Definitive Proxy - AST
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February 20, 2003
Dear Shareholder:
We are writing to inform you that a Special Meeting of Shareholders
of the portfolios (the "Portfolios") of the American Skandia Trust (the
"Trust") will be held on April 3, 2003 at 10:00 a.m. Eastern Standard Time at
One Corporate Drive, Shelton, Connecticut 06484. The Meeting has been called
in order to vote on a number of important issues. As a shareholder of the
Portfolios, you have the opportunity to voice your opinion on these matters.
On December 19, 2002, Skandia Insurance Company Ltd., the parent of
American Skandia, Inc. ("ASI") entered into a stock purchase agreement to sell
ASI and all of ASI's businesses, including American Skandia Investment
Services, Inc ("ASISI"), the investment advisor to the Portfolios, to
Prudential Financial, Inc. ("Prudential") (the "Transaction"). Prudential,
located at 751 Broad Street, Newark, New Jersey 07102, serves retail and
institutional customers worldwide and includes The Prudential Insurance
Company of America, one of the largest life insurance companies in the United
States. Consummation of the Transaction is subject to a number of
contingencies, including regulatory and shareholder approvals and other
closing conditions. ASI's goal is to close the Transaction during the second
quarter of 2003.
Because of the Transaction, it is necessary for the shareholders of
each of the Portfolios for which ASISI acts as investment manager, including
your Portfolio, to approve a new investment management agreement so that the
management of each Portfolio can continue uninterrupted after the Transaction,
because the current investment management agreements will terminate
automatically upon completion of the Transaction. In the event the
Transaction is not completed, ASISI will continue to manage the Portfolios
pursuant to the current investment management agreements, which will continue
in full force and effect in accordance with their respective terms. The
following important facts about the Transaction are outlined below:
o The Transaction will have no effect on the number of shares you own,
the value of those shares, or your Portfolio's investment objectives.
o The investment management fee applicable to your Portfolio under the
new investment management agreement will be the same as that currently in
effect.
o Your Fund's investment management agreement will be with ASISI and
Prudential Investments LLC as co-managers of your Portfolio.
o The members of your Portfolio's Board, including those members who
are not affiliated with ASI or Prudential, have carefully reviewed the
proposed Transaction and unanimously recommend that you vote in favor of
the new investment management agreement.
You are also being asked to approve certain other matters, including the
election of Trustees to serve on your Portfolio's Board. Each proposal is set
forth in the enclosed Notice of Special Meeting of Shareholders. Please take
the time to read the enclosed materials.
We have enclosed a Question & Answer document that discusses the proposals
that require shareholder approval. The Proxy Statement itself provides
greater detail about the proposals, why they are being made and how they apply
to your Portfolio. We urge you to please take a moment to look over the
enclosed materials and cast your vote in favor of each proposal. By voting
your shares, you will help us eliminate the possibility of additional expenses
incurred from further solicitation efforts.
Your vote is important to us. Please take a moment after reviewing the
enclosed materials to sign and return your proxy card in the enclosed postage
paid return envelope, or take advantage of the electronic voting procedures
described in the Proxy Statement and proxy cards. It is important that we
receive your vote as early as possible and no later than the time of the
Meeting on April 3.
If you have any questions regarding the enclosed material or the execution of
your vote, please call the Trust toll free at 1-800-SKANDIA. We appreciate
your time and continued commitment to the American Skandia Trust.
Sincerely,
Wade A. Dokken
Chief Executive Officer and Chairman of the Board
American Skandia Trust
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IMPORTANT INFORMATION TO HELP YOU UNDERSTAND AND VOTE ON THE PROPOSALS
While we encourage you to read fully the text of the enclosed Proxy Statement,
we are also providing you with a brief overview of the subject of the
shareholder vote. Your vote is important.
Questions & Answers
-------------------
Q: Why am I receiving these proxy materials?
A: As a beneficial shareholder of one or more of the Portfolios of the
American Skandia Trust, you are being asked to vote on a variety of proposals
at a Special Meeting of Shareholders that will be held on April 3, 2003 at
10:00 a.m. Eastern Standard Time at One Corporate Drive, Shelton, Connecticut
06484.
Q: What will I be asked to vote on?
A: You will be asked to approve a new investment management agreement for
your Portfolio, to elect Trustees to serve on your Portfolio's Board of
Trustees, and to approve changes in certain Portfolio fundamental investment
restrictions.
Q: What is happening between American Skandia and Prudential?
A: On December 19, 2002, Skandia Insurance Company Ltd., the parent of
American Skandia, Inc. ("ASI") entered into a stock purchase agreement to sell
ASI and all of ASI's businesses, including American Skandia Investment
Services, Inc ("ASISI"), the investment advisor to the Portfolios, to
Prudential Financial, Inc. ("Prudential") (the "Transaction"). Prudential,
located at 751 Broad Street, Newark, New Jersey 07102, serves retail and
institutional customers worldwide and includes The Prudential Insurance
Company of America, one of the largest life insurance companies in the United
States. Consummation of the Transaction is subject to a number of
contingencies, including regulatory and shareholder approvals and other
closing conditions. ASI's goal is to close the Transaction during the second
quarter of 2003.
Q: Why am I being asked to vote on the proposed new investment management
agreements?
A: Because of the Transaction, it is necessary for the beneficial
shareholders of each of the Portfolios for which ASISI acts as investment
manager, including your Portfolio, to approve a new investment management
agreement so that the management of each Portfolio can continue uninterrupted
after the Transaction, because the current investment management agreements
will terminate automatically upon completion of the Transaction.
The Investment Company Act of 1940, which regulates mutual funds in the United
States such as your Portfolio, requires a shareholder vote to approve a new
investment management agreement whenever there is a "change of control" of a
fund's investment manager. The proposed Transaction will result in such a
change of control of ASISI and therefore requires shareholder approval of a
new investment management agreement.
Q: How will the Transaction affect me as a fund shareholder?
A: Your Portfolio and its investment objectives will not change as a result
of the Transaction, and you would still own the same shares in the same
Portfolio.
Q: Will the fees payable under the new investment management agreements
increase as a result of the Transaction?
A: No; the investment management fee rate applicable to your Portfolio under
the new investment management agreement will be the same as that currently in
effect.
Q: How will the new investment management agreement differ from the current
investment management agreement?
A: Your Portfolio's new investment management agreement will be with ASISI
and Prudential Investments LLC as co-managers of your Portfolio.
Q: Why am I being asked to elect Trustees?
A: You are being asked to elect as Trustees nominees who currently serve as
board members of registered investment companies managed by Prudential
Investments LLC or are employed by Prudential-affiliated companies in order to
facilitate the ability of ASISI and Prudential Investments LLC as co-managers
to provide efficient investment services to the Portfolios and result in a
Board that is familiar both with the Trust and the services and resources of
Prudential Investments LLC. In addition, one current Trustee, John A.
Pileski, is proposed for election because he has not previously been elected
by shareholders of the Trust. Two of the six current Trustees are expected to
resign from the Board upon completion of the Transaction, and one current
Trustee will be appointed to serve as a non-voting Trustee Emeritus. The
election of the nominees is contingent upon completion of the Transaction.
Q: Why am I being asked to change Portfolio fundamental investment
restrictions?
A: A Portfolio's fundamental investment restrictions may not be changed
without shareholder approval. You are being asked to change the Portfolios'
fundamental investment restrictions regarding lending and borrowing in order
to implement an interfund credit facility that will allow the Portfolios to
lend money to, and borrow money, from other Portfolios. Operation of the
interfund credit facility is expected to be more economical for the Portfolios
than current borrowing from banks.
In addition, shareholders of certain Portfolios will be asked to adopt changes
in the Portfolios' fundamental investment restrictions regarding investment in
a single issuer, fund diversification and reclassification of "fundamental"
restrictions as "non-fundamental". These proposals are explained in detail in
the Proxy Statement.
Q: How do the board members of my Portfolio recommend that I vote?
A: After careful consideration, the board members of your Portfolio's Board,
including those members who are not affiliated with American Skandia or
Prudential, unanimously recommend that you vote "FOR" each of the Proposals
and "FOR" each of the nominees to serve as a Trustee.
Q: Will my Portfolio pay for this proxy solicitation?
A: No; neither you nor your Portfolio will bear any cost associated with this
proxy solicitation. ASI has agreed to bear these costs.
Q: How do I vote my shares?
A: You may choose from one of the following options as described in more
detail in the proxy statement and proxy card.
o by mail, using the enclosed proxy card and postage paid return envelope;
o through the Internet, using the website address on your proxy card and
proxy statement; or
o in person at the shareholder meeting.
Q: Whom should I call for additional information about this proxy statement?
A: Please call 1-800-SKANDIA.
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AMERICAN SKANDIA TRUST
One Corporate Drive
P.O. Box 883
Shelton, Connecticut 06484
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held
April 3, 2003
To the Shareholders of the Portfolios of American Skandia Trust:
Notice is hereby given that a Special Meeting of Shareholders of each
series (the "Portfolios") of American Skandia Trust (the "Trust"), will be
held at One Corporate Drive, Shelton, Connecticut 06484 on April 3, 2003 at
10:00 a.m. Eastern Standard Time, or at such adjourned time as may be
necessary to vote (the "Meeting"), for the following purposes:
I. For each Portfolio, to approve a new investment management
agreement between the Trust, on behalf of each Portfolio, and American Skandia
Investment Services, Inc. and Prudential Investments LLC;
II. For each Portfolio, to approve the election of eight
Trustees to the Trust's Board of Trustees;
III. For each Portfolio, to approve changes in the Portfolios'
fundamental investment restrictions concerning lending;
IV. For each Portfolio, to approve changes in the Portfolios'
fundamental investment restrictions concerning borrowing;
V. For certain Portfolios, to approve changes in the
Portfolios' fundamental investment restrictions concerning investment in a
single issuer.
VI. For certain Portfolios, to approve changes in the
Portfolios' fundamental investment restrictions with respect to
diversification; and
VII. For certain Portfolios, to approve reclassification of
certain Portfolio fundamental investment restrictions from "fundamental" to
"non-fundamental".
The matters referred to above are discussed in detail in the Proxy
Statement attached to this Notice. The Board of Trustees has fixed the close
of business on February 3, 2003 as the record date for determining
shareholders entitled to notice of, and to vote at, the Meeting, and only
holders of record of shares at the close of business on that date are entitled
to notice of, and to vote at, the Meeting. Each share of a Portfolio is
entitled to one vote on each proposal.
You are cordially invited to attend the Meeting. If you do not
expect to attend, you are requested to complete, date and sign the enclosed
form of proxy and return it promptly in the envelope provided for that
purpose. Alternatively, you may vote electronically as described in the Proxy
Statement. The enclosed proxy is being solicited on behalf of the Board of
Trustees.
YOUR VOTE IS IMPORTANT. IN ORDER TO AVOID THE UNNECESSARY EXPENSE OF FURTHER
SOLICITATION, WE URGE YOU TO INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED
PROXY, DATE AND SIGN IT, AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED, NO
MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE, OR TAKE ADVANTAGE OF THE
ELECTRONIC VOTING PROCEDURES DESCRIBED IN THE PROXY STATEMENT AND PROXY CARD.
YOU MAY REVOKE YOUR VOTING INSTRUCTIONS AT ANY TIME PRIOR TO USE. THEREFORE,
BY APPEARING AT THE MEETING, AND REQUESTING REVOCATION PRIOR TO THE VOTING,
YOU MAY REVOKE THE PROXY AND YOU CAN THEN VOTE IN PERSON.
By order of the Board of Trustees
Edward P. Macdonald
Secretary
American Skandia Trust
February 20, 2003
PROXY STATEMENT
AMERICAN SKANDIA TRUST
One Corporate Drive
P.O. Box 883
Shelton, Connecticut 06484
AST Strong International Equity Portfolio
AST William Blair International Growth Portfolio
AST American Century International Growth Portfolio
AST DeAM International Equity Portfolio
AST MFS Global Equity Portfolio
AST PBHG Small-Cap Growth Portfolio
AST DeAM Small-Cap Growth Portfolio
AST Federated Aggressive Growth Portfolio
AST Goldman Sachs Small-Cap Value Portfolio
AST Gabelli Small-Cap Value Portfolio
AST DeAM Small-Cap Value Portfolio
AST Goldman Sachs Mid-Cap Growth Portfolio
AST Neuberger Berman Mid-Cap Growth Portfolio
AST Neuberger Berman Mid-Cap Value Portfolio
AST Alger All-Cap Growth Portfolio
AST Gabelli All-Cap Value Portfolio
AST T. Rowe Price Natural Resources Portfolio
AST Alliance Growth Portfolio
AST MFS Growth Portfolio
AST Marsico Capital Growth Portfolio
AST Goldman Sachs Concentrated Growth Portfolio
AST DeAM Large-Cap Growth Portfolio
AST DeAM Large-Cap Value Portfolio
AST Alliance/Bernstein Growth + Value Portfolio
AST Sanford Bernstein Core Value Portfolio
AST Cohen & Steers Realty Portfolio
AST Sanford Bernstein Managed Index 500 Portfolio
AST American Century Income & Growth Portfolio
AST Alliance Growth and Income Portfolio
AST MFS Growth with Income Portfolio
AST INVESCO Capital Income Portfolio
AST DeAM Global Allocation Portfolio
AST American Century Strategic Balanced Portfolio
AST T. Rowe Price Asset Allocation Portfolio
AST T. Rowe Price Global Bond Portfolio
AST Federated High Yield Portfolio
AST Lord Abbett Bond-Debenture Portfolio
AST DeAM Bond Portfolio
AST PIMCO Total Return Bond Portfolio
AST PIMCO Limited Maturity Bond Portfolio
AST Money Market Portfolio
SPECIAL MEETING OF SHAREHOLDERS
To be held
April 3, 2003
This proxy statement and enclosed form of proxy are being furnished
in connection with the solicitation of proxies by the Board of Trustees of
American Skandia Trust (the "Trust") for use at a special meeting of the
shareholders of the various investment portfolios of the Trust (each a
"Portfolio" and collectively the "Portfolios") to be held at One Corporate
Drive, Shelton, Connecticut 06484 on April 3, 2003, at 10:00 a.m. Eastern
Standard Time, (the "Meeting"), or at any adjournments thereof, for the
purposes set forth in the accompanying Notice of Meeting (the "Notice"). The
first mailing of proxies and proxy statements to shareholders is anticipated
to be on or about February 24, 2003.
Voting Matters
You may vote by indicating voting instructions on the enclosed proxy
(or proxies), and returning it in the envelope provided, or you may vote over
the Internet by visiting www.americanskandia.com, looking for the "Vote" link
and following the instructions provided. Voting instructions will be
solicited principally by mailing this Proxy Statement and its enclosures, but
proxies also may be solicited by telephone, facsimile, through electronic
means such as e-mail, or in person by officers or representatives of the Trust
or American Skandia Life Assurance Corporation ("ASLAC"). The Trust will
forward proxy materials to record owners for any beneficial owners that such
record owners may request. The costs of the Meeting, including costs related
to preparing and mailing this Proxy Statement will be borne by American
Skandia, Inc. ("ASI").
The following table sets forth each Proposal, as well as the
Portfolios that will vote on the Proposal.
