<PAGE>
As filed with the Securities and Exchange Commission
on August 31, 1995
Securities Act Registration No. 2-73900
Investment Company Act Registration No. 811-3252
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 15 /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 16 /X/
(Check appropriate box or boxes)
------------------
COMMAND TAX-FREE FUND
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service of Process)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
It is proposed that this filing will become effective
(check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph(a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new
effective date for a previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has previously registered an indefinite number of shares of beneficial interest,
par value $.01 per share. The Registrant has filed a notice under such Rule for
its fiscal year ended June 30, 1995 on August 29, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A Item No. Location
- ----------------------------------------------------------------------- ------------------------------
Part A
<S> <C> <C> <C>
Item 1. Cover Page.................................................. Cover Page
Item 2. Synopsis.................................................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information............................. Fund Expenses; Financial
Highlights; Calculation of
Yield
Item 4. General Description of Registrant........................... Cover Page; Fund Highlights;
How the Funds Invest; General
Information
Item 5. Management of Fund.......................................... How the Funds are Managed;
Financial Highlights
Item 6. Capital Stock and Other Securities.......................... Taxes, Dividends and
Distributions; General
Information; Shareholder Guide
Item 7. Purchase of Securities Being Offered........................ Cover Page; How the Funds
Value Their Shares;
Shareholder Guide
Item 8. Redemption or Repurchase.................................... Shareholder Guide; General
Information
Item 9. Pending Legal Proceedings................................... Not Applicable
Part B
Item 10. Cover Page.................................................. Cover Page
Item 11. Table of Contents........................................... Table of Contents
Item 12. General Information and History............................. General Information
Item 13. Investment Objectives and Policies.......................... Investment Objectives and
Policies; Investment
Restrictions
Item 14. Management of the Fund...................................... Trustees and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities......... Not Applicable
Item 16. Investment Advisory and Other Services...................... Manager; Distributor;
Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices.................... Portfolio Transactions
Item 18. Capital Stock and Other Securities.......................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered..................................................... Shareholder Guide; Shareholder
Services
Item 20. Tax Status.................................................. Taxes, Dividends and
Distributions
Item 21. Underwriters................................................ Distributor
Item 22. Calculation of Performance Data............................. Calculation of Yield
Item 23. Financial Statements........................................ Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate Item, so
numbered, in Part C to this Post-Effective Amendment to the Registration Statement.
</TABLE>
<PAGE>
COMMAND MONEY FUND
COMMAND TAX-FREE FUND
COMMAND GOVERNMENT FUND
PROSPECTUS DATED AUGUST 31, 1995
________________________________________________________________________________
COMMAND Money Fund (the Money Fund), COMMAND Tax-Free Fund (the Tax-Free Fund)
and the COMMAND Government Fund (the Government Fund), (each a Fund or,
collectively, the Funds) are each open-end, diversified management investment
companies whose shares are offered exclusively to participants in the
COMMAND-SM- Account program (the COMMAND program) of Prudential Securities
Incorporated (Prudential Securities).
The investment objectives of the Money Fund are to seek high current income,
preservation of capital and maintenance of liquidity. The Money Fund seeks to
achieve its objectives by investing in a diversified portfolio of money market
instruments maturing in thirteen months or less. The investment objectives of
the Tax-Free Fund are to seek high current income that is exempt from federal
income taxes, consistent with maintenance of liquidity and preservation of
capital. The Tax-Free Fund seeks to achieve its objectives by investing in a
diversified portfolio of short-term tax-exempt securities issued by states,
municipalities and their instrumentalities and authorities maturing in thirteen
months or less. The investment objectives of the Government Fund are to seek
high current income, preservation of capital and maintenance of liquidity. The
Government Fund seeks to achieve its objectives by investing in a portfolio of
U.S. Government securities maturing in thirteen months or less. See "How the
Funds Invest" and "How the Funds Value Their Shares." There can be no assurance
that any of the Funds will achieve their investment objectives.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY OF THE FUNDS WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. See "How the Funds Value
Their Shares."
The address of each Fund is One Seaport Plaza, New York, New York 10292.
This Prospectus sets forth concisely the information about each Fund that a
prospective investor should know before investing. Additional information about
each Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated August 31, 1995, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon written request to any of the
Funds at the address noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information in this
Prospectus and is qualified in its entirety by the more detailed information
appearing elsewhere herein.
WHAT ARE THE COMMAND FUNDS?
Each of the Money Fund, Tax-Free Fund and Government Fund is a mutual fund
whose shares are offered exclusively to participants of the COMMAND program of
Prudential Securities. A mutual fund pools the resources of investors by selling
its shares to the public and investing the proceeds of such sale in a portfolio
of securities designed to achieve its investment objective. Technically, each
Fund is an open-end, diversified management investment company.
WHAT IS EACH FUND'S INVESTMENT OBJECTIVE?
The investment objectives of the Money Fund are to seek high current income,
preservation of capital and maintenance of liquidity. The investment objectives
of the Tax-Free Fund are to seek high current income that is exempt from federal
income taxes consistent with maintenance of liquidity and the preservation of
capital. The investment objectives of the Government Fund are to seek high
current income, preservation of capital and maintenance of liquidity. There can
be no assurance that any of the Funds' investment objectives will be achieved.
See "How the Funds Invest" at page 6.
RISK FACTORS AND SPECIAL CHARACTERISTICS.
It is anticipated that the net asset value of each Fund will remain constant
at $1.00 per share, although this cannot be assured. In order to maintain such
constant net asset value, each Fund will value its portfolio securities at
amortized cost. While this method provides certainty in valuation, it may result
in periods during which the value of a security in a Fund's portfolio, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold such security. See "How the Funds Value Their Shares" at page
16.
WHO MANAGES THE FUNDS?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of each Fund and is compensated for its services at an annual rate of up to .50%
of the average daily net assets of each of the Money Fund and the Tax-Free Fund
and up to .40% of the average daily net assets of the Government Fund. The
Management Fee is reduced for Fund assets in excess of certain specified levels.
As of July 31, 1995, PMF served as manager or administrator to 67 investment
companies, including 39 mutual funds, with aggregate assets of approximately $49
billion. The Prudential Investment Corporation (PIC or the Subadviser) furnishes
investment advisory services in connection with the management of each Fund
under a Subadvisory Agreement with PMF. See "How the Funds Are Managed--Manager"
at page 14.
WHO DISTRIBUTES THE FUNDS' SHARES?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
each Fund's shares. Each Fund reimburses PMFD for expenses related to the
distribution of the Fund's shares at an annual rate of up to .125 of 1% of the
Fund's average daily net assets. See "How the Funds Are Managed--Distributor" at
page 14.
HOW DO I PURCHASE SHARES?
Shares of the Funds are offered exclusively to participants in the COMMAND
program who place a minimum of $10,000 in cash and/or securities in a Securities
Account and meet criteria established by Prudential Securities. For a more
detailed description of the COMMAND program, please see your Prudential
Securities Financial Adviser.
HOW DO I SELL MY SHARES?
Shares may be redeemed automatically by Prudential Securities to satisfy
debit balances in a Securities Account created by activity therein or arising
under the COMMAND program or by you at any time at the net asset value next
determined after the Transfer Agent receives your sell order. See "Shareholder
Guide--How to Sell Your Shares" at page 21.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
Each Fund expects to declare and pay daily dividends of any net investment
income and short-term capital gains. Dividends and distributions will be
automatically reinvested in additional shares of such Fund at NAV. See "Taxes,
Dividends and Distributions" at page 17.
2
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
MONEY FUND TAX-FREE FUND GOVERNMENT FUND
--------------- --------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases......... None None None
Maximum Sales Load Imposed on Reinvested
Dividends...................................... None None None
Deferred Sales Load............................. None None None
Redemption Fees................................. None None None
Exchange Fee.................................... None None None
COMMAND Program Annual Fee...................... $100* $100* $100*
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees................................. .400% .470% .400%
12b-1 Fees+..................................... .125% .125% .125%
.065% .065% .125%
Other Expenses..................................
.59% .66% .65%
Total Fund Operating Expenses.................
.33% .16% .17%
COMMAND Program Annual Fee**....................
.92% .82% .82%
Total Fund Operating Expenses and Account
Charge.......................................
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
Money Fund................................ $ 6 $ 19 $ 33 $ 74
Tax-Free Fund............................. $ 7 $ 21 $ 37 $ 82
Government Fund........................... $ 7 $ 21 $ 36 $ 81
If the annual program fee were included, you would
pay the following expenses on the same
investment:
Money Fund................................ $ 9 $ 29 $ 51 $ 113
Tax-Free Fund............................. $ 8 $ 26 $ 46 $ 101
Government Fund........................... $ 8 $ 26 $ 46 $ 101
</TABLE>
- --------------------------
The above examples are based on data for each Fund's fiscal year ended June
30, 1995. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in each Fund will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Funds Are Managed."
"Other Expenses" includes operating expenses of a Fund, such as Trustees'
and professional fees, registration fees, reports to shareholders and transfer
agent and custodian fees.
- --------------------------
*Prudential Securities charges an annual program fee of $100 to all
participants in the COMMAND program whether or not they own shares in any of
the Funds. The program fee is $125 for COMMAND Corporate accounts.
**In accordance with an interpretive position taken by the staff of the
Securities and Exchange Commission (SEC), the annual program fee has been
reflected in the fee table. The annual program fee as a percentage of average
net assets is calculated by dividing $100 (the total fee) by the average
account size in a Fund. The annual program fee is not prorated for purposes of
this calculation to give effect to COMMAND program participants who also own
shares in or subscribe to various other services offered by the program. A
major portion of the annual program fee is not attributable to a Fund, but
rather to non-fund services provided by the program. Investors who do not
expect to use all of the features of the program should consider the COMMAND
Essentials(-SM-) Account for which there is a lower annual program fee
(presently $60).
+It is currently anticipated that the entire distribution fee will be used to
pay an account servicing fee to financial advisers. See "How the Funds Are
Managed--Distributor."
3
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
The following financial highlights have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the period indicated. This information is based on data
contained in the financial statements.
MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains............... 0.050 0.029 0.030 0.046 0.069
Dividends and distributions... (0.050) (0.029) (0.030) (0.046) (0.069)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN:................. 5.13% 2.98% 3.01% 4.71% 7.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $4,055,700 $2,448,201 $2,436,672 $2,125,430 $2,417,429
Average net assets (000)...... $3,072,284 $2,570,195 $2,275,532 $2,377,108 $2,605,472
Ratios to average net assets:
Expenses, including
distribution fees.......... .59% .59% .61% .64% .61%
Expenses, excluding
distribution fees.......... .47% .47% .48% .51% .49%
Net investment income....... 5.09% 2.92% 2.90% 4.57% 6.95%
<CAPTION>
1990 1989* 1988 1987 1986
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains............... 0.081 0.084 0.065 0.057 0.071
Dividends and distributions... (0.081) (0.084) (0.065) (0.057) (0.071)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN:................. 8.42% 8.73% 6.70% 5.85% 7.34%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $2,668,970 $2,206,469 $1,549,772 $1,382,667 $1,273,592
Average net assets (000)...... $2,680,212 $1,821,521 $1,513,022 $1,354,854 $1,134,724
Ratios to average net assets:
Expenses, including
distribution fees.......... .59% .63% .65% .67% .68%
Expenses, excluding
distribution fees.......... .46% .51% .53% .54% .56%
Net investment income....... 8.08% 8.40% 6.58% 5.72% 7.13%
</TABLE>
- ----------------------------------
See Footnote on next page.
TAX-FREE FUND
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains............... 0.032 0.020 0.022 0.035 0.049
Dividends and distributions... (0.032) (0.020) (0.022) (0.035) (0.049)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN:................. 3.29% 1.98% 2.23% 3.53% 5.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $1,055,568 $ 847,602 $ 853,930 $ 729,122 $ 750,567
Average net assets (000)...... $926,888 $ 908,421 $ 823,517 $ 751,458 $ 770,745
Ratios to average net assets:
Expenses, including
distribution fees.......... .66% .65% .68% .69% .66%
Expenses, excluding
distribution fees.......... .54% .53% .55% .56% .54%
Net investment income....... 3.05% 1.96% 2.09% 3.47% 4.88%
<CAPTION>
1990 1989* 1988 1987 1986
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains............... 0.055 0.054 0.043 0.040 0.048
Dividends and distributions... (0.055) (0.054) (0.043) (0.040) (0.048)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN:................. 5.66% 5.54% 4.39% 4.07% 4.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $ 714,650 $ 611,631 $ 681,601 $ 692,186 $ 545,457
Average net assets (000)...... $ 699,559 $ 695,347 $ 669,353 $ 684,412 $ 424,092
Ratios to average net assets:
Expenses, including
distribution fees.......... .68% .67% .70% .69% .72%
Expenses, excluding
distribution fees.......... .55% .55% .57% .57% .59%
Net investment income....... 5.57% 5.46% 4.39% 3.89% 4.78%
</TABLE>
- ----------------------------------
See Footnote on next page.
4
<PAGE>
GOVERNMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year......................... $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains............... 0.048 0.028 0.028 0.045 0.067
Dividends and distributions... (0.048) (0.028) (0.028) (0.045) (0.067)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
year......................... $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN:................. 4.89% 2.86% 2.85% 4.56% 6.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $404,295 $ 325,257 $ 381,703 $ 372,988 $ 414,978
Average net assets (000)...... $350,458 $ 376,159 $ 380,103 $ 422,639 $ 398,971
Ratios to average net assets:
Expenses, including
distribution fees.......... .65% .63% .65% .69% .65%
Expenses, excluding
distribution fees.......... .53% .51% .53% .57% .53%
Net investment income....... 4.81% 2.79% 2.74% 4.38% 6.54%
<CAPTION>
1990 1989* 1988 1987 1986
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains............... 0.079 0.080 0.062 0.055 0.068
Dividends and distributions... (0.079) (0.080) (0.062) (0.055) (0.068)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN:................. 8.17% 8.30% 6.38% 5.64% 7.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $ 270,140 $ 181,559 $ 180,338 $ 131,388 $ 113,206
Average net assets (000)...... $ 243,593 $ 175,179 $ 164,798 $ 125,665 $ 104,510
Ratios to average net assets:
Expenses, including
distribution fees.......... .66% .71% .72% .77% .76%
Expenses, excluding
distribution fees.......... .53% .58% .59% .64% .64%
Net investment income....... 7.70% 7.97% 6.16% 5.46% 6.66%
</TABLE>
- ----------------------------------
*On October 31, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since
then has acted as manager of the Fund.
CALCULATION OF YIELD
EACH FUND CALCULATES ITS "CURRENT YIELD" based on the net change, exclusive of
realized and unrealized gains or losses, in the value of a hypothetical account
over a seven calendar day base period. EACH FUND ALSO CALCULATES ITS "EFFECTIVE
ANNUAL YIELD" ASSUMING WEEKLY COMPOUNDING. IN ADDITION, THE TAX-FREE FUND
CALCULATES ITS TAX EQUIVALENT YIELD. Tax-equivalent yield shows the taxable
yield an investor would have to earn from a fully taxable investment in order to
equal the Fund's yield after taxes and is calculated by dividing the Fund's
current or effective yield by the result of one minus the maximum marginal
federal tax rate. The following is an example of the current and effective
annual yield calculation as of June 30, 1995 for each of the Funds and the tax
equivalent yield for the Tax-Free Fund:
<TABLE>
<CAPTION>
GOVERNMENT
MONEY FUND TAX-FREE FUND FUND
------------- ------------- -------------
<S> <C> <C> <C>
Value of hypothetical account at end of period......... $ 1.001053104 $ 1.000661243 $ 1.001044411
Value of hypothetical account at beginning of period... 1.000000000 1.000000000 1.000000000
------------- ------------- -------------
Base period return..................................... $ .001053104 $ .000661243 $ .001044411
------------- ------------- -------------
------------- ------------- -------------
CURRENT YIELD (Base Period Return x (365/7))........... 5.49% 3.45% 5.45%
EFFECTIVE ANNUAL YIELD, assuming daily compounding..... 5.64% 3.51% 5.60%
TAX EQUIVALENT YIELD (current yield DIVIDED BY
(1-.396))............................................. -- 5.71% --
</TABLE>
THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND DOES NOT REPRESENT FUTURE INCOME
OR DIVIDENDS. YIELD IS COMPUTED WITHOUT TAKING INTO CONSIDERATION THE COMMAND
PROGRAM ANNUAL FEE OF $100.
The weighted average life to maturity of each of the Fund's portfolios on
June 30, 1995 was 62 days for the Money Fund, 54 days for the Tax-Free Fund and
59 days for the Government Fund.
5
<PAGE>
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information. Comparative performance information may be
used from time to time in advertising or marketing each of the Fund's shares,
including data from Lipper Analytical Services, Inc., Morningstar Publications,
Inc., IBC/Donoghue's Money Fund Report, The Bank Rate Monitor, other industry
publications, business periodicals and market indices.
HOW THE FUNDS INVEST
MONEY FUND
INVESTMENT OBJECTIVES AND POLICIES
THE INVESTMENT OBJECTIVES OF THE MONEY FUND ARE TO SEEK HIGH CURRENT INCOME,
PRESERVATION OF CAPITAL AND MAINTENANCE OF LIQUIDITY. THE MONEY FUND SEEKS TO
ACHIEVE THESE OBJECTIVES BY INVESTING PRIMARILY IN A PORTFOLIO OF U.S.
DOLLAR-DENOMINATED MONEY MARKET INSTRUMENTS. THE MONEY FUND SEEKS TO MAINTAIN A
$1.00 SHARE PRICE AT ALL TIMES. TO ACHIEVE THIS, THE MONEY FUND PURCHASES ONLY
SECURITIES WITH REMAINING MATURITIES OF THIRTEEN MONTHS OR LESS AND LIMITS THE
DOLLAR-WEIGHTED AVERAGE MATURITY OF ITS PORTFOLIO TO 90 DAYS OR LESS. THERE CAN
BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVES OF THE MONEY FUND WILL BE
ATTAINED OR THAT THE MONEY FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE PER SHARE.
THE INVESTMENT OBJECTIVES OF THE MONEY FUND ARE FUNDAMENTAL POLICIES AND,
THEREFORE, MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY
OF THE OUTSTANDING VOTING SECURITIES OF THE FUND, AS DEFINED IN THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). THE MONEY FUND'S
INVESTMENT POLICIES ARE NOT FUNDAMENTAL AND MAY BE CHANGED BY THE TRUSTEES.
The Money Fund will invest in the following money market instruments:
U.S. GOVERNMENT OBLIGATIONS. U.S. Treasury bills and other obligations
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities. Except for U.S. Treasury securities, these
obligations, even 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. In the case of securities not backed by the full faith and
credit of the United States, the Money 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 itself in the event the agency
or instrumentality does not meet its commitments.
BANK OBLIGATIONS. Obligations (including time deposits, certificates of
deposit and bankers' acceptances) of commercial banks, savings banks and savings
and loan associations having, at the time of investment, total assets of $1
billion or more. The Money Fund may invest in U.S. dollar-denominated
obligations of domestic banks, foreign branches of U.S. banks, foreign banks and
U.S. and foreign branches of foreign banks and instruments secured by such
obligations. The Money Fund may invest more than 25% of its total assets in
money market instruments of domestic banks (including U.S. branches of foreign
banks that are subject to the same regulation as U.S. banks and foreign branches
of
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domestic banks, provided the domestic bank is unconditionally liable in the
event of the failure of the foreign branch to make payment on its instruments
for any reason). See "Investment Restrictions" in the Statement of Additional
Information.
OTHER MONEY MARKET INSTRUMENTS. Commercial paper, variable amount demand
master notes, bills, notes and other obligations issued by a U.S. company (trust
or corporation), a foreign company or a foreign government, its agencies or
instrumentalities. If such obligations are guaranteed or supported by a letter
of credit issued by a bank, such bank (including a foreign bank) must meet the
requirements set forth under "Bank Obligations" above. If such obligations are
guaranteed or insured by an insurance company or other non-bank entity, such
insurance company must represent a credit of comparable quality as determined by
the Money Fund's investment adviser, under the supervision of the Trustees.
The Money Fund may not invest more than 25% of its net assets in any one
industry except there is no limitation with respect to money market instruments
of domestic banks and obligations of the U.S. Government, its agencies and
instrumentalities, as described above.
The Money Fund intends to hold portfolio securities until maturity; however,
the Money Fund may sell any security at any time in order to meet redemption
requests or if such action, in the judgment of the investment adviser, is
appropriate based on the adviser's evaluation of the issuer or market
conditions.
In selecting portfolio securities for investment by the Money Fund, the
investment adviser considers ratings assigned by major rating services,
information concerning the financial history and condition of the issuer and its
revenue and expense prospects. The Trustees monitor the credit quality of
securities purchased for the Money Fund. If a portfolio security held by the
Money Fund is assigned a lower rating or ceases to be rated, the investment
adviser under the supervision of the Trustees will promptly reassess whether
that security presents minimal credit risks and whether the Money Fund should
continue to hold the security. If a portfolio security no longer presents
minimal credit risks or is in default, the Money Fund will dispose of the
security as soon as reasonably practicable unless the Trustees determine that to
do so is not in the best interest of the Money Fund and its shareholders.
The Money Fund utilizes the amortized cost method of valuation in accordance
with rules of the SEC. See "How the Funds Value Their Shares." Accordingly, the
Money Fund will limit its portfolio investments to those instruments which
present minimal credit risks and which are of "eligible quality," as determined
by the Money Fund's investment adviser under the supervision of the Trustees.
"Eligible quality" means (i) a security (or issuer) rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations assigning a rating to the security or issuer (or, if only
one such rating organization assigned a rating, that rating organization) or
(ii) an unrated security deemed of comparable quality by the Money Fund's
investment adviser under the supervision of the Trustees. For a description of
ratings, see "Description of Securities Ratings" in the Statement of Additional
Information.
As long as the Money Fund utilizes the amortized cost method of valuation,
it will also comply with certain diversification requirements and will invest no
more than 5% of the Money Fund's total assets in "second-tier securities," with
no more than 1% of the Money Fund's total assets in any one issuer of a
second-tier security. A "second-tier security," for this purpose, is a security
of "eligible quality" that does not have the highest rating from at least two
nationally recognized statistical rating
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organizations assigning a rating to that security or issuer (or, if only one
rating organization assigned a rating, that rating organization) or an unrated
security that is deemed of comparable quality by the Money Fund's investment
adviser under the supervision of the Trustees.
The Money Fund may also purchase certain other investments and is subject to
certain policies as described in "Other Investments and Policies Applicable to
the Funds."
RISKS OF INVESTING IN FOREIGN SECURITIES. Since the Money Fund's portfolio
may contain U.S. dollar-denominated obligations of foreign branches of domestic
banks, foreign banks and domestic branches of foreign banks, an investment in
the Money Fund involves certain additional risks. Such investment risks include
future political and economic developments, the possible imposition of
withholding taxes on interest income payable on such obligations held by the
Money Fund, the possible seizure or nationalization of foreign deposits and the
possible establishment of exchange controls or other foreign governmental laws
or restrictions which might affect adversely the payment of principal and
interest on such obligations held by the Money Fund. The Money Fund will not
purchase obligations which the investment adviser believes, at the time of
purchase, will be subject to exchange controls or withholding taxes; however,
there can be no assurance that such laws may not become applicable to certain of
the Money Fund's investments. In addition, there may be less publicly available
information about a domestic branch of a foreign bank than about a domestic
bank, and such branches may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as domestic banks.
TAX-FREE FUND
INVESTMENT OBJECTIVES AND POLICIES
THE INVESTMENT OBJECTIVES OF THE TAX-FREE FUND ARE TO SEEK HIGH CURRENT
INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAXES, CONSISTENT WITH MAINTENANCE OF
LIQUIDITY AND PRESERVATION OF CAPITAL. THE TAX-FREE FUND WILL SEEK TO ACHIEVE
ITS OBJECTIVES BY INVESTING IN A DIVERSIFIED PORTFOLIO OF SHORT-TERM DEBT
OBLIGATIONS ISSUED BY STATES, TERRITORIES AND POSSESSIONS OF THE UNITED STATES
AND BY THE DISTRICT OF COLUMBIA, AND THEIR POLITICAL SUBDIVISIONS, DULY
CONSTITUTED AUTHORITIES AND CORPORATIONS, THE INTEREST FROM WHICH IS WHOLLY
EXEMPT FROM FEDERAL INCOME TAX IN THE OPINION OF BOND COUNSEL TO THE ISSUER.
Such securities are generally known as "Municipal Bonds" or "Municipal Notes."
Interest on certain Municipal Bonds and Municipal Notes may be a preference item
for purposes of the federal Alternative Minimum Tax. The investment adviser
presently intends to avoid, to the extent possible, purchasing Municipal Bonds
and Municipal Notes for the Tax-Free Fund's portfolio the interest on which
would be a preference item for purposes of the federal Alternative Minimum Tax.
Under normal circumstances, the Tax-Free Fund will invest at least 80% of its
net assets in tax-exempt Municipal Bonds and Municipal Notes, which are not
subject to the federal Alternative Minimum Tax. THE TAX-FREE FUND SEEKS TO
MAINTAIN A $1.00 SHARE PRICE AT ALL TIMES. TO ACHIEVE THIS THE TAX-FREE FUND
INVESTS IN MUNICIPAL BONDS OR NOTES MATURING IN THIRTEEN MONTHS OR LESS AND
LIMITS THE DOLLAR-WEIGHTED AVERAGE MATURITY OF ITS PORTFOLIO TO 90 DAYS OR LESS.
THERE CAN BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVES OF THE TAX-FREE FUND
WILL BE ATTAINED OR THAT THE TAX-FREE FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE PER SHARE.
THE INVESTMENT OBJECTIVES OF THE TAX-FREE FUND ARE FUNDAMENTAL POLICIES AND,
THEREFORE, MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY
OF THE OUTSTANDING VOTING SECURITIES OF THE FUND, AS DEFINED IN THE INVESTMENT
COMPANY ACT. THE TAX-FREE FUND'S INVESTMENT POLICIES ARE NOT FUNDAMENTAL AND MAY
BE CHANGED BY THE TRUSTEES.
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The Tax-Free Fund utilizes the amortized cost method of valuation in
accordance with rules of the SEC. See "How the Funds Value Their Shares."
Accordingly, the Tax-Free Fund will limit its portfolio investments to those
Municipal Bonds and Notes which present minimal credit risks and which are of
"eligible quality" (as defined above) as determined by the Tax-Free Fund's
investment adviser under the supervision of the Trustees.
