<PAGE>
As filed with the Securities and Exchange Commission on December 22, 2000
Securities Act Registration No. 333-46830
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
(Check appropriate box or boxes)
--------------
PRUDENTIAL TAX-FREE MONEY FUND, INC.
(Exact name of registrant as specified in charter)
(973) 367-7521
(Area Code and Telephone Number)
GATEWAY CENTER THREE
100 MULBERRY STREET, 4TH FLOOR
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Number, Street, City, State, Zip Code)
DEBORAH A. DOCS
GATEWAY CENTER THREE
100 MULBERRY STREET, 4TH FLOOR
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE
EFFECTIVE DATE OF THE
REGISTRATION STATEMENT.
No filing fee is required because of reliance on section 24(f) of the Investment
Company Act of 1940. Pursuant to Rule 429 under the Securities Act of 1933, the
Prospectus and Proxy Statement relates to shares registered on Form N-1A (File
No. 2-64625).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
TITLE OF SECURITIES BEING REGISTERED . . . .SHARES OF COMMON STOCK, PAR VALUE
$.01 PER SHARE
================================================================================
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Facing Page
Contents of Registration Statement
President's Letter to Shareholders
Notice of Special Meeting
Part A - Proxy Statement and Prospectus (Attachment A - Form of Agreement
and Plan of Reorganizations)
Forms of Proxy Cards
Part B - Statement of Additional Information
Part C - Other Information
Exhibits
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
January , 2001
Dear Shareholder:
I am writing to ask you to vote on important proposals that would
effectively merge each of Connecticut Money Market Series and Massachusetts
Money Market Series, each of Prudential Municipal Series Fund, into Prudential
Tax-Free Money Fund, Inc. A shareholder meeting of your Series is scheduled for
March 22, 2001. This package contains information regarding the proposals and
includes materials you will need to vote. The Board of Trustees of Prudential
Municipal Series Fund has reviewed the proposal with respect to each Series, and
has recommended that it be presented to shareholders for their consideration.
Although the Trustees have determined that each merger proposal is in the best
interest of shareholders of each Series, the final decision is up to you.
If approved, each merger would give you the opportunity to participate in a
larger fund with investment policies that are similar to those of the
Connecticut Money Market Series and the Massachusetts Money Market Series. In
addition, shareholders are expected to realize somewhat of a reduction in the
annual operating expenses paid on their investment in the combined fund. To help
you understand the proposals, we are including a "Q and A" that answers common
questions about the proposed transactions. The accompanying proxy statement
includes a detailed description of each proposal. Please read the enclosed
materials carefully and cast your vote. Remember, your vote is extremely
important, no matter how large or small your holdings. By voting now, you can
help avoid additional costs that would be incurred with follow-up letters and
calls.
TO VOTE, YOU MAY USE ANY OF THE FOLLOWING METHODS:
- BY MAIL. You can vote your shares by completing and signing the enclosed
proxy card, and mailing it in the enclosed postage paid envelope. If you
need any assistance, or have any questions regarding the proposal or how
to vote your shares, please call Prudential at (800) 225-1852.
- BY INTERNET. You may also vote via the internet. To do so, have your
proxy card available and go to the website: www.proxyvote.com. Follow the
instructions on the website and be prepared to enter your 12 digit control
number from your proxy card.
- BY TELEPHONE. Finally, you may vote by telephone by calling
(800) 690-6903 toll free. Enter your 12 digit control number from your
proxy card and follow the instructions given.
If you have any questions, please call us at (800) 225-1852. We are glad to
help you understand the proposals and to assist you in voting. Thank you for
your participation.
Very truly yours,
David R. Odenath, Jr.
PRESIDENT
<PAGE>
IMPORTANT INFORMATION TO HELP YOU UNDERSTAND AND VOTE ON THE PROPOSALS
Please read the enclosed proxy statement for a complete description of the
proposals. The following "Q&A" provides a brief overview of the proposals.
WHAT PROPOSAL AM I BEING ASKED TO VOTE ON?
These proxy materials relate to two mergers -- Connecticut Money Market
Series and Massachusetts Money Market Series, each a series of Prudential
Municipal Series Fund, into Prudential Tax-Free Money Fund (Tax-Free Money
Fund). You are being asked to approve only the merger of your Series into Tax-
Free Money Fund. When we refer to a "merger," we mean the transfer of a Series'
assets to, and the assumption of its liabilities by, Tax-Free Money Fund, in
exchange for shares of Tax-Free Money Fund. The shareholders of each Series will
vote separately on whether to approve the merger of their Series into Tax-Free
Money Fund.
WHAT ARE THE REASONS FOR THESE MERGERS?
The proposed mergers are intended to combine similarly managed funds,
resulting in what are expected to be overall lower expenses. The mergers are
also desirable because of the inability of either Series to attract investors
and build an investment portfolio that can effectively pursue the Series'
respective objective at a reasonable cost to shareholders. The assets of both
Series have not been growing at a competitive rate while the number of
shareholders of each Series has been declining for a number of years. As of
June 30, 2000, the net assets and the number of shareholder accounts of
Connecticut Money Market Series and Massachusetts Money Market Series were
approximately $81,874,535 million and 1,384, and $75,083,865 million and 1,008,
respectively. The small and slow-growing asset base of each Series has resulted
in relatively high expense ratios and prevents each Series from enjoying the
economies of scale which are currently enjoyed to some extent by Tax-Free Money
Fund. Tax-Free Money Fund, which is a larger fund than either Series, will
provide a larger asset base over which fixed expenses can be spread, resulting
in somewhat lower expense ratios for shareholders of each Series.
DO THE SERIES AND TAX-FREE MONEY FUND HAVE SIMILAR INVESTMENT POLICIES?
Yes. Each Series and Tax-Free Money Fund invest primarily in high-quality
short-term debt securities of municipal issuers, the interest income from which
is exempt from federal income taxes consistent with liquidity and the
preservation of capital. One of the principal differences in the investment
policies of each Series and Tax-Free Money Fund is that, unlike Tax-Free Money
Fund, each Series also seeks current income that is exempt from state income
taxes (Connecticut or Massachusetts, as applicable). After each merger, it is
expected that the combined fund will be managed according to the investment
objective and policies of the Tax-Free Money Fund. Shareholders should recognize
that if the merger of their Series occurs, income from their investment in
Tax-Free Money Fund will likely be subject to Connecticut or Massachusetts state
income taxes, as applicable. Shareholders should consult their own tax advisers
regarding the implications of federal, state or local taxes.
Each Series and the Tax-Free Money Fund generally invest at least 80% of
their total assets in instruments that pay income exempt from federal income
taxes and each may invest in certain municipal bonds, the interest on which is
subject to the federal alternative minimum tax. Each Series and the Tax-Free
Money Fund attempt to maintain a net asset value of $1 per share.
ARE THERE ANY OTHER BENEFITS OF THESE MERGERS?
Yes. An investment in Tax-Free Money Fund reduces potential concerns
relating to inadequate supply of municipal bonds from specific states and offers
greater diversification of assets. A state specific municipal fund, such as
either Series, may from time to time have difficulty obtaining suitable
investments due to inadequate supply. A national municipal fund such as the
Tax-Free Money Fund is not similarly constrained with respect to potential
investments. Additionally, since each Series, as a general rule, invests at
least 80% of its assets in debt obligations of Connecticut or Massachusetts
issuers, as applicable, their
<PAGE>
portfolios are more susceptible to factors affecting such issuers in those
specific states than that of a national municipal fund such as Tax-Free Money
Fund.
WHO ARE THE MANAGERS FOR THE SERIES AND TAX-FREE MONEY FUND?
Prudential Investments Fund Management currently manages each Series' and
Tax-Free Money Fund's investment operations and administers their business
affairs. The Prudential Investment Corporation is the subadviser managing each
Series' and Tax-Free Money Fund's respective assets. Prudential Investments Fund
Management and The Prudential Investment Corporation are expected to serve in
these capacities for the combined fund. The Money Market Sector Team, headed by
Joseph Tully, is primarily responsible for overseeing the day-to-day management
of each Series and Tax-Free Money Fund.
HOW DO THE EXPENSE STRUCTURES OF THE SERIES AND TAX-FREE MONEY FUND COMPARE?
Currently, each Series and Tax-Free Money Fund offer one class of stock. The
following tables compare the expenses incurred by each Series with those of
Tax-Free Money Fund as of August 31, 2000 and December 31, 1999, respectively.
CONNECTICUT MONEY MARKET SERIES
ANNUAL SERIES OPERATING EXPENSES (DEDUCTED FROM SERIES ASSETS)
<TABLE>
<CAPTION>
CLASS A
--------
<S> <C>
Management fees............................................. .500%
+ Distribution and service (12b-1) fees..................... .125%
+ Other expenses............................................ .195%
= TOTAL ANNUAL SERIES OPERATING EXPENSES.................... .820%
</TABLE>
MASSACHUSETTS MONEY MARKET SERIES
ANNUAL SERIES OPERATING EXPENSES (DEDUCTED FROM SERIES ASSETS)
<TABLE>
<CAPTION>
CLASS A
--------
<S> <C>
Management fees............................................. .500%
+ Distribution and service (12b-1) fees..................... .125%
+ Other expenses............................................ .215%
= TOTAL ANNUAL SERIES OPERATING EXPENSES.................... .840%
</TABLE>
TAX-FREE MONEY FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
CLASS A
--------
<S> <C>
Management fees............................................. .500%
+ Distribution and service (12b-1) fees..................... .125%
+ Other expenses............................................ .185%
= TOTAL ANNUAL FUND OPERATING EXPENSES...................... .810%
</TABLE>
ARE THE MERGERS TAXABLE EVENTS FOR FEDERAL INCOME TAX PURPOSES?
Due to the nature of each Series, Tax-Free Money Fund and their respective
portfolios, it is anticipated that the mergers will not qualify as tax-free
reorganizations for U.S. federal income tax purposes. However, as further
described in the proxy statement, it is anticipated that there will be no
significant federal income tax consequences as a result of the mergers.
WHAT WILL BE THE SIZE OF TAX-FREE MONEY FUND AFTER THE MERGERS?
As discussed below, certain shareholders that had designated either Series
as the sweep vehicle through the corporate COMMAND(SM) Account Program or the
Prudential BusinessEdge(SM) Account Program have chosen another fund as a sweep
vehicle. Therefore, as of January , 2001, such persons were no longer
shareholders of either Series. Taking the foregoing into account and based on
the other
<PAGE>
information available as of June 30, 2000, the combined Fund is anticipated to
have approximately $ in net assets if both proposals are approved.
Without taking the foregoing information into account, if both proposals are
approved, based on information available as of June 30, 2000, the combined Fund
would have had approximately $328.5 million in assets.
HOW WILL WE DETERMINE THE NUMBER OF SHARES OF TAX-FREE MONEY FUND THAT YOU WILL
RECEIVE?
As of the close of business of the New York Stock Exchange on the date each
merger is consummated, shareholders of each Series will receive the number of
full and fractional Class A shares of Tax-Free Money Fund that is equal in value
to the net asset value of their shares of Connecticut Money Market Series or
Massachusetts Money Market Series, as applicable, on that date. Each merger is
anticipated to occur on March 29, 2001.
HAS THE BOARD OF TRUSTEES APPROVED THE PROPOSALS?
Yes. The Board of Trustees of Prudential Municipal Series Fund, of which
each Series is a part, has approved the proposal with respect to each Series and
recommends that you vote to approve the proposals.
WHAT IF THERE ARE NOT ENOUGH VOTES TO REACH QUORUM BY THE SCHEDULED SHAREHOLDER
MEETING DATE?
If we do not receive sufficient votes to hold the meeting, we or Shareholder
Communications Corporation, a proxy solicitation firm, may contact you by mail
or telephone to encourage you to vote. Shareholders should review the proxy
materials and cast their vote to avoid additional mailings or telephone calls.
If there are not sufficient votes to approve either merger proposal by the time
of the meeting (March 22, 2001), the meeting with respect to such securities may
be adjourned to permit further solicitation of proxy votes.
WHAT HAPPENS IF THE PROPOSAL FOR MY SERIES IS NOT APPROVED?
If shareholders of either Series do not approve the merger with respect to
such Series or if such merger is not completed, such Series will continue to
engage in business as a series of a registered investment company with its
current fee structure and the Board may consider other proposals for such
Series, including proposals for the reorganization or liquidation of such
Series. The merger of either Series is not contingent on the merger of the other
Series.
HOW MANY VOTES AM I ENTITLED TO CAST?
As a shareholder, you are entitled to one vote for each share you own of a
Series on the record date. The record date is January 19, 2001. Remember, you
are voting to approve the proposal only with respect to the Series in which you
own shares.
HOW DO I VOTE MY SHARES?
You can vote your shares by completing and signing the enclosed proxy card,
and mailing it in the enclosed postage paid envelope. If you need any
assistance, or have any questions regarding a proposal or how to vote your
shares, please call Prudential at (800) 225-1852.
You may also vote via the internet. To do so, have your proxy card available
and go to the website: www.proxyvote.com. Follow the instructions on the website
and be prepared to enter your 12 digit control number from your proxy to enter
your vote.
Finally, you can vote by telephone by calling (800) 690-6903 toll free.
Enter your 12 digit control number from your proxy card and follow the
instructions given.
HOW DO I SIGN THE PROXY CARD?
INDIVIDUAL ACCOUNTS: Shareholders should sign exactly as their names appear
on the account registration shown on the card.
<PAGE>
JOINT ACCOUNTS: Both owners must sign and the signatures should conform
exactly to the names shown on the account registration.
ALL OTHER ACCOUNTS: The person signing must indicate his or her capacity.
For example, a trustee for a trust should include his or her title when he or
she signs, such as "Jane Doe, Trustee"; or an authorized officer of a company
should indicate his or her position with the company, such as "John Smith,
President."
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
100 Mulberry Street
Gateway Center Three, 4th Floor
Newark, New Jersey 07102-4077
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
---------------------
To our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders (the Meeting)
of each of Connecticut Money Market Series and Massachusetts Money Market Series
(each, a Series, and collectively, the Series) each a series of Prudential
Municipal Series Fund (Municipal Series Fund) will be held at 100 Mulberry
Street, Gateway Center Three, 14th Floor, Newark, New Jersey 07102, on
March 22, 2001, at 10:00 a.m. Eastern time, for the following purposes:
1. To approve an Agreement and Plan of Reorganizations under which each
Series will transfer all of its assets to, and all of its liabilities will be
assumed by, Prudential Tax-Free Money Fund, Inc. (Tax-Free Money Fund), Tax-Free
Money Fund will be the surviving fund, and each whole and fractional share of
each Series shall be exchanged for whole and fractional shares of equal net
asset value of Class A shares of Tax-Free Money Fund.
2. To transact such other business as may properly come before the Meeting
or any adjournments of the Meeting.
The Board of Trustees has fixed the close of business on January 19, 2001 as
the record date for the determination of the shareholders of each Series
entitled to notice of, and to vote at, this Meeting and any adjournments.
Deborah A. Docs
SECRETARY
Dated: January , 2001
A PROXY CARD FOR YOUR SERIES IS ENCLOSED ALONG WITH THE PROXY STATEMENT.
PLEASE VOTE YOUR SHARES TODAY BY SIGNING AND RETURNING THE ENCLOSED PROXY CARD
IN THE POSTAGE PREPAID ENVELOPE PROVIDED. YOU ALSO MAY VOTE BY TELEPHONE OR
VIA THE INTERNET AS DESCRIBED IN THE ENCLOSED MATERIALS. THE BOARD OF THE
MUNICIPAL SERIES FUND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL RELATING TO
YOUR SERIES.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
<PAGE>
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY SHAREHOLDER WHO
DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO COMPLETE THE ENCLOSED PROXY
CARD, DATE AND SIGN IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH NEEDS NO
POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO AVOID UNNECESSARY EXPENSE,
WE ASK YOUR COOPERATION IN MAILING YOUR PROXY CARD PROMPTLY, NO MATTER HOW
LARGE OR SMALL YOUR HOLDINGS MAY BE.
INSTRUCTIONS FOR EXECUTING YOUR PROXY CARD
The following general rules for executing proxy cards may be of assistance
to you and may help avoid the time and expense involved in validating your vote
if you fail to execute your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it appears
on the account registration shown on the proxy card.
2. JOINT ACCOUNTS: Both owners must sign and the signatures should conform
exactly to the names shown on the account registration.
3. ALL OTHER ACCOUNTS should show the capacity of the individual signing.
This can be shown either in the form of account registration or by the
individual executing the proxy card. For example:
<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
------------------------------------------------ ------------------------
<S> <C>
A. 1. XYZ Corporation John Smith, President
2. XYZ Corporation John Smith, President
c/o John Smith, President
B. 1. ABC Company Profit Sharing Plan Jane Doe, Trustee
2. Jones Family Trust Charles Jones, Trustee
3. Sarah Clark, Trustee Sarah Clark, Trustee
u/t/d 7/1/85
C. 1. Thomas Wilson, Custodian Thomas Wilson, Custodian
f/b/o Jessica Wilson UTMA
New Jersey
</TABLE>
<PAGE>
PRELIMINARY COPIES
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PROSPECTUS
AND
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
PROXY STATEMENT
GATEWAY CENTER THREE
100 MULBERRY STREET, 4TH FLOOR
NEWARK, NEW JERSEY 07102-4077
(800) 225-1852
------------------------
JANUARY , 2001
---------------------
This Proxy Statement and Prospectus (Proxy Statement) is being furnished to
shareholders of Connecticut Money Market Series and Massachusetts Money Market
Series, (each, a Series, and collectively, the Series), each a series of
Prudential Municipal Series Fund (Municipal Series Fund) in connection with the
solicitation of proxies by the Municipal Series Fund's Board of Trustees for use
at the Special Meeting of Shareholders of each Series and at any adjournments of
the meeting (the Meeting). The Meeting will be held on March 22, 2001, at
10:00 a.m., Eastern time, at 100 Mulberry Street, Gateway Center Three, 14th
Floor, Newark, New Jersey 07102.
The purpose of the Meeting is to vote on an Agreement and Plan of
Reorganizations (the Agreement) under which each Series will transfer all of its
assets to, and all of its liabilities will be assumed by, Prudential Tax-Free
Money Fund, Inc. (Tax-Free Money Fund), in exchange for shares of Tax-Free Money
Fund. With respect to each Series, these transactions are collectively referred
to as the Merger. If each Merger is approved, each Series will be terminated and
Tax-Free Money Fund will be the surviving fund, and each whole and fractional
share offered by each Series shall be exchanged for whole and fractional shares
of equal net asset value of Class A shares of Tax-Free Money Fund on March 29,
2001, or such later date as the parties may agree (the Closing Date).
Tax-Free Money Fund is an open-end diversified registered management
investment company which is organized as a Maryland corporation. Tax-Free Money
Fund's investment objective is to seek the highest level of current income that
is exempt from federal income taxes, consistent with liquidity and the
preservation of capital. Tax-Free Money Fund seeks to achieve its objective by
investing primarily in high-quality money market obligations of state and local
governments. Tax-Free Money Fund attempts to maintain a net asset value of $1
per share.
Municipal Series Fund is an open-end registered management investment
company comprised of eight individual series, two of which are the Connecticut
Money Market Series and Massachusetts Money Market Series. Municipal Series Fund
is organized as a Massachusetts business trust under the laws of the state of
Massachusetts. Each Series is non-diversified. The objective of each Series is
to provide the highest level of current income that is exempt from state income
tax (Connecticut or Massachusetts state, as applicable) and federal income tax
consistent with liquidity and the preservation of capital. Each Series invests
primarily in high-quality money market state and local municipal obligations, of
Connecticut or Massachusetts, as applicable. Each Series attempts to maintain a
net asset value of $1 per share.
<PAGE>
IF SHAREHOLDERS OF CONNECTICUT MONEY MARKET SERIES AND MASSACHUSETTS MONEY
MARKET SERIES APPROVE THE MERGER WITH RESPECT TO THEIR SERIES, THE SHAREHOLDERS
OF SUCH SERIES WILL BECOME SHAREHOLDERS OF TAX-FREE MONEY FUND. THE MERGER OF
EITHER SERIES INTO TAX-FREE MONEY FUND IS NOT CONTINGENT ON THE MERGER OF THE
OTHER SERIES. SHAREHOLDERS OF EACH SERIES VOTE SEPARATELY ON THE MERGER OF THEIR
SERIES.
This Proxy Statement should be retained for your future reference. It sets
forth concisely the information about the Merger of each Series and Tax-Free
Money Fund that a shareholder of the Series should know before voting on the
proposed Merger with respect to their Series. A Statement of Additional
Information dated January , 2001, which relates to this Proxy Statement, has
been filed with the Securities and Exchange Commission (the Commission) and is
incorporated into this Proxy Statement by reference. This Proxy Statement is
accompanied by the Prospectus, dated February 29, 2000, which offers shares of
Tax-Free Money Fund. The Statement of Additional Information for Tax-Free Money
Fund, dated February 29, 2000, is available upon request. Enclosed with this
Proxy Statement are the Annual and Semi-Annual Reports to shareholders of
Tax-Free Money Fund for the fiscal year ended December 31, 1999 and the
six-month period ended June 30, 2000, respectively. The Prospectus and Statement
of Additional Information for Tax-Free Money Fund have been filed with the
Commission and are incorporated into this Proxy Statement by reference. A
Prospectus for each Series dated November 3, 2000, as supplemented to date, and
the Statement of Additional Information for Municipal Series Fund, as
supplemented to date, which includes both Series, dated November 3, 2000, have
been filed with the Commission and are incorporated into this Proxy Statement by
reference. Copies of the documents referred to above may be obtained without
charge by contacting Prudential Mutual Fund Services LLC at Post Office Box
15005, New Brunswick, New Jersey 08906-5005, or by calling (800) 225-1852.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
TAX-FREE MONEY FUND'S SHARES, NOR HAS THE COMMISSION DETERMINED THAT THIS PROXY
STATEMENT AND PROSPECTUS IS COMPLETE OR ACCURATE. IT IS A CRIMINAL OFFENSE TO
STATE OTHERWISE.
ii
<PAGE>
TABLE OF CONTENTS TO THE PROXY STATEMENT AND PROSPECTUS
<TABLE>
<S> <C>
1 VOTING INFORMATION
3 Vote Required
3 SYNOPSIS
3 Investment Objectives and Policies
4 Purchases, Redemptions, Exchanges and Distributions
4 The Proposed Mergers
4 Expense Structures
6 Comparative Fee Tables
6 Examples of the Effect of Series and Tax-Free Money Fund
Expenses
7 Pro Forma Capitalization and Ratios
7 Performance Comparisons of the Series and Tax-Free Money
Fund
8 Forms of Organization
10 COMPARISON OF PRINCIPAL RISK FACTORS
11 INVESTMENT OBJECTIVES AND POLICIES
11 Investment Objectives
12 Principal Investment Strategies
13 COMPARISON OF OTHER POLICIES OF EACH SERIES AND TAX-FREE
MONEY FUND
13 Diversification
13 Borrowing
13 Lending
13 Illiquid Securities
13 Temporary Defensive Investments
14 OPERATIONS OF TAX-FREE MONEY FUND FOLLOWING THE MERGERS
14 PURCHASES, REDEMPTIONS AND EXCHANGES
14 Purchasing Shares
14 Redeeming Shares
15 Minimum Investment Requirements
15 Purchases and Redemptions of each Series and Tax-Free Money
Fund
15 Exchanges of Series and Tax-Free Money Fund Shares
15 Dividends and Other Distributions
15 FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE MERGERS
16 THE PROPOSED TRANSACTIONS
16 Agreement and Plan of Reorganizations
17 Reasons for the Mergers
18 Description of the Securities to be Issued
18 U.S. Federal Income Tax Considerations
18 Conclusion
19 ADDITIONAL INFORMATION ABOUT TAX-FREE MONEY FUND
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
19 MISCELLANEOUS
19 Legal Matters
19 Independent Accountants
19 Available Information
19 Notice to Banks, Broker-Dealers and Voting Trustees and
Their Nominees
20 SHAREHOLDER PROPOSALS
20 OTHER BUSINESS
A-1 ATTACHMENT A: Form of Agreement and Plan of Reorganizations
between Prudential Municipal Series Fund and Prudential
Tax-Free Money Fund, Inc.
</TABLE>
iv
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS OF
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
each a series of
PRUDENTIAL MUNICIPAL SERIES FUND
TO BE HELD ON MARCH 22, 2001, AT: 10:00 A.M.
100 MULBERRY STREET
GATEWAY CENTER THREE, 14TH FLOOR
NEWARK, NEW JERSEY 07102-4077
------------------------
PROXY STATEMENT AND PROSPECTUS
------------------------
VOTING INFORMATION
This Proxy Statement and Prospectus (Proxy Statement) is furnished in
connection with a solicitation of proxies made by, and on behalf of, the Board
of Trustees of Prudential Municipal Series Fund (Municipal Series Fund) to be
used at the Special Meeting of Shareholders of each of Connecticut Money Market
Series and Massachusetts Money Market Series (each, a Series, and collectively,
the Series), each a series of Municipal Series Fund and at any adjournments of
the Special Meeting (the Meeting), to be held on March 22, 2001, at 10:00 a.m.,
Eastern time, at 100 Mulberry Street, Gateway Center Three, 14th Floor, Newark,
New Jersey 07102 - 4077, the principal executive office of The Prudential
Investment Corporation (PIC). PIC serves as the investment adviser to Prudential
Tax-Free Money Fund, Inc. (Tax-Free Money Fund, and together with the Municipal
Series Fund, the Funds) and each Series.
The purpose of the Meeting is described in the accompanying Notice. The
solicitation is made primarily by the mailing of this Proxy Statement and the
accompanying proxy card on or about January , 2001. Supplementary
solicitations on behalf of each Series may be made by mail, telephone,
telegraph, facsimile, electronic means or personal interview by representatives
of Municipal Series Fund. In addition, Shareholder Communications Corporation, a
proxy solicitation firm, may be retained to solicit shareholders on behalf of
Municipal Series Fund, on behalf of each Series. The expenses incurred in
connection with preparing this Proxy Statement and its enclosures and of all
solicitations (including the costs of retaining Shareholder Communications
Corporation) will be borne by each Series and Tax-Free Money Fund based on their
respective assets and will include reimbursement of brokerage firms and others
for expenses in forwarding proxy solicitation materials to the shareholders of
each Series.
Even if you sign and return the enclosed proxy card, you may revoke your
proxy at any time prior to its use by written notification received by Municipal
Series Fund, on behalf of a Series, by submitting a later-dated proxy card, or
by attending the Meeting and voting in person.
All proxy cards solicited by the Board of Trustees that are properly
completed and received by Municipal Series Fund, on behalf of a Series, prior to
the Meeting, and that are not revoked, will be voted at the Meeting. Shares
represented by proxies will be voted in accordance with the instructions you
provide. If no instruction is made on a proxy card, it will be voted FOR
Proposal No. 1. With respect to each Series, quorum, which is the minimum number
of shares necessary to transact business at the Meeting, is established when a
majority of a Series' total shares outstanding and entitled to vote are present
in person at the Meeting or represented by proxy.
If a proxy that is properly signed and returned is accompanied by
instructions to withhold authority to vote (an abstention) or represents a
broker "non-vote" (that is, a proxy from a broker or nominee indicating that
they have not received instructions from the beneficial owner or other person
entitled to vote shares on this matter for which the broker or nominee does not
have discretionary power), the shares represented thereby will be considered
present for purposes of determining the existence of a quorum for the
transaction of business, but because Proposal No. 1 requires approval by the
votes of a majority of
<PAGE>
shares represented at a meeting at which a quorum is present, will have the
effect of a vote AGAINST Proposal No. 1.
Municipal Series Fund, on behalf of each Series, also may arrange to have
votes recorded by telephone. The expenses associated with telephone voting will
be borne by the Series and Tax-Free Money Fund based on their respective assets.
If a Series takes votes by telephone, it will use procedures designed to
authenticate shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions, and to confirm
that their instructions have been properly recorded. Proxies given by telephone
may be revoked at any time before they are voted in the same manner that proxies
voted by mail may be revoked.
Shareholders may also cast their vote via the internet. The expenses
associated with internet voting will be borne by the Series and Tax-Free Money
Fund based on their respective assets. The internet voting procedures have been
designed to authenticate shareholders' identities, to allow shareholders to
authorize the voting of their shares in accordance with their instructions, and
to confirm that shareholders' instructions have been recorded properly. We have
been advised that the internet voting procedures are consistent with the
requirements of applicable law. Shareholders voting via the internet should
understand that there may be costs associated with electronic access, such as
usage charges from an internet access provider and telephone companies, that
must be borne by the shareholder. Proxies given by the internet may be revoked
at any time before they are voted in the same manner that proxies voted by mail
may be revoked.
With respect to each Series, if a quorum is not present at the Meeting, or
if a quorum is present at the Meeting but sufficient votes to approve Proposal
No. 1 are not received, or if other matters arise requiring shareholder
attention, the persons named as proxy agents may propose one or more
adjournments of the Meeting with respect to such Series, to permit the further
solicitation of proxies. An adjournment will require the affirmative vote of a
majority of shares of the Series present in person at the Meeting or represented
by proxy. When voting on a proposed adjournment with respect to a Series, the
persons named as proxy agents will vote FOR the proposed adjournment all shares
that they are entitled to vote with respect to Proposal No. 1, unless directed
to vote AGAINST Proposal No. 1, in which case such shares will be voted against
the proposed adjournment. A shareholder vote may be taken on the Merger with
respect to a Series described in this Proxy Statement or on any other business
properly presented at the Meeting prior to adjournment if sufficient votes have
been received. The shareholders of each Series vote separately on the Merger of
their Series and on any other business relating to their Series.
Shareholders of record of each Series at the close of business on January
19, 2001 (the Record Date), will be entitled to vote at the Meeting. Each such
shareholder will be entitled to one vote for each share held on that date
(fractional shares will be entitled to a proportionate fractional vote). On the
Record Date, there were and shares, issued and outstanding of
Connecticut Money Market Series and Massachusetts Money Market Series,
respectively. As of January 19, 2001, the following shareholders owned
beneficially or of record 5% or more of the outstanding shares of Connecticut
Money Market Series: . As of January 19, 2001, the following shareholders
owned beneficially or of record 5% or more of the outstanding shares of
Massachusetts Money Market Series: .
On January 19, 2001, there were Class A shares, issued and outstanding
of Tax-Free Money Fund. As of January 19, 2001, the following shareholders owned
beneficially or of record 5% or more of the outstanding Class A shares of
Tax-Free Money Fund: . Shareholders of Tax-Free Money Fund are not
entitled to vote on either Merger.
As of January 19, 2001, the Trustees/Directors and officers of Municipal
Series Fund and Tax-Free Money Fund owned, in the aggregate, less than 1% of
each Series' and Tax-Free Money Fund's total outstanding shares, respectively.
Prudential Securities Incorporated intends to vote any shares of a Series for
which it has direct voting authority FOR Proposal No. 1.
2
<PAGE>
VOTE REQUIRED
APPROVAL OF THE MERGER WITH RESPECT TO EACH SERIES REQUIRES THE AFFIRMATIVE
VOTE OF A MAJORITY OF SHARES REPRESENTED IN PERSON OR BY PROXY AND ENTITLED TO
VOTE AT THE MEETING, IF A QUORUM IS PRESENT WITH RESPECT TO SUCH SERIES.
SYNOPSIS
The following is a summary of information contained elsewhere in this Proxy
Statement, in the Agreement and Plan of Reorganizations (the Agreement, the form
of which is attached as Attachment A), and in the Prospectuses of each Series
and Tax-Free Money Fund, which are incorporated into this Proxy Statement by
reference. Shareholders should read this Proxy Statement and the Prospectus of
Tax-Free Money Fund for more complete information.
The Mergers would transfer all of the assets and liabilities of each Series
into Tax-Free Money Fund, a larger mutual fund also managed by Prudential
Investments Fund Management LLC (PIFM), for which PIC also acts as investment
adviser. For each Series as to which the Merger is approved, that Series will
cease to exist and current shareholders of that Series will become shareholders
of Tax-Free Money Fund.
INVESTMENT OBJECTIVES AND POLICIES
Each Series and Tax-Free Money Fund have similar investment objectives and
policies. The investment objective of each of Connecticut Money Market Series
and Massachusetts Money Market Series is to provide the highest level of current
income that is exempt from state income tax (Connecticut and Massachusetts,
respectively) and federal income tax consistent with liquidity and the
preservation of capital. Each Series seeks to achieve its respective investment
objective by investing primarily in short-term state (Connecticut or
Massachusetts, as applicable) and local municipal fixed-income securities, as
well as short-term obligations of other issuers (such as issuers located in
Puerto Rico, the Virgin Islands and Guam) that pay interest income exempt from
those state and federal taxes. Each Series invests in its applicable state
obligations which are high-quality money market instruments with effective
remaining maturities of 13 months or less.
Tax-Free Money Fund's investment objective is to seek the highest level of
current income that is exempt from federal income taxes, consistent with
liquidity and the preservation of capital. Tax-Free Money Fund also seeks to
achieve its objective by investing in high-quality money market instruments
which are short-term debt obligations issued by states, territories and
possessions of the U.S. and by the District of Columbia.
Each Series and Tax-Free Money Fund may also invest in certain private
activity bonds and securities with demand features and attempts to maintain a
net asset value of $1 per share.
The investment objectives of each Series and Tax-Free Money Fund primarily
differ in that Tax-Free Money Fund does not seek to provide income that is
exempt from state income taxes. This means that if the Merger with respect to
your Series occurs, income from your investment in Tax-Free Money Fund will
likely be subject to income taxation by your state of residence.
Each Series and Tax-Free Money Fund have the same manager (PIFM), the same
investment adviser (PIC), the same investment team (Money Market Sector Team)
and team leader (Joseph Tully). The Money Market Sector Team, which is primarily
responsible for overseeing the day-to-day management of each Series and Tax-Free
Money Fund, utilizes a similar investment approach in selecting investments for
each Series and Tax-Free Money Fund consistent with their respective investment
objectives. The address of PIFM is Gateway Center Three, 100 Mulberry Street,
14th Floor, Newark, New Jersey 07102-4077. PIFM and its predecessors have served
as manager or administrator to investment companies since 1987. As of
October 31, 2000, PIFM served as manager to all 48 of the Prudential mutual
funds, and as manager or administrator to 21 closed-end investment companies,
with aggregate assets of approximately $74.7 billion.
3
<PAGE>
The benchmark index for each Series and Tax-Free Money Fund is the
iMoneyNet, Inc. Money Fund Report Average-TM- which is based upon the average
return of all mutual funds in the iMoneyNet MFR Average/Tax-Free Money Fund
category, although each Series uses its applicable state specific category of
this benchmark. iMoneyNet, Inc. was formerly known as IBC Financial Data, Inc.
While each Series and Tax-Free Money Fund make every effort to achieve their
respective investment objective, they can't guarantee success.
PURCHASES, REDEMPTIONS, EXCHANGES AND DISTRIBUTIONS
With one exception discussed below, the purchase, redemption and exchange
policies of each Series and Tax-Free Money Fund are identical and are not
expected to change after the Mergers. Unlike the Series, Tax-Free Money Fund is
not available as a sweep vehicle through the corporate COMMAND-SM- Account
Program or the Prudential BusinessEdge-SM- Account Program. Therefore,
shareholders that had designated either Series as the sweep vehicle through
these programs have chosen another fund as a sweep vehicle and are no longer
shareholders of either Series. As discussed below, these programs offer
integrated financial services that link together various product components with
the ability to invest in shares of the Series.
Each Series and Tax-Free Money Fund distributes dividends out of any net
investment income, plus short-term capital gains, to shareholders every month.
As discussed above, each Series' dividends are exempt from personal income taxes
imposed upon residents of Connecticut or Massachusetts, as applicable. Tax-Free
Money Fund's dividends will likely not be exempt from any state income taxes.
Although the Series and Tax-Free Money Fund are not likely to realize long-term
capital gains because of the types of securities they purchase, any realized net
long-term capital gains will typically be paid to shareholders once a year.
THE PROPOSED MERGERS
Shareholders of each Series will be asked at the Meeting to vote upon and
approve the Agreement, under which each Series will transfer all of its assets
to, and all of its liabilities will be assumed by, Tax-Free Money Fund whereupon
the separate existence of each Series will cease and Tax-Free Money Fund will be
the surviving mutual fund, and each whole and fractional share of each Series
shall be exchanged for whole and fractional shares of equal net asset value of
Class A shares of Tax-Free Money Fund, on or about the Closing Date. Approval of
each Merger will be determined solely by approval of the shareholders of the
relevant Series. Shareholders of each Series will vote separately on whether to
approve the Merger of their Series into Tax-Free Money Fund. No vote by
shareholders of Tax-Free Money Fund is required.
Due to the nature of each Series, Tax-Free Money Fund and their respective
portfolios, it is anticipated that the Mergers will not qualify as tax-free
reorganizations for federal income tax purposes and that each Series will treat
the Merger as taxable. However, it is contemplated that the total gain to be
recognized by each Series (and distributed to their respective shareholders
prior to the Merger) will be insignificant. Moreover, because each Series' net
asset value is, and has always been, equal to $1.00 per share, it is not
anticipated that any shareholder will recognize gain or loss on the exchange of
shares of either Series for shares of Tax-Free Money Fund.
EXPENSE STRUCTURES
Municipal Series Fund, on behalf of each Series and Tax-Free Money Fund pays
a management fee to PIFM for managing its investment operations and
administering its business affairs. The management fee is calculated and paid to
PIFM every month. PIFM, in turn, reimburses PIC, the investment adviser, for its
reasonable costs and expenses in providing advisory services to each Series and
Tax-Free Money Fund, respectively, and effective January 1, 2000, pays PIC .25
of 1% of the average daily net assets of each Series and Tax-Free Money Fund.
Municipal Series Fund, on behalf of each Series, has agreed to pay a management
fee to PIFM at an annual rate of .50 of 1% of the average daily net assets of
each such Series,
4
<PAGE>
with no breakpoints. Tax-Free Money Fund has agreed to pay a management fee to
PIFM with breakpoints which lower the management fee as fund size increases so
that PIFM's contractual fee is .50 of 1%, .425 of 1% and .375 of 1%, of Tax-Free
Money Fund's average daily net assets up to $750 million, between $750 million
and $1.5 billion, and in excess of $1.5 billion, respectively. Since Tax-Free
Money Fund's assets do not currently exceed $750 million, Tax-Free Money Fund
currently pays PIFM at the same annual rate of .50 of 1%.
