<PAGE>
Nuveen
Money Market Funds
Funds
Prospectus/Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO OF COUPLE APPEARS HERE]
Tax-Exempt
<PAGE>
Contents
1 Dear Shareholder
3 Prospectus
5 Fund Expenses
5 Highlights
8 Financial Highlights
10 Yield
10 The Fund and its Investment Objective
10 Investment Policies
15 Management of the Fund
16 Net asset value
16 Dividends
17 Suitability
17 How to buy Fund Shares
18 Other Shareholder Programs
19 How to redeem Fund Shares
21 Taxes
23 General Information
25 Annual Report Financial Section
26 Portfolio of Investments
33 Statement of Net Assets
34 Statement of Operations
35 Statement of Changes in Net Assets
36 Notes to Financial Statements
39 Financial Highlights
42 Report of Independent Public Accountants
43 Fund Information
<PAGE>
Dear Shareholder
[PHOTO OF It is a pleasure to report to you on the performance
TIMOTHY R. SCHWERTFEGER of the Nuveen Tax-Exempt Money Market Fund for the
APPEARS HERE] year ended February 28, 1997, and to send you an
updated prospectus for the fund. Inside this report
Timothy R. Schwertfeger you will find the fund's financial information,
including the portfolio of investments, statement of
net assets, and financial highlights; located after
the prospectus.
During this 12-month period the fund continued to
achieve its goal of delivering attractive tax-free
income from a portfolio of quality short-term
municipal securities. As of the end of February,
investors were receiving a tax-free yield of 3.02%.
The Nuveen money market funds have done well in
generating tax-fee income for investors while
preserving net asset value stability so critical to
investor confidence. Your money market fund has
continued to deliver safety and liquidity, which is
especially comforting during periods of market
volatility. Money market funds remain a valuable and
convenient investment alternative.
Nuveen prides itself on providing attractive tax-free
income to more than 1.3 million shareholders. Thank
you for your continued confidence in Nuveen and our
family of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 14, 1997
1
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Nuveen Tax-Exempt
Money Market Fund, Inc.
Prospectus
April 29, 1997
Nuveen Tax-Exempt Money Market Fund, Inc. (the "Fund") is an open-end,
diversified management investment company with the objective of providing as
high a level of current interest income exempt from federal income taxes as is
consistent, in the view of Fund management, with stability of principal and
maintenance of liquidity through investment in a professionally managed
portfolio of high quality, short-term Municipal Obligations. The Fund will value
its portfolio securities at amortized cost and seek to maintain a net asset
value of $1.00 per share.
The Fund is designed as a convenient investment vehicle for institutional
investors with temporary cash balances such as trust departments, trust
companies, and banks acting as agent, adviser, or custodian. It is equally
appropriate for the investment of short-term funds held or managed by
corporations, insurance companies, investment counselors, law firms, broker-
dealers and individuals.
This Prospectus, which should be retained for future reference, sets forth
concisely the information about the Fund that a prospective investor ought to
know before investing. A "Statement of Additional Information" dated April 29,
1997, containing further information about the Fund, has been filed with the
Securities and Exchange Commission, is incorporated by reference into this
Prospectus, and may be obtained without charge from John Nuveen & Co.
Incorporated by calling (800) 858-4084.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
John Nuveen & Co. Incorporated
For information, call toll-free (800) 858-4084
3
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Prospectus
<TABLE>
<CAPTION>
<S> <C>
5 Fund expenses
5 Highlights
8 Financial highlights
10 Yield
10 The Fund and its investment objective
10 Investment policies
15 Management of the Fund
16 Net asset value
16 Dividends
17 Suitability
17 How to buy Fund shares
18 Other Shareholder Programs
19 How to redeem Fund shares
21 Taxes
23 General information
</TABLE>
4
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Fund Expenses
The following tables illustrate all expenses and fees that a shareholder of the
Fund will incur. The expenses and fees shown are for the fiscal year ended
February 28, 1997.
<TABLE>
<CAPTION>
Shareholder transaction expenses
- ------------------------------------------------------------------------
<S> <C>
Sales load imposed on purchases None
Sales load imposed on reinvested dividends None
Redemption fees None
Exchange fees None
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual operating expenses (as a percentage of average daily net assets)
- ------------------------------------------------------------------------
<S> <C>
Management fees .40%
12b-1 fees None
Other operating expenses .04%
Total expenses .44%
</TABLE>
The purpose of the foregoing tables is to help the investor understand all
expenses and fees that an investor in the Fund will bear directly or indirectly.
As discussed under "Management of the Fund," the management fee is reduced or
Nuveen Advisory assumes certain expenses so as to prevent the total expenses of
the Fund in any fiscal year from exceeding .45 of 1% of the average daily net
asset value of the Fund.
The following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return and (2) redemption at the end of each time period. As noted in the table
above, the Fund charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------
<S> <C> <C> <C>
$5 $14 $25 $55
- ------------------------------------------------------------------------
</TABLE>
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown. This example assumes that the percentage amounts listed under Annual
Operating Expenses remain the same in each of the periods.
Highlights
Nuveen Tax-Exempt Money Market Fund, Inc. (the "Fund") is an open-end, diver-
sified management investment company with the objective of providing, through
investment in a professionally managed portfolio of high quality short-term
Municipal Obligations, as high a level of current interest income exempt from
federal income tax as is consistent, in the view of the Fund's management, with
stability of principal and the maintenance of liquidity. The Fund values its
portfolio at amortized cost and seeks to maintain a net asset value of $1.00 per
share. There is no guarantee that this value
5
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will be maintained. See "Net Asset Value" on page 16 and "The Fund and Its
Investment Objective" on page 10.
The Fund intends to qualify, as it has in prior years, for tax treatment as a
regulated investment company and to satisfy conditions that will enable interest
income which is exempt from federal income tax in the hands of the Fund to
retain such tax-exempt status when distributed to the shareholders of the Fund.
Dividends may not be exempt from state or local income taxes. See "Taxes" on
page 21.
How to Buy Fund Shares
Fund shares may be purchased on days on which the Federal Reserve Bank of Boston
is normally open for business ("business days") at the net asset value next
determined after an order is received together with payment in federal funds.
The minimum initial investment is $25,000. Subsequent investments for the
account of the shareholder must be in amounts of $500 or more. See "How to Buy
Fund Shares" on page 17.
How to Redeem Fund Shares
Shareholders may redeem shares at net asset value next computed after receipt of
a redemption request in proper form on any business day. There is no redemption
fee. See "How to Redeem Fund Shares" on page 19.
Dividends
The Fund declares dividends daily from its accumulated net income and
distributes the dividends monthly in the form of additional shares or, at the
option of the investor, in cash. See "Dividends" on page 16.
Investment Adviser and Principal Underwriter
John Nuveen & Co. Incorporated ("Nuveen") acts as principal underwriter of the
Fund. Nuveen Advisory Corp. ("Nuveen Advisory"), a wholly-owned subsidiary of
Nuveen, acts as the Fund's investment adviser and receives an annual fee of .4
of 1% of the average daily net asset value of the Fund. The management fee is
reduced to .375 of 1%, .350 of 1% and .325 of 1% of the average daily net asset
value over $500,000,000, $1,000,000,000, and $2,000,000,000, respectively. See
"Management of the Fund" on page 15.
Investments
The Fund invests primarily in municipal money market instruments. The Fund may
from time to time invest a portion of its assets in debt obligations which are
not rated, and variable rate or floating rate obligations. Each of these
investments and practices involves certain risk factors. Investors are urged to
read the descriptions set forth in this Prospectus of these investments and
practices. See "Investment Policies" on page 10.
The information set forth above should be read in conjunction with the detailed
information set forth elsewhere in this Prospectus.
6
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Financial Highlights
7
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Financial Highlights
The following financial information has been derived from the
Fund's financial statements which have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their
report, and should be read in conjunction with the financial
statements and related notes, appearing at the back of this
Prospectus.
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Income from
Investment Operations Less Distributions
-------------------------- ---------------------------
Net
Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
beginning investment from investment from capital end of asset
of period income investments income gains period value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended,
2/28/97 $1.000 $.031 $-- $(.031) $-- $1.000 3.11%
2/29/96 1.000 .034 -- (.034) -- 1.000 3.42
2/28/95 1.000 .027 -- (.027) -- 1.000 2.69
2/28/94 1.000 .020 -- (.020) -- 1.000 2.04
2/28/93 1.000 .026 -- (.026) -- 1.000 2.57
10/1/91 to 2/29/92 1.000 .016 -- (.016) -- 1.000 1.56
Year ended,
9/30/91 1.000 .049 -- (.049) -- 1.000 4.85
9/30/90 1.000 .058 -- (.058) -- 1.000 5.75
9/30/89 1.000 .060 -- (.060) -- 1.000 6.00
9/30/88 1.000 .049 -- (.049) -- 1.000 4.89
- -----------------------------------------------------------------------------------------------------------------
*Annualized.
</TABLE>
8
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Nuveen Tax-Exempt Money Market Fund Prospectus
April 29, 1997
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------------------------
Ratio
of net
Ratio of investment
Net assets expenses income to
end of period to average average
(in thousands) net assets net assets
- --------------------------------------------------------------
<S> <C> <C> <C>
Year ended,
2/28/97 $ 515,403 .44% 3.10%
2/29/96 610,053 .44 3.43
2/28/95 759,244 .44 2.65
2/28/94 975,833 .42 2.04
2/28/93 1,597,014 .40 2.58
10/1/91 to 2/29/92 2,332,021 .39* 3.71*
Year ended,
9/30/91 1,927,583 .38 4.81
9/30/90 1,800,966 .40 5.74
9/30/89 1,756,725 .39 6.02
9/30/88 2,044,479 .39 4.90
- --------------------------------------------------------------
</TABLE>
9
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Yield
From time to time the Fund may advertise its "yield," "effective yield" and
"taxable equivalent yield." The "yield" of the Fund is based on the income
generated by an investment in the Fund over a seven day period. The income is
then annualized, i.e. the amount of the income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is expressed as a percentage of the investment. "Effective yield" is calculated
similarly except that, when annualized, the income earned by the investment is
assumed to be reinvested. Due to this compounding effect, the effective yield
will be slightly higher than the yield. "Taxable equivalent yield" is the yield
that a taxable investment would need to generate in order to equal the Fund's
yield on an after-tax basis for an investor in a stated tax bracket (normally
assumed to be the bracket with the highest marginal tax rate). A taxable
equivalent yield quotation will be higher than the yield or the effective yield
quotations. Additional information concerning the Fund's performance figures
appears in the Statement of Additional Information.
Based on the seven-day period ended February 28, 1997, the Fund's yield,
effective yield and taxable equivalent yield (using the maximum federal income
tax rate of 39.6%) were 3.02%, 3.07% and 5.00%, respectively.
This Prospectus may be in use for a full year and it can be expected that during
this period there will be material fluctuations in yield from that quoted above.
For information as to current yields, please call Nuveen at (800) 858-4084.
The Fund and Its Investment Objective
The Fund is an open-end, diversified management investment company which has the
objective of providing, through investment in a professionally managed portfolio
of high quality short-term Municipal Obligations (described below), as high a
level of current interest income exempt from federal income tax as is
consistent, in the view of the Fund's management, with stability of principal
and the maintenance of liquidity. The Fund's investment objective is a
fundamental policy of the Fund and may not be changed without the approval of
the holders of a majority of the shares. The Fund values its portfolio
securities at amortized cost and seeks to maintain a constant net asset value of
$1.00 per share. There is risk in all investments and, therefore, there can be
no assurance that the Fund's objective will be achieved.
Investment Policies
In General
The Fund's investment portfolio will consist primarily of short-term Municipal
Obligations which at the time of purchase are eligible for purchase by money
market funds under applicable guidelines of the Securities and Exchange
Commission ("SEC"), and are: (1) bonds rated within the two highest long-term
grades by Moody's Investor Service Inc. ("Moody's") -Aaa or Aa, or by Standard &
Poor's Corporation ("S&P") -AAA or AA respectively, or, in the case of municipal
notes, rated MIG-1 or VMIG-1 by Moody's or SP-1 by S&P, or, in the case of
municipal commercial paper, rated Prime-1 by Moody's or A-1 by S&P; (2) unrated
obligations which, in the opinion of Nuveen Advisory, have credit
characteristics at least equivalent to obligations rated Aa, MIG-1, VMIG-1 or
Prime-1 by Moody's, or AA, SP-1 or A-1 by S&P; or (3) obligations exempt from
federal income tax which at the time of purchase are backed by the full faith
and credit of the U.S. Government as to payment of principal and interest.
10
<PAGE>
The investment portfolio of the Fund will be limited to obligations maturing
within 397 days from the date of acquisition or that have variable or floating
rates of interest (such rates vary with changes in specified market rates or
indices such as a bank prime rate or tax-exempt money market index). The Fund
may invest in such variable and floating rate instruments even if they carry
stated maturities in excess of 397 days, provided that (1) certain conditions
contained in rules issued by the SEC under the Investment Company Act of 1940
are satisfied and (2) they permit the Fund to recover the full principal amount
thereof upon specified notice. The Fund's right to obtain payment on such an
instrument could be adversely affected by events occurring between the date the
Fund elects to tender the instrument and the date proceeds are due.
The ratings of Moody's and S&P represent their opinions as to the quality of
those Municipal Obligations which they undertake to rate. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Subsequent to its purchase by the Fund, an issue may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. Neither event requires the elimination of such obligation from the Fund's
portfolio, but Nuveen Advisory will consider such an event in its determination
of whether the Fund should continue to hold such obligation. To the extent that
unrated Municipal Obligations may be less liquid, there may be somewhat greater
risks in purchasing unrated Municipal Obligations.
The types of short-term Municipal Obligations in which the Fund may invest
include bond anticipation notes, tax anticipation notes, revenue anticipation
notes, construction loan notes to provide construction financing of specific
projects and bank notes issued by governmental authorities to commercial banks
as evidence of borrowings. Since these short-term securities frequently serve as
interim financing pending receipt of anticipated funds from the issuance of
long-term bonds, tax collections or other anticipated future revenues, a
weakness in an issuer's ability to obtain such funds as anticipated could
adversely affect the issuer's ability to meet its obligations on these short-
term securities.
Because the Fund invests in securities backed by banks and other financial
institutions, changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price.
The Fund has obtained commitments (each, a "Commitment") from MBIA Insurance
Corporation ("MBIA") with respect to certain designated bonds held by the Fund
for which credit support is furnished by one of the banks ("Approved Banks")
approved by MBIA under its established credit approval standards. Under the
terms of a Commitment, if the Fund were to determine that certain adverse
circumstances relating to the financial condition of the Approved Bank had
occurred, the Fund could cause MBIA to issue a "while-in-fund" insurance policy
covering the underlying bonds; after time and subject to further terms and
conditions, the Fund could obtain from MBIA an "insured-to-maturity" insurance
policy as to the covered bonds. Each type of insurance policy would insure
payment of interest on the bonds and payment of principal at maturity. Although
such insurance would not guarantee the market value of the bonds or value of the
Fund's shares, the Fund believes that its ability to
- ------
11
<PAGE>
obtain insurance for such bonds under such adverse circumstances will enable the
Fund to hold or dispose of such bonds at a price at or near their par value.
The Fund intends to remain as fully invested in municipal securities as is
prudent or practical under the circumstances. The Fund to date has not purchased
and has no present intention to purchase "temporary investments," the income
from which is subject to federal income tax. However, the Fund may invest not
more than 20% of its net assets in such temporary investments. Further, during
extraordinary circumstances, the Fund may, for defensive purposes, invest more
than 20% of its net assets in such temporary investments. The Fund will invest
only in temporary investments with remaining maturities of one year or less
which, in the opinion of Nuveen Advisory, are of "high grade" quality.
The SEC has recently adopted amendments and proposed further amendments to Rule
2a-7 under the Investment Company Act of 1940. Although these amendments have
not yet become effective and the Fund has not yet amended its amortized cost
procedures to implement changes that would be required by these amendments, the
Fund will adhere at all times to all requirements of Rule 2a-7.
Because investments of the Fund will consist of securities with relatively short
maturities, the Fund can expect to have a high portfolio turnover rate. The Fund
will maintain a dollar-weighted average portfolio maturity of not more than 90
days. During the fiscal year ended February 28, 1997, the average maturity of
the Fund's portfolio ranged from 25 to 61 days.