Proposal Portfolios
-------- ----------
I. Approval of New Investment All Portfolios
Management Agreements
II. Election of Eight Trustees All Portfolios
III. Approval of Changes to All Portfolios
Fundamental Investment
Restrictions With Respect to
Lending Activities of Portfolios
IV. Approval of Changes to All Portfolios
Fundamental Investment
Restrictions With Respect to
Borrowing Activities of
Portfolios
V. Approval of Changes to AST Alliance Growth and Income
Fundamental Investment Portfolio, AST INVESCO Capital Income
Restrictions With Respect to Portfolio and AST Goldman Sachs
Investments in a Single Issuer Concentrated Growth Portfolio (the
"Proposal V Voting Portfolios")
VI. Approval of Changes to AST Goldman Sachs Concentrated Growth
Fundamental Investment Portfolio and AST Goldman Sachs
Restrictions With Respect to Mid-Cap Growth Portfolio (the
Diversification "Proposal VI Voting Portfolios")
VII. Approval of Reclassification of AST Alliance Growth and Income
Certain Fundamental Investment Portfolio, AST INVESCO Capital Income
Restrictions from "Fundamental" Portfolio, AST Federated High Yield
to "Non-fundamental" Portfolio, AST PIMCO Total Return Bond
Portfolio, AST PIMCO Limited Maturity
Bond Portfolio and AST Money Market
Portfolio (the "Proposal VII Voting
Portfolios")
The Annual Report of the Trust, including audited financial
statements for the fiscal year ended December 31, 2001, and the Semi-Annual
Report of the Trust for the period ended June 30, 2002, have been previously
sent to shareholders. The Trust will furnish additional copies of the Annual
Report and Semi-Annual Report to a shareholder upon request, without charge,
by writing to the Trust at the above address or by calling 1-800-752-6342.
Shareholders of record at the close of business on February 3, 2003
(the "Record Date") are entitled to notice of, and to vote at, the Meeting.
Each shareholder is entitled to one vote for each full share. As of the
Record Date, the shares of beneficial interest of the Portfolios outstanding,
were as follows:
PORTFOLIO SHARES
--------- ------
AST T. Rowe Price Asset Allocation Portfolio 20,818,412.176
AST T. Rowe Price Global Bond Portfolio 19,540,305.688
AST T. Rowe Price Natural Resources Portfolio 8,431,642.280
AST Marsico Capital Growth Portfolio 89,794,781.120
AST Federated High Yield Portfolio 70,036,804.810
AST Federated Aggressive Growth Portfolio 7,747,193.569
AST Lord Abbett Bond-Debenture Portfolio 16,367,757.337
AST Alger All-Cap Growth Portfolio 88,034,422.875
AST PIMCO Limited Maturity Bond Portfolio 98,454,646.862
AST PIMCO Total Return Bond Portfolio 185,963,135.993
AST Sanford Bernstein Managed Index 500 Portfolio 48,756,488.585
AST Alliance/Bernstein Growth + Value Portfolio 4,274,870.681
AST Sanford Bernstein Core Value Portfolio 22,010,467.674
AST MFS Global Equity Portfolio 7,481,676.346
AST MFS Growth Portfolio 86,625,634.689
AST MFS Growth with Income Portfolio 11,553,638.622
AST PBHG Small-Cap Growth Portfolio 22,773,235.173
AST Goldman Sachs Concentrated Growth Portfolio 66,850,301.016
AST Goldman Sachs Mid-Cap Growth Portfolio 20,406,001.106
AST Goldman Sachs Small-Cap Value Portfolio 23,075,750.555
AST William Blair International Growth Portfolio 41,726,805.918
AST Neuberger Berman Mid-Cap Value Portfolio 55,834,565.519
AST Neuberger Berman Mid-Cap Growth Portfolio 29,605,795.968
AST American Century Income & Growth Portfolio 26,620,740.258
AST American Century Strategic Balanced Portfolio 16,024,891.860
AST American Century International Growth Portfolio 36,997,958.147
AST Gabelli Small-Cap. Value Portfolio 39,876,934.868
AST Gabelli All-Cap Value Portfolio 13,771,095.411
AST Strong International Equity Portfolio 25,809,308.069
AST Alliance Growth Portfolio 33,073,084.878
AST Alliance Growth and Income Portfolio 83,493,680.136
AST INVESCO Capital Income Portfolio 49,955,920.380
AST DeAM Global Allocation Portfolio 29,478,215.425
AST DeAM International Equity Portfolio 16,794,093.971
AST DeAM Small-Cap Growth Portfolio 55,334,201.990
AST DeAM Large Cap Value Portfolio 13,457,976.116
AST DeAM Large Cap Growth Portfolio 9,585,451.486
AST DeAM Small Cap Value Portfolio 1,653,220.146
AST DeAM Bond Portfolio 12,043,272.444
AST Cohen & Steers Realty Portfolio 17,190,421.199
AST Money Market Portfolio 2,747,749,485.170
As of the Record Date, to the knowledge of the Trust there is no
beneficial owner of more than 5% of the shares of any Portfolio of the Trust.
Collectively, the Trustees and officers of the Trust own less than 1% of the
Trust's outstanding shares.
Currently, the Portfolios serve as underlying variable investment
options for variable annuity contracts and variable life insurance policies
("Variable Contracts") issued by two life insurance companies -- ASLAC and
Kemper Investors Life Insurance Company (the "Participating Insurance
Companies"). As of the Record Date, more than 95% of each Portfolio's shares
were legally (rather than beneficially) owned by ASLAC. ASLAC holds assets
attributable to its Variable Contracts obligations in ASLAC Variable Account
B, ASLAC Variable Account Q and ASLAC Variable Account F (collectively, for
purposes of this Proxy Statement, "ASLAC Variable Accounts"), each of which,
except for ASLAC Variable Account Q, is an investment company registered as
such under the Investment Company Act of 1940, as amended (the "Investment
Company Act"). ASLAC Variable Accounts are comprised of various sub-accounts,
each of which invests exclusively in a mutual fund or in a portfolio of a
mutual fund. The Participating Insurance Companies will solicit voting
instructions from variable annuity contract owners who beneficially own shares
of a Portfolio through separate accounts of the Participating Insurance
Companies as of the Record Date (the "Contractowners"). Because
Contractowners are indirectly invested in the Portfolios through their
contracts and have the right to instruct the Participating Insurance Companies
how to vote shares of the Portfolios on all matters requiring a shareholder
vote, Contractowners should consider themselves shareholders of the Portfolios
for purposes of this Proxy Statement.
All shares of each Portfolio held by the Contractowners will be voted
by the Participating Insurance Companies in accordance with voting
instructions received from such Contractowners with respect to each proposal
being presented to them as set forth in the Notice. Proxies submitted without
voting instructions for any such proposal will be voted FOR the proposal. The
Participating Insurance Companies are entitled to vote shares for which no
proxy is received and will vote such shares in the same proportion as the
votes cast by their Contractowners on the proxy issues presented.
Management of the Portfolios
American Skandia Investment Services, Inc. ("ASISI" or the
"Investment Manager") is the investment manager for all the Trust's
Portfolios.
ASISI has served as investment manager of the Trust since 1992 and currently
serves as investment manager to a total of 72 investment company portfolios.
ASISI is a wholly owned subsidiary of ASI. ASI is also the owner of ASLAC and
American Skandia Marketing, Incorporated ("ASM"), which is the principal
underwriter of ASLAC's Variable Contracts. The principal offices of ASISI,
ASI, ASLAC and ASM are located at One Corporate Drive, Shelton, Connecticut
06484. ASI is indirectly owned by Skandia Insurance Company Ltd. (publ)
("SICL"), an insurance company organized under the laws of the kingdom of
Sweden, located at Sveavagen 44, S-103, Stockholm, Sweden.
ASISI serves as Investment Manager to the Portfolios pursuant to
investment management agreements with the Trust with respect to each Portfolio
(the "Investment Management Agreements"). The Investment Management
Agreements provide that ASISI will furnish each 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
Portfolios. In the case of each Portfolio, the Investment Management
Agreement also provides, among other things, that in carrying out its
responsibility to supervise and manage all aspects of the Portfolio's
operations including the executive, administrative, accounting, custody,
transfer agency and shareholder servicing services that are deemed advisable
by the Trustees, ASISI may engage, subject to approval of the Board of
Trustees of the Trust (the "Board" or "Trustees") and, where required, the
shareholders of the Portfolio, a sub-advisor to provide advisory services to
the Portfolio. ASISI may delegate to the sub-advisor the duty, among other
things, to formulate and implement the Portfolio's investment program,
including the duty to determine what issuers and securities will be purchased
for or sold from the Portfolio.
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 enter into new sub-advisory agreements with one of more
sub-advisors or to change sub-advisors, 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.
In accordance with this provision for delegation of authority, ASISI
has entered into a sub-advisory agreement with respect to each Portfolio,
pursuant to which the above duties have been delegated by ASISI to a
sub-advisor who receives compensation for its services from ASISI out of the
investment management fee ASISI receives from each Portfolio; the sub-advisors
do not receive compensation directly from any Portfolio.
The Administrator of the Portfolios is PFPC Inc., a Delaware
corporation located at 103 Bellevue Parkway, Wilmington, Delaware 19809.
Acquisition of ASI by Prudential Financial, Inc.
On December 19, 2002, SICL entered into a stock purchase agreement
(the "Purchase Agreement") to sell 90% of ASI and all of ASI's businesses,
including ASISI, to Prudential Financial, Inc. ("Prudential" or "Purchaser")
(the "Transaction") for $1.265 billion. The remaining 10% interest in ASI and
its business will be retained by SICL, subject to certain SICL rights to
require Prudential to purchase its remaining interest and certain Prudential
rights to purchase such remaining interest from SICL on demand. Prudential,
751 Broad Street, Newark, New Jersey 07102, serves retail and institutional
customers worldwide and includes The Prudential Insurance Company of America,
one of the largest life insurance companies in the U.S. Prudential companies
offer a variety of products and services, including life insurance, property
and casualty insurance, mutual funds, annuities, pension and retirement
related services and administration, asset management, securities brokerage,
banking and trust services, real estate brokerage franchises and relocation
services. The Prudential companies had approximately $557 billion in total
assets under management and administration as of September 30, 2002.
Consummation of the Transaction is subject to a number of contingencies,
including receipt of regulatory and shareholder approvals and satisfaction of
other closing conditions. The goal of ASI and Prudential is to complete the
Transaction during the second quarter of 2003 (the "Closing"). Under the
Purchase Agreement, among the other conditions to Prudential's obligations to
complete the Transaction is the condition that shareholder approvals shall
have been received and shall be in full force and effect with respect to
investment companies (and each series thereof) registered as investment
companies under the Investment Company Act for which ASI or any of its
subsidiaries acts as investment advisor, administrator or sub-advisor having
not less than 75% of such funds' assets under management as of the
consummation date of the Transaction.
ASISI does not expect that the Trust's operations will be materially
affected, at least immediately, by the Transaction. ASISI does not currently
anticipate that there will be any immediate changes in the sub-advisors
engaged by the Trust in connection with the Transaction. ASI and Prudential
are beginning the process of evaluating capabilities across the ASI and
Prudential companies, including ASISI, and, where appropriate, considering
changes designed to maximize investment and operations capabilities and
achieve expense and resource efficiencies to be implemented following the
Transaction.
Summary of Proposals
Shareholders of the Portfolios are being asked to consider and vote
on the seven Proposals set forth in the Notice and described in more detail
below. As described above under "Voting Matters", some of the Proposals
relate to some, but not all, Portfolios.
o Under Proposal I, the shareholders of each Portfolio are being asked
to approve a new investment management agreement between the Trust, on
behalf of the Portfolios, and ASISI, and Prudential Investments LLC
("PI"), as co-managers. If approved by the shareholders of each
Portfolio, the new investment management agreement would provide for the
uninterrupted management of each Portfolio after the Transaction, because
the separate current Investment Management Agreement for each Portfolio
with ASISI will terminate automatically upon completion of the
Transaction.
o Under Proposal II, the shareholders of each Portfolio are being asked
to elect eight Trustees to the Board of Trustees of the Trust to serve
until their respective successors have been elected and qualified (the
"Nominees").
o Under Proposal III, the shareholders of each Portfolio are being
asked to approve changes to each Portfolio's fundamental investment
restriction with respect to the lending activities of the Portfolios that
would allow a Portfolio to lend money directly to another Portfolio.
Currently, each Portfolio is permitted to lend portfolio securities to
certain borrowers pursuant to the Trust's securities lending program. It
is proposed that the current fundamental investment restriction be
broadened to explicitly allow the lending of money between Portfolios in
order to implement the operation of an interfund credit facility pursuant
to which the Portfolios could lend money to each other (the "Interfund
Credit Facility"). If approved by the shareholders of a Portfolio, the
fundamental investment restriction would be amended to allow such
interfund lending of money in addition to the lending activities that are
permissible under the current fundamental investment restriction.
o Under Proposal IV, the shareholders of each Portfolio are being asked
to approve changes to each Portfolio's fundamental investment restriction
with respect to the borrowing activities of the Portfolios that would
allow a Portfolio to borrow money from another Portfolio. Currently,
each Portfolio is permitted to borrow money for temporary or emergency
purposes only from banks or other persons as permitted by applicable
law. In order to implement the operation of the Interfund Credit
Facility, it is proposed that the current fundamental investment
restriction be broadened to explicitly allow a Portfolio to borrow money
from another Portfolio. If approved by the shareholders of a Portfolio,
the fundamental investment restriction would be amended to allow such
borrowing of money from other Portfolios in addition to the borrowing
arrangements that are permissable under the current fundamental
investment restriction.
o Under Proposal V, the shareholders of each of the Proposal V Voting
Portfolios are being asked to approve changes to each Proposal V Voting
Portfolio's fundamental investment restriction with respect to investment
by a Portfolio in a single issuer. It is proposed that these fundamental
investment restrictions be amended in order to implement the operation of
a cash sweep and securities lending cash collateral management program to
invest the Portfolios' uninvested cash and securities lending cash
collateral in affiliated unregistered and registered money market funds
(the "Cash Sweep and Securities Lending Cash Collateral Management
Program"). Pursuant to the Cash Sweep and Securities Lending Cash
Collateral Management Program, a Portfolio is expected to be permitted to
invest up to 25% of its total assets in such money market funds utilized
as investment vehicles under the Program (the "Money Market Funds"). If
approved by the shareholders of a Proposal V Voting Portfolio, the
applicable fundamental investment restriction would be amended to allow,
among other things, investment by the Portfolio in the Money Market Funds
pursuant to the Cash Sweep and Securities Lending Cash Collateral Program.
o Under Proposal VI, the shareholders of the AST Goldman Sachs Concentrated
Growth Portfolio will be asked to approve a change in the Portfolio's
fundamental investment restriction with respect to diversification such
that the Portfolio will be changed from a "diversified" fund to a
"non-diversified" fund, as defined in the Investment Company Act, and the
shareholders of the AST Goldman Sachs Mid-Cap Growth Portfolio will be
asked to approve a change in the Portfolio's fundamental investment
restriction with respect to diversification such that the Portfolio will
be changed from a "non-diversified" fund to a "diversified" fund, as
defined in the Investment Company Act. These changes are proposed in
order to accommodate the manner in which the Portfolios' current
sub-advisor, Goldman Sachs Asset Management, proposes to manage each
Portfolio.
o Under Proposal VII, the shareholders of each of the Proposal VII Voting
Portfolios are being asked to approve the reclassification of certain
fundamental investment restrictions from "fundamental" to
"non-fundamental". Fundamental investment restrictions may not be changed
without shareholder approval while non-fundamental investment
restrictions may be changed (or eliminated) by the Trustees without
shareholder approval. In certain cases, the current fundamental
restrictions proposed for reclassification reflect regulatory, business
or industry conditions, practices or requirements that are no longer in
effect. In other cases, the current fundamental restrictions proposed
for reclassification reflect limitations adopted by a Portfolio's
sub-advisor with respect to other funds similarly managed by the
sub-advisor. In some cases, the fundamental restrictions reflect
requirements of the Investment Company Act that would continue to apply
to the subject Portfolios even if the current restrictions are
eliminated. In each case, however, the Investment Company Act does not
require a fundamental investment restriction. Thus, reclassification of
these fundamental investment restrictions would reduce administrative
burdens associated with the restriction and provide additional
flexibility to pursue investment policies consistent with current law
without the significant delay and expense to the Portfolios of soliciting
for shareholder approval.