The management fee paid by Municipal Series Fund, on behalf of each Series
and Tax-Free Money Fund covers PIFM's oversight of each Series' and Tax-Free
Money Funds' respective investment portfolios. PIFM also administers Municipal
Series Fund's, including the Series, and Tax-Free Money Fund's corporate affairs
and, in connection therewith, furnishes the Funds' office facilities, together
with those ordinary clerical and bookkeeping services that are not furnished by
the Funds' custodian or transfer and dividend disbursing agent. Officers and
employees of PIFM serve as officers and Trustees/Directors of the Funds without
compensation.
Each Series' and Tax-Free Money Fund's distribution expense structures are
the same. Prudential Investment Management Services LLC (the Distributor), a
wholly-owned subsidiary of Prudential, serves as the distributor of each Series'
and Tax-Free Money Fund's shares. Each Series and the Tax-Free Money Fund pay
the Distributor a distribution and service (12b-1) fee at an annual rate of .125
of 1% of their respective average daily net assets. The Distributor incurs the
expenses of distributing each Series' and Tax-Free Money Fund's shares,
including commissions and account servicing fees paid to or on account of
brokers or financial institutions that 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 the Distributor
associated with the sale of shares, including lease, utility, communications and
sales promotion expenses.
Each Series and Tax-Free Money Fund also pay certain other expenses in
connection with their operations, including accounting, legal, audit and
registration expenses. Other expenses incurred by Connecticut Money Market
Series and Massachusetts Money Market Series, respectively, for the fiscal year
ending August 31, 2000 were .195% and .215%, respectively, and for Tax-Free
Money Fund for the fiscal year ending December 31, 1999 was .185%. Annualized
other expenses for Tax-Free Money Fund for the period ending June 30, 2000 were
.175%. Although the basis for calculating these fees and expenses is the same
for Tax-Free Money Fund and each Series, the per share effect on shareholder
returns is affected by their relative size. Combining Tax-Free Money Fund with
each Series will somewhat reduce certain expenses. For example, only one annual
audit of the combined Fund will be required rather than separate audits of
Tax-Free Money Fund and each Series as is currently required.
The total annual operating expenses were .820% and .840% for the Connecticut
Money Market Series and the Massachusetts Money Market Series, respectively, as
of August 31, 2000, and .810% for the Tax-Free Money Fund as of December 31,
1999. For the period ended June 30, 2000, Tax-Free Money Fund's annualized total
operating expenses were .800%.
If shareholders approve the Merger with respect to a Series, Tax-Free Money
Fund's expense structure will apply with respect to that Series. Assuming
continuation of Tax-Free Money Fund's current expenses, this expense structure
would somewhat decrease the total operating expenses currently incurred by
shareholders of each Series. If the proposed Merger is not approved with respect
to a Series, such Series will continue with its current fee structure. For more
information about each Series' and Tax-Free Money Fund's current fees, refer to
their respective Prospectuses. See the Pro Forma Capitalization and Ratios below
for estimates of expenses if the Mergers are approved.
Overall, the proposed Mergers would provide each Series' shareholders with
the following benefits:
- the opportunity to participate in a larger fund with an investment
objective and policies similar to each Series' investment objective and
policies, which may be able to more effectively pursue its investment
objective at a reasonable cost to shareholders;
5
<PAGE>
- greater diversification of assets;
- annual operating expenses for each Series' shares are expected to be
somewhat lower than those currently of the Series (approximately 1 and 2
basis points lower for Connecticut and Massachusetts Money Market Series,
respectively); and
- reduced concerns relating to inadequate supply of state specific municipal
bonds.
THE BOARD OF TRUSTEES OF THE MUNICIPAL SERIES FUND BELIEVES THAT THE MERGERS
WILL BENEFIT EACH SERIES' SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE IN
FAVOR OF THE MERGER WITH RESPECT TO THEIR SERIES.
COMPARATIVE FEE TABLES
The following table shows the fees and expenses of Connecticut Money Market
Series and Massachusetts Money Market Series, respectively, and of Class A
shares of Tax-Free Money Fund, and pro forma fees for the combined fund after
giving effect to the Mergers.
Operating expenses for each Series and Tax-Free Money Fund are paid out of
their respective assets, and are not charged directly to shareholder accounts.
The following figures are based on historical expenses of each Series for the
twelve-month period ended August 31, 2000 and of Tax-Free Money Fund for the
twelve-month period ended December 31, 1999 and are calculated as a percentage
of average net assets of each Series and Tax-Free Money Fund, respectively. The
pro forma combined figures are based on June 30, 2000 amounts.
<TABLE>
<CAPTION>
TAX-FREE
CONNECTICUT MASSACHUSETTS MONEY FUND PRO FORMA
MONEY MARKET MONEY MARKET CLASS A COMBINED FUND
SERIES SERIES SHARES CLASS A SHARES
------------ ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Management fees.............................. .500% .500% .500% .500%
+ Distribution and service (12b-1) fees...... .125% .125% .125% .125%
+ Other expenses............................. .195% .215% .185% .115%
= TOTAL ANNUAL OPERATING EXPENSES............ .820% .840% .810% .740%
</TABLE>
EXAMPLES OF THE EFFECT OF SERIES AND TAX-FREE MONEY FUND EXPENSES
The following table illustrates the expenses on a hypothetical $10,000
investment in each Series and Tax-Free Money Fund, respectively, under the
current and pro forma (combined fund) expenses calculated at the rates stated
above, assuming a 5% annual return, and assuming that you sell your shares at
the end of each period.
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS TAX-FREE PRO FORMA
MONEY MARKET MONEY MARKET MONEY FUND COMBINED FUND
SERIES SERIES CLASS A SHARES CLASS A SHARES
------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C>
1 Year................................. $ 84 $ 86 $ 83 $ 76
3 Years................................ $ 262 $ 268 $ 259 $237
5 Years................................ $ 455 $ 466 $ 450 $411
10 Years............................... $1,014 $1,029 $1,002 $918
</TABLE>
These examples assume that all dividends and other distributions are
reinvested and that the percentage amounts listed under total annual operating
expenses remain the same in the years shown. The examples also assume a stable
shareholder base, but in fact the shareholder base of each Series has been
declining in recent years. A continued decline would result in higher per share
expenses going forward. These examples illustrate the effect of expenses, but
are not meant to suggest actual or expected expenses, which may vary. The
assumed return of 5% is not a prediction of, and does not represent, actual or
expected performance of either Series or Tax-Free Money Fund.
6
<PAGE>
PRO FORMA CAPITALIZATION AND RATIOS
The following table shows the net assets of each Series and Tax-Free Money
Fund as of June 30, 2000, and the pro forma combined net assets as if the
Merger, with respect to each Series, had occurred on that date.
As previously discussed, certain shareholders (the Sweep Shareholders) that
had designated either Series as the sweep vehicle through the corporate
COMMAND(SM)Account Program or the Prudential BusinessEdge(SM) Account Program
have chosen another fund as a sweep vehicle. Therefore, as of January , 2001,
such persons were no longer shareholders of either Series. If the foregoing
information was taken into account as of June 30, 2000, certain numbers
reflected in the tables would have changed, as indicated in parenthesis ( ).
<TABLE>
<CAPTION>
PRO FORMA
CONNECTICUT MASSACHUSETTS TAX-FREE COMBINED
MONEY MARKET MONEY MARKET MONEY FUND FUND
SERIES SERIES CLASS A SHARES CLASS A SHARES
------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Assets (000s)...................... $ 81,875() $ 75,084() $ 171,510 $ 328,469()
Net Asset Value Per Share.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
Shares Outstanding (000s).............. 81,875() 75,084() 171,604 328,469()
</TABLE>
The following table shows the ratio of expenses to average net assets and
the ratio of net investment income to average net assets (based upon average
weighted shares outstanding during the relevant period) of each Series for the
twelve-month period ended August 31, 2000 and of Tax-Free Money Fund for the
twelve-month period ended December 31, 1999. The ratios also are shown on a pro
forma combined basis as of June 30, 2000.
<TABLE>
<CAPTION>
PRO FORMA
CONNECTICUT MASSACHUSETTS TAX-FREE COMBINED
MONEY MARKET MONEY MARKET MONEY FUND FUND
SERIES SERIES CLASS A SHARES CLASS A SHARES
------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Ratio of expenses to average net
assets............................... .82%() .840%() .81% .74%()
Ratio of net investment income to
average net assets................... 2.90%() 3.05%() 2.51% 2.83%()
</TABLE>
PERFORMANCE COMPARISONS OF THE SERIES AND TAX-FREE MONEY FUND
The following table compares each Series' and Tax-Free Money Fund's average
annual total returns for the periods set forth below. Average annual total
returns and yields are after deduction of expenses and are based on past results
and are not an indication of future performance.
AVERAGE ANNUAL TOTAL RETURNS
(PERIODS ENDED JUNE 30, 2000)
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION
---------- ----------- ---------- ----------------
<S> <C> <C> <C> <C>
Connecticut Money Market Series....... 2.78% 2.85% N/A 2.79%
(since 8-5-1991)
Massachusetts Money Market Series..... 2.85% 2.86% N/A 2.77%
since(8-5-1991)
Tax-Free Money Fund (Class A 3.01% 2.89% 2.99% 4.19%
Shares)............................. since(8-2-1979)
</TABLE>
<TABLE>
<CAPTION>
YIELD* TAXABLE EQUIVALENT
(AS OF JUNE 30, 2000) 7 DAY CURRENT YIELD YIELD**
--------------------- ------------------- ------------------
<S> <C> <C>
Connecticut Money Market Series........................... 3.25% 5.63%
Massachusetts Money Market Series......................... 3.67% 6.90%
Tax-Free Money Fund....................................... 3.79% 6.27%
</TABLE>
------------------------
* Some investors may be subject to the federal alternative minimum tax and,
with respect to each Series, state or local taxes.
** Tax-equivalent yield is calculated based on a federal tax rate of 39.6% and
with respect to each Series the applicable state income tax rate.
7
<PAGE>
FORMS OF ORGANIZATION
Connecticut Money Market Series and Massachusetts Money Market Series are
each non-diversified series of Municipal Series Fund, which is an open-end
management investment company organized as a Massachusetts business trust on
May 18, 1984. Tax-Free Money Fund is a diversified, open-end management
investment company organized as a Maryland corporation on March 22, 1979.
Municipal Series Fund is permitted to issue an unlimited number of full and
fractional shares of beneficial interest in separate series, two of which are
currently designated as the Connecticut Money Market Series and Massachusetts
Money Market Series. Connecticut Money Market Series and Massachusetts Money
Market Series offer only one class of shares. The other six series currently
designated by Municipal Series Fund are the Florida Series, New Jersey Series,
New Jersey Money Market Series, New York Series, New York Money Market Series,
and Pennsylvania Series. Each of the Florida Series, Massachusetts Series, New
Jersey Series and New York Series is authorized to issue an unlimited number of
shares of beneficial interest, $.01 par value, divided into four classes,
designated Class A, Class B, Class C and Class Z. The Pennsylvania Series is
authorized to issue an unlimited number of shares of beneficial interest, $.01
par value, divided into three classes, designated Class A, Class B and Class C.
Each of the Connecticut Money Market Series, Massachusetts Money Market Series,
New Jersey Money Market Series and New York Money Market Series are authorized
to issue an unlimited number of shares of beneficial interest $.01 par value, of
one class. Tax-Free Money Fund is authorized to issue 3 billion shares of common
stock, 1.5 billion of which are designated as Class A shares, and 1.5 billion of
which are designated as Class Z shares. Currently, Tax-Free Money Fund offers
only Class A shares.
Tax-Free Money Fund is a Maryland corporation and the rights of its
shareholders are governed by its Restated Articles of Incorporation, By-Laws and
the Maryland General Corporation Law. Municipal Series Fund is a Massachusetts
business trust and the rights of its shareholders are governed by its
Declaration of Trust, By-Laws and applicable Massachusetts law.
Generally, neither Fund is required to hold annual meetings of its
shareholders. Each Fund is required to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Director/Trustee when
requested in writing to do so by the holders of at least 10% of the Fund's
outstanding shares. In addition, each Fund is required to call a meeting of
shareholders for the purpose of electing Directors/Trustees to fill any existing
vacancies on the Board of Directors/Trustees if, at any time, less than a
majority of the Directors/Trustees holding office at that time were elected by
the holders of the outstanding voting securities.
Under the Declaration of Trust, Municipal Series Fund shareholders are
entitled to vote only with respect to the following matters: (1) the election or
removal of Trustees if a meeting is called for such purpose; (2) the adoption of
any contract for which shareholder approval is required by the Investment
Company Act of 1940, as amended (the 1940 Act); (3) any amendment of the
Declaration of Trust, other than amendments to change Municipal Series Fund's
name, authorize additional series of shares, to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
contained therein, or if they deem it necessary to conform the Declaration of
Trust to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code of 1986, as amended (the Code); (4) any termination or
reorganization of Municipal Series Fund to the extent and as provided in the
Declaration of Trust; (5) a determination as to whether a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of Municipal Series Fund or its shareholders, to
the same extent as the shareholders of a Massachusetts business corporation
would be entitled to vote on such a determination; (6) with respect to any plan
of distribution adopted pursuant to Rule 12b-1 under the 1940 Act; and (7) such
additional matters relating to Municipal Series Fund as may be required or
authorized by law, the Declaration of Trust, Municipal Series Fund's By-Laws, or
any registration of Municipal Series Fund with the Commission or any state
securities commission, or as the Trustees may consider necessary or desirable.
8
<PAGE>
Municipal Series Fund shareholders also vote upon changes in fundamental
investment policies or restrictions.
The Declaration of Trust provides that a "Majority Shareholder Vote" of
Municipal Series Fund is required to decide most questions upon which
shareholders vote. "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; or (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.
Shareholders of Tax-Free Money Fund are entitled to one vote for each share
on all matters submitted to a vote of its shareholders under Maryland law.
Approval of certain matters, such as an amendment to the charter, a merger,
consolidation or transfer of all or substantially all assets, dissolution and
removal of a Director, requires the affirmative vote of a majority of the votes
entitled to be cast. A plurality of votes cast is required to elect Directors.
Other matters require the approval of the affirmative vote of a majority of the
votes cast at a meeting at which a quorum is present.
Municipal Series Fund's and Tax-Free Money Fund's By-Laws each provide that
a majority of the outstanding shares shall constitute a quorum for the
transaction of business at a shareholders' meeting. Matters requiring a larger
vote by law or under the organization documents for either Fund are not affected
by such quorum requirements.
With respect to shareholder liability, under Maryland law, Tax-Free Money
Fund's shareholders have no personal liability as such for Tax-Free Money Fund's
acts or obligations. Under Massachusetts law, Municipal Series Fund's
shareholders, under certain circumstances, could be held personally liable for
Municipal Series Fund's obligations. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of Municipal Series Fund and
requires that notice of such disclaimer be given in every written obligation,
contract, instrument, certificate, share, other security of Municipal Series
Fund or undertaking made or issued by the Trustees. The Declaration of Trust
provides for indemnification out of the applicable series' property for all
losses and expenses of any shareholder held personally liable for Municipal
Series Fund's obligations solely by reason of his or her being or having been a
Municipal Series Fund shareholder and not because of his or her acts or
omissions or some other reason. Thus, Municipal Series Fund considers the risk
of a shareholder incurring financial loss on account of shareholder liability to
be remote since it is limited to circumstances in which a disclaimer is
inoperative or Municipal Series Fund itself would be unable to meet its
obligations.
With respect to the liability and indemnification of Directors under
Maryland law, a Director or officer of Tax-Free Money Fund is not liable to
Tax-Free Money Fund or its shareholders for monetary damages for breach of
fiduciary duty as a Director or officer except to the extent of such exemption
from liability or limitation thereof is not permitted by law, including under
the 1940 Act. Tax-Free Money Fund's By-Laws provide that its Directors and
officers will not be liable to Tax-Free Money Fund, and may be indemnified for
liabilities, for any action or failure to act, except for willful misfeasance,
bad faith, gross negligence or reckless disregard of duties.
With respect to the liability and indemnification of Trustees of Municipal
Series Fund, under Municipal Series Fund's Declaration of Trust, a Trustee is
entitled to indemnification against all liability and expenses reasonably
incurred or paid by him or her in connection with the defense or disposition of
any threatened or actual proceeding by reason of his or her being or having been
a Trustee, and against amounts paid or incurred by him in the settlement
thereof, unless such Trustee has acted with bad faith, willful misfeasance,
gross negligence or in reckless disregard of his or her duties.
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Under the 1940 Act, a Director of Tax-Free Money Fund and a Trustee of
Municipal Series Fund may not be protected against liability to Tax-Free Money
Fund or Municipal Series Fund, respectively, and their security holders to which
he or she would otherwise be subject as a result of his or her willful
misfeasance, bad faith or gross negligence in the performance of his or her
duties, or by reason of reckless disregard of his or her obligations and duties.
The staff of the Commission interprets the 1940 Act to require additional limits
on indemnification of Directors, Trustees and officers.
COMPARISON OF PRINCIPAL RISK FACTORS
Each Series and Tax-Free Money Fund is subject to the risks normally
associated with funds that invest in municipal bonds.
As described more fully below, each Series and Tax-Free Money Fund have
similar investment objectives, policies and permissible investments.
As discussed below, one of the principal differences in the investment
policies of each Series and Tax-Free Money Fund is that unlike Tax-Free Money
Fund, each Series also seeks interest income that is exempt from state taxes
(Connecticut or Massachusetts, as applicable). Because each Series concentrates
its investments in Connecticut or Massachusetts obligations (as applicable), it
is more susceptible to economic, political and other developments that may
adversely affect issuers of state obligations than a municipal money market fund
that is not as geographically concentrated.
Because each Series and Tax-Free Money Fund normally invest in high-quality
money market municipal obligations, the Series and Tax-Free Money Fund have
similar levels of risk. As of June 30, 2000, each of Connecticut Money Market
Series and Massachusetts Money Market Series, invested 100% of its total assets
in municipal bonds. As of June 30, 2000, Tax-Free Money Fund invested 100% of
its total assets in municipal bonds. Investments in high-quality money market
municipal obligations expose each Series and Tax-Free Money Fund to the
following risks:
- Credit risk -- the risk that the borrower can't pay back the money
borrowed or make interest payments when they are due
- Market risk -- the risk that the obligations will lose value in the
market, sometimes rapidly or unpredictably, because interest rates rise or
there is a lack of confidence in the issuer or in an industry
- Tax risk -- the risk that the relevant income tax rates may decrease,
which could decrease demand for municipal bonds, or that a change in law
may limit or eliminate exemption of interest on municipal obligations from
such taxes
Because each Series primarily invests in state specific municipal bonds,
it's investments are subject to certain additional risks:
- Concentration risk -- the risk that obligations may lose value because of
political, economic or other events affecting Connecticut or Massachusetts
issuers, as applicable
- Illiquidity risk -- the risk that state specific municipal bonds may be
difficult to value precisely and sell at time or price desired, in which
case valuation would depend more on investment adviser's judgment than is
generally the case with other types of municipal bonds
- Nonappropriation risk -- the risk that the state or municipality may not
include the bond obligations in future budgets
Since neither Series is diversified, investing in each Series involves
greater risks than investing in a diversified fund, such as Tax-Free Money Fund.
Each Series' and Tax-Free Money Fund's investments in municipal asset-backed
securities are also subject to prepayment risk, which is the risk that the
underlying obligations may be prepaid, which could
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adversely affect yield and could require a fund to reinvest in lower yielding
obligations. There is also the risk that a Series or Tax-Free Money Fund will
sell a security for a price that is higher or lower than the value attributed to
the security through their authorized cost valuation procedures, which could
affect their ability to maintain a net asset value of $1 per share.
An investment in a Series or Tax-Free Money Fund is not a bank deposit and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although each Series and Tax-Free Money Fund seek to
preserve the value of your investment at $1 per share, it is possible to lose
money by investing in the Series or Tax-Free Money Fund. For a more complete
discussion of the risks associated with each Series or Tax-Free Money Fund,
please refer to the "Risk/Return Summary" or the section entitled "Investment
Risks" in each Series' and Tax-Free Money Fund's respective Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
If the Mergers are approved, the shareholders of each Series will become
shareholders of Tax-Free Money Fund. The following information compares the
objectives and policies of each Series and Tax-Free Money Fund.
INVESTMENT OBJECTIVES
Each Series and Tax-Free Money Fund have similar investment objectives and
policies. The investment objective of Connecticut Money Market Series and
Massachusetts Money Market Series is to provide the highest level of current
income that is exempt from state income tax (Connecticut and Massachusetts,
respectively) and federal income tax consistent with liquidity and the
preservation of capital. Tax-Free Money Fund's investment objective is to seek
the highest level of current income that is exempt from federal income taxes,
consistent with liquidity and the preservation of capital. The investment
objectives primarily differ in that, unlike each Series, Tax-Free Money Fund
does not invest in state specific (such as Connecticut or Massachusetts) state
and local municipal obligations. Each Series' dividends are exempt from
Connecticut or Massachusetts, as applicable, personal income taxes for residents
of such states. Tax-Free Money Fund's dividends, however, will likely not be
exempt from any state income taxes. Therefore, shareholders of each Series
should recognize that if the Merger occurs with respect to their Series, income
from their investment in Tax-Free Money Fund will likely be subject to
Connecticut or Massachusetts state income taxes, as applicable. The Series and
Tax-Free Money Fund have the same Manager (PIFM), investment adviser (PIC), the
same investment team (Money Market Sector Team) and team leader (Joseph Tully).
The Money Market Sector Team, which is primarily responsible for overseeing the
day-to-day management of each Series and Tax-Free Money Fund, utilizes a similar
investment approach in selecting investments for each Series and Tax-Free Money
Fund consistent with their respective investment objectives.
The investment objective of each Series and Tax-Free Money Fund is a
fundamental policy. This means that the objective cannot be changed without the
approval of shareholders of each Series and Tax-Free Money Fund, respectively.
With the exception of fundamental policies, investment policies (other than
specified investment restrictions) of each Series and Tax-Free Money Fund can be
changed without shareholder approval.
For purposes of measuring their performance, each Series and Tax-Free Money
Fund use the iMoneyNet, Inc. Money Fund Report Average-TM-, which is based upon
the average return of all mutual funds in the iMoney Net MFR Average/Tax-Free
Money Fund category, and in the case of the Series, the state specific category
for Connecticut or Massachusetts, as applicable. iMoneyNet, Inc. was formerly
known as IBC Financial Data, Inc.
While each Series and Tax-Free Money Fund make every effort to achieve their
respective investment objectives and maintain a net asset value of $1 per share,
they cannot guarantee success.
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PRINCIPAL INVESTMENT STRATEGIES
Each Series and Tax-Free Money Fund have similar investment strategies, the
main difference being that each Series primarily invests in state specific
municipal money market obligations, whereas Tax-Free Money Fund invests in
municipal money market obligations regardless of their state of origin.
Connecticut Money Market Series and Massachusetts Money Market Series each seek
to achieve their respective investment objective by investing primarily in
short-term state (Connecticut and Massachusetts, respectively) and local
municipal bonds, which are debt obligations or fixed-income securities,
including notes, commercial paper and other securities, as well as short-term
obligations of other issuers (such as issuers located in Puerto Rico, the Virgin
Islands and Guam), which pay interest income exempt from those state and federal
income taxes. In pursuing its objective, each Series normally invests at least
80% of its total assets in state and municipal securities which pay income
exempt from federal income taxes, which primarily will be Connecticut or
Massachusetts obligations, as applicable, unless the investment adviser is
unable to purchase state specific obligations that meet the investment policies
of the respective Series. Each Series may hold certain private activity bonds,
which are municipal bonds the interest on which is subject to the federal
alternative minimum tax (AMT).
Similarly, Tax-Free Money Fund seeks to achieve its investment objective by
investing primarily in short-term debt obligations of state and local
governments (including territories and possessions of the United States and the
District of Columbia), municipal commercial paper, variable rate demand
obligations and municipal asset-backed securities. Under normal circumstances,
at least 80% of Tax-Free Money Fund's net assets are invested in money market
instruments that pay income exempt from federal income taxes and which are not
preference items for purposes of the AMT.
Both Series and Tax-Free Money Fund invest in obligations which are
high-quality money market instruments with effective remaining maturities of 13
months or less and try to maintain a net asset value of $1 per share. Each
Series and Tax-Free Money Fund may invest in general obligation bonds or revenue
bonds. General obligation bonds are obligations supported by the credit of an
issuer that has the power to tax and are payable from that issuer's general
revenues and not from any specific source or project. Revenue bonds, on the
other hand, are payable from revenues derived from a particular source or
project. Each Series and Tax-Free Money Fund may invest in "pre-refunded" or
"refunded" bonds, which are obligations that are secured by U.S. Government
securities held in escrow for the benefit of holders of such bonds. Tax-Free
Money Fund will not invest more than 25% of its total assets in pre-refunded
bonds of a single issuer, while neither Series has similar restrictions. Each
Series and Tax-Free Money Fund may invest in longer-term securities that are
accompanied by demand features, which allow each Series and Tax-Free Money Fund
to demand repayment (within 13 months) of a debt obligation before the
obligation is due.
The obligations that each Series and Tax-Free Money Fund purchase must be of
"eligible quality" which means a security: (i) rated in one of the two highest
short-term rating categories by at least two nationally recognized statistical
rating organizations (NRSROs) or, if only one NRSRO has rated the security, so
rated by that NRSRO; (ii) rated in one of the three highest long-term rating
categories by at least two NRSROs or, if only one NRSRO has rated the security,
so rated by that NRSRO; or (iii) if unrated, of comparable quality as determined
by PIC.
Each Series and Tax-Free Money Fund may invest in variable rate or floating
rate obligations and municipal asset backed securities. Unlike the Series,
Tax-Free Money Fund may invest in variable rate demand obligations in the form
of participation interests in variable rate tax-exempt obligations held by
financial institutions. Each Series and Tax-Free Money Fund may purchase
liquidity puts on municipal obligations that they purchase. Puts are the right
to resell the instrument prior to the instrument's maturity. Each Series and
Tax-Free Money Fund may invest in municipal lease obligations.
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Unlike the Series, Tax-Free Money Fund may invest up to 10% of its total
assets in shares of other investment companies, which can result in the
duplication of management and advisory fees, and may also use reverse repurchase
agreements (up to 5% of the value of its total assets), where Tax-Free Money
Fund borrows money on a temporary basis by selling a security with an obligation
to repurchase it at an agreed-upon price and time.
Each Series and Tax-Free Money Fund may purchase new money market
instruments as they are developed if their characteristics and features follow
the rules governing money market mutual funds.
COMPARISON OF OTHER POLICIES OF EACH SERIES
AND TAX-FREE MONEY FUND
DIVERSIFICATION
Tax-Free Money Fund is a diversified fund. This means that, with respect to
75% of Tax-Free Money Fund's total assets, Tax-Free Money Fund may not invest
more than 5% of its total assets in the securities of a single issuer, and
Tax-Free Money Fund may not hold more than 10% of the outstanding voting
securities of a single issuer. These limitations do not apply to U.S. Government
securities. In contrast, neither Series is diversified, which means that each
Series may invest a higher percentage of its assets in securities of fewer
issuers.
BORROWING
Municipal Series Fund, on behalf of each Series, may borrow an amount up to
33 1/3% of the value of the Series' respective total assets for temporary,
extraordinary or emergency purposes or for the clearance of transactions.
Neither Series will purchase portfolio securities if its borrowings exceed 5% of
assets. Tax-Free Money Fund may borrow money from banks up to and including 5%
of the value of its total assets for temporary purposes.
LENDING
Neither Series nor Tax-Free Money Fund can make loans, except through
repurchase agreements.
ILLIQUID SECURITIES
Each Series and Tax-Free Money Fund may hold up to 10% of its respective net
assets in illiquid securities. Illiquid securities include certain securities
with legal or contractual restrictions on resale, those without a readily
available market and repurchase agreements with maturities longer than seven
days.
TEMPORARY DEFENSIVE INVESTMENTS
Although PIC normally invests each Series' assets according to its
respective investment strategy, there are times when in response to adverse
market, economic or political conditions, each Series may hold up to 100% of its
assets in cash, cash equivalents or short-term investment-grade bonds that are
not exempt from state, local and federal income taxation for temporary defensive
purposes. Investing heavily in these securities limits a Series' ability to
achieve its respective investment objective, but can help to preserve its
respective assets. Tax-Free Money Fund currently does not have a temporary
defensive investment policy.
For more information about the risks and restrictions associated with these
policies, see the Series' and Tax-Free Money Fund's respective Prospectuses and
Statements of Additional Information, and for a more detailed discussion of the
Series' and Tax-Free Money Fund's investments, see their respective Statements
of Additional Information, all of which are incorporated into this Proxy
Statement by reference.
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OPERATIONS OF TAX-FREE MONEY FUND
FOLLOWING THE MERGERS
Neither PIFM nor PIC expect Tax-Free Money Fund to revise its investment
policies, management or general investment approach as a result of the Mergers.
In addition, because Joseph Tully serves as the investment team leader for each
Series and Tax-Free Money Fund, neither PIFM nor PIC anticipates any significant
changes from either Series' management or general investment approach. The
agents that provide each Series with services, such as its Custodian and
Transfer Agent, who also provide these services to Tax-Free Money Fund, are not
expected to change. Most, but not all, Trustees of Municipal Series Fund, of
which each Series is a part, are the same individuals who serve as Directors of
Tax-Free Money Fund. The officers of Municipal Series Fund and Tax-Free Money
Fund, with the exception of the secretary, are the same.
All of the current investments of each Series are permissible investments
for Tax-Free Money Fund. Nevertheless, PIC may sell securities held by either
Series or Tax-Free Money Fund between shareholder approval and the Closing Date
of the Mergers as may be necessary or desirable in the ongoing management of
each Series or Tax-Free Money Fund and the adjustment of each Series' or
Tax-Free Money Fund's respective portfolio in anticipation of the Mergers.
Transaction costs associated with such adjustments will be borne by the relevant
Series or Tax-Free Money Fund, to the extent that each incurs such costs.
Transaction costs associated with such adjustments that occur after the Closing
Date will be borne by Tax-Free Money Fund.
PURCHASES, REDEMPTIONS AND EXCHANGES
PURCHASING SHARES
The price to buy one share of each Series or Tax-Free Money Fund is the
share's net asset value, or NAV. Each Series offers only one class of shares.
Tax-Free Money Fund consists of Class A and Class Z shares, but only Class A
shares are currently offered. Neither Series nor Tax-Free Money Fund impose
sales charges on the shares they offer. Therefore, you will not be subject to
any sales charges.
Shares in each Series and Tax-Free Money Fund are purchased at the next NAV
calculated after your investment is received and accepted. Each Series' and
Tax-Free Money Fund's NAV is normally calculated once each business day at
4:30 p.m., New York time, on days that the New York Stock Exchange (NYSE) is
open for trading. Refer to each Series' and Tax-Free Money Fund's respective
Prospectuses for more information regarding how to buy shares.
The primary difference in the purchase and redemption policies of each
Series and Tax-Free Money Fund is that the Series may be designated as the sweep
vehicle through the COMMAND-SM- Account Program or the Prudential
BusinessEdge-SM- Account Program, while Tax-Free Money Fund may not be
designated as the sweep vehicle through these programs. Therefore, shareholders
that had designated either Series as the sweep vehicle through these programs
have made an election into another sweep vehicle. These programs offer
integrated financial services that link together various product components with
the ability to invest in shares of the Series. See the Series' respective
Prospectuses for more information regarding purchase and redemption policies.
REDEEMING SHARES
For each Series and Tax-Free Money Fund, your shares will be sold at the
next NAV calculated after your order is received and accepted. As discussed
above, the difference between the redemption policies of each Series and
Tax-Free Money Fund is that unlike each Series, Tax-Free Money Fund is not
available as a sweep vehicle through the COMMAND-SM- Account Program or the
Prudential BusinessEdge-SM- Account Program. Refer to each Series' and Tax-Free
Money Fund's respective Prospectuses for more information regarding how to sell
shares.
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MINIMUM INVESTMENT REQUIREMENTS
For each Series and Tax-Free Money Fund, the minimum initial investment for
a manual purchase is $1,000 and the minimum additional investment is $100. All
minimum investment requirements are waived for certain custodial accounts for
the benefit of minors. Each Series and Tax-Free Money Fund offer certain money
market sweep purchase programs, although Tax-Free Money Fund is not available as
a sweep vehicle through the COMMAND-SM- Account Program or the Prudential
BusinessEdge-SM- Account Program. Minimum investment requirements are also
waived for certain money market sweep purchases. Refer to each Series' and
Tax-Free Money Fund's respective Prospectuses for more information regarding
minimum investment requirements and money market sweep purchase programs.
PURCHASES AND REDEMPTIONS OF EACH SERIES AND TAX-FREE MONEY FUND
As of August 24, 2000, Municipal Series Fund stopped accepting orders to
purchase or exchange into shares of either Series, except for reinvestment of
dividends and/or distributions, participations in automatic investment plans and
purchases made through certain money market sweep programs. Shareholders of each
Series may redeem shares through the Closing Date of each Merger. If each Merger
is approved, the purchase and redemption policies of the combined fund will be
the same as the current policies of Tax-Free Money Fund.
EXCHANGES OF SERIES AND TAX-FREE MONEY FUND SHARES
The exchange privilege currently offered by Tax-Free Money Fund is the same
as that of each Series and is not expected to change after the Mergers.
Shareholders of each Series and Tax-Free Money Fund may exchange their shares
for Class A shares of certain other Prudential mutual funds, but cannot exchange
shares for Class B, Class C or Class Z shares of another Prudential mutual fund,
except that shares purchased prior to January 22, 1990 that are subject to a
contingent deferred sales charge can be exchanged for Class B shares. Refer to
each Series' and Tax-Free Money Fund's respective Prospectuses for additional
information regarding exchanges.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Series and Tax-Free Money Fund distributes substantially all of its net
investment income and capital gains to shareholders each year. Each Series and
Tax-Free Money Fund declares dividends, if any, daily, and distributes dividends
plus short-term capital gains, if any, monthly. Neither Series nor Tax-Free
Money Fund anticipate realizing long-term capital gains or losses, although net
long-term capital gains, if any, are distributed typically once a year. At or
before the Closing Date, each Series shall declare additional dividends or other
distributions in order to distribute substantially all of its investment company
taxable income and net realized capital gains.
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE MERGERS
Due to the nature of each Series, Tax-Free Money Fund and their respective
portfolios, it is anticipated that the Mergers will not qualify as tax-free
reorganizations within the meaning of Section 368(a)(1) of the Code. Therefore,
it is anticipated that each Series will treat the Merger as taxable. However, it
is contemplated that the total gain to be recognized by each Series (and to be
distributed to their respective shareholders prior to the Merger) will be
insignificant. Moreover, because each Series' NAV is and has always been equal
to $1.00 per share, it is not anticipated that any shareholder will recognize
gain or loss on the exchange of shares of either Series for shares of Tax-Free
Money Fund.
As discussed above, Tax-Free Money Fund may purchase municipal obligations
of any state, territory or possession of the United States and the District of
Columbia. As a result, upon the consummation of each Merger, shareholders of the
Connecticut Money Market Series and the Massachusetts Money Market Series that
are residents in Connecticut or Massachusetts, respectively, will be subject to
certain state
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income taxes with respect to that portion of Tax-Free Money Fund's income not
earned from municipal obligations the income from which is exempt from
Connecticut or Massachusetts state income taxes.
Shareholders of each Series are advised to consult their own tax advisers
regarding specific questions with respect to U.S. federal, state or local taxes,
or foreign taxes. Please see the section entitled "The Proposed Transaction --
U.S. Federal Income Tax Considerations" for more information.
THE PROPOSED TRANSACTIONS
AGREEMENT AND PLAN OF REORGANIZATIONS
The Agreement describes the terms and conditions under which the proposed
transactions may be completed. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, the form of which is attached as Attachment A to
this Proxy Statement.
Due to the nature of the Series, Tax-Free Money Fund and their respective
portfolios, it is anticipated that the Mergers will not qualify as tax-free
reorganizations.
The Agreement contemplates that at the Closing Date, each Series will
transfer and deliver all of its assets to Tax-Free Money Fund, and that Tax-Free
Money Fund will (a) assume all of the liabilities of each Series, and (b) issue
and deliver to each Series the number of Class A shares of Tax-Free Money Fund
as provided for in the Agreement. The assets of each Series to be acquired by
Tax-Free Money Fund include all cash, cash equivalents, securities, receivables
(including interest or dividends receivable), claims and other property owned by
such Series, and any deferred or prepaid expenses shown as an asset on the books
of such Series at the Closing Date. Tax-Free Money Fund will assume from each
Series all liabilities, debts and obligations of whatever kind or nature,
whether absolute, accrued, contingent or otherwise, whether or not arising in
the ordinary course of business, whether or not determinable at the Closing Date
and whether or not specifically referred to in the Agreement; provided, however,
that Municipal Series Fund will use its best efforts to cause each Series to
discharge all of its known liabilities prior to the Closing Date.
Tax-Free Money Fund will deliver to each Series the number of full and
fractional Class A shares of Tax-Free Money Fund having an aggregate net asset
value equal to the value of the assets less the liabilities of such Series as of
the Closing Date. Each Series will then distribute the Tax-Free Money Fund
shares PRO RATA to its respective shareholders.
The value of each Series' assets to be acquired by Tax-Free Money Fund and
the amount of its liabilities to be assumed by Tax-Free Money Fund will be
determined as of the close of business on the Closing Date, using the valuation
procedures set forth in each Series' Prospectus and Statement of Additional
Information. The net asset value of a Class A share of Tax-Free Money Fund will
be determined as of the same time using the valuation procedures set forth in
its Prospectus and Statement of Additional Information. The valuation procedures
are the same for each Series and Tax-Free Money Fund.
