(ICON)
Prudential
Special
Money
Market
Fund, Inc.
Money Market Series
ANNUAL
REPORT
June 30, 1998
(LOGO)
<PAGE>
Prudential Special Money Market Fund, Inc.
Money Market Series
Performance At A Glance.
The first six months of 1998 saw yields on short-term securities fluctuate as
investors attempted to anticipate Federal Reserve Board intentions. This
created several buying opportunities that your Prudential Special Money Market
Fund used to its advantage. Your Fund offered attractive yields, maintained a
high credit quality, and a stable $1 net asset value. On June 30, 1998, your
Fund's seven-day current yield stood at 4.98% compared to 4.94% for the average
money market fund tracked by IBC Financial Data.
Fund Facts As of 6/30/98
<TABLE>
<CAPTION>
7-Day Net Asset Weighted Avg. Net Assets
Current Yld. Value (NAV) Mat. (WAM) (Millions)
<S> <C> <C> <C> <C>
Special Money
Market Fund, Inc. 4.98% $1 75 Days $214
IBC Financial Data
Money Fund Avg.
(General Purpose**) 4.94% $1 63 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.
**IBC Financial Data reports a seven-day current yield, NAV, and WAM on
Tuesdays. This is the data of all funds in the International Business
Communication (IBC) Financial Data Money Fund Average (General Purpose--Taxable
1st & 2nd Tier) category as of June 30, 1998.
Money Fund Yields Peaked, Then Stabilized At Lower Levels.
- -- Prudential Special Money Market Fund
// IBC Financial Data Money Fund Avg. (General Purpose - Taxable 1st &
2nd Tier)
(GRAPH)
How Investments Compared.
(As of 6/30/98)
(GRAPH)
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.
U.S. Taxable Money 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 Browne, 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 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, 1998, substantially all of the portfolio's investments were
rated in the highest category by at least two major, independent rating
agencies or, if not rated, were deemed to be of equivalent credit quality by
our credit research staff. Investments deemed to be of equivalent credit
quality are reported to the Board of Directors.
Strategy Session.
Managing Expectations.
Our strategy over the past year was to take advantage of attractive buying
opportunities when they occurred.
For example, overdone swings in investor sentiment can provide buying
opportunities; the key is to be properly positioned to take advantage of
them -- and we were. Late in the fourth quarter of 1997, we made term
purchases that gave us the flexibility to "sit out" the January market rally
and avoid purchases of lower-yielding securities. In January, investors
believed that the deepening Asian economic crisis would slow the U.S. economy.
Such a development might force the central bank to ease monetary policy to
stimulate growth. However, the continued strength of the American economy,
plus some "balanced" comments by Federal Reserve Board Chairman Alan Greenspan
in late February, abruptly dispelled the notion that the Fed would lower short-
term interest rates anytime soon.
As a result, investor sentiment changed and money market rates moved higher.
We were properly positioned in February to take advantage of shifting investor
sentiment by purchasing one-year term securities at attractive prices and
higher yields.
For much of the second quarter, large U.S. Treasury paydowns on debt kept a
lid on short-term rates. However, as the reporting period ended, a number of
technical market factors converged to create an opportunity to buy securities
at what we considered to be "fire sale" prices. We used the occasion to
reposition the Fund's weighted average maturity (WAM) to be longer than the
competitive average.
<PAGE>
What Went Well.
Riding Out The Wave.
In January, some investors believed the Asian crisis would hurt U.S. economic
growth enough to prompt a reduction in the federal funds rate, which is the
rate that banks charge each other for overnight loans. Lowering this key rate
would help revitalize the domestic economy. However, investors overreacted to
the possibility of a federal funds rate cut by driving yields on short-term
debt sharply lower in January.
Fortunately for us, we had lengthened the Fund's WAM in December 1997 by
purchasing higher-yielding securities. This permitted us to "ride out the
wave." In other words, we were able to avoid having to purchase lower-
yielding securities in January to the extent of our competitors. Instead, we
waited until after Federal Reserve Chairman Greenspan's remarks in late
February to buy higher yielding, one-year term securities that extended the
WAM until it was slightly longer than the average comparable fund.
And Not So Well.
Will Rates Ever Go Up?
It's been more than a year since the Federal Reserve last raised the key
federal funds rate to 5.50% from 5.25% on March 25, 1997. While central
bankers apparently have a bias to raise rates, the economic conditions --
namely inflationary pressures -- have not been there to justify an increase.
