<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON AUGUST 27, 1997
SECURITIES ACT REGISTRATION NO. 2-73901
INVESTMENT COMPANY ACT REGISTRATION NO. 811-3251
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 17 /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 18 /X/
(Check appropriate box or boxes)
------------------------
COMMAND GOVERNMENT FUND
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 367-7530
S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(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):
/ / immediately upon filing pursuant to paragraph (b)
/X/ on August 28, 1997 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, 1997 on August 26,
1997.
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ---------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C>
PART A
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 5A. Management's Discussion of Fund Performance............... 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 Shareholder Guide; Shareholder Services
Offered...................................................
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 28, 1997
________________________________________________________________________________
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. (Some securities may be subject to the federal Alternative
Minimum Tax.) 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 Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077, and each Fund's telephone number is (800) 225-1852.
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 28, 1997, 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 NOR HAS THE 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.
WHAT ARE THE FUNDS' 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
17.
WHO MANAGES THE FUNDS?
Prudential Investments Fund Management LLC (PIFM 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, 1997, PIFM served as manager or administrator
to 62 investment companies, including 40 mutual funds, with aggregate assets of
approximately $56.7 billion. The Prudential Investment Corporation, which does
business under the name of Prudential Investments (PI, the Subadviser or the
investment adviser), furnishes investment advisory services in connection with
the management of each Fund under a Subadvisory Agreement with PIFM. See "How
the Funds Are Managed--Manager" at page 14.
WHO DISTRIBUTES THE FUNDS' SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI) acts as
the Distributor of each Fund's shares. Each Fund reimburses Prudential
Securities 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 15.
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 COMMAND
Account, or place a minimum of $2,000 in cash and/or securities in a COMMAND
Essentials account, and meet criteria established by Prudential Securities. For
a more detailed description of the COMMAND program, please see your Prudential
Securities Financial Advisor.
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 22.
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 18.
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................................. .371% .449% .400%
12b-1 Fees+..................................... .125% .125% .125%
.074% .066% .105%
Other Expenses..................................
.57% .64% .63%
Total Fund Operating Expenses.................
.31% .14% .16%
COMMAND Program Annual Fee**....................
.88% .78% .79%
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 $ 18 $ 32 $ 71
Tax-Free Fund............................. $ 7 $ 20 $ 36 $ 80
Government Fund........................... $ 6 $ 20 $ 35 $ 79
If the annual program fee were included, you would
pay the following expenses on the same
investment:
Money Fund................................ $ 9 $ 28 $ 49 $108
Tax-Free Fund............................. $ 8 $ 25 $ 43 $ 97
Government Fund........................... $ 8 $ 25 $ 44 $ 98
</TABLE>
- --------------------------
The above examples are based on data for each Fund's fiscal year ended June
30, 1997. 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 most
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, $60 for
COMMAND Essentials accounts, $60 for COMMAND IRA accounts and $150 for COMMAND
Family accounts. Prudential Securities may, in its sole discretion, waive or
reduce the COMMAND program annual fees and/or the fee associated with a
particular product or service, as well as minimum investment requirements to
be eligible for participation in the COMMAND program, generally or for
specific 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.
+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,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <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 $ 1.000
Net investment income and net
realized gains............... 0.049 0.052 0.050 0.029 0.030 0.046
Dividends and distributions... (0.049) (0.052) (0.050) (0.029) (0.030) (0.046)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN (a):............. 5.06% 5.30% 5.13% 2.98% 3.01% 4.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $6,629,903 $5,309,842 $4,055,700 $2,448,201 $2,436,672 $2,125,430
Average net assets (000)...... $6,078,525 $4,896,794 $3,072,284 $2,570,195 $2,275,532 $2,377,108
Ratios to average net assets:
Expenses, including
distribution fees.......... .57% .58% .59% .59% .61% .64%
Expenses, excluding
distribution fees.......... .44% .46% .47% .47% .48% .51%
Net investment income....... 4.97% 5.15% 5.09% 2.92% 2.90% 4.57%
<CAPTION>
1991 1990 1989* 1988
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains............... 0.069 0.081 0.084 0.065
Dividends and distributions... (0.069) (0.081) (0.084) (0.065)
----------- ----------- ----------- -----------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN (a):............. 7.17% 8.42% 8.73% 6.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $2,417,429 $2,668,970 $2,206,469 $1,549,772
Average net assets (000)...... $2,605,472 $2,680,212 $1,821,521 $1,513,022
Ratios to average net assets:
Expenses, including
distribution fees.......... .61% .59% .63% .65%
Expenses, excluding
distribution fees.......... .49% .46% .51% .53%
Net investment income....... 6.95% 8.08% 8.40% 6.58%
</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 Footnote on next page.
TAX-FREE FUND
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------------ ---------- ------------ ------------ ------------
<S> <C> <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 $ 1.000
Net investment income and net
realized gains............... 0.030 0.031 0.032 0.020 0.022 0.035
Dividends and distributions... (0.030) (0.031) (0.032 ) (0.020) (0.022) (0.035)
------------ ------------ ---------- ------------ ------------ ------------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ---------- ------------ ------------ ------------
------------ ------------ ---------- ------------ ------------ ------------
TOTAL RETURN (a):............. 3.05% 3.12% 3.29% 1.98% 2.23% 3.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $1,129,513 $1,156,935 $1,055,568 $847,602 $853,930 $729,122
Average net assets (000)...... $1,181,084 $1,134,257 $ 926,888 $908,421 $823,517 $751,458
Ratios to average net assets:
Expenses, including
distribution fees.......... .64% .66% .66% .65% .68% .69%
Expenses, excluding
distribution fees.......... .51% .54% .54% .53% .55% .56%
Net investment income....... 3.00% 3.06% 3.05% 1.96% 2.09% 3.47%
<CAPTION>
1991 1990 1989* 1988
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains............... 0.049 0.055 0.054 0.043
Dividends and distributions... (0.049) (0.055) (0.054) (0.043)
------------ ------------ ------------ ------------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN (a):............. 5.02% 5.66% 5.54% 4.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $750,567 $714,650 $611,631 $681,601
Average net assets (000)...... $770,745 $699,559 $695,347 $669,353
Ratios to average net assets:
Expenses, including
distribution fees.......... .66% .68% .67% .70%
Expenses, excluding
distribution fees.......... .54% .55% .55% .57%
Net investment income....... 4.88% 5.57% 5.46% 4.39%
</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 Footnote on next page.
4
<PAGE>
GOVERNMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <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 $ 1.000
Net investment income and net
realized gains............... 0.049 0.050 0.048 0.028 0.028 0.045
Dividends and distributions... (0.049) (0.050) (0.048) (0.028) (0.028) (0.045)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN (a):............. 4.97% 5.12% 4.89% 2.86% 2.85% 4.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $ 528,469 $ 487,485 $ 404,295 $ 325,257 $ 381,703 $ 372,988
Average net assets (000)...... $ 534,580 $ 477,168 $ 350,458 $ 376,159 $ 380,103 $ 422,639
Ratios to average net assets:
Expenses, including
distribution fees.......... .63% .68% .65% .63% .65% .69%
Expenses, excluding
distribution fees.......... .51% .56% .53% .51% .53% .57%
Net investment income....... 4.84% 4.97% 4.81% 2.79% 2.74% 4.38%
<CAPTION>
1991 1990 1989* 1988
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains............... 0.067 0.079 0.080 0.062
Dividends and distributions... (0.067) (0.079) (0.080) (0.062)
----------- ----------- ----------- -----------
Net asset value, end of
year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN (a):............. 6.90% 8.17% 8.30% 6.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $ 414,978 $ 270,140 $ 181,559 $ 180,338
Average net assets (000)...... $ 398,971 $ 243,593 $ 175,179 $ 164,798
Ratios to average net assets:
Expenses, including
distribution fees.......... .65% .66% .71% .72%
Expenses, excluding
distribution fees.......... .53% .53% .58% .59%
Net investment income....... 6.54% 7.70% 7.97% 6.16%
</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.
*On October 31, 1988, Prudential Mutual Fund Management, Inc. (PMF) succeeded
The Prudential Insurance Company of America as investment adviser and has acted
as manager of the Fund. In 1996, PMF transferred all of its assets to
Prudential Mutual Fund Management LLC, which in May 1997, changed its name to
Prudential Investments Fund Management LLC.
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, 1997 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......... $ 1.000984752 $ 1.000667176 $ 1.000963479
Value of hypothetical account at beginning of period... 1.000000000 1.000000000 1.000000000
------------- ------------- -------------
Base period return..................................... $ .000984752 $ .000667176 $ .000963479
------------- ------------- -------------
------------- ------------- -------------
CURRENT YIELD (Base Period Return x (365/7))........... 5.13% 3.48% 5.02%
EFFECTIVE ANNUAL YIELD, assuming daily compounding..... 5.27% 3.54% 5.15%
TAX EQUIVALENT YIELD (current yield DIVIDED BY -- 5.86% --
(1-.396)).............................................
</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, 1997 was 55 days for the Money Fund, 68 days for the Tax-Free Fund and
56 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/Financial Data, Inc., The Bank Rate Monitor and other industry
publications, and business periodicals 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.
ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities.
Asset-backed securities include interests in pools of mortgages, loans,
receivables, or other assets. Payment of principal and interest may be largely
dependent upon the cash flows generated by assets backing the securities.
OTHER MONEY MARKET INSTRUMENTS. The Fund may invest in commercial paper,
variable amount demand master notes, funding agreements, 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
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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 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 in the country of the issuer, 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 Tax-Free Fund may
invest up to 20% of its net assets in Municipal Bonds and Municipal Notes, 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 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 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.
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.
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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. 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 good 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 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
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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, 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
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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."
RATING OF FUND SHARES
Duff & Phelps Credit Rating Co. (DCR) has given the Money Fund and
Government Fund each an AAA rating. According to DCR, the AAA ratings mean the
Funds' ability to meet redemption requests in a timely manner for $1.00 per
share are strong. These ratings are based on the Funds' risk management
procedures, internal control systems, limitations on market risk and experienced
management teams.
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.
Since the value of the put is dependent, in part, on the ability of the put
writer to meet its obligation to repurchase, a 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. Changes in the
credit quality of these institutions could cause losses to the Fund and affect
its share price. In the event such a default should occur, a 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.
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 resale price. 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 Investments Fund Management LLC
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. The
Tax-Free Fund may borrow for temporary purposes in amounts not exceeding 5% of
its total assets. None of the Funds will purchase securities while borrowings
are outstanding. See "Investment Restrictions" 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
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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 unencumbered assets, marked-to-market
daily, having a value equal to or greater than the Fund's repurchase
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 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 unencumbered assets, marked-to-market daily, having a value equal to or
greater than that Fund's purchase commitments. 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 hold 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
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have a readily available market are not considered illiquid for purposes of this
limitation. Investing in Rule 144A securities could, however, have the effect of
increasing the level of Fund illiquidity to the extent that qualified
institutional buyers become, for a limited time, uninterested in purchasing
these securities. 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.
INVESTMENTS IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Tax-Free Fund may invest up to 10% of its total assets in shares of
other investment companies. To the extent that the Fund does invest in
securities of other investment companies, shareholders of the Fund may be
subject to duplicate management and advisory fees.
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.
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, 1997, total expenses of each of the
Funds, as a percentage of their respective average net assets, were .57% for the
Money Fund, .64% for the Tax-Free Fund and .63% for the Government Fund. See
"Financial Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF EACH OF THE FUNDS. PIFM IS ORGANIZED IN NEW YORK AS A LIMITED LIABILITY
COMPANY. IT IS THE SUCCESSOR OF PRUDENTIAL MUTUAL FUND MANAGEMENT, INC., WHICH
TRANSFERRED ITS ASSETS TO PIFM IN SEPTEMBER 1996.
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As of July 31, 1997, PIFM served as the manager to 40 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $56.7 billion.
UNDER A MANAGEMENT AGREEMENT WITH EACH OF THE FUNDS, PIFM 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 PIFM AND THE PRUDENTIAL
INVESTMENT CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE
SUBADVISER OR THE INVESTMENT ADVISER), PI FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF EACH OF THE FUNDS AND IS REIMBURSED BY PIFM
FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under
the Management Agreements, PIFM continues to have responsibility for all
investment advisory services and supervises PI's performance of such services.
PIFM 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 Agreements, the Money Fund pays PIFM 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 PIFM 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
PIFM 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, 1997, the Money Fund paid management fees
to PIFM of .37 of 1% of that Fund's average net assets, the Tax-Free Fund paid
management fees to PIFM of .45 of 1% of that Fund's average net assets and the
Government Fund paid management fees to PIFM of .40 of 1% of that Fund's average
net assets. See "Manager" in the Statement of Additional Information.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES, PSI 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 SHARES OF EACH OF THE FUNDS. IT IS AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL. PRIOR TO JANUARY 2, 1996, PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC.
(PMFD), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, ACTED AS DISTRIBUTOR OF
SHARES OF EACH OF THE FUNDS.
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, 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.
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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, 1997, Prudential Securities and PMFD
incurred distribution expenses for the Money Fund of $7,598,156, for the
Tax-Free Fund of $1,476,356 and for the Government Fund of $668,224, all of
which were recovered through the distribution fee paid by each Fund to
Prudential Securities and 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 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 (800) 225-1852.
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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 LLC (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 PIFM.
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, Martin Luther King Jr. 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 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.
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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 the 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 dividends-received deduction generally allowed to
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.
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 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 distributions of short-term capital gains,
market discount and other taxable income will be taxable to shareholders
(whether the distributions are received in cash or reinvested in additional
shares) and 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 Tax-Free Fund.
Interest on certain private activity tax-exempt obligations is a preference
item to shareholders for purposes of the Alternative Minimum Tax. 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
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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
Tax-Free 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.
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.
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 payments of redemption proceeds and the Tax-Free Fund is
required to withhold and remit to the U.S. Treasury 31% of taxable income and
payments of redemption proceeds 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. Withholding
at this rate is also required on dividends and capital gains distributions (but
not redemption proceeds) payable to shareholders who are otherwise subject to
backup withholding. Dividends paid to foreign shareholders from taxable net
investment income and net short-term capital gains will generally be subject to
U.S. withholding tax at the rate of 30% (or a lower applicable treaty rate).
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."
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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.
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.
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.
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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
COMMAND ACCOUNT OR PLACED A MINIMUM OF $2,000 IN CASH AND/OR SECURITIES IN A
COMMAND ESSENTIALS ACCOUNT (THE MINIMUM INITIAL INVESTMENT FOR EMPLOYEES OF
PRUDENTIAL AND ITS SUBSIDIARIES AND AFFILIATES IS $2,500). A participant in the
COMMAND program 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. The
COMMAND program offers a variety of products or services, which may, from time
to time, be added to, modified or terminated by Prudential Securities in its
sole discretion. This includes the ability of Prudential Securities, in its sole
discretion, to waive or reduce the COMMAND program annual fees and/or the fee
associated with a particular product or service, as well as minimum investment
requirements to be eligible for participation in the COMMAND program, generally
or for specific accounts. 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. For information regarding products
and services available through the COMMAND Account, please contact your
Prudential Securities Financial Advisor.
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 related credit
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(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 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 Debit Card Account, including ATM
transaction purchases, cash advances and COMMAND 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,
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exactly as their names appear on their COMMAND Account Client 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.
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
- COMMAND 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 COMMAND 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.
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- 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 Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077.
- SHAREHOLDER INQUIRIES. Shareholder inquiries should be addressed to
COMMAND Money Fund, COMMAND Tax-Free Fund or COMMAND Government Fund, at Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.
24
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Investments 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 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
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
Florida Series
Maryland Series
Massachusetts Series
Michigan 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 Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Company Value 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, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
- -TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
- -COMMAND FUNDS
COMMAND Money Fund
COMMAND Government Fund
COMMAND Tax-Free Fund
- -INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
25
<PAGE>
No dealer, sales representative or 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 as having
been authorized by the Funds, the Manager or the Distributor to sell or a
solicitation by the Funds, the Manager or the Distributor of any offer to buy in
any jurisdiction in which such offering may not lawfully be made.
- ------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
FUND HIGHLIGHTS........................................................... 2
What are the Funds' 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
Rating of Fund Shares................................................... 11
Other Investments and Policies
Applicable to the Funds................................................ 12
Investments in Securities of Other
Investment Companies................................................... 14
Investment Restrictions................................................. 14
HOW THE FUNDS ARE MANAGED................................................. 14
Manager................................................................. 14
Distributor............................................................. 15
Portfolio Transactions.................................................. 17
Custodian and Transfer and Dividend Disbursing Agent.................... 17
HOW THE FUNDS VALUE THEIR SHARES.......................................... 17
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 18
GENERAL INFORMATION....................................................... 20
Description of Shares................................................... 20
Additional Information.................................................. 20
SHAREHOLDER GUIDE......................................................... 21
How to Buy Shares of the Funds.......................................... 21
How to Sell Your Shares................................................. 22
Shareholder Services.................................................... 23
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... 25
</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 28, 1997
- ----------------------------------------
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:
GATEWAY CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077.
[LOGO]
<PAGE>
COMMAND MONEY FUND
COMMAND TAX-FREE FUND
COMMAND GOVERNMENT FUND
Statement of Additional Information
dated August 28, 1997
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-SM- Account program (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 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 28, 1997, a
copy of which may be obtained from the Funds, Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077. 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
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
--------- -------------------
<S> <C> <C>
General Information..................................................................... B-2 20
The Funds............................................................................. B-2 20
Description of Shares................................................................. B-2 20
Voting Rights......................................................................... B-3 20
Investment Objectives and Policies...................................................... B-3 6
Investment Restrictions................................................................. B-7 14
Money Fund............................................................................ B-8 13
Tax-Free Fund......................................................................... B-9 13
Government Fund....................................................................... B-10 13
Trustees and Officers................................................................... B-11 14
Manager................................................................................. B-15 14
Distributor............................................................................. B-17 15
Calculation of Yield.................................................................... B-19 5
Portfolio Transactions.................................................................. B-20 16
Taxes, Dividends and Distributions...................................................... B-20 17
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants........... B-21 17
Reports to Shareholders................................................................. B-21 24
Description of Securities Ratings....................................................... B-23 --
COMMAND Money Fund
Financial Statements.................................................................. B-25 --
Report of Independent Accountants..................................................... B-32 --
COMMAND Government Fund
Financial Statements.................................................................. B-33 --
Report of Independent Accountants..................................................... B-37 --
COMMAND Tax-Free Fund
Financial Statements.................................................................. B-38 --
Report of Independent Accountants..................................................... B-47 --
Notes to Financial Statements........................................................... B-48 --
Appendix--General Investment Information................................................ APP-1 --
Appendix--Information Relating to The Prudential........................................ APP-2 --
</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.
B-2
<PAGE>
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.
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
unencumbered assets, marked-to-market daily, having a value equal to or greater
than the Fund's purchase 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
B-3
<PAGE>
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 would 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 Investments Fund
Management LLC (PIFM), pursuant to an order of the Securities and Exchange
Commission (the 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 will not lend
more than 10% of the value of its total assets.
ILLIQUID SECURITIES. The Funds may not hold 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 under the Securities Act of 1933, as amended (the 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
B-4
<PAGE>
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 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
B-5
<PAGE>
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.
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
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<PAGE>
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 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.
B-7
<PAGE>
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 the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
10. Purchase securities of any issuer for the purpose of exercising control
or management;
11. 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;
12. 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
13. 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).
B-8
<PAGE>
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. Invest in securities of other investment companies, except by purchases
in the open market involving only customary brokerage commissions and as a
result of which not more than 10% of its total assets (determined at the time of
investment) would be invested in such securities, or except as part of a merger,
consolidation, or acquisition;
11. Invest for the purpose of exercising control or management of another
company;
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;
B-9
<PAGE>
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.
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 the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets; and
9. 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.
B-10
<PAGE>
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 (1) WITH FUNDS DURING PAST FIVE YEARS
- ------------------------------ ------------- --------------------------------------------------
<S> <C> <C>
Edward D. Beach (72) Trustee President and Director of BMC Fund, Inc., a
closed-end investment company; previously Vice
Chairman of Broyhill Furniture Industries, Inc.;
Certified Public Accountant; Secretary and
Treasurer of Broyhill Family Foundation, Inc.;
Member of the Board of Trustees of Mars Hill
College; Director of The High Yield Income Fund,
Inc.
Stephen C. Eyre (74) Trustee Executive Director (since May 1985) of The John A.
Hartford Foundation, Inc. (charitable foundation);
Director of Faircom, Inc.; Trustee Emeritus of
Pace University.
Delayne Dedrick Gold (58) Trustee Marketing and Management Consultant; Director of
The High Yield Income Fund, Inc.
*Robert F. Gunia (50) Trustee Comptroller (since May 1996) of Prudential
Investments; Executive Vice President and
Treasurer (since December 1996) of Prudential
Investments Fund Management LLC (PIFM); Senior
Vice President (since March 1987) of Prudential
Securities Incorporated (Prudential Securities);
formerly Chief Administrative Officer (July
1990-September 1996), Director (January
1989-September 1996) and Executive Vice President,
Treasurer and Chief Financial Officer (June
1987-September 1996) of Prudential Mutual Fund
Management, Inc. (PMF); Vice President and
Director (since May 1989) of The Asia Pacific
Fund, Inc.; Director of The High Yield Income
Fund, Inc.
Don G. Hoff (61) Trustee Chairman and Chief Executive Officer (since 1980)
of Intertec, Inc. (investments); Chairman and CEO
of The Lamaur Corporation; Director of Innovative
Capital Management, Inc. and The Greater China
Fund, Inc.; Chairman and Director of The Asia
Pacific Fund, Inc.
Robert E. LaBlanc (62) Trustee President (since 1981) of Robert E. LaBlanc
Associates, Inc. (telecommunications); formerly
General Partner at Salomon Brothers and
Vice-Chairman of Continental Telecom; Director of
Storage Technology Corporation, Titan Corporation,
Salient-3 Communications, Inc. and Tribune
Company; Trustee of Manhattan College.
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE (1) WITH FUNDS DURING PAST FIVE YEARS
- ------------------------------ ------------- --------------------------------------------------
*Mendel A. Melzer, CFA (36) Trustee Chief Investment Officer (since October 1996) of
751 Broad Street Prudential Mutual Funds; formerly Chief Financial
Newark, NJ 07102 Officer (November 1995-September 1996) of
Prudential Investments, Senior Vice President and
Chief Financial Officer (April 1993-November 1995)
of Prudential Preferred Financial Services,
Managing Director (April 1991-April 1993) of
Prudential Investment Advisors and Senior Vice
President (July 1989-April 1991) of Prudential
Capital Corporation; Chairman and Director of
Prudential Series Fund, Inc.; Director of The High
Yield Income Fund, Inc.
<S> <C> <C>
*Richard A. Redeker (54) President and Employee of Prudential Investments; formerly
751 Broad Street Trustee President, Chief Executive Officer and Director
Newark, NJ 07102 (October 1993-September 1996) of PMF; formerly
Executive Vice President, Director and Member of
the Operating Committee (October 1993-September
1996) of Prudential Securities; Director (October
1993-September 1996) of Prudential Securities
Group, Inc.; Executive Vice President (July
1994-September 1996) of the Prudential Investment
Corporation, Director (January 1994-September
1996) of Prudential Mutual Fund Distributors, Inc.
and Prudential Mutual Fund Services, Inc.; and
Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September
1978-September 1993); Director and President of
The High Yield Income Fund, Inc.
Robin B. Smith (57) Trustee Chairman and Chief Executive Officer (since August
1996) of Publishers Clearing House; formerly
President and Chief Executive Officer (January
1988-August 1996) and President and Chief
Operating Officer (September 1981-December 1988)
of Publishers Clearing House; Director of
BellSouth Corporation, Texaco Inc., Springs
Industries Inc. and Kmart Corporation.
Langdon R. Stevenson (61) Trustee Treasurer and Development Director of American
Birding Association Inc.; faculty member
(economics and history) Hackley School, Tarrytown,
New York; formerly Senior Vice President
(1985-1989) and Director (1978-1986) of Prudential
Securities; President of P-B Trade Finance Ltd.
(1985-1987).
Stephen Stoneburn (53) Trustee President and Chief Executive Officer (since June
1996) of Quadrant Media Corp. (a publishing
Company); formerly President (June 1995-June 1996)
of Argus Integrated Media, Inc.; Senior Vice
President and Managing Director (January
1993-1995), Cowles Business Media, Senior Vice
President (January 1991-1992) and Publishing Vice
President (May 1989-December 1990) of Gralla
Publications, (a division of United Newspapers,
U.K.) and Senior Vice President of Fairchild
Publications, Inc.
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE (1) WITH FUNDS DURING PAST FIVE YEARS
- ------------------------------ ------------- --------------------------------------------------
Nancy H. Teeters (66) Trustee Economist; formerly Vice President and Chief
Economist (March 1986-June 1990) of International
Business Machines Corporation and member of the
Board of Governors of the Horace Rackham School of
Graduate Studies of the University of Michigan;
Director of Inland Steel Corporation (since July
1991).
<S> <C> <C>
Thomas A. Early (42) Vice Vice President and General Counsel (since March
President 1997), PMF&A; Executive Vice President, Secretary
and General Counsel (since December 1996), PIFM;
formerly Vice President and General Counsel (March
1994-March 1997), Prudential Retirement Services
and Associate General Counsel and Chief Financial
Services Officer (1988-1994), Frank Russell
Company.
Grace C. Torres (38) Treasurer and First Vice President (since December 1996) of
Principal PIFM; First Vice President (since March 1994) of
Financial and Prudential Securities; formerly First Vice
Accounting President (March 1994-September 1996) of PMF and
Officer Vice President (July 1989-March 1994) of Bankers
Trust.