As of the Closing Date, each Series will distribute to its respective
shareholders of record, the Class A shares of Tax-Free Money Fund it receives,
so that each shareholder of each Series will receive the number of full and
fractional Class A shares of Tax-Free Money Fund equal in value to the aggregate
net asset value of shares of such Series held by such shareholder on the Closing
Date. Each Series will then be terminated as soon as practicable. The
distribution of Class A shares of Tax-Free Money Fund will be accomplished by
opening accounts on the books of Tax-Free Money Fund in the names of each
Series' respective shareholders and by transferring to such accounts shares of
Tax-Free Money Fund. Each shareholder's account will be credited with the
respective PRO RATA number of full and fractional Class A shares of Tax-Free
Money Fund due that shareholder. Fractional shares of Tax-Free Money Fund shall
be rounded to the third decimal place.
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Immediately after each Merger, each former Series shareholder will own
Class A shares of Tax-Free Money Fund equal to the aggregate net asset value of
that shareholder's shares of the respective Series immediately prior to the
Merger. The net asset value per share of Tax-Free Money Fund will not be
affected by the transaction. Thus, the Merger will not result in a dilution of
any shareholder's pecuniary interest.
Any transfer taxes payable upon issuance of shares of Tax-Free Money Fund in
a name other than that of the registered holder of the shares on the books of a
Series as of that time will be payable by the person to whom such shares are to
be issued as a condition of such transfer.
The completion of each Merger is subject to a number of conditions set forth
in the Agreement, some of which may be waived by the relevant Series or Tax-Free
Money Fund. In addition, the Agreement may be amended in any mutually agreeable
manner, except that no amendment that may have a materially adverse effect on
the shareholders' interests may be made subsequent to the Meeting.
REASONS FOR THE MERGERS
The Boards of Trustees/Directors (the Boards) of the Municipal Series Fund,
of which each Series is a part, and Tax-Free Money Fund have determined that
each Merger is in the best interests of the respective shareholders of each
Series and Tax-Free Money Fund and that no Merger will result in a dilution of
the pecuniary interests of the respective shareholders of either Series or
Tax-Free Money Fund.
In considering each Merger, each Board considered a number of factors,
including the following:
- the compatibility of the investment objective, policies and restrictions
of each Series and Tax-Free Money Fund and the fact that Tax-Free Money
Fund's portfolio is less susceptible to risks associated with investments
concentrated in a single state;
- the relative past and current growth in assets and investment performance,
and future prospects of each Series and Tax-Free Money Fund;
- the effect of the proposed transactions, individually and in the
aggregate, on the expense ratios of each Series and Tax-Free Money Fund;
- the costs of the Mergers, which will be paid for by Tax-Free Money Fund
and each Series in proportion to their respective assets;
- the tax consequences of the Mergers to each Series and its shareholders
including the fact that: (i) the Mergers are anticipated not to qualify as
tax-free reorganizations for federal income tax purposes; (ii) it is
likely that there will be no significant federal tax consequences as a
result of the Mergers; and (iii) if the Mergers are approved, shareholders
who would otherwise have received income generally exempt from Connecticut
or Massachusetts, as applicable, taxation will likely be subject to such
state's taxation on income derived from Tax-Free Money Fund following the
Mergers;
- the potential benefits to the shareholders of each Series and Tax-Free
Money Fund;
- other alternatives to each Merger including a continuance of a Series in
its present form, a change of manager or investment objective, or a
termination of the Series with the distribution of the cash proceeds to
the Series' shareholders.
PIFM and PIC recommended each Merger to the Board of Municipal Series Fund,
with respect to each Series, and of Tax-Free Money Fund at meetings of the
Boards held on August 23, 2000 and November 15, 2000. In recommending the
Mergers, PIFM and PIC advised the Boards that each Series and Tax-Free Money
Fund have similar investment objectives, policies and investment portfolios.
PIFM
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and PIC informed the Boards that each Series and Tax-Free Money Fund differed
primarily with respect to each Series' investment emphasis in state specific
municipal obligations and expense structures.
The Boards considered that if either or both Mergers are approved,
shareholders of the relevant Series should realize somewhat of a reduction in
annual operating expenses paid on their investment.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Tax-Free Money Fund was incorporated in Maryland on March 22, 1979. It is
registered with the Commission as an open-end management investment company.
Tax-Free Money Fund is authorized to issue 3 billion shares of common stock,
$.01 par value per share, divided into two classes, Class A and Class Z. Of the
authorized shares of common stock of Tax-Free Money Fund, 1.5 billion shares
consist of Class A shares and 1.5 billion shares consist of Class Z shares.
Currently, Tax-Free Money Fund offers only Class A shares.
Shares of Tax-Free Money Fund, when issued, are fully paid and
nonassessable. There are no conversion, preemptive or other subscription rights.
The dividend rights, the right of redemption and the privilege of exchange are
described in Tax-Free Money Fund's Prospectus.
Tax-Free Money Fund does not intend to hold annual meetings of shareholders.
There will normally be no meetings of shareholders for the purpose of electing
Directors unless less than a majority of the Directors holding office have been
elected by shareholders, at which time the Directors then in office will call a
shareholder meeting for the election of Directors. Shareholders of record of at
least two-thirds of the outstanding shares of Tax-Free Money Fund may remove a
Director by votes cast in person or by proxy at a meeting called for that
purpose. The Directors are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any Director, or to transact
any other business, when requested in writing to do so by the shareholders of
record holding at least 10% of Tax-Free Money Fund's outstanding shares.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
Due to the nature of each Series, Tax-Free Money Fund and their respective
portfolios, it is anticipated that the Mergers will not qualify as tax-free
reorganizations for federal income tax purposes. Therefore, it is anticipated
that each Series will treat the Merger as taxable. It is expected that the total
gain to be recognized by each Series (and distributed to its respective
shareholders prior to the Merger) will be insignificant. Moreover, because each
Series' NAV is and has always been equal to $1.00 per share, it is not
anticipated that any shareholder will recognize gain or loss on the exchange of
shares of either Series for shares of Tax-Free Money Fund.
Shareholders of each Series should consult their tax advisers regarding the
tax consequences to them, if any, of the Mergers in light of their individual
circumstances. Because the foregoing discussion relates only to the U.S. federal
income tax consequences of the Mergers, shareholders also should consult their
tax advisers as to U.S. state, local and foreign tax consequences, if any, of
the Mergers.
CONCLUSION
The Agreement was approved by the Boards of Trustees/Directors of Municipal
Series Fund and Tax-Free Money Fund at meetings held on August 23, 2000 and
November 15, 2000. The Boards of each Fund determined that each Merger is in the
best interests of shareholders of the respective Series and Tax-Free Money Fund,
as applicable, and that the interests of existing shareholders of each Series
and Tax-Free Money Fund would not be diluted as a result of the Mergers. If the
shareholders of either Series do not approve the Merger with respect to such
Series or if such Merger is not completed, such Series will continue to engage
in business as a series of a registered investment company and the Board of
Municipal
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Series Fund will consider other proposals for such Series, including proposals
for the reorganization or liquidation of such Series.
ADDITIONAL INFORMATION ABOUT TAX-FREE MONEY FUND
Tax-Free Money Fund's Prospectus dated February 29, 2000, is enclosed with
this Proxy Statement and is incorporated into this Proxy Statement by reference.
The Prospectus contains additional information about Tax-Free Money Fund,
including its investment objective and policies, Manager, investment adviser,
advisory fees and expenses and procedures for purchasing and redeeming shares.
The Prospectus also contains Tax-Free Money Fund's financial highlights for the
fiscal period ended December 31, 1999. The audited financial statements of
Tax-Free Money Fund for the fiscal year ended December 31, 1999 are included in
Tax-Free Money Fund's Annual Report, which is also enclosed with this Proxy
Statement. Unaudited financial statements of Tax-Free Money Fund for the six
months ended June 30, 2000 are included in Tax-Free Money Fund's Semiannual
Report, which is also enclosed with this Proxy Statement.
MISCELLANEOUS
LEGAL MATTERS
Certain legal matters in connection with the issuance of Tax-Free Money Fund
shares have been passed upon by Piper Marbury Rudnick & Wolfe, LLP. Certain
legal matters in connection with the Mergers have been or will be passed upon,
with respect to Massachusetts law, by Sullivan & Worcester, LLP, special counsel
to Municipal Series Fund, and with respect to certain other legal matters by
Swidler Berlin Shereff Friedman, LLP, counsel to Municipal Series Fund. Certain
legal matters in connection with the Mergers have been or will be passed upon,
with respect to Maryland law, by Piper Marbury Rudnick and Wolfe, LLP, special
counsel to Tax-Free Money Fund, and with respect to certain other legal matters
by , counsel to Tax-Free Money Fund.
INDEPENDENT ACCOUNTANTS
The audited financial statements of each Series and Tax-Free Money Fund for
the fiscal periods ended August 31, 2000 and December 31, 1999, respectively,
included in the applicable Statements of Additional Information, have been
examined by , independent accountants, whose reports thereon are included
in the respective Statements of Additional Information and in the Annual Reports
to Shareholders for the fiscal years ended August 31, 2000 and December 31,
1999, respectively. The financial statements audited by have been
incorporated by reference in reliance on their reports given on their authority
as experts in auditing and accounting.
AVAILABLE INFORMATION
Each Series and Tax-Free Money Fund is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and the 1940
Act and in accordance with these laws, they each file reports, proxy material
and other information with the Commission. Such reports, proxy material and
other information can be inspected and copied at the Public Reference
Room maintained by the Commission at 450 Fifth Street, N.W., Washington D.C.
20549 and 7 World Trade Center, New York, NY 10048. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Washington D.C.
20549, at prescribed rates, or at the Commission's website (http://www.sec.gov).
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES
Please advise Prudential Municipal Series Fund, care of Prudential
Investment Management Services LLC, Gateway Center Three, 100 Mulberry Street,
14th Floor, Newark, New Jersey 07102-4077, whether other persons are beneficial
owners of shares for which proxies are being solicited and, if so, the number of
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copies of this Proxy Statement you wish to receive in order to supply copies to
the beneficial owners of the shares.
SHAREHOLDER PROPOSALS
Any shareholder of either Series who wishes to submit a proposal to be
considered by such Series' shareholders at the next meeting of shareholders of
Connecticut Money Market Series or Massachusetts Money Market Series, as
applicable, should send the proposal to Prudential Municipal Series Fund,
Connecticut Money Market Series or Massachusetts Money Market Series, as
applicable, c/o Deborah A. Docs, Secretary, at Gateway Center Three, 100
Mulberry Street, 4th Floor, Newark, New Jersey 07102-4077, so as to be received
within a reasonable time before the Board of Trustees of Municipal Series Fund
makes the solicitation relating to such meeting. Shareholder proposals that are
submitted in a timely manner will not necessarily be included in the applicable
Series' proxy materials. Including shareholder proposals in proxy materials is
subject to limitations under federal securities laws. If Proposal No. 1 is
approved at the Meeting, there will likely not be any future shareholder
meetings of either Series.
Tax-Free Money Fund's By-Laws provide that it will not be required to hold
annual meetings of shareholders if the election of Directors is not required
under the 1940 Act. It is the present intention of the Board of Directors of
Tax-Free Money Fund not to hold annual meetings of shareholders unless required
to do so by the 1940 Act.
OTHER BUSINESS
Management of Connecticut Money Market Series and Massachusetts Money Market
Series knows of no business to be presented at the Meeting other than the
Proposals described in this Proxy Statement. However, if any other matter
requiring a shareholder vote should arise, the proxies will vote according to
their best judgment in the interest of each Series, as applicable, taking into
account all relevant circumstances.
By order of the Board of Trustees,
DEBORAH A. DOCS
SECRETARY
January , 2001
IT IS IMPORTANT THAT YOU EXECUTE AND RETURN YOUR PROXY PROMPTLY.
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ATTACHMENT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATIONS
Agreement and Plan of Reorganizations (Agreement) made as of the ____ day of
January, 2001, by and between Prudential Municipal Series Fund (Municipal Series
Fund) -- on behalf of Connecticut Money Market Series and Massachusetts Money
Market Series -- and Prudential Tax-Free Money Fund, Inc. (Tax-Free Money Fund
and, collectively with Municipal Series Fund, the Funds and each individually, a
Fund). All covenants, agreements, representations, actions and obligations
described herein made or to be taken or undertaken by each Series are made and
shall be undertaken by Municipal Series Fund on behalf of each Series. The
Municipal Series Fund is a business trust organized under the laws of the
Commonwealth of Massachusetts and the Tax-Free Money Fund is a corporation
organized under the laws of the State of Maryland. Each Fund maintains its
principal place of business at Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077. Shares of Tax-Free Money Fund are divided into
two classes, designated Class A and Class Z. Currently, Tax-Free Money Fund only
offers Class A shares. Shares of Connecticut Money Market Series and
Massachusetts Money Market Series consist of one class of shares. Municipal
Series Fund consists of eleven series, two of which are the Massachusetts Money
Market Series and Connecticut Money Market Series (collectively, the Series and
each individually, a Series).
Each reorganization will comprise the transfer of all of the assets of each
of Connecticut Money Market Series and Massachusetts Money Market Series,
respectively, in exchange for Class A shares of Tax-Free Money Fund, and
Tax-Free Money Fund's assumption of the relevant Series' liabilities, if any,
and the constructive distribution, after the Closing Date hereinafter referred
to, of such shares of Tax-Free Money Fund to the shareholders of the respective
Series, and the termination of each such Series as provided herein, all upon the
terms and conditions as hereinafter set forth.
In consideration of the promises and of the covenants and agreements set
forth herein, the parties covenant and agree as follows:
1. TRANSFER OF ASSETS OF EACH SERIES (CONNECTICUT MONEY MARKET SERIES OR
MASSACHUSETTS MONEY MARKET SERIES, AS APPLICABLE) IN EXCHANGE FOR SHARES OF
TAX-FREE MONEY FUND AND ASSUMPTION OF LIABILITIES, IF ANY, AND TERMINATION OF
EACH SERIES.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Municipal Series Fund,
on behalf of each Series, agrees to sell, assign, transfer and deliver the
assets of each such Series, as set forth in paragraph 1.2, to Tax-Free Money
Fund, and Tax-Free Money Fund agrees (a) to issue and deliver to each Series in
exchange therefor the number of shares of Class A Common Stock in Tax-Free Money
Fund determined by dividing the net asset value of the respective Series
(computed in the manner and as of the time and date set forth in paragraph 2.1)
by the net asset value allocable to a share of Tax-Free Money Fund Class A
Common Stock (computed in the manner and as of the time and date set forth in
paragraph 2.2), and (b) to assume all of each Series' liabilities, if any, as
set forth in paragraph 1.3. Such transactions shall take place with respect to
each Series at the closing provided for in paragraph 3 (Closing).
1.2 The assets of each Series to be acquired by Tax-Free Money Fund shall
include without limitation all cash, cash equivalents, securities, receivables
(including interest and dividends receivable) and all other property of any kind
owned by such Series and any deferred or prepaid expenses shown as assets on the
books of such Series on the closing date provided in paragraph 3 (Closing Date).
Tax-Free Money Fund has no plan or intent to sell or otherwise dispose of any
assets of any Series, other than in the ordinary course of business.
1.3 Except as otherwise provided herein, Tax-Free Money Fund will assume
from each Series all debts, liabilities, obligations and duties of such Series
of whatever kind or nature, whether absolute,
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accrued, contingent or otherwise, whether or not determinable as of the Closing
Date and whether or not specifically referred to in this Agreement; provided,
however, that Municipal Series Fund agrees to utilize its best efforts to cause
each Series to discharge all of the known debts, liabilities, obligations and
duties of such Series prior to the Closing Date.
1.4 On or immediately prior to the Closing Date, each Series will declare
and pay to its shareholders of record, dividends and/or other distributions so
that it will have distributed substantially all (and in any event not less than
ninety-eight percent) of each of such Series' investment company taxable income
(computed without regard to any deduction for dividends paid), net tax-exempt
interest income, if any, and realized net capital gains, if any, for all taxable
years through the Closing Date.
1.5 On a date (Termination Date), as soon after the Closing Date as is
conveniently practicable, but in any event within 30 days of the Closing Date,
each Series will distribute PRO RATA to its shareholders of record, determined
as of the close of business on the Closing Date, the Class A shares of Tax-Free
Money Fund received by such Series pursuant to paragraph 1.1 in exchange for
their interest in such Series, and Tax-Free Money Fund will file with the
Secretary of State of The Commonwealth of Massachusetts a Certificate of
Termination terminating each Series. Such distribution will be accomplished by
opening accounts on the books of Tax-Free Money Fund in the names of each
Series' shareholders and transferring thereto the shares credited to the account
of the respective Series on the books of Tax-Free Money Fund. Each account
opened shall be credited with the respective PRO RATA number of Tax-Free Money
Fund Class A shares due such Series' shareholders. Fractional shares of Tax-Free
Money Fund shall be rounded to the third decimal place.
1.6 Tax-Free Money Fund shall not issue certificates representing its
shares in connection with the exchange. With respect to any Series shareholder
holding Series receipts for shares of beneficial interest as of the Closing
Date, until Tax-Free Money Fund is notified by Municipal Series Fund's transfer
agent that such shareholder has surrendered his or her outstanding Series
receipts for shares of beneficial interest or, in the event of lost, stolen or
destroyed receipts for shares of beneficial interest, posted adequate bond or
submitted a lost certificate form, as the case may be, Tax-Free Money Fund will
not permit such shareholder to (1) receive dividends or other distributions on
Tax-Free Money Fund shares in cash (although such dividends and distributions
shall be credited to the account of such shareholder established on Tax-Free
Money Fund's books pursuant to paragraph 1.5, as provided in the next sentence),
(2) exchange Tax-Free Money Fund shares credited to such shareholder's account
for shares of other Prudential Mutual Funds, or (3) pledge or redeem such
shares. In the event that a shareholder is not permitted to receive dividends or
other distributions on Tax-Free Money Fund shares in cash as provided in the
preceding sentence, Tax-Free Money Fund shall pay such dividends or other
distributions in additional Tax-Free Money Fund shares, notwithstanding any
election such shareholder shall have made previously with respect to the payment
of dividends or other distributions on shares of the Series. Each Series will,
at its expense, request its shareholders to surrender their outstanding Series
receipts for shares of beneficial interest, post adequate bond or submit a lost
certificate form, as the case may be.
1.7 Ownership of Tax-Free Money Fund shares will be shown on the books of
the Tax-Free Money Fund's transfer agent. Shares of Tax-Free Money Fund will be
issued in the manner described in Tax-Free Money Fund's then-current prospectus
and statement of additional information.
1.8 Any transfer taxes payable upon issuance of shares of Tax-Free Money
Fund in exchange for shares of a Series in a name other than that of the
registered holder of the shares being exchanged on the books of that Series as
of that time shall be paid by the person to whom such shares are to be issued as
a condition to the registration of such transfer.
1.9 Any reporting responsibility with the Securities and Exchange
Commission (SEC) or any state securities commission of Municipal Series Fund
with respect to a Series is and shall remain, the responsibility of such Series
up to and including the Termination Date.
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1.10 All books and records relating to each Series of Municipal Series
Fund, including all books and records required to be maintained under the
Investment Company Act of 1940, as amended (Investment Company Act) and the
rules and regulations thereunder, shall be available to Tax-Free Money Fund from
and after the Closing Date and shall be turned over to Tax-Free Money Fund on or
prior to the Termination Date.
2. VALUATION.
2.1 The value of each Series' assets and liabilities to be acquired and
assumed, respectively, by Tax-Free Money Fund shall be the net asset value
computed as of 4:30 p.m., New York City time, on the Closing Date (such time and
date being hereinafter called the Valuation Time), using the valuation
procedures set forth in such Series' then-current prospectus and Municipal
Series Fund's statement of additional information.
2.2 The net asset value of Class A shares of Tax-Free Money Fund shall be
the net asset value for Class A shares as of the Valuation Time, using the
valuation procedures set forth in Tax-Free Money Fund's then-current prospectus
and statement of additional information.
2.3 The number of Tax-Free Money Fund shares to be issued (including
fractional shares, if any) in exchange for a Series' net assets shall be
calculated as set forth in paragraph 1.1.
2.4 All computations of net asset value shall be made by or under the
direction of Prudential Investments Fund Management LLC (PIFM) in accordance
with its regular practice as manager of the Funds.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be March 29, 2001 or such later date as the
parties may agree in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be at the office of Tax-Free
Money Fund or at such other place as the parties may agree.
3.2 State Street Bank and Trust Company (State Street), as custodian for
each Series, shall deliver to Tax-Free Money Fund at the Closing, a certificate
of an authorized officer of State Street stating that (a) the applicable Series'
portfolio securities, cash and any other assets have been transferred in proper
form to Tax-Free Money Fund on the Closing Date and (b) all necessary taxes, if
any, have been paid, or provision for payment has been made, in conjunction with
the transfer of portfolio securities.
3.3 In the event that immediately prior to the Valuation Time (a) the New
York Stock Exchange (NYSE) or other primary exchange is closed to trading or
trading thereon is restricted or (b) trading or the reporting of trading on the
NYSE or other primary exchange or elsewhere is disrupted so that accurate
appraisal of the value of the net assets of a Series and of the net asset value
per share of Tax-Free Money Fund is impracticable, each Closing Date shall be
postponed until the first business day after the date when such trading shall
have been fully resumed and such reporting shall have been restored.
3.4 Municipal Series Fund shall deliver to Tax-Free Money Fund on or prior
to the Termination Date the names and addresses of each of the shareholders of
each Series and the number of outstanding shares owned by each such shareholder,
all as of the close of business on the Closing Date, certified by the transfer
agent of Municipal Series Fund. Tax-Free Money Fund shall issue and deliver to
Municipal Series Fund at the Closing a confirmation or other evidence
satisfactory to Municipal Series Fund that shares of Tax-Free Money Fund have
been or will be credited to each Series' account on the books of Tax-Free Money
Fund. At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, receipts and other documents as such
other party or its counsel may reasonably request to effect the transactions
contemplated by this Agreement.
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4. REPRESENTATIONS AND WARRANTIES.
4.1 Municipal Series Fund represents and warrants as follows:
4.1.1 Municipal Series Fund is a business trust duly organized and
validly existing under the laws of The Commonwealth of Massachusetts and
each of the Series has been duly established in accordance with the terms of
Municipal Series Fund's Declaration of Trust as a separate series of
Municipal Series Fund;
4.1.2 Municipal Series Fund is an open-end, management investment
company duly registered under the Investment Company Act, and such
registration is in full force and effect;
4.1.3 Municipal Series Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any provision
of the Declaration of Trust or By-Laws of Municipal Series Fund or of any
material agreement, indenture, instrument, contract, lease or other
undertaking to which any Series is a party or by which any Series is bound;
4.1.4 All material contracts or other commitments to which any Series,
or the properties or assets of any Series, is subject, or by which any
Series is bound, except this Agreement, will be terminated on or prior to
the Closing Date without such Series or Tax-Free Money Fund incurring any
liability or penalty with respect thereto;
4.1.5 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against Municipal Series Fund or any
of the properties or assets of any Series except as previously disclosed in
writing to Tax-Free Money Fund. Except as previously disclosed in writing to
Tax-Free Money Fund, Municipal Series Fund knows of no facts that might form
the basis for the institution of such proceedings, and, with respect to each
Series, Municipal Series Fund is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body that
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
4.1.6 The Portfolio of Investments, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets,
and Financial Highlights of each Series at August 31, 2000 and for the
fiscal year then ended (copies of which have been furnished to Tax-Free
Money Fund) have been audited by , independent
accountants, in accordance with generally accepted auditing standards. Such
financial statements are prepared in accordance with generally accepted
accounting principles and present fairly, in all material respects, the
financial condition, results of operations, changes in net assets and
financial highlights of such Series as of and for the period ended on such
date, and there are no material known liabilities of any such Series
(contingent or otherwise) not disclosed therein;
4.1.7 Since August 31, 2000, there has not been any material adverse
change in any Series' financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by any Series of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by Tax-Free Money Fund. For the purposes of this paragraph
4.1.7, a decline in net assets, net asset value per share or a decrease in
the number of shares outstanding shall not constitute a material adverse
change;
4.1.8 At the date hereof and at the Closing Date, all U.S. federal and
other tax returns and reports of each Series required by law to have been
filed on or before such dates shall have been timely filed, and all U.S.
federal and other taxes shown as due on said returns and reports shall have
been paid insofar as due, or adequate provision shall have been made for the
payment thereof, and, to the best of Municipal Series Fund's knowledge, all
U.S. federal or other taxes required to be shown on any such return or
report have been shown on such return or report, no such return is currently
under audit and no assessment has been asserted with respect to any such
return;
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4.1.9 For each past taxable year since it commenced operations, each
Series has elected to be treated as, and has met the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended, (Internal
Revenue Code) for qualification and treatment as, a regulated investment
company and Municipal Series Fund intends to cause such Series to make such
election and meet those requirements for the current taxable year; and, for
each past calendar year since it commenced operations, each Series has made
such distributions as are necessary to avoid the imposition of federal
excise tax or has paid or provided for the payment of any excise tax
imposed;
4.1.10 All issued and outstanding shares of each Series are, and at the
Closing Date will be, duly and validly authorized, issued and outstanding,
fully paid and non-assessable. All issued and outstanding shares of each
Series will, at the time of the Closing, be held in the name of the persons
and in the amounts set forth in the list of shareholders submitted to
Tax-Free Money Fund in accordance with the provisions of paragraph 3.4. No
Series has outstanding any options, warrants or other rights to subscribe
for or purchase any of its shares, nor is there outstanding any security
convertible into any of its shares;
4.1.11 At the Closing Date, Municipal Series Fund will have good and
marketable title to the assets of each Series to be transferred to Tax-Free
Money Fund pursuant to paragraph 1.1, and full right, power and authority to
sell, assign, transfer and deliver such assets hereunder free of any liens,
claims, charges or other encumbrances, and, upon delivery and payment for
such assets, Tax-Free Money Fund will acquire good and marketable title
thereto;
4.1.12 The execution, delivery and performance of this Agreement, with
respect to each Series, has been duly authorized by the Trustees of the
Municipal Series Fund and by all necessary action, other than shareholder
approval, on the part of the relevant Series, and this Agreement constitutes
a valid and binding obligation of Municipal Series Fund and of each Series,
subject to such shareholder approval;
4.1.13 The information furnished and to be furnished by Municipal
Series Fund for use in applications for orders, registration statements,
proxy materials and other documents that may be necessary in connection with
the transactions contemplated hereby is and shall be accurate and complete
in all material respects and is in compliance and shall comply in all
material respects with applicable federal securities and other laws and
regulations; and
4.1.14 On the effective date of the registration statement filed with
the SEC by Tax-Free Money Fund on Form N-14 relating to the shares of
Tax-Free Money Fund issuable hereunder, and any supplement or amendment
thereto (Registration Statement), at the time of the meeting of the
shareholders of each Series and on the Closing Date, (a) the Proxy Statement
of each Series, the Prospectus of Tax-Free Money Fund, and the Statement of
Additional Information of Tax-Free Money Fund to be included in the
Registration Statement (collectively, Proxy Statement) (i) will comply in
all material respects with the provisions and regulations of the Securities
Act of 1933, as amended (1933 Act), the Securities Exchange Act of 1934, as
amended (1934 Act) and the Investment Company Act, and the rules and
regulations under each such act, and (ii) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein in light of the circumstances under which they were made or
necessary to make the statements therein not misleading; provided, however,
that the representations and warranties in this paragraph 4.1.14 shall not
apply to statements in or omissions from the Proxy Statement and
Registration Statement made in reliance upon and in conformity with
information furnished by Tax-Free Money Fund for use therein.
4.2 Tax-Free Money Fund represents and warrants as follows:
4.2.1 Tax-Free Money Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland;
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4.2.2 Tax-Free Money Fund is an open-end, management investment company
duly registered under the Investment Company Act, and such registration is
in full force and effect;
4.2.3 Tax-Free Money Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any provision
of the Articles of Incorporation or By-Laws of Tax-Free Money Fund or of any
material agreement, indenture, instrument, contract, lease or other
undertaking to which Tax-Free Money Fund is a party or by which Tax-Free
Money Fund is bound;
4.2.4 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against Tax-Free Money Fund or any of
its properties or assets, except as previously disclosed in writing to
Municipal Series Fund. Except as previously disclosed in writing to
Municipal Series Fund, Tax-Free Money Fund knows of no facts that might form
the basis for the institution of such proceedings, and Tax-Free Money Fund
is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body that materially and adversely
affects its business or its ability to consummate the transactions herein
contemplated;
4.2.5 The Portfolio of Investments, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets,
and Financial Highlights of Tax-Free Money Fund at December 31, 1999 and for
the fiscal year then ended (copies of which have been furnished to Municipal
Series Fund) have been audited by , independent
accountants, in accordance with generally accepted auditing standards. Such
financial statements are prepared in accordance with generally accepted
accounting principles and present fairly, in all material respects, the
financial condition, results of operations, changes in net assets and
financial highlights of Tax-Free Money Fund as of and for the period ended
on such date, and there are no material known liabilities of Tax-Free Money
Fund (contingent or otherwise) not disclosed therein;
4.2.6 Since December 31, 1999, there has not been any material adverse
change in Tax-Free Money Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by Tax-Free Money Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by Municipal Series Fund. For the purposes of this
paragraph 4.2.6, a decline in net assets, net asset value per share or a
decrease in the number of shares outstanding shall not constitute a material
adverse change;
4.2.7 At the date hereof and at the Closing Date, all U.S. federal and
other tax returns and reports of Tax-Free Money Fund required by law to have
been filed on or before such dates shall have been filed, and all U.S.
federal and other taxes shown as due on said returns and reports shall have
been paid insofar as due, or adequate provision shall have been made for the
payment thereof, and, to the best of Tax-Free Money Fund's knowledge, all
U.S. federal or other taxes required to be shown on any such return or
report are shown on such return or report, no such return is currently under
audit and no assessment has been asserted with respect to any such return;
4.2.8 For each past taxable year since it commenced operations,
Tax-Free Money Fund has elected to be treated as, and has met the
requirements of Subchapter M of the Internal Revenue Code for qualification
and treatment as, a regulated investment company and intends to make such
election and meet those requirements for the current taxable year; and, for
each past calendar year since it commenced operations, Tax-Free Money Fund
has made such distributions as are necessary to avoid the imposition of
federal excise tax or has paid or provided for the payment of any excise tax
imposed;
4.2.9 All issued and outstanding shares of Tax-Free Money Fund are, and
at the Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. Except as contemplated by this
Agreement, Tax-Free Money Fund does not have outstanding any options,
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warrants or other rights to subscribe for or purchase any of its shares nor
is there outstanding any security convertible into any of its shares;
4.2.10 The execution, delivery and performance of this Agreement has
been duly authorized by the Board of Directors of Tax-Free Money Fund and by
all necessary corporate action on the part of Tax-Free Money Fund, and this
Agreement constitutes a valid and binding obligation of Tax-Free Money Fund;
4.2.11 The shares of Tax-Free Money Fund to be issued and delivered to
Municipal Series Fund for and on behalf of each Series pursuant to this
Agreement will, at the Closing Date, have been duly authorized and, when
issued and delivered as provided in this Agreement, will be duly and validly
issued and outstanding shares of Tax-Free Money Fund, fully paid and
non-assessable;
4.2.12 The information furnished and to be furnished by Tax-Free Money
Fund for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete in
all material respects and is in compliance and shall comply in all material
respects with applicable federal securities and other laws and regulations;
and
4.2.13 On the effective date of the Registration Statement, at the time
of the meeting of the shareholders of each Series and on the Closing Date,
(a) the Proxy Statement and the Registration Statement (i) will comply in
all material respects with the provisions of the 1933 Act, the 1934 Act and
the Investment Company Act and the rules and regulations under each such
act, and (ii) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (b) with respect to the
Registration Statement, at the time it becomes effective, it will not
contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this paragraph 4.2.13 shall not
apply to statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with
information furnished by a Series for use therein.
5. COVENANTS OF TAX-FREE MONEY FUND AND MUNICIPAL SERIES FUND.
5.1 Municipal Series Fund, with respect to each Series, and Tax-Free Money
Fund each covenants to operate its respective business in the ordinary course
between the date hereof and the Closing Date, it being understood that the
ordinary course of business will include declaring and paying customary
dividends and other distributions and such changes in operations as are
contemplated by the normal operations of the Funds and the Series, except as may
otherwise be required by paragraph 1.4 hereof.
5.2 Municipal Series Fund covenants to call a meeting of the shareholders
of each Series to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated hereby
(including the determinations of its Trustees as set forth in Rule 17a-8(a)
under the Investment Company Act).
5.3 Municipal Series Fund covenants that Tax-Free Money Fund shares to be
received for and on behalf of each Series in accordance herewith are not being
acquired for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
5.4 Municipal Series Fund covenants that it will assist Tax-Free Money Fund
in obtaining such information as Tax-Free Money Fund reasonably requests
concerning the beneficial ownership of each Series' shares.
5.5 Subject to the provisions of this Agreement, each Fund will take, or
cause to be taken, all action, and will do, or cause to be done, all things,
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
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<PAGE>
5.6 Municipal Series Fund covenants to prepare the Proxy Statement in
compliance with the 1934 Act, the Investment Company Act and the rules and
regulations under each such Act.
5.7 Municipal Series Fund covenants that it will, from time to time, as and
when requested by Tax-Free Money Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will take
or cause to be taken such further action, as Tax-Free Money Fund may deem
necessary or desirable in order to vest in and confirm to Tax-Free Money Fund
title to and possession of all the assets of each Series to be sold, assigned,
transferred and delivered hereunder and otherwise to carry out the intent and
purpose of this Agreement.
5.8 Tax-Free Money Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the Investment
Company Act (including the determinations of its Board of Directors as set forth
in Rule 17a-8(a) thereunder) and such of the state Blue Sky or securities laws
as it may deem appropriate in order to continue its operations after the Closing
Date.
5.9 Tax-Free Money Fund covenants that it will, from time to time, as and
when requested by Municipal Series Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will take
and cause to be taken such further action, as Municipal Series Fund may deem
necessary or desirable in order to (i) vest in and confirm to the Municipal
Series Fund title to and possession of all the shares of Tax-Free Money Fund to
be transferred to the shareholders of each Series pursuant to this Agreement and
(ii) assume all of the liabilities of each Series in accordance with this
Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF MUNICIPAL SERIES FUND.
The obligations of Municipal Series Fund to consummate the transactions
provided for herein shall be subject to the performance by Tax-Free Money Fund
of all the obligations to be performed by it hereunder on or before the Closing
Date and the following further conditions:
6.1 All representations and warranties of Tax-Free Money Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 Tax-Free Money Fund shall have delivered to Municipal Series Fund on
the Closing Date a certificate executed in its name by the President or a Vice
President of Tax-Free Money Fund, in form and substance satisfactory to
Municipal Series Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Tax-Free Money Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as Municipal Series Fund shall reasonably request.
6.3 With respect to the reorganization of each Series, Municipal Series
Fund shall have received on the Closing Date a favorable opinion from
(i) Piper, Marbury, Rudnick & Wolfe, LLP, special counsel to Tax-Free Money
Fund, with respect to items in this section that relate to matters of Maryland
Law, and (ii) Sullivan and Cromwell, counsel to Tax-Free Money Fund, with
respect to certain other items in this section, each dated as of the Closing
Date, to the effect that:
6.3.1 Tax-Free Money Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland with power under its
Articles of Incorporation to own all of its properties and assets and, to
the knowledge of such counsel, to carry on its business as presently
conducted;
6.3.2 This Agreement has been duly authorized, executed and delivered
by Tax-Free Money Fund and, assuming due authorization, execution and
delivery of the Agreement by Municipal Series Fund on behalf of each Series,
is and constitutes a valid and legally binding obligation of Tax-Free Money
Fund enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting
A-8
<PAGE>
creditors' rights and to general equity principles. Such counsel may state
that they express no opinion as to the validity or enforceability of any
provision regarding choice of New York law to govern this Agreement;
6.3.3 The shares of Tax-Free Money Fund to be distributed to the
shareholders of each Series under this Agreement, assuming their due
authorization and delivery as contemplated by this Agreement, will be
validly issued and outstanding and fully paid and non-assessable, and no
shareholder of Tax-Free Money Fund has any pre-emptive right to subscribe
therefor or purchase such shares;
6.3.4 The execution and delivery of this Agreement did not, and the
performance by Tax-Free Money Fund of its obligations hereunder will not,
(i) violate Tax-Free Money Fund's Articles of Incorporation or By-Laws or
(ii) result in a default or a breach of (a) the Management Agreement, dated
May 2, 1988, as amended on November 19, 1993, between Prudential-Bache
National Tax-Free Money Fund, Inc. and Prudential Investments Fund
Management LLC, as successor to Prudential Mutual Fund Management, Inc.,
(b) the Custodian Contract, dated July 26, 1990 between Tax-Free Money Fund
and State Street Bank and Trust Company, as amended on February 22, 1999,
(c) the Distribution Agreement, dated June 1, 1998, between Prudential
Tax-Free Money Fund, Inc. and Prudential Investment Management Services LLC,
and (d) the Transfer Agency and Service Agreement, dated January 1, 1988,
between Prudential-Bache Tax-Free Money Fund, Inc. and Prudential Mutual
Fund Services LLC, as successor to Prudential Mutual Fund Services, Inc.;
provided, however, that such counsel may state that they express no opinion
as to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
6.3.5 To the knowledge of such counsel, no consent, approval,
authorization, filing or order of any court or governmental authority is
required for the consummation by Tax-Free Money Fund of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the Investment Company Act and such as may be required
under state Blue Sky or securities laws;
6.3.6 Tax-Free Money Fund has been registered with the SEC as an
investment company, and, to the knowledge of such counsel, no order has been
issued or proceeding instituted to suspend such registration; and
6.3.7 Such counsel knows of no litigation or government proceeding
instituted or threatened against Tax-Free Money Fund that would be required
to be disclosed in its Registration Statement on Form N-1A and is not so
disclosed.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF TAX-FREE MONEY FUND.
The obligations of Tax-Free Money Fund to complete the transactions provided
for herein shall be subject to the performance by Municipal Series Fund of all
the obligations to be performed by it hereunder on or before the Closing Date
and the following further conditions:
7.1 All representations and warranties of Municipal Series Fund contained
in this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date.
7.2 Municipal Series Fund shall have delivered to Tax-Free Money Fund on
the Closing Date a statement of the assets and liabilities of each Series, which
statement shall be prepared in accordance with generally accepted accounting
principles consistently applied, together with a list of the portfolio
securities of each Series showing the adjusted tax basis of such securities by
lot, as of the Closing Date, certified by the Treasurer of Municipal Series
Fund.
