PROSPECTUS October 18, 1999
AMERICAN SKANDIA TRUST
One Corporate Drive, Shelton, Connecticut 06484
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American Skandia Trust (the "Trust") is an investment company made up of 31
separate portfolios ("Portfolios"), one of which (the "Portfolio") is offered
through this Prospectus:
AST Money Market Portfolio
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Trust is an investment vehicle for life insurance companies ("Participating
Insurance Companies") writing variable annuity contracts and variable life
insurance policies. Shares of the Trust may also be sold directly to certain
tax-deferred retirement plans. Each variable annuity contract and variable life
insurance policy involves fees and expenses not described in this Prospectus.
Please read the Prospectus for the variable annuity contract and variable life
insurance policy for information regarding the contract or policy, including its
fees and expenses.
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TABLE OF CONTENTS
Caption Page
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Risk/Return Summary...............................................................................................3
Past Performance..................................................................................................4
Fees and Expenses of the Portfolio................................................................................5
Investment Objectives and Policies................................................................................6
AST Money Market Portfolio...................................................................................7
Net Asset Value...................................................................................................9
Purchase and Redemption of Shares.................................................................................9
Management of the Trust...........................................................................................9
Tax Matters......................................................................................................10
Financial Highlights.............................................................................................12
Certain Risk Factors and Investment Methods......................................................................14
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<PAGE>
RISK/RETURN SUMMARY
American Skandia Trust (the "Trust") is comprised of thirty-one
investment portfolios, one of which is offered through this Prospectus. The
Portfolios are designed to provide a wide range of investment options.
The following discussion highlights the investment strategies and risks
of the Portfolio. Additional information about the Portfolio's potential
investments and its risks is included in this Prospectus under "Investment
Objectives and Policies."
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Fixed Income Portfolios:
Portfolio: Investment Goal: Primary Investments:
<S> <C> <C>
Money Market Maximize current income The Portfolio invests in high-quality, short-term, U.S.
and maintain high levels dollar-denominated instruments.
of liquidity
</TABLE>
Principal Investment Strategies:
The AST Money Market Portfolio will invest in high-quality, short-term, U.S.
dollar denominated corporate, bank and government obligations. Under the
regulatory requirements applicable to money market funds, the Portfolio must
maintain a weighted average portfolio maturity of not more than 90 days and
invest in securities that have effective maturities of not more than 397 days.
In addition, the Portfolio will limit its investments to those securities that,
in accordance with guidelines adopted by the Trustees of the Trust, present
minimal credit risks. The Portfolio will not purchase any security (other than a
United States Government security) unless:
(1) if rated by only one nationally recognized statistical rating
organization (such as Moody's and Standard & Poor's), such organization has
rated it with the highest rating assigned to short-term debt securities;
(2) if rated by more than one nationally recognized statistical rating
organization, at least two rating organizations have rated it with the highest
rating assigned to short-term debt securities; or
(3) it is not rated, but is determined to be of comparable quality in
accordance with the guidelines noted above.
Principal Risks:
o The risk of a fund or portfolio investing primarily in fixed income
securities is determined largely by the quality and maturity
characteristics of its portfolio securities. Lower-quality fixed income
securities are subject to greater risk that the company may fail to make
interest and principal payments on the securities when due. Fixed income
securities with longer maturities (or durations) are generally subject to
greater risk than securities with shorter maturities, in that their values
will fluctuate more in response to changes in market interest rates.
o The AST Money Market Portfolio seeks to preserve the value of your
investment at $1.00 per share, but it is still possible to lose money by
investing in the Portfolio. An investment in the Portfolio is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. In addition, the income earned by the Portfolio will
fluctuate based on market conditions and other factors.
<PAGE>
Past Performance
The bar chart shows the performance of the Portfolio for each full
calendar year the Portfolio has been in operation. The table below the bar chart
shows the Portfolio's best and worst quarters during the periods included in the
bar chart, as well as average annual total returns for the Portfolio since
inception. This information may help provide an indication of the Portfolio's
risks by showing changes in performance from year to year. 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 the Portfolio will perform in the future.
