As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/20/09  Advanced Series Trust             N-14                   5:9.9M                                   Merrill Corp-MD/FA
          → Ast Balanced Asset Allocation Portfolio
          → Ast Preservation Asset Allocation Portfolio
          → AST Wellington Management Hedged Equity Portfolio
          → Diversified Conservative Growth Portfolio ⇒ Class I
          → SP Aggressive Growth Asset Allocation Portfolio ⇒ Class I
          → SP Balanced Asset Allocation Portfolio ⇒ Class I
          → SP Conservative Asset Allocation Portfolio ⇒ Class I

Document/Exhibit                   Description                      Pages   Size 

 1: N-14        Registration Statement of an Open-End Investment    HTML   5.80M 
                          Company (Business Combination)                         
 2: EX-99.(11)  EX-99.(11) Form of Opinion and Consent              HTML     12K 
 3: EX-99.(14)  EX-99.(14) Consent of Kpmg LLP                      HTML     10K 
 4: EX-99.(16)  EX-99.(16) Power of Attorney                        HTML     23K 
 5: EX-99.(17)  EX-99.(17) Proxy Cards                              HTML     43K 

 

As filed on July 20, 2009

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC 20549

 

FORM N-14

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x

Pre-Effective Amendment No.  o

Post-Effective Amendment No.  o

(Check appropriate box or boxes)

 

Advanced Series Trust

(Exact Name of Registrant as Specified in Charter)

 

(203) 926-1888

(Area Code and Telephone Number)

 

Gateway Center Three

100 Mulberry Street

Newark, NJ 07102

Address of Principal Executive Offices:
(Number, Street, City, State, Zip Code)

 

Deborah A. Docs, Esq.

Secretary, Advanced Series Trust

Gateway Center Three

100 Mulberry Street

Newark, NJ 07102

Name and Address of Agent for Service:
(Number and Street) (City) (State) (Zip Code)

 

Copies to:

Christopher E. Palmer, Esq.

Goodwin Procter LLP

901 New York Avenue, NW

Washington, D.C. 20001

 

Approximate Date of Proposed Public Offering: As soon as

practicable after this Registration Statement becomes effective

under the Securities Act of 1933, as amended.

 

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON AUGUST 19, 2009 PURSUANT TO RULE 488 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Title of the securities being registered: Shares of the AST Aggressive Asset Allocation Portfolio, AST Balanced Asset Allocation Portfolio, AST Preservation Asset Allocation Portfolio of Advanced Series Trust.

 

No filing fee is due because Registrant is relying on Section 24(f) of the Investment Company Act of 1940, as amended.

 

 

 

The Prudential Series Fund
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102
Telephone 800-752-6342

 

August 19, 2009

 

Dear Contract Owner,

 

As a contract owner who beneficially owns shares of any one or more of the following Portfolios of The Prudential Series Fund (the “Fund”):

 

· SP Aggressive Growth Asset Allocation Portfolio

 

· SP Balanced Asset Allocation Portfolio

 

· SP Conservative Asset Allocation Portfolio

 

· Diversified Conservative Growth Portfolio;

 

you are cordially invited to Special Meetings of Shareholders (each, a “Meeting” and collectively, the “Meetings”) of the Portfolios listed above (each, a “Portfolio” and collectively, the “Portfolios”) to be held at the offices of the Fund, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-8065, on October 22, 2009, at the times indicated below:

 

Portfolio		Meeting Time
SP Aggressive Growth Asset Allocation Portfolio		10:00 a.m. Eastern time
SP Balanced Asset Allocation Portfolio		10:30 a.m. Eastern time
SP Conservative Asset Allocation Portfolio		11:00 a.m. Eastern time
Diversified Conservative Growth Portfolio		11:30 a.m. Eastern time

 

The Meetings are very important to the future of the Portfolios. At each Meeting, the shareholders of the relevant Portfolio will be separately asked to approve or disapprove, as more fully described in the attached Prospectus/Proxy Statement, an Agreement and Plan of Reorganization (the “Plan”) whereby the assets of the Portfolio would be acquired by the corresponding portfolio (each, an “AST Portfolio” and collectively, the “AST Portfolios”) of the Advanced Series Trust (the “Trust”) as indicated below in exchange for the Trust’s issuance of shares of beneficial interest in the AST Portfolio to the Portfolio and its shareholders:

 

Portfolio (Target Fund)		AST Portfolio (Acquiring Fund)
SP Aggressive Growth Asset Allocation Portfolio		AST Aggressive Asset Allocation Portfolio
SP Balanced Asset Allocation Portfolio		AST Balanced Asset Allocation Portfolio
SP Conservative Asset Allocation Portfolio		AST Preservation Asset Allocation Portfolio
Diversified Conservative Growth Portfolio		AST Preservation Asset Allocation Portfolio

 

If the proposal with respect to any Portfolio is approved and the corresponding reorganization completed, the value of the shares of the AST Portfolio that you beneficially own immediately after the completion of the Reorganization will be equal to the value of your investment in the corresponding Portfolio immediately prior to the reorganization.  You will no longer beneficially own shares of the specified Portfolio after the reorganization, and that Portfolio no longer will exist.

 

Shareholder approval of any one reorganization transaction is not contingent upon, and will not affect in any way, shareholder approval of any other reorganization transaction.  In addition, the consummation of any one reorganization transaction is not contingent upon, and will not affect in any way, the consummation of any other reorganization transaction.  Shareholders should consider each proposal independently of the other proposals.

 

 

SP Conservative Asset Allocation Portfolio (the “SP Conservative Portfolio”)		AST Preservation Asset Allocation Portfolio (the “AST Preservation Portfolio”)		Conservative Asset Allocation - Preservation Asset Allocation Reorganization
Diversified Conservative Growth Portfolio (the “Conservative Growth Portfolio”)		AST Preservation Asset Allocation Portfolio (the “AST Preservation Portfolio”)		Diversified Conservative Growth - Preservation Asset Allocation Reorganization

 

As described in more detail below, the Plan provides for the transfer of all of a Portfolio’s assets to the corresponding AST Portfolio in exchange for the AST Portfolio’s assumption of all of the Portfolio’s liabilities and the AST Portfolio’s issuance to the Portfolio of shares of beneficial interest in that AST Portfolio (“the AST Portfolio Shares”).  The AST Portfolio Shares received by a Portfolio will have an aggregate net asset value that is equal to the aggregate net asset value of the Portfolio shares that are outstanding immediately prior to such reorganization transaction.  The Plan also provides for the distribution by the Portfolio, on a pro rata basis, of such AST Portfolio Shares to its shareholders in complete liquidation of such Portfolio.  A vote in favor of the Plan by the shareholders of a Portfolio will constitute a vote in favor of the liquidation of the applicable Portfolio and the termination of such Portfolio as a separate series of the Fund.

 

Each acquisition of assets and assumption of liabilities of a Portfolio by the corresponding AST Portfolio is individually referred to herein as a “Reorganization,” and these transactions are collectively referred to herein as the “Reorganizations.” Under the Plan, shareholder approval of any one Reorganization is not contingent upon, and will not affect in any way, shareholder approval of any other Reorganization.  In addition, the consummation of any one Reorganization is not is not contingent upon, and will not affect in any way, the consummation of any other Reorganization.  Shareholders should consider each proposal independently of the other proposals.  If the shareholders of a Portfolio approve the Plan and the relevant Reorganization is consummated, they will become shareholders of the corresponding AST Portfolio.

 

The Meetings will be held at the offices of the Fund, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-8065, on October 22, 2009, at the times indicated below:

 

Portfolio		Meeting Time
SP Aggressive Portfolio		10:00 a.m. Eastern time
SP Balanced Portfolio		10:30 a.m. Eastern time
SP Conservative Portfolio		11:00 a.m. Eastern time
Conservative Growth Portfolio		11:30 a.m. Eastern time

 

The Board of Trustees of the Fund is soliciting these voting instructions on behalf of the Portfolios.  This Prospectus/Proxy Statement will first be sent to contract owners on or about August 19, 2009.

 

The Portfolios of the Fund serve as underlying mutual funds for variable annuity contracts and variable life insurance policies (the “Contracts”) issued by life insurance companies (“Participating Insurance Companies”).  Each Participating Insurance Company holds assets invested in these Contracts in various separate accounts, each of which is divided into sub-accounts investing exclusively in a mutual fund or in a portfolio of a mutual fund.  Therefore, Contract owners who have allocated their account values to applicable sub-accounts are indirectly invested in the applicable Portfolio through the Contracts and should consider themselves shareholders of the applicable Portfolio for purposes of this Prospectus/Proxy Statement.  Each Participating Insurance Company is required to offer Contract owners the opportunity to instruct it, as owner of record of shares held in the applicable Portfolio by its separate accounts, how it should vote on the Plan at the Meeting and at any adjournments thereof.

 

This Prospectus/Proxy Statement gives the information about each Reorganization and the issuance of shares of the AST Portfolios that you should know before investing or voting on the Plan. You should read it carefully and retain it for future reference.  A copy of this Prospectus/Proxy Statement is available at the Trust’s website at http://www.prudential.com/view/page/public/.  Additional information about the AST Portfolios has been filed with the Securities and Exchange Commission and can be found in the following document:

 

·  The Prospectus of the Trust relating to the AST Portfolios, dated May 1, 2009, which is incorporated herein by reference and is included, with and considered to be a part of, this Prospectus/Proxy Statement.

 

 

The Board of Trustees of the Fund, on behalf of each Portfolio, has approved the Plan and unanimously recommends that you vote to approve the Plan.

 

In considering whether to vote to approve the Plan, you should note:

 

·        Each Portfolio and its corresponding AST Portfolio have similar investment objectives and policies (except that the AST Preservation Portfolio is a “fund of funds” while the Conservative Growth Portfolio invests directly in securities);

·        Each Portfolio and its corresponding AST Portfolio have the same subadviser, except Diversified Conservative Growth and AST Preservation Portfolio.  Diversified Conservative Growth currently has six subadvisers, two of which serve as subadvisers to AST Preservation Portfolio.  Those two subadvisers will continue to serve as the only subadvisers to AST Preservation Portfolio if the corresponding Reorganization is approved and completed;

·        Each AST Portfolio is larger than its corresponding Portfolio;

·        Assuming that the Contracts qualify for the federal tax-deferred treatment applicable to certain variable insurance products, the Plan is not expected to result in taxable gain or loss for U.S. federal income tax purposes for Contract owners that beneficially own shares of any Portfolios and

·        Each AST Portfolio has a higher contractual investment management fee rate than its corresponding Portfolios, other than Conservative Growth Portfolio. However, each AST Portfolio had a lower overall expense ratio than its corresponding Portfolio (based on the year ended December 31, 2008), except for the AST Aggressive Asset Allocation Portfolio. For that AST Portfolio, the Investment Manager will apply an expense cap until December 31, 2010.

