<PAGE>
Prudential
Special Money
Market Fund
Money Market Series
- ------------------------------------------------
Prudential Mutual Funds
BUILDING YOUR FUTURE
(LOGO)
ON OUR STRENGTH
<PAGE>
LETTER TO SHAREHOLDERS
January 17, 1994
Dear Shareholder
During the last six months, money market funds witnessed an economy
characterized by slow growth and extremely low money market rates.
Current short-term rates, though slightly higher than in the middle
of last year, are still some of the lowest money market rates investors
have seen in nearly three decades. Despite this, the Prudential Special
Money Market Fund continued to maintain competitive yields.
The Fund seeks high current income, consistent with the preservation
of principal and liquidity by investing in a diversified portfolio of
high-quality money market securities.
Fund Performance
Throughout this low interest rate environment, Prudential Special
Money Market Fund-Money Market Series remained a high quality option
for those seeking current income, cash liquidity, and relative safety
of principal. On December 31, 1993, the
Fund's 7-day net current yield was 2.58%. Of course, past performance
can be no guarantee of future results. The Fund maintained a net asset
value per share of $1.00 during the six month period ended December 31,
1993.
The Fund invests in U.S. dollar denominated money market securities,
including securities issued by the U.S. government, its agencies or
instrumentalities as well as obligations issued by major corporations
and commercial banks of the U.S. and
foreign countries. Maturities can range from one day to 13 months.
The Fund invests only in securities rated in the two highest categories
by a nationally recognized ratings organization, or which we deem to be
of comparable quality.
Please note that an investment in the Fund is neither insured nor
guaranteed by the U.S. government and there can be no assurance
that the Fund will be able to maintain a stable net asset value of
$1.00 per share.
No Change in the Fed's Policy
During the summer, economic indicators were mixed and often changed
directions from one month to the next. But fourth quarter data began
to converge in the same direction and point toward more positive
economic progress.
Regardless, the two short-term interest rate benchmarks--the Fed
funds rate (the inter-bank lending rate) and the discount rate
(the cost of funds borrowed from the Federal Reserve)--remained
around 3.0%. fearful of hampering the economic recovery
the Fed did not move to increase short-term rates until February
1994, despite their low levels. In fact, with over one-and-a-quarter
years since their last policy move, the Fed stayed on the sidelines
for one of the longest periods in its
history. The Fed also made it clear, that it will take further
action if necessary to quell inflation.
-1-
Weighted Average Maturity
Interest rates generally moved in response to the economy, declining
erratically until early October. Since the recent markets did not
offer sufficient yields to compensate for the added risk of longer
maturities, we generally stayed neutral to
defensive by shortening the Fund's weighted average maturity (WAM).
By the end of September, just before short-term rates bottomed out
and then started to climb, we shortened the Fund's WAM to 46 days--well
below the 68 day mean WAM of other similar
funds. This placed us in a strong position to increase the Fund's yield
when rates began to rise. At the end of December, the WAM was 46 days.
Security Selection Adds Value
We found additional value in different types of money market securities.
The availability of newly-issued floating-rate agency instruments during
the end of September helped us add to our holdings of variable rate
securities. As corporations strengthened their balance sheets, we also
added corporate commercial paper. In particular, we identified improving
trends in the finance industry and targeted companies like Household
Finance and General Motors Acceptance Corporation. As of
December 31, 1993, our holdings of commercial paper comprised 71%
of the portfolio, up from 48% on June 30, 1993. By the end of 1993,
the Fund also held 2% in bank obligations, 10% in certificates of
deposit, 15% in variable rate securities and the
remaining in other corporate securities.
(CHART)
Looking Ahead to Possible Higher Rates
The economy, with little impending inflation growth, low interest
rates and on the heels of a 4.0% rate of fourth quarter GDP growth,
should continue to strengthen. Signs of inflationary pressures,
however, generally follow a period of sustained
growth, and given the Fed's interest as the nation's "inflation watch
dog," we anticipate that they will raise short-term rates before midyear.
We expect to keep your Fund's average maturity neutral to slightly shorter
for some time, as we wait for
continued evidence of a stronger economy.