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<PAGE>
7.3 Municipal Series Fund shall have delivered to Tax-Free Money Fund on
the Closing Date a certificate executed in its name by the President or one of
the Vice Presidents of Municipal Series Fund, in form and substance satisfactory
to Tax-Free Money Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Municipal Series Fund made in this Agreement
are true and correct at and as of the Closing Date except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as Tax-Free Money Fund shall reasonably request.
7.4 On or immediately prior to the Closing Date, Municipal Series Fund
shall have declared and paid to the shareholders of record of each Series one or
more dividends and/or other distributions so that it will have distributed
substantially all (and in any event not less than ninety-eight percent) of such
Series' investment company taxable income (computed without regard to any
deduction for dividends paid), net tax-exempt interest income, if any, and
realized net capital gain, if any, of such Series for all completed taxable
years from the inception of such Series through August 31, 2000, and for the
period from and after August 31, 2000 through the Closing Date.
7.5 With respect to the reorganization of each Series, Tax-Free Money Fund
shall have received on the Closing Date a favorable opinion from
(i) Sullivan & Worcester, LLP, special counsel to Municipal Series Fund, with
respect to items in this section that relate to matters of Massachusetts law,
and (ii) Swidler Berlin Shereff Friedman, LLP, counsel to Municipal Series Fund,
with respect to certain other items in this section, each dated as of the
Closing Date, to the effect that:
7.5.1 Municipal Series Fund is duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power under its
Declaration of Trust to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently conducted,
and each Series has been duly established in accordance with the terms of
Municipal Series Fund's Declaration of Trust as a separate series of
Municipal Series Fund;
7.5.2 This Agreement has been duly authorized, executed and delivered
by Municipal Series Fund on behalf of each Series and, assuming due
authorization, execution and delivery of the Agreement by Tax-Free Money
Fund, is and constitutes a valid and legally binding obligation of Municipal
Series Fund enforceable against the assets of each Series in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
Such counsel may state that they express no opinion as to the validity or
enforceability of any provision regarding choice of New York law to govern
this Agreement;
7.5.3 The execution and delivery of the Agreement did not, and the
performance by Municipal Series Fund of its obligations hereunder will not,
(i) violate Municipal Series Fund's Declaration of Trust or Amended and
Restated By-Laws or (ii) result in a default or a breach of (a) the
Management Agreement, dated December 30, 1988, between Prudential-Bache
Municipal Series Fund and Prudential Investments Fund Management LLC, as
successor to Prudential Mutual Fund Management, Inc., (b) the Custodian
Contract, dated August 1, 1990, as amended on February 22, 1999, between
Prudential-Bache Municipal Series Fund and State Street Bank and Trust
Company (c) the Distribution Agreement dated June 1, 1998, between
Prudential Municipal Series Fund and Prudential Investment Management
Services LLC, and (d) the Transfer Agency and Service Agreement, dated
[January 1, 1988], between Prudential-Bache Municipal Series Fund and
Prudential Mutual Fund Services LLC, as successor to Prudential Mutual Fund
Services, Inc., as amended on August 24, 1999; provided, however, that such
counsel may state that they express no opinion as to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
7.5.4 To the knowledge of such counsel, no consent, approval,
authorization, filing or order of any court or governmental authority is
required for the consummation by Municipal Series Fund of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934
A-10
<PAGE>
Act and the Investment Company Act and such as may be required under state
Blue Sky or securities laws;
7.5.5 Such counsel knows of no litigation or any government proceeding
instituted or threatened against Municipal Series Fund, involving any
Series, that would be required to be disclosed in its Registration Statement
on Form N-1A and is not so disclosed; and
7.5.6 Municipal Series Fund has been registered with the SEC as an
investment company, and, to the knowledge of such counsel, no order has been
issued or proceeding instituted to suspend such registration.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF TAX-FREE MONEY FUND AND
MUNICIPAL SERIES FUND.
The obligations of Tax-Free Money Fund and Municipal Series Fund hereunder
are subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of (a) the Trustees of Municipal Series Fund and
the Board of Directors of Tax-Free Money Fund, as to the determinations set
forth in Rule 17a-8(a) under the Investment Company Act, (b) the Board of
Directors of Tax-Free Money Fund as to the assumption by Tax-Free Money Fund of
the liabilities of each Series and (c) the holders of the outstanding shares of
each Series in accordance with the provisions of Municipal Series Fund's
Declaration of Trust and By-Laws, and certified copies of the resolutions or
other documents, as applicable, evidencing such approvals shall have been
delivered to Tax-Free Money Fund and Municipal Series Fund, as applicable.
8.2 Any proposed change to Tax-Free Money Fund's operations that may be
approved by the Board of Directors of Tax-Free Money Fund subsequent to the date
of this Agreement but in connection with and as a condition to implementing the
transactions contemplated by this Agreement, for which the approval of Tax-Free
Money Fund shareholders is required pursuant to the Investment Company Act or
otherwise, shall have been approved by the requisite vote of the holders of the
outstanding shares of Tax-Free Money Fund in accordance with the Investment
Company Act and General Corporation Law of the State of Maryland, and certified
copies of the resolutions evidencing such approval shall have been delivered to
Municipal Series Fund.
8.3 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.4 All consents of other parties and all consents, orders and permits of
federal, state and local regulatory authorities (including those of the SEC and
of state Blue Sky or securities authorities, including "no-action" positions of
such authorities) deemed necessary by Tax-Free Money Fund or Municipal Series
Fund to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of Tax-Free Money Fund or any Series,
provided that either party hereto may for itself waive any part of this
condition.
8.5 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued, and to the best knowledge of the parties hereto, no investigation or
proceeding under the 1933 Act for that purpose shall have been instituted or be
pending, threatened or contemplated.
9. FINDER'S FEES AND EXPENSES.
9.1 Each Fund represents and warrants to the other that there are no
finder's fees payable in connection with the transactions provided for herein.
A-11
<PAGE>
9.2 The expenses incurred in connection with the entering into and carrying
out of the provisions of this Agreement shall be allocated to Tax-Free Money
Fund and the relevant Series pro rata in a fair and equitable manner in
proportion to their respective assets.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 This Agreement constitutes the entire agreement between the Funds.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION.
Either Tax-Free Money Fund or Municipal Series Fund as to any Series may at
its option terminate this Agreement at or prior to the Closing Date because of:
11.1 A material breach by the other of any representation, warranty or
covenant contained herein to be performed at or prior to the Closing Date;
11.2 A condition herein expressed to be precedent to the obligations of
either party not having been met and it reasonably appearing that it will not or
cannot be met; or
11.3 A mutual written agreement of Municipal Series Fund and Tax-Free Money
Fund.
In the event of any such termination, there shall be no liability for
damages on the part of either Fund (other than the liability of Tax-Free Money
Fund and the relevant Series to pay their allocated expenses pursuant to
paragraph 9.2) or any Director or officer of Tax-Free Money Fund or any Trustee
or officer of Municipal Series Fund.
12. AMENDMENT.
This Agreement may be amended, modified or supplemented only in writing by
the parties; provided, however, that following the shareholders' meeting called
by Municipal Series Fund pursuant to paragraph 5.2, no such amendment may have
the effect of changing the provisions for determining the number of shares of
Tax-Free Money Fund to be distributed to any Series' shareholders under this
Agreement to the detriment of such shareholders without their further approval.
13. NOTICES.
Any notice, report, demand or other communication required or permitted by
any provision of this Agreement shall be in writing and shall be given by hand
delivery, or prepaid certified mail or overnight service addressed to Prudential
Investments Fund Management LLC, Gateway Center Three, Newark, New Jersey 07102,
Attention: Deborah A. Docs.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT.
14.1 The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, provided that, in the case of any conflict
between such laws and the federal securities laws, the latter shall govern.
14.4 This Agreement shall bind and inure to the benefit of the parties and
their respective successors and assigns, and no assignment or transfer hereof or
of any rights or obligations hereunder shall be made by either party without the
written consent of the other party. Nothing herein expressed or implied is
A-12
<PAGE>
intended or shall be construed to confer upon or give any person, firm or
corporation other than the parties and their respective successors and assigns
any rights or remedies under or by reason of this Agreement.
14.5 The terms of this Agreement shall apply separately with respect to
each of Massachusetts Money Market and Connecticut Money Market Series. Nothing
herein expressed or implied is intended or shall be construed to imply that the
approval or implementation of the reorganization with respect to any Series is
subject to or contingent upon approval or implementation of the reorganization
with respect to any other Series.
15. NO LIABILITY OF SHAREHOLDERS OR TRUSTEES OF MUNICIPAL SERIES FUND;
AGREEMENT AN OBLIGATION ONLY OF THE RESPECTIVE SERIES, AND ENFORCEABLE ONLY
AGAINST ASSETS OF THE RESPECTIVE SERIES.
The name "Prudential Municipal Series Fund" is the designation of the
Trustees from time to time acting under an Amended and Restated Declaration of
Trust dated August 17, 1994, as the same may be from time to time amended, and
the names "Massachusetts Money Market Series" and "Connecticut Money Market
Series" are each the designation of a portfolio of the assets of Municipal
Series Fund. Tax-Free Money Fund acknowledges that it must look, and agrees that
it shall look, solely to the assets of each Series for the enforcement of any
claims arising out of or based on the obligations of Municipal Series Fund
hereunder, and with respect to obligations relating to any Series, only to the
assets of such Series, and in particular that (i) neither the Trustees,
officers, employees, agents or shareholders of Municipal Series Fund assume or
shall have any personal liability for obligations of Municipal Series Fund
hereunder, and (ii) none of the assets of Municipal Series Fund other than the
portfolio assets of the relevant Series may be resorted to for the enforcement
of any claim based on the obligations of Municipal Series Fund hereunder.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by the President or Vice President of each Fund.
Prudential Municipal Series Fund
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
Prudential Tax-Free Money Fund, Inc.
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
A-13
<PAGE>
PRELIMINARY COPIES
PRUDENTIAL INVESTMENTS
GATEWAY CENTER THREE
100 MULBERRY STREET, 9TH FLOOR
NEWARK, NJ 07102 - 4077
Prudential Municipal Series Fund
(Connecticut Money Market Series)
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Proxy
Special Meeting of Shareholders (Meeting)
March 22, 2001, 10:00 a.m.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Robert F. Gunia, Deborah A. Docs and
Grace C. Torres as Proxies, each with the power of substitution, and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of Prudential Municipal Series Fund (Connecticut Money Market Series),
held of record by the undersigned on January 19, 2001, at the Meeting to be held
on March 22, 2001 or any adjournment thereof.
THE SHARES REPRESENTED BY THIS PROXY, WHEN THIS PROXY IS PROPERLY EXECUTED, WILL
BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. THE PROXY
WILL BE VOTED FOR PROPOSAL NO. 1 IF YOU DO NOT SPECIFY OTHERWISE. PLEASE REFER
TO THE PROXY STATEMENT AND PROSPECTUS DATED JANUARY __, 2001 FOR DISCUSSION OF
THE PROPOSAL.
IF VOTING BY MAIL, PLEASE MARK, SIGN AND DATE THIS PROXY CARD WHERE INDICATED
AND RETURN IT PROMPTLY USING THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the Meeting or any adjournment thereof.
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a
<PAGE>
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
TO VOTE BY TELEPHONE
1) Read the Proxy Statement and have this Proxy card at hand.
2) Call 1-800-690-6903 toll free.
3) Enter the 12 digit control number set forth on the right side of
this Proxy card and follow the simple instructions.
TO VOTE BY INTERNET
1) Read the Proxy Statement and have this Proxy card at hand.
2) Go to website www.proxyvote.com.
3) Follow the instructions on the website and be prepared to enter your
12 digit control number set forth on the right side of this Proxy card
to enter your vote.
[Shares Control Number]
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS
--------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PRUDENTIAL MUNICIPAL SERIES FUND (Connecticut Money Market Series)
For address changes, please check [_]
this box and write them on the back.
The Board of Trustees recommends a vote FOR the proposal.
Vote on Proposal For Against Abstain
[_] [_] [_]
1) To approve an Agreement and Plan of
Reorganizations between Prudential Municipal
Series Fund, on behalf of certain of its
series, including Connecticut Money Market
Series, and Prudential Tax-Free Money
Fund, Inc.
<PAGE>
Please be sure to sign and date this Proxy.
---------------------------------------
--------------------------------------- ----------------------------
Signature (PLEASE SIGN WITHIN THE BOX) Date
---------------------------------------
--------------------------------------- ----------------------------
Signature (Joint Owners) Date
<PAGE>
PRELIMINARY COPIES
PRUDENTIAL INVESTMENTS
GATEWAY CENTER THREE
100 MULBERRY STREET, 9TH FLOOR
NEWARK, NJ 07102 - 4077
Prudential Municipal Series Fund
(Massachusetts Money Market Series)
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Proxy
Special Meeting of Shareholders (Meeting)
March 22, 2001, 10:00 a.m.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Robert F. Gunia, Deborah A. Docs and
Grace C. Torres as Proxies, each with the power of substitution, and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of Prudential Municipal Series Fund (Massachusetts Money Market Series),
held of record by the undersigned on January 19, 2001, at the Meeting to be held
on March 22, 2001 or any adjournment thereof.
THE SHARES REPRESENTED BY THIS PROXY, WHEN THIS PROXY IS PROPERLY EXECUTED, WILL
BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. THE PROXY
WILL BE VOTED FOR PROPOSAL NO. 1 IF YOU DO NOT SPECIFY OTHERWISE. PLEASE REFER
TO THE PROXY STATEMENT AND PROSPECTUS DATED JANUARY __, 2001 FOR DISCUSSION OF
THE PROPOSAL.
IF VOTING BY MAIL, PLEASE MARK, SIGN AND DATE THIS PROXY CARD WHERE INDICATED
AND RETURN IT PROMPTLY USING THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the Meeting or any adjournment thereof.
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a
<PAGE>
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
TO VOTE BY TELEPHONE
1) Read the Proxy Statement and have this Proxy card at hand.
2) Call 1-800-690-6903 toll free.
3) Enter the 12 digit control number set forth on the right side of
this Proxy card and follow the simple instructions.
TO VOTE BY INTERNET
1) Read the Proxy Statement and have this Proxy card at hand.
2) Go to website www.proxyvote.com.
3) Follow the instructions on the website and be prepared to enter your
12 digit control number set forth on the right side of this Proxy card
to enter your vote.
[Shares Control Number]
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS
--------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PRUDENTIAL MUNICIPAL SERIES FUND (Massachusetts Money Market Series)
For address changes, please check [_]
this box and write them on the back.
The Board of Trustees recommends a vote FOR the proposal.
Vote on Proposal For Against Abstain
[_] [_] [_]
1) To approve an Agreement and Plan
of Reorganizations between Prudential Municipal
Series Fund, on behalf of certain of its series,
including Massachusetts Money Market Series,
and Prudential Tax-Free Money Fund, Inc.
<PAGE>
Please be sure to sign and date this Proxy.
---------------------------------------
--------------------------------------- ----------------------------
Signature (PLEASE SIGN WITHIN THE BOX) Date
---------------------------------------
--------------------------------------- ----------------------------
Signature (Joint Owners) Date
<PAGE>
PRELIMINARY COPIES
PRUDENTIAL TAX-FREE MONEY FUND, INC.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(800) 225-1852
CONNECTICUT MONEY MARKET SERIES AND
MASSACHUSETTS MONEY MARKET SERIES
OF
PRUDENTIAL MUNICIPAL SERIES FUND
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(800) 225-1852
STATEMENT OF ADDITIONAL INFORMATION
dated JANUARY ___, 2001
This Statement of Additional Information specifically relates to the
proposed transactions (Mergers) between each of Connecticut Money Market Series
and Massachusetts Money Market Series (each, a Series and collectively, the
Series), each a series of Prudential Municipal Series Fund (Municipal Series
Fund), and Prudential Tax-Free Money Fund, Inc. (Tax-Free Money Fund) pursuant
to which each Series will transfer all of its assets to, and all of its
liabilities will be assumed by, Tax-Free Money Fund. Tax-Free Money Fund will be
the surviving corporation, and each whole and fractional share of each Series,
shall be exchanged for whole and fractional shares of equal net asset value of
Tax-Free Money Fund to occur on JANUARY __, 2001, or such later date as the
parties may agree. This Statement of Additional Information consists of this
cover page and the following described documents, each of which is attached
hereto and incorporated herein by reference:
1. Statement of Additional Information of Tax-Free Money Fund dated
February 29, 2000.
2. Annual Report to Shareholders of Tax-Free Money Fund for the fiscal
year ended December 31, 1999.
<PAGE>
3. Semi-Annual Report to Shareholders of Tax-Free Money Fund for the six
month period ended June 30, 2000.
4. Annual Report to Shareholders of Connecticut Money Market Series for
the fiscal year ended August 31, 2000.
5. Annual Report to Shareholders of Massachusetts Money Market Series for
the fiscal year ended August 31, 2000.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus and Proxy Statement dated
JANUARY __, 2001, relating to the above-referenced matter. A copy of the
Prospectus and Proxy Statement may be obtained from Tax-Free Money Fund, without
charge, by writing or calling Tax-Free Money Fund at the address or phone number
listed above. This Statement of Additional Information has been incorporated by
reference into the Prospectus and Proxy Statement.
<PAGE>
PRUDENTIAL TAX FREE MONEY FUND, INC.
Statement of Additional Information
Dated February 29, 2000
Prudential Tax-Free Money Fund, Inc. (the Fund) is an open-end, diversified
management investment company whose investment objective is to seek the highest
level of current income that is exempt from federal income taxes, consistent
with liquidity and the preservation of capital. The Fund pursues this objective
by investing primarily in a portfolio of short-term debt obligations issued by
states, territories and possessions of the United States, 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. There can be no assurance that the
Fund's investment objective will be achieved. See "How the Fund Invests" in the
Fund's Prospectus and "Description of the Fund, its Investments and Risks"
below.
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information sets forth information about the
Fund. This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated February 29, 2000, a copy
of which may be obtained from the Fund upon request at the address or telephone
number noted above.
TABLE OF CONTENTS
PAGE
----
Fund History ............................................................. B-2
Description of the Fund, its Investments and Risks ....................... B-2
Investment Restrictions .................................................. B-5
Management of the Fund ................................................... B-6
Control Persons and Principal Holders of Securities ...................... B-9
Investment Advisory and Other Services ................................... B-9
Brokerage Allocation and Other Practices ................................. B-12
Securities and Organization .............................................. B-12
Purchase and Redemption of Fund Shares ................................... B-13
Net Asset Value .......................................................... B-14
Taxes, Dividends and Distributions ....................................... B-15
Calculation of Yield ..................................................... B-16
Financial Statements ..................................................... B-17
Report of Independent Accountants ........................................ B-26
Appendix--Description of Ratings ......................................... I-1
================================================================================
MF103B
<PAGE>
FUND HISTORY
The Fund was organized as a corporation under the laws of Maryland on March
22, 1979.
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
(a) CLASSIFICATION. The Fund is a diversified open-end management
investment company.
(b) INVESTMENT STRATEGIES AND RISKS.
The Fund's investment objective is to seek the highest level of current
income that is exempt from federal income taxes, consistent with liquidity and
the preservation of capital. Additional information relating to the Fund's
principal investment policies and strategies discussed in the Fund's Prospectus,
and information about other securities, instruments, policies and strategies
which the Fund may use from time to time in seeking to achieve its investment
objective, are described below. The Fund may not be successful in achieving its
investment objective and you can lose money.
MUNICIPAL BONDS
The Fund may invest in municipal bonds and municipal notes, which are
collectively referred to as Municipal Bonds in the Fund's Prospectus and this
Statement of Additional Information.
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 also include bonds issued by or on
behalf of public authorities in order to obtain funds with which 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.
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. Municipal 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.
The 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 diversification requirements of the Investment Company Act of 1940, as
amended (the Investment Company Act) 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
organization, or counsel to the holders of the refunded securities, so verifies;
(iv) the escrow agreement provides that the issuer of the refunded securities
grants and assigns to the escrow agent, for the equal and ratable benefit of the
holders of the refunded securities, an express first lien on, pledge of and
perfected security interest in the escrowed securities and the interest income
thereon and (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 Fund will not,
however, invest more than 25% of its total assets in pre-refunded bonds of the
same municipal issuer.
VARIABLE RATE AND FLOATING RATE SECURITIES. The interest rates payable on
certain Municipal Bonds are not fixed and may fluctuate based upon changes in
market rates. Municipal Bonds of this type are called "variable rate" or
"floating rate"
B-2
<PAGE>
obligations. The interest rate payable on a variable rate obligation is adjusted
at predesignated intervals and the interest rate payable on a floating rate
obligation is adjusted whenever there is a change in the market rate of interest
on which the interest rate payable is based. Other features of these obligations
typically include the right of the Fund to demand, in some cases, at specified
intervals of less than one year or, in other cases, upon not less than seven
days' notice, prepayment of the principal amount of the obligation prior to its
stated maturity (a demand feature). In addition, the issuer may have the right,
at similar intervals or upon similar notice, to prepay the principal amount
prior to maturity. The principal benefit of variable and floating rate
obligations is that the interest rate adjustment minimizes changes in the market
value of the obligations. As a result, the purchase of such obligations should
enhance the ability of the Fund to maintain a stable net asset value per share
(see Net Asset Value) and to sell an obligation prior to maturity at a price
approximating the full principal amount of the obligation. The payment of
principal and interest by issuers of certain Municipal Bonds purchased by the
Fund may be guaranteed by letters of credit or other credit facilities offered
by banks or other financial institutions. Such guarantees will be considered in
determining whether a Municipal Bond meets the Fund's investment quality
requirements.
PUTS. The Fund may purchase Municipal Bonds together with the right to
resell the Municipal Bonds to the seller at an agreed-upon price or yield within
a specified period prior to the maturity date of the bonds. Such a right to
resell is commonly known as a "put" or "tender option," and the aggregate price
which the Fund pays for Municipal Bonds with puts or tender options is higher
than the price which otherwise would be paid for the Bonds. Consistent with the
Fund's investment objective and subject to the supervision of the Board of
Directors, the primary purpose of this practice is to permit the Fund to be
fully invested in securities the interest on which is exempt from federal income
taxes while preserving the necessary liquidity to purchase securities on a
when-issued basis, to meet unusually large redemptions and to purchase, at a
later date, securities other than those subject to the put. The Fund's policy is
generally to exercise the puts or tender options on their expiration date when
the exercise price is higher than the current market price for related Municipal
Bonds. Puts or tender options 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 Fund 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 Fund's investment adviser revises its
evaluation of the creditworthiness of the issuer of the underlying security. In
determining whether to exercise puts or tender options prior to their expiration
date and in selecting which puts or tender options to exercise in such
circumstances, the investment adviser considers, among other things, the amount
of cash available to the Fund, the expiration dates of the available puts or
tender options, 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 the
Fund's portfolio.
The Fund values Municipal Bonds which are subject to puts or tender options
at amortized cost; no value is assigned to the put or tender option. The cost of
the put or tender option is carried as an unrealized loss from the time of
purchase until it is exercised or expires. The value of the put or tender option
is dependent on the ability of the put writer to meet its obligation of
repurchase, and it is the Fund's general policy to enter into put or tender
option transactions only with such brokers, dealers or other financial
institutions which present minimal credit risks. There is a credit risk
associated with the purchase of puts or tender options in that the broker,
dealer or financial institution might default on its obligation to repurchase an
underlying security. The Fund has received a ruling of the Internal Revenue
Service to the effect that the Fund will be considered the owner of the
Municipal Bonds subject to the puts or tender options so that the interest on
the bonds will be tax-exempt income to the Fund.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Municipal Bonds are frequently
offered on a when-issued or delayed delivery basis. When so offered, the price
and coupon rate are fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date.
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
fluctuation and, during the period between purchase and settlement, no interest
accrues to the purchaser. While securities may be sold prior to the settlement
date, the Fund intends to purchase such securities with the purpose of actually
acquiring them unless a sale would be desirable for investment reasons. At the
time the Fund makes the commitment to purchase a Municipal Bond on a when-issued
or delayed delivery basis, it will record the transaction and reflect the value
of the bond in determining its net asset value. The Fund will also establish a
segregated account with its custodian bank in which it will maintain cash or
other liquid assets equal in value to commitments for when-issued or delayed
delivery securities. If the Fund chooses to dispose of the when-issued or
delayed delivery security prior to the settlement date, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. The Fund does not believe that its net asset value or net
investment income will be adversely affected by its purchase of Municipal Bonds
on a when-issued or delayed delivery basis. The Fund may invest in when-issued
or delayed delivery securities without other limitation.
OTHER MATTERS. For purposes of diversification under the Investment Company
Act, the identification of the issuer of Municipal Bonds depends on the terms
and conditions of the obligation. If the assets and revenues of an agency,
authority,
B-3
<PAGE>
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 a private activity 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.
BORROWING
The Fund may borrow from banks (including through entering into reverse
repurchase agreements) up to and including 5% of the value of its total assets
taken at cost for temporary or emergency purposes. The Fund may pledge up to and
including 10% of its net assets to secure such borrowings.
REPURCHASE AGREEMENTS
The Fund may invest up to 5% of its assets in repurchase agreements whereby
the seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, possibly overnight or a few days, 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. The 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 instruments
declines, the 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 Fund participates in a joint repurchase account with
other investment companies managed by PIFM pursuant to an order of the
Securities and Exchange Commission (SEC).
ILLIQUID SECURITIES
The Fund may not hold more than 10% of its net assets in illiquid
securities. If the Fund were to exceed this limit, the investment adviser would
take prompt action to reduce the Fund's holdings in illiquid securities to no
more than 10% of its net assets, as required by applicable law. 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 (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, convertible and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or 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 under 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.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act, commercial paper and municipal lease obligations for which there
is a readily available market will not be deemed to be illiquid under procedures
established by the Board of Directors. The investment adviser will monitor the
liquidity of such restricted securities subject to the supervision of the Board
of Directors. 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
B-4
<PAGE>
mechanics of the transfer). With respect to municipal lease obligations, the
investment adviser will also consider: (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 (NRSROs) 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); and (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. With respect to commercial
paper that is issued in reliance on Section 4(2) of the Securities Act: (1) it
must be rated in one of the two highest rating categories by at least two
NRSROs, 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 (2)
it must not be "traded flat" (i.e., without accrued interest) or in default as
to principal or interest. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund. A "majority of the
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the 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 (ii) more than 50% of the outstanding voting
shares. With respect to the submission of a change in fundamental policy or
investment objective of the Fund, such matters shall be deemed to have been
effectively acted upon with respect to the Fund if a majority of the outstanding
voting securities of the Fund votes for the approval of such matters as provided
above.
The following investment restrictions are fundamental policies of the Fund
and may not be changed except as described above.
The Fund may not:
(1) Invest more than 5% of the market or other fair value of its total
assets in the securities of any one issuer (other than obligations of, or
guaranteed by, the United States Government, its agencies or instrumentalities
or secured by such obligations). See "Municipal Bonds--Other Matters" under
"Description of the Fund, its Investments and Risks" for the definition of an
issuer.
(2) Make short sales of securities.
(3) Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio securities.
(4) Borrow money, except that the 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. Secured temporary
borrowings may take the form of reverse repurchase agreements, pursuant to which
the Fund would sell portfolio securities for cash and simultaneously agree to
repurchase them at a specified date for the same amount of cash plus an interest
component. The Fund would maintain, in a segregated account with its custodian,
liquid assets equal in value to the amount owed.
(5) Pledge its assets or assign or otherwise encumber them in excess of 10%
of its assets (taken at market or other fair value at the time of pledging) and
then only to secure borrowings effected within the limitations set forth in
restriction (4).
(6) Engage in the underwriting of securities.
(7) Purchase or sell real estate mortgage loans, although it may purchase
Municipal Bonds secured by interests in real estate.
(8) Make loans of money or securities, except through the purchase of debt
obligations or repurchase agreements.
(9) Purchase securities of other investment companies, except 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 in connection with a merger,
consolidation, reorganization or acquisition of assets.
(10) Invest for the purpose of exercising control or management of another
company.
B-5
<PAGE>
(11) Purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total 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.
In addition, the Fund may not purchase any security (other than obligations
of the U.S. Government, its agencies and instrumentalities) if as a result 25%
or more of the value of the 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.
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 action is taken, 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 action within three days to
reduce its borrowings, as required by applicable law.
MANAGEMENT OF THE FUND
(A) DIRECTORS
The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, Subadviser, and Distributor, decide upon matters of general
policy.
The Directors also review the actions of the officers of the Fund, who
conduct and supervise the daily business operations of the Fund.
(B) MANAGEMENT INFORMATION--DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH
NAME, ADDRESS AND AGE (1) THE FUND PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS FOR THE LAST FIVE YEARS
------------------------ -------------- --------------------------------------------------------------------
<S> <C> <C>
Delayne Dedrick Gold (61) Director Marketing and Management Consultant.
* Robert F. Gunia (53) Vice President Executive Vice President and Chief Administrative Officer (since
and Director June 1999) of Prudential Investments; Corporate Vice President
(since September 1997) of The Prudential Insurance Company of
America (Prudential); Executive Vice President and Treasurer
(since December 1996) of Prudential Investments Fund Management LLC
(PIFM); President (since April 1999) Prudential Investment Management
Services LLC (PIMS); formerly Senior Vice President (March 1987-May
1999) 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.
Robert E. LaBlanc (65) Director 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; and Trustee of
Manhattan College.
* David R. Odenath, Jr. (42) Director Officer in Charge, President, Chief Executive Officer and Chief
Operating Officer (since June 1999) of PIFM; Senior Vice
President (since June 1999) of Prudential; Senior Vice President
(August 1993-May 1999) of PaineWebber Group, Inc.
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME, ADDRESS AND AGE (1) THE FUND PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS FOR THE LAST FIVE YEARS
------------------------ -------------- --------------------------------------------------------------------
<S> <C> <C>
Robin B. Smith (60) Director Chairman and Chief Executive Officer (since August 1996) of
Publishers Clearing House; formerly President and Chief Executive
Officer (January 1989-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.
Stephen Stoneburn (56) Director 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) of 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.
* John R. Strangfeld, Jr. (46) President and Chief Executive Officer, Chairman, President and Director (since
Director January 1990) of The Prudential Investment Corporation; Executive
Vice President (since February 1998) of Prudential Global Asset
Management Group of Prudential; Chairman (since August 1989) of
Pricoa Capital Group; formerly various positions to Chief Executive
Officer (November 1994-December 1998) of Private Asset Management
Group of Prudential and Senior Vice President (January 1986-August
1989) of Prudential Capital Group, a unit of Prudential.
Nancy H. Teeters (69) Director Economist; formerly Director of Inland Steel Industries (July
1991-1999); formerly, Vice President and Chief Economist (March
1986-June 1990) of International Business Machines Corporation;
formerly, Governor of Federal Reserve System (1978-1984).
Clay T. Whitehead (61) Director President (since May 1983) of National Exchange Inc. (new business
development firm).
Robert C. Rosselot (39) Secretary Assistant General Counsel (since September 1997) of PIFM;
formerly, partner with the law firm of Howard & Howard,
Bloomfield Hills, Michigan (December 1995-September 1997) and
Corporate Counsel, Federated Investors (1990-1995).
Grace C. Torres (40) Treasurer and First Vice President (since December 1996) of PIFM; First Vice
Principal President (since March 1994) of Prudential Securities; formerly
Financial First Vice President (March 1994-September 1996) of Prudential
and Mutual Fund Management, Inc. and Vice President (July 1989-March
Accounting 1994) of Bankers Trust Corporation.
Officer
Stephen M. Ungerman (46) Assistant Vice President and Tax Director (since March 1996) of Prudential
Treasurer Investments; formerly First Vice President (February 1993-September
1996) of Prudential Mutual Fund Management, Inc.
</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, as defined in the Investment Company Act, by reason
of his affiliation with Prudential Securities or PIFM.
B-7
<PAGE>
Directors and officers of the 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 the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Board of Directors has adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 75.
Pursuant to 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 Directors of the Fund who are affiliated persons of the Manager.
The Fund pays each of its Directors who is not an affiliated person of PIFM
annual compensation of $1,225, in addition to certain out-of-pocket expenses.
Directors who serve on Fund Committees receive additional compensation. The
amount of compensation paid to each Director may change as a result of the
introduction of additional funds upon which the Director will be asked to serve.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fees in installments 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 (the T-Bill rate) or, pursuant
to an SEC exemptive order, at the daily rate of return of the Fund (the Fund
rate). Payment of the interest so accrued is also deferred and accruals become
payable at the option of the Director. The Fund's obligation to make payments of
deferred Directors' fees, together with interest thereon, is a general
obligation of the Fund.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended December 31, 1999 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's Board and that of all other funds managed by
PIFM (Fund Complex) for the calendar year ended December 31, 1999.
COMPENSATION TABLE
TOTAL 1999
COMPENSATION
FROM FUND
AGGREGATE AND FUND
COMPENSATION COMPLEX PAID
NAME AND POSITION FROM FUND TO DIRECTORS(2)
----------------- ------------ --------------
Edward D. Beach--Former Director $1,225 $142,500(43/70)*
Delayne D. Gold--Director $1,225 $144,500(43/70)*
Robert F. Gunia (1)--Director -- --
Don G. Hoff--Former Director $ 750 $ 22,500(14/17)*
Robert F. LaBlanc--Director $1,225 $ 61,250(20/39)*
David R. Odenath, Jr. (1) -- --
Robin B. Smith--Director $1,225 $ 96,000(32/44)*
Stephen Stoneburn--Director $1,225 $ 61,250(20/39)*
John R. Strangfeld, Jr. (1) -- --
Nancy H. Teeters--Director $1,250 $ 97,000(25/43)*
Clay T. Whitehead--Director $ 100 $ 77,000(38/66)*
----------
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
(1) Directors who are "interested" do not receive compensation from the Fund
Complex (including the Fund).
(2) Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1999, including amounts deferred at the
election of Directors under the funds' Deferred Compensation Plans.
Including accrued interest, total deferred compensation amounted to
$156,478 for 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.
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<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 11, 2000, the Directors and officers of the Fund, as a
group, beneficially owned less than 1% of the outstanding shares of Common Stock
of the Fund.
As of February 11, 2000, there were no beneficial owners, directly or
indirectly, of more than 5% of the outstanding common stock of the Prudential
Tax-Free Money Fund, Inc.
As of February 11, 2000, Prudential Securities was the record holder for
other beneficial owners of 166,475,680 shares of the Fund, representing
approximately 92.2% of the shares then outstanding. 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.
INVESTMENT ADVISORY AND OTHER SERVICES
(A) INVESTMENT ADVISER
The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM serves as manager to all of the other investment companies
that, together with the Fund, comprise the Prudential Mutual Funds. See "How the
Fund is Managed--Manager" in the Prospectus. As of December 31, 1999, PIFM
managed and/or administered open-end and closed-end management investment
companies with assets of approximately $73.5 billion. According to the
Investment Company Institute, as of September 30, 1999, the Prudential Mutual
Funds were the 20th largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities Incorporated. Prudential
Mutual Fund Services LLC (PMFS or the Transfer Agent), a wholly-owned subsidiary
of PIFM, serves as the transfer agent and dividend distribution agent for the
Prudential Mutual Funds and, in addition, provides customer service,
recordkeeping and management and administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PIFM, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities and other
assets. In connection therewith, PIFM is obligated to keep certain books and
records of the Fund. PIFM has hired The Prudential Investment Corporation, doing
business as Prudential Investments (PI, the investment adviser or the
Subadviser), to provide subadvisory services to the Fund. PIFM also administers
the Fund's corporate affairs and, in connection therewith, furnishes the Fund
with office facilities, together with those ordinary clerical and bookkeeping
services which are not being furnished by State Street Bank and Trust Company,
the Fund's custodian (the Custodian), and PMFS, the Fund's transfer and dividend
disbursing agent. The management services of PIFM for the Fund are not exclusive
under the terms of the Management Agreement and PIFM is free to, and does,
render management services to others.
For its services, PIFM receives, pursuant the Management Agreement, a fee
at an annual rate of .50 of 1% of the Fund's average daily net assets up to $750
million, .425 of 1% of the Fund's average daily net assets between $750 million
and $1.5 billion and .375 of 1% of the Fund's average daily net assets in excess
of $1.5 billion. The fee is computed daily and payable monthly. The Management
Agreement also provides that in the event the expenses of the Fund (including
the fees payable to PIFM, 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) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which shares of the Fund are then qualified for offer and
sale, the compensation due to PIFM will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to PIFM will be paid by
PIFM to the Fund. Currently, the Fund believes that there are no such expense
limitations.
In connection with its management of the corporate affairs of the Fund
pursuant to the Management Agreement, PIFM bears the following expenses:
(a) the salaries and expenses of all personnel of PIFM and the Fund,
except the fees and expenses of Directors who are not affiliated persons of
PIFM or the Fund's investment adviser;
(b) all expenses incurred by PIFM or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those
assumed by the Fund, as described below; and
(c) the costs and expenses payable to the investment advisor pursuant
to the subadvisory agreement between PIFM and PI (the Subadvisory
Agreement).
B-9
<PAGE>
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses, (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated with PIFM or the
Fund's Subadvisor, (c) the fees and certain expenses of the Fund's Custodian and
Transfer Agent, including the cost of providing records to the Manager in
connection with its obligation of maintaining required records of the Fund and
of pricing the Fund's shares, (d) the charges and expenses of the Fund's legal
counsel and independent accountants, (e) brokerage commissions, if any, 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 stock certificates representing shares of the Fund,
(i) the cost of fidelity and liability insurance, (j) the fees and expenses
involved in registering and maintaining registration of the Fund and of its
shares with the SEC, including the preparation and printing of the Fund's
registration statements and prospectuses for such purposes, and paying the fees
and expenses of notice filings made in accordance with state securities laws,
(k) allocable communications expenses with respect to investor services and all
expenses of shareholders' and Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses 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
expenses.
The Management Agreement also provides that PIFM will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The Management Agreement provides that
it will terminate automatically if assigned (as defined in the Investment
Company Act), and that it may be terminated without penalty by either party upon
not more than 60 days' nor less than 30 days' written notice. The Management
Agreement provides that it will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in accordance with the requirements of
the Investment Company Act.