 

2

 

AGGRESSIVE GROWTH ASSET ALLOCATION - AGGRESSIVE ASSET ALLOCATION REORGANIZATION SUMMARY

 

This section summarizes the investment policies of the AST Aggressive Asset Allocation Portfolio and the SP Aggressive Growth Asset Allocation Portfolio. For a more detailed description of the investment policies, strategies, risks, and investment restrictions of the AST Aggressive Asset Allocation Portfolio, you should read the Prospectus for that portfolio that is incorporated by reference as a part of Exhibit B. For additional information about both portfolios, please refer to the documents described in “Additional Information About the Fund, the Trust and the Portfolios,” below.

 

THE INVESTMENT OBJECTIVES AND STRATEGIES OF THE AGGRESSIVE PORTFOLIOS

 

The investment objectives of the SP Aggressive Growth Asset Allocation Portfolio are the same as the AST Aggressive Asset Allocation Portfolio.  The investment objective of both portfolios is to obtain the highest potential total return consistent with the specified level of risk tolerance.  There can be no assurance that either portfolio will achieve its objective.  After the Reorganization is completed, it is expected that AST Aggressive Asset Allocation Portfolio will continue to be managed according to its investment objective and policies in effect immediately prior to the Reorganization.

 

AST Aggressive Portfolio:

 

The AST Aggressive Asset Allocation Portfolio, along with the AST Balanced Asset Allocation Portfolio and the AST Preservation Asset Allocation Portfolio, is one of several AST Portfolios known as the AST Dynamic Asset Allocation Portfolios.  The investment objectives and strategies of these AST Portfolios are described below.

 

Investment Objective: The investment objective of each AST Portfolio is to obtain the highest potential total return consistent with its specified level of risk tolerance. The investment objective and the definition of risk tolerance level are not fundamental policies for any of these AST Portfolios and, therefore, can be changed by the Board of Trustees of the Portfolio at any time.

 

These AST Portfolios are “funds of funds.” That means that each AST Portfolio invests primarily in one or more mutual funds in accordance with its own asset allocation strategy. Other mutual funds in which they may invest are collectively referred to as the “Underlying Portfolios.” Consistent with the investment objectives and policies of the AST Portfolios, other mutual funds from time to time may be added to, or removed from, the list of Underlying Portfolios that may be used in connection with the AST Portfolios. Currently, the only Underlying Portfolios in which they invest are other portfolios of the Trust and certain money market funds advised by the manager or one of its affiliates.

 

The asset allocation strategy for each AST Portfolio is determined by Prudential Investments, LLC (PI) and Quantitative Management Associates LLC (QMA). As a general matter, QMA will begin by constructing a neutral allocation for each AST Portfolio. Each neutral allocation initially divides the assets for the corresponding AST Portfolio across three broad-based securities benchmark indexes. These three benchmark indexes are the Russell 3000 Index, which generally serves as a proxy for domestic equities markets, the MSCI EAFE Index, which generally serves as a proxy for international equities markets, and the Barclays Capital U.S. Aggregate Bond Index, which generally serves a proxy for the investment-grade domestic bond market. Generally, the neutral allocation for the more aggressive AST Portfolios will emphasize investments in the equity asset class while the neutral allocation for the more conservative portfolios will emphasize investments in the debt/money market asset class. The selection of specific combinations of Underlying Portfolios for each AST Portfolio generally will be determined by PI. PI will employ various quantitative and qualitative research methods to establish weighted combinations of Underlying Portfolios that are consistent with the neutral allocation for each AST Portfolio. QMA will then perform its own forward-looking assessment of macroeconomic, market, financial, security valuation, and other factors. As a result of this assessment, QMA will further adjust the neutral allocation and the preliminary Underlying Portfolio weights for each AST Portfolio based upon its views on certain factors, including, but not limited to, the following:

 

·                  asset class (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on equity or debt securities)

 

·                  geographic focus (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on domestic or international issuers)

 

·                  investment style (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on securities with value, growth, or core characteristics)

 

4

 

·                  market capitalization (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on small-cap, mid-cap, or large-cap issuers) and

 

·                  “off-benchmark” factors (e.g., add exposure to asset sub-classes or investment categories generally not captured in the neutral allocation such as real estate, natural resources, global bonds, limited maturity bonds, high-yield bonds (also referred to as “junk bonds”), or cash.

 

PI and QMA currently expect that any changes to the asset allocation and Underlying Portfolio weights will be effected within certain pre-determined ranges. Consistent with each AST Portfolio’s principal investment policies, PI and QMA may, however, change the asset allocation and Underlying Portfolio weights both within and beyond such predetermined ranges at any time in their sole discretion. In addition, PI and QMA may, at any time in their sole discretion, rebalance an AST Portfolio’s investments to cause its composition to match the asset allocation and Underlying Portfolio weights. Although PI and AST Investment serve as the manager of the Underlying Portfolios, the day-to-day investment management of the Underlying Portfolios is the responsibility of the relevant subadvisers.

 

The Dynamic Asset Allocation Portfolios are not limited to investing exclusively in shares of the Underlying Portfolios. Each of these AST Portfolios is permitted under current law to invest in “securities” as defined under the 1940 Act. For these purposes, the term “securities” includes, without limitation, shares of common or preferred stock, warrants, security futures, notes, bonds, debentures, any put, call, straddle, option, or privilege on any security or on any group or index of securities, or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to a foreign currency. In addition, the Investment Managers and the Trust have received exemptive relief from the SEC to permit these AST Portfolios (among others) to invest in derivative instruments that are not classified as securities under the federal securities laws, including, without limitation, futures contracts, forwards, an d swap agreements. Up to approximately 5% of each AST Portfolio’s net assets will be allocated to: (i) index futures, other futures contracts, and options thereon to provide liquid exposure to the applicable equity and fixed-income benchmark indices and (ii) cash, money market equivalents, short-term debt instruments, money market funds, and short-term debt funds to satisfy all applicable margin requirements for the futures contracts and to provide additional portfolio liquidity to satisfy large-scale redemptions and any variation margin calls with respect to the futures contracts. The AST Portfolios may also invest in ETFs for additional exposure to relevant markets.

 

While we make every effort to achieve our objective, we cannot guarantee success. It is possible you could lose money.

 

Principal Risks:

 

·                  asset allocation risk

 

·                  asset transfer program risk

 

·                  underlying portfolio selection risk

 

·                  Subadviser selection risk for underlying trust portfolios

 

·                  fund of funds risk

 

·                  market risk

 

·                  selection risk

 

·                  common and preferred stocks risk

 

·                  investment style risk

 

·                  small- and mid-capitalization company risk

 

·                  market sector/industry risk

 

·                  portfolio turnover risk

 

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SP Aggressive Portfolio:

 

The SP Aggressive Growth Asset Allocation Portfolio, along with the SP Balanced Asset Allocation Portfolio and the SP Conservative Asset Allocation Portfolio, is one of several SP Portfolios known as the SP Asset Allocation Portfolios.  The investment objectives and strategies of these Portfolios are described below.

 

Investment Objectives: The investment objective of each SP Asset Allocation Portfolio is to obtain the highest potential total return consistent with the specified level of risk tolerance. The definition of risk tolerance is not a fundamental policy and, therefore, can be changed by the Fund’s Board of Trustees at any time.

 

The SP Asset Allocation Portfolios are “funds of funds.” That means that each SP Asset Allocation Portfolio invests primarily in one or more mutual funds as described below. Other mutual funds in which in which an SP Asset Allocation Portfolio may invest are collectively referred to as the “Underlying Portfolios.” Consistent with the investment objectives and policies of the SP Asset Allocation Portfolios, other mutual funds may from time to time may be added to, or removed from, the list of Underlying Portfolios that may be used in connection with the SP Asset Allocation Portfolios. As of March 1, 2009, the only Underlying Portfolios in which the SP Asset Allocation Portfolios are authorized to invest are other portfolios of the Fund, certain portfolios of another fund managed by PI and an affiliate, the AST International Value Portfolio, the AST Global Real Estate Portfolio, the AST Western Asset Core Plus Bond Portfolio, the AST Large-Cap Value Portfolio, the AST Small-Cap Growth Portfolio and certain money market funds advised by PI or its affiliates.

 

Each SP Asset Allocation Portfolio is subadvised by Quantitative Management Associates (QMA), Prudential Investment Management, Inc. (PIM), and Jennison Associates LLC (Jennison). Although QMA, PIM, and Jennison are subadvisers to each Portfolio, as of March 1, 2009 only QMA is providing subadvisory services to the Portfolios. In the future, PIM and/or Jennison may provide services to the Portfolios, subject to approval by the Fund’s Board of Trustees. QMA currently provides the Portfolios and PI with investment advisory services relating to the underlying asset allocations of each Portfolio and the investments of each Portfolio.

 

Each SP Asset Allocation Portfolio actively allocates its assets by investing primarily in a combination of Underlying Portfolios. Each SP Asset Allocation Portfolio intends its strategy of investing primarily in combinations of Underlying Portfolios to result in investment diversification that an investor could otherwise achieve only by holding numerous investments. SP Asset Allocation Portfolio assets are expected to be invested in several Underlying Portfolios at any time. Each SP Asset Allocation Portfolio has a distinctive risk/return balance. Certain SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in equity securities while other SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in debt securities/money market instruments.

 

PI and/or subadviser(s) may, at any time, change an SP Asset Allocation Portfolio’s allocation of assets among Underlying Portfolios based on its assessment of macroeconomic, market, financial, security valuation, and other factors. PI and/or subadviser(s) also may rebalance an SP Asset Allocation Portfolio’s investments to cause such investments to match the Underlying Portfolio allocation at any time.

 

The SP Asset Allocation Portfolios are not limited to investing exclusively in shares of the Underlying Portfolios. Each SP Asset Allocation Portfolio may also invest in other securities and investment instruments, including but not limited to equity securities, fixed income securities, options, futures contracts and other derivatives.