Municipal Obligations
Municipal Obligations include debt obligations issued by states, cities and
local authorities to obtain funds for various public purposes, including the
construction of such public facilities as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Obligations may be issued include the
refinancing of outstanding obligations, the obtaining of funds for general
operating expenses and for loans to other public institutions and facilities. In
addition, certain industrial development bonds and pollution control bonds may
be included within the term Municipal Obligations if the interest paid thereon
qualifies as exempt from federal income tax.
Two principal classifications of Municipal Obligations are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. Industrial development and
pollution control bonds are in most cases revenue bonds and do not generally
constitute the pledge of the credit or taxing power of the issuer of such bonds.
There are, of course, variations in the security of Municipal Obligations, both
within a particular classification and between classifications, depending on
numerous factors.
Municipal Obligations can be further classified between bonds and notes. Bonds
are issued to raise longer-term capital but, when purchased by the Fund, will
have 397 days or less remaining until maturity or will have a variable or
floating rate of interest. These issues may be either general obligation bonds
or revenue bonds.
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12
<PAGE>
Notes are short-term instruments with a maturity of two years or less. Most
notes are general obligations of the issuer and are sold in anticipation of a
bond sale, collection of taxes or receipt of other revenues. Payment of these
notes is primarily dependent upon the issuer's receipt of the anticipated
revenues.
Municipal Obligations also include very short-term unsecured, negotiable
promissory notes, issued by states, municipalities, and their agencies, which
are known as "tax-exempt commercial paper" or "municipal paper." Payment of
principal and interest on issues of municipal paper may be made from various
sources, to the extent that funds are available therefrom. There is a limited
secondary market for issues of municipal paper.
While these various types of notes as a group represent the major portion of the
tax-exempt note market, other types of notes are occasionally available in the
marketplace and the Fund may invest in such other types of notes to the extent
consistent with its investment objective and limitations. Such notes may be
issued for different purposes and with different security than those mentioned
above.
The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal Obligation
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. Consequently, Municipal Obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. The
market value of outstanding Municipal Obligations will vary with changes in
prevailing interest rate levels and as a result of changing evaluations of the
ability of their issuers to meet interest and principal payments.
The Fund may purchase and sell Municipal Obligations on a when-issued or delayed
delivery basis. When-issued and delayed delivery transactions arise when
securities are purchased or sold with payment and delivery beyond the regular
settlement date. (When-issued transactions normally settle within 15-45 days).
On such transactions the payment obligation and the interest rate are fixed at
the time the buyer enters into the commitment. The commitment to purchase
securities on a when-issued or delayed delivery basis may involve an element of
risk because the value of the securities is subject to market fluctuation. No
interest accrues to the purchaser prior to settlement of the transaction and at
the time of delivery the market value may be less than cost.
Obligations of issuers of Municipal Obligations are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Municipal Obligations may be materially affected.
- ------
13
<PAGE>
Certain Fundamental Investment Policies
The Fund, as a fundamental policy, may not: (1) invest more than 5% of its total
assets in securities of any one issuer, excluding the United States government,
its agencies and instrumentalities; (2) borrow money, except from banks for
temporary or emergency purposes and then only in an amount not exceeding (a) 10%
of the value of the Fund's total assets at the time of borrowing or (b) one-
third of the value of the Fund's total assets including the amount borrowed, in
order to meet redemption requests which might otherwise require the untimely
disposition of securities; (3) pledge, mortgage or hypothecate its assets,
except that, to secure permitted borrowings for temporary or emergency purposes,
it may pledge securities having a market value at the time of pledge not
exceeding 10% of the value of the Fund's total assets; (4) make loans, other
than by entering into repurchase agreements and through the purchase of
Municipal Obligations or temporary investments in accordance with its investment
objective, policies and limitations; (5) invest more than 5% of its total assets
in securities of unseasoned issuers which, together with their predecessors,
have been in operation for less than three years; (6) invest more than 10% of
its assets in repurchase agreements maturing in more than seven days, "illiquid"
securities (such as non-negotiable CDs) and securities without readily available
market quotations; or (7) invest more than 25% of its assets in the securities
of issuers in any single industry; provided, however, that such limitation shall
not be applicable to the purchase of Municipal Obligations and obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. For purposes of applying the limitations of clauses (1) and
(5), the "issuer" of a security shall be deemed to be the entity whose assets
and revenues are committed to the payment of principal and interest on such
security, provided that the guarantee of an instrument will be considered a
separate security (subject to certain exclusions allowed under the Investment
Company Act of 1940). The foregoing restrictions and other limitations discussed
herein will apply only at the time of purchase of securities and will not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of an acquisition of securities.
For a more complete description of the fundamental and non-fundamental
investment policies summarized above and the other fundamental investment
policies applicable to the Fund, see the Statement of Additional Information.
The investment policies specifically identified as fundamental, together with
the Fund's investment objective, cannot be changed without approval by holders
of a "majority of the Fund's outstanding voting shares." As defined by the
Investment Company Act of 1940, this means the vote of (i) 67% or more of the
shares present at a meeting, if the holders of more than 50% of the shares are
present or represented by proxy, or (ii) more than 50% of the shares, whichever
is less.
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14
<PAGE>
Management of the Fund
The management of the Fund, including general supervision of the duties
performed by Nuveen Advisory under the Investment Management Agreement, is the
responsibility of the Fund's Board of Directors.
Nuveen Advisory acts as the investment adviser for and manages the investment
and reinvestment of the assets of the Fund. Its address is 333 West Wacker
Drive, Chicago, Illinois 60606. Nuveen Advisory also administers the Fund's
business affairs, acts as pricing agent for the Fund, provides office facilities
and equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
directors or officers of the Fund if elected to such positions.
For the services and facilities furnished by Nuveen Advisory, the Fund has
agreed to pay an annual management fee as follows:
<TABLE>
<CAPTION>
Average daily net asset value of the Fund Management fee
- -----------------------------------------------------------------
<S> <C>
For the first $500 million. 400 of 1%
For the next $500 million .375 of 1%
For the next $1 billion .350 of 1%
For assets over $2 billion. .325 of 1%
- -----------------------------------------------------------------
</TABLE>
All fees and expenses are accrued daily and deducted before payment of dividends
to investors. In addition to the management fee of Nuveen Advisory, the Fund
pays all other costs and expenses of its operations.
The management fee will be reduced or Nuveen Advisory will assume certain Fund
expenses in an amount necessary to prevent the Fund's total expenses (including
Nuveen Advisory's management fee, but excluding interest, taxes, fees incurred
in acquiring and disposing of portfolio securities and, to the extent permitted,
extraordinary expenses) in any fiscal year from exceeding .45 of 1% of the
average daily net asset value of the Fund. For the fiscal year ended February
28, 1997, the management fee amounted to .40 of 1% of the Fund's average daily
net assets, and total expenses amounted to .44 of 1% of the Fund's average daily
net assets.
Nuveen Advisory currently serves as investment adviser to 42 open-end funds (the
"Nuveen Mutual Funds") and 52 exchange-traded municipal securities funds (the
"Nuveen Exchange-Traded Funds"). As of the date of this Prospectus, Nuveen
Advisory manages approximately $34 billion in assets held by the Nuveen Mutual
Funds and the Nuveen Exchange-Traded Funds.
Nuveen Advisory is a wholly-owned subsidiary of John Nuveen & Co. Incorporated
("Nuveen"), 333 West Wacker Drive, Chicago, Illinois 60606. Nuveen, the
principal underwriter of the Fund's shares, is sponsor of the Nuveen Tax-Exempt
Unit Trust and Nuveen Unit Trusts, registered unit investment trusts. It is also
the principal underwriter of the Nuveen Mutual Funds, and served as co-managing
underwriter for the shares of the Nuveen Exchange-Traded Funds. Over 1,000,000
individuals have
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15
<PAGE>
invested to date in Nuveen's funds and trusts. Founded in 1898, Nuveen is a
subsidiary of The John Nuveen Company which, in turn, is approximately 78% owned
by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located in St. Paul,
Minnesota, and is principally engaged in providing property-liability insurance
through subsidiaries.
Net Asset Value
The net asset value of the Fund's shares is determined by The Chase Manhattan
Bank, the Fund's custodian, at 12:00 noon Eastern Time on (1) each day on which
the Federal Reserve Bank of Boston is normally open for business (a "business
day") and (2) on any other day during which there is a sufficient degree of
trading in the Fund's portfolio securities such that the current net asset value
of the Fund's shares might be materially affected by changes in the value of
portfolio securities. The net asset value per share will be computed by dividing
the sum of the value of the portfolio securities held by the Fund, plus cash or
other assets, less liabilities, by the total number of shares outstanding at
such time.
The Fund seeks to maintain a net asset value of $1.00 per share. In this
connection, the Fund values its portfolio securities on the basis of their
amortized cost. This method values a security at its cost on the date of
purchase and thereafter assumes a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. For a more complete description of this
valuation method and its effect on existing and prospective shareholders, see
the Statement of Additional Information. There can be no assurance that the Fund
will be able at all times to maintain a net asset value of $1.00 per share.
Dividends
All of the net income of the Fund is declared on each calendar day as a dividend
on shares entitled to such dividend. Net income of the Fund consists of all
interest income accrued and discount earned on portfolio assets (adjusted for
amortization of premium or discount on securities when required for federal
income tax purposes), plus or minus any realized short-term gains or losses on
portfolio instruments since the previous dividend declaration, less estimated
expenses incurred subsequent to the previous dividend declaration. It is not
expected that realized or unrealized gains or losses on portfolio instruments
will be a meaningful factor in the computation of the Fund's net income.
Dividends are paid monthly and are reinvested in additional shares of the Fund
at net asset value or, at the shareholder's option, paid in cash. Net realized
long-term capital gains, if any, will be paid not less frequently than annually
and reinvested in additional shares of the Fund at net asset value unless the
shareholder has elected to receive capital gains in cash. The Fund does not
anticipate realizing any significant long-term capital gains or losses.
- ------
16
<PAGE>
Suitability
The Fund is designed as a convenient means for institutional investors with
temporary cash balances who seek to obtain income exempt from federal income
taxes. Although the Fund is primarily designed for banks and trust companies
seeking tax-free investment of short-term funds held in accounts for which the
bank or trust company acts in a fiduciary, advisory, agency, custodial or
similar capacity, the Fund is equally appropriate for the tax-free investment of
short-term funds held by corporations, insurance companies, investment
counselors, law firms, investment bankers, brokers, individuals and others.
Because plans qualified under Section 401 of the Internal Revenue Code or other
persons exempt from federal income tax will be unable to benefit from the tax-
exempt nature of the Fund's dividends, the Fund is not generally suitable for
such plans or persons.
How to Buy Fund Shares
In General
Investors may purchase Fund shares on business days (as defined under "Net Asset
Value") at the net asset value which is next computed after receipt of a proper
purchase order and receipt of payment in federal funds. There are no sales
charges.
Purchase by Telephone
To purchase shares of the Fund, first open an account by calling Nuveen on any
business day at (800) 858-4084. Information needed to establish the account will
be taken over the telephone. An application form should be completed promptly
and mailed to the Fund. Federal funds should be wired to:
United Missouri Bank of Kansas City, N.A.
ABA #101000695
Nuveen Tax-Exempt Money Market Fund, Inc.
Account No. (see above)
Account Name:
The investor will be required to complete an application and mail it to the Fund
after making the initial telephone purchase. Subsequent investments may be made
by following the same wire transfer procedure.
If an order is received by Nuveen by 12:00 noon, eastern time, and federal funds
are received by United Missouri Bank of Kansas City, N.A. on the same day, the
order is effective that day. Federal funds should be wired as early as possible,
but no later than 3:00 p.m. Eastern Time, to facilitate crediting to the
shareholder's account on that day.
Purchase by Mail
Complete an application form and mail it with a check or Federal Reserve draft
to Nuveen Tax-Exempt Money Market Fund, Inc., c/o Shareholder Services, Inc.,
P.O. Box 5330, Denver, CO 80217-5330. The order becomes effective as soon as the
check or draft is converted to federal funds. This usually occurs one business
day after receipt, but may take longer.
- ------
17
<PAGE>
Commencement of Dividends
Shares are deemed to have been purchased and are entitled to dividends
commencing on the day the purchase order becomes effective.
Minimum Investment
The minimum initial investment is $25,000; subsequent investments must be in
amounts of $500 or more. Institutions are encouraged to open single master
accounts. If, however, an institution wishes to use the Fund's transfer agent's
sub-accounting system, these sub-accounts may be aggregated for the purpose of
meeting the minimum investment.
Other Shareholder Programs
Exchange Privilege
You may exchange shares of the Fund for shares of any other open-end management
investment company with reciprocal exchange privileges advised by Nuveen
Advisory (the "Nuveen Funds"), provided that the Nuveen Fund into which shares
are to be exchanged is offered in the shareholder's state of residence and that
the shares to be exchanged have been held by the shareholder for a period of at
least 15 days. Shares of Nuveen Funds purchased subject to a front-end sales
charge may be exchanged for shares of the Fund or any other Nuveen Fund at the
next determined net asset value without any front-end sales charge. Shares of
any Nuveen Fund purchased through dividend reinvestment or through reinvestment
of Nuveen UIT distributions (and any dividends thereon) may be exchanged for
shares of the Fund or any other Nuveen Fund without a front-end sales charge.
Exchanges of shares with respect to which no front-end sales charge has been
paid will be made at the public offering price, which may include a front-end
sales charge, unless a front-end sales charge has previously been paid on the
investment represented by the exchanged shares (i.e., the shares to be exchanged
were originally issued in exchange for shares on which a front-end sales charge
was paid), in which case the exchange will be made at net asset value. Because
certain other Nuveen Funds may determine net asset value and therefore honor
purchase or redemption requests on days when the Fund does not (generally,
Martin Luther King's Birthday, Columbus Day and Veteran's Day), exchanges of
shares of one of those funds for shares of the Fund may not be effected on such
days.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Nuveen Fund into which they are being exchanged.
Exchanges are made based on the relative dollar values of the shares involved in
the exchange, and will be effected by redemption of shares of the Nuveen Fund
held and purchase of the shares of the other Nuveen Fund. For federal income tax
purposes, any such exchange constitures a sale and purchase of shares and may
result in capital gain or loss. Before exercising any exchange, you should
obtain the Prospectus for the Nuveen Fund into which shares are to be exchanged
and read it carefully. If the registration of the account for the Fund you are
purchasing is not exactly the same as that of the fund account from which the
exchange is made, written instructions from all holders of the account from
which the exchange is being made must be received, with signatures guaranteed by
a member of any approved Medallion Guarantee Program or in such other manner as
may be acceptable to the Fund. You may also make exchanges by telephone if a
pre-authorized exchange authorization, as provided on the account Application
Form, is on file with Shareholder Services, Inc., the Fund's
- ------
18
<PAGE>
shareholder service agent. The exchange privilege may be modified or
discontinued at any time.
Additional Information
As transfer agent for the Fund, Shareholder Services, Inc. ("SSI") maintains an
account for each shareholder of record. In the interest of economy and
convenience, share certificates are not issued unless specifically requested by
writing the Fund. No certificates are issued for fractional shares.
Confirmations of each purchase and redemption order as well as monthly
statements are sent to every shareholder. Master accounts also receive a monthly
summary report setting forth the share balance and dividends earned for the
month for each sub-account established under that master account.
To assist those institutions performing their own sub-accounting, same day
information as to the Fund's daily per share income to seven decimal places and
the one-day yield to four decimal places are normally available by 3:30 p.m.,
Eastern Time.
Banks and other organizations through which investors may purchase shares of the
Fund may impose charges in connection with purchase orders. Investors should
contact their institutions directly to determine what charges, if any, may be
imposed.
Subject to the rules of the SEC, the Fund reserves the right to suspend the
continuous offering of the shares at any time, but such suspension shall not
affect the shareholder's right of redemption as described below. The Fund also
reserves the right to reject any purchase order and to waive or increase minimum
investment requirements.
How to Redeem Fund Shares
In general
Upon receipt of a proper redemption request on a business day the Fund will
redeem its shares at their next determined net asset value. The Fund reserves
the right not to honor redemption requests where the shares to be redeemed have
been purchased by check within 15 days prior to the date the redemption request
is received. There is no delay when shares being redeemed were purchased by
wiring federal funds and thus purchase by this method is strongly recommended.
Telephone Redemption by Check
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 858-4084. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will be
issued only to the shareholder on record and mailed to the address on
record.
Telephone Redemption by Fedwire
Redemption requests may be made by calling Nuveen at (800) 858-4084.
