<PAGE>
NUVEEN
Money Market
Funds
June 10, 1997
Prospectus
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO OF COUPLE APPEARS HERE]
Massachusetts
New York
<PAGE>
NUVEEN TAX-FREE MONEY MARKET FUND, INC.
Nuveen Massachusetts Tax-Free Money Market Fund
Nuveen New York Tax-Free Money Market Fund
JUNE 10, 1997
PROSPECTUS
Nuveen Tax-Free Money Market Fund, Inc. is an open-
end, diversified management investment company con-
sisting of the two money market funds named above
(the "Funds"). Each Fund represents a separate port-
folio, and has the objective of providing, through
investment in high quality short-term Municipal Obli-
gations, as high a level of current interest income
exempt from both federal and designated state income
taxes as is consistent, in the view of the Fund's
management, with stability of principal and the main-
tenance of liquidity.
This Prospectus, which should be retained for future
reference, sets forth concisely the information about
the Funds that a prospective investor should know
before investing. A "Statement of Additional Informa-
tion" dated June 10, 1997, containing additional
information about the Funds has been filed with the
Securities and Exchange Commission and is incorpo-
rated by reference into this Prospectus. A copy of
this statement may be obtained without charge by
writing to Nuveen Tax-Free Money Market Fund, Inc.,
or by calling John Nuveen & Co. Incorporated at the
number provided below. For more information, call
toll-free (800) 621-7227.
An investment in the Funds is neither insured nor
guaranteed by the U.S. Government and there can be no
assurance that the Funds will be able to maintain a
stable net asset value of $1.00 per share.
Shares of the Funds are not deposits or obligations
of, or guaranteed or endorsed by, any bank and are
not federally insured by the Federal Deposit Insur-
ance Corporation, the Federal Reserve Board or any
other agency.
The Funds may invest a significant percentage of
their assets in the securities of a single issuer,
and, therefore, an investment in the Funds may be
riskier than an investment in other types of money
market funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAP-
PROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES 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) 621-7227
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1
<PAGE>
Contents
<TABLE>
<C> <S>
2 Summary of Fund Expenses
3 Highlights
5 Financial Highlights
6 Yield
7 The Fund and Its Investment
Objective and Policies
11 Management of the Fund
11 Dividends and Taxes
13 Net Asset Value
14 How to Buy Fund Shares
16 How to Redeem Fund Shares
19 General Information
19 Taxable Equivalent Yield Tables
</TABLE>
Summary of Fund Expenses
The following tables illustrate all expenses and fees that a shareholder will
incur. The expenses and fees shown are for the fiscal year ended February 28,
1997.
<TABLE>
<CAPTION>
INSTITUTIONAL DISTRIBUTION SERVICE
SHAREHOLDER TRANSACTION EXPENSES SERIES PLAN SERIES PLAN SERIES
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
MASSACHUSETTS FUND
Sales charges imposed on purchases None None None
Sales charges imposed on reinvested
dividends None None None
Redemption fees None None None
Exchange fees None None None
NEW YORK FUND
Sales charges imposed on purchases None None None
Sales charges imposed on reinvested
dividends None None None
Redemption fees None None None
Exchange fees None None None
- -------------------------------------------------------------------------------
<CAPTION>
ANNUAL OPERATING EXPENSES (AS A INSTITUTIONAL DISTRIBUTION SERVICE
PERCENTAGE OF AVERAGE DAILY NET ASSETS) SERIES PLAN SERIES PLAN SERIES
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
MASSACHUSETTS FUND
Management fees .40% .40% .40%
12b-1 fees (or service fees) None .09 .12
Other operating expenses, after expense
reimbursements .15 .06 .03
- -------------------------------------------------------------------------------
Total expenses, after expense reim-
bursements .55 .55 .55
- -------------------------------------------------------------------------------
NEW YORK FUND
Management fees .40% .40% .40%
12b-1 fees (or service fees) None .04 .03
Other operating expenses, after expense
reimbursements .15 .11 .12
- -------------------------------------------------------------------------------
Total expenses, after expense reim-
bursements .55 .55 .55
- -------------------------------------------------------------------------------
</TABLE>
The following example illustrates the expenses that you 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 Funds charge no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS FUND:
All series $6 $18 $31 $69
NEW YORK FUND:
All series $6 $18 $31 $69
- ----------------------------------------------------
</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 for each Fund
under Annual Operating Expenses remain the same in each of the periods.
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2
<PAGE>
The purpose of the foregoing tables is to help you understand all expenses and
fees that you would bear directly or indirectly as an investor in the Funds.
As discussed under "Management of the Funds" and reflected in the tables on the
previous page, the management fee is reduced or Nuveen Advisory assumes certain
expenses in amounts necessary to prevent the total expenses of each series of
each Fund in any fiscal year from exceeding .55 of 1% of the average daily net
asset value of the series. Without expense reimbursements, for the fiscal year
ended February 28, 1997, other operating expenses would have been .21 .41 and
.22, and total expenses would have been .61, .90, and .74, of 1% of the average
daily net assets, of the Institutional series, the Distribution Plan series and
the Service Plan series, respectively, of the Massachusetts Fund. Without
expense reimbursements, for the fiscal year ended February 28, 1997, other
operating expenses would have been .72, .48, and .84, and total expenses would
have been 1.12, .92, and 1.27 of 1% of the average daily net assets, of the
Institutional series, the Distribution Plan series and the Service Plan series,
respectively, of the New York Fund. See "Management of the Funds."
Highlights
Nuveen Tax-Free Money Market Fund, Inc. is an open-end, diversified management
investment company whose shares are issued in separate classes, each covering a
separate designated state portfolio. The Fund currently has two portfolios out-
standing: the Nuveen Massachusetts Tax-Free Money Market Fund (the "Massachu-
setts Fund") and the Nuveen New York Tax-Free Money Market Fund (the "New York
Fund"). Each Fund invests primarily in high quality short-term Municipal Obli-
gations of a single designated state, with the objective of providing as high a
level of current interest income exempt both from federal income tax and from
the income tax imposed by its designated state as is consistent, in the view of
the Fund's management, with stability of principal and the maintenance of
liquidity. Each Fund will value its investments at amortized cost and seek to
maintain a net asset value of $1.00 per share. There is no guarantee that this
value will be maintained, or that the objective of the Funds will be realized.
See "Net Asset Value" on page 13 and "Investment Objective" on page 7.
Each Fund intends to qualify, as it has in prior years, for tax treatment as a
regulated investment company and to satisfy conditions which will enable inter-
est income that is exempt from federal and designated state income taxes in the
hands of a Fund to retain such tax-exempt status when distributed to the share-
holders of that Fund. See "Dividends and Taxes" on page 11.
HOW TO BUY FUND SHARES
Shares of each of the Funds 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 pay-
ment in federal funds. The minimum initial investment is $5,000, and subsequent
purchases must be in amounts of $100 or more. See "How to Buy Fund Shares" on
page 14, or for further information, please call Nuveen toll-free at (800) 621-
7227.
HOW TO REDEEM FUND SHARES
Shareholders may redeem shares at the net asset value next computed after
receipt of a redemption request in proper form on any business day. Sharehold-
ers may make redemption requests in writing or, for shareholders of the Distri-
bution Plan series, by check. Shareholders who have completed and filed the
necessary authorization form may make redemption requests by telephone with
proceeds to be transferred to a predesignated bank account or sent to their
address of record. There is no redemption fee. A fee may be charged for wire
redemptions. See "How to Redeem Fund Shares" on page 16.
DIVIDENDS AND REINVESTMENT
Each of the Funds declares dividends daily from its accumulated net income on
shares entitled to such dividends, and distributes such dividends monthly in
the form of additional shares of the respective Funds or, at the option of the
shareholder, in cash. See "Dividends and Taxes" on page 11.
INVESTMENT ADVISER AND PRINCIPAL UNDERWRITER
John Nuveen & Co. Incorporated ("Nuveen") acts as principal underwriter of the
shares of the Funds. The Funds have adopted Distribution and Service Plans
under which qualifying organizations may be paid a fee for servicing share-
holder accounts. A portion of the fees paid under these Plans is charged to the
Distribution Plan and Service Plan series of shares of the Funds. See "How to
Buy Fund Shares--Distribution and Service Plan" on page 16. Nuveen Advisory
Corp. ("Nuveen Advisory"), a wholly-owned subsidiary of Nuveen, is the Funds'
investment adviser and receives an annual management fee of .4 of 1% of the
first $500 million of average daily net assets. See "Management of the Funds"
on page 11.
INVESTMENTS
Each of the Funds invests primarily in Municipal Obligations consisting of
money market instruments issued by governmental authorities in the Fund's des-
ignated state (or
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3
<PAGE>
in certain possessions of the United States) having ratings or other credit and
risk characteristics as described on pages 7-11, the income on which is exempt
from federal and designated state income taxes. In addition, as described
below, each Fund may invest a portion of its assets in taxable "temporary
investments." Temporary investments are limited to obligations issued or guar-
anteed by the full faith and credit of the United States, or certificates of
deposit issued by U.S. banks with assets of at least $1 billion, or "high
grade" commercial paper or corporate notes, bonds or debentures with a remain-
ing maturity of 397 days or less, or repurchase agreements in respect of any of
the foregoing with selected dealers, U.S. banks or other recognized financial
institutions, subject to the specific limitations stated below. The Funds may
from time to time invest a portion of their assets in debt obligations which
are not rated, and in variable rate or floating rate obligations. Investors are
urged to read the descriptions of these investments and practices set forth in
this Prospectus. See "Investment Policies" on page 7.
The information set forth above should be read in conjunction with the detailed
information set forth elsewhere in this Prospectus.
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4
<PAGE>
Financial Highlights
The following financial information has been derived from Nuveen Tax-Free Money
Market Fund, Inc.'s financial statements, which have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
appearing in Nuveen Tax-Free Money Market Fund, Inc.'s Annual Report, and
should be read in conjunction with the financial statements and related notes
appearing in the Annual Report.
Selected data for a common share outstanding throughout each period is as fol-
lows:
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------- ------------------------
NET
REALIZED AND DIVIDENDS NET TOTAL
NET ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT 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>
MA**
- ----------------------------------------------------------------------------------------------------
YEAR ENDED 2/28/97
Service Plan series $1.000 $.028 $ - $(.028) $ - $1.000 2.84%
Distribution Plan series 1.000 .028 - (.028) - 1.000 2.84
Institutional series 1.000 .028 - (.028) - 1.000 2.84
YEAR ENDED 2/29/96
Service Plan series 1.000 .032 - (.032) - 1.000 3.17
Distribution Plan series 1.000 .032 - (.032) - 1.000 3.17
Institutional series 1.000 .032 - (.032) - 1.000 3.18
YEAR ENDED 2/28/95
Service Plan series 1.000 .025 - (.025) - 1.000 2.53
Distribution Plan series 1.000 .025 - (.025) - 1.000 2.53
Institutional series 1.000 .026 - (.026) - 1.000 2.61
YEAR ENDED 2/28/94
Service Plan series 1.000 .018 - (.018) - 1.000 1.77
Distribution Plan series 1.000 .017 - (.017) - 1.000 1.74
Institutional series 1.000 .018 - (.018) - 1.000 1.80
YEAR ENDED 2/28/93
Service Plan series 1.000 .023 - (.023) - 1.000 2.33
Distribution Plan series 1.000 .023 - (.023) - 1.000 2.33
Institutional series 1.000 .023 - (.023) - 1.000 2.34
10 MONTHS ENDED 2/29/92
Service Plan series 1.000 .032 - (.032) - 1.000 3.22
Distribution Plan series 1.000 .032 - (.032) - 1.000 3.22
Institutional series 1.000 .032 - (.032) - 1.000 3.24
YEAR ENDED 4/30/91
Service Plan series 1.000 .053 - (.053) - 1.000 5.30
Distribution Plan series 1.000 .053 - (.053) - 1.000 5.30
Institutional series 1.000 .053 - (.053) - 1.000 5.30
YEAR ENDED,
4/30/90++ 1.000 .057 - (.057) - 1.000 5.70
4/30/89++ 1.000 .050 - (.050) - 1.000 5.00
4/30/88++ 1.000 .043 - (.043) - 1.000 4.29
- ----------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
NET ASSETS EXPENSES TO INCOME TO EXPENSES TO INCOME TO
END OF AVERAGE NET AVERAGE NET AVERAGE NET AVERAGE NET
PERIOD (IN ASSETS BEFORE ASSETS BEFORE ASSETS AFTER ASSETS AFTER
THOUSANDS) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT* REIMBURSEMENT*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MA**
- ----------------------------------------------------------------------------------------------------
YEAR ENDED 2/28/97
Service Plan series $ 9,964 .74% 2.64% .55% 2.83%
Distribution Plan series 27,083 .90 2.49 .55 2.84
Institutional series 3,977 .61 2.78 .55 2.84
YEAR ENDED 2/29/96
Service Plan series 38,251 .63 3.06 .55 3.14
Distribution Plan series 26,279 .84 2.87 .55 3.16
Institutional series 3,550 .57 3.12 .54 3.15
YEAR ENDED 2/28/95
Service Plan series 27,732 .61 2.49 .55 2.55
Distribution Plan series 24,237 .82 2.28 .55 2.55
Institutional series 1,036 .47 2.63 .47 2.63
YEAR ENDED 2/28/94
Service Plan series 38,576 .55 1.88 .52 1.91
Distribution Plan series 27,773 .76 1.67 .55 1.88
Institutional series 3,406 .49 1.93 .49 1.93
YEAR ENDED 2/28/93
Service Plan series 40,214 .73 2.16 .55 2.34
Distribution Plan series 27,993 .82 2.07 .55 2.34
Institutional series 5,325 .58 2.31 .55 2.34
10 MONTHS ENDED 2/29/92
Service Plan series 61,476 .62+ 3.73+ .55+ 3.80+
Distribution Plan series 34,509 .72+ 3.63+ .55+ 3.80+
Institutional series 8,917 .53+ 3.82+ .53+ 3.82+
YEAR ENDED 4/30/91
Service Plan series 37,979 .68 5.12 .55 5.25
Distribution Plan series 33,809 .76 5.04 .55 5.25
Institutional series 14,973 .54 5.26 .54 5.26
YEAR ENDED,
4/30/90++ 53,631 .74 5.48 .55 5.67
4/30/89++ 31,319 .76 4.97 .55 5.18
4/30/88++ 35,614 .75 4.03 .48 4.30
- ----------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 6.
---
5
<PAGE>
Selected data for a common share outstanding throughout each period is as fol-
lows:
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------- ------------------------
NET
REALIZED AND DIVIDENDS NET TOTAL
NET ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT 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>
NY**
- ----------------------------------------------------------------------------------------------------
YEAR ENDED 2/28/97
Service Plan series $1.000 $.029 $ - $(.029) $ - $1.000 2.90%
Distribution Plan series 1.000 .029 - (.029) - 1.000 2.90
Institutional series 1.000 .029 - (.029) - 1.000 2.90
YEAR ENDED 2/29/96
Service Plan series 1.000 .032 - (.032) - 1.000 3.20
Distribution Plan series 1.000 .032 - (.032) - 1.000 3.20
Institutional series 1.000 .032 - (.032) - 1.000 3.20
YEAR ENDED 2/28/95
Service Plan series 1.000 .024 - (.024) - 1.000 2.36
Distribution Plan series 1.000 .024 - (.024) - 1.000 2.37
Institutional series 1.000 .023 - (.023) - 1.000 2.28
YEAR ENDED 2/28/94
Service Plan series 1.000 .015 - (.015) - 1.000 1.51
Distribution Plan series 1.000 .015 - (.015) - 1.000 1.51
Institutional series 1.000 .015 - (.015) - 1.000 1.51
YEAR ENDED 2/28/93
Service Plan series 1.000 .020 - (.020) - 1.000 2.02
Distribution Plan series 1.000 .020 - (.020) - 1.000 2.02
Institutional series 1.000 .020 - (.020) - 1.000 2.02
10 MONTHS ENDED 2/29/92
Service Plan series 1.000 .029 - (.029) - 1.000 2.94
Distribution Plan series 1.000 .029 - (.029) - 1.000 2.94
Institutional series 1.000 .030 - (.030) - 1.000 2.97
YEAR ENDED 4/30/91
Service Plan series 1.000 .047 - (.047) - 1.000 4.73
Distribution Plan series 1.000 .047 - (.047) - 1.000 4.73
Institutional series 1.000 .047 - (.047) - 1.000 4.73
YEAR ENDED,
4/30/90++ 1.000 .054 - (.054) - 1.000 5.36
4/30/89++ 1.000 .050 - (.050) - 1.000 4.95
4/30/88++ 1.000 .041 - (.041) - 1.000 4.10
- ----------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
NET ASSETS EXPENSES TO INCOME TO EXPENSES TO INCOME TO
END OF AVERAGE NET AVERAGE NET AVERAGE NET AVERAGE NET
PERIOD (IN ASSETS BEFORE ASSETS BEFORE ASSETS AFTER ASSETS AFTER
THOUSANDS) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT* REIMBURSEMENT*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NY**
- ----------------------------------------------------------------------------------------------------
YEAR ENDED 2/28/97
Service Plan series $ 414 1.27% 2.17% .55% 2.89%
Distribution Plan series 26,116 .92 2.52 .55 2.89
Institutional series 17 1.12 2.33 .55 2.90
YEAR ENDED 2/29/96
Service Plan series 554 1.92 1.82 .55 3.19
Distribution Plan series 31,631 .94 2.80 .55 3.19
Institutional series 17 1.38 2.37 .55 3.20
YEAR ENDED 2/28/95
Service Plan series 640 .95 1.98 .55 2.38
Distribution Plan series 29,798 .79 2.14 .55 2.38
Institutional series 17 2.14 .79 .55 2.38
YEAR ENDED 2/28/94
Service Plan series 557 1.49 .69 .55 1.63
Distribution Plan series 27,886 .78 1.40 .55 1.63
Institutional series 17 4.60 (2.42) .55 1.63
YEAR ENDED 2/28/93
Service Plan series 529 1.17 1.42 .55 2.04
Distribution Plan series 34,827 .78 1.81 .55 2.04
Institutional series 17 19.33 (16.59) .55 2.19
10 MONTHS ENDED 2/29/92
Service Plan series 1,934 .87+ 3.19+ .55+ 3.51+
Distribution Plan series 45,259 .71+ 3.35+ .55+ 3.51+
Institutional series 17 11.89+ (7.83)+ .55+ 3.51+
YEAR ENDED 4/30/91
Service Plan series 1,653 .88 4.39 .55 4.72
Distribution Plan series 41,446 .69 4.58 .55 4.72
Institutional series 17 .62 4.65 .55 4.72
YEAR ENDED,
4/30/90++ 41,602 .71 5.18 .55 5.34
4/30/89++ 30,262 .86 4.74 .55 5.05
4/30/88++ 17,016 1.03 3.54 .50 4.07
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Reflects the waiver of certain management fees and reimbursement of certain
other expenses by the Adviser, if applicable (see Notes to Financial State-
ments in the Annual Report).
** Effective for the fiscal year ended April 30, 1991, and thereafter, the Fund
has presented the above per share data by series.
+ Annualized.
++ Represents combined per share data and ratios for the Service Plan, Distri-
bution Plan and Institutional series.
Yield
From time to time, Nuveen Tax-Free Money Market Fund, Inc. may advertise the
"yield," "effective yield" and "taxable equivalent yield" of the various series
of each of its two Funds. The "yield" of a series refers to the rate of income
generated by an investment in the series over a specified seven-day period,
expressed as an annualized figure. "Effective yield" is calculated similarly
except that, when annualized, the income earned by the investment is assumed to
be reinvested. Accordingly, the effective yield will be slightly higher than
the yield due to this compounding effect. "Taxable equivalent yield" is the
yield that a taxable investment would need to generate in order to equal the
series' 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 tax-
able equivalent yield quotation for a given series will be higher than the
yield or the effective yield quotations for the series. Additional information
concerning performance figures appears in the Statement of Additional Informa-
tion.
---
6
<PAGE>
Based on the seven-day period ended February 28, 1997, the current yield,
effective yield and taxable equivalent yield (using a combined federal and
state income tax rate of 47.0% for Massachusetts and 43.5% for New York) for
the Massachusetts and New York Funds were as follows:
<TABLE>
<CAPTION>
TAXABLE
CURRENT EFFECTIVE EQUIVALENT
YIELD YIELD YIELD
- ------------------------------------------------
<S> <C> <C> <C>
MASSACHUSETTS FUND
All series 2.79% 2.83% 5.26%
NEW YORK FUND
All series 2.86% 2.90% 5.06%
- ------------------------------------------------
</TABLE>
This Prospectus may be in use for a full year and it can be expected that dur-
ing this period there will be material fluctuations in yield from that quoted
above. For information as to current yields, please call Nuveen at (800) 621-
7227.
The Fund and Its Investment Objective and Policies
INVESTMENT OBJECTIVE
Nuveen Tax-Free Money Market Fund, Inc. is an open-end, diversified management
investment company which has the objective of providing, through investment in
professionally managed portfolios of high quality short-term Municipal Obliga-
tions (described below), as high a level of current interest income exempt
both from federal income tax and from the income tax imposed by each Fund's
designated state as is consistent, in the view of the management of Nuveen
Tax-Free Money Market Fund, Inc., with stability of principal and the mainte-
nance of liquidity. Each 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 of that Fund. Each Fund values its portfolio securities
at amortized cost and seeks to maintain a constant net asset value of $1.00
per share. There is a risk in all investments and, therefore, there can be no
assurance that the objective of any Fund will be achieved.
INVESTMENT POLICIES
Each Fund pursues its investment objective through the investment policies
described below. These policies are essentially the same for each Fund, except
that each Fund will primarily invest in short-term Municipal Obligations of
issuers in the Fund's designated state (or in Municipal Obligations issued by
governmental authorities in certain possessions of the United States to the
extent interest on such obligations is exempt from taxation by the states pur-
suant to federal law), in order that the interest income on such short-term
Municipal Obligations is exempt from that state's income tax as well as fed-
eral income tax. Because of the different credit characteristics of governmen-
tal authorities in each of the designated states and because of differing
supply and demand factors for each state's short-term Municipal Obligations,
there may be differences in the yield on each Fund and the degree of market
and financial risk to which each Fund is subject. Ordinarily, short-term
Municipal Obligations in which the Funds will invest offer lower yields than
Municipal Obligations with longer maturities, although the latter present
greater market risk (i.e., the risk that their market values will be affected
by changes in interest rates). Similarly, the fact that the Funds invest in
high quality Municipal Obligations tends to reduce the yield as compared with
investments in lower quality securities, but the higher quality securities
present less credit risk (i.e., the risk that principal and interest will not
be paid when due). Each Fund will, as a fundamental policy, pursue its invest-
ment objective by investing at least 80% of its net assets in its designated
state's short-term Municipal Obligations, except during temporary defensive
periods.
PORTFOLIO INVESTMENTS
Each Fund's investment assets are eligible for purchase by money market funds
under applicable guidelines of the Securities and Exchange Commission ("SEC"),
and consist of (1) short-term Municipal Obligations which at the time of pur-
chase are rated within the two highest long-term grades by Moody's Investors
Service, Inc. ("Moody's")--Aaa or Aa, or by Standard & Poor's Corporation
("S&P")--AAA or AA or, in the case of municipal notes, rated MIG-1, MIG-2,
VMIG-1 or VMIG-2 by Moody's or SP-1 or SP-2 by S&P, or, in the case of munici-
pal commercial paper, rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by
S&P; (2) unrated short-term Municipal Obligations which, in the opinion of
Nuveen Advisory, have credit characteristics equivalent to the foregoing and
are deemed to be of "high quality" by Nuveen Advisory; and (3) temporary
investments, within the limitations and for the purposes as stated below. To
the extent that unrated Municipal Obligations may be less liquid, there may be
somewhat greater risk in purchasing unrated Municipal Obligations than in pur-
chasing comparable but rated Municipal Obligations.
