(ICON)
Prudential
Special
Money
Market
Fund
Money Market Series
SEMI
ANNUAL
REPORT
Dec. 31, 1995
(LOGO)
<PAGE>
Prudential Special Money Market Fund
Performance At A Glance.
For the Prudential Special Money Market Fund -- Money Market Series investor
the past six months capped a year of sound performance. We took advantage of
rising interest rates early on and anticipated falling rates later. Your Fund
offered competitive yields, maintained a high credit quality and a stable $1
net asset value. On December 31, 1995, the Prudential Special Money Market Fund
- -- Money Market Series 7-day current yield stood at 5.15% compared to 5.15%
for the average money market fund tracked by IBC/Donoghue.
<TABLE>
<CAPTION>
Fund Facts As of 12/31/95
7-Day Net Asset Weighted Total Net
Current Yld. Value Avg. Mat. Assets(mil.)
<S> <C> <C> <C> <C>
Special Money
Market Fund 5.15% $1.00 54days $303.5
IBC/Donoghue
Money Fund Avg.
(All Taxable*) 5.15 $1.00 54 days N/A
</TABLE>
Note: Yields will fluctuate from time to time and past performance is no
guarantee of future results. 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.
* This is the average 7-day current yield, NAV and WAM of 771 funds in the
International Business Communications/Donoghue all taxable money fund category
as of January 2, 1996.
Falling Rates / U.S. Treasury Yield Curve
(CHART)
MATURITY IN YEARS
How Investments Compared.
(As of 12/31/95)
(CHART)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total return averages for several Lipper mutual fund categories to
show you that reaching for higher yields means tolerating more risk. The
greater the risk, the larger the potential reward or loss. In addition, we've
added historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller capitalization stocks
offer greater potential for long-term growth but may be more volatile than
larger capitalization stocks. Investors have received higher historical total
returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes a good deal) and their returns have been historically lower than
those of stock funds. Unlike bond funds, bonds, if held to maturity, generally
offer a fixed rate of return and fixed principal value.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Robert N. Felice, Fund Manager
Portfolio
Manager's Report
(PHOTO)
The Prudential Special Money Market Fund -- Money Market Series seeks high
current income consistent with the preservation of principal and liquidity. The
Fund is a diversified portfolio of high quality, U.S. dollar-denominated money
market securities issued by the U.S. government and its agencies, major
corporations and commercial banks of the U.S. and foreign countries. Maturities
can range from one day to a maximum of 13 months.
Strategy Session.
Our investment strategy is, by necessity, dependent upon Federal Reserve
policy. Correctly anticipating moves by the central bank is the key to
preserving competitive yields for a money fund. This is true whether
short-term interest rates rise or fall.
The Federal Reserve seeks to indirectly influence the economy by managing the
federal funds rate (the rate banks charge each other for overnight loans). The
goal is to promote sustainable economic growth without triggering higher levels
of inflation.
When 1995 began, short-term interest rates were still rising. By the end of
February, the federal funds rate had risen 300 basis points to 6% from 3% only
a year earlier (a basis point is 1/100 of a percentage point). It would be the
last time short-term rates would be that high for the remainder of the year.
During this period of rising rates our strategy was straightforward: shorten
the portfolio's maturity in anticipation of each Federal Reserve announcement
and then lengthen maturity immediately afterwards to lock in the new, higher
yields.
Eighteen months of higher rates were specifically engineered to quell
inflation -- and that's exactly what they did. By the second quarter of 1995,
the annualized inflation rate was still about 3%, but the underlying
inflationary pressures were easing. Clearly, inflation had nowhere to go but
down. Unfortunately, the same could be said for the economy.
As the second quarter ended, Gross Domestic Product (GDP), the total value of
goods produced by the country, had fallen sharply to 1.3%. There was serious
concern that the economy was slipping toward recession.
At its July 6 meeting, the Federal Reserve reversed course and began lowering
the federal funds rate by 25 basis points to 5.75%. The economy accelerated
and GDP increased to about 3.5% by the end of the third quarter.
Despite the stimulus, economic growth began to decelerate again in the fourth
quarter. This outlook, plus favorable inflation news, led the Federal Reserve
to lower short-term rates again in mid-December to 5.50% or 25 basis points
lower than last summer.
A Word
About Quality.