AST Money Market Portfolio
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60.00%
40.00%
20.00%
3.75% 5.05% 5.08% 5.18% 5.14%
2.55% 0.00%
________________________________________________-20.00%
1993 1994 1995 1996 1997 1998
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Best Quarter Worst Quarter
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Up 1.38%, 2nd quarter 1995 Down 0.62%, 2nd quarter 1993
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7-day yield (as of 12/31/98) 4.78%
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<PAGE>
FEES AND EXPENSES OF THE PORTFOLIO: The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Portfolio. Unless
otherwise indicated, the expenses shown below are for the year ending December
31, 1998.
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SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment):
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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 Portfolio 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(2) Operating
Service Expenses Expenses
Portfolio: (12b-1)
Fees(1)
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<S> <C> <C> <C> <C> <C> <C>
AST Money Market 0.50 0.00 0.16 0.66 0.06 0.60
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(1) 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
Portfolio, and to use these commissions to promote the sale of shares of the
Portfolio. While the brokerage commission rates and amounts paid by the
Portfolio is 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 Funds. The Distribution Fee estimates are derived
from data regarding the 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 the Portfolio's brokerage activity, the proportion of such activity
directed under the Distribution Plan, and other factors.
(2) The Investment Manager has agreed to reimburse and/or waive fees for the
Portfolio until at least October 17, 2000. The caption "Total Annual Fund
Operating Expenses" reflects the Portfolio's fees and expenses before such
waivers and reimbursements, while the caption "Net Annual Fund Operating
Expenses" reflects the effect of such waivers and reimbursements.
EXPENSE EXAMPLES:
This example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated. The Example also assumes that your investment has a 5%
return each year, that the Portfolio's 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:
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After:
Portfolio: 1 yr. 3 yrs. 5 yrs. 10 yrs.
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<S> <C> <C> <C> <C>
AST Money Market $ 61 $203 $357 $806
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INVESTMENT OBJECTIVES AND POLICIES:
The investment objective, policies and limitations of the Portfolio are
described below. The investment objective and policies of the Portfolio
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 the
Portfolio will be achieved. Risks relating to certain types of securities and
instruments in which the Portfolio 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 MONEY MARKET PORTFOLIO:
Investment Objective: The investment objective of the Portfolio is to seek
high current income and maintain high levels of liquidity.
Principal Investment Policies and Risks:
As a money market fund, the Portfolio seeks to maintain a stable net
asset value of $1.00 per share. In other words, the Portfolio attempts to
operate so that shareholders do not lose any of the principal amount they invest
in the Portfolio. Of course, there can be no assurance that the Portfolio will
achieve its goal of a stable net asset value, and shares of the Portfolio are
neither insured nor guaranteed by the U.S. government or any other entity. For
instance, the issuer or guarantor of a portfolio security or the other party to
a contract could default on its obligation, and this could cause the Portfolio's
net asset value to fall below $1. In addition, the income earned by the
Portfolio will fluctuate based on market conditions and other factors.
Under the regulatory requirements applicable to money market funds, the
Portfolio must maintain a weighted average portfolio maturity of not more than
90 days and invest in high quality U.S. dollar-denominated securities that have
effective maturities of not more than 397 days. In addition, the Portfolio will
limit its investments to those securities that, in accordance with guidelines
adopted by the Trustees of the Trust, present minimal credit risks. The
Portfolio will not purchase any security (other than a United States Government
security) unless:
o if rated by only one nationally recognized statistical rating organization
(such as Moody's and Standard & Poor's), such organization has rated it
with the highest rating assigned to short-term debt securities;
o if rated by more than one nationally recognized statistical rating
organization, at least two rating organizations have rated it with the
highest rating assigned to short-term debt securities; or
o it is not rated, but is determined to be of comparable quality in accordance
with procedures noted above.
These standards must be satisfied at the time an investment is made. If the
quality of the investment later declines, the Portfolio may continue to hold the
investment, subject in certain circumstances to a finding by the Trustees that
disposing of the investment would not be in the Portfolio's best interest.
Subject to the above requirements, the Portfolio will invest in one or
more of the types of investments described below.
United States Government Obligations. The Portfolio may invest in
obligations of the U.S. Government and its agencies and instrumentalities either
directly or through repurchase agreements. U.S. Government obligations include:
(i) direct obligations issued by the United States Treasury such as Treasury
bills, notes and bonds; and (ii) instruments issued or guaranteed by
government-sponsored agencies acting under authority of Congress. Some U.S.
Government Obligations are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer to borrow from the
Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others are supported only
by the credit of the agency. There is no assurance that the U.S. Government will
provide financial support to one of its agencies if it is not obligated to do so
by law.