The investments of the Funds will be limited to obligations maturing within
397 days from the date of acquisition or which have variable or floating rates
of interest (which rates vary with changes in specified market rates or indi-
ces such as a bank prime rate or tax-exempt money market index). The Funds 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 and regulations issued by the SEC under the Investment Com-
pany Act of 1940 are satisfied, and (2) they permit the Funds to recover the
full principal amount thereof upon specified notice. The right of each Fund to
obtain payment at par on a demand instrument upon demand could be affected by
events occurring between the date the Fund elects to redeem the instrument and
the date redemption proceeds are due which affect the ability of the issuer to
pay the instrument at par value.
The types of short-term Municipal Obligations in which the Funds may invest
include bond anticipation notes, tax
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<PAGE>
anticipation notes, revenue anticipation notes, construction loan notes issued
to provide construction financing for 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 collec-
tions 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 those short-term securities.
Because the Funds invest in securities backed by banks and other financial
institutions, changes in the credit quality of these institutions could cause
losses to the Funds and affect share price.
To help protect against such losses, each Fund has obtained from MBIA Insurance
Corp. a commitment to issue, subject to certain conditions and at a Fund's
request, insurance policies to cover certain Municipal Obligations held by the
Fund that are backed by a credit agreement from one of a number of banks previ-
ously approved by MBIA. If the bank were to deteriorate financially (under
standards set forth in MBIA's commitment), the Fund could elect to purchase
insurance on the underlying Municipal Obligation from MBIA, which would insure
payment of regularly scheduled principal of and interest on the Municipal Obli-
gation. Although this insurance would not guarantee the market value of the
Municipal Obligation or the value of the Fund shares, each Fund believes that
its ability to obtain such insurance will enable the Fund to hold or sell these
securities at a price at or near their par value.
Except during temporary defensive periods, each Fund will invest at least 80%
of its net assets in short-term Municipal Obligations, and not more than 20% of
its net assets in "temporary investments," the income from which may be subject
to its designated state's income tax or to both federal and state income taxes,
including the federal alternative minimum tax. During extraordinary circum-
stances, a Fund may invest more than 20% of its net assets in temporary invest-
ments for defensive purposes. The Funds to date have never purchased, and have
no present intention to purchase, temporary investments. Each Fund will invest
in temporary investments with remaining maturities of 397 days or less which,
in the opinion of Nuveen Advisory, are of "high grade" quality. 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 acquisi-
tion of securities.
Because investments of the Funds will consist of securities with relatively
short maturities, the Funds can expect to have a high portfolio turnover rate.
The Funds 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 Massachusetts Fund ranged from 25 to 59 days and the average
maturity of the New York Fund ranged from 21 to 53 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. Municipal Obligations in
which each Fund will primarily invest are issued by that Fund's designated
state and cities and local authorities in that state or are issued by posses-
sions of the United States within Section 103(c) of the Internal Revenue Code
(such as Puerto Rico), and bear interest that, in the opinion of bond counsel
to the issuer, is exempt from federal income tax and from income tax imposed by
the designated state.
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 gener-
ally 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 Obliga-
tions, 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 Funds, will
have 397 days or less remaining until maturity or will have a variable or
floating rate of interest (see below). These issues may be either general obli-
gation bonds or revenue bonds.
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 reve-
nues.
Municipal Obligations also include very short-term unsecured, negotiable prom-
issory notes, issued by states, municipalities, and their agencies which are
known as "tax-exempt commercial paper" or "municipal paper." Payment of princi-
pal 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.
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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 Funds may invest in such other types of notes to the
extent consistent with their investment objectives 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 Obliga-
tion market, the size of a particular offering, the maturity of the obligation
and the rating of the issue. The ratings of Moody's and S&P represent their
opinions as to the quality of the Municipal Obligations which they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. 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 Funds 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 reg-
ular settlement date. (When-issued transactions normally settle within 15 to 45
days.) On such transactions the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment to purchase. The commit-
ment 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
the 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.
ECONOMIC FACTORS PERTAINING TO DESIGNATED STATES
Because each Fund will concentrate its investment in Municipal Obligations
issued by governmental authorities within a single designated state, it may be
affected by political, economic or regulatory factors that may impair the abil-
ity of issuers in that state to pay interest on or to repay the principal of
their debt obligations. Set forth below are summaries of economic factors that
bear upon the risk of investing in Municipal Obligations issued by public
authorities in the designated states that are the subject of currently offered
Funds. This information was obtained from official statements of issuers
located in the respective designated states as well as from other publicly
available official documents and statements. Nuveen Tax-Free Money Market Fund,
Inc. has not independently verified any of the information contained in such
statements and documents. Additional considerations relating to these risks are
contained in the Statement of Additional Information.
MASSACHUSETTS
In recent years, the Commonwealth of Massachusetts and certain of its public
bodies and municipalities, particularly the City of Boston, have faced serious
financial difficulties which have affected the credit standing and borrowing
abilities of Massachusetts and these respective entities and may have contrib-
uted to higher interest rates on debt obligations. As a result of these diffi-
culties, the rating agencies lowered the credit ratings on Massachusetts
general obligation bonds several times during 1989 and 1990. Since then, both
S&P and Moody's have upgraded Massachusetts general obligation bonds several
times. As of the date of this Prospectus, the uninsured general obligation
bonds carry a rating of A+ by S&P and A1 by Moody's. Since 1988, there has been
a significant slowdown in the Commonwealth's economy, as indicated by a rise in
unemployment, a slowing of its per capita income growth and a trend in declin-
ing state revenues. In fiscal 1991, the Commonwealth's expenditures for state
government programs exceeded current revenues, and although fiscal 1992, 1993,
1994, 1995 and 1996 results indicate that revenues exceeded expenditures, no
assurance can be given that lower than expected tax revenues will not resume
and continue. The continuation of, or an increase in, the financial difficul-
ties of the Commonwealth and its public bodies and municipalities, or the
development of a financial crisis relating to these entities, could result in
declines in the market value of, or default on, existing obligations issued by
governmental authorities in the state of Massachusetts, including Municipal
Obligations held by the Massachusetts Fund. Many factors, in addition to those
cited above, do or may have a bearing upon the financial condition of the Com-
monwealth, including social and economic conditions, many of which are not
within the control of the Commonwealth.
NEW YORK
New York State has historically been one of the wealthiest states in the
nation. For decades, however, the State's economy has grown more slowly than
that of the nation as a whole, gradually eroding the State's relative economic
affluence. Statewide, urban centers have experienced significant changes
involving migration of the more affluent to the suburbs and an influx of gener-
ally less affluent residents. Regionally, the older Northeast cities have suf-
fered because of the relative success that the South and the West have had in
attracting people and business. New York City
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has faced greater competition as other major cities have developed financial
and business resources which make them less dependent on the specialized serv-
ices traditionally available almost exclusively in New York City, which has had
an additional negative impact on New York City's recovery. The State has for
many years had a very high State and local tax burden relative to other states.
The burden of State and local taxation, in combination with the many other
causes of regional economic dislocation, has contributed to the decisions of
some businesses and individuals to relocate outside, or not locate within, the
State.
The State's economic growth continues to lag behind the nation's due in part to
a significant retrenchment in the banking and financial services industry, cut-
backs in defense spending, and an overbuilt real estate market.
The State has projected continued moderate economic growth within New York dur-
ing 1997 reflecting continued moderate expansion of the national economy. The
State has forecasted a slowing in economic expansion during 1998.
The State ended its 1996-97 fiscal year with an operating surplus of approxi-
mately $1.4 billion. The State Legislature enacted the State's 1996-97 fiscal
year budget on July 13, 1996, more than three months after the start of that
fiscal year.
As of January 14, 1997, the updated 1996-97 State Financial Plan (the "Plan")
projected total general fund receipts of $33 billion and disbursements of $32.8
billion, representing reductions in receipts and disbursements of $207 million
and $228 million, respectively, from the amounts set forth in the 1996-97 State
budget, as adopted by the legislature. The Plan projected a General Fund bal-
ance of approximately $358 million at the close of the 1996-97 fiscal year.
The Governor issued a proposed State budget for the 1997-98 fiscal year on Jan-
uary 14, 1997, which projected a balanced general fund and receipts and dis-
bursements each of $32.9 billion. As of May 5, 1997, the State legislature had
not yet enacted, nor had the Governor and the legislature reached an agreement
on, the budget for the 1997-98 fiscal year commencing on April 1, 1997. The
Governor and the State's legislature have agreed on or proposed a series of
short-term stopgap spending measures to fund state payrolls and advances to
certain municipalities and certain state programs. The delay in the enactment
of the budget may negatively affect certain proposed actions and reduce pro-
jected savings.
On June 13, 1996, New York City adopted a 1997 fiscal year budget, which pro-
vided for $33 billion in spending. Due to increased tax revenues resulting from
increased Wall Street profits and tourism, New York City has estimated that it
may end the 1997 fiscal year with a surplus of $800 million. On January 30,
1997, the Mayor outlined his proposed $32.9 billion budget. The Mayor's pro-
posed budget called for $550 million in additional spending cuts at City agen-
cies and a continuation of the personal income tax surcharge which is due to
expire and annually yields approximately $500 million in revenues. On May 6,
1997, the Mayor indicated that as a result of the increased surplus for the
1997 fiscal year the proposed 1998 fiscal year budget would be modified to
include a reduction in sales taxes, $320 million of increased spending and
repayment of $330 million of the City's debt.
The Governor and the legislature have not agreed upon the level of State aid to
the City during the 1998 fiscal year and there can be no assurances that fur-
ther cuts will not be necessary to close additional budget gaps once a state
budget is adopted. If State or Federal aid in later years is less than the
level projected in the Mayor's proposal, projected savings may be negatively
impacted and the Mayor may be required to propose significant additional spend-
ing reductions or tax increases to balance the City's budget for the 1998 and
later fiscal years. If the State, the State Agencies, New York City, other
municipalities or school districts were to suffer serious financial difficul-
ties jeopardizing their respective access to the public credit markets, or
increasing the risk of a default, the market price of Municipal Obligations
issued by such entities could be adversely affected.
On March 5, 1997, New York Governor George Pataki signed legislation creating
The New York City Transitional Finance Authority, which will be authorized to
issue up to $7.5 billion in bonds for capital spending by New York City. The
City had faced limitations on its borrowing capacity after 1998 under the
State's Constitution that would have prevented it from borrowing additional
funds, as a result of the decrease in real estate values within the City.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each of the Funds, as a fundamental policy, may not, without the approval of
the holders of a majority of the outstanding shares of that Fund, (1) invest
more than 5% of its total assets in securities of any one issuer, except that
this limitation shall not apply to securities of the United States government,
its agencies and instrumentalities or to the investment of 25% of such Fund's
assets; (2) 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; (3) 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 (4) invest more than 25% of its total assets in securities of issuers in any
one industry, provided, however, that such limitation shall not be applicable
to municipal bonds issued by governments or political subdivisions of govern-
ments, and obligations issued or guaranteed by the U.S. Government, its agen-
cies or instrumentalities. For purposes of the foregoing sentence, 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). It is a fundamental policy of each
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of the Funds, which cannot be changed without the approval of the holders of a
majority of shares of such Fund, that a Fund will not hold securities of a sin-
gle bank, including securities backed by a letter of credit of such bank, if
such holdings would exceed 10% of the total assets of such Fund. 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 acquisi-
tion of securities.
For a more complete description of the fundamental and non-fundamental invest-
ment policies summarized above and the other fundamental investment policies
applicable to each of the Funds, see the Statement of Additional Information.
The investment policies of a Fund specifically identified as fundamental,
together with its 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, which-
ever is less.
Management of the Fund
The management of Nuveen Tax-Free Money Market Fund, Inc., including general
supervision of the duties performed for each Fund by Nuveen Advisory under the
Investment Management Agreement, is the responsibility of the Board of Direc-
tors of Nuveen Tax-Free Money Market Fund, Inc.
Nuveen Advisory acts as the investment adviser for and manages the investment
and reinvestment of the assets of each Fund. Its address is 333 West Wacker
Drive, Chicago, Illinois 60606. Nuveen Advisory also administers the Funds'
business affairs, provides office facilities and equipment and certain cleri-
cal, bookkeeping and administrative services, and permits any of its officers
or employees to serve without compensation as directors or officers of Nuveen
Tax-Free Money Market Fund, Inc. if elected to such positions.
For the services and facilities furnished by Nuveen Advisory, each Fund has
agreed to pay an annual management fee as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEES
- -------------------------------------------
<S> <C>
For the first $500 million .400 of 1%
For the next $500 million .375 of 1%
For assets over $1 billion .350 of 1%
- -------------------------------------------
</TABLE>
All fees and expenses are accrued daily and deducted before payment of divi-
dends to investors. In addition to the management fee of Nuveen Advisory, each
Fund pays all other costs and expenses of its operations and a portion of the
Funds' general administrative expenses allocated in proportion to the net
assets of each Fund. Included in the expenses paid by the Funds is each Fund's
share of payments under its Distribution and Service Plans.
The management fees will be reduced or Nuveen Advisory will assume certain
expenses of each series of each Fund in amounts necessary to prevent the total
expenses (including Nuveen Advisory's management fees and the Distribution Plan
series and the Service Plan series of each Fund's share of payments under the
Distribution and Service Plans, but excluding interest, taxes, fees incurred in
acquiring and disposing of portfolio securities and, to the extent permitted,
extraordinary expenses) of each series in any fiscal year from exceeding .55 of
1% of the average daily net asset value of such series. For the fiscal year
ended February 28, 1997, management fees amounted to .40 of 1% of the average
daily net assets of each Fund. For the fiscal year ended February 28, 1997, net
of applicable expense reimbursements, total expenses were .55 of 1% of the
average daily net assets of each series of the Massachusetts and New York
Funds. Without expense reimbursements, total expenses for the fiscal year ended
February 28, 1997 would have been .61, .90 and .74 of 1% of the average daily
net assets of the Institutional series, the Distribution Plan series and the
Service Plan series, respectively, of the Massachusetts Fund, and 1.12, .92 and
1.27 of 1% of the average daily net assets of the Institutional series, the
Distribution Plan series and the Service Plan series, respectively, of the New
York Fund.
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. Over 1,000,000
individuals have invested to date in Nuveen's funds and unit 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.
Dividends and Taxes
DIVIDENDS
All of the net income attributable to the respective series of each Fund is
declared on each calendar day as a dividend on shares entitled to such divi-
dend. Net income of each Fund series consists of all interest income accrued
and discounts 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
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short-term gains or losses on portfolio instruments since the previous dividend
declaration, less estimated expenses incurred subsequent to the previous divi-
dend declaration. For the Service Plan series and Distribution Plan series of
the Funds, expenses will include, among other things, payments to banks or
other organizations and securities dealers pursuant to Service Agreements and
Distribution Agreements with Nuveen. See "Distribution and Service Plan" below
for additional information on these expenses. It is not expected that realized
or unrealized gains or losses on portfolio instruments will be a meaningful
factor in the computation of the net income of the Funds. Dividends are paid
monthly and are reinvested in additional shares of the Fund on which the divi-
dends are declared 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 fre-
quently than once a year within 30 days of the end of the Nuveen Tax-Free Money
Market Fund, Inc.'s fiscal year and reinvested in additional shares of the Fund
on which such gains are paid at net asset value unless the shareholder has
elected to receive capital gains in cash. The Funds do not anticipate realizing
any significant long-term capital gains or losses.
FEDERAL INCOME TAX MATTERS
Each 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. Each fund also intends to satisfy conditions
which will enable interest from Municipal Obligations, 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.
Distributions by each Fund of net income received, if any, from taxable tempo-
rary investments and net short-term capital gains, if any, realized by the
Fund, will be taxable to shareholders as ordinary income. So long as a Fund
qualifies as a regulated investment company under the Code, distributions to
shareholders will not qualify for the dividends received deduction for corpora-
tions. If in any year a 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 pur-
chase or carry shares of a 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 purchase
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 Funds 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 substan-
tial users. Accordingly, the Funds may not be appropriate investments for
shareholders who are considered either a "substantial user" or a "related per-
son" thereof. Such persons should consult their tax advisers before investing
in the Funds.
Although the Funds have not done so and have no present intention to do so, the
Funds may also invest in private activity bonds, the interest on which is a
specific item of tax preference for purposes of computing the alternative mini-
mum tax on corporations and individuals. This type of private activity bond
includes most industrial and housing revenue bonds. Shareholders whose tax lia-
bility 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 corpo-
rations 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.
Each Fund is required in certain circumstances to withhold 31% of taxable divi-
dends 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 certifi-
cates, or who are otherwise subject to back-up withholding.
STATE INCOME TAX MATTERS
MASSACHUSETTS
Individual shareholders of the Massachusetts Fund who are subject to Massachu-
setts income taxation will not be required to include that portion of their
federally tax-exempt dividends in Massachusetts gross income which the Massa-
chusetts Fund clearly identifies as directly attributable to interest earned on
Municipal Obligations issued by governmental authorities in Massachusetts which
are specifically exempted from income taxation in Massachusetts, provided such
dividends are identified in a timely written notice mailed to shareholders of
the Massachusetts Fund, or interest earned on obligations of certain United
States territories or possessions. Similarly, such shareholders will not be
required to include in Massachusetts gross income capital gain dividends desig-
nated by the Massachusetts Fund to the extent such dividends are attributable
to gains derived from Municipal Obligations issued by Massachusetts governmen-
tal authorities and are specifically exempted from income taxation in Massachu-
setts, provided such dividends are identified in a timely written notice mailed
to shareholders of the Massachusetts Fund. Lastly,
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<PAGE>
any dividends of the Massachusetts Fund attributable to interest on United
States obligations exempt from state taxation and included in Federal gross
income will not be included in Massachusetts gross income, provided such divi-
dends are identified in a timely written notice mailed to shareholders of the
Massachusetts Fund. Distributions of dividends derived from any net income
received from taxable temporary investments and any net short-term capital
gains realized by the Massachusetts Fund will be included in shareholders' Mas-
sachusetts income.
With respect to corporate shareholders of the Massachusetts Fund that are sub-
ject to the Massachusetts excise tax, dividends received from the Massachusetts
Fund are includable in gross income and generally may not be deducted by corpo-
rate shareholders in computing their net income, and the net worth base of an
intangible property corporation includes the corporate shareholders' shares in
the Massachusetts Fund.
NEW YORK
Individual shareholders of the New York Fund who are subject to New York State
or New York City personal income taxation will not be required to include in
their New York adjusted gross income that portion of their exempt-interest div-
idends (as determined for federal income tax purposes) which the New York Fund
clearly identifies as directly attributable to interest earned on Municipal
Obligations issued by governmental authorities in New York ("New York Municipal
Obligations") and which are specifically exempted from personal income taxation
in New York State or New York City, or interest earned on obligations of U.S.
territories or possessions that is exempt from taxation by the states pursuant
to federal law. Distributions to individual shareholders of dividends derived
from interest that does not qualify as exempt-interest dividends (as determined
for federal income tax purposes), distributions of exempt-interest dividends
(as determined for federal income tax purposes) which are derived from interest
on Municipal Obligations issued by governmental authorities in states other
than New York State, and distributions derived from interest earned on federal
obligations will be included in their New York adjusted gross income as ordi-
nary income. Distributions to individual shareholders of the New York Fund of
capital gain dividends (as determined for federal income tax purposes) will be
included in their New York adjusted gross income as long-term capital gains.
Distributions to individual shareholders of the New York Fund of dividends
derived from any net income received from taxable temporary investments and any
net short-term capital gains realized by the New York Fund will be included in
their New York adjusted gross income as ordinary income.
For purposes of New York State franchise taxation (or New York City general
corporation taxation), entire income will include dividends received from the
New York Fund (as determined for federal income tax purposes), and investment
capital will include a corporate shareholder's shares of the New York Fund. If
a shareholder of the New York Fund is subject to the New York City unincorpo-
rated business tax, income and gains derived from the New York Fund will be
subject to such tax, except for exempt-interest dividends (as determined for
federal income tax purposes) which the New York Fund clearly identifies as
directly attributable to interest earned on New York Municipal Obligations.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations and tax provisions of designated states presently
in effect as they directly govern the taxation of each Fund or its sharehold-
ers. The foregoing state tax information assumes that each Fund qualifies as a
regulated investment company for federal income tax purposes under subchapter M
of the Code, and that the amounts so designated by each Fund to its sharehold-
ers qualify as "exempt-interest dividends" under Section 852(b)(5) of the Code.
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 taxation of each Fund and the federal, state and
local tax consequences to its shareholders.
Net Asset Value
Net asset value of the shares of each Fund will be determined by The Chase Man-
hattan Bank, Nuveen Tax-Free Money Market Fund, Inc.'s custodian, as of 12:00
noon, Eastern Time on each day on which the Federal Reserve Bank of Boston is
normally open for business (a "business day") and as of 12:00 noon Eastern Time
on any other day during which there is a sufficient degree of trading in the
Funds' portfolio securities such that the current net asset value of the Funds'
shares might be materially affected by changes in the value of the portfolio
securities. The net asset value per share of each Fund will be computed by
dividing the sum of the value of the portfolio securities held by such Fund,
plus cash or other assets, less liabilities, by the total number of shares of
such Fund outstanding at such time.
Each Fund will seek to maintain a net asset value of $1.00 per share. In this
connection, portfolio securities in each Fund are valued on the basis of their
amortized cost. This method values a security at its cost on the date of pur-
chase and thereafter assumes a constant amortization to maturity of any dis-
count or premium, regardless of the impact of fluctuating interest rates on the
market value of the security. For a more complete description of the amortized
cost valuation method and its effect on existing and prospective shareholders
of the Funds, see the Statement of Additional Information. There can be no
assurance that each Fund will be able at all times to maintain a net asset
value of $1.00 per share.
-13--
<PAGE>
How to Buy Fund Shares
IN GENERAL
Shares of each of the Funds may be purchased by residents of the Fund's desig-
nated state on business days (as defined under "Net Asset Value") at the net
asset value which is next computed after receipt of the order, provided payment
in federal funds is received as described herein.
Shares of each Fund are issued in three series: (i) the "Service Plan" series
intended for purchase by or through banks and other organizations ("Service
Organizations") who have agreed to perform certain services for their customers
who are shareholders of this series of the Fund, (ii) the "Distribution Plan"
series intended for purchase by or through securities dealers who have entered
into Distribution Agreements with Nuveen with respect to the distribution of
shares of the Fund and (iii) the "Institutional" series intended for purchase
by trustees, bank trust departments, corporations and investment bankers or
advisers. The Distribution Plan was adopted by the Funds in accordance with
Rule 12b-1 under the 1940 Act which permits an investment company to bear dis-
tribution expenses (as that term is construed by the Securities and Exchange
Commission) in connection with certain services provided by securities dealers.