As of December 31, 1995, all of the portfolio's investments were rated at least
"Aa" or "Prime 2" by Moody's Investors Service; "AA" or "A-2" by Standard &
Poor's Ratings Group; "AA" or "Duff 2" by Duff & Phelps Credit Rating Co., or
deemed to be of comparable quality by our research staff. Investments deemed to
be of equivalent quality that were not rated were subject to Board
ratification. Although there is never a guarantee that the share price of
Prudential Special Money Market Fund will remain at $1, we emphasize a
conservative, quality-oriented investment approach.
<PAGE>
What Went Well.
Preserving Yield.
As rates began to decline in the second half of the year, our goal was to
preserve a competitive yield for you. We did so by correctly anticipating the
central bank's first move to lower rates in July and extending maturity before
rates were cut. Over the past six months, your Fund's maturity was generally
positioned longer than the average money fund tracked by IBC/Donoghue.
Increasing our holdings in longer term, fixed-rate securities also allowed us
to hold on to higher yields longer.
Looking For Attractive Investments.
High quality, variable rate securities, which currently reset off of daily,
one-month or other periodic interest rates, are different from other money
market investments because their coupons (or yield) change frequently. These
securities are linked to various independent, short-term interest rate indices
such as the federal funds rate, London Interbank Offered Rate (LIBOR) or
Treasury bills. Given the right conditions, variable rate securities can play
an important role in preserving or enhancing yield.
Conditions were not right last summer. Prior to -- and then after -- the July
interest rate cut, market indices moved steadily lower. At that time it made
sense to pare our variable rate holdings and we did.
Conditions were better late in the year. As we've stated, the interest rate of
variable rate securities periodically reset to various market indices. These
indices generally move in tandem, but in varying degrees. As the year drew to
a close, LIBOR-based variable rate securities generally had higher yields than
variable rate securities tied to the other market indices, such as the federal
funds rate or Treasury bills. Your Fund benefited from this development since
the majority of our variable rate holdings were concentrated in LIBOR-based
instruments (15.96% as of December 31, 1995).
And Not So Well.
Bond markets tend to anticipate Federal Reserve policy rather than react to it.
As a result, longer term money market rates have already priced in expectations
for lower interest rates. This has caused an "inverted yield curve" in the
short-term bond markets, which meant that three-month rates were higher than
one-year rates.
Although we correctly anticipated the lowering of short-term interest rates by
the Federal Reserve, we did not expect the yield curve to invert to the extent
that it did. Looking back, we could have, but did not, maintain a large enough
position in longer term, fixed-rate securities which may have produced a higher
return as the yield curve inverted.
Looking Ahead.
As December drew to a close, we liked the yield opportunities offered by some
variable rate securities and we will likely be purchasing them in 1996. Why?
- - As long as the yield curve remains inverted, money market investors will not
have to extend maturity to get higher yields.
- - As 1995 ended the economy appeared locked in low gear. We believed that at
5.5%, the federal funds rate was still too high to encourage an expanding
economy and the specter of a near recession could not be ignored. In fact, on
January 31, 1996, the Federal Reserve once again lowered the federal funds
rate 25 basis points to 5.25%. We believe that the Federal Reserve will take a
go slow approach in lowering short-term rates further. A gradual reduction in
short-term rates rewards patience and should allow us to extend the average
maturity of the Fund only when longer term securities represent better
relative value.
- ------------------------------------------------------------------------------
1
<PAGE>
President's Letter
(PHOTO)
February 5, 1996
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can
tempt even the most skittish investors to start buying again, it is important
to remember that the stock and bond markets go down just as they go up. At
times like these, remember the importance of working with your Financial
Advisor or Registered Representative to help you find investments that are
consistent with your risk tolerance and time horizon. Your Financial Advisor
or Registered Representative can help you maintain realistic expectations about
both the potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering
"fund profiles." Some mutual fund companies now offer one to shareholders
along with a full prospectus. The purpose of a fund profile is to provide a
very brief, reader-friendly summary of a fund's objective, investments, risks
and expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- ------------------------------------------------------------------------------
2
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Portfolio of Investments as of December 31, 1995 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Bank Notes--3.3%
$1,000 Bank of America, Illinois
5.79% 1/16/96 $ 999,996
1,000 Bank One Indianapolis, N.A.
