As filed with the Securities and Exchange Commission on January 30, 2009

Securities Act File No. 33-50476

Investment Company Act File No. 811-7064

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM N-1A

Registration Statement under the Securities Act of 1933

Post-Effective Amendment No. 27

Registration Statement under the Investment Company Act of 1940

Amendment No. 27

 

THE TARGET PORTFOLIO TRUST

(Exact Name of Registrant as Specified in Charter)

 

Gateway Center Three

100 Mulberry Street

Newark, New Jersey 07102

(Address of Principal Executive Offices) (Zip Code)

 

(973) 367-7521

(Registrant’s Telephone Number, Including Area Code)

 

Deborah A. Docs, Esq.

Gateway Center Three

100 Mulberry Street

Newark, New Jersey 07102

(Name and Address of Agent for Service)

 

It is proposed that this filing will become effective:

 

_  immediately upon filing pursuant to paragraph (b)

|X| on (----) pursuant to paragraph (b) of rule 485

_ 60 days after filing pursuant to paragraph (a)(1)

_ on (----) pursuant to paragraph (a)(1)

_ 75 days after filing pursuant to paragraph (a)(2)

_ on (----) pursuant to paragraph (a)(2) of rule 485

_ this post-effective amendment designates a new effective date for a previously filed post-effective amendment.

 

 

February 2, 2009
PROSPECTUS

The TARGET Portfolio Trust ®

As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved the Portfolios' shares, nor has the SEC determined that this prospectus is complete or accurate. It is a criminal offense to state otherwise.

Target Funds, Target Portfolio Trust, Prudential, Prudential Financial and the Rock Prudential logo are registered service marks of The Prudential Insurance Company of America, Newark, NJ, and its affiliates.


 

 

RISK/RETURN SUMMARY

Table of Contents
3 RISK/RETURN SUMMARY
3 ABOUT THE PORTFOLIOS
3 INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
13 PRINCIPAL RISKS
16 EVALUATING PERFORMANCE
35 FEES AND EXPENSES
36 EXAMPLES
38 HOW THE PORTFOLIOS INVEST
38 INVESTMENT OBJECTIVES AND POLICIES
40 OTHER INVESTMENTS AND STRATEGIES
46 INVESTMENT RISKS
64 HOW THE TRUST IS MANAGED
64 BOARD OF TRUSTEES
64 MANAGER
65 INVESTMENT SUBADVISERS
69 PORTFOLIO MANAGERS
78 DISTRIBUTOR
78 DISCLOSURE OF PORTFOLIO HOLDINGS
79 PORTFOLIO DISTRIBUTIONS AND TAX ISSUES
79 DISTRIBUTIONS
79 TAX ISSUES
80 IF YOU SELL OR EXCHANGE YOUR SHARES
82 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE TRUST
82 HOW TO BUY SHARES
89 HOW TO SELL YOUR SHARES
90 HOW TO EXCHANGE YOUR SHARES
93 FINANCIAL HIGHLIGHTS
93 INTRODUCTION
110 APPENDIX
110 DESCRIPTION OF SECURITY RATINGS


 

ABOUT THE PORTFOLIOS

This section highlights key information about the investment portfolios (the Portfolios) of The Target Portfolio Trust® (the Trust). Additional information follows this summary.

Prudential Internet Website . Visit the Trust's website at www.prudential.com for information about the Portfolios.

INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES

The following summarizes the investment objectives, principal strategies and principal risks of the Portfolios. For more information on the risks associated with the Portfolios, see "Principal Risks" below. While we make every effort to achieve the investment objective for each Portfolio, we can't guarantee success.

In cases where a Portfolio's name connotes a particular type of investment, the Portfolio generally has a non-fundamental policy of investing a certain percentage of its "investable assets" in that type of investment. The term "investable assets" refers to a Portfolio's net assets plus any borrowings for investment purposes. A Portfolio's investable assets will be less than its total assets to the extent that it has borrowed money for non-investment purposes, such as to meet anticipated redemptions.

Each such Portfolio will provide 60 days' prior written notice to shareholders of a change in its non-fundamental policy of investing a certain percentage of its investable assets in the type of investment suggested by its name.

Large Capitalization Growth Portfolio (Large Cap Growth Portfolio)

The Portfolio's investment objective is long-term capital appreciation. This means that the Portfolio seeks investments that will increase in value. To achieve our investment objective, the Portfolio purchases stocks of large companies that the Portfolio believes will experience earnings growth at a rate faster than that of the Standard & Poor's 500® Composite Stock Price Index (S&P 500). The Portfolio normally invest at least 80% of its investable assets in common stocks of large companies. Large companies are defined as companies with market capitalizations like those in the Russell 1000 Index. As of December 31, 2008, the Russell 1000 Index market capitalization ranged from approximately $3.1 billion to $421.8 billion. Market capitalization is measured at the time of purchase.

Although the Portfolio invests primarily in common stocks of U.S. companies, the portfolio may also purchase common stocks of foreign companies. The Portfolio 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

 

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GDRs are issued by foreign banks and trust companies and are usually valued in foreign currencies.

The Portfolio may also invest in other equity securities, including, but not limited to, convertible securities, preferred stock and real estate investment trusts.

Principal Risks:

 

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Large Capitalization Value Portfolio (Large Cap Value Portfolio)

The Portfolio'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 Portfolio dividends. To achieve our objective, we invest in large company stocks that we believe are undervalued, and have an above-average potential to increase in price, given the company's sales, earnings, book value, and cash flow. The Portfolio normally invest at least 80% of its investable assets in common stocks and securities convertible into common stocks of large companies. Large companies are defined as companies with market capitalizations like those in the Russell 1000 Index. As of December 31, 2008, the Russell 1000 Index market capitalization ranged from approximately $3.1 billion to $421.8 billion. Market capitalization is measured at the time of purchase.

Although the Portfolio invests primarily in common stocks of U.S. companies, the portfolio may also purchase common stocks of foreign companies. The Portfolio 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.

The Portfolio may also invest in other equity securities, including, but not limited to, convertible securities, preferred stock and real estate investment trusts.

Principal Risks:

 

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Small Capitalization Growth Portfolio (Small Cap Growth Portfolio)

The Portfolio'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. The Portfolio normally invest at least 80% of its investable assets in common stocks of small companies. Small companies are those companies with market capitalizations comparable to those in the Russell 2000 Growth Index. As of December 31, 2008, the Russell 2000 Growth Index market capitalization range was from approximately $.3 billion to $3.3 billion (measured at the time of purchase).

Because the Portfolio invests in small capitalization companies, the risk is greater than with larger companies because shares of small companies tend to be less liquid and more volatile than those of large companies.

Principal Risks:

Small Capitalization Value Portfolio (Small Cap Value Portfolio)

The Portfolio'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 and have an above-average potential to increase in price, given the company's sales, earnings, book value, cash flow and recent performance. The Portfolio normally invest at least 80% of its investable assets in common stocks of small companies. Small companies are those companies with market capitalizations comparable to those in the Russell 2000 Value Index. As of December 31, 2008, the Russell 2000 Value Index average market capitalization was approximately $0.9 billion and the largest company by market capitalization was $3.3 billion. Because the Portfolio invests in small capitalization companies, the risk is greater than with larger companies because shares of small companies tend to be less liquid and more volatile than those of large companies.

Principal Risks:

International Equity Portfolio

The Portfolio'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. The Portfolio normally invest at least 80% of the it's investable assets in stocks of companies in a diverse array of foreign countries. For purposes of this policy, the Portfolio will invest in stocks of companies that are organized under the laws of a foreign country, companies that derive more than 50% of their revenues from activities in foreign countries, and companies that have at least 50% of their assets located abroad. The foreign securities held by the Portfolio normally will be denominated in foreign currencies, including the euro - a multinational currency unit. The Portfolio may invest in large-, mid- or small-capitalization companies. To the extent the Portfolio invests in small or mid-capitalization companies, the risk is greater than with larger companies because shares of small or mid-capitalization companies tend to be less liquid and more volatile than those of large companies.

The Portfolio 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.

Principal Risks:

International Bond Portfolio

The Portfolio's investment objective is high total return. This means that we seek investments that will increase in value as well as pay income. To achieve this objective, we normally invest at least 80% of the Portfolio's investable assets in high grade foreign bonds of issuers in a diverse array of countries outside the U.S. These issuers may be in

 

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developed as well as developing countries. "High grade" debt obligations consist of debt obligations rated A or better by Standard & Poor's Ratings Group (S&P), Moody's Investors Service (Moody's) or another major rating service, and unrated debt obligations that we believe are comparable in quality.

Important Note: On or about February 28, 2009, the Portfolio will change its policy of investing at least 80% of its investable assets in high grade foreign bonds of issuers in a diverse array of countries outside the U.S. Effective on or about February 28, 2009, the Portfolio will invest at least 80% of its investable assets in high grade fixed income instruments of issuers in a diverse array of countries outside the U.S., which may be represented by swaps, futures contracts (including related options) and options on such securities.

The Portfolio may invest up to 20% of its investable assets in convertible bonds, convertible preferred stock and non-convertible preferred stock.

The debt obligations in which the Portfolio invests may include structured notes and mortgage-related securities, including collateralized mortgage obligations and stripped mortgage-backed securities. The Portfolio may also invest in asset-backed securities including collateralized loan obligations (CLOs), collateralized debt obligations (CDOs), collateralized bank obligations (CBOs), automobile loans and credit card receivables. The Portfolio may invest up to 20% of the its total assets in high yield debt obligations- also known as "junk bonds"- rated at least B by S&P, Moody's or another major rating service and unrated bonds we believe are comparable in quality. The Portfolio may continue to hold an obligation even if it is later downgraded or no longer rated. The foreign debt obligations held by the Portfolio may be denominated in foreign currencies, including the euro - a multinational currency unit. The Portfolio can also invest in debt obligations issued by the U.S. Government and its agencies or by U.S. companies.

The Portfolio may use derivatives such as futures, swaps and options for hedging purposes or to seek to improve its returns. The Portfolio's exposure to foreign currencies (from non-U.S. dollar-denominated securities or currencies) will normally be limited to 20% of the Portfolio's total assets.

The Portfolio is a nondiversified fund, meaning that it generally may invest a higher percentage of its assets in the securities of fewer issuers than a diversified fund. This could make the value of the Portfolio's shares more volatile than the shares of a diversified fund. In addition, economic, political or regulatory developments could have a greater impact on the Portfolio's share price than would be the case if the Portfolio were diversified among more issuers.

The Portfolio may actively and frequently trade its portfolio securities, which may result in higher transaction costs and taxes.

Principal Risks:

 

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Total Return Bond Portfolio

The Portfolio'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 normally invest at least 80% of investable assets in "investment grade" debt obligations issued or guaranteed by the U.S. Government and its agencies, or issued by U.S. companies, foreign companies and foreign governments and their agencies and unrated debt obligations that we believe are comparable in quality. "Investment grade" debt obligations are 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. Debt obligations in which the Portfolio may invest include structured notes.

The Portfolio can invest up to 30% of its total assets in foreign currency-denominated debt obligations. The Portfolio's foreign currency exposure (from non-U.S. dollar-denominated securities or currencies) will normally be limited to 20% of the Portfolio's total assets.

The Portfolio 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, the Portfolio may invest up to 25% of the Portfolio'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 Portfolio may invest may include collateralized mortgage obligations, stripped mortgage-backed securities and multi-class pass through securities. The Portfolio may also use derivatives, such as futures, swaps and options, for hedging purposes or to seek to improve the its return.

 

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The Portfolio may also invest in asset-backed securities including collateralized loan obligations (CLOs), collateralized debt obligations (CDOs), collateralized bank obligations (CBOs), automobile loans and credit card receivables. In addition, we may invest up to 20% of investable assets in convertible bonds, convertible preferred stock and non-convertible preferred stock. The Portfolio may invest up to 20% of the Portfolio's assets in high yield debt obligations ("junk bonds") that 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 Portfolio may continue to hold an obligation even if it is later downgraded or no longer rated. The Portfolio may actively and frequently trade its portfolio securities. The Portfolio will maintain an average duration that normally ranges between two years below and two years above the average duration of the Portfolio's benchmark index.

Principal Risks:

Intermediate-Term Bond Portfolio

The Portfolio's investment objective is current income and reasonable stability of principal. This means that we seek investments that we think will pay dividends and other income, while attempting to minimize volatility. To achieve this objective, the Portfolio invests 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. The Portfolio 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. Debt obligations in which the Portfolio may invest include structured notes.

 

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The Portfolio may invest up to 30% of its assets in foreign currency-denominated debt obligations. The Portfolio's foreign currency exposure (from non-U.S. dollar-denominated securities or currencies) will normally be limited to 20% of the Portfolio's total assets.

The Portfolio may invest up to 20% of investable assets in convertible bonds, convertible preferred stock and non-convertible preferred stock. The Portfolio may also invest in asset-backed securities including collateralized loan obligations (CLOs), collateralized debt obligations (CDOs), collateralized bank obligations (CBOs), automobile loans and credit card receivables. The Portfolio may also use derivatives, such as futures, swaps and options, for hedging purposes or to seek to improve its returns. The Portfolio normally invest at least 80% of its investable 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, the Portfolio may invest up to 20% of the its assets in high yield debt obligations ("junk bonds") that are rated at least B by S&P, Moody's or another major rating service, and unrated bonds that we believe are comparable in quality. The Portfolio may continue to hold an obligation even if it is later downgraded or no longer rated. The Portfolio may actively and frequently trade its portfolio securities which may increase transaction costs and taxes. "Intermediate-term" bonds have dollar-weighted maturities of more than 3 years and less than 10 years. The Portfolio will maintain an average duration that normally ranges between two years below and two years above the average duration of the Portfolio's benchmark index.

Principal Risks:

 

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Mortgage-Backed Securities Portfolio

The Portfolio's primary investment objective is high current income and its secondary investment objective is capital appreciation, each to the extent consistent with the protection of capital. This means the Portfolio seek investments that will pay income and also increase in value, while attempting to reduce volatility. To achieve these objectives, the Portfolio normally invest at least 80% of its investable assets in mortgage-backed debt securities. These securities will usually be mortgage-related securities issued or guaranteed by U.S. Government agencies. However, the Portfolio may invest up to 25% of its total assets in privately issued mortgage-related securities (which are not guaranteed by the U.S. Government).

The Portfolio's investments in mortgage-related securities may include collateralized mortgage obligations and stripped mortgage-backed securities. The Portfolio may also invest in asset-backed securities like automobile loans and credit card receivables. The Portfolio normally purchases debt obligations that are rated at least A by Moody's or S&P, or the equivalent by another major rating service, and unrated bonds we believe are comparable in quality. The Portfolio may continue to hold an obligation even if it is later downgraded or no longer rated. The Portfolio may actively and frequently trade its portfolio securities.

Principal Risks:

U.S. Government Money Market Portfolio

The Portfolio's investment objective is maximum current income consistent with the maintenance of liquidity and the preservation of capital. To achieve this objective, the Portfolio invests primarily in securities issued or guaranteed by the U.S. Government that mature in 13 months or less and repurchase agreements relating to these securities. While the Portfolio makes every effort to achieve its investment objective and maintain a net asset value of $1 per share, we can't guarantee that it will be successful. So far, the Portfolio's net asset value per share has never deviated from $1.

 

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Nothwithstanding the preceding statements, shareholders who held shares of the Portfolio on September 19, 2008 will be guaranteed to receive $1.00 net asset value per share for the lesser of (i) the number of shares held as of September 19, 2008 and (ii) the number of shares held by the investor as of the date of a Guarantee Event, subject to the terms of the U.S. Treasury's Temporary Guarantee Program for Money Market Funds. See "Important Information About the Portfolio's Participation in the Treasury Guarantee Program" below.

Principal Risks:


Important Information About the Portfolio's Participation in the Treasury Guarantee Program: On October 6, 2008, the Board of Trustees approved the participation by the Portfolio in the U.S. Department of the Treasury's Temporary Guarantee Program for Money Market Funds (the Program) and the U.S. Treasury has approved the Portfolio's participation in the Program. On November 24, 2008, the Department of the Treasury announced the extension of the Program until April 30, 2009 (the Program Extension). On December 3, 2008, the Board of Trustees approved the Participation by the Portfolio in the Program Extension.

The Portfolio is responsible for payment of fees required to participate in the Program without regard to any waivers or expense limitation in effect for the Portfolio. The participation fee for the initial three month term of the Program was 0.01% of the net asset value of the Portfolio as of September 19, 2008. The participation fee for the Program Extension period from December 19, 2008 to April 30, 2009 is 0.015% of the Portfolio's net asset value as of September 19, 2008. The Program's and the Program Extension's guarantee only applies to Portfolio shareholders as of the close of business on September 19, 2008 (Eligible Shareholders).

As a requirement of participation in the Program and the Program Extension, the Portfolio has agreed to liquidate if its net asset value declines to below $0.995 (a Guarantee Event) if such Guarantee Event is not cured, and to complete the liquidation within 30 days of the decline, unless Treasury extends the period.

The Program and the Program Extension do not protect shareholders who were not shareholders of the Portfolio as of the close of business on September 19, 2008. Upon any liquidation pursuant to the Program or the Program Extension, shares not protected under the Program or the Program Extension will receive only net asset value per share.The number of shares guaranteed under the Program and the Program Extension for each Eligible Shareholder is the lesser of the number of shares owned by an Eligible Shareholder on September 19, 2008 and the number of shares owned by an Eligible

 

12 The TARGET Portfolio Trust


Shareholder when a Guarantee Event occurs.

An Eligible Shareholder will receive in the aggregate $1.00 per protected share upon liquidation of the Portfolio pursuant to the Program (subject to adjustment and the overall limit of $50 billion currently available under the Program and the Program Extension to all money market funds participating in the Program and the Program Extension). Payments will be made by the Treasury under the Program and the Program Extension on a first come, first served basis, based on the date of receipt by Treasury of a request for payment.

If there are insufficient funds under the Program or the Program Extension to pay all requests for payment, then available funds under the Program or the Program Extension will be paid pro rata among funds that submitted their request to Treasury on the same day based on the number of shares in those funds covered under the Program or the Program Extension.

The Secretary of the Treasury has the option to renew the Program up to the close of business on September 18, 2009. Upon the extension of the Program by the Treasury, the Portfolio would have to renew its participation and pay additional fees required in connection with any renewal. If the Secretary chooses not to renew the Program at the end of the Program Extension, the Program will terminate.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Like any mutual fund, an investment in a Portfolio could lose value, and you could lose money. The following summarizes the principal risks of investing in the Portfolios.

Equity Market Risk . Since some of the Portfolios invest primarily in common stocks, there is the risk that the price of a particular stock owned by a Portfolio 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 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 Portfolios follow either a growth or value investment style, there is the risk that a particular style may be out of favor for a period of time.

Small Company Risk . Small companies usually offer a smaller range of products and services than larger companies. They also may 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 . Investing in foreign securities presents additional risks, as discussed below:

 

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Short Sales Risk . Some Portfolios may engage in short sales. A Portfolio's short sales are subject to special risks. A short sale involves the sale by the Portfolio of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. A Portfolio may also enter into a short derivative position through a futures contract or swap agreement. If the price of the security or derivative has increased during this time, then the Portfolio will incur a loss equal to the increase in price from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the investment. Also, in the case of the over the counter contracts there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Portfolio.

Derivatives Risk . Certain Portfolios may use derivatives, including futures and options, as a principal investment strategy to improve their returns or as a hedge to protect their assets. Derivatives present additional risks. Using derivatives as a return-enhancement strategy may be unsuccessful. When used for hedging purposes, the change in value of the derivatives may not fully offset the corresponding changes in value of the underlying positions. In either case, this could result in losses to a Portfolio that would not otherwise have occurred.

Credit Risk . The debt obligations in which the Portfolios invest are generally subject to the risk that the issuer may be unable to repay principal and make 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. Certain Portfolios may invest in below-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.

In addition, some of the U.S. Government securities and mortgage-related securities in which the Portfolios may invest are backed by the full faith and credit of the U.S. Government, which means that payment of interest and principal is guaranteed, but yield and market value are not. These securities include, but are not limited to, direct obligations issued by the U.S. Treasury, and obligations of certain entities that may be

 

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chartered or sponsored by Acts of Congress, such as the Government National Mortgage Association (GNMA or "Ginnie Mae"). Securities issued by other government entities that may be chartered or sponsored by Acts of Congress, in which the Portfolio may invest, are not backed by the full faith and credit of the United States. These securities include, but are not limited to, obligations of the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association (FNMA or "Fannie Mae"), each of which has the right to borrow from the U.S. Treasury to meet its obligations.

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 a Portfolio's net asset value (or share price) generally move in opposite directions from interest rates.

Although investments in mutual funds involve risk, investments in money market funds like the U.S. Government Money Market Portfolio are generally less risky than investments in other types of funds. This is because the Portfolio may only invest in high quality securities, limits the average maturity of its portfolio to 90 days or less, and limits its ability to invest in any particular security to those that mature in 13 months or less. For purposes of satisfying the average maturity and maximum maturity requirements, securities with demand features are treated as maturing on the date that the Portfolio can demand repayment of the security. Although the Portfolio seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Portfolio.

Debt 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 . Portfolios investing in mortgage-related securities and asset-backed securities are subject to prepayment risk. If these securities are prepaid, a Portfolio may have to replace them with lower-yielding securities. Stripped mortgage-backed securities are generally more sensitive to changes in prepayment and interest rates than other mortgage-related securities. 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 . Certain Portfolios actively and frequently trade their portfolio securities. High portfolio turnover results in higher transaction costs, which can affect a Portfolio's performance and have adverse tax consequences.

Regulatory Risk. The Portfolios are subject to a variety of laws and regulations which govern their operations. Similarly, the businesses and other issuers of the securities in which the Portfolios invest are also subject to considerable regulation. These laws and regulations are subject to change. A change in laws and regulations may materially

 

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impact the Portfolios, a security, business, sector or market. For example, a change in laws or regulations made by the government or a regulatory body may impact the ability of a Portfolio to achieve its investment objective, or may impact a Portfolio's investment policies and/or strategies, or may reduce the attractiveness of an investment.

Liquidity Risk. Therisk that a Portfolio may invest to a greater degree in instruments that trade in lower volumes and may make investments that may be less liquid than other investments. Also the risk that a Portfolio may make investments that may become less liquid in response to market developments or adverse investor perceptions. When there is no willing buyer and investments cannot be readily sold at the desired time or price, a Portfolio may have to accept a lower price or may not be able to sell the instrument at all. An inability to sell a portfolio position can adversely affect the Portfolio's value or prevent the Portfolio from being able to take advantage of other investment opportunities.

Liquidity risk may also refer to the risk that the Portfolio will not be able to pay redemption proceeds within the allowable time period because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. To meet redemption requests, the Portfolio may be forced to sell liquid securities at an unfavorable time and conditions.

A Portfolio's investments in non-investment grade fixed income securities (junk bonds), as applicable, will be especially subject to the risk that during certain periods, the liquidity of particular issuers or industries, or all securities within a particular investment category, will shrink or disappear suddenly and without warning as a result of adverse economic, market or political events, or adverse investor perceptions whether or not accurate.

Like any mutual fund, an investment in the Portfolios could lose value and you could lose money. For more detailed information about the risks associated with each Portfolio, see "How the Portfolios Invest—Investment Risks."

An investment in a Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

EVALUATING PERFORMANCE

A number of factors - including risk - can affect how each Portfolio performs. The following bar charts show each Portfolio's performance for each full calendar year of operation or for the last 10 calendar years, whichever is shorter. The bar charts and Average Annual Total Returns tables demonstrate the risk of investing in the Portfolios by showing how returns can change from year to year and by showing how each Portfolio's average annual total returns compare with a broad-based securities market index and a group of similar mutual funds.

The Portfolios' annual total returns do not reflect the TARGET Program fee: if the Program fee were reflected, the annual total returns would be lower than those shown.

 

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However, each Portfolio's average annual total returns take into account the maximum TARGET Program fee of 1.50%. The TARGET Program terminated on December 15, 2008.

Each Portfolio offers Class T shares. In addition, the following Portfolios also offer Class R shares: Large Capitalization Growth, Large Capitalization Value, Small Capitalization Growth, Small Capitalization Value, International Equity, and Total Return Bond.

Past performance (before and after taxes) does not mean that a Portfolio will achieve similar results in the future.

Large Cap Growth Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER : WORST QUARTER :
30.98% (4th Quarter of 1999) -26.20% (3rd Quarter of 2001)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years Since Inception
Class T Shares
Return Before Taxes -39.89 -4.62 -2.37 N/A
Return After Taxes on Distributions -40.01 -5.37 -3.08 N/A
Return After Taxes on Distributions and Sale of Portfolio Shares -25.78 -3.59 -1.77 N/A
Class R Shares
Return Before Taxes -40.21 N/A N/A -13.51
Index (reflects no deductions for fees, expenses or taxes)
Russell 1000 Growth Index -38.44 -3.42 -4.27
S&P 500 Index -36.99 -2.19 -1.38


 

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Lipper Average -40.70 -3.72 -2.92


 

Notes to Large Cap Growth Average Annual Total Returns Table: °After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class T. After-tax returns for Class R will vary. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor. Past performance, before and after taxes, does not mean that the Portfolio will achieve similar results in the future. After-tax losses may be offset by other gains.
° The Russell 1000 Growth Index contains those securities in the Russell 1000 Index with an above-average growth orientation. Companies in this Index tend to exhibit higher price-to-book and price-to-earnings ratios, lower dividend yields and higher forecasted growth rates. Russell 1000 Growth Index return since the inception of Class R shares is -11.64%. Source: Lipper Inc.
° The S&P 500 Index - an unmanaged index of 500 stocks of large U.S. companies - gives a broad look at how stock prices have performed. S&P 500 Index return since the inception of Class R shares is -12.75%. Source: Lipper Inc.
° The Lipper Average is based on the average returns of all mutual funds in the Lipper Large-Cap Core Funds category. Lipper Average return since the inception of Class R shares is -12.47%. Source: Lipper Inc.
° Inception date for Class R shares is August 22, 2006.

 

18 The TARGET Portfolio Trust


Large Cap Value Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER: WORST QUARTER:
36.38% (4th quarter of 2003) -40.44% (4th quarter of 2008)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years Since
Inception
Class T Shares
Return Before Taxes -40.44 -2.24 0.98 N/A
Return After Taxes on Distributions -40.79 -3.73 -0.58 N/A
Return After Taxes on Distributions and Sale of Portfolio Shares -25.84 -1.58 0.65 N/A
Class R Shares
Return Before Taxes -40.65 N/A N/A -16.84
Index (reflects no deduction for fees, expenses or taxes)
Russell 1000 Value Index -36.85 -3.89 14.50
S&P 500 Index -36.99 -10.49 -13.01
Lipper Average -37.36 -8.81 6.44


 

Notes to Large Cap Value Average Annual Total Returns Table: ° After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class T and Class R. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor.
° The Russell 1000 Value Index contains those securities in the Russell 1000 Index with a below-average growth orientation. Companies in this Index generally have low price-to-book and price-to-earnings ratios, higher dividend yields and lower

 

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forecasted growth values. Russell 1000 Index Closest Month-End to Inception average annual total return as of 12/31/08 is -14.47% for Class R. Source: Lipper Inc.
° The S&P 500 Index - an unmanaged index of 500 stocks of large U.S. companies - gives a broad look at how stock prices have performed. S&P 500 Index Closest Month-End to Inception average annual total return as of 12/31/08 is -12.75% for Class R. Source: Lipper Inc.
° The Lipper Average is based on the average return of all mutual funds in the Lipper Multi-Cap Value Funds category. Lipper Average Index Closest Month-End to Inception average annual total return as of 12/31/08 is -14.10% for Class R. Source: Lipper Inc.
° Inception date returns are provided for any share class with less than 10 calendar years of returns. Class R inception date is 8/22/2006.

 

20 The TARGET Portfolio Trust


Small Cap Growth Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER : WORST QUARTER :
23.17% (4th quarter of 1999) -26.57% (3rd quarter of 2001)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years Since Inception
Class T Shares
Return Before Taxes -46.07 -6.17 -3.70 N/A
Return After Taxes on Distributions -46.08 -6.17 -4.88 N/A
Return After Taxes on Distributions and Sale of Portfolio Shares -29.93 -5.14 -3.26 N/A
Class R Shares
Return Before Taxes -46.34 N/A N/A -18.85
Index (reflects no deduction for fees, expenses or taxes)
Russell 2000 Growth Index -38.54 -2.35 -0.76
Russell 2000 Index -33.79 -0.93 3.02
Lipper Average -42.10 -3.80 1.01


 

Notes to Small Cap Growth Average Annual Total Returns Table: ° After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class T. After-tax returns for Class R will vary. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor. Past performance, before and after taxes, does not mean that the Portfolio will achieve similar results in the future. After-tax losses may be offset by other gains.

 

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° The Russell 2000 Growth Index contains those securities in the Russell 2000 Index with an above-average growth orientation. Companies in this Index tend to exhibit higher price-to-book and price-to-earnings ratios. Russell 2000 Growth Index return since the inception of Class R shares is -13.11%. Source: Lipper Inc.
° The Russell 2000 Index - an unmanaged index of the stocks of the 2,000 smallest U.S. companies included in the Russell 3000 Index - gives a broad look at how the stock prices of smaller companies have performed. Russell 2000 Growth Index return since the inception of Class R shares is -13.36%. Source: Lipper Inc.
° The Lipper Average is based on the average return of all mutual funds in the Lipper Small-Cap Growth Funds category. Lipper Average return since the inception of Class R shares is -14.91%. Source: Lipper Inc.
° Inception date for Class R shares is August 22, 2006.

 

22 The TARGET Portfolio Trust


Small Cap Value Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER : WORST QUARTER :
20.81% (2nd quarter of 2003) -22.11% (4th quarter of 2008)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years Since Inception
Class T Shares
Return Before Taxes -27.45 3.23 8.80 N/A
Return After Taxes on Distributions -27.71 1.59 6.71 N/A
Return After Taxes on Distributions and Sale of Portfolio Shares -17.53 2.81 7.07 N/A
Class R Shares
Return Before Taxes -27.82 N/A N/A -9.51
Index (reflects no deduction for fees, expenses or taxes)
Russell 2000 Value Index -28.92 0.27 6.11
Russell 2000 Index -33.79 -0.93 3.02
Lipper Average -36.21 -1.52 4.36


 

Notes to Small Cap Value Average Annual Total Returns Table: ° After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class T. After-tax returns for Class R will vary. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor. Past performance, before and after taxes, does not mean that the Portfolio will achieve similar results in the future. After-tax losses may be offset by other gains.

 

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° The Russell 2000 Value Index contains those securities in the Russell 2000 Index with a below average growth orientation. Companies in this Index generally have low price-to-book and price-to-earnings ratios, higher dividend yields and lower forecasted growth values. Russell 2000 Value Index return since inception of Class R shares is -13.86%. Source: Lipper Inc.
° The Russell 2000 Index - an unmanaged index of the stocks of the 2,000 smallest U.S. companies included in the Russell 3000 Index - gives a broad look at how the stock prices of smaller companies have performed. Russell 2000 Index return since inception of Class R shares is -13.36%. Source: Lipper Inc.
° The Lipper Average is based on the average return of all mutual funds in the Lipper Small-Cap Core Funds category. Lipper Average return since inception of Class R shares is -14.69%. Source: Lipper Inc.
° Inception date of Class R shares is August 22, 2006.

 

24 The TARGET Portfolio Trust


International Equity Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER : WORST QUARTER :
15.97% (2nd quarter of 2003) -21.59% (4th quarter of 2008)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years Since Inception
Class T Shares
Return Before Taxes -44.89 1.70 0.59 N/A
Return After Taxes on Distributions -45.34 0.28 -0.75 N/A
Return After Taxes on Distributions and Sale of Portfolio Shares -28.60 1.64 0.36 N/A
Class R Shares
Return Before Taxes -45.22 N/A N/A -13.55
Index (reflects no deductions for fees, expenses or taxes)
MSCI EAFE Index -43.38 1.66 0.80
Lipper Average -44.52 0.57 0.41


 

Notes to International Equity Portfolio Average Annual Total Returns Table: ° After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class T. After-tax returns for Class R will vary. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor. Past performance, before and after taxes, does not mean that the Portfolio will achieve similar results in the future. After-tax losses may be offset by other gains.
° The Morgan Stanley Capital International (MSCI) EAFE Index - a weighted, unmanaged index that reflects stock price

 

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movements in Europe, Australasia and the Far East - gives a broad look at how foreign stocks have performed. MSCI EAFE Index return since inception of Class R shares is -15.04%. Source: Lipper Inc.
° The Lipper Average is based on the average return of all mutual funds in the Lipper International Large Cap Value Funds category. Lipper Average return since inception of Class R shares is -14.40%. Source: Lipper Inc.
° Inception date of Class R shares is August 22, 2006.

 

26 The TARGET Portfolio Trust


International Bond Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER : WORST QUARTER :
13.62% (2nd quarter of 2002) -6.23% (3rd quarter of 2000)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years
Class T Shares
Return Before Taxes -1.19 2.13 2.10
Return After Taxes on Distributions -5.02 0.51 0.76
Return After Taxes on Distributions and Sale of Portfolio Shares -0.85 0.88 1.10
Index (reflects no deductions for fees, expenses or taxes)
WB Index Hedged 8.01 5.36 5.40
Lipper Average 2.00 3.93 4.99


 

Notes to International Bond Portfolio Average Annual Total Returns Table: ° After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor. Past performance, before and after taxes, does not mean that the Portfolio will achieve similar results in the future. After-tax losses may be offset by other gains.
° The Citigroup Non-U.S. World Government Bond Index (hedged) (WB Index Hedged) - an unmanaged index of approximately 600 high quality bonds with foreign currency exposure translated to the U.S. dollar - gives a broad look at how foreign bonds have performed. Source: Lipper Inc.
° The Lipper Average is based on the average return of all mutual funds in the Lipper International Income Funds category. Source: Lipper Inc.

 

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Total Return Bond Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER : WORST QUARTER :
5.42% (3rd quarter of 2007) -3.84% (3rd quarter of 2008)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years Since Inception
Class T Shares
Return Before Taxes 1.76 4.43 5.61 N/A
Return After Taxes on Distributions -2.57 2.24 3.29 N/A
Return After Taxes on Distributions and Sale of Portfolio Shares 1.13 2.53 3.42 N/A
Class R Shares
Return Before Taxes 1.33 N/A N/A 4.62
Index (reflects no deductions for fees, expenses or taxes)
BABI 5.24 4.65 5.63
Lipper Average -8.84 1.25 3.69


 

Notes to Total Return Bond Portfolio Average Annual Total Returns Table: ° After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class T. After-tax returns for Class R will vary. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor. Past performance, before and after taxes, does not mean that the Portfolio will achieve similar results in the future. After-tax losses may be offset by other gains.
° The Barclays Capital Aggregate Bond Index (BABI) (formerly Lehman Brothers Intermediate Aggregate Bond Index)- an

 

28 The TARGET Portfolio Trust


unmanaged index of investment grade securities issued by the U.S. government and its agencies and by corporations with between 1 and 10 years remaining to maturity - gives a broad look at how bond prices of short and intermediate-term bonds have performed. The BABI return since inception of Class R shares is 6.16%. Source: Lipper Inc.
° The Lipper Average is based on the average return of all mutual funds in the Lipper Corporate Debt BBB-Rated Funds category. Lipper Average return since inception of Class R shares is -0.88 %. Source: Lipper Inc.
° Inception date of Class R shares is August 22, 2006.

 

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Intermediate Term Bond Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER : WORST QUARTER :
5.12% (3rd quarter of 2001) -1.97% (2nd quarter of 2004)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years
Class T Shares
Return Before Taxes 6.81 4.79 5.64
Return After Taxes on Distributions 3.79 2.99 3.53
Return After Taxes on Distributions and Sale of Portfolio Shares 5.13 3.11 3.58
Index (reflects no deductions for fees, expenses or taxes)
BIGC 5.08 4.21 5.43
Lipper Average -4.43 1.73 4.06


 

Notes to Intermediate-Term Bond Portfolio Average Annual Total Returns Table: ° After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor. Past performance, before and after taxes, does not mean that the Portfolio will achieve similar results in the future. After-tax losses may be offset by other gains.
° The Barclays Capital Intermediate Government/Credit Bond Index (BIGC) (formerly Lehman Brothers Intermediate Government/Credit Bond Index) - an unmanaged index of publicly traded U.S. government bonds and investment grade corporate bonds with maturities of up to 10 years - gives a broad look at how intermediate-term bonds have performed. Source: Lipper Inc.
° The Lipper Average is based on the average return of all mutual funds in the Lipper Intermediate Investment-Grade Debt Funds category. Source: Lipper Inc.

 

30 The TARGET Portfolio Trust


Mortgage-Backed Securities Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER : WORST QUARTER :
3.99% (3rd quarter of 2001) -1.92% (4th quarter of 2008)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years
Class T Shares
Return Before Taxes -2.28 2.62 4.27
Return After Taxes on Distributions -4.67 1.08 2.33
Return After Taxes on Distributions and Sale of Portfolio Shares -1.44 1.50 2.54
Index (reflects no deductions for fees, expenses or taxes)
CG MBS Index 8.49 5.62 6.10
BMBS Index 8.34 5.54 6.04
Lipper Average -1.61 2.52 4.10


 

Notes to Mortgage Backed Securities Portfolio Average Annual Total Returns Table: ° Without waiver of fees and or expense subsidization, the Portfolio's returns would have been lower.
° After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor. Past performance, before and after taxes, does not mean that the Portfolio will achieve similar results in the future. After-tax losses may be offset by other gains.
° The Citigroup Mortgage Backed Security Index (CG MBS Index) - an unmanaged index of 30- and 15-year mortgage-related securities issued by U.S. Government agencies - gives a broad look at how mortgage-backed securities have performed. Source: Bloomberg, L.P.
° The Barclays Capital Mortgage Backed Securities Index (BMBS Index) (formerly Lehman Brothers Mortgage Backed Securities

 

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Index) is a market capitalization-weighted index of 15-year and 30-year fixed-rate securities backed by GNMA, FNMA and FHMLC mortgage pools and balloon mortgages with fixed-rate coupons. Source: Bloomberg, L.P.
° The Lipper Average is based on the average return of all mutual funds in the Lipper U.S. Mortgage Funds category. Source: Lipper Inc.

 

32 The TARGET Portfolio Trust


U.S. Government Money Market Portfolio

Annual Total Returns % (Class T Shares)

BEST QUARTER : WORST QUARTER :
1.65% (4th quarter of 2000) 0.11% (1st quarter of 2004)


 

Average Annual Total Returns % (as of 12/31/2008)
One Year Five Years Ten Years
Class T Shares
Return Before Taxes 2.15 2.91 3.07
Return After Taxes on Distributions 1.39 1.89 1.92
Return After Taxes on Distributions and Sale of Portfolio Shares 1.39 1.89 1.92
Index (reflects no deductions for fees, expenses or taxes)
Lipper Average 1.71 2.68 2.87
iMoneyNet, Inc. Average 2.05 N/A N/A
Yield
Class T Shares 7-Day Yield (as of 12/31/2008) 1.06 N/A N/A
iMoneyNet, Inc. Average 7-Day Yield 0.76 N/A N/A


 

Notes to U.S. Government Money Market Portfolio Average Annual Total Returns Table: ° After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The "Return After Taxes on Distributions and Sale of Portfolio Shares" may be higher than certain return figures because when a capital loss occurs upon the redemption of Portfolio shares, a tax deduction is provided that benefits the investor. Past performance, before and after taxes, does not mean that the Portfolio will achieve similar results in the future. After-tax losses may be offset by other gains.
° The Lipper Average is based on the average return of all mutual funds in the Lipper U.S. Government Money Funds category.

 

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Source: Lipper Inc.
° The iMoneyNet, Inc. Average is based upon the average yield of all mutual funds in the iMoneyNet, Inc. All Taxable Money Market Fund category. Source: iMoneyNet, Inc.

 

34 The TARGET Portfolio Trust


FEES AND EXPENSES

These tables show the fees and expenses that you may pay if you buy and hold shares of a Portfolio.

Shareholder Fees (paid directly from your investment)
All Portfolios
Maximum sales charge (load) imposed on purchases (as a percentage of offering price) None
Maximum deferred sales charge (load)(as a percentage of the lower of original purchase price or sale proceeds) None
Maximum sales charge (load) imposed on reinvested dividends and other distributions None
Redemption fees None
Exchange fee None


 

Annual Portfolio Operating Expenses (deducted from Portfolio assets): Class T Shares
Large
Cap
Growth
Large
Cap
Value
Small
Cap
Growth
Small
Cap
Value
Int'l
Equity
Management Fees .60% .60% .60% .60% .70%
+Distribution and service (12b-1) fees None None None None None
+Other expenses .14 .11 .20 .20 .13
=Total Annual Fund Operating Expenses .74 .71 .80 .80 .83


 

Annual Portfolio Operating Expenses (deducted from Portfolio assets): Class T Shares
Int'l
Bond
Total Return
Bond
Int.Term
Bond
Mort.
Backed Sec.
U.S.
Gov't Money
Market
Management Fees .50% .45% .45% .45% .25%
+Distribution and service (12b-1) fees None None None None None
+Other expenses .65 .28 .15 1.49 .22
=Total Annual Fund Operating Expenses 1.15 .73 .60 1.94 .47


 

 

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Annual Portfolio Operating Expenses (deducted from Portfolio assets): Class R Shares
Large Cap Growth Large Cap Value Small Cap Growth Small Cap Value Int'l Equity Total Return Bond
Management Fees .60% .60% .60% .60% .70% .45%
+Distribution and service (12b-1) fees .75 .75 .75 .75 .75 .75
+Other expenses .14 .11 .20 .20 .13 .28
=Total Annual Portfolio Operating Expenses 1.49 1.46 1.55 1.55 1.58 1.48
- Distribution Fee waiver or expense reimbursement (.25) (.25) (.25) (.25) (.25) (.25)
=Net annual Portfolio operating expenses 1.24 1.21 1.30 1.30 1.33 1.23


 

EXAMPLES

This example is intended to help you compare the fees and expenses of the Portfolios and the cost of investing in the Portfolios with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in a Portfolio 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 Portfolio's operating expenses remain the same, except for any contractual distribution and service (12b-1) fee waivers and overall expense limitations that may be in effect for the one year period. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

Example: Class T Shares
Portfolio One Year Three Years Five Years Ten Years
Large Cap Growth $76 $237 $411 $918
Large Cap Value $73 $227 $395 $883
Small Cap Growth $82 $255 $444 $990
Small Cap Value $82 $255 $444 $990
International Equity $85 $265 $460 $1,025
International Bond $117 $365 $633 $1,398
Total Return Bond $75 $233 $406 $906
Intermediate-Term Bond $61 $192 $335 $750
Mortgage Backed Securities $197 $609 $1,047 $2,264
U.S. Government Money Market $48 $151 $263 $591


 

 

36 The TARGET Portfolio Trust


Example: Class R Shares
Portfolio One Year Three Years Five Years Ten Years
Large Cap Growth Portfolio $126 $446 $790 $1,758
Large Cap Value Portfolio $123 $437 $774 $1,725
Small Cap Growth Portfolio $132 $465 $821 $1,824
Small Cap Value Portfolio $132 $465 $821 $1,824
International Equity Portfolio $135 $474 $837 $1,857
Total Return Bond Portfolio $125 $443 $784 $1,747


 

Notes to Shareholder Fees and Expenses and Example Tables :
° The Distributor of the Portfolios has contractually agreed through February 28, 2010 to reduce its distribution and service (12b-1) fees for each Portfolio's Class R shares to .50 of 1% of the average daily net assets of the Class R shares of each Portfolio.

Your expenses on the same investment would be the same if you did not sell your shares.

 

Visit our website at www.prudential.com 37


HOW THE PORTFOLIOS INVEST

INVESTMENT OBJECTIVES AND POLICIES

Large Cap Growth and Small Cap Growth Portfolios

When we consider investing in a company's stock, we look at several factors to evaluate the stock's growth potential, which may include 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.

Each of the Portfolios is managed by two different subadvisers. Within the guidelines set forth above, each subadviser utilizes its own investment philosophies and investment approaches in managing its portion of each Portfolio's assets.

Large Cap Value, Small Cap Value and International Equity Portfolios

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, among other factors, selling a stock if it has increased in value to the point where we no longer consider it to be undervalued.

International Bond, Total Return Bond, Intermediate-Term Bond and Mortgage-Backed Securities Portfolios

In choosing portfolio securities, we consider economic conditions and interest rate fundamentals and, for foreign debt securities, country and currency selection. We also evaluate individual debt securities within each fixed-income sector based upon their relative investment merit and consider factors such as yield, duration and potential for price or currency appreciation as well as credit quality, maturity and risk.

The International Bond, Total Return Bond, Intermediate-Term Bond and Mortgage-Backed Securities Portfolios may each invest in mortgage-related securities issued or guaranteed by U.S. governmental entities or private issuers. In addition, the International Bond, Total Return Bond and Intermediate-Term Bond Portfolios may invest in mortgage-related securities issued or guaranteed by foreign governmental entities. These 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 include GNMAs, and mortgage-related securities issued by agencies of the U.S. Government include FNMAs and debt securities issued by the Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"). The U.S. Government or the issuing agency directly or indirectly guarantees the payment of interest and principal on some of these

 

38 The TARGET Portfolio Trust


securities, such as GNMAs, but not their value. Other securities including FNMAs and FHLMCs, are not guaranteed, but may be able to borrow from the U.S. Treasury to meet their obligations. 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.

Mortgage-backed securities include mortgage pass-through securities, 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 International Bond, Total Return Bond, Intermediate-Term Bond and Mortgage-Backed Securities Portfolios may each invest in asset-backed 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. However, credit-related asset-backed securities may be collateralized by a portfolio of corporate bonds, including junk bonds, or other securities.

Duration

The Total Return Bond Portfolio and Intermediate-Term Bond Portfolio are managed so that their duration each ranges between two years below and two years above the average duration of its benchmark. As of December 31, 2008, the average durations of the Barclays Capital Aggregate Bond Index (relating to the Total Return Bond Portfolio) and the Barclays Capital Intermediate Government/Credit Index (relating to the

 

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Intermediate-Term Bond Portfolio) were 3.63 and 5.24 years, respectively. The Mortgage-Backed Securities Portfolio is managed so that its duration ranges between one year below and one year above the duration of its benchmark. As of December 31, 2008, the duration of the Barclays Capital Mortgage Backed Security Index was 1.35 years. Duration is an approximation of the price sensitivity of a bond to interest rate changes. The longer the duration of a bond, the greater the impact of interest rate changes on the bond's price.

U.S. Government Money Market Portfolio

We seek income-producing investments with the credit quality and liquidity to preserve the value of the Portfolio's shares. Because we seek to maintain the value of the Portfolio's shares at $1, we manage the Portfolio to comply with specific regulations designed for money market funds.

For more information, see "Investment Risks" below and the Trust's Statement of Additional Information. The Statement of Additional Information - which we refer to as the SAI - contains additional information about the Portfolios. To obtain a copy, see the back cover page of this prospectus.

Each Portfolio's investment objective is a fundamental policy that cannot be changed without shareholder approval. The Board of Trustees can change investment policies that are not fundamental without shareholder approval.

OTHER INVESTMENTS AND STRATEGIES

In addition to the principal strategies described above, we may also use the following investment strategies to try to increase the Portfolios' returns or protect their assets if market conditions warrant.

Temporary Defensive Investments . In response to adverse market, economic or political conditions, each Portfolio may take a temporary defensive position and invest up to 100% of the Portfolio's assets in money market instruments, including short-term obligations of, or securities guaranteed by, the U.S. government, its agencies or instrumentalities or in high-quality obligations of domestic or foreign banks and corporations, and may hold up to 100% of the Portfolio's assets in cash or cash equivalents. Investing heavily in these securities limits our ability to achieve a Portfolio's investment objective, but can help to preserve the Fund's assets. The use of temporary defensive investments is inconsistent with a Portfolio's investment objective.

Money Market Instruments. Each Portfolio may invest in money market instruments, including commercial paper of a U.S. or foreign company, foreign government securities, certificates of deposit, bankers' acceptances, time deposits of domestic and foreign banks, and obligations issued or guaranteed by the U.S. government or its agencies. These obligations may be U.S. dollar-denominated or denominated in a foreign currency. Money market instruments typically have a maturity of one year or less as measured from the date of purchase.

 

40 The TARGET Portfolio Trust


If we believe it is necessary, we may temporarily invest up to 100% of each Portfolio's total assets in money market instruments. Investing heavily in these securities limits our ability to achieve our investment objective.

U.S. Government Securities . Each Portfolio 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 Portfolios 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, the FHLMC 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 Portfolio 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 Cap Value, Small Cap Value and International Equity Portfolios may invest in debt obligations for their appreciation potential. These Portfolios 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 Cap Value and Small Cap Value Portfolios may also invest in asset-backed securities from time to time. For a description of asset-backed securities please see the SAI.

Event-Linked Bonds . The Total Return Bond, International Bond and Intermediate-Term Bond Portfolios may each invest up to 5% of its total assets in event-linked bonds, the return of principal and payment of interest on which depend on the non-occurrence of a specific "trigger" event, such as a hurricane, earthquake or other physical or weather-related phenomenon. Event-linked bonds are subject to credit risk and the risk that the occurrence of the trigger event is unpredictable.

Emerging Markets Debt . The Total Return Bond Portfolio, International Bond Portfolio and Intermediate-Term Bond Portfolio may each invest up to 15% of its total assets in securities and instruments that are economically tied to emerging countries.

 

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Investments in emerging markets are subject to the same risks as investments in foreign securities, but to a greater degree since their economies are generally less diverse and mature, their political systems can be expected to have less stability than more developed countries, they may lack modern technology and may have an insufficient capital base to expand business operations.

Reverse Repurchase Agreements and Dollar Rolls . Each Portfolio may enter into reverse repurchase agreements. A reverse repurchase agreement involves the sale of a portfolio-eligible security by a Portfolio, coupled with its agreement to repurchase the instrument at a specified time and price. Reverse repurchase agreements are considered a borrowing by a Portfolio.

Each Portfolio also may enter into dollar rolls. In a dollar roll, a Portfolio sells securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type and coupon) securities on a specified future date from the same party. During the roll period, the Portfolio foregoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sale price and the forward price for the future purchase (often referred to as the drop) as well as by the interest earned on the cash proceeds of the initial sale. Each Portfolio will establish a segregated account in which it will maintain cash or other liquid assets, marked to market daily, having a value equal to its obligations in respect of dollar rolls.

Dollar rolls involve the risk that the market value of the securities retained by a Portfolio may decline below the price of the securities the Portfolio has sold but is obligated to repurchase under the agreement. In the event the buyer of securities under a dollar roll files for bankruptcy or becomes insolvent, a Portfolio's use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce a Portfolio's obligation to repurchase the securities. Cash proceeds from dollar rolls may be invested in cash or other liquid assets.

Leverage . The Total Return Bond, Intermediate-Term Bond, Mortgage-Backed Securities and International Bond Portfolios 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 a Portfolio borrows money to purchase securities and those securities decline in value, then the value of the Portfolio's shares will decline faster than if the Portfolio were not leveraged.

Short Sales . The Total Return Bond, Intermediate-Term Bond, International Bond and Mortgage-Backed Securities Portfolios may make short sales of a security. This means that each Portfolio may sell a security that it does not own when we think the value of the security will decline. The Portfolios generally borrow the security to deliver to the buyer in a short sale. The Portfolios must then buy the security at its market price when the borrowed security must be returned to the lender. Short sales involve costs and risks. A Portfolio must pay the lender interest on the security it borrows, and the Portfolio will lose money if the price of the security increases between the time of the

 

42 The TARGET Portfolio Trust


short sale and the date when the Portfolio replaces the borrowed security. Although the Portfolio's gain is limited to the price at which it sold the securities short, it's potential loss is limited only by the maximum attainable price of the securities, less the price at which the security was sold and may, theoretically, be unlimited.The Portfolio may also make short sales "against the box." In a short sale against the box, at the time of sale, the Portfolios own or have the right to acquire the identical security at no additional cost. When selling short against the box, a Portfolio gives up the opportunity for capital appreciation in the security.

Repurchase Agreements . Each Portfolio may use repurchase agreements, where a party agrees to sell a security to the Portfolio and then repurchases it at an agreed-upon price at a stated time. This creates a fixed return for the Portfolio, and is, in effect, a loan by a Portfolio. Repurchase agreements are used for cash management purposes only.

Convertible and Preferred Securities . Each Portfolio other than the U.S. Government Money Market Portfolio may also invest in convertible and preferred securities, including convertible bonds, convertible preferred stock and non-convertible preferred stock, warrants and rights. These are securities - such as bonds, corporate notes and preferred stock - that we can convert into the company's common stock or some other equity security. The International Bond Portfolio may invest up to 20% of investable assets in convertible and preferred securities.

Derivative Strategies . Each of the Large Cap Growth, Large Cap Value, Small Cap Growth, Small Cap Value, International Equity, International Bond, Total Return Bond, Intermediate-Term Bond and Mortgage-Backed Securities Portfolios may use various derivative strategies to try to improve its returns. We may also use hedging techniques to try to protect a Portfolio's assets. We cannot guarantee that these strategies and techniques will work, that the instruments necessary to implement these strategies and techniques will be available, or that a Portfolio will not lose money. The use of derivatives — such as futures, foreign currency forward contracts, options on futures, indexed and inverse floating rate securities and various types of swaps — involves costs and can be volatile. With derivatives, we try to predict if 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 Portfolio's overall investment objectives. We will consider other factors (such as cost) in deciding whether to employ any particular strategy or technique, or use any particular instrument. Any derivatives we may use may not match or offset the Portfolio's underlying positions and this could result in losses to the Portfolio that would not otherwise have occurred. Derivatives that involve leverage could magnify losses. When a Portfolio uses derivative strategies, the Portfolio designates certain assets as segregated or otherwise covers its exposure, as required by the rules of the Securities and Exchange Commission.

Futures Contracts and Related Options. Each of the International Equity, International Bond, Large Cap Growth, Total Return Bond, Intermediate-Term Bond and Mortgage-Backed Securities Portfolios also may purchase and sell financial futures contracts and

 

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related options on financial futures. A futures contract is an agreement to buy or sell a set quantity of an underlying asset at a future date, or to make or receive a cash payment based on the value of a securities index, or some other asset, at a stipulated future date. The terms of futures contracts are standardized. In the case of a financial futures contract based upon a broad index, there is no delivery of the securities comprising the underlying index, margin is uniform, a clearing corporation or an exchange is the counterparty and the Fund makes daily margin payments based on price movements in the index. An option gives the purchaser the right to buy or sell securities or currencies, or in the case of an option on a futures contract or an option on a swap, the right to buy or sell a futures contract or swap, respectively, in exchange for a premium.

Foreign Currency Forward Contracts. Each of the International Equity, International Bond, Total Return Bond and Intermediate-Term Bond Portfolios also may enter into foreign currency forward contracts to protect the value of its assets against future changes in the level of foreign currency exchange rates, including hedging involving either specific transactions or portfolio positions. A foreign currency forward contract is an obligation to buy or sell a given currency on a future date and at a set price or to make or receive a cash payment based on the value of a given currency at a future date. Delivery of the underlying currency is expected, the terms are individually negotiated, the counterparty is not a clearing corporation or an exchange, and payment on the contract is made upon delivery, rather than daily.

Options on Securities and Financial Indexes . Each of the International Equity, International Bond, Large Cap Growth, Total Return Bond, Intermediate-Term Bond and Mortgage-Backed Securities Portfolios may purchase and sell put and call options on securities and financial indexes traded on U.S. or foreign securities exchanges, on Nasdaq or in the over-the-counter market. An option gives the purchaser the right to buy or sell securities in exchange for a premium. The Fund will sell only covered options. For more information about the Fund's use of options, see the SAI.

Each of the International Bond, Total Return Bond, Intermediate-Term Bond and Mortgage-Backed Securities Portfolios may enter into interest rate swap transactions. In a swap transaction, a Portfolio and another party "trade" income streams. The swap is done to preserve a return or spread on a particular investment or portion of a Portfolio or to protect against any increase in the price of securities the Portfolio anticipates purchasing at a later date.

Additional Strategies . Each Portfolio also follows certain policies when it borrows money (each of the International Bond, Total Return Bond, Intermediate-Term Bond and Mortgage-Backed Securities Portfolios may borrow up to 331/3% of the value of its total assets, while each other Portfolio may borrow up to 20% of the value of its total assets); and holds illiquid securities (each Portfolio, except the U.S. Government Money Market Portfolio, may hold up to 15% of its net assets, and the U.S. Government Money Market Portfolio may hold up to 10% of its net assets, in illiquid securities, including securities with legal or contractual restrictions on resale, those without a

 

44 The TARGET Portfolio Trust


readily available market and repurchase agreements with maturities longer than seven days).

Each Portfolio, other than the Total Return Bond Portfolio, may participate in the initial public offering (IPO) market. The prices of securities purchased in IPOs can be very volatile. The effects of IPOs on the performance of a Portfolio depends on a variety of factors, including the number of IPOs a Portfolio invests in relative to the size of the Portfolio and whether and to what extent a security purchased in an IPO appreciates or depreciates in value. As a Portfolio's asset base increases, IPOs often have a diminished effect on a Portfolio's performance.

Each Portfolio 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

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 transaction costs and can affect a Portfolio's performance. It can also result in a greater amount of distributions as ordinary income rather than long-term capital gains. The portfolio turnover rates for the Portfolios are shown in the table below.

Portfolio Turnover Rate
Ten months ended October 31, 2007 Fiscal Year ended 2008
Large Cap Growth 81% 101%
Large Cap Value 48% 77%
Small Cap Growth 87% 223%
Small Cap Value 32% 54%
International Equity 37% 30%
International Bond 595% 560%
Total Return Bond 421% 496%
Intermediate-Term Bond 284% 395%
Morgage Backed Securities 318% 338%
U.S. Government Money Market N/A N/A


 

 

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INVESTMENT RISKS

As noted previously, all investments involve risk, and investing in the Portfolios is no exception. Since a Portfolio's holdings can vary significantly from broad market indexes, performance of that Portfolio can deviate from performance of the indexes. These charts outline the key risks and potential rewards of the Portfolios' principal strategies and certain of the Portfolios' non-principal strategies. Following the charts is a table which sets forth the investment limits applicable to each of the types of investments discussed in the charts. Unless otherwise noted, a Portfolio's ability to engage in a particular type of investment is expressed as a percentage of investable assets. With respect to Total Return Bond Portfolio, Intermediate-Term Bond Portfolio, and International Bond Portfolio, the Portfolios' ability to engage in a particular type of investment is expressed as a percentage of total assets unless otherwise stated. For more information, see the SAI.

Common Stocks
Risks Potential Rewards

  • Individual stocks could lose value.

  • Equity markets could go down, resulting in a decline in value of the Fund's investments.

  • Companies that normally pay dividends may not do so if they don't have profits or adequate cash flow.

  • Changes in economic or political conditions, both domestic and international, may result in a decline in value of the Fund's investments.

  • Investment style risk-- the risk that returns from the types of stocks in which the Fund invests will trail returns from the overall stock market.

  • Historically, stocks have outperformed other investments over the long term.

  • Generally, economic growth leads to higher corporate profits, which in turn can lead to an increase in stock prices, known as capital appreciation.

  • May be a source of dividend income.



 

 

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Small capitalization stocks
Risks Potential Rewards

  • Stocks of small companies are more volatile and may decline more than those in the S&P 500.

  • Small companies are more likely to reinvest earnings and not pay dividends.

  • Changes in interest rates may lead to an increase in price volatility of the securities of small companies more than the securities of larger companies.

  • Highly successful smaller companies can outperform larger ones.



 

Debt obligations
Risks Potential Rewards

  • A Portfolio's share price, yield and total return will fluctuate in response to bond market movements.

  • Credit risk - the default of an issuer would leave a Portfolio with unpaid interest or principal. The lower a bond's quality, the higher its potential volatility (relatively low for U.S. Government securities).

  • Market risk - the risk that the market value of an investment may move up or down, sometimes rapidly or unpredictably because, among other things, interest rates rise or there is a lack of confidence in borrower. Market risk may affect an industry, a sector, or the market as a whole.

  • Interest rate risk - the value of most bonds will fall when interest rates rise. The longer a bond's maturity and the lower its credit quality, the more its value typically falls. It can lead to price volatility, particularly for junk bonds and stripped securities.

  • Bonds have generally out performed money market instruments over the long term with less risk than stocks.

  • Most bonds will rise in value when interest rates fall.

  • A source of regular interest income.

  • High-quality debt obligations are generally more secure than stocks since companies must pay their debts before they pay dividends.

  • Investment-grade bonds have a lower risk of default than junk bonds.

  • Bonds with longer maturity dates typically have higher yields.

  • Intermediate-term securities may be less susceptible to loss of principal than longer term securities.



 

 

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Foreign Securities
Risks Potential Rewards

  • Foreign markets, economies and political systems, particularly those in developing countries, may not be as stable as those in the U.S.

  • Currency risk - adverse changes in the values of foreign currencies can cause losses (non-U.S. dollar denominated securities).

  • May be less liquid than U.S. stocks and bonds.

  • Differences in foreign laws, accounting standards, public information, custody and settlement practices may result in less reliable information on foreign investments and involve more risks.

  • Investments in emerging market securities are subject to greater volatility and price declines.

  • Investors may participate in the growth of foreign markets through a Fund's investments in companies operating in those markets.

  • Fund may profit from a favorable change in the value of foreign currencies (non-U.S. dollar denominated securities).

  • Opportunities for diversification.



 

 

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U.S. Government securities
Risks Potential Rewards

  • Not all U.S. government securities are insured or guaranteed by the U.S. government. Some are only insured or guaranteed by the issuing agency, which must rely on its own resources to repay the debt.

  • Limits the Portfolio's potential for achieving its objective.

  • Credit risk - the risk that the borrower can't pay back the money borrowed or make interest payments (relatively low for U.S. government securities). The lower a bond's quality, the higher its potential volatility.

  • Market risk - the risk that the market value of an investment may move up or down, sometimes rapidly or unpredictably, because interest rates rise or there is a lack of confidence in the borrower.

  • Market risk may affect an industry, a sector or the market as a whole.

  • Interest rate risk - the risk that the value of most debt obligations will fall when interest rates rise. The longer a bond's maturity and the lower its credit quality, the more its value typically falls. Price volatility may follow.

  • May preserve the Portfolio's assets.

  • A source of regular interest income.

  • Generally more secure than lower quality debt securities and generally more secure than equity securities.

  • Principal and interest may be guaranteed by the U.S. government.

  • If interest rates decline, long-term yields should be higher than money market yields.

  • Bonds have generally outperformed money market instruments over the long term.

  • Most bonds rise in value when interest rates fall.



 

 

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Money market instruments
Risks Potential Rewards

  • U.S. Government money market securities offer a lower yield than lower-quality or longer-term securities.

  • Limits the Portfolio's potential for achieving its objective.

  • Credit risk (which is less of a concern for money market instruments) - the risk that the underlying receivables will not be paid by debtors or by credit insurers or guarantors of such instruments.

  • Market risk (which is less of a concern for money market instruments) - the risk that bonds will lose value in the market, sometimes rapidly or unpredictably, because interest rates rise or there is a lack of confidence in the borrower or the bond's insurer.

  • May preserve the Portfolio's assets.



 

 

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Mortgage related securities
Risks Potential Rewards

  • Prepayment risk - the risk that the underlying mortgages may be prepaid, partially or completely, generally during periods of falling interest rates, which could adversely affect yield to maturity and could require the Fund to reinvest in lower yielding securities.

  • Credit risk - the risk that the underlying mortgages will not be paid by debtors or by 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 - the risk that bonds will lose value in the market, sometimes rapidly or unpredictably, because interest rates rise or there is a lack of confidence in the borrower or the bond's insurer.

  • Interest rate risk - the risk that the value of most bonds will fall when interest rates rise. The longer a bond's maturity and the lower its credit quality, the more its value typically falls. It can lead to price volatility.

  • Illiquidity risk - the risk that bonds may be difficult to value precisely and to sell at the time or price desired.

  • A source of regular interest income.

  • The U.S. Government guarantees interest and principal payments on certain securities.

  • May benefit from security interest in real estate collateral.

  • Pass-through instruments provide greater diversification than direct ownership of loans.



 

 

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High Yield Debt Securities (junk bonds)
Risks Potential Rewards

  • Credit risk (particularly high) - the risk that the underlying receivables will not be paid by debtors or 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 (particularly high) - the risk that bonds will lose value in the market, sometimes rapidly or unpredictably, because interest rates rise or there is a lack of confidence in the borrower or the bond's insurer.

  • Illiquidity risk - the risk that bonds may be difficult to value precisely and to sell at the time or price desired.

  • Are generally less secure than higher quality debt securities.

  • May offer higher interest income and higher potential gains than higher grade debt securities.

  • Most bonds rise in value when interest rates fall.



 

Exchange-traded funds (ETFs)
Risks Potential Rewards

  • The price movement of an ETF may not track the underlying index or basket of stocks and may result in a loss.

  • Duplicate management fees.

  • Helps to manage smaller cash flows.

  • Ability to get instant exposure to an index.



 

 

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Asset-Backed Securities
Risks Potential Rewards

  • Credit risk - the risk that the underlying receivables will not be paid by debtors or 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.

  • Prepayment risk - the risk that the underlying debt instruments may be prepaid, partially or completely, generally during periods of falling interest rates, which could adversely affect yield to maturity and could require the Fund to reinvest in lower yielding debt instruments.

  • Extension risk - the risk that rising interest rates may cause the underlying debt instruments to be paid off more slowly by the debtor, causing the value of the securities to fall.

  • Market risk - the risk that bonds will lose value in the market, sometimes rapidly or unpredictably, because interest rates rise or there is a lack of confidence in the borrower or the bonds insurer.

  • Interest rate risk - the risk that the value of most bonds will fall when interest rates rise. The longer a bond's maturity and the lower its credit quality, the more its value typically falls. Price volatility may result.

  • Illiquidity risk - the risk that bonds may be difficult to value precisely and to sell at the time or price desired.

  • A potential source of regular interest income.

  • Prepayment risk is generally lower than with mortgage-related securities.

  • Pass-through instruments may provide greater diversification than direct ownership of loans.

  • May offer higher yield due to their structure than other instruments.



 

 

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Derivatives
Risks Potential Rewards

  • The value of derivatives (such as futures, swaps and options) that are used to hedge a portfolio security is generally determined independently from the value of that security and could result in a loss to the Portfolio when the price movement of the derivative does not correlate with a change in the value of the portfolio security.

  • Derivatives may not have the intended effects and may result in losses or missed opportunities.

  • The counter-party to a derivatives contract could default.

  • Derivatives can increase share price volatility and those that involve leverage could magnify losses.

  • Certain types of derivatives involve costs to a Portfolio that can reduce returns.

  • It may be difficult to value precisely or sell at the time or price desired.

  • Derivatives could make money and protect against losses if the investment analysis proves correct.

  • Derivatives used for return enhancement purposes involve a type of leverage and could generate substantial gains at low cost.

  • One way to manage a Portfolio risk/return balance is by locking in the value of an investment ahead of time.

  • Hedges that correlate well with an underlying position can reduce or eliminate the volatility of investment income or capital gains at low cost.



 

Reverse repurchase agreements and dollar rolls
Risks Potential Rewards

  • Risk that counter-party may fail to return securities in a timely manner or at all.

  • May magnify underlying investment losses.

  • Investment costs may exceed potential underlying investment gains.

  • Leverage risk - the risk that the market value of the securities purchased with proceeds of the sale declines below the price of the securities the Fund must repurchase.

  • May magnify underlying investment gains.



 

 

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When-issued and delayed-delivery securities
Risks Potential Rewards

  • Value of securities may decrease before delivery occurs.

  • Broker/dealer may become insolvent prior to delivery.

  • If the security is not issued, or the counter-party fails to meet its obligation, a Portfolio loses the investment opportunity for the assets it has set aside to pay for the security and any gain in the security's price.

  • May enhance investment gains.



 

Borrowing
Risks Potential Rewards

  • Leverage for investment may magnify losses.

  • Interest costs and borrowing fees may exceed potential investment gains.

  • Leverage may magnify investment gains (if any).



 

Adjustable/floating rate securities
Risks Potential Rewards

  • Value lags behind the value of fixed rate securities when interest rates change.

  • May take advantage of rising interest rates.



 

Stripped Securities
Risks Potential Rewards

  • More volatile than securities where the principal and interest are not separated.

  • Value may rise faster when interest rates fall.



 

Swaps
Risks Potential Rewards

  • Speculative technique including risk of loss of payment swapped.

  • May be difficult to value precisely.

  • May be difficult to sell at the time or price desired.

  • The other party to a swap agreement could default.

  • Helps protect the return on an investment.



 

 

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Event-linked bonds
Risks Potential Rewards

  • A Portfolio's share price, yield and total return will fluctuate in response to bond market movements.

  • Credit risk - the default of an issuer would leave a Portfolio with unpaid interest or principal. The lower a bond's quality, the higher its potential volatility.

  • Market risk - the risk that the market value of an investment may move up or down, sometimes rapidly or unpredictably. Market risk may affect an industry, a sector, or the market as a whole.

  • Interest rate risk - the value of most bonds will fall when interest rates rise. The longer a bond's maturity and the lower its credit quality, the more its value typically falls. It can lead to price volatility, particularly for junk bonds and stripped securities.

  • Depends on non-occurrence of a specific "trigger" event that is unpredictable.

  • Bonds have generally outperformed money market instruments over the long term with less risk than stocks.

  • Most bonds will rise in value when interest rates fall.

  • A source of regular interest income.

  • Investment-grade bonds have a lower risk of default than junk bonds.

  • Bonds with longer maturity dates typically have higher yields.

  • Intermediate-term securities may be less susceptible to loss of principal than longer term securities.



 

Short Sales
Risks Potential Rewards

  • May magnify underlying investment losses.

  • Share price volatility can magnify losses because underlying security must be replaced at a specific time.

  • Investment costs may exceed potential underlying investment gains.

  • Short sales pose the risk of potentially unlimited loss.

  • Short sales "against the box" give up the opportunity for capital appreciation in the security.

  • May magnify underlying investment gains.



 

 

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Emerging markets debt
Risks Potential Rewards

  • Emerging markets, economies and political systems may not be as stable as in the U.S. or in more developed countries.

  • Currency risk - changing value of foreign currencies can cause losses.

  • May be less liquid than U.S. bonds and bonds in more developed markets.

  • Differences in foreign laws, accounting standards, public information, custody and settlement practices provide less reliable information on foreign investments and involve more risk.

  • Not all government securities are insured or guaranteed by the government, but only by the issuing agency.

  • Investors can participate in the growth of emerging markets through investment in companies operating in those markets.

  • May profit from changing value of foreign currencies.

  • Opportunities for diversification.

  • Principal and interest on foreign government securities may be guaranteed.



 

 

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Illiquid Securities
Risks Potential Rewards

  • May be difficult to value precisely.

  • May be difficult to sell at the time or price desired.

  • May offer a more attractive yield or potential for growth than more widely traded securities.



 

Real Estate Investment Trust (REITs)
Risks Potential Rewards

  • Performance depends on the strength of real estate markets, REIT management and property management which can be affected by many factors, including national and regional economic conditions.

  • Individual stocks could lose value.

  • Equity markets could go down, resulting in a decline in value of the Portfolio's investments.

  • Companies that normally pay dividends may not do so if they don't have profits or adequate cash flow.

  • Changes in economic or political conditions, both domestic and international, may result in a decline in value of the Portfolio's real-estate investments.

  • Real estate holdings may generate attractive returns from rents, rising market values, etc.

  • Greater diversification than direct ownership of real estate.



 

 

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Principal & Non-Principal Strategies
Common Stocks

  • Large Cap Growth: At least 80%

  • Large Cap Value: At least 80%

  • Small Cap Growth: At least 80%

  • Small Cap Value: At least 80%

  • International Equity: At least 80%

Small Capitalization Stocks

  • Large Cap Growth: Percentage varies; up to 20%

  • Small Cap Growth: At least 80%

  • Small Cap Value: At least 80%

  • International Equity: Percentage varies; usually less than 10%

Debt obligations

  • Large Cap Value: Up to 20%

  • Small Cap Value: Up to 20%

  • International Equity: Up to 20%

  • International Bond: At least 80%

  • Total Return Bond: At least 80%

  • Intermediate-Term Bond: At least 80%

  • Mortgage-Backed Securities: At least 80%

Foreign Securities

  • International Equity: At least 80%

  • Large Cap Growth: Up to 30%

  • Large Cap Value: Up to 30%

  • International Bond: At least 80%

  • Total Return Bond: Up to 30% of total assets

  • Intermediate-Term Bond: Up to 30% of total assets

U.S. Government securities

  • All Portfolios: Percentage varies; up to 100% on temporary basis



 

 

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Principal & Non-Principal Strategies
Money market instruments

  • Large Cap Growth: Up to 35% normally; up to 100% on temporary basis

  • Large Cap Value: Up to 35% normally; up to 100% on temporary basis

  • Small Cap Growth: Up to 35% normally, up to 100% on temporary basis

  • Small Cap Value: Up to 35% normally, up to 100% on temporary basis

  • International Equity: Up to 35% normally, up to 100% on temporary basis

  • Mortgage-Backed Securities: Up to 35% normally, up to 100% on temporary basis

  • International Bond: Percentage varies

  • Total Return Bond: Percentage varies

  • Intermediate-Term Bond: Percentage varies

  • U.S. Government Money Market: Up to 100%

Mortgage related securities

  • International Bond: Percentage varies; up to 75%

  • Total Return Bond: Percentage varies; up to 75%

  • Intermediate-Term Bond: Percentage varies; up to 75%

  • Mortgage-Backed Securities: Up to 100%

High Yield Debt Securities (Junk Bonds)

  • International Bond: Up to 20%

  • Total Return Bond: Up to 20%

  • Intermediate-Term Bond: Up to 20%

Asset-Backed Securities

  • Large Cap Value: Percentage varies; usually less than 10%

  • Small Cap Value: Percentage varies; usually less than 10%

  • Mortgage-Backed Securities: Percentage varies; usually less than 10%

  • International Bond: Percentage varies; usually less than 25%

  • Total Return Bond: Percentage varies; usually less than 25%

  • Intermediate-Term Bond: Percentage varies; usually less than 25%

  • Money Market: Percentage varies



 

60 The TARGET Portfolio Trust


Derivatives

  • International Equity Portfolio: Percentage varies; usually less than 10%

  • All Other Portfolios: Percentage varies

Reverse Repurchase Agreements and Dollar Rolls

  • Total Return Bond: Up to 33 1/3%

  • Intermediate-Term Bond: Up to 33 1/3%

  • Mortgage-Backed Securities: Up to 33 1/3%

  • International Bond: Up to 33 1/3%



 

 

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Principal & Non-Principal Strategies
When-issued and delayed delivery securities

  • Total Return Bond: Percentage varies; usually less than 75%

  • International Bond: Percentage varies; usually less than 75%

  • Intermediate-Term Bond: Percentage varies; usually less than 75%

  • All Other Portfolios: Percentage varies; usually less than 10%

Borrowing

  • International Bond: Up to 33 1/3%

  • Total Return Bond: Up to 33 1/3%

  • Intermediate-Term Bond: Up to 33 1/3%

  • Mortgage-Backed Securities: Up to 33 1/3%

Adjustable/Floating rate securities

  • Large Cap Value: Percentage varies; usually less than 10%

  • Mortgage-Backed Securities: Percentage varies; usually less than 10%

  • Total Return Bond: Percentage varies; usually less than 50%

  • International Bond: Percentage varies; usually less than 50%

  • Intermediate-Term Bond: Percentage varies; usually less than 50%

Stripped Securities

  • Mortgage-Backed Securities: Percentage varies; usually less than 10%

  • International Bond: Percentage varies; usually less than 20%

  • Total Return Bond: Percentage varies; usually less than 20%

  • Intermediate-Term Bond: Percentage varies; usually less than 20%

Swaps

  • International Bond: Up to 15% of net assets

  • Total Return Bond: Up to 15% of net assets ·

  • Mortgage-Backed Securities: Up to 15% of net assets

  • Intermediate-Term Bond: Up to 15% of net assets



 

 

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Principal & Non-Principal Strategies
Event-Linked Bonds

  • International Bond: Up to 5% of total assets

  • Total Return Bond: Up to 5% of total assets

  • Intermediate-Term Bond: Up to 5% of total assets

Emerging Markets Debt

  • International Bond: Up to 15% of total assets

  • Total Return Bond: Up to 15% of total assets

  • Intermediate-Term Bond: Up to 15% of total assets

Illiquid Securities

  • U.S. Government Money Market: Up to 10% of net assets

  • All Other Portfolios: Up to 15% of net assets

Short Sales and Short Sales Against-the-Box

  • International Bond: Up to 25% of net assets

  • Total Return Bond: Up to 25% of net assets

  • Intermediate-Term Bond: Up to 25% of net assets

  • Mortgage-Backed Securities: Up to 25% of net assets



 

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HOW THE TRUST IS MANAGED

BOARD OF TRUSTEES

The Board of Trustees (the Board) oversees the actions of the Manager, the subadvisers 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 each Portfolio.

MANAGER

Prudential Investments LLC (PI)
Gateway Center Three, 100 Mulberry Street
Newark, NJ 07102

Under a management agreement with the Trust, PI manages each Portfolio's investment operations, administers its business affairs and is responsible for supervising the subadviser(s) for each of the Portfolios. For the fiscal year ended October 31, 2008, each Portfolio paid PI the management fees set forth in the table below (shown as a percentage of average daily net assets).

Management Fee Rates
Portfolio Annual Management Fees
Large Cap Growth .60%
Large Cap Value .60%
Small Cap Growth .60%
Small Cap Value .60%
International Equity .70%
International Bond .50%
Total Return Bond .45%
Intermediate-Term Bond .45%
Mortgage-Backed Securities .45%
U.S. Government Money Market .25%


 

PI and its predecessors have served as manager or administrator to investment companies since 1987. As of October 31, 2008, PI, a wholly-owned subsidiary of Prudential Financial, Inc. (Prudential), served as the investment manager to all of the Prudential U.S. and offshore open-end investment companies, and as manager or administrator to closed-end investment companies, with aggregate assets of approximately $81.2 billion.

Subject to the supervision of the Board, PI is responsible for conducting the initial review of prospective subadvisers for the Portfolios. In evaluating a prospective subadviser, PI considers many factors, including the firm's experience, investment philosophy and historical performance. PI is also responsible for monitoring the performance of the Portfolios' subadvisers.

 

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PI and the Trust operate under an exemptive order (the Order) from the Securities & Exchange Commission that generally permits PI to enter into or amend agreements with subadvisers without obtaining shareholder approval each time. This authority is subject to certain conditions, including the requirement that the Board must approve any new or amended agreements with each subadviser. Shareholders of each Portfolio still have the right to terminate these agreements for the Portfolio at any time by a vote of the majority of outstanding shares of the Portfolio. The Trust will notify shareholders of any new subadvisers or material amendments to advisory agreements made pursuant to the Order. On October 30, 1996, the shareholders of the Trust voted to allow the Trust and PI to operate under the Order.

A discussion of the basis for the Board's approvals of the Trust's management and subadvisory agreements is available in the Trust's semi-annual report to shareholders, issued at the end of August.

INVESTMENT SUBADVISERS

The investment subadvisers are responsible for the day-to-day management of each Portfolio, or portion thereof, that they manage, subject to the supervision of PI and the Board. The subadvisers are paid by PI, not the Portfolios.

Each of the equity Portfolios has two or more subadvisers, each of which manages the portion of each Fund allocated to it by PI, consistent with the overall investment strategy of the Fund and PI periodically rebalances daily cash inflows (i.e., purchases and reinvested dividends) and outflows (i.e., redemptions and expense items) among the subadvisers of each Fund. In addition, PI periodically reallocates assets among subadvisers.

By using two or more subadvisers for each Portfolio, and by periodically rebalancing or reallocating each Portfolio's assets among its subadvisers, PI seeks long-term benefits from a balance of different investment disciplines. PI 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 the Portfolios and help reduce their volatility. In addition, the use of several subadvisers for each Portfolio may help to protect the Portfolios from capacity risk (a subadviser's determination to manage a limited amount of assets because of a lack of investment opportunities that appear attractive to that subadviser). Reallocations of assets among subadvisers may result in higher portfolio turnover and correspondingly higher transactional costs. In addition, a Portfolio may experience wash transactions - where one subadviser buys a security at the same time another subadviser sells it. To the extent this happens, the Portfolio's position in that security remains unchanged, but the Portfolio has paid additional transaction costs.

Each of the fixed-income and money market Portfolios is managed by one subadviser.

The subadvisers for each Portfolio are discussed below:

 

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Large Cap Growth Portfolio

Marsico Capital Management, LLC (Marsico) and Massachusetts Financial Services Company (MFS) are the subadvisers for the Large Cap Growth Portfolio.

Marsico is located at 1200 17th Street, Suite 1600, Denver, Colorado 80202. Marsico was organized in September 1997 as a registered investment adviser. Marisco provides investment management services to other mutual funds and private accounts and, as of October 31, 2008, had approximately $61.2 billion under management. Thomas F. Marsico is the founder and Chief Executive Officer of Marsico. Marsico has served as a subadviser to the Portfolio since June 2005.

MFS is located at 500 Boylston Street, Boston, Massachusetts 02116. MFS is America's oldest mutual fund organization. MFS and its predecessor organizations have a history of money management dating from 1924 and the founding of the first mutual fund. MFS is a subsidiary of Sun Life of Canada (U.S.) Financial Services Holdings, Inc., which in turn is an indirect majority-owned subsidiary of Sun Life Financial Inc. (a diversified financial services company). As of October 31, 2008, the MFS organization had approximately $161 billion in assets under management. MFS has served as a subadviser to the Portfolio since December 2008.

Large Cap Value Portfolio

Hotchkis and Wiley Capital Management LLC (Hotchkis and Wiley), Eaton Vance Management (Eaton Vance), and NFJ Investment Group L.P. (NFJ) are the subadvisers for the Large Cap Value Portfolio.

Hotchkis and Wiley is a limited liability company, the primary members of which are HWCap Holdings, a limited liability company whose members are current and former employees of Hotchkis and Wiley and Stephens-H&W, LLC, a limited liability company whose primary member is SF Holding Corp., a diversified holding company. As of October 31, 2008, Hotchkis and Wiley had approximately $12.4 billion in assets under management. Hotchkis and Wiley's address is 725 South Figueroa Street, 39th Floor, Los Angeles, California 90017-5439. Hotchkis and Wiley has served as a subadviser to the Portfolio since February 1995.

Eaton Vance is one of the oldest financial services firms in the United States, with a history dating to 1924. Eaton Vance was created in 1979 by the merger of two Boston-based investment management companies - Eaton Howard, Inc. (founded in 1924) and Vance Sanders Company, Inc. (founded in 1934). As such, Eaton Vance is the product of a union between two Boston-based money managers whose roots date to the founding days of the U.S. investment management industry. The principal address of Eaton Vance is 255 State Street, Boston, Massachusetts, 02109 until March 22, 2009 and Two International Place, Boston, Massachusetts, 02110 thereafter. Eaton Vance is a wholly-owned subsidiary of Eaton Vance Corp. As of October 31, 2008, Eaton Vance

 

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and its affiliates had approximately $123.1 billion in assets under management. Eaton Vance has served as a subadviser to the Portfolio since December 2008.

NFJ was formed in 1989, and is a wholly owned subsidiary of Allianz Global Investors of America L.P. As of October 31, 2008, the firm had approximately $27 billion of worldwide assets under management and advice. NFJ, a disciplined value-oriented equity manager, is located at 2100 Ross Avenue, Dallas, Texas 75201. NFJ has served as a subadviser to the Portfolio since December 2005.

Small Cap Growth Portfolio

Eagle Asset Management (Eagle) and Ashfield Capital Partners, LLC (Ashfield) are the subadvisers for the Small Cap Growth Portfolio.

Eagle was founded in 1976 and is an autonomous wholly-owned subsidiary of Raymond James Financial, Inc. The firm provides an array of equity and fixed-income investing strategies to a variety of individual and institutional clients, both domestically and abroad. As of October 31, 2008, Eagle had approximately $ 11.6 billion in assets under management. Eagle's address is 880 Carillon Parkway, St. Petersburg, FL 33716. Eagle has served as a subadviser to the Portfolio since July 2008.

Ashfield specializes in actively managed, growth-oriented investment strategies. Ashfield Co., Inc., currently known as ACO Partners, Inc., was founded in 1973 and reorganized in February 2007 as Ashfield Capital Partners, LLC (Ashfield) when Old Mutual (US) Holdings Inc. purchased a majority interest in the firm. As of October 31, 2008, Ashfield had approximately $3.3 billion in assets under management. Ashfield's address is 750 Battery Street, Suite 600, San Francisco, CA 94111. Ashfield has served as a subadviser to the Portfolio since July 2008.

Small Cap Value Portfolio

EARNEST Partners, LLC (EARNEST Partners),NFJ Investment Group L.P. (NFJ), Lee Munder Investments Ltd. L.P. (Lee Munder), J.P. Morgan Investment Management, Inc. (JP Morgan), and Vaughan Nelson Investment Management, LP (Vaughan Nelson) are the subadvisers for the Small Cap Value Portfolio.

EARNEST Partners is employee-owned and a subsidiary of EARNEST Holdings, LLC. Paul E. Viera, Jr. (whose background is described below) holds a controlling interest and the position of CEO. Founded in 1998, EARNEST Partners had $14.6 billion in assets under management as of October 31, 2008. The address of EARNEST Partners is 1180 Peachtree St NE, Suite 2300, Atlanta, GA 30309. EARNEST Partners has served as a subadviser to the Portfolio since December 2001.

NFJ is described above, under "Large Cap Value Portfolio." NFJ has served as a subadviser to the Portfolio since October 2003.

 

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Lee Munder, 200 Clarendon Street, Boston MA 02116, was founded in 2000 and is 80% owned by its employees with the remainder of the firm owned by Castanea Partners. As of October 31, 2008, Lee Munder managed approximately $3.2 billion in assets. Lee Munder has served as a subadviser to the Portfolio since July 2005.

JP Morgan is an indirect subsidiary of JPMorgan Chase Co., a publicly held bank holding company and global financial services firm. JP Morgan manages assets for governments, corporations, endowments, foundations, and individuals worldwide. As of September 30, 2008, JP Morgan and its affiliated companies had approximately $1.15 trillion in assets under management worldwide. The address of JP Morgan is 245 Park Avenue, New York, NY 10167. JP Morgan has served as a subadviser to the Portfolio since July 2005.

Vaughan Nelson is a Houston-based investment counseling firm, founded in 1970. Vaughan Nelson is a wholly owned subsidiary of Natixis Global Asset Management and operates independently with its own proprietary research process and investment team. As of October 31, 2008, Vaughan Nelson had over $6.8 billion in assets under management. The address of Vaughan Nelson is 600 Travis Street, Suite 6300, Houston, Texas 77002. Vaughan Nelson has served as a subadviser to the Portfolio since November 2005.

International Equity Portfolio

LSV Asset Management (LSV) and Thornburg Investment Management, Inc. (Thornburg) are the subadvisers for the International Equity Portfolio.

LSV was formed in 1994 and is a quantitative value equity manager providing active asset management for institutional clients through the application of proprietary models. As of October 31, 2008, LSV had approximately $42.8 billion in assets under management. LSV's address is One North Wacker Drive, Suite 4000, Chicago, Illinois 60606. LSV has served as a subadviser to the Portfolio since April 2005.

Thornburg is an independent, employee-owned investment management firm located in Santa Fe, New Mexico. The firm was founded in 1982 and began providing investment management services to clients in 1984. Thornburg uses a fundamental, bottom-up approach to investing which centers on the intrinsic value of each investment. As of October 31, 2008, Thornburg had approximately $34.5 billion in assets under management. Thornburg's address is 119 East Marcy Street, Santa Fe, New Mexico 87501. Thornburg has served as a subadviser to the Portfolio since April 2005.

International Bond Portfolio, Total Return Bond Portfolio and Intermediate-Term Bond Portfolio

Pacific Investment Management Company LLC (PIMCO) is the subadviser for the International Bond,Total Return Bond and Intermediate-Term Bond Portfolios.

 

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PIMCO, a Delaware limited liability company, is a majority-owned subsidiary of Allianz Global Investors of America L.P., ("AGI LP"). Allianz SE ("Allianz SE") is the indirect majority owner of AGI LP. Allianz SE is a European-based, multinational insurance and financial services holding company. PIMCO has specialized in fixed income investing since the firm was established in 1971. As of October 31, 2008, PIMCO had approximately $659.5 billion of assets under management. The address of PIMCO is 840 Newport Center Drive, Newport Beach, CA 92660. PIMCO has served as a subadviser to the International Bond Portfolio since October 2004 and to the Total Return Bond and Intermediate-Term Bond Portfolios since January 1993.

Mortgage-Backed Securities Portfolio and U.S. Government Money Market Portfolio

Wellington Management Company, LLP (Wellington Management) is the subadviser to the Mortgage-Backed Securities and U.S. Government Money Market Portfolios.

Wellington Management is a Massachusetts limited liability partnership. Wellington Management is a professional investment counseling firm which provides investment services to investment companies, employee benefit plans, endowments, foundations, and other institutions. Wellington Management and its predecessor organizations have provided investment advisory services for over 70 years. As of October 31, 2008, Wellington Management had investment management authority with respect to approximately $427 billion in assets. The address of Wellington Management is 75 State Street, Boston, MA 02109. Wellington Management has served as a subadviser to each Portfolio since January 1993.

PORTFOLIO MANAGERS

Large Cap Growth Portfolio

Marsico. Thomas F. Marsico is the Chief Investment Officer of Marsico Capital, and manages a sleeve of the Target Large-Cap Growth Portfolio. Mr. Marsico has over 20 years of experience as a securities analyst and a portfolio manager.

MFS . The portfolio manager responsible for the MFS segment of the Portfolio is Stephen Pesek. Mr. Pesek, CFA, is an investment officer of MFS. He joined MFS as an Equity Research Analyst in 1994, and was named an MFS Portfolio Manager in 1996.

Large Cap Value Portfolio

Eaton Vance . Michael Mach is the Portfolio Manager for the segment of the Portfolio advised by Eaton Vance.

Michael R. Mach, CFA, is a Vice President of Eaton Vance Management. Mr. Mach joined Eaton Vance in 1999 from Robertson Stephens, where he held the position of managing director and senior analyst of the Industrial Opportunities research product since 1998. From 1996-1998, he served as managing director and senior analyst of Piper Jaffray's Industrial Select research product. In addition, from 1989-1996, Mr.

 

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Mach served as a Senior Vice President at Putnam Investments, with responsibilities that included equity analysis, mutual fund and institutional account management. Mr. Mach's prior experience also includes analyst and portfolio manager positions with Freedom Capital from 1987-1989, Gardner Preston Moss from 1985-1987 and Delaware Investment Advisors from 1978-1985.

Mr. Mach earned a B.B.A. in marketing and psychology from the University of Wisconsin, an M.A. in social sciences and an M.B.A. with concentrations in finance, economics and international business from the University of Chicago.
Hotchkis and Wiley . Hotchkis and Wiley Capital Management, LLC ("HWCM"), subadviser to the Portfolio, also manages institutional separate accounts and is the advisor and sub-advisor to other mutual funds. The investment process is the same for similar accounts, including the Portfolio and is driven by team-oriented, in-depth, fundamental research. The investment research staff is organized by industry coverage and supports all of the accounts managed in each of the sub-advisor's investment strategies. Weekly research meetings provide a forum where analysts and portfolio managers discuss current investment ideas within their assigned industries. Generally, the entire investment team, or a sub-set of the team, then debates the merits of recommendations, taking into account the prevailing market environment, the portfolio's current composition, and the relative value of alternative investments. The culmination of this process is the formation of a "target portfolio" for each investment strategy representing the best investment ideas with appropriate weights for each of the holdings.

Although the Portfolio is managed by HWCM's investment team, HWCM has identified the five portfolio managers with the most significant responsibility for the Portfolio's assets. This list does not include all members of the investment team.

Sheldon Lieberman, George Davis, Patricia McKenna, Stan Majcher and David Green participate in the investment decision process during the group meetings in which the team decides the stock/weight selection for the target portfolio. They have authority to direct trading activity on the Portfolio. Mr. Majcher and Mr. Green are jointly responsible for the day-to-day management of the Portfolio's cash flows, which includes directing the Fund's purchases and sales to ensure that the Portfolio's holdings remain reflective of the "target portfolio."

Mr. Lieberman, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1994 as Portfolio Manager and Analyst. Mr. Davis, currently Principal, Portfolio Manager and Chief Executive Officer of Hotchkis and Wiley, joined Hotchkis and Wiley in 1988 as Portfolio Manager and Analyst. Ms. McKenna, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1995 as Portfolio Manager and Analyst. Mr. Majcher, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1996 as Analyst and became Portfolio Manager in 1999. Mr. Green, currently Principal and Portfolio

 

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Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1997 as Portfolio Manager and Analyst.

NFJ. Ben Fischer, CFA, Paul Magnuson, Jeffrey S. Partenheimer, CFA, CPA, and Thomas Oliver, CPA, manage the portion of the Portfolio advised by NFJ.

Ben J. Fischer, CFA - Managing Director. Mr. Fischer is a founding partner of NFJ Investment Group. He has over 43 years of experience in portfolio management, investment analysis and research. Prior to founding NFJ in 1989, he was chief investment officer (institutional and fixed income), senior vice president and senior portfolio manager at NationsBank which he joined in 1971. Prior to joining NationsBank, Mr. Fischer was a securities analyst at Chase Manhattan Bank and Clark, Dodge. He received his BA degree in Economics and a JD degree from Oklahoma University, and an MBA from New York University.

Thomas W. Oliver, CPA - Portfolio Manager. Mr. Oliver has over 13 years of experience in accounting, reporting, financial analysis, and portfolio management. Prior to joining NFJ Investment Group in 2005, Mr. Oliver was a manager of corporate reporting at Perot Systems Corporation which he joined in 1999. He began his career as an auditor with Deloitte Touche in 1995. Mr. Oliver received his BBA and MBA degrees from the University of Texas in 1995 and 2005, respectively.

Jeffrey S. Partenheimer, CFA, CPA - Managing Director. Mr. Partenheimer has over 22 years of experience in financial analysis, portfolio management and large corporate finance. Prior to joining NFJ Investment Group in 1999, he spent 10 years in commercial banking and 4 years as a treasury director for a major telecommunications equipment manufacturer. He began his career as a financial analyst with First City Bank of Dallas in 1985. Mr. Partenheimer received his BBA (Accounting) in 1982 from the University of Texas and his MSBA (Finance) from Texas Tech University in 1985.

Paul A. Magnuson - Managing Director. Mr. Magnuson is our senior research analyst and a portfolio manager with over 23 years of experience in equity analysis and portfolio management. Prior to joining NFJ Investment Group in 1992, Mr. Magnuson was an assistant vice president at NationsBank which he joined in 1985. Within the trust investment quantitative services group, he managed structured investment strategies and performed qualitative equity risk analysis on domestic and international portfolios. Mr. Magnuson received his BBA degree in Finance from the University of Nebraska in 1984.

Small Cap Growth Portfolio

Eagle. Bert L. Boksen, CFA serves as the lead portfolio manager of the strategy. Mr. Boksen is Senior Vice President and Managing Director of Eagle. He has 31 years of investment experience. He earned a B.A. in Business from City College of New York in 1970, and an M.B.A. in Finance from St. John's University in 1977. Mr. Boksen is a Chartered Financial Analyst. Since January 2002, Mr. Boksen has served as Manager

 

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and President of EB Management I, LLC, general partner of Investment Partnership. Since April 1995, Mr. Boksen has served as Senior Vice President of Eagle Asset Management, Inc. He has portfolio management responsibilities for the Small Cap Growth Equity accounts. Mr. Boksen was appointed Managing Director of Eagle in June 1999. Prior to joining Eagle, Mr. Boksen was Senior Vice President and Chief Investment Officer of Raymond James Associates, Inc., where he was Chairman of the Raymond James Focus Committee. Mr. Boksen has been a registered representative of Raymond James Associates, Inc., since 1979.

Mr. Bosken is assisted by Eric Mintz, CFA. Mr. Mintz is an Assistant Portfolio Manager for Small Cap Growth equity accounts. Mr. Mintz joined Eagle in 2005 as a Senior Research Analyst and brings 13 years of investment experience as an analyst and research associate. He holds a B.A. in economics from Washington and Lee University and earned his M.B.A. from the University of Southern California. Mr. Mintz received his Chartered Financial Analyst designation in 2000.

Ashfield. Peter A. Johnson, J. Stephen Thornborrow and Bradley J. Fretz manage the portion of the Portfolio advised by Ashfield.

Peter A. Johnson serves as Portfolio Manager/Analyst for Ashfield Capital Partners, LLC. Prior to 2007, he served as Portfolio Manager/Analyst for Ashfield Co., Inc. Before joining Ashfield Co., Inc. in 1994, he served as Vice President and Portfolio Manager at Harris Bretall Sullivan Smith, Inc. and held the position of Vice President and Portfolio Manager at Loomis, Sayles Co., overseeing both institutional and taxable accounts. Mr. Johnson began his career at Wells Fargo Bank as a management trainee and, later, Pension Trust Officer. He earned a B.A. from the University of Oregon. Mr. Johnson serves as the Chairman of the Finance Committee at Laguna Honda Hospital Volunteers, Inc. and is also a founding member of the Board of Trustees of the San Francisco Day School.

J. Stephen Thornborrow serves as Portfolio Manager/Analyst for Ashfield Capital Partners, LLC. Prior to 2007, he served as Portfolio Manager/Analyst for Ashfield Co., Inc. Before joining Ashfield Co., Inc. in 1984, he served as Senior Vice President at BA Investment Management, where he headed the Individual Portfolio Division. Before joining BA Investment Management, Mr. Thornborrow was Vice President and Investment Department Manager of California First Bank in San Diego and also held a variety of investment positions, including Director of Research, at the Northern Trust Company in Chicago. Mr. Thornborrow graduated with a B.A. with honors in economics from Northwestern University. He also holds a M.A. in economics from Northwestern University and a L.L.B. from Yale Law School.

Bradley J. Fretz serves as Portfolio Manager/Analyst for Ashfield Capital Partners, LLC. Prior to 2007, he served as Portfolio Manager/Analyst for Ashfield Co., Inc. Before joining Ashfield Co., Inc. in 1989, he held the position of First Vice President and Director of Investment Manager Evaluation Services in the Consulting Services Division

 

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of Shearson Lehman Hutton. Prior to that, Mr. Fretz was responsible for institutional product development at The Vanguard Group and also served as a consultant at both Johnson Higgins and Aetna Life Casualty. Mr. Fretz received a B.A. from Washington Lee University and a M.B.A. from The Wharton School, University of Pennsylvania.

Small Cap Value Portfolio

EARNEST Partners . Paul E. Viera, Jr., Chief Executive Officer and Partner of EARNEST Partners, manages the portion of the Portfolio advised by EARNEST Partners. A founding member of EARNEST Partners, he previously served as a Global Partner of, and portfolio manager with, INVESCO Capital Management from 1991 to 1998.

NFJ. Ben Fischer, CFA, Paul Magnuson, R. Burns McKinney, CFA, and Morley D. Campbell, CFA, manage the portion of the Portfolio advised by NFJ.

Ben J. Fischer, CFA - Managing Director. Mr. Fischer is a founding partner of NFJ Investment Group. He has over 43 years of experience in portfolio management, investment analysis and research. Prior to founding NFJ in 1989, he was chief investment officer (institutional and fixed income), senior vice president and senior portfolio manager at NationsBank which he joined in 1971. Prior to joining NationsBank, Mr. Fischer was a securities analyst at Chase Manhattan Bank and Clark, Dodge. He received his BA degree in Economics and a JD degree from Oklahoma University, and an MBA from New York University.

Paul A. Magnuson - Managing Director. Mr. Magnuson is our senior research analyst and a portfolio manager with over 23 years of experience in equity analysis and portfolio management. Prior to joining NFJ Investment Group in 1992, Mr. Magnuson was an assistant vice president at NationsBank which he joined in 1985. Within the trust investment quantitative services group, he managed structured investment strategies and performed qualitative equity risk analysis on domestic and international portfolios. Mr. Magnuson received his BBA degree in Finance from the University of Nebraska in 1984.

R. Burns Mckinney, CFA - Portfolio Manager. Mr. McKinney has over 12 years of experience in equity research, financial analysis and investment banking. Prior to joining NFJ Investment Group in 2006, Mr. McKinney was an equity analyst covering the energy sector for Evergreen Investments in Boston. He began his career as an investment banking analyst at Alex. Brown Sons in 1996. Prior to attending business school, he served as a Vice President in equity research at Merrill Lynch in New York, and also worked as an equity analyst at Morgan Stanley. Mr. McKinney received his BA in Economics from Dartmouth College in 1996 and his MBA from the Wharton School of Business in 2003.

Morley D. Campbell, CFA – Portfolio Manager. Mr. Campbell has over five years of experience in investment and financial analysis. Prior to joining NFJ Investment Group in 2007, Mr. Campbell attended Harvard Business School, where he received an MBA.

 

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Before business school, Mr. Campbell worked as an investment banking analyst for Lazard and Merrill Lynch. He received his BBA degree in Finance from the University of Texas in 2003.

Lee Munder . R. Todd Vingers manages the portion of the Portfolio advised by Lee Munder. Mr. Vingers joined Lee Munder in June 2002 as a small cap value portfolio manager. Mr.Vingers has over 18 years of investment experience and most recently served as vice president and senior portfolio manager for American Century Investments. Prior to joining American Century Investments, Mr. Vingers was a valuation analyst for the Hawthorne Company. Mr. Vingers earned a B.A. from the University of St. Thomas and an M.B.A. from the University of Chicago Graduate School of Business. Mr. Vingers is a member of the Institute of Chartered Financial Analysts and the Association for Investment Management and Research (AIMR).

JP Morgan . The portfolio managers responsible for day-to-day management of the portion of the Portfolio managed by JP Morgan are Christopher T. Blum and Dennis S. Ruhl.

Christopher T. Blum, managing director, is the CIO of the U.S. Behavioral Finance Group. An employee since 2001, Chris is responsible for the Intrepid and Behavioral Small Cap strategies. Chris rejoined the firm in 2001 where he acted as a portfolio manager and headed the U.S. Behavioral Finance Small Cap Equity Group. Before rejoining the firm in 2001, Chris spent two years as a research analyst responsible for the valuation and acquisition of private equity assets at Pomona Capital. Prior to that, he spent over three years in the U.S. Structured Equity Group at J.P. Morgan where he focused on structured small-cap core and small-cap value accounts. Christopher earned his B.B.A. in finance at the Bernard M. Baruch School for Business and is a holder of the CFA designation.

Dennis S. Ruhl, vice president, is the head of the U.S. Behavioral Finance Small Cap Equity Group. A member of the team since 2001, Dennis also acts as a portfolio manager and leads the group's quantitative research effort. An employee since 1999, Dennis previously worked on quantitative equity research (focusing on trading) as well as business development. Dennis holds dual bachelor's degrees in mathematics and computer science and a master's degree in computer science, all from MIT. Dennis is the former New York and National Chair of the Board of Minds Matter, a non-profit mentoring organization. He is also a board member of the MIT Club of New York and Regional Vice Chair of the MIT Educational Council. Dennis is a CFA charterholder.

Vaughan Nelson . Chris D. Wallis, CFA, and Scott J. Weber, CFA manage the portion of the Portfolio advised by Vaughan Nelson. Mr. Wallis is a Senior Portfolio Manager and has 16 years investment management, financial analysis and accounting experience. Prior to joining Vaughan Nelson in 1999, Mr. Wallis was an Associate at Simmons Company International. He graduated with a B.B.A. from Baylor University and M.B.A. from Harvard Business School. Mr. Weber, Portfolio Manager, has 11 years of

 

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investment management and financial analysis experience. Prior to joining Vaughan Nelson in 2003, Mr. Weber was a Vice President-Investment Banking with RBC Capital Markets. He graduated with a B.S. from the University of the South and M.B.A. from Tulane University-A.B. Freeman School of Business.

International Equity Portfolio

LSV Asset Management . Josef Lakonishok , Menno Vermuelen, CFA and Puneet Mansharamani, CFA co-manage the portion of the Portfolio advised by LSV. Mr. Lakonishok has served as CEO, Partner and Portfolio Manager for LSV since its founding in 1994. He has more than 25 years of investment and research experience. In addition to his duties at LSV, Mr. Lakonishok serves as the William G. Karnes Professor of Finance at the University of Illinois at Urbana-Champaign. Mr. Vermuelen has served as a Portfolio Manager and Senior Quantitative Analyst of LSV since 1995 and a Partner since 1998. He has more than 13 years of investment experience. Prior to joining LSV, Mr. Vermuelen served as a portfolio manager for ABP Investments. Mr. Mansharamani is a Partner and Portfolio Manager of LSV since January 2006. Mr. Mansharamani has previously served as a Quantitative Analyst of LSV since 2000. He has more than 7 years of investment experience. Prior to joining LSV, Mr. Mansharamani was an Analyst at Institutional Trust National City Corporation.

Thornburg Investment Management . William V. Fries, CFA, Wendy Trevisani, and Lei Wang, CFA, all Managing Directors of Thornburg, are the portfolio managers for the portion of the Portfolio advised by Thornburg. Mr. Fries serves as the lead portfolio manager for the segment of the Portfolio advised by Thornburg. Before joining Thornburg in May 1995, Mr. Fries managed equity mutual funds for 16 years with another mutual fund management company. Before joining Thornburg in March 1999, Ms. Trevisani served as an institutional sales representative for Salomon Smith Barney in New York City and London. Ms. Trevisani holds an MBA degree with a concentration in Finance from Columbia University, and a BA in International Relations from Bucknell University. Mr. Wang joined Thornburg in 2004 as an Associate Portfolio Manager. Prior to joining Thornburg, Mr. Wang served as a research analyst at Enso Capital Management LLC in New York City. He has also worked as a Financial Associate at Deutsche Bank in both London and New York City. Previously, Mr. Wang was an Analyst with The People's Bank of China (China's central bank) in Shanghai, China. He completed his BA and MA at East China Normal University and received his MBA in Finance from New York University. He has earned the right to use the CFA designation and is a member of the CFA Institute and Security Analyst Society of New York.

International Bond Portfolio, Total Return Bond Portfolio and Intermediate-Term Bond Portfolio

PIMCO. Chris Dialynas is responsible for the day-to-day management of the Total Return Bond Portfolio's assets. Scott A. Mather is responsible for the day-to-day management of the International Bond Portfolio's assets. Paul McCulley is responsible for the day-to-day management of the Intermediate-Term Bond Portfolio's assets.

 

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Mr. Dialynas, Managing Director, Portfolio Manager, and senior member of PIMCO's Investment Strategy Group, joined PIMCO in 1980. He has thirty years of investment experience and holds a bachelor's degree in economics from Pomona College, and holds an MBA in finance from The University of Chicago Graduate School of Business.

Scott A. Mather is a Managing Director, member of PIMCO's Investment Committee and head of global portfolio management. Prior to this he led portfolio management in Europe, managed Euro and pan-European portfolios and worked closely with many Allianz related companies where he also served as a Managing Director of Allianz Global Investors KAG. Prior to that, he co-headed PIMCO's mortgage and ABS team. Mr. Mather joined the firm in 1998, previously having been associated with Goldman Sachs in New York, where he was a fixed income trader specializing in a broad range of mortgage-backed securities. He has fourteen years of investment experience and holds both a bachelor's and master's degree in engineering from the University of Pennsylvania, as well as a bachelor's degree in finance from The Wharton School of the University of Pennsylvania.

Paul McCulley, Managing Director, generalist portfolio manager, member of the investment committee and head of PIMCO's Short-Term Desk, joined PIMCO in 1999, previously serving as Chief Economist for the Americas for UBS Warburg. He has twenty-five years of investment experience and holds a bachelor's degree from Grinnell College and an MBA from Columbia University Graduate School of Business.

Mortgage-Backed Securities Portfolio and U.S. Government Money Market Portfolio

Wellington Management. Joseph F. Marvan, CFA, a Vice President and fixed income Portfolio Manager of Wellington Management, manages the Mortgage-Backed Securities Portfolio. Val Petrov, PhD, CFA, a Vice President and fixed income Portfolio Manager of Wellington Management, is involved in portfolio management and securities analysis for the Mortgage-Backed Securities Portfolio. Mr. Marvan joined Wellington Management as an investment professional in 2003. Mr. Petrov joined Wellington Management as an investment professional in 2000. Timothy E. Smith, a Senior Vice President and fixed income Portfolio Manager of Wellington Management, manages the U.S. Government Money Market Portfolio. Mr. Smith joined Wellington Management as an investment professional in 1992.