Unfortunately, a prolonged period of stable short-term interest rates will
limit attractive investment opportunities for your Fund.
Looking Ahead.
Despite the strong domestic economy, the absence of inflationary pressures,
combined with the economic slowdown in Asia, should keep the Federal Reserve
from moving on interest rates for the next several months, in our opinion.
Still, Federal Reserve Chairman Greenspan recently warned that higher
inflation remains more of a risk than recession in the U.S.
We will manage the Fund to maintain an attractive return while continuing to
look for situations of overdone market sentiment that create buying
opportunities and lock in higher yields for you.
Weighted Average Maturity Compared
To The Average Fund.
(GRAPH)
- -------------------------------------------------------------------------------
1
<PAGE>
President's Letter August 4, 1998
Managing Expectations.
(PHOTO)
Dear Shareholder:
For nearly eight years we've enjoyed above-average, double-digit returns from
stocks--a bull market of unprecedented duration. As a result, many of us have
grown accustomed to seeing the Dow Jones Industrial Average, the S&P 500 and
other market indexes set new records. That's why the fluctuations normally
seen in financial markets may take investors by surprise.
Although the media has given ample coverage to the factors that have caused
concern in 1998, we'd like to remind you that there is also good news to
report: the US economy is healthy and continues to grow. Inflation remains
subdued and employment is strong.
Even with a sound economy, it isn't easy to maintain your investment
discipline when the market is fluctuating. Here are some thoughts that may
help:
- - Manage Your Expectations. Experienced mutual fund investors understand that
financial markets rise and fall. Over time, however, stocks and bonds have
produced attractive returns that have kept ahead of inflation.
- - Don't Invest Emotionally. If you have long-term (several years or longer)
investment goals, it may be counter-productive to sell an investment in
reaction to short-term market fluctuation. Over the course of several years,
it's not unusual for stocks and bonds to experience several periods of
market uncertainty.
- - Diversification Lessens Risk. Market sectors seldom move in tandem. A well-
diversified portfolio that includes stock, bond, and money market mutual
funds can lessen the effects of market volatility over time.
- - We're On Your Side. Your Prudential professional can help you understand
what's happening in the markets. He or she can assist you in making informed
decisions based upon a thorough knowledge of your financial needs and long-
term goals. Call your Prudential professional 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, 1998 MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Bank Notes--6.1%
American Express Centurion Bank
$7,000(a) 5.7063%, 7/21/98 $ 7,000,967
Key Bank N.A.
2,000 5.52%, 9/18/98 1,999,174
1,000(a) 5.6540%, 7/13/98 1,000,301
U.S. Bank, N.A.
3,000(a) 5.5523%, 7/15/98 2,999,369
------------
12,999,811
- ------------------------------------------------------------
Certificates Of Deposit - Domestic--0.9%
Morgan Guaranty Trust Co.
2,000 5.87%, 8/6/98 1,999,943
------------
- ------------------------------------------------------------
Certificates Of Deposit - Eurodollar--3.3%
Abbey National Treasury Services, PLC
5,000 5.58%, 9/18/98 4,999,882
Westdeutsche Landesbank Girozentrale
2,000 5.82%, 8/3/98 1,999,860
------------
6,999,742
- ------------------------------------------------------------
Certificates Of Deposit - Yankee--23.8%
Barclays Bank, PLC
6,000(a) 5.5213%, 7/2/98 5,995,635
Bayerische Landesbank
Girozentrale
5,000(a) 5.5525%, 7/30/98 4,996,011
Bayerishe Hypotheken Und
Wechsel Bank
5,000 5.94%, 10/22/98 4,999,112
Canadian Imperial Bank of
Commerce
4,000 5.55%, 2/10/99 3,998,823
Credit Agricole Indosuez
3,000 5.87%, 8/10/98 2,999,843
4,000 5.66%, 3/23/99 3,998,608
2,000 5.75%, 4/16/99 2,000,538
Deutsche Bank
5,000 5.57%, 2/26/99 4,998,423
5,000 5.63%, 2/26/99 4,997,668
Dresdner Bank, A.G.
$3,000 5.76%, 7/31/98 $ 2,999,659
Societe Generale
1,000(a) 5.775%, 9/11/98 999,915
Svenska Handelsbanken, Inc.
2,000 5.60%, 9/24/98 2,000,023
Swiss Bank Corp.
6,000 5.74%, 6/11/99 5,996,742
------------
50,981,000
- ------------------------------------------------------------
Commercial Paper--39.6%
Associates Corp. of North
America,
600 5.49%, 1/28/99 599,537
American General Finance Corp.