7.18%, 2/5/96 1,000,375
5,000 First Union National Bank of
North Carolina
5.80%, 1/31/96 5,000,000
3,000 NationsBank Texas
7.30%, 1/26/96 3,000,854
------------
10,001,225
- ------------------------------------------------------------
Certificates of Deposit - Eurodollar--3.9%
3,000 Banque Nationale de Paris
5.77%, 1/22/96 2,999,914
9,000 Bayerische Hypo Und Wechsel Bank
5.83%, 1/16/96 9,000,074
------------
11,999,988
- ------------------------------------------------------------
Certificates of Deposit - Yankee--13.2%
3,000 Bayerische Hypo Und Wechsel Bank
5.80%, 1/16/96 2,999,992
2,000 Commerzbank
7.10%, 2/2/96 2,000,757
National Westminster Bank, PLC
8,000 5.81%, 1/12/96 8,000,000
2,000 5.80%, 1/31/96 2,000,000
Societe Generale
4,000 7.65%, 1/8/96 4,000,734
10,000 5.80%, 2/1/96 10,000,000
11,000 Swiss Bank Corp.
5.75%, 3/20/96 11,000,000
------------
40,001,483
- ------------------------------------------------------------
Commercial Paper - Domestic--38.4%
8,000 A. H. Robins Co., Inc.
5.80%, 1/19/96 7,976,801
5,000 American Express Credit Corp.
5.67%, 2/13/96 4,966,137
$900 Aristar, Inc.
5.82%, 1/31/96 $ 895,635
3,000 Associates Corp. of North America
5.71%, 2/2/96 2,984,773
Caterpillar Financial Services, N.V.
1,000 5.66%, 2/21/96 991,982
1,000 5.67%, 2/27/96 991,023
2,000 Chase Manhattan Corp.
5.67%, 2/12/96 1,986,770
3,000 CIT Group Holdings, Inc.
5.67%, 2/5/96 2,983,462
Corporate Receivables Corp.
1,000 5.75%, 1/16/96 997,604
2,000 5.67%, 2/27/96 1,982,045
5,000 Countrywide Funding Corp.
5.87%, 1/22/96 4,982,879
1,000 Dean Witter, Discover & Co.
5.70%, 2/14/96 993,033
1,155 Falcon Asset Securitization Corp.
5.75%, 1/19/96 1,151,679
Finova Capital Corp.
1,000 5.97%, 1/5/96 999,337
6,360 5.97%, 1/8/96 6,352,617
1,000 6.00%, 1/12/96 998,167
2,000 Fleet Mortgage Group, Inc.
5.80%, 1/16/96 1,995,167
8,000 Ford Motor Credit Corp.
5.67%, 2/13/96 7,945,820
General Electric Capital Corp.
5,000 5.66%, 2/8/96 4,970,128
2,000 5.58%, 4/8/96 1,969,620
3,000 5.58%, 4/9/96 2,953,965
5,000 General Motors Acceptance Corp.
5.75%, 2/20/96 4,960,069
GTE Corp.
1,000 5.87%, 1/19/96 997,065
4,000 5.95%, 1/23/96 3,985,456
1,000 Heller Financial Inc.
5.90%, 1/11/96 998,361
3,000 ITT Industries, Inc.
5.94%, 1/30/96 2,985,645
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
3
<PAGE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Portfolio of Investments as of December 31, 1995 (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Commercial Paper - Domestic (cont'd.)
$6,530 Lehman Brothers Hldgs., Inc.
6.10%, 1/2/96 $ 6,528,894
Merrill Lynch & Co., Inc.
2,000 5.72%, 1/31/96 1,990,467
7,000 5.64%, 2/29/96 6,935,297
1,000 Morgan Stanley Group, Inc.
5.75%, 1/25/96 996,167
Nynex Corp.
1,000 5.82%, 1/10/96 998,545
1,000 5.82%, 1/16/96 997,575
1,000 5.80%, 1/19/96 997,100
3,175 PHH Corp.
5.87%, 1/19/96 3,165,681
1,000 PNC Funding Corp.
5.71%, 3/1/96 990,483
3,000 Preferred Receivables Funding Corp.
5.68%, 2/7/96 2,982,487
Riverwoods Funding Corp.
1,000 5.71%, 2/7/96 994,131
1,000 5.68%, 2/16/96 992,742
Sears Roebuck Acceptance Corp.
4,000 5.72%, 2/12/96 3,973,307
2,000 5.72%, 2/26/96 1,982,204
2,000 Smith Barney, Inc.
