(ICON)
Prudential
Special
Money
Market
Fund, Inc.
Money Market Series
SEMI
ANNUAL
REPORT
Dec. 31, 1996
(LOGO)
<PAGE>
Prudential Special Money Market Fund, Inc.
Money Market Series
Performance At A Glance.
Short-term interest rates fluctuated frequently in 1996 as
investors reacted
to conflicting reports that the economy was alternately
strengthening or
weakening. By year-end, slower growth prevailed with
interest rates slightly
lower than they were a year earlier. Throughout the
reporting period your
Prudential Special Money Market Fund offered competitive
yields, maintained a
high credit quality and a stable $1 net asset value. On
December 31, 1996,
your Fund's 7-day current yield stood at 4.81% compared to
4.82% for the
average money market fund tracked by IBC Financial Data.
Fund Facts As of 12/31/96
<TABLE>
<CAPTION>
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. 4.81% $1 58 Days
$292.4
IBC Financial Data
Money Fund Avg.
(General Purpose*) 4.82 $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 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
270 funds in the
International Business Communications Financial Data's
(formerly IBC/Donoghue)
all general purpose money fund category as of December 31,
1996.
Money Market Yields Stabilized At Year End.
As of 12/31/96
(CHART)
Weekly 7-day current yields of Prudential Special Money
Market Fund and the
IBC Financial Data general purpose money fund average. Past
performance is not
indicative of future results.
How Investments Compared.
(As of 12/31/96)
(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
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
(PICTURE)
Portfolio
Manager's Report
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. There can
be no assurance
that the Fund will achieve its investment goal.
A Word
About Quality.
As of December 31, 1996, 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 "D-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.
- ----------------------------------------------------------
What A Ride.
The Federal Reserve adjusts the Federal Funds rate (what
banks charge each
other for overnight loans) with the goal of promoting
sustained and
non-inflationary growth. The central bank usually raises
the rate to
discourage inflation and lowers it to encourage economic
growth. Correctly
anticipating changes in the Federal Funds rate is one way
your Fund maintains
yield. Others are by seizing investment opportunities as
they occur and by
adjusting our weighted average maturity.
As it turned out, the Federal Funds rate stayed anchored at
5.25% from February
onward. Of course, no one knew earlier in the year that the
central bank would
leave rates unchanged. Starting in March, investors would
aggressively bid up
short-term interest rates whenever an economic report
suggested that the
economy was strengthening too quickly. They thought that the
central bank would
be forced to raise interest rates to head off inflation.
When the Federal
Reserve took no action, yields fell until the next round of
good economic news
started the cycle all over again.
Why didn't the Federal Reserve raise short-term interest
rates in 1996? In
retrospect, there was little need to. While the economy
picked up steam in the
second quarter, posting a strong 4.7% gain in real Gross
Domestic Product (GDP
is the total value of goods and services produced by the
economy and is a
widely used barometer for measuring growth), it was not
sustainable. By the
third quarter real GDP fell to 2.1%. More importantly,
inflationary pressures
remained benign.
Over the past six months, we invested in attractive, longer
term securities as
they became available in May and June, and this was
reflected in our slightly
longer weighted average maturity compared to the average
money market fund. We
were shorter than the average in late July (yes, we thought
the Federal
Reserve would tighten, too) before extending WAM to a more
neutral stance to
the average money fund for the remainder of the year.
<PAGE>
What Went Well.
- ----------------------------------------------
The Long & Short of It.
We actively invested new assets in longer term securities
(one year to 13
months) last May as the yield curve steepened. These yields
were attractive
through most of the summer and were high enough to
compensate investors should
the Federal Reserve raise short-term interest rates (which
did not happen).
During this time our WAM lengthened to as high as 66 days on
July 2, 1996
compared to 55 days for the average money market fund
tracked by IBC Financial
Data.
By early fall it was becoming apparent to investors that the
Federal Reserve
was not likely to raise rates in 1996 and the spread between
longer term and
shorter term securities narrowed. The increased interest
rate risk prompted us
to invest new assets in three- to four-month securities. The
yields here were
still attractive and, more importantly, we kept our ability
to respond if
rates went higher.
Yields Are Rising.
(CHART)
And Not So Well.
- ------------------------------------
Too Cautious.