The Service Plan, although not a Rule 12b-1 plan, is a comparable agreement
entered into with Service Organizations who provide certain administrative
services. There are no sales charges on purchases of shares of any of the three
series of each Fund. However, shares of the Service Plan series and shares of
the Distribution Plan series are charged with a portion of fees paid to Service
Organizations and securities dealers, respectively, pursuant to Service Agree-
ments and Distribution Agreements with Nuveen. The allocation of a portion of
these fees to the Service Plan series and to the Distribution Plan series of
shares of each Fund will be charged against the yield to holders of such
shares, which will typically result in a lower yield to these holders as com-
pared with the holders of the Institutional series of the same Fund. These fees
are described below under the caption "Distribution and Service Plan" and in
the Statement of Additional Information. Shares of the Service Plan series and
the Distribution Plan series enjoy certain exclusive voting rights on matters
related to the allocation of fees to shares of these two series. Except for the
allocation of these fees and the special voting rights related thereto, shares
of each of the three series of each Fund are identical.
Purchases of shares of the Funds by Federal Reserve wire are recommended. How-
ever, purchases may also be made by bank wire, Federal Reserve draft or check.
The minimum initial investment in any of the Funds is $5,000, and subsequent
investments must be in amounts of $100 or more. The Funds reserve the right to
reject purchase orders and to waive or increase the minimum investment require-
ments.
In order to maximize the earnings on its assets, each of the Funds strives to
be invested as completely as practicable. A Fund is normally required to make
settlement in federal funds for securities purchased. Accordingly, orders for
shares of one of the Funds may be made, and become effective on business days,
as follows:
PURCHASE BY TELEPHONE
To open an account, call Nuveen toll-free at (800) 858-4084 to obtain an
account number, control number and instructions. Information concerning the
account such as name, address and social security or tax identification number
will be taken over the telephone. Payment may be made by wire transfer to the
United Missouri Bank of Kansas City, N.A. as follows:
United Missouri Bank of Kansas City, N.A.
ABA #101000695
Nuveen Tax-Free Money Market Fund, Inc.
[Designated State] Fund
Shareholder Account No. (see above):
Shareholder Account Name:
The investor will be required to complete an application form and mail it to
Nuveen after making the initial telephone purchase. Subsequent investments may
be made by following the same telephone order and 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
by 3:00 p.m., Eastern Time, the order is effective that day. If both the order
and federal funds are not received by the times specified above, the order will
become effective the following business day.
PURCHASE BY MAIL
To open an account, complete the Application Form and mail it with a check or
Federal Reserve draft to Nuveen Tax-Free Money Market Fund, Inc., [Designated
State] Fund, P.O. Box 5330, Denver, Colorado 80217-5330. Subsequent investments
may be made by mailing a check with the investor's account number to the above
address. The order becomes effective as soon as the check or draft is converted
to federal funds. This typically occurs one business day after receipt but may
take longer.
FUND DIRECT--ELECTRONIC FUNDS TRANSFER
You can use Fund Direct to link your Fund account to your account at your bank
or other financial institution to enable you to send money electronically
between those accounts to perform a variety of account transactions. These
include purchases of shares by telephone, investments under a Systematic
Investment Plan, and sending dividends and distributions, redemption payments
or Systematic Withdrawal Plan payments directly to your bank account. To acti-
vate Fund Direct privileges, just complete the appropriate section of the
enclosed Account Application, or an Account Update Form. To obtain an Account
Update Form, call Nuveen at (800) 621-7227. Fund Direct privileges will apply
to each shareholder listed in the registration on your account as well as to
your Authorized
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14
<PAGE>
Dealer representative of record unless and you indicate otherwise in writing.
After you establish Fund Direct privileges for your account, any change of bank
account information must be made by signature-guaranteed instructions to SSI as
described in "How to Redeem Fund Shares."
Purchases may be made by telephone only after your account has been estab-
lished. To purchase shares in amounts up to $250,000 through a telephone repre-
sentative, call SSI at (800) 621-7227. The purchase payment will be debited
from your bank account.
PURCHASE THROUGH A SECURITIES DEALER
OR SERVICE ORGANIZATION
To open an account through a bank or a securities broker or dealer ("service
organization"), investors should send money to that organization for transmis-
sion to the Funds and furnish it with the information required in the Applica-
tion Form. Each of the Funds has Distribution and Service Plan pursuant to
which payments are made, in the case of the Distribution Plan series to dealers
who provide assistance in distributing shares of such series of the Fund, and
in the case of the Service Plan series to Service Organizations who provide
assistance in servicing shareholder accounts of such series. See "Distribution
and Service Plan."
PURCHASE BY REINVESTMENT OF
NUVEEN UNIT TRUST DISTRIBUTIONS
Unitholders of Nuveen Unit Trusts may purchase shares of the Fund for the des-
ignated state of which they are residents by automatically reinvesting distri-
butions from their Nuveen Unit Trust. To obtain information on share purchases
through investment of Nuveen Unit Trust distributions, check the applicable box
on the enclosed Application Form or call Nuveen toll-free at (800) 237-0910.
COMMENCEMENT OF DIVIDENDS
Shares are deemed to have been purchased and are entitled to dividends commenc-
ing on the day the purchase order becomes effective.
THE FUND OFFERS TWO DIFFERENT TYPES
OF SYSTEMATIC INVESTMENT PROGRAMS
SYSTEMATIC INVESTMENT PLAN
Once you have established a Fund account, you may make regular investments in
an amount of $50 or more each month by authorizing Shareholder Services, Inc.
("SSI") to draw preauthorized checks on your bank account. There is no obliga-
tion to continue payments and you may terminate your participation at any time
at your discretion. No charge is made in connection with this Plan, and there
is no cost to the Funds. To obtain an Account Update Form which you can use to
initiate a Systematic Investment Plan, call Nuveen toll-free at (800) 621-7227.
PAYROLL DIRECT DEPOSIT PLAN
Once you have established a Fund account you may, with your employer's consent,
make regular investments in Fund shares of $50 or more per month by authorizing
your employer to deduct such amount automatically from your paycheck. There is
no obligation to continue payments and you may terminate your participation at
any time at your discretion. No charge is made for this service and there is no
cost to the Funds. To obtain an application form for the Payroll Direct Deposit
Plan, check the applicable box on the enclosed Application Form or call Nuveen
toll-free at (800) 621-7227.
OTHER SHAREHOLDER PROGRAMS
EXCHANGE PRIVILEGES
You may exchange shares of a Fund for the appropriate class of shares of any
other Nuveen open-end fund with reciprocal exchange privileges, (the "Nuveen
Funds"), provided that the Nuveen Fund into which shares are to be exchanged is
offered in your state of residence and that the shares to be exchanged have
been held by you for a period of at least 15 days. You may exchange Fund shares
by calling (800) 621-7227 or by mailing your written request to SSI. Shares of
Nuveen Funds purchased subject to a front-end sales charge may be exchanged for
shares of the Funds or any other Nuveen Fund at the next determined net asset
value without any front-end sales charge. No CDSC otherwise applicable, will be
assessed on an exchange, and the holding period of your investment will be car-
ried over to the new fund for purposes of determining any future CDSC. You may
not exchange B shares for shares of a Nuveen money market fund. Shares of any
Nuveen Fund purchased through dividend reinvestment or through reinvestment of
Nuveen Unit Trust distributions (and any dividends thereon) may be exchanged
for Class A shares of any 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 Funds do not
(generally, Martin Luther King's Birthday, Columbus Day and Veterans Day),
exchanges of shares of one of those funds for shares of the Funds 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 constitutes a sale and purchase of
shares and may result in capital gain or loss. Before exercising any exchange,
you should obtain the
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<PAGE>
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 purchas-
ing 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 an approved Medallion Guarantee Program or in such other manner as may be
acceptable to a Fund. You may also make exchanges by telephone if a preautho-
rized exchange authorization, as provided on the account Application Form, is
on file with SSI, Nuveen Tax-Free Money Market Fund's shareholder service
agent. The exchange privilege may be modified or discontinued at any time. If
you do not wish to have telephone exchange privileges, you must indicate this
on the "Telephone Services" section of your Account Application or otherwise
notify the Fund in writing of your desire.
ADDITIONAL INFORMATION
An account will be maintained for each shareholder of record in the Funds by
SSI. Share certificates will be issued only upon written request of the share-
holder to SSI. No certificates are issued for fractional shares. The Funds
reserve the right to reject any purchase order and to waive or increase minimum
investment requirements.
A change in registration or transfer of shares held in the name of a
broker/dealer can only be effected by an order in good form from the
broker/dealer acting on behalf of the investor. Broker/dealers are encouraged
to open single master accounts. However, some broker/dealers may wish to use
SSI's sub-accounting system to minimize their internal recordkeeping require-
ments. A broker/dealer or other investor requesting shareholder servicing or
accounting other than the master account or sub-accounting service offered by
the Funds will be required to enter into a separate agreement with the agent
for these services for a fee to be determined in accordance with the level of
services to be furnished.
Subject to the rules and regulations of the SEC, each Fund reserves the right
to suspend the continuous offering of its shares at any time, but such suspen-
sion shall not affect the shareholder's right of redemption as described in
"How to Redeem Fund Shares" below.
DISTRIBUTION AND SERVICE PLAN
Each of the Funds has adopted a Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act and a Service Plan (collectively, the "Plan"), pursuant to which
the Distribution Plan series and the Service Plan series of such Fund and
Nuveen pay fees to securities dealers and service organizations for services
rendered in the distribution of shares of such Fund or the servicing of share-
holder accounts. Such services may include, among other things, establishing
and maintaining shareholder accounts; processing purchase and redemption trans-
actions; arranging for bank wires; performing sub-accounting; answering share-
holder inquiries and such other services as Nuveen may request. Nuveen will
enter into Distribution or Service Agreements with organizations who render
such services. Service payments will be made to such organizations in amounts
of up to .25 of 1% per year of average assets of serviced accounts and will be
paid one-half by the respective series of each Fund and one-half by Nuveen.
The Plan continues in effect from year to year so long as such continuance is
approved at least annually by a vote of the Board of Directors and a vote of
the non-interested directors. The Plan may not be amended to increase materi-
ally the cost which the Distribution Plan series or the Service Plan series of
the Funds may bear for distribution and services, respectively, without the
approval of the non-interested directors and the shareholders of the affected
series of that Fund. Any other material amendments of the Plan must be approved
by the non-interested directors. Beneficial owners of shares of the Distribu-
tion Plan series and the Service Plan series of the Funds should read this pro-
spectus in light of the terms governing their accounts with securities dealers
and service organizations, respectively.
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. You may use the
telephone redemption, check redemption, or the regular redemption procedures
discussed hereafter. The purchase and redemption methods employed will deter-
mine when funds will be available to you. Where the shares to be redeemed have
been purchased by check or through Fund Direct within 15 days prior to the date
the redemption request is received, the Fund will not send the redemption pro-
ceeds until the check or Fund Direct transfer for the purchase has cleared,
which may take up to 15 days. There is no delay when the shares being redeemed
were purchased by wiring federal funds.
CHECK REDEMPTION
Shareholders of the Distribution Plan series of any Fund may request that the
Fund provide them with drafts ("Redemption Checks") drawn on the Fund's
account. These Redemption Checks may be made payable to the order of any person
in an amount of $500 or more, and dividends are earned until the Redemption
Check clears. Redemption Checks clear through the United Missouri Bank of Kan-
sas City, N.A. (the "Bank") and are subject to the same rules and regulations
that the Bank applies to checking accounts.
When a Redemption Check is presented, a sufficient number of full and frac-
tional shares in the shareholder's account will be redeemed to cover the amount
of the Redemption Check. Shares for which stock certificates have
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16
<PAGE>
been issued will not be available for redemption by the use of Redemption
Checks. There must be sufficient shares in the shareholder's account to cover
the amount of each Redemption Check written or the check will be returned.
Checks should not be used to close an account. Shareholders wishing to use
Redemption Checks must complete the appropriate section of the Application Form
and submit the enclosed signature card.
This check redemption privilege may be modified or terminated at any time by
Nuveen Tax-Free Money Market Fund, Inc. or the Bank. The check redemption fea-
ture does not constitute a bank checking account.
BY WRITTEN REQUEST
Shareholders may redeem their shares by sending a written request for redemp-
tion directly to Nuveen Tax-Free Money Market Fund, Inc., c/o Shareholder Serv-
ices, Inc., P.O. Box 5330, Denver, Colorado 80217-5330, accompanied by duly
endorsed certificates, if issued. Requests for redemption and share certifi-
cates, 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 pre-
ceding 30 days), the signature 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.
TELEPHONE REDEMPTION BY CHECK
Unless you have declined telephone privileges, you may sell Fund shares by
calling (800) 621-7227. Your telephone redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. While you or
anyone authorized by you may make telephone redemption requests, redemption
checks will be issued only in the name of the shareholder of record and will be
mailed to the address of record. If your telephone request is received prior to
4:00 p.m. Eastern Time, the shares to be redeemed earn income on the day the
request is made, and the redemption will be effected and the redemption check
will be mailed on the following business day. For requests received after 4:00
p.m. Eastern Time, the shares to be redeemed earn income through the following
business day, and the redemption will be effected and the redemption check will
be mailed on the second business day.
Nuveen, the transfer agent, or the Fund will be liable for losses resulting
from unauthorized telephone redemptions only if they do not follow reasonable
procedures designed to verify the identity of the caller. You should immedi-
ately verify your trade confirmations when you receive them. Telephone redemp-
tions will not be honored for 30 days after the address on your account has
changed.
TELEPHONE REDEMPTION VIA FUND DIRECT
To redeem shares held in non-certificate form by telephone with the redemption
proceeds paid via Fund Direct-Electronic Funds Transfer, you must complete the
Telephone Services section of the enclosed Application Form and return it to
Nuveen or SSI. If you did not authorize Telephone Redemption via Fund Direct
when you opened your account, you may do so by sending a written request to the
Fund signed by each account owner with signatures guaranteed by a member of an
approved Medallion Guarantee Program or in such other manner as may be accept-
able to the Fund. Proceeds of share redemptions made by Fund Direct will be
transferred only to the commercial bank account specified by the shareholder.
Redemption proceeds may be delayed one additional business day if the Federal
Reserve Bank of Boston or the Federal Reserve Bank of New York is closed on the
day the redemption proceeds would ordinarily be wired.
If you have authorized Telephone Redemption via Fund Direct, you can take
advantage of two methods of telephone redemption: regular telephone redemption
and expedited telephone redemption. You may make regular Fund Direct redemption
requests by calling Nuveen at (800) 621-7227. If a regular telephone redemption
request is received prior to 4:00 p.m. Eastern Time, the shares to be redeemed
earn income on the day the request is made, and the redemption is effected on
the following business day. For regular redemption requests received after 4:00
p.m. Eastern Time, the shares to be redeemed earn income through the following
business day, and the redemption is effected on the second business day follow-
ing the request. For all regular redemptions, you will typically receive your
funds within three business days after your redemption is effected. You may
make expedited telephone redemption requests to redeem shares that are worth at
least $1,000 by calling Nuveen at (800) 858-4084. If an expedited redemption
request is received by 12:00 noon Eastern Time, the shares to be redeemed do
not earn income on that day, but the redemption is effected, and you will nor-
mally receive your funds, on that day. If an expedited redemption request is
received after 12:00 noon Eastern Time, the shares to be redeemed earn income
on the day the request is received. The redemption is effected, and you will
normally receive your funds, on the next business day following the request.
The Fund reserves the right to charge a fee for expedited redemption requests.
HOW TO CHANGE AUTHORIZED REDEMPTION INSTRUCTIONS
In order to establish multiple accounts, or to change the account or accounts
designated to receive redemption proceeds, a written request specifying the
change must be sent to Nuveen. This request must be signed by each account
owner with signatures guaranteed by a member of an approved Medallion Guarantee
Program or in such
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17
<PAGE>
other manner as may be acceptable to the Fund. Further documentation may be
required from corporations, executors, trustees or personal representatives.
The Funds reserve the right to refuse telephone redemptions and, at their
option, may limit the timing, amount or frequency of these redemptions. Tele-
phone redemption procedures may be modified or terminated at any time, on 30
days' notice, by the Funds. The Funds, SSI and Nuveen will not be liable for
following telephone instructions reasonably believed to be genuine.
REDEMPTION THROUGH SERVICE ORGANIZATIONS
Fund shareholders may also redeem shares through their accounts with service
organizations in accordance with procedures established by each such service
organization. The Funds have no redemption charge, but service organizations
may impose transaction fees or other charges relating to the redemption of Fund
shares. Individual shareholders should determine from their service organiza-
tions the procedures and charges, if any, that govern redemptions.
SYSTEMATIC WITHDRAWAL PLAN
If you own Fund shares currently worth at least $10,000, you may establish a
Systematic Withdrawal Plan by completing an application form for the Plan. You
may obtain an application form by checking the applicable box on the enclosed
Application Form or by calling Nuveen toll-free at (800) 621-7227. The Plan
permits you to request periodic withdrawals on a monthly, quarterly, semi-
annual or annual basis in an amount of $50 or more. All shares of the Funds you
own will be accumulated in the Plan, with a sufficient number of shares being
redeemed periodically to meet the requested withdrawal payments. Depending upon
the size of the payments requested under the Plan, redemptions for the purpose
of making such payments may reduce or even exhaust your account. Withdrawals
under this Plan should not, therefore, be considered a yield on investment. A
Systematic Withdrawal Plan may be terminated at any time by you or the Fund. To
obtain an Account Update Form, which you can use to initiate a Systematic With-
drawal Plan, call Nuveen toll-free at (800) 621-7227.
REDEMPTION IN KIND
Each 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 such Fund at the beginning of such period. This commitment
is irrevocable without the prior approval of the SEC and is a fundamental pol-
icy of each 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 Funds make payment in whole or in part in secu-
rities or other assets of such Fund in case of an emergency or any time a cash
distribution would impair the liquidity of such Fund to the detriment of the
existing shareholders. In this event, the securities would be valued in the
same manner as securities of such Fund are valued. If the recipient were to
sell such securities, he or she would incur brokerage charges.
OTHER PRACTICES
The Funds 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 Funds normally utilizes is restricted, or an emergency exists as determined
by the SEC so that disposal of a 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 Funds.
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18
<PAGE>
General Information
INVESTOR INQUIRIES
Investor inquiries may be made directly of the Funds in writing or by calling
John Nuveen & Co. Incorporated, the Nuveen Tax-Free Money Market Fund, Inc.'s
distributor, toll-free at (800) 621-7227.
CUSTODIAN, SHAREHOLDER SERVICES AGENT AND TRANSFER AGENT
The custodian of the assets of the Funds is The Chase Manhattan Bank, 4 New
York Plaza, New York, New York 10004. The custodian performs custodial fund
accounting and portfolio accounting services. Shareholder Services, Inc., P.O.
Box 5330, Denver, Colorado 80217-5330, is the transfer, shareholder services
and dividend paying agent for the Funds and performs bookkeeping, data process-
ing and administrative services incident to the maintenance of shareholder
accounts.
CAPITAL STOCK
Nuveen Tax-Free Money Market Fund, Inc. was incorporated in Minnesota on July
11, 1986. It is authorized to issue an aggregate of 5,000,000,000 shares of
common stock, $.01 par value, consisting of 2,500,000,000 shares of the Massa-
chusetts Fund and 2,500,000,000 shares of the New York Fund. Nuveen Tax-Free
Money Market Fund, Inc. reserves the right to reclassify a portion of these
shares by allocating them to other portfolio classes that may be established in
the future. Shares of each portfolio class will have equal non-cumulative vot-
ing rights and equal rights with respect to dividends declared by such portfo-
lio class and the assets of such portfolio class upon liquidation, except that
only shares of a particular portfolio class will be entitled to vote on matters
concerning only that portfolio class. Shares are fully paid and non-assessable
when issued and have no pre-emptive, conversion or exchange rights.
Taxable Equivalent
Yield Tables
The following tables show the combined effects for individuals of federal,
state and local (if applicable) income taxes on what you would have to earn on
a taxable investment to equal a given tax-exempt yield and the amount that
those subject to a given combined tax rate would have to put into a tax-free
investment in order to generate the same after-tax income as a taxable invest-
ment. These tables are for illustrative purposes only and are not intended to
predict the actual return you might earn on a Fund investment. The Funds occa-
sionally may advertise their performance in similar tables using other current
combined tax rates than those shown here. The combined tax rates used in these
tables have been rounded to the nearest one-half of one percent. They are based
upon published 1997 marginal federal tax rates and marginal state tax rates
currently available and scheduled to be in effect, and do not take into account
changes in tax rates that are proposed from time to time. A taxpayer's marginal
tax rate is affected by both his taxable income and his adjusted gross income.
The table assumes that federal taxable income is equal to state income subject
to tax, and for cases in which more than one state rate falls within a federal
bracket, the highest state rate corresponding to the highest income within that
federal bracket is used. The tables assume taxpayers are not subject to any
alternative minimum taxes and deduct any state income taxes paid on their fed-
eral income tax returns. Unless noted otherwise, the tables do not reflect any
local taxes or any taxes other than personal income taxes. They also reflect
the effect of the current federal tax limitations on itemized deductions and
personal exemptions, which were designed to phase out certain benefits of these
deductions for higher income taxpayers. These limitations are subject to cer-
tain maximums, which depend on the number of exemptions claimed and the total
amount of the taxpayer's itemized deductions. For example, the limitation on
itemized deductions will not cause a taxpayer to lose more than 80% of his
allowable itemized deductions with certain exceptions. The combined tax rates
shown here may be higher or lower than your actual combined tax rate.
MASSACHUSETTS
Combined marginal tax rates for Massachusetts joint taxpayers with four per-
sonal exemptions
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED TAX-FREE YIELD
TAXABLE GROSS STATE AND 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50%
INCOME INCOME FEDERAL ----- ----- ----- ----- ----- ----- ----- -----
(1,000'S) (1,000'S) TAX RATE** TAXABLE EQUIVALENT YIELD
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 41.2 $ 0-121.2 25.0% 2.67 3.33 4.00 4.67 5.33 6.00 6.67 7.33
41.2- 99.6 0-121.2 36.5 3.15 3.94 4.72 5.51 6.30 7.09 7.87 8.66
121.2-181.8 37.5 3.20 4.00 4.80 5.60 6.40 7.20 8.00 8.80
99.6-151.8 0-121.2 39.5 3.31 4.13 4.96 5.79 6.61 7.44 8.26 9.09
121.2-181.8 40.0 3.33 4.17 5.00 5.83 6.67 7.50 8.33 9.17
181.8-304.3 42.5 3.48 4.35 5.22 6.09 6.96 7.83 8.70 9.57
151.8-271.1 121.2-181.8 44.5 3.60 4.50 5.41 6.31 7.21 8.11 9.01 9.91
181.8-304.3 47.5 3.81 4.76 5.71 6.67 7.62 8.57 9.52 10.48
Over 304.3 44.5 3.60 4.50 5.41 6.31 7.21 8.11 9.01 9.91
Over 271.1 181.8-304.3 51.0 4.08 5.10 6.12 7.14 8.16 9.18 10.20 11.22
Over 304.3 48.0 3.85 4.81 5.77 6.73 7.69 8.65 9.62 10.58
- ----------------------------------------------------------------------------------------
</TABLE>
---
19
<PAGE>
Combined marginal tax rates for Massachusetts single taxpayers with one per-
sonal exemption.