PROPOSAL I
APPROVAL OF INVESTMENT MANAGEMENT AGREEMENTS
Shareholders of each of the Portfolios are being asked to approve a
new Investment Management Agreement (the "New Agreement") between the Trust,
on behalf of each Portfolio, and ASISI, and PI, as co-managers. Approval of
the New Agreements is sought so that the management of each Portfolio can
continue uninterrupted after the Transaction, because the current Investment
Management Agreements (the "Current Agreements") will terminate automatically
upon completion of the Transaction.
The goal of ASI and Prudential is to complete the Transaction during
the second quarter of 2003 but satisfaction of necessary closing conditions,
including, among other things, obtaining required regulatory approvals, could
defer the completion date. As a result of the Transaction, ASI will become an
indirectly owned subsidiary of Prudential. ASISI will remain a direct wholly
owned subsidiary of ASI. Under the Proposal, PI would act as a co-manager of
the Trust and each Portfolio with ASISI. As co-manager, PI would provide
supervision and oversight of ASISI's investment management responsibilities
with respect to the Trust. As provided in the New Agreement, PI would be
accountable to the Board for the performance of its duties as co-manager. PI
expects to also provide integration planning and related services to ASISI.
In this regard, Prudential may decide at a later date to integrate the
separate legal entities of PI and ASISI into a single entity at which time the
surviving investment advisor would be responsible for providing services
formerly provided by ASISI and PI and, in return, would receive fees formerly
received under the New Agreement by ASISI.
The change of ownership of ASISI resulting from the Transaction will
be deemed under the Investment Company Act to be an assignment of the Current
Agreements. The Current Agreements provide for their automatic termination
upon an assignment. Accordingly, the New Agreement is proposed for approval
by shareholders of each Portfolio. The single New Agreement would replace the
separate Current Agreement for each Portfolio, subject to approval of such
Portfolio's shareholders. The form of the New Agreement is attached as
Exhibit A to this Proxy Statement and the description of its terms in this
section is qualified in its entirety by reference to Exhibit A.
Exhibit B attached hereto reflects the date of each Current
Agreement, the rate of compensation paid to ASISI with respect to each
Portfolio, and the aggregate amount of ASISI's fee with respect to each
Portfolio for the last fiscal year. Each Current Agreement was last approved
by the Board on April 11, 2002 at an in-person meeting called for the purpose
of considering the annual re-approval of the Current Agreements.
The rate of compensation paid by each Portfolio under the New
Agreement will be the same as the rate paid under the Portfolio's Current
Agreement. Neither ASISI nor PI anticipate that the Transaction will cause
any reduction in the nature, scope or quality of services now provided to any
Portfolio by ASISI pursuant to the Current Agreement for such Portfolio or
have any adverse effect on ASISI's ability to fulfill its obligations to the
Portfolios.
Terms of the Current Agreements. Each Current Agreement provides
that ASISI will furnish each Portfolio with investment advice and certain
administrative services with respect to the applicable Portfolio's assets
subject to the supervision of the Board of Trustees and in conformity with the
stated policies of the applicable Portfolio.
In the case of each Portfolio, the Current Agreement provides, among
other things, that in carrying out its responsibility to supervise and manage
all aspects of the Portfolio's operations, ASISI may engage, subject to
approval of the Board of Trustees of the Trust and, where required, the
shareholders of the Portfolio, a sub-advisor to provide advisory services to
the Portfolio. ASISI may delegate to the sub-advisor the duty, among other
things, to formulate and implement the Portfolio's investment program,
including the duty to determine what issuers and securities will be purchased
for or sold from the Portfolio. In accordance with this provision for
delegation of authority, ASISI has entered into a separate sub-advisory
agreement with respect to each Portfolio, pursuant to which the above duties
have been delegated by ASISI to a sub-advisor who receives compensation for
its services from ASISI out of the investment management fee ASISI receives
from each Portfolio; the sub-advisors do not receive compensation directly
from any Portfolio.
Each Current Agreement provides that neither ASISI nor its personnel
shall be liable for any error of judgment or mistake of law or for any act of
omission in the administration or management of the applicable Portfolio,
except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its
or their obligations and duties under the Current Agreement.
Each Current Agreement will continue in effect from year to year,
provided it is approved at least annually by a vote of the majority of the
Trustees who are not parties thereto or interested persons of any such party,
cast in person at a meeting specifically called for the purpose of voting on
such approval, or by the vote of the majority of the outstanding voting
securities of each Portfolio. Each Current Agreement may be terminated
without penalty on sixty days' written notice by vote of a majority of the
Board of Trustees or by ASISI, or by holders of a majority of the applicable
Portfolio's outstanding shares, and will automatically terminate in the event
of its "assignment" as that term is defined in the Investment Company Act.
New Agreement. At a meeting of the Board held in person on January
24, 2003 called for the purpose of considering the approval of the New
Agreement, the New Agreement was unanimously approved by the Board, including
all of the Trustees who are not interested parties to the New Agreement or
interested persons of such parties ("Independent Trustees"). The New
Agreement, as approved by the Board, is submitted for approval by the
shareholders of each Portfolio. The New Agreement must be voted upon
separately by the shareholders of each Portfolio.
If the New Agreement is approved by the shareholders of a Portfolio,
it will take effect as to such Portfolio and replace such Portfolio's Current
Agreement upon the closing of the Transaction. Subject to earlier
termination, the New Agreements then will remain in effect through March 31,
2005, and will continue from year to year thereafter, provided that such
continuance is approved annually with respect to each Portfolio (i) by the
Board or by the vote of the majority of the outstanding voting securities of
the particular Portfolio, and, in either case, (ii) by a majority of the
Independent Trustees.
In brief, the New Agreement specifically provides that:
o ASISI and PI jointly will administer each Portfolio's business
affairs and supervise each Portfolio's investments. Subject to Board
approval, ASISI and PI may select and employ one or more sub-advisors
for a Portfolio, who will have primary responsibility for determining
what investments the Portfolio will purchase, retain and sell;
o Subject to Board approval, ASISI and PI may reallocate a
Portfolio's assets among sub-advisors including (to the extent legally
permissable) affiliated sub-advisors, consistent with the Portfolio's
investment objectives;
o ASISI and PI (or a sub-advisor, acting under ASISI and PI's
supervision) will select brokers to effect trades for a Portfolio
(which broker may be an affiliate); and
o Each Portfolio will pay advisory fees under its New Agreement at
the same advisory fee rate currently paid by such Portfolio under the
Current Agreement.
Among other things, the New Agreement clarifies that ASISI and PI may
appoint multiple sub-advisors for each Portfolio and reallocate the
Portfolios' assets among the multiple sub-advisors so appointed upon Board
approval only and without seeking shareholder approval. For example, this
means that a Portfolio that has allocated 100% of its assets to one
sub-advisor would be able to change the allocation to 50% to the sub-advisor
and 50% to a second existing or newly appointed sub-advisor with Board
approval, but without getting shareholder approval. Alternatively, if a
Portfolio has allocated 50% of its assets to each of two sub-advisors, it
would be able to change the allocation to 75% of its assets to one sub-advisor
and 25% to the other sub-advisor without seeking shareholder approval.
Although the New Agreement specifically provides for re-allocation of assets
among sub-advisors, the Trust has historically taken the position that
multiple sub-advisors may be engaged for each Portfolio and that the Trust can
re-allocate assets in this manner. However, the Board believes that
clarifying this matter in the investment management agreement at this time is
in the best interests of the shareholders.
In addition, PI will consider, where appropriate, recommending the
appointment of affiliated sub-advisors to manage all or a segment of a
Portfolio, subject to Board and shareholder approval requirements.
Pursuant to the current sub-advisory agreements (the "Current
Sub-Advisory Agreements") between ASISI and the sub-advisors, as noted above,
day-to-day management of each Portfolio is carried out by each sub-advisor
engaged by ASISI under its direct supervision. Similar to the Current
Agreements, each Current Sub-Advisory Agreement will automatically terminate
at the closing of the Transaction as a result of its "assignment", and in
accordance with the terms of the Current Agreements which provide for
termination of each Current Sub-Advisory Agreement upon termination of its
corresponding Current Agreement. If the New Agreement is approved by
shareholders, new sub-advisory agreements (the "New Sub-Advisory Agreements")
will take effect upon closing of the Transaction. The New Sub-Advisory
Agreements will reflect the changes made in the New Agreement. Shareholders
will receive information statements within ninety (90) days following the
closing of the Transaction regarding the New Sub-Advisory Agreements.
The New Agreement and the Current Agreements do not have identical
provisions relating to PI's or ASISI's liability to a Portfolio if the
Portfolio should suffer a loss in connection with the performance of their
duties thereunder. Each Current Agreement provides that ASISI will be liable
(jointly and severally) to a Portfolio only in the event of ASISI's willful
misfeasance, gross negligence, bad faith, or reckless disregard of its
duties. The New Agreement also provides that ASISI or PI will be liable to a
Portfolio for a loss resulting from willful misfeasance, bad faith, gross
negligence or reckless disregard of their respective duties and obligations as
co-managers. In addition, the New Agreement states that PI or ASISI may be
liable for a breach of its fiduciary duty to a Portfolio, up to the amount of
the Portfolio's actual damages and not to exceed the advisory fee previously
paid by the Portfolio over a certain period. The Current Agreements do not
limit ASISI's liability to the Portfolios in this manner.
Any investment program undertaken by ASISI pursuant to each New
Agreement, as well as any other activities undertaken by ASISI on behalf of
the applicable Portfolio pursuant thereto, shall at all times be subject to
any directives of the Board. This proposal to approve the New Agreement seeks
no increase in advisory fees for any of the Portfolios.
Information about ASISI. ASISI is a Connecticut corporation
organized in 1991 and is registered as an investment adviser with the
Securities and Exchange Commission. Prior to April 7, 1995, ASISI was known
as American Skandia Life Investment Management, Inc. ASISI furnishes each
Portfolio with investment advice and certain administrative services with
respect to the applicable Portfolio's assets subject to the supervision of the
Board of Trustees and in conformity with the stated policies of the applicable
Portfolio.
ASISI may engage, subject to approval of the Board and, where
required, the shareholders of the Portfolio, a sub-advisor to provide advisory
services to the Portfolio. ASISI may delegate to the sub-advisor the duty,
among other things, to formulate and implement the Portfolio's investment
program, including the duty to determine what issuers and securities will be
purchased for or sold from the Portfolio. In accordance with this provision
for delegation of authority, ASISI has entered into a sub-advisory agreement
with respect to each Portfolio, pursuant to which the above duties were
delegated by ASISI to a sub-advisor who receives compensation for its services
from ASISI out of the investment management fee ASISI receives from each
Portfolio; the sub-advisors do not receive compensation directly from any
Portfolio.
ASISI is a wholly-owned subsidiary of American Skandia, Inc. ASI is
also the owner of ASLAC and ASM, which serves as the principal underwriter of
ASLAC Variable Contracts. The principal offices of ASISI, ASI, ASLAC and ASM
are located at One Corporate Drive, Shelton, Connecticut 06484. ASI is
indirectly owned by SICL.
The table below lists the name and principal occupation of the
officers of ASISI who are also officers or Trustees of the Trust. The address
of each person is One Corporate Drive, Shelton, Connecticut 06484. Wade A.
Dokken serves as both CEO of ASISI and Board Chairman of the Trust. John
Birch, Richard G. Davy, Jr., Edward P. Macdonald, J. David Greenwald and Scott
H. Rhodes serve as officers of ASISI and the Trust.
Name Position and Principal Occupation with ASISI
Wade A. Dokken Chief Executive Officer
John Birch Senior Vice President & Chief Operating Officer
Richard G. Davy, Jr. Vice President
Edward P. Macdonald Chief Counsel and Anti-Money Laundering Officer
J. David Greenwald Director of Mutual Fund Operations
Scott H. Rhodes Mutual Fund Controller
Interests of Officers and Trustees in the Transaction. Certain
officers and Trustees of the Trust who are also officers or employees of ASISI
may have interests in the Transaction arising out of certain benefit programs
in which they participate. Previously granted stock options and phantom
stock options issued by SICL to such officers or employees of ASISI that have
not yet vested will become vested on the earlier of their ordinary vesting
date or the date that is twelve months following the closing of the
Transaction, and shall remain exercisable until the date that is eighteen
months following the closing of the Transaction. Additionally, certain
officers or employees of ASISI who are also officers or Trustees of the Trust
may participate in an employee long term appreciation plan, which will vest
and become payable upon the closing of the Transaction. In connection with
the closing of the Transaction, an affiliate of ASISI also may make bonus
payments to certain officers or employees of ASISI who are also officers or
Trustees of the Trust.
Certain of the Trust's officers and Trustees who are officers or
employees of ASISI participate in severance plans or have entered into
agreements with ASISI or its affiliates that provide for enhanced severance
benefits in the event that they are terminated in connection with or following
the closing of the Transaction. Such officers or employees of ASISI would
also be eligible for continuation of certain benefits during the severance pay
and salary continuation periods. In addition, Wade A. Dokken, Chief Executive
Officer of ASISI and Chairman of the Board, has been informed that following
the completion of the Transaction, he will assume a senior position with
Prudential's Insurance Division's Office of Strategic Planning.
Exhibit C attached hereto reflects other funds for which ASISI serves
as investment adviser having a similar investment objective to certain
Portfolios of the Trust, and indicates the assets of such other funds and
ASISI's rate of compensation for serving as investment adviser for such other
funds. ASM, an affiliate of ASISI, receives brokerage commissions in
connection with the purchase and sale of securities held by the Portfolios.
For the fiscal year ended December 31, 2002, such commissions totaled
$7,904,358.90, which was 14.68% of the Trust's aggregate brokerage commissions
paid during the fiscal year ended December 31, 2002.
Information about PI. PI serves as manager to the investment
companies that comprise the Prudential mutual funds. As of September 30,
2002, PI managed and/or administered open-end and closed-end management
investment companies with assets of approximately $84.4 billion.
PI is a wholly-owned subsidiary of PIFM HoldCo, Inc., which is a
wholly-owned subsidiary of Prudential Asset Management Holding Company, which
is a wholly-owned subsidiary of Prudential. The address of PI, PIFM HoldCo
and PAMHCO is Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102.
The address of Prudential is 751 Broad Street, Newark, NJ 07102.
The table below lists the name and principal occupation of the
officer in charge and the senior officers of PI. The address of each person
is Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102-4077.
Name Position and Principal Occupation with PI
Judy A. Rice Officer in Charge and President, Chief Executive
Officer & Chief Operating Officer
Robert F. Gunia Executive Vice President & Chief Administrative Officer
William V. Healey Executive Vice President, Chief Legal Officer & Secretary
Kevin B. Osborn Executive Vice President
Stephen Pelletier Executive Vice President
Lynn M. Waldvogel Executive Vice President
Keitha L. Kinne Senior Vice President
Marguerite E. H.
Morrison Senior Vice President
Grace C. Torres Senior Vice President
PI manages fund investments and determines the composition of the
assets of fund portfolios, including the purchase, retention or sale of the
securities and cash contained in the portfolios. PI (or a sub-advisor under
PI's supervision) is responsible for the selection of brokers and dealers
(which may be affiliates of PI or the sub-advisor) to effect all transactions,
and is authorized to pay higher commissions in order to receive research
services. PI performs administrative services for the funds it manages and
furnishes each fund with statistical information concerning its investments.