In selecting Municipal Bonds and Notes for investment by the Tax-Free Fund,
the investment adviser considers ratings assigned by major rating services,
information concerning the financial history and condition of the issuer and its
revenue and expense prospects. The Trustees monitor the credit quality of
securities purchased for the Tax-Free Fund's portfolio. If a Municipal Bond or a
Municipal Note held by the Tax-Free Fund is assigned a lower rating or ceases to
be rated, the investment adviser under the supervision of the Trustees will
promptly reassess whether that security continues to present minimal credit
risks and whether the Tax-Free Fund should continue to hold the security in its
portfolio. If a portfolio security no longer presents minimal credit risks or is
in default, the Tax-Free Fund will dispose of the security as soon as reasonably
practicable unless the Trustees determine that to do so is not in the best
interests of the Tax-Free Fund and its shareholders. For a description of
ratings, see "Description of Securities Ratings" in the Statement of Additional
Information.
MUNICIPAL BONDS. Municipal Bonds are generally (i) issued to obtain funds
for various public purposes, including construction of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer work or (ii) issued in certain instances as
private-activity bonds, by or on behalf of public authorities to obtain funds to
provide privately operated housing facilities, sports facilities, pollution
control facilities, convention or trade show facilities, industrial, port or
parking facilities and facilities for water supply, gas, electricity or waste
disposal. Such obligations are included within the term Municipal Bonds if the
interest paid thereon qualifies at the time of issuance, in the opinion of the
issuer's bond counsel, as exempt from federal income tax. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute Municipal Bonds, although the current
federal tax laws place substantial limitations on the size of such issues.
Municipal Bonds 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. Revenue bonds are
payable from the revenues derived from a particular facility or class of
facilities or from the proceeds of a special excise tax or other specific
revenue source but not from the general taxing power.
MUNICIPAL NOTES. Municipal Notes are short-term obligations, generally with
a maturity, at the time of issuance, ranging from six months to three years. The
principal types of Municipal Notes include tax anticipation notes, bond
anticipation notes and revenue anticipation notes. Notes sold in anticipation of
collection of taxes, a bond sale, or receipt of other revenues are usually
general obligations of the issuing municipality or agency.
OTHER INVESTMENTS AND POLICIES APPLICABLE TO THE TAX-FREE FUND. The
Tax-Free Fund intends to hold portfolio securities to maturity, except that puts
may be exercised on their expiration date when the exercise price is higher than
the current market price for the underlying security. In addition, the Tax-Free
Fund may dispose of any portfolio security prior to its maturity if, on the
basis of a revised credit evaluation of the issuer or of market conditions, it
believes such disposition advisable. Also, the
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Tax-Free Fund may sell any security at any time in order to meet redemption
requests. The Tax-Free Fund may also purchase certain other investments and
engage in certain policies as described in "Other Investments and Policies
Applicable to the Funds."
The Tax-Free Fund anticipates being as fully invested as practicable in
Municipal Bonds and Notes; however, because the Tax-Free Fund does not intend to
invest in taxable obligations, there may be occasions when, as a result of
maturities of portfolio securities or sales of Tax-Free Fund shares or in order
to meet anticipated redemption requests, the Tax-Free Fund may hold cash which
is not earning income. In addition, there may be occasions when, in order to
raise cash to meet redemptions, the Tax-Free Fund might be required to sell
securities at a loss.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Bonds and Notes and for providing state and local
governments with federal credit assistance. Reevaluation of the Tax-Free Fund's
investment objectives and structure might be necessary in the future due to
market conditions which may result from future changes in the tax laws.
GOVERNMENT FUND
INVESTMENT OBJECTIVES AND POLICIES
THE INVESTMENT OBJECTIVES OF THE GOVERNMENT FUND ARE TO SEEK HIGH CURRENT
INCOME, PRESERVATION OF CAPITAL AND MAINTENANCE OF LIQUIDITY. THE GOVERNMENT
FUND SEEKS TO ACHIEVE ITS OBJECTIVES BY INVESTING IN A PORTFOLIO OF U.S.
GOVERNMENT SECURITIES INCLUDING OBLIGATIONS ISSUED OR GUARANTEED AS TO PRINCIPAL
AND INTEREST BY THE U.S. GOVERNMENT, OR ITS AGENCIES OR INSTRUMENTALITIES AND
RELATED REPURCHASE AGREEMENTS. UNDER NORMAL CIRCUMSTANCES, THE GOVERNMENT FUND
WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN U.S. GOVERNMENT SECURITIES,
INCLUDING REPURCHASE AGREEMENTS WITH RESPECT TO SUCH SECURITIES. THE GOVERNMENT
FUND SEEKS TO MAINTAIN A $1.00 SHARE PRICE AT ALL TIMES. TO ACHIEVE THIS, THE
GOVERNMENT FUND PURCHASES ONLY SECURITIES WITH REMAINING MATURITIES OF THIRTEEN
MONTHS OR LESS AND LIMITS THE DOLLAR-WEIGHTED AVERAGE MATURITY OF ITS PORTFOLIO
TO 90 DAYS OR LESS. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVES OF
THE GOVERNMENT FUND WILL BE ATTAINED OR THAT THE GOVERNMENT FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE.
THE INVESTMENT OBJECTIVES OF THE GOVERNMENT FUND ARE FUNDAMENTAL POLICIES
AND, THEREFORE, MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A
MAJORITY OF THE OUTSTANDING VOTING SECURITIES OF THE FUND, AS DEFINED IN THE
INVESTMENT COMPANY ACT. THE GOVERNMENT FUND'S INVESTMENT POLICIES ARE NOT
FUNDAMENTAL AND MAY BE CHANGED BY THE TRUSTEES.
U.S. TREASURY OBLIGATIONS. The Government Fund will invest in U.S. Treasury
obligations, including bills, notes, bonds and other debt obligations 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.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Government Fund will invest in obligations issued by
agencies of the U.S. Government or instrumentalities established or sponsored by
the U.S. Government. These obligations, 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 the Government National
Mortgage Association, the Farmers Home Administration and the Small Business
Administration are backed by the full faith and credit of the United States. In
the case of obligations not backed by the full faith and credit of the United
States,
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the Government 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. Instruments in which the Government Fund may invest which are not
backed by the full faith and credit of the United States include obligations
issued by the Federal Home Loan Banks, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Student Loan
Marketing Association, Resolution Funding Corporation and the Tennessee Valley
Authority, each of which under certain conditions has the right to borrow from
the U.S. Treasury to meet its obligations, and obligations of the Farm Credit
System, the obligations of which may be satisfied only by the individual credit
of the issuing agency.
The Government Fund may invest in securities issued or guaranteed by any of
the foregoing entities or by any other agency or instrumentality established or
sponsored by the U.S. Government, and in participation interests in, and
instruments evidencing deposit or safekeeping for, any of the foregoing.
The Government Fund may invest in component parts of U.S. Treasury notes or
bonds, namely, either the corpus (principal) of such Treasury obligations or one
of the interest payments scheduled to be paid on such obligations. These
obligations may take the form of (i) Treasury obligations from which the
interest coupons have been stripped, (ii) the interest coupons that are
stripped, (iii) book-entries at a Federal Reserve member bank representing
ownership of Treasury obligation components or (iv) receipts evidencing the
component parts (corpus or coupons) of Treasury obligations that have not
actually been stripped. Such receipts evidence ownership of component parts of
Treasury 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. Investments in such instruments may be
subject to greater fluctuations in price than investments in U.S. Treasury Notes
or bonds as a result of variation in interest rates.
The Government Fund intends normally to hold its portfolio securities to
maturity. Historically, securities issued or guaranteed by the U.S. Government
or its agencies and instrumentalities have involved minimal risk of loss of
principal or interest, if held to maturity.
OTHER INVESTMENTS AND POLICIES APPLICABLE TO THE GOVERNMENT FUND. The
Government Fund may also invest in obligations of the International Bank for
Reconstruction and Development (World Bank), which is technically not a U.S.
Government agency or instrumentality. World Bank obligations are supported by
appropriated but unpaid commitments of its member countries. There is no
assurance that these commitments will be honored in the future. The Government
Fund may also purchase certain other investments and engage in certain policies
as described in "Other Investments and Policies Applicable to the Funds."
OTHER INVESTMENTS AND POLICIES APPLICABLE TO THE FUNDS
LIQUIDITY PUTS. A Fund may also purchase instruments of the types described
above under "Investment Objectives and Policies" for that Fund, with the right
to resell 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 the aggregate price which a Fund pays for
instruments with a put may be higher than the price that otherwise would be paid
for the instruments. A put may
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also include the right to demand repayment of interest and principal. The
Tax-Free Fund and Government Fund may also buy securities with the right to
demand principal and interest on a fixed date. For a more detailed description,
see "Investment Objectives and Policies" in the Statement of Additional
Information.
VARIABLE RATE AND FLOATING RATE SECURITIES. Each Fund may invest in
"variable rate" and "floating rate" obligations. The interest rates on such
obligations fluctuate generally with changes in market interest rates and a Fund
is typically able to demand repayment of the principal amount of such
obligations at par plus accrued interest either, in some cases, at specified
intervals of less than one year or, in other cases, upon not less than seven
days' notice. For additional information concerning variable rate and floating
rate obligations, see "Investment Objectives and Policies" in the Statement of
Additional Information.
REPURCHASE AGREEMENTS. The Money Fund and Government Fund may enter into
repurchase agreements, whereby the seller of a security agrees to repurchase
that security from that Fund at a mutually agreed-upon time and price. The
repurchase date is usually within a day or two of the original purchase,
although it may extend over a number of months. The resale price is in excess of
the purchase price, reflecting an agreed-upon rate of return effective for the
period of time the Fund's money is invested in the security. Each Fund's
repurchase agreements will at all times be fully collateralized in an amount at
least equal to the purchase price, including accrued interest earned on the
underlying securities. The instruments held as collateral are valued daily, and
if the value of the instruments declines, a Fund will require additional
collateral. If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Fund may incur a loss. The Money Fund and
Government Fund each participate in a joint repurchase account with other
investment companies managed by Prudential Mutual Fund Management, Inc. pursuant
to an order of the SEC. See "Investment Objectives and Policies -- Repurchase
Agreements" in the Statement of Additional Information.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Money Fund and Government
Fund may each borrow money from banks in an amount equal to no more than 20% of
the value of their total assets (computed at the time the loan is made) for
temporary or emergency purposes or for the clearance of transactions. Borrowing
for purposes other than meeting redemptions may not exceed 5% of the value of a
Fund's total assets less liabilities, except that these borrowing restrictions
do not apply to reverse repurchase agreements engaged in by either Fund. Neither
Fund will purchase securities while borrowings are outstanding. The Tax-Free
Fund may borrow for temporary purposes in amounts not exceeding 5% of its total
assets. See "Investment Objectives and Policies" in the Statement of Additional
Information.
The Money Fund may also invest in securities subject to reverse repurchase
agreements. Reverse repurchase agreements involve the sale of securities held by
the Money Fund with an agreement by the Money Fund to repurchase the securities
at a later date at a fixed price. During the reverse repurchase agreement
period, the Money Fund continues to receive principal and interest payments on
these securities. The Money Fund intends only to use the reverse repurchase
technique when it will be to its advantage to do so. Such transactions are only
advantageous if the Money Fund has an opportunity to earn a greater rate of
interest on the cash derived from the transaction than the interest cost of
obtaining that cash. Reverse repurchase agreements may be considered
speculative.
The Money Fund's Custodian will maintain in a separate account cash, U.S.
Government securities or other liquid high-grade debt obligations having a value
equal to or greater than such commitments. Reverse repurchase agreements involve
the risk that the market value of the securities retained by the Money Fund may
decline below the price of the securities the Money Fund has sold but is
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obligated to repurchase under the agreement. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the Money Fund's use of the proceeds from the agreement may be
restricted pending a determination by the other party or its trustee or
receiver, whether to enforce the Money Fund's obligation to repurchase the
securities. The Tax-Free Fund may borrow from banks, for temporary investment
purposes, in amounts not exceeding 5% of the market or other fair value of its
total assets. See "Investment Restrictions" in the Statement of Additional
Information.
SECURITIES LENDING. The Money Fund and Government Fund may lend their
portfolio securities to brokers or dealers, banks or other recognized
institutional borrowers of securities, provided that the borrower at all times
maintains cash collateral in an amount equal to at least 100% of the market
value of the securities loaned. During the time portfolio securities are on
loan, the borrower will pay the Fund an amount equivalent to any dividends 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 who has delivered equivalent collateral or secured a
letter of credit. Loans are subject to termination at the option of the Fund or
the borrower. The Fund may pay reasonable administration and custodial fees in
connection with a loan. As a matter of fundamental policy, each Fund cannot lend
more than 10% of its total assets. See "Investment Restrictions" in the
Statement of Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase or sell
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions arise when securities are purchased or sold by a Fund with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to that Fund at the time of
entering into the transaction. The purchase price and the interest rate payable
on the securities are fixed on the transaction date. The securities so purchased
are subject to market fluctuations and no interest accrues to the Fund until
delivery and payment take place. The Funds' Custodian will maintain, in a
segregated account of each Fund, cash, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than that
Fund's purchase commitments; the Custodian will likewise segregate securities
sold on a delayed delivery basis. The purchase of securities on a "when-issued"
basis may involve additional risks. For a more detailed discussion, see
"Investment Objectives and Policies--When-Issued and Delayed Delivery
Securities" in the Statement of Additional Information.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in
illiquid securities including securities with legal or contractual restrictions
on resale (restricted securities), securities that are not readily marketable in
securities markets either within or outside of the United States, privately
placed commercial paper and, except for the Tax-Free Fund, repurchase agreements
which have a maturity of longer than seven days. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act) and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. Repurchase agreements subject to demand
are deemed to have a maturity equal to the applicable notice period.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions which, like its
investment objectives, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
outstanding voting securities of the Fund as defined above. See "Investment
Restrictions" in the Statement of Additional Information.
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HOW THE FUNDS ARE MANAGED
THE TRUSTEES, IN ADDITION TO OVERSEEING THE ACTIONS OF THE FUNDS' MANAGER,
SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDE UPON MATTERS OF GENERAL
POLICY. THE FUNDS' MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS OPERATIONS
OF THE FUNDS. THE FUNDS' SUBADVISER FURNISHES DAILY INVESTMENT ADVISORY
SERVICES.
For the fiscal year ended June 30, 1995, total expenses of each of the
Funds, as a percentage of their respective average net assets, were .59% for the
Money Fund, .66% for the Tax-Free Fund and .65% for the Government Fund. See
"Financial Highlights."
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF EACH OF THE FUNDS. PMF WAS
INCORPORATED IN MAY 1987 UNDER THE LAWS OF THE STATE OF DELAWARE.
As of July 31, 1995, PMF served as the manager to 67 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 28 closed-end investment companies with aggregate assets of
approximately $49 billion.
UNDER A MANAGEMENT AGREEMENT WITH EACH OF THE FUNDS, PMF MANAGES THE
INVESTMENT OPERATIONS OF EACH FUND AND ALSO ADMINISTERS EACH FUND'S BUSINESS
AFFAIRS. See "Manager" in the Statement of Additional Information.
UNDER SEPARATE SUBADVISORY AGREEMENTS BETWEEN PMF AND THE PRUDENTIAL
INVESTMENT CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF EACH OF THE FUNDS AND IS
REIMBURSED BY PMF FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING
SUCH SERVICES. Under the Management Agreement, PMF continues to have
responsibility for all investment advisory services and supervises PIC's
performance of such services.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
Under the Management Agreement, the Money Fund pays PMF a fee at an annual
rate of .50 of 1% of the Fund's average daily net assets up to and including
$500 million, .425 of 1% of the next $500 million, .375 of 1% of the next $500
million and .35 of 1% of the Fund's average daily net assets in excess of $1.5
billion; the Tax-Free Fund pays PMF a fee at an annual rate of .50 of 1% of the
Fund's average daily net assets up to $500 million, .425 of 1% of the Fund's
average daily net assets in excess of $500 million and .375 of 1% of the Fund's
average daily net assets in excess of $1 billion; and the Government Fund pays
PMF a fee at an annual rate of .40 of 1% of the Fund's average daily net assets
up to $1 billion and .375 of 1% of the Fund's average daily net assets in excess
of $1 billion.
For the fiscal year ended June 30, 1995, the Money Fund paid management fees
to PMF of .40 of 1% of that Fund's average net assets, the Tax-Free Fund paid
management fees to PMF of .47 of 1% of that Fund's average net assets and the
Government Fund paid management fees to PMF of .40 of 1% of that Fund's average
net assets. See "Manager" in the Statement of Additional Information.
DISTRIBUTOR
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD OR THE DISTRIBUTOR), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF EACH OF THE
FUNDS. IT IS A WHOLLY-OWNED SUBSIDIARY OF PMF.
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UNDER A DISTRIBUTION AND SERVICE PLAN (THE PLAN) ADOPTED BY EACH OF THE
FUNDS (COLLECTIVELY, THE PLANS) UNDER RULE 12B-1 UNDER THE INVESTMENT COMPANY
ACT AND A DISTRIBUTION AGREEMENT (THE DISTRIBUTION AGREEMENT), THE DISTRIBUTOR
INCURS THE EXPENSES OF DISTRIBUTING EACH FUND'S SHARES. These expenses include
account servicing fees paid to, or on account of financial advisers of
Prudential Securities Incorporated (Prudential Securities or PSI), account
servicing fees paid to, or on account of, other broker-dealers or financial
institutions (other than national banks) which have entered into agreements with
the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of
Prudential Securities associated with the sale of shares, including lease,
utility, communications and sales promotion expenses. The State of Texas
requires that shares of each Fund may be sold in that state only by dealers or
other financial institutions which are registered there as broker-dealers.
UNDER THE PLANS, EACH FUND REIMBURSES THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES AT AN ANNUAL RATE OF UP TO .125 OF 1% OF THAT
FUND'S AVERAGE DAILY NET ASSETS. SUCH AMOUNTS ARE ACCRUED DAILY AND PAID
MONTHLY. THE ENTIRE DISTRIBUTION FEE MAY BE USED TO PAY ACCOUNT SERVICING FEES.
The Plans provide that they shall continue in effect from year to year
provided that each such continuance is approved annually by a majority vote of
the Trustees, including a majority of the Trustees who are not interested
persons of the Funds and who have no direct or indirect financial interest in
the operation of the Plans or in any agreement related to the Plans. The
Trustees are provided with and review quarterly reports of expenditures under
the Plans.
For the fiscal year ended June 30, 1995, PMFD incurred distribution expenses
for the Money Fund of $3,840,355, for the Tax-Free Fund of $1,158,610 and for
the Government Fund of $438,073, all of which were recovered through the
distribution fee paid by each Fund to PMFD. The Funds record all payments made
under the Plans as expenses in the calculation of net investment income.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. (NASD) to resolve allegations that from
1980 through 1990 PSI sold certain limited partnership interests in violation of
securities laws to persons for whom such securities were not suitable and
misrepresented the safety, potential returns and liquidity of these investments.
Without admitting or denying the allegations asserted against it, PSI consented
to the entry of an SEC Administrative Order which stated that PSI's conduct
violated the federal securities laws, directed PSI to cease and desist from
violating the federal securities laws, pay civil penalties, and adopt certain
remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of
a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year
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period, PSI has complied with the terms of the agreement, no prosecution will be
instituted by the United States for the offenses charged in the complaint. If on
the other hand, during the course of the three year period, PSI violates the
terms of the agreement, the U.S. Attorney can then elect to pursue these
charges. Under the terms of the agreement, PSI agreed, among other things, to
pay an additional $330,000,000 into the fund established by the SEC to pay
restitution to investors who purchased certain PSI limited partnership
interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Funds are not affected by PSI's financial condition and are entirely
separate legal entities from PSI, which has no beneficial ownership therein and
the Funds' assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Funds provided that the
commissions, fees or other remuneration it receives are fair and reasonable. See
"Portfolio Transactions" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Funds' portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with each of the Funds. Its mailing address is
P.O. Box 1713, Boston, Massachusetts 02205.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer and Dividend Disbursing Agent for the Funds and
in those capacities maintains certain books and records for each of the Funds.
Its mailing address is P.O. Box 15005, New Brunswick, New Jersey 08906-5005.
PMFS is a wholly-owned subsidiary of PMF.
HOW THE FUNDS VALUE THEIR SHARES
EACH FUND'S 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. THE TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY
FOR THE COMPUTATION OF EACH OF THE FUND'S NAV TO BE AS OF 4:30 P.M., NEW YORK
TIME, IMMEDIATELY AFTER THE DAILY DECLARATION OF DIVIDENDS.
Each Fund will compute its NAV once daily on the days that the New York
Stock Exchange is open for trading, except on days on which no orders to
purchase, sell or redeem Fund shares have been received or days on which changes
in the value of a Fund's portfolio securities do not materially affect the net
asset value. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Each Fund determines the value of its portfolio securities by the amortized
cost method. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods
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during which value, as determined by amortized cost, is higher or lower than the
price a Fund would receive if it sold the instrument. During these periods, the
yield to an existing shareholder may differ somewhat from that which could be
obtained from a similar fund which marks its portfolio securities to market each
day. For example, during periods of declining interest rates, if the use of the
amortized cost method resulted in a lower value of a Fund's portfolio on a given
day, a prospective investor in the Fund would be able to obtain a somewhat
higher yield and existing shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates. The
Trustees have established procedures designed to stabilize, to the extent
reasonably possible, the net asset value of the shares of each Fund at $1.00 per
share.
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUNDS
EACH FUND IS TREATED AS A SEPARATE ENTITY FOR FEDERAL INCOME TAX PURPOSES.
EACH FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
INTERNAL REVENUE CODE). AS A REGULATED INVESTMENT COMPANY, A FUND WILL NOT BE
SUBJECT TO FEDERAL INCOME TAXES ON ITS INVESTMENT INCOME AND CAPITAL GAINS, IF
ANY, REALIZED DURING ANY YEAR, WHICH IT DISTRIBUTES TO ITS SHAREHOLDERS,
PROVIDED THAT AT LEAST 90% OF ITS NET INVESTMENT INCOME AND NET SHORT-TERM
CAPITAL GAIN EARNED IN THE YEAR IS DISTRIBUTED. SEE "TAXES, DIVIDENDS AND
DISTRIBUTIONS" IN THE STATEMENT OF ADDITIONAL INFORMATION.
The Funds may be subject to tax in certain states where they do business.
Further, in those states which have income tax laws, the tax treatment of the
Funds and of shareholders with respect to distributions by the Funds may differ
from federal tax treatment.
TAXATION OF SHAREHOLDERS
With respect to the Money Fund and Government Fund, distributions of net
investment income and net short-term capital gains are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. These distributions
will not be eligible for the 70% dividends-received deduction for corporate
shareholders. Distributions of net long-term capital gains (i.e., the excess of
net long-term capital gains over net short-term capital losses), if any, are
taxable as long-term capital gains regardless of whether the shareholder
receives such distribution in additional shares or in cash and regardless of how
long the investor has held his or her Fund shares.
Tax-exempt shareholders of the Money Fund and Government Fund will not be
required to pay taxes on amounts distributed to them. Dividends and
distributions are generally taxable in the year in which received. Statements as
to the tax status of distributions to shareholders will be mailed annually.
The Tax-Free Fund intends to qualify to pay "exempt-interest dividends" to
its shareholders, by having, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consist of tax-exempt securities.
An exempt-interest dividend is that part of dividend distributions made by the
Tax-Free Fund which consist of interest received by the Tax-Free Fund on
tax-exempt securities. Shareholders will generally not incur any federal income
tax on the amount of exempt-interest dividends received by them from the
Tax-Free Fund. In view of the Tax-Free Fund's investment policies, it is
expected that all of the Tax-Free Fund's dividends will be exempt-interest
dividends, although it is
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possible that the Tax-Free Fund may from time to time realize and distribute net
short-term capital gains, market discount or other minor amounts of taxable
income. Such short-term capital gains, market discount and other taxable income
will not be eligible for the dividends received deduction available to
corporations.
Interest on indebtedness incurred or continued by a shareholder of the
Tax-Free Fund, whether a corporation or an individual, to purchase or carry
shares of the Tax-Free Fund is not deductible. Entities or persons who are
"substantial users" (or related persons) of facilities financed by industrial
development bonds should consult their tax advisers before purchasing shares of
the Fund.
Interest on certain private activity tax-exempt obligations is a preference
item for purposes of the Alternative Minimum Tax to shareholders. In the event
that the Tax-Free Fund invests in such obligations, the portion of an
exempt-interest dividend of the Tax-Free Fund that is allocable to such
obligations will be treated as a preference item to shareholders for purposes of
the Alternative Minimum Tax. Moreover, exempt-interest dividends paid to a
corporate shareholder by the Tax-Free Fund (whether or not from interest on
private activity bonds) will be taken into account (i) in determining the
Alternative Minimum Tax imposed on 75% of the excess of adjusted current
earnings over alternative minimum taxable income, (ii) in calculating the
environmental tax equal to 0.12% of a corporation's modified alternative minimum
taxable income in excess of $2 million and (iii) in determining the foreign
branch profits tax imposed on the effectively connected earnings and profits
(with adjustments) of United States branches of foreign corporations.
The exemption of interest income for federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Thus, shareholders of the Tax-Free Fund may be
subject to state and local taxes on exempt-interest dividends. Shareholders
should consult their tax advisers about the status of dividends from the Fund in
their own states and localities. The Tax-Free Fund will report annually to
shareholders the percentage of interest income, on a state-by-state basis,
received by the Fund during the preceding year.
Any gain or loss realized upon a sale or redemption of shares of the Funds
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year and
otherwise as short-term capital gain or loss. However, any loss realized on a
sale or redemption of shares will be disallowed to the extent the shares
disposed of are replaced (including shares replaced pursuant to a dividend)
within a period of 61 days beginning 30 days before and ending 30 days after the
disposition. Any loss realized by a shareholder upon the sale of shares of the
Funds held for six months or less will be treated as long-term capital loss to
the extent of any long-term capital gain distribution received by the
shareholder. Any loss realized by a shareholder upon the sale of shares of the
Tax-Free Fund held for six months or less will be disallowed to the extent of
any exempt-interest dividends received by the shareholder.
Under the laws of certain states, distributions of net income may be taxable
to shareholders of the Funds as income even though a portion of such
distributions may be derived from interest on U.S. Government obligations which,
if realized directly, would be exempt from state income taxes. Distributions may
be subject to additional state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
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WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Money Fund and Government Fund are
required to withhold and remit to the U.S. Treasury 31% of dividend and capital
gain income and the Tax-Free Fund is required to withhold and remit to the U.S.
Treasury 31% of taxable income on the accounts of those shareholders who fail to
furnish their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the
case of certain foreign shareholders) with the required certification regarding
the shareholder's status under the Internal Revenue Code.
DIVIDENDS AND DISTRIBUTIONS
Each Fund will declare a dividend, immediately prior to 4:30 P.M., New York
time, on each day that net asset value per share is determined, of all of its
daily net investment income to shareholders of record as of 4:30 P.M., New York
time, of the preceding business day. The amount of the dividend may fluctuate
from day to day and may be omitted on some days if net realized losses on
portfolio securities exceed a Fund's net investment income. Dividends are
accrued and paid daily in additional full or fractional shares of the Fund at
the net asset value per share determined on the date of declaration. Each
shareholder will receive periodically a summary of his or her account from
Prudential Securities, including information as to dividends paid. See "General
Information--Description of Shares."
