<PAGE> 1
SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
Target Funds
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
3) Filing Party:
----------------------------------------------------------------------
4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
THE TARGET PORTFOLIO TRUST(SM)
LARGE CAPITALIZATION VALUE PORTFOLIO
TARGET FUNDS
LARGE CAPITALIZATION VALUE FUND
------------------------
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102
------------------------
INFORMATION STATEMENT
AUGUST 22, 2000
------------------------
TO THE SHAREHOLDERS:
On May 24, 2000, at a regular meeting of the Boards of Trustees of The
Target Portfolio Trust(SM) (Target I) and Target Funds (Target II and, together
with Target I, the Trusts), the Trustees approved new subadvisory agreements for
the Large Capitalization Value Portfolio of Target I and the Large
Capitalization Value Fund of Target II. The subadvisory agreements approved by
the Boards of Trustees were entered into between Prudential Investments Fund
Management LLC, each Trust's Manager, and J.P. Morgan Investment Management Inc.
This information statement informs you of the circumstances surrounding the
Boards' approvals of the new subadvisory agreements and provides you with an
overview of their terms.
By order of the Boards,
WILLIAM V. HEALEY
Assistant Secretary
THIS IS NOT A PROXY STATEMENT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
<PAGE> 3
THE TARGET PORTFOLIO TRUST(SM)
LARGE CAPITALIZATION VALUE PORTFOLIO
TARGET FUNDS
LARGE CAPITALIZATION VALUE FUND
(800) 225-1852
------------------------
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
------------------------
INFORMATION STATEMENT
AUGUST 22, 2000
------------------------
This information statement is being furnished to the shareholders of the
Large Capitalization Value Portfolio of The Target Portfolio Trust (Target I)
and the Large Capitalization Value Fund of Target Funds (Target II and, together
with Target I, the Trusts). Each Trust is an open-end, management investment
company registered under the Investment Company Act of 1940, as amended (the
Investment Company Act), and is organized as a Delaware business trust. The
Trusts' trustees are referred to here as the "Boards," "Board Members" or
"Trustees." The Trusts' principal executive office is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
We are providing shareholders of the Large Capitalization Value Portfolio
of Target I and the Large Capitalization Value Fund of Target II (together, the
Portfolios) as of July 31, 2000 with this information statement in lieu of a
proxy statement, pursuant to the terms of an exemptive order received from the
Securities and Exchange Commission (SEC). The exemptive order permits the
Trusts' manager, Prudential Investments Fund Management LLC (PIFM or the
Manager), to hire new subadvisers and to make certain changes to existing
subadvisory contracts with the approval of the Boards, but without obtaining
shareholder approval. This information statement relates to the approval by the
Trustees of new subadvisory agreements dated May 24, 2000 between PIFM and J.P.
Morgan Investment Management Inc. (J.P. Morgan) with respect to: (i) the Large
Capitalization Value Portfolio of Target I and (ii) the Large Capitalization
Value Fund of Target II (together, the Subadvisory Agreements). On May 24, 2000,
the Trustees approved the Subadvisory Agreements, copies of which are attached
hereto as Exhibit A.
The Portfolios will pay for the costs associated with preparing and
distributing this information statement to shareholders of the Portfolios. This
information statement will be mailed on or about August 22, 2000.
THE MANAGER
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, serves as the Trusts' Manager
under management agreements dated as of November 9, 1992 in the case of Target I
and August 25, 1999 in the case of Target II. PIFM is a subsidiary of The
Prudential Insurance Company of America (Prudential) and is a part of Prudential
Investments, which is a business group of Prudential. As of April 30, 2000, PIFM
served as the manager to 42 open-end investment companies and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $75.6 billion. Information concerning officers of the Trusts is
set forth in Exhibit C.
SHAREHOLDER REPORTS
Target I's most recent annual report for the fiscal year ended December 31,
1999 has previously been sent to its shareholders. Target II's semi-annual
report for the period ended January 31, 2000 has previously been sent to its
shareholders. EACH TRUST'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS MAY BE
OBTAINED WITHOUT CHARGE BY WRITING THE TRUST AT GATEWAY CENTER THREE, 100
MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077 OR BY CALLING (800) 225-1852
(TOLL FREE).
1
<PAGE> 4
SHAREHOLDINGS
The table below sets forth each Portfolio's net asset value and number of
outstanding shares as of July 31, 2000.
<TABLE>
<CAPTION>
SHARES
NET ASSET VALUE OUTSTANDING
PORTFOLIO AT JULY 31, 2000 AT JULY 31, 2000
--------- ------------------ ------------------
<S> <C> <C>
Large Capitalization Value Portfolio of Target I....... $11.94 19,452,305
Large Capitalization Value Fund of Target II
Class A Shares....................................... $ 9.33 552,373
Class B Shares....................................... $ 9.28 1,216,784
Class C Shares....................................... $ 9.28 1,378,525
</TABLE>
Management does not know of any person who owned beneficially 5% or more of
the shares of the Large Capitalization Value Portfolio of Target I or of any
class of the Large Capitalization Value Fund of Target II as of July 31, 2000.
To the knowledge of management, the executive officers and Board Members of the
Trusts, as a group, owned less than 1% of the outstanding shares of each
Portfolio as of July 31, 2000.
NEW SUBADVISORY AGREEMENTS
On May 24, 2000, the Trustees, including a majority of the Trustees who are
not parties to the Subadvisory Agreements or interested persons of such parties
(as defined in the Investment Company Act) (the non-interested Trustees),
unanimously approved the Subadvisory Agreements and the selection by PIFM of
J.P. Morgan to replace INVESCO Capital Management, Inc. (INVESCO) as a
subadviser to the Portfolios. At that time, the Trustees also unanimously
approved termination of the previous subadvisory agreements between the Trust's
Manager and INVESCO for the reasons set forth below.