Shareholders wishing to redeem by telephone must have elected this option on an
account application form and have returned the form to Nuveen before telephone
redemption requests can be accepted. If a redemption request is received by
Nuveen by 12:00 noon, Eastern Time, the proceeds are ordinarily wired on the
same day to the commercial bank account designated on the shareholder's
application form. The shares redeemed do not earn income on the day the proceeds
are wired. If the redemption request is received by Nuveen after 12:00 noon,
Eastern Time, the shares to be
- ------
19
<PAGE>
redeemed earn income on the day the request is received and proceeds are
ordinarily wired the next business day. The Fund reserves the right to charge a
fee of approximately $5 for the cost of wire transferred redemptions of less
than $5,000. The amount and terms of this fee are subject to change. Telephone
redemption is not available to redeem shares for which share certificates have
been issued.
Proceeds of telephone redemption of shares will be transferred by Federal
Reserve wire only to the commercial bank account specified on the shareholder's
application form. In order to establish multiple accounts, or to change the
account or accounts designated to receive wire redemption proceeds, a written
request specifying the change must be sent to Nuveen. This request must be
signed by each shareholder with each signature guaranteed by a member of an
approved Medallion Guarantee Program, or in such other manner as may be
acceptable to the Fund. Further documentation may be required from corporations,
executors, trustees or personal representatives.
The Fund reserves the right to refuse a telephone redemption and, at its option,
may limit the timing, amount or frequency of these redemptions. This procedure
may be modified or terminated at any time, on 30 days' notice, by the Fund. The
Fund, SSI and Nuveen will not be liable for following telephone instructions
reasonably believed to be genuine. The Fund employs procedures reasonably
designed to confirm that telephone instructions are genuine. These procedures
include recording all telephone instructions and requiring up to three forms of
identification prior to acting upon a caller's instructions. If the Fund does
not follow reasonable procedures for protecting shareholders against loss on
telephone transactions, it may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
Written Redemption
Shareholders may redeem their shares by sending a written request for redemption
directly to the Fund, accompanied by duly endorsed certificates, if issued.
Requests for redemption and share certificates, if issued, must be signed by
each shareholder and, if the redemption proceeds exceed $50,000 or are payable
other than to the shareholder of record at the address of record (which address
may not have been changed in the preceding 30 days), the signatures must be
guaranteed by a member of an approved Medallion Guarantee Program, or in such
other manner as may be acceptable to the Fund. Under normal circumstances
payment will be made by check and mailed within one business day (and in no
event more than seven days) after receipt of a redemption request in proper
form.
Redemption in Kind
The Fund has committed to pay in cash all redemption requests made by each
shareholder during any 90 day period up to the lesser of $250,000 or 1% of the
net asset value of the Fund at the beginning of such period. This commitment is
irrevocable without the prior approval of the SEC and is a fundamental policy of
the Fund which may not be changed without shareholder approval. In the case of
redemption requests in excess of such amounts, the Board of Directors reserves
the right to have the Fund make payment in whole or in part in securities or
other assets of the Fund in case of an emergency or any time a cash distribution
would impair the liquidity of the Fund to the detriment of the existing
shareholders. In this event, the securities would be val-
- ------
20
<PAGE>
ued in the same manner as the portfolio of the Fund is valued. If the recipient
were to sell such securities, he or she would incur brokerage charges.
Other Practices
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange is closed (other
than customary weekend and holiday closings), (b) when trading in the markets
the Fund normally utilizes is restricted, or an emergency exists as determined
by the SEC so that disposal of the Fund's investments or determination of its
net asset value is not reasonably practicable, or (c) for such other periods as
the SEC by order may permit for protection of the shareholders of the Fund.
The Fund reserves the right to redeem any account with a balance of $5,000 or
less. Shareholders will be notified that the value of their account is less than
$5,000 and will be allowed 60 days to make additional share purchases before the
redemption is processed.
Banks and other organizations through which investors may redeem shares of the
Fund may impose charges for redemption. Shareholders should contact such
institutions directly regarding any such charges.
Taxes
Federal Income Tax Matters
The Fund intends to qualify, as it has in prior years, under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), for tax treatment as a
regulated investment company. In order to qualify for treatment as a regulated
investment company, the Fund must satisfy certain requirements relating to the
sources of its income, diversification of its assets and distribution of its
income to shareholders. As a regulated investment company, the Fund will not be
subject to federal income tax on the portion of its net investment income and
net realized capital gains that is currently distributed to shareholders. The
fund also intends to satisfy conditions which will enable interest income from
Municipal Obligations that is exempt from federal income tax in the hands of the
Fund, to retain such tax-exempt status when distributed to the shareholders of
the Fund. Distributions of interest income on Municipal Obligations may not be
exempt from state or local income taxes.
Distributions by the Fund of net interest income received, if any, from
temporary investments and net short-term capital gains, if any, realized by the
Fund, will be taxable to shareholders as ordinary income. As long as the Fund
qualifies as a regulated investment company under the Code, distributions to
shareholders will not qualify for the dividends received deduction for
corporations. If in any year the Fund should fail to qualify under Subchapter M
for tax treatment as a regulated investment company, the Fund would incur a
regular corporate federal income tax upon its taxable income for that year, and
the entire amount of distributions to shareholders would be taxable to
shareholders as ordinary income.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry tax-free investments, such as shares of the Fund, is not
deductible. Under rules used by the Internal Revenue Service for determining
when borrowed funds are considered used for the purpose of purchasing or
carrying particular assets, the pur-
- ------
21
<PAGE>
chase of shares may be considered to have been made with borrowed funds even
though such funds are not directly traceable to the purchase of shares.
Tax-exempt income is taken into account in calculating the amount of social
security and railroad retirement benefits that may be subject to federal income
tax.
The Fund may invest in the type of private activity bonds the interest on which
is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or who are "related persons" of such
substantial users. Accordingly, the Fund may not be an appropriate investment
for shareholders who are considered either a "substantial user" or a "related
person" thereof. Such persons should consult their tax advisers before investing
in the Fund.
The Fund may invest in private activity bonds, the interest on which is a
specific item of tax preference for purposes of computing the alternative
minimum tax on corporations and individuals. This type of private activity bond
includes most industrial and housing revenue bonds. Shareholders whose tax
liability is determined under the alternative minimum tax will be taxed on their
share of the Fund's exempt-interest dividends that were paid from income earned
on these bonds. In addition, the alternative minimum taxable income for
corporations is increased by 75% of the difference between an alternative
measure of income ("adjusted current earnings") and the amount otherwise
determined to be alternative minimum taxable income. Interest on all Municipal
Obligations, and therefore all distributions by the Fund that would otherwise be
tax-exempt, is included in calculating a corporation's adjusted current
earnings.
The Fund is required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares who
have not furnished to the Fund their correct taxpayer identification number (in
the case of individuals, their social security number) and certain certificates,
or who are otherwise subject to back-up withholding.
The foregoing is a general and abbreviated summary of the provisions of the Code
and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Fund transactions. Shareholders are advised to
consult their own tax advisers for more detailed information concerning the
federal taxation of the Fund and the federal, state and local tax consequences
to its shareholders.
State and Local Tax Aspects
The exemption from federal income tax for distributions of interest income from
Municipal Obligations which are designated exempt interest dividends will not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. The laws of the several states and local taxing
authorities vary with respect to the taxation of such distributions, and
shareholders of the Fund are advised to consult their own tax advisers in that
regard.
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22
<PAGE>
General Information
Investor Inquiries
Investor inquiries may be made directly of the Fund in writing or by calling
Nuveen, the Fund's distributor (nationwide (800) 858-4084).
Custodian, Shareholder Services Agent and Transfer Agent
The custodian of the Fund's assets is The Chase Manhattan Bank, 4 New York
Plaza, New York, New York 10004. The custodian performs custodial fund
accounting and portfolio accounting services. SSI, P.O. Box 5330, Denver,
Colorado 80217-5330, is the transfer, shareholder services and dividend paying
agent for the Fund and performs bookkeeping, data processing and administrative
services incidental to the maintenance of shareholder accounts.
Capital Stock
The Fund was incorporated in Maryland on November 19, 1980. Its authorized
capital stock consists of a single class of 5,000,000,000 shares of common
stock, $.01 par value. All shares have equal non-cumulative voting rights and
equal rights with respect to dividends declared by the Fund and assets upon
liquidation. Shares are fully paid and non-assessable when issued and have no
pre-emptive, conversion or exchange rights.
Independent Public Accountants
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago, Illinois 60603 have been selected as auditors for the Fund. In addition
to audit services, Arthur Andersen LLP provides consultation and assistance on
accounting, internal control, tax and related matters. The financial statements
of the Fund which follow and the information set forth under "Financial
Highlights" have been audited by Arthur Andersen LLP as indicated in their
report with respect thereto, and are included in reliance upon the authority of
said firm as experts in giving said report.
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23
<PAGE>
Annual Report Financial Section
<TABLE>
<CAPTION>
Contents
<C> <S>
26 Portfolio of Investments
33 Statement of Net Assets
34 Statement of Operations
35 Statement of Changes in Net Assets
36 Notes to Financial Statements
39 Financial Highlights
42 Report of Independent Public Accountants
</TABLE>
======
25
<PAGE>
<TABLE>
Portfolio of Investments
Tax--Exempt
Principal Amortized
Amount Description Ratings* Costs
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Alabama -- 4.4%
$5,935,000 Boaz Industrial Development Board (Parker-Hannifin Corporation Aa-2 $ 5,935,000
Project), Variable Rate Demand Bonds, 3.350%, 9/01/12+
8,000,000 The Educational Building Authority of the City of Homewood, VMIG-1 8,000,000
Educational Facilities Revenue Bonds (Samford University Series 1996),
Variable Rate Demand Notes, 3.450%, 12/01/21+
4,000,000 Marshall County Special Obligation School Refunding Warrants, A-1+ 4,000,000
Series 1994, Variable Rate Demand Bonds, 3.350%, 2/01/12+
4,900,000 McIntosh Industrial Development Board, Pollution Control Revenue A-1+ 4,900,000
(Ciba-Geigy Corporation), Variable Rate Demand Bonds,
3.500%, 7/01/04+
- -----------------------------------------------------------------------------------------------------------------------
Arizona -- 8.5%
7,500,000 Apache County Industrial Development Authority VMIG-1 7,500,000
(Tucson Electric Power Co.) Series B, Variable Rate
Demand Bonds, 3.300%, 12/15/18+
9,380,000 Maricopa County, Arizona Pollution Control Corporation, A-1+ 9,380,000
Pollution Control Revenue Refunding Bonds
(Arizona Public Service Company Palo Verde Project),
1994 Series F, Variable Rate Demand Bonds, 3.450%, 5/01/29+
2,300,000 Maricopa County, Arizona Pollution Control Corporation, A-1+ 2,300,000
Pollution Control Revenue Refunding Bonds
(Arizona Public Service Company Palo Verde Project),
1994 Series B, Variable Rate Demand Bonds, 3.450%, 5/01/29+
3,500,000 Arizona School District Tax Anticipation Note Financing Program, SP-1+ 3,511,470
Tempe Elementary School District No. 3 of Maricopa County, Arizona,
Series 1996C, 4.350%, 7/30/97
5,000,000 Arizona School District Tax Anticipation Note Financing Program, SP-1+ 5,016,385
Peoria Unified School District No. 11 of Maricopa County, Arizona,
Series 1996C, 4.350%, 7/30/97
10,000,000 Arizona School District Tax Anticipation Note Financing Program, SP-1+ 10,016,052
Paradise Valley Unified School District No. 69 of
Maricopa County, Arizona, 4.400%, 7/31/97
6,400,000 Sunset Ranch Certificate Trust Certificates of Participation, VMIG-1 6,400,000
1991 Series A, Variable Rate Demand Bonds, 3.250%, 12/01/27+
- -----------------------------------------------------------------------------------------------------------------------
Arkansas -- 0.6%
3,100,000 Arkansas Hospital Equipment Finance Authority VMIG-1 3,100,000
(Washington Regional Medical Center),
Variable Rate Demand Bonds, 3.350%, 10/01/98+
26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Money Market Fund
February 28, 1997 Annual Report
Principal Amortized
Amount Description Ratings* Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
California -- 2.4%
$ 3,000,000 State of California 1996-97 Revenue Anticipation Notes, 4.500%, 6/30/97 MIG-1 $ 3,012,153
9,400,000 Regional Airports Improvement Corporation Facilities, Sublease Revenue A-1+ 9,400,000
Bonds, Issue of 1985, Lax Two Corporation (Los Angeles International
Airport), Variable Rate Demand Bonds, 3.500%, 12/01/25+
- -----------------------------------------------------------------------------------------------------------------------
Connecticut -- 2.9%
15,000,000 Connecticut State Special Assessment Unemployment Compensation VMIG-1 15,000,000
Advance Fund Revenue Bonds, Series 1993C,Variable Rate Demand
Bonds, 3.900%, 11/15/01+, (Mandatory put 7/01/97)
- -----------------------------------------------------------------------------------------------------------------------
District of Columbia -- 3.0%
3,000,000 District of Columbia General Obligation General Fund Recovery Bonds, VMIG-1 3,000,000
Series 1991B, Variable Rate Demand Bonds, 3.500%, 6/01/03+
2,000,000 District of Columbia General Obligation Series 1992A-6, Variable Rate VMIG-1 2,000,000
Demand Bonds, 3.550%, 10/01/07+
7,000,000 District of Columbia General Obligation Series 1992A-5, Variable Rate VMIG-1 7,000,000
Demand Bonds, 3.550%, 10/01/07+
3,400,000 District of Columbia General Obligation Series 1992A-2, Variable Rate VMIG-1 3,400,000
Demand Bonds, 3.550%, 10/01/07+
- -----------------------------------------------------------------------------------------------------------------------
Florida -- 5.9%
17,000,000 Florida Housing Finance Agency, Multi-Family 1985 Series D VMIG-1 17,000,000
(Kings Colony), Variable Rate Demand Bonds, 3.350%, 8/01/06+
7,000,000 Gulf Breeze Series 1995 A (Florida Municipal Bond Fund), Variable A-1 7,000,000
Rate Demand Bonds, 3.350%, 3/31/21+
6,200,000 Miami Health Facilities Authority (Miami Jewish Home and Aa-3 6,200,000
Hospital for the Aged, Inc.) Series 1992, Variable Rate Demand
Bonds, 3.350%, 3/01/12+
- -----------------------------------------------------------------------------------------------------------------------
Georgia -- 4.7%
7,215,000 Housing Authority of Clayton County, Tax-Exempt Adjustable Mode Aa-2 7,215,000
Multifamily Housing Revenue Refunding Bonds, Series 1996
(BS Partners LP Project), Variable Rate Demand Bonds,
3.350%, 9/01/26+
3,000,000 Columbia Elderly Authority, Residential Care Facilities Revenue Bonds Aa-3 3,000,000
(Augusta Resource Center on Aging Inc.),
Variable Rate Demand Bonds, 3.350%, 1/01/21+
10,705,000 Housing Authority of the County of DeKalb, Georgia, Multifamily Housing P-1 10,705,000
Revenue Refunding Bonds (Lenox Pointe Project), Series 1996A, Variable
</TABLE> Rate Demand Bonds, 3.350%, 11/01/23+
27
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments -- continued
Tax--Exempt
Principal Amortized
Amount Description Ratings* Costs
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Georgia -- continued
$ 3,200,000 Fulco Hospital Authority (St. Joseph's Hospital of Atlanta) 1989 Revenue VMIG-1 $ 3,200,000
Anticipation Certificates, Commercial Paper, 3.400%, 5/08/97
- -----------------------------------------------------------------------------------------------------------------------
Illinois -- 1.4%
5,000,000 Illinois Development Finance Authority (Jewish Charities) Fiscal 1996- A-1+ 5,000,000
1997B, Variable Rate Demand Notes, 3.350%, 6/30/97
2,000,000 City of Chicago, Chicago-O'Hare International Airport, Special Facility P-1 2,000,000
Revenue Bonds (American Airlines, Inc. Project), Series 1983C, Variable
Rate Demand Bonds, 3.450%, 12/01/17+
