PROSPECTUS October 18, 1999
AMERICAN SKANDIA TRUST
One Corporate Drive, Shelton, Connecticut 06484
- --------------------------------------------------------------------------------
American Skandia Trust (the "Trust") is an investment company made up of the
following 31 separate portfolios ("Portfolios"), nine of which are offered
through this Prospectus:
AST T. Rowe Price International Equity Portfolio
AST Janus Small-Cap Growth Portfolio
AST Neuberger Berman Mid-Cap Growth Portfolio
AST JanCap Growth Portfolio
AST Lord Abbett Growth and Income Portfolio
AST INVESCO Equity Income Portfolio
AST T. Rowe Price Asset Allocation Portfolio
AST PIMCO Total Return Bond Portfolio
AST PIMCO Limited Maturity Bond 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.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Caption Page
<S> <C>
Risk/Return Summary...............................................................................................3
Past Performance..................................................................................................9
Fees and Expenses of the Portfolios..............................................................................14
Investment Objectives and Policies...............................................................................16
AST T. Rowe Price International Equity Portfolio............................................................17
AST Janus Small-Cap Growth Portfolio........................................................................19
AST Neuberger Berman Mid-Cap Growth Portfolio...............................................................21
AST JanCap Growth Portfolio.................................................................................23
AST Lord Abbett Growth and Income Portfolio.................................................................25
AST INVESCO Equity Income Portfolio.........................................................................26
AST T. Rowe Price Asset Allocation Portfolio................................................................27
AST PIMCO Total Return Bond Portfolio.......................................................................29
AST PIMCO Limited Maturity Bond Portfolio...................................................................33
Portfolio Turnover...............................................................................................35
Net Asset Values.................................................................................................35
Purchase and Redemption of Shares................................................................................35
Management of the Trust..........................................................................................36
Tax Matters......................................................................................................39
Financial Highlights.............................................................................................40
Certain Risk Factors and Investment Methods......................................................................44
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
American Skandia Trust (the "Trust") is comprised of thirty-one
investment portfolios (the "Portfolios"), nine of which are offered through this
Prospectus. 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."
International Portfolio:
<TABLE>
<CAPTION>
Portfolio: Investment Goal: Primary Investments:
<S> <C> <C>
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
</TABLE>
Principal Investment Strategies:
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 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.
Principal Risks:
o The AST T. Rowe Price International Equity Portfolio is an equity fund, and
its primary risk is that the value of the stocks it holds 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 AST T. Rowe Price International Equity Portfolio
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 the Portfolio
will not invest primarily in companies located in developing countries, it
may invest in those companies to some degree, and the risks of foreign
investment may be accentuated by investment in developing countries.
Capital Growth Portfolios:
<TABLE>
<CAPTION>
Portfolio: Investment Goal: Primary Investments:
<S> <C> <C>
Janus Small-Cap Growth Capital growth The Portfolio invests primarily in common
stocks of small capitalization companies.
Neuberger Berman Mid-Cap Capital growth The Portfolio invests primarily in common stocks of medium
Growth capitalization companies.
JanCap Growth Capital growth The Portfolio invests primarily in common stocks.
</TABLE>
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.
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.
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.
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 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 can be
expected to be subject to somewhat less risk, and the AST JanCap Growth
Portfolio to somewhat less risk than mid-cap funds.
o The Portfolios generally take a growth approach to investing, as opposed to
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.
Growth and Income Portfolios:
<TABLE>
<CAPTION>
Portfolio: Investment Goal: Primary Investments:
<S> <C> <C>
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.
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 Lord Abbett Growth and Income Portfolio normally will invest in common
stocks (and securities convertible into common stocks). Typically, in choosing
stocks, the Sub-advisor looks for companies using a three-step process:
o Quantitative research is performed on a universe of large, seasoned, U.S.
and multinational companies to identify which stocks the Sub-advisor
believes represent the best bargains;
o Fundamental research is conducted to assess a company's operating
environment, resources and strategic plans and to determine its prospects
for exceeding the earnings expectations reflected in its stock price.
o Business cycle analysis is used to assess the economic and interest-rate
sensitivity of the Portfolio, helping the Sub-advisor to assess how adding
or deleting stocks changes the Portfolio's overall sensitivity to economic
activity and interest rates.
