ASAP2 (12/96) (this Supplement replaces the Supplement dated October 15, 1996)
Supplement to Prospectus Dated May 1, 1996
Supplement dated January 2, 1997
A. CHANGES IN VARIABLE INVESTMENT OPTIONS
The following changes were approved by a vote of shareholders on October 11,
1996 regarding the following portfolios of the American Skandia Trust ("AST"),
one of the underlying mutual funds whose portfolios are made available as
variable investment options under your Annuity:
I. Changes in the AST Phoenix Balanced Asset Portfolio: Reappointed American
Skandia Investment Services, Incorporated (the "Manager") as investment manager;
increased the investment management fee on average daily net assets over $75
million; appointed Putnam Investment Management, Inc. ("Putnam Management") as
new portfolio Sub-advisor; changed the portfolio's investment objective and
certain fundamental investment restrictions; and changed the portfolio's name to
the "AST Putnam Balanced Portfolio." The "Total Annual Expenses without any
applicable reimbursement" for this portfolio will increase from 0.94% to 0.99%,
resulting in a corresponding increase of approximately $0, $1, $2, and $4 per
$1000 investment in the 1, 3, 5 and 10 year Expense Examples for the portfolio.
II. Changes in the Seligman Henderson International Equity Portfolio:
Reappointed the Manager as investment manager; appointed Putnam Management as
new portfolio Sub-advisor; changed the portfolio's investment objective and
certain fundamental investment restrictions; and changed the portfolio's name to
the "AST Putnam International Equity Portfolio."
III. Changes in the Seligman Henderson International Small Cap Portfolio:
Reappointed the Manager as investment manager; appointed Founders Asset
Management, Inc. as new portfolio Sub-advisor; changed the portfolio's
investment objective and certain fundamental investment restrictions; and
changed the portfolio's name to the "Founders Passport Portfolio."
The above changes are described more fully in the December 30, 1996 AST
Prospectus, which is available upon request by calling 1-800-SKANDIA.
The name of the AST Phoenix Balanced Asset, Seligman Henderson International
Equity and Seligman Henderson International Small Cap Sub-accounts are changed
to "AST Putnam Balanced," "AST Putnam International Equity," and "Founders
Passport" Sub-accounts, respectively.
B. NEW VARIABLE INVESTMENT OPTIONS
The following additional portfolios of AST are now available as variable
investment options under your Annuity: AST Janus Overseas Growth, T. Rowe Price
Small Company Value, Twentieth Century International Growth, Twentieth Century
Strategic Balanced and AST Putnam Value Growth & Income.
The following information is added to the table entitled "Underlying Mutual Fund
Portfolio Annual Expenses (as a percentage of average net assets):
Unless otherwise shown, the expenses shown below are for the year ending
December 31, 1995. "N/A" shown below indicates that no entity has agreed to
reimburse the particular expense indicated.
<TABLE>
<CAPTION>
Management Management Other Other Total Annual Total Annual
Fee Fee Expenses Expenses Expenses Expenses
after any without any after any without any after any without any
applicable applicable applicable applicable applicable applicable
reimbursement reimbursement reimbursement reimbursement reimbursement reimbursement
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Skandia Trust
AST Janus Overseas Growth(1) N/A 1.00% 0.42% 0.42% 1.42% 1.42%
T. Rowe Price Small Company Value(1) N/A 0.90% 0.37% 0.37% 1.27% 1.27%
Twentieth Century International Growth(1) N/A 1.00% 0.42% 0.42% 1.42% 1.42%
Twentieth Century Strategic Balanced(1) N/A 0.85% 0.33% 0.33% 1.18% 1.18%
AST Putnam Value Growth & Income(1) N/A 0.75% 0.33% 0.33% 1.08% 1.08%
</TABLE>
(1) These Portfolios are first being offered as of the date of this Supplement.
Expenses shown are estimated and annualized.
The following information is added to the table entitled "Expense Examples":
Examples (amounts shown are rounded to the nearest dollar)
- --------------------------------------------------------------------------------
If you surrender your Annuity at the end of the applicable time period, you
would pay the following expenses on a $1,000.00 investment, assuming 5% annual
return on assets:
- --------------------------------------------------------------------------------
After:
Sub-accounts 1 yr. 3 yrs.5 yrs. 10 yrs.