Net investment income, for dividend purposes, includes accrued interest and
amortization of discounts and premiums, plus or minus any gains or losses
realized on sales of portfolio securities, less the estimated expenses of a
Fund. The Funds do not expect to realize long-term capital gains or losses.
Distributions of any net realized short-term capital gains will be taxable to
shareholders as ordinary income.
The Internal Revenue Code imposes a 4% nondeductible excise tax to the
extent the Funds do not meet certain minimum distribution requirements by the
end of each calendar year. The Funds intend to make timely distributions in
order to avoid this excise tax. For this purpose, dividends declared in October,
November and December payable to shareholders of record on a specified date in
October, November and December and paid in the following January will be treated
as having been received by shareholders on December 31 of the calendar year in
which declared. Under this rule, therefore, a shareholder may be taxed in the
prior year on dividends or distributions actually received in January of the
following year.
The Trustees of each Fund may revise the above dividend policy, or postpone
the payment of dividends, if a Fund should have or anticipate any large
unexpected expense, loss or fluctuation in net assets which in the opinion of
the Trustees might have a significant adverse effect on shareholders.
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GENERAL INFORMATION
DESCRIPTION OF SHARES
EACH OF THE FUNDS WAS ORGANIZED ON JUNE 5, 1981 AS AN UNINCORPORATED
BUSINESS TRUST UNDER THE LAWS OF MASSACHUSETTS.
The shareholders of each Fund are entitled to one vote for each full share
held (and fractional votes for fractional shares). The Trustees themselves have
the power to alter the number and the terms of office of the Trustees, and they
may at any time lengthen their own terms or make their terms of unlimited
duration (subject to certain removal procedures) and appoint their own
successors, provided that at all times at least a majority of the Trustees has
been elected by the shareholders of the Funds. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.
THE FUNDS DO NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS.
SHAREHOLDERS HAVE CERTAIN RIGHTS INCLUDING THE RIGHT TO CALL A MEETING UPON A
VOTE OF 10% OF EACH FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE
REMOVAL OF ONE OR MORE OF THE TRUSTEES OR TO TRANSACT ANY OTHER BUSINESS. SEE
"GENERAL INFORMATION--VOTING RIGHTS" IN THE STATEMENT OF ADDITIONAL INFORMATION.
The Declaration of Trust and the By-Laws of each of the Funds are designed
to make each Fund similar in certain respects to a Massachusetts business
corporation. The principal distinction between the two forms relates to
shareholder liability. Under Massachusetts law, shareholders of a business trust
may, under certain circumstances, be held personally liable as partners for the
obligations of a Fund, which is not the case with a corporation. The Declaration
of Trust of each Fund provides that shareholders shall not be subject to any
personal liability for the acts or obligations of that Fund and that every
written obligation, contract, instrument or undertaking made by that Fund shall
contain a provision to the effect that the shareholders are not individually
bound thereunder.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by each of the Funds with the
Securities and Exchange Commission under the Securities Act. Copies of each
Registration Statement may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the office of the SEC in Washington, D.C.
Because this Prospectus relates to each of the Funds, there is a possibility
that one Fund may become liable for any misstatement, inaccuracy or incomplete
disclosure in the Prospectus relating to any other Fund.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUNDS
THE SHARES OF THE FUNDS ARE OFFERED EXCLUSIVELY TO PARTICIPANTS IN THE
COMMAND PROGRAM WHO PLACED A MINIMUM OF $10,000 IN CASH AND/OR SECURITIES IN A
SECURITIES ACCOUNT (THE MINIMUM INITIAL INVESTMENT FOR EMPLOYEES OF PRUDENTIAL
AND ITS SUBSIDIARIES AND AFFILIATES IS $2,500). A participant
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will have any free credit cash balances in his or her Securities Account
invested in shares of one of the Funds, U.S. Treasury Series of the Prudential
Government Securities Trust, the California Money Market Series of the
Prudential California Municipal Fund or the New Jersey Money Market Series, New
York Money Market Series, Connecticut Money Market Series or Massachusetts Money
Market Series of the Prudential Municipal Series Fund (collectively, the COMMAND
Account Funds) depending upon which of the COMMAND Account Funds has been
designated by the participant as his or her Primary COMMAND Fund. Additional
investment vehicles may from time to time become available. Although a
participant will have his or her free credit cash balances invested
automatically in only his or her Primary COMMAND Fund, the participant may
purchase shares in any of the COMMAND Account Funds at any time. A participant
in the COMMAND program has the option to change the designation of his or her
Primary COMMAND Fund at any time by notifying his or her Prudential Securities
Financial Adviser. Upon such notification, shares of the Primary COMMAND Fund
will be redeemed and the proceeds reinvested in shares of the newly-designated
Primary COMMAND Fund.
Purchases of shares of the Primary COMMAND Fund will be made pursuant to the
automatic purchase procedures described below. A purchase of shares of a fund
other than the Primary COMMAND Fund can be made by placing an order with the
participant's Prudential Securities Financial Adviser.
The purchase price for shares of any of the Funds, whether purchased
directly or through the Automatic Purchase Procedures described below, is the
net asset value per share next determined after receipt by a Fund of a purchase
order and payment in proper form (I.E., a free credit cash balance in a
participant's Securities Account, or a check or federal funds wired to
Prudential Securities).
The Funds do not issue physical share certificates. Shares are registered in
the name of Prudential Securities on behalf of its clients and maintained in
book-entry form by the Transfer Agent.
AUTOMATIC PURCHASE PROCEDURES. Free credit cash balances of $1.00 or more
held in a Securities Account will automatically be invested in shares of the
Primary COMMAND Fund as described below. Specifically, an order to purchase
shares of a Primary COMMAND Fund is placed (i) in the case of a free credit cash
balance resulting from the proceeds of a securities sale, on the settlement date
of the securities sale, and (ii) in the case of a free credit cash balance
resulting from a non-trade relating credit (E.G., receipt of a dividend or
interest payment, maturity of a bond or a cash payment by the participant into
his or her Securities Account), on the business day after the receipt by
Prudential Securities of the non-trade related credit.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in Fund shares at 4:30 P.M.,
New York time, on the business day the order is placed and cause payment to be
made in federal funds for the shares prior to 4:30 P.M., New York time, on the
next business day. Prudential Securities will have the use of free credit cash
balances until delivery to the Funds.
HOW TO SELL YOUR SHARES
Each Fund is obligated to redeem for cash all full and fractional shares of
that Fund. The redemption price is the net asset value per share next determined
after receipt by the Transfer Agent of proper notice of redemption as described
below. If such notice is received by the Transfer Agent prior to the
determination of net asset value on any day, the redemption will be effective as
of 4:30 P.M., New York time, on such day. Payment of the redemption proceeds
will be made on the same day the redemption
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becomes effective. If the notice is received after the net asset value is
determined, the redemption will be effective as of 4:30 P.M., New York time, on
the next day that net asset value is determined, and payment will be made on
such next day.
AUTOMATIC REDEMPTION. Redemptions will be automatically effected by
Prudential Securities to satisfy debit balances in a Securities Account created
by activity therein or arising under the COMMAND program, such as those incurred
by use of the Visa-Registered Trademark- Gold Account, including Visa purchases,
cash advances and Visa Account checks. Each COMMAND program Securities Account
will be automatically scanned for debits each business day as of the close of
business on that day and after application of any free credit cash balances in
the account to such debits, a sufficient number of shares of the Primary COMMAND
Fund and, if necessary, shares of other COMMAND Account Funds owned by the
COMMAND program participant which have not been selected as his or her primary
fund or shares of a participant's money market funds managed by PMF which are
not Primary COMMAND Funds, will be redeemed as of that business day to satisfy
any remaining debits in the Securities Account. Margin loans will be utilized to
satisfy debits remaining after the liquidation of all Fund shares in a
Securities Account, and shares may not be purchased until all debits, margin
loans and other requirements in the Securities Account are satisfied. In the
event of an automatic redemption of shares, the participant will be entitled to
dividends declared on the redeemed shares through the business day preceding the
day on which the redemption is effective. Participants will not be entitled to
dividends declared on the date of redemption.
MANUAL REDEMPTION. A shareholder may redeem shares of the Primary COMMAND
Funds other than the fund selected as the participant's primary fund by
submitting a written request for redemption directly to Prudential Securities or
by calling his or her Prudential Securities Financial Adviser, who will submit
the request to the Fund's Transfer Agent. The proceeds from a manual redemption
will immediately become free credit cash balances in the participant's COMMAND
program Securities Account and will be automatically invested in the Primary
COMMAND Fund selected as the participant's primary fund. Redemption requests
should not be sent to the Transfer Agent. If inadvertently sent to the Transfer
Agent, they will be forwarded to Prudential Securities. The COMMAND program
requires the written request to be signed by all persons in whose names the
shares are registered, exactly as their names appear on their COMMAND Account
Transaction Statement. In certain instances, additional documents such as, but
not limited to, trust instruments, death certificates, appointments as executor
or administrator or certificates of corporate authority may be required.
In the event all of a shareholder's shares are redeemed, the proceeds of
such redemption will equal the net asset value of the shares redeemed plus the
amount of all dividends declared up to and including the date of redemption.
A Fund may suspend the right of redemption or postpone the date of payment
for a period of up to seven days. Suspensions or postponements may not exceed
seven days except (1) for any period (a) during which the New York Stock
Exchange is closed other than customary weekend and holiday closings or (b)
during which trading on the New York Stock Exchange is restricted; (2) for any
period during which an emergency exists as a result of which (a) disposal by a
Fund of securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets; or (3) for such other periods as the SEC may by order permit for the
protection of shareholders of a Fund. The SEC by rules and regulations
determines the conditions under which (i) trading shall be deemed to be
restricted and (ii) an emergency is deemed to exist within the meaning of clause
(2) above.
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If the Trustees of a Fund determine that it would be detrimental to the best
interests of the remaining shareholders of that Fund to make payment wholly or
partly in cash, that Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of that Fund, in lieu of
cash in conformity with applicable rules of the SEC. If shares are redeemed in
kind, the redeeming shareholder might incur brokerage costs in converting the
assets into cash. The method of valuing portfolio securities is described under
"How the Funds Value Their Shares," and such valuation will be made as of the
same time the redemption price is determined. Each Fund, however, has elected to
be governed by Rule 18f-1 under the Investment Company Act pursuant to which
each Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of that Fund during any 90-day period for
any one shareholder.
The total value of a shareholder's investment in a Fund at the time of
redemption may be more or less than his or her cost, depending on the value of
the securities held by that Fund at such time and income earned.
Under the COMMAND program, Prudential Securities has the right to terminate
a COMMAND program Securities Account for any reason. In such event, all shares
held in a shareholder's account will be redeemed.
SHAREHOLDER SERVICES
- ACCOUNT CLIENT STATEMENTS. All purchases and redemptions of a Fund's
shares and dividend reinvestments (rounded to the nearest share) will be
confirmed to the shareholder in the Account Client Statement, which is sent
monthly to all COMMAND participants. Prudential Securities may, in the future,
determine that a shareholder will receive only quarterly statements if the only
activity in his or her Securities Account during any quarter is the automatic
reinvestment of dividends declared on Fund shares.
- REPORTS TO SHAREHOLDERS. The fiscal year of each Fund ends on June 30.
Each Fund will send to its shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
In order to reduce duplicate mailing and printing expenses, the Funds will
provide one annual and semi-annual shareholder report and annual prospectus per
household. Shareholders may request additional copies of such reports by writing
to the appropriate Fund at One Seaport Plaza, New York, New York 10292.
- SHAREHOLDER INQUIRIES. Shareholder inquiries should be addressed to
COMMAND Money Fund, COMMAND Tax-Free Fund or COMMAND Government Fund, at One
Seaport Plaza, New York, New York 10292.
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THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities Financial Adviser or Prusec representative or telephone the Funds at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
TAXABLE BOND FUNDS
Prudential Adjustable Rate Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible-Registered Trademark- Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
- -TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
- -TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
- -COMMAND FUNDS
COMMAND Money Fund
COMMAND Government Fund
COMMAND Tax-Free Fund
- -INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
24
<PAGE>
No dealer, sales representative of other person has been authorized to give any
information or to make any representation, other than those contained in this
Prospectus, in connection with the offers contained therein, and, if given or
made, such other information or representation must not be relied upon having
been authorized by the Funds, the Manager or the Distributor to sell or a
solicitation by the Funds, the Manager for the Distributor of any offer to buy
in any jurisdiction in which such offering may not lawfully be made.
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TABLE OF CONTENTS
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FUND HIGHLIGHTS........................................................... 2
Risk Factors and Special Characteristics................................ 2
FUND EXPENSES............................................................. 3
FINANCIAL HIGHLIGHTS...................................................... 4
CALCULATION OF YIELD...................................................... 5
HOW THE FUNDS INVEST...................................................... 6
Money Fund.............................................................. 6
Tax-Free Fund........................................................... 8
Government Fund......................................................... 10
Other Investments and Policies
Applicable to the Funds................................................ 11
Investment Restrictions................................................. 13
HOW THE FUNDS ARE MANAGED................................................. 14
Manager................................................................. 14
Distributor............................................................. 14
Portfolio Transactions.................................................. 16
Custodian and Transfer and Dividend Disbursing Agent.................... 16
HOW THE FUNDS VALUE THEIR SHARES.......................................... 16
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 17
GENERAL INFORMATION....................................................... 20
Description of Shares................................................... 20
Additional Information.................................................. 20
SHAREHOLDER GUIDE......................................................... 20
How to Buy Shares of the Funds.......................................... 20
How to Sell Your Shares................................................. 21
Shareholder Services.................................................... 23
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... 24
</TABLE>
<TABLE>
<S> <C> <C>
CUSIP Nos.: CMF: 20050F-10-3
CTF: 20050R-10-7
CGF: 20050D-10-8
</TABLE>
COMMAND - SM
COMMAND Money Fund
COMMAND Tax-Free Fund
COMMAND Government Fund
Prospectus dated August 31, 1995
- -------------------------------------
THE ENCLOSED PROSPECTUS DESCRIBES THREE FULLY MANAGED MONEY MARKET FUNDS.
SHARES OF THE FUNDS ARE OFFERED EXCLUSIVELY TO PARTICIPANTS IN THE COMMAND
ACCOUNT PROGRAM OF PRUDENTIAL SECURITIES INCORPORATED. INVESTORS SHOULD BE
AWARE THAT THE PRUDENTIAL SECURITIES COMMAND ACCOUNT IS NOT A BANK
ACCOUNT. AS WITH ANY INVESTMENT IN SECURITIES, THE VALUE OF A
SHAREHOLDER'S INVESTMENT IN THE FUNDS WILL FLUCTUATE. THE PRINCIPAL OFFICE
OF EACH FUND IS: ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292.
[LOGO]
<PAGE>
COMMAND MONEY FUND
COMMAND TAX-FREE FUND
COMMAND GOVERNMENT FUND
Statement of Additional Information
dated August 31, 1995
COMMAND Money Fund (the Money Fund), COMMAND Tax-Free Fund (the Tax-Free
Fund) and COMMAND Government Fund (the Government Fund) (each a Fund or,
collectively, the Funds) are each open-end, diversified management investment
companies whose shares are offered exclusively to participants in the COMMAND
Account program (the COMMAND-sm- program) of Prudential Securities Incorporated
(Prudential Securities).
The investment objectives of the Money Fund are to seek high current
income, preservation of capital and maintenance of liquidity. The Money Fund
seeks to achieve its objectives by investing in a diversified portfolio of money
market instruments maturing in thirteen months or less. The investment
objectives of the Tax-Free Fund are to seek high current income that is exempt
from federal income taxes, consistent with maintenance of liquidity and
preservation of capital. The Tax-Free Fund seeks to achieve its objectives by
investing in a diversified portfolio of short-term tax-exempt securities issued
by states, municipalities and their instrumentalities and authorities maturing
in thirteen months or less. The investment objectives of the Government Fund are
high current income, preservation of capital and maintenance of liquidity. The
Government Fund seeks to achieve its objectives by investing in a portfolio of
U.S. Government securities maturing in thirteen months or less. See ``How the
Funds Invest'' and ``How the Funds Value Their Shares'' in the Prospectus.
This Statement of Additional Information sets forth information about the
Funds. This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Funds dated August 31, 1995, a
copy of which may be obtained from the Funds, One Seaport Plaza, New York, New
York 10292. The telephone number is (800) 225-1852.
Investors should be aware that the Prudential Securities COMMAND Account is
not a bank account. As with any investment in securities, the value of a
shareholder's investment in the Funds will fluctuate.
TABLE OF CONTENTS
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<CAPTION>
Cross-reference
to page in
Page Prospectus
---- ----------------
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General Information......................................................... B-2 20
The Funds................................................................... B-2 20
Description of Shares....................................................... B-2 20
Voting Rights............................................................... B-2 20
Investment Objectives and Policies.......................................... B-3 6
Investment Restrictions..................................................... B-6 13
Money Fund.................................................................. B-6 13
Tax-Free Fund............................................................... B-7 13
Government Fund............................................................. B-8 13
Trustees and Officers....................................................... B-9 14
Manager..................................................................... B-11 14
Distributor................................................................. B-13 15
Calculation of Yield........................................................ B-14 5
Portfolo Transactions....................................................... B-14 16
Taxes, Dividends and Distributions.......................................... B-15 16
Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants............................................................... B-16 16
Reports to Shareholders..................................................... B-16 23
Description of Securities Ratings........................................... B-17 --
COMMAND Money Fund
Financial Statements........................................................ B-19 --
Report of Independent Accountants........................................... B-27 --
COMMAND Government Fund
Financial Statements........................................................ B-28 --
Report of Independent Accountants........................................... B-32 --
COMMAND Tax-Free Fund
Financial Statements........................................................ B-33 --
Report of Independent Accountants........................................... B-42 --
Notes to Financial Statements............................................... B-43 --
</TABLE>
<PAGE>
GENERAL INFORMATION
The Funds
COMMAND Money Fund (Money Fund), COMMAND Tax-Free Fund (Tax-Free Fund) and
COMMAND Government Fund (Government Fund) (collectively, the Funds) were each
organized as an unincorporated business trust under the laws of Massachusetts on
June 5, 1981. The Declaration of Trust and the By-Laws of each of the Funds are
designed to make the Funds similar in most respects to a Massachusetts business
corporation. The principal distinction between the two forms relates to
shareholder liability. Under Massachusetts law, shareholders of such a trust
may, under certain circumstances, be held personally liable as partners for the
obligations of a Fund, which is not the case with a corporation. Each
Declaration of Trust provides that shareholders shall not be subject to any
personal liability for the acts or obligations of the Fund and that every
written obligation, contract, instrument or undertaking made by the Fund shall
contain a provision to the effect that the shareholders are not personally
liable thereunder.
Massachusetts counsel for the Funds has advised the Funds that no personal
liability will attach to the shareholders under any undertaking containing such
provision when adequate notice of such provision is given, except possibly in a
few jurisdictions. With respect to all types of claims in the latter
jurisdictions and with respect to tort claims, contract claims where the
provision referred to is omitted from the undertaking, claims for taxes and
certain statutory liabilities in other jurisdictions, a shareholder of a Fund
may be held personally liable to the extent that claims are not satisfied by
such Fund. However, upon payment of any such liability, the shareholder will be
entitled to reimbursement from the general assets of such Fund. The Trustees
intend to conduct the operations of each Fund in such a way so as to avoid, to
the extent possible, ultimate liability of the shareholders for liabilities of
such Fund.
The Declaration of Trust of each of the Funds further provides that no
Trustee, officer, employee or agent of the Fund is liable to the Fund or to a
shareholder, nor is any Trustee, officer, employee or agent liable to any third
person in connection with the affairs of the Fund, except as such liability may
arise from the bad faith, willful misfeasance, gross negligence or reckless
disregard of the duties of such Trustee, officer, employee or agent. It also
provides that all third persons shall look solely to Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liabilities
arising in connection with the affairs of the Fund.
Each Fund shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
Description of Shares
The Declaration of Trust of each of the Funds permits the Trustees to issue
an unlimited number of full and fractional shares of a single class and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Fund. Each share
represents an equal proportional interest in the Fund with each other share.
Upon liquidation of the Fund, by either Trustee or shareholder action,
shareholders are entitled to share pro rata in the net assets of the Fund
available for distribution to shareholders. Shares have no pre-emptive or
conversion rights. The rights of redemption are described elsewhere herein.
Shares are fully paid and non-assessable by the Fund.
Pursuant to the Declaration of Trust of each of the Funds, the Trustees may
also authorize the creation of additional series of shares (the proceeds of
which would be invested in separate, independently managed portfolios) and
additional classes of shares within any series (which would be used to
distinguish among the rights of different categories of shareholders, as might
be required by future regulations or other unforeseen circumstances); however,
the Trustees have not authorized any such additional series or classes of
shares.
Voting Rights
The shareholders of the Funds are entitled to one vote for each full share
held (and fractional votes for fractional shares). The Trustees themselves have
the power to alter the number and the terms of office of the Trustees, and they
may at any time lengthen their own terms or make their terms of unlimited
duration (subject to certain removal procedures) and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Funds. The voting rights of shareholders are
not cumulative, so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Funds not to hold annual meetings of shareholders. The Trustees may call
special meetings of shareholders for action by shareholder vote as may be
required by the Investment Company Act of 1940, as amended (the Investment
Company Act), or the respective Declarations of Trust.
Each Fund may reduce the number of its outstanding shares in order to
maintain a constant net asset value of $1.00 per share. The shareholders of each
Fund will be deemed, by their investment in such Fund, to have agreed to a
proportionate reduction of their shares.
B-2
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As defined in the Investment Company Act and as used herein, the term
``majority'' of the outstanding voting shares of each Fund means the vote of (a)
67% or more of the Fund's voting shares represented at a meeting at which more
than 50% of the outstanding voting shares are present in person or represented
by proxy or (b) more than 50% of the Fund's outstanding voting shares, whichever
is less.
INVESTMENT OBJECTIVES AND POLICIES
The Money Fund, Tax-Free Fund and Government Fund each operates as a
separate fund with its own investment objectives and policies. The investment
objectives of the Money Fund are to seek high current income, preservation of
capital and maintenance of liquidity. The investment objectives of the Tax-Free
Fund are to seek high current income that is exempt from federal income taxes,
consistent with maintenance of liquidity and preservation of capital. The
investment objectives of the Government Fund are to seek high current income,
preservation of capital and maintenance of liquidity. For a further description
of the investment objectives and policies of each Fund, see ``How the Funds
Invest'' in the Prospectus.
When-Issued and Delayed Delivery Securities. From time to time, in the
ordinary course of business, the Money Fund, Tax-Free Fund or Government Fund
may purchase securities on a when-issued or delayed delivery basis, i.e.,
delivery and payment can take place a month or more after the date of the
transaction. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of such securities in determining its
net asset value. Each Fund will make commitments for such when-issued
transactions only with the intention of actually acquiring the securities and,
to facilitate such acquisitions, the custodian bank will maintain, in a separate
account of each Fund, cash, U.S. Government securities or other liquid
high-grade debt obligations having a value equal to or greater than such
commitments. On the delivery dates for such transactions, each Fund will meet
its obligations from maturities or sales of the securities held in the separate
account and/or from then-available cash flow. If a Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio obligation, incur a gain or loss
due to market fluctuation. No when-issued commitments will be made if, as a
result, more than 15% of a Fund's net assets would be committed. There is a risk
that the securities may not be delivered and the Fund may incur a loss.
Repurchase Agreements. The Government Fund's and Money Fund's repurchase
agreements will be collateralized by U.S. Government obligations. Each Fund will
enter into repurchase transactions only with parties meeting creditworthiness
standards approved by the Fund's Trustees. Each Fund's investment adviser will
monitor the creditworthiness of such parties, under the general supervision of
the Trustees. In the event of a default or bankruptcy by a seller, realization
of the collateral by the Fund may be delayed or limited and the Fund will
promptly seek to liquidate the collateral. To the extent that the proceeds from
any sale of such collateral upon a default in the obligation to repurchase are
less than the repurchase price, the Fund will suffer a loss.
The Government Fund and Money Fund participate in a joint repurchase
account with other investment companies managed by Prudential Mutual Fund
Management, Inc. (PMF), pursuant to an order of the Securities and Exchange
Commission (SEC). On a daily basis, any uninvested cash balances of each 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.
The Government Fund and the Money Fund may invest in repurchase agreements,
without limit, consistent with applicable regulations.
Lending of Portfolio Securities. The Money Fund or Government Fund may each
lend its portfolio securities to broker-dealers, banks and other recognized
institutional borrowers of securities, provided that the borrower at all times
maintains cash or equivalent collateral or secures a letter of credit in favor
of the Fund equal in value to at least 100% of the market value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Money Fund or Government Fund an amount equivalent to any
interest paid on such securities, and the Money Fund or Government Fund may
invest the cash collateral and earn additional income, or the Fund may receive
an agreed-upon amount of interest income from the borrower who has delivered
equivalent collateral or secured a letter of credit. Loans are subject to
termination at the option of the Money Fund or Government Fund or the borrower,
respectively. The Money Fund or Government Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent collateral
to the borrower or placing broker. The Money Fund or Government Fund will make
loans of portfolio securities only under the direction of the Fund's Trustees
and in accordance with guidelines established by the SEC, or otherwise in
accordance with any applicable rule or order of the SEC. As a matter of
fundamental policy, each of the Money Fund and the Government Fund cannot lend
more than 10% of the value of its total assets.
