<PAGE>
Prudential Securities
COMMAND Account
- ----------------------
COMMAND Money Fund
COMMAND Government Fund
COMMAND Tax-Free Fund
ANNUAL REPORT
June 30, 1999
(LOGO)
<PAGE>
Letter to
Shareholders
June 30, 1999
Dear Shareholder:
The fiscal year that ended on June 30, 1999 was a time of heightened
volatility in the money markets. In the autumn of 1998, the Federal Reserve
cut a key short-term U.S. interest rate three times to calm financial markets
and keep the U.S. economy on track. The Fed reversed course in the summer of
1999 and raised this interest rate amid concern the domestic economy could
overheat and ignite higher inflation. These changes in monetary policy caused
money market yields to fluctuate dramatically. Amid these challenging market
conditions, we were able to take advantage of many attractive buying
opportunities. As a result, the COMMAND Money, COMMAND Government and COMMAND
Tax-Free funds provided competitive yields during their fiscal year. For the
seven-day period ended June 30, 1999, the COMMAND Tax-Free provided income
equivalent to a 4.98% yield for investors in the 39.6% tax bracket.
<TABLE>
FUND FACTS
As of 6/30/98
<CAPTION>
7 Day Net Asset Weighted Total Net
Current Yld. Value (NAV) Avg. Mat. (WAM) Assets (mil.)
<S> <C> <C> <C> <C>
COMMAND Money 4.53% $1.00 72 days $ 12,246.9
IBC Financial Data 4.27% $1.00 61 days N/A
Money Fund Avg.
(All Taxable)1
COMMAND 4.47% $1.00 68 days $ 714.4
Government
IBC Financial Data 4.24% $1.00 53 days N/A
Total Government
Universe2
COMMAND 3.01% $1.00 69 days $ 1,476.7
Tax-Free3
IBC Financial Data 2.91% $1.00 43 days N/A
General Purpose Tax-Free
Money Funds4
</TABLE>
Note: Yields will fluctuate from time to time and past performance is not
indicative of future results. An investment in the Funds is neither insured
nor guaranteed by the Federal Deposit Insurance Corp or any other government
agency. Although the Funds seek to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Funds.
1. This is the average seven-day current yield, NAV and WAM of all funds in
the International Business Communications Financial Data all taxable money
market fund category for June 29, 1999.
2.This is the average seven-day current yield, NAV and WAM of all funds in
IBC Financial Data's total government universe fund category for June 29, 1999.
3. Some investors may be subject to the federal alternative minimum tax.
4. This is the average seven-day current yield, NAV and WAM of all funds in
IBC Financial Data's stockbroker & general purpose tax-free money fund
category for June 28, 1999.
-I-
Fund Objectives.
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 maintenance of liquidity and
preservation of capital. 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).
There can be no assurance that any of the Funds will achieve their
respective investment objectives.
Strategy Session.
Global financial crisis created attractive buying opportunities.
The first half of our fiscal year was dominated by a global financial
crisis that had begun in Asia and spread to Russia and Latin America. As
market sentiment turned increasingly negative, investors purchased the safest
securities, such as U.S. Treasury bills, and avoided assets that carried
greater credit risk.
This growing demand for Treasury bills drove their prices higher and their
yields lower. Treasury bills became overvalued relative to other money market
securities. The COMMAND Government Fund took advantage of this anomaly by
purchasing federal government agency securities that had cheapened relative
to Treasury bills and cutting exposure to lower-yielding repurchase agreement
transactions. These purchases lengthened its weighted average maturity (WAM).
The WAM takes into account the maturity of each security held in a portfolio
and is the measurement tool that determines a portfolio's sensitivity to
fluctuations in interest rates. Lengthening its WAM allowed the COMMAND
Government Fund's yield to remain higher for a longer period of time as money
market yields declined.
But we initially avoided certain money market securities.
As the flight-to-quality trend continued, financial markets grew less
liquid, making it more challenging to sell many securities that carried
greater risk than Treasuries at reasonable prices. With this in mind, the
COMMAND Money Fund avoided buying longer-term money market securities of banks
and corporations, which caused its WAM to shorten from August through mid-
September of 1998. In hindsight, we were too conservative. We passed up
several good buying opportunities that hurt the COMMAND Money Fund's
performance.