In general, each fund bears its own expenses pursuant to the appropriate
agreement, although PI pays the salaries of its employees who provide services
to each fund.
Exhibit D attached hereto reflects other funds for which PI serves as
investment adviser having similar investment objectives to certain Portfolios
of the Trust, and indicates the assets of such other funds and PI's rate of
compensation for serving as investment adviser for such other funds.
Evaluation by the Board. The Board, including the Independent
Trustees, met in person on January 24, 2003 to consider whether to approve the
New Agreement and New Sub-advisory Agreements and to recommend the submission
of the New Agreement to shareholders for approval. The Independent Trustees
were advised by their independent legal counsel throughout the evaluation
process and an independent financial advisor was selected by the Independent
Trustees and engaged by the Trust, at the expense of ASISI, to assist in their
deliberations (the "Financial Advisor").
In preparing for the meetings, the Trustees were provided with a
variety of information about Prudential, the Transaction, PI and ASISI. The
Trustees received from Prudential a summary of the material provisions of the
Transaction and Prudential's and PI's most recent financial statements,
including balance sheets. The Trustees also reviewed information concerning:
(1) Prudential's organizational structure and senior personnel; and (2)
Prudential's operations and, in particular, its mutual fund advisory and
distribution activities. Proposed forms of the New Agreement and New
Sub-advisory Agreements were provided to the Trustees. Senior representatives
of ASISI and Prudential attended the Board meeting to present additional
information and to respond to questions by the Independent Trustees.
At the meetings, the Trustees were informed by senior representatives
of Prudential and ASISI that (1) the services to be provided by ASISI and PI
under the New Agreements will be at least equal in scope and quality to those
which have been provided by ASISI to the Portfolios under the Current
Agreements; (2) the investment advisory fee rate to be paid by each Portfolio
to ASISI and PI under the New Agreement will remain the same as that payable
to ASISI under its Current Agreement; (3) ASI and Prudential will each use
their best efforts to avoid the imposition on the Trust or any of the
Portfolios of an "unfair burden" (as defined in the Investment Company Act) in
connection with the Transaction; (4) ASISI and PI will maintain any voluntary
fee waiver or expense limitation for a Portfolio currently in effect for the
period previously discussed with the Board, although any such fee waiver or
expense limitation may thereafter be terminated by ASISI and PI; and (5) it is
not expected that the Portfolios' expense ratios will increase under the New
Agreement.
In the course of their deliberations, the Trustees considered, in
addition to the information described above, (1) the similarity between the
material terms and conditions of the New Agreement and the Current Agreements;
(2) Prudential's general reputation and its general intentions at that time
with respect to management of the Portfolios' investment portfolios, including
possible utilization of Prudential's internal investment management and
research capabilities; (3) the potential for possible economies of scale to be
realized by the Portfolios in light of existing Prudential investment products
and services; (4) the potential for enhanced distribution opportunities for
the Portfolios' shares through participation in the Trust by life insurance
companies affiliated with Prudential and access to Prudential's captive
distribution force and; (5) Prudential's stated commitment to the maintenance
of effective compliance programs for the Trust and its compliance record in
respect of mutual funds that it presently sponsors.
As described above, the Portfolios at present primarily serve as
underlying variable investment options for variable annuity contracts and
variable life insurance policies issued by ASLAC. In their deliberations, the
Trustees considered actions during 2002 by Standard & Poor's Rating Services,
Inc., Moody's Investment Services, Fitch, Inc. and A.M. Best Company to reduce
financial strength or credit ratings assigned to ASLAC or SICL and information
received in the months prior to public announcement of the Transaction from
ASISI and its affiliates regarding (1) the potential competitive impact of
these rating actions on ASLAC and (2) the financial abilities of ASISI and its
affiliates to continue to provide distribution services and services to the
Trust and Portfolios required by the Current Agreements commensurate in scope
and quality with those currently provided. The Trustees further considered
discussions with ASISI and SICL prior to the public announcement of the
Transaction as to the Trustees' concerns in light of these developments.
The Trustees received and considered information provided by the
Financial Advisor regarding Prudential, including information as to
Prudential's most recent credit and financial strength ratings, and the
anticipated impact of the Transaction upon its financial position.
Based on the foregoing information and considerations, the Board
determined that the New Agreement and the New Sub-advisory Agreements are in
each Portfolio's and its shareholders' best interests. Accordingly, the
Trustees, including the Independent Trustees, unanimously voted to approve the
New Agreement and New Sub-advisory Agreements for each Portfolio and to submit
the New Agreement to the shareholders of each Portfolio for approval.
The effectiveness of this Proposal I is conditioned upon consummation
of the Transaction. In the event that the Transaction is not consummated,
ASISI will continue to manage each Portfolio pursuant to its Current
Agreement, which will continue in full force and effect in accordance with its
terms. Shareholders of each Portfolio must separately approve the New
Agreement with respect to that Portfolio. If the shareholders of a particular
Portfolio should fail to approve the New Agreement and the Transaction is
completed, the Board shall meet to consider appropriate action for that
Portfolio.
In the event that the Transaction is not completed for any reason,
including the failure of the shareholders of the Portfolios and of other
investment companies for which ASI or any of its subsidiaries acts as
investment adviser, administrator or sub-advisor to approve the New Agreement
as required by the Purchase Agreement, the Trustees will consider what
actions, if any, are available to the Trust to provide for continuation of
high quality investment management and distribution services to the Portfolios.
Section 15(f) of the Investment Company Act. ASI and Prudential will
use their reasonable best efforts to assure compliance with the conditions of
Section 15(f) of the Investment Company Act. Section 15(f) provides a
non-exclusive safe harbor for an investment adviser or any affiliated persons
thereof to receive any amount or benefit in connection with a transaction that
results in a change in control of or identity of the investment adviser to an
investment company as long as two conditions are met. First, no "unfair
burden" may be imposed on the investment company as a result of the transaction
relating to the change in control, or any express or implied terms, conditions
or understandings applicable thereto. As defined in the Investment Company
Act, the term "unfair burden" includes and arrangement during the two-year
period after the change in control whereby the investment advisor (or
predecessor or successor adviser), or any interested person of any such
adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders (other than
fees for bona fide investment advisory or other services), or from any person
in connection with the purchase or sale of securities or other property to,
from, or on behalf of the investment company (other than bona fide ordinary
compensation as principal underwriter of the investment company). Second,
during the three year period immediately following the change in control, at
least 75% of an investment company's board of directors must not be
"interested persons" of the investment adviser or the predecessor investment
adviser within the meaning of the Investment Company Act.
THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT THE
SHAREHOLDERS OF EACH PORTFOLIO VOTE "FOR" PROPOSAL I. ANY UNMARKED PROXIES
WILL BE SO VOTED.
PROPOSAL II
ELECTION OF EIGHT TRUSTEES
At the Meeting, shareholders will be asked to elect eight (8)
Trustees to the Trust's Board of Trustees to hold office until their
successors are elected and qualified. All of the Nominees have consented to
be named and have indicated their intent to serve if elected. If any Nominee
is unavailable for any reason, the Proxy holders will consult with the Board
of Trustees of the Trust in determining how to vote the shares represented by
them.
The Board's Nominating Committee, which is comprised solely of
Independent Trustees, recommended, and the full Board approved, the
nomination, subject to completion of the Transaction, of Saul K. Fenster,
Delayne Dedrick Gold, W. Scott McDonald, Jr., Thomas T. Mooney, Louis A.
Weill, III, David R. Odenath, Jr., Robert F. Gunia and John A. Pileski. As
described more fully below, if elected, David R. Odenath, Jr. and Robert F.
Gunia would be Interested Trustees by virtue of their employment by PI and
Prudential. The other six Nominees, if elected, would be Independent
Trustees. One of the current Trustees, John A. Pileski, was previously
appointed to the Board by the other current Trustees and is a Nominee under
Proposal II because he has not previously been elected by the shareholders of
the Trust. Ms. Gold and Messrs. Fenster, McDonald, Mooney and Weil currently
serve as Independent Trustees of registered management investment companies
managed by PI. The election of the Nominees other than Mr. Pileski is
contingent in each case upon completion of the Transaction. The current
Trustees believe that the election of the Nominees will facilitate the ability
of ASISI and PI as co-managers to provide efficient investment services to the
Portfolios and result in a Board that is familiar with the Trust and the
services and resources of each of ASISI and PI.
The Trust currently has six Trustees, five of whom are Independent
Trustees, and one of whom, Wade A. Dokken, is an Interested Trustee.
Following the election of the Nominees and completion of the Transaction, it
is expected that two of the current Trustees, Wade A. Dokken and David E. A.
Carson will resign. After the Transaction, Julian A. Lerner is expected to
retire from the Board of the Trust and to be appointed to serve as a
non-voting Trustee Emeritus for terms not to exceed three years in the
aggregate. As described above, current Trustee John A. Pileski is a Nominee
for election by shareholders and, if elected, would continue to serve on the
Board whether or not the Transaction is completed. Proposal II will not
affect the status of the other two Independent Trustees, Thomas M. O'Brien and
F. Don Schwartz, both of whom have previously been elected by shareholders on
April 17, 1992, and these Trustees will continue to hold office until they
resign, retire or are removed from office and their successors are elected.
If Proposal II is approved by shareholders, upon closing of the
Transaction the Trust's Board will be comprised of ten (10) Trustees including
eight (8) Independent Trustees and two (2) Interested Trustees. In the event
that the Transaction is not completed, the current Trustees would continue in
office as their successors would not have been elected and qualified.
The table below indicates, as to each of the Nominees for election as
a Trustee as well as the current Trustees and officers of the Trust, the
following information: his or her name, position with the Trust (if
applicable), age, period of time served on the Board, principal occupation
during the past five years, the number of portfolios in the Fund Complex
overseen, and other directorships held in public companies.
Current Independent Trustees and Nominee:
-------------------- ---------- --------------- ----------------------- ------------
Number of
Portfolios
in Fund
Length of Complex
Name, Age and Position Time Served(1) Principal Occupation Overseen
Address During Past 5 Years by Trustee/
Director*
-------------------- ---------- --------------- ----------------------- ------------
-------------------- ---------- --------------- ----------------------- ------------
David E. A. Carson Trustee Trustee since Director (January 72
(68) April, 1992 2000 to May 2000)
People's Bank Chairman (January
1 Financial Plaza, 1999 to December 1999)
Second Floor Chairman and Chief
Hartford, Executive Officer
Connecticut 06103 (January 1998 to
December 1998)
President, Chairman
and Chief Executive
Officer (1983 to
December 1997)
People's Bank
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: Mr. Carson has served as a Director of United
Illuminating and UIL Holdings, a utility company, since May 1993. He has also
served as a Trustee of Mass Mutual Institutional Funds and Mass Mutual Series
Funds, a mutual fund company, since 1996.
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------------- ------------
Julian A. Lerner Trustee Trustee since Retired since 1995 72
(78) November, 1996 Senior Vice President
12850 Spurling and Portfolio Manager
Road Suite 208 (1986 to 1995)
Dallas, Texas 75230 AIM Charter Fund and
AIM Summit Fund
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: Mr. Lerner served a Director of the Idex Funds, a mutual
fund company, from March 1996 until December 1999. He served as a Director of
Atlas Assets Inc., a mutual fund company, from November 1997 until March 1999. He
also served as a Trustee of Atlas Insurance Company Trust, a mutual fund company,
from November 1997 until March 1999.
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------------- ------------
Thomas M. O'Brien Trustee Trustee since President and Chief 72
(52) April, 1992 Executive Officer
Atlantic Bank of May 2000 to present
New York Atlantic Bank of New
960 Avenue of the York
Americas Vice Chairman
New York, NY 10001 January 1997 to April
2000
North Fork Bank
President and Chief
Executive Officer:
December 1984 to
December 1996
North Side Savings
Bank
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: Mr. O'Brien served as a Director of North Fork Bank, a
bank, from December 1996 until May 2000. He has also served as a Director of
Atlantic Bank of New York, a bank, since May 2000.
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------------- ------------
John A. Pileski Trustee Trustee since Retired since June 72
(63) and February, 2001 2000
43 Quaquanantuck Nominee Tax Partner
Lane (July 1974 to June
Quogue, NY 11959 2000)
KPMG, LLP
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: Mr. Pileski has served as a Director of New York
Community Bank since April, 2001. He has also served as a Director of Queens
Museum of Art since January 1997 and as a Director of Surf Club of Quogue, Inc.
since May 1980.
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------------- ------------
F. Don Schwartz Trustee Trustee since Management Consultant 72
(67) April, 1992 (April 1985 to
6 Sugan Close Drive present)
New Hope, PA 18938
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: None
------------------------------------------------------------------------------------
* The Trustees are responsible for overseeing all 41 Portfolios included in
the Trust, as well as the 31 Funds included in American Skandia Advisor Funds,
Inc. ("ASAF"), all of which are investment companies managed by the Investment
Manager.
Proposed Independent Trustee Nominees:
-------------------- ---------- --------------- ----------------------- ------------
Number of
Portfolios
in Fund
Length of Complex
Name, Age and Position Time Served Principal Occupation Overseen
Address* During Past 5 Years by Trustee/
Director
-------------------- ---------- --------------- ----------------------- ------------
-------------------- ---------- --------------- ----------------------- ------------
Saul K. Fenster, No N/A President Emeritus N/A
Ph.D. (69) position (since June 2002);
with President (December
Trust 1978-June 2002) of
New Jersey Institute
of Technology;
Commissioner
(1998-June 2002) of
the Middle States
Association
Commission on Higher
Education;
Commissioner (since
1985) of the New
Jersey Commission on
Science and
Technology; Director
(since 1998) Society
of Manufacturing
Engineering Education
Foundation; Director
(since 1995) of
Prosperity New
Jersey; formerly a
director or trustee
of Liberty Science
Center, Research and
Development Council
of New Jersey, New
Jersey State Chamber
of Commerce, and
National Action
Council for
Minorities in
Engineering.
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: Member (since 2000), Board of Directors of IDT
Corporation.
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------------- ------------
Delayne Dedrick No N/A Marketing Consultant N/A
Gold (64) position (1982-present);
with formerly Senior Vice
Trust President and Member
of the Board of
Directors, Prudential
Bache Securities, Inc.
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: None
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------------- ------------
W. Scott McDonald, No N/A Vice President (since N/A
Jr. (65) position 1997) of Kaludis
with Consulting Group,
Trust Inc. (a company
serving higher
education); Formerly
principal
(1993-1997), Scott
McDonald &
Associates, Chief
Operating Officer
(1991-1995),
Fairleigh Dickinson
University, Executive
Vice President and
Chief Operating
Officer (1975-1991),
Drew University,
interim President
(1988-1990), Drew
University and
founding director of
School, College and
University
Underwriters Ltd.
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: None
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------------- ------------
Thomas T. Mooney No N/A President of the N/A
(61) position Greater Rochester
with Metro Chamber of
Trust Commerce; formerly
Rochester City
Manager; formerly
Deputy Monroe County
Executive; Trustee of
Center for County
Executive; Trustee of
Center for
Governmental
Research, Inc.;
Director of Blue
Cross of Rochester,
Monroe County Water
Authority and
Executive Service
Corps of Rochester.
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: Director, President and Treasurer (since 1986) of First
Financial Fund, Inc. and Director (since 1988) of The High Yield Plus Fund, Inc.
