As filed with the Securities and Exchange Commission
on August 27, 1996
Securities Act Registration No. 33-31603
Investment Company Act Registration No. 811-5951
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 9 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 10 /X/
(Check appropriate box or boxes)
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PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
(formerly Prudential-Bache Special Money Market Fund, Inc.)
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective
(check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date
for a previously filed post-effective amendment
CALCULATION OF REGISTRATION FEE
Proposed
Maximum Proposed Amount
Title of Amount Offering Maximum of
Securities Being Price Aggregate Registration
Being Registered Registered Per Unit Offering Price* Fee
- -------------------- ---------- --------- ------------------ ------------
Shares of common
stock, par value
$.001 per share 57,220,990 $1.00 $290,000 $100
________________________________________________________________________________
* The calculation of the maximum aggregate offering price was made pursuant
to Rule 24e-2 and was based upon an offering price of $1.00 per share equal to
the net asset value per share as of the close of business on August 26, 1996
pursuant to Rule 457(d). The total number of shares redeemed during the fiscal
year ended June 30, 1996 amounted to 1,857,717,889 shares. Of this number,
no shares have been used for reduction pursuant to paragraph (a) of rule 24e-2
in all previous filings of post-effective amendments during the current year
and 1,800,786,899 shares were used for reduction pursuant to paragraph (c)
of Rule 24f-2 during the fiscal year ended June 30, 1996. 56,930,990 of the
redeemed shares are being used for the reductions in the post-effective
amendment being filed herein.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has previously registered an indefinite number of shares of Common Stock, par
value $.001 per share. The Registrant filed a notice under such Rule for its
fiscal year ended June 30, 1996 on or about August 27, 1996.
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<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------------------------------------------------------------------ ------------------------------
Part A
<S> <C> <C>
Item 1. Cover Page.................................................. Cover Page
Item 2. Synopsis.................................................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information............................. Fund Expenses; Financial
Highlights; Calculation of
Yield
Item 4. General Description of Registrant........................... Cover Page; Fund Highlights;
How the Fund Invests; How the
Fund is Managed; General
Information
Item 5. Management of Fund.......................................... Financial Highlights; How the
Fund is Managed; General
Information
Item 6. Capital Stock and Other Securities.......................... Taxes, Dividends and
Distributions; General
Information
Item 7. Purchase of Securities Being Offered........................ Shareholder Guide; How the
Fund Values its Shares
Item 8. Redemption or Repurchase.................................... Shareholder Guide; General
Information
Item 9. Pending Legal Proceedings................................... Not Applicable
Part B
Item 10. Cover Page.................................................. Cover Page
Item 11. Table of Contents........................................... Table of Contents
Item 12. General Information and History............................. Not Applicable
Item 13. Investment Objectives and Policies.......................... Investment Objective and
Policies; Investment
Restrictions
Item 14. Management of the Fund...................................... Directors and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities......... Not Applicable
Item 16. Investment Advisory and Other Services...................... Manager; Distributor;
Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices.................... Portfolio Transactions
Item 18. Capital Stock and Other Securities.......................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Shareholder Investment
Offered..................................................... Account; Net Asset Value
Item 20. Tax Status.................................................. Taxes
Item 21. Underwriters................................................ Distributor
Item 22. Calculation of Performance Data............................. Calculation of Yield
Item 23. Financial Statements........................................ Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate Item, so
numbered, in Part C to this Post-Effective Amendment to the Registration Statement.
</TABLE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Money Market Series
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PROSPECTUS DATED AUGUST 27, 1996
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Prudential Special Money Market Fund, Inc. (the Fund), is an open-end,
diversified, management investment company which is currently comprised of one
series, the Money Market Series (the Series or the Fund). The investment
objective of the Fund is high current income consistent with the preservation of
principal and liquidity. There can be no assurance that the Fund's investment
objective will be achieved. The Fund seeks to achieve its objective by investing
in a diversified portfolio of high quality money market instruments maturing in
thirteen months or less. 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. See "How
the Fund Values its Shares."
Shares of the Fund are offered to holders of Class B and Class C shares of the
Prudential Mutual Funds through an exchange privilege. Shares may also be
purchased directly by investors for cash with a minimum investment of
$1,000,000. Shares of the Fund may also be purchased by Individual Retirement
Accounts, retirement plans for self-employed individuals and employee benefit
plans (collectively, Plans) with the proceeds from any redemption of shares by
such Plans from The Target Portfolio Trust. There is no minimum investment
requirement for the purchase of shares of the Fund by Plans. See "Shareholder
Guide--How to Buy Shares of the Fund."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated August 27, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
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Investors are advised to read this Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by more detailed information
appearing elsewhere herein.
WHAT IS PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.?
Prudential Special Money Market Fund, Inc. is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
diversified, management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is high current income consistent with the
preservation of principal and liquidity. There can be no assurance that the
Fund's objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies" at page 6.
RISK FACTORS AND SPECIAL CHARACTERISTICS
In seeking to achieve its objective, the Fund will invest in a diversified
portfolio of high quality money market instruments maturing in thirteen months
or less. It is anticipated that the net asset value of the Fund will remain
constant at $1.00 per share, although this cannot be assured. In order to
maintain such constant net asset value, the Fund will value its portfolio
securities at amortized cost. While this method provides certainty in
valuation, it may result in periods during which the value of a security in
the Fund's portfolio, as determined by amortized cost, is higher or lower than
the price the Fund would receive if it sold such security. See "How the Fund
Values its Shares" at page 12.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .50 of 1%
of the Fund's average daily net assets. As of July 31, 1996, PMF served as
manager or administrator to 64 investment companies, including 39 mutual
funds, with aggregate assets of approximately $52 billion. The Prudential
Investment Corporation (PIC or the Subadviser) furnishes investment advisory
services in connection with the management of the Fund under a Subadvisory
Agreement with PMF. See "How the Fund is Managed--Manager" at page 10.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's shares pursuant to a distribution agreement with the
Fund and serves without compensation. See "How the Fund is
Managed--Distributor" at page 10.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
Shares are offered to holders of Class B and Class C shares of Prudential
Mutual Funds as part of their exchange privilege with a minimum initial
investment of $1,000 and minimum subsequent investment of $100. As part of
their exchange privilege, shares are also offered to shareholders of certain
Prudential money market funds who acquired their money market fund shares
prior to January 22, 1990 from a Prudential Mutual Fund subject to a
contingent deferred sales charge, provided that a minimum initial investment
of $1,000 is satisfied. Shares may also be purchased directly with a minimum
initial investment of $1,000,000. See "Shareholder Guide--How to Buy Shares of
the Fund" at page 15.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, or
directly from the Fund, through its transfer agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), at the net asset value per share
(NAV) next determined after receipt of your purchase or exchange order by the
Transfer Agent or Prudential Securities. See "How the Fund Values its Shares"
at page 12 and "Shareholder Guide--How to Buy Shares of the Fund" at page 15.
HOW DO I SELL MY SHARES?
You may redeem shares of the Fund at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell order.
See "Shareholder Guide--How to Sell Your Shares" at page 16. If your shares
were purchased as part of an exchange of Class B or Class C shares from
another Prudential Mutual Fund or as part of an exchange of shares of certain
other Prudential money market funds described above, redemption proceeds will
be reduced by the amount of any applicable contingent deferred sales charge
imposed by the original fund. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charge" at page 18.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to declare daily and pay monthly dividends of net
investment income and any net short-term capital gains. Dividends and
distributions will be reinvested automatically in additional shares of the
Fund at NAV unless you request that they be paid to you in cash. See "Taxes,
Dividends and Distributions" at page 12.
3
<PAGE>
FUND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases...................................... None
Maximum Sales Load Imposed on Reinvested Dividends........................... None
Deferred Sales Load (as a percentage of original purchase price or redemption
proceeds,
whichever is lower)......................................................... 5%*
Redemption Fees.............................................................. None
Exchange Fee................................................................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees.............................................................. .50%
12b-1 Fees................................................................... None
Other Expenses............................................................... .23%
----
Total Fund Operating Expenses................................................ .73%
----
----
</TABLE>
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* Shares are sold without any sales charge. Shareholders who exchange into
the Fund, however, are generally subject to a contingent deferred sales
charge imposed by the original fund upon their redemption of Fund shares
depending on the date of purchase of shares of the original fund. See
"Shareholder Guide--How to Sell Your Shares." The contingent deferred
sales charge is based on the period shares of the original fund were held
calculated without regard to the period during which shares of the Fund
are held and is generally calculated with respect to Class B shares at the
following rates: 5% during the first year, decreasing by 1% annually to 1%
in the fifth and sixth years and 0% in the seventh year and thereafter.
Class C shares are generally subject to a 1% contingent deferred sales
charge for one year after purchase. Investors are referred to the
prospectus of the original fund for a description of the applicable
contingent deferred sales charge.
<TABLE>
<CAPTION>
EXAMPLE* 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:............ $ 57 $53 $51 $ 91
You would pay the following expenses on the same
investment, assuming no redemption:................... $ 7 $23 $41 $ 91
</TABLE>
------------------
The above example is based on data for the fiscal year ended June 30, 1996.
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "How the Fund is Managed." "Other Expenses" includes
operating expenses of the Fund, such as Directors' and professional fees,
registration fees, reports to shareholders and transfer agency and custodian
fees.
* Shareholders who exchange Class B or Class C shares into the Fund are
generally subject to a contingent deferred sales charge imposed by the
original fund upon their redemption of Fund shares depending on the date
of purchase of shares of the original fund. The example takes into account
the deferred sales load generally applicable to Class B shares. See
"Shareholder Guide--How to Sell Your Shares."
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
The following financial highlights, with respect to the five-year period ended
June 30, 1996, have been audited by Deloitte & Touche LLP, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a share of common stock outstanding, total
return, ratios to average net assets and other supplemental data for the periods
indicated. This information is based on data contained in the financial
statements.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------- JANUARY 22, 1990(A)
1996 1995 1994 1993 1992 1991 THROUGH JUNE 30, 1990
-------- -------- -------- -------- -------- -------- ---------------------
<S> <C> <C> <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 $1.00 $1.00
Net investment income......... 0.051 0.049 0.030 0.027 0.044 0.071(c) 0.036(c)
Dividends from net investment
income........................ (0.051) (0.049) (0.030) (0.027) (0.044) (0.071) (0.036)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period........................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------- -------- ------
-------- -------- -------- -------- -------- -------- ------
TOTAL RETURN(D):.............. 5.19% 5.05% 3.09% 2.77% 4.49% 7.36% 3.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)......................... $263,168 $359,197 $473,057 $176,258 $183,093 $284,849 18$1,690
Average net assets (000)...... $326,849 $416,899 $271,869 $213,948 $249,223 $328,899 17$7,412
Ratios to average net assets:
Expenses..................... 0.73% 0.70% 0.72% 0.81% 0.83% 0.61%(c) 0.19%(b)(c)
Net investment income........ 5.07% 4.93% 2.96% 2.73% 4.36% 6.98%(c) 8.12%(b)(c)
</TABLE>
--------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Net of expense subsidy and management fee waiver.
(d) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for periods
of less than a full year are not annualized.
5
<PAGE>
CALCULATION OF YIELD
THE FUND CALCULATES ITS "CURRENT YIELD" based on the net change, exclusive of
realized and unrealized gains or losses, in the value of a hypothetical account
over a seven calendar day base period. THE FUND WILL ALSO CALCULATE ITS
"EFFECTIVE ANNUAL YIELD" assuming weekly compounding. The yield will fluctuate
from time to time and does not indicate future performance.
The following is an example of the current and effective annual yield
calculation as of June 30, 1996.
<TABLE>
<S> <C>
Value of hypothetical account at end of period............................. $1.000908523
Value of hypothetical account at beginning of period....................... 1.000000000
------------
Base period return......................................................... $0.000908523
------------
------------
CURRENT YIELD ((.000908523 x (365/7))...................................... 4.74%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding........................ 4.85%
</TABLE>
The weighted average life to maturity of the Fund's portfolio on June 30, 1996
was 60 days.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the Fund's
shares, including data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc., IBC/Donoghue's Money Fund Report, The Bank Rate Monitor,
other industry publications, business periodicals and market indices.
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE INVESTMENT OBJECTIVE OF THE FUND IS HIGH CURRENT INCOME CONSISTENT WITH
THE PRESERVATION OF PRINCIPAL AND LIQUIDITY. THE FUND SEEKS TO ACHIEVE THIS
OBJECTIVE BY INVESTING 100% OF ITS ASSETS IN A PORTFOLIO OF HIGH QUALITY U.S.
DOLLAR-DENOMINATED MONEY MARKET INSTRUMENTS. THE FUND SEEKS TO MAINTAIN A $1.00
SHARE PRICE AT ALL TIMES. TO ACHIEVE THIS, THE FUND WILL PURCHASE ONLY
SECURITIES MATURING IN THIRTEEN MONTHS OR LESS AND THE DOLLAR-WEIGHTED AVERAGE
MATURITY OF THE FUND'S PORTFOLIO WILL BE 90 DAYS OR LESS. THERE IS NO ASSURANCE
THAT THE FUND'S INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT THE FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE PER SHARE.
THE INVESTMENT OBJECTIVE OF THE FUND IS A FUNDAMENTAL POLICY AND, THEREFORE,
MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
FUND'S OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT
OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). THE FUND'S INVESTMENT POLICIES
ARE NON-FUNDAMENTAL AND MAY BE CHANGED BY THE BOARD OF DIRECTORS.
The Fund utilizes the amortized cost method of valuation in accordance with
regulations issued by the Securities and Exchange Commission (SEC or Commission)
as they may from time to time be amended. See "How the Fund Values its Shares."
Accordingly, the Fund will limit its portfolio investments to those instruments
which present minimal credit risks and which are of "eligible quality," as
determined by the Fund's investment adviser under the supervision of the Board
of Directors. "Eligible quality," for this purpose, means (i) a security (or
issuer) rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations assigning a rating to the
6
<PAGE>
security or issuer (or, if only one such rating organization assigned a rating,
that rating organization) or (ii) an unrated security deemed of comparable
quality by the Fund's investment adviser under the supervision of the Board of
Directors.
In selecting portfolio securities for investment by the Fund, the investment
adviser considers ratings assigned by major rating services, information
concerning the financial history and condition of the issuer and its revenue and
expense prospects. The Board of Directors monitors the credit quality of
securities purchased for the Fund. If a portfolio security held by the Fund is
assigned a lower rating or ceases to be rated, the investment adviser under the
supervision of the Board of Directors will promptly reassess whether that
security presents minimal credit risks and whether the Fund should continue to
hold the security. If a portfolio security no longer presents minimal credit
risks or is in default, the Fund will dispose of the security as soon as
reasonably practicable unless the Board of Directors determines that to do so is
not in the best interest of the Fund and its shareholders.