As the global financial crisis worsened, many investors continued to prefer
Treasuries over other types of securities. To encourage investing in the other
financial instruments and to stimulate U.S. economic growth, the Federal
Reserve cut the Federal funds rate (the rate U.S. banks charge each other for
overnight loans) by a quarter of a percentage point to 5.25%. Reductions of
the same magnitude occurred on October 15 and November 17, which left the rate
at 4.75%. These moves fostered economic growth by lowering borrowing costs. As
it became clear that the Federal Reserve would drive the Federal funds rate
lower, we extended the COMMAND Money Fund's WAM until it was more in line
with that of its competition.
-2-
<PAGE>
Shortage of tax-exempt money market securities presented a challenge.
Lengthening the COMMAND Tax-Free Fund's WAM was difficult because there
were fewer longer-term, tax-exempt money market securities available. One
reason for this dearth of securities was that the short-term borrowing needs
of some state and local governments decreased as economic growth in the United
States remained strong. Therefore, these municipalities were able to issue
fewer tax-exempt notes, which are generally securities that mature in 12
months or less. This shrinking supply of notes combined with continued
investor demand for them helped to drive prices of the notes higher and their
yields lower even before the reductions in the Federal funds rate occurred.
We would have preferred the COMMAND Tax-Free Fund to have a longer WAM
before the U.S. central bank's first rate cut in late September. Having a
longer WAM at that time would have allowed the Fund to lock in yields before
they moved even lower. This, in turn, would have helped to put the COMMAND
Tax-Free Fund in a better strategic position to weather the sharp drop in
tax-exempt money market yields that usually occurs in January as investors
rush to reinvest money received from coupon payments and maturing bonds.
Renewed rise in money market yields seen as fresh buying opportunity.
As stability returned to international financial markets in 1999, market
focus shifted to the strength of the U.S. economy. Many investors believed
the Federal Reserve would soon increase the Federal funds rate to keep the
U.S. economy from overheating and sparking higher inflation. If left
unchecked, mounting inflationary pressures could eventually derail economic
growth.
Anticipation of a rise in this key short-term rate led investors to push
money market yields higher and their prices lower. Because we did not believe
a change in monetary policy was imminent, we viewed the rise in money market
yields as another buying opportunity. The COMMAND Government Fund bought
federal government agency securities maturing in one year, while the COMMAND
Money Fund purchased one-year bank and corporate securities.
Meanwhile, the COMMAND Government Fund and the COMMAND Money Fund avoided
purchasing money market securities that would mature between mid-April and
early May of 1999 when the federal government was scheduled to retire an
unusually large amount of Treasury bills. During that time, market
participants scurried about in search of alternative investments, which left
money market yields hovering at lower levels. Fortunately, we anticipated
this development. Because the WAMs of both Funds were longer than their
competitions', we did not have to reinvest significant amounts of cash with
yields at such unattractive levels.
Money market yields had also lingered at low levels because a spate of
benign U.S. inflation data and moderate gains in employment allayed fears of
a tighter monetary policy. But this proved to be a temporary reprieve. The
strength of the U.S. economy, higher oil prices, and a larger-than-expected
increase in a key inflation barometer that was reported in mid-May rekindled
expectations that an increase in the Federal funds rate was just around the
corner. Moreover, a statement released after Federal Reserve policymakers met
in mid-May said they were leaning toward increasing short-term rates due to
the potential buildup in inflationary pressures.
Not surprisingly, money market yields began to climb again in the latter
half of May 1999. Many market participants expected the Federal Reserve to
implement an aggressive program of interest rate increases. We believed any
-3-
<PAGE>
upside move in rates would be limited, and that market sentiment was overly
pessimistic. Therefore, the COMMAND Government Fund continued to purchase one-
year federal agency securities in order to lock in higher yields. The COMMAND
Money Fund bought one-year bank and corporate securities along with adjustable-
rate securities whose rates reset either on a monthly or quarterly basis. The
adjustable-rate securities provided some protection against any further
increase in money market yields since their rates will reset to higher levels
if yields continue to climb.
One-year insured municipal bonds offer alternative to notes.
Turning to the tax-exempt money market, the shortage of notes continued in
the new calendar year. Fortunately, we were able to buy insured municipal
bonds maturing in 12 months or less, which were an attractive alternative to
the more conventional tax-exempt money market securities such as notes. The
insured, short-term municipal bonds provided solid yields to compensate for
the fact that they are usually issued in moderate-sized blocks. Most money
managers prefer to buy larger blocks of bonds because they could be easier to
sell. However, owning moderate-sized blocks of insured, short-term municipal
bonds suited us because we do not plan to sell them. Our purchases of one-year
insured municipal bonds enhanced the COMMAND Tax-Free Fund's yield and
lengthened its WAM.