Bank Obligations. The Portfolio may invest in high quality United
States dollar-denominated negotiable certificates of deposit, time deposits and
bankers' acceptances of U.S. and foreign banks, savings and loan associations
and savings banks meeting certain total asset minimums. The Portfolio may also
invest in obligations of international banking institutions designated or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank). These obligations may be
supported by commitments of their member countries, and there is no assurance
these commitments will be undertaken or met.
Commercial Paper; Bonds. The Portfolio may invest in high quality
commercial paper and corporate bonds issued by United States corporations. The
Portfolio may also invest in bonds and commercial paper of foreign issuers if
the obligation is U.S.
dollar-denominated and is not subject to foreign withholding tax.
Asset-Backed Securities. As may be permitted by current laws and
regulations, the Portfolio may invest in asset-backed securities up to 10% of
its net assets.
Synthetic Instruments. As may be permitted by current laws and
regulations and if expressly permitted by the Trustees of the Trust, the
Portfolio may invest in certain synthetic instruments. Such instruments
generally involve the deposit of asset-backed securities in a trust arrangement
and the issuance of certificates evidencing interests in the trust. The
Sub-advisor will review the structure of synthetic instruments to identify
credit and liquidity risks and will monitor such risks.
Foreign Securities. Foreign investments must be denominated in U.S. dollars
and may be made directly in securities of foreign issuers or in the form of
American Depositary Receipts and European Depositary Receipts.
For more information on certain of these investments, see this
Prospectus under "Certain Risk Factors and Investment Methods."
<PAGE>
NET ASSET VALUE:
The net asset value per share ("NAV") of the 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 the Portfolio's total assets, less any liabilities, by
the number of total shares outstanding. The assets of the Portfolio are valued
by the amortized cost method, which is intended to approximate their market
value.
PURCHASE AND REDEMPTION OF SHARES:
Purchases of shares of the Portfolio 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. 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-advisor:
J.P. Morgan Investment Management Inc. ("J.P. Morgan"), with principal
offices at 522 Fifth Avenue, New York, New York 10036, serves as Sub-advisor for
the AST Money Market Portfolio. J.P. Morgan and its affiliates offer a wide
range of services to governmental, institutional, corporate and individual
customers, and act as investment advisor to individual and institutional clients
with combined assets under management of approximately $326 billion as of June
30, 1999. J.P. Morgan has managed investments for clients since 1913, and has
managed short-term fixed income assets since 1969.
Fees and Expenses:
Investment Management Fees. ASISI receives a fee, payable each month,
for the performance of its services. ASISI pays the Sub-advisor a portion of
such fee for the performance of the Sub-advisory services at no additional cost
to the Portfolio. The 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 the Portfolio,
stated as a percentage of the Portfolio's average daily net assets, was as
follows:
Portfolio: Annual Rate:
AST Money Market Portfolio: 0.45%
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 the Sub-advisor, please see the Trust's SAI under
"Investment Advisory and Other Services."
Other Expenses. In addition to Investment Management fees, the
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
the Portfolio are allocated on the basis of the net assets of the Portfolio.
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 Portfolio, and to use these commissions to promote the
sale of shares of the Portfolio. Under the Distribution Plan, transactions for
the purchase and sale of securities for the 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. The Portfolio will not pay any new fees or charges
resulting from the Distribution Plan, nor is it expected that the brokerage
commissions paid by the Portfolio will increase as the result of implementation
of the Distribution Plan.
TAX MATTERS:
The Portfolio intends to distribute substantially all its net
investment income. Dividends from investment income will be declared daily and
paid monthly, although the Trustees of the Trust may decide to declare dividends
at other intervals. Similarly, any net realized long- and short-term capital
gains of the 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 Portfolio, 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 Money Market 06/30/99* $ 1.00 $0.0219 $ -- $ 0.0219 $ (0.0219) $ -- $ (0.0219) $ 1.00
12/31/98 1.00 0.0502 0.0002 0.0504 (0.0502) (0.0002) (0.0504) 1.00
12/31/97 1.00 0.0507 0.0002 0.0509 (0.0507) (0.0002) (0.0509) 1.00
12/31/96 1.00 0.0492 0.0005 0.0497 (0.0492) (0.0005) (0.0497) 1.00
12/31/95 1.00 0.0494 -- 0.0494 (0.0494) -- (0.0494) 1.00
12/31/94 1.00 0.0367 0.0002 0.0369 (0.0367) (0.0002) (0.0369) 1.00
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(1) Annualized.
