<PAGE>
ANNUAL REPORT JUNE 30, 2000
Prudential
Special Money Market Fund, Inc./
Money Market Series
Fund Type Money market
Objective High current income consistent with the preservation of principal and
liquidity
(GRAPHIC)
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
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.
(LOGO)
<PAGE>
Build on the Rock www.prudential.com (800) 225-1852
Investment Goals and Style
The Prudential Special Money Market Fund, Inc./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, and
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.
Money Fund Yield Comparison
(GRAPH)
<PAGE>
Performance at a Glance
Fund Facts As of 6/30/00
7-Day Net Asset Weighted Avg. Net Assets
Current Yld. Value (NAV) Mat. (WAM) (Millions)
Special Money Market
Fund, Inc./ 6.03% $1.00 53 days $229
Money Market Series
iMoneyNet, Inc.
Money Fund
(General Purpose) Avg.* 5.86% $1.00 57 Days N/A
Note: Yields will fluctuate from time to time, and past performance is not
indicative of future results. An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
* iMoneyNet, Inc. reports a seven-day current yield, NAV, and WAM on Tuesdays.
This is the data of all funds in the iMoneyNet, Inc. Money Fund (General
Purpose) Average category as of June 27, 2000, the closest date to the end of
our reporting period.
Weighted Average Maturity Compared to the Money Fund Average
(GRAPH)
1
<PAGE>
(LOGO) August 14, 2000
Dear Shareholder,
Our fiscal year that began July 1, 1999, was a decidedly positive time for
investors in the money markets. Many good investment opportunities emerged as
yields on corporate and bank money market securities climbed.
Increases in short-term interest rates by the Federal Reserve (the Fed), among
other factors, sent money market yields higher. The U.S. central bank
repeatedly raised rates in an effort to rein in U.S. economic growth and quell
mounting inflationary pressures before they became rooted in the economy.
Amid this trend toward higher rates, the seven-day current yields of some money
market funds climbed above 6.00%-a level rarely available on such short-term
investment vehicles. The Prudential Special Money Market Fund/Money Market
Series maintained a $1 net asset value per share, and its seven-day current
yield was 6.03% on June 30, 2000, compared with 5.86% for the money market fund
average as tracked by iMoneyNet Data.
The following report takes a closer look at developments in the money markets
during our fiscal year, and explains how the Fund was positioned accordingly.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,John R. Strangfeld, President
Prudential Special Money Market Fund, Inc./Money Market Series
2
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Annual Report June 30, 2000
Investment Adviser's Report
The Federal Reserve's repeated increases in short-term interest rates and
concern that widespread computer problems might have developed at the beginning
of the year 2000 led investors to require higher yields on bank and corporate
money market securities. As yields climbed during our fiscal year that began
July 1, 1999, we were able to take advantage of many attractive buying
opportunities.
For example, money market yields rose both before and after the Fed raised
short-term rates in late August 1999 to slow U.S. economic growth to a more
sustainable pace. During that time, we locked in yields on bank and corporate
securities maturing in 13 months.
Investment opportunities in
adjustable-rate securities
The Fund also held nearly 40% of its total investments in bank and corporate
securities whose coupon rates adjusted monthly or quarterly based primarily on
London Interbank Offered Rates (LIBORs). (LIBORs are widely used benchmark
rates for such transactions.) The difference between the coupon rate and LIBOR
is called the "yield spread."
We began to increase the Fund's holdings of adjustable-rate securities in
mid-summer of 1999 when the securities were being offered with unusually high
"yield spreads" to attract investors. Banks and corporations normally issue
these securities near the end of the year, but in 1999, they issued them long
before year-end. This was done to avoid any complications that might have
occurred if computers malfunctioned when switching their internal dates from
1999 to 2000.
3
<PAGE>
After the change of year proceeded smoothly, "yield spreads" on adjustable-rate
securities began to decline toward historical norms. This trend enhanced the
Fund's relative performance.
Waiting for money market yields to rise sharply
In January 2000, investors anticipated further moves by the Fed, which had
already engineered three short-term rate hikes in 1999. However, the central
bank was expected to tighten monetary policy further because the economy
continued to expand rapidly as the year 2000 progressed.