The table below identifies the dates on which each Portfolio Manager commenced serving as a Portfolio Manager for a Portfolio:

Portfolio Manager Starting Service Dates
Subadviser Portfolio Manager Service Date
Marsico (Large Cap Growth Portfolio) Thomas F. Marsico June 2005
MFS (Large Cap Growth Portfolio) Stephen Pesek, CFA December 2008
Eaton Vance (Large Cap Value Portfolio) Michael R. Mach December 2008
JP Morgan (Small Cap Value Portfolio) Christopher T. Blum July 2005
Dennis S. Ruhl July 2005
Hotchkis and Wiley (Large Cap Value Portfolio) Sheldon Lieberman August 2000
George Davis April 2006
Patricia McKenna April 2006
Stan Majcher April 2006
David Green February 2007
NFJ (Large Cap Value Portfolio) Ben Fischer, CFA December 2005
Thomas Oliver, CPA September 2008
Paul Magnuson December 2005
Jeffrey S. Partenheimer, CFA, CPA April 2007
NFJ (Small Cap Value Portfolio) Ben Fischer, CFA February 2005
Paul Magnuson October 2003
Morley Campbell, CFA September 2008
R. Burns McKinney, CFA November 2006
Eagle (Small Cap Growth Portfolio) Bert L. Boksen, CFA July 2008
Eric Mintz July 2008
Ashfield (Small Cap Growth Portfolio) Peter A. Johnson July 2008
Stephen Thornborrow July 2008
Bradley J. Fetz July 2008
EARNEST Partners (Small Cap Value Portfolio) Paul E. Viera, Jr. December 2001
Lee Munder (Small Cap Value Portfolio) R. Todd Vingers July 2005
Vaughan Nelson (Small Cap Value Portfolio) Chris D. Wallis, CFA November 2005
Scott J. Weber, CFA November 2005
LSV Asset Management (International Equity Portfolio) Josef Lakonishok April 2005
Menno Vermuelen, CFA April 2005
Puneet Mansharamani, CFA January 2006
Thornburg Investment Management (International Equity Portfolio) William V. Fries, CFA April 2005
Wendy Trevisani April 2005
Lei Wang, CFA September 2006
PIMCO (International Bond Portfolio) Scott A. Mather May 2008
PIMCO (Total Return Bond Portfolio) Chris Dialynas August 2000
PIMCO (Intermediate-Term Bond Portfolio) Paul McCulley November 2003
Wellington Management (Mortgage-Backed Securities Portfolio) Joseph F. Marvan December 2008
Val Petrov December 2008
Wellington Management (U.S. Government Money Market Portfolio) Timothy E. Smith March 1997


 

Additional Information about the portfolio managers, their compensation, other accounts that they manage and ownership of securities in the Portfolios may be found in the SAI.

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS or the Distributor) distributes the Trust's shares under a Distribution Agreement with the Trust. The Trust also has a Distribution and Service Plan (the Plan) under Rule 12b-1 of the Investment Company Act of 1940 with respect to each Portfolio's Class R shares. Under the Plan and the Distribution Agreement, PIMS pays the expenses of distributing a Portfolio's Class R shares and provides certain shareholder support services. The Trust pays distribution and other fees to PIMS as compensation for its services for the Class R shares. These fees--known as 12b-1 fees-- are shown in the "Fees and Expenses" tables. Because these fees are paid from a Portfolio's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

DISCLOSURE OF PORTFOLIO HOLDINGS

A description of the Trust's policies and procedures with respect to the disclosure of the Portfolios' portfolio securities is described in the Statement of Additional Information and on the Trust's website at www.prudential.com.

 

76 The TARGET Portfolio Trust


PORTFOLIO DISTRIBUTIONS AND TAX ISSUES

DISTRIBUTIONS

Each Portfolio distributes dividends of any net investment income to shareholders on a regular basis as shown below.

Portfolio Dividends

  • Total Return Bond

  • Intermediate Term Bond

  • Mortgage-Backed Securities

  • U.S. Government Money Market

  • Declared daily, paid monthly

  • Large Cap Growth

  • Large Cap Value

  • Small Cap Growth

  • Small Cap Value

  • International Equity

  • International Bond

  • Declared and paid annually



 

TAX ISSUES

Form 1099
Every year, you will receive a Form 1099 , which reports the amount of taxable dividends and long-term capital gains we distributed to you during the prior year unless you own shares of each Portfolio as part of a qualified or tax-deferred plan or account. If you do own shares of a Portfolio as part of a qualified or tax-deferred plan or account, your taxes are deferred, so you will not receive a Form 1099 annually, but instead, you will receive a Form 1099 when you take any distributions from your qualified or tax-deferred plan or account.

Portfolio distributions are generally taxable to you in the calendar year in which they are received, except when we declare certain dividends in the fourth quarter, with a record date in such 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.

Withholding Taxes

If federal tax law requires you to provide a Portfolio with your taxpayer identification number and certifications as to your tax status, and you fail to do this, or if you are otherwise subject to backup withholding, we will withhold and pay to the U.S. Treasury a portion (currently 28%) of your distributions and sale proceeds.

Taxation of Foreign Shareholders

For a discussion regarding the taxation of foreign shareholders, please see the SAI.

 

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If You Purchase Just Before Record Date

If you buy shares of a Portfolio just before the record date for a distribution (the date that determines who receives the distribution), we will pay that distribution to you. As explained above, the distribution may be subject to 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 a Portfolio decreases by the amount of the dividend to reflect the payout, although this may not be apparent because the value of each share of a Portfolio also will be affected by market changes, if any. 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 and Tax-Deferred 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, contributions are not tax deductible, but distributions from the plan may be tax-free.

IF YOU SELL OR EXCHANGE YOUR SHARES

If you sell any shares of a Portfolio for a profit, you have realized a capital gain , which is subject to tax unless the shares are held in a qualified or tax-deferred plan or account. For individuals, the maximum capital gains tax rate is generally 15%, if the gain is recognized in a taxable year beginning before January 1, 2011 (20% for taxable years beginning on or after that date), for shares held for more than one year.

If you sell shares of a Porfolio for a loss, you may have a capital loss, which you may use to offset capital gains you have, plus, in the case of noncorporate taxpayers, ordinary income of up to $3,000. If you sell shares and realize a loss, you will not be permitted to use the loss to the extent you replace the shares (including pursuant to the reinvestment of a dividend) within a 61-day period (beginning 30 days before and ending 30 days after the sale of the shares). Under certain circumstances, if you acquire shares of a Portfolio and sell or exchange your shares within 90 days, you may not be allowed to include certain charges incurred in acquiring the shares for purposes of calculating gain or loss realized upon the sale of the shares.

 

78 The TARGET Portfolio Trust


Exchanging your shares of the Fund for the shares of another JennisonDryden mutual fund 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 Portfolio shares will not be reported on 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 or tax-deferred plan or account, you or your financial adviser should keep track of the dates on which you buy and sell - or exchange - Portfolio shares, as well as the amount of any gain or loss on each transaction. For tax advice, please see your tax adviser.

 

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HOW TO BUY, SELL AND EXCHANGE SHARES OF THE TRUST

HOW TO BUY SHARES

Opening an Account: Class T Shares

Class T shares of the Portfolios are offered to a limited group of investors which include banks, trust companies, group retirement plans and certain investment advisory services and fee-based programs that are held through omnibus level accounts. Class T shares may also be offered to certain investors not held through omnibus level accounts.

Class T shares do not require an investor to pay an initial sales charge or contingent deferred sales charge; nor are they subject to any distribution and service (12b-1) fees. Class T shares do not have a stated minimum purchase amount.

To purchase Class T shares of the Portfolios, you must have a securities account with a broker-dealer, financial intermediary or financial adviser that is permitted to buy or sell Class T shares of the Portfolios.

With certain limited exceptions, Class T shares of the Portfolios are available only to
U.S. citizens or residents.

Opening an Account: Class R Shares

Class R shares are available only to a limited group of investors. If Prudential Retirement is the recordkeeper for your group retirement plan, you may call Prudential at (800) 353-2847 with any questions regarding how to purchase shares. Investors in SmartSolution IRA accounts through Prudential's Personal Retirement Services unit can call 888-244-6237 with any questions regarding how to purchase shares. Otherwise, investors in group retirement plans or IRAs should contact their broker-dealer, financial intermediary or financial adviser with any questions regarding how to purchase Class R shares.

To purchase Class R shares of a Portfolio, you must have a securities account with a broker-dealer, financial intermediary or financial adviser that is permitted to buy or sell the Class R shares of a Portfolio. You must pay for Class R shares of a Portfolio by check made payable to the broker-dealer, financial intermediary or financial adviser or affiliate that clears securities transactions through such party on a fully disclosed basis. If you already have an account with a broker-dealer, financial intermediary or financial adviser that is permitted to buy or sell the Class R shares of a Portfolio, you can pay for the Class R shares of a Portfolio by using free credit cash balances in your account or through the sale of non-TARGET money market fund shares held in your account.

With certain limited exceptions, Class R shares of each Portfolio are only available to

 

80 The TARGET Portfolio Trust


be sold in the United States, U.S. Virgin Islands, Puerto Rico and Guam.

Qualifying for Class R Shares

Class R shares are offered for sale to (i) certain group retirement plans, including 401(k) plans, Keogh plans, profit-sharing pension plans, money purchase pension plans, target benefit plans, defined benefit plans, Taft Hartley multi-employer pension plans, SEP IRA and SARSEP plans, SIMPLE IRA plans, 457 plans, 403(b) plans, non-qualified deferred compensation plans, other defined contribution plans and (ii) IRAs that are held on the books of a Portfolio through omnibus level accounts, including The SmartSolution IRA offered by Prudential Retirement. The availability of Class R shares for group retirement plans or IRAs will depend upon the policies of your financial intermediary and/or the recordkeeper for your plan. If Prudential Retirement is the recordkeeper for your group retirement plan, you may call Prudential at (800) 353-2847 with any questions. Investors in SmartSolution IRA accounts through Prudential's Personal Retirement Services unit can call 888-244-6237 with any questions regarding how to purchase shares. Otherwise, investors in group retirement plans or IRAs should contact their financial intermediary with any questions regarding availability of Class R shares.

How Financial Services Firms are Compensated for Selling Target Mutual Funds

Target Mutual Funds are distributed by Prudential Investment Management Services LLC ("Distributor"), a broker-dealer that is licensed to sell securities. The Distributor generally does not sell shares of the Funds directly to the public, but instead markets and sells Target Mutual Funds through other broker-dealers, 401(k) providers, retirement plan administrators, and other financial intermediaries. For ease of reference, we refer to all financial intermediaries collectively as "financial services firms." Each Target Mutual Fund is managed by PI ("Manager").

Only persons licensed with the Financial Industry Regulatory Authority ("FINRA"), as a registered representative (often referred to as a broker or financial advisor) and associated with a specific broker-dealer (financial services firm), may sell a Target Mutual Fund to you, or to a retirement plan in which you participate.

12b-1 Fees & Sales Charges . The Distributor has agreements in place with each financial services firm defining how much each firm will be paid for the sale of a particular Target Mutual Fund from front-end sales charges, if any, paid by Fund shareholders and from fees paid to the Distributor by the Fund pursuant to Rule 12b-1 . These financial services firms then pay their registered representative who sold you the Target Mutual Fund some or all of what they received from the Distributor. The registered representatives may receive a payment when the sale is made and can, in some cases, continue to receive on-going payments while you are invested in the Target Mutual Fund.

"Revenue Sharing" Payments . In addition to the compensation received by financial services firms as described above, the Manager, Distributor, or their affiliates may make

 

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additional payments (which are often referred to as "revenue sharing" payments) to the financial services firms from the Manager's, Distributor's, or affiliates' own resources, including from the profits derived from management or other fees received from the Fund, without additional direct or indirect cost to the Fund or its shareholders. Revenue sharing payments are in addition to the front-end sales charges paid by shareholders or fees paid pursuant to Rule 12b-1. The Manager, Distributor, or their affiliates may revise the terms of any existing revenue sharing arrangement, and may enter into additional revenue sharing arrangements with other financial services firms in the future.

Revenue sharing arrangements are intended to foster the sale of Fund shares and/or to compensate financial services firms for assisting in marketing or promotional activities in connection with the sale of Fund shares. In exchange for revenue sharing payments, the Fund generally expects to receive the opportunity for the Fund to be sold through financial services firms' sales force or access to third-party platforms or other marketing programs, including but not limited to mutual fund "supermarket" platforms or other sales programs. To the extent that financial services firms receiving revenue sharing payments sell more shares of the Fund, the Manager and Distributor benefit from the increase in Fund assets as a result of the management and distribution fees they receive from the Fund, respectively. Increased sales of Fund shares also may benefit shareholders, since an increase in Fund assets may allow the Fund to expand its investment opportunities, and increased Fund assets may result in reduced Fund operating expenses.

Revenue sharing payments, as well as the other types of payments described above, may provide an incentive for financial services firms and their registered representatives to recommend or sell shares of the Fund to you and in doing so may create conflicts of interest between the firms' financial interests and their duties to customers.

If your Fund shares are purchased through a retirement plan, the Manager, Distributor or their affiliates may also make revenue sharing payments to the plan's record keeper or an affiliate, which generally is not a registered broker-dealer. Rule 12b-1 fees and sales charges may only be paid to a registered broker-dealer.

It is likely that financial services firms that execute portfolio transactions for the Fund will include those firms with which the Manager, Distributor and/or their affiliates have entered into revenue sharing arrangements. Neither the Manager nor any subadviser may consider sales of Fund shares as a factor in the selection of broker-dealers to execute portfolio transactions for the Fund. The Manager, Distributor and their affiliates will not use Fund brokerage to pay for their obligation to provide revenue sharing payments to financial services firms.

Revenue sharing payments are usually calculated based on a percentage of Fund sales and/or Fund assets attributable to a particular financial services firm. Payments may also be based on other criteria or factors, for example, a fee per each transaction. Specific payment formulas are negotiated based on a number of factors, including, but

 

82 The TARGET Portfolio Trust


not limited to, reputation in the industry, ability to attract and retain assets, target markets, customer relationships and scope and quality of services provided. The Manager, Distributor and/or their affiliates makes such payments to financial services firms in amounts that generally range from .02% up to .20% of Fund assets serviced and maintained by a firm or .10% to .25% of sales of Fund shares attributable to the firm. In addition, the Manager, Distributor and/or their affiliates may pay flat fees on a one-time or irregular basis for the initial set-up of the Funds on a firm's systems, participation or attendance at a firm's meeting, or for other reasons. These amounts are subject to change. In addition, the costs associated with visiting the financial services firms to make presentations, and/or train and educate the personnel of the financial services firms may be paid by the Manager, Distributor and/or their affiliates, subject to applicable FINRA regulations.

Please contact the registered representative (or his or her firm) who sold the Fund to you for details about any payments the financial services firm may receive from the Manager, Distributor and/or their affiliates. You should review your financial services firm's disclosure and/or talk to your financial services firm to obtain more information on how this compensation may have influenced your financial services firm's recommendation of the Fund. Additional information regarding these revenue sharing payments is included in the Fund's Statement of Additional Information, which is available to you at no additional charge.

Other Payments Received by Financial Services Firms
Administrative, Sub-Accounting and Networking Fees . In addition to, rather than in lieu of, the fees that the Fund may pay to financial services firms as described above, and the fees the Fund pays to its transfer agent, the Fund's transfer agent or its affiliates may enter into additional agreements on behalf of the Fund with financial services firms pursuant to which the Fund will pay financial services firms for certain administrative, sub-accounting, and networking services. These services include maintenance of shareholder accounts by the firms, such as record-keeping and other activities that otherwise would be performed by the Fund's transfer agent. Sub-accounting services encompass activities that reduce the burden of record-keeping to the Fund. Administrative fees are paid to a firm that undertakes, for example, shareholder communications on behalf of a Fund. Networking services are services undertaken to support the electronic transmission of shareholder purchase and redemption orders through the National Securities Clearing Corporation.

These payments, as discussed above, are paid out of Fund assets and generally based on either (1) a percentage of the average daily net assets of Fund shareholders serviced by a financial services firm or (2) a fixed dollar amount for each account serviced by a financial services firm. From time to time, the Manager, Distributor, or their affiliates also may pay a portion of the fees for the services to the financial services firms at their own expense and out of their own resources.

Anti-Money Laundering
In accordance with federal law, the Fund has adopted policies designed to deter money laundering. Under the policies, the Fund shall not knowingly engage in financial transactions that involve proceeds from unlawful activity or support terrorist activities, and shall file government reports, including those concerning suspicious activities, as required by applicable law. The Fund has also appointed an Anti-Money Laundering

 

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Compliance Officer to oversee the Fund's anti-money laundering policies.

Understanding the Price You'll Pay

The price you pay for each share of a Portfolio 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 Portfolio (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 liabilities) 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).

All Portfolios other than the U.S. Government Money Market Portfolio (the Non-Money Market Portfolios) . The Fund's 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.

With respect to any portion of the Fund's assets that are invested in one or more open-end investment companies, the Fund's net asset value will be calculated based upon the net asset value of the investment company in which the Fund invests.

The Fund may also use fair value pricing if it determines that a market quotation is not reliable based, among other things, on events or market conditions that occur after the quotation is derived or after the closing of the primary market on which the security is traded, but before the time that the Fund's NAV is determined. This use of fair value pricing most commonly occurs with securities that are primarily traded outside the U.S. because such securities present time-zone arbitrage opportunities when events or conditions affecting the prices of specific securities or the prices of securities traded in such markets generally occur after the close of the foreign markets but prior to the time the Fund determines its NAV. The Fund may also use fair value pricing with respect to U.S.-traded securities if, for example, trading in a particular security is halted and does not resume before the Fund calculates its NAV or the exchange on which a security is traded closes early. In addition, fair value pricing is used for securities where the pricing agent or principal market maker does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Manager (or Subadviser) does not represent fair value. Different valuation methods may result in differing values for the same security. The fair value of a portfolio security that the Fund uses to determine its NAV may differ from the security's quoted or published price. If the Fund needs to implement fair value pricing after the NAV publishing deadline but before shares of the Fund are processed, the NAV you receive or pay may differ from the published NAV price.

 

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For purposes of computing the Fund's NAV, we will value the Fund's futures contracts 15 minutes after the close of regular trading on the New York Stock Exchange (NYSE). Except when we fair value securities, we normally value each foreign security held by the Fund as of the close of the security's primary market. Fair value pricing procedures are designed to result in prices for the Fund's securities and its net asset value that are reasonable in light of the circumstances which make or have made market quotations unavailable or unreliable, and may have the effect of reducing arbitrage opportunities available to short-term traders. There is no assurance, however, that fair value pricing will more accurately reflect the market value of a security than the market price of such security on that day or that it will prevent dilution of the Fund's NAV by short-term traders.

We determine the Fund's NAV once each business day at the close of regular trading on the NYSE, usually 4:00 p.m. New York time. The NYSE is closed on most national holidays and Good Friday. We do not price, and you will not be able to purchase or redeem, the Fund's shares on days when the NYSE is closed but the primary markets for the Fund's foreign securities are open, even though the value of these securities may have changed. Conversely, the Fund will ordinarily price its shares, and you may purchase and redeem shares, on days that the NYSE is open but foreign securities markets are closed. We may not determine the NAV of the Fund on days when we have not received any orders to purchase, sell or exchange the Fund's shares, or when changes in the value of the Fund's portfolio do not materially affect its NAV.

Most national newspapers report the NAVs of larger mutual funds, which allows investors to check the prices of those funds daily.

U.S. Government Money Market Portfolio . When you invest in a mutual fund, you buy shares of the mutual fund. Shares of a money market mutual fund, like the Portfolio, are priced differently than shares of common stock and other securities.

The price you pay for each share of the Portfolio 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. In determining NAV, the Portfolio values its securities using the amortized cost method. The Portfolio seeks to maintain an NAV of $1 per share at all times. Your broker may charge you a separate or additional fee for purchases of shares.

We determine the NAV of our shares once each business day at the close of regular trading on the New York Stock Exchange (NYSE) usually 4:00p.m. New York time. The NYSE is closed on most national holidays and Good Friday. We may not determine the Fund's NAV on days when we have not received any orders to purchase, sell or exchange Fund shares, or when changes in the value of the Fund's portfolio do not materially affect its NAV.

 

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Most national newspapers report the NAVs of most mutual funds, which allows investors to check the prices of mutual funds daily.

What Price Will You Pay for Shares of the Portfolios? You will pay the NAV next determined after we receive your order to purchase. Unless regular trading on the NYSE closes before 4:00 p.m., your order to purchase must be received by 4:00p.m. New York time in order to receive that day's NAV. In the event that regular trading on the NYSE closes before 4:00 p.m. New York time, you will receive the following day's NAV if your order to purchase is received after the close of regular trading on the NYSE.

Additional Shareholder Services

As a Class T or Class R shareholder of a Portfolio, you can take advantage of the following services and privileges:

Automatic Reinvestment of Dividends and/or Distributions. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of each of the Funds at net asset value per share on the payment date, unless the Directors determine otherwise. An investor may notify their broker or the Transfer Agent in writing not less than five full business days prior to the payment date to have subsequent dividends and/or distributions paid in cash rather than reinvested. However, dividends of less than $10.00 will not be paid out in cash but will be automatically reinvested into your account. Shareholders investing through Plan accounts cannot elect to receive dividends and distributions in cash.

Prudential Mutual Fund Services LLC
P.O. Box 9658
Providence, RI 02940

Systematic Withdrawal Plan. A systematic withdrawal plan is available that will provide you with monthly, quarterly, semi-annual or annual redemption checks.

As a Class R shareholder of a Portfolio, you also can take advantage of the following services and privileges:

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 (SIMPLE IRAs, SEP plans, Keoghs, 403(b)(7) 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 and how to open accounts for you and your employees will be included in the retirement plan kit you receive in the mail.

All shareholders of the Trust can take advantage of the following services and privileges:

 

86 The TARGET Portfolio Trust


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 the Portfolios. To reduce expenses, we may send one annual shareholder report, one semi-annual shareholder report and one annual prospectus per household, unless you instruct us otherwise.

HOW TO SELL YOUR SHARES

You can sell your shares of the Trust for cash (in the form of a check) at any time, subject to certain restrictions, by contacting your financial adviser or registered representative.

When you sell shares of a Portfolio - also known as redeeming your shares - the price you will receive will be the NAV next determined after the Transfer Agent, Distributor or your broker (as applicable) receives your order to sell. If your broker holds your shares, your broker must receive your order to sell by 4:00 p.m., New York time, to process the sale on that day. In the event that trading on the NYSE closes before 4:00 p.m. New York time, you will receive the following day's NAV if your order to sell is received after the close of regular trading on the NYSE.

Generally, we will pay you for the shares that you sell within seven days after receiving your sell order. If you are selling shares you recently purchased with a check, we may delay sending you the sale proceeds until your check clears, which can take up to 7 days from the purchase date.

Restrictions on Sales

There are certain times when you may not be able to sell shares of the Portfolios, or when we may delay paying you the proceeds from a sale. As permitted by the Commission, this may happen only during unusual market conditions or emergencies when a Portfolio can't determine the value of its assets or sell its holdings. For more information, see the SAI.

Small Accounts

If you make a sale that reduces your account value to less than $500, we may sell the rest of your shares and close your account. We could do this to minimize the Portfolios' expenses paid by other shareholders. We will give you 60 days' notice, during which time you can purchase additional shares to avoid this actions.

Involuntary sales do not apply to shareholders who own their shares as part of a 401(k) plan, an IRA or some other qualified or tax-deferred plan or account.

Redemption in Kind

If the sales of Portfolio shares you make during any 90-day period reach the lesser of

 

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$250,000 or 1% of the value of the Portfolio's net assets, we can then give you securities from the Portfolio's portfolio instead of cash. If you want to sell the securities you received for cash, you would have to pay the costs charged by a broker.

HOW TO EXCHANGE YOUR SHARES

If you own Class T shares of a Portfolio, you can exchange your Class T shares in a Portfolio for Class T shares in another Portfolio of the Trust without payment of any exchange fee, but you may not exchange your Class T shares of the Portfolios for shares of other mutual funds sponsored by Prudential. If you own Class T Portfolio shares through a program (such as a wrap program that offers additional mutual funds), you also may be able to buy or sell Portfolio shares through the program you have chosen. Class R shares of a Portfolio may be exchanged without payment of any exchange fee for Class R shares of another Portfolio or a JennisonDryden Fund at their respective net asset value. If you wish to use the exchange privilege, contact your registered representative. We may change the terms of the exchange privilege after giving you 60 days' notice.

Remember, as we explained in the section entitled "Portfolio 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 the amount that you paid for them, you may have to pay capital gains tax. For additional information about exchanging shares see the SAI.

Frequent Purchases and Redemptions of Fund Shares

The Portfolios seeks to prevent patterns of frequent purchases and redemptions of Portfolio shares by its shareholders. Frequent purchases and sales of shares of a Portfolio may adversely affect Portfolio performance and the interests of long-term investors. When a shareholder engages in frequent or short-term trading, a Portfolio may have to sell portfolio securities to have the cash necessary to redeem the shareholder's shares. This can happen when it is not advantageous to sell any securities, so a Portfolio's performance may be hurt. When large dollar amounts are involved, frequent trading can also make it difficult to use long-term investment strategies because a Portfolio cannot predict how much cash it will have to invest. In addition, if a Portfolio is forced to liquidate investments due to short-term trading activity, it may incur increased brokerage and tax costs. Similarly, a Portfolio may bear increased administrative costs as a result of the asset level and investment volatility that accompanies patterns of short-term trading. Moreover, frequent or short-term trading by certain shareholders may cause dilution in the value of Portfolio shares held by other shareholders. Portfolios that invest in foreign securities may be particularly susceptible to frequent trading because time zone differences among international stock markets can allow a shareholder engaging in frequent trading to exploit portfolio share prices that may be based on closing prices of foreign securities established some time before the portfolio calculates its own share price. Portfolios that invest in certain fixed-income securities, such as high-yield bonds or certain asset-backed securities, may also constitute an effective vehicle for a shareholder's frequent trading strategy.

 

88 The TARGET Portfolio Trust


The Board of Directors has adopted policies and procedures designed to discourage or prevent frequent trading activities by shareholders. In an effort to prevent such practices, the Trust's Transfer Agent monitors trading activity on a daily basis. The Trust has implemented a trading policy that limits the number of times a shareholder may purchase Portfolio shares or exchange into a Portfolio and then sell those shares within a specified period of time (a "round-trip transaction") as established by the Trust's Chief Compliance Officer (CCO). The CCO is authorized to set and modify the parameters of the trading policy at any time as required to prevent the adverse impact of frequent trading on Portfolio shareholders. The CCO has defined frequent trading as one or more round-trip transactions in shares of a Portfolio within a 30-day period. A second round-trip within 60 days will begin a warning period that will remain in effect for 90 days. If additional purchase activity is initiated during the warning period, the purchase activity will be cancelled. In addition, if two round-trips have already been completed within the past 90 days, a trading suspension will be placed on the account that remains in effect for 90 days. Exceptions to the trading policy will not normally be granted.

The Trust reserves the right to reject or cancel, without prior notice, all additional purchases or exchanges into the Portfolios by a shareholder who has violated this policy. Moreover, the Trust may direct a broker-dealer or other intermediary to block a shareholder account from future trading in a Portfolios. The Transfer Agent will monitor trading activity over $25,000 per account on a daily basis for a rolling 30-day period. If a purchase into the Trust is rejected or cancelled for violations of the trading policy, the shareholder will receive a return of the purchase amount.

If the Trust is offered to qualified plans on an omnibus basis or if Trust shares may be purchased through other omnibus arrangements such as through a financial intermediary such as a broker-dealer, a bank, an insurance company separate account, an investment adviser, or an administrator or trustee of a retirement plan ("Intermediaries") that holds your shares in an account under its name, Intermediaries maintain the individual beneficial owner records and submit to the Trust only aggregate orders combining the transactions of many beneficial owners. The Trust itself generally cannot monitor trading by particular beneficial owners. The Trust communicates to Intermediaries in writing that it expects the Intermediaries to impose restrictions on transfers by beneficial owners. Intermediaries may impose different or stricter restrictions on transfers by beneficial owners. Consistent with the restrictions described above, investments in the Trust through retirement programs administered by Prudential Retirement will be similarly identified for frequent purchases and redemptions and appropriately restricted.

The Transfer Agent also reviews the aggregate net flows in excess of one million dollars. In those cases, the trade detail is reviewed to determine if any of the activity relates to previously identified policy offenders. In cases of omnibus orders, the Intermediary may be contacted by the Transfer Agent to obtain additional information. The Transfer Agent has the authority to cancel all or a portion of the trade if the information reveals that the activity relates to previously identified policy offenders. Where appropriate, the

 

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Transfer Agent may request that the Intermediary block a financial adviser or client from accessing the Trust. If necessary, the Trust may be removed from a particular Intermediary's platform.

Shareholders seeking to engage in frequent trading activities may use a variety of strategies to avoid detection and, despite the efforts of the Trust to prevent such trading, there is no guarantee that the Trust, the Transfer Agent or Intermediaries will be able to identify these shareholders or curtail their trading practices. The Trust does not have any arrangements intended to permit trading of its shares in contravention of the policies described above.

 

90 The TARGET Portfolio Trust


FINANCIAL HIGHLIGHTS

INTRODUCTION

The financial highlights will help you evaluate each Portfolio's financial performance for the past five fiscal years. The total return in each chart represents the rate that a shareholder would have earned on an investment in that particular Portfolio, assuming investment at the start of the period and reinvestment of all dividends and other distributions. The information is for each share class for the periods indicated.

A copy of the Trust's annual report, along with the Trust's audited financial statements and report of independent registered public accounting firm, is available upon request, at no charge, as described on the back cover of this Prospectus.

The financial highlights were derived from the financial statements audited by KPMG LLP, independent registered public accounting firm, whose reports on those financial statements were unqualified.

 

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LARGE CAP GROWTH PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03-06)

Per Share Operating Performance 2008 (f) 2007 (e)(f) 2006 2005 2004 2003
Net asset value, beginning of period $17.55 $15.33 $14.60 $15.90 $15.39 $11.03
Income (loss) from investment operations:
Net investment income (loss) .13 .04 .08 .03 .07 (.01)
Net realized and unrealized gain (loss) on investment transactions (6.47) 2.32 1.18 1.06 .51 4.37
Total from investment operations (6.34) 2.36 1.26 1.09 .58 4.36
Less dividends and distributions:
Dividends from net investment income (.07) - (d) (.09) (.02) (.07) -
Distributions from net realized gains (.95) (.14) (.44) (2.37) - -
Total dividends and distributions (1.02) (.14) (.53) (2.39) (.07) -
Net asset value, end of period $10.19 $17.55 $15.33 $14.60 $15.90 $15.39
Total return (a) (38.14)% 15.41% 8.67% 6.74% 3.78% 39.53%


 

Ratios/Supplemental Data 2008 2007 2006 2005 2004 2003
Net assets, end of period (000) $150,428 $313,718 $301,566 $307,835 $343,760 $348,385
Average net assets (000) $237,628 $303,340 $299,597 $310,710 $345,413 $290,985
Ratios to average net assets: (g)
Expenses, including distribution and service (12b-1) fees .74% .68% (b) .75% .76% .77% .84%
Expenses, excluding distribution and service (12b-1) fees .74% .68% (b) .75% .76% .77% .84%
Net investment income (loss) .91% .29% (b) .51% .18% .45% (.09)%
Portfolio turnover rate 101% 81% (c) 69% 246% 76% 49%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Annualized.
(c) Not annualized.
(d) Less than $.005 per share.
(e) Calculated based upon average shares outstanding during the period.
(f) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(g) Does not include expense of the underlying portfolio in which the Portfolio invests.

 

92 The TARGET Portfolio Trust


Class R Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and period from 8/22/06 (b) - 12/31/06)

Per Share Operating Performance: 2008 (f) 2007 (f)(g) 2006
Net asset value, beginning of period $17.46 $15.31 $14.32
Income (loss) from investment operations:
Net investment income .05 (.02) .03
Net realized and unrealized gain on investment transactions (6.43) 2.31 1.30
Total from investment operations (6.38) 2.29 1.33
Less dividends and distributions
Dividends from net investment income (.02) - (.05)
Distributions from net realized gains (.95) (.14) (.29)
Total dividends and distributions (.97) (.14) (.34)
Net asset value, end of period $10.11 $17.46 $15.31
Total return (a) (38.48)% 14.95% 9.34%
Ratios/Supplemental Data 2008 2007 2006
Net assets, end of period (000) $48,348 $31,982 $2,216
Average net assets (000) $46,321 $14,059 $429
Ratios to average net assets: (h)
Expenses, including distribution and service (12b-1) fees (e) 1.24% 1.18% (c) 1.25% (c)
Expenses, excluding distribution and service (12b-1) fees .74% .68% (c) .75% (c)
Net investment income .35% (.14)% (c) .28% (c)
Portfolio turnover rate 101% 81% (d) 69% (d)


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Commencement of operations.
(c) Annualized.
(d) Not annualized.
(e) The distributor of the Trust has contractually agreed to limit its distribution and service (12b-1) fees to .50 of 1% of the average daily net assets of the Class R shares.
(f) Calculated based upon average shares outstanding during the period.
(g) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(h) Does not include expense of the underlying portfolio in which the Portfolio invests.

 

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LARGE CAP VALUE PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03-06)

Per Share Operating Performance: 2008 2007 (e)(f) 2006 (e) 2005 2004 2003
Net asset value, beginning of period $16.31 $15.60 $15.11 $16.59 $14.13 $10.49
Income (loss) from investment operations:
Net investment income .30 .22 .28 .25 .21 .17
Net realized and unrealized gain (loss) on investments (6.33) .67 2.45 .80 2.45 3.64
Total from investment operations (6.03) .89 2.73 1.05 2.66 3.81
Less dividends and distributions:
Dividends from net investment income (.30) - (d) (.29) (.25) (.20) (.17)
Distributions from net realized gains (1.16) (.18) (1.95) (2.28) - -
Total dividens and distributions (1.46) (.18) (2.24) (2.53) (.20) (.17)
Net asset value, end of period $8.82 $16.31 $15.60 $15.11 $16.59 $14.13
Total return (a) (40.29)% 5.70% 19.34% 6.50% 18.87% 36.38%


 

RATIOS/SUPPLEMENTAL DATA: 2008 2007 2006 2005 2004 2003
Net assets, end of period (000) $168,217 $372,900 $393,111 $362,253 $385,414 $316,131
Average net assets (000) $279,413 $392,564 $371,251 $366,301 $346,319 $253,653
Ratios to average net assets (g)
Expenses, including distribution and service (12b-1) fees .71% .69% (b) .72% .74% .74% .80%
Expenses, excluding distribution and service (12b-1) fees .71% .69% (b) .72% .74% .74% .80%
Net investment income 2.40% 1.61% (b) 1.79% 1.48% 1.43% 1.50%
Portfolio turnover rate 77% 48% (c) 44% 90% 47% 56%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Annualized.
(c) Not Annualized.
(d) Less than $0.005 per share.
(e) Calculated based upon average shares outstanding during the period.
(f) For the ten-month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(g) Does not include expenses of the underlying fund in which the Portfolio invests.

 

94 The TARGET Portfolio Trust


Class R Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and period from 8/22/06 (b) - 12/31/06)

Per Share Operating Performance: 2008 (g) 2007 (g)(h) 2006 (g)
Net asset value, beginning of period $16.24 $15.60 $15.07
Income (loss) from investment operations:
Net investment income .23 .15 .08
Net realized and unrealized gain on investments (6.31) .67 1.48
Total from investment operations (6.08) .82 1.56
Less Dividends and distributions:
Dividends from net investment income (.22) - (f) (.24)
Dividends from net realized gains (1.16) (.18) (.79)
Total dividends and distributions (1.38) (.18) (1.03)
Net asset value, end of period $8.78 $16.24 $15.60
Total return (a) (40.60)% 5.24% 10.44%
RATIOS/SUPPLEMENTAL DATA: 2008 2007 2006
Net assets, end of period (000) $46,778 $30,958 $2,194
Average net assets (000) $46,282 $14,046 $445
Ratios to average net assets: (i)
Expenses, including distribution and service (12b-1) fees (e) 1.21% 1.19% (c) 1.22% (c)
Expenses, excluding distribution and service (12b-1) fees .71% .69% (c) .72% (c)
Net investment income 1.90% 1.13% (c) 1.69% (c)
Portfolio turnover rate 77% 48% (d) 44% (d)


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods of less than one full year are not annualized.
(b) Commencement of operations.
(c) Annualized.
(d) Not annualized.
(e) The distributor of the Trust has contractually agreed to limit its distribution and service (12b-1) fees to .50 of 1% of the average daily net assets of the Class R shares.
(f) Less than $0.005 per share.
(g) Calculated based upon average shares outstanding during the period.
(h) For the ten-month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(i) Does not include expenses of the underlying fund in which the Portfolio invests.

 

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SMALL CAP GROWTH PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03-06)

Per Share Operating Performance: 2008 2007 (d)(e) 2006 2005 2004 2003
Net asset value, beginning of period $13.82 $12.14 $11.28 $10.79 $9.38 $7.05
Income (loss) from investment operations:
Net investment gain (loss) .02 (.01) (.05) (.07) (.06) (.06)
Net realized and unrealized gain (loss) on investment transactions (6.59) 1.69 .91 .56 1.47 2.39
Total from investment operations (6.57) 1.68 .86 .49 1.41 2.33
Net asset value, end of period $7.25 $13.82 $12.14 $11.28 $10.79 $9.38
Total return (a) (47.54)% 13.84% 7.62% 4.54% 15.03% 33.05%


 

Ratios/Supplemental Data 2008 2007 2006 2005 2004 2003
Net assets, end of period (000) $58,235 $137,630 $136,422 $143,366 $158,757 $140,251
Average net assets (000) $97,771 $136,851 $140,489 $144,034 $146,717 $116,632
Ratios to average net assets: (f)
Expenses, including distribution and service (12b-1) fees .80% .78% (b) .84% .91% .90% 1.03%
Expenses, excluding distribution and service (12b-1) fees .80% .78% (b) .84% .91% .90% 1.03%
Net investment income (loss) .17 (.07)% (b) (.39)% (.62)% (.58)% (.80)%
Portfolio turnover rate 223% 87% (c) 96% 147% 107% 235%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than a year are not annualized.
(b) Annualized.
(c) Not Annualized.
(d) Calculated based upon average shares outstanding during the period.
(e) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(f) Does not include expenses of the underlying fund in which the portfolio invests.

 

96 The TARGET Portfolio Trust


Class R Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and period from 8/22/06 (b) - 12/31/06)

Per Share Operating Performance: 2008 2007 (g)(h) 2006
Net asset value, beginning of period $13.73 $12.12 $11.04
Income (loss) from investment operations:
Net investment loss (.03) (.06) - (c)
Net realized and unrealized gain (loss) on investment transactions (6.53) 1.67 1.08
Total from investment operations (6.56) 1.61 1.08
Net asset value, end of period $7.17 $13.73 $12.12
Total return (a) (47.78)% 13.28% 9.78%
Ratios/Supplemental Data 2008 2007 2006
Net assets, end of period (000) $18,607 $12,942 $898
Average net assets (000) $18,762 $5,725 $186
Ratios to average net assets: (i)
Expenses, including distribution and service (12b-1) fees (f) 1.30% 1.28% (d) 1.34% (d)
Expenses, excluding distribution and service (12b-1) fees .80% .78% (d) .84% (d)
Net investment loss (.39)% (.56)% (d) (.05)% (d)
Portfolio turnover rate 223% 87% (e) 96% (e)


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Commencement of operations.
(c) Less than $0.005 per share.
(d) Annualized.
(e) Not annualized.
(f) The distributor of the Trust has contractually agreed to limit its distribution and service (12b-1) fees to .50 of 1% of the average daily net assets of the Class R shares.
(g) Calculated based upon average shares outstanding during the period.
(h) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(i) Does not include expenses of the underlying fund in which the Portfolio invests.

 

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SMALL CAP VALUE PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03-06)

Per Share Operating Performance: 2008 2007 (e)(f) 2006 2005 2004 2003
Net asset value, beginning of period $22.00 $20.47 $18.98 $21.84 $18.78 $13.23
Income (loss) from investment operations:
Net investment income .23 .25 .23 .18 .17 .03
Net realized and unrealized gain (loss) on investment transactions (6.53) 1.39 3.09 2.06 4.27 6.18
Total from investment operations (6.30) 1.64 3.32 2.24 4.44 6.21
Less dividends and distributions:
Dividends from net investment income (.28) - (d) (.22) (.16) (.17) (.03)
Distributions from net realized gains (1.21) (.11) (1.61) (4.94) (1.21) (.63)
Total dividends and distributions (1.49) (.11) (1.83) (5.10) (1.38) (.66)
Net asset value, end of period $14.21 $22.00 $20.47 $18.98 $21.84 $18.78
Total return (a) (30.23)% 8.04% 17.72% 10.10% 24.02% 47.10%


 

Ratios/Supplemental Data: 2008 2007 2006 2005 2004 2003
Net assets, end of period (000) $374,101 $411,690 $320,728 $259,115 $245,576 $205,989
Average net assets (000) $414,364 $403,020 $290,505 $249,661 $218,487 $161,025
Ratios to average net assets: (g)
Expenses, including distribution and service (12b-1) fees .80% .73% (b) .80% .79% .82% .93%
Expenses, excluding distribution and service (12b-1) fees .80% .73% (b) .80% .79% .82% .93%
Net investment income 1.38% 1.38% (b) 1.17% .81% .86% .15%
Portfolio turnover rate 54% 32% (c) 36% 118% 22% 89%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Annualized.
(c) Not annualized.
(d) Less than $0.005 per share.
(e) Calulated based upon average shares outstanding during the period.
(f) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(g) Does not include expenses of the underlying fund in which the Portfolio invests.

 

98 The TARGET Portfolio Trust


Class R Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and period from 8/22/06 (b) - 12/31/06)

Per Share Operating Performance: 2008 2007 (g)(h) 2006
Net asset value, beginning of period $21.90 $20.46 $20.05
Income (loss) from investment operations:
Net investment income .19 .13 .14
Net realized and unrealized gain on investments (6.55) 1.42 1.74
Total from investment operations (6.36) 1.55 1.88
Less dividends and distributions:
Dividends from net investment income (.23) - (f) (.18)
Distributions from net realized gains (1.21) (.11) (1.29)
Total dividends and distributions (1.44) (.11) (1.47)
Net asset value, end of period $14.10 $21.90 $20.46
Total return (a) (30.57)% 7.55% 9.45%
Ratios/Supplemental Data: 2008 2007 2006
Net assets, end of period (000) $22,660 $15,112 $1,061
Average net assets (000) $22,626 $6,828 $217
Ratios to average net assets (i)
Expenses, including distribution and service (12b-1) fees (e) 1.30% 1.23% (c) 1.30% (c)
Expenses, excluding distribution and service (12b-1) fees .80% .73% (c) .80% (c)
Net investment income .89% .73% (c) 1.37% (c)
Portfolio turnover rate 54% 32% (d) 36% (d)


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Commencement of operations.
(c) Annualized.
(d) Not annualized.
(e) The distributor of the Trust has contractually agreed to limit its distribution and service (12b-1) fees to .50 of 1% of the average daily net assets of the Class R shares.
(f) Less than $0.005 per share.
(g) Calculated based upon average shares outstanding during the period.
(h) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(i) Does not include expenses of the underlying fund in which the Portfolio invests.

 

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INTERNATIONAL EQUITY PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03 - 06)

Per Share Operating Performance: 2008 2007 (e)(f) 2006 2005 2004 2003
Net asset value, beginning of period $20.13 $16.22 $13.99 $13.13 $11.53 $9.07
Income (loss) from investment operations:
Net investment income .36 .39 .29 .22 .15 .16
Net realized and unrealized gain (loss) on investments (8.86) 3.70 3.68 1.59 1.59 2.43
Total from investment operations (8.50) 4.09 3.97 1.81 1.74 2.59
Less dividends and distributions:
Dividends from net investment income (.41) - (.29) (.28) (.14) (.13)
Distributions from net realized gains (2.19) (.18) (1.45) (.67) - -
Total dividends and distributions (2.60) (.18) (1.74) (.95) (.14) (.13)
Net asset value, end of period $9.03 $20.13 $16.22 $13.99 $13.13 $11.53
Total return (a) (47.99)% 25.33% 29.02% 14.12% 15.23% 28.76%


 

Ratios/Supplemental Data 2008 2007 2006 2005 2004 2003
Net assets, end of period (000) $123,970 $297,083 $268,314 $233,150 $230,300 $191,909
Average net assets (000) $218,670 $277,744 $248,571 $221,543 $209,378 $153,435
Ratios to average net assets (b) :
Expenses, including distribution and service (12b-1) fees .83% .83% (c) .93% .99% 1.00% 1.07%
Expenses, excluding distribution and service (12b-1) fees .83% .83% (c) .93% .99% 1.00% 1.07%
Net investment income 2.49% 2.61% (c) 1.73% 1.55% 1.27% 1.69%
Portfolio turnover rate 30% 37% (d) 41% 123% 59% 47%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Does not include expenses of the underlying fund in which the Portfolio invests.
(c) Annualized.
(d) Not annualized.
(e) Calculated based upon average shares outstanding during the period.
(f) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.

 

100 The TARGET Portfolio Trust


Class R Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and period from 8/22/06 (b) - 12/31/06)

Per Share Operating Performance: 2008 2007 (f)(g) 2006
Net asset value, beginning of period $20.04 $16.21 $16.09
Income (loss) from investment operations:
Net investment income .29 .33 .16
Net realized and unrealized gain (loss) on investments (8.84) 3.68 1.66
Total from investment operations (8.55) 4.01 1.82
Less dividends and distributions:
Dividends from net investment income (.31) - (.25)
Distributions from net realized gains (2.19) (.18) (1.45)
Total dividends and distributions (2.50) (.18) (1.70)
Net asset value, end of period $8.99 $20.04 $16.21
Total return (a) (48.30)% 24.85% 11.74%
Ratios/Supplemental Data: 2008 2007 2006
Net assets, end of period (000) $35,482 $26,811 $1,728
Average net assets (000) $36,790 $11,612 $346
Ratios to average net assets: (h)
Expenses, including distribution and service (12b-1) fees (e) 1.33% 1.33% (c) 1.43% (c)
Expenses, excluding distribution and service (12b-1) fees .83% .83% (c) .93% (c)
Net investment income 2.12% 2.20% (c) .39% (c)
Portfolio turnover rate 30% 37% (d) 41% (d)


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods of less than one full year are not annualized.
(b) Commencement of operations.
(c) Annualized.
(d) Not annualized.
(e) The distributor of the Trust has contractually agreed to limit its distribution and service (12b-1) fees to .50 of 1% of the average daily net assets of the Class R shares.
(f) Calculated based upon average shares outstanding during the period.
(g) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(h) Does not include expenses of the underlying fund in which the Portfolio invests.

 

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INTERNATIONAL BOND PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03 - 06)

Per Share Operating Performance: 2008 2007 (d) 2006 2005 2004 2003
Net asset value, beginning of period $8.33 $8.22 $8.33 $8.19 $8.45 $8.83
Income (loss) from investment operations:
Net investment income .28 .14 .19 .03 .26 .21
Net realized and unrealized gain (loss) on investments (.48) (.03) (.03) .27 .05 .26
Total from investment operations (.20) .11 .16 .30 .31 .47
Less dividends and distributions:
Dividends from net investment income - - (.26) (.15) (.48) (.84)
Distributions from net realized gains - - (.01) (.01) (.09) (.01)
Total dividends and distributions - - (.27) (.16) (.57) (.85)
Net asset value, end of period $8.13 $8.33 $8.22 $8.33 $8.19 $8.45
Total Return (a) (2.40)% 1.34% 1.84% 3.95% 3.71% 5.31%


 

Ratios/Supplemental Data: 2008 2007 2006 2005 2004 2003
Net assets, end of period (000) $29,346 $39,011 $40,944 $42,912 $44,905 $38,553
Average net assets (000) $35,921 $39,934 $41,174 $44,072 $43,199 $32,992
Ratios to average net assets: (e)
Expenses, including distribution and service (12b-1) fees 1.15% 1.08% (b) 1.19% 1.51% 1.49% 1.51%
Expenses, excluding distribution and service (12b-1) fees 1.15% 1.08% (b) 1.19% 1.51% 1.49% 1.51%
Net investment income 3.16% 2.37% (b) 2.32% 1.71% 2.15% 1.88%
Portfolio turnover rate 560% 595% (c) 323% 223% 169% 235%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Annualized.
(c) Not Annualized.
(d) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(e) Does not include expenses of the underling fund in which the Portfolio invests.

 

102 The TARGET Portfolio Trust


TOTAL RETURN BOND PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03 - 06)

Per Share Operating Performance: 2008 2007 (d)(e) 2006 2005 2004 2003
Net asset value, beginning of period $10.60 $10.38 $10.39 $10.64 $10.66 $10.73
Income (loss) from investment operations:
Net investment income .53 .39 .40 .38 .20 .33
Net realized and unrealized gain (loss) on investments (.68) .22 .03 (.12) .31 .33
Total from investment operations (.15) .61 .43 .26 .51 .66
Less dividends and distributions:
Dividends from net investment income (.52) (.39) (.44) (.43) (.44) (.36)
Distributions from net realized gains - - - (.08) (.09) (.37)
Total dividends and distributions (.52) (.39) (.44) (.51) (.53) (.73)
Net asset value, end of period $9.93 $10.60 $10.38 $10.39 $10.64 $10.66
Total return (a) (1.71)% 5.94% 4.27% 2.60% 4.73% 6.22%


 

Ratios/Supplemental Data: 2008 2007 2006 2005 2004 2003
Net assets, end of period (000) $194,970 $183,262 $167,154 $161,675 $178,488 $158,148
Average net assets (000) $206,986 $174,725 $162,621 $169,616 $170,073 $151,999
Ratios to average net assets: (f)
Expenses, including distribution and service (12b-1) fees .73% .64% (b) .68% .76% .75% .76%
Expenses, excluding distribution and service (12b-1) fees .73% .64% (b) .68% .76% .75% .76%
Net investment income 4.86% 4.53% (b) 4.14% 3.72% 1.82% 2.99%
Portfolio turnover rate 697% 421% (c) 483% 366% 587% 445%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Annualized.
(c) Not Annualized.
(d) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(e) Does not include expenses of the underling fund in which the Portfolio invests.

 

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Class R Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and period from 8/22/06 (b) - 12/31/06)

Per Share Operating Performance: 2008 2007 (f)(g) 2006
Net asset value, beginning of period $10.54 $10.31 $10.31
Income from investment operations:
Net investment income .46 .33 .12
Net realized and unrealized gain on investments (.68) .24 .01
Total from investment operations (.22) .57 .13
Less dividends and distributions:
Dividends from net investment income (.46) (.34) (.13)
Distributions from net realized gains - - -
Total dividends and distributions (.46) (.34) (.13)
Net asset value, end of period $9.86 $10.54 $10.31
Total return (a) (2.24)% 5.63% 1.27%
Ratios/Supplemental Data: 2008 2007 2006
Net assets, end of period (000) $53,218 $23,670 $1,503
Average net assets (000) $42,474 $10,429 $246
Ratios to average net assets: (h)
Expenses, including distribution and service (12b-1) fees (e) 1.23% 1.14% (c) 1.18% (c)
Expenses, excluding distribution and service (12b-1) fees .73% .64% (c) .68% (c)
Net investment income 4.39% 3.84% (c) 3.46% (c)
Portfolio turnover rate 496% 421% (d) 483% (d)


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each peiod reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods of less than one full year are not annualized.
(b) Commencement of operations.
(c) Annualized.
(d) Not annualized.
(e) The distributor of the Trust has contractually agreed to limit its distribution and service (12b-1) fees to .50 of 1% of the average daily net assets of the Class R shares.
(f) Calculated based upon average shares outstanding during the period.
(g) For the ten months ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(h) Does not include expenses of the underlying fund in which the Portfolio invests.

 

104 The TARGET Portfolio Trust


INTERMEDIATE-TERM BOND PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03 - 06)

Per Share Operating Performance: 2008 2007 (e) 2006 2005 2004 2003
Net asset value, beginning of period $10.25 $10.13 $10.18 $10.36 $10.46 $10.50
Income (loss) from investment operations:
Net investment income .44 .40 .43 .36 .19 .28
Net realized and unrealized gain (loss) on investments .08 .11 (.03) (.16) .14 .19
Total from investment operations .52 .51 .40 .20 .33 .47
Less dividends and distributions:
Dividends from net investment income (.50) (.39) (.45) (.38) (.24) (.34)
Distributions from net realized gains - - - - (b) (.19) (.17)
Total dividends and distributions (.50) (.39) (.45) (.38) (.43) (.51)
Net asset value, end of period $10.27 $10.25 $10.13 $10.18 $10.36 $10.46
Total Return (a) 5.07% 5.13% 4.12% 1.88% 3.19% 4.58%


 

Ratios/Supplemental Data 2008 2007 2006 2005 2004 2003
Net assets, end of period (000) $204,548 $233,423 $245,223 $262,177 $297,982 $334,806
Average net assets (000) $227,475 $235,800 $249,376 $278,441 $318,671 $343,466
Ratios to average net assets: (f)
Expenses, including distribution and service (12b-1) fees .60% .58% (c) .64% .63% .64% .68%
Expenses, excluding distribution and service (12b-1) fees .60% .58% (c) .64% .63% .64% .68%
Net investment income 4.21% 4.71% (c) 4.23% 3.48% 1.86% 2.64%
Portfolio turnover rate 395% 284% (d) 134% 208% 133% 422%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) Does not include expenses of the underlying fund in which the Portfolio invests.
(c) Annualized.
(d) Not annualized.
(e) Calculated based upon average shares outstanding during the period.
(f) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.

 

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MORTGAGE-BACKED SECURITIES PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03 - 06)

Per Share Operating Performance: 2008 2007 (e) 2006 2005 2004 2003
Net asset value, beginning of period $9.95 $9.99 $10.10 $10.39 $10.45 $10.70
Income from investment operations:
Net investment income .63 .41 .44 .50 .36 .47
Net realized and unrealized gain (loss) on investments (.66) (.03) (.07) (.27) .02 (.24)
Total from investment operations (.03) .38 .37 .23 .38 .23
Less dividends:
Dividends from net investment income (.66) (.39) (.48) (.52) (.44) (.48)
Tax return of capital -- (.03) -- -- -- --
Total dividends (.66) (.42) (.48) (.52) (.44) (.48)
Net asset value, end of period $9.26 $9.95 $9.99 $10.10 $10.39 $10.45
Total return (a) (.36)% 3.89% 3.82% 2.29% 3.68% 2.20%


 

Ratios/Supplemental Data: 2008 2007 (e) 2006 2005 2004 2003
Net assets, end of period (000) $51,368 $73,581 $75,471 $82,195 $95,796 $107,072
Average net assets (000) $64,999 $75,508 $77,483 $89,756 $103,055 $114,526
Ratios to average net assets: (f)
Expenses, including distribution and service (12b-1) fees 1.94% (b) 1.82% (b)(c) 1.89% (b) 1.70% (b) .90% .84%
Expenses, excluding distribution and service (12b-1) fees 1.94% (b) 1.82% (b)(c) 1.89% (b) 1.70% (b) .90% .84%
Net investment income 6.34% 4.91% (c) 4.46% 4.91% 3.48% 4.43%
Portfolio turnover rate 338% 318% (d) 471% 251% 279% 282%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than one full year are not annualized.
(b) The annualized expense ratio without interest expense would have been 0.70% for the year ended October 31, 2008, 0.76% for the ten months ended October 31, 2007, and 0.94% and 0.91%, respectively, for the fiscal years ended December 31, 2006 and 2005.
(c) Annualized
(d) Not Annualized
(e) For the ten months period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(f) Does not include expenses of the underlying fund in which the Portfolio invests.

 

106 The TARGET Portfolio Trust


U.S. GOVERNMENT MONEY MARKET PORTFOLIO

Class T Shares (Fiscal year ended 10/31/08, ten months ended 10/31/07 and fiscal years ended 12/31/03 - 06)

Per Share Operating Performance: 2008 2007 (c) 2006 2005 2004 2003
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income and net realized gain on investments .026 .040 .043 .026 .008 .007
Less dividends and distributions (.026) (.040) (.043) (.026) (.008) (.007)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total return (a) 2.63% 4.04% 4.36% 2.59% .76% .70%


 

Ratios/Supplemental Data 2008 2007 2006 2005 2004 2003
Net assets, end of period (000) $68,844 $67,067 $47,275 $57,207 $74,190 $98,464
Average net assets (000) $91,457 $63,409 $47,990 $69,488 $94,854 $114,831
Ratios to average net assets: (d)
Expenses, including distribution and service (12b-1) fees .47% .50% (b) .70% .71% .59% .52%
Expenses, excluding distribution and service (12b-1) fees .47% .50% (b) .70% .71% .59% .52%
Net investment income 2.42% 4.78% (b) 4.25% 2.50% .72% .71%


 

(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods of less than one full year are not annualized.
(b) Annualized.
(c) For the ten month period ended October 31, 2007. The Trust changed its fiscal year end from December 31 to October 31, effective October 31, 2007.
(d) Does not include expenses of the underlying fund in which the Portfolio invests.

 

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APPENDIX

DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE, INC. (MOODY'S)

Debt Ratings

Aaa: Bonds which are rated Aaa are judged to be of 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 such 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 the Aaa securities.

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.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

 

108 The TARGET Portfolio Trust


Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest-rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Moody's applies numerical modifiers 1, 2, and 3 in each generic rating category from Aa to Caa. The modifier 1 indicates that the issuer is in the higher end of its letter rating category; the modifier 2 indicates a mid-range ranking; the modifier 3 indicates that the issuer is in the lower end of the letter ranking category.

Short-Term Ratings

Moody's short-term debt ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. Such obligations generally have an original maturity not exceeding one year, unless explicitly noted.

PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics:

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This normally will be evidenced by many of the characteristics cited above 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 alternate liquidity is maintained.

MIG 1: This designation denotes best quality. There is strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.

MIG 2: This designation denotes high quality. Margins of protection are ample although not so large as in the preceeding group.

 

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STANDARD & POOR'S RATINGS SERVICES (S&P)

Long-Term Issue Credit Ratings

AAA: An obligation rated AAA has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.

A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.

BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

B: An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.

CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC: An obligation rated CC is currently highly vulnerable to nonpayment.

C: The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

 

110 The TARGET Portfolio Trust


Commercial Paper Ratings

A-1: This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1.

Notes Ratings

An S&P notes rating reflects the liquidity factors and market risks unique to notes. Notes due in three years or less will likely receive a notes rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment.

Note rating symbols are as follows:

SP-1: Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.

SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.

FITCH RATINGS

International Long-Term Credit Ratings

Investment Grade

AAA : Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.

AA : Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.

A : High credit quality. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions that is the case for higher ratings.

 

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BBB : Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.

Speculative Grade

BB : Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.

B : Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.

CCC, CC, C : High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default.

DDD, DD, D : Default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. DDD obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest. DD indicates potential recoveries in the range of 50%-90% and D the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations.

Entities rated DDD have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated DD and D are generally undergoing a formal reorganization or liquidation process; those rated DD are likely to satisfy a higher portion of their outstanding obligations, while entities rated D have a poor prospect of repaying all obligations.

Notes:"+"or "-" may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA category or to categories below CCC.

Short-Term Debt Ratings

A short-term rating has a time horizon of less than 12 months for most obligations, or up to three years for U.S. public finance securities, and thus places greater emphasis on the liquidity necessary to meet financial commitments in a timely manner.

 

112 The TARGET Portfolio Trust


F1 : Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments: may have an added "+" to denote any exceptionally strong credit feature.

F2 : Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings.

F3 : Fair credit quality. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade.

B : Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions.

C : High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.

D : Default. Denotes actual or imminent payment default.

NR : Indicates that Fitch does not rate the specific issue.

Withdrawn: A rating is withdrawn when Fitch Ratings deems the amount of information available to be inadequate for rating purposes, or when an obligation matures, is called, or refinanced.

FitchAlert: Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may be raised or lowered. FitchAlert is relatively short term, and should be resolved within 12 months.

Ratings Outlook: An outlook is used to describe the most likely direction of any rating change over the intermediate term. It is described as "Positive" or "Negative." The absence of a designation indicates a stable outlook.

 

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The TARGET Portfolio Trust NASDAQ CUSIP
Large Capitalization Growth Class T TALGX 875921207
Class R TLCRX 875921868
Large Capitalization Value Class T TALVX 875921108
Class R TLVRX 875921850
Small Capitalization Growth Class T TASGX 875921405
Class R TSCRX 875921835
Small Capitalization Value Class T TASVX 875921306
Class R TSVRX 875921843
International Equity Class T TAIEX 875921504
Class R TEQRX 875921827


 

The TARGET Portfolio Trust NASDAQ CUSIP
International Bond Class T TIBPX 875921876
Total Return Bond Class T TATBX 875921884
Class R TTBRX 875921819
Intermediate-Term Bond Class T TAIBX 875921801
Mortgaged Backed Securities Class T TGMBX 875921702
U.S. Government Money Market Class T PUGXX 875921603


 

114 The TARGET Portfolio Trust


 

FOR MORE INFORMATION
Please read this prospectus before you invest in the Fund and keep it for future reference.
For information on shareholder questions contact:

  • MAIL Prudential Mutual Fund Services LLC PO Box 9658 Providence, RI 02940

  • TELEPHONE
    (800) 225-1852 (973) 367-3529 (from outside the U.S.)

  • WEBSITE www.prudential.com

  • OUTSIDE BROKERS SHOULD CONTACT Prudential Investment Management Services LLC PO Box 9658 Providence, RI 02940

  • TELEPHONE (800) 778-8769



 

  • E-DELIVERY To receive your mutual fund documents on-line, go to www.icsdelivery.com/prudential/funds and enroll. Instead of receiving printed documents by mail, you will receive notification via e-mail when new materials are available. You can cancel your enrollment or change your e-mail address at any time by clicking on the change/cancel enrollment option at the icsdelivery website address.



 

You can also obtain copies of Fund documents from the Securities and Exchange Commission as follows:

  • MAIL Securities and Exchange Commission Public Reference Section Washington, DC 20549-0102

  • ELECTRONIC REQUEST publicinfo@sec.gov (The SEC charges a fee to copy documents)

  • IN PERSON Public Reference Room located at 100 F Street, N.E. in Washington, DC For hours of operation, call (202) 551-8090

  • VIA THE INTERNET on the EDGAR database at www.sec.gov



 

The Annual and Semi-Annual Reports and the SAI contain additional information. Shareholders may obtain free copies of the SAI, Annual Report and Semi-Annual Report as well as other information about the Fund and may make other shareholder inquiries through the telephone number, address and website listed above.

  • STATEMENT OF ADDITIONAL INFORMATION (SAI) (incorporated by reference into this Prospectus)

  • SEMI-ANNUAL REPORT

  • ANNUAL REPORT
    (contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during the last fiscal year)



 

TMF 158A

The Fund's Investment Co. Act File No. 811-07064



 


 

The Target Portfolio Trust®

January 30, 2009

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information (SAI) of The Target Portfolio Trust (the "Trust") is not a prospectus and should be read in conjunction with the Prospectus of the Trust dated January 30, 2009 and can be obtained, without charge, by calling (800) 225-1852 or by writing to the Trust at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-1852. The Trust's Prospectus is incorporated by reference into this SAI, and the SAI has been incorporated by reference into the Trust's Prospectus.


The Trust's audited financial statements are incorporated into this SAI by reference to the Trust's 2008 Annual Report (File No. 811-7064). You may request a copy of the Annual Report at no charge by calling (800) 225-1852 between 8:00 a.m. and 6:00 p.m. Eastern time on any business day.

TMF158B

 

 

PART I

Table of Contents
 
 
3 PART I
3 INTRODUCTION
3 FUND CLASSIFICATION, INVESTMENT OBJECTIVES & POLICIES
4 INVESTMENT RISKS AND CONSIDERATIONS
32 INVESTMENT RESTRICTIONS
34 INFORMATION ABOUT BOARD MEMBERS AND OFFICERS
39 MANAGEMENT & ADVISORY ARRANGEMENTS
59 OTHER SERVICE PROVIDERS
60 DISTRIBUTION OF PORTFOLIO SHARES
63 COMPUTATION OF OFFERING PRICE PER SHARE
63 PORTFOLIO TRANSACTIONS & BROKERAGE
68 ADDITIONAL INFORMATION
69 PRINCIPAL SHAREHOLDERS
70 FINANCIAL STATEMENTS
 
71 PART II
71 PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
71 NET ASSET VALUE
73 SHAREHOLDER SERVICES
74 TAXES, DIVIDENDS AND DISTRIBUTIONS
81 DISCLOSURE OF PORTFOLIO HOLDINGS
83 PROXY VOTING
83 CODES OF ETHICS
84 APPENDIX I: DESCRIPTION OF BOND RATINGS
88 APPENDIX II: PROXY VOTING POLICIES OF THE SUBADVISERS

 

INTRODUCTION

This SAI sets forth information about each of the Trust's Portfolios. It provides information about certain of the securities, instruments, policies and principal and non-principal strategies that are used by each Portfolio in seeking to achieve its objective.

This SAI also provides additional information about the Trust's Board of Trustees (hereafter referred to as "Directors" or "Board Members"), the advisory services provided to and the management fees paid by each Portfolio, performance data for each Portfolio, and information about other fees paid by and services provided to each Portfolio.

The Trust consists of the following Portfolios:

FUND CLASSIFICATION, INVESTMENT OBJECTIVES & POLICIES

The Trust is an open-end management investment company. Each of the Trust's Portfolios is classified as a diversified fund, except for the International Bond Portfolio, which is classified as a nondiversified fund.

The principal investment policies and strategies of each Portfolio are described in the Prospectus. In addition, each Portfolio may from time to time use the securities, instruments, policies and strategies that are further identified in the following section entitled "Investment Risks and Considerations." A Portfolio also may invest from time to time in certain types of investments and strategies that are either not discussed or are not identified below as relating to a Portfolio.

A Portfolio may not be successful in achieving its objective and you could lose money.

Set forth below are specific limitations or restrictions which are applicable to a Portfolio's investments as discussed in the following section. If any disclosure contained elsewhere in the SAI contradicts the following restrictions or limitations, the following restrictions or limitations shall govern:

  • No Portfolio will invest more than 5% of net assets in custodial receipts of U.S. Government securities.

  • The Large Capitalization Value, Small Capitalization Value, International Equity, Mortgage Backed Securities, Intermediate-Term Bond, Total Return Bond and International Bond Portfolios will invest in corporate and other debt obligations rated A or better, except that the International Bond, Total Return Bond and Intermediate-Term Bond Portfolios may invest in securities rated B or better or determined by the subadviser to be of comparable quality.

  • Investments in corporate loans by the Intermediate-Term Bond, International Bond and Total Return Bond Portfolios are subject to a maximum of 5% of net assets.

  • No Portfolio will invest, under normal market conditions, more than 10% of net assets in municipal securities, including residual interest bonds.

  • The U.S. Government Money Market Portfolio may hold up to 10% of net assets in illiquid securities.

  • The Mortgage Backed Securities, Intermediate-Term Bond, Total Return Bond and International Bond Portfolios may borrow from banks or through dollar rolls or reverse repurchase agreements no more than 33 1/3% of total assets. All other Portfolios may borrow up to 20% of total assets.

  • With respect to money market futures contracts, (which are cash settled contracts and are marked to market on a daily basis), the Total Return Bond, Intermediate-Term Bond and International Bond Portfolios may segregate or earmark liquid assets in an amount equal to the Portfolio's daily marked to market (net) obligation, if any, (or in other words the Portfolio's daily net liability, if any).

  • The Total Return Bond, Intermediate-Term Bond and International Bond Portfolios normally will be limited to 20% of the Portfolio's total assets for foreign currency exposure (from non-U.S. dollar-denominated securities or currencies).

 

3

INVESTMENT RISKS AND CONSIDERATIONS

Set forth below are descriptions of some of the types of investments and investment strategies that each Portfolio (also referred to as a "Fund") may use and the risks and considerations associated with those investments and investment strategies. Please also see the Prospectus, which discusses the Portfolios' principal investment objective(s) and identifies certain of the non-principal investments and strategies that may be used.

In this section the term "Manager" includes each Portfolio's subadviser(s).

The following investments, strategies, and/or risks are applicable to all Portfolios:

BORROWING AND LEVERAGE . The Fund may borrow up to 33 1/3% of the value of its total assets (calculated at the time of the borrowing). The Fund may pledge up to 33 1/3% of its total assets to secure these borrowings. If the Fund's asset coverage for borrowings falls below 300%, the Fund will take prompt action to reduce its borrowings. If the Fund borrows to invest in securities, any investment gains made on the securities in excess of interest paid on the borrowing will cause the net asset value of the shares to rise faster than would otherwise be the case. On the other hand, if the investment performance of the additional securities purchased fails to cover their cost (including any interest paid on the money borrowed) to the Fund, the net asset value of the Fund's shares will decrease faster than would otherwise be the case. This is the speculative factor known as "leverage."

The Fund may borrow from time to time, at the investment adviser's discretion, to take advantage of investment opportunities, when yields on available investments exceed interest rates and other expenses of related borrowing, or when, in the investment adviser's opinion, unusual market conditions otherwise make it advantageous for the Fund to increase its investment capacity. The Fund will only borrow when there is an expectation that it will benefit the Fund after taking into account considerations such as interest income and possible losses upon liquidation. Borrowing by the Fund creates an opportunity for increased net income but, at the same time, creates risks, including the fact that leverage may exaggerate changes in the net asset value of Fund shares and in the yield on the Fund. Unless otherwise stated, the Fund may borrow through forward rolls, dollar rolls or reverse repurchase agreements.

MUNICIPAL SECURITIES . The Fund may, from time to time, invest in municipal bonds, which may be general obligation or revenue bonds. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest, whereas revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source.

The Fund may invest in municipal notes including tax, revenue and bond anticipation notes which are issued to obtain funds for various public purposes. The Fund may invest in municipal asset-backed securities, which are debt obligations, often issued through a trust or other investment vehicles that are backed by municipal debt obligations and accompanied by a liquidity facility. The Fund may invest in municipal securities with the right to resell such securities to the seller at an agreed-upon price or yield within a specified period prior to the maturity date. Such a right to resell is commonly referred to as a "put" or "tender option."

Municipal securities include notes and bonds issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities and the District of Columbia, the interest on which is generally eligible for exclusion from federal income tax and, in certain instances, applicable state or local income and personal property taxes. Such securities are traded primarily in the OTC market.

The interest rates payable on certain municipal bonds and municipal notes are not fixed and may fluctuate based upon changes in market rates. Municipal bonds and notes of this type are called "variable rate" obligations. The interest rate payable on a variable rate obligation is adjusted either at predesignated intervals or whenever there is a change in the market rate of interest on which the interest rate payable is based. Other features may include the right whereby the Fund may demand prepayment of the principal amount of the obligation prior to its stated maturity (a demand feature) and the right of the issuer to prepay the principal amount prior to maturity. The principal benefit of a variable rate obligation is that the interest rate adjustment minimizes changes in the market value of the obligation. As a result, the purchase of variable rate obligations should enhance the ability of the Fund to maintain a stable NAV per share and to sell an obligation prior to maturity at a price approximating the full principal amount of the obligation.

Variable rate securities provide for a specific periodic adjustment in the interest rate based on prevailing market rates and generally would allow the Fund to demand payment of the obligation on short notice at par plus accrued interest, which amount may, at times, be more or less than the amount the Fund paid for them. Some floating rate and variable rate securities have maturities longer than 397 calendar days but afford the holder the right to demand payment at dates earlier than the final maturity date. Such floating rate

 

The Target Portfolio Trust 4

and variable rate securities will be treated as having maturities equal to the demand date or the period of adjustment of the interest rate whichever is longer.

An inverse floater is a debt instrument with a floating or variable interest rate that moves in the opposite direction of the interest rate on another security or the value of an index. Changes in the interest rate on the other security or index inversely affect the residual interest rate paid on the inverse floater, with the result that the inverse floater's price will be considerably more volatile than that of a fixed rate bond. Generally, income from inverse floating rate bonds will decrease when short-term interest rates increase, and will increase when short-term interest rates decrease. Such securities have the effect of providing investment leverage, since they may increase or decrease in value in response to changes, as an illustration, in market interest rates at a rate that is a multiple (typically two) of the rate at which fixed-rate, long-term, tax-exempt securities increase or decrease in response to such changes. As a result, the market values of such securities generally will be more volatile than the market values of fixed-rate tax-exempt securities. See "Indexed and Inverse Securities."

REPURCHASE AGREEMENTS . The Fund may invest in securities pursuant to repurchase agreements. The Fund will enter into repurchase agreements only with parties meeting creditworthiness standards as set forth in the Fund's repurchase agreement procedures.

Under such agreements, the other party agrees, upon entering into the contract with the Fund, to repurchase the security at a mutually agreed-upon time and price in a specified currency, thereby determining the yield during the term of the agreement. This results in a fixed rate of return insulated from market fluctuations during such period, although such return may be affected by currency fluctuations. In the case of repurchase agreements, the prices at which the trades are conducted do not reflect accrued interest on the underlying obligation. Such agreements usually cover short periods, such as under one week. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser.

In the case of a repurchase agreement, as a purchaser, the Fund will require all repurchase agreements to be fully collateralized at all times by cash or other liquid assets in an amount at least equal to the resale price. The seller is required to provide additional collateral if the market value of the securities falls below the repurchase price at any time during the term of the repurchase agreement. In the event of default by the seller under a repurchase agreement construed to be a collateralized loan, the underlying securities are not owned by the Fund but only constitute collateral for the seller's obligation to pay the repurchase price. Therefore, the Fund may suffer time delays and incur costs or possible losses in connection with disposition of the collateral.

The Fund may participate in a joint repurchase agreement account with other investment companies managed by Prudential Investments LLC pursuant to an order of the Securities and Exchange Commission. On a daily basis, any uninvested cash balances of the Fund may be aggregated with those of such investment companies and invested in one or more repurchase agreements. Each Fund participates in the income earned or accrued in the joint account based on the percentage of its investment.

U.S. GOVERNMENT SECURITIES . The Fund may invest in adjustable rate and fixed rate U.S. Government securities. U.S. Government securities are instruments issued or guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S. Government. U.S. Government guarantees do not extend to the yield or value of the securities or a Fund's shares. Not all U.S. Government securities are backed by the full faith and credit of the United States. Some are supported only by the credit of the issuing agency.

U.S. Treasury securities include bills, notes, bonds and other debt securities issued by the U.S. Treasury. These instruments are direct obligations of the U.S. Government and, as such, are backed by the full faith and credit of the United States. They differ primarily in their interest rates, the lengths of their maturities and the dates of their issuances. U.S. Government guarantees do not extend to the yield or value of the securities or the Fund's shares.

Securities issued by agencies of the U.S. Government or instrumentalities of the U.S. Government, including those which are guaranteed by Federal agencies or instrumentalities, may or may not be backed by the full faith and credit of the United States. Obligations of Government National Mortgage Association ("GNMA," or "Ginnie Mae"), the Farmers Home Administration, the Small Business Administration and securities guarantteed under FDIC's TLGP are backed by the full faith and credit of the United States. In the case of securities not backed by the full faith and credit of the United States, the Fund must look principally to the agency issuing or guaranteeing the obligation for ultimate repayment and may not be able to assert a claim against the United States if the agency or instrumentality does not meet its commitments.

Obligations of the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae") are not backed by the full faith and credit of the U. S. government. Fannie Mae and Freddie Mac each may borrow from the U.S. Treasury to meet its obligations, but the U.S. Treasury is under no obligation to lend to Fannie Mae or Freddie Mac. On

 

5

September 6, 2008, at the request of the Secretary of the U.S. Treasury, the Chairman of the Board of Governors of the Federal Reserve and the Director of the Federal Housing Finance Agency (FHFA), each of Freddie Mac's and Fannie Mae's boards of directors adopted resolutions consenting to putting the respective companies into conservatorship. After obtaining these consents, the Director of FHFA appointed FHFA as the conservator of each of Fannie Mae and Freddie Mac on September 6, 2008. Fannie Mae and Freddie Mac report that as of November 7, 2008 and November 14, 2008, respectively, the conservator for each company has advised them that it has not disaffirmed or repudiated any contracts entered into by Fannie Mae or Freddie Mac prior to its appointment as conservator. The effect that this conservatorship will have on the companies' debt and equities is unclear. Fannie Mae and Freddie Mac have each been the subject of investigations by federal regulators over certain accounting matters. Such investigations, and any resulting restatements of financial statements, may adversely affect the guaranteeing entity and, as a result, the payment of principal or interest on these types of securities. Although the U.S. government has provided financial support to Fannie Mae and Freddie Mac, there can be no assurance that it will support these or other government-sponsored enterprisesin the future.

The Fund may also invest in component parts of U.S. Government securities, namely either the corpus (principal) of such obligations or one or more of the interest payments scheduled to be paid on such obligations. These obligations may take the form of (1) obligations from which the interest coupons have been stripped; (2) the interest coupons that are stripped; (3) book-entries at a Federal Reserve member bank representing ownership of obligation components; or (4) receipts evidencing the component parts (corpus or coupons) of U.S. Government obligations that have not actually been stripped. Such receipts evidence ownership of component parts of U.S. Government obligations (corpus or coupons) purchased by a third party (typically an investment banking firm) and held on behalf of the third party in physical or book-entry form by a major commercial bank or trust company pursuant to a custody agreement with the third party. The Fund may also invest in custodial receipts held by a third party that are not U.S. Government securities.

WHEN ISSUED SECURITIES, DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS . The Fund may purchase or sell securities that it is entitled to receive on a when issued basis. The Fund may also purchase or sell securities on a delayed delivery basis or through a forward commitment. These transactions involve the purchase or sale of securities by the Fund at an established price with payment and delivery taking place in the future. The Fund enters into these transactions to obtain what is considered an advantageous price to the Fund at the time of entering into the transaction. No Fund has established any limit on the percentage of its assets that may be committed in connection with these transactions. When the Fund purchases securities in these transactions, the Fund segregates liquid securities in an amount equal to the amount of its purchase commitments.

There can be no assurance that a security purchased on a when issued basis will be issued or that a security purchased or sold through a forward commitment will be delivered. The value of securities in these transactions on the delivery date may be more or less than the Fund's purchase price. The Fund may bear the risk of a decline in the value of the security in these transactions and may not benefit from an appreciation in the value of the security during the commitment period.

ILLIQUID OR RESTRICTED SECURITIES . The Fund may invest in securities that lack an established secondary trading market or otherwise are considered illiquid. Liquidity of a security relates to the ability to dispose easily of the security and the price to be obtained upon disposition of the security, which may be less than would be obtained for a comparable more liquid security. Illiquid securities may trade at a discount from comparable, more liquid investments. Investment of the Fund's assets in illiquid securities may restrict the ability of the Fund to dispose of its investments in a timely fashion and for a fair price as well as its ability to take advantage of market opportunities. The risks associated with illiquidity will be particularly acute where the Fund's operations require cash, such as when the Fund redeems shares or pays dividends, and could result in the Fund borrowing to meet short term cash requirements or incurring capital losses on the sale of illiquid investments. The Fund may invest in securities that are not registered ("restricted securities") under the Securities Act.

Restricted securities may be sold in private placement transactions between issuers and their purchasers and may be neither listed on an exchange nor traded in other established markets. In many cases, privately placed securities may not be freely transferable under the laws of the applicable jurisdiction or due to contractual restrictions on resale. As a result of the absence of a public trading market, privately placed securities may be less liquid and more difficult to value than publicly traded securities. To the extent that privately placed securities may be resold in privately negotiated transactions, the prices realized from the sales, due to illiquidity, could be less than those originally paid by the Fund or less than their fair market value. In addition, issuers whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements that may be applicable if their securities were publicly traded. If any privately placed securities held by the Fund are required to be registered under the securities laws of one or more jurisdictions before being resold, the Fund may be required to bear the expenses of registration. Certain of a Fund's investments in private placements may consist of direct investments and may include investments in smaller, less seasoned issuers, which may involve greater risks. These issuers may have limited product lines, markets or financial resources or they may be

 

The Target Portfolio Trust 6

dependent on a limited management group. In making investments in such securities, the Fund may obtain access to material nonpublic information, which may restrict the Fund's ability to conduct portfolio transactions in such securities.

The Fund may purchase restricted securities that can be offered and sold to "qualified institutional buyers" under Rule 144A under the Securities Act. The Board has determined to treat as liquid Rule 144A securities that are either freely tradable in their primary markets offshore or have been determined to be liquid in accordance with the policies and procedures adopted by the Board. The Board has adopted guidelines and delegated to the Manager the daily function of determining and monitoring liquidity of restricted securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. Since it is not possible to predict with assurance exactly how the market for restricted securities sold and offered under Rule 144A will continue to develop, the Board will carefully monitor the Fund's investments in these securities. This investment practice could have the effect of increasing the level of illiquidity the Fund to the extent that qualified institutional buyers become for a time uninterested in purchasing these securities.

INVESTMENT IN OTHER INVESTMENT COMPANIES . The Fund may invest in other investment companies, including exchange traded funds. In accordance with the 1940 Act, the Fund may invest up to 10% of its total assets in securities of other investment companies. In addition, under the 1940 Act, the Fund may not own more than 3% of the total outstanding voting stock of any investment company and not more than 5% of the value of the Fund's total assets may be invested in securities of any investment company. (These limits do not restrict a Feeder Fund from investing all of its assets in shares of its Master Portfolio.)

Notwithstanding the limits discussed above, the Fund may invest in other investment companies without regard to the limits set forth above provided that the Fund complies with Rules 12d1-1, 12d1-2 and 12d1-3 promulgated by the Securities and Exchange Commission under the 1940 Act.

As with other investments, investments in other investment companies are subject to market and selection risk. In addition, if the Fund acquires shares in investment companies, shareholders would bear both their proportionate share of expenses in the Fund (including management and advisory fees) and, indirectly, the expenses of such investment companies (including management and advisory fees). Investments by the Fund in wholly owned investment entities created under the laws of certain countries will not be deemed an investment in other investment companies.

MONEY MARKET INSTRUMENTS . The Fund may invest in money market instruments. Money market instruments include cash equivalents and short-term obligations of U.S. banks, certificates of deposit, short-term obligations issued or guaranteed by the U.S. Government or its agencies. Money market instruments also include bankers' acceptances, commercial paper, certificates of deposit and Eurodollar obligations issued or guaranteed by bank holding companies in the U.S., their subsidiaries and foreign branches, by foreign banking institutions, and by the World Bank and other multinational instrumentalities, as well as commercial paper and other short-term obligations of, and variable amount master demand notes, variable rate notes and funding agreements issued by, U.S. and foreign corporations.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, Large Capitalization Value, Small Capitalization Growth, Small Capitalization Value, International Equity, International Bond, Total Return Bond, Intermediate-Term Bond and Mortgage Backed Securities:

CONVERTIBLE SECURITIES . Convertible securities entitle the holder to receive interest payments paid on corporate debt securities or the dividend preference on a preferred stock until such time as the convertible security matures or is redeemed or until the holder elects to exercise the conversion privilege.

The characteristics of convertible securities make them appropriate investments for an investment company seeking a high total return from capital appreciation and investment income. These characteristics include the potential for capital appreciation as the value of the underlying common stock increases, the relatively high yield received from dividend or interest payments as compared to common stock dividends and decreased risks of decline in value relative to the underlying common stock due to their fixed-income nature. As a result of the conversion feature, however, the interest rate or dividend preference on a convertible security is generally less than would be the case if the securities were issued in nonconvertible form.

In analyzing convertible securities, the Manager will consider both the yield on the convertible security relative to its credit quality and the potential capital appreciation that is offered by the underlying common stock, among other things.

Convertible securities are issued and traded in a number of securities markets. Even in cases where a substantial portion of the convertible securities held by a Fund are denominated in U.S. dollars, the underlying equity securities may be quoted in the currency of the country where the issuer is domiciled. With respect to convertible securities denominated in a currency different from that of

 

7

the underlying equity securities, the conversion price may be based on a fixed exchange rate established at the time the security is issued. As a result, fluctuations in the exchange rate between the currency in which the debt security is denominated and the currency in which the share price is quoted will affect the value of the convertible security. As described below, a Fund is authorized to enter into foreign currency hedging transactions in which it may seek to reduce the effect of such fluctuations.

Apart from currency considerations, the value of convertible securities is influenced by both the yield of nonconvertible securities of comparable issuers and by the value of the underlying common stock. The value of a convertible security viewed without regard to its conversion feature (i.e., strictly on the basis of its yield) is sometimes referred to as its "investment value." To the extent interest rates change, the investment value of t convertible security typically will fluctuate. However, at the same time, the value of the convertible security will be influenced by its "conversion value," which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion value fluctuates directly with the price of the underlying common stock. If, because of a low price of the common stock the conversion value is substantially below the investment value of the convertible security, the price of the convertible security is governed principally by its investment value.

To the extent the conversion value of a convertible security increases to a point that approximates or exceeds its investment value, the price of the convertible security will be influenced principally by its conversion value. A convertible security will sell at a premium over the conversion value to the extent investors place value on the right to acquire the underlying common stock while holding a fixed-income security. The yield and conversion premium of convertible securities issued in Japan and the Euromarket are frequently determined at levels that cause the conversion value to affect their market value more than the securities' investment value.

Holders of convertible securities generally have a claim on the assets of the issuer prior to the common stockholders but may be subordinated to other debt securities of the same issuer. A convertible security may be subject to redemption at the option of the issuer at a price established in the charter provision, indenture or other governing instrument pursuant to which the convertible security was issued. If a convertible security held by a Fund is called for redemption, the Fund will be required to redeem the security, convert it into the underlying common stock or sell it to a third party. Certain convertible debt securities may provide a put option to the holder, which entitles the holder to cause the security to be redeemed by the issuer at a premium over the stated principal amount of the debt security under certain circumstances.

Synthetic convertible securities may be either (i) a debt security or preferred stock that may be converti only under certain contingent circumstances or that may pay the holder a cash amount based on the value of shares of underlying common stock partly or wholly in lieu of a conversion right (a "Cash-Settled Convertible"), (ii) a combination of separate securities chosen by the Manager in order to create the economic characteristics of a convertible security, i.e., a fixed income security paired with a security with equity conversion features, such as an option or warrant (a "Manufactured Convertible") or (iii) a synthetic security manufactured by another party.

Synthetic convertible securities may include either Cash-Settled Convertibles or Manufactured Convertibles. Cash-Settled Convertibles are instruments that are created by the issuer and have the economic characteristics of traditional convertible securities but may not actually permit conversion into the underlying equity securities in all circumstances. As an example, a private company may issue a Cash-Settled Convertible that is convertible into common stock only if the company successfully completes a public offering of its common stock prior to maturity and otherwise pays a cash amount to reflect any equity appreciation. Manufactured Convertibles are created by the Manager by combining separate securities that possess one of the two principal characteristics of a convertible security, i.e., fixed income ("fixed income component") or a right to acquire equity securities ("convertibility component"). The fixed income component is achieved by investing in nonconvertible fixed income securities, such as nonconvertible bonds, preferred stocks and money market instruments. The convertibility component is achieved by investing in call options, warrants, or other securities with equity conversion features ("equity features") granting the holder the right to purchase a specified quantity of the underlying stocks within a specified period of time at a specified price or, in the case of a stock index option, the right to receive a cash payment based on the value of the underlying stock index.

A Manufactured Convertible differs from traditional convertible securities in several respects. Unlike a traditional convertible security, which is a single security having a unitary market value, a Manufactured Convertible is comprised of two or more separate securities, each with its own market value. Therefore, the total "market value" of such a Manufactured Convertible is the sum of the values of its fixed-income component and its convertibility component.

More flexibility is possible in the creation of a Manufactured Convertible than in the purchase of a traditional convertible security. Because many corporations have not issued convertible securities, the Manager may combine a fixed income instrument and an equity feature with respect to the stock of the issuer of the fixed income instrument to create a synthetic convertible security

 

The Target Portfolio Trust 8

otherwise unavailable in the market. The Manager may also combine a fixed income instrument of an issuer with an equity feature with respect to the stock of a different issuer when the Manager believes such a Manufactured Convertible would better promote a Fund's objective than alternate investments. For example, the Manager may combine an equity feature with respect to an issuer's stock with a fixed income security of a different issuer in the same industry to diversify the Fund's credit exposure, or with a U.S. Treasury instrument to create a Manufactured Convertible with a higher credit profile than a traditional convertible security issued by that issuer. A Manufactured Convertible also is a more flexible investment in that its two components may be purchased separately and, upon purchasing the separate securities, "combined" to create a Manufactured Convertible. For example, a Fund may purchase a warrant for eventual inclusion in a Manufactured Convertible while postponing the purchase of a suitable bond to pair with the warrant pending development of more favorable market conditions.

The value of a Manufactured Convertible may respond differently to certain market fluctuations than would a traditional convertible security with similar characteristics. For example, in the event a Fund created a Manufactured Convertible by combining a short-term U.S. Treasury instrument and a call option on a stock, the Manufactured Convertible would likely outperform a traditional convertible of similar maturity that is convertible into that stock during periods when Treasury instruments outperform corporate fixed income securities and under-perform during periods when corporate fixed-income securities outperform Treasury instruments.

DERIVATIVES . The Fund may use instruments referred to as derivatives. Derivatives are financial instruments the value of which is derived from another security, a commodity (such as gold or oil), a currency or an index (a measure of value or rates, such as the S&P 500 Index or the prime lending rate). Derivatives allow the Fund to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. The Fund may use Derivatives for hedging purposes. The Fund may also use derivatives to seek to enhance returns. The use of a Derivative is speculative if the Fund is primarily seeking to achieve gains, rather than offset the risk of other positions. When the Fund invests in a Derivative for speculative purposes, the Fund will be fully exposed to the risks of loss of that Derivative, which may sometimes be greater than the Derivative's cost. No Fund may use any Derivative to gain exposure to an asset or class of assets that it would be prohibited by its investment restrictions from purchasing directly.

A discussion of the risk factors relating to Derivatives is set out in the sub-section entitled "Risk Factors Involving Derivatives."

RISK FACTORS IN HEDGING FOREIGN CURRENCY RISKS . Hedging transactions involving Currency Instruments have substantial risks, including correlation risk. While the Fund's use of Currency Instruments to effect hedging strategies is intended to reduce the volatility of the Net Asset Value (NAV) of the Fund's shares, the NAV of the Fund's shares will fluctuate. Moreover, although Currency Instruments will be used with the intention of hedging against adverse currency movements, transactions in Currency Instruments involve the risk that anticipated currency movements will not be accurately predicted and that the Fund's hedging strategies will be ineffective. To the extent that the Fund hedges against anticipated currency movements that do not occur, the Fund may realize losses and decrease its total return as the result of its hedging transactions. Furthermore, the Fund will only engage in hedging activities from time to time and may not be engaging in hedging activities when movements in currency exchange rates occur.

In connection with its trading in forward foreign currency contracts, the Fund will contract with a foreign or domestic bank, or foreign or domestic securities dealer, to make or take future delivery of a specified amount of a particular currency. There are no limitations on daily price moves in such forward contracts, and banks and dealers are not required to continue to make markets in such contracts. There have been periods during which certain banks or dealers have refused to quote prices for such forward contracts or have quoted prices with an unusually wide spread between the price at which the bank or dealer is prepared to buy and that at which it is prepared to sell. Governmental imposition of credit controls might limit any such forward contract trading. With respect to its trading of forward contracts, if any, the Fund will be subject to the risk of bank or dealer failure and the inability of, or refusal by, a bank or dealer to perform with respect to such contracts. Any such default would deprive the Fund of any profit potential or force the Fund to cover its commitments for resale, if any, at the then market price and could result in a loss to the Fund.

It may not be possible for the Fund to hedge against currency exchange rate movements, even if correctly anticipated, in the event that (i) the currency exchange rate movement is so generally anticipated that the Fund is not able to enter into a hedging transaction at an effective price, or (ii) the currency exchange rate movement relates to a market with respect to which Currency Instruments are not available and it is not possible to engage in effective foreign currency hedging. The cost to the Fund of engaging in foreign currency transactions varies with such factors as the currencies involved, the length of the contract period and the market conditions then prevailing. Since transactions in foreign currency exchange usually are conducted on a principal basis, no fees or commissions are involved.

SECURITIES LENDING . Consistent with applicable regulatory requirements, the Fund may lend its portfolio securities to brokers, dealers and financial institutions, provided that outstanding loans of the Fund do not exceed in the aggregate 33 1/3 % of the value of

 

9

the Fund's total assets and provided that such loans are callable at any time by the Fund and are at all times secured by cash or equivalent collateral (including a line of credit) that is equal to at least 100% of the market value, determined daily, of the loaned securities. During the time portfolio securities are on loan, the borrower will pay the Fund an amount equivalent to any dividend or interest paid on such securities and the Fund may invest the cash collateral and earn additional income, or it may receive an agreed-upon amount of interest income from the borrower. The advantage of such loans is that the Fund continues to receive payments in lieu of the interest and dividends of the loaned securities, while at the same time earning interest either directly from the borrower or on the collateral which will be invested in short-term obligations.

A loan may be terminated by the borrower on one business day's notice or by the Fund at any time. If the borrower fails to maintain the requisite amount of collateral, the loan automatically terminates, and the Fund could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost over collateral. As with any extensions of credit, there are risks of delay in recovery and in some cases loss of rights in the collateral should the borrower of the securities fail financially. However, these loans of portfolio securities will only be made to firms determined to be creditworthy pursuant to procedures approved by the Board of the Fund. On termination of the loan, the borrower is required to return the securities to the Fund, and any gain or loss in the market price during the loan would inure to the Fund. Since voting or consent rights which accompany loaned securities pass to the borrower, the Fund will follow the policy of calling the loan, in whole or in part as may be appropriate, to permit the exercise of such rights if the matters involved would have a material effect on the Fund's investment in the securities which are the subject of the loan. The Fund will pay reasonable finders', administrative and custodial fees in connection with a loan of its securities or may share the interest earned on collateral with the borrower.

TEMPORARY DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS . The Fund may temporarily invest without limit in money market instruments, including commercial paper of U.S. corporations, certificates of deposit, bankers' acceptances and other obligations of domestic banks, and obligations issued or guaranteed by the U.S. Government, its agencies or its instrumentalities, as part of a temporary defensive strategy or to maintain appropriate liquidity to meet anticipated redemptions. Money market instruments typically have a maturity of one year or less as measured from the date of purchase.

The Fund also may temporarily hold cash or invest in money market instruments pending investment of proceeds from new sales of Fund shares or during periods of portfolio restructuring.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, Large Capitalization Value, Small Capitalization Value, International Equity, International Bond, Total Return Bond, Intermediate-Term Bond, and Mortgage Backed Securities Portfolios:

DEBT SECURITIES . Debt securities, such as bonds, involve credit risk. This is the risk that the issuer will not make timely payments of principal and interest. The degree of credit risk depends on the issuer's financial condition and on the terms of the bonds. Changes in an issuer's credit rating or the market's perception of an issuer's creditworthiness may also affect the value of a Fund's investment in that issuer. Credit risk is reduced to the extent a Fund limits its debt investments to U.S. Government securities. All debt securities, however, are subject to interest rate risk. This is the risk that the value of the security may fall when interest rates rise. In general, the market price of debt securities with longer maturities will go up or down more in response to changes in interest rates than the market price of shorter-term securities.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Value, Small Capitalization Growth, Small Capitalization Value, International Equity, International Bond, Total Return Bond, Intermediate-Term Bond, and Mortgage Backed Securities Portfolios:

ASSET-BACKED SECURITIES . Asset-backed securities directly or indirectly represent a participation interest in, or are secured by and payable from, a stream of payments generated by particular assets such as motor vehicle or credit card receivables. Payments of principal and interest may be guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution unaffiliated with the entities issuing the securities. Asset-backed securities may be classified as pass-through certificates or collateralized obligations.

Pass-through certificates are asset-backed securities which represent an undivided fractional ownership interest in an underlying pool of assets. Pass-through certificates usually provide for payments of principal and interest received to be passed through to their holders, usually after deduction for certain costs and expenses incurred in administering the pool. Because pass-through certificates represent an ownership interest in the underlying assets, the holders thereof bear directly the risk of any defaults by the obligors on the underlying assets not covered by any credit support.

Asset-backed securities issued in the form of debt instruments include collateralized debt obligations ("CDOs"), which include

 

The Target Portfolio Trust 10

collateralized bond obligations ("CBOs"), collateralized loan obligations ("CLOs") and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust which is backed by a diversified pool of high risk, below investment grade fixed income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. CDOs may charge management fees and administrative expenses.

For both CBOs and CLOs, the cash flows from the trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the "equity" tranche which bears the bulk of defaults from the bonds or loans in the trust and serves to protect the other, more senior tranches from defa in all but the most severe circumstances. Since it is partially protected from defaults, a senior tranche from a CBO trust or CLO trust typically has higher ratings and lower yields than its underlying securities, and can be rated investment grade. Despite the protection from the equity tranche, CBO or CLO tranches can experience substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults, as well as aversion to CBO or CLO securities as a class.

The risks of an investment in a CDO depend largely on the type of the collateral securities and the class of the CDO in which a Fund invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus, are not registered under state or federal securities laws. As a result, investments in CDOs may be characterized by the Fund as illiquid securities; however, an active dealer market may exist for CDOs allowing a CDO to qualify for transactions pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act). In addition to the normal risks associated with fixed income securities, CDOs carry additional risks including, but are not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the Funds may invest in CDOs that are subordinate to other classes; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, International Equity, International Bond, Total Return Bond, Intermediate-Term Bond, and Mortgage Backed Securities Portfolios:

OPTIONS ON SECURITIES AND SECURITIES INDEXES . The Fund may invest in options on individual securities, baskets of securities or particular measurements of value or rate (an "index"), such as an index of the price of U.S. Treasury securities or an index representative of short term interest rates.

TYPES OF OPTIONS . The Fund may engage in transactions in options on individual securities, baskets of securities or securities indices, or particular measurements of value or rate (an "index"), such as an index of the price of treasury securities or an index representative of short term interest rates. Such investments may be made on exchanges and in the OTC markets. In general, exchange-traded options have standardized exercise prices and expiration dates and require the parties to post margin against their obligations, and the performance of the parties' obligations in connection with such options is guaranteed by the exchange or a related clearing corporation. OTC options have more flexible terms negotiated between the buyer and the seller, but generally do not require the parties to post margin and are subject to greater credit risk. OTC options also involve greater liquidity risk. See "Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives" below.

CALL OPTIONS . The Fund may purchase call options on any of the types of securities or instruments in which it may invest. A call option gives the Fund the right to buy, and obligates the seller to sell, the underlying security at the exercise price at any time during the option period. The Fund also may purchase and sell call options on indices. Index options are similar to options on securities except that, rather than taking or making delivery of securities underlying the option at a specified price upon exercise, an index option gives the holder the right to receive cash upon exercise of the option if the level of the index upon which the option is based is greater than the exercise price of the option.

The Fund may only write (i.e., sell) covered call options on the securities or instruments in which it may invest and to enter into closing purchase transactions with respect to certain of such options. A covered call option is an option in which the Fund owns the underlying security or has an absolute and immediate right to acquire that security, without additional consideration (or for additional consideration held in a segregated account by its Custodian), upon conversion or exchange of other securities currently held in its portfolio or with respect to which the Fund has established cover by segregating liquid instruments on its books. The principal reason for writing call options is the attempt to realize, through the receipt of premiums, a greater return than would be realized on the securities alone. By writing covered call options, the Fund gives up the opportunity, while the option is in effect, to profit from any price increase in the underlying security above the option exercise price. In addition, the Fund's ability to sell the underlying security will be limited while the option is in effect unless the Fund enters into a closing purchase transaction. A closing purchase transaction cancels out the Fund's position as the writer of an option by means of an offsetting purchase of an identical

 

11

option prior to the expiration of the option it has written. Covered call options also serve as a partial hedge to the extent of the premium received against the price of the underlying security declining. Also, with respect to call options written by the Fund that are covered only by segregated portfolio securities, the Fund is exposed to the risk of loss equal to the amount by which the price of the underlying securities rises above the exercise price.

PUT OPTIONS . The Fund may purchase put options to seek to hedge against a decline in the value of its securities or to enhance its return. By buying a put option, the Fund acquires a right to sell such underlying securities or instruments at the exercise price, thus limiting the Fund's risk of loss through a decline in the market value of the securities or instruments until the put option expires. The amount of any appreciation in the value of the underlying securities or instruments will be partially offset by the amount of the premium paid for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction and profit or loss from the sale will depend on whether the amount received is more or less than the premium paid for the put option plus the related transaction costs. A closing sale transaction cancels out the Fund's position as the purchaser of an option by means of an offsetting sale of an identical option prior to the expiration of the option it has purchased. The Fund also may purchase uncovered put options.

The Fund may write (i.e., sell) put options on the types of securities or instruments that may be held by the Fund, provided that such put options are covered, meaning that such options are secured by segregated, liquid instruments. The Fund will receive a premium for writing a put option, which increases the Fund's return.

FUTURES . The Fund may engage in transactions in futures and options thereon. Futures are standardized, exchange-traded contracts which obligate a purchaser to take delivery, and a seller to make delivery, of a specific amount of an asset at a specified future date at a specified price. No price is paid upon entering into a futures contract. Rather, upon purchasing or selling a futures contract a Fund is required to deposit collateral ("margin") equal to a percentage (generally less than 10%) of the contract value. Each day thereafter until the futures position is closed, the Fund will pay additional margin representing any loss experienced as a result of the futures position the prior day or be entitled to a payment representing any profit experienced as a result of the futures position the prior day. Futures involve substantial leverage risk.

The sale of a futures contract limits the Fund's risk of loss through a decline in the market value of portfolio holdings correlated with the futures contract prior to the futures contract's expiration date. In the event the market value of the portfolio holdings correlated with the futures contract increases rather than decreases, however, the Fund will realize a loss on the futures position and a lower return on the portfolio holdings than would have been realized without the purchase of the futures contract.

The purchase of a futures contract may protect the Fund from having to pay more for securities as a consequence of increases in the market value for such securities during a period when the Fund was attempting to identify specific securities in which to invest in a market the Fund believes to be attractive. In the event that such securities decline in value or the Fund determines not to complete an anticipatory hedge transaction relating to a futures contract, however, the Fund may realize a loss relating to the futures position.

The Fund is also authorized to purchase or sell call and put options on futures contracts including financial futures and stock indices in connection with its hedging activities. Generally, these strategies would be used under the same market and market sector conditions (i.e., conditions relating to specific types of investments) in which the Fund entered into futures transactions. The Fund may purchase put options or write (i.e., sell) call options on futures contracts and stock indices rather than selling the underlying futures contract in anticipation of a decrease in the market value of its securities. Similarly, the Fund can purchase call options, or write put options on futures contracts and stock indices, as a substitute for the purchase of such futures to hedge against the increased cost resulting from an increase in the market value of securities which the Fund intends to purchase.

The Fund may only write "covered" put and call options on futures contracts. The Fund will be considered "covered" with respect to a call option it writes on a futures contract if the Fund owns the assets that are deliverable under the futures contract or an option to purchase that futures contract having a strike price equal to or less than the strike price of the "covered" option and having an expiration date not earlier than the expiration date of the "covered" option, or if it segregates for the term of the option cash or other liquid assets equal to the fluctuating value of the optioned future. The Fund will be considered "covered" with respect to a put option it writes on a futures contract if it owns an option to sell that futures contract having a strike price equal to or greater than the strike price of the "covered" option, or if it segregates for the term of the option cash or other liquid assets at all times equal in value to the exercise price of the put (less any initial margin deposited by the Fund with its futures custody manager or as otherwise permitted by applicable law with respect to such option). There is no limitation on the amount of the Fund's assets that can be segregated.

The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act ("CEA") pursuant to Rule 4.5 under the CEA. The Manager is not, therefore, subject to registration or regulation as a "commodity pool

 

The Target Portfolio Trust 12

operator" promulgated by the Commodity Futures Trading Commission (the "CFTC") under the CEA and the Fund is operated so as not to be deemed to be a "commodity pool" under the regulations of the CFTC.

RISK FACTORS INVOLVING DERIVATIVES. Derivatives are volatile and involve significant risks, including:

Credit Risk - the risk that the counterparty on a Derivative transaction will be unable to honor its financial obligation to a Fund.

Currency Risk - the risk that changes in the exchange rate between two currencies will adversely affect the value (in U.S. dollar terms) of an investment.

Leverage Risk - the risk associated with certain types of investments or trading strategies (such as borrowing money to increase the amount of investments) that relatively small market movements may result in large changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested.

Liquidity Risk - the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth.

The use of Derivatives for hedging purposes involves correlation risk. If the value of the Derivative moves more or less than the value of the hedged instruments, a Fund will experience a gain or loss that will not be completely offset by movements in the value of the hedged instruments.

The Fund intends to enter into transactions involving Derivatives only if there appears to be a liquid secondary market for such instruments or, in the case of illiquid instruments traded in OTC transactions, such instruments satisfy the criteria set forth below under "Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives." However, there can be no assurance that, at any specific time, either a liquid secondary market will exist for a Derivative or the Fund will otherwise be able to sell such instrument at an acceptable price. It may therefore not be possible to close a position in a Derivative without incurring substantial losses, if at all.

Certain transactions in Derivatives (such as futures transactions or sales of put options) involve substantial leverage risk and may expose the Fund to potential losses, which exceed the amount originally invested by the Fund. When the Fund engages in such a transaction, the Fund will deposit in a segregated account at its custodian liquid securities or cash and cash equivalents with a value at least equal to the Fund's exposure, on a mark-to-market basis, to the transaction (as calculated pursuant to requirements of the Commission). Such segregation will ensure that the Fund has assets available to satisfy its obligations with respect to the transaction, but will not limit the Fund's exposure to loss.

Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives

Certain Derivatives traded in OTC markets, including indexed securities, swaps and OTC options, involve substantial liquidity risk. The absence of liquidity may make it difficult or impossible for the Fund to sell such instruments promptly at an acceptable price. The absence of liquidity may also make it more difficult for the Fund to ascertain a market value for such instruments. The Fund will, therefore, acquire illiquid OTC instruments (i) if the agreement pursuant to which the instrument is purchased contains a formula price at which the instrument may be terminated or sold, or (ii) for which the Manager anticipates the Fund can receive on each business day at least two independent bids or offers, unless a quotation from only one dealer is available, in which case that dealer's quotation may be used.

Because Derivatives traded in OTC markets are not guaranteed by an exchange or clearing corporation and generally do not require payment of margin, to the extent that the Fund has unrealized gains in such instruments or has deposited collateral with its counterparty, the Fund is at risk that its counterparty will become bankrupt or otherwise fail to honor its obligations. The Fund will attempt to minimize the risk that a counterparty will become bankrupt or otherwise fail to honor its obligations by engaging in transactions in Derivatives traded in OTC markets only with financial institutions that appear to have substantial capital or that have provided the Fund with a third-party guaranty or other credit enhancement.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, Large Capitalization Value, International Equity, International Bond, Total Return Bond, and Intermediate-Term Bond Portfolios:

FOREIGN INVESTMENT RISKS. The Fund may invest in foreign equity and/or debt securities. Foreign debt securities include certain

 

13

foreign bank obligations and U.S. dollar or foreign currency-denominated obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities.

Foreign Market Risk . Foreign securities offer the potential for more diversification than if the Fund invests only in the United States because securities traded on foreign markets have often (though not always) performed differently from securities in the United States. However, such investments involve special risks not present in U.S. investments that can increase the chances that the Fund will lose money. In particular, the Fund is subject to the risk that, because there are generally fewer investors on foreign exchanges and a smaller number of shares traded each day, it may be difficult for the Fund to buy and sell securities on those exchanges. In addition, prices of foreign securities may fluctuate more than prices of securities traded in the United States.

Foreign Economy Risk . The economies of certain foreign markets often do not compare favorably with that of the United States with respect to such issues as growth of gross national product, reinvestment of capital, resources, and balance of payments position. Certain such economies may rely heavily on particular industries or foreign capital and are more vulnerable to diplomatic developments, the imposition of economic sanctions against a particular country or countries, changes in international trading patterns, trade barriers, and other protectionist or retaliatory measures. Investments in foreign markets may also be adversely affected by governmental actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets, or the imposition of punitive taxes. In addition, the governments of certain countries may prohibit or impose substantial restrictions on foreign investing in their capital markets or in certain industries. Any of these actions could severely affect security prices, impair the Fund's ability to purchase or sell foreign securities or transfer the Fund's assets or income back into the United States, or otherwise adversely affect the Fund's operations. Other foreign market risks include foreign exchange controls, difficulties in pricing securities, defaults on foreign government securities, difficulties in enforcing favorable legal judgments in foreign courts, and political and social instability. Legal remedies available to investors in certain foreign countries may be less extensive than those available to investors in the United States or other foreign countries.

Currency Risk and Exchange Risk . Securities in which the Fund invests may be denominated or quoted in currencies other than the U.S. dollar. Changes in foreign currency exchange rates will affect the value of the Fund's portfolio. Generally, when the U.S. dollar rises in value against a foreign currency, a security denominated in that currency loses value because the currency is worth fewer U.S. dollars. Conversely, when the U.S. dollar decreases in value against a foreign currency, a security denominated in that currency gains value because the currency is worth more U.S. dollars. This risk, generally known as "currency risk," means that a stronger U.S. dollar will reduce returns for U.S. investors while a weak U.S. dollar will increase those returns.

Governmental Supervision and Regulation/Accounting Standards . Many foreign governments supervise and regulate stock exchanges, brokers and the sale of securities less than the United States. Some countries may not have laws to protect investors comparable to the U.S. securities laws. For example, some foreign countries may have no laws or rules against insider trading. Insider trading occurs when a person buys or sells a company's securities based on nonpublic information about that company. Accounting standards in other countries are not necessarily the same as in the United States. If the accounting standards in another country do not require as much detail as U.S. accounting standards, it may be harder for Fund management to completely and accurately determine a company's financial condition.