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. In doing so, the Portfolio may forgo some
opportunities for gains when, in the judgment of the Sub-advisor, they are too
risky.
While there is the risk that an investment will never reach what the Sub-advisor
believes is its full value, or may go down in value, the Portfolio's risk and
share price fluctuation (and potential for gain) may be less than many other
stock funds because of the Portfolio's emphasis on large, seasoned company value
stocks. The prices of the common stocks that the Portfolio invests in will
fluctuate.
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 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 Lord Abbett Growth and Income Portfolio invests 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 T. Rowe Price Asset Allocation Portfolio
generally invests 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.
Fixed Income Portfolios:
<TABLE>
<CAPTION>
Portfolio: Investment Goal: Primary Investments:
<S> <C> <C>
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.
</TABLE>
Principal Investment Strategies:
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).
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 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 their return or hedge their investments, these securities and
practices may increase the risk to which the Portfolios are subject.
<PAGE>
Past Performance
The bar charts show 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 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 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 Capital Appreciation Portfolio, and Founders Asset Management LLC
served as Sub-advisor to the Portfolio.
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 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 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 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 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%
---------------------- --------------------- ----------------------------
<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.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Portfolio
assets, in %):
<TABLE>
<CAPTION>
Management Estimated Other Total Annual Fee Waivers Net Annual
Fees Distribution Expenses Portfolio and Expense Fund
and Operating Reimbursement(3) Operating
Service Expenses Expenses
Portfolio: (12b-1)
Fees(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AST T. Rowe Price International 1.00 0.00 0.25 1.25 N/A 1.25
Equity
AST Janus Small-Cap Growth 0.90 0.05 0.22 1.17 N/A 1.17
AST Neuberger Berman Mid-Cap 0.90 0.08 0.17 1.15 N/A 1.15
Growth(1)
AST JanCap Growth 0.90 0.01 0.14 1.05 0.02 1.05
AST Lord Abbett Growth and Income 0.75 0.08 0.16 0.99 N/A 0.99
AST INVESCO Equity Income 0.75 0.04 0.18 0.97 N/A 0.97
AST T. Rowe Price Asset Allocation 0.85 0.00 0.24 1.09 N/A 1.09
AST PIMCO Total Return Bond 0.65 0.00 0.18 0.83 N/A 0.83
AST PIMCO Limited Maturity Bond 0.65 0.00 0.21 0.86 N/A 0.86
</TABLE>
(1) 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.
(2) As discussed below under "Management of the Trust - Fees and Expenses, the
Trustees adopted a Distribution Plan (the "Distribution Plan") under Rule 12b-1
to permit an affiliate of the Trust's Investment Manager 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
Portfolio. While the brokerage commission rates and amounts paid by the various
Portfolios are not expected to increase as a result of the Distribution Plan,
the staff of the Securities and Exchange Commission recently takes the position
that commission amounts received under the Distribution Plan should be reflected
as distribution expenses of the Portfolios. The Distribution Fee estimates are
derived from data regarding each Portfolio's brokerage transactions, and the
proportions of such transactions directed to selling dealers, for the period
ended June 30, 1999. However, it is not possible to determine with accuracy
actual amounts that will be received under the Distribution Plan. Such amounts
will vary based upon the level of a Portfolio's brokerage activity, the
proportion of such activity directed under the Distribution Plan, and other
factors.
(3) The Investment Manager has agreed to reimburse and/or waive fees for certain
Portfolios until at least October 17, 2000. 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 T. Rowe Price International Equity 127 397 686 1511
AST Janus Small-Cap Growth 119 372 644 1420
AST Neuberger Berman Mid-Cap Growth 117 365 633 1398
AST JanCap Growth 105 332 577 1281
AST Lord Abbett Growth and Income 101 315 547 1213
AST INVESCO Equity Income 99 309 536 1190
AST T. Rowe Price Asset Allocation 111 347 601 1329
AST PIMCO Total Return Bond 85 265 460 1025
AST PIMCO Limited Maturity Bond 88 274 477 1061
</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 will differ. The investment objectives and policies of the Portfolios
generally are not fundamental policies and may be changed by the Trustees
without shareholder approval.