We positioned the Fund to have the flexibility to avoid purchasing longer-term
money market securities until after short-term rates rose to levels
commensurate with our expectations for tighter monetary policy. The Fund's
weighted average maturity (WAM), which was longer than that of its competitive
average, was gradually allowed to shorten. (WAM is a measurement tool that
determines a portfolio's sensitivity to changes in the level of interest
rates.) Shortening the WAM enabled the Fund to have greater flexibility to buy
money market securities when sharply higher yields became available.
Fed's bold inflation-fighting tactics
Money market yields climbed as the Fed increased short-term rates by a quarter
of a percentage point in February and in March 2000. They continued to climb in
April and May on expectations that the Fed would tighten monetary policy again
when it met on May 16. Indeed on that date, the central bank raised short-term
rates by half of a percentage point-its largest increase in more than five
years. A statement issued by the Fed after this meeting seemed to indicate that
it might continue to hike rates.
We believed the central bank would take a respite from raising rates until
August 2000, when it would probably resume its efforts to curb economic growth.
Therefore in May, we purchased securities maturing in one to three months
because we would have cash on hand to buy higher-yielding securities that might
be available in August.
4
<PAGE>
www.prudential.com (800) 225-1852
It's always difficult to predict when rates will peak. In hindsight, we should
have bought longer-term money market securities in the last week of May and
early June because yields seemed to have peaked at that time as one-year bank
and corporate securities yielded nearly 7.50%.
In fact, money market yields began to edge lower as June progressed, and data
indicated that the U.S. economy seemed to be losing steam. Because of mounting
evidence pointing to moderating economic growth, few market participants were
surprised when the Fed voted to leave short-term rates unchanged on June 28.
Looking Ahead
From June 1999 through May 2000, the Fed raised short-term rates six times-the
first five were quarter-point rate hikes and the sixth was half of a percentage
point. With recent data pointing to slower economic growth, we now believe the
Fed's unusually large half-point rate hike in mid-May could be a signal that it
has nearly completed its current round of tightening. In fact, the federal
funds futures market, where investors hedge against changes in the overnight
bank lending rate, indicates that many believe the likelihood for further rate
increases this year has diminished. We expect U.S. economic activity to
continue to moderate in coming months, decreasing the amount of additional Fed
rate hikes, if any, that might be necessary.
Prudential Special Money Market Fund Management Team
5
How many times have you read these reports-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.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed bonds that separate
mortgage pools into different maturity classes called tranches. 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 other securities. The rate
of return of these financial instruments 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
member banks.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to purchase or sell a specific amount of a
commodity or financial instrument at a set price at a specified date in the
future.
<PAGE>
Leverage: The use of borrowed assets to enhance return. The expectation is
that the interest rate charged on borrowed funds 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 product) 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 purchase or 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; often used to describe the
difference between "bid" and "asked" prices of a security, or between the
yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government on the U.S. market
and denominated in U.S. dollars.
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Portfolio of Investments as of June 30, 2000
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------------------------------------
Bank Notes 14.3%
American Express Centurion Bank
$ 1,000 7.01%, 7/3/00(a) $ 1,000,000
Bank of America N.A.
1,116 6.32%, 7/25/00 1,116,000
Comerica Bank
1,000 6.5725%, 7/7/00(a) 999,719
Comerica Bank Detroit
2,000 6.65625%, 7/6/00(a) 2,000,114
5,400 6.60875%, 7/19/00(a) 5,398,469
First Union National Bank
12,400 6.96%, 11/13/00(a) 12,406,336
Key Bank N.A.
4,000 6.33125%, 7/17/00(a) 4,000,129
National City Bank
5,800 6.55%, 1/31/01 5,798,385
--------------
32,719,152
-------------------------------------------------------------------------------------
Certificates of Deposit - Domestic 1.1%
First Bank N.A.
2,500 6.6675%, 7/19/00(a) 2,500,046
-------------------------------------------------------------------------------------
Certificates of Deposit - Yankee 5.9%
Bank of Nova Scotia
3,500 6.65%, 2/1/01 3,499,022
Westpac Banking Corp.