As long as the Fund utilizes the amortized cost method of valuation, it will
also comply with certain diversification requirements and will invest no more
than 5% of the total assets of the Fund in "second-tier securities," with no
more than 1% of the Fund's assets in any one issuer of a second-tier security. A
"second-tier security," for this purpose, is a security of "eligible quality"
that does not have the highest rating from at least two rating organizations
assigning a rating to that security or issuer (or, if only one rating
organization assigned a rating, that rating organization) or an unrated security
that is deemed of comparable quality by the Fund's investment adviser under the
supervision of the Board of Directors. A description of security ratings is
contained in the Appendix.
The Fund will invest in the following money market instruments:
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed as to principal and interest by the U.S.
Government or its agencies or instrumentalities.
BANK OBLIGATIONS
Obligations (including time deposits, certificates of deposit and bankers'
acceptances) of commercial banks, savings banks and savings and loan
associations having at the time of investment total assets of $1 billion or
more. The Fund may invest in obligations of domestic banks, foreign branches of
U.S. banks, foreign banks and U.S. branches and foreign branches of foreign
banks. The Fund may invest more than 25% of its total assets in money market
instruments of domestic banks (including U.S. branches of foreign banks that are
subject to the same regulation as U.S. banks and foreign branches of domestic
banks, provided the domestic bank is unconditionally liable in the event of the
failure of the foreign branch to make payment on its instruments for any
reason). See "Investment Restrictions" in the Statement of Additional
Information.
OTHER MONEY MARKET INSTRUMENTS
Commercial paper, variable amount demand master notes, bills, notes and other
obligations issued by a U.S. company, a foreign company or a foreign government,
its agencies or instrumentalities. If such obligations are guaranteed or
supported by a letter of credit issued by a bank, such bank (including a foreign
bank) must meet the requirements set forth under "Bank Obligations" above. If
such obligations are guaranteed or insured by an insurance company or other
non-bank entity, such insurance company must represent a credit of comparable
quality as determined by the Fund's investment adviser, under the supervision of
the Board of Directors.
The Fund may not invest more than 25% of its total assets in any one industry
except there is no limitation with respect to money market instruments of
domestic banks and obligations of the U.S. Government, its agencies and
instrumentalities, as described above.
7
<PAGE>
The Fund intends to hold portfolio securities until maturity; however, the
Fund may sell any security at any time in order to meet redemption requests or
if such action, in the judgment of the investment adviser, is appropriate based
on the adviser's evaluation of the issuer or market conditions.
OTHER INVESTMENTS AND POLICIES
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Fund's money is invested in the
repurchase agreement. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the resale price. The
instruments held as collateral are valued daily, and if the value of such
instruments declines, the Fund will require additional collateral. If the seller
defaults and the value of the collateral securing the repurchase agreement
declines, the Fund may incur a loss. The Fund participates in a joint repurchase
account with other investment companies managed by Prudential Mutual Fund
Management, Inc. pursuant to an order of the SEC. See "Investment Objective and
Policies--Repurchase Agreements" in the Statement of Additional Information.
RISKS OF INVESTING IN FOREIGN SECURITIES
Investments in obligations of foreign issuers (including foreign banks) may be
subject to certain risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, the seizure or
nationalization of foreign deposits and foreign exchange controls or other
restrictions. In addition, there may be less publicly available information
about foreign issuers than about domestic issuers and foreign issuers are
generally not subject to the same accounting, auditing and financial
recordkeeping standards and requirements as domestic issuers. In the event of a
default with respect to any foreign debt obligations, it may be more difficult
for the Fund to obtain or enforce a judgment against the issuer of such
securities.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Fund may purchase "floating rate" and "variable rate" obligations. The
interest rates on such obligations fluctuate generally with changes in market
interest rates, and in some cases the Fund is able to demand repayment of the
principal amount of such obligations at par plus accrued interest. For
additional information concerning variable rate and floating rate obligations,
see "Investment Objective and Policies--Floating Rate and Variable Rate
Securities" in the Statement of Additional Information.
LIQUIDITY PUTS
The Fund may purchase instruments of the types described above together with
the right to resell the instruments at an agreed-upon price or yield within a
specified period prior to the maturity date of the instrument. Such a right to
resell is commonly known as a "put," and the aggregate price that the Fund pays
for instruments with a put may be higher than the price that otherwise would be
paid for the instruments. See "Investment Objective and Policies--Liquidity
Puts" in the Statement of Additional Information.
Since the value of the put is dependent on the ability of the put writer to
meet its obligation to repurchase, the Fund's policy is to enter into put
transactions only with such brokers, dealers or financial institutions which
present minimal credit risks. There is a credit risk associated with the
purchase of puts in that the broker, dealer or financial institution might
default on its obligation to repurchase an underlying security. Changes in the
credit quality of these institutions could cause losses to the Fund and affect
its share price. In the event such a default should occur, the Fund is unable
8
<PAGE>
to predict whether all or any portion of any loss sustained could subsequently
be recovered from the broker, dealer or financial institution.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time of entering into the transaction. The Fund's
Custodian will maintain, in a segregated account, cash, U.S. Government
securities or other liquid unencumbered assets, marked-to-market daily, having a
value equal to or greater than the Fund's purchase commitments. See "Investment
Objective and Policies--When-Issued and Delayed Delivery Securities" in the
Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act), and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
Investing in Rule 144A securities could, however, have the effect of increasing
the level of Fund illiquidity to the extent that qualified buyers become, for a
limited time, uninterested in purchasing these securities. The Fund intends to
comply with any applicable state blue sky laws restricting the Fund's
investments in illiquid securities. See "Investment Restrictions" in the
Statement of Additional Information. The investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. Repurchase agreements subject to demand are deemed to have a maturity
equal to the applicable notice period. See "Investment Objective and
Policies--Illiquid Securities" in the Statement of Additional Information.
BORROWING
The Fund may borrow money from banks in an amount equal to no more than 20% of
the value of its total assets (computed at the time the loan is made) for
temporary, extraordinary or emergency purposes or for the clearance of
transactions. The Fund may pledge up to 20% of its total assets to secure such
borrowings. The Fund will not purchase portfolio securities if its borrowings
exceed 5% of its assets. See "Investment Objective and Policies--Pledging of
Assets and Borrowing" in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
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HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
For the fiscal year ended June 30, 1996, total expenses as a percentage of
average net assets of the Fund were .73%. See "Financial Highlights."
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS. It was incorporated in May 1987 under the laws of the State of Delaware.
For the fiscal year ended June 30, 1996, the Fund paid management fees to PMF
of .50% of the Fund's average net assets. See "Manager" in the Statement of
Additional Information.
As of July 31, 1996, PMF served as the manager to 38 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 26 closed-end investment companies with aggregate assets of
approximately $52 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance Company
of America (Prudential), a major diversified insurance and financial services
company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES, PSI OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, ACTS AS DISTRIBUTOR
OF THE FUND PURSUANT TO A DISTRIBUTION AGREEMENT WITH THE FUND AND SERVES
WITHOUT COMPENSATION. It is a corporation organized under the laws of the State
of Delaware and an indirect, wholly-owned subsidiary of Prudential.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. (NASD) to resolve allegations that from
1980 through 1990 PSI sold certain limited partnership interests in violation of
securities laws to persons for whom such securities were not suitable and
misrepresented the safety, potential returns and liquidity of these investments.
Without admitting or denying the allegations asserted against it, PSI consented
to the entry of an SEC Administrative Order which stated that PSI's
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conduct violated the federal securities laws, directed PSI to cease and desist
from violating the federal securities laws, pay civil penalties, and adopt
certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of a
$10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Fund provided that the
commissions, fees or other remuneration it receives are reasonable and fair. See
"Portfolio Transactions" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
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HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. THE BOARD OF DIRECTORS HAS FIXED THE SPECIFIC TIME
OF DAY FOR THE COMPUTATION OF NAV TO BE AS OF 4:30 P.M., NEW YORK TIME,
IMMEDIATELY AFTER THE DAILY DECLARATION OF DIVIDENDS.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund. The New York Stock Exchange is
closed on the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund determines the value of its portfolio securities by the amortized
cost method. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
During these periods, the yield to an existing shareholder may differ somewhat
from that which could be obtained from a similar fund which marks its portfolio
securities to market each day. For example, during periods of declining interest
rates, if the use of the amortized cost method resulted in a lower value of the
Fund's portfolio on a given day, a prospective investor in the Fund would be
able to obtain a somewhat higher yield and existing shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates. The Board of Directors has established procedures designed to
stabilize, to the extent reasonably possible, the NAV of the shares of the Fund
at $1.00 per share. See "Net Asset Value" in the Statement of Additional
Information.
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT TO FEDERAL
INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF ANY, THAT IT
DISTRIBUTES TO ITS SHAREHOLDERS. Net investment income consists of interest
accrued or discount earned (including both original issue and market discount)
on the obligations held by the Fund, less amortization of premium and the
estimated expenses of the Fund applicable to that dividend period.
The Fund will be subject to a 4% nondeductible excise tax imposed under the
Internal Revenue Code to the extent the Fund does not meet certain minimum
distribution requirements by the end of each calendar year. For this purpose,
dividends declared in October, November and December payable to shareholders of
record on a specified date in October, November and December and paid in the
following January will be treated as having been paid by the Fund and received
by shareholders in such prior year. Under this rule, shareholders may be taxed
in one year on dividends or distributions actually received in January of the
following year.
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TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of any
net short-term gains (i.e., the excess of net short-term capital gains over net
long-term capital losses) will be taxable as ordinary income to the shareholder
whether or not reinvested. The Fund does not expect to realize long-term capital
gains or losses. Shareholders are advised to consult their own tax advisers
regarding specific questions as to federal, state or local taxes. See "Taxes" in
the Statement of Additional Information.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit to
the U.S. Treasury 31% of dividends, capital gain income and redemption proceeds
on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. For shareholders who are
otherwise subject to backup withholding under federal income tax law, only
dividends and capital gains distributions are subject to withholding. Dividends
of net investment income and short-term capital gains paid to a foreign
shareholder will generally be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO DECLARE DAILY AND PAY MONTHLY DISTRIBUTIONS OF NET
INVESTMENT INCOME AND NET SHORT-TERM CAPITAL GAINS AND MAKE DISTRIBUTIONS AT
LEAST ANNUALLY OF NET LONG-TERM CAPITAL GAINS, IF ANY. Dividends declared are
accrued throughout the month and are distributed in the form of full and
fractional shares on or about the twenty-fifth day of the month, unless the
shareholder elects in writing not less than five business days prior to the
dividend payment date to receive such dividends in cash. Such election should be
submitted to Prudential Mutual Fund Services, Inc., Attn: Account Maintenance
Unit, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. The dividend payment
date may be changed for any given dividend for operational reasons without
further notice to shareholders. Dividends are reinvested at the net asset value
determined as of 4:30 P.M., New York time, on the day of payment. If the entire
amount in an account is withdrawn at any time during a month, all dividends
accrued with respect to that account during that month are paid to the investor.
The calculation of net investment income for dividend purposes is made
immediately prior to the calculation of net asset value at 4:30 P.M., New York
time. Thus, a shareholder begins to earn dividends on the first business day
after his or her order becomes effective and continues to earn dividends through
the day on which his or her shares are redeemed. If a redemption request is
received prior to 4:30 P.M., New York time, the shareholder is entitled to the
dividend declared on that day.
Net income earned on Saturdays, Sundays and holidays is accrued in calculating
the dividend on the previous business day. Accordingly, a shareholder who
redeems his or her shares effective as of 4:30 P.M., New York time, on a Friday
earns a dividend which reflects the income earned by the Fund on the following
Saturday and Sunday. On the other hand, an investor whose purchase order is
effective as of 4:30 P.M., New York time, on a Friday does not begin earning
dividends until the following business day. See "How the Fund Values its
Shares."
The Fund will notify each shareholder after the close of the Fund's taxable
year both of the dollar amount and the taxable status of that year's dividends
and distributions.
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GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on October 20, 1989. Effective March 7,
1996, the Fund's name changed from Prudential-Bache Special Money Market Fund,
Inc. to Prudential Special Money Market Fund, Inc. The Fund is authorized to
issue 2 billion shares of common stock of $.001 par value which are currently
divided into two portfolios or series, each of which consists of 1 billion
authorized shares. Only shares of the Money Market Series currently are being
offered. The Board of Directors may increase or decrease the number of
authorized shares without approval by shareholders. Shares of the Fund, when
issued, are fully paid, nonassessable, fully transferable and redeemable at the
option of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares--Involuntary Redemption." All shares of the Fund are equal as to
earnings, assets and voting privileges. There are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debts and expenses of the Fund have been paid. The Fund's shares do not have
cumulative voting rights for the election of Directors. Pursuant to the Fund's
Articles of Incorporation, the Board of Directors may authorize the creation of
additional series of common stock and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the Board
may determine.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the Securities and
Exchange Commission under the Securities Act. Copies of the Registration
Statement may be obtained at a reasonable charge from the Commission or may be
examined, without charge, at the office of the Commission in Washington, D.C.
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SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES OR DIRECTLY
FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES, INC.
(PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020,
NEW BRUNSWICK, NEW JERSEY 08906-5020. Shares are offered to holders of Class B
and Class C shares of the Prudential Mutual Funds as part of their exchange
privilege with a minimum initial investment of $1,000 and a minimum subsequent
investment of $100. As part of their exchange privilege, shares of the Fund are
also offered to shareholders of certain Prudential money market funds who
acquired their money market fund shares prior to January 22, 1990 from a
Prudential Mutual Fund subject to a contingent deferred sales charge, provided
that a minimum initial investment of $1,000 is satisfied. Shares of the Fund may
also be purchased directly by investors for cash with a minimum initial
investment of $1,000,000 and no minimum on subsequent investments. Shares of the
Fund may also be purchased by Individual Retirement Accounts, retirement plans
for self-employed individuals and employee benefit plans (collectively, Plans)
with the proceeds from any redemption of shares by such Plans from The Target
Portfolio Trust. There is no minimum investment requirement for the purchase of
shares of the Fund by Plans.
SHARES ARE SOLD ON A CONTINUOUS BASIS AT THE NAV NEXT DETERMINED AFTER RECEIPT
AND ACCEPTANCE BY PMFS OR PRUDENTIAL SECURITIES OF AN ORDER IN PROPER FORM. SEE
"HOW THE FUND VALUES ITS SHARES." When an exchange order is received by PMFS
prior to 4:30 P.M., New York time, in proper form, a share purchase order will
be entered at the price determined as of 4:30 P.M., New York time, on that day,
and dividends on the shares purchased will begin on the business day following
such investment. For federal income tax purposes, an exchange is treated as a
sale on which a shareholder may realize a capital gain or loss. See "Taxes,
Dividends and Distributions."
