(ICON)
Prudential
Special
Money
Market
Fund, Inc.
Money Market Series
ANNUAL
REPORT
June 30, 1997
(LOGO)
<Paqe>
Prudential Special Money Market Fund, Inc.
Money Market Series
Performance At A Glance.
Investors repeatedly bid short-term interest rates
higher and lower over the
past year as they tried to gauge how the Federal
Reserve would respond to an
expanding U.S. economy. This proved to be a
difficult task as economic growth
surged in one quarter only to slow in the next.
Still your Prudential Special
Money Market Fund offered attractive yields,
maintained a high credit quality
and a stable $1 net asset value. On June 30, 1997,
your Fund's seven-day
current yield stood at 5.04% compared to 4.98% for
the average money market
fund tracked by IBC Financial Data.
<TABLE>
<CAPTION>
Fund Facts
As of 6/30/97
7-Day Net Asset
Weighted Avg. Total Net
Current Yld. Value (NAV)
Mat.(WAM) Assets (mil.)
<S> <C> <C>
<C> <C>
Special Money
Market Fund, Inc. 5.04% $1
57 Days $261.9
IBC Financial Data
Money Fund Avg.
(General Purpose*) 4.98 $1
58 Days N/A
</TABLE>
Note: Yields will fluctuate from time to time and
past performance is not
indicative of future results. An investment in the
Fund is neither insured or
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 seven-day current yield, NAV
and WAM of all funds in the
IBC Financial Data's general purpose all taxable
money fund category as of
July 1, 1997.
How Investments Compared.
(As of 6/30/97)
(GRAPHIC)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
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 returns means
tolerating more risk. The greater
the risk, the larger the potential reward or loss.
In addition, we've included
historical 20-year average annual returns. These
returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal.
Investors have received higher
historical total returns from stocks than from
most other investments. Smaller
capitalization stocks offer greater potential for
long-term growth but may be
more volatile than larger capitalization stocks.
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 significantly) 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.
<PAGE>
Robert N. Felice, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Prudential Special Money Market Fund -- Money
Market Series seeks high
current income consistent with the stability of
capital and the maintenance of
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 United States and
foreign countries. Maturities can range from one
day to a maximum of 13
months. There can be no assurance that the Fund
will achieve its investment
goal.
A Word About Quality.
As of June 30, 1997, substantially 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. Investments deemed to be of equivalent
quality that were not rated
were subject to ratification by the Board of
Directors. Although there is
never a guarantee that the share price of the
Prudential Special Money Market
Fund -- Money Market Series will remain at $1, we
emphasize a conservative,
quality-oriented investment approach.
Strategy Session.
A Waiting Game.
Investors spent much of the past year waiting for
the Federal Reserve to
increase the Federal Funds rate (what banks charge
each other for overnight
loans). Correctly anticipating changes in this
rate is one way your Fund
seeks to enhance yield. The central bank typically
raises the Federal Funds
rate to temper an economy it believes is expanding
too rapidly and is causing
inflationary pressures to build. In a sense, the
Federal Reserve prefers the
economy to operate at the same temperature that
Goldilocks liked her porridge
- -- not too hot and not too cold.
Investors first started to fear higher interest
rates last year when the
economy expanded at a 6.0% annualized pace in the
second quarter. In March of
1996, investors pushed up yields on money market
securities when data indicated
the economy was growing too rapidly, then drove
yields lower when the Federal
Reserve left rates unchanged. Rate increase
expectations cooled further when a
government report revealed that real gross
domestic product (GDP is the total
value of goods and services produced by the
economy) rose at a modest 1.0%
yearly pace in the third quarter of 1996.
The economy picked up again to expand at an
annualized 4.3% in the final
quarter of 1996. Furthermore, signs began to
emerge that the economy got off
to a strong start in the new year. Indeed it raced
along at a 4.9% yearly
pace in the first quarter of 1997. Investors,
sensing action by the central
bank was near, began to push up money market
yields in earnest in late
February. On March 25, 1997, the Federal Reserve
did not disappoint them and
raised the Federal Funds rate by a quarter
percentage point to 5.5%.
Initially, money market yields continued to climb
in the second quarter as
many investors (including us) expected another
rate increase in May. However,
weak retail sales in April and May slowed economic
growth from its breakneck
pace in the first quarter. It soon became evident
that the Federal Reserve did
not need to act again in May, so yields on money
market securities began to
edge lower.