AST Janus Overseas Growth 105 151 194 324
T. Rowe Price Small Company Value 103 146 186 308
Twentieth Century Strategic Balanced 102 143 182 300
Twentieth Century International Growth 105 151 194 324
AST Putnam Value Growth & Income 101 140 177 290
If you do not surrender your Annuity at the end of the applicable time period or
begin taking annuity payments at such time, you would pay the following expenses
on a $1,000.00 investment, assuming 5% annual return on assets:
After:
Sub-accounts 1 yr. 3 yrs.5 yrs. 10 yrs.
AST Janus Overseas Growth 30 91 154 324
T. Rowe Price Small Company Value 28 86 146 308
Twentieth Century Strategic Balanced 27 83 142 300
Twentieth Century International Growth 30 91 154 324
AST Putnam Value Growth & Income 26 80 137 290
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following is added to the section entitled "INVESTMENT OPTIONS - Underlying
Mutual Fund: American Skandia Trust"
<TABLE>
<CAPTION>
<S> <C> <C>
Sub-account Underlying Mutual Fund Portfolio
AST Janus Overseas Growth AST Janus Overseas Growth
T. Rowe Price Small Company Value T. Rowe Price Small Company Value
Twentieth Century Strategic Balanced Twentieth Century Strategic Balanced
Twentieth Century International Growth Twentieth Century International Growth
AST Putnam Value Growth & Income AST Putnam Value Growth & Income
</TABLE>
C. SHORT DESCRIPTIONS - APPENDIX B
The following short descriptions of the AST Putnam Balanced Portfolio, AST
Putnam International Equity Portfolio and Founders Passport Portfolio replace
the short descriptions of the AST Phoenix Balanced Asset Portfolio, Seligman
Henderson International Equity Portfolio and the Seligman Henderson
International Small Cap Portfolio:
AST Putnam Balanced Portfolio: The investment objective of the AST Putnam
Balanced Portfolio is to provide a balanced investment composed of a
well-diversified portfolio of stocks and bonds which will produce both capital
growth and current income. In seeking its objective, the Portfolio may invest in
almost any type of security or negotiable instrument, including cash or money
market instruments. The Portfolio's portfolio will include some securities
selected primarily to provide for capital protection, others selected for
dependable income and still others for growth in value. The portion of the
Portfolio's assets invested in equity securities and fixed income securities
will vary from time to time in light of the Portfolio's investment objective,
changes in interest rates and economic or other factors. However, under normal
market conditions, it is expected that at least 25% of the Portfolio's total
assets will be invested in fixed income securities, which for this purpose
includes debt securities, preferred stocks and that portion of the value of
convertible securities attributable to the fixed income characteristics of those
securities. The Portfolio may also invest up to 20% of its assets in securities
denominated in foreign currency. The Portfolio may purchase Eurodollar
certificates of deposit without regard to the 20% limit. The Portfolio may
invest in securities principally traded in, or issued by issuers located in,
underdeveloped and developing nations, which are sometimes referred to as
"emerging markets" and which may entail special risks. The Portfolio may buy or
sell foreign currencies and foreign currency forward contracts for hedging
purposes in connection with its foreign investments. The Portfolio may also
invest in both higher-rated and lower-rated fixed-income securities. The
Portfolio will not invest in securities rated at the time of purchase lower than
B by Moody's Investors Services, Inc. ("Moody's") and Standard & Poor's Ratings
Services ("S&P"), or in unrated securities which the Sub-advisor determines are
of comparable quality. Securities rated B are predominantly speculative and have
large uncertainties or major risk exposures to adverse conditions. The Portfolio
may also invest in so-called zero coupon bonds whose values are subject to
greater fluctuation in response to changes in market interest rates than bonds
that pay interest currently. The Portfolio may also buy and sell financial
futures contracts on stock indexes, U.S. government securities, fixed income
securities and currencies. The Portfolio may seek to increase its current return
by writing covered call and put options on securities it owns or in which it may
invest.