Application forms can be obtained from PMFS or Prudential Securities. If a
stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who hold
their shares through Prudential Securities will not receive stock certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
Class B and Class C shares of Prudential Mutual Funds may be exchanged for
shares of the Fund without imposition of a contingent deferred sales charge at
the time of exchange. Upon subsequent redemption from the Fund or after re-
exchange into the Class B or Class C shares of the original fund or another
Prudential Mutual Fund, such shares will again be subject to a contingent
deferred sales charge calculated without regard to the period during which
shares of the Fund were held. Shares of the Fund may not be exchanged for Class
A or Class Z shares of the Prudential Mutual Funds.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MAY AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call
the Fund at (800) 225-1852 to execute a telephone exchange of shares, weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
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number. A written confirmation of the exchange transaction will be sent to you.
NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST
WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE
UNDER THE FOREGOING PROCEDURES. (The Fund or its agents could be subject to
liability if they fail to employ reasonable procedures.) All exchanges will be
made on the basis of the relative net asset value of the two funds next
determined after the request is received in good order. The Exchange Privilege
is available only in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES OR THROUGH A DEALER WHICH HAS
ENTERED INTO A SELECTED DEALER AGREEMENT WITH THE FUND'S DISTRIBUTOR, YOU MUST
EXCHANGE YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES."
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND SHAREHOLDERS SHOULD MAKE EXCHANGES BY
MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC. AT THE ADDRESS NOTED
ABOVE.
The Fund reserves the right to reject any exchange order including exchanges
(and market timing transactions) which are of a size and/or frequency engaged in
by one or more accounts acting in concert or otherwise, that have or may have an
adverse effect on the ability of the Subadivser to manage the portfolio. The
determination that such exchanges or activity may have an adverse effect and the
determination to reject any exchange order shall be in the discretion of the
Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, terminated or
modified at any time.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT DETERMINED
AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE TRANSFER AGENT OR
PRUDENTIAL SECURITIES. See "How the Fund Values its Shares." In certain cases,
however, redemption proceeds will be reduced by the amount of any applicable
contingent deferred sales charge imposed by the original fund. See "Contingent
Deferred Sales Charge" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE
PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR
FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST
BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and
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make reasonable inquiries of, any eligible guarantor institution. For clients of
Pruco Securities Corporation (Prusec), a signature guarantee may be obtained
from the agency or office manager of most Prudential Insurance and Financial
Services or Preferred Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the SEC, by
order, so permits; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
PAYMENT OF REDEMPTION PROCEEDS OF RECENTLY PURCHASED SHARES WILL BE DELAYED
UNTIL THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK
HAS BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE
PURCHASE CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED IF SHARES ARE
PURCHASED BY WIRE OR BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES
Shares of the Fund purchased by Prudential Securities on behalf of its clients
will be held by Prudential Securities as record holder. Shareholders who hold
shares of the Fund through Prudential Securities must therefore redeem their
shares by contacting their Prudential Securities financial adviser. The Transfer
Agent will not accept redemption requests directly from such Prudential
Securities clients.
CHECK REDEMPTION
At your request, State Street Bank and Trust Company (State Street) will
establish a personal checking account for you. Checks drawn on this account can
be made payable to the order of any person in any amount greater than $500. When
such check is presented to State Street for payment, State Street presents the
check to the Fund as authority to redeem a sufficient number of shares of the
Fund in your account to cover the amount of the check plus any applicable
contingent deferred sales charges. If insufficient shares are in the account or,
if the purchase was made by check within 10 calendar days, the check will be
returned marked "insufficient funds." Checks in an amount less than $500 will
not be honored. Shares for which certificates have been issued cannot be
redeemed by check. There is a service charge of $5.00 payable to PMFS to
establish a checking account and order checks.
EXPEDITED REDEMPTION
By pre-authorizing Expedited Redemption, you may arrange to have payment for
redeemed shares wired to your bank, normally on the next business day following
redemption. In order to use Expedited Redemption, you may so designate at the
time the initial investment is made or at a later date. Once an Expedited
Redemption authorization form has been completed, the signature on the
authorization form guaranteed as set forth above and the form returned to PMFS,
requests for redemption may be made by telegraph, letter or telephone. To
request Expedited Redemption by telephone, you should call PMFS at (800)
225-1852. Calls must be received by PMFS before 4:30 P.M., New York time, to
permit redemption as of such date. Requests by letter should be addressed to
Prudential Mutual Fund Services, Inc., Attention: Prudential Special Money
Market Fund, Inc., P.O. Box 15010, New Brunswick, New Jersey 08906-5010. A
signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used to redeem shares in an amount of $200 or more,
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except that if an account for which expedited redemption is requested has a net
asset value of less than $200, the entire account must be redeemed. The proceeds
of redeemed shares in the amount of $1,000 or more are transmitted by wire to
your account at a domestic commercial bank which is a member of the Federal
Reserve System. Proceeds of less than $1,000 are forwarded by check to your
designated bank account. Any applicable contingent deferred sales charges will
be deducted from the proceeds of redeemed shares.
In periods of severe market or economic conditions, expedited redemptions may
be difficult to implement and shareholders should redeem their shares by mail as
described above.
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the investment portfolio of the Fund, in
lieu of cash, in conformity with applicable rules of the SEC. Securities will be
readily marketable and will be valued in the same manner as in a regular
redemption. See "How the Fund Values its Shares." If your shares are redeemed in
kind, you would incur transaction costs in converting the assets into cash. The
Fund, however, has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION
In order to reduce expenses of the Fund, the Board of Directors may redeem all
of the shares of any shareholder, other than a shareholder which is an IRA or
other tax-deferred retirement plan, whose account has a net asset value of less
than $500 due to a redemption. The Fund will give any such shareholder 60 days'
prior written notice in which to purchase or acquire sufficient additional
shares to avoid such redemption. No contingent deferred sales charge will be
imposed on any involuntary redemption.
90-DAY REPURCHASE PRIVILEGE
If you redeem your shares and have not previously exercised the repurchase
privilege, you may reinvest any portion or all of the proceeds of such
redemption in shares of the Fund at the net asset value next determined after
the order is received, which must be within 90 days after the date of the
redemption. Any contingent deferred sales charge (CDSC) paid in connection with
such redemption will be credited (in shares) to your account. (If less than a
full repurchase is made, the credit will be on a pro rata basis.) You must
notify the Fund's Transfer Agent, either directly or through Prudential
Securities, at the time the repurchase privilege is exercised to adjust your
account for the CDSC you previously paid. Thereafter, any redemptions will be
subject to the CDSC applicable at the time of the redemption. See "Contingent
Deferred Sales Charge" below. Exercise of the repurchase privilege will
generally not affect federal tax treatment of any gain realized upon redemption.
However, if the redemption was made within a 30 day period of the repurchase and
if the redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, may not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGE
Shares of the Fund are sold without any sales charge. Shareholders who
exchange into the Fund, however, are generally subject to a contingent deferred
sales charge imposed by the original fund upon their redemption of shares of the
Fund depending on the date of purchase of shares of the original fund, without
regard to the time shares were held in the Fund.
The following example is provided to assist an investor in understanding how a
contingent deferred sales charge is applied. Shareholders are advised to read
the prospectus of the original fund for a description of the applicable
18
<PAGE>
contingent deferred sales charge. Shareholders may obtain copies of prospectuses
of the Prudential Mutual Funds by telephoning the Fund at (800) 225-1852 or by
writing to Prudential Mutual Fund Services, Inc., P.O Box 15010, New Brunswick,
New Jersey 08906-5010.
For example, assume an investor purchased 100 Class B shares of a fund (the
original fund) (subject to a contingent deferred sales charge declining from 5%
to 1% over a period of six years) at $10 per share for a total cost of $1,000.
Subsequently, the shareholder acquired 5 additional shares of the original fund
through dividend reinvestment. During the second year after the original
purchase, the investor exchanged into the Fund. Assuming at the time of the
exchange, the net asset value of the original fund had appreciated to $12 per
share, the value of the investor's shares would be $1260 (105 shares at $12 per
share). Subsequently, the shareholder acquired 1 additional share of the Fund
through dividend reinvestment (1 share at $1.00 per share). In year three, the
investor decided to redeem $500 of his or her investment. A contingent deferred
sales charge would not be applied to the amount which represents appreciation
and the value of the reinvested dividend shares ($261). Therefore, $239 of the
redemption proceeds ($500 minus $261) would be charged at a rate of 4% (the
applicable contingent defined sales charge in the second year after purchase of
the original fund, i.e., without regard to the time shares were held in the
Fund) for a total contingent deferred sales charge of $9.56.
SHAREHOLDER SERVICES
As a shareholder in the Fund, you can take advantage of the following
additional services and privileges:
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV. You may direct the
Transfer Agent in writing not less than 5 full business days prior to the record
date to have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold shares through Prudential Securities, you should contact
your financial adviser.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Because such
withdrawals constitute redemptions, they are subject to any applicable
contingent deferred sales charges, as described above.
. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses the Fund will provide one annual report and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
19
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE (MOODY'S)
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. The obligations have an original
maturity not exceeding one year, unless explicitly noted.
P-1: Issuers rated "Prime 1" or "P-1" (or supporting institutions) have a
superior ability for repayment of senior short-term obligations.
P-2: Issuers rated "Prime 2" or "P-2" (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
STANDARD & POOR'S RATINGS GROUP (S&P)
BOND RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: The A-1 designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+).
A-2: Capacity for timely payments on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-1
<PAGE>
DUFF & PHELPS CREDIT RATING CO.
LONG-TERM DEBT RATINGS
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
SHORT-TERM DEBT RATINGS
D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
A-2
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
<TABLE><CAPTION>
TAXABLE BOND FUNDS EQUITY FUNDS
<S> <C>
Prudential Diversified Bond Fund, Inc. Prudential Allocation Fund
Prudential Government Income Fund, Inc. Balanced Portfolio
Prudential Government Securities Trust Strategy Portfolio
Short-Intermediate Term Series Prudential Distressed Securities Fund, Inc.
Prudential High Yield Fund, Inc. Prudential Equity Fund, Inc.
Prudential Mortgage Income Fund, Inc. Prudential Equity Income Fund
Prudential Structured Maturity Fund, Inc. Prudential Jennison Fund,Inc.
Income Portfolio Prudential Multi-Sector Fund, Inc.
The BlackRock Government Income Trust Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
TAX-EXEMPT BOND FUNDS Nicholas-Applegate Growth Equity Fund
Prudential California Municipal Fund
California Series
California Income Series MONEY MARKET FUNDS
Prudential Municipal Bond Fund . Taxable Money Market Funds
High Yield Series Prudential Government Securities Trust
Insured Series Money Market Series
Intermediate Series U.S. Treasury Money Market Series
Prudential Municipal Series Fund Prudential Special Money Market Fund, Inc.
Florida Series Money Market Series
Hawaii Income Series Prudential MoneyMart Assets, Inc.
Maryland Series . Tax-Free Money Market Funds
Massachusetts Series Prudential Tax-Free Money Fund, Inc.
Michigan Series Prudential California Municipal Fund
Minnesota Series California Money Market Series
New Jersey Series Prudential Municipal Series Fund
New York Series Connecticut Money Market Series
North Carolina Series Massachusetts Money Market Series
Ohio Series New Jersey Money Market Series
Pennsylvania Series New York Money Market Series
Prudential National Municipals Fund, Inc. . Command Funds
Command Money Fund
GLOBAL FUNDS Command Government Fund
Command Tax-Free Fund
Prudential Europe Growth Fund, Inc. . Institutional Money Market Funds
Prudential Global Genesis Fund, Inc. Prudential Institutional Liquidity Portfolio, Inc.
Prudential Global Limited Maturity Fund, Inc. Institutional Money Market Series
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Global Utility Fund, Inc.
Prudential World Fund, Inc.
Global Series
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
</TABLE>
B-1
<PAGE>
No dealer, sales representative or any
other person has been authorized to give
any information or to make any
representations, other than those
contained in this Prospectus, in
connection with the offer contained
herein, and, if given or made, such
other information or representations
must not be relied upon as having been
authorized by the Fund or the
Distributor. This Prospectus does not
constitute an offer by the Fund or by
the Distributor to sell or a PRUDENTIAL
solicitation of any offer to buy any of
the securities offered hereby in any SPECIAL MONEY
jurisdiction to any person to whom it is
unlawful to make such offer in such MARKET FUND, INC.
jurisdiction.
- ------------------------------------------- Money Market Series
TABLE OF CONTENTS ----------------------------
PAGE
----
FUND HIGHLIGHTS..................... 2
Risk Factors and Special
Characteristics..................... 2
FUND EXPENSES....................... 4
FINANCIAL HIGHLIGHTS................ 5
CALCULATION OF YIELD................ 6
HOW THE FUND INVESTS................ 6
Investment Objective and Policies.. 6
Other Investments and Policies..... 8
Investment Restrictions............ 9
HOW THE FUND IS MANAGED............. 10
Manager............................ 10
Distributor........................ 10
Portfolio Transactions............. 11
Custodian and Transfer and
Dividend Disbursing Agent........ 11
HOW THE FUND VALUES ITS SHARES...... 12
TAXES, DIVIDENDS AND DISTRIBUTIONS.. 12
GENERAL INFORMATION................. 14
Description of Common Stock........ 14
Additional Information............. 14
SHAREHOLDER GUIDE................... 15
How to Buy Shares of the Fund...... 15
How to Sell Your Shares............ 16
Shareholder Services............... 19
APPENDIX............................ A-1
THE PRUDENTIAL MUTUAL FUND FAMILY... B-1 AUGUST 27, 1996
- ---------------------------------------- PRUDENTIAL MUTUAL FUNDS
444132B MF141A BUILDING YOUR FUTURE
CUSIP NO: 74436K-10-4 ON OUR STRENGTH
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED AUGUST 27, 1996
Prudential Special Money Market Fund, Inc. (the Fund), is an open-end,
diversified, management investment company which is currently comprised of one
series, the Money Market Series (the Series or the Fund). The investment
objective of the Fund is high current income consistent with the preservation of
principal and liquidity. The Fund seeks to achieve its objective by investing in
a diversified portfolio of high quality money market instruments maturing in
thirteen months or less. There can be no assurance that the Fund's investment
objective will be achieved. See "Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292 and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated August 27, 1996, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ---------------
<S> <C> <C>
General Information................................................... B-2 14
Investment Objective and Policies..................................... B-2 6
Investment Restrictions............................................... B-5 9
Directors and Officers................................................ B-7 10
Manager............................................................... B-10 10
Distributor........................................................... B-12 10
Portfolio Transactions................................................ B-13 11
Shareholder Investment Account........................................ B-14 19
Net Asset Value....................................................... B-16 12
Dividends and Distributions........................................... B-17 12
Taxes................................................................. B-17 12
Calculation of Yield.................................................. B-18 6
Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants.......................................................... B-19 11
Financial Statements.................................................. B-20 --
Independent Auditors' Report.......................................... B-27 --
Appendix--General Investment Information.............................. A-1 --
Appendix--Information Relating to The Prudential...................... A-2 --
</TABLE>
<PAGE>
GENERAL INFORMATION
Effective March 7, 1996, the Fund's name changed from Prudential-Bache
Special Money Market Fund, Inc. to Prudential Special Money Market Fund, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is high current income consistent with
the preservation of principal and liquidity.