For the fiscal years ended December 31, 1999, 1998 and 1997, PIFM received
management fees of $1,013,590, $1,389,197 and $1,699,125, respectively.
PIFM has entered into the Subadvisory Agreement with PI, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PI furnish
investment advisory services in connection with the management of the Fund. In
connection therewith, PI is obligated to keep certain books and records of the
Fund. PIFM continues to have responsibility for all investment advisory services
pursuant to the Management Agreement and supervises PI's performance of such
services. PI was reimbursed by PIFM for the reasonable costs and expenses
incurred by PI in furnishing services to PIFM. Effective January 1, 2000, PI is
paid by PIFM at an annual rate of .25 of 1% of the Fund's average daily net
assets (representing half of the compensation received from the Fund by PIFM).
The Subadviser maintains a corporate credit unit which provides credit
analysis and research on taxable fixed-income securities, including money market
instruments. The portfolio manager consults routinely with the credit unit in
managing the Fund's portfolio. The credit unit, with a staff including credit
analysts, reviews on an ongoing basis commercial paper issuers, commercial
banks, non-bank financial institutions and issuers of other taxable fixed-income
obligations. Credit analysts have broad access to research and financial
reports, data retrieval services and industry analysts. They maintain
relationships with the management of corporate issuers and from time to time
visit companies in whose securities the Fund may invest.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PIFM or PI upon not more than 60 days' nor less than 30
days' written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved by the Board of Directors at least
annually in accordance with the requirements of the Investment Company Act.
(B) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12B-1 PLAN
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund.
Pursuant to the Fund's Distribution Agreement, the Fund has agreed to
indemnify the Distributor to the extent permitted by applicable law against
certain liabilities under the federal securities laws.
B-10
<PAGE>
DISTRIBUTION AND SERVICE PLAN
Under the Fund's Distribution and Service Plan (the Plan) and Distribution
Agreement, the Fund pays the Distributor a distribution and service fee of up to
0.125% of the average daily net assets of the Class A shares of the Fund,
computed daily and payable monthly. Under the Plan, the Fund is required to pay
the distribution and service fee regardless of the expenses incurred by the
Distributor.
For the fiscal year ended December 31, 1999, Prudential Securities and PIMS
collectively received payments of $253,397, under the Plan. It is estimated that
all this amount was spent on commission credits to Prudential Securities and
Prusec for payments of account servicing fees to financial advisers and an
allocation of overhead and other branch office distribution-related expenses.
The term "overhead and other branch office distribution-related expenses"
represents (a) the expenses of operating branch offices of Prudential Securities
and Pruco Securities Corporation (Prusec), an affiliated broker-dealer, in
connection with the sale of Fund 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 Fund shares and (d) other incidental expenses relating to
branch promotion of Fund sales.
The Plan continues in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the Plan or in any
agreement relating to the Plan (the Rule 12b-1 Directors), cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time, without penalty, by the vote of a majority of the Rule
12b-1 Directors or by the vote of the holders of a majority of the outstanding
Class A voting securities of the Fund on not more than 30 days' written notice
to any other party to the Plan. The Plan may not be amended to increase
materially the amounts to be spent for the services described therein without
shareholder approval, and all material amendments must also be approved by the
Board of Directors in the manner described above. The Plan will automatically
terminate in the event of its assignment.
Pursuant to the Plan, the Directors will be provided with, and will review,
at least quarterly, a written report of the distribution expenses incurred on
behalf of the Fund by the Distributor. The report will include an itemization of
the distribution expenses and the purpose of such expenditures. In addition, as
long as the Plan remains in effect, the selection and nomination of Directors
shall be committed to the Rule 12b-1 Directors.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of the
Fund's Class A shares. Interest charges on unreimbursed distribution expenses
equal to the prime rate plus one percent per annum may be added to the 6.25%
limitation. Sales from the reinvestment of dividends and distributions are not
included in the calculation of the 6.25% limitation. The annual asset-based
sales charge on Class A shares of the Fund may not exceed .75 of 1% per class.
The 6.25% limitation applies to Class A shares rather than on a per shareholder
basis. If aggregate sales charges were to exceed 6.25% of the total gross sales
of Class A shares, all sales charges on Class A shares would be suspended.
(C) OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities,
and in that capacity maintains cash and certain financial and accounting books
and records pursuant to an agreement with the Fund.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer Agent of the Fund. It is a wholly-owned
subsidiary of PIFM. PMFS provides customary transfer agency services to the
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. In connection with
services rendered to the Fund, PMFS receives an annual fee ($9.50) per
shareholder account, a new account set up fee ($2.00) for each
manually-established account and a monthly inactive zero balance account fee
($0.20) per shareholder account plus its out-of-pocket expenses, including but
not limited to postage, stationery, printing, allocable communications and other
costs.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Although the
B-11
<PAGE>
Fund has not experienced any material problems with the services provided by the
Manager, Distributor, Transfer Agent or the Custodian as a result of the change
from 1999 to 2000, there is a possibility that computer software systems in use
might be impaired or unavailable because of the way dates are encoded and
calculated. Such an event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no future
adverse impact on the Fund, the Manager, the Distributor, the Transfer Agent and
the Custodian have advised the Fund that they have completed necessary changes
to their computer systems in connection with the year 2000. The Funds service
providers (or other securities market Participants) may experience future
material problems in connection with the year 2000. The Company and its Board
have instructed the Funds principal service providers to monitor and report year
2000 problems.
Additionally, issuers of securities generally, as well as those purchased
by the Fund, may confront year 2000 compliance issues at some later time which,
if material and not resolved, could have an adverse impact on securities markets
and/or a specific issuer's performance and could result in a decline in the
value of the securities held by the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section the
term "Manager" includes the Subadviser. The Fund does not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, securities are generally traded on a "net" basis, with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. 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 Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Manager may consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of the Fund, 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
Fund 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 far larger than those of the
Fund, and the services furnished by such brokers may be used by the Manager in
providing investment management for the Fund. 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 Fund does not reduce the fee it pays to the Manager by any
amount that may be attributed to the value of such services. The Fund will not
effect any securities transactions with or through Prudential Securities as
broker or dealer.
During the fiscal years ended December 31, 1999, 1998 and 1997, the Fund
paid no brokerage commissions.
SECURITIES AND ORGANIZATION
The Fund is authorized to issue three billion shares of common stock, $.01
par value per share, divided into two classes, designated Class A and Class Z
common stock. Of the authorized shares of common stock of the Fund, 1.5 billion
shares consist of Class A shares and 1.5 billion shares consist of Class Z
shares.
Currently, the Fund offers only Class A shares. Shares of the Fund, when
issued, are fully paid, nonassessable, fully transferable and redeemable at the
option of the shareholder. All shares are equal as to earnings, assets and
voting privileges. There are no conversion, pre-emptive or other subscription
rights. In the event of liquidation, each share of common stock of the Fund is
entitled to its portion of all the Fund's assets after all debts and expenses
have been paid. The shares of the Fund do not have cumulative voting rights for
the election of directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders
B-12
<PAGE>
under the Investment Company Act. Shareholders have certain rights, including
the right to call a meeting upon a vote of 10% or more of the Fund's outstanding
shares for the purpose of voting on the removal of one or more Directors or to
transact any other business.
PURCHASE AND REDEMPTION OF FUND SHARES
PURCHASE OF SHARES
The Fund reserves the right to reject any initial or subsequent purchase
(including an exchange) and the right to limit investments in the Fund solely to
existing or past shareholders of the Fund.
Shares of the Fund may be purchased by investors through the Distributor,
by brokers that have entered its agreements to sell Fund shares, or directly
through Prudential Mutual Fund Services LLC (PMFS). Shares may also be purchased
through Prudential Securities or Pruco Securities Corporation (Prusec).
Prudential Securities clients who hold Fund shares through Prudential Securities
may benefit through administrative conveniences afforded them as Prudential
Securities clients, but may be subject to certain additional restrictions
imposed by Prudential Securities.
REOPENING AN ACCOUNT
Subject to the minimum investment restrictions, an investor may reopen an
account, without filing a new application form, at any time during the calendar
year the account is closed, provided that the existing account information is
still accurate.
REDEMPTION OF SHARES
Investors who purchase shares directly from PMFS may use the following
privileges:
CHECK REDEMPTION. At a shareholder's request, State Street Bank will
establish a personal checking account for the shareholder. Checks drawn on this
account can be made payable to the order of any person in any amount equal to or
greater than $500. The payee of the check may cash or deposit it like any other
check drawn on a bank. When such a check is presented to State Street for
payment, State Street presents the check to the Fund as authority to redeem a
sufficient number of shares in a shareholder's account in the Fund to cover the
amount of the check. This enables the shareholder to continue earning daily
dividends until the check is cleared. Canceled checks are returned to the
shareholder by State Street.
Shareholders are subject to State Street's rules and regulations governing
checking accounts, including the right of State Street not to honor checks in
amounts exceeding the value of the shareholder's account at the time the check
is presented for payment.
Shares for which certificates have been issued are not available for
redemption to cover checks. A shareholder should be certain that adequate shares
for which certificates have not been issued are in his or her account to cover
the amount of the check. Also, shares purchased by check are not available to
cover checks until 10 calendar days after receipt of the purchase check by PMFS.
If insufficient shares are in the account, or if the purchase was made by check
within 10 calendar days, the check will be returned marked "insufficient funds."
Since the dollar value of an account is constantly changing, it is not possible
for a shareholder to determine in advance the total value of his or her account
so as to write a check for the redemption of the entire account.
PMFS reserves the right to assess a service charge to establish a checking
account and to order checks. State Street, PMFS and the Fund have reserved the
right to modify this checking redemption privilege or to place a charge for each
check presented for payment for any individual account or for all accounts in
the future.
The Fund, PMFS or State Street may terminate Check Redemption at any time
upon 30 days' notice to participating shareholders. To receive further
information, contact Prudential Mutual Fund Services LLC, Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010, or telephone
(800) 225-1852 (toll-free). Check Redemption is not available to investors for
whom Prudential Securities has purchased shares.
EXPEDITED REDEMPTION. In order to use Expedited Redemption, a shareholder
may so designate at the time the initial application form is filed or at a later
date. Once the completed Expedited Redemption authorization form has been
returned to PMFS, requests for redemption may be made by telephone. Redemption
proceeds will be transmitted by wire to the shareholder's account at a domestic
commercial bank which is a member of the Federal Reserve System. The Fund does
not forward redemption proceeds with respect to shares purchased by check until
at least 10 calendar days after receipt of the purchase check by PMFS.
To request an expedited redemption by telephone, a shareholder should call
PMFS at (800) 225-1852. Calls must be received by PMFS before 4:30 P.M., New
York time, in order for the redemption to be effective on that day. Requests by
letter should be addressed to Prudential Mutual Fund Services LLC, at the
address set forth above.
B-13
<PAGE>
REGULAR REDEMPTION. Shareholders may redeem their shares by sending to
PMFS, at the address set forth above, a written request. All written requests
for redemption, must be endorsed by the shareholder with signature guaranteed,
as described below. PMFS may request further documentation from corporations,
executors, administrators, trustees or guardians. Redemption proceeds are sent
to a shareholder's address by check.
SIGNATURE GUARANTEE. If the proceeds of the redemption (a) exceed $100,000,
(b) are to be paid to a person other than the record owner, (c) are to be sent
to an address other than the address on the Transfer Agent's records or (d) are
to be paid to a corporation, partnership, trust or fiduciary, the signature(s)
on the redemption request must be signature guaranteed by an "eligible guarantor
institution." An "eligible guarantor institution" includes any bank, broker,
dealer or credit union. The Transfer Agent reserves the right to request
additional information from, and make reasonable inquiries of, any eligible
guarantor institution. PMFS may request further documentation from corporations,
executors, administrators, trustees or guardians.
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay the redemption price in whole or in part by
a distribution in kind of securities from the investment portfolio of the Fund,
in lieu of cash, in conformity with applicable rules of the SEC. Any such
securities will be readily marketable and will be valued in the same manner as
in a regular redemption. If your shares are redeemed in kind, you would incur
transaction costs in converting the assets into cash. The Fund, however, has
elected to be governed by Rule 18f-1 under the Investment Company Act pursuant
to which the Fund is obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.
RESTRICTIONS ON SALES
The 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 for 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 the
Fund of securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for the 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 the 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.
NET ASSET VALUE
The Fund's net asset value per share is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares.
The Fund uses the amortized cost method of valuation to determine the value
of its portfolio securities. In that regard, the Fund's Board of Directors has
determined to maintain a dollar-weighted average portfolio maturity of 90 days
or less, to purchase only instruments having remaining maturities of thirteen
months or less, and to invest only in securities determined by the investment
adviser under the supervision of the Board of Directors to be of minimal credit
risk and to be of "eligible quality" in accordance with regulations of the SEC.
The remaining maturity of an instrument held by the Fund that is subject to a
put is deemed to be the period remaining until the principal amount can be
recovered through demand or, in the case of a variable rate instrument, the next
interest reset date, if longer. The value assigned to the put is zero. The Board
of Directors also has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures will include review
of a Fund's portfolio holdings by the Board, at such intervals as deemed
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board, and if such
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, will be initiated. In the event the Board of Directors determines that a
deviation exists which may result in material dilution or other unfair results
to investors or existing shareholders, the Board will take such corrective
action as it regards necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize gains or losses, the shortening of
average portfolio maturity, the withholding of dividends or the establishment of
net asset value per share by using available market quotations.
The Fund computes its net asset value at 4:30 PM New York time, on each day
the New York Stock Exchange (the Exchange) is open for trading. In the event the
Exchange closes early on any business day, the net asset value of the Fund's
shares shall be determined at a time between such closing and 4:30 PM New York
time. The 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.
B-14
<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected to qualify, and the Fund intends to remain qualified,
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended. This relieves a fund (but not its shareholders) from
paying federal income tax on income which is distributed to shareholders, and,
if a fund did realize long-term capital gains, permits net capital gains of the
fund (i.e., the excess of net long-term capital gains over net short-term
capital losses) to be treated as long-term capital gains of the shareholders,
regardless of how long shareholders have held their shares in that fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of a fund's annual gross income (without reduction
for losses from the sale or other disposition of securities or foreign
currencies) be derived from interest, dividends, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
options thereon, or other income (including, but not limited to, gains from
options) derived with respect to its business of investing in such securities;
(b) a fund must diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of a fund's assets is
represented by cash, U.S. Government obligations 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 obligations) and (c)
the fund must distribute to its shareholders at least 90% of its net investment
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.
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. The Fund does not anticipate realizing long-term capital
gains or losses. Other gains or losses on the sale of securities will be
short-term capital gains or losses. In addition, debt securities acquired by the
Fund may be subject to original issue discount and market discount rules.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a non-deductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which the Fund pays income
tax is treated as distributed. The Fund intends 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.
It is anticipated that the net asset value per share of the Fund will
remain constant. However, if the net asset value per share fluctuates, a
shareholder may realize gain or loss upon the disposition of a share.
Distributions of net investment income and net short-term gains will be taxable
to the shareholder at ordinary income rates regardless of whether the
shareholder receives such distributions in additional shares or cash. Any gain
or loss realized upon a sale or redemption of shares by a shareholder who is not
a dealer in securities will generally be treated as long-term capital gain or
loss if the shares have been held for more than one year and otherwise as
short-term capital gain or loss. Any such loss, however, although otherwise
treated as short-term capital loss, will be long-term capital loss to the extent
of any capital gain distributions received by the shareholder, if the shares
have been held for six months or less. Furthermore, certain rules may apply
which would limit the ability of the shareholder to recognize any loss if, for
example, the shareholder replaced the shares (including shares purchased
pursuant to dividend reinvestment) within 30 days of the disposition of the
shares. In such a case the basis of the shares acquired will be readjusted to
reflect the disallowed loss. Shareholders who have held their shares for six
months or less may be subject to a disallowance of losses from the sale or
exchange of those shares to the extent of any exempt-interest dividends received
by the shareholder with respect to the shares and if such losses are not
disallowed, they will be treated as long-term capital losses to the extent of
any distribution of long-term capital gains received by the shareholder with
respect to such shares. Because none of the Fund's net income is anticipated to
arise from dividends on common or preferred stock, none of its distributions to
shareholders will be eligible for the dividends received deduction for
corporations under the Internal Revenue Code. Shareholders will be notified
annually by the Fund as to the federal tax status of distributions made by the
Fund.
Interest on indebtedness incurred or continued by a shareholder, whether a
corporation or an individual, to purchase or carry shares of the Fund is not
deductible. Exempt-interest dividends attributable to interest on certain
"private activity" tax-exempt obligations are a preference item for computing
the alternative minimum tax for both individuals and corporations. Moreover,
exempt-interest dividends attributable to interest on tax-exempt obligations,
whether or not private activity bonds, that are received by corporations 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 and (ii) in determining the foreign branch profits
B-15
<PAGE>
tax imposed on the effectively connected earnings and profits (with adjustments)
of United States branches of foreign corporations. Entities or persons who are
"substantial users" (or related persons) of facilities financed by private
activity bonds should consult their tax advisers before purchasing shares of the
Fund.
The Fund may be subject to state or local tax in certain other states where
it is deemed to be doing business. Further, in those states which have income
tax laws, the tax treatment of the Fund may differ from federal tax treatment.
The exemption of interest income for federal income tax purposes may not result
in similar exemption under the laws of a particular state or local taxing
authority. The Fund will report annually to its shareholders the percentage and
source on a state-by-state basis, of interest income on Municipal Bonds received
by the Fund during the preceding year.
Under the laws of certain states, distributions of net income may be
taxable to shareholders 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. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
CALCULATION OF YIELD
The Fund will prepare a current quotation of yield daily. 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 shares, but excluding any capital changes, divided by the value
of the account at the beginning of the base period. The yield will vary as
interest rates and other conditions affecting money market instruments change.
Yield also depends on the quality, length of maturity and type of instruments in
the Fund's portfolio, and its operating expenses. The Fund also may 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 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
other securities.
The yield and effective yield for the Fund based on the 7 days ended
December 31, 1999 were 3.48% and 3.54%, respectively. The tax equivalent yield
for the Fund based on the 7 days ended December 31, 1999 was 3.68%.
The Fund's yield fluctuates, and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will actually
yield for any given period. Actual yields will depend upon not only changes in
interest rates generally during the period in which the investment in a Fund is
held, but also in changes in the Fund's expenses. Yield does not take into
account any federal or state income taxes.
ADVERTISING. Advertising materials for the Fund may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Fund's manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for the Fund also may
include mention of The Prudential Insurance Company of America, its affiliates
and subsidiaries, and reference the assets, products and services of those
entities.
From time to time, advertising materials for the Fund may include
information concerning retirement and investing for retirement, may refer to the
appropriate number of Fund shareholders and Lipper rankings or Morningstar
ratings, other related analysis supporting those ratings, other industry
publications, business periodicals and market indices. In addition, advertising
materials may reference studies or analyses performed by the Manager or its
affiliates. Advertising materials for sector funds, funds that focus on market
capitalizations, index funds and international/global funds may discuss the
potential benefits and risks of that investment style. Advertising materials for
fixed income funds may discuss the benefits and risks of investing in the bond
markets, including discussions of credit quality, duration and maturity.
B-16
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Alabama--0.4%
Homewood Educ. Bldg. Auth., Samford Univ., F.R.D.D., Ser.
1999 VMIG1 4.80% 1/03/00 $ 800 $ 800,000
------------------------------------------------------------------------------------------------------------------------------
Arizona--4.7%
Salt River Proj. Agricultural Impvt. & Pwr., T.E.C.P., Ser.
80 P-1 3.85 2/10/00 8,500 8,500,000
------------------------------------------------------------------------------------------------------------------------------
Arkansas--1.7%
Arkansas Hosp. Equip. Fin. Auth., AHA Pooled Fin. Prog.,
F.R.W.D. Ser. 98A A-1+* 5.60 1/05/00 3,000 3,000,000
------------------------------------------------------------------------------------------------------------------------------
Colorado--0.1%
Thornton Colorado Sales & Use Tax Rev., Ser. 99 Aaa 4.00 3/01/00 250 250,198
------------------------------------------------------------------------------------------------------------------------------
District of Columbia--3.5%
Dist. of Columbia, G.O. Var. Rate, F.R.D.D.,
Ser. 92A-1 VMIG1 5.15 1/03/00 1,200 1,200,000
Ser. 92A-2 VMIG1 5.15 1/03/00 3,100 3,100,000
Ser. 92A-3 VMIG1 5.15 1/03/00 2,000 2,000,000
------------
6,300,000
------------------------------------------------------------------------------------------------------------------------------
Florida--4.6%
Jacksonville Elec. Auth. Rev., Muni. Sec. Trust, F.R.W.D.,
Ser. SGA17 A-1+* 5.85 1/05/00 5,000 5,000,000
Orange & Pasco Cntys. Hlth. Facs. Auth., Adventist Hlth. Sys.
Sunbelt, F.R.W.D., Ser. 98171 A-1* 5.71 1/06/00 3,300 3,300,000
------------
8,300,000
------------------------------------------------------------------------------------------------------------------------------
Georgia--4.6%
Cobb Cnty. Dev. Auth., Georgia Pwr., Q.T.R.M.T., Ser. 91-1 VMIG1 3.95 2/01/00 8,330 8,330,000
------------------------------------------------------------------------------------------------------------------------------
Hawaii--1.2%
Honolulu City & Cnty., G.O., Ser. 1990-D NR 6.90 12/01/00 2,000 2,072,598
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. B-17
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Illinois--7.7%
Illinois Hlth. Fac. Auth., Memorial Med Ctr., Ser. 1989 NR 6.50% 10/01/00 $ 4,740 $ 4,909,100
Illinois Hlth. Fac. Auth.,
Evanston Hosp. Corp. Proj., A.N.N.M.T., Ser. 92 VMIG1 3.90 10/31/00 3,000 3,000,000
Evanston Hosp., A.N.N.M.T., Ser. 95 VMIG1 3.25 2/29/00 5,000 5,000,000
Bear Stearns Muni. Secs. Trust, Chicago O'Hare Int'l Airport,
A.M.T.,
Ser. 99-83 A-1+* 5.87 1/05/00 1,000 1,000,000
------------
13,909,100
------------------------------------------------------------------------------------------------------------------------------
Indiana--3.4%
Indiana St. Dev. Fin. Auth. Rev., Edl. Facs., Covenant
Christian H.S., F.R.W.D., Ser. 96 NR 5.65 1/06/00 5,000 5,000,000
South Bend Eco. Dev. Rev., Dynamic R.E.H.C. Inc., F.R.W.D.,
A.M.T.,
Ser. 99 NR 5.60 1/05/00 1,195 1,195,000
------------
6,195,000
------------------------------------------------------------------------------------------------------------------------------
Kansas--1.4%
Kansas Dev. Fin. Auth., Dept. of Comm. & Hsg. Impact, Ser. 99 NR 4.00 6/01/00 2,470 2,472,442
------------------------------------------------------------------------------------------------------------------------------
Louisiana--0.7%
Plaquemines Parish, British Petroleum, F.R.D.D., A.M.T., Ser.
95 P-1 5.35 1/03/00 1,200 1,200,000
------------------------------------------------------------------------------------------------------------------------------
Maryland--1.2%
Anne Arundel Cnty., Baltimore Gas & Elec., A.N.N.M.T., Ser.
84 VMIG1 3.52 7/01/00 2,210 2,210,000
------------------------------------------------------------------------------------------------------------------------------
Massachusetts--3.3%
Mass. St. Hsg. Fin. Agcy., Single Fam. Hsg. Notes, A.M.T.,
Ser. A MIG1 3.60 6/01/00 1,000 1,000,928
Mass. St. Wtr Poll. Abatement Tr., New Bedford Loan Prog.,
Ser. 96A NR 5.75 2/01/00 955 956,967
Mass. St. Hlth. & Edl. Facs. Auth. Rev., Boston Univ., Ser.
85H, F.R.W.D. VMIG1 5.35 1/05/00 3,000 3,000,000
Mass. St. Wtr. Res. Auth., Gen. Rev. Bonds, Ser. 90A NR 7.625 4/01/00 1,000 1,030,629
------------
5,988,524
------------------------------------------------------------------------------------------------------------------------------
Michigan--2.9%
Michigan Muni. Bond Auth., Rev. Notes, Ser. 99B-1 SP-1+* 4.25 8/25/00 3,500 3,514,204
Michigan St. Hsg. Dev. Auth., Rental Hsg. Rev., Ser. 92A NR 5.80 4/01/00 1,680 1,689,131
------------
5,203,335
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. B-18
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Minnesota--4.7%
Bloomington Comm. Dev. Rev., 94th Str. Proj., F.R.W.D.,
Ser. 85 A-1+* 5.50% 1/07/00 $ 4,945 $ 4,945,000
St Paul Hsg. Redev. Auth., Heating Rev., F.R.W.D., Ser. 99D A-1+* 5.50 1/07/00 3,500 3,500,000
------------
8,445,000
------------------------------------------------------------------------------------------------------------------------------
Mississipi--3.0%
Mississippi Hsg. Fin. Corp., Single. Fam. Mtg. Rev.,
F.R.W.D., Ser. 88 A-1+* 5.55 1/06/00 5,340 5,340,000
------------------------------------------------------------------------------------------------------------------------------
Missouri--0.6%
Branson, Tax Increment-Street Imprv., Ser. 96 NR 4.65 12/01/00 1,000 1,005,776
------------------------------------------------------------------------------------------------------------------------------
New Hampshire--6.1%
New Hampshire Bus. Fin. Auth.,
New England Pwr. Co. Proj., T.E.C.P., Ser. 90A, A.M.T. P-1 3.90 2/15/00 2,000 2,000,000
New England Pwr. Co. Proj., T.E.C.P., Ser. 90B VMIG1 3.90 1/27/00 6,500 6,500,000
Luminescent Systems, F.R.W.D., A.M.T., Ser. 98 A-1* 5.65 1/05/00 2,450 2,450,000
------------
10,950,000
------------------------------------------------------------------------------------------------------------------------------
New York--5.4%
Hempstead Ind. Dev., American Ref. Fuel, F.R.W.D., Ser. 99 A-1* 5.80 1/05/00 3,700 3,700,000
New York St. Local Govt. Asst. Corp., SGA Ref. Bonds,
F.R.D.D.,
Ser. SGA59 A-1+* 4.90 1/03/00 3,500 3,500,000
Niagara Cnty. NY Ind. Dev. Agcy., Solid Waste Disposal Rev.,
American Ref. Fuel, F.R.W.D., A.M.T., Ser. 94C P-1 6.50 1/05/00 2,500 2,500,000
------------
9,700,000
------------------------------------------------------------------------------------------------------------------------------
Ohio--6.4%
Dublin City, Transp. Sys., Ser. 99 NR 4.10 6/16/00 4,743 4,751,007
East Lake Dev., Astro Model Corp., F.R.W.D., A.M.T., Ser. 96 NR 5.60 1/06/00 2,800 2,800,000
Ohio Hsg. Fin. Agcy.,
Residential Mtg., A.M.T., Ser. 117(d) A-1+* 3.90 7/20/00 1,000 1,000,000
Multifamily Hsg. Ref., F.R.W.D., Ser. B A-1+* 5.50 1/07/00 3,000 3,000,000
------------
11,551,007
------------------------------------------------------------------------------------------------------------------------------
Oklahoma--2.2%
Morgan Keegan Var. Trust, 10 Willmington Pl. Prog., Tulsa Co.
Hsg. Fin. Auth., F.R.W.D. A.M.T., Ser. 99E A-1+* 5.76 1/06/00 2,000 2,000,000
Tulsa Pkg. Auth., Williams Ctr. Proj., S.E.M.M.T., Ser. 87A VMIG1 3.90 5/15/00 2,000 2,000,000
------------
4,000,000
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. B-19
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Oregon--2.0%
Oregon Hsg. & Comm. Serv. Dept., Mtge. Rev. Bonds,
Single Family Mtge., A.M.T., Ser. 99D MIG1 3.20% 4/13/00 $ 1,500 $ 1,500,000
Single Family Mtge., Ser. 99G MIG1 3.45 6/29/00 2,000 2,000,000
------------
3,500,000
------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--5.0%
Allegheny Cnty., Greater Pitt. Int'l Airport, Ser. 90A Aaa 7.05 1/01/00 1,000 1,000,000
Lancaster Cnty. Hosp. Auth., Luthercare Proj., F.R.W.D. Ser.
99 A-1* 5.75 1/06/00 6,500 6,500,000
Temple Univ., Univ. Funding Notes, Ser. 1999 MIG1 3.15 5/12/00 1,500 1,500,000
------------
9,000,000
------------------------------------------------------------------------------------------------------------------------------
South Dakota--1.9%
South Dakota Hsg. Dev. Auth., Homeownership Mtg., Ser. 99-J MIG1 3.75 9/28/00 2,025 2,025,000
South Dakota Hsg. Dev. Auth., Hsg. Dev. Rev., F.R.W.D., Ser.
98 NR 5.70 1/06/00 1,350 1,350,000
------------
3,375,000
------------------------------------------------------------------------------------------------------------------------------
Texas--9.2%
Guadalupe Blanco River Auth., BOC Group Inc., F.R.W.D., Ser.
1993 CPS1 4.00 1/06/00 3,800 3,800,000
Gulf Coast Waste Disp. Auth. Env. Fac. Rev., F.R.D.D.
Amoco Oil Co., Ser. 96, A.M.T. P-1 5.35 1/03/00 1,400 1,400,000
Amoco Oil Co. Proj., Ser. 98, A.M.T. VMIGI 5.35 1/03/00 1,200 1,200,000
Bayer Corp. Ser. 97, A.M.T. P-1 5.40 1/03/00 1,800 1,800,000
Houston, T.E.C.P.,
Ser. B P-1 3.80 1/21/00 3,000 3,000,000
Ser. A P-1 3.90 1/25/00 2,400 2,400,000
San Antonio Elec. & Gas Rev., Munic. Secs. Trust Rcpts.,
F.R.W.D.,
Ser. SGA48 A-1+* 5.85 1/05/00 3,000 3,000,000
------------
16,600,000
------------------------------------------------------------------------------------------------------------------------------
Virginia--3.8%
Fairfax Cnty. Econ Dev. Auth., LEHM-Resource Recovery,
Q.T.R.O.T.S., A.M.T., Ser. 99A15(d) VMIG1 3.95 2/01/00 4,000 4,000,000
Southampton Cnty. Ind. Dev. Auth., Hadson Pwr. Proj.,
F.R.D.D., A.M.T., Ser. 90A VMIG1 5.45 1/03/00 2,800 2,800,000
------------
6,800,000
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. B-20
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Wisconsin--8.7%
Franklin Public School Dist. NR 4.00% 8/30/00 $ 5,400 $ 5,409,314
Wausau School Dist. NR 4.10 9/22/00 2,000 2,005,024
Whitewater Ind. Dev. Rev., Trek Bicycle, F.R.W.D., A.M.T.,
Ser. 95 NR 5.70 1/06/00 3,840 3,840,000
Wisconsin Hsg. & Econ. Dev. Auth., Home Ownership Rev.,
A.N.N.O.T., Ser. 122(d) VMIG1 3.90 10/05/00 1,300 1,300,000
Wisconsin St. Hlth. & Ed. Fac. Auth., SSM Health Care,
T.E.C.P.,
Ser. 98B A-1+* 3.65 2/16/00 3,000 3,000,000
------------
15,554,338
Total Investments--100.4%
(cost $180,552,318(c)) 180,552,318
Liabilities in excess of other assets--(0.4)% (665,361)
------------
Net Assets--100% $179,886,957
------------
------------
</TABLE>
---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.T.--Alternate Minimum Tax
A.N.N.M.T.--Annual Mandatory Tender(b)
A.N.N.O.T.--Annual Optional Tender(b)
F.R.D.D.--Floating Rate (Daily) Demand Note(b)
F.R.W.D.--Floating Rate (Weekly) Demand Note(b)
G.O.--General Obligation
Q.T.R.M.T.--Quarterly Tax and Reserve Mandatory Tender(b)
Q.T.R.O.T.S.--Quarterly Synthetic Optional Tender(b)
S.E.M.M.T.--Semi-Annual Mandatory Tender(b)
T.E.C.P.--Tax-Exempt Commercial Paper
(b) For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) The cost basis for federal income tax purposes is substantially the same as
that used for financial reporting purposes.
(d) Indicates a restricted security; the aggregate cost of such securities is
$6,300,000 which represents approximately 3.5% of net assets.
* Standard & Poor's Rating.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard and Poor's ratings.
--------------------------------------------------------------------------------
See Notes to Financial Statements. B-21
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets December 31, 1999
-----------------
<S> <C>
Investments, at amortized cost which approximates market value.......................................... $ 180,552,318
Cash.................................................................................................... 94,526
Receivable for Fund shares sold......................................................................... 3,625,664
Interest receivable..................................................................................... 1,459,269
Prepaid expenses........................................................................................ 7,270
-----------------
Total assets......................................................................................... 185,739,047
-----------------
Liabilities
Payable for Investments purchased....................................................................... 3,827,042
Payable for Fund shares reacquired...................................................................... 1,688,085
Accrued expenses........................................................................................ 156,382
Dividends payable....................................................................................... 89,213
Management fee payable.................................................................................. 80,492
Distribution fee payable................................................................................ 10,876
-----------------
Total liabilities.................................................................................... 5,852,090
-----------------
Net Assets.............................................................................................. $ 179,886,957
-----------------
-----------------
Net assets were comprised of:
Common Stock, $.01 par value......................................................................... $ 1,799,812
Paid-in capital in excess of par..................................................................... 178,087,145
-----------------
Net assets, December 31, 1999........................................................................... $ 179,886,957
-----------------
-----------------
Net asset value, offering price and redemption price
per share ($179,886,957 / 179,981,236 shares)........................................................ $1.00
-----------------
-----------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. B-22
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Operations
------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1999
<S> <C>
Income
Interest.............................. $ 6,726,641
-----------------
Expenses
Management fee........................ 1,013,590
Distribution fee...................... 253,397
Transfer agent's fees and expenses.... 160,000
Custodian's fees and expenses......... 63,000
Registration fees..................... 54,000
Reports to shareholders............... 45,000
Audit fee and expenses................ 26,000
Legal fees and expenses............... 15,000
Directors' fees and expenses.......... 11,000
Miscellaneous......................... 4,275
-----------------
Total expenses..................... 1,645,262
Less: custodian fee credit............ (15,728)
-----------------
Net expenses....................... 1,629,534
-----------------
Net investment income.................... 5,097,107
-----------------
Realized Gain on Investments
Net realized gain on investment
transactions.......................... 3
-----------------
Net Increase in Net Assets
Resulting from Operations................ $ 5,097,110
-----------------
-----------------
</TABLE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Changes in Net Assets
------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
<S> <C> <C>
in Net Assets 1999 1998
Operations
Net investment income.......... $ 5,097,107 $ 7,783,907
Net realized gain on investment
transactions................ 3 10,290
------------ ------------
Net increase in net assets
resulting from operations... 5,097,110 7,794,197
------------ ------------
Dividends and distributions to
shareholders................... (5,097,110) (7,794,197)
------------ ------------
Fund share transactions
(at $1 per share)
Proceeds from shares sold...... 604,058,962 776,364,363
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........... 4,896,169 7,493,041
Cost of shares reacquired...... (628,233,381) (914,504,317)
------------ ------------
Net decrease in net assets from
Fund share transactions..... (19,278,250) (130,646,913)
------------ ------------
Total decrease.................... (19,278,250) (130,646,913)
Net Assets
Beginning of year................. 199,165,207 329,812,120
------------ ------------
End of year....................... $179,886,957 $199,165,207
------------ ------------
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. B-23
<PAGE>
Notes to Financial Statements PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
Prudential Tax-Free Money Fund, Inc. (the 'Fund') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is to attain the highest level of
current income that is exempt from federal income taxes, consistent with
liquidity and preservation of capital. The Fund will invest in short-term
tax-exempt debt securities of state and local governments. The ability of the
issuers of the securities held by the Fund to meet their obligations may be
affected by economic or political developments in a specific state, industry or
region.
------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its 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.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on an identified cost basis. Interest income is recorded on an
accrual basis. The cost of portfolio securities for federal income tax purposes
is substantially the same as for financial reporting purposes. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its net investment income to its
shareholders. For this reason, no federal income tax provision is required.
Dividends: The Fund declares dividends daily from net investment income and net
realized gains, if any. Payment of dividends is made monthly.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
Note 2. Agreements
The Fund has a management 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 Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the Fund's average daily net assets up to $750 million,
.425 of 1% of the next $750 million of average daily net assets and .375 of 1%
of average daily net assets in excess of $1.5 billion.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'). The Fund compensates PIMS for distributing and servicing
the Fund's shares pursuant to the plan of distribution at an annual rate of .125
of 1% of the Fund's average daily net assets. The distribution fee is accrued
daily and payable monthly.
PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended December 31, 1999,
the Fund incurred fees of approximately $144,800 for the services of PMFS. As of
December 31, 1999, approximately $10,800 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
--------------------------------------------------------------------------------
B-24
<PAGE>
Financial Highlights PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains........................... .025 .028 .030 .028 .031
Dividends and distributions to shareholders........................ (.025) (.028) (.030) (.028) (.031)
-------- -------- -------- -------- --------
Net asset value, end of year....................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):................................................... 2.56% 2.83% 3.00% 2.84% 3.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $179,887 $199,165 $329,812 $333,808 $387,651
Average net assets (000)........................................... $202,718 $277,839 $339,825 $403,230 $470,370
Ratios to average net assets:
Expenses, including distribution fee............................ .81% .80% .78% .80% .85%
Expenses, excluding distribution fee............................ .69% .68% .66% .67% .72%
Net investment income........................................... 2.51% 2.80% 2.97% 2.83% 3.14%
</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. B-25
<PAGE>
Report of Independent Accountants PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Tax-Free Money Fund, Inc.
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 Prudential Tax-Free Money Fund,
Inc. (the 'Fund') at December 31, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States, 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 December 31, 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
February 14, 2000
Tax Information (Unaudited) PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1999) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in the fiscal year ended December 31, 1999, dividends paid from net
investment income of $.025 were all federally tax-exempt interest dividends.
Information with respect to the state taxability of your investment in the Fund
was sent to you under separate cover.
