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As filed with the Securities and Exchange Commission on September 28, 2000
Securities Act Registration No. _______
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
(Check appropriate box or boxes)
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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).
It is proposed that this filing will become effective on
October 30, 2000, pursuant to Rule 488.
TITLE OF SECURITIES BEING REGISTERED....SHARES OF COMMON
STOCK, PAR VALUE $.01 PER SHARE
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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
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PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
October __, 2000
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 of Prudential Municipal Series Fund into Prudential Tax-Free
Money Fund, Inc. A shareholder meeting of your Series is scheduled for December
7, 2000. This package contains information about the proposal and includes
materials you will need to vote. The Board of Trustees of the 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 similar investment policies. In addition, shareholders are
expected to realize 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 to enter your vote.
- 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 before you vote, please call us at (800) 225-1852. We
are glad to help you understand the proposals and assist you in voting. Thank
you for your participation.
Very truly yours,
John R. Strangfeld, Jr.
PRESIDENT
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IMPORTANT INFORMATION TO HELP YOU UNDERSTAND AND VOTE ON THE PROPOSALS
Please read the enclosed proxy statement for a complete description of
the proposals. As a quick reference, the following 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 of Prudential Municipal
Series Fund, into Prudential Tax-Free Money Fund. You are being asked to approve
only the merger of your Series into Prudential 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, Prudential Tax-Free Money Fund, in exchange
for shares of Prudential Tax-Free Money Fund. The shareholders of each Series
will vote separately on whether to approve the merger of their Series into
Prudential 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 each Series have not been growing at a competitive rate while
the number of shareholders of each Series have been declining for a number of
years. As of June 30, 2000, the assets and the number of shareholder accounts
of Connecticut Money Market Series and Massachusetts Money Market Series were
approximately $__ million and 1,384, and $__ million and 1,008, respectively.
The small and slow growing asset base of each Series has resulted in
relatively high expense ratios and prevents the Series from enjoying
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 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 and is consistent with
liquidity and the preservation of capital. One of the principal
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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 and Massachusetts, as applicable).
After the 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, as applicable, state income taxes. 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 invests at least 80%
of its 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 each
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 portfolios are more susceptible to factors affecting such
issuers than that of a national municipal fund such as the 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. Prudential Investments Fund Management has hired The
Prudential Investment Corporation to subadvise and manage 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. [Joseph Tully also serves
as co-team leader with Monica Wong of 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.
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CONNECTICUT MONEY MARKET SERIES
ANNUAL SERIES OPERATING EXPENSES (deducted from Series assets)
<TABLE>
<CAPTION>
<S> <C>
Management fees .500%
+ Distribution and service (12b-1) fees .125%
+ Other expenses .205%
= TOTAL ANNUAL SERIES OPERATING EXPENSES .830%
MASSACHUSETTS MONEY MARKET SERIES
ANNUAL SERIES OPERATING EXPENSES (deducted from Series assets)
<CAPTION>
<S> <C>
Management fees .500%
+ Distribution and service (12b-1) fees .125%
+ Other expenses .215%
= TOTAL ANNUAL SERIES OPERATING EXPENSES .840%
TAX-FREE MONEY FUND
ANNUAL FUND OPERATING EXPENSES (deducted from Fund assets)
<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 the 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. 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?
If both proposals are approved, based on information available as of
June 30, 2000, the combined Fund is anticipated to have approximately $328.5
million in assets.
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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 December 15, 2000.
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 (December 7, 2000), the meeting 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 will consider other proposals for such
Series, including proposals for the reorganization or liquidation of such
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 October 13, 2000. 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.
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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 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.
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."
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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
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 December 7, 2000, at 9:30 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 October 13,
2000 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: October __, 2000
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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.
--------------------------------------------------------------------------------
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YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
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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.
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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:
REGISTRATION VALID SIGNATURE
-----------------------------------------------------------
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
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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
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October ___, 2000
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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
December 7, 2000, at 9:30 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 the Mergers are 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 December 15, 2000, 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
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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 eleven 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 municipal obligations, Connecticut or Massachusetts, as applicable.
Each Series attempts to maintain a net asset value of $1 per share.
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 A 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 October __, 2000, 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 the
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 December 23, 1999, as supplemented to date, and
a Statement of Additional Information for Municipal Series Fund, which includes
both Series, dated October __, 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.
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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 DECEMBER 7, 2000, AT: 9:30 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 December
7, 2000, at 9:30 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 Management 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 October __, 2000. Supplementary
solicitations may be made by mail, telephone, telegraph, facsimile,
electronic means or by personal interview by representatives of Municipal
Series Fund, on behalf of each Series. 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 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
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Proposal No. 1. Only proxies that are actually voted will be counted toward
establishing a quorum, which is the minimum number of shares necessary to
transact business at the Meeting. With respect to each Series, quorum 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 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
[and the internet] 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.
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
October 13, 2000 (the Record Date), will be entitled to vote at the Meeting.
Each such shareholder will be entitled to
4
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one vote for each share held on that date. On the Record Date, there were
____________ and __________ shares, issued and outstanding of Connecticut Money
Market Series and Massachusetts Money Market Series, respectively. The following
shareholders held 5% or more of Connecticut Money Market Series on the Record
Date: _____________. The following shareholders held 5% or more of Massachusetts
Money Market Series on the Record Date: _______________.
On October 13, 2000, there were ____________ shares, issued and
outstanding of Tax-Free Money Fund. The following shareholders held 5% or
more of the shares of Tax-Free Money Fund on October 13, 2000: _____________.
Shareholders of Tax-Free Money Fund are not entitled to vote on any Merger.
As of October 13, 2000, 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.
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 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 [substantially] 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 municipal
fixed-income securities, as well as short-term obligations of other issuers
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 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
5
<PAGE>
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 private activity
bonds and securities with demand features and will attempt to maintain a net
asset value of $1 per share. Moreover, each Series may invest in insured
municipal bonds.
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 Mergers occur,
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 a common 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 the same investment approach
in selecting investments for each Series and Tax-Free Money Fund. 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 September 30, 2000,
PIFM served as manager to all [42] of the Prudential mutual funds, and as
manager or administrator to 22 closed-end investment companies, with
aggregate assets of approximately [$76.2 billion].
The benchmark index for Connecticut Money Market Series and
Massachusetts Money Market Series is the iMoneyNet, Inc. Tax-Free
State-Specific Money Fund category for Connecticut and Massachusetts,
respectively. The benchmark index for Tax-Free Money Fund is the iMoneyNet,
Inc. Tax-Free Money Fund category.
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 have designated either Series as the
sweep vehicle through these programs will be notified and asked to make an
election into another sweep vehicle. 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 of any net
investment income to shareholders every month. As discussed above, 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 will
likely not be exempt from any state income taxes. Although the Series and
Tax-Free Money Fund are not likely to realize capital gains because of the types
of securities they purchase, any realized net capital gains will be paid to
shareholders typically 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
6
<PAGE>
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 appropriate 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 the Series, the Tax-Free Money Fund and their
respective portfolios, it is unclear whether the Mergers will qualify as
tax-free reorganizations for federal income tax purposes. 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 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
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. 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, 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 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
7
<PAGE>
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 .130% and .120%, 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 .120%. 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
the Tax-Free Money Fund with each Series will 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 .830% 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, Tax-Free Money Fund's expense
structure will apply. Assuming continuation of Tax-Free Money Fund's current
expenses, this expense structure would 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 which may
be able to more effectively pursue its investment at
reasonable cost to shareholders;
- investment in a fund with an investment objective and policies
similar to each Series' investment objective and policies;
- greater diversification of assets;
- annual operating expenses for each Series' shares are expected
to be lower than those currently of the Series (approximately
[6 and 7] 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.
8
<PAGE>
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>
Connecticut Massachusetts Tax-Free Money Pro Forma
Money Market Money Market Fund Combined Fund
Series Series Class A shares Class A shares
------ ------ -------------- --------------
<S> <C> <C> <C> <C>
Management fees .500% .500% .500% .500%
+ Distribution and service .125% .125% .125% .125%
(12b-1) fees
+ Other expenses .205% .215% .185% .115%
= TOTAL ANNUAL OPERATING .830% .840% .810% .740%
EXPENSES
</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.
9
<PAGE>
<TABLE>
<CAPTION>
Connecticut Massachusetts Tax-Free Money Pro Forma
Money Market Money Market Fund Combined Fund
Series Series Class A shares Class A shares
------ ------ -------------- --------------
<S> <C> <C> <C> <C>
1 Year $85 $86 $83 $76
3 Years $265 $268 $259 $237
5 Years $460 $466 $450 $411
10 Years $1,025 $1,037 $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.
PRO FORMA CAPITALIZATION AND RATIOS
The following table shows the capitalization of each Series and
Tax-Free Money Fund as of June 30, 2000, and the pro forma combined
capitalization as if the Merger, with respect to each Series, had occurred on
that date.
10
<PAGE>
<TABLE>
<CAPTION>
Connecticut Massachusetts Tax-Free Money Pro Forma
Money Market Money Market Fund Combined 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 $171,510 $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>
Connecticut Massachusetts Tax-Free Money Pro Forma
Money Market Money Market Fund Combined Fund
Series Series Class A shares Class A shares
------ ------ -------------- --------------
<S> <C> <C> <C> <C>
Ratio of expenses to average .830% .840% .81% .740%
net assets
Ratio of net investment 2.90% 3.05% 2.51% 2.83%
income to average net assets
</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.
11
<PAGE>
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 2.78% 2.85% (____%) N/A 2.79% (____%)
Market Series* (since 8-5-1991)
Massachusetts Money 2.85% 2.86% (____%) N/A 2.77% (____%)
Market Series* since (8-5-1991)
Tax-Free Money Fund[*] 3.01% 2.89% 2.99% 4.19%
(Class A Shares) since (8-2-1979)
</TABLE>
<TABLE>
<CAPTION>
YIELD** 7 Day Current Taxable Equivalent
(AS OF JUNE 30, 2000) Yield Yield***
<S> <C> <C>
Connecticut Money 3.25% _____
Market Series
Massachusetts Money 3.67% _____
Market Series
Tax-Free Money 3.79% _____
Market Fund
</TABLE>
* Without expense subsidization and/or waiver of management fees, the
Average Annual Total Returns [and Yields] would have been lower, as
indicated in parentheses ( ).
** 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.
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 nine series currently designated by Municipal
Series Fund are the Florida Series, Massachusetts Series, New Jersey Series, New
Jersey Money Market Series, New York Series, New York Money Market Series, North
Carolina Series, Ohio 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,
divided into four classes, designated Class A, Class B, Class C and Class Z.
