<PAGE>
As filed with the Securities and Exchange Commission on October 10, 2000
Securities Act Registration No. 33-31603
Investment Company Act Registration No. 811-5951
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 14 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 15 /X/
(Check appropriate box or boxes)
------------------------
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-3028
ROBERT C. ROSSELOT, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement
It is proposed that this filing will become effective
(check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
<TABLE>
<S> <C>
Title of Securities Being Registered................. Shares of common stock, $.001 par value per share
</TABLE>
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<PAGE>
PROSPECTUS OCTOBER 10, 2000
PRUDENTIAL
SPECIAL MONEY MARKET FUND, INC.
FUND TYPE Money Market
OBJECTIVE High current income consistent with the preservation of principal
and liquidity
Build on the Rock
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state otherwise.
[PRUDENTIAL LOGO]
<PAGE>
TABLE OF CONTENTS
-------------------------------------
<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses
5 HOW THE FUND INVESTS
5 Investment Objective and Policies
6 Other Investments and Strategies
9 Investment Risks
10 HOW THE FUND IS MANAGED
10 Board of Directors
10 Manager
10 Investment Adviser
10 Distributor
11 FUND DISTRIBUTIONS AND TAX ISSUES
11 Distributions
11 Tax Issues
13 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
13 How to Buy Shares
15 How to Sell Your Shares
17 How to Exchange Your Shares
19 FINANCIAL HIGHLIGHTS
20 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (Back Cover)
</TABLE>
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PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
-------------------------------------
This section highlights key information about the PRUDENTIAL SPECIAL MONEY
MARKET FUND, INC.--MONEY MARKET SERIES, which we refer to as "the Fund."
Additional information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is HIGH CURRENT INCOME CONSISTENT WITH THE PRESERVATION
OF PRINCIPAL AND LIQUIDITY. To achieve this objective, we principally invest the
Fund's assets in commercial paper, asset-backed securities, funding agreements,
bank notes, bills, notes, puts and obligations issued by foreign banks, foreign
companies or foreign governments. The Fund will invest only in instruments with
remaining maturities of thirteen months or less and which are denominated in
U.S. dollars. The Fund may invest in longer-term securities that are accompanied
by demand features which will shorten the effective maturity of the securities
to thirteen months or less. While we make every effort to achieve our objective
and maintain a net asset value of $1 per share, we can't guarantee success. To
date, the Fund's net asset value has never deviated from $1 per share.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests in debt obligations, there is the risk that the value of a particular
obligation could go down. Debt obligations are generally subject to CREDIT
RISK -- the risk that the issuer of a particular security may be unable to make
principal and interest payments when they are due, and MARKET RISK -- the risk
that the securities could lose value because interest rates change or investors
lose confidence in the ability of issuers in general to pay back their debt.
With respect to the Fund's investments in asset-backed securities, there is a
risk of prepayment, which means that if the underlying obligations are paid
before they are due, the security may discontinue paying an attractive rate of
income.
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MONEY MARKET FUNDS
Money market funds--which hold high-quality short-term debt obligations--
provide investors with a lower risk, highly liquid investment option. These
funds attempt to maintain a net asset value of $1 per share, although there can
be no guarantee that they will always be able to do so.
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1
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
The Fund's investment in foreign securities involves additional risks. For
example, foreign banks and companies generally are not subject to regulatory
requirements comparable to those applicable to U.S. banks and companies. In
addition, political developments and changes in currency rates may adversely
affect the value of foreign securities. In all cases, however, we invest only in
U.S. dollar-denominated securities.
There is also a risk that we will sell a security for a price that is higher
or lower than the value attributed to the security through the amortized cost
valuation procedures we follow. Such an event could affect our ability to
maintain a net asset value of $1 per share.
An investment in the Fund is not a bank deposit and 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 an investment at
$1 per share, it is possible to lose money by investing in the Fund.
EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Fund performs. The following
bar chart shows the Fund's performance for each full calendar year of operation.
The tables below compare the Fund's average annual returns and yield for the
periods indicated with those of a group of similar funds. The bar chart and
tables demonstrate the risk of investing in the Fund by showing how returns can
change. Past performance is not necessarily an indication that the Fund will
achieve similar results in the future. For current yield information, you can
call us at (800) 225-1852.
ANNUAL RETURNS(1) (AS OF 12/31/99)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1991 5.81%
1992 3.36%
1993 2.84%
1994 3.80%
1995 5.57%
1996 4.94%
1997 5.09%
1998 5.07%
1999 4.74%
</TABLE>
BEST QUARTER: 2.05% (2nd quarter of 1990) WORST QUARTER: 0.64% (2nd quarter of
1993)
(1) THE FUND'S RETURNS ARE AFTER DEDUCTION OF EXPENSES. THE TOTAL RETURN OF THE
FUND'S SHARES FROM 1-1-00 TO 6-30-00 WAS 2.72%.
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2 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
AVERAGE ANNUAL RETURNS(1) (AS OF 12/31/99)
<TABLE>
<CAPTION>
1 YR 5 YR SINCE INCEPTION
<S> <C> <C> <C>
Fund Shares(1) 4.74% 5.08% 4.93% (since 1-22-90)
Lipper Average(2) 4.49% 4.95% N/A
</TABLE>
7-DAY YIELD(1) (AS OF 12/31/99)
<TABLE>
<S> <C> <C> <C>
Fund Shares 5.41%
IBC Average(3) 5.15%
</TABLE>
1 THE FUND'S RETURNS AND YIELD ARE AFTER DEDUCTION OF EXPENSES.
2 THE LIPPER FUNDS AVERAGE IS BASED UPON THE AVERAGE RETURN OF ALL MUTUAL
FUNDS IN THE LIPPER U.S. TAXABLE MONEY MARKET FUNDS CATEGORY.
3 THE IBC AVERAGE IS BASED UPON THE AVERAGE YIELD OF ALL MUTUAL FUNDS IN THE
INTERNATIONAL BUSINESS COMMUNICATIONS FINANCIAL DATA ALL TAXABLE MONEY
MARKET FUND CATEGORY.
FEES AND EXPENSES
These tables show the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C>
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or sale proceeds) 5%(1)
Maximum sales charge (load) imposed on
reinvested dividends and other distributions None
Redemption fees None
Exchange fee None
</TABLE>
1 SHARES OF THE FUND ARE SOLD WITHOUT ANY SALES CHARGE. SHAREHOLDERS WHO
EXCHANGE INTO THE FUND, HOWEVER, MAY BE SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE (CDSC) IMPOSED BY THE ORIGINAL FUND UPON THEIR REDEMPTION OF
FUND SHARES DEPENDING ON THE DATE OF PURCHASE OF SHARES OF THE ORIGINAL
FUND AND THE CLASS OF SHARES PURCHASED. SEE "HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND-- HOW TO SELL YOUR SHARES." THE CDSC IS BASED ON THE
PERIOD THAT SHARES OF THE ORIGINAL FUND WERE HELD, CALCULATED WITHOUT
REGARD TO THE PERIOD DURING WHICH SHARES OF THE FUND ARE HELD AND IS
GENERALLY CALCULATED WITH RESPECT TO CLASS B SHARES OF THE ORIGINAL FUND AT
THE FOLLOWING RATES: 5% DURING THE FIRST YEAR, DECREASING BY 1% ANNUALLY TO
1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH YEAR AND THEREAFTER.
CLASS C SHARES OF OTHER FUNDS ARE GENERALLY SUBJECT TO A 1% CDSC FOR
EIGHTEEN MONTHS AFTER PURCHASE (ONE YEAR FOR CLASS C SHARES PURCHASED
BEFORE NOVEMBER 2, 1998). INVESTORS ARE REFERRED TO THE PROSPECTUS OF THE
ORIGINAL FUND FOR A DESCRIPTION OF THE APPLICABLE CDSC.
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3
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C>
Management fees .50%
+ Distribution and service (12b-1) fees None
+ Other expenses .18%
= TOTAL ANNUAL FUND OPERATING EXPENSES .68%
</TABLE>
EXAMPLE(1)
This example will help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Fund shares(1) $569 $518 $479 $847
</TABLE>
You would pay the following expenses on the same investment if you did not
sell your shares:
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Fund shares(1) $69 $218 $379 $847
</TABLE>
1 SHAREHOLDERS WHO EXCHANGE CLASS B OR CLASS C SHARES OF AN ORIGINAL FUND
INTO THE FUND ARE GENERALLY SUBJECT TO A CDSC IMPOSED BY THE ORIGINAL FUND
UPON THEIR REDEMPTION OF FUND SHARES DEPENDING ON THE DATE OF PURCHASE OF
SHARES OF THE ORIGINAL FUND. THE EXAMPLE TAKES INTO ACCOUNT THE DEFERRED
SALES LOAD GENERALLY APPLICABLE TO CLASS B SHARES OF AN ORIGINAL FUND. FOR
FURTHER INFORMATION, SEE "HOW TO BUY, SELL AND EXCHANGE SHARES OF THE
FUND--HOW TO SELL YOUR SHARES."
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4 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
-------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is HIGH CURRENT INCOME CONSISTENT WITH THE
PRESERVATION OF PRINCIPAL AND LIQUIDITY. While we make every effort to achieve
our objective, we can't guarantee success.
The Fund invests in high-quality money market instruments to try to provide
investors with current income while maintaining a stable net asset value of
$1 per share. We manage the Fund to comply with specific rules designed for
money market mutual funds. This means that we manage the Fund's portfolio to
comply with the requirements of Rule 2a-7 under the Investment Company Act of
1940 (the Investment Company Act). As such, we will not acquire any security
with an effective remaining maturity exceeding thirteen months, and we will
maintain a dollar-weighted average portfolio of 90 days or less. In addition, we
will comply with the diversification, quality and other requirements of
Rule 2a-7. This means, generally, that the instruments we purchase present
"minimal credit risk" and are of "eligible quality." "Eligible quality" for this
purpose means a security: (i) rated in one of the two highest short-term rating
categories by at least two nationally recognized statistical rating
organizations (NRSROs), or, if only one NRSRO has rated the security, so rated
by that NRSRO; (ii) rated in one of the three highest long-term rating
categories by at least two NRSROs or, if only one NRSRO has rated the security,
so rated by that NRSRO; or (iii) if unrated, of comparable quality as determined
by the Fund's investment adviser. All securities that we purchase will be
denominated in U.S. dollars but may be issued by a foreign issuer. There is no
limitation as to the amount of assets we can invest in the securities of foreign
issuers.
COMMERCIAL PAPER is short-term debt obligations of banks, corporations and
other borrowers. The obligations are usually issued by financially strong
businesses and often include a line of credit to protect purchasers of the
obligations. An ASSET-BACKED SECURITY is a loan or note that pays interest based
upon the cash flow of a pool of assets, such as mortgages, loans and credit card
receivables. CERTIFICATES OF DEPOSIT, TIME DEPOSITS, BANKERS' ACCEPTANCES and
BANK NOTES are obligations issued by or through a bank. These instruments depend
upon the strength of the bank involved in the borrowing to give investors
comfort that the borrowing will be repaid as promised. FUNDING AGREEMENTS are
contracts issued by insurance companies that guarantee a return of principal,
plus some amount of interest. When purchased by money market funds, funding
agreements will typically be short-term and provide an adjustable rate of
interest.