The Trustees terminated INVESCO as a subadviser to the Portfolios for a
number of reasons. First, the portion of each Portfolio managed by INVESCO had
been underperforming the Russell 1000 Value Index (Russell 1000V), a benchmark
securities index for each Portfolio, and industry medians for similar funds.
Second, INVESCO's strategy had not tracked closely enough to the Russell 1000V
which made the Portfolios' performance more volatile relative to that index.
PIFM recommended J.P. Morgan to the Trustees as a replacement for INVESCO.
The Subadvisory Agreements contain terms and conditions similar to those of
the subadvisory agreements with INVESCO. See "Terms of Subadvisory Agreements,"
below. J.P. Morgan renders investment advice to a portion of the Portfolios in
accordance with the investment objective and policies of each Portfolio and also
makes investment decisions to purchase and sell securities on behalf of the
Portfolios, subject to the supervision of PIFM.
Section 15(a) of the Investment Company Act requires that a majority of
each Portfolio's outstanding voting securities approve its Subadvisory
Agreement. However, on September 11, 1996, the SEC issued an order granting
exemptive relief from the requirements of Section 15(a). According to the SEC's
order, which is subject to a number of conditions (including approval by the
Trust's shareholders, which was received on October 30, 1996 in the case of
Target I and on September 13, 1999 in the case of Target II), PIFM may enter
into certain subadvisory agreements on behalf of the Trust without receiving
prior shareholder approval. Thus, the execution and implementation of the
Subadvisory Agreements did not require shareholder consent.
BOARD CONSIDERATION OF THE SUBADVISORY AGREEMENTS. At a regular meeting of
the Boards, at which all of the Trustees were in attendance, the Boards of
Trustees considered and unanimously approved the Subadvisory Agreements on May
24, 2000. In considering the approval of the Subadvisory Agreements, the
Trustees, including the non-interested Trustees, considered whether approval of
each Subadvisory Agreement was in the best interests of the relevant Trust and
shareholders of the relevant Portfolio. At the meeting, the Trusts' Manager
stressed the investment experience, reputation, performance record and highly
structured investment approach of the investment team at J.P. Morgan. The
Trustees reviewed materials furnished by management and J.P. Morgan and met with
representatives of J.P. Morgan. Among other things, the Trustees considered the
investment philosophy and process of J.P. Morgan, its relative performance
record and
2
<PAGE> 5
performance compared to the Russell 1000V, and its personnel, facilities,
compliance procedures and financial strength. In addition, the Trusts' Manager
stressed that given the dual adviser approach to managing the assets of the
Portfolios, an adviser with more of a core approach to the Russell 1000V would
better complement the style of Hotchkis and Wiley, the other adviser to each
Portfolio. The Board also considered the nature, quality and extent of services
expected to be provided to the Portfolios by J.P. Morgan as well as the
reputation of the J.P. Morgan investment team in the asset management industry.
The Trustees discussed and reviewed the terms of the Subadvisory
Agreements. It was noted that the material terms of the Subadvisory Agreements
were substantially the same as those in the prior subadvisory agreements. There
were a number of minor differences between the Subadvisory Agreements and the
agreements that had been in place with INVESCO. First, the Subadvisory
Agreements specifically require J.P. Morgan to reconcile its records of the
securities and cash in its portion of each Portfolio with statements provided by
the Trust's custodian on a monthly basis and to report to the Manager on each
such reconciliation, including information on any discrepancies noted and
actions taken by J.P. Morgan to address those discrepancies. Second, the
Subadvisory Agreements require J.P. Morgan or the Manager to indemnify the other
party to the contract (including that other party's officers, directors and
employees) for any liability and expenses incurred as a result of J.P. Morgan's
or the Manager's willful misfeasance, bad faith, gross negligence, reckless
disregard of its duties under the Subadvisory Agreements or violation of law.
Third, the Subadvisory Agreements give J.P. Morgan forty-eight hours to review
and object to the use of any prospectus, proxy statement, report to
shareholders, sales literature or other material prepared for distribution to
shareholders of the Trusts that describes or characterizes J.P. Morgan, J.P.
Morgan's investment process with respect to the Portfolios or any of J.P.
Morgan's investment results.
In addition, there were two other minor differences between the Subadvisory
Agreement relating to Target I and the agreement relating to Target I that had
been in place with INVESCO. First, the language of the Subadvisory Agreement
relating to Target I clarifies that J.P. Morgan is only responsible for managing
a portion of each Portfolio's assets. Second, the subadvisory agreement with
INVESCO for the Large Capitalization Value Portfolio of Target I had a
non-compete provision that generally prohibited INVESCO from managing another
similar mutual fund. The Subadvisory Agreement relating to Target I does not
include such a provision.
Based upon their review, the Trustees concluded that the Subadvisory
Agreements were reasonable, fair and in the best interests of each of the Trusts
and the shareholders of each of the relevant Portfolios, and that the fee
provided in each of the Subadvisory Agreements (which in each case was the same
as in the prior subadvisory agreements) was fair and reasonable. Accordingly,
after consideration of the above factors, and such other factors and information
as they deemed relevant, the Trustees, including the non-interested Trustees,
unanimously approved the Subadvisory Agreements.
