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[PRUDENTIAL LOGO]
TARGET FUNDS
PROSPECTUS: SEPTEMBER 17, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Trust's shares, nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state otherwise.
[PRUDENTIAL LOGO]
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TABLE OF CONTENTS
1 RISK/RETURN SUMMARY
1 Investment Objectives and Principal Strategies
3 Principal Risks
6 Evaluating Performance
6 Fees and Expenses
12 HOW THE FUNDS INVEST
12 Investment Objectives and Policies
16 Other Investments and Strategies
21 Investment Risks
27 HOW THE TRUST IS MANAGED
27 Board of Trustees
27 Manager
28 Advisers and Portfolio Managers
32 Distributor
33 Year 2000 Readiness Disclosure
34 FUND DISTRIBUTIONS AND TAX ISSUES
34 Distributions
35 Tax Issues
37 If You Sell or Exchange Your Shares
38 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
38 Initial Offering of Shares
39 How to Buy Shares
46 How to Sell Your Shares
50 How to Exchange Your Shares
52 APPENDIX I - DESCRIPTION OF SECURITY RATINGS
55 APPENDIX II - INFORMATION ON PERFORMANCE OF ADVISERS
60 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (Back Cover)
TARGET FUNDS [TELEPHONE] (800) 225-1852
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RISK/RETURN SUMMARY
This section highlights key information about the investment portfolios (the
Funds) of TARGET FUNDS (the Trust). Additional information follows this summary.
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The following summarizes the investment objectives, principal strategies and
principal risks for each of the Funds. For more information on the risks
associated with the Funds, see "Principal Risks" below. While we make every
effort to achieve the investment objective for each Fund, we can't guarantee
success.
LARGE CAPITALIZATION GROWTH FUND
The Fund's investment objective is LONG-TERM CAPITAL APPRECIATION. This means
that we seek investments that will increase in value. To achieve our investment
objective, we purchase STOCKS OF LARGE COMPANIES we believe will experience
earnings growth at a rate faster than that of the Standard & Poor's 500(R) Stock
Index (S&P 500).
RISKS:
- market risk
- style risk
LARGE CAPITALIZATION VALUE FUND
The Fund's investment objective is TOTAL RETURN consisting of CAPITAL
APPRECIATION and DIVIDEND INCOME. This means that we seek investments that will
increase in value as well as pay the Fund dividends. To achieve our objective,
we invest in LARGE COMPANY STOCKS that we believe are undervalued, given the
company's sales, earnings, book value, cash flow and recent performance.
RISKS:
- market risk
- style risk
SMALL CAPITALIZATION GROWTH FUND
The Fund's investment objective is MAXIMUM CAPITAL APPRECIATION. This means that
we seek investments that will increase in value. To achieve our objective, we
invest in the STOCKS OF SMALL COMPANIES that we believe will experience earnings
growth at a rate faster than that of the U.S economy in general.
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RISK/RETURN SUMMARY
RISKS:
- market risk
- style risk
- small company risk
SMALL CAPITALIZATION VALUE FUND
The Fund's investment objective is ABOVE-AVERAGE CAPITAL APPRECIATION. This
means that we seek investments that will increase in value. To achieve our
objective, we invest in STOCKS OF SMALL COMPANIES that we believe are
undervalued, given the company's sales, earnings, book value, cash flow and
recent performance.
RISKS:
- market risk
- style risk
- small company risk
INTERNATIONAL EQUITY FUND
The Fund's investment objective is CAPITAL APPRECIATION. This means that we seek
investments that will increase in value. To achieve this objective, we purchase
STOCKS OF FOREIGN COMPANIES. These companies may be based in developed as well
as developing countries. We may also invest in American Depositary Receipts,
American Depositary Shares, Global Depositary Receipts and European Depositary
Receipts, which are certificates representing an equity investment in a foreign
company.
RISKS:
- market risk
- style risk
- foreign market risk
- currency risk
- political developments
TOTAL RETURN BOND FUND
The Fund's investment objective is TOTAL RETURN consisting of CURRENT
INCOME AND CAPITAL APPRECIATION. This means that we seek investments that will
pay income as well as increase in value. To achieve this objective, we invest in
DEBT OBLIGATIONS issued or guaranteed by the U.S. GOVERNMENT and its agencies,
as well as debt obligations issued by U.S. COMPANIES, FOREIGN COMPANIES AND
FOREIGN GOVERNMENTS and their agencies. The Fund
2 TARGET FUNDS [TELEPHONE] (800) 225-1852
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RISK/RETURN SUMMARY
may invest in MORTGAGE-RELATED SECURITIES issued or guaranteed by U.S.
government entities, and up to 25% of its assets in privately issued
mortgage-related securities (not issued or guaranteed by the U.S. Government).
These investments may include collateralized mortgage obligations and stripped
mortgage-backed securities. We may also invest in ASSET-BACKED SECURITIES like
automobile loans and credit card receivables. We normally invest at least 90% of
the Fund's assets in "investment grade" debt obligations -- rated at least BBB
by Standard & Poor's Ratings Group (S&P), Baa by Moody's Investors Service
(Moody's), or the equivalent by another major rating service -- and unrated debt
obligations that we believe are comparable in quality. However, we may invest up
to 10% of the Fund's assets in HIGH YIELD DEBT OBLIGATIONS ("JUNK BONDS"). The
Fund may actively and frequently trade its portfolio securities. The
dollar-weighted average maturity of the Fund will be between four and fifteen
years.
RISKS:
- credit risk
- interest rate risk
- market risk
- prepayment risk
- active trading risk
- foreign market risk
- currency risk
- political developments
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Like any mutual
fund, an investment in a Fund could lose value, and you could lose money. The
following summarizes the principal risks of investing in the Funds.
LARGE CAPITALIZATION GROWTH, LARGE CAPITALIZATION VALUE, SMALL CAPITALIZATION
GROWTH, SMALL CAPITALIZATION VALUE AND INTERNATIONAL EQUITY FUNDS
MARKET RISK. Since these Funds invest primarily in common stocks, there is the
risk that the price of a particular stock owned by a Fund could go down.
Generally, the stock price of large companies is more stable than the stock
price of smaller companies, but this is not always the case. In addition to an
individual stock losing value, the value of a market sector or of the equity
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RISK/RETURN SUMMARY
markets as a whole could go down. In addition, different parts of a market can
react differently to adverse issuer, market, regulatory, political and economic
developments.
STYLE RISK. Since some of the Funds focus on either a growth or value
style, there is the risk that a particular style may be out of favor for a
period of time.
SMALL COMPANY RISK. The SMALL CAPITALIZATION GROWTH and SMALL
CAPITALIZATION VALUE FUNDS invest primarily in stocks of smaller companies with
a market capitalization of under $1.5 billion. These companies usually offer a
smaller range of products and services than larger companies. They may also have
limited financial resources and may lack management depth. As a result, stocks
issued by smaller companies tend to fluctuate in value more than the stocks of
larger, more established companies.
INVESTMENTS IN FOREIGN SECURITIES. The INTERNATIONAL EQUITY FUND invests
primarily in stocks of foreign companies. Investing in foreign securities
presents additional risks. See "Investments in Foreign Securities" below.
TOTAL RETURN BOND FUND
CREDIT RISK. The debt obligations in which the Total Return Bond Fund invests
are generally subject to the risk that the issuer may be unable to make
principal and interest payments when they are due. There is also the risk that
the securities could lose value because of a loss of confidence in the ability
of the borrower to pay back debt. The Fund may invest in non-investment grade
securities -- also known as "junk bonds" -- which have a higher risk of default
and tend to be less liquid than higher-rated securities.
INTEREST RATE RISK. There is also the risk that the securities could lose
value because of interest rate changes. Debt obligations with longer maturities
typically offer higher yields, but are subject to greater price shifts as a
result of interest rate changes than debt obligations with shorter maturities.
The prices of debt obligations and the Fund's net asset value (or share price)
generally move in opposite directions.
MARKET RISK. Debt obligations are also subject to market risk, which is the
possibility that the market value of an investment may move up or down and that
its movement may occur quickly or unpredictably. Market risk may affect an
industry, a sector or the entire market.
PREPAYMENT RISK. The Fund may invest in mortgage-related securities and
asset-backed securities, which are subject to prepayment risk. If these
securities are prepaid, the Fund may have to replace them with lower-
4 TARGET FUNDS [TELEPHONE] (800) 225-1852
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RISK/RETURN SUMMARY
yielding securities. Stripped mortgage-backed securities are generally more
sensitive to changes in prepayment and interest rates than other
mortgage-related securities. Unlike mortgage-related securities, asset-backed
securities are usually not collateralized. If the issuer of a non-collateralized
debt security defaults on the obligation, there is no collateral that the
security holder may sell to satisfy the debt.
ACTIVE TRADING RISK. The Fund may actively and frequently trade its
portfolio securities. High portfolio turnover results in higher transaction
costs and can affect the Fund's performance and have adverse tax consequences.
INVESTMENTS IN FOREIGN SECURITIES. The Fund may also invest in debt
obligations of foreign issuers. Investing in foreign securities presents
additional risks. See "Investments in Foreign Securities" below.
INVESTMENTS IN FOREIGN SECURITIES
The International Equity and Total Return Bond Funds may invest in foreign
securities. Investing in foreign securities involves more risk than investing in
securities of U.S. issuers.
FOREIGN MARKET RISK. Foreign markets, especially those in developing
countries, tend to be more volatile than U.S. markets and are generally not
subject to regulatory requirements comparable to those in the U.S. Because of
differences in accounting standards and custody and settlement practices,
investing in foreign securities generally involves more risk than investing in
securities of U.S. issuers.
CURRENCY RISK. Changes in currency exchange rates may affect the value of
foreign securities held by a Fund and the amount of income available for
distribution. If a foreign currency grows weaker relative to the U.S. dollar,
the value of securities denominated in that foreign currency generally decreases
in terms of U.S. dollars. If a Fund does not correctly anticipate changes in
exchange rates, certain hedging activities may also cause the Fund to lose money
and reduce the amount of income available for distribution. There are also
special risks that may arise with the introduction of the euro as the common
currency of the European Monetary Union. These risks include the possibility
that computing, accounting and trading systems will fail to recognize the euro,
as well as the possibility that the euro will cause markets to become more
volatile.
POLITICAL DEVELOPMENTS. Political developments may adversely affect the
value of a Fund's foreign securities.
* * *
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RISK/RETURN SUMMARY
For more information about the risks associated with the Funds, see "How
the Funds Invest -- Investment Risks."
An investment in a Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
EVALUATING PERFORMANCE
Because the Funds are new, they have no performance history as of the date of
this prospectus.
FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if you
buy and hold shares of each share class of each Fund -- Class A, B and C. Each
share class has different sales charges -- known as loads -- and expenses, but
represents an investment in the same fund. For more information about which
share class may be right for you, see "How to Buy, Sell and Exchange Shares of
the Funds."
<TABLE>
<CAPTION>
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum sales charge Total Return Bond Fund -- 4% None 1%
(load) imposed on Other Funds -- 5%
purchases (as a percentage
of offering price)
Maximum deferred sales charge (load) None 5%(2) 1%(3)
(as a percentage of the lower of original
purchase price or sale proceeds)
Maximum sales charge (load) imposed None None None
on reinvested dividends and other
distributions
Redemption fees None None None
Exchange fee None None None
</TABLE>
(1) Your broker may charge you a separate or additional fee for purchases and
sales of shares.
(2) The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by
1% annually to 1% in the fifth and sixth years and 0% in the seventh year.
Class B shares convert to Class A shares approximately seven years after
purchase.
(3) The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.