Each of the North Carolina Series, Ohio Series and Pennsylvania Series is
authorized to issue an unlimited number of shares of beneficial interest,
divided into three classes, designated Class A, Class B and Class C. Each of the
New Jersey Money Market Series and New York Money Market Series are authorized
to issue an unlimited number of shares of beneficial interest of one class.
Shareholders of the Massachusetts Series, Ohio Series and North Carolina Series
are scheduled to vote on a merger of their respective series into another
Prudential mutual fund. 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 in 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; (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; (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 Investment Company 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 SEC or any state
securities commission, or as the Trustees may consider necessary or
desirable. 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 Investment Company 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 Investment Company 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.
Under the Investment Company 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 SEC interprets the Investment
Company Act to require additional limits on indemnification of Directors,
Trustees and officers.
12
<PAGE>
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
has substantially similar investment objectives, policies and permissible
investments.
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 22% and 16%, respectively, of its total assets in municipal bonds.
As of June 30, 2000, Tax-Free Money Fund invested 7% 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 because interest rates change or there is a lack of confidence in the
issuer or in an industry
- Tax risk- the risk that 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 and 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
- Nonappropriation risk - the risk that the municipality may not
include the bond obligations in future budgets
Although each Series may purchase insured municipal bonds to reduce
credit risk, insured obligations do not provide protection against market
fluctuations of bonds or fluctuations in the price of shares of each Series.
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 fund
13
<PAGE>
that is not as geographically concentrated. Since neither Series is diversified,
investing in each Series involves greater risks than investing in a diversified
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 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 substantially 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) municipal obligations. Each Series'
dividends are exempt from Connecticut and 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 a team leader in common (Joseph Tully). The Money
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Market Sector Team which is primarily responsible for overseeing the
day-to-day management of each Series and Tax-Free Money Fund, utilizes the
same investment approach in selecting investments for each Series and
Tax-Free Money Fund.
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 the
Tax-Free Money Fund use the Money Fund Report-TM-/Averages, which is based upon
the average return of all mutual funds in the iMoneyNet, Inc. Tax-Free Money
Fund category, and in the case of the Series, the state specific category for
Connecticut or Massachusetts, as applicable.
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.
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 irrespective 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 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 qualifying 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 will normally invest 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 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
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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 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. Revenue bonds, on the other hand, are payable
from revenues from a particular source. 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 have
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 of a debt obligation before
the obligation is due.
Municipal bonds that each Series and Tax-Free Money Fund may purchase
must be rated in one of the two highest rating categories by at least [two]
nationally recognized statistical rating organizations (NSROs), such as Moody's
Investors Service, Inc. (rated at least Aa, MIG-2 or Prime-2) or Standard &
Poor's Rating Group (rated at least AA, SP-2 or A-2) or, if unrated, of
comparable quality.
[Each Series may also invest in insured municipal bonds although
Tax-Free Money Fund may not do so.] 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.
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.
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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
Each Series may borrow money in an amount equal to no more than 33 1/3%
of the value of its 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 the 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 a Series may temporarily
hold up to 100% of its assets in cash, cash equivalents or short-term
investment-grade bonds, including bonds that are not exempt from state, local
and federal income taxation for temporary defensive purposes. Investing heavily
in these securities can limit a Series' ability to achieve its respective
investment objective, but can help to preserve its assets. Tax-Free Money Fund
currently does not have a temporary defensive investment policy.
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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.
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 a common 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. Some, 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 sale
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
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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 have designated either Series as the sweep vehicle through
these programs will be notified and asked to make 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.
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 [retirement and employee savings plans and] 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.
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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, if any, monthly. Neither Series nor Tax-Free Money Fund
anticipate realizing long-term capital gains or losses, although net capital
gains, if any, are distributed annually. 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 the Series, Tax-Free Money Fund and their
respective portfolios, it is unclear whether the Mergers will qualify as
tax-free reorganizations within the meaning of Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the Code). 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 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 and Massachusetts,
respectively, will be subject to certain state 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
advisors regarding specific questions with respect to federal, state or local
taxes. Please see the section entitled "The Proposed Transaction - U.S. Federal
Income Tax Considerations" for more information.
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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 unclear whether the Mergers will 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 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 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 shares of Tax-Free Money Fund it
receives, so that each shareholder of each Series will receive the number of
full and fractional 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
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Date. Each Series will then be terminated as soon as practicable. The
distribution of 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 shares of Tax-Free Money
Fund due that shareholder. Fractional shares of Tax-Free Money Fund shall be
rounded to the third decimal place.
Immediately after each Merger, each former Series shareholder will
own 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 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 Directors/Trustees (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 each Merger will not 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;
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- 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: the Mergers may not qualify as tax-free
reorganizations for federal income tax purposes; it is likely that there will be
no significant federal tax consequences as a result of the Mergers; and if the
Mergers are approved, shareholders who would otherwise have received income
generally exempt from Connecticut and 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 Tax-Free Money Fund at meetings of the
Boards held on August 23, 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 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 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 Securities and Exchange Commission (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.
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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 unclear whether the proposed transactions will
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 U.S. state, local and foreign tax consequences, if
any, of the Mergers.
CONCLUSION
The Agreement was approved by the Boards of Directors/Trustees of
Municipal Series Fund and Tax-Free Money Fund at meetings held on August 23,
2000. The Boards of both Funds 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
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registered investment company and the Board of Municipal 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.
MISCELLANEOUS
LEGAL MATTERS
Certain legal matters in connection with the Mergers have been or
will be passed upon 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 by Sullivan and Cromwell, counsel to
Tax-Free Money Fund. As to matters of Massachusetts law, Swidler Berlin
Shereff Friedman will rely on the opinion of ____________. As to matters of
Maryland law, Sullivan and Cromwell will rely on the opinion of Piper Marbury
Rudnick & Wolfe LLP.
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
Investment Company Act of 1940, as amended (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
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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
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
October __, 2000
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IT IS IMPORTANT THAT YOU EXECUTE AND RETURN YOUR PROXY PROMPTLY.
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26
<PAGE>
ATTACHMENT A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATIONS
Agreement and Plan of Reorganizations (Agreement) made as of the ____
day of October, 2000, by and between Prudential Municipal Series Fund (Municipal
Series Fund)- 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). 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).
This Agreement is intended to be, and is adopted as, a plan of
reorganizations pursuant to Section of the Internal Revenue Code of 1986, as
amended (Internal Revenue Code). ___ The reorganizations will comprise the
transfer of all of the assets of the 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 such
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 the
Series as provided herein, all upon the terms and conditions as hereinafter
set forth.
In consideration of the premises and of the covenants and agreements
set forth herein, the parties covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE SERIES IN EXCHANGE FOR SHARES OF TAX-FREE
MONEY FUND AND ASSUMPTION OF LIABILITIES, IF ANY, AND TERMINATION OF
THE 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 Class A Common
Stock (computed in the manner and as of the time and date
<PAGE>
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 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 each Series
of whatever kind or nature, whether absolute, 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 Tax-Free
Money 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 so as to retain its qualification as a regulated
investment company pursuant to Section 851 of the Internal Revenue Code.
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 the 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 such 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
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<PAGE>
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 the 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 the Series
up to and including the Termination Date.
1.10 All books and records 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.
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<PAGE>
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 the 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 December ___, 2000 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 the Series and of the net asset
value per share of Tax-Free Money Fund is impracticable, the 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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<PAGE>
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. 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 year then ended (copies of which have been furnished to
Tax-Free Money Fund) have been audited by PricewaterhouseCoopers LLP,
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;
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<PAGE>
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 change 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 returns;
4.1.9 For each past taxable year since it commenced operations, each
Series has met the requirements of Subchapter M of the Internal Revenue
Code for qualification and treatment as a regulated investment company
and Municipal Series Fund intends to cause such Series to 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 the 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 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 each Series, and this Agreement constitutes a
A-6
<PAGE>
valid and binding obligation of Municipal Series Fund and of each
Series, subject to 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, the Proxy
Statement of such 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;
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 threatened against Tax-Free
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<PAGE>
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
PricewaterhouseCoopers LLP, 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 such returns;
4.2.8 For each past taxable year since it commenced operations,
Tax-Free Money Fund has met the requirements of Subchapter M of the
Internal Revenue Code for qualification and treatment as a regulated
investment company and intends to 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
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<PAGE>
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, 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 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, 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, (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 (iii) 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
the Series for use therein.
5. COVENANTS OF TAX-FREE MONEY FUND AND MUNICIPAL SERIES FUND.
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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.
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
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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 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 Municipal Series Fund shall have received on the Closing Date a
favorable opinion from Sullivan and Cromwell, counsel to Tax-Free Money Fund,
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 a valid and 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 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.
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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
consummation of the transactions contemplated hereby will not, (i)
conflict with 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 [ ______ ] between
[ _________ ] Fund and State Street Bank and Trust Company, as amended
on [ ________ ], (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 could be
required to be disclosed in its registration statement on Form N-1A and
is not so disclosed.
Such opinion may rely on an opinion of Maryland counsel to the
extent it addresses Maryland law.
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:
A-12
<PAGE>
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.
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 Tax-Free Money Fund shall have received on the Closing Date a favorable
opinion from Swidler Berlin Shereff Friedman, LLP, counsel to Municipal Series
Fund, 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 the 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 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
A-13
<PAGE>
of general applicability relating to or affecting creditors' rights and
to general equity principles, provided that such counsel may state that
they express no opinion as to the validity or enforceability of any
provision regarding 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
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 29, 1984], as amended on February 22, 1999,
between Prudential-Bache Municipal Series Fund and State Street Bank
and Trust Company, as amended on February 22, 1999, (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 insofar as performance by Municipal Series Fund
of its obligations under this Agreement is concerned, 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 All regulatory consents, authorizations and approvals required to
be obtained by Municipal Series Fund under the federal laws of the
United States and the laws of The Commonwealth of Massachusetts for the
consummation of the transactions contemplated by this Agreement have
been obtained (other than such as may be required under Massachusetts
securities laws or Blue Sky laws as to which such counsel may state
that they express no opinion);
7.5.5 Such counsel knows of no litigation or any governmental
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.
Such opinion may rely on an opinion of Massachusetts counsel to the
extent it addresses Massachusetts law.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF TAX-FREE MONEY FUND
AND MUNICIPAL SERIES FUND.
A-14
<PAGE>
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 the 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 the 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.
A-15
<PAGE>
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.