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED TAX-FREE YIELD
TAXABLE GROSS STATE AND 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50%
INCOME INCOME FEDERAL ---- ---- ---- ---- ---- ---- ---- -----
(1,000'S) (1,000'S) TAX RATE** TAXABLE EQUIVALENT YIELD
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 24.7 $ 0 - 121.2 25.0% 2.67 3.33 4.00 4.67 5.33 6.00 6.67 7.33
24.7 - 59.8 0 - 121.2 36.5 3.15 3.94 4.72 5.51 6.30 7.09 7.87 8.66
59.8 - 124.7 0 - 121.2 39.5 3.31 4.13 4.96 5.79 6.61 7.44 8.26 9.09
121.2 - 243.7 40.5 3.36 4.20 5.04 5.88 6.72 7.56 8.40 9.24
124.7 - 271.1 121.2 - 243.7 45.5 3.67 4.59 5.50 6.42 7.34 8.26 9.17 10.09
Over 243.7 44.5 3.60 4.50 5.41 6.31 7.21 8.11 9.01 9.91
Over 271.1 Over 243.7 48.0 3.85 4.81 5.77 6.73 7.69 8.65 9.62 10.58
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR AN AFTER-TAX RETURN EQUAL TO YOUR TAX-FREE INVESTMENT MAY BE LESS*
THAT PROVIDED BY A 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$50,000 in a 3% taxable investment $ 45,375 $ 36,300 $30,250 $25,929 $22,688 $20,167 $18,150
$50,000 in a 4% taxable investment 60,500 48,400 40,333 34,571 30,250 26,889 24,200
$50,000 in a 5% taxable investment 75,625 60,500 50,417 43,214 37,813 33,611 30,250
$50,000 in a 6% taxable investment 90,750 72,600 60,500 51,857 45,375 40,333 36,300
$50,000 in a 7% taxable investment 105,875 84,700 70,583 60,500 52,938 47,056 42,350
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Dollar amounts in the table reflect a 39.5% combined federal and state tax
rate.
** The Massachusetts state tax rate shown is the rate at which interest is
taxed. Certain other types of income are taxed at other rates.
For example, $50,000 in a 5% taxable investment earns the same after-tax return
as $43,214 in a 3.5% tax-free Nuveen investment.
---
20
<PAGE>
NEW YORK
Combined federal and New York state marginal tax rates for joint taxpayers with
four personal exemptions
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED TAX-FREE YIELD
TAXABLE GROSS STATE AND 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
INCOME INCOME FEDERAL ---- ---- ---- ---- ---- ---- ----
(1,000'S) (1,000'S) TAX RATE** TAXABLE EQUIVALENT YIELD
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-41.2 $ 0-100.0 21.0% 2.53 3.16 3.80 4.43 5.06 5.70 6.33
100.0-121.2 22.0 2.56 3.21 3.85 4.49 5.13 5.77 6.41
41.2-99.6 0-100.0 33.0 2.99 3.73 4.48 5.22 5.97 6.72 7.46
100.0-121.2 34.0 3.03 3.79 4.55 5.30 6.06 6.82 7.58
121.2-150.0 35.0 3.08 3.85 4.62 5.38 6.15 6.92 7.69
150.0-181.8 34.0 3.03 3.79 4.55 5.30 6.06 6.82 7.58
99.6-151.8 0-100.0 35.5 3.10 3.88 4.65 5.43 6.20 6.98 7.75
100.0-121.2 37.0 3.17 3.97 4.76 5.56 6.35 7.14 7.94
121.2-150.0 38.0 3.23 4.03 4.84 5.65 6.45 7.26 8.06
150.0-181.8 36.5 3.15 3.94 4.72 5.51 6.30 7.09 7.87
181.8-304.3 39.0 3.28 4.10 4.92 5.74 6.56 7.38 8.20
151.8-271.1 121.2-150.0 42.5 3.48 4.35 5.22 6.09 6.96 7.83 8.70
150.0-181.8 41.5 3.42 4.27 5.13 5.98 6.84 7.69 8.55
181.8-304.3 44.5 3.60 4.50 5.41 6.31 7.21 8.11 9.01
Over 304.3 41.5 3.42 4.27 5.13 5.98 6.84 7.69 8.55
Over 271.1 181.8-304.3 48.0 3.85 4.81 5.77 6.73 7.69 8.65 9.62
Over 304.3 45.0 3.64 4.55 5.45 6.36 7.27 8.18 9.09
- -------------------------------------------------------------------------------
</TABLE>
Combined federal and New York state marginal tax rates for single taxpayers
with one personal exemption
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED TAX-FREE YIELD
TAXABLE GROSS STATE AND 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
INCOME INCOME FEDERAL ---- ---- ---- ---- ---- ---- ----
(1,000'S) (1,000'S) TAX RATE** TAXABLE EQUIVALENT YIELD
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-24.7 $ 0-100.0 21.0% 2.53 3.16 3.80 4.43 5.06 5.70 6.33
100.0-121.2 21.5 2.55 3.18 3.82 4.46 5.10 5.73 6.37
24.7-59.8 0-100.0 33.0 2.99 3.73 4.48 5.22 5.97 6.72 7.46
100.0-121.2 33.5 3.01 3.76 4.51 5.26 6.02 6.77 7.52
59.8-124.7 0-100.0 35.5 3.10 3.88 4.65 5.43 6.20 6.98 7.75
100.0-121.2 36.5 3.15 3.94 4.72 5.51 6.30 7.09 7.87
121.2-150.0 38.0 3.23 4.03 4.84 5.65 6.45 7.26 8.06
150.0-243.7 37.5 3.20 4.00 4.80 5.60 6.40 7.20 8.00
124.7-271.1 121.2-150.0 42.5 3.48 4.35 5.22 6.09 6.96 7.83 8.70
150.0-243.7 42.0 3.45 4.31 5.17 6.03 6.90 7.76 8.62
Over 243.7 41.5 3.42 4.27 5.13 5.98 6.84 7.69 8.55
Over 271.1 Over 243.7 45.0 3.64 4.55 5.45 6.36 7.27 8.18 9.09
- -------------------------------------------------------------------------------
</TABLE>
---
21
<PAGE>
<TABLE>
<CAPTION>
FOR AN AFTER-TAX RETURN
EQUAL TO THAT PROVIDED BY YOUR TAX-FREE INVESTMENT MAY BE LESS*
A 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$50,000 in a 3% taxable
investment $ 48,000 $38,400 $32,000 $27,429 $24,000 $21,333 $19,200
$50,000 in a 4% taxable
investment 64,000 51,200 42,667 36,571 32,000 28,444 25,600
$50,000 in a 5% taxable
investment 80,000 64,000 53,333 45,714 40,000 35,556 32,000
$50,000 in a 6% taxable
investment 96,000 76,800 64,000 54,857 48,000 42,667 38,400
$50,000 in a 7% taxable
investment 112,000 89,600 74,667 64,000 56,000 49,778 44,800
- ---------------------------------------------------------------------------------------------
</TABLE>
* The dollar amounts in the table reflect a 36.0% combined federal and state
tax rate.
** The table also reflects the New York State supplemental income tax based
upon a taxpayer's New York State taxable income and New York State adjusted
gross income. This supplemental tax results in an increased marginal state
income tax rate to the extent a taxpayer's New York State adjusted gross
income ranges between $100,000 and $150,000. Although the table does reflect
the effect of the state limitation on itemized deductions that corresponds to
the federal limitation, it does not reflect additional limitations under which
a New York taxpayer could lose up to an additional 50 percent of his otherwise
allowable itemized deductions, because the effect of this limitation varies
according to the particular amount of his itemized deductions. The application
of this limit may result in a higher tax rate than indicated in the table for
joint taxpayers with a New York adjusted gross income of $200,000 to $250,000
or $475,000 to $525,000 or single taxpayers with a New York adjusted gross
income of $100,000 to $150,000 or $475,000 to $525,000. The table assumes that
a taxpayer's New York adjusted gross income equals his federal adjusted gross
income. The table does not reflect the treatment of various state and city tax
credits that could affect the tax rate of particular New York taxpayers.
For example, $50,000 in a 5% taxable investment earns the same after-tax return
as $45,714 in a 3.5% tax-free Nuveen investment.
Combined federal, New York state and New York City marginal tax rates for joint
taxpayers with four personal exemptions
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED TAX-FREE YIELD
TAXABLE GROSS STATE AND 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
INCOME INCOME FEDERAL ---- ---- ---- ---- ---- ---- -----
(1,000'S) (1,000'S) TAX RATE** TAXABLE EQUIVALENT YIELD
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
41.2 $ 0-100.0 24.5% 2.65 3.31 3.97 4.64 5.30 5.96 6.62
100.0-121.2 26.0 2.70 3.38 4.05 4.73 5.41 6.08 6.76
41.2-
99.6 0-100.0 36.0 3.13 3.91 4.69 5.47 6.25 7.03 7.81
100.0-121.2 37.5 3.20 4.00 4.80 5.60 6.40 7.20 8.00
121.2-150.0 38.5 3.25 4.07 4.88 5.69 6.50 7.32 8.13
150.0-181.8 37.0 3.17 3.97 4.76 5.56 6.35 7.14 7.94
99.6-
151.8 0-100.0 39.0 3.28 4.10 4.92 5.74 6.56 7.38 8.20
100.0-121.2 40.0 3.33 4.17 5.00 5.83 6.67 7.50 8.33
121.2-150.0 41.0 3.39 4.24 5.08 5.93 6.78 7.63 8.47
150.0-181.8 40.0 3.33 4.17 5.00 5.83 6.67 7.50 8.33
181.8-304.3 42.0 3.45 4.31 5.17 6.03 6.90 7.76 8.62
151.8-
271.1 121.2-150.0 45.5 3.67 4.59 5.50 6.42 7.34 8.26 9.17
150.0-181.8 44.5 3.60 4.50 5.41 6.31 7.21 8.11 9.01
181.8-304.3 47.0 3.77 4.72 5.66 6.60 7.55 8.49 9.49
Over 304.3 44.5 3.60 4.50 5.41 6.31 7.21 8.11 9.01
Over
271.1 181.8-304.3 50.5 4.04 5.05 6.06 7.07 8.08 9.09 10.10
Over 304.3 47.5 3.81 4.76 5.71 6.67 7.62 8.57 9.52
- --------------------------------------------------------------------------------
</TABLE>
---
22
<PAGE>
Combined federal, New York state and New York City marginal tax rates for sin-
gle taxpayers with one personal exemption
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED TAX-FREE YIELD
TAXABLE GROSS STATE AND 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
INCOME INCOME FEDERAL ---- ---- ---- ---- ---- ---- ----
(1,000'S) (1,000'S) TAX RATE** TAXABLE EQUIVALENT YIELD
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-24.7 $ 0-100.0 24.5% 2.65 3.31 3.97 4.64 5.30 5.96 6.62
100.0-121.2 25.0 2.67 3.33 4.00 4.67 5.33 6.00 6.67
24.7-59.8 0-100.0 36.0 3.13 3.91 4.69 5.47 6.25 7.03 7.81
100.0-121.2 36.5 3.15 3.94 4.72 5.51 6.30 7.09 7.87
59.8-124.7 0-100.0 39.0 3.28 4.10 4.92 5.74 6.56 7.38 8.20
100.0-121.2 39.5 3.31 4.13 4.96 5.79 6.61 7.44 8.26
121.2-150.0 41.0 3.39 4.24 5.08 5.93 6.78 7.63 8.47
150.0-243.7 40.5 3.36 4.20 5.04 5.88 6.72 7.56 8.40
124.7-271.1 121.2-150.0 45.5 3.67 4.59 5.50 6.42 7.34 8.26 9.17
150.0-243.7 45.0 3.64 4.55 5.45 6.36 7.27 8.18 9.09
Over 243.7 44.5 3.60 4.50 5.41 6.31 7.21 8.11 9.01
Over 271.1 Over 243.7 47.5 3.81 4.76 5.71 6.67 7.62 8.57 9.52
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR AN AFTER-TAX RETURN
EQUAL TO THAT PROVIDED BY YOUR TAX-FREE INVESTMENT MAY BE LESS*
A 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$50,000 in a 3% taxable
investment $ 48,000 $38,400 $32,000 $27,429 $24,000 $21,333 $19,200
$50,000 in a 4% taxable
investment 64,000 51,200 42,667 36,571 32,000 28,444 25,600
$50,000 in a 5% taxable
investment 80,000 64,000 53,333 45,714 40,000 35,556 32,000
$50,000 in a 6% taxable
investment 96,000 76,800 64,000 54,857 48,000 42,667 38,400
$50,000 in a 7% taxable
investment 112,000 89,600 74,667 64,000 56,000 49,778 44,800
- ---------------------------------------------------------------------------------------------
</TABLE>
* The dollar amounts in the table reflect a 36.0% combined federal and state
tax rate.
** The table also reflects the New York State supplemental income tax based
upon a taxpayer's New York State taxable income and New York State adjusted
gross income. This supplemental tax results in an increased marginal state
income tax rate to the extent a taxpayer's New York state adjusted gross
income ranges between $100,000 and $150,000. Although the table does reflect
the effect of the state limitation on itemized deductions that corresponds to
the federal limitation, it does not reflect additional limitations under which
a New York taxpayer could lose up to an additional 50 percent of his otherwise
allowable itemized deductions, because the affect of this limitation varies
according to the particular amount of his itemized deductions. The application
of this limit may result in a higher tax rate than indicated in the table for
joint taxpayers with a New York adjusted gross income of $200,000 to $250,000
or $475,000 to $525,000 or single taxpayers with a New York adjusted gross
income of $100,000 to $150,000 or $475,000 to $525,000. The table assumes that
a taxpayer's New York adjusted gross income equals his federal adjusted gross
income. The table does not reflect the treatment of various state and city tax
credits that could affect the tax rate of particular New York taxpayers.
For example, $50,000 in a 5% taxable investment earns the same after-tax return
as $45,714 in a 3.5% tax-free Nuveen investment.
---
23
<PAGE>
Principal Underwriter
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606
(312) 917-7700
Investment Adviser
Nuveen Advisory Corp.
Subsidiary of John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
Transfer and Shareholder Services Agent
Shareholder Services, Inc.
P.O. Box 5330
Denver, Colorado 80217
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of 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.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com MPR-2-2.97
<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>
[NUVEEN LOGO]
Statement of Additional Information
June 10, 1997
Nuveen Tax-Free Money Market Fund, Inc.
333 West Wacker Drive
Chicago, Illinois 60606
NUVEEN MASSACHUSETTS TAX-FREE MONEY MARKET FUND
NUVEEN NEW YORK TAX-FREE MONEY MARKET FUND
Nuveen Tax-Free Money Market Fund, Inc. is an open-end diversified management
investment company consisting of the two money market funds named above (the
"Funds"). This Statement of Additional Information is not a prospectus. A pro-
spectus for the Nuveen Tax-Free Money Market Fund, Inc. may be obtained from
certain securities brokers, banks, and other financial institutions that have
entered into service agreements with the Funds or from the Funds, c/o John
Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois 60606. This
Statement of Additional Information relates to, and should be read in conjunc-
tion with, the Prospectus dated June 10, 1997.
<TABLE>
<S> <C>
Table of Contents Page
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Fundamental Policies and Investment Portfolio 2
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Management 28
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Investment Adviser and Investment Management Agreement 33
- ------------------------------------------------------------
Portfolio Transactions 35
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Net Asset Value 36
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Tax Matters 37
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Distribution and Service Plan 43
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Yield Information 45
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Independent Public Accountants and Custodian 47
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</TABLE>
The audited financial statements for the fiscal year ended February 28, 1997
appearing in the Annual Report of Nuveen Tax-Free Money Market Fund, Inc. are
incorporated herein by reference. The Annual Report accompanies this Statement
of Additional Information.
Principal Underwriter Investment Adviser Transfer and Shareholder
John Nuveen & Co. Nuveen Advisory Corp., Services Agent
Incorporated Subsidiary of Shareholder Services, Inc.
John Nuveen & Co. P.O. Box 5330
Chicago: Incorporated Denver, Colorado 80217-5330
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606 Independent Public Accountants
(312) 917-7700 for the Fund
Custodian Arthur Andersen LLP
New York: The Chase Manhattan Bank 33 West Monroe Street
10 East 50th Street 4 New York Plaza Chicago, Illinois 60603
New York, New York 10022 New York, New York 10004
(212) 207-2000
<PAGE>
FUNDAMENTAL POLICIES AND INVESTMENT PORTFOLIO
FUNDAMENTAL POLICIES
The investment objective and certain fundamental policies of each Fund are de-
scribed in the Prospectus. Each of the Funds, as a fundamental policy, may
not, without the approval of the holders of a majority of the shares of that
Fund:
(1) Invest in securities other than Municipal Obligations and temporary in-
vestments, as those terms are defined in the Prospectus, and stand-by commit-
ments with respect to Municipal Obligations purchased by the Funds;
(2) Invest more than 5% of its total assets in securities of any one issuer,
except that this limitation shall not apply to securities of the United States
government, its agencies and instrumentalities or to the investment of 25% of
such Fund's assets;
(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 its 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 dispo-
sition of securities. While any such borrowings exceed 5% of such Fund's total
assets, no additional purchases of investment securities will be made by such
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 hav-
ing 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 its investment objective, policies
and limitations, may be deemed to be an underwriting;
(7) Purchase or sell real estate, but this shall not prevent any Fund from in-
vesting in Municipal Obligations secured by real estate or interests therein
or foreclosing upon and selling such security;
(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, ex-
cept for such short-term credits as are necessary for the clearance of trans-
actions;
2
<PAGE>
(11) Write or purchase put or call options, except to the extent that the pur-
chase of a stand-by commitment may be considered the purchase of a put;
(12) Invest more than 5% of its total assets in securities of unseasoned is-
suers which, together with their predecessors, have been in operation for less
than three years;
(13) Invest more than 25% of its total assets in securities of issuers in any
one industry; provided, however, that such limitations shall not be applicable
to Municipal Obligations issued by governments or political subdivisions of
governments, and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities;
(14) 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;
(15) Purchase or retain the securities of any issuer other than the securities
of the Funds if, to the knowledge of Nuveen Tax-Free Money Market Fund, Inc.,
or those directors of Nuveen Tax-Free Money Market Fund, Inc., or those offi-
cers and directors of Nuveen Advisory Corp. ("Nuveen Advisory"), who individu-
ally own beneficially more than 1/2 of 1% of the outstanding securities of
such issuer, together own beneficially more than 5% of such outstanding secu-
rities.
For the purpose of applying the limitations set forth in paragraphs (2) and
(12) 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-gov-
ernmental issuer, 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 ob-
ligation of a superior or unrelated governmental entity (other than a bond in-
surer) it shall be included in the computation of securities owned that are
issued by such superior 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. It is a fundamental policy of each of the Funds which cannot be changed
without the approval of the holders of a majority of shares of such Fund, that
a Fund 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 such Fund.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of "a
majority of a 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 Fund's
shares present at a meeting, if the holders of more than 50% of the Fund's
shares are present or represented by proxy, or (ii) more than 50% of the
Fund's shares, whichever is less. The foregoing restrictions and limitations
will apply only at the time of purchase of securities and will not be consid-
ered violated unless an excess or deficiency occurs or exists immediately af-
ter and as a result of an acquisition of securities, unless otherwise indicat-
ed.
3
<PAGE>
Nuveen Tax-Free Money Market Fund, Inc. is a series company under SEC Rule 18f-
2 and each Fund is a separate series issuing its own shares. Certain matters
under the Investment Company Act of 1940 which must be submitted to a vote of
the holders of the outstanding voting securities of a series company shall not
be deemed to have been effectively acted upon unless approved by the holders of
a majority of the outstanding voting securities of each series affected by such
manner.
PORTFOLIO SECURITIES
As described in the Prospectus, each of the Funds will invest primarily in a
diversified portfolio of Municipal Obligations consisting of money market in-
struments issued by governmental authorities in the Fund's designated state (or
by governmental authorities in certain possessions of the United States). 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-oper-
ated facilities are included within the term Municipal Obligations if the in-
terest paid thereon is exempt from federal income tax. Municipal Obligations in
which each Fund will primarily invest are issued by that Fund's designated
state and cities and local authorities in that state, (or by governmental au-
thorities in certain possessions of the United States), and bear interest that,
in the opinion of bond counsel to the issuer, is exempt from federal income tax
and from income tax imposed by the designated state.
The various securities in which each of the Funds intends to invest are de-
scribed in the Prospectus. The following is a more complete description of cer-
tain short-term Municipal Obligations in which each Fund may invest:
Bond Anticipation Notes (BANs) are usually general obligations of state and lo-
cal governmental issuers which are sold to obtain interim financing for pro-
jects that will eventually be funded through the sale of long-term debt obliga-
tions 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 mar-
ket 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 fi-
nance 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 ad-
versely 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 obliga-
tions 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 in-
terest on RANs.
4
<PAGE>
Construction Loan Notes are issued to provide construction financing for spe-
cific 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 such as
those described above to commercial banks as evidence of borrowings. The pur-
poses 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 corpora-
tions, may carry variable or floating rates of interest. Such instruments bear
interest at rates which are not fixed, but which vary with changes in speci-
fied market rates or indices, such as a bank prime rate or a 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 instru-
ment. 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 fea-
tures permitting the Funds 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 "tender fee" to the third
party tender option provider, the amount of which would be periodically ad-
justed so that the bond/tender option combination would reasonably be expected
to have a market value that approximates the par value of the bond. This
bond/tender option combination would therefore be functionally equivalent to
ordinary variable or floating rate obligations as described above, and the
Funds may purchase such obligations subject to certain conditions specified by
the Securities and Exchange Commission.
The Funds' right to obtain payment at par on a demand instrument upon demand
could be adversely affected by events occurring between the date the Funds
elect to tender the instrument and the date the proceeds are due. Nuveen Advi-
sory will monitor on an ongoing basis the pricing, quality and liquidity of
such instruments and will similarly monitor the ability of an obligor under a
demand instrument, 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 Funds will treat the maturity of each variable rate demand obli-
gation, for purposes of computing its dollar-weighted average portfolio matu-
rity, as the longer of (i) the notice period required before the Funds are en-
titled to payment of the principal amount through demand, or (ii) the period
remaining until the next interest rate adjustment.
The Funds may also obtain stand-by commitments with respect to Municipal Obli-
gations. Under a stand-by commitment (often referred to as a put), the party
issuing the commitment agrees to purchase at a Fund's option the Municipal Ob-
ligation at an agreed-upon price on certain dates or within a specific period.
Since the value of a stand-by commitment depends in part upon the ability of
the issuing party to meet its purchase obligations thereunder, the Funds will
enter into stand-by commit-
5
<PAGE>
ments 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 a Fund upon its exercise of a stand-by 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. A Fund's right to exercise stand-by commitments held by it will be uncon-
ditional and unqualified. The acquisition of a stand-by commitment will not af-
fect the valuation of the underlying security, which will continue to be valued
in accordance with the amortized cost method. The stand-by commitment itself
will be valued at zero in determining net asset value. A Fund may purchase
stand-by commitments for cash or pay a higher price for portfolio securities
which are acquired subject to such a commitment (thus reducing the yield to ma-
turity otherwise available for the same securities). The maturity of a Munici-
pal Obligation purchased by a Fund will not be considered shortened by any
stand-by commitment to which such security is subject. Although a Fund's rights
under a stand-by commitment would not be transferable, the Fund could sell Mu-
nicipal Obligations which were subject to a stand-by commitment to a third
party at any time.