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5
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
DEBT OBLIGATIONS in general, including those listed above and any others
that we may purchase, are basically written promises to repay a debt. Among the
various types of debt securities we may purchase, the terms of repayment may
vary, as may the commitment of other parties to honor the obligations of the
issuer of the security. We may purchase securities that include DEMAND FEATURES,
which allow us to demand repayment of a debt obligation before the obligation
would otherwise be due. This means that we can purchase longer-term securities
because we can demand repayment of the obligation at an agreed-upon price within
a relatively short period of time. This procedure follows the rules applicable
to money market funds.
Any of the money market instruments that the Fund may purchase may be
accompanied by the right to resell the instrument prior to the instrument's
maturity. In addition, we may separately purchase rights to resell these
instruments. These rights are referred to as "PUTS" and are acquired by the Fund
to protect against a possible decline in the market value of the securities to
which the puts relate in the event of interest rate fluctuations, to shorten the
effective maturity of the security and to provide the Fund with liquidity to
meet shareholder redemption requests.
The securities that we may purchase may change over time as new types of
money market instruments are developed. We will purchase these new instruments,
however, only if their characteristics and features follow the rules governing
the operation of money market funds.
For more information about this Fund and its investments, see "Investment
Risks" and the Statement of Additional Information, "Descriptions of the Fund,
its Investments and Risks." The Statement of Additional Information--which we
refer to as the SAI--contains additional information about the Fund. To obtain a
copy, see the back cover of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of Directors of the Fund can
change investment policies that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
While the Fund invests principally in the securities described above, it may
invest in other securities or use certain investment strategies to increase
returns or protect its assets, if market conditions warrant.
The Fund intends to participate in one or more JOINT TRADING ACCOUNTS
whereby the Fund, along with other investment companies managed by Prudential
Investments Fund Management LLC, will jointly engage in
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6 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
repurchase agreements and, subject to the issuance of an order by the Securities
and Exchange Commission (SEC), jointly purchase money market instruments. The
ability of the Fund to participate in these joint trading accounts will be
conditioned upon requirements imposed by such order, which may be amended from
time to time. Joint investment can allow the Fund to achieve better investment
performance because of reduced transaction costs and greater investment
leverage.
The Fund may invest in DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY.
Treasury securities have varying interest rates and maturities, but they are all
backed by the full faith and credit of the U.S. government.
Treasury debt obligations are sometimes "stripped" into their component
parts: the Treasury's obligation to make periodic interest payments and its
obligation to repay the amount borrowed. These STRIPPED SECURITIES are sold to
investors separately. Stripped securities do not make periodic interest
payments. They are usually sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest
rates fall and lose value when interest rates rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional bonds. The Fund may try to earn money by
buying stripped securities at a discount and either selling them after they
increase in value or holding them until they mature.
The Fund may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY
THE U.S. GOVERNMENT and government-related entities. Some of these debt
securities are backed by the full faith and credit of the U.S. Government, like
obligations of the Government National Mortgage Association (GNMA or Ginnie
Mae). Debt securities issued by other government entities, like obligations of
the Federal National Mortgage Association (FNMA or Fannie Mae) and the Student
Loan Marketing Association (SLMA or Sallie Mae), are not backed by the full
faith and credit of the U.S. Government. However, these issuers have the right
to borrow from the U.S. Treasury to meet their obligations. In contrast, the
debt securities of other issuers, like the Farm Credit System, depend entirely
upon their own resources to repay their debt.
The Fund may invest up to 10% of its total assets in shares of OTHER
INVESTMENT COMPANIES. Such investments can result in the duplication of
management and advisory fees.
The Fund may also use REPURCHASE AGREEMENTS, pursuant to which a party
agrees to sell a security to the Fund and then repurchase it at an agreed-upon
price at a stated time. These transactions constitute short-term
--------------------------------------------------------------------------------
7
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
cash loans by the Fund to financial institutions. This creates a fixed return
for the Fund.
The Fund may use REVERSE REPURCHASE AGREEMENTS, pursuant to which we borrow
money on a temporary basis by selling a security with an obligation to
repurchase it at an agreed-upon price and time. The Fund's use of reverse
repurchase agreements is limited to 15% of the value of its total assets.
The Fund may purchase money market obligations on a "WHEN-ISSUED" or
"DELAYED-DELIVERY" basis. When the Fund makes this type of purchase, the price
and interest rate are fixed at the time of purchase, but delivery and payment
for the obligations take place at a later time. The Fund does not earn interest
income until the date the obligations are delivered.
The Fund may purchase FLOATING RATE and VARIABLE RATE securities. These
securities pay interest at rates that change periodically to reflect changes in
market interest rates. Because these securities adjust the interest they pay,
they may be beneficial when interest rates are rising because of the additional
return the Fund will receive, and they may be detrimental when interest rates
are falling because of the reduction in interest payments to the Fund.
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 20% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund may lend up to 10% of its total assets); and holds ILLIQUID
SECURITIES (the Fund may hold up to 10% of its net assets in illiquid
securities, including securities with legal or contractual restrictions, those
without a readily available market, privately placed commercial paper and
repurchase agreements with maturities longer than seven days). The Fund is
subject to certain investment restrictions that are fundamental policies, which
means they cannot be changed without shareholder approval. For more information
about these restrictions, see the SAI.
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8 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception.
This chart outlines the key risks and potential rewards of the principal
strategies and certain other investments of the Fund. See, too, "Description of
the Fund, its Investments and Risks" in the SAI.
INVESTMENT TYPE
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
---------------------------------------------------------------------------------
HIGH-QUALITY MONEY -- Credit risk--the -- A source of regular
MARKET OBLIGATIONS risk that default of interest
an issuer would income
UP TO 100% leave the Fund with -- May be more secure
unpaid interest or than stock and other
principal equity securities
-- Market risk--the since companies must
risk that bonds and pay their debts
other debt before they pay
instruments may lose dividends
value because
interest rates
change or there is a
lack of confidence
in a group of
borrowers or in an
industry
---------------------------------------------------------------------------------
MONEY MARKET -- Foreign markets, -- Investors may
OBLIGATIONS OF economies and realize higher
FOREIGN ISSUERS political systems returns based upon
(U.S. DOLLAR- may not be as stable higher interest
DENOMINATED) as those in the U.S. rates paid on
-- Differences in foreign investments
UP TO 100% foreign laws, -- Increased
accounting diversification by
standards, public expanding the
information and allowable choices of
custody and high-quality debt
settlement practices securities
---------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to -- May offer a more
value precisely attractive yield
UP TO 10% OF NET ASSETS -- May be difficult to than more widely
sell at the time or traded securities
price desired
---------------------------------------------------------------------------------
</TABLE>
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9
<PAGE>
HOW THE FUND IS MANAGED
-------------------------------------
BOARD OF DIRECTORS
The Fund's Board of Directors oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers, who conduct and supervise the daily business operations of
the Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM is also
responsible for supervising the Fund's Investment Adviser. For the fiscal year
ended June 30, 2000, the Fund paid PIFM management fees of .50% of the Fund's
average net assets.
As of June 30, 2000, PIFM served as the Manager to all 42 of the Prudential
Mutual Funds, and as Manager or administrator to 22 closed-end investment
companies, with aggregate assets of approximately $76 billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and pays Prudential Investments for its
services.
Prudential Investments' Fixed Income Group is organized into teams that
specialize by sector. The Fixed Income Investment Policy Committee, which is
comprised of senior investment staff from each sector team, provides guidance to
the teams regarding duration risk, asset allocations and general risk
parameters. Portfolio managers contribute bottom up security selection within
those guidelines.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund.
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10 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
-------------------------------------
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA), or some other qualified or tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues you
should be aware of, but is not meant to be tax advice. For tax advice, please
speak with your tax adviser.
DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders
every month. The dividends you receive from the Fund will be taxed as ORDINARY
INCOME, whether or not they are reinvested in the Fund.
Although the Fund is not likely to realize capital gains because of the
types of securities we purchase, any realized net CAPITAL GAINS will be paid to
shareholders (typically once a year). Capital gains are generated when the Fund
sells its assets for a profit.
For your convenience, Fund distributions of dividends and capital gains are
automatically reinvested in the Fund. If you ask us to pay the distributions in
cash, we will wire the distribution to your bank account instead of purchasing
more shares of the Fund. Either way, the distributions are subject to taxes,
unless your shares are held in a qualified or tax-deferred plan or account. For
more information about automatic reinvestment and other shareholder services,
see "How to Buy, Sell and Exchange Shares of the Fund--How to Buy Shares" at
Step 3: Additional Shareholder Services.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified or tax-deferred plan or account, your taxes
are deferred, so you will not receive a Form 1099. However, you will receive a
Form 1099 when you take any distributions from your qualified or tax-deferred
plan or account.
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11
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
------------------------------------------------
Fund distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in December of a calendar
year and actually pay them in January of the following year. In such cases, the
dividends are treated as if they were paid on December 31 of the prior year.
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax identification
number and certifications as to your tax status, and if you fail to do so, or if
you are otherwise subject to back-up withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. Dividends of net investment income
and short-term capital gains paid to a nonresident foreign shareholder generally
will be subject to a U.S. withholding tax of 30%. This rate may be lower,
depending on any tax treaty the U.S. may have with the shareholder's country.
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12 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS or Transfer Agent) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
You may purchase shares by check or wire. We do not accept cash or money
orders. To purchase by wire, call the number above to obtain an application.
After PMFS receives your completed application, you will receive an account
number. For additional information about purchasing shares of the Fund, see the
back cover page of this prospectus. We have the right to reject any purchase
order (including an exchange into the Fund) or suspend or modify the Fund's sale
of its shares.
Shares of the Fund may be purchased:
-- through the exchange of Class B and Class C shares of the Prudential
Mutual Funds without the imposition of a contingent deferred sales
charge (CDSC) at the time of the exchange (minimum initial investment
of $1,000 and a minimum subsequent investment of $100)
-- through the exchange of certain Prudential money market funds
acquired by an investor prior to January 22, 1990 in exchange for
shares of a Prudential Mutual Fund subject to a CDSC (minimum initial
investment of $1,000 with no minimum subsequent investment)
-- directly by investors (minimum initial investment of $1,000,000 with
no minimum subsequent investment) or
-- by certain retirement and employee savings plans with the proceeds
from the sale of shares of The Target Portfolio Trust (no minimum
initial or subsequent investment)
STEP 2: UNDERSTANDING THE PRICE YOU'LL PAY
When you invest in a mutual fund, you buy shares of the fund. Shares of a money
market mutual fund, like the Fund, are priced differently than shares
--------------------------------------------------------------------------------
13
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
of common stock and other securities.
The price you pay for each share of the Fund is based on the share value.
The share value of a mutual fund--known as the NET ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. In
determining NAV, the Fund values its securities using the amortized cost method.
The Fund seeks to maintain a NAV of $1 at all times. Your broker may charge you
a separate or additional fee for purchases of shares.