6 TARGET FUNDS [TELEPHONE] (800) 225-1852
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RISK/RETURN SUMMARY
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
LARGE CAPITALIZATION GROWTH FUND
Management fees .70% .70% .70%
+ Distribution and service (12b-1) fees .30% 1.00% 1.00%
+ Other expenses .28% .28% .28%
= Total annual Fund operating expenses 1.28% 1.98% 1.98%
- Fee waiver(1) .05% 0% 0%
= NET ANNUAL FUND OPERATING EXPENSES(1) 1.23% 1.98% 1.98%
LARGE CAPITALIZATION VALUE FUND
Management fees .70% .70% .70%
+ Distribution and service (12b-1) fees .30% 1.00% 1.00%
+ Other expenses .34% .34% .34%
= Total annual Fund operating expenses 1.34% 2.04% 2.04%
- Fee waiver(1) .05% 0% 0%
= NET ANNUAL FUND OPERATING EXPENSES(1) 1.29% 2.04% 2.04%
SMALL CAPITALIZATION GROWTH FUND
Management fees .70% .70% .70%
+ Distribution and service (12b-1) fees .30% 1.00% 1.00%
+ Other expenses .63% .63% .63%
= Total annual Fund operating expenses 1.63% 2.33% 2.33%
- Fee waiver(1) .05% 0% 0%
= NET ANNUAL FUND OPERATING EXPENSES(1) 1.58% 2.33% 2.33%
</TABLE>
(1) For the fiscal year ending July 31, 2000, the Distributor of the Funds has
contractually agreed to reduce its distribution and service (12b-1) fees
for Class A shares to .25 of 1% of the average daily net assets of the
Class A shares, and to reduce its distribution and service fees for Class B
and Class C shares of the Total Return Bond Fund to .75 of 1% of the
average daily net assets of the Class B and Class C shares, respectively.
7
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RISK/RETURN SUMMARY
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
SMALL CAPITALIZATION VALUE FUND
Management fees .70% .70% .70%
+ Distribution and service (12b-1) fees .30% 1.00% 1.00%
+ Other expenses .71% .71% .71%
= Total annual Fund operating expenses 1.71% 2.41% 2.41%
- Fee waiver(1) .05% 0% 0%
= NET ANNUAL FUND OPERATING EXPENSES(1) 1.66% 2.41% 2.41%
INTERNATIONAL EQUITY FUND
Management fees .80% .80% .80%
+ Distribution and service (12b-1) fees .30% 1.00% 1.00%
+ Other expenses .53% .53% .53%
= Total annual Fund operating expenses 1.63% 2.33% 2.33%
- Fee waiver(1) .05% 0% 0%
= NET ANNUAL FUND OPERATING EXPENSES(1) 1.58% 2.33% 2.33%
TOTAL RETURN BOND FUND
Management fees .50% .50% .50%
+ Distribution and service (12b-1) fees .30% 1.00% 1.00%
+ Other expenses 1.13% 1.13% 1.13%
= Total annual Fund operating expenses 1.93% 2.63% 2.63%
- Fee waiver(1) .05% .25% .25%
= NET ANNUAL FUND OPERATING EXPENSES(1) 1.88% 2.38% 2.38%
</TABLE>
(1) For the fiscal year ending July 31, 2000, the Distributor of the Funds has
contractually agreed to reduce its distribution and service (12b-1) fees
for Class A shares to .25 of 1% of the average daily net assets of the
Class A shares, and to reduce its distribution and service fees for Class B
and Class C shares of the Total Return Bond Fund to .75 of 1% of the
average daily net assets of the Class B and Class C shares, respectively.
8 TARGET FUNDS [TELEPHONE] (800) 225-1852
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RISK/RETURN SUMMARY
FEES AND EXPENSES EXAMPLE
This example will help you compare the fees and expenses of the Funds' different
share classes and the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in a Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A shares of the
Funds and for Class B and Class C shares of the Total Return Bond Fund during
the first year. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YR 3 YRS
<S> <C> <C>
LARGE CAPITALIZATION GROWTH FUND
Class A shares $619 $881
Class B shares $701 $921
Class C shares $399 $715
LARGE CAPITALIZATION VALUE FUND
Class A shares $625 $899
Class B shares $707 $940
Class C shares $405 $733
SMALL CAPITALIZATION GROWTH FUND
Class A shares $653 $984
Class B shares $736 $1,027
Class C shares $434 $820
SMALL CAPITALIZATION VALUE FUND
Class A shares $660 $1,007
Class B shares $744 $1,051
Class C shares $442 $844
</TABLE>
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RISK/RETURN SUMMARY
<TABLE>
<CAPTION>
1 YR 3 YRS
<S> <C> <C>
INTERNATIONAL EQUITY FUND
Class A shares $653 $984
Class B shares $736 $1,027
Class C shares $434 $820
TOTAL RETURN BOND FUND
Class A shares $583 $977
Class B shares $741 $1,094
Class C shares $439 $886
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
1 YR 3 YRS
<S> <C> <C>
LARGE CAPITALIZATION GROWTH FUND
Class A shares $619 $881
Class B shares $201 $621
Class C shares $299 $715
LARGE CAPITALIZATION VALUE FUND
Class A shares $625 $899
Class B shares $207 $640
Class C shares $305 $733
SMALL CAPITALIZATION GROWTH FUND
Class A shares $653 $984
Class B shares $236 $727
Class C shares $334 $820
SMALL CAPITALIZATION VALUE FUND
Class A shares $660 $1,007
Class B shares $244 $751
Class C shares $342 $844
</TABLE>
10 TARGET FUNDS [TELEPHONE] (800) 225-1852
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RISK/RETURN SUMMARY
<TABLE>
<CAPTION>
1 YR 3 YRS
<S> <C> <C>
INTERNATIONAL EQUITY FUND
Class A shares $653 $984
Class B shares $236 $727
Class C shares $334 $820
TOTAL RETURN BOND FUND
Class A shares $583 $977
Class B shares $241 $794
Class C shares $339 $886
</TABLE>
11
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HOW THE FUNDS INVEST
INVESTMENT OBJECTIVES AND POLICIES
LARGE CAPITALIZATION GROWTH FUND
The Fund's investment objective is LONG-TERM CAPITAL APPRECIATION. This means
that we seek investments that we think will increase in value.
In pursuing our objective, we invest in STOCKS OF LARGE COMPANIES we
believe will experience earnings growth at a rate faster than that of the S&P
500. When we consider investing in a company's stock, we look at several factors
to evaluate the stock's growth potential, including the company's historical
profitability, the economic outlook for the company's industry, the company's
position in that industry, and the qualifications of company management. For
example, we may select a company's stock based on new products or services the
company is introducing. Dividend income is only an incidental consideration.
Generally, we will consider selling a security when we think it has achieved its
growth potential, or when we think we can find better growth opportunities. We
normally invest at least 80% of the Fund's total assets in common stocks, and at
least 65% of its total assets in common stocks of companies with a total market
capitalization of $5 billion or more (measured at the time of purchase).
LARGE CAPITALIZATION VALUE FUND
The Fund's investment objective is TOTAL RETURN consisting of CAPITAL
APPRECIATION and DIVIDEND INCOME. This means that we seek investments that we
think will increase in value as well as pay the Fund dividends.
In pursuing our objective, we invest in STOCKS OF LARGE COMPANIES using a
VALUE INVESTMENT STYLE. That is, we invest in stocks that we believe are
undervalued and have an above-average potential to increase in price. We
consider a number of factors in choosing stocks, like a company's sales,
earnings, book value, cash flow, recent performance and the industry it's in. We
consider selling a stock if it has increased in value to the point where we no
longer consider it to be undervalued. We normally invest at least 80% of the
Fund's total assets in common stocks and securities convertible into common
stocks, and at least 65% of its total assets in common stocks of companies with
a total market capitalization of $5 billion or more (measured at the time of
purchase) that we think will pay regular dividends.
SMALL CAPITALIZATION GROWTH FUND
The Fund's investment objective is MAXIMUM CAPITAL APPRECIATION. This means that
we seek investments that we think will increase in value.
12 TARGET FUNDS [TELEPHONE] (800) 225-1852
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HOW THE FUNDS INVEST
In pursuing our objective, we invest in STOCKS OF SMALL COMPANIES we
believe will experience earnings growth at a rate faster than that of the U.S.
economy in general. When we consider investing in a company's stock, we look at
several factors to evaluate the stock's growth potential, including the
company's historical profitability, return on capital, the economic outlook for
the company's industry, the company's position in that industry, and the
qualifications of company management. For example, we may select a company's
stock based on new products or services the company is introducing. We do not
consider dividend income in selecting stocks for the Fund. Generally, we will
consider selling a security when we think it has achieved its growth potential,
or when we think we can find better growth opportunities. We normally invest at
least 65% of its total assets in common stocks of companies with a total market
capitalization of less than $1.5 billion (measured at the time of purchase).
SMALL CAPITALIZATION VALUE FUND
The Fund's investment objective is ABOVE-AVERAGE CAPITAL APPRECIATION. This
means that we seek investments that we think will increase in value.
In pursuing our objective, we invest in STOCKS OF SMALL COMPANIES using a
VALUE INVESTMENT STYLE. That is, we invest in stocks that we believe are
undervalued and have an above-average potential to increase in price. We
consider a number of factors in choosing stocks, like a company's sales,
earnings, book value, cash flow and recent performance. We also consider
dividend growth prospects in selecting stocks for the Fund. We consider selling
a stock if it has increased in value to the point where we no longer consider it
to be undervalued. We normally invest at least 80% of the Fund's total assets in
common stocks, and at least 65% of its total assets in common stocks of
companies with a total market capitalization of less than $1.5 billion (measured
at the time of purchase).
INTERNATIONAL EQUITY FUND
The Fund's investment objective is CAPITAL APPRECIATION. This means that we seek
investments that we think will increase in value.
In pursuing our objective, we invest in STOCKS of companies located in
FOREIGN COUNTRIES. We look for stocks that we believe are undervalued based on
their earnings, cash flow or asset values. We consider selling a stock if it has
increased in value to the point where we no longer consider it to be
undervalued. We may invest in stocks of companies in both developed and
developing countries. We normally invest at least 65% of the Fund's total assets
in stocks of non-U.S. companies in at least three different foreign countries.
For purposes of this policy, the Fund will invest in stocks of companies that
are organized under the laws of a foreign country, companies which
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<PAGE> 16
HOW THE FUNDS INVEST
derive more than 50% of their revenues from activities in foreign countries, and
companies which have at least 50% of their assets located abroad. The foreign
securities held by the Fund normally will be denominated in foreign currencies,
including the euro -- a multinational currency unit.
The Fund may also invest in AMERICAN DEPOSITARY RECEIPTS (ADRs), AMERICAN
DEPOSITARY SHARES (ADSs), GLOBAL DEPOSITARY RECEIPTS (GDRs) and EUROPEAN
DEPOSITARY RECEIPTS (EDRs). ADRs, ADSs, GDRs and EDRs are certificates --
usually issued by a bank or trust company -- that represent an equity investment
in a foreign company. ADRs and ADSs are issued by U.S. banks and trust companies
and are valued in U.S. dollars. EDRs and GDRs are issued by foreign banks and
trust companies and are usually valued in foreign currencies.
TOTAL RETURN BOND FUND
The Fund's investment objective is TOTAL RETURN consisting of CURRENT INCOME and
CAPITAL APPRECIATION. This means that we seek investments that we think will pay
income as well as increase in value.
In pursuing our objective, we invest primarily in DEBT OBLIGATIONS issued
or guaranteed by the U.S. GOVERNMENT and its agencies, as well as debt
obligations issued by U.S. COMPANIES, FOREIGN COMPANIES AND FOREIGN GOVERNMENTS
and their agencies. The Fund can invest up to 20% of its assets in foreign debt
obligations.