INFORMATION CONCERNING J.P. MORGAN. J.P. Morgan, 522 Fifth Avenue, New
York, NY 10036, began managing its portion of the Portfolios after the close of
business on May 24, 2000. J.P. Morgan was created in 1984 out of the Trust and
Investment Division of Morgan Guaranty Trust Company of New York. J.P. Morgan is
a registered investment adviser under the Investment Advisers Act of 1940, as
amended, and is a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated.
J.P. Morgan manages employee benefit funds of corporations, labor unions and
state and local governments and the accounts of other institutional investors.
As of June 30, 2000, J.P. Morgan managed assets totaling approximately $369
billion.
Exhibit D lists the principal executive officer and directors of J.P.
Morgan. Exhibit D also contains information about other funds managed by J.P.
Morgan with an investment objective and strategies similar to those of the
Portfolios.
Pursuant to the Subadvisory Agreements, J.P. Morgan manages a portion of
the assets of each Portfolio. Hotchkis and Wiley, 725 South Figueroa Street,
Suite 4000, Los Angeles, CA 90017 manages the other portion of each Portfolio's
assets.
3
<PAGE> 6
TERMS OF SUBADVISORY AGREEMENTS
Under the Subadvisory Agreements, J.P. Morgan is compensated by PIFM (and
not the Portfolios) from its management fee at an annual rate of .30 of 1% of
each Portfolio's average net assets managed by J.P. Morgan. The Subadvisory
Agreements provide that, subject to PIFM's and the Boards of Trustees'
supervision, J.P. Morgan is responsible for managing the investment operations
of each Portfolio (or portion thereof allocated to J.P. Morgan) and for making
investment decisions and placing orders to purchase and sell securities for each
Portfolio (or portion thereof allocated to J.P. Morgan), all in accordance with
the investment objective and policies of each Portfolio as reflected in its
current Prospectus and Statement of Additional Information and as may be adopted
from time to time by the Boards. In accordance with the requirements of the
Investment Company Act, J.P. Morgan also provides PIFM with all books and
records relating to the transactions it executes and renders to the Trustees
such periodic and special reports as the Boards of Trustees may reasonably
request.
Duration and Termination. Each Subadvisory Agreement will remain in full
force and effect for a period of two years from the date of its execution, and
will continue thereafter as long as its continuance is specifically approved at
least annually by vote of a majority of the outstanding voting securities (as
that term is defined in the Investment Company Act) of the relevant
Portfolio(s), or by the Board, including the approval by a majority of
non-interested Trustees, at a meeting called for the purpose of voting on such
approval; provided, however, that (1) each Subadvisory Agreement may be
terminated at any time without the payment of any penalty, either by vote of the
Board or by vote of a majority of the outstanding voting securities of the
Portfolio, (2) each Subadvisory Agreement will terminate immediately in the
event of its assignment (within the meaning of the Investment Company Act) or
upon the termination of the Trust's management agreement with PIFM, and (3) each
Subadvisory Agreement may be terminated without penalty at any time by J.P.
Morgan or PIFM on not more than 60 days' nor less than 30 days' written notice
to the other party to the Subadvisory Agreement.
Liability. The Subadvisory Agreements provide that, in the absence of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties or reckless disregard of its obligations and duties thereunder, J.P.
Morgan will not be liable for any act or omission in connection with its
activities as subadviser to the Portfolios.
SHAREHOLDER PROPOSALS
As Delaware business trusts, the Trusts are not required to hold annual
meetings of shareholders and the Trustees currently do not intend to hold such
meetings unless shareholder action is required in accordance with the Investment
Company Act or the Trusts' Declarations of Trust. A shareholder proposal
intended to be presented at any meeting of shareholders of any Trust must be
received by that Trust a reasonable time before the Trustees' solicitation
relating thereto is made in order to be included in the Trust's proxy statement
and form of proxy relating to that meeting and presented at the meeting. The
mere submission of a proposal by a shareholder does not guarantee that the
proposal will be included in the proxy statement because certain rules under the
federal securities laws must be complied with before inclusion of the proposal
is required.
WILLIAM V. HEALEY,
Assistant
Secretary
Dated: August 22, 2000
4
<PAGE> 7
EXHIBIT A
THE TARGET PORTFOLIO TRUST
(LARGE CAPITALIZATION VALUE PORTFOLIO)
SUBADVISORY AGREEMENT
Agreement made on this 24th day of May, 2000, between Prudential
Investments Fund Management LLC (PIFM or the Manager), a New York limited
liability company, and J.P. Morgan Investment Management Inc. (the Adviser), a
Delaware corporation.
WHEREAS, PIFM has entered into a management agreement (the Management
Agreement) with The Target Portfolio Trust (the Trust), a Delaware business
trust and an open-end management investment company registered under the
Investment Company Act of 1940 (the 1940 Act), pursuant to which PIFM will act
as manager of the Trust.
WHEREAS, shares of the Trust are divided into separate series or portfolios
(each a portfolio), each of which is established pursuant to a resolution of the
Trustees of the Trust, and the Trustees may from time to time terminate such
portfolios or establish and terminate additional portfolios.