There are, however, two areas of caution on the horizon that may
hamper a further upswing in the economy: the full impact of the
federal tax increases will be felt in 1994 and the proposed health-care
program may cause businesses to think twice
before hiring new employees. We will be observing their effects with
careful attention.
-2-
As always, it is a pleasure to have you as a shareholder of Prudential
Special Money Market Fund, and to take this opportunity to report
our activities to you.
Sincerely,
Lawrence C. McQuade
President
Robert N. Felice
Portfolio Manager
-3-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1) (000)
<C> <S> <C>
ASSET BACKED SECURITIES--1.7%
Capital Auto Receivables
Asset Trust
$ 292 3.35%, 6/15/94............ $ 292,363
Case Equipment Loan Trust
1,037 3.25%, 5/15/94............ 1,037,065
Money Market Auto Loan
Trust
2,000 3.535%, 1/18/94........... 2,000,000
------------
3,329,428
------------
BANK NOTES--1.6%
Bank of New York
1,000 3.60%, 6/30/94............ 999,202
Northern Trust Co.
1,000 3.625%, 6/9/94............ 999,149
Society National Bank of
Cleveland
1,000 3.35%, 3/10/94............ 999,780
------------
2,998,131
------------
CERTIFICATES OF DEPOSIT--
EURODOLLAR--1.0%
Canadian Imperial Bank
Commission
2,000 3.27%, 1/24/94............ 2,000,013
------------
CERTIFICATES OF DEPOSIT--
YANKEE--9.3%
ABN Amro N.V.
2,000 3.24%, 3/31/94............ 1,999,291
Banque Francaise Commerce
3,000 3.37%, 3/1/94............. 3,000,000
Banque National de Paris
1,000 3.33%, 4/27/94............ 999,806
Sanwa Bank, Ltd.
2,000 3.33%, 1/18/94............ 2,000,024
Societe Generale Bank
10,000 3.38%, 3/2/94............. 10,000,000
------------
17,999,121
------------
COMMERCIAL PAPER--
DOMESTIC--51.2%
American Brands, Inc.
$1,000 3.35%, 1/12/94............ $ 998,976
American Express Credit
Corp.
3,000 3.23%, 2/2/94............. 2,991,387
Aristar, Inc.
1,000 3.50%, 1/24/94............ 997,764
Asset Securitization
Cooperative Corp.
5,000 3.35%, 2/16/94............ 4,978,597
AT&T Co.
1,239 3.35%, 1/27/94............ 1,236,002
Avco Financial Services,
Inc.
2,000 3.37%, 1/25/94............ 1,995,507
Beneficial Corp.
6,000 3.35%, 1/28/94............ 5,984,925
CIT Group Holdings, Inc.
2,000 3.22%, 2/1/94............. 1,994,454
3,000 3.34%, 2/28/94............ 2,983,857
3,000 3.50%, 3/28/94............ 2,974,917
Commercial Credit Co.
1,000 3.34%, 2/3/94............. 996,938
Corporate Asset Funding
Co., Inc.
2,000 3.33%, 1/24/94............ 1,995,745
Cooperative Receivables
Corp.
1,000 3.22%, 1/21/94............ 998,211
Dresser Industries, Inc.
1,000 3.45%, 1/11/94............ 999,042
1,000 3.35%, 1/14/94............ 998,790
Ford Motor Credit Corp.
10,000 3.33%, 2/15/94............ 9,958,375
General Electric Capital
Corp.
7,000 3.32%, 2/25/94............ 6,964,494
3,000 3.22%, 4/6/94............. 2,974,508
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
COMMERCIAL PAPER--
DOMESTIC--(cont'd)
Heller Financial Services,
Inc.
$1,000 3.30%, 1/13/94............ $ 998,900
International Lease
Finance
1,400 3.29%, 1/28/94............ 1,396,546
K mart Corp.
1,000 3.35%, 2/14/94............ 995,906
2,000 3.23%, 2/15/94............ 1,991,925
Merrill Lynch & Co., Inc.