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 each 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 each 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
A-16
<PAGE>
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
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
A-17
<PAGE>
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 respective 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 of each Fund.
Prudential Municipal Series Fund
By:
---------------------------------
PRESIDENT
Prudential Tax-Free Money Fund, Inc.
By:
---------------------------------
PRESIDENT
A-18
<PAGE>
TABLE OF CONTENTS TO THE PROXY STATEMENT AND PROSPECTUS [PAGE NUMBERS TO COME]
VOTING INFORMATION
Voting Required
SYNOPSIS
Investment Objectives and Policies
Purchases, Redemptions, Exchanges and
Distributions
The Proposed Mergers
Expense Structures
Comparative Fee Tables
Examples of the Effect of Series and Tax-
Free Money Fund Expenses
Pro Forma Capitalization and Ratios
Performance Comparisons of the Series and
Tax-Free Money Fund
Forms of Organization
COMPARISON OF PRINCIPAL RISK FACTORS
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
Principal Investment Strategies
COMPARISON OF OTHER POLICIES OF EACH SERIES AND TAX-FREE MONEY FUND
Diversification
Borrowing
Lending
Illiquid Securities
Temporary Defensive Investments
OPERATIONS OF TAX-FREE MONEY FUND FOLLOWING THE MERGERS
PURCHASES, REDEMPTIONS AND EXCHANGES
Purchasing Shares
Redeeming Shares
Minimum Investment Requirements
Purchases and Redemptions of Each Series
and Tax-Free Money Fund
Exchanges of Series and Tax-Free Money
Fund Shares
Dividends and Other Distributions
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE MERGERS
THE PROPOSED TRANSACTIONS
Agreement and Plan of Reorganizations
Reasons for the Mergers
Description of the Securities to be Issued
U.S. Federal Income Tax Considerations
Conclusion
ADDITIONAL INFORMATION ABOUT TAX-FREE MONEY FUND
MISCELLANEOUS
Legal Matters
Independent Accountants
Available Information
Notice to Banks, Broker-Dealers and Voting
Trustees and Their Nominees
SHAREHOLDER PROPOSALS
OTHER BUSINESS
ATTACHMENT A: Form of Agreement and Plan of Reorganizations between Prudential
Municipal Series Fund and Prudential Tax-Free Money Fund, Inc.
<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, New Jersey 07102
Proxy
Special Meeting of Shareholders (Meeting)
December 7, 2000, 9:30 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 October 13, 2000, at the Meeting to be held
on December 7, 2000 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 OCTOBER __, 2000 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 web site www.proxyvote.com.
3) Follow the instructions on the web site and be prepared to enter the
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 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, New Jersey 07102
Proxy
Special Meeting of Shareholders (Meeting)
December 7, 2000, 9:30 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 October 13, 2000, at the Meeting to be held
on December 7, 2000 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 OCTOBER __, 2000 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 web site www.proxyvote.com.
3) Follow the instructions on the web site and be prepared to enter the
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 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 October ___, 2000
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 December__, 2000, 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. Pro Forma Financial Statements as of June 30, 2000.
2. Statement of Additional Information of Tax-Free Money Fund dated
February 29, 2000.
3. Annual Report to Shareholders of Tax-Free Money Fund for the fiscal
year ended December 31, 1999.
4. Semi-Annual Report to Shareholders of Tax-Free Money Fund for the six
month period ended June 30, 2000.
<PAGE>
5. Annual Report to Shareholders of Connecticut Money Market Series for
the fiscal year ended August 31, 2000.
6. 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
October __, 2000, 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>
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA PORTFOLIO OF INVESTMENTS
JUNE 30, 2000
PRINCIPAL AMOUNT (000) (UNAUDITED)
-----------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL SERIES FUND
--------------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
SERIES SERIES MONEY FUND, INC. COMBINED DESCRIPTION (a)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARKANSAS 1.2%
$3,900 $3,900 Arkansas Hosp. Equip. Fin. Auth., AHA Pooled Fin. Prog.,
F.R.W.D. Ser. 98A
COLORADO 0.4%
1,265 1,265 Denver Company City County Single Family Home Metro
Mayors Caucus Ser. C
CONNECTICUT 24.3%
$1,000 1,000 Connecticut St Spec. Assmt., Unemployment Comp.
Rev., Ser. 96 A
1,000 1,000 Connecticut St Hsg. Fin. Auth., Ser. P
Connecticut St Special Tax Oblg. Rev.,
500 500 Ser. A
1,500 1,500 Ser. A
2,500 2,500 Connecticut St. Spec. Assmt., Unemployment Comp., Adv.
Fund Rev., Ser. A
Connecticut St. Clean Water Fund Rev.,
2,010 2,010 Ser. 91
1,000 1,000 Ser. 92
Connecticut St. Dev. Auth.,
800 800 Bradley Airport Hotel, Ser. 97A, F.R.W.D.
3,000 3,000 Bradley Airport Hotel, Ser. 97B, F.R.W.D.
1,200 1,200 Bradley Airport Hotel, Ser. 97C, F.R.W.D.
2,560 2,560 Corp. for Independ. Living Proj., Ser. 90, F.R.W.D.
3,125 3,125 Pierce Mem'l Baptist Home, Ser.99, F.R.W.D.
5,150 5,150 SHW Inc. Proj., Ser. 90, F.R.W.D., A.M.T.
Connecticut St. Gen. Oblig.,
4,900 4,900 Ser. 110
1,000 1,000 Ser. A
1,850 1,850 Ser. 90B
1,000 1,000 Connecticut St. Hlth. & Edl. Facs., Auth. Rev.,
3,000 3,000 Gaylord Hosp. Issue, Ser. A
2,640 2,640 Convenant Ret., Ser. A
Connecticut St. Hlth. & Edl. Facs. Auth. Rev.,
1,000 1,000 Pomfret School Issue, Ser. A, F.R.W.D.
1,700 1,700 Sharon Hosp. Issue, Ser. A, F.R.W.D.
1,750 1,750 Waterbury Hosp. Issue, Ser. B
400 400 Yale New Haven Hospital Issue, Sr. F, M.B.I.A.
5,000 5,000 Yale University, Ser. S, T.E.C.P.
3,300 3,300 Yale University, Ser. T, F.R.W.D.
5,000 5,000 Yale University, Ser. F, F.R.W.D.
2,000 2,000 Connecticut St. Hsg. Fin. Auth., Ser. B
1,800 1,800 Connecticut St. Spec. Assmt., Unemployment Comp., Ser.
93C, A.N.N.M.T., F.G.I.C.
2,025 2,025 Connecticut St. Spec. Tax Oblig., Transp. Infrastructure
Rev., Ser. 90I, F.R.W.D.
Connecticut St., Gen. Oblig.,
1,200 1,200 Ser. 90A
<CAPTION>
(UNAUDITED)
MOODY'S INTEREST
DESCRIPTION (a) RATING RATE MATURITY
----------------------------------------------------------------------------------- ------------- -------------- -------------
<S> <C> <C> <C>
ARKANSAS 1.2%
Arkansas Hosp. Equip. Fin. Auth., AHA Pooled Fin. Prog., F.R.W.D. Ser. 98A A1+(c) 4.85 7/5/00
COLORADO 0.4%
Denver Company City County Single Family Home Metro Mayors Caucus Ser. C SP1+(c) 4.45 5/15/01
CONNECTICUT 24.3%
Connecticut St Spec. Assmt., Unemployment Comp. Rev., Ser. 96 A Aaa 5.50% 5/15/01
Connecticut St Hsg. Fin. Auth., Ser. P NR 4.84 7/5/00
Connecticut St Special Tax Oblg. Rev.,
Ser. A AAA(c) 7.13 6/1/01
Ser. A A1 8.00 6/1/01
Connecticut St. Spec. Assmt., Unemployment Comp., Adv. Fund Rev., Ser. A Aaa 5.50 11/15/00
Connecticut St. Clean Water Fund Rev.,
Ser. 91 Aaa 6.70 1/1/01
Ser. 92 Aaa 5.38 8/1/00
Connecticut St. Dev. Auth.,
Bradley Airport Hotel, Ser. 97A, F.R.W.D. VMIG1 4.65 7/6/00
Bradley Airport Hotel, Ser. 97B, F.R.W.D. VMIG1 4.65 7/6/00
Bradley Airport Hotel, Ser. 97C, F.R.W.D. VMIG1 4.65 7/6/00
Corp. for Independ. Living Proj., Ser. 90, F.R.W.D. VMIG1 4.65 7/5/00
Pierce Mem'l Baptist Home, Ser.99, F.R.W.D. A1+(c) 4.63 7/5/00
SHW Inc. Proj., Ser. 90, F.R.W.D., A.M.T. NR 4.75 7/5/00
Connecticut St. Gen. Oblig.,
Ser. 110 Aa3 4.69 7/6/00
Ser. A Aaa 6.60 3/1/01
Ser. 90B Aa3 6.75 7/15/00
Connecticut St. Hlth. & Edl. Facs., Auth. Rev., Aaa 6.75 7/1/00
Gaylord Hosp. Issue, Ser. A A-1(c) 4.60 7/5/00
Convenant Ret., Ser. A A-1(c) 4.60 7/6/00
Connecticut St. Hlth. & Edl. Facs. Auth. Rev.,
Pomfret School Issue, Ser. A, F.R.W.D. VMIG1 4.65 7/6/00
Sharon Hosp. Issue, Ser. A, F.R.W.D. NR 4.60 7/6/00
Waterbury Hosp. Issue, Ser. B Aaa 7.00 7/1/00
Yale New Haven Hospital Issue, Sr. F, M.B.I.A. Aaa 6.65 7/1/00