In retrospect we should have purchased more longer term
securities. We thought
the Federal Reserve would raise interest rates at their
August meeting,
however, and we did not want to be caught flat-footed by
having too much of
our assets tied up in longer term securities.
Looking Ahead.
- ------------------------------------
The uncertainty which caused short-term rates to fluctuate
so much in 1996
continues. Economic signals remain mixed. Your Fund has
maintained a neutral
to slightly longer weighted average maturity based on a
stable monetary
policy outlook through the first quarter of 1997. If any
sustainable increase
in inflation is detected during this time, we believe the
Federal Reserve will
respond quickly by increasing rates modestly.
Weighted Average Maturity Is Comparable To The Average Fund.
(CHART)
1
<PAGE>
President's Letter February 3, 1997
- ------------------------------------------------------------
- --------
(PICTURE)
Dear Shareholder:
For many investors, 1996 was the second year of back-to-
back, double-digit
stock market returns. In late November, the Dow Jones
Industrial Average
passed 6500 -- only weeks after breaking the 6000 mark in
mid-October -- and
another record high was reached in January 1997. America's
economic expansion
is entering its sixth year and there seems little evidence
of an end to the
continued modest growth and low inflation we've enjoyed for
the last several
years.
This is good news. For most investors it's meant an increase
in their share
values for college funds, retirement nest eggs or other long-
term financial
goals. However, as you read your year-end account statements
and make plans for
1997, it's important to remember that there never is a
"sure thing" when it
comes to investment returns. Stock and bond markets go down
just as they go up.
(Did you notice the brief period of decline this past
summer?) No one likes to
see the value of their investments fall but such periods
remind us we must keep
our expectations realistic.
Regardless of the market's direction, a wise investor plans
for tomorrow's
needs today. Your Financial Advisor or Registered
Representative can help you:
- - Review your portfolio and suggest strategies for 1997,
such as diversifying
across different types of investments. Financial markets
seldom move in
lockstep. By investing in a mix of stock and bond funds
(foreign & domestic)
and money market funds you may be in a better position to
achieve your
long-term goals and to weather periods of uncertainty.
- - See why annuities have become popular retirement planning
tools. The choices
are broader than ever. Our new Discovery SelectSM Variable
Annuity offers you
many of the keys to successful retirement planning,
including a personalized
asset allocation program and a choice of 21 variable- or
fixed-rate
investment options offering a broad array of investment
objectives and
styles.
- - Explain new retirement savings developments. For example,
Congress has
expanded the contribution limit on spousal IRAs. And don't
forget, it's not
too late for you to make a contribution to your IRA or
open one for 1996. The
IRS deadline is April 15, 1997, but it's best to act
sooner.
Why not contact your Financial Advisor or Registered
Representative today? If
you are interested in Discovery SelectSM call for a
prospectus, which contains
more complete information. Read it carefully before you
invest.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
P.S. Your 1997 Prudential IRA contribution may qualify you
for a waiver of the
annual custodial fee. Ask your financial representative for
details.
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL SPECIAL
MONEY MARKET FUND, INC.
December 31, 1996 (Unaudited) MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
---------------------------------------------------------
- ---
Bank Notes--5.0%
Abbey National Treasury Services,
PLC
$3,000 5.50%, 11/26/97 $
2,997,269
American Express Centurion Bank
2,000(a) 5.57547%, 1/15/97
1,999,886
2,000(a) 5.595%, 1/21/97
1,999,918
999,893
Bank of America, Illinois
1,000 5.80%, 5/13/97
2,999,508
FCC National Bank
3,000 5.77%, 4/15/97
999,439
First Bank National Association
1,000(a) 5.51719%, 1/15/97
525,141
Nationsbank, Texas
525(a) 5.6055%, 3/19/97
999,895
PNC Bank N.A.
1,000(a) 5.56453%, 1/21/97
1,000,553
Wachovia Bank, N.A.
1,000 6.05%, 4/14/97
---------
- ---
14,521,502
- ------------------------------------------------------------
Certificates Of Deposit - Eurodollar--3.1%
Abbey National Treasury Services,
PLC
7,000 5.41%, 1/30/97
7,000,136
1,000 5.36%, 2/12/97
999,943
999,956
Westpac Banking Corp.