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 T. Rowe Price International 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.
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 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).
The Portfolio may make short sales "against the box." 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.
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 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 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.
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).
The Portfolio may make short sales "against the box." 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 LORD ABBETT GROWTH AND INCOME PORTFOLI0:
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.
Principal Investment Policies and Risks:
The Portfolio normally will invest in common stocks (and securities
convertible into common stocks). Typically, in choosing stocks, the Sub-advisor
looks for companies using a three-step process:
o Quantitative research is performed on a universe of large, seasoned, U.S.
and multinational companies to identify which stocks the Sub-advisor
believes represent the best bargains;
o Fundamental research is conducted to assess a company's operating
environment, resources and strategic plans and to determine its prospects
for exceeding the earnings expectations reflected in its stock price.
o Business cycle analysis is used to assess the economic and interest-rate
sensitivity of the Portfolio, helping the Sub-advisor to assess how adding
or deleting stocks changes the Portfolio's overall sensitivity to economic
activity and interest rates.
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. In doing so, the Portfolio may
forgo some opportunities for gains when, in the judgment of the Sub-advisor,
they are too risky.
The prices of the common stocks that the Portfolio invests in will
fluctuate. Therefore, the Portfolio's share price will also fluctuate, and may
decline substantially. While there is the risk that an investment will never
reach what the Sub-advisor believes is its full value, or may go down in value,
the Portfolio's risk and share price fluctuation (and potential for gain) may be
less than many other stock funds because of the Portfolio's emphasis on large,
seasoned company value stocks.
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. 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 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.
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 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;
<TABLE>
<CAPTION>
<S> <C>>
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.
</TABLE>
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.
Principal Investment Policies and Risks:
The Portfolio will invest at least 65% of its assets in the following
types of fixed income securities;
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
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>
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 Portfolio'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 regularly have annual
rates of turnover exceeding 100%:
AST Neuberger Berman Mid-Cap Growth Portfolio
AST JanCap Growth 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 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. 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 50 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 obtained an exemption from the Securities and Exchange
Commission that permits ASISI, subject to approval by the Board of Trustees of
the Trust, to change sub-advisors for a Portfolio and to enter into new
sub-advisory agreements, without obtaining shareholder approval of the changes.
This exemption (which is similar to exemptions 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:
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. 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 $33 billion under management as of June 30,
1999 in its offices in Baltimore, London, Tokyo, Hong Kong, Singapore, Buenos
Aires and Paris. The Portfolio has an investment advisory group that has
day-to-day responsibility for managing the Portfolio and developing and
executing the Portfolio's investment program.
The advisory group for the AST T. Rowe Price International Equity Portfolio
consists of Martin G. Wade, Mark C.J. Bickford-Smith, John R. Ford, James B.M.
Seddon, and David J.L. Warren. Martin Wade joined Price-Fleming in 1979 and has
30 years of experience with Fleming Group (Fleming Group includes Robert Fleming
Holdings Ltd. and/or Jardine Fleming Group 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.
John R. Ford joined Price-Fleming in 1982 and has 19 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 1983 and has 18 years experience in
equity research, fixed income research and portfolio management.
Janus Capital Corporation ("Janus"), 100 Fillmore Street, Denver,
Colorado 80206-4923, serves as Sub-advisor for 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 June 30, 1999, Janus managed assets worth over $153 billion.
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.
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.
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 Growth and Income Portfolio. Lord Abbett has been an investment
manager for over 68 years. As of June 30, 1999, Lord Abbett managed
approximately $33.4 billion in a family of mutual funds and other advisory
accounts.