 

The performance of each SP Asset Allocation Portfolio depends on how its assets are allocated and reallocated among the Underlying Portfolios and other investments. A principal risk of investing in each SP Asset Allocation Portfolio is that the manager will make less than optimal decisions regarding allocation of assets in the Underlying Portfolios. Because each of the SP Asset Allocation Portfolios generally invests a significant portion of its assets in Underlying Portfolios, the risks associated with each SP Asset Allocation Portfolio are closely related to the risks associated with the securities and other investments held by the Underlying Portfolios. The ability of each SP Asset Allocation Portfolio to achieve its investment objective will depend on the ability of the Underlying Portfolios to achieve their investment objectives.

 

Investors should choose an SP Asset Allocation Portfolio by determining which risk tolerance level most closely corresponds to their individual planning needs and objectives. While we make every effort to achieve our objectives for each SP Asset Allocation Portfolio, we can’t guarantee success and it is possible that you could lose money.

 

Summary of Principal Risks:

 

·                  asset allocation risk

 

·                  derivatives risk

 

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·                  fund of funds risk

 

·                  subadviser selection risk for underlying portfolios

 

·                  underlying portfolio selection risk

 

FEES AND EXPENSES

 

The following table describes the fees and expenses that Contract owners may pay if they invest in the Portfolios and the AST Portfolios, as well as the projected fees and expenses of the AST Portfolios after the Reorganization. The following table does not reflect any Contract charges. Because Contract charges are not included, the total fees and expenses that you will incur will be higher than the fees and expenses set forth below. The Contract charges will not change as a result of the Reorganization. See your Contract prospectus for more information about Contract charges.

 

Shareholder Fees (fees paid directly from your investment)

 

		SP Aggressive Portfolio (1)		AST Aggressive Portfolio (2)		AST Aggressive Portfolio (Pro Forma Surviving) (3)
Maximum sales charge (load) imposed on purchases		NA	*	NA	*	NA	*
Maximum deferred sales charge (load)		NA	*	NA	*	NA	*
Maximum sales charge (load) imposed on reinvested dividends		NA	*	NA	*	NA	*
Redemption Fee		NA	*	NA	*	NA	*
Exchange Fee		NA	*	NA	*	NA	*

 

* Because each portfolio’s shares are purchased through variable insurance products, the contract prospectus of the relevant product should be carefully reviewed for information on the charges and expenses of those products. This table does not reflect any such charges; and the expenses shown would be higher if such charges were reflected.

 

Annual Portfolio Operating Expenses
  (expenses that are deducted from Portfolio assets)

 

		SP Aggressive Portfolio (1)		AST Aggressive Portfolio (2)		AST Aggressive Portfolio (Pro Forma Surviving) (3)
Management fees		0.05	%	0.15	%	0.15	%
Distribution (12b-1) fees		None		None		None
Other expenses		0.10		0.05		0.04
Acquired portfolio fees & expenses		0.87		0.90		0.90
Total annual portfolio operating expenses		1.02		1.10		1.09
Less: advisory fee waiver		None		None		0.07
Net annual portfolio operating expenses		1.02	%	1.10	%	1.02	%

 

(1)  Expenses are based upon the expenses for the SP Aggressive Portfolio for the twelve months ended December 31, 2008.

 

(2)  Expenses are based upon the expenses for the AST Aggressive Portfolio for the twelve months ended December 31, 2008.  Shares of this AST Portfolio are purchased through variable insurance products. To the extent the Portfolio invests in Underlying Trust Portfolios, the Portfolio will not be directly subject to the 0.10% administrative services fee paid by the Trust to issuers of the variable insurance products offering this AST Portfolio for ongoing services to AST Portfolio shareholders, in lieu of the Trust providing such services directly to shareholders.  The Underlying Trust Portfolios in which the Portfolio invests will, however, be subject to the administrative services fee.

 

(3)  The expenses for the AST Aggressive Portfolio (Pro Forma Surviving) represent the estimated annualized expenses assuming the AST Aggressive Portfolio had acquired all of the assets and assumed all of the liabilities of the SP Aggressive Portfolio as of December 31, 2008.  After the Reorganization, the investment advisory fee paid by the AST Aggressive Portfolio (Pro Forma Surviving) will be at the AST Aggressive Portfolio’s contractual rate. Prudential Investments LLC and AST Investment Services, Inc. have contractually agreed to waive a portion of their management fee and/or reimburse certain expenses for AST Aggressive Portfolio after the Reorganization so that such Portfolio’s annualized investment management fee plus other expenses (exclusive in all cases of taxes, interest, brokerage commissions, distribution fees, dividend and interest expense, if any, related to short sales, extraordinary expenses, and underlying mutual fund expenses) are reduced by an amount equal to 0.07% of the Portfolio’s average daily net assets.  Such contractual expense cap will accrue daily and be applied on a monthly basis, and is expected to terminate on December 31, 2010.

 

7

 

Expense Examples

 

The examples assume that you invest $10,000, that you receive a 5% return each year, and that the portfolios’ total operating expenses remain the same. Although your actual costs may be higher or lower, based on the above assumptions your costs would be:

 

		One Year			Three Years			Five Years			Ten Years
SP Aggressive Portfolio		$	104		$	325		$	563		$	1,248
AST Aggressive Portfolio		$	112		$	350		$	606		$	1,340
AST Aggressive Portfolio (Pro Forma Surviving)		$	104		$	340		$	594		$	1,322

 

PERFORMANCE

 

The bar charts below show the performance of each portfolio for each full calendar year the portfolio has been in operation. The first table below each bar chart shows the portfolio’s best and worst quarters during the periods included in the bar chart.

 

This information may help provide an indication of each portfolio’s risks by showing changes in performance from year to year and by comparing each portfolio’s performance with that of a broad-based securities index. The charts and tables do not reflect Contract charges. If the Contract charges were included, the annual returns would have been lower than those shown. All figures assume reinvestment of dividends. Past performance does not necessarily indicate how a portfolio will perform in the future.

 

AST Aggressive Asset Allocation Portfolio Annual Returns

 

 

Best Quarter		Worst Quarter
8.33% (4th quarter 2006)		-23.07% (4th quarter 2008)

 

Average annual total returns for periods ended 12/31/08

 

		1 year		Since Inception (12/5/05)
Portfolio		-42.33	%	-9.67	%
Standard & Poor’s 500 Index*		-36.99	%	-8.13	%
Blended Index**		-38.43	%	-7.73	%

 

* The Standard Poor’s 500 Composite Stock Price Index (Standard Poor’s 500 Index) — an unmanaged index of 500 stocks of large U.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the AST Aggressive Portfolio.

 

**Blended Index consists of Russell 3000 Index (80%) and MSCI EAFE Index (GD) (20%). These returns do not include the effect of any investment management expenses. The GD (gross dividends) version of the MSCI EAFE Index does not reflect the impact of withholding taxes on reinvested dividends. Based on a recommendation of the AST Aggressive Portfolio’s manager, the Board of the Trust determined that the GD version of the benchmark, which generally reflects higher returns, is a more appropriate benchmark for the AST Aggressive Portfolio. These returns would have been lower if they included the effect of these expenses.

 

SP Aggressive Portfolio Annual Returns

 

Annual Returns (Class I Shares)

 

 

Best Quarter		Worst Quarter
17.65% (2nd quarter of 2003)		-22.96% (4th quarter of 2008)

 

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BALANCED ASSET ALLOCATION REORGANIZATION SUMMARY

 

This section summarizes the investment policies of the AST Balanced Asset Allocation Portfolio and the SP Balanced Asset Allocation Portfolio. For a more detailed description of the investment policies, strategies, risks, and investment restrictions of the AST Balanced Asset Allocation Portfolio, you should read the Prospectus for that portfolio that is incorporated by reference as a part of Exhibit B. For additional information about both portfolios, please refer to the documents described in “Additional Information About the Fund, the Trust and the Portfolios,” below.

 

THE INVESTMENT OBJECTIVES AND STRATEGIES OF THE BALANCED ASSET ALLOCATION PORTFOLIOS

 

The investment objectives of the Balanced Asset Allocation Portfolios are the same.  The investment objective of both portfolios is to obtain the highest potential total return consistent with the/a specified level of risk tolerance. There can be no assurance that either portfolio will achieve its investment objective.   After the Reorganization is completed, it is expected that the AST Balanced Asset Allocation Portfolio will be managed according to its investment objective and policies in effect immediately prior to the Reorganization.

 

AST Balanced Portfolio:

 

The AST Balanced Asset Allocation Portfolio, along with the AST Aggressive Asset Allocation Portfolio and the AST Preservation Asset Allocation Portfolio, is one of several AST Portfolios known as the AST Dynamic Asset Allocation Portfolios.  The investment objectives and strategies of these AST Portfolios are described below.

 

Investment Objective: The investment objective of each AST Portfolio is to obtain the highest potential total return consistent with its specified level of risk tolerance. The investment objective and the definition of risk tolerance level are not fundamental policies for any of these AST Portfolios and, therefore, can be changed by the Board of Trustees of the Portfolio at any time.

 

These AST Portfolios are “funds of funds.” That means that each AST Portfolio invests primarily in one or more mutual funds in accordance with its own asset allocation strategy. Other mutual funds in which they may invest are collectively referred to as the “Underlying Portfolios.” Consistent with the investment objectives and policies of the AST Portfolios, other mutual funds may from time to time may be added to, or removed from, the list of Underlying Portfolios that may be used in connection with the AST Portfolios. Currently, the only Underlying Portfolios in which they invest are other portfolios of the Trust and certain money market funds advised by the manager or one of its affiliates.