In April, the supply of municipal money market securities ballooned
temporarily as portfolio managers sold them in order to have cash on hand to
meet shareholder redemptions during tax season. We bought some of these
securities at attractive yields generally maturing in three months to one
year. These purchases would ensure that we did not have to invest a lot of
money towards the end of June, when, once again, the supply of securities in
our market shrinks because investors rush to reinvest money from coupon
payments and maturing bonds.
Finally at the end of June, the much-anticipated change in monetary policy
occurred. The Federal Reserve boosted the Federal funds rate by a quarter of a
percentage point to 5.00%. This marked the first short-term rate increase
since March 1997.
Looking Ahead.
We believe the Federal Reserve might raise the Federal funds rate a second
time this summer or in early fall if the economy continues to grow at a brisk
pace. However, we also believe the likelihood of another rate increase later
in the year dwindles due to the U.S. central bank's concerns about the
potential year 2000 computer problem. We will look to extend the Funds' WAMs
only when we feel market sentiment is overly pessimistic regarding the outlook
for higher short-term interest rates.
Sincerely,
John R. Strangfeld
President
COMMAND Money Fund
COMMAND Government Fund
COMMAND Tax-Free Fund
-4-
<PAGE>
COMMAND GOVERNMENT FUND Portfolio of Investments
June 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
U.S> Government Agencies--83.3%
Federal Farm Credit Bank--2.3%
$ 2,000 6.49%, 7/19/99............ $ 2,001,407
14,000 4.875%, 9/1/99............ 13,994,039
---------------
15,995,446
---------------
Federal Home Loan Bank--51.4%
33,500 4.91%, 7/1/99(a).......... 33,491,752
50,500 5.339%, 7/7/99(a)......... 50,497,792
11,000 5.349%, 7/7/99(a)......... 10,996,562
11,000 5.419%, 7/7/99(a)......... 11,001,482
92,000 4.775%, 7/8/99(a)......... 91,991,222
11,965 5.54%, 7/13/99............ 11,964,771
2,000 5.536%, 7/15/99........... 2,000,396
500 5.57%, 8/3/99............. 500,199
6,000 5.00%, 10/27/99........... 6,000,000
14,000 4.80%, 1/11/00(a)......... 13,994,866
22,000 4.90%, 1/14/00............ 22,000,000
11,000 4.90%, 2/11/00............ 10,993,463
6,000 4.95%, 2/17/00............ 5,997,968
8,000 5.00%, 2/24/00............ 7,999,007
8,000 5.00%, 2/25/00............ 8,000,000
16,000 5.035%, 2/25/00........... 15,992,352
8,000 5.035%, 3/2/00............ 8,000,000
6,000 5.605%, 3/23/00........... 6,022,048
13,000 5.01%, 4/28/00............ 12,988,211
2,500 5.075%, 4/28/00........... 2,500,087
13,000 5.02%, 5/12/00............ 12,985,090
10,500 5.15%, 5/19/00............ 10,492,031
5,000 5.35%, 6/8/00............. 4,996,624
5,500 5.66%, 7/6/00............. 5,507,453
---------------
366,913,376
---------------
Federal Home Loan Mortgage
Corporation--6.4%
$ 2,500 5.00%, 7/6/99............. $ 2,498,264
27,000 4.82%, 8/18/99(a)......... 26,997,552
15,000 4.85%, 8/26/99............ 14,886,833
1,500 6.395%, 5/16/00........... 1,516,836
---------------
45,899,485
---------------
Federal National Mortgage
Association--15.1%
24,000 5.299%, 7/7/99(a)......... 23,997,839
7,410 6.03%, 7/7/99............. 7,411,209
17,000 6.64%, 7/12/99............ 17,008,581
10,154 4.74%, 8/13/99............ 10,096,511
4,000 5.47%, 8/16/99............ 4,003,095
2,000 6.00%, 8/19/99............ 2,002,041
35,000 4.975%, 9/17/99(a)........ 34,995,472
8,500 5.33%, 6/9/00............. 8,492,772
---------------
108,007,520
---------------
Student Loan Marketing
Association--8.1%
22,500 4.92%, 7/1/99(a).......... 22,495,398
11,500 5.639%, 7/7/99(a)......... 11,497,565
11,025 5.53%, 7/16/99............ 11,024,696
13,000 4.50%, 8/2/99............. 12,993,642
---------------
58,011,301
---------------
Total U.S. Government
Agencies
(amortized cost
$594,827,128)........... 594,827,128
---------------
</TABLE>
-13-
See Notes to Financial Statements appearing on page 29.