* Unaudited.
<PAGE>
<TABLE>
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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>
2.21% $ 1,338,286 N/A 0.60%(1) 0.60%(1) 4.40%(1) 4.40%(1)
5.14% 967,733 N/A 0.60% 0.66% 4.99% 4.93%
5.18% 759,888 N/A 0.60% 0.69% 5.06% 4.98%
5.08% 549,470 N/A 0.60% 0.71% 4.87% 4.76%
5.05% 344,225 N/A 0.60% 0.72% 5.38% 5.26%
3.75% 288,588 N/A 0.64% 0.76% 3.90% 3.78%
</TABLE>
<PAGE>
CERTAIN RISK FACTORS AND INVESTMENT METHODS:
The following is a description of certain securities and investment
methods that the Portfolio may invest in or use, and certain of the risks
associated with such securities and investment methods. The primary investment
focus of the Portfolio is described above under "Investment Objectives and
Policies" and an investor should refer to that section to obtain information
about the Portfolio.
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 the Portfolio does not invest primarily
in securities of issuers in developing countries, it 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.
FIXED INCOME SECURITIES:
The Portfolio will invest in high-quality, short-term 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.
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 the 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 the 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.
WHEN-ISSUED, DELAYED-DELIVERY AND FORWARD COMMITMENT TRANSACTIONS:
The 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. The Portfolio does not earn interest on such securities until
settlement and bears the risk of market value fluctuations in between the
purchase and settlement dates. If the seller fails to complete the sale, the
Fund may lose the opportunity to obtain a favorable price and yield. While the
Portfolio will generally engage in such when-issued, delayed-delivery and
forward commitment transactions with the intent of actually acquiring the
securities, the Portfolio may sometimes sell such a security prior to the
settlement date. The Portfolio will not enter into these commitments if they
would exceed 15% of the value of the Fund's total assets less its liabilities
other than liabilities created by these commitments.
The Portfolio 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, the
Portfolio may invest up to 10% 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 Fund has valued the investment. Therefore, the 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 the Portfolio's investments in Rule 144A
securities could be impaired if trading does not develop or declines.
REPURCHASE AGREEMENTS:
The Portfolio may enter into repurchase agreements. Repurchase
agreements are agreements by which the 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 the Portfolio's limit on illiquid securities.
If the Portfolio enters into a repurchase agreement it 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. The 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.
REVERSE REPURCHASE AGREEMENTS:
The Portfolio may enter into reverse repurchase agreements. In a
reverse repurchase agreement, the 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 the
Portfolio's share price. When entering into a reverse repurchase agreement, the
Portfolio must set aside on its books cash or other liquid assets in an amount
sufficient to meet its repurchase obligation.
BORROWING:
The Portfolio may borrow money from banks. The Portfolio's borrowings
are limited so that immediately after such borrowing the value of the
Portfolio's assets (including borrowings) less its liabilities (not including
borrowings) is at least three times the amount of the borrowings. Should the
Portfolio, for any reason, have borrowings that do not meet the above test, the
Portfolio must reduce such borrowings so as to meet the necessary test within
three business days. The Portfolio will not purchase securities when outstanding
borrowings are greater than 5% of the Portfolio's total assets. If the Portfolio
borrows money, its share price may fluctuate more widely until the borrowing is
repaid.
LENDING PORTFOLIO SECURITIES:
The 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 the 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-advisor for the Portfolio can "sweep" excess cash balances of
the Portfolio to those funds for temporary investment purposes. In addition, the
Sub-advisor may invest Portfolio assets in money market funds that they advise.
Mutual funds pay their own operating expenses, and the Portfolio, as a
shareholder in the money market funds, will indirectly pay its proportionate
share of such funds' expenses.
YEAR 2000 RISKS:
Many services provided to the Trust and the Portfolio by the Investment
Manager, the Sub-advisor, 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
Portfolio, nor can there be any assurance that the Year 2000 Issue will not have
an adverse effect on the Portfolio's 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 Portfolio's 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 Portfolio 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-Advisor
J.P. Morgan Investment Management 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 Portfolio is included in a Statement
of Additional Information, which is incorporated by reference into this
Prospectus. Additional information about the Portfolio's 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 the 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