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------------- ------------
Louis A. Weil, III No N/A Formerly Chairman N/A
(61) position (January 1999-July
with 2000), President and
Trust Chief Executive
Officer (January
1996-July 2000) and
Director (since
September 1991) of
Central Newspapers,
Inc.; formerly
Chairman of the Board
(January 1996-July
2000), Publisher and
Chief Executive
Officer (August
1991-December 1995)
of Phoenix
Newspapers, Inc.
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: None
------------------------------------------------------------------------------------
*The address of each Nominee is c/o Prudential Investments LLC, Gateway Center
Three, 100 Mulberry Street, Newark, NJ 07102.
Proposed Interested Trustee Nominees(2):
-------------------- ---------- --------------- ----------------------- ------------
Number of
Portfolios
in Fund
Length of Complex
Name, Age and Position Time Served Principal Occupation Overseen
Address* During Past 5 Years by
Trustee/Director
-------------------- ---------- --------------- ----------------------- ------------
-------------------- ---------- --------------- ----------------------- ------------
David R. Odenath, No N/A President, Chief N/A
Jr. (45) position Executive Officer and
with Chief Operating
Trust Officer (since June
1999) of Prudential
Investments LLC;
Senior Vice President
(since June 1999) of
The Prudential
Insurance Company of
America; formerly
Senior Vice President
(August 1993-May
1999) of PaineWebber
Group, Inc.
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: None
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------------- ------------
Robert F. Gunia No N/A Executive Vice N/A
(56) position President and Chief
with Administrative
Trust Officer (since June
1999) of PI;
Executive Vice
President and
Treasurer (since
January 1996) of PI;
President (since
April 1999) of
Prudential Investment
Management Services
LLC (PIMS); Corporate
Vice President (since
September 1997) of
The Prudential
Insurance Company of
America (Prudential);
formerly Senior Vice
President (March
1987-May 1999) of
Prudential
Securities; formerly
Chief Administrative
Officer (July
1989-September 1996),
Director (January
1989-September 1996)
and Executive Vice
President, Treasurer
and Chief Financial
Officer (June
1987-December 1996)
of PMF. Vice
President and
Director (since May,
1992) of
Nicholas-Applegate
Fund, Inc.
-------------------- ---------- --------------- ----------------------- ------------
------------------------------------------------------------------------------------
Other Directorships Held: Vice President and Director (since May 1989) of The
Asia Pacific Fund, Inc.
------------------------------------------------------------------------------------
* The address of each Nominee is c/o Prudential Investments LLC, Gateway
Center Three, 100 Mulberry Street, Newark, NJ 07102.
Current Interested Trustee and Trust Officers(2):
-------------------- ---------- --------------- ----------------- ------------------
Number of
Portfolios in
Length of Fund Complex
Name, Age and Position Time Served(1) Overseen by Other
Address Trustee/Director* Directorships
Held
-------------------- ---------- --------------- ----------------- ------------------
-------------------- ---------- --------------- ----------------- ------------------
John Birch Vice Vice N/A None
(52) President President
since April
1998
-------------------- ---------- --------------- ----------------- ------------------
------------------------------------------------------------------------------------
Principal Occupation During Past 5 Years: Mr. Birch has served as Senior Vice
President and Chief Operating Officer of American Skandia Investment Services,
Incorporated ("ASISI") since December 1997. He served as Executive Vice President
and Chief Operating Officer of International Fund Administration from August 1996
until October 1997.
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------- ------------------
Richard G. Davy, Treasurer Treasurer
Jr. since March N/A None
(54) 1995
-------------------- ---------- --------------- ----------------- ------------------
------------------------------------------------------------------------------------
Principal Occupation During Past 5 Years: Mr. Davy has served as Vice President of
ASISI since June 1997.
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------- ------------------
Number of
Portfolios in
Length of Fund Complex
Name, Age and Position Time Served(1) Overseen by Other
Address Trustee/Director* Directorships
Held
-------------------- ---------- --------------- ----------------- ------------------
Wade A. Dokken** President President Director of
(42) (Chief since June, 72 American
Executive 2001 Skandia,
Officer) Trustee since Incorporated
and March, 2002 ("ASI")
Trustee
-------------------- ---------- --------------- ----------------- ------------------
------------------------------------------------------------------------------------
Principal Occupation During Past 5 Years: Mr. Dokken has served as President and
Chief Executive Officer of ASI since May 2000. He served as Executive Vice
President and Chief Operating Officer of ASI from December 1999 until May 2000.
Prior to that, he served as Deputy Chief Executive Officer of ASI from December
1997 to December 1999.
------------------------------------------------------------------------------------
-------------------- ---------- --------------- ----------------- ------------------
Edward P. Macdonald Secretary Secretary
(35) since N/A None
November 2000
-------------------- ---------- --------------- ----------------- ------------------
------------------------------------------------------------------------------------
Principal Occupation During Past 5 Years: Mr. Macdonald has served as Chief
Counsel, Investment Management of ASI since July 2002. From September 2000 until
June 2002 he served as Senior Counsel, Securities of ASI. From December 1999
until August 2000 he served as Counsel of ASI. From April 1999 until December
1999 he served as Senior Associate Counsel of ASI. Prior to that, he was Branch
Chief, Senior Counsel and Attorney at the U.S. Securities and Exchange Commission
from October 1994 to April 1999.
------------------------------------------------------------------------------------
* The Trustees are responsible for overseeing all 41 Portfolios included in
the Trust, as well as the 31 Funds included in American Skandia Advisor Funds,
Inc. ("ASAF"), all of which are investment companies managed by the Investment
Manager.
** Indicates a Trustee or Nominee who is an "interested person" within the
meaning set forth in the Investment Company Act (an "interested person"). Mr.
Dokken is deemed "interested" by virtue of his serving as an officer and
director of ASI, the corporate parent and owner of the Investment Manager, as
well as an officer of the Investment Manager.
(1) All of the officers and Trustees of the Trust listed above serve in
similar capacities for American Skandia Advisor Funds, Inc., which are also
investment companies managed by the Investment Manager. Following completion
of the Transaction, it is expected that Messrs. O'Brien, Pileski and Schwartz
will resign as Directors of ASAF but that Mr. Carson will continue to serve in
his capacity as a Director who is not an interested person.
(2) Unless otherwise indicated, each officer, Trustee and Nominee listed above
has held his/her principal occupation for at least the last five years. In
addition to the principal occupations noted above, the following officers and
Interested Trustees of the Trust hold various positions with ASISI, the
Trust's Investment Manager, and its affiliates, including ASASI, ASLAC,
American Skandia Fund Services, Inc. ("ASFS") ASM, American Skandia
Information Services and Technology Corporation ("ASIST") or ASI: Mr. Birch
also serves as Senior Vice President and Chief Operating Officer of ASISI and
as a Senior Vice President of ASI. Mr. Dokken also serves as Chief Executive
Officer of ASISI, President and Chief Executive Officer of ASASI, ASLAC, ASFS,
ASI and ASIST and as a Director of ASI. Mr. Macdonald also serves as Chief
Counsel of ASISI and ASASI. In addition, as listed above, Nominee Mr. Gunia
serves as Executive Vice President, Chief Administrative Officer and Treasurer
of PI, Corporate Vice President of Prudential and President of Prudential
Investment Management Services LLC, and Nominee David R. Odenath, Jr. serves
as President, Chief Executive Officer and Chief Operating Officer of PI and
Senior Vice President of Prudential.
The Board of Trustees of the Trust met sixteen times during the
fiscal year ended December 31, 2002. All of the Trustees attended at least
75% of the meetings.
The Trust currently has a Nominating and Governance Committee and an
Audit Committee, as described below.
Nominating and Governance Committee. Among other duties, the
Nominating and Governance Committee shall make nominations for Independent
Trustee membership on the Board of Trustees. In addition, the Committee
attends to various governance matters including committee structure and
membership. The members of the Nominating and Governance Committee include
David E. A. Carson, Julian A. Lerner (Chairman), Thomas M. O'Brien, John A.
Pileski and F. Don Schwartz. In 2002, the Committee met on April 10, 2002.
The Committee currently does not consider nominees recommended by security
holders.
Audit Committee. The Audit Committee shall recommend to the full
Board the engagement or discharge of the Trust's independent accountants;
directing investigations into matters within the scope of the independent
accountants' duties, reviewing with the independent accountants the audit plan
and results of the audit, approving professional services provided by the
independent accountants prior to the performance of such services, reviewing
the independence of the independent accountants and considering the range of
audit and non-audit fees. The members of the Audit Committee include David E.
A. Carson (Chairman), Julian A. Lerner, Thomas M. O'Brien, John A. Pileski and
F. Don Schwartz. In 2002, the Audit Committee met on April 10, 2002, June 25,
2002, September 10, 2002 and December 3, 2002.
Auditors. Upon recommendation of the Audit Committee, the Board
selected the firm of Deloitte & Touche LLP ("Deloitte") as independent
auditors of the Trust for the fiscal year ending December 31, 2003.
Representatives of Deloitte are not expected to be present at the Meeting.
Audit Fees. The aggregate fees billed by Deloitte for
professional services rendered for the audit of the Trust's annual financial
statements for the fiscal year ended December 31, 2002 were $248, 320.
Financial Information Systems Design and Implentation Fees.
During the fiscal year ended December 31, 2002, Deloitte billed no fees for
professional services relating to financial information systems design
rendered to the Trust, ASISI, or any entity controlling, controlled by or
under common control with ASISI that provided services to the Trust.
All Other Fees. During the fiscal year ended December 31,
2002, Deloitte billed no fees for other professional services rendered to the
Trust, ASISI and any entity controlling, controlled by or under common control
with ASISI that provided services to the Trust.
The Audit Committee has considered whether the services described
above are compatible with Deloitte's independence.
The dollar range of equity securities of the Portfolios beneficially
owned by the Trustees of the Trust and Nominees is listed below as of December
31, 2002:
Independent Trustees and Nominee:
-------------------------- ------------------------- ------------------------------
Dollar Range of Equity Aggregate Dollar Range of
Name of Trustee and Securities in each Equity Securities in All
Nominee Series of the Trust Funds Overseen by the
Trustees in the American
Skandia Complex
-------------------------- ------------------------- ------------------------------
-------------------------- ------------------------- ------------------------------
David E. A. Carson N/A $10,001 - $50,000
-------------------------- ------------------------- ------------------------------
-------------------------- ------------------------- ------------------------------
Julian A. Lerner N/A Over $100,000
-------------------------- ------------------------- ------------------------------
-------------------------- ------------------------- ------------------------------
Thomas M. O'Brien N/A Over $100,000
-------------------------- ------------------------- ------------------------------
-------------------------- ------------------------- ------------------------------
John A. Pileski N/A $10,001 - $50,000
-------------------------- ------------------------- ------------------------------
-------------------------- ------------------------- ------------------------------
F. Don Schwartz N/A Over $100,000
-------------------------- ------------------------- ------------------------------
Interested Trustee:
---------------------------- ----------------------- ----------------------------
Name of Trustee Dollar Range of Aggregate Dollar Range of
Equity Securities in Equity Securities in All
each Series of the Funds Overseen by the
Trust Trustees in the American
Skandia Complex
---------------------------- ----------------------- ----------------------------
---------------------------- ----------------------- ----------------------------
Wade A. Dokken AST Strong $1 - $10,000
International Equity
Portfolio ($1 -
$10,000)
---------------------------- ----------------------- ----------------------------
The Trustees, Nominees and officers of the Trust who are affiliates
of the Investment Manager do not receive compensation directly from the Trust
for serving in such capacities. However, those officers, Nominees and
Trustees of the Trust who are affiliated with the Investment Manager may
receive remuneration indirectly, as the Investment Manager will receive fees
from the Trust for the services it provides. Each of the other Trustees and
Nominee receives annual and per meeting fees paid by the Trust plus expenses
for each meeting of the Board and meeting of shareholders which he attends.
Compensation received during the fiscal year ended December 31, 2002 by the
Trustees and Nominee who are not affiliates of the Investment Manager was as
follows:
------------------------------- --------------------- -----------------------------
Name of Trustee and Nominee Aggregate Total Compensation from
Compensation from Registrant and Fund Complex
Registrant Paid to Trustee(1)
------------------------------- --------------------- -----------------------------
------------------------------- --------------------- -----------------------------
David E. A. Carson $96,175 $138,525
------------------------------- --------------------- -----------------------------
------------------------------- --------------------- -----------------------------
Julian A. Lerner $94,475 $136,125
------------------------------- --------------------- -----------------------------
------------------------------- --------------------- -----------------------------
Thomas M. O'Brien $93,075(2) $136,725(2)
------------------------------- --------------------- -----------------------------
------------------------------- --------------------- -----------------------------
John A Pileski $94,975 $137,325
------------------------------- --------------------- -----------------------------
------------------------------- --------------------- -----------------------------
F. Don Schwartz $94,475(3) $136,825(3)
------------------------------- --------------------- -----------------------------
(1) As of the date of this Statement, the "Fund Complex" consisted of the
Trust and American Skandia Advisor Funds, Inc. ("ASAF").
(2) Mr. O'Brien deferred payment of this compensation. The total value of
Mr. O'Brien's deferred compensation, as of December 31, 2002, was
$212,315 from the Registrant and $357,484 from the Registrant and Fund
Complex.
(3) Mr. Schwartz deferred a portion of the payment of this compensation. The
total value of Mr. Schwartz's deferred compensation, as of December 31,
2002, was $24,695 from the Registrant and $36,073 from the Registrant and
Fund Complex.
The Trust does not offer pension or retirement benefits to its Trustees or
Nominees.
Under Proposal II, the shareholders of each Portfolio will be asked
to elect eight (8) Nominees to serve as Trustees of the Trust to hold office
until their successors are elected and qualified.
THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT THE
SHAREHOLDERS VOTE "FOR" PROPOSAL II TO ELECT ALL NOMINEES. ANY UNMARKED
PROXIES THAT ARE RETURNED ON A TIMELY BASIS WILL BE SO VOTED.
PROPOSAL III
APPROVAL OF CHANGES TO
FUNDAMENTAL INVESTMENT RESTRICTIONS WITH RESPECT TO LENDING ACTIVITIES OF
PORTFOLIOS
At any given time, while one or more of the Portfolios may wish to
borrow money, other Portfolios may have excess cash, which they generally
invest in short-term (usually overnight) repurchase agreements with banks or
in money market funds. The borrowing Portfolios in general pay a higher rate
of interest on their bank loans than the other Portfolios earn on their
short-term investments. In effect, the difference between the rate banks pay
in interest on repurchase agreements and what the banks charge in interest to
the borrowing Portfolios represents the banks' compensation for the arranging
the loans. Accordingly, the Board of Trustees believes that a Portfolio
needing cash may be able to obtain lower rates through the Interfund Credit
Facility and a Portfolio with excess cash may be able to obtain a rate of
return higher than those offered on alternative short-term investments.
If the proposed amended fundamental investment restriction is
approved with respect to a Portfolio, that Portfolio would be eligible to
participate as a lender in the Interfund Credit Facility. All loans would be
made pursuant to a master loan agreement, and a lending Portfolio could lend
available cash to another Portfolio only when the "interfund loan rate" was
higher than the rate the lending Portfolio could earn on a repurchase
agreement. Each borrowing Portfolio could borrow through the Interfund Credit
Facility only when the interfund loan rate was lower than the available bank
loan rate. In determining to recommend the proposed amended fundamental
investment restriction to shareholders, the Trustees considered the possible
risks to a Portfolio from participating in the Interfund Credit Facility. In
order to permit the Portfolios to engage in interfund borrowing and lending
transactions, regulatory approval from the Securities and Exchange Commission
(the "Commission") is required because the transactions may be considered to
be between affiliated persons and therefore prohibited by the Investment
Company Act. The Trust has submitted to the Commission an exemptive
application that would allow the Trust to implement the Interfund Credit
Facility allowing Portfolios to loan money to other Portfolios (the "Exemptive
Application"), subject to certain conditions. If shareholders of a Portfolio
approve the Portfolio's participation as a lender in the program, all loans
would be made in accordance with the conditions contained in the expected
exemptive order or in any amendment to such order and under the oversight of
the Board. If the requested exemptive order is not issued, the Interfund
Credit Facility will not be implemented until such time as an order is issued
(and then in accordance with the conditions set forth in such order) or
interfund loans otherwise become permissible under the Investment Company
Act. This proposal is not contingent upon approval of the pending Exemptive
Application.