Illiquid Securities. The Funds may not invest more than 10% of their net
assets in illiquid securities, including securities that are illiquid by virtue
of the absence of a readily available market or legal or contractual
restrictions on resale and repurchase agreements which have a maturity of longer
than seven days, provided that the Tax-Free Fund may not invest in repurchase
agreements. Historically, illiquid securities have included securities subject
to contractual or legal restrictions on resale because they have not been
registered
B-3
<PAGE>
under the Securities Act of 1933, as amended (Securities Act), securities which
are otherwise not readily marketable and repurchase agreements having a maturity
of longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a ``safe harbor'' from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this new regulation
and the development of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper and municipal lease obligations for which
there is a readily available market will not be deemed to be illiquid. The
investment adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Trustees. In reaching liquidity decisions, the
investment adviser will consider, inter alia, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer). In addition, in order for commercial paper that is
issued in reliance on Section 4(2) of the Securities Act to be considered
liquid, (i) it must be rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations (NRSRO), or if
only one NRSRO rates the securities, by that NRSRO, or, if unrated, be of
comparable quality in the view of the investment adviser; and (ii) it must not
be ``traded flat'' (i.e., without accrued interest) or in default as to
principal or interest. With respect to municipal lease obligations, the
investment adviser also considers: (1) the willingness of the municipality to
continue, annually or biannually, to appropriate funds for payment of the lease;
(2) the general credit quality of the municipality and the essentiality to the
municipality of the property covered by the lease; (3) in the case of unrated
municipal lease obligations, an analysis of factors similar to that performed by
nationally recognized statistical rating organizations in evaluating the credit
quality of a municipal lease obligation, including (i) whether the lease can be
cancelled; (ii) if applicable, what assurance there is that the assets
represented by the lease can be sold; (iii) the strength of the lessee's general
credit (e.g., its debt, administrative, economic and financial characteristics);
(iv) the likelihood that the municipality will discontinue appropriating funding
for the leased property because the property is no longer deemed essential to
the operations of the municipality (e.g., the potential for an event of
nonappropriation); (v) the legal recourse in the event of failure to
appropriate; and (4) any other factors unique to municipal lease obligations as
determined by the investment adviser. Repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Purchase of Municipal Bonds and Notes. The Tax-Free Fund will invest in
Municipal Bonds and Notes with short-term maturities, as described in the
Prospectus under ``How the Funds Invest--Tax-Free Fund--Investment Objectives
and Policies.''
Municipal Bonds are generally issued to obtain funds for various public
purposes, including construction of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. They may also be issued to refund outstanding obligations, to
meet general operating expenses or to obtain funds to lend to other public
institutions and facilities. Municipal Bonds may also include private-activity
bonds issued by or on behalf of public authorities to obtain funds to provide
privately operated housing facilities, sports facilities, pollution control
facilities, convention or trade show facilities, industrial, port or parking
facilities and facilities for water supply, gas, electricity or waste disposal.
Such obligations are included within the term Municipal Bonds if the interest
paid thereon qualifies at the time of issuance, in the opinion of the issuer's
bond counsel, as exempt from federal income tax. Other types of industrial
development bonds, the proceeds of which are used for the construction,
equipment, repair or improvement of privately operated industrial or commercial
facilities, may constitute Municipal Bonds, although the current federal tax
laws place substantial limitations on the size of such issues. These bonds are
typically revenue bonds and generally do not carry the pledge of the issuer's
credit.
B-4
<PAGE>
Municipal Bonds 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. Revenue bonds are
payable from the revenues derived from a particular facility or class of
facilities or from the proceeds of a special excise tax or other specific
revenue source but not from the general taxing power.
Municipal Notes are short-term obligations, generally with a maturity, at
the time of issuance, ranging from six months to three years. The principal
types of Municipal Notes include tax anticipation notes, bond anticipation notes
and revenue anticipation notes. Notes sold in anticipation of collection of
taxes, a bond sale, or receipt of other revenues are usually general obligations
of the issuing municipality or agency. Municipal Notes also include tax-exempt
or municipal commercial paper, which is likely to be issued to meet seasonal
working capital needs of a municipality or interim construction financing and to
be paid from general revenues of the municipality or refinanced with long-term
debt. In most cases, municipal commercial paper is backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.
Each of the Funds may purchase floating rate and variable rate securities.
Investments in floating or variable rate securities normally provide that the
rate of interest is set as a specific percentage of a designated base rate, such
as rates on Treasury bonds or bills or the prime rate at a major commercial
bank, and that the purchaser can demand payment of the obligation at specified
intervals or after a specified notice period (in each case of less than one
year) at par plus accrued interest, which amount may be more or less than the
amount paid for them. Variable rate securities provide for a specified periodic
adjustment in the interest rate, while floating rate securities have an interest
rate which changes whenever there is a change in the designated base interest
rate. Usually such securities are secured by credit arrangements provided by
banks and insurance companies. The quality of the bank, insurance company or
other underlying credit of the issuer, as the case may be, must meet the
investment quality requirements described under ``How the Funds Invest--Other
Investments and Policies Applicable to the Funds--Variable Rate and Floating
Rate Securities'' in the Prospectus.
For purposes of diversification and concentration under the Investment
Company Act, the identification of the issuer of Municipal Bonds or Notes
depends on the terms and conditions of the obligation. If the assets and
revenues of an agency, authority, instrumentality or other political subdivision
are separate from those of the government creating the subdivision and the
obligation is backed only by the assets and revenues of the subdivision, such
subdivision would be regarded as the sole issuer. Similarly, in the case of an
industrial development revenue bond or pollution control revenue bond, if the
bond is backed only by the assets and revenues of the nongovernmental user, the
nongovernmental user would be regarded as the sole issuer. If in either case the
creating government or another entity guarantees an obligation, the guarantee
would be regarded as a separate security and treated as an issue of such
government or entity.
The Tax-Free Fund will treat an investment in a municipal security refunded
with escrowed U.S. Government securities as U.S. Government securities for
purposes of the Investment Company Act's diversification requirements provided:
(i) the escrowed securities are ``government securities'' as defined in the
Investment Company Act, (ii) the escrowed securities are irrevocably pledged
only to payment of debt service on the refunded securities, except to the extent
there are amounts in excess of funds necessary for such debt service, (iii)
principal and interest on the escrowed securities will be sufficient to satisfy
all scheduled principal, interest and any premiums on the refunded securities
and a verification report prepared by a party acceptable to a nationally
recognized statistical rating agency, or counsel to the holders of the refunded
securities, so verifies, (iv) the escrow agreement provides that the issuer of
the refunded securities grants and assigns to the escrow agent, for the equal
and ratable benefit of the holders of the refunded securities, an express first
lien on, pledge of and perfected security interest in the escrowed securities
and the interest income thereon, (v) the escrow agent had no lien of any type
with respect to the escrowed securities for payment of its fees or expenses
except to the extent there are excess securities, as described in (ii) above.
The Tax-Free Fund will not, however, invest more than 25% of its total assets in
securities of governmental units in any one state, territory or possession of
the United States other than in industrial development and pollution control
obligations. See ``Investment Restrictions'' below.
Puts. The Tax-Free Fund may purchase Municipal Bonds or Notes together with
the right to resell the Bonds or Notes at an agreed-upon price or yield within a
specified period prior to the maturity date of the Bonds or Notes. Similarly,
the Government Fund and the Money Fund may purchase securities together with the
right to resell the securities at an agreed-upon price or yield within a
specified period prior to the maturity date of the security. Such a right to
resell is commonly known as a ``put,'' and the aggregate price which the
Tax-Free Fund pays for Municipal Bonds or Notes with puts and which the
Government Fund and the Money Fund pay for securities with puts may be higher
than the price which otherwise would be paid for the Bonds or Notes or
securities, as the case may be. Consistent with the investment objectives of
each Fund and subject to the supervision of the Trustees, the purpose of this
practice is to permit each 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. Puts may be exercised
prior to the expiration date in order to fund obligations to purchase other
securities or to meet redemption requests. These obligations may arise during
periods in which proceeds from sales of each Fund's shares and from recent sales
of portfolio securities are insufficient to meet such obligations or when the
funds available are otherwise allocated for investment. In addition, puts may be
exercised prior to the expiration date in the event the investment adviser
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration
B-5
<PAGE>
date and in selecting which puts to exercise in such circumstances, the
investment adviser considers, among other things, the amount of cash available
to each Fund, the expiration dates of the available puts, 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 each Fund's portfolio.
Each Fund values instruments and Notes which are subject to puts at
amortized cost; no value is assigned to the put. The cost of the put is carried
as an unrealized loss from the time of purchase until it is exercised or
expires.
Since the value of the put is dependent on the ability of the put writer to
meet its obligation to repurchase, each Fund's policy is to enter into put
transactions only with such brokers, dealers or financial institutions which
present minimal credit risks. There is a credit risk associated with the
purchase of puts in that the broker, dealer or financial institution might
default on its obligation to repurchase an underlying security. In the event
such a default should occur, each Fund is unable to predict whether all or any
portion of any loss sustained could subsequently be recovered from the broker,
dealer or financial institution.
The Tax-Free Fund has received an exemptive order from the SEC which
permits the Fund to purchase puts from broker-dealers.
INVESTMENT RESTRICTIONS
Each of the Funds has adopted certain investment restrictions which cannot
be changed without the approval of the holders of a majority of the outstanding
voting securities of the Fund as defined in the Investment Company Act.
Money Fund
The investment restrictions of the Money Fund provide that the Money Fund
may not:
1. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests, which might otherwise require the
untimely disposition of securities, and borrowing in the aggregate may not
exceed 20%, and borrowing for purposes other than meeting redemptions may not
exceed 5%, of the value of the Money Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made, except that these borrowing restrictions do not apply to
reverse repurchase agreements. The Money Fund will not purchase securities while
borrowings are outstanding;
2. Make loans to others, except through the purchase of debt obligations,
repurchase agreements and loans of portfolio securities limited to 10% of the
value of the Money Fund's total assets;
3. Purchase or sell real estate or real estate mortgage loans; however, the
Money Fund may purchase marketable securities issued by companies which invest
in real estate or interests therein;
4. Purchase securities on margin or sell short;
5. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 10% of the value of its net assets but only to secure
permitted borrowings of money;
6. Issue senior securities as defined in the Investment Company Act except
insofar as the Money Fund may be deemed to have issued a senior security by
reason of (a) entering into any repurchase agreement or reverse repurchase
agreement; (b) permitted borrowings of money; or (c) purchasing securities on a
when-issued or delayed delivery basis;
7. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs;
8. Underwrite securities of other issuers;
9. Purchase warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof, except that the Money Fund may purchase
instruments together with the right to resell such instruments;
10. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
11. Purchase securities of any issuer for the purpose of exercising control
or management;
12. Purchase securities, other than obligations of U.S. Government agencies
or instrumentalities, of any issuer having a record, together with predecessors,
of less than three years' continuous operation, if, immediately after such
purchase, more than 5% of the value of the Money Fund's total assets would be
invested in such securities;
13. Purchase any securities, other than obligations of the U.S. Government,
its agencies or instrumentalities, if, as a result, with respect to 75% of the
value of the Money Fund's total assets, more than 5% of the value of the Money
Fund's total assets would be invested in the securities of a single issuer;
B-6
<PAGE>
14. Purchase any securities (other than obligations of the U.S. Government,
its agencies and instrumentalities) if as a result 25% or more of the value of
the Money Fund's total assets (determined at the time of investment) would be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that there is no limitation
with respect to money market instruments of domestic banks. For purposes of this
exception, domestic banks shall include all banks which are organized under the
laws of the United States or a state (as defined in the Investment Company Act),
U.S. branches of foreign banks that are subject to the same regulations as U.S.
banks and foreign branches of domestic banks (as permitted by SEC regulation);
and
15. Enter into reverse repurchase agreements if, as a result thereof, the
Money Fund's obligations with respect to reverse repurchase agreements would
exceed one-third of the Money Fund's net assets (defined to be total assets,
taken at market value, less liabilities other than reverse repurchase
agreements).
In order to comply with certain state ``blue sky'' restrictions, the Money
Fund will not as a matter of operating policy, (i) purchase securities of any
issuer if, to the knowledge of the Money Fund, any officer or Trustee of the
Money Fund or any officer or director of the adviser owns more than 1/2 of 1% of
the outstanding securities of such issuer and such officers, Trustees and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer and (ii) invest in securities of issuers
which are restricted as to disposition, if more than 15% of its total assets
would be invested in such securities (this restriction shall not apply to
mortgage-backed securities, asset-backed securities or obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities).
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund'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 Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law. Loans of portfolio
securities and reverse repurchase agreements will not cumulatively exceed
one-third of the Fund's net assets.
Tax-Free Fund
The investment restrictions of the Tax-Free Fund provide that the Tax-Free
Fund may not:
1. With respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of a single issuer (other than
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities or secured by such obligations);
2. Concentrate more than 25% of its total assets in securities of
governmental units located in any one state, territory or possession of the
United States. The Tax-Free Fund may invest more than 25% of its total assets in
industrial development and pollution control obligations whether or not the
users of facilities financed by such obligations are in the same industry;
3. Make short sales of securities;
4. Purchase securities on margin, except for such short-term credits as are
necessary for the clearance of transactions;
5. Issue senior securities, except by purchasing securities on a
when-issued or delayed delivery basis, or borrow money, except that the Tax-Free
Fund may borrow for temporary purposes in amounts not exceeding 5% of the market
or other fair value (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed). Any such borrowings will be made
only from banks. The Tax-Free Fund would maintain, in a segregated account with
its custodian, liquid assets equal in value to the amount owed. The Tax-Free
Fund will not purchase securities while borrowings are outstanding;
6. Pledge its assets or assign or otherwise encumber them in excess of 10%
of its net assets (taken at market or other fair value at the time of pledging)
and then only to secure permitted borrowings of money;
7. Engage in the underwriting of securities;
8. Purchase or sell real estate or real estate mortgage loans, although it
may purchase Municipal Bonds or Notes secured by interests in real estate;
9. Make loans of money or securities. The purchase of a portion of an issue
of publicly distributed debt securities is not considered the making of a loan;
10. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets;
11. Invest for the purpose of exercising control or management of another
company;
B-7
<PAGE>
12. Write, purchase or sell puts, calls, or combinations thereof, except
that it may obtain rights to resell Municipal Bonds and Notes, as set forth
under ``How the Funds Invest--Tax-Free Fund--Investment Objectives and
Policies'' in the Prospectus and in this Statement of Additional Information;
13. Purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total Tax-Free Fund assets would be invested in industrial
revenue bonds where payment of principal and interest are the responsibility of
companies with less than three years of operating history; and
14. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs.
The Tax-Free Fund has reserved freedom to invest more than 25% of its total
assets in industrial development and pollution control obligations whether or
not the users of facilities financed by such obligations are in the same
industry. See Investment Restriction No. 2. The Tax-Free Fund, however, will not
invest more than 25% of the value of its assets in obligations of private (i.e.,
non-governmental) issuers in the same industry.
In order to comply with certain state ``blue sky'' restrictions, the
Tax-Free Fund will not as a matter of operating policy, (i) purchase or retain
the securities of any issuer if, to the knowledge of the Tax-Free Fund, officers
or Trustees of the Tax-Free Fund or officers or directors of the investment
adviser responsible for investment decisions concerning the Tax-Free Fund
beneficially owning individually more than 1/2 of 1% of the securities of such
issuer together beneficially own more than 5% of the securities of such issuer,
(ii) invest in securities of issuers which are restricted as to disposition, if
more than 15% of its total assets would be invested in such securities (this
restriction shall not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) and (iii) invest more than 5% of its total assets
in securities of unseasoned issuers, including their predecessors, which have
been in operation for less than three years.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund'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 Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
Government Fund
The investment restrictions of the Government Fund provide that the
Government Fund may not:
1. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities; borrowing in the aggregate may not exceed
20%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the value of the Government Fund's total assets (including the amount
borrowed), less liabilities (not including the amount borrowed) at the time the
borrowing is made; the Government Fund will not purchase securities while
borrowings are outstanding;
2. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 10% of the value of its net assets but only to secure
permitted borrowings of money;
3. Make loans to others, except through the purchase of the debt
obligations and repurchase agreements and loans of portfolio securities referred
to under ``How the Funds Invest--Other Investments and Policies Applicable to
the Funds--Securities Lending.'' Loans of portfolio securities will be limited
to 10% of the value of the Government Fund's total assets and will be made
according to guidelines established by the Trustees, including maintenance of
collateral of the borrower equal at all times to the current market value of the
securities loaned;
4. Purchase or sell real estate or real estate mortgage loans;
5. Purchase securities on margin or sell short;
6. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs;
7. Underwrite securities of other issuers;
8. Purchase warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof, except that the Government Fund may purchase
instruments together with the right to resell such instruments;
9. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets; and
B-8
<PAGE>
10. Issue senior securities as defined in the Investment Company Act except
insofar as the Government Fund may be deemed to have issued a senior security by
reason of: (a) entering into any repurchase agreement; (b) permitted borrowings
of money; or (c) purchasing securities on a when-issued or delayed delivery
basis.
In order to comply with certain state ``blue sky'' restrictions, the Fund
will not as a matter of policy (i) invest in securities of issuers which are
restricted as to disposition, if more than 15% of its total assets would be
invested in such securities (this restriction shall not apply to mortgage-backed
securities, asset-backed securities or obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities), and (ii) invest more than
5% of its total assets in securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time 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 Fund's asset coverage
for borrowings falls below 300%, the Fund will take prompt action to reduce its
borrowings, as required by applicable law. Loans of portfolio securities and
reverse repurchase agreements will not cumulatively exceed one-third of the
Fund's net assets.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Address and Age with Funds During Past Five Years
- ---------------------- ------------- --------------------------------------------------------
<S> <C> <C>
Edward D. Beach (70) Trustee President and Director of BMC Fund, Inc., a closed-end
c/o Prudential Mutual investment company; prior thereto Vice Chairman of
Funds Management, Inc. Broyhill Furniture Industries, Inc.; Certified Public
One Seaport Plaza Accountant; Secretary and Treasurer of Broyhill Family
New York, NY Foundation, Inc.; Member of the Board of Trustees of
Mars Hill College; President and Director of First
Financial Fund, Inc. and The High Yield Income Fund,
Inc.; Director of The Global Government Plus Fund,
Inc. and The Global Total Return Fund, Inc.
Delayne D. Gold (55) Trustee Marketing and Management Consultant.
c/o Prudential Mutual
Fund Management, Inc.
One Seaport Plaza
New York, NY
*Harry A. Jacobs, Jr. Trustee Senior Director (since January 1986) of Prudential
(72) Securities; formerly Interim Chairman and Chief
One Seaport Plaza Executive Officer (June-September 1993) of PMF;
New York, NY Chairman of the Board of Prudential Securities
(1982-1985) and Chairman of the Board and Chief
Executive Officer of Bache Group Inc. (1977-1982);
Director of The First Australia Fund, Inc., The First
Australia Prime Income Fund, Inc., The Global
Government Plus Fund, Inc. and The Global Total Return
Fund, Inc.; Trustee of The Trudeau Institute.
*Richard A. Redeker President and President, Chief Executive Officer and Director (since
(52) Trustee October 1993), PMF; Executive Vice President, Director
One Seaport Plaza and Member of the Operating Committee (since October
New York, NY 1993), Prudential Securities; Director (since October
1993) of Prudential Securities Group, Inc. (PSG);
Executive Vice President, The Prudential Investment
Corporation (since July 1994); Director (since January
1994) of Prudential Mutual Fund Distributors, Inc.
(PMFD) and Prudential Mutual Fund Services, Inc.
(PMFS); formerly Senior Executive Vice President and
Director of Kemper Financial Services, Inc. (September
1978-September 1993); Director and President of The
Global Government Plus Fund, Inc., The Global Total
Return Fund, Inc. and The High Yield Income Fund, Inc.
<FN>
- ---------------
* ``Interested'' Trustee, as defined in the Investment Company Act.
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Address and Age with Funds During Past Five Years
- ---------------------- ------------- --------------------------------------------------------
<S> <C> <C>
Stanley E. Shirk (78) Trustee Certified Public Accountant and a former Senior Partner
c/o Prudential Mutual of the accounting firm of KPMG Peat Marwick; former
Fund Management, Inc. Management and Accounting Consultant for the
One Seaport Plaza Association of Bank Holding Companies, Washington,
New York, NY D.C. and the Bank Administration Institute, Chicago,
IL; Director of The High Yield Income Fund, Inc.
Langdon R. Stevenson Trustee Treasurer and Development Director, American Birding
(60) Association Inc.; faculty member (economics and
c/o Prudential Mutual history), Hackley School, Tarrytown, New York;
Fund Management, Inc. formerly Senior Vice President (1985-1989) and
One Seaport Plaza Director (1978-1986) of Prudential Securities;
New York, NY President of P-B Trade Finance Ltd. (1985-1987).
Stephen Stoneburn (52) Trustee Senior Vice President and Managing Director, Cowles
c/o Prudential Mutual Business Media (since January 1993), prior thereto
Fund Management, Inc. Senior Vice President (January 1991-December 1992) and
One Seaport Plaza Publishing Vice President (May 1989-December 1990) of
New York, NY Gralla Publications, a division of United Newspapers,
U.K.; formerly Senior Vice President of Fairchild
Publications, Inc.
Nancy H. Teeters (65) Trustee Economist; formerly, Vice President and Chief Economist
c/o Prudential Mutual (March 1986-June 1990) of International Business
Fund Management, Inc. Machines Corporation; Member of the Board of Governors
One Seaport Plaza of the Horace H. Rackham School of Graduate Studies of
New York, NY the University of Michigan; Director, Inland Steel
Corporation (since July 1991), First Financial Fund,
Inc. and The Global Total Return Fund, Inc.
David S. Towner (62) Trustee Consultant
c/o Prudential Mutual
Fund Management, Inc.
One Seaport Plaza
New York, NY
Robert F. Gunia (48) Vice Director (since January 1989), Chief Administrative
One Seaport Plaza President Officer (since July 1990) and Executive Vice
New York, NY President, Treasurer and Chief Financial Officer
(since June 1987) of PMF; Senior Vice President (since
March 1987) of Prudential Securities; Executive Vice
President, Treasurer and Comptroller (since March
1991) of PMFD; Director (since June 1987) of PMFS;
Vice President and Director of The Asia Pacific Fund,
Inc. (since May 1989).
Grace C.Torres (36) Treasurer and First Vice President (since March 1994) of PMF; First
One Seaport Plaza Principal Vice President (since March 1994) of Prudential
New York, NY Financial and Securities; Vice President of Bankers Trust (July
Accounting 1989-March 1994).
Officer
Stephen M. Ungerman Assistant First Vice President (since February 1993) of PMF; prior
(42) Treasurer thereto, Senior Tax Manager at Price Waterhouse LLP.
One Seaport Plaza
New York, NY
S. Jane Rose (49) Secretary Senior Vice President (since January 1991), Senior
One Seaport Plaza Counsel (since June 1987) and First Vice President
New York, NY (June 1987-December 1990) of PMF; Senior Vice
President and Senior Counsel of Prudential Securities
(since July 1992); formerly Vice President and
Associate General Counsel of Prudential Securities.
Ellyn C. Acker (34) Assistant Vice President and Associate General Counsel of
One Seaport Plaza Secretary Prudential Securities and PMF (since March 1995);
New York, NY prior thereto, associated with the law firm of
Fulbright & Jaworski L.L.P.
</TABLE>
B-10
<PAGE>
Trustees and officers of each Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities or Prudential Mutual Fund Distributors, Inc. (PMFD).
The officers conduct and supervise the daily business operations of each
Fund, while the Trustees, in addition to their functions set forth under
``Manager'' and ``Distributor,'' review such actions and decide on general
policy.
Each Fund pays each Trustee who is not an affiliated person of the Manager
annual compensation as follows: COMMAND Government Fund, $7,000, COMMAND Money
Fund, $9,000 and COMMAND Tax-Free Fund, $8,000, in addition to certain
out-of-pocket expenses.
The Trustees have adopted a retirement policy which calls for the
retirement of Trustees on December 31 of the year in which they reach the age of
72, except that retirement is being phased in for Trustees who were age 68 or
older as of December 31, 1993. Under this phase-in provision, Messrs. Beach,
Jacobs and Shirk are scheduled to retire on December 31, 1999, 1998 and 1997,
respectively.
Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of each agreement, each Fund accrues
daily the amount of each Trustees' fee which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills at
the beginning of each calendar quarter or at the daily rate of each Fund.
Payment of the interest so accrued is also deferred and accruals become payable
at the option of each Trustee. Each Fund's obligation to make payments of
deferred Trustees' fees, together with interest thereon, is a general obligation
of each Fund.
The following table sets forth the aggregate compensation paid by the Funds
for the fiscal year ended June 30, 1995 to the Trustees who are not affiliated
with the Manager and the aggregate compensation paid to such Trustees for
service on the Funds' Boards and the Board of any other investment companies
managed by Prudential Mutual Fund Management, Inc. (Fund Complex) for the
calendar year ended December 31, 1994.
<TABLE>
<CAPTION>
Compensation Table
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total
Pension or Compensation
Retirement from Funds
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation as Part of Fund Benefits Upon Complex Paid
Name and Position From Funds Expenses Retirement to Trustees
- ------------------------------------------ ------------ ----------------- ----------------- -------------
Edward D. Beach, Trustee $24,000 None N/A $159,000(20 )*(39)**
Delayne Dedrick Gold, Trustee $24,000 None N/A $185,000(24 )*(43)**
Stanley E. Shirk, Trustee $24,000 None N/A $79,000(8 )*(10)**
Langdon R. Stevenson, Trustee $24,000 None N/A $24,000(3 )*(3)**
Stephen Stoneburn, Trustee $24,000 None N/A $48,000(7 )*(7)**
Nancy H. Teeters, Trustee $24,000 None N/A $95,000(12 )*(30)**
David S. Towner, Trustee(1) $24,000 None N/A $24,000(3 )*(3)**
*Indicates number of funds in Fund Complex (including the Funds) to which aggregate compensation relates.
**Indicates number of portfolios in Fund Complex (including the Funds) to which aggregate compensation relates.
(1) All compensation from the Fund for the fiscal year ended June 30, 1995 represents deferred compensation.
Aggregate compensation from the Funds for the fiscal year ended June 30, 1995, including accrued interest,
amounted to approximately $27,659. Aggregate compensation from the Fund Complex for the calendar year ended
December 31, 1994, including accrued interest, amounted to $26,291.
</TABLE>
As of August 4, 1995, the Trustees and officers of each Fund, as a group,
owned less than 1% of the outstanding shares of each Fund and there were no
beneficial owners of greater than 5% of the outstanding shares of any Fund.
As of August 4, 1995, Prudential Securities was record holder of
427,310,099 shares (or 100%), 4,378,798,088 shares (or 100%) and 1,123,622,932
shares (or 100%) of the outstanding shares of the COMMAND Government Fund,
COMMAND Money Fund and COMMAND Tax-Free Fund, respectively. In the event of any
meetings of shareholders, Prudential Securities will forward, or cause the
forwarding of, proxy materials to the beneficial owners for which it is the
record holder.
MANAGER
The manager of each of the Funds is Prudential Mutual Fund Management, Inc.
(PMF or the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager of all of the other open-end management investment companies that,
together with the Funds, comprise the Prudential Mutual Funds. See ``How the
Funds Are Managed--Manager'' in the Prospectus. As of July 31, 1995,
B-11
<PAGE>
PMF managed and/or administered open-end and closed-end management investment
companies with assets of approximately $49 billion. According to the Investment
Company Institute, as of December 31, 1994, the Prudential Mutual Funds were the
12th largest family of mutual funds in the United States.