<PAGE>
What Went Well.
Sometimes It Pays To Wait.
We maintained a core position in variable rate
securities -- securities whose
interest payment resets each month or each quarter
off of the comparable
London Interbank Offered Rate (LIBOR).
Fortunately, LIBOR had also edged
higher in anticipation of the March interest rate
increase so our variable
rate securities provided a nice yield even before
the central bank moved in
March.
The Fund was also heavily invested in fixed-rate
money market securities that
matured in one to three months. Owning these
securities allowed us quick
access to funds to purchase any higher yielding
securities that became
available when the Federal Reserve boosted the
Federal Funds rate. As
investors pushed up money market yields ahead of
the rate increase, we took
advantage of the trend by purchasing securities in
the one-year sector that
provided higher yields.
And Not So Well.
Rate Expectations.
We correctly predicted the March rate increase,
but our expectation that a
second one in May would fuel a further rise in
money market securities yields
proved wrong. Instead, yields edged lower later in
the period as investors
realized the central bank was going to leave the
Federal Funds rate unchanged.
We had shortened the WAM on your Fund in April and
early May in preparation
for a higher overnight bank lending rate. This
hurt the Fund's performance
relative to its competition. Performance
improved, however, when we quickly
lengthened the WAM by buying higher yielding nine
month and one-year money
market securities.
Looking Ahead.
Investors are once again playing the waiting game.
Federal Reserve Chairman
Alan Greenspan, speaking before a congressional
panel in July, indicated the
central bank will not raise interest rates soon.
We believe the Federal
Reserve will probably leave the overnight bank
lending rate at 5.5% for the
time being. With this in mind, investors have
again pushed short-term interest
rates lower. In fact, they may have pushed them
too low in light of minutes
from the May 20 central bank meeting that revealed
the Federal Reserve stands
poised to boost the Federal Funds rate again
should inflationary pressures
build. We are therefore taking a cautious
position.
Weighted Average Maturity Compared
To The Average Fund.
- -- Prudential Special Money Market Fund
- - IBC Financial Data Money Fund Avg. (General
Purpose)
(GRAPHIC)
- --------------------------------------------------
- -----------------------------
1
<PAGE>
President's Letter
August 4, 1997
(PHOTO)
Dear Shareholder:
With the midpoint of 1997 behind us, I'm pleased
to report that the recent
news from the financial markets has been decidedly
upbeat. The Dow Jones
Industrial Average has gained more than 20%
through the end of June, while
lower long-term interest rates have made bonds an
attractive investment.
This stands in contrast to April when the Dow fell
10% from a record high on
fears of higher interest rates and surging
inflation. Interest rates have
since fallen as the economy slowed and the Dow has
reached several new highs.
The market swings we've seen this year illustrate
the importance of "staying
the course" to your financial goal. We realize
that maintaining investment
discipline when faced with market uncertainty
isn't easy. Here are some
thoughts that may help:
- - Keep Your Expectations Realistic. The best
investors know that financial
markets rise and fall -- and so too, will the
value of their investments.
Over time, however, stocks have been shown to
produce very attractive
returns that were well ahead of inflation. And
where income is the primary
goal, bonds have also provided attractive
returns.
- - Remember Your Time Horizon. If your investment
goals are long term (several
years or more), so should your time horizon.
During this period, it's not
unusual for stocks and bonds to experience
several periods of market
uncertainty.
- - We're On Your Side. Your Prudential Securities
Financial Advisor or Pruco
Securities Registered Representative can help
you understand what's
happening in the financial markets. They can
assist you in making informed
decisions based upon a thorough knowledge of
your financial needs and long-
term goals. Call him or her today.
Thank you for your continued confidence in
Prudential mutual funds. We'll do
everything we can to keep you informed and to earn
your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- --------------------------------------------------
- -----------------------------
2
<PAGE>
Portfolio of Investments PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
as of June 30, 1997 MONEY MARKET
SERIES
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
Bank Notes--8.0%
Abbey National Treasury Services,
PLC
$3,000 5.50%, 11/26/97
$ 2,998,771
American Express Centurion Bank
1,000(a) 5.6575%, 7/9/97
1,000,000
2,000(a) 5.7375%, 7/24/97
2,000,324
Comerica Bank of Detroit
1,000(a) 5.5875%, 7/7/97
999,623
3,000(a) 5.5825%, 7/11/97
2,998,749
First Bank, N.A., Minneapolis
1,000(a) 5.5875%, 7/16/97
999,782
1,000(a) 5.6075%, 7/16/97
999,698
3,000(a) 5.6475%, 7/16/97
3,000,000
Keybank, N.A.