- -----------------------------------------------------------------------------------------------------------------------
Kansas -- 1.2%
6,000,000 Manhattan Industrial Development Board (Parker-Hannifin Corporation), Aa-2 6,000,000
Variable Rate Demand Bonds, 3.350%, 9/01/09+
- -----------------------------------------------------------------------------------------------------------------------
Kentucky -- 3.5%
3,000,000 Kentucky Governmental Agencies, 1996 Cash Flow Borrowing Program, N/R 3,001,420
Certificates of Participation, Tax and Revenue Anticipation Notes,
4.300%, 6/30/97
15,000,000 Louisville and Jefferson County Metropolitan Sewer District 1996A, SP-1 15,000,000
Variable Rate Demand Bonds, 3.350%, 3/27/97
- -----------------------------------------------------------------------------------------------------------------------
Louisiana -- 2.1%
7,000,000 Louisiana Public Facilities Authority (Schwegmann Westside Expressway A-2 7,000,000
Project) Industrial Development Revenue, Variable Rate Demand Bonds,
3.550%, 12/01/12+
4,000,000 Hammond Industrial Development Board (Schwegmann Westside A-2 4,000,000
Expressway Project), Variable Rate Demand Bonds, 3.550%, 11/01/14+
- -----------------------------------------------------------------------------------------------------------------------
Maryland -- 4.6%
14,000,000 Maryland Economic Development Corporation, Adjustable Rate Pooled A-1+ 14,000,000
Financing (Maryland Municipal Bond Fund) Series 1995, Variable Rate
Demand Bonds, 3.300%, 6/01/20+
9,940,000 Maryland Industrial Development (Baltimore International Culinary A-1 9,940,000
College), Variable Rate Demand Bonds, 3.550%, 5/01/24+
- -----------------------------------------------------------------------------------------------------------------------
Massachusetts -- 2.4%
12,600,000 The Commonwealth of Massachusetts, Dedicated Income Tax Bonds, VMIG-1 12,600,000
Fiscal Recovery Loan, Act of 1990, Series B, Variable Rate Demand
Bonds, 3.400%, 12/01/97
====
28
</TABLE>
<PAGE>
Nuveen Municipal Money Market Fund
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Amortized
Amount Description Ratings* Cost
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Michigan -- 6.2%
$ 1,200,000 Michigan State Strategic Fund Pollution Control (Consumers Power P-1 $ 1,200,000
Company), Variable Rate Demand Bonds, 3.450%, 4/15/18+
7,000,000 Detroit City School District Wayne County State School Aid Notes SP-1+ 7,006,231
(Limited Tax General Obligation), Series 1996, 4.500%, 5/01/97
11,800,000 Detroit Downtown Development Authority (Millender Center Project), VMIG-1 11,800,000
Variable Rate Demand Bonds, 3.500%, 12/01/10+
12,000,000 Regents of The University of Michigan, Hospital Revenue Bonds, Series VMIG-1 12,000,000
1995A, Adjustable Rate Demand Bonds, 3.500%, 12/01/27+
- -----------------------------------------------------------------------------------------------------------------------
Minnesota -- 2.4%
5,000,000 Bloomington Port Authority, Tax Increment Revenue Refunding Bonds VMIG-1 5,000,000
(Mall of America Project) Series 1995A, Variable Rate Demand
Bonds, 3.350%, 2/01/13+
7,500,000 St. Paul Housing and Redevelopment Authority, Parking Revenue VMIG-1 7,500,000
Bonds, Series 1995B, Variable Rate Demand Bonds, 3.430%, 8/01/17+
- -----------------------------------------------------------------------------------------------------------------------
Missouri -- 6.2%
7,000,000 Health and Educational Facilities Authority of the State of Missouri, A-1+ 7,000,000
Health Facilities Revenue Bonds (St. Francis' Medical Center),
Series 1996A, Variable Rate Demand Bonds, 3.400%, 6/01/26+
1,450,000 Health and Educational Facilities Authority of the State of Missouri, VMIG-1 1,450,000
Educational Facilities Revenue Bonds (Drury College),
Series 1996A, Variable Rate Demand Bonds, 3.450%, 8/15/21+
10,700,000 Missouri Health and Educational Facilities Authority, Health Facilities A-1+ 10,700,000
Revenue Bonds (SSM Health Care Project), Series 1995B, Variable
Rate Demand Obligations, 3.300%, 6/01/22+
3,500,000 Kansas City Industrial Development (Research Health System), Variable VMIG-1 3,500,000
Rate Demand Bonds, 3.500%, 4/15/15+
1,100,000 Kansas City Industrial Development Authority (Research Health System), VMIG-1 1,100,000
Variable Rate Demand Bonds, 3.500%, 10/15/15+
8,300,000 St. Louis Land Clearance Redevelopment Authority, Parking Facility VMIG-1 8,300,000
Revenue Refunding Bonds, Series 1996, Variable Rate Demand Bonds,
3.600%, 9/01/19+
- -----------------------------------------------------------------------------------------------------------------------
Nebraska -- 0.9%
4,430,000 Scotts Bluff County Hospital Authority, Elderly Residential Facility (West A-1 4,430,000
Village), GNMA, Variable Rate Demand Bonds, 3.500%, 12/01/31+
29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments -- continued
Tax--Exempt
Principal Amortized
Amount Description Ratings* Costs
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nevada -- 1.9%
$ 10,000,000 Clark County Airport System, Refunding Revenue Bonds, Series 1993A, VMIG-1 $ 10,000,000
Variable Rate Demand Bonds, 3.250%, 7/01/12+
- -----------------------------------------------------------------------------------------------------------------------
New York -- 1.4%
7,000,000 New York City Commercial Paper, Series J-3, 3.350%, 3/17/97 A-1+ 7,000,000
- -----------------------------------------------------------------------------------------------------------------------
North Carolina -- 1.7%
9,000,000 North Carolina Eastern Municipal Power Agency, Power System A-1+ 9,000,000
Revenue, Series 1988B, Commercial Paper, 3.500%, 4/10/97
- -----------------------------------------------------------------------------------------------------------------------
Ohio -- 3.7%
10,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program, Certificates MIG-1 10,016,875
of Participation, Revenue Anticipation Notes of Certain Ohio School
Districts, Series B, 4.530%, 6/30/97
5,000,000 Dublin City School District, Franklin, Delaware and Union Counties, MIG-1 5,006,798
Ohio, School Building Construction and Improvement Notes, Series
1996 (General Obligation -- Unlimited Tax), 4.000%, 6/10/97
4,000,000 University of Cincinnati General Receipt Bond Anticipation Notes, MIG-1 4,000,906
Series S1, 3.750%, 3/20/97
- -----------------------------------------------------------------------------------------------------------------------
Oregon -- 1.6%
8,000,000 Port of Morrow (Portland G.E. Company Boardman Project), Variable Rate VMIG-1 8,000,000
Demand Bonds, 3.500%, 10/01/13+
- -----------------------------------------------------------------------------------------------------------------------
Pennsylvania -- 3.6%
1,635,000 Allegheny County Hospital Development Authority (Presbyterian- VMIG-1 1,635,000
University Health System), Variable Rate Demand Bonds,
3.350%, 3/01/18+
3,370,000 Montgomery County Higher Education and Health Authority, Series VMIG-1 3,370,000
1995 (Philadelphia Presbytery Homes, Inc.), Variable Rate Demand
Bonds, 3.350%, 7/01/25+
8,000,000 City of Philadelphia, Pennsylvania, General Obligation Bonds, Series VMIG-1 8,000,000
1990, Commercial Paper, 3.500%, 4/07/97
5,345,000 Washington County Authority, Higher Education Pooled Equipment VMIG-1 5,345,000
Lease Revenue Bonds, Series 1985A, Variable Rate Demand Bonds,
3.350%, 11/01/05+
- -----------------------------------------------------------------------------------------------------------------------
South Dakota -- 2.3%
11,935,000 South Dakota Health and Education Facility (McKennan Hospital), Series VMIG-1 11,935,000
1994, Variable Rate Demand Revenue Bonds, 3.350%, 7/01/14+
=====
30
</TABLE>
<PAGE>
Nuveen Municipal Money Market Fund
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Amortized
Amount Description Ratings* Cost
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tennessee -- 5.6%
$16,000,000 The Public Building Authority of the City of Clarksville, Tennessee, A-1+ $16,000,000
Adjustable Rate Pooled Financing Revenue Bonds, Series 1994
(Tennessee Municipal Bond Fund), Variable Rate Demand Bonds,
3.300%, 6/01/24+
4,675,000 Loudon Water and Sewer Revenue Refunding Bonds, Series 1996, Aa-2 4,675,000
Variable Rate Demand Bonds, 3.350%, 9/01/06+
8,000,000 The Public Building Authority of the County of Montgomery, Tennessee, P-1 8,000,000
Adjustable Rate Pooled Financing Revenue Bonds, Series 1996
(Montgomery County Loan), 3.300%, 7/01/19+
- -----------------------------------------------------------------------------------------------------------------------
Texas -- 5.8%
6,000,000 State of Texas Tax and Revenue Anticipation Notes, Series 1996, MIG-1 6,035,810
4.750%, 8/29/97
3,000,000 Texas Health Facilities Development Corporation (North Texas Pooled VMIG-1 3,000,000
Health Program), Variable Rate Demand Bonds, 3.350%, 5/31/25+
1,700,000 Angelina and Neches River Authority, Solid Waste Disposal, Variable P-1 1,700,000
Rate Demand Bonds, 3.450%, 5/01/14+
2,700,000 Guadalupe-Blanco River Authority, Pollution Control Revenue Refunding VMIG-1 2,700,000
Bonds (Central Power and Light Company Project), Series 1995,
Variable Rate Demand Bonds, 3.500%, 11/01/15+
8,400,000 North Central Texas Health Facilities Development Corporation, Hospital A-1 8,400,000
Revenue Bonds, Series 1985-B (Methodist Hospitals of Dallas),
Variable Rate Demand Bonds, 3.450%, 10/01/15+
4,900,000 Plano Health Facilities Development Corporation, Unit Priced Demand VMIG-1 4,900,000
Adjustable Hospital Revenue Bonds (Children's and Presbyterian
Healthcare Center of North Texas Project), Commercial Paper,
3.500%, 5/27/97
3,350,000 Sabine River Authority of Texas, Collateralized Pollution Control Revenue VMIG-1 3,350,000
Refunding Bonds (Texas Utilities Electric Company Project), Series
1996A, Variable Rate Demand Bonds, 3.500%, 3/01/26+
- -----------------------------------------------------------------------------------------------------------------------
Washington -- 5.0%
13,745,000 Washington State Housing Finance Commission, Nonprofit Revenue A-1 13,745,000
Bonds (Emerald Heights Project), Series 1990, Variable Rate Demand
Bonds, 3.450%, 1/01/21+
3,200,000 Spokane County, Washington, Current Expense Fund Tax Anticipation N/R 3,200,000
Notes, Series 1996A, 4.000%, 6/30/97
9,000,000 Washington Student Loan Agency, Series 1984A, Variable Rate Demand VMIG-1 9,000,000
Bonds, 3.550%, 1/01/01+
</TABLE>
=====
31
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments -- continued
Tax--Exempt
Principal Amortized
Amount Description Ratings* Costs
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wisconsin -- 3.7%
$ 1,000,000 Wisconsin Health and Educational Facilities Authority, Series 1996B A-1 $ 1,000,000
(Riverview Hospital Association Wisconsin Rapids), Variable Rate
Demand Bonds, 3.500%, 10/01/26+
4,000,000 Beaver Dam Unified School District Dodge County, Wisconsin, Bond MIG-1 4,004,620
Anticipation Notes, 3.850%, 10/14/97
10,000,000 Milwaukee Short-Term School Order Notes, Series 1996B, Revenue MIG-1 10,033,114
Anticipation Notes, 4.250%, 8/21/97
3,805,000 River Falls Commercial Development Revenue Refunding (Erdeco Aa-2 3,805,000
Partnership Project), Variable Rate Demand Bonds,
3.430%, 11/01/13+
- -----------------------------------------------------------------------------------------------------------------------
$513,415,000 Total Investments -- 99.6% 513,576,834
- -----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 0.4% 1,826,224
-------------------------------------------------------------------------------------------------------
Net Assets -- 100% $515,403,058
=======================================================================================================
. Ratings (not covered by the report of independent public accountants): Using
the higher of Standard & Poor's or Moody's rating.
N/R--Investment is not rated.
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a short-
term security. The rate disclosed is that currently in effect.
This rate changes periodically based on market conditions or a
specified market index.
</TABLE>
32
See accompanying notes to financial statements.
<PAGE>
Statement of Net Assets Nuveen Municipal Money Market Fund
February 28, 1997 February 28, 1997 Annual Report
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in short-term municipal securities, at amortized cost (note 1) $513,576,834
Receivables:
Interest 2,982,175
Investments sold 430,000
Other assets 19,375
- --------------------------------------------------------------------------------------------------------
Total assets 517,008,384
- --------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 175,596
Accrued expenses:
Management fees (note 3) 157,550
Other 96,628
Dividends payable 1,175,552
- --------------------------------------------------------------------------------------------------------
Total liabilities 1,605,326
- --------------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding (note 4) $515,403,058
========================================================================================================
Shares outstanding 515,403,058
========================================================================================================
Net asset value, offering and redemption
price per share (net assets divided by shares outstanding) $ 1.00
========================================================================================================
</TABLE>
=====
33 See accompanying notes to financial statements.
<PAGE>
Statement of Operations
Year ended February 28, 1997
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
Investment Income
Tax-exempt interest income (note 1) $18,993,553
- -------------------------------------------------------------------------------
Expenses
Management fees (note 3) 2,136,925
Shareholders' servicing agent fees and expenses 21,713
Custodian's fees and expenses 110,419
Directors' fees and expenses (note 3) 6,220
Professional fees 24,588
Shareholders' reports -- printing and mailing expenses 47,577
Federal and state registration fees 3,235
Other expenses 18,319
- -------------------------------------------------------------------------------
Total expenses 2,368,996
- -------------------------------------------------------------------------------
Net investment income 16,624,557
Net realized gain from investment transactions (notes 1 and 2) 21,201
- -------------------------------------------------------------------------------
Net increase in net assets from operations $16,645,758
===============================================================================
</TABLE>
=====
34 See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Money Market Fund
February 28, 1997 Annual Report
Statement of Changes in Net Assets
Year ended 2/28/97 Year ended 2/29/96
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 16,624,557 $ 23,052,780
Net realized gain from investment transactions (notes 1 and 2) 21,201 9,200
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 16,645,758 23,061,980
- ---------------------------------------------------------------------------------------------------------
Distributions To Shareholders (Note 1) (16,645,758) (23,061,980)
- ---------------------------------------------------------------------------------------------------------
Share Transactions
(at a constant net asset value of $1 per share) (note 1)
Net proceeds from sale of shares 2,793,785,234 3,673,148,811
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 6,431,423 7,738,987
- ---------------------------------------------------------------------------------------------------------
2,800,216,657 3,680,887,798
- ---------------------------------------------------------------------------------------------------------
Cost of shares redeemed (2,894,867,006) (3,830,078,044)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from share transactions (94,650,349) (149,190,246)
Net assets at the beginning of the year 610,053,407 759,243,653
- ---------------------------------------------------------------------------------------------------------
Net assets at the end of the year $ 515,403,058 $ 610,053,407
=========================================================================================================
======
35 See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Tax-Exempt Money Market Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as an open-end, diversified management
investment company. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements in
accordance with generally accepted accounting principles.
Securities Valuation
The Fund invests in short-term municipal securities maturing within one year
from the date of acquisition. Securities with a maturity of more than one year
in all cases have variable rate and demand features qualifying them as short-
term securities and are traded and valued at amortized cost. On a dollar-
weighted basis, the average maturity of all such securities must be 90 days or
less (at February 28, 1997, the dollar-weighted average life was 30 days).
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. Any securities so
purchased are subject to market fluctuation during this period. The Fund has
instructed the custodian to segregate assets in a separate account with a
current value at least equal to the amount of its purchase commitments. At
February 28, 1997, there were no such purchase commitments.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts.
Dividends and Distributions to Shareholders
Tax-exempt net investment income, adjusted for realized short-term gains and
losses on investment transactions, is declared as a dividend to shareholders of
record as of the close of each business day and payment is made or reinvestment
is credited to shareholder accounts after month-end.
Federal Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute to shareholders
all of its tax-exempt net investment income, including any net realized capital
gains from investment transactions. Therefore, no federal income tax provision
is required. Furthermore, the Fund intends to satisfy conditions which will
enable interest from municipal securities, which is exempt from regular federal
income tax, to retain such tax-exempt status when distributed to shareholders of
the Fund. All income dividends paid during the fiscal year ended February 28,
1997, have been designated Exempt Interest Dividends.