5.74%, 1/30/96 1,990,752
Special Purpose Accts. Receivable
Cooperative Corp.
1,000 5.75%, 1/24/96 996,326
1,000 5.78%, 1/24/96 996,307
1,000 USL Capital Corp.
5.75%, 1/19/96 997,125
1,000 Whirlpool Financial Corp.
5.80%, 1/30/96 995,328
------------
116,496,158
- ------------------------------------------------------------
Commercial Paper - Foreign--5.6%
17,000 Bank of Montreal
5.72%, 1/29/96 16,924,369
Commercial Paper - Yankee--4.6%
American Honda Finance Corp.
$1,000 5.85%, 1/12/96 $ 998,212
1,000 5.80%, 1/30/96 995,328
1,000 5.845%, 1/30/96 995,292
Bradford & Bingley Building Society
1,000 5.74%, 1/17/96 997,449
1,000 5.73%, 1/23/96 996,498
4,000 5.68%, 2/6/96 3,977,280
4,000 Hanson Finance, PLC
5.70%, 2/8/96 3,975,933
1,100 Mitsubishi International Corp.
5.95%, 1/16/96 1,097,273
------------
14,033,265
- ------------------------------------------------------------
Corporate Bonds--1.8%
1,000 American General Finance Corp.
8.875%, 3/15/96 1,004,160
1,000 BP of America, Inc.
10.15%, 3/15/96 1,006,564
1,000 Ford Motor Credit Corp.
8.875%, 3/15/96 1,003,799
1,400 General Motors Acceptance Corp.
8.25%, 8/1/96 1,417,433
1,000 TransAmerica Finance Corp.
5.85%, 7/15/96 999,545
------------
5,431,501
- ------------------------------------------------------------
Government Coupon Issue--4.8%
2,500 Federal Home Loan Bank Corp.
6.05%, 6/13/96 2,500,658
3,000 Federal Home Loan Mortgage Corp.
5.645%, 8/15/96 2,995,274
Federal National Mortgage Assoc.
3,000 5.71%, 6/10/96 2,996,194
6,000 5.8125%, 10/4/96 5,994,324
------------
14,486,450
</TABLE>
- --------------------------------------------------------------------------------
4 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIALSPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Portfolio of Investments as of December 31, 1995 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Medium-Term Notes--1.7%
$4,200 General Motors Acceptance Corp.
8.95%, 2/5/96 $ 4,211,074
1,000 Merrill Lynch & Co., Inc.
9.00%, 3/22/96 1,006,894
------------
5,217,968
- ------------------------------------------------------------
Medium-Term Notes - Yankee--1.3%
2,000 Bayerische Hypo Und Wechsel Bank
6.376%, 4/24/96 1,999,551
2,000 Westdeutsche Landesbank Girozentrale
6.85%, 3/1/96 2,000,509
------------
4,000,060
- ------------------------------------------------------------
Variable Rate Obligations(b)--21.8%
1,000 American Express Centurion Bank
5.9375%, 1/16/96 999,975
7,000 General Motors Acceptance Corp.
5.70%, 1/22/96 6,997,189
7,000 Federal National Mortgage Assoc.
5.755%, 1/2/96 7,000,000
17,000 Goldman, Sachs Group L.P.
5.8125%, 5/24/96 17,000,000
4,000 Lehman Brothers Holdings, Inc.
6.1422%, 1/2/96 4,000,000
5,000 Merrill Lynch & Co., Inc.
5.9375%, 1/10/96 4,998,877
3,200 Money Market Auto Loan Trust
6.085%, 1/16/96 3,200,037
Morgan Stanley Group, Inc.
1,000 6.0625%, 1/16/96 1,000,000
10,000 6.0703%, 2/15/96 10,000,000
11,000 SMM Trust
5.9375%, 1/16/96 10,998,948
------------
66,195,026
- ------------------------------------------------------------
Total Investments--100.4%
(amortized cost $304,787,493(a)) 304,787,493
Liabilities in excess of
other assets--(0.4%) (1,290,950)
------------
Net Assets--100% $303,496,543
------------
------------
</TABLE>
(a) The federal income tax basis of portfolio securities is the same as for
financial reporting purposes.
(b) For purposes of amortized cost valuation, the maturity date
of these instruments is considered to be the later of the next date on which the
security can be redeemed at par or the next date on which the rate of interest
is adjusted.