 

The asset allocation strategy for each AST Portfolio is determined by Prudential Investments, LLC (PI) and Quantitative Management Associates LLC (QMA). As a general matter, QMA will begin by constructing a neutral allocation for each AST Portfolio. Each neutral allocation initially divides the assets for the corresponding Portfolio across three broad-based securities benchmark indexes. These three benchmark indexes are the Russell 3000 Index, which generally serves as a proxy for domestic equities markets, the MSCI EAFE Index, which generally serves as a proxy for international equities markets, and the Barclays Capital U.S. Aggregate Bond Index, which generally serves a proxy for the investment-grade domestic bond market. Generally, the neutral allocation for the more aggressive AST Portfolios will emphasize investments in the equity asset class while the neutral allocation for the more conservative portfolios will emphasize investments in the debt/money market asset class. The selection of specific combinations of Underlying Portfolios for each AST Portfolio generally will be determined by PI. PI will employ various quantitative and qualitative research methods to establish weighted combinations of Underlying Portfolios that are consistent with the neutral allocation for each AST Portfolio. QMA will then perform its own forward-looking assessment of macroeconomic, market, financial, security valuation, and other factors. As a result of this assessment, QMA will further adjust the neutral allocation and the preliminary Underlying Portfolio weights for each AST Portfolio based upon its views on certain factors, including, but not limited to, the following:

 

·                  asset class (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on equity or debt securities)

 

·                  geographic focus (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on domestic or international issuers)

 

·                  investment style (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on securities with value, growth, or core characteristics)

 

·                  market capitalization (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on small-cap, mid-cap, or large-cap issuers) and

 

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·                  “off-benchmark” factors (e.g., add exposure to asset sub-classes or investment categories generally not captured in the neutral allocation such as real estate, natural resources, global bonds, limited maturity bonds, high-yield bonds (also referred to as “junk bonds”), or cash.

 

PI and QMA currently expect that any changes to the asset allocation and Underlying Portfolio weights will be effected within certain pre-determined ranges. Consistent with each AST Portfolio’s principal investment policies, PI and QMA may, however, change the asset allocation and Underlying Portfolio weights both within and beyond such predetermined ranges at any time in their sole discretion. In addition, PI and QMA may, at any time in their sole discretion, rebalance an AST Portfolio’s investments to cause its composition to match the asset allocation and Underlying Portfolio weights. Although PI and AST Investment serve as the manager of the Underlying Portfolios, the day-to-day investment management of the Underlying Portfolios is the responsibility of the relevant subadvisers.

 

The Dynamic Asset Allocation Portfolios are not limited to investing exclusively in shares of the Underlying Portfolios. Each of these Portfolios is permitted under current law to invest in “securities” as defined under the 1940 Act. For these purposes, the term “securities” includes, without limitation, shares of common or preferred stock, warrants, security futures, notes, bonds, debentures, any put, call, straddle, option, or privilege on any security or on any group or index of securities, or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to a foreign currency. In addition, the Investment Managers and the Trust have received exemptive relief from the SEC to permit these AST Portfolios (among others) to invest in derivative instruments that are not classified as securities under the federal securities laws, including, without limitation, futures contracts, forwards, an d swap agreements. Up to approximately 5% of each AST Portfolio’s net assets will be allocated to: (i) index futures, other futures contracts, and options thereon to provide liquid exposure to the applicable equity and fixed-income benchmark indices and (ii) cash, money market equivalents, short-term debt instruments, money market funds, and short-term debt funds to satisfy all applicable margin requirements for the futures contracts and to provide additional portfolio liquidity to satisfy large-scale redemptions and any variation margin calls with respect to the futures contracts. The AST Portfolios may also invest in ETFs for additional exposure to relevant markets.

 

While we make every effort to achieve our objective, we cannot guarantee success. It is possible you could lose money.

 

Principal Risks:

 

·                  asset allocation risk

 

·                  asset transfer program risk

 

·                  underlying portfolio selection risk

 

·                  Subadviser selection risk for underlying trust portfolios

 

·                  fund of funds risk

 

·                  market risk

 

·                  selection risk

 

·                  common and preferred stocks risk

 

·                  investment style risk

 

·                  small- and mid-capitalization company risk

 

·                  market sector/industry risk

 

·                  portfolio turnover risk

 

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SP Balanced Portfolio:

 

The SP Balanced Asset Allocation Portfolio, along with the SP Aggressive Growth Asset Allocation Portfolio and the SP Conservative Asset Allocation Portfolio, is one of several SP Portfolios known as the SP Asset Allocation Portfolios.  The investment objectives and strategies of these Portfolios are described below.

 

Investment Objectives: The investment objective of each SP Asset Allocation Portfolio is to obtain the highest potential total return consistent with the specified level of risk tolerance. The definition of risk tolerance is not a fundamental policy and, therefore, can be changed by the Fund’s Board of Trustees at any time.

 

The SP Asset Allocation Portfolios are “funds of funds.” That means that each SP Asset Allocation Portfolio invests primarily in one or more mutual funds as described below. Other mutual funds in which in which an SP Asset Allocation Portfolio may invest are collectively referred to as the “Underlying Portfolios.” Consistent with the investment objectives and policies of the SP Asset Allocation Portfolios, other mutual funds may from time to time may be added to, or removed from, the list of Underlying Portfolios that may be used in connection with the SP Asset Allocation Portfolios. As of March 1, 2009, the only Underlying Portfolios in which the SP Asset Allocation Portfolios are authorized to invest are other portfolios of the Fund, certain portfolios of another fund managed by PI and an affiliate, the AST International Value Portfolio, the AST Global Real Estate Portfolio, the AST Western Asset Core Plus Bond Portfolio, the AST Large-Cap Value Portfolio, the AST Small-Cap Growth Portfolio and certain money market funds advised by PI or its affiliates.

 

Each SP Asset Allocation Portfolio is subadvised by Quantitative Management Associates (QMA), Prudential Investment Management, Inc. (PIM), and Jennison Associates LLC (Jennison). Although QMA, PIM, and Jennison are subadvisers to each Portfolio, as of March 1, 2009 only QMA is providing subadvisory services to the Portfolios. In the future, PIM and/or Jennison may provide services to the Portfolios, subject to approval by the Fund’s Board of Trustees. QMA currently provides the Portfolios and PI with investment advisory services relating to the underlying asset allocations of each Portfolio and the investments of each Portfolio.

 

Each SP Asset Allocation Portfolio actively allocates its assets by investing primarily in a combination of Underlying Portfolios. Each SP Asset Allocation Portfolio intends its strategy of investing primarily in combinations of Underlying Portfolios to result in investment diversification that an investor could otherwise achieve only by holding numerous investments. SP Asset Allocation Portfolio assets are expected to be invested in several Underlying Portfolios at any time. Each SP Asset Allocation Portfolio has a distinctive risk/return balance. Certain SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in equity securities while other SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in debt securities/money market instruments as set forth below.

 

PI and/or subadviser(s) may, at any time, change an SP Asset Allocation Portfolio’s allocation of assets among Underlying Portfolios based on its assessment of macroeconomic, market, financial, security valuation, and other factors. PI and/or subadviser(s) also may rebalance an SP Asset Allocation Portfolio’s investments to cause such investments to match the Underlying Portfolio allocation at any time.

 

The SP Asset Allocation Portfolios are not limited to investing exclusively in shares of the Underlying Portfolios. Each SP Asset Allocation Portfolio may also invest in other securities and investment instruments, including but not limited to equity securities, fixed income securities, options, futures contracts and other derivatives.

 

The performance of each SP Asset Allocation Portfolio depends on how its assets are allocated and reallocated among the Underlying Portfolios and other investments. A principal risk of investing in each SP Asset Allocation Portfolio is that the manager will make less than optimal decisions regarding allocation of assets in the Underlying Portfolios. Because each of the SP Asset Allocation Portfolios generally invests a significant portion of its assets in Underlying Portfolios, the risks associated with each SP Asset Allocation Portfolio are closely related to the risks associated with the securities and other investments held by the Underlying Portfolios. The ability of each SP Asset Allocation Portfolio to achieve its investment objective will depend on the ability of the Underlying Portfolios to achieve their investment objectives.

 

Investors should choose an SP Asset Allocation Portfolio by determining which risk tolerance level most closely corresponds to their individual planning needs and objectives. While we make every effort to achieve our objectives for each SP Asset Allocation Portfolio, we can’t guarantee success and it is possible that you could lose money.

 

Summary of Principal Risks:

 

·                  asset allocation risk

 

·                  derivatives risk

 

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·                  fund of funds risk

 

·                  subadviser selection risk for underlying portfolios

 

·                  underlying portfolio selection risk

 

FEES AND EXPENSES

 

The following table describes the fees and expenses that Contract owners may pay if they invest in the Portfolios and the AST Portfolios, as well as the projected fees and expenses of the AST Portfolios after the Reorganization. The following table does not reflect any Contract charges. Because Contract charges are not included, the total fees and expenses that you will incur will be higher than the fees and expenses set forth below. The Contract charges will not change as a result of the Reorganization. See your Contract prospectus for more information about Contract charges.

 

Shareholder Fees (fees paid directly from your investment)

 

		SP Balanced Portfolio (1)		AST Balanced Portfolio (2)		AST Balanced Portfolio (Pro Forma Surviving) (3)
Maximum sales charge (load) imposed on purchases		NA	*	NA	*	NA	*
Maximum deferred sales charge (load)		NA	*	NA	*	NA	*
Maximum sales charge (load) imposed on reinvested dividends		NA	*	NA	*	NA	*
Redemption Fee		NA	*	NA	*	NA	*
Exchange Fee		NA	*	NA	*	NA	*

 

* Because each portfolio’s shares are purchased through variable insurance products, the prospectus of the relevant product should be carefully reviewed for information on the charges and expenses of those products. This table does not reflect any such charges; and the expenses shown would be higher if such charges were reflected.

 

Annual Portfolio Operating Expenses
  (expenses that are deducted from Portfolio assets)

 

		SP Balanced Portfolio (1)		AST Balanced Portfolio (2)		AST Balanced Portfolio (Pro Forma Surviving) (3)
Management fees		0.05	%	0.15	%	0.15	%
Distribution (12b-1) fees		None		None		None
Other expenses		0.02		0.02		0.02
Acquired portfolio fees & expenses		1.05		0.93		0.93
Total annual portfolio operating expenses		1.12	%	1.10	%	1.10	%

 

(1)  Expenses are based upon the expenses for the SP Balanced Portfolio for the twelve months ended December 31, 2008.

 

(2)  Expenses are based upon the expenses for the AST Balanced Portfolio for the twelve months ended December 31, 2008.  Shares of this AST Portfolio are purchased through variable insurance products. To the extent the Portfolio invests in Underlying Trust Portfolios, the Portfolio will not be directly subject to the 0.10% administrative services fee paid by the Trust to issuers of the variable insurance products offering this AST Portfolio for ongoing services to AST Portfolio shareholders, in lieu of the Trust providing such services directly to shareholders.  The Underlying Trust Portfolios in which the Portfolio invests will, however, be subject to the administrative services fee.