1,000 5.38%, 2/7/97
---------
- ---
9,000,035
- ------------------------------------------------------------
Certificates Of Deposit - Yankee--20.2%
Bank of Nova Scotia
6,000 5.39%, 3/4/97
6,000,000
Banque National de Paris
2,000 5.41%, 1/15/97
1,999,992
5,000 5.38%, 2/18/97
5,000,000
8,000 5.58%, 4/2/97
7,997,819
Bayerishe Landesbank Girozentrale
14,000 5.37%, 2/3/97
13,999,715
Bayerishe Hypotheken Und Wechsel
Bank
2,000 5.39%, 2/28/97
2,000,000
1,000 5.39%, 3/3/97
999,997
$
2,000,000
Canadian Imperial Bank Commerce
$2,000 5.41%, 1/31/97
6,000 5.39%, 2/4/97
6,000,000
5,999,994
National Westminster Bank, PLC
6,000 5.39%, 2/14/97
7,000,000
Societe Generale
7,000 5.37%, 2/20/97
---------
- ---
58,997,517
- ------------------------------------------------------------
Commercial Paper--51.0%
991,461
ABN-Amro N.A. Finance, Inc.
1,000 5.30%, 2/28/97
2,967,480
Aetna Services, Inc.
3,000 5.42%, 3/14/97
989,617
American Brands, Inc.
1,000 5.34%, 3/12/97
2,973,008
American Express Credit Corp.
3,000 5.31%, 3/3/97
989,180
Aristar, Inc.
1,000 5.41%, 3/14/97
2,987,143
Associates Corp. of North America
3,000 5.32%, 1/30/97
1,449,977
Bank Austria Finance, Inc.
1,453 5.35%, 1/15/97
Barton Capital Corp.
2,000 5.40%, 2/21/97
1,984,700
3,337 5.40%, 2/25/97
3,309,470
2,000 5.35%, 2/27/97
1,983,058
995,723
BHF Finance, Inc.
1,000 5.31%, 1/30/97
Bradford & Bingley Building Society
445 5.35%, 1/15/97
444,074
1,000 5.31%, 2/21/97
992,478
Caterpillar Financial Services
Corp.
1,000 5.35%, 5/16/97
979,938
2,000 5.35%, 6/16/97
1,950,661
Cheltenham & Gloucester, PLC
7,000 5.325%, 2/24/97
6,944,087
CIT Group Holdings, Inc.
2,000 5.35%, 3/31/97
1,973,547
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
3 -----
<PAGE>
Portfolio of Investments as of PRUDENTIAL SPECIAL
MONEY MARKET FUND, INC.
December 31, 1996 (Unaudited) MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
---------------------------------------------------------
- ---
Commercial Paper (cont'd.)
$
1,990,210
Coca-Cola Enterprises, Inc.
$2,000 5.34%, 2/3/97
Corporate Receivables Corp.
1,000 5.35%, 2/13/97
993,610
3,000 5.40%, 2/20/97
2,977,500
4,969,250
Creditanstalt Finance, Inc.
5,000 5.40%, 2/11/97
1,999,611
CXC, Inc.
2,000 7.00%, 1/2/97
4,962,986
Dakota Certified Program of
Standard Credit Card Master
Trust I
5,000 5.33%, 2/20/97
3,487,858
Delaware Funding Corp.
3,500 5.43%, 1/24/97
Enterprise Funding Corp.
3,045 5.33%, 2/18/97
3,023,360
1,813 5.41%, 2/26/97
1,797,743
1,000 5.34%, 5/27/97
978,343
9,909,347
Ford Motor Credit Corp.
10,000 5.35%, 3/3/97
General Electric Capital Corp.
5,000 5.44%, 2/25/97
4,958,444
2,000 5.32%, 3/10/97
1,979,902
General Motors Acceptance Corp.
3,200 5.39%, 3/31/97
3,157,359
6,000 5.50%, 4/7/97
5,912,000
General Signal Corp.
1,700 5.85%, 1/22/97
1,694,199
3,000 5.80%, 2/7/97
2,982,117
GTE Corp.
1,000 5.50%, 1/14/97
998,014
1,000 5.50%, 1/21/97
996,944
Heller Financial Services, Inc.