The industry classification of portfolio holdings shown as a
percentage of net assets as of December 31, 1995 was as follows:
<TABLE>
<S> <C>
Banks 30.0%
Security Brokers & Dealers 18.9
Business Credit Institutions 11.9
Personal Credit Institutions 11.4
Asset Backed Securities 8.3
Federal Credit Agencies 7.1
Pharmaceuticals 2.6
Telecommunications 2.6
Bank Holding Companies 2.3
Tobacco 1.3
Equipment Rental & Leasing 1.0
Financial Services 1.0
Bank Holding Companies 0.7
Commodity Trade 0.4
Computer Rental 0.3
Household Appliances 0.3
Petroleum Refining 0.3
-----
100.4
Liabilities in excess of other assets (0.4)
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
5
<PAGE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>
<C>
Assets
December 31, 1995
-----------------
Investments, at amortized cost which approximates market
value.......................................... $ 304,787,493
Cash.........................................................................
........................... 5,965
Interest
receivable...................................................................
.................. 2,249,735
Receivable for Series shares
sold.......................................................................
843,462
Deferred expenses and other
assets......................................................................
4,593
-----------------
Total
assets.......................................................................
.................. 307,891,248
-----------------
Liabilities
Payable for Series shares
reacquired....................................................................
4,111,909
Management fee
payable......................................................................
............ 134,915
Dividends
payable......................................................................
................. 128,631
Accrued
expenses.....................................................................
................... 19,250
-----------------
Total
liabilities..................................................................
.................. 4,394,705
-----------------
Net
Assets.......................................................................
....................... $ 303,496,543
-----------------
-----------------
Net assets were comprised of:
Common stock, $0.001 par value per
share............................................................. $
303,497
Paid-in capital in excess of
par.....................................................................
300,193,046
-----------------
Net assets, December 31,
1995........................................................................
$ 303,496,543
-----------------
-----------------
Net asset value, offering price and redemption price per share
($303,496,543 / 303,496,543 shares of common stock issued and outstanding;
two billion shares
authorized)..................................................................
........................ $1.00
</TABLE>
- --------------------------------------------------------------------------------
6 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income December 31, 1995
-----------------
<S> <C>
Income
Interest and discount earned............. $10,454,155
-----------------
Expenses
Management fee........................... 870,220
Transfer agent's fees and expenses....... 201,000
Custodian's fees and expenses............ 77,000
Reports to shareholders.................. 30,000
Registration fees........................ 21,000
Audit fee................................ 20,000
Legal fees............................... 10,000
Directors' fees.......................... 8,000
Insurance expense........................ 5,000
Miscellaneous............................ 7,426
-----------------
Total expenses........................ 1,249,646
-----------------
Net investment income....................... 9,204,509
Realized Gain on Investments
Net realized gain on investment
transactions............................. 3,720
-----------------
Net Increase in Net Assets
Resulting from Operations................... $ 9,208,229
-----------------
-----------------
</TABLE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Increase (Decrease) Ended Year Ended
in Net Assets December 31, 1995 June 30, 1995
----------------- ---------------
<S> <C> <C>
Operations
Net investment income..... $ 9,204,509 $ 20,542,229
Net realized gain on
investment
transactions........... 3,720 27,039
----------------- ---------------
Net increase in net assets
resulting from
operations............. 9,208,229 20,569,268
----------------- ---------------
Dividends and distributions
to shareholders........... (9,208,229) (20,569,268)
----------------- ---------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed............. 811,152,410 1,721,699,172
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 7,613,816 16,901,677
Cost of shares
reacquired............. (874,467,099) (1,852,460,009)
----------------- ---------------
Net decrease in net assets
from Series share
transactions........... (55,700,873) (113,859,160)
----------------- ---------------
Total decrease............... (55,700,873) (113,859,160)
Net Assets
Beginning of period.......... 359,197,416 473,056,576
----------------- ---------------
End of period................ $ 303,496,543 $ 359,197,416
----------------- ---------------
----------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Prudential-Bache Special Money Market Fund, Inc., doing business as Prudential
Special Money Market Fund (the ``Fund''), 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, wherein 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 six months ended December
31, 1995, the Series incurred fees of approximately $142,000 for the services
of
PMFS. As of December 31, 1995, 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.