Certain Risks of Holding Fund Assets Outside the United States . The Fund generally holds its foreign securities and cash in foreign banks and securities depositories. Some foreign banks and securities depositories may be recently organized or new to the foreign custody business. In addition, there may be limited or no regulatory oversight over their operations. Also, the laws of certain countries may put limits on the Fund's ability to recover its assets if a foreign bank or depository or issuer of a security or any of their agents goes bankrupt. In addition, it is often more expensive for the Fund to buy, sell and hold securities in certain foreign markets than in the United States. The increased expense of investing in foreign markets reduces the amount a Fund can earn on its investments and typically results in a higher operating expense ratio for the Fund as compared to investment companies that invest only in the United States.

Settlement Risk . Settlement and clearance procedures in certain foreign markets differ significantly from those in the United States. Foreign settlement procedures and trade regulations also may involve certain risks (such as delays in payment for or delivery of securities) not typically generated by the settlement of U.S. investments. Communications between the United States and emerging market countries may be unreliable, increasing the risk of delayed settlements or losses of security certificates. Settlements in certain foreign countries at times have not kept pace with the number of securities transactions; these problems may make it difficult for the Fund to carry out transactions. If a Fund cannot settle or is delayed in settling a purchase of securities, it may miss attractive investment opportunities and certain of its assets may be uninvested with no return earned thereon for some period. If the Fund cannot settle or is delayed in settling a sale of securities, it may lose money if the value of the security then declines or, if it has contracted to sell the security to another party, the Fund could be liable to that party for any losses incurred.

 

The Target Portfolio Trust 14

Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to foreign withholding taxes, thereby reducing the amount available for distribution to shareholders.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, International Equity, International Bond, Total Return Bond, Intermediate-Term Bond, Mortgage Backed Securities, and U.S. Government Money Market Portfolios:

HEDGING . Hedging is a strategy in which a Derivative or security is used to offset the risks associated with other Fund holdings. Losses on the other investment may be substantially reduced by gains on a Derivative that reacts in an opposite manner to market movements. While hedging can reduce losses, it can also reduce or eliminate gains or cause losses if the market moves in a different manner than anticipated by the Fund or if the cost of the Derivative outweighs the benefit of the hedge. Hedging also involves the risk that changes in the value of the Derivative will not match those of the holdings being hedged as expected by a Fund, in which case any losses on the holdings being hedged may not be reduced or may be increased. The inability to close options and futures positions also could have an adverse impact on a Fund's ability to hedge effectively its portfolio. There is also a risk of loss by the Fund of margin deposits or collateral in the event of bankruptcy of a broker with whom the Fund has an open position in an option, a futures contract or a related option.

There can be no assurance that the Fund's hedging strategies will be effective or that hedging transactions will be available to a Fund. The Fund is not required to engage in hedging transactions and the Fund may choose not to do so.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, Large Capitalization Value, Small Capitalization Value, International Bond, Total Return Bond, and Intermediate-Term Bond Portfolios:

DEPOSITARY RECEIPTS . The Fund may invest in the securities of foreign issuers in the form of Depositary Receipts or other securities convertible into securities of foreign issuers. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. American Depositary Receipts ("ADRs") and American Depositary Shares ("ADSs") are receipts or shares typically issued by an American bank or trust company that evidence ownership of underlying securities issued by a foreign corporation. European Depositary Receipts ("EDRs") are receipts issued in Europe that evidence a similar ownership arrangement. Global Depositary Receipts ("GDRs") are receipts issued throughout the world that evidence a similar arrangement. Generally, ADRs and ADSs, in registered form, are designed for use in the U.S. securities markets, and EDRs, in bearer form, are designed for use in European securities markets. GDRs are tradable both in the United States and in Europe and are designed for use throughout the world.

The Fund may invest in unsponsored Depositary Receipts. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States, and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the Depositary Receipts. Depositary Receipts are generally subject to the same risks as the foreign securities that they evidence or into which they may be converted or exchanged.

The following investments, strategies, and/or risks are applicable to the International Bond, Total Return Bond, Intermediate-Term Bond, Mortgage Backed Securities, and U.S. Government Money Market Portfolios:

INDEXED AND INVERSE SECURITIES . The Fund may invest in securities the potential return of which is based on an index or interest rate. As an illustration, the Fund may invest in a security whose value is based on changes in a specific index or that pays interest based on the current value of an interest rate index, such as the prime rate. The Fund may also invest in a debt security that returns principal at maturity based on the level of a securities index or a basket of securities, or based on the relative changes of two indices. In addition, the Fund may invest in securities the potential return of which is based inversely on the change in an index or interest rate (that is, a security the value of which will move in the opposite direction of changes to an index or interest rate). For example, the Fund may invest in securities that pay a higher rate of interest when a particular index decreases and pay a lower rate of interest (or do not fully return principal) when the value of the index increases. If the Fund invests in such securities, it may be subject to reduced or eliminated interest payments or loss of principal in the event of an adverse movement in the relevant interest rate, index or indices. Indexed and inverse securities may involve credit risk, and certain indexed and inverse securities may involve leverage risk, liquidity risk and currency risk. The Fund may invest in indexed and inverse securities for hedging purposes or to seek to increase returns. When used for hedging purposes, indexed and inverse securities involve correlation risk. (Furthermore, where such a security includes a contingent liability, in the event of such an adverse movement, the Fund may be required to pay substantial additional margin to maintain the position.)

The Manager recently reevaluated the financial statement presentation of certain inverse securities, which are commonly referred to as inverse floaters, under the provisions of Statement of Financial Accounting Standards No. 140 ("FAS 140"). The application of the

 

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provisions of FAS 140 entailed a reclassification of transactions in which a Fund sells a municipal bond to a special purpose trust in order to create an inverse floater which the Fund receives from such trust in a financing transaction. The trust also issues floating rate notes to third parties. The Fund receives interest payments on inverse floaters that bear an inverse relationship to the interest paid on the floating rate notes. These transactions were previously classified as a sale for financial statement presentation purposes. While such inverse floaters expose the Fund to leverage risk, they do not constitute borrowings for purposes of the Fund's restrictions on borrowings. Inverse floaters otherwise acquired by the Fund are not currently subject to this reevaluation under FAS 140.

Future financial statements for a Fund will reflect the application of the provisions of FAS 140, regardles of materiality. Pursuant to FAS 140, the Fund will record interest on the full amount of the municipal bonds held in the special purpose trusts as interest income and the Fund also will record the interest to holders of the floating rate certificates and fees associated with the trust as interest expense in the Statement of Operations. This change will cause the Fund's expense ratio to increase. However, neither the Fund's net income nor its distributions to shareholders are impacted since the increase in interest expense will be offset by a corresponding amount of increased income on the bonds now deemed to be owned by the Fund (instead of only the interest the Fund received on the inverse floater certificates it held directly).

To the extent that a Fund owns such inverse floaters as of the financial reporting period end, another important change pursuant to FAS 140 is that the Fund's gross assets would increase by the par amount of the floating rate certificates issued by the affected special purpose trusts, with a corresponding increase in the Fund's liabilities. The Fund's net assets and net asset value per share should not be affected by this change in accounting because the increase in gross assets will be offset by a corresponding increase in liabilities.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, International Equity, International Bond, Total Return Bond, and Intermediate-Term Bond Portfolios:

FOREIGN EXCHANGE TRANSACTIONS . The Fund may engage in spot and forward foreign exchange transactions and currency swaps, purchase and sell options on currencies and purchase and sell currency futures and related options thereon (collectively, "Currency Instruments") for purposes of hedging against the decline in the value of currencies in which its portfolio holdings are denominated against the U.S. dollar or, with respect to certain Funds, to seek to enhance returns. Such transactions could be effected with respect to hedges on non-U.S. dollar denominated securities owned by the Fund, sold by the Fund but not yet delivered, or committed or anticipated to be purchased by a Fund.

As an illustration, the Fund may use such techniques to hedge the stated value in U.S. dollars of an investment in a yen-denominated security. In such circumstances, for example, the Fund may purchase a foreign currency put option enabling it to sell a specified amount of yen for dollars at a specified price by a future date. To the extent the hedge is successful, a loss in the value of the yen relative to the dollar will tend to be offset by an increase in the value of the put option. To offset, in whole or in part, the cost of acquiring such a put option, the Fund may also sell a call option which, if exercised, requires it to sell a specified amount of yen for dollars at a specified price by a future date (a technique called a "straddle"). By selling such a call option in this illustration, the Fund gives up the opportunity to profit without limit from increases in the relative value of the yen to the dollar. "Straddles" of the type that may be used by the Fund are considered to constitute hedging transactions and are consistent with the policies described above. The Fund will not attempt to hedge all of its foreign portfolio positions.

FORWARD FOREIGN EXCHANGE TRANSACTIONS . Forward foreign exchange transactions are OTC contracts to purchase or sell a specified amount of a specified currency or multinational currency unit at a price and future date set at the time of the contract. Spot foreign exchange transactions are similar but require current, rather than future, settlement. The Fund will enter into foreign exchange transactions for purposes of hedging either a specific transaction or a portfolio position, or, with respect to certain Funds, to seek to enhance returns. The Fund may enter into a foreign exchange transaction for purposes of hedging a specific transaction by, for example, purchasing a currency needed to settle a security transaction or selling a currency in which the Fund has received or anticipates receiving a dividend or distribution.

The Fund may enter into a foreign exchange transaction for purposes of hedging a portfolio position by selling forward a currency in which a portfolio position of the Fund is denominated or by purchasing a currency in which the Fund anticipates acquiring a portfolio position in the near future. The Fund may also hedge portfolio positions through currency swaps, which are transactions in which one currency is simultaneously bought for a second currency on a spot basis and sold for the second currency on a forward basis. Forward foreign exchange transactions involve substantial currency risk, and also involve credit and liquidity risk.

CURRENCY FUTURES . The Fund may also seek to enhance returns or hedge against the decline in the value of a currency against the U.S. dollar through use of currency futures or options thereon. Currency futures are similar to forward foreign exchange transactions except that futures are standardized, exchange-traded contracts. See the sub-section entitled "Futures." Currency futures involve substantial currency risk, and also involve leverage risk.

 

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CURRENCY OPTIONS . The Fund may also seek to enhance returns or hedge against the decline in the value of a currency against the U.S. dollar through the use of currency options. Currency options are similar to options on securities, but in consideration for an option premium the writer of a currency option is obligated to sell (in the case of a call option) or purchase (in the case of a put option) a specified amount of a specified currency on or before the expiration date for a specified amount of another currency. The Fund may engage in transactions in options on currencies either on exchanges or OTC markets. See "Types of Options" above and "Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives" below. Currency options involve substantial currency risk, and may also involve credit, leverage or liquidity risk.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, Large Capitalization Value, International Bond, Total Return Bond, and Intermediate-Term Bond Portfolios:

REAL ESTATE INVESTMENT TRUSTS (REITs). Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, may not be diversified geographically or by property type, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs must also meet certain requirements under the Internal Revenue Code to avoid entity level tax and be eligible to pass-through certain tax attributes of their income to shareholders. REITs are consequently subject to the risk of failing to meet these requirements for favorable tax treatment and of failing to maintain their exemptions from registration under the 1940 Act. REITs are also subject to the risks of changes in the Internal Revenue Code, affecting their tax status.

REITs (especially mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a REIT's investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT's investment in fixed rate obligations can be expected to decline. In contrast, as interest rates on adjustable rate mortgage loans are reset periodically, yields on a REIT's investments in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such investments to fluctuate less dramatically in response to interest rate fluctuations than would investments in fixed rate obligations.

Investing in certain REITs involves risks similar to those associated with investing in small capitalization companies. These REITs may have limited financial resources, may trade less frequently and in limited volume and may be subject to more abrupt or erratic price movements than larger company securities. Historically, small capitalization stocks, such as these REITs, have been more volatile in price than the larger capitalization stocks included in the S&P 500 Index. The management of a REIT may be subject to conflicts of interest with respect to the operation of the business of the REIT and may be involved in real estate activities competitive with the REIT. REITs may own properties through joint ventures or in other circumstances in which the REIT may not have control over its investments. REITs may incur significant amounts of leverage.

The following investments, strategies, and/or risks are applicable to the International Bond, Total Return Bond, Intermediate-Term Bond, and Mortgage Backed Securities Portfolios:

SWAP AGREEMENTS . The Fund may enter into swap transactions, including but not limited to, equity, interest rate, index, credit default, total return and, to the extent that it may invest in foreign currency-denominated securities, currency exchange rate swap agreements. In addition, the Fund may enter into options on swap agreements (swap options). These swap transactions are entered into in an attempt to obtain a particular return when it is considered desirable to do so, possibly at a lower cost to the Fund than if the Fund had invested directly in an instrument that yielded that desired return. Swap transactions are a type of Derivative. Derivatives are further discussed in the sub-sections entitled "Derivatives" and "Risk Factors Involving Derivatives."

Swap agreements are two party contracts entered into primarily by institutional investors. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on or calculated with respect to particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or "swapped" between the parties are generally calculated with respect to a "notional amount," that is, the return on or increase in value of a particular dollar amount invested at a particular interest rate or in a "basket" of securities representing a particular index or other investments or instruments. Most swap agreements entered into by the Fund would calculate the obligations of the parties to the agreement on a "net basis." Consequently the Fund's current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). The Fund's current obligations under a swap agreement will be accrued daily (offset against any amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the segregation of liquid assets.

To the extent that the Fund enters into swaps on other than a net basis, the amount maintained in a segregated account will be the

 

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full amount of the Fund's obligations, if any, with respect to such swaps, accrued on a daily basis. Inasmuch as segregated accounts are established for these hedging transactions, the Manager and the Fund believe such obligations do not constitute senior securities and, accordingly, will not treat them as being subject to its borrowing restrictions. If there is a default by the other party to such a transaction, the Fund will have contractual remedies pursuant to the agreement related to the transaction. Since swaps are individually negotiated, the Fund expects to achieve an acceptable degree of correlation between its rights to receive a return on its portfolio securities and its rights and obligations to receive and pay a return pursuant to swaps. The Fund will enter into swaps only with counterparties meeting certain creditworthiness standards (generally, such counterparties would have to b eligible counterparties under the terms of the Fund's repurchase agreement guidelines approved by the Fund's Board).

Unless otherwise noted, the Fund's net obligations in respect of all swap agreements (i.e., the aggregate net amount owed by the Fund) is limited to 15% of its net assets.

CREDIT DEFAULT SWAP AGREEMENTS AND SIMILAR INSTRUMENTS . The Fund may enter into credit default swap agreements and similar agreements, and may also buy credit-linked securities. The credit default swap agreement or similar instrument may have as reference obligations one or more securities that are not currently held by a Fund. The protection "buyer" in a credit default contract may be obligated to pay the protection "seller" an up front or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the "par value" (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction. If the Fund is a buyer and no credit event occurs, the Fund recovers nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no value. As a seller, the Fund generally receives an up front payment or a fixed rate of income throughout the term of the swap provided that there is no credit event. If a credit event occurs, generally the seller must pay the buyer the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no value.

Credit default swaps and similar instruments involve greater risks than if the Fund had invested in the reference obligation directly, since, in addition to general market risks, they are subject to illiquidity risk, counterparty risk and credit risks. The Fund will enter into credit default swap agreements and similar instruments only with counterparties who are rated investment grade quality by at least one at the time of entering into such transaction or whose creditworthiness is believed by the Manager to be equivalent to such rating. A buyer also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the up front or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. When the Fund acts as a seller of a credit default swap or a similar instrument, it is exposed to many of the same risks of leverage since, if a credit event occurs, the seller may be required to pay the buyer the full notional value of the contract net of any amounts owed by the buyer related to its delivery of deliverable obligations.

TOTAL RETURN SWAP AGREEMENTS . The Fund may enter into total return swap agreements. Total return swap agreements are contracts in which one party agrees to make periodic payments based on the change in market value of the underlying assets, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate or the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market. Total return swap agreements may effectively add leverage to the Fund's portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap. Total return swap agreements entail the risk that a party will default on its payment obligations to the Fund thereunder. Swap agreements also bear the risk that the Fund will not be able to meet its obligation to the counterparty. Generally, the Fund will enter into total return swaps on a net basis (i.e., the two payment streams are netted out with the Fund receiving or paying, as the case may be, only the net amount of the two payments). The net amount of the excess, if any, of the Fund's obligations over its entitlements with respect to each total return swap will be accrued on a daily basis, and an amount of cash or liquid instruments having an aggregate net asset value at least equal to the accrued excess will be segregated by the Fund. If the total return swap transaction is entered into on other than a net basis, the full amount of the Fund's obligations will be accrued on a daily basis, and the full amount of the Fund's obligations will be segregated by the Fund in an amount equal to or greater than the market value of the liabilities under the total return swap agreement or the amount it would have cost the Fund initially to make an equivalent direct investment, plus or minus any amount the Fund is obligated to pay or is to receive under the total return swap agreement.

Unless otherwise noted, the Fund's net obligations in respect of all swap agreements (i.e., the aggregate net amount owed by the Fund) is limited to 15% of its net assets.

 

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MORTGAGE-BACKED SECURITIES . Investing in mortgage-backed securities involves certain unique risks in addition to those generally associated with investing in fixed-income securities and in the real estate industry in general. These unique risks include the failure of a party to meet its commitments under the related operative documents, adverse interest rate changes and the effects of prepayments on mortgage cash flows. Mortgage-backed securities are "pass-through" securities, meaning that principal and interest payments made by the borrower on the underlying mortgages are passed through to the Fund. The value of mortgage-backed securities, like that of traditional fixed-income securities, typically increases when interest rates fall and decreases when interest rates rise. However, mortgage-backed securities differ from traditional fixed-income securities because of their potential for prepayment without penalty. The price paid by the Fund for its mortgage-backed securities, the yield the Fund expects to receive from such securities and the average life of the securities are based on a number of factors, including the anticipated rate of prepayment of the underlying mortgages. In a period of declining interest rates, borrowers may prepay the underlying mortgages more quickly than anticipated, thereby reducing the yield to maturity and the average life of the mortgage-backed securities. Moreover, when the Fund reinvests the proceeds of a prepayment in these circumstances, it will likely receive a rate of interest that is lower than the rate on the security that was prepaid.

Mortgage-backed securities can be collateralized by either fixed-rate mortgages or adjustable rate mortgages. Fixed-rate mortgage securities are collateralized by fixed-rate mortgages and tend to have high prepayment rates when the level of prevailing interest rates declines significantly below the interest rates on the mortgages. Thus, under those circumstances, the securities are generally less sensitive to interest rate movements than lower coupon fixed rate mortgages.

Generally, adjustable rate mortgage securities (ARMs) have a specified maturity date and amortize principal over their life. In periods of declining interest rates, there is a reasonable likelihood that ARMs will experience increased rates of prepayment of principal. However, the major difference between ARMs and fixed-rate mortgage securities (FRMs) is that the interest rate and the rate of amortization of principal of ARMs can and do change in accordance with movements in a particular, pre-specified, published interest rate index. The amount of interest on an ARM is calculated by adding a specified amount, the "margin," to the index, subject to limitations on the maximum and minimum interest that is charged during the life of the mortgage or to maximum and minimum changes to that interest rate during a given period.

The underlying mortgages which collateralize the ARMs in which each Fund invests will frequently have caps and floors which limit the maximum amount by which the loan rate to the residential borrower may change up or down (1) per reset or adjustment interval and (2) over the life of the loan. Some residential mortgage loans restrict periodic adjustments by limiting changes in the borrower's monthly principal and interest payments rather than limiting interest rate changes. These payment caps may result in negative amortization.

To the extent that the Fund purchases mortgage-backed securities at a premium, mortgage foreclosures and principal prepayments may result in a loss to the extent of the premium paid. If the Fund buys such securities at a discount, both scheduled payments of principal and unscheduled prepayments will increase current and total returns and will accelerate the recognition of income which, when distributed to shareholders, will be taxable as ordinary income. In a period of rising interest rates, prepayments of the underlying mortgages may occur at a slower than expected rate, creating maturity extension risk. This particular risk may effectively change a security that was considered short or intermediate-term at the time of purchase into a long-term security. Since long-term securities generally fluctuate more widely in response to changes in interest rates than shorter-term securities, maturity extension risk could increase the inherent volatility of the Fund. Under certain interest rate and prepayment scenarios, a Fund may fail to recoup fully its investment in mortgage-backed securities notwithstanding any direct or indirect governmental or agency guarantee.

Most mortgage-backed securities are issued by federal government agencies such as the Government National Mortgage Association ("Ginnie Mae"), or by government sponsored enterprises such as the Federal Home Loan Mortgage Corporation ("Freddie Mac") or the Federal National Mortgage Association ("Fannie Mae"). Principal and interest payments on mortgage-backed securities issued by the federal government and some Federal government agencies, such as Ginnie Mae, are guaranteed by the Federal government and backed by the full faith and credit of the United States. Mortgage-backed securities issued by other government agencies or government sponsored enterprises are backed only by the credit of the government agency or enterprise and are not backed by the full faith and credit of the United States. Fannie Mae and Freddie Mac are authorized to borrow from the U.S. Treasury to meet their obligations. Although the U.S. government has provided financial support to Fannie Mae and Freddie Mac, there can be no assurance that it will support these or other government-sponsored enterprises in the future. Such securities generally have very little credit risk, but may be subject to substantial interest rate risks. Private mortgage-backed securities are issued by private corporations rather than government agencies and are subject to credit risk and interest rate risk.

Fannie Mae and Freddie Mac hold or guarantee approximately $5 trillion worth of mortgages. The value of the companies' securities have fallen sharply in 2008 due to concerns that the firms do not have sufficient capital to offset losses resulting from the mortgage

 

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crisis. In mid-2008, the U.S. Treasury Department was authorized to increase the size of home loans in certain residential areas Fannie Mae and Freddie Mac could buy, and until 2009, to lend Fannie Mae and Freddie Mac emergency funds and to purchase the entities' stock. On September 6, 2008, at the request of the Secretary of the U.S. Treasury, the Chairman of the Board of Governors of the Federal Reserve and the Director of the Federal Housing Finance Agency (FHFA), each of Freddie Mac's and Fannie Mae's boards of directors adopted resolutions consenting to putting the respective companies into conservatorship. After obtaining these consents, the Director of FHFA appointed FHFA as the conservator of each of Fannie Mae and Freddie Mac on September 6, 2008. Fannie Mae and Freddie Mac report that as of November 7, 2008 and November 14, 2008, respectively, the conservator for each company has advi them that it has not disaffirmed or repudiated any contracts entered into by Fannie Mae or Freddie Mac prior to its appointment as conservator. The effect that this conservatorship will have on the companies' debt and equities is unclear. Fannie Mae and Freddie Mac have each been the subject of investigations by federal regulators over certain accounting matters. Such investigations, and any resulting restatements of financial statements, may adversely affect the guaranteeing entity and, as a result, the payment of principal or interest on these types of securities.

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS . The Fund may enter into reverse repurchase agreements. A reverse repurchase agreement involves the sale of a portfolio-eligible security by the Fund, coupled with its agreement to repurchase the instrument at a specified item and price. See "Repurchase Agreements."

The Fund may enter into dollar rolls. In a dollar roll, the Fund sells securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type and coupon) securities on a specified future date from the same party. During the roll period, the Fund foregoes principal and interest paid on the securities. The Fund is compensated by the difference between the current sale price and the forward price for the future purchase (often referred to as the drop) as well as by the interest earned on the cash proceeds of the initial sale. The Fund will establish a segregated account in which it will maintain cash or other liquid assets, marked to market daily, having a value equal to its obligations in respect of dollar rolls.

Dollar rolls involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities, the Fund has sold but is obligated to repurchase under the agreement. In the event the buyer of securities under a dollar roll files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. Cash proceeds from dollar rolls may be invested in cash or other liquid assets.

SHORT SALES AND SHORT SALES AGAINST-THE-BOX . The Fund may make short sales of securities, either as a hedge against potential declines in value of a portfolio security or to realize appreciation when a security that the Fund does not own declines in value. When the Fund makes a short sale, it borrows the security sold short and delivers it to the broker-dealer through which it made the short sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to turn over any payments received on such borrowed securities to the lender of the securities. The Fund may not be able to limit any losses resulting from share price volatility if the security indefinitely continues to increase in value at such specified time.

The Fund secures its obligation to replace the borrowed security by depositing collateral with the broker-dealer, usually in cash, U.S. Government securities or other liquid securities similar to those borrowed. With respect to the uncovered short positions, the Fund is required to (1) deposit similar collateral with its custodian or otherwise segregate collateral on its records, to the extent that the value of the collateral in the aggregate is at all times equal to at least 100% of the current market value of the security sold short, or (2) the Fund must otherwise cover its short position. Depending on arrangements made with the broker-dealer from which the Fund borrowed the security, regarding payment over of any payments received by the Fund on such security, the Fund may not receive any payments (including interest) on its collateral deposited with such broker-dealer. Because making short sales in securities that it does not own exposes the Fund to the risks associated with those securities, such short sales involve speculative exposure risk. As a result, if the Fund makes short sales in securities that increase in value, it will likely underperform similar mutual funds that do not make short sales in securities they do not own. The Fund will incur a loss as a result of a short sale if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund will realize a gain if the security declines in price between those dates. There can be no assurance that the Fund will be able to close out a short sale position at any particular time or at an acceptable price. Although the Fund's gain is limited to the price at which it sold the security short, its potential loss is limited only by the maximum attainable price of the security, less the price at which the security was sold and may, theoretically, be unlimited.

The Fund may also make short sales against-the-box. A short sale against-the-box is a shortsale in which the Fund owns an equal amount of the securities sold short, or securities convertible or exchangeable for, with or without payment of any further consideration, such securities. However, if further consideration is required in connection with the conversion or exchange, cash or other liquid assets, in an amount equal to such consideration must be segregated on the Fund's records or with its Custodian.

 

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STRIPPED SECURITIES . Stripped securities are created when the issuer separates the interest and principal components of an instrument and sells them as separate securities. In general, one security is entitled to receive the interest payments on the underlying assets (the interest only or "IO" security) and the other to receive the principal payments (the principal only or "PO" security). Some stripped securities may receive a combination of interest and principal payments. The yields to maturity on IOs and POs are sensitive to the expected or anticipated rate of principal payments (including prepayments) on the related underlying assets, and principal payments may have a material effect on yield to maturity. If the underlying assets experience greater than anticipated prepayments of principal, a Fund may not fully recoup its initial investment in IOs. Conversely, if the underlying assets experience less than anticipated prepayments of principal, the yield on POs could be adversely affected. Stripped securities may be highly sensitive to changes in interest rates and rates of prepayment.

STRUCTURED NOTES . The Fund may invest in structured notes. The values of the structured notes in which the Fund will invest may be linked to equity securities or equity indices or other instruments or indices ("reference instruments"). These notes differ from other types of debt securities in several respects. The interest rate or principal amount payable at maturity may vary based on changes in the value of the equity security, instrument, or index. A structured note may be positively or negatively indexed; that is, its value or interest rate may increase or decrease if the value of the reference instrument increases. Similarly, its value may increase or decrease if the value of the reference instrument decreases. Further, the change in the principal amount payable with respect to, or the interest rate of, a structured note may be a multiple of the percentage change (positive or negative) in the value of the underlying reference instrument(s).

Investments in structured notes involve certain risks, including the credit risk of the issuer and the normal risks of price changes in response to changes in interest rates. Further, in the case of certain structured notes, a decline or increase in the value of the reference instrument may cause the interest rate to be reduced to zero, and any further declines or increases in the reference instrument may then reduce the principal amount payable on maturity. The percentage by which the value of the structured note decreases may be far greater than the percentage by which the value of the reference instrument increases or decreases. Finally, these securities may be less liquid than other types of securities, and may be more volatile than their underlying reference instruments.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, International Bond, Total Return Bond, and Intermediate-Term Bond Portfolios:

INVESTMENT IN EMERGING MARKETS . The Fund may invest in the securities of issuers domiciled in various countries with emerging capital markets. Specifically, a country with an emerging capital market is any country that the International Bank for Reconstruction and Development (World Bank), the International Finance Corporation, the United Nations or its authorities has determined to have a low or middle income economy. Countries with emerging markets can be found in regions such as Asia, Latin America, Eastern Europe and Africa.

Investments in the securities of issuers domiciled in countries with emerging capital markets involve certain additional risks not involved in investments in securities of issuers in more developed capital markets, such as (i) low or non-existent trading volume, resulting in a lack of liquidity and increased volatility in prices for such securities, as compared to securities of comparable issuers in more developed capital markets, (ii) uncertain national policies and social, political and economic instability, increasing the potential for expropriation of assets, confiscatory taxation, high rates of inflation or unfavorable diplomatic developments, (iii) possible fluctuations in exchange rates, differing legal systems and the existence or possible imposition of exchange controls, custodial restrictions or other foreign or U.S. governmental laws or restrictions applicable to such investments, (iv) national policies that may limit the Fund's investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests, and (v) the lack or relatively early development of legal structures governing private and foreign investments and private property. In addition to withholding taxes on investment income, some countries with emerging markets may impose differential capital gains taxes on foreign investors.

Such capital markets are emerging in a dynamic political and economic environment brought about by events over recent years that have reshaped political boundaries and traditional ideologies. In such a dynamic environment, there can be no assurance that these capital markets will continue to present viable investment opportunities for the Fund. In the past, governments of such nations have expropriated substantial amounts of private property, and most claims of the property owners have never been fully settled. There is no assurance that such expropriations will not reoccur. In such an event, it is possible that the Fund could lose the entire value of its investments in the affected markets.

Also, there may be less publicly available information about issuers in emerging markets than would be available about issuers in more developed capital markets, and such issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. companies are subject. In certain countries with emerging capital markets, reporting

 

21

standards vary widely. As a result, traditional investment measurements used in the United States, such as price/earnings ratios, may not be applicable. Emerging market securities may be substantially less liquid and more volatile than those of mature markets, and companies may be held by a limited number of persons. This may adversely affect the timing and pricing of the Fund's acquisition or disposal of securities.

Practices in relation to settlement of securities transactions in emerging markets involve higher risks than those in developed markets, in part because the Fund will need to use brokers and counterparties that are less well capitalized, and custody and registration of assets in some countries may be unreliable. The possibility of fraud, negligence, undue influence being exerted by the issuer or refusal to recognize ownership exists in some emerging markets, and, along with other factors, could result in ownership registration being completely lost. The Fund would absorb any loss resulting from such registration problems and may have no successful claim for compensation.

RISKS OF INVESTING IN ASIA-PACIFIC COUNTRIES . In addition to the risks of foreign investing and the risks of investing in emerging markets, the developing market Asia-Pacific countries in which the Fund may invest are subject to certain additional or specific risks. Certain funds may make substantial investments in Asia-Pacific countries. There is a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Many of these markets also may be affected by developments with respect to more established markets in the region such as in Japan and Hong Kong. Brokers in developing market Asia-Pacific countries typically are fewer in number and less well capitalized than brokers in the United States. These factors, combined with the U.S. regulatory requirements for open-end investment companies and the restrictions on foreign investment discussed below, result in potentially fewer investment opportunities for the Fund and may have an adverse impact on the investment performance of the Fund.

Many of the developing market Asia-Pacific countries may be subject to a greater degree of economic, political and social instability than is the case in the United States and Western European countries. Such instability may result from, among other things: (i) authoritarian governments or military involvement in political and economic decision-making, including changes in government through extra-constitutional means; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring countries; and (v) ethnic, religious and racial disaffection. In addition, the governments of many of such countries, such as Indonesia, have a heavy role in regulating and supervising the economy. Another risk common to most such countries is that the economy is heavily export oriented and, accordingly, is dependent upon international trade. The existence of overburdened infrastructure and obsolete financial systems also present risks in certain countries, as do environmental problems. Certain economies also depend to a significant degree upon exports of primary commodities and, therefore, are vulnerable to changes in commodity prices that, in turn, may be affected by a variety of factors.

The legal systems in certain developing market Asia-Pacific countries also may have an adverse impact on the Fund. For example, while the potential liability of a shareholder in a U.S. corporation with respect to acts of the corporation is generally limited to the amount of the shareholder's investment, the notion of limited liability is less clear in certain emerging market Asia-Pacific countries. Similarly, the rights of investors in developing market Asia-Pacific companies may be more limited than those of shareholders of U.S. corporations. It may be difficult or impossible to obtain and/or enforce a judgment in a developing market Asia-Pacific country.

Governments of many developing market Asia-Pacific countries have exercised and continue to exercise substantial influence over many aspects of the private sector. In certain cases, the government owns or controls many companies, including the largest in the country. Accordingly, government actions in the future could have a significant effect on economic conditions in developing market Asia-Pacific countries, which could affect private sector companies and a Fund itself, as well as the value of securities in the Fund's portfolio. In addition, economic statistics of developing market Asia-Pacific countries may be less reliable than economic statistics of more developed nations.

In addition to the relative lack of publicly available information about developing market Asia-Pacific issuers and the possibility that such issuers may not be subject to the same accounting, auditing and financial reporting standards as U.S. companies, inflation accounting rules in some developing market Asia-Pacific countries require companies that keep accounting records in the local currency, for both tax and accounting purposes, to restate certain assets and liabilities on the company's balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits for certain developing market Asia-Pacific companies. Satisfactory custodial services for investment securities may not be available in some developing Asia-Pacific countries, which may result in the Fund incurring additional costs and delays in providing transportation and custody services for such securities outside such countries.

Certain developing Asia-Pacific countries, such as the Philippines, India and Turkey, are especially large debtors to commercial banks and foreign governments. Fund management may determine that, notwithstanding otherwise favorable investment criteria, it may not

 

The Target Portfolio Trust 22

be practicable or appropriate to invest in a particular developing Asia-Pacific country. A Fund may invest in countries in which foreign investors, including management of the Fund, have had no or limited prior experience.

JUNK BONDS . Junk bonds are debt securities that are rated below investment grade by the major rating agencies or are unrated securities that the Manager believes are of comparable quality. Although junk bonds generally pay higher rates of interest than investment grade bonds, they are high risk investments that may cause income and principal losses for the Fund. The major risks in junk bond investments include the following:

  • Junk bonds are issued by less creditworthy companies. These securities are vulnerable to adverse changes in the issuer's industry and to general economic conditions. Issuers of junk bonds may be unable to meet their interest or principal payment obligations because of an economic downturn, specific issuer developments or the unavailability of additional financing.

  • The issuers of junk bonds may have a larger amount of outstanding debt relative to their assets than issuers of investment grade bonds. If the issuer experiences financial stress, it may be unable to meet its debt obligations. The issuer's ability to pay its debt obligations also maybe lessened by specific issuer developments, or the unavailability of additional financing.

  • Junk bonds are frequently ranked junior to claims by other creditors. If the issuer cannot meet its obligations, the senior obligations are generally paid off before the junior obligations.

  • Junk bonds frequently have redemption features that permit an issuer to repurchase the security from a Fund before it matures. If an issuer redeems the junk bonds, the Fund may have to invest the proceeds in bonds with lower yields and may lose income.

  • Prices of junk bonds are subject to extreme price fluctuations. Negative economic developments may have a greater impact on the prices of junk bonds than on other higher rated fixed income securities.

  • Junk bonds may be less liquid than higher rated fixed income securities even under normal economic conditions. There are fewer dealers in the junk bond market, and there may be significant differences in the prices quoted for junk bonds by the dealers. Because they are less liquid, judgment may play a greater role in valuing certain of the Fund's portfolio securities than in the case of securities trading in a more liquid market.

  • The Fund may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting issuer.

REAL ESTATE RELATED SECURITIES . Although the Fund may not invest directly in real estate, the Fund may invest in equity securities of issuers that are principally engaged in the real estate industry. Therefore, an investment by the Fund is subject to certain risks associated with the ownership of real estate and with the real estate industry in general. These risks include, among others: possible declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds or other limitations on access to capital; overbuilding; risks associated with leverage; market illiquidity; extended vacancies of properties; increase in competition, property taxes, capital expenditures and operating expenses; changes in zoning laws or other governmental regulation; costs resulting from the clean-up of, and liability to third parties for damages resulting from, environmental problems; tenant bankruptcies or other credit problems; casualty or condemnation losses; uninsured damages from floods, earthquakes or other natural disasters; limitations on and variations in rents, including decreases in market rates for rents; and investment in developments that are not completed or that are subject to delays in completion; and changes in interest rates. To the extent that assets underlying a Fund's investments are concentrated geographically, by property type or in certain other respects, the Fund may be subject to certain of the foregoing risks to a greater extent.

Investments by the Fund in securities of companies providing mortgage servicing will be subject to the risks associated with refinancings and their impact on servicing rights. In addition, if the Fund receives rental income or income from the disposition of real property acquired as a result of a default on securities the Fund owns, the receipt of such income may adversely affect the Fund's ability to retain its federal income tax status as a regulated investment company because of certain income source requirements applicable to regulated investment companies under the Internal Revenue Code.

The following investments, strategies, and/or risks are applicable to the International Equity, International Bond, Total Return Bond, and Intermediate-Term Bond Portfolios:

SUPRANATIONAL ENTITIES . The Fund may invest in debt securities of supranational entities. Examples include the World Bank, the European Steel and Coal Community, the Asian Development Bank and the Inter-American Development Bank. The government members, or "stockholders," usually make initial capital contributions to the supranational entity and in many cases are committed to make additional capital contributions if the supranational entity is unable to repay its borrowings.

The following investments, strategies, and/or risks are applicable to the International Bond, Total Return Bond, and Intermediate-Term Bond Portfolios:

CORPORATE LOANS . Commercial banks and other financial institutions make corporate loans to companies that need capital to grow or restructure. Borrowers generally pay interest on corporate loans at rates that change in response to changes in market interest

 

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rates such as the London Interbank Offered Rate ("LIBOR") or the prime rate of U.S. banks. As a result, the value of corporate loan investments is generally responsive to shifts in market interest rates. Because the trading market for corporate loans is less developed than the secondary market for bonds and notes, a Fund may experience difficulties from time to time in selling its corporate loans. Borrowers frequently provide collateral to secure repayment of these obligations. Leading financial institutions often act as agent for a broader group of lenders, generally referred to as a "syndicate." The syndicate's agent arranges the corporate loans, holds collateral and accepts payments of principal and interest. If the agent develops financial problems, a Fund may not recover its investment, or there might be a delay in the Fund's recovery. By investing in a corporate loan, a Fund becomes a mem of the syndicate.

As in the case of junk bonds, the corporate loans in which the Fund may invest can be expected to provide higher yields than higher-rated fixed income securities but may be subject to greater risk of loss of principal and income. There are, however, some significant differences between corporate loans and junk bonds. Corporate loans are frequently secured by pledges of liens and security interests in the assets of the borrower, and the holders of corporate loans are frequently the beneficiaries of debt service subordination provisions imposed on the borrower's bondholders. These arrangements are designed to give corporate loan investors preferential treatment over junk bond investors in the event of a deterioration in the credit quality of the issuer. Even when these arrangements exist, however, there can be no assurance that the principal and interest owed on the corporate loans will be repaid in full. Corporate loans generally bear interest at rates set at a margin above a generally recognized base lending rate that may fluctuate on a day-to-day basis, in the case of the Prime Rate of a U.S. bank, or that may be adjusted on set dates, typically 30 days but generally not more than one year, in the case of LIBOR. Consequently, the value of corporate loans held by the Fund may be expected to fluctuate significantly less than the value of fixed rate junk bond instruments as a result of changes in the interest rate environment. On the other hand, the secondary dealer market for corporate loans is not as well developed as the secondary dealer market for junk bonds, and therefore presents increased market risk relating to liquidity and pricing concerns.

The Fund may acquire interests in corporate loans by means of a novation, assignment or participation. In a novation, the Fund would succeed to all the rights and obligations of the assigning institution and become a contracting party under the credit agreement with respect to the debt obligation. As an alternative, the Fund may purchase an assignment, in which case the Fund may be required to rely on the assigning institution to demand payment and enforce its rights against the borrower but would otherwise typically be entitled to all of such assigning institution's rights under the credit agreement. Participation interests in a portion of a debt obligation typically result in a contractual relationship only with the institution selling the participation interest and not with the borrower. In purchasing a loan participation, a Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of set-off against the borrower, and the Fund may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, a Fund will assume the credit risk of both the borrower and the institution selling the participation to the Fund.

CREDIT LINKED SECURITIES . Among the income producing securities in which the Fund may invest are credit linked securities, which are issued by a limited purpose trust or other vehicle that, in turn, invests in a derivative instrument or basket of derivative instruments, such as credit default swaps, interest rate swaps and other securities, in order to provide exposure to certain fixed income markets. For instance, the Fund may invest in credit linked securities as a cash management tool in order to gain exposure to a certain market and/or to remain fully invested when more traditional income producing securities are not available.

Like an investment in a bond, investments in these credit linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security. However, these payments are conditioned on the issuer's receipt of payments from, and the issuer's potential obligations to, the counterparties to the derivative instruments and other securities in which the issuer invests. For instance, the issuer may sell one or more credit default swaps, under which the issuer would receive a stream of payments over the term of the swap agreements provided that no event of default has occurred with respect to the referenced debt obligation upon which the swap is based. If a default occurs, the stream of payments may stop and the issuer would be obligated to pay the counterparty the par (or other agreed upon value) of the referenced debt obligation. This, in turn, would reduce the amount of income and principal that the Fund would receive. The Fund's investments in these instruments are indirectly subject to the risks associated with derivative instruments, including, among others, credit risk, default or similar event risk, counterparty risk, interest rate risk, leverage risk and management risk. It is also expected that the securities will be exempt from registration under the Securities Act. Accordingly, there may be no established trading market for the securities and they may constitute illiquid investments.

LIMITATIONS ON CURRENCY HEDGING . The Fund will not speculate in Currency Instruments although the Fund may use such instruments to seek to enhance returns. Accordingly, the Fund will not hedge a currency in excess of the aggregate market value of the securities that it owns (including receivables for unsettled securities sales), or has committed to or anticipates purchasing, which are denominated in such currency. The Fund may, however, hedge a currency by entering into a transaction in a Currency Instrument denominated in a currency other than the currency being hedged (a "cross-hedge"). The Fund will only enter into a cross-hedge if the

 

The Target Portfolio Trust 24

Manager believes that (i) there is a demonstrable high correlation between the currency in which the cross-hedge is denominated and the currency being hedged, and (ii) executing a cross-hedge through the currency in which the cross-hedge is denominated will be significantly more cost-effective or provide substantially greater liquidity than executing a similar hedging transaction by means of the currency being hedged.

DISTRESSED SECURITIES . The Fund may invest in securities, including corporate loans purchased in the secondary market, which are the subject of bankruptcy proceedings or otherwise in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or are rated in the lower rating categories (Ca or lower by Moody's and CC or lower by S&P or Fitch) or which, if unrated, are in the judgment of the Manager of equivalent quality ("Distressed Securities"). Investing in Distressed Securities is speculative and involves significant risks. Distressed Securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment.

The Fund will generally make such investments only when the Manager believes it is reasonably likely that the issuer of the Distressed Securities will make an exchange offer or will be the subject of a plan of reorganization pursuant to which the Fund will receive new securities. However, there can be no assurance that such an exchange offer will be made or that such a plan of reorganization will be adopted. In addition, a significant period of time may pass between the time at which the Fund makes its investment in Distressed Securities and the time that any such exchange offer or plan of reorganization is completed. During this period, it is unlikely that a Fund will receive any interest payments on the Distressed Securities, the Fund will be subject to significant uncertainty as to whether or not the exchange offer or plan of reorganization will be completed and the Fund may be required to bear certain extraordinary expenses to protect and recover its investment. Even if an exchange offer is made or plan of reorganization is adopted with respect to Distressed Securities held by the Fund, there can be no assurance that the securities or other assets received by the Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made. Moreover, any securities received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of the Fund's participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of Distressed Securities, the Fund may be restricted from disposing of such securities.

EXCHANGE-TRADED FUNDS . The Fund may invest in Exchange-Traded Funds (ETFs). ETFs, which may be unit investment trusts or mutual funds, typically hold portfolios of securities designed to track the performance of various broad securities indexes or sectors of such indexes. ETFs provide another means, in addition to futures and options on indexes, of including stock index exposure in the Funds' investment strategies. The Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such ETF.

RESTRICTIONS ON CERTAIN INVESTMENTS . A number of publicly traded closed-end investment companies have been organized to facilitate indirect foreign investment in developing countries, and certain of such countries, such as Thailand, South Korea, Chile and Brazil have specifically authorized such funds. There also are investment opportunities in certain of such countries in pooled vehicles that resemble open-end investment companies. In accordance with the1940 Act, a Fund may invest up to 10% of its total assets in securities of other investment companies, not more than 5% of which may be invested in any one such company. In addition, under the 1940 Act, a Fund may not own more than 3% of the total outstanding voting stock of any investment company. These restrictions on investments in securities of investment companies may limit opportunities for a Fund to invest indirectly in certain developing countries. New shares of certain investment companies may at times be acquired only at market prices representing premiums to their net asset values. If a Fund acquires shares of other investment companies, shareholders would bear both their proportionate share of expenses of the Fund (including management and advisory fees) and, indirectly, the expenses of such other investment companies. See also "Investments in Other Investment Companies."

Restrictions on Foreign Investments in Asia-Pacific Countries . Some developing Asia-Pacific countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as a Fund. As illustrations, certain countries may require governmental approval prior to investments by foreign persons or limit the amount of investment by foreign persons in a particular company or limit the investment by foreign persons to only a specific class of securities of a company which may have less advantageous terms (including price) than securities of the company available for purchase by nationals. There can be no assurance that a Fund will be able to obtain required governmental approvals in a timely manner. In addition, changes to restrictions on foreign ownership of securities subsequent to a Fund's purchase of such securities may have an adverse effect on the value of such shares. Certain countries may restrict investment opportunities in issuers or industries deemed important to national interests.

The manner in which foreign investors may invest in companies in certain developing Asia-Pacific countries, as well as limitations on such investments, also may have an adverse impact on the operations of a Fund. For example, a Fund may be required in certain of such countries to invest initially through a local broker or other entity and then have the shares purchased re-registered in the name

 

25

of the Fund. Re-registration may in some instances not be able to occur on a timely basis, resulting in a delay during which a Fund may be denied certain of its rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where a Fund places a purchase order but is subsequently informed, at the time of re-registration, that the permissible allocation of the investment to foreign investors has been filled, depriving the Fund of the ability to make its desired investment at that time.

Substantial limitations may exist in certain countries with respect to a Fund's ability to repatriate investment income, capital or the proceeds of sales of securities by foreign investors. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments. For example, in September 1998, Malaysia imposed currency controls that limited a Fund's ability to repatriate proceeds of Malaysian investments. It is possible that Malaysia, or certain other countries may impose similar restrictions or other restrictions relating to their currencies or to securities of issuers in those countries. To the extent that such restrictions have the effect of making certain investments illiquid, securities may not be available to meet redemptions. Depending on a variety of financial factors, the percentage of a Fund's portfolio subject to currency controls may increase. In the event other countries impose similar controls, the portion of the Fund's assets that may be used to meet redemptions may be further decreased. Even where there is no outright restriction on repatriation of capital, the mechanics of repatriation may affect certain aspects of the operations of a Fund. For example, funds may be withdrawn from the People's Republic of China only in U.S. or Hong Kong dollars and only at an exchange rate established by the government once each week. In certain countries, banks or other financial institutions may be among the leading companies or have actively traded securities. The1940 Act restricts a Fund's investments in any equity securities of an issuer that, in its most recent fiscal year, derived more than 15% of its revenues from "securities related activities," as defined by the rules thereunder. These provisions may restrict a Fund's investments in certain foreign banks and other financial institutions.

RISK OF INVESTMENTS IN RUSSIA . The Fund may invest a portion of its assets in securities issued by companies located in Russia. Because of the recent formation of the Russian securities markets as well as the underdeveloped state of Russia's banking system, settlement, clearing and registration of securities transactions are subject to significant risks. Ownership of shares is defined according to entries in the company's share register and normally evidenced by extracts from the register. These extracts are not negotiable instruments and are not effective evidence of securities ownership. The registrars are not necessarily subject to effective state supervision nor are they licensed with any governmental entity. Also, there is no central registration system for shareholders and it is possible for the Fund to lose its registration through fraud, negligence or mere oversight. While the Fund will endeavor to ensure that its interest continues to be appropriately recorded either by itself or through a custodian or other agent inspecting the share register and by obtaining extracts of share registers through regular confirmations, these extracts have no legal enforceability and it is possible that subsequent illegal amendment or other fraudulent act may deprive the Fund of its ownership rights or improperly dilute its interest. In addition, while applicable Russian regulations impose liability on registrars for losses resulting from their errors, it may be difficult for the Fund to enforce any rights it may have against the registrar or issuer of the securities in the event of loss of share registration. While each Fund intends to invest directly in Russian companies that use an independent registrar, there can be no assurance that such investments will not result in a loss to the Fund.

SECURITIES OF SMALLER OR EMERGING GROWTH COMPANIES . Investment in smaller or emerging growth companies involves greater risk than is customarily associated with investments in more established companies. The securities of smaller or emerging growth companies may be subject to more abrupt or erratic market movements than larger, more established companies or the market average in general. These companies may have limited product lines, markets or financial resources, or they may be dependent on a limited management group.

While smaller or emerging growth company issuers may offer greater opportunities for capital appreciation than large cap issuers, investments in smaller or emerging growth companies may involve greater risks and thus may be considered speculative. The Manager believes that properly selected companies of this type have the potential to increase their earnings or market valuation at a rate substantially in excess of the general growth of the economy. Full development of these companies and trends frequently takes time.

Small cap and emerging growth securities will often be traded only in the OTC market or on a regional securities exchange and may not be traded every day or in the volume typical of trading on a national securities exchange. As a result, the disposition by the Fund of portfolio securities to meet redemptions or otherwise may require the Fund to make many small sales over a lengthy period of time, or to sell these securities at a discount from market prices or during periods when, in the Manager's judgment, such disposition is not desirable.

While the process of selection and continuous supervision by the Manager does not, of course, guarantee successful investment results, it does provide access to an asset class not available to the average individual due to the time and cost involved. Careful

 

The Target Portfolio Trust 26

initial selection is particularly important in this area as many new enterprises have promise but lack certain of the fundamental factors necessary to prosper. Investing in small cap and emerging growth companies requires specialized research and analysis. In addition, many investors cannot invest sufficient assets in such companies to provide wide diversification.

Small companies are generally little known to most individual investors although some may be dominant in their respective industries. The Manager believes that relatively small companies will continue to have the opportunity to develop into significant business enterprises. The Fund may invest in securities of small issuers in the relatively early stages of business development that have a new technology, a unique or proprietary product or service, or a favorable market position. Such companies may not be counted upon to develop into major industrial companies, but Fund management believes that eventual recognition of their special value characteristics by the investment community can provide above-average long-term growth to the portfolio.

Equity securities of specific small cap issuers may present different opportunities for long-term capital appreciation during varying portions of economic or securities markets cycles, as well as during varying stages of their business development. The market valuation of small cap issuers tends to fluctuate during economic or market cycles, presenting attractive investment opportunities at various points during these cycles. Smaller companies, due to the size and kinds of markets that they serve, may be less susceptible than large companies to intervention from the federal government by means of price controls, regulations or litigation.

SOVEREIGN DEBT . Investment in sovereign debt can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the government entity's policy towards the International Monetary Fund and the political constraints to which a government entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on the implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to timely service its debts. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt may be requested to participate in the rescheduling of such debt and to extend further loans to government entities. In the event of a default by a governmental entity, there may be few or no effective legal remedies for collecting on such debt.

WARRANTS AND RIGHTS . Warrants and rights are securities permitting, but not obligating, the warrant holder to subscribe for other securities. Buying a warrant does not make the Fund a shareholder of the underlying stock. The warrant holder has no right to dividends or votes on the underlying stock. A warrant does not carry any right to assets of the issuer, and for this reason investment in warrants may be more speculative than other equity-based investments.

ZERO COUPON SECURITIES, PAY-IN-KIND SECURITIES AND DEFERRED PAYMENT SECURITIES . The Fund may invest in zero coupon securities. Zero coupon securities are securities that are sold at a discount to par value and on which interest payments are not made during the life of the security. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity on the particular interest payment date at a rate of interest reflecting the market rate of the security at the time of issuance. Upon maturity, the holder is entitled to receive the par value of the security. While interest payments are not made on such securities, holders of such securities are deemed to have received income ("phantom income") annually, notwithstanding that cash may not be received currently. The effect of owning instruments that do not make current interest payments is that a fixed yield is earned not only on the original investment but also, in effect, on all discount accretion during the life of the obligations. This implicit reinvestment of earnings at the same rate eliminates the risk of being unable to invest distributions at a rate as high as the implicit yield on the zero coupon bond, but at the same time eliminates the holder's ability to reinvest at higher rates in the future. For this reason, some of these securities may be subject to substantially greater price fluctuations during periods of changing market interest rates than are comparable securities that pay interest currently, which fluctuation increases the longer the period to maturity. These investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of cash.

The Fund accrues income with respect to these securities for Federal income tax and accounting purposes prior to the receipt of cash payments. Zero coupon securities may be subject to greater fluctuation in value and lesser liquidity in the event of adverse market conditions than comparable rated securities paying cash interest at regular intervals. In addition to the above-described risks, there are certain other risks related to investing in zero coupon securities. During a period of severe market conditions, the market for such securities may become even less liquid. In addition, as these securities do not pay cash interest, the Fund's investment exposure to

 

27

these securities and their risks, including credit risk, will increase during the time these securities are held in the Fund's portfolio. Further, to maintain its qualification for pass-through treatment under the Federal tax laws, the Fund is required to distribute income to its shareholders and, consequently, may have to dispose of its portfolio securities under disadvantageous circumstances to generate the cash, or may have to leverage itself by borrowing the cash to satisfy these distributions, as they relate to the income accrued but not yet received. The required distributions will result in an increase in the Fund's exposure to such securities.

Pay-in-kind securities are securities that have interest payable by delivery of additional securities. Upon maturity, the holder is entitled to receive the aggregate par value of the securities. Deferred payment securities are securities that remain a zero coupon security until a predetermined date, at which time the stated coupon rate becomes effective and interest becomes payable at regular intervals. Holders of these types of securities are deemed to have received phantom income annually, notwithstanding that cash may not be received currently. The effect of owning instruments which do not make current interest payments is that a fixed yield is earned not only on the original investment but also, in effect, on all discount accretion during the life of the obligations. This implicit reinvestment of earnings at the same rate eliminates the risk of being unable to invest distributions at a rate high as the implicit yield on the zero coupon bond, but at the same time eliminates the holder's ability to reinvest at higher rates in the future. For this reason, some of these securities may be subject to substantially greater price fluctuations during periods of changing market interest rates than are comparable securities which pay interest currently, which fluctuation increases the longer the period to maturity. These investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of cash. Zero coupon, pay-in-kind and deferred payment securities may be subject to greater fluctuation in value and lesser liquidity in the event of adverse market conditions than comparable rated securities paying cash interest at regular intervals.

In addition to the above described risks, there are certain other risks related to investing in zero coupon, pay-in-kind and deferred payment securities. During a period of severe market conditions, the market for such securities may become even less liquid. In addition, as these securities do not pay cash interest, the Fund's investment exposure to these securities and their risks, including credit risk, will increase during the time these securities are held in the Fund's portfolio. Further, to maintain its qualification for pass-through treatment under the federal tax laws, the Fund is required to distribute income to its shareholders and, consequently, may have to dispose of its portfolio securities under disadvantageous circumstances to generate the cash, or may have to leverage itself by borrowing the cash to satisfy these distributions, as they relate to the distribution of phantom income and the value of the paid-in-kind interest. The required distributions will result in an increase in the Fund's exposure to such securities.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, Large Capitalization Value, International Bond, Total Return Bond, and Intermediate-Term Bond Portfolios:

INITIAL PUBLIC OFFERINGS . The Fund may invest in initial public offerings (IPOs). An IPO is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. The volume of IPOs and the levels at which the newly issued stocks trade in the secondary market are affected by the performance of the stock market overall. If IPOs are brought to the market, availability may be limited and the Fund may not be able to buy any shares at the offering price, or if it is able to buy shares, it may not be able to buy as many shares at the offering price as it would like.

Investing in IPOs entails risks. Importantly, the prices of securities involved in IPOs are often subject to greater and more unpredictable price changes than more established stocks. It is difficult to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth and Large Capitalization Value Portfolios:

ASSET-BASED SECURITIES . Certain Funds may invest in debt, preferred or convertible securities, the principal amount, redemption terms or conversion terms of which are related to the market price of some natural resource asset such as gold bullion. For the purposes of a Fund's investment policies, these securities are referred to as "asset-based securities." The Fund will purchase asset-based securities only if they are rated, or are issued by issuers that have outstanding debt obligations rated investment grade (i.e., AAA, AA, A or BBB by Standard & Poor's ("S&P") or Fitch Ratings ("Fitch") or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or commercial paper rated A-1 by S&P or Prime-1 by Moody's) or of issuers that the Manager has determined to be of similar creditworthiness. Obligations ranked in the fourth highest rating category, while considered "investment grade," may have

 

The Target Portfolio Trust 28

certain speculative characteristics and may be more likely to be downgraded than securities rated in the three highest rating categories. If the asset-based security is backed by a bank letter of credit or other similar facility, the Manager may take such backing into account in determining the creditworthiness of the issuer. While the market prices for an asset-based security and the related natural resource asset generally are expected to move in the same direction, there may not be perfect correlation in the two price movements. Asset-based securities may not be secured by a security interest in or claim on the underlying natural resource asset.

The asset-based securities in which a Fund may invest may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. As an example, assume gold is selling at a market price of $300 per ounce and an issuer sells a $1,000 face amount gold-related note with a seven-year maturity, payable at maturity at the greater of either $1,000 in cash or the then market price of three ounces of gold. If at maturity, the market price of gold is $400 per ounce, the amount payable on the note would be $1,200. Certain asset-based securities may be payable at maturity in cash at the stated principal amount or, at the option of the holder, directly in a stated amount of the asset to which it is related. In such instance, because no Fund presently intends to invest directly in natural resource assets, a Fund would sell the asset-based security in the secondary market, to the extent one exists, prior to maturity if the value of the stated amount of the asset exceeds the stated principal amount and thereby realize the appreciation in the underlying asset.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, Large Capitalization Value, International Bond, Total Return Bond, and Intermediate-Term Bond Portfolios:

CERTIFICATES OF DEPOSIT . The Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation, which are agencies of the United States Government, insure the deposits of insured banks and savings and loan associations, respectively, up to $250,000 per depositor. Current federal regulations also permit such institutions to issue insured negotiable certificates of deposit (CDs) in amounts of $100,000 or more without regard to the interest rate ceilings on other deposits. To remain fully insured as to principal, such CDs must currently be limited to $250,000 per bank or savings and loan association. Interest on such CDs is not insured.

CUSTODIAL RECEIPTS. Obligations issued or guaranteed as to principal and interest by the U.S. government, foreign governments or semi-governmental entities may be acquired by the Fund in the form of custodial receipts that evidence ownership of future interest payments, principal payments or both on certain notes or bonds. Typically, custodial receipts have their unmatured interest coupons separated ("stripped") by their holder. Having separated the interest coupons from the underlying principal of the government securities, the holder will resell the stripped securities in custodial receipt programs with a number of different names, including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold separately from the underlying principal, which is usually sold at a deep discount because the buyer receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic interest (cash) payments. CATS and TIGRs are not considered U.S. government securities by the staff of the Commission. Such notes and bonds are held in custody by a bank or a brokerage firm on behalf of the owners. The Fund will not invest more than 5% of its assets in such custodial receipts.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth and Large Capitalization Value Portfolios:

LIQUIDITY PUTS OR CALLS . A Fund may also purchase a permissible instrument or investment together with the right to resell or purchase the instruments at an agreed-upon price or yield within a specified period prior to the maturity date of the instruments. Such a right to resell is commonly known as a put, and such a right to purchase is commonly known as a call. The aggregate price which a Fund pays for instruments with puts or calls may be higher than the price which otherwise would be paid for the instruments. The purpose of this practice is to permit a Fund to be fully invested while preserving the necessary liquidity to meet unusually large redemptions and to purchase at a later date securities other than those subject to the put. A Fund may choose to exercise puts during periods in which proceeds from sales of its shares and from recent sales of portfolio securities are insufficient to meet redemption requests or when the funds available are otherwise allocated for investment. A Fund may choose to exercise calls during periods in which funds are available for investment. In determining whether to exercise puts or calls prior to their expiration date and in selecting which puts or calls to exercise in such circumstances, a Fund's investment adviser considers, among other things, the amount of cash available to the Fund, the expiration dates of the available puts or calls, any future commitments for securities purchases, the yield, quality and maturity dates of the underlying securities, alternative investment opportunities and the desirability of retaining the underlying securities in a Fund.

The following investments, strategies, and/or risks are applicable to the Large Capitalization Growth, Large Capitalization Value, International Bond, Total Return Bond and Intermediate-Term Bond Portfolios:

YANKEE OBLIGATIONS . Some Funds may invest in U.S. dollar-denominated debt securities of foreign corporations issued in the United States and U.S. dollar-denominated debt securities issued or guaranteed as to payment of principal and interest by

 

29

governments, quasi-governmental entities, government agencies, and other governmental entities of foreign countries and supranational entities, which securities are issued in the United States (Yankee obligations). Debt securities of quasi-governmental entities are issued by entities owned by either a national, state or equivalent government or are obligations of a political unit that is not backed by the national government's full faith and credit and general taxing powers. These include, among others, the Province of Ontario and the City of Tokyo.

UTILITY INDUSTRIES . Risks that are intrinsic to the utility industries include difficulty in obtaining an adequate return on invested capital, difficulty in financing large construction programs during an inflationary period, restrictions on operations and increased cost and delays attributable to environmental considerations and regulation, difficulty in raising capital in adequate amounts on reasonable terms in periods of high inflation and unsettled capital markets, technological innovations that may render existing plants, equipment or products obsolete, the potential impact of natural or man-made disasters, increased costs and reduced availability of certain types of fuel, occasionally reduced availability and high costs of natural gas for resale, the effects of energy conservation, the effects of a national energy policy and lengthy delays and greatly increased costs and other problems associated with the design, construction, licensing, regulation and operation of nuclear facilities for electric generation, including, among other considerations, the problems associated with the use of radioactive materials and the disposal of radioactive wastes. There are substantial differences between the regulatory practices and policies of various jurisdictions, and any given regulatory agency may make major shifts in policy from time to time. There is no assurance that regulatory authorities will, in the future, grant rate increases or that such increases will be adequate to permit the payment of dividends on common stocks. Additionally, existing and possible future regulatory legislation may make it even more difficult for these utilities to obtain adequate relief. Certain of the issuers of securities held in a Fund's portfolio may own or operate nuclear generating facilities. Governmental authorities may from time to time review existing policies and impose additional requirements governing the licensing, construction and operation of nuclear power plants. Prolonged changes in climatic conditions can also have a significant impact on both the revenues of an electric and gas utility as well as the expenses of a utility, particularly a hydro-based electric utility.

Utility companies in the United States and in foreign countries are generally subject to regulation. In the United States, most utility companies are regulated by state and/or federal authorities. Such regulation is intended to ensure appropriate standards of service and adequate capacity to meet public demand. Generally, prices are also regulated in the United States and in foreign countries with the intention of protecting the public while ensuring that the rate of return earned by utility companies is sufficient to allow them to attract capital in order to grow and continue to provide appropriate services. There can be no assurance that such pricing policies or rates of return will continue in the future.

The nature of regulation of the utility industries continues to evolve both in the United States and in foreign countries. In recent years, changes in regulation in the United States increasingly have allowed utility companies to provide services and products outside their traditional geographic areas and lines of business, creating new areas of competition within the industries. In some instances, utility companies are operating on an unregulated basis. Because of trends toward deregulation and the evolution of independent power producers as well as new entrants to the field of telecommunications, non-regulated providers of utility services have become a significant part of their respective industries. The Manager believes that the emergence of competition and deregulation will result in certain utility companies being able to earn more than their traditional regulated rates of return, while others may be forced to defend their core business from increased competition and may be less profitable. Reduced profitability, as well as new uses of funds (such as for expansion, operations or stock buybacks) could result in cuts in dividend payout rates. The Manager seeks to take advantage of favorable investment opportunities that may arise from these structural changes. Of course, there can be no assurance that favorable developments will occur in the future.

Foreign utility companies are also subject to regulation, although such regulations may or may not be comparable to those in the United States. Foreign utility companies may be more heavily regulated by their respective governments than utilities in the United States and, as in the United States, generally are required to seek government approval for rate increases. In addition, many foreign utilities use fuels that may cause more pollution than those used in the United States, which may require such utilities to invest in pollution control equipment to meet any proposed pollution restrictions. Foreign regulatory systems vary from country to country and may evolve in ways different from regulation in the United States.

A Fund's investment policies are designed to enable it to capitalize on evolving investment opportunities throughout the world. For example, the rapid growth of certain foreign economies will necessitate expansion of capacity in the utility industries in those countries. Although many foreign utility companies currently are government-owned, thereby limiting current investment opportunities for a Fund, the Manager believes that, in order to attract significant capital for growth, foreign governments are likely to seek global investors through the privatization of their utility industries. Privatization, which refers to the trend toward investor ownership of assets rather than government ownership, is expected to occur in newer, faster-growing economies and in mature economies. Of course, there is no assurance that such favorable developments will occur or that investment opportunities in foreign

 

The Target Portfolio Trust 30

markets for the Fund will increase.

The revenues of domestic and foreign utility companies generally reflect the economic growth and development in the geographic areas in which they do business. The Manager will take into account anticipated economic growth rates and other economic developments when selecting securities of utility companies.

Electric . The electric utility industry consists of companies that are engaged principally in the generation, transmission and sale of electric energy, although many also provide other energy-related services. In the past, electric utility companies, in general, have been favorably affected by lower fuel and financing costs and the full or near completion of major construction programs. In addition, many of these companies have generated cash flows in excess of current operating expenses and construction expenditures, permitting some degree of diversification into unregulated businesses. Some electric utilities have also taken advantage of the right to sell power outside of their traditional geographic areas. Electric utility companies have historically been subject to the risks associated with increases in fuel and other operating costs, high interest costs on borrowings needed for capital construction programs, costs associated with compliance with environmental and safety regulations and changes in the regulatory climate. As interest rates declined, many utilities refinanced high cost debt and in doing so improved their fixed charges coverage. Regulators, however, lowered allowed rates of return as interest rates declined and thereby caused the benefits of the rate declines to be shared wholly or in part with customers. In a period of rising interest rates, the allowed rates of return may not keep pace with the utilities' increased costs. The construction and operation of nuclear power facilities are subject to increased scrutiny by, and evolving regulations of, the Nuclear Regulatory Commission and state agencies having comparable jurisdiction. Increased scrutiny might result in higher operating costs and higher capital expenditures, with the risk that the regulators may disallow inclusion of these costs in rate authorizations or the risk that a company may not be permitted to operate or complete construction of a facility. In addition, operators of nuclear power plants may be subject to significant costs for disposal of nuclear fuel and for decommissioning such plants.

The rating agencies look closely at the business profile of utilities. Ratings for companies are expected to be impacted to a greater extent in the future by the division of their asset base. Electric utility companies that focus more on the generation of electricity may be assigned less favorable ratings as this business is expected to be competitive and the least regulated. On the other hand, companies that focus on transmission and distribution which is expected to be the least competitive and the more regulated part of the business may see higher ratings given the greater predictability of cash flow.

A number of states are considering or have enacted deregulation proposals. The introduction of competition into the industry as a result of such deregulation has at times resulted in lower revenue, lower credit ratings, increased default risk, and lower electric utility security prices. Such increased competition may also cause long-term contracts, which electric utilities previously entered into to buy power, to become "stranded assets," which have no economic value. Any loss associated with such contracts must be absorbed by ratepayers and investors. In addition, in anticipation of increasing competition, some electric utilities have acquired electric utilities overseas to diversify, enhance earnings and gain experience in operating in a deregulated environment. In some instances, such acquisitions have involved significant borrowings, which have burdened the acquirer's balance sheet. There is no assurance that current deregulation proposals will be adopted. However, deregulation in any form could significantly impact the electric utilities industry.

Telecommunications . The telecommunications industry today includes both traditional telephone companies, with a history of broad market coverage and highly regulated businesses, and cable companies, which began as small, lightly regulated businesses focused on limited markets. Today these two historically different businesses are converging in an industry that is trending toward larger, competitive, national and international markets with an emphasis on deregulation. Companies that distribute telephone services and provide access to the telephone networks still comprise the greatest portion of this segment, but non-regulated activities such as wireless telephone services, paging, data transmission and processing, equipment retailing, computer software and hardware and internet services are becoming increasingly significant components as well. In particular, wireless and internet telephone services continue to gain market share at the expense of traditional telephone companies. The presence of unregulated companies in this industry and the entry of traditional telephone companies into unregulated or less regulated businesses provide significant investment opportunities with companies which may increase their earnings at faster rates than had been allowed in traditional regulated businesses. Still, increasing competition, technological innovations and other structural changes could adversely affect the profitability of such utilities and the growth rate of their dividends. Given mergers and proposed legislation and enforcement changes, it is likely that both traditional telephone companies and cable companies will continue to provide an expanding range of utility services to both residential, corporate and governmental customers.

Gas. Gas transmission companies and gas distribution companies are undergoing significant changes. In the United States, interstate transmission companies are regulated by the Federal Energy Regulatory Commission, which is reducing its regulation of the industry.

 

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Many companies have diversified into oil and gas exploration and development, making returns more sensitive to energy prices. In the recent decade, gas utility companies have been adversely affected by disruptions in the oil industry and have also been affected by increased concentration and competition. In the opinion of the Manager, however, environmental considerations could improve the gas industry outlook in the future. For example, natural gas is the cleanest of the hydrocarbon fuels, and this may result in incremental shifts in fuel consumption toward natural gas and away from oil and coal, even for electricity generation. However, technological or regulatory changes within the industry may delay or prevent this result.

Water. Water supply utilities are companies that collect, purify, distribute and sell water. In the United States and around the world the industry is highly fragmented because most of the supplies are owned by local authorities. Companies in this industry are generally mature and are experiencing little or no per capita volume growth. In the opinion of the Manager, there may be opportunities for certain companies to acquire other water utility companies and for foreign acquisition of domestic companies. The Manager believes that favorable investment opportunities may result from consolidation of this segment. As with other utilities, however, increased regulation, increased costs and potential disruptions in supply may adversely affect investments in water supply utilities. There can be no assurance that the positive developments noted above, including those relating to privatization and changing regulation, will occur or that risk factors other than those noted above will not develop in the future.

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies. Fundamental policies are those that cannot be changed without the approval of the holders of a majority of the Portfolio's outstanding voting securities. The term "majority of the Portfolio's outstanding voting securities" for this purpose means the vote of the lesser of (i) 67% or more of the voting shares of the Portfolio represented at a meeting at which more than 50% of the outstanding voting shares of the Portfolio are present in person or represented by proxy, or (ii) more than 50% of outstanding voting shares of the Portfolio.

Large Cap Growth, Large Cap Value, Small Cap Growth, Small Cap Value, International Equity, Mortgage Backed Securities and U.S. Government Money Market Portfolios Only :

A Portfolio may not:

1. Purchase securities on margin (but the Portfolio may obtain such short-term credits as may be necessary for the clearance of transactions); provided that the deposit or payment by the Portfolio of initial or variation margin in connection with options or futures contracts is not considered the purchase of a security on margin.

2. Make short sales of securities, or maintain a short position if, when added together, more than 25% of the value of the Portfolio's net assets would be (1) deposited as collateral for the obligation to replace securities borrowed to effect short sales and (2) allocated to segregated accounts in connection with short sales. Short sales "against-the-box" are not subject to this limitation.

3. Issue senior securities, borrow money or pledge its assets, except that the Portfolio may borrow from banks or through dollar rolls or reverse repurchase agreements up to 331/3% of the value of its total assets (calculated when the loan is made) for temporary, extraordinary or emergency purposes, to take advantage of investment opportunities or for the clearance of transactions and may pledge its assets to secure such borrowings. For purposes of this restriction, the purchase or sale of securities on a when-issued or delayed delivery basis, forward foreign currency exchange contracts and collateral arrangements relating thereto, and collateral arrangements with respect to futures contracts and options thereon and with respect to the writing of options and obligations of the Trust to Trustees pursuant to deferred compensation arrangements are not deemed to be a pledge of assets or the issuance a senior security subject to this restriction.

4. Purchase any security (other than obligations of the U.S. Government, its agencies and instrumentalities) if, as a result, with respect to 75% of its total assets, more than 5% of the Portfolio's total assets (determined at the time of investment) would then be invested in securities of a single issuer, except as permitted by Section 5(b)(1)of the Investment Company Act or any successor provision on the requirements applicable to diversified investment companies.

5. Purchase any security (other than obligations of the U.S. Government, its agencies and instrumentalities) if as a result 25% or more of the Portfolio's total assets (determined at the time of investment) would be invested in one or more issuers having their principal business activities in the same industry.

6. Buy or sell real estate or interests in real estate, except that the Portfolio may purchase and sell mortgaged-backed securities, securities collateralized by mortgages, securities which are secured by real estate, securities of companies which invest or deal in real estate and publicly traded securities of real estate investment trusts.

 

The Target Portfolio Trust 32

7. Act as underwriter except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. Each Portfolio may purchase restricted securities without limit.

8. Make investments for the purpose of exercising control or management.

9. Make loans, except through (1) repurchase agreements and (2) loans of portfolio securities limited to 33 1/3% of the value of the Portfolio's total assets. For purposes of this limitation on securities lending, the value of a Portfolio's total assets includes the collateral received in the transactions.

10. Purchase more than 10% of all outstanding voting securities of any one issuer.

International Bond, Intermediate-Term Bond and Total Return Bond Portfolios Only:

A Portfolio may not:

1. Purchase the securities of any issuer if, as a result, the Portfolio would fail to be a diversified company within the meaning of the Investment Company Act, and the rules and regulations promulgated thereunder, as each may be amended from time to time except to the extent that the Portfolio may be permitted to do so by exemptive order, SEC release, no-action letter or similar relief or interpretations (collectively, the "Investment Company Act Laws, Interpretations and Exemptions"). (Intermediate-Term Bond and Total Return Bond Portfolios only)

2. Issue senior securities or borrow money or pledge its assets, except as permitted by the Investment Company Act Laws, Interpretations and Exemptions. For purposes of this restriction, the purchase or sale of securities on a when-issued or delayed delivery basis, reverse repurchase agreements, dollar rolls, short sales, derivative and hedging transactions such as interest rate swap transactions, and collateral arrangements with respect thereto, and transactions similar to any of the foregoing and collateral arrangements with respect thereto, and obligations of the Portfolio to Trustees pursuant to deferred compensation arrangements are not deemed to be a pledge of assets or the issuance of a senior security.

3. Buy or sell real estate, except that investment in securities of issuers that invest in real estate and investments in mortgage-backed securities, mortgage participations or other instruments supported or secured by interests in real estate are not subject to this limitation, and except that the Portfolio may exercise rights relating to such securities, including the right to enforce security interests and to hold real estate acquired by reason of such enforcement until that real estate can be liquidated in an orderly manner.

4. Buy or sell physical commodities or contracts involving physical commodities. The Portfolios may purchase and sell (i) derivative, hedging and similar instruments such as financial futures and options thereon, and (ii) securities or instruments backed by, or the return from which is linked to, physical commodities or currencies, such as forward currency exchange contracts, and the Portfolios may exercise rights relating to such instruments, including the right to enforce security interests and to hold physical commodities and contracts involving physical commodities acquired as a result of the Portfolio's ownership of instruments supported or secured thereby until they can be liquidated in an orderly manner.

5. Purchase any security if as a result 25% or more of the Portfolio's total assets would be invested in the securities of issuers having their principal business activities in the same industry or group of industries, except for temporary defensive purposes, and except that this limitation does not apply to securities issued or guaranteed by the U.S. government, its agencies or instrumentalities.

6. Act as underwriter except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. The Portfolio may purchase restricted securities without limit. A Portfolio may make loans, including loans of assets of the Portfolio, repurchase agreements, trade claims, loan participations or similar investments, or as permitted by the Investment Company Act Laws, Interpretations and Exemptions. The acquisition of bonds, debentures, other debt securities or instruments, or participations or other interests therein and investments in government obligations, commercial paper, certificates of deposit, bankers' acceptances or instruments similar to any of the foregoing will not be considered the making of a loan, and is permitted if consistent with the Portfolio's investment objective.

For purposes of Investment Restriction 1, each Portfolio will currently not purchase any security (other than obligations of the U.S. Government, its agencies or instrumentalities) if as a result, with respect to 75% of the Portfolio's total assets, (i) more than 5% of the Portfolio total assets (determined at the time of investment) would be invested in securities of a single issuer and (ii) the Portfolio would own more than 10% of the outstanding voting securities of any single issuer.

For purposes of Investment Restriction 2, under the Investment Company Act, the Portfolio can borrow money from a bank provided

 

33

that immediately after such borrowing there is asset coverage of at least 300% for all borrowings. If the asset coverage falls below 300%, the Portfolio must, within three business days, reduce the amount of its borrowings to satisfy the 300% requirement.

For purposes of Investment Restriction 5, the Portfolios rely on The North American Industry Classification System published by the Bureau of Economic classification. The Portfolios' reliance on this classification system is not a fundamental policy of the Portfolios and, therefore, can be changed with Shareholder approval.

Whenever any fundamental investment policy or investment restriction states a maximum percentage of the Portfolio's assets, it is intended that if the percentage limitation is met at the time the investment is made, a later change in percentage resulting from changing total or net asset values will not be considered a violation of such policy. However, in the event that the Portfolio's asset coverage for borrowings falls below 300%, the Portfolio will take prompt action to reduce its borrowings, as required by the Investment Company Act Laws, Interpretation and exemptions.

As a non-fundamental operating policy, a Portfolio may not invest in the securities of other investment companies, except that subject to certain restrictions, each Portfolio may purchase securities of other investment companies in the open market involving customary brokerage commissions as described in this SAI.

As a non-fundamental operating policy, a Portfolio may not make investments for the purpose of exercising control or management.

INFORMATION ABOUT BOARD MEMBERS AND OFFICERS

Information about the Trustees (referred to herein as "Board Members") and the Officers of the Trust and its Portfolios (hereafter referred to as "Fund(s)") is set forth below. Board Members who are not deemed to be "interested persons" of a Fund, as defined in the 1940 Act, are referred to as "Independent Board Members." Board Members who are deemed to be "interested persons" of a Fund are referred to as "Interested Board Members." The Board Members are responsible for the overall supervision of the operations of each Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act.

 

The Target Portfolio Trust 34
Independent Board Members    
Name, Address, Age
Position(s)
Portfolios Overseen (1) 		Principal Occupation(s) During Past Five Years Other Directorships Held
Kevin J. Bannon (56)
Board Member
Portfolios Overseen: 62 		Managing Director (since April 2008) of Highmount Capital LLC (registered investment adviser); formerly Executive Vice President and Chief Investment Officer (April 1993-August 2007) of Bank of New York Company; President (May 2003-May 2007) of BNY Hamilton Family of Mutual Funds. Director of Urstadt Biddle Properties (since September 2008)
Linda W. Bynoe (56)
Board Member
Portfolios Overseen: 62 		President and Chief Executive Officer (since March 1995) of Telemat Ltd. (management consulting); formerly Vice President at Morgan Stanley Co. (broker-dealer). Director of Simon Property Group, Inc. (real estate investment trust) (since May 2003); Anixter International (communication products distributor) (since January 2006); Director of Northern Trust Corporation (banking) (since April 2006).
David E.A. Carson (74)
Board Member
Portfolios Overseen: 62 		Director (since May 2008) of Liberty Bank; Director (since October 2007) of ICI Mutual Insurance Company; formerly President, Chairman and Chief Executive Officer of People's Bank (1987 – 2000). None.
Michael S. Hyland, CFA (63)
Board Member
Portfolios Overseen: 62 		Independent Consultant (since February 2005); formerly Senior Managing Director (July 2001-February 2005) of Bear Stearns & Co., Inc.; Global Partner, INVESCO (1999-2001); Managing Director and President Salomon Brothers Asset Management (1989-1999). None.
Robert E. La Blanc (74)
Board Member
Portfolios Overseen: 62 		President (since 1981) of Robert E. La Blanc Associates, Inc. (telecommunications). Director of CA, Inc. (since 2002) (software company); FiberNet Telecom Group, Inc. (since 2003) (telecom company).
Douglas H. McCorkindale (69)
Board Member
Portfolios Overseen: 62 		Formerly Chairman (February 2001-June 2006), Chief Executive Officer (June 2000-July 2005), President (September 1997-July 2005) and Vice Chairman (March 1984-May 2000) of Gannett Co. Inc. (publishing and media). Director of Continental Airlines, Inc. (since May 1993); Director of Lockheed Martin Corp. (aerospace and defense) (since May 2001).
Stephen P. Munn (66)
Board Member
Portfolios Overseen: 62 		Lead Director (since 2007) and formerly Chairman (1993-2007) of Carlisle Companies Incorporated (manufacturer of industrial products). None.
Richard A. Redeker (65)
Board Member
Portfolios Overseen: 62 		Retired Mutual Fund Executive (36 years); Management Consultant; Director of Penn Tank Lines, Inc. (since 1999). None.
Robin B. Smith (69)
Board Member & Independent Chair
Portfolios Overseen: 62 		Chairman of the Board (since January 2003) of Publishers Clearing House (direct marketing); formerly Chairman and Chief Executive Officer (August 1996-January 2003) of Publishers Clearing House. Formerly Director of BellSouth Corporation (telecommunications) (1992-2006).
Stephen G. Stoneburn (65)
Board Member
Portfolios Overseen: 62 		President and Chief Executive Officer (since June 1996) of Quadrant Media Corp. (publishing company); formerly President (June 1995-June 1996) of Argus Integrated Media, Inc.; Senior Vice President and Managing Director (January 1993-1995) of Cowles Business Media; Senior Vice President of Fairchild Publications, Inc. (1975-1989). None.

 

Interested Board Members    
Judy A. Rice (61)
Board Member & President
Portfolios Overseen: 62 		President, Chief Executive Officer, Chief Operating Officer and Officer-In-Charge (since February 2003) of Prudential Investments LLC; President, Chief Executive Officer and Officer-In-Charge (since April 2003) of Prudential Mutual Fund Services LLC; formerly Vice President (February 1999-April 2006) of Prudential Investment Management Services LLC; formerly President, Chief Executive Officer, Chief Operating Officer and Officer-In-Charge (May 2003-June 2005) and Director (May 2003-March 2006) and Executive Vice President (June 2005-March 2006) of AST Investment Services, Inc.; Member of Board of Governors of the Investment Company Institute. None.
Robert F. Gunia (62)
Board Member & Vice President
Portfolios Overseen: 146 		Chief Administrative Officer (since September 1999) and Executive Vice President (since December 1996) of Prudential Investments LLC; President (since April 1999) of Prudential Investment Management Services LLC; Executive Vice President (since March 1999) and Treasurer (since May 2000) of Prudential Mutual Fund Services LLC; Chief Administrative Officer, Executive Vice President and Director (since May 2003) of AST Investment Services, Inc. Director (since May 1989) of The Asia Pacific Fund, Inc. and Vice President (since January 2007) of The Greater China Fund, Inc.

 

1 The year that each individual joined the Fund's Board is as follows:
Linda W. Bynoe, 2005; David E.A. Carson, 2003; Robert E. La Blanc, 1999; Douglas H. McCorkindale, 1996; Richard A. Redeker, 2003; Robin B. Smith, 2003; Stephen G. Stoneburn, 1999; Kevin J. Bannon, 2008; Michael S. Hyland, 2008; Stephen P. Munn, 2008; Judy A. Rice, Board Member and President since 2003; Robert F. Gunia, Board Member and Vice President since 1999.

 

35

Fund Officers (a)(1)  
Name, Address and Age
Position with Fund 		Principal Occupation(s) During Past Five Years
Kathryn L. Quirk (56)
Chief Legal Officer
Vice President and Corporate Counsel (since September 2004) of Prudential; Executive Vice President, Chief Legal Officer and Secretary (since July 2005) of PI and Prudential Mutual Fund Services LLC; Vice President and Corporate Counsel (since June 2005) and Secretary (since February 2006) of AST Investment Services, Inc.; formerly Senior Vice President and Assistant Secretary (November 2004-August 2005) of PI; formerly Assistant Secretary (June 2005-February 2006) of AST Investment Services, Inc.; formerly Managing Director, General Counsel, Chief Compliance Officer, Chief Risk Officer and Corporate Secretary (1997-2002) of Zurich Scudder Investments, Inc.
Deborah A. Docs (51)
Secretary
Vice President and Corporate Counsel (since January 2001) of Prudential; Vice President (since December 1996) and Assistant Secretary (since March 1999) of PI; formerly Vice President and Assistant Secretary (May 2003-June 2005) of AST Investment Services, Inc.
Jonathan D. Shain (50)
Assistant Secretary
Vice President and Corporate Counsel (since August 1998) of Prudential; Vice President and Assistant Secretary (since May 2001) of PI; Vice President and Assistant Secretary (since February 2001) of PMFS; formerly Vice President and Assistant Secretary (May 2003-June 2005) of AST Investment Services, Inc.
Claudia DiGiacomo (34)
Assistant Secretary
Vice President and Corporate Counsel (since January 2005) of Prudential; Vice President and Assistant Secretary of PI (since December 2005); Associate at Sidley Austin LLP (1999-2004).
John P. Schwartz (37)
Assistant Secretary
Vice President and Corporate Counsel (since April 2005) of Prudential; Vice President and Assistant Secretary of PI (since December 2005); Associate at Sidley Austin LLP (1997-2005).
Andrew R. French (46)
Assistant Secretary 		Director and Corporate Counsel (since May 2006) of Prudential; Vice President and Assistant Secretary (since January 2007) of PI; Vice President and Assistant Secretary (since January 2007) of PMFS; formerly Senior Legal Analyst of Prudential Mutual Fund Law Department (1997-2006).
Timothy J. Knierim (50)
Chief Compliance Officer
Chief Compliance Officer of Prudential Investment Management, Inc. (PIM) (since July 2007); formerly Chief Risk Officer of PIM and PI (2002-2007) and formerly Chief Ethics Officer of PIM and PI (2006-2007).
Valerie M. Simpson (50)
Deputy Chief Compliance Officer 		Chief Compliance Officer (since April 2007) of PI and AST Investment Services, Inc.; formerly Vice President-Financial Reporting (June 1999-March 2006) for Prudential Life and Annuities Finance.
Theresa C. Thompson (46)
Deputy Chief Compliance Officer 		Vice President, Mutual Fund Compliance, PI (since April 2004); and Director, Compliance, PI (2001 - 2004).
Noreen M. Fierro (44)
Anti-Money Laundering
Compliance Officer
Vice President, Corporate Compliance (since May 2006) of Prudential; formerly Corporate Vice President, Associate General Counsel (April 2002-May 2005) of UBS Financial Services, Inc., in their Money Laundering Prevention Group; Senior Manager (May 2005-May 2006) of Deloitte Financial Advisory Services, LLP, in their Forensic and Dispute Services, Anti-Money Laundering Group.
Grace C. Torres (49)
Treasurer and Principal Financial and Accounting Officer
Assistant Treasurer (since March 1999) and Senior Vice President (since September 1999) of PI; Assistant Treasurer (since May 2003) and Vice President (since June 2005) of AST Investment Services, Inc.; Senior Vice President and Assistant Treasurer (since May 2003) of Prudential Annuities Advisory Services, Inc.; formerly Senior Vice President (May 2003-June 2005) of AST Investment Services, Inc.
M. Sadiq Peshimam (45)
Assistant Treasurer
Vice President (since 2005) and Director (2000-2005) within Prudential Mutual Fund Administration.
Peter Parrella (50)
Assistant Treasurer 		Vice President (since 2007) and Director (2004-2007) within Prudential Mutual Fund Administration; formerly Tax Manager at SSB Citi Fund Management LLC (1997-2004).

 

(a) Excludes interested Board Members who also serve as President or Vice President.

1 The year that each individual became an Officer of the Fund is as follows:
Kathryn L. Quirk, 2005; Deborah A. Docs, 2004; Jonathan D. Shain, 2005; Claudia DiGiacomo, 2005; John P. Schwartz, 2006; Andrew R. French, 2006; Timothy J. Knierim, 2007; Valerie M. Simpson 2007; Theresa C. Thompson, 2008; Noreen M. Fierro, 2006, Grace C. Torres, 2000; M. Sadiq Peshimam, 2006; Peter Parrella, 2007.

Explanatory Notes to Tables :

  • Board Members are deemed to be "Interested," as defined in the 1940 Act, by reason of their affiliation with Prudential Investments LLC and/or an affiliate of Prudential Investments LLC.

  • Unless otherwise noted, the address of all Board Members and Officers is c/o Prudential Investments LLC, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102.

  • There is no set term of office for Board Members or Officers. The Board Members have adopted a retirement policy, which calls for the retirement of Board Members on December 31st of the year in which they reach the age of 75.

  • "Other Directorships Held" includes only directorships of companies required to register or file reports with the Commission under the Securities Exchange Act of 1934, as amended (the Exchange Act) (that is, "public companies") or other investment companies registered under the 1940 Act.

  • "Portfolios Overseen" includes all investment companies managed by Prudential Investments LLC. The investment companies for which PI serves as manager include the JennisonDryden Funds, Strategic Partners Funds, The Prudential Variable Contract Accounts, The Target Funds, The Prudential Series Fund, The High Yield Income Fund, Inc., The High Yield Plus Fund, Inc., Nicholas-Applegate Fund, Inc., Prudential's Gibraltar Fund, Inc. and the Advanced Series Trust.

Compensation of Board Members and Officers . Pursuant to a Management Agreement with each Fund, the Manager pays all compensation of Officers and employees of the Fund as well as the fees and expenses of all Interested Board Members.

 

The Target Portfolio Trust 36

Each Fund pays each of its Independent Board Members annual compensation in addition to certain out-of-pocket expenses. Independent Board Members who serve on Board Committees may receive additional compensation. The amount of annual compensation paid to each Independent Board Member may change as a result of the introduction of additional funds on whose Boards the Board Member may be asked to serve.

Independent Board Members may defer receipt of their fees pursuant to a deferred fee agreement with the Fund. Under the terms of the agreement, a Fund accrues deferred Board Members' fees daily which, in turn, accrue interest at a rate equivalent to the prevailing rate of 90-day U.S. Treasury Bills at the beginning of each calendar quarter or, at the daily rate of return of any JennisonDryden or Strategic Partners mutual fund chosen by the Board Member. Payment of the interest so accrued is also deferred and becomes payable at the option of the Board Member. A Fund's obligation to make payments of deferred Board Members' fees, together with interest thereon, is a general obligation of the Fund. No Fund has a retirement or pension plan for its Board Members.

The following table sets forth the aggregate compensation paid by the Fund for the most recently completed fiscal year to the Independent Board Members for service on the Fund Board, and the Board of any other investment company in the Fund Complex for the most recently completed calendar year. Board Members and officers who are "interested persons" of the Fund (as defined in the 1940 Act) do not receive compensation from PI-managed funds and therefore are not shown in the following table.

Compensation Received by Independent Board Members        
Name*** Aggregate Fiscal Year Compensation from Fund Pension or Retirement Accrued as Part of Fund Expenses Estimated Annual Benefits Upon Retirement Total Compensation from Fund and Fund Complex for Most Recent Calendar Year
Kevin J. Bannon (2) $5,850 None None $90,000(36/62)*
Linda W. Bynoe** $18,190 None None $187,500(36/62)*
David E.A. Carson $17,970 None None $188,000(36/62)*
Michael S. Hyland (2) $5,810 None None $89,000(36/62)*
Robert E. La Blanc $17,490 None None $179,000(36/62)*
Douglas H. McCorkindale** $17,450 None None $179,000(36/62)*
Stephen P. Munn (2) $5,830 None None $90,000(36/62)*
Richard A. Redeker $18,110 None None $190,000(36/62)*
Robin B. Smith** $18,800 None None $202,500(36/62)*
Stephen G. Stoneburn** $17,610 None None $179,000(36/62)*
Clay T. Whitehead (1) $11,700 None None $87,000

 

(1) Mr. Whitehead retired from the Board effective as of July 1, 2008.
(2) Board Member effective as of July 1, 2008.

Explanatory Notes to Board Member Compensation Table *Shows number of funds/portfolios in existence as of the most recently completed calendar year, excluding funds that have merged into another fund or liquidated during the year.
**Although the last column shows the total amount paid to Board Members from the PI-managed funds during the most recently completed calendar year, such compensation was deferred at the request of certain Board Members, in total, or in part, under the Fund's deferred fee agreement. The losses in 2008 on amounts deferred through the end of the most recently completed calendar year amounted to $293,639, $1,042,213, $1,555,430 and $315,562 for Ms. Bynoe, Mr. McCorkindale, Ms. Smith and Mr. Stoneburn, respectively.
***Board Members and officers who are "interested persons" of the Fund(s) (as defined in the 1940 Act) do not receive compensation from the Fund(s) and therefore are not shown in the compensation table.

Board Committees . The Board has established three standing committees in connection with governance of the Fund—Audit, Nominating and Governance, and Investment. Information on the membership of each standing committee and its functions is set forth below.

Audit Committee:
The Audit Committee consists of Messrs. Carson (Chair), La Blanc, Bannon, and Munn, and Ms. Bynoe and Ms. Smith (ex-officio). The Board has determined that each member of the Audit Committee is not an "interested person" as defined in the 1940 Act. The responsibilities of the Audit Committee are to assist the Board in overseeing the Fund's independent registered public accounting firm, accounting policies and procedures and other areas relating to the Fund(s)' auditing processes. The Audit Committee is responsible for pre-approving all audit services and any permitted non-audit services to be provided by the independent registered public accounting firm directly to the Fund. The Audit Committee is also responsible for pre-approving permitted non-audit services to be provided by the independent registered public accounting firm to (1) the Manager and (2) any entity in a control relationship

 

37

with the Manager that provides ongoing services to the Funds, provided that the engagement of the independent registered public accounting firm relates directly to the operation and financial reporting of the Fund. The scope of the Audit Committee's responsibilities is oversight. It is management's responsibility to maintain appropriate systems for accounting and internal control and the independent registered public accounting firm's responsibility to plan and carry out an audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). The number of Audit Committee meetings held during the Fund's most recently completed fiscal year is set forth in the table below.

Nominating and Governance Committee:
The Nominating and Governance Committee of the Board is responsible for nominating Board Members and making recommendations to the Board concerning Board composition, committee structure and governance, director education, and governance practices. The members of the Nominating and Governance Committee are Mr. Redeker (Chair), Mr. McCorkindale, Mr. Stoneburn, Mr. Hyland, and Ms. Smith (ex-officio). The Board has determined that each member of the Nominating and Governance Committee is not an "interested person" as defined in the 1940 Act. The number of Nominating and Governance Committee meetings held during the Fund's most recently completed fiscal year is set forth in the table below. The Nominating and Governance Committee Charter is available on the Fund's website.

JennisonDryden and Target Investment Committees:
In September 2005, the Board of each Fund in the Prudential retail mutual funds complex formed joint committees to review the performance of each Fund in the fund complex. The JennisonDryden Investment Committee reviews the performance of each Fund whose subadvisers are affiliates of the Manager, while the Target Investment Committee reviews the performance of funds whose subadvisers are not affiliates of the Manager. Each Committee meets at least four times per year and reports the results of its review to the full Board of each Fund at each regularly scheduled Board meeting. Every Independent Board Member sits on one of the two Committees. In addition, Ms. Rice and Mr. Gunia, the two Interested Board Members, each sit on a Committee.

The JennisonDryden Investment Committee consists of Mses. Bynoe (Chair) and Rice and Messrs. Carson, Stoneburn, Bannon and Munn. The Target Investment Committee consists of Messrs. La Blanc, Gunia, McCorkindale (Chair), Redeker, Hyland and Ms. Smith (ex-officio). The number of JennisonDryden and Target Investment Committees held during the Fund's most recently completed fiscal year is set forth in the table below.

Selection of Board Member Nominees . The Nominating and Governance Committee is responsible for considering nominees for Board Members at such times as it considers electing new members to the Board. The Nominating and Governance Committee may consider recommendations by business and personal contacts of current Board Members, and by executive search firms which the Committee may engage from time to time and will also consider shareholder recommendations. The Nominating and Governance Committee has not established specific, minimum qualifications that it believes must be met by a nominee. In evaluating nominees, the Nominating and Governance Committee considers, among other things, an individual's background, skills, and experience; whether the individual is an "interested person" as defined in the 1940 Act; and whether the individual would be deemed an "audit committee financial expert" within the meaning of applicable Commission rules. The Nominating and Governance Committee also considers whether the individual's background, skills, and experience will complement the background, skills, and experience of other nominees and will contribute to the diversity of the Board. There are no differences in the manner in which the Nominating and Governance Committee evaluates nominees for the Board based on whether the nominee is recommended by a shareholder.

A shareholder who wishes to recommend a board member for nomination should submit his or her recommendation in writing to the Chair of the Board (Robin Smith) or the Chair of the Nominating and Governance Committee (Richard Redeker), in either case in care of the specified Fund(s), at Gateway Center Three, 100 Mulberry Street, 4th Floor, Newark, New Jersey 07102-4077. At a minimum, the recommendation should include: the name, address and business, educational and/or other pertinent background of the person being recommended; a statement concerning whether the person is an "interested person" as defined in the 1940 Act; any other information that the Fund would be required to include in a proxy statement concerning the person if he or she was nominated; and the name and address of the person submitting the recommendation, together with the number of Fund shares held by such person and the period which the shares have been held. The recommendation also can include any additional information which the person submitting it believes would assist the Nominating and Governance Committee in evaluating the recommendation.

Shareholders should note that a person who owns securities issued by Prudential Financial, Inc. (the parent company of the Fund's investment adviser) would be deemed an "interested person" under the 1940 Act. In addition, certain other relationships with Prudential Financial, Inc. or its subsidiaries, with registered broker-dealers, or with the Funds' outside legal counsel may cause a person to be deemed an "interested person." Before the Nominating and Governance Committee decides to nominate an individual to the Board, Committee members and other Board Members customarily interview the individual in person. In addition, the individual customarily is asked to complete a detailed questionnaire which is designed to elicit information which must be disclosed

 

The Target Portfolio Trust 38

under Commission and stock exchange rules and to determine whether the individual is subject to any statutory disqualification from serving on the board of a registered investment company.

Board Committee Meetings (for most recently completed fiscal period)      
  Audit Committee Nominating & Governance Committee Target Investment Committee
  4 5 4

 

Share Ownership . Information relating to each Board Member's Fund share ownership and in all registered funds in the PI-advised funds that are overseen by the respective Board Member as of the most recently completed calendar year is set forth in the chart below.

Board Member Share Ownership: Independent Board Members    
Name Dollar Range of Equity Securities in each Fund Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Director in Fund Complex
Kevin J. Bannon None None
Linda W. Bynoe None Over $100,000
David E.A. Carson None Over $100,000
Michael S. Hyland None None
Robert E. La Blanc ($10,001-$50,000) Over $100,000
Douglas H. McCorkindale None Over $100,000
Stephen P. Munn None Over $100,000
Richard A. Redeker None Over $100,000
Robin B. Smith None Over $100,000
Stephen G. Stoneburn None Over $100,000
Board Member Share Ownership: Interested Board Members    
Judy A. Rice ($10,001-$50,000) Over $100,000
Robert F. Gunia None Over $100,000

 

None of the Independent Board Members, or any member of his/her immediate family, owned beneficially or of record any securities in an investment adviser or principal underwriter of the Fund(s) or a person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Fund(s) as of the most recently completed calendar year.

Shareholder Communications with Board Members . Shareholders can communicate directly with Board Members by writing to the Chair of the Board, c/o the Fund, Gateway Center Three, 100 Mulberry Street, 4th Floor, Newark, New Jersey 07102-4077. Shareholders can communicate directly with an individual Board Member by writing to that Board Member, c/o the Fund, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. Such communications to the Board or individual Board Members are not screened before being delivered to the addressee.

MANAGEMENT & ADVISORY ARRANGEMENTS

Manager . The Manager of the Fund is Prudential Investments LLC (PI or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102. PI serves as manager to all of the other investment companies that, together with the Fund, comprise the JennisonDryden and Strategic Partners mutual funds. See "How the Fund is Managed-Manager" in the Fund's Prospectus. As of October 31, 2008, PI served as the investment manager to all of the Prudential U.S. and offshore open-end investment companies, and as administrator to closed-end investment companies, with aggregate assets of approximately $81.2 billion.

PI is a wholly-owned subsidiary of PIFM Holdco LLC, which is a wholly-owned subsidiary of Prudential Asset Management Holding Company LLC, which is a wholly-owned subsidiary of Prudential Financial, Inc. (Prudential). Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), an affiliate of PI, serves as the transfer agent and dividend distribution agent for the JennisonDryden and Strategic Partners mutual funds and, in addition, provides customer service, record keeping and management and administrative services to qualified plans.

Pursuant to a Management Agreement with the Fund (the Management Agreement), PI, subject to the supervision of the Fund's Board and in conformity with the stated policies of the Fund, manages both the investment operations of the Fund and the composition of the Fund's portfolio, including the purchase, retention, disposition and loan of securities and other assets. In connection therewith, PI

 

39

is obligated to keep certain books and records of each Fund. PI is authorized to enter into subadvisory agreements for investment advisory services in connection with the management of each Fund. PI will continue to have responsibility for all investment advisory services performed pursuant to any such subadvisory agreements. PI will review the performance of the investment subadviser(s) and make recommendations to the Board with respect to the retention of investment subadvisers and the renewal of contracts. PI also administers the Fund's corporate affairs and, in connection therewith, furnishes each Fund with office facilities, together with those ordinary clerical and bookkeeping services which are not being furnished by the Fund's custodian (the Custodian) and PMFS. The management services of PI to the Fund are not exclusive under the terms of the Management Agreement and PI is free to, and does, render management services to others.

PI may from time to time waive all or a portion of its management fee and subsidize all or a portion of the operating expenses of the Fund. Fee waivers and subsidies will increase the Fund's total return. These voluntary waivers may be terminated at any time without notice.

In connection with its management of the corporate affairs of the Fund, PI bears the following expenses:

  • the salaries and expenses of all of its and the Fund's personnel except the fees and expenses of Independent Board Members;

  • all expenses incurred by the Manager or a Fund in connection with managing the ordinary course of a Fund's business, other than those assumed by a Fund as described below; and

  • the fees, costs and expenses payable to any investment subadviser(s) pursuant to a Subadvisory Agreement(s) between PI and such investment subadviser(s).

Under the terms of the Management Agreement, the Fund is responsible for the payment of the following expenses:

  • the fees and expenses incurred by the Fund in connection with the management of the investment and reinvestment of the Fund's assets payable to the Manager;

  • the fees and expenses of Independent Board Members;

  • the fees and certain expenses of the custodian and transfer and dividend disbursing agent, including the cost of providing records to the Manager in connection with its obligation of maintaining required records of the Fund and of pricing the Fund's shares;

  • the charges and expenses of the Fund's legal counsel and independent auditors;

  • brokerage commissions and any issue or transfer taxes chargeable to the Fund in connection with its securities (and futures, if applicable) transactions;

  • all taxes and corporate fees payable by the Fund to governmental agencies;

  • the fees of any trade associations of which the Fund may be a member;

  • the cost of share certificates representing, and/or non-negotiable share deposit receipts evidencing, shares of the Fund;

  • the cost of fidelity, directors and officers and errors and omissions insurance;

  • the fees and expenses involved in registering and maintaining registration of the Fund and of its shares with the Commission and paying notice filing fees under state securities laws, including the preparation and printing of the Fund's registration statements and prospectuses for such purposes;

  • allocable communications expenses with respect to investor services and all expenses of shareholders' and Board meetings and of preparing, printing and mailing reports and notices to shareholders; and

  • litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund's business and distribution and service (12b-1) fees.

The Management Agreement provides that PI will not be liable for any error of judgment by PI or for any loss suffered by the Fund in connection with the matters to which the Management Agreement relates, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services (in which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross negligence or reckless disregard of duties. The Management Agreement provides that it will terminate automatically if assigned (as defined in the 1940 Act), and that it may be terminated without penalty by either PI or the Fund by the Board or vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act) upon not more than 60 days nor less than 30 days written notice. The Management Agreement will continue in effect for a period of more than two years from the date of execution only so long as such continuance is specifically approved at least annually in accordance with the requirements of the 1940 Act.

 

The Target Portfolio Trust 40

 

Fees payable under the Management Agreement are computed daily and paid monthly. The table below sets forth the applicable fee rate and the management fees received by PI from the Fund for the indicated fiscal years.

Management Fees Paid by the Portfolios        
Portfolio Name Fee Rate 2008 2007 2006
Large Capitalization Growth .60% $1,703,689 $1,586,167 $1,798,511
Large Capitalization Value .60% $1,954,175 $2,031,937 $2,228,473
Small Capitalization Growth .60% $699,199 $712,489 $843,337
Small Capitalization Value .60% $2,621,939 $2,048,186 $1,743,499
International Equity .70% $1,788,223 $1,686,985 $1,740,876
International Bond .50% $179,649 $166,299 $205,867
Total Return Bond .45% $1,122,569 $694,291 $732,265
Intermediate-Term Bond .45% $1,023,640 $883,037 $1,122,194
Mortgage Backed Securities .45% $292,494 $283,007 $348,528
U.S. Government Money Market .25% $228,513 $132,083 $119,965

 

Note to Management Fees Table: During 2007 the Trust changed its fiscal year end from December 31 to October 31 . The management fees paid during 2007 are for the period from January 1, 2007 through October 31, 2007.

Subadviser(s) . PI has entered into a Subadvisory Agreement with the Fund(s) investment subadviser (Subadviser(s)). The Subadvisory Agreement(s) provides that the Subadviser(s) will furnish investment advisory services in connection with the management of each Fund. In connection therewith, the Subadviser(s) is obligated to keep certain books and records of the Fund. Under the Subadvisory Agreement(s), the Subadviser(s), subject to the supervision of PI, is responsible for managing the assets of a Fund in accordance with the Fund's investment objectives, investment program and policies. The Subadviser(s) determines what securities and other instruments are purchased and sold for the Fund and is responsible for obtaining and evaluating financial data relevant to the Fund. PI continues to have responsibility for all investment advisory services pursuant to the Management Agreement and supervises the Subadviser's performance of such services.

As discussed in the Prospectus, PI employs the Subadviser(s) under a "manager of managers" structure that allows PI to replace the Subadviser(s) or amend a Subadvisory Agreement(s) without seeking shareholder approval. The Subadvisory Agreement(s) provide that it will terminate in the event of its assignment (as defined in the 1940 Act) or upon the termination of the Management Agreement. The Subadvisory Agreement(s) may be terminated by a Fund, PI, or the Subadviser(s) upon not more than 60 days nor less than 30 days written notice. The Subadvisory Agreement provides that it will continue in effect for a period of not more than two years from its execution only so long as such continuance is specifically approved at least annually in accordance with the requirements of the 1940 Act.

 

41

 

The tables below sets forth the applicable fee rate(s) and the subadvisory fees received by the Subadviser(s) from PI for the indicated fiscal years:

Subadvisers and Subadvisory Fee Rates    
Portfolio Name Subadviser Fee Rate
Large Capitalization Growth Marsico Capital Management LLC 0.40% of aggregate assets up to $1.5 billion;
0.35% of aggregate assets over $1.5 billion 1
  Goldman Sachs Asset Management LLP Effective rate prior to December 15, 2008
0.30% to $50 million;
0.28% over $50 million to $200 million;
0.25% over $200 million 2
  Massachussetts Financial Services Effective rate after December 15, 2008 0.375% to $250 million;
0.325% over $250 million to $500 million;
0.300% over $500 million to $750 million;
0.275% over $750 million 3
Large Capitalization Value JP Morgan Effective rate prior to December 15, 2008 0.30% to $300 million;
0.25% over $300 million
  Eaton Vance Management Effective rate after December 15, 2008 0.25% to $250 million;
0.24% over $250 million to $500 million;
0.23% over $500 million to $1 billion;
0.22% over $1 billion 4
  Hotchkis & Wiley Capital Management LLC 0.30%
  NFJ Investment Group, L.P. 0.40% first $50 million;
0.38% next $50 million;
0.34% next $50 million;
0.30% next $200 million;
0.28% over $350 million 5
Small Capitalization Growth Eagle Asset Management 0.50% to $50 million;
0.45% over $50 million 6
  Ashfield Capital Partners, LLC 0.50% to $200 million;
0.45% over $200 million
Small Capitalization Value NFJ Investment Group, L.P. 0.40%
  EARNEST Partners LLC 0.40%
  Lee Munder Investments, Ltd. 0.40%
  J.P. Morgan Investment Management, Inc. 0.40%
  Vaughan Nelson Investment Management, L.P. 0.40% to $250 million;
0.35% over $250 million 7
International Equity LSV Asset Management 0.45% to $150 million;
0.425% on next $150 million;
0.40% on next $150 million;
0.375% on next $300 million;
0.35% over $750 million 8
  Thornburg Investment Management, Inc. 0.35% to $100 million;
0.30% over $100 million 9
International Bond Pacific Investment Management Company LLC (PIMCO) 0.25%

 

The Target Portfolio Trust 42
Total Return Bond PIMCO 0.25% up to and including $1 billion;
0.225% over $1 billion 10
Intermediate-Term Bond PIMCO 0.25%
Mortgage Backed Securities Wellington Management Company, LLP (Wellington Management) 0.25%
U.S. Government Money Market Wellington Management 0.125%

 

1 For purposes of calculating the subadvisory fee payable to Marsico, the assets of the following portfolios and funds subadvised by Marsico and managed or co-managed by Prudential Investments LLC and/or AST Investment Services, Inc. will be aggregated: (i) Advanced Series Trust AST Marsico Capital Growth Portfolio; (ii) Target Asset Allocation Funds – Target Conservative Allocation Fund; (iii) Target Asset Allocation Funds – Target Moderate Allocation Fund; (iv) Target Asset Allocation Funds – Target Growth Allocation Fund; (v) The Target Portfolio Trust – Large Capitalization Growth Portfolio; (vi) The Prudential Series Fund – Global Portfolio; (vii) Advanced Series Trust AST Advanced Strategies Portfolio; and (viii) future large cap growth accounts for which Marsico may provide substantially similar advisory or sub-advisory services and which Marsico, Prudential Investments LLC and/or AST Investment Services, Inc. (as applicable) mutually agree in writing may be included in determining the level of average daily net assets.