Pursuant to a management agreement with each Fund, PMF, subject to the
supervision of the Trustees and in conformity with each Fund's stated policies,
is responsible for managing the investment operations of the Funds and the
composition of the Funds' portfolios, including the purchase, retention and
disposition of securities. PMF is obligated to keep certain books and records in
connection therewith. PMF also administers the Funds' business affairs and, in
connection therewith, furnishes the Funds with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by State Street Bank and Trust Company, the Funds' custodian, and Prudential
Mutual Fund Services, Inc. (PMFS or the Transfer Agent), the Funds' transfer and
dividend disbursing agent. The management services of PMF to the Funds are not
exclusive under the terms of the Management Agreements and PMF is free to, and
does, render management services to others.
The Funds pay PMF for the services performed and the facilities furnished
by PMF fees computed daily and payable monthly as follows: Money Fund pays fees
at an annual rate of .50 of 1% of average daily net assets up to and including
$500 million, .425 of 1% of the next $500 million and .375 of 1% of the next
$500 million; and .35 of 1% of the Fund's average daily net assets in excess of
$1.5 billion. The Government Fund pays a fee at an annual rate of .40 of 1% of
the Fund's average daily net assets up to and including $1 billion and .375 of
1% of the Fund's average daily net assets in excess of $1 billion. The Tax-Free
Fund pays a fee at an annual rate of .50 of 1% of the Fund's average daily net
assets up to $500 million, .425 of 1% of the Fund's average daily net assets of
the next $500 million and .375 of 1% of the Fund's average daily net assets in
excess of $1 billion. In the event the expenses of the Funds (including the fees
of the Manager but excluding interest, taxes, brokerage commissions,
distribution fees, litigation and indemnification expenses and other
extraordinary expenses) for any fiscal year exceed the lowest applicable annual
expense limitation established and enforced pursuant to the statutes or
regulations of any jurisdictions in which shares of the Funds are then qualified
for offer and sale, the Manager will reduce its fee by the amount of such
excess, or, if such reduction exceeds the compensation payable to the Manager,
the Manager will pay to the Fund the amount of such reduction which exceeds the
amount of such compensation. Any such reductions or payments will be made
monthly and are subject to readjustment during the year. Currently, the most
restrictive of such annual limitations is believed to be 2 1/2% of each Fund's
average daily net assets up to $30 million, 2% of the next $70 million and
1 1/2% of such assets in excess of $100 million.
In connection with the services it renders, PMF bears the following
expenses:
(a) the salaries and expenses of all personnel of the Funds and the
Manager, except the fees and expenses of Trustees who are not affiliated persons
of the Manager or the Funds' investment adviser;
(b) all expenses incurred by the Manager or by the Funds in connection with
managing the ordinary course of the Funds' business, other than those assumed by
the Funds, as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to each Subadvisory Agreement.
Under the terms of the Management Agreements, each Fund is responsible for
the payment of the following expenses, including (a) the fee payable to the
Manager, (b) the fees and expenses of Trustees who are not affiliated with PMF
or PIC, (c) the fees and certain expenses of each Fund's 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
each Fund and of pricing each Fund's shares, (d) the fees and expenses of the
Fund's legal counsel and independent accountants, (e) brokerage commissions and
any issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade association of which the Fund
is a member, (h) the cost of share certificates representing shares of the Fund,
(i) the cost of fidelity, directors and officers and errors and omissions
insurance, (j) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the SEC, registering the Fund
and qualifying its shares under state securities laws, including the preparation
and printing of the Fund's registration statements and prospectuses for such
purposes, (k) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing reports to shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.
The Management Agreements provide that PMF will not be liable to the Funds
for any error of judgment by the Manager or for any loss sustained by the Funds
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as
provided in the Investment Company Act) or of wilful misfeasance, bad faith,
gross negligence or reckless disregard of duty on the part of the Manager. Each
Management Agreement also provides that it will terminate automatically if
assigned and that it may be terminated without penalty by either party upon no
more than 60, nor less than 30, days' written notice. The Management Agreements
will continue in effect from year to year so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act. The Management Agreements were last approved by the Trustees,
including all of the Trustees who are not interested persons as defined in the
Investment Company Act, on April 12, 1995 and by
B-12
<PAGE>
a majority of the outstanding shares of the Government Fund and Tax-Free Fund on
August 18, 1988 and by a majority of the outstanding shares of the Money Fund on
October 18, 1988.
For the fiscal years ended June 30, 1995, 1994, and 1993, the Money Fund
paid PMF management fees of $12,002,993, $10,245,686 and $9,214,361,
respectively. For the fiscal years ended June 30, 1995, 1994, and 1993, the
Tax-Free Fund paid PMF management fees of $4,314,275, $4,235,795 and $3,874,946,
respectively. For the fiscal years ended June 30, 1995, 1994, and 1993, the
Government Fund paid PMF management fees of $1,401,832, $1,504,635 and
$1,520,412, respectively.
For each of the Funds, PMF has entered into a separate subadvisory
agreement with The Prudential Investment Corporation (PIC), a wholly-owned
subsidiary of Prudential (the Subadvisory Agreement). Under each Subadvisory
Agreement, PIC has agreed to furnish investment advisory services in connection
with the management of each of the Funds. In connection therewith, PIC is
obligated to keep certain books and records for each of the Funds. PMF continues
to have responsibility for all investment advisory services pursuant to the
Management Agreements and supervises PIC's performance of those services. PIC is
reimbursed by PMF for the reasonable costs and expenses incurred by PIC in
furnishing those services.
The Subadvisory Agreements were last approved by the Trustees, including a
majority of the Trustees who are not interested persons as defined in the
Investment Company Act, on April 12, 1995; the shareholders of the Government
Fund and Tax-Free Fund approved their respective Subadvisory Agreements on
August 18, 1988 and the shareholders of the Money Fund approved their
Subadvisory Agreement on October 18, 1988.
Each Subadvisory Agreement provides that it will terminate in the event of
its assignment or upon the termination of the respective Management Agreement.
Each Subadvisory Agreement may be terminated by the Fund, PMF or PIC upon not
less than 30 days' or more than 60 days' written notice. Each Subadvisory
Agreement provides that it will continue in effect for a period of 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 Investment
Company Act applicable to continuance of investment advisory contracts.
The Manager and the Subadviser (The Prudential Investment Corporation) are
indirect subsidiaries of The Prudential Insurance Company of America (The
Prudential) which, as of December 31, 1994, is one of the largest financial
institutions in the world and the largest insurance company in North America.
The Prudential has been engaged in the insurance business since 1875. In July
1994, Institutional Investor ranked The Prudential the second largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1993.
DISTRIBUTOR
On April 12, 1995, the Trustees of each of the Funds approved the
continuance of a Distribution and Service Plan on behalf of each Fund as well as
a Distribution Agreement for each Fund with Prudential Mutual Fund Distributors,
Inc. (PMFD), One Seaport Plaza, New York, New York 10292. PMFD is a wholly-owned
subsidiary of PMF. The services it provides to each of the Funds are described
in the Prospectus. See ``How the Funds Are Managed--Distributor.''
Plans of Distribution
Pursuant to Rule 12b-1, a Distribution and Service Plan for each of the
Funds (collectively, the Plans) was last approved by the vote of a majority of
the Trustees, including a majority of the Trustees who are not interested
persons of each Fund and who have no direct or indirect financial interest in
the operation of the Plans or in any agreements related to the Plans (the Rule
12b-1 Trustees) at a meeting called for the purpose of voting on such Plans, on
April 13, 1994. Under each Fund's Distribution and Service Plan and Distribution
Agreement with PMFD, each Fund pays PMFD, as distributor, a distribution fee of
up to 0.125% of the average daily net assets of each Fund, computed daily and
payable monthly, to reimburse PMFD for distribution expenses.
For the fiscal year ended June 30, 1995, PMFD incurred distribution
expenses in the aggregate of $3,840,355 for the Money Fund, $438,073 for the
Government Fund and $1,158,610 for the Tax-Free Fund, all of which were
recovered through the distribution fees paid by the Funds to PMFD. It is
estimated that of the distribution fees received by PMFD for each Fund for the
fiscal year ended June 30, 1995, commission credits to Prudential Securities
branch offices for payments of commissions to account executives amounted to
approximately 80% ($3,005,820) for the Money Fund; 80% ($347,148) for the
Government Fund; and 80% ($919,727) for the Tax-Free Fund; and overhead and
other branch office distribution-related expenses amounted to approximately 20%
($751,321) for the Money Fund; approximately 20% ($86,778) for the Government
Fund; and approximately 20% ($229,933) for the Tax-Free Fund.
The term ``overhead and other branch office distribution-related expenses''
represents (a) the expenses of operating Prudential Securities branch offices in
connection with the sale of the Fund's shares including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(b) the costs of client sales seminars, (c) travel expenses of mutual fund sales
coordinators to promote the sale of the Fund's shares and (d) other incidental
expenses relating to branch promotion of the Fund's sales.
B-13
<PAGE>
Pursuant to the Plans, the Trustees are provided at least quarterly with
written reports of the amounts expended under the Plans and the purposes for
which such expenditures were made. The Trustees review such reports on a
quarterly basis.
The Plans provide that they will continue in effect from year to year,
provided each such continuance is approved annually by a vote of the Trustees of
each of the Funds in the manner described above. The Plans may not be amended to
increase materially the amount to be spent for the services described therein
without approval of the shareholders of the respective Funds, and all material
amendments of the Plans must also be approved by the Trustees in the manner
described above. The Plans may be terminated at any time, without payment of any
penalty, by vote of a majority of the Rule 12b-1 Trustees, or by a vote of a
majority of the outstanding voting securities of the Funds (as defined in the
Investment Company Act) on not more than 30 days' written notice to any other
party to the Plans. The Plans will automatically terminate in the event of an
assignment (as defined in the Investment Company Act). So long as the Plans are
in effect, the selection and nomination of Trustees who are not interested
persons of the Funds shall be committed to the discretion of the Trustees who
are not interested persons. The Trustees have determined that, in their
judgment, there is a reasonable likelihood that the Plans will benefit the Funds
and their shareholders. In the Trustees' quarterly review of the Plans, they
consider the continued appropriateness of such Plans and the level of
compensation provided therein. Each Distribution Agreement provides that it will
terminate automatically if assigned and that it may be terminated without
penalty by either party upon no more than 60 days', nor less than 30 days',
written notice.
In the respective Distribution Agreements, the Funds have agreed to
indemnify PMFD to the extent permitted by applicable law against certain
liabilities under the Securities Act.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. (PSG) and PSI
entered into agreements with the United States Attorney deferring prosecution
(provided PSI complies with the terms of the agreement for three years) for any
alleged criminal activity related to the sale of certain limited partnership
programs from 1983 to 1990. In connection with these agreements, PSI agreed to
add the sum of $330,000,000 to the fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent ``ombudsman'' whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a
three-year period.
CALCULATION OF YIELD
Each Fund will prepare a current quotation of yield from time to time. The
yield quoted will be the simple annualized yield for an identified seven
calendar day period. The yield calculation will be based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base period return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the share but excluding any capital
changes. Yield for the Funds will vary based on a number of factors including
changes in market conditions, the level of interest rates and the level of Fund
income and expenses. Each Fund may also prepare an effective annual yield
computed by compounding the unannualized seven-day period return as follows: by
adding 1 to the unannualized seven-day period return, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result.
Effective yield = [(base period return + 1)365/7]-1
The Tax-Free Fund may also calculate the tax equivalent yield over a 7-day
period. The tax equivalent yield will be determined by first computing the
current yield as discussed above. The Fund will then determine what portion of
the yield is attributable to securities, the income of which is exempt for
federal income tax purposes. This portion of the yield will then be divided by
one minus 39.6% (the assumed maximum tax rate for individual taxpayers not
subject to Alternative Minimum Tax) and then added to the portion of the yield
that is attributable to taxable securities. The Fund's 7-day tax equivalent
yield as of June 30, 1995 was 5.75%.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., IBC/Donoghue's Money
Fund Report, The Bank Rate Monitor, other industry publications, business
periodicals and market indices.
Each Fund's yield fluctuates, and an annualized yield quotation is not a
representation by a Fund as to what an investment in the Fund will actually
yield for any given period.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Funds and for arranging the execution of portfolio transactions. For purposes of
this section, the term ``Manager'' includes the ``Subadviser.'' The Manager
purchases portfolio securities for each Fund from dealers, underwriters and
issuers. Any sales of portfolio securities made prior to maturity are made to
dealers and issuers. The Funds do not normally incur any brokerage commission
expense on such transactions. The instruments purchased by the Funds 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. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased or sold directly from or to an issuer, no commissions or discounts are
paid. The Funds will not deal with Prudential Securities in any transaction in
which Prudential Securities acts as principal. There were no brokerage
commissions paid by the Funds during the fiscal years ended June 30, 1995, June
30, 1994 and June 30, 1993.
The policy of the Funds regarding purchases and sales of securities for
their respective portfolios is that primary consideration will be given to
obtaining the most favorable price and efficient execution of transactions. This
means that the Manager will seek to execute each transaction at a price and
commission, if any, which provide the most favorable total cost or proceeds
reasonably attainable under
B-14
<PAGE>
the circumstances. While the Manager generally seeks reasonably competitive
spreads or commissions, the Funds will not necessarily be paying the lowest
spread or commission available. Within the framework of the policy of obtaining
best price and execution, the Manager may consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of the Funds, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries.
Such services are used by the Manager in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for the Funds may be used in managing other investment
accounts. Conversely, brokers furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are
larger than the Funds, and the services furnished by such brokers may be used by
the Manager in providing investment management for the Funds. While such
services are useful and important in supplementing its own research and
facilities, the Manager believes that the value of such services is not
determinable and does not significantly reduce expenses. The Funds do not reduce
the fees they pay to the Manager by any amount that may be attributable to the
value of such services.
TAXES, DIVIDENDS AND DISTRIBUTIONS
Each Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the Code).
B-15
<PAGE>
Qualification as a regulated investment company under the Code requires,
among other things, that a Fund (a) derive at least 90% of its annual gross
income (without offset for losses from the sale or other disposition of
securities or foreign currencies) from interest, payments with respect to
securities loans, dividends and gains from the sale or other disposition of
securities of foreign currencies and certain financial futures, options and
forward contracts; (b) derive less than 30% of its gross income from gains from
the sale or other disposition of securities or options thereon held for less
than three months; and (c) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. Government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
market value of the Fund's assets and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its assets is
invested in the securities of any one issuer (other than U.S. Government
securities).
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND
INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for each Fund's portfolio securities
and cash, and in that capacity maintains certain financial and accounting books
and records pursuant to an agreement with each Fund.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer and Dividend Disbursing Agent and in those
capacities maintains certain books and records for each Fund. PMFS is a
wholly-owned subsidiary of PMF. 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, payment of dividends and distributions and related functions. For these
services, PMFS receives an annual fee per shareholder account, a new account
set-up fee for each manually established account and a monthly inactive zero
balance account fee per shareholder account. PMFS is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses, and other costs. For the fiscal
year ended June 30, 1995, fees of approximately $128,222, $6,244 and $15,649
were incurred by COMMAND Money Fund, COMMAND Government Fund and COMMAND
Tax-Free Fund, respectively, for such services.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York,
serves as each of the Fund's independent accountants, and in that capacity
audits each Fund's annual financial statements.
REPORTS TO SHAREHOLDERS
The fiscal year of each Fund ends on June 30. Each Fund will send to its
shareholders, at least semi-annually, reports showing the Fund's portfolio and
other information. An annual report, containing financial statements audited by
independent accountants, will be sent to shareholders each year.
Shareholder Investment Account
Tax-Deferred Retirement Accounts
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
<TABLE>
<CAPTION>
Tax-Deferred Compounding1
<S> <C> <C>
Contributions Personal
Made Over: Savings IRA
- -------------- --------- ---------
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- ---------------
1 The chart is for illustrative purposes only and does not represent the
performance of any Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
the IRA account will be subject to tax when withdrawn from the account.
B-16
<PAGE>
DESCRIPTION OF SECURITIES RATINGS
Corporate and Tax-Exempt Bond Ratings
The four highest ratings of Moody's Investors Service (Moody's) for
tax-exempt and corporate bonds are Aaa, Aa, A and Baa. Bonds rated Aaa are
judged to be of the ``best quality.'' The rating of Aa is assigned to bonds
which are of ``high quality by all standards,'' but as to which margins of
protection or other elements make long-term risks appear somewhat larger than
Aaa rated bonds. The Aaa and Aa rated bonds comprise what are generally known as
``high grade bonds.'' Bonds which are rated A by Moody's possess many favorable
investment attributes and are to be considered as ``upper medium grade
obligations.'' Factors giving security to principal and interest of A rated
bonds are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future. Bonds rated Baa are
considered as ``medium grade'' obligations. 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. Moody's applies numerical modifiers ``1'', ``2'' and
``3'' in each generic rating classification from Aa through B in its corporate
bond rating system. The modifier ``1'' indicates that the company ranks in the
higher end of its generic rating category; the modifier ``2'' indicates a
mid-range ranking; and the modifier ``3'' indicates that the company ranks in
the lower end of its generic rating category. The foregoing ratings for
tax-exempt bonds are sometimes presented in parentheses with a ``con''
indicating the bonds are rated conditionally. Bonds for which the security
depends upon the completion of some act or the fulfillment of some condition are
rated conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed or (d) payments to which some
other limiting condition attaches. Such parenthetical rating denotes the
probable credit stature upon completion of construction or elimination of the
basis of the condition.
The four highest ratings of Standard & Poor's Ratings Group (Standard &
Poor's) for corporate or municipal debt are AAA, AA, A and BBB. Debt rated AAA
bear the highest rating assigned by Standard & Poor's to a debt obligation and
indicate an extremely strong capacity to pay principal and interest. Debt rated
AA also qualify as high-quality debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of instances they differ from AAA
issues only in small degrees. Debt rated A have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions. The BBB
rating, which is the lowest ``investment grade'' security rating by Standard &
Poor's, indicates an adequate capacity to pay principal and interest. Whereas
they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for debt in this category than for debt
in the A category. The foregoing ratings are sometimes followed by a ``p''
indicating that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
Tax-Exempt Note Ratings
The ratings of Moody's for short-term obligations are MIG 1, MIG 2, MIG 3
and MIG 4. Short-term obligations bearing the designation MIG 1 are judged to be
of the best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing. Short-term obligations bearing the designation MIG 2 are
judged to be of high quality, with margins of protection which are ample
although not so large as in the preceding group. Short-term obligations
designated MIG 3 are judged to be of favorable quality, but lack the undeniable
strength of the preceding grades because liquidity and cash flow protection may
be narrow and market access for refinancing is likely to be less well
established. Short-term obligations designated MIG 4 are judged to be of
adequate quality. Though protection commonly regarded as required of an
investment security is present, and such obligations are not distinctly or
predominantly speculative, there is specific risk.
The ratings of Standard & Poor's for municipal notes are SP-1, SP-2 and
SP-3. The designation ``SP-1'' indicates a very strong or strong capacity to pay
principal and interest. A ``+'' is added for those issues determined to possess
overwhelming safety characteristics. An ``SP-2'' designation indicates a
satisfactory capacity to pay principal and interest while an ``SP-3''
designation indicates speculative capacity to pay principal and interest.
Corporate and Tax-Exempt Commercial Paper Ratings
Moody's and Standard & Poor's rating grades for commercial paper, set forth
below, are applied to Municipal Commercial Paper as well as taxable commercial
paper.
B-17
<PAGE>
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations having an original maturity not
exceeding one year. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment ability of rated
issuers: Prime-1, superior ability; Prime-2, strong ability; and Prime-3,
acceptable ability.
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Ratings are graded into several categories, ranging from ``A-1'' for the
highest quality obligations to ``D'' for the lowest. The ``A-1'' designation
indicates that the degree of safety regarding timely payment is strong. A ``+''
designation is applied to those issues rated ``A-1'' which possess an
overwhelming degree of safety. The ``A-2'' designation indicates that capacity
for timely payment is satisfactory. However, the relative degree of safety is
not as high as for issues designated ``A-1.'' The ``A-3'' designation indicates
that the capacity for timely payment is adequate. Such issues, however, are
somewhat more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations. Issues rated ``B'' are regarded as
having only speculative capacity for timely payment. Issues rated ``C'' are
regarded as having a doubtful capacity for payment. Issues rated ``D'' are in
payment default and the rating is used when interest or principal payments are
not made on the date due, even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made during such
grace period.
B-18
<PAGE>
COMMAND MONEY FUND Portfolio of Investments
June 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
ASSET BACKED SECURITY(D)--1.3%
Money Market Auto Loan Trust Ser. 1990-1
6.235%, 7/17/95
$ 51,000 (amortized cost
$51,000,000)............. $51,000,000
--------------
BANK HOLDING PAPER--0.6%
PNC Funding Corp.
25,000 5.96%, 8/18/95
(amortized cost
$24,801,333)............. 24,801,333
--------------
BANK NOTES--4.6%
Huntington National Bank
18,000 6.20%, 11/3/95............. 18,005,077
Mellon Bank, NA
15,000 6.20%, 11/1/95............. 14,999,006
Nationsbank Texas, NA
64,000 6.82%, 10/31/95............ 64,002,023
25,000 7.55%, 1/9/96.............. 25,104,143
25,000 7.30%, 1/26/96............. 25,059,446
Northern Trust Co.
25,000 6.60%, 11/17/95............ 25,029,608
State Street Bank & Trust
Co.
14,000 6.01%, 9/20/95............. 13,999,726
--------------
Total Bank Notes
(amortized cost
$186,199,029)............ 186,199,029
--------------
CERTIFICATES OF DEPOSIT--
CANADA--3.5%
Bank of Montreal (New York)
136,000 5.99%, 7/5/95............ 136,000,000
Canadian Imperial Bank of
Commerce
5,000 5.98%, 7/27/95............. 4,999,914
Total Certificates of
Deposit--Canada
(amortized cost
$140,999,914)............ $ 140,999,914
--------------
CERTIFICATES OF DEPOSIT--
DOMESTIC--0.2%
National Westminster Bank
Delaware
$ 10,000 5.85%, 12/26/95
(amortized cost
$10,000,000)............. 10,000,000
--------------
CERTIFICATES OF DEPOSIT--
EURODOLLAR--2.0%
Abbey National Treasury Services, PLC.
50,000 6.40%, 5/17/96............. 50,000,000
Bank of New York
4,000 6.15%, 7/3/95.............. 4,000,007
24,000 6.27%, 10/31/95............ 24,005,437
Toronto Dominion Bank
3,000 5.78%, 7/18/95............. 2,999,155
--------------
Total Certificates of
Deposit--Eurodollar
(amortized cost
$81,004,599)............. 81,004,599
--------------
CERTIFICATES OF DEPOSIT--
YANKEE--10.8%
Banque Nationale De Paris
29,000 6.95%, 2/21/96............. 29,052,767
Caisse Nationale De Credit
Agricole
29,000 6.22%, 11/2/95............. 29,001,833
Commerzbank
3,000 7.32%, 1/24/96............. 3,011,212
16,000 7.10%, 2/2/96.............. 16,040,863
10,000 6.45%, 4/17/96............. 9,999,912
Industrial Bank of Japan,
Ltd.
87,000 6.02%, 7/5/95.............. 87,000,000
Norinchukin Bank
75,000 6.06%, 7/20/95............. 75,000,394
Rabobank Nederland
3,000 6.40%, 9/13/95............. 3,001,178
</TABLE>
B-19
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND MONEY FUND
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
CERTIFICATES OF DEPOSIT--
YANKEE--(cont'd)
Sanwa Bank, Ltd.
$ 63,000 5.95%, 7/6/95.............. $ 62,999,556
Sumitomo Bank, Ltd.
46,000 6.00%, 7/10/95............. 46,000,000
75,000 6.06%, 7/14/95............. 75,000,269
--------------
Total Certificates of
Deposit--Yankee
(amortized cost
$436,107,984)............ 436,107,984
--------------
COMMERCIAL PAPER--CANADA--0.5%
Province of Quebec
20,000 5.82%, 9/26/95
(amortized cost
$19,718,700)............. 19,718,700
--------------
COMMERCIAL PAPER--DOMESTIC--43.7%
A.H. Robins Co., Inc.
4,000 6.00%, 7/10/95............. 3,994,000
15,000 6.00%, 7/20/95............. 14,952,500
35,932 5.97%, 8/10/95............. 35,693,651
American Express Credit
Corp.
27,000 6.18%, 8/21/95............. 26,763,615
27,000 5.85%, 9/19/95............. 26,649,000
3,350 5.82%, 2/2/96.............. 3,233,018
American Home Food Products
12,950 5.97%, 7/20/95............. 12,909,197
37,645 5.97%, 8/10/95............. 37,395,288
3,000 5.91%, 8/30/95............. 2,970,450
American Home Products
Corp.
5,000 5.97%, 7/20/95............. 4,984,246
23,778 5.95%, 7/27/95............. 23,675,821
2,915 5.97%, 8/3/95.............. 2,899,048
25,500 5.97%, 8/10/95............. 25,330,850
20,000 5.91%, 8/30/95............. 19,803,000
12,000 5.95%, 8/31/95............. 11,879,017
Aristar, Inc.
8,000 6.02%, 7/5/95.............. 7,994,649
4,000 6.12%, 8/1/95.............. 3,978,920
Asset Securitization
Cooperative Corp.
$ 25,000 6.00%, 8/1/95.............. $ 24,870,833
13,000 5.83%, 9/20/95............. 12,829,473
Associates Corp. of North
America
76,000 6.00%, 7/5/95.............. 75,949,333
33,000 5.96%, 8/2/95.............. 32,825,173
9,000 5.96%, 8/3/95.............. 8,950,830
28,000 5.91%, 8/29/95............. 27,728,797
AT&T Capital Corp.
8,000 5.83%, 9/8/95.............. 7,910,607
AT&T Corp.
17,000 5.83%, 9/12/95............. 16,799,027
Caterpillar Financial
Services
5,000 5.92%, 9/14/95............. 4,938,333
Chrysler Financial Corp.
8,000 6.15%, 7/10/95............. 7,987,700
CIT Group Holdings, Inc.
42,000 6.00%, 7/5/95.............. 41,972,000
21,000 5.90%, 9/11/95............. 20,752,200
14,000 5.85%, 9/18/95............. 13,820,275
Coca Cola Enterprises, Inc.
5,000 6.00%, 7/7/95.............. 4,995,000
8,425 6.00%, 11/3/95............. 8,249,479
Corporate Receivables Corp.
4,800 5.85%, 9/19/95............. 4,737,600
Countrywide Funding Corp.
3,000 5.97%, 7/6/95.............. 2,997,512
35,000 5.98%, 7/19/95............. 34,895,350
10,600 5.96%, 7/20/95............. 10,566,657
6,000 6.02%, 7/27/95............. 5,973,913
10,878 6.00%, 7/28/95............. 10,829,049
Dean Witter, Discover & Co.
26,000 5.97%, 7/5/95.............. 25,982,753
Duracell, Inc.
7,000 5.98%, 8/11/95............. 6,952,326
Falcon Asset Securitization
Corp.