We determine the NAV of our shares once each business day at 4:30 p.m. New
York time on days that the New York Stock Exchange is open for trading. We do
not determine NAV on days when we have not received any orders to purchase, sell
or exchange Fund shares, or when changes in the value of the Fund's portfolio do
not affect the NAV.
STEP 3: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV. If you want your
distributions paid in cash, you can indicate this preference on your application
or notify the Transfer Agent in writing (at the address below) at least five
business days before the date we determine who receives dividends.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: ACCOUNT MAINTENANCE
P.O. BOX 8159
PHILADELPHIA, PA 19101
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you
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14 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check, by wire
or by electronic deposit to your bank account) at any time, subject to certain
restrictions.
When you sell shares of the Fund--also known as redeeming shares--the price
you will receive will generally be the NAV next determined after the Transfer
Agent, the Distributor or your broker receives your order to sell. If you
acquired your shares of the Fund through the exchange of shares of other
Prudential Mutual Funds, however, the proceeds from the sale of shares of the
Fund will be reduced by the amount of any applicable Contingent Deferred Sales
Charge (CDSC) imposed by the other Prudential Mutual Fund. For more information,
see "Contingent Deferred Sales Charge (CDSC)" below. If your broker holds your
shares, he must receive your order to sell by 4:30 p.m. New York time to process
the sale on that day. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 8149
PHILADELPHIA, PA 19101
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay payment of your proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase shares by wire,
certified check or cashier's check. Your broker may charge you a separate or
additional fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI, "Purchase
and Redemption of Fund Shares--Sale
--------------------------------------------------------------------------------
15
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
of Shares."
If you are selling more than $100,000 of shares, and, if you want the
redemption proceeds payable to or sent to someone or some place that is not in
our records, or you are a business or trust, and if you hold your shares
directly with the Transfer Agent, you must have the signature on your sell order
signature guaranteed by an "eligible guarantor institution." An "eligible
guarantor institution" includes any bank, broker, dealer or credit union. For
more information, see the SAI, "Purchase and Redemption of Fund Shares--Sale of
Shares--Signature Guarantee."
In addition, we may withhold wiring redemption proceeds if the Fund's
Investment Adviser determines that the Fund could be adversely affected by
making immediate payment, and we may take up to seven days to wire redemption
proceeds.
CONTINGENT DEFERRED SALES CHARGE (CDSC)
Shares of the Fund generally may be sold without any sales charge. If you
exchange into the Fund from another Prudential Mutual Fund, however, you will be
subject to any applicable CDSC imposed by the original fund when you sell your
shares of the Fund. The amount of the CDSC imposed on your sale of shares of the
Fund will depend on the date you purchased the shares of the original fund,
without regard to the time the shares were held in the Fund. You should read the
prospectus of the original fund for a description of the applicable CDSC. You
can obtain copies of prospectuses of the Prudential Mutual Funds by calling
(800) 225-1852.
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you
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16 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
can purchase additional shares to avoid this action. This involuntary sale does
not apply to shareholders who own their shares as part of a 401(k) plan, an IRA,
or some other qualified or tax-deferred plan or account.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate number of shares to
reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase and Redemption of Fund
Shares--Sale of Shares."
HOW TO EXCHANGE YOUR SHARES
You can exchange Class B and Class C shares of a Prudential Mutual Fund for
shares of the Fund without imposition of a CDSC. If you sell your shares of the
Fund or re-exchange them for Class B or Class C shares of the original fund or
another Prudential Mutual Fund, your shares will be subject to any applicable
CDSC upon the sale or any redemption after the re-exchange without regard to the
time the shares were held in the Fund. You can only exchange shares of the Fund
into Class B or Class C shares of another Prudential Mutual Fund if you meet the
minimum investment requirements of such other Prudential Mutual Fund. Shares of
the Fund may not be exchanged for Class A or Class Z shares of any Prudential
Mutual Fund.
If you hold shares through a broker, you must exchange your shares through
your broker. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 8157
PHILADELPHIA, PA 19101
TELEPHONE REDEMPTIONS AND EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must call the Fund before 4:15 p.m. New York time to
--------------------------------------------------------------------------------
17
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
receive a redemption or exchange amount based on that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail or through your broker.
The telephone redemption and exchange procedures may be modified or
terminated at any time. If this occurs, you will receive a written notice from
the Fund.
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18 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------
The financial highlights below are intended to help you evaluate the Fund's
financial performance for the past 5 years. The TOTAL RETURN in the chart
represents the rate that a shareholder earned on an investment in the Fund,
assuming reinvestment of all dividends and other distributions.
Review this chart with the financial statements and report of independent
accountants which appear in the SAI. Additional performance information is
contained in the annual report, which you can receive at no charge, as described
on the back cover of this prospectus.
The financial highlights for the four fiscal years ended June 30, 2000 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the fiscal year ended June 30, 1996 were audited by
other independent auditors. Their reports were unqualified.
FUND SHARES (FISCAL YEARS ENDED 6-30)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income and net
realized gains .052 .047 .050 .049 .051
Dividends and distributions to
shareholders (.052) (.047) (.050) (.049) (.051)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN(1) 5.32% 4.80% 5.11% 4.96% 5.19%
--------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $229,247 $320,524 $214,480 $261,856 $263,168
RATIOS TO AVERAGE NET ASSETS:
Net investment income 5.17% 4.71% 5.05% 4.86% 5.07%
Expenses .68% .65% .75% .71% .73%
</TABLE>
1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS BUT DOES
NOT INCLUDE THE EFFECT OF ANY SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
--------------------------------------------------------------------------------
19
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
-------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Read the applicable prospectus carefully before you invest
or send money.
STOCK FUNDS
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED FUNDS
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL TAX-MANAGED SMALL-CAP FUND, INC.
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL VALUE FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
-------------------------------------------------------------------
20 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
-------------------------------------
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL NATURAL RESOURCES
FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
PRUDENTIAL GLOBAL GROWTH FUND
PRUDENTIAL INTERNATIONAL VALUE FUND
PRUDENTIAL JENNISON INTERNATIONAL GROWTH FUND
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
INTERNATIONAL EQUITY FUND
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
--------------------------------------------------------------------------------
21
<PAGE>
-------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL SHORT-TERM CORPORATE BOND
FUND, INC.
INCOME PORTFOLIO
PRUDENTIAL TOTAL RETURN BOND FUND, INC.
TARGET FUNDS
TOTAL RETURN BOND FUND
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
-------------------------------------------------------------------
22 PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FOR MORE INFORMATION
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 8098
PHILADELPHIA, PA 19101
(800) 225-1852
(732) 482-7555 (Calling from outside the U.S.)
Outside Brokers should contact
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 8310
PHILADELPHIA, PA 19101
(800) 778-8769
Visit Prudential's website at
http://www.prudential.com
Additional information about the Fund can
be obtained without charge and can be
found in the following documents
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows
BY MAIL
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
BY ELECTRONIC REQUEST
[email protected]
(The SEC charges a fee to copy documents.)
IN PERSON
Public Reference Room in Washington, DC
(For hours of operation, call
1-202-942-8090)
VIA THE INTERNET
on the EDGAR Database at
http://www.sec.gov
CUSIP Number NASDAQ Symbol
74436K-10-4 PBSXX
Investment Company Act File No 811-5951
MF141A
[RECYCLED LOGO]
Printed on Recycled Paper
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 10, 2000
Prudential Special Money Market Fund, Inc. (the Fund) is an open-end,
diversified, management investment company which is currently comprised of one
series, the Money Market Series (the Series or the Fund, as the context
requires). The investment objective of the Fund is high current income
consistent with the preservation of principal and liquidity. The Fund seeks to
achieve its objective by investing in a diversified portfolio of high quality
money market instruments maturing in thirteen months or less. There can be no
assurance that the Fund's investment objective will be achieved. See
"Description of the Fund, its Investments and Risks" in this Statement of
Additional Information.
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077 and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated October 10, 2000, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Fund History................................................ B-2
Description of the Fund, its Investments and Risks.......... B-2
Investment Restrictions..................................... B-5
Management of the Fund...................................... B-7
Control Persons and Principal Holders of Securities......... B-9
Investment Advisory and Other Services...................... B-10
Brokerage Allocation and Other Practices.................... B-12
Capital Stock and Organization.............................. B-13
Purchase and Redemption of Fund Shares...................... B-13
Net Asset Value............................................. B-16
Taxes, Dividends and Distributions.......................... B-16
Calculation of Yield........................................ B-18
Financial Statements........................................ B-19
Report of Independent Accountants........................... B-31
Appendix I-Description of Security Ratings.................. I-1
</TABLE>
--------------------------------------------------------------------------------
MF141B
<PAGE>
FUND HISTORY
The Fund was organized as a corporation under the laws of Maryland on
October 20, 1989. Effective March 7, 1996, the Fund's name was changed from
Prudential-Bache Special Money Market Fund, Inc. to Prudential Special Money
Market Fund, Inc.
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
(a) CLASSIFICATION. The Fund is an open-end diversified management
investment company.
(b) INVESTMENT STRATEGIES AND RISKS.
The Fund's investment objective is high current income consistent with the
preservation of principal and liquidity. While the principal investment policies
and strategies for seeking to achieve this objective are described in the Fund's
Prospectus, the Fund may from time to time also utilize the securities,
instruments, policies and strategies described below in seeking to achieve its
objective. The Fund may not be successful in achieving its objective and you can
lose money.
OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES
The Fund may invest in U.S. Treasury obligations including bills, notes,
bonds and other debt obligations issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. government and, as such, are backed by the
"full faith and credit" of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances. The Fund will also invest in obligations which are guaranteed by
federal agencies or instrumentalities and which may or may not be backed by the
full faith and credit of the United States. Obligations of the Government
National Mortgage Association (GNMA), the Farmers Home Administration and the
Small Business Administration are backed by the full faith and credit of the
United States. In the case of obligations not backed by the full faith and
credit of the United States, the Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Instruments in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations issued by the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA),
the Student Loan Marketing Association, Resolution Funding Corporation and the
Tennessee Valley Authority, each of which under certain conditions has the right
to borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. The Fund's investment in
mortgage-backed securities (E.G., GNMA, FNMA and FHLMC certificates) will be
made only to the extent such securities are used as collateral for repurchase
agreements entered into by the Fund.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Fund may purchase "floating rate" and "variable rate" securities.
Investments in floating or variable rate securities normally will involve
securities which provide a rate that is set as a spread to a designated base
rate, such as rates on Treasury bills, and, in some cases, that the purchaser
can demand payment of the obligation at specified intervals or after a specified
notice period (in each case a period of less than thirteen months) at par plus
accrued interest, which amount may be more or less than the amount paid for
them. Variable rate securities provide for a specified periodic adjustment in
the interest rate, while floating rate securities have an interest rate which
changes whenever there is a change in the designated base interest rate.
DEMAND FEATURES AND GUARANTEES
The Fund may purchase demand features and guarantees. A demand feature
supporting a money market fund instrument can be relied upon in a number of
respects. First, the demand feature can be relied upon to effectively SHORTEN
THE MATURITY of the underlying instrument. Second, the demand feature, if
unconditional, can be used to EVALUATE THE CREDIT QUALITY of the underlying
security. This means that the credit quality of the underlying security can be
based solely on the credit quality of the unconditional demand feature
supporting that security.