2,000 5.53%, 9/18/98 1,975,730
Barton Capital Corp.
607 5.60%, 7/20/98 605,206
BBL North America, Inc.
3,000 5.52%, 8/19/98 2,979,760
4,700 5.53%, 8/25/98 4,660,292
Bradford & Bingley Building
Society
5,000 5.52%, 9/24/98 4,934,833
CIT Group Holdings, Inc.
2,000 5.57%, 8/27/98 1,982,362
Coca-Cola Enterprises, Inc.
5,000 5.53%, 9/24/98 4,934,715
Colonial Pipeline Co.
2,000 5.57%, 8/27/98 1,982,362
Commercial Credit Co.
1,010 5.52%, 8/19/98 1,002,412
Commonwealth Bank of Australia
Series A
584 6.35%, 7/1/98 584,000
Countrywide Home Loan, Inc.
1,000 5.60%, 7/28/98 995,800
1,000 5.60%, 7/31/98 995,333
du Pont (E. I.) De Nemours
& Co., Inc.
2,000 5.60%, 8/13/98 1,986,622
Eastman Kodak Co.
5,993 5.80%, 7/16/98 5,978,517
2,093 5.60%, 8/27/98 2,074,442
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
as of June 30, 1998 MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
First Data Corp.
$3,000 5.52%, 9/15/98 $ 2,965,040
General Electric Capital Corp.
5,000 5.52%, 8/19/98 4,962,433
2,000 5.53%, 9/11/98 1,977,880
1,400 8.125%, 2/1/99 1,420,058
Household Finance Corp.
1,000 6.00%, 7/7/98 998,833
ING America Insurance
Holdings, Inc.
5,000 5.54%, 8/12/98 4,967,684
Monte Rosa Capital Corp.
3,000 5.60%, 8/25/98 2,974,333
Nordbanken North America, Inc.
2,000 5.52%, 8/4/98 1,989,573
Norwest Corp.
3,000 5.57%, 7/23/98 2,989,788
Salomon Smith Barney Holdings,
Inc.
5,000 5.55%, 8/24/98 4,958,375
Svenska Handelsbanken, Inc.
2,000 5.53%, 8/10/98 1,987,711
Thunder Bay Funding, Inc.
2,000 5.70%, 7/9/98 1,997,467
Windmill Funding Corp.
6,700 5.59%, 8/7/98 6,661,507
Wood Street Funding Corp.
6,000 6.00%, 7/7/98 5,994,000
------------
85,116,605
- ------------------------------------------------------------
Other Corporate Obligations--27.8%
Asset Backed Securities Trust
2,851(a) 5.6563%, 7/22/98 2,850,639
CoreStates Capital Corp.
1,000(a) 5.6123%, 7/1/98 1,000,000
General Motors Acceptance Corp.
2,000(a) 5.6988%, 8/3/98 1,999,656
6,000(a) 5.5675%, 9/21/98 5,998,475
Goldman, Sachs Group L.P.
13,000(a) 5.8125%, 9/17/98
(cost $13,000,000; date
purchased 6/25/97)(c) 13,000,000
International Lease Finance Corp.
100 7.30%, 9/21/98 $ 100,257
Liquid Asset Backed Securities
Trust
1,706(a) 5.6563%, 7/27/98 1,705,875
Merrill Lynch & Co., Inc.
1,000(a) 5.6163%, 7/8/98 999,973
Morgan Stanley, Dean Witter,
Discover & Co.
1,000(a) 5.8516%, 7/15/98 1,000,000
10,000(a) 5.85938%, 8/14/98 10,000,000
Restructured Asset Securities
Enhanced Return
7,000(a) 5.6463%, 7/28/98 7,000,000
1,000(a) 5.6875%, 7/31/98
(cost $1,000,000; date
purchased 4/2/98)(c) 1,000,000
Short Term Repackaged Asset Trust
3,000(a) 5.6783%, 7/15/98
(cost $3,000,000; date
purchased 12/11/97)(c) 3,000,000
Strategic Money Market Trust
9,000(a) 1997-A 5.6875%, 9/23/98 9,000,000
1,000(a) 1997-X 5.6563%, 7/13/98 1,000,000
------------
59,654,875
- ------------------------------------------------------------
Total Investments--101.5%
(amortized cost $217,751,976(b)) 217,751,976
Liabilities in excess of other
assets--(1.5%) (3,272,082)
------------
Net Assets--100% $214,479,894
------------
------------
</TABLE>
- ---------------
(a) Variable rate instrument. 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 cost basis for federal income tax purposes is the same as that used for
financial statement purposes.