 

(3)  The expenses for the AST Balanced Portfolio (Pro Forma Surviving) represent the estimated annualized expenses assuming the AST Balanced Portfolio had acquired all of the assets and assumed all of the liabilities of the SP Balanced Portfolio as of December 31, 2008.  After the Reorganization, the investment advisory fee paid by the AST Balanced Portfolio (Pro Forma Surviving) will be at the AST Balanced Portfolio’s contractual rate.

 

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Expense Examples

 

The examples assume that you invest $10,000, that you receive a 5% return each year, and that the portfolios’ total operating expenses remain the same. Although your actual costs may be higher or lower, based on the above assumptions your costs would be:

 

		One Year			Three Years			Five Years			Ten Years
SP Balanced Portfolio		$	114		$	356		$	617		$	1,363
AST Balanced Portfolio		$	112		$	350		$	606		$	1,340
AST Balanced Portfolio (Projected after the Reorganization)		$	112		$	350		$	606		$	1,340

 

PERFORMANCE

 

The bar charts below show the performance of each portfolio for each full calendar year the portfolio has been in operation. The first table below each bar chart shows the portfolio’s best and worst quarters during the periods included in the bar chart.

 

This information may help provide an indication of each portfolio’s risks by showing changes in performance from year to year and by comparing each portfolio’s performance with that of a broad-based securities index. The charts and tables do not reflect Contract charges. If the Contract charges were included, the annual returns would have been lower than those shown. All figures assume reinvestment of dividends. Past performance does not necessarily indicate how a portfolio will perform in the future.

 

AST Balanced Asset Allocation Portfolio Annual Returns

 

 

Best Quarter		Worst Quarter
5.31%(4th quarter of 2006)		-14.63%(4th quarter of 2008)

 

Average annual total returns for periods ended 12/31/08

 

		1 year		Since Inception (12/5/05)
Portfolio		-28.70	%	-4.67	%
Standard & Poor’s 500 Index*		-36.99	%	-8.13	%
Primary Blended Index**		-23.05	%	-2.25	%
Secondary Blended Index***		-20.94	%	-1.57	%
Prior Primary Blended Index****		-20.94	%	-1.57	%
Prior Secondary Blended Index*****		-20.02	%	-1.85	%

 

Note: Prior to July 21, 2008, the AST Balanced Portfolio was known as the AST Conservative Asset Allocation Portfolio. Effective July 21, 2008, the AST Balanced Portfolio added new subadvisers and changed its investment objective, policies, strategy, and expense structure. The performance history furnished above prior to July 21, 2008 reflects the investment performance, investment operations, investment policies and investment strategies of the former AST Conservative Asset Allocation Portfolio, and does not represent the actual or predicted performance of the current AST Balanced Portfolio.

 

*The Standard & Poor’s 500 Composite Stock Price Index (Standard & Poor’s 500 Index) — an unmanaged index of 500 stocks of large U.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the AST Balanced Portfolio.

 

**The Primary Blended Index consists of the Russell 3000 Index (48%), Barclays Capital U.S. Aggregate Bond Index (formerly, the Lehman Brothers Aggregate Bond Index) (40%) and MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, Far East) Index (GD) (12%). The GD (gross dividends) version does not reflect the impact of withholding taxes on reinvested dividends. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses.

 

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***The Secondary Blended Index consists of the Russell 3000 Index (44%), Barclays Capital U.S. Aggregate Bond Index (formerly, the Lehman Brothers Aggregate Bond Index) (45%) and MSCI EAFE Index (GD) (11%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses.

 

****Prior Primary Blended Index consists of Russell 3000 Index (44%), Barclays Capital U.S. Aggregate Bond Index (formerly, the Lehman Brothers Aggregate Bond Index) (45%) and MSCI EAFE Index (GD) (11%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The AST Balanced Portfolio’s use of this Index has been discontinued and replaced by the Primary Blended Index due to the AST Balanced Portfolio’s new subadvisers and investment strategy.

 

*****Prior Secondary Blended Index consists of the Standard & Poor’s 500 Index (55%) and the Barclays Capital U.S. Aggregate Bond Index (formerly, the Lehman Brothers Aggregate Bond Index) (45%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The AST Balanced Portfolio’s use of this Index has been discontinued and replaced by the Secondary Blended Index due to the AST Balanced Portfolio’s new subadvisers and investment strategy.

 

SP Balanced Asset Allocation Portfolio Annual Returns

 

Annual Returns (Class I Shares)

 

 

Best Quarter		Worst Quarter
11.68% (2nd quarter of 2003)		-13.40% (4th quarter of 2008)

 

Average Annual Returns (as of 12/31/08)

 

		1 Year		5 Years		Since Inception (9/22/00)
Class I Shares		-28.55	%	0.67	%	0.47	%
S&P 500 Index*		-36.99	%	-2.19	%	-3.76	%
Primary Balanced AA Custom Blended Index**		-23.05	%	1.41	%	1.08	%
Secondary Balanced AA Custom Blended Index***		-22.06	%	0.71	%	0.40	%
Lipper Variable Insurance Products (VIP) Mixed-Asset Target Allocation Growth Funds Average****		-29.60	%	-0.56	%	-0.79	%

 

*The Standard & Poor’s 500 Composite Stock Price Index (S&P 500 Index) — an unmanaged index of 500 stocks of large U.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the SP Balanced Portfolio.

 

**The Primary Balanced AA Custom Blended Index consists of the Russell 3000 Index (48%), the Barclays Capital U.S. Aggregate Bond Index (40%) and the MSCI EAFE Index (GD) (12%). The Primary Balanced AA Custom Blended Indexes utilize the MSCI EAFE Index GD (gross dividends) version of the MSCI EAFE Index which does not reflect the impact of withholding taxes on reinvested dividends and generally reflects higher returns. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the SP Balanced Portfolio.

 

***The Secondary Balanced AA Custom Blended Index consists of the Standard & Poor’s 500 Index (60%) and the Barclays Capital Aggregate Bond Index (40%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the SP Balanced Portfolio.

 

****The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the SP Balanced Portfolio.

 

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CAPITALIZATIONS OF THE BALANCED PORTFOLIOS BEFORE AND AFTER THE REORGANIZATION

 

The following tables set forth as of December 31, 2008: (i) the capitalization of the SP Balanced Portfolio, (ii) the capitalization of the AST Balanced Asset allocation Portfolio and (iii) the pro forma capitalization of the AST Balanced Portfolio as adjusted to give effect to the Reorganization.

 

		SP Balanced Portfolio (unaudited)			AST Balanced Portfolio (unaudited)			Adjustments			AST Balanced Portfolio (Pro Forma Surviving) (unaudited)
Net assets		$	845,022,792		$	1,344,656,606		$	(82,000	)(a)	$	2,189,597,398
Total shares outstanding		108,103,476			163,481,909			102,665,953		(b)	266,147,862
Net asset value per share		$	7.82		$	8.23					$	8.23

 

(a)  Reflects the estimated Reorganization expenses of $82,000 attributable to the SP Balanced Portfolio.

(b)  Represents the number of shares issued upon conversion of SP Balanced Portfolio shares into AST Balanced Portfolio.

 

CONSERVATIVE ASSET ALLOCATION - PRESERVATION ASSET ALLOCATION REORGANIZATION SUMMARY

 

This section summarizes the investment policies of the AST Preservation Asset Allocation Portfolio and the SP Conservative Asset Allocation Portfolio. For a more detailed description of the investment policies, strategies, risks, and investment restrictions of the AST Preservation Asset Allocation Portfolio, you should read the Prospectus for that portfolio that is incorporated by reference as a part of Exhibit B. For additional information about both portfolios, please refer to the documents described in “Additional Information About the Fund, the Trust and the Portfolios,” below.

 

THE INVESTMENT OBJECTIVES AND STRATEGIES OF SP CONSERVATIVE ASSET ALLOCATION PORTFOLIO AND AST PRESERVATION ASSET ALLOCATION PORTFOLIO

 

The investment objectives of these Portfolios are the same.  The investment objective of both portfolios is to obtain the highest potential total return consistent with the/a specified level of risk tolerance. There can be no assurance that either portfolio will achieve its investment objective.   After the Reorganization is completed, it is expected that the AST Preservation Asset Allocation Portfolio will be managed according to its investment objective and policies in effect immediately prior to the Reorganization.

 

AST Preservation Portfolio:

 

The AST Preservation Asset Allocation Portfolio, along with the AST Aggressive Asset Allocation Portfolio and the AST Balanced Asset Allocation Portfolio, is one of several AST Portfolios known as the AST Dynamic Asset Allocation Portfolios.  The investment objectives and strategies of these AST Portfolios are described below.

 

Investment Objective: The investment objective of each AST Portfolio is to obtain the highest potential total return consistent with its specified level of risk tolerance. The investment objective and the definition of risk tolerance level are not fundamental policies for any of these AST Portfolios and, therefore, can be changed by the Board of Trustees of the Portfolio at any time.

 

These AST Portfolios are “funds of funds.” That means that each AST Portfolio invests primarily in one or more mutual funds in accordance with its own asset allocation strategy. Other mutual funds in which they may invest are collectively referred to as the “Underlying Portfolios.” Consistent with the investment objectives and policies of the AST Portfolios, other mutual funds may from time to time may be added to, or removed from, the list of Underlying Portfolios that may be used in connection with the AST Portfolios. Currently, the only Underlying Portfolios in which they invest are other portfolios of the Trust and certain money market funds advised by the manager or one of its affiliates.

 

The asset allocation strategy for each AST Portfolio is determined by Prudential Investments, LLC (PI) and Quantitative Management Associates LLC (QMA). As a general matter, QMA will begin by constructing a neutral allocation for each AST Portfolio. Each neutral allocation initially divides the assets for the corresponding Portfolio across three broad-based securities benchmark indexes. These three benchmark indexes are the Russell 3000 Index, which generally serves as a proxy for domestic equities markets, the MSCI EAFE Index, which generally serves as a proxy for international equities markets, and the Barclays Capital U.S. Aggregate Bond Index, which generally serves a proxy for the investment-grade domestic bond market. Generally, the neutral allocation for the more aggressive AST Portfolios will emphasize investments in the equity asset class while the neutral allocation for the more conservative portfolios will emphasize investments in the debt/money market asset class. The selection of specific combinations of Underlying Portfolios for each AST Portfolio generally will be determined by PI. PI will employ

 

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various quantitative and qualitative research methods to establish weighted combinations of Underlying Portfolios that are consistent with the neutral allocation for each AST Portfolio. QMA will then perform its own forward-looking assessment of macroeconomic, market, financial, security valuation, and other factors. As a result of this assessment, QMA will further adjust the neutral allocation and the preliminary Underlying Portfolio weights for each AST Portfolio based upon its views on certain factors, including, but not limited to, the following:

 

·      asset class (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on equity or debt securities)

 

·      geographic focus (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on domestic or international issuers)

 

·      investment style (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on securities with value, growth, or core characteristics)

 

·      market capitalization (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on small-cap, mid-cap, or large-cap issuers) and

 

·      “off-benchmark” factors (e.g., add exposure to asset sub-classes or investment categories generally not captured in the neutral allocation such as real estate, natural resources, global bonds, limited maturity bonds, high-yield bonds (also referred to as “junk bonds”), or cash.