1,000 3.37%, 2/2/94............. 997,004
5,000 3.22%, 3/30/94............ 4,960,644
Morgan Stanley Group, Inc.
1,000 3.39%, 1/31/94............ 997,175
NYNEX Corp.
6,000 3.37%, 2/14/94............ 5,975,287
PHH Corp.
1,575 3.20%, 1/19/94............ 1,572,480
Philip Morris Capital
Corp.
8,865 3.30%, 1/6/94............. 8,860,936
Preferred Receivables
Funding Corp.
2,250 3.33%, 1/24/94............ 2,245,213
Rite-Aid Corp.
9,000 3.37%, 1/7/94............. 8,994,945
Smith Barney Shearson,
Inc.
2,000 3.28%, 1/26/94............ 1,995,444
TransAmerica Financial
Corp.
4,000 3.22%, 2/4/94............. 3,987,836
------------
98,992,730
------------
COMMERCIAL PAPER--YANKEE--19.4%
Abbey National North
America Corp.
5,000 3.22%, 3/18/94............ 4,966,011
1,000 3.40%, 4/26/94............ 989,139
Bank of Nova Scotia
$2,000 3.22%, 2/1/94............. $ 1,994,454
2,000 3.22%, 2/2/94............. 1,994,276
Bradford & Bingley
Building
Society
1,000 3.22%, 1/12/94............ 999,016
1,000 3.23%, 1/12/94............ 999,013
Canadian Imperial
Holdings, Inc.
1,000 3.22%, 2/1/94............. 997,227
Hanson Finance (U.K.),
PLC.
1,000 3.34%, 2/28/94............ 994,619
1,000 3.35%, 3/1/94............. 994,510
1,000 3.36%, 3/2/94............. 994,400
2,000 3.35%, 3/8/94............. 1,987,717
Maguire/Thomas Partners,
Westlake/Southlake
Partnership
1,145 3.37%, 1/20/94............ 1,142,963
National Australia Funding
500 3.40%, 1/21/94............ 499,056
SRD Finance Inc.
5,000 3.33%, 1/25/94............ 4,988,900
Sumitomo Corp. of America
2,000 3.35%, 2/25/94............ 1,989,764
Toronto Dominion Hldgs.
USA, Inc.
10,000 3.25%, 4/11/94............ 9,909,722
WestPac Banking
1,000 3.39%, 2/14/94............ 995,857
------------
37,436,644
------------
LOAN PARTICIPATIONS--1.6%
Morgan Stanley Group, Inc.
3,000 3.35%, 1/3/94............. 3,000,000
------------
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
VARIABLE RATE INSTRUMENTS#--15.0%
Avco Financial Services,
Inc.
$2,000 3.3695%, 1/27/94.......... $ 2,000,000
Federal Home Loan Mortgage
Corp.
4,000 3.075%, 3/15/94........... 4,000,000
Goldman Sachs Group, L.P.
8,000 3.6875%, 1/27/94.......... 8,000,000
Lehman Brothers Hldgs.,
Inc.
6,000 3.8281%, 1/31/94.......... 6,000,000
Merrill Lynch & Co., Inc.
4,000 3.325%, 1/20/94........... 3,998,277
Morgan Stanley Group, Inc.
1,000 3.405%, 1/18/94........... 1,000,000
1,000 3.57813%, 1/19/94......... 1,000,000
3,000 3.53%, 2/15/94............ 3,000,000
------------
28,998,277
------------
Total Investments--100.8%
(amortized cost
$194,754,344*).......... 194,754,344
Liabilities in excess of
other
assets--(0.8%).......... (1,567,356)
------------
Net Assets--100%.......... $193,186,988
------------
------------
<FN>
* The federal income tax basis of portfolio securities is the same as for
financial reporting purposes.
# For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the later of the next date on which the
security can be redeemed at par or the next date on which the rate of interest
is adjusted.
