(ICON)
Prudential
Special
Money
Market
Fund, Inc.
- --------------------
Money Market Series
SEMI
ANNUAL
REPORT
Dec. 31, 1997
(LOGO)
<PAGE>
Prudential Special Money Market Fund, Inc.
Money Market Series
Performance At A Glance.
Over the past six months, short-term interest
rates swung widely
as concern about the potential inflationary
pressures in the U.S.
gave way to worries about an economic upheaval in
Asia. Despite
these challenging market conditions, your
Prudential Special Money
Market Fund provided attractive returns,
maintained a high credit
quality and a stable $1 net asset value. On
December 31, 1997,
your Fund's seven-day current yield stood at 5.17%
compared to
5.07% for the average money market fund tracked by
IBC Financial Data.
<TABLE>
<CAPTION>
Fund Facts
As of 12/31/97
7-Day Net
Asset Weighted Avg. Total Net
Current Yld. Value
(NAV) Mat.(WAM) Assets (mil.)
<S> <C>
Special Money
Market Fund, Inc. 5.17% $1
64 Days $230.9
IBC Financial Data
Money Fund Avg.
(General Purpose*) 5.07 $1
60 Days N/A
</TABLE>
Note: Yields will fluctuate from time to time and
past performance
is not indicative of future results.
*IBC Financial Data reports a seven-day current
yield, WAM and NAV
on Tuesdays. This is the average seven-day current
yield, NAV and
WAM of all funds in the International Business
Communications
Financial Data's all taxable general purpose money
fund category
as of December 30, 1997 which was the closest
date to our
reporting period end. An investment in the Fund is
neither
insured nor guaranteed by the U.S. government and
there can
be no assurance the Fund will be able to maintain
a stable
net asset value of $1 per share.
Money Market Yields Stabilized At Year End.
- --Prudential Special Money Market Fund
//IBC Financial Data Money Fund Avg. (General
Purpose)
Weekly 7-day current yields of Prudential Special
Money Market
Fund and the IBC Financial Data all taxable
general purpose
money fund average. Past performance is not
indicative of future
results.
How Investments Compared.
(As of 12/31/96)
(GRAPH)
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.
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
(PICTURE)
Portfolio
Manager's Report
The Prudential Special Money Market Fund -- Money
Market Series
seeks high current income consistent 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 objective.
New Fund Manager.
Robert Browne began managing the Prudential
Special Money Market
Fund in September. He first joined Prudential's
short-term
institutional group in late 1994. Prior to that,
Rob spent
two years analyzing global currency and fixed
income markets
for Prudential.
Strategy Session.
U.S. Economy
On A Roll.
Robust consumer spending and increased investment
by businesses
propelled the U.S. economy forward during the
summer. While the
Federal Reserve had raised the federal funds rate
(what banks
charge each other to borrow overnight) in March
1997 to slow
economic growth, the quarter percentage point
increase had a
negligible impact.
Meanwhile, news that the economy had created more
than 300,000
jobs in July surprised investors, driving prices
of short-term
securities lower (and yields higher). Investors
feared that U.S.
central bankers would have to move again to keep
strong economic
growth from igniting higher inflation, which
erodes the value of
a bond's fixed interest and principal payments. We
took advantage
of this rise in yields by purchasing attractively
priced money
market securities that lengthened your Fund's
weighted average
maturity (WAM) in August.
As it turned out, monetary policy remained
unchanged in the
summer amid unusually subdued inflationary
pressures.
Inflation jitters resurfaced in early October
after the Labor
Department reported a surprisingly large increase
in prices
paid to U.S. manufacturers and other producers for
finished
goods. Fearing that a second rise in monetary
policy was
imminent, investors once again pushed up yields on
money
market securities. However, yields tumbled in late
October
as investors fleeing the Asian economic crisis
sought the
relative safety of U.S. Treasury securities. The
Federal
Reserve left the federal funds rate at 5.50% in
November
since the scope of the Asian economic crisis was
not fully
understood.
The final buying opportunity emerged as money
market yields
rose because of the usual rush by corporations to
borrow cash
before the end of the year, which was exacerbated
by problems
in Asia. We quickly locked in these attractive
yields.
<PAGE>
What Went Well.
Quick On Our Feet.