U.S. GOVERNMENT OBLIGATIONS
The Fund will invest in U.S. Treasury obligations including bills, notes,
bonds and other debt obligations issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances. The Fund will also invest in obligations which are guaranteed by
federal agencies or instrumentalities and which may or may not be backed by the
full faith and credit of the United States. Obligations of the Government
National Mortgage Association (GNMA), the Farmers Home Administration and the
Small Business Administration are backed by the full faith and credit of the
United States. In the case of obligations not backed by the full faith and
credit of the United States, the Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Instruments in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations issued by the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA),
the Student Loan Marketing Association, Resolution Funding Corporation and the
Tennessee Valley Authority, each of which under certain conditions has the right
to borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. The Fund's investment in
mortgage-backed securities (e.g., GNMA, FNMA and FHLMC certificates) will be
made only to the extent such securities are used as collateral for repurchase
agreements entered into by the Fund.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Fund may purchase floating rate and variable rate securities.
Investments in floating or variable rate securities normally will involve
securities which provide that the rate of interest is set as a spread to a
designated base rate, such as rates on Treasury bills, and, in some cases, that
the purchaser can demand payment of the obligation at specified intervals or
after a specified notice period (in each case of less than one year) at par plus
accrued interest, which amount may be more or less than the amount paid for
them. Variable rate securities provide for a specified periodic adjustment in
the interest rate, while floating rate securities have an interest rate which
changes whenever there is a change in the designated base interest rate.
LIQUIDITY PUTS
The Fund may purchase instruments of the types described in the Prospectus
under "How the Fund Invests--Investment Objective and Policies" together with
the right to resell the instruments at an agreed-upon price or yield within a
specified period prior to the maturity date of the instruments. Such a right to
resell is commonly known as a "put," and the aggregate price which the Fund pays
for instruments with a put may be higher than the price which otherwise would be
paid for the instruments. Consistent with the Fund's investment objective and
applicable rules
B-2
<PAGE>
issued by the Securities and Exchange Commission and subject to the supervision
of the Board of Directors, the purpose of this practice is to permit the Fund to
be fully invested while preserving the necessary liquidity to meet unusually
large redemptions and to purchase at a later date securities other than those
subject to the put. The Fund may choose to exercise puts during periods in which
proceeds from sales of its shares and from recent sales of portfolio securities
are insufficient to meet redemption requests or when the funds available are
otherwise allocated for investment. In determining whether to exercise puts
prior to their expiration date and in selecting which puts to exercise in such
circumstances, the investment adviser considers, among other things, the amount
of cash available to the Fund, the expiration dates of the available puts, any
future commitments for securities purchases, the yield, quality and maturity
dates of the underlying securities, alternative investment opportunities and the
desirability of retaining the underlying securities in the Fund's portfolio.
The Fund values instruments which are subject to puts at amortized cost; no
value is assigned to the put. The cost of the put, if any, is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
REPURCHASE AGREEMENTS
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Board of Directors.
The Fund's investment adviser will monitor the creditworthiness of such parties,
under the general supervision of the Board of Directors. In the event of a
default or bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. (PMF) pursuant to
an order of the Securities and Exchange Commission. On a daily basis, any
uninvested cash balances of the Fund may be aggregated with those of such
investment companies and invested in one or more repurchase agreements. Each
fund participates in the income earned or accrued in the joint account based on
the percentage of its investment.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of securities held by the
Fund with an agreement to repurchase the securities at an agreed-upon price,
date and interest payment. Generally, the effect of such a transaction is that
the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
in many cases it will be able to keep some of the interest income associated
with those portfolio securities. The Fund intends only to use the reverse
repurchase technique when it will be to its advantage to do so. Such
transactions are advantageous if the Fund has an opportunity to earn a greater
rate of interest on the cash derived from the transactions than the interest
cost of obtaining that cash. Reverse repurchase agreements have the
characteristics of borrowing and may be considered speculative. The Fund may be
unable to realize earnings from the use of the proceeds equal to or greater than
the interest required to be paid. The use of reverse repurchase agreements may
exaggerate any increase or decrease in the value of the Fund's portfolio. The
Fund's custodian bank will maintain in a segregated account cash, U.S.
Government securities or other liquid, unencumbered assets, marked-to-market
daily, having a value equal to or greater than such commitments. The Fund does
not intend to invest in reverse repurchase agreements during the coming year.
B-3
<PAGE>
ILLIQUID SECURITIES
The Fund may not hold more than 10% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper and foreign
securities will expand further as a result of this new regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (i.e., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
B-4
<PAGE>
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, the Fund does not intend to invest in such
securities. If the Fund invests in securities of other registered investment
companies, shareholders of the Fund may be subject to duplicate management and
advisory fees.
PLEDGING OF ASSETS AND BORROWING
The Fund may borrow up to 20% of the value of its total assets (computed at
the time the loan is made) from banks for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20% of
its total assets to secure such borrowings. The Fund will not purchase portfolio
securities if its borrowings exceed 5% of its total assets. See "Investment
Restrictions."
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund's Custodian will maintain, in a segregated account for the Fund, cash, U.S.
Government securities or other liquid, unencumbered assets, marked-to-market
daily, having a value equal to or greater than the Fund's purchase commitments.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund. A "majority of the
outstanding voting securities of the Fund," when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting shares
are present in person or represented by proxy or (ii) more than 50% of the
outstanding voting shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions).
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except
insofar as the Fund may be deemed to have issued a senior security by reason of
entering into a reverse repurchase agreement and except that the Fund may borrow
up to 20% of the value of its total assets (calculated when the loan is made)
from banks for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings or reverse repurchase agreements. For
purposes of this restriction, the purchase or sale of securities on a
"when-issued" or delayed delivery basis and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed to be the issuance
of a senior security and such arrangements are not deemed to be a pledge of
assets.
4. Buy or sell real estate or interests in real estate, except that the Fund
may purchase and sell mortgage-backed securities, securities collateralized by
mortgages, securities which are
B-5
<PAGE>
secured by real estate, securities of companies which invest or deal in real
estate and publicly traded securities of real estate investment trusts. The Fund
may not purchase interests in real estate limited partnerships which are not
readily marketable.
5. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
6. Make investments for the purpose of exercising control or management.
7. Invest in interests in oil, gas or other mineral exploration or
development programs.
8. Make loans, except that the Fund may enter into repurchase agreements.
9. Purchase common stock or other voting securities, preferred stock,
warrants or other equity securities, except as may be permitted by the Fund by
restriction number 14 (below).
10. Buy or sell commodities or commodity contracts (including futures
contracts and options thereon).
11. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result, with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (determined at the
time of investment) would then be invested in securities of a single issuer.
12. Purchase any securities (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result 25% or more of the value of
the Fund's total assets (determined at the time of investment) would be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to money market instruments of domestic banks (including U.S. branches
of foreign banks that are subject to the same regulations as U.S. banks and
foreign branches of domestic banks, provided the domestic bank is
unconditionally liable in the event of the failure of the foreign branch to make
payment on its instruments for any reason).
13. Purchase securities, other than obligations of the U.S. Government, its
agencies or instrumentalities, of any issuer having a record, together with
predecessors, of less than three years of continuous operations if, immediately
after such purchase, more than 5% of the Fund's total assets would be invested
in such securities.
14. Invest in securities of other registered investment companies, except by
purchases in the open market involving only customary brokerage commissions and
as a result of which not more than 10% of its total assets (determined at the
time of investment) would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.
In order to comply with the requirements of certain state securities
commissions, the Fund will not as a matter of operating policy (i) invest in
oil, gas and mineral leases, (ii) purchase and sell (i.e., write) options except
for liquidity puts and (iii) invest in the securities of other registered
investment companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets. This restriction shall not apply to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The Board of Directors has proposed that Investment Restriction number 13 be
eliminated. This proposal will be submitted to shareholders at a meeting to be
held on or about October 30, 1996. The Board of Directors has determined that if
the proposal is approved, a non-fundamental policy (a policy that may be changed
without shareholder approval) will be adopted which will state that the Fund may
not: Purchase any security if as a result the Fund would then have more than 5%
of its total assets (determined at the time of the investment) invested in
securities of companies (including predecessors) having a record of less than
three years continuous operations, except that the Fund may invest in the
securities of any U.S. Government agency or instrumentality, and in any security
guaranteed by such an adequacy or instrumentality.
B-6
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE FUND DURING PAST 5 YEARS
- ---------------------------- ------------------- --------------------------------------------
<S> <C> <C>
Edward D. Beach (71) Director President and Director of BMC Fund, Inc., a
c/o Prudential Mutual Fund closed-end investment company; formerly,
Management, Inc. Vice Chairman of Broyhill Furniture
One Seaport Plaza Industries, Inc.; Certified Public
New York, NY Accountant; Secretary and Treasurer of
Broyhill Family Foundation, Inc.; Member
of the Board of Trustees of Mars Hill
College; President and Director of First
Financial Fund, Inc. and The High Yield
Plus Fund, Inc.
Delayne D. Gold (58) Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
*Harry A. Jacobs, Jr. (73) Director Senior Director (since January 1986) of
One Seaport Plaza Prudential Securities Incorporated
New York, NY (Prudential Securities); formerly interim
Chairman and Chief Executive Officer
(June-September 1993) of PMF; Chairman of
the Board of Prudential Securities
(1982-1985) and Chairman of the Board and
Chief Executive Officer of Bache Group
Inc. (1977-1982); Director of The First
Australia Fund, Inc. and The First
Australia Prime Income Fund, Inc.; Trustee
of The Trudeau Institute.
*Richard A. Redeker (53) President and President, Chief Executive Officer and
One Seaport Plaza Director Director (since October 1993), PMF;
New York, NY Executive Vice President, Director and
Member of the Operating Committee (since
October 1993), Prudential Securities;
Director (since October 1993) of
Prudential Securities Group, Inc. (PSG);
Executive Vice President, The Prudential
Investment Corporation (since July 1994);
Director (since January 1994) of
Prudential Mutual Fund Distributors, Inc.
(PMFD) and Prudential Mutual Fund
Services, Inc. (PMFS); formerly Senior
Executive Vice President and Director of
Kemper Financial Services, Inc. (September
1978-September 1993); President and
Director of The High Yield Plus Fund, Inc.
Stanley E. Shirk (80) Director Certified Public Accountant and a former
c/o Prudential Mutual Fund Senior Partner of the accounting firm of
Management, Inc. KPMG Peat Marwick; former Management and
One Seaport Plaza Accounting Consultant for the Association
New York, NY of Bank Holding Companies, Washington,
D.C. and the Bank Administration
Institute, Chicago, IL; Director of The
High Yield Income Fund, Inc.
</TABLE>
- ------------
* "Interested" Director, as defined in the Investment Company Act of 1940, by
reason of his affiliation with Prudential Securities or PMF.
B-7
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE FUND DURING PAST 5 YEARS
- ---------------------------- ------------------- --------------------------------------------
<S> <C> <C>
Stephen Stoneburn (53) Director President and Chief Executive Officer of
c/o Prudential Mutual Fund Quadrant Media Corp. (a publishing
Management, Inc. company) (since June 1996); former Presi-
One Seaport Plaza dent of Argus Integrated Media, Inc. (June
New York, NY 1995-June 1996); formerly Senior Vice
President and Managing Director, Cowles
Business Media (January 1993-June 1995);
prior thereto, Senior Vice President
(January 1991-1992) and Publishing Vice
President (May 1989-December 1990) of
Gralla Publications, a division of United
Newspapers, U.K.; formerly Senior Vice
President of Fairchild Publications, Inc.
Nancy H. Teeters (66) Director Economist; formerly Vice President and Chief
c/o Prudential Mutual Fund Economist (March 1986-June 1990) of
Management, Inc. International Business Machines Corpora-
One Seaport Plaza tion; Member of the Board of Governors of
New York, NY the Horace H. Rackham School of Graduate
Studies of the University of Michigan;
Director of Inland Steel Corporation
(since July 1991) and First Financial
Fund, Inc.
Robert F. Gunia (49) Vice President Director (since January 1989), Chief Admin-
One Seaport Plaza istrative Officer (since July 1990) and
New York, NY Executive Vice President, Treasurer and
Chief Financial Officer (since June 1987)
of PMF; Comptroller of the Money Man-
agement Group of The Prudential Insurance
Company of America (Prudential); Senior
Vice President (since March 1987) of
Prudential Securities; Executive Vice
President, Treasurer and Comptroller
(since March 1991) of PMFD; Director
(since June 1987) of PMFS; Vice President
and Director of The Asia Pacific Fund,
Inc. (since May 1989).
S. Jane Rose (50) Secretary Senior Vice President (since January 1991)
One Seaport Plaza and Senior Counsel (since June 1987) of
New York, NY PMF; Senior Vice President and Senior
Counsel of Prudential Securities (since
July 1992); formerly Vice President and
Associate General Counsel of Prudential
Securities.
Ellyn C. Vogin (35) Assistant Vice President and Associate General Coun-
One Seaport Plaza Secretary sel of Prudential Securities and PMF
New York, NY (since March 1995); prior thereto, associ-
ated with the law firm of Fulbright &
Jaworski L.L.P.
Eugene S. Stark (38) Treasurer and First Vice President (since January 1990) of
One Seaport Plaza Principal Finan- PMF.
New York, NY cial and Account-
ing Officer
Stephen M. Ungerman (43) Assistant First Vice President (since February 1993)
One Seaport Plaza Treasurer of PMF; Tax Director of The Money Man-
New York, NY agement Group and the Private Asset Group
of Prudential (since March 1996); prior
thereto, Senior Tax Manager at Price
Waterhouse LLP. (1981-January 1993).
</TABLE>
B-8
<PAGE>
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies managed by Prudential Mutual
Fund Management, Inc.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager," review such actions and decide on general policy.
The Board of Directors has nominated a new slate of Directors for the Fund
which will be submitted to shareholders at a meeting to be held on or about
October 30, 1996.
The Fund pays each of its Directors who is not an affiliated person of the
Manager or The Prudential Investment Corporation annual compensation of $3,000
in addition to certain out-of-pocket expenses.