(c) Private placement restricted as to resale and does not have a readily
available market; the aggregate cost of such securities is $17,000,000. The
aggregate value ($17,000,000) is approximately 7.9% of net assets.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
Portfolio of Investments as of June 30, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
The industry classification of portfolio holdings shown as a percentage of net
assets as of June 30, 1998 was as follows:
Banks 54.7%
Security Brokers & Dealers 15.9
Asset-Backed Securities 9.3
Finance Lessors 4.7
Business Credit Institutions 4.1
Personal Credit Institutions 3.7
Photographic Equipment 3.1
Beverages 2.3
Electric, Industrial 1.9
Mortgage Bankers 0.9
Federal Credit Agencies 0.9
-----
101.5
Liabilities in excess of other assets (1.5)
-----
100%
-----
-----
- --------------------------------------------------------------------------------
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, 1998
-------------
<S> <C>
Investments, at amortized cost which approximates market value.............................................. $217,751,976
Cash........................................................................................................ 13,503
Receivable for Series shares sold........................................................................... 3,162,583
Interest receivable......................................................................................... 1,429,383
Prepaid expenses............................................................................................ 4,547
-------------
Total assets............................................................................................. 222,361,992
-------------
Liabilities
Payable for Series shares reacquired........................................................................ 7,382,551
Dividends payable........................................................................................... 220,520
Accrued expenses............................................................................................ 178,052
Management fee payable...................................................................................... 100,975
-------------
Total liabilities........................................................................................ 7,882,098
-------------
Net Assets.................................................................................................. $214,479,894
-------------
-------------
Net assets were comprised of:
Common stock, $0.001 par value per share................................................................. $ 214,480
Paid-in capital in excess of par......................................................................... 214,265,414
-------------
Net assets, June 30, 1998................................................................................... $214,479,894
-------------
-------------
Net asset value, offering price and redemption price per share
($214,479,894 / 214,479,894 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, 1998
<S> <C>
Income
Interest and discount earned............... $13,871,028
-------------
Expenses
Management fee............................. 1,195,235
Transfer agent's fees and expenses......... 294,000
Reports to shareholders.................... 94,000
Custodian's fees and expenses.............. 80,000
Registration fees.......................... 65,000
Audit fee.................................. 25,000
Legal fees................................. 20,000
Directors' fees............................ 12,000
Insurance expense.......................... 6,000
Miscellaneous.............................. 5,090
-------------
Total expenses.......................... 1,796,325
-------------
Net investment income......................... 12,074,703
Realized Gain on Investments
Net realized gain on investment
transactions............................... 2,146
-------------
Net Increase in Net Assets
Resulting from Operations..................... $12,076,849
-------------
-------------
</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 1998 1997
<S> <C> <C>
Operations
Net investment income..... $ 12,074,703 $ 14,513,369
Net realized gain on
investment
transactions........... 2,146 11,538
--------------- ---------------
Net increase in net assets
resulting from
operations............. 12,076,849 14,524,907
--------------- ---------------
Dividends and distributions
to shareholders........... (12,076,849) (14,524,907)
--------------- ---------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed............. 1,699,631,087 2,755,575,802
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 9,918,808 11,898,218
Cost of shares
reacquired............. (1,756,926,128) (2,768,786,005)
--------------- ---------------
Net decrease in net assets
from Series share
transactions........... (47,376,233) (1,311,985)
--------------- ---------------
Total decrease............... (47,376,233) (1,311,985)
Net Assets
Beginning of year............ 261,856,127 263,168,112
--------------- ---------------
End of year.................. $ 214,479,894 $ 261,856,127
--------------- ---------------
--------------- ---------------
</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.
The Fund may hold up to 10% of its net assets in illiquid securities, including
those which are restricted as to disposition under securities law ('restricted
securities'). None of the issues of restricted securities held by the Fund at
June 30, 1998 including registration rights under which the Fund may demand
registration by the issuer.
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 had a distribution agreement with Prudential Securities Incorporated
('PSI'), where PSI served the Fund without compensation. Effective July 1, 1998,
Prudential Investment Management Securities LLC ('PIMS') became the distributor
of the Fund and serves the Fund under the same terms and conditions as under the
arrangement with PSI.