 

PI and QMA currently expect that any changes to the asset allocation and Underlying Portfolio weights will be effected within certain pre-determined ranges. Consistent with each AST Portfolio’s principal investment policies, PI and QMA may, however, change the asset allocation and Underlying Portfolio weights both within and beyond such predetermined ranges at any time in their sole discretion. In addition, PI and QMA may, at any time in their sole discretion, rebalance an AST Portfolio’s investments to cause its composition to match the asset allocation and Underlying Portfolio weights. Although PI and AST Investment serve as the manager of the Underlying Portfolios, the day-to-day investment management of the Underlying Portfolios is the responsibility of the relevant subadvisers.

 

The Dynamic Asset Allocation Portfolios are not limited to investing exclusively in shares of the Underlying Portfolios. Each of these Portfolios is permitted under current law to invest in “securities” as defined under the 1940 Act. For these purposes, the term “securities” includes, without limitation, shares of common or preferred stock, warrants, security futures, notes, bonds, debentures, any put, call, straddle, option, or privilege on any security or on any group or index of securities, or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to a foreign currency. In addition, the Investment Managers and the Trust have received exemptive relief from the SEC to permit these AST Portfolios (among others) to invest in derivative instruments that are not classified as securities under the federal securities laws, including, without limitation, futures contracts, forwards, an d swap agreements. Up to approximately 5% of each AST Portfolio’s net assets will be allocated to: (i) index futures, other futures contracts, and options thereon to provide liquid exposure to the applicable equity and fixed-income benchmark indices and (ii) cash, money market equivalents, short-term debt instruments, money market funds, and short-term debt funds to satisfy all applicable margin requirements for the futures contracts and to provide additional portfolio liquidity to satisfy large-scale redemptions and any variation margin calls with respect to the futures contracts. The AST Portfolios may also invest in ETFs for additional exposure to relevant markets.

 

While we make every effort to achieve our objective, we cannot guarantee success. It is possible you could lose money.

 

Principal Risks:

 

·      asset allocation risk

 

·      asset transfer program risk

 

·      underlying portfolio selection risk

 

·      subadviser selection risk for underlying trust portfolios

 

·      fund of funds risk

 

·      market risk

 

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·      selection risk

 

·      common and preferred stocks risk

 

·      investment style risk

 

·      small- and mid-capitalization company risk

 

·      market sector/industry risk

 

·      portfolio turnover risk

 

SP Conservative Portfolio:

 

The SP Conservative Asset Allocation Portfolio, along with the SP Aggressive Growth Asset Allocation Portfolio and the SP Balanced Asset Allocation Portfolio, is one of several SP Portfolios known as the SP Asset Allocation Portfolios.  The investment objectives and strategies of these Portfolios are described below.

 

Investment Objectives: The investment objective of each SP Asset Allocation Portfolio is to obtain the highest potential total return consistent with the specified level of risk tolerance. The definition of risk tolerance is not a fundamental policy and, therefore, can be changed by the Fund’s Board of Trustees at any time.

 

The SP Asset Allocation Portfolios are “funds of funds.” That means that each SP Asset Allocation Portfolio invests primarily in one or more mutual funds as described below. Other mutual funds in which in which an SP Asset Allocation Portfolio may invest are collectively referred to as the “Underlying Portfolios.” Consistent with the investment objectives and policies of the SP Asset Allocation Portfolios, other mutual funds may from time to time may be added to, or removed from, the list of Underlying Portfolios that may be used in connection with the SP Asset Allocation Portfolios. As of March 1, 2009, the only Underlying Portfolios in which the SP Asset Allocation Portfolios are authorized to invest are other portfolios of the Fund, certain portfolios of another fund managed by PI and an affiliate, the AST International Value Portfolio, the AST Global Real Estate Portfolio, the AST Western Asset Core Plus Bond Portfolio, the AST Large-Cap Value Portfolio, the AST Small-Cap Growth Portfolio and certain money market funds advised by PI or its affiliates.

 

Each SP Asset Allocation Portfolio is subadvised by Quantitative Management Associates (QMA), Prudential Investment Management, Inc. (PIM), and Jennison Associates LLC (Jennison). Although QMA, PIM, and Jennison are subadvisers to each Portfolio, as of March 1, 2009 only QMA is providing subadvisory services to the Portfolios. In the future, PIM and/or Jennison may provide services to the Portfolios, subject to approval by the Fund’s Board of Trustees. QMA currently provides the Portfolios and PI with investment advisory services relating to the underlying asset allocations of each Portfolio and the investments of each Portfolio.

 

Each SP Asset Allocation Portfolio actively allocates its assets by investing primarily in a combination of Underlying Portfolios. Each SP Asset Allocation Portfolio intends its strategy of investing primarily in combinations of Underlying Portfolios to result in investment diversification that an investor could otherwise achieve only by holding numerous investments. SP Asset Allocation Portfolio assets are expected to be invested in several Underlying Portfolios at any time. Each SP Asset Allocation Portfolio has a distinctive risk/return balance. Certain SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in equity securities while other SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in debt securities/money market instruments as set forth below.

 

PI and/or subadviser(s) may, at any time, change an SP Asset Allocation Portfolio’s allocation of assets among Underlying Portfolios based on its assessment of macroeconomic, market, financial, security valuation, and other factors. PI and/or subadviser(s) also may rebalance an SP Asset Allocation Portfolio’s investments to cause such investments to match the Underlying Portfolio allocation at any time.

 

The SP Asset Allocation Portfolios are not limited to investing exclusively in shares of the Underlying Portfolios. Each SP Asset Allocation Portfolio may also invest in other securities and investment instruments, including but not limited to equity securities, fixed income securities, options, futures contracts and other derivatives.

 

The performance of each SP Asset Allocation Portfolio depends on how its assets are allocated and reallocated among the Underlying Portfolios and other investments. A principal risk of investing in each SP Asset Allocation Portfolio is that the manager will make less than optimal decisions regarding allocation of assets in the Underlying Portfolios. Because each of the SP Asset Allocation Portfolios generally invests a significant portion of its assets in Underlying Portfolios, the risks associated with each SP Asset Allocation Portfolio are closely

 

18

 

related to the risks associated with the securities and other investments held by the Underlying Portfolios. The ability of each SP Asset Allocation Portfolio to achieve its investment objective will depend on the ability of the Underlying Portfolios to achieve their investment objectives.

 

Investors should choose an SP Asset Allocation Portfolio by determining which risk tolerance level most closely corresponds to their individual planning needs and objectives. While we make every effort to achieve our objectives for each SP Asset Allocation Portfolio, we can’t guarantee success and it is possible that you could lose money.

 

Summary of Principal Risks:

 

·      asset allocation risk

 

·      derivatives risk

 

·      fund of funds risk

 

·      subadviser selection risk for underlying portfolios

 

·      underlying portfolio selection risk

 

FEES AND EXPENSES

 

The following table describes the fees and expenses that Contract owners may pay if they invest in the Portfolios and the AST Portfolios, as well as the projected fees and expenses of the AST Portfolios after the Reorganization. The following table does not reflect any Contract charges. Because Contract charges are not included, the total fees and expenses that you will incur will be higher than the fees and expenses set forth below. The Contract charges will not change as a result of the Reorganization. See your Contract prospectus for more information about Contract charges.

 

Shareholder Fees (fees paid directly from your investment)

 

		SP Conservative Portfolio (1)		AST Preservation Portfolio (2)		AST Preservation Portfolio (Pro Forma Surviving) (3)
Maximum sales charge (load) imposed on purchases		NA	*	NA	*	NA	*
Maximum deferred sales charge (load)		NA	*	NA	*	NA	*
Maximum sales charge (load) imposed on reinvested dividends		NA	*	NA	*	NA	*
Redemption Fee		NA	*	NA	*	NA	*
Exchange Fee		NA	*	NA	*	NA	*

 

* Because SP Conservative Portfolio and AST Preservation Portfolio shares are purchased through variable insurance products, the prospectus of the relevant product should be carefully reviewed for information on the charges and expenses of those products. This table does not reflect any such charges; and the expenses shown would be higher if such charges were reflected.

 

Annual Portfolio Operating Expenses
  (expenses that are deducted from Portfolio assets)

 

		SP Conservative Portfolio (1)		AST Preservation Portfolio (2)		AST Preservation Portfolio (Pro Forma Surviving) (3)
Management fees		0.05	%	0.15	%	0.15	%
Distribution (12b-1) fees		None		None		None
Other expenses		0.03		0.02		0.02
Acquired portfolio fees & expenses		1.10		0.87		0.87
Total annual Portfolio operating expenses		1.18	%	1.04	%	1.04	%

 

19

 

(1)  Expenses are based upon the expenses for the SP Conservative Portfolio for the twelve months ended December 31, 2008.

 

(2)  Expenses are based upon the expenses for the AST Preservation Portfolio for the twelve months ended December 31, 2008.  Shares of this AST Portfolio are purchased through variable insurance products. To the extent the Portfolio invests in Underlying Trust Portfolios, the Portfolio will not be directly subject to the 0.10% administrative services fee paid by the Trust to issuers of the variable insurance products offering this AST Portfolio for ongoing services to AST Portfolio shareholders, in lieu of the Trust providing such services directly to shareholders.  The Underlying Trust Portfolios in which the Portfolio invests will, however, be subject to the administrative services fee.

 

(3)  The expenses for the AST Preservation Portfolio (Pro Forma Surviving) represent the estimated annualized expenses assuming the AST Preservation Portfolio had acquired all of the assets and assumed all of the liabilities of the SP Conservative Portfolio as of December 31, 2008.  After the Reorganization, the investment advisory fee paid by the AST Preservation Portfolio (Pro Forma Surviving) will be at the AST Preservation Portfolio’s contractual rate.