Stephen M. Ungerman (43) Assistant Tax Director (since March 1996) of Prudential
Treasurer Investments and the Private Asset Group of The
Prudential Insurance Company of America; formerly
First Vice President (February 1993-September
1996) of Prudential Mutual Fund Management, Inc.
and Senior Tax Manager (1981-January 1993) Price
Waterhouse LLP.
S. Jane Rose (51) Secretary Senior Vice President (since December 1996) of
PIFM; Senior Vice President and Senior Counsel
(since July 1992) of Prudential Securities;
formerly Senior Vice President (January
1991-September 1996) and Senior Counsel (June
1987-December 1990) of PMF.
</TABLE>
- ------------------------
(1) Unless otherwise noted, the address for each of the above persons is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
* "Interested" Director of the Fund, as defined in the Investment Company Act
of 1940 (the Investment Company Act) by reason of his affiliation with
Prudential, Prudential Securities of PIFM.
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.
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, $2,500, COMMAND Money
Fund, $5,500 and COMMAND Tax-Free Fund, $3,000, 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 and Eyre are
scheduled to retire on December 31, 1999 and 1998, respectively.
B-13
<PAGE>
Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Trustees of the Fund who are affiliated persons of the
Manager. The amount of annual compensation paid to each Trustee may change as a
result of the introduction of additional funds on the boards of which the
Trustee will be asked to serve.
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, 1997 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 that of all other investment companies managed
by PIFM (Fund Complex) for the calendar year ended December 31, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT ESTIMATED
BENEFITS ANNUAL AND TOTAL COMPENSATION
AGGREGATE ACCRUED AS FUND BENEFITS FROM FUNDS AND FUND
COMPENSATION PART OF FUND UPON COMPLEX PAID TO
NAME AND POSITION FROM FUNDS@ EXPENSES RETIREMENT TRUSTEES (2)
- ------------------------------------------- ------------ -------------- -------------- ---------------------
<S> <C> <C> <C> <C>
Edward D. Beach, Trustee................... $ 17,500 None N/A $ 166,000(21/39)*
Stephen C. Eyre, Trustee................... $ 5,500 None N/A $ 34,250(4/5)*
Delayne Dedrick Gold, Trustee.............. $ 17,500 None N/A $ 175,308(21/42)*
Robert F. Gunia(1), Trustee................ -- None N/A --
Don G. Hoff, Trustee....................... $ 5,500 None N/A $ 50,042(5/7)*
Robert E. LaBlanc, Trustee................. $ 5,500 None N/A $ 34,542(4/4)*
Mendel A. Melzer(1), Trustee............... -- None N/A --
Richard A. Redeker(1), Trustee............. -- None N/A --
Robin B. Smith, Trustee.................... $ 5,500 None N/A $ 89,957(11/20)*
Stanley E. Shirk, Former Trustee........... $ 12,000 None N/A $ 71,000(7/18)*
Langdon R. Stevenson, Trustee.............. $ 17,500 None N/A $ 24,000(3/3)*
Stephen Stoneburn, Trustee................. $ 17,500 None N/A $ 30,375(4/6)*
Nancy H. Teeters, Trustee.................. $ 17,500 None N/A $ 103,583(11/28)*
David S. Towner, Former Trustee............ $ 12,000 None N/A $ 24,000(3/3)*
</TABLE>
- ------------------------
@ Effective January 1997, the annual compensation paid to each Trustee was
reduced to $2,500, $5,500 and $3,000, for the Command Government Fund,
Command Money Fund and Command Tax-Free Fund, respectively in addition to
certain out-of-pocket expenses.
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
(1) Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are interested
Directors, do not receive compensation from the Fund or any fund in the Fund
Complex.
(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1996, including amounts deferred at the election of
Trustees under the funds' deferred compensation plans. Including accrued
interest total deferred compensation amounted to $109,294 for Trustee Robin
B. Smith. Currently, Ms. Smith has agreed to defer some of her fees at the
T-Bill rate and other fees at the Fund rate.
B-14
<PAGE>
As of August 8, 1997, 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 8, 1997, Prudential Securities was record holder of
7,218,253,212 shares (or 100%), 1,254,450,553 shares (or 100%) and 542,178,773
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 Investments Fund Management
LLC (formerly Prudential Mutual Fund Management LLC)(PIFM or the Manager)
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. PIFM
serves as manager of all of the other 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, 1997, PIFM managed and/ or
administered open-end and closed-end management investment companies with assets
of approximately $56.7 billion. According to the Investment Company Institute,
as of December 31, 1996, the Prudential Mutual Funds were the 15th largest
family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities. Prudential Mutual Fund
Services LLC (PMFS or the Transfer Agent), a wholly-owned subsidiary of PIFM,
serves as the transfer agent for the Prudential Mutual Funds and, in addition,
provides customer service, record keeping and management and administration
services to qualified plans.
Pursuant to a management agreement with each Fund, PIFM, 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. PIFM is obligated to keep certain books and records
in connection therewith. PIFM 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
PMFS, the Funds' transfer and dividend disbursing agent. The management services
of PIFM to the Funds are not exclusive under the terms of the Management
Agreements and PIFM is free to, and does, render management services to others.
The Funds pay PIFM for the services performed and the facilities furnished
by PIFM 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.
B-15
<PAGE>
In connection with the services it renders, PIFM 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 PIFM
or the Funds' investment adviser;
(b) all expenses incurred by PIFM 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), doing business as Prudential Investments (PI, the Subadvisor or the
investment advisor), pursuant to each Subadvisory Agreement between PIFM and PI
(the 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 PI, (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 PIFM 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 May 29, 1997 and by 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.
B-16
<PAGE>
For the fiscal years ended June 30, 1997, 1996, and 1995, the Money Fund
paid PIFM management fees of $22,524,838, $18,388,779 and $12,002,993,
respectively. For the fiscal years ended June 30, 1997, 1996, and 1995, the
Tax-Free Fund paid PIFM management fees of $5,304,067, $5,128,465, and
$4,314,275, respectively. For the fiscal years ended June 30, 1997, 1996, and
1995, the Government Fund paid PIFM management fees of $2,138,318, $1,908,673
and $1,401,832, respectively.
For each of the Funds, PIFM has entered into a subadvisory agreement with
PI. The Subadvisory Agreements provide that PI will furnish investment advisory
services in connection with the management of each of the Funds. In connection
therewith, PI is obligated to keep certain books and records for each of the
Funds. PIFM continues to have responsibility for all investment advisory
services pursuant to the Management Agreements and supervises PI's performance
of those services. PI is reimbursed by PIFM for the reasonable costs and
expenses incurred by PI in furnishing those services. Investment advisory
services are provided to each Fund by a unit of the subadviser, known as
Prudential Mutual Fund Investment Management.
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 May 29, 1997; 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, PIFM or PI 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.
DISTRIBUTOR
On May 29, 1997, 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 Securities Incorporated
(Prudential Securities or PSI), One Seaport Plaza, New York, New York 10292.
Prudential Securities is an indirect wholly-owned subsidiary of Prudential. 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
May 29, 1997. Under each Fund's Distribution and Service Plan and Distribution
Agreement with Prudential Securities, each Fund pays Prudential Securities, 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 Prudential
Securities for distribution expenses.
For the fiscal year ended June 30, 1997, Prudential Securities incurred
distribution expenses of $7,598,156 for the Money Fund, $668,224 for the
Government Fund and $1,476,356 for the Tax-Free Fund, all of which was recovered
through the distribution fees paid by the Funds to PSI. It is estimated that of
the distribution fees received by Prudential Securities for each Fund for the
fiscal year ended June 30, 1997, commission credits to Prudential Securities
branch offices for payments of commissions to account executives amounted to
approximately 80% ($6,078,525) for the Money
B-17
<PAGE>
Fund; 80% ($534,579) for the Government Fund; and 80% ($1,181,085) for the
Tax-Free Fund; and overhead and other branch office distribution-related
expenses amounted to approximately 20% ($1,519,631) for the Money Fund;
approximately 20% ($133,645) for the Government Fund; and approximately 20%
($295,271) 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.
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 Prudential Securities to the extent permitted by applicable law
against certain liabilities under the Securities Act. On November 3, 1995, the
Trustees approved the transfer of the Distribution Agreement for shares of each
of the Funds with PMFD to Prudential Securities.
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
B-18
<PAGE>
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 also serves 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 submits
compliance reports which identify all such allegations or instances of criminal
conduct and material improprieties every three months and will continue to do so
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, 1997 was 5.86%.
B-19
<PAGE>
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/Financial Data,
Inc., The Bank Rate Monitor and other industry publications, and business
periodicals 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, 1997, 1996 and 1995.
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 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).
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
B-20
<PAGE>
of securities of foreign currencies and certain financial futures, options and
forward contracts; (b) for taxable years prior to 1998, 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; (c) diversify its holdings so
that, at the end of each quarter of the taxable year, (i) at least 50% of the
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); and (d) distribute to its shareholders at least 90%
of its net investment income (including net tax-exempt interest income) and net
short-term gains (i.e. the excess of net short-term capital gains over net
long-term capital losses) in each year.
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.
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 LLC (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 PIFM. 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, 1997, fees of approximately $2,041,700, $85,000 and $179,700
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.
B-21
<PAGE>
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.
TAX-DEFERRED COMPOUNDING(1)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ----------- ----------------------- ----------
<S> <C> <C>
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.
COMMAND-SM- ACCOUNT PROGRAM
Shares of the Funds are offered exclusively to participants in the COMMAND
Account program (the COMMAND program). The COMMAND program is an integrated
financial services program of Prudential Securities that offers Prudential
Securities' clients the use of their assets by linking together several
components: (i) a securities account, (ii) an automatic investment sweep into
one or more mutual funds (including the Funds) or a Federal Deposit Insurance
Corporation insured savings account and (iii) a COMMAND
Visa-Registered Trademark- Gold Debit Card. Other COMMAND program features
include, among others, direct deposit and bill pay services and a dividend
reinvestment program with respect to common stocks traded on the New York and
American Stock Exchanges and with respect to NASDAQ stocks in which Prudential
Securities makes a principal market.
The COMMAND program offers various other products or services. From time to
time, the COMMAND program annual fee and/or the fee associated with a particular
product or service may be waived or reduced. Currently, Prudential Securities
may waive or reduce fees for clients who participate in the COMMAND program for
the following products or services: the Valued Investor Program-C- (VIP),
Transfer on Death Account (TOD), Dividend Reinvestment Program, Prudential
Securities Online-SM- and Flexible Reserve Program. Products and services
offered through the COMMAND program, and the associated fees, and waivers or
reductions thereto, are subject to change. For information regarding products
and services available through the COMMAND program, please contact your
Prudential Securities Financial Adviser.
From time to time, Prudential Securities may advertise the COMMAND program
and its component features and other products and services available through the
COMMAND program. Such advertisements may include information about the
performance of market indices, whether or not related to the Funds performance
(E.G. the S&P 500), and other performance data.
B-22
<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.
B-23
<PAGE>
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.
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-24
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Bank Notes--6.3%
American Express Centurion
Bank
$ 46,000(a) 5.6575%, 7/9/97............ $ 45,999,726
14,000(a) 5.6575%, 7/22/97........... 13,999,336
Bank of America, Illinois
10,000 5.85%, 3/13/98............. 9,989,697
Comerica Bank of Detroit
20,000(a) 5.5875%, 7/7/97............ 19,992,464
83,000(a) 5.5825%, 7/11/97........... 82,965,397
CoreStates Bank N.A.
10,000(a) 5.6075%, 7/18/97........... 9,997,895
8,000(a) 5.80203%, 7/23/97.......... 8,000,000
First Bank N.A.,
Minneapolis
19,000(a) 5.5875%, 7/16/97........... 18,995,855
41,000(a) 5.6075%, 7/16/97........... 40,987,631
42,000(a) 5.6475%, 7/16/97........... 42,000,000
Keybank National
Association
41,000(a) 5.6075%, 7/21/97........... 40,998,785
Wachovia Bank, N.A.
80,000 6.14%, 6/1/98.............. 80,000,000
--------------
Total Bank Notes
(amortized cost
$413,926,786)............ 413,926,786
--------------
Certificates of Deposit - Eurodollar--3.5%
Abbey National Treasury Services, PLC
68,000 5.76%, 8/22/97............. 68,000,000
Australia-New Zealand
Banking Group, Ltd.
18,000 5.54%, 8/4/97.............. 18,000,606
Bayerische Landesbank Girozentrale
18,000 5.52%, 7/7/97.............. 18,000,041
Berliner Handels-Und
Frankfurter Bank
20,000 5.72%, 7/21/97............. 20,000,110
Credit Agricole Indosuez
$ 21,000 5.63%, 8/11/97............. $ 21,000,587
ING Bank
33,000 5.54%, 8/7/97.............. 33,001,320
Swiss Bank Corp.
10,000 5.65%, 7/14/97............. 10,000,079
Toronto Dominion Bank
12,000 5.48%, 7/7/97.............. 11,999,949
Westdeutsche Landesbank
Girozentrale
34,000 5.61%, 8/18/97............. 34,000,410
--------------
Total Certificates of
Deposit--Eurodollar
(amortized cost
$234,003,102)............ 234,003,102
--------------
Certificates of Deposit - Yankee--17.5%
Banque Nationale de Paris
132,000 5.74%, 8/20/97............. 132,000,000
Canadian Imperial Bank of Commerce
200,000 5.70%, 8/14/97............. 200,000,000
41,000 5.68%, 8/19/97............. 41,000,000
19,000 5.60%, 8/25/97............. 19,000,000
Commerzbank U.S. Finance,
Inc.
25,000 6.075%, 5/27/98............ 24,992,447
Credit Agricole Indosuez
100,000 5.615%, 8/18/97............ 100,001,981
35,000 5.60%, 8/26/97............. 35,000,000
Creditanstalt Bankverein
89,000 5.56%, 7/9/97.............. 88,999,966
Landesbank Hessen-Thuringen
Girozentrale
13,000 6.01%, 7/18/97............. 13,001,891
25,000 6.13%, 4/7/98.............. 25,021,958
73,000 5.94%, 6/19/98............. 72,959,514
National Westminster Bank,
PLC
46,000 6.06%, 5/26/98............. 45,980,216
44,000 6.09%, 5/27/98............. 43,992,404
</TABLE>
B-25
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Certificates of Deposit - Yankee--(cont'd)
Societe Generale
$ 55,900 5.47%, 7/11/97............. $ 55,900,800
5,000 5.49%, 8/11/97............. 4,999,568
61,000 5.75%, 12/22/97............ 61,014,031
99,000 5.75%, 12/26/97............ 99,023,281
10,000 6.19%, 5/6/98.............. 9,994,982
13,000 6.01%, 6/16/98............. 12,996,427
Swiss Bank Corp.
75,000 5.98%, 3/19/98............. 74,989,749
--------------
Total Certificates of
Deposit--
Yankee
(amortized cost
$1,160,869,215).......... 1,160,869,215
--------------
Commercial Paper--49.3%
AC Acquisition Holding Co.
10,000 5.60%, 7/8/97.............. 9,989,111
Aetna Services Inc.
5,000 5.66%, 8/20/97............. 4,960,694
American Home Products
Corp.
9,774 5.62%, 7/14/97............. 9,754,164
American Honda Finance
Corp.
8,605 5.65%, 7/28/97............. 8,568,536
24,000 5.65%, 8/12/97............. 23,841,800
Aristar, Inc.
6,000 5.67%, 7/14/97............. 5,987,715
8,221 5.72%, 7/14/97............. 8,204,019
5,000 5.70%, 7/24/97............. 4,981,792
5,000 5.70%, 7/28/97............. 4,978,625
Asset Securitization Coop.
Corp.
79,000 5.56%, 8/18/97............. 78,414,347
45,000 5.55%, 8/19/97............. 44,660,063
Associates Corp. of North
America
116,000 6.1875%, 7/1/97............ 116,000,000
55,166 5.55%, 7/3/97.............. 55,148,991
Bank of Montreal
$ 210,000 5.53%, 7/7/97.............. $ 209,806,450
118,000 5.5318%, 7/9/97............ 117,854,944
Barton Capital Corp.
48,253 5.55%, 7/7/97.............. 48,208,366
18,631 5.30%, 7/15/97............. 18,592,599
4,000 5.70%, 8/15/97............. 3,971,500
Bear Stearns Comp., Inc.
36,000 5.57%, 7/7/97.............. 35,966,580
35,000 5.58%, 7/8/97.............. 34,962,025
31,000 5.55%, 7/23/97............. 30,894,858
Ciesco, L.P.
24,000 5.60%, 8/14/97............. 23,835,733
13,000 5.60%, 8/18/97............. 12,902,933
Citicorp
70,000 5.70%, 7/10/97............. 69,900,250
Coca-Cola Enterprises, Inc.
11,108 5.66%, 8/13/97............. 11,032,904
12,000 5.70%, 8/18/97............. 11,908,800
Commerzbank U.S. Finance,
Inc.
26,000 5.67%, 8/21/97............. 25,791,155
CoreStates Capital Corp.
19,000(a) 5.6575%, 7/24/97........... 19,000,000
Corporate Receivables Corp.
30,200 5.55%, 7/10/97............. 30,158,098
40,000 5.57%, 7/14/97............. 39,919,544
15,000 5.625%, 8/20/97............ 14,882,813
22,000 5.655%, 8/22/97............ 21,820,297
Countrywide Home Loan, Inc.
27,000 5.55%, 7/2/97.............. 26,995,838
Creditanstalt Finance, Inc.
69,419 5.55%, 7/3/97.............. 69,397,596
30,000 5.60%, 7/28/97............. 29,874,000
CXC, Inc.
11,000(b) 5.65%, 8/5/97.............. 10,939,576
</TABLE>
B-26
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Commercial Paper--(cont'd)
CXC, Inc.
$ 5,000(b) 5.65%, 8/7/97.............. $ 4,970,965
9,000(b) 5.65%, 8/8/97.............. 8,946,325
6,000(b) 5.63%, 8/14/97............. 5,958,713
Enterprise Funding Corp.
6,000 5.58%, 7/7/97.............. 5,994,420
6,416 5.64%, 8/19/97............. 6,366,747
5,047 5.63%, 8/20/97............. 5,007,535
Finova Capital Corp.
47,000 5.60%, 7/7/97.............. 46,956,133
7,000 5.70%, 7/7/97.............. 6,993,350
13,000 5.71%, 7/15/97............. 12,971,133
First Chicago Financial
Corp.
44,580 5.62%, 8/20/97............. 44,232,028
6,000 5.56%, 8/25/97............. 5,949,033
First Data Corp.
27,000 5.67%, 8/19/97............. 26,791,628
7,000 5.68%, 8/19/97............. 6,945,882
Ford Motor Credit Corp.
150,000 5.55%, 7/7/97.............. 149,861,250
73,000 5.55%, 7/8/97.............. 72,921,221
80,000 5.55%, 7/9/97.............. 79,901,333
General Electric Capital
Corp.
95,000 5.71%, 11/3/97............. 93,116,493
50,000 5.74%, 11/4/97............. 48,995,500
65,000 5.70%, 11/5/97............. 63,692,958
100,000 5.70%, 1/12/98............. 96,912,500
13,000 5.70%, 1/13/98............. 12,596,567
General Motors Acceptance
Corp.
184,000 5.59%, 7/7/97.............. 183,828,573
19,000 5.82%, 11/7/97............. 18,603,755
GTE Corp.
11,000 5.55%, 7/7/97.............. 10,989,825
50,000 5.60%, 9/11/97............. 49,440,000
9,730 5.60%, 9/12/97............. 9,619,510
IBM Credit Corp.
46,000 5.54%, 8/19/97............. 45,653,134
50,000 5.54%, 8/20/97............. 49,615,278
International Lease Finance
Corp.
$ 3,238 5.35%, 7/30/97............. $ 3,224,045
Internationale Nederland
U.S.
Insurance Holdings, Inc.
15,000 5.63%, 8/11/97............. 14,903,821
John Deere Capital Corp.
18,000 5.54%, 7/9/97.............. 17,977,840
Johnson Controls, Inc.
7,159 5.63%, 7/14/97............. 7,144,445
Lehman Brothers Holdings,
Inc.
86,911 5.75%, 7/3/97.............. 86,883,237
MCI Communications Corp.
34,700 5.45%, 7/7/97.............. 34,668,481
29,000 5.54%, 7/7/97.............. 28,973,223
35,000 5.54%, 7/8/97.............. 34,962,297
Mitsubishi International
Corp.
14,000 5.75%, 7/8/97.............. 13,984,347
10,000 5.60%, 7/16/97............. 9,976,667
National Bank of Canada
67,000 5.41%, 7/7/97.............. 66,939,588
NYNEX Corp.
30,000 5.55%, 7/7/97.............. 29,972,250
19,000 5.60%, 8/5/97.............. 18,896,556
Preferred Receivables
Funding Corp.
17,650 5.57%, 7/8/97.............. 17,630,884
18,000 5.55%, 7/10/97............. 17,975,025
27,000 5.58%, 7/22/97............. 26,912,115
Rank Xerox Capital
(Europe), PLC
17,000 5.54%, 8/19/97............. 16,871,811
6,000 5.56%, 8/20/97............. 5,953,667
Sears Roebuck Acceptance
Corp.
61,000 6.20%, 7/1/97.............. 61,000,000
Smith Barney, Inc.
50,000 5.55%, 7/7/97.............. 49,953,750
Triple A One Funding Corp.
7,000 5.57%, 7/7/97.............. 6,993,502
5,677 5.57%, 7/11/97............. 5,668,216
</TABLE>
B-27
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Commercial Paper--(cont'd)
UBS Finance (Delaware),
Inc.
$ 193,086 6.20%, 7/1/97.............. $ 193,086,000
WCP Funding, Inc.
20,539 5.65%, 8/4/97.............. 20,429,402
12,200 5.62%, 8/12/97............. 12,120,009
--------------
Total Commercial Paper
(amortized cost
$3,271,039,683).......... 3,271,039,683
--------------
Loan Participations--1.2%
Bell Atlantic Financial Services, Inc.
10,000 5.59%, 7/2/97.............. 10,000,000
7,000 5.61%, 7/8/97.............. 7,000,000
Countrywide Home Loan, Inc.
11,211 5.73%, 7/8/97.............. 11,211,000
Newell Co.
50,000(b) 5.72%, 7/18/97............. 50,000,000
--------------
Total Loan Participations
(amortized cost
$78,211,000)............. 78,211,000
--------------
Other Corporate Obligations--18.0%
Abbey National Treasury Services, PLC
24,000 5.50%, 11/21/97............ 23,980,419
53,000 5.50%, 11/26/97............ 52,978,295
15,000 6.185%, 4/7/98............. 14,992,866
American General Finance
Corp.
3,000 7.00%, 10/1/97............. 3,008,141
5,200 7.70%, 11/15/97............ 5,233,966
Avco Financial Services,
Inc.
7,000(a) 5.7725%, 8/15/97........... 6,999,618
Bell Atlantic Financial Services, Inc.
4,400 6.625%, 11/30/97........... 4,415,747
Beneficial Corp.
25,000(a) 5.8525%, 8/5/97............ 25,001,527
Capita Equipment Receivable
Trust 1996-1 A1
23,419(a) 5.60%, 7/15/97............. 23,419,643
CIT Group Holdings, Inc.
7,000 6.20%, 4/15/98............. 7,001,222
Ford Motor Credit Corp.
5,000 7.05%, 11/19/97............ 5,026,207
General Motors Acceptance
Corp.
$ 41,000(a) 5.79641%, 8/4/97........... $ 40,991,132
5,000 5.75%, 10/8/97............. 4,999,067
Goldman Sachs Group L.P.
268,000(a)(b) 5.69531%, 8/22/97.......... 268,000,000
Merrill Lynch & Co., Inc.
40,000(a) 5.66141%, 7/1/97........... 39,997,056
20,000(a) 5.7175%, 7/16/97........... 20,001,803
61,000(a) 5.6475%, 7/24/97........... 60,990,257
Morgan Guaranty Trust Co.
41,000(a) 5.6875%, 8/14/97........... 40,988,863
Morgan Stanley Group, Inc.
18,000(a) 5.95313%, 7/15/97.......... 18,000,000
33,000(a) 5.95313%, 8/15/97.......... 33,000,000
PNC Student Loan Trust I
1997-2 A-1
12,000(a) 5.6275%, 7/25/97........... 12,000,000
Short-Term Repackaged Asset
Trust
81,000(a) 5.6875%, 7/15/97........... 80,992,068
Short-Term Card Account
Trust 1996-1
227,000(a) 5.7075%, 7/15/97........... 227,000,000
SMM Trust Notes 1997-Q
173,000(a) 5.6875%, 7/15/97........... 173,000,000
--------------
Total Other Corporate
Obligations
(amortized cost
$1,192,017,897).......... 1,192,017,897
--------------
Time Deposit - Eurodollar--3.3%
First National Bank of
Chicago
217,000 6.25%, 7/1/97
(amortized cost
$217,000,000)............ 217,000,000
--------------
Total Investments--99.1%
(amortized cost
$6,567,067,683).......... 6,567,067,683
Other assets in excess of
liabilities--0.9%........ 62,834,889
--------------
Net Assets--100%........... $6,629,902,572
--------------
--------------
</TABLE>
- ---------------
(a) 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.
(b) Indicates a security restricted as to resale.
B-28
See Notes to Financial Statements appearing on page 29.