In early August, the Fund's WAM was markedly
shorter than its
competition. This provided quick access to cash to
buy higher
yielding securities that would be available if the
federal
funds rate were increased later in the month. But
it soon
became apparent that a second change in monetary
policy was
unlikely as mild inflationary pressures continued
during
the summer. We therefore quickly adjusted the
portfolio
by purchasing attractively priced, one-year
corporate
securities that lengthened the WAM until it was in
line
with its competition by early September. This move
enhanced your Fund's performance as did similar
efforts
to extend the WAM in November.
And Not So Well.
Missed Opportunities.
In October, we shortened the Fund's WAM again
because we initially
believed another federal funds rate increase would
occur in
November. As you remember, belief that U.S.
central bankers
were poised to move again gained credence after a
government
report released in early October showed a
surprisingly large
increase in a key inflation barometer. However,
this anticipation
faded in the wake of Asian economic turmoil. So by
shortening
the WAM in October, we missed out on opportunities
to lock in
higher yields that would have bolstered the Fund's
returns.
Weighted Average Maturity Compared To The Average
Fund.
(GRAPH)
Looking Ahead.
Wall Street is anxiously waiting to see how much
Asian economic
turmoil will hurt U.S. economic growth in 1998.
Judging by the
sharp drop in yields on money market securities in
the new year,
many investors believe economic momentum will slow
enough to
require one or more federal funds rate cuts to get
the economy
moving again. While the Federal Reserve removed
its bias towards
higher short-term rates when it met last December,
this
decision does not necessarily mean the next change
in
monetary policy will be a federal funds rate cut.
Certainly the U.S. economy will lose steam as the
struggling Asian countries buy fewer exports from
the
U.S., while our market gets flooded with
attractively
priced imports from Asia. Yet the economy created
more
than 350,000 new jobs in January so the expansion
may
turn out to be surprisingly resilient. For our
part, we
doubt momentum will moderate to the extent that it
requires
a federal funds rate cut to jump-start the
economy.
1
<PAGE>
President's Letter
February 2, 1998
(PICTURE)
Investing Smart.
Dear Shareholder:
This is the season when many investors receive
income tax
refunds or have a CD or two maturing. What will
you do with
these assets? Investing smart can be a challenge
especially
given today's new investment choices.
The Federal Taxpayer Relief Act of 1997 is
changing the way
Americans invest and accumulate wealth, save for
college or
build a nest egg for retirement. While the law
offers opportunity,
it is also complex. You may need help to put
things in perspective.
Now may be an excellent time for you and your
Prudential
Financial Professional to update your investment
strategy
and retirement plan. A wise investor does so
periodically.
You could find the tax law opening doors that may
benefit
you now or over the long term, such as --
- -- Revised Capital Gains Tax Rates &
Exclusions. Long-term
rates are down. Is your portfolio positioned to
benefit? Also,
new rules allow you to keep more of the profit
from the sale of
your home (perhaps up to $500,000 more).
- -- New Roth IRAs. The Roth IRA features tax-free
distributions
and does not require mandatory withdrawals, which
should be of
particular interest to retirees seeking to shelter
assets in a
tax-free account.
- -- New Education IRAs. Similar to a traditional
IRA, but
specifically designed for higher education. The
new law also
creates credits and deductions to help defray
college costs.
- -- Expanded IRAs. Rules governing traditional
IRAs have
been extensively revised. Deductibility and
contribution
limits have been broadened as has the list for
penalty-free
early withdrawals, including first-time home
buyers.
As you can see, what you don't know may cost you!
That's why
I recommend you call your Prudential Financial
Professional
and get a free investment plan checkup. Let us
give you the
information and tools to invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as
of December 31, 1997 PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
(Unaudited) MONEY MARKET
SERIES
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
-----------------------------------------------
- -------------
Bank Notes--11.4%
American Express Centurion Bank
$7,000(a) 6.0188%, 1/21/98
$ 7,004,397
Comerica Bank of Detroit
1,000(a) 5.90%, 1/5/98
999,940
3,000(a) 5.895%, 1/12/98
2,999,772
First USA Bank of Delaware
3,000(a) 6.175%, 2/18/98
3,003,631
NBD Bank, N.A., Michigan
4,000 5.00%, 1/30/98
3,996,674
U.S. Bank, N.A.,
1,000(a) 5.88%, 1/21/98
999,894
3,000(a) 5.86%, 1/21/98
2,998,636
Wachovia Bank, N.A.