Yale University, Ser. S, T.E.C.P. VMIG1 4.35 7/1/00
Yale University, Ser. T, F.R.W.D. VMIG1 4.35 7/6/00
Yale University, Ser. F, F.R.W.D. Aaa 7.10 7/1/00
Connecticut St. Hsg. Fin. Auth., Ser. B NR 4.75 7/5/00
Connecticut St. Spec. Assmt., Unemployment Comp., Ser. 93C, A.N.N.M.T., F.G.I.C. VMIG1 4.35 11/15/01
Connecticut St. Spec. Tax Oblig., Transp. Infrastructure Rev., Ser. 90I, F.R.W.D. VMIG1 4.75 7/5/00
Connecticut St., Gen. Oblig.,
Ser. 90A Aa3 5.00 3/15/01
<CAPTION>
(UNAUDITED) VALUE
--------------------------------------------------------
PRUDENTIAL MUNICIPAL SERIES FUND
------------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
DESCRIPTION (a) SERIES SERIES MONEY FUND, INC. COMBINED
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARKANSAS 1.2%
Arkansas Hosp. Equip. Fin. Auth., AHA Pooled Fin. Prog.,
F.R.W.D. Ser. 98A $3,900,000 $3,900,000
-------------- ------------ -----------------------------
0 0 3,900,000 3,900,000
-------------- ------------ -----------------------------
COLORADO 0.4%
Denver Company City County Single Family Home Metro
Mayors Caucus Ser. C 1,265,000 1,265,000
-------------- ------------ -----------------------------
0 0 1,265,000 1,265,000
-------------- ------------ -----------------------------
CONNECTICUT 24.3%
Connecticut St Spec. Assmt., Unemployment Comp. Rev., Ser. 96 A $1,011,361 1,011,361
Connecticut St Hsg. Fin. Auth., Ser. P 1,000,000 1,000,000
Connecticut St Special Tax Oblg. Rev.,
Ser. A 517,300 517,300
Ser. A 1,547,077 1,547,077
Connecticut St. Spec. Assmt., Unemployment Comp., Adv. Fund
Rev., Ser. A 2,513,596 2,513,596
Connecticut St. Clean Water Fund Rev.,
Ser. 91 2,076,391 2,076,391
Ser. 92 1,001,242 1,001,242
Connecticut St. Dev. Auth.,
Bradley Airport Hotel, Ser. 97A, F.R.W.D. 800,000 800,000
Bradley Airport Hotel, Ser. 97B, F.R.W.D. 3,000,000 3,000,000
Bradley Airport Hotel, Ser. 97C, F.R.W.D. 1,200,000 1,200,000
Corp. for Independ. Living Proj., Ser. 90, F.R.W.D. 2,560,000 2,560,000
Pierce Mem'l Baptist Home, Ser.99, F.R.W.D. 3,125,000 3,125,000
SHW Inc. Proj., Ser. 90, F.R.W.D., A.M.T. 5,150,000 5,150,000
Connecticut St. Gen. Oblig.,
Ser. 110 4,900,000 4,900,000
Ser. A 1,035,751 1,035,751
Ser. 90B 1,889,124 1,889,124
Connecticut St. Hlth. & Edl. Facs., Auth. Rev., 1,020,000 1,020,000
Gaylord Hosp. Issue, Ser. A 3,000,000 3,000,000
Convenant Ret., Ser. A 2,640,000 2,640,000
Connecticut St. Hlth. & Edl. Facs. Auth. Rev.,
Pomfret School Issue, Ser. A, F.R.W.D. 1,000,000 1,000,000
Sharon Hosp. Issue, Ser. A, F.R.W.D. 1,700,000 1,700,000
Waterbury Hosp. Issue, Ser. B 1,785,000 1,785,000
Yale New Haven Hospital Issue, Sr. F, M.B.I.A. 408,000 408,000
Yale University, Ser. S, T.E.C.P. 5,000,000 5,000,000
Yale University, Ser. T, F.R.W.D. 3,300,000 3,300,000
Yale University, Ser. F, F.R.W.D. 5,100,000 5,100,000
Connecticut St. Hsg. Fin. Auth., Ser. B 2,000,000 2,000,000
Connecticut St. Spec. Assmt., Unemployment Comp.,
Ser. 93C, A.N.N.M.T., F.G.I.C. 1,800,000 1,800,000
Connecticut St. Spec. Tax Oblig., Transp. Infrastructure
Rev., Ser. 90I, F.R.W.D. 2,025,000 2,025,000
Connecticut St., Gen. Oblig.,
Ser. 90A 1,207,360 1,207,360
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------
PRUDENTIAL MUNICIPAL SERIES FUND (UNAUDITED)
--------------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA MOODY'S INTEREST
SERIES SERIES MONEY FUND, INC. COMBINED DESCRIPTION (a) RATING RATE MATURITY
------------ ------------- ---------------- --------- ----------------------------------------------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1,000 1,000 Ser. 90A Aa3 6.90 9/15/00
4,000 4,000 Connecticut Woodbury School Issue, MIG1 5.00 5/15/01
Hartford Connecticut, Redev. Agcy.,
Multi-family Mtge. Rev., Underwood Twrs.
Proj. Ser. 90,
600 600 F.R.W.D., F.S.A. Aaa 4.60 7/6/00
2,025 2,025 New Haven Connecticut, Series A Aaa 4.25 8/1/00
2,375 2,375 North Branford Connecticut, B.A.N. NR 5.00 2/15/01
1,850 1,850 Old Saybrook Connecticut, B.A.N. B.A.N. NR 4.25 9/6/00
585 585 South Windsor Connecticut, Gen. Oblig., Ser. 99 Aa3 3.50 9/1/00
2,280 2,280 Stamford Connecticut, Gen. Oblig., Ser. 99A Aaa 3.50 8/1/00
DISTRICT OF COLUMBIA
100 100 Dist. of Columbia., G.O., Var. Rate, F.R.D.D.,
Ser. 92A-2, VMIG1 4.65 7/3/00
FLORIDA 5.4%
5,000 5,000 Orange County Florida Hlth. Fac. Auth. Florida
Hosp. Assn. Hlth. Ser. A NR 5.10 7/6/00
8,625 8,625 Orange County Florida Hlth. Fac. Auth. Rev.
Certificates Ser. 171 A1+(c) 4.99 7/6/00
4,000 4,000 Sunshine State Governmental Financing T.E.C.P. NR 4.55 7/21/00
GEORGIA 1.1%
2,500 2,500 Cobb Cnty. Indl. Dev. Auth.,, Institute of
Nuclear Pwr., F.R.W.D., Ser. 98 P1 4.80 7/5/00
1,000 1,000 Stephens County Georgia Dev. Auth. Ind. Dev.
Rev. Caterpillar Inc. Proj. NR 5.07 7/6/00
HAWAII 0.6%
2,000 2,000 Honolulu City & Cnty., G.O., Ser. 1990-D NR 6.90 12/1/00
ILLINOIS 6.3%
5,000 5,000 Chicago Illinois Rev. Adjusted Homestart
Program Series A VMIG1 4.85 7/5/00
4,740 4,740 Illinois Hlth. Fac. Auth., Memorial Med. Ctr.
Ser. 1989 Aaa 6.50 10/1/00
Illinois Hlth. Fac. Auth.,
5,000 5,000 Evanston Hosp. Corp. Prog.,
A.N.N.M.T., Ser. 95 VMIG1 4.25 1/31/01
3,000 3,000 Evanston Hosp. Corp. Proj.,
A.N.N.M.T., Ser. 92 VMIG1 3.90 10/31/00
1,990 1,990 Illinois Housing Dev. Auth. Rev.
Merlots Series V VMIG1 4.94 7/5/00
1,000 1,000 Rock Island County Illinois Metropolitan
Airport Ser. C VMIG1 4.85 7/5/00
INDIANA 3.3%
4,700 4,700 Indiana Ed. Fac. Auth., Wesleyan Univ.,
F.R.W.D., Ser. 93 NR 4.85 7/6/00
4,900 4,900 Indiana St. Dev. Fin. Auth. Rev., Edl. Facs.,
Covenant High Sch., F.R.W.D., Ser. 96 NR 4.70 7/6/00
1,195 1,195 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 7/5/00
<CAPTION>
--------------------------------------------
(UNAUDITED) PRUDENTIAL MUNICIPAL SERIES FUND
--------------------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
DESCRIPTION (a) SERIES SERIES MONEY FUND, INC. COMBINED
----------------------------------------------- ------------ ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Ser. 90A 1,006,562 1,006,562
Connecticut Woodbury School Issue, 4,013,329 4,013,329
Hartford Connecticut, Redev. Agcy.,
Multi-family Mtge. Rev., Underwood Twrs.
Proj. Ser. 90,
F.R.W.D., F.S.A. 600,000 600,000
New Haven Connecticut, Series A 2,025,719 2,025,719
North Branford Connecticut, B.A.N. 2,380,697 2,380,697
Old Saybrook Connecticut, B.A.N. B.A.N. 1,850,740 1,850,740
South Windsor Connecticut, Gen. Oblig., Ser. 99 584,998 584,998
Stamford Connecticut, Gen. Oblig., Ser. 99A 2,280,261 2,280,261
----------- ------------- ---------------- -----------
80,054,508 0 0 80,054,508
----------- ------------- ---------------- -----------
DISTRICT OF COLUMBIA
Dist. of Columbia., G.O., Var. Rate, F.R.D.D.,
Ser. 92A-2, 100,000 100,000
----------- ------------- ---------------- -----------
0 0 100,000 100,000
----------- ------------- ---------------- -----------
FLORIDA 5.4%
Orange County Florida Hlth. Fac. Auth. Florida
Hosp. Assn. Hlth. Ser. A 5,000,000 5,000,000
Orange County Florida Hlth. Fac. Auth. Rev.
Certificates Ser. 171 8,625,000 8,625,000
Sunshine State Governmental Financing T.E.C.P. 4,000,000 4,000,000
----------- ------------- ---------------- -----------
0 0 17,625,000 17,625,000
----------- ------------- ---------------- -----------
GEORGIA 1.1%
Cobb Cnty. Indl. Dev. Auth.,, Institute of
Nuclear Pwr., F.R.W.D., Ser. 98 2,500,000 2,500,000
Stephens County Georgia Dev. Auth. Ind. Dev.
Rev. Caterpillar Inc. Proj. 1,000,000 1,000,000
----------- ------------- ---------------- -----------
0 0 3,500,000 3,500,000
----------- ------------- ---------------- -----------
HAWAII 0.6%
Honolulu City & Cnty., G.O., Ser. 1990-D 2,044,022 2,044,022
----------- ------------- ---------------- -----------
0 0 2,044,022 2,044,022
----------- ------------- ---------------- -----------
ILLINOIS 6.3%
Chicago Illinois Rev. Adjusted Homestart
Program Series A 5,000,000 5,000,000
Illinois Hlth. Fac. Auth., Memorial Med. Ctr.
Ser. 1989 4,859,747 4,859,747
Illinois Hlth. Fac. Auth.,
Evanston Hosp. Corp. Prog.,
A.N.N.M.T., Ser. 95 5,000,000 5,000,000
Evanston Hosp. Corp. Proj.,
A.N.N.M.T., Ser. 92 3,000,000 3,000,000
Illinois Housing Dev. Auth. Rev.