6,800 6.54%, 1/18/01 6,798,221
3,300 6.52%, 1/29/01 3,299,090
--------------
13,596,333
-------------------------------------------------------------------------------------
Commercial Paper 47.7%
Alcoa, Inc.
5,000 6.60%, 8/8/00 4,965,167
Alliance & Leicester PLC
2,000 6.61%, 9/15/00 1,972,091
Barton Capital Corp.
7,000 6.77%, 7/14/00 6,982,887
3,000 6.62%, 7/26/00 2,986,208
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Portfolio of Investments as of June 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
<C> <S> <C>
BASF Aktiengesellschaft
$ 4,000 6.60%, 8/28/00 $ 3,957,467
British Telecommunications PLC
9,511 7.00%, 7/3/00 9,507,301
Centric Capital Corp.
5,000 6.65%, 8/3/00 4,969,521
Citicorp
8,000 6.60%, 8/18/00 7,929,600
Countrywide Funding Corp.
5,000 6.69%, 8/25/00 4,948,896
Dexia Clf Finance Co.
2,000 6.58%, 7/20/00 1,993,054
Dover Corp.
5,000 6.8475%, 2/28/01(a) 5,000,000
Duke Capital Corp.
5,000 7.25%, 7/5/00 4,995,972
Falcon Asset Securitization Corp.
3,000 6.61%, 7/21/00 2,988,983
5,800 6.65%, 9/15/00 5,718,575
General Electric Capital Corp.
5,800 6.62%, 7/31/00 5,768,003
General Electric Capital International Funding
4,500 6.58%, 8/21/00 4,458,052
GTE Corp.
5,033 6.62%, 7/26/00 5,009,862
4,000 6.62%, 8/3/00 3,975,727
Hartford Financial Services
1,000 6.676%, 7/14/00 997,599
1,000 6.62%, 7/31/00 994,483
Homeside Lending, Inc.
1,000 6.60%, 8/2/00 994,133
Morgan Stanley Dean Witter
755 6.60%, 7/28/00 751,263
Nationwide Building Society
1,550 6.60%, 9/5/00 1,531,245
Preferred Receivables Funding Corp.
1,100 6.62%, 8/3/00 1,093,325
</TABLE>
See Notes to Financial Statements 7
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Portfolio of Investments as of June 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
<C> <S> <C>
Santander Finance, Inc.
$ 7,498 6.60%, 9/5/00 $ 7,407,274
Sweetwater Capital Corp.
5,000 6.60%, 8/21/00 4,953,250
Thunder Bay Funding, Inc.
2,479 6.57%, 7/20/00 2,470,404
--------------
109,320,342
-------------------------------------------------------------------------------------
Loan Participations 1.3%
General Electric Co.
3,100 7.10%, 7/3/00 3,100,000
-------------------------------------------------------------------------------------
Other Corporate Obligations 41.9%
Bank One Corp.
3,000 6.85875%, 8/21/00(a) 3,000,000
3,300 6.87%, 9/13/00(a) 3,300,274
Chrysler Financial Corp.
3,000 6.13%, 12/11/00 2,999,185
CIT Group Inc.
5,000 6.67625%, 10/16/00(a) 4,992,795
Citicorp
1,000 6.68375%, 7/3/00(a) 1,000,000
Commercial Credit Group Inc.
2,500 5.75%, 7/15/00 2,500,016
Conseco Finance Vehicle Trust
1,636 6.81125%, 7/17/00 1,635,507
DaimlerChrysler
8,000 6.53425%, 7/6/00(a) 7,999,858
First Chicago Corp.
9,800 6.82125%, 11/17/00(a) 9,801,004
Ford Motor Credit Co.
3,175 5.99%, 2/27/01 3,160,105
11,000 6.72875%, 8/18/00(a) 10,998,831
Goldman Sachs Group L P
11,000 6.92438%, 7/13/01(a) 11,000,000
International Lease Finance Corp.
3,685 6.625%, 8/15/00 3,688,321
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Portfolio of Investments as of June 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
<C> <S> <C>
Morgan (J.P.) & Co. Inc.