</TABLE>
The industry classification of portfolio holdings shown as a percentage of net
assets as of December 31, 1993 was as follows:
<TABLE>
<S> <C>
Banks..................................... 27.7%
Security Brokers & Dealers................ 18.1
Business Credit (Finance)................. 18.0
Personal Credit Institutions.............. 11.4
Asset Backed Securities................... 7.0
Drug & Proprietary Stores................. 4.7
Telephone Communications.................. 3.7
Tobacco................................... 3.1
Federal Credit Agencies................... 2.1
Variety Stores............................ 1.5
Commodity Trading Firms................... 1.0
General Industry Machine.................. 1.0
Auto Rental & Leasing..................... 0.8
Equipment Rental & Leasing................ 0.7
-----
100.8%
Liabilities in excess of other assets..... (0.8)
-----
100.0%
-----
-----
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets December 31, 1993
-----------------
<S> <C>
Investments, at amortized cost which approximates value............................... $ 194,754,344
Receivable for Fund shares sold....................................................... 1,070,968
Interest receivable................................................................... 271,985
Deferred expenses and other assets.................................................... 40,585
-----------------
Total assets...................................................................... 196,137,882
-----------------
Liabilities
Payable for Fund shares reacquired.................................................... 2,645,373
Accrued expenses and other liabilities................................................ 204,313
Due to Manager........................................................................ 87,257
Dividends payable..................................................................... 13,951
-----------------
Total liabilities................................................................. 2,950,894
-----------------
Net Assets............................................................................ $ 193,186,988
-----------------
-----------------
Net assets were comprised of:
Common stock, $0.001 par value...................................................... $ 193,187
Paid-in capital in excess of par.................................................... 192,993,801
-----------------
Net assets at December 31, 1993..................................................... $ 193,186,988
-----------------
-----------------
Net asset value, offering price and redemption price per share
($193,186,988 (div) 193,186,988 shares of common stock issued and outstanding; two
billion shares authorized).......................................................... $1.00
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
December
31,
Net Investment Income 1993
----------
<S> <C>
Income
Interest.............................. $3,354,290
----------
Expenses
Management fee........................ 505,645
Transfer agent's fees and expenses.... 145,000
Custodian's fees and expenses......... 61,000
Registration fees..................... 53,000
Audit fee............................. 18,000
Reports to shareholders............... 15,000
Amortization of organization
expenses............................ 13,000
Directors' fees....................... 7,500
Legal fees............................ 3,000
Miscellaneous......................... 5,057
----------
Total expenses...................... 826,202
----------
Net investment income................... 2,528,088
----------
Realized Gain on Investments
Net realized gain on investment
transactions.......................... 18,720
----------
Net Increase in Net Assets
Resulting from Operations............... $2,546,808
----------
----------
</TABLE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) December 31, June 30,
in Net Assets 1993 1993
------------- ---------------
<S> <C> <C>
Operations
Net investment
income............. $ 2,528,088 $ 5,681,217
Net realized gain
from
investment
transactions....... 18,720 149,500
------------- ---------------
Net increase in net
assets
resulting from
operations......... 2,546,808 5,830,717
------------- ---------------
Dividends and
distributions to
shareholders......... (2,546,808) (5,830,717)
------------- ---------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed......... 696,148,467 1,301,022,263
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions...... 2,019,629 4,625,673
Cost of shares
reacquired......... (681,238,682) (1,312,483,396)
------------- ---------------
Net increase
(decrease) in net
assets from Fund
share
transactions....... 16,929,414 (6,835,460)
------------- ---------------
Total increase
(decrease)........... 16,929,414 (6,835,460)
Net Assets
Beginning of period.... 176,257,574 183,093,034
------------- ---------------
End of period.......... $ 193,186,988 $ 176,257,574
------------- ---------------
------------- ---------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-8-
<PAGE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Notes to Financial Statements
(Unaudited)
Prudential-Bache Special Money Market Fund, Inc., doing business as
Prudential Special Money Market Fund (the ``Fund''), registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company consisting of the Money Market Series (the ``Series''). The Fund was
incorporated in Maryland on October 20, 1989 and had no operations until
November 30, 1989 when 100,000 shares of the Series' common stock was sold for
$100,000 to Prudential Mutual Fund Management, Inc. (PMF). Investment operations
commenced January 22, 1990.