WHEREAS, PIFM has the responsibility of evaluating, recommending,
supervising and compensating investment advisers to each portfolio of the Trust
and desires to retain the Adviser to provide investment advisory services to the
Large Capitalization Value Portfolio of the Trust (the Fund) in connection with
the management of the Trust and to manage such portion of the Fund as the
Manager shall from time to time direct, and the Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Trustees
of the Trust, the Adviser shall manage such portion of the investment
operations of the Fund as the Manager shall direct and shall manage the
composition of such portion of the Fund, including the purchase, retention
and disposition thereof, in accordance with the Fund's investment
objective, policies and restrictions as stated in the Prospectus (such
Prospectus and Statement of Additional Information as currently in effect
and as amended or supplemented from time to time being herein called the
"Prospectus") as delivered to the Adviser from time to time by the Manager
and subject to the following understandings:
(i) The Adviser shall provide supervision of such portion of the
Fund's investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by the Fund, and
what portion of the assets it manages will be invested or held
uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Adviser shall act in conformity with the Agreement and
Declaration of Trust, By-Laws and Prospectus of the Trust and the Fund
as provided to the Adviser by the Manager and with the written
instructions and directions of the Manager and of the Trustees of the
Trust and will conform to and comply with the requirements of the 1940
Act, the Internal Revenue Code of 1986, as amended, and all other
applicable federal and state laws and regulations.
(iii) The Adviser shall determine the securities and commodities or
other assets to be purchased or sold by such portion of the Fund and
will place orders pursuant to its determination with or through such
persons, brokers, dealers or futures commission merchants to carry out
the policy with respect to brokerage as set forth in the Trust's
Registration Statement and Prospectus. In selecting brokers, dealers or
futures commission merchants to execute transactions for the Fund, it is
recognized that the Adviser will give primary consideration to securing
best execution. Within the framework of this policy, the Adviser may
consider the financial responsibility, research and
A-1
<PAGE> 8
investment information and other services provided by brokers, dealers
or futures commission merchants who may effect or be a party to any such
transaction or other transactions to which the Adviser's other clients
may be a party. It is understood that Prudential Securities Incorporated
may be used as a broker for securities transactions subject to the
requirements of the 1940 Act and the Adviser's determination of best
execution. It is also understood that it is desirable for the Trust that
the Adviser have access to supplemental investment and market research
and security and economic analysis provided by brokers or futures
commission merchants who may execute brokerage transactions at a higher
cost to the Trust than may result when allocating brokerage to other
brokers solely on the basis of seeking lowest price. Therefore, the
Adviser is authorized to place orders for the purchase and sale of
securities and commodities or other assets for the Fund with such
brokers or futures commission merchants, subject to review by the
Trustees from time to time with respect to the extent and continuation
of this practice. It is understood that the services provided by such
brokers or futures commission merchants may be useful to the Adviser in
connection with the Adviser's services to other clients.
On occasions when the Adviser deems the purchase or sale of a
security, commodity or other asset to be in the best interest of the
Fund as well as other clients of the Adviser, the Adviser, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities, commodities or other assets to
be sold or purchased. In such event, allocation of the securities,
commodities or other assets so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in the
manner the Adviser considers to be the most equitable and consistent
with its fiduciary obligations to the Trust and to such other clients.
(iv) The Adviser shall maintain all books and records with respect
to the portfolio transactions required by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940
Act and shall render to the Trustees such periodic and special reports
as the Board may reasonably request.
(v) The Adviser shall provide the Trust's custodian (the Custodian)
by 10:00 a.m. (New York time) each business day with information
relating to all transactions that occurred on the previous business day
concerning the portion of the Fund's assets it manages and shall provide
the Manager with such information upon request of the Manager. The
Adviser shall reconcile its records of the Fund's securities and cash
managed by the Adviser with statements provided by the Custodian at
least once each month. The Adviser shall provide the Manager with a
written report on each such reconciliation, including information on any
discrepancies noted and actions taken by the Adviser in response
thereto, by the tenth business day of the following month to the extent
reasonably practicable.
(vi) The investment management services provided by the Adviser
hereunder are not exclusive, and the Adviser shall be free to render
similar services to others.
(b) Services to be furnished by the Adviser under this Agreement
may be furnished through the medium of any of its directors, officers,
employees, affiliates or agents.
(c) The Adviser shall keep the Fund's books and records required to
be maintained by the Adviser pursuant to paragraph 1(a)(iv) hereof and
shall timely furnish to the Manager all information relating to the
Adviser's services hereunder needed by the Manager to keep the other books
and records of the Trust required by Rule 31a-1 under the 1940 Act. The
Adviser agrees that all records which it maintains for the Fund are the
property of the Trust and the Adviser will surrender promptly to the Trust
any of such records upon the Trust's request. The Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any
such records as are required to be maintained by it pursuant to paragraph
1(a) hereof.
(d) The Adviser agrees to maintain adequate compliance procedures
to comply with the 1940 Act, the Investment Advisers Act of 1940 (Advisers
Act) and other applicable state and federal laws and regulations.
A-2
<PAGE> 9
(e) The Adviser shall furnish to the Manager copies of all records
prepared in connection with (i) the performance of this Agreement and (ii)
any reports prepared in accordance with the compliance procedures
maintained pursuant to paragraph 1(d) hereof as the Manager may reasonably
request.
2. The Manager shall continue to have responsibility for all services
to be provided to the Fund pursuant to the Management Agreement and shall
oversee and review the Adviser's performance of its duties under this
Agreement.
3. The Manager shall compensate the Adviser for the services provided
and the expenses assumed pursuant to this Subadvisory Agreement at the
annual rate of .30 of 1% of the average daily net assets of the portion of
the Fund managed by the Adviser. This fee will be computed daily and paid
monthly.