PIFM, PIC, PSI and PIMS 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, 1998,
the Series incurred fees of approximately $226,000 for the services of PMFS. As
of June 30, 1998, approximately $18,700 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 nonaffiliates.
- --------------------------------------------------------------------------------
8
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Financial Highlights MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<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........... .050 .049 .051 .049 .030
Dividends and distributions............................ (.050) (.049) (.051) (.049) (.030)
-------- -------- -------- -------- --------
Net asset value, end of year........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):....................................... 5.11% 4.96% 5.19% 5.05% 3.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).......................... $214,480 $261,856 $263,168 $359,197 $473,057
Average net assets (000)............................... $239,047 $298,821 $326,849 $416,899 $271,869
Ratios to average net assets:
Expenses............................................. .75% .71% .73% .70% .72%
Net investment income................................ 5.05% 4.86% 5.07% 4.93% 2.96%
</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.
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, 1998, and the results
of its operations for the year then ended, and the changes in its net assets and
the financial highlights for each of the two years in the period 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 audits. We
conducted our audits 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
audits, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The accompanying financial highlights for each of the three
years in the period ended June 30, 1996 were audited by other independent
accountants, whose opinion dated August 15, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
August 18, 1998
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 none of the dividends paid by
the Fund qualify for state tax exclusion.
- --------------------------------------------------------------------------------
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: 1/100th of 1%. For example, one half of one percent 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.
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.
Some mutual fund shareholders won't ever read this -- they don't read annual
and semi-annual reports. It's quite understandable. These annual and semi-
annual reports are prepared to comply with Federal regulations. They are often
written in language that is difficult to understand. So when most people run
into those particularly daunting sections of these reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our report to make it
easier to understand and more pleasant to read, in hopes you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's primary concern, we
present performance information in two different formats. You'll find it first
on the "At A Glance" page where we compare the Fund and the comparable average
calculated by Lipper Analytical Services, a nationally recognized mutual fund
rating agency. We report both the cumulative total returns and the average
annual total returns. The cumulative total return is the total amount of
income and appreciation the Fund has achieved in various time periods. The
average annual total return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives you an idea how
much the Fund has earned in an average year, for a given time period. Under
the performance box, you'll see legends that explain the performance
information, whether fees and sales charges have been included in returns,
and the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the report for more
performance information. And keep in mind that past perfor-mance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports onsuccessful --
and not-so-successful -- strategies in this section of your report. Look for
recent purchases and sales here, as well as information about the sectors the
portfolio manager favors and any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's really just a
listing of each security held at the end of the reporting period, along with
valuations and other information. Please note that sometimes we discuss a
security in the Portfolio Manager's Report that doesn't appear in this listing
because it was sold before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes) and net assets (the Fund's equity, or
holdings after the Fund pays its debts) as of the end of the reporting period.
It also shows how we calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your dividend, capital
gain, or other distribution, but remember that the money or new shares are
being paid or issued to you. The net asset value fluctuates daily along with
the value of every security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us to manage your
money). You'll also see capital gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into changes in net
assets. The Fund is required to pay out the bulk of its income to shareholders
every year, and this statement shows you how we do it -- through dividends
and distributions -- and how that affects the net assets. This statement also
shows how money from investors flowed into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate readers, but it
does contain useful information. The Notes provide a brief history and
explanation of your Fund's objectives. In addition, they also outline how
Prudential Mutual Funds prices securities. The Notes also explain who manages
and distributes the Fund's shares, and more importantly, how much they are
paid for doing so. Finally, the Notes explain how many shares are outstanding
and the number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages, but on a per share
basis. It is designed to help you understand how the Fund performed and to
compare this year's performance and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and certifies that the
information is fairly presented and complies with generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much of your total
return is taxable. Should you have any questions, you may want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual report and are required by the
Securities Exchange Commission. Performance is presented here as a
hypothetical $10,000 investment in the Fund since its inception or for 10
years (whichever is shorter). To help you put that return in context, we are
required to include the performance of an unmanaged, broad based securities
index, as well. The index does not reflect the cost of buying the securities
it contains or the cost of managing a mutual fund. Of course, the index
holdings do not mirror those of the fund -- the index is a broadly based
reference point commonly used by investors to measure how well they are doing.
A definition of the selected index is also provided. Investors generally
cannot invest directly in an index.
<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, CFA
Richard A. Redeker
Robin B. Smith
Stephen Stoneburn
Nancy H. Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Robert C. Rosselot, Assistant 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers 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.
74436K104 MF141E
Cat.#444366W