The Fund invests in MORTGAGE-RELATED SECURITIES issued or guaranteed by
U.S. Government entities, including securities issued by the Federal National
Mortgage Association (FNMA or "Fannie Mae") or the Federal Home Loan Mortgage
Corporation (FHLMC or "Freddie Mac") or guaranteed by the Government National
Mortgage Association (GNMA or "Ginnie Mae"). However, we may invest up to 25% of
the Fund's assets in privately issued mortgage-related securities (those not
issued or guaranteed by the U.S. Government). The mortgage-related securities in
which the Fund may invest may include COLLATERALIZED MORTGAGE OBLIGATIONS and
STRIPPED MORTGAGE-BACKED SECURITIES.
Mortgage-related securities are usually pass-through instruments that pay
investors a share of all interest and principal payments from an underlying pool
of fixed or adjustable rate mortgages. Mortgage-related securities issued by the
U.S. Government or its agencies include FNMAs, GNMAs and debt securities issued
by the FHLMC. The U.S. Government or the issuing agency directly or indirectly
guarantees the payment of interest and principal on these securities, but not
their value. Private mortgage-related securities that are not guaranteed by U.S.
governmental entities generally have one or more types of credit enhancement to
ensure timely receipt of payments and to protect against default.
14 TARGET FUNDS [TELEPHONE] (800) 225-1852
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HOW THE FUNDS INVEST
Mortgage pass-through securities include collateralized mortgage
obligations, multi-class pass-through securities and stripped mortgage-backed
securities. A COLLATERALIZED MORTGAGE OBLIGATION (CMO) is a security backed by
an underlying portfolio of mortgages or mortgage-backed securities that may be
issued or guaranteed by a bank or by U.S. governmental entities. A MULTI-CLASS
PASS-THROUGH SECURITY is an equity interest in a trust composed of underlying
mortgage assets. Payments of principal and interest on the mortgage assets and
any reinvestment income thereon provide the funds to pay debt service on the CMO
or to make scheduled distributions on the multi-class pass-through security. A
STRIPPED MORTGAGE-BACKED SECURITY (MBS STRIP) may be issued by U.S. governmental
entities or by private institutions. MBS strips take the pieces of a debt
security (principal and interest) and break them apart. The resulting securities
may be sold separately and may perform differently.
The values of mortgage-backed securities vary with changes in market
interest rates generally and in yields among various kinds of mortgage-related
securities. Such values are particularly sensitive to changes in prepayments of
the underlying mortgages. For example, during periods of falling interest rates,
prepayments tend to increase as homeowners and others refinance their
higher-rate mortgages; these prepayments reduce the anticipated duration of the
mortgage-related securities. Conversely, during periods of rising interest
rates, prepayments can be expected to decline, which has the effect of extending
the anticipated duration at the same time that the value of the securities
declines. MBS strips tend to be even more highly sensitive to changes in
prepayment and interest rates than mortgage-related securities and CMOs
generally.
The Fund may also invest in ASSET-BACKED DEBT SECURITIES. An asset-backed
security is another type of pass-through instrument that pays interest based
upon the cash flow of an underlying pool of assets, such as automobile loans and
credit card receivables. Unlike mortgage-related securities, asset-backed
securities are usually not collateralized.
We normally invest at least 65% of the Fund's total assets in bonds, and at
least 90% of its total assets in "investment grade" debt obligations -- debt
obligations rated at least BBB by S&P, Baa by Moody's, or the equivalent by
another major rating service, and unrated debt obligations that we believe are
comparable in quality. However, we may invest up to 10% of the Fund's assets in
HIGH YIELD DEBT OBLIGATIONS -- also known as "JUNK BONDS" -- which are rated at
least B by S&P, Moody's or another major rating service, and unrated debt
obligations that we believe are comparable in quality. The Fund may continue to
hold an obligation even if it is later downgraded or no longer rated.
15
<PAGE> 18
HOW THE FUNDS INVEST
When purchasing or selling portfolio securities, the factors that the
investment adviser to the Fund may consider are economic conditions and interest
rate fundamentals and, for foreign debt securities, country and currency
selection. The investment adviser also evaluates individual debt securities
within each fixed-income sector based upon their relative investment merit and
considers factors such as yield, duration and potential for price or currency
appreciation as well as credit quality, maturity and risk.
The Fund's dollar-weighted average portfolio maturity will generally be
between four and fifteen years.
* * *
For more information, see "Investment Risks" below and the Statement of
Additional Information, "Description of the Funds, Their Investments and Risks."
The Statement of Additional Information -- which we refer to as the SAI --
contains additional information about the Funds. To obtain a copy, see the back
cover page of this prospectus.
Although we make every effort to achieve each Fund's objective, we can't
guarantee success. Each Fund's investment objective is a fundamental policy that
cannot be changed without shareholder approval. The Board of the Trust can
change investment policies that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
In addition to their principal strategies, we may also use the following
investment strategies to increase the Funds' returns or protect their assets if
market conditions warrant.
TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of a Fund's assets in money market instruments or
U.S. Government securities. Investing heavily in these securities limits our
ability to achieve capital appreciation, but can help to preserve a Fund's
assets when the markets are unstable.
MONEY MARKET INSTRUMENTS. Each Fund may invest in high quality MONEY MARKET
INSTRUMENTS. Money market instruments include the commercial paper of U.S. and
foreign corporations, obligations of U.S. and foreign banks, certificates of
deposit and obligations issued or guaranteed by the U.S. Government or its
agencies or a foreign government. The Funds will generally purchase money market
instruments in one of the two highest short-term quality ratings of a major
rating service. The Funds may also invest in money market instruments that are
not rated, but which we believe are of comparable quality to the instruments
described above.
16 TARGET FUNDS [TELEPHONE] (800) 225-1852
<PAGE> 19
HOW THE FUNDS INVEST
U.S. GOVERNMENT SECURITIES. The Funds may invest in DEBT OBLIGATIONS ISSUED
BY THE U.S. TREASURY. Treasury securities have varying interest rates and
maturities, but they are all backed by the full faith and credit of the U.S.
Government.
The Funds may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY
THE U.S. GOVERNMENT and government-related entities. Some of these debt
securities are backed by the full faith and credit of the U.S. Government, like
GNMA obligations. Debt securities issued by other government entities, like
obligations of FNMA and the Student Loan Marketing Association (SLMA or "Sallie
Mae"), are not backed by the full faith and credit of the U.S. Government.
However, these issuers have the right to borrow from the U.S. Treasury to meet
their obligations. In contrast, the debt securities of other issuers, like the
Farm Credit System, depend entirely upon their own resources to repay their
debt.
The U.S. Government sometimes "strips" its debt obligations into their
component parts: the U.S. Government's obligation to make interest payments and
its obligation to repay the amount borrowed. These STRIPPED SECURITIES are sold
to investors separately. Stripped securities do not make periodic interest
payments. They are usually sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest
rates fall and lose value when interest rates rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional debt obligations. A Fund may try to earn
money by buying stripped securities at a discount and either selling them after
they increase in value or holding them until they mature.
DEBT OBLIGATIONS
In addition to their principal investments, the Large Capitalization Value,
Small Capitalization Value and International Equity Funds may invest in debt
obligations for their appreciation potential. The Large Capitalization Value,
Small Capitalization Value and International Equity Funds may invest in debt
obligations issued by U.S. and foreign companies that are rated at least A by
S&P or by Moody's or the equivalent by another major rating service. The Large
Capitalization Value and Small Capitalization Value Portfolios may also invest
in asset-backed securities from time to time. An asset-backed security is
another type of pass-through instrument that pays interest based upon the cash
flow of an underlying pool of assets, such as automobile loans and credit card
receivables. Unlike mortgage-related securities, asset-backed securities are not
usually collateralized, which means that if the borrower does not repay the
amount loaned when due, the Fund could suffer a loss.
17
<PAGE> 20
HOW THE FUNDS INVEST
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
The TOTAL RETURN BOND FUND may enter into REVERSE REPURCHASE AGREEMENTS and
DOLLAR ROLLS. When the Fund enters into a reverse repurchase agreement, the Fund
borrows money on a temporary basis by selling a security with an obligation to
repurchase it at an agreed-upon price and time.
When the Fund enters into a dollar roll, the Fund sells securities to be
delivered in the current month and repurchases substantially similar (same type
and coupon) securities to be delivered on a specified future date by the same
party. The Fund is paid the difference between the current sales price and the
forward price for the future purchase as well as the interest earned on the cash
proceeds of the initial sale.
LEVERAGE
The Total Return Bond Fund may borrow from banks or through reverse repurchase
agreements and dollar rolls to take advantage of investment opportunities. This
is known as using "leverage." If the Fund borrows money to purchase securities
and those securities decline in value, then the value of the Fund's shares will
decline faster than if the Fund were not leveraged.
REPURCHASE AGREEMENTS
The Total Return Bond Fund may use REPURCHASE AGREEMENTS, where a party agrees
to sell a security to the Fund and then repurchase it at an agreed-upon price at
a stated time. The other Funds may also use repurchase agreements for cash
management purposes. A repurchase agreement is like a loan by a Fund to the
other party that creates a fixed return for the Fund.
CONVERTIBLE SECURITIES
Each Fund may also invest in CONVERTIBLE SECURITIES. These are securities --
like bonds, corporate notes and preferred stock -- that we can convert into the
company's common stock or some other equity security.
DERIVATIVE STRATEGIES
The INTERNATIONAL EQUITY and TOTAL RETURN BOND FUNDS may each use various
derivative strategies to try to improve the Fund's returns or protect its
assets, although we cannot guarantee that these strategies will work, that the
instruments necessary to implement these strategies will be available or that
the Fund will not lose money. The derivatives in which these Funds may invest
include FUTURES, OPTIONS AND OPTIONS ON FUTURES. In addition, these Funds may
enter into FOREIGN CURRENCY EXCHANGE CONTRACTS and purchase COMMERCIAL PAPER
THAT IS INDEXED TO FOREIGN CURRENCY EXCHANGE RATES.
18 TARGET FUNDS [TELEPHONE] (800) 225-1852
<PAGE> 21
HOW THE FUNDS INVEST
Because the International Equity Fund invests a large percentage of its assets
in securities denominated in foreign currencies, we may use "CURRENCY HEDGES" to
help protect the Fund's net asset values (NAVs) from declining if a particular
foreign currency were to decrease in value against the U.S. dollar.
Derivatives involve costs and can be volatile. With derivatives, the
investment adviser tries to predict whether the underlying investment -- a
security, market index, currency, interest rate or some other benchmark -- will
go up or down at some future date. We may use derivatives to try to reduce risk
or to increase return consistent with a Fund's overall investment objective. The
investment adviser will consider other factors (such as cost) in deciding
whether to employ any particular strategy or use any particular instrument. Any
derivatives we use may not fully offset a Fund's underlying positions and this
could result in losses to the Fund that would not otherwise have occurred. For
more information about these strategies, see the SAI, "Description of the Funds,
Their Investments and Risks -- Risk Management and Return Enhancement
Strategies."
OPTIONS
The International Equity and Total Return Bond Funds may purchase and sell
put and call options on securities and currencies traded on U.S. or foreign
securities exchanges or in the over-the-counter market. An option is the right
to buy or sell securities in exchange for a premium. The options may be on debt
securities, aggregates of debt securities, financial indexes and U.S. Government
securities. The Funds will sell only covered options.
FUTURES CONTRACTS AND RELATED OPTIONS;
FOREIGN CURRENCY FORWARD CONTRACTS
The International Equity and Total Return Bond Funds may purchase and sell
financial futures contracts and related options on debt securities, aggregates
of debt securities, currencies, financial indexes or U.S. Government securities.
A futures contract is an agreement to buy or sell a set quantity of underlying
product at a future date or to make or receive a cash payment based on the value
of a securities index. The International Equity and Total Return Bond Funds also
may enter into foreign currency forward contracts to protect the value of their
assets against future changes in the level of foreign currency exchange rates. A
foreign currency forward contract is an obligation to buy or sell a given
currency on a future date and at a set price.