A GUARANTEE is a form of unconditional credit support that may include bond
insurance, a letter of credit, and an unconditional demand feature. A money
market fund holding a security subject to a guarantee may determine the credit
quality of the underlying security solely on the basis of the credit quality of
the supporting guarantee.
B-2
<PAGE>
The Fund can invest 10% of its total assets in securities directly issued
by, or supported by, a demand feature provider or guarantor. Rule 2a-7 under the
Investment Company Act of 1940, as amended (the Investment Company Act) provides
a more stringent limit on demand features and guarantees that are "second tier
securities" under the Rule; that is, those securities that are rated in the
second highest category by a specified number of rating organizations.
Specifically, Rule 2a-7 provides that a money market fund cannot invest more
than 5% of its total assets in securities directly issued or supported by second
tier demand features or guarantees that are issued by the same entity.
LIQUIDITY PUTS
The Fund may purchase money market instruments together with the right to
resell the instruments at an agreed-upon price or yield within a specified
period prior to the maturity date of the instruments. Such a right to resell is
commonly known as a "put," and the aggregate price which the Fund pays for
instruments with a put may be higher than the price which otherwise would be
paid for the instruments. Consistent with the Fund's investment objective and
applicable rules issued by the Securities and Exchange Commission and subject to
the supervision of the Board of Directors, the purpose of this practice is to
permit the Fund to be fully invested while preserving the necessary liquidity to
meet unusually large redemptions and to purchase at a later date securities
other than those subject to the put. The Fund may choose to exercise puts during
periods in which proceeds from sales of its shares and from recent sales of
portfolio securities are insufficient to meet redemption requests or when the
funds available are otherwise allocated for investment. In determining whether
to exercise puts prior to their expiration date and in selecting which puts to
exercise in such circumstances, the investment adviser considers, among other
things, the amount of cash available to the Fund, the expiration dates of the
available puts, any future commitments for securities purchases, the yield,
quality and maturity dates of the underlying securities, alternative investment
opportunities and the desirability of retaining the underlying securities in the
Fund's portfolio.
The Fund values instruments which are subject to puts at amortized cost; no
value is assigned to the put. The cost of the put, if any, is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans of the Fund do not exceed in the aggregate 10% of the
value of its respective total assets, and provided that such loans are callable
at any time by the Fund and are at all times secured by cash or equivalent
collateral (which may include a secured letter of credit) that is equal to at
least the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive payments in lieu
of the interest on the loaned securities, while at the same time earning
interest either directly from the borrower or on the cash collateral which will
be invested in short-term obligations. Any voting rights, or rights to consent,
relating to the securities loaned pass to the borrower. However, if a material
event affecting the securities which are the subject of the loan occurs, such
loans will be called so that the securities may be voted by the Fund.
A loan may be terminated by the borrower on one business day's notice or by
the Fund at any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates, and the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over the value of the collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms determined to be creditworthy pursuant to procedures approved by the Board
of Directors of the Fund. On termination of the loan, the borrower is required
to return the securities to the Fund, and any gain or loss in the market price
during the loan would inure to the Fund.
The Fund will pay reasonable finders', administrative and custodial fees in
connection with a loan of its securities or may share the interest earned on
collateral with the borrower.
ILLIQUID SECURITIES
The Fund may not hold more than 10% of its net assets in illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale and
repurchase agreements which have a maturity of longer than seven days. If the
Fund were to exceed this limit, the investment adviser would take prompt action
to reduce the Fund's holdings in illiquid securities to no more than 10% of its
net assets, as required by applicable law. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been
B-3
<PAGE>
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement
securities or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them, resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
However, a large institutional market has developed for certain securities
that are not registered under the Securities Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such securities.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid under procedures established by the
Board of Directors. The investment adviser will monitor the liquidity of such
restricted securities subject to the supervision of the Board of Directors. In
reaching liquidity decisions, the investment adviser will consider, inter alia,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the
marketplace trades (E.G., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). In addition, in order
for commercial paper that is issued in reliance on Section 4(2) of the
Securities Act to be considered liquid, (i) it must be rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations (NRSRO), or if only one NRSRO rates the securities, by that
NRSRO, or, if unrated, be of comparable quality in the view of the investment
adviser; and (ii) it must not be "traded flat" (i.e., without accrued interest)
or in default as to principal or interest. Repurchase agreements subject to a
demand right are deemed to have a maturity equal to the notice period.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in securities of other
money market funds registered under the Investment Company Act. To the extent
that the Fund invests in securities of other registered investment companies,
shareholders of the Fund may be subject to duplicate management and advisory
fees.
BORROWING
The Fund may borrow from banks (including through entering into reverse
repurchase agreements) up to and including 20% of the value of its total assets
taken at cost for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to and including 20% of its
total assets to secure such borrowings. The Fund will not purchase portfolio
securities if its borrowings (other than permissible securities loans) exceed 5%
of its total assets.
REPURCHASE AGREEMENTS
The Fund may purchase securities and concurrently enter into "repurchase
agreements" with the seller, pursuant to which the seller agrees to repurchase
such securities at a specified price within a specified time (generally seven
days or less). The repurchase agreements provide that the Fund will sell the
underlying instruments back to the dealer or the bank at the specified price and
at a fixed time in the future, usually not more than seven days from the date of
purchase. The difference between the purchase price and the resale price
represents the interest earned by the Fund, which is unrelated to the coupon
rate or maturity of the purchased security. Repurchase agreements will at all
times be fully collateralized by U.S. government obligations in an amount at
least equal to the resale price. Such collateral will be held by State Street
Bank & Trust Company, the Fund's Custodian, either directly or through a
sub-custodian, either physically or in a book-entry account.
B-4
<PAGE>
The Fund will enter into repurchase transactions only with parties which
meet creditworthiness standards approved by the Fund's Board of Directors. The
Fund's investment adviser monitors the creditworthiness of such parties under
the general supervision of the Board of Directors. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds upon sale of such collateral upon a default in
the obligation to repurchase are less than the resale price, the Fund will
suffer a loss if the financial institution that is a party to the repurchase
agreement petitions for bankruptcy or becomes subject to the U.S. Bankruptcy
Code because the law regarding the rights of the Fund is unsettled. As a result,
under these circumstances, there may be a restriction on the Fund's ability to
sell the collateral, and the Fund could suffer a loss.
The Fund intends to participate in a joint repurchase account with other
investment companies managed by Prudential Investments Fund Management LLC (PIFM
or the Manager) pursuant to an order of the Securities and Exchange Commission
(the SEC or the Commission). On a daily basis, any uninvested cash balances of
the Fund may be aggregated with those of such other investment companies and
invested in one or more repurchase agreements. The Fund participates in the
income earned or accrued in the joint account based on the percentage of its
investment. In connection with transactions in repurchase agreements with U.S.
financial institutions, it is the Fund's policy that its custodian or designated
sub-custodians, as the case may be, under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which equals or
exceeds the resale price of the agreement. If the seller defaults and the value
of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization on the collateral by the Fund
may be delayed or limited.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements have the characteristics of borrowing and
involve the sale of securities held by the Fund with an agreement to repurchase
the securities at a specified price, date and interest payment. The Fund intends
only to use reverse repurchase agreements when it will be to its advantage to do
so. These transactions are only advantageous if the Fund has an opportunity to
earn a greater rate of interest on the cash derived from the transaction than
the interest cost of obtaining that cash. The Fund may be unable to realize
earnings from the use of the proceeds equal to or greater than the interest
required to be paid. The use of reverse repurchase agreements may exaggerate any
increase or decrease in the value of the Fund's portfolio. The Fund's Custodian
will maintain in a segregated account cash or other liquid assets maturing not
later than the expiration of the reverse repurchase agreements having a value
equal to or greater than such commitments. Although the Fund can invest up to
15% of its assets in reverse repurchase agreements, it does not intend to enter
into reverse repurchase agreements during the coming year.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a "when-issued" or "delayed delivery
basis". When-issued or delayed delivery transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time of entering into the transaction. The Fund will
limit such purchases to those for which the date of delivery and payment falls
within 90 days of the date of the commitment. The Fund will make commitments to
purchase such when-issued securities only with the intention of actually
acquiring the securities. The Fund's Custodian will segregate cash or other
liquid assets having a value equal to or greater than the Fund's purchase
commitments. If the Fund chooses to dispose of the when-issued security prior to
its reciept of, and payment for, the security, it could, as with the disposition
of any other portfolio security, incur a gain or loss due to market
fluctuations. The securities so purchased are subject to market fluctuation and
no interest accrues to the purchaser during the period between purchase and
settlement.
INVESTMENT RESTRICTIONS
The Fund's investment objective and the following restrictions are
fundamental policies. Fundamental policies are those which cannot be changed
without the approval of the holders of a majority of the outstanding voting
securities of the Fund. A "majority of the outstanding voting securities," when
used in this Statement of Additional Information, means the lesser of (i) 67% of
the voting shares represented at a meeting at which more than 50% of the
outstanding voting shares are present in person or represented by proxy or
(ii) more than 50% of the outstanding voting shares. With respect to the
submission of a
B-5
<PAGE>
change in fundamental policy or investment objective of the Fund, such matters
shall be deemed to have been effectively acted upon with respect to the Fund if
a majority of the outstanding voting securities of the Fund votes for the
approval of such matters, as provided above.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions).
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except
insofar as the Fund may be deemed to have issued a senior security by reason of
entering into a reverse repurchase agreement and except that the Fund may borrow
up to 20% of the value of its total assets (calculated when the loan is made)
from banks for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings or reverse repurchase agreements. For
purposes of this restriction, the purchase or sale of securities on a
"when-issued" or delayed delivery basis and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed to be the issuance
of a senior security and such arrangements are not deemed to be a pledge of
assets.
4. Buy or sell real estate or interests in real estate, except that the Fund
may purchase and sell mortgage-backed securities, securities collateralized by
mortgages, securities which are secured by real estate, securities of companies
which invest or deal in real estate and publicly traded securities of real
estate investment trusts. The Fund may not purchase interests in real estate
limited partnerships which are not readily marketable.
5. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
6. Make investments for the purpose of exercising control or management.
7. Invest in interests in oil, gas or other mineral exploration or
development programs.
8. Make loans to others, except through the purchase of debt obligations,
repurchase agreements and loans of portfolio securities limited to 10% of the
value of the Fund's total assets.
9. Purchase common stock or other voting securities, preferred stock,
warrants or other equity securities, except as may be permitted by the Fund by
restriction number 13 (below).
10. Buy or sell commodities or commodity contracts (including futures
contracts and options thereon).
11. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result, with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (determined at the
time of investment) would then be invested in securities of a single issuer.
12. Purchase any securities (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result 25% or more of the value of
the Fund's total assets (determined at the time of investment) would be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to money market instruments of domestic banks (including U.S. branches
of foreign banks that are subject to the same regulations as U.S. banks and
foreign branches of domestic banks, provided the domestic bank is
unconditionally liable in the event of the failure of the foreign branch to make
payment on its instruments for any reason).
13. Invest in securities of other registered investment companies, except by
purchases in the open market involving only customary brokerage commissions and
as a result of which not more than 10% of its total assets (determined at the
time of investment) would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take action within
three days to reduce its borrowing, as required by applicable law.