WHEN-ISSUED SECURITIES
As described under "Investment Policies--Municipal Obligations" in the Prospec-
tus, each 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 reg-
ular 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 pur-
chase securities on a when-issued or delayed delivery basis may involve an ele-
ment of risk because the value of the securities is subject to market fluctua-
tion, no interest accrues to the purchaser prior to settlement of the transac-
tion, and at the time of delivery the market value may be less than cost. At
the time a Fund makes the commitment to purchase a Municipal Obligation on a
when-issued or delayed delivery basis, it will record the transaction and re-
flect the amount due and the value of the security in determining its net asset
value. Likewise, at the time a Fund makes the commitment to sell a Municipal
Obligation on a delayed delivery basis, it will record the transaction and in-
clude the proceeds to be received in determining its net asset value; accord-
ingly, 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. Each Fund will also maintain desig-
nated readily marketable assets at least equal in value to commitments to pur-
chase when-issued or delayed delivery securities, such assets to be segregated
by the Custodian specifically for the settlement of such commitments. A Fund
will only make commitments to purchase Municipal Obligations on a when-issued
or delayed delivery basis with the intention of actually acquiring the securi-
ties, but each Fund reserves the right to sell these securities before the set-
tlement date if it is deemed advisable. If a when-issued security is sold be-
fore delivery any gain or loss would not be tax-exempt. A Fund commonly engages
in when-issued transactions in order to
6
<PAGE>
purchase or sell newly-issued Municipal Obligations, and may engage in delayed
delivery transactions in order to manage its operations more effectively.
SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL OBLIGATIONS OF DESIGNATED STATES
As described in the Prospectus, except for investments in temporary invest-
ments, each of the Funds will, at all times, invest at least 80% of its net
assets in its designated state's Municipal Obligations. Each Fund is therefore
more susceptible to political, economic or regulatory factors adversely af-
fecting issuers of Municipal Obligations in its designated state. Brief summa-
ries of these factors are contained in the Prospectus. Set forth below is ad-
ditional information that bears upon the risk of investing in Municipal Obli-
gations issued by public authorities in these states. This information was ob-
tained from official statements of issuers located in the designated states as
well as from other publicly available official documents and statements.
Nuveen Tax-Free Money Market Fund, Inc. has not independently verified any of
the information contained in such statements and documents, but Nuveen Tax-
Free Money Market Fund, Inc. is not aware of facts which would render such in-
formation inaccurate.
FACTORS PERTAINING TO MASSACHUSETTS
As described above, except to the extent the Massachusetts Fund invests in
temporary investments, the Massachusetts Fund will invest substantially all of
its net assets in Massachusetts Municipal Obligations. The Massachusetts Fund
is therefore susceptible to political, economic or regulatory factors affect-
ing issuers of Massachusetts Municipal Obligations. Without intending to be
complete, the following briefly summarizes the current financial situation, as
well as some of the complex factors affecting the financial situation, in the
Commonwealth of Massachusetts (the "Commonwealth"). It is derived from sources
that are generally available to investors and is based in part on information
obtained from various agencies in Massachusetts. No independent verification
has been made of the accuracy or completeness of the following information.
There can be no assurance that current or future statewide or regional eco-
nomic difficulties, and the resulting impact on Commonwealth or local govern-
mental finances generally, will not adversely affect the market value of Mas-
sachusetts Obligations in the Fund or the ability of particular obligors to
make timely payments of debt service on (or relating to) those obligations.
Since 1988, there has been a significant slowdown in the Commonwealth's econo-
my, as indicated by a rise in unemployment, a slowing of its per capita income
growth and declining state revenues. Since fiscal 1991, the Commonwealth's
revenues for state government programs have exceeded expenditures, however no
assurance can be given that lower than expected tax revenues will not resume
and continue.
1997 Fiscal Year Budget. On June 30, 1996, the Governor signed the Common-
wealth's budget for fiscal 1997. The fiscal 1997 budget is based on estimated
budgeted revenues and other revenue sources of approximately $17.394 billion,
which includes fiscal 1997 tax revenues of $12.307 billion. Estimated fiscal
1997 tax revenues are approximately $623 million, or 5.3%, higher than the re-
vised estimated fiscal 1996 tax revenues.
7
<PAGE>
Fiscal 1997 non-tax revenues are projected to total $5.087 billion, approxi-
mately $191 million, or 3.6% less than fiscal 1996 non-tax revenues of approx-
imately $5.279 billion. Federal reimbursements are projected to decrease by
approximately $136 million from approximately $3.039 billion in fiscal 1996;
primarily due to one-time federal reimbursements for fiscal 1996 spending.
Fiscal 1997 departmental revenues are projected to increase by approximately
$46.1 million, or 3.8%, from approximately $1.208 billion in fiscal 1996 to
$1.254 billion in fiscal 1997.
The fiscal 1997 budget provides for approximately $17.452 billion in fiscal
1997 expenditures. The Executive Office for Administration and Finance esti-
mates total spending in fiscal 1997 to be approximately $17.704 billion, in-
cluding $263.2 million in continuing appropriations and reserved balances from
fiscal 1996. Fiscal 1997 appropriations include increases in spending in cer-
tain priority areas, including $254 million to fully fund the Education Reform
Act of 1993, $42.6 million in additional lottery local aid distribution to
Massachusetts cities and towns, $52 million for law enforcement and criminal
justice programs, $23.2 million in additional funding for higher education
campuses, and $47 million for new day care slots for participants in transi-
tional assistance programs. Appropriation also provides funding for certain
other increased costs, including Medicaid, pensions and debt service.
On March 11, 1997, the Legislature's Committee on Counties approved legisla-
tion that would abolish Middlesex County government immediately upon final ap-
proval of the legislation and transfer its functions to the Commonwealth. The
county's debts and liabilities which are in force on July 1, 1997 would be as-
sumed by the Commonwealth and amortized over a period of up to 25 years from
assessments on the cities and towns within the county. The legislation would
also bar the sale of public property to satisfy judgments against the county.
The legislation is now being considered by the House Committee on Ways and
Means.
On March 12, 1997, the Legislature's Committee on Transportation approved leg-
islation to establish a Metropolitan Highway System, in substantially the form
in which it had been filed by the Governor on January 6, 1997. A provision in
the legislation added by the committee would mandate a new "asset assesment
study" to determine, within one year, whether the Massachusetts Port Authority
could afford to contribute as much as $300 million toward the cost of the Ted
Williams Tunnel/Central Artery project, rather than the $200 million contribu-
tion proposed by the Governor and contemplated by the legislation. The study
is to be conducted by the Executive Office for Administration and Finance, the
State Auditor, the Division of Capital Planning and Operations and the Port
Authority. The legislation approved by the Transportation Committee does not
authorize any additional state spending for the project. The Governor's pro-
posals for additional spending authorizations are contained in a transporta-
tion bond bill which is still being considered by the committee. The bill ap-
proved by the Transportation Committee has been scheduled in both the House of
Representatives and Senate for expedited debate and enactment on March 13,
1997.
The fiscal 1997 budget is based on numerous spending and revenue estimates the
achievement of which cannot be assured.
1996 Fiscal Year. Budgeted revenues and other sources, including non-tax reve-
nues, collected in fiscal 1996 were approximately $17.328 billion, approxi-
mately $944 million or 5.7% above fiscal 1995
8
<PAGE>
revenues of approximately $16.387 billion. Fiscal 1996 tax revenue collections
were approximately $12.049 billion, approximately $365 million above the De-
partment of Revenue's revised financial year 1996 tax revenue estimate of
$11.684 billion and $886 million, or 7.9% above fiscal 1995 tax revenues of
$11.163 billion.
Budgeted expenditures and other uses of funds in fiscal 1996 were approximately
$16.881 billion, approximately $630.6 million or 3.9% above fiscal 1995 bud-
geted expenditures and uses of $16.251 billion. The Commonwealth ended fiscal
1996 with an operating gain of approximately $446.4 million and an ending fund
balance of approximately $1.172 billion.
On August 8, 1996, the Governor approved legislation making two changes in the
apportionment formula for the business corporations tax payable by certain mu-
tual fund service corporations. Effective January 1, 1997, the legislation
changes the computation of the sales factor. Instead of sourcing sales from the
state where the seller bears the cost of performing the services relating to
the sale, the corporations will source sales to the state of domicile of the
ultimate consumer of the service. Effective July 1, 1997, the legislation
changes the current three-factor formula to a single sales factor formula, just
as the November, 1995 legislation did for certain federal defense contractors
and, over time, for manufacturing firms. The new law requires the affected cor-
porations to increase their numbers of employees by 5% per year for five years,
subject to exceptions for adverse economic conditions affecting the stock mar-
ket or the amount of assets under their management. The Department of Revenue
estimates that the changes will result in a revenue reduction of approximately
$10 million in fiscal 1997 and approximately $30 million to $53 million on an
annualized basis thereafter, starting in fiscal 1998.
On August 9, 1996, the Governor signed legislation providing tax credit to
shippers that pay federal harbor maintenance taxes on cargo passing through
Massachusetts ports. The Department of Revenue estimates that there will be no
impact on revenues in fiscal 1997 as a result of this tax credit, and that the
annualized revenue loss will be approximately $3 million to $4 million, begin-
ning in fiscal 1998.
The Executive Office for Administration and Finance is currently evaluating the
impact of the federal welfare reform legislation enacted on August 22, 1996 on
the Commonwealth's spending and revenue associated with public assistance pro-
grams. Current estimates indicate no fiscal 1997 spending impact associated
with the passage of the federal reform. While current estimates also indicate
an $86.3 million increase in federal revenues for the Commonwealth in fiscal
1997, this has not yet been incorporated into the Commonwealth's estimates for
fiscal 1997 federal revenues.
1995 Fiscal Year. Budgeted revenues and other sources, including non-tax reve-
nues, collected in fiscal 1995 were approximately $16.387 billion, approxi-
mately $837 million, or 5.4%, above fiscal 1994 revenues of $15.550 billion.
Fiscal 1995 tax revenues collections were approximately $11.163, billion ap-
proximately $12 million above the Department of Revenue's revised fiscal year
1995 tax revenue estimate of $10.151 billion and $556 million, or 5.2%, above
fiscal year tax revenues of $10.607 billion.
Budgeted expenditures and other uses of funds in fiscal 1995 were approximately
$16.251 billion, approximately $728 million, or 4.7%, above fiscal 1994 bud-
geted expenditures and uses of $15.523
9
<PAGE>
billion. The Commonwealth ended fiscal 1995 with an operating gain of $137
million and an ending fund balance of $726 million.
On November 8, 1994, the voters in the statewide general election approved an
initiative petition that would slightly increase the portion of the gasoline
tax revenue credited to the Highway Fund, one of the Commonwealth's three ma-
jor budgetary funds, prohibit the transfer of money from the Highway Fund to
other funds for non-highway purposes and not permit including the Highway Fund
balance in the computation "consolidated net surplus" for purposes of state
finance laws. The initiative petition also provides that no more than 15% of
gasoline tax revenues may be used for mass transportation purposes, such as
expenditures related to the Massachusetts Bay Transit Authority. The Executive
Office of Administration and Finance is analyzing the effect, if any, this
initiative petition, which became law on December 8, 1994, may have on the
fiscal 1995 budget and it currently does not expect it to have any materially
adverse impact. This is not a constitutional amendment and is subject to
amendment or repeal by the Legislature, which may also, notwithstanding the
terms of the petition, appropriate moneys from the Highway Fund in such
amounts and for such purposes as it determines, subject only to a constitu-
tional restriction that such moneys be used for highways or mass transit pur-
poses. The Legislature has twice postponed the effective date of the provision
that would exclude Highway Fund balance from the computation of "consolidated
net surplus." The most recent postponement changed the effective date of the
provision to July 1, 1998.
1994 Fiscal Year. Fiscal 1994 tax revenue collections were approximately
$10.607 billion, $87 million below the Department of Revenue's fiscal year
1994 tax revenue estimate of $10.694 billion and $677 million above fiscal
1993 tax revenues of $9.930 billion. Budgeted revenues and other sources, in-
cluding non-tax revenues, collected in fiscal 1994 were approximately $15.550
billion. Total revenues and other sources increased by approximately 5.7% from
fiscal 1993 to fiscal 1994 while tax revenues increased by 6.8% for the same
period. Budgeted expenditures and other uses of funds in fiscal 1994 were ap-
proximately $15.523 billion, which is $826.5 million or approximately 5.6%
higher than fiscal 1993 budgeted expenditures and other uses.
As of June 30, 1994, the Commonwealth showed a year-end cash position of ap-
proximately $757 million, as compared to a projected position of $599 million.
In June, 1993, the Legislature adopted and the Governor signed into law com-
prehensive education reform legislation. This legislation required an increase
in expenditures for education purposes above fiscal 1993 base spending of
$1.288 billion of approximately $175 million in fiscal 1994. The Executive Of-
fice for Administration and Finance expects the annual increases in expendi-
tures above the fiscal 1993 base spending of $1.288 billion to be approxi-
mately $396 million in fiscal 1995, $625 million in fiscal 1996 and $868 mil-
lion in fiscal 1997. Additional annual increases are also expected in later
fiscal years. The fiscal 1995 budget as signed by the Governor includes $896
million in appropriations to satisfy this legislation.
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1993 Fiscal Year. The Commonwealth's budgeted expenditures and other uses were
approximately $14.696 billion in fiscal 1993, which is approximately $1.280
billion or 9.6% higher than fiscal 1992 expenditures and other uses. Final
fiscal 1993 budgeted expenditures were $23 million lower than the initial July
1992 estimates of fiscal 1993 budgeted expenditures. Budgeted revenues and
other sources for fiscal 1993 totalled approximately $14.710 billion, includ-
ing tax revenues of $9.930 billion. Total revenues and other sources increased
by approximately 6.9% from fiscal 1992 to fiscal 1993, while tax revenues in-
creased by 4.7% for the same period. Overall, fiscal 1993 ended with a surplus
of revenues and other sources over expenditures and other uses of $13.1 mil-
lion and aggregate ending fund balances in the budgeted operating funds of the
Commonwealth of approximately $562.5 million. After payment in full of the
distribution of local aid to the Commonwealth's cities and towns ("Local Aid")
and the retirement of short term debt, the Commonwealth showed a year end cash
position of approximately $622.2 million, as compared to a projected position
of $485.1 million.
1992 Fiscal Year. The Commonwealth's budgeted expenditures and other uses were
approximately $13.4 billion in fiscal 1992, which is $238.7 million or 1.7%
lower than fiscal 1991 budgeted expenditures. Final fiscal 1992 budgeted ex-
penditures were $300 million more than the initial July 1991 estimates of bud-
getary expenditures, due in part to increases in certain human services pro-
grams, including an increase of $268.7 million for the Medicaid program and
$50.0 million for mental retardation consent decree requirements. Budgeted
revenues and other sources for fiscal 1992 totalled approximately $13.7 bil-
lion (including tax revenues of approximately $9.5 billion), reflecting an in-
crease of approximately 0.7% from fiscal 1991 to 1992 and an increase of 5.4%
in tax revenues for the same period. Overall, fiscal 1992 is estimated to have
ended with an excess of revenues and other sources over expenditures and other
uses of $312.3 million. After payment in full of Local Aid in the amount of
$514.0 million due on June 30, 1992, retirement of the Commonwealth's out-
standing commercial paper (except for approximately $50 million of bond antic-
ipation notes) and certain other short term borrowings, as of June 30, 1992,
the end of fiscal 1992, the Commonwealth showed a year-end cash position of
approximately $731 million, as compared with the Commonwealth's cash balance
of $182.3 million at the end of fiscal 1991.
Employment. Reversing a trend of relatively low unemployment during the early
and mid 1980's, the Massachusetts unemployment rate beginning in 1990 in-
creased significantly to where the Commonwealth's unemployment rate exceeded
the national unemployment rate. During 1990, the Massachusetts unemployment
rate increased from 4.5% in January to 6.1% in July to 6.7% in August. During
1991, the Massachusetts unemployment rate averaged 9.0% while the average
United States unemployment rate was 6.7%. The Massachusetts unemployment rate
during 1992 averaged 8.5% while the average United States unemployment rate
was 7.4%. Since 1993, the average monthly unemployment rate has declined
steadily. The Massachusetts unemployment rate in November 1996 was 3.9%, as
compared with the United States unemployment rate of 5.4% for the same period.
Other factors which may significantly and adversely affect the employment rate
in the Commonwealth include reductions in federal government spending on de-
fense-related industries. Due to this and other considerations, there can be
no assurance that unemployment in the Commonwealth will not increase in the
future.
Debt Ratings. S&P currently rates the Commonwealth's uninsured general obliga-
tion bonds at A+. At the same time, S&P currently rates state and agency notes
at SP1. From 1989 through 1992, the
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Commonwealth had experienced a steady decline in its S&P rating, with its de-
cline beginning in May 1989, when S&P lowered its rating on the Commonwealth's
general obligation bonds and other Commonwealth obligations from AA+ to AA and
continuing a series of further reductions until March 1992, when the rating
was affirmed at BBB.
Moody's currently rates the Commonwealth's uninsured general obligation bonds
at A1. From 1989 through 1992, the Commonwealth had experienced a steady de-
cline in its rating by Moody's since May 1989. In May 1989, Moody's lowered
its rating on the Commonwealth's notes from MIG-1 to MIG-2, and its rating on
the Commonwealth's commercial paper from P-1 to P-2. On June 21, 1989, Moody's
reduced the Commonwealth's general obligation rating from Aa to A. On November
15, 1989, Moody's reduced the rating on the Commonwealth's general obligations
from A to Baa1, and on March 9, 1990, Moody's reduced the rating of the Com-
monwealth's general obligation bonds from Baa1 to Baa.
On March 14, 1997, Moody's announced ratings actions on the general obligation
bonds of six Massachusetts counties. These ratings actions were precipitated
by the continuing financial crisis in Middlesex County and the Governor's re-
newed attempts to dismantle all of the state's counties and have the Common-
wealth assume their functions. Moody's downgraded Hampden County General Obli-
gation Bonds from Baa to Ba3 and Norfolk County General Obligation Bonds from
Baa1 to Baa3 (on review for possible downgrade). Moody's also refined Bristol
County General Obligation Bonds to Baa3; Middlesex County General Obligation
Bonds to B3 (on review for possible downgrade); and Worcester County General
Obligation Bonds to Baa3. Finally, Moody's confirmed Barnstable County General
Obligation Bonds at A1.
There can be no assurance that these ratings will continue.
In recent years, the Commonwealth and certain of its public bodies and munici-
palities have faced serious financial difficulties which have affected the
credit standing and borrowing abilities of Massachusetts and its respective
entities and may have contributed to higher interest rates on debt obliga-
tions. The continuation of, or an increase in, such financial difficulties
could result in declines in the market values of, or default on, existing ob-
ligations including Massachusetts Obligations in the Fund. Should there be
during the term of the Fund a financial crisis relating to Massachusetts, its
public bodies or municipalities, the market value and marketability of all
outstanding bonds issued by the Commonwealth and its public authorities or mu-
nicipalities including the Massachusetts Obligations in the Fund and interest
income to the Fund could be adversely affected.
Total Bond and Note Liabilities. The total general obligation bond indebted-
ness of the Commonwealth (including Dedicated Income Tax Debt and Special Ob-
ligation Debt) as of January 1, 1997 was approximately $10.174 billion. There
were also outstanding approximately $240 million in general obligation notes
and other short term general obligation debt. The total bond and note liabili-
ties of the Commonwealth as of January 1, 1997, including guaranteed bond and
contingent liabilities was approximately $13.579 billion.
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Debt Service. During the 1980's, capital expenditures were increased substan-
tially, which has had a short term impact on the cash needs of the Commonwealth
and also accounts for a significant rise in debt service during that period. In
November, 1988, the Executive Office for Administration and Finance established
an administrative limit on state-financed capital spending in the Capital Pro-
jects Funds of $925 million per fiscal year. Capital expenditures were $694.1
million, $575.9 million, $760.6 million, $902.2 million and $908.5 million in
fiscal 1992, fiscal 1993, fiscal 1994, fiscal 1995 and fiscal 1996, respective-
ly. Commonwealth-financed capital expenditures are projected to be approxi-
mately $900.0 million in fiscal 1997.
The growth of capital expenditures during the 1980's accounts for the signifi-
cant rise in annual debt service expenditures since fiscal 1989. Payments for
debt service on Commonwealth general obligation bonds and notes in fiscal 1992
were $898.3 million, representing a 4.7% decrease from $942.3 million in fiscal
1991, which resulted from a $261 million one-time reduction achieved through
the issuance of refunding bonds in September and October, 1991. Debt service
expenditures for fiscal 1993, fiscal 1994, fiscal 1995 and fiscal 1996 were
$1.140 billion, $1.149 billion, $1.231 billion and $1.184 billion, respective-
ly, and are projected to be $1.289 billion for fiscal 1997. The amounts noted
represent debt service payments on Commonwealth debt (including Fiscal Recovery
Bonds and special obligation bonds). The amounts noted do not include debt
service contract assistance payments to the Massachusetts Bay Transportation
Authority ($232.9 million projected in fiscal 1997), the Massachusetts Conven-
tion Center ($24.6 million projected in fiscal 1997), the Massachusetts Govern-
ment Land Bank ($6 million projected in fiscal 1997) and the Massachusetts Wa-
ter Pollution Abatement Trust ($24.6 million projected in fiscal 1997) and
grants to municipalities under the school building assistance program to defray
a portion of the debt service costs on local school bonds ($187.9 million pro-
jected in fiscal 1997).
In January 1990, legislation was passed to impose a limit on debt service be-
ginning in fiscal 1991, providing that no more than 10% of the total appropria-
tions in any fiscal year may be expended for payment of interest and principal
on general obligation debt (excluding the Fiscal Recovery Bonds). The percent-
age of total appropriations expended from the budgeted operating funds for debt
service (excluding debt service on Fiscal Recovery Bonds) for fiscal 1996 is
5.4%, which is projected to increase to 5.7% in fiscal 1997.
Certain Liabilities. Among the material future liabilities of the Commonwealth
are significant unfunded general liabilities of its retirement systems and a
program to fund such liabilities; a program whereby, starting in 1978, the Com-
monwealth began assuming full financial responsibility for all costs of the ad-
ministration of justice within the Commonwealth; continuing demands to raise
aggregate aid to cities, towns, schools and other districts and transit author-
ities above current levels; and Medicaid expenditures which have increased each
year since the program was initiated. The Commonwealth has signed consent de-
crees to continue improving mental health care and programs for the mentally
retarded in order to meet federal standards, including those governing receipt
of federal reimbursements under various programs, and the parties in those
cases have worked cooperatively to resolve the disputed issues.
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As a result of comprehensive legislation approved in January, 1988, the Common-
wealth is required, beginning in fiscal 1989, to fund future pension liabili-
ties currently and to amortize the Commonwealth's unfunded liabilities over 40
years. The funding schedule must provide for annual payments in each of the ten
years ending fiscal 1998 which are at least equal to the total estimated pay-
as-you-go pension costs in each year. As a result of this requirement, the
funding requirements for fiscal 1996, 1997 and 1998 are estimates to be in-
creased to approximately $1.007 billion, $1.061 billion and $1.128 billion, re-
spectively.
Litigation. The Commonwealth is engaged in various lawsuits involving environ-
mental and related laws, including an action brought on behalf of the U.S. En-
vironmental Protection Agency alleging violations of the Clean Water Act and
seeking to enforce the clean-up of Boston Harbor. The MWRA, successor in lia-
bility to the Metropolitan District Commission, has assumed primary responsi-
bility for developing and implementing a court-approved plan for the construc-
tion of the treatment facilities necessary to achieve compliance with federal
requirements. Under the Clean Water Act, the Commonwealth may be liable for
costs of compliance in these or any other Clean Water cases if the MWRA or
a municipality is prevented from raising revenues necessary to comply with a
judgment. The MWRA currently projects that the total cost of construction of
the treatment facilities required under the court's order is approximately
$3.584 billion in current dollars, with approximately $734 million to be spent
on or after June 30, 1996.