19
<PAGE> 22
HOW THE FUNDS INVEST
ADDITIONAL STRATEGIES
The Funds may also use other non-principal strategies, such as purchasing debt
securities on a WHEN-ISSUED or DELAYED-DELIVERY basis. When a Fund makes this
type of purchase, the price and interest rate are fixed at the time of purchase,
but delivery and payment for the debt obligations take place at a later time.
The Fund does not earn interest income until the date the debt obligations are
delivered.
The TOTAL RETURN BOND FUND may enter into INTEREST RATE SWAP TRANSACTIONS.
In a swap transaction, the Fund and another party "trade" income streams. The
swap is done to preserve a return or spread on a particular investment or
portion of the Fund or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date.
The Funds also follow certain policies when they BORROW MONEY (the Total
Return Bond Fund can borrow up to 33 1/3% of the value of its total assets,
while the other Funds may each borrow up to 20% of the value of its total
assets); and HOLD ILLIQUID SECURITIES (each Fund may hold up to 15% of its net
assets in illiquid securities, including securities with legal or contractual
restrictions, those without a readily available market and repurchase agreements
with maturities longer than seven days).
Each Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.
PORTFOLIO TURNOVER
As a result of the strategies described above, the Total Return Bond Fund
may have an annual portfolio turnover rate of over 100%. Portfolio turnover is
generally the percentage found by dividing the lesser of portfolio purchases or
sales by the monthly average value of the portfolio. High portfolio turnover
(100% or more) results in higher brokerage commissions and other transaction
costs and can affect a Fund's performance. It can also result in a greater
amount of distributions as ordinary income rather than long-term capital gains.
20 TARGET FUNDS [TELEPHONE] (800) 225-1852
<PAGE> 23
HOW THE FUNDS INVEST
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Funds is no
exception. Since a Fund's holdings can vary significantly from broad market
indexes, performance of the Funds can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Funds' principal
investments and certain of the Fund's non-principal investments and strategies.
See, too, "Description of the Funds, Their Investments and Risks" in the SAI.
<TABLE>
<CAPTION>
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
COMMON STOCKS - Individual stocks could lose - Historically, stocks have
value outperformed other investments
Large Cap Growth, over the long term
Large Cap Value, - The equity markets could go
Small Cap Growth and down, resulting in a decline - Generally, economic growth
Small Cap Value Funds in value of a Fund's means higher corporate
investments profits, which leads to an
At least 80% increase in stock prices,
- Companies that pay dividends known as capital appreciation
International Equity Fund may not do so if they don't
have profits or adequate cash
At least 65% flow
- Changes in economic or - May be a source of dividend
political conditions, both income
domestic and international,
may result in a decline in
value of a Fund's investments
- -------------------------------------------------------------------------------------------------------
SMALL CAPITALIZATION - Stocks of small companies are - Highly successful smaller
STOCKS (market capi- more volatile and may decline companies can outperform
talization below more than those in the S&P 500 larger ones
$1.5 billion) Index
Small Cap Growth and - Small companies are more
Small Cap Value Funds likely to reinvest earnings
and not pay dividends
At least 65%
- Changes in interest rates may
International Equity Fund affect the securities of small
companies more than the
Percentage varies securities of larger companies
- ------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
HOW THE FUNDS INVEST
<TABLE>
<CAPTION>
INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
DEBT OBLIGATIONS - A Fund's share price, yield - Bonds have generally
and total return will outperformed money market
Large Cap Value and fluctuate in response to bond instruments over the long term
Small Cap Value Funds market movements with less risk than stock
Up to 20% - Credit risk -- the default of - Most bonds will rise in value
an issuer would leave a Fund when interest rates fall
International Equity Fund with unpaid interest or
principal. The lower a bond's - Regular interest income
Up to 35% quality, the higher its
potential volatility - High quality debt obligations
Total Return Bond Fund are generally more secure than
- Market risk -- the risk that stock since companies must pay
Up to 100% the market value of an their debts before paying
investment may move up or stockholders
down, sometimes rapidly or
unpredictably. Market risk may - Investment-grade bonds have a
affect an industry, a sector, lower risk of default than
or the market as a whole junk bonds
- Interest rate risk -- the - Bonds with longer maturity
value of most bonds will fall dates typically have higher
when interest rates rise; the yields
longer a bond's maturity and
the lower its credit quality, - Intermediate-term securities
the more its value typically may be less susceptible to
falls. It can lead to price loss of principal than longer
volatility, particularly for term securities
junk bonds and stripped
securities
- ------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES - Foreign markets, economies and - Investors can participate in
political systems may not be foreign markets and invest in
International Equity Fund as stable as in the U.S., companies operating in those
particularly those in markets
Up to 100% developing countries
- Changing value of foreign
Total Return Bond Fund - Currency risk -- changing currencies
value of foreign currencies
Up to 20% can cause losses - Opportunities for
diversification
- May be less liquid than U.S.
stocks and bonds - Principal and interest on
foreign government securities
- Differences in foreign laws, may be guaranteed
accounting standards, public
information, custody and
settlement practices provide
less reliable information on
foreign investments and
involve more risk
- Year 2000 conversion may be
more of a problem for some
foreign issuers
- Not all government securities
are insured or guaranteed by
government, but only by the
issuing agency
- ------------------------------------------------------------------------------------------------------
</TABLE>
22 TARGET FUNDS [TELEPHONE] (800) 225-1852
<PAGE> 25
HOW THE FUNDS INVEST
<TABLE>
<CAPTION>
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
U.S. GOVERNMENT - Not all are insured or - Regular interest income
SECURITIES guaranteed by the U.S.
Government, but only by the - The U.S. Government guarantees
All Funds issuing agency interest and principal
payments on certain
Percentage varies, and - Limits potential for capital securities.
up to 100% on appreciation
a temporary basis - Generally more secure than lower
- Market risk quality debt securities and
equity securities
- Interest rate risk
- May preserve a Fund's assets
- -------------------------------------------------------------------------------------------------------
MONEY MARKET - U.S. Government money market - May preserve a Fund's assets
INSTRUMENTS securities offer a lower yield
than lower-quality or
All Funds longer-term securities
Up to 100% on - Limits potential for capital
a temporary basis appreciation
- Credit risk
- Market risk
- -------------------------------------------------------------------------------------------------------
MORTGAGE-RELATED - Prepayment risk -- the risk - Regular interest income
SECURITIES that the underlying mortgage
may be prepaid partially or - The U.S. Government guarantees
Total Return Bond Fund completely, generally during interest and principal
periods of falling interest payments on certain securities
Percentage varies rates, which could adversely
affect yield to maturity and - May benefit from security
could require a Fund to interest in real estate
reinvest in lower-yielding collateral
securities.
- Pass-through instruments
- Credit risk -- the risk that provide greater
the underlying mortgages will diversification than direct
not be paid by debtors or by ownership of loans
credit insurers or guarantors
of such instruments. Some
private mortgage securities
are unsecured or secured by
lower-rated insurers or
guarantors and thus may
involve greater risk
- Market risk
- Interest rate risk
- -------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
HOW THE FUNDS INVEST
<TABLE>
<CAPTION>
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
HIGH YIELD DEBT - Higher credit risk than - May offer higher interest
SECURITIES (JUNK BONDS) higher-grade debt securities income than higher-grade debt
securities and higher
Total Return Bond Fund - Higher market risk than potential gains
higher-grade debt securities
Up to 10% - More volatile than
higher-grade debt securities
- May be more illiquid (harder
to value and sell), in which
case valuation would depend
more on investment adviser's
judgment than is generally the
case with higher-rated
securities
- ----------------------------------------------------------------------------------------------------
ASSET-BACKED - Prepayment risks - Regular interest income
SECURITIES
- The security interest in the - Prepayment risk is generally
Large Cap Value, underlying collateral may not lower than with
Small Cap Value be as great as with mortgage-related securities
and Total Return Bond mortgage-related securities
Funds - Pass-through instruments
- Credit risk -- the risk that provide greater
Percentage varies the underlying receivables diversification than direct
will not be paid by debtors or ownership of loans
by credit insurers or
guarantors of such
instruments. Some asset-backed
securities are unsecured or
secured by lower-rated
insurers or guarantors and
thus may involve greater risk
- Market risk
- Interest rate risk
- ----------------------------------------------------------------------------------------------------
DERIVATIVES - Derivatives such as futures, - A Fund could make money and
options and foreign currency protect against losses if the
International Equity and exchange contracts may not investment analysis proves
Total Return Bond Funds fully offset the underlying correct
positions and this could
Percentage varies result in losses to the Fund - One way to manage a Fund's
that would not have otherwise risk/return balance by locking
occurred in the value of an investment
ahead of time
- Derivatives used for risk
management may not have the - Derivatives that involve
intended effects and may leverage could generate
result in losses or missed substantial gains at low cost
opportunities
- May be used to hedge against
- The other party to a changes in currency exchange
derivatives contract could rates
default
- Derivatives that involve
leverage (borrowing for
investment) could magnify
losses
- Certain types of derivatives
involve costs to a Fund which
can reduce returns
- ----------------------------------------------------------------------------------------------------
</TABLE>
24 TARGET FUNDS [TELEPHONE] (800) 225-1852
<PAGE> 27
HOW THE FUNDS INVEST
<TABLE>
<CAPTION>
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
REVERSE REPURCHASE - May magnify underlying - May magnify underlying
AGREEMENTS AND investment losses investment gains
DOLLAR ROLLS
- Investment costs may exceed
Total Return Bond Fund potential underlying
Up to 33 1/3% investment gains
WHEN-ISSUED AND
DELAYED-DELIVERY
SECURITIES
All Funds
Percentage varies
- ----------------------------------------------------------------------------------------------------
BORROWING - Leverage borrowing for - Leverage may magnify
investments may magnify losses investment gains
Total Return Bond Fund
Up to 33 1/3% - Interest costs and investment
fees may exceed potential
Other Funds investment gains
Up to 20%
- ----------------------------------------------------------------------------------------------------
ADJUSTABLE/FLOATING RATE - Value lags value of fixed-rate - Can take advantage of rising
SECURITIES securities when interest rates interest rates
change
Large Cap Value and
Total Return Bond Funds
Percentage varies
- ----------------------------------------------------------------------------------------------------
STRIPPED SECURITIES - More volatile than securities - Value rises faster when
that have not separated interest rates fall
Total Return Bond Fund principal and interest
Percentage varies - Mortgage-backed stripped
securities have more
prepayment and interest rate
risk than other
mortgage-related securities
- ----------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
HOW THE FUNDS INVEST
<TABLE>
<CAPTION>
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
INTEREST RATE SWAPS - Helps protect the return on an - Speculative technique
investment including risk of loss of
Total Return Bond Fund interest payment swapped
Up to 5% of net assets
- ----------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES - May be difficult to value - May offer a more attractive
precisely yield or potential for growth
All Funds than more widely traded
Up to 15% of net assets - May be difficult to sell at securities
the time or price desired
- ----------------------------------------------------------------------------------------------------
</TABLE>
26 TARGET FUNDS [TELEPHONE] (800) 225-1852
<PAGE> 29
HOW THE TRUST IS MANAGED
BOARD OF TRUSTEES
The Board of Trustees oversees the actions of the Manager, the sub-advisers and
the Distributor and decides on general policies. The Board also oversees the
Trust's officers who conduct and supervise the daily business operations of the
Trust.
MANAGER
Prudential Investments Fund Management LLC (PIFM)
Gateway Center Three, 100 Mulberry Street
Newark, NJ 07102-4077
Under a management agreement with the Trust, PIFM manages the Trust's
investment operations, administers its business affairs and is responsible for
supervising the sub-adviser(s) (which we call an Adviser) for each of the Funds.
The table below sets forth the annual management fee received by PIFM from each
Fund, as well as the annual sub-advisory fee paid by PIFM to each Fund's
Adviser(s) (shown as a percentage of average net assets).
