AST BlackRock Value Portfolio - Prudential Annuities

Spin-offs occur when the parent company distributes shares in a subsidiary to existing parent shareholders. Many parent
shareholders opt to sell the newly traded shares because the spin-off shares do not meet their investing criteria. Because of this
selling pressure, spin-off firms typically realize negative returns around the spin-off date. This is often reversed over the subsequent
year. The diversified arbitrage sleeve purchases shares in spin-off firms based both on the estimated amount of price pressure
selling and on CNH’s fundamental valuation. Spin-off positions are hedged via industry ETFs or stock market futures.
CURRENCY (FIRST QUADRANT): The investment objective for the currency sleeve is to seek to maximize return for a prescribed
level of risk by making diversified investments in developed market currencies to take advantage of market anomalies. The goal of
the mandate is to add value by opportunistically overweighting and underweighting developed market currencies. The risk/return
goals are to add approximately 3% annual value added (over cash return).
First Quadrant, the sleeve’s subadviser, uses an active currency strategy designed to deliver uncorrelated returns (or alpha) at a
prescribed level of risk. First Quadrant’s investment process is systematic, fundamentally-based, and seeks to exploit the drivers of
relative value of currency markets while taking advantage of influences of both short-term and long-term capital flows, trade flows,
and supply/demand pressures.
LONG-SHORT MARKET NEUTRAL (JP Morgan) The JP Morgan market neutral investment sleeve of the Portfolio takes long and
short positions in different securities, selecting from a universe of mid- to large-capitalization stocks with characteristics similar to
those of the Russell 1000 and/or Standard & Poor’s 500 Indexes, in an effort to insulate the overall Portfolio’s performance from
the effects of general stock market movements. JP Morgan seeks to take long positions that will appreciate more rapidly than the
short positions in rising markets and short positions that will decline faster than the long positions in declining markets.
This investment sleeve of the Portfolio purchases securities that JP Morgan believes are undervalued and sells short securities that
JP Morgan believes are overvalued. The long and short positions are matched on a variety of risk characteristics in an attempt to
limit exposure to macroeconomic factors. JP Morgan also seeks to balance Portfolio assets invested in each market sector in long
and short positions in an attempt to remain sector neutral. In attempting to neutralize market and sector risks, JP Morgan
emphasizes stock selection as the primary means of generating returns.
Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may also be used as
substitutes for securities in which this investment sleeve of the Portfolio may invest. This Portfolio segment may use futures
contracts, options and swaps to more effectively gain targeted equity exposure from its cash positions to hedge various
investments, for risk management, and to increase its returns.
In managing the new market neutral investment sleeve of the Portfolio, JP Morgan will employ a three-step process that combines
research, valuation, and stock selection. The research findings will allow JP Morgan to rank the companies according to their
relative value. JP Morgan believes the greater a company’s estimated worth compared to the current market price of its stock, the
more undervalued the company will be. The valuation rankings are produced with the help of a variety of models that quantify the
JP Morgan research team’s findings.
This Portfolio segment buys and sells securities according to JP Morgan’s own policies, using the research and valuation rankings
as a guide. In general, the JP Morgan team selects securities that are identified as undervalued and considers selling them when
they appear overvalued. Along with attractive valuation, the JP Morgan team often considers a number of other criteria, including:
catalysts that could trigger a rise in a stock’s price;
the effect on the overall risk of the new market neutral investment sleeve of the Portfolio relative to its benchmark index; and
temporary mispricings caused by market overreactions.
OVERLAY (QMA). Up to approximately 10% of the Portfolio’s net assets are allocated to the Overlay investment category
subadvised by QMA. Up to approximately 50% of the assets attributable to this investment category are used to take long and
short positions in ETFs, exchange-traded notes, various futures contracts and other publicly-traded securities. QMA analyzes the
publicly available holdings of the Portfolio and use a top-down approach to establish long and short tactical allocations among
various components of the capital markets, including equities, fixed-income, and non-traditional assets. As such, this portion of
the Overlay investment category is intended to function as an overlay for the entire Portfolio. The remaining assets attributable to
this investment category may be allocated to: (i) index futures, other futures contracts, ETFs, options, and swap agreements
thereon to provide liquid exposure to their respective 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.
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