8,540 6.00%, 7/24/95............. 8,507,263
</TABLE>
B-20
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND MONEY FUND
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
COMMERCIAL PAPER--DOMESTIC--(cont'd)
Finova Capital Corp.
$ 5,000 6.20%, 7/6/95.............. $ 4,995,694
6,300 6.12%, 7/11/95............. 6,289,290
22,016 6.05%, 7/12/95............. 21,975,301
10,000 6.07%, 7/17/95............. 9,973,022
8,000 6.05%, 7/20/95............. 7,974,456
3,200 6.07%, 7/20/95............. 3,189,748
16,000 6.05%, 7/27/95............. 15,930,089
3,100 6.03%, 7/31/95............. 3,084,423
18,500 6.03%, 8/1/95.............. 18,403,939
3,000 6.01%, 8/2/95.............. 2,983,973
11,000 5.98%, 8/3/95.............. 10,939,702
11,900 6.00%, 8/7/95.............. 11,826,617
3,000 6.00%, 8/9/95.............. 2,980,500
Ford Motor Credit Corp.
5,000 6.11%, 7/12/95............. 4,990,665
107,000 5.95%, 7/14/95............. 106,770,099
50,000 6.20%, 9/12/95............. 49,371,389
General Electric Capital
Corp.
99,000 6.05%, 10/17/95............ 97,203,150
24,000 6.53%, 10/30/95............ 23,473,247
4,000 5.97%, 11/1/95............. 3,918,410
General Motors Acceptance
Corp.
111,411 6.15%, 7/12/95............. 111,201,640
47,670 6.15%, 7/13/95............. 47,572,276
3,000 6.00%, 7/17/95............. 2,992,000
15,560 6.10%, 7/17/95............. 15,517,815
4,800 6.18%, 8/7/95.............. 4,769,512
GTE Finance Corp.
8,000 5.98%, 8/11/95............. 7,945,516
Hertz Corp.
17,000 5.86%, 9/18/95............. 16,781,389
Household Finance Corp.
22,000 5.82%, 9/26/95............. 21,690,570
IBM Credit Corp.
50,000 5.89%, 9/1/95.............. 49,492,806
ITT Corp.
$ 20,000 6.00%, 7/11/95............. $ 19,966,667
ITT Hartford Group, Inc.
45,000 5.96%, 7/13/95............. 44,910,600
5,000 6.00%, 7/27/95............. 4,978,333
Mckenna Triangle National
Corp.
26,000 5.90%, 7/27/95............. 25,889,211
12,500 5.97%, 8/1/95.............. 12,435,740
12,927 5.96%, 8/3/95.............. 12,856,375
7,000 5.90%, 9/15/95............. 6,912,811
Merrill Lynch & Co., Inc.
28,500 6.04%, 10/17/95............ 27,983,580
Monsanto Company
3,500 6.25%, 8/18/95............. 3,470,833
3,065 5.97%, 10/30/95............ 3,003,498
Morgan (J.P.) & Co., Inc.
5,000 6.07%, 7/31/95............. 4,974,708
Morgan Stanley Group, Inc.
35,000 5.85%, 10/2/95............. 34,471,063
Norwest Financial, Inc.
14,000 6.00%, 7/5/95.............. 13,990,667
NYNEX Corp.,
5,000 6.05%, 7/24/95............. 4,980,674
10,000 5.97%, 9/27/95............. 9,854,067
PacifiCorp
5,000 6.00%, 7/5/95.............. 4,996,667
Pennsylvania Power & Light
Energy
7,000 6.02%, 7/7/95.............. 6,992,977
8,000 5.92%, 7/10/95............. 7,988,160
10,000 5.95%, 7/17/95............. 9,973,556
Phillip Morris Co., Inc.
35,000 6.02%, 7/12/95............. 34,935,619
Preferred Receivables
Funding Corp.
11,000 5.85%, 9/20/95............. 10,855,213
Sears Roebuck Acceptance
Corp.
13,000 5.98%, 7/10/95............. 12,980,565
14,000 5.98%, 7/11/95............. 13,976,744
</TABLE>
B-21
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND MONEY FUND
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
COMMERCIAL PAPER--DOMESTIC--(cont'd)
WCP Funding, Inc.
$ 11,000 5.95%, 8/15/95............. $ 10,918,187
Whirlpool Corp.
14,000 5.97%, 7/10/95............. 13,979,105
Whirlpool Financial Corp.
26,275 6.05%, 7/18/95............. 26,199,934
Xerox Corp.
16,000 5.82%, 9/14/95............. 15,806,000
--------------
Total Commercial
Paper--Domestic
(amortized cost
$1,771,646,545).......... 1,771,646,545
--------------
COMMERCIAL PAPER--YANKEE--8.9%
Abbey National Corp., NA
50,000 5.82%, 9/15/95............. 49,385,667
American Honda Finance
Corp.
5,000 6.05%, 7/31/95............. 4,974,792
6,000 6.00%, 8/15/95............. 5,955,000
3,000 5.95%, 8/23/95............. 2,973,721
12,000 5.88%, 9/5/95.............. 11,870,640
BHF Finance Inc.
31,000 5.80%, 9/22/95............. 30,585,461
Bradford & Bingley Building
Society
15,000 5.90%, 9/13/95............. 14,818,083
14,000 5.81%, 9/26/95............. 13,803,428
Bridgestone/Firestone
10,000 6.00%, 7/12/95............. 9,981,667
Cheltenham & Gloucester
Building Society
16,000 6.02%, 7/20/95............. 15,949,164
Fundex Corp.
4,000 6.00%, 7/10/95............. 3,994,000
Halifax Building Society
12,000 5.81%, 9/11/95............. 11,860,560
Hanson Finance (U.K.), PLC.
8,000 5.88%, 9/11/95............. 7,905,920
3,000 5.83%, 9/19/95............. 2,961,133
$ 33,000 5.90%, 9/21/95............. $ 32,556,517
8,000 5.83%, 9/22/95............. 7,892,469
Leeds Permanent Buillding
Society
49,000 6.07%, 7/7/95.............. 48,950,428
Maguire/Thomas Partners
15,000 6.00%, 7/17/95............. 14,960,000
Paribas Finance Inc.
22,000 5.94%, 7/26/95............. 21,909,250
13,000 6.00%, 8/1/95.............. 12,932,833
15,000 5.84%, 9/28/95............. 14,783,433
75 State Street Capital
Corp.
6,000 6.07%, 7/7/95.............. 5,993,930
Sumitomo Corp. of America
15,000 6.02%, 7/31/95............. 14,924,750
--------------
Total Commercial
Paper--Yankee
(amortized cost
$361,922,846)............ 361,922,846
--------------
CORPORATE BONDS--0.7%
Associates Corp. of North
America
4,000 8.75%, 2/1/96.............. 4,043,768
3,000 8.80%, 3/1/96.............. 3,044,844
Atlantic Richfield Company
6,701 10.375%, 7/15/95........... 6,710,436
BP America, Inc.
4,865 10.15%, 3/15/96............ 5,004,930
CIT Group Holdings, Inc.
2,750 8.75%, 2/15/96............. 2,793,647
8,590 4.75%, 3/15/96............. 8,495,880
--------------
Total Corporate Bonds
(amortized cost
$30,093,505)............. 30,093,505
--------------
DEPOSIT NOTES--0.4%
Bayerische Hypotheken
16,000 6.376%, 4/24/96
(amortized cost
$15,990,620)............. 15,990,620
--------------
</TABLE>
B-22
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND MONEY FUND
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
LOAN PARTICIPATION--0.8%
Morgan Stanley Group, Inc.
$ 33,000 6.08%, 7/7/95
(amortized cost
$33,000,000)............. $ 33,000,000
--------------
MEDIUM-TERM OBLIGATIONS
DOMESTIC--0.9%
Ford Motor Credit Corp.
3,000 6.125%, 12/11/95........... 2,992,205
4,700 5.15%, 2/26/96............. 4,660,760
1,500 8.85%, 5/1/96.............. 1,533,659
10,000 14.00%, 7/5/96............. 10,764,222
4,000 9.05%, 7/23/96............. 4,135,036
General Motors Acceptance
Corp.
1,400 4.80%, 1/16/96............. 1,389,707
2,500 8.80%, 7/3/96.............. 2,563,588
PepsiCo, Inc.
10,000 15.00%, 11/8/95............ 10,302,601
--------------
Total Medium-Term
Obligations-Domestic
(amortized cost
$38,341,778)............. 38,341,778
--------------
MEDIUM-TERM OBLIGATION--
YANKEE--0.4%
Westdeusche Landesbank
Girozentral
16,000 6.85%, 3/1/96
(amortized cost
$16,016,573)............. 16,016,573
--------------
TIME DEPOSITS--EURODOLLAR--7.2%
Dai-Ichi Kangyo Bank, Ltd.
89,240 6.375%, 7/5/95............. 89,240,000
Mitsubishi Bank, Ltd.
83,000 6.1875%, 7/7/95............ 83,000,000
74,000 6.125%, 7/12/95............ 74,000,000
45,000 6.0625%, 7/14/95........... 45,000,000
--------------
Total Time
Deposits--Eurodollar
(amortized cost
$291,240,000)............ $ 291,240,000
--------------
U.S. GOVERNMENT AGENCIES--2.1%
Federal Farm Credit Banks
$ 28,000 5.60%, 7/1/96.............. 27,971,089
Federal Home Loan Banks
28,000 6.05%, 6/13/96............. 28,015,632
Federal National Mortgage
Association
29,000 5.71%, 6/10/96............. 28,921,170
--------------
Total U.S. Government
Agencies
(amortized cost
$84,907,891)............. 84,907,891
--------------
VARIABLE RATE INSTRUMENTS(D)--12.0%
American Express Centurion
Bank
11,000 6.0625%, 7/5/95............ 10,999,897
9,000 6.0625%, 7/17/95........... 8,998,866
19,000 6.0625%, 7/19/95........... 18,999,692
6,000 6.0625%, 7/28/95........... 5,999,854
Avco Financial Services,
Inc.
18,000 6.14076%, 7/13/95.......... 18,000,000
Beneficial Corp.
11,000 6.04045%, 7/19/95.......... 10,999,628
General Electric Capital
Corp.
65,000 6.03125%, 7/26/95.......... 65,000,000
General Motors Acceptance
Corp.
13,500 6.235%, 10/20/95........... 13,500,188
Goldman, Sachs Group, L.P.
129,000 6.1875%, 11/27/95.......... 129,000,000
Lehman Brothers Holdings,
Inc.
96,000 6.2625%, 7/24/95........... 96,000,000
</TABLE>
B-23
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND MONEY FUND
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
VARIABLE RATE INSTRUMENTS(D)--(cont'd)
Merrill Lynch & Co., Inc.
$ 24,000 6.0725%, 7/24/95........... $ 23,998,936
33,500 6.0725%, 7/5/95............ 33,498,335
Morgan Stanley Group, Inc.
33,000 6.25%, 8/15/95............. 33,000,000
18,000 6.375%, 7/17/95............ 18,000,000
--------------
Total Variable Rate
Instruments
(amortized cost
$485,995,396)............ 485,995,396
--------------
REPURCHASE AGREEMENTS*--0.7%
9,000 Smith Barney, Inc.,
5.98%, dated 6/5/95, due
7/5/95 in the amount of
$9,044,850 (cost
$9,000,000) value of
collateral including
accrued
interest--$9,180,000..... 9,000,000
19,000 Smith Barney, Inc.,
6.00%, dated 6/9/95, due
7/10/95 in the amount of
$19,098,167 (cost
$19,000,000) value of
collateral including
accrued
interest--$19,380,000.... 19,000,000
--------------
Total Repurchase Agreements
(amortized cost
$28,000,000)............. 28,000,000
--------------
Total Investments--101.3%
(amortized cost
$4,106,986,713).......... 4,106,986,713
Liabilities in excess of
other assets--(1.3%)..... (51,286,830)
--------------
Net Assets--100%........... $4,055,699,883
--------------
--------------
</TABLE>
- ---------------
(D) The maturity date presented for these instruments is the later of the next
date on which the security can be redeemed at par or the next date on which
the rate of interest is adjusted.
* Repurchase agreements are collateralized by U.S. Treasury or Federal agency
obligations.
B-24
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND MONEY FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets June 30, 1995
--------------
<S> <C>
Investments, at value................................................................... $4,106,986,713
Cash.................................................................................... 19,692
Receivable for Fund shares sold......................................................... 93,241,032
Interest receivable..................................................................... 13,320,229
Prepaid expenses........................................................................ 96,364
--------------
Total assets.......................................................................... 4,213,664,030
--------------
Liabilities
Payable for Fund shares repurchased..................................................... 82,177,293
Payable for Investments purchased....................................................... 74,000,000
Due to Manager.......................................................................... 1,257,053
Accrued expenses........................................................................ 308,360
Due to Distributor...................................................................... 221,441
--------------
Total liabilities..................................................................... 157,964,147
--------------
Net Assets
Applicable to 4,055,699,883 shares of beneficial interest ($ .01 par value) issued and
outstanding;
unlimited number of shares authorized................................................. $4,055,699,883
--------------
--------------
Net asset value, offering price and redemption price per share ($4,055,699,883 /
4,055,699,883 shares)................................................................. $1.00
--------------
--------------
</TABLE>
See Notes to Financial Statements appearing on page 43.
B-25
<PAGE>
COMMAND MONEY FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
June 30,
Net Investment Income 1995
--------------
<S> <C>
Income
Interest............................. $ 174,527,169
--------------
Expenses
Management fee....................... 12,002,993
Distribution fee..................... 3,840,355
Transfer agent's fees................ 1,225,000
Registration fees.................... 492,000
Custodian's fees and expenses........ 295,000
Reports to shareholders.............. 95,000
Insurance expense.................... 83,000
Trustees' fees....................... 63,000
Audit fee and expenses............... 41,000
Legal fees........................... 15,000
Miscellaneous........................ 3,906
--------------
Total expenses..................... 18,156,254
--------------
Net investment income.................. 156,370,915
--------------
Realized gain on Investments
Net realized gain on investment
transactions......................... 307,047
--------------
Net Increase in Net Assets
Resulting from Operations.............. $ 156,677,962
--------------
--------------
</TABLE>
COMMAND MONEY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended June 30,
Increase in -----------------------------------
Net Assets 1995 1994
---------------- ----------------
<S> <C> <C>
Operations
Net investment
income............. $ 156,370,915 $ 74,952,241
Net realized gain
on investment
transactions..... 307,047 336,119
---------------- ----------------
Net increase in net
assets resulting
from
operations....... 156,677,962 75,288,360
---------------- ----------------
Dividends and
distributions to
shareholders....... (156,677,962) (75,288,360)
---------------- ----------------
Fund share
transactions (at $1
per share)
Net proceeds from
shares
subscribed....... 16,966,514,286 12,302,814,436
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions.... 156,677,962 75,288,360
Cost of shares
reacquired....... (15,515,692,996) (12,366,574,033)
---------------- ----------------
Net increase in net
assets from Fund
share
transactions..... 1,607,499,252 11,528,763
---------------- ----------------
Total increase....... 1,607,499,252 11,528,763
Net Assets
Beginning of year.... 2,448,200,631 2,436,671,868
---------------- ----------------
End of year.......... $ 4,055,699,883 $ 2,448,200,631
---------------- ----------------
---------------- ----------------
</TABLE>
See Notes to Financial Statements appearing on page 43.
See Notes to Financial Statements appearing on page 43.
B-26
<PAGE>
COMMAND MONEY FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year..................... $ 1,000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized gains........... 0.050 0.029 0.030 0.046 0.069
Dividends and distributions to shareholders............ (0.050) (0.029) (0.030) (0.046) (0.069)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year........................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN(a):....................................... 5.13% 2.98% 3.01% 4.71% 7.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).......................... $4,055,700 $2,448,201 $2,436,672 $2,125,430 $2,417,429
Average net assets (000)............................... $3,072,284 $2,570,195 $2,275,532 $2,377,108 $2,605,472
Ratios to average net assets:
Expenses, including distribution fees................ .59% .59% .61% .64% .61%
Expenses, excluding distribution fees................ .47% .47% .48% .51% .49%
Net investment income................................ 5.09% 2.92% 2.90% 4.57% 6.95%
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of
each year reported and includes reinvestment of dividends and distributions.
</TABLE>
See Notes to Financial Statements appearing on page 43.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Command Money Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Command Money Fund (the ``Fund'')
at June 30, 1995, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as ``financial
statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1995 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
August 21, 1995
B-27
<PAGE>
COMMAND GOVERNMENT FUND Portfolio of Investments
June 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
U.S. Government Agencies--55.6%
Federal Farm Credit Bank
$ 30,000(D) 5.94%, 7/3/95.............. $ 29,981,325
9,000 6.00%, 7/05/95............. 8,999,910
7,500 5.375%, 8/01/95............ 7,499,154
8,750 6.65%, 8/01/95............. 8,750,504
7,400(D) 5.97%, 8/23/95............. 7,397,598
5,100 6.56%, 11/14/95............ 5,097,306
1,095 6.31%, 2/02/96............. 1,053,543
18,000 5.60%, 7/01/96............. 17,981,415
--------------
86,760,755
--------------
Federal Home Loan Bank
1,500 10.30%, 7/25/95............ 1,503,942
4,900 5.625%, 8/23/95............ 4,899,644
5,550 6.07%, 9/01/95............. 5,491,981
615(D) 5.85%, 9/05/95............. 614,723
5,000(D) 5.67%, 9/08/95............. 4,994,190
1,000(D) 5.83%, 9/14/95............. 998,923
1,500 5.92%, 10/13/95............ 1,474,347
3,500 5.92%, 10/19/95............ 3,436,689
7,805 5.82%, 11/17/95............ 7,629,609
5,000 6.04%, 1/16/96............. 4,833,061
4,000 6.787%, 2/15/96............ 3,995,508
4,070 6.85%, 2/28/96............. 4,073,130
4,000 6.22%, 3/22/96............. 3,816,855
--------------
47,762,602
--------------
Federal Home Loan Mortgage
Corporation
500 5.90%, 7/31/95............. 497,542
5,000 5.80%, 2/01/96............. 4,826,805
--------------
5,324,347
--------------
Federal National Mortgage
Association
$ 4,000(D) 5.97%, 7/3/95.............. $ 4,000,000
4,000 7.55%, 7/09/95............. 4,000,926
1,125 5.91%, 7/26/95............. 1,120,383
5,000 5.93%, 7/26/95............. 4,979,410
5,000(D) 5.967%, 7/30/95............ 4,998,759
10,000 5.90%, 8/14/95............. 9,927,889
10,000 5.90%, 8/17/95............. 9,922,972
2,950 6.05%, 9/01/95............. 2,919,263
4,275 6.07%, 9/01/95............. 4,230,309
410 5.95%, 10/20/95............ 402,478
1,250 8.80%, 11/10/95............ 1,258,530
1,520 6.24%, 12/08/95............ 1,477,845
6,000 5.71%, 6/10/96............. 5,983,690
--------------
55,222,454
--------------
International Bank For
Reconstruction & Development
4,500 6.07%, 11/06/95............ 4,402,880
--------------
Student Loan Marketing Association
4,000(D) 5.73%, 7/5/95.............. 4,000,000
13,400(D) 5.86%, 7/5/95.............. 13,407,850
8,000(D) 6.08%, 7/1/96.............. 7,990,385
--------------
25,398,235
--------------
Total U.S. Government
Agencies (amortized cost
$224,871,273)............ 224,871,273
--------------
Repurchase Agreements*--44.6%
Joint Repurchase Agreement
Account,
704 6.12%, 7/3/95, (Note 4).... 704,000
</TABLE>
B-28
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND GOVERNMENT FUND
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Repurchase Agreements--(cont'd)
$ 33,000 UBS Securities Inc., 6.07%,
dated 6/26/95, due 7/3/95,
in the amount of
$33,038,949, (cost
$33,000,000), value of
collateral including
accrued
interest--$33,661,081...... $ 33,000,000
14,000 Bear Stearns and Co., 6.07%,
dated 6/28/95, due 7/5/95,
in the amount of
$14,016,524, (cost
$14,000,000), value of
collateral including
accrued
interest--$14,295,361...... 14,000,000
9,000 Bear Stearns and Co., 5.98%,
dated 6/2/95, due 7/24/95,
in the amount of
$9,077,740, (cost
$9,000,000), value of
collateral including
accrued
interest--$9,206,015....... 9,000,000
3,574 Goldman, Sachs & Co., 6.07%,
dated 6/27/95, due 7/5/95,
in the amount of
$3,578,821, (cost
$3,574,000), value of
collateral including
accrued
interest--$3,645,480....... 3,574,000
36,000 Goldman, Sachs & Co., 6.07%,
dated 6/28/95, due 7/5/95,
in the amount of
$36,042,490, (cost
$36,000,000), value of
collateral including
accrued
interest--$36,720,001...... 36,000,000
38,470 Nomura Securities
International, Inc., 6.07%,
dated 6/28/95, due 7/5/95,
in the amount of
$38,515,405, (cost
$38,470,000), value of
collateral including
accrued
interest--$39,240,208...... 38,470,000
$ 15,000 Smith Barney, Inc., 6.08%,
dated 6/28/95, due 7/5/95,
in the amount of
$15,017,733, (cost
$15,000,000), value of
collateral including
accrued
interest--$15,300,000...... $ 15,000,000
23,438 Smith Barney, Inc., 5.98%,
dated 6/6/95, due 7/6/95,
in the amount of
$23,554,799, (cost
$23,438,000), value of
collateral including
accrued
interest--$23,906,760...... 23,438,000
7,000 Morgan Stanley & Co., 6.00%,
dated 6/13/95, due 7/12/95,
in the amount of
$7,033,833, (cost
$7,000,000), value of
collateral including
accrued
interest--$7,185,533....... 7,000,000
--------------
Total Repurchase Agreements
(amortized cost
$180,186,000).............. 180,186,000
--------------
Total Investments--100.2%
(amortized cost
$405,057,273).............. 405,057,273
Liabilities in excess of
other
assets--(0.2)%............. (762,128)
--------------
Net Assets--100%............. $ 404,295,145
--------------
--------------
</TABLE>
- ---------------
(D) The maturity date presented for these instruments is the later of the next
date on which the security can be redeemed at par or the next date on which
the rate of interest is adjusted.
* Repurchase agreements are collateralized by U.S. Treasury or Federal agency
obligations.
B-29
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND GOVERNMENT FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets June 30, 1995
-------------
<S> <C>
Investments, at value...................................................................... $ 405,057,273
Cash....................................................................................... 5,915
Receivable for Fund shares sold............................................................ 8,819,446
Interest receivable........................................................................ 1,545,139
Prepaid expenses........................................................................... 9,946
-------------
Total assets............................................................................. 415,437,719
-------------
Liabilities
Payable for Fund shares repurchased........................................................ 10,824,025
Accrued expenses........................................................................... 164,486
Due to Manager............................................................................. 131,753
Due to Distributor......................................................................... 22,310
-------------
Total liabilities........................................................................ 11,142,574
-------------
Net Assets
Applicable to 404,295,145 shares of beneficial interest ($.01 par value) issued and
outstanding;
unlimited number of shares authorized.................................................... $ 404,295,145
-------------
-------------
Net asset value, offering price and redemption price per share ($404,295,145 / 404,295,145
shares).................................................................................. $1.00
-------------
-------------
</TABLE>
See Notes to Financial Statements appearing on page 43.
B-30
<PAGE>
COMMAND GOVERNMENT FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
Net Investment Income June 30, 1995
-------------
<S> <C>
Income
Interest.............................. $ 19,164,369
-------------
Expenses
Management fee........................ 1,401,832
Distribution fee...................... 438,073
Custodian's fees and expenses......... 120,000
Registration fees..................... 95,000
Transfer agent's fees................. 78,000
Trustees' fees........................ 49,000
Reports to shareholders............... 44,000
Audit fee and expenses................ 36,000
Legal fees............................ 20,000
Insurance expense..................... 11,300
Miscellaneous......................... 5,576
-------------
Total expenses...................... 2,298,781
-------------
Net investment income................... 16,865,588
-------------
Realized gain on Investments
Net realized gain on investment
transactions.......................... 49,296
-------------
Net Increase in Net Assets
Resulting from Operations............... $ 16,914,884
-------------
-------------
</TABLE>
COMMAND GOVERNMENT FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended June 30,
Increase (Decrease) in ---------------------------------
Net Assets 1995 1994
--------------- ---------------
<S> <C> <C>
Operations
Net investment
income................. $ 16,865,588 $ 10,496,097
Net realized gain on
investment
transactions......... 49,296 49,860
--------------- ---------------
Net increase in net
assets resulting from
operations........... 16,914,884 10,545,957
--------------- ---------------
Dividends and
distributions to
shareholders........... (16,914,884) (10,545,957)
--------------- ---------------
Fund share transactions
(at $1 per share)
Net proceeds from
shares subscribed.... 1,851,317,527 1,493,531,341
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 16,914,884 10,545,957
Cost of shares
reacquired............. (1,789,194,124) (1,560,523,700)
--------------- ---------------
Net increase (decrease)
in net assets from
Fund share
transactions......... 79,038,287 (56,446,402)
--------------- ---------------
Total increase (decrease) 79,038,287 (56,446,402)
Net Assets
Beginning of year........ 325,256,858 381,703,260
--------------- ---------------
End of year.............. $ 404,295,145 $ 325,256,858
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Financial Statements appearing on page 43.
See Notes to Financial Statements appearing on page 43.
B-31
<PAGE>
COMMAND GOVERNMENT FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized gains..................... .048 0.028 0.028 0.045 0.067
Dividends and distributions to shareholders...................... (.048) (0.028) (0.028) (0.045) (0.067)
-------- -------- -------- -------- --------
Net asset value, end of year..................................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a).................................................. 4.89% 2.86% 2.85% 4.56% 6.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).................................... $404,295 $325,257 $381,703 $372,988 $414,978
Average net assets (000)......................................... $350,458 $376,159 $380,103 $422,639 $398,971
Ratios to average net assets:
Expenses, including distribution fees.......................... .65% .63% .65% .69% .65%
Expenses, excluding distribution fees.......................... .53% .51% .53% .57% .53%
Net investment income.......................................... 4.81% 2.79% 2.74% 4.38% 6.54%
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each year reported and includes reinvestment
of dividends and distributions.
See Notes to Financial Statements appearing on page 43.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Command Government Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Command Government Fund (the
``Fund'') at June 30, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
``financial statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1995 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
August 21, 1995
B-32
<PAGE>
COMMAND TAX-FREE FUND Portfolio of Investments
June 30, 1995
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
ALABAMA--0.2%
Birmingham Medical
Clinic, F.R.D.D.,
4.06%, 7/3/95, Ser.