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 Asset Allocation Portfolio. T. Rowe Price was founded in 1937 by the late
Thomas Rowe Price, Jr. As of June 30, 1999, the firm and its affiliates managed
approximately $159 billion for approximately seven million individual and
institutional accounts.
T. Rowe Price manages the 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, James M. McDonald, Jerome Clark, 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.
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. 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 Portfolio for which it serves as Sub-advisor, and
provides NB Management with certain assistance in the management of the
Portfolio without added cost to the Portfolio or ASISI. NB Management and its
affiliates manage securities accounts, including mutual funds, that had
approximately $57 billion of assets as of June 30, 1999.
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.
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 $296 billion of assets as of
June 30, 1999.
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.
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
June 30, 1999, had approximately $172 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.
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 T. Rowe Price International Equity Portfolio: 1.00%
AST Janus Small-Cap Growth Portfolio: 0.90%
AST Neuberger Berman Mid-Cap Growth Portfolio:1 0.85%
AST JanCap Growth Portfolio: 0.87%
AST Lord Abbett Growth and Income Portfolio: 0.75%
AST INVESCO Equity Income Portfolio: 0.75%
AST T. Rowe Price Asset Allocation Portfolio: 0.85%
AST PIMCO Total Return Bond Portfolio: 0.65%
AST PIMCO Limited Maturity Bond Portfolio: 0.65%
</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.
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. The Trust has adopted a Distribution Plan (the
"Distribution Plan") under Rule 12b-1 under the Investment Company Act of 1940
to permit 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, 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 or 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 in a Portfolio. Except for the financial
information for the period ended June 30, 1999, which is unaudited, 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.
<TABLE>
<CAPTION>
Increase (Decrease) from
Investment Operations Less Distributions
_________________________ ______________________
Net Asset Net Net Asset
Value Investment Net Realized Total from From Net From Net Value
Period Beginning Income & Unrealized Investment Investment Realized Total End
Portfolio Ended of Period (Loss) Gain (Loss) Operations Income Gains Distributions of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AST Lord Abbett 06/30/99* $21.68 $ 0.11 $ 2.83 $ 2.94 $ (0.25) $ (1.20) $ (1.45) $ 23.17
