be served.
The Portfolio may enter into forward contracts for any other purpose
consistent with the Portfolio's investment objective and policies. However, the
Portfolio will not enter into a forward contract, or maintain exposure to any
such contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Portfolio's holdings of liquid assets and currency
available for cover of the forward contract(s). In determining the amount to be
delivered under a contract, the Portfolio may net offsetting positions.
At the maturity of a forward contract, the Portfolio may sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and either extend the maturity of the forward contract (by
"rolling" that contract forward) or may initiate a new forward contract.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer. For a discussion of
certain risk factors involved in foreign currency transactions, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts. The Portfolio may enter into certain option, futures, and
forward foreign exchange contracts, including options and futures on currencies,
which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain (taxable at a maximum rate of 20%)
or loss and 40% short-term capital gain or loss regardless of the holding period
of the instrument (or, in the case of foreign exchange contracts, entirely as
ordinary income or loss). The Portfolio will be required to distribute net gains
on such transactions to shareholders even though it may not have closed the
transaction and received cash to pay such distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. The holding period of the security offsetting
an "in-the-money qualified covered call" option on an equity security will not
include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Tax regulations could be issued limiting the
extent that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement.
As a result of the "Taxpayer Relief Act of 1997," entering into certain
option, futures contracts, or forward contracts may be deemed a "constructive
sale" of offsetting securities, which could result in a taxable gain from the
sale being distributed to shareholders. The Portfolio would be required to
distribute any such gain even though it would not receive proceeds from the sale
at the time the option, futures or forward position is entered into.
Illiquid and Restricted Securities. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the Portfolio
should be in a position where more than 15% of the value of its net assets is
invested in illiquid assets, including restricted securities, the Portfolio will
take appropriate steps to protect liquidity.
Notwithstanding the above, the Portfolio may purchase securities which,
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers, such as
the Portfolio, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Sub-advisor, under the
supervision of the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Sub-advisor will consider
the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, the Sub-advisor could
consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market, and (4) the
nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored, and if as a
result of changed conditions it is determined that a Rule 144A security is no
longer liquid, the Portfolio's holdings of illiquid securities would be reviewed
to determine what, if any, steps are required to assure that the Portfolio does
not invest more than 15% of its net assets in illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Portfolio's assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Hybrid Instruments. Hybrid Instruments have been developed and combine
the elements of futures contracts, options or other financial instruments with
those of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments). Hybrid Instruments may take a variety of forms, including, but not
limited to, debt instruments with interest or principal payments or redemption
terms determined by reference to the value of a currency or commodity or
securities index at a future point in time, preferred stock with dividend rates
determined by reference to the value of a currency, or convertible securities
with the conversion terms related to a particular commodity. For a discussion of
certain risks involved in investing in hybrid instruments see this Statement
under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. Subject to guidelines adopted by the Board of
Trustees of the Trust, the Portfolio may enter into a repurchase agreement
through which an investor (such as the Portfolio) purchases a security (known as
the "underlying security") from a well-established securities dealer or a bank
that is a member of the Federal Reserve System. Any such dealer or bank will be
on the Sub-advisor's approved list and have a credit rating with respect to its
short-term debt of at least A1 by Standard & Poor's Corporation, P1 by Moody's
Investors Service, Inc., or the equivalent rating by the Sub-advisor. At that
time, the bank or securities dealer agrees to repurchase the underlying security
at the same price, plus specified interest. Repurchase agreements are generally
for a short period of time, often less than a week. Repurchase agreements which
do not provide for payment within seven days will be treated as illiquid
securities. The Portfolio will only enter into repurchase agreements where (i)
the underlying securities are of the type (excluding maturity limitations) which
the Portfolio's investment guidelines would allow it to purchase directly, (ii)
the market value of the underlying security, including interest accrued, will be
at all times equal to or exceed the value of the repurchase agreement, and (iii)
payment for the underlying security is made only upon physical delivery or
evidence of book- entry transfer to the account of the custodian or a bank
acting as agent. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Portfolio could experience both delays in liquidating
the underlying security and losses, including: (a) possible decline in the value
of the underlying security during the period while the Portfolio seeks to
enforce its rights thereto; (b) possible subnormal levels of income and lack of
access to income during this period; and (c) expenses of enforcing its rights.
Reverse Repurchase Agreements. Although the Portfolio has no current
intention, in the foreseeable future, of engaging in reverse repurchase
agreements, the Portfolio reserves the right to do so. Reverse repurchase
agreements are ordinary repurchase agreements in which a fund is the seller of,
rather than the investor in, securities, and agrees to repurchase them at an
agreed upon time and price. Use of a reverse repurchase agreement may be
preferable to a regular sale and later repurchase of the securities because it
avoids certain market risks and transaction costs. A reverse repurchase
agreement may be viewed as a type of borrowing by the Portfolio.
Warrants. The Portfolio may acquire warrants. For a discussion of certain
risks involved therein, see this Statement under "Certain Risk Factor and
Investment Methods."
Lending of Portfolio Securities. Securities loans are made to
broker-dealers or institutional investors or other persons, pursuant to
agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent marked to market on
a daily basis. The collateral received will consist of cash, U.S. government
securities, letters of credit or such other collateral as may be permitted under
its investment program. While the securities are being lent, the Portfolio will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. The Portfolio has a right to call each
loan and obtain the securities on three business days' notice or, in connection
with securities trading on foreign markets, within such longer period of time
which coincides with the normal settlement period for purchases and sales of
such securities in such foreign markets. The Portfolio will not have the right
to vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission, the Portfolio may make loans to, or borrow funds from,
other mutual funds sponsored or advised by the Sub-advisor or Rowe Price-Fleming
International, Inc. The Portfolio has no current intention of engaging in these
practices at this time.
When-Issued Securities and Forward Commitment Contracts. The Portfolio
may purchase securities on a "when-issued" or delayed delivery basis and may
purchase securities on a forward commitment basis. Any or all of the Portfolio's
investments in debt securities may be in the form of when-issueds and forwards.
The price of such securities, which may be expressed in yield terms, is fixed at
the time the commitment to purchase is made, but delivery and payment take place
at a later date. Normally, the settlement date occurs within 90 days of the
purchase for when-issueds, but may be substantially longer for forwards. The
Portfolio will cover its commitments with respect to these securities by
maintaining cash and/or other liquid assets with its custodian bank equal in
value to these commitments during the time between the purchase and the
settlement. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date. For a discussion of these securities and
the risks involved therein, see this Statement under "Certain Risk Factors and
Investment Methods."
Money Market Securities. The Portfolio will hold a certain portion of its
assets in U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, rated in the two highest rating categories, maturing in
one year or less.
Investment Policies Which May Be Changed Without Shareholder Approval. The
following limitations are applicable to the AST T. Rowe Price Small Company
Value Portfolio. These limitations are not "fundamental" restrictions, and can
be changed by the Trustees without shareholder approval. The Portfolio will not:
1. Purchase additional securities when money borrowed exceeds 5% of its
total assets;
2. Invest in companies for the purpose of exercising management or control;
3. Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such options would exceed
5% of the Portfolio's net asset value;
4. Purchase illiquid securities if, as a result, more than 15% of its net
assets would be invested in such securities. Securities eligible for resale
under Rule 144A of the Securities Act of 1933 may be subject to this 15%
limitation;
5. Purchase securities of open-end or closed-end investment companies
except in compliance with the 1940 Act;
6. Purchase securities on margin, except (i) for use of short-term credit
necessary for clearance of purchases of portfolio securities and (ii) the
Portfolio may make margin deposits in connection with futures contracts or other
permissible investments;
7. Mortgage, pledge, hypothecate or, in any manner, transfer any security
owned by the Portfolio as security for indebtedness except as may be necessary
in connection with permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed 33 1/3% of the Portfolio's
total assets at the time of borrowing or investment;
8. Invest in puts, calls, straddles, spreads, or any combination thereof,
except to the extent permitted by the Trust's Prospectus and this Statement;
9. Effect short sales of securities; or
10. Invest in warrants if, as a result thereof, more than 10% of the value
of the net assets of the Portfolio would be invested in warrants, except that
this restriction does not apply to warrants acquired as a result of the purchase
of another security. For purposes of these percentage limitations, the warrants
will be valued at the lower of cost or market.
AST Neuberger Berman Mid-Cap Growth Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
capital appreciation.
Investment Policies:
Repurchase Agreements. In a repurchase agreement, the Portfolio
purchases securities from a Federal Reserve member bank or a securities dealer
deemed creditworthy by the Sub-advisor under procedures established by the Board
of Trustees of the Trust. The bank or securities dealer agrees to repurchase the
securities from the Portfolio at a higher price on a designated future date.
Repurchase agreements generally are for a short period of time, usually less
than a week. Repurchase agreements with a maturity of more than seven business
days are considered to be illiquid securities; the Portfolio may not enter into
such a repurchase agreement if, as a result, more than 15% of the value of its
net assets would then be invested in such repurchase agreements and other
illiquid securities. The Portfolio will enter into a repurchase agreement only
if (1) the underlying securities are of the type (excluding maturity and
duration limitations) that the Portfolio's investment policies and limitations
would allow it to purchase directly, (2) the market value of the underlying
securities, including accrued interest, and any other collateral for the
repurchase agreement at al1 times equals or exceeds the amount paid by the
Portfolio under the agreement, and (3) payment for the underlying securities is
made only upon satisfactory evidence that the securities are being held for the
Portfolio's account by the custodian or a bank acting as the Portfolio's agent.
Securities Loans. In order to realize income, the Portfolio may lend
portfolio securities with a value not exceeding 33-1/3% of its total assets to
banks, brokerage firms, or institutional investors. Borrowers are required
continuously to secure their obligations to return securities on loan from the
Portfolio by depositing collateral, which will be marked to market daily, in a
form determined to be satisfactory by the Trustees and equal to at least 100% of
the market value of the loaned securities, which will also be marked to market
daily. The Sub-advisor believes the risk of loss on these transactions is slight
because, if a borrower were to default for any reason, the collateral should
satisfy the obligation. However, as with other extensions of secured credit,
loans of portfolio securities involve some risk of loss of rights in the
collateral should the borrower fail financially.
Restricted Securities and Rule 144A Securities. The Portfolio may
invest in restricted securities, which are securities that may not be sold to
the public without an effective registration statement under the 1933 Act.
Before they are registered, such securities may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional markets for
unregistered securities and the importance of institutional investors in the
formation of capital, the SEC has adopted Rule 144A under the 1933 Act, which is
designed to facilitate efficient trading among institutional investors by
permitting the sale of certain unregistered securities to qualified
institutional buyers. To the extent privately placed securities held by the
Portfolio qualify under Rule 144A, and an institutional market develops for
those securities, the Portfolio likely will be able to dispose of the securities
without registering them under the 1933 Act. To the extent that institutional
buyers become, for a time, uninterested in purchasing these securities,
investing in Rule 144A securities could have the effect of increasing the level
of the Portfolio's illiquidity. The Sub-advisor, acting under guidelines
established by the Board of Trustees of the Trust, may determine that certain
securities qualified for trading under Rule 144A are liquid.
Where registration is required, the Portfolio may be obligated to pay
all or part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Portfolio may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities,
excluding Rule 144A securities deemed liquid by the Sub-advisor, are considered
illiquid, and will be subject to the Portfolio's 15% limit on investments in
illiquid securities. Foreign securities that are freely tradable in their
principal markets are not considered by the Portfolio to be illiquid. Illiquid
securities for which no market exists are priced by a method that the Trustees
believe accurately reflects fair value.
Reverse Repurchase Agreements. In a reverse repurchase agreement, the
Portfolio sells portfolio securities subject to its agreement to repurchase the
securities at a later date for a fixed price reflecting a market rate of
interest; these agreements are considered borrowings for purposes of the
Portfolio's investment limitations and policies concerning borrowings. There is
a risk that the counterparty to a reverse repurchase agreement will be unable or
unwilling to complete the transaction as scheduled, which may result in losses
to the Portfolio.
Covered Call Options. The Portfolio may write covered call options on
securities it owns. Generally, the purpose of writing these options is to reduce
the effect of price fluctuation of securities held by the Portfolio's net asset
value. Securities on which call options may be written by the Portfolio are
purchased solely on the basis of investment considerations consistent with the
Portfolio's investment objectives.
When the Portfolio writes a call option, it is obligated to sell a
security to a purchaser at a specified price at any time until a certain date if
the purchaser decides to exercise the option. The Portfolio receives a premium
for writing the call option. The Portfolio writes only "covered" call options on
securities it owns. So long as the obligation of the writer of the call option
continues, the writer may be assigned an exercise notice, requiring it to
deliver the underlying security against payment of the exercise price. The
Portfolio may be obligated to deliver securities underlying a call option at
less than the market price thereby giving up any additional gain on the
security.
When the Portfolio purchases a call option, it pays a premium for the
right to purchase a security from the writer at a specified price until a
specified date. A call option would be purchased by the Portfolio to offset a
previously written call option.
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast to the writing
of "naked" or uncovered call options, which the Portfolio will not do), but is
capable of enhancing the Portfolio's total return. When writing a covered call
option, the Portfolio, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security above the exercise
price, but conversely retains the risk of loss should the price of the security
decline. If a call option that the Portfolio has written expires unexercised,
the Portfolio will realize a gain in the amount of the premium; however, in the
case of a call option, that gain may be offset by a decline in the market value
of the underlying security during the option period. If the call option is
exercised, the Portfolio will realize a gain or loss from the sale or purchase
of the underlying security.
The exercise price of an option may be below, equal to, or above the
market value of the underlying security at the time the option is written.
Options normally have expiration dates between three and nine months from the
date written. The obligation under any option terminates upon expiration of the
option or, at an earlier time, when the writer offsets the option by entering
into a "closing purchase transaction" to purchase an option of the same series.
Options are traded both on national securities exchanges and in the
over-the-counter ("OTC") market. Exchange-traded options are issued by a
clearing organization affiliated with the exchange on which the option is
listed; the clearing organization in effect guarantees completion of, every
exchange-traded option. In contrast, OTC options are contracts between the
Portfolio and its counter-party with no clearing organization guarantee. Thus,
when the Portfolio sells or purchases an OTC option, it generally will be able
to "close out" the option prior to its expiration only by entering into a
"closing purchase transaction" with the dealer to whom or from whom the
Portfolio originally sold or purchased the option. The Sub-advisor monitors the
creditworthiness of dealers with which the Portfolio may engage in OTC options,
and will limit counterparties in such transactions to dealers with a net worth
of at least $20 million as reported in their latest financial statements. For an
additional discussion of OTC options and their risks, see this Statement under
"Certain Risk Factors and Investment Methods."
The premium received (or paid) by the Portfolio when it writes (or
purchases) an option is the amount at which the option is currently traded on
the applicable exchange, less (or plus) a commission. The premium may reflect,
among other things, the current market price of the underlying security, the
relationship of the exercise price to the market price, the historical price
volatility of the underlying security, the length of the option period, the
general supply of and demand for credit, and the general interest rate
environment. The premium received by the Portfolio for writing an option is
recorded as a liability on the Portfolio's statement of assets and liabilities.
This liability is adjusted daily to the option's current market value.
The Portfolio pays the brokerage commissions in connection with
purchasing or writing options, including those used to close out existing
positions. These brokerage commissions normally are higher than those applicable
to purchases and sales of portfolio securities.
For an additional discussion of options and their risks, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
equity and debt securities issued by foreign issuers (including governments,
quasi-governments and foreign banks) and foreign branches of U.S. banks,
including negotiable CDs and commercial paper. These investments are subject to
the Portfolio's quality standards. While investments in foreign securities are
intended to reduce risk by providing further diversification, such investments
involve sovereign and other risks, in addition to the credit and market risks
normally associated with domestic securities.
The Portfolio may invest in equity, debt, or other income-producing
securities that are denominated in or indexed to foreign currencies, including,
but not limited to (1) common and preferred stocks, (2) convertible securities,
(3) warrants, (4) CDs, commercial paper, fixed-time deposits, and bankers'
acceptances issued by foreign banks, (5) obligations of other corporations, and
(6) obligations of foreign governments, or their subdivisions, agencies, and
instrumentalities, international agencies, and supranational entities. Risks of
investing in foreign currency denominated securities include (1)
nationalization, expropriation, or confiscatory taxation, (2) adverse changes in
investment or exchange control regulations (which could prevent cash from being
brought back to the U.S.), and (3) expropriation or nationalization of foreign
portfolio companies. Mail service between the U.S. and foreign countries may be
slower or less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. For an additional discussion of the risks associated with
foreign securities, whether denominated in U.S. dollars or foreign currencies,
see this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Prices of foreign securities and exchange rates for foreign currencies
may be affected by the interest rates prevailing in other countries. The
interest rates in other countries are often affected by local factors, including
the strength of the local economy, the demand for borrowing, the government's
fiscal and monetary policies, and the international balance of payments.
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments position.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of the Portfolio is uninvested
and no return is earned thereon. The inability of the Portfolio to make intended
security purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Portfolio due to subsequent declines in value of the portfolio securities, or,
if the Portfolio has entered into a contract to sell the securities, could
result in possible liability to the purchaser.
The Portfolio may invest in foreign corporate bonds and debentures and
sovereign debt instruments issued or guaranteed by foreign governments, their
agencies or instrumentalities. Foreign debt securities are subject to risks
similar to those of other foreign securities, as well as risks similar to those
of other debt securities, as discussed in this Statement and in the Trust's
Prospectus under "Investment Objectives and Policies" and "Certain Risk Factors
and Investment Methods."
In order to limit the risk inherent in investing in foreign
currency-denominated securities, the Portfolio may not purchase any such
security if after such purchase more than 10% of its total assets (taken at
market value) would be invested in such securities. Within such limitation,
however, the Portfolio is not restricted in the amount it may invest in
securities denominated in any one foreign currency.
Foreign Currency Transactions. The Portfolio may engage in foreign
currency exchange transactions. Foreign currency exchange transactions will be
conducted 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 ("forward contracts"). The Portfolio may
enter into forward contracts in order to protect against uncertainty in the
level of future foreign currency exchange rates. The Portfolio may also use
forward contracts for non-hedging purposes.
A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days
(usually less than one year) from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the spread) between the price at which
they are buying and selling various currencies.
When the Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may wish 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 security transactions, the Portfolio will be
able to protect itself against a possible loss. When the Sub-advisor believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar, it may also enter into a forward contract to
sell the amount of foreign currency for a fixed amount of dollars which
approximates the value of some or all of a Portfolio's securities denominated in
such foreign currency.
The Portfolio may also engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency, when the Sub-advisor believes
that there is a pattern of correlation between the two currencies. The Portfolio
may also purchase and sell forward contracts for non-hedging purposes when the
Sub-advisor anticipates that the foreign currency will appreciate or depreciate
in value, but securities in that currency do not present attractive investment
opportunities and are not held in the Portfolio's portfolio.
When the Portfolio engages in forward contracts for hedging purposes,
it will not enter into forward contracts to sell currency or maintain a net
exposure to such contracts if their consummation would obligate the Portfolio to
deliver an amount of foreign currency in excess of the value of its portfolio
securities or other assets denominated in that currency. At the consummation of
the forward contract, the Portfolio may either make delivery of the foreign
currency or terminate its contractual obligation to deliver by purchasing an
offsetting contract obligating it to purchase the same amount of such foreign
currency at the same maturity date. If the Portfolio chooses to make delivery of
the foreign currency, it may be required to obtain such currency through the
sale of portfolio securities denominated in such currency or through conversion
of other assets into such currency. If the Portfolio engages in an offsetting
transaction, it will incur a gain or a loss to the extent that there has been a
change in forward contract prices. Closing purchase transactions with respect to
forward contracts are usually made with the currency trader who is a party to
the original forward contract.
The Portfolio is not required to enter into such transactions and will
not do so unless deemed appropriate by the Sub-advisor.
Using forward contracts to protect the value of the Portfolio's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. The precise projection of short-term currency market movements is not
possible, and short-term hedging provides a means of fixing the dollar value of
only a portion of the Portfolio's foreign assets.
While the Portfolio may enter forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while the Portfolio may benefit from such transactions, unanticipated
changes in currency prices may result in a poorer overall performance for the
Portfolio than if it had not engaged in any such transactions. Moreover, there
may be imperfect correlation between the Portfolio's holdings of securities
denominated in a particular currency and forward contracts entered into by the
Portfolio. Such imperfect correlation may cause the Portfolio to sustain losses
which will prevent it from achieving a complete hedge or expose it to risk of
foreign exchange loss.
The Portfolio generally will not enter into a forward contract with a
term of greater than one year. The Portfolio may experience delays in the
settlement of its foreign currency transactions.
When the Portfolio engages in forward contracts for the sale or
purchase of currencies, the Portfolio will either cover its position or
establish a segregated account. The Portfolio will consider its position covered
if it has securities in the currency subject to the forward contract, or
otherwise has the right to obtain that currency at no additional cost. In the
alternative, the Portfolio will place cash, fixed income, or equity securities
(denominated in the foreign currency subject to the forward contract) in a
separate account. The amounts in such separate account will equal the value of
the Portfolio's assets which are committed to the consummation of foreign
currency exchange contracts. If the value of the securities placed in the
separate account declines, the Portfolio will place additional cash or
securities in the account on a daily basis so that the value of the account will
equal the amount of its commitments with respect to such contracts.
For an additional discussion of forward foreign currency exchange
contracts and their risks, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Options on Foreign Currencies. The Portfolio may write and purchase
covered call and put options on foreign currencies in amounts not exceeding 5%
of its net assets for the purpose of protecting against declines in the U.S.
dollar value of portfolio securities or increases in the U.S.-dollar cost of
securities to be acquired, or to protect the dollar equivalent of dividend,
interest, or other payment on those securities. A decline in the dollar value of
a foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such decreases in the value of
portfolio securities, the Portfolio may purchase put options on the foreign
currency. If the value of the currency declines, the Portfolio will have the
right to sell such currency for a fixed amount of dollars which exceeds the
market value of such currency. This would result in a gain that may offset, in
whole or in part, the negative effect of currency depreciation on the value of
the Portfolio's securities denominated in that currency.
Conversely, if the dollar value of a currency in which securities to be
acquired by the Portfolio are denominated rises, thereby increasing the cost of
such securities, the Portfolio may purchase call options on such currency. If
the value of such currency increases sufficiently, the Portfolio will have the
right to purchase that currency for a fixed amount of dollars which is less than
the market value of that currency. Such a purchase would result in a gain that
may offset, at least partially, the effect of any currency-related increase in
the price of securities the Portfolio intends to acquire.
As in the case of other types of options transactions, however, the
benefit the Portfolio derives from purchasing foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
if currency exchange rates do not move in the direction or to the extent
anticipated, the Portfolio could sustain losses on transactions in foreign
currency options which would deprive it of a portion or all of the benefits of
advantageous changes in such rates.
The Portfolio may also write options on foreign currencies for hedging
purposes. For example, if the Sub-advisor anticipates a decline in the dollar
value of foreign currency denominated securities because of declining exchange
rates, it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the decrease in value of portfolio securities will be
offset, at least in part, by the amount of the premium received by the
Portfolio.
Similarly, the Portfolio could write a put option on the relevant
currency, instead of purchasing a call option, to hedge against an anticipated
increase in the dollar cost of securities to be acquired. If exchange rates move
in the manner projected, the put option most likely will not be exercised, and
such increased cost will be offset, at least in part, by the amount of the
premium received. However, as in the case of other types of options
transactions, the writing of a foreign currency option will constitute only a
partial hedge up to the amount of the premium, and only if rates move in the
expected direction.
If unanticipated exchange rate fluctuations occur, a put or call option
may be exercised and the Portfolio could be required to purchase or sell the
underlying currency at a loss which may not be fully offset by the amount of the
premium. As a result of writing options on foreign currencies, the Portfolio
also may be required to forego all or a portion of the benefits which might
otherwise have been obtained from favorable movements in currency exchange
rates. Options on foreign currencies may be traded on U.S. or foreign exchanges
or over-the-counter options or foreign currencies that are traded on the OTC
market and involve liquidity and credit risks that may not be present in the
case of exchange-traded currency options.
A call option written on foreign currency by the Portfolio is "covered"
if the Portfolio owns the underlying foreign currency subject to the call, or if
it has an absolute and immediate right to acquire that foreign currency without
additional cash consideration. A call option is also covered if the Portfolio
holds a call on the same foreign currency for the same principal amount as the
call written where the exercise price of the call held is (a) equal to or less
than the exercise price of the call written or (b) greater than the exercise
price of the call written if the amount of the difference is maintained by the
Portfolio in cash, fixed income or equity securities in a segregated account
with its custodian.
The risks of currency options are similar to the risks of other
options, as discussed above and in this Statement under "Certain Risk Factors
and Investment Methods."
Cover for Options on Securities, Forward Contracts, and Options on
Foreign Currencies ("Hedging Instruments"). The Portfolio will comply with SEC
staff guidelines regarding "cover" for Hedging Instruments and, if the
guidelines so require, set aside in a segregated account with its custodian the
prescribed amount of cash, fixed income, or equity securities. Securities held
in a segregated account cannot be sold while the futures, option, or forward
strategy covered by those securities is outstanding, unless they are replaced
with other suitable assets. As a result, segregation of a large percentage of
the Portfolio's assets could impede portfolio management or the Portfolio's
ability to meet current obligations. The Portfolio may be unable promptly to
dispose of assets that cover, or are segregated with respect to, an illiquid
options or forward position; this inability may result in a loss to the
Portfolio.
Preferred Stock. The Portfolio may invest in preferred stock. Unlike
interest payments on debt securities, dividends on preferred stock are generally
payable at the discretion of the issuer's board of directors, although preferred
shareholders may have certain rights if dividends are not paid. Shareholders may
suffer a loss of value if dividends are not paid, and generally have no legal
recourse against the issuer. The market prices of preferred stocks are generally
more sensitive to changes in the issuer's creditworthiness than are the prices
of debt securities.
Fixed Income Securities. The Portfolio may invest in money market
instruments, U.S. Government or Agency securities, and corporate bonds and
debentures receiving one of the four highest ratings from Standard & Poor's
Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") or any other
nationally recognized statistical rating organization ("NRSRO"), or, if not
rated by any NRSRO, deemed comparable by the Sub-advisor to such rated
securities. The ratings of an NRSRO represent its opinion as to the quality of
securities it undertakes to rate. Ratings are not absolute standards of quality;
consequently, securities with the same maturity, coupon, and rating may have
different yields. Although the Portfolio may rely on the ratings of any NRSRO,
the Portfolio mainly refers to ratings assigned by S&P and Moody's, which are
described in Appendix A to this Statement.
Fixed income securities are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations ("credit
risk") and also may be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer, and general market liquidity ("market risk"). Lower-rated securities are
more likely to react to developments affecting market and credit risk than are
more highly rated securities, which react primarily to movements in the general
level of interest rates.
Changes in economic conditions or developments regarding the individual
issuer are more likely to cause price volatility and weaken the capacity of the
issuer of such securities to make principal and interest payments than is the
case for higher-grade debt securities. An economic downturn affecting the issuer
may result in an increased incidence of default. The market for lower-rated
securities may be thinner and less active than for higher-rated securities.
Pricing of thinly traded securities requires greater judgment than pricing of
securities for which market transactions are regularly reported.
If the quality of any fixed income securities held by the Portfolio
deteriorates so that they no longer would be eligible for purchase by the
Portfolio, the Portfolio will engage in an orderly disposition of the securities
to the extent necessary to ensure that the Portfolio's holding of such
securities will not exceed 5% of its net assets.
Convertible Securities. The Portfolio may invest in convertible
securities of any quality. A convertible security entitles the holder to receive
interest paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities ordinarily provide a stream of income with
generally higher yields than those of common stocks of the same or similar
issuers, but lower than the yield on non-convertible debt. Convertible
securities are usually subordinated to comparable-tier nonconvertible securities
but rank senior to common stock in a corporation's capital structure. The value
of a convertible security is a function of (1) its yield in comparison with the
yields of other securities of comparable maturity and quality that do not have a
conversion privilege, and (2) its worth, at market value, if converted into the
underlying common stock. Convertible debt securities are subject to the
Portfolio's investment policies and limitations concerning fixed-income
investments.
Convertible securities are typically issued by smaller companies whose
stock prices may be volatile. The price of a convertible security often reflects
such variations in the price of the underlying common stock in a way that
nonconvertible debt does not. A convertible security may be subject to
redemption at the option of the issuer at a price established in the security's
governing instrument. If a convertible security held by the Portfolio is called
for redemption, the Portfolio will be required to convert it into the underlying
common stock, sell it to a third party or permit the issuer to redeem the
security. Any of these actions could have an adverse effect on the Portfolio's
ability to achieve its investment objective.
Commercial Paper. Commercial paper is a short-term debt security issued
by a corporation, bank, municipality, or other issuer, usually for purposes such
as financing current operations. The Portfolio may invest only in commercial
paper receiving the highest rating from S&P (A-1) or Moody's (P-1), or deemed by
the Sub-advisor to be of equivalent quality.
The Portfolio may invest in commercial paper that cannot be resold to
the public because it was issued under the exception for private offerings in
Section 4(2) of the Securities Act of 1933. While such securities normally will
be considered illiquid and subject to the Portfolio's 15% limitation on
investments in illiquid securities, the Sub-advisor may in certain cases
determine that such paper is liquid under guidelines established by the Board of
Trustees.
Banking and Savings Institution Securities. The Portfolio may invest in
banking and savings institution obligations, which include CDs, time deposits,
bankers' acceptances, and other short-term debt obligations issued by savings
institutions. CDs are receipts for funds deposited for a specified period of
time at a specified rate of return; time deposits generally are similar to CDs,
but are uncertificated; and bankers' acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with international
commercial transactions. The CDs, time deposits, and bankers' acceptances in
which the Portfolio invests typically are not covered by deposit insurance.
Investment Policies Which May be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Neuberger Berman Mid-Cap
Growth Portfolio. These limitations are not fundamental restrictions and can be
changed without shareholder approval.
1. The Portfolio may not purchase securities if outstanding borrowings,
including any reverse repurchase agreements, exceed 5% of its total assets.
2. Except for the purchase of debt securities and engaging in
repurchase agreements, the Portfolio may not make any loans other than
securities loans.
3. The Portfolio may not purchase securities on margin from brokers,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of securities transactions. Margin payments in connection with
transactions in futures contracts and options on futures contracts shall not
constitute the purchase of securities on margin and shall not be deemed to
violate the foregoing limitation.
4. The Portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold without payment of additional consideration. Transactions in futures
contracts and options shall not constitute selling securities short.
5. The Portfolio may not purchase any security if, as a result, more
than 15% of its net assets would be invested in illiquid securities. Illiquid
securities include securities that cannot be sold within seven days in the
ordinary course of business for approximately the amount at which the Portfolio
has valued the securities, such as repurchase agreements maturing in more than
seven days.
AST Neuberger Berman Mid-Cap Value Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth.
Investment Policies:
Repurchase Agreements. In a repurchase agreement, the Portfolio
purchases securities from a Federal Reserve member bank or a securities dealer
deemed creditworthy by the Sub-advisor under procedures established by the Board
of Trustees of the Trust. The bank or securities dealer agrees to repurchase the
securities from the Portfolio at a higher price on a designated future date.
Repurchase agreements generally are for a short period of time, usually less
than a week. Repurchase agreements with a maturity of more than seven business
days are considered to be illiquid securities; the Portfolio may not enter into
such a repurchase agreement if, as a result, more than 15% of the value of its
net assets would then be invested in such repurchase agreements and other
illiquid securities. The Portfolio will enter into a repurchase agreement only
if (1) the underlying securities are of the type (excluding maturity and
duration limitations) that the Portfolio's investment policies and limitations
would allow it to purchase directly, (2) the market value of the underlying
securities, including accrued interest, and any other collateral for the
repurchase agreement at al1 times equals or exceeds the amount paid by the
Portfolio under the agreement, and (3) payment for the underlying securities is
made only upon satisfactory evidence that the securities are being held for the
Portfolio's account by the custodian or a bank acting as the Portfolio's agent.
Securities Loans. In order to realize income, the Portfolio may lend
portfolio securities with a value not exceeding 33-1/3% of its total assets to
banks, brokerage firms, or institutional investors. Borrowers are required
continuously to secure their obligations to return securities on loan from the
Portfolio by depositing collateral, which will be marked to market daily, in a
form determined to be satisfactory by the Trustees and equal to at least 100% of
the market value of the loaned securities, which will also be marked to market
daily. The Sub-advisor believes the risk of loss on these transactions is slight
because, if a borrower were to default for any reason, the collateral should
satisfy the obligation. However, as with other extensions of secured credit,
loans of portfolio securities involve some risk of loss of rights in the
collateral should the borrower fail financially.
Restricted Securities and Rule 144A Securities. The Portfolio may
invest in restricted securities, which are securities that may not be sold to
the public without an effective registration statement under the 1933 Act.
Before they are registered, such securities may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional markets for
unregistered securities and the importance of institutional investors in the
formation of capital, the SEC has adopted Rule 144A under the 1933 Act, which is
designed to facilitate efficient trading among institutional investors by
permitting the sale of certain unregistered securities to qualified
institutional buyers. To the extent privately placed securities held by the
Portfolio qualify under Rule 144A, and an institutional market develops for
those securities, the Portfolio likely will be able to dispose of the securities
without registering them under the 1933 Act. To the extent that institutional
buyers become, for a time, uninterested in purchasing these securities,
investing in Rule 144A securities could have the effect of increasing the level
of the Portfolio's illiquidity. The Sub-advisor, acting under guidelines
established by the Board of Trustees of the Trust, may determine that certain
securities qualified for trading under Rule 144A are liquid.
Where registration is required, the Portfolio may be obligated to pay
all or part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Portfolio may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities,
excluding Rule 144A securities deemed liquid by the Sub-advisor, are considered
illiquid, and will be subject to the Portfolio's 15% limit on investments in
illiquid securities. Foreign securities that are freely tradable in their
principal markets are not considered by the Portfolio to be illiquid. Illiquid
securities for which no market exists are priced by a method that the Trustees
believe accurately reflects fair value.
Reverse Repurchase Agreements. In a reverse repurchase agreement, the
Portfolio sells portfolio securities subject to its agreement to repurchase the
securities at a later date for a fixed price reflecting a market rate of
interest; these agreements are considered borrowings for purposes of the
Portfolio's investment limitations and policies concerning borrowings. There is
a risk that the counterparty to a reverse repurchase agreement will be unable or
unwilling to complete the transaction as scheduled, which may result in losses
to the Portfolio.
Covered Call Options. The Portfolio may write covered call options on
securities it owns valued at up to 10% of its net assets and may purchase call
options in related closing transactions. Generally, the purpose of writing these
options is to reduce the effect of price fluctuations of securities held by the
Portfolio on the Portfolio's net asset value. Securities on which call options
may be written by the Portfolio are purchased solely on the basis of investment
considerations consistent with the Portfolio's investment objectives.
When the Portfolio writes a call option, it is obligated to sell a
security to a purchaser at a specified price at any time until a certain date if
the purchaser decides to exercise the option. The Portfolio receives a premium
for writing the call option. The Portfolio writes only "covered" call options on
securities it owns. So long as the obligation of the writer of the call option
continues, the writer may be assigned an exercise notice, requiring it to
deliver the underlying security against payment of the exercise price. The
Portfolio may be obligated to deliver securities underlying a call option at
less than the market price thereby giving up any additional gain on the
security.
When the Portfolio purchases a call option, it pays a premium for the
right to purchase a security from the writer at a specified price until a
specified date. A call option would be purchased by the Portfolio to offset a
previously written call option.
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast to the writing
of "naked" or uncovered call options, which the Portfolio will not do), but is
capable of enhancing the Portfolio's total return. When writing a covered call
option, the Portfolio, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security above the exercise
price, but conversely retains the risk of loss should the price of the security
decline. If a call option that the Portfolio has written expires unexercised,
the Portfolio will realize a gain in the amount of the premium; however, that
gain may be offset by a decline in the market value of the underlying security
during the option period. If the call option is exercised, the Portfolio will
realize a gain or loss from the sale or purchase of the underlying security.
The exercise price of an option may be below, equal to, or above the
market value of the underlying security at the time the option is written.
Options normally have expiration dates between three and nine months from the
date written. The obligation under any option terminates upon expiration of the
option or, at an earlier time, when the writer offsets the option by entering
into a "closing purchase transaction" to purchase an option of the same series.
If an option is purchased by the Portfolio and is never exercised, the Portfolio
will lose the entire amount of the premium paid.
Options are traded both on national securities exchanges and in the
over-the-counter ("OTC") market. Exchange-traded options are issued by a
clearing organization affiliated with the exchange on which the option is
listed; the clearing organization in effect guarantees completion of, every
exchange-traded option. In contrast, OTC options are contracts between the
Portfolio and its counter-party with no clearing organization guarantee. Thus,
when the Portfolio sells or purchases an OTC option, it generally will be able
to "close out" the option prior to its expiration only by entering into a
"closing purchase transaction" with the dealer to whom or from whom the
Portfolio originally sold or purchased the option. The Sub-advisor monitors the
creditworthiness of dealers with which the Portfolio may engage in OTC options,
and will limit counterparties in such transactions to dealers with a net worth
of at least $20 million as reported in their latest financial statements. For an
additional discussion of OTC options and their risks, see this Statement under
"Certain Risk Factors and Investment Methods."
The premium received (or paid) by the Portfolio when it writes (or
purchases) an option is the amount at which the option is currently traded on
the applicable exchange, less (or plus) a commission. The premium may reflect,
among other things, the current market price of the underlying security, the
relationship of the exercise price to the market price, the historical price
volatility of the underlying security, the length of the option period, the
general supply of and demand for credit, and the general interest rate
environment. The premium received by the Portfolio for writing an option is
recorded as a liability on the Portfolio's statement of assets and liabilities.
This liability is adjusted daily to the option's current market value.
The Portfolio pays the brokerage commissions in connection with
purchasing or writing options, including those used to close out existing
positions. These brokerage commissions normally are higher than those applicable
to purchases and sales of portfolio securities.
For an additional discussion of options and their risks, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
securities issued by foreign issuers (including governments and
quasi-governments) and foreign branches of U.S. banks, including negotiable CDs
and commercial paper. These investments are subject to the Portfolio's quality
standards. While investments in foreign securities are intended to reduce risk
by providing further diversification, such investments involve sovereign and
other risks, in addition to the credit and market risks normally associated with
domestic securities.
The Portfolio may invest in equity, debt, or other income-producing
securities that are denominated in or indexed to foreign currencies, including,
but not limited to (1) common and preferred stocks, (2) convertible securities,
(3) CDs, commercial paper, fixed-time deposits, and bankers' acceptances issued
by foreign banks, (4) obligations of other corporations, and (5) obligations of
foreign governments, or their subdivisions, agencies, and instrumentalities,
international agencies, and supranational entities. Risks of investing in
foreign currency denominated securities include (1) nationalization,
expropriation, or confiscatory taxation, (2) adverse changes in investment or
exchange control regulations (which could prevent cash from being brought back
to the U.S.), and (3) expropriation or nationalization of foreign portfolio
companies. Mail service between the U.S. and foreign countries may be slower or
less reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. For an additional discussion of the risks associated with foreign
securities, whether denominated in U.S. dollars or foreign currencies, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Prices of foreign securities and exchange rates for foreign currencies
may be affected by the interest rates prevailing in other countries. The
interest rates in other countries are often affected by local factors, including
the strength of the local economy, the demand for borrowing, the government's
fiscal and monetary policies, and the international balance of payments.
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments position.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of the Portfolio is uninvested
and no return is earned thereon. The inability of the Portfolio to make intended
security purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Portfolio due to subsequent declines in value of the portfolio securities, or,
if the Portfolio has entered into a contract to sell the securities, could
result in possible liability to the purchaser.
The Portfolio may invest in foreign corporate bonds and debentures and
sovereign debt instruments issued or guaranteed by foreign governments, their
agencies or instrumentalities. The Portfolio may invest in lower-rated foreign
debt securities subject to the Portfolio's 15% limitation on lower-rated debt
securities. Foreign debt securities are subject to risks similar to those of
other foreign securities, as well as risks similar to those of other debt
securities, as discussed in this Statement and in the Trust's Prospectus under
"Investment Objectives and Policies" and "Certain Risk Factors and Investment
Methods."
In order to limit the risk inherent in investing in foreign
currency-denominated securities, the Portfolio may not purchase any such
security if after such purchase more than 10% of its total assets (taken at
market value) would be invested in such securities. Within such limitation,
however, the Portfolio is not restricted in the amount it may invest in
securities denominated in any one foreign currency.
Foreign Currency Transactions. The Portfolio may engage in foreign
currency exchange transactions. Foreign currency exchange transactions will be
conducted 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 ("forward contracts"). The Portfolio may
enter into forward contracts in order to protect against uncertainty in the
level of future foreign currency exchange rates, and only in amounts not
exceeding 5% of the Portfolio's net assets.
A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days
(usually less than one year) from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the spread) between the price at which
they are buying and selling various currencies.
When the Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may wish 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 security transactions, the Portfolio will be
able to protect itself against a possible loss. When the Sub-advisor believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar, it may also enter into a forward contract to
sell the amount of foreign currency for a fixed amount of dollars which
approximates the value of some or all of a Portfolio's securities denominated in
such foreign currency. The Portfolio may also engage in cross-hedging by using
forward contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency, when the Sub-advisor believes
that there is a pattern of correlation between the two currencies.
When the Portfolio engages in forward contracts for hedging purposes,
it will not enter into forward contracts to sell currency or maintain a net
exposure to such contracts if their consummation would obligate the Portfolio to
deliver an amount of foreign currency in excess of the value of its portfolio
securities or other assets denominated in that currency. At the consummation of
the forward contract, the Portfolio may either make delivery of the foreign
currency or terminate its contractual obligation to deliver by purchasing an
offsetting contract obligating it to purchase the same amount of such foreign
currency at the same maturity date. If the Portfolio chooses to make delivery of
the foreign currency, it may be required to obtain such currency through the
sale of portfolio securities denominated in such currency or through conversion
of other assets into such currency. If the Portfolio engages in an offsetting
transaction, it will incur a gain or a loss to the extent that there has been a
change in forward contract prices. Closing purchase transactions with respect to
forward contracts are usually made with the currency trader who is a party to
the original forward contract.
The Portfolio is not required to enter into such transactions and will
not do so unless deemed appropriate by the Sub-advisor.
Using forward contracts to protect the value of the Portfolio's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. The precise projection of short-term currency market movements is not
possible, and short-term hedging provides a means of fixing the dollar value of
only a portion of the Portfolio's foreign assets.
While the Portfolio may enter forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while the Portfolio may benefit from such transactions, unanticipated
changes in currency prices may result in a poorer overall performance for the
Portfolio than if it had not engaged in any such transactions. Moreover, there
may be imperfect correlation between the Portfolio's holdings of securities
denominated in a particular currency and forward contracts entered into by the
Portfolio. Such imperfect correlation may cause the Portfolio to sustain losses
which will prevent it from achieving a complete hedge or expose it to risk of
foreign exchange loss.
The Portfolio generally will not enter into a forward contract with a
term of greater than one year. The Portfolio may experience delays in the
settlement of its foreign currency transactions.
When the Portfolio engages in forward contracts for the sale or
purchase of currencies, the Portfolio will either cover its position or
establish a segregated account. The Portfolio will consider its position covered
if it has securities in the currency subject to the forward contract, or
otherwise has the right to obtain that currency at no additional cost. In the
alternative, the Portfolio will place cash, fixed income, or equity securities
(denominated in the foreign currency subject to the forward contract) in a
separate account. The amounts in such separate account will equal the value of
the Portfolio's assets which are committed to the consummation of foreign
currency exchange contracts. If the value of the securities placed in the
separate account declines, the Portfolio will place additional cash or
securities in the account on a daily basis so that the value of the account will
equal the amount of its commitments with respect to such contracts.
For an additional discussion of forward foreign currency exchange
contracts and their risks, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Options on Foreign Currencies. The Portfolio may write and purchase
covered call and put options on foreign currencies in amounts not exceeding 5%
of its net assets for the purpose of protecting against declines in the U.S.
dollar value of portfolio securities or increases in the U.S.-dollar cost of
securities to be acquired, or to protect the dollar equivalent of dividend,
interest, or other payment on those securities. A decline in the dollar value of
a foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such decreases in the value of
portfolio securities, the Portfolio may purchase put options on the foreign
currency. If the value of the currency declines, the Portfolio will have the
right to sell such currency for a fixed amount of dollars which exceeds the
market value of such currency. This would result in a gain that may offset, in
whole or in part, the negative effect of currency depreciation on the value of
the Portfolio's securities denominated in that currency.
Conversely, if the dollar value of a currency in which securities to be
acquired by the Portfolio are denominated rises, thereby increasing the cost of
such securities, the Portfolio may purchase call options on such currency. If
the value of such currency increases sufficiently, the Portfolio will have the
right to purchase that currency for a fixed amount of dollars which is less than
the market value of that currency. Such a purchase would result in a gain that
may offset, at least partially, the effect of any currency-related increase in
the price of securities the Portfolio intends to acquire.
As in the case of other types of options transactions, however, the
benefit the Portfolio derives from purchasing foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
if currency exchange rates do not move in the direction or to the extent
anticipated, the Portfolio could sustain losses on transactions in foreign
currency options which would deprive it of a portion or all of the benefits of
advantageous changes in such rates.
The Portfolio may also write options on foreign currencies for hedging
purposes. For example, if the Sub-advisor anticipates a decline in the dollar
value of foreign currency denominated securities because of declining exchange
rates, it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the decrease in value of portfolio securities will be
offset, at least in part, by the amount of the premium received by the
Portfolio.
Similarly, the Portfolio could write a put option on the relevant
currency, instead of purchasing a call option, to hedge against an anticipated
increase in the dollar cost of securities to be acquired. If exchange rates move
in the manner projected, the put option most likely will not be exercised, and
such increased cost will be offset, at least in part, by the amount of the
premium received. However, as in the case of other types of options
transactions, the writing of a foreign currency option will constitute only a
partial hedge up to the amount of the premium, and only if rates move in the
expected direction.
If unanticipated exchange rate fluctuations occur, a put or call option
may be exercised and the Portfolio could be required to purchase or sell the
underlying currency at a loss which may not be fully offset by the amount of the
premium. As a result of writing options on foreign currencies, the Portfolio
also may be required to forego all or a portion of the benefits which might
otherwise have been obtained from favorable movements in currency exchange
rates. Certain options on foreign currencies are traded on the OTC market and
involve liquidity and credit risks that may not be present in the case of
exchange-traded currency options.
A call option written on foreign currency by the Portfolio is "covered"
if the Portfolio owns the underlying foreign currency subject to the call, or if
it has an absolute and immediate right to acquire that foreign currency without
additional cash consideration. A call option is also covered if the Portfolio
holds a call on the same foreign currency for the same principal amount as the
call written where the exercise price of the call held is (a) equal to or less
than the exercise price of the call written or (b) greater than the exercise
price of the call written if the amount of the difference is maintained by the
Portfolio in cash, fixed income or equity securities in a segregated account
with its custodian.
The risks of currency options are similar to the risks of other
options, as discussed above and in this Statement under "Certain Risk Factors
and Investment Methods."
Cover for Options on Securities, Forward Contracts, and Options on
Foreign Currencies ("Hedging Instruments"). The Portfolio will comply with SEC
staff guidelines regarding "cover" for Hedging Instruments and, if the
guidelines so require, set aside in a segregated account with its custodian the
prescribed amount of cash, fixed income, or equity securities. Securities held
in a segregated account cannot be sold while the futures, option, or forward
strategy covered by those securities is outstanding, unless they are replaced
with other suitable assets. As a result, segregation of a large percentage of
the Portfolio's assets could impede portfolio management or the Portfolio's
ability to meet current obligations. The Portfolio may be unable promptly to
dispose of assets that cover, or are segregated with respect to, an illiquid
options or forward position; this inability may result in a loss to the
Portfolio.
Preferred Stock. The Portfolio may invest in preferred stock. Unlike
interest payments on debt securities, dividends on preferred stock are generally
payable at the discretion of the issuer's board of directors, although preferred
shareholders may have certain rights if dividends are not paid. Shareholders may
suffer a loss of value if dividends are not paid, and generally have no legal
recourse against the issuer. The market prices of preferred stocks are generally
more sensitive to changes in the issuer's creditworthiness than are the prices
of debt securities.
Fixed Income Securities. The Portfolio may invest in money market
instruments, U.S. Government or Agency securities, and corporate bonds and
debentures receiving one of the four highest ratings from Standard & Poor's
Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") or any other
nationally recognized statistical rating organization ("NRSRO"), or, if not
rated by any NRSRO, deemed comparable by the Sub-advisor to such rated
securities ("Comparable Unrated Securities"). In addition, the Portfolio may
invest up to 15% of its net assets, measured at the time of investment, in
corporate debt securities rated below investment grade or Comparable Unrated
Securities. The ratings of an NRSRO represent its opinion as to the quality of
securities it undertakes to rate. Ratings are not absolute standards of quality;
consequently, securities with the same maturity, coupon, and rating may have
different yields. Although the Portfolio may rely on the ratings of any NRSRO,
the Portfolio mainly refers to ratings assigned by S&P and Moody's, which are
described in Appendix A to this Statement.
Fixed income securities are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations ("credit
risk") and also may be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer, and general market liquidity ("market risk"). Lower-rated securities are
more likely to react to developments affecting market and credit risk than are
more highly rated securities, which react primarily to movements in the general
level of interest rates.
Changes in economic conditions or developments regarding the individual
issuer are more likely to cause price volatility and weaken the capacity of the
issuer of such securities to make principal and interest payments than is the
case for higher-grade debt securities. An economic downturn affecting the issuer
may result in an increased incidence of default. The market for lower-rated
securities may be thinner and less active than for higher-rated securities.
Pricing of thinly traded securities requires greater judgment than pricing of
securities for which market transactions are regularly reported.
Convertible Securities. The Portfolio may invest in convertible
securities. A convertible security entitles the holder to receive interest paid
or accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stocks of the same or similar issuers, but
lower than the yield on non-convertible debt. Convertible securities are usually
subordinated to comparable-tier nonconvertible securities but rank senior to
common stock in a corporation's capital structure. The value of a convertible
security is a function of (1) its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege, and (2) its worth, at market value, if converted into the underlying
common stock. Convertible debt securities are subject to the Portfolio's
investment policies and limitations concerning fixed-income investments.
Convertible securities are typically issued by smaller companies whose
stock prices may be volatile. The price of a convertible security often reflects
such variations in the price of the underlying common stock in a way that
nonconvertible debt does not. A convertible security may be subject to
redemption at the option of the issuer at a price established in the security's
governing instrument. If a convertible security held by the Portfolio is called
for redemption, the Portfolio will be required to convert it into the underlying
common stock, sell it to a third party or permit the issuer to redeem the
security. Any of these actions could have an adverse effect on the Portfolio's
ability to achieve its investment objective.
Commercial Paper. Commercial paper is a short-term debt security issued
by a corporation, bank, municipality, or other issuer, usually for purposes such
as financing current operations. The Portfolio may invest only in commercial
paper receiving the highest rating from S&P (A-1) or Moody's (P-1), or deemed by
the Sub-advisor to be of equivalent quality.
The Portfolio may invest in commercial paper that cannot be resold to
the public because it was issued under the exception for private offerings in
Section 4(2) of the Securities Act of 1933. While such securities normally will
be considered illiquid and subject to the Portfolio's 15% limitation on
investments in illiquid securities, the Sub-advisor may in certain cases
determine that such paper is liquid under guidelines established by the Board of
Trustees.
Zero Coupon Securities. The Portfolio may invest up to 5% of its net
assets in zero coupon securities, which are debt obligations that do not entitle
the holder to any periodic payment of interest prior to maturity or specify a
future date when the securities begin paying current interest. Rather, they are
issued and traded at a discount from their face amount or par value, which
discount varies depending on prevailing interest rates, the time remaining until
cash payments begin, the liquidity of the security, and the perceived credit
quality of the issuer.
The market prices of zero coupon securities generally are more volatile
than the prices of securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do other types of
debt securities having similar maturities and credit quality.
Investment Policies Which May be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Neuberger Berman Mid-Cap
Value Portfolio. These limitations are not fundamental restrictions, and can be
changed without shareholder approval.
1. The Portfolio may not purchase securities if outstanding borrowings,
including any reverse repurchase agreements, exceed 5% of its total assets.
2. Except for the purchase of debt securities and engaging in
repurchase agreements, the Portfolio may not make any loans other than
securities loans.
3. The Portfolio may not purchase securities on margin from brokers,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of securities transactions. Margin payments in connection with
transactions in futures contracts and options on futures contracts shall not
constitute the purchase of securities on margin and shall not be deemed to
violate the foregoing limitation.
4. The Portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold without payment of additional consideration. Transactions in futures
contracts and options shall not constitute selling securities short.
5. The Portfolio may not purchase any security if, as a result, more
than 15% of its net assets would be invested in illiquid securities. Illiquid
securities include securities that cannot be sold within seven days in the
ordinary course of business for approximately the amount at which the Portfolio
has valued the securities, such as repurchase agreements maturing in more than
seven days.
6. The Portfolio may not invest in puts, calls, straddles, spreads, or
any combination thereof, except that the Portfolio may (i) write (sell) covered
call options against portfolio securities having a market value not exceeding
10% of its net assets and (ii) purchase call options in related closing
transactions. The Portfolio does not construe the foregoing limitation to
preclude it from purchasing or writing options on futures contracts.
7. The Portfolio may not invest more than 10% of the value of its total
assets in securities of foreign issuers, provided that this limitation shall not
apply to foreign securities denominated in U.S. dollars.
AST T. Rowe Price Natural Resources Portfolio:
Investment Objective: The investment objective of the Portfolio 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 normally have primarily all of its
assets in equity securities (e.g., common stocks). This portion of the
Portfolio's assets will be subject to all of the risks of investing in the stock
market. There is risk in all investment. The value of the portfolio securities
of the Portfolio will fluctuate based upon market conditions. Although the
Portfolio seeks to reduce risk by investing in a diversified portfolio, such
diversification does not eliminate all risk. The fixed-income securities in
which the Portfolio may invest include, but are not limited to, those described
below.
U.S. Government Obligations. Bills, notes, bonds and other debt securities
issued by the U.S. Treasury. These are direct obligations of the U.S. Government
and differ mainly in the length of their maturities.
U.S. Government Agency Securities. Issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These include securities
issued by the Federal National Mortgage Association, Government National
Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business Association, and
the Tennessee Valley Authority. Some of these securities are supported by the
full faith and credit of the U.S. Treasury; and the remainder are supported only
by the credit of the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
Bank Obligations. Certificates of deposit, bankers' acceptances, and other
short-term debt obligations. Certificates of deposit are short-term obligations
of commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with international commercial
transactions. Certificates of deposit may have fixed or variable rates. The
Portfolio may invest in U.S. banks, foreign branches of U.S. banks, U.S.
branches of foreign banks, and foreign branches of foreign banks.
Short-Term Corporate Debt Securities. Outstanding nonconvertible
corporate debt securities (e.g., bonds and debentures) which have one year or
less remaining to maturity. Corporate notes may have fixed, variable, or
floating rates.
Commercial Paper. Short-term promissory notes issued by corporations
primarily to finance short-term credit needs. Certain notes may have floating or
variable rates.
Foreign Government Securities. Issued or guaranteed by a foreign
government, province, instrumentality, political subdivision or similar unit
thereof.
Savings and Loan Obligations. Negotiable certificates of deposit and other
short-term debt obligations of savings and loan associations.
Supranational Entities. The Portfolio may also invest in the securities of
certain supranational entities, such as the International Development Bank.
Debt Obligations. Although primarily all of the Portfolio's assets are
invested in common stocks, the Portfolio may invest in convertible securities,
corporate debt securities and preferred stocks. See this Statement under
"Certain Risk Factors and Investment Methods," for a discussion of debt
obligations.
The Portfolio's investment program permits it to purchase below
investment grade securities. Since investors generally perceive that there are
greater risks associated with investment in lower quality securities, the yields
from such securities normally exceed those obtainable from higher quality
securities. However, the principal value of lower-rated securities generally
will fluctuate more widely than higher quality securities. Lower quality
investments entail a higher risk of default -- that is, the nonpayment of
interest and principal by the issuer than higher quality investments. Such
securities are also subject to special risks, discussed below. Although the
Portfolio seeks to reduce risk by portfolio diversification, credit analysis,
and attention to trends in the economy, industries and financial markets, such
efforts will not eliminate all risk. There can, of course, be no assurance that
the Portfolio will achieve its investment objective.
After purchase by the Portfolio, a debt security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event will require a sale of such security by the Portfolio.
However, Sub-advisor will consider such event in its determination of whether
the Portfolio should continue to hold the security. To the extent that the
ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, the Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the prospectus.
Risks of Low-Rated Debt Securities. The Portfolio may invest in low
quality bonds commonly referred to as "junk bonds." Junk bonds are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in low and lower-medium
quality bonds involves greater investment risk, to the extent the Portfolio
invests in such bonds, achievement of its investment objective will be more
dependent on Sub-advisor's credit analysis than would be the case if the
Portfolio was investing in higher quality bonds. For a discussion of the special
risks involved in low-rated bonds, see this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
Mortgage-Backed Securities. Mortgage-backed securities are securities
representing interest in a pool of mortgages. After purchase by the Portfolio, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event will require a sale of
such security by the Portfolio. However, the Sub-advisor will consider such
event in its determination of whether the Portfolio should continue to hold the
security. To the extent that the ratings given by Moody's or S&P may change as a
result of changes in such organizations or their rating systems, the Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies continued in the Trust's Prospectus. For
a discussion of mortgage-backed securities and certain risks involved therein,
see this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Collateralized Mortgage Obligations (CMOs). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
a Portfolio invests, the investment may be subject to a greater or lesser risk
of prepayment than other types of mortgage-related securities. For an additional
discussion of CMOs and certain risks involved therein, see the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Asset-Backed Securities. The Portfolio may invest a portion of its
assets in debt obligations known as asset-backed securities. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets
which in turn may be affected by a variety of economic and other factors. As a
result, the yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than the anticipated
yield to maturity.
Automobile Receivable Securities. The Portfolio may invest in
asset-backed securities which are backed by receivables from motor vehicle
installment sales contracts or installment loans secured by motor vehicles
("Automobile Receivable Securities").
Credit Card Receivable Securities. The Portfolio may invest in
asset-backed securities backed by receivables from revolving credit card
agreements ("Credit Card Receivable Securities").
Other Assets. The Sub-advisor anticipates that asset-backed
securities backed by assets other than those described above will be issued in
the future. The Portfolio may invest in such securities in the future if such
investment is otherwise consistent with its investment objective and policies.
For a discussion of these securities, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Stripped Agency Mortgage-Backed Securities. Stripped Agency
Mortgage-Backed securities represent interests in a pool of mortgages, the cash
flow of which has been separated into its interest and principal components.
"IOs" (interest only securities) receive the interest portion of the cash flow
while "POs" (principal only securities) receive the principal portion. Stripped
Agency Mortgage-Backed Securities may be issued by U.S. Government Agencies or
by private issuers similar to those described above with respect to CMOs and
privately-issued mortgage-backed certificates. As interest rates rise and fall,
the value of IOs tends to move in the same direction as interest rates. The
value of the other mortgage-backed securities described herein, like other debt
instruments, will tend to move in the opposite direction compared to interest
rates. Under the Internal Revenue Code of 1986, as amended (the "Code"), POs may
generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to the Portfolio.
The cash flows and yields on IO and PO classes are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying mortgage assets. For example, a rapid or slow rate of principal
payments may have a material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, an investor may fail to recoup fully its
initial investment in an IO class of a stripped mortgage-backed security, even
if the IO class is rated AAA or Aaa or is derived from a full faith and credit
obligation. Conversely, if the underlying mortgage assets experience slower than
anticipated prepayments of principal, the price on a PO class will be affected
more severely than would be the case with a traditional mortgage-backed
security.
The Portfolio will treat IOs and POs, other than government-issued IOs
or POs backed by fixed rate mortgages, as illiquid securities and, accordingly,
limit its investments in such securities, together with all other illiquid
securities, to 15% of the Portfolio's net assets. Sub-advisor will determine the
liquidity of these investments based on the following guidelines: the type of
issuer; type of collateral, including age and prepayment characteristics; rate
of interest on coupon relative to current market rates and the effect of the
rate on the potential for prepayments; complexity of the issue's structure,
including the number of tranches; size of the issue and the number of dealers
who make a market in the IO or PO. The Portfolio will treat
non-government-issued IOs and POs not backed by fixed or adjustable rate
mortgages as illiquid unless and until the Securities and Exchange Commission
modifies its position.
Writing Covered Call Options. The Portfolio may write (sell) American
or European style "covered" call options and purchase options to close out
options previously written by a Portfolio. In writing covered call options, the
Portfolio expects to generate additional premium income which should serve to
enhance the Portfolio's total return and reduce the effect of any price decline
of the security or currency involved in the option. Covered call options will
generally be written on securities or currencies which, in Sub-advisor is
opinion, are not expected to have any major price increases or moves in the near
future but which, over the long term, are deemed to be attractive investments
for the Portfolio.
The Portfolio will write only covered call options. This means that the
Portfolio will own the security or currency subject to the option or an option
to purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. government securities or other liquid high-grade debt
obligations having a value equal to the fluctuating market value of the optioned
securities or currencies.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objective. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, a Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency. The Portfolio does not consider a security or
currency covered by a call to be "pledged" as that term is used in the
Portfolio's policy which limits the pledging or mortgaging of its assets.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, Sub-advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Portfolio for writing covered call options
will be recorded as a liability of the Portfolio. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Portfolio
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The option will be terminated upon expiration of
the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security or currency upon the exercise of the option.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
The Portfolio will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities or currencies covering call
or put options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written calls and puts, the value of purchased calls and puts on
identical securities or currencies with identical maturity dates.
Writing Covered Put Options. The Portfolio may write American or
European style covered put options and purchase options to close out options
previously written by the Portfolio.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" option at all times
while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where the Sub-advisor wishes to purchase the underlying security
or currency for the Portfolio at a price lower than the current market price of
the security or currency. In such event the Portfolio would write a put option
at an exercise price which, reduced by the premium received on the option,
reflects the lower price it is willing to pay. Since the Portfolio would also
receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Portfolio. In
addition, the Portfolio, because it does not own the specific securities or
currencies which it may be required to purchase in exercise of the put, cannot
benefit from appreciation, if any, with respect to such specific securities or
currencies.
The Portfolio will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies covering put or
call options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates.
Purchasing Put Options. The Portfolio may purchase American or European
style put options. As the holder of a put option, the Portfolio has the right to
sell the underlying security or currency at the exercise price at any time
during the option period (American style) or at the expiration of the option
(European style). The Portfolio may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. The Portfolio
may purchase put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies. An example of
such use of put options is provided in this Statement under "Certain Risk
Factors and Investment Methods."
The premium paid by the Portfolio when purchasing a put option will be
recorded as an asset of the Portfolio. This asset will be adjusted daily to the
option's current market value, which will be the latest sale price at the time
at which the net asset value per share of the Portfolio is computed (close of
New York Stock Exchange), or, in the absence of such sale, the latest bid price.
This asset will be terminated upon expiration of the option, the selling
(writing) of an identical option in a closing transaction, or the delivery of
the underlying security or currency upon the exercise of the option.
Purchasing Call Options. The Portfolio may purchase American or
European style call options. As the holder of a call option, the Portfolio has
the right to purchase the underlying security or currency at the exercise price
at any time during the option period (American style) or at the expiration of
the option (European style). The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could reduce its current
return. The Portfolio may also purchase call options in order to acquire the
underlying securities or currencies. Examples of such uses of call options are
provided in this Statement under "Certain Risk Factors and Investment Methods."
The Portfolio may also purchase call options on underlying securities
or currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses.
The Portfolio will not commit more than 5% of its total assets to
premiums when purchasing call or put options.
Dealer (Over-the-Counter) Options. The Portfolio may engage in
transactions involving dealer options. Certain risks are specific to dealer
options. While the Portfolio would look to a clearing corporation to exercise
exchange-traded options, if the Portfolio were to purchase a dealer option, it
would rely on the dealer from whom it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as loss of the expected benefit of
the transaction. For a discussion of dealer options, see this Statement under
"Certain Risk Factors and Investment Methods."
Futures Contracts.
Transactions in Futures. The Portfolio may enter into futures
contracts, including stock index, interest rate and currency futures ("futures"
or "futures contracts"). The Portfolio may also enter into futures on
commodities related to the types of companies in which it invests, such as oil
and gold futures. Otherwise the nature of such futures and the regulatory
limitations and risks to which they are subject are the same as those described
below.
Stock index futures contracts may be used to attempt to hedge a portion
of the Portfolio, as a cash management tool, or as an efficient way for the
Sub-advisor to implement either an increase or decrease in portfolio market
exposure in response to changing market conditions. The Portfolio may purchase
or sell futures contracts with respect to any stock index. Nevertheless, to
hedge the Portfolio successfully, the Portfolio must sell futures contacts with
respect to indices or subindices whose movements will have a significant
correlation with movements in the prices of the Portfolio's securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges, and are standardized as to maturity date
and underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the CFTC. Although
techniques other than the sale and purchase of futures contracts could be used
for the above-referenced purposes, futures contracts offer an effective and
relatively low cost means of implementing the Portfolio's objectives in these
areas.
Regulatory Limitations. The Portfolio will engage in futures
contracts and options thereon only for bona fide hedging, yield enhancement, and
risk management purposes, in each case in accordance with rules and regulations
of the CFTC.
The Portfolio may not purchase or sell futures contracts or related
options if, with respect to positions which do not qualify as bona fide hedging
under applicable CFTC rules, the sum of the amounts of initial margin deposits
and premiums paid on those positions would exceed 5% of the net asset value of
the Portfolio after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into; provided, however, that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in calculating the 5% limitation. For purposes of this
policy options on futures contracts and foreign currency options traded on a
commodities exchange will be considered "related options." This policy may be
modified by the Board of Trustees of the Trust without a shareholder vote and
does not limit the percentage of the Portfolio's assets at risk to 5%.
In instances involving the purchase of futures contracts or the writing
of call or put options thereon by the Portfolio, an amount of cash, U.S.
government securities or other liquid, high-grade debt obligations, equal to the
market value of the futures contracts and options thereon (less any related
margin deposits), will be identified by the Portfolio to cover the position, or
alternative cover (such as owning an offsetting position) will be employed.
Assets used as cover or held in an identified account cannot be sold while the
position in the corresponding option or future is open, unless they are replaced
with similar assets. As a result, the commitment of a large portion of a
Portfolio's assets to cover or identified accounts could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
Options on Futures Contracts. The Portfolio may purchase and sell
options on the same types of futures in which it may invest. As an alternative
to writing or purchasing call and put options on stock index futures, the
Portfolio may write or purchase call and put options on financial indices. Such
options would be used in a manner similar to the use of options on futures
contracts. From time to time, a single order to purchase or sell futures
contracts (or options thereon) may be made on behalf of the Portfolio and other
mutual funds or portfolios of mutual funds managed by the Sub-advisor or Rowe
Price-Fleming International, Inc. Such aggregated orders would be allocated
among such portfolios in a fair and non-discriminatory manner.
See this Statement and Trust's Prospectus under "Certain Risk Factors
and Investment Methods" for a description of certain risks in options and future
contracts.
Additional Futures and Options Contracts. Although the Portfolio has no
current intention of engaging in futures or options transactions other than
those described above, it reserves the right to do so. Such futures and options
trading might involve risks which differ from those involved in the futures and
options described above.
Foreign Futures and Options. The Portfolio is permitted to invest in
foreign futures and options. For a description of foreign futures and options
and certain risks involved therein as well as certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
and non-U.S. dollar-denominated securities of foreign issuers. There are special
risks in foreign investing. Certain of these risks are inherent in any
international mutual fund while others relate more to the countries in which the
Portfolio will invest. Many of the risks are more pronounced for investments in
developing or emerging countries, such as many of the countries of Southeast
Asia, Latin America, Eastern Europe and the Middle East. For an additional
discussion of certain risks involved in investing in foreign securities, see
this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Foreign Currency Transactions. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are principally traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
The Portfolio may enter into forward contracts for a variety of
purposes in connection with the management of the foreign securities portion of
its portfolio. The Portfolio's use of such contracts would include, but not be
limited to, the following. First, when the Portfolio enters into a contract for
the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. Second, when the
Sub-advisor believes that one currency may experience a substantial movement
against another currency, including the U.S. dollar, it may enter into a forward
contract to sell or buy the amount of the former foreign currency, approximating
the value of some or all of the Portfolio's securities denominated in such
foreign currency. Alternatively, where appropriate, the Portfolio may hedge all
or part of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Portfolio may enter
into a forward contract where the amount of the foreign currency to be sold
exceeds the value of the securities denominated in such currency. The use of
this basket hedging technique may be more efficient and economical than entering
into separate forward contracts for each currency held in the Portfolio. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall diversification
strategies. However, Sub-advisor believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Portfolio will be served. The Portfolio will generally not
enter into a forward contract with a term of greater than one year.
The Portfolio may enter into forward contracts for any other purpose
consistent with the Portfolio's investment objective and policies. However, the
Portfolio will not enter into a forward contract, or maintain exposure to any
such contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Portfolio's holdings of liquid, high-grade debt
securities and currency available for cover of the forward contract(s). In
determining the amount to be delivered under a contract, the Portfolio may net
offsetting positions.
At the maturity of a forward contract, the Portfolio may sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and either extend the maturity of the forward contract (by
"rolling" that contract forward) or may initiate a new forward contract.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer. For a discussion of
certain risk factors involved in foreign currency transactions, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts. The Portfolio may enter into certain option, futures, and
forward foreign exchange contracts, including options and futures on currencies,
which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain (taxable at a maximum rate of 20%)
or loss and 40% short-term capital gain or loss regardless of the holding period
of the instrument (or, in the case of foreign exchange contracts, entirely as
ordinary income or loss). The Portfolio will be required to distribute net gains
on such transactions to shareholders even though it may not have closed the
transaction and received cash to pay such distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. The holding period of the security offsetting
an "in-the-money qualified covered call" option on an equity security will not
include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Tax regulations could be issued limiting the
extent that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement.
As a result of the "Taxpayer Relief Act of 1997," entering into certain
option, futures contracts, or forward contracts may be deemed a "constructive
sale" of offsetting securities, which could result in a taxable gain from the
sale being distributed to shareholders. The Portfolio would be required to
distribute any such gain even though it would not receive proceeds from the sale
at the time the option, futures or forward position is entered into.
Illiquid and Restricted Securities. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the Portfolio
should be in a position where more than 15% of the value of its net assets is
invested in illiquid assets, including restricted securities, the Portfolio will
take appropriate steps to protect liquidity.
Notwithstanding the above, the Portfolio may purchase securities which,
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers, such as
the Portfolio, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. Sub-advisor under the
supervision of the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, Sub-advisor will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, Sub-advisor could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) the nature of the security and
of marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities would be monitored, and if as a result of changed
conditions it is determined that a Rule 144A security is no longer liquid, the
Portfolio's holdings of illiquid securities would be reviewed to determine what,
if any, steps are required to assure that the Portfolio does not invest more
than 15% of its net assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the Portfolio's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Hybrid Instruments. Hybrid Instruments have been developed and combine
the elements of futures contracts, options or other financial instruments with
those of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments. Hybrid Instruments may take a variety of forms, including, but not
limited to, debt instruments with interest or principal payments or redemption
terms determined by reference to the value of a currency or commodity or
securities index at a future point in time, preferred stock with dividend rates
determined by reference to the value of a currency, or convertible securities
with the conversion terms related to a particular commodity. For a discussion of
certain risks involved in investing in hybrid instruments see this statement
under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. Subject to guidelines adopted by the Board of
Trustees of the Trust, the Portfolio may enter into a repurchase agreement
through which an investor (such as the Portfolio) purchases a security (known as
the "underlying security") from a well-established securities dealer or a bank
that is a member of the Federal Reserve System. Any such dealer or bank will be
on Sub-advisor's approved list and have a credit rating with respect to its
short-term debt of at least A1 by Standard & Poor's Corporation, P1 by Moody's
Investors Service, Inc., or the equivalent rating by Sub-advisor. At that time,
the bank or securities dealer agrees to repurchase the underlying security at
the same price, plus specified interest. Repurchase agreements are generally for
a short period of time, often less than a week. Repurchase agreements which do
not provide for payment within seven days will be treated as illiquid
securities. The Portfolio will only enter into repurchase agreements where (i)
the underlying securities are of the type (excluding maturity limitations) which
the Portfolio's investment guidelines would allow it to purchase directly, (ii)
the market value of the underlying security, including interest accrued, will be
at all times equal to or exceed the value of the repurchase agreement, and (iii)
payment for the underlying security is made only upon physical delivery or
evidence of book- entry transfer to the account of the custodian or a bank
acting as agent. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Portfolio could experience both delays in liquidating
the underlying security and losses, including: (a) possible decline in the value
of the underlying security during the period while the Portfolio seeks to
enforce its rights thereto; (b) possible subnormal levels of income and lack of
access to income during this period; and (c) expenses of enforcing its rights.
Reverse Repurchase Agreements. Although the Portfolio has no current
intention, in the foreseeable future, of engaging in reverse repurchase
agreements, the Portfolio reserves the right to do so. Reverse repurchase
agreements are ordinary repurchase agreements in which a Portfolio is the seller
of, rather than the investor in, securities, and agrees to repurchase them at an
agreed upon time and price. Use of a reverse repurchase agreement may be
preferable to a regular sale and later repurchase of the securities because it
avoids certain market risks and transaction costs. A reverse repurchase
agreement may be viewed as a type of borrowing by the Portfolio.
Warrants. The Portfolio may acquire warrants. For a discussion of certain
risks involved therein, see this Statement under "Certain Risk Factor and
Investment Methods."
Lending of Portfolio Securities. Securities loans are made to
broker-dealers or institutional investors or other persons, pursuant to
agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent, marked to market
on a daily basis. The collateral received will consist of cash, U.S. government
securities, letters of credit or such other collateral as may be permitted under
its investment program. While the securities are being lent, the Portfolio will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. The Portfolio has a right to call each
loan and obtain the securities on three business days' notice or, in connection
with securities trading on foreign markets, within such longer period of time
which coincides with the normal settlement period for purchases and sales of
such securities in such foreign markets. The Portfolio will not have the right
to vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission and certain state regulatory agencies, the Portfolio may
make loans to, or borrow funds from, other mutual funds sponsored or advised by
the Sub-advisor or Rowe Price-Fleming International, Inc. The Portfolio has no
current intention of engaging in these practices at this time.
When-Issued Securities and Forward Commitment Contracts. The Portfolio
may purchase securities on a "when-issued" or delayed delivery basis and may
purchase securities on a forward commitment basis. Any or all of the Portfolio's
investments in debt securities may be in the form of when-issueds and forwards.
The price of such securities, which may be expressed in yield terms, is fixed at
the time the commitment to purchase is made, but delivery and payment take place
at a later date. Normally, the settlement date occurs within 90 days of the
purchase for when-issueds, but may be substantially longer for forwards. The
Portfolio will cover its commitments with respect to these securities by
maintaining cash and/or liquid, high-grade debt securities with its custodian
bank equal in value to these commitments during the time between the purchase
and the settlement. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date. For a discussion of these
securities and the risks involved therein, see this Statement under "Certain
Risk Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval. The
following limitations are applicable to the AST T. Rowe Price Natural Resources
Portfolio. These limitations are not "fundamental" restrictions and can be
changed by the Trustees without shareholder approval. The Portfolio will not:
1. Purchase additional securities when money borrowed exceeds 5% of its
total assets;
2. Invest in companies for the purpose of exercising management or control;
3. Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such options would exceed
5% of the Portfolio's net asset value;
4. Purchase illiquid securities if, as a result, more than 15% of its net
assets would be invested in such securities. Securities eligible for resale
under Rule 144A of the Securities Act of 1933 may be subject to this 15%
limitation;
5. Purchase securities of open-end or closed-end investment companies
except in compliance with the 1940 Act.
6. Purchase securities on margin, except (i) for use of short-term credit
necessary for clearance of purchases of portfolio securities and (ii) the
Portfolio may make margin deposits in connection with futures contracts or other
permissible investments;
7. Mortgage, pledge, hypothecate or, in any manner, transfer any security
owned by the Portfolio as security for indebtedness except as may be necessary
in connection with permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed 33 1/3% of the Portfolio's
total assets at the time of borrowing or investment;
8. Invest in puts, calls, straddles, spreads, or any combination thereof,
except to the extent permitted by the Trust's Prospectus and this Statement;
9. Effect short sales of securities; or
10. Invest in warrants if, as a result thereof, more than 10% of the value
of the net assets of the Portfolio would be invested in warrants, except that
this restriction does not apply to warrants acquired as a result of the purchase
of another security. For purposes of these percentage limitations, the warrants
will be valued at the lower of cost or market.
AST Oppenheimer Large-Cap Growth Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
capital appreciation. The Portfolio does not invest to seek current income.
Investment Policies:
In selecting securities for the Portfolio, the Sub-advisor evaluates
the merits of securities primarily through the exercise of its own investment
analysis. This may include, among other things, evaluation of the history of the
issuer's operations, prospects for the industry of which the issuer is part, the
issuer's financial condition, the issuer's pending product developments and
developments by competitors, the effect of general market and economic
conditions on the issuer's business, and legislative proposals or new laws that
might affect the issuer. Current income is not a consideration in the selection
of securities for the Portfolio, whether for appreciation, defensive or
liquidity purposes. The fact that a security has a low yield or does not pay
current income will not be an adverse factor in selecting securities to try to
achieve the Portfolio's investment objective of capital appreciation unless the
Sub-advisor believes that the lack of yield might adversely affect appreciation
possibilities.
The portion of the Portfolio's assets allocated to securities and
methods selected for capital appreciation will depend upon the judgment of the
Sub-advisor as to the future movement of the equity securities markets. If the
Sub-advisor believes that economic conditions favor a rising market, the
Portfolio will emphasize securities and investment methods selected for high
capital growth.
Foreign Securities. The Portfolio may invest in securities (which may be
denominated in U.S. dollars or non-U.S. currencies) issued or guaranteed by
foreign corporations, certain supranational entities (described below) and
foreign governments or their agencies or instrumentalities and in securities
issued by U.S. corporations denominated in non-U.S. currencies. The types of
foreign debt obligations and other securities in which the Portfolio may invest
are the same types of debt and equity securities identified in the Prospectus.
Foreign securities include equity and debt securities of companies
organized under the laws of countries other than the United States and debt
securities of foreign governments that are traded on foreign securities
exchanges or in the foreign over-the-counter markets, as well as American
Depository Receipts that are listed on a U.S. securities exchange or traded in
the U.S. over-the-counter markets. However, American Depository Receipts are not
subject to some of the special considerations and risks that apply to foreign
securities traded and held abroad.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers, including the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets.
Investing in foreign securities involves special additional risks and
considerations not typically associated with investing in securities of issuers
traded in the U.S. From time to time, U.S. Government policies have discouraged
certain investments abroad by U.S. investors, through taxation or other
restrictions, and it is possible that such restrictions could be re-imposed. For
an additional discussion of foreign investing and certain risks involved
therein, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Illiquid and Restricted Securities. The Portfolio may invest in
illiquid and restricted securities. Illiquid securities include repurchase
agreements maturing in more than seven days, or certain participation interests
other than those puts exercisable within seven days. Under the guidelines
established by the Trust's Board of Trustees, the Sub-advisor determines the
liquidity of certain of the Portfolio's investments. The Sub-advisor monitors
holdings of illiquid securities on an ongoing basis and at times the Portfolio
may be required to sell some holdings to maintain adequate liquidity.
The Portfolio has percentage limitations that apply to purchases of
illiquid securities, as stated in the Prospectus. Those percentage restrictions
do not limit purchases of restricted securities that are eligible for sale to
qualified institutional purchasers pursuant to Rule 144A under the Securities
Act of 1933, provided that those securities have been determined to be liquid by
the Board of Trustees of the Trust or by the Sub-advisor under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Portfolio's holding of that security may be considered illiquid.
For an additional discussion of illiquid and restricted securities and certain
risks involved therein, see the Trust's Prospectus under "Certain Risk Factors
and Investment Methods."
Loans of Portfolio Securities. The Portfolio may lend its portfolio
securities subject to the restrictions stated in the Prospectus under "Certain
Risk Factors and Investment Methods." Repurchase transactions are not considered
"loans" for the purpose of the Portfolio's limit on the percentage of its assets
that can be loaned. In a portfolio securities lending transaction, the Portfolio
receives from the borrower an amount equal to the interest paid or the dividends
declared on the loaned securities during the term of the loan as well as the
interest on the collateral securities, less any finders', administrative or
other fees the Portfolio pays in connection with the loan. The terms of the
Portfolio's loans must meet applicable tests under the Internal Revenue Code and
must permit the Portfolio to reacquire loaned securities, generally within the
customary settlement period, in time to vote on any important matter. For an
additional discussion of securities lending and certain risks involved therein,
see the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. The Portfolio may acquire securities subject to
repurchase agreements for liquidity purposes to meet anticipated redemptions, or
pending the investment of the proceeds from sales of Portfolio shares, or
pending the settlement of purchases of Portfolio securities. In a repurchase
transaction, the Portfolio acquires a security from, and simultaneously agrees
to resell it to, an approved vendor. An "approved vendor" is a U.S. commercial
bank or the U.S. branch of a foreign bank or a broker-dealer that has been
designated a primary dealer in government securities, which must meet credit
requirements set forth in guidelines established by the Trust's Board of
Trustees. Repurchase agreements are similar to loans collateralized by the
underlying security. The Portfolio's repurchase agreements require that at all
times while the repurchase agreement is in effect, the value of the collateral
must equal or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Sub-advisor will continuously monitor the
collateral's value. For an additional discussion of repurchase agreements and
certain risks and regulatory limits involved therein, see the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
Hedging with Futures Contracts. The Portfolio may use hedging
instruments for the purposes described in the Prospectus. When hedging to
attempt to protect against declines in the market value of the Portfolio's
portfolio, or to permit the Portfolio to protect unrealized gains on portfolio
securities that have appreciated, or to facilitate selling securities for
investment reasons, the Portfolio may sell financial futures. When hedging to
establish a position in the equities market as a temporary substitute for the
purchase of individual equity securities, the Portfolio may buy futures.
Normally, the Portfolio may thereafter purchase the equity securities and
terminate the hedging position.
The Portfolio's strategy of hedging with futures will be incidental to
the Portfolio's investment activities in the underlying cash market. In the
future, the Portfolio may employ hedging instruments and strategies that are not
presently contemplated but which may be developed, to the extent such investment
methods are consistent with the Portfolio's investment objective, and are
legally permissible and disclosed in the Prospectus. Additional information
about the hedging instruments the Portfolio may use is provided below.
The Portfolio may buy and sell futures contracts related to financial
indices, including stock indices. Financial indices cannot be purchased or sold
directly. All futures transactions are effected through a clearinghouse
associated with the exchange on which the contracts are traded. For an
additional discussion on futures, including certain risks involved therein, see
this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Regulatory Aspects of Futures. The Portfolio is required to
operate within certain guidelines and restrictions with respect to its use of
futures and options on futures established by the Commodity Futures Trading
Commission ("CFTC"). In addition, due to requirements under the Investment
Company Act of 1940 (the "Investment Company Act"), when the Portfolio purchases
a stock index future, the Portfolio will identify on the Trust's records, liquid
assets in an amount equal to the market value of the securities underlying such
future, less the margin deposit applicable to it. For an additional discussion
on the regulatory aspects of hedging instruments, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Risks of Hedging with Futures. Selling futures to attempt to
protect against declines in the values of the portfolio's securities involves
the risk that the prices of the futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of the Portfolio's securities.
To compensate for the imperfect correlation of movements in the price of the
securities being hedged and movements in the price of the hedging instruments,
the Portfolio may use hedging instruments in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities being hedged is more than the historical volatility of
the applicable index.
If the Portfolio uses hedging instruments to establish a position in
the equities markets as a temporary substitute for the purchase of individual
equity securities (long hedging) by buying futures, it is possible that the
market may decline. If the Portfolio then concludes not to invest in equity
securities at that time because of concerns as to a possible further market
decline or for other reasons, the Portfolio will realize a loss on the hedging
instruments that is not offset by a reduction in the price of the equity
securities purchased. For an additional discussion of hedging instruments,
including certain risks involved therein, see this Statement under "Certain Risk
Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitation is applicable to the AST Oppenheimer Large-Cap Growth
Portfolio. This limitation is not a "fundamental" restriction and may be changed
by the Trustees without shareholder approval.
The Portfolio will not invest in interests in oil, gas, or other
mineral exploration or development programs.
AST Marsico Capital Growth Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth. This is a fundamental objective of the Portfolio. Realization of
income is not an investment objective and any income realized on the Portfolio's
investments, therefore, will be incidental to the Portfolio's objective.
Investment Policies:
Futures, Options and Other Derivative Instruments. The Portfolio may
enter into futures contracts on securities, financial indices, and foreign
currencies and options on such contracts, and may invest in options on
securities, financial indices and foreign currencies, forward contracts and
swaps. The Portfolio will not enter into any futures contracts or options on
futures contracts if the aggregate amount of the Portfolio's commitments under
outstanding futures contract positions and options on futures contracts written
by the Portfolio would exceed the market value of the total assets of the
Portfolio. The Portfolio may invest in forward currency contracts with stated
values of up to the value of the Portfolio's assets.
The Portfolio may buy or write options in privately negotiated
transactions on the types of securities and indices based on the types of
securities in which the Portfolio is permitted to invest directly. The Portfolio
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy by the Sub-advisor, and only pursuant to procedures adopted by the
Sub-advisor for monitoring the creditworthiness of those entities. To the extent
that an option bought or written by the Portfolio in a negotiated transaction is
illiquid, the value of an option bought or the amount of the Portfolio's
obligations under an option written by the Portfolio, as the case may be, will
be subject to the Portfolio's limitation on illiquid investments. In the case of
illiquid options, it may not be possible for the Portfolio to effect an
offsetting transaction at a time when the Sub-advisor believes it would be
advantageous for the Portfolio to do so. For a description of these strategies
and instruments and certain risks involved therein, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Interest Rate Swaps and Purchasing and Selling Interest Rate Caps and
Floors. In addition to the strategies noted above, the Portfolio, in order to
attempt to protect the value of its investments from interest rate or currency
exchange rate fluctuations, may enter into interest rate swaps and may buy or
sell interest rate caps and floors. The Portfolio expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its investments. The Portfolio also may enter into these
transactions to protect against any increase in the price of securities the
Portfolio may consider buying at a later date. The Portfolio does not intend to
use these transactions as speculative investments. Interest rate swaps involve
the exchange by the Portfolio with another party of their respective commitments
to pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The exchange commitments can involve payments to be made in
the same currency or in different currencies. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a contractually
based principal amount from the party selling the interest rate cap. The
purchase of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive payments
of interest on a contractually based principal amount from the party selling the
interest rate floor.
The Portfolio may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending upon whether it is
hedging its assets or its liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Portfolio receiving or paying, as the case may be, only the net amount of the
two payments. The net amount of the excess, if any, of the Portfolio's
obligations over its entitlements with respect to each interest rate swap will
be calculated on a daily basis and an amount of cash or other liquid assets
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. If the
Portfolio enters into an interest rate swap on other than a net asset basis, the
Portfolio would maintain a segregated account in the full amount accrued on a
daily basis of the Portfolio's obligations with respect to the swap. The
Portfolio will not enter into any interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in one of the three highest rating categories of at least one
nationally recognized statistical rating organization at the time of entering
into such transaction. The Sub-advisor will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other party to
such a transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. The Sub-advisor has determined
that, as a result, the swap market has become relatively liquid. Caps and floors
are more recent innovations for which standardized documentation has not yet
been developed and, accordingly, they are less liquid than swaps. To the extent
the Portfolio sells (i.e., writes) caps and floors, it will maintain in a
segregated account cash or other liquid assets having an aggregate net asset
value at least equal to the full amount, accrued on a daily basis, of the
Portfolio's obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the Portfolio
or its counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that the Portfolio contractually is entitled
to receive. The Portfolio may buy and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement described above. For
an additional discussion of these strategies, see this Statement under "Certain
Risk Factors and Investment Methods."
Repurchase Agreements and Reverse Repurchase Agreements. Subject to
guidelines promulgated by the Board of Trustees of the Trust, the Portfolio may
enter into repurchase agreements. The Portfolio may also enter into reverse
repurchase agreements. For a description of these investment techniques, see the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
High-Yield/High-Risk Securities. High-yield/high-risk securities (or
"junk" bonds) are debt securities rated below investment grade by the primary
rating agencies such as Standard & Poor's Rating Services ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's"). The Portfolio will not invest
more than 5% of its total assets in high-yield/high-risk and mortgage- and
asset-backed securities.
The value of lower quality securities generally is more dependent on
the ability of the issuer to meet interest and principal payments (i.e. credit
risk) than is the case for higher quality securities. Conversely, the value of
higher quality securities may be more sensitive to interest rate movements than
lower quality securities. The Portfolio will not purchase debt securities rated
below "CCC-" by Standard & Poor's or "Caa" by Moody's. The Portfolio may also
purchase unrated bonds of foreign and domestic issuers. For an additional
discussion of high-yield/high-risk and mortgage- and asset-backed securities,
see this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Zero Coupon, Pay-in-Kind, and Step Coupon Bonds. The Fund may purchase
zero coupon, pay-in-kind, and step coupon bonds. Zero coupon bonds are debt
securities that do not pay periodic interest, but are issued at a discount from
their face value. The discount approximates the total amount of interest the
security will accrue from the date of issuance to maturity. Pay-in-kind bonds
normally give the issuer the option to pay cash at a coupon payment date or give
the holder of the security a similar bond with the same coupon rate and a face
value equal to the amount of the coupon payment that would have been made. Step
coupon bonds begin to pay coupon interest, or pay an increased rate of interest,
at some time after they are issued. The discount at which step coupon bonds
trade depends on the time remaining until cash payments begin, prevailing
interest rates, the liquidity of the security and the perceived credit quality
of the issuer. The market value of zero coupon, pay-in-kind and step coupon
bonds generally will fluctuate more in response to changes in interest rates
than will conventional interest-paying securities with comparable maturities.
For an additional discussion of zero coupon securities, see this SAI under
"Certain Risk Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Marsico Capital Growth
Portfolio. These limitations are not "fundamental" restrictions, and may be
changed by the Trustees without shareholder approval.
1. The Portfolio does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
2. The Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing securities on
margin.
3. The Portfolio may not mortgage or pledge any securities owned or
held by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net asset value, provided that this limitation does not apply to (i)
reverse repurchase agreements; (ii) deposits of assets on margin; (iii)
guaranteed positions in futures, options, swaps or forward contracts; or (iv)
the segregation of assets in connection with such contracts.
4. The Portfolio does not currently intend to purchase any securities
or enter into a repurchase agreement if, as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Trustees of the Trust, or the Sub-advisor
acting pursuant to authority delegated by the Trustees, may determine that a
readily available market exists for securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, as amended, or any successor to such
rule, and Section 4(2) commercial paper. Accordingly, such securities may not be
subject to the foregoing limitation.
5. The Portfolio may not invest in companies for the purpose of
exercising control or management.
AST JanCap Growth Portfolio:
Investment Objective: The investment objective of the Portfolio is growth of
capital in a manner consistent with the preservation of capital. Realization of
income is not a significant investment consideration and any income realized on
the Portfolio's investments, therefore, will be incidental to the Portfolio's
objective. This is a fundamental objective of the Portfolio.
Investment Policies:
The Portfolio may, as a fundamental policy, invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as the Portfolio subject to the prior approval of the Investment
Manager. The Investment Manager will not approve such investment unless: (a) the
Investment Manager believes, on the advice of counsel, that such investment will
not have an adverse effect on the tax status of the annuity contracts and/or
life insurance policies supported by the separate accounts of the Participating
Insurance Companies which purchase shares of the Trust; (b) the Investment
Manager has given prior notice to the Participating Insurance Companies that it
intends to permit such investment and has determined whether such Participating
Insurance Companies intend to redeem any shares and/or discontinue the purchase
of shares because of such investment; (c) the Trustees have determined that the
fees to be paid by the Trust for administrative, accounting, custodial and
transfer agency services for the Portfolio subsequent to such an investment are
appropriate, or the Trustees have approved changes to the agreements providing
such services to reflect a reduction in fees; (d) the Sub-advisor for the
Portfolio has agreed to reduce its fee by the amount of any investment advisory
fees paid to the investment manager of such open-end management investment
company; and (e) shareholder approval is obtained if required by law. The
Portfolio will apply for such exemptive or other relief under the provisions of
the Investment Company Act of 1940 (the "1940 Act") and the rules thereunder as
may be necessary regarding investments in such investment companies.
Corporate Bonds and Debentures. The Portfolio may purchase corporate
bonds and debentures, including bonds rated below investment grade. The
Portfolio will not invest more than 5% of its net assets in bonds rated below
investment grade. For a discussion of lower rated securities, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Futures, Options and Other Derivative Instruments. The Portfolio may
enter into futures contracts on securities, financial indices, and foreign
currencies and options on such contracts, and may invest in options on
securities, financial indices and foreign currencies, forward contracts and
swaps. The Portfolio will not enter into any futures contracts or options on
futures contracts if the aggregate amount of the Portfolio's commitments under
outstanding futures contract positions and options on futures contracts written
by the Portfolio would exceed the market value of the total assets of the
Portfolio. The Portfolio may invest in forward currency contracts with stated
values of up to the value of the Portfolio's assets.
The Portfolio may buy or write options in privately negotiated
transactions on the types of securities and indices based on the types of
securities in which the Portfolio is permitted to invest directly. The Portfolio
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy by the Sub-advisor, and only pursuant to procedures adopted by the
Sub-advisor for monitoring the creditworthiness of those entities. To the extent
that an option bought or written by the Portfolio in a negotiated transaction is
illiquid, the value of an option bought or the amount of the Portfolio's
obligations under an option written by the Portfolio, as the case may be, will
be subject to the Portfolio's limitation on illiquid investments. In the case of
illiquid options, it may not be possible for the Portfolio to effect an
offsetting transaction at a time when the Sub-advisor believes it would be
advantageous for the Portfolio to do so. For a description of these strategies
and instruments and certain risks involved therein, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Interest Rate Swaps and Purchasing and Selling Interest Rate Caps and
Floors. In addition to the strategies noted above, the Portfolio, in order to
attempt to protect the value of its investments from interest rate or currency
exchange rate fluctuations, may enter into interest rate swaps and may buy or
sell interest rate caps and floors. The Portfolio expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its investments. The Portfolio also may enter into these
transactions to protect against any increase in the price of securities the
Portfolio may consider buying at a later date. The Portfolio does not intend to
use these transactions as speculative investments. Interest rate swaps involve
the exchange by the Portfolio with another party of their respective commitments
to pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The exchange commitments can involve payments to be made in
the same currency or in different currencies. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a contractually
based principal amount from the party selling the interest rate cap. The
purchase of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive payments
of interest on a contractually based principal amount from the party selling the
interest rate floor.
The Portfolio may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending upon whether it is
hedging its assets or its liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Portfolio receiving or paying, as the case may be, only the net amount of the
two payments. The net amount of the excess, if any, of the Portfolio's
obligations over its entitlements with respect to each interest rate swap will
be calculated on a daily basis and an amount of cash or other liquid assets
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. If the
Portfolio enters into an interest rate swap on other than a net basis, the
Portfolio would maintain a segregated account in the full amount accrued on a
daily basis of the Portfolio's obligations with respect to the swap. The
Portfolio will not enter into any interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in one of the three highest rating categories of at least one
nationally recognized statistical rating organization at the time of entering
into such transaction. The Sub-advisor will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other party to
such a transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. The Sub-advisor has determined
that, as a result, the swap market has become relatively liquid. Caps and floors
are more recent innovations for which standardized documentation has not yet
been developed and, accordingly, they are less liquid than swaps. To the extent
the Portfolio sells (i.e., writes) caps and floors, it will maintain in a
segregated account cash or other liquid assets having an aggregate net asset
value at least equal to the full amount, accrued on a daily basis, of the
Portfolio's obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the Portfolio
or its counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that the Portfolio contractually is entitled
to receive. The Portfolio may buy and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement described above. For
an additional discussion of these strategies, see this Statement under "Certain
Risk Factors and Investment Methods."
Repurchase Agreements and Reverse Repurchase Agreements. Subject to
guidelines promulgated by the Board of Trustees of the Trust, the Portfolio may
enter into repurchase agreements. Pursuant to an exemptive order granted by the
Securities and Exchange Commission, the Portfolio and other funds advised or
sub-advised by the Sub-advisor may invest in repurchase agreements and other
money market instruments through a joint trading account. The Portfolio may also
enter into reverse repurchase agreements. The Portfolio will enter into such
agreements only to provide cash to satisfy unusually heavy redemption requests
and for other temporary or emergency purposes, rather than to obtain cash to
make additional investments. For a description of these investment techniques,
see the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST JanCap Growth Portfolio.
These limitations are not "fundamental" restrictions, and may be changed by the
Trustees without shareholder approval.
1. The Portfolio will not purchase a security if as a result, more than
15% of its net assets in the aggregate, at market value, would be invested in
securities which cannot be readily resold because of legal or contractual
restrictions on resale or for which there is no readily available market, or
repurchase agreements maturing in more than seven days or securities used as a
cover for written over-the-counter options, if any. The Trustees, or the
Investment Manager or the Sub-advisor acting pursuant to authority delegated by
the Trustees, may determine that a readily available market exists for
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to such rule, and therefore that such securities are not
subject to the foregoing limitation.
2. The Portfolio may borrow money for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of its total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 25% of the value of the
Portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
limitation. Under such a circumstance, the Portfolio may have to liquidate
securities at a time when it is disadvantageous to do so. This policy shall not
prohibit reverse repurchase agreements or deposits of assets to margin or
guarantee positions in futures, options, swaps or forward contracts, or the
segregation of assets in connection with such contracts.
3. The Portfolio will not enter into any futures contracts or options
on futures contracts for purposes other than bona fide hedging transactions (as
defined by the CFTC) if as a result the sum of the initial margin deposits and
premium required to establish positions in futures contracts and related options
that do not fall within the definition of bona fide hedging transactions would
exceed 5% of the fair market value of the Portfolio's net assets.
4. The Portfolio will not enter into any futures contracts if the
aggregate amount of the Portfolio's commitments under outstanding futures
contracts positions of the Portfolio would exceed the market value of the total
assets of the Portfolio.
5. The Portfolio will not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short, and provided that transactions in options, swaps and forward futures
contracts are not deemed to constitute selling securities short.
6. The Portfolio will not mortgage or pledge any securities owned or
held by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net asset value, provided that this limitation does not apply to
reverse repurchase agreements or in the case of assets deposited to margin or
guarantee positions in futures, options, swaps or forward contracts or placed in
a segregated account in connection with such contracts.
AST Bankers Trust Enhanced 500 Portfolio:
Investment Objective: The investment objective of the AST Bankers Trust Enhanced
500 Portfolio (the "Portfolio") is to outperform the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500(R) Index") through stock selection
resulting in different weightings of common stocks relative to the index.
Investment Policies:
As a diversified fund, no more than 5% of the assets of the Portfolio
may be invested in the securities of one issuer (other than U.S. Government
Securities), except that up to 25% of the Portfolio's assets may be invested
without regard to this limitation. The Portfolio will not invest more than 25%
of its assets in the securities of issuers in any one industry. In the unlikely
event that the S&P 500 should concentrate to an extent greater than that amount,
the Portfolio's ability to achieve its objective may be impaired.
The Sub-advisor will not purchase the stock of its parent company,
Bankers Trust New York Corporation, which is included in the S&P 500.
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of discount for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as private placements or
restricted securities. Restricted or other illiquid securities may be subject to
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
commercial paper, foreign securities, municipal securities and corporate bonds
and notes. Institutional investors depend on an efficient institutional market
in which the unregistered security can be readily resold or on an issuer's
ability to honor a demand for repayment. The fact that there are contractual or
legal restrictions on resale of such investments to the general public or to
certain institutions may not be indicative of their liquidity.
Specifically, the Securities and Exchange Commission (the "SEC") has
adopted Rule 144A, which allows a broader institutional trading market for
securities otherwise subject to restrictions on their resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act of resales of certain securities to qualified institutional
buyers. The Sub-advisor anticipates that the market for certain restricted
securities such as institutional commercial paper will expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc.
Subject to guidelines promulgated by the Board of Trustees of the
Trust, the Sub-advisor will monitor the liquidity of Rule 144A securities in the
Portfolio's portfolio. In reaching liquidity decisions, the Sub-advisor will
consider, among other things, the following factors: (i) the frequency of trades
and quotes for the security; (ii) the number of dealers and other potential
purchasers wishing to purchase or sell the security; (iii) dealer undertakings
to make a market in the security and (iv) the nature of the security and of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Short-Term Instruments. When the Portfolio experiences large cash
inflows through the sale of securities and desirable equity securities that are
consistent with the Fund's investment objective are unavailable in sufficient
quantities or at attractive prices, the Portfolio may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of: (i) short-term obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities or
by any of the states; (ii) other short-term debt securities rated AA or higher
by S&P or Aa or higher by Moody's or, if unrated, of comparable quality in the
opinion of the Sub-advisor; (iii) commercial paper; (iv) bank obligations,
including negotiable certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. At the time the Portfolio invests in
commercial paper, bank obligations or repurchase agreements, the issuer of the
issuer's parent must have outstanding debt rated AA or higher by S&P or Aa or
higher by Moody's or outstanding commercial paper or bank obligations rated A-1
by S&P or Prime-1 by Moody's; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of the Sub-advisor.
Additional U.S. Government Obligations. The Portfolio may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Portfolio must look principally
to the federal agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which the Portfolio may invest that are not backed by the full
faith and credit of the United States include, but are not limited to,
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation and the U.S. Postal Service, each of which has the right to borrow
from the U.S. Treasury to meet its obligations, and obligations of the Federal
Farm Credit System and the Federal Home Loan Banks, both of whose obligations
may be satisfied only by the individual credits of each issuing agency.
Securities which are backed by the full faith and credit of the United States
include obligations of the Government National Mortgage Association, the Farmers
Home Administration, and the Export-Import Bank.
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Portfolio until settlement takes
place. At the time the Portfolio makes the commitment to purchase securities on
a when-issued or delayed delivery basis, it will record the transaction, reflect
the value of such securities in determining its net asset value each day
thereafter and, if applicable, calculate the maturity for the purposes of
average maturity from the commitment date. At the time of settlement a
when-issued security may be valued at less than the purchase price. To
facilitate such acquisitions, the Portfolio will maintain with its custodian a
segregated account consisting of cash or other liquid assets in an amount at
least equal to such commitments. On delivery dates for such transactions, the
Portfolio will meet its obligations from maturities or sales of the securities
held in the segregated account and/or from cash flow. If the Portfolio chooses
to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other obligation, incur a
gain or loss due to market fluctuation. 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 when-issued commitments.
Equity Investments. The Portfolio may invest in equity securities
listed on any domestic securities exchange or traded in the over-the-counter
market as well as certain restricted or unlisted securities. They may or may not
pay dividends or carry voting rights. Common stock occupies the most junior
position in a company's capital structure.
Reverse Repurchase Agreements. The Portfolio may borrow funds for
temporary or emergency purposes, such as meeting larger than anticipated
redemption requests, and not for leverage, by among other things, agreeing to
sell portfolio securities to financial institutions such as banks and
broker-dealers and to repurchase them at a mutually agreed date and price (a
"reverse repurchase agreement"). At the time the Portfolio enters into a reverse
repurchase agreement it will place in a segregated custodial account cash or
other liquid assets having a value equal to the repurchase price, including
accrued interest. Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Portfolio may decline below the repurchase
price of those securities. Reverse repurchase agreements are considered to be
borrowings by the Portfolio.
Warrants. Warrants entitle the holder to buy common stock from the
issuer at a specific price (the strike price) for a specific period of time. The
strike price of warrants sometimes is much lower than the current market price
of the underlying securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be debt securities
or preferred stocks that may be converted into common stock or that carry the
right to purchase common stock. Convertible securities entitle the holder to
exchange the securities for a specified number of shares of common stock,
usually of the same company, at specified prices within a certain period of
time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Futures Contracts and Options on Futures Contracts.
Futures Contracts. The Portfolio may enter into securities
index futures contracts. U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the CFTC, and must be executed
through a futures commission merchant, or brokerage firm, which is a member of
the relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
These investments will be made by the Portfolio solely for hedging purposes.
Such investments will be made only if they are economically appropriate to the
reduction of risks involved in the management of the Portfolio. In this regard,
the Portfolio may enter into futures contracts or options on futures related to
the S&P 500.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Portfolio will incur brokerage fees when it purchases or sells futures
contracts. The liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion.
In addition, futures contracts entail other risks. The Sub-advisor
believes that use of such contracts will benefit the Portfolio. The successful
use of futures contracts, however, depends on the degree of correlation between
the futures and securities markets. In addition, successful use of futures
contracts is dependent on the Sub-advisor's ability to correctly predict
movements in the securities markets and no assurance can be given that its
judgment will be correct. For an additional discussion of futures contracts and
the risks involved therein, see the Trust's Prospectus and this Statement under
"Certain Risk Factors and Investment Methods."
Options on Futures Contracts. The Portfolio may use stock
index futures on a continual basis to equitize cash so that the Portfolio may
maintain 100% equity exposure. The Portfolio will not enter into any futures
contracts or options on futures contracts if immediately thereafter the amount
of margin deposits on all the futures contracts of the Portfolio and premiums
paid on outstanding options on futures contracts owned by the Portfolio (other
than those entered into for bona fide hedging purposes) would exceed 5% of the
market value of the total assets of the Portfolio.
A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling or purchasing an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss. The Portfolio
will be required to deposit initial margin and variation margin with respect to
put and call options on futures contracts written by it pursuant to brokers'
requirements similar to those described above. Net option premiums received will
be included as initial margin deposits. In anticipation of a decline in interest
rates, the Portfolio may purchase call options on futures contracts as a
substitute for the purchase of futures contracts to hedge against a possible
increase in the price of securities that the Portfolio intends to purchase.
Similarly, if the value of the securities held by the Portfolio is expected to
decline as a result of an increase in interest rates, the Portfolio might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option my or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). The writing of an
option on a futures contact involves risks similar to those risks relating to
the sale of futures contracts.
Options on Securities Indices. The Portfolio may purchase and write
(sell) call and put options on securities indices. Such options give the holder
the right to receive a cash settlement during the term of the option based upon
the difference between the exercise price and the value of the index.
Options on securities indices entail certain risks. The absence of a
liquid secondary market to close out options positions on securities indices may
occur, although the Portfolio generally will only purchase or write such an
option if the Sub-adviser believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Portfolio will not purchase such options unless
the Sub-adviser believes the market is sufficiently developed such that the risk
of trading in such options is no greater than the risk of trading in options on
securities.
For an additional discussion of options and the risks involved therein,
see the Trust's Prospectus and this Statement under "Certain Risk Factors and
Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Bankers Trust Enhanced 500
Portfolio. These limitations are not "fundamental' restrictions and may be
changed by the Trustees without shareholder approval. The Portfolio will not:
1. Purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
2. Invest for the purpose of exercising control or management;
3. Purchase securities of other investment companies except in
compliance with the 1940 Act; or
4. Invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or not readily
marketable, not including Rule 144A securities and commercial paper that is sold
under section 4(2) of the 1933 Act that have been determined to be liquid under
procedures established by the Board of Trustees.
AST Cohen & Steers Realty Portfolio:
Investment Objective: The investment objective of AST Cohen & Steers Realty
Portfolio. (the "Portfolio") is to maximize total return through investment in
real estate securities. This is a fundamental objective of the Portfolio.
Investment Policies:
Illiquid Securities. The Portfolio will not invest in illiquid
securities if immediately after such investment more than 15% of the Portfolio's
net assets (taken at market value) would be invested in such securities. For
this purpose, illiquid securities include, among others, securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. Securities that have legal or contractual
restrictions on resale but have a readily available market are not deemed
illiquid for purposes of this limitation.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and securities which are otherwise not readily marketable. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities. Restricted or other illiquid securities may
be subject to the potential for delays on resale and uncertainty in valuation.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and the Portfolio might be unable to dispose of restricted
or other illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions within seven days. The Portfolio
might also have to register such restricted securities in order to dispose of
them, resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
commercial paper, foreign securities, municipal securities and corporate bonds
and notes. Institutional investors depend on an efficient institutional market
in which the unregistered security can be readily resold or on an issuer's
ability to honor a demand for repayment. The fact that there are contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of such investments.
Specifically, the Securities and Exchange Commission (the "SEC") has
adopted Rule 144A which allows a broader institutional trading market for
securities otherwise subject to restrictions on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. The market for certain restricted securities has expanded, and the
Sub-advisor anticipates that it will expand further, as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers.
Subject to the guidelines promulgated by the Board of Trustees of the
Trust, the Sub-advisor will determine and monitor the liquidity of Rule 144A
securities acquired or held by the Portfolio. In reaching liquidity decisions,
the Sub-advisor will consider, among other things, the following factors: (1)
the frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Repurchase Agreements. Subject to the guidelines promulgated by the
Board of Trustees of the Trust, the Portfolio may also enter into repurchase
agreements. A repurchase agreement is an instrument under which an investor such
as the Portfolio purchases a U.S. Government security from a vendor, with an
agreement by the vendor to repurchase the security at the same price, plus
interest at a specified rate. In such a case, the security is held by the
Portfolio, in effect, as collateral for the repurchase obligation. Repurchase
agreements may be entered into only with certain well-established banks and
securities dealers. Among other requirements, a bank must be a member of the
Federal Reserve System and a securities dealer must be recognized by the Federal
Reserve Bank within its reporting district as a reporting government securities
dealer. In entering into the repurchase agreement for the Portfolio, the
Sub-advisor will evaluate and monitor the creditworthiness of the vendor. For an
additional discussion of repurchase agreements and the risks associated with
them, see the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Investment Techniques. The following sections provide expanded discussion
of several of the types of investments and investment techniques which may be
used by the Portfolio.
Real Estate Investment Trusts. REITs are sometimes informally
characterized as equity REITs, mortgage REITs and hybrid REITs. An equity REIT
invests primarily in the fee ownership or leasehold ownership of land and
buildings and derives its income primarily from rental income. An equity REIT
may also realize capital gains (or losses) by selling real estate properties in
its portfolio that have appreciated (or depreciated) in value. A mortgage REIT
invests primarily in mortgages on real estate, which may secure construction,
development or long-term loans. A mortgage REIT generally derives its income
primarily from interest payments on the credit it has extended. A hybrid REIT
combines the characteristics of equity REITs and mortgage REITs, generally by
holding both ownership interests and mortgage interests in real estate. It is
anticipated, although not required, that under normal circumstances a majority
of the Portfolio's investments in REITs will consist of equity REITs.
A REIT is not taxed on amounts distributed to shareholders if it
complies with several requirements relating to its organization, ownership,
assets, and income and a requirement that it distribute to its shareholders at
least 95% of its taxable income (other than net capital gains) for each taxable
year. Equity and Mortgage REITs are dependent upon the skills of their managers
and generally may not be diversified. Equity and Mortgage REITs are also subject
to heavy cash flow dependency, defaults by borrowers and self-liquidation. In
addition, Equity and Mortgage REITs could possibly fail to qualify for tax free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code"), or to maintain their exemptions from registration under the Investment
Company Act of 1940 (the "1940 Act").
Futures Contracts. The Portfolio may purchase and sell
financial futures contracts. A futures contract is an agreement to buy or sell a
specific security or financial instrument at a particular price on a stipulated
future date. Although some financial futures contracts call for making or taking
delivery of the underlying securities, in most cases these obligations are
closed out before the settlement date. The closing of a contractual obligation
is accomplished by purchasing or selling an identical offsetting futures
contract. Other financial futures contracts by their terms call for cash
settlements.
The Portfolio may also buy and sell index futures contracts with
respect to any stock or bond index traded on a recognized stock exchange or
board of trade. An index futures contract is a contract to buy or sell units of
an index at a specified future date at a price agreed upon when the contract is
made. The stock index futures contract specifies that no delivery of the actual
stocks making up the index will take place. Instead, settlement in cash must
occur upon the termination of the contract, with the settlement being the
difference between the contract price and the actual level of the stock index at
the expiration of the contract.
At the time the Portfolio purchases a futures contract, an amount of
cash or other liquid assets equal to the market value of the futures contract
will be deposited in a segregated account with the Portfolio's custodian. When
writing a futures contract, the Portfolio will maintain with its custodian
similar liquid assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, the Portfolio may "cover"
its position by owning the instruments underlying the contract (or, in the case
of an index futures contract, a portfolio with a volatility substantially
similar to that of the index on which the futures contract is based), or holding
a call option permitting the Portfolio to purchase the same futures contract at
a price no higher than the price of the contract written by the Portfolio (or at
a higher price if the difference is maintained in liquid assets with the
Portfolio's custodian). For an additional discussion of futures contracts and
the risks associated with them, see this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
Options on Securities and Stock Indices. The Portfolio may
write covered call and put options and purchase call and put options on
securities or stock indices that are traded on United States exchanges.
An option on a security is a contract that gives the purchaser of the
option, in return for the premium paid, the right to buy a specified security
(in the case of a call option) or to sell a specified security (in the case of a
put option) from or to the writer of the option at a designated price during the
term of the option. An option on a securities index gives the purchaser of the
option, in return for the premium paid, the right to receive from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option. The value of the underlying securities on which
options may be written at any one time will not exceed 25% of the total assets
of the Portfolio. The Portfolio will not purchase put or call options if the
aggregate premiums paid for such options would exceed 5% of its total assets at
the time of purchase.
The Portfolio may write a call or put option only if the option is
"covered." A call option on a security written by the Portfolio is covered if
the Portfolio owns the underlying security covered by the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option on a security is also covered if the Portfolio holds a
call on the same security and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Portfolio in cash or
other liquid assets in a segregated account with its custodian. A put option on
a security written by the Portfolio is "covered" if the Portfolio maintains
similar liquid assets with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same security and in the
same principal amount as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written.
The Portfolio will cover call options on stock indices by owning
securities whose price changes, in the opinion of the Sub-advisor are expected
to be similar to those of the index, or in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where the Portfolio covers a call
option on a stock index through ownership of securities, such securities may not
match the composition of the index. In that event, the Portfolio will not be
fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index. The Portfolio will cover put options on stock
indices by segregating assets equal to the option's exercise price, or in such
other manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations.
The Portfolio will receive a premium from writing a put or call option,
which increases the Portfolio's gross income in the event the option expires
unexercised or is closed out at a profit. If the value of a security or an index
on which the Portfolio has written a call option falls or remains the same, the
Portfolio will realize a profit in the form of the premium received (less
transaction costs) that could offset all or a portion of any decline in the
value of the portfolio securities being hedged. If the value of the underlying
security or index rises, however, the Portfolio will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation in
the Portfolio's stock investments. By writing a put option, the Portfolio
assumes the risk of a decline in the underlying security or index. To the extent
that the price changes of the portfolio securities being hedged correlate with
changes in the value of the underlying security or index, writing covered put
options on securities or indices will increase the Portfolio's losses in the
event of a market decline, although such losses will be offset in part by the
premium received for writing the option.
The Portfolio may also purchase put options to hedge its investments
against a decline in value. By purchasing a put option, the Portfolio will seek
to offset a decline in the value of the portfolio securities being hedged
through appreciation of the put option. If the value of the Portfolio's
investments does not decline as anticipated, or if the value of the option does
not increase, the Portfolio's loss will be limited to the premium paid for the
option plus related transaction costs. The success of this strategy will depend,
in part, on the accuracy of the correlation between the changes in value of the
underlying security or index and the changes in value of the Portfolio's
security holdings being hedged.
The Portfolio may purchase call options on individual securities to
hedge against an increase in the price of securities that the Portfolio
anticipates purchasing in the future. Similarly, the Portfolio may purchase call
options to attempt to reduce the risk of missing a broad market advance, or an
advance in an industry or market segment, at a time when the Portfolio holds
uninvested cash or short-term debt securities awaiting investment. When
purchasing call options, the Portfolio will bear the risk of losing all or a
portion of the premium paid if the value of the underlying security or index
does not rise.
There can be no assurance that a liquid market will exist when the
Portfolio seeks to close out an option position. Trading could be interrupted,
for example, because of supply and demand imbalances arising from a lack of
either buyers or sellers, or the options exchange could suspend trading after
the price has risen or fallen more than the maximum specified by the exchange.
Although the Portfolio may be able to offset to some extent any adverse effects
of being unable to liquidate an option position, the Portfolio may experience
losses in some cases as a result of such inability.
Foreign Currency Contracts and Currency Hedging Transaction. In order
to hedge against foreign currency exchange rate risks, the Portfolio may enter
into forward foreign currency exchange contracts and foreign currency futures
contracts, as well as purchase put or call options on foreign currencies, as
described below. The Portfolio may also conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market. The Portfolio will not enter into forward
foreign currency contracts if, as a result, the Portfolio will have more than
15% of the value of its net assets committed to the consummation of such
contracts.
The Portfolio may enter into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the Portfolio
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. The Portfolio may
enter into a forward contract, for example, when it enters into a contract for
the purchase or sale of a security denominated in a foreign currency in order to
"lock in" the U.S. dollar price of the security. In addition, for example, when
the Portfolio believes that a foreign currency may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to sell
an amount of 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. This
second investment practice is generally referred to as "cross-hedging." Because
in connection with the Portfolio's foreign currency forward transactions an
amount of the Portfolio's assets equal to the amount of the purchase will be
held aside or segregated to be used to pay for the commitment, the Portfolio
will always have cash or other liquid assets available sufficient to cover any
commitments under these contracts or to limit any potential risk. The segregated
account will be marked-to-market on a daily basis. In addition, the Portfolio
will not enter into such forward contracts if, as a result, the Portfolio will
have more than 15% of the value of its total assets committed to such contracts.
While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event, the
Portfolio's ability to utilize forward contracts in the manner set forth above
may be restricted. Forward contracts may limit potential gain from a positive
change in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not engaged in such contracts.
The Portfolio may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the dollar value of
foreign portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and the Portfolio could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may constitute an effective hedge against fluctuation in exchange rates
although, in the event of rate movements adverse to the Portfolio's position,
the Portfolio may forfeit the entire amount of the premium plus related
transaction costs.
The Portfolio may enter into exchange-traded contracts for the purchase
or sale for future delivery of foreign currencies ("foreign currency futures").
This investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Portfolio's portfolio securities or adversely affect the prices of
securities that the Portfolio intends to purchase at a later date. The
successful use of currency futures will usually depend on the Sub-advisor's
ability to forecast currency exchange rate movements correctly. Should exchange
rates move in an unexpected manner, the Portfolio may not achieve the
anticipated benefits of foreign currency futures or may realize losses.
Short Sales. The Portfolio may enter into short sales, provided the
dollar amount of short sales at any one time would not exceed 25% of the net
assets of the Portfolio, and the value of securities of any one issuer in which
the Portfolio is short would not exceed the lesser of 2% of the value of the
Portfolio's net assets or 2% of the securities of any class of any issuer. The
Portfolio must maintain collateral in a segregated account consisting of cash or
other liquid assets with a value equal to the current market value of the
shorted securities, which are marked to market daily. If the Portfolio owns an
equal amount of such securities or securities convertible into or exchangeable
for, without payment of any further consideration, securities of the same issuer
as, and equal in amount to, the securities sold short (which sales are commonly
referred to as "short sales against the box"), the above requirements are not
applicable.
Non-Diversified Status. The Portfolio is classified as a
"non-diversified" investment company under the 1940 Act, which means the
Portfolio is not limited by the 1940 Act in the proportion of its assets that
may be invested in the securities of a single issuer. However, the Portfolio
intends conduct its operations so as to qualify as a regulated investment
company for purposes of the Code, which generally will relieve the Portfolio of
any liability for Federal income tax to the extent its earnings are distributed
to shareholders. To so qualify, among other requirements, the Portfolio will
limit its investments so that, at the close of each quarter of the taxable year,
(i) not more than 25% of the market value of the Portfolio's total assets will
be invested in the securities of a single issuer, and (ii) with respect to 50%
of the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer and the
Portfolio will not own more than 10% of the outstanding voting securities of a
single issuer. The Portfolio's investments in securities issued by the U.S.
Government, its agencies and instrumentalities are not subject to these
limitations.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Cohen & Steers Realty
Portfolio. These limitations are not "fundamental" restrictions and may be
changed by the Trustees without shareholder approval. The Portfolio will not:
1. Invest in illiquid securities, as defined in the prospectus under
"Investment Objective and Policies, AST Cohen & Steers Realty Portfolio" if
immediately after such investment more than 15% of the Portfolio's net assets
(taken at market value) would be invested in such securities;
2. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure permitted borrowings;
3. Participate on a joint or joint and several basis in any securities
trading account;
4. Invest in companies for the purpose of exercising control;
5. Purchase securities of investment companies except in compliance with the
1940 Act; or
6. (a) invest in interests in oil, gas, or other mineral exploration or
development programs; or (b) purchase securities on margin, except for such
short-term credits as may be necessary for the clearance of transactions and
except for borrowings in an amount not exceeding 10% of the value of the
Portfolio's total assets.
AST American Century Income & Growth Portfolio:
Investment Objective: The primary investment objective of the Portfolio is
to seek capital growth. Current income is a secondary investment objective.
These are fundamental policies of the Portfolio.
Investment Policies:
In general, within the restrictions outlined here and in the Trust's
Prospectus, the Sub-advisor has broad powers to decide how to invest fund
assets. Investments are varied according to what is judged advantageous under
changing economic conditions. It is the Sub-advisor's intention that the
Portfolio will generally consist of domestic and foreign common stocks and
equity equivalent securities. However, subject to the specific limitations
applicable to the Portfolio, the Sub-advisor may invest the assets of the
Portfolio in varying amounts in other instruments, such as those discussed
below, when such a course is deemed appropriate in order to attempt to attain
its investment objective.
Senior securities that, in the opinion of the manager, are high-grade
issues also may be purchased for defensive purposes. However, so long as a
sufficient number of such securities are available, the manager intends to keep
the Portfolio fully invested in stocks that meet the Portfolio's investment
criteria, regardless of the movement of stock prices generally. In most
circumstances, the Portfolio's actual level of cash and cash equivalents will be
less than 10%. As noted in the Prospectus, the Sub-advisor may use S&P 500 Index
futures as a way to expose the Portfolio's cash assets to the market, while
maintaining liquidity. The Sub-advisor may not leverage the Portfolio through
investment in these futures, so there should be no greater market risk to the
Portfolio than if they purchased stocks.
As a diversified fund as defined in the 1940 Act, the Portfolio will not, with
respect to 75% of its total assets, invest more than 5% of its total assets in
the securities of a single issuer. To meet federal tax requirements for
qualification as a regulated investment company, the Portfolio must limit its
investments so that at the close of each quarter of its taxable year (1) no more
than 25% of its total assets are invested in the securities of a single issuer
(other than the U.S government or a regulated investment company), and (2) with
respect to at least 50% of its total assets, no more than 5% of its total assets
are invested in the securities of a single issuer.
Foreign Securities. The Portfolio may invest an unlimited amount of its
assets in the securities of foreign issuers, including foreign governments, when
these securities meet its standards of selection. Securities of foreign issuers
may trade in the U.S. or foreign securities markets.
Investments in foreign securities involve risks that are different from
and generally greater than investments in U.S. securities. These risks are
discussed in this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods." In addition, because most foreign securities
are denominated in non-U.S. currencies, the investment performance of the
Portfolio could be affected by changes in foreign currency exchange rates.
Currency exchange rates can be volatile at times in response to supply and
demand in the currency exchange markets, international balances of payments,
governmental intervention, speculation, and other political and economic
conditions. As discussed below, the Portfolio may purchase and sell foreign
currency on a spot basis and may engage in forward currency contracts, currency
options and futures transactions for hedging or any other lawful purpose.
In certain countries one securities broker may represent all or a
significant part of the trading volume, resulting in higher trading costs and
decreased liquidity due to a lack of alternative trading partners. In certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in clearance and settlement could result in temporary
periods when assets of the Portfolio are uninvested and no return is earned
thereon. The inability of the Portfolio to make intended security purchases due
to clearance and settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to clearance and settlement problems could result either in
losses to the Portfolio due to subsequent due to subsequent declines in the
value of the portfolio security or, if the Portfolio has entered into a contract
to sell the security, liability to the purchaser.
Evidence of securities ownership may be uncertain in many foreign
countries. In many of these countries, the most notable of which is the Russian
Federation, the ultimate evidence of securities ownership is the share register
held by the issuing company or its registrar. While some companies may issue
share certificates or provide extracts of the company's share register, these
are not negotiable instruments and are not effective evidence of securities
ownership. In an ownership dispute, the company's share register is controlling.
As a result, there is a risk that the Portfolio's trade details could be
incorrectly or fraudulently entered on the issuer's share register at the time
of the transaction, or that the Portfolio's ownership could thereafter be
altered or deleted entirely, resulting in a loss to the Portfolio.
Depositary Receipts. The Portfolio may invest in foreign companies
through American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), ordinary shares and New York shares. Additional information about ADRs
and EDRs is included in the Trust's prospectus under "Certain Risk Factors and
Investment Methods." Ordinary shares are shares of foreign issuers that are
traded abroad and on a U.S. exchange. New York shares are shares that a foreign
issuer has allocated for trading in the United States. ADRs, ordinary shares,
and New York shares all may be purchased with and sold for U.S. dollars, which
protects the fund from foreign settlement risks.
Forward Currency Exchange Contracts. The Portfolio may purchase and
sell foreign currency either on a spot (i.e., cash) basis and may engage in
forward foreign currency exchange contracts, currency options and futures
transactions for hedging or any lawful purpose. The Portfolio will segregate on
its records cash or other liquid assets in an amount sufficient to cover its
obligations under the contract.
The Sub-advisor does not intend to enter into such contracts on a
regular basis. Normally, consideration of the prospect for currency parties will
be incorporated into the long-term investment decisions made with respect to
overall diversification strategies. However, the Sub-advisor believes that it is
important to have flexibility to enter into such forward contracts when it
determines that the Portfolio's best interests may be served.
At the maturity of the forward contract, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate the obligation to deliver the foreign currency
by purchasing an offsetting forward contract with the same currency trader
obligating the fund to purchase, on the same maturity date, the same amount of
the foreign currency.
Convertible Securities. A convertible security is a fixed income
security that offers the potential for capital appreciation through a conversion
feature that enables the holder to convert the fixed income security into a
stated number of shares of common stock. As fixed income securities, convertible
securities provide a stable stream of income, with generally higher yields than
common stocks. Because convertible securities offer the potential to benefit
from increases in the market price of the underlying common stock, however, they
generally offer lower yields than non-convertible securities of similar quality.
Of course, like all fixed income securities, there can be no assurance of
current income because the issuers of the convertible securities may default on
their obligations. In addition, there can be no assurance of capital
appreciation because the value of the underlying common stock will fluctuate.
Unlike a convertible security that is a single security, a synthetic
convertible security is comprised of two distinct securities that together
resemble convertible securities in certain respects. Synthetic convertible
securities are created by combining non-convertible bonds or preferred stocks
with warrants or stock call options. The options that will form elements of
synthetic convertible securities will be listed on a securities exchange or on
the National Association of Securities Dealers Automated Quotation Systems. The
two components of a synthetic convertible security, which will be issued with
respect to the same entity, generally are not offered as a unit, and may be
purchased and sold by the Portfolio at different times. Synthetic convertible
securities differ from convertible securities in certain respects, including
that each component of a synthetic convertible security has a separate market
value and responds differently to market fluctuations. Investing in synthetic
convertible securities involves the risk normally involved in holding the
securities comprising the synthetic convertible security.
Additional information about convertible securities is included in the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Short Sales "Against the Box." As discussed in the Trust's Prospectus,
the Portfolio may engage in short sales if, at the time of the short sale, the
Portfolio owns or has the right to acquire securities equivalent in kind and
amount to the securities being sold short. While the short sale is maintained,
the Portfolio will segregate assets to collateralize its obligation to deliver
the securities sold short in an amount equal to the proceeds of the short sale
plus an additional margin amount established by the Board of Governors of the
Federal Reserve. There will be certain additional transaction costs associated
with short sales, but the Portfolio will endeavor to offset these costs with
income from the investment of the cash proceeds of short sales.
Derivative Securities. To the extent permitted by its investment
objectives and policies discussed elsewhere herein, the Portfolio may invest in
securities that are commonly referred to as "derivative" securities. Generally,
a derivative is a financial arrangement the value of which is based on, or
"derived" from, a traditional security, asset, or market index. Certain
derivative securities are more accurately described as "index/structured"
securities. Index/structured securities are derivative securities whose value or
performance is linked to other equity securities (such as depositary receipts),
currencies, interest rates, indices or other financial indicators ("reference
indices").
Some "derivatives," such as mortgage-backed and other asset-backed
securities, are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
The Portfolio may not invest in a derivative security unless the
reference index or the instrument to which it relates is an eligible investment
for the Portfolio. For example, a security whose underlying value is linked to
the price of oil would not be a permissible investment because the Portfolio may
not invest in oil and gas leases or futures.
The return on a derivative security may increase or decrease, depending
upon changes in the reference index or instrument to which it relates.
There is a range of risks associated with derivative investments,
including:
o the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the portfolio manager
anticipates;
o the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position
when desired;
o the risk that adverse price movements in an instrument can result in a loss
substantially greater than the Portfolio's initial investment; and
o the risk that the counterparty will fail to perform its obligations.
The Sub-advisor will report to the Investment Manager on activity in derivative
securities, and the Investment Manager will report to the Trust's Board of
Trustees as necessary.
Futures and Related Options. The Portfolio may enter into futures
contracts, options or options on futures contracts. The Portfolio may not,
however, enter into a futures transaction for speculative purposes. Generally,
futures transactions will be used to:
o protect against a decline in market value of the Portfolio's securities
(taking a short futures position), or
o protect against the risk of an increase in market value for securities in
which the Portfolio generally invests at a time when the Portfolio is not
fully-invested (taking a long futures position), or
o provide a temporary substitute for the purchase of an individual security that
may be purchased in an orderly fashion.
Some futures and options strategies, such as selling futures, buying puts and
writing calls, hedge the Portfolio's investments against price fluctuations.
Other strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure.
Although other techniques may be used to control the Portfolio's
exposure to market fluctuations, the use of futures contracts may be a more
effective means of hedging this exposure. While the Portfolio will pay brokerage
commissions in connection with opening and closing out futures positions, these
costs are lower than the transaction costs incurred in the purchase and sale of
the underlying securities.
For example, the "sale" of a future by the Portfolio means the
Portfolio becomes obligated to deliver the security (or securities, in the case
of an "index" future) at a specified price on a specified date. The "purchase"
of a future means the Portfolio becomes obligated to buy the security (or
securities) at a specified price on a specified date. The Portfolio may engage
in futures and options transactions based on securities indices that are
consistent with the Portfolio's investment objectives. Examples of indices that
may be used include the Bond Buyer Index of Municipal Bonds for fixed income
funds, or the S&P 500 Index for equity funds. The Portfolio also may engage in
futures and options transactions based on specific securities, such as U.S.
Treasury bonds or notes. Futures contracts are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission (CFTC), a U.S.
government agency.
Unlike when the Portfolio purchases or sells a bond, no price is paid
or received by the Portfolio upon the purchase or sale of the future. Initially,
the Portfolio will be required to deposit an amount of cash or securities equal
to a varying specified percentage of the contract amount. This amount is known
as initial margin. The margin deposit is intended to assure completion of the
contract (delivery or acceptance of the underlying security) if it is not
terminated prior to the specified delivery date. Minimum initial margin
requirements are established by the futures exchanges and may be revised. In
addition, brokers may establish margin deposit requirements that are higher than
the exchange minimums. Cash held in the margin account is not income producing.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying debt securities or index
fluctuates, making the future more or less valuable, a process known as marking
the contract to market.
Futures and options prices can be volatile, and trading in these
markets involves certain risks, which are described in more detail in this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods." The Sub-advisor will seek to minimize these risks by limiting the
contracts entered into on behalf of the Portfolio to those traded on national
futures exchanges and for which there appears to be a liquid secondary market.
Options on Futures. By purchasing an option on a futures contract, the
Portfolio obtains the right, but not the obligation, to sell the futures
contract (a put option) or to buy the contract (a call option) at a fixed strike
price. The Portfolio can terminate its position in a put option by allowing it
to expire or by exercising the option. If the option is exercised, the Portfolio
completes the sale of the underlying instrument at the strike price. Purchasing
an option on a futures contract does not require the Portfolio to make margin
payments unless the option is exercised.
Although they do not currently intend to do so, the Portfolio may write
(or sell) call options that obligate it to sell (or deliver) the option's
underlying instrument upon exercise of the option. While the receipt of option
premiums would mitigate the effects of price declines, the Portfolio would give
up some ability to participate in a price increase on the underlying instrument.
If the Portfolio were to engage in options transactions, it would own the
futures contract at the time a call were written and would keep the contract
open until the obligation to deliver it pursuant to the call expired.
When-Issued and Forward Commitment Agreements. The Portfolio may
sometimes purchase new issues of securities on a when-issued or forward
commitment basis in which the transaction price and yield are each fixed at the
time the commitment is made, but payment and delivery occur at a future date
(typically 15 to 45 days later).
In purchasing securities on a when-issued or forward commitment basis,
the Portfolio will segregate until the settlement date cash or other liquid
assets in an amount sufficient to meet the purchase price. When the time comes
to pay for the when-issued securities, the Portfolio will meet its obligations
with available cash, through the sale of securities, or, although it would not
normally expect to do so, by selling the when-issued securities themselves
(which may have a market value greater or less than the Portfolio's payment
obligation). Additional information about when-issued and forward commitment
transactions is included in this Statement and in the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Investments in Companies with Limited Operating History. The Portfolio
may invest in the securities of issuers with limiting operating history. The
Sub-advisor considers an issuer to have a limited operating history if that
issuer has a record of less than three years of continuous operation. The
Sub-advisor will consider periods of capital formation, incubation,
consolidation, and research and development in determining whether a particular
issuer has a record of three years of continuous operation.
Investments in securities of issuers with limited operating history may
involve greater risks than investments in securities of more mature issuers. By
their nature, such issuers present limited operating history and financial
information upon which the manager may base its investment decision on behalf of
the Portfolio. In addition, financial and other information regarding such
issuers, when available, may be incomplete or inaccurate.
Other Investment Companies. The Portfolio may invest in other mutual
funds, including those advised by the Sub-advisor, provided that the investment
is consistent with the fund's investment policies and restrictions and with the
limitations of the 1940 Act. Under the 1940 Act, the Portfolio's investment in
such securities, subject to certain exceptions, currently is limited to (a) 3%
of the total voting stock of any one investment company, (b) 5% of the
Portfolio's total assets with respect to any one investment company and (c) 10%
of the Portfolio's total assets in the aggregate. Such purchases will be made in
the open market where no commission or profit to a sponsor or dealer results
from the purchase other than the customary brokers' commissions. Additional
information about other investment companies is included in the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Restricted and Illiquid Securities. The Portfolio may, from time to
time, purchase restricted or illiquid securities, including Rule 144A
securities, when they present attractive investment opportunities and otherwise
meet the Portfolio's criteria for selection. Additional information on illiquid
and Rule 144A securities and their risks is included in the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
With respect to securities eligible for resale under Rule 144A, the
staff of the SEC has taken the position that the liquidity of such securities in
a fund offering redeemable securities is a question of fact for the Board of
Trustees to determine, such determination to be based upon a consideration of
the readily available trading markets and the review of any contractual
restrictions. Accordingly, the Trust's Board of Trustees has established
guidelines for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the Board of Trustees has delegated the day-to-day function of
determining the liquidity of Rule 144A securities to the Sub-advisor. The board
retains the responsibility to monitor the implementation of the guidelines it
has adopted. The Sub-advisor also will consider appropriate remedies to minimize
the effect on the Portfolio's liquidity if a Rule 144A security held by the
Portfolio is or becomes illiquid.
Short-Term Securities. In order to meet anticipated redemptions, to
hold assets pending the purchase of additional securities for the Portfolio, or,
in some cases, for temporary defensive purposes, the Portfolio may invest a
portion of its assets in money market and other short-term securities.
Examples of those securities include:
o Securities issued or guaranteed by the U.S. government and its agencies
and instrumentalities; o Commercial Paper; o Certificates of Deposit and
Eurodollar Certificates of Deposit; o Bankers' Acceptances; o Short-term notes,
bonds, debentures, or other debt instruments; and o Repurchase agreements.
U.S. Government Securities. The Portfolio may invest in U.S. government
securities, including bills, notes, and bonds issued by the U.S. Treasury and
securities issued or guaranteed by agencies or instrumentalities of the U.S.
government. Some U.S. government securities are supported by the direct full
faith and credit pledge of the U.S. government; others are supported by the
right of the issuer to borrow from the U.S. Treasury; others, such as securities
issued by the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. government to purchase the agencies'
obligations; and others are supported only by assurance that the U.S. government
will provide financial support to an instrumentality it sponsors when it is not
obligated by law to do so.
Repurchase Agreements. The Portfolio may invest in repurchase
agreements when such transactions present an attractive short-term return on
cash that is not otherwise committed to the purchase of securities pursuant to
the investment policies of the Portfolio. The funds will limit repurchase
agreement transactions to securities issued by the U.S. government, its agencies
and instrumentalities. The Portfolio will not invest more than 15% of its assets
in repurchase agreements maturing in more than seven days and other illiquid
securities.
Lending of Securities. The Portfolio may lend its securities. Additional
information on securities lending and its risk is included in this Statement and
the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
AST Lord Abbett Growth and Income Portfolio:
Investment Objective: The investment objective of the Portfolio is
long-term growth of capital and income without excessive fluctuation in market
value. This is a fundamental objective of the Portfolio.
Investment Policies:
Covered Call Options. The Portfolio may write covered call options
which are traded on a national securities exchange with respect to its
securities in an attempt to increase income and to provide greater flexibility
in the disposition of securities. A "call option" is a contract sold for a price
(the "premium") giving its holder the right to buy a specific number of shares
of stock at a specific price prior to a specified date. A "covered call option"
is a call option issued on securities already owned by the writer of the call
option for delivery to the holder upon the exercise of the option. During the
period of the option, the Portfolio forgoes the opportunity to profit from any
increase in the market price of the underlying security above the exercise price
of the option (to the extent that the increase exceeds the net premium). The
Portfolio may also enter into "closing purchase transactions" in order to
terminate its obligation to deliver the underlying security (this may result in
a short-term gain or loss). A closing purchase transaction is the purchase of a
call option (at a cost which may be more or less than the premium received for
writing the original call option) on the same security with the same exercise
price and call period as the option previously written. If the Portfolio is
unable to enter into a closing purchase transaction, it may be required to hold
a security that it might otherwise have sold to protect against depreciation.
The Sub-advisor does not intend to have the Portfolio write covered call options
with respect to securities with an aggregate market value of more than 10% of
the Portfolio's gross assets at the time an option is written. This percentage
limitation will not be increased without prior disclosure in the current
Prospectus of the Trust. For an additional discussion of call options, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest in illiquid securities.
Investments in illiquid securities are limited to a maximum of 10% of Portfolio
net assets. Illiquid securities for the purposes of this limitation do not
include securities eligible for resale pursuant to Rule 144A of the Securities
Act of 1933 which have been determined to be liquid by the Sub-advisor under the
supervision of the Trustees. Examples of factors which the Sub-advisor may take
into account with respect to a Rule 144A security include the frequency of
trades and quotes for the security, the number of dealers willing to purchase or
sell the security and the number of other potential purchasers, dealer
undertakings to make a market in the security, and the nature of the security
and the nature of the marketplace (e.g., the time period needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
For a discussion of illiquid or restricted securities and certain risks involved
therein see the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
AST INVESCO Equity Income Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek high
current income while following sound investment practices. This is a fundamental
objective of the Portfolio. Capital growth potential is an additional, but
secondary, consideration in the selection of portfolio securities.
Investment Policies:
The Portfolio will pursue its objective by investing its assets in
securities which will provide a relatively high-yield and stable return and
which, over a period of years, may also provide capital appreciation. Capital
growth potential is an additional consideration in the selection of portfolio
securities. The Portfolio invests in common stocks, as well as convertible bonds
and preferred stocks.
In pursuing its investment objective, the Portfolio normally invests at
least 65% of its total assets in dividend paying common stocks. Up to 10% of the
Portfolio's assets may be invested in equity securities that do not pay regular
dividends. The remaining assets are invested in other income-producing
securities, such as corporate bonds. Sometimes warrants are acquired when
offered with income-producing securities, but the warrants are disposed of at
the first favorable opportunity. Acquiring warrants involves a risk that the
Portfolio will lose the premium it pays to acquire warrants if the Portfolio
does not exercise a warrant before it expires. The major portion of the
investment portfolio normally consists of common stocks, convertible bonds and
debentures, and preferred stocks; however, there may also be substantial
holdings of debt securities, including non-investment grade and unrated debt
securities.
Debt Securities. The debt securities in which the Portfolio invests are
generally subject to two kinds of risk, credit risk and market risk. The ratings
given a debt security by Moody's and Standard & Poor's ("S&P") provide a
generally useful guide as to such credit risk. The lower the rating given a debt
security by such rating service, the greater the credit risk such rating service
perceives to exist with respect to such security. Increasing the amount of
Portfolio assets invested in unrated or lower grade (Ba or less by Moody's, BB
or less by S&P) debt securities, while intended to increase the yield produced
by the Portfolio's debt securities, will also increase the credit risk to which
those debt securities are subject.
Lower-rated debt securities and non-rated securities of comparable
quality tend to be subject to wider fluctuations in yields and market values
than higher rated debt securities and may have speculative characteristics.
Although the Portfolio may invest in debt securities assigned lower grade
ratings by S&P or Moody's, the Portfolio's investments have generally been
limited to debt securities rated B or higher by either S&P or Moody's. Debt
securities rated lower than B by either S&P or Moody's may be highly
speculative. The Sub-advisor intends to limit such portfolio investments to debt
securities which are not believed by the Sub-advisor to be highly speculative
and which are rated at least CCC or Caa, respectively, by S&P or Moody's. In
addition, a significant economic downturn or major increase in interest rates
may well result in issuers of lower-rated debt securities experiencing increased
financial stress which would adversely affect their ability to service their
principal and interest obligations, to meet projected business goals, and to
obtain additional financing. While the Sub-advisor attempts to limit purchases
of lower-rated debt securities to securities having an established retail
secondary market, the market for such securities may not be as liquid as the
market for higher rated debt securities. For an additional discussion of certain
risks involved in lower-rated or unrated securities, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. As discussed in the Trust's Prospectus, the
Portfolio may enter into repurchase agreements with respect to debt instruments
eligible for investment by the Portfolio, with member banks of the Federal
Reserve System, registered broker-dealers, and registered government securities
dealers. A repurchase agreement may be considered a loan collateralized by
securities. The resale price reflects an agreed upon interest rate effective for
the period the instrument is held by the Portfolio and is unrelated to the
interest rate on the underlying instrument. In these transactions, the
securities acquired by the Portfolio (including accrued interest earned thereon)
must have a total value in excess of the value of the repurchase agreement, and
are held by the Portfolio's Custodian Bank until repurchased. For an additional
discussion of repurchase agreements and certain risks involved therein, see this
Statement under "Certain Risk Factors and Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Lending Portfolio Securities. The Portfolio may lend its securities to
qualified brokers, dealers, banks, or other financial institutions. While voting
rights may pass with the loaned securities, if a material event (e.g., proposed
merger, sale of assets, or liquidation) is to occur affecting an investment on
loan, the loan must be called and the securities voted. Loans of securities made
by the Portfolio will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange and the requirements of the
1940 Act and the rules of the Securities and Exchange Commission thereunder.
AST AIM Balanced Portfolio:
Investment Objective: The investment objective of the Portfolio is to provide a
well-diversified portfolio of stocks that will produce both capital growth and
current income. This is a fundamental policy of the Portfolio.
Investment Policies:
The Portfolio, investing in both equity and debt securities, acquires
securities in the over-the-counter market and on national securities exchanges,
and acquires bonds in new offerings or in principal trades with broker-dealers.
Ordinarily, the Portfolio does not purchase securities with the intention of
engaging in short-term trading. However, any particular security will be sold,
and the proceeds reinvested, whenever such action is deemed prudent from the
viewpoint of the Portfolio's investment objective, regardless of the holding
period of that security.
Short-Term Investments. A portion of the Portfolio's assets may be held
in cash and high quality, short-term money market instruments such as
certificates of deposit, commercial paper, bankers' acceptances, short-term U.S.
Government obligations, taxable municipal securities, master notes, and
repurchase agreements, pending investment in portfolio securities, to meet
anticipated short-term cash needs such as dividend payments or redemptions of
shares, or for temporary defensive purposes. Such investments generally will be
"Eligible Securities" within the meaning of Rule 2a-7 under the 1940 Act, will
have maturities of 90 days or less, and will be held to maturity. The Portfolio
is not limited to investing in money market instruments that are "First Tier"
securities as defined in Rule 2a-7.
U.S. Government securities may take the form of participation interests
in, and may be evidenced by, deposit or safekeeping receipts. Participation
interests are pro rata interests in U.S. Government securities. The Portfolio
may acquire participation interests in pools of mortgages sold by the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Banks. Instruments evidencing
deposit or safekeeping are documentary receipts for such original securities
held in custody by others.
U.S. Government securities, including those that are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. Some securities issued by federal
agencies or instrumentalities are only supported by the credit of the agency or
instrumentality (such as the Federal Home Loan Banks) while others have an
additional line of credit with the U.S. Treasury (such as FNMA). In the case of
securities not backed by the full faith and credit of the United States, the
Portfolio must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitments.
Debt Securities. Most debt securities purchased by the Portfolio will
be rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or
better by Standard & Poor's Ratings Services ("S&P") or, if unrated, deemed to
be of comparable quality by the Sub-Advisor, although the Portfolio may invest
to a limited extent in lower-rated securities. The fixed income securities in
which the Portfolio invests may include U.S. Government obligations,
mortgage-backed securities, asset-backed securities, bank obligations, corporate
debt obligations and unrated obligations, including those of foreign issuers.
The Portfolio may, in pursuit of its objective, invest up to 10% of its total
assets in debt securities rated lower than Baa by Moody's or BBB by S&P (or a
comparable rating of any other nationally recognized statistical rating
organizations "NRSROs") or unrated securities determined by the Sub-Advisor to
be of comparable quality ("junk bonds"). Junk bonds have speculative
characteristics that are likely to increase in number and significance with each
successive lower rating category. Additional information about lower-rated debt
securities and their risks is included in this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Real Estate Investment Trusts ("REITs"). To the extent consistent with
its investment objective and policies, the Portfolio may invest up to 25% of its
total assets and in equity and/or debt securities issued by REITs.