B-6
<PAGE>
MANAGEMENT OF THE FUND
(a) DIRECTORS
The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, Subadviser, and Distributor, decide upon matters of general
policy.
The Directors also review the actions of the officers of the Fund, who
conduct and supervise the daily business operations of the Fund.
(b) MANAGEMENT INFORMATION--DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
POSITION WITH AND OTHER AFFILIATIONS FOR
NAME, ADDRESS AND AGE (1) THE FUND THE LAST FIVE YEARS
------------------------- ------------- --------------------------
<S> <C> <C>
Delayne Dedrick Gold (61) Director Marketing and Management Consultant.
*Robert F. Gunia (53) Director and Vice President Executive Vice President and Chief Administrative Officer (since
June 1999) of Prudential Investments; Corporate Vice President
(since September 1997) of the Prudential Insurance Company of
America (Prudential); Executive Vice President and Treasurer
(since December 1996) of Prudential Investments Fund Management
LLC (PIFM); President (since April 1999) of Prudential
Investment Management Services LLC (PIMS); formerly Senior Vice
President (March 1987-May 1999) of Prudential Securities
Incorporated (Prudential Securities); formerly Chief
Administrative Officer (July 1990-September 1996), Director
(January 1989-September 1996), and Executive Vice President,
Treasurer and Chief Financial Officer (June 1987-September 1996)
of Prudential Mutual Fund Management Inc. (PMF).
Robert E. LaBlanc (65) Director President (since 1981) of Robert E. LaBlanc Associates, Inc.
(telecommunications); formerly General Partner at Salomon
Brothers; and Vice-Chairman of Continental Telecom; Director of
Storage Technology Corporation (since 1979), Titan Corporation
(since 1995), Salient 3 Communications, Inc., Chartered
Semiconductor Manufacturing Ltd. (since 1998) and Tribune
Company (since 1981); and Trustee of Manhattan College.
*David R. Odenath, Jr. (42) Director Officer in Charge, President, Chief Executive Officer and Chief
Operating Officer (since June 1999) of PIFM; Senior Vice
President (since June 1999) of Prudential; Senior Vice President
(August 1993-May 1999) of PaineWebber Group, Inc.
Robin B. Smith (60) Director Chairman and Chief Executive Officer (since August 1996) of
Publishers Clearing House; formerly President and Chief
Executive Officer (January 1988-August 1996) and President and
Chief Operating Officer (September 1981-December 1988) of
Publishers Clearing House; Director of BellSouth Corporation
(since 1994), Texaco Inc. (since 1992), Springs Industries Inc.
(since 1993), and Kmart Corporation (since 1996).
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
POSITION WITH AND OTHER AFFILIATIONS FOR
NAME, ADDRESS AND AGE (1) THE FUND THE LAST FIVE YEARS
------------------------- ------------- --------------------------
<S> <C> <C>
Stephen Stoneburn (56) Director President and Chief Executive Officer (since June 1996) of
Quadrant Media Corp. (a publishing company); formerly President
(June 1995-June 1996) of Argus Integrated Media, Inc.; Senior
Vice President and Managing Director (January 1993-1995) of
Cowles Business Media; Senior Vice President (January 1991-
1992) and Publishing Vice President (May 1989-December 1990)
of Gralla Publications (a division of United Newspapers, U.K.);
and Senior Vice President of Fairchild Publications, Inc.
(1975-1989).
*John R. Strangfeld, Jr. (46) Director and President Chief Executive Officer, Chairman, President and Director (since
January 1990) of The Prudential Investment Corporation;
Executive Vice President (since February 1998) of Prudential
Global Asset Management Group of Prudential; Chairman (since
August 1989) of Pricoa Capital Group; formerly various positions
to Chief Executive Officer (November 1994-December 1998) of
Private Asset Management Group of Prudential and Senior Vice
President (January 1986-August 1989) of Prudential Capital
Group, a unit of Prudential.
Nancy H. Teeters (70) Director Economist; formerly Director of Inland Steel Industries (July
1989-1999); formerly, Vice President and Chief Economist (July
1984-July 1990) of International Business Machines Corporation;
formerly, Governor of Federal Reserve System (1978-1984).
Clay T. Whitehead (61) Director President (since May 1983) of National Exchange Inc. (new
business development firm).
Robert C. Rosselot (40) Secretary Assistant General Counsel (since September 1997) of PIFM;
formerly, partner with the law firm of Howard & Howard,
Bloomfield Hills, Michigan (December 1995-September 1997) and
Corporate Counsel (September 1990-December 1995) of Federated
Investors.
Grace C. Torres (41) Treasurer and Principal First Vice President (since December 1996) of PIFM; First Vice
Financial and Accounting President (since March 1994) of Prudential Securities; formerly
Officer First Vice President (March 1994-September 1996) of Prudential
Mutual Fund Management, Inc. and Vice President
(July 1989-March 1994) of Bankers Trust Corporation.
</TABLE>
------------
(1) Unless otherwise noted, the address for each of the above persons is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
* "Interested" Director of the Fund, as defined in the Investment Company Act
of 1940 (the Investment Company Act).
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by PIMS.
The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 75.
B-8
<PAGE>
Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
The Fund pays each of its Directors who is not an affiliated person of PIFM
annual compensation of $2,200, in addition to certain out-of-pocket expenses.
Directors who serve on Fund committees may receive additional compensation. The
amount of annual compensation paid to each Director may change as a result of
the introduction of additional funds on which boards the Director may be asked
to serve.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fees in installments which accrue interest
at a rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
Bills at the beginning of each calendar quarter or, pursuant to an SEC exemptive
order at the daily rate of return of the Fund (the Fund Rate). The Fund's
obligation to make payments of deferred Directors' fees, together with interest
thereon, is a general obligation of the Fund.
The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended June 30, 2000 and the aggregate compensation paid to such Directors for
service on the Fund's Board and that of all other funds managed by PIFM (the
Fund Complex) for the calendar year ended December 31, 1999.
COMPENSATION TABLE
<TABLE>
<CAPTION>
APPROXIMATE
COMPENSATION
FROM FUND
AGGREGATE AND FUND
COMPENSATION COMPLEX PAID
NAME AND POSITION FROM FUND TO DIRECTORS(2)
------------------------------------------------------------ ------------ ---------------
<S> <C> <C>
Edward D. Beach--Former Director............................ $ 375 $142,500( 43/70)*
Delayne D. Gold--Director................................... $1,850 $144,500( 43/70)*
Robert F. Gunia(1)--Director................................ -- --
Don G. Hoff--Former Director................................ -- $ 22,500( 20/39)*
Robert E. LaBlanc--Director................................. $1,850 $ 61,250( 20/39)*
David R. Odenath, Jr.(1)--Director.......................... -- --
Robin B. Smith(2)--Director................................. $1,900 $ 96,000( 32/44)*
Stephen Stoneburn--Director................................. $1,850 $ 61,250( 20/39)*
John R. Strangfeld, Jr.(1)--Director........................ -- --
Nancy H. Teeters--Director.................................. $1,950 $ 97,000( 25/43)*
Clay T. Whitehead--Director................................. $1,100 $ 77,000( 38/66)*
</TABLE>
------------
* Indicates number of funds/portfolios in the Fund Complex (including the
Fund) to which aggregate compensation relates.
(1) Directors who are "interested" do not receive compensation from the Fund
Complex (including the Fund).
(2) Total compensation from all the funds in the Prudential Fund Complex for the
calendar year ended December 31, 1999, including amounts deferred at the
election of Directors under the funds' deferred compensation plans.
Including accrued interest, total deferred compensation amounted to $156,478
for Director Robin B. Smith. Currently, Ms. Smith has agreed to defer some
of her fees at the T-Bill rate and other fees at the Fund Rate.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 22, 2000, the Directors and officers of the Fund, as a
group, owned less than 1% of the outstanding shares of common stock of the Fund
and there were no beneficial owners of greater than 5% of the outstanding shares
of the Fund.
As of September 22, 2000, Prudential Securities was the record holder for
other beneficial owners of 122,627,988 shares (or approximately 52%) of the
outstanding common stock of the Fund. In the event of any meetings of
shareholders, Prudential Securities will forward, or cause the forwarding of,
proxy materials to the beneficial owners for which it is the record holder.
B-9
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
(a) INVESTMENT ADVISERS
The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM serves as manager to all of the other investment companies
that, together with the Fund, comprise the Prudential Mutual Funds. See "How the
Fund is Managed--Manager" in the Prospectus. As of June 30, 2000, PIFM managed
and/or administered open-end and closed-end management investment companies with
assets of approximately $76 billion. According to the Investment Company
Institute, as of September 30, 1999, the Prudential Mutual Funds were the 20th
largest family of mutual funds in the United States.
Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), an
affiliate of PIFM, serves as the transfer agent and dividend distribution agent
for the Prudential Mutual Funds and, in addition, provides customer service,
recordkeeping and management and administrative services to qualified plans.
Pursuant to a Management Agreement with the Fund (the Management Agreement),
PIFM, subject to the supervision of the Fund's Board of Directors and in
conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities and other assets. In
connection therewith, PIFM is obligated to keep certain books and records of the
Fund. PIFM has hired The Prudential Investment Corporation, doing business as
Prudential Investments (PI, the Investment Advisor or the Subadvisor), to
provide subadvisory services to the Fund. PIFM also administers the Fund's
corporate affairs and, in connection therewith, furnishes the Fund with office
facilities, together with those ordinary clerical and bookkeeping services which
are not being furnished by State Street, the fund's custodian (the Custodian),
and PMFS. The management services of PIFM for the Fund are not exclusive under
the terms of the Management Agreement and PIFM is free to, and does, render
management services to others.
For its services, PIFM receives, pursuant to the Management Agreement, fees
at an annual rate of .50 of 1% of the average daily net assets of the Fund. The
fees are computed daily and payable monthly. In the event the expenses of the
Fund (including the fees of the Manager but excluding interest, taxes, brokerage
commissions, litigation and indemnification expenses and other extraordinary
expenses) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdictions in which shares of the Fund are then qualified for offer and
sale, the Manager will reduce its fee by the amount of such excess, or, if such
reduction exceeds the compensation payable to the Manager, the Manager will pay
to the Fund the amount of such reduction which exceeds the amount of such
compensation. Any such reductions or payments will be made monthly and are
subject to readjustment during the year. Currently, the Fund believes that there
are no such expense limitations.
In connection with its management of the corporate affairs of the Fund, PIFM
bears the following expenses:
(a) the salaries and expenses of all of its and of the Fund's personnel,
except the fees and expenses of Directors who are not affiliated persons of PIFM
or the Fund's Investment Adviser;
(b) all expenses incurred by PIFM or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund, as described below; and
(c) the costs and expenses payable to the Investment Advisor pursuant to the
subadvisory agreement between PIFM and the Investment Adviser (the Subadvisory
Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fee payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated with PIFM or the Fund's
Investment Adviser, (c) the fees and certain expenses of the Fund's Custodian
and Transfer Agent, including the cost of providing records to the Manager in
connection with its obligation of maintaining required records of the Fund and
of pricing the Fund's shares, (d) the charges and expenses of the Fund's legal
counsel and independent accountants for the Fund, (e) brokerage commissions and
any issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade association of which the Fund
may be a member, (h) the cost of stock certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) certain
organizational expenses and the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the Commission,
registering the Fund and qualifying its shares under state securities laws,
including the preparation and printing of the Fund's registration statements and
prospectuses for such purposes, (k) allocable communications expenses with
respect to
B-10
<PAGE>
investor services and all expenses of shareholders' and Board of Directors'
meetings and of preparing, printing and mailing reports to shareholders and (l)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business.