<PAGE>
The industry classification of portfolio holdings and other assets
in excess of liabilities shown as a percentage of net assets as
of June 30, 1997 was as follows:
<TABLE>
<S> <C>
Commercial Banks............................ 46.2%
Short-Term Business Credit.................. 11.7
Security Brokers & Dealers.................. 10.2
Asset Backed Securities..................... 9.2
Finance Lessors............................. 5.2
Personal Credit Institutions................ 4.0
Telephone & Communications.................. 3.6
Fire & Marine Casualty Insurance............ 3.4
Bank Holding Companies - Domestic........... 2.1
Home Furnishings............................ 0.8
Mortgage Banks.............................. 0.6
Computer Rental & Leasing................... 0.5
Commodity Trading Firms..................... 0.4
Beverages................................... 0.3
Pharmaceuticals............................. 0.3
Photographic Equipment...................... 0.3
Accidental & Health Insurance............... 0.1
Equipment Rental & Leasing.................. 0.1
Regulating Controls......................... 0.1
-----
99.1
Other assets in excess of liabilities....... 0.9
-----
100.0%
-----
-----
</TABLE>
B-29
See Notes to Financial Statements appearing on page 29.
<PAGE>
COMMAND MONEY FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets June 30, 1997
--------------
<S> <C>
Investments, at amortized cost which approximates market value.......................... $6,567,067,683
Receivable for Fund shares sold......................................................... 207,161,908
Interest receivable..................................................................... 28,092,443
Prepaid expenses........................................................................ 183,958
--------------
Total assets.......................................................................... 6,802,505,992
--------------
Liabilities
Bank overdraft.......................................................................... 12,486
Payable for Fund shares repurchased..................................................... 168,915,632
Management fee payable.................................................................. 1,992,918
Accrued expenses and other liabilities.................................................. 1,321,231
Distribution fee payable................................................................ 361,153
--------------
Total liabilities..................................................................... 172,603,420
--------------
Net Assets.............................................................................. $6,629,902,572
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................. $ 66,299,026
Paid-in capital in excess of par...................................................... 6,563,603,546
--------------
Net assets, June 30, 1997............................................................... $6,629,902,572
--------------
--------------
Net asset value, offering price and redemption price per share ($6,629,902,572 /
6,629,902,572 shares of beneficial interest (.01 par value) issued and outstanding)... $1.00
--------------
--------------
</TABLE>
See Notes to Financial Statements appearing on page 29.
B-30
<PAGE>
COMMAND MONEY FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
June 30,
Net Investment Income 1997
<S> <C>
Income
Interest............................. $ 336,321,301
------------------
Expenses
Management fee....................... 22,524,838
Distribution fee..................... 7,598,156
Transfer agent's fees and expenses... 2,080,000
Reports to shareholders.............. 1,015,000
Registration fees.................... 735,000
Custodian's fees and expenses........ 205,000
Insurance expense.................... 104,000
Trustees' fees and expenses.......... 56,000
Audit fee............................ 30,000
Legal fees and expenses.............. 30,000
Miscellaneous........................ 36,669
------------------
Total expenses..................... 34,414,663
------------------
Net investment income.................. 301,906,638
------------------
Realized Gain on Investments
Net realized gain on investment
transactions......................... 168,167
------------------
Net Increase in Net Assets
Resulting from Operations.............. $ 302,074,805
------------------
------------------
</TABLE>
COMMAND MONEY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended June 30,
Increase in -----------------------------------
Net Assets 1997 1996
---------------- ----------------
<S> <C> <C>
Operations
Net investment
income........... $ 301,906,638 $ 252,390,009
Net realized gain
on investment
transactions..... 168,167 125,755
---------------- ----------------
Net increase in net
assets resulting
from
operations....... 302,074,805 252,515,764
---------------- ----------------
Dividends and
distributions to
shareholders (Note
1)................. (302,074,805) (252,515,764)
---------------- ----------------
Fund share
transactions (at $1
per share)
Net proceeds from
shares
subscribed....... 30,172,770,064 24,708,980,727
Net asset value of
shares issued in
reinvestment of
dividends and
distributions.... 302,074,805 252,515,764
Cost of shares
reacquired....... (29,154,784,207) (23,707,354,464)
---------------- ----------------
Net increase in net
assets from Fund
share
transactions..... 1,320,060,662 1,254,142,027
---------------- ----------------
Total increase....... 1,320,060,662 1,254,142,027
Net Assets
Beginning of year.... 5,309,841,910 4,055,699,883
---------------- ----------------
End of year.......... $ 6,629,902,572 $ 5,309,841,910
---------------- ----------------
---------------- ----------------
</TABLE>
See Notes to Financial Statements appearing on page 29.
See Notes to Financial Statements appearing on page 29.
B-31
<PAGE>
COMMAND MONEY FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<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....... 0.049 0.052 0.050 0.029 0.030
Dividends and distributions to shareholders........ (0.049) (0.052) (0.050) (0.029) (0.030)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year....................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN(a):................................... 5.06% 5.30% 5.13% 2.98% 3.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................... $6,629,903 $5,309,842 $4,055,700 $2,448,201 $2,436,672
Average net assets (000)........................... $6,078,525 $4,896,794 $3,072,284 $2,570,195 $2,275,532
Ratios to average net assets:
Expenses, including distribution fees............ .57% .58% .59% .59% .61%
Expenses, excluding distribution fees............ .44% .46% .47% .47% .48%
Net investment income............................ 4.97% 5.15% 5.09% 2.92% 2.90%
</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 29.
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, 1997, 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, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
August 21, 1997
B-32
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
U.S. Government Agencies--62.3%
Federal Farm Credit Bank
$ 4,000 5.55%, 8/1/97................. $ 3,999,251
6,000 5.85%, 8/1/97................. 6,001,590
3,500 5.32%, 12/17/97............... 3,412,589
------------
13,413,430
------------
Federal Home Loan Bank
20,000(a) 5.52641%, 7/2/97.............. 19,992,559
15,000(c) 5.78%, 7/7/98................. 14,983,500
1,000 6.645%, 8/28/97............... 1,001,433
1,000 5.46%, 9/24/97................ 987,108
10,000 5.997%, 9/30/97............... 9,999,925
725 7.93%, 1/20/98................ 733,695
4,600 5.99%, 2/9/98................. 4,605,705
2,290 6.04%, 5/6/98................. 2,290,623
6,580 5.23%, 7/10/97................ 6,571,397
------------
61,165,945
------------
Federal Home Loan Mortgage
Corporation
2,000 5.95%, 7/15/97................ 2,000,092
13,000 5.17%, 8/14/97................ 12,917,854
------------
14,917,946
------------
Federal National Mortgage
Association
35,000(a) 5.27%, 7/1/97................. 34,998,693
25,575(a) 5.27%, 8/14/97................ 25,570,235
8,695(a) 5.27%, 8/22/97................ 8,694,275
25,000 5.5275%, 7/3/97............... 24,992,757
600 8.95%, 7/10/97................ 600,455
1,500(a) 5.5175%, 7/12/97.............. 1,499,785
12,900 5.54%, 8/5/97................. 12,830,519
19,000(a) 5.6325%, 8/19/97.............. 18,994,511
19,200 9.55%, 9/10/97................ 19,333,585
$ 25,000 5.45%, 9/15/97................ $ 24,712,361
17,000 5.59%, 10/7/97................ 16,741,307
8,000 5.79%, 10/16/97............... 7,998,444
5,000 5.40%, 12/5/97................ 4,996,976
1,400 7.56%, 2/6/98................. 1,413,747
15,000(d) 5.89%, 5/21/98................ 14,985,666
------------
218,363,316
------------
Student Loan Marketing
Association
1,000(a) 5.24%, 7/1/97................. 999,730
------------
United States Treasury Notes
5,000 5.75%, 9/30/97................ 5,004,120
15,000 5.125%, 2/28/98............... 14,947,252
------------
19,951,372
------------
Total U.S. Government Agencies
(amortized cost
$328,811,739)............... 328,811,739
------------
Repurchase Agreements(b)--36.6%
Bear, Stearns & Co., 5.53%,
dated 6/26/97, due 7/3/97 in
the amount of $10,010,753
(cost $10,000,000), value of
collateral including accrued
10,000 interest--$10,231,600....... 10,000,000
Bear, Stearns & Co., 5.50%,
dated 6/27/97, due 7/7/97 in
the amount of $12,732,423
(cost $12,713,000), value of
collateral including accrued
12,713 interest--$12,932,568....... 12,713,000
Chase Manhattan Bank, 5.55%,
dated 6/3/97, due 7/3/97, in
the amount of $30,138,750
(cost $30,000,000), the
value of collateral
including accrued
30,000 interest--$30,941,169....... 30,000,000
</TABLE>
B-33
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Repurchase Agreements(b)--(cont'd)
Goldman Sachs & Co., Inc.,
5.55%, dated 6/25/97, due
7/1/97 in the amount of
$49,588,321 (cost
$48,616,000), value of
collateral including accrued
$ 48,616 interest--$49,588,321....... $ 48,616,000
Goldman Sachs & Co., Inc.,
5.55%, dated 6/26/97, due
7/1/97 in the amount of
$3,078,371 (cost
$3,076,000), value of
collateral including accrued
$ 3,076 interest--$3,137,520........ 3,076,000
Merrill Lynch, Pierce, Fenner
& Smith, Inc., 5.67%, dated
6/30/97, due 7/7/97 in the
amount of $27,029,768 (cost
$27,000,000), value of
collateral including accrued
27,000 interest--$27,543,717....... 27,000,000
Morgan Stanley & Co., 5.54%,
dated 6/20/97, due 7/3/97,
in the amount of $11,109,180
(cost $11,087,000), value of
collateral including accrued
11,087 interest--$11,394,391....... 11,087,000
Morgan Stanley & Co., 5.55%,
dated 6/26/97, due 7/3/97 in
the amount of $42,045,325
(cost $42,000,000) value of
collateral including accrued
$ 42,000 interest--$43,164,467....... $ 42,000,000
Smith Barney Inc., 5.55%,
dated 6/19/97, due 7/2/97 in
the amount of $9,118,238
(cost $9,100,000), value of
collateral including accrued
9,100 interest--$9,282,773........ 9,100,000
------------
Total Repurchase Agreements
(amortized cost
$193,592,000)............... 193,592,000
------------
Total Investments--98.9%
(amortized cost
$522,403,739)............... 522,403,739
Other assets in excess of
liabilities--1.1%........... 6,065,746
------------
Net Assets--100%.............. $528,469,485
------------
------------
</TABLE>
- ---------------
(a) 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.
(b) Repurchase agreements are collateralized by U.S. Treasury or Federal agency
obligations.
(c) Represents when-issued or extended settlement security.
(d) Pledged as collateral for when-issued security or extended settlement
security.
B-34
See Notes to Financial Statements appearing on page 29.
<PAGE>
COMMAND GOVERNMENT FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets June 30, 1997
-------------
<S> <C>
Investments, at amortized cost which approximates market value............................ $ 522,403,739
Cash...................................................................................... 2,244
Receivable for investments sold........................................................... 15,176,852
Receivable for Fund shares sold........................................................... 14,738,967
Interest receivable....................................................................... 3,288,053
Prepaid expenses.......................................................................... 16,460
-------------
Total assets............................................................................ 555,626,315
-------------
Liabilities
Payable for investments purchased......................................................... 14,983,500
Payable for Fund shares repurchased....................................................... 11,474,558
Accrued expenses and other liabilities.................................................... 491,299
Management fee payable.................................................................... 178,502
Distribution fee payable.................................................................. 28,971
-------------
Total liabilities....................................................................... 27,156,830
-------------
Net Assets................................................................................ $ 528,469,485
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................... $ 5,284,695
Paid-in capital in excess of par........................................................ 523,184,790
-------------
Net assets, June 30, 1997................................................................. $ 528,469,485
-------------
-------------
Net asset value, offering price and redemption price per share ($528,469,485 / 528,469,485
shares of
beneficial interest (.01 par value) issued and outstanding)............................. $1.00
-------------
-------------
</TABLE>
See Notes to Financial Statements appearing on page 29.
B-35
<PAGE>
COMMAND GOVERNMENT FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
June 30,
Net Investment Income 1997
<S> <C>
Income
Interest.............................. $ 29,279,865
-------------
Expenses
Management fee........................ 2,138,318
Distribution fee...................... 668,224
Registration fees..................... 230,000
Custodian's fees and expenses......... 100,000
Transfer agent's fees and expenses.... 88,000
Reports to shareholders............... 65,000
Trustees' fees and expenses........... 36,000
Audit fee............................. 27,000
Legal fees and expenses............... 20,000
Insurance expense..................... 10,000
Miscellaneous......................... 1,124
-------------
Total expenses...................... 3,383,666
-------------
Net investment income................... 25,896,199
-------------
Realized Gain on Investments
Net realized gain on investment
transactions.......................... 100,048
-------------
Net Increase in Net Assets
Resulting from Operations............... $ 25,996,247
-------------
-------------
</TABLE>
COMMAND GOVERNMENT FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended June 30,
Increase in ---------------------------------
Net Assets 1997 1996
--------------- ---------------
<S> <C> <C>
Operations
Net investment
income............... $ 25,896,199 $ 23,722,473
Net realized gain on
investment
transactions....... 100,048 60,771
--------------- ---------------
Net increase in net
assets resulting
from operations.... 25,996,247 23,783,244
--------------- ---------------
Dividends and
distributions to
shareholders (Note
1)................... (25,996,247) (23,783,244)
--------------- ---------------
Fund share transactions
(at $1 per share)
Net proceeds from
shares
subscribed......... 2,583,554,167 2,100,249,743
Net asset value of
shares issued in
reinvestment of
dividends and
distributions...... 25,996,247 23,783,244
Cost of shares
reacquired........... (2,568,565,639) (2,040,843,422)
--------------- ---------------
Net increase in net
assets from Fund
share
transactions....... 40,984,775 83,189,565
--------------- ---------------
Total increase......... 40,984,775 83,189,565
Net Assets
Beginning of year...... 487,484,710 404,295,145
--------------- ---------------
End of year............ $ 528,469,485 $ 487,484,710
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Financial Statements appearing on page 29.
See Notes to Financial Statements appearing on page 29.
B-36
<PAGE>
COMMAND GOVERNMENT FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<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.............. 0.049 .050 .048 0.028 0.028
Dividends and distributions to shareholders............... (0.049) (.050) (.048) (0.028) (0.028)
-------- -------- -------- -------- --------
Net asset value, end of year.............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a)........................................... 4.97% 5.12% 4.89% 2.86% 2.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................. $528,469 $487,485 $404,295 $325,257 $381,703
Average net assets (000).................................. $534,580 $477,168 $350,458 $376,159 $380,103
Ratios to average net assets:
Expenses, including distribution fees................... 0.63% .68% .65% .63% .65%
Expenses, excluding distribution fees................... 0.51% .56% .53% .51% .53%
Net investment income................................... 4.84% 4.97% 4.81% 2.79% 2.74%
</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 29.
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, 1997, 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, 1997 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, 1997
B-37
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
ALABAMA--0.9%
Mcintosh Ind. Dev. Bus.,
Ciba Geigy Corp,
F.R.W.D.,
4.25%, 7/2/97, Ser.
A-1+* $ 10,100 90.................... $ 10,100,000
--------------
ARIZONA--3.2%
Pima Cnty. Ind. Dev.
Auth.,
F.R.W.D.,
4.35%, 7/3/97, Ser.
A-1+* 14,945 96B................... 14,945,000
Salt River Agr. Proj.,
Imp. & Pwr., T.E.C.P.,
3.80%, 7/18/97, Ser.
P-1 20,850 80.................... 20,847,413
--------------
35,792,413
--------------
CALIFORNIA--1.8%
California Higher Ed.
Ln. Auth.,
Student Ln. Rev.,
A.N.N.M.T.,
4.00%, 7/1/98, Ser.
VMIG1 9,100 87A................... 9,100,000
California Student Ln.
Mktg. Corp.,
Student Ln. Rev.,
A.N.N.M.T.,
3.85%, 11/1/97, Ser.
VMIG1 10,800 93A................... 10,800,000
--------------
19,900,000
--------------
COLORADO--3.7%
Avon Cnty. Ind. Dev.
Rev.,
Beaver Creek Proj.,
F.R.M.D.,
4.25%, 7/15/97, Ser.
P-1 9,000 84.................... 9,000,000
Colorado Hsg. Fin.
Auth.,
Eagle Trust,
F.R.W.D.S.,
4.30%, 7/3/97, Ser.
A-1* 21,700 94C................... 21,700,000
Denver City & Cnty.
Airport Rev.,
F.R.W.D.,
4.45%, 7/2/97, Ser
VMIG1 $ 11,300 91B................... $ 11,300,000
--------------
42,000,000
--------------
CONNECTICUT--2.7%
Connecticut St.,
F.R.W.D.,
4.10%, 7/3/97, Ser.
VMIG1 30,900 97B................... 30,900,000
--------------
DELAWARE--1.8%
Delaware Econ. Dev.
Auth.,
Star Enterprise,
F.R.W.D.,
4.25%, 7/2/97, Ser.
A-1+* 20,400 96A................... 20,400,000
--------------
DISTRICT OF COLUMBIA--2.2%
Dist. of Columbia Hsg.
Fin. Agcy.,
Carmel Plaza,
F.R.W.D.,
4.15%, 7/3/97, Ser.
VMIG1 8,830 91.................... 8,830,000
Dist. of Columbia Rev.,
F.R.D.D.,
4.30%, 7/1/97, Ser.
VMIG1 1,100 92A-5................. 1,100,000
Metro. Wash. Airport
Rev., T.E.C.P.,
A-1* 14,500 4.00%, 11/17/97......... 14,500,000
--------------
24,430,000
--------------
FLORIDA--1.2%
TEB Muni Trust.,
Ambassador Apt. Inc.,
F.R.W.D.S.,
A-1+* 13,500 4.32%, 7/3/97, Ser. 1... 13,500,000
--------------
GEORGIA--8.4%
Burke Cnty. Dev. Auth.,
Poll. Ctrl. Rev.,
Oglethorpe Pwr. Corp.,
3.60%, 12/1/97, Ser.
Aaa 10,000 97A................... 10,000,000
</TABLE>
B-38
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
GEORGIA--(cont'd)
Burke Cnty. Dev. Auth.,
Poll. Ctrl. Rev.,
Pwr. Plant Vogtle
Proj., F.R.D.D.,
4.05%, 7/1/97, Ser.
VMIG1 $ 10,700 96-1.................. $ 10,700,000
Oglethorpe Pwr. Corp.,
S.E.M.O.T.,
3.875%, 10/31/97, Ser.
NR 14,215 96.................... 14,215,000
Cobb Cnty. Hsg. Auth.,
Terrell Mill II
Assoc., F.R.W.D.,
4.25%, 7/3/97, Ser.
A-1+* 10,600 93.................... 10,600,000
De Kalb Cnty.,
T.A.N.,
MIG1 9,000 4.00%, 12/31/97......... 9,013,994
Monroe Cnty. Dev. Auth.,
Oglethorpe Sherer
Proj., S.E.M.O.T.,
3.875%, 10/31/97, Ser.
NR 13,670 96.................... 13,670,000
Roswell Hsg. Auth.,
Post Canyon Proj.,
F.R.W.D.,
4.10%, 7/2/97, Ser.
A-1+* 9,345 96.................... 9,345,000
Willacoochie Dev. Auth.,
Poll. Ctrl. Rev.,
Langboard Inc. Proj.,
F.R.W.D.,
4.20%, 7/3/97, Ser.
Aa2 17,000 97.................... 17,000,000
--------------
94,543,994
--------------
ILLINOIS--19.8%
Chicago,
Equipment Notes,
S.E.M.M.T.,
3.60%, 12/4/97, Ser.
VMIG1 10,000 97.................... 10,000,000
A.N.N.M.T.,
3.65%, 2/5/98, Ser.
VMIG1 37,000 97.................... 37,000,000
Stockyards Indl. Proj.,
F.R.W.D.,
4.25%, 7/2/97, Ser.
A-1+* $ 13,300 96A................... $ 13,300,000
Gurnee Ind. Dev. Rev.,
Sterigenics Intl.
Proj., F.R.W.D.,
4.40%, 7/2/97, Ser.
A-1* 7,750 96.................... 7,750,000
Illinois Dev. Fin.
Auth., Poll. Ctrl.
Rev.,
Commonwealth Edison
Proj., F.R.W.D.,
4.15%, 7/2/97, Ser
VMIG1 9,000 96A................... 9,000,000
Pwr Co. Proj., F.R.W.D.,
4.30%, 7/2/97, Ser.
VMIG1 5,000 97A................... 5,000,000
Illinois Dev. Fin. Auth.
Rev.,
Adventist Hlth. Sys.,
F.R.W.D.,
4.20%, 7/3/97, Ser.
VMIG1 28,500 97A................... 28,500,000
Illinois Dev. Fin.
Auth.,
Multifamily Hsg. Rev.
Proj., F.R.W.D.,
4.50%, 7/4/97, Ser.
A-1* 18,900 92.................... 18,900,000
Illinois Hlth. Fac.
Auth.,
Servant Cor. Falcon
II, F.R.W.D.,
4.25%, 7/2/97, Ser.
A1+* 16,000 96A................... 16,000,000
Children's Mem. Hosp.,
S.E.M.M.T.,
3.55%, 8/5/97, Ser.
VMIG1 15,000 90A................... 15,000,000
Evanston Hosp. Corp.
Prog., A.N.N.M.T.,
4.00%, 5/15/98, Ser.
VMIG1 18,000 95.................... 18,000,000
Evanston Hosp. Corp.
Proj., A.N.N.M.T.,
3.70%, 12/1/97, Ser.
VMIG1 12,000 92.................... 12,000,000
Victory Hlth. Svcs.
Proj., M.T.H.M.T.,
3.85%, 7/17/97, Ser.
VMIG1 11,300 91.................... 11,300,000
</TABLE>
B-39
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
ILLINOIS--(cont'd)
Illinois Hlth. Fac. Dev.
Auth.,
Riverside Hlth. Sys.,
F.R.W.D.,
4.20%, 7/2/97, Ser.
VMIG1 $ 11,500 94.................... $ 11,500,000
Kane Mc Henry Cook &
Dekalb Cnty.,
Tax Ant. Wts.,
4.05%, 9/26/97, Ser.
NR 10,000 96.................... 10,009,357
--------------
223,259,357
--------------
INDIANA--2.0%
Elkhart Comm. Sch.,
Tax Ant. Wts., T.L.N.,
NR 6,000 3.90%, 12/31/97......... 6,002,611
Indiana Ed. Fac. Auth.,
Wesleyan Univ.,
F.R.W.D.,
4.20%, 7/3/97, Ser.
NR 9,600 93.................... 9,600,000
Indiana Hlth. Fac. Fin.
Auth.
Rev., Baptist Homes of
Indiana, F.R.W.D.,
4.20%, 7/3/97, Ser.
NR 6,960 95.................... 6,960,000
--------------
22,562,611
--------------
IOWA--2.6%
Louisa Cnty. Poll. Ctrl.
Rev.,
Mid American Energy,
F.R.W.D.,
4.20%, 7/2/97, Ser.
VMIG1 20,000 85.................... 20,000,000
Sergeant Bluff Dev.
Rev.,
Sioux City Brick &
Tile Proj., F.R.W.D.,
4.35%, 7/3/97, Ser.
NR 9,100 96.................... 9,100,000
--------------
29,100,000
--------------
KENTUCKY--3.1%
Louisville & Jefferson
Cnty., Sewer &
Drainage
Sub. Notes, F.R.W.D.,
SP-1* $ 35,000 4.20%, 7/3/97........... $ 35,000,000
--------------
LOUISIANA--1.5%
Calcasieu Parish Ind.
Dev. Board,
Citgo. Corp.,
F.R.D.D.,
4.30%, 7/1/97, Ser.
VMIG1 1,100 94.................... 1,100,000
Louisiana Pub. Facs.
Auth. Rev.,
Multifamily Hsg.
Shadow
Lake Apts., F.R.W.D.,
4.40%, 7/3/97, Ser.
A-1* 5,000 93.................... 5,000,000
Louisiana Pub. Facs.
Auth.,
Hosp. Equip.,
F.R.W.D.,
4.45%, 7/2/97, Ser.
VMIG1 6,900 85A................... 6,900,000
West Baton Rouge Parish
Ind. Dist Pound3 Rev.,
Dow Chemical Co.
Proj., T.E.C.P.,
3.80%, 8/1/97, Ser.
P1 3,000 91.................... 3,000,000
F.R.D.D.,
4.15%, 7/1/97, Ser
P1 1,100 94B................... 1,100,000
--------------
17,100,000
--------------
MASSACHUSETTS--6.5%
Massachusetts Bay
Transit Auth.,
4.25%, 2/27/98, Ser.
MIG2 29,000 97A................... 29,041,058
</TABLE>
B-40
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
MASSACHUSETTS--(cont'd)
Massachusetts Hsg. Fin.
Agcy., Single Family
Hsg. Rev., Ser.
5-Eagle Trust,
Q.T.R.O.T.S.,
3.70%, 9/1/97, Ser.
A-1+* $ 8,000 96.................... $ 8,000,000
Methuen, Gen. Oblig.,
B.A.N.,
4.25%, 12/18/97, Ser.
MIG1 15,000 97.................... 15,033,744
Revere Hsg. Auth.,
Multifamily Mtge.
Rev., Waters Edge
Apts. Proj., F.R.W.D.,
4.50%, 7/4/97, Ser.