The Department of Public Welfare has been sued for the alleged unlawful denial
of personal care attendant services to certain disabled Medicaid recipients.
The Superior Court has denied the plaintiff's motion for preliminary injunction
and has also denied the plaintiff's motion for class certification. If the
plaintiffs were to prevail on their claims and the Commonwealth were required
to provide all of the services sought by the plaintiffs to all similarly situ-
ated persons, it would substantially increase the annual cost to the Common-
wealth if these services are eventually required. The Department of Public Wel-
fare currently estimates this increase to be as much as $200 million per year.
There are also actions pending in which recipients of human services benefits,
such as welfare recipients, the mentally retarded, the elderly, the handi-
capped, children, residents of state hospitals and inmates of corrections in-
stitutions, seek expanded levels of services and benefits and in which provid-
ers of services to such recipients challenge the rates at which they are reim-
bursed by the Commonwealth. To the extent that such actions result in judgments
requiring the Commonwealth to provide expanded services or benefits or pay in-
creased rates, additional operating and capital expenditures might be needed to
implement such judgments.
In 1995, the Spaulding Rehabilitation Hospital ("Spaulding") filed an action to
enforce an agreement to acquire its property by eminent domain in connection
with the Central Artery/Third Harbor Tunnel Project. If successful, Spaulding
could recover the fair market value of its property in addition to its reloca-
tion costs with respect to its personal property. The Commonwealth estimates
its potential liability at approximately $50 million. Spaulding has signed in-
terrogatories indicating that it believes that the property is worth more than
$60 million.
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The Commonwealth faces an additional potential liability of approximately $75
million to $135 million in connection with a taking by the Massachusetts High-
way Department related to the relocation of Northern Avenue in Boston.
In Massachusetts Wholesalers of Malt Beverages v. Commonwealth (Suffolk Supe-
rior Court No. 90-1523), associations of bottlers challenged the 1990 amend-
ments to the bottle bill which escheat abandoned deposits to the Commonwealth.
Plaintiffs claimed a taking; the Commonwealth argued a legitimate regulation of
abandoned amounts. In March, 1993, the Supreme Judicial Court upheld the amend-
ments except for the initial funding requirement, which the Court upheld sever-
able. In August, 1994, the Superior Court ruled that the Commonwealth is liable
for certain amounts (plus interest) as a result of the Supreme Judicial Court's
decision. The actual amount will be determined in further proceedings. In Feb-
ruary, 1996, the Commonwealth settled all remaining issues with one group of
plaintiffs, the Massachusetts Soft Drink Association. Payments to that group
will total approximately $7 million. The Legislature appropriated the funds
necessary for these payments in its final supplemental budget for fiscal 1996.
Litigation with the other group of plaintiffs, the Massachusetts Wholesalers of
Malt Beverages, is still pending. The remaining potential liability is approxi-
mately $50 million.
In the First National Bank of Boston v. Commission of Revenue (Appellate Tax
Board No. F232249), the First National Bank of Boston challenges the constitu-
tionality of the former version of the Commonwealth's bank excise tax. In 1992,
several pre-1992 petitions filed by the bank, which raised the same issues,
were settled prior to a board decision. The bank has now filed claims with re-
spect to 1993 and 1994. The bank claims that the tax violated the Commerce
Clause of the United States Constitution by including its worldwide income
without apportionment. The Commonwealth's potential liability is $40 million.
In State Street Bank and Trust Company v. Commissioner of Revenue (Appellate
Tax Board Nos. F215497, F232152, F233019 and F233948), State Street Bank and
Trust Company has raised the same claims as the First National Bank of Boston,
outlined above. State Street Bank also claims that it is entitled to alterna-
tive apportionment under the bank excise tax. The Commonwealth's potential lia-
bility is $41 million.
In National Association of Government Employees v. Commonwealth, the Superior
Court declared that a line item in the Commonwealth's general appropriations
act for fiscal 1994 that increased the state employees' percentage share of
their group health insurance premiums from 10% to 15% violated the terms
of several collective bargaining agreements, and therefore was invalid under
the United States Constitution as regards employees covered by the agreements.
On February 9, 1995, the Supreme Judicial Court vacated the Superior Court's
decision and declared that the fiscal 1994 line item did not violate
the contracts clause. In June, 1995, the United States Supreme Court denied the
plaintiff's writ of certiorari. Several other unions have filed a companion
suit asserting that the premium increase similarly violated other collective
bargaining agreements. The latter suit is in its initial stages. Prior to the
Supreme Judicial Court's decision the Commonwealth's aggregate liability is es-
timated to be approximately $32 million.
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A variety of other civil suits pending against the Commonwealth may also affect
its future liabilities. There include challenges to the Commonwealth's alloca-
tion of school aid under Section 9C of Chapter 29 of the General Laws and to
adopt a state employee furlough program. No prediction is possible as to the
ultimate outcome of these proceedings.
On March 22, 1995, the Supreme Judicial Court held in Perini Corporation v.
Commission of Revenues that certain deductions from the net worth measure of
the Massachusetts corporate excise tax violate the Commerce Clause of the
United States Constitution. On October 2, 1995, the United States Supreme Court
denied the Commonwealth's petition for writ of certiorari. The Department of
Revenue estimates that tax revenues in the amount of $40 to $55 million may be
abated as a result of the Supreme Judicial Court's decision.
On May 13, 1996, the Court entered an order for judgment and memorandum con-
cerning relief for tax years ending on or after January 1, 1996. A final ruling
was entered on June 6, 1996. The Department of Revenue is continuing to analyze
the final fiscal impact of the ruling, to date, it has paid approximately $11
million in accordance with the judgment.
Many factors, in addition to those cited above, have or may have a bearing upon
the financial condition of the Commonwealth, including social and economic con-
ditions, many of which are not within the control of the Commonwealth.
Expenditure and Tax Limitation Measures. Limits have been established on state
tax revenues by legislation approved by the Governor on October 25, 1986 and by
an initiative petition approved by the voters on November 4, 1986. The Execu-
tive Office for Administration and Finance currently estimates that state tax
revenues will not reach the limit imposed by either the initiative petition or
the legislative enactment in fiscal 1992.
Proposition 2 1/2, passed by the voters in 1980, led to large reductions in
property taxes, the major source of income for cities and towns and large in-
creases in state aid to offset such revenue losses. According to the Executive
Office for Administration and Finance, all of the 351 cities and towns have now
achieved a property tax level of no more than 2.5% of full property values. Un-
der the terms of Proposition 2 1/2, the property tax levy can now be increased
annually for all cities and towns, almost all by 2.5% of the prior fiscal
year's tax levy plus 2.5% of the value of new properties and of significant im-
provements to property. Legislation has also been enacted providing for certain
local option taxes. A voter initiative petition approved at the statewide gen-
eral election in November, 1990 further regulates the distribution of Local Aid
of no less than 40% of collections from individual income taxes, sales and use
taxes, corporate excise taxes, and the balance of the state lottery fund. If
implemented in accordance with its terms (including appropriation of the neces-
sary funds), the petition as approved would shift several hundred million dol-
lars to direct Local Aid.
Other Tax Measures. To provide revenue to pay debt service on both the deficit
and Medicaid-related borrowings and to fund certain direct Medicaid expendi-
tures, legislation was enacted imposing an additional tax on certain types of
personal income for 1989 and 1990 taxable years at rates of 0.375% and 0.75%,
respectively, effectively raising the tax rate of 1989 from 5% to 5.375% and
for 1990 to
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5.75%. Recent legislation has effectively further increased tax rates to 5.95%
for tax year 1990 to 6.25% for tax year 1991 and returning to 5.95% for tax
year 1992 and subsequent tax years. The tax is applicable to all personal in-
come except income derived from dividends, capital gains, unemployment compen-
sation, alimony, rent, interest, pensions, annuities and IRA/Keogh distribu-
tions. The income tax rate on other interest (excluding interest on obligations
of the United States and of the Commonwealth and its subdivisions), dividends
and net capital gains (after a 50% reduction) was increased from 10% to 12% for
tax year 1990 and subsequent years, by recently enacted legislation.
Estate Tax Revisions. The fiscal 1993 budget included legislation which gradu-
ally phases out the current Massachusetts estate tax and replaces it with a
"sponge tax" in 1997. The "sponge tax" is based on the maximum amount of the
credit for state taxes allowed for federal estate tax purposes. The estate tax
is phased out by means of annual increases in the basic exemption from the cur-
rent $200,000 level. The exemption is increased to $300,000 for 1993, $400,000
for 1994, $500,000 for 1995 and $600,000 for 1996. In addition, the legislation
included a full marital deduction starting July 1, 1994.
Other Issuers of Massachusetts Obligations. There are a number of state agen-
cies, instrumentalities and political subdivisions of the Commonwealth that is-
sue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the securi-
ties issued by them may vary considerably from the credit quality of obliga-
tions backed by the full faith and credit of the Commonwealth. The brief sum-
mary above does not address, nor does it attempt to address, any difficulties
and the financial situations of those other issuers of Massachusetts Obliga-
tions.
FACTORS PERTAINING TO NEW YORK
As described above, except to the extent the New York Fund invests in temporary
investments, the New York Fund will invest substantially all of its assets in
New York Municipal Obligations. The New York Fund is therefore susceptible to
political, economic or regulatory factors affecting New York State and govern-
mental bodies within New York State. Some of the more significant events and
conditions relating to the financial situation in New York are summarized be-
low. The following information provides only a brief summary of the complex
factors affecting the financial situation in New York, is derived from sources
that are generally available to investors and is believed to be accurate. It is
based on information drawn from official statements and prospectuses issued by,
and other information reported by, the State of New York (the "State"), by its
various public bodies (the "Agencies"), and by other entities located within
the State, including the City of New York (the "City"), in connection with the
issuance of their respective securities.
There can be no assurance that current or future statewide or regional economic
difficulties, and the resulting impact on State or local government finances
generally, will not adversely affect the market value of New York Municipal Ob-
ligations held in the portfolio of the New York Fund or the ability of particu-
lar obligors to make timely payments of debt service on (or relating to) those
obligations.
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(1) The State: The State has historically been one of the wealthiest states in
the nation. For decades, however, the State economy has grown more slowly than
that of the nation as a whole, gradually eroding the State's relative economic
affluence. Statewide, urban centers have experienced significant changes in-
volving migration of the more affluent to the suburbs and an influx of gener-
ally less affluent residents. Regionally, the older Northeast cities have suf-
fered because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater competi-
tion as other major cities have developed financial and business capabilities
which make them less dependent on the specialized services traditionally avail-
able almost exclusively in the City, which has had an additional negative im-
pact on New York City's recovery. The State has for many years had a very high
State and local tax burden relative to other states. The burden of State and
local taxation, in combination with the many other causes of regional economic
dislocation, has contributed to the decisions of some businesses and individu-
als to relocate outside, or not locate within, the State.
Slowdown of Regional Economy. A national recession commenced in mid-1990. The
downturn continued throughout the State's 1990-91 fiscal year and was followed
by a period of weak economic growth during the 1991 and 1992 calendar years.
For calendar year 1993, the economy grew faster
than in 1992, but still at a very moderate rate as compared to other recov-
eries. Moderate economic growth continued in calendar year 1994. Economic
growth slowed within New York during 1995 and 1996 as the expansion of the na-
tional economy moderated. The State has forecasted a continued slowdown in the
expansion of the State's economy in 1997. The State's economic growth continues
to lag behind the nation's, due in part to a significant retrenchment in the
banking and financial services industries, downsizing by major corporations,
cutbacks in defense spending, and an oversupply of office buildings. Many un-
certainties exist in forecasts of both the national and State economies and
there can be no assurance that the State's economy will perform at a level suf-
ficient to meet the State's projections of receipts and disbursements.
1997-98 Fiscal Year. The Governor issued a proposed Executive Budget for the
1997-98 fiscal year (the "Proposed Budget") on January 14, 1997, which pro-
jected a balanced general fund and receipts and disbursements each of $32.9
billion. As of May 5, 1997, the State legislature had not yet enacted, nor had
the Governor and the legislature reached an agreement on, the budget for the
1997-98 fiscal year, which commenced on April 1, 1997. The Governor and the
State's legislature have agreed on or proposed a series of short-term stopgap
spending measures to fund state payrolls and advances to certain municipalities
and certain state programs. The delay in the enactment of the budget may nega-
tively affect certain proposed actions and reduce projected savings.
The Proposed Budget and the 1997-98 Financial Plan provide for the closing of a
projected $2.3 billion budget gap in the 1997-98 fiscal year by cost-contain-
ment savings in Medicaid spending reductions and use of the 1996-97 fiscal year
surplus. Up to $1.3 billion of gap closing measures by the State are dependent
upon federal actions with respect to the Medicaid program that have not been
enacted due to the federal budget impact. The Governor has proposed that, de-
pending upon the ultimate form of Medicaid relief provided to the states, any
resulting gap would be filled through a combination of increased revenues, ad-
ditional cuts in spending for social services, and so-called "one shot" sources
of revenue or cost savings.
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The Proposed Budget and the 1997-98 Financial Plan may be impacted negatively
by uncertainties relating to the economy and tax collections. In particular,
should the national economy grow more slowly than forecasted by the State,
revenues received by the State would be adversely affected. In addition, pro-
posed retroactive changes to the federal tax treatment of capital gains would
flow through to the State and could significantly reduce tax receipts.
1996-97 Fiscal Year. The State ended the 1996-97 fiscal year with a General
Fund balance of approximately $1.4 billion.
Future Fiscal Years. There can be no assurance that the State will not face
substantial potential budget gaps in the future resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To ad-
dress any potential budgetary imbalance, the State may need to take signifi-
cant actions to align recurring receipts and disbursements. The Governor's
budget for fiscal year 1996-97 projects that budget gaps of $1.6 billion and
$2.0 billion may need to be closed for fiscal years 1998-99 and 1999-2000, re-
spectively.
Indebtedness. As of March 31, 1996, the total amount of State general obliga-
tion debt stood at $4.8 billion.
The Governor's budget for fiscal year 1997-98 projects approximately $540 mil-
lion of borrowings by the state for capital purposes. The projections of the
State regarding its borrowings for any fiscal year are subject to change if
actual receipts fall short of State projections or if other circumstances re-
quire.
In June 1990, legislation was enacted creating the New York Local Government
Assistance Corporation ("LGAC"), a public benefit corporation empowered to is-
sue long-term obligations to fund certain payments to local governments tradi-
tionally funded through the State's annual seasonal borrowing. As of June 31,
1995, LGAC had issued its bonds to provide net proceeds of $4.7 billion com-
pleting the program.
Financing of capital programs by other public authorities of the State is also
obtained from lease-purchase and contractual-obligation financing arrange-
ments, the debt service for which is paid from State appropriations. As of
March 31, 1996, there were $19 billion of such other financing arrangements
outstanding and additional financings of this nature by public authorities. In
addition, certain agencies had issued and outstanding approximately $6.5 bil-
lion of "moral obligation financings" as of March 31, 1996, which are to be
repaid from project revenues. While there has never been a default on moral
obligation debt of the State, the State would be required to make up any
shortfall in debt service.
Ratings. In connection with the March 1997 State issuance of general obliga-
tion bonds, Moody's rating of the State's general obligation bonds stood at A2
and S&P's rating stood at A- with a positive outlook. During the last quarter
of 1996, Moody's modified its rating system to add the ratings A2 and A3.
Prior to this modification the State's general obligation debt was rated A.
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Previously, Moody's lowered its rating to A on June 6, 1990, its rating having
been A1 since May 27, 1986. S&P lowered its rating from A to A- on January 13,
1992. S&P's previous ratings were A from March 1990 to January 1992, AA- from
August 1987 to March 1990 and A+ from November 1982 to August 1987.
(2) The City and the Municipal Assistance Corporation ("MAC"): The City ac-
counts for approximately 40% of the State's population and personal income,
and the City's financial health affects the State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among other ac-
tions, the State Legislature (i) created MAC to assist with long-term financ-
ing for the City's short-term debt and other cash requirements and (ii) cre-
ated the State Financial Control Board (the "Control Board") to review and ap-
prove the City's budgets and four-year financial plans (the financial plans
also apply to certain City-related public agencies).
In recent years, the rate of economic growth in the City slowed substantially
as the City's economy entered a recession. While by some measures the City's
economy may have begun to recover, a number of factors, including poor perfor-
mance by the City's financial services companies, may prevent a significant
improvement in the City's economy and may in fact negatively impact upon the
City's finances by reducing tax receipts. The City Comptroller has issued re-
ports concluding that the recession of the City's economy may be ending, but
there is little prospect of any significant improvement in the near term.
Fiscal Year 1998 and the 1998-2001 Financial Plan. On January 30, 1997, the
Mayor released his preliminary $32.9 billion budget for fiscal year 1998,
which included $550 million reduction in expenditures by City agencies and the
Board of Education ("BOE") budget and $500 million of revenues from an exten-
sion of the City income tax surcharge which is due to expire. The Mayor an-
nounced on May 6, 1997 that the preliminary budget for the 1998 fiscal year
will be modified to utilize the incurred surplus from the 1997 fiscal year to
reduce sales taxes, increase spending on certain programs to $320 million and
to repay an additional $330 million of the City's debt.
The proposed 1998-2001 Financial Plan (the "Plan"), projects budget gaps of
$2.4 billion, $3.3 billion and $3.1 billion for fiscal years 1999, 2000 and
2001, respectively. The Control Board and State Comptroller have each warned
that the fiscal year 1998 budget includes moderate revenue risks. The State
Comptroller and the Control Board have expressed concern that projected budget
gaps for fiscal years 1999, 2000 and 2001 are each in excess of the City's es-
timate.
An extended delay by the State in adopting its 1997-98 fiscal year budget or
the failure of the State legislature to extend the income tax surcharge would
negatively impact upon the City's financial condition and ability to close
budget gaps for fiscal years 1998 and thereafter.
Given the foregoing, there can be no assurance that the City will continue to
maintain a balanced budget during fiscal year 1998 or thereafter, or that it
can maintain a balanced budget without additional tax or other revenue in-
creases or reductions in City services, which could adversely affect the
City's economic base.
20
<PAGE>
Pursuant to State law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections. The City is required to submit
its financial plans to review bodies, including the Control Board. If
the City were to experience certain adverse financial circumstances, including
the occurrence or the substantial likelihood and the imminence of the occur-
rence of an annual operating deficit of more than $100 million or the loss of
access to the public credit markets to satisfy the City's capital and seasonal
financial requirements, the Control Board would be required by State law to ex-
ercise certain powers, including prior approval of City financial plans, pro-
posed borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to balance
its budget and to meet its cash requirements. If the State experiences revenue
shortfalls or spending increases beyond its projections during its 1997-98 fis-
cal year or subsequent years, such developments could result in reductions in
projected State aid to the City. In addition, there can be no assurance that
State budgets for the 1998-99 or future fiscal years will be adopted by the
April 1 statutory deadline and that there will not be adverse effects on the
City's cash flow and additional City expenditures as a result of such delays.
The City projections set forth in the Plan are based on various assumptions and
contingencies which are uncertain and which may not materialize. Changes in ma-
jor assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the timing of any re-
gional and local economic recovery, the absence of wage increases in excess of
the increases assumed in its financial plan, employment growth, provision of
State and Federal aid and mandate relief, State legislative approval of future
State budgets, levels of education expenditures as may be required by State
law, adoption of future City budgets by the New York City Council, approval by
the Governor or the State Legislature and the cooperation of MAC with respect
to various other actions proposed in the Plan and changes in federal tax law.
The City's ability to maintain a balanced operating budget is dependent on
whether it can identify additional expenditure reductions and action by the
State legislature to achieve balanced operating budgets for fiscal year 1998
and thereafter. Any such proposed expenditure reductions will be difficult to
implement because of their size and the substantial expenditure reductions al-
ready imposed on City operations in recent years.
Attaining a balanced budget is also dependent upon the City's ability to market
its securities successfully in the public credit markets. The City's four-year
capital plan contemplates capital spending of $15.5 billion through the 2000
fiscal year, which will be financed through issuance of general obligation
bonds, Water Authority Revenue Bonds and Covered Organization obligations, and
will be used primarily to reconstruct and rehabilitate the City's infrastruc-
ture and physical assets and to make capital investments. The City's financing
program depended upon the receipt of approximately $1 billion from the sale of
the City's sewer and water systems. However, New York's highest court blocked
this sale on March 20, 1997. Accordingly, the City reduced capital spending
through the 2000 fiscal year. A significant portion of such bond financing is
used to reimburse the City's general fund for capital expenditures already in-
curred. In addition, the City issues revenue and tax anticipation notes to fi-
nance its seasonal working capital requirements. The terms and success of pro-
jected public
21
<PAGE>
sales of City general obligation bonds and notes will be subject to prevailing
market conditions at the time of the sale, and no assurance can be given that
the credit markets will absorb the projected amounts of public bond and note
sales. In addition, future developments concerning the City and public discus-
sion of such developments, the City's future financial needs and other issues
may affect the market for outstanding City general obligation bonds and notes.
If the City were unable to sell its general obligation bonds and notes, it
would be prevented from meeting its planned operating and capital expenditures.
On March 5, 1997, New York Governor George Pataki signed legislation creating
The New York City Transitional Finance Authority, which beginning in fiscal
year 1998 will be authorized to issue up to $7.5 billion in bonds for capital
spending by the City. Absent creation of this authority, the City would have
faced limitations on its borrowing capacity after 1998 under the State's Con-
stitution.
The City is a defendant in a significant number of lawsuits and is subject to
numerous claims and investigations, including, but not limited to, actions com-
menced and claims asserted against the City arising out of alleged constitu-
tional violations, torts, breaches of contracts, and other violations of law
and condemnation proceedings. While the ultimate outcome and fiscal impact, if
any, on the proceedings and claims are not currently predictable, adverse de-
terminations in certain of them might have a material adverse effect upon the
City's ability to carry out its financial plan. As of June 30, 1996, the City
estimated its potential future liability on outstanding claims to be $2.8
billion.
Certain unions, elected officials and others commenced an action in April 1996
seeking $791 million in underpayments by the City to Health and Hospitals Cor-
poration during the 1994 and 1995 fiscal years and an injunction prohibiting
further reductions. Such proceeding is still pending.
Fiscal Year 1997. New York City adopted its 1997 fiscal year budget in June
1996, which provided for spending of $33 billion and a closed budget gap of
$2.6 billion. Due to increased tax revenues resulting from increased profits on
Wall Street and tourism, the City expects to end fiscal year 1997 with a sur-
plus of $800 million.
Fiscal Years 1991 through 1996. The City achieved balanced operating results in
accordance with generally accepted accounting principles for fiscal years 1991
through 1996. The City was required to close substantial budget gaps in these
fiscal years in order to maintain balanced operating results.
Ratings. As of the date of this prospectus, Moody's rating of the City's gen-
eral obligation bonds stood at Baa1 and S&P's rating stood at BBB+. On February
11, 1991, Moody's had lowered its rating from A.
On March 1, 1996, Moody's confirmed its Baa1 rating in connection with a sched-
uled March 1996 sale of $1.3 billion of the City's general obligation bonds but
indicated that it would review such rating for a possible downgrade following
adoption of the City's 1997 fiscal year budget. S&P also confirmed its rating
of the City's general obligation bonds in connection with the such general ob-
ligation bond issue in March 1996.
