AST BlackRock Value Portfolio - Prudential Annuities

Convertible Securities are a substantial source of capital for many companies, especially those with highly uncertain cash
flows and immediate funding needs. Convertible securities are usually sold by issuing companies at discounts to their
fundamental values. Because of their limited liquidity, they often trade at a discounts in the secondary market.
Convertible arbitrageurs (such as the diversified arbitrage sleeve) are the primary participants in the Convertible Securities
market, and typically buy the Convertible Security and seek to mitigate the various risks associated with the security (i.e.,
equity risk, credit risk, and interest rate risk) by using various hedging strategies. For example, equity risk may be hedged by
shorting the stock of the issuer in an amount based on the sensitivity of the Convertible Security’s price to changes in the
issuer’s stock price.
In most cases, the holding period for an investment by the diversified arbitrage sleeve in a convertible arbitrage trade is longer
than a year, and could be several years for some investments. The diversified arbitrage sleeve generally holds Convertible
Securities of domestic issuers, but may purchase Convertible Securities of foreign issuers if circumstances warrant.
Other arbitrage strategies: CNH also may employ other arbitrage strategies, such as “when-issued trading” arbitrage, “stub-trading”
arbitrage, “dual-class” arbitrage and “closed-end fund” arbitrage.
When-issued arbitrage takes advantage of inefficiencies in the prices at which a parent’s and subsidiary’s stock are trading on
a “when-issued” basis. When-issued opportunities typically occur immediately prior to the separation of a parent and
subsidiary (i.e. spin-off, carve-out, spit-off).
Stub-trading arbitrage takes advantage of inefficiencies in the prices at which the stocks of a publicly traded parent
corporation and its publicly traded subsidiary are trading.
Dual-class arbitrage takes advantage of inefficiencies in the prices at which different classes of a publicly traded company’s
stock are trading.
Closed-end fund arbitrage is the practice of buying (selling) closed-end funds that trade at abnormally wide discounts (or
premiums) to their underlying net asset values. Positions are unwound when the discount or premium converges to expected
levels. In general, the diversified arbitrage sleeve does not invest in closed-end funds with the intention of forcing a
conversion into an open-end fund format.
The diversified arbitrage sleeve may employ additional arbitrage strategies as they arise.
Other Types of Alternative Investment Strategies used by Arbitrage Subadvisers: CNH also pursues other, non-arbitrage
“alternative” investment strategies as it sees market opportunities to do so. For example, the diversified arbitrage sleeve expects to
invest in “price pressure” trades, credit or distressed investments (short-term debt, distressed securities and straight debt), “SPACs”
(Special Purpose Acquisition Corporations), “PIPEs” (Private Investments in Public Equities), IPOs (Initial Public Offerings), SEOs
(Seasoned Equity Offerings), warrants and spin-offs.
When the diversified arbitrage sleeve enters into “price pressure” trades, it seeks to profit from situations in which concentrated
buying or selling of securities by a particular group of investors overwhelms regular trading causing a temporary price dislocation.
The diversified arbitrage sleeve buys securities subject to price pressure and hedges these purchases by shorting market indices or
comparable securities.
Credit investments are made in convertibles, straight debt and loans of firms which offer attractive risk-adjusted returns on a
hedged basis, typically around event-induced capital flows, and distressed investments are made in securities, equities,
convertibles, straight debt and loans of firms that are in or near financial distress and which trade at substantial discounts to
fundamental values.
PIPEs involve the direct purchase of a security from a publicly-traded firm in a private placement. The securities include equities,
convertibles, debentures, and warrants. Trading in PIPE securities are often restricted for a pre-specified period before they can be
resold in secondary markets.
Initial Public Offerings involve the purchase of a newly listed common stock in an underwritten offering. These are fundamental
investments that CNH deems to be attractively priced.
Seasoned equity offerings involve the purchase of common stock of a listed company in an underwritten offering. These
investments take advantage of the discount at which offerings are priced relative to the stock’s market price, as well as the price
pressure on the stock caused by a temporary supply-demand imbalance.
Warrants involve the purchase of exchange-traded warrants in US Treasury auctions or on the secondary market. These
investments are typically hedged by short sales of the issuer’s stock.
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