Merlots Series V 1,990,000 1,990,000
Rock Island County Illinois Metropolitan
Airport Ser. C 1,000,000 1,000,000
----------- ------------- ---------------- -----------
0 0 20,849,747 20,849,747
----------- ------------- ---------------- -----------
INDIANA 3.3%
Indiana Ed. Fac. Auth., Wesleyan Univ.,
F.R.W.D., Ser. 93 4,700,000 4,700,000
Indiana St. Dev. Fin. Auth. Rev., Edl. Facs.,
Covenant High Sch., F.R.W.D., Ser. 96 4,900,000 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 1,195,000 1,195,000
----------- ------------- ---------------- -----------
0 0 10,795,000 10,795,000
----------- ------------- ---------------- -----------
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------
PRUDENTIAL MUNICIPAL SERIES FUND (UNAUDITED)
--------------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA MOODY'S INTEREST
SERIES SERIES MONEY FUND, INC. COMBINED DESCRIPTION (a) RATING RATE MATURITY
------------ -------------- ---------------- ---------- --------------------------------------------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
KENTUCKY 1.9%
400 400 Carroll County, Solid Wste. Disp. Facs.
Rev., Ser. 94A, F.R.D.D., A.M.T. VMIG1 4.85 7/3/00
1,000 1,000 Kentucky Housing Corp. Senior D, A.M.T. MIG1 4.40 12/1/00
4,785 4,785 Leitchfield Kentucky Ind. Building Rev.
Styline Inds. Inc. Project, F.R.D.D.,
A.M.T., Ser. 99 A1+(c) 5.07 7/7/00
LOUISIANA 0.4%
570 570 Calcasieu Parish Louisiana Public Trust
Notes Ser. A NR 4.50 12/1/00
800 800 W. Baton Rouge Parish Dist. #3, Dow
Chemical Co. Proj., Ser. 94A, F.R.D.D.,
A.M.T. P1 4.75 7/3/00
MARYLAND 0.6%
2,210 2,210 Anne Arundel County Baltimore Gas &
Electric, A.N.N.M.T., Ser. 84 VMIG1 3.52 7/3/00
MASSACHUSETTS 23.9%
$2,000 2,000 Bedford, Gen. Oblig., B.A.N. NR 4.25% 12/04/00
1,500 1,500 Brockton, Gen. Oblig., B.A.N. NR 5.125 06/21/01
1,070 1,070 Holden, Gen. Oblig., F.G.I.C. Aaa 7.50 09/01/00
1,000 1,000 Hopkinton, Gen. Oblig., B.A.N. MIG1 4.00 08/25/00
1,169 1,169 Ipswich, Gen. Oblig., F.G.I.C. Aaa 5.00 11/15/00
1,000 1,000 Lowell, Gen. Oblig., Aaa 8.30 02/15/01
6,000 6,000 Mass. St. Certificates, Series 240, F.R.W.D. VMIG1 4.82 07/06/00
Mass. St. Dev. Fin. Agcy. Rev.,
1,000 1,000 Carleton-Willard Village,
Ser. 2000, F.R.W.D. Aaa 4.58 07/06/00
3,485 3,485 Notre Dame Hlth. Care Center,
Ser. 99, F.R.W.D. VMIG1 4.75 07/06/00
4,800 4,800 Semass Proj., Ser. A, F.R.W.D., A.M.T. A-1(c) 4.90 07/05/00
2,400 2,400 Semass Proj., Ser. B, F.R.W.D., A.M.T. A-1(c) 4.90 07/05/00
2,500 2,500 Waste Mgmt., Inc., Ser. 99, F.R.W.D.,
A.M.T. VMIG1 4.90 07/05/00
1,000 1,000 Wentworth Inst., Ser. 2000, F.R.W.D.,
A.M.B.A.C. Aaa 4.70 07/06/00
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
5,000 5,000 Bentley College, Ser. K, F.R.W.D. A-1(c) 4.90 07/01/30
500 500 Certificates, Ser. 275, F.R.W.D.,
M.B.I.A. A1+(c) 4.87 07/06/00
1,500 1,500 Daughters of Charity-Carney Hosp.,
Ser. C, M.B.I.A. Aaa 7.75 07/01/00
2,055 2,055 Hallmark Hlth. Sys., Ser. B, F.R.W.D. VMIG1 4.90 07/06/00
465 465 Northeastern Univ., Ser. G, M.B.I.A. Aaa 4.50 10/01/00
1,000 1,000 Partners Hlth. Care Sys., Ser. P-1,
F.R.W.D., F.S.A. VMIG1 4.90 07/03/00
3,395 3,395 Simmons College Merlots, Ser. T,
F.R.W.D., A.M.B.A.C. VMIG1 4.84 07/05/00
3,700 3,700 Williams College, Ser. SG65, F.R.D.D.S A1+(c) 4.65 07/03/00
2,000 2,000 Mass. St. Hsg. Fin. Agcy. Rev., Single Family
Housing Notes, Ser. C-1, A.M.T. A1+(c) 4.90 06/01/01
Mass. St. Ind. Fin. Agcy. Ind. Rev.,
1,500 1,500 Constitution Corp., Ser. 98, F.R.W.D.,
A.M.T. A-1(c) 4.85 07/06/00
1,200 1,200 Hazen Paper Co., Ser. 95, F.R.W.D, A.M.T. A-1(c) 4.85 07/06/00
1,500 1,500 Heritage at Hingham, Ser. 97, F.R.W.D.,
A.M.T. VMIG1 4.85 07/06/00
300 300 Peterson American Corp. Proj., Ser. 96
F.R.W.D., A.M.T. NR 4.95 07/05/00
1,000 1,000 Riverdale Mills Corp., Ser. 95, F.R.W.D.,
A.M.T. A-1(c) 4.85 07/06/00
2,500 2,500 Showa Women's Inst., Ser. 94, F.R.D.D. VMIG1 4.75 07/03/00
3,000 3,000 Mass. St. Port Auth. Rev. Merlots, Ser. Q,
F.R.W.D. VMIG1 4.89 07/05/00
1,000 1,000 Mass. St. Wtr. Res. Auth., T.E.C.P. A1+(c) 4.00 08/04/00
<CAPTION>
-------------------------------------
(UNAUDITED) PRUDENTIAL MUNICIPAL SERIES FUND
-------------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
DESCRIPTION (a) SERIES SERIES MONEY FUND, INC. COMBINED
-------------------------------------------------- ------------ ------------- ---------------- ----------
<C> <C> <C> <C> <C>
KENTUCKY 1.9%
Carroll County, Solid Wste. Disp. Facs.
Rev., Ser. 94A, F.R.D.D., A.M.T. 400,000 400,000
Kentucky Housing Corp. Senior D, A.M.T. 1,000,000 1,000,000
Leitchfield Kentucky Ind. Building Rev.
Styline Inds. Inc. Project, F.R.D.D.,
A.M.T., Ser. 99 4,785,000 4,785,000
----------- ------------- ---------------- ----------
0 0 6,185,000 6,185,000
----------- ------------- ---------------- ----------
LOUISIANA 0.4%
Calcasieu Parish Louisiana Public Trust
Notes Ser. A 570,000 570,000
W. Baton Rouge Parish Dist. #3, Dow
Chemical Co. Proj., Ser. 94A, F.R.D.D.,
A.M.T. 800,000 800,000
----------- ------------- ---------------- ----------
0 0 1,370,000 1,370,000
----------- ------------- ---------------- ----------
MARYLAND 0.6%
Anne Arundel County Baltimore Gas &
Electric, A.N.N.M.T., Ser. 84 2,210,000 2,210,000
----------- ------------- ---------------- ----------
0 0 2,210,000 2,210,000
----------- ------------- ---------------- ----------
MASSACHUSETTS 23.9%
Bedford, Gen. Oblig., B.A.N. $2,002,712 2,002,712
Brockton, Gen. Oblig., B.A.N. 1,505,909 1,505,909
Holden, Gen. Oblig., F.G.I.C. 1,081,677 1,081,677
Hopkinton, Gen. Oblig., B.A.N. 1,000,451 1,000,451
Ipswich, Gen. Oblig., F.G.I.C. 1,173,888 1,173,888
Lowell, Gen. Oblig., 1,053,675 1,053,675
Mass. St. Certificates, Series 240, F.R.W.D. 6,000,000 6,000,000
Mass. St. Dev. Fin. Agcy. Rev.,
Carleton-Willard Village,
Ser. 2000, F.R.W.D. 1,000,000 1,000,000
Notre Dame Hlth. Care Center,
Ser. 99, F.R.W.D. 3,485,000 3,485,000
Semass Proj., Ser. A, F.R.W.D., A.M.T. 4,800,000 4,800,000
Semass Proj., Ser. B, F.R.W.D., A.M.T. 2,400,000 2,400,000
Waste Mgmt., Inc., Ser. 99, F.R.W.D., A.M.T. 2,500,000 2,500,000
Wentworth Inst., Ser. 2000, F.R.W.D.,
A.M.B.A.C. 1,000,000 1,000,000
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Bentley College, Ser. K, F.R.W.D. 5,000,000 5,000,000
Certificates, Ser. 275, F.R.W.D., M.B.I.A. 500,000 500,000
Daughters of Charity-Carney Hosp., Ser. C,
M.B.I.A. 1,530,000 1,530,000
Hallmark Hlth. Sys., Ser. B, F.R.W.D. 2,055,000 2,055,000
Northeastern Univ., Ser. G, M.B.I.A. 465,276 465,276
Partners Hlth. Care Sys., Ser. P-1, F.R.W.D.,
F.S.A. 1,000,000 1,000,000
Simmons College Merlots, Ser. T, F.R.W.D.,
A.M.B.A.C. 3,395,000 3,395,000
Williams College, Ser. SG65, F.R.D.D.S 3,700,000 3,700,000
Mass. St. Hsg. Fin. Agcy. Rev., Single Family
Housing Notes, Ser. C-1, A.M.T. 2,000,000 2,000,000
Mass. St. Ind. Fin. Agcy. Ind. Rev.,
Constitution Corp., Ser. 98, F.R.W.D., A.M.T. 1,500,000 1,500,000
Hazen Paper Co., Ser. 95, F.R.W.D, A.M.T. 1,200,000 1,200,000
Heritage at Hingham, Ser. 97, F.R.W.D., A.M.T. 1,500,000 1,500,000
Peterson American Corp. Proj., Ser. 96
F.R.W.D., A.M.T. 300,000 300,000
Riverdale Mills Corp., Ser. 95, F.R.W.D.,
A.M.T. 1,000,000 1,000,000
Showa Women's Inst., Ser. 94, F.R.D.D. 2,500,000 2,500,000
Mass. St. Port Auth. Rev. Merlots, Ser. Q,
F.R.W.D. 3,000,000 3,000,000
Mass. St. Wtr. Res. Auth., T.E.C.P. 1,000,000 1,000,000
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
--------------------------------
PRUDENTIAL MUNICIPAL SERIES FUND (UNAUDITED)
--------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
SERIES SERIES MONEY FUND, INC. COMBINED DESCRIPTION (a)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,000 1,000 T.E.C.P.