2,000(a) 5.6075%, 7/21/97
1,999,933
Wachovia Bank, N.A.
4,000 6.14%, 6/1/98
4,000,000
- ------------
20,996,880
- --------------------------------------------------
- ----------
Certificates Of Deposit - Domestic--0.4%
CoreStates Bank, N.A.
1,000(a) 5.80203%, 7/23/97
1,000,000
- --------------------------------------------------
- ----------
Certificates Of Deposit - Eurodollar--3.8%
Abbey National Treasury Services,
PLC
2,000 5.76%, 8/22/97
2,000,000
Berliner Handels-Und Frankfurter
Bank
1,000 5.62%, 8/11/97
1,000,011
Credit Agricole Indosuez
4,000 5.63%, 8/11/97
4,000,112
ING Bank, NV
2,000 5.54%, 8/7/97
2,000,080
Westdeutsche Landesbank
Girozentrale
1,000 5.61%, 8/18/97
1,000,012
- ------------
10,000,215
Certificates Of Deposit - Yankee--16.8%
Abbey National Treasury Services,
PLC
$5,000 6.185%, 4/7/98
$ 4,997,622
Banque Nationale de Paris
6,000 5.74%, 8/20/97
6,000,000
Canadian Imperial Bank of Commerce
10,000 5.70%, 8/14/97
10,000,000
Creditanstalt Bankverein
6,000 5.56%, 7/9/97
5,999,998
Landesbank Hessen-Thuringen
Girozentrale
2,000 6.01%, 7/18/97
2,000,095
2,000 5.94%, 6/19/98
1,998,891
Rabobank Nederland
5,000 5.98%, 3/20/98
4,999,314
Societe Generale
5,000 5.47%, 7/11/97
5,000,072
3,000 6.19%, 5/6/98
2,998,494
- ------------
43,994,486
- --------------------------------------------------
- ----------
Commercial Paper--40.6%
AC Acquisition Holding Co.
1,000 5.60%, 7/16/97
997,667
Aristar, Inc.
4,825 5.77%, 7/1/97
4,825,000
1,000 5.72%, 7/14/97
997,934
Barton Capital Corp.
3,000 5.65%, 8/15/97
2,978,812
Bear Stearns Cos., Inc.
1,000 5.57%, 7/7/97
999,072
2,000 5.58%, 7/8/97
1,997,830
1,000 5.55%, 7/23/97
996,608
Ciesco, L.P.
1,000 5.60%, 8/14/97
993,156
Coca-Cola Enterprises, Inc.
1,000 5.58%, 7/14/97
997,985
1,000 5.66%, 8/13/97
993,239
</TABLE>
- --------------------------------------------------
- ------------------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
as of June 30, 1997 MONEY MARKET
SERIES
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
Commercial Paper (cont'd.)
Commerzbank U.S. Finance, Inc.
$2,000 5.67%, 8/21/97
$ 1,983,935
CoreStates Capital Corp.
1,000(a) 5.6575%, 7/24/97
1,000,000
Corporate Receivables Corp.
1,000 5.625%, 8/20/97
992,188
1,000 5.655%, 8/22/97
991,832
Creditanstalt Finance, Inc.
3,000 5.55%, 7/3/97
2,999,075
CXC, Inc.
2,000(c) 5.65%, 8/5/97
1,989,014
2,000(c) 5.63%, 8/14/97
1,986,238
Falcon Asset Securitization Corp.
1,599 5.62%, 7/1/97
1,599,000
2,000 5.60%, 8/22/97
1,983,822
Finova Capital Corp.
2,000 5.60%, 7/9/97
1,997,511
1,000 5.71%, 7/15/97
997,779
First Chicago Financial Corp.
2,000 5.56%, 8/25/97
1,983,011
Ford Motor Credit Corp.