The Board of Directors has adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Messrs. Beach,
Jacobs and Shirk are scheduled to retire on December 31, 1999, 1998 and 1997,
respectively.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees which accrue interest at a rate equivalent
to the prevailing rate applicable to 90-day U.S. Treasury Bills at the beginning
of each calendar quarter or at the daily rate of return of the Fund. Payment of
the interest so accrued is also deferred and accruals become payable at the
option of the Director. The Fund's obligation to make payments of deferred
Directors' fees, together with interest thereon, is a general obligation of the
Fund.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended June 30, 1996 to the Directors who are not affiliated
with the Manager and the aggregate compensation paid to such Directors for
service on the Fund's Board and the Board of any other investment companies
managed by Prudential Mutual Fund Management, Inc. (Fund Complex) for the
calendar year ended December 31, 1995.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
- ----------------------------- ------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Edward D. Beach, Director $3,000 None N/A $183,500(22)*(43)**
Delayne Dedrick Gold,
Director $3,000 None N/A $183,250(24)*(45)**
Harry A. Jacobs, Jr.,
Director $ 0 None N/A $ 0***
Richard A. Redeker, Director $ 0 None N/A $ 0***
Stanley E. Shirk, Director $3,000 None N/A $ 79,000(10)*(19)**
Stephen Stoneburn, Director $3,000 None N/A $ 44,875(7)*(7)**
Nancy H. Teeters, Director $3,000 None N/A $107,500(13)*(31)**
</TABLE>
* Indicates number of funds in Fund Complex (including the Fund) to which
aggregate compensation relates.
** Indicates the number of portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
*** "Interested" Directors do not receive compensation from the Fund or other
funds in the Fund Complex.
As of August 9, 1996, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of common stock of the Fund and
there were no beneficial owners of greater than 5% of the outstanding shares of
the Fund.
B-9
<PAGE>
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to substantially all of the other investment companies that, together with the
Fund, comprise the Prudential Mutual Funds. See "How the Fund is
Managed--Manager" in the Prospectus. As of July 31, 1996, PMF managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $52 billion. According to the Investment Company Institute, as
of December 31, 1995, the Prudential Mutual Funds were the 13th largest family
of mutual funds in the United States.
PMF is a subsidiary of Prudential Securities Incorporated and The Prudential
Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
As part of a corporate restructuring, PMF intends to reorganize as a limited
liability company on or before December 31, 1996. This reorganization will have
no impact on the provision of services to the Fund. The reorganization will not
result in a change of management or control within the meaning of the Investment
Company Act and does not require shareholder approval.
Pursuant to a Management Agreement with the Fund (the Management Agreement),
PMF, subject to the supervision of the Fund's Board of Directors and in
conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian, and PMFS, the Fund's transfer and dividend
disbursing agent. The management services of PMF for the Fund are not exclusive
under the terms of each Management Agreement and PMF is free to, and does,
render management services to others.
For its services, PMF receives, pursuant to the Management Agreement, fees
at an annual rate of .50 of 1% of the average daily net assets of the Fund. The
fees are computed daily and payable monthly. In the event the expenses of the
Fund (including the fees of the Manager but excluding interest, taxes, brokerage
commissions, litigation and indemnification expenses and other extraordinary
expenses) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdictions in which shares of the Fund are then qualified for offer and
sale, the Manager will reduce its fee by the amount of such excess, or, if such
reduction exceeds the compensation payable to the Manager, the Manager will pay
to the Fund the amount of such reduction which exceeds the amount of such
compensation. Any such reductions or payments will be made monthly and are
subject to readjustment during the year. No such reductions were required during
the fiscal year ended June 30, 1996. Currently, the most restrictive of such
annual limitations is believed to be 2 1/2% of the Fund's average daily net
assets up to $30 million, 2% of the next $70 million and 1 1/2% of such assets
in excess of $100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and of the Fund's personnel,
except the fees and expenses of Directors who are not affiliated persons of PMF
or the Fund's investment adviser;
B-10
<PAGE>
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund, as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to the Subadvisory Agreement.
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fee payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the Fund's
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of the Fund's legal counsel and independent accountants
for the Fund, (e) brokerage commissions and any issue or transfer taxes
chargeable to the Fund in connection with its securities transactions, (f) all
taxes and corporate fees payable by the Fund to governmental agencies, (g) the
fees of any trade association of which the Fund may be a member, (h) the cost of
stock certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) certain organizational expenses and the fees and
expenses involved in registering and maintaining registration of the Fund and of
its shares with the Securities and Exchange Commission, registering the Fund and
qualifying its shares under state securities laws, including the preparation and
printing of the Fund's registration statements and prospectuses for such
purposes, (k) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Board of Directors' meetings and
of preparing, printing and mailing reports to shareholders, and (l) litigation
and indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days', nor less than 30 days', written notice. The Management Agreement
provides that it will continue in effect for a period of more than two years
from its execution only so long as such continuance is specifically approved at
least annually in accordance with the requirements of the Investment Company
Act. The Management Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act,
on April 10, 1996, and by the Fund's shareholders on October 30, 1990.
For the fiscal years ended June 30, 1996, 1995 and 1994, the Fund paid
management fees of $1,634,243, $2,084,495 and $1,359,346, respectively.
PMF has entered into a Subadvisory Agreement with PIC, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PIC will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PMF continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PIC's
performance of those services. PIC is reimbursed by PMF for the reasonable costs
and expenses incurred by PIC in furnishing those services.
The Subadviser maintains a corporate credit unit which provides credit
analysis and research on taxable fixed-income securities including money market
instruments. The portfolio manager consults routinely with the credit unit in
managing the Fund's portfolio. The credit unit, which currently maintains a
staff of credit analysts, reviews on an ongoing basis commercial paper
B-11
<PAGE>
issuers, commercial banks, non-bank financial institutions and issuers of other
taxable fixed-income obligations. Credit analysts have broad access to research
and financial reports, data retrieval services and industry analysts. They
maintain relationships with the management of corporate issuers and from time to
time visit companies in whose securities the Fund may invest.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act,
on April 10, 1996, and by shareholders of the Fund on October 30, 1990.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment as defined in the Investment Company Act or upon the termination
of the Management Agreement. The Subadvisory Agreement may be terminated by the
Fund, PMF, or PIC upon not less than 30 days' nor more than 60 days' written
notice. The Subadvisory Agreement provides that it will continue in effect for a
period of more than two years from its execution only so long as such
continuance is specifically approved at least annually in accordance with the
requirements of the Investment Company Act.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the shares
of the Fund under a distribution agreement between Prudential Securities and the
Fund (Distribution Agreement). See "How the Fund is Managed--Distributor" in the
Prospectus. Prior to January 2, 1996, Prudential Mutual Fund Distributors, Inc.
(PMFD), One Seaport Plaza, New York, New York 10292, acted as distributor of the
shares of the Fund.
The Fund's Distribution Agreement provides that it will terminate
automatically if assigned and that it may be terminated, without payment of any
penalty, by a majority of the Directors who are not parties to the Distribution
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in the Distribution Agreement or in any agreement
related thereto or by vote of a majority of the outstanding voting securities of
the Fund or by the Distributor, on 60 days' written notice to the other party.
The Distribution Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the Distribution
Agreement, on April 10, 1996.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act. On November 3, 1995, the Board of
Directors approved the transfer of the Distribution Agreement with PMFD to
Prudential Securities.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
B-12
<PAGE>
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. (PSG) and PSI entered
into agreements with the United States Attorney deferring prosecution (provided
PSI complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director also serves as an independent "ombudsman" whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director submits
compliance reports which identify all such allegations or instances of criminal
conduct and material improprieties every three months and will continue to do so
for a three-year period.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section, the
term "Manager" includes the Subadviser. The Fund will not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, securities are generally traded on a "net" basis, with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which Prudential Securities or any
affiliate thereof, during the existence of the syndicate, is a principal
underwriter (as defined in the Investment Company Act), except in accordance
with rules of the Securities and
B-13
<PAGE>
Exchange Commission. The Fund will not deal with Prudential Securities or its
affiliates on a principal basis.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provides the most favorable
total cost or proceeds reasonably attainable under the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commissions available.
Within the framework of this policy the Manager may consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of the Fund, the Manager or the Manager's other clients.
Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions for such other accounts, whose aggregate assets are far larger
than the Fund's, and the services furnished by such brokers may be used by the
Manager in providing investment management for the Fund. While such services are
useful and important in supplementing its own research and facilities, the
Manager believes that the value of such services is not determinable and does
not significantly reduce expenses. The Fund does not reduce the advisory fee it
pays to the Manager by any amount that may be attributed to the value of such
services.
Subject to the above considerations, Prudential Securities may act as a
securities broker for the Fund. In order for Prudential Securities (or any
affiliate) to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration received by Prudential Securities (or any affiliate)
must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold during a comparable period
of time. This standard would allow Prudential Securities (or any affiliate) to
receive no more than the remuneration which would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction. Furthermore,
the Board of Directors of the Fund, including a majority of the Directors who
are not "interested" persons, has adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Prudential Securities (or any affiliate) are consistent with the foregoing
standard.
The Fund paid no brokerage commissions for the fiscal years ended June 30,
1996, 1995 and 1994.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the acquisition of shares of the Fund, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. The Transfer Agent maintains an account for
each investor expressed in terms of full and fractional shares of the Fund
rounded to the nearest 1/100th of a share.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For the
convenience of investors, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund. An investor may direct the
Transfer Agent in writing not less than five full business days prior to the
payment date to have subsequent dividends and/or distributions sent in cash
rather than reinvested.
B-14
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Because withdrawals constitute redemptions, they will be subject to any
applicable contingent deferred sales charge, as described in the Prospectus. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charge"
in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account values applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment
Account--Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the systematic withdrawal plan, particularly if used in
connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) Plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details are available from Prudential Securities or the
Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
B-15
<PAGE>
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING1
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- -------------- -------- --------
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ------------
1 The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
NET ASSET VALUE
The Fund uses the amortized cost method of valuation to determine the value
of its portfolio securities. In that regard, the Fund's Board of Directors has
determined to maintain a dollar-weighted average portfolio maturity of 90 days
or less, to purchase only instruments having remaining maturities of thirteen
months or less, and to invest only in securities determined by the investment
adviser under the direction of the Board of Directors to be of minimal credit
risk and of eligible quality. Subject to the Fund's compliance with the
applicable rules promulgated by the SEC relating to the amortized cost method of
valuation, the remaining maturity of an instrument held by the Fund that is
subject to a put is deemed to be the period remaining until the principal amount
can be recovered through demand or, in the case of a variable rate instrument,
the next interest reset date, if longer. The value assigned to the put is zero.
The Board of Directors also has established procedures designed to stabilize, to
the extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures will include review
of the Fund's portfolio holdings by the Board, at such intervals as deemed
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board, and if such
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, will be initiated. In the event the Board of Directors determines that a
deviation exists which may result in material dilution or other unfair results
to investors or existing shareholders, the Board will take such corrective
action as it regards necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize gains or losses, the shortening of
average portfolio maturity, the withholding of dividends or the establishment of
net asset value per share by using available market quotations. A description of
security ratings is contained in the Appendix to the Prospectus. The value of
fixed-income securities generally will vary inversely with changes in interest
rates and also will fluctuate according to changes in market conditions or other
factors.
B-16
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends daily based on actual net investment income
determined in accordance with generally accepted accounting principles. Such
dividends will be payable monthly. See "Taxes, Dividends and Distributions" in
the Prospectus. The Fund does not expect to realize long-term capital gains or
losses. Distribution of any net realized short-term capital gains will be
taxable to shareholders as ordinary income. Dividends and distributions will be
paid in additional shares of the Fund based on net asset value on the payment
date, unless the shareholder elects in writing not less than five full business
days prior to the payment date to receive such dividends or distributions in
cash. In the event that a shareholder's shares are redeemed on a date other than
the monthly dividend payment date, the proceeds of such redemption will equal
the net asset value of the shares redeemed plus the amount of all dividends
declared through the date of redemption.
The Fund endeavors to maintain its net asset value at $1.00 per share. As a
result of a significant expense or realized loss, it is possible that the Fund's
net asset value may fall below $1.00 per share. Should the Fund incur or
anticipate any unusual or unexpected significant expense or loss which would
disproportionately affect the Fund's income for a particular period, the Board
of Directors at that time would consider whether to adhere to the present
dividend policy described in the Prospectus or to revise it in light of the then
prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on the existing shareholders.
Such expenses or losses may nevertheless result in a shareholder receiving no
dividends for the period during which he or she held shares of the Fund and in
his or her receiving a price per share upon redemption lower than that which he
or she paid.
TAXES
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code). This relieves the Fund (but not
its shareholders) from paying federal income tax on income which is distributed
to shareholders and permits net capital gains of the Fund (i.e., the excess of
net long-term capital gains over net short-term capital losses) to be treated as
long-term capital gains of the shareholders, regardless of how long shareholders
have held their shares in the Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans and
gains from the sale or other disposition of securities or options thereon or
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) the Fund derive less than 30% of
its gross income from gains (without reduction for losses) from the sale or
other disposition of securities, options thereon, futures contracts, options
thereon, forward contracts and foreign currencies held for less than three
months (except for foreign currencies directly related to the Fund's business of
investing in securities); (c) the Fund diversify its holdings so that, at the
end of each quarter of the taxable year, (i) at least 50% of the value of the
Fund's assets is represented by cash, U.S. Government obligations and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the value of the Fund's assets and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its assets is
invested in the securities of any one issuer (other than U.S. Government
obligations); and (d) the Fund distribute to its shareholders at least 90% of
its net investment income and net short-term
B-17
<PAGE>
gains (i.e., the excess of net short-term capital gains over net long-term
capital losses) in each year.
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. Other gains or losses on the sale of securities will be
short-term capital gains or losses. In addition, debt securities acquired by the
Fund may be subject to original issue discount and market discount rules.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a non-deductible 4% excise tax on the undistributed
amount. The Fund intends to distribute its income and capital gains in the
manner necessary to avoid imposition of the 4% excise tax. For purposes of this
excise tax, income on which the Fund pays income tax is treated as distributed.
Distributions of net investment income and net short-term capital gains of
the Fund will be taxable to the shareholder at ordinary income rates regardless
of whether the shareholder receives such distributions in additional shares or
cash. Distributions of net capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses), if any, are taxable as
long-term capital gains regardless of how long the investor has held his or her
shares. However, if a shareholder holds shares in the Fund for not more than six
months, then any loss recognized on the sale of such shares will be treated as
long-term capital loss to the extent of any distribution on the shares which was
treated as long-term capital gain. Shareholders electing to receive dividends
and distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date. Shareholders will be
notified annually by the Fund as to the federal tax status of dividends and
distributions made by the Fund.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, although
otherwise treated as a short-term capital loss, will be treated as long-term
capital loss to the extent of any capital gain distributions received by the
shareholder, if the shares have been held for six months or less.
Under the laws of certain states, distributions of net income may be taxable
to shareholders of the Fund as income even though a portion of such
distributions may be derived from interest on U.S. Government obligations which,
if realized directly, would be exempt from state income taxes. Distributions may
be subject to additional state and local taxes. Shareholders of the Fund are
advised to consult their tax advisers concerning state and local taxes.
CALCULATION OF YIELD
The Fund will prepare a current quotation of yield daily. The yield quoted
will be the simple annualized yield for an identified seven calendar day period.