1,000 5.57%, 1/13/97
998,143
3,000 5.80%, 1/21/97
2,990,333
ITT Hartford Group, Inc.
1,000 5.50%, 1/21/97
996,944
1,000 5.32%, 2/18/97
992,907
1,993,113
Johnson Controls, Inc.
2,000 5.39%, 1/24/97
$
13,997,278
Lowes Companies, Inc.
$14,000 7.00%, 1/2/97
Merrill Lynch & Co., Inc.
3,000 5.32%, 1/21/97
2,991,133
1,000 5.45%, 1/22/97
996,821
1,000 5.32%, 1/24/97
996,601
6,000 5.33%, 1/24/97
5,979,568
1,000 5.35%, 1/29/97
995,839
Mitsubishi International Corp.
1,000 5.45%, 1/15/97
997,881
1,000 5.35%, 1/24/97
996,582
1,000 5.35%, 3/4/97
990,786
1,985,545
Nationwide Building Society
2,000 5.31%, 2/19/97
993,538
Nynex Corp.
1,000 5.41%, 2/13/97
Rank Xerox Capital, PLC
1,957 5.65%, 1/21/97
1,950,857
7,861 5.65%, 1/23/97
7,833,858
1,982,982
Sears Roebuck Acceptance Corp.
2,000 5.47%, 2/26/97
994,450
Triple A One Funding Corp.
1,000 5.40%, 2/7/97
1,887,295
Union Pacific Resources Group
1,895 5.63%, 1/27/97
---------
- ---
149,216,853
- ------------------------------------------------------------
Other Corporate Obligations--20.6%
1,003,023
American Express Credit Corp.
1,000 7.75%, 3/1/97
2,016,598
American General Finance Corp.
2,000 6.70%, 11/19/97
6,999,367
Beneficial Corp.
7,000(a) 5.46688%, 3/10/97
4,634,115
Capita Equipment Receivable Trust
4,634 5.60%, 10/15/97
1,019,171
Ford Motor Credit Corp.
1,000 8.00%, 12/1/97
1,004,191
General Electric Capital Corp.
1,000 7.18%, 5/15/97
</TABLE>
- ------------------------------------------------------------
- --------------------
- ----- 4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of PRUDENTIAL SPECIAL
MONEY MARKET FUND, INC.
December 31, 1996 (Unaudited) MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
--------------------------------------------------------
- ----
Other Corporate Obligations (cont'd.)
General Motors Acceptance Corp.
$1,000(a) 5.71875%, 1/13/97 $
1,000,428
1,000(a) 5.52%, 2/21/97
999,991
1,300 7.75%, 4/15/97
1,307,265
2,300 8.375%, 5/1/97
2,316,705
1,140 7.85%, 5/6/97
1,146,513
13,000,000
Goldman Sachs Group L.P.
13,000(a) 5.625%, 2/19/97
1,999,563
Merrill Lynch & Co., Inc.
2,000(a) 5.5325%, 1/1/97
Morgan Stanley Group, Inc.
1,000(a) 5.6875%, 1/15/97
1,000,000
10,000(a) 5.625%, 2/18/97
10,000,000
1,008,363
NationsBank Auto Owner Trust
1,008 5.776%, 8/15/97
3,999,184
Repackaged Asset Trust
4,000(a) 6.00586%, 1/15/97
5,999,989
SMM Trust 1995-Q
6,000(a) 5.60547%, 1/8/97
---------
- ---
60,454,466
- ------------------------------------------------------------
U.S. Government Agency & Instrumentality Obligations -
Non-Discount--1.7%
5,005,815
United States Treasury Notes
5,000 6.125%, 5/31/97
- ------------------------------------------------------------
Total Investments--101.6%
(amortized cost $297,196,188(b))
297,196,188
Liabilities in excess of
other assets--(1.6%)
(4,767,799)
---------
- ---
Net Assets--100%
$292,428,389
---------
- ---
---------
- ---
(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.