REITs are trusts that sell equity or debt securities to investors and
use the proceeds to invest in real estate or interests therein. A REIT may focus
on particular types of projects, such as apartment complexes, or geographic
regions, such as the Southeastern United States, or both.
To the extent that the Portfolio invests in REITs, it could conceivably
own real estate directly as a result of a default on the securities it owns. The
Portfolio, therefore, may be subject to certain risks associated with the direct
ownership of real estate, including difficulties in valuing and trading real
estate, declines in the value of real estate, environmental liability risks,
risks related to general and local economic conditions, adverse change in the
climate for real estate, increases in property taxes and operating expenses,
changes in zoning laws, casualty or condemnation losses, limitations on rents,
changes in neighborhood values, the appeal of properties to tenants, and
increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, and are generally
not diversified and therefore are subject to the risk of financing single or a
limited number of projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility that
the REIT will fail to maintain its exemption from the 1940 Act. Changes in
interest rates may also affect the value of debt securities of REITs held by the
Portfolio. By investing in REITs indirectly through the Portfolio, a shareholder
will bear not only his/her proportionate share of the expenses of the Portfolio,
but also, indirectly, similar expenses of the REITs.
Lending Portfolio Securities. Consistent with applicable regulatory
requirements, the Portfolio may lend its portfolio securities. The Portfolio
would continue to receive the income on loaned securities and would, at the same
time, earn interest on the loan collateral or on the investment of the loan
collateral if it were cash. Lending securities entails a risk of loss to the
Funds if and to the extent that the market value of the securities loaned were
to increase and the lender did not increase the collateral accordingly. Other
risks and limitations of lending portfolio securities are discussed in this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Covered Call Options. The Portfolio may write call options, but only on
a covered basis; that is, the Portfolio will own the underlying security. The
exercise price of a call option may be below, equal to, or above the current
market value of the underlying security at the time the option is written. When
the Portfolio writes a covered call option, an amount equal to the premium
received by the Portfolio is recorded as an asset and an equivalent liability.
The amount of the liability is subsequently "marked-to-market" to reflect the
current market value of the option written. The current market value of a
written option is the last sale price, or in the absence of a sale, the last
offering price. Additional information about call options and their risks is
included in this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Short Sales "Against the Box." As described in the Trust's Prospectus,
the Portfolio may make short sales against the box. To secure its obligation to
deliver the securities sold short, the Portfolio will deposit in escrow in a
separate account with its custodian an equal amount of the securities sold short
or securities convertible into or exchangeable for such securities. Since the
Portfolio ordinarily will want to continue to receive interest and dividend
payments on securities in its portfolio that are convertible into the securities
sold short, the Portfolio will normally close out a short position covered by
convertible securities by purchasing and delivering an equal amount of the
securities sold short, rather than by delivering securities that it already
holds.
The Portfolio will make a short sale, as a hedge, when it believes that
the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio or a security convertible into or exchangeable
for such security. In such case, any future losses in the Portfolio's long
position should be reduced by a gain in the short position. Conversely, any gain
in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Portfolio owns, either
directly or indirectly, and, in the case where the Portfolio owns convertible
securities, changes in the conversion premium. In determining the number of
shares to be sold short against a Portfolio's position in a convertible
security, the anticipated fluctuation in the conversion premium is considered.
The Portfolio may also make short sales to generate additional income from the
investment of the cash proceeds of short sales.
Futures Contracts. When the Portfolio initially enters into a futures
contract, it will be required to deposit with its custodian for the account of
the broker a stated amount, as called for by the particular contract, of liquid
assets. This amount is known as "initial margin." The nature of initial margin
in futures transactions is different from that of margin in securities
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract that
is returned to the Portfolio upon termination of the futures contract assuming
all contractual obligations have been satisfied.
Subsequent payments, called "variation margin," to and from the broker
will be made on a daily basis as the price of the futures contract fluctuates,
making the long and short positions in the futures contract more or less
valuable. This process is known as "marking-to-market." For example, when the
Portfolio has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Portfolio will receive from the broker a variation margin payment with
respect to that increase in value. Conversely, where the Portfolio has purchased
a stock index futures contract and the price of the underlying stock index has
declined, that position would be less valuable and the Portfolio would be
required to make a variation margin payment to the broker. Variation margin
payments would be made in a similar fashion when the Portfolio has purchased an
interest rate futures contract.
Options on Securities Indices. In addition, the Portfolio may purchase
put options or write call options on securities indices for the purpose of
providing a partial hedge against a decline in the value of their respective
portfolio securities. The premium paid for a put option plus any transaction
costs for a put or call option will reduce the benefit, if any, realized by the
Portfolio upon exercise or liquidation of the option. Unless the level of the
securities index changes by an amount in excess of the premium paid, the put
option may expire without value to the Portfolio.
The Portfolio may not purchase or sell futures contracts, purchase or
sell related options, or purchase or sell options on securities indices if,
immediately thereafter, the sum of the amount of initial margin deposits and
premiums on open positions with respect to futures contracts, related options
and options on securities indices would exceed 5% of the market value of the
Portfolio's total assets.
A description of the various types of futures contracts that may be
utilized by the Portfolio follows:
Stock Index Futures Contracts. The Portfolio may purchase and
sell stock index futures contracts in order to hedge the value of its portfolio
against changes in market conditions.
Interest Rate Futures Contracts. The Portfolio may purchase
and sell interest rate futures contracts in order to hedge the value of its
portfolios against changes in market conditions. An interest rate futures
contract is an agreement between two parties to buy and sell a debt security for
a set price on a future date.
Foreign Currency Futures Contracts. Futures contracts may also be used to
hedge the risk of changes in the exchange rates of foreign currencies.
Options on Futures Contracts. The Portfolio may purchase and sell put
and call options on futures contracts in order to hedge the value of its
portfolio against changes in market conditions. Depending on the pricing of the
option compared to either the price of the futures contract upon which it is
based or the price of the underlying securities or currency, it may or may not
be less risky than ownership of the futures contract or underlying securities or
currency.
Risks as to Futures Contracts and Related Options. The use of futures
contracts and related options as hedging devices presents several risks. One
risk arises because of the imperfect correlation between movements in the price
of hedging instruments and movements in the price of the stock, debt securities
or foreign currency that are the subject of the hedge. If the price of a hedging
instrument moves less than the price of the stocks, debt securities or foreign
currency which are the subject of the hedge, the hedge will not be fully
effective. If the price of a hedging instrument moves more than the price of the
stock, debt securities or foreign currency, the Portfolio will experience either
a loss or a gain on the hedging instrument which will not be completely offset
by movements in the price of the stock, debt securities or foreign currency that
are the subject of the hedge. The use of options on futures contracts involves
the additional risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option.
Although the Portfolio intends to purchase or sell futures contracts or
purchase options only on exchanges or boards of trade where there appears to be
an active market, there is no assurance that a liquid market on an exchange or
board of trade will exist for any particular contract or at any particular time.
The extent to which the Portfolio may engage in futures contracts or related
options will be limited by Internal Revenue Code requirements for qualification
as a regulated investment company and the Portfolio's intent to continue to
qualify as such. The result of a hedging program cannot be foreseen and may
cause the Portfolio suffer losses that it would not otherwise sustain.
Additional information about futures contracts, options on futures
contracts and options on securities indices and the risks of these techniques is
included in this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Delayed-Delivery Agreements. The Portfolio may purchase or sell
securities on a delayed-delivery basis. Delayed-delivery agreements involve
commitments by the Portfolio to dealers or issuers to acquire securities or
instruments at a specified future date beyond the customary same-day settlement
for such securities or instruments. These commitments may fix the payment price
and interest rate to be received on the investment. Delayed-delivery agreements
will not be used as a speculative or leverage technique. Rather, from time to
time, the Sub-Advisor can anticipate that cash for investment purposes will
result from, among other things, scheduled maturities of existing portfolio
instruments or from net sales of shares of the Portfolio. To assure that the
Portfolio will be as fully invested as possible in instruments meeting its
investment objective, the Portfolio may enter into delayed-delivery agreements,
but only to the extent of anticipated funds available for investment during a
period of not more than five business days. Until the settlement date, the
Portfolio will segregate liquid assets of a dollar value sufficient at all times
to make payment for the delayed-delivery securities. No more than 25% of the
Portfolio's total assets will be committed to delayed-delivery agreements and
when-issued securities, as described below. The delayed-delivery securities will
be recorded as an asset of the Portfolio. The purchase price of the
delayed-delivery securities is a liability of the Portfolio until settlement. If
cash is not available to the Portfolio at the time of settlement, the Portfolio
may be required to dispose of portfolio securities that it would otherwise hold
to maturity in order to meet its obligation to accept delivery under a
delayed-delivery agreement. Absent extraordinary circumstances, the Portfolio
will not sell or otherwise transfer delayed-delivery securities prior to
settlement.
Additional information about delayed-delivery agreements and their
risks is included in this Statement and in the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
When-Issued Securities. The Portfolio may purchase securities on a
"when-issued" basis; that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and, if applicable, the interest rate that will be
received on the securities are fixed at the time the buyer enters into the
commitment. No additional when-issued commitments will be made if as a result
more than 25% of a Portfolio's total assets would become committed to purchases
of when-issued securities and delayed delivery agreements.
If the Portfolio purchases a when-issued security, it will direct the
its custodian bank to collateralize the when-issued commitment by segregating
liquid assets in the same fashion as required for a delayed-delivery agreement.
Such segregated liquid assets will likewise be marked-to-market, and the amount
segregated will be increased if necessary to maintain adequate coverage of the
when-issued commitments. To the extent assets are segregated, they will not be
available for new investments or to meet redemptions.
Securities purchased on a when-issued basis and the securities held by
the Portfolio are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer and, if applicable, changes in
the level of interest rates. Therefore, if the Portfolio is to remain
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Portfolio's assets will fluctuate to a greater degree. Furthermore, when the
time comes for the Portfolio to meet its obligations under when-issued
commitments, the Portfolio will do so by using then-available cash flow, by sale
of the segregated liquid assets, by sale of other securities or, although it
would not normally expect to do so, by directing the sale of the when-issued
securities themselves (which may have a market value greater or less than the
Portfolio's payment obligation).
Additional information about when-issued transactions and their risks
is included in this Statement and in the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Investments in Foreign Securities. The Portfolio may invest up to 20%
of its total assets in foreign securities. To the extent it invests in
securities denominated in foreign currencies, the Portfolio bears the risks of
changes in the exchange rates between U.S. currency and the foreign currency, as
well as the availability and status of foreign securities markets. The Portfolio
may invest in securities of foreign issuers that are in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), or other
securities representing underlying securities of foreign issuers, and such
investments are treated as foreign securities for purposes of percentage
limitations on investments in foreign securities.
Investments by the Portfolio in foreign securities, whether denominated
in U.S. currencies or foreign currencies, may entail risks that are greater than
those associated with domestic investments. The risks of investing in foreign
securities are discussed in detail in this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
Foreign Exchange Transactions. The Portfolio has authority to deal in
foreign exchange between currencies of the different countries in which it will
invest either for the settlement of transactions or as a hedge against possible
variations in the foreign exchange rates between those currencies. This may be
accomplished through direct purchases or sales of foreign currency, purchases of
options on futures contracts with respect to foreign currency, and contractual
agreements to purchase or sell a specified currency at a specified future date
(up to one year) at a price set at the time of the contract. Such contractual
commitments may be forward contracts entered into directly with another party or
exchange traded futures contracts.
The Portfolio may purchase and sell options on futures contracts,
forward contracts or futures contracts that are denominated in a particular
foreign currency to hedge the risk of fluctuations in the value of another
currency. The Portfolio's dealings in foreign exchange will be limited to
hedging foreign currency exposure and may involve either specific transactions
or portfolio positions. Transaction hedging is the purchase or sale of foreign
currency with respect to specific receivables or payables of the Portfolio
accruing in connection with the purchase or sale of its portfolio securities,
the sale and redemption of shares of the Portfolio, or the payment of dividends
and distributions by the Portfolio. Position hedging is the purchase or sale of
foreign currency with respect to portfolio security positions (or underlying
portfolio security positions, such as in an ADR) denominated or quoted in a
foreign currency. The Portfolio will not speculate in foreign exchange, and will
not commit a larger percentage of its total assets to foreign exchange hedges
than the percentage of its total assets that it can invest in foreign
securities.
Additional information about the various foreign currency transactions
that the Portfolio may enter into and their risks is included in this Statement
and in the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Rule 144A Securities. The Portfolio may purchase privately placed
securities that are eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). This Rule permits certain qualified
institutional buyers, such as the Portfolio, to trade in securities that have
not been registered under the 1933 Act. The Sub-advisor, under the guidelines
adopted by the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its net assets in illiquid
securities. The determination of whether a Rule 144A security is liquid is a
question of fact. In making this determination, the Sub-advisor will consider
the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, the Sub-advisor may
consider, as it deems appropriate under the circumstances, the (i) frequency of
trades and quotes, (ii) number of dealers and potential purchasers, (iii) dealer
undertakings to make a market, and (iv) nature of the security and of
marketplace trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities will also be monitored by the Sub-advisor and, if as a
result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, the Portfolio's holdings of illiquid securities will be reviewed
to determine what, if any, action is required to assure that the Portfolio does
not invest more than 15% of its net assets in illiquid securities. Additional
information about illiquid and Rule 144A securities is included in the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. The Portfolio may engage in repurchase agreement
transactions involving the types of securities in which it is permitted to
invest. Repurchase agreements are agreements under which the purchaser (for
example, the Portfolio) acquires ownership of a security and the seller agrees,
at the time of the sale, to repurchase the security at a mutually agreed upon
time and price, thereby determining the yield during the purchaser's holding
period. The Portfolio may, however, enter into a "continuing contract" or "open"
repurchase agreement under which the seller is under a continuing obligation to
repurchase the underlying obligation from the Portfolio on demand and the
effective interest rate is negotiated on a daily basis. The underlying
securities that are subject to a repurchase agreement will be "marked-to-market"
on a daily basis so that the Sub-advisor can determine the value of the
securities in relation to the amount of the repurchase agreement.
Additional information about repurchase agreements and their risks is
included in the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Borrowings. The Portfolio may borrow money to a limited extent from
banks for temporary or emergency purposes subject to the limitations under the
1940 Act. The Portfolio will not purchase additional securities while any
borrowings are outstanding. Additional information about borrowing is included
in the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Other Investment Companies. The Portfolio may invest in other
investment companies to the extent permitted by the 1940 Act and rules and
regulations thereunder and exemptive orders granted by the SEC.
Investment Policy Which May Be Changed Without Shareholder Approval.
The following limitation is applicable to the AST AIM Balanced Portfolio. This
limitation is not a "fundamental" restriction, and may be changed by the
Trustees without shareholder approval. The Portfolio will not:
1. Invest for the purpose of exercising control or management;
AST American Century Strategic Balanced Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
capital growth and current income. This is a fundamental objective of the
Portfolio.
Investment Policies:
In general, within the restrictions outlined herein, the Sub-advisor
has broad powers with respect to investing funds or holding them uninvested.
Investments are varied according to what is judged advantageous under changing
economic conditions. It will be the policy of the Sub-advisor to retain maximum
flexibility in management without restrictive provisions as to the proportion of
one or another class of securities that may be held subject to the investment
restrictions described below. However, the Sub-advisor may invest the assets of
the Portfolio in varying amounts in other instruments and in senior securities,
such as bonds, debentures, preferred stocks and convertible issues, when such a
course is deemed appropriate in order to attempt to attain its financial
objectives. Senior securities that, in the opinion of the Sub-advisor, are
high-grade issues may also be purchased for defensive purposes.
The above statement of investment policy gives the Sub-advisor
authority to invest in securities other than common stocks and traditional debt
and convertible issues. The Sub-advisor may invest in master limited
partnerships (other than real estate partnerships) and royalty trusts which are
traded on domestic stock exchanges when such investments are deemed appropriate
for the attainment of the Portfolio's investment objectives.
The Sub-advisor will invest approximately 60% of the Portfolio in
common stocks and the balance in fixed income securities. Common stock
investments are described above. The fixed income assets will be invested
primarily in investment grade securities. The Portfolio may invest up to 10% of
its fixed income assets in high yield securities. There are no credit or
maturity restrictions on the fixed income securities in which the high yield
portion of the Portfolio may be invested. The Portfolio may invest in securities
of the United States government and its agencies and instrumentalities,
corporate, sovereign government, municipal, mortgage-backed, and other
asset-backed securities. For purposes of determining the weighted average
maturity of the fixed income portion of the Portfolio, the Sub-advisor will use
weighted average life as the measure of maturity for all mortgage-backed and
asset-backed securities. It can be expected that the Sub-advisor will invest
from time to time in bonds and preferred stock convertible into common stock.
Forward Currency Exchange Contracts. The Portfolio conducts its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward foreign currency exchange contracts to purchase or sell foreign
currencies.
The Portfolio expects to use forward contracts under two circumstances:
(1) when the Sub-advisor wishes to "lock in" the U.S. dollar price of a security
when the Portfolio is purchasing or selling a security denominated in a foreign
currency, the Portfolio would be able to enter into a forward contract to do so
("transaction hedging"); (2) when the Sub-advisor believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, the Portfolio would be able to enter into a forward contract to sell
foreign currency for a fixed U.S. dollar amount approximating the value of some
or all of the Portfolio's securities either denominated in, or whose value is
tied to, such foreign currency ("portfolio hedging"). It is anticipated that the
Portfolio will enter into portfolio hedges much less frequently than transaction
hedges.
As to transaction hedging, when the Portfolio enters into a trade for
the purchase or sale of a security denominated in a foreign currency, it may be
desirable to establish (lock in) the U.S. dollar cost or proceeds. By entering
into forward contracts in U.S. dollars for the purchase or sale of a foreign
currency involved in an underlying security transaction, the Portfolio will be
able to protect itself against a possible loss between trade and settlement
dates resulting from the adverse change in the relationship between the U.S.
dollar at the subject foreign currency.
Under portfolio hedging, when the Sub-advisor believes that the
currency of a particular country may suffer a substantial decline relative to
the U.S. dollar, the Portfolio could enter into a foreign contract to sell for a
fixed dollar amount the amount in foreign currencies approximating the value of
some or all of its portfolio securities either denominated in, or whose value is
tied to, such foreign currency. The Portfolio will place cash or high-grade
liquid securities in a separate account with its custodian in an amount
sufficient to cover its obligation under the contract. If the value of the
securities placed in the separate account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account equals the amount of the Portfolio's commitments with respect to
such contracts. At any given time, no more than 10% of the Portfolio's assets
will be committed to a segregated account in connection with portfolio hedging
transactions.
The precise matching of forward contracts in the amounts and values of
securities involved would not generally be possible since the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of short-term hedging strategy
is highly uncertain. The Sub-advisor does not intend to enter into such
contracts on a regular basis. Normally, consideration of the prospect for
currency parities will be incorporated into the long-term investment decisions
made with respect to overall diversification strategies. However, the
Sub-advisor believes that it is important to have flexibility to enter into such
forward contracts when it determines that the Portfolio 's best interests may be
served.
Generally, the Portfolio will not enter into a forward contract with a
term of greater than one year. At the maturity of the forward contract, the
Portfolio may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate the obligation to
deliver the foreign currency by purchasing an "offsetting" forward contract with
the same currency trader obligating the Portfolio to purchase, on the same
maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value
of the Portfolio's securities at the expiration of the forward contract.
Accordingly, it may be necessary for the Portfolio to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Portfolio is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency the Portfolio is obligated to deliver.
For an additional discussion of forward currency exchange contracts and certain
risks involved therein, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Investments in Companies with Limited Operating History. The Portfolio
may invest in the securities of issuers with limiting operating history. The
Sub-advisor considers an issuer to have a limited operating history if that
issuer has a record of less than three years of continuous operation.
Investments in securities of issuers with limited operating history may
involve greater risks than investments in securities of more mature issuers. By
their nature, such issuers present limited operating history and financial
information upon which the manager may base its investment decision on behalf of
the Portfolio. In addition, financial and other information regarding such
issuers, when available, may be incomplete or inaccurate.
The Portfolio will not invest more than 5% of its total assets in the
securities of issuers with less than a three-year operating history. The
Sub-advisor will consider periods of capital formation, incubation,
consolidation, and research and development in determining whether a particular
issuer has a record of three years of continuous operation.
Short Sales. The Portfolio may engage in short sales if, at the time of
the short sale, the Portfolio owns or has the right to acquire an equal amount
of the security being sold short at no additional cost.
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. To make delivery to the purchaser, the executing broker borrows the
securities being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If the Portfolio engages in a short sale, the collateral account will
be maintained by the Portfolio's custodian. While the short sale is open, the
Portfolio will maintain in a segregated custodial account an amount of
securities convertible into, or exchangeable for, such equivalent securities at
no additional cost. These securities would constitute the Portfolio's long
position.
If the Portfolio sells short securities that it owns, any future gains
or losses in the Portfolio's long position should be reduced by a gain or loss
in the short position. The extent to which such gains or losses are reduced
would depend upon the amount of the security sold short relative to the amount
the Portfolio owns. There will be certain additional transaction costs
associated with short sales, but the Portfolio will endeavor to offset these
costs with income from the investment of the cash proceeds of short sales.
Portfolio Turnover. The Sub-advisor will purchase and sell securities
without regard to the length of time the security has been held and,
accordingly, it can be expected that the rate of portfolio turnover may be
substantial.
The Sub-advisor intends to purchase a given security whenever the
Sub-advisor believes it will contribute to the stated objective of the
Portfolio, even if the same security has only recently been sold. The Portfolio
will sell a given security, no matter for how long or for how short a period it
has been held, and no matter whether the sale is at a gain or at a loss, if the
Sub-advisor believes that it is not fulfilling its purpose, either because,
among other things, it did not live up to the Sub-advisor's expectations, or
because it may be replaced with another security holding greater promise, or
because it has reached its optimum potential, or because of a change in the
circumstances of a particular company or industry or in general economic
conditions, or because of some combination of such reasons.
When a general decline in security prices is anticipated, the equity
portion of the Portfolio may decrease or eliminate entirely its equity position
and increase its cash position, and when a rise in price levels is anticipated,
it may increase its equity position and decrease its cash position. However, it
should be expected that the Portfolio will, under most circumstances, be
essentially fully invested in equity securities.
Since investment decisions are based on the anticipated contribution of
the security in question to the Portfolio's objectives, the rate of portfolio
turnover is irrelevant when the Sub-advisor believes a change is in order to
achieve those objectives, and the Portfolio's annual portfolio turnover rate
cannot be anticipated and may be comparatively high. Since the Sub-advisor does
not take portfolio turnover rate into account in making investment decisions,
(1) the Sub-advisor has no intention of accomplishing any particular rate of
portfolio turnover, whether high or low, and (2) the portfolio turnover rates in
the past should not be considered as a representation of the rates which will be
attained in the future.
Interest Rate Futures Contracts and Related Options. The Portfolio may
buy and sell interest rate futures contracts relating to debt securities ("debt
futures," i.e., futures relating to debt securities, and "bond index futures,"
i.e., futures relating to indexes on types or groups of bonds) and write and buy
put and call options relating to interest rate futures contracts.
The Portfolio will not purchase or sell futures contracts and options
thereon for speculative purposes but rather only for the purpose of hedging
against changes in the market value of its portfolio securities or changes in
the market value of securities that the Sub-advisor anticipates it may wish to
include in the Portfolio. The Portfolio may sell a future or write a call or
purchase a put on a future if the Sub-advisor anticipates that a general market
or market sector decline may adversely affect the market value of any or all of
the Portfolio's holdings. The Portfolio may buy a future or purchase a call or
sell a put on a future if the Sub-advisor anticipates a significant market
advance in the type of securities it intends to purchase for the Portfolio at a
time when the Portfolio is not invested in debt securities to the extent
permitted by its investment policies. The Portfolio may purchase a future or a
call option thereon as a temporary substitute for the purchase of individual
securities which may then be purchased in an orderly fashion. As securities are
purchased, corresponding futures positions would be terminated by offsetting
sales.
The "sale" of a debt future means the acquisition by the Portfolio of
an obligation to deliver the related debt securities (i.e., those called for by
the contract) at a specified price on a specified date. The "purchase" of a debt
future means the acquisition by the Portfolio of an obligation to acquire the
related debt securities at a specified time on a specified date. The "sale" of a
bond index future means the acquisition by the Portfolio of an obligation to
deliver an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of the last trading day of the
future and the price at which the future is originally struck. No physical
delivery of the bonds making up the index is expected to be made. The "purchase"
of a bond index future means the acquisition by the Portfolio of an obligation
to take delivery of such an amount of cash.
Unlike when the Portfolio purchases or sells a bond, no price is paid
or received by the Portfolio upon the purchase or sale of the future. Initially,
the Portfolio will be required to deposit an amount of cash or securities equal
to a varying specified percentage of the contract amount. This amount is known
as initial margin. Cash held in the margin account is not income producing.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying debt securities or index
fluctuates, making the future more or less valuable, a process known as mark to
the market. Changes in variation margin are recorded by the Portfolio as
unrealized gains or losses. At any time prior to expiration of the future, the
Portfolio may elect to close the position by taking an opposite position that
will operate to terminate its position in the future. A final determination of
variation margin is then made; additional cash is required to be paid by or
released to the Portfolio and the Portfolio realizes a loss or a gain.
When the Portfolio writes an option on a futures contract it becomes
obligated, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the term of the
option. If the Portfolio has written a call, it becomes obligated to assume a
"long" position in a futures contract, which means that it is required to take
delivery of the underlying securities. If it has written a put, it is obligated
to assume a "short" position in a futures contract, which means that it is
required to deliver the underlying securities. When the Portfolio purchases an
option on a futures contract it acquires a right in return for the premium it
pays to assume a position in a futures contract.
If the Portfolio writes an option on a futures contract it will be
required to deposit initial and variation margin pursuant to requirements
similar to those applicable to futures contracts. Premiums received from the
writing of an option on a future are included in the initial margin deposit. For
options sold, the Portfolio will segregate cash or high-quality debt securities
equal to the value of securities underlying the option unless the option is
otherwise covered. The Portfolio will deposit in a segregated account with its
custodian bank cash or other liquid assets in an amount equal to the fluctuating
market value of long futures contracts it has purchased less any margin
deposited on its long position. It may hold cash or acquire such other assets
for the purpose of making these deposits.
Changes in variation margin are recorded by the Portfolio as unrealized
gains or losses. Initial margin payments will be deposited in the Portfolio's
custodian bank in an account registered in the broker's name; access to the
assets in that account may be made by the broker only under specified
conditions. At any time prior to expiration of a futures contract or an option
thereon, the Portfolio may elect to close the position by taking an opposite
position that will operate to terminate its position in the futures contract or
option. A final determination of variation margin is made at that time;
additional cash is required to be paid by or released to it and it realizes a
loss or gain.
Although futures contracts by their terms call for the actual delivery
or acquisition of the underlying securities or cash, in most cases the
contractual obligation is so fulfilled without having to make or take delivery.
The Sub-advisor does not intend to make or take delivery of the underlying
obligation. All transactions in futures contracts and options thereon are made,
offset or fulfilled through a clearinghouse associated with the exchange on
which the instruments are traded. Although the Sub-advisor intends to buy and
sell futures contracts only on exchanges where there appears to be an active
secondary market, there is no assurance that a liquid secondary market will
exist for any particular future at any particular time. In such event, it may
not be possible to close a futures contract position. Similar market liquidity
risks occur with respect to options.
The use of futures contracts and options thereon to attempt to protect
against the market risk of a decline in the value of portfolio securities is
referred to as having a "short futures position." The use of futures contracts
and options thereon to attempt to protect against the market risk that the
Portfolio might not be fully invested at a time when the value of the securities
in which it invests is increasing is referred to as having a "long futures
position." The Portfolio must operate within certain restrictions as to long and
short positions in futures contracts and options thereon under a rule (CFTC
Rule) adopted by the Commodity Futures Trading Commission (CFTC) under the
Commodity Exchange Act (CEA) to be eligible for the exclusion provided by the
CFTC Rule from registration by the Portfolio with the CFTC as a "commodity pool
operator" (as defined under the CEA), and must represent to the CFTC that it
will operate within such restrictions. Under these restrictions the Portfolio
will not, as to any positions that do not qualify as "bona fide hedging" under
the CFTC Rule, whether long, short or a combination thereof, enter into futures
contracts and options thereon for which the aggregate initial margins and
premiums exceed 5% of the fair market value of the Portfolio's assets after
taking into account unrealized profits and losses on options the Portfolio has
entered into; in the case of an option that is "in-the-money" (as defined under
the CEA), the in-the-money amount may be excluded in computing such 5%. (In
general, a call option on a futures contract is in-the-money if the value of the
future exceeds the strike, i.e., exercise, price of the call; a put option on a
futures contract is in-the-money if the value of the futures contract that is
the subject of the put is exceeded by the strike price of the put.) As to its
long positions that are used as part of the Portfolio's strategy and are
incidental to the Portfolio's activities in the underlying cash market, the
"underlying commodity value" (see below) of the Portfolio's futures contract and
options thereon must not exceed the sum of (i) cash set aside in an identifiable
manner, or short-term U.S. debt obligations or other U.S. dollar-denominated,
high-quality, short-term money market instruments so set aside, plus any funds
deposited as margin; (ii) cash proceeds from existing investments due in 30
days; and (iii) accrued profits held at the futures commission merchant.
There are described above the segregated accounts that the Portfolio
must maintain with its custodian bank as to its options and futures contracts
activities due to Securities and Exchange Commission (SEC) requirements. The
Portfolio will, as to its long positions, be required to abide by the more
restrictive of these SEC and CFTC requirements. The underlying commodity value
of a futures contract is computed by multiplying the size (dollar amount) of the
futures contract by the daily settlement price of the futures contract. For an
option on a futures contract, that value is the underlying commodity value of
the future underlying the option.
Since futures contracts and options thereon can replicate movements in
the cash markets for the securities in which the Portfolio invests without the
large cash investments required for dealing in such markets, they may subject
the Portfolio to greater and more volatile risks than might otherwise be the
case. The principal risks related to the use of such instruments are (i) the
offsetting correlation between movements in the market price of the portfolio
investments (held or intended) being hedged and in the price of the futures
contract or option may be imperfect; (ii) possible lack of a liquid secondary
market for closing out futures or options positions; (iii) the need for
additional portfolio management skills and techniques; (iv) losses due to
unanticipated market price movements; and (v) the bankruptcy or failure of a
futures commission merchant holding margin deposits made by the Portfolio and
the Portfolio's inability to obtain repayment of all or part of such deposits.
For a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security being hedged. Such
equal price changes are not always possible because the investment underlying
the hedging instrument may not be the same investment that is being hedged. The
Sub-advisor will attempt to create a closely correlated hedge, but hedging
activity may not be completely successful in eliminating market value
fluctuation. The ordinary spreads between prices in the cash and futures
markets, due to the differences in the natures of those markets, are subject to
the following factors which may create distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into off-setting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest trends by the Sub-advisor may
still not result in a successful transaction. The Sub-advisor may be incorrect
in its expectations as to the extent of various interest rate movements or the
time span within which the movements take place.
The risk of imperfect correlation between movements in the price of a
bond index future and movements in the price of the securities that are the
subject of the hedge increases as the composition of the Portfolio diverges from
the securities included in the applicable index. The price of the bond index
future may move more than or less than the price of the securities being hedged.
If the price of the bond index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective, but if the price of the securities being hedged has moved in an
unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
security, the Portfolio will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the bond index futures, the Portfolio may buy or sell
bond index futures in a greater dollar amount than the dollar amount of
securities being hedged if the historical volatility of the prices of such
securities being hedged is less than the historical volatility of the bond
index. It is also possible that, where the Portfolio has sold futures contracts
to hedge its securities against a decline in the market, the market may advance
and the value of securities held in the Portfolio may decline. If this occurred,
the Portfolio would lose money on the futures contract and also experience a
decline in value in its portfolio securities. However, while this could occur
for a brief period or to a very small degree, over time the value of a portfolio
of debt securities will tend to move in the same direction as the market indexes
upon which the futures contracts are based.
Where bond index futures are purchased to hedge against a possible
increase in the price of bonds before the Portfolio is able to invest in
securities in an orderly fashion, it is possible that the market may decline
instead; if the Portfolio then concludes not to invest in securities at that
time because of concern as to possible further market decline or for other
reasons, it will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities it had anticipated purchasing.
The risks of investment in options on bond indexes may be greater than
options on securities. Because exercises of bond index options are settled in
cash, when the Portfolio writes a call on a bond index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. The Portfolio can offset some of the risk of its writing
position by holding a portfolio of bonds similar to those on which the
underlying index is based. However, the Portfolio cannot, as a practical matter,
acquire and hold a portfolio containing exactly the same securities as the
underlying index and, as a result, bears a risk that the value of the securities
held will vary from the value of the index. Even if the Portfolio could assemble
a portfolio that exactly reproduced the composition of the underlying index, it
still would not be fully covered from a risk standpoint because of the "timing
risk" inherent in writing index options. When an index option is exercised, the
amount of cash that the holder is entitled to receive is determined by the
difference between the exercise price and the closing index level on the date
when the option is exercised. As with other kinds of options, the Portfolio, as
the call writer, will not learn that it has been assigned until the next
business day at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security because there, the writer's obligation is to deliver the
underlying security, not to pay its value as of a fixed time in the past. So
long as the writer already owns the underlying security, it can satisfy its
settlement obligations by simply delivering it, and the risk that its value may
have declined since the exercise date is borne by the exercising holder. In
contrast, even if the writer of an index call holds securities that exactly
match the composition of the underlying index, it will not be able to satisfy
its assignment obligations by delivering those securities against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value of the exercise date; and by the time it learns that it
has been assigned, the index may have declined with a corresponding decline in
the value of its portfolio. This "timing risk" is an inherent limitation on the
ability of index call writers to cover their risk exposure by holding securities
positions.
If the Portfolio has purchased an index option and exercises it before
the closing index value for that day is available, it runs the risk that the
level of the underlying index may subsequently change. If such a change causes
the exercised option to fall out-of-the-money, the Portfolio must pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
Collateralized Mortgage Obligations. The Fund may buy collateralized
mortgage obligations ("CMOs"). The Fund may buy CMOs that are: (i)
collateralized by pools of mortgages in which payment of principal and interest
of each mortgage is guaranteed by an agency or instrumentality of the U.S.
government; (ii) collateralized by pools of mortgages in which payment of
principal and interest are guaranteed by the issuer, and the guarantee is
collateralized by U.S. government securities; or (iii) securities in which the
proceeds of the issue are invested in mortgage securities and payments of
principal and interest are supported by the credit of an agency or
instrumentality of the U.S. government. For a discussion of CMOs and the risks
involved therein, see the Company's Prospectus under "Certain Risk Factors and
Investment Methods."
Repurchase Agreements. The Fund may enter into repurchase agreements. The
Fund will limit repurchase agreement transactions to securities issued by the
U.S. government, its agencies and instrumentalities. For a further discussion of
repurchase agreements and the risks involved therein, see the Company's
Prospectus under "Certain Risk Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST American Century Strategic
Balanced Portfolio. These limitations are not "fundamental" restrictions and may
be changed by the Trustees without shareholder approval. The Portfolio will not:
1. Invest more than 15% of its assets in illiquid investments;
2. Invest in the securities of other investment companies except in compliance
with the 1940 Act;
3. Buy securities on margin or sell short (unless it owns, or by virtue
of its ownership of, other securities has the right to obtain securities
equivalent in kind and amount to the securities sold); however, the Portfolio
may make margin deposits in connection with the use of any financial instrument
or any transaction in securities permitted under its investment policies; or
4. Invest for control or for management.
AST T. Rowe Price Asset Allocation Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek a
high level of total return by investing primarily in a diversified group of
fixed-income and equity securities. This is a fundamental objective of the
Portfolio.
Investment Policies: The Portfolio's share price will fluctuate with changing
market conditions and interest rate levels and your investment may be worth more
or less when redeemed than when purchased. The Portfolio should not be relied
upon for short-term financial needs, nor used to play short-term swings in the
stock or bond markets. The Portfolio cannot guarantee that it will achieve its
investment objectives. Fixed income securities in which the Portfolio may invest
include, but are not limited to, those described below.
U.S. Government Obligations. Bills, notes, bonds and other debt securities
issued by the U.S. Treasury. These are direct obligations of the U.S. Government
and differ mainly in the length of their maturities.
U.S. Government Agency Securities. Issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These include securities
issued by the Federal National Mortgage Association, Government National
Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business Association, and
the Tennessee Valley Authority. Some of these securities are supported by the
full faith and credit of the U.S. Treasury, and the remainder are supported only
by the credit of the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
Bank Obligations. Certificates of deposit, bankers' acceptances, and other
short-term debt obligations. Certificates of deposit are short-term obligations
of commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with international commercial
transactions. Certificates of deposit may have fixed or variable rates. The
Portfolio may invest in U.S. banks, foreign branches of U.S. banks, U.S.
branches of foreign banks and foreign branches of foreign banks.
Savings and Loan Obligations. Negotiable certificates of deposit and other
short-term debt obligations of savings and loan associations.
Supranational Entities. The Portfolio may also invest in the securities of
certain supranational entities, such as the International Development Bank.
Mortgage-Backed Securities. Mortgage-backed securities are securities
representing interest in a pool of mortgages. After purchase by the Portfolio, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event will require a sale of
such security by the Portfolio. However, the Sub-advisor will consider such
event in its determination of whether the Portfolio should continue to hold the
security. To the extent that the ratings given by Moody's or S&P may change as a
result of changes in such organizations or their rating systems, the Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies continued in the Trust's Prospectus. For
a discussion of mortgage-backed securities and certain risks involved therein,
see this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Collateralized Mortgage Obligations (CMOs). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
a Portfolio invests, the investment may be subject to a greater or lesser risk
of prepayment than other types of mortgage-related securities. For an additional
discussion of CMOs and certain risks involved therein, see the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Asset-Backed Securities. The Portfolio may invest a portion of its
assets in debt obligations known as asset-backed securities. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets
which in turn may be affected by a variety of economic and other factors. As a
result, the yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than the anticipated
yield to maturity.
Automobile Receivable Securities. The Portfolio may invest in
asset-backed securities which are backed by receivables from motor vehicle
installment sales contracts or installment loans secured by motor vehicles
("Automobile Receivable Securities").
Credit Card Receivable Securities. The Portfolio may invest in
asset-backed securities backed by receivables from revolving credit card
agreements ("Credit Card Receivable Securities").
Other Assets. The Sub-advisor anticipates that asset-backed
securities backed by assets other than those described above will be issued in
the future. The Portfolio may invest in such securities in the future if such
investment is otherwise consistent with its investment objective and policies.
For a discussion of these securities, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
In addition to the investments described in the Trust's Prospectus, the
Portfolio may invest in the following:
Writing Covered Call Options. The Portfolio may write (sell) "covered"
call options and purchase options to close out options previously written by the
Portfolio. In writing covered call options, the Portfolio expects to generate
additional premium income which should serve to enhance the Portfolio's total
return and reduce the effect of any price decline of the security or currency
involved in the option. Covered call options will generally be written on
securities or currencies which, in the Sub-advisor's opinion, are not expected
to have any major price increases or moves in the near future but which, over
the long term, are deemed to be attractive investments for the Portfolio.
The Portfolio will write only covered call options. This means that the
Portfolio will own the security or currency subject to the option or an option
to purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash or other liquid assets having a value equal to the
fluctuating market value of the optioned securities or currencies.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objectives. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, the Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely, retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligations as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency. The Portfolio does not consider a security or
currency covered by a call "pledged" as that term is used in the Portfolio's
policy which limits the pledging or mortgaging of its assets.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, Sub-advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Portfolio for writing covered call options
will be recorded as a liability of the Portfolio. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Portfolio
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The option will be terminated upon expiration of
the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security or currency upon the exercise of the option.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
The Portfolio will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities or currencies covering call
or put options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written calls and puts, the value of purchased calls and puts on
identical securities or currencies with identical maturity dates.
Writing Covered Put Options. The Portfolio may write American or
European style covered put options and purchase options to close out options
previously written by the Portfolio.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" option at all times
while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where Sub-advisor wishes to purchase the underlying security or
currency for the Portfolio's portfolio at a price lower than the current market
price of the security or currency. In such event the Portfolio would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Portfolio would
also receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Portfolio. In
addition, the Portfolio, because it does not own the specific securities or
currencies which it may be required to purchase in the exercise of the put, can
not benefit from appreciation, if any, with respect to such specific securities
or currencies.
The Portfolio will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies covering put or
call options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies. For a discussion of options, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Purchasing Put Options. The Portfolio may purchase American or European
style put options. The Portfolio may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. The Portfolio
may purchase put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies. An example of
such use of put options is provided in this Statement under "Certain Risk
Factors and Investment Methods."
The Portfolio will not commit more than 5% of its assets to premiums
when purchasing call and put options. The Portfolio may also purchase call
options on underlying securities or currencies it owns in order to protect
unrealized gains on call options previously written by it. A call option would
be purchased for this purpose where tax considerations make it inadvisable to
realize such gains through a closing purchase transaction. Call options may also
be purchased at times to avoid realizing losses.
Purchasing Call Options. The Portfolio may purchase American or
European call options. The Portfolio may enter into closing sale transactions
with respect to such options, exercise them or permit them to expire. The
Portfolio may purchase call options for the purpose of increasing its current
return or avoiding tax consequences which could reduce its current return. The
Portfolio may also purchase call options in order to acquire the underlying
securities or currencies. Examples of such uses of call options are provided
this Statement under "Certain Risk Factors and Investment Methods."
The Portfolio will not commit more than 5% of its assets to premiums
when purchasing call and put options. The Portfolio may also purchase call
options on underlying securities or currencies it owns in order to protect
unrealized gains on call options previously written by it. A call option would
be purchased for this purpose where tax considerations make it inadvisable to
realize such gains through a closing purchase transaction. Call options may also
be purchased at times to avoid realizing losses.
Dealer Options. The Portfolio may engage in transactions involving
dealer options. Certain risks are specific to dealer options. While the
Portfolio would look to a clearing corporation to exercise exchange-traded
options, if the Portfolio were to purchase a dealer option, it would rely on the
dealer from whom it purchased the option to perform if the option were
exercised. While the Portfolio will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of entering into
closing transactions with the Portfolio, there can be no assurance that the
Portfolio will be able to liquidate a dealer option at a favorable price at any
time prior to expiration. Failure by the dealer to do so would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction. For a discussion of dealer options, see this
Statement under "Certain Risk Factors and Investment Methods."
Futures Contracts.
Transactions in Futures. The Portfolio may enter into
financial futures contracts, including stock index, interest rate and currency
futures ("futures" or "futures contracts").
Stock index futures contracts may be used to attempt to provide a hedge
for a portion of the Portfolio's portfolio, as a cash management tool, or as an
efficient way for the Sub-advisor to implement either an increase or decrease in
portfolio market exposure in response to changing market conditions. Stock index
futures contracts are currently traded with respect to the S&P 500 Index and
other broad stock market indices, such as the New York Stock Exchange Composite
Stock Index and the Value Line Composite Stock Index. The Portfolio may,
however, purchase or sell futures contracts with respect to any stock index.
Nevertheless, to hedge the Portfolio's portfolio successfully, the Portfolio
must sell futures contacts with respect to indices or subindexes whose movements
will have a significant correlation with movements in the prices of the
Portfolio's securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges and are standardized as to maturity date
and underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission ("CFTC"). Although techniques other than the sale and
purchase of futures contracts could be used for the above-referenced purposes,
futures contracts offer an effective and relatively low cost means of
implementing the Portfolio's objectives in these areas. For a discussion of
futures transactions and certain risks involved therein, see this Statement and
the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Regulatory Limitations. The Portfolio will engage in
transactions in futures contracts and options thereon only for bona fide
hedging, yield enhancement and risk management purposes, in each case in
accordance with the rules and regulations of the CFTC.
The Portfolio may not enter into futures contracts or options thereon
if, with respect to positions which do not qualify as bona fide hedging under
applicable CFTC rules, the sum of the amounts of initial margin deposits on the
Portfolio's existing futures and premiums paid for options on futures would
exceed 5% of the net asset value of the Portfolio after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into; provided, however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in calculating the
5% limitation.
In instances involving the purchase of futures contracts or call
options thereon or the writing of put options thereon by the Portfolio, an
amount of cash, U.S. government securities or other liquid, high-grade debt
obligations, equal to the market value of the futures contracts and options
thereon (less any related margin deposits), will be identified by the Portfolio
to cover the position, or alternative cover (such as owning an offsetting
position) will be employed.
Risks of Transactions in Futures Contracts. See this Statement
and the Trust's Prospectus under "Certain Risks and Investment Methods" for an
additional description of certain risks involved in futures contracts.
Options on Futures Contracts. As an alternative to writing or
purchasing call and put options on stock index futures, the Portfolio may write
or purchase call and put options on financial indices. Such options would be
used in a manner similar to the use of options on futures contracts. From time
to time, a single order to purchase or sell futures contracts (or options
thereon) may be made on behalf of the Portfolio and other mutual funds or
portfolios of mutual funds managed by the Sub-advisor or Rowe Price-Fleming
International, Inc. Such aggregated orders would be allocated among the
Portfolio and such other mutual funds or portfolios of mutual funds in a fair
and non-discriminatory manner. See this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods" for a description of certain
risks involved in options on futures contracts.
Additional Futures and Options Contracts. Although the Portfolio has no
current intention of engaging in futures or options transactions other than
those described above, it reserves the right to do so. Such futures or options
trading might involve risks which differ from those involved in the futures and
options described above.
Foreign Futures and Options. The Portfolio is permitted to enter into
foreign futures and options transactions. See this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods" for a description
of certain risks involved in foreign futures and options.
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
and non-U.S. dollar-denominated securities of foreign issuers in developed
countries. Because the Portfolio may invest in foreign securities, investment in
the Portfolio involves risks that are different in some respects from an
investment in a Portfolio which invests only in securities of U.S. domestic
issuers. Foreign investments may be affected favorably or unfavorably by changes
in currency rates and exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing, and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. There may be less governmental supervision of securities markets,
brokers and issuers of securities. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the U.S. For an additional discussion of
certain risks involved in investing in foreign securities, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Foreign Currency Transactions. The Portfolio will generally enter into
forward foreign currency exchange contracts under two circumstances. First, when
the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. Second, when the Sub-advisor believes that the currency
of a particular foreign country may suffer or enjoy a substantial movement
against another currency, including the U.S. dollar, it may enter into a forward
contract to sell or buy the amount of the former foreign currency, approximating
the value of some or all of the Portfolio's securities denominated in such
foreign currency. Alternatively, where appropriate, the Portfolio may hedge all
or part of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Portfolio may enter
into a forward contract where the amount of the foreign currency to be sold
exceeds the value of the securities denominated in such currency. The use of
this basket hedging technique may be more efficient and economical than entering
into separate forward contracts for each currency held in the Portfolio. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Other than as set forth above,
and immediately below, the Portfolio will also not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Portfolio to deliver an amount of foreign
currency in excess of the value of the Portfolio's securities or other assets
denominated in that currency. The Portfolio, however, in order to avoid excess
transactions and transaction costs, may maintain a net exposure to forward
contracts in excess of the value of the Portfolio's securities or other assets
to which the forward contracts relate (including accrued interest to the
maturity of the forward on such securities) provided the excess amount is
"covered" by liquid, high-grade debt securities, denominated in any currency, at
least equal at all times to the amount of such excess. For these purposes "the
securities or other assets to which the forward contracts relate may be
securities or assets denominated in a single currency, or where proxy forwards
are used, securities denominated in more than one currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the Sub-advisor believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served.
At the maturity of a forward contract, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver. However, as noted, in
order to avoid excessive transactions and transaction costs, the Portfolio may
use liquid, high-grade debt securities denominated in any currency, to cover the
amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer. For a discussion of
certain risks involved in foreign currency transactions, see this Statement and
the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts. The Portfolio may enter into certain option, futures, and
forward foreign exchange contracts, including options and futures on currencies,
which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain (taxable at a maximum rate of 20%)
or loss and 40% short-term capital gain or loss regardless of the holding period
of the instrument (or, in the case of foreign exchange contracts, entirely as
ordinary income or loss). The Portfolio will be required to distribute net gains
on such transactions to shareholders even though it may not have closed the
transaction and received cash to pay such distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. The holding period of the security offsetting
an "in-the-money qualified covered call" option on an equity security will not
include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Tax regulations could be issued limiting the
extent that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement.
As a result of the "Taxpayer Relief Act of 1997," entering into certain
option, futures contracts, or forward contracts may be deemed a "constructive
sale" of offsetting securities, which could result in a taxable gain from the
sale being distributed to shareholders. The Portfolio would be required to
distribute any such gain even though it would not receive proceeds from the sale
at the time the option, futures or forward position is entered into.
Hybrid Commodity and Security Instruments. Instruments have been
developed which combine the elements of futures contracts or options with those
of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Often these hybrid instruments are indexed to the price of a
commodity or particular currency or a domestic or foreign debt or equity
securities index. Hybrid instruments may take a variety of forms, including, but
not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
at a future point in time, preferred stock with dividend rates determined by
reference to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity. For a discussion of certain
risks involved in investing in hybrid instruments, see this Statement under
"Certain Risk Factors and Investment Methods."
Illiquid and Restricted Securities. Subject to guidelines promulgated
by the Board of Trustees of the Trust, the Portfolio may invest in illiquid
securities. The Portfolio may invest in illiquid securities including repurchase
agreements which do not provide for payment within seven days, but will not
acquire such securities if, as a result, they would comprise more than 15% of
the value of the Portfolio's net assets.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 (the "1933 Act"). The
Portfolio will not invest more than 10% of its total assets in restricted
securities (other than securities eligible for resale under Rule 144A of the
Securities Act of 1933). Where registration is required, the Portfolio may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Portfolio may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the Portfolio might obtain a less favorable price than prevailed when it decided
to sell. Restricted securities will be priced at fair value as determined in
accordance with procedures prescribed by the Board of Trustees. If through the
appreciation of restricted securities or the depreciation of unrestricted
securities or the depreciation of liquid securities, the Portfolio should be in
a position where more than 15% of the value of its net assets are invested in
illiquid assets, including restricted securities, the Portfolio will take
appropriate steps to protect liquidity.
The Portfolio may purchase securities which while privately placed, are
eligible for purchase and sale under Rule 144A under the 1933 Act. This rule
permits certain qualified institutional buyers, such as the Portfolio, to trade
in privately placed securities even though such securities are not registered
under the 1933 Act. Sub-advisor, under the supervision of the Trust's Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Portfolio's restriction of investing no more
than 15% of its assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, the Sub-advisor will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition, Sub-advisor could consider the (1) frequency of trades
and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) the nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored, and if as a result of changed conditions it is
determined that a Rule 144A security is no longer liquid, the Portfolio's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Portfolio does not invest more than 15% of
its assets in illiquid securities. Investing in Rule 144A securities could have
the effect of increasing the amount of the Portfolio's assets invested in
illiquid securities if qualified institutional buyers are unwilling to purchase
such securities.
Repurchase Agreements. Subject to the guidelines promulgated by the
Board of Trustees of the Trust, the Portfolio may enter into repurchase
agreements through which an investor (such as the Portfolio) purchases a
security (known as the "underlying security") from a well-established securities
dealer or a bank which is a member of the Federal Reserve System. Any such
dealer or bank will be on Sub-advisor's approved list and have a credit rating
with respect to its short-term debt of at least A1 by Standard & Poor's
Corporation, P1 by Moody's Investors Service, Inc., or the equivalent rating by
Sub-advisor. At that time, the bank or securities dealer agrees to repurchase
the underlying security at the same price, plus specified interest. Repurchase
agreements are generally for a short period of time, often less than a week.
Repurchase agreements which do not provide for payment within seven days will be
considered illiquid. The Portfolio will only enter into repurchase agreements
where (i) the underlying securities are of the type (excluding maturity
limitations) which the Portfolio's investment guidelines would allow it to
purchase directly, (ii) the market value of the underlying security, including
interest accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying security is made only
upon physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Portfolio could experience
both delays in liquidating the underlying securities and losses, including: (a)
possible decline in the value of the underlying security during the period while
the Portfolio seeks to enforce its rights thereto; (b) possible subnormal levels
of income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
Lending of Portfolio Securities. For the purpose of realizing
additional income, the Portfolio may make secured loans of Portfolio securities
amounting to not more than 33 1/3% of its total assets. This policy is a
fundamental policy. Securities loans are made to broker-dealers, institutional
investors, or other persons pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent, marked to market on a daily basis. The collateral received
will consist of cash, U.S. government securities, letters of credit or such
other collateral as may be permitted under its investment program. While the
securities are being lent, the Portfolio will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Portfolio has a right to call each loan and obtain the securities on three
business days' notice or, in connection with securities trading on foreign
markets, within such longer period of time which coincides with the normal
settlement period for purchases and sales of such securities in such foreign
markets. The Portfolio will not have the right to vote securities while they are
being lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission, the Portfolio may make loans to, or borrow Portfolios from,
other mutual funds or portfolios of mutual funds sponsored or advised by the
Sub-advisor or Rowe Price-Fleming International, Inc. The Portfolio has no
current intention of engaging in these practices at this time.
When-Issued Securities. The Portfolio may from time to time purchase
securities on a "when-issued" basis. At the time the Portfolio makes the
commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Portfolio does not believe that its net asset value or income will be
adversely affected by its purchase of securities on a when-issued basis. The
Portfolio will maintain cash and marketable securities equal in value to
commitments for when-issued securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date. For a
discussion of when-issued securities, see this Statement under "Certain Risk
Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval. The
following limitations are applicable only to the AST T. Rowe Price Asset
Allocation Portfolio. These limitations are not fundamental restrictions, and
can be changed by the Trustees without shareholder approval. The Portfolio will
not:
1. Purchase additional securities when money borrowed exceeds 5% of the
Portfolio's total assets;
2. Invest in companies for the purpose of exercising management or control;
3. Purchase illiquid securities if, as a result, more than 15% of its net
assets would be invested in such securities. Securities eligible for resale
under Rule 144A of the Securities Act of 1933 may be subject to this 15%
limitation;
4. Purchase securities of open-end or closed-end investment companies
except in compliance with the 1940 Act;
5. Mortgage, pledge, hypothecate or, in any manner, transfer any security
owned by the Portfolio as security for indebtedness except as may be necessary
in connection with permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed 33 1/3% of the Portfolio's
total assets at the time of borrowing or investment;
6. Invest in puts, calls, straddles, spreads, or any combination thereof to
the extent permitted by the Trust's Prospectus and this Statement;
7. Purchase securities on margin, except (i) for use of short-term credit
necessary for clearance of purchases of portfolio securities and (ii) the
Portfolio may make margin deposits in connection with futures contracts or other
permissible investments;
8. Invest in warrants if, as a result thereof, more than 10% of the value
of the total assets of the Portfolio would be invested in warrants, provided
that this restriction does not apply to warrants acquired as the result of the
purchase of another security. For purposes of these percentage limitations, the
warrants will be valued at the lower of cost or market;
9. Effect short sales of securities; or
10. Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such positions would
exceed 5% of the Portfolio's net assets.
Notwithstanding anything in the above fundamental and operating
restrictions to the contrary, the Portfolio may, as a fundamental policy, invest
all of its assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objectives, policies
and restrictions as the Portfolio subject to the prior approval of the
Investment Manager. The Investment Manager will not approve such investment
unless: (a) the Investment Manager believes, on the advice of counsel, that such
investment will not have an adverse effect on the tax status of the annuity
contracts and/or life insurance policies supported by the separate accounts of
the Participating Insurance Companies which purchase shares of the Trust; (b)
the Investment Manager has given prior notice to the Participating Insurance
Companies that it intends to permit such investment and has determined whether
such Participating Insurance Companies intend to redeem any shares and/or
discontinue purchase of shares because of such investment; (c) the Trustees have
determined that the fees to be paid by the Trust for administrative, accounting,
custodial and transfer agency services for the Portfolio subsequent to such an
investment are appropriate, or the Trustees have approved changes to the
agreements providing such services to reflect a reduction in fees; (d) the
Sub-advisor for the Portfolio has agreed to reduce its fee by the amount of any
investment advisory fees paid to the investment manager of such open-end
management investment company; and (e) shareholder approval is obtained if
required by law. The Portfolio will apply for such exemptive relief under the
provisions of the 1940 Act, or other such relief as may be necessary under the
then governing rules and regulations of the 1940 Act, regarding investments in
such investment companies.
AST T. Rowe Price International Bond Portfolio:
Investment Objective: The investment objective of the Portfolio is to provide
high current income and capital appreciation by investing in high-quality, non
dollar-denominated government and corporate bonds outside the United States.
This is a fundamental objective of the Portfolio.
Investment Policies: The Portfolio also seeks to moderate price fluctuation by
actively managing its maturity structure and currency exposure. The Portfolio's
investments may include debt securities issued or guaranteed by a foreign
national government, its agencies, instrumentalities or political subdivisions,
debt securities issued or guaranteed by supranational organizations, corporate
debt securities, bank or bank holding company debt securities and other debt
securities including those convertible into common stock. The Portfolio will
invest at least 65% of its assets in high-quality bonds but may invest up to 20%
of assets in below investment-grade, high-risk bonds, including bonds in default
or those with the lowest rating.
Sub-advisor regularly analyzes a broad range of international equity
and fixed-income markets in order to assess the degree of risk and level of
return that can be expected from each market. Of course, there can be no
assurance that Sub-advisor's forecasts of expected return will be reflected in
the actual returns achieved by the Portfolio.
The Portfolio's share price will fluctuate with market, economic and
foreign exchange conditions, and your investment may be worth more or less when
redeemed than when purchased. The Portfolio should not be relied upon as a
complete investment program, nor used to play short-term swings in the global
bond or foreign exchange markets. The Portfolio is subject to risks unique to
international investing.
The Portfolio will invest in securities denominated in currencies
specified elsewhere herein.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market.
The Portfolio may invest in investment portfolios which have been
authorized by the governments of certain countries specifically to permit
foreign investment in securities of companies listed and traded on the stock
exchanges in these respective countries. The Portfolio's investment in these
portfolios is subject to the provisions of the 1940 Act discussed below. If the
Portfolio invests in such investment portfolios, the Portfolio's shareholders
will bear not only their proportionate share of the expenses of the Portfolio
(including operating expenses and the fees of the Investment Manager), but also
will bear indirectly similar expenses of the underlying investment portfolios.
In addition, the securities of these investment portfolios may trade at a
premium over their net asset value.
Apart from the matters described herein, the Portfolio is not aware at
this time of the existence of any investment or exchange control regulations
which might substantially impair the operations of the Portfolio as described in
the Trust's Prospectus and this Statement. It should be noted, however, that
this situation could change at any time.
The Portfolio may invest in companies located in Eastern Europe,
Russia or certain Latin American countries. The Portfolio will only invest in a
company located in, or a government of, Eastern Europe, Russia or Latin America,
if the Sub-advisor believes the potential return justifies the risk.
Risk Factors of Foreign Investing. There are special risks in
investing in the Portfolio. Certain of these risks are inherent in any
international mutual fund others relate more to the countries in which the
Portfolio will invest. Many of the risks are more pronounced for investments in
developing or emerging countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a per capita gross
national product of less than $8,000.
Investors should understand that all investments have a risk factor.
There can be no guarantee against loss resulting from an investment in the
Portfolio, and there can be no assurance that the Portfolio's investment
policies will be successful, or that its investment objective will be attained.
The Portfolio is designed for individual and institutional investors seeking to
diversify beyond the United States in an actively researched and managed
portfolio, and is intended for long-term investors who can accept the risks
entailed in investment in foreign securities. For a discussion of certain risks
involved in foreign investing see this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
The Portfolio may invest in the following:
Brady Bonds. The Portfolio may invest in Brady Bonds. Brady Bonds,
which are named after former U.S. Secretary of the Treasury Nicholas Brady, are
used as a means of restructuring the external debt burden of a government in
certain emerging markets. A Brady bond is created when an outstanding commercial
bank loan to a government or private entity is exchanged for a new bond in
connection with a debt restructuring plan. Brady bonds may be collateralized or
uncollateralized and issued in various currencies (although typically in the
U.S. dollar). They are often fully collateralized as to principal in U.S.
Treasury zero coupon bonds. However, even with this collateralization feature,
Brady Bonds are often considered speculative, below investment grade investments
because the timely payment of interest is the responsibility of the issuing
party (for example, a Latin American country) and the value of the bonds can
fluctuate significantly based on the issuer's ability or perceived ability to
make these payments. Finally, some Brady Bonds may be structured with floating
rate or low fixed rate coupons. The Portfolio does not expect to have more than
10% of its total assets invested in Brady Bonds.
Nondiversified Investment Company. Despite its nondiversified status
under the Investment Company Act, the Portfolio generally will not invest more
than 5% of its assets in any individual corporate issuer. However, the Portfolio
(1) may place assets in bank deposits or other short-term bank instruments with
a maturity of up to 30 days provided that (i) the bank has a short-term credit
rating of A1+ (or, if unrated, the equivalent as determined by the Sub-advisor)
and (ii) the Portfolio may not maintain more than 10% of its total assets with
any single bank; and (2) may maintain more than 5% of its total assets,
including cash and currencies, in custodial accounts or deposits of the Trust's
custodian or sub-custodians.
Writing Covered Call Options. The Portfolio may write (sell) "covered"
call options and purchase options to close out options previously written by the
Portfolio. In writing covered call options, the Portfolio expects to generate
additional premium income which should serve to enhance the Portfolio's total
return and reduce the effect of any price decline of the security or currency
involved in the option. Covered call options will generally be written on
securities or currencies which, in Sub-advisor's opinion, are not expected to
have any major price increases or moves in the near future but which, over the
long term, are deemed to be attractive investments for the Portfolio.
The Portfolio will write only covered call options. This means that
the Portfolio will own the security or currency subject to the option or an
option to purchase the same underlying security or currency, having an exercise
price equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash or other liquid assets having a value equal to the
fluctuating market value of the optioned securities or currencies.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objective. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, the Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely, retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligations as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency, The Portfolio does not consider a security or
currency covered by a call "pledged" as that term is used in the Portfolio's
policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, Sub-advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Portfolio for writing covered call options
will be recorded as a liability of the Portfolio. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Portfolio
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the average of the latest bid and asked price. The option will be
terminated upon expiration of the option, the purchase of an identical option in
a closing transaction, or delivery of the underlying security or currency upon
the exercise of the option.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The Portfolio will effect closing transactions in order to realize a
profit on an outstanding call option, to prevent an underlying security or
currency from being called, or, to permit the sale of the underlying security or
currency. The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
The Portfolio will not write a covered call option if, as a result,
the aggregate market value of all portfolio securities or currencies covering
call or put options exceeds 25% of the market value of the Portfolio's net
assets. In calculating the 25% limit, the Portfolio will offset, against the
value of assets covering written calls and puts, the value of purchased calls
and puts on identical securities or currencies with identical maturity dates.
Writing Covered Put Options. Although the Portfolio has no current
intention in the foreseeable future of writing American or European style
covered put options and purchasing put options to close out options previously
written by the Portfolio, the Portfolio reserves the right to do so.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" options at all
times while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where Sub-advisor wishes to purchase the underlying security or
currency for the Portfolio's portfolio at a price lower than the current market
price of the security or currency. In such event the Portfolio would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Portfolio would
also receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Portfolio. In
addition, the Portfolio, because it does not own the specific securities or
currencies which it may be required to purchase in exercise of the put, cannot
benefit from appreciation, if any, with respect to such specific securities or
currencies.
The Portfolio will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies covering put or
call options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates. For a
discussion of certain risks involved in options, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Purchasing Put Options. The Portfolio may purchase American or
European style put options. As the holder of a put option, the Portfolio has the
right to sell the underlying security or currency at the exercise price at any
time during the option period. The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase put options for defensive purposes in order
to protect against an anticipated decline in the value of its securities or
currencies. An example of such use of put options is provided in this Statement
under "Certain Risk Factors and Investment Methods."
The premium paid by the Portfolio when purchasing a put option will be
recorded as an asset of the Portfolio. This asset will be adjusted daily to the
option's current market value, which will be the latest sale price at the time
at which the net asset value per share of the Portfolio is computed (close of
New York Stock Exchange), or, in the absence of such sale, the latest bid price.
This asset will be terminated upon expiration of the option, the selling
(writing) of an identical option in a closing transaction, or the delivery of
the underlying security or currency upon the exercise of the option.
Purchasing Call Options. The Portfolio may purchase American or
European style call options. As the holder of a call option, the Portfolio has
the right to purchase the underlying security or currency at the exercise price
at any time during the option period (American style) or at the expiration of
the option (European style). The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could reduce its current
return. The Portfolio may also purchase call options in order to acquire the
underlying securities or currencies. Examples of such uses of call options are
provided below.
The Portfolio may also purchase call options on underlying securities
or currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses.
The Portfolio will not commit more than 5% of its total assets to
premiums when purchasing call or put options.
Dealer Options. The Portfolio may engage in transactions involving
dealer options. Certain risks are specific to dealer options. While the
Portfolio would look to a clearing corporation to exercise exchange-traded
options, if the Portfolio were to purchase a dealer option, it would rely on the
dealer from whom it purchased the option to perform if the option were
exercised. While the Portfolio will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of entering into
closing transactions with the Portfolio, there can be no assurance that the
Portfolio will be able to liquidate a dealer option at a favorable price at any
time prior to expiration. Failure by the dealer to do so would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
Futures Contracts.
Transactions in Futures. The Portfolio may enter into
financial futures contracts, including stock index, interest rate and currency
futures ("futures" or "futures contracts"); however, the Portfolio has no
current intention of entering into interest rate futures. The Portfolio,
however, reserves the right to trade in financial futures of any kind.
Stock index futures contracts may be used to attempt to provide a
hedge for a portion of the Portfolio's portfolio, as a cash management tool, or
as an efficient way for Sub-advisor to implement either an increase or decrease
in portfolio market exposure in response to changing market conditions. Stock
index futures contracts are currently traded with respect to the S&P 500 Index
and other broad stock market indices, such as the New York Stock Exchange
Composite Stock Index and the Value Line Composite Stock Index. The Portfolio
may, however, purchase or sell futures contracts with respect to any stock index
whose movements will, in its judgment, have a significant correlation with
movements in the prices of all or portions of the Portfolio's portfolio
securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges and are standardized as to maturity date
and underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission ("CFTC"). Although techniques other than the sale and
purchase of futures contracts could be used for the above-referenced purposes,
futures contracts offer an effective and relatively low cost means of
implementing the Portfolio's objectives in these areas. For a discussion of
futures transactions and certain risks involved therein, see this Statement and
the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Regulatory Limitations. The Portfolio will engage in
transactions in futures contracts and options thereon only for bona fide
hedging, yield enhancement and risk management purposes, in each case in
accordance with the rules and regulations of the CFTC.
The Portfolio may not enter into futures contracts or options thereon
if, with respect to positions which do not qualify as bona fide hedging under
applicable CFTC rules, the sum of the amounts of initial margin deposits on the
Portfolio's existing futures and premiums paid for options on futures would
exceed 5% of the net asset value of the Portfolio after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into; provided however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in calculating the
5% limitation.
In instances involving the purchase of futures contracts or call
options thereon or the writing of put options thereon by the Portfolio, an
amount of cash or other liquid assets equal to the market value of the futures
contracts and options thereon (less any related margin deposits), will be
identified by the Portfolio to cover the position, or alternative cover (such as
owning an offsetting position) will be employed.
Options on Futures Contracts. As an alternative to writing or
purchasing call and put options on stock index futures, the Portfolio may write
or purchase call and put options on financial indices. Such options would be
used in a manner similar to the use of options on futures contracts. From time
to time, a single order to purchase or sell futures contracts (or options
thereon) may be made on behalf of the Portfolio and other mutual funds or
portfolios of mutual funds managed by the Sub-advisor or T. Rowe Price
Associates, Inc. Such aggregated orders would be allocated among the Portfolio
and such other portfolios in a fair and non-discriminatory manner. See this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods" for a description of certain risks involved in options and futures
contracts.
Additional Futures and Options Contracts. Although the Portfolio has
no current intention of engaging in futures or options transactions other than
those described above, it reserves the right to do so. Such futures or options
trading might involve risks which differ from those involved in the futures and
options described above.
Foreign Futures and Options. The Portfolio is permitted to invest in
foreign futures and options. For a description of foreign futures and options
and certain risks involved therein as well as certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Foreign Currency Transactions. The Portfolio will generally enter into
forward foreign currency exchange contracts under two circumstances. First, when
the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. Second, when the Sub-advisor believes that the currency
of a particular foreign country may suffer or enjoy a substantial movement
against another currency, including the U.S. dollar, it may enter into a forward
contract to sell or buy the amount of the former foreign currency, approximating
the value of some or all of the Portfolio's securities denominated in such
foreign currency. Alternatively, where appropriate, the Portfolio may hedge all
or part of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Portfolio may enter
into a forward contract where the amount of the foreign currency to be sold
exceeds the value of the securities denominated in such currency. The use of
this basket hedging technique may be more efficient and economical than entering
into separate forward contracts for each currency held in the Portfolio. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Other than as set forth above,
and immediately below, the Portfolio will also not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Portfolio to deliver an amount of foreign
currency in excess of the value of the Portfolio's securities or other assets
denominated in that currency. The Portfolio, however, in order to avoid excess
transactions and transaction costs, may maintain a net exposure to forward
contracts in excess of the value of the Portfolio's securities or other assets
to which the forward contracts relate (including accrued interest to the
maturity of the forward on such securities) provided the excess amount is
"covered" by liquid, high-grade debt securities, denominated in any currency, at
least equal at all times to the amount of such excess. For these purposes "the
securities or other assets to which the forward contracts relate may be
securities or assets denominated in a single currency, or where proxy forwards
are used, securities denominated in more than one currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, Sub-advisor believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served. Forward
foreign currency exchange contracts ("forwards") will generally have terms of
less than one year.
At the maturity of a forward contract, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver. However, as noted, in
order to avoid excessive transactions and transaction costs, the Portfolio may
use liquid, high-grade debt securities denominated in any currency, to cover the
amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer.
When the Portfolio purchases a foreign bond with a higher interest rate
than is available on U.S. bonds of a similar maturity, the additional yield on
the foreign bond could be substantially lost if the Portfolio were to enter into
a direct hedge by selling the foreign currency and purchasing the U.S. dollar.
This is what is known as the "cost" of hedging. Proxy hedging attempts to reduce
this cost through an indirect hedge back to the U.S. dollar. It is important to
note that hedging costs are treated as capital transactions and are not,
therefore, deducted from the Portfolio's dividend distribution and are not
reflected in its yield. Instead such costs will, over time, be reflected in the
Portfolio's net asset value per share. For an additional discussion of certain
risks involved in foreign investing, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts. The Portfolio may enter into certain option, futures, and
forward foreign exchange contracts, including options and futures on currencies,
which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain (taxable at a maximum rate of 20%)
or loss and 40% short-term capital gain or loss regardless of the holding period
of the instrument (or, in the case of foreign exchange contracts, entirely as
ordinary income or loss). The Portfolio will be required to distribute net gains
on such transactions to shareholders even though it may not have closed the
transaction and received cash to pay such distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. The holding period of the security offsetting
an "in-the-money qualified covered call" option on an equity security will not
include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Tax regulations could be issued limiting the
extent that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement.
As a result of the "Taxpayer Relief Act of 1997," entering into certain
option, futures contracts, or forward contracts may be deemed a "constructive
sale" of offsetting securities, which could result in a taxable gain from the
sale being distributed to shareholders. The Portfolio would be required to
distribute any such gain even though it would not receive proceeds from the sale
at the time the option, futures or forward position is entered into.
Hybrid Commodity and Security Instruments. Instruments have been
developed which combine the elements of futures contracts or options with those
of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Often these hybrid instruments are indexed to the price of a
commodity or particular currency or a domestic or foreign debt or equity
securities index. Hybrid instruments may take a variety of forms, including, but
not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
at a future point in time, preferred stock with dividend rates determined by
reference to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity. For a discussion of certain
risks involved in hybrid instruments, see this Statement under "Certain Risk
Factors and Investment Methods."
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
through which an investor (such as the Portfolio) purchases a security (known as
the "underlying security") from a well-established securities dealer or a bank
that is a member of the Federal Reserve System. Any such dealer or bank will be
on T. Rowe Price Associates, Inc. ("T. Rowe Price") approved list and have a
credit rating with respect to its short-term debt of at least A1 by Standard &
Poor's Corporation, P1 by Moody's Investors Service, Inc., or the equivalent
rating by T. Rowe Price. At that time, the bank or securities dealer agrees to
repurchase the underlying security at the same price, plus specified interest.
Repurchase agreements are generally for a short period of time, often less than
a week. Repurchase agreements which do not provide for payment within seven days
will be treated as illiquid securities. The Portfolio will only enter into
repurchase agreements where (i) the underlying securities are of the type
(excluding maturity limitations) which the Portfolio's investment guidelines
would allow it to purchase directly, (ii) the market value of the underlying
security, including interest accrued, will be at all times equal to or exceed
the value of the repurchase agreement, and (iii) payment for the underlying
security is made only upon physical delivery or evidence of book-entry transfer
to the account of the custodian or a bank acting as agent. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Portfolio
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the underlying security
during the period while the Portfolio seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income during this
period; and (c) expenses of enforcing its rights.
Illiquid and Restricted Securities. Subject to guidelines promulgated
by the Board of Trustees of the Trust, the Portfolio may invest in illiquid
securities. The Portfolio may invest in illiquid securities, including
restricted securities and repurchase agreements which do not provide for payment
within seven days, but will not acquire such securities if, as a result, they
would comprise more than 15% of the value of the Portfolio's net assets.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where
registration is required, the Portfolio may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in accordance with procedures
prescribed by the Trust's Board of Trustees. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the Portfolio
should be in a position where more than 15% of the value of its net assets are
invested in illiquid assets, including restricted securities, the Portfolio will
take appropriate steps to protect liquidity.
Notwithstanding the above, the Portfolio may purchase securities which,
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers, such as
the Portfolio, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Sub-advisor, under the
supervision of the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Sub-advisor will consider
the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, the Sub-advisor could
consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchases, (3) dealer undertakings to make a market, and (4) the
nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored, and if as a
result of changed conditions it is determined that a Rule 144A security is no
longer liquid, the Portfolio's holdings of illiquid securities would be reviewed
to determine what, if any, steps are required to assure that the Portfolio does
not invest more than 15% of its net assets in illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Portfolio's assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
Debt Securities. The Portfolio's investment program permits it to
purchase below investment grade securities. Since investors generally perceive
that there are greater risks associated with investment in lower quality
securities, the yields from such securities normally exceed those obtainable
from higher quality securities. However, the principal value of lower-rated
securities generally will fluctuate more widely than higher quality securities.
Lower quality investments entail a higher risk of default -- that is, the
nonpayment of interest and principal by the issuer than higher quality
investments. Such securities are also subject to special risks, discussed below.
Although the Portfolio seeks to reduce risk by portfolio diversification, credit
analysis, and attention to trends in the economy, industries and financial
markets, such efforts will not eliminate all risk. There can, of course, be no
assurance that the Portfolio will achieve its investment objective.
After purchase by the Portfolio, a debt security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event will require a sale of such security by the Portfolio.
However, Sub-advisor will consider such event in its determination of whether
the Portfolio should continue to hold the security. To the extent that the
ratings given by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P") may change as a result of changes in such
organizations or their rating systems, the Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the prospectus. The Portfolio may invest up to
20% of its total assets in securities rated below BBB or Baa, including bonds in
default or those with the lowest rating. See the Appendix to this Statement for
a more complete description of the ratings assigned by ratings organizations and
their respective characteristics.
High Yield, High Risk Securities. Below investment grade securities
(rated below Baa by Moody's and below BBB by S&P) or unrated securities of
equivalent quality in the Sub-advisor's judgment, carry a high degree of risk
(including the possibility of default or bankruptcy of the issuers of such
securities), generally involve greater volatility of price and risk of principal
and income, and may be less liquid, than securities in the higher rating
categories and are considered speculative. The lower the ratings of such debt
securities, the greater their risks render them like equity securities. For an
additional discussion of certain risks involved in investing in lower-rated debt
securities, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Zero-Coupon Securities. The Portfolio may invest in zero-coupon
securities which pay no cash income and are sold at substantial discounts from
their value at maturity. For a discussion of zero-coupon securities and certain
risks involved therein, see this Statement under "Certain Risk Factors and
Investment Methods."
Lending of Portfolio Securities. For the purpose of realizing
additional income, the Portfolio may make secured loans of portfolio securities
amounting to not more than 33 1/3% of its total assets. This policy is a
"fundamental policy." Securities loans are made to broker-dealers, institutional
investors, or other persons pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent, marked to market on a daily basis. The collateral received
will consist of cash, U.S. government securities, letters of credit or such
other collateral as may be permitted under its investment program. While the
securities are being lent, the Portfolio will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Portfolio has a right to call each loan and obtain the securities on three
business days' notice or, in connection with securities trading on foreign
markets, within such longer period of time which coincides with the normal
settlement period for purchases and sales of such securities in such foreign
markets. The Portfolio will not have the right to vote securities while they are
being lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission, the Portfolio may make loans to, or borrow funds from,
other mutual funds sponsored or advised by the Sub-advisor or T. Rowe Price
Associates, Inc. The Portfolio has no current intention of engaging in these
practices at this time.
Investment Policies Which May Be Changed Without Shareholder Approval. The
following limitations are applicable to the AST T. Rowe Price International Bond
Portfolio. These limitations are not "fundamental" restrictions and may be
changed by the Trustees without shareholder approval. The Portfolio will not:
1. Pledge, mortgage or hypothecate its assets in excess, together with
permitted borrowings, of 1/3 of its total assets;
2. Purchase securities on margin, unless, by virtue of its ownership of
other securities, it has the right to obtain securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except in connection with arbitrage transactions and
except that the Portfolio may obtain such short-term credits as may be necessary
for the clearance of purchases and sales of securities;
3. Purchase illiquid securities if, as a result, more than 15% of its net
assets would be invested in such securities;
4. Buy options on securities or financial instruments, unless the aggregate
premiums paid on all such options held by the Portfolio at any time do not
exceed 20% of its net assets; or sell put options on securities if, as a result,
the aggregate value of the obligations underlying such put options would exceed
50% of the Portfolio's net assets;
5. Enter into futures contracts or purchase options thereon which do not
represent bona fide hedging unless immediately after the purchase, the value of
the aggregate initial margin with respect to all such futures contracts entered
into on behalf of the Portfolio and the premiums paid for such options on
futures contracts does not exceed 5% of the Portfolio's total assets, provided
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing the 5% limit;
6. Purchase warrants if as a result warrants taken at the lower of cost or
market value would represent more than 10% of the value of the Portfolio's total
net assets, except that this restriction does not apply to warrants acquired as
a result of the purchase of another security;
7. Make securities loans if the value of such securities loaned exceeds 30%
of the value of the Portfolio's total assets at the time any loan is made; all
loans of portfolio securities will be fully collateralized and marked to market
daily. The Portfolio has no current intention of making loans of portfolio
securities that would amount to greater than 5% of the Portfolio's total assets;
or
8. Purchase or sell real estate limited partnership interests.
9. Purchase securities which are not bonds denominated in foreign currency
("international bonds") if, immediately after such purchase, less than 65% of
its total assets would be invested in international bonds, except that for
temporary defensive purposes the Portfolio may purchase securities which are not
international bonds without limitation;
10. Borrow money in excess of 5% of its total assets (taken at market
value) or borrow other than from banks; however, in the case of reverse
repurchase agreements, the Portfolio may invest in such agreements with other
than banks subject to total asset coverage of 300% for such agreements and all
borrowings;
11. Invest more than 20% of its total assets in below investment grade,
high-risk bonds, including bonds in default or those with the lowest rating;
12. Invest in companies for the purpose of exercising management or
control;
13. Purchase securities of open-end or closed-end investment companies
except in compliance with the 1940 Act; or
14. Effect short sales of securities.
In addition to the restrictions described above, some foreign countries
limit, or prohibit, all direct foreign investment in the securities of their
companies. However, the governments of some countries have authorized the
organization of investment funds to permit indirect foreign investment in such
securities. For tax purposes these funds may be known as Passive Foreign
Investment Companies. The Portfolio is subject to certain percentage limitations
under the 1940 Act relating to the purchase of securities of investment
companies, and may be subject to the limitation that no more than 10% of the
value of the Portfolio's total assets may be invested in such securities.
Restrictions with respect to repurchase agreements shall be construed
to be for repurchase agreements entered into for the investment of available
cash consistent with the Portfolio's repurchase agreement procedures, not
repurchase commitments entered into for general investment purposes.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Investment Policies" above is
adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of Portfolio's assets will
not be considered a violation of the restriction.
AST Federated High Yield Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek high
current income by investing primarily in a diversified portfolio of fixed income
securities. The fixed income securities in which the Portfolio intends to invest
are lower-rated corporate debt obligations. This is a fundamental objective of
the Portfolio.
Investment Policies:
Corporate Debt Securities. The Portfolio invests primarily in corporate
debt securities. The corporate debt obligations in which the Portfolio intends
to invest are expected to be lower-rated. For a discussion of the special risks
associated with lower-rated securities, see the Trust's Prospectus and this
Statement under "Certain Risk Factors and Investment Methods." Corporate debt
obligations in which the Portfolio invests may bear fixed, floating, floating
and contingent, or increasing rates of interest. They may involve equity
features such as conversion or exchange rights, warrants for the acquisition of
common stock of the same or a different issuer, participations based on
revenues, sales or profits, or the purchase of common stock in a unit
transaction (where corporate debt securities and common stock are offered as a
unit).
U.S. Government Obligations. The types of U.S. government obligations in
which the Portfolio may invest include, but are not limited to, direct
obligations of the U.S. Treasury (such as U.S. Treasury bills, notes, and bonds)
and obligations issued or guaranteed by U.S. government agencies or
instrumentalities (such as the 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). These securities may be backed by: the full faith
and credit of the U.S. Treasury; the issuer's right to borrow from the U.S.
Treasury; the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or the credit of the agency or
instrumentality issuing the obligations. For an additional discussion of the
types of U.S. government obligations in which the Portfolio may invest, see the
Trust's Prospectus under "Investment Objectives and Policies."
Time and Savings Deposits and Bankers' Acceptances. The Portfolio may
enter into time and savings deposits (including certificates of deposit) and may
purchase bankers' acceptances. The Portfolio may enter into 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. The Portfolio
may also purchase 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.
Restricted Securities. The Portfolio expects that any restricted
securities would be acquired either from institutional investors who originally
acquired the securities in private placements or directly from the issuers of
the securities in private placements. Restricted securities are generally
subject to legal or contractual delays on resale. Restricted securities and
securities that are not readily marketable may sell at a discount from the price
they would bring if freely marketable. For a discussion of illiquid and
restricted securities and certain risks involved therein, see the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
When-Issued and Delayed Delivery Transactions. The Portfolio may
purchase fixed-income securities on a when-issued or delayed delivery basis. The
Portfolio may engage in when-issued and delayed delivery transactions only for
the purpose of acquiring portfolio securities consistent with the Portfolio's
investment objective and policies, not for investment leverage. These
transactions are arrangements in which the Portfolio purchases securities with
payment and delivery scheduled for a future time. Settlement dates may be a
month or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. These transactions
are made to secure what is considered to be an advantageous price and yield for
the Portfolio.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Portfolio sufficient to make payment for
the securities to be purchased are segregated at the trade date. These
securities are marked to market daily and will maintain until the transaction is
settled. For an additional discussion of when-issued securities and certain
risks involved therein, see this Statement under "Certain Risk Factors and
Investment Methods."
Repurchase Agreements. The Portfolio will require its custodian to take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. To the extent that the original
seller does not repurchase the securities from the Portfolio, the Portfolio
could receive less than the repurchase price on any sale of such securities. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Portfolio might be delayed
pending court action. The Portfolio believes that under the regular procedures
normally in effect for custody of the Portfolio's portfolio securities subject
to repurchase agreements, a court of competent jurisdiction would rule in favor
of the Portfolio and allow retention or disposition of such securities. The
Portfolio will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by the
Sub-advisor to be creditworthy, pursuant to guidelines established by the Board
of Trustees. For an additional discussion of repurchase agreements and certain
risks involved therein, see the Trust's Prospectus under "Certain Risk Factors
and Investment Methods."
Lending Portfolio Securities. In order to generate additional income,
the Portfolio may lend its securities to brokers/dealers, banks, or other
institutional borrowers of securities. The collateral received when the
Portfolio lends portfolio securities must be valued daily and, should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to the Portfolio. During the time portfolio securities are on loan,
the borrower pays the Portfolio any dividends or interest paid on such
securities. Loans are subject to termination at the option of the Portfolio or
the borrower. The Portfolio may pay reasonable administrative and custodial fees
in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or cash equivalent collateral to the borrower or placing
broker. The Portfolio does not have the right to vote securities on loan, but
would terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Reverse Repurchase Agreements. The Portfolio may also enter into
reverse repurchase agreements. When effecting reverse repurchase agreements,
liquid assets of the Portfolio, in a dollar amount sufficient to make payment
for the obligations to be purchased, are segregated at the trade date. These
securities are marked to market daily and are maintained until the transaction
is settled. During the period any reverse repurchase agreements are outstanding,
but only to the extent necessary to ensure completion of the reverse repurchase
agreements, the Portfolio will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements. For a discussion of reverse repurchase agreements
and certain risks involved therein, see the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Portfolio Turnover. The Portfolio may experience greater portfolio turnover
than would be expected with a portfolio of higher-rated securities. For an
additional discussion of portfolio turnover, see this Statement and the Trust's
Prospectus under "Portfolio Turnover."
Adverse Legislation. In 1989, legislation was enacted that required
federally insured savings and loan associations to divest their holdings of
lower-rated bonds by 1994. This legislation also created the Resolution Trust
Corporation (the "RTC"), which disposed of a substantial portion of lower-rated
bonds held by failed savings and loan associations. The reduction of the number
of institutions empowered to purchase and hold lower-rated bonds, and the
divestiture of bonds by these institutions and the RTC, have had an adverse
impact on the overall liquidity of the market for such bonds. Federal and state
legislatures and regulators have and may continue to propose new laws and
regulations designed to limit the number or type of institutions that may
purchase lower-rated bonds, reduce the tax benefits to issuers of such bonds, or
otherwise adversely impact the liquidity of such bonds. The Portfolio cannot
predict the likelihood that any of these proposals will be adopted, or their
potential impact on the liquidity of lower-rated bonds.
Foreign Securities. The Portfolio may invest up to 5% of its total
assets in foreign securities that are not publicly traded in the United States.
For a discussion of certain risks involved with investing in foreign securities,
including currency risks, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Federated High Yield
Portfolio. The limitations are not "fundamental" restrictions and may be changed
by the Trustees without shareholder approval.
1. The Portfolio will not invest more than 15% of the value of its net
assets in securities that are not readily marketable;
2. The Portfolio will not purchase the securities of any issuer (other
than the U.S. government, its agencies, or instrumentalities or instruments
secured by securities of such issuers, such as repurchase agreements) if as a
result more than 5% of the value of its total assets would be invested in the
securities of such issuer. For these purposes, the Portfolio takes all common
stock and all preferred stock of an issuer each as a single class, regardless of
priorities, series designations or other differences.
AST PIMCO Total Return Bond Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek to
maximize total return, consistent with preservation of capital. The Sub-advisor
will seek to employ prudent investment management techniques, especially in
light of the broad range of investment instruments in which the Portfolio may
invest.
Investment Policies:
Borrowing. The Portfolio may borrow for temporary administrative
purposes. This borrowing may be unsecured. The 1940 Act requires the Portfolio
to maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Portfolio may be required to sell some of its
holdings within three days to reduce the debt and restore the 300% asset
coverage, even though it may be disadvantageous from an investment standpoint to
sell securities at that time. Borrowing will tend to exaggerate the effect on
net asset value of any increase or decrease in the market value of the
Portfolio. Money borrowed will be subject to interest costs which may or may not
be recovered by appreciation of the securities purchased. The Portfolio also may
be required to maintain minimum average balances in connection with such
borrowing or to pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate.
In addition to the above, the Portfolio may enter into reverse
repurchase agreements and "mortgage dollar rolls." A reverse repurchase
agreement involves the sale of a portfolio-eligible security by the Portfolio,
coupled with its agreement to repurchase the instrument at a specified time and
price. In a "dollar roll" transaction the Portfolio sells a mortgage-related
security (such as a GNMA security) to a dealer and simultaneously agrees to
repurchase a similar security (but not the same security) in the future at a
pre-determined price. A "dollar roll" can be viewed, like a reverse repurchase
agreement, as a collateralized borrowing in which the Portfolio pledges a
mortgage-related security to a dealer to obtain cash. Unlike in the case of
reverse repurchase agreements, the dealer with which the Portfolio enters into a
dollar roll transaction is not obligated to return the same securities as those
originally sold by the Portfolio, but only securities which are "substantially
identical." To be considered "substantially identical," the securities returned
to the Portfolio generally must: (1) be collateralized by the same types of
underlying mortgages; (2) be issued by the same agency and be part of the same
program; (3) have a similar original stated maturity; (4) have identical net
coupon rates; (5) have similar maturity: (4) have identical net coupon rates;
(5) have similar market yields (and therefore price); and (6) satisfy "good
delivery" requirements, meaning that the aggregate principal amounts of the
securities delivered and received back must be within 2.5% of the initial amount
delivered. The Portfolio's obligations under a dollar roll agreement must be
covered by cash or other liquid assets equal in value to the securities subject
to repurchase by the Portfolio, maintained in a segregated account.
Both dollar roll and reverse repurchase agreements will be subject to
the 1940 Act's limitations on borrowing, as discussed above. Furthermore,
because dollar roll transactions may be for terms ranging between one and six
months, dollar roll transactions may be deemed "illiquid" and subject to the
Portfolio's overall limitations on investments in illiquid securities.
Corporate Debt Securities. The Portfolio's investments in U.S. dollar-
or foreign currency-denominated corporate debt securities of domestic or foreign
issuers are limited to corporate debt securities (corporate bonds, debentures,
notes and other similar corporate debt instruments, including convertible
securities) which meet the minimum ratings criteria set forth for the Portfolio,
or, if unrated, are in the Sub-advisor's opinion comparable in quality to
corporate debt securities in which the Portfolio may invest. In the event that
ratings services assign different ratings to the same security, the Sub-advisor
will determine which rating it believes best reflects the security's quality and
risk at that time, which may be the higher of the several assigned ratings. The
rate of return or return of principal on some debt obligations may be linked or
indexed to the level of exchange rates between the U.S. dollar and a foreign
currency or currencies.
Among the corporate bonds in which the Portfolio may invest are
convertible securities. A convertible security is a bond, debenture, note, or
other security that entitles the holder to acquire common stock or other equity
securities of the same or a different issuer. A convertible security generally
entitles the holder to receive interest paid or accrued until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities. Convertible securities rank senior to common stock in a
corporation's capital structure and, therefore, generally entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed-income security.
A convertible security may be subject to redemption at the option of
the issuer at a predetermined price. If a convertible security held by the
Portfolio is called for redemption, the Portfolio will be required to permit the
issuer to redeem the security and convert it to underlying common stock, or will
sell the convertible security to a third party. The Portfolio generally would
invest in convertible securities for their favorable price characteristics and
total return potential and would normally not exercise an option to convert.
Investments in securities rated below investment grade that are
eligible for purchase by the Portfolio (i.e., rated B or better by Moody's or
S&P) are described as "speculative" by both Moody's and S&P. Investment in
lower-rated corporate debt securities ("high yield securities") generally
provides greater income and increased opportunity for capital appreciation than
investments in higher quality securities, but they also typically entail greater
price volatility and principal and income risk. These high yield securities are
regarded as high risk and predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. The market for these
securities is relatively new, and many of the outstanding high yield securities
have not endured a major business recession. A long-term track record on default
rates, such as that for investment grade corporate bonds, does not exist for
this market. Analysis of the creditworthiness of issuers of debt securities that
are high yield may be more complex than for issuers of higher quality debt
securities.
High yield, high risk securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions than investment
grade securities. The price of high yield securities have been found to be less
sensitive to interest-rate adverse economic downturns or individual corporate
developments. A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in high yield security prices
because the advent of a recession could lessen the ability of a highly leveraged
company to make principal and interest payments on its debt securities. If an
issuer of high yield securities defaults, in addition to risking payment of all
or a portion of interest and principal, the Portfolio may incur additional
expenses to seek recovery. In the case of high yield securities structured as
zero-coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest rate changes, and therefore tend to be more volatile
than securities which pay interest periodically and in cash.
The secondary market on which high yield, high risk securities are
traded may be less liquid than the market for higher grade securities. Less
liquidity in the secondary trading market could adversely affect the price at
which the Portfolio could sell a high yield security, and could adversely affect
the daily net asset value of the shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities especially in a thinly-traded
market. When secondary markets for high yield securities are less liquid than
the market for higher grade securities, it may be more difficult to value the
securities because such valuation may require more research, and elements of
judgment may play a greater role in the valuation because there is less
reliable, objective data available. The Sub-advisor seeks to minimize the risks
of investing in all securities through diversification, in-depth credit analysis
and attention to current developments in interest rates and market conditions.
For an additional discussion of certain risks involved in lower-rated debt
securities, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Objectives."
Participation on Creditors Committees. The Portfolio may from time to
time participate on committees formed by creditors to negotiate with the
management of financially troubled issuers of securities held by the Portfolio.
Such participation may subject the Portfolio to expenses such as legal fees and
may make the Portfolio an "insider" of the issuer for purposes of the federal
securities laws, and therefore may restrict the Portfolio's ability to trade in
or acquire additional positions in a particular security when it might otherwise
desire to do so. Participation by the Portfolio on such committees also may
expose the Portfolio to potential liabilities under the federal bankruptcy laws
or other laws governing the rights of creditors and debtors. The Portfolio will
participate on such committees only when the Sub-advisor believes that such
participation is necessary or desirable to enforce the Portfolio's rights as a
creditor or to protect the value of securities held by the Portfolio.
Mortgage-Related Securities. The Portfolio may invest in
mortgage-backed securities. Mortgage-related securities are interests in pools
of mortgage loans made to residential home buyers, including mortgage loans made
by savings and loan institutions, mortgage bankers, commercial banks and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations (see
"Mortgage Pass-Through Securities"). The Portfolio may also invest in debt
securities which are secured with collateral consisting of mortgage-related
securities (see "Collateralized Mortgage Obligations"), and in other types of
mortgage-related securities.
Interests in pools of mortgage-related securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential or commercial mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by the Government National Mortgage
Association) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owned on the mortgage
pool, net of certain fees, at the scheduled payment dates regardless of whether
or not the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
United States Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the United States Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-though securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the United States Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PC's") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-though pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such nongovernmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Trust's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. The Portfolio may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, the Sub-advisor determines that the securities meet the Trust's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Portfolio will not purchase mortgage-related securities or any
other assets which in the Sub-advisor's opinion are illiquid if, as a result,
more than 15% of the value of the Portfolio's total assets will be illiquid.
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the
Portfolio's industry concentration restrictions, set forth in this Statement
under "Investment Restrictions," by virtue of the exclusion from that test
available to all U.S. Government securities. In the case of privately issued
mortgage-related securities, the Portfolio takes the position that
mortgage-related securities do not represent interests in any particular
"industry" or group of industries. The assets underlying such securities may be
represented by a portfolio of first lien residential mortgages (including both
whole mortgage loans and mortgage participation interests) or portfolios of
mortgage pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC.
Mortgage loans underlying a mortgage-related security may in turn be insured or
guaranteed by the Federal Housing Administration or the Department of Veterans
Affairs. In the case of private issue mortgage-related securities whose
underlying assets are neither U.S. Government securities nor U.S.
Government-insured mortgages, to the extent that real properties securing such
assets may be located in the same geographical region, the security may be
subject to a greater risk of default that other comparable securities in the
event of adverse economic, political or business developments that may affect
such region and ultimately, the ability of residential homeowners to make
payments of principal and interest on the underlying mortgages.
Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid
between a mortgage-backed bond and a mortgage pass-through security. Similar to
a bond, interest and prepaid principal is paid, in most cases, semiannually.
CMOs may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
or principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of the CMO bonds ("Bonds"). Proceeds of the Bond
offering are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt
obligations of FHLMC issued in multiple classes having different maturity dates
which are secured by the pledge of a pool of conventional mortgage loans
purchased by FHLMC. Unlike FHLMC PCs, payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
For an additional discussion of mortgage-backed securities and certain
risks involved therein, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO Residuals. CMO residuals are derivative mortgage
securities issued by agencies or instrumentalities of the U.S. Government or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, homebuilders, mortgage banks, commercial banks, investment
banks and special purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of
CMOs is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities -- Stripped Mortgage-Backed Securities." In
addition, if a series of a CMO includes a class that bears interest at an
adjustable rate, the yield to maturity on the related CMO residual will also be
extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances the Portfolio may fail to
recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The CMO residual market has only very recently developed and CMO residuals
currently may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933, as amended. CMO
residuals, whether or not registered under such Act, may be subject to certain
restrictions on transferability, and may be deemed "illiquid" and subject to the
Portfolio's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities ("SMBS") are derivative multi-class mortgage securities. SMBS may be
issued by agencies or instrumentalities of the U.S. Government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, which the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the Portfolio's yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Portfolio may fail to fully recoup its initial investment in
these securities even if the security is in one of the highest rating
categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to the Portfolio's limitations on investment in illiquid securities.
Other Asset-Backed Securities. Similarly, the Sub-advisor expects that
other asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities may be offered
to investors, including Certificates for Automobile Receivables. For a
discussion of automobile receivables, see this Statement under "Certain Risk
Factors and Investment Methods." Consistent with the Portfolio's investment
objectives and policies, the Sub-advisor also may invest in other types of
asset-backed securities.
Foreign Securities. The Portfolio may invest in corporate debt
securities of foreign issuers (including preferred or preference stock), certain
foreign bank obligations (see "Bank Obligations") and U.S. dollar- or foreign
currency-denominated obligations of foreign governments or their subdivisions,
agencies and instrumentalities, international agencies and supranational
entities. The Portfolio may invest up to 20% of its assets in securities
denominated in foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Portfolio may invest up to
10% of its assets in securities of issuers based in emerging market countries.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. For a
discussion of certain risks involved in foreign investments, in general, and the
special risks of investing in developing countries, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
The Portfolio also may purchase and sell foreign currency options and
foreign currency futures contracts and related options (see ""Derivative
Instruments"), and enter into forward foreign currency exchange contracts in
order to protect against uncertainty in the level of future foreign exchange
rates in the purchase and sale of securities.
A forward foreign currency contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the tine of the contract. These contracts may be bought or sold to protect the
Portfolio against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar or to increase
exposure to a particular foreign currency. Open positions in forward contracts
are covered by the segregation with the Trust's custodian of cash or other
liquid assets and are marked to market daily. Although such contracts are
intended to minimize the risk of loss due to a decline on the value of the
hedged currencies, at the same time, they tend to limit any potential gain which
might result should the value of such currencies increase.
Brady Bonds. The Portfolio may invest in Brady Bonds. Brady Bonds are
securities created through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented in a number of countries, including in Argentina, Bolivia,
Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Niger,
Nigeria, the Philippines, Poland, Uruguay, and Venezuela. In addition, Brazil
has concluded a Brady-like plan. It is expected that other countries will
undertake a Brady Plan in the future.
Brady Bonds have been issued only recently, and accordingly do not have
a long payment history. Brady Bonds may be collateralized or uncollateralized,
are issued in various currencies (primarily the U.S. dollar) and are actively
traded in the over-the-counter secondary market. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are generally collateralized in full as to principal by U.S.
Treasury zero-coupon bonds having the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized on a one-year or
longer rolling-forward basis by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of interest payments or,
in the case of floating rate bonds, initially is equal to at least one year's
interest payments based on the applicable interest rate at that time and is
adjusted at regular intervals thereafter. Certain Brady Bonds are entitled to
"value recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady Bonds
are often viewed as having three or four valuation components: (i) the
collateralized repayment of principal at final maturity; (ii) the collateralized
interest payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk").
Most Mexican Brady Bonds issued to date have principal repayments at
final maturity fully collateralized by U.S. Treasury zero-coupon bonds (or
comparable collateral denominated in other currencies) and interest coupon
payments collateralized on an 18-month rolling-forward basis by funds held in
escrow by an agent for the bondholders. A significant portion of the Venezuelan
Brady Bonds and the Argentine Brady Bonds issued to date have principal
repayments at final maturity collateralized by U.S. Treasury zero-coupon bonds
(or comparable collateral denominated in other currencies) and/or interest
coupon payments collateralized on a 14-month (for Venezuela) or 12-month (for
Argentina) rolling-forward basis by securities held by the Federal Reserve Bank
of New York as collateral agent.
Brady Bonds involve various risk factors including residual risk and
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds. There can be no assurance
that Brady Bonds in which the Portfolio may invest will not be subject to
restructuring arrangements or to requests for new credit, which may cause the
Portfolio to suffer a loss of interest or principal on any of its holdings.
Bank Obligations. Bank obligations in which the Portfolios invest
include certificates of deposit, bankers' acceptances, and fixed time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits. The Portfolio will not invest in fixed time deposits which
(1) are not subject to prepayment or (2) provide for withdrawal penalties upon
prepayment (other than overnight deposits) if, in the aggregate, more than 15%
of its assets would be invested in such deposits, repurchase agreements maturing
in more than seven days and other illiquid assets.
The Portfolio will limit its investments in United States bank
obligations to obligations of United States bank (including foreign branches)
which have more than $1 billion in total assets at the time of investment and
are member of the Federal Reserve System, are examined by the Comptroller of the
Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation. The Portfolio also may invest in certificates of deposit of savings
and loan associations (federally or state chartered and federally insured)
having total assets in excess $1 billion.
The Portfolio will limit its investments in foreign bank obligations to
United States dollar- or foreign currency-denominated obligations of foreign
banks (including United States branches of foreign banks) which at the time of
investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
foreign banks in the world; (iii) have branches or agencies (limited purpose
offices which do not offer all banking services) in the United States; and (iv)
in the opinion of the Sub-advisor, are of an investment quality comparable to
obligations of United States banks in which the Portfolio may invest. Subject to
the Portfolio's limitation on concentration of no more than 25% of its assets in
the securities of issuers in particular industry, there is no limitation on the
amount of the Portfolio's assets which may be invested in obligations of foreign
banks which meet the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment
risks than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not generally subject to examination by any United
States Government agency or instrumentality.
Short Sales. The Portfolio may make short sales of securities as part
of their overall portfolio management strategies involving the use of derivative
instruments and to offset potential declines in long positions in similar
securities. A short sale is a transaction in which the Portfolio sells a
security it does not own in anticipation that the market price of that security
will decline.
When the Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of the
sale. The Portfolio may have to pay a fee to borrow particular securities and is
often obligated to pay over any accrued interest on such borrowed securities.
If the price of the security sold short increases between the time of
the short sale and the time and the Portfolio replaces the borrowed security,
the Portfolio will incur a loss; conversely, if the price declines, the
Portfolio will realize a capital gain. Any gain will be decreased, and any loss
increased, by the transaction costs described above. The successful use of short
selling may be adversely affected by imperfect correlation between movements in
the price of the security sold short and the securities being hedged.
To the extent that the Portfolio engages in short sales, it will
provide collateral to the broker-dealer and (except in the case of short sales
"against the box") will maintain additional asset coverage in the form of cash
or other liquid assets in a segregated account. The Portfolio does not intend to
enter into short sales (other than those "against the box") if immediately after
such sale the aggregate of the value of all collateral plus the amount in such
segregated account exceeds one-third of the value of the Portfolio's net assets.
This percentage may be varied by action of the Trust's Board of Trustees. A
short sale is "against the box" to the extent that the Portfolio
contemporaneously owns, or has the right to obtain at no added cost, securities
identical to those sold short.
Derivative Instruments. In pursuing its individual objective, the
Portfolio may, as described in the Prospectus, purchase and sell (write) both
put options and call options on securities, securities indexes, and foreign
currencies, and enter into interest rate, foreign currency and index futures
contracts and purchase and sell options on such futures contracts ("future
options") for hedging purposes. The Portfolio also may enter into swap
agreements with respect to foreign currencies, interest rates and indexes of
securities. If other types of financial instruments, including other types of
options, futures contracts, or futures options are traded in the future, the
Portfolio may also use those instruments, provided that the Trust's Board of
Trustees determines that their use is consistent with the Portfolio's investment
objective, and provided that their use is consistent with restrictions
applicable to options and futures contracts currently eligible for use by the
Trust (i.e., that written call or put options will be "covered" or "secured" and
that futures and futures options will be used only for hedging purposes).
Options on Securities and Indexes. The Portfolio may purchase and sell
both put and call options on debt or other securities or indexes in standardized
contracts traded on foreign or national securities exchanges, boards of trade,
or similar entities, or quoted on NASDAQ or on a regulated foreign
over-the-counter market, and agreements sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer.
The Portfolio will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are placed in a segregated account by its custodian) upon conversion
or exchange of other securities held by the Portfolio. For a call option on an
index, the option is covered if the Portfolio maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if the Portfolio holds a call on the same security or index as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written, provided the difference is maintained by the Portfolio in cash
or cash equivalents in a segregated account with its custodian. A put option on
a security or an index is "covered" if the Portfolio maintains cash or cash
equivalents equal to the exercise price in a segregated account with its
custodian. A put option is also covered if the Portfolio holds a put on the same
security or index as the put written where the exercise price of the put held is
(i) equal to or greater than the exercise price of the put written, or (ii) less
than the exercise price of the put written, provided the difference is
maintained by the Portfolio in cash or cash equivalents in a segregated account
with its custodian.
If an option written by the Portfolio expires, the Portfolio realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by the Portfolio expires unexercised, the Portfolio
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
The Portfolio will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or if it is more, the Portfolio will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Portfolio will realize a capital gain
or, if it is less, the Portfolio will realize a capital loss. The principal
factors affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price of the underlying security or
index in relation to the exercise price of the option, the volatility of the
underlying security or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by the Portfolio is
an asset of the Portfolio. The premium received for a option written by the
Portfolio is recorded as a deferred credit. The value of an option purchased or
written is marked to market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or no closing
price is available, at the mean between the last bid and asked prices. For a
discussion of certain risks involved in options, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Foreign Currency Options. The Portfolio may buy or sell put and call
options on foreign currencies either on exchanges or in the over-the-counter
market. A put option on a foreign currency gives the purchaser of the option the
right to sell a foreign currency at the exercise price until the option expires.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Portfolio to reduce foreign currency
risk using such options. Over-the-counter options differ from traded options in
that they are two-party contracts with price and other terms negotiated between
buyer and seller, and generally do not have as much market liquidity as
exchange-traded options.
Futures Contracts and Options on Futures Contracts. The Portfolio may
use interest rate, foreign currency or index futures contracts, as specified in
the Trust's Prospectus. An interest rate, foreign currency or index futures
contract provides for the future sale by one party and purchase by another party
of a specified quantity of a financial instrument, foreign currency or the cash
value of an index at a specified price and time. A futures contract on an index
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. Although the value of an index might be a
function of the value of certain specified securities, no physical delivery of
these securities is made.
The Portfolio may purchase and write call and put futures options.
Futures options possess many of the same characteristics as options on
securities and indexes (discussed above). A futures option gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
To comply with applicable rules of the Commodity Futures Trading
Commission under which the Trust and the Portfolio avoid being deemed a
"commodity pool" or a "commodity pool operator," the Portfolio intends generally
to limit its use of futures contracts and futures options to "bona fide hedging"
transactions, as such term is defined in applicable regulations, interpretations
and practice. For example, the Portfolio might use futures contracts to hedge
against anticipated changes in interest rates that might adversely affect either
the value of the Portfolio's securities or the price of the securities which the
Portfolio intends to purchase. The Portfolio's hedging activities may include
sales of futures contracts as an offset against the effect or expected increases
in interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce that Portfolio's exposure to interest rate fluctuations, the
Portfolio may be able to hedge its exposure more effectively and perhaps at a
lower cost by using futures contracts and futures options.
The Portfolio will only enter into futures contracts and futures
options which are standardized and traded on a U.S. or foreign exchange, board
of trade, or similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by the Portfolio,
the Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Portfolio expects to earn interest income on its initial margin
deposits. A futures contract held by the Portfolio is valued daily at the
official settlement price of the exchange on which it is traded. Each day the
Portfolio pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Portfolio but is instead a settlement between the Portfolio and the broker of
the amount one would owe the other if the futures contract expired. In computing
daily net asset value, each Portfolio will mark to market its open futures
positions.
The Portfolio is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the
option, and other futures positions held by the Portfolio.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Portfolio realizes a
capital gain, or if it is more, the Portfolio realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Portfolio realizes a capital gain, or if it is less, the Portfolio
realizes a capital loss. The transaction costs must also be included in these
calculations.
Limitations on Use of Futures and Futures Options. In general, the
Portfolio intends to enter into positions in futures contracts and related
options only for "bona fide hedging" purposes. With respect to positions in
futures and related options that do not constitute bona fide hedging positions,
the Portfolio will not enter into a futures contract or futures option contract
if, immediately thereafter, the aggregate initial margin deposits relating to
such positions plus premiums paid by it for open futures option positions, less
the amount by which any such options are "in-the-money," would exceed 5% of the
Portfolio's total assets. A call option is "in-the-money" if the value of the
futures contract that is the subject of the option exceeds the exercise price. A
put option is "in-the-money" if the exercise price exceeds the value of the
futures contract that is the subject of the option.
When purchasing a futures contract, the Portfolio will maintain with
its custodian (and mark-to-market on a daily basis) cash or other liquid assets
that, when added to the amounts deposited with a futures commission merchant as
margin, are equal to the market value of the futures contract. Alternatively,
the Portfolio may "cover" its position by purchasing a put option on the same
futures contract with a strike price as high or higher than the price of the
contract held by the Portfolio.
When selling a futures contract, the Portfolio will maintain with its
custodian (and mark-to-market on a daily basis) liquid assets that, when added
to the amount deposited with a futures commission merchant as margin, are equal
to the market value of the instruments underlying the contract. Alternatively,
the Portfolio may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Portfolio to
purchase the same futures contract at a price no higher than the price of the
contract written by the Portfolio (or at a higher price if the difference is
maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, the Portfolio will
maintain with its custodian (and mark-to-market on a daily basis) cash or other
liquid assets that, when added to the amounts deposited with a futures
commission merchant as margin, equal the total market value of the futures
contract underlying the call option. Alternatively, the Portfolio may cover its
position by entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Portfolio to purchase the same futures contract at a price
not higher than the strike price of the call option sold by the Portfolio.
When selling a put option on a futures contract, the Portfolio will
maintain with its custodian (and mark-to market on a daily basis) cash or other
liquid assets that equal the purchase price of the futures contract, less any
margin on deposit. Alternatively, the Portfolio may cover the position either by
entering into a short position in the same futures contract, or by owning a
separate put option permitting it to sell the same futures contract so long as
the strike price of the purchased put option is the same or higher than the
strike price of the put option sold by the Portfolio.
Swap Agreements. The Portfolio may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfolio
had invested directly in an instrument that yielded that desired return. For a
discussion of swap agreements, see the Trust's Prospectus under "Investment
Objectives and Policies." The Portfolio's obligations under a swap agreement
will be accrued daily (offset against any amounts owing to the Portfolio) and
any accrued but unpaid net amounts owed to a swap counterparty will be covered
by the maintenance of a segregated account consisting of cash or other liquid
assets to avoid any potential leveraging of the Portfolio's portfolio. The
Portfolio will not enter into a swap agreement with any single party if the net
amount owned or to be received under existing contracts with that party would
exceed 5% of the Portfolio's assets.
Whether the Portfolio's use of swap agreements will be successful in
furthering its investment objective of total return will depend on the
Sub-advisor's ability correctly to predict whether certain types of investments
are likely to produce greater returns than other investments. Because they are
two party contracts and because they may have terms of longer than seven days,
swap agreements may be considered to be illiquid. Moreover, the Portfolio bears
the risk of loss of the amount expected to be received under a swap agreement in
the event of the default or bankruptcy of a swap agreement counterparty. The
Sub-advisor will cause the Portfolio to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Portfolio's repurchase agreement guidelines. Certain
restrictions imposed on the Portfolio by the Internal Revenue Code may limit the
Portfolio's ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect the
Portfolio's ability to terminate existing swap agreements or to realize amounts
to be received under such agreements.
Certain swap agreements are exempt from most provisions of the
Commodity Exchange Act ("CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the Commodity Futures Trading Commission. To qualify for this exemption, a swap
agreement must be entered into by "eligible participants." To be eligible,
natural persons and most other entities must have total assets exceeding $10
million; commodity pools and employee benefit plans must have assets exceeding
$5 million. In addition, an eligible swap transaction must meet three
conditions. First, the swap agreement may not be part of a fungible class of
agreements that are standardized as to their material economic terms. Second,
the creditworthiness of parties with actual or potential obligations under the
swap agreement must be a material consideration in entering into or determining
the terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.
This exemption is not exclusive, and partnerships may continue to rely
on existing exclusions for swaps, such as the Policy Statement issued in July
1989 which recognized a safe harbor for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that (1) have
individual tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
Structured Notes. Structured notes are derivative debt securities, the
interest rate or principal of which is related to another economic indicator or
financial market index. Indexed securities include structured notes as well as
securities other than debt securities, the interest rate or principal of which
is determined by such an unrelated indicator. Indexed securities may include a
multiplier that multiplies the indexed element by a specified factor and,
therefore, the value of such securities may be very volatile. To the extent the
Portfolio invests in these securities, however, the Sub-advisor analyzes these
securities in its overall assessment of the effective duration of the
Portfolio's portfolio in an effort to monitor the Portfolio's interest rate
risk.
Foreign Currency Exchange-Related Securities. The Portfolio may invest
in foreign currency warrants, principal exchange rate linked securities and
performance indexed paper. For a description of these instruments, see this
Statement under "Certain Risk Factor and Investment Methods."
Warrants to Purchase Securities. The Portfolio may invest in or acquire
warrants to purchase equity or fixed-income securities. Bonds with warrants
attached to purchase equity securities have many characteristics of convertible
bonds and their prices may, to some degree, reflect the performance of the
underlying stock. Bonds also may be issued with warrants attached to purchase
additional fixed-income securities at the same coupon rate. A decline in
interest rates would permit the Portfolio to buy additional bonds at the
favorable rate or to sell the warrants at a profit. If interest rates rise, the
warrants would generally expire with no value.
Hybrid Instruments. The Portfolio may invest up to 5% of its assets in
hybrid instruments. A hybrid instrument can combine the characteristics of
securities, futures, and options. Hybrids can be used as an efficient means of
pursuing a variety of investment goals, including currency hedging, duration
management, and increased total return. For an additional discussion of hybrid
instruments and certain risks involved therein, see this Statement under
"Certain Risk Factors and Investment Methods."
Inverse Floaters. The Portfolio may also invest in inverse floating
rate debt instruments ("inverse floaters"). The interest rate on an inverse
floater resets in the opposite direction from the market rate of interest to
which the inverse floater is indexed. An inverse floating rate security may
exhibit greater price volatility than a fixed rate obligation of similar credit
quality. The Portfolio will not invest more than 5% of its net assets in any
combination of inverse floater, interest only, or principal only securities.
Loan Participations. The Portfolio may purchase participations in
commercial loans. Such indebtedness may be secured or unsecured. Loan
participations typically represent direct participation in a loan to a corporate
borrower, and generally are offered by banks or other financial institutions or
lending syndicates. When purchasing loan participations, the Portfolio assumes
the credit risk associated with the corporate borrower and may assume the credit
risk associated with an interposed bank or other financial intermediary. The
participation interests in which the Portfolio intends to invest may not be
rated by any nationally recognized rating service.
A loan is often administered by an agent bank acting as agent for all
holders. The agent bank administers the terms of the loan, as specified in the
loan agreement. In addition, the agent bank is normally responsible for the
collection of principal and interest payments from the corporate borrower and
the apportionment of these payments to the credit of all institutions which are
parties to the loan agreement. Unless, under the terms of the loan or other
indebtedness, the Portfolio has direct recourse against the corporate borrower,
the Portfolio may have to rely on the agent bank or other financial intermediary
to apply appropriate credit remedies against a corporate borrower.
A financial institution's employment as agent bank might be terminated
in the event that it fails to observe a requisite standard of care or becomes
insolvent. A successor agent bank would generally be appointed to replace the
terminated agent bank, and assets held by the agent bank under the loan
agreement should remain available to holders of such indebtedness. However, if
assets held by the agent bank for the benefit of the Portfolio were determined
to be subject to the claims of the agent bank's general creditors, the Portfolio
might incur certain costs and delays in realizing payment on a loan or loan
participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance
company or governmental agency) similar risks may arise.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the corporate borrower for payment of
principal and interest. If the Portfolio does not receive scheduled interest or
principal payments on such indebtedness, the Portfolio's share price and yield
could be adversely affected. Loans that are fully secured offer the Portfolio
more protection than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the corporate borrower's
obligation, or that the collateral can be liquidated.
The Portfolio may invest in loan participations with credit quality
comparable to that of issuers of its securities investments. Indebtedness of
companies whose creditworthiness is poor involves substantially greater risks,
and may be highly speculative. Some companies may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Consequently,
when investing in indebtedness of companies with poor credit, the Portfolio
bears a substantial risk of losing the entire amount invested.
The Portfolio limits the amount of its total assets that it will invest
in any one issuer or in issuers within the same industry (see "Investment
Restrictions"). For purposes of these limits, the Portfolio generally will treat
the corporate borrower as the "issuer" of indebtedness held by the Portfolio. In
the case of loan participations where a bank or other lending institution serves
as a financial intermediary between the Portfolio and the corporate borrower, if
the participation does not shift to the Portfolio the direct debtor-creditor
relationship with the corporate borrower, Securities and Exchange Commission
("SEC") interpretations require the Portfolio to treat both the lending bank or
other lending institution and the corporate borrower as "issuers" for the
purposes of determining whether the Portfolio has invested more than 5% of its
total assets in a single issuer. Treating a financial intermediary as an issuer
of indebtedness may restrict the Portfolio's ability to invest in indebtedness
related to a single financial intermediary, or a group of intermediaries engaged
in the same industry, even if the underlying borrowers represent many different
companies and industries.
Loan and other types of direct indebtedness may not be readily
marketable and may be subject to restrictions on resale. In some cases,
negotiations involved in disposing of indebtedness may require weeks to
complete. Consequently, some indebtedness may be difficult or impossible to
dispose of readily at what the Sub-advisor believes to be a fair price. In
addition, valuation of illiquid indebtedness involves a greater degree of
judgment in determining the Portfolio's net asset value than if that value were
based on available market quotations, and could result in significant variations
in the Portfolio's daily share price. At the same time, some loan interests are
traded among certain financial institutions and accordingly may be deemed
liquid. As the market for different types of indebtedness develops, the
liquidity of these instruments is expected to improve. In addition, the
Portfolio currently intends to treat indebtedness for which there is no readily
available market as illiquid for purposes of the Portfolio's limitation on
illiquid investments. Investments in loan participations are considered to be
debt obligations for purposes of the Company's investment restriction relating
to the lending of funds or assets by the Portfolio.
Investments in loans through a direct assignment of the financial
institution's interests with respect to the loan may involve additional risks to
the Portfolio. For example, if a loan is foreclosed, the Portfolio could become
part owner of any collateral, and would bear the costs and liabilities
associated with owning and disposing of the collateral. In addition, it is
conceivable that under emerging legal theories of lender liability, the
Portfolio could be held liable as co-lender. It is unclear whether loans and
other forms of direct indebtedness offer securities law protections against
fraud and misrepresentation. In the absence of definitive regulatory guidance,
the Portfolio relies on the Sub-advisor's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect the
Portfolio.
Delayed Funding Loans and Revolving Credit Facilities. The Portfolio
may enter into, or acquire participations in, delayed funding loans and
revolving credit facilities. Delayed funding loans and revolving credit
facilities are borrowing arrangements in which the lender agrees to make loans
up to a maximum amount upon demand by the borrower during a specified term.
These commitments may have the effect of requiring the Portfolio to increase its
investment in a company at a time when it might not otherwise decide to do so
(including at a time when the company's financial condition makes it unlikely
that such amounts will be repaid). To the extent that the Portfolio is committed
to advance additional funds, it will at all times segregate liquid assets,
determined to be liquid by the Sub-advisor in accordance with procedures
established by the Board of Directors, in an amount sufficient to meet such
commitments. The Portfolio may invest in delayed funding loans and revolving
credit facilities with credit quality comparable to that of issuers of its
securities investments. Delayed funding loans and revolving credit facilities
may be subject to restrictions on transfer, and only limited opportunities may
exist to resell such instruments. As a result, the Portfolio may be unable to
sell such investments at an opportune time or may have to resell them at less
than fair market value. The Portfolio currently intend to treat delayed funding
loans and revolving credit facilities for which there is no readily available
market as illiquid for purposes of the Portfolio's limitation on illiquid
investments. Participation interests in revolving credit facilities will be
subject to the limitations discussed above under "Loan Participations." Delayed
funding loans and revolving credit facilities are considered to be debt
obligations for purposes of the Company's investment restriction relating to the
lending of funds or assets by the Portfolio.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST PIMCO Total Return Bond
Portfolio. These limitations are not "fundamental" restrictions, and may be
changed by the Trustees without shareholder approval.
1. The Portfolio will not invest more than 15% of the assets of the
Portfolio (taken at market value at the time of the investment) in "illiquid
securities," illiquid securities being defined to include securities subject to
legal or contractual restrictions on resale (which may include private
placements), repurchase agreements maturing in more than seven days, certain
options traded over the counter that the Portfolio has purchased, securities
being used to cover options a Portfolio has written, securities for which market
quotations are not readily available, or other securities which legally or in
the Sub-advisor's option may be deemed illiquid.
2. The Portfolio will not purchase securities for the Portfolio from,
or sell portfolio securities to, any of the officers and directors or Trustees
of the Trust or of the Investment Manager or of the Sub-advisor.
3. The Portfolio will not invest more than 5% of the assets of the
Portfolio (taken at market value at the time of investment) in any combination
of interest only, principal only, or inverse floating rate securities.
AST PIMCO Limited Maturity Bond Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
to maximize total return, consistent with preservation of capital and prudent
investment management. This is a fundamental objective of the Portfolio.
Investment Policies:
Borrowing. The Portfolio may borrow for temporary administrative
purposes. This borrowing may be unsecured. The 1940 Act requires the Portfolio
to maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Portfolio may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowing will tend to exaggerate
the effect on net asset value of any increase or decrease in the market value of
the Portfolio's securities. Money borrowed will be subject to interest costs
which may or may not be recovered by appreciation of the securities purchased.
The Portfolio also may be required to maintain minimum average balances in
connection with such borrowing or to pay a commitment or other fee to maintain a
line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate.
Among the forms of borrowing in which the Portfolio may engage is the
entry into reverse repurchase agreements. A reverse repurchase agreement
involves the sale of the Portfolio-eligible security by the Portfolio, coupled
with its agreement to repurchase the instrument at a specified time and price.
The Portfolio will maintain a segregated account with its Custodian consisting
of cash or other liquid assets equal (on a daily mark-to-market basis) to its
obligations under reverse repurchase agreements with broker-dealers (but not
banks). However, reverse repurchase agreements involve the risk that the market
value of securities retained by the Portfolio may decline below the repurchase
price of the securities sold by the Portfolio which it is obligated to
repurchase. To the extent that the Portfolio collateralizes its obligations
under a reverse repurchase agreement, the asset coverage requirements of the
1940 Act will not apply.
In addition to the above, the Portfolio may enter into reverse
repurchase agreements and "mortgage dollar rolls." A reverse repurchase
agreement involves the sale of a portfolio-eligible security by the Portfolio,
coupled with its agreement to repurchase the instrument at a specified time and
price. In a "dollar roll" transaction the Portfolio sells a mortgage-related
security (such as a GNMA security) to a dealer and simultaneously agrees to
repurchase a similar security (but not the same security) in the future at a
pre-determined price. A "dollar roll" can be viewed, like a reverse repurchase
agreement, as a collateralized borrowing in which the Portfolio pledges a
mortgage-related security to a dealer to obtain cash. Unlike in the case of
reverse repurchase agreements, the dealer with which the Portfolio enters into a
dollar roll transaction is not obligated to return the same securities as those
originally sold by the Portfolio, but only securities which are "substantially
identical." To be considered "substantially identical," the securities returned
to the Portfolio generally must: (1) be collateralized by the same types of
underlying mortgages; (2) be issued by the same agency and be part of the same
program; (3) have a similar original stated maturity; (4) have identical net
coupon rates; (5) have similar market yields (and therefore price); and (6)
satisfy "good delivery" requirements, meaning that the aggregate principal
amounts of the securities delivered and received back must be within 2.5% of the
initial amount delivered. The Portfolio's obligations under a dollar roll
agreement must be covered by cash or other liquid assets equal in value to the
securities subject to repurchase by the Portfolio, maintained in a segregated
account.
Both dollar roll and reverse repurchase agreements will be subject to
the 1940 Act's limitations on borrowing, as discussed above. Furthermore,
because dollar roll transactions may be for terms ranging between one and six
months, dollar roll transactions may be deemed "illiquid" and subject to the
Portfolio's overall limitations on investments in illiquid securities.
Corporate Debt Securities. The Portfolio's investments in U.S. dollar-
or foreign currency-denominated corporate debt securities of domestic or foreign
issuers are limited to corporate debt securities (corporate bonds, debentures,
notes and other similar corporate debt instruments, including convertible
securities) which meet the minimum ratings criteria set forth for the Portfolio,
or, if unrated, are in the Sub-advisor's opinion comparable in quality to
corporate debt securities in which the Portfolio may invest. The rate of return
or return of principal on some debt obligations may be linked or indexed to the
level of exchange rates between the U.S. dollar and a foreign currency or
currencies.
Among the corporate bonds in which the Portfolio may invest are
convertible securities. A convertible security is a bond, debenture, note, or
other security that entitles the holder to acquire common stock or other equity
securities of the same or a different issuer. A convertible security generally
entitles the holder to receive interest paid or accrued until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities. Convertible securities rank senior to common stock in a
corporation's capital structure and, therefore, generally entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed-income security.
A convertible security may be subject to redemption at the option of
the issuer at a predetermined price. If a convertible security held by the
Portfolio is called for redemption, the Portfolio would be required to permit
the issuer to redeem the security and convert it to underlying common stock, or
would sell the convertible security to a third party. The Portfolio generally
would invest in convertible securities for their favorable price characteristics
and total return potential and would normally not exercise an option to convert.
Investments in securities rated below investment grade that are
eligible for purchase by the Portfolio (i.e., rated B or better by Moody's or
S&P), are described as "speculative" by both Moody's and S&P. Investment in
lower-rated corporate debt securities ("high yield securities") generally
provides greater income and increased opportunity for capital appreciation than
investments in higher quality securities, but they also typically entail greater
price volatility and principal and income risk. These high yield securities are
regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. The market for these securities
is relatively new, and many of the outstanding high yield securities have not
endured a major business recession. A long-term track record on default rates,
such as that for investment grade corporate bonds, does not exist for this
market. Analysis of the creditworthiness of issuers of debt securities that are
high yield may be more complex than for issuers of higher quality debt
securities.
High yield securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of high yield securities have been found to be less
sensitive to interest-rate changes than higher-rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high yield security prices because the advent
of a recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If an issuer of high
yield securities defaults, in addition to risking payment of all or a portion of
interest and principal, the Portfolio may incur additional expenses to seek
recovery. In the case of high yield securities structured as zero-coupon or
pay-in-kind securities, their market prices are affected to a greater extent by
interest rate changes, and therefore tend to be more volatile than securities
which pay interest periodically and in cash.
The secondary market on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Portfolio
could sell a high yield security, and could adversely affect the daily net asset
value of the shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of high
yield securities especially in a thinly-traded market. When secondary markets
for high yield securities are less liquid than the market for higher grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
The Sub-advisor seeks to minimize the risks of investing in all securities
through diversification, in-depth credit analysis and attention to current
developments in interest rates and market conditions. For a discussion of the
risks involved in lower-rated debt securities, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Participation on Creditors Committees. The Portfolio may from time to
time participate on committees formed by creditors to negotiate with the
management of financially troubled issuers of securities held by the Portfolio.
Such participation may subject the Portfolio to expenses such as legal fees and
may make the Portfolio an "insider" of the issuer for purposes of the federal
securities laws, and therefore may restrict the Portfolio's ability to trade in
or acquire additional positions in a particular security when it might otherwise
desire to do so. Participation by the Portfolio on such committees also may
expose the Portfolio to potential liabilities under the federal bankruptcy laws
or other laws governing the rights of creditors and debtors. The Portfolio would
participate on such committees only when the Adviser believed that such
participation was necessary or desirable to enforce the Portfolio's rights as a
creditor or to protect the value of securities held by the Portfolio.
Mortgage-Related Securities. The Portfolio may invest in
mortgage-backed securities. Mortgage-related securities are interests in pools
of residential or commercial mortgage loans, including mortgage loans made by
savings and loan institutions, mortgage bankers, commercial banks and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations (see
"Mortgage Pass-Through Securities"). The Portfolio may also invest in debt
securities which are secured with collateral consisting of mortgage-related
securities (see "Collateralized Mortgage Obligations"), and in other types of
mortgage-related securities.
Interests in pools of mortgage-related securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential or commercial mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by the Government National Mortgage
Association) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, at the scheduled payment dates regardless of whether
or not the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
United States Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the United States Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the United States Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Trust's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. The Fixed-Income
Portfolio may buy mortgage-related securities without insurance or guarantees
if, through an examination of the loan experience and practices of the
originator/servicers and poolers, the Adviser determines that the securities
meet the Trust's quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable. No Portfolio will purchase mortgage-related
securities or any other assets which in the Adviser's opinion are illiquid if,
as a result, more than 15% of the value of the Portfolio's total assets will be
illiquid.
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Portfolio'
industry concentration restrictions, set forth in this Statement under
"Investment Restrictions," by virtue of the exclusion from that test available
to all U.S. Government securities. In the case of privately issued
mortgage-related securities, the Portfolio takes the position that
mortgage-related securities do not represent interests in any particular
"industry" or group of industries. The assets underlying such securities may be
represented by the Portfolio of first lien residential mortgages (including both
whole mortgage loans and mortgage participation interests) or portfolios of
mortgage pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC.
Mortgage loans underlying a mortgage-related security may in turn be insured or
guaranteed by the Federal Housing Administration or the Department of Veterans
Affairs. In the case of private issue mortgage-related securities whose
underlying assets are neither U.S. Government securities nor U.S.
Government-insured mortgages, to the extent that real properties securing such
assets may be located in the same geographical region, the security may be
subject to a greater risk of default than other comparable securities in the
event of adverse economic, political or business developments that may affect
such region and, ultimately, the ability of residential homeowners to make
payments of principal and interest on the underlying mortgages.
Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid
between a mortgage-backed bond and a mortgage pass-through security. Similar to
a bond, interest and prepaid principal is paid, in most cases, semiannually.
CMOs may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt
obligations of FHLMC issued in multiple classes having different maturity dates
which are secured by the pledge of a pool of conventional mortgage loans
purchased by FHLMC. Unlike FHLMC PCs, payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults. For an additional discussion of
mortgage-backed securities and certain risks involved therein, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO Residuals. CMO residuals are derivative mortgage
securities issued by agencies or instrumentalities of the U.S. Government or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, homebuilders, mortgage banks, commercial banks, investment
banks and special purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of
CMOs is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities -- Stripped Mortgage-Backed Securities." In
addition, if a series of a CMO includes a class that bears interest at an
adjustable rate, the yield to maturity on the related CMO residual will also be
extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances the Portfolio may fail to
recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The CMO residual market has only very recently developed and CMO residuals
currently may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933, as amended. CMO
residuals, whether or not registered under such Act, may be subject to certain
restrictions on transferability, and may be deemed "illiquid" and subject to the
Portfolio's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities ("SMBS") are derivative multi-class mortgage securities. SMBS may be
issued by agencies or instrumentalities of the U.S. Government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the Portfolio's yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Portfolio may fail to fully recoup its initial investment in
these securities even if the security is in one of the highest rating
categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to the Portfolio's limitations on investment in illiquid securities.
Other Asset-Backed Securities. Similarly, the Sub-advisor expects that
other asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities maybe offered
to investors, including Certificates for Automobile Receivables. For a
discussion of automobile receivables, see this Statement under "Certain Risk
Factors and Investment Methods."
Foreign Securities. The Portfolio may invest in corporate debt
securities of foreign issuers (including preferred or preference stock), certain
foreign bank obligations (see "Bank Obligations") and U.S. dollar- or foreign
currency-denominated obligations of foreign governments or their subdivisions,
agencies and instrumentalities, international agencies and supranational
entities. The Portfolio may invest up to 20% of its assets in securities
denominated in foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Portfolio will concentrate
its foreign investments in securities of issuers based in developed countries.
The Portfolio may invest up to 5% of its assets in securities of issuers based
in emerging market countries. Investing in the securities of foreign issuers
involves special risks and considerations not typically associated with
investing in U.S. companies. For a discussion of certain risks involved in
foreign investments, in general, and the special risks of investing in
developing countries, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
The Portfolio also may purchase and sell foreign currency options and
foreign currency futures contracts and related options (see "Derivative
Instruments"), and enter into forward foreign currency exchange contracts in
order to protect against uncertainty in the level of future foreign exchange
rates in the purchase and sale of securities.
A forward foreign currency contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts may be bought or sold to protect the
Portfolio against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar or to increase
exposure to a particular foreign currency. Open positions in forward contracts
are covered by the segregation with the Trust's custodian of cash or other
liquid assets and are marked to market daily. Although such contracts are
intended to minimize the risk of loss due to a decline in the value of the
hedged currencies, at the same time, they tend to limit any potential gain which
might result should the value of such currencies increase.
Brady Bonds. The Portfolio may invest in Brady Bonds. Brady Bonds are
securities created through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented in a number of countries, including in Argentina, Bolivia,
Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Niger,
Nigeria, the Philippines, Poland, Uruguay, and Venezuela. In addition, Brazil
has concluded a Brady-like plan. It is expected that other countries will
undertake a Brady Plan in the future.
Brady Bonds have been issued only recently, and accordingly do not have
a long payment history. Brady Bonds may be collateralized or uncollateralized,
are issued in various currencies (primarily the U.S. dollar) and are actively
traded in the over-the-counter secondary market. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are generally collateralized in full as to principal by U.S.
Treasury zero-coupon bonds having the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized on a one-year or
longer rolling-forward basis by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of interest payments or,
in the case of floating rate bonds, initially is equal to at least one year's
interest payments based on the applicable interest rate at that time and is
adjusted at regular intervals thereafter. Certain Brady Bonds are entitled to
"value recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady Bonds
are often viewed as having three or four valuation components: (i) the
collateralized repayment of principal at final maturity; (ii) the collateralized
interest payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk").
Most Mexican Brady Bonds issued to date have principal repayments at
final maturity fully collateralized by U.S. Treasury zero-coupon bonds (or
comparable collateral denominated in other currencies) and interest coupon
payments collateralized on an 18-month rolling-forward basis by funds held in
escrow by an agent for the bondholders. A significant portion of the Venezuelan
Brady Bonds and the Argentine Brady Bonds issued to date have principal
repayments at final maturity collateralized by U.S. Treasury zero-coupon bonds
(or comparable collateral denominated in other currencies) and/or interest
coupon payments collateralized on a 14-month (for Venezuela) or 12-month (for
Argentina) rolling-forward basis by securities held by the Federal Reserve Bank
of New York as collateral agent.
Brady Bonds involve various risk factors including residual risk and
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds. There can be no assurance
that Brady Bonds in which the Portfolio may invest will not be subject to
restructuring arrangements or to requests for new credit, which may cause the
Portfolio to suffer a loss of interest or principal on any of its holdings.
Bank Obligations. Bank obligations in which the Portfolio invests
include certificates of deposit, bankers' acceptances, and fixed time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits. The Portfolio will not invest in fixed time deposits which
(1) are not subject to prepayment or (2) provide for withdrawal penalties upon
prepayment (other than overnight deposits) if, in the aggregate, more than 15%
of its assets would be invested in such deposits, repurchase agreements maturing
in more than seven days and other illiquid assets.
The Portfolio will limit its investments in United States bank
obligations to obligations of United States banks (including foreign branches)
which have more than $1 billion in total assets at the time of investment and
are members of the Federal Reserve System, are examined by the Comptroller of
the Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation. The Portfolio also may invest in certificates of deposit of savings
and loan associations (federally or state chartered and federally insured)
having total assets in excess of $1 billion.
The Portfolio will limit its investments in foreign bank obligations to
United States dollar- or foreign currency-denominated obligations of foreign
banks (including United States branches of foreign banks) which at the time of
investment (I) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
foreign banks in the world; (iii) have branches or agencies (limited purpose
offices which do not offer all banking services) in the United States; and (iv)
in the opinion of the Sub-advisor, are of an investment quality comparable to
obligations of United States banks in which the Portfolio may invest. Subject to
the Trust's limitation on concentration of no more than 25% of its assets in the
securities of issuers in a particular industry, there is no limitation on the
amount of the Portfolio's assets which may be invested in obligations of foreign
banks which meet the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment
risks than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or because the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
United States banks. Foreign banks are not generally subject to examination by
any United States Government agency or instrumentality.
Short Sales. The Portfolio may make short sales of securities as part
of their overall portfolio management strategies involving the use of derivative
instruments and to offset potential declines in long positions in similar
securities. A short sale is a transaction in which the Portfolio sells a
security it does not own in anticipation that the market price of that security
will decline.
When the Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of the
sale. The Portfolio may have to pay a fee to borrow particular securities and is
often obligated to pay over any accrued interest on such borrowed securities.
If the price of the security sold short increases between the time of
the short sale and the time and the Portfolio replaces the borrowed security,
the Portfolio will incur a loss; conversely, if the price declines, the
Portfolio will realize a capital gain. Any gain will be decreased, and any loss
increased, by the transaction costs described above. The successful use of short
selling may be adversely affected by imperfect correlation between movements in
the price of the security sold short and the securities being hedged.
To the extent that the Portfolio engages in short sales, it will
provide collateral to the broker-dealer and (except in the case of short sales
"against the box") will maintain additional asset coverage in the form of cash
or other liquid assets in a segregated account. The Portfolio does not intend to
enter into short sales (other than those "against the box") if immediately after
such sale the aggregate of the value of all collateral plus the amount in such
segregated account exceeds one-third of the value of the Portfolio's net assets.
This percentage may be varied by action of the Trust's Board of Trustees. A
short sale is "against the box" to the extent that the Portfolio
contemporaneously owns, or has the right to obtain at no added cost, securities
identical to those sold short.
Derivative Instruments. In pursuing its objective, the Portfolio may,
as described in the Prospectus, purchase and sell (write) both put options and
call options on securities, securities indexes, and foreign currencies, and
enter into interest rate, foreign currency and index futures contracts and
purchase and sell options on such futures contracts ("futures options") for
hedging purposes. The Portfolio also may purchase and sell foreign currency
options for purposes of increasing exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one country to another. The
Portfolio also may enter into swap agreements with respect to foreign
currencies, interest rates and indexes of securities. If other types of
financial instruments, including other types of options, futures contracts, or
futures options are traded in the future, the Portfolio may also use those
instruments, provided that the Trust's Board of Trustees determines that their
use is consistent with the Portfolio's investment objective, and provided that
their use is consistent with restrictions applicable to options and futures
contracts currently eligible for use by the Trust (i.e., that written call or
put options will be "covered" or "secured" and that futures and futures options
will be used only for hedging purposes).
Options on Securities and Indexes. The Portfolio may purchase and sell
both put and call options on debt or other securities or indexes in standardized
contracts traded on foreign or national securities exchanges, boards of trade,
or similar entities, or quoted on NASDAQ or on a regulated foreign
over-the-counter market, and agreements, sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer.
The Portfolio will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are placed in a segregated account by its custodian) upon conversion
or exchange of other securities held by the Portfolio. For a call option on an
index, the option is covered if the Portfolio maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if the Portfolio holds a call on the same security or index as the call written
where the exercise price of the call held is (I) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written, provided the difference is maintained by the Portfolio in cash
or cash equivalents in a segregated account with its custodian. A put option on
a security or an index is "covered" if the Portfolio maintains cash or cash
equivalents equal to the exercise price in a segregated account with its
custodian. A put option is also covered if the Portfolio holds a put on the same
security or index as the put written where the exercise price of the put held is
(i) equal to or greater than the exercise price of the put written, or (ii) less
than the exercise price of the put written, provided the difference is
maintained by the Portfolio in cash or cash equivalents in a segregated account
with its custodian.
If an option written by the Portfolio expires, the Portfolio realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by the Portfolio expires unexercised, the Portfolio
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
The Portfolio will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Portfolio will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Portfolio will realize a capital gain
or, if it is less, the Portfolio will realize a capital loss. The principal
factors affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price of the underlying security or
index in relation to the exercise price of the option, the volatility of the
underlying security or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by the Portfolio is
an asset of the Portfolio. The premium received for an option written by the
Portfolio is recorded as a deferred credit. The value of an option purchased or
written is marked to market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or no closing
price is available, at the mean between the last bid and asked prices. For a
discussion of certain risks involved in options, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Foreign Currency Options. The Portfolio may buy or sell put and call
options on foreign currencies either on exchanges or in the over-the-counter
market. A put option on a foreign currency gives the purchaser of the option the
right to sell a foreign currency at the exercise price until the option expires.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Portfolio to reduce foreign currency
risk using such options. Over-the-counter options differ from traded options in
that they are two-party contracts with price and other terms negotiated between
buyer and seller, and generally do not have as much market liquidity as
exchange-traded options.
Futures Contracts and Options on Futures Contracts. The Portfolio may
use interest rate, foreign currency or index futures contracts, as specified in
the Trust's Prospectus. An interest rate, foreign currency or index futures
contract provides for the future sale by one party and purchase by another party
of a specified quantity of a financial instrument, foreign currency or the cash
value of an index at a specified price and time. A futures contract on an index
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. Although the value of an index might be a
function of the value of certain specified securities, no physical delivery of
these securities is made.
The Portfolio may purchase and write call and put futures options.
Futures options possess many of the same characteristics as options on
securities and indexes (discussed above). A futures option gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
To comply with applicable rules of the Commodity Futures Trading
Commission under which the Trust and the Portfolio avoid being deemed a
"commodity pool" or a "commodity pool operator," the Portfolio intends generally
to limit its use of futures contracts and futures options to "bona fide hedging"
transactions, as such term is defined in applicable regulations, interpretations
and practice. For example, the Portfolio might use futures contracts to hedge
against anticipated changes in interest rates that might adversely affect either
the value of the Portfolio's securities or the price of the securities which the
Portfolio intends to purchase. The Portfolio's hedging activities may include
sales of futures contracts as an offset against the effect of expected increases
in interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce that Portfolio's exposure to interest rate fluctuations, the
Portfolio may be able to hedge its exposure more effectively and perhaps at a
lower cost by using futures contracts and futures options.
The Portfolio will only enter into futures contracts and futures
options which are standardized and traded on a U.S. or foreign exchange, board
of trade, or similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by the Portfolio,
the Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Portfolio expects to earn interest income on its initial margin
deposits. A futures contract held by the Portfolio is valued daily at the
official settlement price of the exchange on which it is traded. Each day the
Portfolio pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Portfolio but is instead a settlement between the Portfolio and the broker of
the amount one would owe the other if the futures contract expired. In computing
daily net asset value, the Portfolio will mark to market its open futures
positions.
The Portfolio is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the
option, and other futures positions held by the Portfolio.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Portfolio realizes a
capital gain, or if it is more, the Portfolio realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Portfolio realizes a capital gain, or if it is less, the Portfolio
realizes a capital loss. The transaction costs must also be included in these
calculations.
Limitations on Use of Futures and Futures Options. In general, the
Portfolio intends to enter into positions in futures contracts and related
options only for "bona fide hedging" purposes. With respect to positions in
futures and related options that do not constitute bona fide hedging positions,
the Portfolio will not enter into a futures contract or futures option contract
if, immediately thereafter, the aggregate initial margin deposits relating to
such positions plus premiums paid by it for open futures option positions, less
the amount by which any such options are "in-the-money," would exceed 5% of the
Portfolio's total net assets. A call option is "in-the-money" if the value of
the futures contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price exceeds the value of
the futures contract that is the subject of the option.
When purchasing a futures contract, the Portfolio will maintain with
its custodian (and mark-to-market on a daily basis) cash or other liquid assets
that, when added to the amounts deposited with a futures commission merchant as
margin, are equal to the market value of the futures contract. Alternatively,
the Portfolio may "cover" its position by purchasing a put option on the same
futures contract with a strike price as high or higher than the price of the
contract held by the Portfolio.
When selling a futures contract, the Portfolio will maintain with its
custodian (and mark-to-market on a daily basis) liquid assets that, when added
to the amount deposited with a futures commission merchant as margin, are equal
to the market value of the instruments underlying the contract. Alternatively,
the Portfolio may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Portfolio to
purchase the same futures contract at a price no higher than the price of the
contract written by the Portfolio (or at a higher price if the difference is
maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, the Portfolio will
maintain with its custodian (and mark-to-market on a daily basis) cash or other
liquid assets that, when added to the amounts deposited with a futures
commission merchant as margin, equal the total market value of the futures
contract underlying the call option. Alternatively, the Portfolio may cover its
position by entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Portfolio to purchase the same futures contract at a price
not higher than the strike price of the call option sold by the Portfolio.
When selling a put option on a futures contract, the Portfolio will
maintain with its custodian (and mark-to-market on a daily basis) cash or other
liquid assets that equal the purchase price of the futures contract, less any
margin on deposit. Alternatively, the Portfolio may cover the position either by
entering into a short position in the same futures contract, or by owning a
separate put option permitting it to sell the same futures contract so long as
the strike price of the purchased put option is the same or higher than the
strike price of the put option sold by the Portfolio. For a discussion of the
risks involved in futures contracts and related options, see the Trust's
Prospectus and this Statement under "Certain Factors and Investment Methods."
Swap Agreements. The Portfolio may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfolio
had invested directly in an instrument that yielded that desired return. For a
discussion of swap agreements, see the Trust's Prospectus under "Investment
Objectives and Policies." The Portfolio's obligations (or rights) under a swap
agreement will generally be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement (the "net amount"). The Portfolio's obligations under a
swap agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
other liquid assets to avoid any potential leveraging of the Portfolio's
portfolio. The Portfolio will not enter into a swap agreement with any single
party if the net amount owed or to be received under existing contracts with
that party would exceed 5% of the Portfolio's assets.