Should the Commission issue an exemptive order ("Exemptive Order") in
response to the Exemptive Application allowing the Trust to implement the
Interfund Credit Facility, the Portfolios' fundamental investment restrictions
with respect to lending activities would need to be amended to permit the
Portfolios to loan money to other Portfolios through operation of the
Interfund Credit Facility. The Portfolios currently have fundamental
investment restrictions with respect to lending activities that reflect the
Trust's securities lending program whereby Portfolios are permitted to lend
portfolio securities to certain borrowers and earn income on those loans (the
"Securities Lending Program"). Under the Securities Lending Program, a
Portfolio is limited by provisions of the Investment Company Act to lending
portfolio securities in amounts up to 33 1/3% of the assets of the Portfolio.
The Portfolios current fundamental investment restrictions with respect to
lending also reflect the Portfolios' ability to invest in money market
securities, enter into repurchase agreements and acquire debt securities, and
the fact that these instruments may be considered loans for purposes of the
Investment Company Act.
Accordingly, in connection with the establishment of an Interfund
Credit Facility and expected receipt of an Exemptive Order from the Commission
with respect thereto, the Investment Manager has recommended that each
Portfolio's fundamental investment restriction with respect to lending be
amended to allow participation in the Interfund Credit Facility.
If Proposal III is approved by a Portfolio, the current fundamental
investment restriction applicable to that Portfolio will be amended to permit
the Portfolio to participate in the Interfund Credit Facility by lending money
to other Portfolios. If approved by a Portfolio, the amended fundamental
investment restriction would continue to govern loans other than loans to
investment companies in the same manner as such loans are governed by the
current fundamental investment restriction. The fundamental investment
restrictions which currently are applicable to each Portfolio and which would
be affected by approval of Proposal III, including the proposed changes
(underlined and/or struck through) are as follows in italics.
o AST American Century International Growth Portfolio, AST William
Blair International Growth Portfolio, AST Goldman Sachs Concentrated Growth
Portfolio, AST Alliance Growth and Income Portfolio, AST INVESCO Capital
Income Portfolio, AST American Century Strategic Balanced Portfolio, AST
Federated High Yield Portfolio, AST Strong International Equity Portfolio, the
AST MFS Global Equity Portfolio, the AST PBHG Small-Cap Growth Portfolio, the
AST DeAM Small-Cap Growth Portfolio, the AST Federated Aggressive Growth
Portfolio, the AST Goldman Sachs Small-Cap Value Portfolio, the AST DeAM
Small-Cap Value Portfolio, the AST Goldman Sachs Mid-Cap Growth Portfolio, the
AST Neuberger Berman Mid-Cap Growth Portfolio, the AST Neuberger Berman
Mid-Cap Value Portfolio, the AST Alger All-Cap Growth Portfolio, the AST
Gabelli All-Cap Value Portfolio, the AST Alliance Growth Portfolio, the AST
MFS Growth Portfolio, the AST Marsico Capital Growth Portfolio, the AST DeAM
Large-Cap Growth Portfolio, the AST DeAM Large-Cap Value Portfolio, the AST
Alliance/Bernstein Growth + Value Portfolio, the AST Sanford Bernstein Core
Value Portfolio, the AST Cohen & Steers Realty Portfolio, the AST Sanford
Bernstein Managed Index 500 Portfolio, the AST American Century Income &
Growth Portfolio, the AST MFS Growth with Income Portfolio, the AST DeAM
Global Allocation Portfolio, the AST Lord Abbett Bond-Debenture Portfolio, the
AST Gabelli Small-Cap Value Portfolio, and the AST DeAM Bond Portfolio:
No Portfolio may make loans, except that a Portfolio may (i)
lend portfolio securities in accordance with the Portfolio's
investment policies in amounts up to 33 1/3% of the total
assets of the Portfolio taken at market value, (ii) purchase
money market securities and enter into repurchase
agreements, and (iii) acquire publicly distributed or
privately placed debt securities, and (iv) make loans of
----------- ---------------
money to other investment companies to the extent permitted
--------------------------------------------------------------
by the Investment Company Act of 1940 or any exemption
--------------------------------------------------------------
therefrom that may be granted by the SEC or any SEC
--------------------------------------------------------------
releases, no-action letters or similar relief or
--------------------------------------------------------------
interpretive guidance.
---------------------
o AST DeAM International Equity Portfolio:
[A Portfolio may not] . . . [m]ake loans of money or
securities other than (a) through the purchase of securities
in accordance with the Portfolio's investment objective, (b)
through repurchase agreements, and (c) by lending portfolio
securities in an amount not to exceed 33 1/3% of the
Portfolio's total assets, and (d) loans of money to other
------ --------------------------
investment companies to the extent permitted by the
--------------------------------------------------------------
Investment Company Act of 1940 or any exemption therefrom
--------------------------------------------------------------
that may be granted by the SEC or any SEC releases,
--------------------------------------------------------------
no-action letters or similar relief or interpretive guidance.
------------------------------------------------------------
o AST T. Rowe Price Natural Resources Portfolio, AST T. Rowe Price
Asset Allocation Portfolio:
[The Portfolio may not] . . . [m]ake loans, although the
Portfolio may (i) lend portfolio securities and participate
in an interfund lending program with other Price Portfolios
provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of
the Portfolio's total assets; (ii) make loans of money to
---- -----------------------
other investment companies to the extent permitted by the
--------------------------------------------------------------
Investment Company Act of 1940 or any exemption therefrom
--------------------------------------------------------------
that may be granted by the SEC, or any SEC releases,
--------------------------------------------------------------
no-action letters or similar relief or interpretive
--------------------------------------------------------------
guidance; (iii) purchase money market securities and enter
into repurchase agreements; and (iv) acquire
publicly-distributed or privately-placed debt securities and
purchase debt.
o AST T. Rowe Price Global Bond Portfolio:
[The Portfolio may not] . . . [m]ake loans to other persons,
except (a) loans of portfolio securities, and (b) to the
extent the entry into repurchase agreements and the purchase
of debt securities in accordance with its investment
objectives and investment policies may be deemed to be loans
and (c) loans of money to other investment companies to the
------- ------------------------------------------------------
extent permitted by the Investment Company Act of 1940 or
--------------------------------------------------------------
any exemption therefrom that may be granted by the SEC, or
--------------------------------------------------------------
any SEC releases, no-action letters or similar relief or
--------------------------------------------------------------
interpretive guidance .
-----------------------
o AST PIMCO Total Return Bond Portfolio, AST PIMCO Limited Maturity
Bond Portfolio:
The Portfolio will not lend funds or other assets, except
that the Portfolio may, consistent with its investment
objective and policies: (a) invest in debt obligations,
including bonds, debentures or other debt securities,
bankers' acceptances and commercial paper, even though the
purchase of such obligations may be deemed to be the making
of a loan, (b) enter into repurchase agreements, and (c)
lend its Portfolio securities in an amount not to exceed
one-third the value of its total assets, provided such loans
are and in accordance with applicable guidelines established
by the SEC, and the Trust's Board of Trustees and (d) make
------ -----
loans of money to other investment companies to the extent
--------------------------------------------------------------
permitted by the Investment Company Act of 1940 or any
--------------------------------------------------------------
exemption therefrom that may be granted by the SEC, or any
--------------------------------------------------------------
SEC releases, no-action letters or similar relief or
--------------------------------------------------------------
interpretive guidance.
---------------------
o AST Money Market Portfolio:
The Portfolio will not make loans, except through purchasing
or holding debt obligations, or entering into repurchase
agreements, or loans of Portfolio securities in accordance
with the Portfolio's investment objectives and policies, or
-----
making loans of money to other investment companies to the
------ ------------------------------------------------------
extent permitted by the Investment Company Act of 1940 or
--------------------------------------------------------------
any exemption therefrom that may be granted by the SEC, or
--------------------------------------------------------------
SEC releases, no-action letters or similar relief or
--------------------------------------------------------------
interpretive guidance.
----------------------
The shareholders of each Portfolio will vote separately on Proposal
III. Approval of Proposal III by the shareholders of any Portfolio is not
contingent upon approval of Proposal III by the shareholders of any other
Portfolio. If Proposal III is approved by a Portfolio, the current
fundamental investment restriction regarding lending activities applicable to
the Portfolio will be amended as indicated above to allow interfund lending of
money by the Portfolio.
THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT THE
SHAREHOLDERS OF EACH PORTFOLIO VOTE "FOR" PROPOSAL III. ANY UNMARKED PROXIES
WILL BE SO VOTED.
PROPOSAL IV
APPROVAL OF CHANGES TO FUNDAMENTAL INVESTMENT
RESTRICTIONS WITH RESPECT TO BORROWING ACTIVITIES OF PORTFOLIOS
The Investment Company Act requires investment companies to impose
certain limitations on borrowing activities and a Portfolio's borrowing
limitations must be fundamental. The limitations on borrowing are generally
designed to protect shareholders and their investment by restricting a
Portfolios' ability to subject its assets to the claims of creditors who,
under certain circumstances, might have a claim to the Portfolio's assets that
would take precedence over the claims of shareholders.
In connection with the Interfund Credit Facility described under
Proposal III, a Portfolio borrowing through the Interfund Credit Facility
would borrow money directly from another Portfolio. The Portfolios currently
have fundamental investment restrictions with respect to borrowing reflective
of limitations found in Section 18(f) of the Investment Company Act that
prohibit funds from issuing any senior security except that a fund may borrow
money from a bank provided that the fund maintains asset coverage of at least
300 percent of all borrowings. The Portfolios' fundamental investment
restrictions also reflect the Portfolios' ability to engage in reverse
repurchase agreements and other transactions or investments that may be
considered borrowings for purposes of the Investment Company Act.
In order to implement the Interfund Credit Facility, it is proposed
that the Portfolios' current fundamental investment restrictions with respect
to borrowing be amended to explicitly allow a Portfolio to borrow money from
other Portfolios. In this regard, the Trust has sought, in its Exemptive
Application, an exemption from Section 18(f) to allow Portfolios to borrow
directly from other Portfolios. In addition, as a condition of the operation
of the Interfund Credit Facility, a Portfolio that has outstanding borrowings
from all sources exceeding 10 percent of its total assets must secure each
outstanding interfund loan exceeding 10 percent of assets by a pledge of
segregated collateral with a market value equal to at least 102 percent of the
outstanding principal value of the loan. It is proposed that the Portfolios'
current fundamental investment restrictions with respect to borrowing also be
amended, as applicable, to conform to this condition related to the Interfund
Credit Facility. If the requested Exemptive Order is not issued, the
Interfund Credit Facility will not be implemented until such time as an order
is issued (and then in accordance with the conditions set forth in such order)
or interfund loans otherwise become permissible under the Investment Company
Act. This proposal is not contingent upon approval of the pending Exemptive
Application.
Accordingly, in connection with the establishment of the Interfund
Credit Facility, the Investment Manager has recommended that the Portfolios'
fundamental investment restrictions with respect to borrowing be amended to
allow each Portfolio to borrow money directly from another Portfolio in
accordance with the conditions related to the Interfund Credit Facility.
If Proposal IV is approved by a Portfolio, the current fundamental
investment restriction applicable to that Portfolio will be amended to permit
the Portfolio to participate in the Interfund Credit Facility by borrowing
money directly from another Portfolio. The fundamental investment
restrictions which currently are applicable to the Portfolios and which would
be affected by approval of Proposal IV, including the proposed changes
(underlined and/or struck through) are as follows in italics.
o AST Goldman Sachs Concentrated Growth Portfolio, AST Strong
International Equity Portfolio, the AST MFS Global Equity Portfolio, the AST
PBHG Small-Cap Growth Portfolio, the AST DeAM Small-Cap Growth Portfolio, the
AST Federated Aggressive Growth Portfolio, the AST Goldman Sachs Small-Cap
Value Portfolio, the AST DeAM Small-Cap Value Portfolio, the AST Goldman Sachs
Mid-Cap Growth Portfolio, the AST Neuberger Berman Mid-Cap Growth Portfolio,
the AST Neuberger Berman Mid-Cap Value Portfolio, the AST Alger All-Cap Growth
Portfolio, the AST Gabelli All-Cap Value Portfolio, the AST Alliance Growth
Portfolio, the AST MFS Growth Portfolio, the AST Marsico Capital Growth
Portfolio, the AST DeAM Large-Cap Growth Portfolio, the AST DeAM Large-Cap
Value Portfolio, the AST Alliance/Bernstein Growth + Value Portfolio, the AST
Sanford Bernstein Core Value Portfolio, the AST Cohen & Steers Realty
Portfolio, the AST Sanford Bernstein Managed Index 500 Portfolio, the AST
American Century Income & Growth Portfolio, the AST MFS Growth with Income
Portfolio, the AST DeAM Global Allocation Portfolio, the AST Lord Abbett
Bond-Debenture Portfolio, the AST Gabelli Small-Cap Value Portfolio and the
AST DeAM Bond Portfolio:
No Portfolio may borrow money, except that a Portfolio may
(i) borrow money for non-leveraging, temporary or emergency
purposes, and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions,
which may involve a borrowing, in a manner consistent with
the Portfolio's investment objective and policies; provided
that the combination of (i) and (ii) shall not exceed 33
1/3% of the value of the Portfolio's assets (including the
amount borrowed) less liabilities (other than borrowings) or
such other percentage permitted by law. Any borrowings
which come to exceed this amount will be reduced in
accordance with applicable law. Subject to the above
limitations, a Portfolio may borrow from banks or other
persons to the extent permitted by applicable law, including
-------------
the Investment Company Act of 1940, or to the extent
--------------------------------------------------------------
permitted by any exemption from the Investment Company Act
--------------------------------------------------------------
of 1940 that may be granted by the SEC, or any SEC releases,
--------------------------------------------------------------
no-action letters or similar relief or interpretive guidance.
-------------------------------------------------------------
o AST American Century International Growth Portfolio, AST American
Century Strategic Balanced Portfolio:
[A Portfolio may not] . . . [b]orrow any money, except in an
amount not in excess of 33 1/3% of the total assets of the
Portfolio, and then only for temporary, emergency and
---------
extraordinary purposes; this does not prohibit the escrow
and collateral arrangements in connection with investment in
interest rate futures contracts and related options by the
Portfolio. Subject to the above limitations, a Portfolio
-----------------------------------------------------
may borrow from persons to the extent permitted by
--------------------------------------------------------------
applicable law, including the Investment Company Act of
--------------------------------------------------------------
1940, or to the extent permitted by any exemption from the
--------------------------------------------------------------
Investment Company Act of 1940 that may be granted by the
--------------------------------------------------------------
SEC, or any SEC releases, no-action letters or similar
--------------------------------------------------------------
relief or interpretive guidance.