4,000 6.14%, 6/1/98
4,000,000
- ------------
26,002,944
- --------------------------------------------------
- ----------
Bankers Acceptance--1.1%
Bank of Montreal
3,000(a) 5.68%, 2/17/98
2,977,753
- ------------
- --------------------------------------------------
- ----------
Certificates Of Deposit - Domestic--1.3%
CoreStates Bank N.A.
1,000(a) 5.7825%, 1/23/98
1,000,000
Morgan Guaranty Trust of New York
2,000 5.87%, 8/6/98
1,999,659
- ------------
2,999,659
- --------------------------------------------------
- ----------
Certificates Of Deposit - Eurodollar--3.5%
Abbey National Treasury Services,
PLC
3,000 5.81%, 3/3/98
3,000,000
ING Bank, NV
3,000 5.81%, 3/5/98
2,999,877
Westdeutsche Landesbank
Girozentrale
2,000 5.82%, 8/3/98
1,999,092
- ------------
7,998,969
Certificates Of Deposit - Yankee--10.9%
Bayerishe Hypotheken Und
Wechsel Bank
$5,000 5.94%, 10/22/98
$ 4,997,690
Credit Agricole Indosuez
3,000 5.87%, 8/10/98
2,999,132
Dresdner Bank, AG
3,000 5.76%, 7/31/98
2,997,597
Landesbank Hessen-Thuringen
Girozentrale
2,000 5.94%, 6/19/98
1,999,469
Rabobank Nederland
5,000 5.98%, 3/20/98
4,999,796
Societe Generale
3,000 6.19%, 5/6/98
2,999,391
Swiss Bank Corp.
4,000 5.76%, 2/12/98
3,999,734
- ------------
24,992,809
- --------------------------------------------------
- ----------
Commercial Paper--29.8%
American General Finance Corp.
2,000 5.72%, 3/13/98
1,977,438
AON Corp.
3,000 5.79%, 3/13/98
2,965,742
Associates First Capital Corp.
1,000 5.79%, 2/4/98
994,532
Barnett Bank, Inc.
1,017 6.70%, 1/2/98
1,016,811
Barton Capital Corp.
900 5.95%, 2/9/98
894,199
Carnival Corp.
1,000 5.83%, 1/30/98
995,304
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
as of December 31, 1997 PRUDENTIAL SPECIAL
MONEY MARKET FUND, INC.
(Unaudited) MONEY MARKET
SERIES
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
-----------------------------------------------
- -------------
Commercial Paper (cont'd.)
Centric Capital Corp.
$4,500 5.92%, 2/23/98
$ 4,460,780
Chrysler Financial Corp.
3,000 5.79%, 2/9/98
2,981,182
CoreStates Capital Corp.
1,000(a) 5.929%, 1/2/98
1,000,000
Duke Capital Corp.
3,000 5.90%, 1/23/98
2,989,183
Falcon Asset Securitization Corp.
1,000 5.90%, 1/21/98
996,722
First Chicago Financial Corp.
3,000 5.73%, 2/26/98
2,973,260
General Motors Acceptance Corp.
3,000 5.76%, 2/9/98
2,981,280
General Signal Corp.
5,830 5.80%, 1/26/98
5,806,518
Johnson Controls, Inc.
1,000 5.80%, 2/13/98
993,072
Market Street Funding Corp.
1,000 5.83%, 2/6/98
994,170
Mont Blanc Capital Corp.
2,000 5.88%, 1/28/98
1,991,180
2,000 5.82%, 2/13/98
1,986,097
Old Line Funding Corp.
3,000 5.875%, 1/20/98
2,990,698
1,000 5.90%, 1/21/98
996,722
PHH Corp.
5,500 6.75%, 1/2/98
5,498,969
SAFECO Corp.
1,000 5.83%, 2/26/98
990,931
4,000 5.76%, 3/17/98
3,952,000
Special Purpose Accounts Receivable
Corp.
3,000 5.80%, 3/26/98
2,959,400
3,000 5.82%, 2/27/98
2,972,355
Variable Funding Capital Corp.