=====
36
<PAGE>
Nuveen Municipal Money Market Fund
February 28, 1997 Annual Report
Insurance Commitments
The Fund has obtained commitments (each a "Commitment") from Municipal Bond
Investors Assurance Corporation ("MBIA") with respect to certain designated
bonds held by the Fund for which credit support is furnished by banks ("Approved
Banks") approved by MBIA under its established credit approval standards. Under
the terms of a Commitment, if the Fund were to determine that certain adverse
circumstances relating to the financial conditions of the Approved Banks had
occurred, the Fund could cause MBIA to issue a "while-in-fund" insurance policy
covering the underlying bonds; after time and subject to further terms and
conditions, the Fund could obtain from MBIA an "insured-to-maturity" insurance
policy as to the covered bonds. Each type of insurance policy would insure
payment of interest on the bonds and payment of principal at maturity. Although
such insurance would not guarantee the market value of the bonds or the value of
the Fund's shares, the Fund believes that its ability to obtain insurance for
such bonds under such adverse circumstances will enable the Fund to hold or
dispose of such bonds at a price at or near their par value.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, and option contracts, and other financial instruments
with similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the fiscal year ended February 28, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
2. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investment securities during the
fiscal year ended February 28, 1997, aggregated $2,137,344,449 and
$2,231,082,075, respectively.
For Federal income tax purposes, the cost of investments owned at February 28,
1997, was the same as the cost for financial reporting purposes.
3. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Fund's investment management agreement with Nuveen Advisory Corp. (the
"Adviser"), a wholly owned subsidiary of The John Nuveen Company, the Fund pays
an annual management fee, payable monthly, as follows:
<TABLE>
<CAPTION>
Average daily net asset value Management fee
- ------------------------------------------------------------------------
<S> <C>
For the first $500 million .400 of 1%
For the next $500 million .375 of 1
For the next $1 billion .350 of 1
For net assets over $2 billion .325 of 1
- ---------------------------------------------------------------------
</TABLE>
=====
37
<PAGE>
Notes to Financial Statements -- continued
The management fee is reduced by, or the Adviser assumes certain Fund expenses
in an amount necessary to prevent the Fund's total expenses (including the
Adviser's fee, but excluding interest, taxes, fees incurred in acquiring and
disposing of portfolio securities and, to the extent permitted, extraordinary
expenses) in any fiscal year from exceeding .45 of 1% of the average daily net
asset value of the Fund.
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Fund pays no
compensation directly to its Directors who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Fund
from the Adviser.
4. COMPOSITION OF NET ASSETS
At February 28, 1997, the Fund had 5 billion shares of $.01 par value stock
authorized. Net assets consisted of $515,403,058 paid-in capital.
5. INVESTMENT COMPOSITION
The Fund invests in municipal securities which include general obligation and
revenue bonds. At February 28, 1997, the revenue sources by municipal purpose,
expressed as a percent of total investments, were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
<S> <C>
Revenue Bonds:
Health Care Facilities 20%
Pollution Control Facilities 19
Housing Facilities 8
Educational Facilities 6
Transportation 5
Water/Sewer Facilities 4
Electrical Utilities 2
Lease Rental Facilities 1
Other 16
General Obligation Bonds 19
- ---------------------------------------------------------------------
100%
=====================================================================
</TABLE>
At February 28, 1997, 86% of the investments owned by the Fund have credit
enhancements (letters of credit, guarantees or insurance) issued by third party
domestic or foreign banks or other institutions (see note 1).
For additional information regarding each investment security, refer to the
Portfolio of Investments.
=====
38
<PAGE>
Financial Highlights
39
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Income from
Investment Operations Less Distributions
--------------------- ------------------
Net
Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
beginning investment from investment from capital end of asset
of period income investments income gains period value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended,
2/28/97 $1.000 $.031 $ -- $(.031) $ -- $1.000 3.11%
2/29/96 1.000 .034 -- (.034) -- 1.000 3.42
2/28/95 1.000 .027 -- (.027) -- 1.000 2.69
2/28/94 1.000 .020 -- (.020) -- 1.000 2.04
2/28/93 1.000 .026 -- (.026) -- 1.000 2.57
10/1/91 to 2/29/92 1.000 .016 -- (.016) -- 1.000 1.56
Year ended,
9/30/91 1.000 .049 -- (.049) -- 1.000 4.85
9/30/90 1.000 .058 -- (.058) -- 1.000 5.75
9/30/89 1.000 .060 -- (.060) -- 1.000 6.00
9/30/88 1.000 .049 -- (.049) -- 1.000 4.89
- -------------------------------------------------------------------------------------------------------------------------
*Annualized.
</TABLE>
40
<PAGE>
Nuveen Municipal Money Market Fund
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- -----------------------------------------------
Ratio
of net
Ratio of investment
Net assets expenses income to
end of period to average average
(in thousands) net assets net assets
- -----------------------------------------------
<S> <C> <C>
$ 515,403 .44% 3.10%
610,053 .44 3.43
759,244 .44 2.65
975,833 .42 2.04
1,597,014 .40 2.58
2,332,021 .39* 3.71*
1,927,583 .38 4.81
1,800,966 .40 5.74
1,756,725 .39 6.02
2,044,479 .39 4.90
- -----------------------------------------------
</TABLE>
41
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Nuveen Tax-Exempt Money Market Fund, Inc.:
We have audited the accompanying statement of net assets of Nuveen Tax-Exempt
Money Market Fund, Inc. (a Maryland corporation), including the portfolio of
investments, as of February 28, 1997, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended and the financial highlights for the periods
indicated thereon. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of the Nuveen
Tax-Exempt Money Market Fund, Inc. as of February 28, 1997, the results of its
operations for the year then ended the changes in its net assets for each of the
two years in the period then ended and the financial highlights for the periods
indicated thereon in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 11, 1997
42
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Margaret K. Rosenheim
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Shareholder Services, Inc.
Nuveen Investor Services
P.O. Box 5330
Denver, CO 80217-5330
(800) 621-7227
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, DC
Public Accountants
Arthur Andersen LLP
Chicago, Illinois
43
<PAGE>
Serving Investors
for Generations
[PHOTO OF Since our founding in 1898, John Nuveen & Co. has been
JOHN NUVEEN, SR. synonymous with investments that withstand the test of time.
APPEARS HERE] Today, we offer a broad range of investments designed for
mature investors whose portfolios are the principal source of
John Nuveen, Sr. their ongoing financial security. More than 1.3 million
investors have entrusted Nuveen to help them maintain the
lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong
companies and communities that represent good long-term
value -- is the cornerstone of Nuveen's investment
philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk.
Successful value investing begins with in-depth research and
a discerning eye for marketplace opportunity. Nuveen's team
of investment professionals is backed by the discipline,
resources and expertise of almost a century of investment
experience, including one of the most recognized research
departments in the industry.
To meet the unique circumstances and financial planning needs
of mature investors, Nuveen offers a wide array of taxable
and tax-free investment products -- including equity and
fixed-income mutual funds, unit trusts, exchange-traded
funds, individual managed account services, and cash
management products.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
<PAGE>
NUVEEN
Money Market Fund Account Application
. This application must be preceded or accompanied by a current fund
prospectus, and may not be used to open Nuveen unit trust reinvestment
accounts. If you wish to open this type of account, please call Nuveen to
request the appropriate application.
. If you need additional copies of this application, or would like assistance
completing it, please call Nuveen at (800) 621-7227.
. Mail this application to:
Nuveen Money Market Funds
P.O. Box 5330
Denver, CO 80217-5330.
1 Account Registration
Please select an account type and complete all applicable information.
Joint registration will be as joint tenants with rights of survivorship unless
you specify tenants in common.
[_] Individual [_] Joint Tenant
First Name, Middle Initial, Last Name
- --------------------------------------------------------------------------------
Taxpayer ID Number
- --------------------------------------------------------------------------------
[_] Uniform Gift/Transfer to Minor
Name of Custodian Minor's State of Residence
- --------------------------------------------------------------------------------
Minor's Name (only one minor may be named) Minor's Taxpayer ID Number
- --------------------------------------------------------------------------------
[_] Corporation or Partnership
Name of Corporation or Partnership Taxpayer ID Number
- --------------------------------------------------------------------------------
[_] Trust
Names of All Trustees
- --------------------------------------------------------------------------------
Trust Name
- --------------------------------------------------------------------------------
Trust Agreement Date (mandatory) Month Day Year Trust Taxpayer ID Number
- --------------------------------------------------------------------------------
2 Mailing Address
Street Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
3 Fund Selection
Please write in the amount(s) you wish to invest.
Enclose a separate check made payable to each fund you are purchasing.
[_] Enclosed is my check in the amount payable to the Fund(s) indicated below.
[_] Funds in the amount listed below were wired to United Missouri Bank of
Kansas City.
Note: Please call Nuveen at (800) 858-4084 to obtain an account number for
wiring funds.
Nuveen Money Market Funds
$________________ Tax-Free Reserves (Minimum initial investment $1,000.)
$________________ California Tax-Free Money Market Fund (Minimum initial
investment $5,000.)
$________________ Massachusetts Tax-Free Money Market Fund (Minimum initial
investment $5,000.)
$________________ New York Tax-Free Money Market Fund (Minimum initial
investment $5,000.)
If you use this application to purchase more than one fund, any optional
features you select, except for the Systematic Investment or Systematic
Withdrawal Plans, will apply to all funds.
State funds may not be registered in all states.
Please complete the next page of this form.
<PAGE>
4 Dividend Options
Please indicate how you would like to receive your dividends.
If no box is checked, dividends will be reinvested into additional shares of the
paying fund.
Some state funds may not be available in all states.
(check one)
[_] Reinvest dividends into additional shares of the paying fund.
[_] Reinvest dividends into an existing, identically registered Nuveen mutual
fund account.
Fund Name
- --------------------------------------------------------------------------------
Account Number (if known)
- ---------------------------------------
[_] Send dividends by check. (Complete Section 5.)
[_] Deposit dividends into my bank account via Fund Direct. (Complete
Section 7.)
5 Check Instructions
Please complete this section only if you requested to receive dividends by
check.
[_] Make checks payable to the registered holder.
[_] Make checks payable to the registered holder at the address listed below.
[_] Make checks payable to the following third party, at the address listed
below.
Third Party Name (if applicable)
- --------------------------------------------------------------------------------
Attention
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code Daytime Telephone Number
- -
- --------------------------------------------------------------------------------
6 Telephone Services
Telephone Exchange and Telephone Redemptions by Check
You and your financial adviser will automatically receive telephone exchange and
redemption privileges, unless you request otherwise below.
[_] I do not wish to have telephone privileges.
Telephone Redemptions via Fund Direct
[_] I would like to be able to redeem shares by phone and have the proceeds
deposited directly into my bank account, and authorize Nuveen to honor
requests for such redemptions. (Complete Section 7.)
Telephone Purchases via Fund Direct
[_] I would like to be able to purchase additional shares of my current fund by
phone using funds from my bank account, and authorize Nuveen to execute
such transactions. (Complete Section 7.)
If the names on your bank account do not exactly match your money market fund
account registration, please have all bank account holders sign below.
Signature of Depositor Month Day Year
- --------------------------------------------------------------------------------
Signature of Joint Depositor Month Day Year
- --------------------------------------------------------------------------------
[_] I wish to have telephone privileges for myself, but not my financial
adviser.
Please complete the next page of this form.
<PAGE>
7 Bank Information
Please complete this section if you wish to transfer funds electronically to or
from your bank account via Fund Direct.
If you do not have a check or a personalized deposit slip, please call Nuveen at
(800) 621-7227.
Bank Name
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code Telephone Number
- --------------------------------------------------------------------------------
Bank Account Number
- --------------------------------------------------------------------------------
Account Type (check one)
[_] Checking account (Please attach a voided check.)
[_] Savings account (Please attach a personalized deposit slip.)
8 Check Redemption Authorization
Read the instructions and explanation carefully before completing this section
and return the completed signature card with this application form.
[_] I authorize Nuveen to honor drafts drawn on the Fund and to redeem a
sufficient number of Fund shares to pay such drafts.
Joint Accounts
You must complete this section to elect this option.
[_] Either owner of the fund(s) may sign redemption checks.
[_] All owners of the fund(s) are required to sign redemption checks.
A. Checks must be on forms provided by the Fund and for a minimum of $500 or
they will not be honored. Checks are authorizations to redeem Fund shares and
are payable through the United Missouri Bank of Kansas City, N.A. (the
"Bank").
B. Check forms will not be issued until a completed signature card is received
by the Fund.
C. Checks requiring redemption of shares held for 15 days or less that were not
purchased by "wire transfer" of federal funds or for which there are
insufficient shares to cover payment will not be honored.
D. Unless one signer is authorized on the account application form and signature
card, each check must be signed by all account owners or it will not be
honored. If SSI receives written notice by either owner of a revocation of
the authorization to sign individually, all account owners will be required
to sign redemption checks. Checks must be signed exactly as registered.
E. The privilege is subject to the Fund's and the Bank's rules and regulations,
and applicable governmental regulations, as amended from time to time.
F. The Fund may refuse to honor checks and may refuse to effect redemptions to
pay checks whenever the right of redemption has been suspended or postponed,
or whenever the account is otherwise impaired.
G. The account owner agrees to examine confirmations and cancelled checks and to
notify SSI of any unauthorized or missing signature or endorsement or
alteration on the check or error on the confirmation within 30 days after
mailing to owner. Failure to do so shall preclude any claim against the Fund,
the Bank, SSI, or their representatives and agents by reason of any
unauthorized or missing signature or endorsement, alteration, error, or
forgery of any kind.
- --------------------------------------------------------------------------------
Checkwriting Signature Card
Please indicate the Nuveen fund(s) to the right for which this signature card
applies.
In order to process this card you must write your account number in the space
provided.
Please print the names of the registered owners or legal representatives and
sign in the space provided at right.
Customer Account Number
- --------------------------------------------------------------------------------
[_] Nuveen Tax-Free Reserves
[_] Nuveen California Tax-Free Money Market Fund
[_] Nuveen Massachusetts Tax-Free Money Market Fund
[_] Nuveen New York Tax-Free Money Market Fund
Joint Accounts
[_] Check here if more than one signature will be required on checks.
Authorized Account Signer
- --------------------------------------------------------------------------------
Authorized Account Signature
- --------------------------------------------------------------------------------
Authorized Account Signer
- --------------------------------------------------------------------------------
Authorized Account Signature
- --------------------------------------------------------------------------------
<PAGE>
9 Financial Adviser Information
Please complete this section so your financial adviser can service your account
and receive copies of your statements.
Financial Adviser's Name Rep. Number
- --------------------------------------------------------------------------------
Firm Name
- --------------------------------------------------------------------------------
Branch Address Branch Number
- --------------------------------------------------------------------------------
City State Zip Code Telephone Number
- --------------------------------------------------------------------------------
10 Certification and Substitute Form W-9
I/we have received and read a copy of the prospectus for the fund(s) I am/we are
purchasing and agree to be bound by its terms, as amended. Under penalty of
perjury, I/we certify that (1) I/we have the power and authority to establish
this account; (2) the information provided on this application is accurate and
complete; and (3) the IRS has not notified me/us that I am/we are subject to
backup withholding. (Line out clause (3) if you are subject to backup
withholding.) I/we release the fund(s), Nuveen, and their agents and
representatives from all liability and agree to indemnify them from any and all
losses, damages or costs for acting in good faith in accordance with
instructions, including telephone instructions, believed to be genuine. I/we
agree to notify Nuveen promptly in writing if any information contained in this
application changes.
Signature Month Day Year Daytime Telephone Number
- --------------------------------------------------------------------------------
Signature of Joint Tenant (if any) Month Day Year Daytime Telephone Number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mail this completed application to:
Nuveen Money Market Funds
P.O. Box 5330
Denver, CO 80217-5330
<PAGE>
[LOGO OF NUVEEN]
Statement of Additional Information
April 29, 1997
Nuveen Tax-Exempt Money Market Fund, Inc.
333 West Wacker Drive
Chicago, Illinois 60606
NUVEEN TAX-EXEMPT MONEY MARKET FUND, INC.
Nuveen Tax-Exempt Money Market Fund, Inc. (the "Fund") is an open-end,
diversified management investment company. This Statement of Additional
Information is not a prospectus. A prospectus may be obtained from the Fund's
distributor, John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago,
Illinois 60606. This Statement of Additional Information relates to, and should
be read in conjunction with, the Prospectus dated April 29, 1997.