--------------------------------------------------------------------------------
B-26
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
CORPORATE AND TAX-EXEMPT BOND RATINGS
The four highest ratings of Moody's Investors Service, Inc. ("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 considered "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 security 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 issue ranks in the
lower end of its generic rating category. The foregoing ratings for tax-exempt
bonds are sometimes presented in parentheses preceded 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 tax-exempt and corporate bonds are AAA, AA, A and BBB. Bonds 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. Bonds
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 degree. Bonds 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 bonds in this category than
for bonds 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 bonds being rated and
indicates that payment of debt service requirements is largely and 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 tax-exempt notes are MIG 1, MIG 2, MIG 3 and MIG
4. Notes 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, or both. Notes bearing the designation MIG 2 are judged to be of
high quality, with margins of protection ample although not so large as in the
preceding group. Notes bearing the designation MIG 3 are judged to be of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Market access for refinancing, in
particular, is likely to be less well established. Notes bearing the designation
MIG 4 are judged to be of adequate quality, carrying specific risk but having
protection commonly regarded as required of an investment security and not
distinctly or predominantly speculative.
The ratings of Standard & Poor's for municipal notes issued on or after
July 29, 1984 are "SP-1", "SP-2" and "SP-3." Prior to July 29, 1984, municipal
notes carried the same symbols as municipal bonds. The designation "SP-1"
indicates a very 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.
I-1
<PAGE>
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 Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1, superior capacity; Prime-2, strong capacity; and
Prime-3, acceptable capacity.
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Issues assigned A ratings are
regarded as having the greatest capacity for timely payment. Issues in this
category are further refined with the designation 1, 2 or 3 to indicate the
relative degree of safety. The "A-1" designation indicates the degree of safety
regarding timely payment is very 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 strong. However, the
relative degree of safety is not as overwhelming as for issues designated "A-1."
The "A-3" designation indicates that the capacity for timely payment is
satisfactory. 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 an adequate capacity
for timely payment and such capacity may be impaired by changing conditions or
short-term adversities.
I-2
<PAGE>
(LOGO)
ANNUAL REPORT
DECEMBER 31, 1999
PRUDENTIAL
TAX-FREE
MONEY FUND,
INC.
(GRAPHIC)
<PAGE>
A Message From the Fund's President February 3, 2000
(PHOTO)
Dear Shareholder,
Yields on municipal money market securities fluctuated widely during 1999,
buffeted by a periodic imbalance in the supply of, and demand for, these
securities, as well as the Federal Reserve's effort to slow U.S. economic growth
by repeatedly increasing a key short-term interest rate. Prudential's Money
Market Sector team worked to anticipate these changes in U.S. monetary policy,
and acted quickly to identify and take advantage of good investment
opportunities. As a result, Prudential Tax-Free Money Fund maintained a $1 net
asset value per share and provided a competitive tax-exempt return in 1999.
The following report takes a closer look at developments in the municipal money
market during 1999, and explains how the Fund was positioned accordingly.
High-quality investments to help reduce risk Having a conservative, high-quality
investment alternative, such as a money market fund, made good sense for most
investors amid the highly volatile conditions in financial markets during 1999.
Indeed, most investors should have a money market fund. For any of life's
unexpected events, it is comforting to have quick access to your money and an
investment vehicle that provides safety of principal and liquidity.
Thanks for your continued confidence in Prudential mutual funds.
Sincerely,
/s/ John R. Strangfeld
----------------------
John R. Strangfeld
President
Prudential Tax-Free Money Fund, Inc.
<PAGE>
Performance Review
(PHOTO) (PHOTO)
Portfolio managers Joseph Tully
(Money Market [Sector] Team
Leader) and Richard S. Lynes
Investment Goals and Style
Prudential Tax-Free Money Fund seeks the highest level of current income that is
exempt from federal income taxes, consistent with liquidity and the preservation
of capital. The Fund invests in a diversified portfolio of high-quality,
short-term municipal bonds issued by state and local governments, territories
and possessions of the United States, and by the District of Columbia.
Maturities can range from one day to a maximum of 13 months. We purchase only
securities rated in one of the two highest rating categories by at least two
major rating agencies or, if not rated, deemed to be of equivalent quality by
our credit research staff. There can be no assurance that the Fund will achieve
its investment objective.
Coping with a supply/demand imbalance Participants in the municipal money market
had to contend with two major trends throughout 1999--a dwindling supply of
eligible securities and the Federal Reserve's repeated efforts to curb U.S.
economic growth and avoid higher inflation. Of the two, the risk posed by the
shortage of municipal money market securities was of greater concern to us.
$36.9 billion in municipal notes were issued in 1999. This total was above the
$34.8 billion sold in 1998, but was still well below the $46.3 billion issued in
1997. Meanwhile, assets in tax-free money market funds soared $14.83 billion, or
8.0%, in 1999, according to IBC Financial Data, Inc.
Strategically speaking, we aimed to avoid having to invest large amounts of the
Fund's money during times when strong demand and a dearth of municipal money
market securities drove yields on these securities lower (and their prices
higher). Therefore, we moved quickly to take advantage of good buying
opportunities, such as those that arose during the tax season of 1999.
Tax-season buys enhanced the Fund's yield
In late April and early May 1999, portfolio managers (including us) sold
municipal money market securities to satisfy shareholder liquidity needs that
occurred as cash was withdrawn from mutual funds to pay taxes. Amid this flurry
of sales, securities cheapened. We were able to purchase attractively priced,
insured municipal bonds maturing in six months to one year as an alternative to
the more conventional tax-exempt money market securities. These insured,
short-term municipal bonds also provided solid yields to compensate for the fact
that they are typically issued in smaller-sized blocks. Most portfolio managers
prefer to buy larger blocks of bonds because they are easier to sell. But owning
smaller- and moderate-sized blocks of insured short-term bonds worked well for
us because we plan to hold them until maturity.
FOMC tried to curb U.S. economic growth
As the spring of 1999 continued, municipal money market yields climbed even
further in anticipation of an increase in the federal funds rate, which is the
rate U.S. banks charge each other for overnight loans. The Federal Open Market
Committee (FOMC) had recently released a statement indicating it was leaning
toward increasing this rate to slow U.S. economic growth and prevent a build-up
in inflation. The FOMC tries to restrain inflation because it hurts nearly every
one, but particularly those on fixed
<PAGE>
incomes whose buying power declines if their incomes are not adjusted for the
increase in prices.
Bridging over the "July effect"
We took advantage of the continued rise in municipal money market yields from
mid-May through June 1999 by purchasing securities maturing in six months to one
year. In hindsight, the Fund would have derived greater benefit if we had
invested more money in June. At that time, yields were higher because many state
and local governments issued tax-exempt notes as their budgets were set at their
fiscal year ends.
Nevertheless, our purchases helped the Fund bridge over the seasonal drop in
municipal money market yields that occurred in early July, known as the "July
effect." Yields declined as the supply of securities shrank because investors
raced to reinvest money received from coupon payments and maturing bonds. The
imbalance of supply and demand was strong enough to push yields lower in early
July even though the FOMC had just hiked the federal funds rate by a quarter of
a percentage point to 5.00% on June 30, 1999.
<TABLE>
Performance at a Glance
<CAPTION>
Fund Facts As of 12/31/99
7-Day Net Asset Weighted Avg. Net Assets
Current Yield* Value (NAV) Maturity (WAM) (Millions)
<S> <C> <C> <C> <C>
Prudential Tax-Free Money Fund, Inc. 3.48% $1.00 67 Days $180
IBC Financial Data Tax-Free
Money Fund (SB & GP) Avg.** 3.68% $1.00 44 Days N/A
</TABLE>
<TABLE>
Taxable Equivalent Yield* As of 12/31/99
<CAPTION>
@31% @36% @39.6%
<S> <C> <C> <C>
Prudential Tax-Free Money Fund, Inc. 5.04% 5.44% 5.76%
IBC Financial Data Tax-Free
Money Fund (SB & GP) Avg.** 5.33% 5.75% 6.09%
</TABLE>
Note: Yields will fluctuate from time to time, and past performance is not
indicative of future results. An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
*Some investors may be subject to the federal alternative minimum tax (AMT).
** International Business Communications (IBC) Financial Data reports a
seven-day current yield, NAV, and WAM on Mondays. This is the data of all funds
in the IBC Tax-Free Money Fund (Stock Broker (SB) & General Purpose (GP))
Average category as of December 27, 1999, the closest date to the end of our
reporting period.
Tax-Free Money Fund Yield Comparison
(GRAPH)
1
<PAGE>
Review Cont'd.
August brought an increased supply of newly issued municipal money market
securities and a second change in monetary policy that lifted the federal funds
rate to 5.25%. Both developments helped push municipal money market yields
higher, which created many attractive buying opportunities. We purchased
one-year notes of Franklin, Wisconsin School District, as well as tax-exempt
commercial paper. These purchases helped to lengthen the Fund's weighted average
maturity (WAM), which is a measurement tool that determines a portfolio's
sensitivity to changes in the level of interest rates.
A difficult choice
The Fund's WAM remained longer than that of its competition throughout the rest
of 1999. Having a longer WAM in October and early November reduced the Fund's
buying opportunities because it meant we had less money to invest in
higher-yielding securities that became available after the federal funds rate
was increased to 5.50% on November 16, 1999. But we stuck with this strategy
through December because the longer WAM would help insulate the Fund from the
next major seasonal decline in municipal money market yields that typically
occurs at the beginning of the new year. (It is known as the "January effect.")
In December, we also purchased very short-term securities to enable the Fund to
accommodate the normal year-end shareholder liquidity needs and any additional
withdrawals that might occur out of concern that computers could malfunction
when their internal dates switched from 1999 to 2000. As it turned out,
financial markets did not experience any major computer problems as the year
changed, and few glitches arose elsewhere. What did emerge in the final few days
of 1999 were attractively priced, floating-rate securities that offered yields
one to two percentage points higher than normal. Purchasing these securities
also enhanced the Fund's yield.
Looking Ahead
We expect the FOMC to raise the federal funds rate on several occasions in 2000.
Because of the U.S. presidential election in November, the changes in monetary
policy will probably be front-loaded in the first half of the year. We believe
tax-exempt money market yields will generally follow the federal funds rate
higher, albeit at a slower pace than yields in the taxable money market.
Weighted Average Maturity Compared to the Average
Tax-Free Money Fund
(GRAPH)
2
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Alabama--0.4%
Homewood Educ. Bldg. Auth., Samford Univ., F.R.D.D., Ser.
1999 VMIG1 4.80% 1/03/00 $ 800 $ 800,000
------------------------------------------------------------------------------------------------------------------------------
Arizona--4.7%
Salt River Proj. Agricultural Impvt. & Pwr., T.E.C.P., Ser.
80 P-1 3.85 2/10/00 8,500 8,500,000
------------------------------------------------------------------------------------------------------------------------------
Arkansas--1.7%
Arkansas Hosp. Equip. Fin. Auth., AHA Pooled Fin. Prog.,
F.R.W.D. Ser. 98A A-1+* 5.60 1/05/00 3,000 3,000,000
------------------------------------------------------------------------------------------------------------------------------
Colorado--0.1%
Thornton Colorado Sales & Use Tax Rev., Ser. 99 Aaa 4.00 3/01/00 250 250,198
------------------------------------------------------------------------------------------------------------------------------
District of Columbia--3.5%
Dist. of Columbia, G.O. Var. Rate, F.R.D.D.,
Ser. 92A-1 VMIG1 5.15 1/03/00 1,200 1,200,000
Ser. 92A-2 VMIG1 5.15 1/03/00 3,100 3,100,000
Ser. 92A-3 VMIG1 5.15 1/03/00 2,000 2,000,000
------------
6,300,000
------------------------------------------------------------------------------------------------------------------------------
Florida--4.6%
Jacksonville Elec. Auth. Rev., Muni. Sec. Trust, F.R.W.D.,
Ser. SGA17 A-1+* 5.85 1/05/00 5,000 5,000,000
Orange & Pasco Cntys. Hlth. Facs. Auth., Adventist Hlth. Sys.
Sunbelt, F.R.W.D., Ser. 98171 A-1* 5.71 1/06/00 3,300 3,300,000
------------
8,300,000
------------------------------------------------------------------------------------------------------------------------------
Georgia--4.6%
Cobb Cnty. Dev. Auth., Georgia Pwr., Q.T.R.M.T., Ser. 91-1 VMIG1 3.95 2/01/00 8,330 8,330,000
------------------------------------------------------------------------------------------------------------------------------
Hawaii--1.2%
Honolulu City & Cnty., G.O., Ser. 1990-D NR 6.90 12/01/00 2,000 2,072,598
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Illinois--7.7%
Illinois Hlth. Fac. Auth., Memorial Med Ctr., Ser. 1989 NR 6.50% 10/01/00 $ 4,740 $ 4,909,100
Illinois Hlth. Fac. Auth.,
Evanston Hosp. Corp. Proj., A.N.N.M.T., Ser. 92 VMIG1 3.90 10/31/00 3,000 3,000,000
Evanston Hosp., A.N.N.M.T., Ser. 95 VMIG1 3.25 2/29/00 5,000 5,000,000
Bear Stearns Muni. Secs. Trust, Chicago O'Hare Int'l Airport,
A.M.T.,
Ser. 99-83 A-1+* 5.87 1/05/00 1,000 1,000,000
------------
13,909,100
------------------------------------------------------------------------------------------------------------------------------
Indiana--3.4%
Indiana St. Dev. Fin. Auth. Rev., Edl. Facs., Covenant
Christian H.S., F.R.W.D., Ser. 96 NR 5.65 1/06/00 5,000 5,000,000
South Bend Eco. Dev. Rev., Dynamic R.E.H.C. Inc., F.R.W.D.,
A.M.T.,
Ser. 99 NR 5.60 1/05/00 1,195 1,195,000
------------
6,195,000
------------------------------------------------------------------------------------------------------------------------------
Kansas--1.4%
Kansas Dev. Fin. Auth., Dept. of Comm. & Hsg. Impact, Ser. 99 NR 4.00 6/01/00 2,470 2,472,442
------------------------------------------------------------------------------------------------------------------------------
Louisiana--0.7%
Plaquemines Parish, British Petroleum, F.R.D.D., A.M.T., Ser.
95 P-1 5.35 1/03/00 1,200 1,200,000
------------------------------------------------------------------------------------------------------------------------------
Maryland--1.2%
Anne Arundel Cnty., Baltimore Gas & Elec., A.N.N.M.T., Ser.
84 VMIG1 3.52 7/01/00 2,210 2,210,000
------------------------------------------------------------------------------------------------------------------------------
Massachusetts--3.3%
Mass. St. Hsg. Fin. Agcy., Single Fam. Hsg. Notes, A.M.T.,
Ser. A MIG1 3.60 6/01/00 1,000 1,000,928
Mass. St. Wtr Poll. Abatement Tr., New Bedford Loan Prog.,
Ser. 96A NR 5.75 2/01/00 955 956,967
Mass. St. Hlth. & Edl. Facs. Auth. Rev., Boston Univ., Ser.
85H, F.R.W.D. VMIG1 5.35 1/05/00 3,000 3,000,000
Mass. St. Wtr. Res. Auth., Gen. Rev. Bonds, Ser. 90A NR 7.625 4/01/00 1,000 1,030,629
------------
5,988,524
------------------------------------------------------------------------------------------------------------------------------
Michigan--2.9%
Michigan Muni. Bond Auth., Rev. Notes, Ser. 99B-1 SP-1+* 4.25 8/25/00 3,500 3,514,204
Michigan St. Hsg. Dev. Auth., Rental Hsg. Rev., Ser. 92A NR 5.80 4/01/00 1,680 1,689,131
------------
5,203,335
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Minnesota--4.7%
Bloomington Comm. Dev. Rev., 94th Str. Proj., F.R.W.D.,
Ser. 85 A-1+* 5.50% 1/07/00 $ 4,945 $ 4,945,000
St Paul Hsg. Redev. Auth., Heating Rev., F.R.W.D., Ser. 99D A-1+* 5.50 1/07/00 3,500 3,500,000
------------
8,445,000
------------------------------------------------------------------------------------------------------------------------------
Mississipi--3.0%
Mississippi Hsg. Fin. Corp., Single. Fam. Mtg. Rev.,
F.R.W.D., Ser. 88 A-1+* 5.55 1/06/00 5,340 5,340,000
------------------------------------------------------------------------------------------------------------------------------
Missouri--0.6%
Branson, Tax Increment-Street Imprv., Ser. 96 NR 4.65 12/01/00 1,000 1,005,776
------------------------------------------------------------------------------------------------------------------------------
New Hampshire--6.1%
New Hampshire Bus. Fin. Auth.,
New England Pwr. Co. Proj., T.E.C.P., Ser. 90A, A.M.T. P-1 3.90 2/15/00 2,000 2,000,000
New England Pwr. Co. Proj., T.E.C.P., Ser. 90B VMIG1 3.90 1/27/00 6,500 6,500,000
Luminescent Systems, F.R.W.D., A.M.T., Ser. 98 A-1* 5.65 1/05/00 2,450 2,450,000
------------
10,950,000
------------------------------------------------------------------------------------------------------------------------------
New York--5.4%
Hempstead Ind. Dev., American Ref. Fuel, F.R.W.D., Ser. 99 A-1* 5.80 1/05/00 3,700 3,700,000
New York St. Local Govt. Asst. Corp., SGA Ref. Bonds,
F.R.D.D.,
Ser. SGA59 A-1+* 4.90 1/03/00 3,500 3,500,000
Niagara Cnty. NY Ind. Dev. Agcy., Solid Waste Disposal Rev.,
American Ref. Fuel, F.R.W.D., A.M.T., Ser. 94C P-1 6.50 1/05/00 2,500 2,500,000
------------
9,700,000
------------------------------------------------------------------------------------------------------------------------------
Ohio--6.4%
Dublin City, Transp. Sys., Ser. 99 NR 4.10 6/16/00 4,743 4,751,007
East Lake Dev., Astro Model Corp., F.R.W.D., A.M.T., Ser. 96 NR 5.60 1/06/00 2,800 2,800,000
Ohio Hsg. Fin. Agcy.,
Residential Mtg., A.M.T., Ser. 117(d) A-1+* 3.90 7/20/00 1,000 1,000,000
Multifamily Hsg. Ref., F.R.W.D., Ser. B A-1+* 5.50 1/07/00 3,000 3,000,000
------------
11,551,007
------------------------------------------------------------------------------------------------------------------------------
Oklahoma--2.2%
Morgan Keegan Var. Trust, 10 Willmington Pl. Prog., Tulsa Co.
Hsg. Fin. Auth., F.R.W.D. A.M.T., Ser. 99E A-1+* 5.76 1/06/00 2,000 2,000,000
Tulsa Pkg. Auth., Williams Ctr. Proj., S.E.M.M.T., Ser. 87A VMIG1 3.90 5/15/00 2,000 2,000,000
------------
4,000,000
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Oregon--2.0%
Oregon Hsg. & Comm. Serv. Dept., Mtge. Rev. Bonds,
Single Family Mtge., A.M.T., Ser. 99D MIG1 3.20% 4/13/00 $ 1,500 $ 1,500,000
Single Family Mtge., Ser. 99G MIG1 3.45 6/29/00 2,000 2,000,000
------------
3,500,000
------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--5.0%
Allegheny Cnty., Greater Pitt. Int'l Airport, Ser. 90A Aaa 7.05 1/01/00 1,000 1,000,000
Lancaster Cnty. Hosp. Auth., Luthercare Proj., F.R.W.D. Ser.
99 A-1* 5.75 1/06/00 6,500 6,500,000
Temple Univ., Univ. Funding Notes, Ser. 1999 MIG1 3.15 5/12/00 1,500 1,500,000
------------
9,000,000
------------------------------------------------------------------------------------------------------------------------------
South Dakota--1.9%
South Dakota Hsg. Dev. Auth., Homeownership Mtg., Ser. 99-J MIG1 3.75 9/28/00 2,025 2,025,000
South Dakota Hsg. Dev. Auth., Hsg. Dev. Rev., F.R.W.D., Ser.
98 NR 5.70 1/06/00 1,350 1,350,000
------------
3,375,000
------------------------------------------------------------------------------------------------------------------------------
Texas--9.2%
Guadalupe Blanco River Auth., BOC Group Inc., F.R.W.D., Ser.
1993 CPS1 4.00 1/06/00 3,800 3,800,000
Gulf Coast Waste Disp. Auth. Env. Fac. Rev., F.R.D.D.
Amoco Oil Co., Ser. 96, A.M.T. P-1 5.35 1/03/00 1,400 1,400,000
Amoco Oil Co. Proj., Ser. 98, A.M.T. VMIGI 5.35 1/03/00 1,200 1,200,000
Bayer Corp. Ser. 97, A.M.T. P-1 5.40 1/03/00 1,800 1,800,000
Houston, T.E.C.P.,
Ser. B P-1 3.80 1/21/00 3,000 3,000,000
Ser. A P-1 3.90 1/25/00 2,400 2,400,000
San Antonio Elec. & Gas Rev., Munic. Secs. Trust Rcpts.,
F.R.W.D.,
Ser. SGA48 A-1+* 5.85 1/05/00 3,000 3,000,000
------------
16,600,000
------------------------------------------------------------------------------------------------------------------------------
Virginia--3.8%
Fairfax Cnty. Econ Dev. Auth., LEHM-Resource Recovery,
Q.T.R.O.T.S., A.M.T., Ser. 99A15(d) VMIG1 3.95 2/01/00 4,000 4,000,000
Southampton Cnty. Ind. Dev. Auth., Hadson Pwr. Proj.,
F.R.D.D., A.M.T., Ser. 90A VMIG1 5.45 1/03/00 2,800 2,800,000
------------
6,800,000
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Wisconsin--8.7%
Franklin Public School Dist. NR 4.00% 8/30/00 $ 5,400 $ 5,409,314
Wausau School Dist. NR 4.10 9/22/00 2,000 2,005,024
Whitewater Ind. Dev. Rev., Trek Bicycle, F.R.W.D., A.M.T.,
Ser. 95 NR 5.70 1/06/00 3,840 3,840,000
Wisconsin Hsg. & Econ. Dev. Auth., Home Ownership Rev.,
A.N.N.O.T., Ser. 122(d) VMIG1 3.90 10/05/00 1,300 1,300,000
Wisconsin St. Hlth. & Ed. Fac. Auth., SSM Health Care,
T.E.C.P.,
Ser. 98B A-1+* 3.65 2/16/00 3,000 3,000,000
------------
15,554,338
Total Investments--100.4%
(cost $180,552,318(c)) 180,552,318
Liabilities in excess of other assets--(0.4)% (665,361)
------------
Net Assets--100% $179,886,957
------------
------------
</TABLE>
---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.T.--Alternate Minimum Tax
A.N.N.M.T.--Annual Mandatory Tender(b)
A.N.N.O.T.--Annual Optional Tender(b)
F.R.D.D.--Floating Rate (Daily) Demand Note(b)
F.R.W.D.--Floating Rate (Weekly) Demand Note(b)
G.O.--General Obligation
Q.T.R.M.T.--Quarterly Tax and Reserve Mandatory Tender(b)
Q.T.R.O.T.S.--Quarterly Synthetic Optional Tender(b)
S.E.M.M.T.--Semi-Annual Mandatory Tender(b)
T.E.C.P.--Tax-Exempt Commercial Paper
(b) For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) The cost basis for federal income tax purposes is substantially the same as
that used for financial reporting purposes.
(d) Indicates a restricted security; the aggregate cost of such securities is
$6,300,000 which represents approximately 3.5% of net assets.
* Standard & Poor's Rating.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard and Poor's ratings.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets December 31, 1999
-----------------
<S> <C>
Investments, at amortized cost which approximates market value.......................................... $ 180,552,318
Cash.................................................................................................... 94,526
Receivable for Fund shares sold......................................................................... 3,625,664
Interest receivable..................................................................................... 1,459,269
Prepaid expenses........................................................................................ 7,270
-----------------
Total assets......................................................................................... 185,739,047
-----------------
Liabilities
Payable for Investments purchased....................................................................... 3,827,042
Payable for Fund shares reacquired...................................................................... 1,688,085
Accrued expenses........................................................................................ 156,382
Dividends payable....................................................................................... 89,213
Management fee payable.................................................................................. 80,492
Distribution fee payable................................................................................ 10,876
-----------------
Total liabilities.................................................................................... 5,852,090
-----------------
Net Assets.............................................................................................. $ 179,886,957
-----------------
-----------------
Net assets were comprised of:
Common Stock, $.01 par value......................................................................... $ 1,799,812
Paid-in capital in excess of par..................................................................... 178,087,145
-----------------
Net assets, December 31, 1999........................................................................... $ 179,886,957
-----------------
-----------------
Net asset value, offering price and redemption price
per share ($179,886,957 / 179,981,236 shares)........................................................ $1.00
-----------------
-----------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Operations
------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1999
<S> <C>
Income
Interest.............................. $ 6,726,641
-----------------
Expenses
Management fee........................ 1,013,590
Distribution fee...................... 253,397
Transfer agent's fees and expenses.... 160,000
Custodian's fees and expenses......... 63,000
Registration fees..................... 54,000
Reports to shareholders............... 45,000
Audit fee and expenses................ 26,000
Legal fees and expenses............... 15,000
Directors' fees and expenses.......... 11,000
Miscellaneous......................... 4,275
-----------------
Total expenses..................... 1,645,262
Less: custodian fee credit............ (15,728)
-----------------
Net expenses....................... 1,629,534
-----------------
Net investment income.................... 5,097,107
-----------------
Realized Gain on Investments
Net realized gain on investment
transactions.......................... 3
-----------------
Net Increase in Net Assets
Resulting from Operations................ $ 5,097,110
-----------------
-----------------
</TABLE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Changes in Net Assets
------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 5,097,107 $ 7,783,907
Net realized gain on investment
transactions................ 3 10,290
------------ ------------
Net increase in net assets
resulting from operations... 5,097,110 7,794,197
------------ ------------
Dividends and distributions to
shareholders................... (5,097,110) (7,794,197)
------------ ------------
Fund share transactions
(at $1 per share)
Proceeds from shares sold...... 604,058,962 776,364,363
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........... 4,896,169 7,493,041
Cost of shares reacquired...... (628,233,381) (914,504,317)
------------ ------------
Net decrease in net assets from
Fund share transactions..... (19,278,250) (130,646,913)
------------ ------------
Total decrease.................... (19,278,250) (130,646,913)
Net Assets
Beginning of year................. 199,165,207 329,812,120
------------ ------------
End of year....................... $179,886,957 $199,165,207
------------ ------------
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Notes to Financial Statements PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
Prudential Tax-Free Money Fund, Inc. (the 'Fund') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is to attain the highest level of
current income that is exempt from federal income taxes, consistent with
liquidity and preservation of capital. The Fund will invest in short-term
tax-exempt debt securities of state and local governments. The ability of the
issuers of the securities held by the Fund to meet their obligations may be
affected by economic or political developments in a specific state, industry or
region.
------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its 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.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on an identified cost basis. Interest income is recorded on an
accrual basis. The cost of portfolio securities for federal income tax purposes
is substantially the same as for financial reporting purposes. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its net investment income to its
shareholders. For this reason, no federal income tax provision is required.
Dividends: The Fund declares dividends daily from net investment income and net
realized gains, if any. Payment of dividends is made monthly.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
Note 2. Agreements
The Fund has a management 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 Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the Fund's average daily net assets up to $750 million,
.425 of 1% of the next $750 million of average daily net assets and .375 of 1%
of average daily net assets in excess of $1.5 billion.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'). The Fund compensates PIMS for distributing and servicing
the Fund's shares pursuant to the plan of distribution at an annual rate of .125
of 1% of the Fund's average daily net assets. The distribution fee is accrued
daily and payable monthly.
PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended December 31, 1999,
the Fund incurred fees of approximately $144,800 for the services of PMFS. As of
December 31, 1999, approximately $10,800 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
--------------------------------------------------------------------------------
10
<PAGE>
Financial Highlights PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains........................... .025 .028 .030 .028 .031
Dividends and distributions to shareholders........................ (.025) (.028) (.030) (.028) (.031)
-------- -------- -------- -------- --------
Net asset value, end of year....................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):................................................... 2.56% 2.83% 3.00% 2.84% 3.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $179,887 $199,165 $329,812 $333,808 $387,651
Average net assets (000)........................................... $202,718 $277,839 $339,825 $403,230 $470,370
Ratios to average net assets:
Expenses, including distribution fee............................ .81% .80% .78% .80% .85%
Expenses, excluding distribution fee............................ .69% .68% .66% .67% .72%
Net investment income........................................... 2.51% 2.80% 2.97% 2.83% 3.14%
</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. 11
<PAGE>
Report of Independent Accountants PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Tax-Free Money Fund, Inc.
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 Prudential Tax-Free Money Fund,
Inc. (the 'Fund') at December 31, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States, 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 December 31, 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
February 14, 2000
Tax Information (Unaudited) PRUDENTIAL TAX-FREE MONEY FUND, INC.
--------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1999) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in the fiscal year ended December 31, 1999, dividends paid from net
investment income of $.025 were all federally tax-exempt interest dividends.
Information with respect to the state taxability of your investment in the Fund
was sent to you under separate cover.
--------------------------------------------------------------------------------
12
<PAGE>
Getting the Most from Your Prudential Mutual Fund
How many times have you read these reports--or other financial materials-- and
stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed bonds that separate
mortgage pools into different maturity classes, called tranches. These
instruments are sensitive to changes in interest rates and homeowner refinancing
activity. They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other securities. The rate
of return of these financial instruments rises and falls--sometimes very
suddenly--in response to changes in some specific interest rate, currency,
stock, or other variable.
Discount Rate: The interest rate charged by the
Federal Reserve on loans to member banks.
Federal Funds Rate: The interest rate charged by one
bank to another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific amount of a commodity or financial instrument at a
set price at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The expectation is that
the interest rate charged on borrowed funds will be lower than the return on the
investment. While leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument
(or product) can be bought or sold (converted into cash)
in the financial markets.
Price/Earnings Ratio: The price of a share of stock divided by the earnings per
share for a 12-month period.
Option: An agreement to purchase or sell something, such
as shares of stock, by a certain time for a specified price.
An option need not be exercised.
Spread: The difference between two values; often used to describe the difference
between "bid" and "asked" prices of a security, or between the yields of two
similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in the U.S. market and denominated in U.S. dollars.
<PAGE>
Getting the Most from Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this--they don't read annual and
semiannual reports. It's quite understandable. These annual and semiannual
reports are prepared to comply with federal regulations, and are often written
in language that is difficult to understand. So, when most people run into those
particularly daunting sections of these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our report to make it
easier to understand and more pleasant to read. We hope you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:
Performance at a Glance
Since an investment's performance is often a shareholder's primary concern, we
present performance information in two different formats. You'll find it first
on the "Performance at a Glance" page where we compare the Fund and the
comparable average calculated by Lipper, Inc., a nationally recognized mutual
fund rating agency. We report both the cumulative total returns and the average
annual total returns. The cumulative total return is the total amount of income
and appreciation the Fund has achieved in various time periods. The average
annual total return is an annualized representation of the Fund's performance.
It gives you an idea of how much the Fund has earned in an average year for a
given time period. Under the performance box, you'll see legends that explain
the performance information, whether fees and sales charges have been included
in returns, and the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the report for more
performance information. Please keep in mind that past performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager, who invests your money for you, reports on
successful--and not-so-successful--strategies in this section of your report.
Look for recent purchases and sales here, as well as information about the
sectors the portfolio manager favors, and any changes that are on the drawing
board.
Portfolio of Investments
This is where the report begins to appear technical, but it's really just a
listing of each security held at the end of the reporting period, along with
valuations and other information. Please note that sometimes we discuss a
security in the Portfolio Manager's Report that doesn't appear in this listing
because it was sold before the close of the reporting period.
<PAGE>
Statement of Assets and Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes), and net assets (the Fund's equity, or
holdings after the Fund pays its debts) as of the end of the reporting period.
It also shows how we calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your dividend, capital
gain, or other distribution, but remember that the money or new shares are being
paid or issued to you. The net asset value fluctuates daily, along with the
value of every security in the portfolio.
Statement of Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us to manage your money).
You'll also see capital gains here--both realized and unrealized.
Statement of Changes in Net Assets
This schedule shows how income and expenses translate into changes in net
assets. The Fund is required to pay out the bulk of its income to shareholders
every year, and this statement shows you how we do it--through dividends and
distributions--and how that affects the net assets. This statement also shows
how money from investors flowed into and out of the Fund.
Notes to Financial Statements
This is the kind of technical material that can intimidate readers, but it does
contain useful information. The Notes provide a brief history and explanation of
your Fund's objectives. In addition, they outline how Prudential Mutual Funds
prices securities. The Notes also explain who manages and distributes the Fund's
shares and, more importantly, how much they are paid for doing so. Finally, the
Notes explain how many shares are outstanding and the number issued and redeemed
over the period.
Financial Highlights
This information contains many elements from prior pages, but on a per-share
basis. It is designed to help you understand how the Fund performed, and to
compare this year's performance and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and certifies that the
information is fairly presented and complies with generally accepted accounting
principles.
Tax Information
This is information which we report annually about how much of your total return
is taxable. Should you have any questions, you may want to consult a tax
adviser.
Performance Comparison
These charts are included in the annual report and are required by the
Securities Exchange Commission. Performance is presented here as a hypothetical
$10,000 investment in the Fund since its inception or for 10 years (whichever is
shorter). To help you put that return in context, we are required to include the
performance of an unmanaged, broad-based securities index as well. The index
does not reflect the cost of buying the securities it contains or the cost of
managing a mutual fund. Of course, the index holdings do not mirror those of the
Fund--the index is a broad-based reference point commonly used by investors to
measure how well they are doing. A definition of the selected index is also
provided. Investors cannot invest directly in an index.
<PAGE>
The Prudential Mutual Fund Family
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Read the prospectus carefully before you invest or send
money.
STOCK FUNDS
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
Asset Allocation/Balanced Funds
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
GLOBAL FUNDS
Global Stock Funds
Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Index Series Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.
Target Funds
International Equity Fund
Global Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
BOND FUNDS
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 High Yield Total Return Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Target Funds
Total Return Bond Fund
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
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
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
visit our website at www.prudential.com
Fund Symbol CUSIP
74436P103
Directors
Delayne Dedrick Gold
Robert F. Gunia
Robert E. LaBlanc
David R. Odenath, Jr.
Robin B. Smith
Stephen Stoneburn
John R. Strangfeld
Nancy H. Teeters
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Robert C. Rosselot, Secretary
Stephen M. Ungerman, Assistant Treasurer
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.
(ICON) Printed on Recycled Paper
<PAGE>
Fund Symbol CUSIP
74436P103
visit our website at www.prudential.com
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.
MF103E (ICON) Printed on Recycled Paper
<PAGE>
SEMIANNUAL REPORT JUNE 30, 2000
Prudential
Tax-Free Money Fund, Inc.
Fund Type Money market
Objective The highest level of current income that is exempt from federal income
taxes, consistent with liquidity and the preservation of capital
(GRAPHIC)
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
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.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential Tax-Free Money Fund, Inc. seeks the highest level of current
income that is exempt from federal income taxes, consistent with liquidity and
the preservation of capital. The Fund invests in a diversified portfolio of
high-quality, short-term municipal bonds issued by state and local governments,
territories and possessions of the United States, and by the District of
Columbia. Maturities can range from one day to a maximum of 13 months. We
purchase only securities rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations or, if not
rated, deemed to be of equivalent quality by our credit research staff. There
can be no assurance that the Fund will achieve its investment objective.
Tax-Free Money Fund Yield Comparison
(GRAPH)
<PAGE>
Performance at a Glance
Fund Facts As of 6/30/00
<TABLE>
<CAPTION>
7-Day Net Asset Weighted Avg. Net Assets
Current Yld. Value (NAV) Mat. (WAM) (Millions)
<S> <C> <C> <C> <C>
Prudential Tax-Free Money Fund, Inc. 3.79% $1.00 41 Days $172
iMoneyNet, Inc.
Money Fund (SB & GP) Avg.** 3.95% $1.00 36 Days N/A
</TABLE>
Taxable Equivalent Yield* As of 6/30/00
<TABLE>
<CAPTION>
@31% @36% @39.6%
<S> <C> <C> <C>
Prudential Tax-Free Money Fund, Inc. 5.16% 5.56% 5.89%
iMoneyNet, Inc.
Money Fund (SB & GP) Avg.** 5.72% 6.17% 6.54%
</TABLE>
Note: Yields will fluctuate from time to time, and past performance is not
indicative of future results. An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund. *Some
investors may be subject to the federal alternative minimum tax (AMT).
**iMoneyNet, Inc. reports a seven-day current yield, NAV, and WAM on Mondays.
This is the data of all funds in the iMoneyNet, Inc. Stock Broker & General
Purpose (SB & GP) Average category as of June 26, 2000, the closest date to the
end of our reporting period.
Weighted Average Maturity Compared to the Tax-Free Money Fund Average
(GRAPH)
1
<PAGE>
(LOGO) August 14, 2000
Dear Shareholder,
Our six-month review period that began January 1, 2000, was a decidedly positive
time for investors in the municipal money markets. Good investment opportunities
arose as tax-exempt money market yields generally moved higher, despite brief
periods when yields fell as demand for the securities exceeded the supply.
Increases in short-term interest rates by the Federal Reserve (the Fed) in
February, March, and May were the driving forces behind the rise in municipal
money market yields. The Fed repeatedly hiked rates in an effort to rein in U.S.
economic growth and quell mounting inflationary pressures before they became
rooted in the economy.
Amid this trend toward higher rates, the Prudential Tax- Free Money Fund's
seven-day current yield on June 30, 2000, was 3.79%, the equivalent of a 5.89%
taxable yield for investors in the top 39.6% tax bracket. The Fund maintained a
$1 net asset value per share.
The following report takes a closer look at developments in the municipal money
market during our fiscal half-year, and explains how the Fund was positioned.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,
John R. Strangfeld, President
Prudential Tax-Free Money Fund, Inc.
2
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Semiannual Report June 30, 2000
Investment Adviser's Report
The beginning of the calendar year usually proves to be a challenging time in
the municipal money market. Investors, anxious to reinvest cash received from
coupon payments and maturing bonds, pour money into the market, driving prices
of tax-exempt money market securities higher (and their yields lower). This
seasonal decline in yields is aptly named the "January effect."