22
<PAGE>
In January 1995, in response to the City's plan to borrow $120 million to re-
fund debt due in February without imposing additional cuts in the fiscal 1995
budget, S&P placed the City on negative credit watch. In late May 1996, S&P
confirmed the City's rating citing improvements in the revised fiscal year
1997 budget. Any rating decrease would negatively affect the marketability of
the City's bonds and significantly increase the City's financing costs.
As of December 31, 1996, the City and MAC had, respectively, $25.5 billion and
$3.8 billion of outstanding net long-term and short-term indebtedness.
(3) The State Agencies: Certain Agencies of the State have faced substantial
financial difficulties which could adversely affect the ability of such Agen-
cies to make payments of interest on, and principal amounts of, their respec-
tive bonds. The difficulties have in certain instances caused the State (under
so-called "moral obligation" provisions, which are non-binding statutory pro-
visions for State appropriations to maintain various debt service reserve
funds) to appropriate funds on behalf of the Agencies. Moreover, it is ex-
pected that the problems faced by these Agencies will continue and will re-
quire increasing amounts of State assistance in future years. Failure of the
State to appropriate necessary amounts or to take other action to permit those
Agencies having financial difficulties to meet their obligations could result
in a default by one or more of the Agencies. Such default, if it were to oc-
cur, would be likely to have a significant adverse affect on investor confi-
dence in, and therefore the market price of, obligations of the defaulting
Agencies. In addition, any default in payment on any general obligation of any
Agency whose bonds contain a moral obligation provision could constitute a
failure of certain conditions that must be satisfied in connection with Fed-
eral guarantees of City and MAC obligations and could thus jeopardize the
City's long-term financing plans.
As of September 30, 1994, the State reported that eighteen Agencies each had
outstanding debt of $100 million or more and an aggregate of $70.3 billion of
outstanding debt, some of which was State-supported and State-related debt.
(4) State Litigation: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal
laws. Included in the State's outstanding litigation are a number of cases
challenging the constitutionality or the adequacy and effectiveness of a vari-
ety of significant social welfare programs primarily involving the State's
mental hygiene programs. Adverse judgments in these matters generally could
result in injunctive relief coupled with prospective changes in patient care
which could require substantial increased financing of the litigated programs
in the future.
In Robert L. Schulz v. The New York State Executive, plaintiffs challenge the
enactment of the Clean Water/Clean Air Bond Act of 1996 as in violation of the
State constitution. The Supreme Court, Albany County, dismissed the action on
November 4, 1996 and plaintiffs have appealed and sought an order to enjoin
the issuance of any bonds. The injunction was denied on March 4, 1997. The
plaintiffs have commenced an identical action in federal district court which
is pending.
23
<PAGE>
The State is also engaged in a variety of claims wherein significant monetary
damages are sought. Actions commenced by several Indian nations claim that
significant amounts of land were unconstitutionally taken from the Indians in
violation of various treaties and agreements during the eighteenth and nine-
teenth centuries. The claimants seek recovery of approximately six million
acres of land, as well as compensatory and punitive damages.
(5) Other Municipalities: Certain localities in addition to New York City
could have financial problems leading to requests for additional State assis-
tance. The potential impact on the State of such actions by localities is not
included in projections of State receipts and expenditures in the State's
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted in
the creation of the Financial Control Board for the City of Yonkers (the "Yon-
kers Board") by the State in 1984. The Yonkers Board is charged with oversight
of the fiscal affairs of Yonkers. Future actions taken by the Governor or the
State Legislature to assist Yonkers could result in allocation of State re-
sources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1993, the total indebtedness of all localities in the
State (other than New York City) was approximately $17.7 billion. State law
requires the Comptroller to review and make recommendations concerning the
budgets of those local government units other than New York City authorized by
State law to issue debt to finance deficits during the period that such defi-
cit financing is outstanding. Fifteen localities had outstanding indebtedness
for State financing at the close of their fiscal year ending in 1993. In De-
cember 1995, in reaction to continuing financial problems, the Troy Municipal
Assistance Corp., which was created in 1995, imposed a 1996 budget plan upon
Troy, New York. Such revenue bonds have not to date been refinanced. A similar
municipal assistance corporation has also been established for Newburgh. In
addition, several other New York cities, including Utica, Rome, Schenectady,
Syracuse and Niagara Falls have faced continuing budget deficits, as federal
and state aid and local tax revenues have declined while government expenses
have increased. The financial problems being experienced by the State's
smaller urban centers place additional strains upon the State's financial con-
dition at a time when the State is struggling with its own budget gaps.
Certain proposed Federal expenditure reductions could reduce, or in some cases
eliminate, Federal funding of some local programs and accordingly might impose
substantial increased expenditure requirements on affected localities to in-
crease local revenues to sustain those expenditures. Federal welfare reform
legislation may increase the local burden for welfare benefits. In addition,
proposed changes in the treatment of capital gains for federal income tax pur-
poses could reduce the receipts of the State and City. If the State, New York
City or any of the Agencies were to suffer serious financial difficulties
jeopardizing their respective access to the public credit markets, the market-
ability of notes and bonds issued by localities within the State, including
notes or bonds in the Fund, could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions, and long-range economic trends. The longer-range potential
problems of declining urban population, increasing expenditures, and other
economic trends could adversely affect certain localities and require increas-
ing State assistance in the future.
24
<PAGE>
(6) Other Issuers of New York Municipal Obligations. There are a number of
other state agencies, instrumentalities and political subdivisions of the
State that issue Municipal Obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
TEMPORARY INVESTMENTS
As stated in the Prospectus, the Funds to date have not invested and have no
present intention to invest in "temporary investments" the income from which
is subject to federal income tax. However, the Prospectus also discusses
briefly the ability of each Fund to invest a portion of its assets in such
temporary investments which will not exceed 20% of any Fund's assets except
when made for defensive purposes. The Funds will invest only in temporary in-
vestments which, in the opinion of the Adviser, are of "high grade" quality
and have remaining maturities of 397 days 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 and 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); cer-
tificates 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 Funds may invest in the following
temporary investments:
U.S. Government Direct Obligations--issued by the United States Treasury and
include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are is-
sued 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 from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been estab-
lished as instrumentalities of the United States Government to supervise and
finance certain types of activities. These agencies include, but are not lim-
ited 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 di-
rect 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
25
<PAGE>
by the issuing agencies' right to borrow from the Treasury. There can be no as-
surance that the United States Government itself will pay interest and princi-
pal on securities as to which it is not so legally obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable inter-
est-bearing instrument with a specific maturity. CDs are issued by banks in ex-
change for the deposit of funds and normally can be traded in the secondary
market, prior to maturity. The Funds will only invest in U.S. dollar denomi-
nated 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 Funds 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 inter-
est.
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 Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the opin-
ion of Nuveen Advisory present minimal credit risk. The risk to the Funds 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 Funds might incur a loss if the value of the collateral de-
clines, and might incur disposition costs or experience delays in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the col-
lateral by the Funds 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 in-
crease the value of the collateral to at least that of the repurchase price.
Variable and Floating Rate Investments--See description on page 5.
26
<PAGE>
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. Munic-
ipal Obligations rated AAA have an extremely strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and in-
terest is very strong and such bonds differ from AAA issues only in small de-
gree.
The two highest ratings of Moody's and S&P for federally tax-exempt short-term
loans and notes are MIG-1 and MIG-2, or VMIG-1 and VMIG-2 in the case of vari-
able instruments, and SP-1 and SP-2, respectively. Obligations designated MIG-1
or VMIG-1 are the best quality enjoying strong protection from established cash
flows of funds for their servicing or from established and broad-based access
to the market for refinancing, or both. Obligations designated as MIG-2 or
VMIG-2 are high quality obligations with ample margins of protection. The des-
ignation SP-1 indicates a very strong or strong capacity to pay principal and
interest while the designation SP-2 denotes a satisfactory capacity to pay
principal and interest.
The Funds' ability to purchase commercial paper of tax-exempt and corporate is-
suers is limited to commercial paper rated Prime-1 or Prime-2 by Moody's or A-1
or A-2 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 reli-
ance on debt and ample asset protection; broad margins in earnings coverage of
fixed financial charges and high internal cash generation; well-established ac-
cess to a range of financial markets and assured sources of alternative liquid-
ity. Issuers rated Prime-2 have a strong capacity for repayment of short-term
promissory obligations. The designation A-1 indicates that the degree of safety
regarding timely payment is very strong, while the designation A-2 denotes a
strong capacity for timely repayment.
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligations from the Fund, but
Nuveen Advisory will consider such an event in its determination of whether the
Fund should continue to hold such obligation.
27
<PAGE>
MANAGEMENT
The management of Nuveen Tax-Free Money Market Fund, Inc., 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 Nuveen Tax-Free Money Market Fund, Inc., two of whom are
"interested persons" (as the term "interested persons" is defined in the In-
vestment 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
Nuveen Tax-Free Money Market Fund, Inc. indicated by an asterisk.
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND
OFFICES WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE FUNDS DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Timothy R. 48 Chairman of the Chairman since July 1, 1996 of The John
Schwertfeger Board and Nuveen Company, John Nuveen & Co. Incorpo-
333 West Wacker Director rated, Nuveen Advisory Corp. and Nuveen In-
Drive stitutional Advisory Corp.; prior thereto
Chicago, IL 60606 Executive Vice President and Director of
The John Nuveen Company (since March 1992),
John Nuveen & Co. Incorporated, Nuveen Ad-
visory Corp. (since October 1992) and
Nuveen Institutional Advisory Corp. (since
October 1992).
- ----------------------------------------------------------------------------------------------
Anthony T. Dean 52 President and President since July 1, 1996 of The John
333 West Wacker Director Nuveen Company, John Nuveen & Co. Incorpo-
Drive rated, Nuveen Advisory Corp. and Nuveen In-
Chicago, IL 60606 stitutional Advisory Corp.; prior thereto,
Executive Vice President and Director of
The John Nuveen Company (since March 1992),
John Nuveen & Co. Incorporated, Nuveen Ad-
visory 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 Presi-
201 Michigan Avenue dent of The Northern Trust Company.
Highwood, IL 60040
- ----------------------------------------------------------------------------------------------
Anne E. Impellizzeri 64 Director President and Chief Executive Officer of
3 West 29th Street Blanton-Peale Institute of Religion and
New York, NY 10001 Health.
- ----------------------------------------------------------------------------------------------
Margaret K. Rosen- 70 Director Helen Ross Professor of Social Welfare Pol-
heim icy, School of Social Service Administra-
969 East 60th Street tion, University of Chicago.
Chicago, IL 60637
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND
OFFICES WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE FUNDS DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Peter R. Sawers 64 Director Adjunct Professor of Business and Econom-
22 The Landmark ics, University of Dubuque, Iowa; Adjunct
Northfield, IL 60093 Professor, Lake Forest Graduate School of
Management, Lake Forest, Illinois; Chart-
ered Financial Analyst; Certified Manage-
ment Consultant.
- -------------------------------------------------------------------------------------
William J. Schneider 52 Director Senior Partner, Miller-Valentine Partners,
4000 Miller-Valen- Vice President, Miller-Valentine Realty,
tine Ct. Inc.
P.O. Box 744
Dayton, OH 45401
- -------------------------------------------------------------------------------------
Bruce P. Bedford 57 Executive Vice Executive Vice President of John Nuveen &
333 West Wacker President Co. Incorporated, Nuveen Advisory Corp.
Drive and Nuveen Institutional Advisory Corp.
Chicago, IL 60606 (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 Corp.
One South Main (since January 1997); prior thereto, Vice
Street President and Portfolio Manager (since
Dayton, OH 45402 September 1991) of Flagship Financial.
- -------------------------------------------------------------------------------------
William M. Fitzger- 33 Vice President Vice President of Nuveen Advisory Corp.
ald (since December 1995); Assistant Vice
333 West Wacker President of Nuveen Advisory Corp. (from
Drive September 1992 to December 1995); prior
Chicago, IL 60606 thereto Assistant Portfolio Manager of
Nuveen Advisory Corp. (from June 1988 to
September 1992).
- -------------------------------------------------------------------------------------
Kathleen M. Flanagan 50 Vice President Vice President of John Nuveen & Co. Incor-
333 West Wacker porated; Vice President of Nuveen Advisory
Drive Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp. (since June 1996)
- -------------------------------------------------------------------------------------
J. Thomas Futrell 41 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker
Drive
Chicago, IL 60606
- -------------------------------------------------------------------------------------
Richard A. Huber 34 Vice President Vice President of Nuveen Advisory Corp.
One South Main (since January 1997); prior thereto, Vice
Street President and Portfolio Manager (since
Dayton, OH 45402 August 1985) of Flagship Financial.
- -------------------------------------------------------------------------------------
Steven J. Krupa 39 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker
Drive
Chicago, IL 60606
- -------------------------------------------------------------------------------------
Anna R. Kucinskis 51 Vice President Vice President of John Nuveen & Co. Incor-
333 West Wacker porated.
Drive
Chicago, IL 60606
</TABLE>
- --------------------------------------------------------------------------------
29
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND
OFFICES WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE FUNDS DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Larry W. Martin 45 Vice President Vice President (since September 1992), As-
333 West Wacker and sistant Secretary and Assistant General
Drive Assistant Sec- Counsel of John Nuveen & Co. Incorporated;
Chicago, IL 60606 retary Vice President (since May 1993) and Assis-
tant Secretary of Nuveen Advisory Corp.;
Vice President (since May 1993) and Assis-
tant Secretary of Nuveen Institutional Ad-
visory Corp; Assistant Secretary of The
John Nuveen Company (since February 1993).
- -------------------------------------------------------------------------------------
Edward F. Neild, IV 31 Vice President Vice President (since September 1996),
One South Main previously Assistant Vice President (since
Street December 1993) of Nuveen Advisory Corp.,
Dayton, OH 45402 Portfolio Manager prior thereto; Vice
President (since September 1996), previ-
ously Assistant Vice President (since May
1995) of Nuveen Institutional Advisory
Corp., Portfolio Manager prior thereto.
- -------------------------------------------------------------------------------------
Walter K. Parker 48 Vice President Vice President of Nuveen Advisory Corp.
One South Main (since January 1997); prior thereto, Vice
Street President and Portfolio Manager (since
Dayton, OH 45402 July 1994) of Flagship Financial; Portfo-
lio Manager and CIO Trust Investor (since
1983) for PNC Bank.
- -------------------------------------------------------------------------------------
O. Walter Renfftlen 57 Vice President Vice President and Controller of The John
333 West Wacker and Controller Nuveen Company, John Nuveen & Co.
Drive Incorporated, Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.
- -------------------------------------------------------------------------------------
Thomas C. Spalding, 45 Vice President Vice President of Nuveen Advisory Corp.
Jr. and Nuveen Institutional Advisory Corp;
333 West Wacker Chartered Financial Analyst.
Drive
Chicago, IL 60606
- -------------------------------------------------------------------------------------
H. William Stabenow 62 Vice President Vice President and Treasurer of The John
333 West Wacker and Treasurer Nuveen Company, John Nuveen & Co. Incorpo-
Drive rated, Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.
- -------------------------------------------------------------------------------------
Jan E. Terbrueggen 41 Vice President Vice President of Nuveen Advisory Corp.
One South Main (since January 1997); prior thereto, Vice
Street President and Portfolio Manager of Flag-
Dayton, OH 45402 ship Financial.
- -------------------------------------------------------------------------------------
Gifford R. Zimmerman 40 Vice President Vice President (since September 1992), As-
333 West Wacker and sistant Secretary and Assistant General
Drive Assistant Sec- Counsel of John Nuveen & Co. Incorporated,
Chicago, IL 60606 retary Vice President (since May 1993) and Assis-
tant Secretary of Nuveen Advisory Corp.;
Vice President (since May 1993) and Assis-
tant Secretary of Nuveen Institutional Ad-
visory Corp.
- -------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
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 Nuveen Tax-Free Money Market Fund, Inc. are directors or
trustees, as the case may be, of 42 Nuveen open-end portfolios and of 52 Nuveen
closed-end funds.
The following table sets forth compensation paid by Nuveen Tax-Free Money Mar-
ket Fund, Inc. during the fiscal year ended February 28, 1997 to each of the
directors. The Nuveen Tax-Free 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-Free Money Market Fund, Inc.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM THE FUND AND
COMPENSATION FUND COMPLEX PAID
NAME OF DIRECTOR FROM THE FUND 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(1)
Lawrence H. Brown.............................. 559 59,000
Anne E. Impellizzeri........................... 559 59,000
Margaret K. Rosenheim.......................... 647(2) 66,815(3)
Peter R. Sawers................................ 559 59,000
William J. Schneider........................... 0 0(1)
</TABLE>
* Mr. Franke retired as of June 30, 1996.
(1) First payment was in April, 1997.
(2) Includes $45 in interest earned on deferred compensation from prior years.
(3) Includes $1,565 in interest earned on deferred compensation from prior
years.
Each director who is not employed by 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 atten-
dance 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 al-
located among the open-end funds on the basis of relative net assets. Nuveen
Tax-Free Money Market Fund, Inc. requires no employees other than its officers,
all of whom are compensated by Nuveen.
On May 28, 1997, the officers and directors of the Fund as a group owned less
than 1% of the outstanding shares of each Fund.
31
<PAGE>
The following table sets forth the percentage ownership of each person who as
of May 28, 1997 owns of record or is known by the Registrant to own of record
5% or more of any class of each Fund's shares of the Funds. The Funds believe
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 AND CLASS NAME AND ADDRESS OF OWNER PERCENTAGE OF OWNERSHIP
- --------------------------------------------------------------------------------
<S> <C> <C>
Massachusetts Fund
Service Plan Series...... Express & Co. 83.52%
c/o Baybank Capital Mkt. OPS
Attn: Mary Richardson
155 Federal St., Fl. 7
Boston, MA 02110-17227
Massachusetts Fund
Institutional Series..... Rockland Trust Co. 83.49%
Attn: Trust Operations Dept.
2036 Washington St.
Hanover, MA 02339-1617
Southwest Securities Inc. 8.93%
For the exclusive benefit of
our customers
1201 Elm St., Ste. 4300
Dallas, TX 75270-2108
Citizens-Union Savings Bank 7.58%
Trust Department
Attn: Barbara E. Parker
4 South Main Street
P.O. Box 1311
Fall River, MA 02722-1311
New York Fund
Service Plan Series...... Henry Epstein 33.77%
Bella Epstein JT Ten
189 Lindberg Ave.
Oceanside, NY 11572-5507
First Albany Corporation 10.90%
AC 5003-7472
Surinder K. Lakhanpal
30 So. Pearl Street
Albany, NY 12201
Dora Restucci 5.52%
Francis J. Restucci JT Ten
84 Bedford Rd.
Katonah, NY 10536-2117
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER PERCENTAGE OF OWNERSHIP
- ----------------------------------------------------------------------------------
<S> <C> <C>
Peter J. Callahan & 5.25%
Rita S. Callahan
JT Ten Wrds Not TC
242 Windsor Ln.
West Hempstead, NY 11552-3037
Shirley R. Mast & James F. 5.16%
Mast & William L. Mast
Jt Ten Wrds Not TC
1235 Hatch Rd.
Webster, NY 14580-2422
New York Fund
Distribution Plan Se- Estate of Edith Atlas 16.49%
ries................... Sandra & Morton Bass Executors
185 Great Neck Rd.
Great Neck, NY 11021-3312
Sandra Bass 14.77%
47 Deer Park Rd.
Great Neck, NY 11024-2138
New York Fund
Institutional Series... Nuveen Advisory Corp. Inc. 100.00%
Attn. Darlene Cramer
333 W. Wacker Dr. Fl. 34
Chicago, Il 60606-1220
</TABLE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory acts as investment adviser for Nuveen Tax-Free Money Market
Fund, Inc. and in such capacity manages the investment and reinvestment of the
assets of each Fund. Nuveen Advisory also administers Nuveen Tax-Free Money
Market Fund, Inc.'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 of-
ficers of Nuveen Tax-Free Money Market Fund, Inc. if elected to such positions.
See "Management of the Funds" in the Prospectus.
Nuveen Advisory is paid an annual management fee with respect to each Fund at
the rates set forth below which are based upon the average daily net asset
value of each Fund.
<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 assets over $1 billion .350 of 1%
</TABLE>
33
<PAGE>
The management fees will be reduced or Nuveen Advisory will assume certain ex-
penses of each series of each Fund in amounts necessary to prevent the total
expenses of each series of each Fund in any fiscal year from exceeding .55 of
1% of the average daily net asset value of each series.
<TABLE>
<CAPTION>
MANAGEMENT FEES
NET OF EXPENSE
REIMBURSEMENT FEE WAIVERS AND
PAID TO NUVEEN ADVISORY EXPENSE REIMBURSEMENTS FOR
FOR THE YEAR ENDED THE YEAR ENDED
------------------------- --------------------------
2/28/95 2/29/96 2/28/97 2/28/95 2/29/96 2/28/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Massachusetts Fund......... $186,808 $138,984 $90,667 $ 96,303 $ 95,444 $152,133
New York Fund.............. 47,656 0 7,960 71,808 125,330 107,183
Total For Both Funds....... 234,464 138,984 98,627 168,111 220,774 259,316
</TABLE>
As discussed in the Prospectus, in addition to the management fees of Nuveen
Advisory, each Fund pays all other costs and expenses of its operations and a
portion of the Funds' general administrative expenses allocated in proportion
to the net assets of each Fund, including each Fund's share of payments under
the Distribution and Service Plans.
Nuveen Advisory is a wholly-owned subsidiary of John Nuveen & Co. Incorporated
("Nuveen"), the Funds' 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 tax-exempt in-
sured unit trusts. In addition, Nuveen open-end and closed-end funds held ap-
proximately $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 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.
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's Re-
search Department. The Nuveen Research Department reviews more than $100 bil-
lion in municipal bonds every year.
The Funds, the other Nuveen funds, Nuveen Advisory, and other related entities
have adopted a code of ethics which essentially prohibits all Nuveen fund man-
agement personnel, including Nuveen fund portfolio managers, from engaging in
personal investments which compete or interfere with, or attempt to take ad-
vantage of, a Fund's anticipated or actual portfolio transactions, and is de-
signed to assure that the interest of Fund shareholders are placed before the
interest of Nuveen personnel in connection with personal investment transac-
tions.
34
<PAGE>
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of each 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 ob-
tained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Funds expect that all portfolio transactions will be effected on a princi-
pal (as opposed to an agency) basis and, accordingly, do not expect to pay any
brokerage commissions.
Purchases from underwriters will include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers will include the
spread between the bid and asked price. Given the best price and execution ob-
tainable, it will be the practice of the Funds to select dealers which, in ad-
dition, 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 re-
ceived from dealers. Since it is only supplementary to Nuveen Advisory's own
research efforts, the receipt of research information is not expected to re-
duce significantly Nuveen Advisory's expenses. Any research benefits obtained
are available to all of Nuveen Advisory's other clients. While Nuveen Advisory
will be primarily responsible for the placement of the business of the Funds,
the policies and practices of Nuveen Advisory in this regard must be consis-
tent with the foregoing and will, at all times, be subject to review by the
Board of Directors of Nuveen Tax-Free Money Market Fund, Inc.
Nuveen Advisory reserves the right to, and does, manage other investment ac-
counts and investment companies or other clients which may have investment ob-
jectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions
among the Funds and the portfolios of its other clients purchasing securities
whenever decisions are made to purchase or sell securities by the Funds 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 Funds and such other clients, the relative size of portfolio holdings
of the same or comparable securities, the availability of cash for investment
by the Funds and such other clients, the size of investment commitments gener-
ally held by the Funds and such other clients and opinions of the persons re-
sponsible for recommending investments to the Funds and such other clients.