A-1* 22,000 91C................... 22,000,000
--------------
74,074,802
--------------
MICHIGAN--2.2%
Charter Co. of Wayne,
Detroit Metro Wayne
Co. Airport, F.R.W.D.,
4.25%, 7/2/97, Ser.
P-1 9,400 96A................... 9,400,000
Detroit City Sch. Dist.,
Tax Gen. Oblig.,
4.50%, 5/1/98, Ser.
SP-1+* 15,000 97.................... 15,072,600
--------------
24,472,600
--------------
MINNESOTA--0.5%
Bloomington Comm. Dev.
Rev.,
94th Street Assoc.
Proj., F.R.W.D.,
4.20%, 7/4/97, Ser.
A-1+* 5,375 85.................... 5,375,000
--------------
MISSISSIPPI--1.5%
Harrison Cnty. Poll.
Ctrl. Rev.,
Mississippi Pwr. Co.
Proj., F.R.W.D.,
4.20%, 7/2/97, Ser.
A-1* $ 16,750 92.................... $ 16,750,000
--------------
MISSOURI--1.8%
Missouri Environ. Impvt.
& Energy Res. Auth.,
Union Elec. Co.,
A.N.N.O.T.,
3.95%, 6/1/98, Ser.
P-1 7,120 84A................... 7,120,000
St. Charles Cnty. Ind.
Dev. Auth., Cedar
Ridge Apts., F.R.W.D.,
4.30%, 7/2/97, Ser.
A-1+* 13,775 88A................... 13,775,000
--------------
20,895,000
--------------
NEVADA--0.3%
Washoe Cnty. Wtr. Facs.
Rev.,
Sierra Pacific Pwr.
Co. Proj., F.R.D.D.,
4.25%, 7/1/97, Ser.
P-1 3,000 90,................... 3,000,000
--------------
NEW HAMPSHIRE--2.1%
New Hampshire Bus. Fin.
Auth.,
New England Pwr. Co.
Proj., T.E.C.P.,
3.75%, 10/1/97, Ser.
VMIG1 24,200 90B................... 24,200,000
--------------
NEW MEXICO--0.2%
Farmington Poll. Ctrl.
Rev.,
Pub. Serv. Proj.,
F.R.D.D.,
4.25%, 7/1/97, Ser.
P1 1,900 94C,.................. 1,900,000
--------------
</TABLE>
B-41
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
NEW YORK--2.5%
New York City
Gen Oblig., T.E.C.P.,
3.60%, 7/24/97, Ser.
VMIG1 $ 6,800 94H-3................. $ 6,800,000
3.75%, 8/13/97, Ser.
VMIG1 4,500 94H-2................. 4,500,000
New York Med. Care Facs.
Fin. Agcy., Hosp &
Nursing Home Proj.,
8.10%, 2/15/98, Ser.
Aaa 16,050 88B................... 16,772,109
--------------
28,072,109
--------------
NORTH CAROLINA--1.7%
Cabarrus Cnty. Ind.
Facs. Auth., Poll.
Ctrl. Rev.,
Philip Morris Proj.,
F.R.W.D.,
4.35%, 7/2/97, Ser.
P1 5,000 92.................... 5,000,000
Charlotte Airport Rev.,
Rfdg., F.R.W.D.,
4.25%, 7/2/97, Ser.
VMIG1 14,500 97.................... 14,500,000
--------------
19,500,000
--------------
OHIO--2.7%
Hamilton Cnty. Hosp. Facs. Rev.,
Health Alliance, F.R.W.D.,
VMIG1 10,000 4.15%, 7/3/97, Ser. B... 10,000,000
Medina Cnty. Hsg. Rev.,
Oaks At Medina Proj.,
F.R.W.D.,
NR 9,650 4.20%, 7/3/97........... 9,650,000
Ohio Wtr. Dev. Auth.,
Poll. Ctrl. Facs.,
Ohio Edison Co. Proj.,
A.N.N.O.T.,
4.10%, 5/1/98, Ser.
VMIG1 10,480 88A................... 10,480,000
--------------
30,130,000
--------------
OKLAHOMA--0.5%
Muskogee Ind. Trust,
Muskogee Mall Proj.,
F.R.W.D.,
4.40%, 7/2/97, Ser.
VMIG1 $ 5,400 85.................... $ 5,400,000
--------------
PENNSYLVANIA--3.4%
Emmaus Gen. Auth., F.R.W.D.,
4.45%, 7/2/97, Ser.
A-1+* 3,500 96.................... 3,500,000
Montgomery Cnty., Higher
Ed., F.R.W.D.,
4.45%, 7/2/97, Ser.
A-1+* 15,700 96A................... 15,700,000
Northeastern Hosp. & Ed.
Auth., Hlth. Fin.
Prog., F.R.W.D.,
4.25%, 7/2/97, Ser.
VMIG1 19,900 96.................... 19,900,000
--------------
39,100,000
--------------
RHODE ISLAND--1.3%
Rhode Island Hsg. & Mtg.
Fin. Corp.,
Homeownership Op.
Proj., A.N.N.M.T.,
3.70%, 12/2/97, Ser.
VMIG1 4,985 22-B.................. 4,985,000
Rhode Island Student Ln.
Auth.,
Student Loan Program
Rev. Proj., F.R.W.D.,
4.25%, 7/2/97, Ser.
A-1+* 10,000 96-2.................. 10,000,000
--------------
14,985,000
--------------
SOUTH CAROLINA--1.2%
York Cnty. Poll. Ctrl.
Rev.,
North Carolina
Electric Proj.,
S.E.M.O.T.,
3.55%, 9/15/97, Ser.
VMIG1 13,500 84N-3................. 13,500,000
--------------
</TABLE>
B-42
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
SOUTH DAKOTA--1.3%
South Dakota Hsg. Dev.
Auth.,
Home Ownership Mtg.,
A.N.N.M.T.,
3.85%, 3/26/98, Ser.
VMIG1 $ 9,180 97C................... $ 9,180,000
F.R.W.D.S.,
4.40%, 7/3/97, Ser.
A-1+* 5,760 PT-85................. 5,760,000
--------------
14,940,000
--------------
TENNESSEE--2.0%
Nashville & Davidson
Cnty. Ind. Dev. Brd.
Rev., F.R.W.D.,
A-1+* 8,540 4.25%, 7/3/97, Ser. A... 8,540,000
Montgomery Cnty. Tax
Pub. Auth.,
F.R.W.D.,
4.20%, 7/3/97, Ser.
A-1+* 14,600 95.................... 14,600,000
--------------
23,140,000
--------------
TEXAS--7.4%
Brazos River Harbor Nav.
Dist.,
Dow Chemical Co.
Proj., T.E.C.P.,
3.80%, 8/1/97, Ser.
P-1 6,100 91.................... 6,100,000
Collin Cnty. Hsg. Fin.
Corp., Huntington
Apts. Proj., F.R.W.D.,
4.30%, 7/3/97, Ser.
A-1* 6,155 96.................... 6,155,000
Dallas Area Rapid Trans.
Auth., T.E.C.P.,
3.80%, 8/22/97, Ser.
P-1 7,500 A..................... 7,500,000
DeSoto Ind. Dev. Auth.,
Nat'l. Svc. Inds. Inc.
Proj., F.R.W.D.,
4.20%, 7/3/97, Ser.
CPS1 $ 7,150 91.................... $ 7,150,000
Greater East Texas
Student Ln. Rev.,
A.N.N.O.T.,
4.10%, 5/1/98, Ser.
VMIG1 10,500 95A................... 10,500,000
Gulf Coast Ind. Dev.
Auth.,
Citgo Petro. Proj.,
F.R.D.D.,
4.30%, 7/1/97, Ser.
VMIG1 1,100 94.................... 1,100,000
Houston, Gen. Oblig.,
T.E.C.P.,
3.75%, 8/20/97, Ser.
P-1 16,700 A..................... 16,700,000
Water & Sewer Proj.,
T.E.C.P.,
P-1 8,000 3.75%, 8/7/97, Ser. A... 8,000,000
3.85%, 8/19/97, Ser.
P-1 7,400 A..................... 7,400,000
Texas State, T.R.A.N.,
4.75%, 8/29/97, Ser.
MIG1 7,000 96.................... 7,008,487
Waller Cnty. Ind. Dev.
Corp., Mckesson Water
Prod., F.R.W.D.,
4.45%, 7/2/97, Ser.
A-1* 6,000 96.................... 6,000,000
--------------
83,613,487
--------------
VIRGINIA--1.6%
Harrisonburg Redev. &
Hsg. Auth.,
Multifamily Hsg. Rev.,
F.R.W.D.,
4.15%, 7/3/97, Ser.
VMIG1 18,555 91A................... 18,555,000
--------------
</TABLE>
B-43
See Notes to Financial Statements appearing on page 29.
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
WASHINGTON--1.7%
Pierce Cnty. Econ. Dev.
Corp., Sealand Inc.,
F.R.W.D.,
4.20%, 7/3/97, Ser.
CPS1 $ 10,000 96.................... $ 10,000,000
Washington Hsg. Fin.
Comm., Mills Plains
Crossing Proj.,
F.R.W.D.,
4.25%, 7/1/97, Ser.
A-1+* 7,800 88.................... 7,800,000
Canyon Lakes II Proj.,
F.R.D.D.,
5.50%, 7/1/97, Ser.
VMIG1 1,150 94.................... 1,150,000
--------------
18,950,000
--------------
WEST VIRGINIA--0.9%
Marshall Cnty.,
Pollution Cntrl. Rev.
Proj., F.R.D.D.,
4.15%, 7/1/97, Ser.
P-1 1,500 85.................... 1,500,000
West Virginia Public
Energy Auth. Rev.,
Morgantown Energy,
T.E.C.P.,
3.75%, 8/12/97, Ser.
A-1+* 9,000 89A................... 9,000,000
--------------
10,500,000
--------------
Total Investments--98.2%
(cost $1,109,641,373)... $1,109,641,373
Other assets in excess
of
liabilities--1.8%..... 19,871,676
--------------
Net Assets--100%........ $1,129,513,049
--------------
--------------
</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.
F.R.D.D.--Floating Rate (Daily) Demand Note(b).
F.R.M.D.--Floating Rate (Monthly) Demand Note(b).
F.R.W.D.--Floating Rate (Weekly) Demand Note(b).
F.R.W.D.S.--Floating Rate (Weekly) Demand--Synthetic Note(b).
M.T.H.M.T.--Monthly Mandatory Tender.
Q.T.R.O.T.S.--Quarterly Optional Tender--Synthetic (b).
S.E.M.M.T.--Semi-Annual Mandatory Tender.
S.E.M.O.T.--Semi-Annual Optional Tender.
T.A.N.--Tax Anticipation Note.
T.E.C.P.--Tax Exempt Commercial Paper.
T.L.N.--Temporary Loan Note.
T.R.A.N.--Tax and Revenue Anticipation Note.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes 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.
* Standard & Poor's rating.
NR--Not Rated by Moody's or Standard & Poor's.
B-44-
See Notes to Financial Statements appearing on page 29.
<PAGE>
COMMAND TAX-FREE FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets June 30, 1997
--------------
<S> <C>
Investments, at amortized cost which approximates market value.......................... $1,109,641,373
Cash.................................................................................... 39,930
Receivable for investments sold......................................................... 30,500,000
Receivable for Fund shares sold......................................................... 29,811,393
Interest receivable..................................................................... 7,402,901
Prepaid expenses........................................................................ 35,108
--------------
Total assets.......................................................................... 1,177,430,705
--------------
Liabilities
Payable for Fund shares repurchased..................................................... 22,672,071
Payable for investments purchased....................................................... 24,172,600
Accrued expenses........................................................................ 580,110
Management fee payable.................................................................. 429,992
Distribution fee payable................................................................ 62,883
--------------
Total liabilities..................................................................... 47,917,656
--------------
Net Assets.............................................................................. $1,129,513,049
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................. $ 11,295,130
Paid-in capital in excess of par...................................................... 1,118,217,919
--------------
Net assets, June 30, 1997............................................................... $1,129,513,049
--------------
--------------
Net asset value, offering price and redemption price per share ($1,129,513,049 /
1,129,513,049 shares of beneficial interest ($.01 par value) issued and
outstanding).......................................................................... $1.00
--------------
--------------
</TABLE>
See Notes to Financial Statements appearing on page 29.
B-45
<PAGE>
COMMAND TAX-FREE FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
June 30,
Net Investment Income 1997
<S> <C>
Income
Interest.............................. $ 42,898,304
-------------
Expenses
Management fee........................ 5,304,067
Distribution fee...................... 1,476,356
Registration fees..................... 200,000
Transfer agent's fees and expenses.... 185,000
Reports to shareholders............... 115,000
Custodian's fees and expenses......... 100,000
Trustees' fees and expenses........... 42,000
Insurance expense..................... 22,000
Audit fee ............................ 27,000
Legal fees and expenses............... 20,000
Miscellaneous......................... 16,431
-------------
Total expenses...................... 7,507,854
Less: custodian fee credit.......... (56,053)
-------------
Net expenses........................ 7,451,801
-------------
Net investment income................... 35,446,503
-------------
Realized Gain on Investments
Net realized gain on investment
transactions.......................... 8,700
-------------
Net Increase in Net Assets
Resulting from Operations............... $ 35,455,203
-------------
-------------
</TABLE>
COMMAND TAX-FREE FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended June 30,
Increase in ---------------------------------
Net Assets 1997 1996
--------------- ---------------
<S> <C> <C>
Operations
Net investment
income............... $ 35,446,503 $ 34,755,227
Net realized gain on
investment
transactions....... 8,700 14,814
--------------- ---------------
Net increase in net
assets resulting
from operations.... 35,455,203 34,770,041
--------------- ---------------
Dividends and
distributions to
shareholders (Note
1)................... (35,455,203) (34,770,041)
--------------- ---------------
Fund share transactions
(at $1 per share)
Net proceeds from
shares
subscribed......... 4,862,507,754 4,980,375,440
Net asset value of
shares issued in
reinvestment of
dividends and
distributions...... 35,455,203 34,770,041
Cost of shares
reacquired........... (4,925,385,345) (4,913,777,690)
--------------- ---------------
Net increase
(decrease) in net
assets from Fund
share
transactions....... (27,422,388) 101,367,791
--------------- ---------------
Total increase
(decrease)........... (27,422,388) 101,367,791
Net Assets
Beginning of year...... 1,156,935,437 1,055,567,646
--------------- ---------------
End of year............ $ 1,129,513,049 $ 1,156,935,437
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Financial Statements appearing on page 29.
See Notes to Financial Statements appearing on page 29.
B-46
<PAGE>
COMMAND TAX-FREE FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
<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.......... 0.030 0.031 0.032 0.020 0.022
Dividends and distributions to shareholders........... (0.030) (0.031) (0.032) (0.020) (0.022)
---------- ---------- ---------- -------- --------
Net asset value, end of year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
TOTAL RETURN(a)....................................... 3.05% 3.12% 3.29% 1.98% 2.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)......................... $1,129,513 $1,156,935 $1,055,568 $847,602 $853,930
Average net assets (000).............................. $1,181,084 $1,134,257 $ 926,888 $908,421 $823,517
Ratios to average net assets:
Expenses, including distribution fees............... .64% .66% .66% .65% .68%
Expenses, excluding distribution fees............... .51% .54% .54% .53% .55%
Net investment income............................... 3.00% 3.06% 3.05% 1.96% 2.09%
</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 29.
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, 1997, 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, 1997 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, 1997
B-47
<PAGE>
COMMAND FUNDS
Notes to Financial Statements
Command Money Fund, Command Government Fund, and Command Tax-Free Fund (each
a "Fund' and 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 Command Money Fund seeks high current income,
preservation of capital and maintenance of liquidity by investing in a
diversified portfolio of money market instruments maturing in 13 months or less.
The Command Government Fund seeks high current income, preservation of capital
and maintenance of liquidity by investing in a portfolio of U.S. government
securities maturing in 13 months or less. The Command Tax-Free Fund seeks high
current income that is exempt from federal income taxes, consistent with the
preservation of capital and maintenance of liquidity. The Fund invests in a
diversified portfolio of short-term, tax-exempt securities with maturities of 13
months or less that are issued by states, municipalities and their agencies (or
authorities). Some securities may be subject to the federal alternative minimum
tax (AMT). The Funds invest in a portfolio of money market instruments 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. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management. 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 determined 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.
Custody Fee Credits: The Command Tax-Free Fund has an arrangement with its
custodian bank, whereby uninvested money earn credits which reduce the fees
charged by the custodian.
Note 2. Agreements Each Fund has a manage-
ment agreement with Prudential Investments Fund
Management LLC (PIFM). Pursuant to this agreement PIFM has responsibility for
all investment advisory services and supervises the subadviser's performance of
such services. PIFM 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. PIFM pays for the cost of the
subadvisor's services, the compensation of officers of the Funds, occupancy and
certain clerical and bookkeeping
B-48
<PAGE>
costs of the Funds. The Funds bear all other costs and expenses.
The management fee paid PIFM 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 Securities
Incorporated ("PSI'), which acts as the distributor of the shares of each Fund.
Each Fund compensates PSI for distributing and servicing each Funds shares,
pursuant the plan of distribution at an annual rate of .125 of 1% of the average
daily net assets of each Fund's shares. The distribution fees for shares are
accrued daily and payable monthly.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices LLC (PMFS), a wholly-
with Affiliates owned subsidiary of PMF,
serves as the Funds' transfer agent. During the
year ended June 30, 1997 the Funds incurred fees for the services of PMFS of
approximately:
<TABLE>
<S> <C>
Command Money.................................. $2,041,700
Command Government............................. $ 85,000
Command Tax-Free............................... $ 179,700
</TABLE>
As of June 30, 1997, the following amounts were due to PMFS from the Funds:
<TABLE>
<S> <C>
Command Money.................................... $197,477
Command Government............................... $ 7,474
Command Tax-Free................................. $ 15,216
</TABLE>
B-49
<PAGE>
APPENDIX A--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk and providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps to reduce risk and to potentially provide stable
returns, while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer-term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, I.E., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
APP-1
<PAGE>
APPENDIX--INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1996 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1996. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 81,000 persons
worldwide, and maintains a sales force of approximately 11,500 agents and 6,400
financial advisors. Prudential is a major issuer of annuities, including
variable annuities. Prudential seeks to develop innovative products and services
to meet consumer needs in each of its business areas. Prudential uses the rock
of Gibraltar as its symbol. The Prudential rock is a recognized brand name
throughout the world.
INSURANCE. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to nearly 50 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 22 million life insurance policies in force today with a face
value of $1 trillion. Prudential has the largest capital base ($12.1 billion) of
any life insurance company in the United States. Prudential provides auto
insurance for approximately 1.6 million cars and insures approximately 1.2
million homes.
MONEY MANAGEMENT. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It manages
$36 billion of individual retirement plan assets, such as 401(k) plans. As of
December 31, 1996, Prudential had more than $332 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part) manages over $190 billion in assets of
institutions and individuals. In PENSIONS & INVESTMENTS, May 12, 1997,
Prudential was ranked third in terms of total assets under management.
REAL ESTATE. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers and
agents across the United States.
HEALTHCARE. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.6
million Americans receive healthcare from a Prudential managed care membership.
FINANCIAL SERVICES. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has over $1 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of June 30, 1997 Prudential Investments Fund Management was the fifteenth
largest mutual fund company in the country, with over 2.5 million shareholders
invested in more than 50 mutual fund portfolios and variable annuities with more
than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
- --------------------------
(1)Prudential Investments, a business group of PIC, serves as the Subadviser
to substantially all of the Prudential Mutual Funds. Wellington Management
Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as the subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to Prudential
Jennison Series Fund, Inc. and Prudential Active Balanced Fund, a portfolio of
Prudential Dryden Fund, Mercator Asset Management LP as the subadviser to
International Stock Series, a portfolio of Prudential World Fund, Inc. and
BlackRock Financial Management, Inc. as subadviser to The BlackRock Government
Income Trust. There are multiple subadvisers for The Target Portfolio Trust.
APP-2
<PAGE>
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.
EQUITY FUNDS. FORBES magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. FORBES considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.
HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.(3) Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from PULP AND PAPER FORECASTER to WOMEN'S
WEAR DAILY--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
TRADING DATA(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds by
Lipper even have in assets.(5) Prudential Mutual Funds' money market desk traded
$3.2 billion in money market
- --------------------------
(3)As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
(4)Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios of
the Prudential Series Fund and institutional and non-U.S. accounts managed by
Prudential Mutual Fund Investment Management, a division of PIC, for the year
ended December 31, 1995.
(5)Based on 669 funds in Lipper Analytical Services catagories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate U.S.
Government, Short Investment Grade Debt, Intermediate Investment Grade Debt,
General U.S. Treasury, General U.S. Government and Mortgage funds.
APP-3
<PAGE>
securities on an average day, or over $800 billion a year. They made a trade
every 3 minutes of every trading day. In 1994, the Prudential Mutual Funds
effected more than 40,000 trades in money market securities and held on average
$20 billion of money market securities.(6)
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
INFORMATION ABOUT PRUDENTIAL SERVICES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.(7)
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university," which
provides advanced education in a wide array of investment areas. Prudential
Securities is the only Wall Street firm to have its own in-house Certified
Financial Planner (CFP) program. In the December 1995 issue of Registered Rep,
an industry publication, Prudential Securities Financial Advisor training
programs received a grade of A- (compared to an industry average of B+).
In 1995, Prudential Securities equity research team ranked 8th in
INSTITUTIONAL INVESTOR magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect-SM-, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares the different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- --------------------------
(6)As of December 31, 1994.
(7)As of December 31, 1994.
(8)In 1995, INSTITUTIONAL INVESTOR magazine surveyed more than 700
institutional money managers, chief investment officers and research directors,
asking them to evaluate analysts in approximately 80 industry sectors. Scores
were produced by taking the number of votes awarded to an individual analyst and
weighting them based on the size of the voting institution. In total, the
magazine sent its survey to more than 2,000 institutions, including a group of
European and Asian instititions. This survey is conducted annually.
APP-4
<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, 1996,
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, 1997
Statement of Assets and Liabilities at June 30, 1997
Statement of Operations for the year ended June 30, 1997
Statement of Changes in Net Assets for the fiscal years
ended June 30, 1997 and June 30, 1996
Financial Highlights for each of the five years in the
period ended June 30, 1997
Notes to Financial Statements
(B) EXHIBITS:
1. Amended and Restated Declaration of Trust.*
2. By-Laws, as amended.*
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc.*
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation.*
6. (a) Distribution Agreement between the Registrant and Prudential
Mutual Fund Distributors, Inc., amended and restated as of April 12,
1995, incorporated by reference to Exhibit No. 6 to Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A filed via
EDGAR on August 31, 1995 (File No. 2-73901).
(b) Amendment to Distribution Agreement incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A filed via EDGAR on August 29, 1996.
8. Custody Agreement between the Registrant and State Street Bank and
Trust Co.*
9. Administration Agreement between the Registrant and Prudential
Mutual Fund Management, Inc.*
11. (a) Consent of Independent Accountants.*
(b) Consent of Duff and Phelps Credit Rating Co.*
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.
2-73901) filed via EDGAR on August 30, 1993.
16. Schedule of Yield Calculation.*
C-1
<PAGE>
27. Financial Data Schedule.*
- ------------
*Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of August 8, 1997 there were 214,965 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,
as amended (the 1940 Act) and pursuant to Article V of the Fund's Declaration of
Trust (Exhibit 1 to the Registration Statement) with respect to trustees,
officers, employees and agents thereof and Article VII of the Fund's By-Laws
(Exhibit 2 to the Registration Statement) trustees, officers, employees and
agents of the Fund may be indemnified against certain liabilities in connection
with the Trust. 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. Such Article V
of the Declaration of Trust, Article VII of the By-Laws and Section 9 of the
Distribution Agreement are hereby incorporated by reference in their entirety.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the 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 Investments Fund
Management LLC (PIFM) 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
(i) Prudential Investments Fund Management LLC (PIFM)
C-2
<PAGE>
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.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ----------------------------- ------------------------- --------------------------------------------------------
<S> <C> <C>
Brian Storms Officer-in-Charge, President, Prudential Mutual Funds & Annuities (PMF&A);
President, Chief Officer-in-Charge, President, Chief Executive Officer
Executive Officer and and Chief Operating Officer, PIFM
Chief Operating Officer
Thomas A. Early Executive Vice President, Vice President and General Counsel, PMF&A; Executive
Secretary and General Vice President, Secretary and General Counsel, PIFM
Counsel
Robert F. Gunia Executive Vice President Comptroller, Prudential Investments; Executive Vice
President and Treasurer, PIFM; Senior Vice President,
Prudential Securities
Neil A. McGuinness Executive Vice President Executive Vice President and Director of Marketing,
PMF&A; Executive Vice President, PIFM
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice Presi-
dent, PIFM
</TABLE>
(ii) The Prudential Investment Corporation (PIC)
See "How the Fund is 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.
The business and other connections of PIC's directors and executive officers
are as set forth below. The address of each person is Prudential Plaza, Newark,
New Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ----------------------------- ------------------------- --------------------------------------------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential Investments of The
President and Chief Prudential Insurance Company of America (Prudential)
Executive Officer and
Director
Jonathan M. Greene Senior Vice President President--Investment Management of Prudential
and Director Investments of Prudential
John R. Strangfeld Vice President and President of Private Asset Management Group of
Director Prudential
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Prudential Securities Incorporated.