--------------------------------
o AST T. Rowe Price Natural Resources Portfolio, AST T. Rowe Price
Asset Allocation Portfolio:
[The Portfolio may not] . . .[b]orrow money except that the
Portfolio may (i) borrow for non-leveraging, temporary or
emergency purposes and (ii) engage in reverse repurchase
agreements and make other investments or engage in other
transactions, which may involve a borrowing, in a manner
consistent with the Portfolio's investment objective and
program, provided that the combination of (i) and (ii) shall
not exceed 33 1/3% of the value of the Portfolio's total
assets (including the amount borrowed) less liabilities
(other than borrowings) or such other percentage permitted
by law. Any borrowings which come to exceed this amount
will be reduced in accordance with applicable law. The
Portfolio may borrow from banks, other Price Portfolios or
other persons to the extent permitted by applicable law,
--
including the Investment Company Act of 1940, or to the
--------------------------------------------------------------
extent permitted by any exemption from the Investment
--------------------------------------------------------------
Company Act of 1940 that may be granted by the SEC, or any
--------------------------------------------------------------
SEC releases, no-action letters or similar relief or
--------------------------------------------------------------
interpretive guidance.
----------------------
o AST DeAM International Equity Portfolio:
[The Portfolio may not] . . [b]orrow money except from banks
persons to the extent permitted by applicable law, including
--------------------------------------------------------------
the Investment Company Act of 1940, or to the extent
--------------------------------------------------------------
permitted by any exemption from the Investment Company Act
--------------------------------------------------------------
of 1940 that may be granted by the SEC, or any SEC releases,
--------------------------------------------------------------
no-action letters or similar relief or interpretive
--------------------------------------------------------------
guidance, and then in amounts up to 33 1/3% of the
---------------------
Portfolio's total assets.
o AST William Blair International Growth Portfolio:
The Portfolio may borrow money for temporary or emergency
purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 33 1/3% of the value of
the Portfolio's total assets by reason of a decline in net
assets, the Portfolio will reduce its borrowings within
three business days to the extent necessary to comply with
the 33 1/3% limitation. This policy shall not prohibit
reverse repurchase agreements, deposits of assets to margin
or guarantee positions in futures, options, swaps or forward
contracts, or the segregation of assets in connection with
such contracts. Subject to the above limitations, a
-----------------------------------------------
Portfolio may borrow from persons to the extent permitted by
--------------------------------------------------------------
applicable law, including the Investment Company Act of
--------------------------------------------------------------
1940, or to the extent permitted by any exemption from the
--------------------------------------------------------------
Investment Company Act of 1940 that may be granted by the
--------------------------------------------------------------
SEC, or any SEC releases, no-action letters or similar
--------------------------------------------------------------
relief or interpretive guidance.
--------------------------------
o AST Alliance Growth and Income Portfolio:
The Portfolio will not borrow money except from banks
persons to the extent permitted by applicable law, including
--------------------------------------------------------------
the Investment Company Act of 1940, or to the extent
--------------------------------------------------------------
permitted by any exemption from the Investment Company Act
--------------------------------------------------------------
of 1940 that may be granted by the SEC or any SEC releases,
--------------------------------------------------------------
no-action letters or similar relief or interpretive
--------------------------------------------------------------
guidance, and then in amounts not in excess of 33 1/3% of its
total assets. The Portfolio may borrow at prevailing
interest rates and invest the Portfolios in additional
securities. The Portfolio's borrowings are limited so that
immediately after such borrowing the value of the
Portfolio's assets (including borrowings) less its
liabilities (not including borrowings) is at least three
times the amount of the borrowings. Should the Portfolio,
for any reason, have borrowings that do not meet the above
test then, within three business days, the Portfolio must
reduce such borrowings so as to meet the necessary test.
Under such a circumstance, the Portfolio may have to
liquidate securities at a time when it is disadvantageous to
do so.
o AST INVESCO Capital Income Portfolio:
[The Portfolio may not] . . .[b]orrow money except from
banks persons to the extent permitted by applicable law,
-------------------------------------------------------
including the Investment Company Act of 1940, or to the
--------------------------------------------------------------
extent permitted by any exemption from the Investment
--------------------------------------------------------------
Company Act of 1940 that may be granted by the SEC or any
--------------------------------------------------------------
SEC releases, no-action letters or similar relief or
--------------------------------------------------------------
interpretive guidance, in excess of 533 1/3% of the value of
----------------------
its total net assets, and when borrowing, it is a temporary
measure for temporary or emergency purposes.
---------------
o AST T. Rowe Price Global Bond Portfolio:
[The Portfolio may not] . . . [b]orrow money, except as a
temporary measure for temporary, extraordinary or emergency
--- ---------
purposes or except in connection with reverse repurchase
agreements provided that the Portfolio maintains asset
coverage of 300% for all borrowings. Subject to the above
----------------------
limitations, a Portfolio may borrow from persons to the
--------------------------------------------------------------
extent permitted by applicable law, including the Investment
--------------------------------------------------------------
Company Act of 1940, or to the extent permitted by any
--------------------------------------------------------------
exemption from the Investment Company Act of 1940 that may
--------------------------------------------------------------
be granted by the SEC, or any SEC releases, no-action
--------------------------------------------------------------
letters or similar relief or interpretive guidance.
---------------------------------------------------
o AST Federated High Yield Portfolio:
The Portfolio will not borrow money except as a temporary
measure for temporary, extraordinary or emergency purposes
--------------
and then only from banks persons to the extent permitted by
------------------------------------
applicable law, including the Investment Company Act of
--------------------------------------------------------------
1940, or to the extent permitted by any exemption from the
--------------------------------------------------------------
Investment Company Act of 1940 that may be granted by the
--------------------------------------------------------------
SEC or any SEC releases, no-action letters or similar relief
--------------------------------------------------------------
or interpretive guidance, and only in amounts not in excess
--------------------------
of 533 1/3% of the value of its net assets, taken at the
-- ---
lower of cost or market. In addition, to meet redemption
requests without immediately selling portfolio securities,
the Portfolio may borrow up to one-third of the value of its
total assets (including the amount borrowed) less its
liabilities (not including borrowings, but including the
current fair market value of any securities carried in open
short positions). This practice is not for investment
leverage but solely to facilitate management of the
portfolio by enabling the Portfolio to meet redemption
requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. If, due to
market fluctuations or other reasons, the value of the
Portfolio's assets falls below 300% of its borrowings, it
will reduce its borrowings within three business days. No
more than 10% of the value of the Portfolio's total assets
at the time of providing such security may be used to secure
borrowings .
o AST PIMCO Total Return Bond Portfolio, AST PIMCO Limited Maturity
Bond Portfolio:
The Portfolio will not borrow money, issue senior
securities, pledge, mortgage, hypothecate its assets, except
that the Portfolio may (i) borrow from banks persons to the
---------------
extent permitted by applicable law, including the Investment
--------------------------------------------------------------
Company Act of 1940, or to the extent permitted by any
--------------------------------------------------------------
exemption from the Investment Company Act of 1940 that may
--------------------------------------------------------------
be granted by the SEC or any SEC releases, no-action letters
--------------------------------------------------------------
or similar relief or interpretive guidance, or enter into
----------------------------------------------
reverse repurchase agreements, or employ similar investment
techniques, and pledge its assets in connection therewith,
but only if immediately after each borrowing there is an
asset coverage of 300% and (ii) enter into transactions in
options, futures and options on futures and other derivative
instruments as described in the Trust's Prospectus and this
Statement (the deposit of assets in escrow in connection
with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery
basis, collateral arrangements with respect to initial or
variation margin deposits for future contracts and
commitments entered into under swap agreements or other
derivative instruments, will not be deemed to be pledges of
the Portfolio's assets).
o AST Money Market Portfolio:
The Portfolio will not borrow money, except from banks
persons to the extent permitted by applicable law, including
--------------------------------------------------------------
the Investment Company Act of 1940, or to the extent
--------------------------------------------------------------
permitted by any exemption from the Investment Company Act
--------------------------------------------------------------
of 1940 that may be granted by the SEC or any SEC releases,
--------------------------------------------------------------
no-action letters or similar relief or interpretive
--------------------------------------------------------------
guidance, for temporary, extraordinary or emergency purposes
------------------------
and then only in amounts not to exceed 1033 1/3% of the
-------
value of the Portfolio's total assets, taken at cost, at the
time of such borrowing. The Portfolio may not mortgage,
pledge or hypothecate any assets except in connection with
any such borrowing and in amounts not to exceed 10% of the
value of the Portfolio's net assets at the time of such
borrowing. The Portfolio will not purchase securities while
borrowings exceed 5% of the Portfolio's total assets. This
borrowing provision is included to facilitate the orderly
sale of securities, for example, in the event of abnormally
heavy redemption requests, and is not for investment
purposes and shall not apply to reverse repurchase
agreements.
The shareholders of each Portfolio will vote separately on Proposal
IV. Approval of Proposal IV by the shareholders of any Portfolio is not
contingent upon approval of Proposal IV by the shareholders of any other
Portfolio. If Proposal IV is approved by a Portfolio, the current fundamental
investment restriction regarding borrowing activities applicable to each such
Portfolio will be amended as indicated above to allow the Portfolio to borrow
money directly from another Portfolio.
THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT THE
SHAREHOLDERS OF EACH OF THE PORTFOLIOS VOTE "FOR" PROPOSAL IV. ANY UNMARKED
PROXIES WILL BE SO VOTED.
PROPOSAL V
APPROVAL OF CHANGES TO FUNDAMENTAL
INVESTMENT RESTRICTIONS
WITH RESPECT TO INVESTMENT IN A SINGLE ISSUER
In addition to approval of the operation of the Interfund Credit
Facility, the Exemptive Application also seeks permission to implement the
Cash Sweep and Securities Lending Cash Collateral Management Program. Under
the Cash Sweep and Securities Lending Cash Collateral Management Program, the
Portfolios would invest on a daily basis their uninvested cash and cash
collateral in affiliated unregistered and registered money market funds (the
"Money Market Funds"). A Portfolio's uninvested cash may result from a variety
of sources including dividends or interest received on portfolio securities,
unsettled securities transactions, reserves held for investment strategy
purposes, scheduled maturity of investments, liquidation of investment
securities to meet anticipated redemptions, dividend payments, or new monies
received from investors. The Trust estimates that at any given time it is
possible that as much as 25% of a Portfolio's total assets could consist of
uninvested cash. In addition, a Portfolio's cash collateral is received when
a Portfolio participates in the Trust's Securities Lending Program whereby a
Portfolio lends certain of its portfolio securities to borrowers, who deposit
cash with the Portfolio's custodian as security for the loans. The Money
Market Funds will be cash management vehicles that seek to provide current
income consistent with the preservation of capital and liquidity. Pursuant to
the Cash Sweep and Securities Lending Cash Collateral Management Program, a
Portfolio may earn higher returns on its uninvested cash and cash collateral
than could be attained by investing directly in money market securities or
other types of investments, would further diversify its holdings by holding
shares of the Money Market Funds, and eliminate transaction costs currently
incurred in connection with its short-term investment of cash. The Trust
requires an exemptive order, which may be included in the Exemptive Order,
from the Commission to exempt the operation of the Cash Sweep and Securities
Lending Cash Collateral Management Program from certain provisions of the
Investment Company Act that limit the percentage of an investment company that
another investment company may acquire, and provisions of the Investment
Company Act that restrict or prohibit certain affiliated or joint transactions
among funds. However, this proposal is not contingent upon approval of the
pending Exemptive Application or issuance of the Exemptive Order.
The Proposal V Voting Portfolios currently have fundamental
investment restrictions that restrict a Portfolio's investment in a single
issuer to 5 percent of the Portfolio's assets and/or 10 percent of the
issuer's securities. Pursuant to the Cash Sweep and Securities Lending Cash
Collateral Management Program, a Portfolio would be able to invest up to 25
percent of its total assets in a Money Market Fund. Amending the Portfolios'
current fundamental investment restriction would enable the Portfolios to take
advantage of the investment opportunities that would be presented by the Cash
Sweep and Securities Lending Cash Collateral Management Program Accordingly,
it is proposed that each Proposal V Voting Portfolio's fundamental investment
restriction with respect to investment in a single issuer be amended to allow
investment in the Money Market Funds up to the limit provided under the Cash
Sweep and Securities Lending Cash Collateral Management Program.
Provisions of the Investment Company Act with respect to fund
diversification limit a diversified fund's investment in a single issuer, but
only with respect to 75 percent of the fund's total assets, to 5 percent of
the fund's total assets and 10 percent of the issuer's securities. By
amending each applicable Proposal V Voting Portfolio's fundamental investment
restriction to meet the Investment Company Act limits regarding
diversification, a Proposal V Voting Portfolio would be able to meet the
diversification requirements under the Investment Company Act and to
participate in the Cash Sweep and Securities Lending Cash Collateral
Management Program up to the limits allowed in the Program. Accordingly, it
is proposed that each Proposal V Voting Portfolio's fundamental investment
restrictions with respect to investment in a single issuer be so amended.
The fundamental investment restrictions which currently are
applicable to the Proposal V Voting Portfolios and which would be affected by
approval of Proposal V, including the proposed changes (underlined and/or
struck through) are as follows in italics.
o AST Alliance Growth and Income Portfolio:
As to 75% of the value of its total assets, Tthe Portfolio
------------------------------------------------
will not purchase a security of any issuer (other than
-----------------------------
securities issued or guaranteed by the U.S. Government or
--------------------------------------------------------------
any of its agencies or instrumentalities, or securities of
--------------------------------------------------------------
other investment companies) if as a result, the Portfolio
----------------------------
would own more than 10% of the outstanding voting securities
of any issuer (a) more than 5% of the Portfolio's total
----------------------------------------------
assets would be invested in the securities of that issuer,
--------------------------------------------------------------
or (b) the Portfolio would hold more than 10% of the
--------------------------------------------------------------
outstanding voting securities of that issuer.
---------------------------------------------
o AST INVESCO Capital Income Portfolio:
[The Portfolio may not] . . . [a]s to 75% of the value of
-----------------------------
its total assets, Ppurchase a security of any issuer (other
----------------- ---------- ---------------------
than securities issued or guaranteed by the U.S. Government
--------------------------------------------------------------
or any of its agencies or instrumentalities, or securities
--------------------------------------------------------------
of other investment companies) if as a result, (a) more
--------------------------------------------------------------
than 5% of the Portfolio's total assets would be invested in
--------------------------------------------------------------
the securities of that issuer, or (b) the Portfolio would
--------------------------------------------------------------
hold more than 10% of the outstanding voting securities of
--------------------------------------------------------------
that issuer. securities if the purchase would cause the
--------------------------------------------------------------
Portfolio, at the time, to have more than 5% of its total
--------------------------------------------------------------
assets invested in the securities of any one company or to
--------------------------------------------------------------
own more than 10% of the voting securities of any one
--------------------------------------------------------------
company (except obligations issued or guaranteed by the US
--------------------------------------------------------------
Government).
-------------
o AST Goldman Sachs Concentrated Growth Portfolio:
The Portfolio will not purchase a security if as a result,
the Portfolio would own more than 10% of the outstanding
voting securities of any issuer.
The shareholders of each Proposal V Voting Portfolio will vote
separately on Proposal V. Approval of Proposal V by the shareholders of any
Proposal V Voting Portfolio is not contingent upon approval of Proposal V by
the shareholders of the other Proposal V Voting Portfolios. If Proposal V is
approved by a Proposal V Voting Portfolio, the current fundamental investment
restriction with respect to investment in a single issuer applicable to a
Portfolio will be amended as indicated above.
THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT THE
SHAREHOLDERS OF THE PROPOSAL V VOTING PORTFOLIOS VOTE "FOR" PROPOSAL V. ANY
UNMARKED PROXIES THAT ARE RETURNED ON A TIMELY BASIS WILL BE SO VOTED.