<TABLE>
<CAPTION>
Table of Contents Page
- ----------------------------------------------------------------
<S> <C>
Fundamental Policies and Investment Portfolio 2
- ----------------------------------------------------------------
Management 9
- ----------------------------------------------------------------
Investment Adviser and Investment Management Agreement 13
- ----------------------------------------------------------------
Portfolio Transactions 14
- ----------------------------------------------------------------
Net Asset Value 15
- ----------------------------------------------------------------
Amortized Cost Valuation 16
- ----------------------------------------------------------------
Tax Matters 17
- ----------------------------------------------------------------
Principal Underwriter and Distributor 20
- ----------------------------------------------------------------
Yield Information 21
- ----------------------------------------------------------------
Independent Public Accountants and Custodian 22
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Principal Underwriter Investment Adviser Transfer and Shareholder
John Nuveen & Co. Incorporated Nuveen Advisory Corp., Services Agent
Subsidiary of Shareholder Services, Inc.
Chicago: John Nuveen & Co. Incorporated P.O. Box 5330
333 West Wacker Drive 333 West Wacker Drive Denver, Colorado 80217-5330
Chicago, Illinois 60606 Chicago, Illinois 60606
(312) 917-7700 Independent Public Accountants
Custodian for the Fund
New York: The Chase Manhattan Bank Arthur Andersen LLP
10 East 50th Street 4 New York Plaza 33 West Monroe Street
New York, New York 10022 New York, New York 10004 Chicago, Illinois 60603
(212) 207-2000
</TABLE>
<PAGE>
FUNDAMENTAL POLICIES AND INVESTMENT PORTFOLIO
Fundamental Policies
The Fund's investment objective and certain fundamental policies are described
in the Prospectus. The Fund, as a fundamental policy, may not:
(1) Invest in securities other than Municipal Obligations and temporary
investments as those terms are defined in the Prospectus;
(2) Invest more than 5% of its total assets in securities of any one issuer,
excluding the United States government, its agencies and instrumentalities;
(3) Borrow money, except from banks for temporary or emergency purposes and not
for investment purposes and then only in an amount not exceeding (a) 10% of the
value of the Fund's total assets at the time of borrowing or (b) one-third of
the value of the Fund's total assets including the amount borrowed in order to
meet redemption requests which might otherwise require the untimely disposition
of securities. While any such borrowings are outstanding, no net purchases of
investment securities will be made by the Fund. If due to market fluctuations or
other reasons the value of the Fund's assets falls below 300% of its borrowings,
the Fund will reduce its borrowings within 3 business days. To do this, the Fund
may have to sell a portion of its investments at a time when it may be
disadvantageous to do so;
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (3) above, it may pledge securities having
a market value at the time of pledge not exceeding 10% of the value of the
Fund's total assets;
(5) Issue senior securities as defined in the Investment Company Act of 1940
except to the extent such issuance might be involved with respect to borrowings
described under item (3) above;
(6) Underwrite any issue of securities, except to the extent that the purchase
of Municipal Obligations in accordance with the Fund's investment objective,
policies, and limitations, may be deemed to be an underwriting;
(7) Purchase or sell real estate, but this shall not prevent the Fund from
investing in Municipal Obligations secured by real estate or interests therein;
(8) Purchase or sell commodities or commodities contracts or oil, gas or other
mineral exploration or development programs;
(9) Make loans, other than by entering into repurchase agreements and through
the purchase of Municipal Obligations or temporary investments in accordance
with its investment objective, policies and limitations;
(10) Make short sales of securities or purchase any securities on margin, except
for such short term credits as are necessary for the clearance of transactions;
(11) Invest more than 5% of its total assets in securities of unseasoned issuers
which, together with their predecessors, have been in operation for less than
three years;
2
<PAGE>
(12) Invest more than 25% of its assets in the securities of issuers in any
single industry; provided, however, that such limitations shall not be
applicable to the purchase of Municipal Obligations and obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
(13) Purchase or retain the securities of any issuer other than the securities
of the Fund if, to the Fund's knowledge, those directors of the Fund, or those
officers and directors of Nuveen Advisory Corp. ("Nuveen Advisory"), who
individually own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
outstanding securities.
For the purpose of applying the limitations set forth in paragraphs (2) and (11)
above, an issuer shall be deemed a separate issuer when its assets and revenues
are separate from other governmental entities and its securities are backed only
by its assets and revenues. Similarly, in the case of a non-governmental user,
such as an industrial corporation or a privately owned or operated hospital, if
the security is backed only by the assets and revenues of the non-governmental
user then such non-governmental user would be deemed to be the sole issuer.
Where a security is also backed by the enforceable obligations of a superior or
unrelated governmental entity or other entity it shall be included in the
computation of securities owned that are issued by such governmental entity or
other entity.
If, however, a security is guaranteed by a governmental entity or some other
entity (other than a bond insurer), such as a bank guarantee or letter of
credit, such a guarantee or letter of credit would be considered a separate
security and would be treated as an issue of such government, other entity or
bank. The Fund's present policy, which is not a fundamental policy, is that it
will not hold securities of a single bank, including securities backed by a
letter of credit of such bank, if such holdings would exceed 10% of the total
assets of the Fund.
The foregoing fundamental investment policies, together with the Fund's
investment objective, and other fundamental policies, cannot be changed without
approval by holders of a "majority of the Fund's outstanding voting shares." As
defined in the Investment Company Act of 1940, this means the vote of (i) 67% or
more of the shares present at a meeting, if the holders of more than 50% of the
shares are present or represented by proxy, or (ii) more than 50% of the shares,
whichever is less. The foregoing restrictions and limitations will apply only at
the time of purchase of securities and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities, unless otherwise indicated.
Portfolio Securities
As described in the Prospectus, the Fund invests primarily in a diversified
portfolio of Municipal Obligations consisting of money market instruments issued
by governmental authorities. In general, Municipal Obligations include debt
obligations issued to obtain funds for various public purposes, including
construction of a wide range of public facilities. Industrial development bonds
and pollution control bonds that are issued by or on behalf of public
authorities to finance various privately-operated facilities are included within
the term Municipal Obligations if the interest paid thereon is exempt from
federal income tax.
3
<PAGE>
The following is a more complete description of certain short-term Municipal
Obligations in which the Fund may invest:
Bond Anticipation Notes (BANs) are usually general obligations of state and
local governmental issuers which are sold to obtain interim financing for
projects that will eventually be funded through the sale of long-term debt
obligations or bonds. The ability of an issuer to meet its obligations on its
BANs is primarily dependent on the issuer's access to the long-term municipal
bond market and the likelihood that the proceeds of such bond sales will be used
to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments to
finance the current operations of such governments. Repayment is generally to be
derived from specific future tax revenues. TANs are usually general obligations
of the issuer. A weakness in an issuer's capacity to raise taxes due to, among
other things, a decline in its tax base or a rise in delinquencies, could
adversely affect the issuer's ability to meet its obligations on outstanding
TANs.
Revenue Anticipation Notes (RANs) are issued by governments or governmental
bodies with the expectation that future revenues from a designated source will
be used to repay the notes. In general they also constitute general obligations
of the issuer. A decline in the receipt of projected revenues, such as
anticipated revenues from another level of government, could adversely affect an
issuer's ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained from
the Federal Housing Administration.
Bank Notes are notes issued by local governmental bodies and agencies as those
described above to commercial banks as evidence of borrowings. The purposes for
which the notes are issued are varied but they are frequently issued to meet
short-term working capital or capital-project needs. These notes may have risks
similar to the risks associated with TANs and RANs.
Variable and Floating Rate Instruments--Certain Municipal Obligations, certain
instruments issued, guaranteed or sponsored by the U.S. government or its
agencies, and certain debt instruments issued by domestic banks or corporations,
may carry variable or floating rates of interest. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a bank prime rate or tax-exempt money market index.
Variable rate notes are adjusted to current interest rate levels at certain
specified times, such as every 30 days, as set forth in the instrument. A
floating rate note adjusts automatically whenever there is a change in its base
interest rate adjustor, e.g., a change in the prime lending rate or specified
interest rate indices. Typically such instruments carry demand features
permitting the Fund to recover the full principal amount thereof upon specified
notice.
One form of variable or floating rate instrument consists of an underlying fixed
rate municipal bond that is subject to a third party demand feature or "tender
option." The holder of the bond would pay a
4
<PAGE>
"tender fee" to the third party tender option provider, the amount of which
would be periodically adjusted so that the bond/tender option combination would
reasonably be expected to have a market value that approximates the par value of
the bond. The bond/tender option combination would therefore be functionally
equivalent to ordinary variable or floating rate obligations as described above,
and the Fund may purchase such obligation subject to certain conditions
specified by the Securities and Exchange Commission.
The Fund's right to obtain payment at par on a demand instrument upon demand
could be adversely affected by events occurring between the date the Fund elects
to tender the instrument and the date proceeds are due. Nuveen Advisory will
monitor on an ongoing basis the pricing, quality and liquidity of such
instruments and will similarly monitor the ability of an obligor under the
demand arrangement, including demand obligors as to instruments supported by
bank letters of credit or guarantees, to pay principal and interest on demand.
Although the ultimate maturity of such variable rate obligations may exceed one
year, the Fund will treat the maturity of each variable rate demand obligation,
for purposes of computing its dollar-weighted average portfolio maturity, as the
longer of (i) the notice period required before the Fund is entitled to payment
of the principal amount through demand, or (ii) the period remaining until the
next interest rate adjustment.
The Fund may also obtain standby commitments with respect to Municipal
Obligations. Under a standby commitment (often referred to as a put), the party
issuing the commitment agrees to purchase at the Fund's option the Municipal
Obligation at an agreed-upon price on certain dates or within a specific period.
Since the value of a standby commitment depends in part upon the ability of the
issuing party to meet its purchase obligations thereunder, the Fund will enter
into standby commitments only with parties which have been evaluated by Nuveen
Advisory and, in the opinion of Nuveen Advisory, present minimal credit risks.
The amount payable to the Fund upon its exercise of a standby commitment would
be (1) the acquisition cost of the Municipal Obligations (excluding any accrued
interest that the Fund paid on acquisition), less any amortized market premium
or plus any amortized market or original issue discount during the period the
Fund owned the security, plus (2) all interest accrued on the security since the
last interest payment date during the period the security was owned by the Fund.
The Fund's right to exercise standby commitments held by it will be
unconditional and unqualified. The acquisition of a standby commitment will not
affect the valuation of the underlying security, which will continue to be
valued in accordance with the amortized cost method. The standby commitment
itself will be valued at zero in determining net asset value. The Fund may
purchase standby commitments for cash or pay a higher price for portfolio
securities which are acquired subject to such a commitment (thus reducing the
yield to maturity otherwise available for the same securities). The maturity of
a Municipal Obligation purchased by the Fund will not be considered shortened by
any standby commitment to which such security is subject. Although the Fund's
rights under a standby commitment would not be transferable, the Fund could sell
Municipal Obligations which were subject to a standby commitment to a third
party at any time.
5
<PAGE>
When-issued Securities
As described under "Investment Policies of the Portfolio--Municipal Obligations"
in the Prospectus, the Fund may purchase and sell Municipal Obligations on a
when-issued or delayed delivery basis. When-issued and delayed delivery
transactions arise when securities are purchased or sold with payment and
delivery beyond the regular settlement date. (When-issued transactions normally
settle within 30-45 days.) On such transactions the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment. The
commitment to purchase securities on a when-issued or delayed delivery basis may
involve an element of risk because the value of the securities is subject to
market fluctuation, no interest accrues to the purchaser prior to settlement of
the transaction, and at the time of delivery the market value may be less than
cost. At the time the Fund makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed delivery basis, it will record the
transaction and reflect the amount due and the value of the security in
determining its net asset value. Likewise, at the time the Fund makes the
commitment to sell a Municipal Obligation on a delayed delivery basis, it will
record the transaction and include the proceeds to be received in determining
its net asset value; accordingly, any fluctuations in the value of the Municipal
Obligation sold pursuant to a delayed delivery commitment are ignored in
calculating net asset value so long as the commitment remains in effect. The
Fund will maintain designated readily marketable assets at least equal in value
to commitments to purchase when-issued or delayed delivery securities, such
assets to be segregated by the Custodian specifically for the settlement of such
commitments. The Fund will only make commitments to purchase Municipal
Obligations on a when-issued or delayed delivery basis with the intention of
actually acquiring the securities, but the Fund reserves the right to sell these
securities before the settlement date if it is deemed advisable. If a when-
issued security is sold before delivery any gain or loss would not be tax-
exempt.
Temporary Investments
The Prospectus discusses briefly the Fund's ability to invest a portion of its
assets on a temporary basis or for defensive purposes in taxable "temporary
investments." As stated in the Prospectus, the Fund has not invested in and has
no present intention to invest in such temporary investments. In any event,
temporary investments will not exceed 20% of the Fund's assets except when made
for defensive purposes. The Fund will invest only in temporary investments
which, in the opinion of Nuveen Advisory, are of "high grade" quality and have
remaining maturities of one year or less. Temporary investments include
obligations of the United States government, its agencies or instrumentalities;
debt securities of issuers having, at the time of purchase, a quality rating
within the two highest grades by either Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") (Aaa or Aa, or AAA or AA,
respectively); commercial paper rated in the highest grade by either of such
rating services (Prime-1 or A-1, respectively); certificates of deposit of
domestic banks with assets of $1 billion or more; and Municipal Obligations and
U.S. government obligations subject to short-term repurchase agreements.
Subject to the foregoing limitations, the Fund may invest in the following
temporary investments:
U.S. Government Direct Obligations are issued by the United States Treasury and
include bills, notes, and bonds.
6
<PAGE>
- --Treasury bills are issued with maturities of up to one year. They are issued
in bearer form, are sold on a discount basis and are payable at par value at
maturity.
- --Treasury notes are longer-term interest-bearing obligations with original
maturities of one to seven years.
- --Treasury bonds are longer-term interest-bearing obligations with original
maturities of five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agenciesO right to borrow from the Treasury. There can
be no assurance that the United States government itself will pay interest and
principal on securities as to which it is not so legally obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest-bearing instrument with a specific maturity. CDs are issued by banks in
exchange for the deposit of funds and normally can be traded in the secondary
market, prior to maturity. The Fund will only invest in U.S. dollar denominated
CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from U.S.
corporations.
Other Corporate Obligations--The Fund may purchase notes, bonds and debentures
issued by corporations if at the time of purchase there is less than 397 days
remaining until maturity or if they carry a variable or floating rate of
interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement whereby
the seller of securities (U.S. government or Municipal Obligations) agrees to
repurchase the same security at a specified price on a future date agreed upon
by the parties. The agreed upon repurchase price determines the yield during the
Fund's holding period. Repurchase agreements are considered to be loans
collateralized by the underlying security that is the subject of the repurchase
contract. The Fund will only enter into repurchase agreements with dealers,
domestic banks or recognized financial institutions that in the opinion of
Nuveen Advisory represent minimal credit risk. The risk to the Fund is limited
to the ability of the issuer to pay the agreed upon repurchase price on the
delivery date; however, although the value of the underlying collateral at the
time the transaction is entered into always equals or exceeds the agreed upon
repurchase price, if the value of the collateral declines, there is a risk of
loss of both principal and interest. In the event of default, the collateral may
be sold but the Fund might incur a loss if the value of the collateral declines,
and might incur disposition costs or experience delays in connection with liq-
7
<PAGE>
uidating the collateral. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, realization upon the collateral by
the Fund may be delayed or limited. Nuveen Advisory will monitor the value of
the collateral at the time the transaction is entered into and at all times
subsequent during the term of the repurchase agreement in an effort to determine
that the value always equals or exceeds the agreed upon repurchase price. In the
event the value of the collateral declines below the repurchase price, Nuveen
Advisory will demand additional collateral from the issuer to increase the value
of the collateral to at least that of the repurchase price.
Variable and Floating Rate Instruments--See description on page 4.
Ratings of Investments
The two highest ratings of Moody's for Municipal Obligations are Aaa and Aa.
Municipal Obligations rated Aaa are judged to be of the "best quality." The
rating of Aa is assigned to Municipal Obligations 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 in Aaa rated Municipal Obligations.
The Aaa and Aa rated Municipal Obligations comprise what are generally known as
"high grade bonds." Moody's bond rating symbols may contain numerical modifiers
of a generic rating classification. The modifier 1 indicates that the bond ranks
at the high end of its 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 two highest ratings of S&P for Municipal Obligations are AAA and AA.
Municipal Obligations rated AAA have an extremely strong capacity to pay
principal and interest. The rating of AA indicates that capacity to pay
principal and interest is very strong and such bonds differ from AAA issues only
in small degree.
The highest rating of Moody's and S&P for federally tax-exempt short-term loans
and notes is VMIG-1 or MIG-1 and SP-1, respectively. Obligations designated
VMIG-1 and MIG-1 are the best quality, enjoying strong protection from
established cash flows for their servicing or from established and broad-based
access to the market for refinancing, or both. The designation SP-1 indicates a
very strong or strong capacity to pay principal and interest.