10,000 5.55%, 7/9/97
9,987,667
General Electric Capital Corp.
5,000 5.71%, 11/3/97
4,900,868
5,000 5.74%, 11/4/97
4,899,550
3,000 5.70%, 11/5/97
2,939,675
General Motors Acceptance Corp.
5,000 5.59%, 7/7/97
4,995,342
5,000 5.82%, 11/7/97
4,895,725
GTE Corp.
1,000 5.60%, 9/12/97
988,644
IBM Credit Corp.
4,000 5.54%, 8/19/97
3,969,838
John Deere Capital Corp.
1,000 5.54%, 7/9/97
998,769
Johnson Controls, Inc.
1,841 5.63%, 7/14/97
1,837,257
MCI Communications Corp.
$5,000 5.54%, 7/7/97
$ 4,995,383
Mitsubishi International Corp.
11,978 5.75%, 7/8/97
11,964,608
National Bank of Canada
5,000 5.41%, 7/7/97
4,995,492
Newell Co.
1,000 5.60%, 8/20/97
992,222
NYNEX Corp.
2,500 5.55%, 7/7/97
2,497,687
1,000 5.65%, 7/14/97
997,960
Smith Barney, Inc.
2,000 5.55%, 7/7/97
1,998,150
- ------------
106,135,545
- --------------------------------------------------
- ----------
Other Corporate Obligations--22.2%
American General Finance Corp.
2,000(a) 6.70%, 11/19/97
2,007,268
Avco Financial Services, Inc.
2,000(a) 5.7725%, 8/15/97
1,999,891
Capita Equipment Receivable Trust
1,133(a) 5.60%, 7/15/97
1,133,225
Ford Motor Credit Corp.
1,000 8.00%, 12/1/97
1,008,782
General Motors Acceptance Corp.
1,000(a) 6.06641%, 8/2/97
1,001,632
Goldman, Sachs Group L.P.
13,000(a) 5.69531%, 8/22/97
13,000,000
Merrill Lynch & Co., Inc.
2,000(a) 5.66141%, 7/1/97
1,999,853
5,000(a) 5.6475%, 7/24/97
4,999,202
Morgan Stanley Group, Inc.
1,000(a) 5.95313%, 7/15/97
1,000,000
10,000(a) 5.95313%, 8/15/97
10,000,000
Short Term Repackaged Asset Trust
1996-A
4,000(a) 5.6875%, 7/15/97
3,999,608
Short-Term Card Account Trust
1996-7
9,000(a) 5.7075%, 7/15/97
9,000,000
SMM Trust Notes 1997-Q
7,000(a) 5.6875%, 7/15/97
7,000,000
- ------------
58,149,461
</TABLE>
- --------------------------------------------------
- ------------------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
as of June 30, 1997 MONEY MARKET
SERIES
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
Time Deposit - Eurodollar--1.6%
First National Bank of Chicago
$4,214 6.25%, 7/1/97
$ 4,214,000
- --------------------------------------------------
- ----------
Total Investments--93.4%
(amortized cost $244,490,587(b))
244,490,587
Other assets in excess
of liabilities--6.6%
17,365,540
- ------------
Net Assets--100%
$261,856,127
- ------------
- ------------
</TABLE>
- ---------------
(a) The maturity date presented for these
instruments is 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.
(b) The federal income tax basis of portfolio
securities is the same as for
financial statement purposes.
(c) Indicates a security restricted as to resale.
The industry classification of portfolio holdings
shown as a percentage of net
assets as of June 30, 1997 was as follows:
<TABLE>
<S>
<C>
Banks
37.1
Security Brokers & Dealers
14.1
Business Credit Institutions
10.6
Asset-Backed Securities
7.1
Auto Rental and Leasing
5.7
Commodity Trade
4.6
Personal Credit Institutions
3.8
Telecommunications
3.6
Insurance
3.4
Bank Holding Companies - Domestic
1.1
Beverages
0.8
Regulating Controls
0.7
Pharmaceuticals
0.4
Metal Cans
0.4
- -----
93.4
Other assets in excess of liabilities
6.6
- -----
100.0%
- -----
- -----
</TABLE>
- --------------------------------------------------
- ------------------------------
-----
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
Statement of Assets and Liabilities MONEY MARKET
SERIES
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Assets
June 30, 1997
<S> <C> <C>
Investments, at amortized cost which approximates
market
value.............................................