Prudential Securities is distributor for COMMAND Government Fund, COMMAND
Money Fund, COMMAND Tax-Free Fund, Prudential Government Securities Trust
(Intermediate Term Series, Money Market Series and U.S. Treasury Money Market
Series), Prudential MoneyMart Assets, Inc., Prudential Institutional Liquidity
Portfolio, Inc., Prudential Special Money Market Fund, Inc., Prudential Tax-Free
Money Fund, Inc., Prudential Jennison Series Fund, Inc., The Target Portfolio
Trust, Prudential Balanced Fund, Prudential California Municipal Fund,
Prudential Distressed Securities Fund,
C-3
<PAGE>
Inc., Prudential Diversified Bond Fund, Inc., Prudential Dryden Fund, Prudential
Emerging Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential Europe Growth Fund Inc., Prudential Global Genesis Fund,
Inc., Prudential Global Limited Maturity Fund, Inc., Prudential Natural
Resources Fund, Inc., Prudential Government Income Fund, Inc., Prudential Small
Company Value Fund, Inc., Prudential High Yield Fund, Prudential Intermediate
Global Income Fund, Inc., Prudential Mortgage Income Fund, Inc., Prudential
Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal
Series Fund, Prudential National Municipals Fund, Inc., Prudential Pacific
Growth Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential Utility
Fund, Inc., Prudential World Fund, Inc., Prudential International Bond Fund,
Inc., The Global Total Return Fund, Inc., Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund) and The
BlackRock Government Income Trust. Prudential Securities is also a depositor for
the following unit investment trust:
The Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the Directors and officers of Prudential
Securities Incorporated is set forth below:
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES
NAME(1) WITH UNDERWRITER WITH REGISTRANT
- ------------------------------------ -------------------------------------------------------- -----------------
<S> <C> <C>
Alan D. Hogan....................... Executive Vice President and Director None
George A. Murray.................... Executive Vice President and Director None
Leland B. Paton .................... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Martin Pfinsgraff................... Executive Vice President, Chief Financial Officer and None
Director
Vincent T. Pica, II ................ Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Hardwick Simmons.................... Chief Executive Officer, President and Director None
Lee B. Spencer, Jr.................. General Counsel, Executive Vice President and Director None
Brian Storms ....................... Director None
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102
<FN>
- ------------
(1) The address of each person named is One Seaport Plaza, New York, 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, 751
Broad Street, Newark, New Jersey, the Registrant, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102, and Prudential Mutual Fund Services
LLC, Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Gateway
Center Three, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at
C-4
<PAGE>
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 LLC.
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 Post-Effective
Amendment to the 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 Newark, and State of New
Jersey, on the 25th day of August, 1997.
COMMAND GOVERNMENT FUND
By: /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>
<C> <S> <C>
SIGNATURE TITLE DATE
- ---------------------------------------------- ---------------------------------------------- -----------------
/s/ EDWARD D. BEACH
------------------------------------ Trustee August 25, 1997
Edward D. Beach
/s/ STEPHEN C. EYRE
------------------------------------ Trustee August 25, 1997
Stephen C. Eyre
/s/ DELAYNE D. GOLD
------------------------------------ Trustee August 25, 1997
Delayne D. Gold
/s/ ROBERT F. GUNIA
------------------------------------ Trustee August 25, 1997
Robert F. Gunia
/s/ DON G. HOFF
------------------------------------ Trustee August 25, 1997
Don G. Hoff
/s/ ROBERT E. LABLANC
------------------------------------ Trustee August 25, 1997
Robert E. LaBlanc
/s/ MENDEL A. MELZER
------------------------------------ Trustee August 25, 1997
Mendel A. Melzer
/s/ RICHARD A. REDEKER
------------------------------------ President and Trustee August 25, 1997
Richard A. Redeker
/s/ ROBIN B. SMITH
------------------------------------ Trustee August 25, 1997
Robin B. Smith
/s/ LANGDON R. STEVENSON
------------------------------------ Trustee August 25, 1997
Langdon R. Stevenson
/s/ STEPHEN STONEBURN
------------------------------------ Trustee August 25, 1997
Stephen Stoneburn
/s/ NANCY H. TEETERS
------------------------------------ Trustee August 25, 1997
Nancy H. Teeters
/s/ GRACE C. TORRES
------------------------------------ Treasurer and Principal Financial and August 25, 1997
Grace C. Torres Accounting Officer
</TABLE>
C-6
<PAGE>
COMMAND GOVERNMENT FUND
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<S> <C>
1. Amended and Restated Declaration of Trust.*
2. By-Laws, as amended.*
5.(a) Management Agreement between the Registrant and Prudential Mutual Fund Management, Inc.*
5.(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc. and The Prudential Investment
Corporation.*
6.(a) Distribution Agreement between the Registrant and Prudential Mutual Fund Distributors, Inc., amended and
restated as of April 12, 1995, incorporated by reference to Exhibit No. 6 to Post-Effective Amendment No.
15 to the Registration Statement on Form N-1A filed via EDGAR on August 31, 1995 (File No. 2-73901).
6.(b) Amendment to Distribution Agreement incorporated by reference to Exhibit No. 6(b) to Post-Effective Amend-
ment No. 16 to the Registration Statement on Form N-1A filed via EDGAR on August 29, 1996.
8. Custody Agreement between the Registrant and State Street Bank and Trust Co.*
9. Administration Agreement between the Registrant and Prudential Mutual Fund Management, Inc.*
11.(a) Consent of Independent Accountants.*
11.(b) Consent of Duff and Phelps Credit Rating Co.*
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. 2-73901) filed via
EDGAR on August 30, 1993.
16. Schedule of Yield Calculation.*
27. Financial Data Schedule.*
</TABLE>
- ------------
*Filed herewith.
<PAGE>
COMMAND GOVERNMENT FUND
AMENDED AND RESTATED
DECLARATION OF TRUST
Dated: August 19, 1987
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I -- Name and Definitions 2
Section 1.1 Name 2
Section 1.2 Definitions 2
ARTICLE II -- Trustees 4
Section 2.1 Number of Trustees 4
Section 2.2 Election and Term 4
Section 2.3 Resignation and Removal 4
Section 2.4 Vacancies 5
Section 2.5 Delegation of Power to
Other Trustees 5
ARTICLE III -- Powers of Trustees 6
Section 3.1. General 6
Section 3.2. Investments 6
Section 3.3. Legal Title 7
Section 3.4. Issuance and Repurchase
of Securities 8
Section 3.5. Borrowing Money;
Lending Trust Assets 8
Section 3.6. Delegation; Committees 8
Section 3.7. Collection and Payment 8
Section 3.8. Expenses 8
9
Section 3.9. Manner of Acting; By-Laws 9
Section 3.10. Miscellaneous Powers 9
Section 3.11. Principal Transactions 10
ARTICLE IV -- Investment Adviser, Distributor
and Transfer Agent 11
Section 4.1. Investment Adviser 11
Section 4.2. Distributor 11
Section 4.3. Transfer Agent 11
Section 4.4. Parties to Contract 12
<PAGE>
PAGE
----
ARTICLE V -- Limitations of Liability of Shareholders, Trustees
and Others 13
Section 5.1. No Personal Liability of
Shareholders, Trustees, etc. 13
Section 5.2. Non-Liability of Trustees, etc. 13
Section 5.3. Indemnification 13
Section 5.4. No Bond Required of Trustees 14
Section 5.5. No Duty of Investigation;
Notice in Trust
Instruments, etc. 14
Section 5.6. Reliance on Experts, etc. 15
ARTICLE VI -- Shares of Beneficial Interest 16
Section 6.1. Beneficial Interest 16
Section 6.2. Rights of Shareholders 16
Section 6.3. Trust Only 16
Section 6.4. Issuance of Shares 17
Section 6.5. Register of Shares 17
Section 6.6. Transfer of Shares 18
Section 6.7. Notices 18
Section 6.8. Voting Powers 18
Section 6.9. Series or Classes of Shares 19
ARTICLE VII -- Redemptions 22
Section 7.1. Redemptions 22
Section 7.2. Redemption of Shares;
Disclosure of Holding 22
Section 7.3. Redemptions of Accounts of
Less Than $1,000 23
Section 7.4. Redemptions Pursuant to
Constant Net Asset Value
Provisions 23
-ii-
<PAGE>
PAGE
----
ARTICLE VIII -- Determination of Net Asset Value,
Net Income and Distributions
Section 8.1. Net Asset Value 24
Section 8.2. Distributions to Shareholders 24
Section 8.3. Determination of Net Income;
Constant Net Asset Value;
Reduction of outstanding Shares 25
Section 8.4. Power to Modify Foregoing
procedures 25
ARTICLE IX -- Duration; Termination of Trust;
Amendment; Mergers, Etc. 26
Section 9.1. Duration 26
Section 9.2. Termination of Trust 26
Section 9.3. Amendment procedure 27
Section 9.4. Merger, Consolidation and
Sale of Assets 28
Section 9.5. Incorporation 28
ARTICLE X -- Reports to Shareholders 30
ARTICLE XI -- Miscellaneous 31
Section 11.1. Filing 31
Section 11.2. Governing Law 31
Section 11.3. Resident Agent
Section 11.4. Counterparts 31
Section 11.5. Reliance by Third Parties 32
Section 11.6. Provisions in Conflict with
Law or Regulations 32
SIGNATURE PAGE 32
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<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
COMMAND GOVERNMENT FUND
Dated August 19, 1987
THE AMENDED AND RESTATED DECLARATION OF TRUST of Command Government
Fund is made the 19th day of August, 1987 by the parties signatory hereto, as
trustees ( such persons, so long as they shall continue in office in accordance
with the terms of this Amended and Restated Declaration of Trust, and all other
persons who at the time in question have been duly elected or appointed as
trustees in accordance with the provisions of this Amended and Restated
Declaration of Trust and are then in office, being hereinafter called the
"Trustees").
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust, all money and property contributed to the trust fund to manage and
dispose of the same for the benefit of the holders from time to time of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof, to wit:
<PAGE>
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is the
Command Government Fund.
Section 1.2. Definitions. Wherever they are used herein, the
following terms have the following respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof,
as from time to time amended.
(b) the terms "Commission, "Affiliated Person" and "Interested
Person, have the meanings given them in the 1940 Act.
(c) "Declaration" means this Amended and Restated Declaration of
Trust as amended from time to time. Reference in this Declaration of Trust to
"Declaration", "hereof", "herein" and "hereunder" shall be deemed to refer to
this Declaration rather than the article or section in which such words appear.
(d) "Distributor" means the party, other than the Trust, to the
contract described in Section 4.2 hereof.
(e) "Fundamental Policies" shall mean the investment restrictions
set forth in the Prospectus and designated as fundamental policies therein.
(f) "Investment Adviser" means the party, other than the Trust, to
the contract described in Section 4.1 hereof.
(g) "Majority Shareholder Vote" means the vote of the holders of a
majority of Shares, which shall consist of: (i) a majority of Shares represented
in person or by proxy and entitled to vote at a meeting of Shareholders at which
a quorum, as determined in accordance with the By-Laws, is present; (ii) a
majority of Shares issued and outstanding and entitled to vote when action is
taken by written consent of Shareholders; and (iii) a "majority of the
outstanding voting securities", as that phrase is defined in the 1940 Act, when
action is taken by Shareholders with respect to approval of an investment
advisory or management contract or an underwriting or distribution agreement or
continuance thereof.
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(h) "1940 Act" means the Investment Company Act of 1940 and the
rules and regulations thereunder as amended from time to time.
(i) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(j) "prospectus" means the prospectus constituting part of the
Registration statement of the Trust under the Securities Act of 1933 as such
prospectus may be amended or supplemented and filed with the Commission from
time to time.
(k) "Shareholder" means a record owner of outstanding Shares.
(1) "Shares" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time, including the shares
of any and all series or classes which may be established by the Trustees, and
includes fractions of Shares as well as whole Shares.
(m) "Transfer Agent" means the party, other than the Trust, to the
contract described in Section 4.3 hereof.
(n) "Trust" means the Command Money Fund.
(o) "Trust property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(p) "Trustees" means the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
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<PAGE>
ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees. The number of Trustees shall be
such number as snail be fixed from time to time by a written instrument signed
by a majority of the Trustees, provided however, that the number of Trustees
shall in no event be less than three (3) nor more than fifteen (15).
Section 2.2. Election and Term. The Trustees shall be elected by a
Majority Shareholder Vote at the first meeting of Shareholders following the
public offering of Shares of the Trust. The Trustees shall have the power to set
and alter the terms of office of the Trustees, and they may at any time lengthen
or lessen their own terms or make their terms of unlimited duration, subject to
the resignation and removal provisions of Section 2.3 hereof. Subject to Section
16(a) of the 1940 Act, the Trustees may elect their own successors and may,
pursuant to Section 2.4 hereof, appoint Trustees to fill vacancies. The Trustees
shall adopt By-Laws not inconsistent with this Declaration or any provision of
law to provide for election of Trustees by Shareholders at such time or times as
the Trustees shall determine to be necessary or advisable.
Section 2.3. Resignation and Removal. Any Trustee may resign his
trust (without need for prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such resignation
shall be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than the number required
by Section 2.1 hereof) with cause, by the action of two-thirds of the remaining
Trustees. Upon the resignation or removal of a Trustee, or his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
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Section 2.4. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shell occur in the event of the death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees or, prior to
the public offering of Shares of the Trust, if only one Trustee shall then
remain in office, the remaining Trustee, shall fill such vacancy by the
appointment of such other person as they or he, in their or his discretion shall
see fit, made by a written instrument signed by a majority of the remaining
Trustees or by the remaining Trustee, as the case may be. Any such appointment
shall not become effective, however, until the person named in the written
instrument of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of the Declaration. An appointment of
a Trustee may be made in anticipation of a vacancy to occur at a later date by
reason of retirement, resignation or increase in the number of Trustees,
provided that such appointment shall not become effective prior to such
retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.4, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Section 2.5. Delegation of Power to Other Trustees. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall less than two (2) Trustees personally exercise the powers granted to
the Trustees under the Declaration except as herein otherwise expressly
provided.
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ARTICLE III
POWERS OF TRUSTEES
Section 3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the united States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
the Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed
as limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2. Investments. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of
deposit or indebtedness, commercial paper, repurchase agreements, reverse
repurchase agreements, options and other securities of any kind,
including, without limitation, those issued, guaranteed or sponsored
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<PAGE>
by any and all Persons including, without limitation, states, territories
and possessions of the United States, the District of Columbia and any of
the political subdivisions, agencies or instrumentalities thereof, and by
the United States Government or its agencies or instrumentalities, or
international instrumentalities, or by any bank or savings institution, or
by any corporation or organization organized under the laws of the United
States or of any state, territory or possession thereof, and of
corporations or organizations organized under foreign laws, or in "when
issued" contracts for any such securities, or retain Trust assets in cash
and from time to time change the investments of the assets of the Trust;
and to exercise any and all rights, powers and privileges of ownership or
interest in respect of any and all such investments of every kind and
description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more
persons, firms, associations or corporations to exercise any of said
rights, powers and privileges in respect of any of said instruments; and
the Trustees shall be deemed to have the foregoing powers with respect to
any additional securities in which the Trust may invest should the
Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust, nor shall the Trustees be limited by any
law limiting the investments which may be made by fiduciaries.
Section 3.3. Legal Title. Legal title to all the Trust Property
shall be vested in the Trustees as joint tenants except that the Trustees shall
have power to cause legal title to any Trust Property to be held by or in the
name of one or more of the Trustees, or in the name of the Trust, or in the name
of any other Person as nominee, on such terms as the Trustees may determine,
provided that the interest of the Trust therein is appropriately protected. The
right, title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to have
any right, title or interest in any of the Trust property, and
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<PAGE>
the right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
3.4. Issuance and Repurchase of Securities. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VII, VIII and IX and Section 6.9 hereof,
to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust, whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of the Commonwealth of Massachusetts governing business corporations.
Section 3.5. Borrowing Money; Lending Trust Assets. Subject to the
Fundamental policies, the Trustees shall have power to borrow money or otherwise
obtain credit and to secure the same by mortgaging, pledging or otherwise
subjecting as security the assets of the Trust, to endorse, guarantee, or
undertake the performance of any obligation, contract or engagement of any other
Person and to lend Trust assets.
Section 3.6. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or the
names of the Trustees or otherwise as the Trustees may deem expedient.
Section 3.7. Collection and Payment. The Trustees shall have power
to collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 3.8. Expenses. The Trustees shall have the power to incur
and pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable
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compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees.
Section 3.9. Manner of Acting; By-Laws. Except as otherwise provided
herein or in the By-Laws or by any provision of law, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum being present), including any meeting held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consents of all the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-Laws to the extent such power is not
reserved to the Shareholders.
Section 3.10. Miscellaneous Powers. The Trustees shall have the
power to: (a) employ or contract with such. Persons as the Trustees may deem
desirable for the transaction of the business of the Trust; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) remove
Trustees or fill vacancies in or add to their number, elect and remove such
officers and appoint and terminate such agents or employees as they consider
appropriate, and appoint from their own number, and terminate, any one or more
committees which may exercise some or all of the power and authority of the
Trustees as the Trustees may determine; (d) purchase, and pay for out of Trust
Property, insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, distributors, selected dealers or
independent contractors of the Trust against all claims arising by reason of
holding any such position or by reason of any action taken or omitted to be
taken by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, Share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust has dealings, including the Investment
Adviser, Distributor, Transfer Agent and selected dealers, to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the fiscal year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust but the
absence of such seal shall not impair the validity; of any instrument executed
on behalf of the Trust.
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Section 3.11. Principal Transactions. Except in transactions
permitted by the 1940 Act or any rule or regulation thereunder, or any order of
exemption issued by the Commission, or effected to implement the provisions of
any agreement to which the Trust is a party the Trustees shall not, on behalf of
the Trust, buy any securities (other than Shares) from or sell any securities
(other than Shares) to, or lend any assets of the Trust to, any Trustee or
officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with the Investment
Adviser, Distributor or Transfer Agent or with any Affiliated Person of such
Person; but the Trust may employ any such Person, or firm or company in which
such Person is an Interested Person, as broker, legal counsel, registrar,
transfer agent, dividend disbursing agent or custodian upon customary terms.
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ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
Section 4.1. Investment Adviser. Subject to approval by a Majority
Shareholder Vote, the Trustees may in their discretion from time to time enter
into an investment advisory or management contract whereby the other party to
such contract shall undertake to furnish the Trust such management, investment
advisory, administration, accounting, legal, statistical and research facilities
and services, promotional activities, and such other facilities and services, if
any, as the Trustees shall from time to time consider desirable and all upon
such terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of the Declaration, the Trustees may authorize
the Investment Adviser (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of portfolio securities of the Trust on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of the Investment Adviser (and
all without further action by the Trustees). Any such purchases, sales, loans
and exchanges shall be deemed to have been authorized by all of the Trustees.
The Trustees may, in their sole discretion, call a meeting of Shareholders in
order to submit to a vote of Shareholders at such meeting the approval of
continuance of any such investment advisory or management contract.
Section 4.2. Distributor. The Trustees may in their discretion from
time to time enter into a contract, providing for the sale of Shares to net the
Trust not less than the net asset value per Share (as described in Article VIII
hereof) and pursuant to which the Trust may either agree to sell the Shares to
the other party to the contract or appoint such other party its sales agent for
such Shares. In either case, the contract shall be on such terms and conditions
as the Trustees may in their discretion determine not inconsistent with the
provisions of this Article IV, including, without limitation, the provision for
the repurchase or sale of shares of the Trust by such other party as principal
or as agent of the Trust.
Section 4.3. Transfer Agent. The Trustees may in their discretion
from time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
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agency and shareholder services to the Trust. The contract shall have such terms
and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration. Such services may be provided by one or more
Persons.
Section 4.4. Parties to Contract. Any contract of the character
described in Section 4.1, 4.2 or 4.3 of this Article IV and any other contract
may be entered into with any Person, although one or more of the Trustees or
officers of the Trust may be an officer, director, trustee, shareholder, or
member of such other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship; nor shall any Person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article IV. The same Person may be the
other party to any contracts entered into pursuant to Sections 4.1, 4.2 and 4.3
above or otherwise, and any individual may be financially interested or
otherwise affiliated with Persons who are parties to any or all of the contracts
mentioned in this Section 4.4.
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ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1. No Personal Liability of Shareholders, Trustees, etc.
No Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs of
the Trust. No Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee or agent, as such, of the Trust is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
Section 5.2. Non-Liability of Trustees, etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties.
Section 5.3. Indemnification.
(a) The Trustees shall provide for indemnification by the Trust of
every person who is, or has been, a Trustee or officer of the Trust against all
liability and against all expenses reasonably incurred or paid by him in
connection
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with any claim, action, suit or proceeding in which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof, in such
manner as the Trustees may provide from time to time in the By-Laws
(b) The words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
Section 5.4. No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 5.5. No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under the Declaration or in
their capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees shall recite that the same
is executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of any such instrument are not binding
upon any of the Trustees or Shareholders, individually, but bind only the Trust
Estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees or Shareholders individually. The Trustees shall at all times maintain
insurance for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
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Section 5.6. Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
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ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest with
$.O1 par value. The number of such shares of beneficial interest authorized
hereunder is unlimited. The Trustees may initially issue whole and fractional
shares of a single class, each of which shall represent an equal proportionate
share in the Trust with each other Share. The Trustees may divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate interests in the Trust. Subject to the provisions of Section 6.9
hereof, the Trustees may also authorize the creation of additional series of
shares (the proceeds of which may be invested in separate, independently managed
portfolios) and additional classes of shares within any series. All Shares
issued hereunder including, without limitation, Shares issued in connection with
a dividend in Shares or a split in Shares, shall be fully paid and
nonassessable.
Section 6.2. Rights of Shareholders. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights in the Declaration specifically set forth. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine with respect to any series
of Shares.
Section 6.3. Trust Only. It is the intention of the Trustees to
create only the relationship of Trustee and beneficiary between the Trustees and
each Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership. joint
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stock association, corporation, bailment or any form of legal relationship other
than a trust. Nothing in the Declaration shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 6.4. Issuance of Shares. The Trustees, in their discretion
may, from time to time without vote of the Shareholders, issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times (including,
without limitation, each business day in accordance with the maintenance of a
constant net asset value per Share), and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust. Reductions in the number of
outstanding Shares may be made pursuant to the provisions of Section 8.3 in
order to maintain a constant net asset value per Share. Contributions to the
Trust may be accepted for, and Shares shall be redeemed as, whole Shares and/or
fractions of a Share as described in the Prospectus.
Section 6.5. Register of Shares. A register shall be kept at the
principal office of the Trust or at an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
may be in written form or any other form capable of being converted into written
form within a reasonable time for visual inspection. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-Laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of Share
certificates and promulgate appropriate rules and regulations as to their use.
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Section 6.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
resister of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation
of law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law, except as may otherwise be provided by the laws of
the Commonwealth of Massachusetts.
Section 6.7. Notices. Any and all notices to which any Shareholder
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any shareholder of record at his
last known address as recorded on the register of the Trust.
Section 6.8. Voting Powers. The Shareholders shall have power to
vote only (i) for the election of Trustees as provided in Section 2.2 hereof,
(ii) with respect to any investment advisory or management contract as provided
in Section 4.1, (iii) with respect to termination of the Trust as provided in
Section 9.2, (iv) with respect to any amendment of the Declaration to the extent
and as provided in Section 9.3., (v) with respect to any merger, consolidation
or sale of assets as provided in Section 9.4, (vi) with respect to incorporation
of the Trust to the extent and as provided in Section 9.5, (vii) to the same
extent as the stockholders of a Massachusetts business corporation as to whether
or not
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a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (viii) with respect to such additional matters relating to the
Trust as be required by law, the Declaration, the By-Laws or any registration of
the Trust with the Commission (or any successor agency) or any state, or as and
when the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except
that Shares held in the treasury of the Trust as of the record date, as
determined in accordance with the By-Laws, shall not be voted and except that
the Trustees may, in conjunction with the establishment of any series or classes
of Shares, establish conditions under which the several series or classes shall
have separate voting rights or no voting rights. Unless and until otherwise
determined by the Trustees, any vote of Shareholders shall be taken without
regard to class or series. There shall be no cumulative voting in the election
of Trustees. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, the Declaration or the
By-Laws to be taken by Shareholders. The By-Laws may include further provisions
for Shareholders votes and meetings and related matters.
Section 6.9. Series or Classes of Shares. If the Trustees shall
divide the shares of the Trust into two or more series or two or more classes of
any series, as provided in Section 6.1 hereof, the following provisions shall be
applicable:
(a) The number of authorized shares and the number of shares of each
series or of each class that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued shares or any shares previously issued and
reacquired of any series or class into one or more series or one or more classes
that may be established and designated from time to time. The Trustees may hold
as treasury shares (of the same or some other series or class), reissue for such
consideration and on such terms as they may determine, or cancel any shares of
any series or any class reacquired by the Trust at their discretion from time to
time.
(b) The power of the Trustees to invest and reinvest the Trust
Property shall be governed by Section 3.2 of this Declaration with respect to
any one or more series which represents the interests in the assets of the Trust
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immediately prior to the establishment of two or more series and the power of
the Trustees to invest and reinvest assets applicab1e to any other series shall
be as set forth in the instrument of the Trustees establishing such series which
is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
shares of a particular series or class together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series or class for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series or class, the Trustees shall allocate them
among any one or more of the series or classes established and designated from
time to time in such manner and on such basis as they, in their sole discretion,
deem fair and equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the shareholders of all series or classes for all
purposes.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all expenses,
costs, charges and reserves attributable to that series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the shareholders.