The Management Agreement also provides that PIFM will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days', nor less than 30 days', written notice. The Management
Agreement provides that it will continue in effect for a period of more than two
years from its execution only so long as such continuance is specifically
approved at least annually in accordance with the requirements of the Investment
Company Act. The Management Agreement was last approved by the Board of
Directors, including a majority of the Directors who are not parties to the
contract or interested persons of any such party as defined in the Investment
Company Act, on May 23, 2000, and by the Fund's shareholders on October 30,
1990.
For the fiscal years ended June 30, 2000, 1999 and 1998, the Fund paid
management fees of $1,541,184, $1,650,674 and $1,195,235, respectively.
PIFM has entered into a Subadvisory Agreement with PI. The Subadvisory
Agreement provides that PI will furnish investment advisory services in
connection with the management of the Fund. In connection therewith, PI 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 PI's performance of such services. PI is compensated by
PIFM for PI's services in the amount of .250% of the Fund's daily net assets.
The Subadviser maintains a corporate credit unit which provides credit
analysis and research on taxable fixed-income securities including money market
instruments. The portfolio manager consults routinely with the credit unit in
managing the Fund's portfolio. The credit unit reviews on an ongoing basis
commercial paper issuers, commercial banks, non-bank financial institutions and
issuers of other taxable fixed-income obligations. The credit analysts have
broad access to research and financial reports, data retrieval services and
industry analysts. They maintain relationships with the management of corporate
issuers and from time to time visit companies in whose securities the Fund may
invest.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act,
on May 23, 2000, and by shareholders of the Fund on October 30, 1990.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment as defined in the Investment Company Act or upon the termination
of the Management Agreement. The Subadvisory Agreement may be terminated by the
Fund, PIFM, or PI upon not less than 30 days' nor more than 60 days' written
notice. The Subadvisory Agreement provides that it will continue in effect for a
period of more than two years from its execution only so long as such
continuance is specifically approved at least annually in accordance with the
requirements of the Investment Company Act.
(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLAN
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. PIFM and PI, which are affiliated
persons of the Fund, are affiliates of PIMS.
The Fund's Distribution Agreement with PIMS provides that it will terminate
automatically if assigned and that it may be terminated, without payment of any
penalty, by a majority of the Directors who are not parties to the Distribution
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in the Distribution Agreement or in any agreement
related thereto or by vote of a majority of the outstanding voting securities of
the Fund or by the Distributor, on 60 days' written notice to the other party.
The Distribution Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the Distribution
Agreement, on May 23, 2000, and by the Fund's shareholders on October 30, 1990.
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Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the federal securities laws.
(c) OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities,
and in that capacity maintains cash and certain financial and accounting books
and records pursuant to an agreement with the Fund.
Prudential Mutual Fund Services LLC (PMFS), 194 Wood Avenue South, Iselin,
New Jersey 08853, serves as the Transfer Agent of the Fund. It is a wholly-owned
subsidiary of PIFM. PMFS provides customary transfer agency services to the
Fund, including the handling of shareholder communications, the processing of
shareholder transactions, the maintenance of shareholder account records,
payment of dividends and distributions and related functions. In connection with
services rendered to the Fund, PMFS receives an annual fee per shareholder
account, a new account set up fee for each manually-established account and a
monthly inactive zero balance account fee per shareholder account. PMFS is also
reimbursed for its out-of-pocket expenses, including but not limited to postage,
stationery, printing, allocable communications and other costs.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.
(d) CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics, in
addition, the Manager, Subadviser and Distributor have each adopted a Code of
Ethics (collectively, the Codes). The Codes permit personnel subject to the
Codes to invest in securities, including securities that may be purchased or
held by the Fund. However, the protective provisions of the Codes prohibit
certain investments and limit such personnel from making investments during
periods when the Fund is making such investments. The Codes are on public file
with, and are available from, the Commission.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. (For purposes of this section, the
term "Manager" includes the Subadviser.) The Fund does not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, securities are generally traded on a "net" basis, with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which the Distributor, or an
affiliate (including Prudential Securities), during the existence of the
syndicate, is a principal underwriter (as defined in the Investment Company
Act), except in accordance with rules of the SEC. The Fund will not deal with
the Distributor or its affiliates on a principal basis.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable under the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Manager may consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of the Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are used
by the Manager in connection with all of its investment activities, and some of
such services obtained in connection with the execution of transactions for the
Fund may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions for
such other accounts, whose aggregate assets are far larger than the Fund's, and
the services furnished by such brokers may be used by the Manager in providing
investment management for the Fund. While such services are useful and important
in supplementing its own research and
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facilities, the Manager believes that the value of such services is not
determinable and does not significantly reduce expenses. The Fund does not
reduce the advisory fee it pays to the Manager by any amount that may be
attributed to the value of such services.
Subject to the above considerations, Prudential Securities, as an affiliate
of the Fund, may act as a securities broker (or futures commission merchant) for
the Fund. In order for Prudential Securities to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by Prudential Securities must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold
during a comparable period of time. This standard would allow Prudential
Securities to receive no more than the remuneration which would be expected to
be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Board of Directors of the Fund, including a
majority of the Directors who are not "interested" persons (as defined in the
Investment Company Act), has adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Prudential
Securities are consistent with the foregoing standard. Brokerage transactions
with Prudential Securities are also subject to such fiduciary standards as may
be imposed by applicable law.
During the fiscal years ended June 30, 2000, 1999 and 1998, the Fund paid no
brokerage commissions.
The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents during their most recent fiscal year. As of June 30, 2000, the
Fund held securities of Goldman, Sachs & Co., Morgan (J.P.) Securities, Inc. and
Morgan Stanley Dean Witter & Co. in the aggregate amount of $11,000,000,
$13,000,000 and $751,263, respectively.
CAPITAL STOCK AND ORGANIZATION
The Fund was incorporated in Maryland on October 20, 1989. Effective
March 7, 1996, the Fund's name changed from Prudential-Bache Special Money
Market Fund, Inc. to Prudential Special Money Market Fund, Inc. The Fund is
authorized to issue 2 billion shares of common stock of $.001 par value, of
which 1 billion shares are authorized for the Money Market Series. The Board of
Directors may increase or decrease the number of authorized shares without
approval by shareholders. Shares of the Fund, when issued, are fully paid,
nonassessable, fully transferable and redeemable at the option of the holder.
Shares are also redeemable at the option of the Fund under certain circumstances
as described under "Purchase and Redemption of Fund Shares--Sale of
Shares--Involuntary Redemption." All shares of the Fund are equal as to
earnings, assets and voting privileges. There are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debts and expenses of the Fund have been paid. The Fund's shares do not have
cumulative voting rights for the election of Directors. Pursuant to the Fund's
Articles of Incorporation, the Board of Directors may authorize the creation of
additional series of common stock and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the Board
may determine.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of 10% of the
Fund's outstanding shares for the purpose of voting on the removal of one or
more Directors or to transact any other business.
PURCHASE AND REDEMPTION OF FUND SHARES
PURCHASE OF SHARES
Shares of the Fund are offered to holders of Class B and Class C shares of
the Prudential Mutual Funds as part of their exchange privilege with a minimum
initial investment of $1,000 and a minimum subsequent investment of $100. As
part of their exchange privilege, shares of the Fund are also offered to
shareholders of certain Prudential money market funds who acquired their money
market fund shares prior to January 22, 1990 from a Prudential Mutual Fund
subject to a contingent deferred sales charge (CDSC), provided that a minimum
initial investment of $1,000 is satisfied. Shares of the Fund may also be
purchased directly by investors for cash with a minimum initial investment of
$1,000,000 and no minimum on subsequent investments.
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Shares of the Fund may also be purchased by Individual Retirement Accounts,
retirement plans for self-employed individuals and employee benefit plans
(collectively, Plans) with the proceeds from any redemption of shares by such
Plans from The Target Portfolio Trust. There is no minimum investment
requirement for the purchase of shares of the Fund by Plans.
Application forms can be obtained from the Transfer Agent or the
Distributor. If a stock certificate is desired, it must be requested in writing
for each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive stock
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares.
SALE OF SHARES
You can redeem your shares at any time for cash at the net asset value
("NAV") next determined after the redemption request is received in proper form
(in accordance with procedures established by the Transfer Agent in connection
with investors' accounts) by the Transfer Agent, the Distributor or your broker.
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable CDSC imposed by the original fund. See "Contingent Deferred Sales
Charge" below. If you are redeeming your shares through a dealer, your dealer
must receive your sell order before the Fund computes its NAV for that day
(i.e., 4:30 p.m., New York time) in order to receive that day's NAV. Your dealer
will be responsible for furnishing all necessary documentation to the
Distributor and may charge you for its services in connection with redeeming
shares of the Fund.
In order to redeem shares, a written request for redemption signed by you
exactly as the account is registered is required. If you hold certificates, the
certificates must be received by the Transfer Agent, the Distributor, or your
dealer in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence of
authority acceptable to the Transfer Agent must be submitted before such request
will be accepted. All correspondence and documents concerning redemptions should
be sent to the Fund in care of the Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 8149, Philadelphia, PA
19101, to the Distributor or to your dealer.
Payment for shares presented for redemption will be made by check within
seven days after receipt of the certificate and/or written request by the
Transfer Agent, the Distributor or your broker, except as indicated below. If
you hold shares through a dealer, payment for shares presented for redemption
will be credited to your account, unless you indicate otherwise. Such payment
may be postponed or the right of redemption suspended at times (a) when the New
York Stock Exchange is closed for other than customary weekends and holidays,
(b) when trading on such exchange is restricted, (c) when an emergency exists as
a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or (d) during any other period when
the Commission, by order, so permits; provided that applicable rules and
regulations of the Commission shall govern as to whether the conditions
described in (b), (c) or (d) exist.
Payment of redemption proceeds of recently purchased shares will be delayed
until the Fund or its Transfer Agent has been advised that the purchase check
has been honored, which may take up to 10 calendar days from the time of receipt
of the purchase check by the Transfer Agent. Such delay may be avoided if shares
are purchased by wire or by certified or cashier's check.
SIGNATURE GUARANTEE. If the proceeds of the redemption (a) exceed $100,000,
(b) are to be paid to a person other than the shareholder, (c) are to be sent to
an address other than the address on the Transfer Agent's records, or (d) are to
be paid to a corporation, partnership, trust or fiduciary, the signature(s) on
the redemption request or stock power must be signature guaranteed by an
eligible guarantor institution. An eligible guarantor institution includes any
bank, broker, dealer or credit union. The Transfer Agent reserves the right to
request additional information from, and make reasonable inquiries of, any
eligible guarantor institution.