The Fund's ability to purchase commercial paper of tax-exempt and corporate
issuers is limited to commercial paper rated Prime-1 by Moody's or A-1 by S&P.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers rated P-1 have a superior capacity for repayment of short-term
obligations normally evidenced by the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternative liquidity. The
designation A-1 indicates that the degree of safety regarding timely payment is
very strong.
8
<PAGE>
MANAGEMENT
The management of the Fund, including general supervision of the duties
performed by Nuveen Advisory under the Investment Management Agreement, is the
responsibility of its Board of Directors. There are eight directors of the Fund,
two of whom are "interested persons" (as the term "interested persons" is
defined in the Investment Company Act of 1940) and six of whom are
"disinterested persons." The names and business addresses of the directors and
officers of the Fund and their principal occupations and other affiliations
during the past five years are set forth below, with those directors who are
"interested persons" of the Fund indicated by an asterisk.
<TABLE>
<CAPTION>
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Positions and Principal Occupations
Name and Address Age Offices with Fund During Past Five Years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Timothy R. Schwertfeger 48 Chairman of the Board Chairman since July 1, 1996 of The John Nuveen Company,
333 West Wacker Drive and Director John Nuveen & Co. Incorporated, Nuveen Advisory Corp.
Chicago, IL 60606 and Nuveen Instututional Advisory Corp., prior thereto
Executive Vice President and Director of The John Nuveen
Company (since March 1992) and John Nuveen & Co.
Incorporated; Director of Nuveen Advisory Corp. (since
1992) and Nuveen Institutional Advisory Corp. (since
October 1992).
- ----------------------------------------------------------------------------------------------------------------------
Anthony T. Dean 52 President and President since July 1, 1996 of The John Nuveen Company,
333 West Wacker Drive Director John Nuveen & Co. Incorporated, Nuveen Advisory Corp.
Chicago, IL 60606 and Nuveen Institutional Advisory Corp.; prior thereto,
Executive Vice President and Director of The John Nuveen
Company (since March 1992), John Nuveen & Co.
Incorporated, Nuveen Advisory Corp. (since October 1992)
and Nuveen Institutional Advisory Corp. (since October
1992).
- ----------------------------------------------------------------------------------------------------------------------
Robert P. Bremner 56 Director Private Investor and Management Consultant.
3725 Huntington Street, N.W.
Washington, D.C. 20015
- ----------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown 62 Director Retired (August 1989) as Senior Vice President of
201 Michigan Avenue The Northern Trust Company
Highwood, IL 60040
- ----------------------------------------------------------------------------------------------------------------------
Anne E. Impellizerri 64 Director President and Chief Executive Officer of Blanton-Peale,
3 West 29th Street Institutes of Religion and Health (since December 1990).
New York, NY 10001
- ----------------------------------------------------------------------------------------------------------------------
Margaret K. Rosenheim 70 Director Helen Ross Professor of Social Welfare Policy, School of
969 East 60th Street Social Service Administration, University of Chicago.
Chicago, IL 60637
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
<S> <C> <C> <C>
Positions and Principal Occupations
Name and Address Age Offices with Fund During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
Peter R. Sawers 64 Director Adjunct Professor of Business and
22 The Landmark Economics, University of
Northfield, IL 60093 Dubuque, Iowa (since January 1991);
Adjunct Professor,
Lake Forest Graduate School of
Management, Lake Forest, Illinois
(since January 1992); prior
thereto, Executive Director, Towers
Perrin Australia (management
consultant); Chartered Financial
Analyst; Certified Management
Consultant.
- ------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider 52 Director Senior Partner, Miller-Valentine
4000 Miller-Valentine Ct. Partners, Vice President,
P.O. Box 744 Miller-Valentine Realty, Inc.
Dayton, OH 45401
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce P. Bedford 57 Executive Vice Executive Vice President of John
333 West Wacker Drive President Nuveen & Co. Incorporated,
Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen
Institutional Advisory
Corp. (since January 1997); prior
thereto, Chairman and CEO of
Flagship Resources Inc. and
Flagship Financial Inc. and the
Flagship funds (since January 1985).
- ------------------------------------------------------------------------------------------------------------------------------------
Michael S. Davern 39 Vice President Vice President of Nuveen Advisory
One South Main Street Corp. (since January 1997); prior
Dayton, OH 45402 thereto, Vice President and
Portfolio Manager (since September
1991) of Flagship Financial.
- ------------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald 33 Vice President Vice President of Nuveen Advisory
333 West Wacker Drive Corp. (since December 1995);
Chicago, IL 60606 Assistant Vice President of
Nuveen Advisory Corp.
(from September 1992 to December
1995), prior thereto Assistant
Portfolio Manager of Nuveen
Advisory Corp. (from June 1988 to
September 1992).
- ------------------------------------------------------------------------------------------------------------------------------------
Kathleen M. Flanagan 49 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Futrell 41 Vice President Vice President of Nuveen Advisory
333 West Wacker Drive Corp.
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
Richard A. Huber 34 Vice President Vice President of Nuveen Advisory
One South Main Street Corp. (since January 1997); prior
Dayton, OH 45402 thereto, Vice President and
Portfolio Manager since August 1985)
of Flagship Financial.
- ------------------------------------------------------------------------------------------------------------------------------------
Steven J. Krupa 39 Vice President Vice President of Nuveen Advisory
333 West Wacker Drive Corp.
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Positions and Principal Occupations
Name and Address Age Offices with Fund During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Anna R. Kucinskis 51 Vice President Vice President of John Nuveen & Co. Incorporated.
333 West Wacker Drive
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin 45 Vice President and Vice President (since September 1992), Assistant Secretary
333 West Wacker Drive Assistant Secretary and Assistant General Counsel of John Nuveen & Co. Incor-
Incor-Chicago, IL 60606 porated; Vice President (since May 1993) and Assistant Secretary
of Nuveen Advisory Corp.; Vice President (since May 1993) and
Assistant Secretary (since January 1992) of Nuveen
Institutional Advisory Corp.; Assistant Secretary of The John
Nuveen Company (since February 1993).
- ------------------------------------------------------------------------------------------------------------------------------------
Edward F. Neild, IV 31 Vice President Vice President (since September 1996), previously Assistant
One South Main Street Vice President (since December 1993) of Nuveen Advisory
Dayton, OH 45402 Corp., Portfolio Manager prior thereto (since January 1992);
Vice President (since September 1996), previously Assistant Vice
President (since May 1995) of Nuveen Institutional Advisory
Corp., Portfolio Manager prior thereto (since January 1992).
- ------------------------------------------------------------------------------------------------------------------------------------
Walter K. Parker 48 Vice President Vice President of Nuveen Advisory Corp. (since January
One South Main Street 1997); prior thereto, Vice President and Portfolio Manager
Dayton, OH 45402 (since July 1994) of Flagship Financial; Portfolio Manager
and CIO Trust Investor (since 1983) for PNC Bank.
- ------------------------------------------------------------------------------------------------------------------------------------
O. Walter Renfftlen 57 Vice President and Vice President and Controller of The John Nuveen Com-
333 West Wacker Drive Controller pany (since March 1992), John Nuveen & Co. Incorporated,
Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas C. Spalding, Jr. 45 Vice President Vice President of Nuveen Advisory Corp. and Nuveen Insti-
333 West Wacker Drive tutional Advisory Corp.; Chartered Financial Analyst.
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
H. William Stabenow 62 Vice President and Vice President and Treasurer of The John Nuveen Company
333 West Wacker Drive Treasurer (since March 1992), John Nuveen & Co. Incorporated,
Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.
(since January 1992).
- ------------------------------------------------------------------------------------------------------------------------------------
Jan E. Terbruegen 41 Vice President Vice President Nuveen Advisory Corp. (since January 1997);
One South Main Street prior thereto, Vice President and Portfolio Manager (since
Dayton, OH 45402 January 1992) of Flagship Financial.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gifford R. Zimmerman 40 Vice President and Vice President (since September 1992), Assistant Secretary
333 West Wacker Drive Assistant Secretary and Assistant General Counsel of John Nuveen & Co. Incor-
Chicago, IL 60606 porated; Vice President (since May 1993) and Assistant Sec-
retary of Nuveen Advisory Corp.; Vice President (since May 1993)
and Assistant Secretary (since January 1992) of
Nuveen Institutional Advisory Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Anthony T. Dean, Timothy R. Schwertfeger and Margaret K. Rosenheim serve as
members of the Executive Committee of the Board of Directors. The Executive
Committee, which meets between regular meetings of the Board of Directors, is
authorized to exercise all of the powers of the Board of Directors.
The directors of the Fund are directors, or trustees, as the case may be, of 42
Nuveen open-end portfolios and Directors Dean, Schwertfeger, Brown,
Impellizzeri, Rosenheim and Sawers are also directors, or trustees, of 52 Nuveen
closed-end funds.
The following table sets forth compensation paid by the Nuveen Tax-Exempt Money
Market Fund, Inc. during the fiscal year ended February 28, 1997 to each of the
directors. The Nuveen Tax-Exempt Money Market Fund, Inc. has no retirement or
pension plans. The officers and directors affiliated with Nuveen serve without
any compensation from the Nuveen Tax-Exempt Money Market Fund, Inc.
<TABLE>
<CAPTION>
Total Compensation
Aggregate From the Fund
Compensation and Fund Complex
Name of Director from the Fund Paid to Directors
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Anthony T. Dean........................ $ 0 $ 0
Richard J. Franke*..................... 0 0
Timothy R. Schwertfeger................ 0 0
Robert P. Bremner...................... 0 0/(3)/
Lawrence H. Brown...................... 1,108 59,000
Anne E. Impellizzeri................... 1,108 59,000
Margaret K. Rosenheim.................. 1,514/(1)/ 66,815/(2)/
Peter R. Sawers........................ 1,108 59,000
William J. Schneider................... 0 0/(3)/
</TABLE>
* Mr. Franke retired as of June 30, 1996.
(1) Includes $168 in interest earned on deferred compensation from prior years.
(2) Includes $1,565 in interest earned on deferred compensation from prior
years.
(3) First payment was in April, 1997.
Directors who are not affiliated with Nuveen or Nuveen Advisory will receive a
$27,500 annual retainer for serving as a director of all open-end funds for
which Nuveen Advisory serves as investment adviser and a $1,000 fee per day plus
expenses for attendance at all meetings held on a day on which a regularly
scheduled Board meeting is held, a $1,000 fee per day plus expenses for
attendance in person or a $500 fee per day plus expenses for attendance by
telephone at a meeting held on a day on which no regular board meeting is held
and a $250 fee per day plus expenses for attendance in person or by telephone at
a meeting of the Executive Committee. The annual retainer, fees and expenses
will be allocated among the open-end funds on the basis of relative net assets.
The Fund requires no employees other than its officers, all of whom are
compensated by Nuveen.
12
<PAGE>
On April 7, 1997, the officers and directors of the Fund as a group owned less
than 1% of the outstanding shares of the Fund.
The following table sets forth the percentage of ownership of each person who as
of April 7, 1997 owns of record or is known by the Registrant to own of record
5% or more of the Fund. The Fund believes that none of these shares are owned
beneficially, but are held as agent for various accounts which are the
beneficial owners.
<TABLE>
<CAPTION>
Name of Fund Name and Address of Owner Percentage of Ownership
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Nuveen Tax-Exempt Money Market Fund The Chase Manhattan Bank, NA 24.43
2 Chase Plaza
Security Controlling Dept.
4th Floor
New York, NY 10081
BOB & Co. 6.50
Bank of Boston
Attn: Roberta Duhanel 45-02-08
150 Royall St.
Canton, MA 02021-10310
First Hawaiian Bank 5.66
FIDAC
Attn: Trust Investments
P.O. Box 3200
Honolulu, HI 96847-0001
JC Bradford & Co. 5.02
Money Funds Operations
Attn: Deborah Hornbuckle
330 Commerce St.
Nashville, TN 37201-1805
</TABLE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory acts as investment adviser for the Fund and in such capacity
manages the investment and reinvestment of the assets of the Fund. Nuveen
Advisory also administers the Fund's business affairs, provides office
facilities and equipment and certain clerical, bookkeeping and administrative
services, and permits any of its officers or employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
See "Management of the Fund" in the Prospectus.
Nuveen Advisory is paid an annual management fee in an amount equal to .4 of 1%
of the first $500 million of average daily net assets, .375 of 1% of the next
$500 million, .35 of 1% of the next $1 billion, and .325 of 1% of average daily
net assets over $2 billion. The management fee will be reduced or Nuveen
Advisory will assume certain Fund expenses in an amount necessary to prevent the
Fund's total expenses in any fiscal year from exceeding .45 of 1% of the average
daily net asset value of the Fund. The management fee for fiscal years ended
February 28, 1997, February 29, 1996 and February 28, 1995 amounted to
$2,136,925, $2,645,505 and $3,225,810, respectively. As discussed
13
<PAGE>
in the Prospectus, subject to the expense limitations of the Investment
Management Agreement, the Fund is responsible for payment of certain of the
costs and expenses of its operations.
Nuveen Advisory is a wholly-owned subsidiary of John Nuveen & Co. Incorporated
("Nuveen"), the Fund's principal underwriter. In 1961, Nuveen began sponsoring
the Nuveen Tax-Exempt Unit Trust and since that time has issued more than $36
billion in tax-exempt unit trusts, including over $12 billion in tax-exempt
insured unit trusts. In addition, the Nuveen open-end and closed-end funds held
approximately $36 billion in securities under management as of the date of this
Statement. Over 1,000,000 individuals have invested to date in Nuveen's funds
and trusts. Founded in1898, Nuveen is a subsidiary of The John Nuveen Company
which, in turn, is approximately 78% owned by The St. Paul Companies, Inc. ("St.
Paul"). St. Paul is located in St. Paul, Minnesota, and is principally engaged
in providing property-liability insurance through subsidiaries.
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's
Research Department. The Nuveen Research Department reviews more than $100
billion in municipal bonds every year.
The Fund, the other Nuveen funds, Nuveen Advisory, and other related entities
have adopted a code of ethics which essentially prohibits all Nuveen fund
management personnel, including Nuveen fund portfolio managers, from engaging in
personal investments which compete or interfere with, or attempt to take
advantage of, a Fund's anticipated or actual portfolio transactions, and is
designed to assure that the interest of Fund shareholders is placed before the
interest of Nuveen personnel in connection with personal investment
transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of the Fund, will place orders in such manner as, in the opinion of
management, will offer the best price and market for the execution of each
transaction. Portfolio securities will normally be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in such
securities, unless it appears that a better price or execution may be obtained
elsewhere. Portfolio securities will not be purchased from Nuveen or its
affiliates except in compliance with the Investment Company Act of 1940.
The Fund since its inception has effected all portfolio transactions on a
principal (as opposed to an agency) basis and, accordingly, has not paid any
brokerage commissions. Purchases from underwriters include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
include the spread between the bid and asked price. Given the best price and
execution obtainable, it is the practice of the Fund to select dealers which, in
addition, furnish research information (primarily credit analyses of issuers)
and statistical and other services to Nuveen Advisory. It is not possible to
place a dollar value on information and statistical and other services received
from dealers. Since it is only supplementary to Nuveen Advisory's own research
efforts, the receipt of research information is not
14
<PAGE>
expected to reduce significantly Nuveen Advisory's expenses. Any research
benefits obtained are available to all Nuveen Advisory's other clients. While
Nuveen Advisory will be primarily responsible for the placement of the Fund's
business, the policies and practices of Nuveen Advisory in this regard must be
consistent with the foregoing and will, at all times, be subject to review by
the Board of Directors of the Fund.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients which may have investment
objectives similar to the Fund. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Fund and the portfolios of its other clients purchasing securities whenever
decisions are made to purchase or sell securities by the Fund and one or more of
such other clients simultaneously. In making such allocations the main factors
to be considered will be the respective investment objectives of the Fund and
such other clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment by the Fund and
such other clients, the size of investment commitments generally held by the
Fund and such other clients and opinions of the persons responsible for
recommending investments to the Fund and such other clients.
While this procedure could have a detrimental effect on the price or amount of
the securities available to the Fund from time to time, it is the opinion of the
Fund's Board of Directors that the benefits available from Nuveen Advisory's
organization will outweigh any disadvantage that may arise from exposure to
simultaneous transactions.