The investment objective of the Series is high current income consistent with
the preservation of principal and liquidity. The Series invests in a diversified
portfolio of high quality money market securities maturing in 13 months or less.
The ability of issuers of securities held by the Series to meet their
obligations may be affected by economic developments in a specific industry or
region.
Note 1. Accounting The following is a summary of significant
Policies accounting
policies followed by the Fund in the preparation
of its financial statements.
Securities Valuation: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method of valuation involves
valuing a security at its cost on the date of purchase and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and cost.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
Federal Income Taxes: It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: The Fund declares daily and pays monthly dividends
from net investment income and short-term capital gains. Dividends are recorded
on ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
Deferred Organization Expenses: Organization expenses of approximately $135,000
were incurred in connection with the organization and initial registration of
the Fund. The total organization expenses have been deferred and are being
amortized over the period of benefit not to exceed 60 months from the date of
commencement of investment operations for the Fund. PMF has agreed not to redeem
the 100,000 shares purchased until all organization expenses have been
amortized.
Note 2. Agreements The Fund has a management agreement with PMF.
Pursuant to this agreement, PMF has responsibility for all investment advisory
services and supervises the subadviser's performance of such services. PMF has
entered into a subadvisory agreement with The Prudential Investment Corporation
(``PIC''); PIC furnishes investment advisory services in connection with the
management of the Fund. PMF pays for the cost of the subadviser's services, the
compensation of officers and employees of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50% of the average daily net assets of the Fund.
The Fund has a distribution agreement with Prudential Mutual Fund
Distributors, Inc. (``PMFD''). PMFD serves the Fund without compensation.
PMFD is a wholly-owned subsidiary of PMF; PMF and PIC are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of North America.
Note 3. Other Prudential Mutual Fund Services, Inc. (``PMFS''),
Transactions With a wholly-owned subsidiary of
Affiliates PMF, serves as the Fund's transfer agent. During
the six months ended December 31, 1993, the Series incurred fees of
approximately $91,000 for the services of PMFS. As of December 31, 1993,
approximately $19,000 of such fees were owed to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out of pocket expenses
paid to non-affiliates.
-9-
<PAGE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
January
Six Months 22,
Ended 1990*
December Year Ended June 30, Through
31, -------------------------------- June 30,
1993 1993 1992 1991 1990*
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized gains..... 0.013 0.027 0.044 0.071# 0.036 #
Dividends and distributions...................... (0.013) (0.027) (0.044) (0.071) (0.036 )
----------- -------- -------- -------- --------
Net asset value, end of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- -------- --------
----------- -------- -------- -------- --------
TOTAL RETURN:**.................................. 1.27% 2.77% 4.49% 7.36% 3.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $ 193,187 $176,258 $183,093 $284,849 $181,690
Average net assets (000)......................... $ 200,609 $213,948 $249,223 $328,899 $177,412
Ratios to average net assets:
Expenses....................................... 0.82%(dag) 0.81% 0.83% 0.61%# 0.19%(dag)#
Net investment income.......................... 2.52%(dag) 2.73% 4.36% 6.98%# 8.12%(dag)#
<FN>
- ---------------
* Commencement of investment operations.
** Total return is calculated assuming a purchase of shares on the first day and a
sale on the last day of each year reported and includes reinvestment of dividends
and distributions. Total returns for periods for less than a full year are not
annualized.
(dag) Annualized.
# Net of expense subsidy and/or management fee waiver.
</TABLE>
See Notes to Financial Statements.
-10-
<PAGE>
<PAGE>
Directors
Edward D. Beach
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Richard A. Redeker
Stanley E. Shirk
Stephen Stoneburn
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Domenick Pugliese, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Mutual Fund Distributors, Inc.
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche
1633 Broadway
New York, NY 10019
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
Collect (908) 417-7555
The accompanying financial statements as of December 31, 1993, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution
to prospective investors unless preceded or
accompanied by a current prospectus.
74436K104 MF141E2
Cat. #4441337