Growth and Income 12/31/98 20.53 0.25 2.23 2.48 (0.25) (1.08) (1.33) 21.68
12/31/97 17.17 0.24 3.76 4.00 (0.23) (0.41) (0.64) 20.53
12/31/96 14.98 0.23 2.48 2.71 (0.17) (0.35) (0.52) 17.17
12/31/95 12.00 0.16 3.22 3.38 (0.20) (0.20) (0.40) 14.98
12/31/94 12.06 0.20 0.06 0.26 (0.12) (0.20) (0.32) 12.00
AST JanCap Growth 06/30/99* $37.00 $ -- $ 6.81 $ 6.81 $ -- $ (1.49) $(1.49) $ 42.32
12/31/98 23.15 0.04 15.10 15.14 (0.08) (1.21) (1.29) 37.00
12/31/97 18.79 0.06 5.16 5.22 (0.05) (0.81) (0.86) 23.15
12/31/96 15.40 0.02 4.19 4.21 (0.02) (0.80) (0.82) 18.79
12/31/95 11.22 0.06 4.18 4.24 (0.06) -- (0.06) 15.40
12/31/94 11.78 0.06 (0.59) (0.53) (0.03) -- (0.03) 11.22
AST T. Rowe Price 06/30/99* $ 17.47 $ 0.21 $ 0.64 $ 0.85 $ (0.36) $ (0.01) $ (0.37) $ 17.95
Asset Allocation 12/31/98 15.13 0.35 2.38 2.73 (0.33) (0.06) (0.39) 17.47
12/31/97 13.27 0.33 2.03 2.36 (0.26) (0.24) (0.50) 15.13
12/31/96 12.01 0.27 1.28 1.55 (0.25) (0.04) (0.29) 13.27
12/31/95 9.94 0.26 2.02 2.28 (0.21) -- (0.21) 12.01
12/31/94(2) 10.00 0.21 (0.27) (0.06) -- -- -- 9.94
AST PIMCO Total 06/30/99* $ 12.02 $ 0.26 $ (0.43) $ (0.17) $ (0.52) $ (0.38) $ (0.90) $ 10.95
Return Bond 12/31/98 11.72 0.49 0.56 1.05 (0.51) (0.24) (0.75) 12.02
12/31/97 11.11 0.48 0.58 1.06 (0.45) -- (0.45) 11.72
12/31/96 11.34 0.46 (0.10) 0.36 (0.28) (0.31) (0.59) 11.11
12/31/95 9.75 0.25 1.55 1.80 (0.21) -- (0.21) 11.34
12/31/94(2) 10.00 0.26 (0.51) (0.25) -- -- -- 9.75
AST INVESCO 06/30/99* $ 17.50 $ 0.16 $ 1.62 $ 1.78 $ (0.32) $ (0.50) $ (0.82) $ 18.46
Equity Income 12/31/98 16.51 0.31 1.81 2.12 (0.32) (0.81) (1.13) 17.50
12/31/97 13.99 0.31 2.84 3.15 (0.26) (0.37) (0.63) 16.51
12/31/96 12.50 0.27 1.79 2.06 (0.24) (0.33) (0.57) 13.99
12/31/95 9.75 0.25 2.65 2.90 (0.15) -- (0.15) 12.50
12/31/94(2) 10.00 0.16 (0.41) (0.25) -- -- -- 9.75
AST Janus 06/30/99* $ 17.61 $ (0.04) $ 4.99 $ 4.95 $ -- $ -- $ -- $ 22.56
Small-Cap Growth** 12/31/98 17.81 (0.08) 0.73 0.65 -- (0.85) (0.85) 17.61
12/31/97 16.80 (0.05) 1.06 1.01 -- -- -- 17.81
12/31/96 14.25 (0.03) 2.85 2.82 -- (0.27) (0.27) 16.80
12/31/95 10.84 (0.04) 3.54 3.50 (0.09) -- (0.09) 14.25
12/31/94(2) 10.00 0.11 0.73 0.84 -- -- -- 10.84
AST T. Rowe Price 06/30/99* $ 13.39 $ 0.08 $ 0.26 $ 0.34 $ (0.10) $ (0.64) $ (0.74) $ 12.99
International Equity 12/31/98 12.09 0.08 1.59 1.67 (0.14) (0.23) (0.37) 13.39
12/31/97 12.07 0.09 0.08 0.17 (0.07) (0.08) (0.15) 12.09
12/31/96 10.65 0.06 1.44 1.50 (0.08) -- (0.08) 12.07
12/31/95 9.62 0.07 0.99 1.06 (0.01) (0.02) (0.03) 10.65
12/31/94(2) 10.00 0.02 (0.40) (0.38) -- -- -- 9.62
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Commenced operations on January 4, 1994.
* Unaudited.