<PAGE>
COMMAND GOVERNMENT FUND
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Repurchase Agreements(b)--16.0%
$ 30,585 Goldman, Sachs & Co.,
5.15%, dated 6/29/99,
due 7/1/99 in the amount
of $30,593,751 (cost
$30,585,000), value of
collateral including
accrued
interest--$31,196,701... $ 30,585,000
10,572 Merrill Lynch, Pierce,
Fenner & Smith, Inc.,
5.10%, dated 6/30/99,
due 7/2/99 in the amount
of $10,574,995 (cost
$10,572,000), value of
collateral including
accrued
interest--$10,784,029... 10,572,000
39,134 Morgan Stanley Dean
Witter, 4.80%, dated
6/17/99, due 7/1/99 in
the amount of
$39,207,050 (cost
$39,134,000), value of
collateral including
accrued
interest--$40,524,523... 39,134,000
$ 34,000 Morgan Stanley Dean
Witter, 5.15%, dated
6/28/99, due 7/6/99 in
the amount of
$34,038,911 (cost
$34,000,000), value of
collateral including
accrued
interest--$35,208,100... $ 34,000,000
---------------
Total Repurchase
Agreements
(amortized cost
$114,291,000)........... 114,291,000
---------------
Total Investments--99.3%
(amortized cost
$709,118,128(c))........ 709,118,128
Other assets in excess of
liabilities--0.7%....... 5,271,409
---------------
Net Assets--100%.......... $ 714,389,537
---------------
---------------
</TABLE>
- ---------------
(a) Variable rate instrument. 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) The cost for federal income tax purposes is substantially the same as for
financial reporting purposes.
-14-
See Notes to Financial Statements appearing on page 29.
<PAGE>
COMMAND GOVERNMENT FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets June 30, 1999
-------------
<S> <C>
Investments, at amortized cost which approximates market value............................ $ 594,827,128
Repurchase agreements..................................................................... 114,291,000
Receivable for Fund shares sold........................................................... 26,554,598
Interest receivable....................................................................... 5,906,587
Prepaid expenses.......................................................................... 6,100
-------------
Total assets............................................................................ 741,585,413
-------------
Liabilities
Payable for Fund shares repurchased....................................................... 26,699,826
Management fee payable.................................................................... 245,941
Accrued expenses and other liabilities.................................................... 209,239
Distribution fee payable.................................................................. 40,870
-------------
Total liabilities....................................................................... 27,195,876
-------------
Net Assets................................................................................ $ 714,389,537
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................... $ 7,143,895
Paid-in capital in excess of par........................................................ 707,245,642
-------------
Net assets, June 30, 1999................................................................. $ 714,389,537
-------------
-------------
Net asset value, offering price and redemption price per share ($714,389,537 / 714,389,537
shares of beneficial interest ($.01 par value) issued and outstanding).................. $1.00
-------------
-------------
</TABLE>
See Notes to Financial Statements appearing on page 29.
-15-
<PAGE>
COMMAND GOVERNMENT FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
June 30,
Net Investment Income 1999
<S> <C>
Income
Interest and discount earned......... $ 38,384,200
--------------
Expenses
Management fee....................... 2,959,117
Distribution fee..................... 924,724
Transfer agent's fees and expenses... 104,000
Custodian's fees and expenses........ 75,000
Reports to shareholders.............. 31,000
Audit fee............................ 27,000
Trustees' fees....................... 21,000
Insurance expense.................... 9,000
Legal fees and expenses.............. 8,000
Miscellaneous........................ 941
--------------
Total expenses..................... 4,159,782
--------------
Net investment income.................. 34,224,418
--------------
Realized Gain on Investments
Net realized gain on investment
transactions......................... 22,602
--------------
Net Increase in Net Assets
Resulting from Operations.............. $ 34,247,020
--------------
--------------
</TABLE>
COMMAND GOVERNMENT FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended June 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment
income............... $ 34,224,418 $ 28,533,721
Net realized gain on
investment
transactions....... 22,602 50,018
--------------- ---------------
Net increase in net
assets resulting
from operations.... 34,247,020 28,583,739
--------------- ---------------
Dividends and
distributions to
shareholders (Note
1)..................... (34,247,020) (28,583,739)
--------------- ---------------
Fund share transactions
(at $1 per share)
Net proceeds from
shares
subscribed......... 3,282,787,339 2,601,216,630
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions...... 34,247,020 28,583,739
Cost of shares
reacquired........... (3,211,372,225) (2,549,542,451)
--------------- ---------------
Net increase in net
assets from Fund
share
transactions....... 105,662,134 80,257,918
--------------- ---------------
Total increase......... 105,662,134 80,257,918
Net Assets
Beginning of year...... 608,727,403 528,469,485
--------------- ---------------
End of year............ $ 714,389,537 $ 608,727,403
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Financial Statements appearing on page 29.