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
ANNUAL ANNUAL
MANAGEMENT FEE PAID TO
FEE PAID TO ADVISER(S)
FUND PIFM BY PIFM
- -----------------------------------------------------------------------------------
<S> <C> <C>
Large Capitalization Growth Fund .70% .30%
Large Capitalization Value Fund .70% .30%
Small Capitalization Growth Fund .70% .40%
Small Capitalization Value Fund .70% .40%
International Equity Fund .80% .40%
Total Return Bond Fund .50% .25%
- -----------------------------------------------------------------------------------
</TABLE>
Subject to the supervision of the Board of Trustees of the Trust, PIFM is
responsible for conducting the initial review of prospective Advisers for the
Trust. In evaluating a prospective Adviser, PIFM considers many factors,
including the firm's experience, investment philosophy and historical
performance. PIFM is also responsible for monitoring the performance of the
Trust's Advisers.
PIFM and the Trust operate under an exemptive order (the Order) from the
Securities and Exchange Commission that generally permits PIFM to enter into or
amend agreements with Advisers without obtaining shareholder approval each time.
This authority is subject to certain conditions, including the requirement that
the Board of Trustees approve any new or amended agreements with Advisers.
Shareholders of each Fund still have the right to terminate these agreements for
the Fund at any time by a vote of the
27
<PAGE> 30
HOW THE TRUST IS MANAGED
majority of outstanding shares of the Fund. The Trust will notify shareholders
of any new Advisers or material amendments to advisory agreements made pursuant
to the Order. On September 13,1999, the sole shareholder of the Trust voted to
allow the Trust and PIFM to operate under the Order.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of August 31,1999, PIFM served as the
Manager to all 46 of the Prudential mutual funds, and as Manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $71.8 billion.
ADVISERS AND PORTFOLIO MANAGERS
INTRODUCTION
The Advisers are responsible for the day-to-day management of each Fund, or
portion thereof, that they manage, subject to the supervision of PIFM and the
Board of Trustees. The Advisers are paid by PIFM, not the Trust.
The LARGE CAPITALIZATION GROWTH, LARGE CAPITALIZATION VALUE, SMALL
CAPITALIZATION GROWTH and SMALL CAPITALIZATION VALUE FUNDS each have two
Advisers, each of whom manages approximately 50% of the Fund's assets. For each
of these Funds, PIFM hired two Advisers with different investment philosophies.
PIFM believes that at any given time, certain investment philosophies will be
more successful than others and that a combination of different investment
approaches may benefit these Funds and help reduce their volatility. PIFM
periodically rebalances these Funds to maintain the approximately equal
allocation of their assets between the two Advisers. Reallocations may result in
higher portfolio turnover and correspondingly higher transactional costs. In
addition, Funds with two Advisers may experience wash transactions -- where one
Adviser buys a security at the same time the other one sells it. When this
happens, the Fund's position in that security remains unchanged, but the Fund
has paid additional transaction costs.
LARGE CAPITALIZATION GROWTH FUND
COLUMBUS CIRCLE INVESTORS (CCI) and OAK ASSOCIATES, LTD. (OAK) are the Advisers
for the Large Capitalization Growth Fund. For their services as Advisers, CCI
and Oak each receive a fee from PIFM at the annual rate of .30% of the average
daily net assets of the portion of the Fund it manages.
28 TARGET FUNDS [TELEPHONE] (800)225-1852
<PAGE> 31
HOW THE TRUST IS MANAGED
CCI has specialized in large-cap equity investing since it was established in
1975. As of June 30, 1999, CCI had approximately $4.5 billion in assets under
management for corporate, nonprofit, government, union and mutual fund clients.
The address of CCI is Metro Center, One Station Place, 8th Floor, Stamford, CT
06902.
ANTHONY RIZZA, a Managing Director of CCI, is primarily responsible for
managing CCI's part of the Fund. Mr. Rizza is a Chartered Financial Analyst and
a member of the Hartford Society of Security Analysts. He has been a portfolio
manager with CCI since 1991.
OAK has specialized in large-cap equity investing since it was founded in
1985. Oak provides investment management services to both individual and
institutional clients. As of June 30, 1999, Oak had more than $11.5 billion in
assets under management. The address of Oak is 3875 Embassy Parkway, Suite 250,
Akron, OH 44333.
JAMES D. OELSCHLAGER, President of Oak since 1985, manages the assets of
the Fund. DONNA BARTON, MARGARET BALLINGER and DOUGLAS MACKAY assist Mr.
Oelschlager in managing the Fund's assets. Ms. Barton and Ms. Ballinger have
been with Oak since 1985, and Mr. MacKay has been a research analyst with Oak
since 1990.
LARGE CAPITALIZATION VALUE FUND
INVESCO CAPITAL MANAGEMENT, INC. (INVESCO) and HOTCHKIS AND WILEY are the
Advisers for the Large Capitalization Value Fund. For their services as
Advisers, INVESCO and Hotchkis and Wiley each receive a fee from PIFM at the
annual rate of .30% of the average daily net assets of the portion of the Fund
it manages.
INVESCO has specialized in value-oriented equity investing since it was
organized in 1971. As of June 30, 1999, INVESCO had approximately $48 billion in
assets under management for clients located throughout the U.S., Europe and
Japan. The address of INVESCO is 1315 Peachtree Street, Suite 500, Atlanta, GA
30309.
NIELSON BROWN, a Vice President of INVESCO, manages the Fund. Mr. Brown is
a Chartered Financial Analyst and a member of the Atlanta Society of Financial
Analysts. He has been a portfolio manager with INVESCO since 1989.
HOTCHKIS AND WILEY has specialized in large-cap equity investing since it
was formed in 1980. As of June 30, 1999, Hotchkis and Wiley had approximately
$15 billion in assets under management for corporate, public,
29
<PAGE> 32
HOW THE TRUST IS MANAGED
endowment and foundation and mutual fund clients. The address of Hotchkis and
Wiley is 725 S. Figueroa St., Suite 4000, Los Angeles, CA 90017.
ROGER DEBARD, Managing Director of Hotchkis and Wiley, manages the assets
of the Fund. Mr. DeBard is a Chartered Financial Analyst and has been a
portfolio manager for Hotchkis and Wiley since 1985.
SMALL CAPITALIZATION GROWTH FUND
SAWGRASS ASSET MANAGEMENT, L.L.C. (SAWGRASS) and FLEMING ASSET MANAGEMENT USA
(FLEMING USA) are the Advisers for the Small Capitalization Growth Fund. For
their services as Advisers, Sawgrass and Fleming USA each receive a fee from
PIFM at the annual rate of .40% of the average daily net assets of the portion
of the Fund it manages.
SAWGRASS has specialized in small-cap equity investing since it was
organized in 1998. Sawgrass was formed by a core group of investment
professionals who had worked together for 15 years at Barnett Capital Advisors,
Inc. As of June 30, 1999, Sawgrass had approximately $425 million in assets
under management for corporate, municipal, public and state retirement plans and
mutual funds. The address of Sawgrass is 4337 Pablo Oaks Court, Building 200,
Jacksonville, FL 32224.
DEAN MCQUIDDY, a principal and Director of Equity Investments of Sawgrass,
manages the assets of the Fund. Mr. McQuiddy is a Chartered Financial Analyst
and has been with Sawgrass since January 1998. Prior to 1998, Mr. McQuiddy was
the head small-cap portfolio manager of Barnett Capital Advisors, Inc.
FLEMING USA is a division of Robert Fleming, Inc., the U.S. equity asset
management affiliate of Robert Fleming Holdings (Flemings Group). Founded in
1873, the Flemings Group manages over $115 billion of assets on behalf of
private investors, companies, institutions, governments and central banks
worldwide. Approximately half of its assets under management are pension funds
for institutions. The balance of its assets under management are in open- and
closed-end pooled investment vehicles. Fleming USA's address is 320 Park Avenue,
New York, NY 10022.
The assets of the Portfolio are managed by a team of portfolio managers.
Eytan M. Shapiro, a Director and portfolio manager of Fleming USA, is
responsible for the day-to-day management of the Portfolio's assets. Mr. Shapiro
has been with Fleming USA since 1992 and with the Flemings Group since 1985. The
other members of the team are Timothy R. V.
30 TARGET FUNDS [TELEPHONE] (800)225-1852
<PAGE> 33
HOW THE TRUST IS MANAGED
Parton, Christopher M. V. Jones and T. Gary Lieberman. Mr. Parton, a Director
and portfolio manager with Fleming USA, has been with Fleming USA since 1990 and
with the Flemings Group since 1986. Mr. Jones, a Director and portfolio manager
of Fleming USA, as well as Chief Investment Officer of its Small Cap Equity
Group, joined Fleming USA in 1986 and began his career with the Flemings Group
in 1982. Mr. Lieberman is a Vice President and analyst with Fleming USA and has
been with the firm since 1995. Prior to joining Fleming USA, Mr. Lieberman was
an analyst with Saloman Brothers Asset Management.
SMALL CAPITALIZATION VALUE FUND
LAZARD ASSET MANAGEMENT (LAZARD) and WOOD, STRUTHERS & WINTHROP MANAGEMENT CORP.
(WSW) are the Advisers for the Small Capitalization Value Fund. For their
services as Advisers, Lazard and WSW each receive a fee from PIFM at the annual
rate of .40% of the average daily net assets of the portion of the Fund it
manages.
LAZARD is a division of Lazard Freres & Co. LLC (Lazard Freres), a
New York limited liability company. Since it was formed in 1970, Lazard has
provided investment management services to both individual and institutional
clients. As of June 30, 1999, Lazard and its global affiliates had approximately
$68 billion in assets under management. The address of Lazard is 30 Rockefeller
Plaza, New York, NY 10112.
HERBERT W. GULLQUIST and EILEEN D. ALEXANDERSON manage the assets of the
Fund. Mr. Gullquist, a Managing Director and Vice Chairman of Lazard Freres and
Chief Investment Officer of Lazard, has been with Lazard since 1982. Ms.
Alexanderson, a Managing Director of Lazard Freres and a Certified Financial
Analyst, has been with Lazard since 1979.
WSW was founded in 1871 and has specialized in small-cap equity investing
since 1967. WSW provides investment management services to both individual and
institutional clients. As of June 30, 1999, WSW had approximately $12 billion in
assets under management. The address of WSW is 277 Park Avenue, New York, NY
10172.
JAMES A. ENGLE and ROGER W. VOGEL manage the assets of the Fund. Mr. Engle
has been the Chief Investment Officer of WSW since 1988. Mr. Vogel, who is
Senior Vice President for the Equities Division at WSW, has been the lead
small-cap equity portfolio manager of WSW since 1993.
31
<PAGE> 34
HOW THE TRUST IS MANAGED
INTERNATIONAL EQUITY FUND
LAZARD is the Adviser to the International Equity Fund. For its services as
Adviser, Lazard receives a fee from PIFM at the annual rate of .40% of the
Fund's average daily net assets.
HERBERT W. GULLQUIST and JOHN R. REINSBERG manage the Fund for Lazard. Mr.
Gullquist, a Managing Director and Vice Chairman of Lazard Freres and Chief
Investment Officer of Lazard, has been with Lazard since 1982. Mr. Reinsberg is
a Managing Director of Lazard Freres and has been with Lazard since 1992.
TOTAL RETURN BOND FUND
PACIFIC INVESTMENT MANAGEMENT COMPANY (PIMCO) is the Adviser to the Total Return
Bond Fund. For its services as Adviser, PIMCO receives a fee from PIFM at the
annual rate of .25% of the average daily net assets of the Fund.
PIMCO has specialized in fixed income investing since the firm was
established in 1971. As of June 30, 1999, PIMCO had approximately $171 billion
of assets under management. The address of PIMCO is 840 Newport Center Drive,
Suite 300, Newport Beach, CA 92660.