(e) The power of the Trustees to pay dividends and make
distributions shall be governed by Section 8.2 of
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this Declaration with respect to any one or more series or classes which
represents the interests in the assets of the Trust immediately prior to the
establishment of two or more series or classes. With respect to any other series
or class, dividends and distributions on shares of a particular series or class
may be paid with such frequency as the Trustees may determine, which may be
daily or otherwise, pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the holders
of shares of that series or class, from such of the income and capital gains,
accrued or realized, from the assets belonging to that series or class, as the
Trustees may determine, after providing for actual and accrued liabilities
belonging to that series or class. All dividends and distributions on shares of
a particular series or class shall be distributed pro rata to the holders of
that series or class in proportion to the number of shares of that series or
class held by such holders at the date and time of record established for the
payment of such dividends or distributions.
(f) The Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, including voting and dividend
rights, of each class and series of Shares.
(g) The establishment and designation of any series or class of
shares shall be effective upon the execution by a majority of the then Trustees
of an instrument setting forth such establishment and designation and the
relative rights and preferences of such series or class, or as otherwise
provided in such instrument. At any time that there are no shares outstanding of
any particular series or class previously established and designated, the
Trustees may by an instrument executed by a majority of their number abolish
that series or class and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of an amendment
to this Declaration.
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<PAGE>
ARTICLE VII
Redemptions
7.1. Redemptions. All outstanding Shares may be redeemed at the
option of the holders thereof, upon and subject to the terms and conditions
provided in this Article VII. The Trust shall, upon application of any
Shareholder or pursuant to authorization from any Shareholder, redeem or
repurchase from such Shareholder outstanding Shares for an amount per share
determined by the Trustees in accordance with any applicable laws and
regulations; provided that (a) such amount per share shall not exceed the cash
equivalent of the proportionate interest of each share or of any class or series
of shares in the assets of the Trust at the time of the redemption or repurchase
and (b) if so authorized by the Trustees, the Trust may, at any time and from
time to time, charge fees for effecting such redemption or repurchase, at such
rates as the Trustees may establish, as and to the extent permitted under the
1940 Act and the rules and regulations promulgated thereunder, and may, at any
time and from time to time, pursuant to such Act and such rules and regulations,
suspend such right of redemption. The procedures for effecting and suspending
redemption shall be as set forth in the Prospectus from time to time. Payment
will be made in such manner as described in the Prospectus.
7.2. Redemption of Shares; Disclosure of Holding. If the Trustees
shall, at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person a number, or principal amount, of Shares or
other securities of the Trust sufficient, in the opinion of the Trustees, to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would in the opinion of the Trustees result in such disqualification.
The redemption shall be effected at a redemption price determined in accordance
with Section 7.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
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Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other authority.
Section 7.3. Redemptions of Accounts of Less than $1,000. The
Trustees shall have the power at any time to redeem Shares of any Shareholder at
a redemption price determined in accordance with Section 7.1 if at such time the
aggregate net asset value of the Shares in such Shareholder's account is less
than $1,000. A Shareholder will be notified that the value of his account is
less than $1,000 and allowed sixty (60) days to make an additional investment
before redemption is processed.
Section 7.4. Redemptions Pursuant to Constant Net Asset Value
Provisions. The Trust may also reduce the number of outstanding Shares pursuant
to the provisions of Section 8.3.
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<PAGE>
ARTICLE VIII
Determination of Net Asset Value,
Net Income and Distributions
Section 8.1. Net Asset Value. The net asset value of each
outstanding Share of the Trust shall be determined on such days and at such time
or times as the Trustees may determine. The method of determination of net asset
value shall be determined by the Trustees and shall be as set forth in the
Prospectus. The power and duty to make the daily calculations may be delegated
by the Trustees to the Investment Adviser, the Custodian, the Transfer Agent or
such other person as the Trustees by resolution may determine. The Trustees may
suspend the daily determination of net asset value to the extent permitted by
the 1940 Act.
Section 8.2. Distributions to Shareholders. The Trustees shall from
time to time distribute ratably among the Shareholders such proportion of the
net profits, surplus (including paid-in surplus), capital, or assets held by the
Trustees as they may deem proper. Such distribution may be made in cash or
property (including without limitation any type of obligations of the Trust or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders additional Shares issuable hereunder in such manner, at such times,
and on such terms as the Trustees may deem proper. Such distributions may be
among the Shareholders of record at the time of declaring a distribution or
among the Shareholders of record at such later date as the Trustees shall
determine. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business.
The Trustees may adopt and offer to Shareholders such dividend reinvestment
plans, cash dividend payout plans or related plans as the Trustees shall deem
appropriate.
Inasmuch as the computation of net income and gains for Federal
income tax purposes may vary from the computation thereof on the books, the
above provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
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Section 8.3. Determination of Net Income. The Trustees shall have
the power to determine the net income of the Trust one or more times on each
business day and at each such determination declare such net income as dividends
in additional shares. The determination of net income and the resultant
declaration of dividends shall be as set forth in the Prospectus. It is expected
that the Trust will have a positive net income at the time of each
determination. If for any reason the net income of the Trust is a negative
amount, the Trust shall have authority to reduce the number of its outstanding
Shares. Such reduction will be effected by having each Shareholder
proportionately contribute to the Trust's capital the necessary Shares that
represent the amount of the excess upon such determination. Each Shareholder
will be deemed to have agreed to such contribution in these circumstances by his
investment in the Trust. The Trustees shall have full discretion to determine
whether any cash or property received shall be treated as income or as principal
and whether any item of expenses shall be charged to the income or the principal
account, and their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much, if any, of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
Section 8.4. Power to Modify Foregoing procedures. Notwithstanding
any of the foregoing provisions of this Article VIII, the Trustees may
prescribe, in their absolute discretion, such other bases and times for
determining the per Share net asset value of the Shares or net income, or the
declaration and payment of dividends and distributions, as they may deem
necessary or desirable to enable the Trust to comply with any provision of the
1940 Act, or any rule or regulation thereunder, including any rule or regulation
adopted pursuant to Section 22 of the 1940 Act by the Commission or any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by said Commission, all as in effect now or
hereafter amended or modified. Without limiting the generality of the foregoing,
the Trustees may establish classes of series of Shares in accordance with
Section 6.9.
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ARTICLE IX
Duration; Termination of
Trust; Amendment; Mergers, etc.
Section 9.1. Duration. The Trust shall continue without limitation
of time but subject to the provisions of this Article IX.
Section 9.2. Termination of Trust. (a) The Trust may be terminated
(i) by the affirmative vote of the holders of not less than two-thirds of the
Shares outstanding and entitled to vote at any meeting of Shareholders, or (ii)
by an instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than two-thirds of such
Shares, or by such other vote as may be established by the Trustees with respect
to any class or series of Shares, or (iii) by the Trustees by written notice to
the Shareholders. Upon the termination of the Trust:
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining Trust Property to one or more
persons at public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and to do all other acts appropriate to
liquidate its business; provided that any sale, conveyance, assignment,
exchange, transfer or other disposition of all or substantially all the
Trust Property shall require Shareholder approval in accordance with
Section 9.4 hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
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agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly
each, among the Shareholders according to their respective rights.
(b) After termination of the trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees thereupon be discharged from all
further liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
Section 9.3. Amendment procedure. (a) This Declaration may be
amended by a Majority Shareholder Vote, at a meeting of Shareholders, or by
written consent without a meeting. The Trustees may also amend this Declaration
without the vote or consent of Shareholders to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code, but the Trustees shall not be liable for failing so to do.
(b) No amendment may be made under this Section 9.3 which would
change any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the vote or consent of the
holders of two-thirds of the Shares outstanding and entitled to vote, or by such
other vote as may be established by the Trustees with respect to any series or
class of Shares. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability of
the Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment
and reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid or a copy of the Declaration, as amended, and
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<PAGE>
executed by a majority of the Trustee or certified by the secretary or any
Assistant Secretary of the Trust, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 9.4. Merger, consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust' Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized, at any meeting of Shareholders called
for the purpose, by the affirmative vote of the holders of not less than
two-thirds of the Shares outstanding and entitled to vote, or by an instrument
or instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of such Shares, or by such other vote as may be established
by the Trustees with respect to any series or class of Shares; provided,
however, that, if such merger, consolidation, sale, lease or exchange is
recommended by the Trustees, a Majority Shareholder Vote shall be sufficient
authorization; and any such merger, consolidation, sale, lease or exchange shall
be deemed for all purposes to have been accomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts. In respect of any such merger,
consolidation, sale or exchange of assets, any Shareholder shall be entitled to
rights of appraisal of his Shares to the same extent as a shareholder of a
Massachusetts business corporation in respect of a merger, consolidation, sale
or exchange of assets of a Massachusetts business corporation, and such rights
shall be his exclusive remedy in respect of his dissent from any such action.
Section 9.5. Incorporation. With approval of a Majority Shareholder
Vote, or by such other vote as may be established by the Trustees with respect
to any series or class of Shares, the Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all of the
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Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such Corporation, trust, association or organization in exchange
for the shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization in which the
Trust holds or is about to acquire shares or any other interest. The Trustees
may also cause a merger or consolidation between the Trust or any successor
thereto and any such corporation, trust, partnership, association or other
organization if and to the extent permitted by law, as provided under the law
then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to such organization or entities.
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ARTICLE X
Reports to Shareholders
The Trustees shall at least semi-annually submit to the Shareholders
a written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
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ARTICLE XI
Miscellaneous
Section 11.1. Filing. This Declaration and any amendment hereto
shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee or by the Secretary or any
Assistant Secretary of the Trust stating that such action was duly taken in a
manner provided herein, and unless such amendment or such certificate sets forth
some later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated Declaration, integrating into a single
instrument all of the provisions of the Declaration which are then in effect and
operative, may be executed from time to time by a majority of the Trustees and
shall, upon filing with the Secretary of the Commonwealth of Massachusetts, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various amendments
thereto.
Section 11.2. Resident Agent. The Trust may appoint and maintain a
resident agent in the Commonwealth of Massachusetts.
Section 11.3. Governing Law. This Declaration is executed by the
Trustees with reference to the laws of the Commonwealth of Massachusetts, and
the rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed according to the laws of said State.
Section 11.4. Counterparts. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.5. Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust, appears to be a
Trustee hereunder, or Secretary or Assistant Secretary of the Trust, certifying
to: (a) the number or identity of Trustees or Shareholders, (b) the due
authorization of the execution of any instrument or
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writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
Section 11.6. Provisions in Conflict with Law or Regulations. (a)
The provisions of the Declaration are severable, and if the Trustee shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provisions shall be deemed never to have constituted a part of the
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of the Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attain only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned have executed this instrument as
of the date first above written.
EDWARD D. BEACH, as Trustee
and not individually /s/ Edward D. Beach
-----------------------------------
MICHAEL J. DOWNEY, as Trustee
and not individually /s/ Michael J. Downey
-----------------------------------
ANDREW H. FREUND, as Trustee
and not individually /s/ Andrew H. Freund
-----------------------------------
DELAYNE D. GOLD, as Trustee
and not individually /s/ Delayne D. Gold
-----------------------------------
HARRY A. JACOBS, JR., as Trustee
and not individually /s/ Harry A. Jacobs
-----------------------------------
STANLEY E. SHIRK, as Trustee
and not individually /s/ Stanley E. Shirk
-----------------------------------
LANGDON R. STEVENSON, as Trustee
and not individually /s/ Langdon R. Stevenson
-----------------------------------
STEPHEN STONEBURN, as Trustee
and not individually /s/ Stephen Stoneburn
-----------------------------------
NANCY H. TEETERS, as Trustee
and not individually /s/ Nancy H. Teeters
-----------------------------------
DAVID S. TOWNER, as Trustee
and not individually /s/ David S. Towner
-----------------------------------
The address of each of the above is:
One Seaport Plaza
New York, New York 10292
<PAGE>
State of New York )
: ss:
County of New York )
On this 19th day of August, 1987, Edward D. Beach, Michael J.
Downey, Andrew H. Freund, Delayne D. Gold, Harry A. Jacobs, Jr., Stanley E.
Shirk, Stephen Stoneburn, Nancy H. Teeters and David S. Towner, each known to me
and known to be one of the individuals described in and who executed the
foregoing instrument, personally appeared before me and acknowledged the
foregoing instrument to be their free act and deed.
Bonnie Moy
---------------------------------
Notary Public
My Commission Expires:
[SEAL]
BONNIE MOY
Notary Public, State of New York
No. 31-4727919
Qualified in New York County
My Commission Expires 10/31/88
<PAGE>
COMMAND GOVERNMENT FUND
By-Laws
ARTICLE I
Shareholders
Section 1. Place of Meeting. All meetings of the Shareholders shall
be held at the principal office of the Trust in the Commonwealth of
Massachusetts or at such other place within the United States as may from time
to time be designated by the Trustees and stated in the notice of such meeting.
Section 2. Special or Extraordinary Meetings. Special or
extraordinary meetings of the Shareholders for any purpose or purposes may be
called by the President or a majority of the Trustees, and shall be called by
the Secretary upon receipt of the request in writing signed by Shareholders
holding not less than twenty-five per cent (25%) of the Shares issued and
outstanding and entitled to vote thereat. Such request shall state the purpose
or purposes of the proposed meeting. The Secretary shall inform such
Shareholders of the reasonably estimated costs of preparing and mailing such
notice of meeting and upon payment to the Trust of such costs, the Secretary
<PAGE>
shall give notice stating the purpose or purposes of the meeting as required in
this Article and By-Law to all Shareholders entitled to notice of such meeting.
No special meeting need be called upon the request of the holders of Shares
entitled to cast less than a majority of all votes entitled to be cast at such
meeting to consider any matter which is substantially the same as a matter voted
upon at any special meeting of Shareholders held during the preceding twelve
months.
Section 3. Notice of Meetings. Not less than ten days' or more than
ninety days' written or printed notice of every meeting of Shareholders, stating
the time and place thereof (and the general nature of the business proposed to
be transacted at any special or extraordinary meeting), shall be given to each
Shareholder entitled to vote thereat by leaving the same with him or at his
residence or usual place of business or by mailing it, postage prepaid, and
addressed to him at his address as it appears upon the books of the Trust. If
mailed, notice shall be deemed to be given when deposited in the United States
mail addressed to the Shareholder as aforesaid.
No notice of the time, place or purpose of any meeting of
Shareholders need be given to any Shareholder who attends in person or by proxy
or to any Shareholder
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who executes a written waiver of such notice, either before or after the meeting
is held, and which notice is filed with the records of the meeting.
Section 4. Record Dates. The Trustees may fix, in advance, a date
not more than sixty (60) or less than ten (10) days preceding the date of any
meeting of Shareholders as a record date for the determination of the
Shareholders entitled to notice of and to vote at such meeting; and only
Shareholders of record on such date shall be entitled to notice of and to vote
at such meeting.
Section 5. Quorum and Adjournment of Meetings. The presence in
person or by proxy of the holders of record of a majority of the Shares of the
Trust issued and outstanding and entitled to vote thereat shall constitute a
quorum at all meetings of the Shareholders except as otherwise provided in the
Declaration of Trust. If, however, such quorum shall not be present or
represented at any meeting of the Shareholders, the holders of a majority of the
Shares present in person or by proxy shall have power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
the requisite amount of Shares entitled to vote at such meeting shall be
present. At such adjourned meeting at which the requisite amount of Shares
entitled to vote thereat shall be represented any business may be transacted
which might have been transacted at the meeting as originally notified.
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Section 6. Voting and Inspectors. At all meetings, Shareholders of
record entitled to vote thereat shall have one vote for each Share standing in
his name on the books of the Trust (and such Shareholders of record holding
fractional shares, if any, shall have proportionate voting rights) on the date
of the determination of Shareholders entitled to vote at such meeting, either in
person or by proxy appointed by instrument in writing subscribed by such
Shareholder or his duly authorized attorney. No proxy shall be valid eleven
months after its date.
All elections shall be had and all questions decided by a majority
of the votes cast at a duly constituted meeting, except as otherwise provided by
statute or by the Declaration of Trust or by these By-Laws.
At any election of Trustees, the Chairman of the meeting may, and
upon the request of the holders of ten per cent (10%) of the Shares entitled to
vote at such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Trustee shall be appointed such
Inspector.
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Section 7. Conduct of Meetings. The meetings of the Shareholders
shall be presided over by the President, or if he is not present, by a
Vice-President, or if none of them is present, by a Chairman to be elected at
the meeting. The Secretary of the Trust, if present, shall act as a Secretary of
such meetings, or if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor any Assistant Secretary is present, then the meeting
shall elect its Secretary.
Section 8. Concerning Validity of Proxies, Ballots, etc. At every
meeting of the Shareholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the Secretary of the
meeting, who shall decide all questions touching the qualification of voters,
the validity of the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of the meeting,
in which event such inspectors of election shall decide all such questions.
Section 9. Action without Meeting. Except as otherwise provided by
law, the provisions of these By-Laws relating to notices and meetings to the
contrary notwithstanding, any action required or permitted to be taken at any
meeting of Shareholders may be taken without a meeting
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if a majority of the shareholders entitled to vote upon the action consent to
the action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
shareholders.
ARTICLE II
Trustees
Section 1. Number; Tenure of Office and Election. The property of
the Trust shall be controlled by and the business and affairs of the Trust shall
be conducted and managed by not less than three (3) or more than fifteen (15)
Trustees, as may be fixed from time to time by a written instrument signed by a
majority of the Trustees then in office. Trustees need not be Shareho1ders. The
tenure of office of each Trustee shall be set by resolution of the Trustees,
except that any Trustee may resign his office or be removed from office for
cause pursuant to the provisions of the Declaration of Trust. Except to the
extent otherwise indicated in this Article II, Trustees shall be elected by
majority vote of the Shareholders.
Section 2. Vacancies. In case of any vacancy or vacancies in the
office of Trustee through death, resignation or other cause, other than an
increase in the number of Trustees, a majority of the remaining Trustees,
although a majority is less than a quorum, by an affirmative vote, or
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the sole remaining Trustee may elect a successor or successors, as the case may
be, to hold office.
Section 3. Increase or Decrease in Number of Trustees. The Trustees,
by the vote of a majority of all the Trustees then in office, may increase the
number of Trustees and may elect Trustees to fill the vacancies created by any
such increase in the number of Trustees. The Trustees, by the vote of a majority
of all the Trustees then in office, may likewise decrease the number of Trustees
to a number not less than three.
Section 4. Place of Meeting. The Trustees may hold their meetings,
have one or more offices, and keep the books of the Trust, outside the
Commonwealth of Massachusetts, at any office or offices of the Trust or at any
other place as they may from time to time by resolution determine, or in the
case of meetings, as they may from time to time by resolution determine or as
shall be specified or fixed in the respective notices or waivers of notice
thereof.
Section 5. Regular Meetings. Regular meetings of the Trustees shall
be held at such time and on such notice as the Trustees may from time to time
determine.
Section 6. Special Meetings. Special meetings of the Trustees may be
held from time to time upon call of the President, the Secretary or two or more
of the Trustees, by oral or telegraphic or written notice duly served on or sent
or mailed to each Trustee not less than one day before
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such meeting. No notice of any special meeting need be given to any Trustee who
attends in person or to any Trustee who executes a written waiver of such
notice, either before or after the meeting is held, and which notice is filed
with the records of the meeting. Such notice or waiver of notice need not state
the purpose or purposes of such meeting.
Section 7. Quorum. One-third of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Trustees. If at any meeting of Trustees there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum shall have been obtained. The act of
the majority of the Trustees present at any meeting at which there is a quorum
shall be the act of the Trustees, except as otherwise specifically provided by
statute or by the Declaration of Trust or by these By-Laws.
Section 8. Executive Committee. The Trustees may, by the affirmative
vote of a majority of all the Trustees then in office, appoint from the Trustees
an Executive Committee to consist of such number of Trustees (not less than
three) as the Trustees may from time to time determine. The Chairman of the
Committee shall be elected by the Trustees. The Trustees by such affirmative
vote
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shall have power at any time to change the members of such Committee and may
fill vacancies in the Committee by election from the Trustees. When the Trustees
are not in session, to the extent permitted by law the Executive Committee shall
have and may exercise any or all of the powers of the Trustees in the management
of the business and affairs of the Trust. The Executive Committee may fix its
own rules of procedure, and may meet when and as provided by such rules or by
resolution of the Trustees, but in every case the presence of a majority shall
be necessary to constitute a quorum. During the absence of a member of the
Executive Committee, the remaining members may appoint a Trustee to act in his
place.
Section 9. Other Committees. The Trustees, by the majority vote of
all the Trustees then in office, may appoint from the Trustees other committees
which shall in each case consist of such number of Trustees (not less than two)
and shall have and may exercise such powers as the Trustees may determine in the
resolution appointing them. A majority of all the members of any such committee
may determine its action and fix the time and place of its meetings, unless the
Trustees shall otherwise provide. The Trustees shall have power at any time to
change the members and powers of any such committee, to fill vacancies and to
discharge any such committee.
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Section 10. Telephone Meetings. Trustees or a committee of the
Trustees may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
Section 11. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Trustees or any committee thereof
may be taken without a meeting, if a written consent to such action is signed by
all the Trustees then in office or all members of such committee, as the case
may be, and such written consent is filed with the minutes of the proceedings of
the Trustees or committee.
Section 12. Compensation. Trustees shall be entitled to receive such
compensation from the Trust for their services as may from time to time be voted
by the Trustees.
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ARTICLE III
Officers
Section 1. Executive Officers. The executive officers of the Trust
shall be chosen by the Trustees. These shall include a President (who shall be a
Trustee), one or more Vice-Presidents (the number thereof to be determined by
the Trustees), a Secretary and a Treasurer. The Trustees or the Executive
Committee may also in their or its discretion, as the case may be, appoint
Assistant Secretaries, Assistant Treasurers and other officers, agents and
employees, who shall have such authority and perform such duties as the Trustees
or the Executive Committee may determine. The Trustees may fill any vacancy
which may occur in any office. Any two offices, except those of President and
any Vice-President, may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law or these By-Laws to be executed, acknowledged or
verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall
be one year and until their respective successors are chosen and qualified. Any
officer may be removed from office at any time with or without cause by the vote
of a majority of all the Trustees then in office.
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Section 3. Powers and Duties. The officers of the Trust shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Trustees
or by the Executive Committee.
ARTICLE IV
Share Interests
Section 1. Certificates for Shares. Shareholders are not entitled to
receive certificates evidencing their Share ownership, unless the Trustees shall
by resolution otherwise determine.
Section 2. Transfer of Shares. Shares of the Trust shall be
transferable on the register of the Trust by the holder thereof in person or by
his agent duly authorized in writing, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization of such
other matter as the Trust or its agents may reasonably require.
Section 3. Register of Shares. A register of the Trust, containing
the names and addresses of the Shareholders and the number of Shares held by
them respectively and a record of all transfers thereof, shall be kept at the
principal offices of the Trust or, if the Trust employs a Transfer Agent, at the
offices of the Transfer Agent of the Trust
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ARTICLE V
Seal
The Trustees may provide for a suitable seal, in such form and
bearing such inscriptions as they may determine.
ARTICLE VI
Fiscal Year
The fiscal year of the Corporation shall begin on the first day of
July and shall end on the last day of June in each year.
ARTICLE VII
Indemnification
A representative of the Trust shall be indemnified by the Trust with
respect to each proceeding against such representative, except a proceeding
brought by or on behalf of the Trust, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such representative in connection with such proceeding, provided
that such representative acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Trust and, with
respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any proceeding by judgment, order,
settlement, conviction
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or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Trust and, with respect to any criminal proceeding, had reasonable cause to
believe that his conduct was unlawful.
A representative of the Trust shall be indemnified by the Trust,
with respect to each proceeding brought by or on behalf of the Trust to obtain a
judgment or decree in its favor, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Trust;
except that no indemnification shall be made in respect of any claim, issue, or
matter as to which such representative has been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Trust, unless and
only to the extent that the court in which the proceeding was brought, or a
court of equity in the county in which the Trust has its principal office,
determines upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such corporate representative is fairly
and reasonably entitled to indemnity for the expenses which the court considers
proper.
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To the extent that the representative of the Trust has been
successful on the merits or otherwise in defense of any proceeding referred to
in the preceding two paragraphs, or in defense of any claim, issue or matter
therein, the Trust shall indemnify him against all expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
Except as provided in the preceding paragraph any indemnification
under the first two paragraphs of this Article (unless ordered by a court) shall
be made by the Trust only as authorized in the specific case upon a
determination that indemnification of the representative of the Trust is proper
in the circumstances because he has met the applicable standard of conduct set
forth in such paragraphs. The determination shall be made (1) by the Trustees by
a majority vote of a quorum consisting of Trustees who were not parties to the
proceeding, or (2) if a quorum is not obtainable or if a quorum of disinterested
Trustees so directs, by independent legal counsel in a written opinion, or (3)
by the Shareholders.
Expenses (including attorneys' fees) incurred in defending a
proceeding may be paid by the Trust in advance of the final disposition thereof
if (1) authorized by the Trustees in the specific case, and (2) the Trust
receives an
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undertaking by or on behalf of the representative of the Trust to repay the
advance if it is not ultimately determined that he is entitled to be indemnified
by the Trust as authorized in this Article.
The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which a representative of the Trust or other
person may be entitled under any agreement, vote of Shareholders or
disinterested Trustees or otherwise, both as to action in his official capacity
and as to action in another capacity while holding the office, and shall
continue as to a person who has ceased to be a Trustee, officer, employee or
agent and inure to the benefit of his heirs and personal representatives.