Whether the Portfolio's use of swap agreements will be successful in
furthering its investment objective of total return will depend on the
Sub-advisor's ability correctly to predict whether certain types of investments
are likely to produce greater returns than other investments. Because they are
two party contracts and because they may have terms of longer than seven days,
swap agreements may be considered to be illiquid. Moreover, the Portfolio bears
the risk of loss of the amount expected to be received under a swap agreement in
the event of the default or bankruptcy of a swap agreement counterparty. The
Sub-advisor will cause the Portfolio to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Portfolio's repurchase agreement guidelines. Certain
restrictions imposed on the Portfolio by the Internal Revenue Code may limit the
Portfolio's ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect the
Portfolio's ability to terminate existing swap agreements or to realize amounts
to be received under such agreements.
Certain swap agreements are exempt from most provisions of the
Commodity Exchange Act ("CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the Commodity Futures Trading Commission. To qualify for this exemption, a swap
agreement must be entered into by "eligible participants," which includes the
following, provided the participants' total assets exceed established levels: a
bank or trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely
on existing exclusions for swaps, such as the Policy Statement issued in July
1989 which recognized a safe harbor for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
Structured Notes. Structured notes are derivative debt securities, the
interest rate or principal of which is related to another economic indicator or
financial market index. Indexed securities include structured notes as well as
securities other than debt securities, the interest rate or principal of which
is determined by such an unrelated indicator. Indexed securities may include a
multiplier that multiplies the indexed element by a specified factor and,
therefore, the value of such securities may be very volatile. To the extent the
Portfolio invests in these securities, however, the Sub-advisor analyzes these
securities in its overall assessment of the effective duration of the
Portfolio's portfolio in an effort to monitor the Portfolio's interest rate
risk.
Foreign Currency Exchange Related Securities. The Portfolio may also
invest in foreign currency warrants, principal exchange rate linked securities
and performance indexed paper. For a discussion of these, see this Statement
under "Certain Risk Factors and Investment Methods."
Warrants to Purchase Securities. The Portfolio may invest in or acquire
warrants to purchase equity or fixed-income securities. Bonds with warrants
attached to purchase equity securities have many characteristics of convertible
bonds and their prices may, to some degree, reflect the performance of the
underlying stock. Bonds also may be issued with warrants attached to purchase
additional fixed-income securities at the same coupon rate. A decline in
interest rates would permit the Portfolio to buy additional bonds at the
favorable rate or to sell the warrants at a profit. If interest rates rise, the
warrants would generally expire with no value.
Hybrid Instruments. The Portfolio may invest up to 5% of its assets in
hybrid instruments. A hybrid instrument can combine the characteristics of
securities, futures, and options. Hybrids can be used as an efficient means of
pursuing a variety of investment goals, including currency hedging, duration
management, and increased total return. For an additional discussion of hybrid
instruments and certain risks involved therein, see this Statement under
"Certain Risk Factors and Investment Methods."
Inverse Floaters. The Portfolio may also invest in inverse floating
rate debt instruments ("inverse floaters"). The interest rate on an inverse
floater resets in the opposite direction from the market rate of interest to
which the inverse floater is indexed. An inverse floating rate security may
exhibit greater price volatility than a fixed rate obligation of similar credit
quality. The Portfolio will not invest more than 5% of its net assets in any
combination of inverse floater, interest only, or principal only securities.
Loan Participations. The Portfolio may purchase participations in
commercial loans. Such indebtedness may be secured or unsecured. Loan
participations typically represent direct participation in a loan to a corporate
borrower, and generally are offered by banks or other financial institutions or
lending syndicates. When purchasing loan participations, the Portfolio assumes
the credit risk associated with the corporate borrower and may assume the credit
risk associated with an interposed bank or other financial intermediary. The
participation interests in which the Portfolio intends to invest may not be
rated by any nationally recognized rating service.
A loan is often administered by an agent bank acting as agent for all
holders. The agent bank administers the terms of the loan, as specified in the
loan agreement. In addition, the agent bank is normally responsible for the
collection of principal and interest payments from the corporate borrower and
the apportionment of these payments to the credit of all institutions which are
parties to the loan agreement. Unless, under the terms of the loan or other
indebtedness, the Portfolio has direct recourse against the corporate borrower,
the Portfolio may have to rely on the agent bank or other financial intermediary
to apply appropriate credit remedies against a corporate borrower.
A financial institution's employment as agent bank might be terminated
in the event that it fails to observe a requisite standard of care or becomes
insolvent. A successor agent bank would generally be appointed to replace the
terminated agent bank, and assets held by the agent bank under the loan
agreement should remain available to holders of such indebtedness. However, if
assets held by the agent bank for the benefit of the Portfolio were determined
to be subject to the claims of the agent bank's general creditors, the Portfolio
might incur certain costs and delays in realizing payment on a loan or loan
participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance
company or governmental agency) similar risks may arise.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the corporate borrower for payment of
principal and interest. If the Portfolio does not receive scheduled interest or
principal payments on such indebtedness, the Portfolio's share price and yield
could be adversely affected. Loans that are fully secured offer the Portfolio
more protection than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the corporate borrower's
obligation, or that the collateral can be liquidated.
The Portfolio may invest in loan participations with credit quality
comparable to that of issuers of its securities investments. Indebtedness of
companies whose creditworthiness is poor involves substantially greater risks,
and may be highly speculative. Some companies may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Consequently,
when investing in indebtedness of companies with poor credit, the Portfolio
bears a substantial risk of losing the entire amount invested.
The Portfolio limits the amount of its total assets that it will invest
in any one issuer or in issuers within the same industry (see "Investment
Restrictions"). For purposes of these limits, the Portfolio generally will treat
the corporate borrower as the "issuer" of indebtedness held by the Portfolio. In
the case of loan participations where a bank or other lending institution serves
as a financial intermediary between the Portfolio and the corporate borrower, if
the participation does not shift to the Portfolio the direct debtor-creditor
relationship with the corporate borrower, Securities and Exchange Commission
("SEC") interpretations require the Portfolio to treat both the lending bank or
other lending institution and the corporate borrower as "issuers" for the
purposes of determining whether the Portfolio has invested more than 5% of its
total assets in a single issuer. Treating a financial intermediary as an issuer
of indebtedness may restrict the Portfolio's ability to invest in indebtedness
related to a single financial intermediary, or a group of intermediaries engaged
in the same industry, even if the underlying borrowers represent many different
companies and industries.
Loan and other types of direct indebtedness may not be readily
marketable and may be subject to restrictions on resale. In some cases,
negotiations involved in disposing of indebtedness may require weeks to
complete. Consequently, some indebtedness may be difficult or impossible to
dispose of readily at what the Sub-advisor believes to be a fair price. In
addition, valuation of illiquid indebtedness involves a greater degree of
judgment in determining the Portfolio's net asset value than if that value were
based on available market quotations, and could result in significant variations
in the Portfolio's daily share price. At the same time, some loan interests are
traded among certain financial institutions and accordingly may be deemed
liquid. As the market for different types of indebtedness develops, the
liquidity of these instruments is expected to improve. In addition, the
Portfolio currently intends to treat indebtedness for which there is no readily
available market as illiquid for purposes of the Portfolio's limitation on
illiquid investments. Investments in loan participations are considered to be
debt obligations for purposes of the Company's investment restriction relating
to the lending of funds or assets by the Portfolio.
Investments in loans through a direct assignment of the financial
institution's interests with respect to the loan may involve additional risks to
the Portfolio. For example, if a loan is foreclosed, the Portfolio could become
part owner of any collateral, and would bear the costs and liabilities
associated with owning and disposing of the collateral. In addition, it is
conceivable that under emerging legal theories of lender liability, the
Portfolio could be held liable as co-lender. It is unclear whether loans and
other forms of direct indebtedness offer securities law protections against
fraud and misrepresentation. In the absence of definitive regulatory guidance,
the Portfolio relies on the Sub-advisor's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect the
Portfolio.
Delayed Funding Loans and Revolving Credit Facilities. The Portfolio
may enter into, or acquire participations in, delayed funding loans and
revolving credit facilities. Delayed funding loans and revolving credit
facilities are borrowing arrangements in which the lender agrees to make loans
up to a maximum amount upon demand by the borrower during a specified term.
These commitments may have the effect of requiring the Portfolio to increase its
investment in a company at a time when it might not otherwise decide to do so
(including at a time when the company's financial condition makes it unlikely
that such amounts will be repaid). To the extent that the Portfolio is committed
to advance additional funds, it will at all times segregate liquid assets,
determined to be liquid by the Sub-advisor in accordance with procedures
established by the Board of Directors, in an amount sufficient to meet such
commitments. The Portfolio may invest in delayed funding loans and revolving
credit facilities with credit quality comparable to that of issuers of its
securities investments. Delayed funding loans and revolving credit facilities
may be subject to restrictions on transfer, and only limited opportunities may
exist to resell such instruments. As a result, the Portfolio may be unable to
sell such investments at an opportune time or may have to resell them at less
than fair market value. The Portfolio currently intend to treat delayed funding
loans and revolving credit facilities for which there is no readily available
market as illiquid for purposes of the Portfolio's limitation on illiquid
investments. Participation interests in revolving credit facilities will be
subject to the limitations discussed above under "Loan Participations." Delayed
funding loans and revolving credit facilities are considered to be debt
obligations for purposes of the Company's investment restriction relating to the
lending of funds or assets by the Portfolio.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST PIMCO Limited Maturity Bond
Portfolio. These limitations are not "fundamental" restrictions and may be
changed by the Trustees without shareholder approval. The Portfolio will not:
1. Invest more than 15% of the assets of the Portfolio (taken at market
value at the time of the investment) in "illiquid securities," illiquid
securities being defined to include securities subject to legal or contractual
restrictions on resale (which may include private placements), repurchase
agreements maturing in more than seven days, certain options traded over the
counter that a Portfolio has purchased, securities being used to cover such
options a Portfolio has written, securities for which market quotations are not
readily available, or other securities which legally or in the Sub-advisor's
opinion may be deemed illiquid.
2. Invest more than 5% of the assets of the Portfolio (taken at market
value at the time of investment) in any combination of interest only, principal
only, or inverse floating rate securities.
The Staff of the Securities and Exchange Commission has taken the
position that purchased OTC options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Portfolio has adopted an
investment policy pursuant to which the Portfolio will not purchase or sell OTC
options if, as a result of such transactions, the sum of the market value of OTC
options currently outstanding which are held by the Portfolio, the market value
of the underlying securities covered by OTC call options currently outstanding
which were sold by the Portfolio and margin deposits on the Portfolio's existing
OTC options on futures contracts exceeds 15% of the total assets of the
Portfolio, taken at market value, together with all other assets of the
Portfolio which are illiquid or are otherwise not readily marketable. However,
if an OTC option is sold by the Portfolio to a primary U.S. Government
securities dealer recognized by the Federal Reserve Bank of New York and if the
Portfolio has the unconditional contractual right to repurchase such OTC option
from the dealer at a predetermined price, then the Portfolio will treat as
illiquid such amount of the underlying securities equal to the repurchase price
less the amount by which the option is "in-the-money" (i.e., current market
value of the underlying securities minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money."
AST Money Market Portfolio:
Investment Objective: The investment objective of the Portfolio is to seek
high current income and maintain high levels of liquidity. This is a fundamental
objective of the Portfolio.
Investment Policies:
Bank Obligations. The Portfolio will not invest in bank obligations for
which any affiliate of the Sub-advisor is the ultimate obligor or accepting
bank.
Asset-Backed Securities. The asset-backed securities in which the
Portfolio may invest are subject to the Portfolio's overall credit requirements.
However, asset-backed securities, in general, are subject to certain risks. Most
of these risks are related to limited interests in applicable collateral. For
example, credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts on
credit card debt thereby reducing the balance due. Additionally, if the letter
of credit is exhausted, holders of asset-backed securities may also experience
delays in payments or losses if the full amounts due on underlying sales
contracts are not realized. Because asset-backed securities are relatively new,
the market experience in these securities is limited and the market's ability to
sustain liquidity through all phases of the market cycle has not been tested.
For a discussion of asset-backed securities and the risks involved therein see
the Trust's Prospectus and this Statement under "Certain Risk Factors and
Investment Methods."
Synthetic Instruments. As may be permitted by current laws and
regulations and if expressly permitted by the Board of Trustees of the Trust,
the Portfolio may invest in certain synthetic instruments. Such instruments
generally involve the deposit of asset-backed securities in a trust arrangement
and the issuance of certificates evidencing interests in the trust. The
certificates are generally sold in private placements in reliance on Rule 144A
of the Securities Act of 1933 (without registering the certificates under such
Act).
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements.
The repurchase agreements into which the Portfolio may enter will usually be
short, from overnight to one week, and at no time will the Portfolio invest in
repurchase agreements for more than thirteen months. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
thirteen months from the effective date of the repurchase agreement. For a
discussion of repurchase agreements and certain risks involved therein, see the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Reverse Repurchase Agreements. The Portfolio invests the proceeds of
borrowings under reverse repurchase agreements. The Portfolio will enter into a
reverse repurchase agreement only when the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. The Portfolio will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. The Portfolio may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. The Portfolio will establish and maintain with its custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. If
interest rates rise during the term of a reverse repurchase agreement, such
reverse repurchase agreement may have a negative impact on the Portfolio's
ability to maintain a net asset value of $1.00 per share.
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
foreign securities. Any foreign commercial paper must not be subject to foreign
withholding tax at the time of purchase. Foreign investments may be made
directly in securities of foreign issuers or in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Generally, ADRs and
EDRs are receipts issued by a bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation and that are designed for
use in the domestic, in the case of ADRs, or European, in the case of EDRs,
securities markets. For a discussion of depositary receipts and the risks
involved in investing in foreign securities, see the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Lending Portfolio Securities. Loans will be subject to termination by
the Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. The Portfolio may pay reasonable finders'
and custodial fees in connection with a loan. In making a loan, the Portfolio
will consider all facts and circumstances surrounding the making of the loan,
including the creditworthiness of the borrowing financial institution. The
Portfolio will not make any loans in excess of one year. The Portfolio will not
lend its securities to any officer, employee or Trustee of the Trust, the
Investment Manager, any Sub-advisor of the Trust, or the Administrator unless
otherwise permitted by applicable law.
<PAGE>
Investment Objective and Policy Applicable to All Portfolios:
In order to permit the sale of shares of the Trust to separate accounts
of Participating Insurance Companies in certain states, the Trust may make
commitments more restrictive than the restrictions described in the section of
this Statement entitled "Investment Restrictions." Should the Trust determine
that any such commitment is no longer in the best interests of the Trust and its
shareholders it will revoke the commitment and terminate sales of its shares in
the state(s) involved.
The Board of Trustees of the Trust may, from time to time, promulgate
guidelines with respect to the investment policies of the Portfolios.
INVESTMENT RESTRICTIONS:
The investment restrictions set forth below are "fundamental" policies.
See the subsection of this Statement entitled "Investment Objectives and
Policies" for further discussion of "fundamental" policies of the Trust and the
requirements for changing such "fundamental" policies. Investment policies that
are not "fundamental" may be found in the general description of the investment
policies of each Portfolio, as described in the section of this Statement and
the Trust's Prospectus entitled "Investment Objectives and Policies."
The investment restrictions below apply only to the Portfolio or
Portfolios described in the text preceding the restrictions.
Investment Restrictions Applicable Only to the AST Lord Abbett Growth and Income
Portfolio, the AST JanCap Growth Portfolio, the AST INVESCO Equity Income
Portfolio, the AST Federated High Yield Portfolio, the AST PIMCO Total Return
Bond Portfolio, the AST PIMCO Limited Maturity Bond Portfolio and the AST Money
Market Portfolio.
1. A Portfolio will not purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition or
reorganization, or by purchase in the open market of securities of closed-end
investment companies where no underwriter or dealer's commission or profit,
other than a customary broker's commission, is involved and only if immediately
thereafter not more than 10% of this Portfolio's total assets, at market value,
would be invested in such securities, or by investing no more than 5% of the
Portfolio's total assets in other open-end investment companies or by purchasing
no more than 3% of any one open-end investment company's securities.
2. A Portfolio will not buy any securities or other property on margin (except
for such short-term credits as are necessary for the clearance of transactions).
3. A Portfolio will not invest in companies for the purpose of exercising
control or management.
4. A Portfolio will not underwrite securities issued by others except to the
extent that the Portfolio may be deemed an underwriter when purchasing or
selling securities.
5. A Portfolio will not purchase or retain securities of any issuer (other than
the shares of such Portfolio) if to the Trust's knowledge, the officers and
Trustees of the Trust and the officers and directors of the Investment Manager
who individually own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
outstanding securities.
6. A Portfolio will not issue senior securities.
Investment Restrictions Applicable Only to the AST Founders Passport Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Make loans of money or securities other than (a) through the purchase of
securities in accordance with the Portfolio's investment objective, (b) through
repurchase agreements, and (c) by lending portfolio securities in an amount not
to exceed 33 1/3% of the Portfolio's total assets;
2. Underwrite securities issued by others except to the extent that the
Portfolio may be deemed an underwriter when purchasing or selling securities;
3. Issue senior securities;
4. Invest directly in physical commodities (other than foreign currencies), real
estate or interests in real estate; provided, that the Portfolio may invest in
securities of issuers which invest in physical commodities, real estate or
interests in real estate; and, provided further, that this restriction shall not
prevent the Portfolio from purchasing or selling options, futures, swaps and
forward contracts, or from investing in securities or other instruments backed
by physical commodities, real estate or interests in real estate;
5. Make any investment which would concentrate 25% or more of the Portfolio's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
6. Borrow money except from banks in amounts up to 33 1/3% of the
Portfolio's total assets;
7. As to 75% of the value of its total assets, invest more than 5% of its total
assets, at market value, in the securities of any one issuer (except securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities);
or
8. As to 75% of the value of its total assets, purchase more than 10% of any
class of securities of any single issuer or purchase more than 10% of the voting
securities of any single issuer.
In applying the above restriction regarding investments in a single
industry, the Portfolio uses industry classifications based, where applicable,
on Baseline, Bridge Information Systems, Reuters, the S&P Stock Guide published
by Standard & Poor's, information obtained from Bloomberg L.P. and Moody's
International, and/or the prospectus of the issuing company. Selection of an
appropriate industry classification resource will be made by the Sub-advisor in
the exercise of its reasonable discretion. (This note is not a fundamental
policy.)
Investment Restrictions Only Applicable to the AST T. Rowe Price
International Equity Portfolio:
The following fundamental policies should be read in connection with
the notes set forth below. The notes are not fundamental policies. As a matter
of fundamental policy, the Portfolio may not:
1. Borrow money except that the Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions, which may or may be
deemed to involve a borrowing, in a manner consistent with the Portfolio's
investment objective and policies, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of the Portfolio's total assets (including
the amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this amount
will be reduced in accordance with applicable law. The Portfolio may borrow from
banks, other Price Portfolios or other persons to the extent permitted by
applicable law;
2. Purchase or sell physical commodities; except that the Portfolio may enter
into futures contracts and options thereon;
3. Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry;
4. Make loans, although the Portfolio may (i) purchase money market securities
and enter into repurchase agreements; (ii) acquire publicly-distributed or
privately placed debt securities and purchase debt; (iii) lend portfolio
securities; and (iv) participate in an interfund lending program with other
Price Portfolios provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of the Portfolio's
total assets;
5. Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 5% of the value of its total assets would be
invested in the securities of any one issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities);
6. Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the U.S.
Government, its agencies or instrumentalities);
7. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments back by real estate or securities
of companies engaged in the real estate business);
8. Issue senior securities except in compliance with the 1940 Act; or
9. Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
Notes: The following notes should be read in connection with the above
described fundamental policies. The notes are not fundamental policies.
With respect to investment restrictions (1) and (4), the Portfolio will
not borrow or lend to any other fund unless it applies for and receives an
exemptive order from the SEC, if so required, or the SEC issues rules permitting
such transactions. The Portfolio has no current intention of engaging in any
such activity and there is no assurance the SEC would grant any order requested
by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction (2), the Portfolio does not
consider currency contracts or hybrid investments to be commodities.
For the purposes of investment restriction (3), United States federal,
state or local governments, or related agencies and instrumentalities, are not
considered an industry. Foreign governments are considered an industry.
For purposes of investment restriction (4), the Portfolio will consider
the acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Investment Restrictions Applicable Only to the AST AIM International Equity
Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Borrow money except from banks and then in amounts not in excess of 33 1/3%
of its total assets. The Portfolio may borrow at prevailing interest rates and
invest the funds in additional securities. The Portfolio's borrowings are
limited so that immediately after such borrowing the value of the Portfolio's
assets (including borrowings) less its liabilities (not including borrowings) is
at least three times the amount of the borrowings. Should the Portfolio, for any
reason, have borrowings that do not meet the above test then, within three
business days, the Portfolio must reduce such borrowings so as to meet the
necessary test. Under such a circumstance, the Portfolio may have to liquidate
securities at a time when it is disadvantageous to do so;
2. Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under certain federal securities laws;
3. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities representing interests in real estate, and it may acquire
and dispose of real estate or interests in real estate acquired through the
exercise of its rights as a holder of debt obligations secured by real estate or
interests therein;
4. Purchase or sell commodities or commodity contracts, except that the
Portfolio may purchase and sell financial futures contracts and related options;
5. Make loans, except by purchase of debt obligations in which the Portfolio may
invest consistent with its investment policies, by entering into repurchase
agreements, or by lending its portfolio securities;
6. With respect to 75% of its total assets, invest in the securities of any
issuer if, immediately after such investment, more than 5% of the total assets
of the Portfolio (taken at current value) would be invested in the securities of
such issuer; provided that this limitation does not apply to obligations issued
or guaranteed as to interest or principal by the U.S. government or its agencies
or instrumentalities;
7. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer;
8. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if as a result of such purchase more than 25% of
the Portfolio's total assets would be invested in any one industry; or
9. Issue senior securities.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
Investment Restrictions Applicable Only to the AST Janus Overseas Growth
Portfolio:
1. The Portfolio may borrow money for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 33 1/3% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 33 1/3% of the value of the Portfolio's total
assets by reason of a decline in net assets, the Portfolio will reduce its
borrowings within three business days to the extent necessary to comply with the
33 1/3% limitation. This policy shall not prohibit reverse repurchase
agreements, deposits of assets to margin or guarantee positions in futures,
options, swaps or forward contracts, or the segregation of assets in connection
with such contracts.
2. The Portfolio will not, as to 75% of the value of its total assets, own more
than 10% of the outstanding voting securities of any one issuer, or purchase the
securities of any one issuer (except cash items and "government securities" as
defined under the 1940 Act as amended), if immediately after and as a result of
such purchase, the value of the holdings of the Portfolio in the securities of
such issuer exceeds 5% of the value of its total assets.
3. The Portfolio will not invest more than 25% of the value of its assets
in any particular industry (other than U.S. government securities).
4. The Portfolio will not invest directly in real estate or interests in real
estate; however, the Portfolio may own debt or equity securities issued by
companies engaged in those businesses.
5. The Portfolio will not purchase or sell physical commodities other than
foreign currencies unless acquired as a result of ownership of securities (but
this limitation shall not prevent the Portfolio from purchasing or selling
options, futures, swaps and forward contracts or from investing in securities or
other instruments backed by physical commodities).
6. The Portfolio will not lend any security or make any other loan if, as a
result, more than 25% of the Portfolio's total assets would be lent to other
parties (but this limitation does not apply to purchases of commercial paper,
debt securities or repurchase agreements).
7. The Portfolio will not act as an underwriter of securities issued by others,
except to the extent that the Portfolio may be deemed an underwriter in
connection with the disposition of its securities.
8. The Portfolio will not issue senior securities except in compliance with the
1940 Act.
Investment Restrictions Applicable Only to the AST American Century
International Growth Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Lend its portfolio securities except to unaffiliated persons and subject to
the rules and regulations adopted under the 1940 Act. No such rules and
regulations have been issued, but it is Sub-advisor's policy that such loans
must be secured continuously by cash collateral maintained on a current basis in
an amount at least equal to the market value of the securities loaned, or by
irrevocable letters of credit. During the existence of the loan, the Portfolio
must continue to receive the equivalent of the interest and dividends paid by
the issuer on the securities loaned and interest on the investment of the
collateral; the Portfolio must have the right to call the loan and obtain the
securities loaned at any time on five days' notice, including the right to call
the loan to enable the Portfolio to vote the securities. To comply with the
regulations of certain state securities administrators, such loans may not
exceed one-third of the Portfolio's net assets taken at market;
2. With respect to 75% of the value of its total assets, purchase the security
of any one issuer if such purchase would cause more than 5% of the Portfolio's
assets at market to be invested in the securities of such issuer, except U.S.
government securities, or if the purchase would cause more than 10% of the
outstanding voting securities of any one issuer to be held in the Portfolio;
3. Invest more than 25% of the assets of the Portfolio, exclusive of cash
and U.S. government securities, in securities of any one industry;
4. Issue any senior security except in compliance with the 1940 Act;
5. Underwrite any securities except to the extent that the Portfolio may be
deemed an underwriter when purchasing or selling securities;
6. Purchase or sell real estate. (In the opinion of the Sub-advisor, this
restriction will not preclude the Portfolio from investing in securities of
corporations that deal in real estate);
7. Purchase or sell commodities or commodity contracts; except that the
Portfolio may, for non-speculative purposes, buy or sell interest rate futures
contracts on debt securities (debt futures and bond index futures) and related
options; or
8. Borrow any money, except in an amount not in excess of 33 1/3% of the total
assets of the Portfolio, and then only for emergency and extraordinary purposes;
this does not prohibit the escrow and collateral arrangements in connection with
investment in interest rate futures contracts and related options by the
Portfolio.
In determining industry groups for purposes of the above restriction
regarding investments in a single industry, the Securities and Exchange
Commission ordinarily uses the Standard Industry Classification codes developed
by the United States Office of Management and Budget. The Sub-advisor monitors
industry concentration using a more restrictive list of industry groups than
that recommended by the Securities and Exchange Commission. The Sub-advisor
believes that these classifications are reasonable and are not so broad that the
primary economic characteristics of the companies in a single class are
materially different. The use of these more restrictive industry classifications
may, however, cause the Portfolio to forego investment possibilities which may
otherwise be available to it under the 1940 Act. (This note is not a fundamental
policy.)
Investment Restrictions Applicable Only to the AST T. Rowe Price Small
Company Value Portfolio:
The following fundamental policies should be read in connection with
the notes set forth below. The notes are not fundamental policies. As a matter
of fundamental policy, the Portfolio may not:
1. Borrow money except that the Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions, which may involve a
borrowing, in a manner consistent with the Portfolio's investment objective and
program, provided that the combination of (i) and (ii) shall not exceed 33 1/3%
of the value of the Portfolio's total assets (including the amount borrowed)
less liabilities (other than borrowings) or such other percentage permitted by
law. Any borrowings which come to exceed this amount will be reduced in
accordance with applicable law. The Portfolio may borrow from banks, and other
funds or other persons to the extent permitted by applicable law;
2. Purchase or sell physical commodities; except that it may enter into futures
contracts and options thereon;
3. Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry;
4. Make loans, although the Portfolio may (i) lend portfolio securities and
participate in an interfund lending program to the extent permitted by
applicable law, provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of the Portfolio's
total assets; (ii) purchase money market securities and enter into repurchase
agreements; and (iii) acquire publicly-distributed or privately-placed debt
securities and purchase debt;
5. Purchase a security if, as a result, with respect to 75% of the value of its
total assets, more than 5% of the value of the Portfolio's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S.
Government or any of its agencies or instrumentalities;
6. Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the U.S.
Government, its agencies or instrumentalities);
7. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments backed by real estate or in
securities of companies engaged in the real estate business);
8. Issue senior securities except in compliance with the 1940 Act; or
9. Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
Notes: The following notes should be read in connection with the
above-described fundamental policies. The notes are not fundamental policies.
With respect to investment restrictions (1) and (4), the Portfolio will
not borrow from or lend to any other fund unless it applies for and receives an
exemptive order from the SEC, if so required, or the SEC issues rules permitting
such transactions. The Portfolio has no current intention of engaging in any
such activity and there is no assurance the SEC would grant any order requested
by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction (2), the Portfolio does not
consider currency contracts or hybrid investments to be commodities.
For purposes of investment restriction (3), U.S., state or local
governments, or related agencies or instrumentalities, are not considered an
industry.
For purposes of investment restriction (4), the Portfolio will consider
the acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Investment Restrictions Applicable Only to the AST T. Rowe Price Natural
Resources Portfolio:
The following fundamental policies should be read in connection with
the notes set forth below. The notes are not fundamental policies. As a matter
of fundamental policy, the Portfolio may not:
1. Borrow money except that the Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions, which may involve a
borrowing, in a manner consistent with the Portfolio's investment objective and
program, provided that the combination of (i) and (ii) shall not exceed 33 1/3%
of the value of the Portfolio's total assets (including the amount borrowed)
less liabilities (other than borrowings) or such other percentage permitted by
law. Any borrowings which come to exceed this amount will be reduced in
accordance with applicable law. The Portfolio may borrow from banks, other Price
Portfolios or other persons to the extent permitted by applicable law;
2. Purchase or sell physical commodities; except that it may enter into futures
contracts and options thereon;
3. Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry;
4. Make loans, although the Portfolio may (i) lend portfolio securities and
participate in an interfund lending program with other Price Portfolio provided
that no such loan may be made if, as a result, the aggregate of such loans would
exceed 33 1/3% of the value of the Portfolio's total assets; (ii) purchase money
market securities and enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase debt;
5. Purchase a security if, as a result, with respect to 75% of the value of its
total assets, more than 5% of the value of the Portfolio's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S.
Government or any of its agencies or instrumentalities;
6. Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the U.S.
Government, its agencies or instrumentalities);
7. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments backed by real estate or in
securities of companies engaged in the real estate business);
8. Issue senior securities except in compliance with the 1940 Act; or
9. Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
Notes: The following notes should be read in connection with the
above-described fundamental policies. The notes are not fundamental policies.
With respect to investment restrictions (1) and (4), the Portfolio will
not borrow from or lend to any other fund unless it applies for and receives an
exemptive order from the SEC, if so required, or the SEC issues rules permitting
such transactions. The Portfolio has no current intention of engaging in any
such activity and there is no assurance the SEC would grant any order requested
by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction (2), the Portfolio does not
consider currency contracts or hybrid investments to be commodities.
For purposes of investment restriction (3), U.S., state or local
governments, or related agencies or instrumentalities, are not considered an
industry. Industries are determined by reference to the classifications of
industries set forth in the Portfolio's semi-annual and annual reports.
For purposes of investment restriction (4), the Portfolio will consider
the acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Investment Restrictions Applicable Only to the AST JanCap Growth Portfolio:
1. The Portfolio will not purchase a security if as a result, that
Portfolio would own more than 10% of the outstanding voting securities of any
issuer.
2. As to 75% of the value of its total assets, the Portfolio will not invest
more than 5% of its total assets, at market value, in the securities of any one
issuer (except cash items and securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities).
3. The Portfolio will not purchase a security if as a result, more than 25% of
its total assets, at market value, would be invested in the securities of
issuers principally engaged in the same industry (except securities issued or
guaranteed by the U.S.
Government, its agencies or instrumentalities).
4. The Portfolio will not purchase or sell real estate (although it may purchase
securities secured by real estate interests or interests therein, or issued by
companies or investment trusts which invest in real estate or interests
therein).
5. The Portfolio will not purchase or sell physical commodities other than
foreign currencies unless acquired as a result of ownership of securities (but
this shall not prevent the Portfolio from purchasing or selling options,
futures, swaps and forward contracts or from investing in securities and other
instruments backed by physical commodities).
6. The Portfolio will not lend any security or make any other loan, if as a
result, more than 25% of its total assets would be lent to other parties (but
this limitation does not apply to purchases of commercial paper, debt securities
or to repurchase agreements).
Investment Restrictions Applicable Only to the AST American Century Income &
Growth Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Borrow money in excess of 33 1/3% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at the
time the borrowing is made, and then only from banks as a temporary measure to
facilitate the meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be repaid before any
additional investments are purchased;
2. Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under certain federal securities laws;
3. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities which represent interests in real estate, and it may
acquire and dispose of real estate or interests in real estate acquired through
the exercise of its rights as a holder of debt obligations secured by real
estate or interests therein;
4. Purchase or sell commodities or commodity contracts, except that the
Portfolio may purchase and sell financial futures contracts and options;
5. Make loans, except by purchase of debt obligations in which the Portfolio may
invest consistent with its investment policies, by entering into repurchase
agreements, or by lending its portfolio securities;
6. With respect to 75% of its total assets, invest in the securities of any
issuer if, immediately after such investment, more than 5% of the total assets
of the Portfolio (taken at current value) would be invested in the securities of
such issuer; provided that this limitation does not apply to obligations issued
or guaranteed as to interest or principal by the U.S. government or its agencies
or instrumentalities;
7. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer;
8. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, more than 25%
of the Portfolio's total assets would be invested in any one industry; or
9. Issue any class of securities which is senior to the Portfolio's shares of
beneficial interest.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
Investment Restrictions Applicable Only to the AST Lord Abbett Growth and
Income Portfolio:
1. The Portfolio will not purchase a security if as a result, that
Portfolio would own more than 10% of the outstanding voting securities of any
issuer.
2. The Portfolio will not lend money or securities to any person except through
entering into short-term repurchase agreements with sellers of securities the
Portfolio has purchased, and through lending Portfolio securities to registered
broker-dealers where the loan is 100% secured by cash or its equivalent as long
as the Portfolio complies with regulatory requirements and the Sub-advisor deems
such loans not to expose the Portfolio to significant risk or adversely affect
the Portfolio's qualification for pass-through tax treatment under the Internal
Revenue Code (investment in repurchase agreements exceeding 7 days and in other
illiquid investments is limited to a maximum of 10% of Portfolio net assets).
3. The Portfolio will not pledge, mortgage, or hypothecate its assets --
however, this provision does not apply to the grant of escrow receipts or the
entry into other similar escrow arrangements arising out of the writing of
covered call options.
4. The Portfolio will not purchase securities of any issuer unless it or its
predecessor has a record of three years' continuous operation, except that the
Portfolio may purchase securities of such issuers through subscription offers or
other rights it receives as a security holder of companies offering such
subscriptions or rights, and such purchases will then be limited in the
aggregate to 5% of the Portfolio's net assets at the time of investment.
5. The Portfolio will not concentrate its investments in any one industry (the
Portfolio's investment policy of keeping its assets in those securities which
are selling at the most reasonable prices in relation to value normally results
in diversification among many industries -- consistent with this, the Portfolio
does not intend to invest more than 25% of its assets in any one industry
classification used by the Sub-advisor for investment purposes, although such
concentration could, under unusual economic and market conditions, amount to 30%
or conceivably somewhat more).
6. The Portfolio will not borrow money except from banks and then in amounts not
in excess of 33 1/3% of its total assets. The Portfolio may borrow at prevailing
interest rates and invest the Portfolios in additional securities. The
Portfolio's borrowings are limited so that immediately after such borrowing the
value of the Portfolio's assets (including borrowings) less its liabilities (not
including borrowings) is at least three times the amount of the borrowings.
Should the Portfolio, for any reason, have borrowings that do not meet the above
test then, within three business days, the Portfolio must reduce such borrowings
so as to meet the necessary test. Under such a circumstance, the Portfolio have
to liquidate securities at a time when it is disadvantageous to do so.
7. The Portfolio will not make short sales except short sales made "against the
box" to defer recognition of taxable gains or losses.
8. The Portfolio will not purchase or sell real estate (although it may purchase
securities secured by real estate interests or interests therein, or issued by
companies or investment trusts which invest in real estate or interests
therein).
9. The Portfolio will not invest directly in oil, gas, or other mineral
exploration or development programs; however, the Portfolio may purchase
securities of issuers whose principal business activities fall within such
areas.
10. The Portfolio will not purchase a security if as a result, more than 5% of
the value of that Portfolio's assets, at market value, would be invested in the
securities of issuers which, with their predecessors, have been in business less
than three years.
Investment Restrictions Applicable Only to the AST INVESCO Equity Income
Portfolio:
As a matter of fundamental policy, the Portfolio may not:
1. Issue preference shares or create any funded debt;
2. Sell short;
3. Borrow money except from banks in excess of 5% of the value of its total
net assets, and when borrowing, it is a temporary measure for emergency
purposes;
4. Buy or sell real estate, commodities, commodity contracts (however, the
Portfolio may purchase securities of companies investing in real estate);
5. Purchase any security or enter into a repurchase agreement, if as a result,
more than 15% of its net assets would be invested in repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
in securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Trustees or the
Investment Manager or the Sub-advisor, acting pursuant to authority delegated by
the Trustees, may determine that a readily available market exists for
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to that rule, and therefore that such securities are not
subject to the foregoing limitation;
6. Purchase securities if the purchase would cause the Portfolio, at the
time, to have more than 5% of its total assets invested in the securities of any
one company or to own more than 10% of the voting securities of any one company
(except obligations issued or guaranteed by the U.S. Government);
7. Make loans to any person, except through the purchase of debt securities in
accordance with the Portfolio's investment policies, or the lending of portfolio
securities to broker-dealers or other institutional investors, or the entering
into repurchase agreements with member banks of the Federal Reserve System,
registered broker-dealers and registered government securities dealers. The
aggregate value of all portfolio securities loaned may not exceed 33-1/3% of the
Portfolio's total net assets (taken at current value); or
8. Invest more than 25% of the value of the Portfolio's assets in one particular
industry.
Investment Restrictions Applicable Only to the AST AIM Balanced Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. With respect to 75% of its total assets, invest in the securities of any
issuer if, immediately after such investment, more than 5% of the total assets
of the Portfolio (taken at current value) would be invested in the securities of
such issuer; provided that this limitation does not apply to obligations issued
or guaranteed as to interest or principal by the U.S. government or its agencies
or instrumentalities;
2. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer;
3. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities which represent interests in real estate, and it may
acquire and dispose of real estate or interests in real estate acquired through
the exercise of its rights as a holder of debt obligations secured by real
estate or interests therein;
4. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, more than 25%
of the Portfolio's total assets would be invested in any one industry;
5. Invest in commodities or commodity contracts except that it may purchase or
sell financial futures contracts and options thereon;
6. Underwrite securities issued by others except to the extent that the
Portfolio may be deemed an underwriter when purchasing or selling securities;
7. Borrow money in excess of 10% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at the
time the borrowing is made, and then only from banks as a temporary measure to
facilitate the meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be repaid before any
additional investments are purchased;
8. Make loans, except by purchase of debt obligations in which the Portfolio may
invest consistent with its investment policies, by entering into repurchase
agreements, or by lending its portfolio securities; or
9. Issue senior securities.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
Investment Restrictions Applicable Only to the AST American Century
Strategic Balanced Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Lend its securities except to unaffiliated persons and subject to the rules
and regulations adopted under the 1940 Act. No such rules and regulations have
been promulgated, but it is the Sub-advisor's policy that such loans must be
secured continuously by cash collateral maintained on a current basis in an
amount at least equal to the market value of the securities loaned, or by
irrevocable letters of credit. During the existence of the loan, the Sub-advisor
must continue to receive the equivalent of the interest and dividends paid by
the issuer on the securities loaned and interest on the investment of the
collateral; the Portfolio must have the right to call the loan and obtain the
securities loaned at any time on five days' notice, including the right to call
the loan to enable the Portfolio to vote the securities. To comply with the
regulations of certain state securities administrators, such loans may not
exceed one-third of the Portfolio's net assets taken at market.
2. With respect to 75% of the value of its total assets, purchase the security
of any one issuer if such purchase would cause more than 5% of the Portfolio's
assets at market to be invested in the securities of such issuer, except United
States government securities, or if the purchase would cause more than 10% of
the outstanding voting securities of any one issuer to be held in the Portfolio;
3. Invest more than 25% of the assets of the Portfolio, exclusive of cash
and U.S. government securities, in securities of any one industry;
4. Issue any senior security except in compliance with the 1940 Act;
5. Underwrite any securities except to the extent that the Portfolio may be
deemed an underwriter when purchasing or selling securities;
6. Purchase or sell real estate. (In the opinion of the Sub-advisor, this
restriction will not preclude the Portfolio from investing in securities of
corporations that deal in real estate.);
7. Purchase or sell commodities or commodity contracts; except that the
Portfolio may, for non-speculative purposes, buy or sell interest rate futures
contracts on debt securities (debt futures and bond index futures) and related
options; or
8. Borrow any money, except in an amount not in excess of 33 1/3% of the total
assets of the Portfolio, and then only for emergency and extraordinary purposes;
this does not prohibit the escrow and collateral arrangements in connection with
investment in interest rate futures contracts and related options by the
Portfolio.
Investment Restrictions Only Applicable to the AST T. Rowe Price Asset
Allocation Portfolio:
The following fundamental policies should be read in connection with
the notes set forth below. The notes are not fundamental policies. As a matter
of fundamental policy, the Portfolio may not:
1. Borrow money except that the Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions, which may or may be
deemed to involve a borrowing, in a manner consistent with the Portfolio's
investment objective and policies, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of the Portfolio's total assets (including
the amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this amount
will be reduced in accordance with applicable law. The Portfolio may borrow from
banks, other Price Portfolios or other persons to the extent permitted by
applicable law;
2. Purchase or sell physical commodities; except that it may enter into futures
contracts and options thereon;
3. Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry;
4. Make loans, although the Portfolio may (i) purchase money market securities
and enter into repurchase agreements; (ii) acquire publicly- distributed or
privately placed debt securities and purchase debt; (iii) lend portfolio
securities; and (iv) participate in an interfund lending program with other
Price Portfolios provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of the Portfolio's
total assets;
5. Purchase a security if, as a result, with respect to 75% of the value of its
total assets, more than 5% of the value of the Portfolio's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S.
government, or any of its agencies or instrumentalities;
6. Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the U.S.
government, its agencies or instrumentalities);
7. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);
8. Issue senior securities except in compliance with the 1940 Act; or
9. Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
Notes: The following notes should be read in connection with the above
described fundamental policies. The notes are not fundamental policies.
With respect to investment restrictions (1) and (4), the Portfolio will
not borrow or lend to any other fund unless it applies for and receives an
exemptive order from the SEC, if so required, or the SEC issues rules permitting
such transactions. The Portfolio has no current intention of engaging in any
such activity and there is no assurance the SEC would grant any order requested
by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction (2), the Portfolio does not
consider currency contracts on hybrid investments to be commodities.
For the purposes of investment restriction (3), United States federal,
state or local governments, or related agencies and instrumentalities, are not
considered an industry. Foreign governments are considered an industry.
For purposes of investment restriction (4), the Portfolio will consider
the acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Investment Restrictions Applicable Only to the AST T. Rowe Price
International Bond Portfolio:
As a matter of fundamental policy, the Portfolio may not:
1. Borrow money, except as a temporary measure for extraordinary or emergency
purposes or except in connection with reverse repurchase agreements provided
that the Portfolio maintains asset coverage of 300% for all borrowings;
2. Purchase or sell real estate (except that the Portfolio may invest in (i)
securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein, and that the Portfolio
reserves freedom of action to hold and to sell real estate acquired as a result
of the Portfolio's ownership of securities) or purchase or sell physical
commodities or contracts relating to physical commodities;
3. Act as underwriter of securities issued by others, except to the extent that
it may be deemed an underwriter in connection with the disposition of portfolio
securities of the Portfolio;
4. Make loans to other persons, except (a) loans of portfolio securities, and
(b) to the extent the entry into repurchase agreements and the purchase of debt
securities in accordance with its investment objectives and investment policies
may be deemed to be loans;
5. Issue senior securities except in compliance with the 1940 Act; or
6. Purchase any securities which would cause more than 25% of the market value
of its total assets at the time of such purchase to be invested in the
securities of one or more issuers having their principal business activities in
the same industry, provided that there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (for the purposes of this restriction, telephone
companies are considered to be in a separate industry from gas and electric
public utilities, and wholly-owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents).
Investment Restrictions Applicable Only to the AST Federated High Yield
Portfolio:
1. The Portfolio will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions.
2. The Portfolio will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only from banks and only in amounts
not in excess of 5% of the value of its net assets, taken at the lower of cost
or market. In addition, to meet redemption requests without immediately selling
portfolio securities, the Portfolio may borrow up to one-third of the value of
its total assets (including the amount borrowed) less its liabilities (not
including borrowings, but including the current fair market value of any
securities carried in open short positions). This practice is not for investment
leverage but solely to facilitate management of the portfolio by enabling the
Portfolio to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. If, due to market
fluctuations or other reasons, the value of the Portfolio's assets falls below
300% of its borrowings, it will reduce its borrowings within three business
days. No more than 10% of the value of the Portfolio's total assets at the time
of providing such security may be used to secure borrowings.
3. The Portfolio will not invest more than 5% of its total assets in the
securities of any one issuer (except cash and cash instruments, securities
issued or guaranteed by the U.S. government, its agencies, or instrumentalities,
or instruments secured by these money market instruments, such as repurchase
agreements).
4. The Portfolio will not invest more than 5% of the value of its total assets
in securities of companies, including their predecessors, that have been in
operation for less than three years.
5. The Portfolio will not invest more than 5% of the value of its total
assets in foreign securities which are not publicly traded in the United States.
6. The Portfolio will not purchase or sell real estate, although it may invest
in marketable securities secured by real estate or interests in real estate, and
it may invest in the marketable securities of companies investing or dealing in
real estate.
7. The Portfolio will not purchase or sell commodities or commodity contracts or
oil, gas, or other mineral exploration or development programs. However, it may
invest in the marketable securities of companies investing in or sponsoring such
programs.
8. The Portfolio will not make loans, except through the purchase or holding of
securities in accordance with its investment objective, policies, and
limitations and through repurchase agreements. The Portfolio may invest up to 5%
of its total assets in repurchase agreements which mature more than seven days
from the time they are entered into. The Portfolio may lend portfolio securities
if the borrower provides 100% cash collateral in the form of cash or U.S.
government securities. This collateral must be valued daily and should the
market value of the loaned securities increase, the borrower must furnish
additional collateral. The Portfolio retains the right to any dividends,
interest, or other distribution paid on the securities and any increase in their
market value. Loans will be subject to termination at the option of the
Portfolio or the borrower.
9. The Portfolio will not write, purchase, or sell puts, calls, or any
combination thereof.
10. The Portfolio will not make short sales of securities or maintain short
positions, unless: during the time the short position is open, it owns an equal
amount of the securities sold or securities readily and freely convertible into
or exchangeable, without payment of additional consideration, for securities of
the same issue as, and equal in amount to, the securities sold short; and not
more than 10% of the Portfolio's net assets (taken at current value) is held as
collateral for such sales at any one time.
11. The Portfolio will not purchase securities of a company for the purpose of
exercising control or management. However, the Portfolio may invest in up to 10%
of the voting securities of any one issuer and may exercise its voting powers
consistent with the best interests of the Portfolio. From time to time, the
Portfolio, together with other investment companies advised by subsidiaries or
affiliates of Federated Investors, may together buy and hold substantial amounts
of a company's voting stock. All such stock may be voted together. In some such
cases, the Portfolio and the other investment companies might collectively be
considered to be in control of the company in which they have invested. In some
cases, Directors, agents, employees, officers, or others affiliated with or
acting for the Portfolio, its Sub-advisor, or affiliated companies might
possibly become directors of companies in which the Portfolio holds stock.
12. The Portfolio will not invest more than 25% of the value of its total assets
in one industry. However, for temporary defensive purposes, the Portfolio may at
times invest more than that percentage in: cash and cash items; securities
issued or guaranteed by the U.S. government, its agencies, or instrumentalities;
or instruments secured by these money market instruments, such as repurchase
agreements.
Investment Restrictions Applicable Only to the AST PIMCO Total Return Bond
Portfolio:
1. The Portfolio will not invest in a security if, as a result of such
investment, more than 25% of its total assets (taken at market value at the time
of investment) would be invested in securities of issuers of a particular
industry, except that this restriction does not apply to securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities (or
repurchase agreements with respect thereto);
2. The Portfolio will not, with respect to 75% of its total assets, invest in a
security if, as a result of such investment, more than 5% of its total assets
(taken at market value at the time of investment) would be invested in the
securities of any one issuer, except that this restriction does not apply to
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities (or repurchase agreements with respect thereto);
3. The Portfolio will not, with respect to 75% of its assets, invest in a
security if, as a result of such investment, it would hold more than 10% (taken
at the time of investment) of the outstanding voting securities of any one
issuer;
4. The Portfolio will not purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein);
5. The Portfolio will not purchase or sell commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit the Portfolio, subject to
restrictions stated in the Trust's Prospectus and elsewhere in this Statement,
from purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or any
interest rate, securities related or foreign currency-related hedging
instrument, including swap agreements and other derivative instruments, subject
to compliance with any applicable provisions of the federal securities laws or
commodities laws;
6. The Portfolio will not borrow money, issue senior securities, pledge,
mortgage, hypothecate its assets, except that the Portfolio may (i) borrow from
banks or enter into reverse repurchase agreements, or employ similar investment
techniques, and pledge its assets in connection therewith, but only if
immediately after each borrowing there is an asset coverage of 300% and (ii)
enter into transactions in options, futures and options on futures and other
derivative instruments as described in the Trust's Prospectus and this Statement
(the deposit of assets in escrow in connection with the writing of covered put
and call options and the purchase of securities on a when-issued or delayed
delivery basis, collateral arrangements with respect to initial or variation
margin deposits for future contracts and commitments entered into under swap
agreements or other derivative instruments, will not be deemed to be pledges of
the Portfolio's assets);
7. The Portfolio will not lend funds or other assets, except that the Portfolio
may, consistent with its investment objective and policies: (a) invest in debt
obligations, including bonds, debentures or other debt securities, bankers'
acceptances and commercial paper, even though the purchase of such obligations
may be deemed to be the making of a loan, (b) enter into repurchase agreements,
and (c) lend its Portfolio securities in an amount not to exceed one-third the
value of its total assets, provided such loans are and in accordance with
applicable guidelines established by the SEC and the Trust's Board of Trustees;
or
8. The Portfolio will not maintain a short position, or purchase, write or sell
puts, calls, straddles, spreads or combinations thereof, except as set forth in
the Trust's Prospectus and this Statement for transactions in options, futures,
and options on futures transactions arising under swap agreements or other
derivative instruments.
Investment Restrictions Applicable Only to the AST PIMCO Limited Maturity
Bond Portfolio:
As a matter of fundamental policy, the Portfolio may not:
1. Invest in a security if, as a result of such investment, more than 25% of its
total assets (taken at market value at the time of such investment) would be
invested in the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements with
respect thereto);
2. With respect to 75% of its assets, invest in a security if, as a result of
such investment, more than 5% of its total assets (taken at market value at the
time of such investment) would be invested in securities of any one issuer,
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities;
3. With respect to 75% of its assets, invest in a security if, as a result of
such investment, it would hold more than 10% (taken at the time of such
investment) of the outstanding voting securities of any one issuer;
4. Purchase or sell real estate (although it may purchase securities secured by
real estate or interests therein, or securities issued by companies which invest
in real estate, or interests therein);
5. Purchase or sell commodities or commodities contracts or oil, gas or mineral
programs. This restriction shall not prohibit the Portfolio, subject to
restrictions described in the Prospectus and elsewhere in this Statement, from
purchasing, selling or entering into futures contracts, options, or any interest
rate, securities-related or foreign currency-related hedging instrument,
including swap agreements and other derivative instruments, subject to
compliance with any applicable provisions of the federal securities or
commodities laws;
6. Borrow money, issue senior securities, or pledge, mortgage or hypothecate its
assets, except that the Portfolio may (i) borrow from banks or enter into
reverse repurchase agreements, or employ similar investment techniques, and
pledge its assets in connection therewith, but only if immediately after each
borrowing there is asset coverage of 300% and (ii) enter into transactions in
options, futures and options on futures and other derivative instruments as
described in the Prospectus and in this Statement (the deposit of assets in
escrow in connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery basis, collateral
arrangements with respect to initial or variation margin deposits for futures
contracts and commitments entered into under swap agreements or other derivative
instruments, will not be deemed to be pledges of the Portfolio assets);
7. Lend any funds or other assets, except that a Portfolio may, consistent with
its investment objective and policies: (a) invest in debt obligations, including
bonds, debentures or other debt securities, banker' acceptance and commercial
paper, even though the purchase of such obligations may be deemed to be the
making of loans, (b) enter into repurchase agreements, and (c) lend its
portfolio securities in an amount not to exceed one-third of the value of its
total assets, provided such loans are made in accordance with applicable
guidelines established by the Securities and Exchange Commission and the Trust's
Board of Trustees; or
8. Maintain a short position, or purchase, write or sell puts, calls, straddles,
spreads or combinations thereof, except on such conditions as may be set forth
in the Prospectus and in this Statement.
Investment Restrictions Applicable Only to the AST Money Market Portfolio:
1. The Portfolio will not purchase a security if as a result, the Portfolio
would own more than 10% of the outstanding voting securities of any issuer.
2. As to 75% of the value of its total assets, the Portfolio will not invest
more than 5% of its total assets, at market value, in the securities of any one
issuer (except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities).
3. The Portfolio will not acquire any illiquid securities, such as repurchase
agreements with more than seven days to maturity or fixed time deposits with a
duration of over seven calendar days, if as a result thereof, more than 10% of
the market value of the Portfolio's total assets would be in investments which
are illiquid.
4. The Portfolio will not purchase a security if as a result, more than 25% of
its total assets, at market value, would be invested in the securities of
issuers principally engaged in the same industry (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, negotiable
certificates of deposit, time deposits, and bankers' acceptances of United
States branches of United States banks).
5. The Portfolio will not enter into reverse repurchase agreements exceeding in
the aggregate one-third of the market value of the Portfolio's total assets,
less liabilities other than obligations created by reverse repurchase
agreements.
6. The Portfolio will not borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts not to exceed 10% of the value of
the Portfolio's total assets, taken at cost, at the time of such borrowing. The
Portfolio may not mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not to exceed 10% of the value
of the Portfolio's net assets at the time of such borrowing. The Portfolio will
not purchase securities while borrowings exceed 5% of the Portfolio's total
assets. This borrowing provision is included to facilitate the orderly sale of
securities, for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes and shall not apply to reverse repurchase
agreements.
7. The Portfolio will not make loans, except through purchasing or holding debt
obligations, or entering into repurchase agreements, or loans of Portfolio
securities in accordance with the Portfolio's investment objectives and
policies.
8. The Portfolio will not purchase securities on margin, make short sales of
securities, or maintain a short position, provided that this restriction shall
not be deemed to be applicable to the purchase or sale of when-issued securities
or of securities for delivery at a future date.
9. The Portfolio will not purchase or sell puts, calls, straddles, spreads, or
any combination thereof; real estate; commodities; or commodity contracts or
interests in oil, gas or mineral exploration or development programs. However,
the Portfolio may purchase bonds or commercial paper issued by companies which
invest in real estate or interests therein including real estate investment
trusts.
Investment Restrictions Applicable Only to the AST Janus Small-Cap Growth
Portfolio, the AST Kemper Small-Cap Growth Portfolio the AST Lord Abbett Small
Cap Value Portfolio, the AST Neuberger Berman Mid-Cap Growth Portfolio, the AST
Neuberger Berman Mid-Cap Value Portfolio, the AST Oppenheimer Large-Cap Growth
Portfolio, the AST Marsico Capital Growth Portfolio, the AST Bankers Trust
Enhanced 500 Portfolio and the AST Cohen & Steers Realty Portfolio.
1. No Portfolio may issue senior securities, except as permitted under
the 1940 Act.
2. No Portfolio may borrow money, except that a Portfolio may (i)
borrow money for non-leveraging, temporary or emergency purposes, and (ii)
engage in reverse repurchase agreements and make other investments or engage in
other transactions, which may involve a borrowing, in a manner consistent with
the Portfolio's investment objective and policies; provided that the combination
of (i) and (ii) shall not exceed 33 1/3% of the value of the Portfolio's assets
(including the amount borrowed) less liabilities (other than borrowings) or such
other percentage permitted by law. Any borrowings which come to exceed this
amount will be reduced in accordance with applicable law. Subject to the above
limitations, a Portfolio may borrow from banks or other persons to the extent
permitted by applicable law.
3. No Portfolio may underwrite securities issued by other persons,
except to the extent that the Portfolio may be deemed to be an underwriter
(within the meaning of the Securities Act of 1933) in connection with the
purchase and sale of portfolio securities.
4. No Portfolio may purchase or sell real estate unless acquired as a
result of the ownership of securities or other instruments; provided that this
restriction shall not prohibit a Portfolio from investing in securities or other
instruments backed by real estate or in securities of companies engaged in the
real estate business.
5. No Portfolio may purchase or sell physical commodities unless
acquired as a result of the ownership of securities or instruments; provided
that this restriction shall not prohibit a Portfolio from (i) engaging in
permissible options and futures transactions and forward foreign currency
contracts in accordance with the Portfolio's investment policies, or (ii)
investing in securities of any kind.
6. No Portfolio may make loans, except that a Portfolio may (i) lend
portfolio securities in accordance with the Portfolio's investment policies in
amounts up to 33 1/3% of the total assets of the Portfolio taken at market
value, (ii) purchase money market securities and enter into repurchase
agreements, and (iii) acquire publicly distributed or privately placed debt
securities.
7. No Portfolio other than the AST Cohen & Steers Realty Portfolio may
purchase any security if, as a result, more than 25% of the value of the
Portfolio's assets would be invested in the securities of issuers having their
principal business activities in the same industry; provided that this
restriction does not apply to investments in obligations issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities (or repurchase
agreements with respect thereto). The AST Cohen & Steers Realty Portfolio will
invest at least 25% of its total assets in securities of companies engaged in
the real estate business.
8. No Portfolio other than the AST Cohen & Steers Realty Portfolio may,
with respect to 75% of the value of its total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities) if, as a result, (i) more than 5% of
the value of the Portfolio's total assets would be invested in the securities of
such issuer, or (ii) more than 10% of the outstanding voting securities of such
issuer would be held by the Portfolio. The AST Cohen & Steers Realty Portfolio
may not, with respect to 50% of its total assets, invest in the securities of
any one issuer (other than the U.S. Government and its agencies and
instrumentalities), if immediately after and as a result of such investment more
than 5% of the total assets of the Portfolio would be invested in such issuer.
If a restriction on a Portfolio's investments is adhered to at the time
an investment is made, a subsequent change in the percentage of Portfolio assets
invested in certain securities or other instruments, or change in average
duration of the Portfolio's investment portfolio, resulting from changes in the
value of the Portfolio's total assets, will not be considered a violation of the
restriction; provided, however, that the asset coverage requirement applicable
to borrowings shall be maintained in the manner contemplated by applicable law.
With respect to investment restrictions (2) and (6), a Portfolio will
not borrow or lend to any other fund unless it applies for and receives an
exemptive order from the Securities and Exchange Commission (the "Commission"),
if so required, or the Commission issues rules permitting such transactions.
There is no assurance the Commission would grant any order requested by a
Portfolio or promulgate any rules allowing the transactions.
CERTAIN RISK FACTORS AND INVESTMENT METHODS:
Some of the investment instruments, techniques and methods which may be
used by one or more of the Portfolios and the risks attendant thereto are
described below. Other risk factors and investment methods may be described in
the "Investment Objectives and Policies" and "Certain Risk Factors and
Investment Methods" section in the Trust's Prospectus and in the "Investment
Objectives and Policies" section of this Statement. The risks and investment
methods described below apply only to those Portfolios which may invest in such
instruments or use such techniques.
Debt Obligations:
Yields on short, intermediate, and long-term securities are dependent
on a variety of factors, including, the general conditions of the money and bond
markets, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. Debt securities with longer maturities tend to produce
higher yields and are generally subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities and lower
yields. The market prices of debt securities usually vary, depending upon
available yields. An increase in interest rates will generally reduce the value
of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. The ability of the Portfolio to
achieve its investment objectives is also dependent on the continuing ability of
the issuers of the debt securities in which the Portfolio invests to meet their
obligations for the payment of interest and principal when due.
<PAGE>
Special Risks Associated with Low-Rated and Comparable Unrated Securities:
Low-rated and comparable unrated securities, while generally offering
higher yields than investment-grade securities with similar maturities, involve
greater risks, including the possibility of default or bankruptcy. They are
regarded as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal. The special risk considerations in connection
with such investments are discussed below. See the Appendix of this Statement
for a discussion of securities ratings.
Effect of Interest Rates and Economic Changes. The low-rated and
comparable unrated securities market is relatively new, and its growth
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such a
prolonged economic downturn could severely disrupt the market for and adversely
affect the value of such securities.
All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of low-rated and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher-rated securities,
which react primarily to fluctuations in the general level of interest rates.
Low-rated and comparable unrated securities also tend to be more sensitive to
economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of low-rated and comparable unrated securities
may experience financial stress and may not have sufficient revenues to meet
their payment obligations. The issuer's ability to service its debt obligations
may also be adversely affected by specific corporate developments, the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by an issuer of
low-rated and comparable unrated securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the issuer
of a low-rated and comparable unrated security defaulted, a Portfolio might
incur additional expenses to seek recovery. Periods of economic uncertainty and
changes would also generally result in increased volatility in the market prices
of low-rated and comparable unrated securities and thus in a Portfolio's net
asset value.
As previously stated, the value of such a security will decrease in a
rising interest rate market and accordingly, so will a Portfolio's net asset
value. If a Portfolio experiences unexpected net redemptions in such a market,
it may be forced to liquidate a portion of its portfolio securities without
regard to their investment merits. Due to the limited liquidity of high-yield
securities (discussed below) a Portfolio may be forced to liquidate these
securities at a substantial discount. Any such liquidation would reduce a
Portfolio's asset base over which expenses could be allocated and could result
in a reduced rate of return for a Portfolio.
Payment Expectations. Low-rated and comparable unrated securities
typically contain redemption, call, or prepayment provisions which permit the
issuer of such securities containing such provisions to, at their discretion,
redeem the securities. During periods of falling interest rates, issuers of
high-yield securities are likely to redeem or prepay the securities and
refinance them with debt securities with a lower interest rate. To the extent an
issuer is able to refinance the securities, or otherwise redeem them, a
Portfolio may have to replace the securities with a lower-yielding security,
which would result in a lower return for a Portfolio.
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. Such issuers
may not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
Credit Ratings. Credit ratings issued by credit-rating agencies
evaluate the safety of principal and interest payments of rated securities. They
do not, however, evaluate the market value risk of low-rated and comparable
unrated securities and, therefore, may not fully reflect the true risks of an
investment. In addition, credit-rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of the
issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in low-rated and comparable unrated securities will be more
dependent on the Sub-advisor's credit analysis than would be the case with
investments in investment-grade debt securities. The Sub-advisor may employ its
own credit research and analysis, which could include a study of existing debt,
capital structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history, and the current trend
of earnings. The Sub-advisor continually monitors the investments in a Portfolio
and evaluates whether to dispose of or to retain low-rated and comparable
unrated securities whose credit ratings or credit quality may have changed.
Liquidity and Valuation. A Portfolio may have difficulty disposing of
certain low-rated and comparable unrated securities because there may be a thin
trading market for such securities. Because not all dealers maintain markets in
all low-rated and comparable unrated securities, there is no established retail
secondary market for many of these securities. A Portfolio anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market does exist, it is generally
not as liquid as the secondary market for higher-rated securities. The lack of a
liquid secondary market may have an adverse impact on the market price of the
security. As a result, a Portfolio's asset value and a Portfolio's ability to
dispose of particular securities, when necessary to meet a Portfolio's liquidity
needs or in response to a specific economic event, may be impacted. The lack of
a liquid secondary market for certain securities may also make it more difficult
for the Portfolio to obtain accurate market quotations for purposes of valuing a
Portfolio. Market quotations are generally available on many low-rated and
comparable unrated issues only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
During periods of thin trading, the spread between bid and asked prices is
likely to increase significantly. In addition, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of low-rated and comparable unrated securities, especially
in a thinly-traded market.
Put and Call Options:
Writing (Selling) Call Options. A call option gives the holder (buyer)
the "right to purchase" a security or currency at a specified price (the
exercise price), at expiration of the option (European style) or at any time
until a certain date (the expiration date) (American style). So long as the
obligation of the writer of a call option continues, he may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring him to deliver the underlying security or currency against payment of
the exercise price. This obligation terminates upon the expiration of the call
option, or such earlier time at which the writer effects a closing purchase
transaction by repurchasing an option identical to that previously sold.
When writing a call option, a Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, a Portfolio will realize a gain or loss from the sale of the
underlying security or currency.
Writing (Selling) Put Options. A put option gives the purchaser of the
option the right to sell, and the writer (seller) has the obligation to buy, the
underlying security or currency at the exercise price during the option period
(American style) or at the expiration of the option (European style). So long as
the obligation of the writer continues, he may be assigned an exercise notice by
the broker-dealer through whom such option was sold, requiring him to make
payment of the exercise price against delivery of the underlying security or
currency. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.
Premium Received from Writing Call or Put Options. A Portfolio will
receive a premium from writing a put or call option, which increases such
Portfolio's return in the event the option expires unexercised or is closed out
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option and the volatility of the market
price of the underlying security. By writing a call option, a Portfolio limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, a Portfolio assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
<PAGE>
Closing Transactions. Closing transactions may be effected in order to
realize a profit on an outstanding call option, to prevent an underlying
security or currency from being called, or, to permit the sale of the underlying
security or currency. A Portfolio may terminate an option that it has written
prior to its expiration by entering into a closing purchase transaction in which
it purchases an option having the same terms as the option written. A Portfolio
will realize a profit or loss from such transaction if the cost of such
transaction is less or more than the premium received from the writing of the
option. In the case of a put option, any loss so incurred may be partially or
entirely offset by the premium received from a simultaneous or subsequent sale
of a different put option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by unrealized appreciation of the underlying
security owned by such Portfolio.
Furthermore, effecting a closing transaction will permit the Portfolio
to write another call option on the underlying security or currency with either
a different exercise price or expiration date or both. If the Portfolio desires
to sell a particular security or currency from its portfolio on which it has
written a call option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security or
currency. There is, of course, no assurance that the Portfolio will be able to
effect such closing transactions at a favorable price. If the Portfolio cannot
enter into such a transaction, it may be required to hold a security or currency
that it might otherwise have sold. When the Portfolio writes a covered call
option, it runs the risk of not being able to participate in the appreciation of
the underlying securities or currencies above the exercise price, as well as the
risk of being required to hold on to securities or currencies that are
depreciating in value. This could result in higher transaction costs. The
Portfolio will pay transaction costs in connection with the writing of options
to close out previously written options. Such transaction costs are normally
higher than those applicable to purchases and sales of portfolio securities.
Purchasing Call Options. Call options may be purchased by a Portfolio
for the purpose of acquiring the underlying securities or currencies for its
portfolio. Utilized in this fashion, the purchase of call options enables the
Portfolio to acquire the securities or currencies at the exercise price of the
call option plus the premium paid. At times the net cost of acquiring securities
or currencies in this manner may be less than the cost of acquiring the
securities or currencies directly. This technique may also be useful to a
Portfolio in purchasing a large block of securities or currencies that would be
more difficult to acquire by direct market purchases. So long as it holds such a
call option rather than the underlying security or currency itself, the
Portfolio is partially protected from any unexpected decline in the market price
of the underlying security or currency and in such event could allow the call
option to expire, incurring a loss only to the extent of the premium paid for
the option.
Purchasing Put Options. A Portfolio may purchase a put option on an
underlying security or currency (a "protective put") owned by the Portfolio as a
defensive technique in order to protect against an anticipated decline in the
value of the security or currency. Such hedge protection is provided only during
the life of the put option when the Portfolio, as the holder of the put option,
is able to sell the underlying security or currency at the put exercise price
regardless of any decline in the underlying security's market price or
currency's exchange value. For example, a put option may be purchased in order
to protect unrealized appreciation of a security or currency where a Sub-advisor
deems it desirable to continue to hold the security or currency because of tax
considerations. The premium paid for the put option and any transaction costs
would reduce any capital gain otherwise available for distribution when the
security or currency is eventually sold.
By purchasing put options on a security or currency it does not own,
the Portfolio seeks to benefit from a decline in the market price of the
underlying security or currency. If the put option is not sold when it has
remaining value, and if the market price of the underlying security or currency
remains equal to or greater than the exercise price during the life of the put
option, the Portfolio will lose its entire investment in the put option. In
order for the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.
Dealer Options. Exchange-traded options generally have a continuous
liquid market while dealer options have none. Consequently, the Portfolio will
generally be able to realize the value of a dealer option it has purchased only
by exercising it or reselling it to the dealer who issued it. Similarly, when
the Portfolio writes a dealer option, it generally will be able to close out the
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Portfolio originally wrote the option.
While the Portfolio will seek to enter into dealer options only with dealers who
will agree to and which are expected to be capable of entering into closing
transactions with the Portfolio, there can be no assurance that the Portfolio
will be able to liquidate a dealer option at a favorable price at any time prior
to expiration. Until the Portfolio, as a covered dealer call option writer, is
able to effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used as cover until the option expires or is
exercised. In the event of insolvency of the contra party, the Portfolio may be
unable to liquidate a dealer option. With respect to options written by the
Portfolio, the inability to enter into a closing transaction may result in
material losses to the Portfolio. For example, since the Portfolio must maintain
a secured position with respect to any call option on a security it writes, the
Portfolio may not sell the assets which it has segregated to secure the position
while it is obligated under the option. This requirement may impair the
Portfolio's ability to sell portfolio securities at a time when such sale might
be advantageous.
The Staff of the SEC has taken the position that purchased dealer
options and the assets used to secure the written dealer options are illiquid
securities. The Portfolio may treat the cover used for written OTC options as
liquid if the dealer agrees that the Portfolio may repurchase the OTC option it
has written for a maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to the extent the
maximum repurchase price under the formula exceeds the intrinsic value of the
option. To this extent, the Portfolio will treat dealer options as subject to
the Portfolio's limitation on unmarketable securities. If the SEC changes its
position on the liquidity of dealer options, the Portfolio will change its
treatment of such instruments accordingly.
Certain Risk Factors in Writing Call Options and in Purchasing Call and
Put Options: During the option period, a Portfolio, as writer of a call option
has, in return for the premium received on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security increase, but has retained the risk of loss should the price
of the underlying security decline. The writer has no control over the time when
it may be required to fulfill its obligation as a writer of the option. The risk
of purchasing a call or put option is that the Portfolio may lose the premium it
paid plus transaction costs. If the Portfolio does not exercise the option and
is unable to close out the position prior to expiration of the option, it will
lose its entire investment.
An option position may be closed out only on an exchange which provides
a secondary market. There can be no assurance that a liquid secondary market
will exist for a particular option at a particular time and that the Portfolio
can close out its position by effecting a closing transaction. If the Portfolio
is unable to effect a closing purchase transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Accordingly, the Portfolio may not be able to sell the underlying security at a
time when it might otherwise be advantageous to do so. Possible reasons for the
absence of a liquid secondary market include the following: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions imposed
by an exchange; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) inadequacy of the facilities of an exchange or the clearing
corporation to handle trading volume; and (v) a decision by one or more
exchanges to discontinue the trading of options or impose restrictions on
orders. In addition, the hours of trading for options may not conform to the
hours during which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets. The purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
Each exchange has established limitations governing the maximum number
of call options, whether or not covered, which may be written by a single
investor acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). An exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions.
Options on Stock Indices:
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
Risk Factors in Options on Indices. Because the value of an index
option depends upon the movements in the level of the index rather than upon
movements in the price of a particular security, whether the Portfolio will
realize a gain or a loss on the purchase or sale of an option on an index
depends upon the movements in the level of prices in the market generally or in
an industry or market segment rather than upon movements in the price of the
individual security. Accordingly, successful use of positions will depend upon a
Sub-advisor's ability to predict correctly movements in the direction of the
market generally or in the direction of a particular industry. This requires
different skills and techniques than predicting changes in the prices of
individual securities.
Index prices may be distorted if trading of securities included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
securities in the index. If this occurred, a Portfolio would not be able to
close out options which it had written or purchased and, if restrictions on
exercise were imposed, might be unable to exercise an option it purchased, which
would result in substantial losses.
Price movements in Portfolio securities will not correlate perfectly
with movements in the level of the index and therefore, a Portfolio bears the
risk that the price of the securities may not increase as much as the level of
the index. In this event, the Portfolio would bear a loss on the call which
would not be completely offset by movements in the prices of the securities. It
is also possible that the index may rise when the value of the Portfolio's
securities does not. If this occurred, a Portfolio would experience a loss on
the call which would not be offset by an increase in the value of its securities
and might also experience a loss in the market value of its securities.
Unless a Portfolio has other liquid assets which are sufficient to
satisfy the exercise of a call on the index, the Portfolio will be required to
liquidate securities in order to satisfy the exercise.
When a Portfolio has written a call on an index, there is also the risk
that the market may decline between the time the Portfolio has the call
exercised against it, at a price which is fixed as of the closing level of the
index on the date of exercise, and the time the Portfolio is able to sell
securities. As with options on securities, the Sub-advisor will not learn that a
call has been exercised until the day following the exercise date, but, unlike a
call on securities where the Portfolio would be able to deliver the underlying
security in settlement, the Portfolio may have to sell part of its securities in
order to make settlement in cash, and the price of such securities might decline
before they could be sold.
If a Portfolio exercises a put option on an index which it has
purchased before final determination of the closing index value for the day, it
runs the risk that the level of the underlying index may change before closing.
If this change causes the exercised option to fall "out-of-the-money" the
Portfolio will be required to pay the difference between the closing index value
and the exercise price of the option (multiplied by the applicable multiplier)
to the assigned writer. Although the Portfolio may be able to minimize this risk
by withholding exercise instructions until just before the daily cutoff time or
by selling rather than exercising an option when the index level is close to the
exercise price, it may not be possible to eliminate this risk entirely because
the cutoff time for index options may be earlier than those fixed for other
types of options and may occur before definitive closing index values are
announced.
Trading in Futures:
A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (e.g., units of a stock index) for a specified price, date, time and
place designated at the time the contract is made. Brokerage fees are incurred
when a futures contract is bought or sold and margin deposits must be
maintained. Entering into a contract to buy is commonly referred to as buying or
purchasing a contract or holding a long position. Entering into a contract to
sell is commonly referred to as selling a contract or holding a short position.
Unlike when the Portfolio purchases or sells a security, no price
would be paid or received by the Portfolio upon the purchase or sale of a
futures contract. Upon entering into a futures contract, and to maintain the
Portfolio's open positions in futures contracts, the Portfolio would be required
to deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash, U.S. government securities, suitable money market
instruments, or other liquid securities, known as "initial margin." The margin
required for a particular futures contract is set by the exchange on which the
contract is traded, and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margins that may range upward from less than 5% of the
value of the contract being traded.
If the price of an open futures contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Portfolio.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuate making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." A Portfolio may or
may not earn interest income on its margin deposits. Although certain futures
contracts, by their terms, require actual future delivery of and payment for the
underlying instruments, in practice most futures contracts are usually closed
out before the delivery date. Closing out an open futures contract purchase or
sale is effected by entering into an offsetting futures contract purchase or
sale, respectively, for the same aggregate amount of the identical securities
and the same delivery date. If the offsetting purchase price is less than the
original sale price, the Portfolio realizes a gain; if it is more, the Portfolio
realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Portfolio realizes a gain; if it is less, the
Portfolio realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that a Portfolio will be able
to enter into an offsetting transaction with respect to a particular futures
contract at a particular time. If the Portfolio is not able to enter into an
offsetting transaction, the Portfolio will continue to be required to maintain
the margin deposits on the futures contract.
For example, one contract in the Financial Times Stock Exchange 100
Index future is a contract to buy 25 pounds sterling multiplied by the level of
the UK Financial Times 100 Share Index on a given future date. Settlement of a
stock index futures contract may or may not be in the underlying security. If
not in the underlying security, then settlement will be made in cash, equivalent
over time to the difference between the contract price and the actual price of
the underlying asset at the time the stock index futures contract expires.
Options on futures are similar to options on underlying instruments
except that options on futures give the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put), rather than to
purchase or sell the futures contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the futures position by the writer of the option to the holder of the option
will be accompanied by the delivery of the accumulated balance in the writer's
futures margin account which represents the amount by which the market price of
the futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures
contract. Alternatively, settlement may be made totally in cash. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
The writer of an option on a futures contract is required to deposit
margin pursuant to requirements similar to those applicable to futures
contracts. Upon exercise of an option on a futures contract, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Although financial futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery. Closing out
is accomplished by effecting an offsetting transaction. A futures contract sale
is closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would immediately pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
Commissions on financial futures contracts and related options
transactions may be higher than those which would apply to purchases and sales
of securities directly.
A public market exists in interest rate futures contracts covering
primarily the following financial instruments: U.S. Treasury bonds; U.S.
Treasury notes; Government National Mortgage Association ("GNMA") modified
pass-through mortgage-backed securities; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar certificates of
deposit. It is expected that Futures contracts trading in additional financial
instruments will be authorized. The standard contract size is generally $100,000
for Futures contracts in U.S. Treasury bonds, U.S. Treasury notes, and GNMA
pass-through securities and $1,000,000 for the other designated Futures
contracts. A public market exists in Futures contracts covering a number of
indexes, including, but not limited to, the Standard & Poor's 500 Index, the
Standard & Poor's 100 Index, the NASDAQ 100 Index, the Value Line Composite
Index and the New York Stock Exchange Composite Index.
Regulatory Matters. The Staff of Securities and Exchange Commission
("SEC") has taken the position that the purchase and sale of futures contracts
and the writing of related options may give rise to "senior securities" for the
purposes of the restrictions contained in Section 18 of the 1940 Act on
investment companies' issuing senior securities. However, the Staff has taken
the position that no senior security will be created if a Portfolio maintains in
a segregated account an amount of cash or other liquid assets at least equal to
the amount of the Portfolio's obligation under the futures contract or option.
Similarly, no senior security will be created if a Portfolio "covers" its
futures and options positions by owning corresponding positions or securities
underlying the positions that enable the Portfolio to close out its futures and
options positions without paying additional cash consideration. Each Portfolio
will conduct its purchases and sales of any futures contracts and writing of
related options transactions in accordance with these requirements.
Certain Risks Relating to Futures Contracts and Related Options. There are
special risks involved in futures transactions.
Volatility and Leverage. The prices of futures contracts are
volatile and are influenced, among other things, by actual and anticipated
changes in the market and interest rates, which in turn are affected by fiscal
and monetary policies and national and international policies and economic
events.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. However, the Portfolio would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be certain
that the Portfolio has sufficient assets to satisfy its obligations under a
futures contract, the Portfolio earmarks to the futures contract money market
instruments equal in value to the current value of the underlying instrument
less the margin deposit.
Liquidity. The Portfolio may elect to close some or all of
its futures positions at any time prior to their expiration. The Portfolio would
do so to reduce exposure represented by long futures positions or increase
exposure represented by short futures positions. The Portfolio may close its
positions by taking opposite positions which would operate to terminate the
Portfolio's position in the futures contracts. Final determinations of variation
margin would then be made, additional cash would be required to be paid by or
released to the Portfolio, and the Portfolio would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or board of
trade where the contracts were initially traded. Although the Portfolio intends
to purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid market
on an exchange or board of trade will exist for any particular contract at any
particular time. In such event, it might not be possible to close a futures
contract, and in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge the underlying
instruments, the Portfolio would continue to hold the underlying instruments
subject to the hedge until the futures contracts could be terminated. In such
circumstances, an increase in the price of the underlying instruments, if any,
might partially or completely offset losses on the futures contract. However, as
described below, there is no guarantee that the price of the underlying
instruments will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior, market or interest rate
trends. There are several risks in connection with the use by the Portfolio of
futures contracts as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the futures contracts and
movements in the prices of the underlying instruments which are the subject of
the hedge. Sub-advisor will, however, attempt to reduce this risk by entering
into futures contracts whose movements, in its judgment, will have a significant
correlation with movements in the prices of the Portfolio's underlying
instruments sought to be hedged.
Successful use of futures contracts by the Portfolio for hedging
purposes is also subject to a Sub-advisor's ability to correctly predict
movements in the direction of the market. It is possible that, when the
Portfolio has sold futures to hedge its portfolio against a decline in the
market, the index, indices, or underlying instruments on which the futures are
written might advance and the value of the underlying instruments held in the
Portfolio's portfolio might decline. If this were to occur, the Portfolio would
lose money on the futures and also would experience a decline in value in its
underlying instruments. However, while this might occur to a certain degree,
Sub-advisor may believe that over time the value of the Portfolio's portfolio
will tend to move in the same direction as the market indices which are intended
to correlate to the price movements of the underlying instruments sought to be
hedged. It is also possible that if the Portfolio were to hedge against the
possibility of a decline in the market (adversely affecting the underlying
instruments held in its portfolio) and prices instead increased, the Portfolio
would lose part or all of the benefit of increased value of those underlying
instruments that it has hedged, because it would have offsetting losses in its
futures positions. In addition, in such situations, if the Portfolio had
insufficient cash, it might have to sell underlying instruments to meet daily
variation margin requirements. Such sales of underlying instruments might be,
but would not necessarily be, at increased prices (which would reflect the
rising market). The Portfolio might have to sell underlying instruments at a
time when it would be disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures market are less
onerous than margin requirements in the securities markets, and as a result the
futures market might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market might also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by Sub-advisor might
not result in a successful hedging transaction over a very short time period.
Certain Risks of Options on Futures Contracts. The Portfolio may seek
to close out an option position by writing or buying an offsetting option
covering the same index, underlying instruments, or contract and having the same
exercise price and expiration date. The ability to establish and close out
positions on such options will be subject to the maintenance of a liquid
secondary market. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in the class or series of options)
would cease to exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders.
Foreign Futures and Options:
Participation in foreign futures and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of a
foreign board of trade. Neither the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of trade, including
the execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign board of trade or any applicable foreign
law. This is true even if the exchange is formally linked to a domestic market
so that a position taken on the market may be liquidated by a transaction on
another market. Moreover, such laws or regulations will vary depending on the
foreign country in which the foreign futures or foreign options transaction
occurs. For these reasons, customers who trade foreign futures or foreign
options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the CFTC's regulations and the rules of
the National Futures Association and any domestic exchange, including the right
to use reparations proceedings before the Commission and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
In particular, funds received from customers for foreign futures or foreign
options transactions may not be provided the same protections as funds received
in respect of transactions on United States futures exchanges. In addition, the
price of any foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance in the foreign
exchange rate between the time your order is placed and the time it is
liquidated, offset or exercised.
Forward Foreign Currency Exchange Contracts. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are principally traded in the interbank market
conducted directly between currency traders (usually large, commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades.
Depending on the applicable investment policies and restrictions
applicable to a Portfolio, a Portfolio may generally enter into forward foreign
currency exchange contracts under two circumstances. First, when a Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency involved in the
underlying security transactions, the Portfolio may be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
Second, when a Sub-advisor believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, including the U.S. dollar, it may enter into a forward contract to
sell or buy the amount of the former foreign currency, approximating the value
of some or all of the Portfolio's securities denominated in such foreign
currency. Alternatively, where appropriate, the Portfolio may hedge all or part
of its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currencies or currency act as an effective proxy for
other currencies. In such a case, the Portfolio may enter into a forward
contract where the amount of the foreign currency to be sold exceeds the value
of the securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Portfolio. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver. However, as noted, in
order to avoid excessive transactions and transaction costs, the Portfolio may
use liquid, high-grade debt securities, denominated in any currency, to cover
the amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
Currency Futures Contracts and Related Options. A currency futures
contract sale creates an obligation by a Portfolio, as seller, to deliver the
amount of currency called for in the contract at a specified future time for a
special price. A currency futures contract purchase creates an obligation by a
Portfolio, as purchaser, to take delivery of an amount of currency at a
specified future time at a specified price. Unlike forward foreign currency
exchange contracts, currency futures contracts and options on currency futures
contracts are standardized as to amount and delivery period and are traded on
boards of trade and commodities exchanges. Although the terms of currency
futures contracts specify actual delivery or receipt, in most instances the
contracts are closed out before the settlement date without the making or taking
of delivery of the currency. Closing out of a currency futures contract is
effected by entering into an offsetting purchase or sale transaction. Unlike a
currency futures contract, which requires the parties to buy and sell currency
on a set date, an option on a currency futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is fixed at the point of sale.
Interest Rate Swaps and Interest Rate Caps and Floors:
Interest rate swaps involve the exchange by the Portfolio with another
party of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments. The exchange
commitments can involve payments to be made in the same currency or in different
currencies. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually based principal amount from the party
selling the interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a contractually based
principal amount from the party selling the interest rate floor.
Hybrid Instruments:
Hybrid instruments combine the elements of futures contracts or options
with those of debt, preferred equity or a depository instrument. The risks of
investing in hybrid instruments reflect a combination of the risks from
investing in securities, futures and currencies, including volatility and lack
of liquidity. Reference is made to the discussion of futures and forward
contracts in this Statement for a discussion of these risks. Further, the prices
of the hybrid instrument and the related commodity or currency may not move in
the same direction or at the same time. Hybrid instruments may bear interest or
pay preferred dividends at below market (or even relatively nominal) rates. In
addition, because the purchase and sale of hybrid instruments could take place
in an over-the-counter market or in a private transaction between the Portfolio
and the seller of the hybrid instrument, the creditworthiness of the contra
party to the transaction would be a risk factor which the Portfolio would have
to consider. Hybrid instruments also may not be subject to regulation of the
CFTC, which generally regulates the trading of commodity futures by U.S.
persons, the SEC, which regulates the offer and sale of securities by and to
U.S. persons, or any other governmental regulatory authority.
Zero-Coupon Securities:
Zero-coupon securities pay no cash income and are sold at substantial
discounts from their value at maturity. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. Zero-coupon securities are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest (cash). Zero-coupon securities which are convertible into common stock
offer the opportunity for capital appreciation as increases (or decreases) in
market value of such securities closely follows the movements in the market
value of the underlying common stock. Zero-coupon convertible securities
generally are expected to be less volatile than the underlying common stocks, as
they usually are issued with maturities of 15 years or less and are issued with
options and/or redemption features exercisable by the holder of the obligation
entitling the holder to redeem the obligation and receive a defined cash
payment.
Zero-coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRSTM) and Certificate of Accrual on Treasuries
(CATSTM). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Portfolio, most
likely will be deemed the beneficial holder of the underlying U.S. Government
securities.
The U.S. Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Portfolio will be able to have its beneficial ownership of zero-coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero-coupon securities that the Treasury sells
itself.
When-Issued Securities:
The price of when-issued securities, which may be expressed in yield
terms, is fixed at the time the commitment to purchase is made, but delivery and
payment for the when-issued securities take place at a later date. Normally, the
settlement date occurs within 90 days of the purchase. During the period between
purchase and settlement, no payment is made by a Portfolio to the issuer and no
interest accrues to the Portfolio. Forward commitments involve a risk of loss if
the value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of a Portfolio's other
assets. While when-issued securities may be sold prior to the settlement date,
the Portfolios generally will purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
Mortgage-Backed Securities:
When a Portfolio owns a mortgage-backed security, principal and
interest payments made on the mortgages in an underlying mortgage pool are
passed through to the Portfolio. Unscheduled prepayments of principal shorten
the securities' weighted average life and may lower their total return. (When a
mortgage in the underlying mortgage pool is prepaid, an unscheduled principal
prepayment is passed through to the Portfolio. This principal is returned to the
Portfolio at par. As a result, if a mortgage security were trading at a premium,
its total return would be lowered by prepayments, and if a mortgage securities
were trading at a discount, its total return would be increased by prepayments.)
The value of these securities also may change because of changes in the market's
perception of the creditworthiness of the federal agency that issued them. In
addition, the mortgage securities market in general may be adversely affected by
changes in governmental regulation or tax policies.
Asset-Backed Securities:
Asset-backed securities directly or indirectly represent a
participation interest in, or are secured by and payable from, a stream of
payments generated by particular assets such as motor vehicle or credit card
receivables. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities.
Asset-backed securities may be classified as pass-through certificates or
collateralized obligations.
Pass-through certificates are asset-backed securities which represent
an undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
pass-through certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support. See "Types
of Credit Support."
Asset-backed securities issued in the form of debt instruments, also
known as collateralized obligations, are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. Such assets are most often trade, credit card or
automobile receivables. The assets collateralizing such asset-backed securities
are pledged to a trustee or custodian for the benefit of the holders thereof.
Such issuers generally hold no assets other than those underlying the
asset-backed securities and any credit support provided. As a result, although
payments on such asset-backed securities are obligations of the issuers, in the
event of defaults on the underlying assets not covered by any credit support
(see "Types of Credit Support"), the issuing entities are unlikely to have
sufficient assets to satisfy their obligations on the related asset-backed
securities.
Methods of Allocating Cash Flows. While many asset-backed securities
are issued with only one class of security, many asset-backed securities are
issued in more than one class, each with different payment terms. Multiple class
asset-backed securities are issued for two main reasons. First, multiple classes
may be used as a method of providing credit support. This is accomplished
typically through creation of one or more classes whose right to payments on the
asset-backed security is made subordinate to the right to such payments of the
remaining class or classes. See "Types of Credit Support." Second, multiple
classes may permit the issuance of securities with payment terms, interest rates
or other characteristics differing both from those of each other and from those
of the underlying assets. Examples include so-called "strips" (asset-backed
securities entitling the holder to disproportionate interests with respect to
the allocation of interest and principal of the assets backing the security),
and securities with a class or classes having characteristics which mimic the
characteristics of non-asset-backed securities, such as floating interest rates
(i.e., interest rates which adjust as a specified benchmark changes) or
scheduled amortization of principal.
Asset-backed securities in which the payment streams on the underlying
assets are allocated in a manner different than those described above may be
issued in the future. The Portfolio may invest in such asset-backed securities
if such investment is otherwise consistent with its investment objectives and
policies and with the investment restrictions of the Portfolio.
Types of Credit Support. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two classes: liquidity protection and protection against ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that scheduled payments on the underlying pool are made in a
timely fashion. Protection against ultimate default ensures ultimate payment of
the obligations on at least a portion of the assets in the pool. Such protection
may be provided through guarantees, insurance policies or letters of credit
obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches. Examples of
asset-backed securities with credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class
asset-backed securities with certain classes subordinate to other classes as to
the payment of principal thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class) and
asset-backed securities that have "reserve portfolios" (where cash or
investments, sometimes funded from a portion of the initial payments on the
underlying assets, are held in reserve against future losses) or that have been
"over collateralized" (where the scheduled payments on, or the principal amount
of, the underlying assets substantially exceeds that required to make payment of
the asset-backed securities and pay any servicing or other fees). The degree of
credit support provided on each issue is based generally on historical
information respecting the level of credit risk associated with such payments.
Delinquency or loss in excess of that anticipated could adversely affect the
return on an investment in an asset-backed security. Additionally, if the letter
of credit is exhausted, holders of asset-backed securities may also experience
delays in payments or losses if the full amounts due on underlying sales
contracts are not realized.
Automobile Receivable Securities. Asset-backed securities may be backed
by receivables from motor vehicle installment sales contracts or installment
loans secured by motor vehicles ("Automobile Receivable Securities"). Since
installment sales contracts for motor vehicles or installment loans related
thereto ("Automobile Contracts") typically have shorter durations and lower
incidences of prepayment, Automobile Receivable Securities generally will
exhibit a shorter average life and are less susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create an
enforceable interest in their respective Automobile Contracts only by filing a
financing statement and by having the servicer of the Automobile Contracts,
which is usually the originator of the Automobile Contracts, take custody
thereof. In such circumstances, if the servicer of the Automobile Contracts were
to sell the same Automobile Contracts to another party, in violation of its
obligation not to do so, there is a risk that such party could acquire an
interest in the Automobile Contracts superior to that of the holders of
Automobile Receivable Securities. Also although most Automobile Contracts grant
a security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to create an enforceable security interest against competing claims of other
parties. Due to the large number of vehicles involved, however, the certificate
of title to each vehicle financed, pursuant to the Automobile Contracts
underlying the Automobile Receivable Security, usually is not amended to reflect
the assignment of the seller's security interest for the benefit of the holders
of the Automobile Receivable Securities. Therefore, there is the possibility
that recoveries on repossessed collateral may not, in some cases, be available
to support payments on the securities. In addition, various state and federal
securities laws give the motor vehicle owner the right to assert against the
holder of the owner's Automobile Contract certain defenses such owner would have
against the seller of the motor vehicle. The assertion of such defenses could
reduce payments on the Automobile Receivable Securities.
Credit Card Receivable Securities. Asset-backed securities may be
backed by receivables from revolving credit card agreements ("Credit Card
Receivable Securities"). Credit balances on revolving credit card agreements
("Accounts") are generally paid down more rapidly than are Automobile Contracts.
Most of the Credit Card Receivable Securities issued publicly to date have been
Pass-Through Certificates. In order to lengthen the maturity of Credit Card
Receivable Securities, most such securities provide for a fixed period during
which only interest payments on the underlying Accounts are passed through to
the security holder and principal payments received on such Accounts are used to
fund the transfer to the pool of assets supporting the related Credit Card
Receivable Securities of additional credit card charges made on an Account. The
initial fixed period usually may be shortened upon the occurrence of specified
events which signal a potential deterioration in the quality of the assets
backing the security, such as the imposition of a cap on interest rates. The
ability of the issuer to extend the life of an issue of Credit Card Receivable
Securities thus depends upon the continued generation of additional principal
amounts in the underlying accounts during the initial period and the
non-occurrence of specified events. An acceleration in cardholders' payment
rates or any other event which shortens the period during which additional
credit card charges on an Account may be transferred to the pool of assets
supporting the related Credit Card Receivable Security could shorten the
weighted average life and yield of the Credit Card Receivable Security.
Credit card holders are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such holder the right to
set off certain amounts against balances owed on the credit card, thereby
reducing amounts paid on Accounts. In addition, unlike most other asset-backed
securities, Accounts are unsecured obligations of the cardholder.
Warrants:
Investments in warrants is speculative in that warrants have no voting
rights, pay no dividends, and have no rights with respect to the assets of the
corporation issuing them. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of time. They do not
represent ownership of the securities but only the right to buy them. Warrants
differ from call options in that warrants are issued by the issuer of the
security which may be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not necessarily move
parallel to the prices of the underlying securities.
Certain Risks of Foreign Investing:
Currency Fluctuations. Investment in securities denominated in foreign
currencies involves certain risks. A change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of a Portfolio's assets denominated in that currency. Such changes will
also affect a Portfolio's income. Generally, when a given currency appreciates
against the dollar (the dollar weakens) the value of a Portfolio's securities
denominated in that currency will rise. When a given currency depreciates
against the dollar (the dollar strengthens). The value of a Portfolio's
securities denominated in that currency would be expected to decline.
Investment and Repatriation Restrictions. Foreign investment in the
securities markets of certain foreign countries is restricted or controlled in
varying degrees. These restrictions may at times limit or preclude investment in
certain of such countries and may increase the cost and expenses of a Portfolio.
Investments by foreign investors are subject to a variety of restrictions in
many developing countries. These restrictions may take the form of prior
governmental approval, limits on the amount or type of securities held by
foreigners, and limits on the types of companies in which foreigners may invest.
Additional or different restrictions may be imposed at any time by these or
other countries in which a Portfolio invests. In addition, the repatriation of
both investment income and capital from several foreign countries is restricted
and controlled under certain regulations, including in some cases the need for
certain government consents.
Market Characteristics. Foreign securities may be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as, and may be more volatile than, those
in the United States. While growing in volume, they usually have substantially
less volume than U.S. markets and a Portfolio's securities may be less liquid
and more volatile than securities of comparable U.S. companies. Equity
securities may trade at price/earnings multiples higher than comparable U.S.
securities and such levels may not be sustainable. Fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although a Portfolio will endeavor to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than in the United States. Moreover, settlement practices for
transactions in foreign markets may differ from those in U.S. markets, and may
include delays beyond periods customary in the United States.
Political and Economic Factors. Individual foreign economies of
certain countries may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The internal politics of certain foreign countries are not as stable
as in the United States.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies of
many foreign countries are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and economic conditions of
their trading partners. The enactment by these trading partners of protectionist
trade legislation could have a significant adverse effect upon the securities
markets of such countries.
Information and Supervision. There is generally less publicly
available information about foreign companies comparable to reports and ratings
that are published about companies in the United States. Foreign companies are
also generally not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S.
companies.
Taxes. The dividends and interest payable on certain of a Portfolio's
foreign securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Portfolio's
shareholders. A shareholder otherwise subject to U.S. federal income taxes may,
subject to certain limitations, be entitled to claim a credit or deduction for
U.S. federal income tax purposes for his or her proportionate share of such
foreign taxes paid by the Portfolio.
Costs. Investors should understand that the expense ratio of the
Portfolio can be expected to be higher than investment companies investing in
domestic securities since the cost of maintaining the custody of foreign
securities and the rate of advisory fees paid by the Portfolio are higher.
Other. With respect to certain foreign countries, especially
developing and emerging ones, there is the possibility of adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of the Portfolio,
political or social instability, or diplomatic developments which could affect
investments by U.S. persons in those countries.
Eastern Europe. Changes occurring in Eastern Europe and Russia today
could have long-term potential consequences. As restrictions fall, this could
result in rising standards of living, lower manufacturing costs, growing
consumer spending, and substantial economic growth. However, investment in the
countries of Eastern Europe and Russia is highly speculative at this time.
Political and economic reforms are too recent to establish a definite trend away
from centrally-planned economies and state owned industries. In many of the
countries of Eastern Europe and Russia, there is no stock exchange or formal
market for securities. Such countries may also have government exchange
controls, currencies with no recognizable market value relative to the
established currencies of western market economies, little or no experience in
trading in securities, no financial reporting standards, a lack of a banking and
securities infrastructure to handle such trading, and a legal tradition which
does not recognize rights in private property. In addition, these countries may
have national policies which restrict investments in companies deemed sensitive
to the country's national interest. Further, the governments in such countries
may require governmental or quasi-governmental authorities to act as custodian
of the Portfolio's assets invested in such countries and these authorities may
not qualify as a foreign custodian under the 1940 Act and exemptive relief from
such Act may be required. All of these considerations are among the factors
which could cause significant risks and uncertainties to investment in Eastern
Europe and Russia.
Latin America. The political history of certain Latin American
countries has been characterized by political uncertainty, intervention by the
military in civilian and economic spheres, and political corruption. Such
developments, if they were to reoccur, could reverse favorable trends toward
market and economic reform, privatization and removal of trade barriers and
result in significant disruption in securities markets. Persistent levels of
inflation or in some cases, hyperinflation, have led to high interest rates,
extreme measures by governments to keep inflation in check and a generally
debilitating effect on economic growth. Although inflation in many countries has
lessened, there is no guarantee it will remain at lower levels. In addition, a
number of Latin American countries are also among the largest debtors of
developing countries. There have been moratoria on, and reschedulings of,
repayment with respect to these debts. Such events can restrict the flexibility
of these debtor nations in the international markets and result in the
imposition of onerous conditions on their economics.
Certain Latin American countries may have managed currencies which are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. Certain Latin American countries also may restrict
the free conversion of their currency into foreign currencies, including the
U.S. dollar. There is no significant foreign exchange market for certain
currencies and it would, as a result, be difficult for the Portfolio to engage
in foreign currency transactions designed to protect the value of the
Portfolio's interests in securities denominated in such currencies.
Securities Lending:
The Trust has made arrangements for certain Portfolios to lend
securities. While a Portfolio may earn additional income from lending
securities, such activity is incidental to the investment objective of the
Portfolio. In addition to the compensation payable by borrowers under securities
loans, a Portfolio would also earn income from the investment of cash collateral
for such loans. Any cash collateral received by a Portfolio in connection with
such loans normally will be invested in high-quality money market securities.
However, any losses resulting from the investment of cash collateral would be
borne by the lending Portfolio. There is no assurance that collateral for loaned
securities will be sufficient to provide for recovery of interest, dividends, or
other distributions paid in respect of loaned securities and not received by a
Portfolio or to pay all expenses incurred by a Portfolio in arranging the loans
or in exercising rights in the collateral in the event that loaned securities
are not returned.
PORTFOLIO TURNOVER: High turnover involves correspondingly greater
brokerage commissions and other transaction costs. Portfolio turnover
information can be found in the Trust's Prospectus under "Financial Highlights"
and "Portfolio Turnover."
Over the past two fiscal years the following Portfolios experienced
significant variation in their portfolio turnover rates. The turnover rate for
the AST Neuberger Berman Mid-Cap Value Portfolio (formerly, the Federated
Utility Income Portfolio) for the years ended December 31, 1997 and 1998 were
91% and 208% respectively. Neuberger Berman Management, Inc. became the
Portfolio's Sub-advisor on May 1, 1998, and manages the Portfolio with an
anticipated annual rate of turnover not to exceed 150%. The turnover rate for
the AST PIMCO Limited Maturity Bond Portfolio for the year ended December 31,
1997 was 54% and for the year ended December 31, 1998 was 263%. The Portfolio's
turnover rate increased in 1998 as the result of the Portfolio's increased use
of certain derivative instruments.
The annual rates of turnover for the AST Lord Abbett Small Cap Value
Portfolio, the AST Marsico Capital Growth Portfolio, the AST Bankers Trust
Enhanced 500 Portfolio, and the AST Cohen & Steers Realty Portfolio, which were
first publicly offered in December 1997 or January 1998, are not anticipated to
exceed 100%, 200%, 100%, and 150%, respectively, under normal market conditions.
The turnover rate for the AST Kemper Small-Cap Growth Portfolio, which was first
publicly offered on January 4, 1999, is not anticipated to exceed 250% under
normal market conditions. The policy of the AST Money Market Portfolio of
investing only in securities maturing 397 days or less from the date of
acquisition or purchased pursuant to repurchase agreements that provide for
repurchase by the seller within 397 days from the date of acquisition will
result in a high portfolio turnover rate.
ORGANIZATION AND MANAGEMENT OF THE TRUST: The Trust is a managed, open-end
investment company organized as a Massachusetts business trust, whose separate
Portfolios are diversified, unless otherwise indicated. As of the date of this
Prospectus, twenty-eight Portfolios are available. The Trust may offer
additional Portfolios with a range of investment objectives that Participating
Insurance Companies may consider suitable for variable annuities and variable
life insurance policies or that may be considered suitable for Qualified Plans.
The Trust's current approach to achieving this goal is to seek to have multiple
organizations unaffiliated with each other be responsible for conducting the
investment programs for the Portfolios. Each such organization would be
responsible for the Portfolio or Portfolios to which such organization's
expertise is best suited.
Formerly, the Trust was known as the Henderson International Growth
Fund, which consisted of only one Portfolio. The Investment Manager was
Henderson International, Inc. Shareholders of what was, at the time, the
Henderson International Growth Fund, approved certain changes in a meeting held
April 17, 1992. These changes included engagement of a new Investment Manager,
engagement of a Sub-advisor and election of new Trustees. Subsequent to that
meeting, the new Trustees adopted a number of resolutions, including, but not
limited to, resolutions renaming the Trust. Since that time the Trustees have
adopted a number of resolutions, including, but not limited to, making new
Portfolios available and adopting forms of Investment Management Agreements and
Sub-advisory Agreements between the Investment Manager and the Trust and the
Investment Manager and each Sub-advisor, respectively.
American Skandia Life Assurance Corporation, a Participating Insurance
Company, 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 (the principal
underwriter for various annuities deemed to be securities for American Skandia
Life Assurance Corporation) and American Skandia Investment Holding Corporation.
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.
The overall management of the business and affairs of the Trust is
vested with the Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust and persons or companies furnishing
services to the Trust, including the Trust's agreements with the Investment
Manager, Administrator, Custodian and Transfer and Shareholder Servicing Agent
and the agreements between the Investment Manager and each Sub-advisor. The
day-to-day operations of the Trust are delegated to the Trust's officers subject
always to the investment objectives and policies of the Trust and to the general
supervision of the Board of Trustees.
The Trustees and officers of the Trust and their principal occupations
are listed below. Unless otherwise indicated, the address of each Trustee and
executive officer is One Corporate Drive, Shelton, Connecticut 06484:
<TABLE>
<CAPTION>
Name, Office and Age Principal Occupation
<S> <C>
John Birch+ Chief Operating Officer:
Vice President (48) American Skandia Investment Services, Incorporated
December 1997 to present
Executive Vice President and
Chief Operating Officer
International Fund Administration
Bermuda
August 1996 to October 1997
Senior Vice President and
Chief Administrative Officer
Gabelli Funds, Inc.
Rye, New York
March 1995 to August 1996
Executive Vice President
Kansallis Osake Pankki
New York, New York
May 1985 to March 1995
Gordon C. Boronow*+ President and Chief Operating Officer:
Vice President and Trustee (46) American Skandia Life Assurance Corporation
June 1989 to present
Jan R. Carendi*+ Senior Executive Vice President and
President, Principal Executive Officer Member of Corporate Management Group:
and Trustee (54) Skandia Insurance Company Ltd.
September 1986 to present
David E. A. Carson Chairman
Trustee (64) People's Bank
850 Main Street
Bridgeport, Connecticut 06604
January 1999 to present
Chairman and Chief Executive Officer:
People's Bank
January 1998 to December 1998
President, Chairman and Chief Executive Officer:
People's Bank
1983 to December 1997
Richard G. Davy, Jr.*+ Vice President
Treasurer (50) (June 1997 to present)
Controller (September 1994 to June 1997)
American Skandia Investment
Services, Incorporated
Management Consultant
December 1991 to September 1994
Eric. C. Freed* Securities Counsel and Senior Counsel, Securities
Secretary (36) American Skandia Investment Holding Corporation
December 1996 to present;
Attorney, Senior Attorney and Special Counsel,
U.S. Securities and Exchange Commission
March 1991 to November 1996
Julian A. Lerner Semi-retired since 1995; Senior Vice President
Trustee (74) and Portfolio Manager of AIM Charter Fund
and AIM Summit Fund from 1986 to 1995:
12850 Spurling Road -- Suite 208
Dallas, Texas 75230
Thomas M. Mazzaferro Executive Vice President and
Trustee (46)* Chief Financial Officer
American Skandia Life Assurance Corporation
April 1988 to present
Thomas M. O'Brien Vice Chairman
Trustee (48) North Fork Bank
275 Broad Hollow Road
Melville, NY 11747;
January 1997 to present
President and Chief Executive Officer:
North Side Savings Bank
170 Tulip Avenue
Floral Park, New York 11001
December 1984 to December 1996
F. Don Schwartz Management Consultant:
Trustee (63) 1101 Penn Grant Road
Lancaster, PA 17602
April 1985 to present
</TABLE>
* Interested person as defined in the 1940 Act.
+ Unless otherwise indicated, each officer and Trustee listed above has held
his/her principal occupation for at least the last five years. In addition to
the principal occupations noted above, the following officers and Trustees of
the Trust hold various positions with American Skandia Investment Services,
Incorporated ("ASISI"), the Trust's Investment Manager, and its affiliates,
including American Skandia Life Assurance Corporation ("ASLAC"), American
Skandia Marketing, Incorporated ("ASM"), American Skandia Information Services
and Technology Corporation ("ASIST") or American Skandia Investment Holding
Corporation ("ASIHC"): Mr. Boronow also serves as Executive Vice President,
Deputy Chief Executive Officer and a Director of ASIHC, and a Director of ASLAC,
ASISI, ASM and ASIST; Mr. Carendi also serves as Chairman, President, Chief
Executive Officer and a Director of ASIHC, and Chief Executive Officer and a
Director of ASLAC, ASISI, ASM and ASIST; Mr. Davy also serves as a Director of
ASISI. Mr. Mazzaferro also serves as Executive Vice President and Chief
Financial Officer of ASIHC, ASM and ASIST, and President and Chief Financial
Officer of ASISI.
The interested Trustees and officers of the Trust do not receive
compensation directly from the Trust for serving in such capacities. However,
those officers and Trustees of the Trust who are affiliated with the Investment
Manager may receive remuneration indirectly, as the Investment Manager will
receive fees from the Trust for the services it provides. Each of the other
Trustees receives an annual fee paid by the Trust plus expenses for each meeting
of the Board and of shareholders which he attends. Compensation received during
the year ended December 31, 1998 by the Trustees who are not interested persons
was as follows:
<TABLE>
<CAPTION>
Aggregate Compensation from Total Compensation from Registrant and
Name of Trustee ---------------------------------------- Fund Complex Paid to Trustee(1)
Registrant
- ------------------------------------------- -----------------------------------------
<S> <C> <C>
David E. A. Carson $49,400 $77,875
Julian A. Lerner 47,900 76,375
Thomas M. O'Brien 49,400 77,875
F. Don Schwartz 49,400 77,875
</TABLE>
(1) As of the date of this Statement, the "Fund Complex" consisted of the
Trust, American Skandia Advisor Funds, Inc. ("ASAF"), and American Skandia
Master Trust ("ASMT").
The Trust does not offer pension or retirement benefits to its
Trustees.
Under the terms of the Massachusetts General Corporation Law, the Trust
may indemnify any person who was or is a Trustee, officer or employee of the
Trust to the maximum extent permitted by the Massachusetts General Corporation
Law; provided, however, that any such indemnification (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon a
determination that indemnification of such persons is proper in the
circumstances. Such determination shall be made (i) by the Board of Trustees, by
a majority vote of a quorum which consists of Trustees who are neither
"interested persons" of the Trust as defined in Section 2(a)(19) of the 1940 Act
(the "1940 Act"), nor parties to the proceeding, or (ii) if the required quorum
is not obtainable or if a quorum of such Trustees so directs by independent
legal counsel in a written opinion. No indemnification will be provided by the
Trust to any Trustee or officer of the Trust for any liability to the Trust or
its shareholders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
INVESTMENT ADVISORY AND OTHER SERVICES:
Investment Advisory Services: The Trust has entered into investment
management agreements with the Investment Manager (the "Management Agreements").
The Investment Manager furnishes each Portfolio with investment advice and
certain administrative services with respect to the applicable Portfolio's
assets subject to the supervision of the Board of Trustees and in conformity
with the stated policies of the applicable Portfolio. The Investment Manager has
engaged the Sub-advisors noted on the cover of this Statement to conduct the
various investment programs of each Portfolio pursuant to separate sub-advisory
agreements with the Investment Manager.
Under the terms of the Management Agreements, the Investment Manager
furnishes, at its expense, such personnel as is required by each Portfolio for
the proper conduct of its affairs and engages the Sub-advisors to conduct the
investment programs pursuant to the Investment Manager's obligations under the
Management Agreements. The Investment Manager, not the Trust, is responsible for
the expenses of conducting the investment programs. The Sub-advisor is
responsible for the expenses of conducting the investment programs in relation
to the applicable Portfolio pursuant to agreements between the Investment
Manager and each Sub-advisor. Each Portfolio pays all of its other expenses,
including but not limited to, brokerage commissions, legal, auditing, taxes or
governmental fees, the cost of preparing share certificates, custodian,
depository, transfer and shareholder servicing agent costs, expenses of issue,
sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, insurance premiums on property or personnel
(including officers and Trustees if available) of the Trust which inure to its
benefit, expenses relating to Trustee and shareholder meetings, the cost of
preparing and distributing reports and notices to shareholders, the fees and
other expenses incurred by the Trust in connection with membership in investment
company organizations and the cost of printing copies of prospectuses and
statements of additional information distributed to shareholders. Expenses
incurred by the Trust not directly attributable to any specific Portfolio or
Portfolios are allocated on the basis of the net assets of the respective
Portfolios.
Under the terms of the Management Agreements, the Investment Manager is
permitted to render services to others. The Management Agreements provide that
neither the Investment Manager nor its personnel shall be liable for any error
of judgment or mistake of law or for any act or omission in the administration
or management of the applicable Portfolios, except for willful misfeasance, bad
faith or gross negligence in the performance of its or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Management Agreements.
The Investment Management fees payable by each Portfolio to the Investment
Manager are as follows. Investment Management fees are payable monthly and are
accrued daily for purposes of determining the net asset values of the
Portfolios.
AST Founders Passport Portfolio: An annual rate of 1.0% of the average
daily net assets of the Portfolio.
AST T. Rowe Price International Equity Portfolio: An annual rate of 1.0% of
the average daily net assets of the Portfolio.
AST AIM International Equity Portfolio: An annual rate of 1.0% of the
average daily net assets of the Portfolio not in excess of $75 million; plus
.85% of the Portfolio's average daily net assets over $75 million.
AST Janus Overseas Growth Portfolio: An annual rate of 1.0% of the average
daily net assets of the Portfolio.
AST American Century International Growth Portfolio: An annual rate of 1.0%
of the average daily net assets of the Portfolio.
AST Janus Small-Cap Growth Portfolio: An annual rate of .90% of the average
daily net assets of the Portfolio.
AST Kemper Small-Cap Growth Portfolio: An annual rate of .95% of the
portion of the average daily net assets of the Portfolio not in excess of $1
billion; plus .90% of the portion of the net assets over $1 billion.
AST Lord Abbett Small Cap Value Portfolio: An annual rate of 0.95% of the
average daily net assets of the Portfolio.
AST T. Rowe Price Small Company Value Portfolio: An annual rate of .90% of
the average daily net assets of the Portfolio.
AST Neuberger Berman Mid-Cap Growth Portfolio: An annual rate of .90%
of the portion of the average daily net assets of the Portfolio not in excess of
$1 billion; plus .85% of the portion of the net assets over $1 billion. Prior to
May 1, 1998, the Investment Manager had engaged Berger Associates, Inc. as
Sub-advisor for the Portfolio (formerly, the Berger Capital Growth Portfolio),
for a total Investment Management fee of .75% of the average daily net assets of
the Portfolio.
AST Neuberger Berman Mid-Cap Value Portfolio: An annual rate of .90% of
the portion of the average daily net assets of the Portfolio not in excess of $1
billion; plus .85% of the portion of the net assets over $1 billion. Prior to
May 1, 1998, the Investment Manager had engaged Federated Investment Counseling
as Sub-advisor for the Portfolio (formerly, the Federated Utility Income
Portfolio), for a total Investment Management fee equal to .75% of the first $50
million of the average daily net assets of the Portfolio; plus .60% of the
Portfolio's average daily net assets in excess of $50 million.
AST T. Rowe Price Natural Resources Portfolio: An annual rate of .90% of
the average daily net assets of the Portfolio.
AST Oppenheimer Large-Cap Growth Portfolio: An annual rate of .90% of
the portion of the average daily net assets of the Portfolio not in excess of $1
billion; plus .85% of the portion of the net assets over $1 billion. Prior to
January 1, 1999, the Investment Manager had engaged Robertson, Stephens &
Company Investment Management, L.P. as Sub-advisor for the Portfolio (formerly
the Robertson Stephens Value + Growth Portfolio), for a total Investment
Management fee of 1.00% of the average daily net assets of the Portfolio.
AST Marsico Capital Growth Portfolio: An annual rate of .90% of the average
daily net assets of the Portfolio.
AST JanCap Growth Portfolio: An annual rate of .90% of the average
daily net assets of the Portfolio. The Investment Manager has voluntarily agreed
to waive a portion of its fee equal to .05% of the average daily net assets of
the Portfolio in excess of $1 billion. The Investment Manager may terminate this
voluntary agreement at any time.
AST Bankers Trust Enhanced 500 Portfolio: An annual rate of .60% of the
average daily net assets of the Portfolio
AST Cohen & Steers Realty Portfolio: An annual rate of 1.00% of the average
daily net assets of the Portfolio.
AST American Century Income & Growth Portfolio: An annual rate of .75% of
the average daily net assets of the Portfolio.
AST Lord Abbett Growth and Income Portfolio: An annual rate of .75% of
the average daily net assets of the Portfolio. The Investment Manager has
voluntarily agreed to waive a portion of its fee equal to .05% of the average
daily net assets of the Portfolio in excess of $1 billion. The Investment
Manager may terminate this voluntary agreement at any time.
AST INVESCO Equity Income Portfolio: An annual rate of .75% of the average
daily net assets of the Portfolio.
AST AIM Balanced Portfolio: An annual rate of .75% of the average daily
net assets of the Portfolio not in excess of $300 million; plus .70% of the
Portfolio's average daily net assets in excess of $300 million.
AST American Century Strategic Balanced Portfolio: An annual rate of .85%
of the average daily net assets of the Portfolio.
AST T. Rowe Price Asset Allocation Portfolio: An annual rate of .85% of the
average daily net assets of the Portfolio.
AST T. Rowe Price International Bond Portfolio: An annual rate of .80% of
the average daily net assets of the Portfolio.
AST Federated High Yield Portfolio: An annual rate of .75% of the average
daily net assets of the Portfolio.
AST PIMCO Total Return Bond Portfolio: An annual rate of .65% of the
average daily net assets of the Portfolio.
AST PIMCO Limited Maturity Bond Portfolio: An annual rate of .65% of the
average daily net assets of the Portfolio.
AST Money Market Portfolio: An annual rate of .50% of the average daily net
assets of the Portfolio. The Investment Manager has voluntarily agreed to waive
a portion of its fee equal to .05% of the average daily net assets of the
Portfolio. The Investment Manager may terminate this voluntary agreement at any
time.
The investment management fee paid for each of the past three fiscal years by
each Portfolio that was publicly offered prior to January 1999 was as follows:
<TABLE>
<CAPTION>
Investment Management Fees
---------------------------- --------------------------- ---------------------------
1996 1997 1998
---------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
AST Founders Passport 778,018 1,257,908 1,219,424
AST T. Rowe Price International Equity 3,011,378 4,640,262 4,652,136
AST AIM International Equity 2,771,876 3,428,762 4,130,785
AST Janus Overseas Growth 0 1,260,797 4,344,867
AST American Century International Growth 0 157,826 563,488
AST Janus Small-Cap Growth 1,240,016 2,219,824 2,287,914
AST Lord Abbett Small-Cap Value Portfolio 0 0 201,415
AST T. Rowe Price Small Company Value 0 713,045 2,424,142
AST Neuberger Berman Mid-Cap Growth 683,999 1,259,790 1,781,639
AST Neuberger Berman Mid-Cap Value 764,844 886,649 1,715,060
AST T. Rowe Price Natural Resources 351,569 986,496 869,131
AST Oppenheimer Large-Cap Growth 117,917 1,501,894 2,694,595
AST Marsico Capital Growth 0 1,568 2,445,668
AST JanCap Growth 5,726,567 11,384,457 18,383,344
AST Banker Trust Enhanced 500 Portfolio 0 0 765,065
AST Cohen & Steers Realty Portfolio 0 0 216,821
AST American Century Income & Growth 0 416,420 1,164,962
AST Lord Abbett Growth and Income 2,881,119 5,424,483 7,877,722
AST INVESCO Equity Income 1,883,792 3.565.372 5,340,931
AST AIM Balanced 1,828,306 2,387,734 2,860,309
AST American Century Strategic Balanced 0 115,602 431,573
AST T. Rowe Price Asset Allocation 727,787 1,413,730 2,280,871
AST T. Rowe Price International Bond 595,953 941,760 1,125,770
AST Federated High Yield 991,953 2,345,042 4,021,190
AST PIMCO Total Return Bond 1,895,849 2,979,876 4,772,121
AST PIMCO Limited Maturity Bond 1,239,854 1,649,461 2,060,437
AST Money Market 2,092,880 2,941,160 4,190,913
The sub-advisory fee paid by the Investment Manager to the Sub-advisors for each
such Portfolio for each of the past three fiscal years was as follows:
Sub-Advisory Fees
---------------------------- --------------------------- ---------------------------
1996 1997 1998
---------------------------- --------------------------- ---------------------------
AST Founders Passport(1) 463,898 728,954 709,671
AST T. Rowe Price International Equity 1,532,137 2,320,131 2,221,182
AST AIM International Equity(2) 1,752,761 2,205,668 2,557,327
AST Janus Overseas Growth 0 793,793 2,646,039
AST American Century International Growth 0 110,478 394,441
AST Janus Small-Cap Growth(3) 859,376 1,469,059 1,510,669
AST Lord Abbett Small-Cap Value Portfolio 0 0 105,944
AST T. Rowe Price Small Company Value 0 413,993 1,366,746
AST Neuberger Berman Mid-Cap Growth(4) 427,236 734,388 894,756
AST Neuberger Berman Mid-Cap Value(5) 374,935 425,687 915,253
AST T. Rowe Price Natural Resources 208,022 548,053 482,850
AST Oppenheimer Large-Cap Growth(6) 70,750 892,079 1,547,298
AST Marsico Capital Growth 0 784 1,222,834
AST JanCap Growth 3,451,651 6,261,619 10,017,653
AST Banker Trust Enhanced 500 Portfolio 0 0 216,767
AST Cohen & Steers Realty Portfolio 0 0 130,090
AST American Century Income & Growth(7) 0 249,852 693,921
AST Lord Abbett Growth and Income 1,736,325 3,018,989 4,113,786
AST INVESCO Equity Income 979,103 1,763,840 2,592,435
AST AIM Balanced(8) 942,912 1,343,009 1,580,154
AST American Century Strategic Balanced 0 68,001 252,933
AST T. Rowe Price Asset Allocation 301,555 503,303 758,344
AST T. Rowe Price International Bond(9) 315,293 470,880 562,885
AST Federated High Yield 448,151 899,181 1,457,896
AST PIMCO Total Return Bond 804,173 1,221,106 1,910,431
AST PIMCO Limited Maturity Bond 551,613 709,408 867,476
AST Money Market 697,446 885,676 1,113,545
</TABLE>
(1) For fiscal year 1996, $325,763 was paid to Seligman Henderson Co.
("Seligman") , the prior Sub-advisor for the Portfolio and $138,135 was
paid to Founders Asset Management, Inc., the current Sub-advisor for the
Portfolio.
(2) For fiscal year 1996, $1,338,724 was paid to Seligman, the prior
Sub-advisor for the Portfolio and $414,037 was paid to Putnam Investment
Management, Inc. ("Putnam"), the Sub-advisor for the Portfolio until May 3,
1999. For fiscal years 1997 and 1998, the entire fee noted above was paid
to Putnam.
(3) For fiscal years 1996, 1997 and 1998, the entire fee noted above was paid
to Founders Asset Management LLC, the prior Sub-advisor for the Portfolio.
(4) For fiscal years 1996 and 1997, the entire fee noted above was paid to
Berger Associates, Inc. ("Berger"), the prior Sub-advisor for the
Portfolio. For fiscal year 1998, $313,389 was paid to Berger and $581,367
was paid to Neuberger Berman Management, Inc., the current Sub-advisor for
the Portfolio.
(5) For fiscal years 1996 and 1997, the entire fee noted above was paid to
Federated Investment Counseling ("Federated"), the prior Sub-advisor for
the Portfolio. For fiscal year 1998, $186,645 was paid to Federated and
$728,608 was paid to Neuberger Berman Management, Inc., the current
Sub-advisor for the Portfolio.
(6) For fiscal years 1996 and 1997, the entire fee noted above was paid to
Robertson, Stephens & Company Investment Management, L.P. ("Robertson
Stephens"), the prior Sub-advisor for the Portfolio. For fiscal year 1998,
$1,542,651 was paid to Robertson Stephens and $4,657 was paid to
OppenheimerFunds, Inc., the current Sub-advisor for the Portfolio.
(7) For fiscal years 1997 and 1998, the entire fee noted above was paid to
Putnam, the Sub-advisor for the Portfolio until May 3, 1999.
(8) For fiscal year 1996, $691,855 was paid to Phoenix Investment Counsel,
Inc., the prior Sub-advisor for the Portfolio and $251,057 was paid to
Putnam, the Sub-advisor for the Portfolio until May 3, 1999. For fiscal
years 1997 and 1998, the entire fee noted above was paid to Putnam.
(9) For fiscal year 1996, $103,905 was paid to Scudder, Stevens & Clark, Inc.,
the prior Sub-advisor for the Portfolio and $211,388 was paid to Rowe
Price-Fleming International, Inc., the current Sub-advisor for the
Portfolio.
The Investment Manager has agreed by the terms of the Management Agreements for
the following Portfolios of the Trust to reimburse the Portfolio for any fiscal
year in order to prevent Portfolio expenses (exclusive of taxes, interest,
brokerage commissions and extraordinary expenses, determined by the Trust or the
Investment Manager, but inclusive of the management fee) from exceeding a
specified percentage of the Portfolio's average daily net assets, as follows:
AST Founders Passport Portfolio: 1.75%
AST T. Rowe Price International Equity Portfolio: 1.75%. Commencing May 1,
1996, the Investment Manager has voluntarily agreed to reimburse certain
operating expenses in excess of 1.71% for the AST T. Rowe Price International
Equity Portfolio. This voluntary agreement may be terminated by the Investment
Manager at any time.
AST AIM International Equity Portfolio: 1.75%
AST Janus Small-Cap Growth Portfolio: 1.30%
AST T. Rowe Price Natural Resources Portfolio: 1.35%
AST Oppenheimer Large-Cap Growth Portfolio: 1.45%
AST JanCap Growth Portfolio: 1.35%. Commencing September 4, 1996, the
Investment Manager has voluntarily agreed to reimburse certain operating
expenses in excess of 1.33% for the AST JanCap Growth Portfolio. This voluntary
agreement may be terminated by the Investment Manager at any time.
AST Lord Abbett Growth and Income Portfolio: 1.25%
AST INVESCO Equity Income Portfolio: 1.20%
AST AIM Balanced Portfolio: 1.25%
AST T. Rowe Price Asset Allocation Portfolio: 1.25%
AST T. Rowe Price International Bond Portfolio: 1.75%
AST Federated High Yield Portfolio: 1.15%
AST PIMCO Total Return Bond Portfolio: 1.05%
AST PIMCO Limited Maturity Bond Portfolio: 1.05%
AST Money Market Portfolio: .65%. The Investment Manager has voluntarily
agreed to reimburse certain operating expenses in excess of .60% for the AST
Money Market Portfolio. This voluntary agreement may be terminated by the
Investment Manager at any time.
The Investment Manager has also voluntarily agreed to reimburse the
other Portfolios of the Trust for any fiscal year in order to prevent Portfolio
expenses (exclusive of taxes, interest, brokerage commissions and extraordinary
expenses, determined by the Trust or the Investment Manager, but inclusive of
the management fee) from exceeding a specified percentage of each Portfolio's
average daily net assets, as follows:
AST American Century International Growth Portfolio: 1.75%
AST Janus Overseas Growth Portfolio: 1.75%
AST Kemper Small-Cap Growth Portfolio: 1.35%
AST Lord Abbett Small Cap Value Portfolio: 1.35%
AST T. Rowe Price Small Company Value Portfolio: 1.30%
AST Neuberger Berman Mid-Cap Value Portfolio: 1.25%
AST Neuberger Berman Mid-Cap Growth Portfolio: 1.25%
AST Marsico Capital Growth Portfolio: 1.35%
AST American Century Income & Growth Portfolio: 1.25%
AST Bankers Trust Enhanced 500 Portfolio: .80%
AST Cohen & Steers Realty Portfolio: 1.45%
AST American Century Strategic Balanced Portfolio: 1.25%
The Investment Manager may terminate the above voluntary agreements at
any time. Voluntary payments of Portfolio expenses by the Investment Manager are
subject to reimbursement by the Portfolio at the Investment Manager's discretion
within the two year period following such payment to the extent permissible
under applicable law and provided that the Portfolio is able to effect such
reimbursement and remain in compliance with applicable expense limitations.
Each Management Agreement will continue in effect from year to year,
provided it is approved, at least annually, in the manner stipulated in the 1940
Act. This requires that each Management Agreement and any renewal be approved by
a vote of the majority of the Trustees who are not parties thereto or interested
persons of any such party, cast in person at a meeting specifically called for
the purpose of voting on such approval. Each Management Agreement may be
terminated without penalty on sixty days' written notice by vote of a majority
of the Board of Trustees or by the Investment Manager, or by holders of a
majority of the applicable Portfolio's outstanding shares, and will
automatically terminate in the event of its "assignment" as that term is defined
in the 1940 Act.
Sub-Advisory Agreements: The Investment Manager pays each Sub-advisor
for the performance of sub-advisory services out of its Investment Management
fee and at no additional cost to any Portfolio. The fee paid to the Sub-advisors
differs 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:
Founders Asset Management LLC for the AST Founders Passport Portfolio:
An annual rate of .60% of the portion of the average net assets of the Portfolio
not in excess of $100 million; plus .50% of the portion of the average net
assets of the Portfolio in excess of $100 million.
Rowe Price-Fleming International, Inc. for the AST T. Rowe Price
International Equity Portfolio: An annual rate of .75% of the portion of the
average daily net assets of the Portfolio not in excess of $20 million; plus
.60% of the portion of the net assets over $20 million but not in excess of $50
million; and .50% of the portion in excess of $50 million. The Sub-advisor has
voluntarily agreed to waive a portion of its fee equal to .25% of the portion of
the Portfolio's average daily net assets not in excess of $20 million and .10%
of the portion of the net assets over $20 million but not in excess of $50
million, so long as the average daily net assets of the Portfolio equal or
exceed $200 million. Furthermore, the Sub-advisor has voluntarily agreed to
waive an additional portion of its fee equal to .05% of the Portfolio's average
daily net assets so long as the combined average daily net assets of the
Portfolio and the ASMT T. Rowe Price International Equity Portfolio of American
Skandia Master Trust equal or exceed $500 million.
The Sub-advisor may terminate these voluntary agreements at any time.
A I M Capital Management, Inc. for the AST AIM International Equity
Portfolio: An annual rate of .65% of the portion of the average daily net assets
of the Portfolio not in excess of $150 million; plus .55% of the portion of the
average daily net assets of the Portfolio over $150 million but not in excess of
$300 million; plus .45% of the portion of the average daily net assets of the
Portfolio in excess of $300 million.
Janus Capital Corporation for the AST Janus Overseas Growth Portfolio:
An annual rate of .65% of the portion of the average daily net assets of the
Portfolio not in excess of $100 million; plus .60% of the portion of the net
assets over $100 million but not in excess of $500 million; and .50% of the
portion of the net assets over $500 million.
American Century Investment Management, Inc. for the AST American Century
International Growth Portfolio: An annual rate of .70% of the portion of the
average daily net assets of the Portfolio not in excess of $100 million; plus
.60% of the portion of the net assets over $100 million.
Janus Capital Corporation for the AST Janus Small-Cap Growth Portfolio:
An annual rate of .50% of the portion of the average daily net assets of the
Portfolio not in excess of $100 million; plus .45% of the portion of the net
assets over $100 million but not in excess of $500 million; plus .40% of the
portion of the net assets over $500 million but not in excess of $1 billion;
plus .35% of the portion of the net assets over $1 billion. Commencing January
1, 1999, the Sub-advisor has voluntarily agreed to waive a portion of its fee
equal to .05% of the portions of the Portfolio's average daily net assets over
$400 million but not in excess of $500 million and over $900 million but not in
excess of $1 billion. The Sub-advisor may terminate this voluntary agreement at
any time. Prior to January 1, 1999, the Investment Manager had engaged Founders
Asset Management LLC as Sub-advisor for the Portfolio (formerly the Founders
Capital Appreciation Portfolio), for a total Sub-advisory fee of .65% of the
portion of the average daily net assets of the Portfolio not in excess of $75
million; plus .60% of the portion of the net assets over $75 million but not in
excess of $150 million; plus .55% of the portion of the net assets over $150
million.
Scudder Kemper Investments, Inc. for the AST Kemper Small-Cap Growth
Portfolio: An annual rate of .50% of the average daily net assets of the
Portfolio not in excess of $100 million; plus .45% of the portion of the net
assets over $100 million but not in excess of $400 million; plus .40% of the
portion of the net assets over $400 million but not in excess of $900 million;
plus .35% of the portion of the net assets over $900 million.
Lord, Abbett & Co. for the AST Lord Abbett Small Cap Value Portfolio: An
annual rate of .50% of the average daily net assets of the Portfolio.
T. Rowe Price Associates, Inc. for the AST T. Rowe Price Small Company
Value Portfolio: An annual rate of .60% of the portion of the average daily net
assets of the Portfolio not in excess of $20 million; plus .50% 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 the average daily net assets of the Portfolio.
Neuberger Berman Management, Incorporated for the AST Neuberger Berman
Mid-Cap Growth Portfolio: An annual rate of .45% of the portion of the average
daily net assets of the Portfolio not in excess of $100 million; plus .40% of
the portion of the net assets over $100 million. Prior to May 1, 1998, the
Investment Manager had engaged Berger Associates, Inc. as Sub-advisor for the
Portfolio (formerly, the Berger Capital Growth Portfolio), for a total
Sub-advisory fee 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.
Neuberger Berman Management, Incorporated for the AST Neuberger Berman
Mid-Cap Value Portfolio: An annual rate of .50% of the portion of the average
daily net assets of the Portfolio not in excess of $750 million; plus .45% of
the portion of the net assets over $750 million but not in excess of $1 billion;
plus .40% of the portion in excess of $1 billion. Prior to May 1, 1998, the
Investment Manager had engaged Federated Investment Counseling as Sub-advisor
for the Portfolio (formerly, the Federated Utility Income Portfolio), for a
total Sub-advisory fee of .50% of the portion of the average daily net assets of
the Portfolio not in excess $25 million; plus .35% of the portion in excess of
$25 million but not in excess of $50 million; plus .25% of the portion in excess
of $50 million.
T. Rowe Price Associates, Inc. for the AST T. Rowe Price Natural
Resources Portfolio: An annual rate of .60% of the portion of the average daily
net assets of the Portfolio not in excess of $20 million; plus .50% 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 the average daily net assets of the Portfolio.
OppenheimerFunds, Inc. for the AST Oppenheimer Large-Cap Growth
Portfolio: An annual rate of .35% of the portion of the average daily net assets
of the Portfolio not in excess of $500 million; plus .30% of the portion of the
net assets over $500 million but not in excess of $1 billion; plus .25% of the
portion of the net assets over $1 billion. Prior to January 1, 1999, the
Investment Manager had engaged Robertson, Stephens & Company Investment
Management, L.P. as Sub-advisor for the Portfolio (formerly the Robertson
Stephens Value + Growth Portfolio), for a total Sub-advisory fee of .60% of the
portion of the average daily net assets of the Portfolio not in excess of $200
million; plus .50% of the portion of the net assets over $200 million.
Marsico Capital Management, LLC for the AST Marsico Capital Growth
Portfolio: An annual rate of 0.45% of the average daily net assets of the
Portfolio.
Janus Capital Corporation for the AST JanCap Growth Portfolio: An
annual rate of .60% of the portion of the average daily net assets of the
Portfolio not in excess of $100 million; plus .55% of the portion over $100
million but not in excess of $1 billion; plus .50% of the portion over $1
billion. Commencing September 4, 1996, the Sub-advisor has voluntarily agreed to
waive a portion of its fee equal to .10% of the Portfolio's average daily net
assets over $500 million but not in excess of $1 billion; and .05% of the
portion of the Portfolio's average daily net assets over $1 billion. The
Sub-advisor may terminate this voluntary agreement at any time.
Bankers Trust Company for the AST Bankers Trust Enhanced 500 Portfolio:
An annual rate of .17% of the portion of the average daily net assets of the
Portfolio not in excess of $300 million; plus .13% of the portion of the net
assets over $300 million.
Cohen & Steers Capital Management, Inc. for the AST Cohen & Steers
Realty Portfolio: An annual rate of .60% of the portion of the average daily net
assets of the Portfolio not in excess of $100 million; plus .40% of the portion
of the net assets over $100 million but not in excess of $250 million; plus .30%
of the portion of the net assets over $250 million.
American Century Investment Management, Inc. for the AST American
Century Income & Growth Portfolio: An annual rate of .45% of the portion of the
average daily net assets of the Portfolio not in excess of $150 million; plus
.40% of the portion of the net assets over $150 million but not in excess of
$300 million; plus .35% of the portion of the net assets over $300 million.
Lord, Abbett & Co. for the AST Lord Abbett Growth and Income Portfolio:
An annual rate of .50% of the portion of the average daily net assets of the
Portfolio not in excess of $200 million; plus .40% of the portion over $200
million but not in excess of $500 million; plus .375% of the portion over $500
million but not in excess of $700 million; plus .35% of the portion over $700
million but not in excess of $900 million; plus .30% of the portion in excess of
$900 million.
INVESCO Funds Group, Inc. for the AST INVESCO Equity Income Portfolio:
An annual rate of .50% of the portion of the average daily net assets of the
Portfolio not in excess of $25 million; plus .45% of the portion of the net
assets over $25 million but not in excess of $75 million; plus .40% of the
portion of the net assets in excess of $75 million but not in excess of $100
million; and .35% of the portion of the net assets over $100 million.
A I M Capital Management, Inc. for the AST AIM Balanced Portfolio: An
annual rate of .45% of the portion of the average daily net assets of the
Portfolio not in excess of $150 million; plus .40% of the portion of the average
daily net assets of the Portfolio over $150 million but not in excess of $300
million; plus .35% of the portion of the average daily net assets of the
Portfolio in excess of $300 million.
American Century Investment Management, Inc. for the AST American Century
Strategic Balanced Portfolio: An annual rate of .50% of the portion of the of
the average daily net assets of the Portfolio not in excess of $50 million; plus
.45% of the portion of the net assets over $50 million.
T. Rowe Price Associates, Inc. for the AST T. Rowe Price Asset
Allocation Portfolio: An annual rate of .50% of the portion of the average daily
net assets of the Portfolio not in excess of $25 million; plus .35% of the
portion in excess of $25 million but not in excess of $50 million; and .25% of
the portion in excess of $50 million.
Rowe Price-Fleming International, Inc. for the AST T. Rowe Price
International Bond Portfolio: An annual rate of .40% of the average daily net
assets of the Portfolio.
Federated Investment Counseling for the AST Federated High Yield
Portfolio: An annual rate of .50% of the portion of the average daily net assets
of the Portfolio under $30 million; plus .40% of the portion of the net assets
equal to or in excess of $30 million but under $50 million; plus .30% of the
portion equal to or in excess of $50 million but under $75 million; and .25% of
the portion equal to or in excess of $75 million.
Pacific Investment Management Company for the AST PIMCO Total Return
Bond Portfolio: An annual rate of .30% of the average daily net assets of the
Portfolio not in excess of $150 million; and .25% on the portion of the net
assets over $150 million.
Pacific Investment Management Company for the AST PIMCO Limited
Maturity Bond Portfolio: An annual rate of .30% of the average daily net assets
of the Portfolio not in excess of $150 million; and .25% on the portion of the
net assets over $150 million.
J.P. Morgan Investment Management Inc. for the AST Money Market
Portfolio: An annual rate of .25% of the portion of the average daily net assets
of the Portfolio not in excess of $100 million; plus .20% of the portion over
$100 million but not in excess of $200 million; plus .15% of the portion over
$200 million but not in excess of $1 billion; and .10% of the portion in excess
of $1 billion. Commencing December 30, 1996, the Sub-advisor has voluntarily
agreed to waive a portion of its fee equal to .10% of the portion of the
Portfolio's average daily net assets not in excess of $100 million; and .05% of
the portion of the Portfolio's average daily net assets over $100 million but
not in excess of $200 million; and .06% of the portion of the Portfolio's
average daily net assets over $500 million but not in excess of $1 billion; and
.04% of the portion of the Portfolio's average daily net assets over $1 billion.
The Sub-advisor may terminate this voluntary agreement at any time.
Corporate Structure. Several of the Sub-advisors are controlled by other
parties as noted below:
Founders is a 90%-owned subsidiary of Mellon Bank, N.A., with the
remaining 10% held by certain Founders executives and portfolio managers. Mellon
Bank is a wholly owned subsidiary of Mellon Bank Corporation, a publicly owned
multibank holding company which provides a comprehensive range of financial
products and services in domestic and selected international markets.
A I M Capital Management, Inc. is a wholly-owned subsidiary of A I M
Advisors, Inc., also a registered investment adviser. A I M Advisors, Inc. is
wholly owned by A I M Management Group Inc., a holding company engaged in the
financial services business and an indirect wholly-owned subsidiary of AMVESCAP
PLC. AMVESCAP PLC and its subsidiaries are an independent investment management
group engaged in institutional investment management and retail mutual fund
businesses in the United States, Europe and the Pacific Region.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83%
of the outstanding voting stock of Janus Capital, most of which it acquired in
1984. KCSI is a publicly traded holding company whose primary subsidiaries are
engaged in transportation, information processing and financial services. Thomas
H. Bailey, President and Chairman of the Board of Janus, owns approximately 12%
of its voting stock and, by agreement with KCSI, selects a majority of Janus'
Board.
American Century Companies, Inc. ("ACC") is the parent of American Century
Investment Management, Inc.
Zurich Insurance Company, a leading provider of insurance and financial
services, owns approximately 70% of Scudder Kemper, with the balance owned by
Scudder Kemper's officers and employees.
All of the voting stock of Neuberger Berman Management Inc. is owned by
individuals who are principals of Neuberger Berman, LLC ("Neuberger Berman").
Neuberger Berman is a member firm of the NYSE and other principal exchanges.
OppenheimerFunds, Inc. is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Sub-advisor and
controlled by Massachusetts Mutual Life Insurance Company.
NationsBank, N.A., a national bank subsidiary of BankAmerica
Corporation, indirectly owns 50% of the voting control of Marsico Capital
Management, LLC ("Marsico Capital"). Mr. Thomas F. Marsico and a company
controlled by Mr. Marsico own the remainder of Marsico Capital's voting
interests.
Bankers Trust Company is a wholly-owned subsidiary of Bankers Trust New
York Corporation, one of the largest bank holding companies in the United
States.
Martin Cohen and Robert H. Steers may be deemed "controlling persons" of
Cohen & Steers Capital Management, Inc. on the basis of their ownership of Cohen
& Steers' stock.
INVESCO Funds Group, Inc. is a subsidiary of AMVESCAP PLC.
Federated Investment Counseling, organized as a Delaware business trust in
1989 is a wholly owned subsidiary of Federated Investors.
Pacific Investment Management Company ("PIMCO") is a subsidiary general
partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). A majority interest in
PIMCO Advisors is held by PIMCO Partners, G.P., a general partnership between
Pacific Investment Management Corporation, a California corporation, and an
indirect wholly owned subsidiary of Pacific Life Insurance Company, and PIMCO
Partners, LLC, a California limited liability company controlled by the managing
directors of PIMCO.
J.P. Morgan Investment Management, Inc is a wholly-owned subsidiary of J.P.
Morgan & Co. Incorporated, a bank holding company organized under the laws of
Delaware.
The Administrator and Transfer and Shareholder Servicing Agent: PFPC
Inc. (the "Administrator"), 103 Bellevue Parkway, Wilmington, Delaware 19809, a
Delaware corporation that is an indirect wholly-owned subsidiary of PNC
Financial Corp., serves as the Administrator and Transfer and Shareholder
Servicing Agent for the Trust. Pursuant to a Trust Accounting and Administration
Agreement between the Trust and the Administrator, dated May 1, 1992 (the
"Administration Agreement"), 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 Portfolios' investment objectives, policies and
restrictions; providing office space and equipment necessary for the proper
administration and accounting functions of the Trust; monitoring investment
activity and income of the Trust for compliance with applicable tax laws;
preparing and filing Trust tax returns; preparing financial information in
connection with the preparation of the Trust's annual and semi-annual reports
and making requisite filings thereof; preparing schedules of Trust share
activity for footnotes to financial statements; furnishing financial information
necessary for the completion of certain items to the Trust's registration
statement and necessary to prepare and file Rule 24f-2 notices; providing an
administrative interface between the Investment Manager and the Trust's
custodian; creating and maintaining all necessary records in accordance with
applicable laws, rules and regulations, including, but not limited to, those
records required to be kept pursuant to the 1940 Act; and performing such other
duties related to the administration of the Trust as may be requested by the
Board of Trustees of the Trust. 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.
Under the terms of the Administration Agreement, the Administrator
shall not be liable for any error of judgment or mistake of law or for any loss
or expense suffered by the Trust, in connection with the matters to which the
Administration Agreement relates, except for a loss or expense resulting from
willful misfeasance, bad faith, or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Agreement. Any person, even though also an officer,
director, partner, employee or agent of the Administrator, who may be or become
an officer, Trustee, employee or agent of the Trust, shall be deemed when
rendering services to the Trust or acting on any business of the Trust (other
than services or business in connection with the Administrator's duties under
the Administration Agreement) to be rendering such services to or acting solely
for the Trust and not as an officer, director, partner, employee or agent or one
under the control or direction of the Administrator even though paid by them.
As compensation for the services and facilities provided by the
Administrator under the Administration Agreement, the Trust has agreed to pay to
the Administrator the greater of certain percentages of the average daily net
assets of each Portfolio or certain specified minimum annual amounts calculated
for each Portfolio. Except for the AST Bankers Trust Enhanced 500 Portfolio, the
percentages of the average daily net assets are: (a) 0.10% of the first $200
million; (b) 0.06% of the next $200 million; (c) 0.0275% of the next $200
million; (d) 0.02% of average daily net assets over $1 billion. The percentages
for the AST Bankers Trust Enhanced 500 Portfolio are: (a) 0.05% of the first
$200 million; (b) 0.03% of the next $200 million; (c) 0.0275 of the next $200
million; (d) 0.02% of the next $400 million; and (e) 0.01% of average daily net
assets over $1 billion.
The minimum amount is $75,000 for each of the AST Janus Small-Cap
Growth Portfolio, the AST Lord Abbett Small Cap Value Portfolio, the AST T. Rowe
Price Small Company Value Portfolio, the AST Neuberger Berman Mid-Cap Growth
Portfolio, the AST Neuberger Berman Mid-Cap Value Portfolio, the AST T. Rowe
Price Natural Resources Portfolio, the AST Oppenheimer Large-Cap Growth
Portfolio, the AST Marsico Capital Growth Portfolio, the AST JanCap Growth
Portfolio, the AST Bankers Trust Enhanced 500 Portfolio, the AST Cohen & Steers
Realty Portfolio, the AST American Century Income & Growth Portfolio, the AST
Lord Abbett Growth and Income Portfolio, the AST INVESCO Equity Income
Portfolio, the AST AIM Balanced Portfolio, the AST American Century Strategic
Balanced Portfolio, the AST T. Rowe Price Asset Allocation Portfolio, the AST
Federated High Yield Portfolio, the AST PIMCO Total Return Bond Portfolio, the
AST PIMCO Limited Maturity Bond Portfolio and the AST Money Market Portfolio.
The minimum amount is $100,000 for the AST Founders Passport Portfolio, the AST
T. Rowe Price International Equity Portfolio, the AST AIM International Equity
Portfolio, the AST Janus Overseas Growth Portfolio, the AST American Century
International Growth Portfolio and the AST T. Rowe Price International Bond
Portfolio. The minimum amount for the fiscal year ending December 31, 1999 for
the AST Kemper Small-Cap Growth Portfolio is $34,375.
For an additional discussion of the services provided by the Administrator
under the Administration Agreement, and the "out-of-pocket" expenses the Trust
is to pay the Administrator, see the Trust's SAI under "Management of the Trust:
The Administrator and Transfer and Shareholder Servicing Agent."