2 For purposes of calculating the subadvisory fee payable to Goldman Sachs Asset Management, L.P. (GSAM), the assets managed by GSAM in the Large Capitalization Growth Portfolio of The Target Portfolio Trust will be aggregated with the assets managed by GSAM in (i) the Target Conservative Allocation Fund of Target Asset Allocation Funds; (ii) the Target Moderate Allocation Fund of Target Asset Allocation Funds; (iii) the Target Growth Allocation Fund of Target Asset Allocation Funds; and (iv) any other portfolio subadvised by GSAM on behalf of PI or one of its affiliates pursuant to substantially the same investment strategy.

3 For purposes of calculating the subadvisory fee payable to Massachusetts Financial Services Company (MFS), the average daily net assets in all portfolios sub-advised by MFS that are managed by Prudential Investments LLC or by Prudential Investments LLC and AST Investment Services, Inc. that have substantially the same investment strategy (i.e., domestic large capitalization growth) will be combined.

4 For purposes of calculating the subadvisory fee payable to Eaton Vance Management (Eaton Vance) the average daily net assets in all portfolios sub-advised by Eaton Vance that are managed by Prudential Investments LLC or by Prudential Investments LLC and AST Investment Services, Inc. that have substantially the same investment strategy (i.e., domestic equity) will be combined.

5 For purposes of the subadvisory fee calculation, the assets managed by NFJ in the funds indicated below will be aggregated:- The Target Portfolio Trust -- Small Capitalization Value Fund; The Target Portfolio Trust -- Large Capitalization Value Fund; Target Asset Allocation Funds (large capitalization value equity sleeve of each Fund)

6 For purposes of the subadvisory fee calculation, the assets managed by Eagle will be aggregated with the assets managed by Eagle in: (i) the Target Conservative Allocation Fund of Target Asset Allocation Funds; (ii) the Target Moderate Allocation Fund of Target Asset Allocation Funds; (iii) the Target Growth Allocation Fund of Target Asset Allocation Funds; and (iv) any other portfolio subadvised by Eagle on behalf of PI or one of its affiliates pursuant to substantially the same investment strategy.

7 For purposes of calculating the subadvisory fee payable to Vaughan Nelson, the assets managed by Vaughan Nelson in the Small Capitalization Value Portfolio of The Target Portfolio Trust will be aggregated with the assets managed by Vaughan Nelson in: (i) the Target Conservative Allocation Fund of Target Asset Allocation Funds; (ii) the Target Moderate Allocation Fund of Target Asset Allocation Funds; (iii) the Target Growth Allocation Fund of Target Asset Allocation Funds; and (iv) any other portfolio subadvised by Vaughan Nelson on behalf of PI or one of its affiliates pursuant to substantially the same investment strategy.

8 For purposes of calculating the advisory fee payable to LSV, the assets managed by LSV in the International Equity Portfolio of The Target Portfolio Trust will be aggregated with the assets managed by LSV in: (i) the AST International Value Portfolio of Advanced Series Trust; (ii) the AST Advanced Strategies Portfolio of Advanced Series Trust; (iii) the SP International Value Portfolio of The Prudential Series Fund; (iv) the Global Portfolio of The Prudential Series Fund; (v) the Target Moderate Allocation Fund of Target Asset Allocation Funds; (vi) the Target Growth Allocation Fund of Target Asset Allocation Funds; (vii) the Dryden International Value Fund of Prudential World Fund, Inc; and (viii) and any other portfolio subadvised by LSV on behalf of PI or one of its affiliates pursuant to substantially the same investment strategy.

9 For purposes of the subadvisory fee calculation, the assets managed by Thornburg in the International Equity Portfolio will be aggregated with the assets managed by Thornburg in the following funds and portfolios: (i) Prudential World Fund, Inc. – Dryden International Value Fund; (ii) Target Asset Allocation Funds – Target Moderate Allocation Fund; (iii) Target Asset Allocation Funds – Target Growth Allocation Fund; (iv) Advanced Series Trust – AST International Value Portfolio; and (v) The Prudential Series Fund – SP International Value Portfolio.

10 For purposes of the subadvisory fee calculation, if on any day the aggregate assets of all funds/portfolios subadvised by PIMCO on behalf of PI and/or AST Investment Services, Inc. pursuant to a "total return" strategy or mandate (as mutually agreed upon by PIMCO and PI/AST Investment Services, Inc.) total at least $3 billion, the contractual annual subadvisory fee, calculated daily, shall be: 0.250% on aggregate assets up to $1 billion; and 0.225% on aggregate assets over $1 billion. If, however, such aggregate assets on any day total less than $3 billion, then the subadvisory fee calculation for that day shall be at the rate of 0.25% of the assets of each such fund/portfolio.

Subadvisory Fees Paid by PI        
Portfolio Name Subadviser 2008 2007 2006
Large Capitalization Growth Marsico Capital Management LLC $580,722 $487,225 $548,180
  Goldman Sachs Asset Management, L.P. 348,533 355,458 429,999
  Massachusetts Financial Services Company -- -- --
Large Capitalization Value Eaton Vance Management -- -- --
  J.P. Morgan Investment Management, Inc. 397,998 437,554 545,655

 

43
  Hotchkis & Wiley Capital Management LLC 165,490 192,396 217,296
  NFJ Investment Group, L.P. 389,837 346,116 369,851
Small Capitalization Growth Transamerica Investment Management, LLC 214,621 284,917 336,167
  RS Investment Management Co. LLC 237,904 308,853 362,815
  Eagle Asset Management 63,701 -- --
  Ashfield Capital Partners, LLC 64,566 -- --
Small Capitalization Value NFJ Investment Group, L.P. 574,128 450,875 358,042
  EARNEST Partners LLC 458,222 367,757 322,661
  Lee Munder Investments, Ltd. 401,976 334,478 346,303
  J.P. Morgan Investment Management, Inc. 130,520 107,399 116,650
  Vaughan Nelson Investment Management, L.P. 183,113 104,947 16,206
International Equity LSV Asset Management 429,227 442,146 516,810
  Thornburg Investment Management, Inc. 437,147 377,996 461,141
International Bond Pacific Investment Management Company LLC (PIMCO) 89,824 83,150 102,934
Total Return Bond PIMCO 608,118 455,421 406,775
Intermediate-Term Bond PIMCO 568,689 490,985 623,441
Mortgage Backed Securities Wellington Management 162,493 157,224 193,707
U.S. Government Money Market Wellington Management 114,256 74,981 61,162

 

Note to Subadvisory Fees Table: During 2007 the Trust changed its fiscal year end from December 31 to October 31. The subadvisory fees paid during 2007 are for the period from January 1, 2007 through October 31, 2007.

There is no information available for Massachussets Financial Services Company and Eaton Vance Management because their start date was December 13, 2008.

Additional Information About the Portfolio Managers -- Other Accounts and Ownership of Fund Securities . The following tables set forth information about the indicated Fund(s) and accounts other than the Fund(s) for which the Fund(s') portfolio managers are primarily responsible for the day-to-day portfolio management as of the Fund(s') most recently completed fiscal year. The tables show, for each portfolio manager, the number of accounts managed and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the accounts whose fees are based on performance is indicated in italic typeface .

The tables also set forth the dollar range of equity securities of the Fund(s) beneficially owned by the portfolio manager(s) as of the Fund(s') most recently completed fiscal year unless noted otherwise.

Large Capitalization Growth          
Subadvisers Portfolio Managers Registered Investment Companies Other Pooled Investment Vehicles Other Accounts Ownership of Fund Securities
Marsico Capital Management, LLC Thomas F. Marsico 34/$23,490 million 20/$2,739 million 141/$17,798 (includes 1
wrap fee platform with
total assets of
approximately $6,998 million) 		None
Massachusetts Financial Services Company Stephen Pesek, CFA 3 /$3.2 billion None None None

 

Large Capitalization Value ($ in millions)          
Subadvisers Portfolio Managers Registered Investment Companies
Other Pooled Investment Vehicles
Other Accounts
Ownership of Fund Securities
Hotchkis and Wiley Capital Management LLC Sheldon Lieberman 14/$6,352.0 3/$37.0 108/$5,874.0 None
  George Davis 14/$6,352.0 3/$37.0 108/$5,874.0 None
  David Green 14/$6,352.0 3/$37.0 108/$5,874.0 None
  Patricia McKenna 14/$6,352.0 3/$37.0 108/$5,874.0 None
  Stan Majcher 14/$6,352.0 3/$37.0 108/$5,874.0 None
Eaton Vance Management 1 Michael R. Mach 9/$10,968.6 4/$1,829.0 30/$418.0 None
NFJ Investment Group, L.P. Ben Fischer, CFA 21/$15,266.4 5/$110.0 56/$11,410.6 None
  Thomas Oliver, CPA 9/$9,048.1 44/$9,990.5 2/$8.5 None
  Paul Magnuson 17/$14,140.1 4/$107.9 52/$10,850.5 None
  Jeffrey Partenheimer, CFA, CPA 13/$8,398.3 2/$8.5 44//9,506.2 None

 

1 For registered investment companies, the assets represent net assets of all open-end investment companies and gross assets of all closed-end investment companies. Numbers provided include certain investment companies structured as fund-of-funds which invest in funds in the Eaton Vance complex advised by other portfolio managers. Certain of the investment companies that Mr. Mach serves as portfolio manager may invest in underlying portfolios that he also serves as portfolio manager.

Small Capitalization Growth ($ in millions)          
Subadvisers Portfolio Managers Registered Investment Companies Other Pooled Investment Vehicles Other Accounts Ownership of Fund Securities
Eagle Asset Management Bert Boksen 13/$1,121.0 1/$36.0 2,982/$952.0 None
  Eric Mintz 13/$1,121.0 1/$36.0 2,982/$952.0 None
Ashfield Capital Partners LLC Peter A. Johnson 9/$420.0 __ 252/$1,098.1 None
  J. Stephen Thornborrow 8/$418.0 __ 254/$1,111.9 None
  Bradley J. Fetz 9/$420.0 __ 194/$999.8 None

 

Small Capitalization Value ($ in millions)          
Subadvisers Portfolio Managers Registered Investment Companies Other Pooled Investment Vehicles Other Accounts Ownership of Fund Securities
NFJ Investment Group, LP Paul Magnuson 17/$14,140.1 4/$107.9 52/$10,850.5 None
  R. Burns McKinney,CFA 11/$13,708.1 4/$107.9 46/$10,034.5 None
  Morley Campbell, CFA 6/$4,798.8 3/$101.5 10/$1,144.1 None
  Ben Fischer, CFA 21/$15,266.4 5/$110.0 56/$11,410.6 None
EARNEST Partners LLC Paul E. Viera, Jr. 3/$887.0 9/$17.0
1/$1.6 		226/$9,307.6
9/$1,052.1 		None
Lee Munder Investments, Ltd. R. Todd Vingers, CFA 4/$434.2 4/$51.2 46/$852.7
4/$84.8 		None
J.P. Morgan Investment Management, Inc. Christopher T. Blum 20/$6,373.7 5/$320.2 8/$256.7 None
  Dennis S. Ruhl 14/$2,339.0 6/$360.6 13/448.2 None
Vaughan Nelson Investment Management, LP Chris D. Wallis, CFA 12/$974.8 7/$94.7 200/$2,766.5 None
  Scott J. Weber, CFA 12/$974.8 5/$48.2 143/$1,992.4 None

 

International Equity          
Subadvisers Portfolio Managers Registered Investment Companies Other Pooled Investment Vehicles Other Accounts Ownership of Fund Securities
LSV Asset Management Josef Lakonishok 28/$5,224 million 32/$7,979 million 490/$30,155 million
25/$2.3 billion 		None
  Menno Vermuelen, CFA 28/$5,224 million 32/$7,979 million 490/$30,155 million
25/$2.3 billion 		None
  Puneet Mansharamani, CFA 28/$5,224 million 32/$7,979 million 490/$30,155 million
25/$2.3 billion 		None
Thornburg Investment Management, Inc. William V. Fries, CFA 17/$21.4 billion 9/$1.6 billion 4,030/$6.3 billion
1/$73.0 million 		None
  Wendy Trevisani 12/$16.7 billion 7/$664.9 million 9,256/$7.3 billion

1/$73.0 million

None
  Lei Wang, CFA 12/$16.7 billion 3/$627.5 million 27/$3.8 billion
1/$73.0 million

None

 

International Bond ($ in millions)          
Subadviser Portfolio Manager Registered Investment Companies Other Pooled Investment Vehicles Other Accounts Ownership of Fund Securities
Pacific Investment Management Company LLC Scott A. Mather 13/$10,842.2 56/$22,780.4
2/$718.3 		77/$14,548.2
14/$3,860.8 		None

 

Total Return Bond ($ in millions)          
Subadviser Portfolio Manager Registered Investment Companies Other Pooled Investment Vehicles Other Accounts Ownership of Fund Securities
Pacific Investment Management Company LLC Chris Dialynas 24/$4,957.9 15/$7,313.4 145/$47,941.7
15/$5,880.4 		None

 

 

The Target Portfolio Trust 44
Intermediate-Term Bond ($ in millions)          
Subadviser Portfolio Manager Registered Investment Companies Other Pooled Investment Vehicles Other Accounts Ownership of Fund Securities
Pacific Investment Management Company LLC Paul McCulley 10/$7,888.0 9/$1,125.9 44/$8,276.8
2/$114.3 		None

 

Mortgage Backed Securities (as of December 31, 2008)          
Subadviser Portfolio Manager Registered Investment Companies Other Pooled Investment Vehicles Other Accounts Ownership of Fund Securities
Wellington Management Company, LLP Joseph F. Marvan None 16/$3,956.2 million
3/$803.4 million 		25/$6,895.1 million None
  Val Petrov None None None None

 

Additional Information About the Portfolio Managers -- Compensation and Conflicts of Interest . Set forth below, for each portfolio manager, is an explanation of the structure of, and methods used to determine, portfolio manager compensation. Also set forth below, for each portfolio manager, is an explanation of any material conflicts of interest that may arise between a portfolio manager's management of a Fund's investments and investments in other accounts.

Ashfield Capital Partners, LLC Compensation

Ashfield Compensation Ashfield Capital Partners, LLC ("ACP" or "Ashfield") is committed to providing industry competitive benefits and compensation to its employees. Compensation incentives currently in place for all employees consist of base salary plus participation in ACP's discretionary incentive bonus program based on the firm's overall performance and the employee's individual contributions to the firm's success.

All employees share in the profits of ACP through the firm's Profit Sharing Plan. Additionally, investment professionals and certain key employees have either an equity stake in the firm through ACO Partners (formerly known as Ashfield Co.) or have been granted a profits interest in the firm through Ashfield Participation LP.

Compensation payments made through ACP's discretionary bonus program and the firm's profit sharing plan are based on the firm's calendar year profitability.

Employees with an equity stake in the firm and those who have been granted a profits interest in ACP receive quarterly distributions based upon the firm's profits.

Conflicts of Interest

Ashfield seeks to minimize the potential conflicts of interest that may arise from a Portfolio Manager's management of the Fund(s) and management of non-Fund accounts. All Ashfield personnel are prohibited from engaging in inappropriate favoritism of one client over another client that would constitute a breach of fiduciary duty. To that end, Ashfield has adopted and implemented the following compliance policies and procedures:

Trade Allocation
Ashfield manages several different types of accounts; for example, registered mutual funds, sub-advisory accounts, institutional accounts, ERISA accounts, and various wrap platform accounts. Because of the different fee structures, a Portfolio Manager may be viewed as having a reason to favor the performance of one account over another. In order to discourage the appearance of or actual favoritism, trades are aggregated when possible and allocated on a pro-rata basis regardless of the account type or fee structure. If a particular program cannot accommodate this, then trades are done in rotation.

Directed Brokerage
With Ashfield's consent, clients may direct brokerage transactions for their account to be effected through a specified broker-dealer. By directing a portion of a portfolio's generated brokerage commissions to a particular broker-dealer, the client acknowledges that Ashfield may not be in a position to commingle or "bunch" orders for purposes of execution with orders for the same securities for other accounts managed by Ashfield. In cases where an account has instructed Ashfield to direct brokerage to a particular broker-dealer, orders for that account may be placed after brokerage orders for accounts that do not impose such restrictions.

 

45



Personal Trading
Ashfield has adopted a Code of Ethics intended to monitor trading activities of Ashfield's employees, including officers and directors of Ashfield ("Covered Persons"). The Code of Ethics establishes personal trading policies, restrictions and reporting requirements to help insure that personal trading habits are not contrary to the best interests of our clients. The Code generally requires Covered Persons to pre-clear transactions in covered securities, including transactions in limited offerings; prohibits participation in IPOs; and requests that brokers send the Chief Compliance Officer (CCO) duplicate copies of all trade confirmations and account statements. The CCO regularly reviews reported trades to the broker's confirmations and account statements to ensure all required personal trades are being reported, and periodically reviews employee trading patterns to client trades to ensure there is no conflict of interest.

Ashfield has adopted a policy that discourages its employees from trading in individual securities for their personal accounts. Ashfield does encourage all employees who like to invest in the stock markets to invest in mutual fund products. Such investments may include the mutual funds advised by Ashfield or the various mutual funds organized by its affiliates. Personal investments in affiliated funds are reportable and mutual funds advised by Ashfield may not be bought and then sold at a profit in less than a 90-day calendar period.

Eagle Asset Management Compensation

Mr. Boksen and Mr. Mintz are paid a base salary that is competitive with other portfolio managers in the industry, based on industry surveys; Mr. Boksen and Mr. Mintz along with other Portfolio managers participate in a revenue-sharing program that provides incentives to build a successful investment program over the long term; Additional deferred compensation plans are provided to key investment professionals; Mr. Boksen and Mr. Mintz along with all employees receive benefits from Eagle's parent company including a 401(k) plan, profit sharing, and Employee Stock Purchase Plan. There is no difference between the method used to determine Mr. Boksen's and Mr. Mintz's compensation with respect to the Fund and other Funds managed by Mr. Boksen and Mr. Mintz. Mr. Boksen's additional compensation includes receipt of 50% of the net profits generated by the General Partner EB Management I. Mr. Boksen and Mr. Mintz also receive Stock option awards as part of their annual Bonus. These stock option awards vest over a three-year period. Mr. Boksen's and Mr. Mintz's compensation is based upon all accounts managed and performance is evaluated annually. Performance is evaluated on the entire composite of accounts and is pre-tax and account weighted. Mr. Boksen's and Mr. Mintz's benchmarks for evaluation purposes includes LipperFund Index for Mutual Fund performance and the Russell 2000 index for separate accounts along with peer group rankings such as Callan Associates and Mercer Investment Consulting.

Conflicts of Interest

Eagle currently holds a 51% ownership interests in EB Management I, LLC which acts as the general partner to a limited partnership formed for investment purposes. Bert Boksen is a 49% owner of EB Management and the Portfolio Manager for the Eagle Aggressive Growth Partners Fund I L.P. and Eagle Aggressive Growth Partners Fund II L.P. Eagle also provides administrative and investment research services for the general partner. Certain officers and employees of Eagle have investment interests in the limited partnership. On occasion, orders for the securities transactions of the limited partnership may be aggregated with orders for Eagle's client accounts. In such instances, Eagle will ensure that the allocation of securities among Eagle's clients and the partnership is equitable; price averaging may be used for trades executed in a series of transactions on the same day. Eagle does not invest assets of clients' accounts in such limited partnership. Officers and employees of Raymond James Financial, Inc. and its subsidiaries may have investment interest in such investment partnership. Eagle's portfolio manager manages other accounts with investment strategies similar to the Funds. Certain conflicts of interest may arise in connection with the management of multiple portfolios. As noted above, fees vary among these accounts and the portfolio manager may personally invest in some of these accounts. This could create potential conflicts of interest where a portfolio manager may favor certain accounts over others, resulting in other accounts outperforming the Funds. Other potential conflicts include conflicts in the allocation of investment opportunities and aggregated trading. However, Eagle has developed and implemented policies and procedures designed to ensure that all clients are treated equitably. In addition, compliance oversight and monitoring ensures adherence to policies designed to avoid conflicts. Also, as indicated in Eagle's Code of Ethics there are certain procedures in place to avoid conflicts of interest when the portfolio manager(s) and other investment personnel of Eagle buy or sell securities also owned by, or bought or sold for clients.

 

The Target Portfolio Trust 46

EARNEST Partners LLC
Compensation

EARNEST Partners: All EARNEST Partners personnel are paid a salary and a discretionary bonus. A portion of the bonus may consist of profit sharing and/or deferred compensation. The Company also matches a portion of employees' 401(k) contributions, if any. The bonus is a function of client satisfaction with respect to investment results and service. Equity ownership is another component of compensation for the portfolio managers. The firm is employee-owned.

Conflicts of Interest

EARNEST Partners may be responsible for managing one or more of the Portfolios in addition to other client accounts which may include, but are not limited to, proprietary accounts, separate accounts and other pooled investment vehicles. EARNEST Partners may manage other client accounts which may have higher fee arrangements than the Portfolio(s) and/or may also have performance-based fees. Side-by-side management of these other client accounts may create potential conflicts of interest which may relate to, among other things, the allocation of investment opportunities and the aggregation and allocation of transactions.

EARNEST Partners seeks best execution with respect to all securities transactions and to aggregate and allocate the securities to client accounts in a fair and equitable manner. EARNEST Partners has implemented policies and procedures that it believes are reasonably designed to mitigate and manage the potential conflicts of interest that may arise from side-by-side management. Specifically, EARNEST Partners manages client accounts to model portfolios that are approved by its investment committee, and aggregates and then allocates securities transactions to client accounts in a manner that EARNEST Partners believes to be fair and equitable.

Eaton Vance Management

Compensation

Compensation paid by Eaton Vance to its portfolio managers has three primary components: (1) a base salary, (2) an annual cash bonus, and (3) annual stock-based compensation consisting of options to purchase shares of Eaton Vance Corporation's non-voting common stock and/or restricted shares of Eaton Vance Corporation's non-voting common stock. The portfolio managers also receive certain retirement, insurance, and other benefits that are broadly available to all Eaton Vance employees. The portfolio managers' compensation generally is reviewed on an annual basis.

The portfolio managers are compensated based primarily on the scale and complexity of their portfolio responsibilities and the total return performance of managed funds and accounts versus appropriate peer groups or benchmarks. Fund performance, on a pre-tax basis, is evaluated primarily versus peer groups of funds as determined by Lipper Inc. and/or Morningstar, Inc. In evaluating the performance of a fund and its portfolio manager, primary emphasis is normally placed on three-year performance, with secondary consideration of performance over longer and shorter periods. In addition to rankings within peer groups of funds on the basis of absolute performance, consideration may also be given to risk-adjusted performance. For portfolio managers responsible for multiple funds and accounts, investment performance is evaluated on an aggregate basis, based on averages or weighted averages among managed funds and accounts. The compensation of portfolio managers with other job responsibilities (such as heading an investment group or providing analytical support to other portfolios) will include consideration of the scope of such responsibilities and the portfolio managers' performance in meeting those responsibilities.

Eaton Vance seeks to compensate portfolio managers in a manner commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. Eaton Vance participates in investment industry compensation surveys, and utilizes survey data as a factor in determining salary, bonus, and stock-based compensation levels for portfolio managers and other investment professionals. Salaries, bonuses, and stock-based compensation are also influenced by the operating performance of Eaton Vance and its parent company. The overall annual cash bonus pool is based on a substantially fixed percentage of pre-bonus operating income. While the salaries of the portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate significantly, from year to year, based on changes in portfolio manager performance and other factors described herein. Depending on a portfolio manager's performance, cash bonuses and stock-based compensation may represent a substantial portion of total compensation.

Conflicts of Interest

It is possible that conflicts of interest may arise in connection with a portfolio manager's management of the fund's investments on the

 

47

one hand and the investments of other accounts for which the portfolio manager is responsible for on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources and investment opportunities among the fund and other accounts he advises. In addition, due to differences in the investment strategies or restrictions between the fund and the other accounts, a portfolio manager may take action with respect to another account that differs from the action taken with respect to the fund. In some cases, another account managed by a portfolio manager may compensate the investment adviser based on the performance of the securities held by that account. The existence of such a performance based fee may create additional conflicts of interest for the portfolio manager in the allocation of management time, resources and investment opportunities. Whenever conflicts of interest arise, the portfolio managers will endeavor to exercise their discretion in a manner that they believes is equitable to all interested persons.

Hotchkis and Wiley Capital Management LLC (HWCM)

Compensation Disclosure

Portfolio Managers of the Portfolio are supported by the full research team of HWCM. Compensation is used to reward, attract and retain high quality investment professionals. An investment professional, such as a Portfolio Manager, has a base salary and is eligible for an annual bonus. Some Portfolio Managers also are involved in client servicing, marketing and in the general management of HWCM and are evaluated and compensated based on these functions as well as their investment management activities.

HWCM believes consistent execution of the proprietary research process results in superior, risk-adjusted portfolio returns. It is the quality of the investment professional's execution of this process rather than the performance of particular securities that is evaluated in determining compensation. Compensation likewise is not tied to performance of the Funds or separate accounts, specific industries within the Funds or separate accounts or to any type of asset or revenue related objective, other than to the extent that the overall revenues of HWCM attributable to such factors may affect the size of HWCM's overall bonus pool.

Bonuses and salaries for investment professionals are determined by the Chief Executive Officer of HWCM using tools which may include, but are not limited to, annual evaluations, compensation surveys, feedback from other employees and advice from members of HWCM's Executive Committee and HWCM's Compensation Committee. The amount of the bonus usually is shaped by the total amount of HWCM's bonus pool available for the year, which is generally a function of net income, but no investment professional receives a bonus that is a pre-determined percentage of net income.

The majority of the Portfolio Managers owns equity in HWCM. HWCM believes that the ownership structure of the firm is a significant factor in ensuring a motivated and stable employee base.

Description of Material Conflicts of Interest

The Fund is managed by HWCM's investment team ("Investment Team"). The Investment Team also manages institutional accounts and other mutual funds in several different investment strategies. The portfolios within an investment strategy are managed using a target portfolio; however, each portfolio may have different restrictions, cash flows, tax and other relevant considerations which may preclude a portfolio from participating in certain transactions for that investment strategy. Consequently, the performance of portfolios may vary due to these different considerations. The Investment Team may place transactions for one investment strategy that are directly or indirectly contrary to investment decisions made on behalf of another investment strategy. HWCM may be restricted from purchasing more than a limited percentage of the outstanding shares of a company. If a company is a viable investment fo more than one investment strategy, HWCM has adopted policies and procedures reasonably designed to ensure that all of its clients are treated fairly and equitably.

Different types of accounts and investment strategies may have different fee structures. Additionally, certain accounts pay HWCM performance-based fees, which may vary depending on how well the account performs compared to a benchmark. Because such fee arrangements have the potential to create an incentive for HWCM to favor such accounts in making investment decisions and allocations, HWCM has adopted polices and procedures reasonably designed to ensure that all of its clients are treated fairly and equitably, including in respect of allocation decisions, such as initial public offerings.

Since accounts are managed to a target portfolio by the Investment Team, adequate time and resources are consistently applied to all accounts in the same investment strategy.

 

The Target Portfolio Trust 48

 

J.P. Morgan Investment Management, Inc.

Potential Conflicts

The potential for conflicts of interest exists when portfolio managers manage other accounts with similar investment objectives and strategies as the Fund ("Similar Accounts"). Potential conflicts may include, for example, conflicts between investment strategies and conflicts in the allocation of investment opportunities.

Responsibility for managing J.P. Morgan Investment Management Inc. (JP Morgan)'s and its affiliates clients' portfolios is organized according to investment strategies within asset classes. Generally, client portfolios with similar strategies are managed by portfolio managers in the same portfolio management group using the same objectives, approach and philosophy. Underlying sectors or strategy allocations within a larger portfolio are likewise managed by portfolio managers who use the same approach and philosophy as similarly managed portfolios. Therefore, portfolio holdings, relative position sizes and industry and sector exposures tend to be similar across similar portfolios and strategies, which minimize the potential for conflicts of interest.

JP Morgan and/or its affiliates may receive more compensation with respect to certain Similar Accounts than that received with respect to the Fund or may receive compensation based in part on the performance of certain Similar Accounts. This may create a potential conflict of interest for JP Morgan and its affiliates or its portfolio managers by providing an incentive to favor these Similar Accounts when, for example, placing securities transactions. In addition, JP Morgan or its affiliates could be viewed as having a conflict of interest to the extent that JP Morgan or an affiliate has a proprietary investment in Similar Accounts, the portfolio managers have personal investments in Similar Accounts or the Similar Accounts are investment options in JP Morgan's or its affiliate's employee benefit plans. Potential conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities because of market factors or investment restrictions imposed upon JP Morgan and its affiliates by law, regulation, contract or internal policies. Allocations of aggregated trades, particularly trade orders that were only partially completed due to limited availability and allocation of investment opportunities generally, could raise a potential conflict of interest, as JP Morgan or its affiliates may have an incentive to allocate securities that are expected to increase in value to favored accounts. Initial public offerings, in particular, are frequently of very limited availability. JP Morgan and its affiliates may be perceived as causing accounts it manages to participate in an offering to increase JP Morgan's or its affiliates' overall allocation of securities in that offering.

A potential conflict of interest also may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by another account, or when a sale in one account lowers the sale price received in a sale by a second account. If JP Morgan or its affiliates manages accounts that engage in short sales of securities of the type in which the Fund invests, JP Morgan or its affiliates could be seen as harming the performance of the Fund for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall.

As an internal policy matter, JP Morgan may from time to time maintain certain overall investment limitations on the securities positions or positions in other financial instruments JP Morgan or its affiliates will take on behalf of its various clients due to, among other things, liquidity concerns and regulatory restrictions. It should be recognized that such policies may preclude an account from purchasing particular securities or financial instruments, even if such securities or financial instruments would otherwise meet the account's objectives.

The goal of JP Morgan and its affiliates is to meet their fiduciary obligation with respect to all clients, JP Morgan and its affiliates have have policies and procedures designed to manage the conflicts. JP Morgan and its affiliates monitor a variety of areas, including compliance with fund guidelines, review of allocation decisions and compliance with JP Morgan's Codes of Ethics and JPMC's Code of Conduct. With respect to the allocation of investment opportunities, JP Morgan and its affiliates also have certain policies designed to achieve fair and equitable allocation of investment opportunities among its clients over time. For example:

Orders for the same equity security are aggregated on a continual basis throughout each trading day consistent with JP Morgan's duty of best execution for its clients. If aggregated trades are fully executed, accounts participating in the trade will be allocated their pro rata share on an average price basis. Partially completed orders generally will be allocated among the participating accounts on a pro-rata average price basis, subject to certain limited exceptions. For example, accounts that would receive a de minimis allocation relative to their size may be excluded from the order. Another exception may occur when thin markets or price volatility require that an aggregated order be completed in multiple executions over several days. If partial completion of the order would result in an uneconomic allocation to an account due to fixed transaction or custody costs, JP Morgan or its affiliates may exclude small orders

 

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until 50% of the total order is completed. Then the small orders will be executed. Following this procedure, small orders will lag in the early execution of the order, but will be completed before completion of the total order.

Purchases of money market instruments and fixed income securities cannot always be allocated pro rata across the accounts with the same investment strategy and objective. However, JP Morgan and its affiliates attempts to mitigate any potential unfairness by basing non-pro rata allocations traded through a single trading desk or system upon an objective predetermined criteria for the selection of investments and a disciplined process for allocating securities with similar duration, credit quality and liquidity in the good faith judgment of JP Morgan or its affiliates so that fair and equitable allocation will occur over time.

Portfolio Manager Compensation

J.P. Morgan Investment Management Inc. (JP Morgan)'s Portfolio managers participate in a competitive compensation program that is designed to attract and retain outstanding people and closely link the performance of investment professionals to client investment objectives. The total compensation program includes a base salary fixed from year to year and a variable performance bonus consisting of cash incentives and restricted stock and, in some cases, mandatory deferred compensation. These elements reflect individual performance and the performance of JP Morgan's business as a whole.

Each portfolio manager's performance is formally evaluated annually based on a variety of factors including the aggregate size and blended performance of the portfolios such portfolio manager manages. Individual contribution relative to client goals carries the highest impact. Portfolio manager compensation is primarily driven by meeting or exceeding clients' risk and return objectives, relative performance to competitors or competitive indices and compliance with firm policies and regulatory requirements. In evaluating each portfolio manager's performance with respect to the mutual funds he or she manages, the funds' pre-tax performance is compared to the appropriate market peer group and to each fund's benchmark index listed in the fund's prospectus over one, three and five year periods (or such shorter time as the portfolio manager has managed the fund). Investment performance is generally more heavily weighted to the long term.

Awards of restricted stock are granted as part of an employee's annual performance bonus and comprise from 0% to 35% of a portfolio manager's total bonus. As the level of incentive compensation increases, the percentage of compensation awarded in restricted stock also increases. Up to 50% of the restricted stock portion of a portfolio manager's bonus may instead be subject to a mandatory notional investment in selected mutual funds advised by the Adviser or its affiliates. When these deferred amounts vest, the portfolio manager receives cash equal to the market value of the notional investment in the selected mutual funds.

LSV Asset Management

Portfolio Manager Compensation

LSV Portfolio Managers receive a base salary and bonus which is a function of overall firm profitability. In addition, each portfolio manager is a partner and receives a portion of the firm's net income.

Potential Conflicts

LSV's management of other accounts could give rise to potential conflicts of interest in connection with their management of the Funds' investments on the one hand, and the investments of the other accounts on the other. The other accounts may have the same investment objective as the Funds. Therefore a potential conflict of interest may arise whereby LSV might be incented to favor one account over another. It is also possible that a potential conflict of interest may arise because LSV manages an account with a performance-based management fee in addition to the Funds and other accounts without a performance-based fee. LSV has in place means to establish that investment opportunities are fairly and equitably allocated.

Lee Munder Investments, Ltd.

Compensation

Portfolio managers at Lee Munder Investments Ltd. ("LMIL") are compensated through a combination of salary, bonus and partnership participation. Bonuses are formula driven based on assets managed, revenues, and performance relative to peer groups. Partnership units will be granted, at no cost, based on achieving certain asset or revenue hurdles.

 

Conflicts of Interest

 

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LMIL's portfolio managers are often responsible for managing one or more funds as well as other accounts, including proprietary accounts, separate accounts and other pooled investment vehicles, such as unrestricted partnerships. A portfolio manager may manage a separate account or other pooled investment vehicle which may have materially higher fee arrangements than the Fund and may also have a performance-based fee. The side-by-side management of these funds may raise potential conflicts of interest relating to cross trading, the allocation of investment opportunities and the aggregation and allocation of trades.

LMIL has fiduciary responsibility to manage all client accounts in a fair and equitable manner. It seeks to provide best execution of all securities transactions and aggregate and then allocate securities to client accounts in a fair and timely manner. To this end, LMIL has developed policies and procedures designed to mitigate and manage the potential conflicts of interest that may arise from side-by-side management. In addition, LMIL has adopted policies limiting the circumstances under which cross-trades may be effected between a Fund and another client account. LMIL conducts periodic reviews of trades for consistency with these policies.

Marsico Capital Management, LLC

Portfolio Manager Compensation

The compensation package for portfolio managers of MCM is structured as a combination of base salary (may be reevaluated at least annually), and periodic cash bonuses. Bonuses are typically based on a number of factors including MCM's overall profitability for the period. Portfolio manager compensation takes into account, among other factors, the overall performance of all accounts for which the portfolio manager provides investment advisory services. In receiving compensation such as bonuses, portfolio managers do not receive special consideration based on the performance of particular accounts, and do not receive compensation from accounts charging performance-based fees. Exceptional individual efforts are rewarded through salary readjustments and greater participation in the bonus pool. No other special employee incentive arrangements are currently in place or being planned. In addition to salary and bonus, portfolio managers may participate in other MCM benefits to the same extent and on the same basis as other Marsico Capital employees. Portfolio manager compensation comes solely from MCM. In addition, MCM's portfolio managers typically are offered equity interests in Marsico Management Equity, LLC, which indirectly owns MCM, and may receive distributions on those equity interests.

As a general matter, MCM does not tie portfolio manager compensation to specific levels of performance relative to fixed benchmarks. Although performance may be a relevant consideration, comparisons with fixed benchmarks may not always be useful. Relevant benchmarks vary depending on specific investment styles and client guidelines or restrictions, and comparisons to benchmark performance may at times reveal more about market sentiment than about a portfolio manager's abilities. To encourage a long-term horizon for managing portfolios, MCM evaluates a portfolio manager's performance over periods longer than the immediate compensation period, and may consider a variety of measures such as the performance of unaffiliated portfolios with similar strategies and other measurements. Other factors that may also be significant in determining portfolio manager compensation include, without limitation, the effectiveness of the manager's leadership within MCM's investment team, contributions to MCM's overall performance, discrete securities analysis, idea generation, ability to support and train other analysts, and other considerations.

Material Conflicts

As a general matter, MCM faces the same need to balance the interests of different clients that any investment adviser with multiple clients might experience. Portfolio managers make investment decisions for each portfolio based on the investment objectives, policies, practices and other relevant investment considerations that the managers believe are applicable to that portfolio. Consequently, portfolio managers may purchase (or sell) securities for one portfolio and not another portfolio, or may take similar actions for different portfolios at different times. As a result, the mix of securities purchased in one portfolio may perform better than the mix of securities purchased for another portfolio. Similarly, the sale of securities from one portfolio may cause that portfolio to perform better than others if the value of those securities subsequently decline.

The need to balance the interests of multiple clients may also arise when allocating and/or aggregating trades. MCM often aggregates into a single trade order several individual contemporaneous client trade orders in a single security. Under MCM's Portfolio Management and Trade Management Policy and Procedures, when trades are aggregated on behalf of more than one account, MCM seeks to allocate such trades to all participating client accounts in a fair and equitable manner. With respect to IPOs and other syndicated or limited offerings, it is MCM's policy to seek to ensure that over the long term, accounts with the same or similar investment objectives will receive an equitable opportunity to participate meaningfully and will not be unfairly disadvantaged. To deal with these situations, MCM has adopted policies and procedures for allocating transactions across multiple accounts. MCM's policies also seek to ensure that portfolio managers do not systematically allocate other types of trades in a manner that would be more beneficial to one account than another. MCM's compliance department monitors transactions made on behalf of multiple

 

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clients to seek to ensure adherence to its policies.

MCM has adopted and implemented policies and procedures that seek to minimize potential conflicts of interest that may arise as a result of a portfolio manager advising multiple accounts. In addition, MCM monitors a variety of areas, including compliance with primary Fund guidelines, the allocation of securities, and compliance with its Code of Ethics.

Massachusetts Financial Services Company

Compensation

Portfolio manager total cash compensation is a combination of base salary and performance bonus:

  • Base Salary – Base salary represents a smaller percentage of portfolio manager total cash compensation (generally below 10%) than performance bonus.

  • Performance Bonus – Generally, performance bonus represents a majority of portfolio manager total cash compensation. The performance bonus is based on a combination of quantitative and qualitative factors, with more weight given to the former (generally over 60 %) and less weight given to the latter.

  • The quantitative portion is based on the pre-tax performance of assets managed by the portfolio manager over one-, three-, and five-year periods relative to peer group universes and/or indices ("benchmarks"). As of December 31, 2007, the following benchmarks were used for the domestic large capitalization growth strategy: the Lipper Large Cap Growth Funds, and the Russell 1000 Growth Index. Additional or different benchmarks, including versions of indices and custom indices may also be used. Primary weight is given to portfolio performance over a three-year time period with lesser consideration given to portfolio performance over one-year and five-year periods (adjusted as appropriate if the portfolio manager has served for less than five years).

  • The qualitative portion is based on the results of an annual internal peer review process (conducted by other portfolio managers, analysts, and traders) and management's assessment of overall portfolio manager contributions to investor relations and the investment process (distinct from fund and other account performance).

Portfolio managers also typically benefit from the opportunity to participate in the MFS Equity Plan. Equity interests and/or options to acquire equity interests in MFS or its parent company are awarded by management, on a discretionary basis, taking into account tenure at MFS, contribution to the investment process and other factors.

Finally, portfolio managers are provided with a benefits package including a defined contribution plan, health coverage and other insurance, which are available to other employees of MFS on substantially similar terms. The percentage of such benefits represent of any portfolio manager's compensation depends upon the length of the individual's tenure at MFS and salary level as well as other factors.

Potential Conflicts of Interest

MFS seeks to identify potential conflicts of interest resulting from a portfolio manager's management of both the Portfolio and other accounts and has adopted policies and procedures designed to address such potential conflicts.

The management of multiple funds and accounts (including proprietary accounts) gives rise to potential conflicts of interest if the funds and accounts have different objectives and strategies, benchmarks, time horizons and fees as a portfolio manager must allocate his or her time and investment ideas across multiple funds and accounts. In certain instances there are securities which are suitable for the Portfolio as well as for accounts of MFS or its subsidiaries with similar investment objectives. A Portfolio's trade allocation policies may give rise to conflicts of interest if the Portfolio's orders do not get fully executed or are delayed in getting executed due to being aggregated with those of other accounts of MFS or its subsidiaries. A portfolio manager may execute transactions for another fund or account that may adversely impact the value of the Portfolio's investments. Investments selected for funds or accounts other than the Portfolio may outperform investments selected for the Portfolio.

When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed by MFS to be fair and equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Portfolio is concerned. In most cases, however, MFS believes that the Portfolio's ability to participate in volume transactions will produce better executions for the Portfolio.

MFS and/or a portfolio manager may have an incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor accounts other than the Portfolio—for instance, those that pay a higher advisory fee and/or have a performance adjustment.

 

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NFJ Investment Group, LP
Compensation

NFJ believes that its compensation programs are competitively positioned to attract and retain high-caliber investment professionals. As described below, compensation includes a base salary and a variable bonus opportunity or profit sharing participation and may also include participation in other incentive compensation programs. In addition, a full employee benefit package is offered.

Base Salary . Each portfolio manager/analyst is paid a base salary. In setting the base salary, NFJ's intention is to be competitive in light of the particular portfolio manager/analyst's experience and responsibilities. Management of the firm evaluates competitive market compensation by reviewing compensation survey results of the investment industry conducted by an independent third party.

Annual Bonus or Profit Sharing . Portfolio managers who are Managing Directors of NFJ participate in NFJ's Non-Qualified Profit Sharing Plan. Other portfolio managers/analysts are eligible to receive an annual bonus which is tied to such portfolio manager/analyst's successful job performance.

Other Incentive Programs . Portfolio managers/analysts may be eligible to participate in a non-qualified deferred compensation plan, which allows participating employees the tax benefits of deferring the receipt of a portion of their cash compensation. Portfolio managers/analysts may also, from time to time, be granted specific deferred incentive awards. Portfolio managers/analysts who are not Managing Directors are also eligible to participate in the firm's Long Term Cash Bonus Plan. Each of the Managing Directors have also been awarded Allianz SE Restricted Stock Units which reflect changes in the value of Allianz SE stock. Grants of deferred incentive, Long Term Cash Bonus awards and Allianz SE Restricted Stock Units all vest over a period of time which NFJ believes helps align employee and firm interests.

Conflicts of Interest
Like other investment professionals with multiple clients, a portfolio manager for a portfolio may face certain potential conflicts of interest in connection with managing both the portfolio and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which NFJ believes are faced by investment professionals at most major financial firms. NFJ has adopted compliance policies and procedures that attempt to address certain of these potential conflicts. The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:

  • The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.

  • The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.

  • The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.

A potential conflict of interest may arise when a portfolio and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a portfolio as well as other accounts, the NFJ's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to seek best execution and lower brokerage commissions. Aggregation of trades may create the potential for unfairness to a portfolio or another account if one account is favored over another in allocating securities purchased or sold – for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.

Another potential conflict of interest may arise based on the different investment objectives and strategies of a portfolio and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a portfolio. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a portfolio. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security. There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.

A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy

 

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or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.

The portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions of a portfolio. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise been available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the portfolio and NFJ's other clients portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.

The portfolio managers may also face other potential conflicts of interest in managing a portfolio, and the description above is not a complete description of every conflict that could be deemed to exist in managing both the a portfolio and other accounts. In addition, a portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Front-running could also exist if a portfolio manager transacted in his own account prior to placing an order for a portfolio or other clients. NFJ's investment personnel, including each portfolio's portfolio manager, are subject to restrictions on engaging in personal securities transactions, pursuant to a Code of Ethics adopted by NFJ, which contain provisions and requirements designed identify and address certain conflicts of interest between personal investment activities and the interests of the portfolios.

As part of NFJ's Compliance Program, NFJ has established a Compliance Committee, a Risk Sub-Committee, a Best Execution Committee, a Proxy Voting Committee and a Pricing Committee to help develop policies and procedures that help NFJ avoid, mitigate, monitor and oversee areas that could present potential conflicts of interest.

Pacific Investment Management Company LLC

Conflicts of Interest

Portfolio Manager Compensation

From time to time, potential conflicts of interest may arise between a portfolio manager's management of the investments of a fund, on the one hand, and the management of other accounts, on the other. The other accounts might have similar investment objectives or strategies as the funds, track the same index a fund tracks or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the funds. The other accounts might also have different investment objectives or strategies than the funds.

Knowledge and Timing of Fund Trades . A potential conflict of interest may arise as a result of the portfolio manager's day-to-day management of a fund. Because of their positions with the funds, the portfolio managers know the size, timing and possible market impact of a fund's trades. It is theoretically possible that the portfolio managers could use this information the advantage of other accounts they manage and to the possible detriment of a fund.

Investment Opportunities . A potential conflict of interest may arise as a result of the portfolio manager's management of a number of accounts with varying investment guidelines. Often, an investment opportunity may be suitable for both a fund and other accounts managed by the portfolio manager, but may not be available in sufficient quantities for both the fund and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by a fund and another account. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time.

Under PIMCO's allocation procedures, investment opportunities are allocated among various investment strategies based on individual account investment guidelines and PIMCO's investment outlook. PIMCO has also adopted additional procedures to complement the general trade allocation policy that are designed to address potential conflicts of interest due to the side-by-side management of the funds and certain pooled investment vehicles, including investment opportunity allocation issues.

Performance Fees . A portfolio manager may advise certain accounts with respect to which the advisory fee is based entirely or partially on performance. Performance fee arrangements may create a conflict of interest for the portfolio manager in that the portfolio manager may have an incentive to allocate the investment opportunities that he or she believes might be the most profitable to such other accounts instead of allocating them to a fund. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities between the funds and such other accounts on a fair and equitable basis over time.

 

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Portfolio Manager Compensation

PIMCO has adopted a "Total Compensation Plan" for its professional level employees, including its portfolio managers, that is designed to pay competitive compensation and reward performance, integrity and teamwork consistent with the firm's mission statement. The Total Compensation Plan includes a significant incentive component that rewards high performance standards, work ethic and consistent individual and team contributions to the firm. The compensation of portfolio managers consists of a base salary, a bonus, and may include a retention bonus. Portfolio managers who are Managing Directors of PIMCO also receive compensation from PIMCO's profits. Certain employees of PIMCO, including portfolio managers, may elect to defer compensation through PIMCO's deferred compensation plan. PIMCO also offers its employees a non-contributory defined contribution plan through which PIMCO makes a contribution based on the employee's compensation. PIMCO's contribution rate increases at a specified compensation level, which is a level that would include portfolio managers.

Salary and Bonus . Base salaries are determined by considering an individual portfolio manager's experience and expertise and may be reviewed for adjustment annually. Portfolio managers are entitled to receive bonuses, which may be significantly more than their base salary, upon attaining certain performance objectives based on predetermined measures of group or department success. These goals are specific to individual portfolio managers and are mutually agreed upon annually by each portfolio manager and his or her manager. Achievement of these goals is an important, but not exclusive, element of the bonus decision process.

In addition, the following non-exclusive list of qualitative criteria (collectively, the "Bonus Factors") may be considered when determining the bonus for portfolio managers:

  • 3-year, 2-year and 1-year dollar-weighted and account-weighted, pre-tax investment performance as judged against the applicable benchmarks for each account managed by a portfolio manager (including the funds) and relative to applicable industry peer groups;

  • Appropriate risk positioning that is consistent with PIMCO's investment philosophy and the Investment Committee/CIO approach to the generation of alpha;

  • Amount and nature of assets managed by the portfolio manager;

  • Consistency of investment performance across portfolios of similar mandate and guidelines (reward low dispersion);

  • Generation and contribution of investment ideas in the context of PIMCO's secular and cyclical forums, portfolio strategy meetings, Investment Committee meetings, and on a day-to-day basis;

  • Absence of defaults and price defaults for issues in the portfolios managed by the portfolio manager;

  • Contributions to asset retention, gathering and client satisfaction;

  • Contributions to mentoring, coaching and/or supervising; and

  • Personal growth and skills added.

A portfolio manager's compensation is not based directly on the performance of any fund or any other account managed by that portfolio manager. Final bonus award amounts are determined by the PIMCO Compensation Committee.

Investment professionals, including portfolio managers, are eligible to participate in a Long Term Cash Bonus Plan ("Cash Bonus Plan"), which provides cash awards that appreciate or depreciate based upon the performance of PIMCO's parent company, Allianz Global Investors, and PIMCO over a three-year period. The aggregate amount available for distribution to participants is based upon Allianz Global Investors' profit growth and PIMCO's profit growth. Participation in the Cash Bonus Plan is based upon the Bonus Factors, and the payment of benefits from the Cash Bonus Plan, is contingent upon continued employment at PIMCO.

Key employees of PIMCO, including certain Managing Directors, Executive Vice Presidents, and Senior Vice Presidents, are eligible to participate in the PIMCO Class M Unit Equity Participation Plan, a long-term equity plan. The Class M Unit Equity Participation Plan grants options on PIMCO equity that vest in years three, four and five. Upon vesting, the options will convert into PIMCO M Units, which are non-voting common equity of PIMCO. M Units pay out quarterly distributions equal to a pro-rata share of PIMCO's net profits. There is no assured liquidity and they may remain outstanding perpetually.

Profit Sharing Plan . Instead of a bonus, portfolio managers who are Managing Directors of PIMCO receive compensation from a non-qualified profit sharing plan consisting of a portion of PIMCO's net profits. Portfolio managers who are Managing Directors receive an amount determined by the Partner Compensation Committee, based upon an individual's overall contribution to the firm and the Bonus Factors. Under his employment agreement, William Gross receives a fixed percentage of the profit sharing plan.

Allianz Transaction Related Compensation . In May 2000, a majority interest in the predecessor holding company of PIMCO was acquired by a subsidiary of Allianz AG (currently known as Allianz SE) ("Allianz"). In connection with the transaction, Mr.Gross

 

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received a grant of restricted stock of Allianz, the last of which vested on May 5, 2005.

Portfolio managers who are Managing Directors also have long-term employment contracts, which guarantee severance payments in the event of involuntary termination of a Managing Director's employment with PIMCO.

Securities Ownership

The respective portfolio managers were not a beneficial owner of shares of the Fund that they managed as of 12/31/08.

Thornburg Investment Management, Inc.
Compensation

The compensation of the portfolio manager includes an annual salary, annual bonus, and company-wide profit sharing. The portfolio manager also owns equity shares in the investment manager, Thornburg. Both the salary and bonus are reviewed approximately annually for comparability with salaries of other portfolio managers in the industry, using survey data obtained from compensation consultants. The annual bonus is subjective. Criteria that are considered in formulating the bonus include, but are not limited to, the following: revenues available to pay compensation of the portfolio manager, including the Fund; multiple year historical total return of accounts managed by the portfolio manager, including the Fund, relative to market performance and similar funds; single year historical total return of accounts managed by the portfolio manager, including the Fund, relative to market performance and similar funds; the degree of sensitivity of the portfolio manager to potential tax liabilities created for account holders in generating return, relative to overall return. There is no material difference in the method used to calculate the portfolio manager's compensation with respect to the Fund and other account managed by the portfolio manager, except that certain accounts managed by the portfolio manager may have no income or capital gains tax considerations. To the extent that the portfolio manager realizes benefits from capital appreciation and dividends paid to shareholders of the investment manager, such benefits accrue from the overall financial performance of the investment manager.

Conflicts of Interest

Most investment advisors and their portfolio managers manage investments for multiple clients, including mutual funds, private accounts, and retirement plans. In any case where a portfolio manager manages the investments of two or more accounts, there is a possibility that conflicts of interest could arise between the portfolio manager's management of the fund's investments and the manager's management of other accounts. These conflicts could include:

  • Allocating a favorable investment opportunity to one account but not another.

  • Directing one account to buy a security before purchases through other accounts increase the price of the security in the market place.

  • Giving substantially inconsistent investment directions at the same time to similar accounts, so as to benefit one account over another.

  • Obtaining services from brokers conducting trades for one account, which are used to benefit another account.

The fund's investment manager, Thornburg Investment Management, Inc. ("Thornburg") has informed the fund that it has considered the likelihood that any material conflicts of interest could arise between the portfolio manager's management of the fund's investments and the portfolio manager's management of other accounts. Thornburg has also informed the fund that it has not identified any such conflicts that may arise, and has concluded that it has implemented policies and procedures to identify and resolve any such conflict if it did arise.

Vaughan Nelson Investment Management, LP
Compensation of portfolio management professionals includes a fixed base salary, variable bonus and a contribution to the firm's retirement plan. The variable bonus component, as a whole for all portfolio management professionals, is based upon a percentage of the firm's operating profit, as defined. Each portfolio management professional's participation in the variable bonus pool is based primarily upon the performance of the strategy managed, as represented by a composite of all accounts qualifying for such composite relative to the Russell Universe peer group. In order to align compensation with the investment objectives of our clients, the evaluation methodology utilizes the three year performance period as the primary weighting, the five year performance period as the secondary weighting and a qualitative assessment of the quality of client service provided as a tertiary weighting. The contribution to the firm's retirement plan is based on a percentage (at the discretion of the Vaughan Nelson Board) of total cash compensation (subject to IRS limits) and such percentage is the same for all firm personnel. Key employees, at the discretion of the Compensation Committee, are eligible to participate within Natixis Global Asset Management's long-term incentive program. Compensation at Vaughan Nelson is determined by the Compensation Committee at the recommendation of the Chief Executive Officer.

 

The Target Portfolio Trust 56

There is no distinction for purposes of compensation between the Funds and any other accounts managed.

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day responsibilities with respect to more than one investment account. Portfolio managers who manage other investment accounts in addition to a portion of the Strategic Partners Style Specific Fund may be presented with the following potential conflicts: 1) a conflict between the investment strategy of the Strategic Partners Style Specific portfolio and the other strategies and accounts managed by the portfolio manager with regard to the allocation of limited investment opportunities that may be appropriate for more than one investment strategy; 2) a conflict in the allocation of investment opportunities amongst accounts within the strategy employed by the Strategic Partners Style Specific portfolio. Vaughan Nelson maintains policies and procedures in pla that address these potential conflict of interest issues to aid in assuring that investment opportunities are allocated fairly and equitably amongst all client accounts.

Wellington Management Company, LLP

Compensation for Mortgage Backed Securities (MBS) Portfolio

Wellington Management receives a fee based on the assets under management of the MBS Portfolio as set forth in the Investment Subadvisory Agreement between Wellington Management and Prudential Investments LLC on behalf of the MBS Portfolio. Wellington Management pays its investment professionals out of its total revenues and other resources, including the advisory fees earned with respect to the MBS Portfolio. The following information is as of December 31, 2008.

Wellington Management's compensation structure is designed to attract and retain high-caliber investment professionals necessary to deliver high quality investment management services to its clients. Wellington Management's compensation of the MBS Portfolio's managers listed in the prospectus who are primarily responsible for the day-to-day management of the MBS Portfolio ("Investment Professionals") includes a base salary and incentive components. The base salaries for the Investment Professionals are determined by the Investment Professionals' experience and performance in their roles as Investment Professionals. Base salaries for Wellington Management's employees are reviewed annually and may be adjusted based on the recommendation of an Investment Professional's manager, using guidelines established by Wellington Management's Compensation Committee, which has final oversight responsibility for base salaries of employees of the firm. Each Investme Professional is eligible to receive an incentive payment based on the revenues earned by Wellington Management from the MBS Portfolio and generally each other account managed by such Investment Professional. Each Investment Professional's incentive payment relating to the MBS Portfolio is linked to the gross pre-tax performance of the MBS Portfolio compared to the Barclays MBS Fixed Rate Index ex Hybrid Arms over one and three year periods, with an emphasis on three year results. Wellington Management applies similar incentive compensation structures (although the benchmarks or peer groups, time periods and rates may differ) to other accounts managed by these Investment Professionals, including accounts with performance fees.

Portfolio-based incentives across all accounts managed by an investment professional can, and typically do, represent a significant portion of an investment professional's overall compensation; incentive compensation varies significantly by individual and can vary significantly from year to year. The Investment Professionals may also be eligible for bonus payments based on their overall contribution to Wellington Management's business operations. Senior management at Wellington Management may reward individuals as it deems appropriate based on factors other than account performance. Each partner of Wellington Management is eligible to participate in a partner-funded tax qualified retirement plan, the contributions to which are made pursuant to an actuarial formula, as a partner of the firm.

Conflicts of Interest between the MBS Portfolio and Other Accounts Sub-advised by Wellington Management

Individual investment professionals at Wellington Management manage multiple accounts for multiple clients. These accounts may include mutual funds, separate accounts (assets managed on behalf of institutions such as pension funds, insurance companies, foundations, or separately managed account programs sponsored by financial intermediaries), bank common trust accounts, and hedge funds. The Investment Professionals generally manage accounts in several different investment styles. These accounts may have investment objectives, strategies, time horizons, tax considerations and risk profiles that differ from those of the MBS Portfolio. The Investment Professionals make investment decisions for each account, including the MBS Portfolio, based on the investment objectives, policies, practices, benchmarks, cash flows, tax and other relevant investment considerations applicable to that account. Consequently, the Investment Professionals may purchase or sell securities, including IPOs, for one account and not another account, and the performance of securities purchased for one account may vary from the performance of securities purchased for other accounts. Alternatively, these accounts may be managed in a similar fashion to the MBS Portfolio and thus the accounts may have similar, and in some cases nearly identical, objectives, strategies and/or holdings to that of the MBS Portfolio.

 

57

The Investment Professionals or other investment professionals at Wellington Management may place transactions on behalf of other accounts that are directly or indirectly contrary to investment decisions made on behalf of the MBS Portfolio, or make investment decisions that are similar to those made for the MBS Portfolio, both of which have the potential to adversely impact the MBS Portfolio depending on market conditions. For example, an investment professional may purchase a security in one account while appropriately selling that same security in another account. Similarly, the Investment Professionals may purchase the same security for the MBS Portfolio and one or more other accounts at or about the same time, and in those instances the other accounts will have access to their respective holdings prior to the public disclosure of the MBS Portfolio's holdings. In addition, some of these accounts have fee structures, including performance fees, wh are or have the potential to be higher, in some cases significantly higher, than the fees Wellington Management receives for managing the MBS Portfolio. Because incentive payments paid by Wellington Management to the Investment Professionals are tied to revenues earned by Wellington Management and, where noted, to the performance achieved by the manager in each account, the incentives associated with any given account may be significantly higher or lower than those associated with other accounts managed by the Investment Professionals. Finally, the Investment Professionals may hold shares or investments in the other pooled investment vehicles and/or other accounts identified above.

Wellington Management's goal is to meet its fiduciary obligation to treat all clients fairly and provide high quality investment services to all of its clients. Wellington Management has adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, which it believes address the conflicts associated with managing multiple accounts for multiple clients. In addition, Wellington Management monitors a variety of areas, including compliance with primary account guidelines, the allocation of IPOs, and compliance with the firm's Code of Ethics, and places additional investment restrictions on investment professionals who manage hedge funds and certain other accounts. Furthermore, senior investment and business personnel at Wellington Management periodically review the performance of Wellington Management's investment professionals. Although Wellington Managem does not track the time an investment professional spends on a single account, Wellington Management does periodically assess whether an investment professional has adequate time and resources to effectively manage the investment professional's various client mandates.

OTHER SERVICE PROVIDERS

Custodian . PFPC Trust Company, 400 Bellevue Parkway, Wilmington, Delaware 19809, serves as Custodian for the Fund(s') portfolio securities and cash, and in that capacity, maintains certain financial accounting books and records pursuant to an agreement with the Fund(s). Subcustodians provide custodial services for any foreign assets held outside the United States.

Transfer Agent . Prudential Mutual Fund Services (PMFS), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102, serves as the transfer and dividend disbursing agent of each Fund. PMFS is an affiliate of PI. PMFS provides customary transfer agency services to each Fund, including the handling of shareholder communications, the processing of shareholder transactions, the maintenance of shareholder account records, the payment of dividends and distributions, and related functions. For these services, PMFS receives compensation and is reimbursed for its sub-transfer agent expenses which include an annual fee and certain out-of-pocket expenses including, but not limited to, postage, stationery, printing, allocable communication expenses and other costs.

The Fund's Board appointed PNC Global Investment Servicing (U.S.) Inc. (PNC) as sub-transfer agent to the Fund. PMFS has contracted with PNC, 301 Bellevue Parkway, Wilmington, Delaware 19809, to provide certain administrative functions to the Transfer Agent. PMFS will compensate PNC for such services.

For the most recently completed fiscal year, the Trust incurred fees for services provided by PMFS.

Fees Paid to PMFS  
Portfolio Name Amount
Large Capitalization Growth $160,000
Large Capitalization Value $63,000
Small Capitalization Growth $50,000
Small Capitalization Value $494,000
International Equity $97,000
International Bond $33,200
Total Return Bond $325,500
Intermediate-Term Bond $127,000
Mortgage Backed Securities $30,000
U.S. Government Money Market $64,000

 

Independent Registered Public Accounting Firm . KPMG LLP, 345 Park Avenue, New York, New York 10154, served as the independent registered public accounting firm for the fiscal year ended October 31, 2008, the fiscal period ended October 31, 2007

 

The Target Portfolio Trust 58

and for the fiscal years ended December 31, 2006, 2005 and 2004, and in that capacity will audit the annual financial statements for the next fiscal year. Other accountants previously served as the independent registered public accounting firm for the Fund.

DISTRIBUTION OF PORTFOLIO SHARES

Distributor . Prudential Investment Management Services LLC (the Distributor), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts as the distributor of the shares of each Portfolio. The Distributor is a subsidiary of Prudential.

Pursuant to a Distribution and Service Plan (the Plan), adopted by the Trust pursuant to Rule 12b-1 under the 1940 Act, and a distribution agreement (the Distribution Agreement), the Distributor incurs the expenses of distributing the Class R shares of those Portfolios offering Class R shares. The Distributor also incurs the expenses of distributing each Portfolio's Class T shares under the Distribution Agreement, none of which are reimbursed or paid for by the Portfolios.

The expenses incurred under the Plan include commissions and account servicing fees paid to, or on account of brokers or financial institutions which have entered into agreements with the Distributor, advertising expenses, the cost of printing and maiilng prospectuses to potential investors and indirect and overhead costs of the Distributor associated with the sale of Portfolio shares, including lease, utility, communications and sales promotion expenses.

Under the Plan, each Portfolio is obligated to pay distribution and/or service fees to the Distributor as compensation for its distribution and service activities, not as reimbursement for specific expenses incurred. If the Distributor's expenses exceed its distribution and service fees,a Portfolio will not be obligated to pay any additional expenses. If the Distributor's expenses are less than such distribution and service fees, it will retain its full fees and realize a profit. The distribution and/or service fees may also be used by the Distributor to compensate on a continuing basis brokers in consideration for the distribution, marketing, administrative and other services and activities provided by brokers with respect to the promotion of the sale ofFund shares and the maintenance of related shareholder accounts.

Distribution expenses attributable to the sale of Class R shares of a Portfolio are allocated to each such class based upon the ratio of sales of each such class to the combined sales of Class R and Class T shares of a Portfolio, other than expenses allocable to a particular class. The distribution fee and sales charge of one class will not be used to subsidize the sale of another class.

The Plan continues in effect from year to year, provided that each such continuance is approved at least annually by a vote of the Board, including a majority vote of the Directors who are not interested persons of the Trust and who have no direct or indirect financial interest in the Plan or in any agreement related to the Plan (the Rule 12b-1 Directors), cast in person at a meeting called for the purpose of voting on such continuance. The Plan may be terminated at any time, without penalty, by the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of a majority of the outstanding shares of the applicable class of a Portfolio on not more than 30 days' written notice to any other party to the Plan. The Plan may not be amended to increase materially the amounts to be spent for the services described therein without approval by the shareholders of the applicable class, and all material amendments are required to be approved by the Board in the manner described above. The Plan will automatically terminate in the event of its assignment. A Portfolio will not be contractually obligated to pay expenses incurred under the Plan if it is terminated or not continued.

Pursuant to the Plan, the Board will review at least quarterly a written report of the distribution expenses incurred on behalf of each class of shares of each Portfolio by the Distributor. The report will include an itemization of the distribution expenses and the purposes of such expenditures. In addition, as long as the Plan remains in effect, the selection and nomination of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.

Pursuant to the Distribution Agreement,the Trust has agreed to indemnify the Distributor to the extent permitted by applicable law against certain liabilities under federal securities laws. In addition to distribution and service fees paid by a Portfolio under the Plan, the Manager (or one of its affiliates) may make payments out of its own resources to dealers and other persons which distribute shares of the Portfolios. Such payments may be calculated by reference to the net asset value of shares sold by such persons or otherwise.

Class R Sales Charge and Distribution Expense Information . Under the Class R Plan, a Portfolio may pay the Distributor for its distribution-related expenses with respect to Class R shares at an annual rate of up to .75 of 1% of the average daily net assets of the Class R shares. The Class R Plan provides that (1) up to .25 of 1% of the average daily net assets of the Class R shares may be used as a service fee and (2) total distribution fees (including the service fee of .25 of 1%) may not exceed .75 of 1% of the average daily net assets of the Class R shares. The Prospectus discusses any contractual or voluntary fee waivers that may be in effect.

Payments Received by the Distributor      

 

59
Portfolio $ Amount Received    
Large Cap Growth $231,603    
Large Cap Value $231,412    
Small Cap Growth $93,809    
Small Cap Value $113,128    
International Equity $183,952    
Total Return Bond $212,371    

 

 

The Target Portfolio Trust 60
Amounts Spent by Distributor        
  Printing & Mailing Prospectuses to Other than Current Shareholders Compensation to Broker/Dealers for Commissions to Representatives and Other Expenses Overhead Costs Total Amount Spent by Distributor
Large Cap Growth $500 - $138,400 $138,900
Large Cap Value $400 - $138,400 $138,800
Small Cap Growth $400 - $56,100 $56,500
Small Cap Value $400 $300 $67,300 $68,000
International Equity $400 - $109,900 $110,300
Total Return Bond $500 - $127,400 $127,900

 

Fee Waivers and Subsidies . PI may from time to time waive all or a portion of its management fee and subsidize all or a portion of the operating expenses of the Fund(s). Fee waivers and subsidies will increase a Fund's total return.

Payments to Financial Services Firms . As described in the Fund's Prospectus, the Manager, Distributor or their affiliates have entered into revenue sharing or other similar arrangements with financial services firms, including affiliates of the Manager. These revenue sharing arrangements are intended to promote the sale of Fund shares or to compensate the financial services firms for marketing or marketing support activities in connection with the sale of Fund shares.

The list below includes the names of the firms (or their affiliated broker/dealers) that received from the Distributor revenue sharing payments of more than $10,000 in calendar year 2008 for marketing and product support of the Funds and other JennisonDryden and/or Strategic Partners funds as described above.

  • 1st Global Capital Corp.

  • AIG Network

  • Ascensus (formerly BISYS Retirement Services Inc.)

  • Citigroup Global Markets, Inc. (Smith Barney)

  • CitiStreet LLC

  • Diversified Investment Advisors

  • Expert Plan, Inc.

  • Fidelity - Retirement Funds Network

  • Fidelity Management Trust Company

  • Financial Network Investment Corporation

  • Fiserve Trust Company (TD Ameritrade)

  • GWFS Equities, Inc.

  • ING Financial Partners, Inc.

  • J.P. Morgan Retirement Plan Services

  • John Hancock Life Insurance Company (formerly The Manufacturers Life Insurance Company U.S.A.)

  • Linsco/Private Ledger Corp. (LPL Financial Services)

  • Merrill Lynch Retirement

  • Merrill Lynch Pierce, Fenner & Smith

  • Mid Atlantic Capital Corp. (SunGard Institutional Brokerage Inc.)

  • Morgan Stanley ADP

  • Morgan Stanley DW Inc.

  • MSCS Financial Services LLC

  • Multi-Financial Securities Corporation

  • Nationwide Financial Services, Inc.

  • NYLife Distributors, Inc.

  • Oppenheimer & Co.

  • Princeton Retirement Group, Inc.

  • Principal Life Insurance Company

  • Pruco Securities LLC

  • Raymond James Financial Services, Inc.

  • Security Benefit

  • Standard Insurance Company

 

61

  • T. Rowe Price Retirement Plan Services, Inc.

  • UBS

  • UVEST Financial Services Group, Inc.

  • Wachovia Bank, N.A.

  • Wachovia Securities LLC

COMPUTATION OF OFFERING PRICE PER SHARE

Using the net asset value of each Portfolio as of the most recently completed fiscal year, the offering prices of each Portfolio's shares were as follows:

Offering Price Per Share  
Portfolio Name Net Asset Value, Offering Price, and Redemption Price
Large Capitalization Growth  
Class T $10.19
Class R $10.11
Large Capitalization Value  
Class T $8.82
Class R $8.78
Small Capitalization Growth  
Class T $7.25
Class R $7.17
Small Capitalization Value  
Class T $14.21
Class R $14.10
International Equity  
Class T $9.03
Class R $8.99
International Bond  
Class T $8.13
Total Return Bond  
Class T $9.93
Class R $9.86
Intermediate Term Bond  
Class T $10.27
Mortgage Backed Securities  
Class T $9.26
U.S. Government Money Market  
Class T $1.00

 

PORTFOLIO TRANSACTIONS & BROKERAGE

The Fund has adopted a policy pursuant to which the Fund and its Manager, Subadviser(s) and principal underwriter are prohibited from directly or indirectly compensating a broker-dealer for promoting or selling Fund shares by directing brokerage transactions to that broker. Each Fund has adopted procedures for the purpose of deterring and detecting any violations of the policy. The policy permits a Fund, the Manager and the Subadviser(s) to use selling brokers to execute transactions in portfolio securities so long as the selection of such selling brokers is the result of a decision that executing such transactions is in the best interest of a Fund and is not influenced by considerations about the sale of Fund shares.

The Manager is responsible for decisions to buy and sell securities, futures contracts and options on such securities and futures for each Fund, the selection of brokers, dealers and futures commission merchants to effect the transactions and the negotiation of brokerage commissions, if any. On a national securities exchange, broker-dealers may receive negotiated brokerage commissions on Fund portfolio transactions, including options, futures, and options on futures transactions and the purchase and sale of underlying securities upon the exercise of options. On a foreign securities exchange, commissions may be fixed. For purposes of this section, the term "Manager" includes the Subadviser. Orders may be directed to any broker or futures commission merchant including, to the extent and in the manner permitted by applicable laws, Wachovia Securities and its affiliates or one of the investment adviser's affiliates (an affiliated broker). Brokerage commissions on U.S. securities, options and futures exchanges or boards of trade are subject to negotiation between the Manager and the broker or futures commission merchant.

 

The Target Portfolio Trust 62

In the over-the-counter market (OTC), securities are generally traded on a "net" basis with dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain money market instruments and U.S. Government agency securities may be purchased directly from the issuer, in which case no commissions or discounts are paid. Each Fund will not deal with an affiliated broker in any transaction in which an affiliated broker acts as principal except in accordance with the rules of the Commission. Thus, it will not deal in the OTC market with Wachovia Securities acting as market maker, and it will not execute a negotiated trade with an affiliated broker if execution involves Wachovia Securities acting as principal with respect to any part of the Fund's order.

In placing orders for portfolio securities of the Fund, the Manager's overriding objective is to obtain the best possible combination of favorable price and efficient execution. The Manager seeks to effect such transaction at a price and commission that provides the most favorable total cost of proceeds reasonably attainable in the circumstances. The factors that the Manager may consider in selecting a particular broker, dealer or futures commission merchant (firms) are the Manager's knowledge of negotiated commission rates currently available and other current transaction costs; the nature of the portfolio transaction; the size of the transaction; the desired timing of the trade; the activity existing and expected in the market for the particular transaction; confidentiality; the execution, clearance and settlement capabilities of the firms; the availability of research and research-related services provided through such firms; the Manager's knowledge of the financial stability of the firms; the Manager's knowledge of actual or apparent operational problems of firms; and the amount of capital, if any, that would be contributed by firms executing the transaction. Given these factors, the Fund may pay transaction costs in excess of that which another firm might have charged for effecting the same transaction.

When the Manager selects a firm that executes orders or is a party to portfolio transactions, relevant factors taken into consideration are whether that firm has furnished research and research-related products and/or services, such as research reports, research compilations, statistical and economic data, computer databases, quotation equipment and services, research-oriented computer software and services, reports concerning the performance of accounts, valuations of securities, investment-related periodicals, investment seminars and other economic services and consultations. Such services are used in connection with some or all of the Manager's investment activities; some of such services, obtained in connection with the execution of transactions for one investment account, may be used in managing other accounts, and not all of these services may be used in connection with the Fund. The Manager maintains an internal allocation procedure to identify those firms who have provided it with research and research-related products and/or services, and the amount that was provided, and to endeavor to direct sufficient commissions to them to ensure the continued receipt of those services that the Manager believes provide a benefit to the Fund and its other clients. The Manager makes a good faith determination that the research and/or service is reasonable in light of the type of service provided and the price and execution of the related portfolio transactions.

When the Manager deems the purchase or sale of equities to be in the best interests of the Fund or its other clients, including Prudential, the Manager may, but is under no obligation to, aggregate the transactions in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the transactions, as well as the expenses incurred in the transaction, will be made by the Manager in the manner it considers to be most equitable and consistent with its fiduciary obligations to its clients. The allocation of orders among firms and the commission rates paid are reviewed periodically by the Fund's Board of Directors. Portfolio securities may not be purchased from any underwriting or selling syndicate of which Wachovia Securities or any affiliate, during the existence of the syndicate, is a principal underwriter (as defined in the 1940 Act), except i accordance with rules of the Commission. This limitation, in the opinion of the Fund, will not significantly affect the Fund's ability to pursue its present investment objective. However, in the future in other circumstances, the Fund may be at a disadvantage because of this limitation in comparison to other funds with similar objectives but not subject to such limitations.

Subject to the above considerations, Wachovia Securities may act as a broker or futures commission merchant for the Fund. In order for an affiliate of the investment adviser or Wachovia Securities (or an affiliate) to effect any portfolio transactions for the Fund, the commissions, fees or other remuneration received by the affiliated broker must be reasonable and fair compared to the commissions, fees or other remuneration paid to other firms in connection with comparable transactions involving similar securities or futures being purchased or sold on an exchange or board of trade during a comparable period of time. This standard would allow the affiliated broker to receive no more than the remuneration which would be expected to be received by an unaffiliated firm in a commensurate arm's-length transaction. Furthermore, the Directors of the Fund, including a majority of the Independent Directors, have adopted procedures which are reasonably designed to provide that any commissions, fees or other remuneration paid to the affiliated broker (or any affiliate) are consistent with the foregoing standard. In accordance with Section11(a) of the Exchange Act, Wachovia Securities may not retain compensation for effecting transactions on a national securities exchange for the Fund unless the Fund has expressly authorized the retention of such compensation. Wachovia Securities must furnish to the Fund at least annually a

 

63

statement setting forth the total amount of all compensation retained by Wachovia Securities from transactions effected for the Fund during the applicable period. Brokerage transactions with an affiliated broker are also subject to such fiduciary standards as may be imposed upon Wachovia Securities by applicable law. Transactions in options by the Fund will be subject to limitations established by each of the exchanges governing the maximum number of options which may be written or held by a single investor or group of investors acting in concert, regardless of whether the options are written or held on the same or different exchanges or are written or held in one or more accounts or through one or more brokers. Thus, the number of options which the Fund may write or hold may be affected by options written or held by the Manager and other investment advisory clients of the Manager. An exchange may order the liquidation of positions found to b in excess of these limits, and it may impose certain other sanctions.

The table(s) below sets forth information concerning the payment of commissions by the Fund, including the amount of such commissions paid to Wachovia Securities (or any affiliate) for the indicated fiscal periods:

Large Capitalization Growth Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio $174,073 $104,558 $170,044
Total brokerage commissions paid to affiliated brokers None None $197
Percentage of total brokerage commissions paid to affiliated brokers N/A N/A 0.12%
Percentage of the aggregate dollar amount of portfolio transactions involving the payment of commissions to affiliated brokers N/A N/A 0.03%

 

Large Capitalization Value Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio $352,329 $212,198 $214,870
Total brokerage commissions paid to affiliated brokers None $3,266 $18,097
Percentage of total brokerage commissions paid to affiliated brokers None 1.54% 8.42%
Percentage of the aggregate dollar amount of portfolio transactions involving the payment of commissions to affiliated brokers None 1.91% 10.71%

 

Small Capitalization Growth Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio $472,809 $326,256 $459,123
Total brokerage commissions paid to affiliated brokers $199 None $207
Percentage of total brokerage commissions paid to affiliated brokers 0.04% N/A 0.05%
Percentage of the aggregate dollar amount of portfolio transactions involving the payment of commissions to affiliated brokers 0.02% N/A 0.02%

 

Small Capitalization Value Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio $540,189 $362,985 $261,750
Total brokerage commissions paid to affiliated brokers $725 $136 $3,714
Percentage of total brokerage commissions paid to affiliated brokers 0.13% 0.04% 1.42%
Percentage of the aggregate dollar amount of portfolio transactions involving the payment of commissions to affiliated brokers 0.02% 0.03% 1.65%

 

International Equity Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio $147,743 $218,345 $248,128
Total brokerage commissions paid to affiliated brokers None None None
Percentage of total brokerage commissions paid to affiliated brokers N/A N/A N/A
Percentage of the aggregate dollar amount of portfolio transactions involving the payment of commissions to affiliated brokers N/A N/A N/A

 

International Bond Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio $20,186 $11,023 $5,573
Total brokerage commissions paid to affiliated brokers None None None
Percentage of total brokerage commissions paid to affiliated brokers N/A N/A N/A
Percentage of the aggregate dollar amount of portfolio transactions involving the payment of commissions to affiliated brokers N/A N/A N/A

 

 

The Target Portfolio Trust 64
Mortgage Backed Securities Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio $7,460 $6,533 $5,263
Total brokerage commissions paid to affiliated brokers None None None
Percentage of total brokerage commissions paid to affiliated brokers N/A N/A N/A
Percentage of the aggregate dollar amount of portfolio transactions involving the payment of commissions to affiliated brokers N/A N/A N/A

 

Total Return Bond Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio $107,506 $64,555 $39,790
Total brokerage commissions paid to affiliated brokers None None None
Percentage of total brokerage commissions paid to affiliated brokers N/A N/A N/A
Percentage of the aggregate dollar amount of portfolio transactions involving the payment of commissions to affiliated brokers N/A N/A N/A

 

Intermediate-Term Bond Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio $33,663 $42,980 $22,759
Total brokerage commissions paid to affiliated brokers None None None
Percentage of total brokerage commissions paid to affiliated brokers N/A N/A N/A
Percentage of the aggregate dollar amount of portfolio transactions involving the payment of commissions to affiliated brokers N/A N/A N/A

 

U.S. Government Money Market Portfolio      
  2008 2007 2006
Total brokerage commissions paid by the Portfolio None None None

 

Note to Brokerage Commissions Tables: During 2007 the Trust changed its fiscal year end from December 31 to October 31. The brokerage commissions shown for 2007 are for the ten-month period from January 1, 2007 through October 31, 2007.

The Fund is required to disclose its holdings of securities of its regular brokers and dealers (as defined under Rule 10b-1 of the 1940 Act) and their parents as of the most recently completed fiscal period. As of the most recently completed fiscal year, the Fund held the following securities of its regular brokers and dealers.

Portfolio Name Broker-Dealer Equity or Debt Amount
Large Capitalization Growth Goldman Sachs & Co. E $2,128,610
  JPMorgan Chase & Co. E $2,740,320
  Banc of America Securities LLC E $4,066,433
  Morgan Stanley E $101,798
Large Capitalization Value Bank of America LLC E $6,941,286
  Citigroup Global Markets, Inc. E $2,805,075
  Morgan Stanley E $1,210,671
  JPMorgan Chase & Co. E $4,075,500
  Goldman Sachs & Co. E $980,500
  Merrill Lynch & Co. E $526,097
Small Capitalization Growth Investment Technology Group E 377
Small Capitalization Value Jefferies & Company, Inc. E 1,586,166
International Equity      
  Barclays Bank PLC E $570,736
  BNP Paribas Investment Services, LLC E $2,899,101

 

65
  Credit Suisse Securities (USA) LLC E $908,671
  Deutsche Bank Securities, Inc. E $668,689
International Bond      
  Banc of America LLC D $334,877
  Barclays Capital, Inc. D $412,994
  Citigroup Global Markets, Inc. D $1,849,989
  Credit Suisse Securities LLC D $171,189
  Deutsche Bank Securities, Inc. D $186,376
  Goldman Sachs & Co. D $384,160
  JPMorgan Chase & Co. D $1,852,915
  Lehman Brothers, Inc. D $26,000
  Merrill Lynch & Co. D $607,758

 

The Target Portfolio Trust 66
  Morgan Stanley D $510,787
  UBS Securities LLC D $155,494
Mortgage Backed Securities Credit Suisse Securities LLC D $48,148
  Citigroup Global Markets, Inc. D $261,238
  Goldman Sachs & Co. D &590,107
  JP Morgan Chase & Co D $725,811
  Morgan Stanley D $646,055
Total Return Bond Banc of America Securities LLC D $8,730,889
  Citigroup Global Markets, Inc. D $9,858,501
  Barclay's Bank PLC D $4,299,299
  Lehman Brothers Inc. D $572,000
  Morgan Stanley D $4,457,020
  Credit Suisse Securities LLC D $3,517,219
  Goldman, Sachs & Co. D $325,649
  Merrill Lynch & Co. D $240,266
  Deutsche Bank Securities, Inc. D $4,938,964
  JPMorgan Chase & Co. D $396,955
Intermediate-Term Bond      
  Banc of America Securities LLC D $4,851,280
  Barclay's Bank PLC D $2,216,370
  Citigroup Global Markets, Inc. D $6,840,133
  Credit Suisse Securities LLC D $2,192,224
  Goldman, Sachs & Co. D $4,764,001
  JPMorgan Chase & Co. D $6,956,123
  Lehman Brothers Inc. D $289,500
  Merrill Lynch & Co. D $4,099,454
  Morgan Stanley D $1,300,077
U.S. Government Money Market None None None

 

ADDITIONAL INFORMATION

Fund History . The Trust, organized as a statutory business trust in 1992 under the laws of Delaware, is a trust fund of the type commonly known as a "business trust."

Description of Shares and Organization . The shareholders of the Portfolios are each entitled to a full vote for each full share of beneficial interest (par value $.001 per share) held (and fractional votes for fractional shares). Shares of each Portfolio are entitled to vote as a class only to the extent required by the provisions of the Investment Company Act or as otherwise permitted by the Trustees in their sole discretion.

Pursuant to the Investment Company Act, shareholders of each Portfolio have to approve changes in certain investment policies of a Portfolio.

In accordance with the Trust's Agreement and Declaration of Trust, the Board may authorize the creation of additional series of shares and classes within such series, with such preferences, privileges, limitations and voting and dividend rights as the Trustees may determine.

Shares of the Trust, when issued, are fully paid, nonassessable, fully transferable and redeemable at the option of the holder. Shares are also redeemable at the option of the Trust under certain circumstances. Each share is equal as to earnings, assets and voting privileges. There are no conversion, preemptive or other subscription rights. In the event of liquidation, each share of a Portfolio is entitled to its portion of all of the Portfolio's assets after all debts and expenses of the Portfolio have been paid. The Trust's shares do not have cumulative voting rights for the election of Trustees.

The Trust does not intend to hold annual meetings of shareholders unless otherwise required by law. The Trust will not be required to hold meetings of shareholders unless, for example, the election of Trustees is required to be acted on by shareholders under the Investment Company Act. Shareholders have certain rights, including the right to call a meeting upon a vote of 10% or more of the Trust's outstanding shares for the purpose of voting on the removal of one or more Trustees or to transact any other business. The Trust will render assistance to those shareholders who call such a meeting.

 

67

PRINCIPAL SHAREHOLDERS

To the knowledge of the Trust, the following persons/entities owned beneficially or of record 5% or more of Portfolio shares as of the date indicated:

Prinicipal Portfolio Shareholders (as of January 9, 2009)        
Portfolio Name Shareholder Name Address Share Class No. of Shares / % of Portfolio
Large Capitalization Growth Prudential Investment
FBO Mutual Fund Clients
Attn PruChoice Unit 		Prudential Investments
100 Mulberry Street
Newark, NJ 07102 		T 13,425,072 / 96.69%
  PIMS / Prudential Retirement
as Nominee for the TTEE/Cust
Prudential SmartSolution IRA 		PIMS / Prudential Retirement
200 Wood Avenue South
Iselin, NJ 08830 		R 5,313,525 / 99.99%
Large Capitalization Value Prudential Investment
FBO Mutual Fund Clients
Attn PruChoice Unit 		Prudental Investments
100 Mulberry Street
Newark, NJ 07102
Attn: PruChoice Unit 		T 16,730,020 / 92.98%
  PIMS / Prudential Retirement
as Nominee for the TTEE/Cust
Prudential SmartSolution IRA 		PIMS / Prudential Retirement
200 Wood Avenue South
Iselin, NJ 08830 		R 6,490,029 / 99.99%
Small Capitalization Growth Prudential Investments
FBO Mutual Fund Clients 		Prudental Investments
100 Mulberry Street,
Newark, NJ 07102
Attn: PruChoice Unit 		T 7,647,595 / 97.22%
  PIMS / Prudential Retirement
as Nominee for the TTEE/Cust
Prudential SmartSolution IRA 		PIMS / Prudential Retirement
200 Wood Avenue South
Iselin, NJ 08830 		R 3,140,912 / 99.99%
Small Capitalization Value Prudential Investment
FBO Mutual Fund Clients
Attn PruChoice Unit 		Prudental Investments
100 Mulberry Street
Newark, NJ 07102
Attn: PruChoice Unit 		T 8,148,281 / 27.41%
  NFS LLC FEBO State Street Bank Trust Co TTEE Various Retirement Plans 4 Manhattanville Rd Purchase, NY 10577 T 5,729,034 / 19.27%
  Fidelity Investments
Institutional Operations Inc. (FIIOC)
As Agent for Certain Employee Benefit Plans 		100 Megellan Way #KWIC
Covington, KY 41015 		T 3,474,504 / 11.69%
  ING Life Insurance & Annuity Company 151 Farmington Avenue
Hartford CT 06156 		T 2,906,541 / 9.78%
  Mori & Co 911 Main Street, Ste 201 Kansas City, MO 64105 T 1,897,060 / 6.38%
  PIMS / Prudential Retirement
as Nominee for the TTEE/Cust
Prudential SmartSolution IRA 		PIMS / Prudential Retirement
200 Wood Avenue South,
Iselin, NJ 08830 		R 1,888,713 / 99.99%
International Bond Prudential Investment
FBO Mutual Fund Clients
Attn PruChoice Unit 		Prudental Investments
100 Mulberry Street
Newark, NJ 07102
Attn: PruChoice Unit 		T 3,536,609 / 97.81%
Intermediate Term Bond Prudential Investment
FBO Mutual Fund Clients
Attn PruChoice Unit 		Prudental Investments
100 Mulberry Street
Newark, NJ 07102
Attn: PruChoice Unit 		T 19,312,841 / 94.30%
International Equity Prudential Investment
FBO Mutual Fund Clients
Attn PruChoice Unit 		Prudental Investments
100 Mulberry Street
Newark, NJ 07102
Attn: PruChoice Unit 		T 12,623,838 / 94.84%
  PIMS / Prudential Retirement
as Nominee for the TTEE/Cust
Prudential SmartSolution IRA 		PIMS / Prudential Retirement
200 Wood Avenue South
Iselin, NJ 08830 		R 4,680,466 / 99.99%
Total Return Bond Prudential Investment
FBO Mutual Fund Clients
Attn PruChoice Unit 		Prudental Investments
100 Mulberry Street
Newark, NJ 07102
Attn: PruChoice Unit 		T 19,511,075 / 95.59%

 

The Target Portfolio Trust 68
  PIMS / Prudential Retirement
as Nominee for the TTEE/Cust
Prudential SmartSolution IRA 		PIMS / Prudential Retirement
200 Wood Avenue South
Iselin, NJ 08830 		R 5,309,336 / 99.99%
U.S. Government Money Market Prudential Investment
FBO Mutual Fund Clients
Attn PruChoice Unit 		Prudental Investments
100 Mulberry Street
Newark, NJ 07102
Attn: PruChoice Unit 		T 86,244,823 / 96.75%
Mortgage Backed Securities Prudential Investment
FBO Mutual Fund Clients
Attn PruChoice Unit 		Prudental Investments
100 Mulberry Street
Newark, NJ 07102
Attn: PruChoice Unit 		T 4,976,620 / 97.02%

 

As of the date of this Statement of Additional Information, the Directors and Officers of the Trust, as a group, owned less than 1% of the outstanding shares of beneficial interest of the Portfolios.

FINANCIAL STATEMENTS

The financial statements for the fiscal year ended October 31, 2008 incorporated in this SAI by reference to the 2008 annual report to shareholders (File No. 811-7064), have been so incorporated in reliance on the report of KPMG LLP, independent registered public accounting firm.

You may obtain a copy of the annual report at no charge by request to the Trust by calling (800) 225-1852 or by writing to the Trust at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.

 

69

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

Shares of the Funds may be purchased at a price equal to the next determined net asset value per share.

Issuance of Fund Shares for Securities

Transactions involving the issuance of Fund shares for securities (rather than cash) will be limited to: (1) reorganizations, (2) statutory mergers, or (3) other acquisitions of portfolio securities that: (a) meet the investment objective and policies of a Fund, (b) are liquid and not subject to restrictions on resale, (c) have a value that is readily ascertainable via listing on or trading in a recognized United States or international exchange or market and (d) are approved by the Manager.


Restrictions on Sales of Fund Shares

The payment of redemption proceeds may be postponed or the right of redemption suspended at times (1) when the New York Stock Exchange (the NYSE) is closed for other than customary weekends and holidays, (2) when trading on the NYSE is restricted, (3) when an emergency exists as a result of which disposal by a Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or (4) during any other period when the Commission, by order, so permits; provided that applicable rules and regulations of the Commission shall govern as to whether the conditions prescribed in (2), (3) or (4) exist.

NET ASSET VALUE

All Funds (Except U.S. Government Money Market Portfolio)

The price an investor pays for each share is based on the share value. For each Fund the share value—known as the net asset value per share or NAV— is determined by subtracting its liabilities from the value of its assets and dividing the remainder by the number of outstanding shares. NAV is calculated separately for each class. Each Fund will compute its NAV once each business day at the close of regular trading on the NYSE, usually 4:00 p.m. New York time. For purposes of computing a Fund's NAV, the Fund will value the Fund's futures contracts generally 15 minutes after the close of regular trading on the NYSE. A Fund may not compute its NAV on days on which no orders to purchase, sell or exchange shares of the Fund have been received or on days on which changes in the value of the Fund's portfolio securities do not materially affect its NAV. The NYSE is closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

In accordance with procedures adopted by the Board, the value of investments listed on a securities exchange (other than options on stock and stock indices) are valued at the last sale price on the day of valuation or, if there was no sale on such day, the mean between the last bid and asked prices on such day, or at the bid price on such day in the absence of an asked price, as provided by a pricing service or principal market marker. Securities included on the Nasdaq Market are valued at the Nasdaq Official Closing Price (NOCP) on the day of valuation, or if there was no NOCP, at the last sale price. Nasdaq Market Securities for which there was no NOCP or last sale price are valued at the mean between the last bid and asked prices on the day of valuation, or the last bid price in the absence of an asked price. Corporate bonds (other than convertible debt securities) and U.S. Government securit that are actively traded in the over-the-counter (OTC) market, including listed securities for which the primary market is believed by the Manager in consultation with the Subadviser to be over-the-counter, are valued on the basis of valuations provided by an independent pricing agent which uses information with respect to transactions in bonds, quotations from bond dealers, agency ratings, market transactions in comparable securities and various relationships between securities in determining value. Convertible debt securities that are actively traded in the over-the-counter market, including listed securities for which the primary market is believed by the Manager in consultation with the Subadviser to be OTC, are valued at the mean between the last reported bid and asked prices provided by principal market makers.

OTC options on stock and stock indices traded on an exchange are valued at the mean between the most recently quoted bid and asked prices on the respective exchange and futures contracts and options thereon are valued at their last sale prices as of the close of trading on the applicable commodities exchange or if there was no sale on the applicable commodities exchange on such day, at the mean between the most recently quoted bid and asked prices on such exchange or at the last bid price in the absence of an asked price. Quotations of foreign securities in a foreign currency are converted to U.S. dollar equivalents at the current rate obtained from a recognized bank, dealer or independent service, and forward currency exchange contracts are valued at the current cost of covering or offsetting such contacts. Should an extraordinary event, which is likely to affect the value of the security, occu after the

 

The Target Portfolio Trust 70

close of an exchange on which a portfolio security is traded, such security will be valued at fair value considering factors determined in good faith by the investment adviser under procedures established by and under the general supervision of the Fund's Board.

Under the 1940 Act, the Board is responsible for determining in good faith the fair value of securities of a Fund. Portfolio securities for which reliable market quotations are not readily available or for which the pricing agent or principal market maker does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Manager or Subadviser (or Valuation Committee or Board) does not represent fair value (Fair Value Securities), are valued by the Valuation Committee or Board in consultation with the Subadviser, Adviser or Manager, as applicable, including, as applicable, their portfolio managers, traders, research and credit analysts, and legal and compliance personnel, on the basis of the following factors: the nature of any restrictions on disposition of the securities; assessment of the general liquidity/illiquidity of the securities; the issuer's financi condition and the markets in which it does business; the cost of the investment; the size of the holding and the capitalization of issuer; the prices of any recent transactions or bids/offers for such securities or any comparable securities; any available analyst, media or other reports or information deemed reliable by the Manager or Subadviser regarding the issuer or the markets or industry in which it operates; other analytical data; consistency with valuation of similar securities held by other JennisonDryden or Strategic Partners mutual funds; and such other factors as may be determined by the Adviser, Manager, Board or Valuation Committee to materially affect the value of the security. Fair Value Securities may include, but are not limited to, the following: certain private placements and restricted securities that do not have an active trading market; securities whose trading has been suspended or for which market quotes are no longer available; debt securities that have recently gone into default and for which there is no current market; securities whose prices are stale; securities affected by significant events; and securities that the Subadviser or Manager believes were priced incorrectly.

A "significant event" (which includes, but is not limited to, an extraordinary political or market event) is an event that the Subadviser or Manager believes with a reasonably high degree of certainty has caused the closing market prices of a Fund's portfolio securities to no longer reflect their value at the time of the Fund's NAV calculation. On a day that the Manager may determine that one or more of the Fund's portfolio securities constitute Fair Value Securities, the Manager's Fair Valuation Committee may determine the fair value of these securities if the fair valuation of each security results in a change of less than $0.01 to the Fund's NAV and/or the fair valuation of the securities in the aggregate results in a change of one half of one precent or more of the Fund's daily net assets and the Fair Valuation Committee presents these valuations to the Board for its ratification.

Short-term debt securities are valued at cost, with interest accrued of discount amortized to the date of maturity, if their original maturity was 60 days or less, unless this is determined by the Board not to represent fair value. Short-term securities with remaining maturities of more than 60 days, for which market quotations are readily available are valued at their current market quotations as supplied by an independent pricing agent or more than one principal market maker (if available, otherwise a primary market maker).

Securities for which reliable market quotations are not available or for which the pricing agent or principal market maker does not provide a valuation or provides a valuation that, in the judgment of the Subadviser or Manager, does not present fair value, shall be valued in accordance with the following procedures: At the time of purchase, the duration of the security is to be determined. A Treasury issue (or similar security or index for which market quotes are readily available) (the "Proxy") of similar duration will then be selected to serve as a Proxy for the price movements of the security. The price of the security will fluctuate exactly as does the Proxy while maintaining the initial price spread constant. The duration of the security will be reviewed once a month by one or more of the portfolio managers, and at any other time that a portfolio manager believes that there may have been a material change in the duration of the security. Should the duration change, another security or index of similar duration will be chosen to serve as proxy, at which point the price spread will be determined. In addition, the validity of the pricing methodology will be monitored by (1) comparing the actual sales proceeds of the security to its price reported by the Fund at the time of the sale and (2) periodically obtaining actual market quotes for the security.

As long as a Fund declares dividends daily, the net asset value of each class of shares of the Fund will generally be the same. It is expected, however, that the dividends, if any, will differ by approximately the amount of the distribution and/or service fee expense accrual differential among the classes.

U.S. Government Money Market Portfolio

The Fund's NAV per share is determined by subtracting its liabilities from the value of its assets and dividing the remainder by the number of outstanding shares.

The Fund uses the amortized cost method of valuation to determine the value of its portfolio securities. In that regard, the Fund's Board of Directors has determined to maintain a dollar-weighted average portfolio maturity of 90 days or less, to purchase only instruments having remaining maturities of thirteen months or less, and to invest only in securities determined by the investment adviser under the supervision of the Board of Directors to be of minimal credit risk and to be of "eligible quality" in accordance with regulations of the Commission. The remaining maturity of an instrument held by the Fund that is subject to a put is deemed to be the

 

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period remaining until the principal amount can be recovered through demand or, in the case of a variable rate instrument, the next interest reset date, if longer. The value assigned to the put is zero. The Board of Directors also has established procedures designed to stabilize, to the extent reasonably possible, the Fund's price per share as computed for the purpose of sales and redemptions at $1.00. Such procedures will include review of a Fund's portfolio holdings by the Board, at such intervals as deemed appropriate, to determine whether the Fund's NAV calculated by using available market quotations deviates from $1.00 per share based on amortized cost. The extent of any deviation will be examined by the Board, and if such deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be initiated. In the event the Board of Directors determines that a deviation exists which may resul in material dilution or other unfair results to investors or existing shareholders, the Board will take such corrective action as it regards necessary and appropriate, including the sale of portfolio instruments prior to maturity to realize gains or losses, the shortening of average portfolio maturity, the withholding of dividends or the establishment of NAV per share by using available market quotations.

The Fund computes its NAV at the close of regular trading on the NYSE, (usually 4:00 PM New York time), on each day the NYSE is open for trading. In the event that the NYSE closes before 4:00p.m., you will receive the following day's NAV if your order to sell is received after the NYSE closes. The NYSE is closed on most national holidays and on Good Friday. The Fund may not determine its NAV on days when no orders to purchase, sell or exchange Fund shares have been received or days on which changes in the value of the Fund's securities do not materially affect the NAV.

SHAREHOLDER SERVICES

Automatic Reinvestment of Dividends and/or Distributions

For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of each of the Funds at net asset value per share on the payment date, unless the Directors determine otherwise. An investor may notify their broker or the Transfer Agent in writing not less than five full business days prior to the payment date to have subsequent dividends and/or distributions paid in cash rather than reinvested. Shareholders investing through Plan accounts cannot elect to receive dividends and distributions in cash.

Exchange Privilege

Shares of a Fund may be exchanged without payment of any exchange fee for shares of another Fund at their respective net asset values. An exchange of shares is treated for federal income tax purposes as a redemption (sale) of shares in exchange by the shareholder, and an exchanging shareholder may, therefore, realize a taxable gain or loss in connection with the exchange.


Systematic Withdrawal Plan

A systematic withdrawal plan is available to shareholders of the Trust through the Distributor, the Transfer Agent or your broker. The withdrawal plan provides for monthly, quarterly, semi-annual or annual redemption checks in any amount up to the value of a shareholder's shares in the Trust.

The shareholder must instruct the Distributor, the Transfer Agent or his / her broker of the amount that he or she wishes to withdraw under the Plan, whether such withdrawal should occur monthly, quarterly, semi-annually or annually, and which Funds should be redeemed in order to satisfy the request. The Distributor, Transfer Agent or broker acts as an agent for the shareholder in redeeming sufficient full and fractional shares of the applicable Funds to provide for the amount of the systematic withdrawal. The Plan may be terminated at any time and the Distributor reserves the right to initiate a fee of up to $5 per systematic withdrawal, upon 30 days' notice to the shareholder. Systematic withdrawals should not be considered as dividends, yield or income. If systematic withdrawals continuously exceed reinvested dividends and distributions, the shareholder's original investment will be correspondingly reduced and ultimately exhausted.

Furthermore, each systematic withdrawal constitutes a redemption of shares, and any gain or loss realized must be recognized for federal income tax purposes. Each shareholder should consult his or her tax adviser with regard to the tax consequences of the systematic withdrawal plan, particularly if used in connection with a retirement plan. Retirement plan shareholders should also consult with their plan sponsor to determine if their retirement plan would permit the shareholder to participate in the systematic withdrawal plan.

 

The Target Portfolio Trust 72

TAXES, DIVIDENDS AND DISTRIBUTIONS

The following is a summary of certain tax considerations generally affecting each Fund and its shareholders. This section is based on the Internal Revenue Code of 1986, as amended (the "Code"), published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. Please consult your own tax adviser concerning the consequences of investing in a Fund in your particular circumstances under the Code and the laws of any other taxing jurisdiction.

Qualification as a Regulated Investment Company . Each Fund has elected to be taxed as a regulated investment company under Subchapter M of the Code and intends to meet all other requirements that are necessary for it to be relieved of federal taxes on income and gains it distributes to shareholders. As a regulated investment company, a Fund is not subject to federal income tax on the portion of its net investment income (i.e., investment company taxable income, as that term is defined in the Code, without regard to the deduction for dividends paid) and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) that it distributes to shareholders, provided that it distributes at least 90% of its net tax-exempt income and investment company taxable income for the year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below.

Net capital gains of a Fund that are available for distribution to shareholders will be computed by taking into account any applicable capital loss carryforward. If a Fund has a capital loss carryforward, the amount and duration of any such capital loss carryforward will be set forth at the end of this section.

In addition to satisfying the Distribution Requirement, each Fund must derive at least 90% of its gross income from dividends, interest, certain payments with respect to loans of stock and securities, gains from the sale or disposition of stock, securities or foreign currencies and other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies and net income derived from an interest in a "qualified publicly traded partnership" (as such term is defined in the Code).

Each Fund must also satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of a Fund's taxable year, (1) 50% or more of the value of the Fund's assets must be represented by cash, United States government securities, securities of other regulated investment companies, and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's assets and 10% of the outstanding voting securities of such issuer and (2) not more than 25% of the value of the Fund's assets may be invested in securities of (x) any one issuer (other than United States government securities or securities of other regulated investment companies), or two or more issuers (other than securities of other regulated investment companies) of which the Fund owns 20% or more of the voting stock and which are engaged in the same, similar or related trades or businesses or (y) one or more "qualified publicly traded partnerships" (as such term is defined in the Code).

A Fund's investments in partnerships, including in qualified publicly traded partnerships, may result in the Fund being subject to state, local or foreign income, franchise or withholding tax liabilities.

If for any year a Fund does not qualify as a regulated investment company, or fails to meet the Distribution Requirement, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders. In addition, in the event of a failure to qualify, a Fund's distributions, to the extent derived from the Fund's current or accumulated earnings and profits, including any distributions of net long-term capital gains, will be taxable to shareholders as dividend income. However, such dividends will be eligible (i) for taxable years beginning prior to January 1, 2011, to be treated as qualified dividend income in the case of shareholders taxed as individuals and (ii) for the dividends received deduction in the case of corporate shareholders. Moreover, if a Fund fails to qualify as a regulated investment company in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a regulated investment company. If a Fund fails to qualify as a regulated investment company for a period greater than two taxable years, the Fund may be subject to taxation on any net built-in-gains (i.e., the excess of the aggregate gain, including items of income, over aggregate loss that would have been realized if the Fund had been liquidated) recognized for a period of ten years, or, under certain circumstances, may have to recognize and pay tax on such net built-in-gain, in order to qualify as a regulated investment company in a subsequent year.

Excise Tax on Regulated Investment Companies . A 4% non-deductible excise tax is imposed on a regulated investment company to the extent that it distributes income in such a way that it is taxable to shareholders in a calendar year other than the calendar year in which a Fund earned the income. Specifically, the excise tax will be imposed if a Fund fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income, including qualified dividend income, for the calendar year and 98% of capital gain net income for the one-year period ending on October 31 of such calendar year (or, at the election of a regulated investment

 

73

company having a taxable year ending November 30 or December 31, for its taxable year). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed otherwise retained amounts if it is subject to income tax on those amounts for any taxable year ending in such calendar year.

Each Fund intends to make sufficient distributions or deemed distributions of its qualified dividend income, ordinary income and capital gain net income prior to the end of each calendar year to avoid liability for this excise tax. However, investors should note that a Fund may in certain circumstances be required to borrow money or liquidate portfolio investments to make sufficient distributions to avoid excise tax liability.

Fund Investments . Each Fund may make investments or engage in transactions that affect the character, amount and timing of gains or losses realized by a Fund. A Fund may make investments that produce income that is not matched by a corresponding cash receipt by the Fund. Any such income would be treated as income earned by the Fund and therefore would be subject to the Distribution Requirement. Such investments may require a Fund to borrow money or dispose of other securities in order to comply with those requirements. Each Fund may also make investments that prevent or defer the recognition of losses or the deduction of expenses. These investments may likewise require a Fund to borrow money or dispose of other securities in order to comply with the Distribution Requirement. Additionally, a Fund may make investments that result in the recognition of ordinary income rather than capital gain, or that prevent the Fund from accruing a long-term holding period. These investments may prevent the Fund from making capital gain distributions as described below. Each Fund intends to monitor its transactions, will make the appropriate tax elections and will make the appropriate entries in its books and records when it makes any such investments in order to mitigate the effect of these rules. The foregoing concepts are explained in greater detail in the following paragraphs.

Gains or losses on sales of stock or securities by a Fund generally will be treated as long-term capital gains or losses if the stock or securities have been held by it for more than one year, except in certain cases where the Fund acquires a put or writes a call or otherwise holds an offsetting position, with respect to the stock or securities. Other gains or losses on the sale of stock or securities will be short-term capital gains or losses.

If an option written by a Fund on securities lapses or is terminated through a closing transaction, such as a repurchase by the Fund of the option from its holder, the Fund will generally realize short-term capital gain or loss. If securities are sold by the Fund pursuant to the exercise of a call option written by it, the Fund will include the premium received in the sale proceeds of the securities delivered in determining the amount of gain or loss on the sale. Gain or loss on the sale, lapse or other termination of options acquired by a Fund on stock or securities and on narrowly-based stock indexes will be capital gain or loss and will be long-term or short-term depending on the holding period of the option.

Certain Fund transactions may be subject to wash sale, short sale, constructive sale, conversion transaction, constructive ownership transaction and straddle provisions of the Code that may, among other things, require a Fund to defer recognition of losses or convert long-term capital gain into ordinary income or short-term capital gain taxable as ordinary income.

As a result of entering into swap contracts, a Fund may make or receive periodic net payments. A Fund may also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute taxable ordinary income or deductions, while termination of a swap will generally result in capital gain or loss (which will be a long-term capital gain or loss if the Fund has been a party to the swap for more than one year). With respect to certain types of swaps, a Fund may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss. The tax treatment of many types of credit default swaps is uncertain.

In general, gain or loss on a short sale is recognized when a Fund closes the sale by delivering the borrowed property to the lender, not when the borrowed property is sold. Gain or loss from a short sale is generally capital gain or loss to the extent that the property used to close the short sale constitutes a capital asset in a Fund's hands. Except with respect to certain situations where the property used by a Fund to close a short sale has a long-term holding period on the date of the short sale, special rules would generally treat the gains on short sales as short-term capital gains. These rules may also terminate the running of the holding period of "substantially identical property" held by a Fund. Moreover, a loss on a short sale will be treated as a long-term capital loss if, on the date of the short sale, "substantially identical property" has been held by a Fund for more than one year. In general, a Fund will not be permitted to deduct payments made to reimburse the lender of securities for dividends paid on borrowed stock if the short sale is closed on or before the 45th day after the short sale is entered into.