1,500 1,500 T.E.C.P.
Mass. St., Gen. Oblig.,
1,000 1,000 Ser. 90C
1,425 1,425 Ser. 90C
1,700 1,700 Ser. 98A, F.R.W.D.
720 720 Melrose, Gen. Oblig., M.B.I.A.
1,400 1,400 Methuen, State Aid, B.A.N.
500 500 Monson, Gen. Oblig., Sch. Proj., Ser. 90, M.B.I.A.
1,550 1,550 Nantucket, Gen. Oblig., B.A.N.
500 500 Palmer, Gen. Oblig., Sch. Proj., Ser. B, A.M.B.A.C.
1,597 1,597 Stoughton, Gen. Oblig., F.S.A.
1,267 1,267 Sutton, Gen. Oblig., M.B.I.A.
1,290 1,290 Waltham, Gen. Oblig., B.A.N.
2,210 2,210 Worcester, Gen. Oblig., M.B.I.A.
MICHIGAN 2.6%
5,000 5,000 Detroit Michigan Sewage Disposal Rev. Merlots Ser. I
3,500 3,500 Michigan Muni. Bond Auth. Rev., Notes, Ser. 99 B1
MINNESOTA 2.6%
4,945 4,945 Bloomington Comm. Dev. Rev., 94th Str. Proj., F.R.W.D., Ser. 85 (e)
3,500 3,500 St. Paul Hsg. & Redev. Auth., Heating Rev., F.R.W.D, Ser. 99D
MISSISSIPI 1.4%
4,625 4,625 Mississippi Hsg. Fin. Corp. Sngl. Fam. Mtge., F.R.W.D., Ser. 88
MISSOURI 0.3%
1,000 1,000 Branson Tax Increment Street Impv. Ser. 96
OHIO 2.4%
2,800 2,800 East Lake Dev. Rev., Astro Model Corp., F.R.W.D., Ser. 96
1,000 1,000 Ohio Hsg. Fin. Agcy. Mtge. Rev. Merlots Series Aa
1,000 1,000 Ohio Hsg. Fin. Agcy. Rev., Residential Mtge. A.M.T., Ser. B
3,000 3,000 Ohio Hsg. Fin. Agcy., Multifamily Hsg. Rev., Ser. B
OKLAHOMA 0.6%
2,000 2,000 Tulsa Pkg. Auth., Williams Ctr. Proj., S.E.M.M.T., Ser. 87 A
OREGON 0.3%
1,000 1,000 Oregon Veterens Welfare Ser. 79B
<CAPTION>
(UNAUDITED)
MOODY'S INTEREST
DESCRIPTION (a) RATING RATE MATURITY
------------------------------------------------------------------------ ------------- -------------- --------------
<S> <C> <C> <C>
T.E.C.P. A1+(c) 4.00 08/11/00
T.E.C.P. A1+(c) 4.65 08/18/00
Mass. St., Gen. Oblig.,
Ser. 90C Aaa 7.00 12/01/00
Ser. 90C Aaa 7.50 12/01/00
Ser. 98A, F.R.W.D. VMIG1 4.50 07/06/00
Melrose, Gen. Oblig., M.B.I.A. Aaa 5.00 08/15/00
Methuen, State Aid, B.A.N. NR 4.75 10/20/00
Monson, Gen. Oblig., Sch. Proj., Ser. 90, M.B.I.A. Aaa 7.70 10/15/00
Nantucket, Gen. Oblig., B.A.N. MIG1 5.25 05/25/01
Palmer, Gen. Oblig., Sch. Proj., Ser. B, A.M.B.A.C. Aaa 7.70 10/01/00
Stoughton, Gen. Oblig., F.S.A. Aaa 7.50 05/15/01
Sutton, Gen. Oblig., M.B.I.A. Aaa 7.00 04/01/01
Waltham, Gen. Oblig., B.A.N. NR 4.75 09/08/00
Worcester, Gen. Oblig., M.B.I.A. Aaa 5.25 08/01/00
MICHIGAN 2.6%
Detroit Michigan Sewage Disposal Rev. Merlots Ser. I VMIG1 4.89 7/5/00
Michigan Muni. Bond Auth. Rev., Notes, Ser. 99 B1 SP1+(c) 4.25 8/25/00
MINNESOTA 2.6%
Bloomington Comm. Dev. Rev., 94th Str. Proj., F.R.W.D., Ser. 85 (e) A1+(c) 4.85 7/7/00
St. Paul Hsg. & Redev. Auth., Heating Rev., F.R.W.D, Ser. 99D A1+(c) 4.85 7/7/00
MISSISSIPI 1.4%
Mississippi Hsg. Fin. Corp. Sngl. Fam. Mtge., F.R.W.D., Ser. 88 A1+(c) 4.85 7/6/00
MISSOURI 0.3%
Branson Tax Increment Street Impv. Ser. 96 NR 4.65 12/1/00
OHIO 2.4%
East Lake Dev. Rev., Astro Model Corp., F.R.W.D., Ser. 96 NR 4.95 7/6/00
Ohio Hsg. Fin. Agcy. Mtge. Rev. Merlots Series Aa VMIG1 4.94 7/5/00
Ohio Hsg. Fin. Agcy. Rev., Residential Mtge. A.M.T., Ser. B A1+(c) 3.90 7/20/00
Ohio Hsg. Fin. Agcy., Multifamily Hsg. Rev., Ser. B A1+(c) 4.85 7/7/00
OKLAHOMA 0.6%
Tulsa Pkg. Auth., Williams Ctr. Proj., S.E.M.M.T., Ser. 87 A VMIG1 4.75 11/15/00
OREGON 0.3%
Oregon Veterens Welfare Ser. 79B MIG1 4.30 4/1/01
<CAPTION>
--------------------------------
(UNAUDITED) PRUDENTIAL MUNICIPAL SERIES FUND
--------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
DESCRIPTION (a) SERIES SERIES MONEY FUND, INC. COMBINED
------------------------------------------------------------------ --------------------------------------------------------------
<S> <C> <C> <C> <C>
T.E.C.P. 1,000,000 1,000,000
T.E.C.P. 1,500,000 1,500,000
Mass. St., Gen. Oblig.,
Ser. 90C 1,010,760 1,010,760
Ser. 90C 1,471,219 1,471,219
Ser. 98A, F.R.W.D. 1,700,000 1,700,000
Melrose, Gen. Oblig., M.B.I.A. 721,206 721,206
Methuen, State Aid, B.A.N. 1,401,996 1,401,996
Monson, Gen. Oblig., Sch. Proj., Ser. 90, M.B.I.A. 514,956 514,956
Nantucket, Gen. Oblig., B.A.N. 1,555,307 1,555,307
Palmer, Gen. Oblig., Sch. Proj., Ser. B, A.M.B.A.C. 514,302 514,302
Stoughton, Gen. Oblig., F.S.A. 1,631,864 1,631,864
Sutton, Gen. Oblig., M.B.I.A. 1,291,858 1,291,858
Waltham, Gen. Oblig., B.A.N. 1,291,091 1,291,091
Worcester, Gen. Oblig., M.B.I.A. 2,212,816 2,212,816
------------- ------------ ---------------------------------
0 78,465,963 0 78,465,963
------------- ------------ ---------------------------------
MICHIGAN 2.6%
Detroit Michigan Sewage Disposal Rev. Merlots Ser. I 5,000,000 5,000,000
Michigan Muni. Bond Auth. Rev., Notes, Ser. 99 B1 3,503,296 3,503,296
------------ -------------- --------------------------------
0 0 8,503,296 8,503,296
------------ -------------- --------------------------------
MINNESOTA 2.6%
Bloomington Comm. Dev. Rev., 94th Str. Proj., F.R.W.D., Ser. 85 (e) 4,945,000 4,945,000
St. Paul Hsg. & Redev. Auth., Heating Rev., F.R.W.D, Ser. 99D 3,500,000 3,500,000
------------ -------------- --------------------------------
0 0 8,445,000 8,445,000
------------ -------------- --------------------------------
MISSISSIPI 1.4%
Mississippi Hsg. Fin. Corp. Sngl. Fam. Mtge., F.R.W.D., Ser. 88 4,625,000 4,625,000
------------ -------------- --------------------------------
0 0 4,625,000 4,625,000
------------ -------------- --------------------------------
MISSOURI 0.3%
Branson Tax Increment Street Impv. Ser. 96 1,002,638 1,002,638
------------ -------------- --------------------------------
0 0 1,002,638 1,002,638
------------ -------------- --------------------------------
OHIO 2.4%
East Lake Dev. Rev., Astro Model Corp., F.R.W.D., Ser. 96 2,800,000 2,800,000
Ohio Hsg. Fin. Agcy. Mtge. Rev. Merlots Series Aa 1,000,000 1,000,000
Ohio Hsg. Fin. Agcy. Rev., Residential Mtge. A.M.T., Ser. B 1,000,000 1,000,000
Ohio Hsg. Fin. Agcy., Multifamily Hsg. Rev., Ser. B 3,000,000 3,000,000
------------ -------------- --------------------------------
0 0 7,800,000 7,800,000
------------ -------------- --------------------------------
OKLAHOMA 0.6%
Tulsa Pkg. Auth., Williams Ctr. Proj., S.E.M.M.T., Ser. 87 A 2,000,000 2,000,000
------------ -------------- --------------------------------
0 0 2,000,000 2,000,000
------------ -------------- --------------------------------
OREGON 0.3%
Oregon Veterens Welfare Ser. 79B 1,000,000 1,000,000
------------ ------------- --------------------------------
0 0 1,000,000 1,000,000
------------ ------------- --------------------------------
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
--------------------------------
PRUDENTIAL MUNICIPAL SERIES FUND (UNAUDITED)
--------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
SERIES SERIES MONEY FUND, INC. COMBINED DESCRIPTION (a)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA 1.0%
3,340 3,340 Montgomery Cnty., Higher Ed. & Hlth. Auth. Rev., F.R.W.D., Ser. 96A
SOUTH CAROLINA 3.6%
1,050 1,050 Beaufort County South Carolina School Dist. Ser. B
3,000 3,000 South Carolina Jobs Eco. Dev. Auth. Hlth. Fac. Rev.