Compensation for the services and facilities provided by the
Administrator under the Administration Agreement includes payment of the
Administrator's "out-of-pocket" expenses. Such "out-of-pocket" expenses of the
Administrator include, but are not limited to, postage and mailing, forms,
envelopes, checks, toll-free lines (if requested by the Trust), telephone,
hardware and telephone lines for remote terminals (if required by the Trust),
wire fees, certificate issuance fees, microfiche and microfilm, telex, federal
express, outside independent pricing service charges, record retention/storage
and proxy solicitation, mailing and tabulation expenses (if required by the
Trust). For the years ended December 31, 1996, 1997 and 1998, the Trust paid the
Administrator $3,330,687, $4,902,309 and $6,582,808 respectively.
The Administration Agreement provides that it will continue in effect
from year to year. The Administration Agreement is terminable, without penalty,
by the Board of Trustees, by vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities, or by the Administrator, on not less than
sixty days' notice. The Administration Agreement shall automatically terminate
upon its assignment by the Administrator without the prior written consent of
the Trust, provided, however, that no such assignment shall release
Administrator from its obligations under the Agreement.
BROKERAGE ALLOCATION: Subject to the supervision of the Board of Trustees of the
Trust, decisions to buy and sell securities for the Trust are made for each
Portfolio by its Sub-advisor. Generally, the primary consideration in placing
Portfolio securities transactions with broker-dealers is to obtain, and maintain
the availability of, execution at the best net price available and in the most
effective manner possible. Each Sub-advisor is authorized to allocate the orders
placed by it on behalf of the applicable Portfolio to brokers who also provide
research or statistical material, or other services to the Portfolio or the
Sub-advisor for the use of the applicable Portfolio or the Sub-advisor's other
accounts. Such allocation shall be in such amounts and proportions as the
Sub-advisor shall determine and the Sub-advisor will report on said allocations
either to the Investment Manager, which will report on such allocations to the
Board of Trustees, or, if requested, directly to the Board of Trustees. Such
reports will indicate the brokers to whom such allocations have been made and
the basis therefor. The Sub-advisor may consider sale of shares of the
Portfolios or variable insurance products that use the Portfolios as investment
vehicles, or may consider or follow recommendations of the Investment Manager
that take such sales into account, as factors in the selection of brokers to
effect portfolio transactions for a Portfolio, subject to the requirements of
best net price available and most favorable execution. In this regard, the
Investment Manager has directed certain of the Sub-advisors to try to effect a
portion of their Portfolios' transactions through broker-dealers that give
prominence to variable insurance products using the Portfolios as investment
vehicles, to the extent consistent with best net price available and most
favorable execution.
Subject to the rules promulgated by the SEC, as well as other
regulatory requirements, a Sub-advisor also may allocate orders to brokers or
dealers affiliated with the Sub-advisor or the Investment Manager. Such
allocation shall be in such amounts and proportions as the Sub-advisor shall
determine and the Sub-advisor will report on said allocations either to the
Investment Manager, which will report on such allocations to the Board of
Trustees, or, if requested, directly to the Board of Trustees.
In selecting a broker to execute each particular transaction, each
Sub-advisor will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the broker; the
size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of the Portfolio on a
continuing basis. Accordingly, the cost of the brokerage commissions in any
transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the brokerage services
offered. Subject to such policies and procedures as the Board of Trustees may
determine, a Sub-advisor shall not be deemed to have acted unlawfully or to have
breached any duty solely by reason of its having caused a Portfolio to pay a
broker that provides research services to the Sub-advisor an amount of
commission for effecting an investment transaction in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Sub-advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research service provided by such
broker viewed in terms of either that particular transaction or the
Sub-advisor's ongoing responsibilities with respect to a Portfolio or its
managed accounts generally. For the years ended December 31, 1996, 1997 and
1998, aggregate brokerage commissions of $7,096,640, $7,265,436, and
$15,887,946, respectively, were paid in relation to brokerage transactions for
the Trust. The increase in commissions paid corresponds roughly to the increase
in the Trust's net assets during those periods.
During the years ended December 31, 1997 and December 31, 1998
brokerage commissions were paid to certain affiliates of Rowe Price-Fleming
International, Inc. by the AST T. Rowe Price International Equity Portfolio in
the amounts of $29,579 and $26,497, respectively. For the year ended December
31, 1998, 4.18% of the total brokerage commissions paid by this Portfolio were
paid to the affiliated brokers, with respect to transactions representing 4.72%
of the Portfolio's total dollar amount of transactions involving the payment of
commissions. Similarly, brokerage commissions were paid to Robertson Stephens &
Co., an affiliate of Robertson, Stephens & Company Investment Management L.P.,
by the AST Oppenheimer Large-Cap Growth Portfolio (formerly, the Robertson
Stephens Value + Growth Portfolio) in the aggregate amounts of $68,772 and
$71,751 for the years ended December 31, 1997 and 1998 respectively. For the
year ended December 31, 1998, 6.55% of the total brokerage commissions paid by
this Portfolio were paid to Robertson Stephens & Co., with respect to
transactions representing 6.69% of the total amount of the Portfolio's
transactions involving the payment of commissions. Brokerage commissions in the
amount of $82,199 were paid to Neuberger Berman, LLC, an affiliate of Neuberger
Berman Management Inc., by the AST Neuberger Berman Mid-Cap Growth Portfolio for
the period from May 1, 1998 (when Neuberger Berman Management Inc. became the
Portfolio's Sub-advisor) until December 31, 1998. For that period, 14.09% of the
total brokerage commissions paid by this Portfolio were paid to Neuberger
Berman, LLC, with respect to transactions representing 13.67% of the total
amount of the Portfolio's transactions involving the payment of commissions.
Brokerage commissions in the amount of $277,961 were paid to Neuberger Berman,
LLC, by the AST Neuberger Berman Mid-Cap Value Portfolio for the period from May
1, 1998 (when Neuberger Berman Management Inc. became the Portfolio's
Sub-advisor) until December 31, 1998. For that period, 27.01% of the total
brokerage commissions paid by this Portfolio were paid to Neuberger Berman, LLC,
with respect to transactions representing 25.96% of the total amount of the
Portfolio's transactions involving the payment of commissions. During the year
ended December 31, 1998, brokerage commissions were paid to J.P. Morgan
Securities Inc. and other affiliates of American Century Investment Management,
Inc. by the AST American Century International Growth Portfolio in the amount of
$91. For that year, .02% of the total brokerage commissions paid by this
Portfolio were paid to the affiliated brokers, with respect to transactions
representing .05% of the total amount of the Portfolio's transactions involving
the payment of commissions. During the year ended December 31, 1998, brokerage
commissions were paid to J.P. Morgan Securities Inc. and other affiliates of
American Century Investment Management, Inc. by the AST American Century
Strategic Balanced Portfolio in the amount of $3,265. For that year, 5.62% of
the total brokerage commissions paid by this Portfolio were paid to the
affiliated brokers, with respect to transactions representing 3.43% of the total
amount of the Portfolio's transactions involving the payment of commissions.
ALLOCATION OF INVESTMENTS: The Sub-advisors have other advisory clients, some of
which have similar investment objectives to one or more Portfolios for which
advisory services are being provided. In addition, a Sub-advisor may be engaged
to provide advisory services for more than one of the Trust's Portfolios. There
will be times when a Sub-advisor may recommend purchases and/or sales of the
same securities for a Portfolio and such Sub-advisor's other clients. In such
circumstances, it will be the policy of each Sub-advisor to allocate purchases
and sales among a Portfolio and its other clients, including other Trust
Portfolios for which it provides advisory services, in a manner which the
Sub-advisor deems equitable, taking into consideration such factors as size of
account, concentration of holdings, investment objectives, tax status, cash
availability, purchase costs, holding period and other pertinent factors
relative to each account.
COMPUTATION OF NET ASSET VALUES: The Trust determines the net asset values of a
Portfolio's shares at the close of the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. Eastern time, on each day that the Exchange is open for
business. Currently, the Exchange is closed on Saturdays and Sundays and on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
All Portfolios with the exception of the AST Money Market Portfolio:
The net asset value per share of all of the Portfolios with the exception of the
AST Money Market Portfolio is determined by dividing the market value of its
securities as of the close of trading plus any cash or other assets (including
dividends and accrued interest receivable) less all liabilities (including
accrued expenses), by the number of shares outstanding. Portfolio securities,
including open short positions and options written, are valued at the last sale
price on the securities exchange or securities market on which such securities
primarily are traded. Securities not listed on an exchange or securities market,
or securities in which there were not transactions on that day, are valued at
the average of the most recent bid and asked prices, except in the case of open
short positions where the asked price is available. Any securities or other
assets for which recent market quotations are not readily available are valued
at fair market value as determined in good faith by or under procedures
established by the Board of Trustees. Short-term obligations with sixty days or
less remaining to maturity are valued on an amortized cost basis. Expenses and
fees, including the investment management fees, are accrued daily and taken into
account for the purpose of determining net asset value of shares.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the Exchange. The
values of such securities used in computing the net asset value of the shares of
a Portfolio generally are determined as of such earlier times. Foreign currency
exchange rates are also generally determined prior to the close of the Exchange.
Occasionally, events affecting the value of such securities and such exchange
rates may occur between the times at which they usually are determined and the
close of the Exchange. If such extraordinary events occur, their effects may not
be reflected in the net asset value of a Portfolio calculated as of the close of
the Exchange on that day.
Foreign securities are valued on the basis of quotations from the
primary market in which they are traded. All assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at an
exchange rate quoted by a major bank that is a regular participant in the
foreign exchange market or on the basis of a pricing service that takes into
account the quotes provided by a number of such major banks.
AST Money Market Portfolio: For the AST Money Market Portfolio, all
securities are valued by the amortized cost method. The amortized cost method of
valuation values a security at its cost at the time of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The purpose of this method of calculation is to attempt to
maintain a constant net asset value per share of $1.00. No assurance can be
given that this goal can be attained. If a difference of more than 1/2 of 1%
occurs between valuation based on the amortized cost method and valuation based
on market value, the Trustees will take steps necessary to reduce such deviation
or any unfair results to shareholders, such as changing dividend policy,
shortening the average maturity of the investments in the Portfolio or valuing
securities on the basis of current market prices if available or, if not, at
fair market value.
SALE OF SHARES: The Trust has entered into separate agreements for the sale of
shares with American Skandia Life Assurance Corporation ("ASLAC") and Kemper
Investors Life Insurance Company ("Kemper"), respectively. Pursuant to these
agreements, the Trust will pay ASLAC and Kemper for printing and delivery of
certain documents to the beneficial owners of Trust shares who are holders of
variable annuity and variable life insurance policies issued by ASLAC and
Kemper. Such documents include prospectuses, semi-annual and annual reports and
any proxy materials. The Trust will pay ASLAC 0.1%, on an annualized basis, of
the net asset value of the shares legally owned by any separate account of
ASLAC, and will pay Kemper 0.1%, on an annualized basis, of the net asset value
of the shares legally owned by the separate accounts of Kemper named in the
sales agreement. A complete description of the manner by which the Trust's
shares may be purchased and redeemed appears in the Prospectus under the heading
"Purchase and Redemption of Shares."
DESCRIPTION OF SHARES OF THE TRUST: The Trust's Declaration of Trust dated
October 31, 1988, which governs certain Trust matters, permits the Trust's Board
of Trustees to issue multiple classes of shares, and within each class, an
unlimited number of shares of beneficial interest with a par value of $.001 per
share. Each share entitles the holder to one vote for the election of Trustees
and on all other matters that are not specific to one class of shares, and to
participate equally in dividends, distributions of capital gains and net assets
of each applicable Portfolio. Only shareholders of shares of a specific
Portfolio may vote on matters specific to that Portfolio. Shares of one class
may not bear the same economic relationship to the Trust as shares of another
class. In the event of dissolution or liquidation, holders of shares of a
Portfolio will receive pro rata, subject to the rights of creditors, the
proceeds of the sale of the assets held in such Portfolio less the liabilities
attributable to such Portfolio. Shareholders of a Portfolio will not be liable
for the expenses, obligations or debts of another Portfolio.
There are no preemptive or conversion rights applicable to any of the
Trust's shares. The Trust's shares, when issued, will be fully paid,
non-assessable and transferable. The Trustees may at any time create additional
series of shares without shareholder approval.
Generally, there will not be annual meetings of shareholders. A Trustee
may, in accordance with certain rules of the Securities and Exchange Commission,
be removed from office when the holders of record of not less than two-thirds of
the outstanding shares either present a written declaration to the Trust's
custodian or vote in person or by proxy at a meeting called for this purpose. In
addition, the Trustees will promptly call a meeting of shareholders to remove a
Trustee(s) when requested to do so in writing by record holders of not less than
10% of the outstanding shares. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request.
Under Massachusetts law, shareholders could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees to all parties, and each party thereto must expressly waive all rights
of action directly against shareholders. The Declaration of Trust provides for
indemnification out of the Trust's property for all loss and expense of any
shareholder of the Trust held liable on account of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Trust would be
unable to meet its obligations wherein the complaining party was held not to be
bound by the disclaimer.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for indemnification by the Trust
of the Trustees and officers of the Trust except with respect to any matter as
to which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or the Trust's
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust also authorizes
the purchase of liability insurance on behalf of Trustees and officers.
UNDERWRITER: The Trust is presently used for funding variable annuities and
variable life insurance. Pursuant to an exemptive order of the Securities and
Exchange Commission, the Trust may also sell its shares directly to qualified
plans. If the Trust does sell its shares to qualified plans other than the
profit sharing plan covering employees of American Skandia Life Assurance
Corporation and its affiliates, it intends to use American Skandia Marketing,
Incorporated ("ASM, Inc.") or another affiliated broker-dealer as underwriter,
if so required by applicable law. ASM, Inc. is registered as a broker-dealer
with the Securities and Exchange Commission and the National Association of
Securities Dealers. It is an affiliate of American Skandia Life Assurance
Corporation and the Investment Manager, being a wholly-owned subsidiary of
American Skandia Investment Holding Corporation. As of the date of this
Statement, ASM, Inc. has not received payments from the Trust in connection with
any brokerage or underwriting services provided to the Trust.
TAX MATTERS: This discussion of federal income tax consequences applies to the
Participating Insurance Companies and qualified plans because these entities are
the shareholders of the Trust. 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 qualify for the 70%
dividends-received deduction for corporate shareholders only to the extent
designated as attributable to dividends received by the Trust in a notice from
the Trust. 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 are treated in the same manner for
federal income tax purposes whether received in cash or reinvested in additional
shares of the Trust. In general, distributions by the Trust are taken into
account by the shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by the
Trust and received by the shareholders on December 31 of the preceding year. A
statement setting forth the federal income tax status of all distributions made
or deemed made during the year, including any amount of foreign taxes "passed
through," will be sent to shareholders promptly after the end of each year.
Notwithstanding the foregoing, distributions by the Trust to certain Qualified
Plans may be exempt from federal income tax.
Under Code Section 817(h), a segregated asset account upon which a
variable annuity contract or variable life insurance policy is based must be
"adequately diversified." A segregated asset account will be adequately
diversified if it satisfies one of two alternative tests set forth in Treasury
regulations. For purposes of these alternative diversification tests, a
segregated asset account investing in shares of a regulated investment company
will be entitled to "look-through" the regulated investment company to its pro
rata portion of the regulated investment company's assets, provided the
regulated investment company satisfies certain conditions relating to the
ownership of its shares. The Trust intends to satisfy these ownership
conditions. Further, the Trust intends that each Portfolio separately will be
adequately diversified. Accordingly, a segregated asset account investing solely
in shares of a Portfolio will be adequately diversified, and a segregated asset
account investing in shares of one or more Trust Portfolios and shares of other
adequately diversified funds generally will be adequately diversified.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Statement, and is subject
to change by legislative or administrative action. A description of other tax
considerations generally affecting the Trust and its shareholders is found in
the section of the Prospectus entitled "Tax Matters." No attempt is made to
present a detailed explanation of the tax treatment of the Trust or its
shareholders. The discussion herein in the Prospectus is not intended as a
substitute for careful tax planning.
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.
Quotations of average annual return for a Portfolio will be expressed in terms
of the average annual compounded rate of return of a hypothetical investment in
such Portfolio over periods of 1, 5, and 10 years (up to the life of the
Portfolio) and for such other periods as deemed appropriate by the Investment
Manager. These are the annual total rates of return that would equate the
initial amount invested to the ending redeemable value. These rates of return
are calculated pursuant to the following formula: P(1+T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return, n =
the number of years and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). 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. All total return figures reflect the deduction of a proportional
share of Portfolio expenses on an annual basis.
Each Portfolio's cumulative 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. 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 total return of each
Portfolio that had commenced operations as of December 31, 1998, computed as of
that date, is shown in the table below. Such performance information is
historical and is not intended to indicate future performance of the Portfolio.
Total Return
<TABLE>
<CAPTION>
Date Since
Available for One Year Three Years Five Years Inception
Sale
- ------------------------------------------------ --------------- --------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
AST Founders Passport Portfolio(1) 05/02/95 10.92% 8.52% N/A 7.86%
AST T. Rowe Price Internat'l Equity Portfolio 01/04/94 14.03% 9.69% 7.12% 7.12%
AST AIM Internat'l Equity Portfolio(2) 05/17/89 20.10% 15.88% 11.93% 12.46%
AST Janus Overseas Growth Portfolio 01/02/97 16.22% N/A N/A 17.45%
AST American Century Internat'l Growth 01/02/97 18.68% N/A N/A 16.88%
Portfolio
AST Janus Small-Cap Growth Portfolio(3) 01/04/94 3.49% 9.62% 13.62% 13.62%
AST Lord Abbett Small Cap Value Portfolio 01/02/98 -0.10% N/A N/A -0.10%
AST T. Rowe Price Small Company Value Portfolio 01/02/97 -10.53% N/A N/A 7.35%
AST Neuberger Berman Mid-Cap Growth(4) 10/20/94 20.65% 17.87% N/A 18.37%
AST Neuberger Berman Mid-Cap Value(5) 05/04/93 -2.33% 11.25% 10.08% 10.31%
AST T. Rowe Price Natural Resources Portfolio 05/02/95 -11.83% 6.03% N/A 7.95%
AST Oppenheimer Large-Cap Growth Portfolio(6) 05/02/96 27.34% N/A N/A 19.45%
AST Marsico Capital Growth 12/22/97 41.59% N/A N/A 40.69%
AST JanCap Growth Portfolio 11/06/92 68.26% 40.59% 29.63% 26.80%
AST Bankers Trust Enhanced 500 Portfolio 01/02/98 27.90% N/A N/A 27.81%
AST Cohen & Steers Realty Portfolio 01/02/98 -16.00% N/A N/A -15.96%
AST American Century Income & Growth 01/02/97 12.27% N/A N/A 17.18%
Portfolio(7)
AST Lord Abbett Growth and Income Portfolio 05/01/92 12.48% 18.23% 16.84% 15.71%
AST INVESCO Equity Income Portfolio 01/04/94 13.34% 17.85% 15.74% 15.74%
AST AIM Balanced Portfolio(8) 05/04/93 12.86% 14.08% 12.75% 12.26%
AST American Century Strategic Balanced 01/02/97 21.29% N/A N/A 17.28%
Portfolio
AST T. Rowe Price Asset Allocation Portfolio 01/04/94 18.36% 16.61% 14.24% 14.24%
AST T. Rowe Price Internat'l Bond Portfolio(9) 05/03/94 14.72% 5.50% N/A 5.13%
AST Federated High Yield Portfolio 01/04/94 2.61% 9.80% 8.94% 8.94%
AST PIMCO Total Return Bond Portfolio 01/04/94 9.46% 7.54% 7.58% 7.58%
AST PIMCO Limited Maturity Bond Portfolio 05/02/95 5.72% 5.68% N/A 5.94%
</TABLE>
(1) Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor to
the Portfolio. The performance information provided in the above chart
reflects that of the Portfolio for periods during part of which the
Portfolio was sub-advised by the prior Sub-advisor.
(2) Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor to
the Portfolio. From October 15, 1996 to May 3, 1999, Putnam Investment
Management, Inc. served as Sub-advisor to the Portfolio. The performance
information provided in the above chart reflects that of the Portfolio for
periods during which the Portfolio was sub-advised by the prior
Sub-advisors.
(3) Prior to January 1, 1999, Founders Asset Management LLC served as
Sub-advisor to the Portfolio. The performance information provided in the
above chart reflects that of the Portfolio for periods during which the
Portfolio was sub-advised by the prior Sub-advisor.
(4) Prior to May 1, 1998, Berger Associates, Inc. served as Sub-advisor to the
Portfolio. The performance information provided in the above chart reflects
that of the Portfolio for periods during part of which the Portfolio was
sub-advised by the prior Sub-advisor.
(5) Prior to May 1, 1998, Federated Investment Counseling served as Sub-advisor
to the Portfolio. The performance information provided in the above chart
reflects that of the Portfolio for periods during part of which the
Portfolio was sub-advised by the prior Sub-advisor.
(6) Prior to December 31, 1998, Robertson, Stephens & Company Investment
Management L.P. served as Sub-advisor to the Portfolio. The performance
information provided in the above chart reflects that of the Portfolio for
periods during nearly all of which the Portfolio was sub-advised by the
prior Sub-advisor.
(7) Prior to May 4, 1999, Putnam Investment Management, Inc. served as
Sub-advisor to the Portfolio. The performance information provided in the
above chart reflects that of the Portfolio for periods during which the
Portfolio was sub-advised by the prior Sub-advisor.
(8) Prior to October 15, 1996, Phoenix Investment Counsel, Inc. served as
Sub-advisor to the Portfolio. From October 15, 1996 to May 3, 1999, Putnam
Investment Management served as Sub-advisor to the Portfolio. The
performance information provided in the above chart reflects that of the
Portfolio for periods during which the Portfolio was sub-advised by the
prior Sub-advisors.
(9) Prior to May 1, 1996, Scudder, Stevens & Clark, Inc. served as Sub-advisor
to the Portfolio. The performance information provided in the above chart
reflects that of the Portfolio for periods during part of which the
Portfolio was sub-advised by the prior Sub-advisor.
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. Quotations of a
Portfolio's yield (other than the AST Money Market Portfolio) are based on the
investment income per share earned during a particular 30-day period (including
dividends, if any, and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
net asset value per share on the last day of the period, according to the
following formula:
YIELD = 2[(a-b + 1)6 -1]
cd
where: a = dividend and interest income
b = expenses accrued for the period
c = average daily number of shares outstanding during the period that
were entitled to receive dividends d = maximum net asset value per
share on the last day of the period
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 (for instance,
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 AST Money Market Portfolio yield refers to the income generated by
an investment in the Portfolio over a seven-day period expressed as an annual
percentage rate. Such Portfolio also may calculate an effective yield by
compounding the base period return over a one-year period. The effective yield
will be slightly higher than the yield because of the compounding effect on this
assumed reinvestment.
The current yield and effective yield calculations for shares of the
AST Money Market Portfolio are illustrated for the seven-day period ended
December 31, 1998:
Current Yield Effective Yield
4.75% 4.86%
Such Portfolio's total return is based on the overall dollar or
percentage change in value of a hypothetical investment in the Portfolio
assuming dividend distributions are reinvested.
The Portfolios impose no sales or other charges that would impact the
total return or yield computations. Portfolio performance figures are based upon
historical results and are not intended to indicate future performance. The
investment return and principal value of an investment in any of the Portfolios
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Yield and total returns quoted from the Portfolios include the effect
of deducting each Portfolio's expenses, but may not include charges and expenses
attributable to any particular insurance product. Because shares of the
Portfolios may be purchased through variable insurance contracts, the prospectus
of the Participating Insurance Company sponsoring such contract should be
carefully reviewed for information on relevant charges and expenses. Excluding
these charges from quotations of each Portfolio's performance has the effect of
increasing the performance quoted. The effect of these charges should be
considered when comparing a Portfolio's performance to that of other mutual
funds. In advertising and sales literature, these figures will be accompanied by
figures that reflect the applicable contract charges.
From time to time in advertisements or sales material, the Portfolios
(or Participating Insurance Companies) may discuss their performance ratings or
other information as published by recognized mutual fund statistical or rating
services, such as Lipper Analytical Services, Inc., Morningstar or by
publications of general interest, such as Forbes or Money. The Portfolios may
also compare their performance to that of other selected mutual funds, mutual
fund averages or recognized stock market indicators, including the Standard &
Poor's 500 Stock Index, the Standard & Poor Midcap Index, the Dow Jones
Industrial Average, the Russell 2000 and the NASDAQ composite. In addition, the
Portfolios may compare their total return or yield to the yield on U.S. Treasury
obligations and to the percentage change in the Consumer Price Index. Each of
the AST Janus Overseas Growth Portfolio, AST T. Rowe Price International Equity
Portfolio, AST T. Rowe Price International Bond Portfolio, AST Founders Passport
Portfolio, AST American Century International Growth Portfolio and AST AIM
International Equity Portfolio may compare its performance to the record of
global market indicators such as Morgan Stanley Capital International Europe,
Australia, Far East Index (EAFE Index), an unmanaged index of foreign common
stock prices translated into U.S. dollars. Such performance ratings or
comparisons may be made with funds that may have different investment
restrictions, objectives, policies or techniques than the Portfolios and such
other funds or market indicators may be comprised of securities that differ
significantly from the Portfolios' investments.
CUSTODIAN:
The custodian for all cash and securities holdings of the AST Founders
Passport Portfolio, AST T. Rowe Price International Equity Portfolio, AST AIM
International Equity Portfolio, AST Janus Overseas Growth Portfolio, AST
American Century International Growth Portfolio and AST T. Rowe Price
International Bond Portfolio is The Chase Manhattan Bank, One Pierrepont,
Brooklyn, New York. The custodian for all cash and securities holdings of the
other Portfolios is PNC Bank, Airport Business Center, International Court 2,
200 Stevens Drive, Philadelphia, Pennsylvania 19113. For these Portfolios, The
Chase Manhattan Bank will serve as co-custodian with respect to foreign
securities holdings.
OTHER INFORMATION:
Principal Holders: As of April 15, 1999, more than 99% of each
Portfolio was owned of record by American Skandia Life Assurance Corporation
("ASLAC") on behalf of the owners of variable annuity contracts issued by ASLAC.
As of April 15, 1999, the amount of shares of the Trust owned by the ten persons
who were the officers and directors of the Trust at that time and who are shown
as such in the section of this Statement entitled "Management," was less than
one percent of the shares. To the knowledge of the Trust, no person owned
beneficially more than 5% of any class of the Trust's outstanding shares as of
April 15, 1999.
The Participating Insurance Companies are not obligated to continue to
invest in shares of any Portfolio under all circumstances. Variable annuity and
variable life insurance policy holders should refer to the prospectuses for such
products for a description of the circumstances in which such a change might
occur.
Reports to Holders: Holders of variable annuity contracts or variable
life insurance policies issued by Participating Insurance Companies for which
shares of the Trust are the investment vehicle will receive from the
Participating Insurance Companies, unaudited semi-annual financial statements
and audited year-end financial statements. Participants in the Skandia Qualified
Plan may request such information from the plan's trustees. Each report will
show the investments owned by the Trust and the market values of the investments
and will provide other information about the Trust and its operations.
FINANCIAL STATEMENTS: The statements which follow in Appendix A of this
Statement of Additional Information are Audited Financial Statements for the
Trust for the year ended December 31, 1998. To the extent and only to the extent
that any statement in a document incorporated by reference into this Statement
is modified or superseded by a statement in this Statement or in a later-filed
document, such statement is hereby deemed so modified or superseded and not part
of this Statement.
You may obtain, without charge, a copy of any or all the documents
incorporated by reference in this Statement, including any exhibits to such
documents which have been specifically incorporated by reference. We send such
documents upon receipt of your written or oral request. Please address your
request to American Skandia Trust, P.O. Box 883, Shelton, Connecticut, 06484 or
call (203) 926-1888.
<PAGE>
APPENDIXES
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA TRUST
APPENDIX B DESCRIPTIONS OF CERTAIN DEBT SECURITIES RATINGS
<PAGE>
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA TRUST
<PAGE>
AMERICAN SKANDIA TRUST
SCHEDULES OF INVESTMENTS
DECEMBER 31, 1998
AST PUTNAM INTERNATIONAL EQUITY PORTFOLIO
LORD ABBETT GROWTH AND INCOME PORTFOLIO
JANCAP GROWTH PORTFOLIO
AST MONEY MARKET PORTFOLIO
NEUBERGER&BERMAN MID-CAP VALUE PORTFOLIO
AST PUTNAM BALANCED PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PIMCO TOTAL RETURN BOND PORTFOLIO
INVESCO EQUITY INCOME PORTFOLIO
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
T. ROWE PRICE INTERNATIONAL BOND PORTFOLIO
NEUBERGER&BERMAN MID-CAP GROWTH PORTFOLIO
FOUNDERS PASSPORT PORTFOLIO
T. ROWE PRICE NATURAL RESOURCES PORTFOLIO
PIMCO LIMITED MATURITY BOND PORTFOLIO
AST OPPENHEIMER LARGE-CAP GROWTH PORTFOLIO
AST JANUS OVERSEAS GROWTH PORTFOLIO
AST PUTNAM VALUE GROWTH & INCOME PORTFOLIO
TWENTIETH CENTURY STRATEGIC BALANCED PORTFOLIO
TWENTIETH CENTURY INTERNATIONAL GROWTH PORTFOLIO
T. ROWE PRICE SMALL COMPANY VALUE PORTFOLIO
MARSICO CAPITAL GROWTH PORTFOLIO
COHEN & STEERS REALTY PORTFOLIO
LORD ABBETT SMALL CAP VALUE PORTFOLIO
BANKERS TRUST ENHANCED 500 PORTFOLIO
STEIN ROE VENTURE PORTFOLIO
<PAGE>
AST PUTNAM INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FOREIGN STOCK -- 98.3%
AUSTRALIA -- 1.1%
Cable & Wireless Optus Ltd.
144A*........................... 300,000 $ 631,149
Coles Myer Ltd. .................. 340,800 1,787,237
News Corp. Ltd. .................. 298,400 1,973,032
News Corp. Ltd. [ADR]............. 51,500 1,361,531
------------
5,752,949
------------
BRAZIL -- 0.9%
Companhia Energetica de Minas
Geras [ADR]..................... 134,500 2,560,424
Telesp Celular Participacoes SA
Pfd.*........................... 155,700 1,127,631
Telesp Participacoes SA Pfd.*..... 33,200 755,670
------------
4,443,725
------------
CANADA -- 4.0%
Bank of Nova Scotia............... 269,467 5,912,365
BCE, Inc. ........................ 213,581 8,065,223
BCE Mobile Communications,
Inc.*........................... 89,015 2,405,122
BCE Mobile Communications, Inc.
144A*........................... 4,900 132,394
Bombardier, Inc. Cl-B............. 209,380 2,937,705
Royal Bank of Canada.............. 9,800 486,829
------------
19,939,638
------------
FINLAND --2.7%
Huhtamaki Co. .................... 71,434 2,736,994
Nokia Oyj Cl-A.................... 68,512 8,389,296
Sampo Insurance Co. Ltd. Cl-A..... 55,900 2,136,289
------------
13,262,579
------------
FRANCE -- 15.3%
Assurances Generales de France.... 1,100 65,732
AXA SA............................ 45,667 6,621,948
Banque Nationale de Paris......... 101,797 8,386,483
Bouygues SA....................... 26,906 5,548,811
Credit Commercial de France....... 19,140 1,778,310
Equant NV*........................ 11,430 795,761
France Telecom SA................. 21,730 1,727,193
Groupe Danone..................... 8,322 2,383,669
ISIS.............................. 1,750 125,000
Lafarge SA........................ 49,912 4,744,580
Michelin C.G.D.E. Cl-B............ 89,718 3,589,677
Scor SA........................... 87,410 5,781,944
Societe Generale.................. 29,508 4,780,647
Societe Nationale Elf Aquitaine
SA.............................. 27,389 3,167,430
Societe Television Francaise...... 28,172 5,018,097
STMicroelectronics NV NY Reg*..... 103,000 8,040,437
Total SA Cl-B..................... 26,164 2,651,056
Vivendi........................... 42,599 11,057,723
------------
76,264,498
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
GERMANY -- 6.8%
Bayerische Motoren Werke AG....... 3,136 $ 2,442,115
Bayerische Motoren Werke AG
(New)*.......................... 1,248 957,625
Deutsche Telekom AG............... 113,160 3,719,865
Hoechst AG........................ 166,912 6,904,893
Mannesmann AG..................... 95,560 11,059,123
Veba AG........................... 65,769 3,897,522
Volkswagen AG..................... 62,137 5,029,101
------------
34,010,244
------------
GREECE -- 0.6%
Hellenic Telecommunication
Organization SA................. 95,722 2,546,510
Hellenic Telecommunication
Organization SA [ADR]*.......... 44,500 589,625
------------
3,136,135
------------
HONG KONG -- 0.6%
China Telecom Ltd. ............... 151,000 261,184
Hong Kong & China Gas Co. Ltd. ... 764,000 971,393
Smartone Telecommunications
Holdings Ltd. .................. 423,500 1,175,323
Smartone Telecommunications
Holdings Ltd. 144A*............. 196,000 543,951
------------
2,951,851
------------
IRELAND -- 4.1%
Allied Irish Banks PLC............ 305,143 5,473,274
Bank of Ireland PLC............... 329,322 7,340,744
CRH PLC........................... 437,974 7,575,032
------------
20,389,050
------------
ITALY -- 3.0%
Banca Popolare di Brescia......... 46,400 1,134,046
Telecom Italia SPA................ 1,526,491 13,053,321
Unione Immobliliare SPA*.......... 1,352,700 707,158
------------
14,894,525
------------
JAPAN -- 10.4%
Canon, Inc. ...................... 32,000 685,127
Chubu Electric Power Co., Inc. ... 67,000 1,354,296
Eisai Co. Ltd. ................... 44,000 858,182
Fujitsu Ltd. ..................... 322,700 4,305,657
Honda Motor Co. Ltd. ............. 56,000 1,841,899
Kita Kyushu Coca-Cola Bottling.... 1,300 40,799
Mabuchi Motor Co. Ltd. ........... 37,000 2,837,408
Matsushita-Kotobuki Electronics
Industries Ltd. ................ 100,000 2,163,186
Mitsumi Electric Co. Ltd. ........ 124,700 2,642,216
Murata Manufacturing Co. Ltd. .... 9,000 352,670
Nikko Securities Co. Ltd. ........ 1,641,000 4,582,718
Nippon Telegraph & Telephone
Corp. .......................... 6,340 4,901,282
Nippon Television Network
Corp. .......................... 8,520 2,515,288
Promise Co. Ltd. ................. 43,700 2,278,047
Ricoh Co. Ltd. ................... 153,000 1,413,394
Rohm Co. Ltd. .................... 4,000 366,678
Sankyo Co. Ltd. .................. 212,000 4,642,338
Shin-Etsu Chemical Co. Ltd. ...... 20,000 482,284
</TABLE>
<PAGE>
AST PUTNAM INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Shiseido Co. Ltd. ................ 74,000 $ 952,582
Sony Corp. ....................... 37,400 2,728,823
TDK Corp. ........................ 22,000 2,014,777
Tokyo Electric Power Co. ......... 71,900 1,778,431
Yamanouchi Pharmaceutical Co.
Ltd. ........................... 181,000 5,840,956
------------
51,579,038
------------
KOREA -- 2.2%
Korea Electric Power Corp. ....... 239,194 5,927,811
Pohang Iron & Steel Co. Ltd.
[ADR]........................... 59,600 1,005,750
Samsung Electronics Co. .......... 58,060 3,896,533
------------
10,830,094
------------
MEXICO -- 2.1%
Coca-Cola Femsa SA [ADR].......... 165,134 2,188,026
Fomento Economico Mexicano SA de
CV UBD Units*................... 1,031,490 2,753,502
Grupo Televisa SA [GDR]*.......... 73,200 1,807,125
Telefonos de Mexico SA Cl-L
[ADR]........................... 77,391 3,767,974
------------
10,516,627
------------
NETHERLANDS -- 9.3%
AKZO Nobel NV..................... 183,166 8,344,937
ASM Lithography Holding NV*....... 25,400 774,700
Benckiser NV Cl-B................. 4,770 312,634
Gucci Group NV NY Reg............. 38,627 1,878,238
ING Groep NV...................... 224,885 13,720,757
KNP NV............................ 88,676 4,441,667
Koninklijke Ahold NV.............. 196,938 7,282,845
Koninklijke (Royal) Philips
Electronics NV.................. 42,730 2,868,901
Laurus NV......................... 37,133 937,887
TNT Post Group NV................. 81,210 2,618,044
Vedior NV......................... 68,875 1,357,924
Vendex NV......................... 61,642 1,497,799
------------
46,036,333
------------
POLAND -- 0.1%
Bank Handlowy W Warszawie [GDR]
144A............................ 24,900 307,179
------------
307,179
------------
PORTUGAL -- 1.6%
Cimpor-Cimentos de Portugal SA.... 37,994 1,212,857
Electicidade de Portugal SA....... 148,119 3,261,228
Portugal Telecom SA............... 72,077 3,304,803
------------
7,778,888
------------
SINGAPORE -- 1.5%
Oversea-Chinese Banking Corp.
Ltd............................. 717,000 4,867,027
United Overseas Bank Ltd.......... 382,000 2,454,120
------------
7,321,147
------------
SPAIN -- 1.2%
Telefonica SA..................... 132,807 5,914,351
Telefonica SA Bonus Rights*....... 132,807 118,100
------------
6,032,451
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
SWEDEN -- 5.3%
Ericsson, (L.M.) Telephone Co.
Cl-B............................ 203,826 $ 4,853,275
ForeningsSparbanken AB............ 75,280 1,950,370
Nordbanken Holding Co. AB......... 234,918 1,507,085
Pharmacia & Upjohn, Inc........... 234,662 13,143,671
Sandvik AB Cl-B................... 26,000 449,076
SKF AB Cl-B....................... 72,130 840,942
Svenska Handelsbanken Cl-A........ 44,156 1,863,090
Volvo AB Cl-B*.................... 81,186 1,862,997
------------
26,470,506
------------
SWITZERLAND -- 10.4%
Compagnie Financiere Richemont
AG -- A Units................... 2,628 3,715,799
Edipresse S.A. Bearer............. 3,167 910,800
Fischer, (Georg) AG............... 6,015 2,034,225
Julius Baer Holdings AG Cl-B...... 2,103 6,989,687
Kuoni Reisen AG................... 361 1,432,456
Nestle SA......................... 4,638 10,096,703
Novartis AG....................... 6,498 12,773,830
PubliGroupe SA.................... 7,915 2,420,348
Swisscom AG*...................... 8,270 3,462,191
UBS AG............................ 25,393 7,801,967
------------
51,638,006
------------
UNITED KINGDOM -- 15.1%
Allied Zurich PLC*................ 483,331 7,209,395
Avis Europe PLC................... 203,705 855,789
Bass PLC.......................... 277,271 4,036,606
British Airways PLC............... 515,876 3,478,341
Cable & Wireless PLC.............. 640,800 7,878,994
Dixons Group PLC.................. 340,050 4,783,659
EMI Group PLC..................... 324,300 2,169,086
Granada Group PLC................. 394,800 6,979,269
Marks & Spencer PLC............... 492,000 3,374,657
National Westminster Bank PLC..... 309,732 5,972,737
Orange PLC*....................... 382,002 4,439,519
Scottish Power PLC................ 5,100 52,398
Securicor PLC..................... 903,871 7,579,505
Siebe PLC......................... 1,394,840 5,500,176
Smiths Industries PLC............. 270,811 3,863,708
SmithKline Beecham PLC............ 320,700 4,482,106
Vodafone Group PLC................ 150,341 2,441,356
------------
75,097,301
------------
TOTAL FOREIGN STOCK
(Cost $409,590,244)................. 488,652,764
------------
U.S. STOCK -- 0.8%
INSURANCE
AFLAC, Inc.
(Cost $3,061,067)................... 94,530 4,159,320
------------
</TABLE>
<PAGE>
AST PUTNAM INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
COMMERCIAL PAPER -- 1.0%
GTE Funding, Inc.
5.27%, 02/11/99................. $1,500 $ 1,490,997
Windmill Funding Corp.
5.28%, 01/13/99................. 3,500 3,493,737
------------
(Cost $4,984,837)................. 4,984,734
------------
TOTAL INVESTMENTS -- 100.1%
(Cost $417,636,148)......................... 497,796,818
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.1%)............................ (335,450)
------------
NET ASSETS -- 100.0%.......................... $497,461,368
============
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1998:
<TABLE>
<CAPTION>
IN UNREALIZED
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
MONTH TYPE RECEIVE FOR AT VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99 Buy FRF 860,325 $ 153,822 $ 154,014 $ 192
01/99 Buy GBP 268,192 448,954 446,110 (2,844)
03/99 Buy GBP 12,801,000 21,614,569 21,243,652 (370,917)
01/99 Buy JPY 4,206,300 36,349 37,312 963
03/99 Buy JPY 2,928,787,000 25,660,148 26,221,055 560,907
----------- ----------- -----------
$47,913,842 $48,102,143 $ 188,301
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
IN UNREALIZED
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
MONTH TYPE DELIVER FOR AT VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/99 Sell GBP 12,801,000 $21,384,070 $21,243,652 $ 140,418
03/99 Sell JPY 2,928,787,000 22,391,338 26,221,055 (3,829,717)
----------- ----------- -----------
$43,775,408 $47,464,707 $(3,689,299)
=========== =========== ===========
</TABLE>
The following is a breakdown of the foreign stock portion of the Portfolio, by
industry classification, as of December 31, 1998. Percentages are based on net
assets.
<TABLE>
<CAPTION>
INDUSTRY
- --------
<S> <C>
Advertising........................................ 0.5%
Aerospace.......................................... 0.8%
Airlines........................................... 0.7%
Automobile Manufacturers........................... 2.6%
Automotive Parts................................... 1.2%
Beverages.......................................... 0.5%
Broadcasting....................................... 1.1%
Building Materials................................. 2.3%
Business Services.................................. 0.9%
Chemicals.......................................... 3.1%
Clothing & Apparel................................. 0.4%
Computer Hardware.................................. 0.4%
Computer Services & Software....................... 1.0%
Conglomerates...................................... 1.3%
Construction....................................... 1.5%
Consumer Products & Services....................... 4.1%
Electronic Components & Equipment.................. 4.2%
Entertainment & Leisure............................ 2.4%
Financial -- Bank & Trust.......................... 16.6%
Financial Services................................. 1.5%
Food............................................... 2.1%
Industrial Products................................ 3.3%
Insurance.......................................... 4.4%
Machinery & Equipment.............................. 2.3%
Medical Supplies & Equipment....................... 0.9%
Metals & Mining.................................... 0.5%
Office Equipment................................... 0.4%
Oil & Gas.......................................... 1.2%
Pharmaceuticals.................................... 7.5%
Printing & Publishing.............................. 0.6%
Real Estate........................................ 0.2%
Retail & Merchandising............................. 2.3%
Semiconductors..................................... 1.8%
Telecommunications................................. 19.6%
Transportation..................................... 0.8%
Utilities.......................................... 3.3%
----
TOTAL.............................................. 98.3%
====
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stock.
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
144A -- Security was purchased pursuant to rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 0.3% of net assets.
See Notes to Financial Statements.
<PAGE>
LORD ABBETT GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C>
COMMON STOCK -- 92.6%
AEROSPACE -- 0.9%
United Technologies Corp. ..... 100,000 $ 10,875,000
--------------
AUTOMOBILE MANUFACTURERS -- 2.3%
Ford Motor Co.................. 210,000 12,324,375
General Motors Corp............ 210,000 15,028,125
--------------
27,352,500
--------------
BROADCASTING -- 1.2%
CBS Corp. ..................... 440,000 14,410,000
--------------
CHEMICALS -- 0.9%
Du Pont, (E.I.) de Nemours &
Co. ......................... 200,000 10,612,500
--------------
CLOTHING & APPAREL -- 1.0%
VF Corp. ...................... 250,000 11,718,750
--------------
COMPUTER HARDWARE -- 6.0%
EMC Corp.*..................... 250,000 21,250,000
International Business Machines
Corp. ....................... 200,000 36,950,000
Seagate Technology, Inc.*...... 425,000 12,856,250
--------------
71,056,250
--------------
COMPUTER SERVICES & SOFTWARE -- 3.7%
First Data Corp. .............. 450,000 14,259,375
Sun Microsystems, Inc.*........ 340,000 29,112,500
--------------
43,371,875
--------------
CONGLOMERATES -- 2.0%
Philip Morris Companies,
Inc. ........................ 450,000 24,075,000
--------------
CONSUMER PRODUCTS & SERVICES -- 1.3%
Eastman Kodak Co. ............. 160,000 11,520,000
Fortune Brands, Inc. .......... 129,700 4,101,762
--------------
15,621,762
--------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 4.2%
Emerson Electric Co. .......... 470,000 29,404,375
Texas Instruments, Inc. ....... 230,000 19,679,375
--------------
49,083,750
--------------
ENTERTAINMENT & LEISURE -- 0.7%
Time Warner, Inc. ............. 130,000 8,068,125
--------------
ENVIRONMENTAL SERVICES -- 2.1%
Waste Management, Inc. ........ 520,000 24,245,000
--------------
FINANCIAL-BANK & TRUST -- 6.2%
Bank One Corp. ................ 270,000 13,786,875
BankAmerica Corp. ............. 230,000 13,828,750
Chase Manhattan Corp. ......... 340,000 23,141,250
First Union Corp. ............. 380,000 23,108,750
--------------
73,865,625
--------------
FINANCIAL SERVICES -- 1.6%
Morgan Stanley, Dean Witter &
Co. ......................... 260,000 18,460,000
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FOOD -- 6.5%
Bestfoods, Inc. ............... 270,000 $ 14,377,500
ConAgra, Inc. ................. 500,000 15,750,000
Heinz, (H.J.) Co. ............. 450,000 25,481,250
Ralston Purina Group........... 670,000 21,691,250
--------------
77,300,000
--------------
HEALTHCARE SERVICES -- 1.2%
Columbia HCA Healthcare
Corp. ....................... 560,000 13,860,000
--------------
INSURANCE -- 8.3%
Aetna, Inc. ................... 80,000 6,290,000
American General Corp. ........ 390,000 30,420,000
Chubb Corp. ................... 240,000 15,570,000
CIGNA Corp. ................... 160,000 12,370,000
Jefferson-Pilot Corp. ......... 210,000 15,750,000
St. Paul Companies, Inc. ...... 500,000 17,375,000
--------------
97,775,000
--------------
MACHINERY & EQUIPMENT -- 1.2%
Deere & Co. ................... 440,000 14,575,000
--------------
MEDICAL SUPPLIES & EQUIPMENT -- 1.9%
Baxter International, Inc. .... 340,000 21,866,250
--------------
OIL & GAS -- 9.3%
British Petroleum Co. PLC
[ADR]........................ 300,000 26,887,500
Coastal Corp. ................. 530,000 18,516,875
Mobil Corp. ................... 370,000 32,236,250
Occidental Petroleum Corp. .... 600,000 10,125,000
Total SA [ADR]................. 450,000 22,387,500
--------------
110,153,125
--------------
PAPER & FOREST PRODUCTS -- 2.3%
Georgia Pacific Group.......... 260,000 15,226,250
Georgia-Pacific Timber Group... 500,000 11,906,250
--------------
27,132,500
--------------
PHARMACEUTICALS -- 4.3%
American Home Products
Corp. ....................... 510,000 28,719,375
Pharmacia & Upjohn, Inc. ...... 390,000 22,083,750
--------------
50,803,125
--------------
PRINTING & PUBLISHING -- 1.4%
Dow Jones & Co., Inc. ......... 340,000 16,362,500
--------------
RETAIL & MERCHANDISING -- 3.4%
May Department Stores Co. ..... 170,000 10,263,750
Wal-Mart Stores, Inc. ......... 370,000 30,131,875
--------------
40,395,625
--------------
TELECOMMUNICATIONS -- 11.6%
Alltel Corp. .................. 340,000 20,336,250
AT&T Corp. .................... 540,000 40,635,000
Bell Atlantic Corp. ........... 460,000 26,133,750
MCI WorldCom, Inc.*............ 330,000 23,677,500
SBC Communications, Inc. ...... 500,000 26,812,500
--------------
137,595,000
--------------
</TABLE>
<PAGE>
LORD ABBETT GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
UTILITIES -- 7.1%
Carolina Power & Light Co. .... 450,000 $ 21,178,125
Duke Energy Corp. ............. 390,000 24,984,375
FirstEnergy Corp. ............. 590,000 19,211,875
Florida Progress Corp. ........ 415,000 18,597,188
--------------
83,971,563
--------------
TOTAL COMMON STOCK (Cost
$899,196,791).................... 1,094,605,825
--------------
PREFERRED STOCK -- 2.5%
INSURANCE -- 1.3%
Aetna, Inc. Cl-C 6.25%......... 200,000 15,212,500
--------------
UTILITIES -- 1.2%
Houston Industries, Inc.
7.00%........................ 140,000 14,892,500
--------------
TOTAL PREFERRED STOCK (Cost
$25,836,403)..................... 30,105,000
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 4.3%
Temporary Investment Cash
Fund......................... 25,152,892 $ 25,152,892
Temporary Investment Fund...... 25,152,892 25,152,892
--------------
(Cost $50,305,784)............. 50,305,784
--------------
TOTAL INVESTMENTS -- 99.4%
(Cost $975,338,978).............. 1,175,016,609
OTHER ASSETS LESS
LIABILITIES -- 0.6%................ 6,892,533
--------------
NET ASSETS -- 100.0%............... $1,181,909,142
==============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
JANCAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C>
COMMON STOCK -- 85.2%
BEVERAGES -- 1.8%
Coca-Cola Co. ................. 615,650 $ 41,171,594
Coca-Cola Enterprises, Inc. ... 492,835 17,618,851
--------------
58,790,445
--------------
COMPUTER HARDWARE -- 8.0%
Dell Computer Corp.*........... 3,542,160 259,241,835
--------------
COMPUTER SERVICES & SOFTWARE -- 28.1%
America Online, Inc.*.......... 2,887,120 417,910,620
Cisco Systems, Inc.*........... 1,802,270 167,273,184
EarthLink Network, Inc.*....... 350,000 19,950,000
Edwards, (J.D.) & Co.*......... 661,365 18,766,232
Intuit, Inc.*.................. 422,006 30,595,435
Microsoft Corp.*............... 1,577,900 218,835,006
VERITAS Software Corp.*........ 710,820 42,604,774
--------------
915,935,251
--------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 6.6%
General Electric Co. .......... 1,251,950 127,777,147
Texas Instruments, Inc. ....... 1,021,650 87,414,928
--------------
215,192,075
--------------
ENTERTAINMENT & LEISURE -- 4.7%
Time Warner, Inc. ............. 2,477,080 153,733,777
--------------
FINANCIAL-BANK & TRUST -- 0.4%
U.S. Bancorp................... 318,455 11,305,153
--------------
FINANCIAL SERVICES -- 4.1%
Fannie Mae..................... 971,065 71,858,810
Schwab, (Charles) Corp. ....... 1,103,265 61,989,702
--------------
133,848,512
--------------
FOOD -- 2.3%
Safeway, Inc.*................. 1,226,190 74,720,953
--------------
OFFICE EQUIPMENT -- 1.3%
Staples, Inc.*................. 962,670 42,056,646
--------------
PHARMACEUTICALS -- 11.6%
Lilly, (Eli) & Co. ............ 1,132,170 100,621,609
Monsanto Co. .................. 486,455 23,106,612
Pfizer, Inc. .................. 1,025,475 128,633,020
Warner-Lambert Co. ............ 1,658,775 124,719,145
--------------
377,070,386
--------------
RETAIL & MERCHANDISING -- 4.4%
Costco Companies, Inc.*........ 874,555 63,131,939
Home Depot, Inc. .............. 499,545 30,565,910
Meyer, (Fred), Inc.*........... 835,500 50,338,875
--------------
144,036,724
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
TELECOMMUNICATIONS -- 11.9%
Global TeleSystems Group,
Inc.*........................ 442,635 $ 24,676,901
Lucent Technologies, Inc. ..... 576,635 63,429,850
MCI WorldCom, Inc.*............ 1,339,410 96,102,668
Nokia Corp. Cl-A [ADR]......... 1,260,180 151,772,929
Qwest Communications
International, Inc.*......... 1,003,100 50,155,000
--------------
386,137,348
--------------
TOTAL COMMON STOCK
(Cost $1,349,292,501)............ 2,772,079,105
--------------
FOREIGN STOCK -- 2.1%
AUTOMOBILE MANUFACTURERS -- 1.0%
Porsche AG Pfd. -- (DEM)....... 13,419 30,858,092
--------------
COMPUTER SERVICES & SOFTWARE -- 1.1%
SAP AG Pfd. -- (DEM)........... 76,327 36,639,270
--------------
TOTAL FOREIGN STOCK
(Cost $53,174,500)............... 67,497,362
--------------
PAR
(000)
----------
<S> <C>
CORPORATE OBLIGATIONS -- 2.2%
ENTERTAINMENT & LEISURE -- 1.4%
Venetian Casino Resort LLC Co.
Guarantee Notes
12.25%, 11/15/04............. $ 49,725 46,741,500
--------------
TELECOMMUNICATIONS -- 0.8%
Lenfest Communications, Inc.
Sr. Notes
7.625%, 02/15/08............. 11,295 11,760,919
Lenfest Communications, Inc.
Sr. Sub. Notes
8.25%, 02/15/08.............. 12,480 12,948,000
--------------
24,708,919
--------------
TOTAL CORPORATE OBLIGATIONS
(Cost $73,520,003)............... 71,450,419
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 8.2%
Federal Home Loan Bank Discount
Notes 4.98%, 01/19/99........ 57,710 57,563,907
--------------
Federal Mortgage Corp. Discount
Notes
4.72%, 03/04/99.............. 50,000 49,587,000
4.74%, 01/22/99.............. 50,000 49,859,520
4.98%, 01/04/99.............. 50,000 49,978,904
5.10%, 01/20/99.............. 60,000 59,838,500
--------------
209,263,924
--------------
(Cost $266,839,358)............ 266,827,831
--------------
COMMERCIAL PAPER -- 2.2%
CIT Group Holdings
5.30%, 01/04/99
(Cost $72,867,803)............. 72,900 72,867,803
--------------
</TABLE>
<PAGE>
JANCAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 0.0%
Temporary Investment Cash
Fund......................... 65,641 $ 65,641
Temporary Investment Fund...... 65,641 65,641
--------------
(Cost $131,282)................ 131,282
--------------
TOTAL INVESTMENTS -- 99.9%
(Cost $1,815,825,447)............ 3,250,853,802
OTHER ASSETS LESS
LIABILITIES -- 0.1%.............. 4,804,151
--------------
NET ASSETS -- 100.0%............... $3,255,657,953
==============
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1998:
<TABLE>
<CAPTION>
IN
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE RECEIVE FOR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99 Buy DEM 16,000,000 $ 9,582,787 $ 9,616,020 $ 33,233
=========== =========== ========
IN
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE DELIVER FOR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
01/99 Sell DEM 116,000,000 $70,272,701 $69,714,084 $558,617
=========== =========== ========
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stock.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
AST MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
CORPORATE OBLIGATIONS -- 41.2%
BEVERAGES -- 3.6%
PepsiCo, Inc. Medium Term Notes
[FRN]++++
5.209%, 08/19/99................ $ 35,000 $ 34,975,113
------------
FINANCIAL-BANK & TRUST -- 33.6%
Abbey National Treasury Services
PLC Co. Guarantee Notes
[FRN]++++
5.456%, 06/01/99................ 35,000 34,984,299
American Express Centurion Notes
[FRN]++++
5.532%, 05/07/99................ 10,000 10,000,000
5.484%, 08/13/99................ 30,000 30,000,000
CoreStates Bank N.A. Notes
[FRN]++++
5.482%, 05/14/99................ 30,000 30,000,000
First Union National Bank Sr.
Notes [FRN]++++
5.208%, 01/25/99................ 25,000 25,000,000
General Motors Acceptance Corp.
Notes [FRN]++++
5.203%, 01/06/99................ 31,000 30,990,259
Key Bank N.A. Notes
5.574%, 10/15/99................ 25,000 25,000,000
4.835%, 09/03/99 [FRN]++++...... 40,000 39,993,430
LINCS Notes [VR]++++
5.544%, 01/29/99................ 25,000 25,000,000
NationsBank Corp. Sr. Medium Term
Notes Cl-F [FRN]++++
5.459%, 11/19/99................ 4,000 4,002,081
Southtrust Bank N.A. Notes
[VR]++++
4.80%, 06/01/99................. 30,000 29,990,307
US Bank N.A. Minnesota Notes
[VR]++++
5.487%, 09/15/99................ 40,000 40,000,000
------------
324,960,376
------------
FINANCIAL SERVICES -- 4.0%
CIT Group, Inc. Sr. Medium Term
Notes [FRN]++++
5.20%, 10/20/99................. 38,400 38,402,980
------------
TOTAL CORPORATE OBLIGATIONS (Cost
$398,338,469)....................... 398,338,469
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 23.5%
Federal Home Loan Bank
5.06%, 01/06/99................. 8,000 7,994,378
Federal Home Loan Mortgage Corp.
4.50%, 01/04/99................. 81,190 81,159,554
Federal National Mortgage Assoc.
4.99%, 02/16/99................. 139,000 138,113,721
------------
(Cost $227,267,653)............... 227,267,653
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
CERTIFICATES OF DEPOSIT -- 23.2%
Abbey National Treasury Services
PLC
5.72%, 06/11/99................. $ 5,000 $ 4,998,733
Bank of America
5.63%, 02/26/99................. 5,000 4,999,706
Bank of Nova Scotia
5.675%, 03/04/99................ 10,000 9,999,430
5.452%, 06/07/99 [VR]++++....... 30,000 29,989,861
Bankers Trust Co. [FRN]++++
5.07%, 05/14/99................. 15,000 14,996,340
Bayerische Vereinsbank NY
5.75%, 05/07/99................. 15,000 14,996,591
Commerzbank NY
5.67%, 03/05/99................. 10,000 9,999,173
Deutsche Bank NY
5.73%, 04/15/99................. 15,000 14,997,953
Dresdner Bank
4.95%, 11/09/99................. 30,000 29,990,101
Rabobank Nederland
5.62%, 02/03/99................. 35,000 34,999,789
5.78%, 05/05/99................. 10,000 9,998,627
Societe Generale NY [VR]++++
5.539%, 05/26/99................ 20,000 19,994,520
Toronto Dominion Bank
5.65%, 07/26/99................. 25,000 24,991,889
------------
(Cost $224,952,713)............... 224,952,713
------------
COMMERCIAL PAPER -- 8.4%
FINANCIAL-BANK & TRUST -- 3.2%
NationsBank Corp.
5.50%, 02/02/99................. 31,600 31,445,511
------------
FINANCIAL SERVICES -- 5.1%
Province of Quebec
5.50%, 01/11/99................. 20,000 19,969,444
San Paolo US Financial Co.
5.49%, 02/08/99................. 30,000 29,826,150
------------
49,795,594
------------
TOTAL COMMERCIAL PAPER
(Cost $81,241,105).................. 81,241,105
------------
</TABLE>
<PAGE>
AST MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 3.4%
Greentree Steers Corp. [VR]++++
5.574%, 11/15/99................ $ 16,701 $ 16,698,107
The Money Store, Inc. [VR]++++
5.574%, 11/15/99................ 16,250 16,249,064
------------
(Cost $32,947,171)................ 32,947,171
------------
TOTAL INVESTMENTS -- 99.7%
(Cost $964,747,111)................. 964,747,111
OTHER ASSETS LESS
LIABILITIES -- 0.3%................. 2,986,128
------------
NET ASSETS -- 100.0%.................. $967,733,239
============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
++++ Maturity date reflects the next interest rate change date.
See Notes to Financial Statements.
<PAGE>
NEUBERGER&BERMAN MID-CAP VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 95.8%
AEROSPACE -- 1.8%
Northrop Grumman Corp. ........... 15,000 $ 1,096,875
Raytheon Co. Cl-A................. 74,000 3,824,875
------------
4,921,750
------------
AIRLINES -- 1.2%
Continental Airlines, Inc.
Cl-B*........................... 99,800 3,343,300
------------
AUTOMOTIVE PARTS -- 3.6%
Autozone, Inc.*................... 69,000 2,272,687
Goodyear Tire & Rubber Co. ....... 48,000 2,421,000
Lear Corp.*....................... 63,500 2,444,750
LucasVarity PLC [ADR]............. 76,900 2,576,150
------------
9,714,587
------------
BEVERAGES -- 1.5%
Anheuser-Busch Companies, Inc..... 64,000 4,200,000
------------
BROADCASTING -- 1.1%
Scripps, (E.W.) Co. Cl-A.......... 59,300 2,950,175
------------
CHEMICALS -- 2.1%
Morton International, Inc......... 69,400 1,700,300
Praxair, Inc...................... 112,100 3,951,525
------------
5,651,825
------------
COMPUTER HARDWARE -- 2.4%
Hewlett-Packard Co................ 50,400 3,442,950
Quantum Corp.*.................... 149,000 3,166,250
------------
6,609,200
------------
COMPUTER SERVICES & SOFTWARE -- 2.5%
Computer Associates International,
Inc. ........................... 95,000 4,049,375
Parametric Technology Corp.*...... 170,000 2,783,750
------------
6,833,125
------------
CONSUMER PRODUCTS & SERVICES -- 0.7%
Raychem Corp. .................... 60,000 1,938,750
------------
CONTAINERS & PACKAGING -- 1.2%
Owens-Illinois, Inc.*............. 103,000 3,154,375
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 3.3%
Tandy Corp. ...................... 92,000 3,789,250
Teradyne, Inc.*................... 49,000 2,076,375
Texas Instruments, Inc. .......... 36,000 3,080,250
------------
8,945,875
------------
ENTERTAINMENT & LEISURE -- 0.9%
Mirage Resorts, Inc.*............. 165,000 2,464,687
------------
FINANCIAL-BANK & TRUST -- 8.5%
Bank One Corp. ................... 120,000 6,127,500
BankBoston Corp. ................. 147,000 5,723,812
Chase Manhattan Corp. ............ 63,000 4,287,937
Countrywide Credit Industries,
Inc. ........................... 139,000 6,976,062
------------
23,115,311
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FINANCIAL SERVICES -- 4.2%
Associates First Capital Corp.
Cl-A............................ 85,400 $ 3,618,825
SLM Holding Corp. ................ 154,200 7,401,600
The Dun & Bradstreet Corp. ....... 11,600 366,125
------------
11,386,550
------------
FOOD -- 3.5%
ConAgra, Inc. .................... 143,000 4,504,500
Nabisco Holdings Corp. Cl-A....... 118,000 4,897,000
------------
9,401,500
------------
HEALTHCARE SERVICES -- 2.2%
Tenet Healthcare Corp.*........... 156,400 4,105,500
Wellpoint Health Networks,
Inc.*........................... 23,000 2,001,000
------------
6,106,500
------------
HOTELS & MOTELS -- 1.3%
Crestline Capital Corp. [REIT]*... 23,050 337,106
Host Marriott Corp. [REIT]........ 230,500 3,183,781
------------
3,520,887
------------
INSURANCE -- 9.4%
Ace, Ltd. ........................ 120,000 4,132,500
Aetna, Inc. ...................... 51,000 4,009,875
AON Corp. ........................ 97,000 5,371,375
CIGNA Corp. ...................... 77,000 5,953,062
EXEL Ltd. ........................ 55,500 4,162,500
Orion Capital Corp. .............. 50,900 2,026,456
------------
25,655,768
------------
MACHINERY & EQUIPMENT -- 1.1%
McDermott International, Inc. .... 120,900 2,984,719
------------
MEDICAL SUPPLIES & EQUIPMENT -- 3.5%
Baxter International, Inc. ....... 77,000 4,952,063
Boston Scientific Corp.*.......... 141,300 3,788,606
Centocor, Inc.*................... 15,300 690,413
------------
9,431,082
------------
METALS & MINING -- 1.2%
AK Steel Holding Corp. ........... 143,000 3,360,500
------------
OFFICE EQUIPMENT -- 1.9%
Xerox Corp. ...................... 42,700 5,038,600
------------
OIL & GAS -- 4.5%
Chevron Corp. .................... 30,000 2,488,125
Coastal Corp. .................... 59,000 2,061,313
Texaco, Inc. ..................... 77,600 4,103,100
Tosco Corp. ...................... 138,000 3,570,750
------------
12,223,288
------------
PAPER & FOREST PRODUCTS -- 1.1%
Kimberly-Clark Corp. ............. 53,000 2,888,500
------------
PHARMACEUTICALS -- 4.5%
ALZA Corp.*....................... 94,000 4,911,500
American Home Products Corp. ..... 97,000 5,462,313
Biogen, Inc.*..................... 21,500 1,784,500
------------
12,158,313
------------
PRINTING & PUBLISHING -- 1.0%
New York Times Co. Cl-A........... 81,000 2,809,688
------------
</TABLE>
<PAGE>
NEUBERGER&BERMAN MID-CAP VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
REAL ESTATE -- 0.7%
Indymac Mtge. Holdings, Inc.
[REIT].......................... 190,600 $ 2,013,213
------------
RESTAURANTS -- 1.8%
McDonald's Corp. ................. 28,000 2,145,500
Tricon Global Restaurants,
Inc.*........................... 53,000 2,656,625
------------
4,802,125
------------
RETAIL & MERCHANDISING -- 3.9%
Consolidated Stores Corp.*........ 133,800 2,701,088
Harcourt General, Inc. ........... 79,900 4,249,681
Meyer, (Fred), Inc.*.............. 61,000 3,675,250
------------
10,626,019
------------
TELECOMMUNICATIONS -- 11.1%
Bell Atlantic Corp. .............. 64,000 3,636,000
General Motors Corp. Cl-H......... 101,300 4,020,344
Loral Space & Communications
Corp.*.......................... 141,300 2,516,906
MCI WorldCom, Inc.*............... 77,000 5,524,750
MediaOne Group, Inc.*............. 129,300 6,077,100
Northern Telecom Ltd. ............ 56,000 2,807,000
Williams Companies, Inc. ......... 184,000 5,738,500
------------
30,320,600
------------
UTILITIES -- 8.1%
GPU, Inc. ........................ 44,000 1,944,250
Illinova Corp. ................... 108,000 2,700,000
K N Energy, Inc. ................. 45,000 1,636,875
Niagara Mohawk Power Corp.*....... 250,000 4,031,250
PG&E Corp. ....................... 102,100 3,216,150
Texas Utilities Co. .............. 123,000 5,742,563
Unicom Corp. ..................... 68,500 2,641,531
------------
21,912,619
------------
TOTAL COMMON STOCK
(Cost $245,721,173)................. 260,483,431
------------
<CAPTION>
PAR
(000)
---------
<S> <C> <C>
COMMERCIAL PAPER -- 2.9%
American Express Credit Corp.
6.00%, 01/04/99................. $ 4,000 3,998,000
General Electric Capital Corp.
5.95%, 01/04/99................. 4,000 3,998,017
------------
(Cost $7,996,017)................. 7,996,017
------------
SHARES
---------
SHORT-TERM INVESTMENTS -- 0.8%
Temporary Investment Cash Fund.... 1,015,047 1,015,047
Temporary Investment Fund......... 1,015,047 1,015,047
------------
(Cost $2,030,094)................. 2,030,094
------------
TOTAL INVESTMENTS -- 99.5%
(Cost $255,747,284)................. 270,509,542
OTHER ASSETS LESS
LIABILITIES -- 0.5%................. 1,458,152
------------
NET ASSETS -- 100.0%.................. $271,967,694
============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
U.S. STOCK -- 54.0%
ADVERTISING -- 0.1%
Omnicom Group, Inc. ............... 8,400 $ 487,200
------------
AEROSPACE -- 0.4%
Raytheon Co. Cl-A.................. 20,850 1,077,684
Raytheon Co. Cl-B.................. 6,800 362,100
------------
1,439,784
------------
AIRLINES -- 0.4%
Southwest Airlines Co. ............ 65,047 1,459,492
------------
AUTOMOBILE MANUFACTURERS -- 1.0%
Ford Motor Co. .................... 36,895 2,165,275
General Motors Corp. .............. 28,640 2,049,550
------------
4,214,825
------------
AUTOMOTIVE PARTS -- 0.3%
Dana Corp. ........................ 10,485 428,574
Goodyear Tire & Rubber Co. ........ 19,298 973,343
------------
1,401,917
------------
BEVERAGES -- 0.5%
Anheuser-Busch Companies, Inc. .... 29,435 1,931,672
Coca-Cola Femsa SA [ADR]........... 1,200 15,900
------------
1,947,572
------------
BROADCASTING -- 0.2%
Chancellor Media Corp.*............ 10,550 505,081
Clear Channel Communications,
Inc.*............................ 6,600 359,700
Diva Systems Corp. Warrants*....... 210 0
Grupo Televisa SA [GDR]*........... 538 13,282
News Corp. Ltd. [ADR].............. 4,201 111,064
------------
989,127
------------
CHEMICALS -- 1.0%
Du Pont, (E.I.) de Nemours &
Co. ............................. 41,060 2,178,746
Eastman Chemical Co. .............. 21,377 956,621
Waters Corp.*...................... 4,200 366,450
Witco Corp. ....................... 36,163 576,348
------------
4,078,165
------------
CLOTHING & APPAREL -- 0.4%
Abercrombie & Fitch Co. Cl-A*...... 2,900 205,175
Cintas Corp. ...................... 10,880 766,360
Tommy Hilfiger, Corp.*............. 3,700 222,000
WestPoint Stevens, Inc.*........... 18,300 577,593
------------
1,771,128
------------
COMPUTER HARDWARE -- 1.6%
Compaq Computer Corp............... 58,630 2,458,796
Gateway 2000, Inc.*................ 7,300 373,669
International Business Machines
Corp. ........................... 19,069 3,522,998
Seagate Technology, Inc.*.......... 7,300 220,825
------------
6,576,288
------------
COMPUTER SERVICES & SOFTWARE -- 1.9%
3Com Corp.*........................ 8,900 398,831
America Online, Inc.*.............. 1,400 202,650
Aspect Development, Inc.*.......... 6,400 283,600
BMC Software, Inc.*................ 6,200 276,287
Cadence Design Systems, Inc.*...... 6,300 187,425
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Citrix Systems, Inc.*.............. 5,000 $ 485,312
Computer Sciences Corp.*........... 11,100 715,256
Compuware Corp.*................... 2,800 218,750
Comverse Technology, Inc.*......... 6,600 468,600
Concentric Networks Corp. Warrants
144A*............................ 10 1,489
Fiserv, Inc.*...................... 12,400 637,825
Intuit, Inc.*...................... 8,400 609,000
Knology Holdings, Inc. Warrants
144A*............................ 45 67
Legato Systems, Inc.*.............. 5,800 382,437
NCR Corp.*......................... 1,400 58,450
Network Appliance, Inc.*........... 2,400 108,000
Parametric Technology Corp.*....... 11,900 194,862
Paychex, Inc. ..................... 8,300 426,931
Sterling Commerce, Inc.*........... 11,700 526,500
Sun Microsystems, Inc.*............ 6,180 529,162
Sungard Data Systems, Inc.*........ 12,600 500,062
VERITAS Software Corp.*............ 8,850 530,447
------------
7,741,943
------------
CONGLOMERATES -- 1.2%
Minnesota Mining & Manufacturing
Co. ............................. 23,133 1,645,335
Philip Morris Companies, Inc. ..... 64,337 3,442,029
------------
5,087,364
------------
CONSTRUCTION -- 0.0%
Pohang Iron & Steel Co. Ltd.
[ADR]............................ 3,235 54,591
------------
CONSUMER PRODUCTS & SERVICES -- 2.2%
Apollo Group, Inc. Cl-A*........... 8,590 290,986
Clorox Co. ........................ 14,455 1,688,525
Colgate-Palmolive Co. ............. 12,505 1,161,402
Eastman Kodak Co. ................. 21,435 1,543,320
Estee Lauder Companies, Inc.
Cl-A............................. 6,700 572,850
Hasbro, Inc. ...................... 45,600 1,647,300
Hedstrom Holdings, Inc. 144A*...... 303 303
Mohawk Industries, Inc.*........... 10,990 462,267
Whitman Corp. ..................... 65,991 1,674,522
------------
9,041,475
------------
CONTAINERS & PACKAGING -- 0.5%
Owens-Illinois, Inc.*.............. 58,260 1,784,212
Sealed Air Corp.*.................. 2,400 122,550
------------
1,906,762
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 2.9%
American Power Conversion Corp.*... 13,800 668,438
Analog Devices, Inc.*.............. 6,900 216,487
ASM Lithography Holding NV......... 1,000 30,500
Cellnet Data Systems Warrants*..... 95 1,900
Emerson Electric Co. .............. 23,970 1,499,623
General Electric Co. .............. 28,895 2,949,096
Jabil Circuit, Inc. ............... 6,800 507,450
KLA-Tencor Corp.*.................. 6,600 286,275
Molex, Inc. ....................... 4,100 156,312
Rockwell International Corp. ...... 11,890 577,408
Samsung Electronics Co. [GDR]
144A............................. 3,167 122,721
SCI Systems, Inc.*................. 5,800 334,950
Solectron Corp.*................... 4,900 455,394
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
STMicroelectronics NV NY Reg*...... 2,972 $ 232,002
Teradyne, Inc.*.................... 8,900 377,137
Texas Instruments, Inc. ........... 35,530 3,040,036
The Perkin-Elmer Corp. ............ 3,800 370,737
------------
11,826,466
------------
ENTERTAINMENT & LEISURE -- 0.1%
Club Regina Resorts, Inc. Warrants
144A*............................ 20 20
Royal Caribbean Cruises Ltd. ...... 9,600 355,200
------------
355,220
------------
ENVIRONMENTAL SERVICES -- 0.3%
Allied Waste Industries, Inc.*..... 3,420 80,797
Waste Management, Inc. ............ 25,380 1,183,342
------------
1,264,139
------------
FINANCIAL-BANK & TRUST -- 5.9%
Bank One Corp. .................... 49,377 2,521,313
BankAmerica Corp. ................. 61,668 3,707,788
BankBoston Corp. .................. 45,265 1,762,506
Chase Manhattan Corp. ............. 29,890 2,034,388
First Union Corp. ................. 19,905 1,210,473
Firstar Corp. ..................... 6,392 596,054
Fleet Financial Group, Inc. ....... 31,860 1,423,744
GreenPoint Financial Corp. ........ 12,300 432,037
M&T Bank Corp. .................... 587 304,616
Mercantile Bancorporation, Inc. ... 23,595 1,088,319
Morgan, (J.P.) & Co., Inc. ........ 19,859 2,086,436
National City Corp. ............... 20,885 1,514,162
Northern Trust Corp. .............. 5,700 497,681
PNC Bank Corp. NA.................. 28,206 1,526,650
State Street Boston Corp. ......... 4,100 285,206
Summit Bancorp..................... 13,225 577,767
Wells Fargo & Co. ................. 54,100 2,160,619
Zions Bancorp...................... 9,200 573,850
------------
24,303,609
------------
FINANCIAL SERVICES -- 3.2%
American Express Co. .............. 11,075 1,132,419
Capital One Financial Corp. ....... 2,500 287,500
Citigroup, Inc. ................... 75,350 3,729,825
DTI Holdings, Inc. Warrants
144A*............................ 600 30
Esat Holdings Ltd. Warrants*....... 35 2,327
Fannie Mae......................... 29,545 2,186,330
FINOVA Group, Inc. ................ 8,200 442,287
Lehman Brothers Holdings, Inc. .... 42,145 1,857,014
Merrill Lynch & Co., Inc. ......... 22,715 1,516,226
Providian Financial Corp. ......... 6,600 495,000
Washington Mutual, Inc. ........... 36,202 1,382,464
------------
13,031,422
------------
FOOD -- 1.4%
General Mills, Inc. ............... 17,276 1,343,209
Heinz, (H.J.) Co. ................. 24,340 1,378,252
Nabisco Holdings Corp. Cl-A........ 11,500 477,250
Quaker Oats Co. ................... 21,935 1,305,132
Sara Lee Corp. .................... 43,120 1,215,445
------------
5,719,288
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FURNITURE -- 0.1%
Furniture Brands International,
Inc.*............................ 15,500 $ 422,375
------------
HEALTHCARE SERVICES -- 0.3%
Health Management Associates, Inc.
Cl-A*............................ 11,025 238,416
IDEXX Laboratories, Inc.*.......... 8,000 215,250
Omnicare, Inc...................... 3,700 128,575
Quintiles Transnational Corp.*..... 8,500 453,687
------------
1,035,928
------------
HOTELS & MOTELS -- 0.1%
Epic Resorts Warrants 144A*........ 10 0
Starwood Hotels & Resorts [REIT]... 11,801 267,735
------------
267,735
------------
INDUSTRIAL PRODUCTS -- 0.0%
Orbital Imaging Corp. Warrants
144A*............................ 20 800
------------
INSURANCE -- 2.4%
Aetna, Inc. ....................... 13,350 1,049,644
Allstate Corp. .................... 37,020 1,429,897
American General Corp. ............ 31,791 2,479,698
AON Corp. ......................... 22,156 1,226,888
CIGNA Corp. ....................... 30,146 2,330,663
Hartford Life, Inc. Cl-A........... 7,700 448,525
The Equitable Companies, Inc. ..... 14,700 850,762
------------
9,816,077
------------
MACHINERY & EQUIPMENT -- 0.4%
Danaher Corp. ..................... 8,400 456,225
Deere & Co. ....................... 39,060 1,293,862
------------
1,750,087
------------
MEDICAL SUPPLIES & EQUIPMENT -- 1.4%
Baxter International, Inc. ........ 36,526 2,349,078
Bergen Brunswig Corp. Cl-A......... 11,800 411,525
Biomet, Inc. ...................... 10,100 406,525
Johnson & Johnson Co. ............. 20,575 1,725,728
MEDIQ, Inc. Warrants 144A*......... 10 0
Schein, (Henry), Inc.*............. 8,900 398,275
Sofamor Danek Group, Inc.*......... 3,000 365,250
------------
5,656,381
------------
OFFICE EQUIPMENT -- 1.4%
Herman Miller, Inc. ............... 10,900 292,937
Office Depot, Inc.*................ 16,300 602,081
Pitney Bowes, Inc. ................ 8,920 589,277
Staples, Inc.*..................... 7,600 332,025
Xerox Corp. ....................... 32,371 3,819,778
------------
5,636,098
------------
OIL & GAS -- 4.4%
Atlantic Richfield Co. ............ 35,195 2,296,474
British Petroleum Co. PLC [ADR].... 18,447 1,653,312
Burlington Resources, Inc. ........ 6,500 232,781
Chevron Corp. ..................... 27,260 2,260,876
Coastal Corp. ..................... 6,000 209,625
Conoco, Inc. Cl-A*................. 39,200 818,300
Exxon Corp. ....................... 38,631 2,824,892
Halliburton Co. ................... 34,080 1,009,620
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Kerr-McGee Corp. .................. 32,630 $ 1,248,097
Mobil Corp. ....................... 21,766 1,896,363
Sonat, Inc. ....................... 45,335 1,226,878
TCR Holding Corp. Cl-B............. 2,898 174
Texaco, Inc. ...................... 24,230 1,281,161
Tosco Corp. ....................... 37,515 970,701
------------
17,929,254
------------
PAPER & FOREST PRODUCTS -- 0.5%
Boise Cascade Corp. ............... 45,755 1,418,405
Kimberly-Clark Corp. .............. 13,400 730,300
------------
2,148,705
------------
PHARMACEUTICALS -- 4.0%
Agouron Pharmaceuticals, Inc.*..... 3,200 188,000
American Home Products Corp. ...... 52,956 2,982,085
Amerisource Health Corp. Cl-A*..... 5,200 338,000
Bristol-Meyers Squibb Co. ......... 22,882 3,061,898
Elan Corp. PLC [ADR]*.............. 7,300 507,806
McKesson Corp. .................... 7,400 585,062
Merck & Co., Inc. ................. 25,335 3,741,663
Pharmacia & Upjohn, Inc. .......... 74,667 4,228,019
Watson Pharmaceuticals, Inc.*...... 11,800 741,925
------------
16,374,458
------------
PRINTING & PUBLISHING -- 0.9%
Lexmark International Group, Inc.
Cl-A*............................ 6,000 603,000
McGraw-Hill Co., Inc............... 15,980 1,627,962
Times Mirror Co. Cl-A.............. 27,445 1,536,920
------------
3,767,882
------------
RAILROADS -- 0.3%
Burlington Northern Santa Fe
Corp. ........................... 38,911 1,313,246
------------
REAL ESTATE -- 0.0%
Equity Office Property Warrants*... 530 1,060
------------
RESTAURANTS -- 0.5%
AmeriKing, Inc.*................... 25 1,000
CKE Restaurants, Inc. ............. 5,291 155,754
McDonald's Corp. .................. 18,155 1,391,127
Tricon Global Restaurants, Inc.*... 7,400 370,925
------------
1,918,806
------------
RETAIL & MERCHANDISING -- 2.2%
Bed, Bath & Beyond Inc.*........... 13,300 453,862
Costco Companies, Inc.*............ 6,900 498,094
Family Dollar Stores, Inc. ........ 34,200 752,400
Federated Department Stores,
Inc.*............................ 22,000 958,375
Gucci Group NV NY Reg.............. 1,249 60,733
Kmart Corp.*....................... 88,210 1,350,716
Linens 'n Things, Inc.*............ 11,400 451,725
Meyer, (Fred), Inc.*............... 6,300 379,575
Penney, (J.C.) Co., Inc. .......... 23,395 1,096,641
Sears, Roebuck & Co. .............. 33,195 1,410,787
TJX Companies, Inc. ............... 21,100 611,900
Toys 'R' Us, Inc.*................. 49,230 830,756
------------
8,855,564
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
SEMICONDUCTORS -- 1.3%
Intel Corp. ....................... 21,050 $ 2,495,741
Micron Technology, Inc.*........... 8,700 439,894
Motorola, Inc. .................... 34,235 2,090,475
Novellus Systems, Inc.*............ 4,400 217,800
Xilinx, Inc.*...................... 3,200 208,400
------------
5,452,310
------------
TELECOMMUNICATIONS -- 5.7%
Allegiance Telecom, Inc. Warrants
144A*............................ 40 640
Alltel Corp. ...................... 23,375 1,398,117
Ameritech Corp. ................... 16,485 1,044,737
Ascend Communications, Inc.*....... 13,100 861,325
AT&T Corp. ........................ 47,115 3,545,404
Bestel Warrants*................... 20 40
Cablevision Systems Corp. Cl-A*.... 7,400 371,387
Cellular Communications
International, Inc.*............. 4,350 295,800
Cincinnati Bell, Inc. ............. 13,900 525,594
Comcast Corp. Cl-A................. 5,500 322,781
Cox Communications, Inc. Cl-A*..... 5,600 387,100
General Instrument Corp.*.......... 18,200 617,662
Globalstar Telecommunications
Warrants 144A*................... 45 2,700
GTE Corp. ......................... 38,240 2,578,810
KMC Telecom Holdings, Inc. Warrants
144A*............................ 35 87
Long Distance International
Warrants 144A*................... 20 50
McCaw International Ltd.
Warrants*........................ 10 40
MediaOne Group, Inc.*.............. 37,155 1,746,285
Nextel Communications, Inc.
Cl-A*............................ 503 11,883
Onepoint Communications Warrants
144A*............................ 10 10
Pathnet, Inc. Warrants 144A*....... 30 300
Powertel, Inc. Warrants*........... 640 2,560
Qwest Communications International,
Inc.*............................ 15,900 795,000
Rhythms Netconnections Warrants
144A*............................ 160 1,200
SBC Communications, Inc. .......... 53,418 2,864,540
Sprint Corp. (FON Group)........... 21,251 1,787,740
Startec Global Communications Corp.
Warrants 144A*................... 20 20
TCA Cable TV, Inc. ................ 13,400 478,212
Tele-Communications Liberty Media,
Inc. Cl-A........................ 9,500 437,594
Tele-Communications TCI Ventures
Group Cl-A....................... 18,200 428,837
Telefonos de Mexico SA Cl-L
[ADR]............................ 1,313 63,927
Telesp Celular Participacoes SA
[ADR]*........................... 657 11,497
Telesp Participacoes SA [ADR]*..... 1,644 36,373
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
U.S. West, Inc. ................... 42,446 $ 2,743,073
UIH Australia Warrants*............ 50 50
Versatel Telecom BV Warrants
144A*............................ 20 200
------------
23,361,575
------------
UTILITIES -- 2.6%
Companhia Energetica de Minas
Gerais [ADR]..................... 2,300 43,784
Consolidated Edison, Inc. ......... 32,200 1,702,575
Dominion Resources, Inc. .......... 30,220 1,412,785
Duke Energy Corp. ................. 23,705 1,518,602
Edison International Co. .......... 45,280 1,262,180
Energy East Corp. ................. 2,800 158,200
Enron Corp. ....................... 8,510 485,602
Entergy Corp. ..................... 51,455 1,601,537
Florida Progress Corp. ............ 5,100 228,544
IPALCO Enterprises, Inc. .......... 3,800 210,662
Potomac Electric Power Co. ........ 5,100 134,194
SCANA Corp. ....................... 6,500 209,625
Texas Utilities Co. ............... 31,190 1,456,183
------------
10,424,473
------------
TOTAL U.S. STOCK
(Cost $191,955,829).................. 220,830,591
------------
PREFERRED STOCK -- 0.1%
BROADCASTING -- 0.0%
Capstar Broadcasting 12.00%
[PIK]............................ 237 27,128
CBS Radio, Inc. Sub. Debs. 11.375%
[PIK]............................ 200 234
Chancellor Media Corp. 12.00%
[PIK]............................ 100 9,337
Citadel Broadcasting Co. 13.25%
[PIK]............................ 227 25,947
Echostar Communications Corp. Cl-B
12.125% [PIK].................... 113 13,100
------------
75,746
------------
INDUSTRIAL PRODUCTS -- 0.0%
Anvil Holding, Inc. 13.00% [PIK]... 13 133
------------
RESTAURANTS -- 0.0%
AmeriKing, Inc. 13.00%............. 1,287 32,497
------------
SEMICONDUCTORS -- 0.0%
Fairchild Semiconductor Corp. Sr.
Sub. Notes 11.74% [PIK] 144A..... 297 24,961
------------
TELECOMMUNICATIONS -- 0.1%
Cablevision Systems Corp. Cl-M
11.125% [PIK].................... 383 42,842
Global Crossing Holdings 10.50%
[PIK] 144A....................... 470 46,177
NEXTLINK Communications, Inc.
14.00% [PIK]..................... 485 25,826
Paxson Communications Corp. 13.25%
[PIK]............................ 3 27,779
Winstar Communications Cl-C 14.25%
[PIK]............................ 300 24,075
------------
166,699
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
UTILITIES -- 0.0%
El Paso Electric Co. 11.40%
[PIK]............................ 12 $ 1,290
Public Service Co. of New Hampshire
Cl-A 10.60%...................... 1,058 28,764
------------
30,054
------------
TOTAL PREFERRED STOCK
(Cost $293,923)...................... 330,090
------------
FOREIGN STOCK -- 4.5%
AIRLINES -- 0.0%
British Airways PLC -- (GBP)....... 20,781 140,118
Deutsche Lufthansa AG -- (DEM)..... 2,157 47,854
Singapore Airlines Ltd. -- (SGD)... 3,000 22,001
------------
209,973
------------
AUTOMOBILE MANUFACTURERS -- 0.1%
Bayerische Motoren Werke
AG -- (DEM)...................... 190 147,960
Bayerische Motoren Werke AG
(New) -- (DEM)*.................. 61 46,807
Honda Motor Co. Ltd. -- (JPY)...... 5,000 164,455
Volkswagen AG -- (DEM)............. 2,210 178,868
Volvo AB Cl-B -- (SEK)............. 2,938 67,419
------------
605,509
------------
AUTOMOTIVE PARTS -- 0.1%
Bridgestone Corp. -- (JPY)......... 4,000 90,960
Michelin C.G.D.E. Cl-B -- (FRF).... 4,965 198,653
------------
289,613
------------
BEVERAGES -- 0.1%
Bass PLC -- (GBP).................. 16,166 235,350
------------
BROADCASTING -- 0.0%
News Corp. Ltd. -- (AUD)........... 3,000 19,836
------------
BUILDING MATERIALS -- 0.2%
Cimpor-Cimentos de Portugal SA --
(PTE)............................ 2,081 66,430
CRH PLC -- (IEP)................... 21,887 378,549
Lafarge SA -- (FRF)................ 1,936 184,034
------------
629,013
------------
CHEMICALS -- 0.2%
AKZO Nobel NV -- (NLG)............. 5,732 261,147
Bayer AG -- (DEM).................. 4,495 188,785
Hoechst AG -- (DEM)................ 4,016 166,136
Shin-Etsu Chemical Co.
Ltd. -- (JPY).................... 2,000 48,228
------------
664,296
------------
CLOTHING & APPAREL -- 0.0%
Onward Kashiyama Co.
Ltd. -- (JPY).................... 800 10,766
------------
CONGLOMERATES -- 0.3%
BTR PLC -- (GBP)................... 45,706 94,297
Coles Myer Ltd. -- (AUD)........... 7,600 39,856
Compagnie Financiere Richemont
AG -- A Units -- (CHF)*.......... 77 108,872
Iberdrola SA -- (ESP).............. 5,665 106,150
Securicor PLC -- (GBP)............. 18,494 155,083
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Smiths Industries PLC -- (GBP)..... 9,971 $ 142,258
Tomkins PLC -- (GBP)............... 45,562 214,912
Vivendi -- (FRF)................... 1,747 453,481
------------
1,314,909
------------
CONSUMER PRODUCTS & SERVICES -- 0.1%
Bombardier, Inc. Cl-B -- (CAD).... 8,738 122,598
Cookson Group PLC -- (GBP)......... 14,929 32,291
Granada Group PLC -- (GBP)......... 14,200 251,027
Kao Corp. -- (JPY)................. 6,000 135,642
Shiseido Co. Ltd. -- (JPY)......... 2,000 25,745
------------
567,303
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 0.1%
Koninklijke (Royal) Philips
Electronics NV -- (NLG).......... 2,928 196,586
Rohm Co. Ltd. -- (JPY)............. 1,000 91,669
Sony Corp. -- (JPY)................ 1,000 72,963
TDK Corp. -- (JPY)................. 1,000 91,581
------------
452,799
------------
ENERGY SERVICES -- 0.0%
VA Technologie AG -- (ATS)......... 759 65,808
------------
ENTERTAINMENT & LEISURE -- 0.0%
EMI Group PLC -- (GBP)............. 13,200 88,288
------------
FINANCIAL-BANK & TRUST -- 0.7%
ABN AMRO Holding NV -- (NLG)....... 4,180 87,980
Allied Irish Banks PLC -- (IEP).... 16,881 302,790
Banca Popolare di Bergamo Credito
Varesino SPA -- (ITL)............ 1,800 43,775
Banca Popolare di
Brescia -- (ITL)................. 1,700 41,549
Banca Popolare di
Milano -- (ITL).................. 5,000 45,485
Bank of Nova Scotia -- (CAD)....... 11,158 244,817
Banque Nationale de
Paris -- (FRF)................... 4,076 335,799
Commonwealth Bank of Australia --
(AUD)............................ 7,566 107,492
Credit Commercial de
France -- (FRF).................. 764 70,984
Developmental Bank of Singapore
Ltd. -- (SGD).................... 6,000 54,183
HSBC Holdings PLC -- (HKD)......... 2,800 69,756
ING Groep NV -- (NLG).............. 5,531 337,459
Julius Baer Holdings AG
Cl-B -- (CHF).................... 56 186,126
National Westminster Bank PLC --
(GBP)............................ 8,600 165,839
Nordbanken Holding Co. AB --
(SEK)*........................... 9,551 61,273
Overseas Union Bank
Ltd. -- (SGD).................... 9,000 39,274
Royal Bank of Canada -- (CAD)...... 1,116 55,439
Svenska Handlesbanken
Cl-A -- (SEK).................... 2,842 119,914
UBS AG -- (CHF).................... 1,229 377,609
------------
2,747,543
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FINANCIAL SERVICES -- 0.2%
Bank of Ireland PLC -- (IEP)....... 12,218 $ 272,345
ForeningsSparbanken AB -- (SEK).... 1,910 49,485
Nikko Securities Co.
Ltd. -- (JPY).................... 57,000 159,180
Promise Co. Ltd. -- (JPY).......... 2,200 114,684
Societe Generale -- (FRF).......... 795 128,799
Unidanmark AS Cl-A -- (DKK)........ 803 72,549
------------
797,042
------------
FOOD -- 0.2%
Greencore Group PLC -- (IEP)....... 18,874 87,238
Groupe Danone -- (FRF)............. 326 93,376
Koninklijke Ahold NV -- (NLG)...... 6,554 242,370
Laurus NV -- (NLG)................. 2,072 52,334
Nestle SA -- (CHF)................. 182 396,205
------------
871,523
------------
INSURANCE -- 0.3%
Allianz AG -- (DEM)................ 312 116,144
Allied Zurich PLC -- (GBP)*........ 25,537 380,911
Assurances Generales de France --
(FRF)*........................... 1,716 102,542
AXA SA -- (FRF).................... 1,158 167,916
Istituto Nazionale delle
Assicurazioni -- (ITL)*.......... 33,000 87,359
Muenchener Rueckversicherung AG --
(DEM)............................ 213 104,229
Royal & Sun Alliance Insurance
Group PLC -- (GBP)............... 16,425 134,113
------------
1,093,214
------------
MACHINERY & EQUIPMENT -- 0.1%
Mannesmann AG -- (DEM)............. 3,351 387,810
Sandvik AB Cl-B -- (SEK)........... 2,698 46,600
Siebe PLC -- (GBP)................. 34,160 134,701
------------
569,111
------------
MEDICAL SUPPLIES & EQUIPMENT -- 0.0%
Sankyo Co. Ltd. -- (JPY)........... 5,000 109,489
------------
OFFICE EQUIPMENT -- 0.1%
Canon, Inc. -- (JPY)............... 7,900 169,141
Ricoh Co. Ltd. -- (JPY)............ 7,000 64,665
------------
233,806
------------
OIL & GAS -- 0.2%
Burmah Castrol PLC -- (GBP)........ 12,617 180,534
Ente Nazionale Idrocarburi SPA --
(ITL)............................ 29,355 192,271
Hong Kong & China Gas Co. Ltd. --
(HKD)............................ 30,000 38,144
Societe Nationale Elf Aquitaine
SA -- (FRF)...................... 2,104 243,319
Total SA Cl-B -- (FRF)............. 1,768 179,142
------------
833,410
------------
PAPER & FOREST PRODUCTS -- 0.1%
Svenska Cellulosa AB
Cl-B -- (SEK).................... 6,870 150,020
------------
PERSONAL SERVICES -- 0.0%
Vedior NV -- (NLG)................. 2,920 57,570
------------
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
PHARMACEUTICALS -- 0.3%
Eisai Co. Ltd. -- (JPY)............ 2,000 $ 39,008
Glaxo Wellcome PLC -- (GBP)........ 3,666 126,138
Novartis AG -- (CHF)............... 259 509,145
Pharmacia & Upjohn,
Inc. -- (SEK).................... 7,294 408,545
Yamanouchi Pharmaceutical Co.
Ltd. -- (JPY).................... 5,000 161,352
------------
1,244,188
------------
PRINTING & PUBLISHING -- 0.0%
Dai Nippon Printing Co.
Ltd. -- (JPY).................... 6,000 95,854
------------
REAL ESTATE -- 0.0%
Cheung Kong Holdings
Ltd. -- (HKD).................... 11,000 79,159
Unione Immobiliare SPA -- (ITL)*... 33,000 17,252
------------
96,411
------------
RETAIL & MERCHANDISING -- 0.1%
Dixons Group PLC -- (GBP).......... 12,424 174,775
Marks & Spencer PLC -- (GBP)....... 10,537 72,274
Vendex NV -- (NLG)................. 2,530 61,475
------------
308,524
------------
SEMICONDUCTORS -- 0.1%
Fujitsu Ltd. -- (JPY).............. 23,000 306,880
------------
TELECOMMUNICATIONS -- 0.6%
BCE, Inc. -- (CAD)................. 1,400 52,867
Cable & Wireless Optus Ltd. 144A --
(AUD)*........................... 12,000 25,246
Cable & Wireless PLC -- (DEM)...... 21,509 264,465
Deutsche Telekom AG -- (DEM)....... 4,402 144,705
Ericsson, (L.M.) Telephone Co.
Cl-B -- (SEK).................... 7,938 189,011
France Telecom SA -- (FRF)......... 860 68,356
Hellenic Telecommunication
Organization SA -- (GRD)......... 4,771 126,924
KPN NV -- (NLG).................... 2,220 111,197
Nippon Telegraph & Telephone
Corp. -- (JPY)................... 25 193,268
Nokia Oyj Cl-A -- (FIM)............ 2,554 312,737
Orange PLC -- (GBP)*............... 6,700 77,865
Portugal Telecom SA -- (PTE)....... 2,231 102,294
Swisscom AG -- (CHF)*.............. 300 125,593
Telecom Italia SPA -- (ITL)........ 46,929 401,299
Telefonica SA -- (ESP)............. 6,881 306,466
Telefonica SA Bonus
Rights -- (ESP)*................. 6,881 6,119
Vodafone Group PLC -- (GBP)........ 3,964 64,371
------------
2,572,783
------------
TRANSPORTATION -- 0.1%
Peninsular & Oriental Steam
Navigation Co. -- (GBP).......... 8,509 100,588
TNT Post Group NV -- (NLG)......... 5,977 192,686
------------
293,274
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
UTILITIES -- 0.2%
Electricidade de Portugal
SA -- (PTE)...................... 5,844 $ 128,671
Scottish Power PLC -- (GBP)........ 31,901 327,752
Tokyo Electric Power
Co. -- (JPY)..................... 9,200 227,560
Veba AG -- (DEM)................... 3,633 215,294
------------
899,277
------------
TOTAL FOREIGN STOCK
(Cost $15,610,080)................... 18,433,382
------------
PAR
(000)
-----
<S> <C> <C>
CORPORATE OBLIGATIONS -- 11.0%
ADVERTISING -- 0.1%
Adams Outdoor Advertising L.P. Sr.
Notes
10.75%, 03/15/06................. $ 75 81,000
Lamar Advertising Co. Co. Guarantee
Sr. Sub. Notes
9.625%, 12/01/06................. 60 65,025
Outdoor Communications Co. Sr. Sub.
Notes
9.25%, 08/15/07.................. 50 53,000
Outdoor Systems, Inc. Sr. Sub.
Notes
8.875%, 06/15/07................. 75 79,969
------------
278,994
------------
AEROSPACE -- 0.3%
Argo-Tech Corp. Co. Guarantee Notes
8.625%, 10/01/07................. 10 9,525
Argo-Tech Corp. Sr. Sub. Notes
8.625%, 10/01/07................. 10 9,525
BE Aerospace, Inc. Sr. Sub. Notes
9.875%, 02/01/06................. 35 36,444
9.50%, 11/01/08 144A............. 10 10,600
BE Aerospace, Inc. Sr. Sub. Notes
Cl-B
8.00%, 03/01/08.................. 10 9,825
Boeing Co. Debs
6.625%, 02/15/38................. 580 578,550
Lockheed Martin Corp. Notes
7.25%, 05/15/06.................. 455 492,537
------------
1,147,006
------------
AIRLINES -- 0.2%
Aviation Sales Co. Co. Guarantee
Sr. Sub. Notes
8.125%, 02/15/08................. 20 19,850
Calair LLC Capital Corp. Co.
Guarantee Notes
8.125%, 04/01/08................. 10 10,337
Canadian Airlines Corp. Notes
10.00%, 05/01/05................. 20 17,000
Continental Airlines Series 981C
Notes
6.541%, 09/15/09................. 935 912,728
Continental Airlines Sr. Notes
9.50%, 12/15/01.................. 50 52,500
------------
1,012,415
------------
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
AUTOMOBILE MANUFACTURERS -- 0.1%
Chrysler Corp. Notes
7.45%, 02/01/49.................. $ 200 $ 230,500
Consorcio Grupo Dina SA [ZCB]
6.251%, 11/15/02................. 20 18,000
------------
248,500
------------
AUTOMOTIVE PARTS -- 0.0%
Hayes Lemmerz International, Inc.
Co. Guarantee Notes 144A
8.25%, 12/15/08.................. 40 40,000
Lear Corp. Sub. Notes
9.50%, 07/15/06.................. 50 54,250
Safety Components International,
Inc. Sr. Sub. Notes Cl-B
10.125%, 07/15/07................ 10 10,087
Talon Automotive Group Inc. Sr.
Sub. Notes Cl-B
9.625%, 05/01/08................. 30 29,550
------------
133,887
------------
BEVERAGES -- 0.0%
Canandaigua Wine Corp. Sr. Sub.
Notes
8.75%, 12/15/03.................. 55 55,550
------------
BROADCASTING -- 0.5%
Acme Television Co. Co. Guarantee
Notes Cl-B [STEP]
10.875%, 09/30/04................ 15 12,000
American Radio Systems Co. Co.
Guarantee Notes
9.00%, 02/01/06.................. 50 54,125
Benedek Broadcasting Sr. Notes
11.875%, 03/01/05................ 80 86,800
Capstar Broadcasting, Inc. Sr.
Disc. Notes [STEP]
12.75%, 02/01/09................. 60 49,500
CBS Corp. Sr. Notes
6.875%, 09/01/03................. 20 20,600
Central European Media Enterprises
Ltd. Sr. Notes
9.375%, 08/15/04................. 10 8,300
Chancellor Media Corp. LA Sr. Sub.
Notes Cl-B
8.125%, 12/15/07................. 5 4,975
Chancellor Media Corp. Sr. Notes
144A
8.00%, 11/01/08.................. 70 71,400
Citadel Broadcasting Co. Sr. Sub.
Notes
10.25%, 07/01/07................. 10 10,950
9.25%, 11/15/08 144A............. 10 10,462
Diva Systems Corp. Sr. Disc. Notes
[STEP] 144A
6.872%, 03/01/08................. 70 29,400
Fox/Liberty Networks LLC Sr. Notes
8.875%, 08/15/07................. 30 30,675
Golden Sky Systems Sr. Sub. Notes
144A
12.375%, 08/01/06................ 30 30,900
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Granite Broadcasting Corp. Sr. Sub.
Debs.
10.375%, 05/15/05................ $ 50 $ 51,062
Jones Intercable, Inc. Sr. Notes
9.625%, 03/15/02................. 10 10,750
News America Holdings, Inc. Debs.
7.70%, 10/30/25.................. 695 752,337
Sinclair Broadcasting Group, Inc.
Sr. Sub. Notes
8.75%, 12/15/07.................. 50 50,500
Spanish Broadcasting System, Inc.
Sr. Notes
12.50%, 06/15/02................. 50 55,062
Spanish Broadcasting System, Inc.
Sr. Notes Cl-B
11.00%, 03/15/04................. 25 26,562
TCI Communications, Inc. Sr. Notes
7.125%, 02/15/28................. 630 685,125
Young Broadcasting, Inc. Sr. Sub.
Notes Cl-B
9.00%, 01/15/06.................. 5 5,075
------------
2,056,560
------------
BUILDING MATERIALS -- 0.0%
Building Materials Corp. Sr. Notes
8.625%, 12/15/06................. 10 10,100
8.00%, 12/01/08 144A............. 10 10,075
Polytama International Notes
11.25%, 06/15/07................. 25 6,375
------------
26,550
------------
BUSINESS SERVICES -- 0.0%
Affinity Group Holding, Inc. Sr.
Notes
11.00%, 04/01/07................. 65 67,275
Iron Mountain, Inc. Sr. Sub. Notes
8.75%, 09/30/09.................. 25 25,812
Outsourcing Solutions Corp. Sr.
Sub. Notes Cl-B
11.00%, 11/01/06................. 20 19,300
U.S. Office Products Co. Co.
Guarantee Notes
9.75%, 06/15/08.................. 40 26,400
------------
138,787
------------
CHEMICALS -- 0.3%
Geo Specialty Chemicals Sr. Sub.
Notes 144A
10.125%, 08/01/08................ 10 9,750
Huntsman Corp. Sr. Sub. Notes 144A
9.50%, 07/01/07.................. 10 10,025
Lubrizol Corp. Notes
5.875%, 12/01/08................. 235 235,000
PCI Chemicals Canada, Inc. Notes
9.25%, 10/15/07.................. 50 40,437
Polymer Group Holdings, Inc. Sr.
Sub. Notes
9.00%, 07/01/07.................. 15 14,850
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Polymer Group, Inc. Co. Guarantee
Notes Cl-B
8.75%, 03/01/08.................. $ 10 $ 9,800
Solutia, Inc. Notes
6.72%, 10/15/37.................. 890 947,850
Trikem SA Notes 144A
10.625%, 07/24/07................ 25 13,000
------------
1,280,712
------------
CLOTHING & APPAREL -- 0.0%
Iron Age Corp. Sr. Sub. Notes
9.875%, 05/01/08................. 30 27,375
Sassco Fashions Ltd. Sr. Notes
12.75%, 03/31/04................. 25 24,750
------------
52,125
------------
COMPUTER SERVICES & SOFTWARE -- 0.3%
Concentric Network Corp. Sr. Notes
12.75%, 12/15/07................. 10 10,100
Dell Computer Corp. Debs
7.10%, 04/15/28.................. 465 464,419
IBM Corp. Notes
5.10%, 11/10/03.................. 635 630,237
L-3 Communications Corp. Sr. Sub.
Notes 144A
8.00%, 08/01/08.................. 10 10,050
Unisys Corp. Sr. Notes
7.875%, 04/01/08................. 100 106,000
Verio, Inc. Sr. Notes 144A
11.25%, 12/01/08................. 10 10,100
------------
1,230,906
------------
CONGLOMERATES -- 0.4%
Axia, Inc. Co. Guarantee Notes
10.75%, 07/15/08................. 20 20,300
Hermes Europe Railtel BV Sr. Notes
11.50%, 08/15/07................. 10 10,775
K&F Industries, Inc. Sr. Sub. Notes
Cl-B
9.25%, 10/15/07.................. 10 10,075
Philip Morris Co., Inc. Debs
7.50%, 01/15/02.................. 425 446,250
Philip Morris Co., Inc. Notes
7.50%, 04/01/04.................. 710 759,700
Walt Disney Co. Notes
5.62%, 12/01/08.................. 455 458,981
------------
1,706,081
------------
CONSTRUCTION -- 0.0%
American Architectural Co. Co.
Guarantee Notes
11.75%, 12/01/07................. 10 7,600
Newport News Shipbuilding, Inc. Sr.
Notes
8.625%, 12/01/06................. 20 21,200
------------
28,800
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
CONSUMER PRODUCTS & SERVICES -- 0.1%
Alaris Medical Systems, Inc. Sr.
Notes
9.75%, 12/01/06.................. $ 40 $ 39,650
Albecca, Inc. Sr. Sub. Notes 144A
10.75%, 08/15/08................. 20 20,400
Chattem, Inc. Co. Guarantee Notes
Cl-B
8.875%, 04/01/08................. 20 20,550
Consumers International Corp. Sr.
Notes
10.25%, 04/01/05................. 10 10,613
Decora Industries, Inc. Secured
Notes Cl-B
11.00%, 05/01/05................. 20 18,300
Doane Pet Care Co. Sr. Sub. Notes
9.75%, 05/15/07.................. 75 76,875
French Fragrances, Inc. Sr. Notes
10.375%, 05/15/07................ 10 9,988
Glenoit Corp. Co. Guarantee Notes
11.00%, 04/15/07................. 10 9,375
Hedstrom Holdings, Inc. Sr. Disc.
Notes [STEP]
11.613%, 06/01/09................ 5 2,750
Home Interiors & Gifts Sr. Sub.
Notes 144A
10.125%, 06/01/08................ 10 9,900
Intergrated Health Services, Inc.
Sr. Sub. Notes Cl-A
9.50%, 09/15/07.................. 50 47,750
Protection One Alarm, Inc. Sr.
Disc. Notes [STEP]
13.625%, 06/30/05................ 10 11,300
Revlon Consumer Products Corp. Sr.
Notes 144A
9.00%, 11/01/06.................. 10 9,925
Revlon Consumer Products Corp. Sr.
Sub. Notes
8.625%, 02/01/08................. 50 46,000
------------
333,376
------------
CONTAINERS & PACKAGING -- 0.0%
AEP Industries, Inc. Sr. Sub. Notes
9.875%, 11/15/07................. 25 25,250
Huntsman Packaging Corp. Co.
Guarantee Notes
9.125%, 10/01/07................. 15 14,925
Owens-Illinois, Inc. Sr. Notes
8.10%, 05/15/07.................. 20 21,475
Riverwood International Co. Notes
10.25%, 04/01/06................. 50 49,500
10.625%, 08/01/07................ 40 40,000
10.875%, 04/01/08................ 10 9,150
------------
160,300
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 0.2%
Celestica International, Inc. Sr.
Sub. Notes
10.50%, 12/31/06................. 13 14,235
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Cellnet Data Systems, Inc. Sr.
Disc. Notes [STEP]
14.00%, 10/01/07................. $ 75 $ 38,250
CSC Holdings, Inc. Debs.
7.875%, 02/15/18................. 10 10,163
Details, Inc. Sr. Sub. Notes
10.00%, 11/15/05................. 15 14,700
DII Group, Inc. Sr. Sub. Notes
8.50%, 09/15/07.................. 10 9,825
Flextronics International Ltd. Sr.
Sub. Notes Cl-B
8.75%, 10/15/07.................. 10 10,375
HCC Industries, Inc. Sr. Sub. Notes
10.75%, 05/15/07................. 15 14,475
Pioneer Americas Acquistics Corp.
Sr. Notes
9.25%, 06/15/07.................. 10 7,800
Raytheon Co. Notes
6.45%, 08/15/02.................. 545 557,944
Viasystems, Inc. Sr. Sub. Notes
9.75%, 06/01/07.................. 20 19,000
Wavetek Corp. Sr. Sub. Notes
10.125%, 06/15/07................ 10 9,700
------------
706,467
------------
ENTERTAINMENT & LEISURE -- 0.3%
AMC Entertainment, Inc. Sr. Sub.
Notes
9.50%, 03/15/09.................. 20 20,550
Argosy Gaming Co. Notes
13.25%, 06/01/04................. 25 27,906
Cinemark USA, Inc. Sr. Sub. Notes
9.625%, 08/01/08................. 25 26,250
Circus Circus Enterprises Sr. Notes
6.45%, 02/01/06.................. 10 8,950
Circus Circus Enterprises Sr. Sub.
Notes
9.25%, 12/01/05.................. 10 10,238
Coast Hotels & Casino, Inc. Notes
Cl-B
13.00%, 12/15/02................. 55 59,675
Colorado Gaming & Entertainment
Corp. Sr. Notes
12.00%, 06/01/03................. 159 171,396
Fitzgeralds Gaming Corp. Co.
Guarantee Notes Cl-B
12.25%, 12/15/04................. 30 17,400
Fox Family Worldwide, Inc. Sr.
Disc. Notes [STEP]
10.25%, 11/01/07................. 10 6,375
Fox Family Worldwide, Inc. Sr.
Notes
9.25%, 11/01/07.................. 30 29,700
Harrahs Operating Co., Inc. Co.
Guarantee Notes
7.875%, 12/15/05................. 20 20,100
Isle of Capri Black Hawk Corp.
Notes Cl-B
13.00%, 08/31/04................. 10 10,625
Mohegan Tribal Gaming Sr. Notes
Cl-B
13.50%, 11/15/02................. 30 36,150
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Park Place Entertainment Sr. Sub.
Notes 144A
7.875%, 12/15/05................. $ 30 $ 30,075
Players International, Inc. Sr.
Notes
10.875%, 04/15/05................ 25 27,000
Premier Parks, Inc. Sr. Notes
9.25%, 04/01/06.................. 35 36,750
Premier Parks, Inc. Sr. Notes Cl-A
12.00%, 08/15/03................. 40 43,200
Raintree Resorts Notes Cl-B
13.00%, 12/01/04................. 20 11,000
SFX Entertainment, Inc. Sr. Sub.
Notes
9.125%, 02/01/08................. 10 10,050
9.125%, 12/01/08 144A,........... 20 19,950
Showboat Marina Casinos, Inc. First
Mtge.
13.50%, 03/15/03................. 25 29,063
Silver Cinemas International, Inc.
Sr. Sub. Notes
10.50%, 04/15/05................. 20 14,800
Six Flags Theme Parks Corp. Sr.
Sub. Notes Cl-A [STEP]
12.25%, 06/15/05................. 90 98,663
Time Warner Co. Entertainment Notes
8.875%, 10/01/12................. 425 538,688
United Artist Theatre Sr. Sub.
Notes Cl-B
9.75%, 04/15/08.................. 20 19,200
------------
1,323,754
------------
ENVIRONMENTAL SERVICES -- 0.4%
Allied Waste North America, Inc.
Sr. Notes 144A
7.625%, 01/01/06................. 30 30,450
7.875%, 01/01/09................. 50 50,813
ATC Group Services, Inc. Sr. Sub.
Notes
12.00%, 01/15/08................. 10 1,000
US Filter Corp. Notes
6.50%, 05/15/03.................. 535 521,625
WMX Technologies, Inc. Notes
7.10%, 08/01/26.................. 925 979,344
------------
1,583,232
------------
EQUIPMENT SERVICES -- 0.0%
Coinmach Corp. Sr. Notes Cl-D
11.75%, 11/15/05................. 10 10,913
Jackson Products, Inc. Sr. Sub.
Notes Cl-B
9.50%, 04/15/05.................. 10 10,000
------------
20,913
------------
FARMING & AGRICULTURE -- 0.0%
Purina Mills, Inc. Sr. Sub. Notes
9.00%, 03/15/10.................. 20 20,600
------------
FINANCIAL-BANK & TRUST -- 0.5%
Allstate Financing II Notes
7.83%, 12/01/45.................. 125 134,063
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Banponce Corp. Medium Term Notes
7.125%, 05/02/02.................. $ 410 $ 430,500
Chevy Chase Savings Bank Sub. Debs.
9.25%, 12/01/05................... 45 45,000
Dime Capital, Inc. Trust I Notes
Cl-A
9.33%, 05/06/27................... 10 10,788
Fuji JGB LLC Pfd. Notes [VR] 144A
9.87%, 12/31/49................... 425 303,990
Greenpoint Capital Corp. Trust I
Notes
9.10%, 06/01/27................... 10 11,438
Household Finance Corp. Notes
6.50%, 11/15/08................... 235 244,988
Merita Bank Ltd. Sub. Notes
6.50%, 01/15/06................... 500 508,125
North Fork Bancorp Notes
8.70%, 12/15/26................... 5 5,969
Provident Capital, Inc. Trust Notes
8.60%, 12/01/26................... 20 23,625
Riggs Capital Corp. Trust Notes 144A
8.625%, 12/31/26.................. 15 15,731
Sovereign Capital, Inc. Trust I
Capital Securities Notes
9.00%, 04/01/27................... 15 17,456
St. Paul Bancorp, Inc. Sr. Notes
7.125%, 02/15/04.................. 350 376,250
------------
2,127,923
------------
FINANCIAL SERVICES -- 2.5%
Aames Financial Corp. Sr. Notes
9.125%, 11/01/03.................. 40 26,000
AFC Capital Trust I Notes Cl-B
8.207%, 02/03/27.................. 500 561,875
American General Institute Capital
Trust Co. Co. Guarantee Notes 144A
8.125%, 03/15/46.................. 765 885,488
AT&T Capital Corp. Medium Term Notes
6.25%, 05/15/01................... 540 536,625
CIA Latino Americana Notes 144A
11.625%, 06/01/04................. 10 6,650
CIT Group, Inc. Notes
5.50%, 10/15/01................... 480 480,600
Colonial Capital II Co. Co.
Guarantee Notes Cl-A
8.92%, 01/15/27................... 15 16,125
Commercial Credit Co. Notes
7.75%, 03/01/05................... 430 471,925
ContiFinancial Corp. Sr. Notes
8.375%, 08/15/03.................. 45 33,750
Delta Financial Corp. Sr. Notes
9.50%, 08/01/04................... 15 12,450
Dine SA de C.V. Co. Guarantee Notes
8.75%, 10/05/07................... 10 8,050
Dollar Financial Group, Inc. Sr.
Notes
10.875%, 11/15/06................. 15 15,169
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
DTI Holdings, Inc. Sr. Disc. Notes
[STEP]
11.92%, 3/01/08................... $ 120 $ 30,600
First Financial Caribbean Corp. Sr.
Notes
7.84%, 10/10/06................... 200 218,750
Firstar Bank Milwaukee Corp. Sr.
Notes
6.25%, 12/01/02................... 190 197,838
Fleet Financial Group Sub. Debs.
6.875%, 01/15/28.................. 40 42,350
Ford Motor Credit Co. Sr. Notes
7.00%, 09/25/01................... 600 624,750
FRD Acquisition Sr. Notes Cl-B
12.50%, 07/15/04.................. 10 10,200
General Motors Acceptance Corp.
Notes
5.80%, 04/09/01................... 865 871,488
Imperial Credit Capital Trust I Cl-B
10.25%, 06/14/02.................. 20 15,209
Imperial Credit Industries, Inc. Sr.
Notes
9.875%, 01/15/07.................. 20 15,550
Lehman Brothers Holdings, Inc. Notes
6.50%, 10/01/02................... 550 550,000
Merrill Lynch & Co., Inc. Notes Cl-B
6.13%, 04/07/03................... 1,850 1,887,000
Nationwide Credit, Inc. Sr. Notes
10.25%, 01/15/08.................. 10 8,325
Netia Holdings Co. Co. Guarantee
Notes Cl-B
10.25%, 11/01/07.................. 10 8,800
Ocwen Capital Corp. Trust I Notes
10.875%, 08/01/27................. 10 8,300
Paine Webber Group, Inc. Sr. Notes
6.55%, 04/15/08................... 790 792,963
Pindo Deli Financial Mauritius Co.
Co. Guarantee Notes
10.75%, 10/01/07.................. 25 13,375
PX Escrow Corp. Sr. Disc. Notes
[STEP]
9.625%, 02/01/06.................. 10 5,538
Salomon, Inc. Sr. Notes
7.30%, 05/15/02................... 465 487,311
The Money Store, Inc. Notes
8.05%, 04/15/02................... 235 253,506
TIG Holdings, Inc. Notes
8.125%, 04/15/05.................. 450 496,688
Tjiwi Kimia Financial Mauritius Ltd.
Sr. Notes
10.00%, 08/01/04.................. 25 13,375
Toyota Motor Credit Corp. Notes
5.625%, 11/13/03.................. 360 364,050
Webster Capital Corp. Trust I Notes
144A
9.36%, 01/29/27................... 10 11,175
------------
9,981,848
------------
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
FOOD -- 0.0%
Ameriserv Food Distributor, Inc.
Co. Guarantee Sr. Sub. Notes
8.875%, 10/15/06................. $ 20 $ 19,000
10.125%, 07/15/07................ 5 4,550
Aurora Foods, Inc. Sr. Sub. Notes
Cl-B
9.875%, 02/15/07................. 10 10,900
Aurora Foods, Inc. Sr. Sub. Notes
Cl-D
9.875%, 02/15/07................. 20 21,800
Fleming Companies, Inc. Notes Cl-B
10.50%, 12/01/04................. 20 19,100
------------
75,350
------------
FURNITURE -- 0.0%
Sealy Mattress Co. Sr. Disc. Notes
Cl-B [STEP]
10.875%, 12/15/07................ 15 9,000
------------
HEALTHCARE SERVICES -- 0.2%
Extendicare Health Services Sr.
Sub. Notes
9.35%, 12/15/07.................. 25 23,000
Global Health Sciences Co. Co.
Guarantee Notes
11.00%, 05/01/08................. 20 13,000
Healthsouth Corp. Sub. Debs. [CVT]
3.25%, 04/01/03.................. 10 8,538
Hudson Respiratory Care, Inc. Sr.
Sub. Notes
9.125%, 04/15/08................. 20 16,400
Integrated Health Services, Inc.
Sr. Sub. Notes Cl-A
9.25%, 01/15/08.................. 15 14,288
Magellan Health Services, Inc. Sr.
Sub. Notes
9.00%, 02/15/08.................. 30 26,850
Manor Care, Inc. Sr. Notes
7.50%, 06/15/06.................. 305 328,638
Mariner Post-Accute Network, Inc.
Sr. Sub. Disc. Notes
9.50%, 11/01/07.................. 50 40,500
Mariner Post-Accute Network, Inc.
Sr. Sub. Notes Cl-B [STEP]
10.565%, 11/01/07................ 10 5,413
Multicare Co. Sr. Sub. Notes
9.00%, 08/01/07.................. 50 47,500
Paracelsus Healthcare Corp. Sr.
Sub. Notes
10.00%, 08/15/06................. 40 36,800
Sun Healthcare Group, Inc. Sr. Sub.
Notes
9.50%, 07/01/07.................. 40 32,400
Tenet Healthcare Corp. Sr. Notes
144A
7.625%, 06/01/08................. 10 10,238
Tenet Healthcare Corp. Sr. Sub.
Notes 144A
8.125%, 12/01/08................. 20 20,725
------------
624,290
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
HOTELS & MOTELS -- 0.0%
Cendant Corp. Notes
7.75%, 12/01/00.................. $ 20 $ 20,125
Epic Resorts LLC Capital Co. Co.
Guarantee Notes
13.00%, 06/15/05................. 10 9,688
Host Marriott Travel Plaza Corp.
Sr. Notes Cl-B
9.50%, 05/15/05.................. 40 41,900
Prime Hospitality Corp. Sr. Sub.
Notes
9.75%, 04/01/07.................. 35 35,350
Sun International Hotels Co.
Co. Guarantee Notes
8.625%, 12/15/07................. 50 51,813
------------
158,876
------------
INDUSTRIAL PRODUCTS -- 0.0%
Carter Holdings, Inc. Sr. Sub.
Notes
12.00%, 10/01/08................. 20 21,500
Continental Global Group, Inc. Sr.
Notes Cl-B
11.00%, 04/01/07................. 25 22,031
GS Superhighway Holdings Sr. Notes
9.875%, 08/15/04................. 30 15,488
Paragon Corp. Holdings, Inc. Co.
Guarantee Notes Cl-B
9.625%, 04/01/08................. 10 8,400
------------
67,419
------------
INSURANCE -- 0.2%
Provident Companies, Inc. Notes
7.405%, 03/15/2038............... 660 649,275
------------
MACHINERY & EQUIPMENT -- 0.2%
Hertz Corp. Notes
7.00%, 01/15/28.................. 615 625,763
Johnstown America Industries, Inc.
Sr. Sub. Notes Cl-C
11.75%, 08/15/05................. 15 15,825
Morris Materials Handling Sr. Notes
9.50%, 04/01/08.................. 20 14,600
Motors and Gears, Inc. Sr. Notes
Cl-D
10.75%, 11/15/06................. 35 36,881
------------
693,069
------------
MEDICAL SUPPLIES & EQUIPMENT -- 0.1%
CONMED Corp. Co. Guarantee Sr. Sub.
Notes
9.00%, 03/15/08.................. 20 19,475
Fresenius Medical Capital Trust I
Co. Guarantee Notes
9.00%, 12/01/06.................. 20 21,050
Graphic Controls Corp. Sr. Sub.
Notes Cl-A
12.00%, 09/15/05................. 35 40,338
Kinetic Concepts, Inc. Sr. Sub.
Notes Cl-B
9.625%, 11/01/07................. 10 9,863
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
MEDIQ, Inc. Debs. [STEP]
13.00%, 06/01/09................. $ 10 $ 4,500
MEDIQ, Inc. PRN Life Support Co.
Sr. Notes
11.00%, 06/01/08................. 20 19,000
Medpartners, Inc. Sr. Notes
7.375%, 10/01/06................. 50 40,500
Merck & Co., Inc. Debs.
5.95%, 12/01/28.................. 370 372,775
------------
527,501
------------
METALS & MINING -- 0.0%
AK Steel Corp. Sr. Notes
9.125%, 12/15/06................. 30 31,350
Ameristeel Corp. Co. Guarantee
Notes Cl-B
8.75%, 04/15/08.................. 20 19,400
Anker Coal Group, Inc. Sr. Notes
Cl-B
9.75%, 10/01/07.................. 10 5,500
Kaiser Aluminum & Chemical Corp.
Sr. Sub. Notes
12.75%, 02/01/03................. 10 9,925
Lodestar Holdings, Inc. Sr. Notes
11.50%, 05/15/05................. 10 7,750
Weirton Steel Corp. Sr. Notes
11.375%, 07/01/04................ 20 17,800
WHX Corp. Sr. Notes
10.50%, 04/15/05................. 10 9,200
------------
100,925
------------
OFFICE EQUIPMENT -- 0.2%
United Stationers Supply Co.
Sr. Sub. Notes
12.75%, 05/01/05................. 3 3,345
Xerox Corp. Notes
5.50%, 11/15/03.................. 770 771,925
------------
775,270
------------
OIL & GAS -- 0.4%
Abraxas Petroleum Corp. Co.
Guarantee Notes Cl-D
11.50%, 11/01/04................. 25 19,250
Chesapeake Energy Corp. Sr. Notes
Cl-B
9.625%, 05/01/05................. 30 23,550
Coastal Corp. Notes
6.95%, 06/01/28.................. 520 505,700
Dailey International, Inc. Co.
Guarantee Notes Cl-B
9.50%, 02/15/08.................. 10 4,500
Eagle Geophysical, Inc. Sr. Notes
10.75%, 07/15/08................. 10 8,400
Flores & Rucks, Inc. Sr. Sub. Notes
9.75%, 10/01/06.................. 10 10,350
Gothic Production Corp. Co.
Guarantee Notes Cl-B
11.125%, 05/01/05................ 10 7,800
Gulf Canada Resources, Inc. Sr.
Notes
8.375%, 11/15/05................. 10 10,150
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Michael Petroleum Corp. Sr. Notes
Cl-B
11.50%, 04/01/05................. $ 10 $ 7,000
Northern Offshore ASA Co. Guarantee
Notes 144A
10.00%, 05/15/05................. 20 10,000
Ocean Energy, Inc. Co. Guarantee
Notes Cl-B
8.375%, 07/01/08................. 30 28,500
Panaco, Inc. Sr. Notes
10.625%, 10/01/04................ 10 7,600
Panda Global Energy Co. Sr. Notes
12.50%, 04/15/04................. 10 3,800
Petro-Canada Debs.
7.00%, 11/15/28.................. 375 375,938
Petroleum Geo-Services Notes
7.50%, 03/31/07.................. 175 183,750
Pogo Producing Co. Sr. Sub. Notes
Cl-B
8.75%, 05/15/07.................. 5 4,700
Snyder Oil Corp. Sr. Sub. Notes
8.75%, 06/15/07.................. 15 14,625
Statoil Notes 144A
6.50%, 12/01/28.................. 325 319,313
Transamerican Refining Corp. Units
144A
16.00%, 06/30/03................. 20 8,400
Transtexas Gas Corp. Sr. Sub. Notes
Cl-D
13.75%, 12/31/01................. 75 60,750
------------
1,614,076
------------
PAPER & FOREST PRODUCTS -- 0.0%
Republic Group, Inc. Sr. Sub Notes
9.50%, 07/15/08.................. 10 9,775
------------
PHARMACEUTICALS -- 0.2%
Fresenius Medical Capital Trust II
Co. Guarantee Notes
7.875%, 02/01/08................. 50 49,625
ICN Pharmaceuticals, Inc. Sr. Notes
Cl-B
9.25%, 08/15/05.................. 15 15,413
Monsanto Co. Debs. 144A
6.60%, 12/01/28.................. 745 747,794
------------
812,832
------------
PRINTING & PUBLISHING -- 0.0%
America Media Operation, Inc. Sr.
Sub. Notes
11.625%, 11/15/04................ 40 41,000
Day International Group, Inc. Sr.
Sub. Notes
9.50%, 03/15/08.................. 25 24,563
Garden State Newspapers, Inc. Sr.
Sub. Notes Cl-B
8.75%, 10/01/09.................. 50 48,438
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Hollinger International Publishing
Co. Co. Guarantee Sr. Sub. Notes
9.25%, 03/15/07.................. $ 50 $ 53,000
Von Hoffman Press, Inc. Sr. Sub.
Notes 144A
10.375%, 05/15/07................ 10 10,300
------------
177,301
------------
RAILROADS -- 0.2%
CSX Corp. Notes
7.95%, 05/01/27.................. 260 294,775
Norfolk Southern Corp. Notes
7.05%, 05/01/37.................. 300 327,375
TFM SA de CV Co. Guarantee Notes
10.25%, 06/15/07................. 10 8,400
Transportacion Maritima Mexicana SA
de CV Co. Guarantee Notes [STEP]
11.784%, 06/15/09................ 50 27,000
------------
657,550
------------
REAL ESTATE -- 0.2%
Cathay International Ltd. Sr. Notes
144A
13.00%, 04/15/08................. 30 11,025
D.R. Horton, Inc. Co. Guarantee
Notes
10.00%, 04/15/06................. 15 15,900
EOP Operating L.P. Notes
6.763%, 06/15/07................. 530 522,077
HMH Properties, Inc. Co. Guarantee
Sr. Notes Cl-B
7.875%, 08/01/08................. 50 48,813
------------
597,815
------------
RESTAURANTS -- 0.0%
Tricon Global Restaurants, Inc. Sr.
Notes
7.45%, 05/15/05.................. 10 10,475
------------
RETAIL & MERCHANDISING -- 0.4%
CEX Holdings, Inc. Sr. Sub. Notes
9.625%, 06/01/08................. 20 18,300
Eye Care Centers of America, Inc.
Sr. Sub. Notes 144A
9.125%, 05/01/08................. 10 9,625
Federated Department Stores, Inc.
Sr. Notes
8.50%, 06/15/03.................. 720 791,100
Meyer, (Fred), Inc.
Co. Guarantee Sub. Notes
7.45%, 03/01/08.................. 20 21,650
RAB Enterprises, Inc. Sr. Notes
144A
10.50%, 05/01/05................. 30 24,000
Sears Roebuck Acceptance Corp.
Notes
6.50%, 12/01/28.................. 375 371,250
Southland Corp. Sr. Sub. Debs. Cl-A
4.50%, 06/15/04.................. 95 76,950
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Specialty Retailers, Inc. Co.
Guarantee Notes Cl-B
8.50%, 07/15/05.................. $ 10 $ 9,000
Tyco International Group SA Co.
Guarantee Notes
6.25%, 06/15/99.................. 235 239,700
Zale Corp. Sr. Notes Cl-B
8.50%, 10/01/07.................. 20 19,450
------------
1,581,025
------------
SEMICONDUCTORS -- 0.0%
Derlan Manufacturing Ltd. Sr. Notes
10.00%, 01/15/07................. 25 20,000
Fairchild Semiconductor Corp. Sr.
Sub. Notes
10.125%, 03/15/07................ 55 55,000
Zilog, Inc. Co. Guarantee Notes
Cl-B
9.50%, 03/01/05.................. 30 24,150
------------
99,150
------------
TELECOMMUNICATIONS -- 1.6%
Adelphia Communications Corp. Sr.
Notes 144A
8.375%, 02/01/08................. 40 41,500
Adelphia Communications Corp. Sr.
Notes Cl-B
10.25%, 07/15/00................. 10 10,325
Airtouch Communications Notes
6.65%, 05/01/08.................. 405 430,313
Allbritton Communications Corp. Sr.
Sub. Notes Cl-B
8.875%, 02/01/08................. 50 50,750
Allegiance Telecom, Inc. Sr. Disc.
Notes Cl-B [STEP]
12.691%, 02/15/08................ 60 28,200
Allegiance Telecom, Inc. Sr. Notes
12.875%, 05/15/08................ 10 10,000
Benedek Communications Corp. Sr.
Disc. Notes [STEP]
14.474%, 05/15/06................ 75 54,750
Bestel SA Units [STEP] 144A
12.75%, 05/15/05................. 20 11,000
Birch Telecom, Inc. Units 144A
14.00%, 06/15/08................. 10 9,200
BTI Telecom. Corp. Sr. Notes
10.50%, 09/15/07................. 80 65,600
Call-Net Enterprises, Inc. Sr.
Disc. Notes [STEP]
8.94%, 08/15/08.................. 10 5,850
Caprock Communications Corp. Sr.
Notes
12.00%, 07/15/08................. 10 9,500
Centennial Cellular Corp. Sr. Notes
8.875%, 11/01/01................. 25 26,250
Century Communications Corp. Sr.
Notes
9.50%, 03/01/05.................. 45 50,175
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Charter Communications Southeast
Holdings Capital Corp. Disc.
Notes Cl-B [STEP]
11.322%, 03/15/07................ $ 10 $ 8,425
Colt Telecom Group PLC Sr. Disc.
Notes [STEP]
9.356%, 12/15/06................. 50 41,625
Comcast Cellular Holdings Corp. Sr.
Notes Cl-B
9.50%, 05/01/07.................. 85 90,738
Comcast U.K. Cable Corp. Sr. Sub.
Debs.
9.50%, 01/15/08.................. 75 79,500
CSC Holdings, Inc. Sr. Notes
7.875%, 12/15/07................. 25 26,438
7.25%, 07/15/08.................. 20 20,350
CTI Holdings SA Sr. Notes [STEP]
11.50%, 04/15/08................. 10 4,375
Diamond Cable Communications PLC
Sr. Disc. Notes [STEP]
10.58%, 12/15/05................. 100 83,250
Dobson Communications Corp. Sr.
Notes
11.75%, 04/15/07................. 40 41,200
Dobson Wireline Co. Sr. Notes
12.25%, 06/15/08................. 20 18,450
e.spire Communications, Inc. Sr.
Notes
13.75%, 07/15/07................. 15 15,600
Econophone, Inc. Sr. Disc. Notes
[STEP]
11.197%, 02/15/08................ 50 24,000
Esprit Telecom Group PLC Sr. Notes
11.50%, 12/15/07................. 10 10,313
Facilicom International, Inc. Sr.
Notes
10.50%, 01/15/08................. 10 8,200
Flag Ltd. Sr. Notes
8.25%, 01/30/08.................. 50 49,375
Focal Communications Corp. Sr.
Disc. Notes Cl-B [STEP]
11.258%, 02/15/08................ 40 21,000
Global Crossing Holdings Ltd. Co.
Guarantee Notes
9.625%, 05/15/08................. 90 95,625
Globo Communicacoes Participacoes
SA Sr. Notes 144A
10.625%, 12/05/08................ 10 6,400
Granite Broadcasting Corp. Sr. Sub.
Notes
8.875%, 05/15/08................. 10 9,450
ICG Services, Inc. Sr. Disc. Notes
[STEP]
10.164%, 05/01/08................ 170 91,800
Intermedia Communications, Inc. Sr.
Notes Cl-B
8.60%, 06/01/08.................. 50 49,250
International CableTel, Inc. Sr.
Notes Cl-B [STEP]
11.56%, 02/01/06................. 65 52,325
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
IPC Information Systems, Inc.
Notes [STEP]
10.207%, 05/01/08................ $ 40 $ 25,200
ITC Deltacom, Inc. Sr. Notes
11.00%, 06/01/07................. 19 20,306
IXC Communications, Inc. Sr. Sub.
Notes
9.00%, 04/15/08.................. 20 19,850
Jacor Communications, Inc. Notes
[CVT, ZCB]
1.003%, 06/12/11................. 20 17,475
Jones Intercable, Inc. Sr. Sub.
Debs.
10.50%, 03/01/08................. 25 27,594
Kitty Hawk, Inc. Co. Guarantee
Notes
9.95%, 11/15/04.................. 10 9,800
KMC Telecom Holdings, Inc. Sr.
Disc. Notes [STEP]
11.596%, 02/15/08................ 45 21,713
Knology Holdings, Inc. Sr. Disc.
Notes [STEP]
12.895%, 10/15/07................ 55 25,781
L-3 Communications Corp. Sr. Sub.
Notes Cl-B
10.375%, 05/01/07................ 20 22,000
LCI International, Inc. Sr. Notes
7.25%, 06/15/07.................. 470 484,100
Level 3 Communications, Inc. Sr.
Notes
9.125%, 05/01/08................. 80 79,600
Long Distance International, Inc.
Sr. Notes 144A
12.25%, 04/15/08................. 20 16,400
Marcus Cable Operating Co. Sr.
Disc. Notes [STEP]
11.281%, 08/01/04................ 50 50,063
McCaw International Ltd. Sr. Disc.
Notes [STEP]
13.00%, 04/15/07................. 10 5,500
Metrocall, Inc. Sr. Sub. Notes 144A
11.00%, 09/15/08................. 20 20,150
Metromedia Fiber Network, Inc. Sr.
Notes 144A
10.00%, 11/15/08................. 40 41,450
MetroNet Communications Corp. Sr.
Disc. Notes [STEP]
10.75%, 11/01/07................. 10 6,100
9.959%, 06/15/08................. 40 24,700
MetroNet Communications Corp. Sr.
Notes
12.00%, 08/15/07................. 25 27,875
MetroNet Escrow Corp. Sr. Notes
144A
10.625%, 11/01/08................ 40 42,800
Millicom International Cellular,
Inc. Sr. Disc. Notes [STEP]
11.037%, 06/01/06................ 80 59,200
MJD Communications, Inc.
9.778%, 05/01/99................. 10 9,800
Motorola, Inc. Debs.
6.50%, 11/15/28.................. 840 849,450
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Nextel Communications, Inc. Sr.
Disc. Notes [STEP]
9.95%, 08/15/04.................. $ 205 $ 199,106
13.85%, 02/15/08................. 10 6,025
Nextel Communications, Inc. Sr.
Notes 144A
12.00%, 11/01/08................. 40 44,400
Northeast Optic Network Sr. Notes
12.75%, 08/15/08................. 20 19,725
NTL, Inc. Sr. Notes
9.77%, 04/01/08 [STEP]........... 70 42,700
11.50%, 10/01/08 144A............ 20 21,850
Onepoint Communications Corp. Sr.
Notes 144A
14.50%, 06/01/08................. 10 5,400
Orbital Imaging Corp. Sr. Notes
Cl-B
11.625%, 03/01/05................ 20 19,900
Pathnet, Inc. Sr. Notes
12.25%, 04/15/08................. 30 21,000
Pegasus Communications Corp. Sr.
Notes 144A
9.75%, 12/01/06.................. 10 10,038
Primus Telecommunications Group,
Inc. Sr. Notes
9.875%, 05/15/08................. 10 9,400
PSINet, Inc. Sr. Notes 144A
11.50%, 11/01/08................. 30 31,200
PSINet, Inc. Sr. Notes Cl-B
10.00%, 02/15/05................. 10 9,900
Qwest Communications International,
Inc. Sr. Disc. Notes [STEP]
9.47%, 10/15/07.................. 20 15,600
Qwest Communications International,
Inc. Sr. Disc. Notes Cl-B [STEP]
7.268%, 02/01/08................. 50 37,625
Radio One, Inc. Notes
7.00%, 05/15/04.................. 10 9,850
RCN Corp. Sr. Disc. Notes [STEP]
11.125%, 10/15/07................ 30 17,550
Rhythms NetConnections, Inc. Sr.
Notes Cl-B [STEP]
6.777%, 05/15/08................. 40 18,000
Rogers Cablesystems of America,
Inc. Sr. Notes Cl-B
10.00%, 03/15/05................. 10 11,263
RSL Communications PLC Co.
Guarantee Notes
9.125%, 03/01/08................. 10 9,375
10.125%, 03/01/08 [STEP]......... 20 11,350
RSL Communications PLC Sr. Notes
144A
10.50%, 11/15/08................. 10 9,725
Satelites Mexicanos SA Sr. Notes
Cl-B
10.125%, 11/01/04................ 15 12,000
Sprint Capital Corp.
Co. Guarantee Notes
6.125%, 11/15/08................. 245 250,819
6.875%, 11/15/28................. 450 470,250
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Sprint Spectrum L.P. Sr. Disc.
Notes [STEP]
9.639%, 08/15/06................. $ 20 $ 18,200
Sprint Spectrum L.P. Sr. Notes
11.00%, 08/15/06................. 10 11,600
Startec Global Communications Sr.
Notes
12.00%, 05/15/08................. 20 17,175
TCI Communications, Inc. Sr. Notes
8.65%, 09/15/04.................. 560 646,800
Telecommunications Techniques Co.
Co. Guarantee Notes
9.75%, 05/15/08.................. 10 9,738
Telehub Communication Corp. Units
[STEP] 144A
13.882%, 07/31/05................ 10 5,675
Telesystem International Wireless,
Inc. Sr. Disc. Notes Cl-C [STEP]
10.50%, 11/01/07................. 10 3,750
TeleWest Communications PLC Sr.
Notes 144A
11.25%, 11/01/08................. 10 11,225
Time Warner Telecom LLC Sr. Notes
9.75%, 07/15/08.................. 100 105,000
Transtel SA Sr. Notes 144A
12.50%, 11/01/07................. 15 8,325
U.S. West Communications Notes
5.625%, 11/15/08................. 200 202,250
United International Holdings, Inc.
Sr. Disc. Notes Cl-B [STEP]
10.775%, 02/15/08................ 20 10,800
US Xchange LLC Sr. Notes
15.00%, 07/01/08................. 10 10,400
Versatel Telecom BV Sr. Notes
13.25%, 05/15/08................. 20 19,850
Versatel Telecom BV Units 144A
13.25%, 05/15/08................. 10 9,925
WinStar Communications, Inc. Sr.
Sub. Notes [STEP]
15.00%, 03/01/07................. 75 81,000
WorldCom, Inc. Sr. Notes
6.125%, 08/15/01................. 530 538,613
------------
6,582,386
------------
TRANSPORTATION -- 0.0%
MC Shipping, Inc. Sr. Notes
11.25%, 03/01/08................. 10 6,800
Navistar International Corp.
Sr. Notes C1-B
7.00%, 02/01/03.................. 50 50,188
Navistar International Corp. Sr.
Sub. Notes Cl-B
8.00%, 02/01/08.................. 50 50,938
------------
107,926
------------
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
UTILITIES -- 0.9%
AES China Generating Co. Ltd. Sr.
Notes
10.125%, 12/15/06................ $ 10 $ 7,250
American Eco Corp. Co. Guarantee
Notes Cl-B
9.625%, 05/15/08................. 30 20,250
Arizona Public Service Co. Sr.
Notes
6.75%, 11/15/06.................. 415 440,419
Baltimore Gas & Electric Co. Medium
Term Notes
6.90%, 02/01/05.................. 705 760,519
Calpine Corp. Sr. Notes
7.875%, 04/02/08................. 20 20,150
Cleveland Electric Illuminating Co.
First Mtge. Cl-B
9.50%, 05/15/05.................. 25 27,594
Cleveland Electric Illumination Co.
Notes
6.86%, 10/01/08.................. 30 29,703
Coho Energy, Inc. Sr. Sub. Notes
8.875%, 10/15/07................. 10 8,400
Columbia Gas Systems, Inc. Debs.
6.61%, 11/28/02.................. 480 501,000
Connecticut Light & Power Co. First
Mtge.
7.875%, 06/01/01................. 40 41,800
El Paso Electric Co. First Mtge.
Cl-E
9.40%, 05/01/11.................. 10 11,613
K N Energy, Inc. Debs
6.80%, 03/01/08.................. 100 101,750
K N Energy, Inc. Sr. Notes
6.45%, 03/01/03.................. 350 351,313
Niagara Mohawk Power Corp. Notes
9.95%, 06/01/00.................. 50 52,474
7.375%, 07/01/03................. 10 10,238
Niagara Mohawk Power Corp. Sr.
Notes Cl-F
7.625%, 10/01/05................. 10 10,500
Niagara Mohawk Power Corp. Sr.
Notes Cl-G
7.75%, 10/01/08.................. 50 54,250
Northeast Utilities System Notes
8.38%, 03/01/05.................. 27 27,200
8.58%, 12/01/06.................. 8 8,490
Ram Energy, Inc. Sr. Notes
11.50%, 02/15/08................. 10 6,600
Southern California Edison Co.
Notes
5.875%, 01/15/01................. 1,000 1,013,750
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Transamerican Energy Corp. Sr.
Disc. Notes Cl-B
11.50%, 06/15/02................. $ 70 $ 26,600
13.00%, 06/15/02 [STEP].......... 200 68,000
York Power Funding Co. Co.
Guarantee Notes 144A
12.00%, 10/30/07................. 20 20,400
------------
3,620,263
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $44,865,996)................... 45,206,835
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 7.5%
Federal Home Loan Bank
4.78%, 01/22/99.................. 7,000 6,980,637
------------
Federal Home Loan Mortgage Corp.
5.04%, 01/22/99.................. 5,000 4,986,141
6.00%, 08/15/28.................. 220 221,168
7.50%, 04/01/28.................. 284 291,437
9.50%, 05/01/05.................. 271 286,947
------------
5,785,693
------------
Federal National Mortgage Assoc.
5.50%, 02/01/11-05/01/11......... 1,349 1,331,733
5.75%, 04/15/03.................. 1,775 1,825,578
6.00%, 05/15/08-10/01/13......... 3,616 3,719,533
6.50%, 09/01/10-11/01/28......... 3,850 3,891,505
7.00%, 08/01/07-08/01/13......... 625 640,008
8.50%, 10/15/08.................. 708 751,963
------------
12,160,320
------------
Government National Mortgage Assoc.
6.50%, 04/15/28.................. 518 523,438
7.00%, 11/15/23-09/15/28......... 2,049 2,097,990
8.00%, 01/15/29 [TBA]............ 2,525 2,625,211
10.00%, 06/15/13................. 362 395,848
------------
5,642,487
------------
(Cost $30,301,823)................. 30,569,137
------------
U.S. TREASURY OBLIGATIONS -- 8.3%
U.S. Treasury Bills
4.32%, 03/04/99#................. 1,750 1,737,438
------------
U.S. Treasury Bonds
6.375%, 08/15/27#................ 8,240 9,456,271
6.125%, 11/15/27................. 1,645 1,839,090
5.50%, 08/15/28.................. 220 230,588
5.25%, 11/15/28.................. 610 624,860
------------
12,150,809
------------
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
U.S. Treasury Notes
4.50%, 09/30/00.................. $ 5,445 $ 5,437,462
4.625%, 11/30/00................. 2,445 2,447,326
5.50%, 05/31/03#................. 1,480 1,528,317
5.25%, 08/15/03.................. 5,325 5,462,700
4.25%, 11/15/03.................. 2,300 2,271,082
5.625%, 05/15/08................. 2,400 2,562,681
4.75%, 11/15/08.................. 455 458,542
------------
20,168,110
------------
(Cost $33,267,496)................. 34,056,357
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 4.4%
Advanta Mtge. Loan Trust Series
1997-2 Cl-A2
7.05%, 05/25/21.................. 805 825,382
Advanta Mtge. Loan Trust Series
1997-3 Cl-A3
6.69%, 04/25/17.................. 655 672,020
Amresco Commercial Mtge. Funding I
Series 1997-C1 Cl-A1
6.73%, 06/17/29.................. 625 648,072
Amresco Residential Securities
Mtge. Loan Trust Series 1997-3
Cl-A3
6.60%, 01/25/18.................. 440 441,155
Capita Equipment Receivables Trust
Series 1996-1 Cl-A4
6.28%, 06/15/00.................. 600 603,278
Commercial Mtge. Acceptance Corp.