PROPOSAL VI
APPROVAL OF CHANGES TO FUNDAMENTAL
INVESTMENT RESTRICTIONS
WITH RESPECT TO DIVERSIFICATION CLASSIFICATION
The Investment Company Act requires all mutual funds to specify
whether they are "diversified" or "non-diversified". The AST Goldman Sachs
Concentrated Growth Portfolio (the "Concentrated Growth Portfolio") has
historically elected to be classified as a "diversified" fund under the
Investment Company Act. As a diversified fund, at least 75% of the value of
the Concentrated Growth Portfolio's assets must be represented by cash and
cash items, U.S. Government securities, securities of other investment
companies, and other securities limited with respect to any one issuer to an
amount not greater than 5% of the value of the Portfolio's total assets and
not more than 10% of the outstanding voting securities of such issuer (the
"Diversification Requirement"). In effect, a diversified fund is limited, with
respect to 75% of its total assets, to investment in a single issuer of 5% of
the Portfolio's assets and 10% of the issuer's outstanding voting stock. A
fund may not change its classification as a diversified fund without
shareholder approval. In addition, the AST Goldman Sachs Concentrated Growth
Portfolio has adopted its diversified policy as a fundamental investment
restriction of the Portfolio. As a fundamental investment restriction, the
Portfolio's policy may not be changed without shareholder approval.
Goldman Sachs Asset Management ("Goldman") replaced Janus Capital
Management LLC as sub-advisor to the AST Goldman Sachs Concentrated Growth
Portfolio on November 11, 2002. As the current sub-advisor, Goldman's
investment strategy with respect to the AST Goldman Sachs Concentrated Growth
Portfolio will be to focus portfolio investments on a smaller number of stocks
compared to the previous investment strategy. Thus, Goldman wants the
flexibility to invest in a single issuer to a greater extent than permitted
under the Diversification Requirement. Accordingly, shareholders of the
Concentrated Growth Portfolio are being asked to change the Concentrated
Growth Portfolio's classification from a diversified fund to a non-diversified
fund, and the Concentrated Growth Portfolio's fundamental investment
restriction to reflect the same, in order to accommodate the proposed
investment strategy for the Portfolio. This flexibility would be available to
any successor sub-advisors to the Portfolio.
The AST Goldman Sachs Mid-Cap Growth Portfolio has historically
elected to be classified as a "non-diversified" fund under the Investment
Company Act. Under the Investment Company Act, a non-diversified fund is
defined as any fund that is not a diversified fund. The Internal Revenue Code
of 1986, as amended ("IRC"), though, specifies certain diversification
requirements for a mutual fund in order to be treated as a regulated
investment company for tax purposes regardless of whether a fund is
diversified or non-diversified under the Investment Company Act. In effect,
these IRC requirements limit a fund, with respect to 50% of its total assets,
to investment in a single issuer of 5% of the fund's assets and 10% of the
issuer's outstanding voting stock. The AST Goldman Sachs Mid-Cap Growth
Portfolio has adopted its classification as non-diversified as a fundamental
investment restriction of the Portfolio. As a fundamental investment
restriction, the Portfolio's classification as non-diversified may not be
changed without shareholder approval.
Goldman's investment strategy with respect to the AST Goldman Sachs
Mid-Cap Growth Portfolio will be to manage the Portfolio as a diversified
fund rather than a non-diversified fund. Accordingly, shareholders of the
Portfolio are being asked to change the Portfolio's fundamental investment
restriction to reflect a change in the Portfolio's classification from a
non-diversified fund to a diversified fund in order to accommodate Goldman's
proposed investment strategy for the Portfolio.
If Proposal VI is approved by a Proposal VI Voting Portfolio, the
current fundamental investment restriction with respect to fund
diversification applicable to that Portfolio will be amended as discussed
above. The fundamental investment restrictions which currently are applicable
to the Proposal VI Voting Portfolios and which would be affected by approval
of Proposal VI, including the proposed changes (underlined and/or struck
through) are as follows in italics.
o AST Goldman Sachs Concentrated Growth Portfolio:
As to75% 50% of the value of its total assets, the Portfolio
will not invest purchase a security of any issuer (other
-------------------- ----------------------
than securities issued or guaranteed by the U.S. Government
--------------------------------------------------------------
or any of its agencies or instrumentalities, or securities
--------------------------------------------------------------
of other investment companies) if as a result, (a) more than
---------------------------------------------------
5% of the Portfolio's total assets would be invested in the
------------------
securities of that issuer, and (b) the Portfolio would hold
-------------------------------------
more than 10% of the outstanding voting securities of that
--------------------------------------------------------------
issuer.
-------
o AST Goldman Sachs Mid-Cap Growth Portfolio:
As to50% 75% of the value of its total assets, the Portfolio
will not purchase a security of any issuer (other than
securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities, or securities of
------------------
other investment companies) if as a result, (a) more than 5%
---------------------------
of the Portfolio's total assets would be invested in the
securities of that issuer, and (b) the Portfolio would hold
-------------------------------------
more than 10% of the outstanding voting securities of that
--------------------------------------------------------------
issuer.
------
The shareholders of each Proposal VI Voting Portfolio will vote
separately on Proposal VI. Approval of Proposal VI by the shareholders of any
Proposal VI Voting Portfolio is not contingent upon approval of Proposal VI by
the shareholders of the other Proposal VI Voting Portfolio. If Proposal VI is
approved by a Proposal VI Voting Portfolio, the current fundamental investment
restriction with respect to diversification applicable to that Portfolio will
be amended as indicated above.
THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT THE
SHAREHOLDERS OF THE PROPOSAL VI VOTING PORTFOLIOS VOTE "FOR" PROPOSAL VI.
ANY UNMARKED PROXIES THAT ARE RETURNED ON A TIMELY BASIS WILL BE SO VOTED.
PROPOSAL VII
APPROVAL OF RECLASSIFICATION OF CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS FROM "FUNDAMENTAL" TO "NON-FUNDAMENTAL"
The shareholders of each of the Proposal VII Voting Portfolios are
being asked to approve the reclassification of certain fundamental investment
restrictions from "fundamental" to "non-fundamental". Fundamental investment
restrictions may not be changed without shareholder approval while
non-fundamental investment restrictions may be changed (or eliminated) by the
Trustees without shareholder approval. In certain cases, the current
fundamental restrictions proposed for reclassification reflect regulatory,
business or industry conditions, practices or requirements that are no longer
in effect. In some cases, the fundamental restrictions reflect requirements
of the Investment Company Act that would continue to apply to the subject
Portfolios even though the current fundamental restrictions are eliminated.
In other cases, the current fundamental restrictions proposed for
reclassification reflect limitations adopted by a Portfolio's sub-advisor with
respect to other funds similarly managed by the sub-advisor. In each case,
however, the Investment Company Act does not require a fundamental investment
restriction.
Reclassification of these fundamental investment restrictions would
reduce administrative burdens associated with the restriction and provide
additional flexibility to pursue investment policies consistent with current
law without the significant delay and expense to the Portfolios of seeking for
shareholder approval. The reclassification of the subject fundamental
investment restrictions is not anticipated to affect the manner in which any
Proposal VII Portfolio currently is managed. The Trust will continue to be
afforded protections under the Investment Company Act notwithstanding the
reclassification of the subject fundamental investment restrictions.
If Proposal VII is approved by a Proposal VII Voting Portfolio, the
current fundamental investment restrictions applicable to that Portfolio that
are permitted to be made non-fundamental under the Investment Company Act will
be reclassified as a non-fundamental investment restriction as follows.
o Investment Restrictions Applicable Only to the AST Alliance Growth
and Income Portfolio, the AST INVESCO Equity Income Portfolio, the AST
Federated High Yield Portfolio, the AST PIMCO Total Return Bond Portfolio, the
AST PIMCO Limited Maturity Bond Portfolio and the AST Money Market Portfolio:
A Portfolio will not buy any securities or other property on margin
(except for such short-term credits as are necessary for the clearance of
transactions).
A Portfolio will not invest in companies for the purpose of
exercising control or management.
o Investment Restrictions Applicable Only to the AST Alliance Growth
and Income Portfolio:
The Portfolio will not pledge, mortgage, or hypothecate its assets --
however, this provision does not apply to the grant of escrow receipts or the
entry into other similar escrow arrangements arising out of the writing of
covered call options.
The Portfolio will not purchase securities of any issuer unless it or
its predecessor has a record of three years' continuous operation, except that
the Portfolio may purchase securities of such issuers through subscription
offers or other rights it receives as a security holder of companies offering
such subscriptions or rights, and such purchases will then be limited in the
aggregate to 5% of the Portfolio's net assets at the time of investment.
The Portfolio will not make short sales except short sales made
"against the box" to defer recognition of taxable gains or losses.
The Portfolio will not purchase a security if as a result, more than
5% of the value of that Portfolio's assets, at market value, would be invested
in the securities of issuers which, with their predecessors, have been in
business less than three years.
o Investment Restrictions Applicable Only to the AST INVESCO Equity
Income Portfolio:
The Portfolio may not issue preference shares or create any funded
debt.
The Portfolio may not sell short.
The Portfolio may not purchase any security or enter into a
repurchase agreement, if as a result, more than 15% of its net assets would be
invested in repurchase agreements not entitling the holder to payment of
principal and interest within seven days and in securities that are illiquid
by virtue of legal or contractual restrictions on resale or the absence of a
readily available market. The Trustees or the Investment Manager or the
Sub-advisor, acting pursuant to authority delegated by the Trustees, may
determine that a readily available market exists for securities eligible for
resale pursuant to Rule 144A under the Securities Act of 1933, or any
successor to that rule, and therefore that such securities are not subject to
the foregoing limitation.
o Investment Restrictions Applicable Only to the AST Federated High
Yield Portfolio:
The Portfolio will not purchase any securities on margin but may
obtain such short-term credits as may be necessary for the clearance of
transactions.
The Portfolio will not invest more than 5% of the value of its total
assets in securities of companies, including their predecessors, that have
been in operation for less than three years.
The Portfolio will not invest more than 5% of the value of its total
assets in foreign securities which are not publicly traded in the United
States.
The Portfolio will not write, purchase, or sell puts, calls, or any
combination thereof.
The Portfolio will not make short sales of securities or maintain
short positions, unless: during the time the short position is open, it owns
an equal amount of the securities sold or securities readily and freely
convertible into or exchangeable, without payment of additional consideration,
for securities of the same issue as, and equal in amount to, the securities
sold short; and not more than 10% of the Portfolio's net assets (taken at
current value) is held as collateral for such sales at any one time.
The Portfolio will not purchase securities of a company for the
purpose of exercising control or management. However, the Portfolio may invest
in up to 10% of the voting securities of any one issuer and may exercise its
voting powers consistent with the best interests of the Portfolio. From time
to time, the Portfolio, together with other investment companies advised by
subsidiaries or affiliates of Federated Investors, may together buy and hold
substantial amounts of a company's voting stock. All such stock may be voted
together. In some such cases, the Portfolio and the other investment
companies might collectively be considered to be in control of the company in
which they have invested. In some cases, Trustee, agents, employees,
officers, or others affiliated with or acting for the Portfolio, its
Sub-advisor, or affiliated companies might possibly become directors of
companies in which the Portfolio holds stock.
o Investment Restrictions Applicable Only to the AST PIMCO Total Return
Bond Portfolio:
The Portfolio will not maintain a short position, or purchase, write
or sell puts, calls, straddles, spreads or combinations thereof, except as set
forth in the Trust's Prospectus and this Statement for transactions in
options, futures, and options on futures transactions arising under swap
agreements or other derivative instruments.
o Investment Restrictions Applicable Only to the AST PIMCO Limited
Maturity Bond Portfolio:
The Portfolio may not maintain a short position, or purchase, write
or sell puts, calls, straddles, spreads or combinations thereof, except on
such conditions as may be set forth in the Prospectus and in this Statement.
o Investment Restrictions Applicable Only to the AST Money Market
Portfolio:
The Portfolio will not acquire any illiquid securities, such as
repurchase agreements with more than seven days to maturity or fixed time
deposits with a duration of over seven calendar days, if as a result thereof,
more than 10% of the market value of the Portfolio's total assets would be in
investments which are illiquid.
The Portfolio will not purchase securities on margin, make short
sales of securities, or maintain a short position, provided that this
restriction shall not be deemed to be applicable to the purchase or sale of
when-issued securities or of securities for delivery at a future date.
The shareholders of each Proposal VII Voting Portfolio will vote
separately on Proposal VII. Approval of Proposal VII by the shareholders of
any Proposal VII Voting Portfolio is not contingent upon approval of Proposal
VII by the shareholders of the other Proposal VII Voting Portfolios. If
Proposal VII is approved by a Proposal VII Voting Portfolio, the current
fundamental investment restriction applicable to that Portfolio will be
reclassified as a non-fundamental investment restriction.
THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT THE
SHAREHOLDERS OF THE PROPOSAL VII VOTING PORTFOLIOS VOTE "FOR" PROPOSAL VII.
ANY UNMARKED PROXIES THAT ARE RETURNED ON A TIMELY BASIS WILL BE SO VOTED.
Other Matters and Shareholder Proposals
The Board of Trustees intends to bring before the Meeting the matters
set forth in the foregoing Notice. The Trustees do not expect any other
business to be brought before the Meeting. If, however, any other matters are
properly presented to the Meeting for action, it is intended that the persons
named in the enclosed proxy will vote in accordance with their judgment. A
shareholder executing and returning a proxy may revoke it at any time prior to
its exercise by written notice of such revocation to the Secretary of the
Trust, by execution of a subsequent proxy, or by voting in person at the
Meeting.
The presence in person or by proxy of the holders of one-third of the
outstanding shares of the Trust is required to constitute a quorum at the
Meeting. Because ASLAC is the legal owner of nearly 100% of each Portfolio's
shares, ASLAC's presence at the Meeting will constitute a quorum under the
Trust's By-laws. Shares beneficially held by shareholders present in person
or represented by proxy at the Meeting will be counted for the purpose of
calculating the votes cast on the issues before the Meeting. Approval of
Proposals I, III, IV, V, VI and VII requires the vote of a "majority of the
outstanding voting securities," of the Portfolio, as defined in the Investment
Company Act, which means the vote of 67% or more of the shares of the
Portfolio present at the Meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy, or
the vote of more than 50% of the outstanding shares of the Portfolio,
whichever is less. With respect to Proposal II, a plurality of votes cast at
the Meeting, in person or by proxy, will elect a Trustee. There is no
cumulative voting in the election of Trustees. An abstention by a shareholder
on any of these Proposals, either by proxy or by vote in person at a Meeting,
has the same effect as a negative vote.
Shareholders beneficially owning more than one Portfolio generally
will receive a single proxy statement and proxy card. It is important to
mark, sign, date and return all proxy cards received.
---
In the event that sufficient votes to approve any proposal are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of those shares represented at
the Meeting in person or by proxy. The persons named as proxies will vote
those proxies that they are entitled to vote FOR or AGAINST any such
adjournment proposal in their discretion.
The Trust is not required to hold and will not ordinarily hold annual
shareholders' meetings. The Board of Trustees may call special meetings of
the shareholders for action by shareholder vote as required by the Investment
Company Act or the Trust's Declaration of Trust.
Pursuant to rules adopted by the Commission, a shareholder may
include in proxy statements relating to annual and other meetings of the
shareholders of the Trust certain proposals for shareholder action which he or
she intends to introduce at such meetings; provided, among other things, that
such proposal must be received by the Trust at least thirty days before a
solicitation of proxies is made for such meeting. Timely submission of a
proposal does not necessarily mean that the proposal will be included.
By order of the Board of Trustees
[OBJECT OMITTED]