5,090 5,090 South Carolina St Public Service Auth. Rev. Merlots Series L
2,500 2,500 Spartanburg County School
SOUTH DAKOTA 2.9%
2,400 2,400 Grant County South Dakota Pollution Control Rev. Ref. Otter Tail Power
Company Proj.
2,025 2,025 South Dakota Hsg. Dev. Auth. Home Ownership Mrtg., Ser. J
5,000 5,000 South Dakota Str Health Edl. Sioux Vly. Hosps. Hlth.
TENNESSEE 0.5%
1,720 1,720 Morgan Keegan Municipal Prods. Inc. Trust Rcpts Ser. D
TEXAS 7.1%
3,000 3,000 Austin Texas Airport Systems Rev. Merlots Series J
200 200 Brazos River Harbor Nav. Dist., Dow Chemical Co., Ser. 92A F.R.D.D.,
A.M.T.
3,000 3,000 Brazos River Texas Harbor Navigation Dist. Dow Chemicals Co. Proj.
500 500 Dallas Fort Worth Texas Regional Airport Rev. Ref.
5,000 5,000 North Central Texas Hlth. Fac. Dev.
700 700 Port Corpus Christi Ind. Dev. Corp., Swg. & Solid Wste. Disp. Rev.
1,325 1,325 Texas Hsg., Ser. A
1,000 1,000 Texas Municipal Power Agency Rev.
12,000 12,000 Texas Street Ser.A
WISCONSIN 5.2%
5,400 5,400 Franklin Public School Dist.
2,000 2,000 Wausau Wisconsin School Dist. Tax & Rev.
3,625 3,625 Whitewater Ind. Dev. Rev., Trek Bicycle , F.R.W.D., A.M.T.,Ser. 95
1,275 1,275 Wisconsin Hsg. & Econ. Dev. Auth. Ownership Rev.. A.N.N.O.T., Ser. 122
4,708 4,708 Wisconsin State Transportation Rev.
WYOMING 1.5%
5,000 5,000 Lincoln County Pollution Control Flex Refunding Pacificrp Cnv .
Total investments (cost $333,124,930) - 101.4%
<CAPTION>
(UNAUDITED)
MOODY'S INTEREST
DESCRIPTION (a) RATING RATE MATURITY
----------------------------------------------------------------------------------- ------------- ------------ ----------
<S> <C> <C> <C>
SOUTH CAROLINA 3.6%
Beaufort County South Carolina School Dist. Ser. B NR 6.50 3/1/01
South Carolina Jobs Eco. Dev. Auth. Hlth. Fac. Rev. VMIG1 4.85 7/5/00
South Carolina St Public Service Auth. Rev. Merlots Series L VMIG1 4.89 7/5/00
Spartanburg County School MIG1 4.75 2/15/01
SOUTH DAKOTA 2.9%
Grant County South Dakota Pollution Control Rev. Ref. Otter Tail Power Company Proj. VMIG1 5.00 7/7/00
South Dakota Hsg. Dev. Auth. Home Ownership Mrtg., Ser. J MIG1 3.75 9/28/00
South Dakota Str Health Edl. Sioux Vly. Hosps. Hlth. VMIG1 4.85 7/7/00
TENNESSEE 0.5%
Morgan Keegan Municipal Prods. Inc. Trust Rcpts Ser. D NR 5.07 7/6/00
TEXAS 7.1%
Austin Texas Airport Systems Rev. Merlots Series J VMIG1 4.94 7/5/00
Brazos River Harbor Nav. Dist., Dow Chemical Co., Ser. 92A F.R.D.D., A.M.T. P1 4.75 7/3/00
Brazos River Texas Harbor Navigation Dist. Dow Chemicals Co. Proj. A1+(c) 4.75 7/3/00
Dallas Fort Worth Texas Regional Airport Rev. Ref. NR 4.70 11/1/00
North Central Texas Hlth. Fac. Dev. VMIG1 4.70 8/11/00
Port Corpus Christi Ind. Dev. Corp., Swg. & Solid Wste. Disp. Rev. VMIG1 4.75 7/3/00
Texas Hsg., Ser. A VMIG1 5.00 7/5/00
Texas Municipal Power Agency Rev. NR 5.50 9/1/00
Texas Street Ser.A MIG1 4.50 8/31/00
WISCONSIN 5.2%
Franklin Public School Dist. NR 4.00 8/30/00
Wausau Wisconsin School Dist. Tax & Rev. NR 4.10 9/22/00
Whitewater Ind. Dev. Rev., Trek Bicycle , F.R.W.D., A.M.T.,Ser. 95 NR 4.85 7/6/00
Wisconsin Hsg. & Econ. Dev. Auth. Ownership Rev.. A.N.N.O.T., Ser. 122 VMIG1 3.90 10/5/00
Wisconsin State Transportation Rev. P1 4.30 7/27/00
WYOMING 1.5%
Lincoln County Pollution Control Flex Refunding Pacificrp Cnv . VMIG1 4.90 7/5/00
Total investments (cost $333,124,930) - 101.4%
<CAPTION>
--------------------------------
(UNAUDITED) PRUDENTIAL MUNICIPAL SERIES FUND
--------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
DESCRIPTION (a) SERIES SERIES MONEY FUND, INC. COMBINED
---------------------------------------------------------------------- ------------------------------ ----------------------------
<S>
PENNSYLVANIA 1.0%
Montgomery Cnty., Higher Ed. & Hlth. Auth. Rev., F.R.W.D., Ser. 96A 3,340,000 3,340,000
-------------- -------------- ---------------------------
0 0 3,340,000 3,340,000
-------------- -------------- ---------------------------
SOUTH CAROLINA 3.6%
Beaufort County South Carolina School Dist. Ser. B 1,064,874 1,064,874
South Carolina Jobs Eco. Dev. Auth. Hlth. Fac. Rev. 3,000,000 3,000,000
South Carolina St Public Service Auth. Rev. Merlots Series L 5,090,000 5,090,000
Spartanburg County School 2,508,233 2,508,233
-------------- -------------- ---------------------------
0 0 11,663,107 11,663,107
-------------- -------------- ---------------------------
SOUTH DAKOTA 2.9%
Grant County South Dakota Pollution Control Rev. Ref. Otter Tail
Power Company Proj. 2,400,000 2,400,000
South Dakota Hsg. Dev. Auth. Home Ownership Mrtg., Ser. J 2,025,000 2,025,000
South Dakota Str Health Edl. Sioux Vly. Hosps. Hlth. 5,000,000 5,000,000
-------------- -------------- ---------------------------
0 0 9,425,000 9,425,000
-------------- -------------- ---------------------------
TENNESSEE 0.5%
Morgan Keegan Municipal Prods. Inc. Trust Rcpts Ser. D 1,720,000 1,720,000
-------------- -------------- ---------------------------
0 0 1,720,000 1,720,000
-------------- -------------- ---------------------------
TEXAS 7.1%
Austin Texas Airport Systems Rev. Merlots Series J 3,000,000 3,000,000
Brazos River Harbor Nav. Dist., Dow Chemical Co.,
Ser. 92A F.R.D.D., A.M.T. 200,000 200,000
Brazos River Texas Harbor Navigation Dist. Dow Chemicals Co. Proj. 3,000,000 3,000,000
Dallas Fort Worth Texas Regional Airport Rev. Ref. 500,557 500,557
North Central Texas Hlth. Fac. Dev. 5,000,000 5,000,000
Port Corpus Christi Ind. Dev. Corp., Swg. & Solid Wste. Disp. Rev. 700,000 700,000
Texas Hsg., Ser. A 1,324,989 1,324,989
Texas Municipal Power Agency Rev. 1,001,134 1,001,134
Texas Street Ser.A 8,498,086 8,498,086
-------------- -------------- ---------------------------
1,324,989 0 21,899,777 23,224,766
-------------- -------------- ---------------------------
WISCONSIN 5.2%
Franklin Public School Dist. 5,402,309 5,402,309
Wausau Wisconsin School Dist. Tax & Rev. 2,001,574 2,001,574
Whitewater Ind. Dev. Rev., Trek Bicycle, F.R.W.D., A.M.T.,
Ser. 95 3,625,000 3,625,000
Wisconsin Hsg. & Econ. Dev. Auth. Ownership Rev.. A.N.N.O.T.,
Ser. 122 1,275,000 1,275,000
Wisconsin State Transportation Rev. 4,708,000 4,708,000
-------------- -------------- ---------------------------
0 0 17,011,883 17,011,883
-------------- -------------- ---------------------------
WYOMING 1.5%
Lincoln County Pollution Control Flex Refunding Pacificrp Cnv . 5,000,000 5,000,000
-------------- -------------- ---------------------------
0 0 5,000,000 5,000,000
-------------- -------------- ---------------------------
Total investments (cost $333,124,930) - 101.4% 81,379,497 78,465,963 173,279,470 333,124,930
-------------- -------------- ---------------------------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
---------------------------------
PRUDENTIAL MUNICIPAL SERIES FUND (UNAUDITED)
---------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
SERIES SERIES MONEY FUND, INC. COMBINED DESCRIPTION (a)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Other assets (liabilities) in excess of liabilities (assets) - (1.4%)
Total net assets - 100%
<CAPTION>
(UNAUDITED)
MOODY'S INTEREST
DESCRIPTION (a) RATING RATE MATURITY
---------------------------------------------------------------------- ------------- ------------ ----------
<S> <C> <C> <C>
Other assets (liabilities) in excess of liabilities (assets) - (1.4%)
Total net assets - 100%
<CAPTION>
(UNAUDITED) --------------------------------
PRUDENTIAL MUNICIPAL SERIES FUND
--------------------------------
CONNECTICUT MASSACHUSETTS PRUDENTIAL
MONEY MARKET MONEY MARKET TAX-FREE PRO FORMA
DESCRIPTION (a) SERIES SERIES MONEY FUND, INC. COMBINED
--------------------------------------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Other assets (liabilities) in excess of liabilities
(assets) - (1.4%) 495,038 (3,382,098) (1,769,414) (4,656,474)
------------- ----------------- -------------------------------
Total net assets - 100%
$ 81,874,535 $ 75,083,865 $ 171,510,056 $328,468,456
============= ================= ===============================
</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 Anticipated 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.
G.O. - General Obligation
M.B.I.A. - Municipal Bond Insurance Corporation.
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) 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 & Poor's ratings.