Series 1997-ML1 Cl-A2
6.53%, 12/15/30.................. 255 265,370
Commercial Mtge. Acceptance Corp.
Series 1997-ML1 Cl-A3
6.57%, 10/15/07.................. 700 732,904
Commercial Mtge. Acceptance Corp.
Series 1998-C2 Cl-A1
5.80%, 09/01/30.................. 557 554,877
Federal National Mtge. Assoc. REMIC
Series 1989-71 Cl-J
8.50%, 10/25/19.................. 880 930,853
Federal National Mtge. Assoc. REMIC
Series 1993-240 Cl-B
6.25%, 12/25/13.................. 445 447,983
Federal National Mtge. Assoc. REMIC
Series 1997-61 Cl-ZC
7.00%, 02/25/23.................. 340 336,512
First Union-Lehman Bros. Commercial
Mtge. Series 1997-C2 Cl-A3
6.65%, 06/18/08.................. 210 219,480
First Union-Lehman Bros. Commercial
Mtge. Series 1998-C2 Cl-A1
6.28%, 06/18/07.................. 670 686,192
General Motors Acceptance Corp.
Commercial Mtge. Securities, Inc.
Series 1998-C2 Cl-A1
6.15%, 05/15/31.................. 295 299,646
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
General Motors Acceptance Corp.
Commercial Mtge. Securities, Inc.
Series 1998-C2 Cl-A2
6.42%, 08/15/08.................. $ 380 $ 394,382
General Motors Acceptance Corp.
Global Commercial Mtge.
Securities, Inc.
5.75%, 11/10/03.................. 370 372,871
Green Tree Financial Corp. Series
1997-2 Cl-A6
7.24%, 03/15/25.................. 635 654,809
Green Tree Financial Corp. Series
1997-3 Cl-A4
6.93%, 07/15/28.................. 1,095 1,130,933
Green Tree Financial Corp. Series
1998-2 Cl-A5
6.24%, 03/18/28.................. 1,035 1,054,840
Green Tree Recreational, Equipment
& Consumer Trust Series 1997-B
Cl-A1
6.55%, 07/15/28.................. 908 922,016
Green Tree Recreational, Equipment
& Consumer Trust Series 1998-A
Cl-A1C
6.18%, 06/15/19.................. 819 834,449
Independent National Mtge. Corp.
Series 1994-V Cl-A1
8.249%, 12/25/24................. 211 217,014
Merrill Lynch Mtge. Investors, Inc.
Series 1997-C2 Cl-A2
6.54%, 12/10/29.................. 1,160 1,213,331
Merrill Lynch Mtge. Investors, Inc.
Series 1998-C2 Cl-A1
6.22%, 02/15/30.................. 842 858,241
Morgan Stanley Capital I Series
1996-WF1 Cl-A2 144A
7.227%, 01/16/06................. 655 695,733
Mortgage Capital Funding, Inc.
Series 1998-MC1 Cl-A2
6.663%, 01/18/08................. 215 226,415
PNC Mtge. Securities Corp. Series
1997-6 Cl-A2
6.60%, 01/01/00.................. 337 339,020
Provident Bank Home Equity Loan
Trust Series 1997-4 Cl-A3
6.91%, 01/25/29.................. 455 468,812
Securitized Asset Sales, Inc.
Series 1993-J Cl-2B
6.808%, 11/28/23................. 958 940,628
------------
(Cost $17,590,612)................. 17,987,218
------------
FOREIGN BONDS -- 0.1%
CANADA -- 0.1%
Quebec Province Debs.
7.00%, 01/30/07.................. 405 438,413
</TABLE>
<PAGE>
AST PUTNAM BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
NETHERLANDS -- 0.0%
Asia Pulp & Paper Finance II
Mauritius Ltd.
12.00%, 12/29/49................. $ 45 $ 24,693
------------
TOTAL FOREIGN BONDS (Cost $470,687).... 463,106
------------
COMMERCIAL PAPER -- 4.1%
Falcon Asset Securitization Corp.
5.20%, 02/18/99.................. 1,000 993,333
GTE Funding, Inc.
5.27%, 02/11/99.................. 5,000 4,969,990
Preferred Receivables Funding Corp.
5.22%, 02/25/99.................. 6,000 5,954,901
Windmill Funding Corp.
5.28%, 01/13/99.................. 5,000 4,991,477
------------
(Cost $16,906,407)................. 16,909,701
------------
REPURCHASE AGREEMENTS -- 5.1%
Merrill Lynch & Co., Inc., 4.80%,
dated 12/31/98, maturing
01/04/99, repurchase price
$20,913,148 (Collateralized by
U.S. Treasury Notes, par value
$20,955,000, market value
$21,397,151 due 06/30/00)
(Cost $20,902,000)............... 20,902 20,902,000
------------
TOTAL INVESTMENTS -- 99.1%
(Cost $372,164,853).................. 405,688,416
OTHER ASSETS LESS
LIABILITIES -- 0.9%.................. 3,646,856
------------
NET ASSETS -- 100.0%................... $409,335,272
============
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1998:
<TABLE>
<CAPTION>
IN UNREALIZED
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
MONTH TYPE RECEIVE FOR AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99 Buy CAD 80,976 $ 52,675 $ 52,722 $ 47
03/99 Buy GBP 409,000 692,149 678,748 (13,401)
03/99 Buy JPY 120,000,000 1,051,363 1,074,345 22,982
---------- ---------- --------
$1,796,187 $1,805,815 $ 9,628
=========== =========== ========
</TABLE>
<TABLE>
<CAPTION>
IN UNREALIZED
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
MONTH TYPE DELIVER FOR AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/99 Sell GBP 409,000 $ 683,234 $ 678,748 $ 4,486
03/99 Sell JPY 120,000,000 917,431 1,074,344 (156,913)
---------- ---------- ---------
$1,600,665 $1,753,092 ($152,427)
=========== =========== =========
</TABLE>
# Securities with an aggregate market value of $3,866,068 have been segregated
with the custodian to cover margin requirements for the following open futures
contracts at December 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION NUMBER OF APPRECIATION
DESCRIPTION MONTH CONTRACTS (DEPRECIATION)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
ASX Index................. 03/99 1 $ 1,145
CAC Index................. 01/99 (5) (11,552)
DAX Index................. 03/99 (4) (74,698)
FTSE 100 Index............ 03/99 (43) (135,278)
MIB30 Index............... 03/99 19 319,699
NIKKEI 225 SMX Index...... 03/99 (23) 96,338
NASDAQ 100................ 03/99 27 512,444
Russell 2000.............. 03/99 18 196,800
S&P 500................... 03/99 39 408,941
U.S. Treasury 30 Year
Bonds.................... 03/99 219 (111,174)
----------
$1,202,665
==========
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stock.
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 1.0% of net assets.
See Notes to Financial Statements.
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
CORPORATE OBLIGATIONS -- 91.9%
ADVERTISING -- 0.9%
Lamar Advertising Co. Co. Guarantee
Sr. Sub. Notes
9.625%, 12/01/06................. $ 1,700 $ 1,848,750
Outdoor Systems, Inc. Co. Guarantee
Notes
9.375%, 10/15/06................. 500 542,500
Outdoor Systems, Inc. Sr. Sub.
Notes
8.875%, 06/15/07................. 2,650 2,848,750
------------
5,240,000
------------
AIRLINES -- 0.4%
Aviation Sales Co. Co. Guarantee
Sr. Sub. Notes
8.125%, 02/15/08................. 2,500 2,487,500
------------
AUTOMOBILE MANUFACTURERS -- 0.1%
Oshkosh Truck Corp. Co. Guarantee
Notes
8.75%, 03/01/08.................. 7,500 753,750
------------
AUTOMOTIVE PARTS -- 1.7%
Accuride Corp. Sr. Sub. Notes Cl-B
9.25%, 02/01/08.................. 1,500 1,477,500
Aftermarket Technology, Inc. Sr.
Sub. Notes
12.00%, 08/01/04................. 1,938 2,044,590
HDA Parts System, Inc. Sr. Sub.
Notes 144A
12.00%, 08/01/05................. 1,200 1,086,000
Lear Corp. Sub. Notes
9.50%, 07/15/06.................. 2,500 2,775,000
Lear Seating Corp. Sub. Notes
8.25%, 02/01/02.................. 550 553,437
Oxford Automotive, Inc. Co.
Guarantee Notes
10.125%, 06/15/07................ 2,300 2,380,500
------------
10,317,027
------------
BROADCASTING -- 7.8%
Acme Television Co. Co. Guarantee
Notes Cl-B [STEP]
10.992%, 09/30/04................ 3,100 2,487,750
Australis Media Ltd. Sr. Disc.
Notes [STEP]
29.55%, 05/15/03................. 11 160
Australis Media Ltd. Units [STEP]
15.706%, 05/15/03................ 625 9,375
Big City Radio, Inc. Co. Guarantee
Sr. Disc. Notes [STEP]
10.867%, 03/15/05................ 2,950 1,961,750
Capstar Broadcasting Corp. Sr. Sub.
Notes
9.25%, 07/01/07.................. 1,400 1,463,000
Chancellor Media Corp. Co.
Guarantee Notes Cl-B
10.50%, 01/15/07................. 1,700 1,895,500
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Chancellor Media Corp. LA Co.
Guarantee Notes Cl-B
8.75%, 06/15/07.................. $ 1,750 $ 1,802,500
Chancellor Media Corp. LA Sr. Sub.
Notes Cl-B
8.125%, 12/15/07................. 5,150 5,137,125
Chancellor Media Corp. Sr. Notes
144A
8.00%, 11/01/08.................. 4,000 4,100,000
Chancellor Media Corp. Sr. Sub.
Notes
9.375%, 10/01/04................. 1,150 1,198,875
9.00%, 10/01/08 144A............. 2,200 2,321,000
Cumulus Media, Inc. Co. Guarantee
Notes
10.375%, 07/01/08................ 1,850 1,970,250
Diva Systems Corp. Sr. Disc. Notes
[STEP] 144A
11.896%, 03/01/08................ 1,625 613,437
Echostar Satellite Broadcasting Co.
Sr. Disc. Notes [STEP]
10.35%, 03/15/04................. 4,525 4,536,312
Fox/Liberty Networks LLC Sr. Disc.
Notes [STEP]
9.534%, 08/15/07................. 5,550 3,857,250
Fox/Liberty Networks LLC Sr. Notes
8.875%, 08/15/07................. 1,625 1,657,500
NWCG Holding Corp. Sr. Disc. Notes
[ZCB]
13.196%, 06/15/99................ 300 292,779
SFX Broadcasting, Inc. Sr. Sub.
Notes Cl-B
10.75%, 05/15/06................. 773 854,165
Sinclair Broadcasting Group, Inc.
Co. Guarantee Notes
9.00%, 07/15/07.................. 2,000 2,045,000
Sinclair Broadcasting Group, Inc.
Sr. Sub. Notes
10.00%, 09/30/05................. 2,500 2,637,500
Sinclair Broadcasting Group, Inc.
Sr. Sub. Notes
8.75%, 12/15/07.................. 3,650 3,713,875
Young Broadcasting, Inc. Sr. Sub.
Notes
10.125%, 02/15/05................ 1,175 1,239,625
Young Broadcasting, Inc. Sr. Sub.
Notes Cl-B
9.00%, 01/15/06.................. 500 508,750
------------
46,303,478
------------
BUILDING MATERIALS -- 0.6%
American Builders & Contractors
Supply Co., Inc. Notes Cl-B
10.625%, 05/15/07................ 1,625 1,519,375
Falcon Building Products, Inc. Co.
Guarantee Notes Cl-B [STEP]
9.868%, 06/15/07................. 2,500 1,487,500
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Falcon Building Products, Inc. Co.
Guarantee Sr. Sub. Notes Cl-B
9.50%, 06/15/07.................. $ 350 $ 313,250
------------
3,320,125
------------
BUSINESS SERVICES -- 1.2%
Dialog Corp. PLC Sr. Sub. Notes
Cl-A
11.00%, 11/15/07................. 3,250 3,250,000
Fisher Scientific International,
Inc. Sr. Sub. Notes 144A
9.00%, 02/01/08.................. 1,850 1,850,000
U.S. Office Products Co. Sr. Sub.
Notes
9.75%, 06/15/08.................. 3,175 2,079,625
------------
7,179,625
------------
CABLE TELEVISION -- 8.8%
CSC Holdings, Inc. Sr. Notes
7.875%, 12/15/07................. 1,700 1,793,160
CSC Holdings, Inc. Sr. Sub. Debs
9.875%, 02/15/13................. 500 558,750
CSC Holdings, Inc. Sr. Sub. Notes
9.25%, 11/01/05.................. 3,925 4,199,750
9.875%, 05/15/06................. 300 331,500
Charter Communications Southeast
Holdings Capital Corp. Disc.
Notes Cl-B [STEP]
10.733%, 03/15/07................ 900 805,500
Charter Communications Southeast
Holdings Capital Corp. Sr. Notes
Cl-B
11.25%, 03/15/06................. 1,150 1,290,875
Comcast Corp. Sr. Sub. Debs
9.375% 05/15/05.................. 2,500 2,668,750
Comcast U.K. Cable Corp. Debs.
[STEP]
10.997%, 11/15/07................ 2,900 2,479,500
Diamond Cable Communications PLC
Sr. Disc. Notes [STEP]
10.751%, 12/15/05................ 4,000 3,330,000
Diamond Holdings PLC Co. Guarantee
Notes
9.125%, 02/01/08................. 1,875 1,842,188
Echostar DBS Corp. Co. Guarantee
Notes
12.50%, 07/01/02................. 850 986,000
Lenfest Communications, Inc. Sr.
Notes
8.375%, 11/01/05................. 2,150 2,338,125
Lenfest Communications, Inc. Sr.
Sub. Notes
8.25%, 02/15/08.................. 2,275 2,383,063
NTL, Inc. Sr. Notes [STEP]
9.602%, 04/01/08................. 5,525 3,432,406
11.412%, 10/01/08 144A........... 5,000 3,150,000
Pegasus Communications Corp. Sr.
Notes 144A
9.75%, 12/01/06.................. 1,500 1,511,250
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Pegasus Communications Corp. Sr.
Notes Cl-B
9.625%, 10/15/05................. $ 2,125 $ 2,135,625
Rogers Cablesystems of America,
Inc. Sr. Notes
10.00%, 12/01/07................. 1,350 1,518,750
11.00% 12/01/15.................. 750 881,250
Rogers Cablesystems of America,
Inc. Sr. Notes Cl-B
10.00%, 03/15/05................. 3,050 3,431,250
TeleWest Communications PLC Debs.
[STEP]
10.457%, 10/01/07................ 10,125 8,505,000
TeleWest Communications PLC Sr.
Notes 144A
11.25%, 11/01/08................. 525 589,313
United International Holdings, Inc.
Sr. Disc. Notes Cl-B [STEP]
10.75%, 02/15/08................. 4,300 2,343,500
------------
52,505,505
------------
CAPITAL GOODS -- 0.6%
Buckeye Cellulos Corp. Sr. Sub.
Notes
8.50%, 12/15/05.................. 1,500 1,567,500
9.25%, 09/15/08.................. 1,750 1,841,875
------------
3,409,375
------------
CHEMICALS -- 2.5%
Foamex Capital Corp. Sr. Sub. Notes
13.50%, 08/15/05................. 500 530,000
Huntsman Corp. Sr. Sub. Notes 144A
9.50%, 07/01/07.................. 2,400 2,400,000
ISP Holdings, Inc. Sr. Notes Cl-B
9.75%, 02/15/02.................. 1,000 1,067,500
9.00%, 10/15/03.................. 2,225 2,364,062
Polymer Group, Inc. Co. Guarantee
Notes Cl-B
9.00%, 07/01/07.................. 4,725 4,701,375
8.75%, 03/01/08.................. 2,450 2,419,375
Sterling Chemicals Holdings, Inc.
Sr. Disc. Notes [STEP]
11.611%, 08/15/08................ 2,350 904,750
Sterling Chemicals, Inc. Sr. Sub.
Notes
11.75%, 08/15/06................. 275 237,875
------------
14,624,937
------------
CLOTHING & APPAREL -- 1.4%
Dyersburg Corp. Co. Guarantee Notes
Cl-B
9.75%, 09/01/07.................. 1,725 1,552,500
GFSI, Inc. Sr. Sub. Notes Cl-B
9.625%, 03/01/07................. 1,050 1,002,750
Hosiery Corp. of America, Inc. Sr.
Sub. Notes
13.75%, 08/01/02................. 400 412,000
Pillowtex Corp. Co. Guarantee Notes
Cl-B
9.00%, 12/15/07.................. 1,575 1,630,125
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Pillowtex Corp. Sr. Sub. Notes
10.00%, 11/15/06................. $ 1,950 $ 2,096,250
The Boyds Collection Ltd. Sr. Sub.
Notes 144A
9.00%, 05/15/08.................. 1,200 1,290,000
------------
7,983,625
------------
COMPUTER SERVICES & SOFTWARE -- 0.5%
Alvey Systems, Inc. Sr. Sub. Notes
11.375%, 01/31/03................ 1,217 1,223,085
American Business Information, Inc.
Sr. Sub. Notes 144A
9.50%, 06/15/08.................. 725 583,625
Verio, Inc. Sr. Notes 144A
11.25%, 12/01/08................. 1,325 1,344,875
------------
3,151,585
------------
CONGLOMERATES -- 1.3%
Eagle-Picher Industries, Inc. Co.
Guarantee Notes
9.375%, 03/01/08................. 2,950 2,802,500
Hermes Europe Railtel BV Sr. Notes
11.50%, 08/15/07................. 3,425 3,647,625
10.375%, 01/15/09 144A........... 1,525 1,555,500
------------
8,005,625
------------
CONSTRUCTION -- 0.5%
American Architectural Co. Co.
Guarantee Notes
11.75%, 12/01/07................. 950 821,750
Building Materials Corp. Sr. Notes
Cl-B
8.00%, 10/15/07.................. 2,250 2,269,687
------------
3,091,437
------------
CONSUMER PRODUCTS & SERVICES -- 5.4%
Albecca, Inc. Sr. Sub. Notes 144A
10.75%, 08/15/08................. 4,000 4,030,000
American Safety Razor Co. Sr. Notes
9.875%, 08/01/05................. 1,250 1,256,250
Amscan Holdings, Inc. Sr. Sub.
Notes
9.875%, 12/15/07................. 1,175 1,101,562
Cabot Safety Corp. Sr. Sub. Notes
12.50%, 07/15/05................. 1,500 1,642,500
Chattem, Inc. Co. Guarantee Notes
Cl-B
8.875%, 04/01/08................. 2,200 2,266,000
Collins & Aikman Floor Coverings
Corp. Sr. Sub. Notes
10.00%, 01/15/07................. 1,400 1,470,000
Collins & Aikman Products Corp. Sr.
Sub. Notes
11.50%, 04/15/06................. 3,900 4,056,000
Diamond Brands Operating, Inc.
Debs. [STEP]
12.83%, 04/15/09................. 1,500 577,500
Glenoit Corp. Co. Guarantee Notes
11.00%, 04/15/07................. 2,000 1,870,000
NBTY, Inc. Sr. Sub. Notes Cl-B
8.625%, 09/15/07................. 2,350 2,303,000
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Playtex Family Products Corp. Sr.
Sub. Notes
9.00%, 12/15/03.................. $ 2,600 $ 2,730,000
Playtex Products, Inc. Notes Cl-B
8.875%, 07/15/04................. 850 892,500
Revlon Consumer Products Corp. Sr.
Notes
8.125%, 02/01/06................. 2,200 2,101,000
Revlon Consumer Products Corp. Sr.
Sub. Notes
8.625%, 02/01/08................. 6,500 6,012,500
------------
32,308,812
------------
CONTAINERS & PACKAGING -- 1.7%
Ball Corp. Sr. Sub. Notes 144A
8.25%, 08/01/08.................. 550 578,187
Container Corp. of America Sr.
Notes
11.25%, 05/01/04................. 250 261,250
Four M Corp. Sr. Notes
12.00%, 06/01/06................. 1,300 981,500
Owens-Illinois, Inc. Sr. Notes
8.10%, 05/15/07.................. 1,000 1,065,340
Plastic Containers, Inc. Sr. Notes
Cl-B
10.00%, 12/15/06................. 450 474,750
Stone Container Corp. Sr. Notes
11.50%, 10/01/04................. 1,200 1,254,000
12.58%, 08/01/16 [VR]............ 1,550 1,581,000
Stone Container Corp. Sr. Sub.
Notes
12.25%, 04/01/02................. 125 128,125
Tekni-Plex, Inc. Co. Guarantee Sub.
Notes Cl-B
9.25%, 03/01/08.................. 3,750 3,937,500
------------
10,261,652
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 1.7%
Amphenol Corp. Sr. Sub. Notes
9.875%, 05/15/07................. 2,000 2,080,000
Electronic Retailing Systems, Inc.
Sr. Disc. Notes [STEP]
13.25%, 02/01/04................. 875 319,375
PX Escrow Corp. Sr. Disc. Notes
[STEP]
9.395%, 02/01/06................. 1,075 596,625
Viasystems, Inc. Sr. Sub. Notes
Cl-B
9.75%, 06/01/07.................. 1,625 1,519,375
WESCO Distribution, Inc. Co.
Guarantee Notes Cl-B
9.125%, 06/01/08................. 3,850 3,869,250
WESCO International, Inc. Sr. Disc.
Notes Cl-B [STEP]
11.145%, 06/01/08................ 2,650 1,636,375
------------
10,021,000
------------
ENTERTAINMENT & LEISURE -- 3.3%
AMF Group, Inc. Sr. Disc. Notes
[STEP]
10.188%, 03/15/06................ 3,137 1,811,617
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Loews Cineplex Entertainment Corp.
Sr. Sub. Notes
8.875%, 08/01/08................. $ 1,425 $ 1,478,437
Premier Parks, Inc. Sr. Disc. Notes
[STEP]
9.829%, 04/01/08................. 4,150 2,832,375
Premier Parks, Inc. Sr. Notes
9.25%, 04/01/06.................. 875 910,000
9.75%, 01/15/07.................. 450 490,500
Premier Parks, Inc. Sr. Notes Cl-A
12.00%, 08/15/03................. 1,600 1,740,000
Regal Cinemas, Inc. Sr. Sub. Notes
9.50%, 06/01/08.................. 3,500 3,622,500
9.50%, 06/01/08 144A............. 1,750 1,811,250
Six Flags Theme Parks Corp. Sr.
Sub. Notes Cl-A [STEP]
12.25%, 06/15/05................. 3,625 4,041,875
True Temper Sports, Inc. Sr. Sub.
Notes 144A
10.875%, 12/01/08................ 875 879,375
------------
19,617,929
------------
ENVIRONMENTAL SERVICES -- 1.5%
Allied Waste North America, Inc.
Sr. Notes 144A
7.625%, 01/01/06................. 8,375 8,500,625
7.875%, 01/01/09................. 625 634,375
------------
9,135,000
------------
EQUIPMENT SERVICES -- 0.4%
Coinmach Corp. Sr. Notes Cl-D
11.75%, 11/15/05................. 1,981 2,193,957
------------
FARMING & AGRICULTURE -- 0.5%
Dimon, Inc. Sr. Notes
8.875%, 06/01/06................. 1,950 1,940,250
Purina Mills, Inc. Sr. Sub. Notes
9.00%, 03/15/10.................. 950 950,000
------------
2,890,250
------------
FINANCIAL-BANK & TRUST -- 1.4%
GS Escrow Corp. Sr. Notes
7.125%, 08/01/05................. 8,500 8,426,135
------------
FINANCIAL SERVICES -- 0.4%
ContiFinancial Corp. Sr. Notes
8.125%, 04/01/08................. 1,000 715,000
Unifrax Investment Corp. Sr. Notes
10.50%, 11/01/03................. 1,650 1,674,750
------------
2,389,750
------------
FOOD -- 3.8%
Agrilink Foods, Inc. Sr. Sub. Notes
144A
11.875%, 11/01/08................ 3,500 3,570,000
Ameriserv Food Distributor, Inc.
Co. Guarantee Sr. Sub. Notes
8.875%, 10/15/06................. 1,200 1,116,000
10.125%, 07/15/07................ 4,300 3,762,500
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Aurora Foods, Inc. Sr. Sub. Notes
Cl-B
9.875%, 02/15/07................. $ 1,775 $ 1,943,625
8.75%, 07/01/08.................. 1,250 1,306,250
Carr-Gottstein Foods Co. Sr. Sub.
Notes
12.00%, 11/15/05................. 1,025 1,189,000
Di Giorgio Corp. Sr. Notes Cl-B
10.00%, 06/15/07................. 1,350 1,262,250
Domino's, Inc. Sr. Sub. Notes 144A
10.375%, 01/15/09................ 1,775 1,775,000
Eagle Family Foods, Inc. Co.
Guarantee Notes Cl-B
8.75%, 01/15/08.................. 1,450 1,373,875
International Home Foods, Inc. Sr.
Sub. Notes
10.375%, 11/01/06................ 800 870,000
Jitney-Jungle Stores, Inc. Sr. Sub.
Notes
10.375%, 09/15/07................ 2,725 2,779,500
Nebco Evans Holding Co. Sr. Disc.
Notes [STEP]
11.645%, 07/15/07................ 1,250 606,250
Stater Brothers Holdings, Inc. Sr.
Sub. Notes
9.00%, 07/01/04.................. 1,125 1,102,500
------------
22,656,750
------------
FURNITURE -- 0.3%
Sealy Mattress Co. Co. Guarantee
Notes Cl-B [STEP]
10.875%, 12/15/07................ 1,000 605,000
Sealy Mattress Co. Sr. Sub. Notes
Cl-B
9.875%, 12/15/07................. 775 751,750
Werner Holdings Co., Inc. Co.
Guarantee Notes Cl-A
10.00%, 11/15/07................. 325 323,375
------------
1,680,125
------------
HEALTHCARE SERVICES -- 3.0%
Alliance Imaging, Inc. Sr. Sub.
Notes
9.625%, 12/15/05................. 1,150 1,144,250
Everest Healthcare Services, Inc.
Co. Guarantee Notes
9.75%, 05/01/08.................. 1,575 1,575,000
Fisher Scientific International,
Inc. Sr. Sub. Notes
9.00%, 02/01/08.................. 2,475 2,475,000
Hudson Respiratory Care, Inc. Sr.
Sub. Notes
9.125%, 04/15/08................. 850 692,750
Icon Fitness Corp. Sr. Disc. Notes
Cl-B [STEP]
14.00%, 11/15/06................. 1,100 16,500
Tenet Healthcare Corp. Sr. Sub.
Notes
8.00%, 01/15/05.................. 4,200 4,311,678
8.625%, 01/15/07................. 3,500 3,657,500
8.125%, 12/01/08 144A............ 4,000 4,150,000
------------
18,022,678
------------
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
HOTELS & MOTELS -- 0.2%
Courtyard by Marriott Sr. Notes
10.75%, 02/01/08................. $ 1,100 $ 1,138,500
------------
INDUSTRIAL PRODUCTS -- 1.0%
Continental Global Group, Inc. Sr.
Notes Cl-B
11.00%, 04/01/07................. 2,100 1,816,500
Grove Worldwide LLC Sr. Sub. Notes
9.25%, 05/01/08.................. 875 800,625
ISG Resources, Inc. Sr. Sub. Notes
10.00%, 04/15/08................. 1,800 1,791,000
MMI Products, Inc. Sr. Sub. Notes
Cl-B
11.25%, 04/15/07................. 1,600 1,736,000
------------
6,144,125
------------
MACHINERY & EQUIPMENT -- 2.9%
Anchor Lamina, Inc. Sr. Sub. Notes
9.875%, 02/01/08................. 800 724,000
Clark Materials Handling Corp. Co.
Guarantee Sr. Sub. Notes Cl-D
10.75%, 11/15/06................. 2,625 2,684,062
Columbus McKinnon Corp. Co.
Guarantee Notes
8.50%, 04/01/08.................. 1,550 1,457,000
Fairfield Manufacturing Co. Sr.
Sub. Notes
11.375%, 07/01/01................ 900 927,000
Johnstown America Industries, Inc.
Sr. Sub. Notes Cl-C
11.75%, 08/15/05................. 700 742,000
National Equipment Services, Inc.
Sr. Sub. Notes 144A
10.00%, 11/30/04................. 2,600 2,587,000
National Equipment Services, Inc.
Sr. Sub. Notes Cl-B
10.00%, 11/30/04................. 1,275 1,268,625
NationsRent, Inc. Sr. Sub. Notes
144A
10.375%, 12/15/08................ 3,100 3,084,500
United Rentals, Inc. Sr. Sub. Notes
144A
9.25%, 01/15/09.................. 3,600 3,627,000
------------
17,101,187
------------
MEDICAL SUPPLIES & EQUIPMENT -- 0.9%
CONMED Corp. Co. Guarantee Sr. Sub.
Notes
9.00%, 03/15/08.................. 2,450 2,468,375
Dade International, Inc. Sr. Sub.
Notes Cl-B
11.125%, 05/01/06................ 2,475 2,864,687
------------
5,333,062
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
METALS & MINING -- 2.0%
AEI Holding, Inc. Co. Guarantee
Sub. Notes 144A
10.50%, 12/15/05................. $ 1,950 $ 1,920,750
AEI Resources, Inc. Sr. Sub. Notes
144A
11.50%, 12/15/06................. 3,375 3,358,125
Euramax International PLC Sr. Sub.
Notes
11.25%, 10/01/06................. 1,375 1,375,000
Metals USA, Inc. Co. Guarantee Sr.
Sub. Notes
8.625%, 02/15/08................. 250 236,250
Neenah Corp. Sr. Sub Notes 144A
11.125%, 05/01/07................ 1,000 1,032,500
Neenah Corp. Sr. Sub. Notes Cl-B
11.125%, 05/01/07................ 1,725 1,781,062
Ryerson Tull, Inc. Notes
8.50%, 07/15/01.................. 1,000 1,054,290
9.125%, 07/15/06................. 900 1,012,752
------------
11,770,729
------------
OFFICE EQUIPMENT -- 0.4%
United Stationers Supply Co. Sr.
Sub. Notes
12.75%, 05/01/05................. 1,169 1,309,280
8.375%, 04/15/08................. 1,000 1,002,500
------------
2,311,780
------------
OIL & GAS -- 3.3%
Chiles Offshore LLC Corp. Co.
Guarantee Notes
10.00%, 05/01/08................. 1,875 1,509,375
Continental Resource, Inc. Co.
Guarantee Notes
10.25%, 08/01/08................. 3,000 2,505,000
Dailey International, Inc. Co.
Guarantee Notes Cl-B
9.50%, 02/15/08.................. 3,700 1,739,000
DI Industries, Inc. Sr. Notes
8.875%, 07/01/07................. 975 736,125
Forcenergy, Inc. Sr. Sub. Notes
9.50%, 11/01/06.................. 2,650 2,053,750
8.50%, 02/15/07.................. 1,450 1,080,250
Houston Exploration Co. Sr. Sub.
Notes Cl-B
8.625%, 01/01/08................. 1,000 985,000
KCS Energy, Inc. Co. Guarantee Sr.
Sub. Notes
8.875%, 01/15/08................. 1,700 977,500
Nuevo Energy Co. Co. Guarantee Sr.
Sub. Notes Cl-B
8.875%, 06/01/08................. 625 609,375
Ocean Energy, Inc. Sr. Sub. Notes
10.375%, 10/15/05................ 1,775 1,837,125
Ocean Rig Norway ASA Co. Guarantee
Notes
10.25%, 06/01/08................. 300 241,500
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Pacalta Resource Ltd. Sr. Notes
Cl-B
10.75%, 06/15/04................. $ 1,050 $ 845,250
Pride Petroleum Services, Inc. Sr.
Notes
9.375%, 05/01/07................. 2,500 2,337,500
Universal Compression Holdings Sr.
Disc. Notes [STEP]
11.375%, 02/15/09................ 350 194,250
Universal Compression, Inc. Sr.
Disc. Notes [STEP]
9.739%, 02/15/08................. 3,175 1,825,625
------------
19,476,625
------------
PAPER & FOREST PRODUCTS -- 0.2%
S.D. Warren Co. Sr. Sub. Notes
12.00%, 12/15/04................. 1,300 1,423,500
------------
PRINTING & PUBLISHING -- 2.0%
Affiliated Newspaper Investments,
Inc. Sr. Disc. Notes [STEP]
12.733%, 07/01/06................ 2,200 2,271,500
Garden State Newspapers, Inc. Sr.
Sub. Notes
12.00%, 07/01/04................. 200 219,000
Garden State Newspapers, Inc. Sr.
Sub. Notes Cl-B
8.75%, 10/01/09.................. 2,575 2,587,875
Hollinger International Publishing
Co. Co. Guarantee Sr. Sub. Notes
9.25%, 02/01/06.................. 800 844,000
9.25%, 03/15/07.................. 3,450 3,657,000
K-III Communications Corp. Sr.
Notes
8.50%, 02/01/06.................. 1,000 1,035,000
Ziff-Davis, Inc. Sr. Sub. Notes
8.50%, 05/01/08.................. 1,575 1,527,750
------------
12,142,125
------------
REAL ESTATE -- 1.6%
HMH Properties, Inc. Co. Guarantee
Sr. Notes Cl-A
7.875%, 08/01/05................. 400 399,000
HMH Properties, Inc. Co. Guarantee
Sr. Notes Cl-B
7.875%, 08/01/08................. 5,000 4,875,000
HMH Properties, Inc. Sr. Notes Cl-C
8.45%, 12/01/08.................. 2,500 2,512,500
Trizec Finance Ltd. Sr. Notes
10.875%, 10/15/05................ 1,457 1,599,058
------------
9,385,558
------------
RESTAURANTS -- 0.3%
Carrols Corp. Sr. Sub. Notes 144A
9.50%, 12/01/08.................. 1,500 1,518,750
------------
RETAIL & MERCHANDISING -- 0.3%
Community Distributors, Inc. Co.
Guarantee Notes Cl-B
10.25%, 10/15/04................. 1,000 925,000
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Leslie's Poolmart, Inc. Sr. Notes
10.375%, 07/15/04................ $ 950 $ 983,250
------------
1,908,250
------------
TELECOMMUNICATIONS -- 22.1%
American Cellular Corp. Sr. Notes
144A
10.50%, 05/15/08................. 3,150 3,134,250
Arch Communications, Inc. Sr. Notes
144A
12.75%, 07/01/07................. 1,400 1,407,000
Call-Net Enterprises, Inc. Sr.
Disc. Notes [STEP]
8.522%, 08/15/07................. 4,100 2,644,500
8.522%, 08/15/08................. 3,800 2,251,500
Centennial Cellular Corp. Sr. Sub.
Notes 144A
10.75%, 12/15/08................. 1,900 1,919,000
Comcast Cellular Holdings Corp. Sr.
Notes Cl-B
9.50%, 05/01/07.................. 1,975 2,118,188
e.spire Communications, Inc. Sr.
Disc. Notes [STEP]
11.50%, 11/01/05................. 1,700 1,147,500
13.748%, 04/01/06................ 1,400 875,000
e.spire Communications, Inc. Sr.
Notes
13.75%, 07/15/07................. 875 861,875
Esprit Telecom Group PLC Sr. Notes
11.50%, 12/15/07................. 750 780,000
ICG Holdings, Inc. Co. Guarantee
Sr. Disc. Notes [STEP]
10.21%, 05/01/06................. 3,550 2,633,674
ICG Services, Inc. Sr. Disc. Notes
[STEP]
9.875%, 05/01/08................. 850 441,346
Intermedia Communications, Inc. Sr.
Disc. Notes Cl-B [STEP]
8.533%, 07/15/07................. 3,075 2,137,125
Intermedia Communications, Inc. Sr.
Notes Cl-B
8.875%, 11/01/07................. 1,000 985,000
8.60%, 06/01/08.................. 1,900 1,814,500
Intermedia Communications of
Florida, Inc. Sr. Disc. Notes
[STEP]
10.749%, 05/15/06................ 4,850 3,819,375
International CableTel, Inc. Sr.
Notes Cl-A [STEP]
10.153%, 04/15/05................ 1,050 950,250
International CableTel, Inc. Sr.
Notes Cl-B [STEP]
10.408%, 02/01/06................ 5,100 4,258,500
IXC Communications, Inc. Sr. Sub.
Notes
9.00%, 04/15/08.................. 3,100 3,119,375
Level 3 Communications, Inc. Sr.
Disc. Notes [STEP] 144A
10.50%, 12/01/08................. 7,800 4,582,500
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Level 3 Communications, Inc. Sr.
Notes
9.125%, 05/01/08................. $10,700 $ 10,673,250
McLeodUSA, Inc. Sr. Disc. Notes
[STEP]
9.955%, 03/01/07................. 4,275 3,249,000
McLeodUSA, Inc. Sr. Notes
9.25%, 07/15/07.................. 1,300 1,335,750
8.375%, 03/15/08................. 1,250 1,262,500
Metromedia Fiber Network, Inc. Sr.
Notes 144A
10.00%, 11/15/08................. 1,200 1,239,000
MetroNet Communications Corp. Sr.
Disc. Notes [STEP]
10.299%, 11/01/07................ 1,925 1,260,875
9.866%, 06/15/08................. 6,050 3,735,875
MetroNet Communications Corp. Sr.
Notes
12.00%, 08/15/07................. 1,525 1,666,063
10.625%, 11/01/08 144A........... 1,750 1,863,750
Millicom International Cellular,
Inc. Sr. Disc. Notes [STEP]
11.01%, 06/01/06................. 4,275 3,024,563
Nextel Communications, Inc. Sr.
Disc. Notes [STEP]
10.355%, 09/15/07................ 3,975 2,583,750
10.065%, 02/15/08................ 11,800 7,139,000
Nextel International, Inc. Sr.
Disc. Notes [STEP]
12.125%, 04/15/08................ 1,750 820,540
NEXTLINK Communications, Inc. Sr.
Disc. Notes [STEP]
10.039%, 04/15/08................ 3,000 1,740,000
NEXTLINK Communications, Inc. Sr.
Notes
9.625%, 10/01/07................. 1,250 1,221,875
9.00%, 03/15/08.................. 1,575 1,468,688
Orange PLC Sr. Notes
8.00%, 08/01/08.................. 2,875 2,889,375
Paging Network, Inc. Sr. Sub. Notes
10.00%, 10/15/08................. 3,100 3,007,000
Pathnet, Inc. Sr. Notes
12.25%, 04/15/08................. 2,350 1,786,000
Pegasus Media & Communications,
Inc. Notes
12.50%, 07/01/05................. 975 1,077,375
PSINet, Inc. Sr. Notes 144A
11.50%, 11/01/08................. 1,500 1,560,000
PSINet, Inc. Sr. Notes Cl-B
10.00%, 02/15/05................. 2,400 2,388,000
Qwest Communications International,
Inc. Sr. Disc. Notes [STEP]
8.59%, 10/15/07.................. 4,100 3,218,500
Qwest Communications International,
Inc. Sr. Disc. Notes Cl-B [STEP]
8.29%, 02/01/08.................. 2,250 1,710,000
Qwest Communications International,
Inc. Sr. Notes 144A
7.50%, 11/01/08.................. 1,000 1,050,000
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Qwest Communications International,
Inc. Sr. Notes Cl-B
10.875%, 04/01/07................ $ 1,135 $ 1,310,925
Rogers Cantel, Inc. Sr. Sub. Notes
8.80%, 10/01/07.................. 4,000 4,055,000
Sitel Corp. Co. Guarantee Sr. Sub.
Notes
9.25%, 03/15/06.................. 2,800 2,534,000
Telecommunications Techniques Corp.
Co. Guarantee Notes
9.75%, 05/15/08.................. 3,750 3,656,250
Telesystem International Wireless,
Inc. Sr. Disc. Notes Cl-B [STEP]
12.344%, 06/30/07................ 5,125 2,203,750
Telesystem International Wireless,
Inc. Sr. Disc. Notes Cl-C [STEP]
10.50%, 11/01/07................. 800 296,000
Teligent, Inc. Sr. Disc. Notes Cl-B
[STEP]
11.70%, 03/01/08................. 1,000 495,000
Teligent, Inc. Sr. Notes
11.50%, 12/01/07................. 3,250 3,006,250
Triton Communications LLC Co.
Guarantee Sub. Notes [STEP]
11.291%, 05/01/08................ 4,850 2,291,625
UIH Australia Pacific, Inc. Sr.
Disc. Notes [STEP]
12.854%, 05/15/06................ 3,100 1,581,000
US Xchange LLC Sr. Notes
15.00%, 07/01/08................. 1,425 1,499,813
USA Mobile Communications Holdings,
Inc. Sr. Notes
9.50%, 02/01/04.................. 1,050 955,500
Viatel, Inc. Sr. Disc. Notes [STEP]
11.473%, 04/15/08................ 850 484,500
Viatel, Inc. Sr. Notes
11.25%, 04/15/08................. 2,525 2,537,625
------------
131,758,425
------------
TRANSPORTATION -- 2.2%
Allied Holdings, Inc. Notes Cl-B
8.625%, 10/01/07................. 1,400 1,428,000
Ameritruck Distribution Corp. Sr.
Sub. Notes Cl-B ++
12.25%, 11/15/05................. 1,950 126,750
Gearbulk Holding Ltd. Sr. Notes
11.25%, 12/01/04................. 1,950 2,067,000
Johnstown America Industries, Inc.
Sr. Sub. Notes
11.75%, 08/15/05................. 600 636,000
Statia Terminals, Inc. First Mtge.
Cl-A
11.75%, 11/15/03................. 1,000 1,005,000
Stena AB Sr. Notes
10.50%, 12/15/05................. 3,275 3,397,813
8.75%, 06/15/07.................. 2,175 2,082,563
Stena Line AB Sr. Notes
10.625%, 06/01/08................ 1,250 1,131,250
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
The Holt Group Sr. Notes 144A
9.75%, 01/15/06.................. $ 1,350 $ 951,750
------------
12,826,126
------------
UTILITIES -- 0.8%
California Energy Co., Inc. Sr.
Notes
9.50%, 09/15/06.................. 1,000 1,115,000
El Paso Electric Co. First Mtge.
Cl-E
9.40%, 05/01/11.................. 1,225 1,391,073
International Utility Structures,
Inc. Sr. Sub. Notes
10.75%, 02/01/08................. 925 864,875
Niagara Mohawk Power Corp. Sr.
Disc. Notes Cl-H [STEP]
8.242%, 07/01/10................. 2,100 1,633,023
------------
5,003,971
------------
TOTAL CORPORATE OBLIGATIONS (Cost
$567,361,693)........................ 547,220,345
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C>
COMMON STOCK -- 0.0%
BROADCASTING -- 0.0%
Australis Holdings Warrants*....... 1,000 0
Diva Systems Corp. Warrants*....... 4,875 0
------------
0
------------
CHEMICALS -- 0.0%
Sterling Chemicals Holdings
Warrants*........................ 1,075 16,125
------------
CLOTHING & APPAREL -- 0.0%
Hosiery Corp. of America, Inc.*.... 300 2,175
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 0.0%
Electronic Retailing System, Inc.
Warrants 144A*................... 875 4,375
------------
ENVIRONMENTAL SERVICES -- 0.0%
ICF Kaiser International, Inc.
Warrants*........................ 1,200 0
------------
HEALTHCARE SERVICES -- 0.0%
Icon Health & Fitness Corp.
Warrants 144A*................... 250 125
------------
METALS & MINING -- 0.0%
Bar Technologies, Inc. Warrants
144A*............................ 300 16,500
------------
PRINTING & PUBLISHING -- 0.0%
Affiliated Newspaper Investments,
Inc.*............................ 1,000 150,000
------------
TELECOMMUNICATIONS -- 0.0%
Cellular Communications
International, Inc. Warrants*.... 1,100 68,200
MetroNet Communications Corp.
Warrants 144A*................... 1,525 64,294
Pathnet, Inc. Warrants*............ 2,350 23,794
Pegasus Communications Corp.
144A*............................ 1,128 28,271
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Pegasus Communications Corp.
Warrants*........................ 1,500 30,750
Sullivan Broadcasting Holdings*.... 2,400 0
UIH Australia Warrants*............ 3,100 3,488
Wireless One, Inc. Warrants*....... 1,500 0
------------
218,797
------------
TOTAL COMMON STOCK (Cost $27,988)...... 408,097
------------
PREFERRED STOCK -- 4.0%
BROADCASTING -- 1.6%
Benedek Communications Corp. 11.50%
[PIK]............................ 1,600 1,288,000
Capstar Broadcasting Corp. 12.00%
[PIK]............................ 7,335 882,034
CBS Radio, Inc. Sub. Debs. 11.375%
[PIK]............................ 18,357 2,152,358
Cumulus Media, Inc. Cl-A 13.75%.... 1,292 1,395,360
Echostar Communications Corp. Cl-B
12.125% [PIK].................... 667 777,181
SFX Broadcasting, Inc. Cl-E 12.625%
[PIK]............................ 8,561 1,035,881
Sinclair Capital 11.625%........... 18,500 1,961,000
------------
9,491,814
------------
FINANCIAL SERVICES -- 0.1%
California Federal Capital Corp.
Cl-A 9.125% [PIK]................ 30,000 768,750
------------
FOOD -- 0.1%
Nebco Evans Holding Co.
11.25% [PIK]..................... 7,594 383,497
------------
HEALTHCARE SERVICES -- 0.0%
River Holding Corp. Cl-B
11.50% [PIK]..................... 5,300 235,850
------------
INDUSTRIAL PRODUCTS -- 0.0%
International Utility Structures,
Inc. $13.00 [PIK] 144A........... 125 113,125
International Utility Structures,
Inc. 13.00% [PIK] 144A........... 8 706
------------
113,831
------------
MACHINERY & EQUIPMENT -- 0.1%
Fairfield Manufacturing Co., Inc.
$11.25........................... 650 627,250
------------
PRINTING & PUBLISHING -- 1.2%
Primedia, Inc. Cl-D $10.00......... 10,750 1,123,375
Primedia, Inc. Cl-F $9.20.......... 15,000 1,477,500
Primedia, Inc. Cl-H 8.625%......... 43,100 4,159,150
------------
6,760,025
------------
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
TELECOMMUNICATIONS -- 0.7%
Nextel Communications, Inc.
13.00% [PIK]..................... 1,025 $ 1,063,720
Nextel Communications, Inc. Cl-E
11.125% [PIK].................... 814 704,110
Pegasus Communications Corp. Cl-A
12.75% [PIK]..................... 2,154 2,078,610
Viatel, Inc. Cl-A 10.00% [PIK]..... 1,722 190,295
------------
4,036,735
------------
UTILITIES -- 0.2%
El Paso Electric Co. 11.40%
[PIK]............................ 12,892 1,385,890
------------
TOTAL PREFERRED STOCK
(Cost $22,786,869)............................. 23,803,642
------------
REPURCHASE AGREEMENTS -- 2.3%
Greenwich Capital Markets, Inc.,
4.50% dated 12/31/98, maturing
01/04/99, repurchase price
$13,524,759 (Collateralized by
U.S. Treasury Bonds, par value
$8,151,000, market value
$13,829,955 due 02/15/15)
(Cost $13,518,000)............... $13,518 $ 13,518,000
------------
<CAPTION>
SHARES
--------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 0.1%
Temporary Investment Cash Fund..... 316,555 316,555
Temporary Investment Fund.......... 316,555 316,555
------------
(Cost $633,110).................... 633,110
------------
TOTAL INVESTMENTS -- 98.3%
(Cost $604,327,660)............................ 585,583,194
OTHER ASSETS LESS LIABILITIES -- 1.7%............ 10,096,790
------------
NET ASSETS -- 100.0%............................. $595,679,984
============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedule of Investments.
* Non-income producing security.
++ Illiquid security. At the end of the year this security amounted to less than
0.1% of net assets.
+ Security is restricted as to resale and may not be resold except to qualified
institutional buyers. At the end of the year, these securities amounted to
less than 0.1% of net assets.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 14.0% of net assets.
See Notes to Financial Statements.
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
U.S. STOCK -- 47.3%
ADVERTISING -- 0.1%
Omnicom Group, Inc. ................ 3,800 $ 220,400
------------
AEROSPACE -- 0.6%
AlliedSignal, Inc. ................. 9,600 425,400
Boeing Co. ......................... 11,768 383,931
Litton Industries, Inc.*............ 1,300 84,825
Lockheed Martin Corp. .............. 2,800 237,300
Northrop Grumman Corp. ............. 1,100 80,437
Primex Technologies, Inc. .......... 420 17,850
Raytheon Co. Cl-A................... 535 27,653
Raytheon Co. Cl-B................... 5,100 271,575
United Technologies Corp. .......... 3,600 391,500
------------
1,920,471
------------
AIRLINES -- 0.2%
Alaska Air Group, Inc.*............. 2,700 119,475
AMR Corp.*.......................... 3,800 225,625
Delta Air Lines, Inc. .............. 2,600 135,200
Southwest Airlines Co. ............. 8,750 196,328
------------
676,628
------------
AUTOMOBILE MANUFACTURERS -- 0.6%
Ford Motor Co. ..................... 15,600 915,525
General Motors Corp. ............... 9,900 708,469
Honda Motor Co. Ltd. [ADR].......... 4,800 320,400
------------
1,944,394
------------
AUTOMOTIVE PARTS -- 0.3%
Arvin Industries, Inc. ............. 1,800 75,037
Dana Corp. ......................... 2,880 117,720
Eaton Corp. ........................ 1,600 113,100
Federal-Mogul Corp. ................ 1,900 113,050
Genuine Parts Co. .................. 5,750 192,266
Goodyear Tire & Rubber Co. ......... 2,400 121,050
Lear Corp.*......................... 3,100 119,350
Mark IV Industries, Inc. ........... 4,300 55,900
Superior Industries International,
Inc. ............................. 1,600 44,500
TRW, Inc. .......................... 3,400 191,037
------------
1,143,010
------------
BEVERAGES -- 1.2%
Anheuser-Busch Companies, Inc. ..... 7,500 492,187
Cadbury Schweppes PLC [ADR]......... 3,473 240,505
Coca-Cola Co. ...................... 30,500 2,039,687
Coca-Cola Enterprises, Inc. ........ 11,300 403,975
PepsiCo, Inc. ...................... 18,600 761,437
------------
3,937,791
------------
BROADCASTING -- 0.3%
CBS Corp. .......................... 9,000 294,750
Chris-Craft Industries, Inc.*....... 1,379 66,451
Clear Channel Communications,
Inc.*............................. 4,400 239,800
Gannett Co., Inc. .................. 5,200 344,175
------------
945,176
------------
BUILDING MATERIALS -- 0.2%
Armstrong World Industries, Inc. ... 800 48,250
CalMat Co. ......................... 2,600 80,275
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Clayton Homes, Inc. ................ 4,750 $ 65,609
Martin Marietta Materials Corp. .... 1,900 118,156
Masco Corp. ........................ 7,200 207,000
Modine Manufacturing Co. ........... 1,100 39,875
Vulcan Materials Co. ............... 1,300 171,031
------------
730,196
------------
BUSINESS SERVICES -- 0.1%
Comdisco, Inc. ..................... 5,700 96,187
Equifax, Inc. ...................... 3,700 126,494
Manpower, Inc. ..................... 3,800 95,712
Navigant International, Inc.*....... 215 1,660
Nielsen Media Research.............. 1,166 20,988
Olsten Corp. ....................... 2,000 14,750
Robert Half International, Inc.*.... 3,150 140,766
------------
496,557
------------
CHEMICALS -- 0.8%
AKZO Nobel NV [ADR]................. 2,000 89,250
Cabot Corp. ........................ 3,000 83,812
Crompton & Knowles Corp. ........... 3,800 78,612
Dexter Corp. ....................... 1,500 47,156
Dow Chemical Co. ................... 3,600 327,375
Du Pont, (E.I.) de Nemours & Co. ... 15,100 801,244
FMC Corp.*.......................... 1,600 89,600
Great Lakes Chemical Corp. ......... 2,500 100,000
Hanna, (M.A.) Co. .................. 3,400 41,862
IMC Global, Inc. ................... 3,700 79,087
Lubrizol Corp. ..................... 2,200 56,512
Morton International, Inc. ......... 4,500 110,250
Olin Corp. ......................... 2,100 59,456
PPG Industries, Inc. ............... 3,600 209,700
Rohm & Haas Co. .................... 4,800 144,600
Schulman, (A.), Inc. ............... 3,000 68,062
Solutia, Inc. ...................... 5,560 124,405
Witco Corp. ........................ 3,100 49,406
------------
2,560,389
------------
CLOTHING & APPAREL -- 0.2%
Cintas Corp. ....................... 3,600 253,575
Jones Apparel Group, Inc.*.......... 5,200 114,725
Nike, Inc. Cl-B..................... 5,500 223,094
Springs Industries, Inc. Cl-A....... 2,000 82,875
Unifi, Inc. ........................ 3,200 62,600
------------
736,869
------------
COMPUTER HARDWARE -- 1.8%
Compaq Computer Corp. .............. 19,568 820,633
Dell Computer Corp.*................ 20,800 1,522,300
EMC Corp.*.......................... 7,500 637,500
Hewlett-Packard Co. ................ 13,100 894,894
International Business Machines
Corp.............................. 11,100 2,050,725
Quantum Corp.*...................... 5,300 112,625
Seagate Technology, Inc.*........... 4,500 136,125
------------
6,174,802
------------
COMPUTER SERVICES & SOFTWARE -- 4.0%
Adobe Systems, Inc. ................ 600 28,050
America Online, Inc.*............... 14,000 2,026,500
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Automatic Data Processing, Inc. .... 4,000 $ 320,750
Aztec Technology Partners, Inc.*.... 430 1,586
BMC Software, Inc.*................. 5,700 254,006
Cadence Design Systems, Inc.*....... 6,000 178,500
Ceridian Corp.*..................... 2,600 181,512
Cisco Systems, Inc.*................ 19,675 1,826,086
CompUSA, Inc.*...................... 3,500 45,719
Computer Associates International,
Inc. ............................. 7,362 313,805
Compuware Corp.*.................... 5,700 445,312
DST Systems, Inc.*.................. 900 51,356
Electronic Arts, Inc.*.............. 2,800 157,150
Electronic Data Systems Corp. ...... 6,100 306,525
First Data Corp. ................... 7,200 228,150
Fiserv, Inc.*....................... 2,750 141,453
Informix Corp.*..................... 2,900 28,637
Keane, Inc.*........................ 2,600 103,837
Microsoft Corp.*.................... 30,400 4,216,100
NCR Corp.*.......................... 2,400 100,200
Network Associates, Inc.*........... 4,650 308,062
Novell, Inc.*....................... 9,500 172,187
Oracle Corp.*....................... 15,150 653,344
Parametric Technology Corp.*........ 5,000 81,875
Paychex, Inc. ...................... 5,400 277,762
Policy Management Systems Corp.*.... 1,200 60,600
Sterling Commerce, Inc.*............ 2,200 99,000
Storage Technology Corp.*........... 3,700 131,581
Structural Dynamics Research
Corp.*............................ 1,300 25,837
Sun Microsystems, Inc.*............. 5,900 505,187
Sungard Data Systems, Inc.*......... 3,200 127,000
Symantec Corp.*..................... 2,600 56,550
Synopsys, Inc.*..................... 2,300 124,775
Tech Data Corp.*.................... 1,900 76,475
------------
13,655,469
------------
CONGLOMERATES -- 0.8%
Hanson PLC [ADR].................... 337 13,143
Minnesota Mining & Manufacturing
Co. .............................. 5,700 405,412
Philip Morris Companies, Inc. ...... 30,700 1,642,450
Tomkins PLC [ADR]................... 6,000 120,000
Tyco International Ltd. ............ 7,400 558,237
------------
2,739,242
------------
CONSTRUCTION -- 0.0%
Granite Construction, Inc. ......... 1,650 55,378
Jacobs Engineering Group, Inc.*..... 1,700 69,275
------------
124,653
------------
CONSUMER PRODUCTS & SERVICES -- 1.5%
ACNielsen Corp.*.................... 2,300 64,975
Cendant Corp.*...................... 12,168 231,952
Colgate-Palmolive Co. .............. 4,000 371,500
Corning, Inc. ...................... 5,200 234,000
Cross, (A.T.) Co. Cl-A.............. 1,400 7,525
Eastman Kodak Co. .................. 3,300 237,600
Fortune Brands, Inc. ............... 4,100 129,662
Gallaher Group PLC [ADR]............ 2,400 65,250
Gillette Co. ....................... 14,300 690,869
Imperial Tobacco Group PLC [ADR].... 675 14,259
International Flavors & Fragrances,
Inc. ............................. 3,200 141,400
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Lancaster Colony Corp. ............. 1,550 $ 49,794
National Presto Industries, Inc. ... 800 34,100
Ogden Corp. ........................ 1,600 40,100
Pittston Brink's Group.............. 1,300 41,437
Premark International, Inc. ........ 2,400 83,100
Procter & Gamble Co. ............... 17,400 1,588,837
Shaw Industries, Inc. .............. 5,100 123,675
Sotheby's Holdings, Inc. Cl-A....... 3,400 108,800
Stewart Enterprises, Inc. .......... 3,700 82,325
Unilever NV......................... 10,200 845,962
Whitman Corp. ...................... 3,400 86,275
------------
5,273,397
------------
CONTAINERS & PACKAGING -- 0.2%
Bemis Co., Inc. .................... 2,700 102,431
First Brands Corp. ................. 1,800 70,987
Owens-Illinois, Inc.*............... 3,700 113,312
Sealed Air Corp.*................... 2,400 122,550
Sonoco Products Co. ................ 3,910 115,834
------------
525,114
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 2.6%
AES Corp.*.......................... 4,800 227,400
Altera Corp.*....................... 6,000 365,250
American Power Conversion Corp.*.... 3,800 184,062
Analog Devices, Inc.*............... 9,633 302,235
Applied Materials, Inc.*............ 6,600 281,737
Arrow Electronics, Inc.*............ 4,500 120,094
Diebold, Inc. ...................... 2,700 96,356
Emerson Electric Co. ............... 6,000 375,375
General Electric Co. ............... 40,200 4,102,912
Hitachi Ltd. [ADR].................. 2,400 145,050
Honeywell, Inc. .................... 2,600 195,812
Hubbell, Inc. Cl-B.................. 2,500 95,000
Koninklijke (Royal) Philips
Electronics NV [ADR].............. 3,600 243,675
Linear Technology Corp. ............ 2,600 232,862
Maxim Integrated Products, Inc.*.... 4,500 196,594
Molex, Inc. ........................ 5,675 216,359
Rockwell International Corp. ....... 4,100 199,106
SCI Systems, Inc.*.................. 2,200 127,050
Solectron Corp.*.................... 3,600 334,575
Symbol Technologies, Inc. .......... 1,975 126,277
Tandy Corp. ........................ 1,200 49,425
Teleflex, Inc. ..................... 1,800 82,125
Teradyne, Inc.*..................... 3,100 131,362
Texas Instruments, Inc. ............ 3,900 333,694
Varian Associates, Inc. ............ 1,900 71,962
------------
8,836,349
------------
ENTERTAINMENT & LEISURE -- 0.8%
Brunswick Corp. .................... 2,000 49,500
Callaway Golf Co. .................. 2,200 22,550
Circus Circus Enterprises, Inc.*.... 2,700 30,881
Disney, (Walt) Co. ................. 25,292 758,760
Harley-Davidson, Inc. .............. 5,300 251,087
International Game Technology....... 4,600 111,837
Mattel, Inc. ....................... 4,100 93,531
Mirage Resorts, Inc.*............... 3,800 56,762
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
President Casinos, Inc. Warrants*... 883 $ 44
Time Warner, Inc. .................. 15,200 943,350
Viacom, Inc. Cl-B*.................. 5,800 429,200
------------
2,747,502
------------
ENVIRONMENTAL SERVICES -- 0.3%
Allied Waste Industries, Inc.*...... 5,400 127,575
Browning-Ferris Industries, Inc. ... 4,740 134,794
Tetra Tech, Inc.*................... 1,875 50,742
U.S. Filter Corp.*.................. 4,200 96,075
Waste Management, Inc. ............. 11,659 543,601
------------
952,787
------------
FINANCIAL-BANK & TRUST -- 3.5%
Australia and New Zealand Banking
Group Ltd. [ADR].................. 3,600 117,000
Banco Bilbao Vizcaya [ADR].......... 27,000 432,000
Banco Frances SA [ADR].............. 5,060 104,995
Bank of New York Co., Inc. ......... 9,400 378,350
Bank One Corp. ..................... 14,834 757,461
BankAmerica Corp. .................. 19,560 1,176,045
BankBoston Corp. ................... 4,100 159,644
Charter One Financial, Inc. ........ 4,140 114,885
Chase Manhattan Corp. .............. 11,112 756,310
City National Corp. ................ 1,800 74,925
Crestar Financial Corp. ............ 3,800 273,600
Dime Bancorp, Inc. ................. 4,100 108,394
Fifth Third Bancorp................. 4,725 336,952
First Security Corp. ............... 7,087 165,659
First Tennessee National Corp. ..... 5,400 205,537
First Union Corp. .................. 12,608 766,724
Firstar Corp. ...................... 3,040 283,480
Fleet Financial Group, Inc. ........ 8,400 375,375
Golden West Financial Corp. ........ 800 73,350
GreenPoint Financial Corp. ......... 3,000 105,375
Hibernia Corp. Cl-A................. 3,100 53,862
Huntington Bancshares, Inc. ........ 3,960 119,047
Keycorp............................. 8,000 256,000
Marshall & Ilsley Corp. ............ 3,300 192,844
Mellon Bank Corp. .................. 4,400 302,500
Mercantile Bancorporation, Inc. .... 4,100 189,112
Mercantile Bankshares Corp. ........ 3,300 127,050
Morgan, (J.P.) & Co., Inc. ......... 2,600 273,162
National City Corp. ................ 2,160 156,600
North Fork Bancorporation, Inc. .... 4,400 105,325
Northern Trust Corp. ............... 3,600 314,325
Old Kent Financial Corp. ........... 2,600 120,900
Pacific Century Financial Corp. .... 3,900 95,062
PNC Bank Corp. NA................... 5,520 298,770
Regions Financial Corp. ............ 2,700 108,844
Silicon Valley Bancshares*.......... 1,400 23,844
Southtrust Corp. ................... 5,200 192,075
State Street Boston Corp. .......... 2,900 201,731
Summit Bancorp...................... 4,600 200,962
TCF Financial Corp. ................ 3,800 91,912
U.S. Bancorp........................ 13,659 484,894
Union Planters Corp. ............... 2,800 126,875
Wells Fargo & Co. .................. 24,800 990,450
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Wilmington Trust Corp. ............. 1,400 $ 86,275
Zions Bancorp....................... 2,000 124,750
------------
12,003,232
------------
FINANCIAL SERVICES -- 2.1%
AMBAC, Inc. ........................ 1,900 114,356
American Express Co. ............... 5,100 521,475
Associates First Capital Corp.
Cl-A.............................. 10,528 446,124
Bear Stearns Companies, Inc. ....... 3,715 138,848
Block, (H&R), Inc. ................. 3,700 166,500
Capital One Financial Corp. ........ 1,400 161,000
Citigroup, Inc. .................... 28,670 1,419,165
Echelon International Corp.*........ 846 18,876
Edwards, (A.G.), Inc. .............. 2,250 83,812
Fannie Mae.......................... 13,900 1,028,600
FINOVA Group, Inc. ................. 2,500 134,844
Franklin Resources, Inc. ........... 5,700 182,400
Freddie Mac......................... 10,600 683,037
Grupo Financiero Bancomer [ADR]
144A.............................. 1,400 5,775
Household International, Inc. ...... 5,900 233,787
Merrill Lynch & Co., Inc. .......... 3,900 260,325
Morgan Stanley, Dean Witter &
Co. .............................. 7,485 531,435
Paine Webber Group, Inc. ........... 4,800 185,400
Schwab, (Charles) Corp. ............ 6,975 391,908
SunAmerica, Inc. ................... 4,200 340,725
The Dun & Bradstreet Corp. ......... 1,500 47,344
Waddell & Reed Financial, Inc.
Cl-A.............................. 260 6,170
Waddell & Reed Financial, Inc.
Cl-B.............................. 1,117 25,960
Washington Mutual, Inc. ............ 3,750 143,203
------------
7,271,069
------------
FOOD -- 1.4%
Albertson's, Inc. .................. 4,200 267,487
American Stores Co. ................ 2,800 103,425
Archer-Daniels-Midland Co. ......... 11,321 194,580
Bestfoods, Inc. .................... 5,500 292,875
Campbell Soup Co. .................. 6,100 335,500
ConAgra, Inc. ...................... 6,800 214,200
Dean Foods Corp. ................... 900 36,731
Diageo PLC [ADR].................... 4,147 191,799
Dole Food Co. ...................... 2,100 63,000
General Mills, Inc. ................ 2,500 194,375
Heinz, (H.J.) Co. .................. 6,250 353,906
Hershey Foods Corp. ................ 3,200 199,000
IBP, Inc. .......................... 4,300 125,237
Interstate Bakeries Corp. .......... 3,000 79,312
Kellogg Co. ........................ 7,500 255,937
Kroger Co.*......................... 5,400 326,700
McCormick & Co., Inc. .............. 3,300 111,581
Ralston Purina Co. ................. 6,300 203,962
Safeway, Inc.*...................... 6,060 369,281
Sara Lee Corp. ..................... 12,400 349,525
Smucker, (J.M.) Co. ................ 1,600 39,600
The Earthgrains Co. ................ 592 18,315
Tyson Foods, Inc. .................. 7,300 155,125
U.S. Foodservice, Inc.*............. 2,100 102,900
Universal Corp. .................... 1,800 63,225
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Universal Foods Corp. .............. 2,600 $ 71,337
Wrigley, (Wm., Jr.) Co. ............ 1,300 116,431
------------
4,835,346
------------
FURNITURE -- 0.0%
Leggett & Platt, Inc. .............. 6,600 145,200
------------
HEALTHCARE SERVICES -- 0.6%
Amgen, Inc.*........................ 4,600 480,987
Apria Healthcare Group, Inc.*....... 7,500 67,031
Columbia HCA Healthcare Corp. ...... 11,096 274,626
Concentra Managed Care, Inc.*....... 2,800 29,925
Foundation Health Systems*.......... 5,500 65,656
Health Management Associates, Inc.
Cl-A*............................. 5,950 128,669
Healthsouth Corp.*.................. 6,200 95,712
IMS Health, Inc. ................... 3,500 264,031
Omnicare, Inc. ..................... 2,800 97,300
Oxford Health Plans, Inc.*.......... 1,300 19,337
PacifiCare Health Systems, Inc.
Cl-A*............................. 400 29,100
PacifiCare Health Systems, Inc.
Cl-B*............................. 1,400 111,300
Quintiles Transnational Corp.*...... 2,300 122,762
Quorum Health Group, Inc.*.......... 3,600 46,575
Total Renal Care Holdings, Inc.*.... 2,700 79,819
United Healthcare Corp. ............ 4,700 202,394
Vencor, Inc.*....................... 2,200 9,900
Ventas, Inc.*....................... 2,200 26,812
------------
2,151,936
------------
HOTELS & MOTELS -- 0.0%
Promus Hotel Corp.*................. 2,600 84,175
Starwood Hotels & Resorts [REIT].... 2,664 60,439
------------
144,614
------------
INDUSTRIAL PRODUCTS -- 0.0%
Harsco Corp. ....................... 2,600 79,137
------------
INSURANCE -- 1.5%
Aetna, Inc. ........................ 3,302 259,620
AFLAC, Inc. ........................ 8,400 369,600
Allstate Corp. ..................... 10,600 409,425
American Financial Group, Inc. ..... 2,400 105,300
American General Corp. ............. 4,300 335,400
American International Group,
Inc. ............................. 12,425 1,200,566
Chubb Corp. ........................ 3,300 214,087
CIGNA Corp. ........................ 3,900 301,519
Conseco, Inc. ...................... 5,691 173,931
General Re Corp. ................... 1,300 320,775
HSB Group, Inc. .................... 1,650 67,753
Lincoln National Corp. ............. 1,700 139,081
Loews Corp. ........................ 2,100 206,325
Old Republic International Corp. ... 4,600 103,500
Progressive Corp. .................. 1,400 237,125
Provident Companies, Inc. .......... 2,800 116,200
ReliaStar Financial Corp. .......... 3,000 138,375
Selective Insurance Group, Inc. .... 4,500 90,562
Torchmark Corp. .................... 4,600 162,437
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Transatlantic Holdings, Inc. ....... 1,050 $ 79,341
UNUM Corp. ......................... 4,200 245,175
------------
5,276,097
------------
LUMBER & WOOD PRODUCTS -- 0.0%
Deltic Timber Corp. ................ 342 6,968
Rayonier, Inc. ..................... 1,600 73,500
------------
80,468
------------
MACHINERY & EQUIPMENT -- 0.6%
AGCO Corp. ......................... 2,100 16,537
Black & Decker Corp. ............... 2,700 151,369
Caterpillar, Inc. .................. 6,700 308,200
Danaher Corp. ...................... 4,500 244,406
Deere & Co. ........................ 4,000 132,500
Federal Signal Corp. ............... 2,400 65,700
Flowserve Corp. .................... 2,900 48,031
Gencorp, Inc. ...................... 2,800 69,825
Illinois Tool Works, Inc. .......... 4,200 243,600
Ingersoll-Rand Co. ................. 2,700 126,731
Kennametal, Inc. ................... 1,200 25,500
Pall Corp. ......................... 5,400 136,687
Precision Castparts Corp. .......... 700 30,975
Sequa Corp. Cl-A*................... 700 41,912
Smith International, Inc.*.......... 2,000 50,375
Sundstrand Corp. ................... 2,200 114,125
Tecumseh Products Co. Cl-A.......... 1,400 65,275
Thermo Electron Corp.*.............. 6,300 106,706
Weatherford International, Inc. .... 2,320 44,950
------------
2,023,404
------------
MEDICAL SUPPLIES & EQUIPMENT -- 1.4%
Abbott Laboratories................. 19,900 975,100
Allegiance Corp. ................... 3,300 153,862
Baxter International, Inc. ......... 4,800 308,700
Beckman Coulter, Inc. .............. 900 48,825
Becton Dickinson & Co. ............. 6,800 290,275
Bergen Brunswig Corp. Cl-A.......... 3,800 132,525
Boston Scientific Corp.*............ 8,800 235,950
Centocor, Inc.*..................... 2,200 99,275
Forest Laboratories, Inc.*.......... 3,400 180,837
Genzyme Tissue Repair*.............. 63 142
Guidant Corp. ...................... 2,600 286,650
Hillenbrand Industries, Inc. ....... 2,200 125,125
Johnson & Johnson Co. .............. 16,600 1,392,325
Medtronic, Inc. .................... 5,900 438,075
Stryker Corp. ...................... 3,400 187,212
Sybron International Corp.*......... 3,700 100,594
------------
4,955,472
------------
METALS & MINING -- 0.2%
Aluminum Co. of America............. 3,900 290,794
Barrick Gold Corp. ................. 8,000 156,000
Brush Wellman, Inc. ................ 2,400 41,850
Carpenter Technology Corp. ......... 2,200 74,663
Nucor Corp. ........................ 2,800 121,100
Placer Dome, Inc. .................. 9,900 113,850
------------
798,257
------------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
OFFICE EQUIPMENT -- 0.5%
Herman Miller, Inc. ................ 2,800 $ 75,250
Ikon Office Solutions, Inc. ........ 2,300 19,694
Office Depot, Inc.*................. 7,700 284,419
Pitney Bowes, Inc. ................. 4,900 323,706
Standard Register Co. .............. 1,700 52,594
Staples, Inc.*...................... 7,750 338,578
Wallace Computer Service, Inc. ..... 2,900 76,488
Xerox Corp. ........................ 5,200 613,600
------------
1,784,329
------------
OIL & GAS -- 3.2%
Amerada Hess Corp. ................. 4,700 233,825
Amoco Corp. ........................ 11,900 718,463
Anadarko Petroleum Corp. ........... 2,600 80,275
Apache Corp. ....................... 1,600 40,500
Atlantic Richfield Co. ............. 4,900 319,725
BJ Services Co.*.................... 9,000 140,625
British Petroleum Co. PLC [ADR]..... 3,000 268,875
Chevron Corp. ...................... 7,400 613,738
El Paso Energy Corp. ............... 3,900 135,769
ENI Co. SPA [ADR]................... 3,700 250,675
Ensco International, Inc. .......... 5,500 58,781
Exxon Corp. ........................ 30,200 2,208,375
Global Marine, Inc.*................ 7,000 64,313
Halliburton Co. .................... 5,800 171,825
Helmerich & Payne, Inc. ............ 1,800 34,875
Keyspan Corp. ...................... 4,500 139,500
MCN Energy Group, Inc. ............. 3,600 68,625
Mobil Corp. ........................ 9,000 784,125
Murphy Oil Corp. ................... 2,400 99,000
Nabors Industries, Inc.*............ 4,300 58,319
National Fuel Gas Co. .............. 2,000 90,375
Noble Affiliates, Inc. ............. 2,500 61,563
Noble Drilling Corp.*............... 3,300 42,694
Occidental Petroleum Corp. ......... 8,900 150,188
Phillips Petroleum Co. ............. 4,000 170,500
Ranger Oil Ltd.*.................... 7,800 34,613
Repsol SA [ADR]..................... 3,000 163,875
Royal Dutch Petroleum Co. .......... 33,600 1,608,600
Schlumberger Ltd. .................. 6,700 309,038
Shell Transport & Trading Co.
[ADR]............................. 6,000 223,125
Societe Nationale Elf Aquitaine SA
[ADR]............................. 2,000 113,250
Sonat, Inc. ........................ 3,300 89,306
Texaco, Inc. ....................... 6,200 327,825
Tidewater, Inc. .................... 2,700 62,606
Tosco Corp. ........................ 3,800 98,325
Total SA [ADR]...................... 3,900 194,025
Transocean Offshore, Inc. .......... 2,800 75,075
Ultramar Diamond Shamrock Corp. .... 2,800 67,900
Union Pacific Resources Group,
Inc. ............................. 5,509 49,925
Unocal Corp. ....................... 5,200 151,775
USX-Marathon Group.................. 5,400 162,675
Valero Energy Corp. ................ 2,900 61,625
Washington Gas Light Co. ........... 2,200 59,675
------------
10,858,766
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
PAPER & FOREST PRODUCTS -- 0.4%
Bowater, Inc. ...................... 2,200 $ 91,163
Consolidated Papers, Inc. .......... 3,800 104,500
Fort James Corp. ................... 4,100 164,000
Georgia Pacific Group............... 1,500 87,844
Georgia-Pacific Timber Group........ 1,500 35,719
Glatfelter, (P.H.) Co. ............. 2,600 32,175
International Paper Co. ............ 5,000 224,063
Kimberly-Clark Corp. ............... 8,400 457,800
Wausau-Mosinee Paper Corp. ......... 3,700 65,444
Weyerhaeuser Co. ................... 4,500 228,656
------------
1,491,364
------------
PERSONAL SERVICES -- 0.1%
Service Corp. International......... 5,300 201,731
------------
PHARMACEUTICALS -- 3.6%
American Home Products Corp. ....... 16,600 934,788
Biogen, Inc.*....................... 1,700 141,100
Bristol-Meyers Squibb Co. .......... 12,300 1,645,894
Cardinal Health, Inc. .............. 3,975 301,603
Carter-Wallace, Inc. ............... 3,900 76,538
Chiron Corp.*....................... 5,500 144,031
Genzyme Corp.*...................... 2,100 104,475
Genzyme-Molecular Oncology*......... 226 734
Glaxo Wellcome PLC [ADR]............ 4,800 333,600
ICN Pharmaceuticals, Inc. .......... 1,700 38,463
Ivax Corp.*......................... 5,700 70,894
Lilly, (Eli) & Co. ................. 12,200 1,084,275
McKesson Corp. ..................... 2,600 205,563
Merck & Co., Inc. .................. 14,900 2,200,544
Monsanto Co. ....................... 7,600 361,000
Mylan Laboratories, Inc. ........... 4,000 126,000
Perrigo Co.*........................ 5,300 46,706
Pfizer, Inc......................... 16,300 2,044,631
Pharmacia & Upjohn, Inc. ........... 7,500 424,688
Schering-Plough Corp. .............. 18,800 1,038,700
Warner-Lambert Co. ................. 11,400 857,138
Watson Pharmaceuticals, Inc.*....... 3,400 213,775
------------
12,395,140
------------
PRINTING & PUBLISHING -- 0.3%
Banta Corp. ........................ 2,900 79,388
Belo, (A.H.) Corp. Cl-A............. 3,400 67,788
Donnelley, (R.R.) & Sons Co. ....... 2,600 113,913
Lexmark International Group, Inc.
Cl-A*............................. 2,100 211,050
McGraw-Hill Co., Inc. .............. 2,900 295,438
Tribune Co. ........................ 2,100 138,600
Washington Post Co. Cl-B............ 400 231,175
Workflow Management, Inc.*.......... 286 1,913
------------
1,139,265
------------
RAILROADS -- 0.2%
Burlington Northern Santa Fe
Corp. ............................ 5,100 172,125
Kansas City Southern Industries,
Inc. ............................. 5,400 265,613
Norfolk Southern Corp. ............. 6,000 190,125
Union Pacific Corp. ................ 3,000 135,188
------------
763,051
------------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
RESTAURANTS -- 0.3%
Brinker International, Inc.*........ 7,300 $ 210,788
Cracker Barrel Old Country Store,
Inc. ............................. 2,700 62,944
Darden Restaurants, Inc. ........... 6,500 117,000
McDonald's Corp. ................... 8,100 620,663
Outback Steakhouse, Inc.*........... 2,400 95,700
Tricon Global Restaurants, Inc.*.... 1,480 74,185
------------
1,181,280
------------
RETAIL & MERCHANDISING -- 2.5%
Ann Taylor Stores Corp.* ........... 1,600 63,100
Barnes & Noble, Inc.* .............. 2,600 110,500
Bed, Bath & Beyond, Inc.* .......... 5,200 177,450
Best Buy Co., Inc.* ................ 3,500 214,813
BJ's Wholesale Club, Inc.* ......... 2,000 92,625
Circuit City Stores, Inc. .......... 2,000 99,875
Costco Companies, Inc.* ............ 3,900 281,531
CVS Corp. .......................... 6,500 357,500
Dayton-Hudson Corp. ................ 7,400 401,450
Dollar General Corp. ............... 3,515 83,042
Family Dollar Stores, Inc. ......... 5,300 116,600
Fastenal Co. ....................... 2,100 92,400
Federated Department Stores,
Inc.*............................. 3,500 152,469
Gap, Inc. .......................... 8,025 451,406
General Nutrition Companies,
Inc.* ............................ 3,900 63,375
Home Depot, Inc. ................... 19,200 1,174,800
Kohl's Corp.* ...................... 5,600 344,050
Lands' End, Inc.* .................. 3,000 80,813
May Department Stores Co. .......... 3,900 235,463
Meyer, (Fred), Inc.* ............... 3,000 180,750
Micro Warehouse, Inc.* ............. 2,600 87,913
Nordstrom, Inc. .................... 1,900 65,906
Payless Shoesource, Inc.* .......... 1,572 74,474
Penney, (J.C.) Co., Inc. ........... 3,500 164,063
Rite Aid Corp. ..................... 2,600 128,863
Saks, Inc.* ........................ 4,400 138,875
School Specialty, Inc.* ............ 238 5,087
Sears, Roebuck & Co. ............... 4,800 204,000
Starbucks Corp.* ................... 2,600 145,925
Tiffany & Co. ...................... 2,000 103,750
TJX Companies, Inc. ................ 5,600 162,400
Toys 'R' Us, Inc.* ................. 6,920 116,775
U.S. Office Products Co. ........... 537 2,089
Wal-Mart Stores, Inc. .............. 25,900 2,109,231
Walgreen Co. ....................... 7,700 450,931
------------
8,734,294
------------
SEMICONDUCTORS -- 1.0%
Atmel Corp.* ....................... 4,600 70,438
Intel Corp. ........................ 21,200 2,513,525
Motorola, Inc. ..................... 8,100 494,606
Xilinx, Inc.* ...................... 4,900 319,113
------------
3,397,682
------------
TELECOMMUNICATIONS -- 5.4%
ADC Telecommunications, Inc.* ...... 5,900 205,025
AirTouch Communications, Inc.* ..... 7,200 519,300
Aliant Communications, Inc. ........ 1,800 73,575
Alltel Corp. ....................... 1,702 101,801
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Ameritech Corp. .................... 14,200 $ 899,925
Ascend Communications, Inc.* ....... 825 54,244
AT&T Corp. ......................... 21,400 1,610,350
Bell Atlantic Corp. ................ 18,514 1,051,827
BellSouth Corp. .................... 22,600 1,127,175
British Telecommunications PLC
[ADR] ............................ 3,200 485,400
Century Telephone Enterprises,
Inc. ............................. 4,200 283,500
Cia de Telecomunicaciones de Chile
SA [ADR] ......................... 1,700 35,169
Cincinnati Bell, Inc. .............. 4,300 162,594
Comcast Corp. Cl-A ................. 7,000 410,813
Ericsson, (L.M.) Telephone Co.
[ADR] ............................ 9,600 229,800
France Telecom SA [ADR] ............ 9,700 765,694
GTE Corp. .......................... 14,100 950,869
Hong Kong Telecommunications Ltd.
[ADR] ............................ 9,245 162,365
Leap Wireless International,
Inc. ............................. 400 2,900
Lucent Technologies, Inc. .......... 15,252 1,677,720
MCI WorldCom, Inc.* ................ 22,797 1,635,685
MediaOne Group, Inc.* .............. 9,100 427,700
MetroNet Communications Corp.
Warrants 144A* ................... 100 4,216
Nextel Communications, Inc.
Cl-A* ............................ 3,600 85,050
Nokia Corp. Cl-A [ADR] ............. 3,600 433,575
Northern Telecom Ltd. .............. 8,480 425,060
Qualcomm, Inc. ..................... 2,300 119,169
SBC Communications, Inc. ........... 27,530 1,476,296
Sprint Corp. (FON Group) ........... 6,200 521,575
Sprint Corp. (PCS Group)* .......... 3,100 71,688
TCA Cable TV, Inc. ................. 3,200 114,200
Tele-Communications, Inc. Cl-A* .... 5,700 315,281
Telecomunicacoes Brasileiras SA Pfd.
[ADR] ............................ 3,300 239,869
Telefonica SA [ADR] ................ 1,632 220,932
Telefonos de Mexico SA Cl-L
[ADR] ............................ 1,800 87,638
Telephone & Data Systems, Inc. ..... 2,500 112,344
Tellabs, Inc.* ..................... 2,500 171,406
U. S. West, Inc. ................... 6,418 414,763
Vodafone Group PLC [ADR] ........... 3,200 515,600
Williams Companies, Inc. ........... 10,198 318,050
------------
18,520,143
------------
TRANSPORTATION -- 0.1%
Alexander & Baldwin, Inc. .......... 2,500 58,125
CNF Transportation, Inc. ........... 2,200 82,638
CSX Corp. .......................... 3,600 149,400
------------
290,163
------------
UTILITIES -- 1.8%
Allegheny Energy, Inc. ............. 4,400 151,800
American Electric Power Co.,
Inc. ............................. 3,300 155,306
American Water Works Co., Inc. ..... 3,400 114,750
Baltimore Gas & Electric Co. ....... 2,700 83,363
Calenergy, Inc.* ................... 2,400 83,250
CMS Energy Corp. ................... 3,400 164,688
Consolidated Edison, Inc. .......... 3,800 200,925
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Duke Energy Corp.................... 6,100 $ 390,781
Edison International Co. ........... 7,800 217,425
Empresa Nacional de Electridad SA
[ADR] ............................ 2,000 22,750
Endesa SA [ADR] .................... 7,600 205,200
Energy East Corp. .................. 3,400 192,100
Enron Corp. ........................ 5,400 308,138
Entergy Corp. ...................... 6,200 192,975
FirstEnergy Corp. .................. 5,000 162,813
Florida Progress Corp. ............. 3,800 170,288
FPL Group, Inc. .................... 3,700 228,013
Idacorp, Inc. ...................... 2,600 94,088
Illinova Corp. ..................... 2,700 67,500
IPALCO Enterprises, Inc. ........... 2,400 133,050
LG&E Energy Corp. .................. 4,400 124,575
MidAmerican Energy Co. ............. 3,800 102,125
New Century Energies, Inc. ......... 3,895 189,881
New England Electric System ........ 2,600 125,125
Niagara Mohawk Power Corp.* ........ 12,700 204,788
NIPSCO Industries, Inc. ............ 4,600 140,013
Oklahoma Gas & Electric Co. ........ 2,900 84,100
PG&E Corp. ......................... 8,200 258,300
Pinnacle West Capital Co. .......... 2,300 97,463
Potomac Electric Power Co. ......... 4,900 128,931
Public Service Co. of New Mexico ... 1,900 38,831
SCANA Corp. ........................ 3,600 116,100
Southern Co. ....................... 12,300 357,469
Teco Energy, Inc. .................. 4,800 135,300
Texas Utilities Co. ................ 4,900 228,769
Unicom Corp. ....................... 4,200 161,963
UtiliCorp United, Inc. ............. 2,300 84,381
Wisconsin Energy Corp. ............. 3,700 116,319
------------
6,033,636
------------
TOTAL U.S. STOCK
(Cost $102,069,797)................... 162,896,272
------------
FOREIGN STOCK -- 7.1%
ADVERTISING -- 0.1%
Asahi Tsushin -- (JPY) ............. 9,000 215,432
------------
AEROSPACE -- 0.0%
Mitsubishi Heavy Industries Ltd. --
(JPY) ............................ 22,000 85,818
------------
AIRLINES -- 0.0%
KLM Royal Dutch Airlines NV --
(NLG) ............................ 3,000 90,799
Singapore Airlines Ltd. -- (SGD) ... 7,000 51,335
------------
142,134
------------
AUTOMOBILE MANUFACTURERS -- 0.1%
MAN AG -- (DEM) .................... 1,000 297,204
------------
AUTOMOTIVE PARTS -- 0.1%
Bridgestone Corp. -- (JPY) ......... 15,000 341,101
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
BEVERAGES -- 0.1%
Lion Nathan Ltd. -- (NZD) .......... 50,000 $ 127,574
Louis Vuitton Moet Hennessy --
(FRF) ............................ 660 130,676
------------
258,250
------------
BUILDING MATERIALS -- 0.1%
Blue Circle Industries
PLC -- (GBP) ..................... 26,513 136,749
Holderbank Financiere Glarus AG --
(CHF) ............................ 260 307,802
Malayan Cement BHD -- (MYR)++ ...... 30,750 7,758
------------
452,309
------------
CHEMICALS -- 0.3%
AKZO Nobel NV -- (NLG) ............. 1,600 72,895
BASF AG -- (DEM) ................... 8,000 305,250
Bayer AG -- (DEM) .................. 7,600 319,192
L'Air Liquide -- (FRF) ............. 1,642 301,297
Sumitomo Chemical Co. -- (JPY) ..... 26,000 101,421
------------
1,100,055
------------
CLOTHING & APPAREL -- 0.2%
Benetton Group SPA -- (ITL) ........ 96,600 195,087
Christian Dior SA -- (FRF) ......... 1,200 132,760
Kuraray Co. Ltd. -- (JPY) .......... 21,000 232,161
Yue Yuen Industrial Holdings --
(HKD) ............................ 95,000 180,263
------------
740,271
------------
CONGLOMERATES -- 0.2%
Cycle & Carriage Ltd. -- (SGD) ..... 15,000 51,365
GKN PLC -- (GBP) ................... 12,000 159,227
Hutchison Whampoa Ltd. -- (HKD) .... 56,000 395,765
Tomkins PLC -- (GBP) ............... 12,000 56,603
Valmet Corp. -- (FIM) .............. 4,000 53,720
------------
716,680
------------
CONSTRUCTION -- 0.1%
Compagnie Francaise d'Etudes et de
Construction Technip -- (FRF) .... 3,300 310,741
Matsushita Electric Works Ltd. --
(JPY) ............................ 15,000 153,595
------------
464,336
------------
CONSUMER PRODUCTS & SERVICES -- 0.3%
JUSCO Co. -- (JPY) ................. 11,000 222,835
Kao Corp. -- (JPY) ................. 26,000 587,784
Orkla ASA Cl-A -- (NOK) ............ 7,600 113,221
------------
923,840
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 0.4%
Johnson Electric Holdings Ltd. --
(HKD) ............................ 187,200 480,866
Mitsubishi Electric
Corp. -- (JPY) ................... 27,000 84,976
Omron Corp. -- (JPY) ............... 24,000 317,031
Sharp Corp. -- (JPY) ............... 9,000 81,306
Siemans AG -- (DEM) ................ 3,700 243,257
Sony Corp. -- (JPY) ................ 3,000 218,890
------------
1,426,326
------------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FINANCIAL-BANK & TRUST -- 1.5%
Abbey National PLC -- (GBP) ........ 28,000 $ 599,571
ABN AMRO Holding NV -- (NLG) ...... 8,000 168,383
Banca Commerciale Italia NA --
(ITL) ............................ 61,000 421,738
Bank of Scotland -- (GBP) .......... 20,208 241,072
Bankgesellschaft Berlin
AG -- (DEM)....................... 10,050 164,732
Barclays PLC -- (GBP) .............. 15,191 327,563
Deutsche Bank AG -- (DEM) .......... 2,800 165,224
Developmental Bank of Singapore
Ltd. -- (SGD) .................... 4,400 39,734
Dresdner Bank AG -- (DEM) ......... 4,500 188,590
HSBC Holdings PLC -- (GBP) ......... 18,000 488,162
ING Groep NV -- (NLG) .............. 10,153 619,458
KBC Bancassurance Holdings NV --
(BEF) ............................ 5,300 419,646
Oversea-Chinese Banking Corp.
Ltd. -- (SGD) .................... 6,000 40,728
Svenska Handlesbanken
Cl-A -- (SEK)..................... 7,300 308,012
Toronto Dominion Bank -- (CAD) ..... 4,100 143,612
UBS AG -- (CHF) .................... 3,481 1,069,533
Westpac Banking Corp.
Ltd. -- (AUD)..................... 10,000 66,979
------------
5,472,737
------------
FINANCIAL SERVICES -- 0.4%
Holding Di Partecipazioni
Industriali SPA -- (ITL) ........ 45,000 34,059
Mediobanca SPA -- (ITL) ............ 27,200 378,581
Societe Generale -- (FRF) .......... 2,572 416,695
Unidanmark AS Cl-A -- (DKK) ........ 4,500 406,562
------------
1,235,897
------------
FOOD -- 0.4%
Cadbury Schweppes PLC -- (GBP) .... 1,400 23,876
CSM NV -- (NLG) .................... 2,400 138,629
Danisco AS -- (DKK) ................ 4,000 216,833
Eridania Beghin-Say SA -- (FRF) .... 1,800 311,600
Huhtamaki Co. -- (FIM) ............. 1,500 57,473
Nestle SA -- (CHF) ................. 380 827,242
------------
1,575,653
------------
INSURANCE -- 0.3%
AXA SA -- (FRF) .................... 4,500 652,523
CKAG Colonia Konzern AG -- (DEM) ... 1,500 170,217
Sumitomo Marine & Fire Insurance
Co.-- (JPY) ...................... 30,000 190,431
------------
1,013,171
------------
MACHINERY & EQUIPMENT -- 0.1%
ABB AG -- (CHF) .................... 160 187,553
SIG Holding AG -- (CHF) ............ 280 165,128
------------
352,681
------------
MEDICAL SUPPLIES & EQUIPMENT -- 0.2%
Smith and Nephew PLC -- (GBP) ...... 38,000 118,230
Terumo Corp. -- (JPY) ............. 26,000 613,139
------------
731,369
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
METALS & MINING -- 0.1%
Anglo American Platinum Corp.
Ltd. -- (ZAR) .................... 12,000 $ 164,621
Lonrho Africa PLC -- (GBP) ......... 6,498 6,003
Rio Tinto Ltd. -- (AUD) ............ 6,000 71,230
------------
241,854
------------
OFFICE EQUIPMENT -- 0.1%
Canon, Inc. -- (JPY) ............... 9,000 192,692
Ricoh Co. Ltd. -- (JPY) ............ 13,000 120,092
------------
312,784
------------
OIL & GAS -- 0.1%
Santos Ltd. -- (AUD) ............... 32,000 85,969
Societe Nationale Elf Aquitaine
SA -- (FRF) ...................... 1,100 127,211
------------
213,180
------------
PAPER & FOREST PRODUCTS -- 0.1%
Bobst SA -- (CHF) .................. 160 198,037
Kimberly-Clark de Mexico SA Cl-A --
(MXP) ............................ 10,000 31,750
Svenska Cellulosa AB
Cl-B -- (SEK) .................... 3,500 76,429
------------
306,216
------------
PHARMACEUTICALS -- 0.5%
Altana AG -- (DEM) ................. 2,100 149,728
Astra AB Cl-B -- (SEK) ............. 14,666 298,548
Gehe AG -- (DEM) ................... 2,150 144,579
Novartis AG -- (CHF) ............... 180 353,846
Novartis AG Bearer -- (CHF) ........ 160 314,530
Takeda Chemical
Industries -- (JPY)............... 13,000 501,345
------------
1,762,576
------------
PRINTING & PUBLISHING -- 0.2%
Dai Nippon Printing Co.
Ltd. -- (JPY)..................... 12,000 191,708
Elsevier NV -- (NLG) ............... 12,000 168,170
Pearson PLC -- (GBP) ............... 11,600 230,251
------------
590,129
------------
REAL ESTATE -- 0.1%
Cheung Kong Holdings
Ltd. -- (HKD)..................... 38,000 273,460
DBS Land Ltd. -- (SGD) ............. 25,000 36,819
------------
310,279
------------
RETAIL & MERCHANDISING -- 0.3%
Carrefour Supermarche
SA -- (FRF) ...................... 150 113,292
Mauri Co. Ltd. -- (JPY) ............ 7,000 134,977
Pinault-Printemps Redoute SA --
(FRF) ............................ 2,100 401,503
Tesco PLC -- (GBP) ................. 101,829 290,139
------------
939,911
------------
TELECOMMUNICATIONS -- 0.4%
Nippon Telegraph & Telephone
Corp. -- (JPY) ................... 280 216,460
Telecom Corp. of New Zealand Ltd. --
(NZD) ............................ 22,000 95,879
Telecom Italia Mobile
SPA -- (ITL) ..................... 75,000 554,918
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Telecom Italia SPA -- (ITL) ........ 41,666 $ 356,294
Telekom Malaysia BHD -- (MYR)++ .... 100 184
------------
1,223,735
------------
TRANSPORTATION -- 0.1%
BAA PLC -- (GBP).................... 17,775 207,463
------------
UTILITIES -- 0.2%
Electrabel SA -- (BEF).............. 720 316,481
Hong Kong Electric Holdings Ltd. --
(HKD)............................. 30,000 91,003
Veba AG -- (DEM).................... 6,500 385,195
------------
792,679
------------
TOTAL FOREIGN STOCK
(Cost $18,647,531).................... 24,446,070
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
-----
<S> <C> <C>
CORPORATE OBLIGATIONS -- 11.2%
AEROSPACE -- 0.2%
Boeing Co. Notes
6.35%, 06/15/03.................. $ 120 124,800
Dyncorp, Inc. Sr. Sub. Notes
9.50%, 03/01/07.................. 300 297,750
Raytheon Co. Notes
6.50%, 07/15/05.................. 350 361,813
------------
784,363
------------
AUTOMOBILE MANUFACTURERS -- 0.1%
Trident Automotive PLC Sr. Sub.
Notes Cl-B
10.00%, 12/15/05................. 250 261,875
------------
AUTOMOTIVE PARTS -- 0.1%
Federal Mogul Corp. Notes
7.75%, 07/01/06.................. 300 301,500
Safelite Glass Corp. Sr. Sub. Notes
144A
9.875%, 12/15/06................. 200 186,000
------------
487,500
------------
BEVERAGES -- 0.3%
Anheuser-Busch Companies, Inc. Debs
7.00%, 12/01/25.................. 150 156,938
Seagram, (J.) & Sons Co.
Guarantee Notes
7.60%, 12/15/28.................. 1,000 1,007,500
------------
1,164,438
------------
BROADCASTING -- 0.2%
Chancellor Media Corp. LA Sr. Sub.
Notes Cl-B
8.125%, 12/15/07................. 350 348,250
TV Azteca SA de CV Sr. Notes Cl-B
10.50%, 02/15/07................. 200 168,500
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Young Broadcasting, Inc. Sr. Sub.
Notes
10.125%, 02/15/05................ 150 157,500
------------
674,250
------------
BUILDING MATERIALS -- 0.1%
American Standard, Inc. Debs.
9.25%, 12/01/16.................. $ 15 $ 15,356
Associated Materials, Inc. Notes
9.25%, 03/01/08.................. 350 347,375
Koppers Industry, Inc. Co.
Guarantee Notes
9.875%, 12/01/07................. 75 73,500
------------
436,231
------------
BUSINESS SERVICES -- 0.1%
Iron Mountain, Inc. Sr. Sub. Notes
8.75%, 09/30/09.................. 125 129,063
Muzak, Inc. L.P. Notes
10.00%, 10/01/03................. 225 232,875
------------
361,938
------------
CHEMICALS -- 0.3%
American Pacific Corp. Sr. Notes
9.25%, 03/01/05.................. 300 309,000
Furon Co. Sr. Sub. Notes
8.125%, 03/01/08................. 200 199,250
Scotts Co. Sr. Sub. Notes
9.875%, 08/01/04................. 100 106,125
Sovereign Specialty Chemicals Sr.
Sub. Notes Cl-B
9.50%, 08/01/07.................. 250 248,750
------------
863,125
------------
CLOTHING & APPAREL -- 0.3%
Delta Mills, Inc. Sr. Notes
9.625%, 09/01/07................. 125 123,125
Dyersburg Corp. Co. Guarantee Notes
Cl-B
9.75%, 09/01/07.................. 175 159,250
Synthetic Industries, Inc. Sr. Sub.
Notes
9.25%, 02/15/07.................. 250 257,813
Westpoint Stevens, Inc. Sr. Notes
7.875%, 06/15/08................. 350 359,625
------------
899,813
------------
COMPUTER SERVICES & SOFTWARE -- 0.1%
American Business Information, Inc.
Sr. Sub. Notes 144A
9.50%, 06/15/08.................. 75 64,500
Verio, Inc. Sr. Notes
10.375%, 04/01/05................ 150 148,500
------------
213,000
------------
CONSTRUCTION -- 0.0%
Newport News Shipbuilding, Inc. Sr.
Notes
8.625%, 12/01/06................. 150 159,000
------------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
CONSUMER PRODUCTS & SERVICES -- 0.6%
American Safety Razor Co. Sr. Notes
9.875%, 08/01/05................. $ 150 $ 151,313
Bally Total Fitness Holding Corp.
Sr. Sub. Notes Cl-B
9.875%, 10/15/07................. 225 220,500
Chattem, Inc. Notes
12.75%, 06/15/04................. 350 391,125
Doane Pet Care Co. Sr. Sub. Notes
144A
9.75%, 05/15/07.................. 359 367,975
Herff Jones, Inc. Sr. Sub. Notes
11.00%, 08/15/05................. 250 272,500
Holmes Products Corp. Sr. Sub.
Notes Cl-B
9.875%, 11/15/07................. 250 224,688
Protection One Alarm, Inc. Sr.
Disc. Notes [STEP]
13.625%, 06/30/05................ 130 146,900
Protection One Alarm, Inc. Sr. Sub
Notes
8.125%, 01/15/09................. 220 221,100
------------
1,996,101
------------
CONTAINERS & PACKAGING -- 0.2%
Container Corp. of America Sr.
Notes
9.75%, 04/01/03.................. 150 151,688
11.25%, 05/01/04................. 100 104,000
Plastic Containers, Inc. Sr. Notes
Cl-B
10.00%, 12/15/06................. 250 262,813
U.S. Can Corp. Sr. Sub. Notes
10.125%, 10/15/06................ 150 158,063
------------
676,564
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 0.1%
HCC Industries, Inc. Sr. Sub. Notes
10.75%, 05/15/07................. 250 241,250
Viasystems, Inc. Sr. Sub. Notes
9.75%, 06/01/07.................. 125 118,750
------------
360,000
------------
ENTERTAINMENT & LEISURE -- 0.5%
Cinemark USA Inc., Sr. Sub Notes
Cl-B
8.50%, 08/01/08.................. 350 349,563
Grand Casinos, Inc. First Mtge.
10.125%, 12/01/03................ 150 163,500
Rio Hotel & Casino, Inc. Notes
9.50%, 04/15/07.................. 100 109,125
Rio Hotel & Casino, Inc. Sr. Sub.
Notes
10.625%, 07/15/05................ 150 163,125
Six Flags Entertainment Corp. Sr.
Notes
8.875%, 04/01/06................. 175 182,000
Six Flags Theme Parks Corp. Sr.
Sub. Notes Cl-A [STEP]
12.25%, 06/15/05................. 150 167,250
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Time Warner Entertainment Co. Debs
7.25%, 09/01/08.................. $ 500 $ 551,250
------------
1,685,813
------------
EQUIPMENT SERVICES -- 0.0%
Coinmach Corp. Sr. Notes Cl-D
11.75%, 11/15/05................. 125 136,406
------------
FARMING & AGRICULTURE -- 0.1%
Purina Mills, Inc. Sr. Sub. Notes
9.00%, 03/15/10.................. 350 360,500
------------
FINANCIAL-BANK & TRUST -- 0.9%
Aristar, Inc. Sr. Notes
7.875%, 02/15/99................. 200 200,500
Banesto Delaware Sub. Notes
8.25%, 07/28/02.................. 50 53,313
Bank of Nova Scotia Sub. Notes
6.25%, 09/15/08.................. 50 50,563
BankAmerica Corp. Sub. Notes
6.85%, 03/01/03.................. 150 156,563
BankUnited Capital Trust Corp. Cl-B
10.25%, 12/31/26................. 250 253,750
CoreStates Home Equity Trust Corp.
Cl-A
6.65%, 05/15/09.................. 45 45,697
First Federal Financial, Inc. Notes
11.75%, 10/01/04................. 125 132,500
Freddie Mac Corp. Debs.
5.97%, 03/02/01.................. 1,500 1,502,009
MBNA Corp. Sr. Medium Term Notes
6.15%, 10/01/03.................. 450 455,625
NationsBank Texas Corp. Sr. Notes
6.75%, 08/15/00.................. 150 154,125
Provident Bank Corp. Sub. Notes
7.125%, 03/15/03................. 175 184,625
------------
3,189,270
------------
FINANCIAL SERVICES -- 1.8%
Ahmanson, (H.F.) & Co. Sr. Notes
9.875%, 11/15/99................. 100 103,709
American Express Master Trust
7.60%, 08/15/02.................. 500 526,888
Associates Corp. of North America
Sr. Notes
7.70%, 03/15/00.................. 50 51,375
Banque Paribas-NY Sub. Notes
6.875%, 03/01/09................. 1,500 1,507,500
Chrysler Financial Corp. Notes
8.46%, 01/19/00.................. 200 206,500
Ciesco L.P. Notes
7.38%, 04/19/00.................. 250 256,250
Enhance Financial Services Group,
Inc. Debs.
6.75%, 03/01/03.................. 300 315,375
Intertek Finance PLC Sr. Sub. Notes
Cl-B
10.25%, 11/01/06................. 250 232,500
Ocwen Capital Corp. Trust I Notes
10.875%, 08/01/27................ 150 124,500
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Salomon, Inc. Sr. Notes
6.75%, 02/15/03.................. $ 500 $ 518,125
Salomon Smith Barney Holding, Inc.
Notes
6.625%, 06/01/00................. 200 202,750
Simon Debartolo Group, Inc. L.P.
Notes
7.00%, 07/15/09.................. 525 509,906
USF&G Capital II Cl-B
8.47%, 01/10/27.................. 500 584,375
Wells Fargo & Co. Sub. Notes
6.25%, 04/15/08.................. 700 727,125
------------
5,866,878
------------
FOOD -- 0.3%
Archibald Candy Corp. Notes
10.25%, 07/01/04................. 75 76,125
B&G Foods, Inc. Notes
9.625%, 08/01/07................. 350 343,875
Keebler Corp. Sr. Sub. Notes
10.75%, 07/01/06................. 250 272,500
Mrs. Fields Original Cookies Co.
Sr. Notes
10.125%, 12/01/04................ 100 96,000
Shoppers Food Warehouse Corp. Notes
9.75%, 06/15/04.................. 100 109,500
------------
898,000
------------
HEALTHCARE SERVICES -- 0.0%
Quest Diagnostic, Inc. Sr. Sub.
Notes
10.75%, 12/15/06................. 125 138,594
------------
HOTELS & MOTELS -- 0.1%
Courtyard by Marriott Sr. Notes
10.75%, 02/01/08................. 150 156,000
Host Marriott Travel Plaza Corp.
Sr. Notes Cl-B
9.50%, 05/15/05.................. 150 157,125
------------
313,125
------------
INDUSTRIAL PRODUCTS -- 0.2%
Apcoa Standard Parking, Inc. Sr.
Sub. Notes
9.25%, 03/15/08.................. 350 329,000
Paragon Corp. Holdings, Inc. Co.
Guarantee Notes Cl-B
9.625%, 04/01/08................. 175 147,000
------------
476,000
------------
INSURANCE -- 0.1%
New York Life Insurance Co. Notes
144A
7.50%, 12/15/23.................. 420 438,375
------------
MACHINERY & EQUIPMENT -- 0.1%
Hawk Corp. Sr. Notes
10.25%, 12/01/03................. 200 211,750
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
METALS & MINING -- 0.0%
Freeport-McMoRan Resource Partners,
Inc. L.P. Sr. Notes
7.00%, 02/15/08.................. $ 150 $ 157,313
------------
OIL & GAS -- 0.1%
Flores & Rucks, Inc. Sr. Sub. Notes
9.75%, 10/01/06.................. 50 51,750
Pride Petroleum Services, Inc. Sr.
Notes
9.375%, 05/01/07................. 250 236,250
Tenneco, Inc. Notes
8.20%, 11/15/99.................. 55 56,306
8.075%, 10/01/02................. 150 159,750
------------
504,056
------------
PHARMACEUTICALS -- 0.0%
Owens & Minor, Inc. Sr. Sub. Notes
10.875%, 06/01/06................ 75 79,875
------------
PRINTING & PUBLISHING -- 0.1%
Sun Media Corp. Sr. Sub Notes
9.50%, 05/15/07.................. 163 180,115
------------
REAL ESTATE -- 0.1%
HMH Properties, Inc. Co. Guarantee
Sr. Notes Cl-B
7.875%, 08/01/08................. 350 341,688
------------
RESTAURANTS -- 0.0%
McDonald's Corp. Notes
6.625%, 09/01/05................. 100 107,625
------------
RETAIL & MERCHANDISING -- 0.5%
Dayton-Hudson Corp. Notes
5.875%, 11/01/08................. 1,500 1,518,750
Specialty Retailers, Inc. Co.
Guarantee Notes Cl-B
8.50%, 07/15/05.................. 250 225,000
Wal-Mart Stores, Inc. Debs.
7.25%, 06/01/13.................. 85 97,963
------------
1,841,713
------------
SEMICONDUCTORS -- 0.0%
Fairchild Semiconductor Corp. Sr.
Sub. Notes
10.125%, 03/15/07................ 125 125,000
------------
TELECOMMUNICATIONS -- 2.4%
Comcast Cable Communication, Inc.
Notes
8.125%, 05/01/04................. 400 443,500
Communication & Power Industries,
Inc. Sr. Sub. Notes
12.00%, 08/01/05................. 250 263,125
Frontiervision Sr. Sub. Notes
11.00%, 10/15/06................. 150 166,313
Fundy Cable Ltd., Sr. Notes
11.00%, 11/15/05................. 150 159,750
ICG Holding, Inc. [STEP]
10.621%, 09/15/05................ 250 207,500
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Intermedia Communications, Inc. Sr.
Notes Cl-B
8.50%, 01/15/08.................. $ 350 $ 336,000
International Wire Group, Inc.
Notes Cl-B
11.75%, 06/01/05................. 250 265,625
L-3 Communications Corp. Sr. Sub.
Notes Cl-B
10.375%, 05/01/07................ 175 192,500
Lucent Technologies, Inc. Notes
6.90%, 07/15/01.................. 500 523,125
Marcus Cable Operating Co. Sr.
Disc. Notes [STEP]
11.302%, 08/01/04................ 250 250,313
Mastec, Inc. Sr. Sub. Notes
7.75%, 02/01/08.................. 250 238,750
MetroNet Communications Corp. Sr.
Notes
12.00%, 08/15/07................. 100 111,500
Microcell Telecommunications, Inc.
Notes [STEP]
11.144%, 06/01/06................ 125 95,000
Nextel Communications, Inc. Sr.
Disc. Notes [STEP]
10.098%, 10/31/07................ 500 305,000
NEXTLINK Communications, Inc. Sr.
Notes
12.50%, 04/15/06................. 125 136,563
Pegasus Communications Corp. Sr.
Notes Cl-B
9.625%, 10/15/05................. 250 250,000
Price Communications Corp. Sr.
Notes 144A
9.125%, 12/15/06................. 350 362,688
PSINet, Inc. Sr. Notes Cl-B
10.00%, 02/15/05................. 150 148,500
Qwest Communications International,
Inc. Sr. Disc. Notes [STEP]
8.30%, 10/15/07.................. 350 273,000
Qwest Communications International,
Inc. Sr. Notes 144A
7.50%, 11/01/08.................. 75 78,469
Rogers Cablesystems of America,
Inc. Sr. Notes Cl-B
10.00%, 03/15/05................. 125 140,781
Sitel Corp. Co. Guarantee Sr. Sub.
Notes
9.25%, 03/15/06.................. 100 80,000
Sprint Capital Corp. Co. Guarantee
Notes
6.125%, 11/15/08................. 1,000 1,023,750
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
United Telecommunications, Inc.
Debs.
9.75%, 04/01/00.................. $ 250 $ 263,750
WorldCom, Inc. Sr. Notes
7.75%, 04/01/07.................. 1,500 1,689,375
------------
8,004,877
------------
TRANSPORTATION -- 0.3%
Allied Holdings, Inc. Notes Cl-B
8.625%, 10/01/07................. 250 251,250
Coach USA, Inc. Notes Cl-B
9.375%, 07/01/07................. 175 180,250
Stena AB Sr. Notes
10.50%, 12/15/05................. 350 356,125
Union Tank Car Co. Notes
7.125%, 02/01/07................. 150 164,438
------------
952,063
------------
UTILITIES -- 0.9%
Citizens Utilities Co. Debs.
8.45%, 09/01/01.................. 335 361,381
Commonwealth Edison Co. Notes
9.00%, 10/15/99.................. 250 256,563
Energy Corp. of America Sr. Sub.
Notes Cl-A
9.50%, 05/15/07.................. 250 228,750
Entergy Louisiana, Inc. First Mtge.
6.50%, 03/01/08.................. 1,000 1,050,000
Niagara Mohawk Power Corp. Sr.
Disc. Notes Cl-H [STEP]
8.539%, 07/01/10................. 400 307,000
Niagara Mohawk Power Corp. Sr.
Notes Cl-G
7.75%, 10/01/08.................. 150 162,750
Northland Cable Television, Inc.
Sr. Sub. Notes
10.25%, 11/15/07................. 250 263,750
Pacific Gas & Electric Co. First
Mtge.
6.75%, 12/01/00.................. 200 201,250
Public Service Electric & Gas First
Mtge.
7.00%, 09/01/24.................. 300 307,875
Southern California Edison Corp.
Notes
6.50%, 06/01/01.................. 100 102,875
------------
3,242,194
------------
TOTAL CORPORATE OBLIGATIONS (Cost
$38,993,550)......................... 39,395,520
------------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 9.1%
Federal Agricultural Mortgage Corp.
13.226%, 04/06/03 [ZCB].......... $ 1,000 $ 806,092
------------
Federal Home Loan Mortgage Corp.
7.50%, 07/15/20.................. 1 1,111
------------
Federal National Mortgage Assoc.
5.352%, 09/25/23 [PO]............ 2,579 2,527,501
7.00%, 04/18/22.................. 1,000 1,015,644
12.50%, 10/15/15................. 3,791 4,280,687
------------
7,823,832
------------
Government National Mortgage Assoc.
6.00%, 10/15/23-05/15/26......... 2,517 2,497,050
6.50%, 02/15/24-01/01/29......... 9,343 9,439,531
7.00%, 09/15/23-02/15/27......... 7,309 7,491,103
7.50%, 06/15/24-06/15/26......... 1,024 1,056,811
8.00%, 05/15/16-07/15/26......... 805 835,329
8.50%, 06/15/16-10/15/26......... 1,264 1,340,343
9.00%, 07/15/16-05/15/17......... 75 80,252
9.50%, 10/15/09-01/15/20......... 24 25,494
10.00%, 11/15/09................. 8 8,344
10.50%, 08/15/15................. 6 6,841
11.50%, 06/15/10-09/15/15........ 112 126,575
12.00%, 09/15/13-01/15/14........ 3 3,438
------------
22,911,111
------------
Tennessee Valley Authority Notes
6.875%, 12/15/43................. 40 41,700
7.25%, 07/15/43.................. 20 21,325
------------
63,025
------------
(Cost $29,945,672)................. 30,799,079
------------
U.S. TREASURY OBLIGATIONS -- 16.7%
U.S. Treasury Bonds
5.50%, 08/15/28.................. 7,000 7,336,896
6.00%, 02/15/26.................. 100 109,392
6.625%, 02/15/27................. 3,250 3,838,080
6.75%, 08/15/26.................. 9,325 11,181,254
6.875%, 08/15/25................. 300 364,511
7.125%, 02/15/23................. 240 295,434
7.625%, 02/15/25................. 300 395,409
11.625%, 11/15/02................ 100 123,985
------------
23,644,961
------------
U.S. Treasury Notes
5.625%, 05/15/01................. 16,375 17,219,792
5.75%, 08/15/03.................. 665 694,746
5.875%, 11/15/05................. 425 454,230
6.00%, 06/30/99.................. 3,500 3,525,742
6.125%, 09/30/00-08/15/07........ 2,150 2,343,217
6.25%, 05/31/00-02/15/07......... 2,100 2,302,118
6.375%, 05/15/99................. 1,950 1,962,462
6.50%, 10/15/06.................. 3,850 4,283,505
6.75%, 05/31/99.................. 460 463,959
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
6.875%, 03/31/00................. $ 250 $ 256,644
7.50%, 02/15/05.................. 250 286,379
------------
33,792,794
------------
(Cost $54,043,365)................. 57,437,755
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.1%
Advanta Home Equity Loan Trust
1993-1 Cl-A2
5.95%, 05/25/09.................. 1,799 1,799,025
Government National Mtge. Assoc.
Series 1998-22 Cl-Za
6.50%, 09/20/28.................. 2,150 2,105,544
------------
(Cost $3,926,409).................. 3,904,569
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
(000)
---------
<S> <C> <C>
FOREIGN BONDS -- 1.7%
AUSTRALIA -- 0.0%
Australian Government
9.50%, 08/15/03................. 20 14,660
------------
BELGIUM -- 0.0%
Belgium Kingdom Government
7.25%, 04/29/04................. 1,550 52,967
------------
CANADA -- 0.1%
Canadian Government
8.50%, 04/01/02................. 380 274,491
6.50%, 06/01/04................. 110 77,505
9.75%, 06/01/21................. 10 10,350
------------
362,346
------------
DENMARK -- 0.0%
Kingdom of Denmark
7.00%, 12/15/04................. 275 49,816
------------
FRANCE -- 0.3%
French O.A.T
8.50%, 11/25/02................. 1,406 298,642
8.25%, 02/27/04................. 264 57,847
5.50%, 04/25/07................. 3,000 597,206
8.50%, 04/25/23................. 50 13,861
------------
967,556
------------
GERMANY -- 0.3%
Deutscheland Republic
8.50%, 08/21/00................. 375 243,888
8.375%, 05/21/01................ 410 274,971
6.50%, 07/15/03................. 110 74,433
6.00%, 07/04/07................. 838 578,175
------------
1,171,467
------------
ITALY -- 0.1%
Italian Government
11.50%, 03/01/03................ 275,000 215,728
8.50%, 08/01/04................. 45,000 33,776
------------
249,504
------------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
(000) VALUE
--------- -----
<S> <C> <C>
JAPAN -- 0.7%
European Investment Bank
4.625%, 02/26/03................ 53,000 $ 534,480
3.00%, 09/20/06................. 102,000 975,495
International Bank Recovery &
Development Global Bonds
6.75%, 03/15/00................. 14,000 133,426
Japanese Government
4.50%, 06/20/03................. 33,500 337,950
------------
1,981,351
------------
NETHERLANDS -- 0.0%
Netherlands Government
5.75%, 01/15/04................. 115 67,407
------------
SPAIN -- 0.0%
Spanish Government
8.00%, 05/30/04................. 6,400 55,189
------------
UNITED KINGDOM -- 0.2%
United Kingdom Treasury
9.00%, 03/03/00................. 85 147,449
8.00%, 06/10/03................. 91 172,710
7.50%, 12/07/06................. 164 327,602
------------
647,761
------------
TOTAL FOREIGN BONDS
(Cost $5,170,125)................... 5,620,024
------------
PAR
(000) VALUE
------- ------------
COMMERCIAL PAPER -- 7.7%
ABB Treasury Center+
4.90%, 02/18/99................. $ 1,300 $ 1,291,507
Commerzbank U.S. Finance, Inc.
5.90%, 01/14/99................. 4,045 4,036,382
Equilon Enterprises LLC
5.80%, 01/14/99................. 8,000 7,983,244
Federal Home Loan Banks Disc.
Notes
4.50%, 01/04/99................. 3,652 3,650,631
Island Finance Puerto Rico
5.55%, 02/05/99................. 5,838 5,806,499
National Australia Funding
5.35%, 01/08/99................. 1,000 998,960
Novartis Finance Corp.+
5.80%, 01/13/99................. 2,322 2,317,511
------------
(Cost $26,084,734)................ 26,084,734
------------
TOTAL INVESTMENTS -- 101.9%
(Cost $278,881,183)................. 350,584,023
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (1.9%).................... (6,386,639)
------------
NET ASSETS -- 100.0%.................. $344,197,384
============
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stock.
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
+ Security is restricted as to resale and may not be resold except to qualified
institutional buyers. At the end of the year, these securities amounted to
1.0% of net assets.
++ Illiquid security. At the end of the year, these securities amounted to less
than 0.1% of net assets.
144A -- Security was purchased pursuant to rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 0.4% of net assets.
See Notes to Financial Statements.
<PAGE>
PIMCO TOTAL RETURN BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 42.6%
Federal Home Loan Mortgage Corp.
6.00%, 01/14/29 [TBA]......... $ 16,200 $ 16,002,522
6.50%, 01/12/29 [TBA]......... 52,200 52,583,148
7.00%, 04/25/19 [IO].......... 133 9,700
7.681%, 02/01/24 [VR]......... 1,256 1,285,443
8.25%, 08/01/17............... 411 428,396
--------------
70,309,209
--------------
Federal National Mortgage Assoc.
5.50%, 01/14/29[TBA].......... 20,000 19,268,750
6.00%, 07/01/12-12/01/28...... 65,451 65,267,193
6.149%, 10/01/27-06/01/28
[VR]........................ 2,406 2,422,942
6.25%, 05/25/08 [IO].......... 236 57,004
6.50%, 06/25/14 [IO].......... 125 775
6.50%, 01/14/29 [TBA]......... 48,500 48,825,920
6.581%, 11/01/27 [VR]......... 24,338 24,977,016
6.90%, 05/25/23............... 220 224,038
7.411%, 01/01/24 [VR]......... 172 176,987
7.50%, 04/01/24............... 2,725 2,801,240
9.40%, 07/25/03............... 150 155,968
--------------
164,177,833
--------------
Government National Mortgage
Assoc.
6.50%, 09/15/23-01/22/29...... 28,890 28,903,228
6.50%, 01/22/29 [TBA]......... 8,420 8,505,547
6.625%, 08/20/23-09/20/24
[VR]........................ 11,532 11,662,183
6.875%, 03/20/17-03/20/24
[VR]........................ 13,589 13,767,470
6.875%, 01/20/26-02/20/27..... 27,505 27,904,821
7.00%, 10/20/23-12/20/25
[VR]........................ 9,930 10,072,868
7.00%, 11/20/26-12/20/26...... 20,395 20,767,389
7.50%, 12/20/23............... 322 330,464
--------------
121,913,970
--------------
Student Loan Marketing Assoc.
Series 1995-1 Cl-A1 [FRN]
5.327%, 04/25/04.............. 6,707 6,639,895
Student Loan Marketing Assoc.
Series 1998-2 Cl-A1 [VR]
5.108%, 04/25/07.............. 18,946 18,714,919
--------------
25,354,814
--------------
(Cost $379,124,724)............. 381,755,826
--------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 17.7%
Citicorp Mtge. Securities, Inc.
[VR]
7.256%, 10/25/22.............. 354 354,752
CMC Securities Corp. III
Series 1998-1 Cl-A19
6.75%, 05/25/28............... 36,592 36,647,607
Collateralized Mtge. Securities
Corp. [VR]
7.985%, 05/01/17.............. 363 371,350
Contimortgage Home Equity Loan
Trust Cl-A2
5.705%, 10/15/12............. 13,450 13,449,668
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
Countrywide Adjustable Rate
Mtge. [VR]
7.791%, 03/25/24............. $ 282 $ 290,975
8.236%, 11/25/24............. 224 228,845
Credit Suisse First Boston, Inc.
Series 1998-1 Cl-A5
6.75%, 07/25/28.............. 3,500 3,551,439
First Plus Home Loan Trust
Series 1998-5 Cl-A3 [VR]
6.06%, 09/10/11.............. 10,000 10,027,850
MBNA Master Credit Card Trust
Cl-A [VR]
4.964%, 01/15/02............. 15,000 14,982,000
Mortgage Capital Trust VI
9.50%, 02/01/18.............. 146 145,214
Norwest Asset Securities Corp.
Series 1996-9 Cl-A4
8.00%, 01/25/27.............. 4,294 4,287,487
PNC Mtge. Securities Corp.
Series 1997-3 Cl-2A4
7.50%, 05/25/27.............. 14,736 15,003,663
PNC Mtge. Securities Corp.
Series 1998-1 Cl-5A4 [VR]
7.037%, 02/25/28............. 19,152 19,157,944
Prudential-Bache Trust
8.40%, 03/20/21.............. 2,245 2,313,344
Prudential Home Mtge. Securities
6.50%, 01/25/00.............. 3,494 3,509,230
Residential Funding Mtge.
Securities
1998-S30 Cl-A6
6.50%, 12/25/28.............. 32,875 32,582,123
Rothschild, (L.F.) Mtge. Trust
9.95%, 08/01/17.............. 1,409 1,499,859
--------------
(Cost $157,637,364)............. 158,403,350
--------------
CORPORATE OBLIGATIONS -- 39.0%
AIRLINES -- 1.4%
American Airlines, Inc. Notes
10.19%, 05/26/15............. 250 309,292
United Air Lines, Inc. Notes
10.36%, 11/13/12............. 6,925 8,682,911
10.36%, 11/27/12............. 500 626,570
10.02%, 03/22/14............. 2,000 2,484,040
--------------
12,102,813
--------------
CHEMICALS -- 2.5%
Imperial Chemical, Inc. Euro
Medium Term Notes [FRN]
5.656%, 03/05/99............. 22,000 22,026,884
--------------
CONGLOMERATES -- 1.3%
Philip Morris Companies, Inc.
Notes [VR]
6.15%, 03/15/00.............. 11,600 11,687,000
--------------
</TABLE>
<PAGE>
PIMCO TOTAL RETURN BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
ENTERTAINMENT & LEISURE -- 0.2%
Time Warner, Inc. Notes
7.975%, 08/15/04............. $ 262 $ 289,182
8.11%, 08/15/06.............. 525 598,500
8.18%, 08/15/07.............. 525 609,000
--------------
1,496,682
--------------
FINANCIAL-BANK & TRUST -- 4.4%
Citicorp Medium Term Sr. Notes
[FRN]
5.65%, 11/30/00.............. 6,000 6,017,280
First of America Bank Notes
6.00%, 10/01/99.............. 13,750 13,835,938
PNC Bank Corp. NA Notes [FRN]
5.497%, 06/01/00............. 20,000 19,969,394
--------------
39,822,612
--------------
FINANCIAL SERVICES -- 16.2%
Avco Financial Services, Inc.
Medium Term Notes
5.75%, 01/23/01.............. 7,850 7,908,875
Beneficial Corp. Medium
Term Notes Cl-H [FRN]
5.707%, 01/09/02............. 10,000 9,985,697
Chrysler Financial Corp.
Medium Term Notes [FRN]
5.57%, 06/11/01.............. 5,000 4,984,950
Chrysler Financial Corp. Medium
Term Notes Cl-R [FRN]
5.707%, 03/06/03............. 20,000 19,886,000
Chrysler Financial Corp.
Notes [FRN]
5.657%, 01/30/02............. 10,000 9,978,699
Ford Motor Credit Co. Notes
[FRN]
5.423%, 09/03/01............. 10,000 9,961,310
General Motors Acceptance Corp.
Medium Term Notes
5.344%, 12/10/01[FRN]........ 2,100 2,100,504
5.55%, 09/15/03.............. 3,000 2,992,500
Goldman Sachs Group Notes
[FRN] 144A
5.46%, 11/24/00.............. 20,000 19,961,600
Lehman Brother Holdings Medium
Term Notes Cl-E [FRN]
5.801%, 01/18/00............. 10,000 9,986,800
Merrill Lynch & Co. Inc. Notes
6.375%, 10/15/08............. 10,000 10,387,500
Merrill Lynch & Co. Notes [FRN]
5.268%, 01/23/01............. 2,650 2,636,299
5.465%, 02/04/03............. 23,000 22,838,540
New England Educational Loan
Marketing Assoc. Medium Term
Notes Cl-B [FRN] 144A
5.411%, 06/11/01............. 10,000 9,991,800
Salomon, Inc. Notes [FRN]
5.64%, 02/15/99.............. 2,000 2,000,080
--------------
145,601,154
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
FOOD -- 0.7%
RJR Nabisco, Inc. Notes
8.625%, 12/01/02............. $ 6,500 $ 6,603,740
--------------
INSURANCE -- 0.6%
Residential Reinsurance Notes
[FRN] 144A
9.435%, 01/04/99............. 5,000 4,975,000
--------------
RAILROADS -- 0.6%
Union Pacific Co. Notes
7.875%, 02/15/02............. 5,000 5,237,500
--------------
REAL ESTATE -- 0.6%
Spieker Properties, Inc. L.P.
Notes
6.95%, 12/15/02.............. 5,000 5,068,750
--------------
TELECOMMUNICATIONS -- 7.2%
AT&T Capital Corp. Notes [FRN]
5.675%, 01/01/99 144A........ 10,000 9,999,600
5.628%, 01/15/99............. 10,000 9,999,000
Sprint Corp. Notes
9.50%, 04/01/03.............. 22,500 25,846,425
TCI Communications, Inc.
Sr. Notes [FRN]
4.695%, 09/11/00............. 10,000 10,033,900
WorldCom, Inc. Sr. Notes
9.375%, 01/15/04............. 8,632 8,942,985
--------------
64,821,910
--------------
UTILITIES -- 3.3%
CMS Energy Corp. Sr. Notes
8.125%, 05/15/02............. 5,000 5,262,500
Connecticut Light & Power Co.
First Mtge. Cl-C
7.75%, 06/01/02.............. 4,000 4,200,000
Connecticut Light & Power Co./
West Massachusetts Electric
Co. Notes 144A
8.59%, 06/05/03.............. 5,000 5,152,735
Louisiana Power & Light Corp.
Notes
7.74%, 07/01/02.............. 6,000 6,120,000
Petroleos Mexicanos Co.
Guarantee
Notes [FRN] 144A
9.574%, 07/15/05............. 10,000 9,275,000
--------------
30,010,235
--------------
TOTAL CORPORATE OBLIGATIONS
(Cost $347,846,540)............... 349,454,280
--------------
U.S. TREASURY OBLIGATIONS -- 13.0%
U.S. Treasury Bills
3.79%, 03/04/99#............. 325 322,667
3.95%, 03/04/99#............. 40 39,713
4.03%, 03/04/99#............. 860 853,827
4.30%, 05/13/99#............. 70 68,863
</TABLE>
<PAGE>
PIMCO TOTAL RETURN BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
4.31%, 04/29/99#............. $ 500 $ 493,004
4.31%, 05/27/99#............. 1,470 1,444,424
4.38%, 03/04/99#............. 1,655 1,643,120
4.43%, 03/04/99#............. 1,680 1,667,940
--------------
6,533,558
--------------
U.S. Treasury Bonds
7.25%, 05/15/16.............. 1,000 1,211,761
8.75%, 05/15/17.............. 8,400 11,700,262
8.875%, 02/15/19............. 21,000 29,908,620
9.125%, 05/15/18............. 22,900 33,099,408
9.25%, 02/15/16.............. 13,200 18,922,776
--------------
94,842,827
--------------
U.S. Treasury Inflationary Bonds
3.625%, 07/15/02............. 15,000 15,258,165
--------------
(Cost $116,638,436)............. 116,634,550
--------------
SOVEREIGN ISSUES -- 2.6%
ARGENTINA -- 0.7%
Republic of Argentina [BRB, FRB]
6.188%, 03/31/05............. 8,075 6,298,188
--------------
BRAZIL -- 0.3%
Republic of Brazil-IDU
Cl-A [VR, BRB]
6.75%, 01/01/01.............. 3,075 2,792,484
--------------
MEXICO -- 1.0%
United Mexican States Sr.
Notes [FRN]
6.571%, 06/27/02............. 10,000 9,016,700
--------------
PHILIPPINES -- 0.6%
Bangko Sentral Pilipinas
8.60%, 06/15/27.............. 6,000 5,062,500
--------------
TOTAL SOVEREIGN ISSUES
(Cost $25,025,171)................ 23,169,872
--------------
PRINCIPAL
IN LOCAL
CURRENCY
(000)
----------
FOREIGN BONDS -- 1.0%
CANADA -- 0.4%
Canadian Government
4.25%, 12/01/26.............. 5,214 3,477,018
--------------
NEW ZEALAND -- 0.6%
New Zealand Government
10.00%, 03/15/02............. 10,000 6,002,668
--------------
TOTAL FOREIGN BONDS
(Cost $9,831,212)................. 9,479,686
--------------
PAR
(000) VALUE
---------- --------------
CERTIFICATES OF DEPOSIT -- 2.2%
Bank of Tokyo-Mitsubishi
5.94%, 01/19/99
(Cost $20,000,000).............. $ 20,000 $ 19,996,374
--------------
COMMERCIAL PAPER -- 0.6%
National Rural Utility Corp.
4.88%, 03/23/99.............. 1,400 1,384,438
Procter & Gamble Co.
4.85%, 02/26/99.............. 4,000 3,969,822
--------------
(Cost $5,354,450)............... 5,354,260
--------------
<CAPTION>
SHARES
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 1.9%
Temporary Investment Cash
Fund.......................... 8,319,911 8,319,911
Temporary Investment Fund....... 8,319,911 8,319,911
--------------
(Cost $16,639,822).............. 16,639,822
--------------
NUMBER
OF
CONTRACTS
----------
OPTIONS -- 0.5%
CALL OPTIONS
2 Year U.S. Treasury Notes,
Strike Price 97-4.50,
Expires 01/20/99............. 4,000 1,592,400
2 Year U.S. Treasury Notes,
Strike Price 99-30.75,
Expires 02/19/99............. 4,000 454,800
3 Year U.S. Treasury Notes,
Strike Price 97-18,
Expires 01/15/99............. 3,000 1,195,800
5 Year U.S. Treasury Notes,
Strike Price 99-9.25,
Expires 08/20/99............. 4,000 1,468,400
--------------
4,711,400
--------------
PUT OPTIONS
5 Year U.S. Treasury Note
Futures, Strike Price 107,
Expires 02/20/99............. 4,000 6,250
5 Year U.S. Treasury Notes,
Strike Price 90-00,
Expires 08/20/99............. 8,000 3,200
--------------
9,450
TOTAL OPTIONS (Cost $3,381,054)..... 4,720,850
--------------
TOTAL INVESTMENTS -- 121.1% (Cost
$1,081,478,773)................... 1,085,608,870
--------------
</TABLE>
<PAGE>
PIMCO TOTAL RETURN BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
CONTRACTS VALUE
--------- -----
<S> <C> <C>
WRITTEN OPTIONS -- (0.2%)
CALL OPTIONS
2 Year U.S. Treasury Notes,
Strike Price 100-16.25,
Expires 02/19/99............. 4,000 $ (267,600)
5 Year U.S. Treasury Notes,
Strike Price 101-8,
Expires 08/20/99............. 4,000 (966,800)
30 Year U.S. Treasury Bond
Futures,
Strike Price 138,
Expires 02/20/99............. 1,110 (10,406)
--------------
(1,244,806)
--------------
PUT OPTIONS
2 Year U.S. Treasury Notes,
Strike Price 99-19.75,
Expires 02/19/99............. 8,000 (6,400)
5 Year U.S. Treasury Notes,
Strike Price 97-31,
Expires 08/20/99............. 8,000 (344,000)
30 Year U.S. Treasury Bond
Futures,
Strike Price 120,
Expires 02/20/99............. 530 (9,109)
30 Year U.S. Treasury Bond
Futures,
Strike Price 122,
Expires 02/20/99............. 590 (18,438)
--------------
(377,947)
--------------
TOTAL WRITTEN OPTIONS (Cost
($638,678))....................... (1,622,753)
--------------
PAR
(000)
----------
SALE COMMITMENTS -- (2.2%)
Federal National Mortgage Assoc.
01/14/29 [TBA]
(Cost ($20,134,375))............ $ 20,000 (20,106,250)
--------------
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (18.7%)................. (167,383,099)
--------------
NET ASSETS -- 100.0%................ $ 896,496,768
==============
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1998:
<TABLE>
<CAPTION>
IN
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE DELIVER FOR AT VALUE DEPRECIATION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
02/99 Sell CAD 5,236,000 $3,397,794 $3,409,720 $11,926
========== ========== =======
# Securities with an aggregate market value of $6,533,558 have been segregated
with the custodian to cover margin requirements for the following open futures
contracts at December 31, 1998:
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL UNREALIZED
EXPIRATION AMOUNT APPRECIATION
DESCRIPTION MONTH (000) (DEPRECIATION)
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury 30 Year
Bond.................. 03/99 $ 200 $ (5,031)
U.S. Treasury 10 Year
Note.................. 03/99 114,900 (1,336,938)
Eurodollar.............. 12/99 ECU 172,000 (113,163)
Eurodollar.............. 03/00 ECU 172,000 (50,900)
Eurodollar.............. 06/00 ECU 172,000 (23,788)
Eurodollar.............. 09/00 ECU 191,000 35,975
Eurodollar.............. 12/00 ECU 19,000 28,025
Eurodollar.............. 03/01 ECU 19,000 30,638
Eurodollar.............. 06/01 ECU 19,000 30,163
Eurodollar.............. 09/01 ECU 146,000 179,450
-----------
$(1,225,569)
===========
</TABLE>
Interest rate swap agreements outstanding at December 31, 1998:
<TABLE>
<CAPTION>
NOTIONAL UNREALIZED
EXPIRATION AMOUNT APPRECIATION
DESCRIPTION MONTH (000) (DEPRECIATION)
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Receive variable rate
payments on the six
month LIBOR-BBA floating
rate and pay fixed rate
payments on the then
current Japanese 10 Year
Government Bonds with a
spread of:
2.295................. 04/08 JPY 580,000 $ 1,651
2.305................. 04/08 JPY 377,000 (1,685)
-------
$ (34)
=======
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
144A -- Security was purchased pursuant to rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 6.6% of net assets.
See Notes to Financial Statements.
<PAGE>
INVESCO EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 73.2%
AEROSPACE -- 2.1%
AlliedSignal, Inc. ................ 211,700 $ 9,380,956
General Dynamics Corp. ............ 62,500 3,664,062
Northrop Grumman Corp. ............ 55,000 4,021,875
------------
17,066,893
------------
AUTOMOBILE MANUFACTURERS -- 0.7%
Ford Motor Co. .................... 100,000 5,868,750
------------
BEVERAGES -- 2.9%
Anheuser-Busch Companies, Inc. .... 240,000 15,750,000
Coors, (Adolph) Co. Cl-B .......... 150,000 8,465,625
------------
24,215,625
------------
CHEMICALS -- 0.7%
Agrium, Inc. ...................... 250,000 2,171,875
Lawter International, Inc. ........ 100,000 1,162,500
Olin Corp. ........................ 80,000 2,265,000
------------
5,599,375
------------
COMPUTER HARDWARE -- 3.6%
Compaq Computer Corp. ............. 200,000 8,387,500
EMC Corp.*......................... 60,000 5,100,000
International Business Machines
Corp. ........................... 90,000 16,627,500
------------
30,115,000
------------
COMPUTER SERVICES & SOFTWARE -- 2.5%
Edwards, (J.D.) & Co.*............. 250,000 7,093,750
Microsoft Corp.*................... 100,000 13,868,750
------------
20,962,500
------------
CONGLOMERATES -- 1.5%
Philip Morris Companies, Inc. ..... 100,000 5,350,000
Textron, Inc. ..................... 98,900 7,510,219
------------
12,860,219
------------
CONSUMER PRODUCTS & SERVICES -- 2.1%
Colgate-Palmolive Co. ............. 100,000 9,287,500
Gillette Co. ...................... 168,000 8,116,500
------------
17,404,000
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 8.2%
Altera Corp.*...................... 156,700 9,539,112
Applied Materials, Inc.*........... 295,000 12,592,812
Emerson Electric Co. .............. 120,000 7,507,500
General Electric Co. .............. 150,000 15,309,375
Tandy Corp. ....................... 238,100 9,806,744
Texas Instruments, Inc. ........... 157,000 13,433,312
------------
68,188,855
------------
FINANCIAL-BANK & TRUST -- 7.8%
Bank of New York Co., Inc. ........ 400,000 16,100,000
Charter One Financial, Inc. ....... 315,000 8,741,250
Chase Manhattan Corp. ............. 135,000 9,188,438
Fleet Financial Group, Inc. ....... 220,000 9,831,250
Mellon Bank Corp. ................. 140,000 9,625,000
Summit Bancorp..................... 260,000 11,358,750
------------
64,844,688
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FOOD -- 3.8%
General Mills, Inc. ............... 140,000 $ 10,885,000
Heinz, (H.J.) Co. ................. 110,000 6,228,750
Kellogg Co. ....................... 140,000 4,777,500
Quaker Oats Co. ................... 160,000 9,520,000
------------
31,411,250
------------
HOTELS & MOTELS -- 0.7%
Hilton Hotels Corp. ............... 320,000 6,120,000
------------
INSURANCE -- 4.1%
Allmerica Financial Corp. ......... 176,363 10,207,009
CIGNA Corp. ....................... 110,700 8,558,494
Ohio Casualty Corp. ............... 150,000 6,168,750
Travelers Property Casualty Corp.
Cl-A............................. 290,000 8,990,000
------------
33,924,253
------------
MACHINERY & EQUIPMENT -- 0.5%
Sundstrand Corp. .................. 80,000 4,150,000
------------
MEDICAL SUPPLIES & EQUIPMENT -- 1.8%
Arterial Vascular Engineering,
Inc.*............................ 80,000 4,200,000
Becton Dickinson & Co. ............ 150,000 6,403,125
Medtronic, Inc. ................... 55,000 4,083,750
------------
14,686,875
------------
METALS & MINING -- 0.2%
Newmont Mining Corp. .............. 100,994 1,824,204
------------
OIL & GAS -- 6.1%
Apache Corp. ...................... 200,000 5,062,500
Atlantic Richfield Co. ............ 80,000 5,220,000
Chevron Corp. ..................... 70,000 5,805,625
Conoco, Inc. Cl-A*................. 300,000 6,262,500
Exxon Corp. ....................... 100,000 7,312,500
Halliburton Co. ................... 241,000 7,139,625
Royal Dutch Petroleum Co. ......... 60,000 2,872,500
Union Pacific Resources Group,
Inc. ............................ 121,173 1,098,130
Unocal Corp. ...................... 205,000 5,983,438
USX-Marathon Group................. 120,000 3,615,000
------------
50,371,818
------------
PAPER & FOREST PRODUCTS -- 0.7%
Fort James Corp. .................. 150,000 6,000,000
------------
PERSONAL SERVICES -- 0.5%
Galileo International, Inc. ....... 99,000 4,306,500
------------
PHARMACEUTICALS -- 6.9%
American Home Products Corp. ...... 76,000 4,279,750
Bristol-Meyers Squibb Co. ......... 90,000 12,043,125
Lilly, (Eli) & Co. ................ 120,000 10,665,000
Merck & Co., Inc. ................. 100,000 14,768,750
Pfizer, Inc. ...................... 30,000 3,763,125
SmithKline Beecham PLC [ADR]....... 70,000 4,865,000
Warner-Lambert Co. ................ 90,000 6,766,875
------------
57,151,625
------------
</TABLE>
<PAGE>
INVESCO EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
RAILROADS -- 2.3%
Kansas City Southern Industries,
Inc. ............................ 296,000 $ 14,559,500
Norfolk Southern Corp. ............ 150,000 4,753,125
------------
19,312,625
------------
RETAIL & MERCHANDISING -- 2.6%
CVS Corp. ......................... 112,100 6,165,500
Dayton-Hudson Corp. ............... 230,600 12,510,050
Penney, (J.C.) Co., Inc. .......... 70,000 3,281,250
------------
21,956,800
------------
SEMICONDUCTORS -- 2.7%
Intel Corp. ....................... 83,500 9,899,969
Motorola, Inc. .................... 200,000 12,212,500
------------
22,112,469
------------
TELECOMMUNICATIONS -- 7.9%
Ameritech Corp. ................... 100,000 6,337,500
Bell Atlantic Corp. ............... 200,000 11,362,500
BellSouth Corp. ................... 120,000 5,985,000
GTE Corp. ......................... 100,000 6,743,750
MediaOne Group, Inc.*.............. 150,000 7,050,000
SBC Communications, Inc. .......... 180,000 9,652,500
Sprint Corp. (FON Group)........... 62,700 5,274,638
Sprint Corp. (PCS Group)*.......... 31,350 724,969
U. S. West, Inc. .................. 190,000 12,278,750
------------
65,409,607
------------
UTILITIES -- 0.3%
Interstate Energy Corp. ........... 88,400 2,850,900
------------
TOTAL COMMON STOCK
(Cost $462,573,794).................. 608,714,831
------------
PREFERRED STOCK -- 0.3%
METALS & MINING -- 0.1%
Kinam Gold, Inc. $3.75 CL-B........ 20,000 720,000
TELECOMMUNICATIONS -- 0.2%
Global Crossing Holdings* 144A..... 16,500 1,617,000
------------
TOTAL PREFERRED STOCK
(Cost $2,613,575).................... 2,337,000
------------
PAR
(000)
-----
CORPORATE OBLIGATIONS -- 18.9%
BROADCASTING -- 0.8%
American Radio Systems Co. Co.
Guarantee Notes
9.00%, 02/01/06.................. $ 130 140,725
CBS, Inc. Debs.
8.875%, 06/01/22................. 2,000 2,275,000
Continental Cablevision, Inc. Sr.
Debs.
9.50%, 08/01/13.................. 2,000 2,362,500
Heritage Media Corp. Sr. Sub. Notes
8.75%, 02/15/06.................. 1,500 1,616,250
------------
6,394,475
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
BUILDING MATERIALS -- 0.4%
USG Corp. Sr. Notes
8.50%, 08/01/05.................. $ 3,500 $ 3,705,625
------------
CONSUMER PRODUCTS & SERVICES -- 0.2%
Loewen Group, Inc. Co. Guarantee
Notes
8.25%, 10/15/03.................. 1,750 1,505,000
------------
ENTERTAINMENT & LEISURE -- 0.3%
GCI, Inc. Sr. Notes
9.75%, 08/01/07.................. 1,000 985,000
Grand Casinos, Inc. First Mtge.
10.125%, 12/01/03................ 1,500 1,635,000
------------
2,620,000
------------
FINANCIAL SERVICES -- 1.7%
Aetna Services, Inc. Co. Guarantee
Notes
6.97%, 08/15/36.................. 1,000 1,056,250
Associates Corp. of North America
Sr. Medium Term Notes Cl-E
7.375%, 06/11/07................. 2,400 2,599,500
DQU II Funding Corp. Debs.
8.70%, 06/01/16.................. 1,989 2,207,790
Equitable Companies, Inc. Sr. Notes
9.00%, 12/15/04.................. 4,035 4,700,775
Lehman Brothers Holdings, Inc. Sr.
Notes
8.80%, 03/01/15.................. 1,850 2,039,625
SunAmerica, Inc. Debs.
8.125%, 04/28/23................. 1,500 1,670,625
------------
14,274,565
------------
HEALTHCARE SERVICES -- 0.1%
FHP International Corp. Sr. Notes
7.00%, 09/15/03.................. 1,000 1,048,750
------------
HOTELS & MOTELS -- 0.2%
Hilton Hotels Corp. Sr. Notes
7.20%, 12/15/09.................. 2,000 1,995,000
------------
INDUSTRIAL PRODUCTS -- 0.2%
Worldwide Fiber, Inc. Sr. Notes
144A
12.50%, 12/15/05................. 1,500 1,503,750
------------
MACHINERY & EQUIPMENT -- 0.1%
Agco Corp. Sr. Sub. Notes
8.50%, 03/15/06.................. 1,000 960,000
------------
MEDICAL SUPPLIES & EQUIPMENT -- 0.1%
U.S. Surgical Corp. Sr. Notes
7.25%, 03/15/08.................. 1,000 1,096,250
------------
</TABLE>
<PAGE>
INVESCO EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
METALS & MINING -- 0.8%
Glencore Nickel Property Ltd. Co.
Co. Guarantee Notes
9.00%, 12/01/14.................. $ 2,000 $ 1,630,000
Haynes International, Inc. Sr.
Notes
11.625%, 09/01/04................ 1,500 1,398,750
Inland Steel Co. First Mtge. Cl-R
7.90%, 01/15/07.................. 2,000 2,017,500
National Steel Corp. First Mtge.