-16-
<PAGE>
COMMAND GOVERNMENT FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<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................................ 0.046 0.051 0.049 0.050 0.048
Dividends and distributions to
shareholders......................... (0.046) (0.051) (0.049) (0.050) (0.048)
-------- -------- -------- -------- --------
Net asset value, end of year........... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a)........................ 4.74% 5.20% 4.97% 5.12% 4.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).......... $714,390 $608,727 $528,469 $487,485 $404,295
Average net assets (000)............... $739,779 $562,693 $534,580 $477,168 $350,458
Ratios to average net assets:
Expenses, including distribution
fees................................. .56% .56% .63% .68% .65%
Expenses, excluding distribution
fees................................. .44% .44% .51% .56% .53%
Net investment income................ 4.63% 5.08% 4.84% 4.97% 4.81%
</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, 1999, 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
August 18, 1999
-17-
<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 of
Policies significant generally accepted
accounting policies 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.
The Fund may hold up to 10% of its net assets in illiquid securities, including
those which are restricted as to disposition under securities law ('restricted
securities'). None of the issues of restricted securities held by the Fund at
June 30, 1999 include registration rights under which the Fund may demand
registration by the issuer.
Repurchase Agreements: 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. 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,
less the estimated expenses of the Fund applicable to the dividend period.
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. The cost of portfolio
securities for federal income tax purposes is substantially the same as for
financial reporting purposes.
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.
Custody Fee Credits: The Command Tax-Free Fund has an arrangement with its
custodian bank, whereby uninvested money earns credits which reduce the fees
charged by the custodian.
Note 2. Agreements Each Fund has a manage-
ment agreement with Pru-
dential Investments Fund Management LLC (PIFM). Pursuant
-29-
<PAGE>
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 costs
of the Funds. The Funds bear all other costs and expenses.
The management fee paid to 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 Investment Management
Services LLC ('PIMS') which acts as the distributor of the shares of each Fund.
Each Fund compensates PIMS for distributing and servicing each Fund's shares,
pursuant to 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 are
accrued daily and payable monthly.
PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices LLC (PMFS), a wholly
with Affiliates owned subsidiary of PIFM,
serves as the Funds' transfer agent. During the
year ended June 30, 1999 the Funds incurred fees for the services of PMFS of
approximately:
<TABLE>
<S> <C>
Command Money.................................. $3,698,400
Command Government............................. $ 103,700
Command Tax-Free............................... $ 186,300
</TABLE>
As of June 30, 1999, the following amounts were due to PMFS from the Funds:
<TABLE>
<S> <C>
Command Money................................... $327,176
Command Government.............................. $ 8,510
Command Tax-Free................................ $ 15,250
</TABLE>
-30-
<PAGE>
FEDERAL INCOME TAX INFORMATION
(UNAUDITED)
COMMAND TAX-FREE FUND:
We are required by the Internal Revenue Code to advise you within 60 days of
the Command Tax-Free Fund's fiscal year-end (June 30, 1999) as to the federal
tax status of dividends and distributions paid by the Fund during such fiscal
year. Accordingly, we are advising you that for the year ended June 30, 1999,
dividends paid from net investment income totaling $.027 per share were all
federally tax-exempt interest dividends.
COMMAND GOVERNMENT FUND:
IMPORTANT NOTICE FOR CERTAIN SHAREHOLDERS
We are required by Massachusetts, Missouri and Oregon to inform you that
dividends which have been derived from interest on federal obligations are not
taxable to shareholders providing the mutual fund meets certain requirements
mandated by the respective state's taxing authorities. We are pleased to report
that 42% of the dividends paid by the Command Government Fund qualify for such
deduction.
For more detailed information regarding your state and local taxes, you
should contact your tax advisor or the state/local taxing authorities.
-31-
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Toll free (800) 225-1852
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Robert E. LaBlanc
Robin B. Smith
Langdon R. Stevenson
Stephen Stoneburn
John R. Strangfeld
Nancy H. Teeters
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Robert C. Rosselot, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