CHECK REDEMPTION. At your request, State Street Bank and Trust Company
(State Street) will establish a personal checking account for you. Checks drawn
on this account can be made payable to the order of any person in any amount
greater than $500. When such check is presented to State Street for payment,
State Street presents the check to the Fund as authority to redeem a sufficient
number of shares of the Fund in your account to cover the amount of the check
plus any applicable contingent deferred sales charges. If insufficient shares
are in the account or if the purchase was made by check within 10
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calendar days, the check will be returned marked "insufficient funds." Checks in
an amount less than $500 will not be honored. Shares for which certificates have
been issued cannot be redeemed by check. There is a service charge of $5.00
payable to PMFS to establish a checking account and order checks.
EXPEDITED REDEMPTION. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares wired to your bank, normally on the
next business day following redemption. In order to use Expedited Redemption,
you may so designate at the time the initial investment is made or at a
later date. Once an Expedited Redemption authorization form has been completed,
the signature on the authorization form guaranteed as set forth above and the
form returned to PMFS, requests for redemption may be made by telegraph, letter
or telephone. To request Expedited Redemption by telephone, you should call PMFS
at (800) 225-1852. Calls must be received by PMFS before 4:30 p.m., New York
time, to permit redemption as of such date. Requests by letter should be
addressed to Prudential Mutual Fund Services LLC, Attention: Prudential Special
Money Market Fund, Inc., P.O. Box 15010, New Brunswick, New Jersey 08906-5010. A
signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used to redeem shares in an amount of $200 or more, except that
if an account for which expedited redemption is requested has a net asset value
of less than $200, the entire account must be redeemed. The proceeds of redeemed
shares in the amount of $1,000 or more are transmitted by wire to your account
at a domestic commercial bank which is a member of the Federal Reserve System.
Proceeds of less than $1,000 are forwarded by check to your designated bank
account. Any applicable contingent deferred sales charge will be deducted from
the proceeds of redeemed shares.
In periods of severe market or economic conditions, Expedited Redemptions
may be difficult to implement and shareholders should redeem their shares by
mail as described above.
REDEMPTION IN KIND. If the Directors determine that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as
in a regular redemption. See "Sale of Shares" above. If your shares are redeemed
in kind, you would incur transaction costs in converting the assets into cash.
The Fund, however, has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other qualified or tax-deferred retirement plan
or account, whose account has a NAV of less than $500 due to a redemption. The
Fund will give any such shareholder 60 days' prior written notice in which to
purchase or acquire sufficient additional shares to avoid such redemption. No
CDSC will be imposed on any involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest back into your
account any portion or all of the proceeds of such redemption in shares of the
Fund at the net asset value next determined after the order is received, which
must be within 90 days after the date of the redemption. Any CDSC paid in
connection with such redemption will be credited (in shares) to your account.
(If less than a full repurchase is made, the credit will be on a PRO RATA
basis.) You must notify the Transfer Agent, either directly or through the
Distributor or your Dealer, at the time the repurchase privilege is exercised to
adjust your account for the CDSC you previously paid. Thereafter, any
redemptions will be subject to the CDSC applicable at the time of the
redemption. See "Contingent Deferred Sales Charge" below. Exercise of the
repurchase privilege will generally not affect federal tax treatment of any gain
realized upon redemption. However, if the redemption was made within a 30 day
period of the repurchase and if the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, may not be allowed for federal
income tax purposes.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund are sold without any
sales charge. Shareholders who exchange into the Fund, however, are generally
subject to a CDSC imposed by the original fund upon their redemption of shares
of the Fund depending on the date of purchase of shares of the original fund and
the class of shares purchased, without regard to the time shares were held in
the Fund.
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The following example is provided to assist an investor in understanding how
a CDSC is applied. Shareholders are advised to read the prospectus of the
original fund for a description of the applicable CDSC. Shareholders may obtain
copies of prospectuses of the Prudential Mutual Funds by telephoning the Fund at
(800) 225-1852 or by writing to Prudential Mutual Fund Services LLC, P.O Box
8098, Philadelphia, PA 19101.
For example, assume an investor purchased 100 Class B shares of a fund (the
original fund) (subject to a contingent deferred sales charge declining from 5%
to 1% over a period of six years) at $10 per share for a total cost of $1,000.
Subsequently, the shareholder acquired 5 additional shares of the original fund
through dividend reinvestment. During the second year after the original
purchase, the investor exchanged into the Fund. Assuming at the time of the
exchange, the net asset value of the original fund had appreciated to $12 per
share, the value of the investor's shares would be $1260 (105 shares at $12 per
share). Subsequently, the shareholder acquired 1 additional share of the Fund
through dividend reinvestment (1 share at $1.00 per share). In year three, the
investor decided to redeem $500 of his or her investment. A CDSC would not be
applied to the amount which represents appreciation and the value of the
reinvested dividend shares ($261). Therefore, $239 of the redemption proceeds
($500 minus $261) would be charged at a rate of 4% (the applicable CDSC in the
second year after purchase of the original fund, I.E., without regard to the
time shares were held in the Fund) for a total contingent deferred sales charge
of $9.56.
NET ASSET VALUE
The Fund's net asset value per share is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares.
The Fund uses the amortized cost method of valuation to determine the value
of its portfolio securities. In that regard, the Fund's Board of Directors has
determined to maintain a dollar-weighted average portfolio maturity of 90 days
or less, to purchase only instruments having remaining maturities of thirteen
months or less, and to invest only in securities determined by the Investment
Adviser under the supervision of the Board of Directors to be of minimal credit
risk and to be of "eligible quality" in accordance with regulations of the
Commission. The remaining maturity of an instrument held by the Fund that is
subject to a put is deemed to be the period remaining until the principal amount
can be recovered through demand or, in the case of a variable rate instrument,
the next interest reset date, if longer. The value assigned to the put is zero.
The Board of Directors also has established procedures designed to stabilize, to
the extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures will include review
of the Fund's portfolio holdings by the Board, at such intervals as deemed
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board, and if such
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, will be initiated. In the event the Board of Directors determines that a
deviation exists which may result in material dilution or other unfair results
to investors or existing shareholders, the Board will take such corrective
action as it regards necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize gains or losses, the shortening of
average portfolio maturity, the withholding of dividends or the establishment of
net asset value per share by using available market quotations.
The Fund computes its net asset value at 4:30 p.m. New York time, on each
day the New York Stock Exchange (the Exchange) is open for trading. In the event
the Exchange closes early on any business day, the net asset value of the Fund's
shares shall be determined at a time between such closing and 4:30 p.m. New York
time. The Exchange is closed on the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. This relieves a fund (but not its shareholders) from paying
federal income tax on income which is distributed to shareholders, and, if a
fund did realize long-term capital gains, permits net capital gains of the fund
(i.e., the excess of net long-term capital gains over net short-term capital
losses) to be treated as long-term capital gains of the shareholders, regardless
of how long shareholders have held their shares in that fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of a fund's annual gross income (without reduction
for losses from the sale or other disposition of securities or foreign
currencies) be derived from interest, dividends, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
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options thereon, or other income (including, but not limited to, gains from
options) derived with respect to its business of investing in such securities;
(b) a fund must diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of a fund's assets is
represented by cash, U.S. Government obligations and other securities limited in
respect of any one issuer to an amount not greater than 5% of the market value
of the fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government obligations) and
(c) the fund must distribute to its shareholders at least 90% of its net
investment income and net short-term gains (i.e., the excess of net short-term
capital gains over net long-term capital losses) in each year.
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. The Fund does not anticipate realizing long-term capital
gains or losses. Other gains or losses on the sale of securities will be
short-term capital gains or losses. In addition, debt securities acquired by the
Fund may be subject to original issue discount and market discount rules.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a non-deductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which the Fund pays income
tax is treated as distributed. The Fund intends to make timely distributions in
order to avoid this excise tax. For this purpose, dividends declared in October,
November and December payable to shareholders of record on a specified date in
October, November and December and paid in the following January will be treated
as having been received by shareholders on December 31 of the calendar year in
which declared. Under this rule, therefore, a shareholder may be taxed in the
prior year on dividends or distributions actually received in January of the
following year.
It is anticipated that the net asset value per share of the Fund will remain
constant. However, if the net asset value per share fluctuates, a shareholder
may realize gain or loss upon the disposition of a share. Distributions of net
investment income and net short-term gains will be taxable to the shareholder at
ordinary income rates regardless of whether the shareholder receives such
distributions in additional shares or cash. Any gain or loss realized upon a
sale or redemption of shares by a shareholder who is not a dealer in securities
will generally be treated as long-term capital gain or loss if the shares have
been held for more than one year and otherwise as short-term capital gain or
loss. Any such loss, however, although otherwise treated as short-term capital
loss, will be treated as long-term capital loss to the extent of any capital
gain distributions received by the shareholder, if the shares have been held for
six months or less. Futhermore, certain rules may apply which would limit the
ability of the shareholder to recognize any loss if, for example, the
shareholder replaced the shares, including shares purchased pursuant to dividend
reinvestment, within 30 days of the disposition of the shares. In such cases,
the basis of the shares acquired will be readjusted to reflect the disallowed
loss. Because none of the Fund's net income is anticipated to arise from
dividends on common or preferred stock, none of its distributions to
shareholders will be eligible for the dividends received deduction for
corporations under the Internal Revenue Code.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries is not known.
If the Fund is liable for foreign income taxes, and if more than 50% of the
value of the Fund's assets consists of securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income taxes paid by the Fund, but there can be no assurance that the
Fund will be able to do so. If the Fund does elect to "pass through" the foreign
taxes paid, shareholders will be required to (i) include in gross income (in
addition to taxable dividends actually received) their PRO RATA share of the
foreign income taxes paid by the Fund; and (ii) treat their PRO RATA share of
foreign income taxes as paid by them. Shareholders will then be permitted either
to deduct their PRO RATA share of foreign income taxes in computing their
taxable income or to claim a foreign tax credit against U.S. income taxes. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Foreign shareholders may not deduct or claim a credit for foreign
tax unless the dividends paid to them by the Fund are effectively connected with
a U.S. trade or business. Accordingly, a foreign shareholder may recognize
additional taxable income as a result of the Fund's election to pass through the
foreign taxes to shareholders.
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The amount of foreign taxes for which a shareholder may claim a credit in
any year will generally be subject to a separate limitation for "passive income"
which includes, among other things, dividends, interest and certain foreign
currency gains. Gain from the sale of a security will be treated as derived from
sources within the United States, potentially reducing the amount allowable as a
credit under the limitation.
Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund will "pass
through" for that year and, if so, such notification will designate (a) the
shareholder's portion of the foreign taxes paid by the Fund and (b) the portion
of the dividend which represents income derived from foreign sources.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in the Fund.
Under the laws of certain states, distributions of net income may be taxable
to shareholders as income even though a portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from state income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
CALCULATION OF YIELD
The Fund will prepare a current quotation of yield daily. The yield quoted
will be the simple annualized yield for an identified seven calendar day period.