JOHN L. HAGUE, a Managing Director of PIMCO, manages the Fund. Mr. Hague
has been a portfolio manager with PIMCO and its predecessor since 1989.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Trust's
shares under a Distribution Agreement with the Trust. The Trust has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing
each Fund's Class A, B and C shares and provides certain shareholder support
services. Each Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares. These fees -- known as 12b-1 fees -- are
shown in the "Fees and Expenses" tables.
32 TARGET FUNDS [TELEPHONE] (800)225-1852
<PAGE> 35
HOW THE TRUST IS MANAGED
YEAR 2000 READINESS DISCLOSURE
The services provided to the Trust and the shareholders by the Manager,
the Advisers, the Distributor, the Transfer Agent and the Custodian depend on
the smooth functioning of their computer systems and those of outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such an event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although at this time there can be no assurance that there will be no adverse
impact on the Trust, the Manager, the Advisers, the Distributor, the Transfer
Agent and the Custodian have advised the Trust that they have been actively
working on necessary changes to their computer systems to prepare for the year
2000. The Trust and its Board have received satisfactory reports from the
principal service providers as to their preparations for Year 2000 readiness,
although there can be no assurance that the service providers (or other
securities market participants) will successfully complete the necessary changes
in a timely manner or that there will be no adverse impact on the Trust.
Moreover, the Trust at this time has not considered retaining alternative
service providers or directly undertaken efforts to achieve year 2000 readiness,
the latter of which would involve substantial expenses without an assurance of
success.
Additionally, issuers of securities generally as well as those purchased by
the Funds may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Funds.
33
<PAGE> 36
FUND DISTRIBUTIONS AND TAX ISSUES
Investors who buy shares of the Trust should be aware of some important tax
issues. For example, each Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA), or some other qualified tax-deferred plan or account.
Also, if you sell shares of a Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless your shares are
held in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues
you should be aware of, but is not meant to be tax advice. For tax advice,
please speak with your tax adviser.
DISTRIBUTIONS
Each Fund distributes DIVIDENDS of any net investment income to shareholders on
a regular basis as shown below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
FUND DIVIDENDS
- ----------------------------------------------------------------------------------
<S> <C>
Total Return Bond Fund Declared daily,
paid monthly
Large Capitalization Growth, Large
Capitalization Value, Small Capitalization Growth, Declared and
Small Capitalization Value and International Equity Funds paid annually
- ----------------------------------------------------------------------------------
</TABLE>
For example, if a Fund owns ACME Corp. stock and the stock pays a dividend,
the Fund will pay out a portion of this dividend to its shareholders, assuming
the Fund's income is more than its costs and expenses. The dividends you receive
from each Fund will be taxed as ordinary income, whether or not they are
reinvested in the Fund.
For Funds that invest in foreign securities, the amount of income available
for distribution to shareholders will be affected by any foreign currency gains
or losses generated by the Fund and cannot be predicted. This fact, coupled with
the different tax and accounting treatment of certain currency gains and losses,
increases the possibility that distributions, in whole or in part, may be a
return of capital to shareholders.
Each Fund also distributes realized net CAPITAL GAINS to shareholders --
typically once a year -- which are generated when the Fund sells its assets
34 TARGET FUNDS [TELEPHONE] (800)255-1852
<PAGE> 37
FUND DISTRIBUTIONS AND TAX ISSUES
for a profit. For example, if a Fund bought 100 shares of ACME Corp. stock for a
total of $1,000 and more than one year later sold the shares for a total of
$1,500, the Fund has net long-term capital gains of $500, which it will pass on
to shareholders (assuming the Fund's total gains are greater than any losses it
may have). Capital gains are taxed differently depending on how long the Fund
holds the security -- if a security is held more than one year before it is
sold, LONG-TERM capital gains are taxed at the rate of 20%, but if the security
is held one year or less, SHORT-TERM capital gains are taxed at ordinary income
rates of up to 39.6%. Different rates apply to corporate shareholders.
For your convenience, a Fund's distributions of dividends and capital gains
are AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us
to pay the distributions in cash, we will send you a check if your account is
with the Transfer Agent. Otherwise, if your account is with a broker, you will
receive a credit to your account. Whether you receive these distributions in
additional shares or in cash, the distributions may be subject to taxes, unless
your shares are held in a qualified tax-deferred plan or account. For more
information about automatic reinvestment and other shareholder services, see
"Step 4: Additional Shareholder Services" in the next section.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of a Fund as part of a qualified tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.
Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders are eligible for the 70% dividends-received deduction for certain
dividends.
35
<PAGE> 38
FUND DISTRIBUTIONS AND TAX ISSUES
WITHHOLDING TAXES
If federal tax law requires you to provide the Trust with your tax
identification number and certifications as to your tax status, and you fail to
do this, we will withhold and pay to the U.S. Treasury 31% of your distributions
and sale proceeds. If you are subject to backup withholding, we will withhold
and pay to the U.S. Treasury 31% of your distributions. Dividends of net
investment income and short-term capital gains paid to a nonresident foreign
shareholder generally will be subject to a U.S. withholding tax of 30%. This
rate may be lower, depending on any tax treaty the U.S. may have with the
shareholder's country.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of a Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well, since you bought shares one day and
soon thereafter received a distribution. That is not so because when dividends
are paid out, the value of each share of the Fund decreases by the amount of the
dividend and the market changes (if any) to reflect the payout. The distribution
you receive makes up for the decrease in share value. However, the timing of
your purchase does mean that part of your investment came back to you as taxable
income.
QUALIFIED RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts -- available to certain taxpayers beginning in
1998 -- contributions are not tax deductible, but distributions from the plan
may be tax-free. Please contact your financial adviser for information on a
variety of retirement plans offered by Prudential.
36 TARGET FUNDS [TELEPHONE] (800)225-1852
<PAGE> 39
FUND DISTRIBUTIONS AND TAX ISSUES
IF YOU SELL OR EXCHANGE YOUR SHARES
[GRAPH]
If you sell any shares of a Fund for a profit, you have REALIZED A CAPITAL GAIN,
which is subject to tax, unless you hold shares in a qualified tax-deferred plan
or account. The amount of tax you pay depends on how long you owned your shares.
If you sell shares of a Fund for a loss, you may have a capital loss, which you
may use to offset certain capital gains you have.
Exchanging your shares of a Fund for the shares of another Fund of the
Trust is considered a sale for tax purposes. In other words, it's a "taxable
event." Therefore, if the shares you exchanged have increased in value since you
purchased them, you have capital gains, which are subject to the taxes described
above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell -- or exchange -- Fund shares,
as well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares - which happens automatically approximately seven years after
purchase - is not a "taxable event" because it does not involve an actual sale
of your Class B shares. This opinion, however, is not binding on the Internal
Revenue Service. For more information about the automatic conversion of Class B
shares, see "Class B Shares Convert to Class A Shares After Approximately Seven
Years" in the next section.
37
<PAGE> 40
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
INITIAL OFFERING OF SHARES
PIMS will solicit subscriptions for Class A, Class B and Class C shares of each
Fund during a subscription period beginning September 22, 1999 and expected to
end October 29, 1999. Fund shares subscribed for during this time will be issued
at a net asset value of $10.00 per share on a closing date expected to occur on
or about November 3, 1999. An initial sales charge of 5% (5.26% of the net
amount invested) is imposed on each transaction in Class A shares for all Funds
except the Total Return Bond Fund. The initial sales charge for Class A shares
of the Total Return Bond Fund is 4% (4.17% of the net amount invested). This
initial sales charge may be reduced depending on the amount of the purchase as
shown in the table under "Reducing or Waiving Class A's Initial Sales Charge."
An initial sales charge of 1% (1.01% of the net amount invested) is imposed on
each transaction in Class C shares. Your broker will notify you of the end of
the subscription period. Payment for Fund shares will be due within three days.
If you send an order during the subscription period along with payment, your
money will be returned unless you allow the money to be invested in Prudential
MoneyMart Assets, Inc. (MoneyMart Fund), a money market fund. If this is your
first investment in MoneyMart Fund, all amounts received and invested in
MoneyMart Fund, including any dividends received on these funds, will be
automatically invested in the Funds you choose on the closing date. If you
previously owned shares of MoneyMart Fund, dividends accrued on your shares will
not be exchanged for Fund shares. The minimum initial investment is $1,000 for
Class A and Class B shares and $2,500 for Class C shares. There are no minimum
investment requirements for certain retirement and employee savings plans or
custodial accounts for minors. You will not receive share certificates.
If you subscribe for shares, you will not have any rights as a shareholder
of a Fund until your shares are paid for and their issuance has been reflected
in the Fund's books. We reserve the right to withdraw, modify or terminate the
initial offering without notice and to refuse any order in whole or in part.
The Funds will be closed for purchases and exchanges from on or about
November 1, 1999 to November 12, 1999, while the Advisers invest the proceeds of
the offering in accordance with each Fund's investment objective and policies
(the closing period). Beginning on or about November 15, 1999, each Fund will
commence a continuous offering of its shares. During the closing period,
shareholders may redeem existing positions or exchange out of a Fund, but the
Funds will be closed to new purchases and no exchanges into a Fund will be
accepted.
38 TARGET FUNDS [TELEPHONE] (800)225-1852
<PAGE> 41
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Funds for you, call Prudential Mutual Fund Services
LLC (PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Funds, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into a Fund) or suspend or modify a Fund's sale of its
shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B and Class C shares of the
Funds.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge or CDSC), but the operating expenses each year are higher
than the Class A share expenses. With Class C shares, you pay a 1% front-end
sales charge and a 1% CDSC if you sell within 18 months of purchase, but the
operating expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
- The amount of your investment
- The length of time you expect to hold the shares and the impact of the
varying distribution fees
- The different sales charges that apply to each share class -- Class
A's front-end sales charge vs. Class B's CDSC vs. Class C's low
front-end sales charge and low CDSC
39
<PAGE> 42
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
- Whether you qualify for any reduction or waiver of sales charges
- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase.
See "How to Sell Your Shares" for a description of the impact of CDSCs.
Share Class Comparison. Use this chart to help you compare the Funds'
different share classes. The discussion following this chart will tell you
whether you are entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Minimum purchase amount(1) $1,000 $1,000 $2,500
Minimum amount for $100 $100 $100
subsequent purchases(1)
Maximum initial sales charge Total Return Bond None 1% of the
Fund -- 4% of the public
public offering price offering price
Other Funds --
5% of the public
offering price
Contingent Deferred Sales None If Sold During: 1% on sales
Charge (CDSC)(2) Year 1 5% made within
Year 2 4% 18 months of
Year 3 3% purchase(2)
Year 4 2%
Years 5/6 1%
Year 7 0%
Annual distribution and .30 of 1%; 1% 1%
service (12b-1) fees shown (.25 of 1% (currently .75 (currently .75
as a percentage of average currently) of 1% for the of 1% for the
net assets(3) Total Return Total Return
Bond Fund) Bond Fund)
</TABLE>
1 The minimum investment requirements do not apply to certain retirement and
employee savings plans and custodial accounts for minors. The minimum
initial and subsequent investment for purchases made through the Automatic
Investment Plan is $50. For more information, see "Additional Shareholder
Services -- Automatic Investment Plan."
2 For more information about the CDSC and how it is calculated, see "How to
Sell Your Shares -- Contingent Deferred Sales Charge (CDSC)."
3 These distribution fees are paid from each Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and
may cost you more than paying other types of sales charges. The service fee
for Class A, Class B and Class C shares is .25 of 1%. The distribution fee
for Class A shares is limited to .30 of 1% (including the .25 of 1% service
fee) and is .75 of 1% for Class B and Class C shares.
40 TARGET FUNDS [TELEPHONE GRAPHIC] (800)255-1852
<PAGE> 43
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.