A1+* $ 2,100 91.................... $ 2,100,000
--------------
ALASKA--0.5%
Alaska Hsg. Fin. Corp.,
F.R.W.D.,
4.00%, 7/6/95, Ser.
VMIG1 5,000 94A................... 5,000,000
--------------
ARIZONA--4.1%
Maricopa County Poll.
Ctrl., T.E.C.P.,
3.75%, 9/12/95, Ser.
P1 19,830 85E................... 19,830,000
Salt River Agi. Impvt. &
Pwr., T.E.C.P.
P1 23,200 3.75%, 9/11/95.......... 23,200,000
--------------
43,030,000
--------------
CALIFORNIA--3.2%
California Higher Ed.
Ln. Auth. Inc.,
Student Ln. Rev.,
A.N.N.M.T.,
3.90%, 7/1/96, Ser.
VMIG1 17,900 87A................... 17,900,000
3.90%, 7/1/96, Ser.
VMIG1 4,885 92D................... 4,885,000
Student Ln. Rev. Rfdg.,
A.N.N.M.T.,
4.40%, 11/1/95, Ser.
VMIG1 10,800 93A................... 10,800,000
--------------
33,585,000
--------------
COLORADO--3.1%
Avon Cnty. Ind. Dev.
Rev., Beaver Creek
Proj., F.R.M.D.,
4.25%, 7/15/95, Ser.
P1 9,000 84.................... 9,000,000
Colorado Hsg. Fin.
Auth.,
Eagle Tax-Exempt
Trust, 94C,
F.R.W.D.S.,
4.25%, 7/6/95, Ser.
A1+* 21,700 0601.................. 21,700,000
Denver Cnty.
Multifamily,
Ogden Res. Project,
F.R.D.D.,
4.25%, 7/3/95, Ser.
VMIG1 $ 2,010 85.................... $ 2,010,000
--------------
32,710,000
--------------
CONNECTICUT--3.6%
Connecticut Spec. Tax
Oblig.,
Trans. Infrastructure
Rev.,
F.R.W.D.,
4.00%, 7/5/95, Ser. 90
VMIG1 20,600 I..................... 20,600,000
Connecticut St. Hsg.
Fin. Auth.,
A.N.N.M.T.,
4.40%, 11/15/95, Ser.
VMIG1 17,000 94E-1................. 16,982,137
--------------
37,582,137
--------------
DISTRICT OF COLUMBIA--4.5%
Dist. of Columbia Rev.,
F.R.D.D.,
4.40%, 7/3/95, Ser.
VMIG1 8,100 92A-1................. 8,100,000
4.40%, 7/3/95, Ser.
VMIG1 4,400 92A-2................. 4,400,000
4.40%, 7/3/95, Ser.
VMIG1 10,200 92A-3................. 10,200,000
4.40%, 7/3/95, Ser.
VMIG1 7,300 92A-4................. 7,300,000
4.40%, 7/3/95, Ser.
VMIG1 8,400 92A-5................. 8,400,000
4.40%, 7/3/95, Ser.
VMIG1 9,100 92A-6................. 9,100,000
--------------
47,500,000
--------------
FLORIDA--1.9%
Dade Cnty. Hlth. Facs.
Auth. Rev.,
Miami Children's Hosp.
Proj., F.R.D.D.,
4.45%, 7/3/95, Ser.
VMIG1 2,100 90.................... 2,100,000
Eustis Hlth. Fac. Auth.
Rev., Hosp./Waterman
Proj., F.R.W.D.,
VMIG1 4,380 4.05%, 7/6/95........... 4,380,000
</TABLE>
B-33
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND TAX-FREE FUND
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
FLORIDA--(cont'd)
Miami Hlth. Facs. Auth.
Rev.,
Miami Jewish Home &
Hosp., F.R.W.D.,
4.15%, 7/5/95, Ser.
CPS1 $ 7,000 92.................... $ 7,000,000
Orange Cnty. Hsg. Fin.
Multifamily,
4.95%, 7/1/95, Ser.
A1* 6,700 89B................... 6,700,000
--------------
20,180,000
--------------
GEORGIA--6.9%
Burke Cnty. Dev. Auth.,
Poll. Ctrl. Pwr. Plant
Co., Vogtle Proj.,
F.R.D.D.,
4.35%, 7/3/95, Ser.
VMIG1 12,300 94A................... 12,300,000
4.35%, 7/3/95, Ser.
VMIG1 1,200 94-8.................. 1,200,000
Clayton Cnty. Hsg. Auth.
Multifamily, Summer
Wind Proj., F.R.W.D.,
4.25%, 7/5/95, Ser.
A1* 6,555 89.................... 6,555,000
De Kalb Cnty. Dev.
Auth.,
General Motors,
F.R.W.D.,
4.20%, 7/4/95, Ser.
VMIG2 2,500 85.................... 2,500,000
Fulton Cnty. Dev. Auth.
Rev.,
Robert W. Woodruff Art
Center, F.R.W.D.,
4.15%, 7/6/95, Ser.
CPS1 22,500 93.................... 22,500,000
Municipal Gas Auth.
Rev.,
Southern Portfolio 1
Project, T.E.C.P.,
VMIG1 7,375 3.70%, 8/7/95, Ser. C... 7,375,000
Transco Project,
T.E.C.P.,
3.20%, 7/31/95, Ser.
VMIG1 14,700 B..................... 14,700,000
Private Colleges & Univ.
Fac.
Energy Proj.,
T.E.C.P.,
3.60%, 8/10/95, Ser.
VMIG1 6,000 93B................... 6,000,000
--------------
73,130,000
--------------
ILLINOIS--13.8%
Cook Cnty. Tender Notes,
Cap. Equip. Proj.,
F.R.W.D.,
VMIG1 $ 18,500 4.20%, 7/5/95, Ser. A... $ 18,500,000
Hazel Crest Village
Rev., Waterford
Estates Proj.,
F.R.W.D.,
4.20%, 7/7/95, Ser.
VMIG1 7,500 92A................... 7,500,000
Illinois Dev. Fin. Auth.
Poll., Rfdg.
Commonwealth
Edison Co. Proj. B,
F.R.W.D.,
4.10%, 7/5/95, Ser.
P1 6,000 94B................... 6,000,000
Illinois Dev. Fin. Auth.
Rev., Multifamily Hsg.
Proj. Rev., F.R.W.D.,
4.20%, 7/7/95, Ser.
A1* 18,900 92.................... 18,900,000
Palos Comm. Hosp.,
F.R.W.D.,
4.00%, 7/6/95, Ser.
VMIG1 19,800 94.................... 19,800,098
Illinois Hlth. Facs.
Auth. Rev.,
Children's Mem. Hosp.,
S.E.M.M.T.,
4.40%, 8/24/95, Ser.
VMIG1 15,000 90A................... 15,000,000
Evanston Hosp. Corp.
Proj., A.N.N.M.T.,
3.65%, 5/31/96, Ser.
VMIG1 18,000 95.................... 18,000,000
Evanston Hosp. Corp.
Proj., S.E.M.M.T.,
4.30%, 2/29/96, Ser.
VMIG1 10,500 92.................... 10,500,000
Illinois St. Toll Hwy.
Auth. Rev., F.R.W.D.,
4.25%, 7/5/95, Ser.
VMIG1 2,500 93B................... 2,500,000
Joliet Regional Port
Dist., Dow Chemical
Proj., F.R.D.D.,
4.35%, 7/3/95, Ser.
P1 300 85.................... 300,000
</TABLE>
B-34
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND TAX-FREE FUND
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
ILLINOIS--(cont'd)
Village of Vernon Hills,
Multifamily Various
Rfdg. Hsg. Hawthorn
Lakes Proj., F.R.W.D.,
4.20%, 7/7/95, Ser.
A1* $ 10,210 1991.................. $ 10,210,000
Wheeling Multifamily
Hsg. Rev., Woodland
Creek II, F.R.W.D.,
4.15%, 7/7/95, Ser.
SP-1+* 8,000 90.................... 8,000,000
Woodridge Dupage Cntys.,
Multifamily Hsg. Rev.
Rfdg., Hinsdale Terr.
Apts., F.R.W.D.,
4.20%, 7/7/95, Ser.
A1+* 10,760 90.................... 10,760,000
--------------
145,970,098
--------------
INDIANA--3.2%
Gary Environ. Impvt.
Rev., U.S. Steel
Corp., T.E.C.P.,
4.00%, 9/8/95, Ser.
VMIG1 13,200 86.................... 13,200,000
Indiana Ed. Fac. Auth.,
Wesleyan Univ.
F.R.W.D.,
4.20%, 7/6/95, Ser.
NR 10,000 93.................... 10,000,000
Indiana Hlth. Fac. Fin.
Auth. Rev.,
Baptist Homes of
Indiana, F.R.W.D.,
4.20%, 7/6/95, Ser.
NR 8,255 95.................... 8,255,000
Indianapolis Econ. Dev.,
Mmm-Invest, Inc.
Proj., F.R.W.D.,
NR 1,965 4.20%, 7/6/95........... 1,965,000
--------------
33,420,000
--------------
LOUISIANA--0.6%
Louisiana Pub. Facs.
Auth.,
Hosp. Equip. Rev.,
F.R.W.D.,
4.45%, 7/5/95, Ser.
VMIG1 6,900 85A................... 6,900,000
--------------
MAINE--2.0%
Biddeford Res. Rec.
Rev.,
Energy Recovery Co.
Proj., F.R.M.D.,
3.95%, 7/3/95, Ser.
VMIG1 $ 20,900 85.................... $ 20,900,000
--------------
MARYLAND--2.7%
Baltimore Cnty. Poll.
Ctrl. Rev.,
Gas & Elec Co.,
T.E.C.P.,
3.40%, 7/5/95, Ser.
VMIG1 6,000 85.................... 6,000,000
3.75%, 8/3/95, Ser.
VMIG1 5,500 85.................... 5,500,000
Maryland St. Econ. Dev.
Corp., F.R.W.D.,
4.20%, 7/6/95, Ser.
A1* 7,500 95.................... 7,500,000
Maryland St. Ind. Dev.
Fin. Auth.,
Baltimore Int'l.
Culinary, F.R.W.D.,
A-1* 10,010 4.15%, 7/5/95, Ser 94... 10,010,000
--------------
29,010,000
--------------
MASSACHUSETTS--3.2%
Massachusetts Hsg. Fin. Agcy.,
Sngl. Fam. Hsg. Rev.,
Q.T.R.O.T.3,
Aaa 11,340 3.90%, 9/1/95, Ser. 5... 11,340,000
Revere Hsg. Auth.,
Multifamily Mtge. Rev.
Waters Edge Proj.,
F.R.W.D.,
4.20%, 7/7/95, Ser.
A-1* 22,000 91C................... 22,000,000
--------------
33,340,000
--------------
MICHIGAN--4.1%
Michigan Municipal Bond
Auth. Rev.,
4.75%, 7/20/95, Ser.
SP-1+* 25,800 94B................... 25,809,683
</TABLE>
B-35
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND TAX-FREE FUND
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
MICHIGAN--(cont'd)
Michigan Strategic Poll.
Ctrl. Rev.,
Dow Chemical Co.
Proj., T.E.C.P.,
4.15%, 8/2/95, Ser.
P-1 $ 6,850 87.................... $ 6,850,000
Michigan Strategic Fund,
Poll. General Motors
Proj., F.R.W.D.,
4.10%, 7/4/95, Ser.
VMIG2 10,500 85.................... 10,500,000
--------------
43,159,683
--------------
MINNESOTA--3.7%
Bloomington Port Auth.
Tax Rev., F.R.W.D.,
4.15%, 7/7/95, Ser.
VMIG1 15,000 95A................... 15,000,000
City of Fridley Comm.
Dev. Rev.,
River Rd. Invsmt.
Proj., F.R.W.D.,
4.05%, 7/1/95, Ser.
A-1* 4,130 84.................... 4,130,000
Minnesota Hsg. Fin.
Agency., A.N.N.M.T.,
5.25%, 1/16/96, Ser.
VMIG1 12,500 93F................... 12,500,000
Minnetonka Multifamily
Hsg. Rev.,
Cliffs Ridgedale II
Proj., F.R.W.D.,
4.15%, 7/7/95, Ser.
A-1* 7,000 85A................... 7,000,000
--------------
38,630,000
--------------
MISSISSIPPI--0.7%
Harrison Cnty. Poll.
Ctrl. Rev.,
Mississippi Pwr. Co.
Proj., F.R.W.D.
4.15%, 7/5/95, Ser.
A1* 8,000 92.................... 8,000,000
--------------
MISSOURI--2.6%
Missouri Environ. Impvt.
&
Energy Res. Auth.,
Union Elec. Co.,
A.N.N.O.T.,
4.00%, 6/1/96, Ser.
P-1 $ 2,700 84A................... $ 2,700,000
4.00%, 6/1/96, Ser.
P-1 6,250 84B................... 6,250,000
Missouri St. Econ. Dev.
Export &
Infrastructure Board,
3.95%, 8/1/95, Ser.
MIG1 10,000 94C................... 10,000,000
St. Charles Cnty. Ind.
Dev. Auth.,
Cedar Ridge Apts.,
F.R.W.D.,
4.15%, 7/5/95, Ser.
A-1+* 8,405 88A................... 8,405,000
--------------
27,355,000
--------------
NEW JERSEY--4.1%
Jersey City, B.A.N.,
4.75%, 9/29/95, Ser.
NR 27,500 94.................... 27,523,007
Patterson, B.A.N.,
NR 15,584 5.25%, 1/29/96.......... 15,632,480
--------------
43,155,487
--------------
NEW MEXICO--1.8%
Albuquerque Airport
Rev., Sub. Lien,
F.R.W.D.,
4.15%, 7/5/95, Ser.
VMIG1 13,700 95.................... 13,700,000
Hurley Poll. Ctrl. Rev.,
Updates Kennecott
Santa Fe, F.R.D.D.,
4.25%, 7/3/95, Ser.
P-1 5,600 85.................... 5,600,000
--------------
19,300,000
--------------
NEW YORK--1.9%
New York City Gen.
Oblig., F.R.W.D.,
4.25%, 7/5/95, Ser.
VMIG1 7,900 95F-3................. 7,900,000
</TABLE>
B-36
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND TAX-FREE FUND
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
NEW YORK--(cont'd)
New York City Unltd.
Tax, F.R.W.D.S.,
4.40%, 7/6/95, Ser.
VMIG1 $ 12,200 33.................... $ 12,200,000
--------------
20,100,000
--------------
NORTH CAROLINA--1.3%
Cabarrus Cnty. Ind.
Facs. Auth.,
Poll. Ctrl. Rev.
Philip Morris Proj.,
F.R.W.D.,
4.15%, 7/5/95, Ser.
P-1 5,000 92.................... 5,000,000
Wake Cnty. Ind. Fac. &
Poll. Ctrl., T.E.C.P.,
3.85%, 8/4/95, Ser.
P-1 8,900 90B................... 8,900,000
--------------
13,900,000
--------------
OHIO--3.0%
Marion Cnty. Hosp.
Impvt. Rev.,
S.E.M.O.T.,
4.25%, 10/1/95, Ser.
A-1+* 7,280 92.................... 7,280,000
Ohio St. Air Quality
Dev. Auth. Rev.,
Cincinnati Elect. &
Gas, T.E.C.P.,
3.85%, 8/4/95, Ser.
P-1 15,600 85B................... 15,600,000
Toledo-Lucas Cnty.,
Convntn. & Visitors
Bureau, M.T.H.O.T.,
3.90%, 8/1/95, Ser.
VMIG1 8,375 88.................... 8,375,000
--------------
31,255,000
--------------
OKLAHOMA--0.5%
Muskogee Mall Proj.,
F.R.W.D,
4.25%, 7/5/95, Ser.
VMIG1 5,800 85.................... 5,800,000
--------------
OREGON--1.2%
Klamath Falls Elect.
Rev., Salt Caves
Hydroelectric Proj.,
A.N.N.M.T.,
4.40%, 5/2/96, Ser.
SP-1+* $ 7,425 86B................... $ 7,425,000
4.40%, 5/2/96, Ser.
SP-1+* 5,000 86D................... 5,000,000
--------------
12,425,000
--------------
PENNSYLVANIA--1.9%
Allegheny Cnty. Ind.
Dev. Rev.,
USX Corp., T.E.C.P.,
4.30%, 8/1/95, Ser.
P-1 8,200 86.................... 8,200,000
3.85%, 8/7/95, Ser.
P-1 12,000 86.................... 12,000,000
--------------
20,200,000
--------------
PUERTO RICO--0.2%
Puerto Rico
Commonwealth,
Gov't. Dev. Bank.,
F.R.W.D.,
3.80%, 7/5/95, Ser.
VMIG1 1,700 85.................... 1,700,000
--------------
SOUTH DAKOTA--2.5%
South Dakota School
Dist.,
4.50%, 8/1/95, Ser.
SP-1+* 15,755 94.................... 15,762,689
South Dakota Hlth. & Ed.
Rev.,
Mc Kennan Hosp. Proj.,
F.R.W.D.,
4.20%, 7/7/95, Ser.
VMIG1 11,000 94.................... 11,000,000
--------------
26,762,689
--------------
TENNESSEE--2.3%
Montgomery Cnty. Public
Bldg., F.R.W.D.,
4.20%, 7/6/95, Ser.
A-1* 11,000 95.................... 11,000,000
</TABLE>
B-37
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND TAX-FREE FUND
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
TENNESSEE--(cont'd)
Nashville & Davidson
Cnty.,
Beachwood Ter.,
F.R.W.D.,
4.20%, 7/7/95, Ser.
VMIG2 $ 8,995 89.................... $ 8,995,000
Smyrna Hsg. Assoc. Inc.,
Multifamily Hsg. Rev.,
F.R.W.D.,
4.20%, 7/7/95, Ser.
A-1* 4,285 89.................... 4,285,000
--------------
24,280,000
--------------
TEXAS--6.0%
Austin Util. Sys. Rev., F.R.W.D.S.,
4.35%, 7/6/95, Ser.
A-1+* 8,890 SG30.................. 8,890,000
Bexar Cnty. Hsg. Fin.
Corp.,
Windridge Apts.,
F.R.W.D.,
4.15%, 7/6/95, Ser.
A-1+* 6,270 95.................... 6,270,000
Brazos River Harbor Nav.
Dist.,
Dow Chemical Co.
Proj., T.E.C.P.,
3.75%, 8/8/95, Ser.
P-1 6,000 91.................... 6,000,000
4.50%, 10/18/95, Ser.
P-1 7,600 91.................... 7,600,000
DeSoto Ind. Dev. Auth.,
Nat'l. Svc. Inds. Inc.
Proj., F.R.W.D.,
4.15%, 7/6/95, Ser.
NR 7,150 91.................... 7,150,000
Harris Cnty. Hlth. Fac.
Dev. Corp.,
Methodist Hosp. Rev.,
F.R.D.D.,
4.50%, 7/3/95, Ser.
A1+* 2,800 94.................... 2,800,000
San Antonio Elec. & Gas
Rev., T.E.C.P.,
4.125%, 7/25/95, Ser.
P-1 4,800 A..................... 4,800,000
P-1 5,600 3.20%, 8/7/95, Ser. A... 5,600,000
Tarrant Cnty. Hlth. Fac.
Dev. Corp.,
Cumberland Proj.,
F.R.D.D.,
4.70%, 7/3/95, Ser.
A-1* $ 2,500 91.................... $ 2,500,000
Texas Board of Regents,
A & M University,
T.E.C.P.,
P-1 11,800 4.20%, 9/5/95, Ser. B... 11,800,000
--------------
63,410,000
--------------
UTAH--1.3%
Intermountain Pwr. Auth.
Supply Rev.,
3.85%, 6/17/96, Ser.
VMIG1 8,500 85E, A.N.N.O.T........ 8,500,000
3.90%, 8/17/95, Ser.
VMIG1 5,000 85E, T.E.C.P.......... 5,000,000
--------------
13,500,000
--------------
VIRGINIA--6.2%
Chesterfield Cnty. Ind.
Dev. Auth.,
Virginia Elec. & Pwr.
Co. Proj., T.E.C.P.,
4.00%, 8/8/95, Ser.
VMIG1 17,600 87A................... 17,600,000
3.80%, 9/5/95, Ser.
VMIG1 14,100 85.................... 14,100,000
Philip Morris Proj.,
F.R.W.D.,
P-1 8,500 4.15%, 7/5/95........... 8,500,000
Harrisonburg Redev. &
Hsg. Auth.,
Multifamily Hsg. Rev.,
F.R.W.D.,
4.15%, 7/6/95, Ser.
VMIG1 13,000 91A................... 13,000,000
York Cnty. Ind. Dev.
Auth.,
Virginia Elec. & Pwr.
Co.,
VMIG1 12,500 4.20%, 8/9/95........... 12,500,000
--------------
65,700,000
--------------
</TABLE>
B-38
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND TAX-FREE FUND
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
WASHINGTON--0.3%
Washington St. Hsg. Fin.
Comm.,
Snohomish Cnty. YMCA
Proj., F.R.D.D.,
4.65%, 7/3/95, Ser.
VMIG1 $ 2,800 94.................... $ 2,800,000
--------------
WYOMING--0.2%
Lincoln Cnty. Poll.
Ctrl. Rev.,
Pacificorp Proj.,
T.E.C.P.,
4.20%, 8/2/95, Ser.
VMIG1 2,500 91.................... 2,500,000
--------------
Total Investments--99.3%
(amortized cost
$1,048,290,094)....... 1,048,290,094
Other assets in excess
of
liabilities--0.7%..... 7,277,552
--------------
Net Assets--100%........ $1,055,567,646
--------------
--------------
</TABLE>
(a) The following abbreviations are used in portfolio descriptions:
A.N.N.M.T.--Annual Mandatory Tender
A.N.N.O.T.--Annual Optional Tender
B.A.N.--Bond Anticipation Note
F.R.D.D.--Floating Rate (Daily) Demand Note**
F.R.M.D.--Floating Rate (Monthly) Demand Note**
F.R.W.D.--Floating Rate (Weekly) Demand Note**
F.R.W.D.S.--Floating Rate Weekly Demand--Synthetic
M.T.H.O.T.--Monthly Optional Tender
Q.T.R.O.T.3--Quarterly Third Party Optional Tender
S.E.M.M.T.--Semi-Annual Mandatory Tender
S.E.M.O.T.--Semi-Annual Optional Tender
T.E.C.P.--Tax Exempt Commercial Paper
* Standard & Poor's Rating.
** For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
B-39
See Notes to Financial Statements appearing on page 43.
<PAGE>
COMMAND TAX-FREE FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets June 30, 1995
-----------------
<S> <C>
Investments, at value................................................................. $ 1,048,290,094
Cash.................................................................................. 20,644
Receivable for Fund shares sold....................................................... 26,134,780
Receivable for investments sold....................................................... 13,500,000
Interest receivable................................................................... 8,377,549
Prepaid expenses...................................................................... 29,454
-----------------
Total assets........................................................................ 1,096,352,521
-----------------
Liabilities
Payable for investments purchased..................................................... 22,789,937
Payable for Fund shares repurchased................................................... 17,359,188
Due to Manager........................................................................ 397,676
Accrued expenses...................................................................... 180,552
Due to Distributor.................................................................... 57,522
-----------------
Total liabilities................................................................... 40,784,875
-----------------
Net Assets
Applicable to 1,055,567,646 shares of beneficial interest ($.01 par value) issued and
outstanding;
unlimited number of shares authorized............................................... $ 1,055,567,646
-----------------
-----------------
Net asset value, offering price and redemption price per share ($1,055,567,646 /
1,055,567,646 shares)............................................................... $1.00
-----------------
-----------------
</TABLE>
See Notes to Financial Statements appearing on page 43.
B-40
<PAGE>
COMMAND TAX-FREE FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
June 30,
Net Investment Income 1995
-------------
<S> <C>
Income
Interest............................ $ 34,377,013
-------------
Expenses
Management fee...................... 4,314,275
Distribution fee.................... 1,158,610
Custodian's fees and expenses....... 205,000
Transfer agent's fees............... 184,000
Registration fees................... 70,000
Trustees' fees...................... 56,000
Audit fee and expenses.............. 41,000
Reports to shareholders............. 40,000
Insurance expense................... 28,000
Legal fees.......................... 20,000
Miscellaneous....................... 11,656
-------------
Total expenses.................... 6,128,541
-------------
Net investment income................. 28,248,472
-------------
Realized gain on Investments
Net realized gain on investment
transactions........................ 45
-------------
Net Increase in Net Assets
Resulting from Operations............. $ 28,248,517
-------------
-------------
</TABLE>
COMMAND TAX-FREE FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended June 30,
Increase (Decrease) in ---------------------------------
Net Assets 1995 1994
--------------- ---------------
<S> <C> <C>
Operations
Net investment
income............... $ 28,248,472 $ 17,833,245
Net realized gain on
investment
transactions....... 45 243
--------------- ---------------
Net increase in net
assets resulting
from operations.... 28,248,517 17,833,488
--------------- ---------------
Dividends and
distributions to
shareholders......... (28,248,517) (17,833,488)
--------------- ---------------
Fund share transactions
(at $1 per share)
Net proceeds from
shares
subscribed......... 4,346,712,584 3,949,124,328
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions...... 28,248,517 17,833,488
Cost of shares
reacquired........... (4,166,995,198) (3,973,285,613)
--------------- ---------------
Net increase
(decrease) in net
assets from Fund
share
transactions....... 207,965,903 (6,327,797)
--------------- ---------------
Total increase
(decrease)........... 207,965,903 (6,327,797)
Net Assets
Beginning of year...... 847,601,743 853,929,540
--------------- ---------------
End of year............ $ 1,055,567,646 $ 847,601,743
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Financial Statements appearing on page 43.
See Notes to Financial Statements appearing on page 43.
B-41
<PAGE>
COMMAND TAX-FREE FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized gains.............. 0.032 0.020 0.022 0.035 0.049
Dividends and distributions to shareholders............... (0.032) (0.020) (0.022) (0.035) (0.049)
---------- -------- -------- -------- --------
Net asset value, end of year.............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
TOTAL RETURN(a)........................................... 3.29% 1.98% 2.23% 3.53% 5.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................. $1,055,568 $847,602 $853,930 $729,122 $750,567
Average net assets (000).................................. $ 926,888 $908,421 $823,517 $751,458 $770,745
Ratios to average net assets:
Expenses, including distribution fees................... .66% .65% .68% .69% .66%
Expenses, excluding distribution fees................... .54% .53% .55% .56% .54%
Net investment income................................... 3.05% 1.96% 2.09% 3.47% 4.88%
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each year reported and includes reinvestment
of dividends and distributions.
See Notes to Financial Statements appearing on page 43.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Command Tax-Free Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Command Tax-Free Fund (the
``Fund'') at June 30, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
``financial statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1995 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
August 21, 1995
B-42
<PAGE>
COMMAND FUNDS
Notes to Financial Statements
Command Money Fund, Command Govemment Fund, and Command Tax-Free Fund
(collectively, the Funds ) are each registered under the Investment Company Act
of 1940 as an open-end, diversified management investment company whose shares
are offered exclusively to participants in the Prudential Securities Command
Account Program of Prudential Securities Incorporated ( Prudential Securities ).