** 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>
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> <C> <C> <C> <C>
14.46% $ 1,497,606 36% 0.89%(1) 0.90%(1) 1.16%(1) 1.15%(1)
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%
18.82% $ 4,361,623 20% 0.99%(1) 1.03%(1) 0.02%(1) (0.02%)(1)
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%
4.96% $ 419,334 10% 1.07%(1) 1.07%(1) 2.79%(1) 2.79%(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)
(1.45%) $ 994,147 132% 0.82%(1) 0.82%(1) 5.24%(1) 5.24%(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)
10.60% $ 994,147 33% 0.91%(1) 0.91%(1) 1.99%(1) 1.99%(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)
28.11% $ 475,594 93% 1.11%(1) 1.11%(1) (0.73%)(1) (0.73%)(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)
2.90% $ 453,128 9% 1.25%(1) 1.25%(1) 1.23%(1) 1.23%(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)
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Increase (Decrease) from
Investment Operations Less Distributions
_________________________ ______________________
Net Asset Net Net Asset
Value Investment Net Realized Total from From Net From Net Value
Period Beginning Income & Unrealized Investment Investment Realized Total End
Portfolio Ended of Period (Loss) Gain (Loss) Operations Income Gains Distributions of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AST Neuberger Berman 06/30/99* $ 17.26 $(0.05%) $ 0.46 $ 0.41 $ -- $ (1.33) $ (1.33) $ 16.34
Mid-Cap Growth** 12/31/98 16.61 (0.05) 3.31 3.26 (0.01) (2.60) (2.61) 17.26
12/31/97 14.39 0.01 2.36 2.37 (0.02) (0.13) (0.15) 16.61
12/31/96 12.40 0.01 2.01 2.02 (0.03) -- (0.03) 14.39
12/31/95 9.97 0.04 2.40 2.44 (0.01) -- (0.01) 12.40
12/31/94(4) 10.00 0.01 (0.04) (0.03) -- -- -- 9.97
AST PIMCO Limited 06/30/99* $ 11.08 $ 0.30 $ (0.13) $ 0.17 $ (0.61) $ -- $ (0.61) $ 10.64
Maturity Bond 12/31/98 11.02 0.56 0.03 0.59 (0.53) -- (0.53) 11.08
12/31/97 10.81 0.55 0.22 0.77 (0.56) -- (0.56) 11.02
12/31/96 10.47 0.56 (0.15) 0.41 (0.05) (0.02) (0.07) 10.81
12/31/95(5) 10.00 0.05 0.42 0.47 -- -- -- 10.47
</TABLE>
(4) Commenced operations on October 20, 1994.
(5) Commenced operations on May 2, 1995.
* Unaudited.
** 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 has served as
Sub-advisor to the Portfolio since May 1, 1998.
<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> <C> <C> <C> <C>
2.93% $ 268,848 74% 1.11%(1) 1.11%(1) (0.73%)(1) (0.73%)(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)
1.56% $ 384,585 188% 0.86%(1) 0.86%(1) 5.62%(1) 5.62%(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)
</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 Trust's SAI under " Investment Objectives and Policies." 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 Portfolio 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 Growth Portfolio, the AST Lord Abbett Growth and Income
Portfolio, and the AST INVESCO Equity Income 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 Portfolios 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 Portfolio'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 Trust'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.
<PAGE>
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.
WHEN-ISSUED, DELAYED-DELIVERY AND FORWARD COMMITMENT TRANSACTIONS:
The Portfolios (other than 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 Portfolio may lose the opportunity to obtain a favorable price and
yield. While the Portfolios will generally engage in such when-issued,
delayed-delivery and forward commitment transactions with the intent of actually
acquiring the securities, a Portfolio may sometimes sell such a security prior
to the settlement date.
Certain Portfolios may also sell securities on a 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.
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 Portfolio 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 Trustees of the
Trust. 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.
Repurchase agreements must be fully collateralized and can be entered into only
with well-established banks and broker-dealers that 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 Small-Cap Growth
Portfolio, the AST Neuberger Berman Mid-Cap Growth Portfolio, the AST JanCap
Growth Portfolio, the AST PIMCO Total Return Bond Portfolio, and the AST PIMCO
Limited Maturity Bond 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. 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 Trust 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.
SHORT SALES "AGAINST THE BOX":
While none of the Portfolios will make short sales generally, the AST
Janus Small-Cap Growth Portfolio and the AST JanCap Growth Portfolio may make
short sales "against the box." A short sale against the box involves selling a
security that the Portfolio owns, or has the right to obtain without additional
costs, for delivery at a specified date in the future. A 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.
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 coordinating with the Service
Providers to determine that contingency plans are in place in the event of any
disruptions to the normal operations of the Trust resulting from the Year 2000
Issue.
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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
INVESCO Funds Group, Inc.
Janus Capital Corporation
Lord, Abbett & Co.
Neuberger Berman Management Inc.
Pacific Investment Management Company
Rowe Price-Fleming International, 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
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
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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 Trust 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 Trust is available on the
Commission's Internet site at http://www.sec.gov.
Investment Company Act File No. 811-5186