4. The Adviser shall not be liable for any error of judgment or for
any loss suffered by the Fund, the Trust or the Manager in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the Adviser's part in
the performance of its duties or from its reckless disregard of its
obligations and duties under this Agreement, provided, however, that
nothing in this Agreement shall be deemed to waive any rights the Manager
or the Trust may have against the Adviser under federal or state securities
laws. The Manager shall indemnify the Adviser, its affiliated persons, its
officers, directors and employees, for any liability and expenses,
including attorneys fees, which may be sustained as a result of the
Manager's willful misfeasance, bad faith, gross negligence, reckless
disregard of its duties hereunder or violation of applicable law,
including, without limitation, the 1940 Act and federal and state
securities laws. The Adviser shall indemnify the Manager, its affiliated
persons, its officers, directors and employees, for any liability and
expenses, including attorneys fees, which may be sustained as a result of
the Adviser's willful misfeasance, bad faith, gross negligence, reckless
disregard of its duties hereunder or violation of applicable law,
including, without limitation, the 1940 Act and federal and state
securities laws.
5. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements
of the 1940 Act; provided, however, that this Agreement may be terminated
by the Trust at any time, without the payment of any penalty, by the
Trustees or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, or by the Manager or the Adviser at
any time, without the payment of any penalty, on not more than 60 days' nor
less than 30 days' written notice to the other party. This Agreement shall
terminate automatically in the event of its assignment (as defined in the
1940 Act) and five business days after the Adviser receives written notice
of the termination of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any
of the Adviser's directors, officers or employees to engage in any other
business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit the Adviser's right to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
7. During the term of this Agreement, the Manager agrees to furnish
the Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other material prepared for
distribution to shareholders of the Trust or the public, which refer to the
Adviser in any way; provided, however, that any such item which describes
or characterizes the Adviser or any of its affiliates, the Adviser's
investment process with respect to the Fund, the names of any of its
clients (other than the Trust or advisory clients of PIFM and its
affiliates) or any of its performance results shall be furnished to the
Adviser by first class or overnight mail, facsimile transmission equipment
or hand delivery prior to use thereof, and such item shall not be used if
the Adviser reasonably objects to such use in writing within forty-eight
(48) hours (or such other time as may be mutually agreed) after receipt
thereof (provided, however, that if such item is not received by the
Adviser during normal business hours on a business day, such period shall
end forty-eight (48) hours after the start of normal business hours on the
next succeeding business day).
A-3
<PAGE> 10
8. This Agreement may be amended by mutual consent, but the consent of
the Trust must be obtained in conformity with the requirements of the 1940
Act.
9. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first above
written.
PRUDENTIAL INVESTMENTS FUND
MANAGEMENT LLC
By /s/ ROBERT F. GUNIA
------------------------------------
Robert F. Gunia
Executive Vice President
J.P. MORGAN INVESTMENT
MANAGEMENT INC.
By /s/ DAVID J. FERMO
------------------------------------
David J. Fermo
Vice President
A-4
<PAGE> 11
TARGET FUNDS
(LARGE CAPITALIZATION VALUE FUND)
SUBADVISORY AGREEMENT
Agreement made on this 24th day of May, 2000, between Prudential
Investments Fund Management LLC (PIFM or the Manager), a New York limited
liability company, and J.P. Morgan Investment Management Inc. (the Adviser), a
Delaware corporation.
WHEREAS, PIFM has entered into a management agreement (the Management
Agreement) with Target Funds (the Trust), a Delaware business trust and an
open-end management investment company registered under the Investment Company
Act of 1940 (the 1940 Act), pursuant to which PIFM will act as manager of the
Trust.
WHEREAS, shares of the Trust are divided into separate series or portfolios
(each a portfolio), each of which is established pursuant to a resolution of the
Trustees of the Trust, and the Trustees may from time to time terminate such
portfolios or establish and terminate additional portfolios.
WHEREAS, PIFM has the responsibility of evaluating, recommending,
supervising and compensating investment advisers to each portfolio of the Trust
and desires to retain the Adviser to provide investment advisory services to the
Large Capitalization Value Fund of the Trust (the Fund) in connection with the
management of the Trust and to manage such portion of the Fund as the Manager
shall from time to time direct, and the Adviser is willing to render such
investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Trustees
of the Trust, the Adviser shall manage such portion of the investment
operations of the Fund as the Manager shall direct and shall manage the
composition of such portion of the Fund, including the purchase, retention
and disposition thereof, in accordance with the Fund's investment
objective, policies and restrictions as stated in the Prospectus (such
Prospectus and Statement of Additional Information as currently in effect
and as amended or supplemented from time to time being herein called the
"Prospectus") as delivered to the Adviser from time to time by the Manager
and subject to the following understandings:
(i) The Adviser shall provide supervision of such portion of the
Fund's investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by the Fund, and
what portion of the assets it manages will be invested or held
uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Adviser shall act in conformity with the Agreement and
Declaration of Trust, By-Laws and Prospectus of the Trust and the Fund
as provided to the Adviser by the Manager and with the written
instructions and directions of the Manager and of the Trustees of the
Trust and will conform to and comply with the requirements of the 1940
Act, the Internal Revenue Code of 1986, as amended, and all other
applicable federal and state laws and regulations.