Increase the Amount of Your Investment. You can reduce Class A's sales charge by
increasing the amount of your investment. These tables show you how the sales
charge decreases as the amount of your investment increases.
LARGE CAPITALIZATION VALUE, LARGE CAPITALIZATION GROWTH, SMALL CAPITALIZATION
VALUE, SMALL CAPITALIZATION GROWTH AND INTERNATIONAL EQUITY FUNDS
<TABLE>
<CAPTION>
SALES CHARGE AS % OF SALES CHARGE AS % OF DEALER
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1 million and above* None None None
</TABLE>
TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
SALES CHARGE AS % OF SALES CHARGE AS % OF DEALER
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
<S> <C> <C> <C>
Less than $50,000 4.00% 4.17% 3.75%
$50,000 to $99,999 3.50% 3.63% 3.25%
$100,000 to $249,999 2.75% 2.83% 2.50%
$250,000 to $499,999 2.00% 2.04% 1.90%
$500,000 to $999,999 1.50% 1.52% 1.40%
$1 million and above* None None None
</TABLE>
* If you invest $1 million or more, you can buy only Class A shares.
To satisfy the purchase amounts above, you can:
- Invest with an eligible group of related investors
- Buy the Class A shares of two or more Prudential mutual funds at the
same time
41
<PAGE> 44
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
- Use your RIGHTS OF ACCUMULATION, which allow you to combine the value
of Prudential mutual fund shares you already own with the value of the
shares you are purchasing for purposes of determining the applicable
sales charge (note: you must notify the Transfer Agent if you qualify
for Rights of Accumulation)
- Sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares in
the Funds and other Prudential mutual funds within 13 months.
The Distributor may reallow Class A's sales charge to dealers.
Benefit Plans. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge if they meet the required minimum for
amount of assets, average account balance or number of eligible employees. For
more information about these requirements, call Prudential at (800) 353-2847.
Mutual Fund Programs. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group relating
to:
- Mutual fund "wrap" or asset allocation programs where the sponsor
places Fund trades and charges its clients a management, consulting or
other fee for its services; or
- Mutual fund "supermarket" programs where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in a
Fund in connection with different pricing options for their programs. Investors
should consider carefully any separate transaction and other fees charged by
these programs in connection with investing in each available share class before
selecting a share class.
Other Types of Investors. Other investors pay no sales charges, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
clients of brokers that have entered into a selected dealer agreement with the
Distributor. To qualify for a reduction or waiver of the sales charge, you
42 TARGET FUNDS [TELEPHONE] (800)255-1852
<PAGE> 45
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
must notify the Transfer Agent or your broker at the time of purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares --
Reduction and Waiver of Initial Sales Charge -- Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
Benefit Plans. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at (800)
353-2847.
Investment of Redemption Proceeds from Other Investment Companies. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. These purchases must be made
within 60 days of the redemption. To qualify for this waiver, you must do one of
the following:
- Purchase your shares through an account at Prudential Securities
- Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation
- Purchase your shares through another broker.
This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers appropriate.
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class A shares from
their own resources based on a percentage of the net asset value of shares sold
or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
43
<PAGE> 46
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
When we do the conversion, you will get fewer Class A shares than the
number of converted Class B shares if the price of the Class A shares is higher
than the price of Class B shares. The total dollar value will be the same, so
you will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Trust Shares --
Conversion Feature -- Class B Shares."
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock in
its portfolio and the price of ACME stock goes up while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of a Fund is based on the share value. The
share value of a mutual fund -- known as the NET ASSET VALUE or NAV -- is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. For
example, if the value of the investments held by Fund XYZ (minus its expenses)
is $1,000 and there are 100 shares of Fund XYZ owned by shareholders, the price
of one share of the fund -- or the NAV -- is $10 ($1,000 divided by 100).
Portfolio securities are valued based upon market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Board of the Trust. Most national newspapers report the NAVs
of most mutual funds, which allows investors to check the price of mutual funds
daily.
We determine the NAV of each Fund's share once each business day at 4:15
p.m. New York Time on days that the New York Stock Exchange (NYSE) is open for
trading. The NYSE is closed on national holidays and Good Friday. Because the
International Equity and Total Return Bond Funds invest in foreign securities,
their NAV can change on days when you cannot buy or sell shares. We do not
determine NAV on days when we have not received any orders to purchase, sell or
exchange Fund shares, or when changes in the value of a Fund's portfolio do not
materially affect the NAV.
44 TARGET FUNDS [TELEPHONE] (800)255-1852
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HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B shares, you will
pay the NAV next determined after we receive your order to purchase (remember,
there are no up-front sales charges for this share class). Your broker may
charge you a separate or additional fee for purchases of shares.
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
Automatic Reinvestment. As we explained in the "Fund Distributions and Tax
Issues" section, each Fund pays out -- or distributes -- its net investment
income and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in a Fund at NAV without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
Automatic Investment Plan. You can make regular purchases of a Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
Retirement Plan Services. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs or SEP IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs, 403(b)
plans, pension and profit-sharing plans), your financial adviser will help you
determine which retirement plan best meets your needs. Complete instructions
about how to establish and maintain your plan
45
<PAGE> 48
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
and how to open accounts for you and your employees will be included in the
retirement plan kit you receive in the mail.
The PruTector Program. Optional group term life insurance -- which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines -- is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.
Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.
Reports to Shareholders. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about each Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of a Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of a Fund -- also known as redeeming your shares --
the price you will receive will be the NAV next determined after the Transfer
Agent, the Distributor or your broker receives your order to sell. If your
broker holds your shares, your broker must receive your order to sell by 4:15
p.m. New York Time to process the sale on that day. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase
46 TARGET FUNDS [TELEPHONE] (800)255-1852
<PAGE> 49
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
shares by wire, certified check or cashier's check. Your broker may charge you a
separate or additional fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of a Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when a Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares -- Sale of Shares."
If you are selling more than $100,000 of shares, you want the check sent to
someone or some place that is not in our records, or you are a business or a
trust and you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order guaranteed by a financial institution.
For more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares -- Sale of Shares -- Signature Guarantee."
CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
- Amounts representing shares you purchased with reinvested dividends
and distributions
- Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares
and 18 months for Class C shares
- Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares).
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid -- or at least
minimize -- the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth and 1% in the fifth and sixth years. The rate decreases on
47
<PAGE> 50
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
the first day of the month following the anniversary date of your purchase, not
on the anniversary date itself. The CDSC is 1% for Class C shares -- which is
applied to shares sold within 18 months of purchase. For both Class B and Class
C shares, the CDSC is calculated based on the lesser of the original purchase
price or the redemption proceeds. For purposes of determining how long you've
held your shares, all purchases during the month are grouped together and
considered to have been made on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.
WAIVER OF THE CDSC -- CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
- After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy (with rights of survivorship), provided the shares were
purchased before the death or disability
- To provide for certain distributions -- made without IRS penalty --
from a tax-deferred retirement plan, IRA or Section 403(b) custodial
account
- On certain sales from a Systematic Withdrawal Plan.
For more information on the above and other waivers, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares --Waiver of Contingent Deferred
Sales Charge -- Class B Shares."
WAIVER OF THE CDSC -- CLASS C SHARES
Benefit Plans. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC will also be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.
48 TARGET FUNDS [TELEPHONE] (800)255-1852
<PAGE> 51
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
REDEMPTION IN KIND
If the sales of Portfolio shares you make during any 90-day period reach the
lesser of $250,000 or 1% of the value of a Fund's net assets, we can then give
you securities from the Fund's portfolio instead of cash. If you want to sell
the securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize Fund expenses paid by other shareholders. We will
give you 60 days' notice, during which time you can purchase additional shares
to avoid this action. This involuntary sale does not apply to shareholders who
own their shares as part of a 401(k) plan, an IRA or some other tax-deferred
plan or account.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate number of shares to
reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund
Shares -- Sale of Shares."
RETIREMENT PLANS
To sell shares and receive a distribution from a retirement account, call your
broker or the Transfer Agent for a distribution request form. There are special
distribution and income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer or
plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
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<PAGE> 52
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of a Fund for shares of the same class in certain
other Prudential mutual funds -- including certain money market funds -- if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of a Fund for Class A shares of another Prudential mutual fund, but you
can't exchange Class A shares for Class B, Class C or Class Z shares. Class B
and Class C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund, Inc. After an exchange, at redemption the
CDSC will be calculated from the first day of the month after initial purchase,
excluding any time shares were held in a money market fund. We may change the
terms of the exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
There is no sales charge for such exchanges. However, if you exchange and
then sell -- Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Fund shares into Prudential
Special Money Market Fund, Inc., the time you hold the shares in that money
market account will not be counted in calculating the required holding period
for CDSC liability.
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues - - If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account -- Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A
50 TARGET FUNDS [TELEPHONE] (800)255-1852
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HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUNDS
shares. We make such exchanges on a quarterly basis if you qualify for this
exchange privilege. We have obtained a legal opinion that this exchange is not a
"taxable event" for federal income tax purposes. This opinion is not binding on
the IRS.
FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market - - also known as "market timing" - - may make it very difficult to
manage a Fund's investments. When market timing occurs, a Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When, in our opinion, such activity would have a disruptive effect on portfolio
management, each Fund reserves the right to refuse purchase orders and exchanges
into the Fund by any person, group or commonly controlled account. The Trust may
notify a market timer of rejection of an exchange or purchase order after the
day the order is placed. If the Trust allows a market timer to trade Fund
shares, it may require the market timer to enter into a written agreement to
follow certain procedures and limitations.
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<PAGE> 54
APPENDIX I
DESCRIPTION OF SECURITY RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS:
AAA -- Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB and B -- Debt rated BB and B are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation. While
such obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposure to adverse
business, financial or economic conditions which could lead to the debtor's
inadequate capacity to meet its financial commitment on the debt.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa -- Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of these issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
52 TARGET FUNDS [TELEPHONE] (800)255-1852
<PAGE> 55
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements:
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
An S&P's commercial paper rating is a current assessment of the likelihood
of timely payment of debt considered short-term in the relevant market.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or supporting institutions) are considered to
have a superior capacity for repayment of senior short-term debt obligations.
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Prime-1 repayment ability will often be evidenced by any of the following
characteristics:
- leading market positions in well-established industries
- high rate of return on funds employed
- conservative capitalization structure with moderate reliance on debt
and ample asset protection
- broad margins in earnings coverage of fixed financial charges and high
internal cash generation
- well-established access to a range of financial markets and assured
sources of alternate liquidity
Issuers rated Prime-2 (or supporting institutions) are considered to have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics of issuers rated Prime-1
but to a lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
54 TARGET FUNDS [TELEPHONE] (800)255-1852
<PAGE> 57
APPENDIX II
INFORMATION ON PERFORMANCE OF ADVISERS
Each of the Advisers also manages other funds similar to the Funds they
manage for the Trust. Each Adviser serves as adviser to a portfolio of The
Target Portfolio Trust (Target I) with investment objectives, policies and
strategies identical to those of the Fund(s) it manages for the Trust. The table
below shows the performance of the Large Capitalization Growth, Large
Capitalization Value, Small Capitalization Growth, Small Capitalization Value,
International Equity and Total Return Bond Portfolios of Target I for the
periods shown. With respect to each Adviser, the same portfolio manager(s) has
managed the Target I portfolio since the firm became an adviser to the
portfolio, and the same portfolio manager(s) manages the corresponding Fund of
the Trust. Performance for the Large Capitalization Growth, Large Capitalization
Value, Small Capitalization Growth and Small Capitalization Value Portfolios of
Target I is shown from the actual inception of those Portfolios, although the
Advisers to the Large Capitalization Growth, Large Capitalization Value, Small
Capitalization Growth and Small Capitalization Value Portfolios have only been
managing the Portfolios' assets together since 11/22/95, 1/1/95, 8/26/99 and
4/12/95, respectively.