Debt securities acquired by a Fund may be subject to original issue discount and market discount rules which, respectively, may cause the Fund to accrue income in advance of the receipt of cash with respect to interest or cause gains to be treated as ordinary

 

The Target Portfolio Trust 74

income subject to the Distribution Requirement referred to above. Market discount generally is the excess, if any, of the principal amount of the security (or, in the case of a security issued at an original issue discount, the adjusted issue price of the security) over the price paid by the Fund for the security. Original issue discount that accrues in a taxable year is treated as income earned by a Fund and therefore is subject to the Distribution Requirement. Because the original issue discount income earned by a Fund in a taxable year may not be represented by cash income, the Fund may have to borrow money or dispose of other securities and use the proceeds to make distributions to satisfy the Distribution Requirement.

Certain futures contracts and certain listed options (referred to as Section 1256 contracts) held by the Funds will be required to be "marked to market" for federal income tax purposes at the end of a Fund's taxable year, that is, treated as having been sold at the fair market value on the last business day of the Fund's taxable year. Except with respect to certain foreign currency forward contracts, sixty percent of any gain or loss recognized on these deemed sales and on actual dispositions will be treated as long-term capital gain or loss, and forty percent will be treated as short-term capital gain or loss. Any net mark-to-market gains may be subject to the Distribution Requirement referred to above, even though a Fund may receive no corresponding cash amounts, possibly requiring the disposition of portfolio securities or borrowing to obtain the necessary cash.

Gains or losses attributable to fluctuations in exchange rates that occur between the time a Fund accrues interest or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities are treated as ordinary income or loss. Similarly, gains or losses on foreign currency forward contracts or dispositions of debt securities denominated in a foreign currency that are attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition thereof generally also are treated as ordinary income or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, increase or decrease the amount of a Fund's investment company taxable income available to be distributed to its shareholders as ordinary income, rather than increasing or decreasing the amount of the Fund's net capital gain. If Section 988 losses exceed other investment company taxable income during a taxable year, a Fund would not be able to make any ordinary dividend distributions from current earnings and profits, and distributions made before the losses were realized could be recharacterized as a return of capital to shareholders, rather than as an ordinary dividend, thereby reducing each shareholder's basis in his or her Fund shares.

A Fund may make investments in equity securities of foreign issuers. If a Fund purchases shares in certain foreign corporations (referred to as passive foreign investment companies ("PFICs") under the Code), the Fund may be subject to federal income tax on a portion of any "excess distribution" from such foreign corporation, including any gain from the disposition of such shares, even if such income is distributed by the Fund to its shareholders. In addition, certain interest charges may be imposed on the Fund as a result of such distributions. If a Fund were to invest in an eligible PFIC and elected to treat the PFIC as a qualified electing fund (a "QEF"), in lieu of the foregoing requirements, the Fund would be required to include each year in its income and distribute to shareholders in accordance with the Distribution Requirement, a pro rata portion of the QEF's ordinary earnings and net capital gain, whether or not distributed by the QEF to the Fund. A Fund may not be able to make this election with respect to many PFICs because of certain requirements that the PFICs would have to satisfy.

Alternatively, a Fund generally will be permitted to "mark to market" any shares it holds in a PFIC. If a Fund made such an election, with such election being made separately for each PFIC owned by the Fund, the Fund would be required to include in income each year and distribute to shareholders in accordance with the Distribution Requirement, an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the adjusted basis of such stock at that time. A Fund would be allowed a deduction for the excess, if any, of the adjusted basis of the PFIC stock over its fair market value as of the close of the taxable year, but only to the extent of any net mark-to-market gains with respect to the stock included by the Fund for prior taxable years. A Fund will make appropriate basis adjustments in the PFIC stock to take into account the mark-to-market amounts.

Notwithstanding any election made by a Fund, dividends attributable to distributions from a foreign corporation will not be eligible for the special tax rates applicable to qualified dividend income if the foreign corporation is a PFIC either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income.

A Fund may invest in real estate investment trusts ("REITs"). Such Fund's investments in REIT equity securities may require a Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, a Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold (including when it is not advantageous to do so). A Fund's investments in REIT equity securities may at other times result in the Fund's receipt of cash in excess of the REIT's earnings; if the Fund distributes such amounts, such distribution could constitute a return of capital to Fund shareholders for federal income tax purposes. Dividends received by the Fund from a REIT will generally not constitute qualified dividend income. REITs will generally be able to pass through the tax treatment of tax-qualified dividends they receive.

 

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Some of the REITs in which the Funds may invest will be permitted to hold residual interests in real estate mortgage investment conduits ("REMICs"). Under Treasury regulations not yet issued, but that may apply retroactively, a portion of a Fund's income from a REIT that is attributable to the REIT's residual interest in a REMIC (referred to in the Code as an "excess inclusion") will be subject to federal income tax in all events. These regulations are expected to provide that excess inclusion income of a regulated investment company, such as a Fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by shareholders, with the same consequences as if shareholders held the related REMIC residual interest directly.

In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on unrelated business income, thereby potentially requiring such an entity that is allocated excess inclusion income, and that otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a non-U.S. shareholder, will not qualify for any reduction in U.S. federal withholding tax.

Under current law, if a charitable remainder trust (defined in section 664 of the Code) realizes any unrelated business taxable income for a taxable year, it will be subject to an excise tax equal to 100% of such unrelated business taxable income. In addition, if at any time during any taxable year a "disqualified organization" (as defined in the Code) is a record holder of a share in a regulated investment company, then the regulated investment company will be subject to a tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified organization, multiplied by the highest federal income tax rate imposed on corporations. The Funds do not intend to invest directly in residual interests in REMICs or to invest in REITs in which a substantial portion of the assets will consist of residual interests in REMICs.

Fund Distributions . Each Fund anticipates distributing substantially all of its net investment income for each taxable year. Dividends of net investment income paid to a non-corporate U.S. shareholder in a taxable year beginning before January 1, 2011 that are designated as qualified dividend income will generally be taxable to such shareholder at a maximum rate of 15% and a maximum rate of 20% thereafter. However, the amount of dividend income that may be so designated by a Fund will generally be limited to the aggregate of the eligible dividends received by the Fund. In addition, a Fund must meet certain holding period requirements with respect to the shares on which the Fund received the eligible dividends, and the non-corporate U.S. shareholder must meet certain holding period requirements with respect to the Fund shares. Dividends of net investment income that are not designated as qualified dividend income or exempt-interest dividends and dividends of net short-term capital gains will be taxable to shareholders at ordinary income rates. Dividends paid by a Fund with respect to a taxable year will qualify for the 70% dividends received deduction generally available to corporations to the extent of the amount of dividends received by the Fund from certain domestic corporations for the taxable year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year, including the portion of dividends paid that qualify for the reduced tax rate.

Ordinarily, shareholders are required to take taxable distributions by a Fund into account in the year in which the distributions are made. However, for federal income tax purposes, dividends that are declared by a Fund in October, November or December as of a record date in such month and actually paid in January of the following year will be treated as if they were paid on December 31 of the year declared. Therefore, such dividends will generally be taxable to a shareholder in the year declared rather than the year paid.

Dividends paid by a Fund that are properly designated as exempt-interest dividends will not be subject to regular federal income tax. Dividends paid by a Fund will be exempt from federal income tax (though not necessarily exempt from state and local taxation) to the extent of the Fund's tax-exempt interest income as long as 50% or more of the value of the Fund's assets at the end of each quarter is invested in state, municipal and other bonds that are excluded from gross income for federal income tax purposes and as long as the Fund properly designates such dividends as exempt-interest dividends. Exempt-interest dividends from interest earned on municipal securities of a state, or its political subdivisions, are generally exempt from income tax in that state. However, income from municipal securities from other states generally will not qualify for tax-free treatment. The U. S. Supreme Court ruled on May 19, 2008 that cities and states may continue to provide a tax exemption for interest on in-state municipal bonds while taxing interest on out-of-state bonds.

Interest on indebtedness incurred by a shareholder to purchase or carry shares of a Fund will not be deductible for U.S. federal income tax purposes to the extent it relates to exempt-interest dividends received by a shareholder. If a shareholder receives exempt interest dividends with respect to any share of a Fund and if the share is held by the shareholder for six months or less, then any loss on the sale or exchange of the share may, to the extent of the exempt-interest dividends, be disallowed. In addition, the Code may require a shareholder that receives exempt-interest dividends to treat as taxable income a portion of certain otherwise non-taxable social security and railroad retirement benefit payments. Furthermore, a portion of any exempt-interest dividend paid by a Fund that represents income derived from certain revenue or private activity bonds held by the Fund may not retain its tax-exempt status in the

 

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hands of a shareholder who is a "substantial user" of a facility financed by such bonds, or a "related person" thereof. In addition, the receipt of dividends and distributions from a Fund may affect a foreign corporate shareholder's federal "branch profits" tax liability and the federal "excess net passive income" tax liability of a shareholder of a Subchapter S corporation. Shareholders should consult their own tax advisers as to whether they are (i) "substantial users" with respect to a facility or "related" to such users within the meaning of the Code or (ii) subject to the federal "branch profits" tax, or the federal "excess net passive income" tax. A Fund may either retain or distribute to shareholders its net capital gain (i.e., excess net long -term capital gain over net short -term capital loss) for each taxable year. Each Fund currently intends to distribute any such amounts. If net capital gain is distributed and designated a "capital gain dividend", it will be taxable to shareholders as long-term capital gain, regardless of the length of time the shareholder has held his shares or whether such gain was recognized by the Fund prior to the date on which the shareholder acquired its shares.

Conversely, if a Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the extent of any available capital loss carryovers) at the 35% corporate tax rate. In such a case, it is expected that the Fund also will elect to have shareholders of record on the last day of its taxable year treated as if each received a distribution of its pro rata share of such gain, with the result that each shareholder will be required to report its pro rata share of such gain on its tax return as long-term capital gain, will receive a refundable tax credit for its pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for its shares by an amount equal to the deemed distribution less the tax credit.

Distributions by a Fund that exceed the Fund's current and accumulated earnings and profits will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in its shares; any distribution in excess of such tax basis will be treated as gain from the sale of its shares, as discussed below. Distributions by a Fund will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Fund (or of another fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date. In addition, prospective investors in a Fund should be aware that distributions from the Fund will, all other things being equal, have the effect of reducing the net asset value of the Fund's shares by the amount of the distribution. If the net asset value is reduced below a shareholder's cost, the distribution will nonetheless be taxable as described above, even if the distribution effectively represents a return of invested capital. Investors should consider the tax implications of buying shares just prior to a distribution, when the price of shares may reflect the amount of the forthcoming distribution.

Sale or Redemption of Shares . A shareholder will generally recognize gain or loss on the sale or redemption of shares in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder acquires other shares of the Fund or substantially identical stock or securities within a period of 61 days beginning 30 days before such disposition, such as pursuant to reinvestment of a dividend in shares of the Fund. Additionally, if a shareholder disposes of shares of a Fund within 90 days following their acquisition, and the shareholder subsequently re-acquires Fund shares (1) pursuant to a reinvestment right received upon the purchase of the original shares and (2) at a reduced load charge (i.e., sales or additional charge), then any load charge incurred upon the acquisition of the original shares will not be taken into account as part of the shareholder's basis for computing gain or loss upon the sale of such shares, to the extent the original load charge does not exceed any reduction of the load charge with respect to the acquisition of the subsequent shares. To the extent the original load charge is not taken into account on the disposition of the original shares, such charge shall be treated as incurred in connection with the acquisition of the subsequent shares. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of a Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for more than one year. However, any capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of long-term capital gain dividends received on (or undistributed long-term capital gains credited with respect to) such shares.

Capital gain of a non-corporate U.S. shareholder that is recognized in a taxable year beginning before January 1, 2011 is generally taxed at a maximum federal income tax rate of 15%, and thereafter at a maximum 20% rate, where the property is held by the shareholder for more than one year. Capital gain of a corporate shareholder is taxed at the same rate as ordinary income.

Backup Withholding . A Fund will be required in certain cases to withhold and remit to the U.S. Treasury a portion of all dividends and capital gain dividends, and the proceeds of redemption of shares, paid to any shareholder (1) who has provided the Fund with either an incorrect tax identification number or no number at all, (2) who is subject to backup withholding by the Internal Revenue Service ("IRS") for failure to report the receipt of interest or dividend income properly or (3) who has failed to certify to the Fund that it is not subject to backup withholding or that it is a corporation or other exempt recipient. Backup withholding is not an additional tax and any amounts withheld may be refunded or credited against a shareholder's federal income tax liability, provided the appropriate information is furnished to the IRS.

 

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If a shareholder recognizes a loss with respect to a Fund's shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not exempted. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.

Foreign Shareholders. Dividends paid to a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder") will be subject to U.S. withholding tax at the rate of 30% (or lower applicable treaty rate) on the gross amount of the dividend. Such a foreign shareholder would generally be exempt from U.S. federal income tax, including withholding tax, on gains realized on the sale of shares of a Fund, net capital gain dividends and amounts retained by the Fund that are designated as undistributed capital gains.

The foregoing applies when the foreign shareholder's income from a Fund is not effectively connected with a U.S. trade or business. If the income from a Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, qualified dividend income, net capital gain dividends, undistributed capital gains credited to such shareholder and any gains realized upon the sale of shares of the Fund will be subject to U.S. federal income tax at the graduated rates applicable to U.S. citizens or domestic corporations.

Foreign shareholders of a Fund must generally treat a distribution attributable to a Fund's sale of a REIT or other U.S. real property holding corporation as real property gain if 50% or more of the value of a Fund's assets is invested in REITs and other U.S. real property holding corporations. The Fund is required to withhold a 35% tax on a distribution to a foreign shareholder attributable to real property gain, and such a distribution may subject a foreign shareholder to a U.S. tax filing obligation and create a branch profits tax liability for foreign corporate shareholders. Under a de minimis exception to this rule, if the foreign shareholder has not held more than 5% of a class of stock at any time during the one-year period ending on the date of the distribution, the foreign shareholder is not treated as receiving real property gain. After December 31, 2009, a distribution from a Fund will be treated as attributable to a U.S. real property interest only if such distribution is attributable to a distribution received by a Fund from a REIT. There are also certain additional restrictions regarding the use of wash sales and substitute payments.

Disposition of Fund shares by foreign shareholders will be subject to withholding tax and treated as income effectively connected to a U.S. trade or business if 50% or more of the value of a Fund's assets are invested in REITs and other U.S. real property holding corporations, the Fund is not domestically controlled, and the foreign shareholder owns more than 5% of the outstanding shares of the Fund at any time during the five-year period ending on the date of disposition. After December 31, 2009, the same rule will apply to dispositions of Fund shares by foreign shareholders but without regard to whether the Fund is domestically controlled.

Provided that 50% or more of the value of a Fund's stock is held by U.S. shareholders, distributions of U.S. real property interests (including securities in a U.S. real property holding corporation, unless such corporation is regularly traded on an established securities market and the Fund has held 5% or less of the outstanding shares of the corporation during the five-year period ending on the date of distribution) occurring on or before December 31, 2009, in redemption of a foreign shareholder's shares of the Fund will cause the Fund to recognize gain. If a Fund is required to recognize gain, the amount of gain recognized will be equal to the fair market value of such interests over the Fund's adjusted bases to the extent of the greatest foreign ownership percentage of the Fund during the five-year period ending on the date of redemption.

For taxable years beginning before January 1, 2010, properly-designated dividends are generally exempt from United States federal withholding tax where they (i) are paid in respect of a Fund's "qualified net interest income" (generally, the Fund's U.S. source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which the Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) are paid in respect of a Fund's "qualified short-term capital gains" (generally, the excess of the Fund's net short-term capital gain over the Fund's long-term capital loss for such taxable year). However, depending on its circumstances, a Fund may designate all, some or none of its potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for this exemption from withholding, a non-U.S. shareholder will need to comply with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or substitute Form). In the case of shares held through an intermediary, the intermediary may withhold even if a Fund designates the payment as qualified net interest income or qualified short-term capital gain. Non-U.S. shareholders should contact their intermediaries with respect to the application of these rules to their accounts.

For taxable years beginning before January 1, 2010, distributions that a Fund designates as "short-term capital gains dividends" or

 

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"long-term capital gains dividends" may not be treated as such to a recipient foreign shareholder if the distribution is attributable to gain received from the sale or exchange of U.S. real property or an interest in a U.S. real property holding corporation and the foreign shareholder has not owned more than 5% of the outstanding shares of the Fund at any time during the one-year period ending on the date of distribution. Such distributions will be subject to 30% withholding by the Fund and will be treated as ordinary dividends to the foreign shareholder.

In the case of foreign non-corporate shareholders, a Fund may be required to backup withhold U.S. federal income tax on distributions that are otherwise exempt from withholding tax unless such shareholders furnish the Fund with proper notification of their foreign status. The tax consequences to a foreign shareholder entitled to claim the benef of an applicable tax treaty may be different from those described herein.

Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund, the procedure for claiming the benefit of a lower treaty rate and the applicability of foreign taxes.

Foreign Taxes . A Fund may be subject to foreign withholding taxes or other foreign taxes with respect to income (possibly including, in some cases, capital gain) received from sources within foreign countries. So long as more than 50% by value of the total assets of the Fund at the close of the taxable year consists of stock or securities of foreign issuers, the Fund may elect to treat any foreign income taxes paid by it as paid directly by its shareholders.

If the Fund makes the election, each shareholder will be required to (i) include in gross income, even though not actually received, its pro rata share of the Fund's foreign income taxes, and (ii) either deduct (in calculating U.S. taxable income) or credit (in calculating U.S. federal income tax) its pro rata share of the Fund's income taxes. A foreign tax credit may not exceed the U.S. federal income tax otherwise payable with respect to the foreign source income. For this purpose, each shareholder must treat as foreign source gross income (i) its proportionate share of foreign taxes paid by the Fund and (ii) the portion of any actual dividend paid by the Fund which represents income derived from foreign sources; the gain from the sale of securities will generally be treated as U.S. source income and certain foreign currency gains and losses likewise will be treated as derived from U.S. sources. This foreign tax credit limitation is, with certain exceptions, applied separately to separate categories of income; dividends from the Fund will be treated as "passive" or "general" income for this purpose. The effect of this limitation may be to prevent shareholders from claiming as a credit the full amount of their pro rata share of the Fund's foreign income taxes. In addition, shareholders will not be eligible to claim a foreign tax credit with respect to foreign income taxes paid by the Fund unless certain holding period requirements are met at both the Fund and the shareholder levels.

A Fund will make such an election only if it deems it to be in the best interest of its shareholders. A shareholder not subject to U.S. tax may prefer that this election not be made. The Fund will notify shareholders in writing each year if it makes the election and of the amount of foreign income taxes, if any, to be passed through to the shareholders and the amount of foreign taxes, if any, for which shareholders of the Fund will not be eligible to claim a foreign tax credit because the holding period requirements (described above) have not been satisfied.

State and Local Tax Matters . Depending on the residence of the shareholders for tax purposes, distributions may also be subject to state and local taxes. Rules of state and local taxation regarding qualified dividend income, ordinary income dividends and capital gains distributions from regulated investment companies and other items may differ from federal income tax rules. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in a Fund.

Capital Loss Carryforwards . For federal income tax purposes, certain Portfolios had capital loss carryforwards as of October 31, 2008. The approximate amounts of such capital loss carryfowards are set forth below.

Large Capitalization Growth: $31,755,300 expiring October 31, 2016. Total amount of capital loss carryforward is $31,755,300.

Large Capitalization Value: $18,709,100 expiring October 31, 2016. Total amount of capital loss carryforward is $18,709,100.

Small Capitalization Growth: $3,809,000 expiring October 31, 2010, $6,731,000 expiring October 31, 2011 and $18,081,000 expiring October 31, 2016. Total amount of capital loss carryforwards is $28,621,000.

International Equity: $2,993,300 expiring October 31, 2016. Total amount of capital loss carryfowards is $2,993,300.

International Bond: $132,300 expiring October 31, 2015. Total amount of capital loss carryfowards is $132,300.

 

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Mortgage Backed Securities: $969,400 expiring October 31, 2011. $255,000 expiring October 31, 2012. $65,100 expiring October 31, 2013. $1,665,100 expiring October 31, 2014. $899,700 expiring October 31, 2015. $531,400 expiring October 31, 2016. Total amount of capital loss carryforwards is $4,385,700.

Accordingly, no capital gains distributions are expected to be paid to shareholders until future net gains have been realized in excess of such carryforwards. It is unclear whether a Fund will be able to realize the full benefit of its capital loss carryforwards prior to the expiration date.

Prior year capital loss carryforwards were used to offset net taxable capital gains realized in the fiscal period ended October 31, 2008 approximately as follows:

International Bond: $606,200
Total Return Bond: $292,900
Intermediate Term Bond: $4,477,100
U.S. Government Money Market: $400

DISCLOSURE OF PORTFOLIO HOLDINGS

A Fund's portfolio holdings as of the end of the second and fourth fiscal quarters are made public, as required by law, in the Fund's annual and semi-annual reports. These reports are filed with the Commission on Form N-CSR and mailed to shareholders within 60 days after the end of the second and fourth fiscal quarters. A Fund's annual and semi-annual reports are posted on the Fund's website at www.jennisondryden.com (for the JennisonDryden Funds) or at www.prudential.com (for certain other funds advised by Prudential Investments LLC). A Fund's portfolio holdings as of the end of the first and third fiscal quarters are made public and filed with the Commission on Form N-Q within 60 days after the end of the Fund's first and third fiscal quarters.

In addition, a Fund will provide a full list of its portfolio holdings as of the end of each month on its website within approximately 30 days after the end of the month. A Fund may also release its top ten holdings, sector and country breakdowns, and largest industries on a quarterly or monthly basis, with the information as of a date 15 days prior to the release. Such information will be posted on the Fund's website.

When authorized by a Fund's Chief Compliance Officer and another officer of the Fund, portfolio holdings information may be disseminated more frequently or at different periods than as described above.

The Fund has entered into ongoing arrangements to make available information about the Fund's portfolio holdings. Parties receiving this information may include intermediaries that distribute the Fund's shares, third-party providers of auditing, custody, proxy voting and other services for the Fund, rating and ranking organizations, and certain affiliated persons of the Fund, as described below. The procedures utilized to determine eligibility are set forth below:

Procedures for Release of Portfolio Holdings Information:

1. A request for release of fund holdings shall be provided by such third party setting forth a legitimate business purpose for such release which shall specify the Fund, the terms of such release, and frequency (e.g., level of detail staleness). The request shall address whether there are any conflicts of interest between the Fund and the investment adviser, sub-adviser, principal underwriter or any affiliated person thereof and how such conflicts shall be dealt with to demonstrate that the disclosure is in the best interest of the shareholders of the Fund.

2. The request shall be forwarded to the Chief Compliance Officer of the Fund, or his delegate, for review and approval.

3. A confidentiality agreement in the form approved by an officer of the Fund must be executed with the recipient of the fund holdings information.

4. An officer of the Fund shall approve the release and agreement. Copies of the release and agreement shall be sent to PI's law department.

5. Written notification of the approval shall be sent by such officer to PI's Fund Administration Department to arrange the release of fund holdings information.

6. PI's Fund Administration Department shall arrange for the release of fund holdings information by the Fund's custodian bank(s).

 

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As of the date of this SAI, each Fund will provide:

1. Traditional External Recipients/Vendors

  • Full holdings on a daily basis to RiskMetrics Group and Broadridge Financial Solutions, Inc. (proxy voting administrator / agents) at the end of each day;

  • Full holdings on a daily basis to RiskMetrics Group (securities class action claims administrator) at the end of each day;

  • Full holdings on a daily basis to a Fund's Subadviser(s), Custodian Bank, sub-custodian (if any) and accounting agents (which includes the Custodian Bank and any other accounting agent that may be appointed) at the end of each day. When a Fund has more than one Subadviser, each Subadviser receives holdings information only with respect to the "sleeve" or segment of the Fund for which the Subadviser has responsibility;

  • Full holdings to a Fund's independent registered public accounting firm as soon as practicable following the Fund's fiscal year-end or on an as-needed basis; and

  • Full holdings to financial printers as soon as practicable following the end of a Fund's quarterly, semi-annual and annual period-ends.

2. Analytical Service Providers

  • Fund trades on a quarterly basis to Abel/Noser Corp. (an agency-only broker and transaction cost analysis company) as soon as practicable following a Fund's fiscal quarter-end;

  • Full holdings on a daily basis to FT Interactive Data (a fair value information service) at the end of each day;

  • Full holdings on a daily basis to FactSet Research Systems Inc. and Lipper, Inc. (investment research providers) at the end of each day;

  • Full holdings on a daily basis to Vestek (for preparation of fact sheets) at the end of each day (Target Portfolio Trust, and selected JennisonDryden and Strategic Partners Funds only);

  • Full holdings to Frank Russell Company (investment research provider) at the end of each month (Jennison Small Company Fund only);

  • Full holdings on a monthly basis to Fidelity Advisors (wrap program provider) approximately five days after the end of each month (Jennison Growth Fund and certain other selected JennisonDryden and/or Strategic Partners Funds only); and

  • Full holdings on a weekly basis to SG Constellation (a financing company) approximately one day after the end of the week (Strategic Partners Mutual Funds, Inc. only).

In each case, the information disclosed must be for a legitimate business purpose and is subject to a confidentiality agreement intended to prohibit the recipient from trading on or further disseminating such information (except for legitimate business purposes). Such arrangements will be monitored on an ongoing basis and will be reviewed by a Fund's Chief Compliance Officer and PI's Law Department on an annual basis.

In addition, certain authorized employees of PI receive portfolio holdings information on a quarterly, monthly or daily basis or upon request, in order to perform their business functions. All PI employees are subject to the requirements of the personal securities trading policy of Prudential Financial, Inc., which prohibits employees from trading on or further disseminating confidential information, including portfolio holdings information.

The Board has approved PI's Policy for the Dissemination of Portfolio Holdings. The Board shall, on a quarterly basis, receive a report from PI detailing the recipients of the portfolio holdings information and the reason for such disclosure. The Board has delegated oversight over a Fund's disclosure of portfolio holdings to the Chief Compliance Officer.

There can be no assurance that a Fund's policies and procedures on portfolio holdings information will protect the Fund from the potential misuse of such information by individuals or entities that come into possession of the information.

In connection with providing investment advisory services to its clients, Wellington Management has ongoing arrangements to disclose non-public portfolio holdings information to the following parties:

Brown Brothers Harriman & Co. performs certain operational functions for Wellington Management and receives portfolio holdings information on a daily basis.

FactSet Research Systems Inc. provides analytical services for Wellington Management and receives portfolio holdings information on a daily basis.

Investment Technology Group, Inc. provides analytical services for Wellington Management and receives portfolio holdings information on a weekly basis.

 

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Broadridge Financial Solutions, Inc. provides proxy voting services for Wellington Management and receives portfolio holdings information on a daily basis.

State Street Bank and Trust Company performs certain operational functions on behalf of Wellington Management and receives portfolio holdings information on a daily basis.

PROXY VOTING

The Board has delegated to each Fund's investment manager, PI, the responsibility for voting any proxies and maintaining proxy recordkeeping with respect to the Fund. Each Fund authorizes the Manager to delegate, in whole or in part, its proxy voting authority to its investment subadviser or third party vendors consistent with the policies set forth below. The proxy voting process shall remain subject to the supervision of the Board, including any committee thereof established for that purpose.

The Manager and the Board view the proxy voting process as a component of the investment process and, as such, seek to ensure that all proxy proposals are voted with the primary goal of seeking the optimal benefit for the Fund. Consistent with this goal, the Board views the proxy voting process as a means to encourage strong corporate governance practices and ethical conduct by corporate management. The Manager and the Board maintain a policy of seeking to protect the best interests of the Fund should a proxy issue potentially implicate a conflict of interest between the Fund and the Manager or its affiliates.

The Manager delegates to each Fund's Subadviser(s) the responsibility for voting the Fund's proxies. The Subadviser is expected to identify and seek to obtain the optimal benefit for the Fund it manages, and to adopt written policies that meet certain minimum standards, including that the policies be reasonably designed to protect the best interests of the Fund and delineate procedures to be followed when a proxy vote presents a conflict between the interests of the Fund and the interests of the Subadviser or its affiliates. The Manager and the Board expect that the Subadviser will notify the Manager and Board at least annually of any such conflicts identified and confirm how the issue was resolved. In addition, the Manager expects that the Subadviser will deliver to the Manager, or its appointed vendor, information required for filing the Form N-PX with the Commission. Information regarding how each Fund voted proxies relating to its portfolio securities during the most recent twelve-month period ending June 30 is available on the Fund's website and on the Commission's website at www.sec.gov.

A summary of the proxy voting policies of the Subadviser(s) is set forth in the Appendix to this SAI.

CODES OF ETHICS

The Board of Directors of each Fund has adopted a Code of Ethics. In addition, the Manager, investment subadviser(s) and Distributor have each adopted a Code of Ethics (the Codes). The Codes apply to access persons (generally, persons who have access to information about the Fund's investment program) and permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Fund. However, the protective provisions of the Codes prohibit certain investments and limit such personnel from making investments during periods when the Fund is making such investments. The Codes are on public file with, and are available from, the Commission.

Regulatory and Litigation Matters (applicable to PIMCO only)

Since February 2004, PIMCO, Allianz Global Investors of America L.P. ("AGI") (formerly known as Allianz Dresdner Asset Management of America L.P.) (PIMCO's parent company), and certain of their affiliates, trustees, and employees of PIMCO have been named as defendants in eleven lawsuits filed in various jurisdictions. These lawsuits concern "market timing," and they have been transferred to and consolidated for pre-trial proceedings in a multi-district litigation proceeding in the U.S. District Court for the District of Maryland. The lawsuits have been commenced as putative class actions on behalf of investors who purchased, held or redeemed shares during specified periods, or as derivative actions. These lawsuits seek, among other things, unspecified compensatory damages plus interest and in some cases, punitive damages, the rescission of investment advisory contracts, the return of fees paid under those contracts and restitution.

These actions generally allege that certain hedge funds were allowed to engage in "market timing" in certain funds and this alleged activity was not disclosed. Pursuant to tolling agreements dated January14, 2005 entered into with the derivative and class action plaintiffs, PIMCO, certain trustees and employees of PIMCO who were previously named as defendants have all been removed as defendants in the market timing actions.

Two nearly identical class action civil complaints have been filed in August 2005, in the Northern District of Illinois Eastern Division, alleging that the plaintiffs each purchased and sold a 10-year Treasury note futures contract and suffered damages from an alleged shortage when PIMCO held both physical and futures positions in 10-year Treasury notes for its client accounts. The two actions have

 

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been consolidated into one action, and the two separate complaints have been replaced by a consolidated complaint. PIMCO is a named defendant to the consolidated action. PIMCO strongly believes the complaint is without merit and intends to vigorously defend itself.

In April 2006, certain registered investment companies and other funds managed by PIMCO were served in an adversary proceeding brought by the Official Committee of Asbestos Claimants of G-I Holdings, Inc. in G-I Holdings, Inc.'s bankruptcy in the District of New Jersey. In July 2004, PIMCO was named in this lawsuit and remains a defendant. The plaintiff seeks to recover for the bankruptcy estate assets that were transferred by the predecessor entity of G-I Holdings, Inc. to a wholly-owned subsidiary in 1994. The subsidiary has since issued notes, of which certain registered investment companies and other funds managed by PIMCO are alleged to be holders. The complaint alleges that in 2000, more than two hundred noteholders—including certain registered investment companies and other funds managed by PIMCO—were granted a second priority lien on the assets of the subsidiary in exchange f their consent to a refinancing transaction and the granting of a first priority lien to the lending banks. The plaintiff is seeking invalidation of the lien in favor of the noteholders and/or the value of the lien. On June21, 2006, the District of New Jersey overturned the Bankruptcy Court's decision granting permission to file the adversary proceeding and remanded the matter to the Bankruptcy Court for further proceedings. Following a motion to reconsider, the District Court upheld its remand on August 7, 2006, and instructed the Bankruptcy Court to conduct a "cost-benefit" analysis of the Committee's claims, including the claims against the noteholders. The Bankruptcy Court held a status conference on October25, 2006 and set a briefing schedule relating to this cost-benefit analysis. To date, no briefs have been filed. This matter is not expected to have a material adverse effect on either the relevant registered investment companies and other funds or PIMCO.

It is possible that these matters and/or other developments resulting from these matters could result in increased fund redemptions or other adverse consequences. However, PIMCO and AGID believe that these matters are not likely to have a material adverse effect on a fund or on PIMCO's or AGID's ability to perform their respective investment advisory or distribution services relating to the funds.

The foregoing speaks only as of the date of this prospectus. While there may be additional litigation or regulatory developments in connection with the matters discussed above, the foregoing disclosure of litigation and regulatory matters will be updated only if those developments are material.

APPENDIX I: DESCRIPTION OF BOND RATINGS

STANDARD & POOR'S RATINGS SERVICES (S&P)

Long-Term Issue Credit Ratings

AAA: An obligation rated AAA has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.

A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.

BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

B: An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.

CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

 

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CC: An obligation rated CC is currently highly vulnerable to nonpayment.

C: The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

Commercial Paper Ratings

A-1: This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1.

Notes Ratings

An S&P notes rating reflects the liquidity factors and market risks unique to notes. Notes due in three years or less will likely receive a notes rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment.

  • Amortization schedule-the longer the final maturity relative to other maturities the more likely it will be treated as a note. ·

  • Source of payment-the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note.

Note rating symbols are as follows:

SP-1: Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.

SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.

MOODY'S INVESTORS SERVICE, INC. (MOODY'S)

Debt Ratings

Aaa: Bonds which are rated Aaa are judged to be of 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 such 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 the Aaa securities.

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.

 

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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.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest-rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Moody's applies numerical modifiers 1, 2, and 3 in each generic rating category from Aa to Caa. The modifier 1 indicates that the issuer is in the higher end of its letter rating category; the modifier 2 indicates a mid-range ranking; the modifier 3 indicates that the issuer is in the lower end of the letter ranking category.

Short-Term Ratings

Moody's short-term debt ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. Such obligations generally have an original maturity not exceeding one year, unless explicitly noted.

PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics:

  • Leading market positions in well-established industries.

  • High rates 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.

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This normally will be evidenced by many of the characteristics cited above 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 alternate liquidity is maintained.

MIG 1: This designation denotes best quality. There is strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.

MIG 2: This designation denotes high quality. Margins of protection are ample although not so large as in the preceeding group.

FITCH, INC.

International Long-Term Credit Ratings

AAA: Highest Credit Quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.

AA: Very High Credit Quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.

A: High Credit Quality. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.

BBB: Good Credit Quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.

 

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BB: Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.

B: Highly Speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.

CCC, CC, C: High Default Risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default.

International Short-Term Credit Ratings

F1: Highest Credit Quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature.

F2: Good Credit Quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings.

F3: Fair Credit Quality. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade.

B: Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions.

C: High Default Risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic investment.

Plus (+) or Minus (-): Plus or minus signs may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA long-term rating category, to categories below CCC, or to short-term ratings other than F1.

 

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APPENDIX II: PROXY VOTING POLICIES OF THE SUBADVISERS

Ashfield Capital Partners LLC
Proxy Voting

General
Rule 206(4)-6 under the Investment Advisers Act requires every investment adviser to adopt and implement written policies and procedures, reasonably designed to ensure that the adviser votes proxies in the best interest of its clients. The Rule further requires the adviser to provide a concise summary of the adviser's proxy voting process and offer to provide copies of the complete proxy voting policy and procedures to clients upon request. Lastly, the Rule requires that the adviser disclose to clients how they may obtain information on how the adviser voted their proxies. An investment adviser must vote proxies for its ERISA clients, unless the Trustees of the plan expressly reserve voting rights in a written document.

Policy

I. Overview:

Ashfield Capital Partners recognizes that proxies have an economic value. In voting proxies, Ashfield Capital Partners seeks to maximize the economic value of our clients' assets by casting votes in a manner that we believe to be in the best interest of the affected client(s). Proxies are considered client assets and are managed with the same care, skill and diligence as all other client assets. When voting proxies, Ashfield Capital Partners adheres to these Policy and Procedures (the "Policy") and any written guidelines or instructions from its clients. In the event a client's written guidelines or instruction conflict with what is contained in this Policy, the client's written guidelines or instructions will prevail.

Ashfield Capital Partners votes proxies for discretionary advisory accounts under its management for which the client has instructed Ashfield Capital Partners to vote proxies on their behalf. Most of Ashfield Capital Partners' clients retain the right to vote their own proxies. Unless client accounts, which are subject to the Employment Retirement Income Security Act of 1974 ("ERISA"), require Ashfield Capital Partners to vote proxies on their behalf, the plan administrator will retain proxy-voting responsibilities. Ashfield Capital Partners has engaged Risk Metrics Group ("RMG") as its proxy voting service provider and adopted RMG's Proxy Voting Guidelines ("Guidelines"). A summary of the Guidelines is included in Exhibit A.

II. Conflict of Interest Identification and Resolution:

Ashfield Capital Partners seeks to minimize the potential for conflict by utilizing the services of RMG, an independent, third-party, to provide voting recommendations that are consistent with this Policy as well as relevant requirements of ERISA and the U.S. Department of Labor's interpretations thereof. Occasions may arise during the voting process in which the best interest of clients might conflict with the third-party vendor's interests. The third-party vendor has developed an insulated wall ("Chinese wall") as security between its proxy recommendation service and the other services it provides to clients who may also be a portfolio company for which proxies are solicited.

In an effort to ensure that material conflicts of interest or potential conflicts of interest have been identified, Ashfield Capital Partners has developed a Proxy Vote Watch List (the "Watch List"). The Watch List, which is maintained by Ashfield Capital Partners' Chief Compliance Officer, summarizes public companies with whom Ashfield Capital Partners may have a material conflict of interest with a client in voting a proxy. These may include the following situations:

· Public companies with whom Ashfield Capital Partners has a current or prospective material business relationship;
· Public companies for whom Ashfield Capital Partners directly or indirectly provides investment advisory services (e.g. a separate account client, a wrap sponsor);
· Public companies where an Ashfield Capital Partners employee, or spouse of an Ashfield Capital Partners employee, is a senior officer, director or has a material business relationship;
· Other situations that may arise from time-to-time and will be evaluated based on specific facts and circumstances and added to the Watch List if deemed appropriate.

In resolving a conflict, the Chief Compliance Officer may decide to take one of the following courses of action: (1) determine that the conflict or potential conflict is not material, (2) request that disclosure be made to clients for whom proxies will be voted to disclose the conflict of interest and the recommended proxy vote and to obtain consent from such clients, (3) engage an independent third-

 

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party or fiduciary to determine how the proxies should be voted, (4) abstain from voting or (5) take another course of action that, in the opinion of the Chief Compliance Officer, adequately addresses the potential for conflict.

III. Overrides:

While it is generally expected that most proxies will be voted consistent with the RMG's recommendation, there may be instances where Ashfield Capital Partners believes that under the circumstances, an issue should be voted in a manner that differs from RMG's recommended vote. These instances are considered an "Override" and all such overrides must be documented using the Proxy Voting Override Form, included in Exhibit B. If the proxy is for an issuer that is not included on the Watch List, the override will be automatically approved. Chief Compliance Officer approval is required for proxies in which the issuer is included on the Watch List. In approving any such Override, the Chief Compliance Officer will use his/her best judgment to ensure that the spirit of this Policy is being followed and the vote is cast in the best interest of the affected client(s).

IV. Duty of Employees:

Employees are required to report to the Chief Compliance Officer any improper influence regarding proxy voting.

V. Disclosure to Clients:

Ashfield Capital Partners' Form ADV includes a description of this Policy and, upon request, Ashfield Capital Partners will provide clients a copy of the complete Policy. Ashfield Capital Partners will also provide to clients, upon request, information on how their securities were voted.

VI. Maintenance of Proxy Voting Records:

The following records are maintained for a period of six years, with records being maintained for the first two years on site:

· These policy and procedures, and any amendments thereto;
· Each proxy statement (maintained on a third-party automated system);
· Record of each vote cast (maintained on a third-party automated system);
· Documentation, if any, created by Ashfield Capital Partners that was material to making a decision how to vote proxies on behalf of a client or that memorializes the basis for a decision;
· Various reports related to the above procedures; and
· Each written client request for information and a copy of any written response by Ashfield Capital Partners to a client's written or oral request for information.

VII. Proxy Voting Compliance Procedures:

· Ashfield Capital Partners votes proxies for discretionary advisory accounts under its management for which the client has instructed Ashfield Capital Partners to vote proxies on their behalf;
· Ashfield Capital Partners' investment management agreements should specifically address whether Ashfield Capital Partners is responsible for voting client proxies;
· Unless the ERISA plan administrator retains proxy-voting authority, Ashfield Capital Partners is required to vote ERISA client proxies.
· The Director of Client Services monitors proxy voting and handles potential conflicts of interest; · Ashfield Capital Partners will maintain documentation on how each proxy was voted for client accounts;
· Generally, all client proxies will be voted in the same manner;
· Ashfield Capital Partners employees are not permitted to sit on public company boards of directors to avoid conflicts of interest; and
· In instances where Ashfield Capital Partners does not have voting responsibilities, Ashfield Capital Partners must immediately forward all proxy materials received by Ashfield Capital Partners to the client or to such other third party designated by the client.

Responsibility:

Ashfield Capital Partners' Chief Compliance Officer and Director of Client Services will be jointly responsible to ensure compliance with this policy.

 

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Eagle Asset Management

Eagle Proxy Voting Policy

The exercise of proxy voting rights is an important element in the successful management of clients' investments. Eagle Asset Management recognizes its fiduciary responsibility to vote proxies solely in the best interests of clients with the overall goal of maximizing the growth of our clients' assets. Toward that end, Eagle has developed a comprehensive and detailed set of proxy voting guidelines, which our portfolio managers use to vote proxies in securities held in client accounts.

Eagle generally votes proxies in furtherance of the long-term economic value of the underlying securities. We consider each proxy proposal on its own merits, and we make an independent determination of the advisability of supporting or opposing management's position. We believe that the recommendations of management should be given substantial weight, but we will not support management proposals, which we believe are detrimental to the underlying value of our clients' positions.

We usually oppose proposals that dilute the economic interest of shareholders, and we also oppose those that reduce shareholders' voting rights or otherwise limit their authority. With respect to takeover offers, Eagle calculates a "going concern" value for every holding. If the offer approaches or exceeds our value estimate, we will generally vote for the merger, acquisition or leveraged buy-out.

In voting proxies of securities held in client accounts, Eagle's portfolio managers almost always recommend votes in accordance with the guidelines. By following predetermined voting guidelines, Eagle believes it will avoid any potential conflicts of interests, which would otherwise affect proxy voting. On the rare occasion where a manager recommends a vote contrary to Eagle's guidelines, Eagle's Compliance Department will review the proxy issue and the recommended vote to ensure that the vote is cast in compliance with Eagle's overriding mandate to vote proxies in the best interests of clients and to avoid conflicts of interests.

A copy of Eagle's complete proxy voting policy and guidelines can be obtained by calling 800-237-3101. If you have any questions about these guidelines, or would like to know how your shares were voted, please contact our Compliance Department at 800-237-3101.

EARNEST Partners LLC

1. Proxy Policies

The best interest of clients and plan participants (the "Client") will be the sole consideration of EARNEST Partners (the "Adviser") when voting proxies of portfolio companies. Each proxy issue will receive individual consideration based on the relevant facts and circumstances. As a general rule, the Adviser will vote against actions which would reduce the rights or options of shareholders, reduce shareholder influence over the board of directors and management, reduce the alignment of interests between management and shareholders, or reduce the value of shareholders' investments. Following is a partial list of issues that require special attention: classified boards, change of state of incorporation, poison pills, unequal voting rights plans, provisions requiring supermajority approval of a merger, executive severance agreements, and provisions limiting shareholder rights.

In addition, the following will be adhered to unless the Adviser is instructed otherwise in writing by the Client:

  • The Adviser will not actively engage in conduct that involves an attempt to change or influence the control of a portfolio company.

  • The Adviser will not announce its voting intentions or the reasons for a particular vote.

  • The Advisor will not participate in a proxy solicitation or otherwise seek proxy voting authority from any other portfolio company shareholder.

  • The Adviser will not act in concert with any other portfolio company shareholders in connection with any proxy issue or other activity involving the control or management of a portfolio company.

  • All communications with portfolio companies or fellow shareholders will be for the sole purpose of expressing and discussing the Adviser's concerns for its Clients' interests and not in an attempt to influence the control of management.

With respect to ERISA accounts, the Adviser will act prudently, solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits to them. It is the Adviser's policy to fully comply with all ERISA provisions regarding proxy voting for ERISA accounts and to the extent possible, amend its policies and procedures from time to time to reflect the Department of Labor's views of the proxy voting duties and obligations imposed by ERISA with respect to ERISA accounts.

 

2. Proxy Procedures

 

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The Adviser has designated a Proxy Director. The Proxy Director will consider each issue presented on each portfolio company proxy. The circumstances underlying each proxy issue will be given careful individual attention. The Proxy Director will also use all available resources, including proxy evaluation services, to assist in the analysis of proxy issues. Proxy issues presented to the Proxy Director will be voted in accordance with the judgment of the Proxy Director, taking into account the general policies outlined above and the Adviser's Proxy Voting Guidelines. Therefore, it is possible that actual votes may differ from these general policies and the Adviser's Proxy Voting Guidelines. In the case where the Adviser has a material conflict of interest with a Client, the Proxy Director will utilize the services of outside third party professionals (such as Institutional Shareholder Services) to assist in its analysis of voting issues and the actual voting of proxies to ensure that a decision to vote the proxies was based on the Client's best interest and was not the product of a conflict of interest. In the event the services of an outside third party professional are not available in connection with a conflict of interest, the Adviser will seek the advice of the Client.

A detailed description of the Adviser's specific Proxy Voting Guidelines will be furnished upon request. You may also obtain information about how the Adviser has voted with respect to portfolio company securities by calling, writing, or emailing us at:

EARNEST Partners 1180 Peachtree Street NE, Suite 2300, Atlanta, GA 30309

invest@earnestpartners.com

404-815-8772

The Adviser reserves the right to change these policies and procedures at any time without notice.

Eaton Vance Management Proxy Voting Policies And Procedures

I. Introduction
Eaton Vance Management ("Eaton Vance") has adopted and implemented policies and procedures that Eaton Vance believes are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with its fiduciary duties and Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. Eaton Vance's authority to vote the proxies of their clients is established by their advisory contracts or similar documentation, such as the Eaton Vance Funds Proxy Voting Policy and Procedures. These proxy policies and procedures reflect the U.S. Securities and Exchange Commission ("SEC") requirements governing advisers and the long-standing fiduciary standards and responsibilities for ERISA accounts set out in the Department of Labor Bulletin 94-2 C.F.R. 2509.94-2 (July 29, 1994).

II. Overview
Eaton Vance manages its clients' assets with the overriding goal of seeking to provide the greatest possible return to such clients consistent with governing laws and the investment policies of each client. In pursuing that goal, Eaton Vance seeks to exercise its clients' rights as shareholders of voting securities to support sound corporate governance of the companies issuing those securities with the principle aim of maintaining or enhancing the companies' economic value.

The exercise of shareholder rights is generally done by casting votes by proxy at shareholder meetings on matters submitted to shareholders for approval (for example, the election of directors or the approval of a company's stock option plans for directors, officers or employees). Eaton Vance is adopting the formal written Guidelines described in detail below and will utilize such Guidelines in voting proxies on behalf of its clients. These Guidelines are designed to promote accountability of a company's management and board of directors to its shareholders and to align the interests of management with those of shareholders.

Eaton Vance will vote any proxies received by a client for which it has sole investment discretion through a third-party proxy voting service ("Agent") in accordance with customized policies, as approved by the Boards of Trustees of the Eaton Vance Funds and, with respect to proxies referred back to Eaton Vance by the Agent pursuant to the Guidelines, in a manner that is reasonably designed to eliminate any potential conflicts of interest, as described more fully below. The Agent is currently Institutional Shareholder Services Inc. Proxies will be voted in accordance with client-specific guidelines and an Eaton Vance Fund's sub-adviser's proxy voting policies and procedures, if applicable.

No set of guidelines can anticipate all situations that may arise. In special cases, the Proxy Administrator (the person specifically charged with the responsibility to oversee the Agent and coordinate the voting of proxies referred back to Eaton Vance by the Agent) may seek insight from the Proxy Group established by Eaton Vance. The Proxy Group will assist in the review of the Agent's recommendation when a proxy voting issue is referred to the Proxy Group through the Proxy Administrator. The members of the

 

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Proxy Group, which may include employees of Eaton Vance's affiliates, may change at Eaton Vance's discretion.

II. Roles and Responsibilities
A. Proxy Administrator
The Proxy Administrator will assist in the coordination of the voting of each client's proxy in accordance with the Guidelines below and the Funds' Proxy Voting Policy and Procedures. The Proxy Administrator is authorized to direct the Agent to vote a proxy in accordance with the Guidelines. Responsibilities assigned herein to the Proxy Administrator, or activities in support thereof, may be performed by such members of the Proxy Group or employees of Eaton Vance's affiliates as are deemed appropriate by the Proxy Group.

B. Agent
An independent proxy voting service (the "Agent"), as approved by the Board of each Fund, shall be engaged to assist in the voting of proxies. The Agent is currently Institutional Shareholder Services Inc. The Agent is responsible for coordinating with the clients' custodians and Eaton Vance to ensure that all proxy materials received by the custodians relating to the portfolio securities are processed in a timely fashion. The Agent is required to vote and/or refer all proxies in accordance with the Guidelines below. The Agent shall retain a record of all proxy votes handled by the Agent. Such record must reflect all of the information required to be disclosed in a Fund's Form N-PX pursuant to Rule 30b1-4 under the Investment Company Act of 1940. In addition, the Agent is responsible for maintaining copies of all proxy statements received by issuers and to promptly provide such materials to Eaton Vance upon request.

Subject to the oversight of Eaton Vance, the Agent shall establish and maintain adequate internal controls and policies in connection with the provision of proxy voting services to Eaton Vance, including methods to reasonably ensure that its analysis and recommendations are not influenced by a conflict of interest, and shall disclose such controls and policies to Eaton Vance when and as provided for herein. Unless otherwise specified, references herein to recommendations of the Agent shall refer to those in which no conflict of interest has been identified.

C. Proxy Group
Eaton Vance shall establish a Proxy Group which shall assist in the review of the Agent's recommendations when a proxy voting issue has been referred to the Proxy Administrator by the Agent. The members of the Proxy Group, which may include employees of Eaton Vance's affiliates, may be amended from time to time at Eaton Vance's discretion.

For each proposal referred to the Proxy Group, the Proxy Group will review the (i) Guidelines, (ii) recommendations of the Agent, and (iii) any other resources that any member of the Proxy Group deems appropriate to aid in a determination of the recommendation.

If the Proxy Group recommends a vote in accordance with the Guidelines, or the recommendation of the Agent, where applicable, it shall instruct the Proxy Administrator to so advise the Agent.

If the Proxy Group recommends a vote contrary to the Guidelines, or the recommendation of the Agent, where applicable, or if the proxy statement relates to a conflicted company of the Agent, as determined by Eaton Vance, it shall follow the procedures for such voting outlined below.

The Proxy Administrator shall use best efforts to convene the Proxy Group with respect to all matters requiring its consideration. In the event the Proxy Group cannot meet in a timely manner in connection with a voting deadline, the Proxy Administrator shall follow the procedures for such voting outlined below.

II. Proxy Voting Guidelines ("Guidelines")
A. General Policies
It shall generally be the policy of Eaton Vance to take no action on a proxy for which no client holds a position or otherwise maintains an economic interest in the relevant security at the time the vote is to be cast.

In all cases except those highlighted below, it shall generally be the policy of Eaton Vance to vote in accordance with the recommendation by the Agent, Institutional Shareholder Services Inc.

When a fund client participates in the lending of its securities and the securities are on loan at the record date, proxies related to such securities generally will not be forwarded to Eaton Vance by the fund's custodian and therefore will not be voted. In the event that Eaton Vance determines that the matters involved would have a material effect on the applicable fund's investment in the loaned

 

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securities, the fund will exercise its best efforts to terminate the loan in time to be able to cast such vote or exercise such consent.

Interpretation and application of these Guidelines is not intended to supersede any law, regulation, binding agreement or other legal requirement to which an issuer may be or become subject. The Guidelines relate to the types of proposals that are most frequently presented in proxy statements to shareholders. Absent unusual circumstances, Eaton Vance will utilize these Guidelines when voting proxies on behalf of its clients.

The Guidelines may be revised at any time, provided such revisions are reported to the Boards of Trustees of the Eaton Vance Funds.

B. Proposals Regarding Mergers and Corporate Restructurings
The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Administrator for all proposals relating to Mergers and Corporate Restructurings.

C. Proposals Regarding Mutual Fund Proxies – Disposition of Assets/Termination/Liquidation and Mergers
The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Administrator for all proposals relating to the Disposition of Assets/Termination/Liquidation and Mergers contained in mutual fund proxies.

D. Corporate Structure Matters/Anti-Takeover Defenses
As a general matter, Eaton Vance will normally vote against anti-takeover measures and other proposals designed to limit the ability of shareholders to act on possible transactions (except in the case of closed-end management investment companies).

E. Social and Environmental Issues
Eaton Vance generally supports management on social and environmental proposals.

F. Voting Procedures
Upon receipt of a referral from the Agent or upon advice from an Eaton Vance investment professional, the Proxy Administrator may solicit additional research from the Agent, as well as from any other source or service.

1. WITHIN-GUIDELINES VOTES: Votes in Accordance with the Guidelines and/or, where applicable, Agent Recommendation. In the event the Proxy Administrator recommends a vote within Guidelines and/or, where applicable, in accordance with the Agent's recommendation, the Proxy Administrator will instruct the Agent to vote in this manner.

2. NON-VOTES: Votes in Which No Action is Taken. The Proxy Administrator may recommend that a client refrain from voting under the following circumstances: (i) if the economic effect on shareholders' interests or the value of the portfolio holding is indeterminable or insignificant, e.g., proxies in connection with securities no longer held in the portfolio of a client or proxies being considered on behalf of a client that is no longer in existence; or (ii) if the cost of voting a proxy outweighs the benefits, e.g., certain international proxies, particularly in cases in which share blocking practices may impose trading restrictions on the relevant portfolio security. In such instances, the Proxy Administrator may instruct the Agent not to vote such proxy.

Reasonable efforts shall be made to secure and vote all other proxies for the clients, but, particularly in markets in which shareholders' rights are limited, Non-Votes may also occur in connection with a client's related inability to timely access ballots or other proxy information in connection with its portfolio securities.

Non-Votes may also result in certain cases in which the Agent's recommendation has been deemed to be conflicted, as provided for herein.

3. OUT-OF-GUIDELINES VOTES: Votes Contrary to Guidelines, or Agent Recommendation, where applicable, Where No Recommendation is Provided by Agent, or Where Agent's Recommendation is Conflicted. If the Proxy Administrator recommends that a client vote contrary to the Guidelines, or the recommendation of the Agent, where applicable, if the Agent has made no recommendation on a matter requiring case-by-case consideration and the Guidelines are silent, or the Agent's recommendation on a matter requiring case-by-case consideration is deemed to be conflicted, the Proxy Administrator will forward the Agent's analysis and recommendation and any research obtained from the Agent or any other source to the Proxy Group. The Proxy Group may consult with the Agent as it deems necessary. The Proxy Administrator will instruct the Agent to vote the proxy as recommended by the Proxy Group. Eaton Vance will provide a report to the Boards of Trustees of the Eaton Vance Funds reflecting any votes castcontrary to the Guidelines or Agent Recommendation, as applicable, and shall do so no less than annually.

 

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The Proxy Administrator will maintain a record of all proxy questions that have been referred by the Agent, all applicable recommendations, analysis and research received and any resolution of the matter.

V. Recordkeeping
Eaton Vance will maintain records relating to the proxies they vote on behalf of their clients in accordance with Section 204-2 of the Investment Advisers Act of 1940, as amended. Those records will include:

· A copy of Eaton Vance's proxy voting policies and procedures;
· Proxy statements received regarding client securities. Such proxy statements received from issuers are either in the SEC's EDGAR database or are kept by the Agent and are available upon request;
· A record of each vote cast;
· A copy of any document created by Eaton Vance that was material to making a decision on how to vote a proxy for a client or that memorializes the basis for such a decision; and
· Each written client request for proxy voting records and Eaton Vance's written response to any client request (whether written or oral) for such records.

All records described above will be maintained in an easily accessible place for five years and will be maintained in the offices of Eaton Vance or its Agent for two years after they are created.

VI. Assessment of Agent and Identification and Resolution of Conflicts with Clients
A. Assessment of Agent
Eaton Vance shall establish that the Agent (i) is independent from Eaton Vance, (ii) has resources that indicate it can competently provide analysis of proxy issues, and (iii) can make recommendations in an impartial manner and in the best interests of the clients and, where applicable, their beneficial owners. Eaton Vance shall utilize, and the Agent shall comply with, such methods for establishing the foregoing as Eaton Vance may deem reasonably appropriate and shall do so not less than annually as well as prior to engaging the services of any new proxy voting service. The Agent shall also notify Eaton Vance in writing within fifteen (15) calendar days of any material change to information previously provided to Eaton Vance in connection with establishing the Agent's independence, competence or impartiality.

B. Conflicts of Interest
As fiduciaries to their clients, Eaton Vance puts the interests of its clients ahead of its own. In order to ensure that relevant personnel of Eaton Vance are able to identify potential material conflicts of interest, Eaton Vance will take the following steps:

· Quarterly, the Eaton Vance Legal and Compliance Department will seek information from the department heads of each department of Eaton Vance and of Eaton Vance Distributors, Inc. ("EVD") (an affiliate of Eaton Vance and principal underwriter of certain Eaton Vance Funds). Each department head will be asked to provide a list of significant clients or prospective clients of Eaton Vance or EVD.
· A representative of the Legal and Compliance Department will compile a list of the companies identified (the "Conflicted Companies") and provide that list to the Proxy Administrator.
· The Proxy Administrator will compare the list of Conflicted Companies with the names of companies for which he or she has been referred a proxy statement (the "Proxy Companies"). If a Conflicted Company is also a Proxy Company, the Proxy Administrator will report that fact to the Proxy Group.
· If the Proxy Administrator expects to instruct the Agent to vote the proxy of the Conflicted Company strictly according to the Guidelines contained in these Proxy Voting Policies and Procedures (the "Policies") or the recommendation of the Agent, as applicable, he or she will (i) inform the Proxy Group of that fact, (ii) instruct the Agent to vote the proxies and (iii) record the existence of the material conflict and the resolution of the matter.
· If the Proxy Administrator intends to instruct the Agent to vote in a manner inconsistent with the Guidelines contained herein or the recommendation of the Agent, as applicable, the Proxy Group, in consultation with Eaton Vance senior management, will then determine if a material conflict of interest exists between Eaton Vance and its clients. If the Proxy Group, in consultation with Eaton Vance senior management, determines that a material conflict exists, prior to instructing the Agent to vote any proxies relating to these Conflicted Companies Eaton Vance will seek instruction on how the proxy should be voted from:
o The client, in the case of an individual or corporate client;
o In the case of a Fund, its board of directors, or any committee or sub-committee identified by the board; or
o The adviser, in situations where Eaton Vance acts as a sub-adviser to such adviser.
Eaton Vance will provide all reasonable assistance to each party to enable such party to make an informed decision.

If the client, Fund board or adviser, as the case may be, fails to instruct Eaton Vance on how to vote the proxy, Eaton Vance will generally instruct the Agent, through the Proxy Administrator, to abstain from voting in order to avoid the appearance of impropriety.

 

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If however, the failure of Eaton Vance to vote its clients' proxies would have a material adverse economic impact on Eaton Vance's clients' securities holdings in the Conflicted Company, Eaton Vance may instruct the Agent, through the Proxy Administrator, to vote such proxies in order to protect its clients' interests. In either case, the Proxy Administrator will record the existence of the material conflict and the resolution of the matter.

Eaton Vance shall also identify and address conflicts that may arise from time to time concerning the Agent. Upon Eaton Vance's request, which shall be not less than annually, and within fifteen (15) calendar days of any material change to such information previously provided to Eaton Vance, the Agent shall provide Eaton Vance with such information as Eaton Vance deem reasonable and appropriate for use in determining material relationships of the Agent that pose a conflict of interest with respect to the Agent's proxy analysis or recommendations. Such information shall include, but is not limited to, a monthly report from the Agent detailing the Agent's Corporate Securities Division clients and related revenue data. Eaton Vance shall review such information on a monthly basis. The Proxy Administrator shall instruct the Agent to refer any proxies for which a material conflict of the Agent is deemed to be present to the Proxy Administrator. Any such proxy referred by the Agent shall be referred to the Proxy Group for consideration accompanied by the Agent's written analysis and voting recommendation. The Proxy Administrator will instruct the Agent to vote the proxy as recommended by the Proxy Group.

Hotchkis and Wiley Capital Management, LLC

Proxy Voting Summary

Generally, and except to the extent that a client otherwise instructs Hotchkis and Wiley Capital Management, LLC ("HWCM") in writing, HWCM will vote (by proxy or otherwise) in all matters for which a shareholder vote is solicited by, or with respect to, issuers of securities beneficially held in client accounts in such manner as HWCM deems appropriate in accordance with its written policies and procedures. These policies and procedures set forth guidelines for voting typical proxy proposals. However, each proxy issue will be considered individually in order that HWCM may consider what would be in its clients' best interest. Further, where a proxy proposal raises a material conflict of interest between the interests of HWCM and its client, HWCM will vote according to its predetermined specific policy. The Compliance Department will review the vote to determine that the decision was based on the client's best interest rather th the best interest of the HWCM. HWCM may determine not to vote proxies in respect of securities of any issuer if it determines that it would be in the clients' overall best interest not to vote under the circumstances, such as when the cost of voting exceeds the expected benefit. For example, to the extent that HWCM receives proxies for securities that are transferred into a client's portfolio that were not recommended or selected by HWCM and are sold or expected to be sold promptly in an orderly manner ("legacy securities"), HWCM will generally refrain from voting such proxies. In such circumstances, since legacy securities are expected to be sold promptly, voting proxies on such securities would not further HWCM's interest in maximizing the value of client investments. HWCM may consider an institutional client's special request to vote a legacy security proxy, and if agreed would vote such proxy in accordance with HWCM's guidelines. If HWCM is authorized to exercise proxy voting rights for a client account, HWCM will vote the proxies for securities beneficially held by the custodian for the portfolio as of the record date of the shareholder meetings (settlement date). Securities not held by the custodian as of the record date (e.g., due to an unsettled purchase or securities lending) will not be voted by HWCM.

HWCM utilizes a third party service provider to provide administrative assistance in connection with the voting of proxies, including certain record keeping and reporting functions.

J.P. Morgan Investment Management, Inc. The Board of Trustees has delegated to JPMorgan proxy voting authority with respect to the fund's portfolio securities. To ensure that the proxies of portfolio companies are voted in the best interests of the fund, the fund's Board of Trustees has adopted JPMorgan's detailed proxy voting procedures (the "Procedures") that incorporate guidelines ("Guidelines") for voting proxies on specific types of issues.

As an investment adviser, JPMorgan may be granted by its clients the authority to vote the proxies of the securities held in client portfolios. To ensure that the proxies are voted in the best interests of its clients, JPMorgan and its affiliated advisers have adopted detailed proxy voting procedures ("Procedures") that incorporate detailed proxy guidelines ("Guidelines") for voting proxies on specific types of issues.

The Adviser and its affiliated advisers are part of a global asset management organization with the capability to invest in securities of issuers located around the globe. Because the regulatory framework and the business cultures and practices vary from region to region, the Guidelines are customized for each region to take into account such variations. Separate Guidelines cover the regions of

 

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(1) North America, (2) Europe, Middle East, Africa, Central America and South America, (3) Asia (ex-Japan) and (4) Japan, respectively.

Notwithstanding the variations among the Guidelines, all of the Guidelines have been designed with the uniform objective of encouraging corporate action that enhances shareholder value. As a general rule, in voting proxies of a particular security, the Adviser and its affiliated advisers will apply the Guidelines of the region in which the issuer of such security is organized. Except as noted below, proxy voting decisions will be made in accordance with the Guidelines covering a multitude of both routine and non-routine matters that the Adviser and its affiliated advisers have encountered globally, based on many years of collective investment management experience.

To oversee and monitor the proxy-voting process, the Adviser has established a proxy committee and appointed a proxy administrator in each global location where proxies are voted. The primary function of each proxy committee is to review periodically general proxy-voting matters, review and approve the Guidelines annually, and provide advice and recommendations on general proxy-voting matters as well as on specific voting issues. The procedures permit an independent voting service, currently RiskMetrics Group, Inc. (RMG)(formerly Institutional Shareholder Services, Inc.) in the U.S., to perform certain services otherwise carried out or coordinated by the proxy administrator.

Although for many matters the Guidelines specify the votes to be cast, for many others, the Guidelines contemplate case-by-case determinations. In addition, there will undoubtedly be proxy matters that are not contemplated by the Guidelines. For both of these categories of matters and to override the Guidelines, the Procedures require a certification and review process to be completed before the vote is cast. That process is designed to identify actual or potential material conflicts of interest (between the Fund on the one hand, and the Fund's investment adviser, principal underwriter or an affiliate of any of the foregoing, on the other hand) and ensure that the proxy vote is cast in the best interests of the Fund. When a potential material conflict of interest has been identified, the proxy administrator and a subgroup of proxy committee members (composed of a member from the Investment Department and one or more members fro the Legal, Compliance or Risk Management Departments) will evaluate the potential conflict of interest and determine whether such conflict actually exists, and if so, will recommend how the Adviser will vote the proxy. In addressing any material conflict, the Adviser may take one or more of the following Part II – 99 measures (or other appropriate action): removing or "walling off" from the proxy voting process certain Adviser personnel with knowledge of the conflict, voting in accordance with any applicable Guideline if the application of the Guideline would objectively result in the casting of a proxy vote in a predetermined manner, or deferring the vote to RMG, which will vote in accordance with its own recommendation.

The following summarizes some of the more noteworthy types of proxy voting policies of the non-U.S. Guidelines:
• Corporate governance procedures differ among the countries. Because of time constraints and local customs, it is not always possible for the Adviser to receive and review all proxy materials in connection with each item submitted for a vote. Many proxy statements are in foreign languages. Proxy materials are generally mailed by the issuer to the sub-custodian which holds the securities for the client in the country where the portfolio company is organized, and there may not be sufficient time for such materials to be transmitted to the Adviser in time for a vote to be cast. In some countries, proxy statements are not mailed at all, and in some locations, the deadline for voting is two to four days after the initial announcement that a vote is to be solicited. JPMorgan also considers the cost of voting in light of the expected benefit of the vote.
• Where proxy issues concern corporate governance, takeover defense measures, compensation plans, capital structure changes and so forth, the Adviser pays particular attention to management's arguments for promoting the prospective change the Adviser's sole criterion in determining its voting stance is whether such changes will be to the economic benefit of the beneficial owners of the shares.
• The Adviser is in favor of a unitary board structure of the type found in the United Kingdom as opposed to tiered board structures. Thus, the Adviser will generally vote to encourage the gradual phasing out of tiered board structures, in favor of unitary boards. However, since tiered boards are still very prevalent in markets outside of the United Kingdom, local market practice will always be taken into account.
• The Adviser will use its voting powers to encourage appropriate levels of board independence, taking into account local market practice.
• The Adviser will usually vote against discharging the board from responsibility in cases of pending litigation, or if there is evidence of wrongdoing for which the board must be held accountable.
• The Adviser will vote in favor of increases in capital which enhance a company's long-term prospects. The Adviser will also vote in favor of the partial suspension of preemptive rights if they are for purely technical reasons (e.g., rights offers which may not be legally offered to shareholders in certain jurisdictions). However, the Adviser will vote against increases in capital which would allow the company to adopt "poison pill" takeover defense tactics, or where the increase in authorized capital would dilute shareholder value in the long term.
• The Adviser will vote in favor of proposals which will enhance a company's long-term prospects. The Adviser will vote against an increase in bank borrowing powers which would result in the company reaching an unacceptable level of financial leverage, where such borrowing is expressly intended as part of a takeover defense, or where there is a material reduction in shareholder value.
• The Adviser reviews shareholder rights plans and poison pill proposals on a case-by-case basis; however, the Adviser will generally vote against such proposals and vote for revoking existing plans.
• Where social or environmental issues are the subject of a proxy vote, the Adviser will consider the issue on a case-by-case basis, keeping in mind at all times the best economic interests of its clients.
• With respect to Asia, for routine proxies (e.g., in respect of voting at the Annual General Meeting of Shareholders) the Adviser's position is to neither vote in favor or against. For Extraordinary General Meetings of Shareholders, however, where specific issues are put to a shareholder vote, Part II – 100 these issues are analyzed by the respective country specialist concerned. A decision is then made based on his or her judgment.

The following summarizes some of the more noteworthy types of proxy voting policies of the U.S. Guidelines:
• The Adviser considers votes on director nominees on a case-by-case basis. Votes generally will be withheld from directors who: (a) attend less than 75% of board and committee meetings without a valid excuse; (b) implement or renew a dead-hand poison pill; (c) are affiliated directors who serve on audit, compensation or nominating committees or are affiliated directors and the full board serves on such committees or the company does not have such committees; or (d) ignore a shareholder proposal that is approved for two consecutive years by a majority of either the shares outstanding or the votes cast.
• The Adviser votes proposals to classify boards on a case-by-case basis, but will vote in favor of such proposal if the issuer's governing documents contain each of eight enumerated safeguards (for example, a majority the board is composed of independent directors and the nominating committee is composed solely of such directors).
• The Adviser also considers management poison pill proposals on a case-by-case basis, looking for shareholder-friendly provisions before voting in favor.
• The Adviser votes against proposals for a super-majority vote to approve a merger.
• The Adviser considers proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan on a case-by-case basis, taking into account the extent of dilution and whether the transaction will result in a change in control.
• The Adviser votes proposals on a stock option plan based primarily on a detailed, quantitative analysis that takes into account factors such as estimated dilution to shareholders' equity and dilution to voting power. The Adviser generally considers other management compensation proposals on a case-by-case basis.
• The Adviser also considers on a case-by-case basis proposals to change an issuer's state of incorporation, mergers and acquisitions and other corporate restructuring proposals and certain social and environmental issue proposals.

LSV Asset Management

LSV Asset Management ("LSV") has adopted proxy voting guidelines that provide direction in determining how various types of proxy issues are to be voted.

LSV's purely quantitative investment process does not provide output or analysis that would be functional in analyzing proxy issues. LSV therefore will retain an independent, expert third party, currently Risk Metrics Group ("RMG") formerly Institutional Shareholder Services. RMG will implement LSV's proxy voting process, provide assistance in developing guidelines for client accounts that are updated for current corporate governance issues, helping to ensure that clients' best interests are served by voting decisions, and provide analysis of proxy issues on a case-by-case basis. LSV is responsible for monitoring RMG to ensure that proxies are adequately voted. LSV will vote issues contrary to, or issues not covered by, the guidelines only when LSV believes it is in the best interest of the client. Where the client has provided proxy voting guidelines to LSV, those guidelines will be followed, unless it is determined that a different vote would add more value to the client's holding of the security in question. Direction from a client on a particular proxy vote will take precedence over the guidelines. Clients are sent a copy of their respective guidelines on an annual basis. LSV's use of RMG is not a delegation of LSV's fiduciary obligation to vote proxies for clients.

Should a material conflict arise between LSV's interest and that of its clients (e.g., a client bringing a shareholder action has solicited LSV's support; LSV manages a pension plan for a company whose management is soliciting proxies; or an LSV employee has a relative involved in management at an investee company), LSV will vote the proxies in accordance with the recommendation of the independent third party proxy voting service. A written record will be maintained describing the conflict of interest, and an explanation of how the vote taken was in the client's best interest.

LSV may refrain from voting a proxy if the cost of voting the proxy exceeds the expected benefit to the client, for example in the case of voting a foreign security when the proxy must be translated into English or the vote must be cast in person.

Clients may receive a copy of LSV's voting record for their account by request. LSV will additionally provide any mutual fund for

 

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which LSV acts as adviser or sub-adviser, a copy of LSV's voting record for the fund so that the fund may fulfill its obligation to report proxy votes to fund shareholders.

Recordkeeping. In accordance with the recordkeeping rules, LSV will retain copies of its proxy voting policies and procedures; a copy of each proxy statement received regarding client securities (maintained by the proxy voting service and/or available on EDGAR); a record of each vote cast on behalf of a client (maintained by the proxy voting service); a copy of any document created that was material to the voting decision or that memorializes the basis for that decision (maintained by the proxy voting service); a copy of clients' written requests for proxy voting information and a copy of LSV's written response to a client's request for proxy voting information for the client's account; and LSV will ensure that it may obtain access to the proxy voting service's records promptly upon LSV's request.

Lee Munder Investments, Ltd.

Voting Guidelines for the Lee Munder Investments, Ltd (the "Firm") are outlined below and generally seek to maximize shareholder value.

Board of Directors : Our investment strategies seek to favor companies in which we believe there is positive growth potential or other attributes. We generally do not take positions in companies with the intent of effecting change. As a result, we would normally vote in favor of the Board slate presented. However, there are some actions by directors that would result in votes being withheld. These instances may include: unsatisfactory attendance; actions that appear to not be in the best interests of shareholders, including implementation of poison pills, ignoring a shareholder proposal that is approved by a majority of the shares outstanding, failing to act on takeover offers where the majority of the shareholders have tendered their shares; where such directors are inside directors and the inside directors represent a large percentage of the board, and may also sit on the audit, compensation, or nominating committees; directors who enacted egregious corporate governance polices or fail to replace management as appropriate would be subject to recommendations to withhold votes. Auditors : We would generally vote in favor of the Board recommendation, unless an auditor has financial interest in or association with the company, and is therefore not independent; or there is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the company's financial position. Option plans : Option plans are generally reviewed on a case-by-case basis. The major factor we consider is dilution (no more than 10%-12%), although reload and re-pricing options also factor in (which we do not support either). We will also consider the shareholder cost of the plan. Employee stock purchase plans : We would review on a case-by-case basis, however, pricing is an important factor, where in general we would support a purchase price at least 85 percent of fair market value. We would vote against proposals to eliminate cumulative voting. Vote for proposals to restore or permit cumulative voting on a case-by-case basis relative to the company's other governance provisions. We would vote against proposals to classify the board and vote for proposals to repeal classified boards and to elect all directors annually. We would vote against open-ended "any other business". Mergers and Corporate restructuring : Would be reviewed on a case-by-case basis. Other Proposals : Generally reviewed on a case-by-case basis. Shareholder proposals : Would be reviewed on a case-by-case basis. Conflicts of Interest : Could exist when the Firm holds a security issued by a client in client portfolios, and the Firm is required to vote that security. When there is a potential conflict with a client the Firm will look to these Guidelines and the ISS recommendation for voting guidance.

Marsico Capital Management, LLC MARSICO CAPITAL MANAGEMENT, LLC PROXY VOTING POLICY AND PROCEDURES
Statement of Policy

1. It is the policy of Marsico Capital Management, LLC ("MCM") to seek to vote or otherwise process, such as by a decision to abstain from voting or to take no action on, proxies over which it has voting authority in the best interests of MCM's clients, as summarized here.

  • MCM's security analysts generally review proxy proposals as part of their monitoring of portfolio companies. Under MCM's investment discipline, one of the qualities that MCM generally seeks in companies selected for client portfolios is good management teams that generally seek to serve shareholder interests. Because MCM believes that the management teams of most companies it invests in generally seek to serve shareholder interests, MCM believes that voting proxy proposals in clients' best economic interests usually means voting with the recommendations of these management teams (including their boards of directors).

  • In certain circumstances, MCM's vote-by-vote analysis of proxy proposals could lead it to conclude that particular management or board recommendations may not appear as closely aligned with shareholder interests as MCM may deem desirable, or could be disregarded in the best interests of shareholders. In those and other circumstances, MCM may, in its sole discretion, vote against a management or board recommendation (or abstain or take no action) based on its analysis if such a vote appears consistent with the best interests of clients.

 

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  • MCM may process certain proxies without voting them, such as by making a decision to abstain from voting or take no action on such proxies (or on certain proposals within such proxies). Examples include, without limitation, proxies issued by companies that MCM has decided to sell, proxies issued for securities that MCM did not select for a client portfolio (such as, without limitation, securities that were selected by a previous adviser, unsupervised securities held in a client's account, money market securities, or other securities selected by clients or their representatives other than MCM), or proxies issued by foreign companies that impose burdensome or unreasonable voting, power of attorney, or holding requirements. MCM also may abstain from voting, or take no action on, proxies in other circumstances, such as when voting may not be in the best interests of clients, as an alternative to voting with (or against) management, or when voting may be unduly burdensome or expensive, or if MCM may have a material conflict of interest in voting certain proxies and alternative voting procedures are not desirable. ·

  • In circumstances when there may be an apparent material conflict of interest between MCM's interests and clients' interests in how proxies are voted (such as when MCM knows that a proxy issuer is also an MCM client), MCM generally will resolve any appearance concerns by causing those proxies to be "echo voted" or "mirror voted" in the same proportion as other votes, by voting the proxies as recommended by an independent service provider, or by abstaining or taking no action. In other cases, MCM might use other procedures to resolve an apparent material conflict.

  • MCM may use an independent service provider to assist in voting proxies, keep voting records, and disclose voting information to clients. MCM's Proxy Voting policy and reports describing the voting of a client's proxies are available to the client on request.

  • MCM seeks to ensure that, to the extent reasonably feasible, proxies for which MCM receives ballots in good order and receives timely notice will be voted or otherwise processed (such as through a decision to abstain or take no action) as intended under MCM's Proxy Voting policy and procedures. MCM may be unable to vote or otherwise process proxy ballotsthat are not received or processedin a timely manner due tofunctional limitations of the proxy voting system, custodial limitations, or other factors beyond MCM's control. Such ballots may include, without limitation,ballots for securities out on loan under securities lending programs initiated by the client or its custodian, ballots not timely forwarded by a custodian,or ballots for which MCM does not timely receive essential information such as the proxy proposal itself or modifications to the required voting date. Other ballots may be voted but not counted, or may be counted in an unexpected way, because of factors such as foreign voting requirements or other limitations.

Massachusetts Financial Services Company (MFS)
Massachusetts Financial Services Company, MFS Institutional Advisors, Inc., MFS International (UK) Limited, MFS Heritage Trust Company, and MFS' other investment adviser subsidiaries (except Four Pillars Capital, Inc.) (collectively, "MFS") have adopted proxy voting policies and procedures, as set forth below ("MFS Proxy Voting Policies and Procedures"), with respect to securities owned by the clients for which MFS serves as investment adviser and has the power to vote proxies, including the registered investment companies sponsored by MFS. References to "clients" in these policies and procedures include the MFS Funds and other clients of MFS, such as funds organized offshore, sub-advised funds and separate account clients, to the extent these clients have delegated to MFS the responsibility to vote proxies on their behalf under the MFS Proxy Voting Policies and Procedures.

The MFS Proxy Voting Policies and Procedures include:
A. Voting Guidelines;
B. Administrative Procedures;
C. Monitoring System;
D. Records Retention; and
E. Reports.

A. VOTING GUIDELINES
1. General Policy; Potential Conflicts of Interest MFS' policy is that proxy voting decisions are made in what MFS believes to be the best long-term economic interests of MFS' clients, and not in the interests of any other party or in MFS' corporate interests, including interests such as the distribution of MFS Fund shares, administration of 401(k) plans, and institutional relationships.

In developing these proxy voting guidelines, MFS periodically reviews corporate governance issues and proxy voting matters that are presented for shareholder vote by either management or shareholders of public companies. Based on the overall principle that all votes cast by MFS on behalf of its clients must be in what MFS believes to be the best long-term economic interests of such clients, MFS has adopted proxy voting guidelines, set forth below, that govern how MFS generally will vote on specific matters presented for shareholder vote. In all cases, MFS will exercise its discretion in voting on these matters in accordance with this overall principle. In other words, the underlying guidelines are simply that – guidelines. Proxy items of significance are often considered on a case-by-case basis, in light of all relevant facts and circumstances, and in certain cases MFS may vote proxies in manner different from what otherwise be dictated by these guidelines.

 

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As a general matter, MFS maintains a consistent voting position on similar proxy proposals with respect to various issuers. In addition, MFS generally votes consistently on the same matter when securities of an issuer are held by multiple client accounts. However, MFS recognizes that there are gradations in certain types of proposals that might result in different voting positions being taken with respect to different proxy statements. There also may be situations involving matters presented for shareholder vote that are not governed by the guidelines or situations where MFS has received explicit voting instructions from a client for its own account. Some items that otherwise would be acceptable will be voted against the proponent when it is seeking extremely broad flexibility without offering a valid explanation. MFS reserves the right to override the guidelines with respect to a particular shareholder vote when such an override is, in MFS' best judgment, consistent with the overall principle of voting proxies in the best long-term economic interests of MFS' clients.

From time to time, MFS receives comments on these guidelines as well as regarding particular voting issues from its clients. These comments are carefully considered by MFS when it reviews these guidelines each year and revises them as appropriate.

These policies and procedures are intended to address any potential material conflicts of interest on the part of MFS or its subsidiaries that are likely to arise in connection with the voting of proxies on behalf of MFS' clients. If such potential material conflicts of interest do arise, MFS will analyze, document and report on such potential material conflicts of interest (see Sections B.2 and E below), and shall ultimately vote the relevant proxies in what MFS believes to be the best long-term economic interests of its clients. The MFS Proxy Voting Committee is responsible for monitoring and reporting with respect to such potential material conflicts of interest.

2. MFS' Policy on Specific Issues Election of Directors

MFS believes that good governance should be based on a board with at least a simple majority of directors who are "independent" of management, and whose key committees (e.g., compensation, nominating, and audit committees) are comprised entirely of "independent" directors. While MFS generally supports the board's nominees in uncontested elections, we will withhold our vote for, or vote against, as applicable, a nominee to a board of a U.S. issuer if, as a result of such nominee being elected to the board, the board would be comprised of a majority of members who are not "independent" or, alternatively, the compensation, nominating or audit committees would include members who are not "independent."

MFS will also withhold its vote for, or vote against, as applicable, a nominee to a board if we can determine that he or she failed to attend at least 75% of the board and/or relevant committee meetings in the previous year without a valid reason stated in the proxy materials. In addition, MFS will withhold its vote for, or vote against, as applicable, all nominees standing for re-election to a board if we can determine: (1) since the last annual meeting of shareholders and without shareholder approval, the board or its compensation committee has re-priced underwater stock options; or (2) since the last annual meeting, the board has either implemented a poison pill without shareholder approval or has not taken responsive action to a majority shareholder approved resolution recommending that the "poison pill" be rescinded. Responsive action would include the rescission of the "poison pill"(withou broad reservation to reinstate the "poison pill" in the event of a hostile tender offer), or assurance in the proxy materials that the terms of the "poison pill" would be put to a binding shareholder vote within the next five to seven years.

MFS will also withhold its vote for, or vote against, as applicable, a nominee (other than a nominee who serves as the issuer's Chief Executive Officer) standing for re-election if such nominee participated (as a director or committee member) in the approval of senior executive compensation that MFS deems to be "excessive" due to pay for performance issues and/or poor pay practices. In the event that MFS determines that an issuer has adopted "excessive" executive compensation, MFS may also withhold its vote for, or vote against, as applicable, the re-election of the issuer's Chief Executive Officer as director regardless of whether the Chief Executive Officer participated in the approval of the package. MFS will determine whether senior executive compensation is excessive on a case by case basis. Examples of poor pay practices include, but are not limited to, egregious employment contract terms pension payouts, backdated stock options, overly generous hiring bonuses for chief executive officers or, excessive perks. MFS evaluates a contested or contentious election of directors on a case-by-case basis considering the long-term financial performance of the company relative to its industry, management's track record, the qualifications of the nominees for both slates, if applicable, and an evaluation of what each side is offering shareholders.

Majority Voting and Director Elections
MFS votes for reasonably crafted proposals calling for directors to be elected with an affirmative majority of votes cast and/or the elimination of the plurality standard for electing directors (including binding resolutions requesting that the board amend the company's bylaws), provided the proposal includes a carve-out for a plurality voting standard when there are more director nominees than board seats (e.g., contested elections) ("Majority Vote Proposals").MFS considers voting against Majority Vote Proposals if the company has adopted, or has proposed to adopt in the proxy statement, formal corporate governance principles that present a meaningful alternative to the majority voting standard and provide an adequate response to both new nominees as well as incumbent

 

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nominees who fail to receive a majority of votes cast. MFS believes that a company's election policy should address the specific circumstances at that company. In determining whether the issuer has a meaningful alternative to the majority voting standard, MFS considers whether a company's election policy articulates the following elements to address each director nominee who fails to receive an affirmative majority of votes cast in an election:

- Establish guidelines for the process by which the company determines the status of nominees who fail to receive an affirmative majority of votes cast and disclose the guidelines in the annual proxy statement;
- Guidelines should include a reasonable timetable for resolution of the nominee's status and a requirement that the resolution be disclosed together with the reasons for the resolution;
- Vest management of the process in the company's independent directors, other than the nominee in question; and
- Outline the range of remedies that the independent directors may consider concerning the nominee.

Classified Boards MFS opposes proposals to classify a board (e.g., a board in which only one-third of board members are elected each year). MFS supports proposals to declassify a board.

Non-Salary Compensation Programs MFS votes against stock option programs for officers, employees or non-employee directors that do not require an investment by the optionee, that give "free rides" on the stock price, or that permit grants of stock options with an exercise price below fair market value on the date the options are granted.

MFS also opposes stock option programs that allow the board or the compensation committee, without shareholder approval, to reprice underwater options or to automatically replenish shares (i.e., evergreen plans). MFS will consider on a case-by-case basis proposals to exchange existing options for newly issued options (taking into account such factors as whether there is a reasonable value-for-value exchange).

MFS opposes stock option programs and restricted stock plans that provide unduly generous compensation for officers, directors or employees, or could result in excessive dilution to other shareholders. As a general guideline, MFS votes against restricted stock plans, stock option, non-employee director, omnibus stock plans and any other stock plan if all such plans for a particular company involve potential dilution, in the aggregate, of more than 15%. However, MFS will also vote against stock plans that involve potential dilution, in aggregate, of more than 10% at U.S. issuers that are listed in the Standard and Poor's 100 index as of December 31 of the previous year.

Expensing of Stock Options MFS supports shareholder proposals to expense stock options because we believe that the expensing of options presents a more accurate picture of the company's financial results to investors. We also believe that companies are likely to be more disciplined when granting options if the value of stock options were treated as an expense item on the company's income statements.

Executive Compensation MFS believes that competitive compensation packages are necessary to attract, motivate and retain executives. Therefore, MFS opposes shareholder proposals that seek to set restrictions on executive compensation. We believe that the election of an issuer's compensation committee members is the appropriate mechanism to express our view on a company's compensation practices, as outlined above. MFS also opposes shareholder requests for disclosure on executive compensation beyond regulatory requirements because we believe that current regulatory requirements for disclosure of executive compensation are appropriate and that additional disclosure is often unwarranted and costly. Although we support linking executive stock option grants to a company's performance, MFS opposes shareholder proposals that mandate a link of performance-based options to a specific industry or peer group stock index. MFS believes that compensation committees should retain the flexibility to propose the appropriate index or other criteria by which performance-based options should be measured.

MFS supports reasonably crafted shareholder proposals that (i) require the issuer to adopt a policy to recover the portion of performance-based bonuses and awards paid to senior executives that were not earned based upon a significant negative restatement of earnings unless the company already has adopted a clearly satisfactory policy on the matter, or (ii) expressly prohibit any future backdating of stock options.

Employee Stock Purchase Plans MFS supports the use of a broad-based employee stock purchase plans to increase company stock ownership by employees, provided that shares purchased under the plan are acquired for no less than 85% of their market value and do not result in excessive dilution.

 

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"Golden Parachutes" From time to time, shareholders of companies have submitted proxy proposals that would require shareholder approval of severance packages for executive officers that exceed certain predetermined thresholds. MFS votes in favor of such shareholder proposals when they would require shareholder approval of any severance package for an executive officer that exceeds a certain multiple of such officer's annual compensation that is not determined in MFS' judgment to be excessive.

Anti-Takeover Measures In general, MFS votes against any measure that inhibits capital appreciation in a stock, including proposals that protect management from action by shareholders. These types of proposals take many forms, ranging from "poison pills" and "shark repellents" to super-majority requirements. MFS generally votes for proposals to rescind existing "poison pills" and proposals that would require shareholder approval to adopt prospective "poison pills." MFS may consider the adoption of a prospective "poison pill" or the continuation of an existing "poison pill" if we can determine that the following two conditions are met: (1) the "poison pill" allows MFS clients to hold an aggregate position of up to 15% of a company's total voting securities (and of any class of voting securities); and (2) either (a) the "poison pill" has a term of not longer than five years, provided that MFS will consider voting in favor of the "poison pill" if the term does not exceed seven years and the "poison pill" is linked to a business strategy or purpose that MFS believes is likely to result in greater value for shareholders; or (b) the terms of the "poison pill" allow MFS clients the opportunity to accept a fairly structured and attractively priced tender offer (e.g., a "chewable poison pill" that automatically dissolves in the event of an all cash, all shares tender offer at a premium price).MFS will also consider on a case-by-case basis proposals designed to prevent tenders which are disadvantageous to shareholders such as tenders at below market prices and tenders for substantially less than all shares of an issuer.

Reincorporation and Reorganization Proposals When presented with a proposal to reincorporate a company under the laws of a different state, or to effect some other type of corporate reorganization, MFS considers the underlying purpose and ultimate effect of such a proposal in determining whether or not to support such a measure. While MFS generally votes in favor of management proposals that it believes are in the best long-term economic interests of its clients, MFS may oppose such a measure if, for example, the intent or effect would be to create additional inappropriate impediments to possible acquisitions or takeovers.

Issuance of Stock There are many legitimate reasons for the issuance of stock. Nevertheless, as noted above under "Non-Salary Compensation Programs," when a stock option plan (either individually or when aggregated with other plans of the same company) would substantially dilute the existing equity (e.g. by approximately 15% or more), MFS generally votes against the plan. In addition, MFS votes against proposals where management is asking for authorization to issue common or preferred stock with no reason stated (a "blank check") because the unexplained authorization could work as a potential anti-takeover device. MFS may also vote against the authorization or issuance of common or preferred stock if MFS determines that the requested authorization is not warranted.

Repurchase Programs MFS supports proposals to institute share repurchase plans in which all shareholders have the opportunity to participate on an equal basis. Such plans may include a company acquiring its own shares on the open market, or a company making a tender offer to its own shareholders.

Confidential Voting MFS votes in favor of proposals to ensure that shareholder voting results are kept confidential. For example, MFS supports proposals that would prevent management from having access to shareholder voting information that is compiled by an independent proxy tabulation firm.

Cumulative Voting MFS opposes proposals that seek to introduce cumulative voting and for proposals that seek to eliminate cumulative voting. In either case, MFS will consider whether cumulative voting is likely to enhance the interests of MFS' clients as minority shareholders. In our view, shareholders should provide names of qualified candidates to a company's nominating committee, which (for U.S. listed companies) must be comprised solely of "independent" directors.

Written Consent and Special Meetings Because the shareholder right to act by written consent (without calling a formal meeting of shareholders) can be a powerful tool for shareholders, MFS generally opposes proposals that would prevent shareholders from taking action without a formal meeting or would take away a shareholder's right to call a special meeting of company shareholders.

Independent Auditors MFS believes that the appointment of auditors for U.S. issuers is best left to the board of directors of the company and therefore supports the ratification of the board's selection of an auditor for the company. Some shareholder groups have

 

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submitted proposals to limit the non-audit activities of a company's audit firm or prohibit any non-audit services by a company's auditors to that company. MFS opposes proposals recommending the prohibition or limitation of the performance of non-audit services by an auditor, and proposals recommending the removal of a company's auditor due to the performance of non-audit work for the company by its auditor. MFS believes that the board, or its audit committee, should have the discretion to hire the company's auditor for specific pieces of non-audit work in the limited situations permitted under current law.

Other Corporate Governance, Corporate Responsibility and Social Issues There are many groups advocating social change or changes to corporate governance or corporate responsibility standards, and many have chosen the publicly-held corporation as a vehicle for advancing their agenda. Generally, MFS votes with management on such proposals unless MFS can determine that the benefit to shareholders will outweigh any costs or disruptions to the business if the proposal were adopted. Common among the shareholder proposals that MFS generally votes with management are proposals requiring the company to use corporate resources to further a particular social objective outside the business of the company, to refrain from investing or conducting business in certain countries, to adhere to some list of goals or principles (e.g., environmental standards), to include in the issuer's proxy statement an annual advisory shareholder vote as to the company's executive compensation practices during the previous year, to permit shareholders access to the company's proxy statement in connection with the election of directors, to disclose political contributions made by the issuer, to separate the Chairman and Chief Executive Officer positions, or to promulgate special reports on various activities or proposals for which no discernible shareholder economic advantage is evident.

The laws of various states may regulate how the interests of certain clients subject to those laws (e.g., state pension plans) are voted with respect to social issues. Thus, it may be necessary to cast ballots differently for certain clients than MFS might normally do for other clients.

Foreign Issuers Many of the items on foreign proxies involve repetitive, non-controversial matters that are mandated by local law. Accordingly, the items that are generally deemed routine and which do not require the exercise of judgment under these guidelines (and therefore voted in favor) for foreign issuers include the following: (i) receiving financial statements or other reports from the board; (ii) approval of declarations of dividends; (iii) appointment of shareholders to sign board meeting minutes; (iv) discharge of management and supervisory boards; and (v) approval of share repurchase programs.

MFS generally supports the election of a director nominee standing for re-election in uncontested elections unless it can be determined that (1) he or she failed to attend at least 75% of the board and/or relevant committee meetings in the previous year without a valid reason given in the proxy materials; (2) since the last annual meeting of shareholders and without shareholder approval, the board or its compensation committee has re-priced underwater stock options; or (3) since the last annual meeting, the board has either implemented a poison pill without shareholder approval or has not taken responsive action to a majority shareholder approved resolution recommending that the "poison pill" be rescinded. MFS will also withhold its vote for, or vote against, as applicable, a director nominee standing for re-election of an issuer that has adopted an excessive compensation package for its senior executives as described above in the section entitled "Voting Guidelines-MFS' Policy on Specific Issues-Election of Directors."

MFS generally supports the election of auditors, but may determine to vote against the election of a statutory auditor in certain markets if MFS reasonably believes that the statutory auditor is not truly independent. MFS will evaluate all other items on proxies for foreign companies in the context of the guidelines described above, but will generally vote against an item if there is not sufficient information disclosed in order to make an informed voting decision.

In accordance with local law or business practices, many foreign companies prevent the sales of shares that have been voted for a certain period beginning prior to the shareholder meeting and ending on the day following the meeting ("share blocking"). Depending on the country in which a company is domiciled, the blocking period may begin a stated number of days prior to the meeting (e.g., one, three or five days) or on a date established by the company. While practices vary, in many countries the block period can be continued for a longer period if the shareholder meeting is adjourned and postponed to a later date. Similarly, practices vary widely as to the ability of a shareholder to have the "block" restriction lifted early (e.g., in some countries shares generally can be "unblocked" up to two days prior to the meeting whereas in other countries the removal of the block appears to be discretionary with the issuer's transfer agent). Due to these restrictions, MFS must balance the benefits to its clients of voting proxies against the potentially serious portfolio management consequences of a reduced flexibility to sell the underlying shares at the most advantageous time. For companies in countries with share blocking periods, the disadvantage of being unable to sell the stock regardless of changing conditions generally outweighs the advantages of voting at the shareholder meeting for routine items. Accordingly, MFS will not vote those proxies in the absence of an unusual, significant vote.

In limited circumstances, other market specific impediments to voting shares may limit our ability to cast votes, including, but not

 

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limited to, power of attorney requirements and late delivery of proxy materials. In these limited instances, MFS votes non-U.S. securities on a best efforts basis in the context of the guidelines described above.

B. ADMINISTRATIVE PROCEDURES 1. MFS Proxy Voting Committee The administration of these MFS Proxy Voting Policies and Procedures is overseen by the MFS Proxy Voting Committee, which includes senior personnel from the MFS Legal and Global Investment Support Departments. The Proxy Voting Committee does not include individuals whose primary duties relate to client relationship management, marketing, or sales. The MFS Proxy Voting Committee: a. Reviews these MFS Proxy Voting Policies and Procedures at least annually and recommends any amendments considered to be necessary or advisable; b. Determines whether any potential material conflict of interest exist with respect to instances in which MFS (i) seeks to override these MFS Proxy Voting Policies and Procedures; (ii) votes on ballot items not governed by these MFS Proxy Voting Policies and Procedures; (iii) evaluates an excessive executive compensation issue in relation to the election of directors; or (iv) requests a vote recommendation from an MFS portfolio manager or investment analyst (e.g. mergers and acquisitions); and c. Considers special proxy issues as they may arise from time to time.

2. Potential Conflicts of Interest The MFS Proxy Voting Committee is responsible for monitoring potential material conflicts of interest on the part of MFS or its subsidiaries that could arise in connection with the voting of proxies on behalf of MFS' clients. Due to the client focus of our investment management business, we believe that the potential for actual material conflict of interest issues is small. Nonetheless, we have developed precautions to ensure that all proxy votes are cast in the best long-term economic interest of shareholders. Other MFS internal policies require all MFS employees to avoid actual and potential conflicts of interests between personal activities and MFS' client activities. If an employee identifies an actual or potential conflict of interest with respect to any voting decision that employee must recuse himself/herself from participating in the voting process. Additionally, with respect to decisions concerning all Non Standard Votes, as defined below, MFS will review the securities holdings reported by the individuals that participate in such decision to determine whether such person has a direct economic interest in the decision, in which case such person shall not further participate in making the decision. Any significant attempt by an employee of MFS or its subsidiaries to influence MFS' voting on a particular proxy matter should also be reported to the MFS Proxy Voting Committee.

In cases where proxies are voted in accordance with these MFS Proxy Voting Policies and Procedures, no material conflict of interest will be deemed to exist. In cases where (i) MFS is considering overriding these MFS Proxy Voting Policies and Procedures, (ii) matters presented for vote are not clearly governed by these MFS Proxy Voting Policies and Procedures, (iii) MFS evaluates an excessive executive compensation issue in relation to the election of directors, or (iv) a vote recommendation is requested from an MFS portfolio manager or investment analyst (e.g. mergers and acquisitions) (collectively, "Non Standard Votes"); the MFS Proxy Voting Committee will follow these procedures:
a. Compare the name of the issuer of such proxy against a list of significant current (i) distributors of MFS Fund shares, and (ii) MFS institutional clients (the "MFS Significant Client List");
b. If the name of the issuer does not appear on the MFS Significant Client List, then no material conflict of interest will be deemed to exist, and the proxy will be voted as otherwise determined by the MFS Proxy Voting Committee;
c. If the name of the issuer appears on the MFS Significant Client List, then the MFS Proxy Voting Committee will be apprised of that fact and each member of the MFS Proxy Voting Committee will carefully evaluate the proposed vote in order to ensure that the proxy ultimately is voted in what MFS believes to be the best long-term economic interests of MFS' clients, and not in MFS' corporate interests; and
d. For all potential material conflicts of interest identified under clause (c) above, the MFS Proxy Voting Committee will document: the name of the issuer, the issuer's relationship to MFS, the analysis of the matters submitted for proxy vote, the votes as to be cast and the reasons why the MFS Proxy Voting Committee determined that the votes were cast in the best long-term economic interests of MFS' clients, and not in MFS' corporate interests. A copy of the foregoing documentation will be provided to MFS' Conflicts Officer.

The members of the MFS Proxy Voting Committee are responsible for creating and maintaining the MFS Significant Client List, in consultation with MFS' distribution and institutional business units. The MFS Significant Client List will be reviewed and updated periodically, as appropriate.

From time to time, certain MFS Funds may own shares of other MFS Funds (the "underlying fund"). If an underlying fund submits a matter to a shareholder vote, the MFS Fund that owns shares of the underlying fund will vote its shares in the same proportion as the other shareholders of the underlying fund.

3. Gathering Proxies Most proxies received by MFS and its clients originate at Automatic Data Processing Corp. ("ADP") although a few proxies are transmitted to investors by corporate issuers through their custodians or depositories. ADP and issuers send proxies and related

 

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material directly to the record holders of the shares beneficially owned by MFS' clients, usually to the client's custodian or, less commonly, to the client itself. This material will include proxy cards, reflecting the shareholdings of Funds and of clients on the record dates for such shareholder meetings, as well as proxy statements with the issuer's explanation of the items to be voted upon.

MFS, on behalf of itself and the Funds, has entered into an agreement with an independent proxy administration firm, Institutional Shareholder Services, Inc. (the "Proxy Administrator"), pursuant to which the Proxy Administrator performs various proxy vote related administrative services, such as vote processing and recordkeeping functions for MFS' Funds and institutional client accounts. The Proxy Administrator receives proxy statements and proxy cards directly or indirectly from various custodians, logs these materials into its database and matches upcoming meetings with MFS Fund and client portfolio holdings, which are input into the Proxy Administrator's system by an MFS holdings datafeed. Through the use of the Proxy Administrator system, ballots and proxy material summaries for all upcoming shareholders' meetings are available on-line to certain MFS employees and the MFS Proxy Voting Committee.

4. Analyzing Proxies
Proxies are voted in accordance with these MFS Proxy Voting Policies and Procedures. The Proxy Administrator at the prior direction of MFS automatically votes all proxy matters that do not require the particular exercise of discretion or judgment with respect to these MFS Proxy Voting Policies and Procedures as determined by the MFS Proxy Voting Committee. With respect to proxy matters that require the particular exercise of discretion or judgment, MFS considers and votes on those proxy matters. MFS receives research from ISS which it may take into account in deciding how to vote. In addition, MFS expects to rely on ISS to identify circumstances in which a board may have approved excessive executive compensation. Representatives of the MFS Proxy Voting Committee review, as appropriate, votes cast to ensure conformity with these MFS Proxy Voting Policies and Procedures.

As a general matter, portfolio managers and investment analysts have little or no involvement in specific votes taken by MFS. This is designed to promote consistency in the application of MFS' voting guidelines, to promote consistency in voting on the same or similar issues (for the same or for multiple issuers) across all client accounts, and to minimize the potential that proxy solicitors, issuers, or third parties might attempt to exert inappropriate influence on the vote. In limited types of votes (e.g., corporate actions, such as mergers and acquisitions), a representative of MFS Proxy Voting Committee may consult with or seek recommendations from MFS portfolio managers or investment analysts.[1] However, the MFS Proxy Voting Committee would ultimately determine the manner in which all proxies are voted.

As noted above, MFS reserves the right to override the guidelines when such an override is, in MFS' best judgment, consistent with the overall principle of voting proxies in the best long-term economic interests of MFS' clients. Any such override of the guidelines shall be analyzed, documented and reported in accordance with the procedures set forth in these policies.

5. Voting Proxies In accordance with its contract with MFS, the Proxy Administrator also generates a variety of reports for the MFS Proxy Voting Committee, and makes available on-line various other types of information so that the MFS Proxy Voting Committee may review and monitor the votes cast by the Proxy Administrator on behalf of MFS' clients.

C. MONITORING SYSTEM It is the responsibility of the Proxy Administrator and MFS' Proxy Voting Committee to monitor the proxy voting process. When proxy materials for clients are received, they are forwarded to the Proxy Administrator and are input into the Proxy Administrator's system. Through an interface with the portfolio holdings database of MFS, the Proxy Administrator matches a list of all MFS Funds and clients who hold shares of a company's stock and the number of shares held on the record date with the Proxy Administrator's listing of any upcoming shareholder's meeting of that company.

When the Proxy Administrator's system "tickler" shows that the voting cut-off date of a shareholders' meeting is approaching, a Proxy Administrator representative checks that the vote for MFS Funds and clients holding that security has been recorded in the computer system. If a proxy card has not been received from the client's custodian, the Proxy Administrator calls the custodian requesting that the materials be forwarded immediately. If it is not possible to receive the proxy card from the custodian in time to be voted at the meeting, MFS may instruct the custodian to cast the vote in the manner specified and to mail the proxy directly to the issuer.

D. RECORDS RETENTION MFS will retain copies of these MFS Proxy Voting Policies and Procedures in effect from time to time and will retain all proxy voting reports submitted to the Board of Trustees, Board of Directors and Board of Managers of the MFS Funds for the period required by applicable law. Proxy solicitation materials, including electronic versions of the proxy cards completed by representatives of the MFS Proxy Voting Committee, together with their respective notes and comments, are maintained in an electronic format by the Proxy Administrator and are accessible on-line by the MFS Proxy Voting Committee. All proxy voting materials and supporting

 

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documentation, including records generated by the Proxy Administrator's system as to proxies processed, including the dates when proxy ballots were received and submitted, and the votes on each company's proxy issues, are retained as required by applicable law.

E. REPORTS MFS Funds
MFS publicly discloses the proxy voting records of the MFS Funds on an annual basis, as required by law. MFS will also report the results of its voting to the Board of Trustees, Board of Directors and Board of Managers of the MFS Funds. These reports will include: (i) a summary of how votes were cast; (ii) a summary of votes against management's recommendation; (iii) a review of situations where MFS did not vote in accordance with the guidelines and the rationale therefore; (iv) a review of the procedures used by MFS to identify material conflicts of interest and any matters identified as a material conflict of interest; and (v) a review of these policies and the guidelines and, as necessary or appropriate, any proposed modifications thereto to reflect new developments in corporate governance and other issues. Based on these reviews, the Trustees, Directors and Managers of the MFS Funds will consider possible modifications to these policies to the extent necessary or advisable.

All MFS Advisory Clients At any time, a report can be printed by MFS for each client who has requested that MFS furnish a record of votes cast. The report specifies the proxy issues which have been voted for the client during the year and the position taken with respect to each issue.

Except as described above, MFS generally will not divulge actual voting practices to any party other than the client or its representatives (unless required by applicable law) because we consider that information to be confidential and proprietary to the client.

NFJ Investment Group LP

General Policy
NFJ Investment Group L.P. ("NFJ") votes proxies as part of its authority to manage, acquire, and dispose of account assets, unless the client has explicitly reserved the authority for itself. This policy is designed and implemented in a manner reasonably expected to ensure that voting rights are exercised in the best interest of NFJ's clients and in compliance with Rule 206(4)-6 of the Investment Advisers Act of 1940, other applicable rules of the Securities and Exchange Commission and NFJ's fiduciary obligations. When voting proxies, NFJ's primary objective is to make voting decisions solely in the best interests of its clients by voting proxies in a manner intended to enhance the economic value of the underlying portfolio securities held in its clients' accounts.

This policy sets forth the general standards for proxy voting whereby NFJ has authority to vote its client's proxies with respect to portfolio securities held in the accounts of its clients for whom it provides discretionary investment management services. These include:

Exercising responsibility for voting decisions; Resolving conflicts of interest; Making appropriate disclosures to clients; Creating and maintaining appropriate records; Providing clients access to voting records; and Outsourcing the proxy voting administrative process.

Responsibility for Voting Decisions
Exercise of shareholder voting rights is an investment decision. Accordingly, it is the responsibility of NFJ's senior management to ensure that voting decisions are organized and conducted in accordance with portfolio objectives and any applicable legal requirements. In order to ensure that this obligation is carried out, the senior management of NFJ has designated a committee to be responsible for all aspects of the exercise of shareholder rights (the "Proxy Committee"). The Proxy Committee is comprised of NFJ professionals as provided for in the charter of the Proxy Committee. The Proxy Committee shall have the responsibility for oversight of the proxy voting process for all NFJ clients, except for clients who have retained the right to vote their own proxies, either generally or on any specific matter. To the extent a client instructs NFJ to direct voting on a particular issue, the Proxy Committee shall evaluate such request on a case-by-case basis.

The Proxy Committee
The Proxy Committee shall be governed by this policy and will perform the following duties:

Establish NFJ's proxy voting guidelines, with such advice, participation and research as the Proxy Committee deems appropriate from the investment professionals, proxy voting services or other knowledgeable interested parties. To the extent the proxy guidelines do not cover potential proxy voting issues, discuss and determine the process for determining how to vote such issues. Develop a process for the resolution of voting issues that require a case-by-case analysis or involve a conflict of interest (including the involvement of the appropriate investment professionals as necessary) and monitor such process. Vote or engage a third party service provider to vote proxies in accordance with NFJ's guidelines. Document, in the form of a report, the resolution of any conflicts of interest between NFJ and its clients, and provide or make available, adequate documentation to support that conflicts were resolved in a fair, equitable and consistent manner that is in th interest of clients. Approve and monitor the outsourcing of voting obligations to third-parties. Oversee the maintenance of records regarding voting decisions in accordance with the standards set forth by this policy.

The Proxy Committee shall review, at least annually, all applicable processes and procedures, voting practices, the adequacy of records and the use of third party services.