The yield calculation will be based on a hypothetical account having a balance
of exactly one share at the beginning of the seven-day period. The base period
return will be the change in the value of the hypothetical account during the
seven-day period, including dividends declared on any shares purchased with
dividends on the shares, but excluding any capital changes. Yield for the Fund
will vary based on a number of factors including changes in market conditions,
the level of interest rates and the level of Fund income and
B-18
<PAGE>
expenses. The Fund also may prepare an effective annual yield computed by
compounding the unannualized seven-day period return as follows: by adding 1 to
the unannualized seven-day period return, raising the sum to a power equal to
365 divided by 7, and subtracting 1 from the result.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., IBC/Donoghue's Money
Fund Report, The Bank Rate Monitor, other industry publications, business
periodicals and market indices.
The Fund's yield fluctuates, and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will actually
yield for any given period.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities,
and in that capacity maintains cash and certain financial and accounting books
and records pursuant to an agreement with the Fund. See "How the Fund is
Managed--Custodian and Transfer and Dividend Disbursing Agent" in the
Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
It is a wholly-owned subsidiary of PMF. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions and related functions. For these
services, PMFS receives an annual fee per shareholder account, a new account
set-up fee for each manually established account and a monthly inactive zero
balance account fee per shareholder account. PMFS is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended June 30, 1996, the Fund incurred fees of $279,000 for such services.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281,
serves as the Fund's independent public accountants and, in that capacity,
audits the Fund's annual financial statements.
B-19
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Portfolio of Investments as of June 30, 1996 MONEY MARKET SERIES
- ------------------------------------------------------------ ------------------------------------------------------------
- ------------------------------------------------------------ ------------------------------------------------------------
Principal Principal
Amount Amount
(000) Description Value (Note 1) (000) Description Value (Note 1)
<C> <S> <C> <C> <C> <C>
------------------------------------------------------------ ------------------------------------------------------------
Bank Notes--6.7%
American Express Centurion Bank
$2,000(b) 5.4661%, 7/15/96 $ 1,999,685 American Brands, Inc.
2,000(b) 5.4348%, 7/19/96 1,999,723 $2,000 5.35%, 7/29/96 $ 1,991,678
American Honda Finance Corp.
Bank of America, Illinois 2,000 5.35%, 7/8/96 1,997,919
1,000 5.80%, 5/13/97 999,743 1,000 5.50%, 7/9/96 998,778
2,700 5.42%, 7/24/96 2,690,651
Bank of New York, Inc.
1,000 4.95%, 8/16/96 999,373 Aristar, Inc.
1,000 5.40%, 7/9/96 998,800
FCC National Bank Associates Corp. of North America
3,000 5.77%, 4/15/97 2,998,639 3,000 5.30%, 7/9/96 2,996,467
7,000 5.40%, 7/29/96 6,970,600
First National Bank of Chicago
2,000 5.50%, 10/3/96 2,000,000 Avco Financial Services, Inc.
NationsBank, Texas 5,000 5.35%, 7/10/96 4,993,313
5,000 5.50%, 7/10/96 5,000,032
525(b) 5.6445%, 9/19/96 525,296 Bank of New York
Wachovia Bank of North Carolina 1,000 5.32%, 7/2/96 999,852
1,000 6.05%, 4/14/97 1,001,542 Barnett Bank, Inc.
---------- 5.42%, 7/9/96 998,796
17,524,033 1,000
- ---------------------------------------------------------------
Certificate Of Deposit - Domestic--0.9% Beneficial Corp.
7,000 5.38%, 8/21/96 6,946,648
Barnett Bank, Inc.
2,290 5.39%, 7/8/96 2,289,967 Bradford & Bingley Building Society
- --------------------------------------------------------------- 1,000 5.35%, 7/12/96 998,365
Certificates Of Deposit - Eurodollar--3.0% Caterpillar Inc.
1,000 5.32%, 8/15/96 993,350
Banque Nationale de Paris 1,000 5.25%, 9/19/96 988,333
3,000 5.42%, 7/11/96 3,000,041
Chubb Capital Corp.
Bayerische Vereinsbank 2,000 5.33%, 7/11/96 1,997,039
1,000 5.41%, 10/2/96 1,000,023
Morgan Guaranty Trust Co. Ciesco, L.P.
2,000 5.18%, 9/4/96 1,998,858 3,000 5.38%, 8/8/96 2,982,963
CIT Group Holdings, Inc.
Rabobank Nederland 2,000 5.33%, 8/13/96 1,987,267
1,000 5.12%, 9/3/96 999,451 12,000 5.38%, 8/22/96 11,906,747
Toronto Dominion Bank Coca-Cola Enterprises, Inc.
1,000 5.34%, 7/31/96 999,946 300 5.35%, 7/1/96 300,000
------------ 3,000 5.40%, 7/16/96 2,993,250
7,998,319
- --------------------------------------------------------------- Corporate Receivables Corp.
Commercial Paper--69.8% 2,000 5.30%, 8/8/96 1,988,811
Countrywide Home Loan, Inc.
A. H. Robbins Co., Inc. 3,000 5.42%, 7/25/96 2,989,160
2,000 5.32%, 7/23/96 1,993,498 2,000 5.43%, 8/20/96 1,984,917
1,000 5.43%, 8/22/96 992,157
CXC, Inc.
1,000 5.34%, 7/19/96 997,330
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
B-20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Portfolio of Investments as of June 30, 1996 MONEY MARKET SERIES
- ------------------------------------------------------------ ---------------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------------
Principal Principal
Amount Amount
(000) Description Value (Note 1) (000) Description Value (Note 1)
<C> <S> <C> <C> <C> <C>
------------------------------------------------------------ ---------------------------------------------------------------
Commercial Paper (cont'd.) Nynex Corp.
$1,000 5.42%, 7/22/96 $ 996,838
Duracell, Inc. 2,000 5.42%, 8/16/96 1,986,149
$1,000 5.40%, 7/22/96 $ 996,850 Philip Morris Co., Inc.
2,000 5.39%, 7/25/96 1,992,813
Enterprise Funding Corp. 3,000 5.38%, 8/20/96 2,977,583
4,000 5.37%, 7/25/96 3,985,680
PNC Funding Corp.
Falcon Asset Securitization Corp. 2,000 5.40%, 7/11/96 1,997,000
2,800 5.38%, 7/22/96 2,791,213 Preferred Receivables Funding Corp.
Finova Capital Corp. 1,000 5.35%, 7/12/96 998,365
4,000 5.47%, 8/8/96 3,976,904 4,000 5.35%, 7/15/96 3,991,678
1,000 5.46%, 8/12/96 993,630 1,000 5.37%, 7/15/96 997,912
2,000 5.47%, 8/19/96 1,985,109 1,000 5.37%, 7/17/96 997,613
First Data Corp. Riverwoods Funding Corp.
11,287 5.45%, 7/23/96 11,249,408 1,000 5.30%, 7/12/96 998,381
Ford Motor Credit Corp. Sears Roebuck Acceptance Corp.
7,000 5.38%, 8/19/96 6,948,741 1,000 5.40%, 7/25/96 996,400
General Electric Capital Corp. Smith Barney, Inc.
4,000 5.33%, 8/12/96 3,975,127 1,000 5.36%, 7/2/96 999,851
3,000 5.33%, 8/16/96 2,979,568 2,000 5.37%, 7/9/96 1,997,613
5,000 5.39%, 8/27/96 4,957,329 2,350 5.38%, 7/11/96 2,346,488
General Motors Acceptance Corp. Special Purpose Accounts Receivable
5,800 5.34%, 9/16/96 5,733,754 Cooperative Corp.
1,000 5.40%, 7/9/96 998,800
GTE Corp.
3,000 5.43%, 7/30/96 2,986,878 TransAmerica Corp.
Heller Financial Services, Inc. 4,569 5.31%, 9/9/96 4,521,825
3,000 5.48%, 7/16/96 2,993,150
1,000 5.49%, 7/29/96 995,730 Travelers/Aetna Property Casualty
1,985,056 Corp.
Household Finance Corp. 2,000 5.35%, 7/10/96 1,997,325
2,000 5.38%, 8/20/96 1,985,065
WCP Funding, Inc.
ITT Industries, Inc. 1,100 5.30%, 8/7/96 1,094,008
1,000 5.35%, 7/15/96 997,919
Westpac Capital Corp.
Lehman Brothers Holdings, Inc. 2,000 5.35%, 7/2/96 1,999,703
11,730 5.55%, 7/8/96 11,717,341
Whirlpool Financial Corp.
Mitsubishi International Corp. 3,000 5.40%, 7/17/96 2,992,800
2,000 5.46%, 7/18/96 1,994,843 ------------
183,794,233
Morgan Stanley Group, Inc. ---------------------------------------------------------------
1,000 5.33%, 7/10/96 998,668 Other Corporate Obligations--24.8%
Newell Co. American Express Credit Corp.
1,000 5.42%, 7/22/96 996,838 1,000 7.75%, 3/1/97 1,012,452
Norwest Financial, Inc. Beneficial Corp.
1,000 5.35%, 7/10/96 998,663 7,000(b) 5.4591%, 9/10/96 6,997,653
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
B-21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Portfolio of Investments as of June 30, 1996 MONEY MARKET SERIES
- ------------------------------------------------------------ ------------------------------------------------------------
- ------------------------------------------------------------ ------------------------------------------------------------
Principal Principal
Amount Amount
(000) Description Value (Note 1) (000) Description Value (Note 1)
<C> <S> <C> <C> <C> <C>
------------------------------------------------------------ ------------------------------------------------------------
Other Corporate Obligations (cont'd.) Total Investments--115.9%
(amortized cost $304,999,205(a)) $304,999,205
General Electric Capital Corp. Liabilities in excess of
$1,000 7.18%, 5/15/97 $ 1,009,946 other assets--(15.9%) (41,831,093)
General Motors Acceptance Corp. ------------
7,000(b) 5.44%, 7/1/96 6,998,929 Net Assets--100% $263,168,112
1,400 8.25%, 8/1/96 1,402,537 ------------
1,000(b) 5.5161%, 8/21/96 999,959 ------------
1,300 7.75%, 4/15/97 1,320,119
1,000 8.375%, 5/1/97 1,019,259
---------------
Goldman Sachs Group L.P. (a) The federal income tax basis of portfolio securities is the
13,000(b) 5.707%, 11/22/96 13,000,000 same as for financial statement purposes.
(b) The maturity date presented for these instruments is the
International Lease Finance Corp. later of the next date on which the security can be redeemed
1,000 4.75%, 7/15/96 999,804 at par or the next date on which the rate of interest is
adjusted.
Merrill Lynch & Co., Inc. The industry classification of portfolio holdings shown as a
5,000(b) 5.4531%, 7/10/96 4,999,599 percentage of net assets as of June 30, 1996 was as follows:
Morgan Stanley Group, Inc.
1,000(b) 5.66016%, 7/15/96 1,000,000 Personal Credit Institutions 23.7%
10,000(b) 5.625%, 8/15/96 10,000,000 Security Brokers & Dealers 18.0
Banks 16.0
PHH Corp. Business Credit Institutions 15.5
500 8.00%, 1/1/97 505,037 Asset Backed Securities 11.9
Government Coupon Issues 5.8
Philip Morris Co., Inc. Federal Credit Agencies 4.9
2,000 8.875%, 7/1/96 2,000,000 Computer Rental 4.3
Financial Services 4.0
SMM Trust Notes 1995-Q Tobacco 3.4
11,000(b) 5.4961%, 7/15/96 10,999,461 Telecommunications 1.5
Insurance 1.5
TransAmerica Finance Corp. Beverages 1.3
1,000 5.85%, 7/15/96 999,967 Misc. Electrical, Equipment & Supplies 1.2
------------ Household Appliances 1.1
65,264,722 Pharmaceuticals 0.8
- --------------------------------------------------------------- Metals 0.4
U.S. Government, Agency & Instrumentality Obligations - Construction 0.4
Non-Discount--10.7% Auto Rental and Leasing 0.2
Federal National Mortgage -----
Association 115.9
7,000(b) 5.495%, 7/1/96 7,000,000 Liabilities in excess of other assets (15.9)
6,000(b) 5.495%, 7/1/96 5,998,053 -----
United States Treasury Notes 100.0%
5,000 6.875%, 2/28/97 5,055,397 -----
5,000 6.875%, 3/31/97 5,061,534 -----
5,000 6.125%, 5/31/97 5,012,947
------------
28,127,931
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
B-22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
and Liabilities MONEY MARKET SERIES
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS JUNE 30, 1996
---------------
Investments, at amortized cost which approximates market value............................................. $ 304,999,205
Interest receivable........................................................................................ 1,708,130
Receivable for Series shares sold.......................................................................... 279,579
Prepaid expenses and other assets.......................................................................... 10,894
---------------
Total assets............................................................................................ 306,997,808
---------------
LIABILITIES
Payable for Series shares reacquired....................................................................... 42,942,756
Dividends payable.......................................................................................... 274,081
Due to Manager............................................................................................. 125,912
Accrued expenses and other liabilities..................................................................... 486,947
---------------
Total liabilities....................................................................................... 43,829,696
---------------
NET ASSETS................................................................................................. $ 263,168,112
---------------
---------------
Net assets were comprised of:
Common stock, $0.001 par value per share................................................................ $ 263,168
Paid-in capital in excess of par........................................................................ 262,904,944
---------------
Net assets, June 30, 1996.................................................................................. $ 263,168,112
---------------
---------------
Net asset value, offering price and redemption price per share
($263,168,112 / 263,168,112 shares of common stock issued and outstanding; two billion shares
authorized)............................................................................................. $1.00
-----
-----
- --------------------------------------------------------------------------------------------------------------------------------
B-23 See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES MONEY MARKET SERIES
Statement of Operations Statement of Changes in Net Assets
- --------------------------------------------------------- -----------------------------------------------------------------
Year Ended Increase (Decrease) Year Ended June 30,
Net Investment Income June 30, 1996 ----------------------------------
------------- in Net Assets 1996 1995
--------------- ---------------
<S> <C> <C> <C> <C>
Interest and discount earned.......... $18,951,658 Operations
------------- Net investment income..... $ 16,560,547 $ 20,542,229
Expenses Net realized gain on
Management fee........................ 1,634,243 investment
Transfer agent's fees and expenses.... 403,000 transactions........... 20,697 27,039
Custodian's fees and expenses......... 133,000 --------------- ---------------
Registration fees..................... 69,000 Net increase in net assets
Reports to shareholders............... 65,000 resulting from
Audit fee............................. 37,000 operations............. 16,581,244 20,569,268
Legal fees............................ 19,000 --------------- ---------------
Directors' fees....................... 15,000 Dividends and distributions
Insurance expense..................... 11,000 to shareholders........... (16,581,244) (20,569,268)
Miscellaneous......................... 4,868 --------------- ---------------
------------- Fund share transactions
Total expenses..................... 2,391,111 (at $1 per share)
------------- Proceeds from shares
Net investment income.................... 16,560,547 subscribed............. 1,787,300,706 1,721,699,172
Realized Gain on Investments Net asset value of shares
Net realized gain on investment issued to shareholders
transactions.......................... 20,697 in reinvestment of
------------- dividends and
Net Increase in Net Assets distributions.......... 13,336,273 16,901,677
Resulting from Operations................ $16,581,244 Cost of shares
------------- reacquired............. (1,896,666,283) (1,852,460,009)
------------- --------------- ---------------
Net decrease in net assets
from Series share
transactions........... (96,029,304) (113,859,160)
--------------- ---------------
Total decrease............... (96,029,304) (113,859,160)
Net Assets
Beginning of year............ 359,197,416 473,056,576
--------------- ---------------
End of year.................. $ 263,168,112 $ 359,197,416
--------------- ---------------
--------------- ---------------
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
B-24
</TABLE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
NOTES TO FINANCIAL STATEMENTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Special Money Market Fund, Inc. (the ``Fund'') is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company consisting of only the Money Market Series (the ``Series'').