AST Putnam International Equity Portfolio: The investment objective of the AST
Putnam International Equity Portfolio is to seek capital appreciation. The
Portfolio seeks its objective by investing primarily in equity securities of
companies located in a country other than the United States. The Portfolio's
investments will normally include common stocks, preferred stocks, securities
convertible into common or preferred stocks, and warrants to purchase common or
preferred stocks. The Portfolio may also invest to a lesser extent in debt
securities and other types of investments if the Sub-advisor believes purchasing
them would help achieve the Portfolio's objective. The Portfolio will, under
normal circumstances, invest at least 65% of its total assets in issuers located
in at least three different countries other than the United States. The
Portfolio may invest in securities of issuers in emerging markets, as well as
more developed markets. Investing in emerging markets generally involves more
risks than in investing in developed markets. The Portfolio may invest in
companies, large or small, whose earnings are believed to be in a relatively
strong growth trend, or in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. Since
foreign securities are normally denominated and traded in foreign currencies,
the values of portfolio assets may be affected favorably or unfavorably by
currency exchange rates relative to the U.S. dollar as well as other risks. The
Portfolio may engage in a variety of transactions involving the use of options
and futures contracts and in foreign currency exchange transactions for purposes
of increasing its investment return or hedging against market changes. Options
and futures transactions involve certain special risks. The Sub-advisor may
engage in foreign currency exchange transactions in connection with the purchase
and sale of portfolio securities ("transaction hedging") and to protect against
changes in the value of specific portfolio positions ("position hedging").
Founders Passport Portfolio: The investment objective of the Founders Passport
Portfolio is to seek capital appreciation. To achieve its objective, the
Portfolio invests primarily in securities issued by foreign companies which have
market capitalizations or annual revenues of $1 billion or less. These
securities may represent companies in both established and emerging economies
throughout the world. At least 65% of the Portfolio's total assets will normally
be invested in foreign securities representing a minimum of three countries. The
Portfolio may invest in larger foreign companies or in U.S.-based companies if,
in the Sub-advisor's opinion, they represent better prospects for capital
appreciation. The Portfolio normally will invest a significant proportion of its
assets in the securities of small and medium-sized companies. As used with
respect to this Portfolio, small and medium-sized companies are those which are
still in the developing stages of their life cycles and are attempting to
achieve rapid growth in both sales and earnings. The Portfolio may invest in
convertible securities, preferred stocks, bonds, debentures, and other corporate
obligations when the Sub-advisor believes that these investments offer
opportunities for capital appreciation. Current income will not be a substantial
factor in the selection of these securities. The Portfolio will only invest in
bonds, debentures, and corporate obligations (other than convertible securities
and preferred stock) rated investment grade (BBB or higher) at the time of
purchase. Bonds in the lowest investment grade category (BBB) have speculative
characteristics. Convertible securities and preferred stocks purchased by the
Portfolio may be rated in medium and lower categories by Moody's or S&P (Ba or
lower by Moody's and BB or lower by S&P), but will not be rated lower than B.
The Portfolio may also invest in unrated convertible securities and preferred
stocks in instances in which the Sub-advisor believes that the financial
condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities eligible for
purchase by the Portfolio rated in categories no lower than B. The Portfolio may
also invest without limit in American Depository Receipts and may invest in
foreign securities. Foreign investments of the Portfolio may include securities
issued by companies located in countries not considered to be major
industrialized nations, which involve certain risks. The Portfolio may also
enter futures contracts (or options thereon) for hedging purposes. The Portfolio
may engage in short-term trading and therefore normally will have annual
portfolio turnover rates in excess of 100%.
The following are the short descriptions of the new variable investment options:
AST Janus Overseas Growth Portfolio: The investment objective of the AST
Janus Overseas Growth Portfolio is to seek long-term growth of capital. The
Portfolio pursues its objective primarily through investments in common stocks
of issuers located outside the United States. The Portfolio normally invests at
least 65% of its total assets in securities of issuers from at least five
different countries, excluding the United States; however, it may at times
invest in U.S. issuers and it may at times invest all of its assets in fewer
than five countries or even a single country. The Portfolio invests primarily in
common stocks of foreign issuers selected for their growth potential. The
Portfolio may invest to a lesser degree in other types of securities, including
preferred stocks, warrants, convertible securities and debt securities. The
Portfolio may also invest in short-term debt securities, including money market
funds managed by the Sub-advisor, as a means of receiving a return on idle cash.