Obligation to Vote
When an investment management or client relationship is established, the obligation of NFJ to vote may be inherent in the relationship or, in some cases, implied as a matter of law. In some situations, the client may prefer to vote (or direct the voting) for portfolio securities. To the extent a client wishes to retain voting authority, the client specifically must do so in writing.

Voting Proxies
Written Proxy Voting Guidelines
NFJ shall establish general voting guidelines for recurring proposals ("Voting Guidelines"). The Voting Guidelines should address routine as well as significant matters commonly encountered. The Voting Guidelines should permit voting decisions to be made flexibly while taking into account all relevant facts and circumstances. The Proxy Committee or its delegate (typically, an investment professional on the Proxy Committee) shall review the Voting Guidelines periodically. In addition, the Proxy Committee or its delegate (typically, an investment professional on the applicable strategy team) may make the determination regarding how to vote a proxy on a case-by-case basis.

Abstention from Voting Proxies
NFJ may abstain or refrain from voting a client proxy on behalf of its clients' accounts under certain circumstances. These include:

When the economic effect on shareholder's interests or the value of the portfolio holding is indeterminable or insignificant; When voting the proxy would unduly impair the investment management process; When the cost of voting the proxies outweighs the benefits or is otherwise impractical; When the issuer whose management is soliciting the proxy (or other proponent of the proxy) is an affiliate of NFJ.

Logistical Considerations
NFJ may refrain from voting a proxy due to logistical or other considerations that may have a detrimental effect on NFJ's ability to vote such a proxy. These issues may include, but are not limited to: (1) proxy statements and ballots being written in a foreign language, (2) untimely notice of a shareholder meeting, (3) requirements to vote proxies in person, (4) restrictions on foreigner's ability to exercise votes, (5) restrictions on the sale of securities for a period of time in proximity to the shareholder meeting (e.g. share blocking) or (6) requirements to provide local agents with power of attorney to facilitate the voting instructions. Such proxies are voted on a best-efforts basis.

Securities on Loan
Registered investment companies that are advised or sub-advised by NFJ as well as certain other advisory clients may participate in securities lending programs. Under most securities lending arrangements, securities on loan may not be voted by the lender unless the loan is recalled prior to the record date for the vote. NFJ believes that each client has the right to determine whether participating in a securities lending program enhances returns, to contract with the securities lending agent of its choice and to structure a securities lending program through its lending agent that balances any tension between loaning and voting securities in a manner that satisfies such client. NFJ will request that clients notify NFJ in writing if the client has decided to participate in a securities lending program. If a client has decided to participate in a securities lending program, NFJ will defer to the client's determination and not attempt to seek recalls solely for the purpose of voting routine proxies as this could impact the returns received from securities lending and make the client a less desirable lender in a marketplace. If the client who participates in a securities lending program

 

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requests, NFJ will use reasonable efforts to request the client recall the loaned securities for voting if NFJ has knowledge that the proxy involves a Material Event (as defined below) effecting the loaned securities. Material Event for purposes of determining whether a recall of a security is warranted, means a proxy that relates to a merger, acquisition, spin-off or other similar corporate action. The Proxy Committee will review the standard for determination of a Material Event from time to time and will adjust the standard as it deems necessary. NFJ may utilize third-party service providers, in its sole discretion, to assist it in identifying and evaluating whether an event constitutes a Material Event. The ability to timely recall shares for proxy voting purposes is not within the control of NFJ and requires the cooperation of the client and its other service providers. Under certain circumstances, the recall of shares in time to be voted may not be possible due to applicable proxy voting record dates, the timing of receipt of information and administrative considerations. Accordingly, efforts to recall loaned securities are not always effective and there can be no guarantee that any such securities can be retrieved in a timely manner for purposes of voting the securities.

Resolving Conflicts of Interest
NFJ may have conflicts that can affect how it votes its clients' proxies. For example, NFJ may advise a pension plan whose management is sponsoring a proxy proposal. NFJ's clients that exercise voting rights themselves may also have conflicting views with NFJ on the appropriate manner of exercising shareholder voting rights in general or in specific circumstances. Regardless, votes shall only be cast in the best economic interests of clients in a manner intended to enhance the economic value of the underlying portfolio securities. NFJ shall not vote shares held in one client's account in a manner designed to benefit or accommodate any other client. The Proxy Committee is responsible for addressing how NFJ resolves material conflicts of interest with its clients.

Making Appropriate Disclosures to Clients
NFJ shall provide clients with a summary of this policy in the form of a general Proxy Voting Policy Statement. The delivery of this statement can be made in Part II of Form ADV or under separate cover.

Creating and Maintaining Appropriate Records
Recordkeeping Requirements
In keeping with applicable law, NFJ will keep the following records:

Copies of NFJ's Proxy Voting Policy and Procedures; Copies or records of each proxy statement received with respect to clients' securities for which NFJ exercises voting authority; records of votes cast on behalf of clients; Records of each vote cast as well as certain records pertaining to NFJ's decision on the vote; Records of written client requests for proxy voting information; and Records of written responses from NFJ to either written or oral client request regarding proxy voting.

Retention of Records
Records are kept for at least six years following the date that the vote was cast. NFJ may maintain the records electronically. Third-party service providers may be used to maintain proxy statements and proxy votes.

Providing Clients Access to Voting Records
Access by Clients
Generally, clients of NFJ have the right, and shall be afforded the opportunity, to have access to records of voting actions taken with respect to securities held in their respective account or strategy.

Shareholders and unit-holders of commingled funds advised or sub-advised by NFJ shall have such access to voting records pursuant to the governing documents of the commingled fund.

Access by Third Parties
Voting actions are confidential and may not be disclosed to any third party except as may be required by law or explicitly authorized by the client.

Outsourcing the Proxy Voting Process
To assist in the proxy voting process, NFJ may retain an independent third party service provider to assist in providing in-depth research, analysis and voting recommendations on corporate governance issues and corporate actions as well as assist in the administrative process. The services provided to NFJ may offer a variety of fiduciary-level, proxy-related services to assist in its handling of proxy voting responsibilities and corporate governance-related efforts.

 

105

Pacific Investment Management Company LLC DESCRIPTION OF PROXY VOTING POLICIES AND PROCEDURES

Pacific Investment Management Company LLC ("PIMCO") has adopted written proxy voting policies and procedures ("Proxy Policy") as required by Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. PIMCO has implemented the Proxy Policy for each of its clients as required under applicable law, unless expressly directed by a client in writing to refrain from voting that client's proxies. Recognizing that proxy voting is a rare event in the realm of fixed income investing and is typically limited to solicitation of consent to changes in features of debt securities, the Proxy Policy also applies to any voting rights and/or consent rights of PIMCO, on behalf of its clients, with respect to debt securities, including but not limited to, plans of reorganization, and waivers and consents under applicable indentures.

The Proxy Policy is designed and implemented in a manner reasonably expected to ensure that voting and consent rights are exercised in the best interests of PIMCO's clients. Each proxy is voted on a case-by-case basis taking into consideration any relevant contractual obligations as well as other relevant facts and circumstances at the time of the vote. In general, PIMCO reviews and considers corporate governance issues related to proxy matters and generally supports proposals that foster good corporate governance practices.

PIMCO may vote proxies as recommended by management on routine matters related to the operation of the issuer and on matters not expected to have a significant economic impact on the issuer and/or its shareholders. PIMCO will supervise and periodically review its proxy voting activities and implementation of the Proxy Policy. PIMCO will review each proxy to determine whether there may be a material conflict between PIMCO and its client. If no conflict exists, the proxy will be forwarded to the appropriate portfolio manager for consideration. If a conflict does exist, PIMCO will seek to resolve any such conflict in accordance with the Proxy Policy. PIMCO seeks to resolve any material conflicts of interest by voting in good faith in the best interest of its clients. If a material conflict of interest should arise, PIMCO will seek to resolve such conflict in the client's best interest by pursuing any one of the following courses of action: (i) convening a committee to assess and resolve the conflict; (ii) voting in accordance with the instructions of the client; (iii) voting in accordance with the recommendation of an independent third-party service provider; (iv) suggesting that the client engage another party to determine how the proxy should be voted; (v) delegating the vote to a third-party service provider; or (vi) voting in accordance with the factors discussed in the Proxy Policy.

Clients may obtain a copy of PIMCO's written Proxy Policy and the factors that PIMCO may consider in determining how to vote a client's proxy. Except as required by law, PIMCO will not disclose to third parties how it voted on behalf of a client. However, upon request from an appropriately authorized individual, PIMCO will disclose to its clients or the entity delegating the voting authority to PIMCO for such clients, how PIMCO voted such client's proxy. In addition, a client may obtain copies of PIMCO's Proxy Policy and information as to how its proxies have been voted by contacting PIMCO.

Thornburg Investment Management, Inc.

Thornburg Investment Management, through a third-party voting service, votes shares owned by clients according to the proxy voting guidelines provided by the third-party voting service. Currently, Thornburg Investment Management contracts with Institutional Shareholder Services, Inc., a wholly owned subsidiary of RiskMetrics Group, Inc. (RGM), to act as the third-party voting service.

The proxy voting procedures are as follows:
- Custodians, distribution agents and any other parties that would traditionally send proxy materials to Thornburg Investment Management are instructed to forward all proxy materials to RMG for review.
- After an analysis of the topics, RMG then forwards their recommendations to Thornburg Investment Management for review.
- Once Thornburg Investment Management has reviewed the recommendations provided by RMG a determination will be made to either override the recommendation or agree to vote as advised.
- Generally Thornburg Investment Management will vote with the recommendation made by RMG. Exceptions may exist when the vote concerns issues that are unique or non-routine.

Thornburg Investment Management will generally abstain from voting on all social issues.

Vaughan Nelson Investment Management, L.P. Vaughan Nelson undertakes to vote all client proxies in a manner reasonably expected to ensure the client's best interest is upheld and in a manner that does not subrogate the client's best interest to that of the firm's in instances where a material conflict exists.

 

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Approach Vaughan Nelson has created a Proxy Voting Guideline ("Guideline") believed to be in the best interest of clients relating to common and recurring issues found within proxy voting material. The Guideline is the work product of Vaughan Nelson's Investment Committee and it considers the nature of it's business, the types of securities being managed and other sources of information including, but not limited to, research provided by an independent research firm (RiskMetrics Group, Inc., formerly Institutional Shareholder Services, Inc.), internal research, published information on corporate governance and experience. The Guideline helps to ensure voting consistency on issues common amongst issuers and to serve as evidence that a vote was not the product of a conflict of interest but rather a vote in accordance with a pre-determined policy. However, in many recurring and common proxy issues a "blanket voting approach" cannot be applied. In these instances the Guideline indicates that such issues will be addressed on a case-by-case basis in consultation with a portfolio manager to determine how to vote the issue in the client's best interest.

Vaughan Nelson, in executing their duty to vote proxies, may encounter a material conflict of interest. Vaughan Nelson does not envision a large number of situations where a conflict of interest would exist, if any, given the nature of Vaughan Nelson's business, client base, relationships, the types of securities managed and the fact Vaughan Nelson is not affiliated with an investment banking or similar firm. Notwithstanding, if a conflict of interest arises we will undertake to vote the proxy or proxy issue in the client's continued best interest. This will be accomplished by either casting the vote in accordance with the Guideline, if the application of such policy to the issue at hand involves little discretion on Vaughan Nelson's part, or casting the vote as indicated by the independent third-party research firm, RiskMetrics Group, Inc.("RMG").

Finally, there may be circumstances or situations that may preclude or limit the manner in which a proxy is voted. These may include: 1) Mutual funds – whereby voting may be controlled by restrictions within the fund or the actions of authorized persons, 2) International Securities – whereby the perceived benefit of voting an international proxy does not outweigh the anticipated costs of doing so, 3) New Accounts – instances where security holdings assumed will be sold in the near term thereby limiting any benefit to be obtained by a vote of proxy material, 4) Unsupervised Securities – where the firm does not have a basis on which to offer advice.

In summary, Vaughan Nelson's goal is to vote proxy material in a manner that is believed to assist in maximizing the value of a portfolio.

Vaughan Nelson's procedures in practice involve forwarding a listing of client holdings to RMG each day in order to assist with identifying upcoming proxy votes. Vaughan Nelson arranges for the custodians associated with each client to forward all client proxy forms to RMG. Once a "proxy analysis" is received from RMG the individual issues are matched to the Vaughan Nelson Proxy Voting Guideline. Areas not covered by the Guideline (such as votes on mergers/acquisitions) are routed to the portfolio manager for vote indications. Completed proxy analyses are voted electronically through an interface with RMG who then completes the actual proxy vote on Vaughan Nelson's behalf. All analyses with vote indications are retained. Reports concerning votes made on behalf of an account are accessible through RMG.

Wellington Management Company, LLP

The Funds/Portfolios for which Wellington Management serves as sub-adviser have granted to Wellington Management the authority to vote proxies on their behalf with respect to the assets managed by Wellington Management. Wellington Management votes proxies in what it believes are the best economic interests of its clients and in accordance with its Global Proxy Policies and Procedures. Wellington Management's Corporate Governance Committee is responsible for the review and oversight of the firm's Global Proxy Policies and Procedures. The Corporate Governance Group within Wellington Management's Corporate Operations Department is responsible for the day-to-day administration of the proxy voting process. Although Wellington Management may utilize the services of various external resources in analyzing proxy issues and has established its own Global Proxy Voting Guidelines setting forth general guidelines for voting proxies, Wellington Management personnel analyze all proxies and vote proxies based on their assessment of the merits of each proposal. Each Fund's/ Portfolio's portfolio manager has the authority to determine the final vote for securities held in the Fund/Portfolio, unless the portfolio manager is determined to have a material conflict of interest related to that proxy vote.

Wellington Management maintains procedures designed to identify and address material conflicts of interest in voting proxies. Its Corporate Governance Committee sets standards for identifying material conflicts based on client, vendor and lender relationships. Proxy votes for which Wellington Management identifies a material conflict are reviewed by designated members of its Corporate Governance Committee or by the entire committee in some cases to resolve the conflict and direct the vote.

Wellington Management may be unable to vote or may determine not to vote a proxy on behalf of a Fund/Portfolio due to securities lending, share blocking and re-registration requirements, lack of adequate information, untimely receipt of proxy materials, immaterial impact of the vote, and/or excessive costs.

 

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PART C

OTHER INFORMATION

 

Item 23. Exhibits.

 

(a) Amended and Restated Declaration of Trust dated May 23, 2000. Incorporated by reference to post-effective amendment no. 14 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 30, 2002 (File No. 33-50476).

 

(b) Amended and Restated By-Laws dated November 16, 2004. Incorporated by reference to post-effective amendment no. 18 to Registrant’s registration statement on Form N-1A filed via EDGAR on December 23, 2004 (File No. 33-50476).

 

(c) In response to this item, Registrant incorporates by reference the following provisions of its Agreement and Declaration of Trust and By-Laws, filed herewith as Exhibit (a)(3) and (b), respectively, defining the rights of Registrant’s shareholders: Articles III and V of the Agreement and Declaration of Trust and Article III of the By-Laws.

 

(d)(1)(i) Management Agreement between Registrant and Prudential Investments LLC (formerly known as Prudential Mutual Fund Management, Inc. and Prudential Investments Fund Management LLC)(PI) dated November 9, 1992. Incorporated by reference to post-effective amendment no. 7 to Registrant’s registration statement on Form N-1A filed via EDGAR on March 11, 1997 (File No. 33-50476).

 

(ii) Amendment to Management Agreement dated November 9, 1992. Incorporated by reference to post-effective amendment no. 7 to Registrant’s registration statement on Form N-1A filed via EDGAR on March 11, 1997 (File No. 33-50476).

 

(iii) Amendment dated April 1, 1994 to Management Agreement dated November 9, 1992. Incorporated by reference to post-effective amendment no. 14 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 30, 2002 (File No. 33-50476).

 

2(i) Subadvisory Agreement between PI and Eaton Vance Management with respect to the Large Capitalization Value Portfolio. Filed herewith.

 

(ii) Subadvisory Agreement between PI and Wellington Management Company (Wellington) with respect to the Mortgage-Backed Securities Portfolio and the U.S. Government Money Market Portfolio. Incorporated by reference to post-effective amendment no. 7 to Registrant’s registration statement on Form N-1A filed via EDGAR on March 11, 1997 (File No. 33-50476).

 

(iii) Subadvisory Agreement between PI and Pacific Investment Management Company (PIMCO) with respect to the Intermediate-Term Bond Portfolio and the Total Return Bond Portfolio. Incorporated by reference to corresponding Exhibit to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(iv) Subadvisory Agreement between PI and PIMCO with respect to the International Bond Portfolio. Incorporated by reference to post-effective amendment no. 18 to Registrant’s registration statement on Form N-1A filed via EDGAR on December 23, 2004 (File No. 33-50476).

 

(v) Subadvisory Agreement between PI and Hotchkis and Wiley Capital Management LLC (Hotchkis and Wiley) with respect to the Large Capitalization Value Portfolio. Incorporated by reference to post-effective amendment no. 8 to Registrant’s registration statement on Form N-1A filed via EDGAR on September 30, 2002 (File No. 33-50476).

 

(vi) Subadvisory Agreement between PI and EARNEST Partners, LLC (EARNEST Partners) with respect to the Small Capitalization Value Portfolio. Incorporated by reference to post-effective amendment no. 14 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 30, 2002 (File No. 33-50476).

 

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(vii) Subadvisory Agreement between PI and Eagle Asset Management with respect to the Small Capitalization Growth Portfolio. Filed herewith

 

(viii) Subadvisory Agreement between PI and Ashfield Capital Partners LLC with respect to the Small Capitalization Growth Portfolio. Filed herewith.

 

(ix) Subadvisory Agreement between PI and Goldman Sachs Asset Management with respect to the Small Capitalization Growth Portfolio. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(x) Subadvisory Agreement between PI and NJF with respect to the Small Capitalization Value Portfolio. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(xi) Subadvisory Agreement between PI and LSV Asset Management with respect to the International Equity Portfolio. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(xii) Subadvisory Agreement between PI and Thornburg Investment Management, Inc. with respect to the International Equity Portfolio. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(xiii) Subadvisory Agreement between PI and Lee Munder Investments, Ltd. with respect to the Small Capitalization Value Portfolio. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(xiv) Subadvisory Agreement between PI and Vaughan Nelson Asset Management, L.P. with respect to the Small Capitalization Value Portfolio. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(xv) Subadvisory Agreement between PI and J.P. Morgan Investment Management Inc. with respect to the Small Capitalization Value Portfolio. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(xvi) Subadvisory Agreement between PI and Marsico Capital Management, LLC (Marsico) with respect to the Large Capitalization Growth Portfolio. Incorporated by reference to post-effective amendment no. 26 to Registrant’s registration statement on Form N-1A filed via EDGAR on December 31, 2007 (File No. 33-50476).

 

(xvii) Subadvisory Agreement between PI and Massachusetts Financial Services Company with respect to the Large Capitalization Growth Portfolio. Filed herewith.

 

(e)(1) Amended and Restated Distribution Agreement between Registrant and Prudential Investment Management Services LLC (PIMS). Incorporated by reference to post-effective amendment no. 22 to Registrant’s registration statement on Form N-1A filed via EDGAR on June 9, 2006 (File No. 33-50476).

 

(2) Form of Selected Dealer Agreement. Incorporated by reference to post-effective amendment no. 9 to Registrant’s registration statement on Form N-1A filed via EDGAR on March 2, 1999 (File No. 33-50476).

 

(f) Not Applicable.

 

(g)(1) Custodian Agreement dated July 1, 2005 between the Registrant and PFPC Trust Company. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(2) Accounting Services Agreement dated July 1, 2005 between the Registrant and PFPC Inc. Incorporated by

 

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reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(h) (1) Amended and Restated Transfer Agency and Service Agreement between the Registrant and Prudential Mutual Fund Services, Inc., dated May 29, 2007. Incorporated by reference to the Dryden Municipal Bond Fund Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A filed via EDGAR on June 29, 2007 (File No. 33-10649).

 

(2) Amendment dated December 27, 2007 to Amended and Restated Transfer Agency and Service Agreement dated May 29, 2007. Incorporated by reference to the JennisonDryden Portfolios Post - Effective Amendment No. 37 to the Registration statement of on Form N1-A as filed with the Commission on December 21, 2007 (File No. 33-9269).

 

(3)     Amendment dated September 2, 2008 to Amended and Restated Transfer Agency and Service Agreement dated May 29, 2007. Incorporated by reference to the Target Portfolio Trust Post-Effective Amendment No. 27 to the Registration Statement of on Form N1-A as filed with the ommission on December 29, 2008 (File No. 33-50476).

 

(i)(1) Opinion of Morris, Nichols, Arsht & Tunnell. Incorporated by reference to post-effective amendment no. 14 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 30, 2002 (File No. 33-50476)

 

(i)(2) Opinion and Consent of Morris, Nichols, Arsht & Tunnell LLP relating to the Class R Shares of the Trust. Incorporated by reference to post-effective amendment no. 24 to Registrant’s registration statement on Form N-1A filed via EDGAR on August 28, 2006 (File No. 33-50476).

 

(j) Consent of independent registered public accounting firm. Filed herewith.

 

(k) Not Applicable.

 

(l) Not Applicable.

 

(m)(1) Form of Distribution and Service Plan for Class R Shares. Incorporated by reference to post-effective amendment no. 22 to Registrant’s registration statement on Form N-1A filed via EDGAR on June 9, 2006 (File No. 33-50476).

 

(m)(2) Rule 12b-1 Fee Waiver for Class R Shares. Filed herewith.

 

(n) Form of Rule 18f-3 Plan. Incorporated by reference to post-effective amendment no. 22 to Registrant’s registration statement on Form N-1A filed via EDGAR on June 9, 2006 (File No. 33-50476).

 

(o) Not applicable.

 

(p)(1) Code of Ethics of the Registrant dated January 14, 2008, incorporated by reference to Jennison Natural Resources Fund, Inc. Post-Effective Amendment No. 33 to the Registration Statement on Form N-1A (33-15166) filed via EDGAR on July 31, 2008.

 

(2) Code of Ethics and Personal Securities Trading Policy of Prudential, including the Manager and Distributor, dated January 14, 2008, incorporated by reference to Jennison Natural Resources Fund, Inc. Post-Effective Amendment No. 33 to the Registration Statement on Form N-1A (33-15166) filed via EDGAR on July 31, 2008.

 

(3) Code of Ethics of J.P. Morgan. Incorporated by reference to corresponding Exhibit to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(4) Code of Ethics of Wellington Management Company dated January 1, 2007. Incorporated by reference to corresponding Exhibit to post-effective amendment no. 25 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 27, 2007 (File No. 33-50476). (5) Code of Ethics of PIMCO. Incorporated by reference to corresponding Exhibit to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

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(6) Code of Ethics of Hotchkis and Wiley. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(7) Code of Ethics of EARNEST Partners. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(8) Code of Ethics of Ashfield Capital Partners, LLC. Filed herewith.

 

(9) Code of Ethics of Eagle Asset Management, Inc. Filed herewith.

 

(10) Code of Ethics of Goldman Sachs Asset Management. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(11) Code of Ethics of NFJ. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(12) Code of Ethics of LSV Asset Management. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(13) Code of Ethics of Thornburg Investment Management, Inc. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(14) Code of Ethics of Lee Munder Investments, Ltd. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(15) Code of Ethics of Vaughan Nelson Investment Management, L.P. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(16) Code of Ethics of Marsico Capital Management, LLC. Incorporated by reference to post-effective amendment no. 21 to Registrant’s registration statement on Form N-1A filed via EDGAR on April 28, 2006 (File No. 33-50476).

 

(17) Code of Ethics of Eaton Vance Management. Filed herewith.

 

(18) Code of Ethics of Massachusetts Financial Services Company. Filed herewith.

 

(q) Power of Attorney dated July 1, 2008. Incorporated by reference to Jennison Natural Resources Fund, Inc. Post-Effective Amendment No. 33 to the Registration Statement on Form N-1A (33-15166) filed via EDGAR on July 31, 2008.

 

Item 24. Persons Controlled by or under Common Control with Registrant.

 

None.

 

Item 25. Indemnification.

As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940, as amended (the 1940 Act), and pursuant to Article VI of Registrant's By-Laws (Exhibit (b) to this registration statement), officers, trustees, employees and agents of Registrant will not be liable to Registrant, any stockholder, officer, director, employee, agent or other person for any action or failure to act, except for bad faith, willful misfeasance, gross negligence or reckless disregard of duties, and those individuals may be indemnified against liabilities in connection with Registrant, subject to the same exceptions. Section 3817 of the Delaware Statutory Trust Act permits

 

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indemnification of trustees who acted in good faith and reasonably believed that the conduct was in the best interest of Registrant. As permitted by Section 17(i) of the 1940 Act, pursuant to Section 8 of the Distribution Agreement (Exhibit (e)(1) to this registration statement), the distributor of Registrant may be indemnified against liabilities which it may incur, except liabilities arising from bad faith, gross negligence, willful misfeasance or reckless disregard of duties.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (Securities Act), may be permitted to trustees, officers and controlling persons of Registrant pursuant to the foregoing provisions or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission (the SEC) such indemnification is against public policy as expressed in the 1940 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer or controlling person of Registrant in connection with the successful defense of any action, suit or proceeding) is asserted against Registrant by such trustee, officer or controlling person in connection with the shares being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1940 Act and will be governed by the final adjudication of such issue.

Registrant has purchased an insurance policy insuring its officers and trustees against liabilities, and certain costs of defending claims against such officers and trustees, to the extent such officers and trustees are not found to have committed conduct constituting willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties. The insurance policy also insures Registrant against the cost of indemnification payments to officers and trustees under certain circumstances.

Section 9 of the Management Agreement (Exhibit (d)(1)(i) to this registration statement) and Section 4 of the Subadvisory Agreements (Exhibits (d)(2)(i) through (xvi) to this registration statement) limit the liability of PI and each Adviser, respectively, to liabilities arising from willful misfeasance, bad faith or gross negligence in the performance of their respective duties or from reckless disregard by them of their respective obligations and duties under the agreements.

Registrant hereby undertakes that it will apply the indemnification provisions of its By-Laws and the Distribution Agreement in a manner consistent with Release No. 11330 of the SEC under the 1940 Act as long as the interpretation of Section 17(h) and 17(i) of such Act remains in effect and is consistently applied.

Item 26. Business and Other Connections of the Investment Adviser.

 

(a) Prudential Investments LLC (PI).

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the Statement of Additional Information (SAI) constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of PI are listed in Schedules A and D of Form ADV of PI as currently on file with the Commission (File No. 801-31104), the text of which is hereby incorporated by reference.

 

(b) Ashfield Capital Partners, LLC

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of LSV Asset Management are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-67426).

(c) Eagle Asset Management

 

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See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of LSV Asset Management are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-21343).

 

(d) J.P. Morgan

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of J.P. Morgan are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-21011).

 

(e) Wellington

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of Wellington are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-15908).

 

(f) PIMCO

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of PIMCO are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-7260).

 

(g) Hotchkis and Wiley

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of Hotchkis and Wiley are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-60512).

 

(h) EARNEST Partners

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of EARNEST Partners are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-56189).

 

(i) Eaton Vance Management

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and

 

6

 

 

"Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of Eaton Vance Management are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-15930).

 

(j) NFJ

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of NFJ are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-47940).

 

(k) LSV Asset Management

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of LSV Asset Management are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-47689).

 

(l) Massachusetts Financial Services Company

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of LSV Asset Management are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-17352).

 

(m) Thornburg Investment Management, Inc.

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of Thornburg Investment Management, Inc. are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-17853).

 

(n) Lee Munder Investments, Ltd.

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of Lee Munder Investments, Ltd. are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-57397).

 

(o) Vaughan Nelson Investment Management, L.P.

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

7

 

 

 

The business and other connections of the directors and principal executive officers of Vaughan Nelson Investment Management, L.P. are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-51795).

 

(p) Marsico Capital Management LLC

 

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A of this Registration Statement and "Management and Advisory Arrangements" in the SAI constituting Part B of this Registration Statement.

 

The business and other connections of the directors and principal executive officers of Marsico Capital Management LLC are listed in Schedules A and D of its Form ADV as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-54914).

 

Item 27. Principal Underwriters.

 

(a) Prudential Investment Management Services LLC (PIMS)

 

PIMS is distributor for Cash Accumulation Trust, Nicholas-Applegate Fund, Inc., (Nicholas-Applegate Growth Equity Fund), Dryden California Municipal Fund, Jennison Blend Fund, Inc., Dryden Global Total Return Fund, Inc., Dryden Government Income Fund, Inc., Dryden Government Securities Trust, Dryden High Yield Fund, Inc., Dryden Index Series Fund, Prudential Institutional Liquidity Portfolio, Inc., MoneyMart Assets, Inc., Dryden Municipal Bond Fund, Dryden National Municipals Fund, Inc., Jennison Natural Resources Fund, Inc., Strategic Partners Real Estate Fund, Jennison Sector Funds, Inc., Dryden Short-Term Corporate Bond Fund, Inc., Jennison Small Company Fund, Inc., Dryden Tax-Managed Funds, Dryden Small-Cap Core Equity Fund, Inc., Dryden Total Return Bond Fund, Inc., Jennison 20/20 Focus Fund, Jennison Mid-Cap Growth Fund, Inc., JennisonDryden Portfolios, Prudential World Fund, Inc., Target Asset Allocation Funds, Strategic Partners Mutual Funds, Inc., JennisonDryden Opportunity Funds, Strategic Partners Style Specific Funds, The Prudential Investment Portfolios, Inc., The Target Portfolio Trust, The Prudential Series Fund and Advanced Series Trust.

 

PIMS is also distributor of the following other investment companies: Separate Accounts: Prudential’s Gibraltar Fund, Inc., The Prudential Variable Contract Account-2, The Prudential Variable Contract Account-10, The Prudential Variable Contract Account-11, The Prudential Variable Contract Account-24, The Prudential Variable Contract GI-2, The Prudential Discovery Select Group Variable Contract Account, The Pruco Life Flexible Premium Variable Annuity Account, The Pruco Life of New Jersey Flexible Premium Variable Annuity Account, The Prudential Individual Variable Contract Account, The Prudential Qualified Individual Variable Contract Account and PRIAC Variable Contract Account A.

 

(b) The business and other connections of PIMS' sole member (PIFM Holdco, Inc.) and principal officers are listed in its Form BD as currently on file with the Securities and Exchange Commission (BD No. 18353), the text of which is hereby incorporated by reference. (c) Registrant has no principal underwriter who is not an affiliated person of the Registrant.

 

Item 28. Location of Accounts and Records.

 

All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of PFPC Trust Company (PFPC), 400 Bellevue Parkway, Wilmington, Delaware 19809, the Registrant, Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102, Prudential Mutual Fund Services, LLC (PMFS), Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102, Ashfield Capital Partners LLC, 750 Battery Street, Suite 600, San Francisco, California 94111; Eagle Asset Management, 880 Carillon Parkway, St. Petersburg, Florida 33716; EARNEST Partners, 75 14th Street, Suite 2300, Atlanta, GA 30309; Eaton Vance Management, 255 State Street, Boston, Massachusetts 02019; Hotchkis and Wiley, 725 South Figueroa Street, Suite 3900, Los Angeles, CA 90017-5439; J.P. Morgan, 522 Fifth Avenue, New York, NY 10036; Massachusetts Financial Services Company, 500 Boylston Street, Boston, Massachusetts 02116; PIMCO, 840 Newport Center Drive, Suite 300, Newport Beach, CA 92660; NFJ, 2121 San Jacinto, Dallas, TX

 

8

 

 

75201; Lee Munder, 700 Claredon Street, Boston MA, 02116 and Wellington, 75 State Street, Boston, MA 02109; LSV Asset Management, One North Wacker Drive, Suite 4000, Chicago, IL 60606; Thornburg Investment Management Inc., 119 East Marcy Street, Suite 202, Santa Fe, NM 87501; Vaughan Nelson Investment Management, L.P., 600 Travis, Suite 6300, Houston, TX 77002; Marsico Capital Management LLC, 1200 17 th Street, Suite 1600, Denver, CO 80202.

 

Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a1(f) and Rules 31a-1(b)(4) and (11) and 31a-1(d) will be kept at Gateway Center Three, 100 Mulberry Street, Newark, NJ, 07102-4077 and the remaining accounts, books and other documents required by such other pertinent provisions of Section 31(a) and the Rules promulgated thereunder will be kept by PFPC and PMFS.

 

Item 29. Management Services.

 

Other than as set forth under the captions "How the Fund is Managed-Manager," "-Investment Subadvisers" and "-Distributor" in the Prospectus and the captions "Management and Advisory Arrangements" in the Statement of Additional Information, constituting Parts A and B, respectively, of this Post-Effective Amendment to the Registration Statement, Registrant is not a party to any management-related service contract.

 

Item 30. Undertakings.

 

The Registrant hereby undertakes to furnish each person to whom a Prospectus is delivered with a copy of Registrant's latest annual report to shareholders upon request and without charge.

 

9

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment to the Registration Statement pursuant to Rule 485(b) of the Securities Act and has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Newark, and State of New Jersey, on the 30th day of January, 2009.

 

THE TARGET PORTFOLIO TRUST

 

*Judy A. Rice

President

 

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

 

 

Signature

 

Title

Date

* Kevin J. Bannon

Trustee

 

 

* Linda W. Bynoe

 

Trustee

 

* David E.A. Carson

 

Trustee

 

* Robert F. Gunia

 

Trustee and Vice President

 

* Michael S. Hyland

Trustee

 

 

* Robert E. La Blanc

 

Trustee

 

* Douglas H. McCorkindale

 

Trustee

 

* Stephen P. Munn

Trustee

 

 

* Richard A. Redeker

 

Trustee

 

* Judy A. Rice

 

Trustee and President (Principal Executive Officer)

 

* Robin B. Smith

 

Trustee

 

* Stephen G. Stoneburn

 

Trustee

 

* Grace C. Torres

Treasurer and Principal Financial and Accounting Officer

 

*By: /s/ Jonathan D. Shain

Jonathan D. Shain

Attorney-in-Fact

January 30, 2009

 

 

10

 

 

THE TARGET PORTFOLIO TRUST

Exhibit Index

 

Item 23

Exhibit

Description

No.

 

(d)(2)(i)

Subadvisory Agreement between PI and Eaton Vance Management with respect to the Large Capitalization Value Portfolio.

 

(d)(2)(vii)

Subadvisory Agreement between PI and Eagle Asset Management with respect to the Small Capitalization Growth Portfolio.

 

(d)(2)(viii)

Subadvisory Agreement between PI and Ashfield Capital Partners LLC with respect to the Small Capitalization Growth Portfolio.

 

(d)(2)(xvii)

Subadvisory Agreement between PI and Massachusetts Financial Services Company with respect to the Large Capitalization Growth Portfolio

 

(j)

Consent of independent registered public accounting firm.

 

(m)(2)

Rule 12b-1 Fee Waiver for Class R Shares.

 

(p)(8)

Code of Ethics of Ashfield Capital Partners, LLC.

 

(p)(9)

Code of Ethics of Eagle Asset Management.

 

(p)(17)

Code of Ethics of Eaton Vance Management.

 

(p)(18)

Code of Ethics of Massachusetts Financial Services Company.

 

 

 

11

 

 

(Execution Copy)

 

Exhibit (d)(2)(i)

 

THE TARGET PORTFOLIO TRUST

Large Capitalization Value Portfolio

SUBADVISORY AGREEMENT

 

Agreement made as of this 13 th day of December, 2008 between Prudential Investments LLC (PI or the Manager), a New York limited liability company, and Eaton Vance Management (the Subadviser or Eaton Vance), a Massachusetts business trust.

 

WHEREAS, the Manager has entered into a Management Agreement, dated December 23, 2004, (the Management Agreement) with The Target Portfolio Trust, a Delaware statutory trust (the “Trust”) and a diversified, open-end, management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), pursuant to which PI acts as Manager of the Company; and

 

WHEREAS, the Manager desires to retain the Subadviser to provide investment advisory services to the Large Capitalization Value Portfolio (referred to hereafter as the Fund), which is a series of the Trust, and to manage such portion of the Fund’s portfolio as the Manager shall from time to time direct, and the Subadviser is willing to render such investment advisory services; and

 

NOW, THEREFORE, the Parties agree as follows:

 

1.(a) Subject to the supervision of the Manager and the Board of Trustees of the Trust (the Board), the Subadviser shall manage such portion of the Fund’s portfolio, including the purchase, retention and disposition thereof, in accordance with the Fund’s investment objectives, policies and restrictions as stated in its then current prospectus and statement of additional information (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”), and subject to the following understandings:

 

(i) The Subadviser shall provide supervision of such portion of the Fund’s portfolio as the Manager shall direct and shall determine from time to time what investments and securities will be purchased, retained, sold or loaned (other than directing a securities lending program) by the Fund, and what portion of the assets will be invested or held uninvested as cash.

 

(ii) In the performance of its duties and obligations under this Agreement, the Subadviser shall act in conformity with the Declaration of Trust, as amended, and the By-Laws of the Trust and Prospectus of the Fund and any procedures adopted by the Board applicable to the Fund and any amendments to those procedures (Board Procedures) which have been provided to it by the Manager (the Trust Documents), and with the instructions and directions of the Manager and of the Board, and co-operate with the Manager’s (or its designee’s) personnel responsible for monitoring the Fund’s compliance. The Subadviser shall also comply at all times with the applicable sections of the 1940 Act, the Investment Advisers Act of 1940, as amended (the Advisers Act), the Internal Revenue Code of 1986, as amended, and all other applicable federal and state laws and regulations, including securities law. The Manager shall provide Subadviser timely with copies of any updated Trust or Fund Documents, including a list of Fund affiliates.

 

(iii) The Subadviser shall determine the securities and futures contracts to be purchased or sold by such portion of the Fund’s portfolio, as applicable, and shall place orders with or through such persons, brokers, dealers or futures commission merchants (including but not limited to any broker-dealer affiliated with the Manager or the Subadviser) to carry out the policy with respect to brokerage as set forth in the Fund’s Prospectus or as the Board may direct from time to time. In providing the Fund with investment supervision, it is recognized that the Subadviser shall give primary consideration to seeking best execution (which may not involve the most favorable commission). Within the framework of this policy, the Subadviser may consider the receipt of services that affect securities transactions and incidental functions, such as clearance and settlement functions, and advice as to the value of securities, the advisability of investing in securities, the availability of securities or purchasers or sellers of securities and analyses and reports concerning issues, industries, securities, economic factors, trends, portfolio strategy, and the performance of accounts, the financial responsibility, 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 Subadviser’s other clients may be a party. The Manager (or Subadviser) to the Fund each shall have discretion to effect investment transactions for the Fund through broker-dealers (including, to the extent legally permissible, broker-dealers affiliated with the Subadviser(s)) qualified to obtain best execution of such transactions who provide brokerage and/or research services, as such services are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the 1934 Act), and to cause the Fund to pay any such broker-dealers an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker-dealer would have charged for effecting that transaction, if the brokerage or research services provided by such broker-dealer, viewed in light of either that particular investment transaction or the overall responsibilities of the Manager (or the Subadviser) with respect to the Fund and

 

(Execution Copy)

 

other accounts as to which they or it may exercise investment discretion (as such term is defined in Section 3(a)(35) of the 1934 Act), are reasonable in relation to the amount of commission.  Pursuant to the rules promulgated under Section 326 of the USA PATRIOT ACT, broker-dealers are required to obtain, verify and record information that identities each person who opens an account with them.  In accordance therewith, broker-dealers whom the Subadviser selects to execute transactions in the Fund’s account may seek identifying information about the Trust and/or the Fund.

 

On occasions when the Subadviser deems the purchase or sale of a security or futures contract to be in the best interest of the Fund as well as other clients of the Subadviser, the Subadviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities or futures contracts to be sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities or futures contracts so purchased or sold, as well as the expenses incurred in the transaction, shall be made by the Subadviser in the manner the Subadviser considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients.

The Manager hereby agrees and consents that the Subadviser and its affiliates are authorized to execute cross agency transactions for the Fund, provided such transactions comply with applicable laws and regulations.

(iv) The Subadviser shall maintain all books and records with respect to the Fund’s portfolio transactions effected by it as required by any applicable federal or state securities laws or regulations, including the 1940 Act, the 1934 Act and the Advisers Act. The Subadviser shall furnish to the Manager or the Board all information relating to the Subadviser’s services under this Agreement reasonably requested by the Manager and the Board within a reasonable period of time after the Manager or the Board makes such request. The Subadviser shall make reasonably available its employees and officers (or their designees) for consultation with any of the trustees or officers or employees of the Trust with respect to any matter discussed herein, including, without limitation, the valuation of the Fund’s securities.

 

(v) The Subadviser or its affiliates shall provide the Fund’s Custodian on each business day with information relating to all transactions concerning the portion of the Fund’s assets it manages. The Subadviser shall furnish the Manager each day with mutually agreed upon information in a mutually agreed upon format concerning portfolio transactions, and such other reports in a form and frequency as agreed upon from time to time concerning transactions, portfolio holdings and performance of the Fund. , The Subadviser agrees to review the Fund and discuss the management of the Fund with the Manager and the Board as either or both shall from time to time reasonably request.

 

(vi) The investment management services provided by the Subadviser hereunder are not to be deemed exclusive, and the Subadviser shall be free to render similar services to others. Subject to the Subadviser’s responsibility to the Fund, the Manager agrees that the Subadviser may give advice or exercise investment responsibility and take such other action with respect to other individuals or entities which may differ from advice given to the Fund. Further, the Manager acknowledges that the Subadviser, or its agent, or employees, or any of the accounts the Subadviser advises, may at any time hold, acquire, increase, decrease, dispose of or otherwise deal with positions in investments in which the Fund may or may not have an interest from time to time, whether such transactions involve the Fund or otherwise.

 

(vii) The Subadviser and Manager understand and agree that if the Manager manages the Fund in a “manager-of-managers” style, the Manager will, among other things, (i) continually evaluate the performance of the Subadviser through quantitative and qualitative analysis and consultations with the Subadviser, (ii) periodically make recommendations to the Trust’s Board as to whether the contract with the Subadviser should be renewed, modified, or terminated, and (iii) periodically report to the Trust’s Board regarding the results of its evaluation and monitoring functions. The Subadviser recognizes that its services may be terminated or modified pursuant to this process in accordance with Section 7 of this Agreement.

 

(viii) The Subadviser acknowledges that the Manager and the Trust intend to rely on Rule 17a-10, Rule 10f-3, Rule 12d3-1 and Rule 17e-1 under the 1940 Act, and the Subadviser hereby agrees that it shall not consult with any other subadviser to the Trust with respect to transactions in securities for the Fund’s portfolio or any other transactions of Fund assets.

 

(ix) The Subadviser shall provide annually to the Co-Managers a copy of Subadviser’s Form ADV as filed with the Securities and Exchange Commission (the Commission).

 

(b)        The Subadviser shall keep the Fund’s books and records required to be maintained by the Subadviser pursuant to paragraph 1(a) hereof in the form and for the period required by Rule 31a-2 under the 1940 Act. The Subadviser agrees that all records which it maintains for the Fund are the property of the Fund, and the Subadviser shall surrender promptly to the Fund any of such records upon the Fund’s request, provided, however, that the Subadviser may retain copies of such records. The Fund’s books and records

 

2

 

 

(Execution Copy)

 

maintained by the Subadviser shall be made available, within a reasonable period of time following submission of a written request, to the Fund’s accountants or auditors during regular business hours at the Subadviser’s offices. The Fund, the Manager or their respective authorized representatives shall have the right to copy any records in the Subadviser’s possession that pertain to the Fund. These books, records, information, or reports may be made available to properly authorized government representatives consistent with state and federal law and/or regulations, provided that the Subadviser is given prior notice of such disclosure, unless such prior notice is prohibited by law or regulation. In the event of the termination of this Agreement, the Fund’s books and records maintained by the Subadviser shall be returned to the Fund or the Manager upon the request of the Trust, provided that the Subadviser shall be permitted to keep copies of such records. The Subadviser agrees that, subject to the execution of a Confidentiality and Non-Disclosure Agreement by and between the Subadviser and the Manager, the policies and procedures the Subadviser has established for managing the Fund’s portfolio, including, but not limited to, all policies and procedures designed to ensure compliance with federal and state laws and regulations governing the adviser/client relationship and management and operation of the Fund, shall be made available for inspection by the Fund, the Manager or their respective authorized representatives upon reasonable written request within not more than ten (10) business days.

 

(c)        The Subadviser shall maintain a written code of ethics (the Code of Ethics) that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, a copy of which shall be provided to the Manager and the Fund, and shall institute procedures reasonably necessary to prevent any Access Person (as defined in Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act) from violating its Code of Ethics. The Subadviser shall follow such Code of Ethics in performing its services under this Agreement. Further, the Subadviser represents that it maintains adequate compliance procedures to ensure its compliance with the 1940 Act, the Advisers Act, and other applicable federal and state laws and regulations. In particular, the Subadviser represents that it has policies and procedures regarding the detection and prevention of the misuse of material, nonpublic information by the Subadviser and its employees as required by the Insider Trading and Securities Fraud Enforcement Act of 1988, a copy of which it shall provide to the Manager and the Fund upon reasonable request, subject to the requirements of paragraph 1(b) hereof. The Subadviser shall use its best efforts to ensure that its employees comply in all material respects with the provisions of Section 16, as applicable, of the 1934 Act, and to cooperate reasonably with the Manager for purposes of filing any required reports with respect to the Fund with the Securities and Exchange Commission (the Commission) or such other regulator having appropriate jurisdiction.

 

(d)     The Subadviser shall furnish to the Manager a mutually-agreed upon certification regarding records prepared in connection with maintenance of compliance procedures pursuant to paragraph 1(c) hereof as the Manager may reasonably request.

 

(e)       The Subadviser shall be responsible for the voting of all shareholder proxies with respect to the investments and securities held in the Fund’s portfolio in accordance with the Subadviser’s procedures, subject to such reporting and other requirements as shall be established by the Manager which may include use by Manager of a third-party vendor for proxy voting administration services. The Subadviser may utilize a third-party voting service and customized policies designed to promote accountability of a company’s management and board of directors to its shareholders and to align the interests of management with those of shareholders.

 

(f)       Upon reasonable request from the Manager, the Subadviser (through a qualified person) shall assist the valuation committee of the Trust or the Manager in valuing securities of the Fund as may be required from time to time, including making available information of which the Subadviser has knowledge related to the securities being valued.

 

(g)       The Subadviser shall provide the Manager with any information reasonably requested regarding its management of the Fund’s portfolio required for any shareholder report, amended registration statement, or prospectus supplement to be filed by the Trust with the Commission. The Subadviser shall provide the Manager with a mutually agreeable certification, documentation or other information reasonably requested or required by the Manager for purposes of the certifications of shareholder reports by the Trust’s principal financial officer and principal executive officer pursuant to the Sarbanes Oxley Act of 2002 or other law or regulation. The Subadviser shall promptly inform the Fund and the Manager if any information provided by Subadviser in the Prospectus is (or will become) materially inaccurate or incomplete.

 

(h)       The Subadviser shall comply with Board Procedures provided to the Subadviser by the Manager or the Fund. The Subadviser shall notify the Manager as soon as reasonably practicable upon detection of any material breach of such Board Procedures.

 

(i)        The Subadviser shall keep the Fund and the Manager informed of developments relating to its duties as Subadviser of which the Subadviser hasknowledge that would materially affect the Fund. In this regard, the Subadviser shall provide the Trust, the Manager, and their respective officers with such periodic reports concerning the obligations the Subadviser has assumed under this Agreement as the Fund and the Manager may from time to time reasonably request. Additionally, prior to each Board meeting, the

 

3

 

 

(Execution Copy)

 

Subadviser shall provide the Manager and the Board with reports regarding the Subadviser’s management of the Fund’s portfolio during the most recently completed quarter, in such form as may be mutually agreed upon by the Subadviser and the Manager. The Subadviser shall certify quarterly to the Fund and the Manager that it and its “Advisory Persons” (as defined in Rule 17j-under the 1940 Act) have complied materially with the requirements of Rule 17j-1 under the 1940 Act during the previous quarter or, if not, explain what the Subadviser has done to seek to ensure such compliance in the future. Annually, the Subadviser shall furnish a written report, which complies with the requirements of Rule 17j-1 and Rule 38a-1 under the 1940 Act, concerning the Subadviser’s Code of Ethics and compliance program, respectively, to the Fund and the Manager.

 

(j)

The Subadviser is not responsible for making any securities class action filings on behalf of the Trust or the Fund.

 

2.    The Manager shall continue to have responsibility for all services to be provided to the Fund pursuant to the Management Agreement and, as more particularly discussed above, shall oversee and review the Subadviser's performance of its duties under this Agreement. The Manager shall provide (or cause the Fund’s custodian to provide) timely information to the Subadviser regarding such matters as the composition of assets in the portion of the Fund managed by the Subadviser, cash requirements and cash available for investment in such portion of the Fund, and all other information as may be reasonably necessary for the Subadviser to perform its duties hereunder (including any excerpts of minutes of meetings of the Board that affect the duties of the Subadviser).

 

3.   The assets of the Fund shall be maintained in the custody of a custodian as designated within an agreement between the Fund and the custodian (the “Custodian”). Subadviser shall have no liability for the acts or omissions of the Custodian, unless such act or omission is taken solely in reliance upon instruction given to the Custodian by a representative of Subadviser properly authorized to give such instruction.

 

4.   For the services provided pursuant to this Agreement, the Manager shall pay the Subadviser as full compensation therefor, a fee equal to the percentage of the Fund’s average daily net assets (as calculated by the Custodian) of the portion of the Fund managed by the Subadviser as described in the attached Schedule A. Expense caps or fee waivers for the Fund that may be agreed to by the Manager, but not agreed to by the Subadviser, shall not cause a reduction in the amount of the payment to the Subadviser by the Manager.  If this Agreement becomes effective or terminates, or if the manner of determining the applicable fee changes, in the middle of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination or change, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination or change occurs.

 

5.    (a) The Subadviser shall not be liable for any error of judgment or for any loss suffered by the Fund or the Manager in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance or bad faith on the Subadviser’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 Fund may have against the Subadviser under federal or state securities laws. The Manager shall indemnify the Subadviser, its affiliated persons, its officers, directors and employees, for any liability and expenses, including reasonable attorneys’ fees, which may be sustained as a result of the Manager’s willful misfeasance, bad faith, or reckless disregard of its duties hereunder or violation of applicable law, including, without limitation, the 1940 Act and federal and state securities laws. The Subadviser shall indemnify the Manager, their affiliated persons, their officers, directors and employees, for any liability and expenses, including reasonable attorneys’ fees, which may be sustained as a result of the Subadviser’s willful misfeasance, bad faith, or reckless disregard of its duties hereunder or violation of applicable law, including, without limitation, the 1940 Act and federal and state securities laws.  In any event, neither the Subadviser nor its affiliates shall be liable for any loss or damage arising or resulting from the acts or omissions of the Fund’s custodian, any broker, financial institution or any other third party with or through whom the Subadviser arranges or enters into a transaction with respect to the Fund.

(b) The Manager acknowledges and agrees that the Subadviser makes no representation or warranty, expressed or implied, that any level of performance or investment results will be achieved by the Fund or that the Fund will perform comparably with any standard or index, including other clients of the Subadviser, whether public or private.

(c) The Manager expressly acknowledges that the Subadviser is a Massachusetts business trust formed under a declaration of trust and that all persons dealing with the Subadviser must look solely to the property of the Subadviser for satisfaction of claims of any nature against the Subadviser, as neither the trustees, officers, employees nor shareholders of the Subadviser assume any personal liability in connection with its business or for obligations entered into on its behalf.

 

6.                                                                                           Subject to the right of each, the Manager and Subadviser, to comply with applicable law, including any demand of any regulatory or taxing authority having jurisdiction over it, the parties hereto shall treat as confidential all information pertaining to the Fund and the actions of each the Manager and Subadviser in respect thereof. In accordance with Regulation S-P, if non-public personal information regarding either party’s customers or consumers is disclosed to the other party in connection with the Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement.

 

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(Execution Copy)

 

7.   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 Fund at any time, without the payment of any penalty, by the Board 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 Subadviser 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) or upon the termination of the Management Agreement. The Subadviser agrees that it shall promptly notify the Fund and the Manager of the occurrence or anticipated occurrence of any event that would result in the assignment (as defined in the 1940 Act) of this Agreement, including, but not limited to, a change or anticipated change in control (as defined in the 1940 Act) of the Subadviser; provided that the Subadviser need not provide notice of such an anticipated event before the anticipated event is a matter of public record.

 

8.   Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (1) to the Manager at Gateway Center Three, 100 Mulberry Street, 4th Floor, Newark, NJ 07102-4077, Attention: Secretary; (2) to the Company at Gateway Center Three, 4th Floor, 100 Mulberry Street, Newark, NJ 07102-4077, Attention: Secretary; or (3) to the Subadviser at 255 State Street, Boston, MA 02109, Attention: Legal Department, with a copy to Sean Kelly at the same address.

 

9.   Nothing in this Agreement shall limit or restrict the right of any of the Subadviser’s directors, officers or employees who may also be a Trustee, officer or employee of the Trust or the Fund 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 a dissimilar nature, nor limit or restrict the Subadviser’s right to engage in any other business or to render services of any kind to any other corporation, firm, individual or association.

 

10. During the term of this Agreement, the Manager agrees to furnish the Subadviser at its principal office all prospectuses, proxy statements, reports to shareholders, sales literature or other material prepared for distribution to shareholders of the Fund or the public, which refer to the Subadviser in any way (including the Subadviser’s name, derivatives thereof and any logo associated therewith), prior to use thereof and not to use material if the Subadviser reasonably objects in writing five business days (or such other time as may be mutually agreed) after confirming receipt thereof and prior to the distribution of such material. Sales literature may be furnished to the Subadviser hereunder by first-class or overnight mail, facsimile transmission equipment or hand delivery.  The Manager hereby approves the use of the Manager’s, the Trust’s or the Fund’s name (and any derivatives thereof or any logos associated with those names) on a representative client list of the Subadviser.

 

11.  The Manager hereby certifies that there are policies and procedures reasonably designed to effect the Fund’s policies and procedures disclosed in its prospectus to detect and deter disruptive trading practices in the Fund, including “market timing,” and the Manager agrees that it will continue to enforce and abide by such policies and procedures, as amended from time to time. ,.  The Subadviser agrees, upon reasonable request from the Manager, reasonably to assist the Manager to detect and deter disruptive trading practices in the Fund. Manager and Subadviser agree to fulfill their respective duties under this Agreement in accordance with applicable laws and regulations, both state and federal.

12.  In performance of its duties and obligations under this Agreement, the Manager shall use best efforts to not share sales data for the Fund with the Subadviser

13.  The parties to this Agreement each agree to cooperate in a reasonable manner with each other in the event that any of them should become involved in a legal, administrative, judicial or regulatory action, claim, or suit as a result of performing its obligations under this Agreement.

14. This Agreement may be amended by mutual consent, but the consent of the Company must be obtained in conformity with the requirements of the 1940 Act.

15.

This Agreement shall be governed by the laws of the State of New York.

16. The Manager acknowledges that the Subadviser has provided it with a copy of the Subadviser’s most recent Form ADV as filed with the Securities and Exchange Commission, for its benefit and the benefit of the Trust.

 

17. This Agreement in no way restricts the Subadviser’s right to perform investment management or other services for any person or entity, and the performance of such services for others shall not be deemed to violate or give rise to any duty or obligation to the Fund. The Fund and the Manager understand that the Subadviser shall not have any obligation to purchase or sell any security for the Fund

 

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(Execution Copy)

 

which it (as investment manager for other clients, or as principal) or its affiliates or employees may purchase or sell for its or their own account or for the account of any other clients, if it is the Subadviser’s opinion that such transaction or investment appears unsuitable or undesirable for the Fund.

 

18. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act, shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Commission issued pursuant to the 1940 Act. In addition, where the effect of a requirement of the 1940 Act, reflected in any provision of this Agreement, is related by rules, regulation or order of the Commission, such provision shall be deemed to incorporate the effect of such rule, regulation or order.

 

IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.

 

 

PRUDENTIAL INVESTMENTS LLC

 

BY:

 

Name: Robert F. Gunia

 

Title: Executive Vice President

 

 

EATON VANCE MANAGEMENT

 

BY:

 

Print Name: ______________________

 

Title: ____________________________

 

 

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(Execution Copy)

 

Schedule A

LARGE CAPITALIZATION VALUE PORTFOLIO

 

As compensation for services provided by Eaton Vance Management (Eaton Vance), Prudential Investments LLC (PI) will pay Eaton Vance a fee equal, on an annualized basis, to the following:

 

Fund Name

 

Fee on Combined Average Daily Net Assets*

Large Capitalization Value Portfolio

 

0.25% of combined assets up to $250 million;

0.24% of the next $250 million;

0.23% of the next $500 million; and

0.22% of combined assets over $1 billion.

 

*Combined assets are assets in all portfolios subadvised by Eaton Vance that are managed by Prudential Investments LLC or by Prudential Investments LLC and AST Investment Services, Inc. that have substantially the same investment strategy (i.e.,domestic large cap value). Such portfolios are the Large Capitalization Value Portfolio of The Target Portfolio Trust; Target Conservative Allocation Fund, Target Moderate Allocation Fund and Target Growth Allocation Fund, each a series of Target Asset Allocation Funds; and AST Large-Cap Value Portfolio, a series of Advanced Series Trust.

 

Dated as of December 13, 2008

 

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(Execution Copy)

 

Amendment No. 1 to Subadvisory Agreement

 

THE TARGET PORTFOLIO TRUST

Large Capitalization Value Portfolio

 

Amendment No. 1 dated December 13, 2008, to the Subadvisory Agreement dated December 13, 2008 (the “Subadvisory Agreement”) between Prudential Investments LLC (“PI”) and Eaton Vance Management (“Eaton Vance” or the “Subadviser”) pertaining to the above-named registered investment company and its portfolio(s) listed above and in Annex I hereto (each, the “Fund”).

 

WHEREAS, PI and EATON VANCE have entered into the Subadvisory Agreement, and wish to set forth certain responsibilities of PI and EATON VANCE in connection with the appointment by PI, acting as investment manager of the mutual funds identified in Annex I , of a transition broker/dealer (“transition manager”) selected and supervised by PI in connection with the sale and purchase by the Fund of certain securities during the Fund’s transition period defined below.

 

NOW THEREFORE, PI and EATON VANCE hereby agree as follows:

 

1.          EATON VANCE agrees to provide limited subadvisory services to the Fund during the transition period, which will begin when EATON VANCE provides a buy list (as defined below) to PI or the transition manager, and will end after EATON VANCE has notified PI that the transition manager has corrected any known discrepancies in the Certified List (as defined below) or that no known discrepancies exist in the Certified List. In particular, during the transition period:

 

a.         EATON VANCE, acting through its authorized persons identified in Annex II, will provide PI or the transition manager with a buy list (“Buy Portfolio”) identified in Annex III that it would like the transition manager to implement during transition period. Prior to the transition period, PI shall provide EATON VANCE with a current and complete list, including ticker symbols, of any securities that the Fund may not purchase (“Fund Restricted Securities”), which shall be set forth in Annex IV. EATON VANCE shall not include in the Buy Portfolio any Fund Restricted Securities. EATON VANCE shall not be responsible for excluding any Fund Restricted Securities that are not included on Annex IV .

 

b.        EATON VANCE will notify PI or the transition manager of any changes EATON VANCE wishes to make to the Buy Portfolio during the transition period while the transition manager is executing the trades. The transition manager will seek to execute all trades on the Buy Portfolio during the transition period. Provided that PI directs the Fund’s custodian to provide EATON VANCE with all necessary information regarding corporate actions and that the Fund’s custodian provides EATON VANCE with all such information in a timely manner, EATON VANCE shall be responsible for giving appropriate instructions to the custodian to address any discretionary corporate actions that affect securities in the Buy Portfolio during the transition period.

 

c.         As soon as practical after the transition manager has executed all trades on the Buy Portfolio, or if EATON VANCE and PI otherwise agree that the transition period has ended, the Fund’s custodian will provide EATON VANCE with a list of securities held by the Fund and a list of securities not yet settled (“Transition Manager List”). EATON VANCE will reconcile the Transition Manager List with the Buy Portfolio, seek to promptly identify any discrepancies, and ask the transition manager to correct any known discrepancies. Once EATON VANCE has determined that the transition manager has corrected any known discrepancies in the Transition Manager List or that that no known discrepancies exist, EATON VANCE will notify PI of this preliminary determination.

 

d.         The Fund’s custodian will provide EATON VANCE with a certified list of securities held by the Fund (“Certified List”) as soon as the transition trades are settled at the custodian. EATON VANCE will reconcile the Certified List with other information reasonably available to it, seek to promptly identify any discrepancies, and ask the transition manager to correct any known discrepancies. Once EATON VANCE has determined that the transition manager has corrected any known discrepancies in the Certified List or that that no known discrepancies exist, EATON VANCE will notify PI of this final determination, ending the transition period. EATON VANCE will then assume full responsibility for management of the applicable portion of the Fund’s portfolio as Subadviser under the Subadvisory Agreement.

 

2.         a.           PI agrees to take full responsibility for all matters relating to the decision to retain a transition manager and for all actions by the transition manager. In particular, EATON VANCE shall have no obligation, under the 1940 Act, the Investment

 

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(Execution Copy)

 

Advisers Act of 1940, or otherwise, to PI or the Fund with respect to the selection of, and services provided by, the transition manager. PI has instructed EATON VANCE to continue to manage the Fund during the transition period and to trade, if necessary, during the period between EATON VANCE’s receipt of the Transition Manager List and EATON VANCE’s receipt of the Certified List.

 

b.          In addition, PI agrees to indemnify and hold harmless EATON VANCE from and against any and all losses, claims, damages or liabilities (including reasonable attorneys’ fees) threatened to be or actually asserted against or incurred by the Fund, EATON VANCE, PI, the transition manager, or any other persons arising from or related to the following:

 

 

(i)

PI's selection of Citigroup Global Markets, Inc. as transition manager; or

 

(ii)        Services provided by the transition manager to the Fund during the transition period (including, but not limited to, any obligations of best execution); or

 

 

(iii)

Any incomplete or erroneous information provided by the transition manager to EATON VANCE; or

 

(iv)      Any discrepancies between the Buy Portfolio provided to PI or the transition manager and the Transition Manager List, or between the Transition Manager List and the Certified List; or

 

 

(v)

Any trades executed by the transition manager that fail or that settle improperly; or

 

(vi)      EATON VANCE’S limited ability to manage the Fund during the transition period, and any delay in EATON VANCE’S ability to fully manage the Fund thereafter, such as a delay in the end of the transition period caused by any of the above factors during the transition period; or

 

(vii)      Any adverse impact on the investment performance of the Fund or other adverse impact on the Fund that results from any of the above factors during the transition period; or

 

 

(viii)

Any actions taken by EATON VANCE in reliance on the Transition Manager List.

 

 

 

3.

Except as amended hereby, all terms of the Subadvisory Agreement remain in full force and effect. The parties have signed this Amendment No. 1 below (which may be signed in counterparts).

 

PRUDENTIAL INVESTMENTS LLC, on its behalf and on behalf of each of the Funds listed on Annex I

 

By: __________________________

Name: Robert F. Gunia

Title: Executive Vice President

 

EATON VANCE MANAGEMENT

 

By: __________________________

 

Print Name: __________________________

Title: __________________________

 

 

 

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(Execution Copy)

 

ANNEX I

List of Fund(s) subject to the Transition

 

THE TARGET PORTFOLIO TRUST

Large Capitalization Value Portfolio

 

 

ANNEX II

List of Subadviser’s Authorized Persons

 

[to be separately provided by Subadviser]

 

 

ANNEX III

Buy Portfolio

 

[to be separately provided by Subadviser]

 

 

ANNEX IV

 

FUND RESTRICTED SECURITIES

 

Prudential Financial, Inc. (Ticker: PRU )

 

 

 

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Exhibit (d)(vii)

 

THE TARGET PORTFOLIO TRUST

Small Capitalization Growth Portfolio

 

SUBADVISORY AGREEMENT

 

Agreement made as of this 26th day of July 2008 between Prudential Investments LLC (PI or the Manager), a New York limited liability company, and Eagle Asset Management, Inc (the Subadviser or Eagle), a Florida corporation.

 

WHEREAS, the Manager has entered into a Management Agreement, dated November 9, 1992, (the Management Agreement) with The Target Portfolio Trust, a Delaware statutory trust (the “Trust”) and a diversified, open-end, management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), pursuant to which PI acts as Manager of the Company; and

 

WHEREAS, the Manager desires to retain the Subadviser to provide investment advisory services to the Small Capitalization Growth Portfolio (referred to hereafter as the Fund), which is a series of the Trust, and to manage such portion of the Fund’s portfolio as the Manager shall from time to time direct, and the Subadviser is willing to render such investment advisory services; and

 

NOW, THEREFORE, the Parties agree as follows:

 

1. (a)     Subject to the supervision of the Manager and the Board of Trustees of the Trust (the Board), the Subadviser shall manage such portion of the Fund’s portfolio, including the purchase, retention and disposition thereof, in accordance with the Fund’s investment objectives, policies and restrictions as stated in its then current prospectus and statement of additional information (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”), and subject to the following understandings:

 

(i) The Subadviser shall provide supervision of such portion of the Fund’s portfolio as the Manager shall direct and shall determine from time to time what investments and securities will be purchased, retained, sold or loaned (other than directing a securities lending program) by the Fund, and what portion of the assets will be invested or held uninvested as cash.

 

(ii) In the performance of its duties and obligations under this Agreement, the Subadviser shall act in conformity with the Declaration of Trust, as amended, and the By-Laws of the Trust and Prospectus of the Fund and any procedures adopted by the Board applicable to the Fund and any amendments to those procedures (Board Procedures) which have been provided to it by the Manager (the Trust Documents), and with the instructions and directions of the Manager and of the Board, and co-operate with the Manager’s (or its designee’s) personnel responsible for monitoring the Fund’s compliance. The Subadviser shall also comply at all times with the 1940 Act, the Investment Advisers Act of 1940, as amended (the Advisers Act), the Internal Revenue Code of 1986, as amended, and all other applicable federal and state laws and regulations, including securities law. The Manager shall provide Subadviser timely with copies of any updated Trust or Fund Documents.

 

(iii) The Subadviser shall determine the securities and futures contracts to be purchased or sold by such portion of the Fund’s portfolio, as applicable, and shall place orders with or through such persons, brokers, dealers or futures commission merchants (including but not limited to any broker-dealer affiliated with the Manager or the Subadviser) to carry out the policy with respect to brokerage as set forth in the Fund’s Prospectus or as the Board may direct from time to time. In providing the Fund with investment supervision, it is recognized that the Subadviser shall give primary consideration to seeking best execution. Within the framework of this policy, the Subadviser may consider the receipt of services that affect securities transactions and incidental functions, such as clearance and settlement functions, and advice as to the value of securities, the advisability of investing in securities, the availability of securities or purchasers or sellers of securities and analyses and reports concerning

 

issues, industries, securities, economic factors, trends, portfolio strategy, and the performance of accounts, the financial responsibility, 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 Subadviser’s other clients may be a party. The Manager (or Subadviser) to the Fund each shall have discretion to effect investment transactions for the Fund through broker-dealers (including, to the extent legally permissible, broker-dealers affiliated with the Subadviser(s)) qualified to obtain best execution of such transactions who provide brokerage and/or research services, as such services are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the 1934 Act), and to cause the Fund to pay any such broker-dealers an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker-dealer would have charged for effecting that transaction, if the brokerage or research services provided by such broker-dealer, viewed in light of either that particular investment transaction or the overall responsibilities of the Manager (or the Subadviser) with respect to the Fund and other accounts as to which they or it may exercise investment discretion (as such term is defined in Section 3(a)(35) of the 1934 Act), are reasonable in relation to the amount of commission.  Pursuant to the rules promulgated under Section 326 of the USA PATRIOT ACT, broker-dealers are required to obtain, verify and record information that identities each person who opens an account with them.  In accordance therewith, broker-dealers whom the Subadviser selects to execute transactions in the Fund’s account may seek identifying information about the Trust and/or the Fund.

 

On occasions when the Subadviser deems the purchase or sale of a security or futures contract to be in the best interest of the Fund as well as other clients of the Subadviser, the Subadviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities or futures contracts to be sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities or futures contracts so purchased or sold, as well as the expenses incurred in the transaction, shall be made by the Subadviser in the manner the Subadviser considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients.

The Manager hereby agrees and consents that the Subadviser and its affiliates are authorized to execute cross agency transactions for the Fund, provided such transactions comply with applicable laws and regulations.

(iv) The Subadviser shall maintain all books and records with respect to the Fund’s portfolio transactions effected by it as required by any applicable federal or state securities laws or regulations, including the 1940 Act, the 1934 Act and the Advisers Act. The Subadviser shall furnish to the Manager or the Board all information relating to the Subadviser’s services under this Agreement reasonably requested by the Manager and the Board within a reasonable period of time after the Manager or the Board makes such request. The Subadviser shall make reasonably available its employees and officers for consultation with any of the trustees or officers or employees of the Trust with respect to any matter discussed herein, including, without limitation, the valuation of the Fund’s securities.

 

(v) The Subadviser or its affiliates shall provide the Fund’s Custodian on each business day with information relating to all transactions concerning the portion of the Fund’s assets it manages. The Subadviser shall furnish the Manager routinely with daily information concerning portfolio transactions and other reports as agreed upon from time to time concerning transactions, portfolio holdings and performance of the Fund, in such form and frequency as may be mutually agreed upon from time to time. The Subadviser agrees to review the Fund and discuss the management of the Fund with the Manager and the Board as either or both shall from time to time reasonably request.

 

(vi) The investment management services provided by the Subadviser hereunder are not to be deemed exclusive, and the Subadviser shall be free to render similar services to others. Conversely, the Subadviser and Manager understand and agree that if the Manager manages the Fund in a “manager-of-managers” style, the Manager will, among other things, (i) continually evaluate the performance of the Subadviser through quantitative and qualitative analysis and consultations with the Subadviser (ii) periodically make recommendations to the Trust’s Board as to whether the contract with the Subadviser should be renewed, modified, or terminated and (iii)

 

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periodically report to the Trust’s Board regarding the results of its evaluation and monitoring functions. The Subadviser recognizes that its services may be terminated or modified pursuant to this process.

 

(vii) The Subadviser acknowledges that the Manager and the Trust intend to rely on Rule 17a-10, Rule 10f-3, Rule 12d3-1 and Rule 17e-1 under the 1940 Act, and the Subadviser hereby agrees that it shall not consult with any other Subadviser to the Trust with respect to transactions in securities for the Fund’s portfolio or any other transactions of Fund assets.

 

(b)        The Subadviser shall keep the Fund’s books and records required to be maintained by the Subadviser pursuant to paragraph 1(a) hereof in the form and for the period required by Rule 31a-2 under the 1940 Act. The Subadviser agrees that all records which it maintains for the Fund are the property of the Fund, and the Subadviser shall surrender promptly to the Fund any of such records upon the Fund’s request, provided, however, that the Subadviser may retain a copy of such records. The Fund’s books and records maintained by the Subadviser shall be made available, within a reasonable period of time following submission of a written request, to the Fund’s accountants or auditors during regular business hours at the Subadviser’s offices. The Fund, the Manager or their respective authorized representatives shall have the right to copy any records in the Subadviser’s possession that pertain to the Fund. These books, records, information, or reports may be made available to properly authorized government representatives consistent with state and federal law and/or regulations, provided that the Subadviser is given prior notice of such disclosure, unless such prior notice is prohibited by law or regulation. In the event of the termination of this Agreement, the Fund’s books and records maintained by the Subadviser shall be returned to the Fund or the Manager upon the request of the Trust, provided that the Subadviser shall be permitted to keep copies of such records. The Subadviser agrees that the policies and procedures it has established for managing the Fund’s portfolio, including, but not limited to, all policies and procedures designed to ensure compliance with federal and state laws and regulations governing the adviser/client relationship and management and operation of the Fund, shall be made available for inspection by the Fund, the Manager or their respective authorized representatives upon reasonable written request within not more than two (2) business days.

 

(c)        The Subadviser shall maintain a written code of ethics (the Code of Ethics) that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, a copy of which shall be provided to the Manager and the Fund, and shall institute procedures reasonably necessary to prevent any Access Person (as defined in Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act) from violating its Code of Ethics. The Subadviser shall follow such Code of Ethics in performing its services under this Agreement. Further, the Subadviser represents that it maintains adequate compliance procedures to ensure its compliance with the 1940 Act, the Advisers Act, and other applicable federal and state laws and regulations. In particular, the Subadviser represents that it has policies and procedures regarding the detection and prevention of the misuse of material, nonpublic information by the Subadviser and its employees as required by the Insider Trading and Securities Fraud Enforcement Act of 1988, a copy of which it shall provide to the Manager and the Fund upon reasonable request. The Subadviser shall assure that its employees comply in all material respects with the provisions of Section 16 of the 1934 Act, and to cooperate reasonably with the Manager for purposes of filing any required reports with the Securities and Exchange Commission (the Commission) or such other regulator having appropriate jurisdiction.

 

(d)     The Subadviser shall furnish to the Manager copies of all records prepared in connection with (i) the performance of this Agreement and (ii) the maintenance of compliance procedures pursuant to paragraph 1(c) hereof as the Manager may reasonably request.

 

(e)       The Subadviser shall be responsible for the voting of all shareholder proxies with respect to the investments and securities held in the Fund’s portfolio, subject to such reporting and other requirements as shall be established by the Manager.

 

(f)       Upon reasonable request from the Manager, the Subadviser (through a qualified person) shall assist the valuation committee of the Trust or the Manager in valuing securities of the Fund as may be required from time to

 

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time, including making available information of which the Subadviser has knowledge related to the securities being valued.

 

(g)       The Subadviser shall provide the Manager with any information reasonably requested regarding its management of the Fund’s portfolio required for any shareholder report, amended registration statement, or prospectus supplement to be filed by the Trust with the Commission. The Subadviser shall provide the Manager with any reasonable certification, documentation or other information reasonably requested or required by the Manager for purposes of the certifications of shareholder reports by the Trust’s principal financial officer and principal executive officer pursuant to the Sarbanes Oxley Act of 2002 or other law or regulation. The Subadviser shall promptly inform the Fund and the Manager if any information in the Prospectus is (or will become) materially inaccurate or incomplete.

 

(h)       The Subadviser shall comply with Board Procedures provided to the Subadviser by the Manager or the Fund. The Subadviser shall notify the Manager as soon as reasonably practicable upon detection of any material breach of such Board Procedures.

 

(i)        The Subadviser shall keep the Fund and the Manager informed of developments relating to its duties as Subadviser of which the Subadviser has, or should have, knowledge that would materially affect the Fund. In this regard, the Subadviser shall provide the Trust, the Manager, and their respective officers with such periodic reports concerning the obligations the Subadviser has assumed under this Agreement as the Fund and the Manager may from time to time reasonably request. Additionally, prior to each Board meeting, the Subadviser shall provide the Manager and the Board with reports regarding the Subadviser’s management of the Fund’s portfolio during the most recently completed quarter, in such form as may be mutually agreed upon by the Subadviser and the Manager. The Subadviser shall certify quarterly to the Fund and the Manager that it and its “Advisory Persons” (as defined in Rule 17j-under the 1940 Act) have complied materially with the requirements of Rule 17j-1 under the 1940 Act during the previous quarter or, if not, explain what the Subadviser has done to seek to ensure such compliance in the future. Annually, the Subadviser shall furnish a written report, which complies with the requirements of Rule 17j-1 and Rule 38a-1 under the 1940 Act, concerning the Subadviser’s Code of Ethics and compliance program, respectively, to the Fund and the Manager. Upon written request of the Fund or the Manager with respect to material violations of the Code of Ethics directly affecting the Fund, the Subadviser shall permit representatives of the Fund or the Manager to examine reports (or summaries of the reports) required to be made by Rule 17j-1(d)(1) relating to enforcement of the Code of Ethics.

 

2. The Manager shall continue to have responsibility for all services to be provided to the Fund pursuant to the Management Agreement and, as more particularly discussed above, shall oversee and review the Subadviser's performance of its duties under this Agreement. The Manager shall provide (or cause the Fund’s custodian to provide) timely information to the Subadviser regarding such matters as the composition of assets in the portion of the Fund managed by the Subadviser, cash requirements and cash available for investment in such portion of the Fund, and all other information as may be reasonably necessary for the Subadviser to perform its duties hereunder (including any excerpts of minutes of meetings of the Board that affect the duties of the Subadviser).

 

3. For the services provided pursuant to this Agreement, the Manager shall pay the Subadviser as full compensation therefor, a fee equal to the percentage of the Fund’s average daily net assets (as calculated by the Custodian) of the portion of the Fund managed by the Subadviser as described in the attached Schedule A. Expense caps or fee waivers for the Fund that may be agreed to by the Manager, but not agreed to by the Subadviser, shall not cause a reduction in the amount of the payment to the Subadviser by the Manager.  If this Agreement becomes effective or terminates, or if the manner of determining the applicable fee changes, in the middle of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination or change, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination or change occurs.

 

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4. The Subadviser shall not be liable for any error of judgment or for any loss suffered by the Fund or the Manager in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance or bad faith on the Subadviser’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 Fund may have against the Subadviser under federal or state securities laws. The Manager shall indemnify the Subadviser, its affiliated persons, its officers, directors and employees, for any liability and expenses, including reasonable attorneys’ fees, which may be sustained as a result of the Manager’s willful misfeasance, bad faith, or reckless disregard of its duties hereunder or violation of applicable law, including, without limitation, the 1940 Act and federal and state securities laws. The Subadviser shall indemnify the Manager, their affiliated persons, their officers, directors and employees, for any liability and expenses, including reasonable attorneys’ fees, which may be sustained as a result of the Subadviser’s willful misfeasance, bad faith, or reckless disregard of its duties hereunder or violation of applicable law, including, without limitation, the 1940 Act and federal and state securities laws.  In any event, neither the Subadviser nor its affiliates shall be liable for any loss or damage arising or resulting from the acts or omissions of the Fund’s custodian, any broker, financial institution or any other third party with or through whom the Subadviser arranges or enters into a transaction with respect to the Fund.

 

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 Fund at any time, without the payment of any penalty, by the Board 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 Subadviser 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) or upon the termination of the Management Agreement. The Subadviser agrees that it shall promptly notify the Fund and the Manager of the occurrence or anticipated occurrence of any event that would result in the assignment (as defined in the 1940 Act) of this Agreement, including, but not limited to, a change or anticipated change in control (as defined in the 1940 Act) of the Subadviser; provided that the Subadviser need not provide notice of such an anticipated event before the anticipated event is a matter of public record. Notwithstanding any provisions to the contrary in this Agreement, this Agreement shall terminate automatically and without notice (other than notice to stop trading in the Fund’s portfolio) to the Subadviser upon the execution of a new Agreement with a successor subadviser.

 

Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (1) to the Manager at Gateway Center Three, 100 Mulberry Street, 4th Floor, Newark, NJ 07102-4077, Attention: Secretary; (2) to the Company at Gateway Center Three, 4th Floor, 100 Mulberry Street, Newark, NJ 07102-4077, Attention: Secretary; or (3) to the Subadviser at Eagle Asset Management, Inc. 880 Carillon Parkway, St. Petersburg, FL 33716, Attention: Richard Rossi, Chief Operating Officer, Executive VP, with a copy to Steve Faber, Corporate Counsel at the same address.

 

6.   Nothing in this Agreement shall limit or restrict the right of any of the Subadviser’s directors, officers or employees who may also be a Trustee, officer or employee of the Trust or the Fund 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 a dissimilar nature, nor limit or restrict the Subadviser’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 Subadviser at its principal office all prospectuses, proxy statements, reports to shareholders, sales literature or other material prepared for distribution to shareholders of the Fund or the public, which refer to the Subadviser in any way (including the Subadviser’s name, derivatives thereof and any logo associated therewith), prior to use thereof and not to use material if the Subadviser reasonably objects in writing five business days (or such other time as may be mutually agreed) after receipt thereof and prior to the distribution of such material. Sales literature may be furnished to the Subadviser hereunder by first-class or overnight mail, facsimile transmission equipment or hand delivery. The Manager hereby approves the use of the Manager’s, the Trust’s or the Fund’s name (and any derivatives thereof or any logos associated with those names) on a representative client list of the Subadviser.

 

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8.    The parties to this Agreement each agree to cooperate in a reasonable manner with each other in the event that any of them should become involved in a legal, administrative, judicial or regulatory action, claim, or suit as a result of performing its obligations under this Agreement.

9.   This Agreement may be amended by mutual consent, but the consent of the Company must be obtained in conformity with the requirements of the 1940 Act.

10.

This Agreement shall be governed by the laws of the State of New York.

11. The parties agree that this Agreement shall become effective as of the date that management and control of the Fund’s securities are transferred to the Subadviser from the transition manager responsible for the transition of the Fund’s portfolio.

12. The Manager acknowledges that the Subadviser has provided it with a copy of the Subadviser’s most recent Form ADV as filed with the Securities and Exchange Commission, for its benefit and the benefit of the Trust.

 

This Agreement in no way restricts the Subadviser’s right to perform investment management or other services for any person or entity, and the performance of such services for others shall not be deemed to violate or give rise to any duty or obligation to the Fund or to the Trust.

 

The Trust and the Manager understand that the Subadviser shall not have any obligation to purchase or sell any security for the Fund which it (as investment manager for other clients, or as principal) or its affiliates or employees may purchase or sell for its or their own account or for the account of any other clients, if it is the Subadviser’s opinion that such transaction or investment appears unsuitable or undesirable for the Fund.

13. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act, shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Commission issued pursuant to the 1940 Act. In addition, where the effect of a requirement of the 1940 Act, reflected in any provision of this Agreement, is related by rules, regulation or order of the Commission, such provision shall be deemed to incorporate the effect of such rule, regulation or order.

 

 

IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.

 

PRUDENTIAL INVESTMENTS LLC

 

BY: /s/Judy A. Rice

Name: Judy A. Rice

Title: President

 

EAGLE ASSET MANAGEMENT, INC

 

BY: /s/ Richard J. Rossi

Name: Richard J. Rossi

Title: Co-Chief Operating Officer

 

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Schedule A

SMALL CAPITALIZATION GROWTH PORTFOLIO

As compensation for services provided by Eagle Asset Management, Inc (Eagle), Prudential Investments LLC (PI) will pay Eagle a fee equal, on an annualized basis, to the following:

 

Fund Name

Fee

Small Capitalization Growth Portfolio

0.50% to $50 million; 0.45% over $50 million *

* For purposes of the subadvisory fee calculation, the assets managed by Eagle are aggregated and combined with the funds managed by PI for which Eagle serves as Subadviser that are managed pursuant to substantially the same investment strategy, i.e., Target Asset Allocation Funds (Target Conservative Allocation Fund, Target Moderate Allocation Fund, Target Growth Allocation Fund) and Target Portfolio Trust (Target Small Capitalization Growth Portfolio).

 

Dated as of July 26, 2008.

 

 

 

 

 

 

 

 

 

 

L:\MFApps\CLUSTER 4\Bible\TPT\Advisory Ks\Subadvisory K\EAGLE-TPT- Small Capitalization Growth Portfolio subadvisory agmt 7-26-08.doc

 

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THE TARGET PORTFOLIO TRUST

Small Capitalization Growth Portfolio

 

SUBADVISORY AGREEMENT

 

Agreement made as of this 26th day of July 2008 between Prudential Investments LLC (PI or the Manager), a New York limited liability company, and Ashfield Capital Partners, LLC (the Subadviser or Ashfield), a Delaware limited liability company.

 

WHEREAS, the Manager has entered into a Management Agreement, dated November 9, 1992, (the Management Agreement) with The Target Portfolio Trust, a Delaware statutory trust (the “Trust”) and a diversified, open-end, management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), pursuant to which PI acts as Manager of the Company; and

 

WHEREAS, the Manager desires to retain the Subadviser to provide investment advisory services to the Small Capitalization Growth Portfolio (referred to hereafter as the Fund), which is a series of the Trust, and to manage such portion of the Fund’s portfolio as the Manager shall from time to time direct, and the Subadviser is willing to render such investment advisory services; and

 

NOW, THEREFORE, the Parties agree as follows:

 

1. (a)     Subject to the supervision of the Manager and the Board of Trustees of the Trust (the Board), the Subadviser shall manage such portion of the Fund’s portfolio, including the purchase, retention and disposition thereof, in accordance with the Fund’s investment objectives, policies and restrictions as stated in its then current prospectus and statement of additional information (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”), and subject to the following understandings:

 

(i) The Subadviser shall provide supervision of such portion of the Fund’s portfolio as the Manager shall direct and shall determine from time to time what investments and securities will be purchased, retained, sold or loaned (other than directing a securities lending program) by the Fund, and what portion of the assets will be invested or held uninvested as cash.

 

(ii) In the performance of its duties and obligations under this Agreement, the Subadviser shall act in conformity with the Declaration of Trust, as amended, and the By-Laws of the Trust and Prospectus of the Fund and any procedures adopted by the Board applicable to the Fund and any amendments to those procedures (Board Procedures) which have been provided to it by the Manager (the Trust Documents), and with the instructions and directions of the Manager and of the Board, and co-operate with the Manager’s (or its designee’s) personnel responsible for monitoring the Fund’s compliance. The Subadviser shall also comply at all times with the 1940 Act, the Investment Advisers Act of 1940, as amended (the Advisers Act), the Internal Revenue Code of 1986, as amended, and all other applicable federal and state laws and regulations, including securities law. The Manager shall provide Subadviser timely with copies of any updated Trust or Fund Documents.

 

(iii) The Subadviser shall determine the securities and futures contracts to be purchased or sold by such portion of the Fund’s portfolio, as applicable, and shall place orders with or through such persons, brokers, dealers or futures commission merchants (including but not limited to any broker-dealer affiliated with the Manager or the Subadviser) to carry out the policy with respect to brokerage as set forth in the Fund’s Prospectus or as the Board may direct from time to time. In providing the Fund with investment supervision, it is recognized that the Subadviser shall give primary consideration to seeking best execution. Within the framework of this policy, the Subadviser may consider the receipt of services that affect securities transactions and incidental functions, such as clearance and settlement functions, and advice as to the value of securities, the advisability of investing in securities, the availability of securities or purchasers or sellers of securities and analyses and reports concerning issues, industries, securities, economic factors, trends, portfolio strategy, and the performance of accounts, the

 

financial responsibility, 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 Subadviser’s other clients may be a party. The Manager (or Subadviser) to the Fund each shall have discretion to effect investment transactions for the Fund through broker-dealers (including, to the extent legally permissible, broker-dealers affiliated with the Subadviser(s)) qualified to obtain best execution of such transactions who provide brokerage and/or research services, as such services are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the 1934 Act), and to cause the Fund to pay any such broker-dealers an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker-dealer would have charged for effecting that transaction, if the brokerage or research services provided by such broker-dealer, viewed in light of either that particular investment transaction or the overall responsibilities of the Manager (or the Subadviser) with respect to the Fund and other accounts as to which they or it may exercise investment discretion (as such term is defined in Section 3(a)(35) of the 1934 Act), are reasonable in relation to the amount of commission.  Pursuant to the rules promulgated under Section 326 of the USA PATRIOT ACT, broker-dealers are required to obtain, verify and record information that identities each person who opens an account with them.  In accordance therewith, broker-dealers whom the Subadviser selects to execute transactions in the Fund’s account may seek identifying information about the Trust and/or the Fund.

 

On occasions when the Subadviser deems the purchase or sale of a security or futures contract to be in the best interest of the Fund as well as other clients of the Subadviser, the Subadviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities or futures contracts to be sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities or futures contracts so purchased or sold, as well as the expenses incurred in the transaction, shall be made by the Subadviser in the manner the Subadviser considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients.

The Manager hereby agrees and consents that the Subadviser and its affiliates are authorized to execute cross agency transactions for the Fund, provided such transactions comply with applicable laws and regulations.

(iv) The Subadviser shall maintain all books and records with respect to the Fund’s portfolio transactions effected by it as required by any applicable federal or state securities laws or regulations, including the 1940 Act, the 1934 Act and the Advisers Act. The Subadviser shall furnish to the Manager or the Board all information relating to the Subadviser’s services under this Agreement reasonably requested by the Manager and the Board within a reasonable period of time after the Manager or the Board makes such request. The Subadviser shall make reasonably available its employees and officers for consultation with any of the trustees or officers or employees of the Trust with respect to any matter discussed herein, including, without limitation, the valuation of the Fund’s securities.

 

(v) The Subadviser or its affiliates shall provide the Fund’s Custodian on each business day with information relating to all transactions concerning the portion of the Fund’s assets it manages. The Subadviser shall furnish the Manager routinely with daily information concerning portfolio transactions and other reports as agreed upon from time to time concerning transactions, portfolio holdings and performance of the Fund, in such form and frequency as may be mutually agreed upon from time to time. The Subadviser agrees to review the Fund and discuss the management of the Fund with the Manager and the Board as either or both shall from time to time reasonably request.

 

(vi) The investment management services provided by the Subadviser hereunder are not to be deemed exclusive, and the Subadviser shall be free to render similar services to others. Conversely, the Subadviser and Manager understand and agree that if the Manager manages the Fund in a “manager-of-managers” style, the Manager will, among other things, (i) continually evaluate the performance of the Subadviser through quantitative and qualitative analysis and consultations with the Subadviser (ii) periodically make recommendations to the Trust’s Board as to whether the contract with the Subadviser should be renewed, modified, or terminated and (iii)

 

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periodically report to the Trust’s Board regarding the results of its evaluation and monitoring functions. The Subadviser recognizes that its services may be terminated or modified pursuant to this process.

 

(vii) The Subadviser acknowledges that the Manager and the Trust intend to rely on Rule 17a-10, Rule 10f-3, Rule 12d3-1 and Rule 17e-1 under the 1940 Act, and the Subadviser hereby agrees that it shall not consult with any other Subadviser to the Trust with respect to transactions in securities for the Fund’s portfolio or any other transactions of Fund assets.

 

(b)        The Subadviser shall keep the Fund’s books and records required to be maintained by the Subadviser pursuant to paragraph 1(a) hereof in the form and for the period required by Rule 31a-2 under the 1940 Act. The Subadviser agrees that all records which it maintains for the Fund are the property of the Fund, and the Subadviser shall surrender promptly to the Fund any of such records upon the Fund’s request, provided, however, that the Subadviser may retain a copy of such records. The Fund’s books and records maintained by the Subadviser shall be made available, within a reasonable period of time following submission of a written request, to the Fund’s accountants or auditors during regular business hours at the Subadviser’s offices. The Fund, the Manager or their respective authorized representatives shall have the right to copy any records in the Subadviser’s possession that pertain to the Fund. These books, records, information, or reports may be made available to properly authorized government representatives consistent with state and federal law and/or regulations, provided that the Subadviser is given prior notice of such disclosure, unless such prior notice is prohibited by law or regulation. In the event of the termination of this Agreement, the Fund’s books and records maintained by the Subadviser shall be returned to the Fund or the Manager upon the request of the Trust, provided that the Subadviser shall be permitted to keep copies of such records. The Subadviser agrees that the policies and procedures it has established for managing the Fund’s portfolio, including, but not limited to, all policies and procedures designed to ensure compliance with federal and state laws and regulations governing the adviser/client relationship and management and operation of the Fund, shall be made available for inspection by the Fund, the Manager or their respective authorized representatives upon reasonable written request within not more than two (2) business days.

 

(c)        The Subadviser shall maintain a written code of ethics (the Code of Ethics) that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, a copy of which shall be provided to the Manager and the Fund, and shall institute procedures reasonably necessary to prevent any Access Person (as defined in Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act) from violating its Code of Ethics. The Subadviser shall follow such Code of Ethics in performing its services under this Agreement. Further, the Subadviser represents that it maintains adequate compliance procedures to ensure its compliance with the 1940 Act, the Advisers Act, and other applicable federal and state laws and regulations. In particular, the Subadviser represents that it has policies and procedures regarding the detection and prevention of the misuse of material, nonpublic information by the Subadviser and its employees as required by the Insider Trading and Securities Fraud Enforcement Act of 1988, a copy of which it shall provide to the Manager and the Fund upon reasonable request. The Subadviser shall assure that its employees comply in all material respects with the provisions of Section 16 of the 1934 Act, and to cooperate reasonably with the Manager for purposes of filing any required reports with the Securities and Exchange Commission (the Commission) or such other regulator having appropriate jurisdiction.

 

(d)     The Subadviser shall furnish to the Manager copies of all records prepared in connection with (i) the performance of this Agreement and (ii) the maintenance of compliance procedures pursuant to paragraph 1(c) hereof as the Manager may reasonably request.

 

(e)       The Subadviser shall be responsible for the voting of all shareholder proxies with respect to the investments and securities held in the Fund’s portfolio, subject to such reporting and other requirements as shall be established by the Manager.

 

(f)       Upon reasonable request from the Manager, the Subadviser (through a qualified person) shall assist the valuation committee of the Trust or the Manager in valuing securities of the Fund as may be required from time to

 

3

 

 

time, including making available information of which the Subadviser has knowledge related to the securities being valued.

 

(g)       The Subadviser shall provide the Manager with any information reasonably requested regarding its management of the Fund’s portfolio required for any shareholder report, amended registration statement, or prospectus supplement to be filed by the Trust with the Commission. The Subadviser shall provide the Manager with any reasonable certification, documentation or other information reasonably requested or required by the Manager for purposes of the certifications of shareholder reports by the Trust’s principal financial officer and principal executive officer pursuant to the Sarbanes Oxley Act of 2002 or other law or regulation. The Subadviser shall promptly inform the Fund and the Manager if any information in the Prospectus is (or will become) materially inaccurate or incomplete.

 

(h)       The Subadviser shall comply with Board Procedures provided to the Subadviser by the Manager or the Fund. The Subadviser shall notify the Manager as soon as reasonably practicable upon detection of any material breach of such Board Procedures.

 

(i)        The Subadviser shall keep the Fund and the Manager informed of developments relating to its duties as Subadviser of which the Subadviser has, or should have, knowledge that would materially affect the Fund. In this regard, the Subadviser shall provide the Trust, the Manager, and their respective officers with such periodic reports concerning the obligations the Subadviser has assumed under this Agreement as the Fund and the Manager may from time to time reasonably request. Additionally, prior to each Board meeting, the Subadviser shall provide the Manager and the Board with reports regarding the Subadviser’s management of the Fund’s portfolio during the most recently completed quarter, in such form as may be mutually agreed upon by the Subadviser and the Manager. The Subadviser shall certify quarterly to the Fund and the Manager that it and its “Advisory Persons” (as defined in Rule 17j-under the 1940 Act) have complied materially with the requirements of Rule 17j-1 under the 1940 Act during the previous quarter or, if not, explain what the Subadviser has done to seek to ensure such compliance in the future. Annually, the Subadviser shall furnish a written report, which complies with the requirements of Rule 17j-1 and Rule 38a-1 under the 1940 Act, concerning the Subadviser’s Code of Ethics and compliance program, respectively, to the Fund and the Manager. Upon written request of the Fund or the Manager with respect to material violations of the Code of Ethics directly affecting the Fund, the Subadviser shall permit representatives of the Fund or the Manager to examine reports (or summaries of the reports) required to be made by Rule 17j-1(d)(1) relating to enforcement of the Code of Ethics.

 

2. The Manager shall continue to have responsibility for all services to be provided to the Fund pursuant to the Management Agreement and, as more particularly discussed above, shall oversee and review the Subadviser's performance of its duties under this Agreement. The Manager shall provide (or cause the Fund’s custodian to provide) timely information to the Subadviser regarding such matters as the composition of assets in the portion of the Fund managed by the Subadviser, cash requirements and cash available for investment in such portion of the Fund, and all other information as may be reasonably necessary for the Subadviser to perform its duties hereunder (including any excerpts of minutes of meetings of the Board that affect the duties of the Subadviser).

 

3. For the services provided pursuant to this Agreement, the Manager shall pay the Subadviser as full compensation therefor, a fee equal to the percentage of the Fund’s average daily net assets (as calculated by the Custodian) of the portion of the Fund managed by the Subadviser as described in the attached Schedule A. Expense caps or fee waivers for the Fund that may be agreed to by the Manager, but not agreed to by the Subadviser, shall not cause a reduction in the amount of the payment to the Subadviser by the Manager.  If this Agreement becomes effective or terminates, or if the manner of determining the applicable fee changes, in the middle of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination or change, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination or change occurs.

 

4. The Subadviser shall not be liable for any error of judgment or for any loss suffered by the Fund or the Manager in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance or bad

 

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faith on the Subadviser’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 Fund may have against the Subadviser under federal or state securities laws. The Manager shall indemnify the Subadviser, its affiliated persons, its officers, directors and employees, for any liability and expenses, including reasonable attorneys’ fees, which may be sustained as a result of the Manager’s willful misfeasance, bad faith, or reckless disregard of its duties hereunder or violation of applicable law, including, without limitation, the 1940 Act and federal and state securities laws. The Subadviser shall indemnify the Manager, their affiliated persons, their officers, directors and employees, for any liability and expenses, including reasonable attorneys’ fees, which may be sustained as a result of the Subadviser’s willful misfeasance, bad faith, or reckless disregard of its duties hereunder or violation of applicable law, including, without limitation, the 1940 Act and federal and state securities laws.  In any event, neither the Subadviser nor its affiliates shall be liable for any loss or damage arising or resulting from the acts or omissions of the Fund’s custodian, any broker, financial institution or any other third party with or through whom the Subadviser arranges or enters into a transaction with respect to the Fund.

 

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 Fund at any time, without the payment of any penalty, by the Board 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 Subadviser 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) or upon the termination of the Management Agreement. The Subadviser agrees that it shall promptly notify the Fund and the Manager of the occurrence or anticipated occurrence of any event that would result in the assignment (as defined in the 1940 Act) of this Agreement, including, but not limited to, a change or anticipated change in control (as defined in the 1940 Act) of the Subadviser; provided that the Subadviser need not provide notice of such an anticipated event before the anticipated event is a matter of public record. Notwithstanding any provisions to the contrary in this Agreement, this Agreement shall terminate automatically and without notice (other than notice to stop trading in the Fund’s portfolio) to the Subadviser upon the execution of a new Agreement with a successor subadviser.

 

Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (1) to the Manager at Gateway Center Three, 100 Mulberry Street, 4th Floor, Newark, NJ 07102-4077, Attention: Secretary; (2) to the Company at Gateway Center Three, 4th Floor, 100 Mulberry Street, Newark, NJ 07102-4077, Attention: Secretary; or (3) to the Subadviser at 750 Battery Street, Suite 600, San Francisco, CA 94111, Attention: Claudia Owen, Chief Financial Officer, with a copy to Lesley Jones, Chief Compliance Officer, at the same address.

 

6.   Nothing in this Agreement shall limit or restrict the right of any of the Subadviser’s directors, officers or employees who may also be a Trustee, officer or employee of the Trust or the Fund 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 a dissimilar nature, nor limit or restrict the Subadviser’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 Subadviser at its principal office all prospectuses, proxy statements, reports to shareholders, sales literature or other material prepared for distribution to shareholders of the Fund or the public, which refer to the Subadviser in any way (including the Subadviser’s name, derivatives thereof and any logo associated therewith), prior to use thereof and not to use material if the Subadviser reasonably objects in writing five business days (or such other time as may be mutually agreed) after receipt thereof and prior to the distribution of such material. Sales literature may be furnished to the Subadviser hereunder by first-class or overnight mail, facsimile transmission equipment or hand delivery. The Manager hereby approves the use of the Manager’s, the Trust’s or the Fund’s name (and any derivatives thereof or any logos associated with those names) on a representative client list of the Subadviser.

 

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8.    The parties to this Agreement each agree to cooperate in a reasonable manner with each other in the event that any of them should become involved in a legal, administrative, judicial or regulatory action, claim, or suit as a result of performing its obligations under this Agreement.

9.   This Agreement may be amended by mutual consent, but the consent of the Company must be obtained in conformity with the requirements of the 1940 Act.

10.

This Agreement shall be governed by the laws of the State of New York.

11. The parties agree that this Agreement shall become effective as of the date that management and control of the Fund’s securities are transferred to the Subadviser from the transition manager responsible for the transition of the Fund’s portfolio.

12. The Manager acknowledges that the Subadviser has provided it with a copy of the Subadviser’s most recent Form ADV as filed with the Securities and Exchange Commission, for its benefit and the benefit of the Trust.

 

This Agreement in no way restricts the Subadviser’s right to perform investment management or other services for any person or entity, and the performance of such services for others shall not be deemed to violate or give rise to any duty or obligation to the Fund or to the Trust.

 

The Trust and the Manager understand that the Subadviser shall not have any obligation to purchase or sell any security for the Fund which it (as investment manager for other clients, or as principal) or its affiliates or employees may purchase or sell for its or their own account or for the account of any other clients, if it is the Subadviser’s opinion that such transaction or investment appears unsuitable or undesirable for the Fund.

13. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act, shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Commission issued pursuant to the 1940 Act. In addition, where the effect of a requirement of the 1940 Act, reflected in any provision of this Agreement, is related by rules, regulation or order of the Commission, such provision shall be deemed to incorporate the effect of such rule, regulation or order.

 

 

IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.

 

PRUDENTIAL INVESTMENTS LLC

 

BY: /s Judy A. Rice

Name: Judy A. Rice

Title: President

 

ASHFIELD CAPITAL PARTNERS, LLC

 

BY: /s/ J. Stephen Lauck

Name: J. Stephen Lauck

Title: President and CEO

 

 

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Schedule A

SMALL CAPITALIZATION GROWTH PORTFOLIO

As compensation for services provided by Ashfield Capital Partners, LLC (Ashfield), Prudential Investments LLC (PI) will pay Ashfield a fee equal, on an annualized basis, to the following on assets of the Fund sub-advised by Ashfield under this Agreement:

 

Fund Name

Fee

Small Capitalization Growth Portfolio

0.50% to $200 million; 0.45% over $200 million

 

 

Dated as of July 26, 2008.

 

 

 

 

 

 

 

L:\MFApps\CLUSTER 4\Bible\TPT\Advisory Ks\Subadvisory K\ASHFIELD-TPT-Small Capitalization Growth Portfolio subadvisory agmt 7-26-08.doc

 

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(Execution Copy)

 

Exhibit (d)(2)(xvii)

 

THE TARGET PORTFOLIO TRUST

Large Capitalization Growth Portfolio

 

SUBADVISORY AGREEMENT

 

Agreement made as of this 13 th day of December, 2008 between Prudential Investments LLC (PI or the Manager), a New York limited liability company, and Massachusetts Financial Services Company (the Subadviser or MFS), a Delaware corporation.

 

WHEREAS, the Manager has entered into a Management Agreement, dated December 23, 2004, (the Management Agreement) with The Target Portfolio Trust, a Delaware statutory trust (the “Trust”) and a diversified, open-end, management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), pursuant to which PI acts as Manager of the Trust; and

 

WHEREAS, the Manager desires to retain the Subadviser to provide investment advisory services to the Large Capitalization Growth Portfolio (referred to hereafter as the Fund), which is a series of the Trust, and to manage such portion of the Fund’s portfolio as the Manager shall from time to time direct, and the Subadviser is willing to render such investment advisory services; and

 

NOW, THEREFORE, the Parties agree as follows:

 

1.(a) Subject to the supervision of the Manager and the Board of Trustees of the Trust (the Board), the Subadviser shall manage such portion of the Fund’s portfolio, including the purchase, retention and disposition thereof, in accordance with the Fund’s investment objectives, policies and restrictions as stated in its then current prospectus and statement of additional information (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”), and subject to the following understandings:

 

(i) The Subadviser shall provide supervision of such portion of the Fund’s portfolio as the Manager shall direct and the Subadviser shall have discretion without prior consultation with the Manager to determine from time to time what investments and securities will be purchased, retained, sold or loaned (other than directing a securities lending program) by the Fund, and what portion of the assets will be invested or held uninvested as cash.

 

(ii) In the performance of its duties and obligations under this Agreement, the Subadviser shall act in conformity with the Declaration of Trust, as amended, and the By-Laws of the Trust and Prospectus of the Fund and any procedures adopted by the Board applicable to the Fund and any amendments to those procedures (Board Procedures) which have been provided to it by the Manager (the Trust Documents), and with the instructions and directions of the Manager and of the Board, and co-operate with the Manager’s (or its designee’s) personnel responsible for monitoring the Fund’s compliance. The Subadviser shall also comply at all times with the 1940 Act, the Investment Advisers Act of 1940, as amended (the Advisers Act), the Internal Revenue Code of 1986, as amended, and all other applicable federal and state laws and regulations, including securities law (collectively “Applicable Law”). Subject to the Manager’s oversight, Subadviser shall monitor compliance with Applicable Law based on Subadviser’s books and records and, to the extent provided, information provided by Manager and/or Custodian as defined in Section 3 of this Agreement.

 

The Manager shall provide Subadviser timely with copies of any updated Trust Documents. With the exception of the Prospectus, until the Manager, the Fund, or the Board delivers any Fund Document regarding the management of the Fund or the Subadviser’s duties hereunder to the Subadviser, including, but not limited to, the Trust Documents and Board Procedures, the Subadviser shall not be liable and shall be fully protected in relying on any previously delivered document sent by the Manager, the Fund, or the Board to the Subadviser.

 

(iii) The Subadviser shall determine the securities and futures contracts to be purchased or sold by such portion of the Fund’s portfolio, as applicable, and shall place orders with or through such persons, brokers, dealers or futures commission merchants (including but not limited to any broker-dealer affiliated with the Manager or the Subadviser) to carry out the policy with respect to brokerage as set forth in the Fund’s Prospectus or as the Board may direct from time to time. In providing the Fund with investment supervision, it is recognized that the Subadviser shall give primary consideration to seeking best execution. Within the framework of this policy, the Subadviser may consider the receipt of services that affect securities transactions and incidental functions, such as clearance and settlement functions, and advice as to the value of securities, the advisability of investing in securities, the availability of securities or purchasers or sellers of securities and analyses and reports concerning issues, industries, securities, economic factors, trends, portfolio strategy, and the performance of accounts, the financial responsibility, and other

 

 

(Execution Copy)

 

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 Subadviser’s other clients may be a party. The Manager (or Subadviser) to the Fund each shall have discretion to effect investment transactions for the Fund through broker-dealers (including, to the extent legally permissible, broker-dealers affiliated with the Subadviser(s)) qualified to obtain best execution of such transactions who provide brokerage and/or research services, as such services are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the 1934 Act), and to cause the Fund to pay any such broker-dealers an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker-dealer would have charged for effecting that transaction, if the brokerage or research services provided by such broker-dealer, viewed in light of either that particular investment transaction or the overall responsibilities of the Manager (or the Subadviser) with respect to the Fund and other accounts as to which they or it may exercise investment discretion (as such term is defined in Section 3(a)(35) of the 1934 Act), are reasonable in relation to the amount of commission.  Pursuant to the rules promulgated under Section 326 of the USA PATRIOT ACT, broker-dealers are required to obtain, verify and record information that identities each person who opens an account with them.  In accordance therewith, broker-dealers whom the Subadviser selects to execute transactions in the Fund’s account may seek identifying information about the Trust and/or the Fund.

 

On occasions when the Subadviser deems the purchase or sale of a security or futures contract to be in the best interest of the Fund as well as other clients of the Subadviser, the Subadviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities or futures contracts to be sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities or futures contracts so purchased or sold, as well as the expenses incurred in the transaction, shall be made by the Subadviser in the manner the Subadviser considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients.

The Manager hereby agrees and consents that the Subadviser and its affiliates are authorized to execute cross agency transactions for the Fund, provided such transactions comply with applicable laws and regulations.

(iv) The Subadviser shall maintain all books and records with respect to the Fund’s portfolio transactions effected by it as required by any applicable federal or state securities laws or regulations, including the 1940 Act, the 1934 Act and the Advisers Act. The Subadviser shall furnish to the Manager or the Board all information relating to the Subadviser’s services under this Agreement reasonably requested by the Manager and the Board within a reasonable period of time after the Manager or the Board makes such request. The Subadviser shall make reasonably available its employees and officers for consultation with any of the trustees or officers or employees of the Trust with respect to any matter discussed herein, including, without limitation, the valuation of the Fund’s securities.

 

(v) The Subadviser or its affiliates shall provide the Fund’s Custodian on each business day with information relating to all transactions concerning the portion of the Fund’s assets it manages. The Subadviser shall furnish the Manager routinely with daily information concerning portfolio transactions and other reports as agreed upon from time to time concerning transactions, portfolio holdings and performance of the Fund, in such form and frequency as may be mutually agreed upon from time to time. The Subadviser agrees to review the Fund and discuss the management of the Fund with the Manager and the Board as either or both shall from time to time reasonably request.

 

(vi) The investment management services provided by the Subadviser hereunder are not to be deemed exclusive, and the Subadviser shall be free to render similar services to others. Conversely, the Subadviser and Manager understand and agree that if the Manager manages the Fund in a “manager-of-managers” style, the Manager will, among other things, (i) continually evaluate the performance of the Subadviser through quantitative and qualitative analysis and consultations with the Subadviser (ii) periodically make recommendations to the Trust’s Board as to whether the contract with the Subadviser should be renewed, modified, or terminated and (iii) periodically report to the Trust’s Board regarding the results of its evaluation and monitoring functions. The Subadviser recognizes that its services may be terminated or modified pursuant to this process.