8.375%, 08/01/06................. 1,500 1,430,625
------------
6,476,875
------------
OIL & GAS -- 3.3%
Atlantic Richfield Co. Debs.
10.875%, 07/15/05................ 3,000 3,885,000
9.875%, 03/01/16................. 1,505 2,067,494
Belco Oil & Gas Corp. Sr. Sub.
Notes Cl-B
8.875%, 09/15/07................. 1,500 1,372,500
Canadian Forest Oil Ltd. Co.
Guarantee Notes
8.75%, 09/15/07.................. 1,500 1,357,500
Cliffs Drilling Co. Co. Guarantee
Notes Cl-B
10.25%, 05/15/03................. 1,900 2,002,125
Deeptech International, Inc. Sr.
Notes
12.00%, 12/15/00................. 1,550 1,685,625
Gulf Canada Resources Ltd. Sr.
Notes
8.35%, 08/01/06.................. 1,000 997,500
8.25%, 03/15/17.................. 1,000 931,250
Navigator Gas Transport Notes 144A
10.50%, 06/30/07................. 1,000 885,000
Noram Energy Corp. Sub. Debs. [CVT]
6.00%, 03/15/12.................. 1,929 1,854,251
Northern Offshore ASA Co. Guarantee
Notes 144A
10.00%, 05/15/05................. 1,000 500,000
Ocean Energy, Inc. Co. Guarantee
Notes Cl-B
8.875%, 07/15/07................. 2,000 1,985,000
Ocean Energy, Inc. Sr. Sub. Notes
10.375%, 10/15/05................ 1,025 1,086,500
Pacific Gas & Electric Co. First
Mtge.
7.25%, 08/01/26.................. 4,000 4,260,000
Sun Co., Inc. Debs.
9.375%, 06/01/16................. 1,000 1,213,750
Veritas Holdings Sr. Notes
9.625%, 12/15/03................. 1,300 1,300,000
------------
27,383,495
------------
PAPER & FOREST PRODUCTS -- 0.3%
Quno Corp. Sr. Notes
9.125%, 05/15/05................. 2,150 2,311,250
------------
PRINTING & PUBLISHING -- 0.3%
Affiliated Newspaper Investments,
Inc. Sr. Disc. Notes [STEP]
11.305%, 07/01/06................ 2,500 2,409,375
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
RETAIL & MERCHANDISING -- 0.3%
Dayton-Hudson Corp. Notes
5.875%, 11/01/08................. $ 2,400 $ 2,430,000
------------
TELECOMMUNICATIONS -- 5.2%
360 Communications Co. Notes
6.65%, 01/15/08.................. 2,000 2,117,500
Cencall Communications Corp. Sr.
Disc. Notes [STEP]
10.626%, 01/15/04................ 2,000 2,000,000
Centel Capital Corp. Debs.
9.00%, 10/15/19.................. 2,500 3,175,000
CF Cable TV, Inc. Sr. Notes
11.625%, 02/15/05................ 2,000 2,207,500
Echostar Communications Corp. Sr.
Disc. Notes [STEP]
10.889%, 06/01/04................ 1,400 1,440,250
Intermedia Communications, Inc. Sr.
Notes Cl-B
8.50%, 01/15/08.................. 1,000 960,000
International CableTel, Inc. Sr.
Notes Cl-A [STEP]
11.356%, 04/15/05................ 3,000 2,692,500
JCAC, Inc. Sr. Sub. Notes
10.125%, 06/15/06................ 1,000 1,093,750
Level 3 Communications, Inc. Sr.
Disc. Notes [STEP] 144A
10.50%, 12/01/08................. 3,000 1,755,000
Level 3 Communications, Inc. Sr.
Notes
9.125%, 05/01/08................. 1,500 1,492,500
McLeodUSA, Inc. Sr. Notes 144A
9.50%, 11/01/08.................. 1,000 1,057,500
MetroNet Communications Corp. Sr.
Disc. Notes [STEP]
10.75%, 11/01/07................. 1,750 1,067,500
MetroNet Communications Corp. Sr.
Notes
12.00%, 08/15/07................. 1,500 1,672,500
Nextlink Communications, Inc. Sr.
Notes
9.625%, 10/01/07................. 2,000 1,935,000
NTL, Inc. Sr. Notes [STEP] 144A
12.375%, 10/01/08................ 2,000 1,265,000
Qwest Communications International,
Inc. Sr. Notes 144A
7.25%, 11/01/08.................. 2,000 2,050,000
RCN Corp. Sr. Disc. Notes [STEP]
18.217%, 02/15/08................ 3,000 1,620,000
RSL Communications PLC Co.
Guarantee Notes [STEP]
10.125%, 03/01/08................ 1,000 567,500
RSL Communications PLC Sr. Notes
9.125%, 03/01/08................. 1,000 937,500
Southwestern Bell Telephone Debs.
5.375%, 06/01/06................. 4,000 3,980,000
Sprint Capital Corp. Co. Guarantee
Notes
6.125%, 11/15/08................. 3,000 3,071,250
</TABLE>
<PAGE>
INVESCO EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Sprint Spectrum L.P. Sr. Notes
11.00%, 08/15/06................. $ 950 $ 1,102,000
Tele-Communications, Inc. Debs.
9.80%, 02/01/12.................. 2,000 2,670,000
Teligent, Inc. Sr. Disc. Notes Cl-B
[STEP]
11.50%, 03/01/08................. 2,000 980,000
------------
42,909,750
------------
UTILITIES -- 4.6%
Boston Edison Co. Debs.
7.80%, 05/15/10.................. 1,254 1,446,084
7.80%, 03/15/23.................. 1,640 1,746,600
Carolina Power & Light First Mtge.
8.625%, 09/15/21................. 1,000 1,278,780
Citizens Utilities Co. Debs.
7.00%, 11/01/25.................. 2,500 2,631,250
Cleveland Electric Illuminating Co.
First Mtge. Cl-B
9.50%, 05/15/05.................. 3,000 3,311,250
Coda Energy, Inc. Co. Guarantee
Notes Cl-B
10.50%, 04/01/06................. 1,000 985,000
Commonwealth Edison First Mtge.
8.25%, 10/01/06.................. 2,000 2,287,500
Connecticut Light & Power Co. First
Mtge. Cl-D
7.875%, 10/01/24................. 1,000 1,056,250
Consumers Energy Co. First Mtge.
7.375%, 09/15/23................. 2,500 2,528,125
Detroit Edison Medium Term Notes
8.30%, 08/01/22.................. 1,000 1,083,750
El Paso Electric Co. First Mtge.
Cl-C
8.25%, 02/01/03.................. 1,500 1,616,250
Gulf States Utilities First Mtge.
8.70%, 04/01/24.................. 1,000 1,066,250
Illinois Power Co. Mtge.
7.50%, 07/12/25.................. 1,900 2,006,875
Jersey Central Power & Light Co.
First Mtge.
7.50%, 05/01/23.................. 1,500 1,573,125
Metropolitan Edison Co. First Mtge.
Medium Term Notes Cl-B
8.15%, 01/30/23.................. 2,975 3,249,179
New York State Electric & Gas Corp.
First Mtge.
8.30%, 12/15/22.................. 1,400 1,501,500
8.30%, 12/15/22.................. 475 512,406
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
Niagara Mohawk Power First Mtge.
9.75%, 11/01/05.................. $ 1,000 $ 1,188,750
PECO Energy First Mtge.
7.25%, 11/01/24.................. 2,000 2,052,500
Penn Power and Light First Mtge.
7.875%, 02/01/23................. 1,000 1,091,250
South Carolina Electric & Gas Co.
Mtge.
8.875%, 08/15/21................. 2,000 2,207,500
Western Massachusetts Electric Co.
First Mtge. Cl-V
7.75%, 12/01/02.................. 2,000 2,017,750
------------
38,437,924
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $158,972,179).................. 157,462,084
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 1.4%
Federal Home Loan Mtge. Corp.
6.50%, 09/01/11-01/01/12
(Cost $10,988,111)................. 11,235 11,410,656
------------
U.S. TREASURY OBLIGATIONS -- 1.1%
U.S. Treasury Notes
6.125%, 08/15/07................. 4,000 4,378,960
5.625%, 05/15/08................. 4,250 4,538,080
------------
(Cost $8,609,129).................. 8,917,040
------------
COMMERCIAL PAPER -- 3.2%
American Express Co.
5.756%, 01/04/99
(Cost $26,775,000)................. 26,775 26,775,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 1.7%
Temporary Investment Cash Fund.....7,132,946 7,132,946
Temporary Investment Fund..........7,132,945 7,132,945
------------
(Cost $14,265,891)................. 14,265,891
------------
TOTAL INVESTMENTS -- 99.8%
(Cost $684,797,679).................. 829,882,502
OTHER ASSETS LESS
LIABILITIES -- 0.2%.................. 1,599,478
------------
NET ASSETS -- 100.0%................... $831,481,980
============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 1.3% of net assets.
See Notes to Financial Statements.
<PAGE>
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 82.5%
AEROSPACE -- 0.5%
REMEC, Inc.*..................... 75,400 $ 1,357,200
------------
BUSINESS SERVICES -- 3.4%
Lason, Inc.*..................... 24,575 1,429,958
Metzler Group, Inc.*............. 43,762 2,130,662
PAREXEL International Corp.*..... 62,025 1,550,625
Pegasus Systems, Inc.*........... 45,175 1,626,300
Personnel Group of America,
Inc.*.......................... 108,300 1,895,250
ProBusiness Services, Inc.*...... 22,950 1,044,225
------------
9,677,020
------------
CLOTHING & APPAREL -- 2.2%
Burlington Coat Factory Warehouse
Corp. ......................... 83,275 1,358,423
The Men's Warehouse, Inc.*....... 37,860 1,202,055
The Warnaco Group, Inc. Cl-A..... 46,775 1,181,069
The Wet Seal, Inc. Cl-A*......... 89,000 2,686,687
------------
6,428,234
------------
COMPUTER HARDWARE -- 2.0%
Insight Enterprises, Inc.*....... 110,605 5,627,029
------------
COMPUTER SERVICES & SOFTWARE -- 19.8%
Avant! Corp.*.................... 45,975 735,600
BindView Development Corp.*...... 45,775 1,258,812
Brooktrout Technology, Inc.*..... 38,975 667,447
CDW Computer Centers, Inc.*...... 58,700 5,631,531
CheckFree Holdings Corp.*........ 143,075 3,344,378
Check Point Software Technologies
Ltd.*.......................... 41,375 1,895,492
Computron Software, Inc.*........ 7,905 7,411
Documentum, Inc.*................ 45,525 2,432,742
Electronic Arts, Inc.*........... 33,875 1,901,234
HNC Software, Inc.*.............. 131,075 5,300,345
IMRglobal Corp.*................. 55,400 1,630,837
Macromedia, Inc.*................ 96,675 3,256,739
Mastech Corp.*................... 100,475 2,876,097
Microchip Technology, Inc.*...... 34,250 1,267,250
MMC Networks, Inc.*.............. 86,225 1,142,481
Sapient Corp.*................... 39,150 2,192,400
SIPEX Corp.*..................... 81,325 2,856,541
Software AG Systems, Inc.*....... 160,200 2,903,625
Sykes Enterprises, Inc.*......... 131,800 4,019,900
Transaction Systems Architects,
Inc.*.......................... 38,225 1,911,250
USWeb Corp.*..................... 198,900 5,245,987
VERITAS Software Corp.*.......... 44,350 2,658,228
Wind River Systems, Inc.*........ 31,000 1,457,000
------------
56,593,327
------------
CONSTRUCTION -- 0.9%
Dycom Industries, Inc.*.......... 46,850 2,676,306
------------
CONSUMER PRODUCTS & SERVICES -- 2.7%
Action Performance Companies,
Inc.*.......................... 62,825 2,222,434
Helen of Troy Ltd.*.............. 237,800 3,492,687
Pre-Paid Legal Services, Inc.*... 58,575 1,932,975
------------
7,648,096
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
ELECTRONIC COMPONENTS & EQUIPMENT -- 6.6%
Applied Micro Circuits Corp.*.... 59,550 $ 2,022,839
Brooks Automation, Inc.*......... 147,325 2,154,628
Concord EFS, Inc.*............... 105,175 4,456,791
Sanmina Corp.*................... 43,450 2,715,625
Sawtek, Inc.*.................... 144,175 2,523,063
SDL, Inc.*....................... 45,525 1,803,928
Uniphase Corp.*.................. 28,625 1,985,859
Veeco Instruments, Inc.*......... 22,725 1,207,266
------------
18,869,999
------------
ENTERTAINMENT & LEISURE -- 4.0%
Family Golf Centers, Inc.*....... 83,600 1,651,100
Global Vacation Group, Inc.*..... 87,050 750,806
Loews Cineplex Entertainment
Corp.*......................... 236,400 2,393,550
Premier Parks, Inc.*............. 111,475 3,372,119
Silverleaf Resorts, Inc.*........ 132,025 1,229,483
Travel Services International,
Inc.*.......................... 63,650 1,941,325
------------
11,338,383
------------
ENVIRONMENTAL SERVICES -- 2.4%
Allied Waste Industries, Inc.*... 81,427 1,923,713
Eastern Environmental Services,
Inc.*.......................... 28,850 854,681
KTI, Inc.*....................... 42,050 909,331
Safety-Kleen Corp................ 126,000 1,779,750
Superior Services, Inc.*......... 75,000 1,504,688
------------
6,972,163
------------
EQUIPMENT SERVICES -- 2.7%
Gemstar International Group
Ltd.*.......................... 92,425 5,291,331
Rental Service Corp.*............ 74,375 1,166,758
United Rentals, Inc.*............ 34,250 1,134,531
------------
7,592,620
------------
FOOD -- 1.3%
American Italian Pasta Co.
Cl-A*.......................... 31,900 841,363
U.S. Foodservice, Inc.*.......... 57,350 2,810,150
------------
3,651,513
------------
HEALTHCARE SERVICES -- 6.8%
Capital Senior Living Corp.*..... 137,450 1,915,709
Cerner Corp.*.................... 74,400 1,990,200
Concentra Managed Care, Inc.*.... 149,925 1,602,323
Envoy Corp.*..................... 15,250 888,313
HBO & Co. ....................... 129,335 3,710,298
IDEXX Laboratories, Inc.*........ 29,850 803,152
Medical Manager Corp.*........... 59,975 1,881,716
NCS Healthcare, Inc. Cl-A*....... 53,000 1,258,750
</TABLE>
<PAGE>
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Orthodontic Centers of America,
Inc.*.......................... 145,150 $ 2,821,353
Sunrise Assisted Living, Inc.*... 49,100 2,547,063
------------
19,418,877
------------
INSURANCE -- 1.6%
Annuity and Life Re Holdings
Ltd. .......................... 121,500 3,280,500
HCC Insurance Holdings, Inc. .... 75,050 1,322,756
------------
4,603,256
------------
MACHINERY & EQUIPMENT -- 1.2%
Advanced Energy Industries,
Inc.*.......................... 69,275 1,731,875
National Equipment Services,
Inc.*.......................... 152,075 1,748,863
------------
3,480,738
------------
MEDICAL SUPPLIES & EQUIPMENT -- 0.4%
Perclose, Inc.*.................. 37,125 1,229,766
------------
METALS & MINING -- 0.3%
IMCO Recycling, Inc. ............ 55,350 854,466
------------
OFFICE EQUIPMENT -- 2.0%
Global Imaging Systems, Inc.*.... 234,800 5,693,900
------------
OIL & GAS -- 0.3%
Cal Dive International, Inc.*.... 40,900 848,675
------------
PERSONAL SERVICES -- 0.4%
Sylvan Learning Systems, Inc.*... 33,900 1,033,950
------------
PHARMACEUTICALS -- 8.9%
Andrx Corp.*..................... 86,300 4,422,875
Cardinal Health, Inc. ........... 14,284 1,083,799
Jones Medical Industries,
Inc. .......................... 86,750 3,166,375
Kendle International, Inc.*...... 40,825 954,284
King Pharmaceuticals, Inc.*...... 260,900 6,816,013
Medicis Pharmaceutical Corp.
Cl-A*.......................... 53,275 3,176,522
Watson Pharmaceuticals, Inc.*.... 91,625 5,760,922
------------
25,380,790
------------
PRINTING & PUBLISHING -- 0.8%
American Bank Note Holographics,
Inc.*.......................... 139,150 2,435,125
------------
REAL ESTATE -- 0.6%
Fairfield Communities, Inc.*..... 146,174 1,617,050
------------
RESTAURANTS -- 1.6%
CKE Restaurants, Inc. ........... 154,000 4,533,375
------------
RETAIL & MERCHANDISING -- 4.8%
American Eagle Outfitters,
Inc.*.......................... 54,600 3,637,725
Cash America International,
Inc. .......................... 80,400 1,221,075
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Elder-Beerman Stores Corp.*...... 62,000 $ 716,875
Linens 'n Things, Inc.*.......... 49,700 1,969,363
Pacific Sunwear of California,
Inc.*.......................... 93,550 1,531,881
Saks, Inc.*...................... 29,125 919,258
The Sports Authority, Inc.*...... 176,500 926,625
Trans World Entertainment
Corp.*......................... 150,737 2,873,424
------------
13,796,226
------------
SEMICONDUCTORS -- 0.6%
Vitesse Semiconductor, Inc.*..... 34,799 1,587,704
------------
TELECOMMUNICATIONS -- 3.7%
Allegiance Telecom, Inc.*........ 148,125 1,796,016
Digital Microwave Corp.*......... 287,825 1,969,802
Terayon Communication Systems,
Inc.*.......................... 61,100 2,260,700
Viatel, Inc.*.................... 206,650 4,727,119
------------
10,753,637
------------
TOTAL COMMON STOCK
(Cost $171,823,331)................ 235,699,425
------------
FOREIGN STOCK -- 1.0%
BUILDING MATERIALS -- 0.2%
Hunter Douglas NV -- (NLG) ...... 16,012 530,699
------------
MACHINERY & EQUIPMENT -- 0.6%
IHC Caland NV -- (NLG) .......... 39,525 1,642,777
------------
RESTAURANTS -- 0.2%
Wetherspoon, (J.D.)
PLC -- (GBP)................... 260,165 759,679
------------
TOTAL FOREIGN STOCK
(Cost $2,581,316).................. 2,933,155
------------
SHORT-TERM INVESTMENTS -- 9.7%
Temporary Investment Cash Fund... 13,881,957 13,881,957
Temporary Investment Fund........ 13,881,957 13,881,957
------------
(Cost $27,763,914)............... 27,763,914
------------
TOTAL INVESTMENTS -- 93.2%
(Cost $202,168,561)................ 266,396,494
------------
OTHER ASSETS LESS
LIABILITIES -- 6.8%................ 19,450,387
------------
NET ASSETS -- 100.0%................. $285,846,881
============
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stock.
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FOREIGN STOCK -- 95.2%
ARGENTINA -- 0.6%
Banco de Galicia y Buenos Aires
SA de CV [ADR] ................ 18,273 $ 322,057
Banco Frances SA [ADR] .......... 16,411 340,528
Telefonica de Argentina SA Cl-B
[ADR].......................... 26,200 731,962
YPF SA [ADR]..................... 56,307 1,573,077
------------
2,967,624
------------
AUSTRALIA -- 2.2%
Australian Gas Light Co. Ltd. ... 90,795 654,582
Brambles Industries Ltd. ........ 33,000 804,577
Colonial Ltd. ................... 267,618 919,221
Commonwealth Bank of Australia... 80,459 1,143,104
Goodman Fielder Ltd. ............ 435,000 440,240
John Fairfax Holdings Ltd. ...... 43,000 88,355
Lend Lease Corp. Ltd. ........... 40,700 549,204
National Australia Bank Ltd. .... 820 12,373
News Corp. Ltd. ................. 133,593 883,322
News Corp. Ltd. Pfd. ............ 116,650 710,478
Publishing & Broadcasting
Ltd. .......................... 139,300 609,196
Star City Holdings Ltd.*......... 419,000 370,849
TABCORP Holdings Ltd. ........... 99,000 607,228
Telstra Corp. Ltd. .............. 306,838 1,435,986
Westpac Banking Corp. Ltd. ...... 180,148 1,206,615
------------
10,435,330
------------
BELGIUM -- 1.9%
Dexia Belgium (Credit Communal).. 3,940 659,481
Fortis AG........................ 7,146 2,589,828
KBC Bancassurance Holdings NV.... 61,000 4,829,890
Societe Europeene des Satellites
[FDR]*......................... 2,600 426,109
UCB SA........................... 101 623,298
------------
9,128,606
------------
BRAZIL -- 1.7%
Banco Bradesco SA................ 62,664,000 347,499
Banco Bradesco SA Rights*........ 2,597,369 0
Banco Itau SA.................... 710,000 346,714
Companhia Brasileira de
Distribuicoa Grupo Pao de
Acucar [ADR]................... 16,260 252,030
Companhia Brasileira de
Distribuicoa Grupo Pao de
Acucar [GDR]................... 5,160 79,980
Companhia Cervejaria Brahma...... 834,000 358,940
Companhia Cimento Portland
Itau........................... 865,000 103,811
Companhia Energetica de Minas
Geras.......................... 14,496,779 267,570
Companhia Energetica de Minas
Geras [ADR].................... 16,971 323,070
Petroleo Brasileiro SA........... 7,401,508 820,892
Telecomunicacoes Brasileiras SA
Pfd. [ADR]..................... 52,250 3,797,922
Telecomunicacoes de Sao Paulo
SA............................. 4,705,207 634,786
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Telesp Celular SA Pfd. Cl-B*..... 4,494,000 $ 197,138
Uniao de Bancos Brasileiros SA
[GDR].......................... 18,000 259,875
------------
7,790,227
------------
CANADA -- 0.2%
Alcan Aluminium Ltd. ............ 23,310 623,749
Royal Bank of Canada............. 8,470 420,759
------------
1,044,508
------------
CHILE -- 0.1%
Chilectra SA [ADR] 144A.......... 14,905 330,077
Compania Cervecerias Unidas SA
[ADR].......................... 7,712 148,456
------------
478,533
------------
CHINA -- 0.2%
Huaneng Power International, Inc.
[ADR]*......................... 51,000 739,500
------------
CZECH REPUBLIC -- 0.0%
SPT Telecom AS................... 13,600 207,418
------------
DENMARK -- 0.4%
Den Danske Bank.................. 6,380 857,102
Tele Danmark AS.................. 2,030 273,990
Unidanmark AS Cl-A............... 6,110 552,020
------------
1,683,112
------------
FINLAND -- 0.7%
Nokia Oyj Cl-A................... 26,898 3,293,661
------------
FRANCE -- 10.9%
Alcatel.......................... 15,212 1,862,691
AXA SA........................... 27,342 3,964,730
Carrefour Supermarche SA......... 3,289 2,484,115
Compagnie de Saint-Gobain........ 12,440 1,757,097
Credit Commercial de France...... 17,210 1,598,993
Dexia France..................... 5,200 801,502
Dexia France SA.................. 5,023 774,220
Groupe Danone.................... 6,230 1,784,458
Groupe GTM....................... 3,230 335,374
L'Oreal.......................... 1,607 1,162,239
Lafarge SA....................... 7,843 745,547
Lapeyre SA....................... 8,065 576,070
Legrand SA....................... 3,823 1,013,579
Pathe SA......................... 2,331 650,976
Pinault-Printemps Redoute SA..... 23,955 4,580,003
Sanofi SA........................ 20,507 3,377,445
Schneider SA..................... 43,028 2,611,254
Societe Generale................. 9,236 1,496,342
Societe Nationale Elf Aquitaine
SA............................. 13,350 1,543,875
Societe Television Francaise..... 9,610 1,711,767
Sodexho SA*...................... 18,850 4,218,127
STMicroelectronics NV*........... 13,270 1,045,254
Total SA Cl-B.................... 36,694 3,718,003
Vivendi.......................... 28,820 7,481,011
------------
51,294,672
------------
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
GERMANY -- 7.2%
Allianz AG ...................... 7,230 $ 2,691,412
Bayer AG......................... 39,225 1,647,407
Bayerische Hypo-Und Vereinsbank
AG............................. 48,699 3,853,768
Buderus AG....................... 807 297,988
Deutsche Bank AG................. 34,924 2,060,816
Deutsche Telekom AG.............. 63,641 2,092,046
Dresdner Bank AG................. 49,733 2,084,252
Dresdner Bank AG Warrants*....... 27,736 471,282
Fielmann AG Pfd. ................ 5,723 257,712
Fresenius AG Pfd. ............... 2,660 558,985
Gehe AG.......................... 55,811 3,753,081
Hoechst AG....................... 12,980 536,963
Hornbach Baumarkt AG............. 1,300 46,832
Hornbach Holdings AG Pfd. ....... 5,870 350,680
Mannesmann AG.................... 33,690 3,898,931
Rhoen-Klinikum AG................ 8,250 798,489
SAP AG........................... 5,970 2,580,816
SAP AG Pfd. ..................... 3,367 1,616,262
Siemens AG....................... 15,410 1,013,134
Veba AG.......................... 46,244 2,740,455
Volkswagen AG.................... 9,070 734,087
------------
34,085,398
------------
HONG KONG -- 1.5%
Cheung Kong Holdings Ltd. ....... 43,000 309,442
China Light & Power Co. Ltd. .... 139,000 692,576
China Telecom Ltd. .............. 230,000 397,830
Hang Seng Bank Ltd. ............. 49,000 438,007
Henderson Land Development Co.
Ltd. .......................... 169,000 874,775
Hong Kong Telecommunications
Ltd. .......................... 345,200 603,775
HSBC Holdings PLC................ 28,800 717,489
Hutchison Whampoa Ltd. .......... 358,000 2,530,070
Sun Hung Kai Properties Ltd. .... 41,000 299,018
------------
6,862,982
------------
INDIA -- 0.1%
Mahanagar Telephone Nigam Ltd.
[GDR]*......................... 44,000 536,800
------------
IRELAND -- 0.1%
CBT Group PLC -- Sponsored
[ADR]*......................... 36,650 545,169
------------
ITALY -- 5.6%
Assicurazioni Generali........... 50,960 2,132,486
Banca Commerciale Italia NA...... 104,000 719,028
Banca di Roma*................... 889,000 1,509,619
Ente Nazionale Idrocarburi SPA... 443,100 2,902,239
Industrie Natuzzi SPA [ADR]...... 15,260 379,593
Istituto Nazionale delle
Assicurazioni.................. 610,000 1,614,811
Italgas SPA...................... 112,936 612,661
La Rinascente SPA................ 22,800 234,998
Mediolanum SPA................... 211,720 1,572,916
San Paolo-IMI SPA................ 138,681 2,455,882
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Telecom Italia Mobile SPA........ 544,805 $ 4,030,961
Telecom Italia SPA............... 647,520 5,537,069
Unicredito Italiano SPA.......... 486,996 2,892,927
------------
26,595,190
------------
JAPAN -- 16.0%
Advantest Corp. ................. 7,700 488,774
Alps Electric Co. Ltd. .......... 41,000 754,234
Amada Co. Ltd. .................. 109,000 528,589
Canon, Inc. ..................... 167,000 3,575,506
Citizen Watch Co. Ltd. .......... 68,000 409,941
Dai Nippon Screen Manufacturing
Co. Ltd. ...................... 122,000 305,009
Daiichi Pharmaceutical Co.
Ltd. .......................... 87,000 1,472,411
Daiwa House Industry Co. Ltd. ... 110,000 1,173,174
DDI Corp. ....................... 221 822,897
Denso Corp. ..................... 169,000 3,131,388
East Japan Railway Co. Ltd. ..... 240 1,342,594
Fanuc Co. ....................... 24,800 850,877
Fujitsu Ltd. .................... 42,000 560,389
Hitachi Ltd. .................... 206,000 1,278,407
Honda Motor Co. Ltd. ............ 15,000 493,366
Ito-Yokado Co. Ltd. ............. 37,000 2,591,390
Kao Corp. ....................... 93,000 2,102,457
Kokuyo Co. Ltd. ................. 51,000 687,707
Komatsu Ltd. .................... 116,000 609,841
Komori Corp. .................... 49,000 1,033,896
Kuraray Co. Ltd. ................ 128,000 1,415,078
Kyocera Corp. ................... 44,000 2,328,793
Makita Corp. .................... 73,000 814,803
Matsushita Electric Industrial
Co. ........................... 185,000 3,278,600
Mauri Co. Ltd. .................. 129,000 2,487,442
Mitsubishi Corp. ................ 132,000 760,661
Mitsubishi Heavy Industries
Ltd. .......................... 553,000 2,157,157
Mitsui Fudosan Co. Ltd. ......... 269,000 2,039,024
Murata Manufacturing Co. Ltd. ... 56,000 2,194,392
NEC Corp. ....................... 282,000 2,600,078
Nippon Telegraph & Telephone
Corp. ......................... 2,260 1,747,145
Nomura Securities Co. Ltd. ...... 186,000 1,624,251
NTT Mobile Communication Network,
Inc.*.......................... 350 1,442,863
Pioneer Electronic Corp. ........ 36,000 604,805
Sangetsu Co. Ltd. ............... 11,000 164,810
Sankyo Co. Ltd. ................. 126,000 2,759,125
Sekisui Chemical Co. Ltd. ....... 180,000 1,212,802
Sekisui House Ltd. .............. 107,000 1,133,589
Seven-Eleven Japan Co. Ltd. ..... 16,000 1,290,819
Shin-Etsu Chemical Co. Ltd. ..... 101,000 2,435,534
Shiseido Co. Ltd. ............... 73,000 939,709
Sony Corp. ...................... 45,600 3,327,121
Sumitomo Corp. .................. 223,000 1,087,355
Sumitomo Electric Industries..... 269,000 3,031,111
Sumitomo Forestry Co. ........... 73,000 543,633
TDK Corp. ....................... 41,000 3,754,811
Tokyo Electron Ltd. ............. 24,000 912,793
Tokyo Marine & Fire Insurance
Co. ........................... 60,000 718,107
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Tokyo Steel Manufacturing........ 56,500 $ 283,510
Toppan Printing Co. Ltd.......... 99,000 1,211,207
UNY Co. Ltd. .................... 57,000 1,043,515
------------
75,557,490
------------
KOREA -- 0.2%
Samsung Electronics Co. ......... 14,299 959,637
------------
MEXICO -- 1.4%
Cemex SA de CV*.................. 2,037 4,470
Cemex SA de CV [ADR]............. 76,090 332,361
Cemex SA de CV [ADS] 144A*....... 50,068 218,697
Cemex SA de CV Cl-B.............. 67,925 168,272
Fomento Economico Mexicano SA de
CV UBD Units*.................. 192,820 514,722
Gruma SA [ADR]................... 24,714 245,595
Gruma SA Cl-B*................... 114,732 288,289
Grupo Financiero Bancomer SA Cl-B
[GDR]*......................... 2,330 8,458
Grupo Financiero Bancomer SA
Cl-L*.......................... 1,725 241
Grupo Industrial Maseca SA de CV
Cl-B........................... 306,095 256,892
Grupo Modelo SA de CV Cl-C....... 270,024 561,088
Grupo Televisa SA [GDR]*......... 20,634 509,402
Kimberly-Clark de Mexico SA
Cl-A........................... 166,630 529,053
Panamerican Beverages, Inc.
Cl-A........................... 31,540 687,966
Telefonos de Mexico SA Cl-L
[ADR].......................... 42,014 2,045,557
TV Azteca SA de CV [ADR]*........ 26,200 175,213
------------
6,546,276
------------
NETHERLANDS -- 10.6%
ABN AMRO Holding NV.............. 96,736 2,036,092
AKZO Nobel NV.................... 11,408 519,742
ASM Lithography Holding NV*...... 51,340 1,570,290
CSM NV........................... 36,821 2,126,850
Elsevier NV...................... 236,442 3,313,542
Fortis Amev NV................... 45,812 3,798,402
Gucci Group NV NY Reg............ 13,205 642,093
ING Groep NV..................... 117,972 7,197,746
Koninklijke Ahold NV............. 92,243 3,411,183
Koninklijke Numico NV............ 37,670 1,796,515
Koninklijke (Royal) Philips
Electronics NV................. 33,610 2,256,582
KPN NV........................... 16,029 802,872
Royal Dutch Petroleum Co. ....... 81,474 4,059,221
TNT Post Group NV................ 16,029 516,742
Unilever NV...................... 58,740 5,023,670
Wolters Kluwer NV................ 51,471 11,020,077
------------
50,091,619
------------
NEW ZEALAND -- 0.2%
Telecom Corp. of New Zealand
Ltd. .......................... 161,000 701,657
Telecom Corp. of New Zealand Ltd.
Cl-IR.......................... 101,000 221,419
------------
923,076
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
NORWAY -- 1.1%
Bergesen D.Y. AS Cl-A............ 9,560 $ 114,187
Norsk Hydro AS................... 69,020 2,328,219
Orkla ASA Cl-A................... 179,750 2,677,814
Saga Petroleum ASA............... 15,160 138,293
------------
5,258,513
------------
PERU -- 0.0%
Telefonica del Peru SA Cl-B...... 26,690 33,575
------------
PORTUGAL -- 0.5%
Jeronimo Martins SGPS SA......... 45,757 2,503,240
------------
RUSSIA -- 0.0%
Gazprom [ADR].................... 20,040 169,939
LUKoil Holding [ADR]............. 3,620 59,730
------------
229,669
------------
SINGAPORE -- 0.1%
Singapore Press Holdings Ltd. ... 48,456 528,624
------------
SPAIN -- 3.0%
Argentaria Caja Postal Y Banco
Hipotecario de Espana SA....... 45,336 1,175,865
Banco Bilbao Vizcaya SA.......... 56,460 886,600
Banco Santander SA............... 112,135 2,231,758
Endesa SA........................ 69,492 1,844,079
Gas Natural SDG SA............... 14,051 1,532,119
Iberdrola SA..................... 79,173 1,483,537
Repsol SA........................ 17,975 960,332
Telefonica SA.................... 84,508 3,761,926
Telefonica SA Bonus Rights*...... 79,177 70,409
------------
13,946,625
------------
SWEDEN -- 3.3%
ABB AB Cl-A...................... 87,930 938,364
Astra AB Cl-B.................... 206,996 4,213,703
Atlas Copco AB Cl-B.............. 46,420 1,007,943
Electrolux AB Cl-B............... 124,650 2,145,283
Esselte AB....................... 14,410 236,447
Granges AB*...................... 14,385 207,641
Hennes & Mauritz AB Cl-B......... 45,890 3,747,953
Nordbanken Holding Co. AB*....... 383,378 2,459,510
Sandvik AB Cl-A.................. 6,140 106,808
Sandvik AB Cl-B.................. 44,020 760,319
------------
15,823,971
------------
SWITZERLAND -- 6.8%
ABB AG........................... 1,449 1,698,525
Adecco SA........................ 5,950 2,716,203
Credit Suisse Group.............. 12,110 1,895,659
Nestle SA........................ 3,958 8,616,376
Novartis AG...................... 3,359 6,603,154
Roche Holding AG................. 405 4,942,045
Swisscom AG*..................... 1,944 813,845
UBS AG........................... 15,010 4,611,804
------------
31,897,611
------------
UNITED KINGDOM -- 18.6%
Abbey National PLC............... 134,000 2,869,374
ASDA Group PLC................... 508,450 1,364,118
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
BG PLC........................... 150,597 $ 950,267
British Petroleum Co. PLC........ 130,840 1,953,794
Cable & Wireless PLC............. 304,000 3,737,850
Cadbury Schweppes PLC............ 211,456 3,606,183
Caradon PLC...................... 387,530 657,672
Centrica PLC*.................... 126,210 254,087
Compass Group PLC................ 201,000 2,302,522
Diageo PLC....................... 582,436 6,628,392
Electrocomponents PLC............ 110,000 737,567
GKN PLC.......................... 43,000 570,562
Glaxo Wellcome PLC............... 228,000 7,844,933
Heywood Williams Group PLC....... 32,010 115,571
Hillsdown Holdings PLC........... 47,580 60,165
Kingfisher PLC................... 647,900 7,012,278
Ladbroke Group PLC............... 229,000 920,145
Laing, (John) PLC Cl-A........... 70,000 288,837
National Westminster Bank PLC.... 606,670 11,698,759
Rank Group PLC................... 115,120 443,410
Reed International PLC........... 541,740 4,236,358
Rio Tinto PLC.................... 157,600 1,832,894
Rolls-Royce PLC.................. 139,140 576,441
Safeway PLC...................... 286,660 1,440,383
Shell Transport & Trading Co.
PLC............................ 1,084,000 6,659,684
Smith, (David S.) Holdings PLC... 197,900 349,024
SmithKline Beecham PLC........... 737,240 10,303,672
Tesco PLC........................ 738,000 2,102,765
Tomkins PLC...................... 658,220 3,104,760
Unilever PLC..................... 97,000 1,087,766
United News & Media PLC.......... 227,470 1,994,521
------------
87,704,754
------------
TOTAL INVESTMENTS -- 95.2% (Cost
$366,902,224)...................... 449,693,410
OTHER ASSETS LESS
LIABILITIES -- 4.8%................ 22,467,245
------------
NET ASSETS -- 100.0%................. $472,160,655
============
</TABLE>
The following is a breakdown of the foreign stock portion of the Portfolio, by
industry classification, as of December 31, 1998. Percentages are based on net
assets.
<TABLE>
<S> <C>
INDUSTRY
Aerospace............................................ 0.1%
Automobile Manufacturers............................. 0.3%
Automotive Parts..................................... 0.8%
Beverages............................................ 1.9%
Broadcasting......................................... 0.6%
Building Materials................................... 1.0%
Business Services.................................... 0.6%
Chemicals............................................ 1.0%
Clothing & Apparel................................... 0.1%
Computer Services & Software......................... 1.8%
Construction......................................... 0.7%
Consumer Products & Services......................... 4.1%
Electronic Components & Equipment.................... 7.5%
Entertainment & Leisure.............................. 0.6%
Financial -- Bank & Trust............................ 14.3%
Financial Services................................... 1.4%
Food................................................. 8.4%
Furniture............................................ 0.1%
Healthcare Services.................................. 0.2%
Industrial Products.................................. 3.5%
Insurance............................................ 4.0%
Machinery & Equipment................................ 2.3%
Medical Supplies & Equipment......................... 0.1%
Metals & Mining...................................... 0.6%
Office Equipment..................................... 1.0%
Oil & Gas............................................ 5.9%
Paper & Forest Products.............................. 0.2%
Pharmaceuticals...................................... 10.0%
Printing & Publishing................................ 4.8%
Railroads............................................ 0.5%
Real Estate.......................................... 1.5%
Retail & Merchandising............................... 3.6%
Telecommunications................................... 9.9%
Transportation....................................... 0.6%
Utilities............................................ 1.2%
----
TOTAL................................................ 95.2%
====
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stock.
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
144A -- Security was purchased pursuant to rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 0.1% of net assets.
See Notes to Financial Statements.
<PAGE>
T. ROWE PRICE INTERNATIONAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
(000) VALUE
---------- ------------
<S> <C> <C>
FOREIGN BONDS -- 93.7%
AUSTRALIA -- 0.9%
Federal National Mtge. Assoc.
Global Bonds
6.375%, 08/15/07............... 2,000 $ 1,297,566
------------
AUSTRIA -- 2.3%
Austrian National Government
5.00%, 01/15/08................ 37,000 3,381,703
------------
CANADA -- 4.5%
Canadian Government
7.00%, 12/01/06................ 1,500 1,110,864
6.00%, 06/01/08................ 3,000 2,114,047
8.00%, 06/01/23................ 3,685 3,318,069
Province of Ontario
8.25%, 12/01/05................ 200 153,873
------------
6,696,853
------------
DENMARK -- 4.9%
Kingdom of Denmark
7.00%, 11/15/07................ 30,000 5,659,808
6.00%, 11/15/09................ 8,600 1,543,834
------------
7,203,642
------------
EUROPEAN CURRENCY UNIT -- 7.8%
Finnish National Government
5.00%, 04/25/09................ 1,600 2,027,959
French Treasury Bill
4.50%, 07/12/02................ 4,472 5,454,779
Orange PLC Global Sr. Notes
7.625%, 08/01/08............... 320 377,642
Spanish Government
5.15%, 07/30/09................ 2,900 3,619,892
------------
11,480,272
------------
FRANCE -- 1.6%
Caisse Nationale Des Autoroutes
5.85%, 03/24/13................ 6,600 1,360,169
SunAmerica Institutional Funding
5.25%, 05/20/09................ 5,500 1,053,558
------------
2,413,727
------------
GERMANY -- 22.1%
Bank Nederlandse Gemeenten
6.25%, 08/10/00................ 1,000 627,432
5.25%, 10/01/01................ 2,100 1,320,887
Colt Telecom Group PLC Sr. Notes
8.875%, 11/30/07............... 470 289,954
Federal Republic of Germany
7.50%, 11/11/04................ 2,250 1,625,817
6.875%, 05/12/05............... 6,400 4,528,648
6.00%, 01/04/07................ 14,100 9,674,744
6.50%, 07/04/27................ 5,300 3,992,057
Inter-America Development Bank
7.00%, 06/08/05................ 4,500 3,162,864
KFW International Finance, Inc.
6.75%, 06/20/05................ 4,500 3,134,156
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
(000) VALUE
---------- ------------
<S> <C> <C>
Minnesota Mining & Manufacturing
Co.
5.00%, 10/15/01................ 900 $ 557,470
SunAmerica Institutional Funding
5.125%, 04/15/08............... 2,800 1,789,358
Tennessee Valley Authority Global
Bond
6.375%, 09/18/06............... 3,000 2,067,279
------------
32,770,666
------------
GREECE -- 4.4%
Greek Government
8.60%, 03/26/08................ 1,196,000 4,755,422
7.50%, 05/20/13................ 451,000 1,701,164
------------
6,456,586
------------
ITALY--10.9%
Italian Government
8.25%, 07/01/01................ 3,715,000 2,517,758
9.00%, 10/01/03................ 8,645,000 6,446,162
8.75%, 07/01/06................ 5,115,000 4,040,462
7.25%, 11/01/26................ 3,830,000 3,157,575
------------
16,161,957
------------
JAPAN -- 8.4%
Asian Development Bank
3.125%, 06/29/05............... 200,000 1,919,384
Central Bank of Tunisia
4.95%, 09/27/11................ 65,000 478,294
European Investment Bank
4.625%, 02/26/03............... 80,000 811,195
3.00%, 09/20/06................ 50,000 479,846
Export-Import Bank of Japan
4.375%, 10/01/03............... 360,000 3,638,407
International Bank Reconstruction
& Development Global Bond
4.75%, 12/20/04................ 260,000 2,730,024
Korea Industrial Leasing
2.20%, 08/07/02................ 70,000 533,704
Republic of Austria
4.50%, 09/28/05................ 170,000 1,791,610
------------
12,382,464
------------
NETHERLANDS -- 4.3%
Netherlands Government
5.75%, 01/15/04................ 10,900 6,388,976
------------
NORWAY -- 0.9%
Norwegian Government
5.50%, 05/15/09................ 10,000 1,331,581
------------
POLAND -- 0.7%
Government of Poland
12.00%, 10/12/03............... 3,500 1,042,296
------------
PORTUGAL -- 0.4%
European Investment Bank
5.25%, 03/23/02................ 100,000 612,382
------------
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
(000) VALUE
---------- ------------
<S> <C> <C>
RUSSIA -- 0.0%
GKO Pass-Through Notes**
47.37%, 11/18/98............... 3,700 $ 19,745
GKO Pass-Through Notes++
33.73%, 03/24/99............... 5,021 26,795
------------
46,540
------------
SOUTH AFRICA -- 1.5%
Republic of South Africa
12.00%, 02/28/05............... 15,000 2,164,091
------------
SPAIN -- 5.1%
Spanish Government
6.15%, 01/31/13................ 700,000 5,860,446
6.00%, 01/31/29................ 200,000 1,661,571
------------
7,522,017
------------
SWEDEN -- 1.7%
Swedish Government
5.50%, 04/12/02................ 20,000 2,607,422
------------
UNITED KINGDOM -- 11.3%
Alliance & Leicester BLD
8.75%, 12/07/06................ 1,300 2,510,379
Annington Finance
7.75%, 10/02/11................ 500 1,021,164
Federal National Mtge. Assoc.
Global Bond
6.875%, 06/07/02............... 990 1,732,619
Halifax Building Society
8.75%, 07/10/06................ 600 1,172,986
National Power Co. PLC
8.375%, 08/02/06............... 870 1,646,548
Republic of Austria
9.00%, 07/22/04................ 660 1,295,776
Swiss Bank Corp. Jersey
8.75%, 12/18/25................ 230 532,159
United Kingdom Treasury
7.50%, 12/07/06................ 2,500 4,993,927
7.25%, 12/07/07................ 880 1,770,454
------------
16,676,012
------------
TOTAL FOREIGN BONDS
(Cost $132,251,530)................. 138,636,753
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
--------- ----------
<S> <C> <C>
SOVEREIGN ISSUES -- 3.2%
ARGENTINA -- 0.8%
Republic of Argentina
Debs. [FRB, BRB]
6.188%, 03/31/05....... $ 564 $ 476,862
Republic of Argentina Par
Government Guaranteed
Bonds [FRB, BRB]
5.75%, 03/31/23........ 575 411,700
Republic of Argentina
Unsub. Debs. [FRB, BRB]
11.375%, 01/30/17...... 250 250,625
----------
1,139,187
----------
BULGARIA -- 0.7%
National Republic of
Bulgaria Debs. [FRN,
BRB]
6.688%, 07/28/11....... 355 240,069
2.50%, 07/28/12........ 1,270 727,869
----------
967,938
----------
COLOMBIA -- 0.2%
Colombian National
Government Global
Unsub. Debs.
8.625%, 04/01/08....... 350 297,158
----------
MEXICO -- 0.1%
United Mexican States
[BRB]
6.25%, 12/31/19........ 250 194,525
----------
NIGERIA -- 0.2%
Central Bank of Nigeria
Par Government
Guaranteed Bonds
6.25%, 11/15/20........ 500 316,250
----------
POLAND -- 0.7%
Government of Poland PDI
[STEP, BRB]
5.00%, 10/27/14........ 725 676,969
Government of Poland Reg.
PAR [STEP, BRB]
3.00%, 10/27/24........ 250 168,125
Poland Communications,
Inc. Sr. Notes
9.875%, 11/01/03....... 300 261,000
----------
1,106,094
----------
RUSSIA -- 0.3%
City of Moscow Unsub.
Debs.++
9.50%, 05/31/00........ 100 36,500
Russia Interest
Note -- US [FRN]
5.969%, 12/15/15....... 1,588 175,705
Russia Principal Loans
[FRN]
3.313%, 12/15/20....... 1,800 117,000
Russian Government Reg.
11.00%, 07/24/18....... 375 91,875
----------
421,080
----------
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
--------- ----------
<S> <C> <C>
SOUTH AFRICA -- 0.2%
Ivory Coast [FLIRB]
2.00%, 03/29/18........ $1,000 $ 250,000
----------
TOTAL SOVEREIGN ISSUES
(Cost $6,740,230).......... 4,692,232
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C>
FOREIGN STOCK -- 0.0%
Central Bank of Nigeria Warrants*
(Cost $0)......................... 500 0
------------
TOTAL INVESTMENTS -- 96.9%
(Cost $138,991,760)................. 143,328,985
OTHER ASSETS LESS
LIABILITIES -- 3.1%................. 4,644,280
------------
NET ASSETS -- 100.0%.................. $147,973,265
============
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1998:
<TABLE>
<CAPTION>
IN
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE RECEIVE FOR AT VALUE APPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99 Buy JPY 1,085,635,000 $8,950,000 $9,663,356 $713,356
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
IN
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE RECEIVE FOR AT VALUE DEPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99 Sell JPY 483,346,030 $4,125,829 $4,302,316 $176,487
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
IN
SETTLEMENT CONTRACTS TO EXCHANGE UNREALIZED
MONTH TYPE RECEIVE FOR APPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99 Buy DEM 4,734,775 GBP 1,700,000 $ 19,080
01/99 Buy JPY 440,483,254 CAD 5,540,670 312,711
01/99 Buy JPY 193,921,601 DEM 2,719,798 91,143
01/99 Buy JPY 250,426,883 GBP 1,288,069 88,598
01/99 Buy JPY 250,539,062 ZAR 13,089,250 28,078
--------
$539,610
========
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
++ Illiquid security. At the end of the year, these securities amounted to less
than 0.1% of net assets.
** Defaulted security. At the end of the year, this security amounted to less
than 0.1% of net assets.
See Notes to Financial Statements.
<PAGE>
NEUBERGER&BERMAN MID-CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 94.6%
ADVERTISING -- 1.4%
Outdoor Systems, Inc.* ........... 125,500 $ 3,765,000
------------
AUTOMOTIVE PARTS -- 2.2%
Hayes Lemmerz International,
Inc.* .......................... 91,800 2,771,212
Tower Automotive, Inc.* .......... 121,100 3,019,931
------------
5,791,143
------------
BROADCASTING -- 3.2%
Capstar Broadcasting Corp.
Cl-A* .......................... 128,200 2,932,575
Chancellor Media Corp.* .......... 114,600 5,486,475
------------
8,419,050
------------
BUSINESS SERVICES -- 2.2%
International Network
Services* ...................... 33,000 2,194,500
Modis Professional Services,
Inc.* .......................... 159,300 2,309,850
Robert Half International,
Inc.* .......................... 25,200 1,126,125
------------
5,630,475
------------
CLOTHING & APPAREL -- 1.4%
Abercrombie & Fitch Co. Cl-A* .... 51,100 3,615,325
------------
COMPUTER SERVICES & SOFTWARE -- 18.3%
BMC Software, Inc.* .............. 68,200 3,039,162
Cadence Design Systems, Inc.* .... 75,500 2,246,125
Cambridge Technology Partners,
Inc.* .......................... 116,400 2,575,350
Citrix Systems, Inc.* ............ 62,200 6,037,287
Compuware Corp.* ................. 79,700 6,226,562
Edwards, (J.D.) & Co.* ........... 134,400 3,813,600
Infoseek Corp.* .................. 45,600 2,251,500
Intuit, Inc.* .................... 40,200 2,914,500
Network Appliance, Inc.* ......... 79,900 3,595,500
Network Associates, Inc.* ........ 80,800 5,353,000
Saville Systems PLC [ADR]* ....... 152,000 2,888,000
Sterling Commerce, Inc.* ......... 62,100 2,794,500
VERITAS Software Corp.* .......... 46,300 2,775,106
Yahoo! Inc.* ..................... 5,400 1,269,337
------------
47,779,529
------------
CONSTRUCTION -- 1.0%
Lennar Corp. ..................... 100,900 2,547,725
------------
CONSUMER PRODUCTS & SERVICES -- 1.0%
Estee Lauder Companies, Inc.
Cl-A ........................... 31,400 2,684,700
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 6.8%
AES Corp.* ....................... 93,000 4,405,875
Altera Corp.* .................... 59,100 3,597,712
Sanmina Corp.* ................... 80,000 5,000,000
SCI Systems, Inc.* ............... 33,500 1,934,625
Uniphase Corp.* .................. 41,000 2,844,375
------------
17,782,587
------------
ENTERTAINMENT & LEISURE -- 0.7%
Travel Services International,
Inc.* .......................... 59,300 1,808,650
------------
ENVIRONMENTAL SERVICES -- 1.6%
Republic Services, Inc. Cl-A* .... 230,500 4,249,844
------------
FINANCIAL-BANK & TRUST -- 3.9%
Firstar Corp. .................... 19,400 1,809,050
GreenPoint Financial Corp. ....... 99,500 3,494,937
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
North Fork Bancorporation,
Inc. ........................... 87,800 $ 2,101,713
State Street Boston Corp. ........ 41,100 2,859,019
------------
10,264,719
------------
FINANCIAL SERVICES -- 3.1%
Donaldson, Lufkin & Jenrette,
Inc. ........................... 47,900 1,963,900
FINOVA Group, Inc. ............... 76,200 4,110,037
Nationwide Financial Services,
Inc. ........................... 41,100 2,124,356
------------
8,198,293
------------
FOOD -- 2.2%
American Italian Pasta Co.
Cl-A* .......................... 53,600 1,413,700
Suiza Foods Corp.* ............... 84,200 4,288,938
------------
5,702,638
------------
FURNITURE -- 1.2%
Furniture Brands International,
Inc.* .......................... 113,900 3,103,775
------------
HEALTHCARE SERVICES -- 5.0%
Alternative Living Services,
Inc.* .......................... 130,700 4,476,475
Omnicare, Inc. ................... 132,500 4,604,375
Quintiles Transnational Corp.* ... 50,400 2,690,100
Sunrise Assisted Living, Inc.* ... 26,900 1,395,438
------------
13,166,388
------------
INSURANCE -- 1.7%
EXEL Ltd. ........................ 35,100 2,632,500
UNUM Corp. ....................... 30,200 1,762,925
------------
4,395,425
------------
MEDICAL SUPPLIES & EQUIPMENT -- 3.7%
Bard, (C.R.), Inc. ............... 67,400 3,336,300
Safeskin Corp.* .................. 136,800 3,300,300
STERIS Corp.* .................... 106,200 3,020,063
------------
9,656,663
------------
OFFICE EQUIPMENT -- 4.8%
Herman Miller, Inc. .............. 124,300 3,340,563
HON INDUSTRIES, Inc. ............. 41,600 995,800
Office Depot, Inc.* .............. 75,400 2,785,088
Staples, Inc.* ................... 121,400 5,303,663
------------
12,425,114
------------
PERSONAL SERVICES -- 1.4%
Sylvan Learning Systems, Inc.* ... 121,400 3,702,700
------------
PHARMACEUTICALS -- 5.9%
Biogen, Inc.* .................... 49,000 4,067,000
Cardinal Health, Inc. ............ 41,200 3,126,050
Elan Corp. PLC [ADR]* ............ 62,800 4,368,525
Watson Pharmaceuticals, Inc.* .... 61,100 3,841,663
------------
15,403,238
------------
PRINTING & PUBLISHING -- 1.4%
Valassis Communications, Inc.* ... 73,200 3,778,950
------------
RAILROADS -- 1.0%
Kansas City Southern Industries,
Inc. ........................... 52,600 2,587,263
------------
</TABLE>
<PAGE>
NEUBERGER&BERMAN MID-CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
RESTAURANTS -- 2.3%
Brinker International, Inc.* ..... 79,000 $ 2,281,125
CKE Restaurants, Inc. ............ 128,700 3,788,606
------------
6,069,731
------------
SEMICONDUCTORS -- 2.6%
Level One Communications,
Inc.* .......................... 65,700 2,332,350
Micron Technology, Inc.* ......... 39,700 2,007,331
PMC-Sierra, Inc.* ................ 37,300 2,354,562
------------
6,694,243
------------
RETAIL & MERCHANDISING -- 7.4%
Amazon.com, Inc.* ................ 9,100 2,923,375
Costco Companies, Inc.* .......... 56,000 4,042,500
Dollar Tree Stores, Inc.* ........ 59,000 2,577,563
Linens 'n Things, Inc.* .......... 109,600 4,342,900
TJX Companies, Inc. .............. 189,300 5,489,700
------------
19,376,038
------------
TELECOMMUNICATIONS -- 5.9%
American Tower Corp.* ............ 81,900 2,421,169
Ascend Communications, Inc.* ..... 81,700 5,371,775
ICG Communications, Inc.* ........ 108,800 2,339,200
Intermedia Communications,
Inc.* .......................... 85,400 1,473,150
RSL Communications Ltd. Cl-A* .... 133,700 3,944,150
------------
15,549,444
------------
TRANSPORTATION -- 1.3%
Avis Rent A Car, Inc.* ........... 143,900 3,480,581
------------
TOTAL COMMON STOCK
(Cost $214,948,309)................. 247,629,231
------------
PAR
(000) VALUE
--------- ------------
COMMERCIAL PAPER -- 1.2%
Northern Illinois Gas Co.
5.90%, 01/08/99................. $2,000 $ 1,997,706
Novartis Finance Corp.+
5.45%, 01/12/99................. 1,000 998,335
------------
(Cost $2,996,041)................. 2,996,041
------------
SHARES
---------
SHORT-TERM INVESTMENTS -- 3.2%
Temporary Investment Cash Fund ... 4,233,509 4,233,509
Temporary Investment Fund ........ 4,233,510 4,233,510
------------
(Cost $8,467,019)................. 8,467,019
------------
TOTAL INVESTMENTS -- 99.0%
(Cost $226,411,369)................. 259,092,291
OTHER ASSETS LESS
LIABILITIES -- 1.0%................. 2,700,022
------------
NET ASSETS -- 100.0%.................. $261,792,313
============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
+ Security is restricted as to resale and may not be resold except to qualified
institutional buyers. At the end of the year, these securities amounted to
0.4% of net assets.
See Notes to Financial Statements.
<PAGE>
FOUNDERS PASSPORT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FOREIGN STOCK -- 87.4%
AUSTRIA -- 0.7%
KTM-Motorradholding AG........... 11,650 $ 784,417
------------
BRAZIL -- 0.3%
Aracruz Celulose SA [ADR]........ 51,000 408,000
------------
CANADA -- 4.1%
Cinar Films, Inc. Cl-B*.......... 148,025 3,756,134
Dorel Industries, Inc. Cl-B*..... 70,575 1,139,537
------------
4,895,671
------------
DENMARK -- 2.8%
Kobenhavns Lufthavne AS.......... 16,950 2,103,985
Vestas Wind Systems AS 144A*..... 23,800 1,275,197
------------
3,379,182
------------
FINLAND -- 3.3%
KCI Konecranes International
PLC............................ 33,200 1,508,110
Raisio Group PLC................. 220,000 2,433,201
------------
3,941,311
------------
FRANCE -- 6.3%
Altran Technologies SA........... 19,050 4,597,092
Dassault Systemes SA............. 56,550 2,659,445
Royal Canin SA................... 5,000 313,283
------------
7,569,820
------------
GERMANY -- 15.1%
Douglas Holding AG............... 32,225 1,905,809
IXOS Software AG*................ 5,475 1,232,723
Marschollek, Lautenschlaeger und
Partner AG Non-Voting Pfd. .... 7,850 4,477,581
Porsche AG Pfd. ................. 1,700 3,909,290
Schmalbach Lubeca AG............. 11,235 1,551,497
Schwarz Pharma AG................ 35,200 2,039,483
Sixt AG.......................... 33,675 2,628,458
Turbon International AG.......... 40,275 350,634
------------
18,095,475
------------
GREECE -- 0.5%
Chipita International SA......... 19,625 637,718
------------
HONG KONG -- 1.8%
VTech Holdings Ltd. ............. 501,000 2,185,847
------------
IRELAND -- 2.1%
Ryanair Holdings PLC [ADR]*...... 66,600 2,514,150
------------
ITALY -- 4.0%
Bulgari SPA...................... 372,950 2,227,894
Gruppo Editoriale L'Espresso
SPA............................ 107,100 941,814
Industrie Natuzzi SPA [ADR]...... 66,150 1,645,481
------------
4,815,189
------------
JAPAN -- 5.6%
Doutor Coffee Co. Ltd. .......... 50,000 1,662,284
Fuji Soft ABC, Inc. ............. 38,500 1,962,603
Nippon System Development........ 57,000 1,768,670
Ryohin Keikaku Co. Ltd. ......... 10,000 1,334,260
------------
6,727,817
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
MALAYSIA -- 0.0%
KFC Holdings Berhad
Warrants++*.................... 21,333 $ 2,672
------------
MEXICO -- 0.6%
Grupo Posadas SA Cl-A*........... 1,875,600 777,572
------------
NETHERLANDS -- 5.8%
Beter Bed Holding NV............. 23,425 817,585
Brunel International NV.......... 35,225 713,258
Hunter Douglas NV................ 46,400 1,537,873
IHC Caland NV.................... 37,700 1,566,924
Nutreco Holding NV............... 58,450 2,304,774
------------
6,940,414
------------
NORWAY -- 1.8%
Narvesen ASA..................... 16,000 415,816
Tomra Systems ASA................ 51,975 1,705,494
------------
2,121,310
------------
SINGAPORE -- 0.6%
Natsteel Electronics Ltd. ....... 284,000 722,927
------------
SPAIN -- 5.5%
Baron de Ley SA*................. 21,600 708,103
Tele Pizza SA*................... 614,050 5,850,518
------------
6,558,621
------------
SWEDEN -- 4.0%
Haldex AB........................ 51,010 516,045
NetCom Systems AB Cl-B*.......... 79,475 3,235,657
Ortivus AB Cl-B*................. 50,200 365,404
Semcon AB........................ 84,775 700,746
------------
4,817,852
------------
SWITZERLAND -- 1.4%
Kudelski SA*..................... 375 1,037,511
Logitech International SA........ 5,000 604,304
------------
1,641,815
------------
UNITED KINGDOM -- 21.1%
British-Borneo Petroleum
Syndicate PLC.................. 364,423 606,331
BTG PLC.......................... 97,225 566,174
Capital Radio PLC................ 129,650 1,255,450
Eidos PLC [ADR]*................. 47,175 757,748
Energis PLC*..................... 178,075 3,985,007
Filtronic PLC.................... 55,325 554,603
Flextech PLC*.................... 195,550 1,974,924
ICON PLC [ADR]*.................. 44,500 1,490,750
JBA Holdings PLC................. 241,350 742,887
Misys PLC........................ 175,210 1,276,112
Parity PLC....................... 213,800 2,036,512
PizzaExpress PLC................. 291,275 3,901,242
Psion PLC........................ 324,275 3,115,798
Select Appointments Holdings
PLC............................ 184,475 1,893,767
Wetherspoon, (J.D.) PLC.......... 385,875 1,126,750
------------
25,284,055
------------
TOTAL FOREIGN STOCK
(Cost $81,909,290)................. 104,821,835
------------
</TABLE>
<PAGE>
FOUNDERS PASSPORT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
U.S. STOCK -- 2.0%
TELECOMMUNICATIONS
Global TeleSystems Group, Inc.*
(Cost $1,649,584)................ 43,725 $ 2,437,669
------------
PAR
(000)
-----
COMMERCIAL PAPER--9.3%
Ford Motor Credit Co.
5.95%, 01/04/99................ $ 4,634 4,631,702
General Electric Capital Corp.
5.00%, 01/05/99................ 4,952 4,949,249
Prudential Funding Corp.
4.00%, 01/04/99................ 1,574 1,573,475
------------
(Cost $11,154,426)............... 11,154,426
------------
TOTAL INVESTMENTS -- 98.7%
(Cost $94,713,300)................. 118,413,930
OTHER ASSETS LESS
LIABILITIES -- 1.3%................ 1,583,089
------------
NET ASSETS -- 100.0%................. $119,997,019
============
</TABLE>
The following is a breakdown of the foreign stock portion of the Portfolio, by
industry classification, as of December 31, 1998. Percentages are based on net
assets.
<TABLE>
<CAPTION>
INDUSTRY
--------
<S> <C>
Aerospace............................................ 3.8%
Airlines............................................. 2.1%
Automobile Manufacturers............................. 7.9%
Automotive Parts..................................... 0.4%
Beverages............................................ 0.6%
Broadcasting......................................... 2.7%
Business Services.................................... 2.8%
Computer Hardware.................................... 3.1%
Computer Services & Software......................... 10.4%
Consumer Products & Services......................... 4.1%
Containers & Packaging............................... 1.3%
Electronic Components & Equipment.................... 2.5%
Entertainment & Leisure.............................. 3.1%
Food................................................. 4.7%
Furniture............................................ 1.4%
Hotels & Motels...................................... 0.7%
Insurance............................................ 3.7%
Machinery & Equipment................................ 2.7%
Medical Supplies & Equipment......................... 0.3%
Miscellaneous........................................ 0.5%
Office Equipment..................................... 0.3%
Oil & Gas............................................ 0.5%
Paper & Forest Products.............................. 0.3%
Pharmaceuticals...................................... 2.9%
Printing & Publishing................................ 0.8%
Restaurants.......................................... 9.5%
Retail & Merchandising............................... 6.5%
Telecommunications................................... 6.5%
Transportation....................................... 1.3%
----
TOTAL................................................ 87.4%
====
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stocks.
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
++ Illiquid security. At the end of the year, this security amounted to less
than 0.1% of net assets.
144A -- Security was purchased pursuant to rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 1.1% of net assets.
See Notes to Financial Statements.
<PAGE>
T. ROWE PRICE NATURAL RESOURCES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 82.2%
BUILDING & REAL ESTATE -- 4.7%
Archstone Communities Trust
[REIT].......................... 25,285 $ 512,021
Camden Property Trust............. 26,600 691,600
Kilroy Realty Corp. .............. 19,000 437,000
Post Properties, Inc. [REIT]...... 20,000 768,750
United Dominion Realty Trust...... 42,000 433,125
Weeks Corp. ...................... 21,000 591,937
-----------
3,434,433
-----------
CHEMICALS -- 3.7%
Great Lakes Chemical Corp. ....... 30,300 1,212,000
Hercules, Inc. ................... 16,000 438,000
Octel Corp.*...................... 77,375 1,073,578
-----------
2,723,578
-----------
DIVERSIFIED METALS -- 3.9%
Nucor Corp. ...................... 28,500 1,232,625
Reynolds Metals Co. .............. 31,800 1,675,462
-----------
2,908,087
-----------
DIVERSIFIED RESOURCES -- 4.3%
Burlington Northern Santa Fe
Corp. .......................... 29,400 992,250
IMC Global, Inc. ................. 29,300 626,287
Imperial Holly Corp. ............. 120,000 975,000
Penn Virginia Corp. .............. 25,700 472,237
Western Water Co.*................ 28,000 143,500
-----------
3,209,274
-----------
ENERGY SERVICES -- 5.5%
BJ Services Co.*.................. 160,800 2,512,500
Halliburton Co. .................. 23,600 699,150
McDermott International, Inc. .... 35,300 871,469
-----------
4,083,119
-----------
FOREST PRODUCTS -- 6.2%
Champion International Corp. ..... 12,500 506,250
Domtar, Inc. ..................... 248,300 1,458,762
Fort James Corp. ................. 22,100 884,000
Georgia Pacific Group............. 15,500 907,719
Kimberly-Clark Corp. ............. 15,700 855,650
-----------
4,612,381
-----------
INTEGRATED PETROLEUM -- 20.0%
Amerada Hess Corp. ............... 52,500 2,611,875
Atlantic Richfield Co. ........... 12,900 841,725
British Petroleum Co. PLC [ADR]... 12,600 1,129,275
Chevron Corp. .................... 7,000 580,562
Mobil Corp. ...................... 37,200 3,241,050
Petroleo Brasileiro SA [ADR]
144A............................ 28,600 324,301
Royal Dutch Petroleum Co. ........ 50,000 2,393,750
Societe Nationale Elf Aquitaine SA
[ADR]........................... 13,000 736,125
Texaco, Inc. ..................... 22,000 1,163,250
Total SA [ADR].................... 20,000 995,000
USX-Marathon Group................ 26,000 783,250
-----------
14,800,163
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
LUMBER & WOOD PRODUCTS -- 0.7%
MacMillan Bloedel Ltd. ........... 54,000 $ 540,000
-----------
MACHINERY & EQUIPMENT -- 2.9%
Baker Hughes, Inc. ............... 98,200 1,736,912
Smith International, Inc.*........ 15,800 397,963
-----------
2,134,875
-----------
MISCELLANEOUS ENERGY -- 1.8%
Niagara Mohawk Power Corp.*....... 83,000 1,338,375
-----------
NON-FERROUS METALS -- 3.3%
Inco Ltd. ........................ 147,800 1,561,138
Phelps Dodge Corp. ............... 18,100 920,838
-----------
2,481,976
-----------
OIL & GAS -- 5.5%
Anadarko Petroleum Corp. ......... 12,500 385,938
Burlington Resources, Inc. ....... 21,200 759,225
Mitchell Energy & Development
Corp. Cl-B...................... 70,800 823,050
Schlumberger Ltd. ................ 20,488 945,009
Union Pacific Resources Group,
Inc. ........................... 53,000 480,313
Unocal Corp. ..................... 23,500 685,906
-----------
4,079,441
-----------
PAPER & FOREST PRODUCTS -- 1.9%
Smurfit-Stone Container Corp.*.... 90,600 1,432,613
-----------
PETROLEUM EXPLORATION & PRODUCTION -- 4.5%
Barrett Resources Corp.*.......... 15,100 362,400
EEX Corp.*........................ 86,766 607,362
Noble Affiliates, Inc. ........... 2,800 68,950
Ocean Energy, Inc.*............... 83,880 529,493
Pioneer Natural Resources Co. .... 46,000 402,500
Rutherford-Moran Oil Corp.*....... 35,300 99,281
Santa Fe Energy Resources,
Inc.*........................... 121,100 893,113
Triton Energy Ltd.*............... 43,000 341,313
Triton Energy Ltd. Rights*........ 3,096 0
-----------
3,304,412
-----------
PRECIOUS METALS -- 13.3%
Battle Mountain Gold Co. ......... 292,000 1,204,500
Cambior, Inc. .................... 140,400 693,225
Dayton Mining Corp.*.............. 49,700 12,425
Getchell Gold Corp.*.............. 48,500 1,321,625
Gold Fields Ltd. [ADR]*........... 61,698 340,863
Homestake Mining Co. ............. 299,120 2,748,165
Newmont Mining Corp. ............. 130,224 2,352,171
Placer Dome, Inc. ................ 48,300 555,450
TVX Gold, Inc.*................... 330,900 599,756
-----------
9,828,180
-----------
TOTAL COMMON STOCK (Cost
$74,700,581)........................ 60,910,907
-----------
PREFERRED STOCK -- 1.9%
BUILDING & REAL ESTATE -- 1.5%
Rouse Co. $3.00 Cl-B.............. 25,000 1,084,375
-----------
</TABLE>
<PAGE>
T. ROWE PRICE NATURAL RESOURCES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
PRECIOUS METALS -- 0.4%
Battle Mountain Gold $3.25........ 8,900 $ 332,638
-----------
TOTAL PREFERRED STOCK (Cost
$1,551,602)......................... 1,417,013
-----------
FOREIGN STOCK -- 13.9%
BUILDING & REAL ESTATE -- 1.0%
Security Capital U.S. Realty --
(NLG)*.......................... 60,000 594,000
Sun International -- (ZAR)........ 1,150,000 189,626
-----------
783,626
-----------
CHEMICALS -- 0.8%
English China Clays
PLC -- (GBP).................... 220,000 605,793
-----------
DIVERSIFIED METALS -- 1.4%
Rio Tinto PLC -- (GBP)............ 87,000 1,011,818
-----------
DIVERSIFIED RESOURCES -- 0.2%
Lonrho Africa PLC -- (GBP)........ 153,159 141,429
-----------
FOREST PRODUCTS -- 2.2%
Macmillan Bloedel Ltd. -- (CAD)... 164,000 1,612,303
-----------
INDUSTRIAL PRODUCTS -- 0.4%
Avesta Sheffield AB -- (SEK)...... 105,000 295,354
-----------
NON-FERROUS METALS -- 2.0%
Bougainville Copper
Ltd. -- (AUD)*.................. 1,496,992 165,275
WMC Ltd. -- (AUD)................. 438,936 1,324,594
-----------
1,489,869
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
PETROLEUM EXPLORATION & PRODUCTION --
0.4%
Northstar Energy
Corp. -- (CAD)*................. 9,635 $ 276,013
-----------
PRECIOUS METALS -- 5.5%
Anglo American Platinum Corp.
Ltd. -- (ZAR)................... 40,139 550,642
Banro Resource Corp. -- (CAD)*+... 75,000 39,064
Banro Resource Corp.
Warrants -- (CAD)*+............. 45,815 0
Gencor Ltd. -- (ZAR).............. 828,000 1,393,461
Gold Fields Ltd. -- (ZAR)*........ 163,299 902,188
Goldfields Ltd. -- (AUD).......... 965,000 799,057
Normandy Mining Ltd. -- (AUD)..... 458,658 424,798
-----------
4,109,210
-----------
TOTAL FOREIGN STOCK (Cost
$14,167,496)........................ 10,325,415
-----------
SHORT-TERM INVESTMENTS -- 1.4%
Temporary Investment Cash Fund
(Cost $999,636)................... 999,636 999,636
-----------
TOTAL INVESTMENTS -- 99.4% (Cost
$91,419,315)........................ 73,652,971
OTHER ASSETS LESS
LIABILITIES -- 0.6%................. 472,978
-----------
NET ASSETS -- 100.0%.................. $74,125,949
===========
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stock.
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
+ Security is restricted as to resale and may not be resold except to qualified
institutional buyers. At the end of the year, these securities amounted to
0.9% of net assets.
144A -- Security was purchased pursuant to rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 0.4% of net assets.
See Notes to Financial Statements.
<PAGE>
PIMCO LIMITED MATURITY BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 66.2%
Federal Home Loan Mtge. Corp.
5.80%, 08/15/19............... $ 10,470 $ 10,456,913
6.00%, 01/14/29 [TBA]......... 10,700 10,569,567
6.50%, 01/12/29 [TBA]......... 17,600 17,729,184
8.50%, 01/01/25............... 10,140 10,615,061
8.75%, 10/01/01............... 794 816,941
-------------
50,187,666
-------------
Federal National Mtge. Assoc.
6.298%, 03/01/17 [VR]......... 2,245 2,236,225
6.50%, 01/14/29 [TBA]......... 10,000 10,067,200
6.796%, 05/01/25 [VR]......... 888 887,660
7.50%, 01/25/22-05/01/24...... 50,952 52,390,611
7.521%, 01/01/25 [VR]......... 199 201,060
8.00%, 11/25/23............... 2,792 2,895,734
-------------
68,678,490
-------------
Government National Mtge. Assoc.
6.50%, 02/22/27 [TBA]......... 50,000 50,461,000
6.50%, 06/20/28............... 10,000 9,729,800
6.50%, 01/21/29 [TBA]......... 20,000 20,203,200
6.625%, 07/20/17-07/20/24..... 1,048 1,061,817
6.875%, 05/20/24-01/20/26..... 6,697 6,796,664
6.875% 03/20/24 [VR].......... 4,225 4,275,484
7.00% 01/15/24-11/20/26....... 16,607 16,911,332
-------------
109,439,297
-------------
Student Loan Marketing Assoc.
Series 1995-1 Cl-A1 [FRN]
5.327%, 04/25/04.............. 3,353 3,319,948
-------------
(Cost $230,377,453)............... 231,625,401
-------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 6.9%
First Plus Home Loan Trust
Series 1998-5 Cl-A3 [VR]
6.06%, 11/10/11............... 8,000 8,022,280
Merrill Lynch Mtge. Investors,
Inc. Cl-B
7.243%, 06/15/21.............. 869 902,497
Norwest Asset Securities Corp.
Series 1998-27 Cl-A
6.25%, 11/25/13............... 3,142 3,107,119
Residential Accredit Loans, Inc.
1997-QS8 Cl-A9
7.375%, 08/25/27.............. 2,000 2,031,881
Resolution Trust Corp. [VR]
7.19%, 07/25/28............... 10,000 9,991,270
-------------
(Cost $24,181,521)................ 24,055,047
-------------
CORPORATE OBLIGATIONS -- 34.3%
AUTOMOBILE MANUFACTURERS -- 1.4%
Ford Motor Credit Co.
5.78%, 03/21/01............... 5,000 5,041,549
-------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
BUILDING MATERIALS -- 0.9%
Cemex SA Notes 144A
8.50%, 08/31/00............... $ 3,000 $ 3,015,000
-------------
CHEMICALS -- 1.4%
Imperial Chemical, Inc. Euro
Medium Term Notes [FRN]
5.656%, 03/05/99.............. 5,000 5,006,110
-------------
CONGLOMERATES -- 0.5%
Philip Morris Companies, Inc.
Debs.
9.25%, 02/15/00............... 500 520,000
Time Warner, Inc. Pass-Thru
Trust Certificates 144A
6.10%, 12/30/01............... 1,250 1,273,438
-------------
1,793,438
-------------
FINANCIAL SERVICES -- 13.4%
Bear Stearns Co. Medium Term
Notes Cl-B [FRN]
6.162%, 02/06/01.............. 700 707,910
General Motors Acceptance Corp.
Notes
7.125%, 05/01/01.............. 2,000 2,072,500
Goldman Sachs Group L.P. Notes
144A
7.125%, 03/01/03.............. 1,000 1,035,000
Household Finance Co. Medium
Term Sr. Notes
7.15%, 06/15/00............... 10,000 10,225,000
Household Finance Co. Notes
7.625%, 06/29/99.............. 15,000 16,031,250
Lehman Brothers Holding Sr.
Medium Term Notes Cl-E
8.15%, 05/15/00............... 1,200 1,235,940
Nationsbank Corp. Sub. Notes
8.625%, 11/15/03.............. 1,000 1,147,500
New England Educational Loan
Marketing Assoc. Medium Term
Notes Cl-B [FRN] 144A
5.756%, 03/11/99.............. 5,000 4,995,900
Presidential Life Corp. Sr.
Notes
9.50%, 12/15/00............... 8,000 8,180,000
Salomon, Inc. Sr. Notes
7.50%, 02/01/03............... 1,000 1,062,500
-------------
46,693,500
-------------
FOOD -- 3.7%
RJR Nabisco, Inc. Medium Term
Notes
7.625%, 09/15/03.............. 5,000 4,872,400
RJR Nabisco, Inc. Notes
8.625%, 12/01/02.............. 8,000 8,127,680
-------------
13,000,080
-------------
</TABLE>
<PAGE>
PIMCO LIMITED MATURITY BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
OIL & GAS -- 1.2%
Gulf Canada Resources Ltd.
Yankee Sr. Sub. Debs.
9.25%, 01/15/04............... $ 3,000 $ 3,075,000
Occidental Petroleum Corp. Sr.
Notes
6.40%, 04/01/03............... 1,000 1,015,000
-------------
4,090,000
-------------
PAPER & FOREST PRODUCTS -- 0.4%
International Paper Co. Notes
6.125%, 11/01/03.............. 1,500 1,500,000
-------------
TELECOMMUNICATIONS -- 3.7%
AT&T Capital Corp. Notes [FRN]
144A
6.05%, 01/01/99............... 8,000 7,999,680
TCI Communications, Inc. Sr.
Notes [FRN]
5.945%, 09/11/00.............. 5,000 5,016,950
-------------
13,016,630
-------------
UTILITIES -- 7.7%
Cleveland Electric Illuminating
Co. Notes
7.625%, 08/01/02.............. 2,100 2,174,529
Connecticut Light & Power Co.
First Mtge.
7.25%, 07/01/99............... 4,482 4,487,737
7.875%, 06/01/01.............. 2,000 2,090,000
Detroit Edison Co. Medium Term
Notes
6.75%, 03/17/03............... 5,000 5,212,500
Niagara Mohawk Power Corp. Sr.
Notes
7.00%, 10/01/00............... 3,665 3,715,394
Texas Utilities Co. Debs.
6.62%, 07/01/01............... 4,136 4,214,705
United Illuminating Co. Notes
6.25%, 12/15/02............... 5,000 5,018,750
-------------
26,913,615
-------------
TOTAL CORPORATE OBLIGATIONS (Cost
$119,636,534)..................... 120,069,922
-------------
U.S. TREASURY OBLIGATIONS -- 3.0%
U.S. Treasury Bills
4.55%, 02/04/99#.............. 170 169,317
4.10%, 03/04/99#.............. 100 99,282
-------------
268,599
-------------
U.S. Treasury Inflationary Bonds
3.625%, 07/15/02.............. 10,000 10,172,110
-------------
(Cost $10,371,058)................ 10,440,709
-------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
SOVEREIGN ISSUES -- 3.0%
ARGENTINA -- 2.1%
Republic of Argentina [FRB, BRB]
6.188%, 03/31/05.............. $ 3,666 $ 2,859,480
9.165%, 04/10/05.............. 4,000 3,610,000
Republic of Argentina Bote 10
[FRN, PIK]
5.313%, 04/01/00.............. 1,220 969,685
-------------
7,439,165
-------------
BRAZIL -- 0.6%
Republic of Brazil-IDU Cl-A [VR,
BRB]
6.75%, 01/01/01............... 2,177 1,977,079
-------------
CANADA -- 0.3%
Hydro-Quebec Government
Guaranteed Notes
9.00%, 03/07/01............... 1,000 1,069,900
-------------
TOTAL SOVEREIGN ISSUES (Cost
$11,294,802)...................... 10,486,144
-------------
PRINCIPAL
IN LOCAL
CURRENCY
(000)
---------
FOREIGN BONDS -- 1.5%
NEW ZEALAND
New Zealand Government
10.00%, 03/15/02
(Cost $5,339,391)............. 8,900 5,342,374
-------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
-----
<S> <C> <C>
CERTIFICATES OF DEPOSIT -- 2.9%
Bank of Tokyo-Mitsubishi
5.94%, 01/19/99
(Cost $10,000,000)............ $ 10,000 9,998,187
-------------
COMMERCIAL PAPER -- 13.3%
Ameritech Corp.
5.66%, 01/15/99............... 3,400 3,392,516
Ford Motor Credit Co.
5.51%, 01/22/99............... 10,000 9,967,858
General Electric Capital Corp.
5.65%, 01/14/99............... 16,000 15,967,356
General Motors Acceptance Corp.
5.50%, 01/29/99............... 13,000 12,944,389
Procter & Gamble Co.
4.85%, 02/26/99............... 4,200 4,168,313
-------------
(Cost $46,440,432).............. 46,440,432
-------------
</TABLE>
<PAGE>
PIMCO LIMITED MATURITY BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 1.2%
Temporary Investment Cash
Fund.......................... 2,154,618 $ 2,154,618
Temporary Investment Fund....... 2,154,618 2,154,618
-------------
(Cost $4,309,236)............... 4,309,236
-------------
TOTAL INVESTMENTS -- 132.3% (Cost
$461,950,427)..................... 462,767,452
-------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS
---------
<S> <C> <C>
WRITTEN OPTIONS -- 0.0%
CALL OPTIONS
30 Year U.S. Treasury Bond
Futures, Strike Price 138,
Expires 02/20/99............. 34 (3,188)
-------------
PUT OPTIONS
30 Year U.S. Treasury Bond
Futures, Strike Price 120,
Expires 02/20/99............. 20 (3,437)
30 Year U.S. Treasury Bond
Futures, Strike Price 122,
Expires 02/20/99............. 22 (6,875)
-------------
(10,312)
-------------
TOTAL WRITTEN OPTIONS
(Cost ($13,948))................. (13,500)
-------------
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (32.3%)................ (113,046,717)
-------------
NET ASSETS -- 100.0%............... $ 349,707,235
=============
</TABLE>
# Securities with an aggregate market value of $268,599 have been segregated
with the custodian to cover margin requirements for the following open futures
contracts at December 31, 1998:
<TABLE>
<CAPTION>
NOTIONAL UNREALIZED
EXPIRATION AMOUNT APPRECIATION
DESCRIPTION MONTH (000) (DEPRECIATION)
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro Dollar.......... 12/99 ECU 75,000 $(68,175)
Euro Dollar.......... 03/00 ECU 75,000 (24,962)
Euro Dollar.......... 06/00 ECU 75,000 (9,187)
Euro Dollar.......... 09/00 ECU 75,000 4,988
Euro Dollar.......... 09/01 ECU 100,000 27,500
--------
$(69,836)
========
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
144A -- Security was purchased pursuant to rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 5.2% of net assets.
See Notes to Financial Statements.
<PAGE>
AST OPPENHEIMER LARGE-CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 74.6%
BUSINESS SERVICES -- 2.0%
Robert Half International,
Inc.*........................ 131,800 $ 5,889,812
--------------
COMPUTER HARDWARE -- 3.2%
Dell Computer Corp.*........... 132,000 9,660,750
--------------
COMPUTER SERVICES & SOFTWARE -- 12.7%
3Com Corp.*.................... 100,700 4,512,619
CompUSA, Inc.*................. 198,152 2,588,360
Electronic Arts, Inc.*......... 61,100 3,429,237
Ingram Micro, Inc. Cl-A*....... 101,000 3,522,375
National Data Corp............. 135,400 6,592,287
Oracle Corp.*.................. 119,700 5,162,062
Synopsys, Inc.*................ 77,400 4,198,950
Tech Data Corp.*............... 104,900 4,222,225
Visio Corp.*................... 106,300 3,886,594
--------------
38,114,709
--------------
ELECTRONIC COMPONENTS &
EQUIPMENT -- 5.9%
Advanced Micro Devices,
Inc.*........................ 612,000 17,709,750
--------------
ENTERTAINMENT & LEISURE -- 2.2%
Time Warner, Inc. ............. 107,800 6,690,337
--------------
FINANCIAL-BANK & TRUST -- 3.2%
Chase Manhattan Corp. ......... 61,400 4,179,037
MBNA Corp. .................... 224,500 5,598,469
--------------
9,777,506
--------------
FINANCIAL SERVICES -- 10.3%
Donaldson, Lufkin & Jenrette,
Inc. ........................ 101,900 4,177,900
Household International,
Inc. ........................ 170,300 6,748,137
Merrill Lynch & Co., Inc. ..... 139,676 9,323,373
Morgan Stanley, Dean Witter &
Co. ......................... 87,400 6,205,400
Schwab, (Charles) Corp. ....... 76,800 4,315,200
--------------
30,770,010
--------------
FOOD -- 0.9%
Safeway, Inc.*................. 46,000 2,803,125
--------------
HEALTHCARE SERVICES -- 4.1%
Humana, Inc.*.................. 316,000 5,628,750
Omnicare, Inc. ................ 193,600 6,727,600
--------------
12,356,350
--------------
INSURANCE -- 1.4%
Aetna, Inc. ................... 40,900 3,215,763
CMAC Investment Corp. ......... 21,300 978,469
--------------
4,194,232
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
OFFICE EQUIPMENT -- 4.5%
Office Depot, Inc.*............ 138,900 $ 5,130,619
Staples, Inc.*................. 195,550 8,543,091
--------------
13,673,710
--------------
PHARMACEUTICALS -- 7.6%
Lilly, (Eli) & Co. ............ 93,100 8,274,263
Merck & Co., Inc. ............. 48,700 7,192,381
Pfizer, Inc. .................. 57,500 7,212,656
--------------
22,679,300
--------------
RAILROADS -- 1.3%
Kansas City Southern
Industries, Inc. ............ 80,900 3,979,269
--------------
RETAIL & MERCHANDISING -- 9.8%
Bed, Bath & Beyond, Inc.*...... 211,580 7,220,168
Costco Companies, Inc.*........ 103,000 7,435,313
Rite Aid Corp. ................ 59,800 2,963,838
Wal-Mart Stores, Inc. ......... 55,500 4,519,781
Walgreen Co. .................. 126,900 7,431,581
--------------
29,570,681
--------------
SEMICONDUCTORS -- 0.5%
Intel Corp. ................... 13,600 1,612,450
--------------
TELECOMMUNICATIONS -- 4.4%
AirTouch Communications,
Inc.* ....................... 67,200 4,846,800
Comcast Corp. Cl-A............. 84,900 4,982,569
MCI WorldCom, Inc.*............ 46,000 3,300,500
--------------
13,129,869
--------------
TRANSPORTATION -- 0.6%
CNF Transportation, Inc. ...... 49,600 1,863,100
--------------
TOTAL COMMON STOCK
(Cost $188,906,303).............. 224,474,960
--------------
SHORT-TERM INVESTMENTS -- 0.2%
Temporary Investment Cash
Fund......................... 253,878 253,878
Temporary Investment Fund...... 253,877 253,877
--------------
(Cost $507,755)................ 507,755
--------------
TOTAL INVESTMENTS -- 74.8%
(Cost $189,414,058).............. 224,982,715
OTHER ASSETS LESS
LIABILITIES -- 25.2%............. 75,941,439
--------------
NET ASSETS -- 100.0%............... $ 300,924,154
==============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
AST JANUS OVERSEAS GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FOREIGN STOCK -- 88.5%
ARGENTINA -- 0.2%
Telecom Argentina Stet SA Cl-B
[ADR].......................... 10,025 $ 275,687
Telefonica de Argentina SA Cl-B
[ADR].......................... 38,015 1,062,044
------------
1,337,731
------------
AUSTRALIA -- 0.3%
Cable & Wireless Optus Ltd.
144A*.......................... 903,551 1,900,918
------------
AUSTRIA -- 0.1%
Bank Austria AG.................. 15,114 768,981
------------
BRAZIL -- 0.5%
Telecomunicacoes Brasileiras SA
Pfd. [ADR]..................... 39,495 2,870,793
------------
CANADA -- 0.5%
Newcourt Credit Group, Inc. ..... 89,330 3,120,967
------------
DENMARK -- 0.4%
Kapital Holding.................. 2,213 109,531
Ratin AS Cl-B.................... 7,076 1,500,955
SAS Danmark AS................... 6,676 75,526
Unidanmark AS Cl-A............... 5,663 511,635
------------
2,197,647
------------
FINLAND -- 5.1%
Nokia Corp. Cl-A [ADR]........... 116,055 13,977,374
Nokia Oyj Cl-A................... 68,342 8,368,480
Raisio Group PLC................. 68,982 762,941
Sampo Insurance Co. Ltd. Cl-A.... 83,293 3,183,147
Sonera Group Oyj 144A*........... 94,238 1,675,081
Tieto Corp. Cl-B................. 60,405 2,708,108
------------
30,675,131
------------
FRANCE -- 11.6%
Alcatel.......................... 1,326 162,367
Alcatel SA [ADR]................. 24,430 597,008
Atos SA*......................... 4,932 1,179,581
Cap Gemini SA.................... 41,241 6,622,469
Cap Gemini SA 144A............... 1,719 276,037
Carrefour Supermarche SA......... 3,484 2,631,394
Equant NV*....................... 15,694 1,092,622
Groupe Danone.................... 15,700 4,496,949
Lagardere S.C.A. ................ 44,644 1,898,126
Renault SA....................... 114,704 5,154,073
Rhone-Poulenc Cl-A............... 161,600 8,320,100
Sanofi SA........................ 18,111 2,982,830
Suez Lyonnaise des Eaux.......... 53,558 11,006,888
Synthelabo....................... 4,402 932,251
Valeo SA......................... 13,011 1,025,785
Valeo SA 144A.................... 40,239 3,172,435
Vivendi.......................... 72,124 18,721,735
------------
70,272,650
------------
GERMANY -- 10.8%
Bayerische Hypo-Und Vereinsbank
AG............................. 11,091 877,680
DaimlerChrysler AG*.............. 59,037 5,866,410
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Deutsche Pfandbrief &
Hypothekenbank AG.............. 69,203 $ 6,066,356
Ergo Versicherungs Gruppe AG..... 2,933 483,398
Hoechst AG....................... 164,336 6,798,327
Mannesmann AG.................... 182,285 21,095,774
Marschollek, Lautenschlaeger und
Partner AG Non-Voting Pfd...... 5,292 3,018,517
Merck KGaA....................... 25,425 1,144,913
Metro AG......................... 43,065 3,387,239
MobilCom AG...................... 9,379 2,984,575
Muenchener Rueckversicherung AG
Warrants*...................... 146 6,837
Porsche AG Pfd. ................. 4,058 9,331,704
SAP AG Pfd. ..................... 5,247 2,518,719
Schering AG...................... 11,447 1,439,879
Veba AG.......................... 11,989 710,477
------------
65,730,805
------------
GREECE -- 0.3%
Panafon SA 144A*................. 13,861 371,222
STET Hellas Telecommunications SA
[ADR]*......................... 41,525 1,344,372
------------
1,715,594
------------
HONG KONG -- 0.5%
China Telecom Ltd. .............. 1,769,000 3,059,835
------------
IRELAND -- 1.9%
Elan Corp. PLC [ADR]*............ 167,775 11,670,848
------------
ITALY -- 4.7%
Banca Commerciale Italia NA...... 409,187 2,829,009
Banca di Roma*................... 2,357,523 4,003,332
Telecom Italia Mobile SPA........ 1,584,056 11,720,281
Telecom Italia SPA............... 973,562 8,325,118
Unicredito Italiano SPA.......... 240,571 1,429,076
------------
28,306,816
------------
JAPAN -- 10.6%
Bridgestone Corp................. 17,000 386,581
Fujitsu Ltd...................... 176,300 2,352,300
Honda Motor Co. Ltd.............. 55,000 1,809,008
Ito-Yokado Co. Ltd............... 32,000 2,241,202
Kao Corp......................... 719,000 16,254,478
Kirin Brewery Co. Ltd............ 333,000 4,251,192
Nippon Telegraph & Telephone
Corp........................... 1,990 1,538,415
NTT Data Corp.................... 290 1,442,331
NTT Mobile Communication Network,
Inc............................ 4,890 20,158,851
Rohm Co. Ltd..................... 5,000 458,347
Sony Corp........................ 58,800 4,290,235
Takeda Chemical Industries....... 232,000 8,947,077
------------
64,130,017
------------
KOREA -- 0.4%
SK Telecom Co. Ltd. [ADR]........ 234,541 2,389,389
------------
</TABLE>
<PAGE>
AST JANUS OVERSEAS GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
MEXICO -- 0.3%
Coca-Cola Femsa SA [ADR]......... 34,220 $ 453,415
Grupo Televisa SA [GDR]*......... 56,670 1,399,041
------------
1,852,456
------------
NETHERLANDS -- 7.5%
AEGON NV......................... 12,368 1,519,745
AKZO Nobel NV.................... 35,563 1,620,230
Equant NV NY Reg*................ 30,620 2,076,419
Getronics NV..................... 109,617 5,432,165
Koninklijke Ahold NV............. 260,020 9,615,643
Koninklijke Ahrend Groep NV...... 20,173 461,148
Koninklijke (Royal) Philips
Electronics NV................. 44,873 3,012,782
Koninklijke (Royal) Philips
Electronics NV [ADR]........... 43,694 2,957,538
Simac Techniek NV................ 22,565 571,138
Unilever NV...................... 34,510 2,951,427
Wolters Kluwer NV................ 72,661 15,556,912
------------
45,775,147
------------
NORWAY -- 0.3%
Den Norske Bank ASA.............. 90,773 313,349
Elektronisk Databehandling ASA... 354,721 884,619
NCL Holdings ASA*................ 245,404 579,789
SAS Norge ASA Cl-B............... 16,809 141,201
------------
1,918,958
------------
PORTUGAL -- 0.6%
Cimentos de Portugal SA.......... 22,436 716,209
Portugal Telecom SA.............. 69,965 3,207,966
------------
3,924,175
------------
SPAIN -- 3.0%
Argentaria Caja Postal Y Banco
Hipotecario de Espana SA....... 88,120 2,285,539
Banco Bilbao Vizcaya SA.......... 143,075 2,246,728
Banco Central Hispanoamericano
SA............................. 96,306 1,145,276
Prosegur, CIA de Seguridad SA.... 145,088 1,694,674
Tele Pizza SA*................... 180,645 1,721,141
Telefonica SA.................... 169,516 7,549,129
Telefonica SA [ADR].............. 10,878 1,472,650
Telefonica SA Bonus Rights*...... 169,516 150,743
------------
18,265,880
------------
SWEDEN -- 5.1%
Assa Abloy AB Cl-B............... 142,787 5,460,953
Astra AB Cl-A.................... 160,666 3,280,500
Electrolux AB Cl-B............... 318,252 5,477,260
Ericsson, (L.M.) Telephone Co.
[ADR].......................... 45,056 1,078,528
Ericsson, (L.M.) Telephone Co.
Cl-B........................... 2,050 48,812
Ortivus AB Cl-B*................. 2,329 16,953
Pharmacia & Upjohn, Inc.......... 6,729 376,899
SAS Sverige AB................... 26,039 239,331
Securitas AB..................... 873,512 13,578,677
Skandinaviska Enskilda Banken.... 96,797 1,021,048
Volvo AB Cl-B.................... 27,057 620,884
------------
31,199,845
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
SWITZERLAND -- 9.9%
Adecco SA........................ 19,682 $ 8,984,924
Ares-Serono Group................ 48 76,046
Baloise Holding Ltd. ............ 432 448,205
Julius Baer Holdings AG Cl-B..... 214 711,266
Kuoni Reisen AG.................. 1,092 4,333,081
Novartis AG...................... 8,938 17,570,405
Roche Holding AG................. 719 8,773,655
Schweizerische
Lebensversicherungs-Und
Rentenanstalt.................. 890 660,949
Swisscom AG*..................... 18,916 7,919,081
UBS AG........................... 17,317 5,320,626
Zurich Allied AG................. 7,483 5,540,824
------------
60,339,062
------------
UNITED KINGDOM -- 13.9%
Amvescap PLC..................... 234,278 1,817,415
Capita Group PLC................. 311,277 2,876,967
COLT Telecom Group PLC*.......... 600,247 8,953,321
Compass Group PLC................ 587,306 6,727,787
Diageo PLC....................... 225,725 2,568,855
Electrocomponents PLC............ 27,832 186,618
Energis PLC*..................... 267,092 5,977,052
Glaxo Wellcome PLC............... 151,972 5,228,992
Hays PLC......................... 655,849 5,756,124
JBA Holdings PLC................. 48,156 148,227
Lloyds TSB Group PLC............. 347,196 4,939,064
Logica PLC....................... 674,925 5,867,400
Misys PLC........................ 241,286 1,757,366
Orange PLC*...................... 18,296 212,631
Rentokil Initial PLC............. 1,480,067 11,155,356
Select Appointments Holdings
PLC............................ 10,662 109,453
Select Appointments Holdings PLC
[ADR].......................... 74,175 1,594,762
SEMA Group PLC................... 165,808 1,630,410
Siebe PLC........................ 666,154 2,626,799
SmithKline Beecham PLC........... 76,161 1,064,427
SmithKline Beecham PLC [ADR]..... 59,475 4,133,512
Tomkins PLC...................... 286,977 1,353,643
Vodafone Group PLC............... 179,587 2,916,276
Williams PLC..................... 802,641 4,557,197
WPP Group PLC.................... 7,509 45,695
------------
84,205,349
------------
TOTAL FOREIGN STOCK
(Cost $448,527,859)................ 537,628,994
------------
U.S. STOCK -- 2.3%
AUTOMOBILE MANUFACTURERS -- 0.4%
DaimlerChrysler AG*.............. 27,124 2,605,599
------------
CHEMICALS -- 0.0%
Solutia, Inc. ................... 29 650
------------
</TABLE>
<PAGE>
AST JANUS OVERSEAS GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
ENTERTAINMENT & LEISURE -- 0.1%
Fox Entertainment Group, Inc.
Cl-A*.......................... 16,820 $ 423,654
------------
FINANCIAL SERVICES -- 0.0%
Romanian Investment Fund**....... 163 79,462
------------
PHARMACEUTICALS -- 1.2%
Bristol-Meyers Squibb Co. ....... 2,600 347,913
Pharmacia & Upjohn, Inc. ........ 127,815 7,237,524
------------
7,585,437
------------
TELECOMMUNICATIONS -- 0.6%
Cellular Communications
International, Inc.*........... 50,360 3,424,480
------------
TOTAL U.S. STOCK
(Cost $11,348,637)................. 14,119,282
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
-------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS --
6.6%
Federal Home Loan Bank Disc. Notes
5.01%, 01/13/99................. $20,000 19,966,043
------------
Federal Home Loan Mtge. Corp.
Disc. Notes 4.74%, 01/22/99..... 20,000 19,943,808
------------
(Cost $39,911,300)................ 39,909,851
------------
COMMERCIAL PAPER -- 2.6%
Household Finance Corp. 5.25%,
01/04/99
(Cost $15,793,088)................ 15,800 15,793,088
------------
TOTAL INVESTMENTS -- 100.0% (Cost
$515,580,884)....................... 607,451,215
LIABILITIES IN EXCESS OF
OTHER ASSETS -- 0.0%................ (244,933)
------------
NET ASSETS -- 100.0%.................. $607,206,282
============
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1998:
<TABLE>
<CAPTION>
IN
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE TO RECEIVE FOR AT VALUE APPRECIATION
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99 Buy DEM 401,570 $ 239,677 $ 241,154 $ 1,477
01/99 Buy FRF 616,649 110,088 110,403 315
01/99 Buy ITL 749,639,812 451,188 454,761 3,573
01/99 Buy JPY 31,545,485 273,989 279,860 5,871
04/99 Buy JPY 520,000,000 4,535,147 4,670,523 135,376
---------- ---------- --------
$5,610,089 $5,756,701 $146,612
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
IN UNREALIZED
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS APPRECIATION
MONTH TYPE TO DELIVER FOR AT VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99
Sell ATS 351,090 $ 29,669 $ 29,966 $ (297)
04/99
Sell CHF 4,200,000 3,048,009 3,088,394 (40,385)
03/99
Sell CHF 2,400,000 1,771,218 1,762,607 8,611
01/99
Sell DEM 59,700,000 35,283,960 35,880,318 (596,358)
01/99
Sell FRF 118,256 21,119 21,172 (53)
04/99
Sell GBP 15,770,000 26,471,249 26,163,418 307,831
05/99
Sell GBP 9,730,000 15,996,743 16,137,576 (140,833)
02/99
Sell JPY 2,780,000,000 23,971,389 24,787,715 (816,326)
05/99
Sell JPY 600,000,000 5,080,440 5,420,000 (339,560)
01/99
Sell JPY 20,643,826 179,303 183,144 (3,841)
04/99
Sell JPY 2,190,000,000 18,761,210 19,684,503 (923,293)
01/99
Sell NLG 35,300,000 18,700,948 18,800,663 (99,715)
04/99
Sell SEK 33,300,000 4,149,838 4,136,600 13,238
05/99
Sell SEK 13,000,000 1,668,485 1,616,895 51,590
------------ ------------ -----------
$155,133,580 $157,712,971 $(2,579,391)
============ ============ ===========
</TABLE>
The following is a breakdown of the foreign stock portion of the Portfolio, by
industry classification, as of December 31, 1998. Percentages are based on net
assets.
<TABLE>
<CAPTION>
INDUSTRY
--------
<S> <C>
Airlines............................................. 0.1%
Automobile Manufacturers............................. 4.2%
Automotive Parts..................................... 0.8%
Beverages............................................ 0.8%
Broadcasting......................................... 0.2%
Building Materials................................... 0.1%
Business Services.................................... 3.5%
Chemicals............................................ 2.8%
Computer Services & Software......................... 6.8%
Conglomerates........................................ 0.2%
Consumer Products & Services......................... 8.8%
Electronic Components & Equipment.................... 2.3%
Entertainment & Leisure.............................. 0.8%
Environmental Services............................... 5.2%
Farming & Agriculture................................ 0.1%
Financial -- Bank & Trust............................ 5.6%
Financial Services................................... 1.8%
Food................................................. 2.7%
Furniture............................................ 0.1%
Industrial Products.................................. 4.2%
Insurance............................................ 1.5%
Medical Supplies & Equipment......................... 0.5%
Metals & Mining...................................... 0.9%
Office Equipment..................................... 1.6%
Pharmaceuticals...................................... 10.7%
Printing & Publishing................................ 2.6%
Restaurants.......................................... 0.3%
Retail & Merchandising............................... 0.6%
Telecommunications................................... 18.6%
Utilities............................................ 0.1%
----
TOTAL................................................ 88.5%
====
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stock.
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
** Closed-end fund.
144A -- Security was purchased pursuant to rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 1.2% of net assets.
See Notes to Financial Statements.
<PAGE>
AST PUTNAM VALUE GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 95.4%
AEROSPACE -- 0.8%
Raytheon Co. Cl-A................. 21,140 $ 1,092,674
Raytheon Co. Cl-B................. 6,700 356,775
------------
1,449,449
------------
AIRLINES -- 0.8%
Southwest Airlines Co............. 64,990 1,458,213
------------
AUTOMOBILE MANUFACTURERS -- 2.2%
Ford Motor Co..................... 37,320 2,190,217
General Motors Corp............... 27,235 1,949,005
------------
4,139,222
------------
AUTOMOTIVE PARTS -- 0.7%
Dana Corp......................... 10,111 413,287
Goodyear Tire & Rubber Co......... 19,785 997,906
------------
1,411,193
------------
BEVERAGES -- 1.0%
Anheuser-Busch Companies, Inc..... 29,895 1,961,859
------------
CHEMICALS -- 2.0%
Du Pont, (E.I.) de Nemours &
Co.............................. 41,300 2,191,481
Eastman Chemical Co............... 21,438 959,350
Witco Corp........................ 35,890 571,997
------------
3,722,828
------------
COMPUTER HARDWARE -- 3.3%
Compaq Computer Corp.............. 60,385 2,532,396
International Business Machines
Corp............................ 19,715 3,642,346
------------
6,174,742
------------
COMPUTER SERVICES & SOFTWARE -- 0.3%
NCR Corp.*........................ 1,500 62,625
Sun Microsystems, Inc.*........... 6,350 543,719
------------
606,344
------------
CONGLOMERATES -- 2.7%
Minnesota Mining & Manufacturing
Co.............................. 23,403 1,664,538
Philip Morris Companies, Inc...... 65,084 3,481,994
------------
5,146,532
------------
CONSUMER PRODUCTS & SERVICES -- 4.1%
Clorox Co......................... 14,400 1,682,100
Colgate-Palmolive Co.............. 12,700 1,179,512
Eastman Kodak Co.................. 21,675 1,560,600
Hasbro, Inc....................... 45,100 1,629,237
Whitman Corp...................... 67,265 1,706,849
------------
7,758,298
------------
CONTAINERS & PACKAGING -- 0.9%
Owens-Illinois, Inc.*............. 58,610 1,794,931
------------
ELECTRONIC COMPONENTS &
EQUIPMENT -- 4.3%
Emerson Electric Co............... 24,030 1,503,377
General Electric Co............... 29,495 3,010,333
Rockwell International Corp....... 11,950 580,322
Texas Instruments, Inc............ 36,525 3,125,170
------------
8,219,202
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
ENVIRONMENTAL SERVICES -- 0.6%
Waste Management, Inc............. 24,670 $ 1,150,239
------------
FINANCIAL-BANK & TRUST -- 11.5%
Bank One Corp..................... 49,939 2,550,010
BankAmerica Corp.................. 62,363 3,749,575
BankBoston Corp................... 46,080 1,794,240
Chase Manhattan Corp.............. 30,450 2,072,503
First Union Corp.................. 20,280 1,233,277
Fleet Financial Group, Inc........ 32,150 1,436,703
Mercantile Bancorporation, Inc.... 23,872 1,101,096
Morgan, (J.P.) & Co., Inc......... 20,213 2,123,628
National City Corp................ 20,270 1,469,575
PNC Bank Corp. NA................. 28,269 1,530,060
Summit Bancorp.................... 13,400 585,412
Wells Fargo & Co.................. 54,450 2,174,597
------------
21,820,676
------------
FINANCIAL SERVICES -- 6.3%
American Express Co............... 11,200 1,145,200
Citigroup, Inc.................... 75,595 3,741,952
Fannie Mae........................ 30,020 2,221,480
Lehman Brothers Holdings, Inc..... 42,655 1,879,486
Merrill Lynch & Co., Inc.......... 23,025 1,536,919
Washington Mutual, Inc............ 36,160 1,380,860
------------
11,905,897
------------
FOOD -- 3.1%
General Mills, Inc................ 17,465 1,357,904
Heinz, (H.J.) Co.................. 24,700 1,398,637
Nabisco Holdings Corp. Cl-A....... 11,900 493,850
Quaker Oats Co.................... 22,200 1,320,900
Sara Lee Corp..................... 43,616 1,229,426
------------
5,800,717
------------
INSURANCE -- 5.0%
Aetna, Inc........................ 13,630 1,071,659
Allstate Corp..................... 36,900 1,425,263
American General Corp............. 32,300 2,519,400
AON Corp.......................... 22,329 1,236,468
CIGNA Corp........................ 30,620 2,367,309
The Equitable Companies, Inc...... 14,600 844,975
------------
9,465,074
------------
MACHINERY & EQUIPMENT -- 0.7%
Deere & Co........................ 39,565 1,310,591
------------
MEDICAL SUPPLIES & EQUIPMENT -- 2.1%
Baxter International, Inc......... 36,900 2,373,131
Johnson & Johnson Co.............. 20,310 1,703,501
------------
4,076,632
------------
OFFICE EQUIPMENT -- 2.4%
Pitney Bowes, Inc................. 9,100 601,169
Xerox Corp........................ 33,285 3,927,630
------------
4,528,799
------------
OIL & GAS -- 9.3%
Atlantic Richfield Co............. 35,911 2,343,193
British Petroleum Co. PLC [ADR]... 18,665 1,672,851
Chevron Corp...................... 27,765 2,302,760
</TABLE>
112
<PAGE> 114
AST PUTNAM VALUE GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Conoco, Inc. Cl-A*................ 39,500 $ 824,563
Exxon Corp........................ 38,591 2,821,967
Halliburton Co.................... 34,395 1,018,952
Kerr-McGee Corp................... 32,820 1,255,365
Mobil Corp........................ 22,024 1,918,841
Sonat, Inc........................ 45,990 1,244,604
Texaco, Inc....................... 24,675 1,304,691
Tosco Corp........................ 37,935 981,568
------------
17,689,355
------------
PAPER & FOREST PRODUCTS -- 1.2%
Boise Cascade Corp................ 47,045 1,458,395
Kimberly-Clark Corp............... 13,645 743,653
------------
2,202,048
------------
PHARMACEUTICALS -- 7.4%
American Home Products Corp....... 53,715 3,024,826
Bristol-Meyers Squibb Co.......... 23,000 3,077,688
Merck & Co., Inc.................. 25,400 3,751,263
Pharmacia & Upjohn, Inc........... 75,760 4,289,910
------------
14,143,687
------------
PRINTING & PUBLISHING -- 1.4%
McGraw-Hill Co., Inc.............. 10,400 1,059,500
Times Mirror Co. Cl-A............. 27,540 1,542,240
------------
2,601,740
------------
RAILROADS -- 0.7%
Burlington Northern Santa Fe
Corp............................ 39,913 1,347,064
------------
RESTAURANTS -- 0.7%
McDonald's Corp................... 18,255 1,398,789
------------
RETAIL & MERCHANDISING -- 3.0%
Federated Department Stores,
Inc.*........................... 22,600 984,513
Kmart Corp.*...................... 88,455 1,354,467
Penney, (J.C.) Co., Inc........... 23,435 1,098,516
Sears, Roebuck & Co............... 33,400 1,419,500
Toys 'R' Us, Inc.*................ 49,345 832,697
------------
5,689,693
------------
SEMICONDUCTORS -- 2.5%
Intel Corp........................ 21,715 2,574,585
Motorola, Inc..................... 35,200 2,149,400
------------
4,723,985
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
TELECOMMUNICATIONS -- 9.4%
Alltel Corp....................... 23,395 $ 1,399,313
Ameritech Corp.................... 16,740 1,060,898
AT&T Corp......................... 47,200 3,551,800
GTE Corp.......................... 38,195 2,575,775
MediaOne Group, Inc.*............. 37,935 1,782,945
SBC Communications, Inc........... 53,600 2,874,300
Sprint Corp. (FON Group).......... 21,580 1,815,418
U. S. West, Inc................... 42,500 2,746,563
------------
17,807,012
------------
UTILITIES -- 5.0%
Consolidated Edison, Inc.......... 32,765 1,732,449
Dominion Resources, Inc........... 30,755 1,437,796
Duke Energy Corp.................. 23,980 1,536,219
Edison International Co........... 46,370 1,292,564
Enron Corp........................ 8,660 494,161
Entergy Corp...................... 52,160 1,623,480
Texas Utilities Co................ 31,520 1,471,590
------------
9,588,259
------------
TOTAL COMMON STOCK
(Cost $168,810,432)................. 181,093,070
------------
PAR
(000)
-------
REPURCHASE AGREEMENTS -- 4.0%
Merrill Lynch Pierce Fenner & Co.,
Inc., 4.80% dated 12/31/98, maturing
01/04/99, repurchase price
$7,607,055 (Collateralized by U.S.
Treasury Notes, par value
$7,635,000, market value $7,765,630,
due 12/31/00)
(Cost $7,603,000)................... $7,603 7,603,000
------------
TOTAL INVESTMENTS -- 99.4%
(Cost $176,413,432)................. 188,696,070
OTHER ASSETS LESS
LIABILITIES -- 0.6%................. 1,174,764
------------
NET ASSETS -- 100.0%.................. $189,870,834
============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
TWENTIETH CENTURY STRATEGIC BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK --57.8%
ADVERTISING -- 0.6%
Outdoor Systems, Inc.*.............. 18,600 $ 558,000
-----------
BEVERAGES -- 1.0%
Coca-Cola Co. ...................... 8,300 555,062
Coca-Cola Enterprises, Inc. ........ 11,000 393,250
-----------
948,312
-----------
BROADCASTING -- 0.6%
Clear Channel Communications,
Inc.*............................. 9,100 495,950
-----------
COMPUTER HARDWARE -- 4.3%
Dell Computer Corp.*................ 10,200 746,512
EMC Corp.*.......................... 19,000 1,615,000
International Business Machines
Corp. ............................ 8,300 1,533,425
-----------
3,894,937
-----------
COMPUTER SERVICES & SOFTWARE -- 7.8%
America Online, Inc.*............... 21,600 3,126,600
Cisco Systems, Inc.*................ 11,750 1,090,547
Compuware Corp.*.................... 3,800 296,875
Microsoft Corp.*.................... 18,700 2,593,456
-----------
7,107,478
-----------
CONGLOMERATES -- 2.2%
Philip Morris Companies, Inc. ...... 18,900 1,011,150
Tyco International Ltd. ............ 12,900 973,144
-----------
1,984,294
-----------
CONSUMER PRODUCTS & SERVICES -- 1.4%
Gillette Co. ....................... 8,300 400,994
Procter & Gamble Co. ............... 9,700 885,731
-----------
1,286,725
-----------
ELECTRONIC COMPONENTS & EQUIPMENT -- 2.4%
General Electric Co. ............... 21,800 2,224,962
-----------
ENTERTAINMENT & LEISURE -- 2.8%
Time Warner, Inc. .................. 25,600 1,588,800
Viacom, Inc. Cl-B*.................. 12,500 925,000
-----------
2,513,800
-----------
ENVIRONMENTAL SERVICES -- 0.5%
Waste Management, Inc. ............. 9,000 419,625
-----------
FINANCIAL-BANK & TRUST -- 1.4%
Chase Manhattan Corp. .............. 18,800 1,279,575
-----------
FINANCIAL SERVICES -- 2.7%
American Express Co. ............... 3,100 316,975
CIT Group, Inc. Cl-A................ 9,600 305,400
Fannie Mae.......................... 22,200 1,642,800
SunAmerica, Inc. ................... 2,500 202,812
-----------
2,467,987
-----------
FOOD -- 0.9%
Safeway, Inc.*...................... 14,000 853,125
-----------
INSURANCE -- 1.6%
American International Group,
Inc. ............................. 14,600 1,410,725
-----------
MEDICAL SUPPLIES & EQUIPMENT -- 3.9%
Guidant Corp. ...................... 3,500 385,875
Johnson & Johnson Co. .............. 19,600 1,643,950
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Medtronic, Inc. .................... 20,700 $ 1,536,975
-----------
3,566,800
-----------
PHARMACEUTICALS -- 9.4%
Bristol-Meyers Squibb Co. .......... 15,400 2,060,712
Cardinal Health, Inc. .............. 19,350 1,468,181
Merck & Co., Inc. .................. 8,400 1,240,575
Pfizer, Inc. ....................... 14,800 1,856,475
Schering-Plough Corp. .............. 17,600 972,400
Warner-Lambert Co. ................. 12,300 924,806
-----------
8,523,149
-----------
PRINTING & PUBLISHING -- 0.7%
McGraw-Hill Co., Inc. .............. 6,300 641,813
-----------
RETAIL & MERCHANDISING -- 3.8%
Costco Companies, Inc.*............. 8,100 584,719
CVS Corp. .......................... 10,000 550,000
Home Depot, Inc. ................... 10,500 642,469
Wal-Mart Stores, Inc. .............. 20,600 1,677,613
-----------
3,454,801
-----------
SEMICONDUCTORS -- 2.3%
Intel Corp. ........................ 17,800 2,110,412
-----------
TELECOMMUNICATIONS -- 7.5%
Bell Atlantic Corp. ................ 15,500 880,594
BellSouth Corp. .................... 10,600 528,675
MCI WorldCom, Inc.*................. 30,200 2,166,850
SBC Communications, Inc. ........... 15,500 831,188
Tele-Communications, Inc. Cl-A*..... 43,957 2,431,372
-----------
6,838,679
-----------
TOTAL COMMON STOCK
(Cost $40,733,331).................... 52,581,149
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 3.9%
AEROSPACE -- 0.2%
Lockheed Martin Corp. Notes
7.25%, 05/15/06................... $ 200 216,500
-----------
BUSINESS SERVICES -- 0.2%
Comdisco, Inc. Notes
6.50%, 04/30/99................... 200 200,500
-----------
FINANCIAL-BANK & TRUST -- 0.5%
First Bank System Sub. Notes
7.625%, 05/01/05.................. 100 110,375
NationsBank Corp. Sr. Notes
6.125%, 07/15/04.................. 300 307,500
-----------
417,875
-----------
FINANCIAL SERVICES -- 0.9%
Associates Corp. Sr. Notes
6.25%, 11/01/08................... 300 312,375
Ford Motor Credit Corp. Sr. Notes
6.55%, 09/10/02................... 215 221,988
General Motors Acceptance Corp.
Notes
7.125%, 05/01/03.................. 100 105,750
</TABLE>
<PAGE>
TWENTIETH CENTURY STRATEGIC BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------ -----------
<S> <C> <C>
Sears, Roebuck Acceptance Corp.
Notes
6.00%, 03/20/03................... $ 100 $ 101,750
Toyota Motor Credit Corp. Notes
5.625%, 11/13/03.................. 100 101,125
-----------
842,988
-----------
FOOD -- 0.2%
Kroger Co. Notes
6.80%, 12/15/18................... 200 200,750
-----------
OIL & GAS -- 0.2%
Enron Corp. Notes
6.625%, 11/15/05.................. 150 153,188
-----------
PHARMACEUTICALS -- 0.2%
Monsanto Co. Debs. 144A
6.60%, 12/01/28................... 200 200,750
-----------
RETAIL & MERCHANDISING -- 0.5%
Saks, Inc. Co. Guarantee Notes
7.25%, 12/01/04................... 200 201,000
Sears, Roebuck & Co. Notes
6.25%, 01/15/04................... 200 205,250
-----------
406,250
-----------
TELECOMMUNICATIONS -- 0.6%
Cable & Wire Communications Notes
6.625%, 03/06/05.................. 200 201,500
Cincinnati Bell Telephone Co. Co.
Guarantee Notes
6.30%, 12/01/28................... 100 100,875
WorldCom, Inc. Notes
7.55%, 04/01/04................... 100 108,375
WorldCom, Inc. Sr. Notes
6.40%, 08/15/05................... 100 103,750
-----------
514,500
-----------
UTILITIES -- 0.4%
Cinergy Corp. Notes 144A
6.53%, 12/16/08................... 200 199,500
Georgia Power Co. Sr. Notes Cl-C
5.50%, 12/01/05................... 200 200,750
-----------
400,250
-----------
TOTAL CORPORATE OBLIGATIONS
(Cost $3,477,737)..................... 3,553,551
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.5%
Federal Home Loan Bank Disc. Notes
4.30%, 01/04/99................... 4,619 4,617,345
5.705%, 03/19/03.................. 500 511,664
-----------
5,129,009
-----------
Federal National Mtge. Assoc. 6.23%,
07/21/08.......................... 200 204,374
7.00%, 03/01/28................... 868 886,588
7.50%, 03/01/27-07/01/27.......... 486 499,905
-----------
1,590,867
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
------ -----------
<S> <C> <C>
Government National Mtge. Assoc.
6.00%, 04/15/28-05/15/28.......... $ 593 $ 588,237
6.50%, 03/15/28-04/15/28.......... 1,664 1,683,225
7.00%, 12/15/27................... 287 293,653
8.00%, 03/15/27................... 117 122,028
8.75%, 01/15/27-04/15/27.......... 164 174,401
-----------
2,861,544
-----------
(Cost $9,514,562)................... 9,581,420
-----------
U.S. TREASURY OBLIGATIONS -- 18.1%
U.S. Treasury Bonds
8.75%, 05/15/17................... 1,000 1,392,888
6.125%, 11/15/27.................. 1,150 1,285,686
-----------
2,678,574
-----------
U.S. Treasury Notes
7.75%, 11/30/99................... 2,750 2,825,652
5.50%, 03/31/00................... 1,800 1,818,898
6.625%, 07/31/01.................. 900 943,938
5.75%, 08/15/03................... 3,500 3,656,555
6.625%, 05/15/07.................. 3,900 4,396,642
4.75%, 11/15/08................... 100 100,778
-----------
13,742,463
-----------
(Cost $16,073,472).................. 16,421,037
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.0%
Amresco Residential Securities Mtge.
Loan Trust Series 1998-2 Cl-A4
6.44%, 04/25/27................... 400 405,194
Case Equipment Loan Trust Series
1998-B Cl-A4 5.92%, 10/15/05...... 300 304,364
CIT RV Trust Series 1998-A Cl-A4
6.09%, 02/15/12................... 300 305,483
Comed Transitional Funding Trust
Series 1998-1 Cl-A6 5.63%,
06/03/06.......................... 100 100,700
First Union-Lehman Brothers
Commercial Mtge. Series 1998-C2
Cl-A1 6.28%, 06/18/07............. 291 298,344
Morgan Stanley Capital I Series
1998-WF1 Cl-A1 6.25%, 07/15/07.... 193 197,765
Nationslink Funding Corp. Series
1998-2 Cl-A1 6.00%, 11/20/07...... 199 201,173
-----------
(Cost $1,785,906)................... 1,813,023
-----------
</TABLE>
<PAGE>
TWENTIETH CENTURY STRATEGIC BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
(000) VALUE
--------- -----
<S> <C> <C>
FOREIGN BONDS -- 5.9%
CANADA -- 0.3%
British Columbia Government
5.375%, 10/29/08................. 100 $ 99,936
Canadian Government
6.00%, 06/01/08.................. 300 211,405
-----------
311,341
-----------
DENMARK -- 0.3%
Kingdom of Denmark
8.00%, 03/15/06.................. 1,150 222,832
-----------
GERMANY -- 3.4%
Deutscheland Republic
6.00%, 09/15/03.................. 2,600 1,739,036
4.75%, 07/04/28.................. 550 328,180
Federal Republic of Germany
6.00%, 07/04/07.................. 1,500 1,035,352
-----------
3,102,568
-----------
JAPAN -- 0.9%
Japanese Government
2.90%, 12/20/05.................. 85,000 814,457
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
(000) VALUE
--------- -----
<S> <C> <C>
UNITED KINGDOM -- 1.0%
United Kingdom Treasury
7.50%, 12/07/06.................. 175 $ 349,575
9.00%, 08/06/12.................. 250 605,003
-----------
954,578
-----------
TOTAL FOREIGN BONDS (Cost
$5,258,608).......................... 5,405,776
-----------
SHORT-TERM INVESTMENTS -- 0.0%
Temporary Investment Cash Fund..... 4,403 4,403
Temporary Investment Fund.......... 4,403 4,403
-----------
(Cost $8,806)...................... 8,806
-----------
TOTAL INVESTMENTS -- 98.2%
(Cost $76,852,422)................... 89,364,762
OTHER ASSETS LESS
LIABILITIES -- 1.8%.................. 1,677,889
-----------
NET ASSETS -- 100.0%................... $91,042,651
===========
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 0.4% of net assets.
See Notes to Financial Statements.
<PAGE>
TWENTIETH CENTURY INTERNATIONAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FOREIGN STOCK -- 91.8%
AUSTRALIA -- 2.1%
AMP Ltd. 144A*................. 58,230 $ 738,429
Australia & New Zealand Banking
Group Ltd.................... 33,000 216,173
Brambles Industries Ltd........ 10,000 243,811
Cable & Wireless Optus Ltd.*... 223,826 470,892
--------------
1,669,305
--------------
BELGIUM -- 1.2%
Fortis AG...................... 1,000 362,416
UCB SA......................... 87 536,900
--------------
899,316
--------------
BRAZIL -- 0.6%
Centrais Eletricas Brasileiras
SA........................... 4,920,000 93,660
Companhia de Saneamento Basico
do Estado de Sao Paulo....... 1,487,000 105,845
Embratel Participacoes SA
Pfd. ........................ 5,700,000 75,484
Petroleo Brasileiro SA......... 687,000 76,194
Telesp Participacoes SA
Pfd.*........................ 6,200,000 139,580
--------------
490,763
--------------
CANADA -- 2.4%
Bombardier, Inc. Cl-B.......... 38,300 537,368
Newcourt Credit Group, Inc.
144A......................... 14,070 495,584
Teleglobe, Inc................. 22,250 807,608
--------------
1,840,560
--------------
DENMARK -- 1.5%
Tele Danmark AS................ 8,500 1,147,250
--------------
FINLAND -- 2.1%
Nokia Corp. Cl-A [ADR]......... 9,700 1,168,244
Sampo Insurance Co. Ltd.
Cl-A......................... 7,200 275,157
Sonera Group Oyj*.............. 9,958 177,004
--------------
1,620,405
--------------
FRANCE -- 13.0%
Accor SA....................... 650 140,798
Altran Technologies SA......... 2,120 511,592
Atos SA*....................... 1,700 406,587
AXA SA......................... 10,163 1,473,687
Cap Gemini SA.................. 5,638 905,349
Carrefour Supermarche SA....... 700 528,696
Groupe Danone.................. 3,400 973,862
Pinault-Printemps Redoute SA... 7,000 1,338,343
Sidel SA....................... 2,900 246,079
Societe Generale............... 4,200 680,450
Societe Nationale Elf Aquitaine
SA........................... 3,300 381,632
Societe Television Francaise... 1,350 240,467
STMicroelectronics NV NY Reg*.. 4,500 351,281
Vivendi........................ 7,400 1,920,870
--------------
10,099,693
--------------
GERMANY -- 8.9%
Allianz AG..................... 1,394 518,925
Bayerische Hypo-Und Vereinsbank
AG........................... 4,000 316,538
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Berliner Kraft-Und Licht
(Bewag)-
Aktiengesellschaft........... 9,200 $ 243,047
DaimlerChrysler AG*............ 9,200 914,189
Deutsche Pfandbrief &
Hypothekenbank AG............ 9,700 850,305
Douglas Holding AG............. 9,000 532,266
Gehe AG........................ 3,000 201,739
Mannesmann AG.................. 15,090 1,746,360
Metro AG....................... 5,640 443,609
Volkswagen AG.................. 11,883 961,759
Wella AG....................... 200 168,116
--------------
6,896,853
--------------
GREECE -- 0.3%
Hellenic Telecommunication
Organization SA.............. 10,133 269,559
--------------
HONG KONG -- 0.3%
Cheung Kong Holdings Ltd....... 27,400 197,179
--------------
IRELAND -- 1.2%
Bank of Ireland................ 35,600 782,450
Kerry Group PLC................ 13,000 155,549
--------------
937,999
--------------
ITALY -- 5.6%
Assicurazioni Generali......... 18,000 753,233
Banca di Roma*................. 187,800 318,905
Banco Intesa SPA............... 102,000 613,339
Mediaset SPA................... 28,000 227,547
Mediolanum SPA................. 47,000 349,174
Mondadori, (Arnoldo) Editore
SPA.......................... 42,300 560,531
Telecom Italia Mobile SPA...... 130,300 614,797
Telecom Italia SPA............. 106,700 912,412
--------------
4,349,938
--------------
JAPAN -- 9.3%
Daiwa House Industry Co.
Ltd. ........................ 24,000 255,965
Eisai Co. Ltd. ................ 8,000 156,033
Fuji Heavy Industries Ltd...... 43,000 215,388
Fujikura Ltd................... 27,000 145,058
Fujitsu Ltd.................... 45,000 600,417
Honda Motor Co. Ltd............ 6,000 197,346
Kao Corp. ..................... 40,000 904,283
Kirin Brewery Co. Ltd. ........ 34,000 434,056
Murata Manufacturing Co.
Ltd.......................... 6,000 235,113
Nikon Corp. ................... 22,000 214,545
Nippon Telegraph & Telephone
Corp......................... 340 262,845
NTT Data Corp.................. 95 472,488
NTT Mobile Communication
Network, Inc. ............... 60 247,348
Olympus Optical Co. Ltd........ 14,000 161,228
Sony Corp...................... 5,400 394,001
Takeda Chemical Industries..... 22,000 848,430
</TABLE>
<PAGE>
TWENTIETH CENTURY INTERNATIONAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Terumo Corp. .................. 23,000 $ 542,392
The Bank of Tokyo-Mitsubishi
Ltd.......................... 14,000 145,217
Tokyo Electron Ltd............. 15,000 570,496
Toppan Forms Co. Ltd........... 12,000 213,836
--------------
7,216,485
--------------
KOREA -- 0.6%
Samsung Electronics Co......... 4,600 308,716
SK Telecom Co. Ltd. [ADR]...... 12,669 129,065
--------------
437,781
--------------
NETHERLANDS -- 8.9%
Assurantieconcern Stad
Rotterdam NV................. 7,440 673,960
Cap Gemini NV.................. 6,600 460,710
Equant NV NY Reg*.............. 5,400 366,188
Getronics NV................... 13,700 678,915
Heineken NV.................... 12,000 722,556
ING Groep NV................... 16,615 1,013,720
Koninklijke Ahold NV........... 24,975 923,585
Stork NV....................... 1,500 34,289
Unilever NV.................... 11,400 945,488
VNU NV......................... 15,500 584,759
Wolters Kluwer NV.............. 2,250 481,731
--------------
6,885,901
--------------
NEW ZEALAND -- 0.2%
Telecom Corp. of New Zealand
Ltd.......................... 42,000 183,041
--------------
POLAND -- 0.2%
Elektrim Spolka Akcyjna SA..... 13,453 145,648
--------------
PORTUGAL -- 1.5%
Banco Espirito Santo e
Comercial de Lisboa SA....... 7,157 222,138
Brisa-Auto Estradas de Portugal
SA........................... 6,300 370,855
Telecel-Comunicacaoes Pessoais
SA........................... 2,898 592,409
--------------
1,185,402
--------------
SINGAPORE -- 0.9%
City Developments Ltd.......... 44,000 190,671
Singapore Press Holdings
Ltd. ........................ 32,200 351,281
Singapore Technologies
Engineering Ltd.............. 203,000 189,471
--------------
731,423
--------------
SPAIN -- 2.2%
Argentaria Caja Postal Y Banco
Hipotecario de Espana SA..... 21,600 560,232
Tele Pizza SA*................. 20,310 193,509
Telefonica SA.................. 21,900 975,282
Telefonica SA Bonus Rights*.... 21,900 19,475
--------------
1,748,498
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
SWEDEN -- 2.7%
Ericsson, (L.M.) Telephone Co.
[ADR]........................ 6,800 $ 162,775
Europolitan Holdings AB........ 4,600 451,173
Hennes & Mauritz AB Cl-B....... 13,600 1,110,746
NetCom Systems AB Cl-B*........ 9,735 396,340
--------------
2,121,034
--------------
SWITZERLAND -- 7.9%
Credit Suisse Group............ 700 109,576
Julius Baer Holdings AG Cl-B... 369 1,226,436
Nestle SA...................... 344 748,871
Novartis AG.................... 910 1,788,887
Roche Holding AG............... 28 341,672
Schweizerische
Rueckversicherungs-
Gesellschaft................. 88 229,438
Swisscom AG*................... 1,600 669,831
UBS AG......................... 3,360 1,032,356
--------------
6,147,067
--------------
UNITED KINGDOM -- 18.2%
Amvescap PLC................... 77,900 604,311
BBA Group PLC.................. 52,000 324,010
British Aerospace PLC.......... 29,300 248,379
British Telecommunications
PLC.......................... 52,000 783,422
Cable & Wireless Communications
PLC*......................... 105,251 961,396
Capita Group PLC............... 23,500 217,198
CMG PLC........................ 10,600 268,955
COLT Telecom Group PLC*........ 64,073 955,717
Compass Group PLC.............. 25,600 293,257
CRH PLC........................ 17,000 289,353
Diageo PLC..................... 53,000 603,165
Dixons Group PLC............... 25,000 351,688
Energis PLC*................... 37,900 848,136
Glaxo Wellcome PLC............. 14,000 481,706
Hays PLC....................... 22,800 200,107
Imperial Tobacco Group PLC..... 38,700 414,668
Lloyds TSB Group PLC........... 59,500 846,422
Logica PLC..................... 42,500 369,470
Misys PLC...................... 61,700 449,381
Orange PLC*.................... 38,400 446,274
Provident Financial PLC*....... 11,868 174,759
Rentokil Initial PLC........... 42,000 316,557
Siebe PLC...................... 62,000 244,480
Somerfield PLC................. 59,500 396,482
Stagecoach Holdings PLC........ 107,000 425,931
Standard Chartered PLC......... 51,000 591,010
Vodafone Group PLC............. 62,400 1,013,301
WPP Group PLC.................. 62,100 377,903
Zeneca Group PLC............... 14,300 622,649
--------------
14,120,087
--------------
TOTAL FOREIGN STOCK
(Cost $63,183,633)............... 71,341,187
--------------
</TABLE>
<PAGE>
TWENTIETH CENTURY INTERNATIONAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
U.S. STOCK -- 1.6%
CLOTHING & APPAREL -- 0.1%
Tommy Hilfiger, Corp.*......... 1,000 $ 60,000
--------------
TELECOMMUNICATIONS -- 1.5%
AirTouch Communications,
Inc.*........................ 6,400 461,600
Global TeleSystems Group,
Inc.*........................ 8,200 457,150
Northern Telecom Ltd. ......... 6,000 300,750
--------------
1,219,500
--------------
TOTAL U.S. STOCK
(Cost $1,042,094)................ 1,279,500
--------------
PAR
(000)
-----
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 9.2%
Federal Home Loan Bank Disc.
Notes 4.30%, 01/04/99........ $ 7,166 7,163,432
--------------
(Cost $7,163,432)
TOTAL INVESTMENTS -- 102.6% (Cost
$71,389,159)..................... 79,784,119
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (2.6%)........... (2,051,487)
--------------
NET ASSETS -- 100.0%............... $ 77,732,632
==============
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1998:
<TABLE>
<CAPTION>
IN UNREALIZED
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
MONTH TYPE RECEIVE FOR AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99 Buy AUD 170,233 $ 104,395 $ 104,419 $ 24
01/99 Buy BEL 12,076,950 349,095 351,360 2,265
01/99 Buy DEM 332,706 198,157 199,799 1,642
01/99 Buy FRF 983,282 175,226 176,044 818
01/99 Buy GBP 206,424 347,756 346,666 (1,090)
01/99 Buy ITL 262,843,058 158,786 159,432 646
01/99 Buy JPY 8,396,714 73,101 74,503 1,402
01/99 Buy NLG 194,052 102,926 103,394 468
01/99 Buy NZD 366,869 191,718 193,793 2,075
01/99 Buy SEK 415,928 51,537 51,341 (196)
---------- ---------- -------
$1,752,697 $1,760,751 $ 8,054
========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
IN UNREALIZED
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
MONTH TYPE DELIVER FOR AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/99 Sell CHF 827,158 $ 604,891 $ 604,268 $ 623
01/99 Sell DEM 1,121,494 668,666 674,112 (5,446)
01/99 Sell FRF 5,706,444 1,015,147 1,021,668 (6,521)
01/99 Sell GBP 936,524 1,567,622 1,556,376 11,246
01/99 Sell JPY 173,036,337 1,499,941 1,539,728 (39,787)
01/99 Sell NLG 1,209,558 639,657 644,154 (4,497)
01/99 Sell SEK 1,745,566 215,151 216,145 (994)
---------- ---------- --------
$6,211,075 $6,256,451 $(45,376)
========== ========== ========
</TABLE>
The following is a breakdown of the foreign stock portion of the Portfolio, by
industry classification, as of December 31, 1998. Percentages are based on net
assets.
<TABLE>
<CAPTION>
INDUSTRY
- --------
<S> <C>
Advertising.......................................... 0.5%
Aerospace............................................ 0.7%
Automobile Manufacturers............................. 2.9%
Beverages............................................ 2.3%
Broadcasting......................................... 0.6%
Building Materials................................... 1.0%
Business Services.................................... 1.9%
Clothing & Apparel................................... 0.1%
Computer Services & Software......................... 5.8%
Conglomerates........................................ 0.2%
Construction......................................... 0.5%
Consumer Products & Services......................... 1.9%
Electronic Components & Equipment.................... 3.4%
Environmental Services............................... 0.4%
Financial -- Bank & Trust............................ 12.3%
Financial Services................................... 1.6%
Food................................................. 4.0%
Hotels & Motels...................................... 1.4%
Industrial Products.................................. 3.0%
Insurance............................................ 6.9%
Machinery & Equipment................................ 2.6%
Medical Supplies & Equipment......................... 0.7%
Oil & Gas............................................ 0.6%
Personal Services.................................... 1.4%
Pharmaceuticals...................................... 6.4%
Printing & Publishing................................ 2.8%
Real Estate.......................................... 0.3%
Retail & Merchandising............................... 5.1%
Telecommunications................................... 19.7%
Transportation....................................... 0.8%
----
TOTAL................................................ 91.8%
====
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all stocks are common stock.
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 1.6% of net assets.
See Notes to Financial Statements.
<PAGE>
T. ROWE PRICE SMALL COMPANY VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 94.6%
AIRLINES -- 1.3%
Midwest Express Holdings,
Inc.*........................ 150,000 $ 3,946,875
--------------
AUTOMOTIVE PARTS -- 2.4%
Myers Industries, Inc. ........ 120,000 3,435,000
OEA, Inc. ..................... 225,000 2,657,813
TBC Corp.*..................... 188,000 1,339,500
--------------
7,432,313
--------------
BUILDING MATERIALS -- 10.2%
Cameron Ashley Building
Products, Inc.*.............. 200,000 2,612,500
Giant Cement Holding, Inc.*.... 80,000 1,980,000
Gibraltar Steel Corp.*......... 120,000 2,730,000
Holophane Corp.*............... 120,000 3,082,500
Juno Lighting, Inc. ........... 150,000 3,506,250
Lone Star Technologies,
Inc.*........................ 160,000 1,620,000
Modine Manufacturing Co. ...... 120,000 4,350,000
Republic Group, Inc. .......... 180,000 3,611,250
Skyline Corp. ................. 70,000 2,275,000
Synthetic Industries, Inc.*.... 180,000 3,015,000
Thomas Industries, Inc. ....... 110,000 2,158,750
--------------
30,941,250
--------------
BUSINESS SERVICES -- 1.5%
Grey Advertising, Inc.......... 8,000 2,912,000
The IT Group, Inc.*............ 150,430 1,673,534
--------------
4,585,534
--------------
CHEMICALS -- 2.6%
Furon Co....................... 230,000 3,924,375
Schulman, (A.), Inc. .......... 120,000 2,722,500
TETRA Technologies, Inc.*...... 125,000 1,367,187
--------------
8,014,062
--------------
CLOTHING & APPAREL -- 1.7%
Dan River, Inc. Cl-A*.......... 200,000 2,350,000
Unitog Co. .................... 100,000 2,875,000
--------------
5,225,000
--------------
COMPUTER HARDWARE -- 0.9%
Analogic Corp. ................ 75,000 2,821,875
--------------
COMPUTER SERVICES & SOFTWARE -- 1.7%
Analysts International
Corp. ....................... 160,000 3,080,000
SPSS, Inc.*.................... 109,355 2,064,076
--------------
5,144,076
--------------
CONSUMER PRODUCTS & SERVICES -- 1.1%
American Safety Razor Co.*..... 200,000 2,400,000
Culp, Inc. .................... 140,000 1,102,500
--------------
3,502,500
--------------
CONTAINERS & PACKAGING -- 4.3%
AptarGroup, Inc. .............. 120,000 3,367,500
First Brands Corp. ............ 60,000 2,366,250
Ivex Packaging Corp.*.......... 180,000 4,185,000
Shorewood Packaging Corp.*..... 150,000 3,075,000
--------------
12,993,750
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
ELECTRONIC COMPONENTS & EQUIPMENT -- 9.0%
Electro Rental Corp.*.......... 300,000 $ 4,837,500
Franklin Electric Co., Inc. ... 40,000 2,700,000
Landauer, Inc. ................ 75,000 2,428,125
Littelfuse, Inc.*.............. 200,000 3,850,000
Methode Electronics, Inc.
Cl-A......................... 250,000 3,906,250
Nichols Research Corp.*........ 130,000 2,713,750
Optical Coating Laboratory,
Inc. ........................ 140,000 3,640,000
Pioneer-Standard Electronics,
Inc. ........................ 130,000 1,218,750
Scotsman Industries, Inc. ..... 100,000 2,056,250
--------------
27,350,625
--------------
ENVIRONMENTAL SERVICES -- 0.9%
Newpark Resources, Inc.*....... 325,000 2,214,062
Waterlink, Inc.*............... 150,000 543,750
--------------
2,757,812
--------------
EQUIPMENT SERVICES -- 2.8%
Cort Business Services
Corp.*....................... 140,000 3,395,000
Rival Co. ..................... 87,000 1,169,062
Unifirst Corp. ................ 110,000 2,509,375
VWR Scientific Products,
Inc.*........................ 80,000 1,390,000
--------------
8,463,437
--------------
FINANCIAL-BANK & TRUST -- 3.3%
Community First Bankshares,
Inc. ........................ 150,000 3,159,375
First Republic Bank*........... 120,000 3,007,500
Silicon Valley Bancshares*..... 180,000 3,065,625
Sirrom Capital Corp............ 160,000 790,000
--------------
10,022,500
--------------
FINANCIAL SERVICES -- 3.6%
Allied Capital Corp............ 225,000 3,895,313
AMRESCO, Inc.*................. 150,000 1,312,500
First Financial Fund**......... 200,000 1,762,500
McGrath Rentcorp............... 120,000 2,640,000
Medallion Financial Corp....... 100,000 1,431,250
--------------
11,041,563
--------------
FOOD -- 0.5%
Richfood Holdings, Inc......... 66,400 1,377,800
--------------
INSURANCE -- 6.9%
FBL Financial Group, Inc.
Cl-A......................... 116,800 2,832,400
Harleysville Group, Inc........ 46,000 1,187,375
Markel Corp.*.................. 18,000 3,258,000
Medical Assurance, Inc.*....... 110,000 3,636,875
Poe & Brown, Inc............... 160,000 5,590,000
Presidential Life Corp......... 140,000 2,782,500
PXRE Corp. .................... 70,000 1,754,375
--------------
21,041,525
--------------
LUMBER & WOOD PRODUCTS -- 0.5%
Deltic Timber Corp............. 80,000 1,630,000
--------------
MACHINERY & EQUIPMENT -- 3.8%
Alamo Group, Inc............... 71,200 814,350
Carbo Ceramics, Inc............ 110,000 1,925,000
Smith, (A.O.) Corp. ........... 150,000 3,684,375
</TABLE>
<PAGE>
T. ROWE PRICE SMALL COMPANY VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
TransTechnology Corp. ......... 140,000 $ 2,905,000
Woodward Governor Co........... 105,000 2,323,125
--------------
11,651,850
--------------
MEDICAL SUPPLIES & EQUIPMENT -- 1.7%
Lunar Corp.*................... 140,000 1,330,000
Owens & Minor, Inc............. 250,000 3,937,500
--------------
5,267,500
--------------
METALS & MINING -- 2.3%
Cambior, Inc. ................. 90,000 444,375
Dayton Mining Corp.*........... 140,000 35,000
Golden Star Resources Ltd.*.... 120,000 127,500
Homestake Mining Co. .......... 185,000 1,699,688
Layne Christensen Co.*......... 120,000 885,000
Material Sciences Corp.*....... 150,000 1,275,000
Penn Virginia Corp. ........... 130,000 2,388,750
--------------
6,855,313
--------------
OFFICE EQUIPMENT -- 3.9%
Aaron Rents, Inc. Cl-A......... 50,000 746,875
Aaron Rents, Inc. Cl-B......... 150,000 2,268,750
CompX International, Inc.*..... 200,000 5,275,000
IDEX Corp...................... 140,000 3,430,000
--------------
11,720,625
--------------
OIL & GAS -- 2.1%
Chieftain International,
Inc.*........................ 200,000 2,875,000
Cross Timbers Oil Co........... 250,000 1,875,000
Devon Energy Corp.............. 50,000 1,534,375
--------------
6,284,375
--------------
PAPER & FOREST PRODUCTS -- 1.4%
CSS Industries, Inc.*.......... 62,900 1,906,656
Wausau-Mosinee Paper Corp...... 140,000 2,476,250
--------------
4,382,906
--------------
PERSONAL SERVICES -- 1.8%
Matthews International Corp.
Cl-A......................... 170,000 5,355,000
--------------
PHARMACEUTICALS -- 1.0%
Coulter Pharmaceutical,
Inc.*........................ 100,000 3,000,000
--------------
REAL ESTATE -- 5.3%
Apartment Investment &
Management Co. Cl-A [REIT]... 40,000 1,487,500
Glenborough Realty Trust, Inc.
[REIT]....................... 175,000 3,565,625
Innkeepers USA Trust [REIT].... 150,000 1,771,875
Meridian Industrial Trust, Inc.
[REIT]....................... 150,000 3,525,000
National Health Investors, Inc.
[REIT]....................... 50,000 1,234,375
Post Properties, Inc. [REIT]... 24,600 945,563
Sun Communities, Inc. [REIT]... 100,000 3,481,250
--------------
16,011,188
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
RESTAURANTS -- 3.5%
Consolidated Products, Inc.*... 225,000 $ 4,640,625
Ruby Tuesday, Inc. ............ 280,000 5,950,000
--------------
10,590,625
--------------
RETAIL & MERCHANDISING -- 4.6%
Bon-Ton Stores, Inc.*.......... 200,000 1,525,000
Casey's General Stores,
Inc. ........................ 200,000 2,606,250
CompuCom Systems, Inc.*........ 450,000 1,575,000
Fred's, Inc. .................. 148,300 2,224,500
Hancock Fabrics, Inc. ......... 200,000 1,675,000
Jo-Ann Stores, Inc. Cl-B*...... 130,000 1,803,750
Stein Mart, Inc.*.............. 375,000 2,613,281
--------------
14,022,781
--------------
TELECOMMUNICATIONS -- 2.8%
Aliant Communications, Inc. ... 160,000 6,540,000
Mosaix, Inc.*.................. 250,000 1,937,500
--------------
8,477,500
--------------
TRANSPORTATION -- 1.5%
Hub Group, Inc. Cl-A........... 20,000 387,500
Landstar Systems, Inc.*........ 100,000 4,075,000
--------------
4,462,500
--------------
UTILITIES -- 3.7%
Black Hills Corp. ............. 110,000 2,901,250
Cleco Corp. ................... 100,000 3,431,250
United Water Resources,
Inc. ........................ 200,000 4,787,500
--------------
11,120,000
--------------
TOTAL COMMON STOCK
(Cost $308,427,948).................... 287,494,660
--------------
PREFERRED STOCK -- 0.2%
Cross Timbers Oil Co. $1.5625
Cl-A
(Cost $1,188,022).............. 33,000 715,687
--------------
PAR
(000)
-----
COMMERCIAL PAPER -- 4.5%
MetLife Funding Corp.