$ 13,000 6.64%, 3/16/01(a) $ 13,000,000
Restructured Asset Securities
Enhanced 99-25MM-ABS
6,000 6.73625%, 9/6/00(a) 6,000,000
Short-Term Repackaged Asset Trust 1998-E
6,000 6.74875%, 8/18/00(a) 6,000,000
U.S. Bancorp
5,000 6.7175%, 9/20/00(a) 4,999,455
--------------
96,075,351
-------------------------------------------------------------------------------------
U.S. Government Agencies 3.5%
Federal Home Loan Banks
5,000 6.189%, 4/19/01(a) 4,998,040
Student Loan Marketing Association
3,000 6.494%, 8/3/00 3,001,043
--------------
7,999,083
-------------------------------------------------------------------------------------
Total Investments 115.7%
(amortized cost $265,310,307)(b) 265,310,307
Liabilities in excess of other assets (15.7%) (36,062,987)
--------------
Net Assets--100% $ 229,247,320
--------------
--------------
</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 substantially the same as
that used for financial statement purposes.
See Notes to Financial Statements 9
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Portfolio of Investments as of June 30, 2000 Cont'd.
The industry classification of portfolio holdings and liabilities in excess of
other assets shown as a percentage of net assets as of June 30, 2000 was as
follows:
<TABLE>
<S> <C>
Banks................................................................ 37.8%
Asset-Backed Securities.............................................. 19.3
Automobiles.......................................................... 11.0
Security Brokers & Dealers........................................... 10.8
Telecommunications................................................... 8.1
Diversified Manufacturing............................................ 8.0
Financial Services................................................... 5.6
U.S. Government Agencies............................................. 3.5
Machinery............................................................ 2.2
Bank Holding Companies-Domestic...................................... 2.2
Metal-Aluminum....................................................... 2.1
Mortgage Bankers..................................................... 2.1
Chemicals............................................................ 1.7
Insurance............................................................ 0.9
Real Estate Investment Trust......................................... 0.4
-----
115.7
Liabilities in excess of other assets................................ (15.7)
-----
100%
-----
-----
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
June 30, 2000
<S> <C>
---------------------------------------------------------------------------------------
ASSETS
Investments, at amortized cost which approximates market value $ 265,310,307
Cash 658,522
Interest receivable 1,537,686
Receivable for Series shares sold 396,100
Prepaid expenses 4,492
-------------
Total assets 267,907,107
-------------
LIABILITIES
Payable for Series shares reacquired 38,199,726
Dividends payable 217,304
Accrued expenses 129,876
Management fee payable 112,881
-------------
Total liabilities 38,659,787
-------------
NET ASSETS $ 229,247,320
-------------
-------------
Net assets were comprised of:
Common stock, $0.001 par value per share $ 229,247
Paid-in capital in excess of par 229,018,073
-------------
Net assets, June 30, 2000 $ 229,247,320
-------------
-------------
Net asset value, offering price and redemption price per share
($229,247,320 / 229,247,320 shares of common stock issued and
outstanding; two billion shares authorized) $1.00
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
June 30, 2000
<S> <C>
---------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest and discount earned $18,019,030
-------------
Expenses
Management fee 1,541,184
Transfer agent's fees and expenses 307,000
Custodian's fees and expenses 71,000
Registration fees 54,000
Reports to shareholders 45,000
Audit fee 25,000
Legal fees and expenses 20,000
Directors' fees and expenses 10,000
Insurance expense 5,000
Miscellaneous 2,821
-------------
Total expenses 2,081,005
-------------
Net investment income 15,938,025
REALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 1,873
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $15,939,898
-------------
-------------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended
June 30,
----------------------------------
2000 1999
<S> <C> <C>
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 15,938,025 $ 15,534,970
Net realized gain on investment
transactions 1,873 21,888
--------------- ---------------
Net increase in net assets resulting from
operations 15,939,898 15,556,858
--------------- ---------------
Dividends and distributions paid to
shareholders
(Note 1) (15,939,898) (15,556,858)
--------------- ---------------
Series share transactions (at $1 per share)
Proceeds from shares subscribed 1,281,520,400 1,651,788,988
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 13,238,767 12,820,482
Cost of shares reacquired (1,386,035,681) (1,558,565,530)
--------------- ---------------
Net increase (decrease) in net assets from
Series share transactions (91,276,514) 106,043,940
--------------- ---------------
Total increase (decrease) (91,276,514) 106,043,940
NET ASSETS
Beginning of year 320,523,834 214,479,894
--------------- ---------------
End of year $ 229,247,320 $ 320,523,834
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Notes to Financial Statements
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 of the Series commenced on 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. If the amortized cost method is
determined not to represent fair value, the value shall be determined by or
under the discretion of the Board of Trustees.