 

Expense Examples

 

The examples assume that you invest $10,000, that you receive a 5% return each year, and that the Portfolios’ total operating expenses remain the same. Although your actual costs may be higher or lower, based on the above assumptions your costs would be:

 

		One Year			Three Years			Five Years			Ten Years
SP Conservative Portfolio		$	120		$	375		$	649		$	1,432
AST Preservation Portfolio		$	106		$	331		$	574		$	1,271
AST Preservation Portfolio (Pro Forma Surviving)		$	106		$	331		$	574		$	1,271

 

PERFORMANCE

 

The bar charts below show the performance of each portfolio for each full calendar year the portfolio has been in operation. The first table below each bar chart shows the portfolio’s best and worst quarters during the periods included in the bar chart.

 

This information may help provide an indication of each portfolio’s risks by showing changes in performance from year to year and by comparing each portfolio’s performance with that of a broad-based securities index. The charts and tables do not reflect Contract charges. If the Contract charges were included, the annual returns would have been lower than those shown. All figures assume reinvestment of dividends. Past performance does not necessarily indicate how a portfolio will perform in the future.

 

AST Preservation Asset Allocation Portfolio Annual Returns

 

 

Best Quarter		Worst Quarter
4.11%(3rd quarter of 2007)		-9.00% (4th quarter of 2008)

 

Average annual total returns for periods ended 12/31/08

 

		1 year		Since Inception (12/5/05)
Portfolio		-19.48	%	-1.66	%
Standard & Poor’s 500 Index*		-36.99	%	-8.13	%
Blended Index**		-12.06	%	1.10	%
Secondary Blended Index***		-11.44	%	0.91	%

 

* The Standard & Poor’s 500 Composite Stock Price Index (Standard & Poor’s 500 Index) — an unmanaged index of 500 stocks of large U.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the AST Preservation Portfolio.

 

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**Primary Blended Index consists of Russell 3000 Index (28%), MSCI EAFE Index (GD) (7%), and Barclays Capital Aggregate Bond Index (65%). The GD (gross dividends) version of the MSCI EAFE Index does not reflect the impact of withholding taxes on reinvested dividends. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the AST Preservation Portfolio.

 

***Secondary Blended Index consists of the Standard & Poor’s 500 Index (35%) and the Barclays Capital Aggregate Bond Index (65%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the AST Preservation Portfolio.

 

SP Conservative Asset Allocation Portfolio Annual Returns

 

Annual Returns (Class I Shares)

 

 

Best Quarter		Worst Quarter
8.59% (2nd quarter of 2003)		-8.59% (3rd quarter of 2008)

 

Average annual total returns for periods ended 12/31/08

 

		1 Year		5 Years		Since Inception (9/22/00)
Class I Shares		-20.21	%	1.81	%	2.29	%
S&P 500 Index*		-36.99	%	-2.19	%	-3.76	%
Primary Conservative AA Custom Blended Index**		-14.35	%	2.56	%	2.84	%
Secondary Conservative AA Custom Blended Index***		-13.65	%	2.08	%	2.37	%
Lipper Variable Insurance Products (VIP) Mixed-Asset Target Allocation Moderate Funds Average****		-25.34	%	-0.03	%	0.34	%

 

* The Standard & Poor’s 500 Composite Stock Price Index (S&P 500 Index) — an unmanaged index of 500 stocks of large U.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the SP Conservative Portfolio.

 

**The Primary Conservative AA Custom Blended Index consists of the Russell 3000 Index (32%), Barclays Capital U.S. Aggregate Bond Index (60%) and MSCI EAFE Index (GD) (8%). The Primary Conservative AA Custom Blended Index utilizes the MSCI EAFE Index GD (gross dividends) version of the MSCI EAFE Index which does not reflect the impact of withholding taxes on reinvested dividends and generally reflects higher returns. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the SP Conservative Portfolio.

 

***The Secondary Conservative AA Custom Blended Index consists of the Standard & Poor’s 500 Index (40%) and the Barclays Capital Aggregate Bond Index (60%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the SP Conservative Portfolio.

 

****The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the SP Conservative Portfolio.

 

CAPITALIZATIONS OF THE SP CONSERVATIVE & AST PRESERVATION ASSET ALLOCATION PORTFOLIOS BEFORE AND AFTER THE REORGANIZATION

 

The following tables set forth as of December 31, 2008: (i) the capitalization of the SP Conservative Portfolio, (ii) the capitalization of the AST Preservation Asset Allocation Portfolio and (iii) the pro forma capitalization of the AST Preservation Asset Allocation Portfolio as adjusted to give effect to the Reorganization.

 

		SP Conservative Portfolio (unaudited)			AST Preservation Portfolio (unaudited)			Adjustments			AST Preservation Portfolio (Pro Forma Surviving) (unaudited)
Net assets		$	421,800,338		$	1,340,815,581		$	(72,000	)(a)	$	1,762,543,919
Total shares outstanding		47,458,627			147,402,332			46,343,773		(b)	193,746,105
Net asset value per share		$	8.89		$	9.10					$	9.10

 

(a)  Reflects the estimated Reorganization expenses of $72,000 attributable to the SP Conservative Portfolio.

 

(b)  Represents the number of shares issued upon conversion of SP Conservative Portfolio shares into AST Preservation Portfolio.

 

21

 

DIVERSIFIED CONSERVATIVE GROWTH — AST PRESERVATION ASSET ALLOCATION REORGANIZATION SUMMARY

 

This section summarizes the investment policies of the AST Preservation Asset Allocation Portfolio and the Diversified Conservative Growth Portfolio and the differences between them. For a more detailed description of the investment policies, strategies, risks, and investment restrictions of the AST Preservation Asset Allocation Portfolio, you should read the Prospectus for that portfolio that is incorporated by reference as a part of Exhibit B. For additional information about both portfolios, please refer to the documents described in “Additional Information About the Fund, the Trust and the Portfolios,” below.

 

INVESTMENT OBJECTIVES AND STRATEGIES OF DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO AND AST PRESERVATION ASSET ALLOCATION PORTFOLIO

 

The investment objective of Diversified Conservative Growth Portfolio is current income and a reasonable level of capital appreciation. The investment objective of the AST Preservation Asset Allocation Portfolios is to obtain the highest potential total return consistent with a specified level of risk tolerance. There can be no assurance that either Portfolio will achieve its investment objective.   After the Reorganization is completed, it is expected that the AST Preservation Asset Allocation Portfolio will be managed according to the investment objective and policies in effect immediately prior to the Reorganization.

 

AST Preservation Portfolio:

 

The AST Preservation Asset Allocation Portfolio, along with the AST Aggressive Asset Allocation Portfolio and the AST Balanced Asset Allocation Portfolio, is one of several AST Portfolios known as the AST Dynamic Asset Allocation Portfolios.  The investment objectives and strategies of these AST Portfolios are described below.

 

Investment Objective: The investment objective of each AST Portfolio is to obtain the highest potential total return consistent with its specified level of risk tolerance. The investment objective and the definition of risk tolerance level are not fundamental policies for any of these AST Portfolios and, therefore, can be changed by the Board of Trustees of the Portfolio at any time.

 

These AST Portfolios are “funds of funds.” That means that each AST Portfolio invests primarily in one or more mutual funds in accordance with its own asset allocation strategy. Other mutual funds in which they may invest are collectively referred to as the “Underlying Portfolios.” Consistent with the investment objectives and policies of the AST Portfolios, other mutual funds may from time to time may be added to, or removed from, the list of Underlying Portfolios that may be used in connection with the AST Portfolios. Currently, the only Underlying Portfolios in which they invest are other portfolios of the Trust and certain money market funds advised by the manager or one of its affiliates.

 

The asset allocation strategy for each AST Portfolio is determined by Prudential Investments, LLC (PI) and Quantitative Management Associates LLC (QMA). As a general matter, QMA will begin by constructing a neutral allocation for each AST Portfolio. Each neutral allocation initially divides the assets for the corresponding Portfolio across three broad-based securities benchmark indexes. These three benchmark indexes are the Russell 3000 Index, which generally serves as a proxy for domestic equities markets, the MSCI EAFE Index, which generally serves as a proxy for international equities markets, and the Barclays Capital U.S. Aggregate Bond Index, which generally serves a proxy for the investment-grade domestic bond market. Generally, the neutral allocation for the more aggressive AST Portfolios will emphasize investments in the equity asset class while the neutral allocation for the more conservative portfolios will emphasize investments in the debt/money market asset class. The selection of specific combinations of Underlying Portfolios for each AST Portfolio generally will be determined by PI. PI will employ various quantitative and qualitative research methods to establish weighted combinations of Underlying Portfolios that are consistent with the neutral allocation for each AST Portfolio. QMA will then perform its own forward-looking assessment of macroeconomic, market, financial, security valuation, and other factors. As a result of this assessment, QMA will further adjust the neutral allocation and the preliminary Underlying Portfolio weights for each AST Portfolio based upon its views on certain factors, including, but not limited to, the following:

 

·                  asset class (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on equity or debt securities)

 

·                  geographic focus (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on domestic or international issuers)

 

·                  investment style (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on securities with value, growth, or core characteristics)

 

22

 

·                  market capitalization (i.e., increase or decrease allocation to Underlying Portfolios focusing primarily on small-cap, mid-cap, or large-cap issuers) and

 

·                  “off-benchmark” factors (e.g., add exposure to asset sub-classes or investment categories generally not captured in the neutral allocation such as real estate, natural resources, global bonds, limited maturity bonds, high-yield bonds (also referred to as “junk bonds”), or cash.

 

PI and QMA currently expect that any changes to the asset allocation and Underlying Portfolio weights will be effected within certain pre-determined ranges. Consistent with each AST Portfolio’s principal investment policies, PI and QMA may, however, change the asset allocation and Underlying Portfolio weights both within and beyond such predetermined ranges at any time in their sole discretion. In addition, PI and QMA may, at any time in their sole discretion, rebalance an AST Portfolio’s investments to cause its composition to match the asset allocation and Underlying Portfolio weights. Although PI and AST Investment serve as the manager of the Underlying Portfolios, the day-to-day investment management of the Underlying Portfolios is the responsibility of the relevant subadvisers.