$1,000 5.88%, 1/29/98
$ 995,427
1,700 5.81%, 2/17/98
1,687,105
WCP Funding, Inc.
4,500 5.80%, 2/2/98
4,476,800
Wood Street Funding Corp.
1,400 5.83%, 2/13/98
1,390,251
Xerox Overseas Holdings, PLC
1,000 5.79%, 2/12/98
993,245
- ------------
68,901,373
- --------------------------------------------------
- ----------
Other Corporate Obligations--34.2%
Abbey National Treasury Services,
PLC
5,000 6.185%, 4/7/98
4,999,185
Liquid Asset Backed Securities
Trust
3,000(a) 5.969%, 1/22/98
3,000,000
General Electric Capital Corp.
3,000 13.50%, 1/20/98
3,011,290
General Motors Acceptance Corp.
1,000(a) 6.00%, 2/2/98
1,000,242
6,000(a) 5.78%, 3/23/98
5,995,109
Goldman Sachs Group, L.P.
13,000(a) 6.03%, 4/22/98
13,000,000
Household Finance Corp.
1,250(a) 9.84%, 3/4/98
1,258,405
International Lease Financial Corp.
100(a) 7.30%, 4/15/98
100,825
Merrill Lynch & Co., Inc.
1,000(a) 5.96%, 1/8/98
999,925
5,000(a) 5.90%, 1/26/98
4,999,696
Morgan Stanley, Dean Witter,
Discover & Co.
1,000(a) 5.88%, 1/15/98
1,000,000
10,000(a) 6.07%, 2/13/98
10,000,000
Restructured Asset Securities
7,000(a) 5.99%, 1/28/98
7,000,000
Short Term Repackaged Asset Trust
3,000(a) 6.00%, 1/15/98
3,000,000
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments
as of December 31, 1997 PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
(Unaudited) MONEY MARKET
SERIES
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
----------------------------------------------
- ---------
Other Corporate Obligations (cont'd.)
Short-Term Card Account Trust
1996-1
$9,000(a) 6.00%, 1/15/98
$ 9,000,000
SMM Trust 1997-X
1,000(a) 6.00%, 1/12/98
1,000,000
SMM Trust 1997-A
9,000(a) 5.90%, 3/23/98
9,000,000
Suntrust Banks Inc.
670 8.875%, 2/1/98
671,587
- ------------
79,036,264
- --------------------------------------------------
- ----------
Total Investments--92.2%
(amortized cost $212,909,771(b))
212,909,771
Other assets in excess
of liabilities--7.8%
17,976,374
- ------------
Net Assets--100%
$230,886,145
- ------------
- ------------
- ---------------
(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, 1997 was as follows:
Banks
34.6%
Asset-Backed Securities
20.3
Security Brokers & Dealers
13.0
Insurance
6.0
Finance Lessors
4.3
Personal Credit Institutions
2.7
Misc. Electrical, Equipment and Supplies
2.5
Bank Holding Companies-Domestic
2.5
Auto Rental and Leasing
2.4
Accidental & Health
1.4
Business Credit Institutions
1.3
Water Transportation
0.4
Regulating Controls
0.4
Photographic Equipment
0.4
- -----
92.2
Other assets in excess of liabilities
7.8
- -----
100%
- -----
- -----
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 5
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
SPECIAL MONEY MARKET
(Unaudited) FUND, INC.
MONEY
MARKET SERIES
- --------------------------------------------------
- ------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assets
December 31, 1997
- -----------------
<S>
<C>
Investments, at amortized cost which approximates
market
value..........................................
$ 212,909,771
Cash..............................................
..................................................
.... 14,639
Receivable for Series shares
sold..............................................
......................... 17,706,506
Interest
receivable........................................
.............................................
1,905,172
Other
assets............................................
................................................
6,805
- -----------------
Total
assets............................................
.............................................
232,542,893
- -----------------
Liabilities
Payable for Series shares
reacquired........................................
............................ 1,437,978
Management fee
payable...........................................
.......................................
99,678
Accrued
expenses..........................................
..............................................
89,184
Dividends
payable...........................................
............................................
29,908
- -----------------
Total
liabilities.......................................
.............................................
1,656,748
- -----------------
Net
Assets............................................
..................................................