When the Sub-advisor believes that market conditions are not favorable for
profitable investing or when the Sub-advisor is otherwise unable to locate
favorable investment opportunities, the Portfolio's investments may be hedged to
a greater degree and/or its cash or similar investments may increase; therefore,
it does not always stay fully invested in stocks and bonds. The Portfolio may
invest in "special situations" from time to time. A special situation arises
when, in the opinion of the Sub-advisor, the securities of a particular issuer
will be recognized and appreciate in value due to a specific development with
respect to that issuer. 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. The Sub-advisor generally takes a
"bottom up" approach to building the Portfolio. In other words, the Sub-advisor
seeks to identify individual companies with earnings growth potential that may
not be recognized by the market at large regardless of country of organization
or place of principal business activity. The Portfolio may use options, futures
and other types of derivatives as well as forward foreign currency contracts for
hedging purposes or as a means of enhancing return. 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. Although the Sub-advisor believes the use of
derivative instruments will benefit the Portfolio, the Portfolio's performance
could be worse than if the Portfolio had not used such instruments if the
Sub-advisor's judgment proves incorrect. The Portfolio may invest up to 15% of
its net assets in illiquid investments, including restricted securities or
private placements that are not deemed to be liquid by the Sub-advisor. The
Portfolio may invest up to 35% of its net assets in corporate debt securities
that are rated below investment grade (securities rated BB or lower by S&P or Ba
or lower by Moody's (commonly referred to as "junk bonds")). The Portfolio may
also invest in unrated debt securities of foreign and domestic issuers. The
Portfolio generally intends to purchase securities for long-term investment
rather than short-term gains.
T. Rowe Price Small Company Value Portfolio: The investment objective of
the T. Rowe Price Small Company Value Portfolio is to provide long-term capital
appreciation by investing primarily in small-capitalization stocks that appear
to be undervalued. Reflecting a value approach to investing, the Portfolio will
seek the stocks of companies whose current stock prices do not appear to
adequately reflect their underlying value as measured by assets, earnings, cash
flow, or business franchises. The Portfolio will invest at least 65% of its
total assets in companies with a market capitalization of $1 billion or less
that appear undervalued by various measures, such as price/earnings or
price/book value ratios. Although the Portfolio will invest primarily in U.S.
common stocks, it may also purchase other types of securities, for example,
foreign securities, convertible stocks and bonds, and warrants when considered
consistent with the Portfolio's investment objective and policies. Small
companies--those with a capitalization (market value) of $1 billion or less--may
offer greater potential for capital appreciation since they are often overlooked
or undervalued by investors. Investing in small companies involves greater risk,
as well as greater opportunity, than is customarily associated with more
established companies. The Portfolio may invest in debt or preferred equity
securities convertible into or exchangeable for equity securities. The Portfolio
may invest up to 20% of its total assets (excluding reserves) in foreign
securities. These include nondollar-denominated securities traded outside of the
U.S. and dollar-denominated securities of foreign issuers traded in the U.S.
(such as ADRs). Some of the countries in which the Portfolio may invest may be
considered to be developing and may involve special risks. Investors in foreign
securities may "hedge" their exposure to potentially unfavorable currency
changes by purchasing a contract to exchange one currency for another on some
future date at a specified exchange rate. The Portfolio may invest in debt
securities of any type without regard to quality or rating. The Portfolio will
not purchase a noninvestment-grade debt security (or junk bond) if immediately
after such purchase the Portfolio would have more than 5% of its total assets
invested in such securities. The Portfolio may invest up to 10% of its total
assets in hybrid instruments. Hybrids can have volatile prices and limited
liquidity and their use by the Portfolio may not be successful. These
instruments (a type of potentially high-risk derivative) can combine the
characteristics of securities, futures, and options. The Portfolio may acquire
illiquid securities; however, the Portfolio will not invest more than 15% of its
net assets in illiquid securities, and not more than 10% of its total assets in
restricted securities (other than Rule 144A securities). The Portfolio will hold
a certain portion of its assets in U.S. and foreign dollar-denominated money
market securities, including repurchase agreements, in the two highest rating
categories, maturing in one year or less. The Portfolio may enter into futures
contracts (or options thereon) to hedge all or a portion of its portfolio
against changes in prevailing levels of interest rates or currency exchange
rates, or as an efficient means of adjusting its exposure to the bond, stock,
and currency markets. The Portfolio will limit its use of futures contracts so
that initial margin deposits and premiums on such contracts used for non-hedging
purposes will not equal more than 5% of the Portfolio's net assets. The
Portfolio may also write call and put options and purchase put and call options
on securities, financial indices, and currencies. The aggregate market value of
the Portfolio's securities or currencies covering call or put options will not
exceed 25% of the Portfolio's net assets. The Portfolio will not generally trade
in securities for short-term profits, but, when circumstances warrant,
securities may be purchased and sold without regard to the length of time held.