5.26%, 01/15/99.............. $ 3,025 3,018,812
Schering-Plough Corp.
5.30%, 01/15/99.............. 5,000 4,989,694
Sysco Corp.+
5.10%, 01/04/99.............. 5,747 5,744,558
--------------
(Cost $13,753,064)............. 13,753,064
--------------
</TABLE>
<PAGE>
T. ROWE PRICE SMALL COMPANY VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------ --------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 0.1%
Temporary Investment Cash Fund
(Cost $308,957)................ 308,957 $ 308,957
--------------
TOTAL INVESTMENTS -- 99.4%
(Cost $323,677,991).............. 302,272,368
OTHER ASSETS LESS
LIABILITIES -- 0.6%.............. 1,800,052
--------------
NET ASSETS -- 100.0%............... $ 304,072,420
==============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
** Closed-end fund.
+ Security is restricted as to resale and may not be resold except to qualified
institutional buyers. At the end of the year, these securities amounted to
0.7% of net assets.
See Notes to Financial Statements.
<PAGE>
MARSICO CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 88.5%
AEROSPACE -- 0.6%
Gulfstream Aerospace Corp.*....... 73,027 $ 3,888,688
------------
AIRLINES -- 4.3%
Delta Air Lines, Inc.............. 211,026 10,973,352
UAL Corp.*........................ 246,250 14,698,047
------------
25,671,399
------------
AUTOMOBILE MANUFACTURERS -- 6.0%
Ford Motor Co..................... 343,878 20,181,340
General Motors Corp............... 220,706 15,794,273
------------
35,975,613
------------
BEVERAGES -- 5.5%
Anheuser-Busch Companies, Inc..... 275,010 18,047,531
Coca-Cola Enterprises, Inc........ 415,317 14,847,583
------------
32,895,114
------------
COMPUTER HARDWARE -- 15.5%
Dell Computer Corp.*.............. 416,879 30,510,332
EMC Corp.*........................ 453,755 38,569,175
International Business Machines
Corp............................ 127,145 23,490,039
------------
92,569,546
------------
COMPUTER SERVICES & SOFTWARE -- 7.5%
Cisco Systems, Inc.*.............. 180,680 16,769,363
Microsoft Corp.*.................. 202,885 28,137,613
------------
44,906,976
------------
CONSTRUCTION -- 0.6%
M.D.C. Holdings, Inc.............. 165,770 3,543,334
------------
ELECTRONIC COMPONENTS &
EQUIPMENT -- 0.8%
General Electric Co............... 47,067 4,803,776
------------
ENTERTAINMENT & LEISURE -- 4.5%
Time Warner, Inc.................. 431,748 26,795,360
------------
EQUIPMENT SERVICES -- 2.6%
Hertz Corp. Cl-A.................. 336,435 15,349,847
------------
FINANCIAL-BANK & TRUST -- 3.8%
Chase Manhattan Corp.............. 121,576 8,274,766
Northern Trust Corp............... 137,336 11,991,150
U.S. Bancorp...................... 59,937 2,127,764
------------
22,393,680
------------
FINANCIAL SERVICES -- 10.7%
Associates First Capital Corp.
Cl-A............................ 221,612 9,390,808
Citigroup, Inc.................... 423,134 20,945,133
Fannie Mae........................ 227,106 16,805,844
Freddie Mac....................... 252,371 16,262,156
------------
63,403,941
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
HEALTHCARE SERVICES -- 1.9%
IMS Health, Inc................... 152,431 $ 11,499,014
------------
HOTELS & MOTELS -- 0.3%
Four Seasons Hotels, Inc.......... 61,432 1,796,886
------------
INSURANCE -- 0.3%
Progressive Corp.................. 9,571 1,621,088
------------
PHARMACEUTICALS -- 8.0%
Pfizer, Inc....................... 190,725 23,924,067
Schering-Plough Corp.............. 188,696 10,425,454
Warner-Lambert Co................. 175,781 13,216,534
------------
47,566,055
------------
PRINTING & PUBLISHING -- 1.5%
Houghton Mifflin Co............... 184,176 8,702,316
------------
RESTAURANTS -- 3.1%
McDonald's Corp................... 237,382 18,189,396
------------
RETAIL & MERCHANDISING -- 1.8%
Home Depot, Inc................... 172,267 10,540,587
------------
SEMICONDUCTORS -- 2.6%
Intel Corp........................ 129,817 15,391,428
------------
TELECOMMUNICATIONS -- 6.6%
AT&T Corp......................... 152,941 11,508,810
Lucent Technologies, Inc.......... 118,486 13,033,460
MediaOne Group, Inc.*............. 308,598 14,504,106
------------
39,046,376
------------
TOTAL COMMON STOCK
(Cost $439,554,439)................. 526,550,420
------------
PAR
(000)
-------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 14.3%
Federal Home Loan Mtge. Corp.
4.50%, 01/04/99
(Cost $84,968,125)................ $85,000 84,968,125
------------
SHARES
-------
SHORT-TERM INVESTMENTS -- 0.1%
Temporary Investment Cash Fund.... 465,088 465,088
Temporary Investment Fund......... 465,089 465,089
------------
(Cost $930,177)................... 930,177
------------
TOTAL INVESTMENTS -- 102.9%
(Cost $525,452,741)................. 612,448,722
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (2.9%).................... (17,482,550)
------------
NET ASSETS -- 100.0%.................. $594,966,172
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
COHEN & STEERS REALTY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 94.0%
APARTMENT/RESIDENTIAL -- 13.6%
Apartment Investment &
Management Co. Cl-A [REIT]... 40,100 $ 1,491,219
Archstone Communities Trust
[REIT]....................... 37,000 749,250
Avalonbay Communities, Inc.
[REIT]....................... 37,439 1,282,286
Essex Property Trust, Inc.
[REIT]....................... 25,200 749,700
Smith, (Charles E.) Residential
Realty, Inc. ................ 6,900 221,662
--------------
4,494,117
--------------
COMMUNITY CENTER -- 7.8%
Developers Diversified Realty
Corp. [REIT]................. 53,300 946,075
Kimco Realty Corp. [REIT]...... 31,300 1,242,219
Pan Pacific Retail Properties,
Inc. [REIT].................. 19,600 390,775
--------------
2,579,069
--------------
DIVERSIFIED -- 10.1%
LNR Property Corp. ............ 36,900 735,694
Reckson Services Industries,
Inc.*........................ 12,432 51,282
Vornado Operating Inc.*........ 3,395 27,372
Vornado Realty Trust [REIT].... 67,900 2,291,625
Brookfield Properties Corp..... 18,400 225,217
--------------
3,331,190
--------------
HEALTH CARE -- 3.3%
American Retirement Corp.*..... 23,600 370,225
Healthcare Realty Trust, Inc.
[REIT]....................... 18,300 408,319
Nationwide Health Properties,
Inc. ........................ 14,700 316,969
--------------
1,095,513
--------------
HOTELS & MOTELS -- 9.8%
Host Marriott Corp. [REIT]..... 34,400 475,150
Marriott International, Inc.
Cl-A......................... 27,700 803,300
Starwood Hotels & Resorts
[REIT]....................... 83,200 1,887,600
Crestline Capital Corp.
[REIT]*...................... 3,440 50,310
--------------
3,216,360
--------------
INDUSTRIAL -- 6.0%
CenterPoint Properties Corp.
[REIT]....................... 4,200 142,012
First Industrial Realty Trust,
Inc. [REIT].................. 33,200 890,175
Prologis Trust [REIT].......... 45,600 946,200
--------------
1,978,387
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
OFFICE -- 23.6%
Arden Realty, Inc. [REIT]...... 63,400 $ 1,470,087
Cousins Properties, Inc.
[REIT]....................... 13,900 448,275
Crescent Real Estate Equities
Co. [REIT]................... 51,300 1,179,900
Equity Office Properties Trust
[REIT]....................... 15,700 376,800
Highwoods Properties, Inc.
[REIT]....................... 61,000 1,570,750
Mack-Cali Realty Corp.
[REIT]....................... 71,100 2,195,212
SL Green Realty Corp. [REIT]... 26,100 564,412
--------------
7,805,436
--------------
OFFICE-INDUSTRIAL -- 7.6%
Reckson Associates Realty Corp.
[REIT]....................... 37,400 829,812
Spieker Properties, Inc.
[REIT]....................... 37,800 1,308,825
Trinet Corporate Realty Trust,
Inc. [REIT].................. 13,600 363,800
--------------
2,502,437
--------------
REGIONAL MALL -- 10.3%
General Growth Properties
[REIT]....................... 27,400 1,037,775
JP Realty, Inc. [REIT]......... 8,700 170,738
Simon Property Group, Inc.
[REIT]....................... 30,100 857,850
The Macerich Co.[REIT]......... 28,300 725,188
The Rouse Co. ................. 22,700 624,250
--------------
3,415,801
--------------
SELF STORAGE -- 1.9%
Public Storage, Inc. [REIT].... 23,400 633,263
--------------
TOTAL COMMON STOCK
(Cost $35,648,702)............... 31,051,573
--------------
SHORT-TERM INVESTMENTS -- 6.1%
Temporary Investment Cash
Fund......................... 999,643 999,643
Temporary Investment Fund...... 999,642 999,642
--------------
(Cost $1,999,285).............. 1,999,285
--------------
TOTAL INVESTMENTS -- 100.1%
(Cost $37,647,987)............... 33,050,858
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.1%)................. (25,641)
--------------
NET ASSETS -- 100.0%............... $ 33,025,217
==============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
LORD ABBETT SMALL CAP VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 92.8%
AEROSPACE -- 1.5%
AAR Corp. ..................... 11,000 $ 262,625
DONCASTERS PLC [ADR]*.......... 22,500 364,219
--------------
626,844
--------------
AUTOMOBILE MANUFACTURERS -- 3.2%
Oshkosh Truck Corp. ........... 40,000 1,325,000
--------------
BUILDING MATERIALS -- 7.1%
CalMat Co. .................... 30,900 954,037
Gradall Industries, Inc.*...... 7,300 104,937
Hughes Supply, Inc. ........... 24,900 728,325
Simpson Manufacturing Co.,
Inc.*........................ 23,100 864,806
Southdown, Inc. ............... 5,564 329,319
--------------
2,981,424
--------------
BUSINESS SERVICES -- 1.6%
Aviation Sales Co.*............ 5,000 203,125
Baker, (Michael) Corp.*........ 40,000 390,000
Right Management Consultants,
Inc.*........................ 6,800 100,300
--------------
693,425
--------------
CLOTHING & APPAREL -- 10.2%
Garan, Inc. ................... 23,100 649,688
Gerber Childrenswear, Inc.*.... 65,000 564,687
North Face, Inc.*.............. 82,000 1,066,000
Phillips-Van Heusen Corp. ..... 50,000 359,375
Stride Rite Corp. ............. 185,000 1,618,750
--------------
4,258,500
--------------
COMPUTER SERVICES & SOFTWARE -- 2.3%
Artesyn Technologies, Inc.*.... 12,000 168,000
Inso Corp.*.................... 19,000 475,000
Security Dynamics Technologies,
Inc.*........................ 13,000 299,000
--------------
942,000
--------------
CONGLOMERATES -- 0.4%
Ruddick Corp. ................. 7,000 161,000
--------------
CONSTRUCTION -- 0.8%
Kaufman & Broad Home Corp. .... 9,000 258,750
Newmark Homes Corp.*........... 11,700 81,900
--------------
340,650
--------------
CONTAINERS & PACKAGING -- 1.8%
BWAY Corp.*.................... 23,300 350,956
Ivex Packaging Corp.*.......... 16,000 372,000
Tuscarora, Inc. ............... 1,700 22,737
--------------
745,693
--------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 26.4%
American Precision Industries,
Inc.*........................ 10,300 106,219
Anadigics, Inc.*............... 19,000 217,313
Control Devices, Inc. ......... 21,000 336,000
Electro Scientific Industries,
Inc. ........................ 4,400 199,375
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Electronics for Imaging,
Inc.*........................ 78,200 $ 3,142,663
General Cable Corp. ........... 23,000 471,500
GenRad, Inc.*.................. 35,000 551,250
Methode Electronics, Inc.
Cl-A......................... 65,000 1,015,625
Microsemi Corp.*............... 32,200 354,200
Moog, Inc. Cl-A*............... 32,000 1,252,000
Plexus Corp.*.................. 4,500 152,437
Rogers Corp.*.................. 57,900 1,729,763
The DII Group, Inc.*........... 37,000 862,562
Unitrode Corp.*................ 25,000 437,500
Zebra Technologies Corp.*...... 7,400 212,750
--------------
11,041,156
--------------
ENVIRONMENTAL SERVICES -- 1.0%
Newpark Resources, Inc.*....... 60,000 408,750
--------------
FOOD -- 2.9%
Dreyer's Grand Ice Cream,
Inc. ........................ 44,000 665,500
Midwest Grain Products,
Inc.*........................ 9,300 126,713
Sanderson Farms, Inc. ......... 26,200 402,825
--------------
1,195,038
--------------
HEALTHCARE SERVICES -- 2.9%
Sierra Health Services,
Inc.*........................ 58,000 1,221,625
--------------
INDUSTRIAL PRODUCTS -- 1.4%
Blount International, Inc.
Cl-A......................... 9,000 224,437
Oregon Steel Mills, Inc. ...... 32,000 380,000
--------------
604,437
--------------
INSURANCE -- 0.7%
Chartwell Re Corp. ............ 12,400 294,500
--------------
MACHINERY & EQUIPMENT -- 6.5%
BEI Technologies, Inc. ........ 33,300 312,188
CLARCOR, Inc. ................. 23,000 460,000
CUNO, Inc.*.................... 9,000 146,250
Kollmorgen Corp. .............. 36,100 550,525
Milacron, Inc. ................ 42,700 821,975
SPS Technologies, Inc.*........ 7,500 424,688
--------------
2,715,626
--------------
MEDICAL SUPPLIES & EQUIPMENT -- 6.7%
ADAC Laboratories, Inc.*....... 12,000 239,625
Arrow International, Inc. ..... 43,000 1,349,125
Gliatech, Inc.*................ 11,900 357,000
ICU Medical, Inc.*............. 14,800 325,600
Invacare Corp. ................ 8,000 192,000
Mentor Corp. .................. 15,000 351,563
--------------
2,814,913
--------------
METALS & MINING -- 1.4%
Hawk Corp. Cl-A*............... 6,500 54,438
IMCO Recycling, Inc. .......... 27,800 429,163
Wolverine Tube, Inc.*.......... 5,000 105,000
--------------
588,601
--------------
</TABLE>
<PAGE>
LORD ABBETT SMALL CAP VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
OIL & GAS -- 1.9%
Basin Exploration, Inc.*....... 600 $ 7,538
Meridian Resource Corp.*....... 110,000 350,625
Oceaneering International,
Inc.*........................ 20,000 300,000
Patterson Energy, Inc.*........ 24,000 97,500
Range Resources Corp. ......... 12,383 42,567
--------------
798,230
--------------
PRINTING & PUBLISHING -- 3.0%
Scholastic Corp.*.............. 23,000 1,233,375
--------------
RETAIL & MERCHANDISING -- 3.0%
Elder-Beerman Stores Corp.*.... 57,600 666,000
K2, Inc. ...................... 11,000 113,438
Pacific Sunwear of California,
Inc.*........................ 30,000 491,250
--------------
1,270,688
--------------
TELECOMMUNICATIONS -- 2.3%
CommScope, Inc.*............... 57,000 958,313
--------------
TRANSPORTATION -- 3.8%
Air Express International
Corp. ....................... 40,000 870,000
Airnet Systems, Inc.*.......... 15,400 221,375
Offshore Logistics, Inc.*...... 15,000 178,125
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Smithway Motor Express Corp.
Cl-A*........................ 30,000 $ 225,000
Varlen Corp. .................. 3,300 76,106
--------------
1,570,606
--------------
TOTAL COMMON STOCK
(Cost $38,260,523)............... 38,790,392
--------------
SHORT-TERM INVESTMENTS -- 9.3%
Temporary Investment Cash
Fund......................... 1,937,052 1,937,052
Temporary Investment Fund...... 1,937,052 1,937,052
--------------
(Cost $3,874,104).............. 3,874,104
--------------
TOTAL INVESTMENTS -- 102.1%
(Cost $42,134,627)............... 42,664,496
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (2.1%)................. (876,201)
--------------
NET ASSETS -- 100.0%............... $ 41,788,295
==============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
BANKERS TRUST ENHANCED 500 PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 81.6%
ADVERTISING -- 0.1%
Interpublic Group of Companies,
Inc. .......................... 2,500 $ 199,375
Omnicom Group, Inc. ............. 2,400 139,200
------------
338,575
------------
AEROSPACE -- 1.0%
AlliedSignal, Inc. .............. 12,500 553,906
Boeing Co. ...................... 6,900 225,112
General Dynamics Corp. .......... 7,700 451,412
Lockheed Martin Corp. ........... 3,500 296,625
Raytheon Co. Cl-B................ 5,900 314,175
United Technologies Corp. ....... 9,500 1,033,125
------------
2,874,355
------------
AIRLINES -- 0.4%
AMR Corp.*....................... 5,400 320,625
Delta Air Lines, Inc. ........... 8,900 462,800
Southwest Airlines Co. .......... 6,200 139,112
US Airways Group, Inc.*.......... 3,600 187,200
------------
1,109,737
------------
AUTOMOBILE MANUFACTURERS -- 1.2%
Ford Motor Co. .................. 34,600 2,030,587
General Motors Corp. ............ 20,200 1,445,562
------------
3,476,149
------------
AUTOMOTIVE PARTS -- 0.3%
Autozone, Inc.*.................. 6,800 223,975
Dana Corp. ...................... 2,900 118,537
Eaton Corp. ..................... 600 42,412
Genuine Parts Co. ............... 1,800 60,187
Goodyear Tire & Rubber Co. ...... 3,100 156,356
TRW, Inc. ....................... 1,900 106,756
------------
708,223
------------
BEVERAGES -- 2.4%
Anheuser-Busch Companies,
Inc. .......................... 9,400 616,875
Brown-Forman Corp. Cl-B.......... 100 7,569
Coca-Cola Co. ................... 56,900 3,805,187
Coca-Cola Enterprises, Inc. ..... 17,200 614,900
PepsiCo, Inc. ................... 45,600 1,866,750
------------
6,911,281
------------
BROADCASTING -- 0.4%
CBS Corp. ....................... 17,900 586,225
Gannett Co., Inc. ............... 4,800 317,700
King World Productions, Inc.*.... 4,300 126,581
------------
1,030,506
------------
BUILDING MATERIALS -- 0.4%
Armstrong World Industries,
Inc. .......................... 7,600 458,375
CalMat Co. ...................... 13,900 429,162
Masco Corp. ..................... 6,700 192,625
------------
1,080,162
------------
BUSINESS SERVICES -- 0.2%
Avery Dennison Corp. ............ 800 36,050
Crane Co. ....................... 100 3,019
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Deluxe Corp. .................... 6,600 $ 241,312
Ecolab, Inc. .................... 300 10,856
EG & G, Inc. .................... 10,500 292,031
Equifax, Inc. ................... 2,500 85,469
Harris Corp. .................... 200 7,325
------------
676,062
------------
CHEMICALS -- 1.2%
Air Products & Chemicals,
Inc. .......................... 3,800 152,000
Dow Chemical Co. ................ 8,300 754,781
Du Pont, (E.I.) de Nemours &
Co. ........................... 34,400 1,825,350
Eastman Chemical Co. ............ 9,500 425,125
PPG Industries, Inc. ............ 3,600 209,700
Rohm & Haas Co. ................. 1,500 45,187
Union Carbide Corp. ............. 1,000 42,500
------------
3,454,643
------------
CLOTHING & APPAREL -- 0.2%
Abercrombie & Fitch Co. Cl-A*.... 500 35,375
Fruit of the Loom, Inc. Cl-A..... 3,300 45,581
Limited, Inc. ................... 3,900 113,587
Nike, Inc. Cl-B.................. 3,100 125,744
Springs Industries, Inc. Cl-A.... 8,600 356,362
VF Corp. ........................ 500 23,437
------------
700,086
------------
COMPUTER HARDWARE -- 4.0%
Apple Computer, Inc.*............ 4,800 196,500
Compaq Computer Corp. ........... 36,900 1,547,494
Dell Computer Corp.*............. 31,700 2,320,044
EMC Corp.*....................... 12,200 1,037,000
Gateway 2000, Inc.*.............. 5,100 261,056
Hewlett-Packard Co. ............. 22,700 1,550,694
International Business Machines
Corp. ......................... 24,300 4,489,425
Seagate Technology, Inc.*........ 7,400 223,850
------------
11,626,063
------------
COMPUTER SERVICES & SOFTWARE -- 7.0%
3Com Corp.*...................... 11,000 492,937
America Online, Inc.*............ 12,200 1,765,950
Automatic Data Processing,
Inc. .......................... 5,600 449,050
BMC Software, Inc.*.............. 5,900 262,919
Boole & Babbage, Inc.*........... 1,000 29,437
Cabletron Systems, Inc.*......... 10,500 87,937
Ceridian Corp.*.................. 2,600 181,512
Cisco Systems, Inc.*............. 38,800 3,601,125
Compuware Corp.*................. 4,800 375,000
Data General Corp.*.............. 6,600 108,487
Electronic Data Systems Corp. ... 19,500 979,875
Microsoft Corp.*................. 62,300 8,640,231
Novell, Inc.*.................... 12,500 226,562
Oracle Corp.*.................... 25,900 1,116,937
Paychex, Inc. ................... 9,800 504,087
PeopleSoft, Inc.*................ 8,800 166,650
</TABLE>
<PAGE>
BANKERS TRUST ENHANCED 500 PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Silicon Graphics, Inc.*.......... 13,600 $ 175,100
Sun Microsystems, Inc.*.......... 10,400 890,500
Unisys Corp.*.................... 7,500 258,281
------------
20,312,577
------------
CONGLOMERATES -- 2.5%
ITT Industries, Inc. ............ 13,200 524,700
Johnson Controls, Inc. .......... 300 17,700
Minnesota Mining & Manufacturing
Co. ........................... 8,100 576,112
Philip Morris Companies, Inc. ... 63,900 3,418,650
Tenneco, Inc. ................... 13,500 459,844
Textron, Inc. ................... 8,400 637,875
The Seagram Co. Ltd. ............ 22,000 836,000
Tyco International Ltd. ......... 8,320 627,640
------------
7,098,521
------------
CONSTRUCTION -- 0.3%
Centex Corp. .................... 10,300 464,144
Pulte Corp. ..................... 12,000 333,750
------------
797,894
------------
CONSUMER PRODUCTS & SERVICES -- 3.2%
Allergan, Inc. .................. 300 19,425
Bausch & Lomb, Inc. ............. 200 12,000
Cendant Corp.*................... 25,400 484,187
Clorox Co. ...................... 800 93,450
Colgate-Palmolive Co. ........... 5,600 520,100
Eastman Kodak Co. ............... 13,700 986,400
Fortune Brands, Inc. ............ 2,600 82,225
Gillette Co. .................... 10,900 526,606
Hasbro, Inc. .................... 500 18,062
International Flavors &
Fragrances, Inc. .............. 600 26,512
Jostens, Inc. ................... 14,300 374,481
Maytag Corp. .................... 10,300 641,175
Procter & Gamble Co. ............ 30,200 2,757,637
Raychem Corp. ................... 200 6,462
RJR Nabisco Holdings Corp. ...... 6,200 184,062
Rubbermaid, Inc. ................ 16,700 525,006
Sherwin-Williams Co. ............ 900 26,437
Tupperware Corp. ................ 21,300 350,119
Unilever NV...................... 13,600 1,127,950
UST, Inc. ....................... 17,000 592,875
Whirlpool Corp. ................. 300 16,612
------------
9,371,783
------------
CONTAINERS & PACKAGING -- 0.1%
Crown Cork & Seal Co., Inc. ..... 900 27,731
First Brands Corp. .............. 2,300 90,706
Owens-Illinois, Inc.*............ 7,000 214,375
------------
332,812
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 3.6%
Advanced Micro Devices, Inc.*.... 17,800 515,087
AES Corp.*....................... 5,800 274,775
AMP, Inc. ....................... 6,100 317,581
Emerson Electric Co. ............ 8,600 538,037
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
General Electric Co. ............ 76,500 $ 7,807,781
Honeywell, Inc. ................. 1,900 143,094
Parker-Hannifin Corp. ........... 700 22,925
Rockwell International Corp. .... 3,300 160,256
Tandy Corp. ..................... 600 24,712
Tektronix, Inc. ................. 100 3,006
Texas Instruments, Inc. ......... 8,700 744,394
The Perkin-Elmer Corp. .......... 100 9,756
------------
10,561,404
------------
ENTERTAINMENT & LEISURE -- 1.2%
Carnival Corp. .................. 13,700 657,600
Disney, (Walt) Co. .............. 27,100 813,000
Time Warner, Inc. ............... 25,200 1,563,975
Viacom, Inc. Cl-B*............... 7,400 547,600
------------
3,582,175
------------
ENVIRONMENTAL SERVICES -- 0.2%
Browning-Ferris Industries,
Inc. .......................... 1,700 48,344
Waste Management, Inc. .......... 10,900 508,212
------------
556,556
------------
FARMING & AGRICULTURE -- 0.0%
Delta and Pine Land Co. ......... 2,200 81,400
Pioneer Hi-Bred International,
Inc. .......................... 1,800 48,600
------------
130,000
------------
FINANCIAL-BANK & TRUST -- 5.2%
Bank of New York Co., Inc. ...... 16,700 672,175
Bank One Corp. .................. 27,100 1,383,794
BankAmerica Corp. ............... 46,600 2,801,825
BB&T Corp. ...................... 5,000 201,562
Chase Manhattan Corp. ........... 18,200 1,238,737
Comerica, Inc. .................. 3,100 211,381
Countrywide Credit Industries,
Inc. .......................... 500 25,094
Crestar Financial Corp. ......... 2,000 144,000
Fifth Third Bancorp.............. 5,800 413,612
Firstar Corp. ................... 5,400 503,550
First Union Corp. ............... 21,600 1,313,550
Fleet Financial Group, Inc. ..... 10,600 473,687
Golden West Financial Corp. ..... 5,600 513,450
Huntington Bancshares, Inc. ..... 1,900 57,119
Keycorp.......................... 9,300 297,600
Mainstreet Financial Corp. ...... 600 27,862
MBNA Corp. ...................... 16,200 403,987
Mellon Bank Corp. ............... 5,600 385,000
Morgan, (J.P.) & Co., Inc. ...... 6,700 703,919
National City Corp. ............. 7,300 529,250
Northern Trust Corp. ............ 1,600 139,700
PNC Bank Corp. NA................ 6,500 351,812
Regions Financial Corp. ......... 4,100 165,281
Republic New York Corp. ......... 800 36,450
State Street Boston Corp. ....... 3,200 222,600
Suntrust Banks, Inc. ............ 2,500 191,250
Wachovia Corp. .................. 3,500 306,031
Wells Fargo & Co. ............... 36,700 1,465,706
------------
15,179,984
------------
</TABLE>
<PAGE>
BANKERS TRUST ENHANCED 500 PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FINANCIAL SERVICES -- 3.5%
American Express Co. ............ 14,100 $ 1,441,725
Associates First Capital Corp.
Cl-A........................... 15,600 661,050
Bear Stearns Companies, Inc. .... 900 33,637
Block, (H&R), Inc. .............. 500 22,500
Capital One Financial Corp. ..... 600 69,000
Citigroup, Inc. ................. 51,600 2,554,200
Fannie Mae....................... 22,700 1,679,800
Freddie Mac...................... 14,200 915,012
Lehman Brothers Holdings,
Inc. .......................... 1,200 52,875
Morgan Stanley, Dean Witter &
Co. ........................... 12,000 852,000
Providian Financial Corp. ....... 1,650 123,750
Schwab, (Charles) Corp. ......... 7,050 396,122
SunAmerica, Inc. ................ 16,100 1,306,112
The Dun & Bradstreet Corp. ...... 2,600 82,062
------------
10,189,845
------------
FOOD -- 1.6%
Albertson's, Inc. ............... 4,100 261,119
American Stores Co. ............. 2,700 99,731
Bestfoods, Inc. ................. 5,400 287,550
Campbell Soup Co. ............... 8,500 467,500
General Mills, Inc. ............. 3,100 241,025
Great Atlantic & Pacific TeaCo.,
Inc. .......................... 12,700 376,237
Heinz, (H.J.) Co. ............... 6,600 373,725
Hershey Foods Corp. ............. 2,000 124,375
Kroger Co.*...................... 5,000 302,500
Quaker Oats Co. ................. 2,600 154,700
Safeway, Inc.*................... 10,500 639,844
Sara Lee Corp. .................. 17,600 496,100
Supervalu, Inc. ................. 13,700 383,600
Sysco Corp. ..................... 5,800 159,137
Vlasic Foods International,
Inc. .......................... 600 14,287
Wrigley, (Wm., Jr.) Co. ......... 1,800 161,212
------------
4,542,642
------------
FURNITURE -- 0.0%
Newell Co. ...................... 800 33,000
------------
HEALTHCARE SERVICES -- 0.2%
HCR Manor Care, Inc.*............ 4,300 126,312
Humana, Inc.*.................... 5,700 101,531
IMS Health, Inc. ................ 3,000 226,312
Tenet Healthcare Corp.*.......... 10,200 267,750
------------
721,905
------------
HOTELS & MOTELS -- 0.1%
Harrah's Entertainment, Inc.*.... 5,700 89,419
Marriott International, Inc.
Cl-A........................... 2,500 72,500
------------
161,919
------------
INSURANCE -- 1.8%
Allstate Corp. .................. 16,600 641,175
American General Corp. .......... 4,300 335,400
American International Group,
Inc. .......................... 18,400 1,777,900
AON Corp. ....................... 3,400 188,275
Chubb Corp. ..................... 2,200 142,725
CIGNA Corp. ..................... 3,900 301,519
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Cincinnati Financial Corp. ...... 2,600 $ 95,225
Jefferson-Pilot Corp. ........... 1,900 142,500
Lincoln National Corp. .......... 1,800 147,262
Loews Corp. ..................... 2,300 225,975
Marsh & McLennan Companies,
Inc. .......................... 5,400 315,563
MGIC Investment Corp. ........... 1,100 43,794
Progressive Corp. ............... 1,500 254,063
Provident Companies, Inc. ....... 1,700 70,550
Safeco Corp. .................... 400 17,175
The Hartford Financial Services
Group, Inc. ................... 4,800 263,400
Torchmark Corp. ................. 200 7,063
Transamerica Corp. .............. 800 92,400
UNUM Corp. ...................... 850 49,619
------------
5,111,583
------------
MACHINERY & EQUIPMENT -- 0.7%
Black & Decker Corp. ............ 1,500 84,094
Case Corp. ...................... 400 8,725
Caterpillar, Inc. ............... 14,600 671,600
Cooper Industries, Inc. ......... 1,200 57,225
Danaher Corp. ................... 600 32,588
Harnischfeger Industries,
Inc. .......................... 200 2,038
Illinois Tool Works, Inc. ....... 4,600 266,800
Ingersoll-Rand Co. .............. 2,400 112,650
Paccar, Inc. .................... 9,300 382,463
Stanley Works, Inc. ............. 400 11,100
The Timken Company............... 11,000 207,625
Thermo Electron Corp.*........... 9,200 155,825
W.W. Grainger, Inc............... 500 20,813
------------
2,013,546
------------
MEDICAL SUPPLIES & EQUIPMENT -- 2.4%
Abbott Laboratories.............. 33,600 1,646,400
Bard, (C.R.), Inc. .............. 100 4,950
Baxter International, Inc. ...... 6,200 398,738
Becton Dickinson & Co. .......... 4,400 187,825
Biomet, Inc. .................... 700 28,175
Boston Scientific Corp.*......... 25,500 683,719
Guidant Corp. ................... 2,700 297,675
Johnson & Johnson Co. ........... 30,500 2,558,188
Mallinckrodt, Inc. .............. 11,000 338,938
Medtronic, Inc. ................. 7,200 534,600
Sofamor Danek Group, Inc.*....... 1,300 158,275
St. Jude Medical, Inc.*.......... 5,700 157,819
------------
6,995,302
------------
METALS & MINING -- 0.6%
Alcan Aluminium Ltd. ............ 1,800 48,713
Allegheny Teledyne, Inc. ........ 800 16,350
Aluminum Co. of America.......... 10,400 775,450
Barrick Gold Corp. .............. 6,500 126,750
Bethlehem Steel Corp.*........... 16,100 134,838
Homestake Mining Co. ............ 800 7,350
Inco Ltd. ....................... 300 3,169
Nucor Corp. ..................... 400 17,300
</TABLE>
<PAGE>
BANKERS TRUST ENHANCED 500 PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Phelps Dodge Corp. .............. 800 $ 40,700
Placer Dome, Inc. ............... 100 1,150
Reynolds Metals Co. ............. 1,100 57,956
Worthington Industries, Inc. .... 29,500 368,750
------------
1,598,476
------------
OFFICE EQUIPMENT -- 0.6%
Moore Corp. Ltd. ................ 26,900 295,900
Pitney Bowes, Inc. .............. 5,100 336,919
Staples, Inc.*................... 9,000 393,188
Xerox Corp. ..................... 6,700 790,600
------------
1,816,607
------------
OIL & GAS -- 5.7%
Amerada Hess Corp. .............. 800 39,800
Amoco Corp. ..................... 7,600 458,850
Anadarko Petroleum Corp. ........ 1,800 55,575
Ashland, Inc. ................... 10,900 527,288
Atlantic Richfield Co. .......... 12,500 815,625
Burlington Resources, Inc. ...... 800 28,650
Chevron Corp. ................... 20,900 1,733,394
Coastal Corp. ................... 12,800 447,200
Columbia Gas System, Inc. ....... 400 23,100
Consolidated Natural Gas Co. .... 100 5,400
Eastern Enterprises.............. 8,700 380,625
Exxon Corp. ..................... 62,400 4,563,000
Halliburton Co. ................. 1,100 32,588
Kerr-McGee Corp. ................ 2,900 110,925
Mobil Corp. ..................... 17,100 1,489,838
Nicor, Inc. ..................... 400 16,900
Occidental Petroleum Corp. ...... 16,700 281,813
Oneok, Inc. ..................... 8,700 314,288
Oryx Energy Co.*................. 17,400 233,813
Phillips Petroleum Co. .......... 16,700 711,838
Rowan Companies, Inc.*........... 7,800 78,000
Royal Dutch Petroleum Co. ....... 48,400 2,317,150
Schlumberger Ltd. ............... 10,200 470,475
Sonat, Inc. ..................... 300 8,119
Texaco, Inc. .................... 20,400 1,078,650
Unocal Corp. .................... 4,100 119,669
USX-Marathon Group............... 5,100 153,638
------------
16,496,211
------------
PAPER & FOREST PRODUCTS -- 1.1%
Boise Cascade Corp. ............. 14,600 452,600
Georgia Pacific Group............ 300 17,569
International Paper Co. ......... 17,300 775,256
Kimberly-Clark Corp. ............ 10,600 577,700
Potlatch Corp. .................. 9,300 342,938
Temple-Inland, Inc. ............. 600 35,588
Union Camp Corp. ................ 4,600 310,500
Westvaco Corp. .................. 800 21,450
Weyerhaeuser Co. ................ 3,900 198,169
Willamette Industries, Inc. ..... 14,400 482,400
------------
3,214,170
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
PHARMACEUTICALS -- 7.0%
ALZA Corp.*...................... 3,400 $ 177,650
American Home Products Corp. .... 29,000 1,633,063
Amgen, Inc. ..................... 6,600 690,112
Bristol-Meyers Squibb Co. ....... 22,700 3,037,544
Cardinal Health, Inc. ........... 3,700 280,738
Lilly, (Eli) & Co. .............. 24,800 2,204,100
Merck & Co., Inc. ............... 27,600 4,076,175
Monsanto Co. .................... 11,500 546,250
Pfizer, Inc. .................... 29,800 3,738,038
Pharmacia & Upjohn, Inc. ........ 9,800 554,925
Schering-Plough Corp. ........... 31,900 1,762,475
Warner-Lambert Co. .............. 18,000 1,353,375
------------
19,364,333
------------
PRINTING & PUBLISHING -- 0.5%
Dow Jones & Co., Inc. ........... 300 14,438
Knight-Ridder, Inc. ............. 8,800 449,900
McGraw-Hill Co., Inc. ........... 1,900 193,563
New York Times Co. Cl-A.......... 1,500 52,031
Donnelley, (R.R.) & Sons Co. .... 13,600 595,850
Times Mirror Co. Cl-A............ 300 16,800
Tribune Co. ..................... 2,200 145,200
------------
1,467,782
------------
RAILROADS -- 0.2%
Burlington Northern Santa Fe
Corp........................... 8,800 297,000
Norfolk Southern Corp. .......... 5,200 164,775
------------
461,775
------------
RESTAURANTS -- 0.5%
Darden Restaurants, Inc. ........ 1,100 19,800
McDonald's Corp. ................ 14,400 1,103,400
Tricon Global Restaurants,
Inc.*.......................... 4,700 235,588
------------
1,358,788
------------
RETAIL & MERCHANDISING -- 4.4%
Avon Products, Inc. ............. 2,500 110,625
Circuit City Stores, Inc. ....... 200 9,988
Costco Companies, Inc.*.......... 6,400 462,000
CVS Corp. ....................... 8,500 467,500
Dayton-Hudson Corp. ............. 7,800 423,150
Dollar General Corp. ............ 1,400 33,075
Federated Department Stores,
Inc.*.......................... 6,600 287,513
Gap, Inc. ....................... 12,900 725,625
Harcourt General, Inc. .......... 11,200 595,700
Home Depot, Inc. ................ 32,600 1,994,713
Kmart Corp.*..................... 16,300 249,594
Kohl's Corp.*.................... 5,100 313,331
Lowe's Companies, Inc. .......... 7,300 373,669
May Department Stores Co. ....... 4,200 253,575
Meyer, (Fred), Inc.*............. 7,500 451,875
Nordstrom, Inc. ................. 900 31,219
Penney, (J.C.) Co., Inc. ........ 11,500 539,063
Rite Aid Corp. .................. 4,500 223,031
Sears, Roebuck & Co. ............ 7,300 310,250
TJX Companies, Inc. ............. 5,800 168,200
</TABLE>
<PAGE>
BANKERS TRUST ENHANCED 500 PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Wal-Mart Stores, Inc. ........... 51,900 $ 4,226,606
Walgreen Co. .................... 9,600 562,200
------------
12,812,502
------------
SEMICONDUCTORS -- 1.8%
Intel Corp. ..................... 38,600 4,576,513
Micron Technology, Inc.*......... 8,300 419,669
Motorola, Inc. .................. 3,500 213,719
------------
5,209,901
------------
TELECOMMUNICATIONS -- 10.0%
AirTouch Communications, Inc.*... 15,100 1,089,088
Aliant Communications, Inc. ..... 300 12,263
Alltel Corp. .................... 5,500 328,969
Ameritech Corp. ................. 22,700 1,438,613
Ascend Communications, Inc.*..... 12,700 835,025
AT&T Corp. ...................... 26,600 2,001,650
Bell Atlantic Corp. ............. 36,600 2,079,338
BellSouth Corp. ................. 43,800 2,184,525
Cellular Communications
International, Inc.*........... 1,000 68,000
Comcast Corp. Cl-A............... 16,500 968,344
General Instrument Corp.*........ 5,800 196,838
GTE Corp. ....................... 19,500 1,315,031
Lucent Technologies, Inc......... 29,900 3,289,000
MCI WorldCom, Inc.*.............. 43,600 3,128,300
MediaOne Group, Inc.*............ 17,000 799,000
Northern Telecom Ltd. ........... 14,700 736,838
SBC Communications, Inc. ........ 45,700 2,450,663
Sprint Corp. (FON Group)......... 14,200 1,194,575
Sprint Corp. (PCS Group)*........ 38,100 881,063
Tele-Communications, Inc.
Cl-A*.......................... 42,300 2,339,719
Tellabs, Inc.*................... 6,400 438,800
U. S. West, Inc. ................ 15,100 975,838
Williams Companies, Inc. ........ 7,700 240,144
------------
28,991,624
------------
TRANSPORTATION -- 0.4%
FDX Corp.*....................... 10,100 898,900
Laidlaw, Inc. ................... 1,500 15,094
Navistar International Corp.*.... 3,300 94,050
Ryder Systems, Inc. ............. 12,400 322,400
------------
1,330,444
------------
UTILITIES -- 3.4%
Ameren Corp.*.................... 900 38,419
American Electric Power Co.,
Inc. .......................... 13,900 654,169
Carolina Power & Light Co. ...... 7,300 343,556
Central & South West Corp. ...... 2,700 74,081
Cinergy Corp. ................... 400 13,750
Consolidated Edison, Inc. ....... 9,000 475,875
Dominion Resources, Inc. ........ 2,800 130,900
DTE Energy Co. .................. 7,400 317,275
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Duke Energy Corp. ............... 12,900 $ 826,406
Edison International Co. ........ 18,700 521,263
Enron Corp. ..................... 5,600 319,550
Entergy Corp. ................... 11,600 361,050
FirstEnergy Corp. ............... 14,800 481,925
FPL Group, Inc. ................. 3,700 228,013
GPU, Inc. ....................... 7,100 313,731
Houston Industries, Inc. ........ 15,900 510,788
New Century Energies, Inc. ...... 9,400 458,250
Niagara Mohawk Power Corp.*...... 22,500 362,813
PECO Energy Co. ................. 14,300 595,238
PG&E Corp. ...................... 19,700 620,550
Public Service Enterprise Group,
Inc. .......................... 3,500 140,000
Sempra Energy*................... 12,200 309,575
Southern Co. .................... 22,700 659,719
Texas Utilities Co. ............. 13,800 644,288
Unicom Corp. .................... 9,600 370,200
------------
9,771,384
------------
TOTAL COMMON STOCK
(Cost $210,284,088)................ 236,263,399
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 1.0%
U.S. Treasury Bills
4.30%, 02/04/99#................ $ 25 24,899
4.34%, 02/04/99#................ 70 69,719
4.39%, 02/04/99#................ 1,325 1,319,674
4.41%, 02/04/99#................ 680 677,267
4.45%, 02/04/99#................ 800 796,785
--------------
(Cost $2,887,925)................. 2,888,344
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 10.0%
Temporary Investment Cash
Fund........................ 14,479,385 14,479,386
Temporary Investment Fund..... 14,479,385 14,479,385
--------------
(Cost $28,958,771)............ 28,958,771
--------------
TOTAL INVESTMENTS -- 92.6%
(Cost $242,130,784)............. 268,110,514
OTHER ASSETS LESS
LIABILITIES -- 7.4%............. 21,440,905
--------------
NET ASSETS -- 100.0%.............. $ 289,551,419
==============
</TABLE>
# Securities with an aggregate market value of $2,888,344 have been segregated
with the custodian to cover margin requirements for the following open futures
contracts at December 31, 1998:
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF UNREALIZED
DESCRIPTION MONTH CONTRACTS APPRECIATION
- ----------------------------------------------------------------
<S> <C> <C> <C>
S&P 500.................. 03/99 171 $2,633,894
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
STEIN ROE VENTURE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK -- 84.4%
ADVERTISING -- 3.6%
ADVO, Inc.*.................... 1,800 $ 47,475
Catalina Marketing Corp.*...... 2,700 184,612
HA-LO Industries, Inc.*........ 2,500 94,062
--------------
326,149
--------------
AEROSPACE -- 1.7%
Alliant Techsystems, Inc.*..... 1,000 82,437
Orbital Sciences Corp.*........ 1,600 70,800
--------------
153,237
--------------
AIRLINES -- 0.5%
COMAIR Holdings, Inc. ......... 1,300 43,875
--------------
AUTOMOTIVE PARTS -- 0.4%
O'Reilly Automotive, Inc.*..... 800 37,800
--------------
BEVERAGES -- 0.6%
Canandaigua Brands, Inc.
Cl-A*........................ 900 52,031
--------------
BROADCASTING -- 1.3%
Metro Networks, Inc.*.......... 2,700 115,088
--------------
BUSINESS SERVICES -- 6.1%
Acxiom Corp.*.................. 1,800 55,800
American Management Systems,
Inc.*........................ 2,100 84,000
Comdisco, Inc. ................ 2,100 35,437
Interim Services, Inc.*........ 6,300 147,262
Iron Mountain, Inc.*........... 1,000 36,062
Metamor Worldwide, Inc.*....... 4,500 112,500
Metzler Group, Inc.*........... 1,000 48,687
PAREXEL International Corp.*... 1,100 27,500
--------------
547,248
--------------
CLOTHING & APPAREL -- 3.7%
Columbia Sportswear Co.*....... 9,100 153,562
G & K Services, Inc. Cl-A...... 900 47,925
K-Swiss, Inc. ................. 2,100 56,437
The Men's Wearhouse, Inc.*..... 2,500 79,375
--------------
337,299
--------------
COMPUTER HARDWARE -- 1.2%
Jack Henry & Associates,
Inc.......................... 1,100 54,725
Xircom, Inc.*.................. 1,500 51,000
--------------
105,725
--------------
COMPUTER SERVICES & SOFTWARE -- 12.6%
Barra, Inc.*................... 4,500 106,312
HNC Software, Inc.*............ 800 32,350
Hyperion Solutions Corp.*...... 1,800 32,400
Inktomi Corp. *................ 200 25,875
Inter-Tel, Inc................. 2,900 67,787
Kronos, Inc.*.................. 1,400 62,038
Mercury Interactive Corp.*..... 1,700 107,525
National Computer Systems,
Inc.......................... 8,000 296,000
National Instruments Corp.*.... 1,000 34,125
Paychex, Inc................... 800 41,150
Sapient Corp.*................. 600 33,600
SPSS, Inc.*.................... 2,300 43,413
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Transaction Systems Architects,
Inc.*........................ 1,200 $ 60,000
VERITAS Software Corp.*........ 500 29,969
Verity, Inc.*.................. 1,800 47,700
Whittman-Hart, Inc.*........... 3,800 104,975
--------------
1,125,219
--------------
CONSTRUCTION -- 1.5%
Champion Enterprises, Inc.*.... 2,100 57,488
D.R. Horton, Inc............... 3,400 78,200
--------------
135,688
--------------
CONSUMER PRODUCTS & SERVICES -- 5.4%
DeVry, Inc.*................... 3,800 116,375
Mohawk Industries, Inc.*....... 1,600 67,300
Nu Skin Asia Pacific, Inc.*.... 8,400 198,450
U.S.A. Floral Products,
Inc.*........................ 8,500 97,750
--------------
479,875
--------------
CONTAINERS & PACKAGING -- 0.7%
AptarGroup, Inc. .............. 2,200 61,738
--------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 4.7%
Burr-Brown Corp.*.............. 1,100 25,781
C-Cube Microsystems, Inc.*..... 2,400 65,100
CTS Corp. ..................... 1,500 65,250
Dionex Corp.*.................. 1,100 40,288
Etec Systems, Inc.*............ 700 28,000
Gentex Corp.*.................. 3,600 72,000
Sanmina Corp.*................. 1,100 68,750
Uniphase Corp.*................ 800 55,500
--------------
420,669
--------------
ENTERTAINMENT & LEISURE -- 0.5%
Polaris Industries, Inc. ...... 1,100 43,106
--------------
FARMING & AGRICULTURE -- 0.5%
The Scotts Co.*................ 1,200 46,125
--------------
FINANCIAL-BANK & TRUST -- 3.8%
Centura Banks, Inc. ........... 1,100 81,813
Commerce Bancorp, Inc. ........ 1,200 63,000
Cullen/Frost Bankers, Inc. .... 1,600 87,800
National Bankcorp of Alaska,
Inc. ........................ 3,200 108,000
--------------
340,613
--------------
FINANCIAL SERVICES -- 3.1%
Heller Financial, Inc. ........ 1,700 49,938
Jefferies Group, Inc. ......... 1,800 89,325
SEI Investments Co. ........... 800 79,500
The BISYS Group, Inc.*......... 1,100 56,787
--------------
275,550
--------------
FOOD -- 2.1%
Smithfield Foods, Inc.*........ 2,000 67,750
The Earthgrains Co. ........... 1,900 58,781
Whole Foods Market, Inc.*...... 1,200 58,050
--------------
184,581
--------------
FURNITURE -- 0.6%
Ethan Allen Interiors, Inc. ... 1,200 49,200
--------------
</TABLE>
<PAGE>
STEIN ROE VENTURE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
HEALTHCARE SERVICES -- 2.7%
IDEXX Laboratories, Inc.*...... 2,200 $ 59,194
Orthodontic Centers of America,
Inc.*........................ 3,000 58,313
Pediatrix Medical Group,
Inc.*........................ 1,100 65,931
Renal Care Group, Inc. *....... 2,100 60,506
--------------
243,944
--------------
INSURANCE -- 2.0%
Express Scripts, Inc. Cl-A*.... 1,500 100,688
Mutual Risk Management,
Ltd. ........................ 1,900 74,338
--------------
175,026
--------------
MACHINERY & EQUIPMENT -- 1.1%
Applied Power, Inc. ........... 1,100 41,525
SPS Technologies, Inc.*........ 1,000 56,625
--------------
98,150
--------------
MEDICAL SUPPLIES & EQUIPMENT -- 3.8%
Biomatrix, Inc.*............... 1,300 75,725
Schein, (Henry), Inc.*......... 1,200 53,700
The Liposome Co., Inc.*........ 2,100 32,419
Uroquest Medical Corp.*........ 800 800
Xomed Surgical Products,
Inc.*........................ 5,400 172,800
--------------
335,444
--------------
METALS & MINING -- 1.1%
Stillwater Mining Co.*......... 2,300 94,300
--------------
OIL & GAS -- 1.3%
Barrett Resources Corp.*....... 2,800 67,200
Petroleum Geo-Services*........ 3,000 47,250
--------------
114,450
--------------
PHARMACEUTICALS -- 2.0%
Alpharma, Inc. Cl-A............ 1,200 42,375
Barr Laboratories, Inc.*....... 1,400 67,200
MedImmune, Inc.*............... 700 69,606
--------------
179,181
--------------
PRINTING & PUBLISHING -- 0.8%
Consolidated Graphics, Inc.*... 1,100 74,319
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
RAILROADS -- 0.5%
MotivePower Industries,
Inc.*........................ 1,400 $ 45,063
--------------
RESTAURANTS -- 3.3%
CEC Entertainment, Inc.*....... 1,200 33,300
CKE Restaurants, Inc. ......... 1,760 51,810
Ruby Tuesday, Inc. ............ 2,600 55,250
The Cheesecake Factory,
Inc.*........................ 1,800 53,381
Triarc Companies, Inc.*........ 6,300 100,800
--------------
294,541
--------------
RETAIL & MERCHANDISING -- 9.1%
Brightpoint, Inc.*............. 4,100 56,375
Fastenal Co. .................. 3,100 136,400
Just For Feet, Inc.*........... 3,300 57,338
Linens 'n Things, Inc.*........ 2,300 91,139
Regis Corp. ................... 8,200 328,000
School Specialty, Inc.*........ 2,400 51,300
Williams-Sonoma, Inc.*......... 2,400 96,750
--------------
817,302
--------------
SEMICONDUCTORS -- 2.1%
Novellus Systems, Inc.*........ 1,200 59,400
Vitesse Semiconductor, Inc.*... 2,900 132,313
--------------
191,713
--------------
TOTAL COMMON STOCK
(Cost $6,471,567)................ 7,544,249
--------------
SHORT-TERM INVESTMENTS -- 9.6%
Temporary Investment Cash
Fund......................... 426,857 426,857
Temporary Investment Fund...... 426,856 426,856
--------------
(Cost $853,713)................ 853,713
--------------
TOTAL INVESTMENTS -- 94.0%
(Cost $7,325,280).................. 8,397,962
OTHER ASSETS LESS
LIABILITIES -- 6.0%.............. 531,998
--------------
NET ASSETS -- 100.0%............... $ 8,929,960
==============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
See Notes to Financial Statements.
<PAGE>
[This page intentionally left blank]
<PAGE>
DEFINITION OF ABBREVIATIONS
- --------------------------------------------------------------------------------
THE FOLLOWING ABBREVIATIONS ARE USED THROUGHOUT THE SCHEDULES OF INVESTMENTS:
SECURITY DESCRIPTIONS:
- -----------------------
ADR-American Depositary Receipt
ADS-American Depositary Shares
BRB-Brady Bond
CVT-Convertible Security
FLIRB-Floating Interest Rate Bond
FRB-Floating Rate Bond (1)
FRN-Floating Rate Note (1)
GDR-Global Depositary Receipt
IO-Interest Only Security
PIK-Payment in Kind Security
PO-Principal Only
REIT-Real Estate Investment Trust
STEP-Stepped Coupon Bond (2)
TBA-To be Announced Security
VR-Variable Rate Bond (1)
ZCB-Zero Coupon Bond (2)
(1)- Rates shown for variable and floating rate securities are the coupon rates
as of December 31, 1998.
(2)- Rates shown are the effective yields at purchase date.
COUNTRIES/CURRENCIES:
- -----------------------
ATS-Austria/Austrian Schilling
AUD-Australia/Australian Dollar
BEF-Belgium/Belgian Franc
CAD-Canada/Canadian Dollar
CHF -Switzerland/Swiss Franc
DEM-Germany/German Deutschemark
DKK-Denmark/Danish Krone
ECU-Europe/European Currency Unit
ESP-Spain/Spanish Peseta
FIM-Finland/Finnish Markka
FRF-France/French Franc
GBP-United Kingdom/British Pound
GRD-Greece/Greek Drachma
HKD-Hong Kong/Hong Kong Dollar
IEP-Ireland/Irish Punt
ITL-Italy/Italian Lira
JPY-Japan/Japanese Yen
MXP-Mexico/Mexican Peso
MYR-Malaysia/Malaysian Ringgit
NLG-Netherlands/Netherland Guilder
NOK-Norway/Norwegian Krone
NZD-New Zealand/New Zealand Dollar
PTE-Portugal/Portuguese Escudo
SEK-Sweden/Swedish Krona
SGD-Singapore/Singapore Dollar
ZAR-South Africa/South African Rand
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
NEUBERGER&
AST PUTNAM LORD ABBETT AST BERMAN
INTERNATIONAL GROWTH AND JANCAP MONEY MID-CAP AST PUTNAM
EQUITY INCOME GROWTH MARKET VALUE BALANCED
------------- ----------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities at value (A)......... $497,797 $1,175,017 $3,250,854 $964,747 $270,510 $405,688
Cash........................................... 1,765 -- 9 38 7,473 32
Foreign currency(B)............................ -- -- -- -- -- 3,635
Unrealized appreciation on foreign currency
exchange contracts........................... 702 -- 592 -- -- 28
Unrealized appreciation on interest rate swap
agreements................................... -- -- -- -- -- --
Receivable for:
Securities sold.............................. 1,060 1,064 -- -- 1,087 2,009
Dividends and interest....................... 1,404 2,100 1,943 7,084 566 1,781
Fund shares sold............................. 1,649 6,066 3,773 -- 861 --
Futures variation margin..................... -- -- -- -- -- 190
Other assets................................... 100 10 22 10 2 4
-------- ---------- ---------- -------- -------- --------
TOTAL ASSETS............................... 504,477 1,184,257 3,257,193 971,879 280,499 413,367
-------- ---------- ---------- -------- -------- --------
LIABILITIES
Cash overdraft................................. -- 102 -- -- -- --
Unrealized depreciation on foreign currency
exchange contracts........................... 4,203 -- -- -- -- 170
Written options outstanding, at value.......... -- -- -- -- -- --
Sale Commitments, at value..................... -- -- -- -- -- --
Payable for:
Securities purchased......................... 2,217 1,701 -- -- 8,371 3,123
Fund shares redeemed......................... -- -- -- -- -- 413
Futures variation margin..................... -- -- -- -- -- 27
Advisory fees................................ 226 384 1,204 99 112 142
Shareholder servicing fees................... 40 97 249 82 22 34
Accrued dividends............................ -- -- -- 3,896 -- --
Accrued expenses and other liabilities....... 330 64 82 69 26 123
-------- ---------- ---------- -------- -------- --------
TOTAL LIABILITIES.......................... 7,016 2,348 1,535 4,146 8,531 4,032
-------- ---------- ---------- -------- -------- --------
NET ASSETS........................................ $497,461 $1,181,909 $3,255,658 $967,733 $271,968 $409,335
======== ========== ========== ======== ======== ========
COMPONENTS OF NET ASSETS
Common stock (unlimited number of shares
authorized, $.001 par value per share)........... $ 22 $ 55 $ 88 $ 968 $ 21 $ 29
Additional paid-in capital........................ 380,368 904,447 1,691,879 966,659 245,642 333,350
Undistributed net investment income (loss)........ (5,753) 13,889 1,221 -- 3,943 9,572
Accumulated net realized gain (loss) on
investments...................................... 46,128 63,840 126,850 106 7,599 31,787
Accumulated net unrealized appreciation
(depreciation) on investments.................... 76,696 199,678 1,435,620 -- 14,763 34,597
-------- ---------- ---------- -------- -------- --------
NET ASSETS........................................ $497,461 $1,181,909 $3,255,658 $967,733 $271,968 $409,335
======== ========== ========== ======== ======== ========
Shares of common stock outstanding................ 21,939 54,517 87,979 967,626 20,661 28,971
Net asset value, offering and redemption price per
share............................................ $ 22.67 $ 21.68 $ 37.00 $ 1.00 $ 13.16 $ 14.13
======== ========== ========== ======== ======== ========
(A) Investments at cost........................... $417,636 $ 975,339 $1,815,826 $964,747 $255,747 $372,165
(B) Foreign currency at cost...................... $ -- $ -- $ -- $ -- $ -- $ 3,622
======== ========== ========== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
PORTFOLIO
-----------------------------------------------------------------------------------------------------------
T. ROWE PIMCO T. ROWE T. ROWE NEUBERGER&
PRICE TOTAL INVESCO FOUNDERS PRICE PRICE BERMAN
FEDERATED ASSET RETURN EQUITY CAPITAL INTERNATIONAL INTERNATIONAL MID-CAP
HIGH YIELD ALLOCATION BOND INCOME APPRECIATION EQUITY BOND GROWTH
---------- ---------- ---------- -------- ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$350,584 $1,085,609 $829,883 $266,397 $449,693 $143,329 $259,092
$585,583
-- -- 4 18,670 16,584 1,156 3
--
-- 1,609 -- -- 1,921 371 --
--
-- -- -- -- -- 1,253 --
--
-- -- -- -- -- -- --
--
157 22,528 -- -- 20 -- 1,095
699
2,414 8,707 3,582 19 708 3,791 70
10,047
-- -- 1,216 948 3,527 -- 3,493
1,750
-- 49 -- -- -- -- --
--
3 8 7 3 5 1 2
5
-------- ---------- -------- -------- -------- -------- --------
--------
353,158 1,118,510 834,692 286,037 472,458 149,901 263,755
598,084
-------- ---------- -------- -------- -------- -------- --------
--------
4 2,808 -- -- -- -- --
633
-- 12 -- -- -- 176 --
--
-- 1,623 -- -- -- -- --
--
-- 20,106 -- -- -- -- --
--
8,259 196,489 2,840 -- -- -- 1,822
1,529
545 466 -- -- -- 1,586 --
--
-- 174 -- -- -- -- --
--
82 206 256 133 194 52 88
146
28 76 68 22 39 13 20
51
-- -- -- -- -- -- --
--
43 53 46 35 64 101 33
45
-------- ---------- -------- -------- -------- -------- --------
--------
8,961 222,013 3,210 190 297 1,928 1,963
2,404
-------- ---------- -------- -------- -------- -------- --------
--------
$344,197 $ 896,497 $831,482 $285,847 $472,161 $147,973 $261,792
$595,680
======== ========== ======== ======== ======== ======== ========
========
$ 19 $ 75 $ 48 $ 16 $ 35 $ 13 $ 15
$ 47
264,982 823,419 646,891 228,913 366,358 131,426 211,117
564,048
7,313 37,428 15,393 (1,352) 721 11,850 (717)
46,298
171 33,587 24,065 (5,958) 22,227 (762) 18,696
4,032
71,712 1,988 145,085 64,228 82,820 5,446 32,681
(18,745)
-------- ---------- -------- -------- -------- -------- --------
--------
$344,197 $ 896,497 $831,482 $285,847 $472,161 $147,973 $261,792
$595,680
======== ========== ======== ======== ======== ======== ========
========
19,697 74,584 47,512 16,232 35,262 12,913 15,168
47,080
$ 17.47 $ 12.02 $ 17.50 $ 17.61 $ 13.39 $ 11.46 $ 17.26
$ 12.65
======== ========== ======== ======== ======== ======== ========
========
$278,881 $1,060,706 $684,798 $202,169 $366,902 $138,992 $226,411
$604,328
======== ========== ======== ======== ======== ======== ========
========
$ -- $ 1,611 $ -- $ -- $ 1,914 $ 371 $ --
$ --
======== ========== ======== ======== ======== ======== ========
========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
T. ROWE PIMCO AST AST PUTNAM
PRICE LIMITED OPPENHEIMER AST JANUS VALUE
FOUNDERS NATURAL MATURITY LARGE-CAP OVERSEAS GROWTH &
PASSPORT RESOURCES BOND GROWTH GROWTH INCOME
-------- --------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities at value (A)............... $118,413 $ 73,653 $462,767 $224,983 $607,451 $188,696
Cash................................................. 110 1 638 3 815 1
Foreign currency(B).................................. -- -- --..... -- 1 --
Unrealized appreciation on foreign currency exchange
contracts.......................................... -- -- --..... -- 527 --
Unrealized appreciation on interest rate swap
agreements......................................... -- -- -- -- -- --
Receivable for:
Securities sold.................................... -- -- 51,834 101,993 231 70
Dividends and interest............................. 51 154 3,971 91 435 347
Fund shares sold................................... 1,650 384 -- 892 3,021 888
Futures variation margin........................... -- -- --..... -- -- --
Other assets......................................... 1 1 3...... 2 4 2
-------- -------- -------- -------- -------- --------
TOTAL ASSETS..................................... 120,225 74,193 519,213... 327,964 612,485 190,004
-------- -------- -------- -------- -------- --------
LIABILITIES
Cash overdraft....................................... -- -- -- -- -- --
Unrealized depreciation on foreign currency exchange
contracts.......................................... -- -- -- -- 2,960 --
Written options outstanding, at value................ -- -- 13..... -- -- --
Sale Commitments, at value........................... -- -- -- -- -- --
Payable for:
Securities purchased............................... 110 -- 168,225 26,840 1,775 --
Fund shares redeemed............................... -- -- 1,109 -- -- --
Futures variation margin........................... -- -- 13 -- -- --
Advisory fees...................................... 58 32 83 142 297 58
Shareholder servicing fees......................... 10 6 29 24 94 28
Accrued dividends.................................. -- -- -- -- -- --
Accrued expenses and other liabilities............. 50 29 34..... 34 153 47
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES................................ 228 67 169,506... 27,040 5,279 133
-------- -------- -------- -------- -------- --------
NET ASSETS.............................................. $119,997 $ 74,126 $349,707... $300,924 $607,206 $189,871
======== ======== ======== ======== ======== ========
COMPONENTS OF NET ASSETS
Common stock (unlimited number of shares authorized,
$.001 par value per share)............................. $ 9 $ 6 $ 32 $ 19 $ 44 $ 14
Additional paid-in capital.............................. 98,992 82,240 330,616 232,983 544,338 167,144
Undistributed net investment income (loss).............. 691 1,137 18,176 (1,873) 591 1,630
Accumulated net realized gain (loss) on investments..... (3,395) 8,509 89..... 34,226 (27,223) 8,800
Accumulated net unrealized appreciation (depreciation)
on investments......................................... 23,700 (17,766) 794.... 35,569 89,456 12,283
-------- -------- -------- -------- -------- --------
NET ASSETS.............................................. $119,997 $ 74,126 $349,707... $300,924 $607,206 $189,871
======== ======== ======== ======== ======== ========
Shares of common stock outstanding...................... 9,204 6,191 31,549 18,722 44,196 14,096
Net asset value, offering and redemption price per
share.................................................. $ 13.04 $ 11.97 $11.08.. $ 16.07 $ 13.74 $ 13.47
======== ======== ======== ======== ======== ========
(A) Investments at cost................................. $94,713 $ 91,419 $461,936... $189,414 $515,581 $176,413
======== ======== ======== ======== ======== ========
(B) Foreign currency at cost............................ $ -- $ -- $ -- $ -- $ 1 $ --
======== ======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
PORTFOLIO
-----------------------------------------------------------------------------------------------
TWENTIETH TWENTIETH T. ROWE LORD BANKERS
CENTURY CENTURY PRICE SMALL MARSICO COHEN & ABBETT TRUST
STRATEGIC INTERNATIONAL COMPANY CAPITAL STEERS SMALL CAP ENHANCED STEIN ROE
BALANCED GROWTH VALUE GROWTH REALTY VALUE 500 VENTURE
--------- ------------- ----------- -------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$89,364 $79,784 $302,272 $612,449 $33,051 $42,664 $268,110 $ 8,398
2 123 -- 1 -- -- 22,229 476
-- -- -- -- -- -- -- --
-- 21 -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- 464 -- 16,602 -- 192 1,208 9
428 113 977 52 221 19 358 4
1,305 -- 2,796 3,594 113 387 587 103
-- -- -- -- -- -- 145 --
1 -- 3 4 9 -- 2 --
------- ------- -------- -------- ------- ------- -------- -------
91,100 80,505 306,048 632,702 33,394 43,262 292,639 8,990
------- ------- -------- -------- ------- ------- -------- -------
-- -- 309 -- -- 3 -- --
-- 59 -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- 2,072 1,483 37,432 342 1,441 2,996 48
-- 542 -- -- -- -- -- --
-- -- -- -- -- -- -- --
34 44 127 215 16 16 37 5
7 6 25 46 5 3 23 1
-- -- -- -- -- -- -- --
16 49 32 43 6 11 32 6
------- ------- -------- -------- ------- ------- -------- -------
57 2,772 1,976 37,736 369 1,474 3,088 60
------- ------- -------- -------- ------- ------- -------- -------
$91,043 $77,733 $304,072 $594,966 $33,025 $41,788 $289,551 $ 8,930
======= ======= ======== ======== ======= ======= ======== =======
$ 7 $ 6 $ 27 $ 42 $ 4 $ 4 $ 23 $ 1
77,783 71,368 323,482 513,710 37,210 43,838 255,589 9,613
901 (99) 2,516 429 1,087 (45) 1,358 (31)
(162) (1,899) (547) (6,211) (679) (2,539) 3,968 (1,726)
12,514 8,357 (21,406) 86,996 (4,597) 530 28,613 1,073
------- ------- -------- -------- ------- ------- -------- -------
$91,043 $77,733 $304,072 $594,966 $33,025 $41,788 $289,551 $ 8,930
======= ======= ======== ======== ======= ======= ======== =======
6,664 5,690 26,586 41,898 3,929 4,181 22,658 1,089
$ 13.66 $ 13.66 $ 11.44 $ 14.20 $ 8.41 $ 9.99 $ 12.78 $ 8.20
======= ======= ======== ======== ======= ======= ======== =======
$76,852 $71,389 $323,678 $525,453 $37,648 $42,134 $242,131 $ 7,325
======= ======= ======== ======== ======= ======= ======== =======
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ======= ======== ======== ======= ======= ======== =======
-----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
AST NEUBERGER&
PUTNAM LORD ABBETT AST BERMAN AST
INTERNATIONAL GROWTH AND JANCAP MONEY MID-CAP PUTNAM
EQUITY INCOME GROWTH MARKET VALUE BALANCED
------------- ----------- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest.......................................... $ 755 $ 1,798 $ 15,077 $52,052 $ 660 $10,027
Dividends......................................... 7,839 21,690 9,734 -- 5,358 3,730
------- -------- ---------- ------- -------- -------
Total Investment Income....................... 8,594 23,488 24,811 52,052 6,018 13,757
------- -------- ---------- ------- -------- -------
EXPENSES
Investment advisory fees.......................... 4,131 7,905 18,935 4,657 1,715 2,860
Shareholder servicing fees........................ 473 1,054 2,104 931 209 387
Administration and accounting fees................ 340 460 565 433 203 312
Custodian fees.................................... 335 120 199 80 40 225
Professional fees................................. 18 41 82 36 8 16
Trustees' fees.................................... 8 18 35 15 4 7
Insurance expenses................................ 5 11 22 10 2 4
Miscellaneous expenses............................ 11 17 29 13 7 73
------- -------- ---------- ------- -------- -------
Total Expenses................................ 5,321 9,626 21,971 6,175 2,188 3,884
Less: Advisory fee waivers and expense
reimbursements.............................. -- (27) (552) (587) -- --
------- -------- ---------- ------- -------- -------
Net Expenses.................................. 5,321 9,599 21,419 5,588 2,188 3,884
------- -------- ---------- ------- -------- -------
Net Investment Income (Loss)......................... 3,273 13,889 3,392 46,464 3,830 9,873
------- -------- ---------- ------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Securities.................................... 38,462 64,048 129,467 106 7,804 24,929
Foreign currency transactions................. (2,580) -- (4,322) -- -- 131
Futures contracts............................. -- -- -- -- -- 6,475
Interest rate swaps........................... -- -- -- -- -- --
Option contracts.............................. -- -- -- -- -- --
------- -------- ---------- ------- -------- -------
Net realized gain (loss).......................... 35,882 64,048 125,145 106 7,804 31,535
------- -------- ---------- ------- -------- -------
Net change in unrealized appreciation (depreciation)
on:
Securities.................................... 43,958 47,175 1,054,833 -- (11,166) 3,477
Futures contracts............................. -- -- -- -- -- 1,492
Written option contracts...................... -- -- -- -- -- --
Interest rate swaps........................... -- -- -- -- -- --
Translation of assets and liabilities
denominated in foreign currencies........... (1,493) -- 516 -- -- (31)
------- -------- ---------- ------- -------- -------
Net change in unrealized appreciation
(depreciation).................................. 42,465 47,175 1,055,349 -- (11,166) 4,938
------- -------- ---------- ------- -------- -------
Net gain (loss) on investments.................... 78,347 111,223 1,180,494 106 (3,362) 36,473
------- -------- ---------- ------- -------- -------
Net Increase (Decrease) in Net Assets Resulting
from Operations................................. $81,620 $125,112 $1,183,886 $46,570 $ 468 $46,346
======= ======== ========== ======= ======== =======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PORTFOLIO
- --------------------------------------------------------------------------------------------------------
PIMCO T. ROWE T. ROWE NEUBERGER&
T. ROWE TOTAL INVESCO FOUNDERS PRICE PRICE BERMAN
FEDERATED PRICE ASSET RETURN EQUITY CAPITAL INTERNATIONAL INTERNATIONAL MID-CAP
HIGH YIELD ALLOCATION BOND INCOME APPRECIATION EQUITY BOND GROWTH
- ---------- ----------- ------- ------- ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 50,155 $ 7,923 $44,550 $13,716 $ 1,227 $ 723 $ 8,291 $ 924
1,247 2,246 6 8,295 271 7,885 -- 615
-------- ------- ------- ------- ------- ------- ------- -------
51,402 10,169 44,556 22,011 1,498 8,608 8,291 1,539
-------- ------- ------- ------- ------- ------- ------- -------
4,021 2,281 4,772 5,341 2,288 4,652 1,126 1,782
536 268 734 712 254 465 141 210
357 241 402 397 232 338 141 204
60 48 125 77 50 275 130 40
24 11 29 28 10 18 5 8
9 4 12 12 4 8 2 3
5 3 8 7 2 4 2 2
92 68 26 20 10 52 22 7
-------- ------- ------- ------- ------- ------- ------- -------
5,104 2,924 6,108 6,594 2,850 5,812 1,569 2,256
-- -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------- -------
5,104 2,924 6,108 6,594 2,850 5,812 1,569 2,256
-------- ------- ------- ------- ------- ------- ------- -------
46,298 7,245 38,448 15,417 (1,352) 2,796 6,722 (717)
-------- ------- ------- ------- ------- ------- ------- -------
4,047 191 6,872 24,041 (5,945) 22,769 5,062 19,756
-- 23 630 -- 3 486 (533) --
-- -- 24,536 -- -- -- -- --
-- -- 579 -- -- -- -- --
-- -- 1,239 -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------- -------
4,047 214 33,856 24,041 (5,942) 23,255 4,529 19,756
-------- ------- ------- ------- ------- ------- ------- -------
(38,540) 38,780 (1,962) 50,324 21,943 39,848 6,940 28,800
-- -- (2,193) -- -- -- -- --
-- -- (356) -- -- -- -- --
-- -- (188) -- -- -- -- --
-- 10 (1,619) -- -- 52 1,116 --
-------- ------- ------- ------- ------- ------- ------- -------
(38,540) 38,790 (6,318) 50,324 21,943 39,900 8,056 28,800
-------- ------- ------- ------- ------- ------- ------- -------
(34,493) 39,004 27,538 74,365 16,001 63,155 12,585 48,556
-------- ------- ------- ------- ------- ------- ------- -------
11,805
$ $46,249 $65,986 $89,782 $14,649 $65,951 $19,307 $47,839
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
PIMCO AST AST
T. ROWE LIMITED OPPENHEIMER JANUS AST PUTNAM
FOUNDERS PRICE NATURAL MATURITY LARGE-CAP OVERSEAS VALUE GROWTH
PASSPORT RESOURCES BOND GROWTH GROWTH & INCOME
-------- ------------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest......................................... $ 1,108 $ 144 $20,801 $ 175 $ 2,850 $ 290
Dividends........................................ 867 2,073 -- 1,232 4,064 2,892
------- -------- ------- ------- -------- -------
Total Investment Income...................... 1,975 2,217 20,801 1,407 6,914 3,182
------- -------- ------- ------- -------- -------
EXPENSES
Investment advisory fees......................... 1,219 869 2,060 2,694 4,345 1,165
Shareholder servicing fees....................... 122 97 317 269 434 155
Administration and accounting fees............... 122 97 270 242 321 155
Custodian fees................................... 100 40 50 50 350 60
Professional fees................................ 5 4 13 11 16 6
Trustees' fees................................... 2 1 5 4 7 3
Insurance expenses............................... 1 1 3 3 5 2
Miscellaneous expenses........................... 11 10 20 7 32 6
------- -------- ------- ------- -------- -------
Total Expenses............................... 1,582 1,119 2,738 3,280 5,510 1,552
Less: Advisory fee waivers and expense
reimbursements............................. -- -- -- -- -- --
------- -------- ------- ------- -------- -------
Net Expenses................................. 1,582 1,119 2,738 3,280 5,510 1,552
------- -------- ------- ------- -------- -------
Net Investment Income (Loss)........................ 393 1,098 18,063 (1,873) 1,404 1,630
------- -------- ------- ------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Securities................................... 239 8,557 916 38,928 (17,292) 8,830
Foreign currency transactions................ (168) (24) (2) -- (8,144) --
Futures contracts............................ -- -- 108 -- -- --
Interest rate swaps.......................... -- -- 94 -- -- --
Option contracts............................. -- -- -- -- -- --
------- -------- ------- ------- -------- -------
Net realized gain (loss)......................... 71 8,533 1,116 38,928 (25,436) 8,830
------- -------- ------- ------- -------- -------
Net change in unrealized appreciation
(depreciation) on:
Securities................................... 12,477 (20,469) (1,294) 27,050 78,096 6,641
Futures contracts............................ -- -- (75) -- -- --
Written option contracts..................... -- -- -- -- -- --
Interest rate swaps.......................... -- -- (30) -- -- --
Translation of assets and liabilities
denominated in foreign currencies.......... 7 -- (395) -- (2,276) --
------- -------- ------- ------- -------- -------
Net change in unrealized appreciation
(depreciation)................................. 12,484 (20,469) (1,794) 27,050 75,820 6,641
------- -------- ------- ------- -------- -------
Net gain (loss) on investments................... 12,555 (11,936) (678) 65,978 50,384 15,471
------- -------- ------- ------- -------- -------
Net Increase (Decrease) in Net Assets Resulting
from Operations................................ $12,948 $(10,838) $17,385 $64,105 $ 51,788 $17,101
======= ======== ======= ======= ======== =======
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on January 2, 1998.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PORTFOLIO
- ---------------------------------------------------------------------------------------------------
TWENTIETH TWENTIETH T. ROWE BANKERS
CENTURY CENTURY PRICE SMALL MARSICO COHEN & LORD ABBETT TRUST
STRATEGIC INTERNATIONAL COMPANY CAPITAL STEERS SMALL CAP ENHANCED STEIN ROE
BALANCED GROWTH VALUE GROWTH REALTY(1) VALUE(1) 500(1) VENTURE(1)
- --------- ------------- ----------- ------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,261 $ 225 $ 1,279 $1,639 $ 67 $ 82 $ 555 $ 17
196 764 4,234 1,792 1,301 150 1,823 10
------- ------- -------- ------- ------- ------- ------- -------
1,457 989 5,513 3,431 1,368 232 2,378 27
------- ------- -------- ------- ------- ------- ------- -------
432 563 2,424 2,446 217 201 765 41
51 56 269 272 22 21 128 4
63 85 242 222 26 26 62 25
24 200 40 40 12 24 110 15
2 2 11 9 1 1 5 --
1 1 4 4 -- -- 2 --
1 1 3 3 -- -- 1 --
4 22 7 6 3 4 21 2
------- ------- -------- ------- ------- ------- ------- -------
578 930 3,000 3,002 281 277 1,094 87
18 -- -- -- -- -- (74) (29)
------- ------- -------- ------- ------- ------- ------- -------
596 930 3,000 3,002 281 277 1,020 58
------- ------- -------- ------- ------- ------- ------- -------
861 59 2,513 429 1,087 (45) 1,358 (31)
------- ------- -------- ------- ------- ------- ------- -------
151 (1,148) 1,425 (7,239) (679) (2,539) 2,467 (1,726)
94 (270) -- (29) -- -- -- --
-- -- (1,970) -- -- -- 1,501 --
-- -- -- -- -- -- -- --
-- -- -- 1,057 -- -- -- --
------- ------- -------- ------- ------- ------- ------- -------
245 (1,418) (545) (6,211) (679) (2,539) 3,968 (1,726)
------- ------- -------- ------- ------- ------- ------- -------
10,681 7,024 (38,214) 86,973 (4,597) 530 28,613 1,073
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
3 (132) -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------- -------
10,684 6,892 (38,214) 86,973 (4,597) 530 28,613 1,073
------- ------- -------- ------- ------- ------- ------- -------
10,929 5,474 (38,759) 80,762 (5,276) (2,009) 32,581 (653)
------- ------- -------- ------- ------- ------- ------- -------
11,790
$ $ 5,533 $(36,246) $81,191 $(4,189) $(2,054) $33,939 $ (684)
======= ======= ======== ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
AST PUTNAM LORD ABBETT
INTERNATIONAL EQUITY GROWTH AND INCOME
------------------------ -------------------------
1998 1997 1998 1997
--------- --------- ----------- --------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....................... $ 3,273 $ 3,398 $ 13,889 $ 11,541
Net realized gain (loss) on investments............ 35,882 49,254 64,048 50,708
Net change in unrealized appreciation
(depreciation) on investments.................... 42,465 10,077 47,175 81,537
--------- --------- ----------- --------
Net Increase (Decrease) in Net Assets from
Operations.................................... 81,620 62,729 125,112 143,786
--------- --------- ----------- --------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment
income........................................... (13,084) (5,413) (11,541) (7,379)
Distributions to shareholders from capital gains... (38,174) (17,443) (50,708) (13,267)
--------- --------- ----------- --------
Total Dividends and Distributions to
Shareholders.................................. (51,258) (22,856) (62,249) (20,646)
--------- --------- ----------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.......................... 185,700 125,193 270,381 426,438
Net asset value of shares issued in reinvestment of
dividends and distributions...................... 51,257 22,856 62,249 20,647
Cost of shares redeemed............................ (182,128) (121,863) (150,570) (163,736)
--------- --------- ----------- --------
Increase (Decrease) in Net Assets from Capital
Share Transactions............................ 54,829 26,186 182,060 283,349
--------- --------- ----------- --------
Total Increase (Decrease) in Net Assets....... 85,191 66,059 244,923 406,489
NET ASSETS
Beginning of Period................................ 412,270 346,211 936,986 530,497
--------- --------- ----------- --------
End of Period...................................... $ 497,461 $ 412,270 $ 1,181,909 $936,986
========= ========= =========== ========
SHARES ISSUED AND REDEEMED
Shares sold........................................ 8,691 6,183 13,210 22,448
Shares issued in reinvestment of dividends and
distributions.................................... 2,483 1,229 3,057 1,185
Shares redeemed.................................... (8,600) (6,057) (7,400) (8,879)
--------- --------- ----------- --------
Net Increase (Decrease) in Shares Outstanding.... 2,574 1,355 8,867 14,754
========= ========= =========== ========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PORTFOLIO
- ------------------------------------------------------------------------------------------------
NEUBERGER&BERMAN
JANCAP GROWTH AST MONEY MARKET MID-CAP VALUE AST PUTNAM BALANCED
- ----------------------- ------------------------- -------------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------- ---------- ----------- ----------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,392 $ 3,000 $ 46,464 $ 33,089 $ 3,830 $ 4,517 $ 9,873 $ 8,977
125,145 84,851 106 61 7,804 16,140 31,535 22,004
1,055,349 199,524 -- -- (11,166) 13,829 4,938 21,963
- ---------- ---------- ----------- ----------- --------- -------- -------- --------
1,183,886 287,375 46,570 33,150 468 34,486 46,346 52,944
- ---------- ---------- ----------- ----------- --------- -------- -------- --------
(5,171) (2,524) (46,464) (33,089) (4,404) (3,604) (9,278) (6,615)
(82,896) (42,072) (61) (80) (16,269) (5,148) (21,696) (30,342)
- ---------- ---------- ----------- ----------- --------- -------- -------- --------
(88,067) (44,596) (46,525) (33,169) (20,673) (8,752) (30,974) (36,957)
- ---------- ---------- ----------- ----------- --------- -------- -------- --------
1,505,748 862,306 3,991,163 2,492,066 190,527 90,589 35,841 42,308
88,067 44,596 45,987 31,988 20,673 8,752 30,974 36,957
(945,578) (530,403) (3,829,350) (2,313,617) (120,170) (47,070) (30,443) (24,140)
- ---------- ---------- ----------- ----------- --------- -------- -------- --------
648,237 376,499 207,800 210,437 91,030 52,271 36,372 55,125
- ---------- ---------- ----------- ----------- --------- -------- -------- --------
1,744,056 619,278 207,845 210,418 70,825 78,005 51,744 71,112
1,511,602 892,324 759,888 549,470 201,143 123,138 357,591 286,479
- ---------- ---------- ----------- ----------- --------- -------- -------- --------
$3,255,658 $1,511,602 $ 967,733 $ 759,888 $ 271,968 $201,143 $409,335 $357,591
========== ========== =========== =========== ========= ======== ======== ========
53,163 40,825 3,991,163 2,492,065 14,882 6,689 2,666 3,259
3,601 2,311 45,987 31,988 1,531 711 2,361 3,095
(34,087) (25,329) (3,829,350) (2,313,617) (9,030) (3,718) (2,282) (1,850)
- ---------- ---------- ----------- ----------- --------- -------- -------- --------
22,677 17,807 207,800 210,436 7,383 3,682 2,745 4,504
========== ========== =========== =========== ========= ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------
PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE
FEDERATED HIGH YIELD ASSET ALLOCATION
----------------------- ----------------------
1998 1997 1998 1997
--------- -------- -------- --------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).......................... $ 46,298 $ 27,616 $ 7,245 $ 4,904
Net realized gain (loss) on investments............... 4,047 1,491 214 889
Net change in unrealized appreciation (depreciation)
on investments...................................... (38,540) 10,886 38,790 21,216
--------- -------- -------- --------
Net Increase (Decrease) in Net Assets from
Operations....................................... 11,805 39,993 46,249 27,009
--------- -------- -------- --------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment
income.............................................. (27,616) (10,610) (4,836) (2,585)
Distributions to shareholders from capital gains...... (1,507) (1,263) (930) (2,403)
--------- -------- -------- --------
Total Dividends and Distributions to Shareholders... (29,123) (11,873) (5,766) (4,988)
--------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................. 347,227 269,597 103,937 74,080
Net asset value of shares issued in reinvestment of
dividends and distributions......................... 29,123 11,874 5,767 4,987
Cost of shares redeemed............................... (197,772) (80,433) (19,065) (8,162)
--------- -------- -------- --------
Increase (Decrease) in Net Assets from Capital Share
Transactions..................................... 178,578 201,038 90,639 70,905
--------- -------- -------- --------
Total Increase (Decrease) in Net Assets.......... 161,260 229,158 131,122 92,926
NET ASSETS
Beginning of Period................................... 434,420 205,262 213,075 120,149
--------- -------- -------- --------
End of Period......................................... $ 595,680 $434,420 $344,197 $213,075
========= ======== ======== ========
SHARES ISSUED AND REDEEMED
Shares sold........................................... 27,343 21,771 6,425 5,224
Shares issued in reinvestment of dividends and
distributions....................................... 2,302 1,000 371 377
Shares redeemed....................................... (15,704) (6,550) (1,181) (570)
--------- -------- -------- --------
Net Increase (Decrease) in Shares Outstanding....... 13,941 16,221 5,615 5,031
========= ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PORTFOLIO
- ----------------------------------------------------------------------------------------------------
PIMCO T. ROWE PRICE
TOTAL RETURN BOND INVESCO EQUITY INCOME FOUNDERS CAPITAL APPRECIATION INTERNATIONAL EQUITY
- -------------------- --------------------- ----------------------------- ---------------------
1998 1997 1998 1997 1998 1997 1998 1997
- --------- -------- --------- --------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 38,448 $ 25,494 $ 15,417 $ 12,069 $ (1,352) $ (777) $ 2,796 $ 3,120
33,856 16,378 24,041 30,597 (5,942) 13,327 23,255 8,904
(6,318) 3,629 50,324 52,553 21,943 4,903 39,900 (3,621)
- --------- -------- --------- --------- --------- --------- --------- ---------
65,986 45,501 89,782 95,219 14,649 17,453 65,951 8,403
- --------- -------- --------- --------- --------- --------- --------- ---------
(26,514) (15,321) (12,093) (7,141) -- -- (5,390) (2,360)
(12,394) -- (30,573) (9,950) (12,821) -- (8,769) (2,682)
- --------- -------- --------- --------- --------- --------- --------- ---------
(38,908) (15,321) (42,666) (17,091) (12,821) -- (14,159) (5,042)
- --------- -------- --------- --------- --------- --------- --------- ---------
443,436 239,491 341,838 325,090 112,086 159,953 376,940 303,075
38,909 15,321 42,666 17,091 12,821 -- 14,158 5,042
(185,026) (72,902) (202,243) (166,884) (119,146) (119,216) (435,185) (249,581)
- --------- -------- --------- --------- --------- --------- --------- ---------
297,319 181,910 182,261 175,297 5,761 40,737 (44,087) 58,536
- --------- -------- --------- --------- --------- --------- --------- ---------
324,397 212,090 229,377 253,425 7,589 58,190 7,705 61,897
572,100 360,010 602,105 348,680 278,258 220,068 464,456 402,559
- --------- -------- --------- --------- --------- --------- --------- ---------
$ 896,497 $572,100 $ 831,482 $ 602,105 $ 285,847 $ 278,258 $ 472,161 $ 464,456
========= ======== ========= ========= ========= ========= ========= =========
38,021 21,382 20,510 21,367 7,069 9,416 29,768 24,350
3,502 1,429 2,613 1,227 706 -- 1,115 419
(15,740) (6,415) (12,079) (11,049) (7,164) (6,897) (34,036) (19,694)
- --------- -------- --------- --------- --------- --------- --------- ---------
25,783 16,396 11,044 11,545 611 2,519 (3,153) 5,075
========= ======== ========= ========= ========= ========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------
PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE NEUBERGER&BERMAN
INTERNATIONAL BOND MID-CAP GROWTH
---------------------- ------------------------
1998 1997 1998 1997
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)......................... $ 6,722 $ 5,568 $ (717) $ 122
Net realized gain (loss) on investments.............. 4,529 (4,845) 19,756 33,536
Net change in unrealized appreciation (depreciation)
on investments..................................... 8,056 (3,925) 28,800 (11,415)
-------- -------- --------- ---------
Net Increase (Decrease) in Net Assets from
Operations...................................... 19,307 (3,202) 47,839 22,243
-------- -------- --------- ---------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment
income............................................. (440) (1,563) (122) (223)
Distributions to shareholders from capital gains..... (1,035) (2,503) (34,532) (1,347)
-------- -------- --------- ---------
Total Dividends and Distributions to
Shareholders.................................... (1,475) (4,066) (34,654) (1,570)
-------- -------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 34,101 57,168 183,164 210,696
Net asset value of shares issued in reinvestment of
dividends and distributions........................ 1,475 4,066 34,654 1,570
Cost of shares redeemed.............................. (35,843) (21,793) (154,261) (184,136)
-------- -------- --------- ---------
Increase (Decrease) in Net Assets from Capital
Share Transactions.............................. (267) 39,441 63,557 28,130
-------- -------- --------- ---------
Total Increase (Decrease) in Net Assets......... 17,565 32,173 76,742 48,803
NET ASSETS
Beginning of Period.................................. 130,408 98,235 185,050 136,247
-------- -------- --------- ---------
End of Period........................................ $147,973 $130,408 $ 261,792 $ 185,050
======== ======== ========= =========
SHARES ISSUED AND REDEEMED
Shares sold.......................................... 3,207 5,634 11,663 13,595
Shares issued in reinvestment of dividends and
distributions...................................... 144 405 2,141 109
Shares redeemed...................................... (3,340) (2,152) (9,777) (12,032)
-------- -------- --------- ---------
Net Increase (Decrease) in Shares Outstanding...... 11 3,887 4,027 1,672
======== ======== ========= =========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
PORTFOLIO
- ----------------------------------------------------------------------------------------
T. ROWE PRICE PIMCO LIMITED AST OPPENHEIMER
FOUNDERS PASSPORT NATURAL RESOURCES MATURITY BOND LARGE-CAP GROWTH
- -------------------- ------------------- -------------------- --------------------
1998 1997 1998 1997 1998 1997 1998 1997
- --------- -------- -------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 393 $ 547 $ 1,098 $ 1,072 $ 18,063 $ 14,491 $ (1,873) $ (890)
71 (3,437) 8,533 6,263 1,116 427 38,928 (4,645)
12,484 5,943 (20,469) (5,032) (1,794) 3,612 27,050 5,704
- --------- -------- -------- -------- --------- -------- --------- --------
12,948 3,053 (10,838) 2,303 17,385 18,530 64,105 169
- --------- -------- -------- -------- --------- -------- --------- --------
(249) (805) (1,033) (417) (14,378) 10,857 -- --
-- (129) (6,254) (2,073) -- -- -- --
- --------- -------- -------- -------- --------- -------- --------- --------
(249) (934) (7,287) (2,490) (14,378) (10,857) -- --
- --------- -------- -------- -------- --------- -------- --------- --------
111,816 74,511 23,994 63,364 169,835 141,511 115,467 265,275
249 933 7,287 2,489 14,379 10,857 -- --
(122,705) (77,268) (50,984) (42,246) (126,156) (80,412) (114,296) (78,586)
- --------- -------- -------- -------- --------- -------- --------- --------
(10,640) (1,824) (19,703) 23,607 58,058 71,956 1,171 186,689
- --------- -------- -------- -------- --------- -------- --------- --------
2,059 295 (37,828) 23,420 61,065 79,629 65,276 186,858
117,938 117,643 111,954 88,534 288,642 209,013 235,648 48,790
- --------- -------- -------- -------- --------- -------- --------- --------
$ 119,997 $117,938 $ 74,126 $111,954 $ 349,707 $288,642 $ 300,924 $235,648
========= ======== ======== ======== ========= ======== ========= ========
8,699 6,247 1,743 4,198 15,604 13,311 8,359 20,523
20 78 527 172 1,360 1,049 -- --
(9,531) (6,422) (3,762) (2,804) (11,604) (7,504) (8,303) (6,296)
- --------- -------- -------- -------- --------- -------- --------- --------
(812) (97) (1,492) 1,566 5,360 6,856 56 14,227
========= ======== ======== ======== ========= ======== ========= ========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
AST PUTNAM VALUE
AST JANUS OVERSEAS GROWTH GROWTH & INCOME
-------------------------- -----------------------
1998 1997(1) 1998 1997(1)
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)......................... $ 1,404 $ 452 $ 1,630 $ 686
Net realized gain (loss) on investments.............. (25,436) (1,787) 8,830 1,862
Net change in unrealized appreciation (depreciation)
on investments..................................... 75,820 13,636 6,641 5,642
-------- -------- --------- --------
Net Increase (Decrease) in Net Assets from
Operations...................................... 51,788 12,301 17,101 8,190
-------- -------- --------- --------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment
income............................................. (1,265) -- (686) --
Distributions to shareholders from capital gains..... -- -- (1,892) --
-------- -------- --------- --------
Total Dividends and Distributions to
Shareholders.................................... (1,265) -- (2,578) --
-------- -------- --------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 627,893 295,567 79,616 121,563
Net asset value of shares issued in reinvestment of
dividends and distributions........................ 1,265 -- 2,578 --
Cost of shares redeemed.............................. (328,180) (52,163) (24,284) (12,315)
-------- -------- --------- --------
Increase (Decrease) in Net Assets from Capital
Share Transactions.............................. 300,978 243,404 57,910 109,248
-------- -------- --------- --------
Total Increase (Decrease) in Net Assets......... 351,501 255,705 72,433 117,438
NET ASSETS
Beginning of Period.................................. 255,705 -- 117,438 --
-------- -------- --------- --------
End of Period........................................ $607,206 $255,705 $ 189,871 $117,438
======== ======== ========= ========
SHARES ISSUED AND REDEEMED
Shares sold.......................................... 47,356 25,962 6,243 10,693
Shares issued in reinvestment of dividends and
distributions...................................... 98 -- 202 --
Shares redeemed...................................... (24,800) (4,420) (1,954) (1,088)
-------- -------- --------- --------
Net Increase (Decrease) in Shares Outstanding...... 22,654 21,542 4,491 9,605
======== ======== ========= ========
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on January 2, 1997.
(2) Commenced operations on December 22, 1997.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PORTFOLIO
- -------------------------------------------------------------------------------------------
TWENTIETH CENTURY TWENTIETH CENTURY T. ROWE PRICE SMALL
STRATEGIC BALANCED INTERNATIONAL GROWTH COMPANY VALUE MARSICO CAPITAL GROWTH
- ------------------- --------------------- ------------------- -----------------------
1998 1997(1) 1998 1997(1) 1998 1997(1) 1998 1997(2)
- -------- -------- --------- --------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 861 $ 273 $ 59 $ (92) $ 2,513 $ 949 $ 429 $ 6
245 (407) (1,418) (481) (545) 1,023 (6,211) --
10,684 1,830 6,892 1,465 (38,214) 16,808 86,973 23
- ------- ------- -------- -------- -------- -------- --------- -------
11,790 1,696 5,533 892 (36,246) 18,780 81,191 29
- ------- ------- -------- -------- -------- -------- --------- -------
(233) -- (66) -- (946) -- (6) --
-- -- -- -- (1,025) -- -- --
- ------- ------- -------- -------- -------- -------- --------- -------
(233) -- (66) -- (1,971) -- (6) --
- ------- ------- -------- -------- -------- -------- --------- -------
56,082 29,464 91,526 48,070 223,838 210,455 609,599 9,665
233 -- 66 -- 1,971 -- 6 --
(5,776) (2,213) (52,451) (15,837) (83,416) (29,339) (103,123) (2,395)
- ------- ------- -------- -------- -------- -------- --------- -------
50,539 27,251 39,141 32,233 142,393 181,116 506,482 7,270
- ------- ------- -------- -------- -------- -------- --------- -------
62,096 28,947 44,608 33,125 104,176 199,896 587,667 7,299
28,947 -- 33,125 -- 199,896 -- 7,299 --
- ------- ------- -------- -------- -------- -------- --------- -------
$91,043 $28,947 $ 77,733 $ 33,125 $304,072 $199,896 $ 594,966 $ 7,299
======= ======= ======== ======== ======== ======== ========= =======
4,561 2,754 6,818 4,258 17,995 17,898 49,747 966
20 -- 5 -- 146 -- 1 --
(469) (202) (4,008) (1,383) (7,075) (2,378) (8,577) (239)
- ------- ------- -------- -------- -------- -------- --------- -------
4,112 2,552 2,815 2,875 11,066 15,520 41,171 727
======= ======= ======== ======== ======== ======== ========= =======
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------
PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
COHEN & LORD ABBETT BANKERS TRUST STEIN ROE
STEERS REALTY SMALL CAP VALUE ENHANCED 500 VENTURE
------------- --------------- ------------- ---------
1998(3) 1998(3) 1998(3) 1998(3)
------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................... $ 1,087 $ (45) $ 1,358 $ (31)
Net realized gain (loss) on investments........ (679) (2,539) 3,968 (1,726)
Net change in unrealized appreciation
(depreciation) on investments................ (4,597) 530 28,613 1,073
------- -------- --------- -------
Net Increase (Decrease) in Net Assets from
Operations................................ (4,189) (2,054) 33,939 (684)
------- -------- --------- -------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment
income....................................... -- -- -- --
Distributions to shareholders from capital
gains........................................ -- -- -- --
------- -------- --------- -------
Total Dividends and Distributions to
Shareholders............................ -- -- -- --
------- -------- --------- -------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold...................... 43,323 55,415 399,894 11,360
Net asset value of shares issued in
reinvestment of dividends and
distributions................................ -- -- -- --
Cost of shares redeemed........................ (6,109) (11,573) (144,282) (1,746)
------- -------- --------- -------
Increase (Decrease) in Net Assets from Capital
Share Transactions........................... 37,214 43,842 255,612 9,614
------- -------- --------- -------
Total Increase (Decrease) in Net Assets...... 33,025 41,788 289,551 8,930
NET ASSETS
Beginning of Period............................ -- -- -- --
------- -------- --------- -------
End of Period.................................. $33,025 $ 41,788 $ 289,551 $ 8,930
======= ======== ========= =======
SHARES ISSUED AND REDEEMED
Shares sold.................................... 4,659 5,384 35,658 1,309
Shares issued in reinvestment of dividends and
distributions................................ -- -- -- --
Shares redeemed................................ (730) (1,203) (13,000) (220)
------- -------- --------- -------
Net Increase (Decrease) in Shares
Outstanding............................... 3,929 4,181 22,658 1,089
======= ======== ========= =======
</TABLE>
- --------------------------------------------------------------------------------
(3) Commenced operations on January 2, 1998.
See Notes to Financial Statement.
<PAGE>
[This page intentionally left blank]
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- -------------------------------------
NET ASSET NET
YEAR VALUE INVESTMENT NET REALIZED TOTAL FROM FROM NET FROM NET
ENDED BEGINNING INCOME & UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL
PORTFOLIO DECEMBER 31, OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS
- ------------------------ ------------ --------- ---------- ------------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AST Putnam 1998 $21.29 $ 0.20 $ 3.81 $ 4.01 $ (0.67) $ (1.96) $ (2.63)
International Equity 1997 19.22 0.36 2.96 3.32 (0.30) (0.95) (1.25)
1996 18.20 0.16 1.55 1.71 (0.32) (0.37) (0.69)
1995 17.61 0.14 1.44 1.58 -- (0.99) (0.99)
1994 17.34 0.10 0.36 0.46 (0.03) (0.16) (0.19)
Lord Abbett 1998 $20.53 $ 0.25 $ 2.23 $ 2.48 $ (0.25) $ (1.08) $ (1.33)
Growth and Income 1997 17.17 0.24 3.76 4.00 (0.23) (0.41) (0.64)
1996 14.98 0.23 2.48 2.71 (0.17) (0.35) (0.52)
1995 12.00 0.16 3.22 3.38 (0.20) (0.20) (0.40)
1994 12.06 0.20 0.06 0.26 (0.12) (0.20) (0.32)
JanCap Growth 1998 $23.15 $ 0.04 $ 15.10 $ 15.14 $ (0.08) $ (1.21) $ (1.29)
1997 18.79 0.06 5.16 5.22 (0.05) (0.81) (0.86)
1996 15.40 0.02 4.19 4.21 (0.02) (0.80) (0.82)
1995 11.22 0.06 4.18 4.24 (0.06) -- (0.06)
1994 11.78 0.06 (0.59) (0.53) (0.03) -- (0.03)
AST Money Market 1998 $ 1.00 $0.0502 $0.0002 $0.0504 $(0.0502) $(0.0002) $(0.0504)
1997 1.00 0.0507 0.0002 0.0509 (0.0507) (0.0002) (0.0509)
1996 1.00 0.0492 0.0005 0.0497 (0.0492) (0.0005) (0.0497)
1995 1.00 0.0494 -- 0.0494 (0.0494) -- (0.0494)
1994 1.00 0.0367 0.0002 0.0369 (0.0367) (0.0002) (0.0369)
Neuberger&Berman 1998 $15.15 $ 0.21 $ (0.52) $ (0.31) $ (0.36) $ (1.32) $ (1.68)
Mid-Cap Value 1997 12.83 0.32 2.87 3.19 (0.36) (0.51) (0.87)
1996 11.94 0.36 0.97 1.33 (0.44) -- (0.44)
1995 9.87 0.40 2.09 2.49 (0.42) -- (0.42)
1994 10.79 0.46 (1.20) (0.74) (0.16) (0.02) (0.18)
AST Putnam Balanced 1998 $13.64 $ 0.34 $ 1.31 $ 1.65 $ (0.35) $ (0.81) $ (1.16)
1997 13.19 0.33 1.85 2.18 (0.31) (1.42) (1.73)
1996 12.53 0.32 1.02 1.34 (0.25) (0.43) (0.68)
1995 10.49 0.26 2.06 2.32 (0.28) -- (0.28)
1994 10.57 0.27 (0.26) 0.01 (0.07) (0.02) (0.09)
Federated High Yield 1998 $13.11 $ 0.91 $ (0.57) $ 0.34 $ (0.76) $ (0.04) $ (0.80)
1997 12.13 0.75 0.83 1.58 (0.54) (0.06) (0.60)
1996 11.14 0.56 0.90 1.46 (0.47) -- (0.47)
1995 9.69 0.38 1.46 1.84 (0.39) -- (0.39)
1994(2) 10.00 0.55 (0.86) (0.31) -- -- --
<CAPTION>
- ------------------------ ---------
NET ASSET
VALUE
END
PORTFOLIO OF PERIOD
- ------------------------ ---------
<S> <C>
AST Putnam $22.67
International Equity 21.29
19.22
18.20
17.61
Lord Abbett $21.68
Growth and Income 20.53
17.17
14.98
12.00
JanCap Growth $37.00
23.15
18.79
15.40
11.22
AST Money Market $ 1.00
1.00
1.00
1.00
1.00
Neuberger&Berman $13.16
Mid-Cap Value 15.15
12.83
11.94
9.87
AST Putnam Balanced $14.13
13.64
13.19
12.53
10.49
Federated High Yield $12.65
13.11
12.13
11.14
9.69
</TABLE>
- --------------------------------------------------------------------------------
(1) Annualized.
(2) Commenced operations on January 4, 1994.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
RATIO OF EXPENSES RATIOS OF NET INVESTMENT INCOME
SUPPLEMENTAL DATA TO AVERAGE NET ASSETS (LOSS) TO AVERAGE NET ASSETS
---------------------------------- -------------------------------- --------------------------------
AFTER ADVISORY BEFORE ADVISORY AFTER ADVISORY BEFORE ADVISORY
NET ASSETS AT PORTFOLIO FEE WAIVER FEE WAIVER FEE WAIVER FEE WAIVER
TOTAL END OF PERIOD TURNOVER AND EXPENSE AND EXPENSE AND EXPENSE AND EXPENSE
RETURN (IN 000'S) RATE REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
------ ------------- --------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
20.10% $ 497,461 117% 1.13% 1.13% 0.69% 0.69%
18.15% 412,270 116% 1.15% 1.15% 1.04% 1.04%
9.65% 346,211 124% 1.16% 1.26% 0.88% 0.78%
10.00% 268,056 59% 1.17% 1.27% 0.88% 0.78%
2.64% 238,050 49% 1.22% 1.32% 0.55% 0.46%
12.48% $1,181,909 78% 0.91% 0.91% 1.32% 1.31%
23.92% 936,986 41% 0.93% 0.93% 1.60% 1.60%
18.56% 530,497 43% 0.97% 0.97% 1.92% 1.92%
28.91% 288,749 50% 0.99% 0.99% 2.50% 2.50%
2.22% 92,050 60% 1.06% 1.06% 2.45% 2.45%
68.26% $3,255,658 42% 1.02% 1.04% 0.16% 0.13%
28.66% 1,511,563 94% 1.07% 1.08% 0.24% 0.23%
28.36% 892,324 79% 1.10% 1.10% 0.25% 0.25%
37.98% 431,321 113% 1.12% 1.12% 0.51% 0.51%
(4.51%) 245,645 94% 1.18% 1.18% 0.62% 0.62%
5.14% $ 967,733 N/A 0.60% 0.66% 4.99% 4.93%
5.18% 759,888 N/A 0.60% 0.69% 5.06% 4.98%
5.08% 549,470 N/A 0.60% 0.71% 4.87% 4.76%
5.05% 344,225 N/A 0.60% 0.72% 5.38% 5.26%
3.75% 288,588 N/A 0.64% 0.76% 3.90% 3.78%
(2.33%) $ 271,968 208% 1.05% 1.05% 1.83% 1.83%
26.42% 201,143 91% 0.90% 0.90% 3.34% 3.34%
11.53% 123,138 81% 0.93% 0.93% 3.14% 3.14%
26.13% 107,399 71% 0.93% 0.93% 4.58% 4.58%
(6.95%) 71,205 54% 0.99% 0.99% 5.11% 5.11%
12.86% $ 409,335 139% 1.00% 1.00% 2.55% 2.55%
18.28% 357,591 170% 1.03% 1.03% 2.81% 2.81%
11.23% 286,479 276% 0.94% 0.94% 2.66% 2.66%
22.60% 255,206 161% 0.94% 0.94% 3.28% 3.28%
0.09% 145,624 87% 0.99% 0.99% 3.08% 3.08%
2.61% $ 595,680 36% 0.95% 0.95% 8.64% 8.64%
13.59% 434,420 28% 0.98% 0.98% 8.83% 8.83%
13.58% 205,262 43% 1.03% 1.03% 8.02% 8.02%
19.57% 83,692 30% 1.11% 1.11% 8.72% 8.72%
(3.10%) 21,308 41% 1.15%(1) 1.34%(1) 9.06%(1) 8.87%(1)
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS
--------------------------------------
NET ASSET NET
YEAR VALUE INVESTMENT NET REALIZED TOTAL FROM
ENDED BEGINNING INCOME & UNREALIZED INVESTMENT
PORTFOLIO DECEMBER 31, OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS
- ------------------------- ------------ --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
T. Rowe Price 1998 $15.13 $ 0.35 $ 2.38 $ 2.73
Asset Allocation 1997 13.27 0.33 2.03 2.36
1996 12.01 0.27 1.28 1.55
1995 9.94 0.26 2.02 2.28
1994(2) 10.00 0.21 (0.27) (0.06)
PIMCO Total 1998 $11.72 $ 0.49 $ 0.56 $ 1.05
Return Bond 1997 11.11 0.48 0.58 1.06
1996 11.34 0.46 (0.10) 0.36
1995 9.75 0.25 1.55 1.80
1994(2) 10.00 0.26 (0.51) (0.25)
INVESCO Equity Income 1998 $16.51 $ 0.31 $ 1.81 $ 2.12
1997 13.99 0.31 2.84 3.15
1996 12.50 0.27 1.79 2.06
1995 9.75 0.25 2.65 2.90
1994(2) 10.00 0.16 (0.41) (0.25)
Founders Capital 1998 $17.81 $(0.08) $ 0.73 $ 0.65
Appreciation 1997 16.80 (0.05) 1.06 1.01
1996 14.25 (0.03) 2.85 2.82
1995 10.84 (0.04) 3.54 3.50
1994(2) 10.00 0.11 0.73 0.84
T. Rowe Price 1998 $12.09 $ 0.08 $ 1.59 $ 1.67
International Equity 1997 12.07 0.09 0.08 0.17
1996 10.65 0.06 1.44 1.50
1995 9.62 0.07 0.99 1.06
1994(2) 10.00 0.02 (0.40) (0.38)
T. Rowe Price 1998 $10.11 $ 0.52 $ 0.94 $ 1.46
International Bond 1997 10.90 0.20 (0.57) (0.37)
1996 10.60 0.23 0.38 0.61
1995 9.68 0.31 0.75 1.06
1994(3) 10.00 0.27 (0.59) (0.32)
<CAPTION>
- ------------------------- -------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------
NET ASSET
FROM NET FROM NET VALUE
INVESTMENT REALIZED TOTAL END
PORTFOLIO INCOME GAINS DISTRIBUTIONS OF PERIOD
- ------------------------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C>
T. Rowe Price $(0.33) $(0.06) $(0.39) $17.47
Asset Allocation (0.26) (0.24) (0.50) 15.13
(0.25) (0.04) (0.29) 13.27
(0.21) -- (0.21) 12.01
-- -- -- 9.94
PIMCO Total $(0.51) $(0.24) $(0.75) $12.02
Return Bond (0.45) -- (0.45) 11.72
(0.28) (0.31) (0.59) 11.11
(0.21) -- (0.21) 11.34
-- -- -- 9.75
INVESCO Equity Income $(0.32) $(0.81) $(1.13) $17.50
(0.26) (0.37) (0.63) 16.51
(0.24) (0.33) (0.57) 13.99
(0.15) -- (0.15) 12.50
-- -- -- 9.75
Founders Capital $ -- $(0.85) $(0.85) $17.61
Appreciation -- -- -- 17.81
-- (0.27) (0.27) 16.80
(0.09) -- (0.09) 14.25
-- -- -- 10.84
T. Rowe Price $(0.14) $(0.23) $(0.37) $13.39
International Equity (0.07) (0.08) (0.15) 12.09
(0.08) -- (0.08) 12.07
(0.01) (0.02) (0.03) 10.65
-- -- -- 9.62
T. Rowe Price $(0.03) $(0.08) $(0.11) $11.46
International Bond (0.16) (0.26) (0.42) 10.11
(0.14) (0.17) (0.31) 10.90
(0.14) -- (0.14) 10.60
-- -- -- 9.68
</TABLE>
- --------------------------------------------------------------------------------
(1) Annualized.
(2) Commenced operations on January 4, 1994.
(3) Commenced operations on May 3, 1994.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
RATIO OF EXPENSES RATIOS OF NET INVESTMENT INCOME
SUPPLEMENTAL DATA TO AVERAGE NET ASSETS (LOSS) TO AVERAGE NET ASSETS
---------------------------------- -------------------------------- --------------------------------
AFTER ADVISORY BEFORE ADVISORY AFTER ADVISORY BEFORE ADVISORY
NET ASSETS AT PORTFOLIO FEE WAIVER FEE WAIVER FEE WAIVER FEE WAIVER
TOTAL END OF PERIOD TURNOVER AND EXPENSE AND EXPENSE AND EXPENSE AND EXPENSE
RETURN (IN 000'S) RATE REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
------ ------------- --------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
18.36% $344,197 8% 1.09% 1.09% 2.70% 2.70%
18.40% 213,075 10% 1.13% 1.13% 2.95% 2.95%
13.14% 120,149 31% 1.20% 1.20% 3.02% 3.02%
23.36% 59,399 18% 1.25% 1.29% 3.53% 3.49%
(0.60%) 23,463 32% 1.25%(1) 1.47%(1) 3.64%(1) 3.42%(1)
9.46% $896,497 231% 0.83% 0.83% 5.24% 5.24%
9.87% 572,100 320% 0.86% 0.86% 5.56% 5.56%
3.42% 360,010 403% 0.89% 0.89% 5.38% 5.38%
18.78% 225,335 124% 0.89% 0.89% 5.95% 5.95%
(2.50%) 46,493 139% 1.02%(1) 1.02%(1) 5.57%(1) 5.57%(1)
13.34% $831,482 67% 0.93% 0.93% 2.17% 2.17%
23.33% 602,105 73% 0.95% 0.95% 2.54% 2.54%
17.09% 348,680 58% 0.98% 0.98% 2.83% 2.83%
30.07% 176,716 89% 0.98% 0.98% 3.34% 3.34%
(2.50%) 65,201 63% 1.14%(1) 1.14%(1) 3.41%(1) 3.41%(1)
3.49% $285,847 100% 1.12% 1.12% (0.53%) (0.53%)
6.01% 278,258 77% 1.13% 1.13% (0.32%) (0.32%)
20.05% 220,068 69% 1.16% 1.16% (0.38%) (0.38%)
32.56% 90,460 68% 1.22% 1.22% (0.28%) (0.28%)
8.40% 28,559 198% 1.30%(1) 1.55%(1) 2.59%(1) 2.34%(1)
14.03% $472,161 32% 1.25% 1.25% 0.60% 0.60%
1.36% 464,456 19% 1.26% 1.26% 0.71% 0.71%
14.17% 402,559 11% 1.30% 1.30% 0.84% 0.84%
11.09% 195,667 17% 1.33% 1.33% 1.03% 1.03%
(3.80%) 108,751 16% 1.75%(1) 1.77%(1) 0.45%(1) 0.43%(1)
14.72% $147,973 136% 1.11% 1.11% 4.78% 4.78%
(3.42%) 130,408 173% 1.11% 1.11% 4.73% 4.73%
5.98% 98,235 241% 1.21% 1.21% 5.02% 5.02%
11.10% 45,602 325% 1.53% 1.53% 6.17% 6.17%
(3.20%) 15,218 163% 1.68%(1) 1.68%(1) 7.03%(1) 7.03%(1)
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS
--------------------------------------
NET ASSET NET
YEAR VALUE INVESTMENT NET REALIZED TOTAL FROM
ENDED BEGINNING INCOME & UNREALIZED INVESTMENT
PORTFOLIO DECEMBER 31, OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS
- ------------------------- ------------ --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Neuberger&Berman 1998 $16.61 $(0.05) $ 3.31 $ 3.26
Mid-Cap Growth 1997 14.39 0.01 2.36 2.37
1996 12.40 0.01 2.01 2.02
1995 9.97 0.04 2.40 2.44
1994(4) 10.00 0.01 (0.04) (0.03)
Founders Passport 1998 $11.78 $ 0.05 $ 1.24 $ 1.29
1997 11.63 0.03 0.21 0.24
1996 10.33 0.09 1.24 1.33
1995(5) 10.00 0.03 0.30 0.33
T. Rowe Price 1998 $14.57 $ 0.19 $(1.78) $(1.59)
Natural Resources 1997 14.47 0.14 0.35 0.49
1996 11.11 0.05 3.35 3.40
1995(5) 10.00 0.04 1.07 1.11
PIMCO Limited 1998 $11.02 $ 0.56 $ 0.03 $ 0.59
Maturity Bond 1997 10.81 0.55 0.22 0.77
1996 10.47 0.56 (0.15) 0.41
1995(5) 10.00 0.05 0.42 0.47
AST Oppenheimer 1998 $12.62 $(0.10) $ 3.55 $ 3.45
Large-Cap Growth 1997 10.99 (0.05) 1.68 1.63
1996(6) 10.00 (0.01) 1.00 0.99
AST Janus Overseas 1998 $11.87 $ 0.04 $ 1.88 $ 1.92
Growth 1997(7) 10.00 0.02 1.85 1.87
AST Putnam Value 1998 $12.23 $ 0.11 $ 1.38 $ 1.49
Growth & Income 1997(7) 10.00 0.07 2.16 2.23
Twentieth Century 1998 $11.34 $ 0.11 $ 2.29 $ 2.40
Strategic Balanced 1997(7) 10.00 0.11 1.23 1.34
Twentieth Century 1998 $11.52 $ 0.03 $ 2.12 $ 2.15
International Growth 1997(7) 10.00 (0.03) 1.55 1.52
T. Rowe Price Small 1998 $12.88 $ 0.09 $(1.42) $(1.33)
Company Value 1997(7) 10.00 0.06 2.82 2.88
<CAPTION>
- ------------------------- -------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------
NET ASSET
FROM NET FROM NET VALUE
INVESTMENT REALIZED TOTAL END
PORTFOLIO INCOME GAINS DISTRIBUTIONS OF PERIOD
- ------------------------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Neuberger&Berman $(0.01) $(2.60) $(2.61) $17.26
Mid-Cap Growth (0.02) (0.13) (0.15) 16.61
(0.03) -- (0.03) 14.39
(0.01) -- (0.01) 12.40
-- -- -- 9.97
Founders Passport $(0.03) $ -- $(0.03) $13.04
(0.08) (0.01) (0.09) 11.78
(0.03) -- (0.03) 11.63
-- -- -- 10.33
T. Rowe Price $(0.14) $(0.87) $(1.01) $11.97
Natural Resources (0.07) (0.32) (0.39) 14.57
(0.02) (0.02) (0.04) 14.47
-- -- -- 11.11
PIMCO Limited $(0.53) $ -- $(0.53) $11.08
Maturity Bond (0.56) -- (0.56) 11.02
(0.05) (0.02) (0.07) 10.81
-- -- -- 10.47
AST Oppenheimer $ -- $ -- $ -- $16.07
Large-Cap Growth -- -- -- 12.62
-- -- -- 10.99
AST Janus Overseas $(0.05) $ -- $(0.05) $13.74
Growth -- -- -- 11.87
AST Putnam Value $(0.07) $(0.18) $(0.25) $13.47
Growth & Income -- -- -- 12.23
Twentieth Century $(0.08) $ -- $(0.08) $13.66
Strategic Balanced -- -- -- 11.34
Twentieth Century $(0.01) $ -- $(0.01) $13.66
International Growth -- -- -- 11.52
T. Rowe Price Small $(0.05) $(0.06) $(0.11) $11.44
Company Value -- -- -- 12.88
</TABLE>
- --------------------------------------------------------------------------------
(1) Annualized.
(4) Commenced operations on October 20, 1994.
(5) Commenced operations on May 2, 1995.
(6) Commenced operations on May 2, 1996.
(7) Commenced operations on January 2, 1997.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS OF EXPENSES RATIOS OF NET INVESTMENT INCOME
SUPPLEMENTAL DATA TO AVERAGE NET ASSETS (LOSS) TO AVERAGE NET ASSETS
- --------------------------------------- -------------------------------- --------------------------------
AFTER ADVISORY BEFORE ADVISORY AFTER ADVISORY BEFORE ADVISORY
NET ASSETS AT PORTFOLIO FEE WAIVER FEE WAIVER FEE WAIVER FEE WAIVER
TOTAL END OF PERIOD TURNOVER AND EXPENSE AND EXPENSE AND EXPENSE AND EXPENSE
RETURN (IN 000'S) RATE REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
------- ------------- --------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
20.65% $261,792 228% 1.07% 1.07% (0.34%) (0.34%)
16.68% 185,050 305% 0.99% 0.99% 0.07% 0.07%
16.34% 136,247 156% 1.01% 1.01% 0.24% 0.24%
24.42% 45,979 84% 1.17% 1.17% 0.70% 0.70%
(0.30%) 3,030 5% 1.25%(1) 1.70%(1) 1.41%(1) 0.97%(1)
10.92% $119,997 46% 1.30% 1.30% 0.32% 0.32%
2.03% 117,938 73% 1.35% 1.35% 0.43% 0.43%
12.91% 117,643 133% 1.36% 1.36% 1.25% 1.25%
3.30% 28,455 4% 1.46%(1) 1.46%(1) 0.94%(1) 0.94%(1)
(11.83%) $ 74,126 55% 1.16% 1.16% 1.14% 1.14%
3.39% 111,954 44% 1.16% 1.16% 0.98% 0.98%
30.74% 88,534 31% 1.30% 1.30% 1.08% 1.08%
11.10% 9,262 2% 1.35%(1) 1.80%(1) 1.28%(1) 0.83%(1)
5.72% $349,707 263% 0.86% 0.86% 5.70% 5.70%
7.46% 288,642 54% 0.88% 0.88% 5.71% 5.71%
3.90% 209,013 247% 0.89% 0.89% 5.69% 5.69%
4.70% 161,940 205% 0.89%(1) 0.89%(1) 4.87%(1) 4.87%(1)
27.34% $300,924 252% 1.22% 1.22% (0.70%) (0.70%)
14.83% 235,648 219% 1.23% 1.23% (0.59%) (0.59%)
9.90% 48,790 77% 1.33%(1) 1.33%(1) (0.56%)(1) (0.56%)(1)
16.22% $607,206 97% 1.27% 1.27% 0.32% 0.32%
18.70% 255,705 94% 1.35%(1) 1.35%(1) 0.36%(1) 0.36%(1)
12.27% $189,871 87% 1.00% 1.00% 1.05% 1.05%
22.30% 117,438 81% 1.23%(1) 1.23%(1) 1.24%(1) 1.24%(1)
21.29% $ 91,043 95% 1.16% 1.13% 1.68% 1.71%
13.40% 28,947 76% 1.25%(1) 1.35%(1) 2.02%(1) 1.92%(1)
18.68% $ 77,733 220% 1.65% 1.65% 0.10% 0.10%
15.10% 33,125 171% 1.75%(1) 1.75%(1) (0.58%)(1) (0.58%)(1)
(10.53%) $304,072 10% 1.11% 1.11% 0.93% 0.93%
28.80% 199,896 7% 1.16%(1) 1.16%(1) 1.20%(1) 1.20%(1)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS
--------------------------------------
NET ASSET NET
YEAR VALUE INVESTMENT NET REALIZED TOTAL FROM
ENDED BEGINNING INCOME & UNREALIZED INVESTMENT
PORTFOLIO DECEMBER 31, OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS
- ------------------------- ------------ --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Marsico Capital Growth 1998 $10.03 $ 0.00 $ 4.17 $ 4.17
1997(8) 10.00 0.01 0.02 0.03
Cohen & Steers Realty 1998(9) $10.00 $ 0.28 $(1.87) $(1.59)
Lord Abbett Small Cap
Value 1998(9) $10.00 $(0.01) $ -- $(0.01)
Bankers Trust Enhanced
500 1998(9) $10.00 $ 0.06 $ 2.72 $ 2.78
Stein Roe Venture 1998(9) $10.00 $(0.03) $(1.77) $(1.80)
<CAPTION>
- ------------------------- -------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------
NET ASSET
FROM NET FROM NET VALUE
INVESTMENT REALIZED TOTAL END
PORTFOLIO INCOME GAINS DISTRIBUTIONS OF PERIOD
- ------------------------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Marsico Capital Growth $ -- $ -- $ -- $14.20
-- -- -- 10.03
Cohen & Steers Realty $ -- $ -- $ -- $ 8.41
Lord Abbett Small Cap
Value $ -- $ -- $ -- $ 9.99
Bankers Trust Enhanced
500 $ -- $ -- $ -- $12.78
Stein Roe Venture $ -- $ -- $ -- $ 8.20
</TABLE>
- --------------------------------------------------------------------------------
(1) Annualized.
(8) Commenced operations on December 22, 1997.
(9) Commenced operations on January 2, 1998.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS OF EXPENSES RATIOS OF NET INVESTMENT INCOME
SUPPLEMENTAL DATA TO AVERAGE NET ASSETS (LOSS) TO AVERAGE NET ASSETS
- --------------------------------------- -------------------------------- --------------------------------
AFTER ADVISORY BEFORE ADVISORY AFTER ADVISORY BEFORE ADVISORY
NET ASSETS AT PORTFOLIO FEE WAIVER FEE WAIVER FEE WAIVER FEE WAIVER
TOTAL END OF PERIOD TURNOVER AND EXPENSE AND EXPENSE AND EXPENSE AND EXPENSE
RETURN (IN 000'S) RATE REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
------- ------------- --------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
41.59% $594,966 213% 1.11% 1.11% 0.16% 0.16%
0.30% 7,299 -- 1.00%(1) 1.00%(1) 3.62%(1) 3.62%(1)
(16.00%) $ 33,025 18% 1.30%(1) 1.30%(1) 5.02%(1) 5.02%(1)
(0.10%) $ 41,788 58% 1.31%(1) 1.31%(1) (0.21%)(1) (0.21%)(1)
27.90% $289,551 162% 0.80%(1) 0.86%(1) 1.07%(1) 1.01%(1)
(18.00%) $ 8,930 141% 1.35%(1) 2.04%(1) (0.71%)(1) (1.39%)(1)
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION
American Skandia Trust (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940, as amended. The
Trust was organized on October 31, 1988 as a Massachusetts business trust. The
Trust operates as a series company and, at December 31, 1998, issued 28 classes
of shares of beneficial interest: AST Putnam International Equity Portfolio
("Putnam International Equity"), Lord Abbett Growth and Income Portfolio
("Growth and Income"), JanCap Growth Portfolio ("Growth"), AST Money Market
Portfolio ("Money Market"), Neuberger&Berman Mid-Cap Value Portfolio ("Mid-Cap
Value"), AST Putnam Balanced Portfolio ("Balanced"), Federated High Yield
Portfolio ("High Yield"), T. Rowe Price Asset Allocation Portfolio ("Asset
Allocation"), PIMCO Total Return Bond Portfolio ("Total Return Bond"), INVESCO
Equity Income Portfolio ("Equity Income"), Founders Capital Appreciation
Portfolio ("Capital Appreciation"), T. Rowe Price International Equity Portfolio
("T. Rowe International Equity"), T. Rowe Price International Bond Portfolio
("International Bond"), Neuberger&Berman Mid-Cap Growth Portfolio ("Mid-Cap
Growth"), Founders Passport Portfolio ("Passport"), T. Rowe Price Natural
Resources Portfolio ("Natural Resources"), PIMCO Limited Maturity Bond Portfolio
("Limited Maturity Bond"), AST Oppenheimer Large-Cap Growth Portfolio
("Large-Cap Growth") (formerly, Robertson Stephens Value + Growth Portfolio),
AST Janus Overseas Growth Portfolio ("Overseas Growth"), AST Putnam Value Growth
& Income Portfolio ("Value Growth & Income"), Twentieth Century Strategic
Balanced Portfolio ("Strategic Balanced"), Twentieth Century International
Growth Portfolio ("International Growth"), T. Rowe Price Small Company Value
Portfolio ("Small Company Value"), Marsico Capital Growth Portfolio ("Capital
Growth"), Cohen & Steers Realty Portfolio ("Realty"), Lord Abbett Small Cap
Value Portfolio ("Small Cap Value"), Bankers Trust Enhanced 500 Portfolio
("Enhanced 500"), and Stein Roe Venture Portfolio ("Venture") (collectively the
"Portfolios").
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Trust, in conformity with generally accepted accounting principles, in the
preparation of its financial statements. The preparation of financial statements
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation
Portfolio securities are valued at the close of trading on the New York Stock
Exchange. Equity securities are valued generally at the last reported sales
price on the securities exchange on which they are primarily traded, or at the
last reported sales price on the NASDAQ National Securities Market. Securities
not listed on an exchange or securities market, or securities in which there
were no transactions, are valued at the average of the most recent bid and asked
prices.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service. Debt
securities of Money Market are valued at amortized cost, which approximates
market value. The amortized cost method values a security at its cost at the
time of purchase and thereafter assumes a constant amortization to maturity of
any discount
<PAGE>
- --------------------------------------------------------------------------------
or premium. For Portfolios other than Money Market, debt securities which mature
in 60 days or less are valued at cost (or market value 60 days prior to
maturity), adjusted for amortization to maturity of any premium or discount.
Securities for which market quotations are not readily available are valued at
fair value as determined in accordance with procedures adopted by the Board of
Trustees. As of December 31, 1998, there were no securities valued in accordance
with such procedures.
Foreign Currency Translation
Portfolio securities and other assets and liabilities denominated in foreign
currencies are converted each business day into U.S. dollars based on the
prevailing rates of exchange. Purchases and sales of portfolio securities and
income and expenses are converted into U.S. dollars on the respective dates of
such transactions.
Gains and losses resulting from changes in exchange rates applicable to foreign
securities are not reported separately from gains and losses arising from
movements in securities prices.
Net realized foreign exchange gains and losses include gains and losses from
sales and maturities of foreign currency exchange contracts, gains and losses
realized between the trade and settlement dates of foreign securities
transactions, and the difference between the amount of net investment income
accrued on foreign securities and the U.S. dollar amount actually received. Net
unrealized foreign exchange gains and losses include gains and losses from
changes in the value of assets and liabilities other than portfolio securities,
resulting from changes in exchange rates.
Foreign Currency Exchange Contracts
A foreign currency exchange contract ("FCEC") is a commitment to purchase or
sell a specified amount of a foreign currency at a specified future date, in
exchange for either a specified amount of another foreign currency or U.S.
dollars.
FCECs are valued at the forward exchange rates applicable to the underlying
currencies, and changes in market value are recorded as unrealized gains and
losses until the contract settlement date.
Risks could arise from entering into FCECs if the counterparties to the
contracts were unable to meet the terms of their contracts. In addition, the use
of FCECs may not only hedge against losses on securities denominated in foreign
currency, but may also reduce potential gains on securities from favorable
movements in exchange rates.
Futures Contracts and Options
A financial futures contract calls for delivery of a particular security at a
specified price and future date. 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 date. Such contracts require an initial
margin deposit, in cash or cash equivalents, equal to a certain percentage of
the contract amount. Subsequent payments (variation margin) are made or received
by the Portfolio each day, depending on the daily change in the value of the
contract. Futures contracts are valued based on their quoted daily settlement
prices. Fluctuations in value are recorded as unrealized gains and losses until
such time that the contracts are terminated.
<PAGE>
- --------------------------------------------------------------------------------
An option is a right to buy or sell a particular security at a specified price
within a limited period of time. The buyer of the option, in return for a
premium paid to the seller, has the right to buy (in the case of a call option)
or sell (in the case of a put option) the underlying security of the contract.
The premium received in cash from writing options is recorded as an asset with
an equal liability that is adjusted to reflect the option's value. The premium
received from writing options which expire is recorded as realized gains. The
premium received from writing options which are exercised or closed are offset
against the proceeds or amount paid on the transaction to determine the realized
gain or loss. If a put option is exercised, the premium reduces the cost basis
of the security or currency purchased. Options are valued based on their quoted
daily settlement prices.
Risks could arise from entering into futures and written options transactions
from the potential inability of counterparties to meet the terms of their
contracts, the potential inability to enter into a closing transaction because
of an illiquid secondary market, and from unexpected movements in interest or
exchange rates or securities values.
Repurchase Agreements
A repurchase agreement is a commitment to purchase government securities from a
seller who agrees to repurchase the securities at an agreed-upon price and date.
The excess of the resale price over the purchase price determines the yield on
the transaction. Under the terms of the agreement, the market value, including
accrued interest, of the government securities will be at least equal to their
repurchase price. Repurchase agreements are recorded at cost, which, combined
with accrued interest, approximates market value.
Repurchase agreements entail a risk of loss in the event that the seller
defaults on its obligation to repurchase the securities. In such case, the
Portfolio may be delayed or prevented from exercising its right to dispose of
the securities.
Swap Agreements
A swap agreement is a two-party contract under which an agreement is made to
exchange returns from predetermined investments or instruments, including a
particular interest rate, foreign currency, or "basket" of securities
representing a particular index. The gross returns to be exchanged or "swapped"
between the parties are calculated based on a "notional amount", which, each
business day, is valued to determine each party's obligation under the contract.
Fluctuations in value are recorded as unrealized gains and losses during the
term of the contract.
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.
Risks could arise from entering into swap agreements from the potential
inability of counterparties to meet the terms of their contracts, and from the
potential inability to enter into a closing transaction. It is possible that
developments in the swaps market, including potential governmental regulation,
could affect the Portfolio's ability to terminate existing swap agreements or to
realize amounts to be received under such agreements.
<PAGE>
- --------------------------------------------------------------------------------
Investment Transactions and Investment Income
Securities transactions are accounted for on the trade date. Realized gains and
losses from securities sold are recognized on the specific identification basis.
Dividend income is recorded on the ex-dividend date. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date
or, if such information is not available, as soon as reliable information is
available from the Trust's sources. Interest income is recorded on the accrual
basis and includes the accretion of discount and amortization of premium.
Distributions to Shareholders
Dividends, if any, from net investment income are declared and paid at least
annually by all Portfolios other than Money Market. In the case of Money Market,
dividends are declared daily and paid monthly. Net realized gains from
investment transactions, if any, are distributed at least annually.
Distributions to shareholders are recorded on the ex-dividend date.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolios have entered into investment management agreements with American
Skandia Investment Services, Inc. (the "Investment Manager") which provide that
the Investment Manager will furnish each Portfolio with investment advice and
investment management and administrative services. The Investment Manager has
engaged the following firms as Sub-advisors for their respective Portfolios:
Putnam Investment Management, Inc. for Putnam International Equity, Balanced,
and Value Growth & Income; Lord Abbett & Co. for Growth and Income and Small Cap
Value; Janus Capital Corporation for Growth and Overseas Growth; J. P. Morgan
Investment Management Inc. for Money Market; Federated Investment Counseling for
High Yield; T. Rowe Price Associates, Inc. for Asset Allocation, Natural
Resources, and Small Company Value; Pacific Investment Management Co. for Total
Return Bond and Limited Maturity Bond; INVESCO Funds Group, Inc. for Equity
Income; Founders Asset Management, Inc. for Capital Appreciation and Passport;
Rowe Price-Fleming International, Inc., a United Kingdom Corporation, for T.
Rowe International Equity and International Bond; Neuberger Berman Management
Incorporated for Mid-Cap Value and Mid-Cap Growth; OppenheimerFunds, Inc. for
Large-Cap Growth; American Century Investment Management, Inc. for Strategic
Balanced and International Growth; Marsico Capital Management, LLC for Capital
Growth; Cohen & Steers Capital Management, Inc. for Realty; Bankers Trust
Company for Enhanced 500; and Stein Roe & Farnham Incorporated for Venture.
The Investment Manager receives a fee, computed daily and paid monthly, based on
an annual rate of 1.00%, .75%, .90%, .50%, .90%, .75%, .75%, .85%, .65%, .75%,
.90%, 1.00%, .80%, .90%, 1.00%, .90%, .65%, .90%, 1.00%, .75%, .85%, 1.00%,
.90%, .90%, 1.00%, .95%, .60%, and .95% of the average daily net assets of the
Putnam International Equity, Growth and Income, Growth, Money Market, Mid-Cap
Value, Balanced, High Yield, Asset Allocation, Total Return Bond, Equity Income,
Capital Appreciation, T. Rowe International Equity, International Bond, Mid-Cap
Growth, Passport, Natural Resources, Limited Maturity Bond, Large-Cap Growth,
Overseas Growth, Value Growth & Income, Strategic Balanced, International
Growth, Small Company Value, Capital Growth, Realty, Small Cap Value, Enhanced
500, and Venture Portfolios, respectively. The fees for Putnam International
Equity are at the rate of .85% for average daily net assets in excess of $75
million, for Mid-Cap Value, Mid-Cap Growth and Large-Cap Growth are
<PAGE>
- --------------------------------------------------------------------------------
at the rate of .85% for average daily net assets in excess of $1 billion, and
for Balanced are at the rate of .70% for average daily net assets in excess of
$300 million. During the year ended December 31, 1998, the Investment Manager
voluntarily waived .05% from its fee for the Money Market Portfolio, .05% from
its fee for the Growth Portfolio on average daily net assets in excess of $1
billion, and, since February 11, 1998, .05% from its fee for the Growth and
Income Portfolio on average daily net assets in excess of $1 billion.
The Investment Manager pays each Sub-advisor a fee, computed daily and paid
monthly, based on an annual rate of .65%, .50%, .60%, .25%, .50%, .45%, .50%,
.50%, .30%, .50%, .65%, .75%, .40%, .45%, .60%, .60%, .30%, .35%, .65%, .45%,
.50%, .70%, .60%, .45%, .60%, .50%, .17%, and .50% of the average daily net
assets of the Putnam International Equity, Growth and Income, Growth, Money
Market, Mid-Cap Value, Balanced, High Yield, Asset Allocation, Total Return
Bond, Equity Income, Capital Appreciation, T. Rowe International Equity,
International Bond, Mid-Cap Growth, Passport, Natural Resources, Limited
Maturity Bond, Large-Cap Growth, Overseas Growth, Value Growth & Income,
Strategic Balanced, International Growth, Small Company Value, Capital Growth,
Realty, Small Cap Value, Enhanced 500, and Venture Portfolios, respectively. The
Sub-advisors for the Growth, Money Market, and T. Rowe International Equity
Portfolios are currently voluntarily waiving a portion of their fee payable by
the Investment Manager. The annual rates of the fees payable by the Investment
Manager to the Sub-advisors of all Portfolios, other than International Bond,
Capital Growth, Small Cap Value, and Venture, are reduced for Portfolio net
assets in excess of specified levels.
On April 29, 1998, the shareholders of the Federated Utility Income and Berger
Capital Growth Portfolios approved new Investment Management and Sub-Advisory
Agreements, effective May 1, 1998. Under the new Sub-Advisory Agreements,
Neuberger Berman Management Incorporated became Sub-advisor to both Portfolios.
Effective May 1, 1998, the names of the Portfolios were changed from Federated
Utility Income Portfolio to Neuberger&Berman Mid-Cap Value Portfolio and from
Berger Capital Growth Portfolio to Neuberger&Berman Mid-Cap Growth Portfolio.
Prior to May 1, 1998, Federated Investment Counseling served as Sub-advisor to
Federated Utility Income Portfolio and Berger Associates, Inc. served as
Sub-advisor to Berger Capital Growth Portfolio. Prior to May 1, 1998, the
Investment Manager received a fee, computed daily and paid monthly, based on an
annual rate of .75% for both the Federated Utility Income and Berger Capital
Growth Portfolios. The fees for Federated Utility Income Portfolio were reduced
to .60% for average daily net assets in excess of $50 million. The Investment
Manager paid each Sub-advisor a fee, computed daily and paid monthly, based on
an annual rate of .50% and .55% of the average daily net assets of the Federated
Utility Income and Berger Capital Growth Portfolios, respectively. The annual
rates of the fees paid by the Investment Manager to the Sub-advisors of each
Portfolio were reduced for Portfolio net assets in excess of specified levels.
On December 30, 1998, the shareholders of Robertson Stephens Value + Growth
Portfolio approved a new Sub-Advisory Agreement, effective December 31, 1998.
Under the new Agreement, OppenheimerFunds, Inc. became Sub-advisor to the
Portfolio and the name of the Portfolio was changed to AST Oppenheimer Large-Cap
Growth Portfolio. Prior to December 31, 1998, Robertson, Stephens & Company
Investment Management, L.P. served as Sub-advisor to the Portfolio. Prior to
December 31, 1998, the Investment Manager received a fee, computed daily and
paid monthly, based on an annual rate of 1.00% of the average daily net assets
of the Portfolio. The Investment Manager paid the Sub-advisor a fee, computed
daily and paid monthly, based on an annual rate of .60% of the average daily net
assets of
<PAGE>
- --------------------------------------------------------------------------------
the Portfolio. The annual rate of the fees paid by the Investment Manager to the
Sub-advisor was reduced for Portfolio net assets in excess of specified levels.
On December 30, 1998, the shareholders of Founders Capital Appreciation
Portfolio approved a new Sub-Advisory Agreement, effective January 1, 1999.
Under the new Agreement, Janus Capital Corporation becomes Sub-advisor to the
Portfolio and the name of the Portfolio changes to AST Janus Small-Cap Growth
Portfolio. In addition, the Investment Manager pays the Sub-advisor a fee,
computed daily and payable monthly, based on an annual rate of .50% of the
average daily net assets of the Portfolio. The annual rate of the fees payable
by the Investment Manager to the Sub-advisor are reduced for Portfolio net
assets in excess of specified levels.
By the terms of the Investment Management Agreement, during the year ended
December 31, 1998, the Investment Manager reimbursed Money Market in the amount
of $121,415 to prevent its expenses from exceeding an annual rate of .60% of
average daily net assets. In addition, the Investment Manager voluntarily
reimbursed Enhanced 500 and Venture in the amount of $73,723 and $29,462,
respectively. Voluntary payments of Portfolio expenses by the Investment Manager
are subject to reimbursement by the Portfolio within the two-year period
following such payments. During the year ended December 31, 1998, Strategic
Balanced paid $18,200 as reimbursement to the Investment Manager.
The Trust has entered into an agreement with American Skandia Life Assurance
Corporation ("ASLAC") pursuant to which it pays ASLAC a shareholder servicing
fee at an annual rate of .10% of each Portfolio's average daily net assets.
Certain officers and Trustees of the Trust are officers or directors of the
Investment Manager. The Trust pays no compensation directly to its officers or
interested Trustees.
4. TAX MATTERS
Each Portfolio intends to qualify as a regulated investment company under the
Internal Revenue Code and to distribute all of its taxable income, including any
net realized gains on investments, to shareholders. Accordingly, no provision
for federal income or excise tax has been made.
Income and capital gains of the Portfolios are determined in accordance with
both tax regulations and generally accepted accounting principles. Such may
result in temporary and permanent differences between tax basis earnings and
earnings reported for financial statement purposes. Temporary differences that
result in over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains. Permanent differences in the recognition of earnings are reclassified to
additional paid-in capital. Distributions in excess of tax-basis earnings are
recorded as a return of capital.
<PAGE>
- --------------------------------------------------------------------------------
Capital Loss Carryforwards
At December 31, 1998, the following Portfolios had, for federal income tax
purposes, capital loss carryforwards available to offset future net realized
capital gains.
<TABLE>
<CAPTION>
EXPIRATION DECEMBER 31,
-------------------------------------
AMOUNT 2004 2005 2006
----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Capital Appreciation.......................... $ 5,945,483 $ -- $ -- $ 5,945,483
Passport...................................... 2,860,101 -- 2,860,101 --
Limited Maturity Bond......................... 132,375 132,375 -- --
Overseas Growth............................... 18,489,428 -- 2,020,791 16,468,637
Small Company Value........................... 504,463 -- -- 504,463
Realty........................................ 569,675 -- -- 569,675
Small Cap Value............................... 2,512,177 -- -- 2,512,177
Venture....................................... 1,708,208 -- -- 1,708,208
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
5. PORTFOLIO SECURITIES
Purchases and sales of securities, other than short-term obligations, during the
period ended December 31, 1998, were as follows ($ in thousands):
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER SECURITIES
-------------------------- ----------------------
PURCHASES SALES PURCHASES SALES
----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Putnam International Equity....................... $ -- $ -- $ 557,527 $536,094
Growth and Income................................. -- -- 904,339 796,940
Growth............................................ -- -- 1,224,439 806,918
Mid-Cap Value..................................... -- -- 490,083 410,478
Balanced.......................................... 205,819 191,365 293,887 278,794
High Yield........................................ 180 4,077 369,858 177,783
Asset Allocation.................................. 27,418 15 73,223 21,043
Total Return Bond................................. 1,727,784 1,398,739 493,110 189,256
Equity Income..................................... 31,132 28,260 578,910 423,472
Capital Appreciation.............................. -- -- 239,729 253,679
T. Rowe International Equity...................... -- -- 141,748 190,552
International Bond................................ -- -- 177,652 182,606
Mid-Cap Growth.................................... -- -- 472,876 452,168
Passport.......................................... -- -- 47,895 47,292
Natural Resources................................. -- -- 49,054 70,009
Limited Maturity Bond............................. 1,032,600 872,726 78,923 47,061
Large-Cap Growth.................................. -- -- 654,342 724,885
Overseas Growth................................... -- -- 626,216 369,641
Value Growth & Income............................. -- -- 184,829 128,629
Strategic Balanced................................ 22,299 9,151 71,401 36,836
International Growth.............................. -- -- 151,802 114,448
Small Company Value............................... -- -- 156,086 22,689
Capital Growth.................................... -- -- 965,238 524,606
Realty............................................ -- -- 39,868 3,540
Small Cap Value................................... -- -- 52,056 11,257
Enhanced 500...................................... -- -- 383,585 174,756
Venture........................................... -- -- 13,722 5,393
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
At December 31, 1998, the cost and unrealized appreciation or depreciation in
value of the investments owned by the Portfolios, for federal income tax
purposes, were as follows ($ in thousands):
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
AGGREGATE UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
---------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Putnam International Equity..................... $ 419,909 $ 90,721 $(12,833) $ 77,888
Growth and Income............................... 977,333 225,412 (27,728) 197,684
Growth.......................................... 1,816,704 1,455,500 (21,350) 1,434,150
Money Market.................................... 964,747 -- -- --
Mid-Cap Value................................... 256,655 25,438 (11,583) 13,855
Balanced........................................ 372,822 45,373 (12,507) 32,866
High Yield...................................... 604,370 11,963 (30,750) (18,787)
Asset Allocation................................ 278,883 77,403 (5,702) 71,701
Total Return Bond............................... 1,060,706 8,704 (5,530) 3,174
Equity Income................................... 684,798 163,592 (18,507) 145,085
Capital Appreciation............................ 202,169 73,985 (9,757) 64,228
T. Rowe International Equity.................... 368,525 113,429 (32,261) 81,168
International Bond.............................. 139,015 7,974 (3,660) 4,314
Mid-Cap Growth.................................. 227,266 42,957 (11,131) 31,826
Passport........................................ 94,752 31,522 (7,861) 23,661
Natural Resources............................... 91,487 4,070 (21,904) (17,834)
Limited Maturity Bond........................... 461,936 2,468 (1,650) 818
Large-Cap Value................................. 189,483 38,737 (3,237) 35,500
Overseas Growth................................. 516,547 106,462 (15,558) 90,904
Value Growth & Income........................... 176,759 22,798 (10,861) 11,937
Strategic Balanced.............................. 77,062 12,452 (150) 12,302
International Growth............................ 73,467 7,909 (1,592) 6,317
Small Company Value............................. 323,678 30,359 (51,765) (21,406)
Capital Growth.................................. 532,112 84,374 (4,037) 80,337
Realty.......................................... 37,710 227 (4,886) (4,659)
Small Cap Value................................. 42,160 4,543 (4,039) 504
Enhanced 500.................................... 244,749 28,494 (5,133) 23,361
Venture......................................... 7,343 1,201 (146) 1,055
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
6. WRITTEN OPTIONS TRANSACTIONS
Written options transactions, during the year ended December 31, 1998, were as
follows:
<TABLE>
<CAPTION>
TOTAL RETURN BOND LIMITED MATURITY BOND CAPITAL GROWTH
--------------------- --------------------- -----------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS PREMIUM CONTRACTS PREMIUM CONTRACTS PREMIUM
--------- --------- ---------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year....... -- $ -- -- -- -- --
Written............................ 35,730 782,014 76 $13,948 695 $ 2,028,983
Expired............................ (9,500) (143,336) -- -- -- --
Exercised.......................... -- -- -- -- -- --
Closed............................. -- -- -- -- (695) (2,028,983)
------ --------- -- ------- ---- -----------
Balance at end of year............. 26,230 $ 638,678 76 $13,948 -- $ --
====== ========= == ======= ==== ===========
</TABLE>
At December 31, 1998, Total Return Bond and Limited Maturity Bond had sufficient
cash and/or securities at least equal to the value of written options.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
American Skandia Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of AST Putnam International Equity Portfolio,
Lord Abbett Growth and Income Portfolio, JanCap Growth Portfolio, AST Money
Market Portfolio, Neuberger&Berman Mid-Cap Value Portfolio (formerly Federated
Utility Income Portfolio), AST Putnam Balanced Portfolio, Federated High Yield
Portfolio, T. Rowe Price Asset Allocation Portfolio, PIMCO Total Return Bond
Portfolio, INVESCO Equity Income Portfolio, Founders Capital Appreciation
Portfolio, T. Rowe Price International Equity Portfolio, T. Rowe Price
International Bond Portfolio, Neuberger&Berman Mid-Cap Growth Portfolio
(formerly Berger Capital Growth Portfolio), Founders Passport Portfolio, T. Rowe
Price Natural Resources Portfolio, PIMCO Limited Maturity Bond Portfolio, AST
Oppenheimer Large-Cap Growth Portfolio (formerly Robertson Stephens Value +
Growth Portfolio), AST Janus Overseas Growth Portfolio, AST Putnam Value Growth
and Income Portfolio, Twentieth Century Strategic Balanced Portfolio, Twentieth
Century International Growth Portfolio, T. Rowe Price Small Company Value
Portfolio, Marsico Capital Growth Portfolio, Cohen & Steers Realty Portfolio,
Lord Abbett Small Cap Value Portfolio, Bankers Trust Enhanced 500 Portfolio, and
Stein Roe Venture Portfolio (collectively, the "Portfolios") of American Skandia
Trust ("the Trust") as of December 31, 1998, the related statements of
operations and changes in net assets and the financial highlights for each of
the periods presented. These financial statements and the financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1998 by correspondence with the custodians and brokers and where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial positions of the Portfolios of
the Trust as of December 31, 1998, the results of their operations, the changes
in their net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 11, 1999
<PAGE>
APPENDIX B
Description of Certain Debt Securities Ratings
Moody's Investors Service, Inc. ("Moody's")
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large, or exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Standard & Poor's Corporation ("Standard & Poor's")
AAA -- Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in a small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating is also used for debt subordinated to senior debt that is assigned an
actual or implied BBB rating.