$ 230,886,145
- -----------------
- -----------------
Net assets were comprised of:
Common stock, $0.001 par value per
share.............................................
................ $ 230,886
Paid-in capital in excess of
par...............................................
...................... 230,655,259
- -----------------
Net assets, December 31,
1997..............................................
............................. $ 230,886,145
- -----------------
- -----------------
Net asset value, offering price and redemption
price per share
($230,886,145 / 230,886,145 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 (Unaudited)
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Six
Months
Ended
Net Investment Income
December 31, 1997
<S> <C>
Income
Interest and discount earned.......... $
7,115,304
------
- -----------
Expenses
Management fee........................
611,758
Transfer agent's fees and expenses....
153,000
Custodian's fees and expenses.........
49,000
Reports to shareholders...............
47,000
Registration fees.....................
23,000
Audit fee.............................
13,000
Legal fees............................
9,000
Directors' fees.......................
6,000
Miscellaneous.........................
4,613
Insurance expense.....................
2,000
------
- -----------
Total expenses.....................
918,371
------
- -----------
Net investment income....................
6,196,933
Realized Gain on Investments
Net realized gain on investment
transactions..........................
128
------
- -----------
Net Increase in Net Assets
Resulting from Operations................ $
6,197,061
------
- -----------
------
- -----------
</TABLE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended
Increase (Decrease) December 31,
June 30,
in Net Assets 1997
1997
<S> <C>
<C>
Operations
Net investment income....... $ 6,196,933
$ 14,513,369
Net realized gain on
investment
transactions............. 128
11,538
-------------
- ---------------
Net increase in net assets
resulting from
operations............... 6,197,061
14,524,907
-------------
- ---------------
Dividends and distributions to
shareholders................ (6,197,061)
(14,524,907)
-------------
- ---------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed............... 907,223,026
2,755,575,802
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........ 5,245,453
11,898,218
Cost of shares reacquired... (943,438,461)
(2,768,786,005)
-------------
- ---------------
Net decrease in net assets
from Series share
transactions............. (30,969,982)
(1,311,985)
-------------
- ---------------
Total decrease................. (30,969,982)
(1,311,985)
Net Assets
Beginning of period............ 261,856,127
263,168,112
-------------
- ---------------
End of period.................. $ 230,886,145
$ 261,856,127
-------------
- ---------------
-------------
- ---------------
</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 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
six months ended December 31,
1997, the Series incurred fees of approximately
$113,500 for the services of
PMFS. As of December 31, 1997, approximately
$20,400 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>
Financial Highlights PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
(Unaudited) MONEY MARKET
SERIES
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended June 30,
December 31, ---------------------------------
- --------------
1997 1997 1996 1995
1994
<S>
<C> <C> <C> <C>
<C>
- ------------ -------- -------- -------
- - --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................... $ 1.00 $
1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains........... 0.025 0.049
0.051 0.049 0.030
Dividends and
distributions............................
(0.025) (0.049) (0.051) (0.049)
(0.030)
- ------------ -------- -------- -------
- - --------
Net asset value, end of
period......................... $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------ -------- -------- -------
- - --------
- ------------ -------- -------- -------
- - --------
TOTAL
RETURN(a):.......................................
2.55% 4.96% 5.19% 5.05%
3.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $230,886
$261,856 $263,168 $359,197 $473,057
Average net assets
(000)............................... $242,708
$298,821 $326,849 $416,899 $271,869
Ratios to average net assets:
Expenses..........................................
... 0.75%(b) 0.71% 0.73%
0.70% 0.72%
Net investment
income................................
5.06%(b) 4.86% 5.07% 4.93%
2.96%
<CAPTION>
1993
<S>
<C>
- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................... $ 1.00
Net investment income and net realized
gains........... 0.027
Dividends and
distributions............................
(0.027)
- --------
Net asset value, end of
period......................... $ 1.00
- --------
- --------
TOTAL
RETURN(a):.......................................
2.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $176,258
Average net assets
(000)............................... $213,948
Ratios to average net assets:
Expenses..........................................
... 0.81%
Net investment
income................................ 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. Total return
for a period of less than one
year is not annualized.
(b) Annualized.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 9
<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 on
successful -- 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>
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>
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 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services 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
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
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, 1997
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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