- --------------------------------------------------------------------------------
8
<PAGE>
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended June 30,
December 31,
-----------------------------------------------
1995
1995 1994 1993 1992
<S> <C>
<C> <C> <C> <C>
------------
-------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized gains................. 0.026
0.049 0.030 0.027 0.044
Dividends and distributions.................................. (0.026)
(0.049) (0.030) (0.027) (0.044)
------------
-------- -------- -------- --------
Net asset value, end of period............................... $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
------------
-------- -------- -------- --------
------------
-------- -------- -------- --------
TOTAL RETURN(a):............................................. 2.68%
5.05% 3.09% 2.77% 4.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $303,497
$359,197 $473,057 $176,258 $183,093
Average net assets (000)..................................... $346,196
$416,899 $271,869 $213,948 $249,223
Ratios to average net assets:
Expenses................................................... 0.72%(c)
0.70% 0.72% 0.81% 0.83%
Net investment income...................................... 5.27%(c)
4.93% 2.96% 2.73% 4.36%
<CAPTION>
1991
<S> <C>
--------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 1.00
Net investment income and net realized gains................. 0.071(b)
Dividends and distributions.................................. (0.071)
--------
Net asset value, end of period............................... $ 1.00
--------
--------
TOTAL RETURN(a):............................................. 7.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $284,849
Average net assets (000)..................................... $328,899
Ratios to average net assets:
Expenses................................................... 0.61%(b)
Net investment income...................................... 6.98%(b)
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each year reported and includes reinvestment
of dividends and distributions. Total return for a period of less than one
year is not annualized.
(b) Net of expense subsidy and/or management fee waiver.
(c) Annualized
- -------------------------------------------------------------------------------
9
<PAGE>
Getting The Most
From Your Prudential
Mutual Fund
How many times have you read these letters -- or other financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term gain is
28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The
rate of return of these financial products rise and fall -- sometimes very
suddenly -- in response to changes in some specific interest rate, currency,
stock or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instruments at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return on
the investment. While leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy something, such as shares of stock, by a certain
time for a specified price. An option need not be exercised. In fact, most
expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings per
share for a 12-month period.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<PAGE>
Getting The Most
From Your Prudential
Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial advice
through a Prudential Securities financial advisor or Prudential/Pruco Securities
registered representative. Your advisor or representative can provide you with
the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help you match the
reward you seek with the risk you can tolerate. And risk can be difficult to
gauge --sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction -- there
are times when a market sector or asset class will lose value or provide little
in the way of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade through the
numerous mutual funds available to find the ones that fit your own individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals, not at you personally. Your financial
advisor or registered representative will review your investment objectives
with you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance -- not just
based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are among the
most common investor mistakes. But sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial advisor or
registered representative can answer questions when you're confused or worried
about your investment, and remind you that you're investing for the long haul.
<PAGE>
Getting The Most
From Your Prudential
Mutual Fund
Change Your Mind.
You can exchange your shares in most Prudential Mutual Funds for shares in
most other Prudential Mutual Funds, without charges. This may be most helpful
if your investment needs change.
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions automatically --
without charge.
Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer taxes on your
investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a year in an IRA. If you are
married, you and your spouse (if not working outside the home) can contribute
up to $2,250 a year. (Withdrawals are taxed as ordinary income and may be
subject to a 10% penalty prior to age 59 1/2.)
Change Your Job.
You can take your pension with you. Use a rollover IRA to manage your company-
sponsored retirement plan while retaining the special tax-deferred advantages.
Invest In Your Children.
There's no fee to open a custodial account for a child's education or other
needs.
Take Income.
Would you like to receive monthly or quarterly checks in any amount from your
fund account? Just let us know. We'll take care of it. Of course, there are
minimum amounts. And shares redeemed may be subject to tax, and Class B and C
shares may be subject to contingent deferred sales charges. We'll gladly answer
your questions.
Keep Informed.
We want to keep you up-to-date. Of course, you receive account activity
statements every quarter. But you also receive annual and semi-annual fund
reports, as well as other important updates on events that affect your
investments, including tax information.
This material is only authorized for distribution when preceded or accompanied
by a current prospectus. Read the prospectus carefully before you invest or
send money.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
Directors
Edward D. Beach
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Richard A. Redeker
Stanley E. Shirk
Stephen Stoneburn
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Ellyn C. Acker, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The accompanying financial statements as of December 31, 1995 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
74430J103
MF141E2
Cat# 4442337
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