As our six-month review period began in 2000, we were able to weather the
"January effect" because we had positioned the Fund advantageously in December
1999 by buying prerefunded bonds maturing in one year. These purchases kept the
Fund's weighted average maturity (WAM) longer than that of its competitive
average. (WAM is a measurement tool that determines a portfolio's sensitivity to
changes in the level of interest rates. It takes into account the maturity level
of each security held by a portfolio.) Having a longer WAM meant we did not have
to invest in longer-term securities when yields sank to unattractive levels in
January.
Preparing for income tax season
As January progressed, we allowed the Fund's WAM to shorten by investing
primarily in securities whose coupon rates reset either every day or every
seven days. This strategy enabled the Fund to have sufficient liquidity to
buy any higher-yielding securities that might be available after the Federal
Reserve hiked short-term rates at its next meeting in February 2000.
The Fed had already tightened monetary policy three times the previous year to
slow U.S. economic growth to a more sustainable pace. However, it was expected
to raise short-term rates again because the economy continued to expand rapidly
in early 2000.
Sure enough, February brought another rate hike that pushed municipal money
market yields higher. We took advantage of this rise in yields by purchasing
two- and three-month tax-exempt commercial paper, as well as securities that
could be sold back to the issuer at their face value on a quarterly basis.
3
<PAGE>
We chose securities that would mature in late April and early May because they
would provide liquidity to satisfy redemptions that occur as shareholders
withdraw money from the Fund to pay their income taxes.
Fed's bold inflation-fighting tactics
The Fed's next move came in late March. Soon after, municipal money market
yields climbed sharply as it became clear the central bank would raise
short-term rates by half of a percentage point-its largest increase in more
than five years-at its mid-May meeting. During that time, we purchased
securities that could be sold back to the issuer at their face value on a
semiannual basis.
In a rising-interest-rate environment, municipal money market yields tend to lag
the rise in taxable money market yields. Therefore under normal circumstances,
we still would have been able to buy higher-yielding money market securities to
extend the Fund's WAM, especially after the Fed aggressively raised rates in
mid-May. But the market behaved in an unusual fashion as tax-exempt money market
yields declined sharply in late May and June. In hindsight, we should have
purchased more one-year securities in mid-May, as money market yields seem to
have peaked at that time.
Looking Ahead
From June 1999 through May 2000, the Fed raised short-term rates six times-the
first five were quarter-point rate hikes and the sixth was half of a percentage
point. We believe the Fed's unusually large half-point rate hike in mid-May
could be a signal that it has nearly completed its current round of tightening.
In fact, the federal funds futures market, where investors hedge against changes
in the overnight bank lending rate, indicates that many believe the likelihood
of further rate increases this year has diminished. We expect U.S. economic
activity to continue to moderate in coming months, decreasing the amount of
additional Fed rate hikes, if any, that might be necessary.
Prudential Tax-Free Money Fund Management Team
4
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Semiannual Report June 30, 2000
Financial
Statements
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
Arkansas 2.3%
Arkansas Hosp. Equip. Fin. Auth.,
AHA Pooled Fin. Prog., F.R.W.D.
Ser. 98A A1+* 4.85% 7/05/00 $ 3,900 $ 3,900,000
----------------------------------------------------------------------------------------
Colorado 0.7%
Denver Company City County Single
Family Home Metro Mayors Caucus
Ser. C SP1+* 4.45 5/15/01 1,265 1,265,000
----------------------------------------------------------------------------------------
District of Columbia 0.1%
Dist. of Columbia, G.O. Var.
Rate, F.R.D.D., Ser. 92A-2 VMIG1 4.65 7/03/00 100 100,000
----------------------------------------------------------------------------------------
Florida 10.3%
Orange County Florida Hlth.
Facil. Auth. Florida Hosp. Assn.
Hlth. Ser. A NR 5.10 7/06/00 5,000 5,000,000
Orange County Florida Hlth. Fac.
Auth. Rev. Certificates Ser. 171 A1+* 4.99 7/06/00 8,625 8,625,000
Sunshine State Governmental
Financing, T.E.C.P., NR 4.55 7/21/00 4,000 4,000,000
--------------
17,625,000
----------------------------------------------------------------------------------------
Georgia 2.0%
Cobb Cnty. Indl. Dev. Auth.,
Institute of Nuclear Pwr.,
F.R.W.D., Ser. 98 P1 4.80 7/05/00 2,500 2,500,000
Stephens County Georgia Dev.
Auth. Ind. Dev. Rev. Caterpillar
Inc. Proj. NR 5.07 7/06/00 1,000 1,000,000
--------------
3,500,000
----------------------------------------------------------------------------------------
Hawaii 1.2%
Honolulu City & Cnty., G.O., Ser.
1990-D NR 6.90 12/01/00 2,000 2,044,022
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Illinois 12.1%
Chicago Illinois Rev. Adjusted
Homestart Program
Series A VMIG1 4.85% 7/05/00 $ 5,000 $ 5,000,000
Illinois Hlth. Fac. Auth.,
Memorial Med Ctr. Ser. 1989 Aaa 6.50 10/01/00 4,740 4,859,747
Illinois Hlth. Fac. Auth.,
Evanston Hosp. Corp. Prog.,
A.N.N.M.T., Ser. 95 VMIG1 4.25 01/31/01 5,000 5,000,000
Evanston Hosp. Corp. Proj.,
A.N.N.M.T., Ser. 92 VMIG1 3.90 10/31/00 3,000 3,000,000
Illinois Housing Dev. Auth. Rev.
Merlots Ser. V VMIG1 4.94 7/05/00 1,990 1,990,000
Rock Island County Illinois
Metropolitan Airport Ser. C VMIG1 4.85 7/05/00 1,000 1,000,000
--------------
20,849,747
----------------------------------------------------------------------------------------
Indiana 6.3%
Indiana Ed. Fac. Auth., Wesleyan
Univ., F.R.W.D., Ser. 93 NR 4.85 7/06/00 4,700 4,700,000
Indiana St. Dev. Fin. Auth. Rev.,
Edl. Facs., Covenant High Sch.,
F.R.W.D., Ser. 96 NR 4.70 7/06/00 4,900 4,900,000
South Bend Indiana Econ. Dev.,
Rev. Adjusted Dynamic R.E.H.C.
Inc., F.R.W.D., A.M.T., Ser. 99 NR 4.95 7/05/00 1,195 1,195,000
--------------
10,795,000
----------------------------------------------------------------------------------------
Kentucky 3.6%
Carroll County, Solid Wste. Disp.
Facs. Rev., Ser. 94A, F.R.D.D.,
A.M.T. VMIG1 4.85 7/03/00 400 400,000
Kentucky Housing Corp., Senior D,
A.M.T., MIG1 4.40 12/01/00 1,000 1,000,000
</TABLE>
See Notes to Financial Statements 7
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Leitchfield Kentucky Ind.
Building Rev. Styline Inds. Inc.
Project, F.R.D.D., A.M.T., Ser.
99 A1+* 5.07% 7/07/00 $ 4,785 $ 4,785,000
--------------
6,185,000
----------------------------------------------------------------------------------------
Louisiana 0.8%
Calcasieu Parish Louisiana Public
Trust Notes Ser. A NR 4.50 12/01/00 570 570,000
W. Baton Rouge Parish Dist.
Pound3, Dow Chemical Co. Proj.,
Ser. 94A, F.R.D.D., A.M.T. P1 4.75 7/03/00 800 800,000
--------------
1,370,000
----------------------------------------------------------------------------------------
Maryland 1.3%
Anne Arundel County Baltimore Gas
& Electric, A.N.N.M.T., Ser. 84 VMIG1 4.50 7/01/00 2,210 2,210,000
----------------------------------------------------------------------------------------
Michigan 5.0%
Detroit Michigan Sewage Disposal
Rev. Merlots Ser. I VMIG1 4.89 7/05/00 5,000 5,000,000
Michigan Muni. Bond Auth. Rev.,
Notes, Ser. 99 B1 SP1+* 4.25 8/25/00 3,500 3,503,296
--------------
8,503,296
----------------------------------------------------------------------------------------
Minnesota 4.9%
Bloomington Comm. Dev. Rev., 94th
Str. Proj., F.R.W.D., Ser. 85
(e) A1+* 4.85 7/07/00 4,945 4,945,000
St Paul Hsg. & Redev. Auth.,
Heating Rev., F.R.W.D., Ser. 99D A1+* 4.85 7/07/00 3,500 3,500,000
--------------
8,445,000
----------------------------------------------------------------------------------------
Mississippi 2.7%
Mississippi Hsg. Fin. Corp. Sngl.
Fam. Mtg., F.R.W.D., Ser. 88 A1+* 4.85 7/06/00 4,625 4,625,000
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Missouri 0.6%
Branson, Tax Increment Street
Imprv. Ser. 96 NR 4.65% 12/01/00 $ 1,000 $ 1,002,638
----------------------------------------------------------------------------------------
Ohio 4.5%
East Lake Dev. Rev., Astro Model
Corp., F.R.W.D., Ser. 96 NR 4.95 7/06/00 2,800 2,800,000
Ohio Hsg. Fin. Agcy., Mtge. Rev.
Merlots Series Aa VMIG1 4.94 7/05/00 1,000 1,000,000
Ohio Hsg. Fin. Agcy. Rev.,
Residential Mtge., A.M.T., Ser.
117 A1+* 3.90 7/20/00 1,000 1,000,000
Multifamily Hsg. Ref., F.R.W.D.
Ser. B A1+* 4.85 7/07/00 3,000 3,000,000
--------------
7,800,000
----------------------------------------------------------------------------------------
Oklahoma 1.2%
Tulsa Pkg. Auth., Williams Ctr.
Proj., S.E.M.M.T., Ser. 87 A VMIG1 4.75 11/15/00 2,000 2,000,000
----------------------------------------------------------------------------------------
Oregon 0.6%
Oregon Veterans Welfare Ser. 79B MIG1 4.30 4/01/01 1,000 1,000,000
----------------------------------------------------------------------------------------
Pennsylvania 1.9%
Montgomery Cnty., Higher Ed. &
Hlth. Auth. Rev., F.R.W.D., Ser.
96A A-1* 4.85 7/05/00 3,340 3,340,000
----------------------------------------------------------------------------------------
South Carolina 6.8%
Beaufort County South Carolina
School Dist. Ser. B NR 6.50 3/01/01 1,050 1,064,874
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
South Carolina Jobs Eco. Dev.
Auth. Hlth. Fac. Rev. VMIG1 4.85% 7/05/00 $ 3,000 $ 3,000,000
South Carolina St Public Service
Auth. Rev. Merlots Ser. L VMIG1 4.89 7/05/00 5,090 5,090,000
Spartanburg County School MIG1 4.75 2/15/01 2,500 2,508,233
--------------
11,663,107
----------------------------------------------------------------------------------------
South Dakota 5.5%
Grant County South Dakota
Pollution Control Rev. Ref.
Otter Tail Power Company Proj. VMIG1 5.00 7/07/00 2,400 2,400,000
South Dakota Hsg. Dev. Auth. Home
Ownership Mrtg., Ser. J MIG1 3.75 9/28/00 2,025 2,025,000
South Dakota Str. Health Edl.
Sioux Vly. Hosps. Hlth. VMIG1 4.85 7/07/00 5,000 5,000,000
--------------
9,425,000
----------------------------------------------------------------------------------------
Tennessee 1.0%
Morgan Keegan Municipal Prods.
Inc. Trust Rcpts. Ser. D NR 5.07 7/06/00 1,720 1,720,000
----------------------------------------------------------------------------------------
Texas 12.8%
Austin Texas Airport Systems Rev.
Merlots Series J VMIG1 4.94 7/05/00 3,000 3,000,000
Brazos River Harbor Nav. Dist.,
Dow Chemical Co., Ser. 92A
F.R.D.D., A.M.T. P1 4.75 7/03/00 200 200,000
Brazos River Texas Harbor
Navigation Dist. Dow Chemicals
Co. Proj. A1+* 4.75 7/03/00 3,000 3,000,000
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dallas Fort Worth Texas Regional
Airport Rev. Ref., NR 4.70% 11/01/00 $ 500 $ 500,557
North Central Texas Hlth. Fac.
Dev. VMIG1 4.70 8/11/00 5,000 5,000,000
Port Corpus Christi Ind. Dev.
Corp., Swg. & Solid Wste. Disp.
Rev. VMIG1 4.75 7/03/00 700 700,000
Texas Municipal Power Agency Rev. NR 5.50 9/01/00 1,000 1,001,134
Texas Street Ser. A MIG1 4.50 8/31/00 8,500 8,498,086
--------------
21,899,777
----------------------------------------------------------------------------------------
Wisconsin 9.9%
Franklin Public School Dis. NR 4.00 8/30/00 5,400 5,402,309
Wausau School Dist. Tax & Rev. NR 4.10 9/22/00 2,000 2,001,574
Whitewater Ind. Dev. Rev., Trek
Bicycle, F.R.W.D., A.M.T., Ser.
95 NR 4.85 7/06/00 3,625 3,625,000
Wisconsin Hsg. & Econ. Dev. Auth.
Ownership Rev., A.N.N.O.T., Ser.
122 VMIG1 3.90 10/05/00 1,275 1,275,000
Wisconsin State Transportation
Rev. P1 4.30 7/27/00 4,708 4,708,000
--------------
17,011,883
----------------------------------------------------------------------------------------
Wyoming 2.9%
Lincoln County Pollution Control
Flex Refunding Pacificorp Cnv. VMIG1 4.90 7/05/00 5,000 5,000,000
--------------
Total Investments 101.0%
(cost $173,279,470(c)) 173,279,470
--------------
Liabilities in excess of other
assets (1.0)% (1,769,414)
--------------
Net Assets 100% $ 171,510,056
--------------
--------------
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
(a) The following abbreviations are used in portfolio descriptions:
A.M.T.--Alternate Minimum Tax A.N.N.M.T.--Annual Mandatory Tender(b)
A.N.N.O.T.--Annual Optional Tender(b) F.R.D.D.--Floating Rate (Daily) Demand
Note(b) F.R.W.D.--Floating Rate (Weekly) Demand Note(b) G.O.--General
Obligation S.E.M.M.T.--Semi-Annual Mandatory Tender(b) T.E.C.P.--Tax-Exempt
Commercial Paper(b)
(b) For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) The cost basis for federal income tax purposes is substantially the same as
that used for financial statement purposes.
(d) Indicates illiquid security restricted as to resale and does not have a
readily available market; the aggregate cost of such securities is
$5,975,000 which represents approximately 3.5% of net assets.
* Standard & Poor's Rating.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard and Poor's ratings.
12 See Notes to Financial Statements
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
June 30, 2000
---------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at amortized cost which approximates market value $ 173,279,470
Receivable for investments sold 2,210,000
Receivable for Fund shares sold 4,041,856
Interest receivable 1,778,815
Prepaid expenses 5,586
-------------
Total assets 181,315,727
-------------
LIABILITIES
Payable for Investments purchased 7,212,787
Payable for Fund shares reacquired 2,180,975
Accrued expenses 127,836
Bank overdraft 112,297
Dividends payable 90,862
Management fee payable 71,394
Distribution fee payable 9,520
-------------
Total liabilities 9,805,671
-------------
NET ASSETS $ 171,510,056
-------------
-------------
Net assets were comprised of:
Common Stock, $.01 par value $ 1,715,913
Paid-in capital in excess of par 169,794,143
-------------
Net assets, June 30, 2000 $ 171,510,056
-------------
-------------
Net asset value, offering price and redemption price
per share ($171,510,056 / 171,604,335 shares) $1.00
-------------
-------------
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME
Income
Interest $ 3,566,166
-------------
Expenses
Management fee 441,165
Distribution fee 110,291
Transfer agent's fees and expenses 65,000
Custodian's fees and expenses 30,000
Registration fees 17,000
Reports to shareholders 18,000
Audit fee and expenses 13,000
Legal fees and expenses 6,000
Directors' fees and expenses 5,000
Miscellaneous 1,084
-------------
Total expenses 706,540
-------------
Net investment income 2,859,626
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,859,626
-------------
-------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 2000 December 31, 1999
----------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 2,859,626 $ 5,097,107
Net realized gain on investment
transactions -- 3
------------- -----------------
Net increase in net assets resulting from
operations 2,859,626 5,097,110
------------- -----------------
Dividends and distributions to shareholders (2,859,626) (5,097,110)
------------- -----------------
Fund share transactions (at $1 per share)
Proceeds from shares sold 276,468,208 604,058,962
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 2,719,495 4,896,169
Cost of shares reacquired (287,564,604) (628,233,381)
------------- -----------------
Net decrease in net assets from Fund share
transactions (8,376,901) (19,278,250)
------------- -----------------
Total decrease (8,376,901) (19,278,250)
NET ASSETS
Beginning of period 179,886,957 199,165,207
------------- -----------------
End of period $ 171,510,056 $ 179,886,957
------------- -----------------
------------- -----------------
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Notes to Financial Statements (Unaudited)
Prudential Tax-Free Money Fund, Inc. (the 'Fund') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is to attain the highest level of
current income that is exempt from federal income taxes, consistent with
liquidity and preservation of capital. The Fund will invest in short-term
tax-exempt debt securities of state and local governments. The ability of the
issuers of the securities held by the Fund to meet their obligations may be
affected by economic or political developments in a specific state, industry or
region.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its 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.
Securities Transactions and Net Investment Income: Securities transactions
are recorded on the trade date. Realized gains and losses on sales of
investments are calculated on an identified cost basis. Interest income is
recorded on an accrual basis. The cost of portfolio securities for federal
income tax purposes is substantially the same as for financial reporting
purposes. Expenses are recorded on the accrual basis which may require the use
of certain estimates by management.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its net investment income to its
shareholders. For this reason, no federal income tax provision is required.
Dividends: The Fund declares dividends daily from net investment income
and net realized gains, if any. Payment of dividends is made monthly.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
Note 2. Agreements
The Fund has a management 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
16
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
Corporation ('PIC'), a wholly owned subsidiary of Prudential. The Subadvisory
Agreement provides that the subadviser will furnish investment advisory services
in connection with the management of the Fund. In connection therewith, the
Subadviser is obligated to keep certain books and records of the Fund. PIFM
continues to have responsibility for all investment advisory services pursuant
to the Management Agreement and supervises the Subadviser's performance of such
services. The Subadviser is reimbursed by PIFM for the reasonable costs and
expenses incurred by the Subadviser in furnishing those services. Effective
January 1, 2000, PIC is paid by PIFM at an annual rate of .250 of 1% of the
Fund's average daily net assets up to and including $750 million, .191% of 1% of
the next $750 million and .150% of 1% over $1.5 billion of the Fund's average
daily net assets. The fee is computed daily and payable monthly. PIFM pays for
the services of PIC, the cost of compensation of officers of the Fund, occupancy
and certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an
annual rate of .50 of 1% of the Fund's average daily net assets up to $750
million, .425 of 1% of the next $750 million of average daily net assets and
.375 of 1% of average daily net assets in excess of $1.5 billion.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'). The Fund compensated PIMS for distributing and
servicing the Fund's shares pursuant to the plan of distribution at an annual
rate of .125 of 1% of the Fund's average daily net assets. The distribution fee
is accrued daily and payable monthly.
PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended June 30, 2000, the
Fund incurred fees of approximately $64,000 for the services of PMFS. As of June
30, 1999, approximately $11,000 of such fees were due to PMFS. Transfer agent
fees and expenses in the Statement of Operations include certain out-of-pocket
expenses paid to nonaffiliates.
17
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 2000
<S> <C>
---------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.00
Net investment income and realized gains .016
Dividends and distributions to shareholders (.016)
-------------
Net asset value, end of period $ 1.00
-------------
-------------
TOTAL RETURN(a): 1.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 171,510
Average net assets (000) $ 177,436
Ratios to average net assets:
Expenses, including distribution fee .80%(b)
Expenses, excluding distribution fee .68%(b)
Net investment income 3.24%(b)
</TABLE>
------------------------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions.
(b) Annualized.
18 See Notes to Financial Statements
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<CAPTION>
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
.025 .028 .030 .028 .031
(.025) (.028) (.030) (.028) (.031)
---------------- ---------------- ---------------- ---------------- ----------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------- ---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ---------------- ----------------
2.56% 2.83% 3.00% 2.84% 3.15%
$179,887 $199,165 $329,812 $333,808 $387,651
$202,718 $277,839 $339,825 $403,230 $470,370
.81% .80% .78% .80% .80%
.69% .68% .66% .67% .63%
2.51% 2.80% 2.97% 2.83% 3.14%
</TABLE>
See Notes to Financial Statements 19
<PAGE>
Prudential Tax-Free Money Fund, Inc.
Getting the Most from Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial advice
from a Prudential Securities Financial Advisor or Pruco Securities registered
representative. Your advisor or representative can provide you with the
following services:
There's No Reward Without Risk; but Is This Risk Worth It? Your financial
advisor or registered representative can help you match the reward you seek with
the risk you can tolerate. Risk can be difficult to gauge-sometimes even the
simplest investments bear surprising risks. The educated investor knows that
markets seldom move in just one direction. There are times when a market sector
or asset class will lose value or provide little in the way of total return.
Managing your own expectations is easier with help from someone who understands
the markets and who knows you!
Keeping Up With the Joneses
A financial advisor or registered representative can help you wade through the
numerous available mutual funds to find the ones that fit your individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals-not at you personally. Your financial
advisor or registered representative will review your investment objectives with
you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance-not just based on
the current investment fad.
Buy Low, Sell High
Buying at the top of a market cycle and selling at the bottom are among the most
common investor mistakes. But sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial advisor or
registered representative can answer questions when you're confused or worried
about your investment, and should remind you that you're investing for the long
haul.
<PAGE>
www.prudential.com (800) 225-1852
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Directors
Delayne Dedrick Gold
Robert F. Gunia
Robert E. LaBlanc
David R. Odenath, Jr.
Robin B. Smith
Stephen Stoneburn
John R. Strangfeld
Nancy H. Teeters
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Robert C. Rosselot, Secretary
William V. Healey, Assistant 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
194 Wood Avenue South
Iselin, NJ 08830
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Cusip Number 74436P103
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.
The accompanying financial statements as of June 30, 2000, were not audited and,
accordingly, no opinion is expressed on them.
<PAGE>
[LOGO] PRUDENTIAL
PRUDENTIAL MUTUAL FUNDS
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
<PAGE>
ANNUAL REPORT AUGUST 31, 2000
Prudential
Municipal Series Fund/
Connecticut Money Market Series
Fund Type Money market
Objective The highest level of current income that
is exempt from Connecticut State and
federal income taxes, consistent with liquidity and
the preservation of capital
(GRAPH)
This report is not authorized for distribution to
prospective investors unless preceded or
accompanied by a current prospectus.
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.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential Municipal Series Fund/Connecticut
Money Market Series seeks to provide the highest
level of current income that is exempt from
Connecticut State and federal income taxes,
consistent with liquidity and the preservation of
capital. The Series intends to invest primarily in
a portfolio of short-term tax-exempt debt
securities with maturities of 13 months or less
from the state of Connecticut, its municipalities,
local governments, and other qualifying issuers
(such as Puerto Rico, Guam, and the U.S. Virgin
Islands). There can be no assurance that the
Series will achieve its investment objective.
Money Fund Yield Comparison
(GRAPH)
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Fund Facts As of 8/31/00
7-Day Net Asset Taxable Equivalent Yield* Weighted Avg. Net Assets
Current Yld. Value (NAV) @31% @36% @39.6% Mat. (WAM) (Millions)
CT Money
Market Series 3.21% $1.00 4.87% 5.25% 5.56% 63 Days $81
iMoneyNet, Inc.
Tax-Free State Specific
Avg. (SB & GP-CT)** 3.31% $1.00 5.02% 5.42% 5.74% 54 Days N/A
Note: Yields will fluctuate from time to time, and
past performance is not indicative of future
results. An investment in the Series is not insured
or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Series seeks to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Series.
*Some investors may be subject to the federal
alternative minimum tax and/or state and local
taxes. Taxable equivalent yields reflect federal
and applicable state tax rates.
**iMoneyNet, Inc. reports the 7-Day Current Yield,
NAV, and WAM on Mondays. This is the data of all
funds in the iMoneyNet, Inc. Tax-Free State
Specific Average (Stock Broker (SB) & General
Purpose
(GP)-Connecticut) category as of August 28, 2000.
Weighted Average Maturity Compared to the Average
Money Market Fund
(GRAPH)
1
<PAGE>
(LOGO) October 18, 2000
Dear Shareholder,
Municipal money market yields climbed during much
of our 12-month reporting period ended August 31,
2000. The catalyst for this trend was the Federal
Reserve's repeated increases in short-term interest
rates, which were intended to curb the brisk pace
of U.S. economic growth.
The rising-interest-rate environment benefited the
Prudential Municipal Series Fund/Connecticut Money
Market Series by creating attractive investment
opportunities. The Series maintained a $1 net asset
value per share, and provided a competitive yield.
On August 31, 2000, the Series' seven-day current
yield was 3.21%, compared with 3.31% for the
average Connecticut money market fund as tracked by
iMoneyNet, Inc. The following pages explain how the
Series was positioned in light of developments in
the municipal money market.
Proposed merger
A proposal to merge the Connecticut Money Market
Series with the Prudential Tax-Free Money Fund,
Inc. will be put to a shareholder vote at a special
meeting for shareholders. The meeting is expected
to take place early in 2001.
Sincerely,
John R. Strangfeld, President
Prudential Municipal Series Fund
2
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Annual Report August 31, 2000
Investment Adviser's Report
Trying to put a lid on inflation
The Federal Reserve (the Fed) raised short-term
interest rates four times during our fiscal year
that began September 1, 1999. The Fed acted because
a rapidly expanding U.S. economy had increased the
risk of rising consumer prices and accelerating
wages. Hiking rates boosted borrowing costs for
businesses and consumers, which the Fed hoped would
slow economic growth to a more sustainable pace and
help check inflationary pressures.
Although we expected the Fed to tighten monetary
policy in the autumn of 1999, we purchased longer-
term Connecticut money market securities in
September 1999 that seemed to offer good value at
that time. Our purchases extended the Series'
weighted average maturity (WAM), which remained
longer than that of the average comparable fund
during September and early October. (WAM is a
measurement tool that determines a portfolio's
sensitivity to changes in the level of interest
rates. It takes into account the maturity level of
each security held in a portfolio.)
In hindsight, the Series would have been better
served had we been able to purchase a sufficient
amount of shorter-term Connecticut money market
securities to shorten the WAM. As these securities
matured, we could have reinvested the money in
higher-yielding Connecticut money market
securities that became available after the Fed
raised short-term rates in
mid-November 1999.
Taking advantage of bargains during tax season
The Fed resumed tightening monetary policy in 2000
as the resilient U.S. economy continued to race
ahead. The next rate hikes occurred in February and
March. During these two months, many Connecticut
municipalities and authorities often issue money
market securities. We took advantage of this supply
because there are periods when few newly issued
Connecticut securities are available. We bought
one-year insured bonds of New Haven,
3
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Annual Report August 31, 2000
Connecticut, and tax-exempt bonds of Yale New Haven
Hospital that were "prerefunded" or backed by
direct obligations of the U.S. Treasury. In
addition, Connecticut Housing Authority bonds were
purchased during this period, helping to lengthen
the Series' WAM.
We later allowed the WAM to shorten as we prepared
to buy higher-yielding Connecticut money market
securities that became available in the spring of
2000. Yields rose sharply from late April through
mid-May because the Fed was expected to hike rates
when it met in May and because portfolio
managers sold municipal money market securities to
satisfy shareholder redemptions during tax season.
With yields at such attractive levels, we purchased
additional "prerefunded" Connecticut bonds that are
backed by direct obligations of the U.S. Treasury.
We also bought Connecticut housing bonds that can
be sold back to their issuer in one year at a price
equal to 100% of their face value.
As expected, the Fed aggressively raised short-term
interest rates in mid-May. Shortly thereafter, data
began to show that U.S. economic growth was
slowing, which in turn fueled optimism that the Fed
would stop raising rates. Consequently, many
investors were willing to accept lower yields (and
pay higher prices) for municipal money market
securities. Our decision to lock in municipal money
market yields in early May worked well because
yields declined during the remainder of our fiscal
year.
Purchasing municipal asset-backed securities
There were also attractive investment opportunities
among municipal asset-backed securities (MABS).
MABS are highly liquid investments structured to
help satisfy the growing demand for municipal money
market securities. MABS require a higher degree of
analysis than more generic investment alternatives.
As a result, MABS offer a higher return, and have
been selectively added to the Series' holdings.
Prudential Connecticut Money Market Series
Management Team
4
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Portfolio of Investments as of August 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Brazos River Harbor Nav. Dist.
Rev.,
BASF, Corp. Proj.,
Ser. 96, F.R.D.D. P-1 4.45% 9/01/00 $ 3,450 $ 3,450,000
Dow Chemical Co.,
Ser. 93, F.R.D.D., A.M.T. P-1 4.50 9/01/00 1,000 1,000,000
Ser. 97, F.R.D.D., A.M.T. P-1 4.50 9/01/00 600 600,000
Connecticut St. Clean Water Fund
Rev., Ser. 91 NR 6.70 1/01/01 2,010(c) 2,067,566
Connecticut St. Dev. Auth.,
Bradley Airport Hotel,
Ser. 97A F.R.W.D. VMIG1 4.10 9/07/00 800 800,000
Ser. 97B, F.R.W.D. VMIG1 4.10 9/07/00 3,000 3,000,000
Ser. 97C, F.R.W.D. VMIG1 4.10 9/07/00 1,200 1,200,000
Corp. for Independ. Living Proj.,
Ser. 99, F.R.W.D. VMIG1 3.95 9/06/00 2,475 2,475,000
Pierce Baptist Home,
Ser. 99, F.R.W.D. A-1+(d) 3.95 9/06/00 3,125 3,125,000
SHW, Inc., Proj., Ser. 90,
F.R.W.D., A.M.T. N/R 4.15 9/06/00 5,150 5,150,000
Connecticut St. Gen. Oblig.,
Ser. 90C NR 6.90 9/15/00 1,000 1,001,209
Ser. 91A NR 6.60 3/01/01 1,000(c) 1,031,732
Ser. 92D NR 5.80 11/15/00 1,750(c) 1,755,436
Ser. 95A NR 5.00 3/15/01 1,200 1,205,585
Ser. 97B, F.R.W.D. VMIG 4.00 9/07/00 2,700 2,700,000
Connecticut St. Hlth. & Edl. Facs.
Auth. Rev.,
Conn. St. University, S.6.A. 95,
A.M.B.A.C., F.R.D.D. A-1+(d) 3.90 9/01/00 1,000 1,000,000
Convenant Ret., Ser. 1999A,
F.R.W.D. A-1+(d) 3.95 9/07/00 2,640 2,640,000
Gaylord Hosp. Issue, Ser. A,
F.R.W.D. A-1+(d) 4.10 9/06/00 3,000 3,000,000
Hartfort Hosp. Issue,
Ser. B, F.R.W.D. A-1+(d) 4.10 9/06/00 2,000 2,000,000
</TABLE>
See Notes to Financial Statements 5
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Portfolio of Investments as of August 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hotchkiss School Issue,
Ser. A, F.R.W.D. VMIG1 4.00% 9/07/00 $ 2,000 $ 2,000,000
Pomfret School Issue,
Ser. A, F.R.W.D. VMIG1 4.20 9/07/00 900 900,000
Sharon Hosp. Issue,
Ser. A, F.R.W.D. VMIG1 4.10 9/07/00 1,670 1,670,000
Woodbury & Bethlehem School,
B.A.N. VMIG1 5.00 5/15/01 4,000 4,010,730
Yale University, Ser. S, T.E.C.P. VMIG1 4.15 12/11/00 5,000 5,000,000
Yale University, Ser. T, F.R.W.D. VMIG1 3.90 9/07/00 2,500 2,500,000
Connecticut St. Hsg. Fin. Auth.,
Ser. B, F.R.W.D., A.M.T. VMIG1 4.37 9/06/00 2,000 2,000,000
Ser. P, F.R.W.D., A.M.T. VMIG1 4.32 9/06/00 1,000 1,000,000
Connecticut St. Spec. Assmt.,
Unemployment Comp. Rev.,
Ser. 93C, A.N.N.M.T., F.G.I.C. VMIG1 4.35 7/01/01 1,800 1,800,000
Ser. 96A, A.M.B.A.C. NR 5.50 11/15/00 2,500 2,507,443
Ser. 96A, A.M.B.A.C. NR 5.50 5/15/01 1,000 1,009,146
Connecticut St. Special Tax Oblig.
Transp. Infrastructure Rev.,
Ser. 90A, Bond NR 8.00 6/01/01 1,500 1,538,364
Ser. 90A, Bond NR 7.125 6/01/01 500(c) 515,024
Ser. 90I, F.R.W.D. VMIG1 3.95 9/06/00 2,025 2,025,000
Hartford Connecticut, Redev.
Agcy., Multi-family Mtge. Rev.,
Underwood Twrs. Proj.,
Ser. 90, F.R.W.D., F.S.A. A-1+(d) 4.10 9/07/00 600 600,000
New Haven Connecticut,
Ser. 99A, F.G.I.C. NR 4.25 2/01/01 2,025 2,026,604
North Branford, Connecticut,
B.A.N. NR 5.00 2/15/01 2,375 2,379,154
Monroe Connecticut, Ser. A NR 4.75 1/25/01 1,025 1,026,990
Old Saybrook, Connecticut, B.A.N. NR 4.25 9/06/00 1,850 1,850,055
Puerto Rico Commwlth. & Electric
Power Auth., Ser. 98-20,
F.R.W.D., M.B.I.A. VMIG1 3.93 9/07/00 2,400 2,400,000
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Portfolio of Investments as of August 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Puerto Rico Commwlth. Highway &
Transp. Auth., Ser. FFF,
F.R.W.D., M.B.I.A. VMIG1 4.35% 9/06/00 $ 2,500 $ 2,500,000
South Windsor Connecticut,
Gen. Oblig., Ser. 99 NR 3.50 9/01/00 585 585,000
------------
Total Investments 99.8%
(amortized cost $81,045,038(e)) 81,045,038
Other assets in excess of
liabilities 0.2% 179,615
------------
Net Assets 100% $ 81,224,653
------------
------------
</TABLE>
- ------------------------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
A.N.N.M.T.--Annual Mandatory Tender.
B.A.N.--Bond Anticipation Note.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
T.E.C.P.--Tax Exempt Commercial Paper.
(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.
(c) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(d) Standard & Poor's rating.
(e) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
See Notes to Financial Statements 7
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
August 31, 2000
<S> <C> <C>
- ----------------------------------------------------------------------------------------
ASSETS
Investments, at amortized cost which approximates market value $81,045,038
Cash 34,469
Interest receivable 636,125
Receivable for Series shares sold 327,941
Other assets 1,620
---------------
Total assets 82,045,193
---------------
LIABILITIES
Payable for Series shares reacquired 678,140
Accrued expenses 66,944
Management fee payable 35,505
Dividends payable 29,208
Deferred trustee's fees 6,218
Distribution fee payable 4,525
---------------
Total liabilities 820,540
---------------
NET ASSETS $81,224,653
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par value $ 812,246
Paid-in capital in excess of par 80,412,407
---------------
Net assets, August 31, 2000 $81,224,653
---------------
---------------
Net asset value, offering price and redemption price per share
($81,224,653 / 81,224,653 shares of beneficial interest
issued and outstanding; unlimited number of shares
authorized) $1.00
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
August 31, 2000
<S> <C> <C>
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest $ 3,049,551
---------------
Expenses
Management fee 410,257
Distribution fee 102,564
Custodian's fees and expenses 58,000
Reports to shareholders 33,000
Registration fees 24,000
Transfer agent's fees and expenses 21,000
Legal fees and expenses 9,700
Audit fees 8,000
Trustees' fees and expenses 4,500
Miscellaneous 3,964
---------------
Total expenses 674,985
Less: Custodian fee credit (Note 1) (4,296)
---------------
Net expenses 670,689
---------------
Net investment income 2,378,862
---------------
REALIZED LOSS ON INVESTMENTS
Net realized loss on investment transactions (94)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,378,768
---------------
---------------
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------
2000 1999
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 2,378,862 $ 2,014,902
Net realized gain (loss) on investment
transactions (94) 5,471
------------- -------------
Net increase in net assets resulting from
operations 2,378,768 2,020,373
------------- -------------
Dividends and distributions (Note 1) (2,378,768) (2,020,373)
------------- -------------
Series share transactions (at $1 per share)
Net proceeds from shares sold 283,078,236 311,218,175
Net asset value of shares issued in
reinvestment of dividends and
distributions 2,336,383 1,968,000
Cost of shares reacquired (287,264,699) (325,228,890)
------------- -------------
Net decrease in net assets from Series share
transactions (1,850,080) (12,042,715)
------------- -------------
Total decrease (1,850,080) (12,042,715)
NET ASSETS
Beginning of year 83,074,733 95,117,448
------------- -------------
End of year $ 81,224,653 $ 83,074,733
------------- -------------
------------- -------------
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Notes to Financial Statements
Prudential Municipal Series Fund (the 'Fund') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of 11
series. The monies of each series are invested in separate, independently
managed portfolios. The Connecticut Money Market Series (the 'Series') commenced
investment operations on August 5, 1991. The Series is nondiversified and seeks
to provide the highest level of income that is exempt from Connecticut state and
federal income taxes with the minimum of risk by investing in 'investment grade'
tax-exempt securities having a maturity of thirteen months or less and whose
ratings are within the two highest ratings categories by a nationally recognized
statistical rating organization, or if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic developments in a specific state,
industry or region.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund, and the Series, in the preparation of its financial statements.
Securities Valuations: Portfolio securities of the Series are valued at
amortized cost, which approximates market value. The amortized cost method of
valuation 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.
All securities are valued as of 4:30 p.m., New York time.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. The Series amortizes premiums and accretes
original issue discount on portfolio securities as adjustments to interest
income. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management.
Federal Income Taxes: For federal income tax purposes, each series in
the Fund is treated as a separate taxpaying entity. It is the intent of the
Series to continue to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its net
income to shareholders. For this reason, no federal income tax provision is
required.
Dividends: The Series declares daily dividends from net investment
income and net realized short-term capital gains or losses. Payment of dividends
is made monthly. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
Custody Fee Credits: The Series has an arrangement with its custodian
bank, whereby uninvested monies earn credits which reduce the fees charged by
the custodian.