. $244,490,587
Cash..............................................
..................................................
........ 170,251
Receivable for Series shares
sold..............................................
............................. 17,755,545
Interest
receivable........................................
.................................................
1,301,231
Prepaid expenses and other
assets............................................
............................... 8,909
- -------------
Total
assets............................................
.................................................
263,726,523
- -------------
Liabilities
Payable for Series shares
reacquired........................................
................................ 1,434,108
Dividends
payable...........................................
................................................
248,989
Due to
Manager...........................................
..................................................
. 105,054
Accrued expenses and other
liabilities.......................................
............................... 82,245
- -------------
Total
liabilities.......................................
.................................................
1,870,396
- -------------
Net
Assets............................................
..................................................
.... $261,856,127
- -------------
- -------------
Net assets were comprised of:
Common stock, $0.001 par value per
share.............................................
.................... $ 261,856
Paid-in capital in excess of
par...............................................
.......................... 261,594,271
- -------------
Net assets, June 30,
1997..............................................
.....................................
$261,856,127
- -------------
- -------------
Net asset value, offering price and redemption
price per share
($261,856,127 / 261,856,127 shares of common
stock issued and outstanding; two billion shares
authorized).......................................
..................................................
..... $1.00
</TABLE>
- --------------------------------------------------
- ------------------------------
-----
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
Statement of Operations
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income
June 30, 1997
<S>
<C>
Income
Interest and discount earned...............
$16,640,429
-
- ------------
Expenses
Management fee.............................
1,494,105
Transfer agent's fees and expenses.........
315,000
Custodian's fees and expenses..............
98,000
Reports to shareholders....................
75,000
Registration fees..........................
72,000
Audit fee..................................
25,000
Legal fees.................................
19,000
Directors' fees............................
13,500
Insurance expense..........................
11,000
Miscellaneous..............................
4,455
-
- ------------
Total expenses..........................
2,127,060
-
- ------------
Net investment income.........................
14,513,369
Realized Gain on Investments
Net realized gain on investment
transactions...............................
11,538
-
- ------------
Net Increase in Net Assets
Resulting from Operations.....................
$14,524,907
-
- ------------
-
- ------------
</TABLE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
Statement of Changes in Net Assets
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended
June 30,
in Net Assets 1997
1996
<S> <C>
<C>
Operations
Net investment income..... $ 14,513,369
$ 16,560,547
Net realized gain on
investment
transactions........... 11,538
20,697
---------------
- ---------------
Net increase in net assets
resulting from
operations............. 14,524,907
16,581,244
---------------
- ---------------
Dividends and distributions
to shareholders........... (14,524,907)
(16,581,244)
---------------
- ---------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed............. 2,755,575,802
1,787,300,706
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 11,898,218
13,336,273
Cost of shares
reacquired............. (2,768,786,005)
(1,896,666,283)
---------------
- ---------------
Net decrease in net assets
from Series share
transactions........... (1,311,985)
(96,029,304)
---------------
- ---------------
Total decrease............... (1,311,985)
(96,029,304)
Net Assets
Beginning of year............ 263,168,112
359,197,416
---------------
- ---------------
End of year.................. $ 261,856,127
$ 263,168,112
---------------
- ---------------
---------------
- ---------------
</TABLE>
- --------------------------------------------------
- ------------------------------
-----
See Notes to Financial Statements. 7
<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 Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has
responsibility for all
investment advisory services and supervises the
subadviser's performance of such
services. PIFM 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. PIFM
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 to PIFM is computed daily
and payable monthly at an
annual rate of .50% of the average daily net
assets of the Fund.
The Fund has a distribution agreement with
Prudential Securities Incorporated
('PSI'), where PSI serves the Fund without
compensation.
PIFM, 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 LLC ('PMFS'), a
wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the
fiscal year ended June 30, 1997,
the Series incurred fees of approximately $252,200
for the services of PMFS. As
of June 30, 1997, approximately $20,800 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>
PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
Financial Highlights MONEY MARKET
SERIES
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
- --------------------------------------------------
- ----------
1997 1996 1995 1994
1993
- -------- -------- -------- --------
- --------
<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................. 0.049 0.051
0.049 0.030 0.027
Dividends and
distributions..................................