The Trust may purchase and maintain insurance on behalf of any
person who is or was a Trustee, officer, employee or agent of the Trust, or is
or was serving at the request of the Trust as a trustee, director, officer,
employee or agent of another trust, corporation, partnership, joint venture or
other enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, regardless of whether
the Trust would have the power to indemnify him against the liability under the
provisions of this Article.
Nothing contained in this Section shall be construed to indemnify
any representative of the Trust against
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any liability to the Trust or to its security holders to which he would
otherwise be subject by reason of misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
As used in this Article "representative of the Trust" means an
individual (1) who is a present or former Trustee, officer, agent or employee of
the Trust or who serves or has served another trust corporation, partnership,
joint venture or other enterprise in one of such capacities at the request of
the Trust, and (2) who by reason of his position is, has been or is threatened
to be made a party to a proceeding; and "proceeding" includes any threatened,
pending or completed action, suit or proceding, whether civil, criminal,
administrative or investigative.
ARTICLE VIII
Custodian
Section 1. The Trust shall have as custodian or custodians one or
more trust companies or banks of good standing, each having a capital, surplus
and undivided profits aggregating not less than fifty million dollars
($50,000,000), and, to the extent required by the Investment Company Act of
1940, the funds and securities held by the Trust shall be kept in the custody of
one or more such custodians, provided such custodian or custodians can be
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found ready and willing to act, and further provided that the Trust may use as
subcustodians, for the purpose of holding any foreign securities and related
funds of the Trust such foreign banks as the Trustees may approve and as shall
be permitted by law.
Section 2. The Trust shall upon the resignation or inability to
serve of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian;
(ii) require that the cash and securities owned by the Trust be
delivered directly to the successor custodian; and
(iii) in the event that no successor custodian can be found, submit
to the Shareholders before permitting delivery of the cash and securities
owned by the Trust otherwise than to a successor custodian, the question
whether the Trust shall be liquidated or shall function without a
custodian.
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ARTICLE IX
Amendment of By-Laws
The By-Laws of the Trust may be altered, amended, added to or
repealed by the Shareholders or by majority vote of all the Trustees then in
office; but any such alteration, amendment, addition or repeal of the By-Laws by
action of the Trustees may be altered or repealed by Shareholders.
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COMMAND GOVERNMENT FUND
MANAGEMENT AGREEMENT
Agreement, made this 31st day of October, 1988 between Command
Government Fund, a Massachusetts business trust (the "Fund"), and Prudential
Mutual Fund Management, Inc., a Delaware corporation (the "Manager").
WITNESSETH
WHEREAS, the Fund is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Manager to render or
contract to obtain as hereinafter provided investment advisory services to the
Fund and the Fund also desires to avail itself of the facilities available to
the Manager with respect to the administration of its day to day business
affairs, and the Manager is willing to render such investment advisory and
administrative services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the
Fund and administrator of its business affairs for the period and on the terms
set forth in this Agreement. The Manager accepts such appointment and agrees to
render the services herein described, for the compensation
<PAGE>
herein provided. The Manager will enter into an agreement, dated the date
hereof, with The Prudential Investment Corporation ("PIC") pursuant to which PIC
shall furnish to the Fund the investment advisory services specified therein in
connection with the management of the Fund. Such agreement in the form attached
as Exhibit A is hereinafter referred to as the "Subadvisory Agreement." The
Manager will continue to have responsibility for all investment advisory
services furnished pursuant to the Subadvisory Agreement.
2. Subject to the supervision of the Trustees of the Fund, the
Manager shall administer the Fund's business affairs and, in connection
therewith, shall furnish the Fund with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreement, the Manager shall manage the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance with
the Fund's investment objectives, policies and restrictions as stated in the
Prospectus (hereinafter defined) and subject to the following understandings:
(a) The Manager shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Fund, and what
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<PAGE>
portion or the assets will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Declaration of
Trust, By-Laws and Prospectus (hereinafter defined) of the Fund and with
the instructions and directions of the Trustees of the Fund and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations.
(c) The Manager shall determine the securities to be purchased or
sold by the Fund and will place orders pursuant to its determinations with
or through such persons, brokers or dealers (including but not limited to
Prudential-Bache Securities Inc.) In conformity with the policy with
respect to brokerage as set forth in the Fund's Registration Statement and
Prospectus (hereinafter defined) or as the Trustees may direct from time
to time. In providing the Fund with investment supervision, it is
recognized that the Manager will give primary consideration to securing
the most favorable price and efficient execution. Consistent with this
policy, the Manager may consider the financial responsibility, research
and investment information and other services provided by brokers or
3
<PAGE>
dealers who may effect or be a party to any such transaction or other
transactions to which other clients of the Manager may be a party. It is
understood that Prudential-Bache Securities Inc. may be used as principal
broker for securities transactions but that no formula has been adopted
for allocation of the Fund's investment transaction business. It is also
understood that it is desirable for the Fund that the Manager have access
to supplemental investment and market research and security and economic
analysis provided by brokers and that such brokers may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers on the basis of seeking the most favorable
price and efficient execution. Therefore, the Manager is authorized to pay
higher brokerage commissions for the purchase and sale of securities for
the Fund to brokers who provide such research andanalysis, subject to
review by the Fund's Trustees from time to time with respect to the extent
and continuation of this practice. It is understood that the services
provided by such broker may be useful to the Manager in connection with
its services to other clients.
On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of
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the Fund as well as other clients of the Manager or the Subadviser, the
Manager, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be so
sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation
of the securities so purchased or sold, as well as the expenses incurred
in the transaction, will be made by the Manager in the manner it considers
to be the most equitable and consistent with its fiduciary obligations to
the Fund and to such other clients.
(d) The Manager shall maintain all books and records with respect to
the Fund's portfolio transactions and shall render to the Fund's Trustees
such periodic and special reports as the Trustees may reasonably request.
(e) The Manager shall be responsible for the financial and
accounting records to be maintained by the Fund (including those being
maintained by the Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the Fund's
assets.
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<PAGE>
(g) The investment management services of the Manager to the Fund
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Declaration of Trust of the Fund, as filed with the Commonwealth
of Massachusetts (such Declaration of Trust, as in effect on the date
hereof and as amended from time to time, is herein called the "Declaration
of Trust");
(b) By-Laws of the Fund (such By-Laws, as in effect on the date
hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Trustees of the Fund authorizing
the appointment of the Manager and approving the form of this agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the "Registration Statement"), as filed
with the Securities and Exchange Commission (the "Commission") relating to
the Fund and shares of beneficial interest of the Fund and all amendments
thereto;
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<PAGE>
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Fund (such Prospectus and Statement of
Additional Information, as currently in effect and as amended or
supplemented from time to time, being herein called the "Prospectus").
4. The Manager shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the Fund to
serve in the capacities in which they are elected. All services to be furnished
by the Manager under this Agreement may be furnished through the medium of any
such directors, officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to
be maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any such records upon the Fund's request,
provided however that the Manager may retain a copy of such records. The Manager
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any such records as are required to be maintained by the Manager
pursuant to Paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay the
following expenses:
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(i) the salaries and expenses of all personnel of the Fund and the
Manager except the fees and expenses of Trustees who are not affiliated
persons of the Manager or the Fund's investment adviser,
(ii) all expenses incurred by the Manager or by the Fund in
connection with managing the ordinary course of the Fund's business other
than those assumed by the Fund herein, and
(iii) the costs and expenses payable to PIC pursuant to the
Subadvisory Agreement. The Fund assumes and will pay the expenses
described below:
(a) the fees and expenses incurred by the Fund in connection with
the management of the investment and reinvestment of the Fund's assets,
(b) the fees and expenses of Trustees who are not affiliated persons
of the Manager or the Fund's investment adviser,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the Fund and
the providing of any such records to the Manager useful to the Manager in
connection with the Manager's responsibility for the accounting records of
the Fund pursuant to Section 31 of the 1940 Act and the rules promulgated
thereunder, (iii) the pricing of
8
<PAGE>
the shares of the Fund, including the cost of any pricing service or
services which may be retained pursuant to the authorization of the
Trustees of the Fund, and (iv) for both mail and wire orders, the
cashiering function in connection with the issuance and redemption of the
Fund's securities,
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable
to the Fund in connection with its securities,
(g) all taxes and corporate fees payable by the Fund to federal,
state or other governmental agencies,
(h) the fees of any trade associations of which the Fund may be a
member,
(i) the cost of share certificates representing, and/or
non-negotiable share deposit receipts evidencing, shares of the Fund,
(j) the cost of fidelity, directors and officers and errors and
omissions insurance,
(k) the fees and expenses involved in registering and maintaining
registration of the Fund
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<PAGE>
and of its shares with the Securities and Exchange Commission, registering
the Fund as a broker or dealer and qualifying its shares under state
securities laws, including the preparation and printing of the Fund's
registration statements, prospectuses and statements of additional
information for filing under federal and state securities laws for such
purposes,
(l) 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 in the amount
necessary for distribution to the shareholders,
(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
(n) any expenses assumed by the Fund pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-l under the 1940 Act.
7. In the event the expenses of the Fund for any fiscal year
(including the fees payable to the Manager but excluding interest, taxes,
brokerage commissions, distribution fees and litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Fund's business) exceed the lowest applicable annual expense limitation
established and enforced pursuant to the statute or regulations of any
jurisdictions in which shares of
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the Fund are then qualified for offer and sale, the compensation due the Manager
will be reduced 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.
8. For the services provided and the expenses assumed pursuant to
this Agreement, the Fund will pay to the Manager as full compensation therefor 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. This fee will be computed daily and will be paid to the Manager
monthly. Any reduction in the fee payable and any payment by the Manager to the
Fund pursuant to paragraph 7 shall be made monthly. Any such reductions or
payments are subject to readjustment during the year.
9. The Manager shall not be liable for any error of judgment or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless
11
<PAGE>
disregard by it of its obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period of more
than two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act; provided, however, that this Agreement may be terminated by the
Fund at any time, without the payment of any penalty, by the Trustees of the
Fund or by vote of a majority of the outstanding voting securities (as defined
in the 1940 Act) of the Fund, or by the Manager at any time, without the payment
of any penalty, on not more than 60 days' nor less than 30 days' written notice
to the other party. This Agreement shall terminate automatically in the event of
its assignment (as defined in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of
any director, officer or employee of the Manager who may also be a Trustee,
officer or employee of the Fund to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
business, whether of a similar or dissimilar nature, nor limit or restrict the
right of the Manager to engage in any other business or to render services of
any kind to any other corporation, firm, individual or association.
12. Except as otherwise provided herein or authorized by the
Trustees of the Fund from time to time, the
12
<PAGE>
Manager shall for all purposes herein be deemed to be an independent contractor
and shall have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
13. During the term of this Agreement, the Fund agrees to furnish
the Manager at its principal office all prospectuses, proxy statements, reports
to shareholders, sales literature, or other material prepared for distribution
to shareholders of the Fund or the public, whichrefer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund will continue to furnish to the Manager copies of any of the
above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Manager such other information relating to
the business affairs of the Fund as the Manager at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
14. This Agreement may be amended by mutual consent, but the consent
of the Fund must be obtained in conformity with the requirements of the 1940
Act.
13
<PAGE>
15. Any notice or other communication required to be given pursuant
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at One Seaport Plaza, New
York, N.Y. 10292, Attention: Secretary; or (2) to the Fund at One Seaport Plaza,
New York, N.Y. 10292, Attention: President.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
17. The Fund may use the name Command Government Fund, Inc. or any
name including the words "Prudential" or "Bache" only for so long as this
Agreement or any extension, renewal or amendment hereof remains in effect,
including any similar agreement with any organization which shall have succeeded
to the Manager's business as Manager or any extension,renewal or amendment
thereof remain in effect. At such time as such an agreement shall no longer be
in effect, the Fund will (to the extent that it lawfully can) cease to use such
a name or any other name indicating that it is advised by, managed by or
otherwise connected with the Manager, or any organization which shall have so
succeeded to such businesses. In no event shall the Fund use the name Command
Government Fund or any name including the word "Prudential" or "Bache" if the
Manager's function is transferred or assigned to a company of which The
Prudential Insurance Company of America does not have control.
14
<PAGE>
18. The name Command Government Fund is the designation of the
trustees under a Declaration of Trust, dated August 19, 1987, and all persons
dealing with the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the trustees, officers,
agents or shareholders assume any personal liability for obligations entered
into on behalf of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
COMMAND GOVERNMENT FUND
By /s/ Laurence C. McQuade
------------------------------------
President
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ [ILLEGIBLE]
------------------------------------
President
15
<PAGE>
Exhibit 99.B5(b)
COMMAND GOVERNMENT FUND
SUBADVISORY AGREEMENT
Agreement made as of this 31st day of October, 1988 between
Prudential Mutual Fund Management Inc., a Delaware Corporation ("PMF" or the
"Manager"), and The Prudential Investment Corporation, a New Jersey Corporation
(the "Subadviser").
WHEREAS, the Manager has entered into a Management Agreement, dated
October 31, 1988(the "Management Agreement") with Command Government Fund (the
"Fund"), a Massachusetts business trust and a diversified open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"), pursuant to which PMF will act as Manager of the Fund.
WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Trustees
of the Fund, the Subadviser shall manage the investment operations
of the Fund and the composition of the Fund's portfolio, including
the purchase, retention and disposition thereof, in accordance with
the Fund's investment objectives, policies and restrictions as
stated in the Prospectus, (such Prospectus and Statement of
Additional Information as currently in effect and as amended or
supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments
and securities will be purchased, retained, sold or loaned by
the Fund, and what portion of the assets will be invested or
held uninvested as cash.
(ii) In the performance of its duties and obligations under
this Agreement, the Subadviser shall act in conformity with
the Declaration of Trust, By-Laws and Prospectus of the Fund
and with the instructions and directions of the Manager and of
the Trustees of the Fund and will conform to and comply with
the requirements of
<PAGE>
the 1940 Act, the Internal Revenue Code of 1986 and all other
applicable federal and state laws and regulations.
(iii) The Subadviser shall determine the securities to be
purchased or sold by the Fund and will place orders with or
through such person, brokers or dealers (including but not
limited to Prudential-Bache Securities Inc.) to carry out the
policy with respect to brokerage as set forth in the Fund's
Registration Statement and Prospectus or as the Trustees may
direct from time to time. In providing the Fund with
investment supervision, it is recognized that the Subadviser
will give primary consideration to securing the most favorable
price and efficient execution. Within the framework of this
policy, the Subadviser may consider the financial
responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which
the Subadviser's other client may be a party. It is
understood that Prudential-Bache Securities Inc. may be used
as principal broker for securities transactions but that no
formula has been adopted for allocation of the Fund's
investment transaction business. It is also understood that
it is desirable for the Fund that the Subadviser have access
to supplemental investment and market research and security
and economic analysis provided by brokers who may execute
brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers on the basis
of seeking the most favorable price and efficient execution.
Therefore, the Subadviser is authorized to place orders for
the purchase and sale of securities for the Fund with such
brokers subject to review by the Fund's Trustees from time to
time with respect to the extent and continuation of this
practice. It is understood that the services provided by such
brokers may be useful to the Subadviser in connection with the
Subadviser's services to other clients.
On occasions when the Subadviser deems the purchase or
sale of a security to be in the best interest of the Fund as
well as other clients of the Subadviser, the Subadviser, to
the extent permitted by applicable laws and
2
<PAGE>
regulations, may, but shall be under no obligation to,
aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions
and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Subadviser in
the manner the Subadviser considers to be the most equitable
and consistent with its fiduciary obligations to the Fund and
to such other clients.
(iv) The Subadviser shall maintain all books and records with
respect to the Fund's portfolio transactions required by
subparagraphs (b) (5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-l under the 1940 Act and shall
render to the Fund's Trustees such periodic and special
reports as the Trustees may reasonably request.
(v) The Subadviser shall provide the Fund's Custodian on each
business day with information relating to all transactions
concerning the Fund's assets and shall provide the Manager
with such information upon request of the Manager.
(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of
the Fund to serve in the capacities in which they are elected.
Services to be furnished by the Subadviser under this Agreement may
be furnished through the medium of any of such directors, officers
or employees.
(c) The Subadviser shall keep the Fund's books and records required
to be maintained by the Subadviser pursuant to paragraph 1(a) hereof
and shall timely furnish to the Manager all information relating to
the Subadviser's services hereunder needed by the Manager to keep
the other books and records of the Fund required by Rule 31a-l under
the 1940 Act. The Subadviser agrees that all records which it
maintains for the Fund are the property of the Fund
3
<PAGE>
and the Subadviser will surrender promptly to the Fund any of such
records upon the Fund's request, provided however that the
Subadviser may retain a copy of such records. The Subadviser further
agrees to preserve for the periods prescribed by Rule 31a-2 of the
Commission under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) hereof.
2. The Manager shall continue to have responsibility for all
services to be provided to the Fund pursuant to the Management
Agreement and shall oversee and review the Subadviser's performance
of its duties under this Agreement.
3. The Manager shall reimburse the Subadviser for reasonable costs
and expenses incurred by the Subadviser determined in a manner
acceptable to the Manager in furnishing the services described in
paragraph 1 hereof.
4. The Subadviser shall not be liable for any error of judgment or
for any loss suffered by the Fund or the Manager in connection with
the matters to which this Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the
Subadviser's part in the performance of its duties or from its
reckless disregard of its obligations and duties under this
Agreement.
5. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the
requirements of the 1940 Act; provided, however, that this Agreement
may be terminated by the Fund at any time, without the payment of
any penalty, by the Trustees of the Fund or by vote of a majority of
the outstanding votingsecurities (as defined in the 1940 Act) of the
Fund, or by the Manager or the Subadviser at any time, without the
payment of any penalty, on not more than 60 days' nor less than 30
days' written notice to the other party. This Agreement shall
terminate automatically in the event of its assignment (as defined
in the 1940 Act) or upon the termination of the Management
Agreement.
6. Nothing in this Agreement shall limit or restrict the right of
any of the Subadviser's directors, officers, or employees who may
also be a Trustee, officer or employee of the Fund to engage in
4
<PAGE>
any other business or to devote his or her time and attention in
part to the management or other aspects of any business, whether of
a similar or a dissimilar nature, nor limit or restrict the
Subadviser's right to engage in any other business or to
render services of any kind to any other corporation, firm,
individual or association.
7. During the term of this Agreement, the Manager agrees to furnish
the Subadviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature or other
material prepared for distribution to shareholders of the Fund or
the public, which refer to the Subadviser in any way, prior to use
thereof and not to use material if the Subadviser reasonably objects
in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. Sales literature may be furnished to
the Subadviser hereunder by first-class or overnight mail, facsimile
transmission equipment or hand delivery.
8. This Agreement may be amended by mutual consent, but the consent
of the Fund must be obtained in conformity with the requirements of
the 1940 Act.
9. This Agreement shall be governed by the laws of the State of New
York.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ illegible
-----------------------------------
President
THE PRUDENTIAL INVESTMENT CORPORATION
By /s/ illegible
-----------------------------------
Vice President
5
<PAGE>
CUSTODY AGREEMENT
AGREEMENT made as of February 10, 1982 by and between Command Government
Fund, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter called the "Trust"), and THE FIRST
JERSEY NATIONAL BANK, a national banking association organized and existing
under the laws of the United States (hereinafter called the "Custodian").
W I T N E S S E T H
WHEREAS, the Trust desires that its securities and funds shall be
hereafter held and administered by the Custodian pursuant to the terms of this
Agreement:
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and the Custodian agree as follows:
SECTION 1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, bills, notes, mortgages, certificates of deposit, bank time
deposits, bankers' acceptances, commercial paper, scrip, warrants, participation
certificates, choses in action, evidences of indebtedness, or other obligations
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase, or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets.
<PAGE>
The term "officers certificate" shall mean a direction, instruction or
certification in writing signed in the name of the Trust by any two of the
President, a Vice President, the Secretary and the Treasurer of the Trust, or
any other persons duly authorized to sign by the Trustees or the Executive
Committee of the Trust.
SECTION 2. Names, Titles and Signatures of Trust's Officers
The Secretary or an Assistant Secretary of the Trust will certify to the
Custodian the names and the signatures of those persons authorized to sign
officers' certificates, as defined in Section 1 hereof, and the names of the
Trustees and the members of the Executive Committee thereof, if any, together
with any changes which may occur from time to time and the custodian shall be
fully protected in acting in reliance thereon.
SECTION 3. Receipt and Disbursement of Funds
A. The Custodian shall open and maintain a separate account or accounts in
the name of the Trust, subject only to draft or order by the Custodian acting
pursuant to the terms of this Agreement. The Custodian shall hold in such
account or accounts, subject to the provisions hereof, all funds received by it
from or for the account of the Trust. The Trust will deliver or cause to be
delivered to the Custodian all funds owned by the Trust, including cash received
for the issuance of its shares during the period of this Agreement. The
Custodian shall make payments of
2
<PAGE>
funds to, or for the account of, the Trust from such funds only: (a) for the
purchase of securities for the portfolio of the Trust (i) upon the delivery of
such securities to the Custodian (or to any bank, banking firm or trust company
doing business in the United States and designated by the Custodian as its
sub-custodian or agent for this purpose), registered (if registrable) in the
name of the Trust or of the nominee of the Custodian referred to in Section 8 or
in proper form for transfer, or (ii) in the case of repurchase agreements
entered into between the Trust and the Custodian or other bank, upon delivery of
the receipt evidencing purchase by the Trust of securities owned by the
custodian or other bank along with written evidence of the agreement by the
Custodian or other bank to repurchase such securities from the Trust; (b) for
the repurchase or redemption of shares of the Trust upon written advice thereof
to the Custodian from the Trust's Transfer Agent, in the amount specified in
such advice; (c) for the payment of interest, dividends, taxes, management or
supervisory fees, or operating expenses (including, without limitation thereto,
trustees' fees and expenses, and fees for legal, accounting and auditing
services); (d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Trust held by or to be
delivered to the Custodian; (e) for the payment to any bank of interest on or
any portion of the principal of any loan made by such bank
3
<PAGE>
to the Trust; (f) for the payment to any person, firm or corporation who has
borrowed the Trust's portfolio securities the amount deposited with the
Custodian as collateral for such borrowing upon the delivery of such securities
to the Custodian, registered (if registrable) in the name of the Trust or of the
nominee of the Custodian referred to in Section 8 or in proper form for
transfer, or (g) for other proper purposes of the Trust. Before making any such
payment the Custodian shall receive (and may rely upon) an officers' certificate
directing such payment and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d) , (e) or (f) of this subsection A. In respect
of item (g), the Custodian will take such action only upon receipt of an
officers' certificate and a certified copy of a resolution of the Trustees or of
the Executive Committee of the Trust signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose of the Trust, and naming the
person or persons to whom Such payment is to be made. In respect to item (f),
the Custodian shall make payment to the borrower of securities loaned by the
Trust of part of the collateral deposited with the Custodian upon receipt of an
officers' certificate stating that the market value of the securities loaned has
declined and specifying the amount to be paid by the Custodian
4
<PAGE>
without receipt or return of any of the securities loaned by the Trust. In
respect of item (a), in the case of re-purchase agreements entered into with a
bank which is a member of the Federal Reserve System, the Custodian may transfer
funds to the account of such bank, which may by itself, prior to receipt of the
safe-keeping receipt and repurchase agreement, provided that such documents are
received prior to the close of business on the same day.
B. Notwithstanding anything herein to the contrary, the Custodian may at
any time or times, appoint (and may at any time remove) any other bank or trust
company as its sub-custodian or agent to carry out such of the provisions of
Subsection A of this Section 3 as the Trust may from time to time request;
provided, however, that the appointment of such sub-custodian or agent shall not
relieve the Custodian of any of its responsibilities hereunder; and provided,
further, that the Trust will not request the appointment of any bank as
sub-custodian unless it meets the requirements of Section 26 of the Investment
Company Act.
C. The Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by the Custodian for
the account of the Trust.
SECTION 4. Receipt of Securities
A. The Custodian shall hold in a separate account, and physically
segregated at all times from those of any other persons, firms, corporations or
trust, pursuant to the pro-
5
<PAGE>
visions hereof, all securities received by it from or for the account of the
Trust and the Trust will deliver or cause to be delivered to the Custodian all
securities owned by the Trust. All such securities are to be held or disposed of
by the Custodian for, and subject at all times to the instructions of, the Trust
pursuant to the terms of this Agreement. The Custodian shall have no power or
authority to assign, hypothecate, pledge or otherwise dispose of any such
securities and investments, except pursuant to the directive of the Trust and
only for the account of the Trust as set forth in Section 5 of this Agreement.
B. Notwithstanding anything herein to the contrary, the Custodian may at
any time or times, appoint (and may at any time remove) any other bank or trust
company as its sub-custodian or agent to carry out such of the provisions of
Subsection A of this Section 4 and of Section 5 or this Agreement, as the Trust
may from time to time request, provided, however, that the appointment of such
sub-custodian or agent shall not relieve the Custodian of any of its
responsibilities hereunder; and provided, further, that the Trust will not
request the appointment of any bank as sub-custodian unless it meets the
requirements of Section 26 of the Investment Company Act.