(iii) The Adviser shall determine the securities and commodities or
other assets to be purchased or sold by such portion of the Fund and
will place orders pursuant to its determination with or through such
persons, brokers, dealers or futures commission merchants to carry out
the policy with respect to brokerage as set forth in the Trust's
Registration Statement and Prospectus. In selecting brokers, dealers or
futures commission merchants to execute transactions for the Fund, it is
recognized that the Adviser will give primary consideration to securing
best execution. Within the framework of this policy, the Adviser may
consider the financial responsibility, research and investment
information and other services provided by brokers, dealers or futures
commission merchants who may effect or be a party to any such
transaction or other transactions to which the Adviser's other clients
may be a party. It is understood that Prudential Securities Incorporated
may be used as a broker for securities transactions subject to the
requirements of the 1940 Act and the
A-5
<PAGE> 12
Adviser's determination of best execution. It is also understood that it
is desirable for the Trust that the Adviser have access to supplemental
investment and market research and security and economic analysis
provided by brokers or futures commission merchants who may execute
brokerage transactions at a higher cost to the Trust than may result
when allocating brokerage to other brokers solely on the basis of
seeking lowest price. Therefore, the Adviser is authorized to place
orders for the purchase and sale of securities and commodities or other
assets for the Fund with such brokers or futures commission merchants,
subject to review by the Trustees from time to time with respect to the
extent and continuation of this practice. It is understood that the
services provided by such brokers or futures commission merchants may be
useful to the Adviser in connection with the Adviser's services to other
clients.
On occasions when the Adviser deems the purchase or sale of a
security, commodity or other asset to be in the best interest of the
Fund as well as other clients of the Adviser, the Adviser, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities, commodities or other assets to
be sold or purchased. In such event, allocation of the securities,
commodities or other assets so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in the
manner the Adviser considers to be the most equitable and consistent
with its fiduciary obligations to the Trust and to such other clients.
(iv) The Adviser shall maintain all books and records with respect
to the portfolio transactions required by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940
Act and shall render to the Trustees such periodic and special reports
as the Board may reasonably request.
(v) The Adviser shall provide the Trust's custodian (the Custodian)
by 10:00 a.m. (New York time) each business day with information
relating to all transactions that occurred on the previous business day
concerning the portion of the Fund's assets it manages and shall provide
the Manager with such information upon request of the Manager. The
Adviser shall reconcile its records of the Fund's securities and cash
managed by the Adviser with statements provided by the Custodian at
least once each month. The Adviser shall provide the Manager with a
written report on each such reconciliation, including information on any
discrepancies noted and actions taken by the Adviser in response
thereto, by the tenth business day of the following month to the extent
reasonably practicable.
(vi) The investment management services provided by the Adviser
hereunder are not exclusive, and the Adviser shall be free to render
similar services to others.
(b) Services to be furnished by the Adviser under this Agreement
may be furnished through the medium of any of its directors, officers,
employees, affiliates or agents.
(c) The Adviser shall keep the Fund's books and records required to
be maintained by the Adviser pursuant to paragraph 1(a)(iv) hereof and
shall timely furnish to the Manager all information relating to the
Adviser's services hereunder needed by the Manager to keep the other books
and records of the Trust required by Rule 31a-1 under the 1940 Act. The
Adviser agrees that all records which it maintains for the Fund are the
property of the Trust and the Adviser will surrender promptly to the Trust
any of such records upon the Trust's request. The Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any
such records as are required to be maintained by it pursuant to paragraph
1(a) hereof.
(d) The Adviser agrees to maintain adequate compliance procedures
to comply with the 1940 Act, the Investment Advisers Act of 1940 (Advisers
Act) and other applicable state and federal laws and regulations.
(e) The Adviser shall furnish to the Manager copies of all records
prepared in connection with (i) the performance of this Agreement and (ii)
any reports prepared in accordance with the compliance procedures
maintained pursuant to paragraph 1(d) hereof as the Manager may reasonably
request.
A-6
<PAGE> 13
2. The Manager shall continue to have responsibility for all services
to be provided to the Fund pursuant to the Management Agreement and shall
oversee and review the Adviser's performance of its duties under this
Agreement.
3. The Manager shall compensate the Adviser for the services provided
and the expenses assumed pursuant to this Subadvisory Agreement at the
annual rate of .30 of 1% of the average daily net assets of the portion of
the Fund managed by the Adviser. This fee will be computed daily and paid
monthly.
4. The Adviser shall not be liable for any error of judgment or for
any loss suffered by the Fund, the Trust or the Manager in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the Adviser's part in
the performance of its duties or from its reckless disregard of its
obligations and duties under this Agreement, provided, however, that
nothing in this Agreement shall be deemed to waive any rights the Manager
or the Trust may have against the Adviser under federal or state securities
laws. The Manager shall indemnify the Adviser, its affiliated persons, its
officers, directors and employees, for any liability and expenses,
including attorneys fees, which may be sustained as a result of the
Manager's willful misfeasance, bad faith, gross negligence, reckless
disregard of its duties hereunder or violation of applicable law,
including, without limitation, the 1940 Act and federal and state
securities laws. The Adviser shall indemnify the Manager, its affiliated
persons, its officers, directors and employees, for any liability and
expenses, including attorneys fees, which may be sustained as a result of
the Adviser's willful misfeasance, bad faith, gross negligence, reckless
disregard of its duties hereunder or violation of applicable law,
including, without limitation, the 1940 Act and federal and state
securities laws.
5. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements
of the 1940 Act; provided, however, that this Agreement may be terminated
by the Trust at any time, without the payment of any penalty, by the
Trustees or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, or by the Manager or the Adviser at
any time, without the payment of any penalty, on not more than 60 days' nor
less than 30 days' written notice to the other party. This Agreement shall
terminate automatically in the event of its assignment (as defined in the
1940 Act) and five business days after the Adviser receives written notice
of the termination of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any
of the Adviser's directors, officers or employees to engage in any other
business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit the Adviser's right to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
7. During the term of this Agreement, the Manager agrees to furnish
the Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other material prepared for
distribution to shareholders of the Trust or the public, which refer to the
Adviser in any way; provided, however, that any such item which describes
or characterizes the Adviser or any of its affiliates, the Adviser's
investment process with respect to the Fund, the names of any of its
clients (other than the Trust or advisory clients of PIFM and its
affiliates) or any of its performance results shall be furnished to the
Adviser by first class or overnight mail, facsimile transmission equipment
or hand delivery prior to use thereof, and such item shall not be used if
the Adviser reasonably objects to such use in writing within forty-eight
(48) hours (or such other time as may be mutually agreed) after receipt
thereof (provided, however, that if such item is not received by the
Adviser during normal business hours on a business day, such period shall
end forty-eight (48) hours after the start of normal business hours on the
next succeeding business day).
8. This Agreement may be amended by mutual consent, but the consent of
the Trust must be obtained in conformity with the requirements of the 1940
Act.
A-7
<PAGE> 14
9. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first above
written.
PRUDENTIAL INVESTMENTS FUND
MANAGEMENT LLC
By: /s/ ROBERT F. GUNIA
------------------------------------
Robert F. Gunia
Executive Vice President
J.P. MORGAN INVESTMENT MANAGEMENT INC.
By: /s/ DAVID J. FERMO
------------------------------------
David J. Fermo
Vice President
A-8
<PAGE> 15
EXHIBIT B
MANAGEMENT OF THE TRUSTS
THE MANAGER
Prudential Investments Fund Management LLC (PIFM or the Manager), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, serves as the
Trusts' Manager under management agreements (the Management Agreements) dated as
of November 9, 1992 in the case of Target I and August 25, 1999 in the case of
Target II, and renewed thereafter as required by the Investment Company Act of
1940, as amended (the Investment Company Act).
The Management Agreements were last approved by the Trustees of the Trust,
including a majority of the Trustees who were not parties to the contract and
were not interested persons of those parties (as defined in the Investment
Company Act) on May 24, 2000, in the case of Target I and August 25, 1999 in the
case of Target II. The Management Agreements were approved by the sole
shareholder of the Trusts on October 14, 1992 in the case of Target I and on
September 13, 1999 in the case of Target II.
INFORMATION ABOUT PIFM
PIFM is a subsidiary of Prudential Securities Incorporated and of The
Prudential Insurance Company of America (Prudential), a major, diversified
insurance and financial services company. Prudential's address is Prudential
Plaza, Newark, New Jersey 07102-4077. PIFM is organized in New York as a limited
liability company, and PIFM serves as the Administrator to Target I and Target
II. For its services, PIFM receives, pursuant to the Management Agreement, a fee
computed daily and payable monthly at an annual rate of .60 of 1% of the average
daily net assets of the Large Capitalization Value Portfolio of Target I. For
its services, PIFM receives, pursuant to the Management Agreement, a fee
computed daily and payable monthly at an annual rate of .70 of 1% of the average
daily net assets of the Large Capitalization Value Fund of Target II.
THE DISTRIBUTOR AND TRANSFER AGENT
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Trusts. PIMS is a subsidiary of
Prudential. Pursuant to distribution and service plans adopted by Target II
under Rule 12b-1 of the Investment Company Act, the Large Capitalization Value
Fund of Target II bears the expense of distribution and service fees paid to
PIMS with respect to its Class A, Class B and Class C shares. For the period
from November 3, 1999 (commencement of operations) through January 31, 2000,
PIMS received distribution and service fees aggregating $48,664 with respect to
the Large Capitalization Value Fund of Target II.
Pruco Securities Corporation (Prusec), 111 Durham Avenue, South Plainfield,
New Jersey 07080-2398, a wholly-owned subsidiary of Prudential, distributes
shares of the Trusts pursuant to a dealer agreement between Prusec and PIMS.
Prusec received no compensation from Target I for distributing shares of the
Large Capitalization Value Portfolio during the fiscal year ended December 31,
1999. Prusec received no compensation from Target II for distributing shares of
the Large Capitalization Value Fund during the period from November 3, 1999
(commencement of operations) through January 31, 2000.
The Trusts' transfer agent is Prudential Mutual Fund Services LLC (PMFS),
Raritan Plaza One, Edison, New Jersey 08837. PMFS is a wholly-owned subsidiary
of PIFM. PMFS received $118,600 for its services in connection with the Large
Capitalization Value Portfolio of Target I during the fiscal year ended December
31, 1999. PMFS received $4,300 for its services in connection with the Large
Capitalization Value Fund of Target II during the period from November 3, 1999
(commencement of operations) through January 31, 2000.
B-1
<PAGE> 16
BROKERAGE
During the fiscal year ended December 31, 1999, the Large Capitalization
Value Portfolio of Target I paid commissions aggregating $48,954 to Prudential
Securities, a broker/dealer member of the New York Stock Exchange and a
wholly-owned subsidiary of Prudential, representing approximately 20.1% of the
total brokerage commissions paid by that Portfolio. During the period from
November 3, 1999 (commencement of operations) through January 31, 2000, the
Large Capitalization Value Fund of Target II paid commissions aggregating $2,458
to Prudential Securities, representing approximately 11.4% of the total
brokerage commissions paid by that Portfolio.
B-2
<PAGE> 17
EXHIBIT C
OFFICER INFORMATION
<TABLE>
<CAPTION>
NAME (AGE) OFFICE WITH THE TRUST PRINCIPAL OCCUPATIONS
---------- --------------------- ---------------------
<S> <C> <C>
John R. Strangfeld (45)........... Trustee and President Chief Executive Officer, Chairman,
President and Director of The Prudential
Investment Corporation (since January
1990); Executive Vice President of the
Prudential Global Asset Management
Group of Prudential (since February
1998); Chairman of PRICOA Capital
Group (since August 1989); Chief
Executive Officer of Private Asset
Management Group of Prudential
(November 1994-December 1998).