(0.049) (0.051) (0.049) (0.030)
(0.027)
- -------- -------- -------- --------
- --------
Net asset value, end of
year................................. $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- --------
- --------
- -------- -------- -------- --------
- --------
TOTAL
RETURN(a):........................................
..... 4.96% 5.19% 5.05%
3.09% 2.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)................................ $261,856
$263,168 $359,197 $473,057 $176,258
Average net assets
(000).....................................
$298,821 $326,849 $416,899 $271,869
$213,948
Ratios to average net assets:
Expenses..........................................
......... 0.71% 0.73% 0.70%
0.72% 0.81%
Net investment
income......................................
4.86% 5.07% 4.93% 2.96%
2.73%
</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.
- --------------------------------------------------
- ------------------------------
-----
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
Change in Independent Accountants MONEY MARKET
SERIES
- --------------------------------------------------
- ------------------------------
Effective March 1, 1997, Deloitte & Touche LLP was
terminated as the Fund's
independent accountants. For the year ended June
30, 1993 through the year ended
June 30, 1996, Deloitte & Touche LLP expressed an
unqualified opinion on the
Fund's financial statements. There were no
disagreements between Fund management
and Deloitte & Touche LLP prior to their
termination. The Board of Directors
approved the termination of Deloitte & Touche LLP
and the appointment of Price
Waterhouse LLP as the Fund's independent
accountants.
- --------------------------------------------------
- ------------------------------
-----
10
<PAGE>
PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
Report of Independent Accountants MONEY MARKET
SERIES
- --------------------------------------------------
- ------------------------------
To the Shareholders and Board of Directors
Prudential Special Money Market Fund, Inc.
Money Market Series
In our opinion, the accompanying statement of
assets and liabilities, including
the portfolio of investments, and the related
statements of operations and of
changes in net assets and the financial highlights
present fairly, in all
material respects, the financial position of
Prudential Special Money Market
Fund, Inc.--Money Market Series (the 'Fund') at
June 30, 1997, and the results
of its operations, the changes in its net assets
and the financial highlights
for the year then ended, in conformity with
generally accepted accounting
principles. These financial statements and
financial highlights (hereafter
referred to as 'financial statements') are the
responsibility of the Fund's
management; our responsibility is to express an
opinion on these financial
statements based on our audit. We conducted our
audit of these financial
statements in accordance with generally accepted
auditing standards which
require that we plan and perform the audit to
obtain reasonable assurance about
whether the financial statements are free of
material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and
disclosures in the financial statements, assessing
the accounting principles
used and significant estimates made by management,
and evaluating the overall
financial statement presentation. We believe that
our audit, which included
confirmation of securities at June 30, 1997 by
correspondence with the
custodian, provides a reasonable basis for the
opinion expressed above. The
accompanying statement of changes in net assets
for the year ended June 30, 1996
and financial highlights for each of the four
years in the period ended June 30,
1996 were audited by other independent
accountants, whose opinion dated August
15, 1996 was unqualified.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
August 20, 1997
Important Notice for Shareholders PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
(Unaudited) MONEY MARKET
SERIES
- --------------------------------------------------
- ------------------------------
We are required by Massachusetts, Missouri and
Oregon to inform you that
dividends which have been derived from interest on
federal obligations are not
taxable to shareholders. Please be advised that
2.94% of the dividends paid by
the Fund qualify for each of these states' tax
exclusion.
- --------------------------------------------------
- ------------------------------
-----
11
<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 capital
gain is up to 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 rises
and falls -- 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 instrument 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.
Price/Earnings Ratio: The price of a share of
stock divided by the earnings
per share for a 12-month period.
Option: An agreement to sell something, such as
shares of stock, by a certain
time for a specified price. An option need not be
exercised.
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.
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. And if you
are married and not covered by a retirement plan
at work, you and your spouse
may each contribute $2,000 a year to an IRA for a
total of $4,000.
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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Stephen C. Eyre
Delayne Dedrick Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Mendel A. Melzer
Richard A. Redeker
Robin B. Smith
Stephen Stoneburn
Nancy H. Teeters
Officers
Richard A. Redeker, President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
The views expressed in this report and information
about the Fund's portfolio
holdings are for the period covered by this report
and are subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74430J103 MF141E
Cat.#444366W