The industry classification of portfolio holdings shown as a
percentage of net
assets as of December 31, 1996 was as follows:
</TABLE>
<TABLE>
<S> <C>
Banks
36.7%
Asset Backed Securities 13.0
Security Brokers & Dealers 13.0
Business Credit Institutions 11.5
Misc. Electrical, Equipment & Supplies 9.8
Auto Rental and Leasing 5.4
Personal Credit Institutions 4.4
Insurance 1.7
U.S. Government Securities 1.7
Telecommunications 1.0
Commodity Trade 1.0
Regulating Controls 0.7
Beverages 0.7
Petroleum Refining 0.7
Tobacco 0.3
-----
101.6
Liabilities in excess of other assets
(1.6)
-----
100.0%
-----
-----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
5 -----
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL SPECIAL
MONEY MARKET FUND, INC.
(Unaudited) MONEY MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
December 31, 1996
<S>
<C>
Investments, at amortized cost which approximates market
value.......................................... $
297,196,188
Cash........................................................
............................................
244,796
Receivable for Series shares
sold........................................................
............... 3,449,177
Interest
receivable..................................................
................................... 1,316,963
Prepaid expenses and other
assets......................................................
................. 8,123
- -----------------
Total
assets......................................................
................................... 302,215,247
- -----------------
Liabilities
Payable for Series shares
reacquired..................................................
.................. 9,515,214
Due to
Manager.....................................................
..................................... 125,085
Accrued expenses and other
liabilities.................................................
................. 108,821
Dividends
payable.....................................................
.................................. 37,738
- -----------------
Total
liabilities.................................................
................................... 9,786,858
- -----------------
Net
Assets......................................................
........................................ $
292,428,389
- -----------------
- -----------------
Net assets were comprised of:
Common stock, $0.001 par value per
share.......................................................
...... $ 292,428
Paid-in capital in excess of
par.........................................................
............ 292,135,961
- -----------------
Net assets, December 31,
1996........................................................
................... $ 292,428,389
- -----------------
- -----------------
Net asset value, offering price and redemption price per
share
($292,428,389 / 292,428,389 shares of common stock issued
and outstanding; two billion shares
authorized).................................................
.........................................
$1.00
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
- ----- 6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income December 31,
1996
<S> <C>
Income
Interest and discount earned.......... $ 8,504,414
----------------
- -
Expenses
Management fee........................ 771,263
Transfer agent's fees and expenses.... 194,000
Custodian's fees and expenses......... 58,000
Reports to shareholders............... 30,000
Registration fees..................... 23,000
Audit fee............................. 20,000
Directors' fees....................... 11,000
Legal fees............................ 8,000
Insurance expense..................... 5,000
Miscellaneous......................... 792
----------------
- -
Total expenses..................... 1,121,055
----------------
- -
Net investment income.................... 7,383,359
Realized Gain on Investments
Net realized gain on investment
transactions.......................... 2,532
----------------
- -
Net Increase in Net Assets
Resulting from Operations................ $ 7,385,891
----------------
- -
----------------
- -
</TABLE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Increase (Decrease) December 31, Year
Ended
in Net Assets 1996 June 30,
1996
<S> <C> <C>
Operations
Net investment income..... $ 7,383,359 $
16,560,547
Net realized gain on
investment
transactions........... 2,532
20,697
--------------- ----------
- -----
Net increase in net assets
resulting from
operations............. 7,385,891
16,581,244
--------------- ----------
- -----
Dividends and distributions
to shareholders........... (7,385,891)
(16,581,244)
--------------- ----------
- -----
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed............. 1,312,873,543
1,787,300,706
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 6,216,324
13,336,273
Cost of shares
reacquired............. (1,289,829,590)
(1,896,666,283)
--------------- ----------
- -----
Net increase (decrease) in
net assets from Series
share transactions..... 29,260,277
(96,029,304)
--------------- ----------
- -----
Total increase (decrease).... 29,260,277
(96,029,304)
Net Assets
Beginning of period.......... 263,168,112
359,197,416
--------------- ----------
- -----
End of period................ $ 292,428,389 $
263,168,112
--------------- ----------
- -----
--------------- ----------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
7 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL SPECIAL
MONEY MARKET FUND, INC.
(Unaudited) 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 LLC
(``PMF''). Pursuant to this agreement, PMF has
responsibility for all investment
advisory services and supervises the subadviser's
performance of such services.
PMF has entered into a subadvisory agreement with The
Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory
services in connection
with the management of the Fund. PMF pays for the cost of
the subadviser's
services, the compensation of officers and employees of the
Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund
bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable
monthly at an annual
rate of .50% of the average daily net assets of the Fund.