Robert F. Gunia (51).............. Vice President Vice President (since September 1997) of
Prudential Investments; Executive Vice
President and Treasurer (since
December 1996), Prudential Investments
Fund Management LLC (PIFM); Senior
Vice President (since March 1987) of
Prudential Securities Incorporated
(Prudential Securities); formerly
Chief Administrative Officer (July
1990-September 1996), Director
(January 1989-September 1996),
Executive Vice President, Treasurer
and Chief Financial Officer (June
1987-September 1996) of Prudential
Mutual Fund Management, Inc.; Vice
President and Director (since May
1989) of The Asia Pacific Fund, Inc.
and Director or Trustee of 44 funds
within the Prudential Mutual Funds.
William V. Healey (46)............ Assistant Secretary Vice President and Associate General
Counsel of Prudential and Chief Legal
Officer of The Prudential Investment
Corporation (since August 1998);
Director, ICI Mutual Insurance Company
(since June 1999); formerly Associate
General Counsel of The Dreyfus
Corporation (Dreyfus), a subsidiary of
Mellon Bank, N.A. (Mellon Bank), and
an officer and/or director of various
affiliates of Mellon Bank and Dreyfus.
Grace C. Torres (39).............. Treasurer and Principal First Vice President (since December
Financial and Accounting 1996) of PIFM; First Vice President
Officer (since March 1993) of Prudential
Securities; formerly First Vice
President (March 1994-September 1996)
of Prudential Mutual Fund Management,
Inc.; formerly Vice President (July
1989-March 1994) of Bankers Trust
Corporation.
</TABLE>
C-1
<PAGE> 18
<TABLE>
<CAPTION>
NAME (AGE) OFFICE WITH THE TRUST PRINCIPAL OCCUPATIONS
---------- --------------------- ---------------------
<S> <C> <C>
Stephen M. Ungerman (45).......... Assistant Treasurer Tax Director (since March 1996) of
Prudential Investments; formerly First
Vice President (February
1993-September 1996) of Prudential
Mutual Fund Management, Inc.
</TABLE>
C-2
<PAGE> 19
EXHIBIT D
J.P. MORGAN MANAGEMENT
The following table sets forth the name and principal occupation of the
principal executive officer and the directors of J.P. Morgan.
<TABLE>
<CAPTION>
POSITION AND
NAME PRINCIPAL OCCUPATION
---- --------------------
<S> <C>
Keith M. Schappert President, Director and Managing Director of J.P. Morgan;
Managing Director of Morgan Guaranty Trust Company of New
York (Morgan Guaranty).
Kenneth W. Anderson Director and Managing Director of J.P. Morgan; Managing
Director of Morgan Guaranty.
Ronald R. Dewhurst Director and Managing Director of J.P. Morgan; Managing
Director of Morgan Guaranty.
Gerard W. Lillis Director and Managing Director of J.P. Morgan; Managing
Director of Morgan Guaranty.
John W. Schmidlin Director and Managing Director of J.P. Morgan; Managing
Director of Morgan Guaranty.
Isabel H. Sloane Director and Managing Director of J.P. Morgan; Managing
Director of Morgan Guaranty.
Hendrik Van Riel Director and Managing Director of J.P. Morgan; Managing
Director of Morgan Guaranty.
Anthony P. Della Pietra, Jr. Chief Legal Officer and Managing Director of J.P. Morgan;
Managing Director of Morgan Guaranty.
Jeff Trongone Chief Financial Officer and Vice President of J.P. Morgan;
Vice President of Morgan Guaranty.
Thomas J. Smith Chief Compliance Officer and Vice President of J.P. Morgan;
Vice President of Morgan Guaranty.
</TABLE>
D-1
<PAGE> 20
OTHER FUNDS MANAGED BY J.P. MORGAN
The following table sets forth information relating to the other registered
investment company portfolios for which J.P. Morgan acts as investment adviser
or subadviser with investment objectives, policies and strategies that are
substantially similar to those of the Portfolios (or portion thereof) managed by
J.P. Morgan:
<TABLE>
<CAPTION>
APPROXIMATE NET
ADVISORY FEE RATE ASSETS AS OF
NAME OF FUND (BASED ON AVERAGE NET ASSETS) JULY 31, 2000
------------ ----------------------------- ---------------
<S> <C> <C>
LSA Variable Series Trust -- Disciplined Equity .35% up to $250 million $ 12,303,635
Fund .30% on the balance
Cova Series Trust -- Large Cap Stock Portfolio .40% $ 271,627,057
Mason Street Growth and Income Stock Fund .45% on the first $100 million $ 53,780,071
.40% on the next $100 million
.35% on the next $200 million
.30% on the balance
Northwestern Mutual Fund Series -- Growth and .45% on the first $100 million $ 618,346,128
Income Stock Portfolio .40% on the next $100 million
.35% on the next $200 million
.30% on the balance
Pacific Select Fund -- Equity Income Portfolio .45% on the first $100 million $1,965,729,637
.40% on the next $100 million
.35% on the next $200 million
.30% on the next $350 million
.20% on the balance
The Disciplined Equity Portfolio .35% $1,712,113,755
The U.S. Equity Portfolio .40% $ 612,895,771
</TABLE>
D-2