The table below also shows the performance of the other registered
investment companies and private accounts with investment objectives, policies
and strategies that are substantially similar to those of the Funds managed by
the same portfolio manager(s). As described in this prospectus, the Advisers to
the Large Capitalization Growth, Large Capitalization Value, Small
Capitalization Growth and Small Capitalization Value Funds each have
responsibility for only a portion of their respective Funds. By contrast, these
Advisers have sole responsibility for the funds whose performance is shown
below.
The performance information shown below reflects the actual expense ratio
of each registered investment company portfolio included in the table. For funds
with multiple share classes, performance is included for the share class with
the highest total expense ratio and for a class with a lower total expense
ratio. For funds that charge sales loads, performance is presented both with and
without the applicable sales load. The expense ratios for some of these
portfolios are lower than those of the corresponding Funds of the
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<PAGE> 58
Trust. In addition, some of these portfolios are not subject to sales loads or
distribution fees. If the expense ratios for these portfolios had been as high
as those for the corresponding Funds of the Trust, their performance would have
been lower. See "Risk/Return Summary -- Fees and Expenses" above and "Expense
Ratios" below.
The accounts comprising the CCI Composite, the Oak Composite, the INVESCO
Composite, the Hotchkis and Wiley Composite, the Fleming Composite, the Sawgrass
Composite, the Lazard Small-Cap Composite, the WSW Composite, the Lazard
International Equity Composite and the PIMCO Composite (the "Composites")
include accounts that were not registered under the 1940 Act and therefore were
not subject to the diversification and other requirements of the 1940 Act and
the Internal Revenue Code. If these accounts had been subject to these
requirements, their performance might have been adversely affected. The
performance information for each Composite has been adjusted to reflect the
expenses associated with the Class B shares of the corresponding Fund that the
Adviser will manage for the Trust. See "Expense Ratios" below. Performance for
each Composite is presented both with and without the CDSC applicable to Class B
shares of the Trust.
56 TARGET FUNDS [TELEPHONE] (800)255-1852
<PAGE> 59
The performance information below should not be viewed as a substitute for
the Funds' own performance. The performance of the Funds will differ from the
performance of the portfolios and Composites shown below. Past performance of
these porfolios and Composites should not be considered a prediction of future
performance of the Funds.
AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
SINCE INCEPTION
FUND NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advisers: CCI and Oak
Target I Large
Capitalization Growth(1) 38.52% 33.11% 27.48% N/A 19.44% 1/5/93
Adviser: CCI
CCI Composite 18.32 24.92 24.32 18.17% 19.47 1/1/75
CCI Composite (no load) 23.32 27.92 25.32 18.17 19.47 1/1/75
Adviser: Oak
White Oak Growth Stock 34.62 35.01 36.55 N/A 26.31 8/3/92
Oak Composite 43.48 34.64 38.63 26.75 24.93 1/1/86
Oak Composite (no load) 48.48 37.64 39.63 26.75 24.93 1/1/86
Advisers: INVESCO/Hotchkis and Wiley
Target I Large
Capitalization Value(2) 10.98 20.06 21.13 N/A 15.77 1/5/93
Adviser: INVESCO
INVESCO Value Equity 8.43 19.01 20.61 14.88 14.14 5/19/86
INVESCO Composite 9.48 18.60 20.59 15.70 13.78 1/1/73
INVESCO Composite
(no load) 14.48 21.60 21.59 15.70 13.78 1/1/73
Adviser: Hotchkis and Wiley
Hotchkis and Wiley Equity 7.32 18.40 19.15 13.42 12.63 6/24/87
Hotchkis and Wiley Composite .93 14.88 18.18 14.48 17.37 7/1/80
Hotchkis and Wiley Composite
(no load) 5.93 17.88 19.18 14.48 17.37 7/1/80
Advisers: Fleming USA and Sawgrass
Target I Small
Capitalization Growth - 1.43 10.67 16.14 N/A 13.47 1/5/93
Adviser: Fleming USA
Fleming Fledgling Fund 18.28 N/A N/A N/A 21.55 11/14/97
Fleming Composite 8.87 11.77 17.17 16.12 15.42 9/30/84
Fleming Composite (no load) 13.87 14.77 18.17 16.12 15.42 9/30/84
Adviser: Sawgrass
Sawgrass Composite - 20.19 - 1.56 11.16 12.57 11.24 1/1/87
Sawgrass Composite
(no load) - 15.19 1.44 12.16 12.57 11.24 1/1/87
</TABLE>
1 CCI and Oak began managing the assets of the Target I Large
Capitalization Growth Portfolio together on 11/22/95. For the period
from 11/22/95 through 6/30/99 the average annual total return of the
Portfolio was 29.48%.
2 INVESCO and Hotchkis and Wiley began managing the assets of the Target
I Large Capitalization Value Portfolio together on 1/1/95. For the
period from 1/1/95 through 6/30/99, the average annual total return of
the Portfolio was 22.33%.
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<PAGE> 60
AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
SINCE INCEPTION
FUND NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION DATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advisers: Lazard and WSW
Target I Small
Capitalization Value(3) - 2.75 13.31% 12.61% N/A 12.92% 1/5/93
Adviser: Lazard
Lazard Small Cap - 4.47 N/A N/A N/A 7.90 1/30/97
Lazard Small Cap
(Institutional Class) - 4.17 11.47 14.30 N/A 16.56 10/1/91
Lazard Small-Cap Composite - 8.51 8.99 13.69 12.34% 15.30 1/1/89
Lazard Small-Cap
Composite (no load) - 3.51 11.99 14.69 12.34 13.64 1/1/89
Adviser: WSW
DLJ Winthrop Small Company
Value (Class B) - 7.40 8.98 N/A N/A 9.27 2/28/96
DLJ Winthrop Small Company
Value (Class B) (no load) - 4.53 9.26 N/A N/A 9.52 2/28/96
DLJ Winthrop Small Company
Value (Class A) - 8.27 8.30 10.16 11.66 13.06 2/8/67
DLJ Winthrop Small Company
Value (Class A) (no load) - 3.70 10.07 11.24 12.20 14.19 2/8/67
WSW Composite - 9.20 7.31 10.55 13.38 12.86 1/1/87
WSW Composite (no load) - 4.20 10.31 11.55 13.38 12.86 1/1/87
Adviser: Lazard
Target I International Equity 2.05 12.57 11.92 N/A 14.18 1/5/93
Lazard International Equity 2.75 N/A N/A N/A 14.53 1/23/97
Lazard Institutional Equity
(Institutional Class) 3.04 13.44 11.82 N/A 11.28 10/1/91
Lazard International
Equity Composite - 4.33 8.07 8.47 N/A 9.72 10/31/91
Lazard International Equity
Composite (no load) .67 11.07 9.47 N/A 9.72 10/31/91
Adviser: PIMCO
Target I Total Return Bond 2.88 7.35 8.03 N/A 7.08 1/5/93
PIMCO Total Return Bond
(Class B) - .93 N/A N/A N/A 5.42 1/14/97
PIMCO Total Return Bond
(Class B) (no load) 2.85 N/A N/A N/A 6.55 1/14/97
PIMCO Total Return Bond
(Institutional Class) 4.13 8.31 8.63 9.18 9.37 5/11/87
PIMCO Composite - 3.26 2.10 4.49 6.63 7.04 12/31/85
PIMCO Composite (no load) 1.74 5.10 5.49 6.63 7.04 12/31/85
</TABLE>
3 Lazard and WSW began managing the assets of the Target I Small
Capitalization Value Portfolio together on 4/12/95. For the period from
4/12/95 through 6/30/99, the average annual total return of the Portfolio
was 15.34%.
58 TARGET FUNDS [TELEPHONE] (800)255-1852
<PAGE> 61
EXPENSE RATIOS. According to Lipper Analytical Services, the expense ratio
for each of the funds listed above as of June 30, 1999 was as follows:
<TABLE>
<CAPTION>
FUND EXPENSE RATIO
- ---------------------------------------------------------------------------------
<S> <C>
Target I Large Capitalization Growth .68%
White Oak Growth Stock 1.00%
Target I Large Capitalization Value .71%
INVESCO Value Equity 1.15%
Hotchkis and Wiley Equity .87%
Fleming Fledgling Fund 1.35%
Target I Small Capitalization Value .79%
Lazard Small Cap 1.09%
Lazard Small Cap (Institutional Class) .81%
DLJ Winthrop Small Company Value (Class B) 1.99%
DLJ Winthrop Small Company Value (Class A) 1.29%
Target I International Equity .91%
Lazard International Equity 1.24%
Lazard International Equity (Institutional Class) .90%
Target I Total Return Bond .81%
PIMCO Total Return Bond (Class B) 1.65%
PIMCO Total Return Bond (Institutional Class) .43%
</TABLE>
As noted above, the performance of each Composite has been adjusted to
reflect the expenses associated with the Class B shares of the Fund that the
Adviser will manage for the Trust. The expense ratios are as follows:
<TABLE>
<CAPTION>
COMPOSITE EXPENSE RATIO
- ---------------------------------------------------------------------------------
<S> <C>
CCI Composite 1.98%
Oak Composite 1.98%
INVESCO Composite 2.04%
Hotchkis and Wiley Composite 2.04%
Fleming Composite 2.33%
Sawgrass Composite 2.33%
Lazard Small-Cap Composite 2.41%
WSW Composite 2.41%
Lazard International Equity Composite 2.33%
PIMCO Composite 2.38%
</TABLE>
59
<PAGE> 62
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Read the prospectus carefully before you invest or send
money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
Nicholas-Applegate Growth Equity Fund
TARGET FUNDS
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Active Balanced Fund
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
Prudential Europe Index Fund
Prudential Pacific Index Fund
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
Global Series
International Stock Series
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
International Equity Fund
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Limited Maturity Portfolio
60 TARGET FUNDS [TELEPHONE] (800)255-1852
<PAGE> 63
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Short-Intermediate Term Series
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
Prudential Bond Market Index Fund
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Income Portfolio
TARGET FUNDS
Total Return Bond Fund
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
California Series
California Income Series
PRUDENTIAL MUNICIPAL BOND FUND
High Income Series
Insured Series
PRUDENTIAL MUNICIPAL SERIES FUND
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
Liquid Assets Fund
National Money Market Fund
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Money Market Series
U.S. Treasury Money Market Series
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Money Market Series
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
California Money Market Series
PRUDENTIAL MUNICIPAL SERIES FUND
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Institutional Money Market Series
61
<PAGE> 64
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Please read this prospectus before you invest in the Funds and keep it for
future reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- -------------------------------------------------------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- --------------------------------------------------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com
- --------------------------------------------------------------------------------
Additional information about the Trust can be obtained without charge and can be
found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into
this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affect the Funds' performance)
SEMI-ANNUAL REPORT
MF189A
You can also obtain copies of Trust documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
By Electronic Request:
[email protected]
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in Washington, DC
(For hours of operation, call
(202) 942-8090
Via the Internet:
on the EDGAR Database at
http://www.sec.gov
- --------------------------------------------------------------------------------
CUSIP Numbers:
Large Capitalization Growth Fund
Class A: 87612T-10-3
Class B: 87612T-20-2
Class C: 87612T-30-1
Large Capitalization Value Fund
Class A: 87612T-40-0
Class B: 87612T-50-9
Class C: 87612T-60-8
Small Capitalization Growth Fund
Class A: 87612T-70-7
Class B: 87612T-80-6
Class C: 87612T-81-4
Small Capitalization Value Fund
Class A: 87612T-82-2
Class B: 87612T-83-0
Class C: 87612T-84-8
International Equity Fund
Class A: 87612T-85-5
Class B: 87612T-86-3
Class C: 87612T-87-1
Total Return Bond Fund
Class A: 87612T-88-9
Class B: 87612T-78-0
Class C: 87612T-79-8
Investment Company Act File No: 811-09439
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