The Fund has a distribution agreement with Prudential
Securities Incorporated.
(``PSI'') PSI serves the Fund without compensation.
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 LLC (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the six
months ended December
31, 1996, the Series incurred fees of approximately $125,000
for the services of
PMFS. As of December 31, 1996, approximately $21,000 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>
Notes to Financial Statements PRUDENTIAL SPECIAL
MONEY MARKET FUND, INC.
(Unaudited) MONEY MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended June 30,
December 31, -------------------------------------------
- ----
1996 1996 1995 1994 1993
<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/losses.......... 0.024 0.051
0.049 0.030 0.027
Dividends and
distributions.................................. (0.024)
(0.051) (0.049) (0.030) (0.027)
- ------------ -------- -------- -------- ----
- ----
Net asset value, end of
period............................... $ 1.00 $
1.00 $ 1.00 $ 1.00 $ 1.00
- ------------ -------- -------- -------- ----
- ----
- ------------ -------- -------- -------- ----
- ----
TOTAL
RETURN(a):.............................................
2.43% 5.19% 5.05% 3.09% 2.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $292,428
$263,168 $359,197 $473,057 $176,258
Average net assets
(000)..................................... $305,990
$326,849 $416,899 $271,869 $213,948
Ratios to average net assets:
Expenses...................................................
0.73%(b) 0.73% 0.70% 0.72% 0.81%
Net investment
income...................................... 4.79%(b)
5.07% 4.93% 2.96% 2.73%
<CAPTION>
1992
<S>
<C>
- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 1.00
Net investment income and net realized
gains/losses.......... 0.044
Dividends and
distributions.................................. (0.044)
- --------
Net asset value, end of
period............................... $ 1.00
- --------
- --------
TOTAL
RETURN(a):.............................................
4.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $183,093
Average net assets
(000)..................................... $249,223
Ratios to average net assets:
Expenses...................................................
0.83%
Net investment
income...................................... 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.
(b) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
9 -----
<PAGE>
Supplemental Proxy Information PRUDENTIAL SPECIAL
MONEY MARKET FUND, INC.
MONEY MARKET SERIES
- ------------------------------------------------------------
- --------------------
The Annual Meeting of Shareholders of the Prudential
Special Money Market
Fund, Inc. was held on October 30, 1996 at the offices of
Prudential Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect the following eleven Trustees:
- 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
(2b) To amend the Fund's investment restrictions to
eliminate the restriction regarding the
purchase of securities of unseasoned issuers.
(2c) To amend the Fund's investment restrictions to
allow loans of portfolio securities up to 10%
of the Fund's total assets.
(3) To ratify the selection of Deloitte & Touche
LLP as independent accountants for the fiscal
year ending June 30, 1997.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Auditor Votes for
Votes against Votes withheld Abstentions
---------------------- ------------
- -------------- --------------- ------------
<S> <C> <C>
<C> <C> <C>
(1) Edward D. Beach 142,587,557
- -- 10,291,108 --
Stephen C. Eyre 142,487,419
- -- 10,391,246 --
Delayne Dedrick Gold 142,567,267
- -- 10,311,398 --
Robert F. Gunia 142,740,576
- -- 10,138,089 --
Don G. Hoff 142,825,268
- -- 10,053,397 --
Robert E. LaBlanc 142,870,333
- -- 10,008,332 --
Mendel A. Melzer 142,816,671
- -- 10,061,994 --
Richard A. Redecker 142,675,829
- -- 10,202,836 --
Robin B. Smith 142,647,309
- -- 10,231,356 --
Stephen Stoneburn 142,852,539
- -- 10,026,126 --
Nancy H. Teeters 142,663,108
- -- 10,215,557 --
(2b) Investment
restrictions 103,661,586
12,429,536 10,440,144 --
(2b) Investment
restrictions 103,912,513
11,860,933 10,757,820 --
(3) Deloitte & Touche LLP 140,963,917
2,948,982 -- 8,911,779
</TABLE>
- ------------------------------------------------------------
- --------------------
10 -----
<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.
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>
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
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Ellyn C. Vogin, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
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 Auditors
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 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.
The accompanying financial statements as of December 31,
1996 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>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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