Twentieth Century International Growth Portfolio: The investment objective of
the Twentieth Century International Growth Portfolio is to seek capital growth.
The Portfolio will seek to achieve its investment objective by investing
primarily in securities of foreign issuers that meet certain fundamental and
technical standards of selection (relating primarily to acceleration of earnings
and revenues) and have, in the opinion of the Sub-advisor, potential for
appreciation. The Portfolio will invest primarily in issuers in developed
markets. The Portfolio will invest primarily in equity securities (defined to
include equity equivalents) of such issuers. The Portfolio will attempt to stay
fully invested in such securities, regardless of the movement of stock prices
generally. The Portfolio may also invest in other types of securities consistent
with the accomplishment of the Portfolio's objectives. When the Sub-advisor
believes that the total return potential of other securities equals or exceeds
the potential return of equity securities, the Portfolio may invest up to 35% in
such other securities. The other securities the Portfolio may invest in are
bonds, notes and debt securities of companies and obligations of domestic or
foreign governments and their agencies. The Portfolio will limit its purchases
of debt securities to investment grade obligations. The Portfolio may also
invest in other equity securities and equity equivalents. Examples of other
equity securities and equity equivalents are preferred stock, convertible
preferred stock and convertible debt securities. Equity equivalents may also
include securities whose value or return is derived from the value or return of
a different security. Under normal conditions, the Portfolio will invest at
least 65% of its assets in equity and equity equivalent securities of issuers
from at least three countries outside of the United States. While securities of
U.S. issuers may be included in the Portfolio from time to time, it is the
primary intent of the Sub-advisor to diversify investments across a broad range
of foreign issuers. In order to achieve maximum investment flexibility, the
Portfolio has not established geographic limits on asset distribution, on either
a country-by-country or region-by-region basis. The Sub-advisor expects to
invest both in issuers in developed markets (such as Germany, the United Kingdom
and Japan) and in issuers in emerging market countries. Subject to certain
restrictions contained in the 1940 Act, the Portfolio may invest up to 10% of
its assets in certain foreign countries indirectly through investment funds and
registered investment companies authorized to invest in those countries. Some of
the securities held by the Portfolio will be denominated in foreign currencies.
To protect against adverse movements in exchange rates between currencies, the
Portfolio may, for hedging purposes only, enter into forward currency exchange
contracts. Notwithstanding the Portfolio's investment objective of capital
growth, under exceptional market or economic conditions, the Portfolio may
temporarily invest all or a substantial portion of its assets in cash or
investment-grade short-term securities (denominated in U.S. dollars or foreign
currencies). The Portfolio may invest in repurchase agreements when such
transactions present an attractive short-term return on cash that is not
otherwise committed to the purchase of securities pursuant to the investment
policies of the Portfolio. The Portfolio will not invest more than 15% of its
assets in repurchase agreements maturing in more than seven days. The Portfolio
may, from time to time, purchase Rule 144A securities when they present
attractive investment opportunities that otherwise meet the Portfolio's criteria
for selection. The portfolio turnover may be higher than other mutual funds with
similar investment objectives. Investments in the Portfolio should not be
considered a complete investment program and may not be appropriate for an
individual with limited investment resources or who is unable to tolerate
fluctuations in the value of the investment.
Twentieth Century Strategic Balanced Portfolio: The investment objective of the
Twentieth Century Strategic Balanced Portfolio is to seek capital growth and
current income. It is the Sub-advisor's intention to maintain approximately 60%
of the Portfolio's assets in common stocks that are considered by the
Sub-advisor to have better-than-average prospects for appreciation and the
remainder in bonds and other fixed income securities. With the equity portion of
the Portfolio, the Sub-advisor seeks capital growth by investing in securities,
primarily common stocks, that meet certain fundamental and technical standards
of selection (relating primarily to earnings and revenue acceleration) and have,
in the opinion of the Sub-advisor, better-than-average potential for
appreciation. So long as a sufficient number of such securities are available,
the Sub-advisor intends to keep the equity portion of the Portfolio fully
invested in these securities regardless of the movement of stock prices
generally. The Portfolio may purchase securities only of companies that have a
record of at least three years continuous operation. The Sub-advisor intends to
maintain approximately 40% of the Portfolio's assets in fixed income securities,
approximately 80% of which will be invested in domestic fixed income securities
and approximately 20% of which will be invested in foreign fixed income
securities. This percentage will fluctuate from time to time. The fixed income
portion of the Portfolio will include U.S. Treasury securities, securities
issued or guaranteed by the U.S. government or a foreign government, or an
agency or instrumentality of the U.S. or a foreign government, and
non-convertible debt obligations issued by U.S. or foreign corporations. The
Portfolio may also invest in mortgage-related and other asset-backed securities.