 

(vii) The Subadviser acknowledges that the Manager and the Trust intend to rely on Rule 17a-10, Rule 10f-3, Rule 12d3-1 and Rule 17e-1 under the 1940 Act, and the Subadviser hereby agrees that it shall not consult with any other Subadviser to the Trust with respect to transactions in securities for the Fund’s portfolio or any other transactions of Fund assets.

 

(b)        The Subadviser shall keep the Fund’s books and records required to be maintained by the Subadviser pursuant to paragraph 1(a) hereof in the form and for the period required by Rule 31a-2 under the 1940 Act. The Subadviser agrees that all records which it maintains for the Fund are the property of the Fund, and the Subadviser shall surrender promptly to the Fund any of such records upon the Fund’s request, provided, however, that the Subadviser may retain a copy of such records. The Fund’s books and records maintained by the Subadviser shall be made available, within a reasonable period of time following submission of a written request, to the Fund’s accountants or auditors during regular business hours at the Subadviser’s offices. The Fund, the Manager or their

 

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respective authorized representatives shall have the right to copy any records in the Subadviser’s possession that pertain to the Fund. These books, records, information, or reports may be made available to properly authorized government representatives consistent with state and federal law and/or regulations, provided that the Subadviser is given prior notice of such disclosure, unless such prior notice is prohibited by law or regulation. In the event of the termination of this Agreement, the Fund’s books and records maintained by the Subadviser shall be returned to the Fund or the Manager upon the request of the Trust, provided that the Subadviser shall be permitted to keep copies of such records. The Subadviser agrees that the policies and procedures it has established for managing the Fund’s portfolio (or appropriately detailed summaries) , including, but not limited to, all policies and procedures designed to ensure compliance with federal and state laws and regulations governing the adviser/client relationship and management and operation of the Fund, shall be made available for inspection by the Fund, the Manager or their respective authorized representatives upon reasonable written request within not more than ten (10) business days.

 

(c) The Subadviser shall maintain a written code of ethics (the Code of Ethics) that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, a copy of which shall be provided to the Manager and the Fund, and shall institute procedures reasonably necessary to prevent any Access Person (as defined in Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act) from violating its Code of Ethics. The Subadviser shall follow such Code of Ethics in performing its services under this Agreement. Further, the Subadviser represents that it maintains adequate compliance procedures to ensure its compliance with the 1940 Act, the Advisers Act, and other applicable federal and state laws and regulations. In particular, the Subadviser represents that it has policies and procedures regarding the detection and prevention of the misuse of material, nonpublic information by the Subadviser and its employees as required by the Insider Trading and Securities Fraud Enforcement Act of 1988, a copy of which it shall provide to the Manager and the Fund upon reasonable request. The Subadviser shall assure that its employees comply in all material respects with the provisions of Section 16 of the 1934 Act, and to cooperate reasonably with the Manager for purposes of filing any required reports with the Securities and Exchange Commission (the Commission) or such other regulator having appropriate jurisdiction. The Subadviser shall be responsible for the preparation and filing of Form 13F on behalf of the Fund, unless otherwise directed by the Manager. (d) The Subadviser shall furnish to the Co-Managers copies of all records prepared in connection with the maintenance of compliance procedures pursuant to paragraph 1(c) hereof as the Co-Managers may reasonably request.

 

(e) The Subadviser shall be responsible for the voting of all shareholder proxies with respect to the investments and securities held in the Fund’s portfolio in accordance with the Subadviser’s proxy voting policy and procedures, subject to such reasonable reporting and other requirements as shall be established by the Manager which may include use by Manager of a third-party vendor for proxy voting administration services. .. It shall be the sole responsibility of the Fund, Manager, or Custodian (and not of the Subadviser) to process and file any claim forms relating to any securities class action claims litigation by or on behalf of the Fund.

 

(f) Upon reasonable request from the Manager, the Subadviser (through a qualified person) shall assist the valuation committee of the Trust or the Manager in valuing securities of the Fund as may be required from time to time, including making available information of which the Subadviser has knowledge related to the securities being valued.

 

(g) The Subadviser shall provide the Manager with any information reasonably requested regarding its management of the Fund’s portfolio required for any shareholder report, amended registration statement, or prospectus supplement to be filed by the Trust with the Commission. The Subadviser shall provide the Manager with any reasonable certification, documentation or other information reasonably requested or required by the Manager for purposes of the certifications of shareholder reports by the Trust’s principal financial officer and principal executive officer pursuant to the Sarbanes Oxley Act of 2002 or other law or regulation. The Subadviser shall promptly inform the Fund and the Manager if any information in the Prospectus is (or will become) materially inaccurate or incomplete.

 

(h) The Subadviser shall comply with Board Procedures provided to the Subadviser by the Manager or the Fund. The Subadviser shall notify the Manager as soon as reasonably practicable upon detection of any material breach of such Board Procedures.

 

(i) The Subadviser shall keep the Fund and the Manager informed of developments relating to its duties as Subadviser of which the Subadviser has, or should have, knowledge that would materially affect the Fund. In this regard, the Subadviser shall provide the Trust, the Manager, and their respective officers with such periodic reports concerning the obligations the Subadviser has assumed under this Agreement as the Fund and the Manager may from time to time reasonably request. Additionally, prior to each Board meeting, the Subadviser shall provide the Manager and the Board with reports regarding the Subadviser’s management of the Fund’s portfolio during the most recently completed quarter, in such form as may be mutually agreed upon by the Subadviser and the Manager. The Subadviser shall certify quarterly to the Fund and the Manager that it and its “Advisory Persons” (as defined in Rule 17j-under the 1940 Act) have complied materially with the requirements of Rule 17j-1 under the 1940 Act during the previous quarter or, if not, explain what the Subadviser has done to seek to ensure such compliance in the future. Annually, the Subadviser shall furnish a written

 

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report, which complies with the requirements of Rule 17j-1 and Rule 38a-1 under the 1940 Act, concerning the Subadviser’s Code of Ethics and compliance program, respectively, to the Fund and the Manager. Upon written request of the Fund or the Manager with respect to material violations of the Code of Ethics directly affecting the Fund, the Subadviser shall permit representatives of the Fund or the Manager to examine reports (or summaries of the reports) required to be made by Rule 17j-1(d)(1) relating to enforcement of the Code of Ethics.

 

2. The Manager shall continue to have responsibility for all services to be provided to the Fund pursuant to the Management Agreement and, as more particularly discussed above, shall oversee and review the Subadviser's performance of its duties under this Agreement. The Manager shall provide (or cause the Fund’s custodian to provide) timely information to the Subadviser regarding such matters as the composition of assets in the portion of the Fund managed by the Subadviser, cash requirements and cash available for investment in such portion of the Fund, and all other information as may be reasonably necessary for the Subadviser to perform its duties hereunder (including any excerpts of minutes of meetings of the Board that affect the duties of the Subadviser). The Manager shall provide on an on-going basis a list of all publicly traded affiliates of the Manager which may not be purchased by the Fund (such list shall include security name, cusip number, sedol and/or applicable ticker) and a list of all brokers and underwriters affiliated with the Manager for reporting transactions under applicable provisions of the 1940 Act.

 

3. The assets of the Fund shall be maintained in the custody of a custodian as designated within an agreement between the Fund and the custodian (the “Custodian"). Subadviser shall have no liability for the acts or omissions of the Custodian, unless such act or omission is taken solely in reliance upon instruction given to the Custodian by a representative of Subadviser properly authorized to give such instruction.

 

4. For the services provided pursuant to this Agreement, the Manager shall pay the Subadviser as full compensation therefor, a fee equal to the percentage of the Fund’s average daily net assets (as calculated by the Custodian) of the portion of the Fund managed by the Subadviser as described in the attached Schedule A. Expense caps or fee waivers for the Fund that may be agreed to by the Manager, but not agreed to by the Subadviser, shall not cause a reduction in the amount of the payment to the Subadviser by the Manager.  If this Agreement becomes effective or terminates, or if the manner of determining the applicable fee changes, in the middle of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination or change, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination or change occurs.

 

5.(a) The Subadviser shall not be liable for any error of judgment or for any loss suffered by the Fund or the Manager in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance or bad faith on the Subadviser’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 Fund may have against the Subadviser under federal or state securities laws. The Manager shall indemnify the Subadviser, its affiliated persons, its officers, directors and employees, for any liability and expenses, including reasonable attorneys’ fees, which may be sustained as a result of the Manager’s willful misfeasance, bad faith, or reckless disregard of its duties hereunder or violation of applicable law, including, without limitation, the 1940 Act and federal and state securities laws. The Subadviser shall indemnify the Manager, their affiliated persons, their officers, directors and employees, for any liability and expenses, including reasonable attorneys’ fees, which may be sustained as a result of the Subadviser’s willful misfeasance, bad faith, or reckless disregard of its duties hereunder or violation of applicable law, including, without limitation, the 1940 Act and federal and state securities laws.  In any event, neither the Subadviser nor its affiliates shall be liable for any loss or damage arising or resulting from the acts or omissions of the Fund’s custodian, any broker, financial institution or any other third party with or through whom the Subadviser arranges or enters into a transaction with respect to the Fund.

 

(b) The Manager acknowledges and agrees that the Subadviser makes no representation or warranty, expressed or implied, that any level of performance or investment results will be achieved by the Fund or that the Fund will perform comparably with any standard or index, including other clients of the Subadviser, whether public or private.

6. Subject to the right of each of the Manager and Subadviser to comply with applicable law, including any demand of any regulatory or taxing authority having jurisdiction over it, the parties hereto shall treat as confidential all information pertaining to the Fund and the actions of the Manager and Subadviser in respect thereof. In accordance with Regulation S-P, if non-public personal information regarding either party’s customers or consumers is disclosed to the other party in connection with the Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement.

7. 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 Fund at any time, without the payment of any penalty, by the Board 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 Subadviser 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

 

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terminate automatically in the event of its assignment (as defined in the 1940 Act) or upon the termination of the Management Agreement. The Subadviser agrees that it shall promptly notify the Fund and the Manager of the occurrence or anticipated occurrence of any event that would result in the assignment (as defined in the 1940 Act) of this Agreement, including, but not limited to, a change or anticipated change in control (as defined in the 1940 Act) of the Subadviser; provided that the Subadviser need not provide notice of such an anticipated event before the anticipated event is a matter of public record. Notwithstanding any provisions to the contrary in this Agreement, this Agreement shall terminate automatically and without notice (other than notice to stop trading in the Fund’s portfolio) to the Subadviser upon the execution of a new Agreement with a successor subadviser.

 

8. Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (1) to the Manager at Gateway Center Three, 100 Mulberry Street, 4th Floor, Newark, NJ 07102-4077, Attention: Secretary; (2) to the Trust at Gateway Center Three, 4th Floor, 100 Mulberry Street, Newark, NJ 07102-4077, Attention: Secretary; or (3) to the Subadviser at 500 Boylston Street, Boston, MA 02116, Attention: Secretary.

 

9 Nothing in this Agreement shall limit or restrict the right of any of the Subadviser’s directors, officers or employees who may also be a Trustee, officer or employee of the Trust or the Fund 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 a dissimilar nature, nor limit or restrict the Subadviser’s right to engage in any other business or to render services of any kind to any other corporation, firm, individual or association.

 

10. During the term of this Agreement, the Manager agrees to furnish the Subadviser at its principal office all prospectuses, proxy statements, reports to shareholders, sales literature or other material prepared for distribution to shareholders of the Fund or the public, which refer to the Subadviser in any way (including the Subadviser’s name, derivatives thereof and any logo associated therewith), prior to use thereof and not to use material if the Subadviser reasonably objects in writing five business days (or such other time as may be mutually agreed) after receipt thereof and prior to the distribution of such material. Sales literature may be furnished to the Subadviser hereunder by first-class or overnight mail, facsimile transmission equipment or hand delivery.  The Manager hereby approves the use of the Manager’s, the Trust’s or the Fund’s name (and any derivatives thereof or any logos associated with those names) on a representative client list of the Subadviser.

 

11. The parties to this Agreement each agree to cooperate in a reasonable manner with each other in the event that any of them should become involved in a legal, administrative, judicial or regulatory action, claim, or suit as a result of performing its obligations under this Agreement.

12. .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.

13. This Agreement shall be governed by the laws of the State of New York.

14.  The parties agree that this Agreement shall become effective as of the date that management and control of the Fund’s securities are transferred to the Subadviser from the transition manager responsible for the transition of the Fund’s portfolio.

15.  The Manager acknowledges that the Subadviser has provided it with a copy of the Subadviser’s most recent Form ADV as filed with the Securities and Exchange Commission, for its benefit and the benefit of the Trust.

 

16. This Agreement in no way restricts the Subadviser’s right to perform investment management or other services for any person or entity, and the performance of such services for others shall not be deemed to violate or give rise to any duty or obligation to the Fund or to the Trust. The Trust and the Manager understand that the Subadviser shall not have any obligation to purchase or sell any security for the Fund which it (as investment manager for other clients, or as principal) or its affiliates or employees may purchase or sell for its or their own account or for the account of any other clients, if it is the Subadviser’s opinion that such transaction or investment appears unsuitable or undesirable for the Fund.

 

17.  Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act, shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Commission issued pursuant to the 1940 Act. In addition, where the effect of a requirement of the 1940 Act, reflected in any provision of this Agreement, is related by rules, regulation or order of the Commission, such provision shall be deemed to incorporate the effect of such rule, regulation or order.

 

 

 

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IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.

 

 

 

PRUDENTIAL INVESTMENTS LLC

 

BY:

 

Name: Robert F. Gunia

 

Title: Executive Vice President

 

 

MASSACHUSETTS FINANCIAL SERVICES COMPANY

 

BY:

 

Print Name: ___________________

 

Title: _______________________

 

 

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Schedule A

LARGE CAPITALIZATION GROWTH PORTFOLIO

As compensation for services provided by Massachusetts Financial Services Company (MFS), Prudential Investments LLC will pay MFS a fee equal, on an annualized basis, to the following:

 

 

Fund Name

 

Fee

Large Capitalization Growth Portfolio

 

0.375% of combined average daily net assets up to $250 million; 0.325% of the next $250 million;

0.300% of the next $250 million; and

0.275% of combined average daily net assets over $750 million. *

 

*Combined average daily assets are assets in all portfolios sub-advised by MFS that are managed by Prudential Investments LLC or by Prudential Investments and AST Investment Services, Inc. that have substantially the same investment strategy (i.e. domestic large capitalization growth). Such portfolios are the Large Capitalization Growth Portfolio of The Target Portfolio Trust; Target Conservative Allocation Fund, Target Moderate Allocation Fund and Target Growth Allocation Fund, each a series of Target Asset Allocation Funds; and AST MFS Growth Portfolio, a series of Advanced Series Trust.

 

Dated as of December 13, 2008

 

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Amendment No. 1 to Subadvisory Agreement

 

THE TARGET PORTFOLIO TRUST

Large Capitalization Growth Portfolio

 

Amendment No. 1 dated December 13, 2008, to the Subadvisory Agreement dated December 13, 2008 (the “Subadvisory Agreement”) between Prudential Investments LLC (“PI”) and Massachusetts Financial Services Company (“MFS” or the “Subadviser”).

 

WHEREAS, PI and MFS have entered into the Subadvisory Agreement, and wish to set forth certain responsibilities of PI and MFS in connection with the appointment by PI, acting as investment manager of the mutual funds identified in Annex I (each, the “Fund”), of a transition broker/dealer (“transition manager”) selected and supervised by PI in connection with the sale and purchase by the Fund of certain securities during the Fund’s transition period defined below.

 

NOW THEREFORE, PI and MFS hereby agree as follows:

 

1.          MFS agrees to provide limited subadvisory services to the Fund during the transition period, which will begin when MFS provides a buy list (as defined below) to PI or the transition manager, and will end after MFS has notified PI that the transition manager has corrected any known discrepancies in the Certified List (as defined below) or that no known discrepancies exist in the Certified List. In particular, during the transition period:

 

a.         MFS, acting through its authorized persons identified in Annex II, will provide PI or the transition manager with a buy list (“Buy Portfolio”) identified in Annex III that it would like the transition manager to implement during transition period. Prior to the transition period, PI shall provide MFS with a current and complete list, including ticker symbols, of any securities that the Fund may not purchase (“Fund Restricted Securities”), which shall be set forth in Annex IV. MFS shall not include in the Buy Portfolio any Fund Restricted Securities. MFS shall not be responsible for including any Fund Restricted Securities that are not included on Annex IV .

 

b.         MFS will notify PI or the transition manager of any changes MFS wishes to make to the Buy Portfolio during the transition period while the transition manager is executing the trades. The transition manager will seek to execute all trades on the Buy Portfolio during the transition period. Provided that PI directs the Fund’s custodian to provide MFS with all necessary information regarding corporate actions and that the Fund’s custodian provides MFS with all such information in a timely manner, MFS shall be responsible for giving appropriate instructions to the custodian to address any discretionary corporate actions that affect securities in the Buy Portfolio during the transition period.

 

c.         As soon as practical after the transition manager has executed all trades on the Buy Portfolio, or if MFS and PI otherwise agree that the transition period has ended, the Fund’s custodian will provide MFS with a list of securities held by the Fund and a list of securities not yet settled (“Transition Manager List”). MFS will reconcile the Transition Manager List with the Buy Portfolio, seek to promptly identify any discrepancies, and ask the transition manager to correct any known discrepancies. Once MFS has determined that the transition manager has corrected any known discrepancies in the Transition Manager List or that that no known discrepancies exist, MFS will notify PI of this preliminary determination.

 

d.         The Fund’s custodian will provide MFS with a certified list of securities held by the Fund (“Certified List”) as soon as the transition trades are settled at the custodian. MFS will reconcile the Certified List with other information reasonably available to it, seek to promptly identify any discrepancies, and ask the transition manager to correct any known discrepancies. Once MFS has determined that the transition manager has corrected any known discrepancies in the Certified List or that no known discrepancies exist, MFS will notify PI of this final determination, ending the transition period. MFS will then assume full responsibility for management of the applicable portion of the Fund’s portfolio as Subadviser under the Subadvisory Agreement.

 

2.         a.           PI agrees to take full responsibility for all matters relating to the decision to retain a transition manager and for all actions by the transition manager. In particular, MFS shall have no obligation, under the 1940 Act, the Investment Advisers Act of 1940, or otherwise, to PI or the Fund with respect to the selection of, and services provided by, the transition manager.

 

b.          In addition, PI agrees to indemnify and hold harmless MFS from and against any and all losses, claims, damages or liabilities threatened to be or actually asserted against or incurred by the Fund, MFS, PI, the transition manager, or any other persons arising from or related to the following:

 

 

(i)

PI's selection of Citigroup Global Markets, Inc. as transition manager.

 

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(Execution Copy)

 

(ii)        Services provided by the transition manager to the Fund during the transition period (including, but not limited to, any obligations of best execution).

 

 

(iii)

Any incomplete or erroneous information provided by the transition manager to MFS.

 

(iv)      Any discrepancies between the Buy Portfolio provided to PI or the transition manager and the Transition Manager List, or between the Transition Manager List and the Certified List.

 

 

(v)

Any trades that fail or that settle improperly due to errors by the transition manager.

 

(vi)      MFS’s limited ability to manage the Fund during the transition period, and any delay in MFS’s ability to fully manage the Fund thereafter, such as a delay in the end of the transition period caused by any of the above factors during the transition period.

 

(vii)      Any adverse impact on the investment performance of the Fund or other adverse impact on the Fund that results from any of the above factors during the transition period.

 

3. Except as amended hereby, all terms of the Subadvisory Agreement remain in full force and effect. The parties have signed this Amendment No. 1 below (which may be signed in counterparts).

 

PRUDENTIAL INVESTMENTS LLC, on its behalf and on behalf of each of the Funds listed on Annex I

 

By: __________________________

Name: Robert F. Gunia

Title: Executive Vice President

 

MASSACHUSETTS FINANCIAL SERVICES COMPANY

 

By: __________________________

 

Print Name: __________________________

Title: __________________________

 

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(Execution Copy)

 

ANNEX I

 

List of Fund(s) subject to the Transition

 

THE TARGET PORTFOLIO TRUST

Large Capitalization Growth Portfolio

 

 

ANNEX II

List of Subadviser’s Authorized Persons

 

[to be separately provided by Subadviser]

 

 

ANNEX III

 

Buy Portfolio

 

[to be separately provided by Subadviser]

 

 

ANNEX IV

 

FUND RESTRICTED SECURITIES

 

 

Prudential Financial, Inc. (Ticker: PRU )

 

 

 

10

 

 

 

Ex. (m)(2)

THE TARGET PORTFOLIO TRUST

(Each Series as Specified Below)

 

NOTICE OF RULE 12B-1 FEE WAIVER

Class R Shares

 

THIS NOTICE OF RULE 12B-1 FEE WAIVER is signed as of November 1, 2008, by PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (PIMS), the principal underwriter of Large Capitalization Growth Portfolio, Large Capitalization Value Portfolio, Small Capitalization Growth Portfolio, Small Capitalization Value Portfolio, International Equity Portfolio and Total Return Bond Portfolio, each a series of The Target Trust Portfolio, an open-end management investment company (the Fund).

 

WHEREAS, PIMS desires to waive a portion of its distribution and shareholder services fees payable on Class R shares of the Fund (Rule 12b-1 fees); and WHEREAS, PIMS understands and intends that the Fund will rely on this Notice and agreement in preparing a registration statement on Form N-1A and in accruing the Fund’s expenses for purposes of calculating net asset value and for other purposes, and expressly permits the Fund to do so; and WHEREAS, shareholders of the Fund will benefit from the ongoing contractual waivers by incurring lower Fund operating expenses than they would absent such waivers. NOW, THEREFORE, PIMS hereby provides notice that it has agreed to limit the distribution and service (12b-1) fees incurred by Class R shares of the Fund to .5 of 1% of the average daily net assets of the Fund.  This contractual waiver shall be effective from the date hereof until February 28, 2010.

 

 

IN WITNESS WHEREOF, PIMS has signed this Notice of Rule 12b-1 Fee Waiver as of the day and year first above written.

 

PRUDENTIAL INVESTMENT

MANAGEMENT SERVICES LLC

 

By: /s/ Robert F. Gunia

Name: Robert F. Gunia

Title: President

 

 

 

Effective March 2008

 

A SHFIELD C APITAL P ARTNERS LLC

Code of Ethics

General

The Securities and Exchange Commission adopted Rule 204A-1 requiring advisers to establish, maintain, and enforce a written code of ethics. The code of ethics, at a minimum, must include: (1) standards of business conduct that the investment adviser requires of its supervised persons; (2) provisions requiring supervised persons to comply with applicable Federal securities laws; (3) provisions that require all access persons to report, and the investment adviser to review, their personal securities transactions and holdings periodically; (4) provisions requiring supervised persons to report any violations of the investment adviser’s code of ethics promptly to the firm’s Chief Compliance Officer; and (5) provisions requiring the investment adviser to provide each of its supervised persons with a copy of its code of ethics and any amendments, and requiring its supervised persons to provide the investment adviser with a written acknowledgment of their receipt of the code and any amendments.

 

Policy

I. O VERVIEW

Ashfield Capital Partners LLC is a registered investment adviser with the Securities and Exchange Commission. Ashfield Capital Partners developed this Code of Ethics (the “Code”) to comply with Rule 204A-1 under the Investment Advisers Act of 1940, as amended, and Rule 17j-1 under the Investment Company Act of 1940, as amended. Rule 204A-1 requires investment advisers registered with the Securities and Exchange Commission and Rule 17j-1 generally requires an investment adviser to a mutual fund to establish, maintain, and enforce a written Code of Ethics.

 

Unless provided otherwise, this Code is applicable to Ashfield Capital Partners’ directors, officers, and employees (referred to herein as “Employees”). All Employees are considered as “Access Persons” as defined in Rule 204A-1. Access Persons does not include any officer, director or employee of Ashfield Capital Partners that is subject to a code of ethics that has been reviewed and approved by Ashfield Capital Partners. Ashfield Capital Partners’ Chief Compliance Officer has overall supervisory responsibility for Ashfield Capital Partners’ Compliance Program, including this Code, and serves directly, or appoints a designate to serve, as the Review Officer under this Code.

 

II. S TANDARDS OF B USINESS C ONDUCT

General Standards

All Employees are required to comply with applicable federal securities laws. Employees must report violations of this Code to the Review Officer. No Employee may:

1. employ any device, scheme or artifice to defraud any client;

2. make any untrue statement of a material fact to any client or omit to state a material fact

necessary in order to make the statements made to a client, in light of the circumstances under

which they are made, not misleading;

3. engage in any act, practice or course of business that operates or would operate as a fraud or

deceit on a client; or

4. engage in any manipulative practice with respect to a client.

 

 

Front-Running

Employees should not intentionally seek to engage in inappropriate personal trading activities and are strictly prohibited from front-running. Front-running generally involves the intentional placement of a personal security order “in front” of a client’s order to buy or sell the same security that would result in a better price than the client.

 

Personal Gain on Client Accounts/Conflicts of Interest

1. Employees are prohibited from directly sharing in client gains or losses. This prohibition is

designed to eliminate potential conflicts of interest.

2. Employees must report all Reportable Securities in their Personal Accounts (including certain

other accounts e.g. spouse and minor children) to the Compliance Department each quarter (See

Section VII.C.). The Review Officer will review the transactions statements for conflicts of

interest.

 

Insider Trading

Employees are prohibited from trading on the basis of material, nonpublic inside information. (See Section IV).

 

Advisory Agreements

With respect to entering new investment advisory agreements, Employees may not:

• execute any investment advisory agreement on behalf of Ashfield Capital Partners unless such

person is the Chief Executive Officer, or is authorized by the Chief Executive Officer;

• provide investment advisory services to any person before a written investment advisory

agreement has been entered into with such person in accordance with Ashfield Capital Partners’

account opening procedures;

• modify the terms of any standard form of investment advisory agreement for clients without the

prior approval of the Review Officer; or

• enter into a directed brokerage arrangement with a client without the approval of the Review

Officer, who will ensure that appropriate disclosure provisions are provided to the client.

 

Solicitation/Referral Fee Arrangements

Employees may not enter into an agreement on behalf of Ashfield Capital Partners with any person to solicit clients or potential clients for Ashfield Capital Partners without the prior written approval of the Review Officer. In addition, Employees may not pay, or agree to pay, any person a fee for recommending Ashfield Capital Partners to any client or potential client without the prior written approval of the Review Officer and compliance with applicable regulations.

 

Recommendations/Transactions for Client Accounts

1. Employees may not recommend a transaction to any client unless the person making such

recommendation is the Portfolio Manager, or a designate of the Portfolio Manager, for the

client’s account.

2. No Employee serving as an Ashfield Capital Partners Trader shall effect a transaction for any

client’s account unless the Portfolio Manager, or the Portfolio Manager’s designate, for the

account has directed the Trader to effect the transaction.

 

Advertisements

No Employee may publish, circulate, or distribute any advertisement without prior review by the Review Officer.

 

 

No Guarantees to Clients

Employees shall not guarantee any client that a specific result will be achieved (i.e., a gain or no loss) as a result of the advice that will be rendered.

 

Disclosure of Client Information

Ashfield Capital Partners operates under a fiduciary relationship with its clients. As a result of this relationship, Employees regularly obtain access to confidential client information. Employees of Ashfield Capital Partners are prohibited from disclosing that confidential client information to any person, other than for appropriate business purposes, without the express written consent of the client. No Employee shall disclose the identity, affairs, or investments of any client to a third party without first receiving the approval of the Review Officer (this prohibition governs all disclosures, including disclosures made pursuant to Ashfield Capital Partners’ “advertisements”). In certain cases, clients may have approved the disclosure of their names in a list of Ashfield Capital Partners clients; however, the Review Officer shall approve any such lists to ensure that appropriate disclosures are included. In addition, Ashfield Capital Partners’ Privacy Policy also address the confidentiality of client information.

 

Borrowing from/Lending to Clients

Employees are strictly prohibited from borrowing money or securities from a client. In addition,

Employees are also prohibited from lending money to a client. Loaning funds to clients could influence decisions made on behalf of the client and create a conflict of interest due to the indebtedness of the client to the Employee.

 

Gifts and Gratuities

Employees shall not give nor accept gifts in excess of $100 from a broker-dealer, investment adviser, or others who engage in business with Ashfield Capital Partners, in a given year to/from the same source without prior approval by the Employee’s supervisor and the Review Officer. Gifts of cash may never be accepted or disbursed by an Employee. All gifts must be reported to the Review Officer using the Gift Report Form ( Exhibit I ) Gifts and gratuities are distinguishable from business entertainment. Employees may participate in an entertainment event as part of client services or some other legitimate business purpose. For purpose of these policies, the key factor in distinguishing between business entertainment and a “gift and gratuity” is

whether the Employee and the client or other third-party business participant attend a business

entertainment event together, with a business purpose, or simply give or receive tickets to an

entertainment event.

 

Recording Conversations

Employees are prohibited from recording telephone or other conversations with any client without letting them know. For Employees on Ashfield Capital Partners’ trade desk, Employees are prohibited from recording trade desk telephone conversations without the “beeping” device to alert the other party that the call is being recorded.

 

Misrepresentations

Employees shall not make any misrepresentation (through omission or commission) to a client or

prospective client, including any misrepresentation relating to the qualifications of Ashfield Capital Partners, its representatives or Employees, the nature of the advisory services being offered, or the fees charged for such services.

 

Trading Errors/Falsification of Records

1. Employees are required to promptly notify the Review Officer that a trade has been

mistakenly executed or not executed for any client. (See Ashfield Capital Partners’ trade error

 

policies contained in Ashfield Capital Partners’ Compliance Manual.)

2. Employees shall never falsify any information on Ashfield Capital Partners’ records,

including any information pertaining to a client’s account, including a trading error.

 

Media/Lecture Activities

Employees of Ashfield Capital Partners are prohibited from engaging in the following activities, except as provided below:

• Appear on radio or television without notifying the Review Officer.

• Giving any lecture or accepting a public speaking engagement without notifying the Review

Officer.

• Being interviewed, or consenting to be interviewed, by any newspaper reporter, magazine

writer, or any other media representative without notifying the Review Officer.

• All inquiries regarding interviews, appearances, or lectures are to be referred to the Review

Officer. Employees are required to notify the Review Officer in a timely manner (prior to

participation is preferred).

 

Changes in Personal or Disciplinary Information

Ashfield Capital Partners has a strict obligation to disclose certain information pertaining to Employees’ personal and business activities, included in Form ADV and an individual’s Form U-4. Therefore, as provided in Ashfield Capital Partners’ Compliance Manual, Employees are required to promptly notify Ashfield Capital Partners’ Review Officer of changes to information that is required to be disclosed. Thus, it is prohibited for any Employee to engage in the following activities:

• Failing to promptly notify the Review Officer of any changes to the Employee’s information

that would result in amendments to Ashfield Capital Partners’ disciplinary disclosures on Part

1 of Form ADV, other disclosures contained in Form ADV, the individual’s Form U-4, or

any other registration information on file for such person on the IARD, the CRD, or with any

state.

• Failing to promptly notify the Review Officer that such person has been, or has become,

involved in any legal or disciplinary action of any type, including any civil or criminal

proceeding or any administrative proceeding before the Securities and Exchange Commission

or any other regulatory agency.

 

Activities for Entities Other Than Ashfield Capital Partners

No Employee shall engage in outside business or personal activities that interfere with the Employee’s performance of his or her duties to Ashfield Capital Partners and its clients, or which relate to Ashfield Capital Partners’ advisory business, in particular, and the securities industry, generally. Employees shall not own, operate, manage, or otherwise engage in or be employed by any outside business or activity without written prior notification to and the approval of the Review Officer. In order to monitor such outside activities, each Employee is required to complete a “Statement of Outside Activities Form,” which is attached to this Code as Exhibit H . Each new Employee will also be required to complete the form. Should any Employee’s Statement of Outside Activities form become inaccurate, the Employee must submit a new form.

The activities listed below require the prior written approval of the Review Officer:

1. Being an employee, officer, director, partner, owner, or registered agent of any investment

adviser other than Ashfield Capital Partners or being separately licensed as an investment

adviser or otherwise engaging in investment advisory activities for compensation apart from

such person’s activities with Ashfield Capital Partners.

2. Being an employee, officer, director, partner, owner, or registered agent of any broker-dealer,

or holding a license with a broker-dealer.

3. Being an employee, officer, director, partner, owner, or registered agent of any commodities

 

trading adviser.

4. Engaging in commodities trading activities without the appropriate license.

5. Being an employee, officer, director, partner, or registered agent of any issuer of securities in

which transactions are pending or are currently considered and current holdings in client

portfolios under Ashfield Capital Partners’ management (collectively the “Securities

Universe”).

6. Engaging in sales activities for any issuer of securities.

7. Engaging in any other outside business activity, establishing or maintaining a personal

holding company, being a general partner in a partnership, or being a party in any joint

venture.

8. Serving as a trustee of any trust that is a client of Ashfield Capital Partners.

9. Failing to promptly report to the Review Officer any of the foregoing activities or failing to

obtain required approvals.

 

III. P ERSONAL T RADING P OLICIES AND C OMPLIANCE P ROCEDURES

Ashfield Capital Partners has adopted this Code as a part of its overall compliance program. The Code sets out the details of Ashfield Capital Partners’ compliance requirements for its Employees and has been adopted by Ashfield Capital Partners. Ashfield Capital Partners and its Employees have a fiduciary obligation to make certain that firm and individual personal trading does not conflict with the interests of Ashfield Capital Partners’ clients. Therefore, Ashfield Capital Partners has adopted a policy that discourages its Employees from trading in individual securities for their Personal Accounts. Ashfield Capital Partners does encourage all Employees who like to invest in the stock markets to invest in mutual fund products. Such investments may (but are

not required to) include the mutual funds advised by Ashfield Capital Partners or the various mutual funds organized by its affiliates. Personal investments in mutual fund products, other than those advised by Ashfield Capital Partners or organized by its affiliates (“Affiliated Funds”), are exempt from the reporting requirements set out in this Code; however, investment in Affiliated Funds are reportable (see Section VII.C.) and mutual funds advised by Ashfield Capital Partners (“Managed Funds”) may not be bought and then sold at a profit in less than a 90 day calendar period. (See the Compliance Department for a listing of Affiliated Funds)

 

Employees are permitted to invest in mutual funds; closed-end funds; exchange-traded funds; private investment funds and private equities (“Limited Offerings”); and federal, state, and local government obligations. Certain personal investments permitted by the Code require pre-approval of the Head Trader, or his designate, and the Review Officer. The compliance procedures for each type of personal investment permitted by the Code are set out in Section VII. Further, Ashfield Capital Partners reminds Employees, that federal securities laws, as well as Ashfield

Capital Partners’ policies, prohibit trading on the basis of inside information. Federal law prohibits Ashfield Capital Partners and each of its Employees from purchasing or selling any publicly traded stock, bond, option, or other security on the basis of material, nonpublic information (i.e., insider trading). In addition, Ashfield Capital Partners and each of its Employees have a fiduciary obligation to Ashfield Capital Partners’ clients to protect the confidentiality of all proprietary, sensitive, or other confidential information communicated to Ashfield Capital Partners or such Employees by Ashfield Capital Partners’ clients. Finally, because Ashfield Capital Partners and each of its Employees is a fiduciary to Ashfield

Capital Partners’ clients, Ashfield Capital Partners and such Employees must also maintain the highest ethical standards and refrain from engaging in activities that may create actual or apparent conflicts between the interests of Ashfield Capital Partners or such Employees and the interests of Ashfield Capital Partners’ clients.

 

To ensure that insider trading laws are not violated, that client confidences are maintained, and that conflicts of interest are avoided, Ashfield Capital Partners has adopted this Code. The policies and procedures set forth herein are intended to articulate Ashfield Capital Partners’ policies, educate the Employees about the issues and Ashfield Capital Partners’ policies, establish procedures for complying with those policies, monitor compliance with such policies and procedures, and ensure, to the extent feasible, that Ashfield Capital Partners satisfies its obligations in this area. By doing so, Ashfield Capital Partners hopes that the highest ethical standards are maintained and that the reputation of Ashfield Capital Partners is sustained.

 

IV. P OLICIES TO P REVENT I NSIDER T RADING

A. Insider Trading

It is unlawful to engage in “insider trading.” This means, in general, that no “insider” may (i) purchase or sell a security on the basis of material, nonpublic information or (ii) communicate material, nonpublic information to another where the communication leads to, or is intended to lead to, a purchase or sale of securities. The restrictions pertaining to trading on inside information also prohibits Employees from engaging in personal trading in Affiliated Funds while in possession of inside information. Thus, to educate the Employees, more information describing “insider trading” and the penalties for such trading is set forth below.

 

B. Other Confidential Information

Certain information obtained by Ashfield Capital Partners that does not constitute “inside” information will still constitute confidential information that must be protected by Ashfield Capital Partners and its Employees. Compliance procedures regarding the use and treatment of that confidential information are set forth below.

 

C. Conflicts of Interest

As a fiduciary to Ashfield Capital Partners’ clients, each Employee must avoid actual and apparent conflicts of interest with Ashfield Capital Partners’ clients. Such conflicts of interest could arise if securities are bought or sold for Personal Accounts in a manner that would significantly compete with the purchase or sale of securities for client accounts, or if securities are bought or sold for client accounts in a manner that is advantageous to such Personal Accounts. Also, the Securities and Exchange Commission has determined that it is a conflict of interest for an investment adviser’s employees to personally take advantage of a limited investment opportunity without first considering whether the investment is appropriate for any of the adviser’s clients. If so, Employees are first obligated to make such limited opportunity available to Ashfield Capital Partners’ clients. More information describing such conflicts of interest and the compliance procedures for avoiding such conflicts of interest are set forth below.

 

V. I NSIDER T RADING

A. Insider Trading Defined

The term “insider trading” is generally used to refer to (i) a person’s use of material, nonpublic

information in connection with transactions in securities and (ii) certain communications of material, nonpublic information. The laws concerning insider trading generally prohibit the:

• purchase or sale of securities by an insider, on the basis of material, nonpublic

information;

• purchase or sale of securities by a non-insider, on the basis of material, nonpublic

information where the information was disclosed to the non-insider in violation of an

insider’s duty to keep the information confidential or was misappropriated; or

• communication of material, nonpublic information in violation of a confidentiality

 

obligation where the information leads to a purchase or sale of securities.

 

1. Who is an Insider?

The concept of “insider” is broad. It includes officers, directors, partners, employees, and majority shareholders of a company or other entity. In addition, a person can be considered a “temporary insider” of a company or other entity if he or she enters into a confidential relationship in the conduct of the company’s or entity’s affairs and, as a result, is given access to information that is intended to be used solely for such company’s or entity’s purposes. A temporary insider can include, among others, an entity’s attorneys, accountants, consultants, investment bankers, commercial bankers, and the employees of such organizations. In order for a person to be considered a temporary insider of a particular entity, the entity must expect that the person receiving the information keeps the information confidential and the relationship between the entity and the person must at least imply such a duty. Analysts are usually not considered insiders of the entities that they follow, although if an analyst is given confidential information

by an entity’s representative in a manner in which the analyst knows or should know to be a breach of that representative’s duties to the entity, the analyst may become a temporary insider.

 

2. What is Material Information?

Trading on inside information is not a basis for liability unless the information is “material.” Material information is generally defined as information that a reasonable investor would likely consider important in making his or her investment decisions, or information that is reasonably certain to have a substantial effect on the price of a company’s securities.

Information that should be considered material includes, but is not limited to: dividend changes, earnings estimates, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidity problems and extraordinary management developments. Material information does not have to relate to a company’s business, it can be significant market information. For example, a reporter for The Wall Street Journal was found criminally liable for disclosing to others the dates on which reports on various companies would appear in The Wall Street Journal and whether or not those reports would be favorable.

 

3. What is Nonpublic Information?

Information is nonpublic unless it has been effectively communicated to the market place. For

information to be considered public, one must be able to point to some fact to show that the information has been generally disseminated to the public. For example, information found in a report filed with the Securities and Exchange Commission or appearing in Dow Jones , Reuters Economic Services , The Wall Street Journal, or another publication of general circulation is considered public. Market rumors are not considered public information.

 

B. Penalties for Insider Trading

Penalties for trading on or communicating material nonpublic information are severe, both for the

individuals involved in the unlawful conduct and for their employers. A person can be subject to some or all of the penalties set forth below even if he or she does not personally benefit from the violation. Penalties include:

• civil injunctions;

• disgorgement of profits;

• jail sentences;

• fines for the person who committed the violation of up to three times the profit gained or

loss avoided (per violation or illegal trade), whether or not the person actually benefited

from the violation; and

• fines for the employer or other controlling person of the person who committed the

violation of up to the greater of $1,000,000 or three times the amount of the profit gained or

 

loss avoided (per violation, or illegal trade).

In addition, violations of the procedures set forth in this Code can be expected to result in sanctions imposed by and at the discretion of Ashfield Capital Partners, including but not limited to dismissal of the persons involved.

 

C. Policy Statement Regarding Insider Trading

Ashfield Capital Partners expects that each of its Employees will obey the law and not trade on the basis of material, nonpublic information. In addition, Ashfield Capital Partners discourages its Employees from seeking or knowingly obtaining material, nonpublic information. Ashfield Capital Partners also prohibits each of its Employees from serving as an officer or director of any company issuing publicly-traded securities.

 

D. Procedures to Prevent Insider Trading

Since Ashfield Capital Partners does not have an investment banking division or affiliate, Employees generally do not serve as officers or directors of companies having publicly-traded securities (unless preapproved by the Review Officer as not presenting a potential for a conflict of interest) and Ashfield Capital Partners’ portfolio managers do not regularly contact public issuers or analysts, Ashfield Capital Partners does not anticipate that its Employees will routinely be in receipt of material, nonpublic information concerning individual securities. From time to time, however, Employees may receive such information. In addition, Employees may possess inside information concerning its affiliates and the mutual funds advised by Ashfield Capital Partners or organized by its affiliates. If any Employee receives any information which may constitute material, nonpublic information, such Employee (i) should not buy or sell any securities, including options or other securities convertible into or exchangeable for such securities for a Personal Account or a client account; (ii) should not communicate such information to any

other person (other than the Review Officer; and (iii) should discuss promptly such information with the Review Officer. Under no circumstances should such information be shared with any persons not employed by Ashfield Capital Partners, including family members and friends.

 

E. Inside Information Regarding Old Mutual plc Stock

If an Employee becomes aware of any inside information regarding planned actions or reports by

Ashfield Capital Partners’ parent company, Old Mutual plc, that Employee shall not trade in Old Mutual plc stock until the information is made public. It is Ashfield Capital Partners’ policy that, with respect to Old Mutual plc, all inside information is deemed “material” for purposes of this specific policy. Thus, there is a “black-out” period for Employees trading in Old Mutual plc stock until there is full public disclosure of the planned actions or reports. Employees trading in Old Mutual plc stock are also subject to Ashfield Capital Partners’ pre-approval and reporting requirements.

 

F. Inside Information Regarding Publicly-Traded Funds

Insider-trading laws do apply to publicly-traded funds. Thus, employees of Ashfield Capital Partners who become aware of material, nonpublic information regarding publicly traded funds are subject to insider trading procedures, as contained in this Code. This situation is most likely to come about in connection with the mutual funds that are managed by Ashfield Capital Partners, but may also arise in connection with funds that are managed by affiliates of Ashfield Capital Partners or Old Mutual plc.

 

VI. O THER C ONFIDENTIAL I NFORMATION

A. Confidential Information Defined

As noted above, even if Ashfield Capital Partners and its Employees do not receive material, nonpublic information (i.e., “inside information”), such persons may receive other confidential or

 

sensitive information from or about Ashfield Capital Partners’ clients and they may receive confidential or sensitive information about Ashfield Capital Partners’ affairs. Such confidential or sensitive information may include, among other things:

 

• the name of the client. Except for appropriate business purposes, Ashfield Capital Partners

will not to divulge or use its clients’ names without their consent;

• financial or other information about the client, such as the client’s financial condition or the

specific securities held in a specific client’s portfolio;

• the names of the securities on Ashfield Capital Partners’ buy, sell, and source of funds lists;

• the name of any security under consideration for placement on the buy, sell, or source of

funds list; and

• any information privately given to an Employee that, if publicly known, would be likely to (i)

affect the price of any security in the portfolio of any client of Ashfield Capital Partners or

(ii) embarrass or harm the client or Ashfield Capital Partners.

 

Given the breadth of the above, all information that an Employee obtains through Ashfield Capital Partners should be considered confidential unless that information is specifically available to the public.

 

B. Policy Statement Regarding Use and Treatment of Confidential Information

All confidential information, whatever the source, may be used only in the discharge of the Employee’s duties with Ashfield Capital Partners. Confidential information may not be used for any personal purpose, including the purchase or sale of securities for a Personal Account, including mutual fund shares.

 

C. Procedures Regarding Use and Treatment of Confidential Information

Ashfield Capital Partners encourages its Employees to be aware of, and sensitive to their treatment of confidential information. Ashfield Capital Partners prohibits its Employees from discussing such information unless necessary as part of their duties and responsibilities to Ashfield Capital Partners. Furthermore, Ashfield Capital Partners requires that each Employee take precautions to avoid storing confidential information in plain view in public areas of Ashfield Capital Partners’ facilities, and requires that each Employee remove confidential information from conference rooms, reception areas, and other areas where it may be seen by third parties. Particular care should be exercised when confidential information must be discussed in public places, such as restaurants, elevators, taxicabs, trains, or airplanes, where such information may be overheard. Under no circumstances may confidential information be shared with any person, including any spouse or other family member, who is not an Employee of Ashfield Capital Partners.

 

VII. T RADING S ECURITIES FOR P ERSONAL A CCOUNTS

A. Policy Statement Regarding Trading for Personal Accounts

Ashfield Capital Partners recognizes that the personal investment transactions of its Employees demand the application of a strict code of ethics. Consequently, Ashfield Capital Partners requires that all personal investment transactions be carried out in a manner that will not endanger the interest of any client or create any apparent or actual conflict of interest between Ashfield Capital Partners and its Employees, on the one hand, and the client, on the other hand. Because Ashfield Capital Partners and each of its Employees is a fiduciary to Ashfield Capital Partners’ clients, such persons must avoid actual and apparent conflicts of interest with Ashfield Capital Partners’

clients. The client’s interest takes precedence over the personal interests of Ashfield Capital Partners and its Employees. If a potential conflict arises, Ashfield Capital Partners and the Employee must resolve the matter in the client’s favor.

 

 

Ashfield Capital Partners’ management takes the position that it is a conflict of interest for Employees to engage in excessive personal trading, since to do so would interfere with Employees’ obligations to focus their attention on Ashfield Capital Partners’ clients during the trading day. Employees spending company time researching trading opportunities in securities outside of Ashfield Capital Partners’ Securities Universe for personal trading purposes are not meeting their obligations to Ashfield Capital Partners’ clients. Similarly, Employees researching trading opportunities within Ashfield Capital Partners’ Securities Universe should be doing so for the benefit of Ashfield Capital Partners’ clients, rather than their personal trading. Reportable Security means any security as defined in Section 202(a)(18) of the Adviser’s Act except that

it does not include:

(i) direct obligations of the Government of the United States;

(ii) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term

debt instruments, including repurchase agreements;

(iii) shares issued by money market funds;

(iv) shares issued by open-end funds other than Affiliated Funds; and

(v) shares issued by unit investment trusts that are invested exclusively in one or more open-end

funds, none of which are Affiliated Funds.

 

As an overall Ashfield Capital Partners policy, Employees are not permitted to invest in options or futures of any kind or in initial public offerings. Furthermore, Employees are expected to not trade for short-term profits (60 days or less) in Reportable Securities. This short-term trading restriction does not apply to transactions: deemed by the Review Officer to be nondiscretionary on the part of the Employee, in Affiliated Funds, in municipal fund securities and in Exchange Traded Funds (ETFs). ETFs are portfolios of securities that trade throughout the day on an exchange. A closed-end mutual fund is not an ETF. It does not restrict the closing of positions at a loss.

 

While certain personal transactions are only required to be reported, usually through duplicate

confirmations and statements and/or quarterly reports, to assist Ashfield Capital Partners in monitoring its Employees’ compliance with this Code, Ashfield Capital Partners has adopted a pre-clearance procedure for certain personal transactions (See Section VII.C.4.).

 

B. Personal Account Defined

1. Generally

The “Personal Account” of an Employee shall include each and every account (other than an account for the benefit of any of Ashfield Capital Partners’ clients) for which such Employee influences or controls investment decisions or in which an Employee may transact in Reportable Securities. An account for the benefit of any of the following will be presumed to be a “Personal Account” unless Ashfield Capital Partners and the Employee otherwise agree in writing.

• an Employee of Ashfield Capital Partners.

• the spouse of an Employee.

• any child under the age of 22 of an Employee, whether or not residing with the Employee.

• any other dependent of an Employee residing in the same household with the Employee.

• any other person residing in the same household as the Employee.

• any other account in which an Employee has a direct or indirect beneficial interest (e.g., an

account for a trust, estate, partnership, or closely held corporation in which the Employee has

a beneficial interest).

 

 

2. Exemption

Where an Employee asserts that he or she does not have investment discretion with respect to a Personal Account either because: (1) the Employee has engaged a third-party investment professional to exercise complete investment discretion or (2) due to special circumstances, the Employee does not have investment discretion, these accounts, although “Personal Accounts”, are not subject to the pre-approval and trading restrictions contained in this Code with the exception of trades in Limited Offerings which always require prior approval and investments in initial public offerings which are prohibited. Nonetheless, the Employee is required to include such accounts in his or her personal trading reports. Any actual or appearance of a conflict of interest in the trading in the Employee’s excepted accounts may render these accounts subject to the pre-approval requirements. In order to qualify for this exemption, Employees must submit a written certification confirming that the Employee does not have investment discretion over the Personal Account and for Personal Accounts where a third-party investment professional was engaged, Employees must submit a written certification from the third-party investment professional confirming that the Employee does not have investment discretion over the Personal

Account. In all cases, whether to grant the exemption is at the discretion of the Review Officer. Where possible, Ashfield Capital Partners recommends that Employees notify the Review Officer prior to opening such Personal Accounts in order to avoid inadvertent breaches of this Code.

 

C. Procedures for Trading in Personal Accounts

1. Notification of Personal Accounts

Each Employee shall submit to the Review Officer a Statement of Personal Accounts in the form attached hereto as Exhibit A . If an Employee’s Statement of Personal Accounts Form should become inaccurate or incomplete at any time, such Employee shall promptly submit to the Review Officer an amended Statement of Personal Accounts correcting all inaccurate or incomplete information. For securities in Personal Accounts that are not held in a custodial account at a bank, broker or transfer agent, Employees should report these securities along with all Covered Securities on the Holdings Reports (Exhibit C) and list all transactions on the Quarterly Personal Trading Report, (Exhibit G)

.

2. Duplicate Confirmations and Statements

Every Employee shall authorize each brokerage firm or other firm where the Employee’s Personal Accounts are maintained to send to Ashfield Capital Partners’ Compliance Department duplicate confirmations of all transactions placed in the Employee’s Personal Accounts, as well as monthly statements. A form letter to be used for this purpose is attached to these policies as Exhibit E . An Employee is required to direct duplicate confirmations and statements to Ashfield Capital Partners for all Personal Accounts, including those accounts in which only Affiliated Funds may be traded. Alternatively, an Employee may supply all of the confirmations and statements it receives directly to the Compliance Department regardless as to whether there were transactions during the period.

 

3. Reportable Securities Holdings Reports

All Employees must provide the Compliance Department with an Initial Holdings Report, as part of the implementation of Ashfield Capital Partners’ Personal Trading Policies, within 10 calendar days of the Employee’s receipt of this Code. The Initial Holdings Report must include all Reportable Securities held in all Personal Accounts of each Employee as of the Employees first date of employment with Ashfield Capital Partners, as the term “Personal Account” is defined in this Code. The Holding Report form to be used by Employees is attached as Exhibit C to this Code.

 

Within 30 days of the end of each calendar year, Employees will provide the Compliance Department with an Annual Holdings Report of all Reportable Securities still owned by the Employee in a Personal Account. Reportable Securities that were sold in the preceding calendar year should have already been reported through the pre-clearance and quarterly reporting process.

The Review Officer shall track the receipt of holdings reports to assure that such reports are submitted within the time period required.

 

4. Pre-Clearance Procedures

While certain personal transactions are only required to be reported, the following personal transactions require that Employees obtain written pre-clearance: publicly-traded Securities and Limited Offerings. Access Persons are not required to pre-clear any transaction in the following categories of Reportable Securities: purchases or sales where such purchase or sale is non-volitional on the part of the Personal Account (e.g., a sale in connection with a court order), a purchase that is part of an automatic dividend reinvestment plan, shares of open-end mutual funds (including ETFs), shares issued by unit investment trusts (including ETFs) that are invested exclusively in one or more open-end funds, CDs, commercial paper, closed-end investment companies, banker acceptances, U.S. government bonds, and state and local bonds. Ashfield Capital Partners has adopted a set of procedures that Employees must use when prior approval of

a personal transaction is required. Personal investments require pre-clearance of both purchases and sales.

 

Pre-Clearance Procedures require an Employee to:

 

a. Confirm That Not in Receipt of Inside Information

Each Employee wishing to buy or sell Reportable Securities for a Personal Account, which require preclearance, should first confirm that he or she is not in receipt of any material, nonpublic information (i.e., “inside information”) that would affect the price of the security.

 

b. Confirm That Contemplated Transaction Should Not be Considered

for Clients

When an Employee intends to effect a transaction that is a limited investment opportunity, such as a Limited Offering, the Employee must complete and submit a Limited Offering Pre-Clearance Form, Exhibit B. In approving the proposed investment, the Review Officer will seek to confirm that the proposed transaction is not appropriate for clients.

 

c. Complete Pre-Clearance Form/Seek Pre-Approval

Employees proposing to buy or sell Reportable Securities requiring pre-clearance for a Personal Account shall request approval to buy or sell such Securities by completing and submitting to the Compliance Department a Pre-Clearance Form, attached hereto as Exhibit F. The Review Officer and the Head Trader, or his/her designate, must give such approval in writing prior to the trade being executed. An individual other than the Review Officer reviews every trade confirmation, account statement and report submitted by a Review Officer. The Review Officer and the Head Trader may review each other’s reports. The Head Trader and the Review Officer, or his/her designates, will sign the Pre-Clearance Form only if the trade complies with the following guidelines:

 

1) Security Held or Being Considered for Client Accounts

Employees are prohibited from directly or indirectly using knowledge about securities contained in Ashfield Capital Partners’ Securities Universe to profit personally. The Review Officer may approve the Purchase or Sale of a Security which appears upon reasonable inquiry and investigation to present no reasonable likelihood of harm to any Client. These transactions would

 

normally include (a) the Purchase or Sale of a Security not currently in the Securities Universe and (b) the Purchase or Sale of up to 1,000 shares of a Security in the Securities Universe if (i) the issuer has a market capitalization of over $1 billion and (ii) that Security is not then currently on the trading blotter. The Review Officer may make exceptions for securities with market capitalization of over $1 billion that are currently on the trading blotter if the Review Officer determines that the transaction does not present the likelihood of harm.

 

The Securities Universe is maintained by Ashfield Capital Partners’ investment team. If an equity

Security is not currently in the Securities Universe, the Review Officer will consult with a member of the investment team to determine if the Security should be included in the Securities Universe. If a Reportable Security requiring pre-clearance is purchased or considered for purchase by an Employee within 1 business day of a client purchase or consideration of a purchase for a client and the Employee becomes aware of the client transaction or proposed transaction, the Employee must immediately disclose the circumstances to the Review Officer.

 

2) Security Part of Initial Public Offering

No Employee shall purchase for a Personal Account any security in an initial public offering.

 

3) Security Issued by Old Mutual plc

Although Ashfield Capital Partners does not intend to purchase or sell for client accounts any publicly traded securities issued by Old Mutual plc, no Employee may purchase or sell for such Employee’s Personal Account any publicly-traded securities issued by Old Mutual plc without prior approval.

 

4) Execution of Trades

All pre-cleared trades for Personal Accounts must be executed by the end of the trading day on the day the approval is given by the Head Trader, or his designate, and the Review Officer. If the trade is not executed by the end of such period, another Pre-Clearance Form must be submitted. The Review Officer may rescind the approval of any proposed transaction at any time prior to the consummation of the proposed transaction.

 

D. Quarterly Reporting of Personal Transactions

1. Submission of Reports

In order for Ashfield Capital Partners to monitor compliance with its insider trading and conflict of interest policies and procedures, each Employee shall submit, or shall cause to be submitted, to the Compliance Department the following reports:

 

a. Quarterly Account Statement

Employees shall cause their brokers or other custodians to submit at least quarterly account statements for each of their Personal Accounts to Ashfield Capital Partners (including Personal Accounts in which only Affiliated Funds are traded). The account statements shall be sent directly by the broker or other custodian to the Compliance Department within 30 calendar days following the end of each calendar quarter regardless of whe9ther any trading activity took place in the Personal Account during the quarter. The Review Officer shall track the receipt of transaction reports to assure that such reports are submitted within the time period required.

 

b. Reporting on Limited Offerings

Employees are required to include transactions in Limited Offerings in their quarterly personal trading reports. All personal trades in Limited Offerings for the quarter must be reported on a Quarterly Personal Trading Report form (Exhibit G) and Statement of Limited Offerings (Exhibit

 

D) . Quarterly reports are due 30 days after the end of the quarter. The Review Officer will review quarterly reports.

 

2. Review and Retention of Reports

The Review Officer shall review each transaction, and compare the transactions reported against the Pre-Clearance Forms to determine whether any violations of Ashfield Capital Partners’ policies or of the applicable securities laws took place. If there are any discrepancies between the transactions and Pre-Clearance Forms, the Review Officer shall promptly contact such Employee to resolve the discrepancy. Upon discovering a violation of these procedures, Ashfield Capital Partners may impose such sanctions, as it deems appropriate, including a letter of censure or suspension or termination of the employment of the violator. Ashfield Capital Partners shall retain all documents required to be submitted by Employees under this provision, including, without limitation, all duplicate confirmations and any documents referred to or incorporated therein, as part of the books and records required by the Investment Advisers Act of 1940, as

amended, and the rules adopted by the Securities and Exchange Commission under the Investment Advisers Act.

 

3. Notification of Interest

If an Employee knows that Ashfield Capital Partners is contemplating buying or selling any security (whether Reportable Securities or not) held by a Personal Account of that Employee, the Employee must disclose his or her position in the security to (i) the Investment Team at the time the security is being discussed or (ii) the analyst at the time the security is being discussed with the analyst, whichever event occurs earlier. This disclosure shall include the date of acquisition by the Personal Account, the size of the position held, the price paid and any other information requested by the Portfolio Managers or Review Officer. Ashfield Capital Partners will determine what action is appropriate to avoid a conflict of interest. Such action may include requiring the Personal Account to liquidate its position in the security being contemplated for purchase by clients, or prohibiting the Personal Account from selling the security until Ashfield Capital Partners has decided what position it will take with respect to clients.

 

VIII. R EQUIRED B OOKS AND R ECORDS

Ashfield Capital Partners is required to maintain the following books and records related to the Code, as follows:

• a copy of each Code of Ethics adopted and implemented at any time within the last five years;

• a record of any violations of the Code, and any action taken as a result of the violations

within the last five years;

• a record of all Employee acknowledgements required under Rule 204A-1 for each person

currently employed by Ashfield Capital Partners, or employed within the last five years;

• a record of each report made by an Access Person as required by 204A–1(b), including any

information provided under paragraph (b)(3)(iii) of that section in lieu of certain reports,

within the last five years;

• a record of the names of all “Access Persons” currently employed by the Ashfield Capital

Partners or who were employed within the last five years; and

• a record of any decision, and the reasons supporting the decision, to approve the acquisition

of securities by Access Persons under Rule.204A–1(c), for at least five years after the end of

the fiscal year in which the approval is granted.

 

IX. C ONCLUSION

A. Importance of Adherence to Procedures

It is very important that all Employees adhere strictly to this Code. Any violations of such policies and procedures may result in serious sanctions, including dismissal from Ashfield Capital

 

Partners. Exceptions may be made to the policies and procedures contained within this Code of Ethics at the discretion of the Review Officer but any such exception should be documented and reviewed with the Chief Executive Officer in a timely manner.

 

B. Annual Circulation/Certification

Ashfield Capital Partners’ Code shall be circulated periodically to all Employees, and at least quarterly each Employee shall be asked to certify in writing (using Exhibit G, Quarterly Personal Trading Report) that he or she has followed the Personal Trading Policies. Employees will submit an acknowledgement that they have received the Code of Ethics at the time of employment and at the time that the Code is amended.

 

C. Questions

Any questions regarding Ashfield Capital Partners’ policies or procedures with respect to insider trading, confidential information, and conflicts of interest should be referred to the Review Officer.

 

Responsibility

The Chief Compliance Officer has overall responsibility to ensure compliance with Ashfield Capital Partners’ Code of Ethics.

 

 

Exhibit A

Ashfield Capital Partners LLC

Statement of Personal Accounts

Pursuant to the Ashfield Capital Partners’ Code of Ethics, I hereby certify that the following is a true, accurate, and complete list of all my Personal Accounts (as that term is defined in the Code of Ethics to include any account where any Reportable Security may be traded) as of the date set forth below. The Personal Accounts shown below must include accounts in which assets are invested in investment limited partnerships and other private funds.

 

1. Name of Brokerage Firm or Other Entity Where Account is Held:

____________________________________________________________________________

Address of Brokerage Firm or Entity Where Account is Held:

____________________________________________________________________________

____________________________________________________________________________

Name(s) on the Account: ________________________________________________________

Account Number:______________________________________________________________

Type of Account: 401(k) IRA Brokerage Other ___________________

If New Personal Account, Date Account was Opened:

 

2. Name of Brokerage Firm or Other Entity Where Account is Held:

____________________________________________________________________________

Address of Brokerage Firm or Entity Where Account is Held:

____________________________________________________________________________

____________________________________________________________________________

Name(s) on the Account: ________________________________________________________

Account Number:______________________________________________________________

Type of Account: 401(k) IRA Brokerage Other ___________________

If New Personal Account, Date Account was Opened:

 

3. Name of Brokerage Firm or Other Entity Where Account is Held:

____________________________________________________________________________

Address of Brokerage Firm or Entity Where Account is Held:

____________________________________________________________________________

____________________________________________________________________________

Name(s) on the Account: ________________________________________________________

Account Number:______________________________________________________________

Type of Account: 401(k) IRA Brokerage Other ___________________

If New Personal Account, Date Account was Opened:

4. Name of Brokerage Firm or Other Entity Where Account is Held:

____________________________________________________________________________

Address of Brokerage Firm or Entity Where Account is Held:

____________________________________________________________________________

____________________________________________________________________________

Name(s) on the Account: ________________________________________________________

Account Number:______________________________________________________________

Type of Account: 401(k) IRA Brokerage Other ___________________

If New Personal Account, Date Account was Opened:

 

 

I hereby certify that I will submit to the Compliance Department an amended Statement of Personal

Accounts if the foregoing information should become inaccurate or incomplete at any time.

Date: _________________

Signature of Employee

______________________________________

Name of Employee

Additional accounts may be described by attaching additional pages.

 

 

Exhibit B

Ashfield Capital Partners LLC

Limited Offering Pre-Clearance Form

Pursuant to the Ashfield Capital Partners’ Code of Ethics, I hereby certify that the following is a true and accurate.

I am seeking approval to investing in the below Limited Offering, which is considered a limited

investment opportunity an3d the investment(s) is not currently deemed appropriate for any of Ashfield Capital Partners’ clients.

 

1. Name of Limited Offering:__________________________________________________________

Date Limited Offering Interest Acquired: ______________________________________________

Reason Limited Offering was Not Appropriate for Clients:

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________

 

2. Name of Limited Offering:__________________________________________________________

Date Limited Offering Interest Acquired: ______________________________________________

Reason Limited Offering was Not Appropriate for Clients:

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________

___________________________

Employee: Date

___________________________

Approval: Date

Additional holdings may be described by attaching additional pages.

 

Exhibit C

Ashfield Capital Partners LLC

Holding Report

Employee Name:________________________________

Date

Acquired

Shares/

Amount Security Name and Type Symbol/CUSIP Broker Price

Attach additional copies of this form, as needed.

I certify that the foregoing is a true and correct list of the Reportable Securities held in all of my

Personal Accounts, as defined in Ashfield Capital Partners’ Code of Ethics.

_____________________________________________ ________________________________

Employee Signature Date

 

Exhibit 9D

Ashfield Capital Partners LLC

Statement of Limited Offerings

Pursuant to the Ashfield Capital Partners’ Code of Ethics, I hereby certify that the following is a true, accurate, and complete list of all my Limited Offerings, including Private Equity Securities and Private Investment Funds that are not held in a Personal Account reported in Exhibit A, as of the date set forth below.

At the time of investing in the below Limited Offerings, which is considered a limited investment

opportunity, the investment(s) was not deemed appropriate for any of Ashfield Capital Partners’ clients.

 

1. Name of Limited Offering:__________________________________________________________

Date Limited Offering Interest Acquired: ______________________________________________

The price at which the transaction was effected: _________________________________________

The name of the broker, dealer, bank, or other entity with or through which the transaction was

effected: ________________________________________________________________________

Reason Limited Offering was Not Appropriate for Clients:

_______________________________________________________________________________

______________________________________________________________________________

 

2. Name of Limited Offering:__________________________________________________________

Date Limited Offering Interest Acquired: ______________________________________________

The price at which the transaction was effected: _________________________________________

The name of the broker, dealer, bank, or other entity with or through which the transaction was

effected: ________________________________________________________________________

Reason Limited Offering was Not Appropriate for Clients:

_______________________________________________________________________________

_______________________________________________________________________________

___________________________

Employee: Date

Additional holdings may be described by attaching additional pages.

 

Exhibit E

Ashfield Capital Partners LLC

Letter Requesting Duplicate Statements / Confirmations

(Date)

(Broker name and address)

RE: (Employee)

(S.S.)

Dear Sir or Madam:

Please be advised that the above-referenced person is an employee of Ashfield Capital Partners LLC, a registered investment adviser. We request that you send duplicate confirmations and statements of this employee’s transactions in securities, to the attention of:

Ashfield Capital Partners LLC 750 Battery Street, Suite 600 San Francisco, California 94111

Attn: Compliance Department

 

This request is made pursuant to Ashfield Capital Partners’ Code of Ethics, which it is required to

maintain under the federal securities laws.

 

Thank you for your cooperation.

Sincerely,

Chief Compliance Officer

 

 

Exhibit F

Ashfield Capital Partners LLC

Pre-Clearance Form

Employee Name:_______________________________________ Account: _________________________________

I request prior written authorization to make a transaction in the following Security(s) for my Personal Account(s), for which I have instructed duplicate trade confirmations to be mailed to Ashfield Capital Partners’ Compliance Department. I acknowledge:

1. As of today’s date I have no knowledge of a possible or pending purchase or sale of the above security in any Ashfield Capital Partners client portfolio. Furthermore, to the best of my current knowledge, this security has neither been a part nor will it be a part of Ashfield Capital Partners’ Security Universe for 24 hours (7 days if this is an Investment Personnel’s request) before and after this request.

2. That If the Review Officer to whom I submit this written request determines that the above trade would

contravene Ashfield Capital Partners’ Code of Ethics, such review officer in his/her sole discretion has the right not to approve the trade, and I undertake to abide by his/her decision. In addition, if the review officer

determines, post effectively, that this transaction contravenes with Ashfield Capital Partners’ Code, the Review Officer may require that the transaction be unwound or that profits be disgorged.

3. Having received and read the policies with respect to the reporting of securities transactions and insider trading in Ashfield Capital Partners’ Code of Ethics, and I further acknowledge that I am aware that any violation of such policies may represent cause for dismissal.

4. That an approval is valid until the end of the trading day on the day the approval is granted. If the trade is not executed by the end of such period, another Pre-Clearance Form must be submitted.

 

Date Buy Sell Shares/Amount Security Name Symbol Broker Price

Employee Signature: ____________________________________________ Date: ____________________________

_________________________________________________ ________________________________________

Head Trader/Designate Date and Time Stamp

_________________________________________________ ________________________________________

Review Officer / Designate Date and Time Stamp

 

Compliance Use Only :

On Blotter?: YES(Denied) NO Time: _______

If Sell will result in a profit, was Security Held > 60 days?: YES NO(Denied) N/A

In Securities Universe: YES NO

If NO: Has the security been reviewed by appropriate personnel to confirm that it should not be contained in the Securities Universe?:

YES NO

If in Securities Universe, does it meet the following exemptions?

1000 shares or Less: YES NO(Denied)

Greater than $1 Billion Mkt. Cap: YES NO(Denied)

Approved: YES NO

Exception to General Policy: YES NO

If YES, explain: _______________________________________________________________

 

Exhibit G

Ashfield Capital Partners LLC

Quarterly Personal Trading Report

Personal Trading Report for the quarter ending: ____________________________________________

Employee’s Name: __________________________________________________________________

REPORTABLE SECURITIES (at least one line below must be checked):

___ I confirm that I am currently causing each broker, dealer, bank, or other custodian for each of my Personal Accounts to forward duplicate confirmations and statements to Ashfield Capital Partners and transaction information for the reporting period has been received by the Compliance Department within 30 days after the calendar quarter end.

 

___ For Limited Offerings not held in Personal Accounts or for Personal Accounts where complete transaction information was not received within 30 days after the calendar quarter end, attached is a listing of transactions for my Personal Accounts for Reportable Securities transactions during the last calendar quarter. The attached information includes:

 

1) The date of the transaction, the title, the exchange ticker symbol or CUSIP number*,

interest rate and maturity date*, the number of shares, and the principal amount of each

security involved. (*as applicable)

 

2) The nature if the transaction (i.e., purchase, sale, or any other type of acquisition or

disposition).

 

3) The price at which the transaction was effected; and

 

4) The name of the broker, dealer, or bank with or through which the transaction was

effected.

___ I did not have any reportable transactions during this reporting quarter.

___ I have new Personal Accounts to report and an amended Exhibit A is attached.

___ I confirm that I did not have any Personal Accounts, as defined in Ashfield Capital Partners’ Code of Ethics, this quarter.

 

Further, I represent and confirm the following:

1) The statements made in this report are true and complete to the best of my knowledge and belief.

2) This report reflects all personal securities transactions of which I am a beneficial owner.

3) This report includes all of my Personal Accounts, as defined in the Ashfield Capital Partners Code of Ethics.

4) That I have received the Ashfield Capital Partners’ Code of Ethics and have read and understand the policies set out in the Code.

 

Employee’s Signature: _________________________ Date: ________________

THIS REPORT IS TO BE SUBMITTED TO THE COMPLIANCE DEPARTMENT ON OR BEFORE JANUARY 30 TH , APRIL 30 TH , JULY 30 TH , AND OCTOBER 30 TH OF EACH YEAR AND SHALL REFLECT TRANSACTIONS OCCURRING DURING THE REPORTING QUARTER. THIS REPORT SHALL INCLUDE ALL TRANSACTIONS IN SECURITIES IN WHICH THE PERSON COMPLETING THIS REPORT HAS A DIRECT OR INDIRECT BENEFICIAL INTEREST.

 

Exhibit H

Ashfield Capital Partners LLC

 

Employee’s Statement of Outside Activities

I. Outside Activities

List all outside activities in which you are involved (i.e.; all other current employment, involvement in investment clubs) or any other activities that relate to the business of Ashfield Capital Partners or the securities industry.

 

Outside Activity Nature of Activity

______________________________________ ________________________________________

______________________________________ ________________________________________

______________________________________ ________________________________________

______________________________________ ________________________________________

 

II. Ownership or Directorship

List any ownership in companies (if public only, if greater than 5%), any directorship or if you are an officer of any company other than Ashfield Capital Partners indicate if none:

 

Company Title % Ownership

____________________________ _______________________ __________________

____________________________ _______________________ __________________

____________________________ _______________________ __________________

____________________________ _______________________ __________________

Note : By my signature below, I confirm that I have disclosed all reportable outside activities and control positions in companies other than Ashfield Capital Partners. Check box below to confirm that you engage in no reportable outside activities, nor hold any reportable control positions, but will amend this form as needed.

____________________________ _____________________________ _________________

Print Name Signature Date

 

Exhibit I

Ashfield Capital Partners LLC

Gift Report Form

Employee Name:______________________________________________________________________

Date gift was received: _________________________________________________________________

Name of the give and their relationship with Ashfield Capital Partners:

___________________________________________________________________________________

___________________________________________________________________________________

Description of the gift:

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

Value of the Gift: _____________________________________________________________________

Reason for the gift:

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

Please list all gifts and entertainment received by this giver within the past 12 months:

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

I certify that the information above is true and accurate to the best of my knowledge. This Report is

submitted based on the requirements of Ashfield Capital Partners’ Code of Ethics.

_________________________________________ _________________________

Employee’s Signature Date

 

 

Exhibit J

 

Ashfield Capital Partners LLC

Code of Ethics Acknowledgement

I, ______________________, acknowledge that I have read the Code of Ethics (“Code”) adopted by Ashfield Capital Partners. I understand and will comply with the Code during my employment with Ashfield Capital Partners. If at any time, the information I have provided becomes inaccurate, I will notify the Chief Compliance Officer immediately. I understand that any violation of this Code can and may result in disciplinary actions including but not limited to, written warnings, fines, and termination.

______________________________ ________________________

Signature Date

 

 

 

EAGLE ASSET MANAGEMENT, INC.

CODE OF ETHICS

 

I.

STATEMENT OF GENERAL POLICY

 

Eagle Asset Management (“Eagle”, “we” or “us”) is a registered investment adviser and acts as investment manager or adviser to clients including registered investment companies. In this capacity, we serve as fiduciaries and owe our clients an undivided duty of loyalty. We must avoid even the appearance of a conflict that may compromise the trust Clients have placed in us and must insist on strict adherence to fiduciary standards and compliance with all applicable federal and state securities laws. Eagle must comply with Section 204 and 206 of the Investment Advisers Act of 1940 (Section 204 and Section 206” and “Advisers Act”, respectively) and Rule 204A-1 of the Advisers Act (“Rule 204A-1), among other rules.

 

This Code is based on the principle that the Employees of Eagle have a fiduciary duty to place the interests of clients ahead of their own interests and to avoid activities, interests and relationships that might interfere with making decisions in the best interests of clients. Employees must not take inappropriate advantage of their position and must comply with applicable federal securities laws.

 

          Doubtful situations should be resolved in favor of clients because technical compliance with the Code's procedures will not automatically insulate from scrutiny activities that indicate an abuse of your fiduciary duties. Since we believe the actions of all our Employees should be above reproach, we feel it important to affirm annually our individual and collective commitment to ethical business principles and procedures.

 

          This Code is designed to maintain high standards of practice and ethics. Since no set of rules can include all problems or issues that can arise, you are encouraged to address those issues, which are unclear to you with Eagle’s Designated Compliance Officer.

 

The specific provisions and reporting requirements of this Code of Ethics governs the personal securities trading of Eagle employees. The purpose of this Code is to ensure that Employees of Eagle will not benefit improperly from advance knowledge of actual or probable Eagle activity in a security. The Code is based on the general principle that Employees must conduct their personal trading activities in a manner which avoids both actual and potential conflicts of interest with clients of Eagle.

 

II.

DEFINITIONS

 

Access Person. The term “access person” means any supervised person who has access to nonpublic

information regarding any purchase or sale of securities by clients of Eagle, or nonpublic information regarding the portfolio holdings of any reportable mutual fund. An “access person” would include a director, officer and ALL EMPLOYEES of Eagle. Non-employee directors of Eagle are not considered “access persons”.

 

Advisory Person. The term “advisory person” of Eagle means (a) any employee of Eagle (or of any

company in a control relationship to Eagle) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security in a client account, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (b) any natural person in a control relationship to Eagle who obtains

 

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information concerning recommendations made to a client with regard to the purchase or sale of a security. “Advisory Person” includes any investment person of Eagle.

 

Automatic Investment Plan. The term “automatic investment plan” means a program in which regular

periodic purchases are made automatically in investment accounts in accordance with a predetermined schedule and allocation, including but not limited to contributions to a 401(k) plan, bonus deferral into a 401(k) plan, 403(b) plan, 529 plan, college savings plan and/or a dividend reinvestment plan.

 

Beneficial Ownership. “Beneficial ownership” shall be interpreted in the same manner as it would be in

determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder. “Beneficial ownership” includes accounts of a spouse, child, parent, sibling resident in the access person’s home, as well as accounts of another person if by reason of any contract, understanding, relationship, agreement or other arrangement the access person obtains therefrom benefits substantially equivalent to those of ownership. Access persons should contact the designated compliance officer regarding any questions they have concerning what constitutes beneficial ownership.

 

Buy or Sell Program. A “buy or sell program” is a planned program for the purchase or sale of a

security for at least 10% of accounts in a particular Eagle objective. Buy or sell programs may be completed in one day, or they may extend for two or more days.

 

Control. The term “control” shall have the same meaning as that set forth in Section 2(a)(9) of the

Investment Company Act of 1940. A natural person shall be presumed not to be a control person for this purpose, unless a contrary determination is made by the SEC.

 

Controlled Account. A “controlled account” is a brokerage account in which an employee has a

beneficial ownership interest, or for which an employee has discretionary authority (e.g., trustee of a trust account).

 

Convertible Security. For purposes of this Code, a “convertible security” (e.g., convertible bond,

convertible preferred stock), shall also include the underlying security to which it can be converted.

 

Designated Compliance Officer. The term “designated compliance officer” shall mean the Eagle

officer(s) designated by Eagle’s President as being responsible for receiving reports or notices and performing such other duties as required by this Code of Ethics.

 

Dual Employee. Any person who is employed by Eagle and another affiliated company.

 

Employee. Any person who is employed by Eagle in exchange for predetermined and periodic financial

compensation.

 

Employee Security Transaction. An “employee security transaction” is any purchase or sale of

securities for (1) a “Controlled Account” or (2) an “Immediate Family Member Account”.

 

Immediate Family Member. An “immediate family member” is an employee’s immediate family –

spouse, child, parent, sibling - sharing the same household.

 

Immediate Family Member Account. An “immediate family member account” is a brokerage account

of a member of an employee’s immediate family - spouse, child, parent, sibling - sharing the same household.

 

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Investment Company. The term “investment company” means a company registered as such under the

Investment Company Act of 1940 and for which Eagle is the investment adviser.

 

Investment Person. An “investment person” is any portfolio manager, research analyst, securities trader,

or portfolio reviewer of Eagle.

 

Large Order. A “large order” is either a single order or a block (aggregated) order for the purchase or

sale of a security amounting to 5,000 or more shares of a stock or 1,000 bonds.

 

Mutual Fund. An investment company registered under the Investment Company Act.

 

Non-employee Director.

A director of Eagle who is not an employee and not involved in the day to day

operations of Eagle.

 

Pre-Clearance Officer. The Eagle compliance officer(s) assigned with the duty of pre-clearing trades.

 

Private Placement.

“Private Placement” means a limited offering exempt from registration pursuant to

Rules 504, 505 or 506 or under Section 4(2) or 4(6) of the Securities Act of 1933.

 

Purchase or Sale of a Security. “Purchase or sale of a security” includes, inter alia, the writing of an

option to purchase or sell a security.

 

Security. “Security" includes stock, notes, bonds, debentures, private placement securities and other

evidences of indebtedness (including loan participations and assignments), limited partnership interests, registered open-end investment companies (mutual funds), closed-end funds, exchange traded funds, investment contracts, and all derivative instruments, such as options and warrants. Security also includes futures and options on futures. Any questions as to whether a particular investment constitutes a “security” should be referred to the designated compliance officer.

 

Systematic Withdrawal Plan. The term “systematic withdrawal plan” means a program in which regular

periodic withdrawals are made automatically from investment accounts in accordance with a predetermined schedule.

 

III.

LEGAL REQUIREMENTS

 

Section 206 of the Advisers Act provides that it is unlawful for any investment adviser, directly or indirectly:

 

1.

To employ any device, scheme or artifice to defraud any client or prospective client.

 

2.

To engage in any transaction , practice or course of business which operates as a fraud or deceit upon any client or prospective client; or

 

3.

To engage in any act, practice or course of business which is fraudulent, deceptive or manipulative.

 

In addition, Section 204A of the Advisers Act requires Eagle to establish written policies and procedures reasonably designed to prevent the misuse in violation of the Advisers Act or Securities Exchange Act or rules or regulations thereunder of material, non-public information by the Adviser or any person associated with the Adviser. Pursuant to Rule 204A, the Commission has adopted Rule 204A-1 which requires the Adviser to maintain and enforce a written code of ethics.

 

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Similarly Section 17(j) of the Investment Company Act of 1940 and Rule 17j-1 provides that it is unlawful for any affiliated person of the adviser in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired by an Investment Company:

 

1

To employ any device, scheme or artifice to defraud such Investment Company.

 

2

To engage in any act, transaction, practice or course of business that operates or would operate as a fraud or deceit upon any such Investment Company; or

 

3

To engage in any manipulative practice with respect to such Investment Company

 

 

IV.

PROHIBITED ACTS

 

A.

All Employees

 

1. Disclosure of confidential information. Employees are prohibited from revealing information relating to the investment intentions, activities or portfolios of Advisory Clients except to persons whose responsibilities require knowledge of the information or to regulatory authorities who have appropriate jurisdiction with respect to such matters.

 

2. Gifts and Entertainment. Employees are prohibited from soliciting gifts as well as from accepting or giving of gifts or gratuities, except for (i) a gift (or gifts) that total no more than $100 per person, per year, (ii) customary business lunches, dinners, entertainment (e.g., sporting events), (iii) promotional items (e.g., pens, mugs, T-shirts). If a Person receives any gift that might be prohibited under this Code, that person promptly must inform the Designated Compliance Officer. 3. Taking Advantage of Corporate Opportunities. Employees are prohibited from taking personal advantage of any opportunity properly belonging to the Advisory Clients. This includes, but is not limited to, acquiring Securities for one's own account that would otherwise be acquired for Advisory Clients.

 

4. Using Position or Influence for Personal Benefit at Expense of Clients. Employees are prohibited from causing or attempting to cause an Advisory Client to purchase, sell or hold any Security in a manner calculat¬ed to create any personal benefit to the Eagle Employee.

 

5. Outside Business Activities. Outside business activities must be disclosed to the Designated Compliance Officer. These include, but are not limited to, being appointed an officer or director of a public or private company, any activity where compensation is received, or the making of a private investment. Written approval will be required to satisfy certain regulatory requirements.

 

6. Hedge Funds, Investment Partnerships, Investment Clubs. No employee shall participate in an investment partnership without first being approved by the Designated Compliance Officer. If approval is granted the employee must arrange to have periodic statements sent to compliance.

 

7.

Personal Security Transactions

(Including Immediate Family Members)

 

 

(a)

No Access Person shall conduct a transaction in a security while in possession of "inside" material nonpublic information regarding the Security or the issuer of the Security;

 

 

(b)

No Access Person shall purchase any securities in the form of an initial public offering (other than a new offering of a registered open-end investment company).

 

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(c)

NoAccess Person shall enter into a transaction intended to raise, lower, or maintain the price of any Security or to create a false appearance of active trading.

 

 

(d)

No Access Person may buy any security on any day for which Eagle (i) either has a buy program in place or is actively considering a buy program or (ii) is executing a large purchase order. The restriction on employee purchases of such securities shall continue through the end of the day when the buy program is completed, discontinued, or dropped from active consideration; or when the large purchase order is executed.

 

 

(e)

No Access Person may sell any security on any day for which Eagle (i) either has a sell program in place or is actively considering a sell program or (ii) is executing a large sale order. The restriction on employee sales of such securities shall continue through the end of the day when the sell program is completed, discontinued, or dropped from active consideration, or when the large order is executed.

 

 

(f)

No Access Person may purchase a Security within 60 calendar days of the sale of that Security (or an Equivalent Security), and any sale of a Security within 60 calendar days of the pur¬chase of the Secu¬rity (or an Equivalent Security) if the transaction would result in a profit. This includes mutual funds. Only in instances where an employee agrees to give up all profits from such transaction to a charitable organization designated by Eagle would the transaction be allowed. (* Does not apply to transactions involving RJF Stock)

 

 

This restriction shall not apply to purchases and sales or sales and purchases of:

 

 

(1) shares of money market funds,

 

(2) shares of mutual funds acquired through an automatic investment or redemption

program, or

 

(3) stock obtained through a quarterly employee stock purchase plan.

 

 

(h)

Any other transaction deemed by the Pre-Clearance Officer to involve a conflict of interest, possible diversion of corporate opportunity, or an appearance of impropriety may not be purchased or sold.

 

B.

Investment Personnel

 

1. IPO Allocation Policy Portfolio Managers and traders must comply with the Statement of General Policy Regarding IPO Allocations, which is attached as Appendix A to this Code. In general, the policy prohibits improper actions taken in order to obtain greater access to Initial Public Offerings (“IPO’s”). Portfolio managers and traders should not purchase or commit to purchase from certain brokers additional shares of an IPO in the immediate after-market trading in order to obtain larger IPO allocations. Portfolio managers and traders should not engage in excessive trading or increase portfolio turnover in order to obtain larger IPO allocations by generating more commission business for brokers that provide access to IPOs.

 

2. Servicing as a Director In addition to the disclosure requirements detailed in Section IV A. 5 above, Investment Persons may not serve on the board of directors of a publicly-traded company not affiliated with Eagle absent prior written approval by the Designated Compliance Officer. This approval rarely will be granted and, if granted, normally will require that the relevant Investment Person be isolated, through "Chinese Wall" or other procedures, from those making investment decisions related to the issuer on whose board the Investment Person sits.

 

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C.

Portfolio Manager

 

1.      Seven Day Black- Out Period. A Portfolio Manager may not purchase or sell a security for his/her personal account or controlled account within seven calendar days, either preceding or subsequent thereto, of a purchase or sale program or a large oerder for the same security initiated by the Portfolio Manager. For example, if the Portfolio Manager initiates and completes a buy program for his or her advisory accounts on June 1, June 9 is the first day the Portfolio Manager may trade that security for a personal or controlled account.

 

2. Contrary Trades. Portfolio managers who trade contrary to his Eagle buy or sell program activity in a security within seven calendar days before or after the conclusion of Eagle’s activity must submit a memo to Eagle’s Designated Compliance Officer or his designee explaining the decision to buy/sell contrary to Eagle activity.

 

V.

PRE-CLEARANCE:

 

A. Transactions Requiring Pre-clearance:

 

 

I. All Access Persons: (Including Immediate Family Members)

 

          Any transaction involving an open end registered investment company (mutual fund) where Eagle is an adviser to the Fund or is affiliated with the Fund , unless done as part of a automatic investment plan or systematic withdrawal plan. Allocations for any automatic investment plan or systematic withdrawal plan must have initial pre-clearance . Any changes to a previously approved automatic investment plan or systematic withdrawal plan must also receive pre-clearance. Pre-clearance is not necessary for transactions involving a Money Market mutual fund or Mutual Funds that are not affiliated with Eagle or advised by Eagle. In addition to the pre-clearance requirement above, and subject to the exemptions below, each person shall pre-clear trades in all other securities (see definition of “Securities” in Section II) *Please note that hedge funds, private placements and limited partnerships are included in the definition of security. If unsure whether an instrument is considered a security contact the designated compliance officer for guidance.

 

B. Transactions Exempt from Pre-clearance:  

(1)

Purchases or sales in any account over which the access person has no direct or indirect influence or control.

 

(2)

Purchases or sales which are non-volitional on the part of either the access person or an investment company. This would include any already approved automatic investment plans, systematic withdrawal plans, or automatic rebalancing.

 

(3)

Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities to the extent such rights were acquired from such issuer, and sales of such rights so acquired.

 

(4)

Any acquisition of Securities through stock dividends, dividend reinvestments, stock splits,

 

 

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mergers, consolidations, spin-offs, or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities.

 

(5)

Any transactions involving

 

bankers acceptances

 

bank certificate of deposits

 

high quality short-term debt (including repurchase agreements)

 

Options on a broad-based, publicly traded market basket or index of stocks (the S&P 500

index);

 

covered-call options on underlying securities presently held in employee personal

accounts;

 

U.S. Government Securities;

 

Raymond James Financial stock;

 

Other securities determined to be “riskless” by Eagle’s Designated Compliance Officer.

 

(6)

Transactions involving open-end mutual funds that are not advised by or affiliated with Eagle.

 

C.

Pre-clearance Procedures:

 

A trade preclearance request will be submitted via a preclearance request form (see Appendix I) or via email to the designated compliance officer at EAGLE- COMPLIANCE Email address. Decisions will be logged and initialed by the Designated Compliance Officer, or designee, in the preclearance log book. The designated compliance officer will respond via email or phone to the person making the request with the approval or denial. Employees can not enter a trade order until approval is granted.

 

Access Persons and Investment Persons must preclear all personal “Security” transactions for both Controlled Accounts and Immediate Family Member Accounts. If a restriction applies, the proposed transaction will not be allowed. If no restriction applies, the transaction will be approved. Trade preclearance approvals are only valid for that day in which approval is granted.

 

 

(a)

If a purchase transaction is approved, as described above, and Eagle subsequently

initiates a buy program, or executes a large purchase order, for the same security on the same day, the employee must immediately sell the security in question. Any pretax profit from the subsequent sale transaction will be paid into Eagle’s error account, and any loss will be borne by the employee.

 

 

(b)

If a sale transaction is approved, as described above, and Eagle subsequently initiates a sale program, or executes a large sale order, for the same security on the same day, the employee must immediately buy back the security in question. Any pretax profit from the subsequent purchase transaction will be paid into Eagle’s error account, and any loss will be borne by the employee.

 

 

(c)

Amounts paid into Eagle’s error account under (a) and (b) above will be contributed annually to a charity selected by Eagle.

 

 

VI.

REPORTS.

 

A.    Non-Employee Directors:  

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Non-employee directors of Eagle are not subject to the restrictions and preclearance requirements of the Code, provided they have no knowledge of pending or current Eagle program trading activity in the securities they are trading. Such directors must provide an annual certification that with respect to all security transactions during the preceding year, the director was not aware of any Eagle program activity relating to the security in question when the transaction was effected.

 

B.

Access Persons: (Including Immediate Family Members)

 

Aside from the Exemptions outlined in Section VII below, the following reporting requirements apply to Access Persons .

 

1. Initial Holdings Report All Access Persons must submit, within 10 days of becoming such designation, an Initial Holdings Report (see Appendix K) listing all securities that he or she holds in an investment account. The information in the Initial Holdings Report must be current as of a date no more than 30 days prior to the date the person becomes an Access Person of Eagle. The Report will be sent by (and should be returned to) the Pre-Clearance Officer, who will review the report.

 

2.

Quarterly Transaction Reports  

 

Every Access Person must arrange for the Designated Compliance Officer to receive directly from the broker, dealer, Mutual Fund Company or bank in question, duplicate copies of each confirmation and periodic statement for any Securities Transaction during the quarter in an investment account. All copies must be received no later than 10 days after the end of the calendar quarter, or submit a quarterly transaction report (see appendix K) within 10 business days after the completion of each calendar quarter. These reports will be reviewed by the Designated Compliance Officer.

 

Each confirmation or statement must disclose the following information:

 

1.

the date of the transaction;

 

2.

the date the transaction report was submitted

 

3.

description of the security;

 

4.

the exchange ticker symbol

 

5.

the number of shares and principal amount;

 

6.

the nature of the transaction (e.g., purchase, sale);

 

7.

the price of the Security; and

 

8.

the name of the broker, dealer, Fund Company or bank through which the trade was

affected.

 

          If an Access Person is not able to arrange for duplicate confirmations and statements to be sent that contain the information required above, the Employee promptly must submit Quarterly Transaction Reports within 10 days after the completion of each calendar quarter to the Designated Compliance Officer. In accordance with Raymond James Financial corporate policy, all employee brokerage accounts must be maintained with Raymond James Brokerage. All persons opening or maintaining a brokerage account outside of Raymond James must receive written permission from the Designated Compliance Officer.

 

3. Annual Holdings Report Each Access Person must submit an Annual Holdings Report (see Appendix K) with attached statement listing all securities in an investment Account, to be reviewed by the Compliance Officer. The information in the Annual Holdings Report must be current as of a date no more than 30 days before the report is submitted. The annual holdings report must contain the following information:

 

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(i)

The name of any broker, dealer, mutual fund company or bank with whom the access person maintains an account in which any securities are held for the direct or indirect benefit of the access person;

 

 

(ii)

The date that the report is submitted by the access person.

 

C

CODE OF ETHICS RECEIPT ACKNOWLEDGEMENT AND CERTIFICATIONS

 

All access persons receive a copy of the Code of Ethics upon initial employment with Eagle. In addition, all access persons receive any amendments to the Code. Initially and at least annually, all Access Persons and Non-Employee Directors must certify that they are in receipt of the Code and will comply with the Code provisions. This Code acknowledgement and certification must be evidenced upon initially becoming employed or affiliated with Eagle and at least annually and upon any Code amendments. (see section XIII)

 

D. REPORTING FOR DUAL EMPLOYEES

 

Dual Employees (and their Immediate Families) need only report their security transactions to the entity that is responsible for their primary employment. The Designated Compliance Officer of that entity (or his/her designee) will then report the information to other entities for which the Dual Employee is affiliated. In the event that the Codes of Ethics of the affiliated entities are different, the Dual Employee is bound by the most restrictive Code.

 

VII.

EXEMPTION, DISCLAIMERS, AND AVAILABILITY OF REPORTS

 

 

A.

Exemptions from Reporting Requirements

 

1.         Securities transactions involving the following circumstances or securities are exempt from Section VI reporting requirements: (1) neither the Access Person nor an Immediate Family Member had any direct or indirect influence or control over the transaction; (2) securities directly issued by the U.S. Government; (3) bank certificates of deposits; (4) mutual funds or registered investment companies that are not affiliated with Eagle or advised by Eagle. (5) other securities as may from time to time be designated in writing by the Code of Ethics Review Committee based on a determination that the risk of abuse is minimal or non-existent.

 

Notwithstanding the provisions of Section VI-B2. above, no Access Person shall be required to make a Quarterly Transaction Report where such report would duplicate information recorded by Eagle pursuant to Rule 204-2(a) of the Investment Advisers Act of 1940.

 

 

B.

Disclaimers

 

          Any report of a Securities Transaction for the benefit of a person other than the individual in whose account the transaction is placed may contain a statement that the report should not be construed as an admission by the person making the report that he or she has any direct or indirect beneficial ownership in the Security to which the Report relates.

 

 

C.

Availability of Reports

 

          All information supplied pursuant to this Code will be kept in the strictest of confidence unless required to be disclosed for legal, regulatory or business reasons as described in the section. The

 

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information may be available for inspection by the President of Eagle, the Code of Ethics Review Committee, the Designated Compliance Officer, the Pre-Clearance Officer, the Access Person's department manager (or designee), any party to which any investigation is referred by any of the foregoing, the Securities and Exchange Commission, any self-regulatory organiza¬tion of which Eagle is a member, and any state securities commission with appropriate jurisdiction.

 

D. Retention of Records             All reports or information supplied will be retained according to the firm-wide retention policy, unless otherwise noted.

 

VIII.

CODE OF ETHICS REVIEW AND REVIEW COMMITTEE

 

          The Chief Compliance Officer and his or her designee are charged with reviewing all Code matters including the review of personal trading records. The Code of Ethics Review Committee shall investigate material Code violations or suspected violations of the Code and, as appropriate, take such actions as necessary or prescribed in the personal trading violation sanctions guidelines. The Committee also shall review the Code at least once a year, in light of legal and business developments and experience in implementing the Code. Members of the Committee consist of Eagle’s President and Chief Operating Officer, Corporate Counsel, Treasurer, Portfolio Management Representative and Chief Compliance Officer.

 

Employees who either willfully or negligently violate the provisions of the Code may be subject to any or all of the following sanctions: Formal Written Warning and Written Reprimand (with copy to supervisor and personnel file), Bans on Personal Trading, Monetary Penalty, Disgorgement of Trading Profits, Suspension or Termination. The Code of Ethics Review Committee is charged with the responsibility of conducting informational hearings, assessing mitigating factors, and imposing sanctions consistent with the Code’s Sanction Guidelines.

 

IX.

REVIEW AND SANCTUIONS

 

 

A. Determination:

 

          The Code of Ethics Review Committee (“the Committee”) is charged with the responsibility of conducting informational hearings, assessing mitigating factors, and imposing sanctions consistent with the Code’s Sanction Guidelines. The CCO will arrange for a meeting of the Committee in cases where a violation of one or more applicable provisions of this Code has occurred and the guidelines suggest a monetary penalty, written reprimand, termination or more serious action.

 

B. Sanctions:

 

The Committee has authority to impose sanctions which may include, but are not limited to, a letter of censure, suspension or termination of employment. As part of any sanction related to personal trading violations, the Committee may require the Employee to reverse the trade in question and forfeit any profit or absorb any loss derived there from. Any amounts that are paid/disgorged by an Access Person under this Code shall be paid to Eagle where Eagle will donate such proceeds to a Charity determined by the Committee. The Table below sets forth guidelines for failure to comply with specific provisions of the Code. The Committee will document instances in which variations from the Sanctions Guidelines were authorized due to mitigating factors.

 

 

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Sanctions applicable to Employees:

 

VIOLATION

SANCTION GUIDELINE+ *

*Commission of an act deemed prohibited which is not otherwise specifically addressed in these sanction guidelines

1st Offense or more: Monetary penalty, freeze trading accounts for 30-90 days and/or suspension or termination

No broker statements or confirms on file or no evidence that duplicate statements have been requested

1st Offense: Written warning

2nd Offense:(after 30 days of no action) Written reprimand and/or monetary penalty

3rd Offense:(after 60 days of no action) Monetary penalty, freeze trading accounts for 30-90 days and/or suspension or termination

*Trading without receiving appropriate pre-clearance or trading outside the approval period

 

1st Offense: Written warning

2nd Offense: Written reprimand and/or monetary penalty

3rd Offense (or more): Monetary penalty, freeze trading accounts for 30-90 days and/or suspension or termination

*Trading after being denied approval

1st Offense or more: Monetary penalty, freeze trading accounts for 30-90 days and/or suspension or termination

Failure to file an Initial or Annual Holdings Report

 

Failure to file an Annual Code Acknowledgement and Certification Form

1st Offense: (not filed within 10 days) Written warning

2nd Offense:(not filed within 10 days on more than one occasion or not filed within 30 days) Written reprimand and/or monetary penalty

3rd Offense:(not filed within 10 days on more than two occasions or not filed within 60 days) Monetary penalty, freeze trading accounts for 30-90 days and/or suspension/ termination

Violation of the Gift and Entertainment Policy.

1st Offense: Written warning. Return of the gift, or reimbursement of the unauthorized entertainment expense, to the donor/payer.

2nd Offense: Written reprimand and/or monetary penalty. Return of the gift, or reimbursement, as outlined above.

3rd Offense: Monetary penalty and/or suspension or termination. Return or reimbursement.

 

*Selling a security within 60 days of a purchase of the same security or purchasing a security within 60 days of the sale of the same security resulting in a profit.

 

1st offense: Written Reprimand and/or Monetary Penalty

2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination

Serving on the Board of a publicly-traded company without prior written consent

1st offense: Written Reprimand and/or Monetary Penalty

2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination

 

Sanctions applicable to Portfolio Managers (in addition to all sanctions applicable to Employees and Access Persons):

 

 

 

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VIOLATION

SANCTION GUIDELINE+ *

* Trading within the 7 day blackout period

1st offense or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination

* Includes Disgorgement of Trading Profits

 

+ The Code of Ethics Review Committee will take into consideration any mitigating circumstances when applying sanctions

 

The Compliance Administrator will arrange for a meeting of the Code of Ethics Review Committee in cases where a violation has occurred and the guidelines suggest a monetary penalty, written reprimand or more serious action.

 

The following schedule details the monetary penalties that may be applied for each offense.

AVP and Staff - $100-$500

Senior Vice President

- $1,000-$2,500

Vice President            - $500-$1,000 Managing Director and above - $2,500-$5,000 +

X. OTHER GUIDELINES   As employees of Raymond James Financial, Inc., Eagle employees are expected to comply with all guidelines set forward by Raymond James Financial, Inc. in regard to personal transactions.

 

XI. COMPLIANCE   Employees must report violations of the Code promptly to the Chief Compliance Officer. In order to facilitate compliance with the personal trading guidelines, all access persons must supply a copy of the confirm (or have duplicate confirms sent) on ALL trades to the Chief Compliance Officer or his designee within one business day, or as soon as may be practical, after the trade date of such transaction. All employees must also arrange to have duplicate confirms of Mutual Fund transactions forwarded to the Chief Compliance Officer.           If an employee opens a new brokerage account, either at Raymond James & Associates, Inc. or an unaffiliated firm, he or she must immediately advise the Chief Compliance Officer or his designee.

 

XII

RECORD KEEPING

 

Eagle must keep copies of the code of ethics, records of violations of the code and actions taken as a result of the violations, and copies of each employee’s written acknowledgment of receipt of the code. Eagle must keep a record of the names of access persons, the holdings and transaction reports made by access persons, and records of decisions approving access persons' personal trading. All these records are retained for five years with the most recent two years in an easily accessible place, in an appropriate office of the investment adviser

 

XIII INITIAL AND ANNUAL CERTIFICATION  

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12

 

 

 

Within 30 days of their hire date, each newly-hired Employee shall certify that he or she has received, read and understands this Code of Ethics by executing the Initial Report of Securities Holdings Form set forth as Appendix

 

Thereafter, annually, each Employee will be required to certify that he or she has received, read, understands and complied with each section of this Code of Ethics on the Certification Form set forth on the Annual Certification in the Appendix section. Additionally, each Employee will complete the RJF Code of Ethics certification page on an annual basis certifying that he or she has received, read, understands and has complied with all the requirements of the RJF Code.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Appendix K

 

PERSONAL SECURITIES HOLDINGS

(use for Initial Holdings Report and Annual Holdings Report)

 

          In accordance with the Code of Ethics, please list all securities holdings for each of your Employee Accounts, including accounts of your Immediate Family (if required by this Code), as defined. The information reported below must be current and may not be more than 30 days old from the time this form is completed.

 

(1)

Initial or Annual Report (circle one)

 

(2)

Name of Employee: _____________________________________________________

 

(3)

If different than #1, name of the person

 

in whose name the account is held: _____________________________________________

 

(4)

Relationship of (3) to (2): ____________________________________________________

 

(5)

Account Number: __________________________________________________________

 

 

(6)

For each account, attach your most recent

 

account statement listing securities in that

 

account. If you own securities that are not

 

listed in an attached account statement, list

 

them below:

 

                Name of Security Type Ticker/CUSIP Quantity Principal Amount Broker-Dealer/Bank 1.

 

2.

 

3.

 

4.

 

(Attach separate sheet if necessary)

 

          I certify that this form and the attached statements (if any) constitute all of the securities in my Employee Accounts, including accounts of my Immediate Family.

 

______________________________

 

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Employee Signature

 

______________________________

Print Name Date Submitted: ______________________

 

 

 

 

 

 

EAGLE ASSET MANAGEMENT, INC.

 

POLICY AND PROCEDURES ON INSIDER TRADING

 

SECTION I.

POLICY STATEMENT ON INSIDER TRADING

 

 

A.

Policy Statement on Insider Trading

 

          Eagle Asset Management, Inc. forbids any employee from trading, either personally or on behalf of others (such as, mutual funds and private accounts managed by Eagle Asset Management, Inc.), based on material nonpublic information or communicating material nonpublic information to others in violation of the law. This conduct is frequently referred to as "insider trading." Eagle Asset Management's policy applies to every employee and extends to activities within and outside their duties at Eagle Asset Management, Inc. Every employee must read and retain this policy statement. Any questions regarding Eagle Asset Management's policy and procedures should be referred to the Compliance Administrator.

 

          The term "insider trading" is not defined in the federal securities laws, but generally is used to refer to the use of material nonpublic information to trade in securities (whether or not one is an "insider") or to communications of material nonpublic information to others.

 

          While the law concerning insider trading is not static, it is generally understood that the law prohibits:

 

 

1)

trading by an insider while in possession of material nonpublic information, or

 

 

2)

trading by a non-insider, while in possession of material nonpublic information where the information either was disclosed to the non-insider in violation of an insider's duty to keep it confidential or was misappropriated, or

 

 

3)

communicating material nonpublic information to others.

 

 

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          The elements of insider trading and the penalties for such unlawful conduct are discussed below. If, after reviewing this policy statement, you have any questions you should consult the Compliance Administrator.

 

1.

Who is an Insider?

 

          The concept of "insider" is broad. It includes officers, directors and employees of a company. In addition, a person can be a "temporary insider" if he or she enters into a special confidential relationship in the conduct of a company's affairs and as a result is given access to information solely for the company's purposes. A temporary insider can include, among others, a company's attorneys, accountants, consultants, bank lending officers, and the employees of such organizations. In addition, Eagle Asset Management, Inc. may become a temporary insider of a company it advises or for which it performs other services. According to the Supreme Court, the company must expect the outsider to keep the disclosed nonpublic information confidential and the relationship must at least imply such a duty before the outsider will be considered an insider.

 

2.

What is Material Information?

 

          Trading on inside information is not a basis for liability unless the information is material. "Material information" generally is defined as information for which there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions, or information that is reasonably certain to have a substantial effect on the price of a company's securities. Information that employees should consider material includes, but is not limited to: dividend changes, earnings estimates, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments.

 

          Material information need not be derived directly from the company whose securities are at issue. For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a security. In that case, a Wall Street Journal reporter was found criminally liable for disclosing to others the dates that reports on various companies would appear in the Journal and whether those reports would be favorable or not.

 

3.

What is Nonpublic Information?

 

          Information is nonpublic until it has been effectively communicated to the market place. One must be able to point to some fact to show that the information is generally public. For example, information found in a report filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal or other publications of general circulation would be considered public.

 

4.

Bases for Liability

 

 

i.

Fiduciary Duty Theory

 

          In 1980, the Supreme Court found that there is no general duty to disclose before trading on material nonpublic information, but that such a duty arises only where there is a fiduciary relationship. That is, there must be a relationship between the parties to the transaction such that one party has a right to expect that the other party will disclose any material nonpublic information or refrain from trading. Chiarella v. U.S., 445 U.S. 22 (1980).

 

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          In Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court stated alternate theories under which non-insiders can acquire the fiduciary duties of insiders: they can enter into a confidential relationship with the company through which they gain information (e.g., attorneys, accountants), or they can acquire a fiduciary duty to the company's shareholders as "tippees" if they are aware or should have been aware that they have been given confidential information by an insider who has violated his fiduciary duty to the company's shareholders.

 

          However, in the "tippee" situation, a breach of duty occurs only if the insider personally benefits, directly or indirectly, from the disclosure. The benefit does not have to be pecuniary, but can be a gift, a reputational benefit that will translate into future earnings, or even evidence of a relationship that suggests a quid pro quo.

 

 

ii.

Misappropriation Theory

 

          Another basis for insider trading liability is the "misappropriation" theory, where liability is established when trading occurs on material nonpublic information that was stolen or misappropriated from any other person. In U.S. v. Carpenter, supra, the Court found, in 1987, a columnist defrauded The Wall Street Journal when he stole information from the Journal and used it for trading in the securities markets. It should be noted that the misappropriation theory can be used to reach a variety of individuals not previously thought to be encompassed under the fiduciary duty theory. (Misappropriated - properly come into contact with insider information and then improperly use information)

 

5.

Penalties for Insider Trading

 

          Penalties for trading on or communicating material nonpublic information are severe, both for individuals involved in such lawful conduct and their employers. A person can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include:

 

 

o

civil injunctions

 

 

o

treble damages

 

 

o

disgorgement of profits

 

 

o

jail sentences of up to ten years and related fines of up to $2,500,000

 

 

o

fines for the person who committed the violation of up to three times the profit gained or

loss avoided, whether or not the person actually benefitted,

 

 

o

civil fines for the employer or other controlling person of up to the greater of $1,000,000 or three times the amount of the profit gained or loss avoided, and

 

 

 

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o

suspension or bar from the securities business.

 

 

o

suspended or barred from working in securities industry.

 

          In addition, any violation of this policy statement can be expected to result in serious sanctions by Eagle Asset Management, Inc., including dismissal of the persons involved.

 

 

*

*

*

 

SECTION II.

PROCEDURES TO IMPLEMENT EAGLE ASSET MANAGEMENT, INC. INVESTMENT ADVISER'S POLICY             

 

A.

Procedures to Implement Eagle Asset Management, Inc. Investment Adviser's Policy Against Insider Trading

 

          The following procedures have been established to aid the employees of Eagle Asset Management, Inc. in avoiding insider trading, and to aid Eagle Asset Management, Inc. in preventing, detecting and imposing sanctions against insider trading. Every officer, director and employee of Eagle Asset Management, Inc. must follow these procedures or risk serious sanctions, including dismissal, substantial personal liability and criminal penalties. If you have any questions about these procedures you should consult the Compliance Administrator.

 

1.

Identifying Inside Information

 

          Before trading for yourself or others, including investment companies or private accounts managed by Eagle Asset Management, Inc., in the securities of a company about which you may have potential inside information, ask yourself the following questions:  

 

i.

Is the information material? Is this information that an investor would consider important in making his or her investment decisions? Is this information that would substantially affect the market price of the securities if generally disclosed?

 

 

ii.