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 POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method 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.
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``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 had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD'') through January 1, 1996, where PMFD served the Fund without
compensation. Effective January 2, 1996, Prudential Securities Incorporated
(``PSI'') became the distributor of the Fund's shares and is serving the Fund
under the same terms and conditions as under the arrangement with PMFD.
PMFD is a wholly-owned subsidiary of PMF; PMF, PIC and PSI are indirect
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the fiscal year ended June 30,
1996, the Series incurred fees of approximately $279,000 for the services of
PMFS. As of June 30, 1996, approximately $23,000 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.
- --------------------------------------------------------------------------------
B-25
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Financial Highlights MONEY MARKET SERIES
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended June 30,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized gains................. 0.051 0.049 0.030 0.027 0.044
Dividends and distributions.................................. (0.051) (0.049) (0.030) (0.027) (0.044)
-------- -------- -------- -------- --------
Net asset value, end of year................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):............................................. 5.19% 5.05% 3.09% 2.77% 4.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $263,168 $359,197 $473,057 $176,258 $183,093
Average net assets (000)..................................... $326,849 $416,899 $271,869 $213,948 $249,223
Ratios to average net assets:
Expenses................................................... 0.73% 0.70% 0.72% 0.81% 0.83%
Net investment income...................................... 5.07% 4.93% 2.96% 2.73% 4.36%
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each year reported and includes reinvestment
of dividends and distributions. Total return for a period of less than one
year is not annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-26
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
INDEPENDENT AUDITORS' REPORT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential Special Money Market Fund, Inc.
Money Market Series
We have audited the accompanying statement of assets and liabilities of
Prudential Special Money Market Fund, Inc.--Money Market Series, including the
portfolio of investments, as of June 30, 1996, the related statements of
operations for the year then ended and of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
June 30, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential Special
Money Market Fund, Inc.--Money Market Series as of June 30, 1996, the results of
its operations, the changes in its net assets and the financial highlights for
the respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
August 15, 1996
- --------------------------------------------------------------------------------
B-27
<PAGE>
APPENDIX--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
A-1
<PAGE>
APPENDIX--INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC1 are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1995. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.7
million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k) plans.
In July 1995, Institutional Investor ranked Prudential the third largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1994. As of December 31, 1995, Prudential
had more than $314 billion in assets under management. Prudential's Money
Management Group (of which Prudential Mutual Funds is a key part) manages over
$190 billion in assets of institutions and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers and
agents and more than 1,100 offices in the United States.2
- ------------
1 Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to Prudential
Jennison Fund, Inc. and BlackRock Financial Management, Inc. as subadviser to
The BlackRock Government Income Trust. There are multiple subadvisers for The
Target Portfolio Trust.
2 As of December 31, 1994.
A-2
<PAGE>
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
Prudential Mutual Fund Management is one of the sixteenth largest mutual
fund companies in the country, with over 2.5 million shareholders invested in
more than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.3 Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
-------------
3As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
A-3
<PAGE>
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
Trading Data.4 On an average day, Prudential Mutual Funds' U.S. and foreign
equity trading desks traded $77 million in securities representing over 3.8
million shares with nearly 200 different firms. Prudential Mutual Funds' bond
trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets.5 Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.6
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.7
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university," which
provides advanced education in a
- ------------
4Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios of
the Prudential Series Fund and institutional and non-US accounts managed by
Prudential Mutual Fund Investment Management, a division of PIC, for the year
ended December 31, 1995.
- ------------
5Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate U.S.
Government, Short Investment Grade Debt, Intermediate Investment Grade Debt,
General U.S. Treasury, General U.S. Government and Mortgage funds.
- ------------
6As of December 31, 1994.
- ------------
7As of December 31, 1994.
A-4
<PAGE>
wide array of investment areas. Prudential Securities is the only Wall Street
firm to have its own in-house Certified Financial Planner (CFP) program. In the
December 1995 issue of Registered Rep, an industry publication, Prudential
Securities' Financial Advisor training programs received a grade of A- (compared
to an industry average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers.8
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial ArchitectSM, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ------------
8In 1995, Institutional Investor magazine surveyed more than 700 institutional
money managers, chief investment officers and research directors, asking them to
evaluate analysts in approximately 80 industry sectors. Scores were produced by
taking the number of votes awarded to an individual analyst and weighting them
based on the size of the voting institution. In total, the magazine sent its
survey to more than 2,000 institutions, including a group of European and Asian
institutions. This survey is conducted annually.
A-5
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
1. The following financial statement is included in the Prospectus
constituting Part A of this Registration Statement:
Financial Highlights.
2. The following financial statements are included in the Statement of
Additional Information constituting Part B of this Registration
Statement:
Portfolio of Investments at June 30, 1996.
Statement of Assets and Liabilities at June 30, 1996.
Statement of Operations for the fiscal year ended June 30, 1996.
Statement of Changes in Net Assets for the fiscal years ended June 30,
1996 and June 30, 1995.
Notes to Financial Statements.
Financial Highlights for the fiscal years ended June 30, 1996, 1995,
1994, 1993 and 1992.
Independent Auditors' Report.
(b)Exhibits:
1. (a) Articles of Incorporation of the Registrant filed on October 20,
1989. Incorporated by reference to Exhibit No. 1 to the Registration
Statement on Form N-1A filed on October 23, 1989 (File No. 33-31603).
(b) Amendment to Articles of Incorporation. Incorporated by reference
to Exhibit No. 1(b) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on December 8, 1989 (File No. 33-31603).
(c) Amendment to Articles of Incorporation. Incorporated by reference
to Exhibit No. 1(c) to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on August 30, 1991 (File No.
33-31603).
(d) Amendment to Articles of Incorporation.*
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2 to
the Registration Statement on Form N-1A filed on October 23, 1989 (File
No. 33-31603).
4. Specimen stock certificate of the Registrant, $.001 par value per share.
Incorporated by reference to Exhibit No. 4 to Pre-Effective Amendment
No. 1 to Registration Statement on Form N-1A filed on December 8, 1989
(File No. 33-31603).
5. (a) Management Agreement between the Registrant (Money Market Series)
and Prudential Mutual Fund Management, Inc. Incorporated by reference to
Exhibit No. 5(a) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on July 30, 1990 (File No. 33-31603).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation with respect to the Money
Market Series. Incorporated by reference to Exhibit No. 5(b) to
Post-Effective Amendment No.1 to the Registration Statement on Form N-1A
filed on July 30, 1990 (File No. 33-31603).
6. (a) Distribution Agreement, amended and restated as of April 12, 1995,
between the Registrant and Prudential Mutual Fund Distributors, Inc.
Incorporated by reference to Exhibit No. 6 to Post-Effective Amendment
No. 8 to the Registration Statement on Form N-1A filed on August
29, 1995 (File No. 33-31603).
(b) Amendment to Distribution Agreements.*
8.Custodian Agreement dated January 12, 1990, between the Registrant and
State Street Bank and Trust Company. Incorporated by reference to
Exhibit No. 8 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on July 30, 1990 (File No. 33-31603).
9.Transfer Agency and Service Agreement dated January 12, 1990
between the Registrant and Prudential Mutual Fund Services, Inc.
Incorporated by reference to Exhibit No. 9 to Post-Effective Amendment
No. 1 to the Registration Statement on Form N-1A filed on July 30, 1990
(File No. 33-31603).
10.a. Opinion of Gardner, Carton & Douglas. Incorporated by reference to
Exhibit No. 10 to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on December 8, 1989 (File No. 33-31603).
b. Opinion of Gardner, Carton & Douglas.*
11. Independent auditors' consent.*
C-1
<PAGE>
13. Purchase Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. Incorporated by reference to Exhibit No. 13 to
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-1A filed on July 30, 1990 (File No. 33-31603).
16. Schedule of computation of yield for the Money Market Series.
Incorporated by reference to Exhibit No. 16 to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-1A filed on August 28,
1990 (File No. 33-31603).
17. Financial Data Schedule filed as Exhibit No. 27 for electronic
purposes.*
- -------------------
*Filed herewith.
Item 25.Persons Controlled by or under Common Control with Registrant.
None.
Item 26.Number of Holders of Securities.
As of August 9, 1996, there were 16,567 record holders of shares of common
stock, $.001 par value per share, of the Registrant.
Item 27. Indemnification.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's Articles of
Incorporation (Exhibit 1 to the Registration Statement) and Section 2-418 of the
Maryland General Corporation Law, officers, directors, employees and agents of
the Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 8 of the Distribution Agreement (Exhibit 6 to this
Post-Effective Amendment to the Registration Statement), the Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to this Post-Effective
Amendment to the Registration Statement) and Section 4 of the Subadvisory
Agreement (Exhibit 5(b) to this Post-Effective Amendment to the Registration
Statement) limit the liability of Prudential Mutual Fund Management, Inc. (PMF)
and The Prudential Investment Corporation (PIC), respectively, to liabilities
arising from willful misfeasance, bad faith or gross negligence in the
performance of their respective duties or from reckless disregard by them of
their respective obligations and duties under the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, Management, Subadvisory and Distribution Agreements
in a manner consistent with Release No. 11330 of the Securities and Exchange
Commission under the 1940 Act so long as the interpretation of Section 17(h) and
17(i) of such Act remains in effect and is consistently applied.
Under Section 17(h) of the 1940 Act, it is the position of the staff of the
Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of one's office, no indemnification will be permitted unless an
independent legal counsel (not including a counsel who does work for either the
Registrant, its investment
C-2
<PAGE>
advisor, its principal underwriters or persons affiliated with these persons)
determines, based upon a review of the facts, that the person in question was
not guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Under its Articles of Incorporation, the Registrant may advance funds to
provide for indemnification. Pursuant to the Securities and Exchange Commission
staff's position on Section 17(h), advances will be limited in the following
respect:
(1) Any advances must be limited to amounts used, or to be used, for
the preparation and/or presentation of a defense to the action (including
costs connected with preparation of a settlement);
(2) Any advances must be accompanied by a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds
the amount to which it is ultimately determined that he is entitled to
receive from the Registrant by reason of indemnification;
(3) Such promise must be secured by a surety bond or other suitable
insurance; and
(4) Such surety bond or other insurance must be paid for by the
recipient of the advance.
Item 28. Business and Other Connections of Investment Adviser
See ``How the Fund is Managed--Manager'' in the Prospectus constituting
Part A of this Registration Statement and ``Manager'' in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ---------------------- --------------------------------------------------------
<S> <C> <C>
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities; Vice President, Prudential
Mutual Fund Distributors, Inc. (PMFD)
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary and
President, General Director, PMF and PMFD; Senior Vice President,
Counsel, Secretary and Prudential Securities; Director, Prudential Mutual
Director Fund Services, Inc. (PMFS)
Robert F. Gunia Executive Vice Executive Vice President, Chief Financial and
President, Chief Administrative Officer, Treasurer and Director, PMF;
Financial and Senior Vice President, Prudential Securities;
Administrative Executive Vice President, Chief Financial Officer,
Officer, Treasurer and Treasurer and Director, PMFD; Director, PMFS
Director
Theresa A. Hamacher Director Director, PMF; Vice President, The Prudential Insurance
751 Broad Street Company of America (Prudential); Vice President, The
Newark, NJ 07102 Prudential Investment Corporation (PIC); President,
Prudential Mutual Fund Investment Management (PMFIM)
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating
Raritan Plaza One Officer, and Director, PMFD; Chief Executive Officer
Edison, NJ 08837 and Director, PMFS; Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer and Executive Vice President, Director and Member of the
Director Operating Committee, Prudential Securities; Director,
Prudential Securities Group, Inc. (PSG); Executive
Vice President, PIC; Director, PMFD; Director, PMFS
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- -------------------------- ---------------------- --------------------------------------------------------
<S> <C> <C>
S. Jane Rose Senior Vice President, Senior Vice President, Senior Counsel and Assistant
Senior Counsel and Secretary, PMF; Senior Vice President and Senior
Assistant Secretary Counsel, Prudential Securities
Donald Webber Executive Vice President Executive Vice President and Director of Sales, PMF
and Director of Sales
</TABLE>
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07101.
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- -------------------------- ---------------------- --------------------------------------------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice
Two Gateway Center President, PIC
Newark, NJ 07102
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC;
Director, PMF; President, PMFIM
Richard A. Redeker Executive Vice President, Chief Executive Officer and Director, PMF;
President Executive Vice President, Director and Member of the
Operating Committee, Prudential Securities; Director
PSG; Executive Vice President, PIC; Director, PMFD;
Director, PMFS
John L. Reeve Senior Vice President Managing Director, Prudential Asset Management Group;
Senior Vice President, PIC
Eric A. Simonsen Vice President and Vice President and Director, PIC; Executive Vice
Director President, Prudential
</TABLE>
Item 29. Principal Underwriter
(a) Prudential Securities Incorporated
Prudential Securities is distributor for Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Prudential Government
Securities Trust, Prudential MoneyMart Assets, Inc., Prudential
Institutional Liquidity Portfolio, Inc., Prudential Special
Money Market Fund, Inc., Prudential Tax-Free Money Fund, Inc.,
Prudential Jennison Fund, Inc., The Target Portfolio Trust, Prudential
Allocation Fund, Prudential California Municipal Fund, Prudential
Distressed Securities Fund, Inc., Prudential Diversified Bond
Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund Inc., Prudential
Global Genesis Fund, Inc., Prudential Global Limited Maturity Fund,
Inc., Prudential Natural Resources Fund, Inc., Prudential Government
Income Fund, Inc., Prudential Small Companies Fund, Inc., Prudential
High Yield Fund, Prudential Intermediate Global Income Fund, Inc.,
Prudential Mortgage Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Inc., Prudential Pacific Growth
Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential
Utility Fund, Inc., Prudential World Fund, Inc., The Global
Government Plus Fund, Inc., The Global Total Return Fund, Inc., Global
Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund) and The BlackRock Government Income Trust.