While this procedure could have a detrimental effect on the price or amount of
the securities available to the Funds from time to time, it is the opinion of
Nuveen Tax-Free Money Market Fund, Inc.'s Board of Directors that the benefits
available from Nuveen Advisory's organization outweigh any disadvantage that
may arise from exposure to simultaneous transactions.
Under the Investment Company Act of 1940, the Funds may not purchase portfolio
securities from any underwriting syndicate of which Nuveen is a member except
under certain limited conditions set
35
<PAGE>
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 Funds,
the amount of Municipal Obligations which may be purchased in any one issue and
the proportion of the assets of the Funds 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 Nuveen
Tax-Free Money Market Fund, Inc., including a majority of the members thereof
who are not interested persons of Nuveen Tax-Free Money Market Fund, Inc.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of each Fund
will be determined by The Chase Manhattan Bank, Nuveen Tax-Free Money Market
Fund, Inc.'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 a sufficient degree of trading in the Funds' portfolio
securities that the current net asset value of the shares of the Funds might be
materially affected by changes in the value of the portfolio securities. The
Federal Reserve Bank of Boston is not open and the Fund similarly will not be
open on New Year's Day, Washington's Birthday, Martin Luther King's Birthday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanks-
giving Day and Christmas Day. The net asset value per share of each Fund will
be computed by dividing the value of the portfolio securities held by such
Fund, plus cash or other assets, less liabilities, by the total number of
shares of such Fund outstanding at such time.
Nuveen Tax-Free Money Market Fund, Inc. will seek to maintain a net asset value
of $1.00 per share for each of the Funds. In this connection, Nuveen Tax-Free
Money Market Fund, Inc. intends to value the portfolio securities of each Fund
at their amortized cost, as permitted by 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 pur-
chase and thereafter assuming a constant amortization to maturity of any dis-
count or premium. While this method provides certainty in valuation, it may re-
sult in periods during which the value of an investment, as determined by amor-
tized cost, is higher or lower than the price the Funds would receive if it
sold the instrument. During periods of declining interest rates, the daily
yield on shares held in the Funds 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 in-
struments. Thus, if the use of the amortized cost method by the Funds resulted
in a lower aggregate portfolio value on a particular day, a prospective in-
vestor in the Funds would be able to obtain a somewhat higher yield than would
result from an investment in a fund utilizing solely market values, and exist-
ing investors in the Funds would receive less investment income. The converse
would apply in a period of rising interest rates.
The Funds, 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 remain-
ing maturities of 397 days or less, and invest only in securities determined to
be of high quality with minimal credit risks. The Funds may invest in variable
and
36
<PAGE>
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 (the "Commission") under the Investment Com-
pany 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 the requirements of Rule 2a-7, has estab-
lished procedures designed to stabilize, to the extent reasonably possible, the
Funds' price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures will include review of the portfolio holdings of the
Funds 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 amor-
tized 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 investments in the Funds based on methods which
include consideration of: yield or prices of municipal obligations of compara-
ble quality, coupon, maturity and type; indications as to value from dealers;
and general market conditions. The pricing agent may employ electronic data
processing techniques and/or a matrix system to determine valuations. The ex-
tent of any deviation between the net asset value of a Fund based on the pric-
ing 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 consider what action, if any, will be initiat-
ed. 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 re-
gards 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 cap-
ital or capital gains; redemption of shares in kind; or establishing a net as-
set 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
Funds.
As described in the Prospectus, each Fund intends to qualify, as it has in
prior years, under Subchapter M of the Internal Revenue Code of 1986 (the
"Code") for tax treatment as a regulated investment company. In order to qual-
ify as regulated investment company, a Fund must satisfy certain requirements
relating to the source of its income, diversification of its assets, and dis-
tributions of its income to shareholders. First, a 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 lim-
37
<PAGE>
ited 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, a
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 than three
months: (i) stock or securities and (ii) certain options, futures, or forward
contracts (the "short-short test"). Third, a 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 a 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 is invested in the securities of any one is-
suer (other than United States Government securities and securities of other
regulated investment companies) or two or more issuers controlled by a Fund and
engaged in the same, similar or related trades or businesses.
As a regulated investment company, a 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 in any taxable year for which a
Fund 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" (the excess of its net long-term capital
gain over its short-term capital loss) and is reduced by deductible expenses)
and (ii) its "net tax-exempt interest" (the excess of its gross tax-exempt in-
terest income over certain disallowed deductions).
Each Fund also intends to satisfy conditions (including requirements as to the
proportion of its assets invested in Municipal Obligations) which will enable
it to designate distributions from the interest income generated by its invest-
ment in Municipal Obligations, which is exempt from regular federal income tax
when received by such Fund, as Exempt Interest Dividends. Shareholders receiv-
ing Exempt Interest Dividends will not be subject to federal income tax on the
amount of such dividends.
Distributions by each 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 instrumentali-
ties) and net short-term capital gains realized by a Fund, if any, will be tax-
able to shareholders as ordinary income whether received in cash or additional
shares. If a Fund purchases a Municipal Obligation at a market discount, any
gain realized by the Fund upon sale or redemption of the Municipal Obligation
will be treated as taxable interest income to the extent such gain does not ex-
ceed the market discount, and any gain realized in excess of the market dis-
count will be treated as capital gains. Any net long-term capital gains real-
ized by a Fund and distributed to shareholders in cash or additional shares
will be taxable to shareholders as long-term capital gains regardless of the
length of time investors have owned shares of a Fund. The Funds do not expect
to realize significant long-term capital gains. Because the taxable portion of
each Fund's investment income consists primarily of interest, none of its divi-
dends, whether or not treated as exempt-interest dividends, is expected to
qualify under the Internal Revenue Code for the dividends received deductions
for corporations.
38
<PAGE>
If a Fund has both tax-exempt and taxable income, it will use the "average an-
nual" 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 in-
come designated as tax-exempt for any particular distribution may be substan-
tially 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, divi-
dends 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 each Fund (and received
by the shareholders) on December 31.
The redemption or exchange of the shares of a 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 ex-
changes may result in capital gain or loss to the shareholder.
In order to avoid a 4% federal excise tax, each 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 real-
ized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. The Funds intend to
make timely distributions in compliance with these requirements and conse-
quently it is anticipated that they generally will not be required to pay the
excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax treat-
ment as a regulated investment company, the Fund would incur a regular corpo-
rate federal income tax upon its income for that year, other than interest in-
come 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.
As stated in the Prospectus under "Dividends and Taxes," the Funds 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
Funds may not be appropriate investments 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 gen-
eral defined to include persons among whom there exists a relationship either
by family or business, which would result in a disallowance of losses in trans-
actions 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 pri-
vate activity bonds, this includes a partnership and each of its partners (in-
cluding their spouses and minor
39
<PAGE>
children) and an S corporation and each of its shareholders (and their spouses
and minor children). Various combinations of these relationships may also con-
stitute "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 Funds.
Federal tax law imposes an alternative minimum tax with respect to both corpo-
rations 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 hospi-
tals), is included as an item of tax preference in determining the amount of a
taxpayer's alternative minimum taxable income. To the extent that a Fund re-
ceives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from fed-
eral income tax, will be taxable to shareholders to the extent that their tax
liability is determined under the alternative minimum tax regime.
The Funds will annually supply shareholders with a report indicating the per-
centage of Fund income attributable to Municipal Obligations subject to the
federal alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is in-
creased by 75% of the difference between an alternative measure of income ("ad-
justed current earnings") and the amount otherwise determined to be the alter-
native minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by a Fund that would otherwise be tax-exempt, is
included in calculating the alternative measures of a corporation's taxable in-
come.
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 re-
tirement 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 pur-
chase or carry shares of any 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.
Each Fund is required in certain circumstances to withhold 31% of taxable divi-
dends 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 certifi-
cates, 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 Funds and their shareholders. For complete provisions, refer-
ence should be made to the pertinent Code sections and Treasury Regulations.
The Code and Treasury Regulations are subject to change by legislative or ad-
ministrative action,
40
<PAGE>
and any such change may be retroactive with respect to transactions of the
Funds. Shareholders are advised to consult their own tax advisers for more de-
tailed information concerning the federal taxation of the Funds and the income
tax consequences to their shareholders.
STATE TAX MATTERS
Massachusetts. Individual shareholders of the Massachusetts Fund who are sub-
ject to Massachusetts income taxation will not be required to include that
portion of their federally tax-exempt dividends in Massachusetts gross income
which the Massachusetts Fund clearly identifies as directly attributable to
interest earned on Municipal Obligations issued by governmental authorities in
Massachusetts and which are specifically exempted from income taxation in Mas-
sachusetts; provided that such portion is identified in a written notice
mailed to the shareholders of the Massachusetts Fund not later than sixty days
after the close of the Massachusetts Fund's tax year. Also, the individual
shareholders of the Massachusetts Fund will not be required to include in
gross income interest earned on obligations of the United States possessions
and its territories to the extent interest earned on such obligations is ex-
empt from taxation by the states pursuant to federal law.
Similarly, such shareholders will not be required to include in Massachusetts
gross income capital gain dividends designated by the Massachusetts Fund to
the extent such dividends are attributable to gains derived from Municipal Ob-
ligations issued by Massachusetts governmental authorities and are specifi-
cally exempted from income taxation in Massachusetts, provided that such divi-
dends are identified in a written notice mailed to the shareholders of the
Massachusetts Fund not later than sixty days after the close of the Massachu-
setts Fund's tax year. Lastly, any dividends of the Massachusetts Fund attrib-
utable to interest on United States obligations exempt from state taxation and
included in Federal gross income will not be included in Massachusetts gross
income if identified by the Massachusetts Fund in a written notice mailed to
shareholders within sixty days after the close of the Massachusetts Fund's tax
year. Massachusetts shareholders will be required to include all remaining
dividends in their Massachusetts income.
To the extent not otherwise exempted from Massachusetts income taxation as
provided above, the Massachusetts Fund's long-term capital gains for federal
income tax purposes will be taxed as long-term capital gains to the individual
shareholders of the Massachusetts Fund for purposes of Massachusetts income
taxation. Massachusetts shareholders will be required to recognize any taxable
gain or loss that is recognized for federal income tax purposes upon an ex-
change or redemption of their shares.
If a shareholder of the Massachusetts Fund is a Massachusetts business corpo-
ration or any foreign business corporation which exercises its charter, quali-
fies to do business, actually does business or owns or uses any part of its
capital, plant or other property in Massachusetts, then it will be subject to
Massachusetts excise taxation either as a tangible property corporation or as
an intangible property corporation. If the corporate shareholder is a tangible
property corporation, it will be taxed upon its net income allocated to Massa-
chusetts and the value of certain tangible property. If it is an intangible
property corporation, it will be taxed upon its net income and net worth allo-
cated to Massachusetts. Net income is gross income less allowable deductions
for federal income tax purposes, subject to specified modifications. Dividends
received from the Massachusetts Fund are includable in gross in-
41
<PAGE>
come and generally may not be deducted by a corporate shareholder in computing
its net income. The corporation's shares in the Massachusetts Fund are not
includable in the computation of the tangible property base of a tangible
property corporation, but are includable in the computation of the net worth
base of an intangible property corporation.
Shares of the Massachusetts Fund will be includable in the Massachusetts gross
estate of a deceased individual shareholder who is a resident of Massachusetts
for purposes of the Massachusetts Estate Tax.
Shares of the Massachusetts Fund will be exempt from local property taxes in
Massachusetts.
New York. Individual shareholders of the New York Fund who are subject to New
York State (or New York City) personal income taxation will not be required to
include in their New York adjusted gross income that portion of their exempt-
interest dividends (as determined for federal income tax purposes) which the
New York Fund clearly identifies as directly attributable to interest earned
on Municipal Obligations issued by governmental authorities in New York ("New
York Municipal Obligations") and which are specifically exempted from personal
income taxation in New York State (or New York City), or interest earned on
obligations of United States possessions or territories to the extent interest
earned on such obligations is exempt from taxation by the states pursuant to
federal law. Distributions to individual shareholders of dividends derived
from interest that does not qualify as an exempt-interest dividend (as deter-
mined for federal income tax purposes), distributions of exempt-interest divi-
dends (as determined for federal income tax purposes) which are derived from
interest earned on Municipal Obligations issued by governmental authorities in
states other than New York State, and distributions derived from interest
earned on United States obligations will be included in their New York ad-
justed gross income as ordinary income.
Distributions to individual shareholders of the New York Fund of capital gain
dividends (as determined for federal income tax purposes) will be included in
their New York adjusted gross income as long-term capital gains. Distributions
to individual shareholders of the New York Fund of dividends derived from any
net income received from taxable temporary investments and any net short-term
capital gains realized by the New York Fund will be included in their New York
adjusted gross income as ordinary income. Present New York law taxes long-term
capital gains at the rates applicable to ordinary income.
Gain or loss, if any, resulting from an exchange or redemption of shares of
the New York Fund that is recognized by individual shareholders of the New
York Fund for federal income tax purposes will be recognized for purposes of
New York State (or New York City) personal income taxation.
Generally, corporate shareholders of the New York Fund which are subject to
New York State franchise taxation (or New York City general corporation taxa-
tion) will be taxed upon their entire net income, business and investment cap-
ital, or at a flat rate minimum tax. Entire income will include dividends re-
ceived from the New York Fund (as determined for federal income tax purposes),
as well as any gain or loss recognized from an exchange or redemption of
shares of the New York Fund that is recognized for federal income tax purpos-
es. Investment capital will include the corporate shareholder's shares of the
New York Fund. Corporate shareholders of the New York Fund, which are subject
to the
42
<PAGE>
temporary metropolitan transportation surcharge, will be required to pay a tax
surcharge on the franchise taxes imposed by New York State.
Shareholders of the New York Fund will not be subject to New York City unin-
corporated business taxation solely by reason of their ownership of shares of
the New York Fund. If a shareholder of the New York Fund is subject to the New
York City unincorporated business tax, income and gains derived from the New
York Fund will be subject to such tax, except for exempt-interest dividends
(as determined for federal income tax purposes) which the New York Fund
clearly identifies as directly attributable to interest earned on New York Mu-
nicipal Obligations.
Shares of the New York Fund will be exempt from local property taxes in New
York State and New York City, but will be includible in the New York gross es-
tate of a deceased individual holder who is a resident of New York for pur-
poses of the New York Estate Tax.
The foregoing is a general and abbreviated summary of some of the important
state tax provisions of designated states presently in effect as they directly
govern the taxation of the Funds or their shareholders. The foregoing state
tax information assumes that each Fund qualifies as a regulated investment
company for federal income tax purposes under subchapter M of the Code, and
that the amounts so designated by each Fund to its shareholders qualify as
"exempt-interest dividends" under Section 852(b)(5) of the Code. These state
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to transactions of the Funds.
Shareholders of the Funds are advised to consult their own tax advisers in
that regard.
DISTRIBUTION AND SERVICE PLAN
Shares of each Fund may be purchased at the net asset value which is next com-
puted after receipt of an order, provided payment in federal funds is received
as described in the Prospectus. Shares of each Fund are issued in three se-
ries: (i) the Service Plan series, (ii) the Distribution Plan series, and
(iii) the Institutional series. There is no sales charge on purchases of
shares of any series of the Fund.
As discussed in the Prospectus under "How to Purchase Fund Shares--Distribu-
tion and Service Plan," each Fund has adopted a Distribution and Service Plan
(the "Plan") with respect to its shares of the Distribution Plan series and
the Service Plan series. The Plan was adopted by a vote of the Board of Direc-
tors of Nuveen Tax-Free Money Market Fund, Inc., including a majority of the
directors who are not interested persons of Nuveen Tax-Free Money Market Fund,
Inc. and who have no direct or indirect financial interest in the operation of
the Plans. Under the Plan, the Distribution Plan series and the Service Plan
series of each Fund and Nuveen pay fees (i) in the case of the Service Plan
series, to banks and other organizations described in the Prospectus for the
servicing of accounts of shareholders of such series and (ii) in the case of
the Distribution Plan series, to securities dealers for services rendered in
the distribution of the shares of such series. In each case, such services may
include, among other things, establishing and maintaining shareholder ac-
counts, processing purchase and redemption transactions, arranging for bank
wires, performing sub-accounting, answering shareholder inquiries and such
other services as Nuveen may request. Payments to such securities dealers and
banks or other organizations will be at the rate of .25 of 1% per year of the
average assets of serviced accounts. One-
43
<PAGE>
half of such amounts will be paid by the Service Plan series and the Distribu-
tion Plan series of each Fund and one-half by Nuveen. Expenses that are in-
curred under the Plan in a given fiscal year but not reimbursed by the Fund in
that year are not carried over to future years. For the fiscal year ended Feb-
ruary 28, 1997, Nuveen Tax-Free Money Market Fund, Inc. paid fees to banks and
other organizations under the Service Plan in the amount of $36,759 in connec-
tion with the Massachusetts Fund and $133 in connection with the New York Fund.
For the same period, Nuveen Tax-Free Money Market Fund, Inc. paid fees to secu-
rities dealers under the Distribution Plan in the amount of $25,412 in connec-
tion with the Massachusetts Fund and $11,444 in connection with the New York
Fund.
Under the Plan, the Controller or the Treasurer of Nuveen Tax-Free Money Market
Fund, Inc. will report quarterly to the Board of Directors for its review
amounts expended for services rendered under the Plan. The Plan may be termi-
nated at any time, without the payment of any penalty, by a vote of a majority
of the directors who are not "interested persons" and who have no direct or in-
direct financial interest in the Plan or by vote of a majority of the outstand-
ing voting securities of the applicable series of each Fund. The Plan may be
renewed from year to year if approved by a vote of the Board of Directors and a
vote of the non-interested directors who have no direct or indirect financial
interest in the Plan cast in person at a meeting called for the purpose of vot-
ing on the Plan. The Plan may be continued only if the directors who vote to
approve such continuance conclude, in the exercise of reasonable business judg-
ment and in light of their fiduciary duties under applicable law, that there is
a reasonable likelihood that the Plan will benefit such series of Nuveen Tax-
Free Money Market Fund, Inc. and its shareholders. The Plan may not be amended
to increase materially the cost which the Distribution Plan series or the Serv-
ice Plan series of each Fund may bear under the Plan without the approval of
the shareholders of the affected series, and any other material amendments of
the Plans must be approved by the non-interested directors by a vote cast in
person at a meeting called for the purpose of considering such amendments. Dur-
ing the continuance of the Plan, the selection and nomination of the non-inter-
ested directors of Nuveen Tax-Free Money Market Fund, Inc. will be committed to
the discretion of the non-interested directors then in office.
No director of the Nuveen Tax-Free Money Market Fund, Inc., nor any interested
person of the Nuveen Tax-Free Money Market Fund, Inc., has any direct or indi-
rect financial interest in the Plans.
Shareholders should note that when a Fund dividend check has been returned to
the sender by the post office after repeated mailings, the shareholder account
will thereafter be registered for automatic reinvestment of dividends and thus
the dividend check and future dividend checks will be reinvested in additional
Fund shares. Shareholders are reminded that they need to advise the Funds
promptly in writing of any change in address.
The Glass-Steagall Act and other applicable laws, among other things, may limit
banks from engaging in the business of underwriting, selling or distributing
securities. Since the only functions of banks who may be engaged as Service Or-
ganizations is to perform administrative shareholder servicing functions,
Nuveen Tax-Free Money Market Fund, Inc. believes that such laws should not pre-
clude a bank from acting as a Service Organization. However, future changes in
either federal or state statutes or regulations relating to the permissible ac-
tivities of banks and their subsidiaries or affiliates, as well as judicial or
administrative decisions or interpretations of statutes or regulations, could
prevent a bank
44
<PAGE>
from continuing to perform all or a part of its shareholder servicing activi-
ties. If a bank were prohibited from so acting, its shareholder customers would
be permitted to remain shareholders of the Funds and alternative means for con-
tinuing the servicing of such shareholders would be sought.
YIELD INFORMATION
As explained in the Prospectus, the historical performance of a series of a
Fund may be expressed in terms of "yield," "effective yield" or "taxable equiv-
alent yield." These various measures of performance are described below. Based
on the seven-day period ended February 28, 1997 the current yield, effective
yield and taxable equivalent yield (using a combined federal and state income
tax rate of 47.0% for Massachusetts and 43.5% for New York) for the series of
the Massachusetts and New York Funds were as follows:
<TABLE>
<CAPTION>
TAXABLE
CURRENT EFFECTIVE EQUIVALENT
YIELD YIELD YIELD
- -------------------------------------------------
<S> <C> <C> <C>
MASSACHUSETTS FUND:
All Series 2.79% 2.83% 5.26%
NEW YORK FUND:
All Series 2.86% 2.90% 5.06%
</TABLE>
Each series' 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 series'
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 series' 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 capi-
tal gains or losses or unrealized appreciation or depreciation of investments.
A series' effective yield is calculated by taking the base period return (com-
puted as described above) and calculating the effect of assumed compounding.
The formula for effective yield is: (base period return + 1)/3//6//5///7/ -1.
A series' taxable equivalent yield is computed by dividing that portion of the
series' yield which is tax-exempt by the remainder of (1 minus the stated fed-
eral income tax rate) and adding the product to that portion, if any, of the
yield of the series that is not tax-exempt.
Each series' yield will fluctuate, and the publication of annualized yield quo-
tations is not a representation of what an investment in the series will actu-
ally 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 expenses attributable to the series.
45
<PAGE>
In reports or other communications to shareholders or in advertising and sales
literature, Nuveen Tax-Free Money Market Fund, Inc. may compare the perfor-
mance of its Funds 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 differ-
ent periods of time by means of aggregate, average, year-by-year or other
types of performance figures. Lipper performance calculations include the re-
investment of all capital gain and income dividends for the periods covered by
the calculations. As reported by Donoghue's, all investment results represent
total return (annualized results for the period net of management fees and ex-
penses) and one year investment results are effective annual yields assuming
reinvestment of dividends.
A comparison of tax-exempt and taxable equivalent yields is one element to
consider in making an investment decision. Nuveen Tax-Free Money Market Fund,
Inc. may from time to time in its advertising and sales materials compare the
then current yields of its Funds as of a recent date with the yields on tax-
able 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 Funds. 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.
The following tables show 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 tax-
able 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 invest-
ment at the stated taxable rate.
<TABLE>
<CAPTION>
2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
2.00% TAX- TAX- TAX- TAX- TAX- TAX-
TAXABLE TAX-FREE FREE FREE FREE FREE FREE 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
- ---------------------------------------------------------------------
</TABLE>
*The dollar amounts in the table reflect a 31% federal income tax rate.
This table is for illustrative purposes only and is not intended to predict
the actual return you might earn on your investment. The Funds occasionally
may advertise their 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.
46
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Arthur Andersen LLP, independent public accountants, 33 W. Monroe Street, Chi-
cago, Illinois 60603 have been selected as auditors for Nuveen Tax-Free Money
Market Fund, Inc. In addition to audit services, Arthur Andersen LLP provides
consultation and assistance on accounting, internal control, tax and related
matters. The financial statements of Nuveen Tax-Free Money Market Fund, Inc.
incorporated by reference elsewhere in this Statement of Additional Information
and the information set forth under "Financial Highlights" in the Prospectus
have been audited by Arthur Andersen LLP as indicated in their report with re-
spect thereto, and are included in reliance upon the authority of said firm as
experts in giving said report.
The custodian of the Nuveen Tax Free Money Market Fund, Inc.'s assets is The
Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004.
47