The Funds invest in a portfolio of money market instruments maturing in 13
months or less whose ratings are within the two highest ratings categories by a
nationally recognized statistical rating agency or, if not rated, are of
comparable quality. The ability of the issuers of the securities held by the
Funds to meet their obligations may be affected by economic and/or political
developments in a specific industry, state or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Funds in the preparation of
their financial statements.
Securities Valuation: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of any discount or premium. If the amortized cost
method is determined not to represent fair value, the value shall be determined
by or under the direction of the Board of Trustees. All securities are valued as
of 4:30 p.m., New York time.
In connection with transactions in repurchase agreements, it is the Funds'
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Funds may be
delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The cost of portfolio securities for federal income tax purposes
is substantially the same as for financial reporting purposes.
Federal Income Taxes: Each Fund intends to continue to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its net income to its shareholders.
Therefore, no federal income tax provision is required.
Dividends: Each Fund declares all of its net investment income as dividends
daily to its shareholders of record at the time of such declaration. Dividends
are reinvested daily into additional full and fractional shares of the
respective Fund at the net asset value per share detemined on the date of
declaration. Net investment income for dividend purposes includes accrued
interest and amortization of premiums and discounts, plus or minus any gains or
losses realized on sales of portfolio securities, and less the estimated
expenses of the Fund applicable to the dividend period.
Note 2. Agreements Each Fund has a manage-
ment agreement with Prudential Mutual Fund
Management, Inc. ( PMF ). Pursuant to this agreement PMF has responsibility for
all investment advisory services and supervises the subadviser's performance of
such services. PMF has entered into a subadvisory agreement with the Prudential
Investment Corporation (PIC); PIC furnishes investment advisory services in
connection with the management of the Funds. PMF pays for the cost of the
subadvisor's services, the compensation of officers of the Funds, occupancy and
certain clerical and bookkeeping costs of the Funds. The Funds bear all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly on the
following basis:
<TABLE>
<CAPTION>
Average Daily Command Command Command
Net Assets Money Government Tax-Free
- ------------------------------------ ------- ---------- -------
<S> <C> <C> <C>
First $500 million.................. .500% .400% .500%
Second $500 million................. .425% .400% .425%
Third $500 million.................. .375% .375% .375%
Excess of $1.5 billion.............. .350% .375% .375%
</TABLE>
Each Fund has a distribution agreement with Prudential Mutual Fund
Distributors, Inc. ( PMFD ). To reimburse PMFD for its expenses incurred
pursuant to a plan of distribution, the Funds pay PMFD a reimbursement, accrued
daily and payable monthly, at an annual rate of .125 of 1% of each Fund's
average daily net assets. PMFD pays various broker-dealers, including Prudential
Securities and Pruco Securities Corporation, affiliated broker-dealers, for
account servicing fees and other expenses incurred by such brokers-dealers.
B-43
<PAGE>
PMFD is a wholly-owned subsidiary of PMF; Prudential Securities, PMF and PIC
are (indirect) wholly-owned subsidiaries of The Prudential Insurance Company of
America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (PMFS), a wholly-
with Affiliates owned subsidiary of PMF,
serves as the Funds' transfer agent.
As of June 30, 1995, the following amounts were due to PMFS from the Funds:
<TABLE>
<S> <C>
Command Money.................................... $128,222
Command Government............................... $ 6,244
Command Tax-Free................................. $ 15,649
</TABLE>
Note 4. Joint The Command Government
Repurchase Fund, along with other affili-
Agreement Account ated registered investment
companies, transfers un-
invested cash balances into a single joint account, the daily aggregate balance
of which is invested in one or more repurchase agreements collateralized by U.S.
Treasury or Federal agency obligations. As of June 30, 1995, the Command
Government Fund had a 0.1% undivided interest in the joint account. The
undivided interest for the Command Government Fund represents $704,000 in the
principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefore were as follows:
Bear, Stearns & Co. Inc., 6.125%, in the principal amount of $200,000,000,
repurchase price $200,102,083, due 7/3/95. The value of the collateral including
accrued interest is $204,321,562.
CS First Boston Corp., 6.13%, in the principal amount of $160,000,000,
repurchase price $160,081,733, due 7/3/95. The value of the collateral including
accrued interest is $163,246,196.
Goldman, Sachs & Co., 6.10%, in the principal amount of $116,557,000,
repurchase price $116,616,250, due 7/3/95. The value of the collateral including
accrued interest is $118,889,059.
Smith Barney, Inc., 6.13%, in the principal amount of $200,000,000,
repurchase price $200,102,166, due 7/3/95. The value of the collateral including
accrued interest is $204,000,775.
B-44
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Financial statements for the ten-year period ended June 30, 1995,
included in the Prospectus constituting Part A of this Registration
Statement:
Financial Highlights
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Report of Independent Accountants
Portfolio of Investments at June 30, 1995
Statement of Assets and Liabilities at June 30, 1995
Statement of Operations for the year ended June 30, 1995
Statement of Changes in Net Assets for the fiscal years ended June 30,
1995 and June 30, 1994
Financial Highlights for each of the five years in the period ended
June 30, 1995
Notes to Financial Statements
(b) Exhibits:
1. Amended and Restated Declaration of Trust dated August 19, 1987,
incorporated by reference to Exhibit No. 1 to Post-Effective Amendment
No. 6 to the Registration Statement on Form N-1A (File No. 2-73900).
2. By-Laws, as amended, incorporated by reference to Exhibit No. 2 to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1
(File No. 2-73900).
5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit No. 5(a) to
Post-Effective Amendment No. 8 to the Registration Statement on Form
N-1A (File No. 2-73900).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A (File No. 2-73900).
6. Distribution Agreement between the Registrant and Prudential Mutual
Fund Distributors, Inc., amended and restated as of April 12, 1995.*
8. Custody Agreement between the Registrant and State Street Bank and Trust
Co., incorporated by reference to Exhibit No. 8(b) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A (File No.
2-73900).
9. Administration Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit No. 9 to
Post-Effective Amendment No. 6 to the Registration Statement on Form
N-1A (File No. 2-73900).
10. Opinion of Gaston, Snow & Ely Bartlett, incorporated by reference to
Exhibit No. 10 to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1 (File No. 2 - 73900).
11. Consent of Independent Accountants.*
13. Investment representation letter. Incorporated by reference to Exhibit
No. 13 to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1 (File No. 2-73900).
15. Restated Distribution and Service Plan pursuant to Rule 12b-1,
incorporated by reference to Exhibit No. 15 to Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A (File No. 2-73900)
filed via EDGAR on August 30, 1993.
C-1
<PAGE>
16. Schedule of Yield Calculation, incorporated by reference to Exhibit
No.16 to Post-Effective Amendment No. 8 to the Registration Statement on
Form N-1A (File No. 2-73900).
27. Financial Data Schedule.*
Other Exhibits:
Powers of Attorney for: Edward D. Beach, Delayne D. Gold, Harry A. Jacobs, Jr.,
Stanley Shirk, Langdon R. Stevenson, Stephen Stoneburn, Nancy H. Teeters and
David S. Towner, incorporated by reference to other Exhibits to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (File No. 2-73902).
- ------------------
*Filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of August 4, 1995 there were 16,869 record holders of shares of
beneficial interest, $.01 par value per share, of the Registrant.
Item 27. Indemnification.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VII of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the 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 the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 9 of the Distribution Agreement (Exhibit 15 to the
Registration Statement), the Distributor of the 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 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission 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 the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the 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 of 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.
The Registrant intends to purchase an insurance policy insuring its
officers and directors against liabilities, and certain costs of defending
claims against such officers and directors, to the extent such officers and
directors 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 the Registrant
against the cost of indemnification payments to officers and directors under
certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
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.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Sections 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser
See ``How the Funds are Managed--Manager'' in the Prospectus constituting
Part A of this Registration Statement and ``Manager'' in the Statement of
Additional Information constituting Part B of this Registration Statement.
C-2
<PAGE>
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on March 30, 1995).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- -------------------------- ---------------------- --------------------------------------------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President, Director of Marketing and
President, Director of Director, PMF; Senior Vice President, Prudential
Marketing and Director Securities Incorporated (Prudential Securities);
Chairman and Director of Prudential Mutual Fund
Distributors, Inc. (PMFD)
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities; Vice President, PMFD
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary and
President, General Director, PMF and PMFD; Senior Vice President,
Counsel, Secretary and Prudential Securities; Director, Prudential Mutual
Director Fund Services, Inc. (PMFS)
Robert F. Gunia Executive Vice Executive Vice President, Chief Financial and
President, Chief Administrative Officer, Treasurer and Director, PMF;
Financial and Senior Vice President, Prudential Securities;
Administrative Executive Vice President, Chief Financial Officer,
Officer, Treasurer and Treasurer and Director, PMFD; Director, PMFS
Director
Theresa A. Hamacher Director Director, PMF; Vice President, Prudential; Vice
President, PIC
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating
Officer and Director, PMFD; Chief Executive Officer
and Director, PMFS; Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer and Executive Vice President, Director and Member of the
Director Operating Committee, Prudential Securities; Director,
Prudential Securities Group, Inc. (PSG); Executive
Vice President, PIC; Director, PMFD; Director, PMFS
S. Jane Rose Senior Vice President, Senior Vice President, Senior Counsel and Assistant
Senior Counsel and Secretary PMF; Senior Vice President and Senior
Assistant Secretary Counsel, Prudential Securities
</TABLE>
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07101.
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- -------------------------- ---------------------- --------------------------------------------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice
Two Gateway Center President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Vice President
51 JFK Pkwy and Director and Director, PIC
Short Hills, NJ 07078
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC;
Director, PMF
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- -------------------------- ---------------------- --------------------------------------------------------
<S> <C> <C>
Harry E. Knapp, Jr. President, Chairman of President, Chairman of the Board, Chief Executive
the Board, Chief Officer and Director, PIC; Vice President, Prudential
Executive Officer and
Director
William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice
Four Gateway Center President, PIC
Newark, NJ 07102
Richard A. Redeker Executive Vice President, Chief Executive Officer and Director, PMF;
President Executive Vice President, Director and Member of
Operating Committee, Prudential Securities; Director,
PSG; Executive Vice President, PIC; Director, PMFD;
Director, PMFS
Eric A. Simonson Vice President and Vice President and Director, PIC; Executive Vice
Director President, Prudential
Claude J. Zinngrabe, Jr. Executive Vice Vice President, Prudential; Executive Vice President,
President PIC
</TABLE>
Item 29. Principal Underwriter
(a) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for COMMAND
Government Fund, COMMAND Money Fund, COMMAND Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money Market
Series), Prudential-Bache MoneyMart Assets Inc. (d/b/a Prudential MoneyMart
Assets), Prudential Municipal Series Fund (Connecticut Money Market Series,
Massachusetts Money Market Series, New York Money Market Series and New Jersey
Money Market Series), Prudential Institutional Liquidity Portfolio, Inc.,
Prudential-Bache Special Money Market Fund, Inc. (d/b/a Prudential Special Money
Market Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential
Tax-Free Money Fund), and for Class A shares of Prudential Adjustable Rate
Securities Fund, Inc., Prudential Allocation Fund, The BlackRock Government
Income Trust, Prudential California Municipal Fund (California Income Series and
California Series), Prudential Diversified Bond Fund, Inc., Prudential Equity
Fund, Inc., Prudential Equity Income Fund, Prudential Europe Growth Fund, Inc.,
Prudential Global Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential
Global Natural Resources Fund, Inc., Prudential Mortgage Income Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Growth Opportunity Fund,
Inc., Prudential High Yield Fund, Inc., Prudential IncomeVertible(R) Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (Arizona
Series, Georgia Series, Hawaii Income Series, Maryland Series, Massachusetts
Series, Michigan Series, Minnesota Series, New Jersey Series, New York Series,
North Carolina Series, Ohio Series and Pennsylvania Series), Prudential National
Municipals Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential
Short-Term Global Income Fund, Inc., Prudential Structured Maturity Fund, Inc.,
Prudential U.S. Government Fund, Prudential Utility Fund, Inc., Global Utility
Fund, Inc. and Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity
Fund).
(b) Prudential Mutual Fund Distributors, Inc.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- --------------------------------- -------------------------------------- -------------------------
<S> <C> <C>
Joanne Accurso-Soto.............. Vice President None
Dennis Annarumma................. Vice President, Assistant Treasurer None
and Assistant Comptroller
Phyllis J. Berman................ Vice President None
Brendan D. Boyle Chairman and Director None
Stephen P. Fisher................ Vice President None
Frank W. Giordano................ Executive Vice President, General None
Counsel, Secretary and Director
Robert F. Gunia.................. Executive Vice President, Chief Vice President
Financial Officer, Treasurer, and
Director
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- --------------------------------- -------------------------------------- -------------------------
<S> <C> <C>
Timothy J. O'Brien President, Chief Executive Officer, None
Chief Operating Officer and Director
Richard A. Redeker Director Director and President
Andrew J. Varley................. Vice President None
Anita L. Whelan.................. Vice President and Assistant Secretary None
- ------------------
(1)The address of each person named is One Seaport Plaza, New York 10292 unless otherwise indicated.
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
Item 30. 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 State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey, the Registrant, One Seaport Plaza, New
York, New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10)
and (11) and 31a-1(f) will be kept at Two Gateway Center, documents required by
Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport Plaza 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 State
Street Bank and Trust Company and Prudential Mutual Fund Services, Inc.
Item 31. Management Services
Other than as set forth under the captions ``How the Funds are
Managed--Manager'' and ``How the Funds are Managed--Distributor'' in the
Prospectus and the captions ``Manager'' and ``Distributor'' in the Statement of
Additional Information, constituting Parts A and B, respectively, of this
Registration Statement, Registrant is not a party to any management-related
service contract.
Item 32. Undertakings
None.
C-5
<PAGE>
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 the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 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 New York, and State of New
York, on the 30th day August, 1995.
COMMAND TAX-FREE FUND
/s/ Richard A. Redeker
-----------------------------------------------
(Richard A. Redeker, 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.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
/s/ Edward D. Beach Trustee August 30, 1995
- --------------------------------------
Edward D. Beach
/s/ Delayne D. Gold Trustee August 30, 1995
- --------------------------------------
Delayne D. Gold
/s/ Harry A. Jacobs, Jr. Trustee August 30, 1995
- --------------------------------------
Harry A. Jacobs, Jr.
/s/ Richard A. Redeker President and Trustee August 30, 1995
- --------------------------------------
Richard A. Redeker
/s/ Stanley E. Shirk Trustee August 30, 1995
- --------------------------------------
Stanley E. Shirk
/s/ Langdon R. Stevenson Trustee August 30, 1995
- --------------------------------------
Langdon R. Stevenson
/s/ Stephen Stoneburn Trustee August 30, 1995
- --------------------------------------
Stephen Stoneburn
/s/ Nancy H. Teeters Trustee August 30, 1995
- --------------------------------------
Nancy H. Teeters
/s/ David S. Towner Trustee August 30, 1995
- --------------------------------------
David S. Towner
/s/ Grace C. Torres Treasurer and Principal Financial and August 30, 1995
- -------------------------------------- Accounting Officer
Grace C. Torres
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMAND TAX-FREE FUND
EXHIBIT INDEX
Exhibit Number Description
- ----------------- ---------------------------------------------------------------------------------
<C> <C> <S>
1 Amended and Restated Declaration of Trust dated August 19, 1987, incorporated by
reference to Exhibit No. 1 to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A (File No. 2-73900).
2 By-Laws, as amended, incorporated by reference to Exhibit No. 2 to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1 (File No. 2-73900).
5 (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc, incorporated by reference to Exhibit No. 5(a) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (File No. 2-73900).
5 (b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc. and The
Prudential Investment Corporation, incorporated by reference to Exhibit No. 5(b)
to Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A
(File No. 2-73900).
6 Distribution Agreement between the Registrant and Prudential Mutual Fund
Distributors, Inc., amended and restated as of April 12, 1995.*
8 Custody Agreement between the Registrant and State Street Bank and Trust Co.,
incorporated by reference to Exhibit No. 8(b) to Post-Effective Amendment No. 9
to the Registration Statement on Form N-1A (File No. 2-73900).
9 Administration Agreement between the Registrant and Prudential Mutual Fund
Management, Inc., incorporated by reference to Exhibit No. 9 to Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A (File No. 2-73900).
10. Opinion of Gaston, Snow & Ely Bartlett, incorporated by reference to
Exhibit No. 10 to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1 (File No. 2 - 73900).
11. Consent of Independent Accountants.*
13. Investment representation letter. Incorporated by reference to Exhibit
No. 13 to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1 (File No. 2-73900).
15. Restated Distribution and Service Plan pursuant to Rule 12b-1,
incorporated by reference to Exhibit No. 15 to Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A (File No. 2-73900)
filed via EDGAR on August 30, 1993.
16. Schedule of Yield Calculation, incorporated by reference to Exhibit
No.16 to Post-Effective Amendment No. 8 to the Registration Statement on
Form N-1A (File No. 2-73900).
27. Financial Data Schedule.*
</TABLE>
- ---------------
* Filed herewith.
<PAGE>
COMMAND TAX-FREE FUND
Distribution Agreement
Agreement, dated as of September 15, 1988 and amended and restated as of
April 12, 1995, between Command Tax-Free Fund, a Massachusetts Business Trust
(the Fund), and Prudential Mutual Fund Distributors, Inc., a Delaware
Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its shares for
sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund has previously offered its shares pursuant to
distribution agreements dated February 17, 1982 and September 15, 1988 (the
"Former Agreements") and adopted plans of distribution pursuant to Rule 12b-1
under the Investment Company Act authorizing payments by the Fund to Prudential
Securities Incorporated and Prudential Mutual Fund Distributors (the "Former
Plans"); and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, superseding the former agreements, with respect to the continuous
offering of the Fund's shares from and after the date hereof in order to promote
the growth of the Fund and facilitate the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Fund to sell shares to the public on behalf of the Fund and
the Distributor hereby accepts such appointment and agrees to act hereunder.
The Fund hereby agrees during the term of this Agreement to sell shares of the
Fund through the Distributor on the terms and conditions set forth below.
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's shares, except that:
2.1 The exclusive rights granted to the Distributor to sell shares of the
Fund shall not apply to shares of the Fund issued in connection with the merger
or consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to shares issued by the Fund
pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to shares issued by the Fund
pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund on behalf of
investors the shares needed, but not more than the shares needed (except for
clerical errors in transmission) to fill unconditional orders for shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers).
3.2 The shares shall be sold by the Distributor on behalf of the Fund and
delivered by the Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its shares at
times when redemption is suspended pursuant to the conditions in Section 4.3
hereof or at such other times as may be determined by the Trustees. The Fund
shall also have the right to suspend the sale of its shares if a banking
moratorium shall have been declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for shares received by the
Distributor. Any order may be rejected by the Fund; provided, however, that the
Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF SHARES BY THE FUND
4.1 Any of the outstanding shares may be tendered for redemption at any
time, and the Fund agrees to repurchase or redeem the shares so tendered in
accordance with its Declaration of Trust as amended from time to time, and in
accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem the shares shall be equal to the net asset value determined as
set forth in the Prospectus. All payments by the Fund hereunder shall be made
in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh calendar day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund to or for the account of the redeeming shareholder, in each
case in accordance with applicable provisions of the Prospectus.
4.3 Redemption of shares or payment may be suspended at times when the New
York Stock Exchange is closed for other than customary weekends and holidays,
when trading on said Exchange is restricted, when an emergency exists as a
result of which disposal by the 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 during any other period when the Securities and
Exchange Commission, by order, so permits.
3
<PAGE>
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of shares as provided
herein, the Fund agrees to sell its shares so long as it has shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Trustees and the shareholders, all necessary action to fix the
number of authorized shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be available for sale
such number of shares as the Distributor reasonably may expect to sell. The
Fund agrees to file from time to time such amendments, reports and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, or necessary in order that there
will be no omission to state a material fact in the Registration Statement which
omission would make the statements therein misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its shares for sales under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Declaration of Trust
or By-Laws to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its shares in any state from the
terms set forth in its Registration Statement, to qualify as a foreign
corporation in any state or to consent to service of process in any state other
than with respect to claims arising out of the offering of its shares. Any such
qualification may be withheld, terminated or withdrawn by the Fund at any time
in its discretion. As provided in Section 8.1 hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of shares of the Fund, but shall not be obligated to sell any specific
number of shares. Sales of the shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with other
investment companies. The Distributor shall compensate the selected dealers as
set forth in the Prospectus.
6.2 In selling the shares, the Distributor shall use its best efforts in
all respects duly to conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of shares, provided that the Fund shall
approve the forms of such agreements. Within the United States, the Distributor
shall offer and sell shares only to such selected dealers as are members in good
standing of the NASD. shares sold to selected dealers shall be for resale by
such dealers only at the offering price determined as set forth in the
Prospectus.
Section 7. REIMBURSEMENT OF THE DISTRIBUTOR UNDER THE PLAN
7.1 The Fund shall reimburse the Distributor for costs incurred by it in
performing its duties under the Distribution and Service Plan and this Agreement
including amounts paid on a reimbursement basis to Prudential Securities
Incorporated (Prudential Securities) and Pruco Securities Corporation (Prusec),
affiliates of the Distributor, under the selected dealer agreements between the
Distributor and Prudential Securities and Prusec, respectively, amounts paid to
other securities dealers or financial institutions under selected dealer
agreements between the Distributor and such dealers and institutions and amounts
paid for personal service and/or the maintenance of shareholder accounts.
Amounts reimbursable under the Plan shall be accrued daily and paid monthly or
at such other intervals as the Trustees may determine
5
<PAGE>
but shall not be paid at a rate that exceeds .125 of 1%. Payment of the
distribution and service fee shall be subject to the limitations of Article III,
Section 26 of the NASD Rules of Fair Practice.
7.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Trustees of the commissions and account servicing
fees to be paid by the Distributor to account executives of the Distributor and
to broker-dealers and financial institutions which have dealer agreements with
the Distributor. So long as the Plan (or any amendment thereto) is in effect,
at the request of the Trustees or any agent or representative of the Fund, the
Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities.
7.3 Costs of the Distributor subject to reimbursement hereunder are costs
of performing distribution activities and may include, among others:
(a) amounts paid to Prudential Securities in reimbursement of
costs incurred by Prudential Securities in performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of shares
of the Fund, including sales commissions and trailer
commissions paid to, or on account of, account executives
and indirect and overhead costs associated with the
performance of distribution activities, including central
office and branch expenses;
(b) amounts paid to Prusec in reimbursement of costs incurred by
Prusec in performing services under a selected dealer
agreement between Prusec and the Distributor for sale of
shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect
and overhead costs associated with distribution activities;
(c) sales commissions and trailer commissions paid to, or on
account of, broker-dealers and financial institutions (other
than Prudential Securities and Prusec) which have entered
into selected dealer agreements with the Distributor with
respect to shares of the Fund;
6
<PAGE>
(d) amounts paid to, or an account of, account executives of
Prudential Securities, Prusec, or of other broker-dealers or
financial institutions for personal services and/or the
maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clause (b) of the foregoing
sentence include (i) lease expenses, (ii) salaries and benefits of personnel
including operations and sales support personnel, (iii) utility expenses, (iv)
communications expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
Section 8. ALLOCATION OF EXPENSES
8.1 The Fund shall bear all costs and expenses of the continuous offering
of its shares, including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required Registration
Statements and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic reports and proxy
materials to shareholders (including but not limited to the expense of setting
in type any such Registration Statements, Prospectuses, annual or periodic
reports or proxy materials). The Fund shall also bear the cost of expenses of
qualification of the shares for sale, and, if necessary or advisable in
connection therewith, of qualifying the Fund as a broker or dealer, in such
states of the United States or other jurisdictions as shall be selected by the
Fund and the Distributor pursuant to Section 5.4 hereof and the cost and expense
payable to each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4 hereof. As
set forth in Section 7 above, the Fund shall also bear the expenses it assumes
pursuant to the Plan with respect to shares of the Fund, so long as the Plan is
in effect.
8.2 If the Plan is terminated or discontinued, the costs previously
incurred by the Distributor in performing the duties set forth in Section 6
hereof shall be borne by the Distributor and will not be subject to
reimbursement by the Fund.
7
<PAGE>
Section 9. INDEMNIFICATION
9.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and trustees and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers,
trustees or any such controlling person may incur under the Securities Act, or
under common law or otherwise, arising out of or based upon any untrue statement
of a material fact contained in the Registration Statement or Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
trustee or controlling person unless a court of competent jurisdiction shall
determine in a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of trustees who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
trustees and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or trustees, or any such controlling person, such
notification to be given by letter or telegram addressed to the Fund at its
principal business office. The Fund agrees promptly to notify the Distributor
of the commencement of any litigation or proceedings against it or any of its
officers or trustees in connection with the issue and sale of any shares.
9.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Trustees and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
8
<PAGE>
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its officers and
Trustees or any such controlling person may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its Trustees or officers or such controlling
person resulting from such claims or demands shall arise out of or be based upon
any alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Fund for use in the Registration
Statement or Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary to make
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and Trustees and any such controlling person as aforesaid, is
expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Trustees or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 10. DURATION AND TERMINATION OF THIS AGREEMENT
10.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Trustees of the Fund, or by the vote of a majority of
the outstanding voting securities of the shares of the Fund, and (b) by the vote
of a majority of those Trustees who are not parties to this Agreement or
interested persons of any such parties and who have no direct or indirect
financial interest in this Agreement or in the operation of the Fund's Plan or
in any agreement related thereto (Rule 12b-1 Trustees), cast in person at a
meeting called for the purpose of voting upon such approval.
10.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Rule 12b-1 Trustees or by vote of a majority
of the outstanding voting securities of the shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
10.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
9
<PAGE>
Section 11. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Trustees of the Fund, or by the vote of a
majority of the outstanding voting securities of the shares of the Fund, and (b)
by the vote of a majority of the Rule 12b-1 Trustees cast in person at a meeting
called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: /s/ Robert F. Gunia
-------------------
Robert F. Gunia
Executive Vice President
Command Tax-Free Fund
By: /s/ Richard A. Redeker
----------------------
Richard A. Redeker
President
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 15 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated August
21, 1995, relating to the financial statements and financial highlights of
Command Money Fund, which appears in such Statement of Additional Information,
and to the incorporation by reference of our report into the Prospectus which
constitutes part of this Registration Statement. We also consent to the
reference to us under the heading "Custodian, Transfer and Dividend Disbursing
Agent and Independent Accountants" in such Statement of Additional Information
and to the reference to us under the heading "Financial Highlights" in such
Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
August 25, 1995
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