Note 2. Agreements The Fund has a management 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
11
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Notes to Financial Statements Cont'd.
performance of such services. PIFM has entered into a subadvisory agreement with
The Prudential Investment Corporation ('PIC'). The subadvisory agreement
provides that PIC will furnish investment advisory services in connection with
the management of the Fund. PIFM continues to have responsibility for all
investment advisory services pursuant to the management agreement and supervises
PIC's performance of such services. PIFM pays for the services of PIC, the
compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .250 of 1% of the
average daily net assets of the Fund. Prior to January 1, 2000, PIC was
reimbursed by PIFM for reasonable costs and expenses incurred in furnishing
investment advisory services. The change in the subadvisory fee structure has no
impact on the management fee charged to the Fund or its shareholders.
The Series has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Series'
shares. The Series compensates PIMS for distributing and servicing the Series'
shares pursuant to the plan of distributing at an annual rate of .125 of 1% of
the Series' average daily net assets. The distribution fee is accrued daily and
payable monthly.
PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
Note 3. Other Transactions with Affiliates Prudential Mutual Fund Services
LLC ('PMFS'), a wholly owned subsidiary of PIFM, serves as the Fund's transfer
agent. During the year ended August 31, 2000, the Series incurred fees of
approximately $19,900 for the services of PMFS. As of August 31, 2000,
approximately $1,500 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations also include certain out-of-pocket
expenses paid to nonaffiliates.
Note 4. Proposed Reorganization
On August 23, 2000, the Trustees approved an Agreement and Plan of
Reorganization and Liquidation of the Series (the 'Plan of Reorganization')
which provides for the transfer of substantially all of the assets and
liabilities of the Prudential Municipal Series Fund, Connecticut Money Market
Series to Prudential Tax-Free Money Fund, Inc. Class A shares of the Series will
be exchanged at net asset value for Class A shares of the equivalent value of
Prudential Tax-Free Money Fund, Inc. The Fund will then cease operations. The
Plan of Reorganization is subject to approval by the shareholders of the
Connecticut Money Market Series.
12
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Financial
Highlights
' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' '
' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' '
' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' '
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Financial Highlights
<TABLE>
<CAPTION>
Year
Ended
August 31, 2000
<S> <C> <C>
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.00
Net investment income and realized gains 0.03
Dividends and distributions to shareholders (0.03)
---------------
Net asset value, end of year $ 1.00
---------------
---------------
TOTAL RETURN(b): 2.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $81,225
Average net assets (000) $82,051
Ratios to average net assets:
Expenses, including distribution and service (12b-1) 0.82%
Expenses, excluding distribution and service (12b-1) 0.69%
Net investment income 2.90%
</TABLE>
- ------------------------------
(a) Net of management fee waiver.
(b) Total return includes reinvestment of dividends and distributions.
14 See Notes to Financial Statements
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Year Ended August 31,
- -------------------------------------------------------------------------------------
1999 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00
.02 .03 .03(a) .03(a)
(.02) (.03) (.03) (.03)
-------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
2.34% 2.72% 3.10% 3.17%
$ 83,075 $ 95,117 $ 75,927 $ 77,683
$ 87,744 $ 84,800 $ 77,500 $ 74,576
.82% .86% .46%(a) .47%(a)
.69% .74% .34%(a) .35%(a)
2.30% 2.68% 3.06%(a) 3.12%(a)
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Connecticut Money Market Series
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 Prudential Municipal Series Fund,
Connecticut Money Market Series (the 'Fund', one of the portfolios constituting
Prudential Municipal Series Fund) at August 31, 2000, 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 four years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. 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 auditing
standards generally accepted in the United States of America, 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 August 31, 2000 by correspondence with the custodian, provide a
reasonable basis for our opinion. The accompanying financial highlights for the
two year period ended August 31, 1996 were audited by other independent
accountants, whose opinion dated October 14, 1996 was unqualified.
As described in Note 4 to the financial statements, on August 23, 2000, the
Board of Trustees of the Series approved an Agreement and Plan of
Reorganization, subject to shareholder approval, whereby the Series would be
merged into Tax-Free Money Fund, Inc.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 20, 2000
16
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Federal Income Tax Information (Unaudited)
We are required by the Internal Revenue Code to advise you within 60 days
of the Series' fiscal year end (August 31, 2000) as to the federal tax status of
dividends and distributions paid by the Fund during such fiscal year.
Accordingly, during its fiscal year ended August 31, 2000, dividends paid from
net investment income of $.03 per share were all federally tax-exempt interest
dividends.
17
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Getting the Most from Your Prudential Mutual Fund
How many times have you read these reports-or other
financial materials-and stumbled across a word that
you don't understand?
Many shareholders have run into the same problem.
We'd like to help. So we'll use this space from
time to time to explain some of the words you might
have read, but not understood. And if you have a
favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half
of one percent is 50 basis points.
Collateralized Mortgage Obligations (CMOs):
Mortgage-backed bonds that separate mortgage pools
into different maturity classes called tranches.
These instruments are sensitive to changes in
interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity
extension risk.
Derivatives: Securities that derive their value
from other securities. The rate of return of these
financial instruments rises and falls-sometimes
very suddenly-in response to changes in some
specific interest rate, currency, stock, or other
variable.
Discount Rate: The interest rate charged by the
Federal Reserve on loans to member banks.
Federal Funds Rate: The interest rate charged by
one bank to another on overnight loans.
Futures Contract: An agreement to purchase or sell
a specific amount of
a commodity or financial instrument at a set price
at a specified date in
the future.
<PAGE>
www.prudential.com (800) 225-1852
Leverage: The use of borrowed assets to enhance
return. The expectation is that the interest rate
charged on borrowed funds will be lower than the
return on the investment. While leverage can
increase profits, it can also magnify losses.
Liquidity: The ease with which a financial
instrument (or product) can be bought or sold
(converted into cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock
divided by the earnings per share for a 12-month
period.
Option: An agreement to purchase or sell something,
such as shares of stock, by a certain time for a
specified price. An option need not be exercised.
Spread: The difference between two values; often
used to describe the
difference between "bid" and "asked" prices of a
security, or between the yields of two similar
maturity bonds.
Yankee Bond: A bond sold by a foreign company or
government on the U.S. market and denominated in
U.S. dollars.
<PAGE>
Prudential Municipal Series Fund Connecticut Money Market Series
Prudential Mutual Funds
Prudential offers a broad range of mutual funds
designed to meet your individual needs. For
information about these funds, contact your
financial adviser or call us at (800) 225-1852.
Read the prospectus carefully before you invest or
send money.
STOCK FUNDS
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Stock Index Fund
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Strategic Partners Focused Growth Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Value Fund
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
balanced/allocation funds
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
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
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
Command Government Fund
Command Money Fund
Command Tax-Free Fund
<PAGE>
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's web site at:
http://www.prudential.com
Trustees
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
John R. Strangfeld
Nancy H. Teeters
Louis A. Weil, III
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Deborah A. Docs, Secretary
William V. Healey, Assistant 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 8098
Philadelphia, PA 19101
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Fund Symbols NASDAQ CUSIP
PMCXX 74435M648
MF154E
(ICON) Printed on Recycled Paper
<PAGE>
ANNUAL REPORT AUGUST 31, 2000
Prudential
Municipal Series Fund/
Massachusetts Money Market Series
Fund Type Money market
Objective The highest level of current income that
is exempt from Massachusetts State and federal
income taxes, consistent with liquidity and the
preservation of capital
(GRAPHIC)
This report is not authorized for distribution to
prospective investors unless preceded or
accompanied by a current prospectus.
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.
(LOGO)
<PAGE>
Investment Goals and Style
The Prudential Municipal Series Fund/Massachusetts
Money Market Series seeks to provide the highest
level of current income that is exempt from
Massachusetts State and federal income taxes,
consistent with
liquidity and the preservation of capital. The
Series intends to invest
primarily in a portfolio of tax-exempt debt
securities with maturities of
13 months or less from the state of Massachusetts,
its municipalities, local governments, and other
qualifying issuers (such as Puerto Rico, Guam, and
the U.S. Virgin Islands). There can be no
assurance that the Series will achieve its
investment objective.
<PAGE>
Money Fund Yield Comparison
(GRAPH)
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
<TABLE>
Fund Facts As of 8/31/00
<CAPTION>
7-Day Net Asset Taxable Equivalent Yield* Weighted Avg. Net Assets
Current Yld. Value (NAV) @31% @36% @39.6% Mat. (WAM) (Millions)
<S> <C> <C> <C> <C> <C>
MA Money
Market Series 3.29% $1.00 5.42% 5.84% 6.19% 46 Days $88
iMoneyNet, Inc.
Tax-Free
State Specific
Avg. (SB &
GP-MA)** 3.45% $1.00 5.68% 6.13% 6.49% 42 Days N/A
</TABLE>
Note: Yields will fluctuate from time to time, and
past performance is not indicative of future
results. An investment in the Series is not insured
or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Series seeks to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Series.
*Some investors may be subject to the federal
alternative minimum tax and/or state and local
taxes. Taxable equivalent yields reflect federal
and applicable state tax rates.
**iMoneyNet, Inc. reports the 7-Day Current Yield,
NAV, and WAM on Mondays. This is the data of all
funds in the iMoneyNet, Inc. Tax-Free State
Specific Average (Stock Broker (SB) & General
Purpose (GP)-Massachusetts) category as of August
28, 2000.
Weighted Average Maturity Compared to the Average
Money Market Fund
(GRAPH)
1
<PAGE>
(LOGO) October 18, 2000
Dear Shareholder,
Municipal money market yields climbed during much
of our 12-month reporting period ended August 31,
2000. The catalyst for this trend was the Federal
Reserve's repeated increases in short-term interest
rates, which were intended to curb the brisk pace
of U.S. economic growth.
The rising-interest-rate environment benefited the
Prudential Municipal Series Fund/Massachusetts
Money Market Series by creating attractive
investment opportunities. The Series maintained a
$1 net asset value per share, and provided a
competitive yield. On August 31, 2000, the Series'
seven-day current yield was 3.29%, compared with
3.45% for the average Massachusetts money market
fund as tracked by iMoneyNet, Inc. The following
pages explain how the Series was positioned in
light of developments in the municipal money market.
Proposed merger
A proposal to merge the Massachusetts Money Market
Series with the Prudential Tax-Free Money Fund,
Inc. will be put to a shareholder vote at a special
shareholders meeting. The meeting is expected to
take place early in 2001.
Sincerely,
John R. Strangfeld, President
Prudential Municipal Series Fund
2
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Annual Report August 31, 2000
Investment Adviser's Report
Trying to put a lid on inflation
The Federal Reserve (the Fed) increased short-term
interest rates four times during our fiscal year
that began September 1, 1999. The Fed acted because
a rapidly expanding U.S. economy raised the risk of
higher consumer prices and accelerating wages.
Hiking rates boosted borrowing costs for businesses
and consumers, which the Fed hoped would slow
economic growth to a more
sustainable pace and help check inflationary pressures.
Because we believed the Fed would tighten monetary
policy in the autumn of 1999, we invested primarily
in shorter-term Massachusetts money market
securities from September through much of October
1999. As these securities matured, we reinvested
the money in higher-yielding Massachusetts money
market securities that were available after
subsequent Fed rate hikes.
For example, the central bank increased short-term
interest rates in mid-November 1999. Yields on
Massachusetts money market securities also climbed,
creating attractive buying opportunities. Among our
purchases were one-year bond anticipation notes of
Bedford, Massachusetts, and
one-year insured general obligation bonds of
Ipswich, Massachusetts.
Taking advantage of bargains during tax season
The Fed resumed tightening monetary policy in 2000
as the resilient U.S.
economy continued to race ahead. The next rate
hikes occurred in February and March 2000, after
which municipal money market yields climbed even
further. From late April through mid-May, tax-
exempt money market yields were sharply higher
because portfolio managers sold securities to meet
shareholder redemptions during tax time, and
because the Fed was expected to increase rates
aggressively when it met in May. With yields at
such attractive levels, we bought six-month state
aid anticipation notes of Methuen, Massachusetts,
and six-month bond anticipation notes of Waltham,
Massachusetts. We also bought "prerefunded"
Massachusetts general obligation bonds that are
backed by direct obligations of the U.S. Treasury.
3
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Annual Report August 31, 2000
Our purchases during tax time dramatically
lengthened the Series' weighted average maturity
(WAM), which positioned the Series significantly
longer than the average fund as measured by
iMoneyNet, Inc. (WAM is a measurement tool that
determines a portfolio's sensitivity to changes in
the level of interest rates. It takes into account
the maturity level of each security held in a
portfolio.) Extending the WAM during this time
enhanced the Series' yield.
Purchasing municipal asset-backed securities
There were also attractive investment opportunities
among municipal asset-backed securities (MABS).
MABS are highly liquid investments structured to
help satisfy the growing demand for municipal money
market securities. MABS require a higher degree of
analysis than more generic investment alternatives.
As a result, MABS offer a higher return, and have
been selectively added to the Series' holdings.
In mid-May, the Fed aggressively raised short-term
interest rates as
expected. Shortly thereafter, data began to show
that economic growth was slowing, which fueled
optimism that the Fed would stop raising rates.
Consequently, many investors were willing to accept
lower yields (and pay higher prices) for municipal
money market securities. Our decision to lock in
municipal money market yields from late April
through mid-May worked well because yields declined
during the remainder of our fiscal year.
Prudential Massachusetts Money Market Series
Management Team
4
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Annual Report August 31, 2000
Financial
Statements
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Portfolio of Investments as of August 31, 2000
<TABLE>
<CAPTION>
Principal
Moody's Rating Interest Maturity Amount Value (Note
Description (a) (Unaudited) Rate Date (000) 1)
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Bedford, Gen. Oblig., B.A.N. NR 4.25% 12/04/00 $ 2,000 $ 2,001,634
Brockton, Gen. Oblig.,
B.A.N. NR 5.125 6/21/01 1,500 1,504,877
Holden, Gen. Oblig.,
F.G.I.C. Aaa 7.50 3/01/01 1,070 1,070,000
Ipswich, Gen. Oblig.,
F.G.I.C. Aaa 5.00 11/15/00 1,169 1,171,676
Lowell, Gen. Oblig. Aaa 8.30 2/15/01 1,000(c) 1,047,265
Mass. St. Certificates, Ser.
240, F.R.W.D. VMIG1 3.83 9/07/00 6,000 6,000,000
Mass. St. Dev. Fin. Agcy.
Rev.,
Carleton-Willard Village,
Ser. 2000 F.R.W.D. A-1(d) 4.22 9/07/00 1,000 1,000,000
Lassell Village Proj., Ser.
98C, F.R.W.D. VMIG1 4.25 9/07/00 1,200 1,200,000
Newton Country Day School,
F.R.W.D. VMIG1 4.15 9/07/00 1,800 1,800,000
Notre Dame Hlth. Care
Center, Ser. 99, F.R.W.D. VMIG1 4.25 9/07/00 3,485 3,485,000
Semass Proj., Ser. A,
F.R.W.D., A.M.T. A-1(d) 4.35 9/06/00 4,800 4,800,000
Semass Proj., Ser. B,
F.R.W.D., A.M.T. A-1(d) 4.35 9/06/00 2,400 2,400,000
Waste Mgmt., Inc., Ser. 99,
F.R.W.D., A.M.T. VMIG1 4.35 9/06/00 2,500 2,500,000
Wentworth Inst. of Tech.,
Ser. 2000, F.R.W.D.,
A.M.B.A.C. VMIG1 4.20 9/07/00 1,000 1,000,000
Mass. St. Hlth. & Edl. Facs.
Auth. Rev.,
Ser. 275, F.R.W.D.,
M.B.I.A. A-1+(d) 4.33 9/07/00 500 500,000
Falmouth Assisted Living,
Ser. A, F.R.W.D. VMIG1 4.10 9/07/00 1,000 1,000,000
Hallmark Hlth. Sys., Ser.
B, F.R.W.D. VMIG1 4.25 9/07/00 2,000 2,000,000
Harvard Univ., Ser. SGA 97,
F.R.D.D. A-1+(d) 4.35 9/01/00 1,600 1,600,000
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Portfolio of Investments as of August 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Rating Interest Maturity Amount Value (Note
Description (a) (Unaudited) Rate Date (000) 1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Northeastern Univ., Ser. G,
M.B.I.A. Aaa 4.50% 10/01/00 $ 465 $ 465,090
Partners Hlth. Care Sys.,
Ser. P-1, F.R.W.D., F.S.A. VMIG1 4.10 9/06/00 1,000 1,000,000
Partners Hlth. Care Sys.,
Ser. P-2, F.R.W.D., F.S.A. VMIG1 4.05 9/06/00 2,600 2,600,000
Simmons College Merlots,
Ser. T, F.R.W.D.,
A.M.B.A.C. VMIG1 4.32 9/05/00 3,395 3,395,000
Williams College, Ser.
SG65, F.R.D.D.S. A-1+(d) 4.35 9/01/00 3,500 3,500,000
Mass. St. Hsg. Fin. Agcy.
Rev.,
Multi-Family Rev., Harbor
Port, Ser. 95A, F.R.W.D.,
G.N.M.A. A-1+(d) 4.10 9/06/00 4,100 4,100,000
Single Family Housing
Notes, Ser. C-1, A.M.T. A-1+(d) 4.90 6/01/01 2,000 2,000,000
Mass. St. Ind. Fin. Agcy.
Ind. Rev.,
Hazen Paper Co., Ser. 95,
F.R.W.D., A.M.T. A-1(d) 4.35 9/07/00 1,200 1,200,000
Heritage at Hingham, Ser.
97, F.R.W.D. VMIG1 4.20 9/07/00 1,500 1,500,000
New England College, Ser.
97, F.R.W.D. A-1+(d) 4.15 9/07/00 3,800 3,800,000
Peterson American Corp.
Proj., Ser. 96, F.R.W.D.,
A.M.T. NR 4.50 9/06/00 300 300,000
Riverdale Mills Corp., Ser.
95, F.R.W.D., A.M.T. A-1(d) 4.35 9/07/00 900 900,000
Mass. St. Ind. Fin. Agcy.
Polltn. Ctrl. Rev.,
New England Power Co.
Proj.,
Ser. 92B, Commercial Paper VMIG1 4.05 10/18/00 2,500 2,500,000
Ser. 92B, Commercial Paper VMIG1 4.15 10/23/00 2,000 2,000,000
Mass. St. Muni. Elec. Co.,
Power Supply Sys. Rev.,
Ser. 94C, F.R.W.D.,
M.B.I.A. VMIG1 4.10 9/06/00 1,000 1,000,000
Mass. St. Port Auth. Rev.
Merlots, Ser. Q, F.R.W.D.S. VMIG1 4.37 9/05/00 3,000 3,000,000
</TABLE>
See Notes to Financial Statements 7
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Portfolio of Investments as of August 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Rating Interest Maturity Amount Value (Note
Description (a) (Unaudited) Rate Date (000) 1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mass. St. Wtr. Res. Auth.,
T.E.C.P. P-1 4.10% 9/29/00 $ 1,000 $ 1,000,000
T.E.C.P. P-1 4.05 10/17/00 1,500 1,500,000
T.E.C.P. P-1 4.10 10/19/00 1,500 1,500,000
T.E.C.P. P-1 4.20 12/08/00 1,500 1,500,000
Mass. St., Gen. Oblig.,
Ser. 90C Aaa 7.00 12/01/00 1,000(c) 1,006,400
Ser. 90C Aaa 7.50 12/01/00 1,425(c) 1,464,038
Ser. 98A, F.R.W.D. VMIG1 4.15 9/07/00 2,500 2,500,000
Methuen, State Aid, B.A.N. NR 4.75 10/20/00 1,400 1,400,881
Monson, Gen. Oblig., Sch.
Proj.,
Ser. 90, M.B.I.A. Aaa 7.70 10/15/00 500(c) 512,057
Nantucket, Gen. Oblig.,
B.A.N. MIG1 5.25 5/25/01 1,550 1,554,304
Palmer, Gen. Oblig., Sch.
Proj.,
Ser. B, A.M.B.A.C. Aaa 7.70 10/01/00 500(c) 511,403
Stoughton, Gen. Oblig.,
F.S.A. Aaa 7.50 5/15/01 1,597 1,625,067
Sutton, Gen. Oblig.,
M.B.I.A. Aaa 7.00 4/01/01 1,267 1,286,234
Waltham, Gen. Oblig., B.A.N. NR 4.75 9/08/00 1,290 1,290,111
------------
Total Investments 99.6%
(amortized cost
$87,991,037(e)) 87,991,037
Other assets in excess of
liabilities 0.4% 377,188
------------
Net Assets 100% $ 88,368,225
------------
------------
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Portfolio of Investments as of August 31, 2000 Cont'd.
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
B.A.N.--Bond Anticipation Note.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note(b).
F.R.D.D.S.--Floating Rate (Daily) Demand Note Synthetic(b).
F.R.W.D.--Floating Rate (Weekly) Demand Note(b).
F.R.W.D.S.--Floating Rate (Weekly) Demand Note Synthetic(b).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
T.E.C.P.--Tax-Exempt Commercial Paper.
(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.
(c) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(d) Standard & Poor's Rating.
(e) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
See Notes to Financial Statements 9
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
August 31, 2000
<S> <C> <C>
- ----------------------------------------------------------------------------------------
ASSETS
Investments, at amortized cost which approximates market value $ 87,991,037
Cash 62,429
Receivable for investments sold 2,000,000
Interest receivable 707,475
Receivable for Series shares sold 347,691
Other assets 1,188
-----------------
Total assets 91,109,820
-----------------
LIABILITIES
Payable for Series shares reacquired 2,625,523
Management fee payable 38,133
Accrued expenses 33,836
Dividends payable 32,673
Deferred trustee's fees 6,182
Distribution fee payable 5,248
-----------------
Total liabilities 2,741,595
-----------------
NET ASSETS $ 88,368,225
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par value $ 883,682
Paid-in capital in excess of par 87,484,543
-----------------
Net assets, August 31, 2000 $ 88,368,225
-----------------
-----------------
Net asset value, offering price and redemption price per share
($88,368,225 / 88,368,225 shares of beneficial interest
issued
and outstanding; unlimited number of shares authorized) $1.00
-----------------
-----------------
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
August 31, 2000
<S> <C> <C>
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest $ 2,643,490
-----------------
Expenses
Management fee 339,393
Distribution fee 84,848
Custodian's fees and expenses 64,000
Reports to shareholders 25,000
Registration fees 16,000
Transfer agent's fees and expenses 14,000
Legal fees and expenses 10,000
Trustees' fees and expenses 8,000
Audit fee 8,000
Miscellaneous 2,560
-----------------
Total expenses 571,801
Less: Custodian fee credit (Note 1) (362)
-----------------
Net expenses 571,439
-----------------
Net investment income 2,072,051
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,072,051
-----------------
-----------------
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------
<S> <C> <C> <C>
2000 1999
<CAPTION>
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 2,072,051 $ 1,364,638
--------------- --------------
Dividends (Note 1) (2,072,051) (1,364,638)
--------------- --------------
Series share transactions (at $1 per share)
Net proceeds from shares sold 224,336,862 174,293,713
Net asset value of shares issued to
shareholders in reinvestment of
dividends 2,028,747 1,330,047
Cost of shares reacquired (193,500,915) (182,580,621)
--------------- --------------
Net increase (decrease) in net assets from
Series share transactions 32,864,694 (6,956,861)
--------------- --------------
Total increase (decrease) 32,864,694 (6,956,861)
NET ASSETS
Beginning of year 55,503,531 62,460,392
--------------- --------------
End of year $ 88,368,225 $ 55,503,531
--------------- --------------
--------------- --------------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Notes to Financial Statements
Prudential Municipal Series Fund (the 'Fund') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
eleven series. The monies of each series are invested in separate, independently
managed portfolios. The Massachusetts Money Market Series (the 'Series')
commenced investment operations on August 5, 1991. The Series is nondiversified
and seeks to provide the highest level of income that is exempt from
Massachusetts State and federal income taxes with minimum risk by investing in
'investment grade' tax-exempt securities having a maturity of 13 months or less
and whose ratings are within the 2 highest ratings categories by a nationally
recognized statistical rating organization, or if not rated, are of comparable
quality. The ability of the issuers of the securities held by the Series to meet
their obligations may be affected by economic developments in a specific state,
industry or region.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund, and the Series, in the preparation of its financial statements.
Securities Valuations: Portfolio securities of the Series are valued at
amortized cost, which approximates market value. The amortized cost method of
valuation 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.
All securities are valued as of 4:30 p.m., New York time.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. The Series amortizes premiums and accretes
original issue discount on portfolio securities as adjustments to interest
income. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management.
Federal Income Taxes: For federal income tax purposes, each series in
the Fund is treated as a separate taxpaying entity. It is the intent of the
Series to continue to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its net
income to shareholders. For this reason, no federal income tax provision is
required.
Dividends: The Series declares all of its net investment income and net
realized short-term capital gains or losses, if any, as dividends daily to its
shareholders of record at the time of such declaration. Payment of dividends is
made monthly. Income distributions and capital gain distributions are determined
in accordance with
13
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Notes to Financial Statements Cont'd.
income tax regulations which may differ from generally accepted accounting
principles.
Custody Fee Credits: The Fund has an arrangement with its custodian
bank, whereby uninvested monies earn credits which reduce the fees charged by
the custodian.
Note 2. Agreements
The Fund has a management 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 Fund. PIFM pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .250 of 1% of the
average daily net assets of the Fund. Prior to January 1, 2000, PIC was
reimbursed by PIFM for reasonable costs and expenses incurred in furnishing
investment advisory services. The change in the subadvisory fee structure has no
impact on the management fee charged to the Fund or its shareholders.
The Series has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Series.
The Fund compensates PIMS for distributing and servicing the Series' shares
pursuant to the plans of distribution regardless of expenses actually incurred
by PIMS. The Series reimbursed PIMS for distributing and servicing the Series'
shares pursuant to the plan of distribution at an annual rate of .125 of 1% of
the Series average daily net assets. The distribution fees are accrued daily and
payable monthly.
PIMS, PIFM and PIC are indirect wholly owned subsidiaries of The
Prudential Insurance Company of America.
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended August 31, 2000, the
Series incurred fees of approximately $13,700 for the services of PMFS. As of
August 31, 2000, approximately $1,200 of such fees were due to PMFS. Transfer
14
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Notes to Financial Statements Cont'd.
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
Note 4. Proposed Reorganization
On August 23, 2000, the Trustees approved an Agreement and Plan of
Reorganization and Liquidation of the Series (the 'Plan of Reorganization')
which provides for the transfer of substantially all of the assets and
liabilities of the Prudential Municipal Series Fund, Massachusetts Money Market
Series to Prudential Tax-Free Money Fund, Inc. Class A shares of the Series will
be exchanged at net asset value for Class A shares of the equivalent value of
Prudential Tax-Free Money Fund, Inc. The Fund will then cease operations. The
Plan of Reorganziation is subject to approval by the shareholders of the
Massachusetts Money Market Series.
15
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Financial Highlights
<TABLE>
<CAPTION>
Year Ended
August 31, 2000
- ----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.00
Net investment income and realized gains .03
Dividends and distributions to shareholders (.03)
--------
Net asset value, end of year $ 1.00
--------
--------
TOTAL RETURN(b): 3.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $88,368
Average net assets (000) $67,879
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees .84%
Expenses, excluding distribution and service (12b-1) fees .72%
Net investment income 3.05%
</TABLE>
- ------------------------------
(a) Net of management fee waiver.
(b) Total return includes reinvestment of dividends and distributions.
16 See Notes to Financial Statements
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Year Ended August 31,
- -------------------------------------------------------------------------------------
1999 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00
.02 .03 .03(a) .03(a)
(.02) (.03) (.03) (.03)
-------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
2.35% 2.77% 3.08% 3.12%
$ 55,504 $ 62,460 $ 53,441 $ 50,511
$ 58,654 $ 55,540 $ 53,078 $ 54,689
.88% .84% .54%(a) .55%(a)
.76% .71% .42%(a) .43%(a)
2.33% 2.73% 3.04%(a) 3.08%(a)
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Massachusetts Money Market Series
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 Prudential Municipal Series Fund,
Massachusetts Money Market Series (the 'Fund', one of the portfolios
constituting Prudential Municipal Series Fund) at August 31, 2000, 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 four years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. 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 auditing
standards generally accepted in the United States of America, 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 August 31, 2000 by correspondence with the custodian, provide a
reasonable basis for our opinion. The accompanying financial highlights for the
year ended August 31, 1996 were audited by other independent accountants, whose
opinion dated October 14, 1996 was unqualified.
As described in Note 4 to the financial statements, on August 23, 2000, the
Board of Trustees of the Series approved an Agreement and Plan of
Reorganization, subject to shareholder approval, whereby the Series would be
merged into Tax-Free Money Fund, Inc.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 20, 2000
18
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Federal Income Tax Information (Unaudited)
We are required by the Internal Revenue Code to advise you within 60 days
of the Series' fiscal year end (August 31, 2000) as to the federal tax status of
dividends paid by the Series during such fiscal year. Accordingly, we are
advising you that in the fiscal year ended August 31, 2000, dividends paid from
net investment income of $.03 per share were all federally tax-exempt interest
dividends.
19
<PAGE>
Prudential Municipal Series Fund Massachusetts Money Market Series
Prudential Mutual Funds
Prudential offers a broad range of mutual funds
designed to meet your individual needs. For
information about these funds, contact your
financial adviser or call us at (800) 225-1852.
Read the prospectus carefully before you invest or
send money.
STOCK FUNDS
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Stock Index Fund
Prudential Tax-Managed Funds
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Strategic Partners Focused Growth Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Value Fund
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
balanced/allocation funds
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
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
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
Command Government Fund
Command Money Fund
Command Tax-Free Fund
<PAGE>
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's web site at:
http://www.prudential.com
Trustees
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
John R. Strangfeld
Nancy H. Teeters
Louis A. Weil, III
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Deborah A. Docs, Secretary
William V. Healey, Assistant 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 8098
Philadelphia, PA 19101
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Fund Symbols NASDAQ CUSIP
PRMXX 74435M630
MF153E
(ICON) Printed on Recycled Paper
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. 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 VII of the Fund's
By-Laws (Exhibit 2 to the Registration Statement), officers, directors,
employees and agents of the Registrant shall not be liable to the Registrant,
any stockholder, officer, director, employee or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross
negligence or reckless disregard of duties, and directors, officers,
employees and agents of the Registrant may be indemnified against certain
liabilities in connection with the Registrant, subject to the same
exceptions. Section 2-418 of Maryland General Corporation Law permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant. As permitted by
Section 17(i) of the 1940 Act, and pursuant to Section 10 of the Distribution
Agreement (Exhibit 7(c) to the Registration Statement), in certain cases the
Distributor of the Registrant may be indemnified against liabilities which it
may incur, except liabilities arising from bad faith, gross negligence in the
performance of its duties, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (Securities Act) may be permitted to 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 (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 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 maintains 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.
C-1
<PAGE>
Section 9 of the Management Agreement (Exhibit 6(a) to the
Registration Statement) and Section 4 of the Subadvisory Agreement (Exhibit
6(b) to the Registration Statement) limit the liability of Prudential
Investments Fund Management, LLC (PIFM) (formerly known as Prudential Mutual
Fund Management, Inc.) 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. Section 9 of the Management Agreement also holds PIFM liable
for losses resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner consistent
with Release No. 11330 of the Commission under the 1940 Act so long as the
interpretation of Sections 17(h) and 17(i) of such Act remains in effect and is
consistently applied.
ITEM 16. EXHIBITS.
1. Restated Articles of Incorporation. Incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 21 to Registration Statement
on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625).
2. (a) By-Laws of the Registrant, as amended. Incorporated by reference to
Exhibit 2 to Post-Effective Amendment No. 21 to the Registration
Statement filed on Form N-1A filed via EDGAR on February 26, 1997
(File No. 2-64625).
(b) Amendment to By-Laws of the Registrant.*
3. Not Applicable.
4. Form of Agreement and Plan of Reorganizations filed herewith as
Attachment A to the Prospectus and Proxy Statement.**
5. Instruments defining rights of holders of the securities being offered.
Incorporated by reference to Exhibits Nos. 1 and 2 above.
6. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., as amended November 19, 1993. Incorporated by
reference to Exhibit 5(a) to Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A filed via EDGAR on March 2, 1994
(File No. 2-64625).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. Incorporated by
reference to Exhibit 5(b) to
C-2
<PAGE>
Post-Effective Amendment No. 21 to Registration Statement on Form N-1A
filed via EDGAR on February 26, 1997 (File No. 2-64625).
(c) Amendment to Subadvisory Agreement between Prudential Investments
Fund Management LLC and The Prudential Investment Corporation.
Incorporated by reference to Exhibit (d)(iii) to Post-Effective
Amendment No. 25 to Registration Statement on Form N-1A filed via EDGAR
on February 29, 2000 (File No. 2-64625).
7. (a) Amended Distribution and Service Agreement between the Registrant
and Prudential Mutual Fund Distributors, Inc., incorporated by
reference to Exhibit 6(b) to Post-Effective Amendment No. 19 to
Registration Statement on Form N-1A filed via EDGAR on May 31, 1995
(File No. 2-64625).
(b) Amended Distribution Agreement, dated January 1, 1996, incorporated
by reference to Exhibit 6(c) to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A filed via EDGAR on February 28,
1996 (File No. 2-64625).
(c) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC, incorporated by reference to
Exhibit (e)(iii) to Post-Effective Amendment No. 24 to the Registration
Statement on Form N-1A filed via EDGAR on April 27, 1999 (File No.
2-64625).
(d) Form of Dealer Agreement, incorporated by reference to Exhibit (e)
(iv) to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A filed via EDGAR on April 27, 1999 (File No. 2-64625).
8. None.
9. (a) Custodian Agreement between the Registrant and State Street Bank
and Trust Company. Incorporated by reference to Exhibit 8 to
Post-Effective Amendment No. 21 to Registration Statement on
Form N-1 A filed via EDGAR on February 26, 1997 (File No. 2-64625).
(b) Amendment to Custodian Contract/Agreement, dated February 22,
1999, between the Registrant and State Street Bank and Trust Company.*
10. (a) Distribution and Service Plan of Registrant, incorporated by
reference to Exhibit 15 to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A filed via EDGAR on February 26,
1997 (File No. 2-64625).
(b) Amended and Restated Distribution and Service Plan, incorporated by
reference to Exhibit (m) (ii) to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A filed via EDGAR on April 27, 1999
(File No. 2-64625).
11. Opinions and Consents of Counsel.***
C-3
<PAGE>
12. Not Applicable.
13. (a) Transfer Agency and Service Agreement, dated January 1, 1988,
between the Registrant and Prudential Mutual Fund Services.
Incorporated by reference to Exhibit 9 to Post-Effective Amendment
No. 21 to the Registration Statement on Form N-1A filed via EDGAR on
February 26, 1997 (File No. 2-64625).
(b) Amendment to Transfer Agency and Service Agreement, dated
August 24, 1999, by and between the Registrant and Prudential Mutual
Fund Services LLC.*
14. (a) Consent of Independent Accountants to Prudential Tax-Free Money
Fund, Inc.***
(b) Consent of Independent Accountants to Prudential Municipal Series
Fund.***
15. Not Applicable.
16. Not Applicable.
17. (a) Proxies, filed immediately after Prospectus and Proxy Statement. **
(b) Prospectus of the Registrant dated February 29, 2000.**
(c) Prospectus of Connecticut Money Market Series of Prudential
Municipal Series Fund dated November 3, 2000.***
(d) Prospectus of Massachusetts Money Market Series of Prudential
Municipal Series Fund dated November 3, 2000.***
(e) Intentionally omitted.
(f) Intentionally omitted.
(g) President's Letter, filed immediately preceding Prospectus and
Proxy Statement.**
(h) Statement of Additional Information of Prudential Municipal Series
Fund dated November 3, 2000, filed via EDGAR on November 9, 2000.**
(i) Supplement dated November 3, 2000 to Prospectuses of Connecticut
Money Market Series and Massachusetts Money Market Series.**
----------------------
*Incorporated by reference to identically numbered exhibit to Registrant's
Initial Registration Statement on Form N-14 filed via EDGAR on September 28,
2000 (File No. 333-46830).
**Filed herewith.
***To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which
is a part of this registration statement by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c) of the Securities Act
[17 CFR 230.14c], the reoffering prospectus will contain the information called
for by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
C-4
<PAGE>
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of Newark, and State of
New Jersey, on the 21st day of December, 2000.
PRUDENTIAL TAX-FREE MONEY FUND, INC.
/s/ David R. Odenath
------------------------------------
David R. Odenath, President
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Delayne D. Gold Director December 21, 2000
------------------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Vice President and December 21, 2000
------------------------------ Director
ROBERT F. GUNIA
/s/ Robert E. LaBlanc Director December 21, 2000
------------------------------
ROBERT E. LABLANC
/s/ David R. Odenath President and December 21, 2000
------------------------------ Director
DAVID R. ODENATH
/s/ Robin B. Smith Director December 21, 2000
------------------------------
ROBIN B. SMITH
/s/ Stephen Stoneburn Director December 21, 2000
------------------------------
STEPHEN STONEBURN
/s/ Judy A. Rice Director December 21, 2000
------------------------------
JUDY A. RICE
/s/ Nancy H. Teeters Director December 21, 2000
------------------------------
NANCY H. TEETERS
/s/ Clay T. Whitehead Director December 21, 2000
------------------------------
CLAY T. WHITEHEAD
/s/ Grace C. Torres Treasurer and Principal December 21, 2000
------------------------------ Financial and Accounting
GRACE C. TORRES Officer
</TABLE>
C-6
<PAGE>
EXHIBIT INDEX
4. Form of Agreement and Plan of Reorganizations filed herewith as
Attachment A to the Prospectus and Proxy Statement.
l7. (a) Proxies, filed immediately after Prospectus and Proxy Statement.
(b) Prospectus of the Registrant dated February 29, 2000.
(g) President's Letter, filed immediately preceding Prospectus and
Proxy Statement.
(h) Statement of Additional Information of Prudential Municipal
Series Fund dated November 3, 2000 filed via EDGAR on
November 9, 2000.
(i) Supplement dated November 3, 2000 to Prospectuses of Connecticut
Money Market Series and Massachusetts Money Market Series.
C-7