Debt securities that comprise part of the Portfolio's fixed income portfolio
will primarily be limited to "investment grade" obligations. However, the
Portfolio may invest up to 10% of its fixed income assets in "high yield"
securities. Under normal market conditions, the maturities of fixed-income
securities in which the Portfolio invests will range from 2 to 30 years. The
Portfolio may invest up to 25% of its assets in the securities of foreign
issuers, including debt securities of foreign governments and their agencies
primarily from developed markets, when these securities meet its standards of
selection. Some of the foreign securities held by the Portfolio may be
denominated in foreign currencies. To protect against adverse movements in
exchange rates between currencies, the Portfolio may, for hedging purposes only,
enter into forward currency exchange contracts and buy put and call options
relating to currency futures contracts. The Portfolio may purchase
mortgage-related and other asset-backed securities. The Portfolio may also
invest in collateralized mortgage obligations (CMOs). The Portfolio may invest
in repurchase agreements when such transactions present an attractive short-term
return on cash that is not otherwise committed to the purchase of securities
pursuant to the investment policies of the Portfolio. To the extent permitted by
its investment objectives and policies, the Portfolio may invest in securities
that are commonly referred to as "derivative" securities. Some "derivatives"
such as mortgage-related and other asset-backed securities are in many respects
like any other investment, although they may be more volatile or less liquid
than more traditional debt securities. The Portfolio may not invest in a
derivative security unless the reference index or the instrument to which it
relates is an eligible investment for the Portfolio. There are a range of risks
associated with derivative investments. The Portfolio may, from time to time,
purchase Rule 144A securities when they present attractive investment
opportunities that otherwise meet the Portfolio's criteria for selection. The
portfolio turnover of the Portfolio may be higher than other mutual funds with
similar investment objectives.
AST Putnam Value Growth & Income Portfolio: The primary investment objective of
the AST Putnam Value Growth & Income Portfolio is to seek capital growth.
Current income is a secondary investment objective. The Portfolio invests
primarily in common stocks that offer potential for capital growth, and may,
consistent with its investment objectives, invest in stocks that offer potential
for current income. The Portfolio may also purchase corporate bonds, notes and
debentures, preferred stocks, or convertible securities (both debt securities
and preferred stocks) or U.S. government securities, if the Sub-advisor
determines that their purchase would help further the Portfolio's investment
objectives. The Portfolio may invest up to 20% of its assets in securities
denominated in foreign currency. The Portfolio may also purchase Eurodollar
certificates of deposit, without regard to the 20% limit. The Portfolio may
invest in securities principally traded in, or issued by issuers located in,
underdeveloped and developing nations, which are sometimes referred to as
"emerging markets." The Portfolio may buy or sell foreign currencies, foreign
currency futures contracts and foreign currency forward contracts for hedging
purposes in connection with its foreign investments. The Portfolio may invest a
portion of its assets in fixed-income securities, including lower-rated
fixed-income securities, which are commonly known as "junk bonds," without
limitation as to credit rating. The Portfolio may invest in zero coupon bonds
and payment-in-kind bonds. The Portfolio may buy and sell stock index futures
contracts. The Portfolio may buy and sell call and put options on index futures
or on stock indices in addition to or as an alternative to purchasing or selling
index futures or, to the extent permitted by applicable law, to earn additional
income. The Portfolio may seek to increase its current return by writing covered
call and put options on securities it owns or in which it may invest. The
Portfolio may also buy and sell put and call options for hedging purposes. The
aggregate value of the securities underlying the options may not exceed 25% of
Portfolio assets. The Portfolio may enter into repurchase agreements. The
Portfolio may purchase securities for future delivery, which may increase its
overall investment exposure and involves a risk of loss if the value of the
securities declines prior to the settlement date. The length of time the
Portfolio has held a particular security is not generally a consideration in
investment decisions. As a result of the Portfolio's investment policies, under
certain market conditions the Portfolio's turnover rate may be higher than that
of other mutual funds.