Prudential Securities is also a depositor for the following unit
investment trust:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
C-4
<PAGE>
(b) Information concerning the Directors and officers of Prudential
Securities Incorporated is set forth below:
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- --------------
<S> <C> <C>
Robert Golden................... Executive Vice President and None
One New York Plaza Director
New York, NY 10292
Alan D. Hogan.................... Executive Vice President, Chief None
Administrative Officer and Director
George A. Murray................. Executive Vice President and Director None
Leland B. Paton.................. Executive Vice President and Director None
Martin Pfinsgraff................ Executive Vice President, Chief None
Financial Officer and Director
Vicent T. Pica, II............... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Richard A. Redeker............... Director President and Director
Hardwick Simmons................. Chief Executive Officer, President and None
Director
Lee B. Spencer, Jr............... General Counsel, Executive Vice None
President and Director
- ------------------
(1)The address of each person named is One Seaport Plaza, New York, NY 10292 unless otherwise
indicated.
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey, the Registrant, One Seaport Plaza, New
York, New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10)
and (11) and 31a-1(f) will be kept at Two Gateway Center, documents required by
Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport Plaza and the remaining
accounts, books and other documents required by such other pertinent provisions
of Section 31(a) and the Rules promulgated thereunder will be kept by State
Street Bank and Trust Company and Prudential Mutual Fund Services, Inc.
Item 31. Management Services
Other than as set forth under the captions ``How the Fund is
Managed--Manager'' and ``How the Fund is Managed--Distributor'' in the
Prospectus and the captions ``Manager'' and ``Distributor'' in the Statement of
Additional Information, constituting Parts A and B, respectively, of this
Registration Statement, Registrant is not a party to any management-related
service contract.
Item 32. Undertakings
None.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 27th day of August, 1996.
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
By: /s/ Richard A. Redeker
-----------------------------------
Richard A. Redeker, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
/s/ Edward D. Beach Director August 27, 1996
- --------------------------------------
Edward D. Beach
/s/ Delayne D. Gold Director August 27, 1996
- --------------------------------------
Delayne D. Gold
/s/ Harry A. Jacobs, Jr. Director August 27, 1996
- --------------------------------------
Harry A. Jacobs, Jr.
/s/ Richard A. Redeker Director and President August 27, 1996
- --------------------------------------
Richard A. Redeker
/s/ Stanley E. Shirk Director August 27, 1996
- --------------------------------------
Stanley E. Shirk
/s/ Stephen D. Stoneburn Director August 27, 1996
- --------------------------------------
Stephen D. Stoneburn
/s/ Nancy Hays Teeters Director August 27, 1996
- --------------------------------------
Nancy Hays Teeters
/s/ Eugene S.Stark Treasurer and Principal August 27, 1996
- -------------------------------------- Financial and
Eugene S.Stark Accounting Officer
</TABLE>
<PAGE>
EXHIBIT INDEX
1. (a) Articles of Incorporation of the Registrant filed on October 20, 1989.
Incorporated by reference to Exhibit No. 1 to the Registration Statement on
Form N-1A filed on October 23, 1989 (File No. 33-31603).
(b) Amendment to Articles of Incorporation. Incorporated by reference to
Exhibit No. 1(b) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on December 8, 1989 (File No. 33-31603).
(c) Amendment to Articles of Incorporation. Incorporated by reference to
Exhibit No. 1(c) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on August 30, 1991 (File No. 33-31603).
(d) Amendment to Articles of Incorporation.*
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2 to the
Registration Statement on Form N-1A filed on October 23, 1989 (File No.
33-31603).
4. Specimen stock certificate of the Registrant, $.001 par value per share.
Incorporated by reference to Exhibit No. 4 to Pre-Effective Amendment No. 1
to Registration Statement on Form N-1A filed on December 8, 1989 (File No.
33-31603).
5. (a) Management Agreement between the Registrant (Money Market Series) and
Prudential Mutual Fund Management, Inc. Incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on July 30, 1990 (File No. 33-31603).
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation with respect to the Money Market
Series. Incorporated by reference to Exhibit No. 5(b) to Post-Effective
Amendment No.1 to the Registration Statement on Form N-1A filed on July 30,
1990 (File No. 33-31603).
6. (a) Distribution Agreement, amended and restated as of April 12, 1995,
between the Registrant and Prudential Mutual Fund Distributors, Inc.
Incorporated by reference to Exhibit No. 6 to Post-Effective Amendment
No. 8 to the Registration Statement on Form N-1A filed on August 29,
1995 (File No. 33-31603).
(b) Amendment to Distribution Agreements. *
8. Custodian Agreement dated January 12, 1990, between the Registrant and State
Street Bank and Trust Company. Incorporated by reference to Exhibit No. 8 to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A
filed on July 30, 1990 (File No. 33-31603).
9. Transfer Agency and Service Agreement dated January 12, 1990 between the
Registrant and Prudential Mutual Fund Services, Inc. Incorporated by
reference to Exhibit No. 9 to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on July 30, 1990 (File No.
33-31603).
10.
a. Opinion of Gardner, Carton & Douglas. Incorporated by reference to Exhibit
No. 10 to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on December 8, 1989 (File No. 33-31603).
b. Opinion of Gardner, Carton & Douglas.*
11. Independent auditors' consent.*
13. Purchase Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. Incorporated by reference to Exhibit No. 13 to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A
filed on July 30, 1990 (File No. 33-31603).
16. Schedule of computation of yield for the Money Market Series. Incorporated
by reference to Exhibit No. 16 to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on August 28, 1990 (File No.
33-31603).
17. Financial Data Schedule filed as Exhibit 27 for electronic purposes.*
- ------------------
*Filed herewith.
Exhibit 1(d)
ARTICLES OF AMENDMENT
OF
PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC., a Maryland corporation
having its principal offices in Baltimore, Maryland and New York, New York (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Article I of the Corporation's charter is hereby amended in its
entirety to read as follows:
The name of the corporation (hereinafter called the "Corporation")
is Prudential Special Money Market Fund, Inc.
SECOND: Article IV, Section 1 of the Corporation's charter is hereby
amended in its entirety to read as follows:
The total number of shares of capital stock which the Corporation
has authority to issue is 2,000,000,000 shares of the par value of $.001
per share, having an aggregate par value of $2,000,000, to be divided into
two series consisting of 1,000,000,000 shares as shares of Money Market
Series and 1,000,000,000 shares as shares of U.S. Treasury Series, each
such series to be a separate portfolio of investments.
THIRD: The foregoing amendments do not change the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption of the capital
stock of the Corporation.
FOURTH:The foregoing amendments have been approved by a majority of the
entire Board of Directors of the Corporation in accordance with Section
2-605(a)(4) of the Maryland General Corporation Law (the Corporation being
registered as an open-end company under the Investment Company Act of 1940).
<PAGE>
IN WITNESS WHEREOF, PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC. has
caused these presents to be signed in its name and on its behalf by its
President and attested by its Assistant Secretary on March 6, 1996.
PRUDENTIAL-BACHE SPECIAL MONEY
MARKET FUND, INC.
By: /s/ Richard A. Redeker
----------------------------
Richard A. Redeker, President
Attest: /s/ Ellyn C. Acker
-----------------------------------
Ellyn C. Acker, Assistant Secretary
The undersigned, President of PRUDENTIAL-BACHE SPECIAL MONEY MARKET
FUND, INC., who executed on behalf of said corporation the foregoing amendments
to the Charter of which this certificate is made a part, hereby acknowledges in
the name and on behalf of said corporation, the foregoing amendments to the
Charter to be the corporate act of said corporation and further certifies that,
to the best of his knowledge, information and belief, the matters and facts set
forth therein with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
/s/ Richard A. Redeker
----------------------
Richard A. Redeker
EXHIBIT 99.6(b)
Amendment to Distribution Agreements
------------------------------------
The Distribution Agreements between Prudential Mutual Fund Distributors,
Inc. and each of the Funds listed below are hereby transferred to Prudential
Securities Incorporated effective January 1, 1996.
Name of Fund Date of Agreement
- ------------ -----------------
The BlackRock Government Income Trust August 30, 1991 and amended
(Class A) and restated on April 12, 1995
Command Government Fund September 15, 1988 and amended
and restated on April 12, 1995
Command Money Fund September 15, 1988 and amended
and restated on April 12, 1995
Command Tax-Free Money Fund September 15, 1988 and amended
and restated on April 12, 1995
Global Utility Fund, Inc. February 4, 1991 and amended
(Class A) amended and restated on
July 1, 1993, August 1, 1994
and May 4, 1995
Nicholas-Applegate Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 12, 1995
Nicholas-Applegate Growth Equity Fund
Prudential Allocation Fund January 22, 1990 and amended
(Class A) and restated on August 1, 1994
and May 3, 1995
Strategy Portfolio
Balanced Portfolio
1
<PAGE>
Prudential California Municipal Fund August 1, 1994 and amended
(Class A) and restated on May 5, 1995
California Income Series
California Series
Prudential California Municipal Fund February 10, 1989 and amended
and restated on July 1, 1993
California Money Market Series and May 5, 1995
Prudential Diversified Bond Fund, Inc. January 3, 1995 and amended
(Class A) and restated on June 13, 1995
Prudential Equity Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 5, 1995
Prudential Equity Income Fund August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Europe Growth Fund, Inc. July 11, 1994 and amended
(Class A) and restated on June 13, 1995
Prudential Global Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 5, 1995
Prudential Global Genesis Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Global Natural Resources Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Government Income Fund, Inc. January 22, 1990 and amended
(Class A) and restated on April 13, 1995
Prudential Government Securities Trust November 20, 1990 and amended
Money Market Series and restated on July 1, 1993,
U.S. Treasury Money Market Series May 2, 1995 and August 1, 1995
Prudential Growth Opportunity Fund, Inc. January 22, 1990 and amended
(Class A) and restated on July 1, 1993,
August 1, 1994 and May 2, 1995
2
<PAGE>
Prudential High Yield Fund, Inc. January 22, 1990 and amended
(Class A) and restated on July 1, 1993,
August 1, 1994 and May 2, 1995
Prudential Institutional Liquidity November 20, 1987 and amended
Portfolio, Inc. and restated on July 1, 1993
and April 11, 1995
Prudential Institutional Money Market Series
Prudential Intermediate Global Income August 1, 1994 and amended
Fund, Inc. (Class A) and restated on May 10, 1995
Prudential MoneyMart Assets May 1, 1988 and amended
and restated on July 1, 1993
and May 10, 1995
Prudential Mortgage Income Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 5, 1995
Prudential Multi-Sector Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Municipal Bond Fund August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Insured Series
High Yield Series
Intermediate Series
Prudential Municipal Series Fund August 1, 1994 and amended
(Class A) and restated on May 5, 1995
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
3
<PAGE>
Prudential Municipal Series Fund
Connecticut Money Market Series February 10, 1989 and amended
Massachusetts Money Market Series and restated on July 1, 1993
New Jersey Money Market Series and May 5, 1995
New York Money Market Series
Prudential National Municipals Fund, Inc. January 22, 1990 and amended
(Class A) and restated on July 1, 1993,
August 1, 1994 and May 2, 1995
Prudential Pacific Growth Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 5, 1995
Prudential Global Limited Maturity Fund, Inc. August 1, 1994 and amended
(formerly Prudential Short-Term Global Income and restated on June 5, 1995
Fund Inc.) (Class A)
Global Assets Portfolio
Limited Maturity Portfolio
Prudential Special Money Market Fund January 12, 1990 and amended
Money Market Series and restated on April 12, 1995
Prudential Structured Maturity Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 14, 1995
Income Portfolio
Prudential Tax-Free Money Fund, Inc. May 2, 1988 and amended and
restated on July 1, 1993,
May 2, 1995 and August 1, 1995
Prudential U. S. Government Fund August 1, 1994 and amended
(Class A) and restated on June 5, 1995
Prudential Utility Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 14, 1995
4
<PAGE>
EACH OF THE FUNDS LISTED ABOVE
By
/s/ Robert F. Gunia
----------------------------
Robert F. Gunia
Vice President
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC.
By
/s/ Stephen P. Fisher
----------------------------
Stephen P. Fisher
Vice President
AGREED TO AND ACCEPTED BY:
PRUDENTIAL SECURITIES INCORPORATED
By
/s/ Brendan Boyle
----------------------------
Brendan Boyle
Senior Vice President
5
Exhibit 10.B
GARDNER, CARTON & DOUGLAS
Suite 3400 - Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4795
(312) 644-3000
Telecopier: (312) 644-3381
August 27, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Prudential Special Money Market Fund, Inc.
Shares of Common Stock, $0.001 par value per share
--------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Prudential Special Money Market Fund,
Inc., a Maryland corporation (the "Fund"), in connection with its filing of
Post-Effective Amendment No. 9 to its Registration Statement on Form N-1A
(File No. 33-31603) (the "Amendment"). In addition to updating the
information contained therein, the Amendment registers 57,220,990 shares of
Common Stock, $0.001 par value per share, of the Fund.
We have examined all instruments, documents and records which, in our
opinion, were necessary of examination for the purpose of rendering this
opinion. Based upon such examination, we are of the opinion that the
above-described shares of Common Stock will be, if and when issued by the
Fund in the manner and upon the terms set forth in said Amendment, validly
authorized and issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment.
Very truly yours,
/s/ Gardner, Carton & Douglas
Gardner, Carton & Douglas
PHD/KJF/MAM
Exhibit 99.11
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 9 to Registration
Statement No. 33-31603 of Prudential Special Money Market Fund, Inc. of our
report dated August 15, 1996, appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
references to us under the headings "Financial Highlights" in the Prospectus,
which is a part of such Registration Statement, and "Custodian, Transfer and
Dividend Disbursing Agent and Independent Accountants" in the Statement of
Additional Information.
Deloitte & Touche LLP
New York, New York
August 27, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000856715
<NAME> PRUDENTIAL BACHE SPECIAL MONEY MARKET FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL BACHE SPECIAL MONEY MARKET FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 304,999,205
<RECEIVABLES> 1,987,709
<ASSETS-OTHER> 10,894
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 306,997,808
<PAYABLE-FOR-SECURITIES> 42,829,696
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 886,940
<TOTAL-LIABILITIES> 43,829,696
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,168,112
<SHARES-COMMON-STOCK> 263,168,112
<SHARES-COMMON-PRIOR> 359,197,416
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 263,168,112
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,951,658
<OTHER-INCOME> 0
<EXPENSES-NET> 2,391,111
<NET-INVESTMENT-INCOME> 16,560,547
<REALIZED-GAINS-CURRENT> 20,697
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 16,581,244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,787,300,706
<NUMBER-OF-SHARES-REDEEMED> (1,896,666,283)
<SHARES-REINVESTED> 13,336,273
<NET-CHANGE-IN-ASSETS> (79,448,060)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 27,039
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,634,243
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,391,111
<AVERAGE-NET-ASSETS> 326,849,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