B -- Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, economic or financial conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC -- The rating CC typically is applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of bankruptcy petition if debt service
payments are jeopardized.
Plus (+) or minus (-) -- Ratings from AA to CCC may be modified by the
addition of a plus of minus sign to show relative standing within the major
rating categories.
Description of Certain Commercial Paper Ratings
Moody's
Prime-1 -- Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2 -- Issuers rated Prime-2 (or related supporting institutions)
have a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Prime-3 -- Issuers rated Prime-3 (or related supporting institutions)
have an acceptable ability for repayment of senior short-term debt obligations.
The effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Not Prime - Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Standard & Poor's
A-1 -- This highest category indicates that the degree of safety
regarding time payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3 -- Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of the
changes in circumstances than obligations carrying the higher designations.
B -- Issues rated B are regarded as having only speculative capacity
for timely payment.
C -- This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period.
<PAGE>
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 23. Exhibits
<S> <C> <C> <C> <C>
vi (a). (1) Declaration of Trust of Registrant.
vi (2) Amendment to Agreement and Declaration of Trust of Registrant.
vi (3) Amendment to Declaration of Trust of Registrant.
vi (b). By-laws of Registrant.
vi (c). Articles III and VI of the Registrant's Declaration of Trust and Article 11 of the Registrant's By-laws.
vi (d). (1) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for the AST Lord Abbett Growth and Income Portfolio.
vi (2) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for the AST JanCap Growth Portfolio.
vi (3) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for the AST Money Market.
vi (4) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for the AST Federated High Yield Portfolio.
vi (5) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for the AST T. Rowe Price Asset Allocation Portfolio.
vi (6) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for the AST T. Rowe Price International Equity Portfolio.
vi (7) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for the AST INVESCO Equity Income Portfolio.
vi (8) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for the AST PIMCO Total Return Portfolio.
vi (9) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for AST T. Rowe Price Natural Resources Portfolio.
vi (10) Investment Management Agreement between Registrant and American Skandia Life Investment
Management, Inc. for AST PIMCO Limited Maturity Bond Portfolio.
i (11) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST T. Rowe Price International Bond Portfolio.
ii (12) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Janus Overseas Growth Portfolio.
ii (13) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST T. Rowe Price Small Company Value Portfolio.
ii (14) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Founders Passport Portfolio.
ii (15) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST American Century International Growth Portfolio.
ii (16) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST American Century Strategic Balanced Portfolio.
(17) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the AST American Century Income & Growth Portfolio.
(18) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the AST AIM International Equity Portfolio.
(19) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the AST AIM Balanced Portfolio.
v (20) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Lord Abbett Small Cap Value Portfolio.
v (21) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Cohen & Steers Realty Portfolio.
v (22) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Bankers Trust Enhanced 500 Portfolio.
v (23) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Marsico Capital Growth Portfolio.
vii (24) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Neuberger Berman Mid-Cap Value Portfolio.
vii (25) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Neuberger Berman Mid-Cap Growth Portfolio.
ix (26) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Janus Small-Cap Growth Portfolio.
ix (27) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Oppenheimer Large-Cap Growth Portfolio.
ix (28) Investment Management Agreement between Registrant and American Skandia Investment Services,
Incorporated for the AST Kemper Small-Cap Growth Portfolio.
vii (29) Sub-advisory Agreement between American Skandia Investment Services, Inc. and Lord, Abbett &
Co. for the AST Lord Abbett Growth and Income Portfolio.
vi (30) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and Janus
Capital Corporation for the AST JanCap Growth Portfolio.
vi (31) Sub-advisory Agreement between American Skandia Investment Services, Inc. and J.P. Morgan
Investment Management Inc. for the AST Money Market Portfolio.
vi (32) Sub-advisory Agreement between American Skandia Investment Services, Inc. and Federated
Investment Counseling for the AST Federated High Yield Portfolio.
vii (33) Sub-advisory Agreement between American Skandia Investment Services, Inc. and T. Rowe Price
Associates, Inc. for the AST T. Rowe Price Asset Allocation Portfolio.
vi (34) Sub-advisory Agreement between American Skandia Investment Services, Inc. and Rowe
Price-Fleming International, Inc. for the AST T. Rowe Price International Equity Portfolio.
vi (35) Sub-advisory Agreement between American Skandia Investment Services Inc. and Pacific Investment
Management Company for the AST PIMCO Total Return Portfolio.
vi (36) Sub-advisory Agreement between American Skandia Investment Services, Inc. and T. Rowe Price
Associates, Inc. for the AST T. Rowe Price Natural Resources Portfolio.
vi (37) Sub-advisory Agreement between American Skandia Investment Services, Inc. and Pacific
Investment Management Company for the AST PIMCO Limited Maturity Bond Portfolio.
i (38) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Rowe
Price-Fleming International, Inc. for the AST T. Rowe Price International Bond Portfolio.
ii (39) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Janus
Capital Corporation for the AST Janus Overseas Growth Portfolio.
ii (40) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and T. Rowe
Price Associates, Inc. for the AST T. Rowe Price Small Company Value Portfolio.
vii (41) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Founders
Asset Management LLC for the AST Founders Passport Portfolio.
ii (42) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Investors
Research Corporation for the AST American Century International Growth Portfolio.
ii (43) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Investors
Research Corporation for the AST American Century Strategic Balanced Portfolio.
(44) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and American
Century Investment Management, Inc. for the AST American Century Income & Growth Portfolio.
(45) Sub-advisory Agreement between American Skandia Investment Services, Incorporated
and A I M Capital Management, Inc. for the AST AIM International Equity Portfolio.
(46) Sub-advisory Agreement between American Skandia Investment Services, Incorporated
and A I M Capital Management, Inc. for the AST AIM Balanced Portfolio.
iv (47) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and INVESCO
Trust Company for the AST INVESCO Equity Income Portfolio.
viii (48) Amendment to Sub-advisory Agreement between American Skandia Investment Services, Incorporated,
INVESCO Trust Company and INVESCO Funds Group, Inc. for the AST INVESCO Equity Income Portfolio.
v (49) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Lord,
Abbett & Co. for the AST Lord Abbett Small Cap Value Portfolio.
v (50) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Cohen &
Steers Capital Management, Inc. for the AST Cohen & Steers Realty Portfolio.
v (51) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Bankers
Trust Global Investment Management for the AST Bankers Trust Enhanced 500 Portfolio.
(52) Sub-advisory Agreement between American
Skandia Investment Services, Incorporated
and Marsico Capital Management, LLC for the
AST Marsico Capital Growth Portfolio.
vii (53) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and
Neuberger&Berman Management, Incorporated for the AST Neuberger Berman Mid-Cap Value Portfolio.
vii (54) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and
Neuberger&Berman Management, Incorporated for the AST Neuberger Berman Mid-Cap Growth Portfolio.
ix (55) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Janus
Capital Corporation for the AST Janus Small-Cap Growth Portfolio.
ix (56) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and
OppenheimerFunds, Inc. for the AST Oppenheimer Large-Cap Growth Portfolio.
ix (57) Sub-advisory Agreement between American Skandia Investment Services, Incorporated and Scudder
Kemper Investments, Inc. for the AST Kemper Small-Cap Growth Portfolio.
vi (e). (1) Sales Agreement between Registrant and American Skandia Life Assurance Corporation.
ii (2) Sales Agreement between Registrant and Kemper Investors Life Insurance Company.
(f). None.
viii (g). (1) Amended and Restated Custody Agreement between Registrant and Morgan Stanley Trust Company.
viii (2) Foreign Custody Manager Delegation Amendment
vi (3) Amended Custodian Agreement between Registrant and Provident National Bank.
viii (4) Amendment to Custodian Services Agreement between Registrant and PNC Bank, N.A.
vi (5) Amended Transfer Agency Agreement between Registrant and Provident Financial Processing
Corporation.
vi (h). (1) Amended Administration Agreement between Registrant and Provident Financial Processing
Corporation.
iii (2) Service Agreement between American Skandia Investment Services, Incorporated and
Kemper Investors Life Insurance Company.
(i). Consent of Counsel for the Registrant.
(j). Independent Auditors' Consent.
(k). None.
vi (l). Certificate re: initial $100,000 capital.
(m) None.
(n). Financial Data Schedules.
(o). None.
- --------------------------
</TABLE>
i Filed as an Exhibit to Post-Effective Amendment No. 18 to Registration
Statement, which Amendment was filed via EDGAR on April 30, 1996, and is
incorporated herein by reference.
ii Filed as an Exhibit to Post-Effective Amendment No. 20 to Registration
Statement, which Amendment was filed via EDGAR on December 24, 1996, and is
incorporated herein by reference.
iii Filed as an Exhibit to Post-Effective Amendment No. 21 to Registration
Statement, which Amendment was filed via EDGAR on February 28, 1997, and is
incorporated herein by reference.
iv Filed as an Exhibit to Post-Effective Amendment No. 23 to Registration
Statement, which Amendment was filed via EDGAR on October 7, 1997, and is
incorporated herein by reference.
v Filed as an Exhibit to Post-Effective Amendment No. 24 to Registration
Statement, which Amendment was filed via EDGAR on December 19, 1997, and is
incorporated herein by reference.
vi Filed as an Exhibit to Post-Effective Amendment No. 25 to Registration
Statement, which Amendment was filed via EDGAR on March 2, 1998, and is
incorporated herein by reference.
vii Filed as an Exhibit to Post-Effective Amendment No. 26 to Registration
Statement, which Amendment was filed via EDGAR on May 1, 1998, and is
incorporated herein by reference.
viii Filed as an Exhibit to Post-Effective Amendment No. 27 to Registration
Statement, which Amendment was filed via EDGAR on October 16, 1998, and is
incorporated herein by reference.
ix Filed as an Exhibit to Post-Effective Amendment No. 28 to Registration
Statement, which Amendment was filed via EDGAR on December 28, 1998, and is
incorporated herein by reference.
ITEM 24. Persons Controlled By or Under Common Control with Registrant
Registrant does not control any person within the meaning of the
Investment Company Act of 1940. Registrant may be deemed to be under common
control with its investment manager and its affiliates because a controlling
interest in Registrant is held of record by American Skandia Life Assurance
Corporation. See Registrant's Statement of Additional Information under
"Organization and Management of the Trust" and "Other Information."
ITEM 25. Indemnification
Article VIII of the Registrant's Declaration of Trust provides as
follows:
The Trust shall indemnify each of its Trustees and officers (including
persons who serve at the Trust's request as directors, officers or trustees of
another organization in which the Trust has any interest as a shareholder,
creditor or otherwise) (hereinafter referred to as a "Covered Person") against
all liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees reasonably incurred by as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or any other proceeding, whether civil or criminal, before any
court or administrative legislative body, in which such Covered Person may be or
may have been involved as a party or otherwise or with which such Covered Person
may be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Covered Person except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding (a) not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust or (b) to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties) shall be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of any
undertaking by or on behalf of such Covered Person repay amounts so paid to the
Trust if it is ultimately determined that indemnification of such expenses is
not authorized under this Article, provided, however, that either (1) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (providing that a majority of the disinterested Trustees then in the
office act on the matter), or independent legal counsel in a written opinion
shall have determined, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that there is reason to believe that such
Covered Person will be found entitled to indemnification under this Article.
With respect to liability of the Investment Manager to Registrant or to
shareholders of Registrant's Portfolios under the Investment Management
Agreements, reference is made to Section 13 or 14 of each form of Investment
Management Agreement filed herewith or incorporated by reference herein.
With respect to the Sub-Advisors' indemnification of the Investment
Manager and its affiliated and controlling persons, and the Investment Manager's
indemnification of each Sub-advisor and its affiliated and controlling persons,
reference is made to Section 14 (Section 9 in the case of the Sub-Advisory
Agreement for the AST JanCap Growth Portfolio) of each form of Sub-Advisory
Agreement filed herewith or incorporated by reference herein.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission (the "Commission") such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant or expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 26. Business and Other Connections of Investment Adviser
American Skandia Investment Services, Incorporated ("ASISI"), One
Corporate Drive, Shelton, Connecticut 06484, serves as the investment manager to
the Registrant. Information as to the officers and directors of ASISI is
included in ASISI's Form ADV (File No. 801-40532), including the amendments to
such Form ADV filed with the Commission on April 9 1999, April 7, 1998, August
13, 1997, April 11, 1997, October 22, 1996, March 22, 1996 and April 11, 1995,
and is incorporated herein by reference.
ITEM 27. Principal Underwriter
Registrant's shares are presently offered exclusively as an investment
medium for life insurance companies writing both variable annuity and variable
life insurance policies. Pursuant to an exemptive order of the Commission,
Registrant may also sell its shares directly to the Skandia Qualified Plan and
other qualified plans. If Registrant sells its shares to other qualified plans,
it intends to use American Skandia Marketing, Incorporated ("ASM, Inc.") or
another affiliated broker-dealer as underwriter, if so required by applicable
law. ASM, Inc. is registered as a broker-dealer with the Commission and the
National Association of Securities Dealers. It is an affiliate of ASISI and
American Skandia Life Assurance Corporation, being a wholly-owned subsidiary of
American Skandia Investment Holding Corporation.
<TABLE>
<CAPTION>
The following individuals, all of whom have as their principal business
address, One Corporate Drive, Shelton, Connecticut 06484, are the current
officers and/or directors of ASM, Inc.:
<S> <C>
Jan R. Carendi Chairman, Chief Executive Officer & Director
Gordon C. Boronow Deputy Chief Executive Officer & Director
Wade A. Dokken President, Deputy Chief Executive Officer & Director
Thomas M. Mazzaferro Executive Vice President, Chief Financial Officer & Director
Anders O. Soderstrom Executive Vice President
Patricia J. Abram Senior Vice President and National Sales Manager, Variable Life
Kimberly A. Bradshaw Vice President & National Accounts Manager/Qualified Plans
Robert Brinkman Senior Vice President & National Sales Manager
Y.K. Chan Senior Vice President & Chief Information Officer
Lucinda C. Ciccarello Vice President, Mutual Funds
Ian Kennedy Senior Vice President, Customer Service
Lawrence Kudlow Senior Vice President & Chief Economist
N. David Kuperstock Vice President, Product Development & Director
McCann, Eileen S. Vice President, Key Accounts Marketing
David R. Monroe Senior Vice President, Treasurer & Corporate Controller
Michael A. Murray Vice President and National Sales Manager/American Skandia Advisor Funds,
Inc.
Brian O'Connor Vice President & National Sales Manager, Internal Wholesaling
M. Patricia Paez Director
Kathleen A. Pritchard Vice President and National Key Accounts/Financial Institutions
Hayward L. Sawyer Executive Vice President, National Sales Manager & Director
Leslie S. Sutherland Vice President & National Key Accounts Manager
Amanda C. Sutyak Vice President
Christian Thwaites Senior Vice President, National Marketing Director
Bayard F. Tracy Senior Vice President, National Sales Manager & Director
Mary Toumpas Vice President & Compliance Director
Deborah G. Ullman Senior Vice President and Chief Operating Officer, Finance and Business
Operations
M. Priscilla Pannell Corporate Secretary
Kathleen A. Chapman Assistant Corporate Secretary
</TABLE>
Of the above, the following individuals are also officers and/or directors
of Registrant: Jan R. Carendi (President, Principal Executive Officer &
Trustee); Gordon C. Boronow (Vice President & Trustee); and Thomas M. Mazzaferro
(Trustee).
ITEM 28. Location of Accounts and Records
Records regarding the Registrant's securities holdings are maintained
at Registrant's Custodians, PNC Bank, Airport Business Center, International
Court 2, 200 Stevens Drive, Philadelphia, Pennsylvania 19113, and The Chase
Manhattan Bank, One Pierrepont Plaza, Brooklyn, New York 11201. Certain records
with respect to the Registrant's securities transactions are maintained at the
offices of the various sub-advisors to the Registrant. The Registrant's
corporate records are maintained at its offices at One Corporate Drive, Shelton,
Connecticut 06484. The Registrant's financial and interestholder ledgers and
similar financial records are maintained at the offices of its Administrator,
PFPC Inc., 103 Bellevue Parkway, Wilmington, DE 19809.
ITEM 29. Management Services
None.
ITEM 30. Undertakings
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Shelton and State
of Connecticut, on the 28th day of April, 1999.
By: /s/ Eric C. Freed
Eric C. Freed
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Jan R. Carendi* President (Principal 4/28/99
Jan R. Carendi Executive Officer)
and Trustee
/s/ Gordon Boronow* Vice President 4/28/99
Gordon C. Boronow and Trustee
/s/ Eric C. Freed Secretary 4/28/99
Eric C. Freed
/s/ Richard G. Davy, Jr. Treasurer (Chief 4/28/99
Richard G. Davy, Jr. Financial and Accounting
Officer)
/s/ David E. A. Carson* Trustee 4/28/99
David E. A. Carson
/s/ Julian A. Lerner* Trustee 4/28/99
Julian A. Lerner
/s/ Thomas M. Mazzaferro* Trustee 4/28/99
Thomas M. Mazzaferro
/s/ Thomas M. O'Brien* Trustee 4/28/99
Thomas M. O'Brien
/s/ F. Don Schwartz* Trustee 4/28/99
F. Don Schwartz
</TABLE>
*By: /s/ Eric C. Freed
Eric C. Freed
*Pursuant to Powers of Attorney previously filed with Post-Effective
Amendment No. 22 to the Registration Statement, as filed with the Commission on
April 30, 1997.
<PAGE>
Registration No. 33-24962
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED WITH POST-EFFECTIVE AMENDMENT NO. 30
TO FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 AND
INVESTMENT COMPANY ACT OF 1940
AMERICAN SKANDIA TRUST
<PAGE>
Exhibits
<TABLE>
<CAPTION>
Table of Contents
Exhibit Number Description
<S> <C> <C>
(d)(17) Investment Management Agreement between American Skandia Trust and American
Skandia Investment Services, Incorporated for the AST American Century Income
& Growth Portfolio.
(d)(18) Investment Management Agreement between American Skandia Trust and American
Skandia Investment Services, Incorporated for the AST AIM International Equity
Portfolio.
(d)(19) Investment Management Agreement between American Skandia Trust and American
Skandia Investment Services, Incorporated for the AST AIM Balanced Portfolio.
(d)(44) Sub-advisory Agreement between American Skandia Investment Services,
Incorporated and American Century Investment Management, Inc. for the AST
American Century Income & Growth Portfolio.
(d)(45) Sub-advisory Agreement between American Skandia Investment Services,
Incorporated and A I M Capital Management, Inc. for the AST AIM International
Equity Portfolio.
(d)(46) Sub-advisory Agreement between American Skandia Investment Services,
Incorporated and A I M Capital Management, Inc. for the AST AIM Balanced
Portfolio.
(d)(52) Sub-advisory Agreement between American Skandia Investment Services,
Incorporated and Marsico Capital Management, LLC for the AST Marsico Capital
Growth Portfolio.
10 Consent of Counsel for the Registrant
11 Independent Auditor's Consent
</TABLE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 4th day of May, 1999 by and between American Skandia
Trust, a Massachusetts business trust (the "Fund"), and American Skandia
Investment Services, Incorporated, a Connecticut corporation (the "Investment
Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations promulgated thereunder;
and
WHEREAS, the Investment Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into an agreement
to provide for the management of the assets of the AST American Century Income &
Growth Portfolio (the "Portfolio") on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment manager for the
Portfolio and shall, in such capacity, manage the investment operations of the
Portfolio, including the purchase, retention, disposition and lending of
securities, subject at all times to the policies and control of the Fund's Board
of Trustees. The Investment Manager shall give the Portfolio the benefit of its
best judgments, efforts and facilities in rendering its services as investment
manager.
2. Duties of Investment Manager. In carrying out its obligation under
paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's operations:
(b) provide the Portfolio or obtain for it, and thereafter supervise,
such executive, administrative, clerical and shareholder servicing services as
are deemed advisable by the Fund's Board of Trustees;
(c) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the Portfolio's
shareholders, reports to and filings with the Securities and Exchange
Commission, state Blue Sky authorities and other applicable regulatory
authorities;
(d) provide to the Board of Trustees of the Fund on a regular basis,
written financial reports and analyses on the Portfolio's securities
transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Portfolio, and whether
concerning the individual issuers whose securities are included in the Portfolio
or the activities in which they engage, or with respect to securities which the
Investment Manager considers desirable for inclusion in the Portfolio;
(f) determine what issuers and securities shall be represented in the
Portfolio's portfolio and regularly report them in writing to the Board of
Trustees;
(g) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report in writing thereon
to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which appear to the
Fund necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. The Investment Manager shall
determine the securities to be purchased or sold by the Portfolio pursuant to
its determinations with or through such persons, brokers or dealers, in
conformity with the policy with respect to brokerage as set forth in the Fund's
Prospectus and Statement of Additional Information, or as the Board of Trustees
may determine from time to time. Generally, the Investment Manager's primary
consideration in placing Portfolio securities transactions with broker-dealers
for execution is to obtain and maintain the availability of, execution at the
best net price and in the most effective manner possible. The Investment Manager
may consider sale of the shares of the Portfolio, subject to the requirements of
best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by the
Investment Manager pursuant to this Agreement, as well as any other activities
undertaken by the Investment Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Trustees of the
Fund.
5. Compliance with Applicable Requirements. In carrying out its obligations
under this Agreement, the Investment Manager shall at all times conform to:
(a) all applicable provisions of the Investment Company Act and Investment
Advisers Act and any rules and regulations adopted thereunder, as amended;
and
(b) the provisions of the Registration Statements of the Fund under the
Securities Act of 1933 and the Investment Company Act, including the
investment objectives, policies and restrictions, and permissible
investments specified therein; and
(c) the provisions of the Declaration of Trust of the Fund, as amended; and
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Fund shall be allocable between the
Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense and without cost to
the Fund, the services of a President, Secretary, and one or more Vice
Presidents of the Fund, to the extent that such additional officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Investment Manager shall further maintain, at its expense and without
cost to the Fund, a trading function in order to carry out its obligations
under subparagraphs (f), (g) and (h) of paragraph 2 hereof to place orders
for the purchase and sale of portfolio securities for the Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed to require the
Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of
the Fund; including the reviewing of calculations of net asset
value and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the
personnel operating under the direction of such principal
financial officer. Notwithstanding the obligation of the Fund
to bear the expense of the functions referred to in clauses
(i) and (ii) of this subparagraph (c), the Investment Manager
may pay the salaries, including any applicable employment or
payroll taxes and other salary costs, of the principal
financial officer and other personnel carrying out such
functions and the Fund shall reimburse the Investment Manager
therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the operations of the
Fund and the offering of its shares shall be borne by the Fund unless
specifically provided otherwise in this paragraph 6. These expenses include
but are not limited to brokerage commissions, legal, auditing, taxes or
governmental fees, the cost of preparing share certificates, custodian,
depository, transfer and shareholder service agent costs, expenses of
issue, sale, redemption and repurchase of shares, expenses of registering
and qualifying shares for sale, insurance premiums on property or personnel
(including officers and trustees if available) of the Fund which inure to
its benefit, expenses relating to trustee and shareholder meetings, the
cost of preparing and distributing reports and notices to shareholders, the
fees and other expenses incurred by the Fund in connection with membership
in investment company organizations and the cost of printing copies of
prospectuses and statements of additional information distributed to
shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's Board of
Trustees, the Investment Manager may perform services on behalf of the Fund
which are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Investment Manager's cost in rendering such services
may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment Manager may
engage, subject to approval of the Fund's Board of Trustees, and where required,
the shareholders of the Portfolio, a sub-advisor to provide advisory services in
relation to the Portfolio. Under such sub-advisory agreement, the Investment
Manager may delegate to the sub-advisor the duties outlined in subparagraphs
(e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in full compensation
for services rendered hereunder an annual investment advisory fee, payable
monthly, of .75% of the average daily net assets of the Portfolio.
10. Non-Exclusivity. The services of the Investment Manager to the Portfolio are
not to be deemed to be exclusive, and the Investment Manager shall be free to
render investment advisory and corporate administrative or other services to
others (including other investment companies) and to engage in other activities.
It is understood and agreed that officers or directors of the Investment Manager
may serve as officers or trustees of the Fund, and that officers or trustees of
the Fund may serve as officers or directors of the Investment Manager to the
extent permitted by law; and that the officers and directors of the Investment
Manager are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers or
directors of any other firm or corporation, including other investment
companies.
11. Term and Approval. This Agreement shall become effective on December 30,
1996 and shall continue in force and effect from year to year, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of a majority of
the Portfolio's outstanding voting securities (as defined in Section
2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees who are not parties
to this Agreement or interested persons of a party to this Agreement (other
than as Fund trustees), by votes cast in person at a meeting specifically
called for such purpose.
12. Termination. This Agreement may be terminated at any time without the
payment of any penalty or prejudice to the completion of any transactions
already initiated on behalf of the Portfolio, by vote of the Fund's Board of
Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
13. Liability of Investment Manager and Indemnification. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Investment Manager or any of
its officers, trustees or employees, it shall not be subject to liability to the
Fund or to any shareholder of the Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
14. Liability of Trustees and Shareholders. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
15. Notices. Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice,
it is agreed that the address of the Fund shall be 126 High Street, Boston,
Massachusetts, 02110, and the address of the Investment Manager shall be One
Corporate Drive, Shelton, Connecticut 06484.
16. Questions of Interpretation. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Investment Company Act, shall be resolved by reference
to such term or provision of the Act and to interpretations thereof, if any, by
the United States Courts or in the absence of any controlling decision of any
such court, by rules, regulations or orders of the Securities and Exchange
Commission issued pursuant to said Act. In addition, where the effect of a
requirement of the Investment Company Act, reflected in any provision of this
Agreement is released by rules, regulation or order of the Securities and
Exchange Commission, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
AMERICAN SKANDIA TRUST
Attest: By: ____________________________
Gordon C. Boronow
__________________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By: _____________________________
John Birch
__________________________________ Senior Vice President &
Chief Operating Officer
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 4th day of May, 1999 by and between
American Skandia Trust, a Massachusetts business trust (the "Fund"), and
American Skandia Investment Services, Incorporated, a Connecticut corporation
(the "Investment Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations
promulgated thereunder; and
WHEREAS, the Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into
an agreement to provide for the management of the assets of the AST AIM
International Equity Portfolio (the "Portfolio") on the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment manager for
the Portfolio and shall, in such capacity, manage the investment operations of
the Portfolio, including the purchase, retention, disposition and lending of
securities, subject at all times to the policies and control of the Fund's Board
of Trustees. The Investment Manager shall give the Portfolio the benefit of its
best judgments, efforts and facilities in rendering its services as investment
manager.
2. Duties of Investment Manager. In carrying out its obligation under
paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's operations:
(b) provide the Portfolio or obtain for it, and thereafter supervise, such
executive, administrative, clerical and shareholder servicing services
as are deemed advisable by the Fund's Board of Trustees;
(c) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the
Portfolio's shareholders, reports to and filings with the Securities
and Exchange Commission, state Blue Sky authorities and other
applicable regulatory authorities;
(d) provide to the Board of Trustees of the Fund on a regular basis,
written financial reports and analyses on the Portfolio's securities
transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the
Portfolio, and whether concerning the individual issuers whose
securities are included in the Portfolio or the activities in which
they engage, or with respect to securities which the Investment
Manager considers desirable for inclusion in the Portfolio;
(f) determine what issuers and securities shall be represented in the
Portfolio's portfolio and regularly report them in writing to the
Board of Trustees;
(g) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report in
writing thereon to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which appear to the Fund
necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders
for the purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. The Investment Manager shall
determine the securities to be purchased or sold by the Portfolio pursuant to
its determinations with or through such persons, brokers or dealers, in
conformity with the policy with respect to brokerage as set forth in the Fund's
Prospectus and Statement of Additional Information, or as the Board of Trustees
may determine from time to time. Generally, the Investment Manager's primary
consideration in placing Portfolio securities transactions with broker-dealers
for execution is to obtain and maintain the availability of, execution at the
best net price and in the most effective manner possible. The Investment Manager
may consider sale of the shares of the Portfolio, subject to the requirements of
best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by the
Investment Manager pursuant to this Agreement, as well as any other activities
undertaken by the Investment Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Trustees of the
Fund.
5. Compliance with Applicable Requirements. In carrying out its obligations
under this Agreement, the Investment Manager shall at all times conform to:
(a) all applicable provisions of the Investment Company Act and Investment
Advisers Act and any rules and regulations adopted thereunder, as
amended; and
(b) the provisions of the Registration Statements of the Fund under the
Securities Act of 1933 and the Investment Company Act, including the
investment objectives, policies and restrictions, and permissible
investments specified therein; and
(c) the provisions of the Declaration of Trust of the Fund, as amended;
and
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense and without
cost to the Fund, the services of a President, Secretary, and one
or more Vice Presidents of the Fund, to the extent that such
additional officers may be required by the Fund for the proper
conduct of its affairs.
(b) The Investment Manager shall further maintain, at its expense and
without cost to the Fund, a trading function in order to carry
out its obligations under subparagraphs (f), (g) and (h) of
paragraph 2 hereof to place orders for the purchase and sale of
portfolio securities for the Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed to require
the Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of the
Fund; including the reviewing of calculations of net asset value
and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the personnel
operating under the direction of such principal financial
officer. Notwithstanding the obligation of the Fund to bear the
expense of the functions referred to in clauses (i) and (ii) of
this subparagraph (c), the Investment Manager may pay the
salaries, including any applicable employment or payroll taxes
and other salary costs, of the principal financial officer and
other personnel carrying out such functions and the Fund shall
reimburse the Investment Manager therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the operations
of the Fund and the offering of its shares shall be borne by the
Fund unless specifically provided otherwise in this paragraph
6. These expenses include but are not limited to brokerage commissions,
legal, auditing, taxes or governmental fees, the cost of preparing share
certificates, custodian, depository, transfer and shareholder service agent
costs, expenses of issue, sale, redemption and repurchase of shares, expenses of
registering and qualifying shares for sale, insurance premiums on property or
personnel (including officers and trustees if available) of the Fund which inure
to its benefit, expenses relating to trustee and shareholder meetings, the cost
of preparing and distributing reports and notices to shareholders, the fees and
other expenses incurred by the Fund in connection with membership in investment
company organizations and the cost of printing copies of prospectuses and
statements of additional information distributed to shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's Board of
Trustees, the Investment Manager may perform services on behalf of the Fund
which are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Investment Manager's cost in rendering such services
may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment Manager
may engage, subject to approval of the Fund's Board of Trustees, and where
required, the shareholders of the Portfolio, a sub-advisor to provide advisory
services in relation to the Portfolio. Under such sub-advisory agreement, the
Investment Manager may delegate to the sub-advisor the duties outlined in
subparagraphs (e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in full
compensation for services rendered hereunder an annual investment advisory fee,
payable monthly, of 1.00% of the average daily net assets of the Portfolio not
in excess of $75 million; plus .85% of the Portfolio's average daily net assets
over $75 million.
10. Expense Limitation. If, for any fiscal year of the Fund, the total of
all ordinary business expenses of the Portfolio, including all investment
advisory and administration fees but excluding brokerage commissions and fees,
taxes, interest and extraordinary expenses such as litigation ("Portfolio
Expenses"), would exceed (i) 1.75% on the first $100 million of the Portfolio's
average daily net assets, and (ii) 1.50% with respect to the Portfolio's average
daily net assets over $100 million, the Investment Manager agrees, if required
to do so pursuant to applicable statute or regulatory authority, to pay to the
Fund such excess expenses no later than the last day of the first month of the
next succeeding fiscal year of the Fund; provided that, in the event the most
restrictive expense limits imposed by any statute or regulatory authority of any
jurisdiction in which shares of the Portfolio are offered for sale is at any
time established at a limit higher than 1.75% or no limit at all, with respect
to the Portfolio's average daily net assets over $100 million, the Manager
agrees to reimburse the Fund, from that point forward, for Portfolio Expenses in
excess of 1.75% on all of the average daily net assets of the Portfolio. For the
purposes of this paragraph, the term "fiscal year" shall exclude the portion of
the Fund's current fiscal year which shall have elapsed prior to the date hereof
and shall include the portion of the then current fiscal year which shall have
elapsed at the date of termination of this Agreement.
11. Non-Exclusivity. The services of the Investment Manager to the
Portfolio are not to be deemed to be exclusive, and the Investment Manager shall
be free to render investment advisory and corporate administrative or other
services to others (including other investment companies) and to engage in other
activities. It is understood and agreed that officers or directors of the
Investment Manager may serve as officers or trustees of the Fund, and that
officers or trustees of the Fund may serve as officers or directors of the
Investment Manager to the extent permitted by law; and that the officers and
directors of the Investment Manager are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
12. Term and Approval. This Agreement shall become effective on October 15,
1996 and shall continue in force and effect from year to year, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of a
majority of the Portfolio's outstanding voting securities (as
defined in Section 2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to
this Agreement (other than as Fund trustees), by votes cast in
person at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time without the
payment of any penalty or prejudice to the completion of any transactions
already initiated on behalf of the Portfolio, by vote of the Fund's Board of
Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
14. Liability of Investment Manager and Indemnification. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Investment Manager or any of
its officers, trustees or employees, it shall not be subject to liability to the
Fund or to any shareholder of the Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
15. Liability of Trustees and Shareholders. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice, it is agreed that the address of the Fund shall be 126 High
Street, Boston, Massachusetts, 02110, and the address of the Investment Manager
shall be One Corporate Drive, Shelton, Connecticut 06484.
17. Questions of Interpretation. Any question of interpretation of any term
or provision of this Agreement having a counterpart in or otherwise derived from
a term or provision of the Investment Company Act, shall be resolved by
reference to such term or provision of the Act and to interpretations thereof,
if any, by the United States Courts or in the absence of any controlling
decision of any such court, by rules, regulations or orders of the Securities
and Exchange Commission issued pursuant to said Act. In addition, where the
effect of a requirement of the Investment Company Act, reflected in any
provision of this Agreement is released by rules, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective officers on the day and year
first above written.
AMERICAN SKANDIA TRUST
Attest: By___________________________________
Gordon C. Boronow
___________________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By___________________________________
John Birch
___________________________________ Senior Vice President &
Chief Operating Officer
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 4th day of May, 1999 by and between
American Skandia Trust, a Massachusetts business trust (the "Fund"), and
American Skandia Investment Services, Incorporated, a Connecticut corporation
(the "Investment Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations
promulgated thereunder; and
WHEREAS, the Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into
an agreement to provide for the management of the assets of the AST AIM Balanced
Portfolio (the "Portfolio") on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment manager for
the Portfolio and shall, in such capacity, manage the investment operations of
the Portfolio, including the purchase, retention, disposition and lending of
securities, subject at all times to the policies and control of the Fund's Board
of Trustees. The Investment Manager shall give the Portfolio the benefit of its
best judgments, efforts and facilities in rendering its services as investment
manager.
2. Duties of Investment Manager. In carrying out its obligation under
paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's operations:
(b) provide the Portfolio or obtain for it, and thereafter supervise,
such executive, administrative, clerical and shareholder
servicing services as are deemed advisable by the Fund's Board of
Trustees;
(c) arrange, but not pay for, the periodic updating of prospectuses
and supplements thereto, proxy material, tax returns, reports to
the Portfolio's shareholders, reports to and filings with the
Securities and Exchange Commission, state Blue Sky authorities
and other applicable regulatory authorities;
(d) provide to the Board of Trustees of the Fund on a regular basis,
written financial reports and analyses on the Portfolio's
securities transactions and the operations of comparable
investment companies;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy
generally or the Portfolio, and whether concerning the individual
issuers whose securities are included in the Portfolio or the
activities in which they engage, or with respect to securities
which the Investment Manager considers desirable for inclusion in
the Portfolio;
(f) determine what issuers and securities shall be represented in the
Portfolio's portfolio and regularly report them in writing to the
Board of Trustees;
(g) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report in
writing thereon to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which appear to the
Fund necessary to carry into effect such purchase and sale
programs and supervisory functions as aforesaid, including the
placing of orders for the purchase and sale of portfolio
securities.
3. Broker-Dealer Relationships. The Investment Manager is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. The Investment Manager shall
determine the securities to be purchased or sold by the Portfolio pursuant to
its determinations with or through such persons, brokers or dealers, in
conformity with the policy with respect to brokerage as set forth in the Fund's
Prospectus and Statement of Additional Information, or as the Board of Trustees
may determine from time to time. Generally, the Investment Manager's primary
consideration in placing Portfolio securities transactions with broker-dealers
for execution is to obtain and maintain the availability of, execution at the
best net price and in the most effective manner possible. The Investment Manager
may consider sale of the shares of the Portfolio, subject to the requirements of
best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by the
Investment Manager pursuant to this Agreement, as well as any other activities
undertaken by the Investment Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Trustees of the
Fund.
5. Compliance with Applicable Requirements. In carrying out its obligations
under this Agreement, the Investment Manager shall at all times conform to:
(a) all applicable provisions of the Investment Company Act and
Investment Advisers Act and any rules and regulations adopted
thereunder, as amended; and
(b) the provisions of the Registration Statements of the Fund under
the Securities Act of 1933 and the Investment Company Act,
including the investment objectives, policies and restrictions,
and permissible investments specified therein; and
(c) the provisions of the Declaration of Trust of the Fund, as
amended; and
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense and without
cost to the Fund, the services of a President, Secretary, and one
or more Vice Presidents of the Fund, to the extent that such
additional officers may be required by the Fund for the proper
conduct of its affairs.
(b) The Investment Manager shall further maintain, at its expense and
without cost to the Fund, a trading function in order to carry
out its obligations under subparagraphs (f), (g) and (h) of
paragraph 2 hereof to place orders for the purchase and sale of
portfolio securities for the Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed to require
the Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of the
Fund; including the reviewing of calculations of net asset value
and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the personnel
operating under the direction of such principal financial
officer. Notwithstanding the obligation of the Fund to bear the
expense of the functions referred to in clauses (i) and (ii) of
this subparagraph (c), the Investment Manager may pay the
salaries, including any applicable employment or payroll taxes
and other salary costs, of the principal financial officer and
other personnel carrying out such functions and the Fund shall
reimburse the Investment Manager therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the operations
of the Fund and the offering of its shares shall be borne by the
Fund unless specifically provided otherwise in this paragraph
6. These expenses include but are not limited to brokerage commissions,
legal, auditing, taxes or governmental fees, the cost of preparing share
certificates, custodian, depository, transfer and shareholder service agent
costs, expenses of issue, sale, redemption and repurchase of shares, expenses of
registering and qualifying shares for sale, insurance premiums on property or
personnel (including officers and trustees if available) of the Fund which inure
to its benefit, expenses relating to trustee and shareholder meetings, the cost
of preparing and distributing reports and notices to shareholders, the fees and
other expenses incurred by the Fund in connection with membership in investment
company organizations and the cost of printing copies of prospectuses and
statements of additional information distributed to shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's Board of
Trustees, the Investment Manager may perform services on behalf of the Fund
which are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Investment Manager's cost in rendering such services
may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment Manager
may engage, subject to approval of the Fund's Board of Trustees, and where
required, the shareholders of the Portfolio, a sub-advisor to provide advisory
services in relation to the Portfolio. Under such sub-advisory agreement, the
Investment Manager may delegate to the sub-advisor the duties outlined in
subparagraphs (e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in full
compensation for services rendered hereunder an annual investment advisory fee,
payable monthly, of .75% of the average daily net assets of the Portfolio not in
excess of $300 million; plus .70% of the Portfolio's average daily net assets in
excess of $300 million.
10. Expense Limitation. If, for any fiscal year of the Fund, the total of
all ordinary business expenses of the Portfolio, including all investment
advisory and administration fees but excluding brokerage commissions and fees,
taxes, interest and extraordinary expenses such as litigation, would exceed
1.25% of the average daily net assets of the Portfolio, the Investment Manager
agrees to pay the Fund such excess expenses, and if required to do so pursuant
to such applicable statute or regulatory authority, to pay to the Fund such
excess expenses no later than the last day of the first month of the next
succeeding fiscal year of the Fund. For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the Fund's current fiscal year which
shall have elapsed prior to the date hereof and shall include the portion of the
then current fiscal year which shall have elapsed at the date of termination of
this Agreement.
11. Non-Exclusivity. The services of the Investment Manager to the
Portfolio are not to be deemed to be exclusive, and the Investment Manager shall
be free to render investment advisory and corporate administrative or other
services to others (including other investment companies) and to engage in other
activities. It is understood and agreed that officers or directors of the
Investment Manager may serve as officers or trustees of the Fund, and that
officers or trustees of the Fund may serve as officers or directors of the
Investment Manager to the extent permitted by law; and that the officers and
directors of the Investment Manager are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
12. Term and Approval. This Agreement shall become effective on October 15,
1996 and shall continue in force and effect from year to year, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of a
majority of the Portfolio's outstanding voting securities (as
defined in Section 2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to
this Agreement (other than as Fund trustees), by votes cast in
person at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time without the
payment of any penalty or prejudice to the completion of any transactions
already initiated on behalf of the Portfolio, by vote of the Fund's Board of
Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
14. Liability of Investment Manager and Indemnification. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Investment Manager or any of
its officers, trustees or employees, it shall not be subject to liability to the
Fund or to any shareholder of the Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
15. Liability of Trustees and Shareholders. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice, it is agreed that the address of the Fund shall be 126 High
Street, Boston, Massachusetts, 02110, and the address of the Investment Manager
shall be One Corporate Drive, Shelton, Connecticut 06484.
17. Questions of Interpretation. Any question of interpretation of any term
or provision of this Agreement having a counterpart in or otherwise derived from
a term or provision of the Investment Company Act, shall be resolved by
reference to such term or provision of the Act and to interpretations thereof,
if any, by the United States Courts or in the absence of any controlling
decision of any such court, by rules, regulations or orders of the Securities
and Exchange Commission issued pursuant to said Act. In addition, where the
effect of a requirement of the Investment Company Act, reflected in any
provision of this Agreement is released by rules, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective officers on the day and year
first above written.
AMERICAN SKANDIA TRUST
Attest: By: ___________________________________
Gordon C. Boronow
___________________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By: ___________________________________
John Birch
___________________________________ Senior Vice President &
Chief Operating Officer
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services,
Incorporated (the "Investment Manager") and American Century Investment
Management, Inc. (the "Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the AST American Century Income &
Growth Portfolio (the "Portfolio") under the terms of a management agreement,
dated May 4, 1999, with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with applicable provisions of the Trust's Declaration of Trust and
By-laws provided to the Sub-Advisor from time to time by the Investment Manager.
Officers and employees of Sub-Advisor will be available to consult with
Investment Manager and the Trust, their officers, employees and Trustees
concerning the business of the Trust, as reasonably requested from time to time.
Investment Manager will promptly furnish Sub-Advisor with any amendments to any
of the foregoing documents (the "Documents"). Any amendments to the Documents
will not be deemed effective with respect to the Sub-Advisor until the
Sub-Advisor's receipt thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal. The Sub-Advisor shall not be responsible for the provision of
administrative, bookkeeping or accounting services to the Trust. The Sub-Advisor
shall supply the Investment Manager and the Trust with such information as is
specifically provided herein, as required by the ICA or the Investment Advisers
Act of 1940, as amended (the "Advisers Act") in connection with the
Sub-Advisor's management of the Portfolio, or as may be requested by the Trust's
Board of Trustees. Any records required to be maintained under the ICA shall be
the property of the Trust and surrendered to the Trust promptly upon request or
upon termination of this Agreement. The Sub-Advisor may retain copies of any
records surrendered to the Trust.
To the extent deemed necessary by the Sub-Advisor in connection with
the investment program for the Portfolio, the Sub-Advisor will obtain and
evaluate pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or the Portfolio, and concerning the individual
issuers whose securities are included in the Portfolio or the activities in
which they engage, or with respect to securities which the Sub-Advisor considers
desirable for inclusion in the Portfolio or such other information as the
Sub-Advisor deems relevant.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that with respect
to disclosure about the Sub-Advisor or information relating to the Sub-Advisor
or the Sub-Advisor's activities in connection with the investment program for
the Portfolio, such Registration Statement or Proxy Statement contains, as of
the date thereof, no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or necessary
to make the statements contained therein not misleading.
Sub-Advisor shall use its best judgment, effort, and advice in
rendering services under this Agreement.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapter M (including and Section
851(b)(1), (2) and (3)) and Section 817(h) of the Internal Revenue Code,
applicable to the Portfolio, and the regulations promulgated thereunder, to the
extent such compliance is within the Sub-Advisor's control. Sub-Advisor shall
comply with (i) other applicable provisions of state or federal law; (ii) the
provisions of the Declaration of Trust and By-laws of the Trust communicated to
the Sub-Advisor by the Investment Manager in writing; (iii) policies and
determinations of the Trust and Investment Manager communicated to the
Sub-Advisor in writing; (iv) the fundamental policies and investment
restrictions of the Trust, as set out in the Trust's registration statement
under the ICA, or as amended by the Trust's shareholders; (v) the Prospectus and
Statement of Additional Information of the Trust; and (vi) investment guidelines
or other instructions received in writing from Investment Manager. Sub-Advisor
shall supervise and monitor the activities of its representatives, personnel and
agents in connection with the investment program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has furnished
the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the date
hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Sub-Advisor as Sub-Advisor to the Investment Manager and
approving the form of this agreement;
(d) The resolutions of the Trustees selecting the Investment Manager
as investment manager to the Trust and approving the form of the
Investment Manager's Management Agreement with the Trust;
(e) The Investment Manager's Management Agreement with the Trust;
(f) The Code of Ethics of the Trust and of the Investment Manager as
currently in effect; and
(g) A list of companies the securities of which are not to be bought
or sold for the Portfolio because of non-public information
regarding such companies that is available to Investment Manager
or the Trust, or which, in the sole opinion of the Investment
Manager, it believes such non-public information would be deemed
to be available to Investment Manager and/or the Trust.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (f) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (g) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor has
furnished the Investment Manager with copies of each of the following documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and
Exchange Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to have
authorized to give written and/or oral instructions to Custodians
of Trust assets for the Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will thereafter furnish the Investment Manager with
copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to items (a), (c) and (d) above within 30 days of
the time such materials become available to the Sub-Advisor. With respect to
item (b) above, the Sub-Advisor will timely furnish the Investment Manager with
a copy of the document, properly certified or otherwise authenticated, upon
request by the Investment Manager.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense, will furnish
all necessary investment facilities, including salaries of personnel required
for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for decisions
to buy and sell securities for the Portfolio, broker-dealer selection, and
negotiation of its brokerage commission rates. Sub-Advisor shall determine the
securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time. Generally, Sub-Advisor's primary consideration in
placing Portfolio securities transactions with broker-dealers for execution is
to obtain and maintain the availability of best execution at the best net price
and in the most effective manner possible. The Sub-Advisor may consider sale of
the shares of the Portfolio, as well as recommendations of the Investment
Manager, subject to the requirements of best net price and most favorable
execution.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor for the Portfolio's use an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the
Sub-Advisor's ongoing responsibilities with respect to the Portfolio. The
Sub-Advisor is further authorized to allocate the orders placed by it on behalf
of the Portfolio to such broker-dealers who also provide research or statistical
material, or other services to the Portfolio or the Sub-Advisor. Such allocation
shall be in such amounts and proportions as the Sub-Advisor shall determine in
good faith in conformity with its responsibilities under applicable laws, rules
and regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager and, in any
event, at least once each calendar year if no specific request is made,
indicating the brokers to whom such allocations have been made and the basis
therefor. Notwithstanding the above, nothing shall require the Sub-Advisor to
use a broker that provides research services or to use a particular broker that
the Investment Manager has recommended.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information requested for inclusion in the Trust's
Registration Statement, in such form as may be mutually agreed, to review the
Portfolio and discuss the management of it. The Sub-Advisor shall permit the
financial statements, books and records with respect to the Portfolio to be
inspected and audited by the Trust, the Investment Manager or their agents at
all reasonable times during normal business hours. The Sub-Advisor shall
immediately notify and forward to the Investment Manager and the Trust any legal
process served upon it on behalf of the Investment Manager or the Trust. The
Sub-Advisor shall promptly notify the Investment Manager of any changes in any
information concerning the Sub-Advisor or the Sub-Advisors activities in
connection with the investment program for the Portfolio required to be
disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor is computed at an annual rate. The fee is payable monthly in
arrears, based on the average daily net assets of the Portfolio for each month,
at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .45 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $150 million; plus
.40 of 1% of the portion of the net assets over $150 million but not in excess
of $300 million; plus .35 of 1% of the portion of the net assets over
$300million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this agreement is terminated, the payment shall be
prorated to the effective date of termination.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust. Except as otherwise
provided herein, Investment Manager and the Trust will not be obligated to pay
any expenses of Sub-Advisor.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Advisers
Act, that it will use its reasonable best efforts to maintain such registration,
and that it will promptly notify the other if it ceases to be so registered, if
its registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it should show
cause why its registration should not be suspended or terminated. Each party
further acknowledges that it is registered under the laws of all jurisdictions
in which the conduct of its business hereunder requires such registration.
10. Liability. The Sub-Advisor shall use its best efforts and good faith in the
performance of its services hereunder. However, so long as the Sub-Advisor has
acted in good faith and has used its best efforts, then in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations hereunder, it shall not be liable to the Trust or its shareholders
or to the Investment Manager for any act or omission resulting in any loss
suffered in any portfolio of the Trust in connection with any service to be
provided herein. The Federal laws impose responsibilities under certain
circumstances on persons who act in good faith, and therefore, nothing herein
shall in any way constitute a waiver of limitation of any rights which the Trust
or Investment Manager may have under applicable law.
The Investment Manager agrees that, subject to the investment
objective, investment policies and investment restrictions of the Portfolio as
set forth in the Trust's Registration Statement as in effect from time to time,
the Sub-Advisor's adherence to an investment style generally used by the
Sub-Advisor in managing any of its domestic or foreign equity or fixed income
mutual funds shall not be considered a failure by the Sub-Advisor to use its
best judgment, efforts and advice under this Agreement. For purposes of this
provision, the Sub-Advisor represents, and the Investment Manager acknowledges,
that the Sub-Advisor's style for this Portfolio will be (i) to utilize
quantitative management techniques in a two-step process that draws heavily on
computer technology and considers measures of a stock's value and growth
potential as well as balances risk and expected return in building a portfolio;
and (ii) to use teams of portfolio managers, assistant managers and analysts
acting together to manage the assets of the Portfolio. The Investment Manager
shall consult from time to time with the Sub-Advisor to review the Sub-Advisor's
performance under this Agreement. In the event that any claim is made by the
Investment Manager against the Sub-Advisor based upon a failure by the
Sub-Advisor to use its best judgment, efforts and advice in rendering services
under this Agreement, the Investment Manager shall bear the burden of proving
such failure.
11. Other Activities of Sub-Advisor. Investment Manager agrees that the
Sub-Advisor and any of its partners or employees, and persons affiliated with it
or with any such partner or employee may render investment management or
advisory services to other investors and institutions, and such investors and
institutions may own, purchase or sell, securities or other interests in
property the same as or similar to those which are selected for purchase,
holding or sale for the Portfolio, and the Sub-Advisor shall be in all respects
free to take action with respect to investments in securities or other interests
in property the same as or similar to those selected for purchase, holding or
sale for the Portfolio. The Investment Manager understands that the Sub-Advisor
shall not favor or disfavor any client or class of clients in the allocation of
investment opportunities, so that to the extent practical, such opportunities
will be allocated among clients over a period of time on a fair and equitable
basis. Notwithstanding paragraph 8 above, nothing in this agreement shall impose
upon the Sub-Advisor any obligation to (i) purchase or sell, or recommend for
purchase or sale, for the Portfolio any security which it, its partners,
affiliates or employees may purchase or sell for the Sub-Advisor or such
partner's, affiliate's or employee's own accounts or for the account of any
other client, advisory or otherwise; or (ii) to abstain from the purchase or
sale of any security for the Sub-Advisor's other clients, advisory or otherwise,
that the Investment Manager has placed on the list provided pursuant to
paragraph 2(g) above.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice, and will automatically terminate in the event of its assignment
(as defined in the ICA) by either party to this Agreement or (provided
Sub-Advisor has received prior written notice thereof) upon termination of the
Investment Manager's Management Agreement with the Trust.
13. Notification. Sub-Advisor will notify the Investment Manager within a
reasonable time of any change in the personnel of the Sub-Advisor with
responsibility for making investment decisions in relation to the Portfolio or
who have been authorized to give instructions to a Custodian of the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different contact person and/or address for
such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: John Birch
Senior Vice President & Chief Operating Officer
Sub-Advisor: American Century Investment Management, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: William M. Lyons
Executive Vice President & Chief Operating Officer
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities hereunder (1) to the extent of and as a result of
the willful misconduct, bad faith, or gross negligence by Sub-Advisor, any of
Sub-Advisor's employees or representatives or any affiliate of or any person
acting on behalf of Sub-Advisor, or (2) as a result of any untrue statement or
alleged untrue statement of a material fact relating to the Sub-Advisor or the
Sub-Advisor's activities in connection with the investment program for the
Portfolio contained in a prospectus or statement of additional information
covering the Portfolio or the Trust or any amendment thereof or any supplement
thereto or the omission or alleged omission to state therein such a material
fact required to be stated therein or necessary to make the statement therein
not misleading, if such a statement or omission was made in reliance upon and in
conformity with written information furnished to the Investment Manager, the
Trust or any affiliated person of the Investment Manager or the Trust by the
Sub-Advisor or upon verbal information confirmed by the Sub-Advisor in writing
or (3) to the extent of, and as a result of, the failure of the Sub-Advisor to
execute, or cause to be executed, Portfolio transactions according to the
standards and requirements of the ICA; provided, however, that in no case is
Sub-Advisor's indemnity in favor of Investment Manager or any affiliated person
or controlling person of Investment Manager deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misconduct, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement; and, provided further, that in the case of an
alleged untrue statement or omission of a material fact for which the
Sub-Advisor provides this indemnity, the Investment Manager shall reimburse the
Sub-Advisor for all amounts paid pursuant to this indemnity unless a court of
competent jurisdiction shall issue a final judgment finding that such an untrue
statement or omission of material fact did occur.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by Investment Manager, any of
Investment Manager's employees or representatives or any affiliate of or any
person acting on behalf of Investment Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or statement of additional information covering the Portfolio or the
Trust or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein such a material fact required to be stated
therein or necessary to make the statement therein not misleading, if such a
statement or omission was made by the Trust other than in reliance upon and in
conformity with written information furnished by Sub-Advisor, or any affiliated
person of the Sub-Advisor or other than upon verbal information confirmed by the
Sub-Advisor in writing; provided, however, that in no case is Investment
Manager's indemnity in favor of Sub-Advisor or any affiliated person or
controlling person of Sub-Advisor deemed to protect such person against any
liability to which any such person would otherwise be subject by reason of
willful misconduct, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement. It is agreed that the Investment Manager's indemnification
obligations under this Section 14 will extend to expenses and costs (including
reasonable attorneys fees) incurred by the Sub-Advisor as a result of any
litigation brought by the Investment Manager alleging Sub-Advisor's failure to
perform its obligations and duties in the manner required under this Agreement
unless judgment is rendered for the Investment Manager.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. This agreement is made under, and shall be governed by and
construed in accordance with, the laws of the State of Connecticut.
The effective date of this agreement is May 4, 1999.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
John Birch
Senior Vice President & Chief Operating Officer
Date: Date:
Attest: Attest:
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services, Incorporated
(the "Investment Manager") and A I M Capital Management, Inc. (the
"Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the AST AIM International Equity
Portfolio (the "Portfolio") under the terms of a management agreement, dated May
4, 1999, with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with applicable provisions of the Trust's Declaration of Trust and
By-laws provided to the Sub-Advisor from time to time by the Investment Manager.
Officers, directors, and employees of Sub-Advisor will be available to consult
with Investment Manager and the Trust, their officers, employees and Trustees
concerning the business of the Portfolio. Investment Manager will promptly
furnish Sub-Advisor with any amendments to any of the foregoing documents (the
"Documents"). Any amendments to the Documents will not be deemed effective with
respect to the Sub-Advisor until the Sub-Advisor's receipt thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal. The Sub-Advisor shall not be responsible for the provision of
administrative, bookkeeping or accounting services to the Trust. Any records
required to be maintained by the Sub-advisor shall be the property of the Trust
and surrendered to the Trust promptly upon request or upon termination of this
Agreement. The Sub-Advisor may retain copies of any records surrendered to the
Trust.
To the extent deemed necessary by the Sub-Advisor in connection with
the investment program for the Portfolio, the Sub-Advisor will obtain and
evaluate pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or the Portfolio, and concerning the individual
issuers whose securities are included in the Portfolio or the activities in
which they engage, or with respect to securities which the Sub-Advisor considers
desirable for inclusion in the Portfolio or such other information as the
Sub-Advisor deems relevant.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that with respect
to disclosure about the Sub-Advisor or information relating to the Sub-Advisor
or the Sub-Advisor's activities in connection with the investment program for
the Portfolio, such Registration Statement or Proxy Statement contains, as of
the date thereof, no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or necessary
to make the statements contained therein not misleading. The Sub-Advisor further
represents and warrants that it is an investment advisor registered under the
Advisers Act and under the laws of all jurisdictions in which the conduct of its
business hereunder requires such registration.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapters L and M (including,
respectively, Section 817(h) and Section 851(b)(1), (2), (3) and (4)) of the
Internal Revenue Code, applicable to the Portfolio, and the regulations
promulgated thereunder, to the extent such compliance is within the
Sub-Advisor's control. Sub-Advisor shall also comply with (i) other applicable
provisions of federal law; (ii) the provisions of the Declaration of Trust and
By-laws of the Trust communicated to the Sub-Advisor pursuant to paragraph 1 of
this Agreement; (iii) policies and determinations of the Trust and Investment
Manager communicated to the Sub-Advisor in writing; (iv) the fundamental
policies and investment restrictions of the Trust, as set out in the Trust's
registration statement under the ICA, or as amended by the Trust's shareholders,
and communicated to the Sub-Advisor; (v) the Prospectus and Statement of
Additional Information of the Trust as provided to the Sub-Advisor; and (vi)
investment guidelines or other instructions received in writing from Investment
Manager. Sub-Advisor shall supervise and monitor the activities of its
representatives, personnel and agents in connection with the investment program
of the Portfolio.
Unless the Investment Manager gives the Sub-Advisor written
instructions to the contrary, the Sub-Advisor shall use its good faith judgment
in a manner that it reasonably believes best serves the interests of the
Portfolio's shareholders to vote or abstain from voting all proxies solicited by
or with respect to the issuers of securities in which assets of the Portfolio
may be invested.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has furnished
the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the date
hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Sub-Advisor as Sub-Advisor to the Investment Manager and
approving the form of this agreement;
(d) A certificate of the inspector of election from the meeting of
shareholders of the Portfolio at which this Agreement was
approved, which certificate indicates that such shareholders have
approved this Agreement;
(e) The resolutions of the Trustees selecting the Investment Manager
as investment manager to the Trust and approving the form of the
Investment Manager's Management Agreement with the Trust;
(f) The Investment Manager's Management Agreement with the Trust;
(g) The Code of Ethics of the Trust and of the Investment Manager as
currently in effect; and
(h) A list of companies the securities of which are not to be bought
or sold for the Portfolio because of non-public information
regarding such companies that is available to Investment Manager
or the Trust, or which, in the sole opinion of the Investment
Manager, it believes such non-public information would be deemed
to be available to Investment Manager and/or the Trust.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (g) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (h) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor has
furnished the Investment Manager with copies of each of the following documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and
Exchange Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to have
authorized to give written and/or oral instructions to Custodians
of Trust assets for the Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will thereafter furnish the Investment Manager with
copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to items (a), (c) and (d) above within 30 days of
the time such materials become available to the Sub-Advisor. With respect to
item (b) above, the Sub-Advisor will thereafter furnish the Investment Manager,
within 30 days of the time such materials become available to the Sub-Advisor,
with a copy of the Sub-Advisor's audited balance sheet as at the end of each
fiscal year of the Sub-Advisor.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense, will furnish
all necessary investment facilities, including salaries of personnel required
for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for decisions
to buy and sell securities for the Portfolio, broker-dealer selection, and
negotiation of its brokerage commission rates. Sub-Advisor shall determine the
securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time. Generally, Sub-Advisor's primary consideration in
placing Portfolio securities transactions with broker-dealers for execution is
to obtain and maintain the availability of best execution at the best net price
and in the most effective manner possible. The Sub-Advisor may consider sale of
the shares of the Portfolio, as well as recommendations of the Investment
Manager, subject to the requirements of best net price and most favorable
execution and, if applicable, legal requirements relating to the use of
broker-dealers affiliated with the Trust.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction, if the Sub-Advisor determines in
good faith that such amount of commission was reasonable in relation to the
value of the research services provided by such broker, viewed in terms of
either that particular transaction or the Sub-Advisor's overall responsibilities
with respect to the Portfolio and to other clients of the Sub-Advisor as to
which the Sub-Advisor exercises investment discretion. The Sub-Advisor is
further authorized to allocate the orders placed by it on behalf of the
Portfolio to such broker-dealers who also provide research or statistical
material, or other services to the Portfolio or the Sub-Advisor. Such allocation
shall be in such amounts and proportions as the Sub-Advisor shall determine in
good faith in conformity with its responsibilities under applicable laws, rules
and regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager and, in any
event, at least once each calendar year if no specific request is made,
indicating the brokers to whom such allocations have been made and the basis
therefor.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information requested for inclusion in the Trust's
Registration Statement, in such form as may be mutually agreed, to review the
Portfolio and discuss the management of it. The Sub-Advisor shall supply the
Investment Manager and the Trust with such information as may be necessary to
respond to a specific request of the Trust's Board of Trustees or its agents.
The Sub-Advisor shall permit the financial statements, books and records with
respect to the Portfolio to be inspected and audited by the Trust, the
Investment Manager or their agents at all reasonable times during normal
business hours. The Sub-Advisor shall immediately notify and forward to the
Investment Manager and the Trust any legal process served upon it on behalf of
the Investment Manager or the Trust. The Investment Manager and the Trust shall
immediately notify and forward to the Sub-Advisor any legal process served upon
them on behalf of the Sub-Advisor. The Sub-Advisor shall promptly notify the
Investment Manager of any changes in any information concerning the Sub-Advisor
or the Sub-Advisors activities in connection with the investment program for the
Portfolio required to be disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor is computed at an annual rate. The fee is payable monthly in
arrears, based on the average daily net assets of the Portfolio for each month,
at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .65 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $150 million; plus
.55 of 1% of the portion of the average daily net assets of the Portfolio over
$150 million but not in excess of $300 million; plus .45 of 1% of the portion of
the average daily net assets of the Portfolio in excess of $300 million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this Agreement is terminated, the payment shall be
prorated to the date of termination. The fee for the period from the effective
date of the Agreement to the end of the month during which the effective date
occurs shall be prorated according to the proportion that such period bears to
the full monthly period.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust, including without
limitation brokerage expenses and custodian fees. Except as otherwise provided
herein, Investment Manager and the Trust will not be obligated to pay any
expenses of Sub-Advisor.
Unless otherwise agreed in writing by the Investment Manager and
Sub-Advisor, the waiver by the Investment Manager of any fees it is entitled to
receive under the Management Agreement shall not offset the obligation of the
Investment Manager to compensate the Sub-Advisor pursuant to this paragraph 7.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Advisers
Act, that it will use its reasonable best efforts to maintain such registration,
and that it will promptly notify the other if it ceases to be so registered, if
its registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it should show
cause why its registration should not be suspended or terminated.
10. Liability. The Sub-Advisor shall use its best efforts and judgment and shall
act in good faith in rendering services hereunder. However, so long as the
Sub-Advisor has acted in good faith and has used its best efforts and judgment,
the Sub-Advisor, its officers, directors and employees shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Portfolio, any shareholder of the Portfolio or the Investment Manager in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Sub-Advisor against any liability to the Investment Manager, the Trust or to the
shareholders of the Portfolio to which the Sub-Advisor would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or by reason of the Sub-Advisor's reckless
disregard of its obligations and duties under this Agreement.
The Investment Manager agrees that the Sub-Advisor shall not be liable
for any failure to recommend the purchase or sale of any security on behalf of
the Portfolio on the basis of any information which might, in Sub-Advisor's
opinion, constitute a violation of any federal or state laws, rules or
regulations.
11. Other Activities of Sub-Advisor. Investment Manager agrees that the
Sub-Advisor and any of its officers or employees, and persons affiliated with it
or with any such officer or employee may render investment management or
advisory services to other investors and institutions, and such investors and
institutions may own, purchase or sell, securities or other interests in
property the same as or similar to those which are selected for purchase,
holding or sale for the Portfolio, and the Sub-Advisor shall be in all respects
free to take action with respect to investments in securities or other interests
in property the same as or similar to those selected for purchase, holding or
sale for the Portfolio. Purchases and sales of individual securities on behalf
of the Portfolio and other portfolios of the Trust or accounts for other
investors or institutions will be made on a basis that the Sub-Advisor believes
is equitable to all accounts. The Investment Manager and the Trust recognize
that in some cases this procedure may adversely affect the size of the position
obtainable for the Portfolio. In addition, the Investment Manager and the Trust
understand (i) that the persons employed by the Sub-Advisor to assist in the
performance of the Sub-Advisor's duties under this Agreement generally will not
devote their full time to such service, and (ii) the Sub-Advisor and any
affiliate of the Sub-Advisor may engage in and devote time and attention to
other businesses or to rendering services of whatever kind or nature. Nothing in
this Agreement shall impose upon the Sub-Advisor any obligation to purchase or
sell or recommend for purchase or sale, for the Portfolio any security which it,
its officers, affiliates or employees may purchase or sell for the Sub-Advisor
or such officer's, affiliate's or employee's own accounts or for the account of
any other client, advisory or otherwise.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall also be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice or by the Board of Trustees of the Trust or by a vote of the
outstanding voting securities of the Portfolio, and will automatically terminate
in the event of its assignment by either party to this Agreement, as defined in
the ICA, or (provided Sub-Advisor has received prior written notice thereof)
upon termination of the Investment Manager's Management Agreement with the
Trust.
13. Notification. Sub-Advisor will notify the Investment Manager within a
reasonable time of any change in the personnel of the Sub-Advisor with
responsibility for making investment decisions in relation to the Portfolio or
who have been authorized to give instructions to a Custodian of the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different address for such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: John Birch
Senior Vice President & Chief Operating Officer
Sub-Advisor: A I M Capital Management, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Attention: [insert]
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities as portfolio manager of the Portfolio (1) to the
extent of and as a result of the willful misconduct, bad faith, or gross
negligence by Sub-Advisor, any of Sub-Advisor's employees or representatives or
any affiliate of or any person acting on behalf of Sub-Advisor, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
relating to the Sub-Advisor or the Sub-Advisor's activities in connection with
the investment program for the Portfolio contained in a prospectus or statement
of additional information covering the Portfolio or the Trust or any amendment
thereof or any supplement thereto or the omission or alleged omission to state
therein such a material fact required to be stated therein or necessary to make
the statement therein not misleading, if such a statement or omission was made
in reliance upon written information furnished to the Investment Manager, the
Trust or any affiliated person of the Investment Manager or the Trust by the
Sub-Advisor or upon verbal information confirmed by the Sub-Advisor in writing
or (3) to the extent of, and as a result of, the failure of the Sub-Advisor to
execute, or cause to be executed, Portfolio transactions according to the
standards and requirements of the ICA; provided, however, that in no case is
Sub-Advisor's indemnity in favor of Investment Manager or any affiliated person
or controlling person of Investment Manager deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misconduct, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement; and, provided further, that in the case of an
alleged untrue statement or omission of a material fact for which the
Sub-Advisor provides this indemnity, the Investment Manager shall reimburse the
Sub-Advisor for all amounts paid pursuant to this indemnity unless a court of
competent jurisdiction shall issue a final judgment finding that such an untrue
statement or omission of material fact did occur; and, provided further, that in
no event shall Sub-Advisor be required to indemnify the Investment Manager for
any consequential damages.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by Investment Manager, any of
Investment Manager's employees or representatives or any affiliate of or any
person acting on behalf of Investment Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or statement of additional information covering the Portfolio or the
Trust or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein such a material fact required to be stated
therein or necessary to make the statement therein not misleading, if such a
statement or omission was made by the Trust other than in reliance upon written
information furnished by Sub-Advisor, or any affiliated person of the
Sub-Advisor or other than upon verbal information confirmed by the Sub-Advisor
in writing; provided, however, that in no case is Investment Manager's indemnity
in favor of Sub-Advisor or any affiliated person or controlling person of
Sub-Advisor deemed to protect such person against any liability to which any
such person would otherwise be subject by reason of willful misconduct, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement; and,
provided further, that in no event shall Investment Manager be required to
indemnify the Sub-Advisor for any consequential damages.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the ICA or the Advisers Act shall be resolved by reference to such
term or provision of the ICA or the Advisers Act and to interpretations thereof,
if any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the Securities
and Exchange Commission issued pursuant to the ICA or the Advisers Act. In
addition, where the effect of a requirement of the ICA or the Advisers Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. To the extent
federal law does not apply, this Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
The effective date of this agreement is May 4, 1999.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
John Birch
Senior Vice President & Chief Operating Officer
Date: Date:
Attest: Attest:
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services, Incorporated
(the "Investment Manager") and A I M Capital Management, Inc. (the
"Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the AST AIM Balanced Portfolio (the
"Portfolio") under the terms of a management agreement, dated May 4, 1999, with
the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with applicable provisions of the Trust's Declaration of Trust and
By-laws provided to the Sub-Advisor from time to time by the Investment Manager.
Officers, directors, and employees of Sub-Advisor will be available to consult
with Investment Manager and the Trust, their officers, employees and Trustees
concerning the business of the Portfolio. Investment Manager will promptly
furnish Sub-Advisor with any amendments to any of the foregoing documents (the
"Documents"). Any amendments to the Documents will not be deemed effective with
respect to the Sub-Advisor until the Sub-Advisor's receipt thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal. The Sub-Advisor shall not be responsible for the provision of
administrative, bookkeeping or accounting services to the Trust. Any records
required to be maintained by the Sub-advisor shall be the property of the Trust
and surrendered to the Trust promptly upon request or upon termination of this
Agreement. The Sub-Advisor may retain copies of any records surrendered to the
Trust.
To the extent deemed necessary by the Sub-Advisor in connection with
the investment program for the Portfolio, the Sub-Advisor will obtain and
evaluate pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or the Portfolio, and concerning the individual
issuers whose securities are included in the Portfolio or the activities in
which they engage, or with respect to securities which the Sub-Advisor considers
desirable for inclusion in the Portfolio or such other information as the
Sub-Advisor deems relevant.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that with respect
to disclosure about the Sub-Advisor or information relating to the Sub-Advisor
or the Sub-Advisor's activities in connection with the investment program for
the Portfolio, such Registration Statement or Proxy Statement contains, as of
the date thereof, no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or necessary
to make the statements contained therein not misleading. The Sub-Advisor further
represents and warrants that it is an investment advisor registered under the
Advisers Act and under the laws of all jurisdictions in which the conduct of its
business hereunder requires such registration.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapters L and M (including,
respectively, Section 817(h) and Section 851(b)(1), (2), (3) and (4)) of the
Internal Revenue Code, applicable to the Portfolio, and the regulations
promulgated thereunder, to the extent such compliance is within the
Sub-Advisor's control. Sub-Advisor shall also comply with (i) other applicable
provisions of federal law; (ii) the provisions of the Declaration of Trust and
By-laws of the Trust communicated to the Sub-Advisor pursuant to paragraph 1 of
this Agreement; (iii) policies and determinations of the Trust and Investment
Manager communicated to the Sub-Advisor in writing; (iv) the fundamental
policies and investment restrictions of the Trust, as set out in the Trust's
registration statement under the ICA, or as amended by the Trust's shareholders,
and communicated to the Sub-Advisor; (v) the Prospectus and Statement of
Additional Information of the Trust as provided to the Sub-Advisor; and (vi)
investment guidelines or other instructions received in writing from Investment
Manager. Sub-Advisor shall supervise and monitor the activities of its
representatives, personnel and agents in connection with the investment program
of the Portfolio.
Unless the Investment Manager gives the Sub-Advisor written
instructions to the contrary, the Sub-Advisor shall use its good faith judgment
in a manner that it reasonably believes best serves the interests of the
Portfolio's shareholders to vote or abstain from voting all proxies solicited by
or with respect to the issuers of securities in which assets of the Portfolio
may be invested.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has furnished
the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the date
hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Sub-Advisor as Sub-Advisor to the Investment Manager and
approving the form of this agreement;
(d) A certificate of the inspector of election from the meeting of
shareholders of the Portfolio at which this Agreement was
approved, which certificate indicates that such shareholders have
approved this Agreement;
(e) The resolutions of the Trustees selecting the Investment Manager
as investment manager to the Trust and approving the form of the
Investment Manager's Management Agreement with the Trust;
(f) The Investment Manager's Management Agreement with the Trust;
(g) The Code of Ethics of the Trust and of the Investment Manager as
currently in effect; and
(h) A list of companies the securities of which are not to be bought
or sold for the Portfolio because of non-public information
regarding such companies that is available to Investment Manager
or the Trust, or which, in the sole opinion of the Investment
Manager, it believes such non-public information would be deemed
to be available to Investment Manager and/or the Trust.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (g) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (h) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor has
furnished the Investment Manager with copies of each of the following documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and
Exchange Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to have
authorized to give written and/or oral instructions to Custodians
of Trust assets for the Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will thereafter furnish the Investment Manager with
copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to items (a), (c) and (d) above within 30 days of
the time such materials become available to the Sub-Advisor. With respect to
item (b) above, the Sub-Advisor will thereafter furnish the Investment Manager,
within 30 days of the time such materials become available to the Sub-Advisor,
with a copy of the Sub-Advisor's audited balance sheet as at the end of each
fiscal year of the Sub-Advisor.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense, will furnish
all necessary investment facilities, including salaries of personnel required
for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for decisions
to buy and sell securities for the Portfolio, broker-dealer selection, and
negotiation of its brokerage commission rates. Sub-Advisor shall determine the
securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time. Generally, Sub-Advisor's primary consideration in
placing Portfolio securities transactions with broker-dealers for execution is
to obtain and maintain the availability of best execution at the best net price
and in the most effective manner possible. The Sub-Advisor may consider sale of
the shares of the Portfolio, as well as recommendations of the Investment
Manager, subject to the requirements of best net price and most favorable
execution and, if applicable, legal requirements relating to the use of
broker-dealers affiliated with the Trust.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction, if the Sub-Advisor determines in
good faith that such amount of commission was reasonable in relation to the
value of the research services provided by such broker, viewed in terms of
either that particular transaction or the Sub-Advisor's overall responsibilities
with respect to the Portfolio and to other clients of the Sub-Advisor as to
which the Sub-Advisor exercises investment discretion. The Sub-Advisor is
further authorized to allocate the orders placed by it on behalf of the
Portfolio to such broker-dealers who also provide research or statistical
material, or other services to the Portfolio or the Sub-Advisor. Such allocation
shall be in such amounts and proportions as the Sub-Advisor shall determine in
good faith in conformity with its responsibilities under applicable laws, rules
and regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager and, in any
event, at least once each calendar year if no specific request is made,
indicating the brokers to whom such allocations have been made and the basis
therefor.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information requested for inclusion in the Trust's
Registration Statement, in such form as may be mutually agreed, to review the
Portfolio and discuss the management of it. The Sub-Advisor shall supply the
Investment Manager and the Trust with such information as may be necessary to
respond to a specific request of the Trust's Board of Trustees or its agents.
The Sub-Advisor shall permit the financial statements, books and records with
respect to the Portfolio to be inspected and audited by the Trust, the
Investment Manager or their agents at all reasonable times during normal
business hours. The Sub-Advisor shall immediately notify and forward to the
Investment Manager and the Trust any legal process served upon it on behalf of
the Investment Manager or the Trust. The Investment Manager and the Trust shall
immediately notify and forward to the Sub-Advisor any legal process served upon
them on behalf of the Sub-Advisor. The Sub-Advisor shall promptly notify the
Investment Manager of any changes in any information concerning the Sub-Advisor
or the Sub-Advisors activities in connection with the investment program for the
Portfolio required to be disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor is computed at an annual rate. The fee is payable monthly in
arrears, based on the average daily net assets of the Portfolio for each month,
at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .45 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $150 million; plus
.40 of 1% of the portion of the average daily net assets of the Portfolio over
$150 million but not in excess of $300 million; plus .35 of 1% of the portion of
the average daily net assets of the Portfolio in excess of $300 million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this Agreement is terminated, the payment shall be
prorated to the date of termination. The fee for the period from the effective
date of the Agreement to the end of the month during which the effective date
occurs shall be prorated according to the proportion that such period bears to
the full monthly period.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust, including without
limitation brokerage expenses and custodian fees. Except as otherwise provided
herein, Investment Manager and the Trust will not be obligated to pay any
expenses of Sub-Advisor.
Unless otherwise agreed in writing by the Investment Manager and
Sub-Advisor, the waiver by the Investment Manager of any fees it is entitled to
receive under the Management Agreement shall not offset the obligation of the
Investment Manager to compensate the Sub-Advisor pursuant to this paragraph 7.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Advisers
Act, that it will use its reasonable best efforts to maintain such registration,
and that it will promptly notify the other if it ceases to be so registered, if
its registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it should show
cause why its registration should not be suspended or terminated.
10. Liability. The Sub-Advisor shall use its best efforts and judgment and shall
act in good faith in rendering services hereunder. However, so long as the
Sub-Advisor has acted in good faith and has used its best efforts and judgment,
the Sub-Advisor, its officers, directors and employees shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Portfolio, any shareholder of the Portfolio or the Investment Manager in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Sub-Advisor against any liability to the Investment Manager, the Trust or to the
shareholders of the Portfolio to which the Sub-Advisor would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or by reason of the Sub-Advisor's reckless
disregard of its obligations and duties under this Agreement.
The Investment Manager agrees that the Sub-Advisor shall not be liable
for any failure to recommend the purchase or sale of any security on behalf of
the Portfolio on the basis of any information which might, in Sub-Advisor's
opinion, constitute a violation of any federal or state laws, rules or
regulations.
11. Other Activities of Sub-Advisor. Investment Manager agrees that the
Sub-Advisor and any of its officers or employees, and persons affiliated with it
or with any such officer or employee may render investment management or
advisory services to other investors and institutions, and such investors and
institutions may own, purchase or sell, securities or other interests in
property the same as or similar to those which are selected for purchase,
holding or sale for the Portfolio, and the Sub-Advisor shall be in all respects
free to take action with respect to investments in securities or other interests
in property the same as or similar to those selected for purchase, holding or
sale for the Portfolio. Purchases and sales of individual securities on behalf
of the Portfolio and other portfolios of the Trust or accounts for other
investors or institutions will be made on a basis that the Sub-Advisor believes
is equitable to all accounts. The Investment Manager and the Trust recognize
that in some cases this procedure may adversely affect the size of the position
obtainable for the Portfolio. In addition, the Investment Manager and the Trust
understand (i) that the persons employed by the Sub-Advisor to assist in the
performance of the Sub-Advisor's duties under this Agreement generally will not
devote their full time to such service, and (ii) the Sub-Advisor and any
affiliate of the Sub-Advisor may engage in and devote time and attention to
other businesses or to rendering services of whatever kind or nature. Nothing in
this Agreement shall impose upon the Sub-Advisor any obligation to purchase or
sell or recommend for purchase or sale, for the Portfolio any security which it,
its officers, affiliates or employees may purchase or sell for the Sub-Advisor
or such officer's, affiliate's or employee's own accounts or for the account of
any other client, advisory or otherwise.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall also be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice or by the Board of Trustees of the Trust or by a vote of the
outstanding voting securities of the Portfolio, and will automatically terminate
in the event of its assignment by either party to this Agreement, as defined in
the ICA, or (provided Sub-Advisor has received prior written notice thereof)
upon termination of the Investment Manager's Management Agreement with the
Trust.
13. Notification. Sub-Advisor will notify the Investment Manager within a
reasonable time of any change in the personnel of the Sub-Advisor with
responsibility for making investment decisions in relation to the Portfolio or
who have been authorized to give instructions to a Custodian of the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different address for such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: John Birch
Senior Vice President & Chief Operating Officer
Sub-Advisor: A I M Capital Management, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Attention: [insert]
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities as portfolio manager of the Portfolio (1) to the
extent of and as a result of the willful misconduct, bad faith, or gross
negligence by Sub-Advisor, any of Sub-Advisor's employees or representatives or
any affiliate of or any person acting on behalf of Sub-Advisor, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
relating to the Sub-Advisor or the Sub-Advisor's activities in connection with
the investment program for the Portfolio contained in a prospectus or statement
of additional information covering the Portfolio or the Trust or any amendment
thereof or any supplement thereto or the omission or alleged omission to state
therein such a material fact required to be stated therein or necessary to make
the statement therein not misleading, if such a statement or omission was made
in reliance upon written information furnished to the Investment Manager, the
Trust or any affiliated person of the Investment Manager or the Trust by the
Sub-Advisor or upon verbal information confirmed by the Sub-Advisor in writing
or (3) to the extent of, and as a result of, the failure of the Sub-Advisor to
execute, or cause to be executed, Portfolio transactions according to the
standards and requirements of the ICA; provided, however, that in no case is
Sub-Advisor's indemnity in favor of Investment Manager or any affiliated person
or controlling person of Investment Manager deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misconduct, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement; and, provided further, that in the case of an
alleged untrue statement or omission of a material fact for which the
Sub-Advisor provides this indemnity, the Investment Manager shall reimburse the
Sub-Advisor for all amounts paid pursuant to this indemnity unless a court of
competent jurisdiction shall issue a final judgment finding that such an untrue
statement or omission of material fact did occur; and, provided further, that in
no event shall Sub-Advisor be required to indemnify the Investment Manager for
any consequential damages.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by Investment Manager, any of
Investment Manager's employees or representatives or any affiliate of or any
person acting on behalf of Investment Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or statement of additional information covering the Portfolio or the
Trust or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein such a material fact required to be stated
therein or necessary to make the statement therein not misleading, if such a
statement or omission was made by the Trust other than in reliance upon written
information furnished by Sub-Advisor, or any affiliated person of the
Sub-Advisor or other than upon verbal information confirmed by the Sub-Advisor
in writing; provided, however, that in no case is Investment Manager's indemnity
in favor of Sub-Advisor or any affiliated person or controlling person of
Sub-Advisor deemed to protect such person against any liability to which any
such person would otherwise be subject by reason of willful misconduct, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement; and,
provided further, that in no event shall Investment Manager be required to
indemnify the Sub-Advisor for any consequential damages.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the ICA or the Advisers Act shall be resolved by reference to such
term or provision of the ICA or the Advisers Act and to interpretations thereof,
if any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the Securities
and Exchange Commission issued pursuant to the ICA or the Advisers Act. In
addition, where the effect of a requirement of the ICA or the Advisers Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. To the extent
federal law does not apply, this Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
The effective date of this agreement is May 4, 1999.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
John Birch
Senior Vice President & Chief Operating Officer
Date: Date:
Attest: Attest:
AMERICAN SKANDIA TRUST
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services, Incorporated
(the "Investment Manager") and Marsico Capital Management, LLC (the
"Sub-Adviser").
W I T N E S S E T H
WHEREAS, American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares and is registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "ICA"); and
WHEREAS, the Investment Manager and the Sub-Adviser each is an investment
adviser registered under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"); and
WHEREAS, the Board of Trustees of the Trust (the "Trustees") have engaged the
Investment Manager to act as investment manager for the Marsico Capital Growth
Portfolio (the "Portfolio"), one series of the Trust, under the terms of a
management agreement, dated December 22, 1997, with the Trust (the "Management
Agreement"); and
WHEREAS, the Investment Manager, acting pursuant to the Management Agreement,
wishes to engage the Sub-Adviser, and the Trustees have approved the engagement
of the Sub-Adviser, to provide investment advice and other investment services
set forth below.
NOW, THEREFORE, the Investment Manager and the Sub-Adviser agree as follows:
1. Investment Services. The Sub-Adviser will formulate and implement a
continuous investment program for the Portfolio conforming to the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust as in effect
from time to time (together, the "Registration Statement"), the Agreement and
Declaration of Trust and By-laws of the Trust, and any investment guidelines or
other instructions received by the Sub-Adviser in writing from the Investment
Manager from time to time. Any amendments to the foregoing documents will not be
deemed effective with respect to the Sub-Adviser until the Sub-Adviser's receipt
thereof. The appropriate officers and employees of the Sub-Adviser will be
available to consult with the Investment Manager, the Trust and Trustees at
reasonable times and upon reasonable notice concerning the business of the
Trust, including valuations of securities which are not registered for public
sale, not traded on any securities market or otherwise may be deemed illiquid
for purposes of the ICA; provided it is understood that the Sub-Adviser is not
responsible for daily pricing of the Portfolio's assets.
Subject to the supervision and control of the Investment Manager, which
in turn is subject to the supervision and control of the Trustees, the
Sub-Adviser in its discretion will determine which issuers and securities will
be purchased, held, sold or exchanged by the Portfolio or otherwise represented
in the Portfolio's investment portfolio from time to time and, subject to the
provisions of paragraph 3 of this Agreement, will place orders with and give
instructions to brokers, dealers and others for all such transactions and cause
such transactions to be executed. Custody of the Portfolio will be maintained by
a custodian bank (the "Custodian") and the Investment Manager will authorize the
Custodian to honor orders and instructions by employees of the Sub-Adviser
designated by the Sub-Adviser to settle transactions in respect of the
Portfolio. No assets may be withdrawn from the Portfolio other than for
settlement of transactions on behalf of the Portfolio except upon the written
authorization of appropriate officers of the Trust who shall have been certified
as such by proper authorities of the Trust prior to the withdrawal.
The Sub-Adviser will not be responsible for the provision of
administrative, bookkeeping or accounting services to the Portfolio except as
specifically provided herein, as required by the ICA or the Advisers Act or as
may be necessary for the Sub-Adviser to supply to the Investment Manager, the
Portfolio or the Portfolio's shareholders the information required to be
provided by the Sub-Adviser hereunder. Any records maintained hereunder shall be
the property of the Portfolio and surrendered promptly upon request.
In furnishing the services under this Agreement, the Sub-Adviser will
comply with and use its best efforts to enable the Portfolio to conform to the
requirements of: (i) the ICA and the regulations promulgated thereunder; (ii)
Subchapters L and M (including, respectively, Section 817(h) and Sections
851(b)(1), (2) and (3)) of the Internal Revenue Code and the regulations
promulgated thereunder; (iii) other applicable provisions of state or federal
law; (iv) the Agreement and Declaration of Trust and By-laws of the Trust; (v)
policies and determinations of the Trust and the Investment Manager provided to
the Sub-Adviser in writing; (vi) the fundamental and non-fundamental investment
policies and restrictions applicable to the Portfolio, as set out in the
Registration Statement in effect, or as such investment policies and
restrictions from time to time may be amended by the Portfolio's shareholders or
the Trustees and communicated to the Sub-Adviser in writing; (vii) the
Registration Statement; and (viii) investment guidelines or other instructions
received in writing from the Investment Manager. Notwithstanding the foregoing,
the Sub-Adviser shall have no responsibility to monitor compliance with
limitations or restrictions for which information from the Investment Manager or
its authorized agents is required to enable the Sub-Adviser to monitor
compliance with such limitations or restrictions unless such information is
provided to the Sub-adviser in writing. The Sub-Adviser shall supervise and
monitor the activities of its representatives, personnel and agents in
connection with the investment program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisers to provide investment advice and other
services to the Portfolio or to series or portfolios of the Trust for which the
Sub-Adviser does not provide such services, or to prevent the Investment Manager
from providing such services itself in relation to the Portfolio or such other
series or portfolios.
The Sub-Adviser shall be responsible for the preparation and filing of
Schedule 13-G and Form 13-F reflecting the Portfolio's securities holdings. The
Sub-Adviser shall not be responsible for the preparation or filing of any other
reports required of the Portfolio by any governmental or regulatory agency,
except as expressly agreed to in writing.
2. Investment Advisory Facilities. The Sub-Adviser, at its expense, will furnish
all necessary investment facilities, including salaries of personnel, required
for it to execute its duties hereunder.
3. Execution of Portfolio Transactions. In connection with the investment and
reinvestment of the assets of the Portfolio, the Sub-Adviser is responsible for
the selection of broker-dealers to execute purchase and sale transactions for
the Portfolio in conformity with the policy regarding brokerage as set forth in
the Registration Statement, or as the Trustees may determine from time to time,
as well as the negotiation of brokerage commission rates with such executing
broker-dealers. Generally, the Sub-Adviser's primary consideration in placing
Portfolio investment transactions with broker-dealers for execution will be to
obtain, and maintain the availability of, best execution at the best available
price.
Consistent with this policy, the Sub-Adviser, in selecting
broker-dealers and negotiating brokerage commission rates, will take all
relevant factors into consideration, including, but not limited to: the best
price available; the reliability, integrity and financial condition of the
broker-dealer; the size of and difficulty in executing the order; and the value
of the expected contribution of the broker-dealer to the investment performance
of the Portfolio on a continuing basis. Subject to such policies and procedures
as the Trustees may determine, the Sub-Adviser shall have discretion to effect
investment transactions for the Portfolio through broker-dealers (including, to
the extent permissible under applicable law, broker-dealers affiliated with the
Sub-Adviser) qualified to obtain best execution of such transactions who provide
brokerage and/or research services, as such services are defined in section
28(e) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
to cause the Portfolio to pay any such broker-dealers an amount of commission
for effecting a portfolio investment transaction in excess of the amount of
commission another broker-dealer would have charged for effecting that
transaction, if the Sub-Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage or research
services provided by such broker-dealer, viewed in terms of either that
particular investment transaction or the Sub-Adviser's overall responsibilities
with respect to the Portfolio and other accounts as to which the Sub-Adviser
exercises investment discretion (as such term is defined in section 3(a)(35) of
the 1934 Act). Allocation of orders placed by the Sub-Adviser on behalf of the
Portfolio to such broker-dealers shall be in such amounts and proportions as the
Sub-Adviser shall determine in good faith in conformity with its
responsibilities under applicable laws, rules and regulations. The Sub-Adviser
will submit reports on such allocations to the Investment Manager regularly as
requested by the Investment Manager, in such form as may be mutually agreed to
by the parties hereto, indicating the broker-dealers to whom such allocations
have been made and the basis therefor.
Subject to the foregoing provisions of this paragraph 3, the
Sub-Adviser may also consider sales of shares of the Portfolio, or may consider
or follow recommendations of the Investment Manager that take such sales into
account, as factors in the selection of broker-dealers to effect the Portfolio's
investment transactions. Notwithstanding the above, nothing shall require the
Sub-Adviser to use a broker-dealer which provides research services or to use a
particular broker-dealer which the Investment Manager has recommended.
4. Reports by the Sub-Adviser. The Sub-Adviser shall furnish the Investment
Manager monthly, quarterly and annual reports, in such form as may be mutually
agreed to by the parties hereto, concerning transactions and performance of the
Portfolio, including information required in the Registration Statement or
information necessary for the Investment Manager to review the Portfolio or
discuss the management of it. The Sub-Adviser shall permit the books and records
maintained with respect to the Portfolio to be inspected and audited by the
Trust, the Investment Manager or their respective agents at all reasonable times
during normal business hours upon reasonable notice. The Sub-Adviser shall
immediately notify both the Investment Manager and the Trust of any legal
process served upon it in connection with its activities hereunder, including
any legal process served upon it on behalf of the Investment Manager, the
Portfolio or the Trust. The Sub-Adviser shall promptly notify the Investment
Manager of any changes in any information regarding the Sub-Adviser or the
investment program for the Portfolio as described in the Registration Statement.
5. Compensation of the Sub-Adviser. The amount of the compensation to the
Sub-Adviser is computed at an annual rate. The fee shall be payable monthly in
arrears, based on the average daily net assets of the Portfolio for each month,
at the annual rate set forth in Exhibit A to this Agreement.
In computing the fee to be paid to the Sub-Adviser, the net asset value
of the Portfolio shall be valued as set forth in the Registration Statement. If
this Agreement is terminated, the payment described herein shall be prorated to
the date of termination.
The Investment Manager and the Sub-Adviser shall not be considered as
partners or participants in a joint venture. The Sub-Adviser will pay its own
expenses for the services to be provided pursuant to this Agreement and will not
be obligated to pay any expenses of the Investment Manager, the Portfolio or the
Trust. Except as otherwise specifically provided herein, the Investment Manager,
the Portfolio and the Trust will not be obligated to pay any expenses of the
Sub-Adviser.
6. Delivery of Documents to the Sub-Adviser. The Investment Manager has
furnished the Sub-Adviser with true, correct and complete copies of each of the
following documents:
(a) The Agreement and Declaration of Trust of the Trust, as in effect
on the date hereof;
(b) The By-laws of the Trust, as in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Sub-Adviser as portfolio manager of the Portfolio and approving
the form of this Agreement;
(d) The resolutions of the Trustees selecting the Investment Manager
as investment manager to the Portfolio and approving the form of
the Management Agreement;
(e) The Management Agreement;
(f) The Code of Ethics of the Trust and of the Investment Manager, as
in effect on the date hereof;
(g) The Trust's most recent Registration Statement;
(h) The Investment Manager's Form ADV as filed with the Securities
and Exchange Commission as of the date hereof; and
(i) A list of companies the securities of which are not to be bought
or sold for the Portfolio.
The Investment Manager will furnish the Sub-Adviser from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (h) above will be provided within 30 days of the time such
materials become available to the Investment Manager. Such amendments or
supplements as to item (i) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager. Any amendments or supplements to the foregoing will
not be deemed effective with respect to the Sub-Adviser until the Sub-Adviser's
receipt thereof. The Investment Manager will provide such additional information
as the Sub-Adviser may reasonably request in connection with the performance of
its duties hereunder.
7. Delivery of Documents to the Investment Manager. The Sub-Adviser has
furnished the Investment Manager with true, correct and complete copies of each
of the following documents:
(a) The Sub-Adviser's Form ADV as filed with the Securities and
Exchange Commission as of the date hereof;
(b) The Sub-Adviser's most recent balance sheet;
(c) Separate lists of persons who the Sub-Adviser wishes to have
authorized to give written and/or oral instructions to Custodians
of Trust assets for the Portfolio; and
(d) The Code of Ethics of the Sub-Adviser, as in effect on the date
hereof.
The Sub-Adviser will furnish the Investment Manager from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements will be
provided within 30 days of the time such materials become available to the
Sub-Adviser. Any amendments or supplements to the foregoing will not be deemed
effective with respect to the Investment Manager until the Investment Manager's
receipt thereof. The Sub-Adviser will provide additional information as the
Investment Manager may reasonably request in connection with the Sub-Adviser's
performance of its duties under this Agreement.
8. Confidential Treatment. The parties hereto understand that any information or
recommendation supplied by the Sub-Adviser in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. The parties also understand that any
information supplied to the Sub-Adviser in connection with the performance of
its obligations hereunder, particularly, but not limited to, any list of
securities which may not be bought or sold for the Portfolio, is to be regarded
as confidential and for use only by the Sub-Adviser in connection with its
obligation to provide investment advice and other services to the Portfolio.
9. Representations of the Parties. Each party hereto hereby further represents
and warrants to the other that: (i) it is registered as an investment adviser
under the Advisers Act and is registered or licensed as an investment adviser
under the laws of all jurisdictions in which its activities require it to be so
registered or licensed; and (ii) it will use its reasonable best efforts to
maintain each such registration or license in effect at all times during the
term of this Agreement; and (iii) it will promptly notify the other if it ceases
to be so registered, if its registration is suspended for any reason, or if it
is notified by any regulatory organization or court of competent jurisdiction
that it should show cause why its registration should not be suspended or
terminated; and (iv) it is duly authorized to enter into this Agreement and to
perform its obligations hereunder.
The Sub-Adviser further represents that it has adopted a written Code
of Ethics in compliance with Rule 17j-1(b) of the ICA. The Sub-Adviser shall be
subject to such Code of Ethics and shall not be subject to any other Code of
Ethics, including the Investment Manager's Code of Ethics, unless specifically
adopted by the Sub-Adviser. The Investment Manager further represents and
warrants to the Sub-Adviser that (i) the appointment of the Sub-Adviser by the
Investment Manager has been duly authorized and (ii) it has acted and will
continue to act in connection with the transactions contemplated hereby, and the
transactions contemplated hereby are, in conformity with the ICA, the Trust's
governing documents and other applicable law.
10. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard for its obligations hereunder, the Sub-Adviser
shall not be liable to the Trust, the Portfolio, the Portfolio's shareholders or
the Investment Manager for any act or omission resulting in any loss suffered by
the Trust, the Portfolio, the Portfolio's shareholders or the Investment Manager
in connection with any service to be provided herein. The Federal laws impose
responsibilities under certain circumstances on persons who act in good faith,
and therefore, nothing herein shall in any way constitute a waiver or limitation
of any rights which the Trust, the Portfolio or the Investment Manager may have
under applicable law.
11. Other Activities of the Sub-Adviser. The Investment Manager agrees that the
Sub-Adviser and any of its partners or employees, and persons affiliated with
the Sub-Adviser or with any such partner or employee, may render investment
management or advisory services to other investors and institutions, and that
such investors and institutions may own, purchase or sell, securities or other
interests in property that are the same as, similar to, or different from those
which are selected for purchase, holding or sale for the Portfolio. The
Investment Manager further acknowledges that the Sub-Adviser shall be in all
respects free to take action with respect to investments in securities or other
interests in property that are the same as, similar to, or different from those
selected for purchase, holding or sale for the Portfolio. The Investment Manager
understands that the Sub-Adviser shall not favor or disfavor any of the
Sub-Adviser's clients or class of clients in the allocation of investment
opportunities, so that to the extent practical, such opportunities will be
allocated among the Sub-Adviser's clients over a period of time on a fair and
equitable basis. Nothing in this Agreement shall impose upon the Sub-Adviser any
obligation (i) to purchase or sell, or recommend for purchase or sale, for the
Portfolio any security which the Sub-Adviser, its partners, affiliates or
employees may purchase or sell for the Sub-Adviser or such partner's,
affiliate's or employee's own accounts or for the account of any other client of
the Sub-Adviser, advisory or otherwise, or (ii) to abstain from the purchase or
sale of any security for the Sub-Adviser's other clients, advisory or otherwise,
which the Investment Manager has placed on the list provided pursuant to
paragraph 6(g) of this Agreement.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Trustees or by vote of a majority of the outstanding
voting securities of the Portfolio. Any such renewal shall be approved by the
vote of a majority of the Trustees who are not interested persons under the ICA,
cast in person at a meeting called for the purpose of voting on such renewal.
This Agreement may be terminated without penalty at any time by the Investment
Manager or the Sub-Adviser upon 60 days written notice, and will automatically
terminate in the event of (i) its "assignment" by either party to this
Agreement, as such term is defined in the ICA, subject to such exemptions as may
be granted by the Securities and Exchange Commission by rule, regulation or
order, or (ii) upon termination of the Management Agreement, provided the
Sub-Adviser has received prior written notice thereof.
13. Notification. The Sub-Adviser will notify the Investment Manager within a
reasonable time of any change in the personnel of the Sub-Adviser with
responsibility for making investment decisions in relation to the Portfolio (the
"Portfolio Manager(s)") or who have been authorized to give instructions to the
Custodian. The Sub-Adviser shall be responsible for reasonable out-of-pocket
costs and expenses incurred by the Investment Manager, the Portfolio or the
Trust to amend or supplement the Trust's Prospectus to reflect a change in
Portfolio Manager(s) or otherwise to comply with the ICA, the Securities Act of
1933, as amended (the "1933 Act") or any other applicable statute, law, rule or
regulation, as a result of such change; provided, however, that the Sub-Adviser
shall not be responsible for such costs and expenses where the change in
Portfolio Manager(s) reflects the termination of employment of the Portfolio
Manager(s) with the Sub-Adviser and its affiliates or is the result of a request
by the Investment Manager or is due to other circumstances beyond the
Sub-Adviser's control.
Any notice, instruction or other communication required or contemplated
by this Agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different recipient and/or address for such
party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: Thomas M. Mazzaferro
President & Chief Operating Officer
Sub-Adviser: Marsico Capital Management, LLC
1200 17th Street
Suite 1300
Denver, Colorado 80202
Attention: Barbara Japha, Esq.
Trust: American Skandia Trust
One Corporate Drive
Shelton, Connecticut 06484
Attention: Eric C. Freed, Esq.
14. Indemnification. The Sub-Adviser agrees to indemnify and hold harmless the
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of the Investment Manager and each person, if
any who, within the meaning of Section 15 of the 1933 Act, controls
("controlling person") the Investment Manager, against any and all losses,
claims, damages, liabilities or litigation (including reasonable legal and other
expenses), to which the Investment Manager or such affiliated person or
controlling person of the Investment Manager may become subject under the 1933
Act, the ICA, the Advisers Act, under any other statute, law, rule or
regulation, at common law or otherwise, arising out of the Sub-Adviser's
responsibilities hereunder (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by the Sub-Adviser, any of the
Sub-Adviser's employees or representatives or any affiliate of or any person
acting on behalf of the Sub-Adviser, or (2) as a result of any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, including any amendment thereof or any supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, if
such a statement or omission was made in reliance upon and in conformity with
written information furnished by the Sub-Adviser to the Investment Manager, the
Portfolio, the Trust or any affiliated person of the Investment Manager, the
Portfolio or the Trust or upon verbal information confirmed by the Sub-Adviser
in writing, or (3) to the extent of, and as a result of, the failure of the
Sub-Adviser to execute, or cause to be executed, portfolio investment
transactions according to the requirements of the ICA; provided, however, that
in no case is the Sub-Adviser's indemnity in favor of the Investment Manager or
any affiliated person or controlling person of the Investment Manager deemed to
protect such person against any liability to which any such person would
otherwise be subject by reason of willful misconduct, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
The Investment Manager agrees to indemnify and hold harmless the
Sub-Adviser, any affiliated person of the Sub-Adviser and each controlling
person of the Sub-Adviser, if any, against any and all losses, claims, damages,
liabilities or litigation (including reasonable legal and other expenses), to
which the Sub-Adviser or such affiliated person or controlling person of the
Sub-Adviser may become subject under the 1933 Act, the ICA, the Advisers Act,
under any other statute, law, rule or regulation, at common law or otherwise,
arising out of the Investment Manager's responsibilities as investment manager
of the Portfolio (1) to the extent of and as a result of the willful misconduct,
bad faith, or gross negligence by the Investment Manager, any of the Investment
Manager's employees or representatives or any affiliate of or any person acting
on behalf of the Investment Manager, or (2) as a result of any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, including any amendment thereof or any supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, if
such a statement or omission was made other than in reliance upon and in
conformity with written information furnished by the Sub-Adviser, or any
affiliated person of the Sub-Adviser or other than upon verbal information
confirmed by the Sub-Adviser in writing; provided, however, that in no case is
the Investment Manager's indemnity in favor of the Sub-Adviser or any affiliated
person or controlling person of the Sub-Adviser deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misconduct, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement. It is agreed that the Investment Manager's
indemnification obligations under this Section 14 will extend to expenses and
costs (including reasonable attorneys fees) incurred by the Sub-Adviser as a
result of any litigation brought by the Investment Manager alleging the
Sub-Adviser's failure to perform its obligations and duties in the manner
required under this Agreement unless judgment is rendered for the Investment
Manager.
15. Conflict of Laws. The provisions of this Agreement shall be subject to all
applicable statutes, laws, rules and regulations, including, without limitation,
the applicable provisions of the ICA and rules and regulations promulgated
thereunder. To the extent that any provision contained herein conflicts with any
such applicable provision of law or regulation, the latter shall control. The
terms and provisions of this Agreement shall be interpreted and defined in a
manner consistent with the provisions and definitions of the ICA. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall continue in
full force and effect and shall not be affected by such invalidity.
16. Amendments, Waivers, etc. Provisions of this Agreement may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or termination
is sought. This Agreement (including Exhibit A hereto) may be amended at any
time by written mutual consent of the parties, subject to the requirements of
the ICA and rules and regulations promulgated and orders granted thereunder.
17. Governing State Law. This Agreement is made under, and shall be governed by
and construed in accordance with, the laws of the State of Connecticut.
18. Severability. Each provision of this Agreement is intended to be severable.
If any provision of this Agreement is held to be illegal or made invalid by
court decision, statute, rule or otherwise, such illegality or invalidity will
not affect the validity or enforceability of the remainder of this Agreement.
The effective date of this agreement is February 8, 1999.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISER:
Thomas M. Mazzaferro
President & Chief Financial Officer
Date: Date:
Attest: Attest:
<PAGE>
American Skandia Trust
Marsico Capital Growth Portfolio
Sub-Advisory Agreement
EXHIBIT A
An annual rate of .45% of the average daily net assets of the
Portfolio.
WERNER & KENNEDY
1633 Broadway
New York, NY 10019
---------
EMAIL: [email protected]
TELEPHONE (212) 408-6900
FACSIMILE (212) 408-6950
WRITER'S DIRECT DIAL NUMBER
(212) 408-6920
April 26, 1999
American Skandia Trust
One Corporate Drive
Shelton, Connecticut 06484
Re: American Skandia Trust Form N-1A
Post-Effective Amendment No. 30 to the Registration Statement
under the Securities Act of 1933
Amendment No. 32 to the Registration Statement under
the Investment Company Act of 1940
Securities Act Registration No.: 33-24962
Investment Company Act No.: 811-5186
CIK #814679
Dear Mesdames and Messrs.:
You have requested us, as counsel to American Skandia Trust (the
"Company"), to furnish you with this opinion in connection with the
above-referenced registration statement (the "Registration Statement") filed by
the Company under the Securities Act of 1933, as amended (the "1933 Act"), and
the Investment Company Act of 1940, as amended (the "1940 Act").
We have made such examination of the statutes, authorities, and records
of the Company and other documents as in our judgment are necessary to form a
basis for opinions hereinafter expressed. In our examination, we have assumed
the genuineness of all signatures on, and authenticity of, and the conformity to
original documents of all copies submitted to us. As to various questions of
fact material to our opinion, we have relied upon statements and certificates of
officers and representatives of the Company and others.
Based upon the foregoing, we are of the opinion that the Company is a
Massachusetts business trust organized with one or more series of shares and is
registered as an open-end management investment company under the 1940 Act, and
that the shares, when issued and sold in accordance with the laws of applicable
jurisdictions, and with the terms of the Prospectus and Statement of Additional
Information included as part of the Registration Statement, will be valid,
legally issued, fully paid, and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement on Form N-1A under the 1933 Act and the 1940 Act, and to
the reference to our name under the heading "Legal Counsel and Independent
Accountants" included in the Registration Statement.
Very truly yours,
Werner & Kennedy
By: /s/Robert K. Fulton
Robert K. Fulton
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
American Skandia Trust:
We consent to the use in Post-Effective Amendment No. 30 to Registration
Statement No. 33-24962 of the American Skandia Trust of our report dated
February 11, 1999, appearing in the Statement of Additional Information which is
a part of such Registration, and to the reference to us under the caption
"Financial Highlights" appearing in the Prospectus, which also is a part of such
Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Princeton, New Jersey
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 01
<NAME> AST PUTNAM INTERNATIONAL EQUITY PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 417636
<INVESTMENTS-AT-VALUE> 497797
<RECEIVABLES> 4113
<ASSETS-OTHER> 2567
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 504477
<PAYABLE-FOR-SECURITIES> 2217
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4799
<TOTAL-LIABILITIES> 7016
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 380390
<SHARES-COMMON-STOCK> 21939
<SHARES-COMMON-PRIOR> 19365
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5753)
<ACCUMULATED-NET-GAINS> 46128
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 76696
<NET-ASSETS> 497461
<DIVIDEND-INCOME> 7839
<INTEREST-INCOME> 755
<OTHER-INCOME> 0
<EXPENSES-NET> (5321)
<NET-INVESTMENT-INCOME> 3273
<REALIZED-GAINS-CURRENT> 35882
<APPREC-INCREASE-CURRENT> 42465
<NET-CHANGE-FROM-OPS> 81620
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13084)
<DISTRIBUTIONS-OF-GAINS> (38174)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8691
<NUMBER-OF-SHARES-REDEEMED> (8600)
<SHARES-REINVESTED> 2483
<NET-CHANGE-IN-ASSETS> 85191
<ACCUMULATED-NII-PRIOR> 4058
<ACCUMULATED-GAINS-PRIOR> 48420
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4131
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5321
<AVERAGE-NET-ASSETS> 472739
<PER-SHARE-NAV-BEGIN> 21.29
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 3.81
<PER-SHARE-DIVIDEND> (.67)
<PER-SHARE-DISTRIBUTIONS> (1.96)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.67
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> `AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 02
<NAME> AST LORD ABBETT GROWTH AND INCOME PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 975339
<INVESTMENTS-AT-VALUE> 1175017
<RECEIVABLES> 9230
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1184257
<PAYABLE-FOR-SECURITIES> 1701
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 647
<TOTAL-LIABILITIES> 2348
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 904502
<SHARES-COMMON-STOCK> 54517
<SHARES-COMMON-PRIOR> 45650
<ACCUMULATED-NII-CURRENT> 13889
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 63840
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 199678
<NET-ASSETS> 1181909
<DIVIDEND-INCOME> 21690
<INTEREST-INCOME> 1798
<OTHER-INCOME> 0
<EXPENSES-NET> (9599)
<NET-INVESTMENT-INCOME> 13889
<REALIZED-GAINS-CURRENT> 64048
<APPREC-INCREASE-CURRENT> 47175
<NET-CHANGE-FROM-OPS> 125112
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11541)
<DISTRIBUTIONS-OF-GAINS> (50708)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13210
<NUMBER-OF-SHARES-REDEEMED> (7400)
<SHARES-REINVESTED> 3057
<NET-CHANGE-IN-ASSETS> 244923
<ACCUMULATED-NII-PRIOR> 11541
<ACCUMULATED-GAINS-PRIOR> 50501
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7905
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9626
<AVERAGE-NET-ASSETS> 1054596
<PER-SHARE-NAV-BEGIN> 20.53
<PER-SHARE-NII> .25
<PER-SHARE-GAIN-APPREC> 2.23
<PER-SHARE-DIVIDEND> (.25)
<PER-SHARE-DISTRIBUTIONS> (1.08)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.68
<EXPENSE-RATIO> .91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 03
<NAME> AST JANCAP GROWTH PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1815826
<INVESTMENTS-AT-VALUE> 3250854
<RECEIVABLES> 5716
<ASSETS-OTHER> 623
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3257193
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1535
<TOTAL-LIABILITIES> 1535
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1691967
<SHARES-COMMON-STOCK> 87979
<SHARES-COMMON-PRIOR> 65302
<ACCUMULATED-NII-CURRENT> 1221
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 126850
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1435620
<NET-ASSETS> 3255658
<DIVIDEND-INCOME> 9734
<INTEREST-INCOME> 15077
<OTHER-INCOME> 0
<EXPENSES-NET> (21419)
<NET-INVESTMENT-INCOME> 3392
<REALIZED-GAINS-CURRENT> 125145
<APPREC-INCREASE-CURRENT> 1055349
<NET-CHANGE-FROM-OPS> 1183886
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5171)
<DISTRIBUTIONS-OF-GAINS> (82896)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 53163
<NUMBER-OF-SHARES-REDEEMED> (34087)
<SHARES-REINVESTED> 3601
<NET-CHANGE-IN-ASSETS> 1744056
<ACCUMULATED-NII-PRIOR> 3000
<ACCUMULATED-GAINS-PRIOR> 84601
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18935
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21971
<AVERAGE-NET-ASSETS> 2103922
<PER-SHARE-NAV-BEGIN> 23.15
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 15.10
<PER-SHARE-DIVIDEND> (.08)
<PER-SHARE-DISTRIBUTIONS> (1.21)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 37.00
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 04
<NAME> AMERICAN SKANDIA TRUST
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 964747
<INVESTMENTS-AT-VALUE> 964747
<RECEIVABLES> 7084
<ASSETS-OTHER> 48
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 971879
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4146
<TOTAL-LIABILITIES> 4146
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 967627
<SHARES-COMMON-STOCK> 967626
<SHARES-COMMON-PRIOR> 759826
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 106
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 967733
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52052
<OTHER-INCOME> 0
<EXPENSES-NET> (5588)
<NET-INVESTMENT-INCOME> 46464
<REALIZED-GAINS-CURRENT> 106
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 46570
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (46464)
<DISTRIBUTIONS-OF-GAINS> (61)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3991163
<NUMBER-OF-SHARES-REDEEMED> (3829350)
<SHARES-REINVESTED> 45987
<NET-CHANGE-IN-ASSETS> 207845
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 61
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4657
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6175
<AVERAGE-NET-ASSETS> 930736
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 05
<NAME> AST NEUBERGER&BERMAN MID-CAP VALUE PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 255747
<INVESTMENTS-AT-VALUE> 270510
<RECEIVABLES> 2514
<ASSETS-OTHER> 7475
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 280499
<PAYABLE-FOR-SECURITIES> 8371
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 160
<TOTAL-LIABILITIES> 8531
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 245663
<SHARES-COMMON-STOCK> 20661
<SHARES-COMMON-PRIOR> 13278
<ACCUMULATED-NII-CURRENT> 3943
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7599
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14763
<NET-ASSETS> 271968
<DIVIDEND-INCOME> 5358
<INTEREST-INCOME> 660
<OTHER-INCOME> 0
<EXPENSES-NET> (2188)
<NET-INVESTMENT-INCOME> 3830
<REALIZED-GAINS-CURRENT> 7804
<APPREC-INCREASE-CURRENT> (11166)
<NET-CHANGE-FROM-OPS> 468
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4404)
<DISTRIBUTIONS-OF-GAINS> (16269)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14882
<NUMBER-OF-SHARES-REDEEMED> (9030)
<SHARES-REINVESTED> 1531
<NET-CHANGE-IN-ASSETS> 70825
<ACCUMULATED-NII-PRIOR> 4517
<ACCUMULATED-GAINS-PRIOR> 16064
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1715
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2188
<AVERAGE-NET-ASSETS> 208873
<PER-SHARE-NAV-BEGIN> 15.15
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> (.52)
<PER-SHARE-DIVIDEND> (.36)
<PER-SHARE-DISTRIBUTIONS> (1.32)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.16
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 06
<NAME> AST PUTNAM BALANCED PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 375787
<INVESTMENTS-AT-VALUE> 405688
<RECEIVABLES> 3953
<ASSETS-OTHER> 3699
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 413340
<PAYABLE-FOR-SECURITIES> 3123
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 882
<TOTAL-LIABILITIES> 4005
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 333379
<SHARES-COMMON-STOCK> 28971
<SHARES-COMMON-PRIOR> 26226
<ACCUMULATED-NII-CURRENT> 9572
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31787
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34597
<NET-ASSETS> 409335
<DIVIDEND-INCOME> 3730
<INTEREST-INCOME> 10027
<OTHER-INCOME> 0
<EXPENSES-NET> (3884)
<NET-INVESTMENT-INCOME> 9873
<REALIZED-GAINS-CURRENT> 31535
<APPREC-INCREASE-CURRENT> 4938
<NET-CHANGE-FROM-OPS> 46346
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9278)
<DISTRIBUTIONS-OF-GAINS> (21696)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2666
<NUMBER-OF-SHARES-REDEEMED> (2282)
<SHARES-REINVESTED> 2361
<NET-CHANGE-IN-ASSETS> 51744
<ACCUMULATED-NII-PRIOR> 8977
<ACCUMULATED-GAINS-PRIOR> 21948
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2860
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3884
<AVERAGE-NET-ASSETS> 387187
<PER-SHARE-NAV-BEGIN> 13.64
<PER-SHARE-NII> .34
<PER-SHARE-GAIN-APPREC> 1.31
<PER-SHARE-DIVIDEND> (.35)
<PER-SHARE-DISTRIBUTIONS> (.81)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.13
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 07
<NAME> AST FEDERATED HIGH YIELD PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 604328
<INVESTMENTS-AT-VALUE> 585583
<RECEIVABLES> 12496
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 598084
<PAYABLE-FOR-SECURITIES> 1529
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 875
<TOTAL-LIABILITIES> 2404
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 564095
<SHARES-COMMON-STOCK> 47080
<SHARES-COMMON-PRIOR> 33139
<ACCUMULATED-NII-CURRENT> 46298
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4032
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (18745)
<NET-ASSETS> 595680
<DIVIDEND-INCOME> 1247
<INTEREST-INCOME> 50155
<OTHER-INCOME> 0
<EXPENSES-NET> (5104)
<NET-INVESTMENT-INCOME> 46298
<REALIZED-GAINS-CURRENT> 4047
<APPREC-INCREASE-CURRENT> (38540)
<NET-CHANGE-FROM-OPS> 11805
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27616)
<DISTRIBUTIONS-OF-GAINS> (1507)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27343
<NUMBER-OF-SHARES-REDEEMED> (15704)
<SHARES-REINVESTED> 2302
<NET-CHANGE-IN-ASSETS> 161260
<ACCUMULATED-NII-PRIOR> 27616
<ACCUMULATED-GAINS-PRIOR> 1491
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4021
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5104
<AVERAGE-NET-ASSETS> 536159
<PER-SHARE-NAV-BEGIN> 13.11
<PER-SHARE-NII> .91
<PER-SHARE-GAIN-APPREC> (.57)
<PER-SHARE-DIVIDEND> (.76)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.65
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 09
<NAME> AST T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 278881
<INVESTMENTS-AT-VALUE> 350584
<RECEIVABLES> 2571
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 353158
<PAYABLE-FOR-SECURITIES> 8259
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 702
<TOTAL-LIABILITIES> 8961
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 265028
<SHARES-COMMON-STOCK> 19697
<SHARES-COMMON-PRIOR> 14082
<ACCUMULATED-NII-CURRENT> 7286
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 171
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 71712
<NET-ASSETS> 344197
<DIVIDEND-INCOME> 2246
<INTEREST-INCOME> 7923
<OTHER-INCOME> 0
<EXPENSES-NET> (2924)
<NET-INVESTMENT-INCOME> 7245
<REALIZED-GAINS-CURRENT> 214
<APPREC-INCREASE-CURRENT> 38790
<NET-CHANGE-FROM-OPS> 46249
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4836)
<DISTRIBUTIONS-OF-GAINS> (930)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6425
<NUMBER-OF-SHARES-REDEEMED> (1181)
<SHARES-REINVESTED> 371
<NET-CHANGE-IN-ASSETS> 131122
<ACCUMULATED-NII-PRIOR> 4904
<ACCUMULATED-GAINS-PRIOR> 887
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2281
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2924
<AVERAGE-NET-ASSETS> 268376
<PER-SHARE-NAV-BEGIN> 15.13
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> 2.38
<PER-SHARE-DIVIDEND> (.33)
<PER-SHARE-DISTRIBUTIONS> (.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.47
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 10
<NAME> AST PIMCO TOTAL RETURN BOND PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1062317
<INVESTMENTS-AT-VALUE> 1085609
<RECEIVABLES> 31231
<ASSETS-OTHER> 1670
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1118510
<PAYABLE-FOR-SECURITIES> 196489
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25524
<TOTAL-LIABILITIES> 222013
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 823494
<SHARES-COMMON-STOCK> 74584
<SHARES-COMMON-PRIOR> 48801
<ACCUMULATED-NII-CURRENT> 37428
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33587
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1988
<NET-ASSETS> 896497
<DIVIDEND-INCOME> 6
<INTEREST-INCOME> 44550
<OTHER-INCOME> 0
<EXPENSES-NET> (6108)
<NET-INVESTMENT-INCOME> 38448
<REALIZED-GAINS-CURRENT> 33856
<APPREC-INCREASE-CURRENT> (6318)
<NET-CHANGE-FROM-OPS> 65986
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26514)
<DISTRIBUTIONS-OF-GAINS> (12394)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38021
<NUMBER-OF-SHARES-REDEEMED> (15740)
<SHARES-REINVESTED> 3502
<NET-CHANGE-IN-ASSETS> 324397
<ACCUMULATED-NII-PRIOR> 25494
<ACCUMULATED-GAINS-PRIOR> 12125
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6108
<AVERAGE-NET-ASSETS> 734173
<PER-SHARE-NAV-BEGIN> 11.72
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .56
<PER-SHARE-DIVIDEND> (.51)
<PER-SHARE-DISTRIBUTIONS> (.24)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.02
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 11
<NAME> AST INVESCO EQUITY INCOME PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 684798
<INVESTMENTS-AT-VALUE> 829883
<RECEIVABLES> 4798
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 834692
<PAYABLE-FOR-SECURITIES> 2840
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 370
<TOTAL-LIABILITIES> 3210
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 646939
<SHARES-COMMON-STOCK> 47512
<SHARES-COMMON-PRIOR> 36468
<ACCUMULATED-NII-CURRENT> 15393
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24065
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 145085
<NET-ASSETS> 831482
<DIVIDEND-INCOME> 8295
<INTEREST-INCOME> 13716
<OTHER-INCOME> 0
<EXPENSES-NET> (6594)
<NET-INVESTMENT-INCOME> 15417
<REALIZED-GAINS-CURRENT> 24041
<APPREC-INCREASE-CURRENT> 50324
<NET-CHANGE-FROM-OPS> 89782
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12093)
<DISTRIBUTIONS-OF-GAINS> (30573)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20510
<NUMBER-OF-SHARES-REDEEMED> (12079)
<SHARES-REINVESTED> 2613
<NET-CHANGE-IN-ASSETS> 229377
<ACCUMULATED-NII-PRIOR> 12069
<ACCUMULATED-GAINS-PRIOR> 30597
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5341
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6594
<AVERAGE-NET-ASSETS> 712124
<PER-SHARE-NAV-BEGIN> 16.51
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> 1.81
<PER-SHARE-DIVIDEND> (.32)
<PER-SHARE-DISTRIBUTIONS> (.81)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.50
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 12
<NAME> AST FOUNDERS CAPITAL APPRECIATION PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 202169
<INVESTMENTS-AT-VALUE> 266397
<RECEIVABLES> 967
<ASSETS-OTHER> 18673
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 286037
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 190
<TOTAL-LIABILITIES> 190
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 228929
<SHARES-COMMON-STOCK> 16232
<SHARES-COMMON-PRIOR> 15621
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1352)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5958)
<ACCUM-APPREC-OR-DEPREC> 64228
<NET-ASSETS> 285847
<DIVIDEND-INCOME> 271
<INTEREST-INCOME> 1227
<OTHER-INCOME> 0
<EXPENSES-NET> (2850)
<NET-INVESTMENT-INCOME> (1352)
<REALIZED-GAINS-CURRENT> (5942)
<APPREC-INCREASE-CURRENT> 21943
<NET-CHANGE-FROM-OPS> 14649
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (12821)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7069
<NUMBER-OF-SHARES-REDEEMED> (7164)
<SHARES-REINVESTED> 706
<NET-CHANGE-IN-ASSETS> 7589
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12805
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2288
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2850
<AVERAGE-NET-ASSETS> 254213
<PER-SHARE-NAV-BEGIN> 17.81
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> .73
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.85)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.61
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 13
<NAME> AST T. ROWE PRICE INTERNAITONAL EQUITY PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 368816
<INVESTMENTS-AT-VALUE> 449693
<RECEIVABLES> 4255
<ASSETS-OTHER> 18510
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 472458
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 297
<TOTAL-LIABILITIES> 297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 366393
<SHARES-COMMON-STOCK> 35262
<SHARES-COMMON-PRIOR> 38415
<ACCUMULATED-NII-CURRENT> 721
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22227
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 82820
<NET-ASSETS> 472161
<DIVIDEND-INCOME> 7885
<INTEREST-INCOME> 723
<OTHER-INCOME> 0
<EXPENSES-NET> (5812)
<NET-INVESTMENT-INCOME> 2796
<REALIZED-GAINS-CURRENT> 23255
<APPREC-INCREASE-CURRENT> 39900
<NET-CHANGE-FROM-OPS> 65951
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5390)
<DISTRIBUTIONS-OF-GAINS> (8769)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29768
<NUMBER-OF-SHARES-REDEEMED> (34036)
<SHARES-REINVESTED> 1115
<NET-CHANGE-IN-ASSETS> 7705
<ACCUMULATED-NII-PRIOR> 3315
<ACCUMULATED-GAINS-PRIOR> 7741
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4652
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5812
<AVERAGE-NET-ASSETS> 464730
<PER-SHARE-NAV-BEGIN> 12.09
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 1.61
<PER-SHARE-DIVIDEND> (.14)
<PER-SHARE-DISTRIBUTIONS> (.23)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.39
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 15
<NAME> AST T. ROWE PRICE INTERNATIONAL BOND PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 139363
<INVESTMENTS-AT-VALUE> 143329
<RECEIVABLES> 3791
<ASSETS-OTHER> 2781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 149901
<PAYABLE-FOR-SECURITIES> 1586
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 342
<TOTAL-LIABILITIES> 1928
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131439
<SHARES-COMMON-STOCK> 12913
<SHARES-COMMON-PRIOR> 12902
<ACCUMULATED-NII-CURRENT> 11850
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (762)
<ACCUM-APPREC-OR-DEPREC> 5446
<NET-ASSETS> 147973
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8291
<OTHER-INCOME> 0
<EXPENSES-NET> (1569)
<NET-INVESTMENT-INCOME> 6722
<REALIZED-GAINS-CURRENT> 4529
<APPREC-INCREASE-CURRENT> 8056
<NET-CHANGE-FROM-OPS> 19307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (440)
<DISTRIBUTIONS-OF-GAINS> (1035)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3207
<NUMBER-OF-SHARES-REDEEMED> (3340)
<SHARES-REINVESTED> 144
<NET-CHANGE-IN-ASSETS> 17565
<ACCUMULATED-NII-PRIOR> 5568
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4256)
<GROSS-ADVISORY-FEES> 1126
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1569
<AVERAGE-NET-ASSETS> 140721
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .94
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (.08)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.46
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 16
<NAME> AST NEUBERGER&BERMAN MID-CAP GROWTH PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 226411
<INVESTMENTS-AT-VALUE> 259092
<RECEIVABLES> 4658
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 263755
<PAYABLE-FOR-SECURITIES> 1822
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 141
<TOTAL-LIABILITIES> 1963
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 211132
<SHARES-COMMON-STOCK> 15168
<SHARES-COMMON-PRIOR> 11141
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (717)
<ACCUMULATED-NET-GAINS> 18696
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32681
<NET-ASSETS> 261792
<DIVIDEND-INCOME> 615
<INTEREST-INCOME> 924
<OTHER-INCOME> 0
<EXPENSES-NET> (2256)
<NET-INVESTMENT-INCOME> (717)
<REALIZED-GAINS-CURRENT> 19756
<APPREC-INCREASE-CURRENT> 28800
<NET-CHANGE-FROM-OPS> 47839
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (122)
<DISTRIBUTIONS-OF-GAINS> (34532)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11663
<NUMBER-OF-SHARES-REDEEMED> (9777)
<SHARES-REINVESTED> 2141
<NET-CHANGE-IN-ASSETS> 76742
<ACCUMULATED-NII-PRIOR> 122
<ACCUMULATED-GAINS-PRIOR> 33472
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1782
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2256
<AVERAGE-NET-ASSETS> 210162
<PER-SHARE-NAV-BEGIN> 16.61
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 3.31
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> (2.60)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.26
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 17
<NAME> AST FOUNDERS PASSPORT PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 94713
<INVESTMENTS-AT-VALUE> 118413
<RECEIVABLES> 1701
<ASSETS-OTHER> 111
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 120225
<PAYABLE-FOR-SECURITIES> 110
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 118
<TOTAL-LIABILITIES> 228
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99001
<SHARES-COMMON-STOCK> 9204
<SHARES-COMMON-PRIOR> 10016
<ACCUMULATED-NII-CURRENT> 691
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3395)
<ACCUM-APPREC-OR-DEPREC> 23700
<NET-ASSETS> 119997
<DIVIDEND-INCOME> 867
<INTEREST-INCOME> 1108
<OTHER-INCOME> 0
<EXPENSES-NET> (1582)
<NET-INVESTMENT-INCOME> 393
<REALIZED-GAINS-CURRENT> 71
<APPREC-INCREASE-CURRENT> 12484
<NET-CHANGE-FROM-OPS> 12948
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (249)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8699
<NUMBER-OF-SHARES-REDEEMED> (9531)
<SHARES-REINVESTED> 20
<NET-CHANGE-IN-ASSETS> 2059
<ACCUMULATED-NII-PRIOR> 547
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3466)
<GROSS-ADVISORY-FEES> 1219
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1582
<AVERAGE-NET-ASSETS> 121943
<PER-SHARE-NAV-BEGIN> 11.78
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 1.24
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.04
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 18
<NAME> AST T. ROWE PRICE NATURAL RESOURCES PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 91419
<INVESTMENTS-AT-VALUE> 73653
<RECEIVABLES> 538
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 74193
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67
<TOTAL-LIABILITIES> 67
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 82246
<SHARES-COMMON-STOCK> 6191
<SHARES-COMMON-PRIOR> 7683
<ACCUMULATED-NII-CURRENT> 1137
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8509
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (17766)
<NET-ASSETS> 74126
<DIVIDEND-INCOME> 2073
<INTEREST-INCOME> 144
<OTHER-INCOME> 0
<EXPENSES-NET> (1119)
<NET-INVESTMENT-INCOME> 1098
<REALIZED-GAINS-CURRENT> 8533
<APPREC-INCREASE-CURRENT> (20469)
<NET-CHANGE-FROM-OPS> (10838)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1033)
<DISTRIBUTIONS-OF-GAINS> (6254)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1743
<NUMBER-OF-SHARES-REDEEMED> (3762)
<SHARES-REINVESTED> 527
<NET-CHANGE-IN-ASSETS> (37828)
<ACCUMULATED-NII-PRIOR> 1072
<ACCUMULATED-GAINS-PRIOR> 6230
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1119
<AVERAGE-NET-ASSETS> 96570
<PER-SHARE-NAV-BEGIN> 14.57
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> (1.78)
<PER-SHARE-DIVIDEND> (.14)
<PER-SHARE-DISTRIBUTIONS> (.87)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.97
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 19
<NAME> AST PIMCO LIMITED MATURITY BOND PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 461936
<INVESTMENTS-AT-VALUE> 462767
<RECEIVABLES> 55805
<ASSETS-OTHER> 641
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 519213
<PAYABLE-FOR-SECURITIES> 168225
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1281
<TOTAL-LIABILITIES> 169506
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 330648
<SHARES-COMMON-STOCK> 31549
<SHARES-COMMON-PRIOR> 26189
<ACCUMULATED-NII-CURRENT> 18176
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 89
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 794
<NET-ASSETS> 349707
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20801
<OTHER-INCOME> 0
<EXPENSES-NET> (2738)
<NET-INVESTMENT-INCOME> 18063
<REALIZED-GAINS-CURRENT> 1116
<APPREC-INCREASE-CURRENT> (1794)
<NET-CHANGE-FROM-OPS> 17385
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14378)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15604
<NUMBER-OF-SHARES-REDEEMED> (11604)
<SHARES-REINVESTED> 1360
<NET-CHANGE-IN-ASSETS> 61065
<ACCUMULATED-NII-PRIOR> 14491
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1027)
<GROSS-ADVISORY-FEES> 2060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2738
<AVERAGE-NET-ASSETS> 316990
<PER-SHARE-NAV-BEGIN> 11.02
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .03
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.08
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 20
<NAME> AST OPPENHEIMER LARGE-CAP GROWTH PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 189414
<INVESTMENTS-AT-VALUE> 224983
<RECEIVABLES> 102976
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 327964
<PAYABLE-FOR-SECURITIES> 26840
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 200
<TOTAL-LIABILITIES> 27040
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233002
<SHARES-COMMON-STOCK> 18722
<SHARES-COMMON-PRIOR> 18666
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1873)
<ACCUMULATED-NET-GAINS> 34226
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35569
<NET-ASSETS> 300924
<DIVIDEND-INCOME> 1232
<INTEREST-INCOME> 175
<OTHER-INCOME> 0
<EXPENSES-NET> (3280)
<NET-INVESTMENT-INCOME> (1873)
<REALIZED-GAINS-CURRENT> 38928
<APPREC-INCREASE-CURRENT> 27050
<NET-CHANGE-FROM-OPS> 64105
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8359
<NUMBER-OF-SHARES-REDEEMED> (8303)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 65276
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4702)
<GROSS-ADVISORY-FEES> 2694
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3280
<AVERAGE-NET-ASSETS> 269459
<PER-SHARE-NAV-BEGIN> 12.62
<PER-SHARE-NII> (.10)
<PER-SHARE-GAIN-APPREC> 3.55
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.07
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 21
<NAME> AST JANUS OVERSEAS GROWTH & INCOME PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 515581
<INVESTMENTS-AT-VALUE> 607451
<RECEIVABLES> 3687
<ASSETS-OTHER> 1347
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 612485
<PAYABLE-FOR-SECURITIES> 1775
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3504
<TOTAL-LIABILITIES> 5279
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 544382
<SHARES-COMMON-STOCK> 44196
<SHARES-COMMON-PRIOR> 21542
<ACCUMULATED-NII-CURRENT> 591
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (27223)
<ACCUM-APPREC-OR-DEPREC> 89456
<NET-ASSETS> 607206
<DIVIDEND-INCOME> 4064
<INTEREST-INCOME> 2850
<OTHER-INCOME> 0
<EXPENSES-NET> (5510)
<NET-INVESTMENT-INCOME> 1404
<REALIZED-GAINS-CURRENT> (25436)
<APPREC-INCREASE-CURRENT> 75820
<NET-CHANGE-FROM-OPS> 51788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1265)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47356
<NUMBER-OF-SHARES-REDEEMED> (24800)
<SHARES-REINVESTED> 98
<NET-CHANGE-IN-ASSETS> 351501
<ACCUMULATED-NII-PRIOR> 452
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4345
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5510
<AVERAGE-NET-ASSETS> 434487
<PER-SHARE-NAV-BEGIN> 11.87
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 1.87
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.74
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 22
<NAME> AST PUTNAM VALUE GROWTH & INCOME PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 176413
<INVESTMENTS-AT-VALUE> 188696
<RECEIVABLES> 1305
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 190004
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133
<TOTAL-LIABILITIES> 133
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 167158
<SHARES-COMMON-STOCK> 14096
<SHARES-COMMON-PRIOR> 9605
<ACCUMULATED-NII-CURRENT> 1630
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8800
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12283
<NET-ASSETS> 189871
<DIVIDEND-INCOME> 2892
<INTEREST-INCOME> 290
<OTHER-INCOME> 0
<EXPENSES-NET> (1552)
<NET-INVESTMENT-INCOME> 1630
<REALIZED-GAINS-CURRENT> 8830
<APPREC-INCREASE-CURRENT> 6641
<NET-CHANGE-FROM-OPS> 17101
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (686)
<DISTRIBUTIONS-OF-GAINS> (1892)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6243
<NUMBER-OF-SHARES-REDEEMED> (1954)
<SHARES-REINVESTED> 202
<NET-CHANGE-IN-ASSETS> 72433
<ACCUMULATED-NII-PRIOR> 686
<ACCUMULATED-GAINS-PRIOR> 1863
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1165
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1552
<AVERAGE-NET-ASSETS> 155328
<PER-SHARE-NAV-BEGIN> 12.23
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 1.38
<PER-SHARE-DIVIDEND> (.07)
<PER-SHARE-DISTRIBUTIONS> (.18)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.47
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 23
<NAME> AST AMERICAN CENTURY STRATEGIC BALANCED PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 76852
<INVESTMENTS-AT-VALUE> 89364
<RECEIVABLES> 1733
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91100
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57
<TOTAL-LIABILITIES> 57
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77790
<SHARES-COMMON-STOCK> 6664
<SHARES-COMMON-PRIOR> 2552
<ACCUMULATED-NII-CURRENT> 901
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (162)
<ACCUM-APPREC-OR-DEPREC> 12514
<NET-ASSETS> 91043
<DIVIDEND-INCOME> 196
<INTEREST-INCOME> 1261
<OTHER-INCOME> 0
<EXPENSES-NET> (596)
<NET-INVESTMENT-INCOME> 861
<REALIZED-GAINS-CURRENT> 245
<APPREC-INCREASE-CURRENT> 10684
<NET-CHANGE-FROM-OPS> 11790
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (233)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4561
<NUMBER-OF-SHARES-REDEEMED> (469)
<SHARES-REINVESTED> 20
<NET-CHANGE-IN-ASSETS> 62096
<ACCUMULATED-NII-PRIOR> 273
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 432
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 578
<AVERAGE-NET-ASSETS> 51296
<PER-SHARE-NAV-BEGIN> 11.34
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 2.29
<PER-SHARE-DIVIDEND> (.08)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.66
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 24
<NAME> AST AMERICAN CENTURY INTERNATIONAL GROWTH PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 71389
<INVESTMENTS-AT-VALUE> 79784
<RECEIVABLES> 729
<ASSETS-OTHER> 144
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80657
<PAYABLE-FOR-SECURITIES> 2224
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 700
<TOTAL-LIABILITIES> 2924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71374
<SHARES-COMMON-STOCK> 5690
<SHARES-COMMON-PRIOR> 2875
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (99)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1899)
<ACCUM-APPREC-OR-DEPREC> 8357
<NET-ASSETS> 77733
<DIVIDEND-INCOME> 764
<INTEREST-INCOME> 225
<OTHER-INCOME> 0
<EXPENSES-NET> (930)
<NET-INVESTMENT-INCOME> 59
<REALIZED-GAINS-CURRENT> (1418)
<APPREC-INCREASE-CURRENT> 6892
<NET-CHANGE-FROM-OPS> 5533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (66)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6818
<NUMBER-OF-SHARES-REDEEMED> (4008)
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 44608
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (92)
<OVERDIST-NET-GAINS-PRIOR> (481)
<GROSS-ADVISORY-FEES> 563
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 930
<AVERAGE-NET-ASSETS> 56349
<PER-SHARE-NAV-BEGIN> 11.52
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 2.12
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.66
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 25
<NAME> AST T. ROWE PRICE SMALL COMPANY VALUE PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 323678
<INVESTMENTS-AT-VALUE> 302272
<RECEIVABLES> 3773
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 306048
<PAYABLE-FOR-SECURITIES> 1483
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 493
<TOTAL-LIABILITIES> 1976
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 323509
<SHARES-COMMON-STOCK> 26586
<SHARES-COMMON-PRIOR> 15520
<ACCUMULATED-NII-CURRENT> 2516
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (547)
<ACCUM-APPREC-OR-DEPREC> (21406)
<NET-ASSETS> 304072
<DIVIDEND-INCOME> 4234
<INTEREST-INCOME> 1279
<OTHER-INCOME> 0
<EXPENSES-NET> (3000)
<NET-INVESTMENT-INCOME> 2513
<REALIZED-GAINS-CURRENT> (545)
<APPREC-INCREASE-CURRENT> (38214)
<NET-CHANGE-FROM-OPS> (36246)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (946)
<DISTRIBUTIONS-OF-GAINS> (1025)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17995
<NUMBER-OF-SHARES-REDEEMED> (7075)
<SHARES-REINVESTED> 146
<NET-CHANGE-IN-ASSETS> 104176
<ACCUMULATED-NII-PRIOR> 949
<ACCUMULATED-GAINS-PRIOR> 1023
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2424
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3000
<AVERAGE-NET-ASSETS> 269349
<PER-SHARE-NAV-BEGIN> 12.88
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> (1.42)
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> (.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.44
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 26
<NAME> AST MARSICO CAPITAL GROWTH PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 525453
<INVESTMENTS-AT-VALUE> 612449
<RECEIVABLES> 20248
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 632702
<PAYABLE-FOR-SECURITIES> 37432
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 304
<TOTAL-LIABILITIES> 37736
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 513752
<SHARES-COMMON-STOCK> 41898
<SHARES-COMMON-PRIOR> 727
<ACCUMULATED-NII-CURRENT> 429
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6211)
<ACCUM-APPREC-OR-DEPREC> 86996
<NET-ASSETS> 594966
<DIVIDEND-INCOME> 1792
<INTEREST-INCOME> 1639
<OTHER-INCOME> 0
<EXPENSES-NET> (3002)
<NET-INVESTMENT-INCOME> 429
<REALIZED-GAINS-CURRENT> (6211)
<APPREC-INCREASE-CURRENT> 86973
<NET-CHANGE-FROM-OPS> 81191
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49747
<NUMBER-OF-SHARES-REDEEMED> (8577)
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 587667
<ACCUMULATED-NII-PRIOR> 6
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2446
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3002
<AVERAGE-NET-ASSETS> 271741
<PER-SHARE-NAV-BEGIN> 10.03
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 4.17
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.20
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 27
<NAME> AST COHEN & STEERS REALTY PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 37648
<INVESTMENTS-AT-VALUE> 33051
<RECEIVABLES> 334
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33394
<PAYABLE-FOR-SECURITIES> 342
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27
<TOTAL-LIABILITIES> 369
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37214
<SHARES-COMMON-STOCK> 3929
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1087
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (679)
<ACCUM-APPREC-OR-DEPREC> (4597)
<NET-ASSETS> 33025
<DIVIDEND-INCOME> 1301
<INTEREST-INCOME> 67
<OTHER-INCOME> 0
<EXPENSES-NET> (281)
<NET-INVESTMENT-INCOME> 1087
<REALIZED-GAINS-CURRENT> (679)
<APPREC-INCREASE-CURRENT> (4597)
<NET-CHANGE-FROM-OPS> (4189)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4659
<NUMBER-OF-SHARES-REDEEMED> (730)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33025
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 217
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 281
<AVERAGE-NET-ASSETS> 21682
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> (1.87)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.41
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 28
<NAME> AST LORD ABBETT SMALL CAP VALUE PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 42134
<INVESTMENTS-AT-VALUE> 42664
<RECEIVABLES> 598
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43262
<PAYABLE-FOR-SECURITIES> 1441
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33
<TOTAL-LIABILITIES> 1474
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43842
<SHARES-COMMON-STOCK> 4181
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (45)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2539)
<ACCUM-APPREC-OR-DEPREC> 530
<NET-ASSETS> 41788
<DIVIDEND-INCOME> 150
<INTEREST-INCOME> 82
<OTHER-INCOME> 0
<EXPENSES-NET> (277)
<NET-INVESTMENT-INCOME> (45)
<REALIZED-GAINS-CURRENT> (2539)
<APPREC-INCREASE-CURRENT> 530
<NET-CHANGE-FROM-OPS> (2054)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5384
<NUMBER-OF-SHARES-REDEEMED> (1203)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 41788
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 201
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 277
<AVERAGE-NET-ASSETS> 21189
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 29
<NAME> AST BANKERS TRUST ENHANCED 500 PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 242131
<INVESTMENTS-AT-VALUE> 268110
<RECEIVABLES> 2298
<ASSETS-OTHER> 22231
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 292639
<PAYABLE-FOR-SECURITIES> 2996
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 92
<TOTAL-LIABILITIES> 3088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 255612
<SHARES-COMMON-STOCK> 22658
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1358
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3968
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28613
<NET-ASSETS> 289551
<DIVIDEND-INCOME> 1823
<INTEREST-INCOME> 555
<OTHER-INCOME> 0
<EXPENSES-NET> (1020)
<NET-INVESTMENT-INCOME> 1358
<REALIZED-GAINS-CURRENT> 3968
<APPREC-INCREASE-CURRENT> 28613
<NET-CHANGE-FROM-OPS> 33939
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35658
<NUMBER-OF-SHARES-REDEEMED> (13000)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 289551
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 765
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1094
<AVERAGE-NET-ASSETS> 127511
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 2.72
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.78
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 30
<NAME> AST STEIN ROE VENTURE PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 7325
<INVESTMENTS-AT-VALUE> 8398
<RECEIVABLES> 116
<ASSETS-OTHER> 476
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8990
<PAYABLE-FOR-SECURITIES> 48
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12
<TOTAL-LIABILITIES> 60
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9614
<SHARES-COMMON-STOCK> 1089
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (31)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1726)
<ACCUM-APPREC-OR-DEPREC> 1073
<NET-ASSETS> 8930
<DIVIDEND-INCOME> 10
<INTEREST-INCOME> 17
<OTHER-INCOME> 0
<EXPENSES-NET> 58
<NET-INVESTMENT-INCOME> (31)
<REALIZED-GAINS-CURRENT> (1726)
<APPREC-INCREASE-CURRENT> 1073
<NET-CHANGE-FROM-OPS> (684)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1309
<NUMBER-OF-SHARES-REDEEMED> (220)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8930
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 87
<AVERAGE-NET-ASSETS> 4300
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> (1.77)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.20
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