F-6
<PAGE>
PRO-FORMA FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRUDENTIAL MUNICIPAL SERIES FUND
-------------------------------------------------------
CONNECTICUT MONEY MASSACHUSETTS MONEY
MARKET SERIES MARKET SERIES
-------------------------- --------------------------
<S> <C> <C>
ASSETS
Investments, at amortized cost which approximates market value $ 81,379,497 $ 78,465,963
Cash 31,658 -
Receivable for Series and Fund shares sold, respectively 758,339 417,080
Receivable for investments sold 1,800,000 -
Interest receivable 826,699 773,423
Other assets 1,023 691
-------------------------- --------------------------
Total assets 84,797,216 79,657,157
-------------------------- --------------------------
LIABILITIES
Bank Overdraft - 18,471
Payable for Investments purchased 1,800,000 4,002,008
Payable for Series and Fund shares reacquired, respectively 990,162 445,993
Accrued expenses and other liabilities 57,149 33,211
Dividends payable 25,468 38,839
Management fee payable 34,769 30,074
Distribution fee payable 15,133 4,696
-------------------------- --------------------------
Total liabilities 2,922,681 4,573,292
-------------------------- --------------------------
NET ASSETS $ 81,874,535 $ 75,083,865
========================== ==========================
Net assets were comprised of:
Shares of beneficial interest and common stock, at $.01 par
value, respectively $ 818,745 $ 750,839
Paid-in capital in excess of par 81,055,790 74,333,026
-------------------------- --------------------------
Net assets, June 30, 2000 $ 81,874,535 $ 75,083,865
========================== ==========================
Net asset value, offering price and redemption price per share $ 1.00 $ 1.00
========================== ==========================
<CAPTION>
PRUDENTIAL
TAX-FREE MONEY PRO FORMA
FUND, INC. COMBINED
------------------------- -----------------------
<S> <C> <C>
ASSETS
Investments, at amortized cost which approximates market value $ 173,279,470 $ 333,124,930
Cash - 31,658
Receivable for Series and Fund shares sold, respectively 4,041,856 5,217,275
Receivable for investments sold 2,210,000 4,010,000
Interest receivable 1,778,815 3,378,937
Other assets 5,586 7,300
------------------------- -----------------------
Total assets 181,315,727 345,770,100
------------------------- -----------------------
LIABILITIES
Bank Overdraft 112,297 130,768
Payable for Investments purchased 7,212,787 13,014,795
Payable for Series and Fund shares reacquired, respectively 2,180,975 3,617,130
Accrued expenses and other liabilities 127,836 218,196
Dividends payable 90,862 155,169
Management fee payable 71,394 136,237
Distribution fee payable 9,520 29,349
------------------------- -----------------------
Total liabilities 9,805,671 17,301,644
------------------------- -----------------------
NET ASSETS $ 171,510,056 $ 328,468,456
========================= =======================
Net assets were comprised of:
Shares of beneficial interest and common stock, at $.01 par
value, respectively $ 1,715,913 $ 3,285,497
Paid-in capital in excess of par 169,794,143 325,182,959
------------------------- -----------------------
Net assets, June 30, 2000 $ 171,510,056 $ 328,468,456
========================= =======================
Net asset value, offering price and redemption price per share $ 1.00 $ 1.00
========================= =======================
</TABLE>
See Notes to Pro-Forma Financial Statements
F-7
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRUDENTIAL MUNICIPAL SERIES FUND
----------------------------------------------- PRUDENTIAL
CONNECTICUT MONEY MASSACHUSETTS MONEY TAX-FREE MONEY
MARKET SERIES MARKET SERIES FUND, INC.
--------------------- ------------------------ ----------------------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Income
Interest and discount earned $2,889,574 $2,364,211 $7,018,410
--------------------- ------------------------ ----------------------
Expenses
Management fee 409,711 317,588 937,732
Distribution fee 102,428 79,397 234,432
Transfer agent's fees and expenses 15,602 13,968 134,000
Custodian's fees and expenses 53,160 63,033 59,000
Registration fees - 18,150 47,000
Reports to shareholders 40,287 21,362 38,000
Audit fee and expenses 8,093 8,002 26,000
Legal fees and expenses 8,996 3,243 14,000
Directors' and Trustees' fees, respectively 6,027 4,611 10,000
Miscellaneous 517 2,181 1,705
--------------------- ------------------------ ----------------------
Total Expenses 644,821 531,535 1,501,869
Less: Custodian fee credit (6,301) (2,207) (6,440)
--------------------- ------------------------ ----------------------
Net Expenses 638,520 529,328 1,495,429
--------------------- ------------------------ ----------------------
Net investment income 2,251,054 1,834,883 5,522,981
-------------------- ------------------------ ----------------------
NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS $2,251,054 $1,834,883 $5,522,981
===================== ======================== ======================
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------------ ---------------------
<S> <C> <C>
NET INVESTMENT INCOME
Income
Interest and discount earned - $12,272,195
------------------ ---------------------
Expenses
Management fee 1,665,031
Distribution fee 416,257
Transfer agent's fees and expenses $ (7,270.00)(b) 156,300
Custodian's fees and expenses (97,193.00)(a) 78,000
Registration fees (17,150)(b) 48,000
Reports to shareholders (39,649)(b) 60,000
Audit fee and expenses (16,095)(b) 26,000
Legal fees and expenses (12,239)(b) 14,000
Directors' and Trustees' fees, respectively (10,638)(b) 10,000
Miscellaneous (1,803)(b) 2,600
------------------ ---------------------
Total Expenses (202,037) 2,476,188
Less: Custodian fee credit - (14,948)
------------------ ---------------------
Net Expenses (202,037) 2,461,240
------------------ ---------------------
Net investment income (202,037) 9,406,881
----------------- ---------------------
NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS ($202,037) $9,406,881
================== =====================
</TABLE>
------------------------------------------------------------
(a) Adjustment to reflect economies of scale
(b) Adjustment to reflect elimination of duplicative expenses
See Notes to Pro Forma Financial Statements
F-8
<PAGE>
PRUDENTIAL TAX FREE MONEY FUND, INC.
NOTES TO PRO FORMA FORMS FINANCIAL STATEMENTS
(UNMODIFIED)
1. BASIS OF COMBINATION - The Pro Forma Statement of Assets and Liabilities,
including the Portfolio of Investments, at June 30, 2000 and the related
Statement of Operations ("Pro Forma Statements") for the twelve months
ended June 30, 2000, reflect the accounts of: Prudential Tax Free Money
Fund, Inc. ("Tax Free Fund"), Prudential Municipal Series Fund -
Connecticut Money Market Series ("Connecticut Series") and Prudential
Municipal Series Fund - Massachusetts Series ("Massachusetts Series").
The Pro Forma statements give effect to the proposed transfer of all assets
and liabilities of Connecticut Series and Massachusetts Series in exchange
for shares in Tax Free Fund. The Pro Forma Statements should be read in
conjunction with the historical financial statements of each Fund, or
Series included in its Statement of Additional Information.
2. SHARE OF BENEFICIAL INTEREST - Shareholders of Connecticut Series and
Massachusetts Series would become shareholders of Tax Free Fund receiving
Class A shares of Tax Free Fund equal to the value of their holdings in
Connecticut Series and Massachusetts Series.
3. PRO FORMA OPERATIONS - The Pro Forma Statement of Operations assumes
similar rates of gross investment income for the investment of each Series
and Fund. Accordingly, the combined gross investment income is equal to the
sum of each Fund's gross investment income. Certain expenses have been
adjusted to reflect the expected expenses of the combined entity. The Pro
Forma Statement of Operations does not include the effect of any
transaction fees incurred in connection with the realignment of the
portfolio.
F-9
<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).
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<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 to Shareholders of
Connecticut Money Market Series for
the fiscal year ended August 31, 2000
[to come]
Annual Report to Shareholders of
Massachusetts Money Market Series
for the fiscal year ended
August 31, 2000
[to come]
<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 December 23, 1999.*
(d) Prospectus of Massachusetts Money Market Series of Prudential
Municipal Series Fund dated December 23, 1999.*
(e) Supplement dated September 13, 2000 to Prospectuses of
Connecticut Money Market Series and Massachusetts Money Market Series
of Prudential Municipal Series Fund.**
(f) Supplement dated August 24, 2000 to Prospectuses of Connecticut
Money Market Series and Massachusetts Money Market Series of Prudential
Municipal Series Fund.**
(g) President's Letter, filed immediately preceding Prospectus and
Proxy Statement.*
(h) Statement of Additional Information of Prudential Municipal Series
Fund dated October __, 2000.**
----------------------
*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 26th day of September, 2000.
PRUDENTIAL TAX-FREE MONEY FUND, INC.
/s/ John R. Strangfeld
------------------------------------
John R. Strangfeld, 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 September 26, 2000
------------------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Vice President and September 26, 2000
------------------------------ Director
ROBERT F. GUNIA
Director September 26, 2000
------------------------------
ROBERT E. LABLANC
/s/ David R. Odenath Director September 26, 2000
------------------------------
DAVID R. ODENATH
/s/ Robin B. Smith Director September 26, 2000
------------------------------
ROBIN B. SMITH
/s/ Stephen Stoneburn Director September 26, 2000
------------------------------
STEPHEN STONEBURN
/s/ John R. Strangfeld President September 26, 2000
------------------------------ and Director
JOHN R. STRANGFELD
/s/ Nancy H. Teeters Director September 26, 2000
------------------------------
NANCY H. TEETERS
/s/ Clay T. Whitehead Director September 26, 2000
------------------------------
CLAY T. WHITEHEAD
/s/ Grace C. Torres Treasurer and Principal September 26, 2000
------------------------------ Financial and Accounting
GRACE C. TORRES Officer
</TABLE>
C-6
<PAGE>
EXHIBIT INDEX
2. (b) Amendment to By-Laws of the Registrant.
4. Form of Agreement and Plan of Reorganizations filed herewith as
Attachment A to the Prospectus and Proxy Statement.
9. (b) Amendment to Custodian Contract/Agreement, dated February 22,
1999, between the Registrant and State Street Bank and Trust
Company.
13. (b) Amendment to Transfer Agency and Service Agreement, dated
August 24, 1999, by and between the Registrant and Prudential Mutual
Fund Services LLC.
l7. (a) Proxies, filed immediately after Prospectus and Proxy Statement.
(c) Prospectus of Connecticut Money Market Series of Prudential
Municipal Series Fund dated December 23, 1999.
(d) Prospectus of Massachusetts Money Market Series of Prudential
Municipal Series Fund dated December 23, 1999.
(g) President's Letter, filed immediately preceding Prospectus and
Proxy Statement.
C-7