Is the information nonpublic? How did you obtain it? To whom has this information been provided? Has the information been effectively communicated to the marketplace by being published in Reuters, The Wall Street Journal or other publications of general circulation?

 

          If, after consideration of the above, you believe that the information is material and nonpublic, or if you have questions as to whether the information is material and nonpublic, you should take the following steps.

 

 

i.

Report the matter immediately to the Chief Compliance Officer.

 

 

 

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ii.

Do not purchase or sell the securities on behalf of yourself or others, including investment companies or private accounts managed by Eagle Asset Management, Inc.

 

 

iii.

Do not communicate the information inside or outside Eagle Asset Management, Inc., other than to the Chief Compliance Officer.

 

 

iv.

After the Chief Compliance Officer has reviewed the issue, you will be instructed to continue the prohibitions against trading and communication, or you will be allowed to trade and communicate the information.

 

2.

Personal Securities Trading

 

          All employees of Eagle Asset Management, Inc. shall be in compliance with the Eagle Code of Ethics Transaction Guidelines and shall submit to the Compliance Administrator, a report of every securities transaction in which they, their families (including the spouse, minor children and adults living in the same household as the employee), and trusts of which they are trustees or in which they have a beneficial interest, have participated within one business day after the trade date of such transaction. This report shall include the name of the security, date of the transaction, quantity, price, and broker-dealer through which the transaction was effected. The requirement may be satisfied by sending duplicate confirmations of such trades to the Compliance Administrator. At the Compliance Administrator’s discretion, he may request that the broker-dealer send the duplicate confirms.

 

3.

Restricting Access to Material Nonpublic Information

 

          Information in your possession that you identify as material and nonpublic may not be communicated to anyone, including persons within Eagle Asset Management, Inc., except as provided in paragraph 1 above. In addition, care should be taken so that such information is secure. For example, files containing material nonpublic information should be sealed; access to computer files containing material nonpublic information should be restricted.

 

4.

Resolving Issues Concerning Insider Trading

 

          If, after consideration of the items set forth in paragraph 1, doubt remains as to whether information is material or nonpublic, or if there is any unresolved question as to the applicability or interpretation of the foregoing procedures, or as to the propriety of any action, it must be discussed with the Chief Compliance Officer before trading or communicating the information to anyone.

Notete:

If the Chief Compliance Officer is unavailable, questions can be directed to Eagle’s Corporate Counsel.

 

 

 

 

 

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(Supervisors Only)

 

* * *

 

SECTION III. SUPERVISORY PROCEDURES

 

A.

Supervisory Procedures

 

          The role of Chief Compliance Officer is critical to the implementation and maintenance of Eagle Asset Management's policy and procedures against insider trading. Supervisory Procedures can be divided into two classifications - prevention of insider trading and detection of insider trading.

 

1.

Prevention of Insider Trading

 

 

To prevent insider trading, Chief Compliance Officer or his designee, should:

 

 

i.

provide, on a regular basis, communications to familiarize employees of Eagle Asset Management's policy and procedures,

 

 

ii.

answer questions regarding Eagle Asset Management's policy and procedures,

 

 

iii.

resolve issues of whether information received by an employee of Eagle Asset Management, Inc. is material and nonpublic,

 

 

iv.

review on a regular basis and update as necessary Eagle Asset Management's policy and procedures, [and]

 

 

v.

when it has been determined that an employee of Eagle Asset Management, Inc. has material nonpublic information,

 

 

1. implement measures to prevent dissemination of such information, and

 

2. if necessary, restrict officers, directors and employees from trading the securities, [and

 

 

vi.

promptly review, and either approve or disapprove, in writing, each request of an employee for clearance to trade in specified securities.]

 

2.

Detection of Insider Trading

 

 

To detect insider trading, Chief Compliance Officer or his designee, should:

 

 

i.

review the trading activity reports filed by each employee,

 

 

ii.

review the trading activity of mutual funds and private accounts managed by Eagle Asset Management, Inc.,

 

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iii.

review trading activity of Eagle Asset Management's own account, and

 

 

iv.

coordinate the review of such reports with other appropriate employees of Eagle Asset Management, Inc.

 

3.

Special Reports to Management

 

          Promptly, upon learning of a potential violation of Eagle Asset Management's Policy and Procedures to Detect and Prevent Insider Trading, the Chief Compliance Officer or his designee, should prepare a written report to management providing full details and recommendations for further action.

 

4.

Annual Reports to Management

 

          On an annual basis, the Chief Compliance Officer or his designee should prepare a written report to the management of Eagle Asset Management, Inc. setting forth the following:

 

 

i.

a summary of existing procedures to detect and prevent insider trading,

 

 

ii.

full details of any investigation, either internal or by a regulatory agency, of any suspected insider trading and the results of such investigation,

 

 

iii.

an evaluation of the current procedures and any recommendations for improvement, and

 

 

iv.

a description of Eagle Asset Management's internal communications regarding insider trading, including the dates of such communications since the last report to management.

 

             

 

 

 

 

 

 

 

 

 

 

 

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EAGLE

Asset Management, Inc.

INITIAL / ANNUAL CERTIFCATION

 

          I hereby acknowledge receipt of the Eagle Code of Ethics and the Policy and Procedures On Insider Trading and any amendments thereto. I certify that I have thoroughly reviewed these instructions (and any amendments) and understand the policies and regulations therein. I have been offered an opportunity to ask questions about any provisions which are unclear. To the best of my knowledge, I have complied with the provisions of these documents during the past year, or since the beginning of my employment if later, and I agree to continue to abide by the provisions of these documents.

 

 

_______________________

Name:

 

_______________________

______________________

Sign

Date

 

 

   

 

 

 

 

 

 

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EAGLE ASSET MANAGEMENT, INC.

Appendix A

 

Statement of General Policy Regarding IPO Allocations

 

•

Portfolio managers and traders should not take any improper action in order to obtain greater access to IPOs.

 

•

Portfolio managers and traders should not engage in excessive trading or increase portfolio turnover in order to obtain larger IPO allocations by generating more commission business for brokers that provide access to IPOs.

 

•

Portfolio managers and traders should not purchase or commit to purchase from certain brokers additional shares of an IPO in the immediate after-market trading in order to obtain larger IPO allocations, i.e., portfolio managers and traders should not explicitly or implicitly engage in a quid pro quo between the initial IPO allocation and the subsequent after-market purchases by Eagle. (However, absent such an explicit or implicit quid pro quo, portfolio managers and traders properly can determine to fill an unfilled IPO order with purchases in the secondary market from the same broker from whom they acquired the IPO shares.)

 

•

Portfolio managers and traders should not pay commissions to certain brokers in excess of customary and reasonable commissions in order to obtain larger IPO allocations. (However, subject to best execution standards and appropriate disclosures in Eagle’s Form ADV registration statement and any applicable mutual fund registration statements, portfolio managers and traders may consider access to IPOs as one factor, among others, in selecting broker-dealers with whom they trade.)

 

•

Portfolio managers and traders should not make IPO allocation decisions regarding client accounts based upon subsequent market movements or based upon any factors or guidelines not articulated in Eagle’s compliance policies and applicable disclosures.

 

•

Allocations should be fair and equitable to all clients to the extent practicable.

 

•

Allocations should comply with information disclosed to clients in, as applicable, the advisory contracts, Eagles’ Form ADV registration statement, and any applicable mutual fund registration statement.

 

•

Allocations should be pro rata to applicable groups of clients where feasible. If not pro rata, allocations should comply with applicable policies and procedures and should be consistent with information disclosed to clients.

 

•

Allocations should not continually favor particular accounts unless such practice has been disclosed to clients.

 

•

Hot IPOs generally should not be allocated to accounts where Eagle, its principals or its affiliates maintain an ownership interest.

   

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EAGLE

Asset Management, Inc.   EAGLE EMPLOYEE

REPORT OF AFFILIATED MUTUAL FUND HOLDINGS

 

As required by Eagle’s Code of Ethics, the following is my statement of affiliate Mutual Fund / Variable Annuity “Fund” holdings for which I may have a direct or indirect beneficial interest. As described in the Eagle Code of Ethics, this includes the holdings of myself, family members (spouse, minor child, or related adult living in the same household as myself) and the holdings of a Trust in which I am Trustee or in which I have a beneficial interest.

 

Note:

Eagle Compliance receives Eagle employee Raymond James 401k Fund holdings information directly from the Plan Sponsor. There is no need to list any affiliated Funds held in your Raymond James 401k Plan on this report.

 

Eagle Compliance receives Eagle employee brokerage account information including information on Funds held in employee Raymond James & Associate Brokerage Accounts. There is no need to list any affiliated Funds held in your Raymond James & Associates brokerage accounts.

 

1)        _____I do not have any affiliate Fund holdings other than what is held in my Raymond James 401k Plan and/or Raymond James & Associates Inc. Brokerage accounts.

 

2)        For affiliated Fund holdings that are NOT held in my Raymond James 401k Plan and/or Raymond James & Associate Brokerage account, I have disclosed below the name of the Fund, account, relationship, shares owned and the account number for each.

 

Fund Name

Name on Account

Relationship

Shares

Account Number

_________

______________

__________

_____

______________

_________

______________

__________

_____

______________

_________

______________

__________

_____

______________

_________

______________

__________

_____

______________

_________

______________

__________

_____

______________

_________

______________

__________

_____

______________

_________

______________

__________

_____

______________

Please attach additional sheets, if necessary.

 

 

Name:

________________________

 

 

Signature: ________________________

Date: _______________

 

 

 

 

 

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EAGLE

Asset Management, Inc.

 

REPORT OF SECURITIES HOLDINGS

Initial Report

 

Name of Access Person: _______________________

 

As required by Rule 17j-1 and Eagle’s Code of Ethics, the following is my statement of

securities holdings for which I may have a direct or indirectbeneficial interest. As described in the Eagle Code of Ethics, this includes the securities holdings of myself,

family members (spouse, minor child, or related adult living in the same household as myself) and the securities holdings of a Trust in which I am Trustee or in which I have a beneficial interest.

 

1)

For securities holdings that are held in brokerage accounts, please list the name

 

of the brokerage house, the name on the account, relationship to you, and the

 

account number for each.

 

(Please attach the most recent monthly statement for brokerage accounts held outside of Raymond James)

 

Brokerage Firm

Name of Account

Relationship

Account Number

______________

_______________

___________

_______________

______________

_______________

___________

_______________

______________

_______________

___________

_______________

______________

_______________

___________

_______________

______________

_______________

___________

_______________

 

2)

For securities holdings that are not held in brokerage accounts which are held in

 

physical form, including Hedge Funds and Private Placements, please list:

 

Shares

Name of Issuer/Fund

Registered in the name of:

Relationship

_______

___________________

______________________

___________

_______

___________________

______________________

___________

_______

___________________

______________________

___________

(Please attach additional sheets, if necessary)

 

 

3)

I ___do/ ____do not have any securities holdings that I am required to report

 

pursuant to the requirements as stated above.

 

 

Signature: ___________________________

Date: ________________________

 

•

 

 

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CODE OF ETHICS

________

Eaton Vance Corp.

Eaton Vance Management

Boston Management and Research

Eaton Vance Investment Counsel

Eaton Vance Distributors, Inc.

Eaton Vance Funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective: September 1, 2000

(as revised May 1, 2008)

 

Internal Use Only

TABLE OF CONTENTS

Table of Contents

Governing Principles

Part I. Policy on Personal Securities Transactions

Part II. Code of Business Conduct and Ethics for Directors, Officers and Employees

General Provisions

Appendix 1. Procedures for Policy on Personal Securities Transactions

(not part of the Code of Ethics)

Appendix 2. Policies to Implement Eaton Vance’s Policy Against Insider Trading

(not part of the Code of Ethics)

Appendix 3. Restricted Securities List Procedures

(not part of the Code of Ethics)

 

 

 

 

GOVERNING PRINCIPLES

You have the responsibility at all times to place the interests of Clients first, to not take advantage of Client transactions, and to avoid any conflicts, or the appearance of conflicts, with the interests of Clients. The Policy on Personal Securities Transactions provides rules concerning your personal transactions in Securities that you must follow in carrying out these responsibilities. You also have a responsibility to act ethically, legally, and in the best interests of Eaton Vance and our Clients at all times. The Code of Business Conduct and Ethics sets forth rules regarding these obligations. You are expected not only to follow the specific rules, but also the spirit of the Code of Ethics. The Company is required by law to have a Code of Ethics, but the Eaton Vance Code of Ethics goes well beyond the minimum legal requirements.

 

PART I

POLICY ON

PERSONAL SECURITIES TRANSACTIONS

______________

DEFINITIONS

Company refers to each of Eaton Vance Corp. ( EVC ), Eaton Vance Management ( EVM ), Boston Management and Research ( BMR ), Eaton Vance Investment Counsel ( EVIC ), and Eaton Vance Distributors, Inc. ( EVD ), and each Fund.

 

Fund is each investment company registered under the Investment Company Act of 1940 for which EVM or BMR acts as the investment adviser or, if such investment company has no investment adviser, for which EVM or BMR acts as the administrator/manager (non-advisory) and EVD acts as the principal distributor. Sub-advised Fund is each investment company registered under the Investment Company Act of 1940 for which EVM or BMR acts as the investment sub-adviser. Non-advised Portfolio is each investment company registered under the Investment Company Act of 1940 which has an investment adviser or sub-adviser other than EVM or BMR, and in which a Fund invests all of its investable assets.

 

Client is any person or entity, including a Fund, a Sub-advised Fund, and a client for which EVM, BMR or EVIC provides investment advisory services.

Access Person is each of the following:

(1) a director, trustee, or officer of a Fund, of EVM, of BMR, or of EVIC;

(2) a director, trustee, or officer of a Non-advised Portfolio, who is not also an employee or officer of the investment adviser of such Non-advised Portfolio;

(3) an employee, consultant, or intern of EVC, EVM, BMR, EVIC, or a Fund who, in connection with his or her regular functions or duties, makes, participates in, or has access to nonpublic information regarding the purchase or sale of Securities by a Client, or whose functions relate to the making of any recommendations with respect to the purchases or sales (including a portfolio manager, investment counselor, investment analyst, member of the trading department, most administrative personnel in the investment counselor department, the equity investment department, and each income investment department, and certain members of the information technology department and fund administration department) or who, in connection with his or her regular functions has access to nonpublic information regarding such recommendations (including certain

 

members of the fund administration department and information technology department);

(4) an employee, consultant, or intern of EVC, EVM, BMR, EVIC, or a Fund who, in connection with his or her regular functions or duties has access to nonpublic information regarding portfolio holdings of a Fund or Sub-advised Fund (including a portfolio manager, investment analyst, member of the trading department, most administrative personnel in the equity investment department and each income investment department, and certain members of the information technology department, corporate communications department, and fund administration department);

(5) a natural person in a control relationship to a Fund or EVM, BMR or EVIC who obtains nonpublic information concerning recommendations made to the Fund or other Client with regard to the purchase or sale of Securities by the Fund or other Client;

(6) a director or officer of EVD who, in the ordinary course of business, makes, participates in, obtains or, in EVD’s judgment, is able to obtain nonpublic information regarding, the purchase or sale of Securities by a Fund, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to a Fund regarding the purchase or sale of Securities.

 

Employees and officers of an investment adviser or sub-adviser of any Non-advised Portfolio will be covered by the code of ethics of that investment adviser or sub-adviser. If any Fund or Sub-advised Fund has an investment adviser or sub-adviser other than EVM or BMR, the employees and officers of that investment adviser or sub-adviser will be covered by the code of ethics of that investment adviser or sub-adviser. The codes of ethics of each investment adviser or sub-adviser to a Fund or Non-advised Portfolio other than EVM or BMR will be approved by the Board of Trustees of the Fund, Sub-advised Fund or Non-advised Portfolio, as appropriate.

 

Investment Professional is each of the following:

(1) an employee of EVC, EVM, BMR, EVIC, or of a Fund or Sub-advised Fund, who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of Securities by the Fund, Sub-advised Fund or other Client (including a portfolio manager, an investment counselor, and an investment analyst); and

(2) a natural person who controls a Fund or EVM, BMR or EVIC and who obtains information concerning recommendations made to the Fund or other Client with regard to the purchase or sale of securities by the Fund or other Client.

Every Investment Professional is also an Access Person.

 

Reporting Person is each registered representative and registered principal of EVD.

 

Independent Fund Trustee is a trustee of a Fund or a Non-advised Portfolio who is not an “interested person” of the fund (as determined under the Investment Company Act of 1940).

 

Immediate Family of any person includes his or her spouse, minor children, and relatives living in his or her principal residence.

 

Securities means notes, stocks, treasury stocks, bonds, debentures, evidences of indebtedness, certificates of interest or participation in any profit sharing agreement, collateral trust certificates, pre-organization certificates or subscriptions, transferable shares, investment contracts, voting trust certificates, certificates of deposit for a security, fractional undivided interests in oil, gas, or other mineral rights, puts, calls, straddles, options, or privileges on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or puts, calls, straddles, options, or privileges entered into on a national securities exchange relating to foreign currency, or, in general, any interests or instruments commonly known as “securities,” or any certificates of interest or participation in, temporary or interim certificates for, receipts for, guarantees of, or warrants or rights to subscribe to or purchase any of the foregoing, but do not include shares issued by open-end investment companies registered under the Investment Company Act of 1940 except as noted below, direct obligations of the government of the United States, bankers acceptances, bank certificates of deposit, commercial paper, or high quality short-term debt instruments, including repurchase agreements. Shares of Funds or Sub-advised Funds (unless the Fund or Sub-advised Fund is a money market fund) and shares of exchange traded funds (whether organized as an open-end investment company or a unit investment trust) are Securities for the purposes of this Policy.

 

Initial Public Offering means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934.

 

Limited Offering means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or pursuant to rule 504, rule 505 or rule 506 under the Securities Act of 1933. A Limited Offering thus includes an offering commonly referred to as a private placement, as well as a non-public offering in limited amounts available only to certain investors. A Limited Offering includes any offer to you to purchase any Securities, whether stock, debt securities, or partnership interests, from any entity, unless those Securities are registered under the Securities Act of 1933 (that is, are publicly offered/publicly traded Securities).

 

Large Cap Issuer is an issuer of Securities with an equity market capitalization of more than $2 billion.

 

A. Applicability of the Policy

Who is Covered . A part of this Policy applies to all Company employees. Other parts apply only to Access Persons, Investment Professionals, or Reporting Persons. The Company will notify you if you are in one of these categories.

This Policy covers not only your personal Securities transactions, but also those of your Immediate Family (your spouse, minor children, and relatives living in your principal residence).

 

What Accounts are Covered . This Policy applies to Securities transactions in all accounts in which you or members of your Immediate Family have a direct or indirect beneficial interest, unless the Compliance Attorney determines that you or they have no direct or indirect influence or control over the account. Normally, an account is covered by this Policy if it is (a) in your name, (b) in the name of a member of your Immediate Family, (c) of a partnership in which you or a member of your Immediate Family are a partner with direct or indirect investment discretion, (d) of a trust of which you or a member of your Immediate Family are a beneficiary and a trustee with direct or indirect investment discretion, and (e) of a closely held corporation in which you or a member of your Immediate Family hold shares and have direct or indirect investment discretion.

 

B. Rules Applicable to All Employees

 

Reminder : When this Policy refers to “you” or your transactions, it includes your Immediate Family and accounts in which you or they have a direct or indirect beneficial interest. See section A, “Applicability of the Policy,” above. The procedure for obtaining pre-clearance is explained in Appendix 1, Procedures for Policy on Personal Securities Transactions (“Procedures”).

 

1. Pre-clearance: EVC Stock . You must pre-clear all purchases and sales of EVC stock with the Treasurer of EVC, except that you do not have to pre-clear (1) purchases pursuant to the EVC Employee Stock Purchase Plan or to the exercise of any EVC stock option agreement, (2) bona fide gifts of EVC stock that you receive, (3) bona fide gifts of EVC stock that you make to nonprofit organizations qualified under Section 501(c)(3) of the Internal Revenue Code, or (4) automatic, non-voluntary transactions, such as stock dividends, stock splits, or automatic dividend reinvestments. NOTE: The purchase or sale of publicly traded options on Eaton Vance stock is prohibited.

There are times when transactions in EVC stock are routinely prohibited, such as prior to releases of earnings information. Normally you will be notified of these blackout periods.

 

2. Pre-clearance: Certain Eaton Vance Closed-End Funds. You must pre-clear all purchases and sales of shares of exchange-listed, closed-end Funds. You do not have to pre-clear transactions in shares of Eaton Vance closed-end, continuously offered bank

loan interval Funds, which are more similar to open-end funds. You may obtain a list of all of these Funds from the Chief Compliance Officer.

 

3. Reporting Requirements. You must ensure that the broker-dealer you use sends to the Compliance Assistant copies of confirmations of all purchases and sales of EVC stock and of Eaton Vance closed-end Funds that you were required to pre-clear. If you are an Access Person required to file reports of personal Securities transactions, these purchases and sales must be included.

 

           4. Prohibited Transactions. You are prohibited from purchasing or selling any security, either personally or for any Client, while you are in the possession of material, non-public information concerning the security or its issuer. Please read Appendix 2 to the Code of Ethics, Policies and Procedures in Prevention of Insider Trading.

 

5. Transactions in Shares of Funds and Sub-advised Funds and Interests in Non-advised Portfolios. You must comply with all prospectus restrictions and limitations on purchases, sales or exchanges of Fund or Sub-advised Fund shares or Non-advised Portfolio interests when you purchase, sell or exchange such shares or interests.

 

6. Reporting Violations. If you have knowledge of any violations of this Code, you must promptly report, in good faith, the situation to the Chief Compliance Officer.

C. Rules Applicable to Reporting Persons

In addition to the “Rules Applicable to All Employees” in section B above, if you are a Reporting Person, you are required to provide the following reports of your Securities accounts to the Compliance Assistant. Remember that your reports also relate to members of your Immediate Family and the accounts referred to under section A, “Applicability of the Policy,” above. Please review the definition of Securities in the “Definitions” section of the Code of Ethics above. Securities include not only publicly traded stocks and bonds, including shares of EVC, all closed-end funds (including interval funds), and Funds and Sub-advised Funds, but also stock in closely held corporations, partnership interests, and derivatives. Securities do not include shares issued by open-end investment companies registered under the Investment Company Act of 1940 (other than the Funds and Sub-advised Funds), direct obligations of the government of the United States, bankers acceptances, bank certificates of deposit, commercial paper, or high quality short-term debt instruments, including repurchase agreements.

 

1. Initial Report of Accounts. Within ten (10) days of becoming a Reporting Person, you must submit to the Compliance Assistant a report of all your Securities accounts covered by the Policy. The report must include the following information:

a. Account name;

 

b. Name of broker, dealer or bank;

c. Account number; and

d. Date account was opened.

  2. Report of New Accounts. Prior to opening any new Securities account covered by the Policy or placing an order for the purchase or sale of any Security with any new broker, dealer or bank, you must submit a report to the Compliance Assistant including the information outlined in section C.1 above.

 

3. Quarterly Account Report. Within thirty (30) days after the end of each calendar quarter, you must submit to the Compliance Assistant a report of your Securities accounts including the information outlined in section C.1 above.

Note : If as of May 1, 2008 you were (a) subject to the reporting requirements under the “Personal Securities Transactions” section of EVD’s Written Supervisory Procedures and (b) in compliance with those requirements, you will not be required to submit the report required by section C.1. In addition, if you are both a Reporting Person and an Access Person under the Code of Ethics and you comply with all the requirements of section D “ Rules Applicable to Access Persons ” you will not be required to submit the report required by section C.3.

 

D. Rules Applicable to Access Persons

If you are an Access Person, you are subject to the following rules, in addition to the “Rules Applicable to All Employees” in section B above.

Reminder : When this Policy refers to “you” or your transactions, it includes your Immediate Family and accounts in which you or they have a direct or indirect beneficial interest, and over which you or they exercise direct or indirect influence or control. See section A, “Applicability of the Policy,” above. Check the definition of “Securities” and of other capitalized terms in the “Definitions” section of the Code of Ethics above.

 

1. Pre-Clearance: All Securities . You must pre-clear all purchases and sales of Securities, except that you do not have to pre-clear:

(1) a purchase of equity Securities of a Large Cap Issuer (with a market capitalization of more than $2 billion), if the value of such purchase, together with the value all of your purchases of equity Securities of that Large Cap Issuer in the previous six (6) days, would not exceed $25,000;

(2) a sale of equity Securities of a Large Cap Issuer, if the value of such sale, together with the value all of your sales of equity Securities of that Large Cap Issuer in the previous six (6) days, would not exceed $25,000;

(3) a purchase of investment grade, non-convertible debt Securities, if the value of such purchase, together with the value all of your purchases of investment grade, non-convertible debt Securities of the same issuer in the previous six (6) days, would not exceed $25,000;

 

(4) a sale of investment grade, non-convertible debt Securities, if the value of such sale, together with the value all of your sales of investment

grade, non-convertible debt Securities of the same issuer in the previous six (6) days, would not exceed $25,000;

(5) a purchase (including through an exchange) of Securities of a Fund or a Sub-advised Fund;

(6) a redemption (including through an exchange) of Securities of a Fund or a Sub-advised Fund;

(7) a purchase of any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, if the value of such purchase together with the value of all such purchases with respect to a given currency in the previous six (6) days would not exceed $25,000;

(8) a sale of any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, if the value of such sale together with the value of all such sales with respect to a given currency in the previous six (6) days would not exceed $25,000

(9) a bona fide gift of Securities that you receive or a bona fide gift of Securities that you make to any nonprofit organization qualified under Section 501(c)(3) of the Internal Revenue Code ;

(10) an automatic, non-voluntary transaction, such as a stock dividend, stock split, spin-off, and automatic dividend reinvestment; or

(11) a transaction pursuant to a tender offer that is applicable pro rata to all stockholders.

 

The exemptions from pre-clearance in clauses (1) through (4) above do not apply to trading in any Security that is placed on a restricted list (for example, because the Company is in the possession of material inside information about the issuer). Further, the Chief Compliance Officer may suspend your use of the exemptions from pre-clearance in clauses (1) through (8) if he or she concludes that you have engaged in excessive personal trading or that pre-clearance by you is otherwise warranted.

You are responsible for determining if an issuer is a Large Cap Issuer; you may consult an appropriate Internet website for this purpose, such as Yahoo:Finance. Remember that you must always pre-clear all purchases and sales of EVC stock even if EVC is a Large Cap Issuer. See section B.1, “Pre-Clearance: EVC Stock,” above. Investment Professionals have additional pre-clearance obligations. See section E, “Additional Rules Applicable to Investment Professionals,” below.

You will not receive pre-clearance of a transaction for any Security at a time when there is a pending buy or sell order for that same Security for a Client, or when other circumstances warrant prohibiting a transaction in a particular Security. Remember that the term “Security” is broadly defined. For example, an option on a Security is itself a Security, and the purchase, sale and exercise of the option is subject to pre-clearance. A pre-clearance approval normally is valid only during the day on which it is given. Pre-clearance procedures are set forth in the attached Procedures.

 

If you are a fund trustee who is not an employee of a Company, you do not have to pre-clear a transaction unless you knew or, in the ordinary course of fulfilling your official duties as a trustee, should have known that during the fifteen (15) day period immediately before or after your transaction in a Security, the fund purchased or sold the Security, or the fund or its investment adviser considered purchasing or selling the Security.

 

2. Holding Period: Eaton Vance Closed-End Funds . Directors and officers of closed-end Funds (including bank loan interval Funds), and certain Access Persons involved in managing such Funds, are prohibited by the federal securities laws from purchasing and selling, or selling and purchasing, shares of these Funds within six (6) months, and must file SEC Forms 4 regarding their transactions in shares of these funds. If you are in this category, the Chief Compliance Officer (or his designee within the Legal Department) will notify you and assist you in filing these Forms, and you will not receive pre-clearance for any purchase or sale that would violate the six-month restriction. Therefore, if you are in this category, you should expect to hold the shares you purchase for at least six (6) months.

 

3. Prohibited and Restricted Transactions . The following transactions are either prohibited without prior approval, or are discouraged, as indicated. The procedures for obtaining approval are in the Procedures, attached as Appendix 1. These restrictions do not apply to fund trustees who are not employees of a Company.

a. Initial Public Offerings . You may not purchase or otherwise acquire any Security in an Initial Public Offering. You may apply to the Chief Compliance Officer and the Investment Compliance Officer for prior written approval to purchase or acquire a Security in an Initial Public Offering, but approval will be granted only in rare cases that involve extraordinary circumstances. Accordingly, the Company discourages such applications. You might be given approval to purchase a Security in an Initial Public Offering, for example, pursuant to the exercise of rights you have as an existing bank depositor or insurance policyholder to acquire the Security in connection with the bank’s conversion from mutual or cooperative form to stock form, or the insurance company’s conversion from mutual to stock form. The Company must maintain a record of any approval to acquire a Security in an Initial Public Offering, with the reasons supporting the approval, for at least five (5) years after the end of the fiscal year in which the approval is granted.

b. Limited Offerings . You may not purchase or otherwise acquire any Security in a Limited Offering, except with the prior approval from the Chief Compliance Officer and the Investment Compliance Officer. (Remember that a Limited Offering, as defined, includes virtually any Security that is not a publicly traded/listed Security.) Such approval will only be granted where you establish that there is no conflict or appearance of conflict with any Client or other possible impropriety (such as where the Security in the Limited Offering is appropriate for purchase by a Client, or when your participation in the Limited Offering is suggested by a person who has a business relationship with any Company or expects to establish such a relationship). Examples where approval might be

 

granted, subject to the particular facts and circumstances, are a personal investment in a private fund or limited partnership in which you would have no involvement in making recommendations or decisions, or your investment in a closely held corporation or partnership started by a family member or friend. The Company must maintain a record of any approval to acquire a Security in a Limited Offering, with the reasons supporting the approval, for at least five (5) years after the end of the fiscal year in which the approval is granted.

c. Short Sales . You may not sell short any Security, except that you may (i) sell short a Security if you own at least the same amount of the Security you sell short (selling short “against the box”) and (ii) sell short U.S. Treasury futures and stock index futures based on the S&P 500 or other broad based stock indexes.

d. Naked Options . You may not engage in option transactions with respect to any Security, except that you may purchase a put option or sell a call option on Securities that you own. You may not engage in the purchase or sale of publicly-traded options on shares of Eaton Vance stock.

e. Short-term Trading . You are strongly discouraged from engaging in excessive short-term trading of Securities. The purchase and sale, or sale and purchase, of the same or equivalent Securities within sixty (60) days are generally regarded as short-term trading.

 

4. Prohibited Transactions: Bank Loan Department . If you are an Access Person in the Bank Loan Department, you may not purchase or sell any Security issued by an entity that is the borrower under a loan interest held in a Client’s portfolio. In addition, you may not purchase or sell any Security issued by an entity that is the borrower under a loan interest that was or is being evaluated for purchase for a Client and was not purchased, until the 181 st day after the decision was made not to purchase the loan interest.

 

5. Prohibited Transactions: Equity and Counselors Departments . If you are an Access Person in the Equity or Counselors Department, you may not purchase or sell any Security until the seventh (7 th ) day after any (a) Analyst Select Portfolio activity regarding that Security (whether an addition, increased position, deletion, decreased position, or rating change), or (b) addition or deletion of such Security from the Counselors Focus Portfolio, or (c) change in the rating of that Security in the Monitored Stock List (i) from 1, 2 or 3 to 4 or 5, or (ii) from 3, 4 or 5 to 1 or 2, in each case to provide sufficient time for Client transactions in that Security before personal transactions in that Security. In addition, the Chief Compliance Officer may require other Access Persons with access to any of the Analyst Select Portfolio, Counselors Focus Portfolio or Monitored Stock List to adhere to the restrictions in this paragraph upon written notice to such Access Person by the Chief Compliance Officer.

 

6. Prohibited Transactions: Managed Account Operations Department. If you are an Access Person in the Managed Account Operations Department, you may not

 

purchase or sell any Security until the second (2 nd ) day after any communication or notice (verbal or written) of a pending program trade.

7. Investment Clubs . You may not be a member of an investment club that trades in and owns Securities in which members have an interest. Such an investment club is regarded by this Policy as your personal account, and it is usually impracticable for you to comply with the rules of this Policy, such as pre-clearance of transactions, with respect to that investment club. If you were a member of an investment club and a Company employee on September 1, 2000, you may either (i) resign from the club by January 31, 2001 or promptly upon becoming an Access Person, and until your resignation is effective you may not influence or control the investment decisions of the club, or (ii) you may continue as a member, but only if the club is regarded as your personal account and you (and the club) meet all of the requirements of this Policy with respect to every securities transaction by the club, including pre-clearance, prohibited and restricted transaction, and reporting requirements.

 

8. Reporting Requirements . You are required to provide the following reports of your Security holdings and transactions to the Compliance Assistant. Remember that your reports also relate to members of your Immediate Family and the accounts referred to under section A, “Applicability of the Policy,” above. Please review the definition of Securities in the “Definitions” section of the Code of Ethics above. Securities include not only publicly traded stocks and bonds, including shares of EVC, all closed-end funds (including interval funds), and Funds and Sub-advised Funds, but also stock in closely held corporations, partnership interests, and derivatives. Securities do not include shares issued by open-end investment companies registered under the Investment Company Act of 1940 (other than the Funds and Sub-advised Funds), direct obligations of the government of the United States, bankers acceptances, bank certificates of deposit, commercial paper, or high quality short-term debt instruments, including repurchase agreements.

Please refer to the attached Procedures for reporting procedures and forms.

a. Initial Report of Holdings. Within ten (10) days after you become an Access Person, you must submit to the Compliance Assistant a report of your holdings of Securities, including the title, type, exchange ticker or CUSIP number (if applicable), number of shares and principal amount of each Security held as of a date not more than forty-five (45) days before you became an Access Person. Your report must also include the name of any broker, dealer or bank with whom you maintain an account for trading or holding any type of securities, whether stocks, bonds, mutual funds, or other types and the date on which you submit the report to the Compliance Assistant.

If you are an Independent Fund Trustee, you do not have to provide an initial report.

b. Annual Report of Holdings. After January 1 and before January 20 of each year, you must submit to the Compliance Assistant a report of your holdings of Securities, current within forty-five (45) days before the report is submitted, including the

 

title, type, exchange ticker or CUSIP number (if applicable), number of shares and principal amount of each Security. Your report must include the name of any broker, dealer or bank with whom you maintain an account for trading or holding any type of securities, whether stocks, bonds, mutual funds, or other types and the date on which you submit the report to the Compliance Assistant.

If you are an Independent Fund Trustee, you do not have to provide an annual report.

c. Quarterly Transaction Report. Within thirty (30) days after the end of each calendar quarter, you must submit to the Compliance Assistant a report of your transactions in Securities during that quarter, including the date of the transaction, the title, type, exchange ticker or CUSIP number (if applicable), the interest rate and maturity date (if applicable), and the number of shares and principal amount of each Security in the transaction, the nature of the transaction (whether a purchase, sale, or other type of acquisition or disposition, including a gift), the price of the Security at which the transaction was effected, and the name of the broker, dealer or bank with or through the transaction was effected. If you established an account with a broker, dealer or bank in which any Security was held during that quarter, you must also state the name of the broker, dealer or bank and the date you established the account The report must state the date on which you submit it to the Compliance Assistant.

If you are an Independent Fund Trustee, you do not have to provide a quarterly transaction report unless you knew or, in the ordinary course of fulfilling your official duties as a trustee, should have known that during the fifteen (15) day period immediately before or after your transaction in a Security, the fund purchased or sold the Security, or the fund or its investment adviser considered purchasing or selling the Security.

You do not have to submit a quarterly transaction report if (i) copies of all of your transaction confirmations and account statements are provided to the Compliance Assistant for that quarter (see paragraph 9, “Confirmations of Transactions and Account Statements,” below), or (ii) all of the information required in such report is, on a current basis, already in the records of the Company (as, for example, in the case of transactions in EVC stock through the EVC employee stock purchase plan or by the exercise of stock options).

 

9. Confirmations of Transactions and Account Statements . You must ensure that each broker, dealer or bank with which you maintain an account send to the Compliance Assistant, as soon as practicable, copies of all confirmations of your Securities transactions and of all monthly, quarterly and annual account statements. See section A, “Applicability of the Policy – What Accounts are Covered,” above.

This requirement does not apply to (a) fund trustees who are not employees of a Company or (b) Securities transactions involving shares of a Fund or Sub-advised Fund where EVD acts as your broker.

 

If you certify to the Compliance Assistance that the Compliance Assistant has received all of your confirmations and account statements by the date your quarterly transaction report is due, and if those confirmations and statements contain all of the information required in your quarterly transaction report, you do not have to submit that report.

 

E. Additional Rules Applicable to Investment Professionals

If you are an Investment Professional, you are subject to the following rules, in addition to the “Rules Applicable to Access Persons” in section D above. Before engaging in any personal Securities transactions, please review those rules, which include pre-clearance and reporting requirements, as well as restricted transactions.

The following rules relate to the requirement that transactions for Clients whose portfolios you manage, or for whom you make recommendations, take precedence over your personal Securities transactions, and therefore Clients must be given the opportunity to trade before you do so for yourself. In addition, it is imperative to avoid conflicts, or the appearance of conflicts, with Clients’ interests. While the following Securities transactions are subject to pre-clearance procedures, you are responsible for avoiding all prohibited transactions, and you may not rely upon the pre-clearance procedures to prevent you from violating these rules.

Reminder : When this Policy refers to “you” or your transactions, it includes your Immediate Family and accounts in which you or they have a direct or indirect beneficial interest, and over which you or they exercise direct or indirect influence or control. See section A, “Applicability of the Policy,” above. Check the definition of “Securities” and of other capitalized terms in the “Definitions” section of the Code of Ethics above.

 

 

1.

Prohibited Transactions: All Investment Professionals . You may not cause or recommend a Client to take action for your personal benefit. Thus, for example, you may not trade in or recommend a security for a Client in order to support or enhance the price of a security in your personal account, or “front run” a Client.

 

2.

 

 

2. Prohibited Transactions: Portfolio Managers and Investment Counselors .

a. Personal Trades in Same Direction as Client . If you are a portfolio manager or an investment counselor, you may not purchase any Security for your personal account until one day after you have purchased that Security for Client portfolios that you manage. You may not sell any Security for your personal account until one day after you have sold that Security for Client portfolios that you manage.

b. Personal Trades in Opposite Direction as Client: Seven-Day Blackout. If you are a portfolio manager or an investment counselor, you may not sell any Security for your personal account until the eighth (8 th ) day after you have purchased that Security for Client portfolios that you manage. You may not purchase any Security for your personal

 

account until the eighth (8 th ) day after you have sold that Security for Client portfolios that you manage.

c. Trading Before a Client. If you are a portfolio manager or an investment counselor, before you place an order to purchase a Security for a Client, you must disclose to the Investment Compliance Officer if you have purchased that Security for your personal account within the preceding seven (7) days. Depending upon the circumstances, there may be no impact on your prior purchase, or you may be required to sell that Security before it is purchased for the Client, or you may have to pay to the Client’s account the difference between your and the Client’s purchase price for the Security, if your price was lower. Before you place an order to sell a Security for a Client, you must disclose to the Investment Compliance Officer if you have sold that Security for your personal account within the preceding seven (7) days. Depending upon the circumstances, you may or may not be required to pay to the Client’s account the difference between your and the Client’s sales price for the Security, if your price was higher.

Because your responsibility is to put your Client’s interests ahead of your own, you may not delay taking appropriate action for a Client in order to avoid potential adverse consequences in your personal account.

 

3. Prohibited Transactions: Investment Analysts . If you are an investment analyst, before you purchase or sell a Security, Clients must be afforded the opportunity to act upon your recommendations regarding such Security. You may not purchase or sell any Security for which you have coverage responsibility unless either (i) you have first broadly communicated throughout the relevant investment group your research conclusion regarding that Security (through an Analyst Select Portfolio recommendation or Security rating, including the MSL security rating) and afforded suitable Clients sufficient time to act upon your recommendation (as set forth below), or (ii) you have first determined, with the prior concurrence of the Investment Compliance Officer, that investment in that Security is not suitable for any Client. If your research conclusions are not communicated through an Analyst Select Portfolio recommendation or Security rating, before you purchase or sell a Security for which you have coverage responsibility, you must first obtain the approval of the Investment Compliance Officer.

a. Personal Trades Consistent with New or Changed Recommendations or Ratings . If you are an investment analyst, you may not purchase or sell any Security for which you have coverage responsibility until the third (3 rd ) business day after you have broadly communicated a new or changed recommendation or rating for such Security to the Investment Professionals in the relevant department, and then only if your transaction is consistent with your recommendation or rating.

b. Personal Trades Inconsistent with New or Changed Recommendations or Ratings . If you are an investment analyst, you may not purchase or sell any Security for which you have coverage responsibility until the tenth (10 th ) business day after you have broadly communicated your new or changed recommendation or rating for such Security

 

to the Investment Professionals in the relevant department, if your transaction is inconsistent with your recommendation or rating. You must pre-clear any such transaction and disclose to the Investment Compliance Officer the reasons you desire to make a trade inconsistent with your recommendation or rating.

c. Trading before Communicating a Recommendation or Rating. If you are an investment analyst who is in the process of making a new or changed recommendation or rating for a Security for which you have coverage responsibility, but you have not yet broadly communicated your research conclusions and recommendations or ratings for such Security to the Investment Professionals in the relevant department, you are prohibited from trading in that Security.

4. Required Disclosures: Investment Analysts . If you are an investment analyst, before you make a recommendation that a Security be purchased, sold or held by a Client, you must disclose to the Investment Compliance Officer and to any Investment Professionals to whom you make the recommendation any direct or indirect beneficial interest you may have in that Security.

 

 

PART II

EATON VANCE CORP.  

And SUBSIDIARIES  

CODE OF BUSINESS CONDUCT AND ETHICS For Directors, Officers and Employees  

Adopted by the Board of Directors and effective on

October 31, 2004 (as revised February 1, 2005)

Eaton Vance Corp. (“Corporation”) desires to be a responsible member of the various communities in which it does business and to assure the welfare of those dependent upon the continuation of the Corporation’s good health, namely its shareholders, employees, customers and suppliers. It is the policy of the Corporation to comply with all laws and to conduct its business in keeping with the highest moral, legal, ethical and financial reporting standards. The Corporation’s policies apply equally to employees at all levels, and this Code of Business Conduct and Ethics (“Code”) applies to all Subsidiaries of the Corporation (“Subsidiary” is a company of which the Corporation holds, directly or indirectly, all of the ownership interests) and their officers, directors, managers and employees to the same extent as those of the Corporation. Accordingly, the term “Corporation” in this Code includes each Subsidiary, unless otherwise indicated.

The Corporation welcomes and appreciates the efforts of employees who communicate violations or suspected violations of this Code, and will not tolerate any form of retaliation against individuals who in good faith report possible misconduct even if, upon investigation, their suspicions prove to be unwarranted. To facilitate its compliance efforts, the Corporation has established a Business Conduct and Ethics Committee (“Ethics Committee”) consisting of the following officers of Eaton Vance Corp.: Executive Vice President; Chief Legal Officer; Chief Financial Officer; and Chief Administrative Officer.

 

All officers and managers of the Corporation are responsible for communicating and implementing these policies within their specific areas of supervisory responsibility.

Of course, no code of conduct can replace the thoughtful behavior of an ethical director, officer or employee, and the Corporation relies upon each individual within the organization to act with integrity, to use good judgment and to act appropriately in any given situation. Nevertheless, we believe that this Code can help focus the Eaton Vance Corp. Board of Directors (“Board”) and the Corporation’s management on areas of ethical risk, provide guidance to our personnel to help them to recognize and deal with ethical issues and help to foster a culture of honesty and accountability. We encourage each member of the Board (“Director”) and management and each other employee to review this Code carefully, ask any questions regarding the policies and procedures embodied in this Code to ensure that everyone understands each such policy and procedure and the overall intent of the Code, and make every effort to remain in full compliance with both the letter and spirit of this Code.

Without limiting the generality of the above, the following presents the Corporation’s policy on specific topics concerning business ethics and legal compliance.

Conflicts of Interest

The Corporation’s officers, Directors and employees have a duty to be free of conflicting interests that might influence their decisions when representing the Corporation. Consequently, as a general matter, our Directors, officers and employees are not permitted to maintain any conflict of interest with the Corporation, and should make every effort to avoid even the appearance of any such conflict. A “conflict of interest” occurs when an individual’s private interest interferes in any way - or even appears to interfere - with the Corporation’s interests as a whole. A conflict of interest can arise when a Director, officer or employee take actions or has interests that may make it difficult to perform his or her company work objectively and effectively or when a Director, officer or employee or a member of his or her family receives any improper personal benefits as a result of his or her position in the Corporation. Any officer or employee who believes that he or she may have a potential conflict of interest must report his or her concerns to a member of the Corporation’s Ethics Committee immediately. Any individual Director who believes that he or she has a potential conflict of interest must immediately report his or her concerns to the Chairman of the Board, who shall consult with the Ethics Committee on such matters.

Without limiting the generality of this Code’s prohibition on conflicts of interest involving the Corporation’s officers, Directors and employees:

• The Corporation’s dealings with suppliers, customers, contractors and others should be based solely on what is in the Corporation’s best interest, without favor or preference to any third party, including close relatives.

• Employees who deal with or influence decisions of individuals or organizations seeking to do business with the Corporation shall not own

 

interests in or have other personal stakes in such organizations that might affect the decision-making process and/or the objectivity of such employee, unless expressly authorized in writing by the chief executive officer of the Corporation after the interest or personal stake has been disclosed.

• Employees shall not do business on behalf of the Corporation with close relatives, unless expressly authorized in writing by the chief executive officer of the Corporation after the relationship has been disclosed.

 

Directors, officers and employees, while representing the Corporation, shall not seek or accept from any prospective or current provider of goods or services to the Corporation or any prospective or current investment management client of the Corporation (“Client”) any gift, favor, preferential treatment, or special arrangement of “Material Value.” “Material Value” includes such items as tickets for theater, musical, sporting or other

entertainment events on a recurring basis; costs of transportation and/or lodging to locations outside of the Corporation’s headquarter city, unless approved in advance by an appropriate senior executive of the Corporation as having a legitimate business purpose; personal loans or guarantees of loans; or preferential brokerage or underwriting commissions or spreads or allocations of shares or interests in an investment. “Material Value” does not include occasional meals or social gatherings for business purposes; occasional tickets for theater, musical, sporting or other entertainment events conducted for business purposes; or occasional small gifts or mementos with a value of under $100.

If you are an employee of Eaton Vance Distributors, Inc. (“EVD”), you are also subject to the rules of the National Association of Securities Dealers, Inc. (“NASD”). Please check with the Chief Compliance Officer of EVD if you have any questions about those rules.

Certain conflicts of interest arise out of the relationship between officers of the Corporation and the investment companies sponsored or advised by the Corporation (the “EV Funds”), and are subject to provisions in the Investment Company Act of 1940 (“Investment Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”) and the regulations thereunder that address conflicts of interest. For example, officers of the Corporation may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the EV Funds because of their status as “affiliated persons” of “affiliated persons” of the EV Funds. The Corporation's and the EV Funds’ compliance programs and procedures are designed to prevent, or identify and correct, violations of such provisions. This Code does not, and is not intended to, duplicate, change or replace those programs and procedures, and such conflicts fall outside of the parameters of this Code.

Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationships between the Corporation and the EV Funds, the officers of which may also be officers of the Corporation. As a result, this Code recognizes that the officers of the Corporation, in the normal course of their duties (whether formally for the Corporation or for the EV Funds, or for all of them), will be involved in establishing policies and implementing decisions that will have different effects on each entity. The participation of the officers in such activities is inherent in the contractual relationships between those entities and is

 

consistent with the performance by the officers of their duties as officers of the Corporation. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, the Board recognizes that officers of the Corporation may also be officers or employees of one or more investment companies or Subsidiaries covered by this Code or other codes of ethics.

 

Corporate Opportunities

Each of our Directors, officers and employees holds a personal duty to the Corporation to advance the Corporation’s legitimate business interests when the opportunity so arises. No Director, officer or employee of the Corporation is permitted to:

• take personally, whether for economic gain or otherwise, any business opportunity discovered though the use of the Corporation’s property or information or such person’s position with the Corporation, where such opportunity might be taken by the Corporation, unless, after full disclosure, it is authorized in writing by the chief executive officer of the Corporation;

• use any of the Corporation’s corporate property, information, or his or her position with the Corporation for personal gain to the detriment of the Corporation; or

• compete with the Corporation.

 

Confidentiality/Insider Information

It is imperative that our Directors, officers and employees safeguard confidential information including, but not limited to, information regarding transactions contemplated by the Corporation and the Corporation’s finances, business, computer files, employees, present and prospective customers and suppliers and stockholders. You must not disclose confidential information except where disclosure is authorized by the Corporation’s chief executive officer or Legal Department, or is otherwise required by applicable law. Your obligation to preserve and not disclose the Corporation’s confidential information continues even after your employment by the Corporation ends.

You must keep confidential, and not discuss with anyone other than other employees for valid business purposes, information regarding Client investment portfolios, actual or proposed securities trading activities of any Client, or investment research developed in the Corporation. You should take appropriate steps, when communicating the foregoing information internally, to maintain confidentiality, for example, by using sealed envelopes, limiting computer access, and speaking in private.

As noted above, no officer, Director or employee of the Corporation may in any manner use his or her position with the Corporation or any information obtained in connection therewith for his or her personal gain. Your obligations to the Corporation in this regard within the context of non-public, or “insider” information regarding the

 

Corporation compel particular emphasis. Directors, officers and employees must not disclose or use or attempt to use “confidential” or “insider” information to further their own interests or for personal gain, economic or otherwise or for any other reason except the conduct of the Corporation’s business.

“Insider information” is non-public information that could affect the market price of our stock or influence investment decisions. Our officers, directors and employees are prohibited from disclosing or using non-public information for personal gain, whether through the purchase or sale of our publicly traded securities or otherwise, and are urged to avoid even the appearance of having disclosed or used non-public information in this manner. To use non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of this information is not only unethical but also illegal and may result in civil and/or criminal penalties. Every employee is responsible for being familiar with the Eaton Vance Policies and Procedures in Prevention of Insider Trading, available upon request from the Chief Compliance Officer of Eaton Vance Corp.

Protection and Proper Use of Other Corporation Assets

All of our Directors, officers and employees should endeavor at all times to protect our Corporation assets and ensure their efficient use. Theft, carelessness and waste can have a direct impact on the Corporation and our profitability; corporate assets should be used only for legitimate business purposes and in an otherwise responsible and reasonably efficient manner.

Fair Dealing

Although other sections of this Code specifically address your compliance with applicable laws and regulations and other standards, as a general matter, all of our directors, officers and employees shall endeavor under all circumstances to deal fairly with our customers, suppliers, competitors and employees. No Director, officer or employee of the Corporation shall take unfair advantage in the context of his or her position with the Corporation of any other person or entity through manipulation, concealment, abuse of privileged information, misrepresentation of material fact or any other unfair-dealing practice.

Compliance with Laws and Regulations

The Corporation and its employees shall comply with all laws and regulations applicable to its business, including, but not limited to, the following:

Securities Law . Applicable federal and state securities laws, including but not limited to the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the rules and regulations of the Securities and Exchange Commission (the “SEC”), as well as applicable rules of the NASD and, in the case of Eaton Vance Corp., the listed company rules of the New York Stock Exchange.

 

Antitrust . Antitrust and related laws designed to protect against illegal restraint of competition. The Corporation will not engage or attempt to engage in agreements with competitors or suppliers to fix or illegally discriminate in pricing, or participate or attempt to participate in any form of bid rigging.

Foreign Activities . The U.S. Foreign Corrupt Practices Act and, in the case of a Subsidiary organized and doing business in a foreign country, the applicable laws of such country. Actions taken outside the U.S., whether by non-U.S. personnel or by U.S. personnel operating internationally which may be in conformance with local custom, may be viewed as against permissible American standards of conduct. Accordingly, in instances where U.S. laws, regulations and standards relating to ethical conduct are more restrictive than those of a particular locality outside the U.S., conduct should be governed by U.S. standards.

You are not expected to know every detail of these or other applicable laws or rules, but should seek advice from the Corporation’s internal auditing staff, independent auditor, or internal legal staff, as appropriate.

Illegal or Unethical Payments

The Corporation does not permit illegal, improper, corrupt or unethical payments to be made in cash, property, or services by or on behalf of the Corporation in order to secure or retain or attempt to secure or retain business or other advantages, including, but not limited to, payments to any employee of a customer or supplier of the Corporation for the purpose of influencing that employee’s actions with respect to his employer’s business. Such payments may constitute a crime in most U.S. and foreign jurisdictions. In jurisdictions where they are not so considered, they are regarded by the Corporation as unethical payments. Agents and representatives of the Corporation are required to follow the provisions of this Code in their dealings on behalf of the Corporation.

Public Officials . Reasonable business entertainment, such as lunch, dinner, or occasional athletic or cultural events may be extended to government officials, but only where permitted by local law.

Customers and Others . Business entertainment that is reasonable in nature, frequency and cost is permitted, as is the presentation of modest gifts where customary. Because no clear guidelines define the point at which social courtesies escalate to, and may be regarded as, improper or unethical payments, extreme care must be taken in this regard. This is subject to the applicable rules of the NASD with respect to employees of EVD.

Form of Payments of Amounts Due Agents, Representatives and Others . All payments for commissions or other similar obligations are to be paid by check or draft, bank wire transfer, or other authorized means, and shall, in each case, be made payable to the order of the recipient or his authorized agent. The use of currency or other forms of “cash” payments is not acceptable.

 

 

Accounting and Financial Reporting Standards

The Corporation has implemented and will comply with generally accepted accounting principles for entries on our books and records. Entries should be properly authorized, complete, and accurate and reflect the transactions to which they relate. No false, artificial, misleading or deceptive entries should be made for any reason. No employee of the Corporation shall provide false information to, or otherwise mislead, our independent or internal auditors.

Bank or other accounts shall be fully accounted for and accurately described in our records.

In addition to this Code, Eaton Vance Corp. has adopted a Code of Ethics for Principal Executive and Senior Financial Officers, which supplements this Code and is intended to promote (a) honest and ethical conduct and avoidance of improper conflicts of interest; (b) full, fair, accurate, timely, and understandable disclosure in the Corporation’s periodic reports; and (c) compliance by such senior financial executives with all applicable governmental rules and regulations.

Outside Directorships and Employment

No officer or employee of the Corporation may serve as a director, officer, employee, trustee, general partner, or paid consultant of any corporation or other entity, whether or not for pay, without the prior written approval of his or her department head and the Chief Legal Officer. This restriction shall not apply to serving any charitable or non-profit organization.

 

Media Inquiries

Occasionally, employees may receive an inquiry from a media representative requesting information or comment on some aspect of the Corporation’s affairs. Such questions must be referred to the Corporation’s Director of Public Affairs or the Legal Department, unless specifically covered by a formal procedure adopted by the Corporation.

Political Activities

Employees are encouraged to participate in political activities as they see fit, on their own time and at their own expense. The Corporation will not compensate or reimburse employees for such activities.

The Corporation will not contribute anything of value to political parties, candidates for public office or elected officials, except in jurisdictions where such contributions are legal and approved by our Chief Executive Officer and Chief Financial Officer and reported to the Board. Furthermore, without such approval, no corporate asset may be used in support of any organization whose political purpose is to influence the outcome of a referendum or other vote of the electorate on public issues.

 

Discipline

Any employee who violates or attempts to violate this Code or any other formal policies of the Corporation may be subject to disciplinary action, up to and including termination, in management’s discretion.

Periodic Review and Revision

Management reserves the right to amend and revise this Code in its sole discretion. Management shall report such amendments to the Board at its next following meeting. At least annually Management shall provide a report to the Board regarding material violations of this Code, and the Board shall review this Code at least annually. Employees will be apprised promptly of any changes to the policies, procedures and obligations set forth herein.

Reporting Obligation

It is the responsibility of each of our employees who has knowledge of misappropriation of funds, activities that may be of an illegal nature, or other incidents involving company loss, waste, and abuse or other violations of this Code to promptly report, in good faith, the situation to the Chief Compliance Officer.

Prohibition Against Retaliation

Under no circumstances may the Corporation or any director, officer or employee of the Corporation discharge, demote, suspend, threaten, harass or in any other manner discriminate against an employee in the terms or conditions of his or her employment on the basis of any lawful act by that employee to:

• provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of the federal securities laws, the rules and regulations of the SEC or any provision of federal law relating to fraud against shareholders, when the information or assistance is provided to, or the investigation conducted by:

o A federal regulatory or law enforcement agency;

o Any member of Congress or any committee of Congress; or

o Any person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); or

• file, cause to be filed, testify, participate in or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to any such alleged violation.

 

 

No Rights Created; Not Exclusive Code

This Code is a statement of certain fundamental principles, policies and procedures that govern the Corporation’s Directors, officers and employees in the conduct of the Corporation’s business. It is not intended to and does not create any rights in any employee, customer, client, supplier, competitor, shareholder or any other person or entity.

This Code is not the exclusive code of ethics applicable to employees of the Corporation, who are also subject to the code of ethics – policy on personal securities transactions, designed to comply with the requirements of rules under the Investment Company Act of 1940 and the Investment Advisers Act of 1940. GENERAL PROVISIONS

1. Maintenance of List of Access Persons and Investment Professionals: Notification . The Compliance Assistant shall maintain a list of all Access Persons and Investment Professionals, shall notify each of his or her status, and shall ensure that each has received a copy of the Code of Ethics.

2. Review of Securities Reports . The Chief Compliance Officer shall ensure that all Initial and Annual Reports of Securities Holdings and Quarterly Transaction Reports, together with all Securities Transaction Confirmations and Account Statements received by the Compliance Assistant, will be reviewed in accordance with the attached Procedures (Appendix 1).

3. Certifications by Employees . Each employee of a Company must certify at the time of hire and annually thereafter that he or she has read and understood the Code of Ethics and has complied and will comply with its provisions. In addition upon any revision to a Company’s Code of Ethics, each employee of that Company must certify that he or she has read the Code, as revised, and understands and will comply with its provisions.

4. Fund Board Approval . The Board of Trustees of each Fund, including a majority of the Independent Fund Trustees, has approved this Code of Ethics and must approve any material change hereto within six months after such change is adopted.

5. Annual Report to Fund Board . At least annually each Company shall submit to the Board of Trustees of each Fund and each Sub-advised Fund for consideration a written report that (i) describes any issues arising under the Code of Ethics or the Procedures since the last report the Board, including information about material violations of the Code of Ethics or the Procedures and the sanctions imposed in response to material violations, and (ii) certifies that each Company has adopted procedures reasonably necessary to prevent Access Persons from violating the Code of Ethics.

6. Recordkeeping Requirements . Each Company shall maintain the following records at its principal place of business in an easily accessible place and make these records available to the Securities and Exchange Commission (“Commission”) or any representative of the Commission at any time and from time to time for reasonable periodic, special or other examination:

(1) copies of the Code of Ethics currently in effect and in effect at any time within the past five (5) fiscal years;

 

(2) a record of any violation of the Code of Ethics and of any action taken as a result of the violation, to be maintained for at least five (5) years after the end of the fiscal year in which the violation occurred;

(3) copies of each report referred to in sections C or D.8 of the Policy on Personal Securities Transactions (“Policy”), Part I above, to be maintained for

at least five (5) years after the end of the fiscal year in which the report is made or information provided (notwithstanding the foregoing, any confirmation relating to a Securities transaction subsequently reported in a monthly, quarterly or annual account statement may be disposed of following the receipt of such account statement);

(4) a record of all persons, currently or within the past five (5) fiscal years, who are or were required to make reports referred to in section D.8 of the Policy and who are or were responsible for reviewing such reports;

(5) copies of each certification referred to in paragraph 3 of these General Provisions made by a person who currently is, or in the past five (5) years was, subject to this Code of Ethics, to be maintained for at least five (5) years after the fiscal year in which the certification made; and

(6) a copy of each Annual Report to a Fund Board referred to in paragraph 5 above, to be maintained for at least five (5) years after the end of the fiscal year in which it was made.

 

7. Confidentiality . All reports and other documents and information supplied by any employee of a Company or Access Person in accordance with the requirements of this Code of Ethics shall be treated as confidential, but are subject to review as provided herein and in the Procedures, by senior management of EVC, by representatives of the Commission, or otherwise as required by law, regulation, or court order.

8. Interpretations . If you have any questions regarding the meaning or interpretation of the provisions of this Code of Ethics, please consult with the Compliance Attorney.

9. Violations and Sanctions . Any employee of a Company who violates any provision of this Code of Ethics shall be subject to sanction, including but not limited to censure, a ban on personal Securities trading, disgorgement of any profit or taking of any loss, fines, and suspension or termination of employment. Each sanction shall be recommended by the Chief Compliance Officer and approved by the Management Committee of EVC. In the event the Chief Compliance Officer violates any provisions of this Code of Ethics, the Chief Legal Officer shall recommend the sanction to be imposed for approval by the Management Committee of EVC.

If the Chief Compliance Officer believes that any Fund trustee who is not an employee of a Company has violated any provision of the Policy, he or she shall so advise the trustees of the Fund, providing full particulars. The Fund trustees, in consultation with counsel to the Fund and/or counsel to the Independent Trustees, shall determine whether a material violation has occurred and may impose such sanctions as they deem appropriate.

In adopting and approving this Code of Ethics, the Company and the Fund or Sub-advised Fund Boards of Trustees do not intend that a violation of this Code of Ethics necessarily is or should be considered to be a violation of Rule 17j-1 under the Investment Company Act of 1940.

 

END

 

28

 

 


MFS Investment Management Code of Ethics

 

Owner(s):

Chief Compliance Officer

Conflicts Officer

Effective Date: February 25, 2008

 

 

Replaces Policy Version Dated: October 5, 2007

 

Contact Persons:

codeofethics@mfs.com

Yasmin Motivala, ext. 55080

Beth Lynch, ext. 56851

Nicole Wong, ext. 54477

Jon Pitts, ext. 56295

 

 

Applicability:

All employees of MFS and its subsidiaries, with the exception of Four Pillars Capital, Inc. employees, who are subject to a separate code of ethics.

Policy Committee Approval:

January 17, 2008

 

 

At the direction of the MFS Code of Ethics Oversight Committee (the “Committee”), the above listed personnel and the MFS Investment Management Compliance Department in general, are responsible for implementing, monitoring, amending and interpreting this Code of Ethics.

 

Table of Contents

 

 

Overview and Scope

4

 

Statement of General Fiduciary Principles

4

         Definitions

4

        Procedural Requirements of the Code Applicable to MFS Employees

4

 

Compliance with Applicable Federal Securities Laws.

4

 

Reporting Violations.

4

 

Certification of Receipt and Compliance.

4

 

Use of Preferred Brokers

4

 

Reportable Funds Transactions and Holdings

4

 

Disclosure of Employee Related Accounts and Holdings

4

 

Transactions Reporting Requirements

4

 

Discretionary Authorization

4

 

Excessive Trading

4

 

Use of MFS Proprietary Information

4

 

Futures and Related Options on Covered Securities

4

 

Initial Public Offerings

4

 

Investment Clubs and Investment Contests

4

        Trading Provisions, Restrictions and Prohibitions Applicable to All Access Persons

          and Investment Personnel

4

 

Pre-clearance

4

 

Private Placements

4

 

Initial Public Offerings

4

 

Restricted Securities.

4

 

Short-Term Trading

4

 

Selling Short

  19

 

Service as a Director

4

        Trading Requirements Applicable to Research Analysts and Portfolio Managers                    4

 

Portfolio Managers Trading in Reportable Funds

4

 

Portfolio Managers Trading Individual Securities

4

 

 

Affirmative Duty to Recommend Suitable Securities

4

        Administration and Enforcement of the Code of Ethics

4

 

Applicability of the Code of Ethics’ Provisions

4

 

Review of Reports

4

 

Violations and Sanctions

4

 

Appeal of Sanction(s)

4

 

Amendments and Committee Procedures

4

 

Beneficial Ownership

     Appendix A

 

Reporting Obligations

     Appendix B

 

Specific Country Requirements

Exhibit A

 

Access Categorization of MFS Business Units

Exhibit B

 

Security Types and Pre-Clearance and Reporting Requirements

Exhibit C

 

Private Placement Approval Request

Exhibit D

 

Initial Public Offering Approval Request

Exhibit E

 

 

TOC44

The following related policies can be viewed by clicking on the links. They are also available on the Compliance Department’s intranet site unless otherwise noted.

 

Note: The related policies and information are subject to change from time to time.

MFS Inside Information Policy  

MFS Inside Information Procedures

MFS Code of Business Conduct  

The Code of Ethics for Personal Trading and Conduct for Non-Management Directors

The Code of Ethics for the Independent Trustees, Independent Advisory Trustees, and Non-Management Interested Trustees of the MFS Funds and Compass Funds

MFS Policy of Handling Complaints

MFS-SLF Ethical Wall Policy

MFS-Four Pillars Capital, Inc. Ethical Wall Policy

Current list of MFS’ direct and indirect subsidiaries (located on the Legal Department intranet site)

Current list of funds for which MFS acts as adviser, sub-adviser or principal underwriter (“Reportable Funds”)

 

Overview and Scope

MFS’ Code of Ethics (the “Code”) applies to Massachusetts Financial Services Company as well as all of its direct and indirect subsidiaries (collectively, the “MFS Companies”) with the exception of Four Pillars Capital, Inc. which is subject to its own Code of Ethics, and is designed to comply with applicable federal securities laws. The MFS Compliance Department, under the direction of MFS’ Chief Compliance Officer and the Code of Ethics Oversight Committee (the “Committee”), administers this policy.

The provisions of this Code apply to MFS “Employees” (as defined on page 9 in Section II of this Code) wherever located and other persons as designated by the Committee, as detailed on page 6 in Part II of the Definitions section of the Code. In certain non-U.S. countries, local laws or customs may impose requirements in addition to the Code. MFS Employees residing in a country identified in Exhibit A are subject to the applicable requirements set forth in Exhibit A, as updated from time to time. The Code complements MFS’ Code of Business Conduct the Table of Contents for a link to this policy and other related policies). As an Employee of MFS, you must follow MFS’ Code of Business Conduct, and any other firm-wide or department specific policies and procedures.

This Code does not apply to directors of MFS who are not also MFS Employees (“MFS Non-Management Directors”) or Trustees/Managers of MFS’ sponsored SEC registered funds who are not also Employees of MFS (“Fund Non-Management Trustees”). MFS Non-Management Directors and Fund Non-Management Trustees are subject to the Code of Ethics for Personal Trading and Conduct for Non-Management Directors and the Code of Ethics for the Independent Trustees, Independent Advisory Trustees, and Non-Management Interested Trustees of the MFS Funds and Compass Funds, respectively (see the Table of Contents for links to these policies). MFS Employees must be familiar, and to the extent possible, comply with the Role Limitations and Information Barrier Procedures of these separate codes of ethics. In addition, MFS Employees must understand and comply with the MFS-SLF Ethical Wall Policy (see the Table of Contents for a link to this policy).

This Code does not apply to employees of Four Pillars Capital, Inc., a subsidiary of MFS, to the extent that employees of Four Pillars Capital, Inc. are subject to the Four Pillars Capital, Inc. Code of Ethics for Personal Trading. In addition, MFS Employees must understand and comply with the MFS-Four Pillars Ethical Wall Policy as in effect from time to time (see the Table of Contents for a link to this policy).

The Code is structured as follows:

 

•

Section I identifies the general purpose of the policy.

 

page 4

 

 

 

•

Section II defines Employee classifications, Employee Related Accounts, Covered Securities and other defined terms used in the Code.

 

•

Section III details the procedural requirements of the Code which are applicable to MFS Employees.

 

•

Section IV identifies the trading provisions and restrictions of the Code which are applicable to Access Persons and Investment Personnel (as defined in Section II).

 

•

Section V details specific trading prohibitions applicable to Portfolio Managers and Research Analysts (as defined in Section II).

 

•

Section VI outlines the administration of the Code, including the imposition and administration of sanctions.

 

•

Appendix A provides additional guidance and examples of beneficial ownership.

 

•

Appendix B details the specific reporting obligations for Employees.

 

page 5

 

 

 

I.

Statement of General Fiduciary Principles

As registered investment advisers, MFS and MFSI owe a fiduciary duty to their advisory clients. MFS Heritage Trust Company (“MHTC”) personnel providing investment advice to the Collective Investment Trusts (“CITs”) owe a fiduciary obligation to the CITs. MFS has elected to extend that duty to MFS Employees who are not employed by MFS, MFSI or MHTC. Therefore, MFS Employees have an obligation to conduct themselves in accordance with the following principles:

 

•

You have a fiduciary duty at all times to avoid placing your personal interests ahead of the interests of MFS’ Clients;

 

•

You have a duty to attempt to avoid actual and potential conflicts of interests between personal activities and MFS’ Clients activities; and

 

•

You must not take advantage of your position at MFS to misappropriate investment opportunities from MFS’ Clients.

As such, your personal financial transactions and related activities, along with those of your family members (and others in a similar relationship to you) must be conducted consistently with this Code and in such a manner as to avoid any actual or potential conflict of interest(s) with MFS’ Clients or abuse of your position of trust and responsibility.

MFS considers personal trading to be a privilege, not a right. When making personal investment decisions, you must exercise extreme care to ensure that the prohibitions of this Code are not violated. Furthermore, you should conduct your personal investing in such a manner that will eliminate the possibility that your time and attention are devoted to your personal investments at the expense of time and attention that should be devoted to your duties at MFS.

In connection with general conduct and personal trading activities, Employees (as defined on page 9 in Section II of the Code) must refrain from any acts with respect to MFS’ Clients, which would be in conflict with MFS’ Clients or cause a violation of applicable securities laws, such as:

 

•

Employing any device, scheme or artifice to defraud;

 

•

Making any untrue statement of a material fact to a client, or omitting to state a material fact to a client necessary in order to make the statement not misleading;

 

•

Engaging in any act, practice or course of business that operates or would operate as a fraud or deceit; or

 

•

Engaging in any manipulative practice.

It is not possible for this policy to address every situation involving MFS Employees’ personal trading. The Committee is charged with oversight and interpretation of the Code in a manner considered fair and equitable, in all

 

page 6

 

 

cases with the view of placing MFS’ Clients’ interests paramount. It also bears emphasis that technical compliance with the procedures, prohibitions and limitations of the Code will not automatically insulate you from scrutiny of, or sanctions for, securities transactions which abuse your fiduciary duty to any MFS Client.

page 7

 

 

II.

Definitions

The definitions are designed to help you understand the application of the Code to MFS Employees, and in particular, your situation. These definitions are an integral part of the Code and a proper understanding of them is necessary to comply with the Code. Please contact the Compliance Department if you have any questions. The specific requirements of the Code begin on page 10. Please refer back to these definitions as you read the Code.

 

A.

Categories of Personnel

 

1.

Investment Personnel means and includes:

 

a)

Employees in the Equity and Fixed Income Departments, including portfolio managers, research analysts, traders, support staff, etc.;

 

b)

Other persons designated as Investment Personnel by MFS’ Chief Compliance Officer (“CCO”), MFS’ Conflicts Officer (“Conflicts Officer”) or their designee(s), or the Code of Ethics Oversight Committee (“Committee”).

 

2.

Portfolio Managers are Employees who are primarily responsible for the day-to-day management of a portfolio). Research Analysts (defined below) are deemed to be Portfolio Managers with respect to any portfolio or discrete portion of any portfolio managed collectively by a committee of Research Analysts (e.g . , MFS Research Fund).

 

3.

Research Analysts are Employees whose assigned duties solely are to make investment recommendations to or for the benefit of any portfolio.

 

4.

Access Persons are those Employees, who, (i) in the ordinary course of their regular duties, make, participate in or obtain information regarding the purchase or sale of securities by any MFS Client; (ii) have access to nonpublic information regarding any MFS Client’s purchase or sale of securities; (iii) have access to nonpublic information regarding the portfolio holdings of any MFS Client; (iv) have involvement in making securities recommendations to any MFS Client or have access to such recommendations that are nonpublic; or (v) have otherwise been designated as Access Persons by MFS’ CCO, MFS’ Conflicts Officer or their designee(s), or the Committee. All Investment Personnel (including Portfolio Managers and Research Analysts) are also Access Persons. Please see Exhibit B for the Access Person designations of MFS’ Employees.

 

page 8

 

 

 

5.

Non-Access Persons are MFS Employees who are not categorized as Access Persons or Investment Personnel.

 

6.

MFS Employees, or Employee, are all officers, directors (who are also MFS Employees) and employees of the MFS Companies, and such other persons as designated by the Committee. MFS Employees, or Employee, excludes employees of Four Pillars Capital, Inc. solely to the extent that such employees are subject to a separate code of ethics.

 

7.

FINRA Affiliated Person is an Employee who is also associated with a FINRA-member firm, or licensed by the FINRA.

 

8.

Covered Person means a person subject to the provisions of this Code. This includes MFS Employees and their related persons, such as spouses and minor children, as well as other persons designated by the CCO or Conflicts Officer, or their designee(s), or the Committee (who shall be treated as MFS Employees, Access Persons, Non-Access Persons, Portfolio Managers or Research Analysts, as designated by the CCO or Conflicts Officer, or their designees(s), or the Committee). Such persons may include fund officers, consultants, contractors and employees of Sun Life Financial, Inc. providing services to MFS.

 

B.

Accounts are all brokerage accounts (excluding 529 Plans) and Reportable Fund accounts.

 

C.

Employee Related Account of any person covered under this Code includes but is not limited to:

 

1.

The Employee’s own Accounts and Accounts “beneficially owned” by the Employee as described below;

 

2.

The Employee’s spouse/domestic partner’s Accounts and the Accounts of minor children and other relatives living in the Employee’s household;

 

3.

Accounts in which the Employee, his/her spouse/domestic partner, minor children or other relatives living in their household have a beneficial interest (i.e., share in the profits even if there is no influence on voting or disposition of the shares); and

 

4.

Accounts (including corporate Accounts and trust Accounts) over which the Employee or his/her spouse/domestic partner or other relatives in the Employee’s household exercises investment discretion or direct or indirect influence or control.

See Appendix A for a more detailed discussion of beneficial ownership. For additional guidance in determining beneficial ownership, contact the Compliance Department.

 

page 9

 

 

Any person subject to this Code is responsible for compliance with these rules with respect to any Employee Related Account, as applicable.

 

 

D.

Automatic Investment Plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. This includes a dividend reinvestment plan and payroll and MFS contributions to the MFS retirement plans.

 

E.

CCO means MFS’ Chief Compliance Officer.

 

F.

Committee means the Code of Ethics Oversight Committee.

 

G.

Conflicts Officer means MFS’ Conflicts Officer.

 

H.

Covered Securities are generally all securities. See Exhibit C for application of the Code to the various security types and for a list of securities which are not Covered Securities.

 

I.

IPO means an initial public offering of equity securities registered with the U.S. Securities and Exchange Commission or (if necessary) a foreign financial regulatory authority.

 

J.

MFS Client includes any advisory client of the MFS Companies .

 

K.

Private Placement means a securities offering that is exempt from registration under certain provisions of the U.S. securities laws and/or similar laws of non-U.S. jurisdictions (if you are unsure whether the securities are issued in a private placement, you must consult with the Compliance Department).

 

L.

Portfolio means any fund or account or any discrete portion of a fund or account of a MFS Client.

 

M.

Reportable Fund means any fund for which a MFS Company acts as investment adviser, sub-adviser or principal underwriter. Such funds include MFS’ retail funds, MFS Variable Insurance Trust, MFS Institutional Trust, MFS/Sun Life Series Trust, Compass Variable Accounts, and funds for which MFS serves as sub-adviser, as well as MFS offshore funds (e.g., MFS Meridian Funds). See the Table of Contents for a link to the list of Reportable Funds.

 

page 10

 

 

 

III.

Procedural Requirements of the Code Applicable to MFS Employees (Non-Access Persons, Access Persons and Investment Personnel)

 

 

A.

Compliance with Applicable Federal Securities Laws.

The MFS Companies are subject to extensive regulation. As an MFS Employee, you must comply not only with all applicable federal securities laws but all applicable firm-wide policies and procedures, including this Code, which may be, on occasion, more restrictive than applicable federal securities laws. MFS Employees resident outside the U.S. must also comply with local securities laws (see Exhibit A for specific country requirements). In addition, MFS Employees must be sensitive to the need to recognize any conflict, or the appearance of a conflict, of interest between personal activities and activities conducted for the benefit of MFS clients, whether or not covered by the provisions of this policy.

 

 

B.

Reporting Violations.

MFS Employees are required to report any violation, whether their own or another individual’s, of the Code, Inside Information Policy and related procedures, Code of Business Conduct or MFS’ Business Gift and Entertainment Policy, and any amendments thereto (collectively, the “Conduct Policies”). Reports of violations other than your own may be made anonymously and confidentially to the MFS Corporate Ombudsman, as provided for in the MFS Policy of Handling Complaints (see the Table of Contents for a link to this policy). Alternatively, you may contact the CCO or the Conflicts Officer or their designee(s).

 

 

C.

Certification of Receipt and Compliance.

 

1.

Initial Certification (New Employee)

Each new MFS Employee will be given copies of the Conduct Policies. Within 10 calendar days of commencement of employment, each new Employee must certify that they have read and understand the provisions of the Conduct Policies. This certification must be completed using the Code of Ethics system at https://mfs.ptaconnect.com . The Committee may, at its discretion, determine that this reporting requirement may be fulfilled instead using paper forms.

 

2.

Quarterly Certification of Compliance.

On a quarterly basis, Employees will be expected to certify that they: (i) have received copies of the then current Conduct Policies; (ii) have read and understand the Conduct Policies and recognize that they are subject to their requirements; and (iii) have complied with all

 

page 11

 

 

applicable requirements of the Conduct Policies. This certification shall apply to all Employee Related Accounts, and must be completed using the Code of Ethics system at https://mfs.ptaconnect.com . The Committee may, at its discretion, determine that this reporting requirement may be fulfilled instead using a paper form.

 

 

D.

Use of Preferred Brokers

Employees located in U.S. are required to maintain Employee Related Accounts at, and execute all transactions in Covered Securities through, one or more broker-dealers as determined by the Committee. (A list of preferred brokers is located on https://mfs.ptaconnect.com ). New Employees should initiate a transfer of Employee Related Accounts to one or more of the preferred brokers within 45 days of their hire date. Upon opening such an Account, Employees are required to disclose the Account to the Compliance Department. MFS Employees must also agree to allow the broker-dealer to provide the Compliance Department with electronic reports of Employee Related Accounts and transactions executed therein and to allow the Compliance Department to access all Account information.

Employees are required to receive approval from the Committee to maintain an Employee Related Account with broker-dealers other than those on the preferred list. Permission to open or maintain an Employee Related Account with a broker-dealer other than those on the list of approved brokers will not be granted or may be revoked if, among other things, transactions are not reported as described below in Transactions Reporting Requirements, Section III. G. The Committee may grant or withhold approval to Employees to open or maintain an Employee Related Account with broker-dealers other than those on the preferred list in its sole discretion. Employees should not have any expectation that the Committee will grant approval to open or maintain an Employee Related Account with any broker-dealer other than one on the preferred list.

 

 

E.

Reportable Funds Transactions and Holdings

Employees are required to purchase and maintain investments in Reportable Funds sponsored by MFS through MFS, or another entity designated by MFS for Reportable Funds not available for sale in the U.S. Transactions and holdings in sub-advised Reportable Funds or Reportable Funds not available for sale in the U.S. must be reported as described below. (See the Table of Contents for a link to the list of products sub-advised by MFS.)

 

page 12

 

 

In addition, MFS Employees are subject to the same policies against excessive trading that apply for all shareholders in Reportable Funds. These policies, which are described in the Reportable Funds’ prospectuses, are subject to change.

 

 

F.

Disclosure of Employee Related Accounts and Holdings (for details on the specific reporting obligations, see Appendix B)

 

1.

Initial Report

Each new Employee must disclose to the Compliance Department all Employee Related Accounts and all holdings in Covered Securities whether or not held in an Employee Related account within 10 calendar days of their hire. This report must be made using the Code of Ethics system at https://mfs.ptaconnect.com . The Committee may, at its discretion, determine that this reporting requirement may be fulfilled instead using a paper form. The report must contain information that is current as of a date no more than 45 days prior to the date the report is submitted. Also, any Employee Related Accounts newly associated with an Employee, through marriage or any other life event, must be disclosed promptly, typically within 10 days of the event.

 

2.

Annual Update

On an annual basis, Employees will be required to make an annual update of their Employee Related Accounts and all holdings in Covered Securities, whether or not held in an Employee Related Account. The report must contain information that is current as of a date no more than 45 days prior to the date the report is submitted.

 

 

G.

Transactions Reporting Requirements

Each Employee must either report and/or verify all transactions in Covered Securities. Reports must show any purchases or sales for all Covered Securities whether or not executed in an Employee Related Account. Reports must show any purchases or sales for all Covered Securities. Employees must submit a quarterly report within 30 days of calendar quarter end even if they had no transactions in Covered Securities within the quarter. Reports must be submitted using the Code of Ethics system at https://mfs.ptaconnect.com . The Committee may, at its discretion, determine that this reporting requirement may be fulfilled instead using a paper form. For purposes of this report, transactions in Covered Securities that are effected in Automatic Investment Plans need not be reported.

 

page 13

 

 

 

H.

Discretionary Authorization

Generally, Employees are prohibited from exercising discretion over accounts in which they have no beneficial interest. Under limited circumstances, and only with prior written approval from the Compliance Department, an Employee may be permitted to exercise such discretion. In addition, Employees must receive prior written approval from the Compliance Department before: (i) assuming power of attorney related to financial or investment matters for any person or entity; or (ii) accepting a position on an investment committee for any entity. Further, Employees must notify the Compliance Department upon becoming an executor or trustee of an estate.

 

 

I.

Excessive Trading

Excessive or inappropriate trading that interferes with job performance or compromises the duty that MFS owes to MFS Clients will not be permitted. An unusually high level of personal trading is strongly discouraged and may be monitored by the Compliance Department and reported to senior management for review. A pattern of excessive trading may lead to disciplinary action under the Code.

 

 

J.

Use of MFS Proprietary Information

MFS’ investment recommendations and other proprietary information are for the exclusive use of MFS Clients. Employees should not use MFS’ proprietary information for personal benefit. Any pattern of personal trading suggesting use of MFS’ proprietary information will be investigated by the Compliance Department. Any misuse or distribution in contravention of MFS policies of MFS’ investment recommendations is prohibited.

 

 

K.

Futures and Related Options on Covered Securities

Employees are prohibited from using futures or related options on a Covered Security to evade the restrictions of this Code. Employees may not use futures or related options transactions with respect to a Covered Security if the Code would prohibit taking the same position directly in the Covered Security.

 

 

L.

Initial Public Offerings

Employees who are also FINRA Affiliated Persons are prohibited from purchasing equity securities in an IPO.

 

page 14

 

 

 

M.

Investment Clubs and Investment Contests

MFS generally prohibits Employees from direct or indirect participation in an investment club, or investment contest. These prohibitions extend to the direct or indirect acceptance of payment or offers of payments of compensation, gifts, prizes or winnings as a result of participation in such activities. Employees should understand that this prohibition applies with equal force to an investment contest in which contest winners do not win a prize with any monetary value.

 

page 15

 

 

 

IV.

Trading Provisions, Restrictions and Prohibitions Applicable to All Access Persons and Investment Personnel (collectively, “Access Persons” unless otherwise noted)

 

 

A.

Pre-clearance

Access Persons must pre-clear before effecting a personal transaction in any Covered Security, except for Reportable Funds. Note: All closed-end funds, including closed-end funds managed by MFS, must be pre-cleared.

Generally, a pre-clearance request will not be approved if it would appear that the trade could have a material influence on the market for that security or would take advantage of, or hinder, trading by any MFS Client within a reasonable number of days. Additionally, any pre-clearance request may be evaluated to determine compliance with other provisions of the Code relevant to the trade or as market or other conditions warrant.

To avoid inadvertent violations, good-till-cancelled orders are not permitted.

Pre-clearance requests will generally be limited to US trading hours with the exception of international employees where pre-clearance is permitted during a specific time-frame as determined by the Code of Ethics Oversight Committee.

 

•

Information regarding current pre-clearance hours is available on the Code of Ethics system at https://mfs.ptaconnect.com .

Pre-clearance approval is good for the same business day authorization is granted, with the exception of employees in Japan, Hong Kong, or Singapore (Asia).

 

•

In order to pre-clear, an Access Person must enter his/her trade request in to the Code of Ethics system ( https://mfs.ptaconnect.com ) on the day they intend to trade.

By seeking pre-clearance, Access Persons will be deemed to be advising the Compliance Department that they (i) do not possess any material, nonpublic information relating to the security or issuer of the security; (ii) are not using knowledge of any proposed trade or investment program relating to any MFS Client portfolio for personal benefit; (iii) believe the proposed trade is available to any similarly situated market participant on the same terms; and (iv) will provide any relevant information requested by the Compliance Department.

 

page 16

 

 

Pre-clearance may be denied for any reason. An Access Person is not entitled to receive any explanation or reason if their pre-clearance request is denied.

Pre-clearance is not required for the below list of transactions. Please see Exhibit C for whether these transactions need to be reported:

 

•

Purchases or sales that are not voluntary; which include, but are not limited to tender offers, transactions executed by a broker to cover a negative cash balance in an account, broker disposition of fractional shares and debt maturities. These exclude transactions executed as a result of a margin call or forced cover of a short position.;

 

•

Purchases or sales which are part of an Automatic Investment Plan that has been disclosed to the Compliance Department in advance;

 

•

Transactions in securities not covered by this Code, or other security types for which pre-clearance is not required (see Exhibit C); and

 

•

Subject to prior approval from the Committee, trades in an account where investment discretion is delegated to an independent third party.

 

 

B.

Private Placements

Access Persons must obtain prior approval from the Compliance Department before participating in a Private Placement. The Compliance Department will consult with the Committee and other appropriate parties in evaluating the request. To request prior approval, Access Persons must provide the Compliance Department with a completed Private Placement Approval Request (see Exhibit D).

If the request is approved, the Access Person must report the trade on the Quarterly Transaction Report and report the holding on the Annual Holdings Report (see Section III. F. and Section III. G.).

If the Access Person is also a Portfolio Manager and has a material role in the subsequent consideration of securities of the issuer (or one that is affiliated) by any MFS Client portfolio after being permitted to make a Private Placement, the following steps must be taken:

 

1.

The Portfolio Manager must disclose the Private Placement interest to a member of MFS’ Investment Management Committee.

 

2.

An independent review by the Compliance Department in conjunction with other appropriate parties must be obtained for any subsequent decision to buy any securities of the issuer (or one that is affiliated) for the Portfolio Manager’s assigned client

 

page 17

 

 

portfolio(s) before buying for the portfolio(s). The review must be performed by the Compliance Department in consultation with other appropriate parties.

 

 

C.

Initial Public Offerings

Access Persons are generally prohibited from purchasing securities in either an IPO or a secondary offering. Under limited circumstances and only with prior approval from the Compliance Department, in consultation with the Committee and/or other appropriate parties, certain Access Persons may purchase equity securities in an IPO or a secondary offering, provided the Compliance Department and/or other appropriate parties determines such purchase does not create a reasonable prospect of a conflict of interest with any Portfolio. To request permission to purchase equity securities in an IPO or a secondary equity offering, the Access Person must provide the Compliance Department with a completed request form (see Exhibit E). To request permission to purchase new issues of fixed income securities, the Access Person must pre-clear the security using the Code of Ethics system at https://mfs.ptaconnect.com .

 

 

D.

Restricted Securities.

Access Persons may not trade for their Employee Related Accounts securities of any issuer that may be on any complex-wide restriction list maintained by the Compliance Department.

 

 

E.

Short-Term Trading

All Access Persons are prohibited from profiting from the purchase and sale (or sale and purchase) of the same or equivalent Covered Security within 60 calendar days. Profits from such trades must be disgorged (surrendered) in a manner acceptable to MFS. Any disgorgement amount shall be calculated by the Compliance Department, the calculation of which shall be binding. This provision does not apply to:

 

•

Transactions in Covered Securities that are exempt from the pre-clearance requirements described above (see Exhibit C);

 

•

Transactions executed in Employee Related Accounts that, with prior approval from the Compliance Department, are exempt from pre-clearance; or

 

•

Transactions effected through an Automatic Investment Plan.

 

 

page 18

 

 

F. Selling Short

Access Persons must not sell short.

G . Service as a Director

Access Persons must obtain prior approval from the Compliance Department to serve on a board of directors or trustees of a publicly traded company or a privately held company that is reasonably likely to become publicly traded within one year from the date the Access Person joined the board. In the event an Access Person learns that a privately held company for which the Access Person serves as a director or trustee plans to make a public offering, the Access Person must promptly notify the Compliance Department. Access Persons serving as directors or trustees of publicly traded companies may be isolated from other MFS Employees through “information barriers” or other appropriate procedures.

Access Persons who would like to serve on a board of directors or trustees of a non-profit organization or a privately held company that is not reasonably likely to become publicly traded within one year from the date the Access Person joined the board should refer to the Code of Business Conduct prior to participating in the outside activity.

 

page 19

 

 

 

V.

Trading Requirements Applicable to Research Analysts and Portfolio Managers

 

 

A.

Portfolio Managers Trading in Reportable Funds

No Portfolio Manager shall buy and sell (or sell and buy) shares within 14 calendar days for his or her Employee Related Accounts of any Reportable Fund with respect to which he or she serves as a Portfolio Manager. This provision does not apply to transactions effected through an Automatic Investment Plan.

 

 

B.

Portfolio Managers Trading Individual Securities

Portfolio Managers are prohibited from trading a security for their Employee Related Accounts (a) for seven calendar days after a transaction in the same or equivalent security in a Portfolio for which he or she serves as Portfolio Manager and (b) for seven calendar days before a transaction in the same or similar security in a Portfolio for which he or she serves as Portfolio Manager if the Portfolio Manager had reason to believe that such Portfolio was reasonably likely to trade the same or similar security within seven calendar days after a transaction in the Portfolio Manager’s Employee Related Accounts. If a Portfolio Manager receives pre-clearance authorization to trade a security in his or her Employee Related Account, and subsequently determines that it is appropriate to trade the same or equivalent security in a Portfolio for which the Employee serves as Portfolio Manager, the Portfolio Manager must contact the Compliance Department prior to executing any trades for his or her Employee Related Account and/or Portfolio.

 

 

C.

Affirmative Duty to Recommend Suitable Securities

Research Analysts have an affirmative duty to make unbiased and timely recommendations to MFS Clients. A Research Analyst is prohibited from trading a security he or she covers, or is assigned to cover, in an Employee Related Account if he or she has not communicated information material to an investment decision about that security to MFS Clients in a research note. In addition, Research Analysts are prohibited from refraining to make timely recommendations of securities in order to avoid actual or potential conflicts of interest with transactions in those securities in Employee Related Accounts. For purposes of this and similar provisions herein, including information in a research note or a revised research note constitutes communication to a client of the MFS Companies.

 

page 20

 

 

 

VI.

Administration and Enforcement of the Code of Ethics

 

 

A.

Applicability of the Code of Ethics’ Provisions

The Committee, or its designee(s), has the discretion to determine that the provisions of the Code of Ethics policy do not apply to a specific transaction or activity. The Committee will review applicable facts and circumstances of such situations, such as specific legal requirements, contractual obligations or financial hardship. Any Employee who would like such consideration must submit a request in writing to the Compliance Department.

 

 

B.

Review of Reports

The Compliance Department will regularly review and monitor the reports filed by Covered Persons. Employees and their supervisors may or may not be notified of the Compliance Departments review.

 

 

C.

Violations and Sanctions

Any potential violation of the provisions of the Code or related policies will be investigated by the Compliance Department, or, if necessary, the Committee. If a determination is made that a violation has occurred, a sanction may be imposed. Sanctions may include, but are not limited to one or more of the following: a warning letter, fine, profit surrender, personal trading ban, termination of employment or referral to civil or criminal authorities. Material violations will be reported promptly to the respective boards of trustees/managers of the Reportable Funds or relevant committees of the boards.

 

 

D.

Appeal of Sanction(s)

Employees deemed to have violated the Code may appeal the determination by providing the Compliance Department with a written explanation within 30 days of being informed of the outcome. If appropriate, the Compliance Department will review the matter with the Committee. The Employee will be advised whether the sanction(s) will be imposed, modified or withdrawn. Such decisions on appeals are binding. The Employee may elect to be represented by counsel of his or her own choosing and expense.

 

 

E.

Amendments and Committee Procedures

The Committee will adopt procedures that will include periodic review of this Code and all appendices and exhibits to the Code. The Committee may, from time to time, amend the Code and any appendices and

 

page 21

 

 

exhibits to the Code to reflect updated business practice. The Committee shall submit any such amendments to MFS’ Internal Compliance Controls Committee. In addition, the Committee shall submit any material amendments to this Code to the respective boards of trustees/managers of the Reportable Funds, or their designees, for approval no later than 6 months after adoption of the material change.

 

page 22

 

 

 

Appendix A

 

Beneficial Ownership

 

MFS’ Code of Ethics (the “Code”) states that the Code’s provisions apply to accounts beneficially owned by the Employee, as well as accounts under direct or indirect influence or control of the Employee. Essentially, a person is considered to be a beneficial owner of accounts or securities when the person has or shares direct or indirect pecuniary interest in the accounts or securities. Pecuniary interest means that a person has the ability to profit, directly or indirectly, or share in any profit from a transaction. Indirect pecuniary interest extends to, but is not limited to:

 

•

Accounts and securities held by immediate family members sharing the same household; and

 

•

Securities held in trust (certain exceptions may apply).

In addition, an Employee may be considered a beneficial owner of an account or securities when the Employee can exercise direct or indirect investment control.

Practical Application

•

If an adult child is living with his or her parents: If the child is living in the parents’ house, but does not financially support the parent, the parents’ accounts and securities are not beneficially owned by the child. If the child works for MFS and does not financially support the parents, accounts and securities owned by the parents are not subject to the Code. If, however, one or both parents work for MFS, and the child is supported by the parent(s), the child’s accounts and securities are subject to the Code because the parent(s) is a beneficial owner of the child’s accounts and securities.

•

Co-habitation (domestic partnership): Accounts where the employee is a joint owner, or listed as a beneficiary, are subject to the Code. If the Employee contributes to the maintenance of the household and the financial support of the partner, the partner’s accounts and securities are beneficially owned by the employee and are therefore subject to the Code.

•

Co-habitation (roommate): Generally, roommates are presumed to be temporary and have no beneficial interest in one another’s accounts and securities.

•

UGMA/UTMA accounts: If the Employee, or the Employee’s spouse, is the custodian for a minor child, the account is beneficially owned by the Employee. If someone other than the Employee, or the Employee’s spouse, is the custodian for the Employee’s minor child, the account is not beneficially owned by the Employee.

•

Transfer On Death accounts (“TOD accounts”): TOD accounts where the Employee becomes the registrant upon death of the account owner are not beneficially owned by the Employee until the transfer occurs (this particular account registration is not common).

 

A - 1

 

 

Appendix A

 

•

Trusts:

 

•

If the Employee is the trustee for an account where the beneficiaries are not immediate family members, the position should be reviewed in light of outside business activity (see the Code of Business Conduct) and generally will be subject to case-by-case review for Code applicability.

 

•

If the Employee is a beneficiary and does not share investment control with a trustee, the Employee is not a beneficial owner until the trust is distributed.

 

•

If an Employee is a beneficiary and can make investment decisions without consultation with a trustee, the trust is beneficially owned by the Employee.

 

•

If the Employee is a trustee and a beneficiary, the trust is beneficially owned by the Employee.

 

•

If the Employee is a trustee, and a family member is beneficiary, then the account is beneficially owned by the Employee.

 

•

If the Employee is a settlor of a revocable trust, the trust is beneficially owned by the Employee.

 

•

If the Employee’s spouse/domestic partner is trustee and beneficiary, a case-by-case review will be performed to determine applicability of the Code.

•

College age children: If an Employee has a child in college and still claims the child as a dependent for tax purposes, the Employee is a beneficial owner of the child’s accounts and securities.

•

Powers of attorney: If an Employee has been granted power of attorney over an account, the Employee is not the beneficial owner of the account until such time as the power of attorney is activated.

 

A - 1

 

 

Appendix B

 

Reporting Obligations

 

 

Note: Employees must submit all required reports using the Code of Ethics system at https://mfs.ptaconnect.com . The Committee may, at its discretion, determine that this reporting requirement may be fulfilled instead using a paper form. The electronic reports on the Code of Ethics system meet the contents requirements listed below in Sections A.1. and B.1.

 

 

A.

Initial and Annual Holdings Reports

 

Employees must file initial and annual holdings reports (“Holdings Reports”) as follows.

 

 

1.

Content of Holdings Reports

 

 

•

The title, number of shares and principal amount of each Covered Security;

 

 

•

The name of any broker or dealer with whom the Employee maintained an account in which ANY securities were held for the direct or indirect benefit of the Employee; and

 

•

The date the Employee submits the report.

 

 

2.

Timing of Holdings Reports

 

 

•

Initial Report - No later than 10 days after the person becomes an Employee. The information must be current as of a date no more than 45 days prior to the date the person becomes an Employee.

 

 

•

Annual Report – Annually, and the information must be current as of a date no more than 45 days before the report is submitted.

 

 

3.

Exceptions from Holdings Report Requirements

 

 

No holdings report is necessary:

 

 

•

For holdings in securities that are not Covered Securities; or

 

B - 1

 

 

 

Appendix B

 

 

•

For securities held in accounts over which the Access Person had no direct or indirect influence or control.

 

B.

Quarterly Transaction Reports

 

Employees must file a quarterly transactions report (“Transactions Report”) with respect to:

 

 

(i)

any transaction during the calendar quarter in a Covered Security in which the Employee had any direct or indirect beneficial ownership; and

 

 

(ii)

any account established by the Employee during the quarter in which ANY securities were held during the quarter for the direct or indirect benefit of the Employee.

 

Brokerage statements may satisfy the Transactions Report obligation provided that they contain all the information required in the Transactions Report and are submitted within the requisite time period as set forth below.

 

 

1.

Content of Transactions Report

 

 

a.

For Transactions in Covered Securities

 

 

•

The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each Covered Security involved;

 

 

•

The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);

 

 

•

The price of the Covered Security at which the transaction was effected;

 

 

•

The name of the broker, dealer or bank with or through which the transaction was effected; and

 

 

•

The date the report was submitted by the Employee.

 

 

b.

For Newly Established Accounts Holding ANY Securities

 

 

•

The name of the broker, dealer or bank with whom the Employee established the account;

 

B - 2

 

 

 

Appendix B

 

 

•

The date the account was established; and

 

 

•

The date the report was submitted by the Employee.

 

 

2.

Timing of Transactions Report

 

 

No later than 30 days after the end of the calendar quarter.

 

 

3.

Exceptions from Transactions Report Requirements

 

 

No Transactions Report is necessary:

 

 

•

For transactions in securities that are not Covered Securities;

 

 

•

With respect to securities held in accounts over which the Access Person had no direct or indirect influence or control; or

 

 

•

With respect to transactions effected pursuant to an Automatic Investment Plan.

 

B - 3

 

 

 

Exhibit A

 

Specific Country Requirements

(For MFS Employees Located in Offices Outside of the U.S.)

 

United Kingdom

The UK Financial Services Authority rules on personal account dealing are contained in Chapter 11 of the FSA Handbook’s Conduct of Business Sourcebook (“COBS). Further details of the compliance requirements in relation to COBS are in the MFS International UK Ltd (“MIL UK”) Compliance Manual.

As an investment management organization, MIL UK has an obligation to implement and maintain a meaningful policy governing the investment transactions of its employees (including directors and officers). In accordance with COBS 11.7.1R, this policy is intended to minimize conflicts of interest, and the appearance of conflicts of interest, between the employees and clients of MIL UK, as well as to effect compliance with the provisions of part (V) of the Criminal Justice Act 1993, which relates to insider dealing, and part (VIII) of the Financial Services and markets Act 2000, which relates to market abuse and the FSA’s Code of Market Conduct. This policy is detailed in the MIL UK Compliance Manual, which should be read in conjunction with this Code.

Under COBS, MIL UK must take reasonable steps to ensure that any investment activities conducted by employees do not conflict with MIL UK’s duties to its customers. In ensuring this is and continues to be the case, MIL UK must ensure it has in place processes and procedures which enable it to identify and record any employee transactions and permission to continue with any transaction is only given where the requirements of COBS are met.

In addition, in respect of UK-based employees, spread betting on securities is prohibited.

For specific guidance, please contact Marc Marsdale, Compliance Officer – UK & Europe.

 

Japan

MIMkk, MFS’ subsidiary in Japan, and its employees, are under supervision of Japanese FSA and Kantoh Local Financial Bureau as the investment manager registered in Japan. MIMkk and its employees are regulated by the following, from the viewpoint of the Code:

 

•

Financial Instruments Exchange Law, Chapter VI – Regulations for Transactions, etc. of Securities.

 

•

Guideline for Prohibition of Insider Trading by Japan Securities Investment Advisers Association (”JSIAA”).

For specific guidance, please contact Hirata Yasuyuki, MIMkk’s Compliance Officer.

 

Exhibit A - 1

 

 

 

Exhibit A

 

Spain

MFS International (UK) Limited, Sucursal en España ("MIL Spain"), is the branch in Spain of MFS International (UK) Limited ("MIL UK"), an investment services undertaking domiciled in the United Kingdom. MIL Spain is registered in the Register of Branches of Foreign Investment Services Undertakings at the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores - "CNMV") and is authorised to engage in certain investment activities in Spain. MIL Spain has prepared Internal Conduct Regulations (hereinafter, the “ICR”) which, together with the General Code of Conduct annexed to Royal Decree 629/1993, of 3 May, the Ministerial Order of 7 October 1999 implementing the general code of conduct and rules for acting in the management of investment portfolios and the MFS Code of Business Conduct and related policies including the MFS Code of Ethics, constitute the rules of conduct applicable to MIL Spain.

 

Chapter 6 of the MIL Spain ICR deals generally with personal account dealing for employees of MIL Spain. Chapter 6 incorporates by reference and makes applicable to all MIL Spain employees the MFS Code of Ethics. MIL Spain employees should review the ICR, and for specific guidance should contact Marc Marsdale, Compliance Officer – UK & Europe.

 

 

Exhibit A - 2

 

 

 

Exhibit B

 

Access Categorization of MFS Business Units

 

Business Units Designated as “Access Person”

•

Management Group

•

Risk Management

•

Fund Treasury

•

Global Investment Support

•

Global Investment Technology

•

Internal Audit

•

Email Review

•

Legal

•

MIL

•

Compliance

•

MFSI

•

Investment Services

•

Information Technology

•

MFD – Dealer Relations

•

MFD – Sales Desks

•

MFD Field Force

•

MFD – Marketing

•

RFP & Proposals Center

•

ISG

•

PPM

•

Employees who are members of the Management Committee, the Operations Committee or the Senior Leadership Team

•

Employees who have access to Investment Research System, the equity trading system or the fixed income trading system.

•

Employees who have access to any system containing information related to current portfolio holdings.

 

Exhibit B - 1

 

 

 

Exhibit C

 

Security Types and Pre-Clearance and Reporting Requirements

(This list is not all inclusive and may be updated from time to time. Contact the Compliance Department for additional guidance.)

 

Exhibit C - 1

 

 

 

Exhibit C

 

 

Security Type

Pre-clearance Required?

Transactions and Holdings Reporting Required?

Open-end investment companies which are not Reportable Funds

No

No

Non-MFS 529 Plans

No

No

Reportable Funds (excluding MFS money market funds)

No

Yes

Closed-end funds (including MFS closed-end funds)

Yes

Yes

Equity securities

Yes

Yes

Municipal bond securities

Yes

Yes

Corporate bond securities

Yes

Yes

High yield bond securities

Yes

Yes

U.S. Treasury Securities and other obligations backed by the good faith and credit of the U.S. government

No

No

Debt obligations that are NOT backed by the good faith and credit of the U.S. government (such as Fannie Mae bonds)

Yes

Yes

Foreign government issued securities

No

Yes

Money market instruments, including commercial paper, bankers’ acceptances, certificates of deposit and repurchase agreements, auction-rate preferred and short-term fixed income securities with a maturity of less than one year

No

No

Private placements (including real estate limited partnerships or cooperatives)

No*

Yes

Variable rate demand obligations and municipal floaters

No

No

Options on foreign currency traded on a national securities exchange

No

Yes

Options on foreign currency traded over-the-counter or on futures exchanges

No

No

Commodities and options and futures on commodities

No

No

Forwards contracts other than forwards on securities

No

No

Unit investment trusts which are exclusively invested in one or more open-end funds, none of which are Reportable Funds

No

No

MFS stock and shares of Sun Life of Canada (U.S.) Financial Services Holdings, Inc.

No

No**

Sun Life Financial Inc.

No

Yes

Certain exchange traded funds categorized as broad based by the AMEX, NYSE or NASDAQ. The list is posted on the PTA site or https://mfs.ptaconnect.com

 

No

Yes

Options on certain security indexes. The list is posted on the PTA site or https://mfs.ptaconnect.com

 

No

Yes

Options and forwards contracts on securities

Yes

Yes

 

 

Exhibit C - 2

 

 

 

Exhibit C

 

* Note that while transactions in these securities are not required to be pre-cleared using the Code of Ethics Online system, you must obtain prior approval from the Compliance Department before participating in a private placement. See Section IV. B. of the Code of Ethics.

** MFS and Sun Life private stock are considered to be Covered Securities under the terms of this Code. Employees need not report such stock on transactions or holdings reports pursuant to SEC No-Action Letter, Investment Company Institute, November 27, 2000.

 

Exhibit C - 3

 

 

 

Exhibit D

 

Private Placement Approval Request

Please Print.

Employee Name:_____________________________

Employee Position:___________________________

MFS Phone Extension:______________________________

 

Name of Company:_____________________________________________________________

Dollar amount of private placement:________________________________________________

Dollar amount of your intended investment:__________________________________________

Does this company have publicly traded securities? [

]Yes

[

]No

How were you offered the opportunity to invest in this private placement?___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

What is the nature of your relationship with the individual or entity?_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Was the opportunity because of your position with MFS?______________________________________________________________________

Would it appear to the SEC or other parties that you are being offered the opportunity to participate in an exclusive, very limited offering as a way to curry favor with you or your colleagues at MFS?______________________________________________________________________

Are you inclined to invest in the private placement on behalf of the funds/accounts you manage?

[

]Yes

[

]No

Would any other MFS funds/accounts want to invest in this private placement?

[

]Yes

[

]No

Date you require an answer:_____________________________________________________

Attachments:

[

]business summary

[

]prospectus

[

] offering memorandum

Compliance Use Only

[

]Approved

[

]Denied

_______________________________

_______________________

Signature

Date

_______________________________

_______________________

Equity Or Fixed Income Signature

Date

 

Exhibit D - 1

 

 

 

Exhibit E

 

Initial Public Offering Approval Request

Please Print.

Employee Name:_________________________ Employee Position:_______________________

MFS Phone Extension:______________________________

 

Name of Company:___________________________________________________________________

Aggregate Dollar amount of IPO :__________

Dollar amount of your intended investment:_________

Maximum number of shares you intend to purchase? _______________________________________

Is your spouse an employee of the company?

[

]Yes

[

]No

Is your spouse being offered the opportunity to participate in the IPO solely as a result of his or her employment by the company?

[

]Yes

[

]No If no, please explain.

[

]Not Applicable

____________________________________________________________________________________________________________________________________________________________________

Does the ability to participate in the IPO constitute a material portion of your spouse’s compensation for being employed by the company?

[

]Yes

[

]No

[

]Not Applicable

Could it appear to the SEC or other parties that you (or your spouse) are being offered the opportunity to participate in the IPO because of your position at MFS or as a way to curry favor with MFS?

[

]Yes

[

]No If yes, please explain:

____________________________________________________________________________________________________________________________________________________________________

Are the IPO shares being offered to your spouse as part of a separate pool of shares allocable solely to company employees?

[

]Yes

[

]No

[

]Not Applicable

Are such shares part of a so-called “friends and family” or directed share allocation?

[

]Yes

[

]No

If your spouse chooses not to participate in the IPO, will the shares that your spouse chooses not to purchase be re-allocated to the general public or to other company insiders?

[

]General Public

[

]Other Company Insiders

[

]Not Applicable

If you are a portfolio manager, are the funds/accounts you manage likely to participate in the IPO?

[

]Yes

[

]No

If you are a portfolio manager, are you aware of other funds/account that would be likely to participate in the IPO?

[

]Yes

[

]No

Are there any other relevant facts or issues that MFS should be aware of when considering your request?

[

]Yes

[

]No If yes, please explain:

____________________________________________________________________________________________________________________________________________________________________

 

Exhibit E - 1

 

 

 

Exhibit E

 

Date you require an answer: _________________, ________. (Note: because IPO approval requests often require additional information and conversations with the company and the underwriters, MFS needs at least three full business days to consider such requests.)

Name and address of IPO lead underwriter, and contact person (if available):

__________________________________________________________________________________

Attachments:    [ ] offering memorandum          [ ] underwriters’ agreement        [ ] other materials describing eligibility to participate in IPO.

 

Compliance Use Only

[

]Approved

[

]Denied

___________________________________

____________________________________

Signature

Date

___________________________________

_____________________________________

Equity Or Fixed Income Signature

Date

 

 

Exhibit E - 2