 

The Dynamic Asset Allocation Portfolios are not limited to investing exclusively in shares of the Underlying Portfolios. Each of these AST Portfolios is permitted under current law to invest in “securities” as defined under the 1940 Act. For these purposes, the term “securities” includes, without limitation, shares of common or preferred stock, warrants, security futures, notes, bonds, debentures, any put, call, straddle, option, or privilege on any security or on any group or index of securities, or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to a foreign currency. In addition, the Investment Managers and the Trust have received exemptive relief from the SEC to permit these AST Portfolios (among others) to invest in derivative instruments that are not classified as securities under the federal securities laws, including, without limitation, futures contracts, forwards, an d swap agreements. Up to approximately 5% of each AST Portfolio’s net assets will be allocated to: (i) index futures, other futures contracts, and options thereon to provide liquid exposure to the applicable equity and fixed-income benchmark indices and (ii) cash, money market equivalents, short-term debt instruments, money market funds, and short-term debt funds to satisfy all applicable margin requirements for the futures contracts and to provide additional portfolio liquidity to satisfy large-scale redemptions and any variation margin calls with respect to the futures contracts. The AST Portfolios may also invest in ETFs for additional exposure to relevant markets.

 

While we make every effort to achieve our objective, we cannot guarantee success. It is possible you could lose money.

 

Principal Risks:

 

·                  asset allocation risk

 

·                  asset transfer program risk

 

·                  underlying portfolio selection risk

 

·                  Subadviser selection risk for underlying trust portfolios

 

·                  fund of funds risk

 

·                  market risk

 

·                  selection risk

 

·                  common and preferred stocks risk

 

·                  investment style risk

 

·                  small- and mid-capitalization company risk

 

·                  market sector/industry risk

 

·                  portfolio turnover risk

 

23

 

Conservative Growth Portfolio

 

Investment Objective: current income and a reasonable level of capital appreciation.

 

The Portfolio invests in a diversified portfolio of debt and equity securities. Up to 35% of the Portfolio’s total assets may be invested in high-yield/high-risk debt securities, which are riskier than high-grade securities. The Portfolio may invest in foreign securities, including debt obligations of issuers in emerging markets. While we make every effort to achieve our objective, we can’t guarantee success and it is possible that you could lose money.

 

Summary of Principal Risks:

 

·                  asset-backed securities risk

 

·                  company risk

 

·                  credit risk

 

·                  currency and exchange risk

 

·                  derivatives risk

 

·                  foreign investment risk

 

·                  hedging risk

 

·                  high yield risk

 

·                  inflation-indexed securities risk

 

·                  interest rate risk

 

·                  leveraging risk

 

·                  liquidity risk

 

·                  management risk

 

·                  market risk

 

·                  mortgage risk

 

·                  portfolio turnover risk

 

·                  prepayment risk

 

·                  short sales risk

 

The Portfolio is managed by Pacific Investment Management Company LLC, Prudential Investment Management, Inc., Jennison Associates, LLC, EARNEST Partners LLC and Eagle Asset Management, Inc.

 

FEES AND EXPENSES

 

The following table describes the fees and expenses that Contract owners may pay if they invest in the Portfolios and the AST Portfolios, as well as the projected fees and expenses of the AST Portfolios after the Reorganization. The following table does not reflect any Contract charges. Because Contract charges are not included, the total fees and expenses that you will incur will be higher than the fees and expenses set forth below. The Contract charges will not change as a result of the Reorganization. See your Contract prospectus for more information about Contract charges.

 

24

 

Shareholder Fees (fees paid directly from your investment)

 

		Conservative Growth  Portfolio (1)		AST Preservation Portfolio (2)		AST Preservation Portfolio (Pro Forma Surviving) (3)
Maximum sales charge (load) imposed on purchases		NA*		NA*		NA*
Maximum deferred sales charge (load)		NA*		NA*		NA*
Maximum sales charge (load) imposed on reinvested dividends		NA*		NA*		NA*
Redemption Fee		NA*		NA*		NA*
Exchange Fee		NA*		NA*		NA*

 

* Because Conservative Growth Portfolio and AST Preservation Asset Allocation Portfolio shares are purchased through variable insurance products, the prospectus of the relevant product should be carefully reviewed for information on the charges and expenses of those products. This table does not reflect any such charges; and the expenses shown would be higher if such charges were reflected.

 

Annual Portfolio Operating Expenses
  (expenses that are deducted from portfolio assets)

 

		Conservative Growth Portfolio (1)		AST Preservation Portfolio (2)		AST Preservation Portfolio (Pro Forma Surviving) (3)
Management fees		0.75	%	0.15	%	0.15	%
Distribution (12b-1) fees		None		None		None
Other expenses		0.48		0.02		0.02
Acquired portfolio fees & expenses		None		0.87		0.87
Total annual portfolio operating expenses		1.23	%	1.04	%	1.04	%

 

(1)  Expenses are based upon the expenses for the Conservative Growth Portfolio for the twelve months ended December 31, 2008.

 

(2)  Expenses are based upon the expenses for the AST Preservation Portfolio for the twelve months ended December 31, 2008.  Shares of this AST Portfolio are purchased through variable insurance products. To the extent the Portfolio invests in Underlying Trust Portfolios, the Portfolio will not be directly subject to the 0.10% administrative services fee paid by the Trust to issuers of the variable insurance products offering this AST Portfolio for ongoing services to AST Portfolio shareholders, in lieu of the Trust providing such services directly to shareholders.  The Underlying Trust Portfolios in which the Portfolio invests will, however, be subject to the administrative services fee.

 

(3)  The expenses for the AST Preservation Portfolio (Pro Forma Surviving) represent the estimated annualized expenses assuming the AST Preservation Portfolio had acquired all of the assets and assumed all of the liabilities of the Conservative Growth Portfolio as of December 31, 2008.  After the Reorganization, the investment advisory fee paid by the AST Preservation Portfolio (Pro Forma Surviving) will be at the AST Preservation Portfolio’s contractual rate.

 

Expense Examples

 

The examples assume that you invest $10,000, that you receive a 5% return each year, and that the portfolios’ total operating expenses remain the same. Although your actual costs may be higher or lower, based on the above assumptions your costs would be:

 

		One Year			Three Years			Five Years			Ten Years
Conservative Growth Portfolio		$	125		$	390		$	676		$	1,489
AST Preservation Portfolio		$	106		$	331		$	574		$	1,271
AST Preservation Portfolio (Pro Forma Surviving)		$	106		$	331		$	574		$	1,271

 

25

 

PERFORMANCE

 

The bar charts below show the performance of each portfolio for each full calendar year the portfolio has been in operation. The first table below each bar chart shows the portfolio’s best and worst quarters during the periods included in the bar chart.

 

This information may help provide an indication of each portfolio’s risks by showing changes in performance from year to year and by comparing each portfolio’s performance with that of a broad-based securities index. The charts and tables do not reflect Contract charges. If the Contract charges were included, the annual returns would have been lower than those shown. All figures assume reinvestment of dividends. Past performance does not necessarily indicate how a portfolio will perform in the future.

 

AST Preservation Asset Allocation Portfolio Annual Returns

 

 

Best Quarter		Worst Quarter
4.11%(3rd quarter of 2007)		-9.00% (4th quarter of 2008)

 

Average annual total returns for periods ended 12/31/08

 

		1 year		Since Inception (12/5/05)
Portfolio		-19.48	%	-1.66	%
Standard & Poor’s 500 Index*		-36.99	%	-8.13	%
Blended Index**		-12.06	%	1.10	%
Secondary Blended Index***		-11.44	%	0.91	%

 

* The Standard & Poor’s 500 Composite Stock Price Index (Standard & Poor’s 500 Index) — an unmanaged index of 500 stocks of large U.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the AST Preservation Portfolio.

 

**Primary Blended Index consists of Russell 3000 Index (28%), MSCI EAFE Index (GD) (7%), and Barclays Capital Aggregate Bond Index (65%).

 

26

 

The GD (gross dividends) version of the MSCI EAFE Index does not reflect the impact of withholding taxes on reinvested dividends. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the AST Preservation Portfolio.

 

***Secondary Blended Index consists of the Standard & Poor’s 500 Index (35%) and the Barclays Capital Aggregate Bond Index (65%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the AST Preservation Portfolio.

 

Conservative Growth Portfolio Annual Returns

 

Annual Returns (Class I Shares)

 

 

Best Quarter		Worst Quarter
9.78% (2nd quarter of 2003)		-11.11% (4th quarter of 2008)

 

Average Annual Returns (as of 12/31/08)

 

		1 Year		5 Years		Since Inception(5/3/99)
Class I Shares		-21.56	%	0.82	%	2.87	%
S&P 500 Index*		-36.99	%	-2.19	%	-2.31	%
Diversified Conservative Growth Custom Blended Index**		-13.76	%	2.20	%	3.14	%
Lipper Variable Insurance Products (VIP) Mixed-Asset Target Allocation Moderate Funds Average***		-25.34	%	-0.03	%	0.93	%

 

 * The Standard & Poor’s 500 Composite Stock Price Index (S&P 500 Index) — an unmanaged index of 500 stocks of large U.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the Conservative Growth Portfolio.

 

**The Diversified Conservative Growth Custom Blended Index consists of the Russell 3000 Index (40%) and the Barclays Capital Aggregate Index (60%). These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the Conservative Growth Portfolio.

 

***The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The “Since Inception” return reflects the closest calendar month-end return to the inception date of the Conservative Growth Portfolio.

 

CAPITALIZATIONS OF THE CONSERVATIVE GROWTH & AST PRESERVATION ASSET ALLOCATION PORTFOLIOS BEFORE AND AFTER THE REORGANIZATION

 

The following tables set forth as of December 31, 2008: (i) the capitalization of the Conservative Growth Portfolio, (ii) the capitalization of the AST Preservation Asset Allocation Portfolio and (iii) the pro forma capitalization of the AST Preservation Asset Allocation Portfolio as adjusted to give effect to the Reorganization.

 

		Conservative Growth Portfolio			AST Preservation Portfolio						AST Preservation Portfolio (Pro Forma Surviving)
		(unaudited)			(unaudited)			Adjustments			(unaudited)
Net assets		$	83,632,903		$	1,340,815,581		$	(264,000	)(a)	$	1,424,184,484
Total shares outstanding		10,055,769			147,402,332			9,161,418		(b)	156,563,750
Net asset value per share		$	8.32		$	9.10					$	9.10

 

(a)	Reflects the estimated Reorganization expenses of $264,000 attributable to the Conservative Growth Portfolio.
(b)	Represents the number of shares issued upon conversion of Conservative Growth Portfolio shares into AST Preservation Portfolio.

 

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