SECTION 5. Transfer, Exchange, Redelivery, etc. of Securities
The custodian shall have sole power to release or deliver any securities
of the Trust held by it pursuant to this Agreement. The Custodian agrees to
transfer, ex-
6
<PAGE>
change or deliver securities held by it hereunder only; (a) for sales of such
securities for the account of the Trust upon receipt by the Custodian of
payment therefor, (b) when such securities mature or are called, redeemed or
retired or otherwise become payable, (c) for examination by any broker selling
any such securities in accordance with "street delivery" custom, (d) in exchange
for or upon conversion into other securities alone or other securities and cash
whether pursuant to any plan of merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise, (e) upon conversion of such
securities pursuant to their terms into other securities, (f) upon exercise of
subscription, purchase or other similar rights represented by such securities,
(g) for the purpose of exchanging interim receipts for temporary securities for
definitive securities, (h) for the purpose of effecting a loan of the Trust's
portfolio securities to any person, firm, corporation or trust upon the receipt
by the Custodian of cash or cash equivalent collateral at least equal to the
market value of the securities loaned, (i) to any bank for the purpose of
collateralizing the obligation of the Trust to repay any moneys borrowed by the
Trust from such bank; provided, however, that the Custodian may at the option of
such lending bank keep such collateral in its possession, subject to the rights
of such bank given to it by virtue of any promissory note or agreement executed
and delivered by the Trust to such bank, or (j) for other proper purposes of the
Trust. As to any deliveries made by the
7
<PAGE>
Custodian pursuant to items (a), (b), (d), (e), (f), (g) and (h), securities or
funds receivable in exchange therefor shall be deliverable to the Custodian.
Before making any such transfer, exchange or delivery, the Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange, or delivery and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), (h) or (i) of this Section 5,
and, in respect of item (j), upon receipt of an officers' certificate and a
certified copy of a resolution of the Trustee's or of the Executive Committee
signed by an officer of the Trust and certified by its Secretary or an Assistant
Secretary, specifying the securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such purpose to be a proper
purpose of the Trust, and naming the persons or persons to whom delivery of such
securities shall be made. In respect of item (h), the officers' certificate
shall state the market value of the securities to be loaned and the
corresponding amount of collateral to be deposited with the Custodian;
thereafter, upon receipt of an officers' certificate stating that the market
value of the securities loaned has increased and specifying the amount of
increase, the Custodian shall collect from the borrower additional cash
collateral in such amount.
8
<PAGE>
SECTION 6. Federal Reserve Book-Entry System
Notwithstanding any other provisions of this Agreement, it is expressly
understood and agreed that the Custodian is authorized in the performance of its
duties hereunder to deposit in the book entry deposit system operated by the
Federal Reserve Banks (the "System"), United States government, instrumentality
and agency securities and any other securities deposited in the System
("Securities") and to use the facilities of the System, as permitted by
Rule 17f-4 under the Investment Company Act of 1940, in accordance with the
following terms and provisions:
(a) The Custodian may keep Securities of the Trust in the System
provided that such Securities are represented in an account ("Account") of
the Custodian's in the System which shall not include any assets of the
Custodian other than assets held in a fiduciary or custodian capacity.
(b) The records of the Custodian with respect to the Trust's
participation in the System through the Custodian shall identify by book
entry Securities belonging to the Trust which are included with other
securities deposited in the Account and shall at ail times during the
regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Trust and employees and
agents of the Securities and Exchange Commission.
9
<PAGE>
(c) The Custodian shall pay for securities purchased for the account
of the Trust upon: (i) receipt of advice from the System that such
Securities have been transferred to the Account; and (ii) the making of an
entry on the records of the Custodian to reflect such payment and transfer
for the account of the Trust. The Custodian shall transfer Securities sold
for the account of the Trust upon: (i) receipt of advice from the System
that payment for such securities has been transferred to the Account; and
(ii) the making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Trust. The Custodian
shall send the Trust a confirmation of any transfers to or from the
account of the Trust.
(d)The Custodian will provide the Trust with any report obtained by
the Custodian on the System's accounting system, internal accounting
control and procedures for safeguarding securities deposited in the
System. The Custodian will provide the Trust, at such times as the Trust
may reasonably require, with reports by independent public accountants on
the accounting system, internal accounting control and procedures for
safeguarding securities including Securities deposited in the System
relating to the services provided by the Custodian under this Agreement;
such reports shall detail material inadequacies disclosed by such
examination, and, if there are no such inadequacies, shall so state, and
shall be of such scope and in such detail as the Trust may reasonably
10
<PAGE>
require and shall be of sufficient scope to provide reasonable assurance
that any material inadequacies would be disclosed.
SECTION 7. Custodian's Acts Without instructions
Unless and until the Custodian receives an officers' certificate to the
contrary, the Custodian shall:
(a) Present for payment all coupons and other income items held by it for
the account of the Trust which call for payment upon presentation and hold the
funds received by it upon such payment for the account of the Trust: (b) collect
interest and cash dividends received, with notice to the Trust, for the account
of the Trust; (c) hold for the account of the Trust hereunder all stock
dividends, rights and similar securities issued with respect to any securities
held by it hereunder; (d) execute as agent on behalf of the Trust all necessary
ownership certificates a required by the Internal Revenue Code or the Income Tax
Regulations of the United States Treasury Department or under the laws of any
State now or hereafter in effect, inserting the Trust's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so; (e) transmit promptly to the Trust all reports, notices and
other written information received by the Custodian from or concerning issuers
of the Trust's portfolio securities; and (f) collect from the borrower the
securities loaned and delivered by the Custodian pursuant to item (h) of Section
5 hereof, (i) any interest or
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<PAGE>
cash dividends paid on such securities, and (ii) all stock dividends, rights and
similar securities issued with respect to any such loaned securities.
With respect to securities of foreign issue, it is expected that the
Custodian will use its best efforts to effect collection of dividends, interest
and other income, and to notify the Trust of any call for redemption, offer of
exchange, right of subscription, reorganization, or other proceedings affecting
such securities, or any default in payments due thereon. It is understood,
however, that the Custodian shall be under no responsibility for any failure or
delay in effecting such collections or giving such notice with respect to
securities of foreign issue, regardless of whether or not the relevant
information is published in any financial service available to it unless such
failure or delay is due to its negligence; however, this sentence shall not be
construed as creating any such responsibility with respect to securities of
non-foreign issue, other than such responsibility as may be part of the general
responsibility of the Custodian as stated in this Section 7. Collections of
income in foreign currency are, to the extent possible to be converted into
United States dollars unless otherwise instructed in writing, and in effecting
such conversion the Custodian may use such methods or agencies as it may see
fit, including the facilities of its own foreign division at customary rates.
All risk and expenses incident to such collection and conversion is for the
account
12
<PAGE>
of the Trust and the Custodian shall have no responsibility for fluctuations
in exchange rates affecting any such conversion.
SECTION 8. Registration of Securities
Except as otherwise directed by an officers' certificate, the Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of the Custodian as defined in the Internal Revenue Code
and any Regulation of the Treasury Department issued thereunder or in any
provision of any subsequent Federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute and deliver all such
certificates in connection therewith as may be required by such laws or
Regulations or under the laws of any State. The Custodian shall use its best
efforts to the end that the specific securities held by it hereunder shall be at
all times identifiable in its records.
The Trust shall from time to time furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any securities
which it may hold for the account of the Trust and which may from time to time
be registered in the name of the Trust.
SECTION 9. Voting and Other Action
Neither the Custodian nor any nominee of the Custodian shall vote any of
the securities held hereunder by or for the account of the Trust, except in
accordance with the instructions contained in an officers' certificate. The
13
<PAGE>
Custodian shall execute and deliver, or cause to be executed and delivered, to
the Trust all notices, proxies and proxy soliciting materials with relation to
such securities (excluding any securities loaned and delivered by the Custodian
pursuant to item (h) of Section 5 hereof), such proxies to be executed by the
registered holder of such securities (if registered otherwise than in the name
of the Trust), but without indicating the manner in which such proxies are to be
voted.
SECTION 10. Transfer Tax and Other Disbursements
The Trust shall pay or reimburse the Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder and for all
other necessary and proper disbursements and expenses made or incurred by the
Custodian in the performance of this Agreement.
The Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provision of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State, to exempt
from taxation any exemptable transfers and/or deliveries of any such securities.
SECTION 11. Concerning the Custodian
A. The Custodian shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties.
14
<PAGE>
B. The Custodian shall not be liable for any action taken in good faith
upon any officers' certificates as herein defined or certified copy of any
resolution of the Trustees or of the Executive Committee, and may rely on the
genuineness of any such document which it may in good faith believe to have been
validly executed.
C. The Custodian shall not be liable for any loss or damage, resulting
from its action or omission to act or otherwise, except for any such loss or
damage arising out of its own negligence or willful misconduct and except that
the Custodian shall be responsible for the acts of any sub-custodian or agent
appointed hereunder. The Custodian may apply for and obtain the advice and
opinion of counsel to the Trust or of its own counsel with respect to questions
of law, and shall be fully protected with respect to anything done or omitted by
it in good faith, in conformity with such advice or opinion.
D. Without limiting the generality of the foregoing, the Custodian shall
be under no duty or obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any securities purchased by or for
the Trust, the legality of the purchase thereof, or the propriety of the
amount paid therefor;
(b) The legality at the issue or sale of any securities by or for
the Trust, or the propriety of the amount for which the same are sold;
15
<PAGE>
(c) The legality of the issue or sale of any shares of the Trust, or
the sufficiency of the amount to be received therefor;
(d) The legality of the redemption of any shares of the Trust, or
the propriety of the amount to be paid therefor;
(e) The legality of the declaration of any dividend or distribution
by the Trust, or the legality of the issue of any shares of the Trust in
payment of any dividend or distribution in shares;
(f) The legality of the delivery of any securities held for the
Trust for the purpose of collateralizing the obligation of the Trust to
repay any moneys borrowed by the Trust; or
(g) The legality of the delivery of any securities held for the
Trust for the purpose of loaning said securities to any person, firm or
corporation.
E. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount, if the securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation; unless and until (i) it shall be directed to take such action by
written instructions signed in the name of the Trust by one of its executive
officers, and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
16
<PAGE>
F. The Custodian shall not be under any [ILLEGIBLE] obligation to
ascertain whether any securities at any time delivered to or held by it for the
account of the Trust, are such as may properly be held by the Trust under the
provisions of its Declaration of Trust.
G. The Trust agrees to indemnify and hold harmless the Custodian and its
nominee from all taxes, charges, expenses, assessments, claims, liabilities, and
losses (including counsel fees) incurred or assessed against it or its nominee
in connection with the performance of this Agreement, except such as may arise
from its or its nominee's own negligent action, negligent failure to act or
willful misconduct. The Custodian is authorized to charge any account of the
Trust for such items. In the event of any advance of funds for any purpose made
by the Custodian resulting from orders or instructions of the Trust, or in the
event that the Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the'
performance this Agreement, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the Trust shall be security
therefor.
SECTION 12. Reports by the Custodian
A. The Custodian shall furnish the Trust daily with a statement
summarizing all transactions and entries for the account of the Trust. The
Custodian shall furnish the Trust
17
<PAGE>
at the end of every month with a list of the portfolio securities held by it as
Custodian for the Trust, adjusted for all commitments confirmed by the Trust as
of such time certified by a duly authorized officer of the Custodian. The books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at reasonable times by officers of the
Trust, its independent accountants and officers of its investment advisors.
B. The Custodian will maintain such books and records relating to
transactions effected by it as are required by the Investment Company Act of
1940, as amended from time to time and any rule or regulation thereunder; or by
any other applicable provisions of the law to be maintained by the Trust or its
Custodian, with respect to such transactions, and preserving or causing to be
preserved, any such books and records for such periods as may be required by any
such rule or regulation.
SECTION 13. Termination or Assignment
This agreement may be terminated by the Trust, or by the Custodian, on
sixty (60) days' notice, given in writing and sent by registered mail to the
Custodian, or to the Trust, as the case may be, at the address hereinafter set
forth. Upon any termination of this Agreement, pending appointment of a
successor to the Custodian or a vote of the shareholders of the Trust to
dissolve or to function without
18
<PAGE>
a Custodian of its funds, securities and other property, the Custodian shall not
deliver funds, securities or other property of the Trust to the Trust, but may
deliver them to a bank or trust company of its own selection, having an
aggregate capital, surplus and undividend profits, as shown by its last
published report of not less than ten million dollars ($10,000,000) as a
Custodian for the Trust to be held under terms similar to those of this
Agreement; provided, however, that the Custodian shall not be required to make
any such delivery or payment until full payment shall have been made by the
Trust of all liabilities constituting a charge on or against the properties then
held by the Custodian or on or against the Custodian, and until full payment
shall have been made to the Custodian of all its fees, compensations, costs and
expenses, subject to the provisions of Section 11 of this Agreement.
SECTION 14. Miscellaneous
A. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its office at One
Exchange Place, Jersey City, New Jersey 07303, or at such other place as the
Custodian may from time to time designate in writing.
B. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Trust, shall be sufficiently given if
addressed to the Trust and mailed or delivered to it at its office at
19
<PAGE>
or at such other place as the Trust may from time to time designate in writing.
C. This agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement, and authorized or approved by a resolution of the Trustees of the
Trust.
D. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assign, provided, however, that this
Agreement shall not be assignable by the Trust without the written consent of
the Custodian or by the Custodian without the written consent of the Trust,
authorized or approved by a resolution of its Trustees.
E. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute but one instrument.
F. This Agreement and the rights and obligations of the Trust and the
Custodian hereunder shall be construed and interpreted in accordance with the
laws of the State of New Jersey.
G. The Declaration of Trust establishing a copy of which, together with
all amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts,
20
<PAGE>
provides that the name Command Government Fund refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of Command Government Fund
shall be held to any personal liability, or shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise, in
connection with the affairs of said Command Government Fund Trust, but the Trust
Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their respective corporate seals to be affixed hereto as of the
date first above written by their respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an original.
THE FIRST JERSEY NATIONAL BANK
Attest;
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- ---------------------- ----------------------
ASSISTANT SECRETARY VICE PRESIDENT
Attest: Command Government Fund
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- ---------------------- ----------------------
21
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
Amendment dated as of May 17 , 1982 to the Custody Agreement, dated
February 10, 1982, between COMMAND GOVERNMENT FUND, an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts (the
"Trust"), and THE FIRST JERSEY NATIONAL BANK, a national banking association
organized and existing under the laws of the United States (the "Custodian").
In consideration of the mutual agreements contained herein, the
parties hereto amend the Custody Agreement as follows:
The second paragraph of Section 1 shall read as follows:
"The term 'officer's certificate' shall mean a direction,
instruction or certification in writing signed in the name of the
Trust by either the President, any Vice President, the Secretary or
the Treasurer of the Trust, or any other person duly authorized to
sign by the Trustees or the Executive Committee of the Trust."
The Declaration of Trust establishing COMMAND GOVERNMENT FUND, a
copy of which, together with all amendments thereto (the "Declaration"), is on
file in the office
<PAGE>
of the Secretary of the Commonwealth of Massachusetts, provides that the name
COMMAND GOVERNMENT FUND refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of COMMAND GOVERNMENT FUND shall be held
to any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said COMMAND GOVERNMENT FUND, but the Trust Estate only shall be
liable.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and their respective corporate seals to be affixed hereto as of the
date first written above by their respective officers thereunto duly authorized.
THE FIRST JERSEY NATIONAL BANK
By /s/ [ILLEGIBLE]
-----------------------------
Vice President
Attest:
By /s/ [ILLEGIBLE] COMMAND GOVERNMENT FUND
- -----------------------------
Attest: By /s/ [ILLEGIBLE]
--------------------------
By /s/ [ILLEGIBLE]
- -----------------------------
-2-
<PAGE>
COMMAND GOVERNMENT FUND
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, made as of this _______ day of _____, 1987
between COMMAND GOVERNMENT FUND, a Massachusetts business trust (the "Fund"),
and PRUDENTIAL MUTUAL FUND MANAGEMENT, INC., a Delaware corporation (the
"Administrator").
WITNESSETH:
WHEREAS, the Fund is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund has been organized for the purpose of investing
its assets in securities and other investments and has retained an investment
adviser for this purpose and desires to avail itself of the facilities available
to the Administrator with respect to the administration of its day to day
business affairs, and the Administrator is willing to furnish such
administrative services on the terms and conditions hereinafter set forth:
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Administrator to administer its
business affairs, subject to the overall supervision of the Trustees
of the Fund for the period and on the terms set forth in this
Agreement. The Administrator hereby accepts such appointment and
agrees during such period to render the services herein described
and to assume the obligations set forth herein, for the compensation
herein provided.
2. Subject to the supervision of the Trustees of the Fund, the
Administrator shall administer the Fund's business affairs and, in
connection therewith, shall furnish the Fund with office facilities
and with ordinary clerical, bookkeeping and recordkeeping services
at such facilities; shall be responsible for the financial and
accounting records required to be maintained by the Fund (including
those being maintained by the Fund's custodian) other than those
being maintained by the Fund's investment adviser; and shall
authorized and permit any of its directors, officers and employees
who may be elected as Trustees or officers of the Fund to serve in
the capacities in which they are elected. All services to be
furnished by the Administrator under this Agreement may be furnished
through the medium of any such directors, officers or employees of
the Administrator.
In connection with the services rendered by the Administrator under
this Agreement, the Administrator will bear all of the following expenses:
(a) the salaries and expenses of all personnel of the Fund and the
Administrator, except the fees and expenses of Trustees who are not affiliated
persons of the Administrator or the Fund's investment adviser, and
<PAGE>
(b) all expenses incurred by the Administrator or by the Fund in
connection with administering the ordinary course of the Fund's business other
than those assumed by the Fund herein.
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses of the investment adviser or expenses otherwise
incurred by the Fund in connection with the management of the investment and
reinvestment of the Fund's assets,
(b) the fees and expenses of Trustees who are not affiliated persons of
the Administrator or the Fund's investment adviser,
(c) the fees and expenses of the custodian which relate to (i) the
custodial function and the recordkeeping connected therewith, (ii) the
maintenance of the required accounting records of the Fund not being maintained
by the Administrator, (iii) the pricing of the shares of the Fund, including the
cost of any pricing service or services which may be retained pursuant to the
authorization of the Trustees of the Fund, and (iv) for both mail and wire
orders, the cashiering function in connection with the issuance and redemption
of the Fund's shares,
(d) the fees and expenses of the Fund's transfer and dividend disbursing
agent, which may be the custodian, which relate to the maintenance of each
shareholder account,
(e) the charges and expense of legal counsel and independent accountants
for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable to the
Fund in connection with its securities transactions,
(g) all taxes and corporate fees payable by the Fund to federal, state or
other governmental agencies,
(h) the fees of any trade association of which the Fund may be a member,
(i) the cost of certificates, if any, representing, and non-negotiable
share deposit receipts evidencing, shares of the Fund,
(j) the cost of fidelity and errors and omissions insurance,
(k) the fees and expenses involved in registering and maintaining
registrations of the Fund and of its shares with the Securities and Exchange
Commission, registering the Fund as a broker or dealer and qualifying its shares
under state securities laws, including the preparation and printing of the
Fund's registration statements, prospectuses and statements of additional
information for filing under federal and state securities laws for such
purposes,
-2-
<PAGE>
(l) 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 in the amount necessary for
distribution to the shareholders,
(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
(n) any expenses assumed by the Fund pursuant to a Plan of Distribution
adopted in conformity with Rule 12b-1 under the 1940 Act.
3. As full compensation for the services performed and the facilities
furnished by the Administrator, the Fund shall pay the Administrator a fee at
the annual rate of .3% of 1% of the first $1,000,000,000, and .275 of 1% of the
excess over $1,000,000,000 of the average daily net assets of the Fund. This fee
will be computed daily and paid monthly.
In the event the expenses of the Fund for any fiscal year (including
the fees payable to the Administrator and the Fund's investment adviser, if any,
but excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) exceed the lowest
applicable annual expense limitation established pursuant to the statutes or
regulations of any jurisdictions in which shares of the Fund are then qualified
for offers and sales, the compensation payable to the Administrator will be
reduced by 75% of the amount of such excess. If such expenses exceed such
limitation after giving effect to the reduction of the fees payable to the
Administrator and the Fund's investment adviser to zero, the Administrator will
pay to the fund the amount of such expenses which exceed such limitation. Any
reduction in the fee payable or any payment by the Administrator to the Fund
shall be made monthly. Any such reductions or payments are subject to
readjustment during the Fund's fiscal year.
4. The Administrator assumes no responsibility under this Agreement other
than to render the services called for hereunder, and specifically assumes no
responsibilities for investment advice or the investment or reinvestment of the
Fund's assets.
5. The Administrator shall not be liable for any error of judgment or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
-3-
<PAGE>
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually by the Trustees of the Fund; provided, however, that
this Agreement may be terminated by the Fund at any time, without the payment of
any penalty, by the Trustees of the Fund or by vote of a majority of the
outstanding voting securities (ad defined in the 1940 Act) of the Fund, or by
the Administrator at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the other party. This
Agreement shall be automatically terminated in the event of its assignment (as
defined in the 1940 Act).
7. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Administrator who may also be a Trustee,
officer or employee of the Fund to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor limit or restrict the
right of the Administrator to engage in any other business or to render services
of any kind to any other corporation, firm, individual or association.
8. During the term of this Agreement, the Fund agrees to furnish the
Administrator at its principal office all prospectuses, statements of additional
information, proxy statements, reports to shareholders, sales literature, or
other material prepared for distribution to shareholders of the Fund or the
public, which refer in any way to the Administrator, prior to use thereof and
not to use such material if the Administrator reasonably objects in writing
within five business days (or such other time as may be mutually agreed) after
receipt thereof. In the event of termination of this Agreement, the Fund will
continue to furnish to the Administrator copies of any of the above-mentioned
materials which refer in any way to the Administrator. The Fund shall furnish or
otherwise make available to the Administrator such other information relating to
the business affairs of the Fund as the Administrator any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
9. This agreement may be amended by mutual written consent.
10. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (a) to the Administrator at One Seaport Plaza, New York,
New York 10292, Attention: Secretary; or (b) to the Fund at One Seaport Plaza,
New York, New York 10292, Attention: President.
11. This Agreement contains the entire agreement between the parties
hereto and supersedes all prior agreements, understandings and arrangements with
respect to the subject matter hereof.
12. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
-4-
<PAGE>
13. The name "Command Government Fund" is the designation of the Trustees
under a Declaration of Trust dated _______, 1987, as amended from time to time,
and all persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
14. All references to actions of or by Trustees herein shall require
action by the Trustees acting as a board or formally constituted group and not
individually.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
COMMAND GOVERNMENT FUND
By: /s/ [ILLEGIBLE]
-------------------------
President
PRUDENTIAL MUTUAL FUND
MANAGEMENT, INC.
By: /s/ [ILLEGIBLE]
-------------------------
Exec. Vice President
-5-
<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. 17 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
August 21, 1997, relating to the financial statements and financial highlights
of Command Government 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 10036
August 26, 1997
<PAGE>
DCR
- -------------------------------------------------------------------------------
Duff & Phelps Credit Rating Co.
55 East Monroe Street
Chicago, Illinois 60603
(312)368-3100
FAX (312)368-3155
Exhibit 11
CONSENT OF DUFF & PHELPS CREDIT RATING CO.
We hereby consent to the references to our name under the
Caption "Rating of Fund Shares" in the form of prospectus to be included in
Post-Effective Amendment No.17 to the Registration Statements on Form N-1A of
Command Government Fund, Command Money Fund (the "Fund's") and to the filing of
this consent with the Securities and Exchange Commission as an exhibit to such
Post-Effective Amendment.
August 20, 1997 DUFF & PHELPS CREDIT RATING CO.
By:/s/ Daryl R. Leehaug
------------------------------
Name: Daryl R. Leehaug
Title: Senior Vice President
CHICAGO NEW YORK LONDON
<PAGE>
PRUDENTIAL-BACHE COMMAND GOVERNMENT FUND, INC.
FOR THE YEAR ENDED JUNE 30, 1989
---------------------------------
ANNUALIZED YIELD CALCULATION
------------------------------
DATE SHARES DIVIDEND RATE DIVIDEND
---- -------------------------- ------------- --------
24-Jun-89 1.000000000 X 0.000238535 = 0.000238
25-Jun-89 1.000238535 X 0.000238535 = 0.000238
26-Jun-89 1.000477127 X 0.000237998 = 0.000238
27-Jun-89 1.000715238 X 0.000238221 = 0.000238
28-Jun-89 1.000953630 X 0.000237772 = 0.000237
29-Jun-89 1.001191629 X 0.000236549 = 0.000236
30-Jun-89 1.001428459 X 0.000236943 = 0.000237
- -------------------------------------------------------------------------
1.001665741
==========================
CURRENT YIELD
-------------
0.001665741 X 365 / 7 = 0.086856
========
~ 8.69%
========
ANNUALIZED YIELD
FORMULA
-----------------------
(1+0.001665741/7)^365-1 = 0.090728871 ~ 9.07%
========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000355349
<NAME> THE COMMAND GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 522,403,739
<INVESTMENTS-AT-VALUE> 522,403,739
<RECEIVABLES> 33,203,872
<ASSETS-OTHER> 18,704
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 555,626,315
<PAYABLE-FOR-SECURITIES> 14,983,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,173,330
<TOTAL-LIABILITIES> 27,156,830
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 528,469,485
<SHARES-COMMON-STOCK> 528,469,485
<SHARES-COMMON-PRIOR> 487,484,710
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 528,469,485
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,279,865
<OTHER-INCOME> 0
<EXPENSES-NET> 3,383,666
<NET-INVESTMENT-INCOME> 25,896,199
<REALIZED-GAINS-CURRENT> 100,048
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 25,996,247
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,996,247)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,583,554,167
<NUMBER-OF-SHARES-REDEEMED> (2,568,565,639)
<SHARES-REINVESTED> 25,996,247
<NET-CHANGE-IN-ASSETS> 40,984,775
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,138,318
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,383,666
<AVERAGE-NET-ASSETS> 534,580,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