Under the Investment Company Act of 1940, the Fund may not purchase portfolio
securities from any underwriting syndicate of which Nuveen is a member except
under certain limited conditions set forth in Rule 10f-3. The Rule sets forth
requirements relating to, among other things, the terms of an issue of Municipal
Obligations purchased by the Fund, the amount of Municipal Obligations which may
be purchased in any one issue and the assets of the Fund which may be invested
in a particular issue. In addition, purchases of securities made pursuant to the
terms of the Rule must be approved at least quarterly by the Board of Directors
of the Fund, including a majority of the members thereof who are not interested
persons of the Fund.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Fund will
be determined by The Chase Manhattan Bank, the Fund's custodian, as of 12:00
noon, Eastern Time, (1) on each day on which the Federal Reserve Bank of Boston
is normally open and (2) on any day during which there is sufficient degree of
trading in the Fund's portfolio securities that the current net asset value of
the Fund shares might be materially affected by such changes in the value of the
portfolio securities. The Federal Reserve Bank of Boston is not open and the
Fund will similarly not be open on New Year's Day, Martin Luther King's
Birthday, Washington's Birthday, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. It
is possible that changing circumstances during the year will result in addition
or deletions to the above lists. The net asset value per share will be computed
by dividing the value of the portfolio securities held by the Fund, plus cash or
other assets, less liabilities, by the total number of shares outstanding at
such time.
15
<PAGE>
AMORTIZED COST VALUATION
As stated in the Prospectus, the Fund will seek to maintain a net asset value of
$1.00 per share. In this connection, the Fund values its portfolio securities at
their amortized cost, as permitted by the Securities and Exchange Commission
(the "Commission") under Rule 2a-7 under the Investment Company Act of 1940.
This method does not take into account unrealized securities gains or losses. It
involves valuing an instrument at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of any discount or
premium. While this method provides certainty in valuation, it may result in
periods during which the value of an investment, as determined by amortized
cost, is higher or lower than the price the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on
shares of the Fund may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based upon market
prices and estimates of market prices for all of its portfolio instruments.
Thus, if the use of the amortized cost method by the Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Fund would be able to obtain a somewhat higher yield than would result from an
investment in a fund utilizing solely market values, and existing investors in
the Fund would receive less investment income. The converse would apply in a
period of rising interest rates.
The Fund, as a condition to the use of amortized cost and the maintenance of its
per share net asset value of $1.00, must maintain a dollar-weighted average
portfolio maturity of 90 days or less, only purchase instruments having
remaining maturities of 397 days or less, and invest only in securities
determined to be of high quality with minimal credit risks. The Fund may invest
in variable and floating rate instruments even if they carry stated maturities
in excess of 397 days, upon certain conditions contained in rules and
regulations issued by the Securities and Exchange Commission under the
Investment Company Act of 1940, but will do so only if there is a secondary
market for such instruments or if they carry demand features, permissible under
rules of the Commission for money market funds, to recover the full principal
amount thereof upon specified notice at par, or both.
The Board of Directors, pursuant to Rule 2a-7, 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 the Fund's portfolio holdings by the Board of
Directors, at such intervals as it may deem appropriate, to determine whether
the net asset value calculated by using available market quotations or market
equivalents deviates from $1.00 per share based on amortized cost. Market
quotations and market equivalents used in such review may be obtained from a
pricing agent approved by the Board of Directors. The Board has selected Nuveen
Advisory to act as pricing agent, but in the future may select an independent
pricing service to perform this function. In serving as pricing agent, Nuveen
Advisory will follow guidelines adopted by the Board, and the Board will monitor
Nuveen Advisory to see that the guidelines are followed. The pricing agent will
value the Fund's investment based on methods which include consideration of:
yield or prices of municipal obligations of comparable quality, coupon,
maturity, and type; indications as to values from dealers; and general market
conditions. The pricing agent may employ electronic data processing techniques
and/or a matrix system to determine valuations. The extent of any deviation
between the Fund's net asset value based on the pricing agent's market valuation
and $1.00 per share based on amortized cost will be examined by the Board of
Directors. If such deviation exceeds 1\2 of 1%, the Board of Directors will
promptly
16
<PAGE>
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, it has
agreed to take such corrective action as it regards as necessary and
appropriate, including the sale of portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or payment of distributions from capital or capital gains;
redemption of shares in kind; or establishing a net asset value per share by
using available market quotations.
TAX MATTERS
Federal Income Tax Matters
The following discussion of federal income tax matters is based upon the advice
of Fried, Frank, Harris, Shriver and Jacobson, Washington, D.C., counsel to the
Fund.
As described in the Prospectus, the Fund intends to qualify, as it has in prior
years, under Subchapter M of the Internal Revenue Code of 1986, as amended, (the
"Code"), for tax treatment as a regulated investment company. In order to
qualify as a regulated investment company, the Fund must satisfy certain
requirements relating to the source of its income, diversification of its
assets, and distributions of its income to shareholders. First, the Fund must
derive at least 90% of its annual gross income (including tax-exempt interest)
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities, foreign currencies or
other income (including but not limited to gains from options and futures)
derived with respect to its business of investing in such stock or securities
(the "90% gross income test"). Second, the Fund must derive less than 30% of its
annual gross income from the sale or other disposition of any of the following
which was held for less then three months: (i) stock or securities and (ii)
certain options, futures, or forward contracts (the "short-short test"). Third,
the Fund must diversify its holdings so that, at the close of each quarter of
its taxable year, (i) at least 50% of the value of its total assets is comprised
of cash, cash items, United States Government securities, securities of other
regulated investment companies and other securities limited in respect of any
one issuer to an amount not greater in value than 5% of the value of the Fund's
total assets and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of the total assets it
invested in the securities of any one issuer (other than United States
Government securities and securities of other regulated investment companies) or
two or more issuers controlled by the Fund and engaged in the same, similar or
related trades or businesses.
As a regulated investment company, the Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of long-
term capital loss, and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) and (ii) its "net tax-
exempt interest" (the excess of its gross tax-exempt interest income over
certain disallowed deductions).
The Fund also intends to satisfy conditions (including requirements as to the
proportion of its assets
17
<PAGE>
invested in Municipal Obligations) which will enable it to designate
distributions from the interest income generated by its investment in Municipal
Obligations, which is exempt from regular federal income tax when received by
the Fund, as Exempt Interest Dividends. Shareholders receiving Exempt Interest
Dividends will not be subject to federal income tax on the amount of such
dividends.
Distributions by the Fund of net interest income received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the United States Government, its agencies and instrumentalities)
and net short-term capital gains realized by the Fund, if any, will be taxable
to shareholders as ordinary income whether received in cash or additional
shares. If the Fund purchases a Municipal Obligation at a market discount, any
gain realized by the Fund upon the sale or redemption of the Municipal
Obligation will be treated as taxable interest income to the extent such gain
does not exceed the market discount, and any gain realized in excess of the
market discount will be treated as capital gains. Any net long-term capital
gains realized by the Fund and distributed to shareholders in cash or in
additional shares will be taxable to shareholders as long-term capital gains
regardless of the length of time investors have owned shares of the Fund. The
Fund does not expect to realize significant long-term capital gains. Because the
taxable portion of the Fund's investment income consists primarily of interest,
none of its dividends, whether or not treated as exempt-interest dividends, is
expected to qualify under the Internal Revenue Code for the dividends received
deductions for corporations.
If the Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of
income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income that was tax-
exempt during the period covered by the distribution.
Although dividends generally will be treated as distributed when paid, dividends
declared in October, November or December, payable to shareholders of record on
a specified date in one of those months and paid during the following January,
will be treated as having been distributed by the Fund (and received by the
shareholders) on December 31.
The redemption or exchange of the shares of the Fund is not expected to result
in capital gain or loss to the shareholders because the Fund's net asset value
is expected to remain constant at $1.00 per share. To the extent that the Fund's
net asset value is greater or lesser than $1.00 per share, redemptions or
exchanges may result in capital gain or loss to the shareholder.
In order to avoid a 4% federal excise tax, the Fund must distribute or be deemed
to have distributed by December 31 of each calendar year at least 98% of its
taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which the Fund paid no federal income tax. The Fund intends to
18
<PAGE>
make timely distributions in compliance with these requirements and consequently
it is anticipated that it generally will not be required to pay the excise tax.
If in any year the Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year, other than interest
income from Municipal Obligations, and distributions to its shareholders out of
net interest income from Municipal Obligations or other investments, or out of
net capital gains, would be taxable to shareholders as ordinary dividend income
for federal income tax purposes to the extent of the Fund's available earnings
and profits.
Among the requirements that the Fund must meet in order to qualify under
Subchapter M in any year is that less than 30% of its gross income must be
derived from the sale or other disposition of securities held for less than
three months.
As stated in the Prospectus under "Taxes," the Fund may invest in the type of
private activity bonds, the interest on which is not federally tax-exempt to
persons who are "substantial users" of the facilities financed by such bonds or
"related persons" of such "substantial users." Accordingly, the Fund may not be
an appropriate investment for shareholders who are considered either a
"substantial user" or a "related person" within the meaning of the Code. In
general, a "substantial user" of a facility financed from the proceeds of
private activity bonds includes a "non-exempt person who regularly uses a part
of such facility in his trade or business." "Related persons" are in general
defined to include persons among whom there exists a relationship, either by
family or business, which would result in a disallowance of losses in
transactions among them under various provisions of the Code (or if they are
members of the same controlled group of corporations under the Code). For
certain private activity bonds, this includes a partnership and each of its
partners (including their spouses and minor children) and an S corporation and
each of its shareholders (and their spouses and minor children). Various
combinations of these relationships may also constitute "related persons" under
the Code. The foregoing is not a complete statement of all of the provisions of
the Code covering the definitions of "substantial user" and "related person."
For additional information, investors should consult their tax advisers before
investing in the Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such as
bonds issued to make loans for housing purposes or to private entities (but not
for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that the Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their tax
liability is determined under the alternative minimum tax regime. The Fund will
annually supply shareholders with a report indicating the percentage of Fund
income attributable to Municipal Obligations subject to the federal alternative
minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
19
<PAGE>
therefore all distributions by the Fund that would otherwise be tax-exempt, is
included in calculating the alternative measures of a corporation's taxable
income.
Individuals whose "modified income" exceeds a base amount will be subject to
Federal income tax on up to one-half of their social security or railroad
retirement benefits. Modified income currently includes adjusted gross income,
one-half of social security benefits and tax-exempt interest, including exempt-
interest dividends from the Fund. Individuals whose modified income exceeds the
adjusted base amount are required to include in gross income up to 85% of their
social security benefits.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of the Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Fund is required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares who
have not furnished to the Fund their correct taxpayer identification number (in
the case of individuals, their social security number) and certain certificates,
or who are otherwise subject to back-up withholding.
The foregoing is a general and abbreviated summary of the provisions of the Code
and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The Code
and Treasury Regulations are subject to change by legislative or administrative
action, and any such change may be retroactive with respect to Fund
transactions. Shareholders are advised to consult their own tax advisers for
more detailed information concerning the federal taxation of the Fund and the
income tax consequences to its shareholders.
State and Local Tax Aspects. The exemption from federal income tax for
distributions of interest income from Municipal Obligations which are designated
exempt interest dividends will not necessarily result in exemption under the
income or other tax laws of any state or local taxing authority. The laws of the
several states and local taxing authorities vary with respect to the taxation of
such distributions, and shareholders of the Fund are advised to consult their
own tax advisers in that regard.
PRINCIPAL UNDERWRITER AND DISTRIBUTOR
Nuveen acts as the principal underwriter or distributor of Fund shares. Shares
of the Fund are offered on a continuous basis at net asset value without a sales
charge. Nuveen has agreed to pay sales and promotion expenses in connection with
the offering of Fund shares, including the cost of printing and distributing
prospectuses (except expenses of preparing, printing and distributing
prospectuses to existing shareholders and governmental agencies) and advertising
and sales literature expense. Expenses incurred in registering the Fund and its
shares under federal and state securities laws will be paid by the Fund.
20
<PAGE>
YIELD INFORMATION
As explained in the Prospectus, the historical performance of the Fund may be
expressed in terms of "yield" or "effective yield." The Fund's yield and
effective yield for the seven-day period ended February 28, 1997 were 3.02% and
3.07%, respectively. These measures of performance are described below.
Yield is computed in accordance with a standard method prescribed by rules of
the Securities and Exchange Commission. Under that method, current yield is
based on a seven-day period and is computed as follows: the Fund's net
investment income per share for the period is divided by the price per share
(expected to remain constant at $1.00) at the beginning of the period, the
result (the "base period return") is divided by 7 and multiplied by 365, and the
resulting figure is carried to the nearest hundredth of one percent. For the
purpose of this calculation, the Fund's net investment income per share includes
its accrued interest income plus or minus amortized purchase discount or premium
less accrued expenses, but does not include realized capital gains or losses or
unrealized appreciation or depreciation of investments.
The Fund's effective yield is calculated by taking the base period return
(computed as described above) and calculating the effect of assumed compounding.
The formula for effective yield is: (base period return + 1)/365/7/ - 1.
The Fund's yield will fluctuate, and the publication of annualized yield
quotations is not a representation of what an investment in the Fund will
actually yield for any given future period. Actual yields will depend not only
on changes in interest rates on money market instruments during the period in
question, but also on such matters as the Fund's expenses.
In reports or other communications to shareholders or in advertising and sales
literature, the Fund may compare its performance to that of other money market
mutual funds tracked by Lipper Analytical Services, Inc. ("Lipper"), by
Donoghue's Money Fund Report ("Donoghue's") or similar services or by financial
publications such as Barron's, Changing Times, Forbes and Money Magazine.
Performance comparisons by these indexes, services or publications may rank
mutual funds over different periods of time by means of aggregate, average,
year-by-year or other types of performance figures. Lipper ranks mutual funds by
overall performance, investment objectives, and assets and assumes the
reinvestment of dividends for the period covered. Donoghue's ranks investment
results according to total return (annualized results net of management fees and
expenses) and presents one year results as effective annual yields assuming
reinvestment of dividends. Any given performance quotation or performance
comparison should not be considered as representative of the Fund's performance
for any future period.
A comparison of tax-exempt and taxable equivalent yields is one element to
consider in making an investment decision. The Fund may from time to time in its
advertising and sales materials compare its then current yields as of a recent
date with the yields on taxable investments such as corporate or U.S. Government
bonds and bank CDs or money market accounts, each of which has investment
characteristics that may differ from those of the Fund. U.S. Government bonds,
for example, are backed by the full faith and credit of the U.S. Government, and
bank CDs and money market accounts are insured by an agency of the federal
government.
21
<PAGE>
The following table shows the effects for individuals of federal income taxes on
the amount that those subject to a given tax rate would have to put into a tax-
free investment in order to generate the same after-tax income as a taxable
investment.*
Read down to find the amount of a tax-free investment at the specified rate
that would provide the same after-tax income as a $50,000 taxable
investment at the stated taxable rate.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
Taxable Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
====================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
3.00% $ 51,750 $41,400 $34,500 $29,571 $25,875 $23,000 $20,700
- ------------------------------------------------------------------------------------
4.00% $ 69,000 $55,200 $46,000 $39,429 $34,500 $30,667 $27,600
- ------------------------------------------------------------------------------------
5.00% $ 86,250 $69,000 $57,500 $49,286 $43,125 $38,333 $34,500
- ------------------------------------------------------------------------------------
6.00% $103,500 $82,800 $69,000 $59,143 $51,750 $46,000 $41,400
- ------------------------------------------------------------------------------------
7.00% $120,750 $96,600 $80,500 $69,000 $60,375 $53,667 $48,300
- ------------------------------------------------------------------------------------
*The dollar amounts in the table reflect a 31% federal income tax rate.
</TABLE>
This table is for illustrative purposes only and is not intended to predict the
actual return you might earn on your investment. The Fund occasionally may
advertise its performance in similar tables using a different current tax rate
than that shown here. The tax rate shown here may be higher or lower than your
actual tax rate; a higher tax rate would tend to make the dollar amounts in the
table lower, while a lower tax rate would make the amounts higher. You should
consult your tax adviser to determine your actual tax rate.
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Arthur Andersen LLP independent public accountants, 33 West Monroe Street,
Chicago, Illinois 60603 have been selected as auditors for the Fund. In addition
to audit services, Arthur Andersen LLP provides consultation and assistance on
accounting, internal control, tax and related matters. The financial statements
of the Fund and the information set forth under "Financial Highlights" are
included in the Prospectus and have been audited by Arthur Andersen LLP as
indicated in their report with respect thereto, and are included in reliance
upon the authority of said firm as experts in giving said report.
The custodian of the Fund's assets is The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004.
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