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, 2000 include 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. Expenses are recorded on the accrual basis which
may require the use of certain estimates by management. Net investment income of
the Series consists of accrued interest and amortizations of premiums and
discounts, plus or minus any gains or losses realized on sales of portfolio
securities, less the estimated expenses of the Series applicable to the dividend
period.
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. The cost of portfolio
securities for federal income tax purposes is substantially the same as the cost
for financial reporting purposes.
14
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Notes to Financial Statements Cont'd.
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'). The Subadvisory Agreement provides that the
subadviser will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, the Subadviser is obligated to
keep certain books and records of the Fund. PIFM continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises the Subadviser's performance of such services. PIFM
pays for the services of PIC, the cost of compensation of officers 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.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .250 of 1% of the
average daily net assets of the Fund. Prior to January 1, 2000, PIC was
reimbursed by PIFM for reasonable costs and expenses incurred in furnishing
investment advisory services.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), where PIMS acts as the distributor of the
shares of the Series and serves the Fund without compensation.
PIFM, PIC and PIMS are wholly owned subsidiaries of The Prudential
Insurance Company of America ('The Prudential').
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 year ended June 30, 2000, the
Series incurred fees of approximately $268,000 for the services of PMFS. As of
June 30, 2000, approximately $22,000 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 nonaffiliates. At June 30, 2000, PMFS held 10 shares of
the Series.
15
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Financial Highlights
<TABLE>
<CAPTION>
Year Ended
June 30, 2000
<S> <C>
----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.00
Net investment income and net realized gains .052
Dividends and distributions (.052)
----------------
Net asset value, end of year $ 1.00
----------------
----------------
TOTAL RETURN(a): 5.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $229,247
Average net assets (000) $308,237
Ratios to average net assets:
Expenses .68%
Net investment income 5.17%
</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.
16 See Notes to Financial Statements
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------
1999 1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00
.047 .050 .049 .051
(.047) (.050) (.049) (.051)
-------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
4.80% 5.11% 4.96% 5.19%
$320,524 $214,480 $261,856 $263,168
$330,135 $239,047 $298,821 $326,849
.65% .75% .71% .73%
4.71% 5.05% 4.86% 5.07%
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Report of Independent Accountants
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, 2000, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the four years in the period then ended, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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,
2000 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above. The accompanying financial highlights for the year
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, 2000
18
<PAGE>
Prudential Special Money Market Fund, Inc. Money Market Series
Important Notice for Shareholders (Unaudited)
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.
19
<PAGE>
<PAGE>
Getting the Most From Your Prudential Mutual Fund
How many times have you read these reports-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.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed bonds that separate
mortgage pools into different maturity classes called tranches. 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 other securities. The rate
of return of these financial instruments 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
member banks.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to purchase or sell a specific amount of a
commodity or financial instrument at a set price at a specified date in the
future.
<PAGE>
Leverage: The use of borrowed assets to enhance return. The expectation is
that the interest rate charged on borrowed funds 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 product) 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 purchase or 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; often used to describe the
difference between "bid" and "asked" prices of a security, or between the
yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government on the U.S. market
and denominated in U.S. dollars.
<PAGE>
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's web site at:
http://www.prudential.com
Directors
Delayne Dedrick Gold
Robert F. Gunia
Robert E. LaBlanc
David R. Odenath, Jr.
Robin B. Smith
Stephen Stoneburn
John R. Strangfeld
Nancy H. Teeters
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Robert C. Rosselot, Secretary
William V. Healey, Assistant Treasurer
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
194 Wood Avenue South
Iselin, NJ 08830
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Fund Symbols NASDAQ CUSIP
SMMFB 74436K104
MF141E