The yield calculation will be based on a hypothetical account having a balance
of exactly one share at the beginning of the seven-day period. The base period
return will be the change in the value of the hypothetical account during the
seven-day period, including dividends declared on any shares purchased with
dividends on the shares, but excluding any capital changes, divided by the value
of the account at the beginning of the base period. The yield will vary as
interest rates and other conditions affecting money market instruments change.
Yield also depends on the quality, length of maturity and type of instruments in
the Fund's portfolio, and its operating expenses. The Fund also may prepare an
effective annual yield computed by compounding the unannualized seven-day period
return as follows: by adding 1 to the unannualized seven-day period return,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result.
Effective yield = [(base period return+1)TO THE POWER OF 365/7]-1
The yield and effective yield for the Fund based on the 7 days ended June
30, 2000 were 6.03% and 6.20%, respectively.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., IBC Financial
Data, Inc., The Bank Rate Monitor, other industry publications, business
periodicals and market indices.
The Fund's yield fluctuates, and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will actually
yield for any given period. Actual yields will depend upon not only changes in
interest rates generally during the period in which the investment in the Fund
is held, but also on changes in the Fund's expenses. Yield does not take into
account any federal or state income taxes.
ADVERTISING. Advertising materials for the Fund may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Fund's manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for the Fund also may
include mention of The Prudential Insurance Company of America, its affiliates
and subsidiaries, and reference the assets, products and services of those
entities.
From time to time, advertising materials for the Fund may include
information concerning retirement and investing for retirement, may refer to the
approximate number of Fund shareholders and may refer to Lipper rankings or
Morningstar ratings, other related analysis supporting those ratings, other
industry publications, business periodicals and market indices. In addition,
advertising materials may reference studies or analyses performed by the manager
or its affiliates. Advertising materials for sector funds, funds that focus on
market capitalizations, index funds and international/global funds may discuss
the potential benefits and risks of that investment style. Advertising materials
for fixed income funds may discuss the benefits and risks of investing in the
bond market including discussions of credit quality, duration and maturity.
B-18
<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)
-------------------------------------------------------------------------------------
<S> <C> <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>
See Notes to Financial Statements
B-19
<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)
------------------------------------------------------------------------------------
<S> <C> <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
B-20
<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>
See Notes to Financial Statements
B-21
<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
B-22
<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>
See Notes to Financial Statements
B-23
<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 DIVIDED BY 229,247,320 shares
of common stock issued and outstanding; two billion
shares authorized) $1.00
</TABLE>
See Notes to Financial Statements
B-24
<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>
See Notes to Financial Statements
B-25
<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
B-26
<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.
B-27
<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.
B-28
<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.
See Notes to Financial Statements
B-29
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. Money Market Series
Financial Highlights Cont'd.
YEAR ENDED JUNE 30,
------------------------------------------------
1999 1998 1997 1996
------------------------------------------------
$ 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%
See Notes to Financial Statements
B-30
<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
B-31
<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.
B-32
<PAGE>
APPENDIX I--DESCRIPTION OF SECURITY RATINGS
BOND RATINGS
MOODY'S INVESTORS SERVICE--Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than Aaa securities. Bonds
which are rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future. Moody's
applies numerical modifiers "1", "2" and "3" in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier "1" indicates that the company ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the company ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS GROUP--Debt rated AAA has the highest rating
assigned by S&P. Capacity to pay interest and repay principal is extremely
strong. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree. Debt
rated A has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
DUFF AND PHELPS CREDIT RATING CO.--The following summarizes the ratings used
by Duff & Phelps for long-term debt:
"AAA": Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
"AA+", "AA" or "AA-": High credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
"A+", "A" or "A-": Protection factors are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.
FITCH IBCA--The following summarizes the ratings used by Fitch IBCA for
long-term debt:
"AAA": Highest credit quality. "AAA" ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events.
"AA": Very high credit quality. "AA" ratings denote a very low
expectation of credit risk. They indicate very strong capacity for timely
payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
"A": High credit quality. "A" ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for
higher ratings.
"BBB": Good credit quality. "BBB" ratings indicate that there is
currently a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered adequate, but adverse
changes in circumstances and in economic conditions are more likely to
impair this capacity. This is the lowest investment grade category.
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the "AAA" long-term rating
category or to categories below "CCC".
COMMERCIAL PAPER RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Issuers rated "Prime-1" (or supporting institutions) have a
superior ability for
I-1
<PAGE>
repayment of senior short-term debt obligations. Issuers rated "Prime-2" (or
supporting institutions) have a strong ability for repayment of senior
short-term debt obligations. Issuers rated "Prime-3" (or supporting
institutions) have an acceptable ability for repayment of senior short-term
obligations.
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. The
designation A-1 indicates that the degree of safety regarding timely payment is
strong. A "+" designation is applied to those issues rated A-1 which possess
extremely strong safety characteristics. Capacity for timely payment on issues
with the designation A-2 is satisfactory. However, the relative degree of safety
is not as high as for issues designated A-1. Issues carrying the designation A-3
have adequate capacity for timely payment. They are however, somewhat more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations.
The following summarizes the ratings used by Duff & Phelps for short-term
debt, which apply to all obligations with maturities of under one year,
including commercial paper.
D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations.
D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D-3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
The following summarizes the ratings used by Fitch IBCA for short-term debt,
which apply to most obligations with maturities of less than 12 months, or up to
three years for U.S. public finance securities:
"F1": Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
"F2": Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.
"F3": Fair credit quality. The capacity for timely payment of financial
commitments is adequate, however, near-term adverse changes could result in a
reduction to non-investment grade.
"B": Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C": High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D": Default. Denotes actual or imminent payment default.
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to short-term ratings other than
"F1".
I-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a). Articles of Amendment and Restatement. Incorporated by reference to
Exhibit No. 1 to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A filed via EDGAR on August 26, 1997 (File
No. 33-31603).
(b). By-Laws of the Registrant, as Amended and Restated on
November 18, 1999.*
(c). (i) Specimen stock certificate of the Registrant, $.001 par value
per share. Incorporated by reference to Exhibit No. 4 to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
(ii) Instruments defining rights of security holders.*
(d). (i) Management Agreement between the Registrant (with respect to the
Money Market Series) and Prudential Mutual Fund Management, Inc.
Incorporated by reference to Exhibit No. 5(a) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed
via EDGAR on August 26, 1997 (File No. 33-31603).
(ii) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation with
respect to the Money Market Series. Incorporated by reference to
Exhibit No. 5(b) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A filed via EDGAR on August 26,
1997 (File No. 33-31603).
(iii) Amendment dated November 1, 2000 to Subadvisory Agreement
between Prudential Investments Fund Management LLC and the
Prudential Investment Corporation.*
(e). (i) Distribution Agreement, amended and restated as of April 12,
1995, between the Registrant and Prudential Mutual Fund
Distributors, Inc. Incorporated by reference to Exhibit No. 6 to
Post-Effective Amendment No. 8 to the Registration Statement on Form
N-1A filed via EDGAR on August 29, 1995 (File No. 33-31603).
(ii) Amendment to Distribution Agreement. Incorporated by reference
to Exhibit 6(b) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A filed via EDGAR on August 27,
1996 (File No. 33-31603).
(iii) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC. Incorporated by reference to
Exhibit No. 6(c) to Post-Effective Amendment No. 11 filed via EDGAR
on August 31, 1998 (File No. 33-31603).
(iv) Form of Dealer Agreement. Incorporated by reference to Exhibit
No. 6(d) to Post-Effective Amendment No. 11 filed via EDGAR on
August 31, 1998 (File No. 33-31603).
(f). Not applicable.
(g). (i) Custodian Agreement, dated January 12, 1990, between the
Registrant and State Street Bank and Trust Company. Incorporated by
reference to Exhibit No. 8 to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A filed via EDGAR on August 26,
1997 (File No. 33-31603).
(ii) Amendment dated February 22, 1999 to Custodian Contract.*
(h). (i) Transfer Agency and Service Agreement, dated January 12, 1990,
between the Registrant and Prudential Mutual Fund Services, Inc.
Incorporated by reference to Exhibit No. 9 to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed
via EDGAR on August 26, 1997 (File No. 33-31603).
(ii) Amendment dated August 24, 1999 to Transfer Agency and Service
Agreement between the Registrant and Prudential Mutual Fund Services
LLC.*
(i). Opinion of counsel. Incorporated by reference to Exhibit No. 10 to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
(j). Consent of Independent Accountants.*
(k). Not applicable.
(l). Not applicable.
C-1
<PAGE>
(m). Not applicable.
(n). Not applicable.
(o). Reserved.
(p). (i) Code of Ethics of the Registrant.*
(ii) Code of Ethics of Prudential Investment Corporation, Prudential
Investments Fund Management LLC and Prudential Investment Management
Services LLC.*
------------------------
*Filed herewith.
C-2
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended (the 1940 Act), and pursuant to Article VI of the Fund's Articles of
Incorporation (Exhibit (a) to the Registration Statement) and Section 2-418 of
the Maryland General Corporation Law, officers, directors, employees and agents
of the Registrant will not be liable to the Registrant, any stockholder,
officer, director, employee, agent or other person for any action or failure to
act, except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of the Distribution Agreement
(Exhibit (e)(iii) to the Registration Statement), the Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the Securities Act), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit (d)(i) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d)(ii) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its Articles of Incorporation, Management, Subadvisory and
Distribution Agreements in a manner consistent with Release No. 11330 of the
Securities and Exchange Commission under the 1940 Act so long as the
interpretation of Section 17(h) and 17(i) of such Act remains in effect and is
consistently applied.
Under Section 17(h) of the 1940 Act, it is the position of the staff of the
Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of one's office, no indemnification will be permitted unless an
independent legal counsel (not including a counsel who does work for either the
Registrant, its investment advisor, its principal underwriters or persons
affiliated with these persons) determines, based upon a review of the facts,
that the person in question was not guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Under its Articles of Incorporation, the Registrant may advance funds to
provide for indemnification. Pursuant to the Securities and Exchange Commission
staff's position on Section 17(h), advances will be limited in the following
respect:
(1) Any advances must be limited to amounts used, or to be used, for the
preparation and/or presentation of a defense to the action (including costs
connected with preparation of a settlement);
C-3
<PAGE>
(2) Any advances must be accompanied by a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to receive
from the Registrant by reason of indemnification;
(3) Such promise must be secured by a surety bond or other suitable
insurance; and
(4) Such surety bond or other insurance must be paid for by the recipient
of the advance.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Prudential Investments Fund Management LLC (PIFM)
See "How the Fund is Managed--Manager" in the Prospectus constituting
Part A of this Post-Effective Amendment to the Registration Statement and
"Investment Advisory and Other Services--Investment Advisers" in the Statement
of Additional Information constituting Part B of this Post-Effective Amendment
to the Registration Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers within the last two fiscal years are set forth below. The
address of each person is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
---------------- ------------------ ---------------------
<S> <C> <C>
Robert F. Gunia Executive Vice President and Executive Vice President and Chief Administrative
Chief Administrative Officer Officer, PIFM; Vice President, Prudential;
Prudential Investment Management Services LLC
(PIMS)
William V. Healey Executive Vice President, Chief Executive Vice President, Chief Legal Officer and
Legal Officer and Secretary Secretary, PIFM; Vice President and Associate
General Counsel, Prudential; Senior Vice President,
Chief Legal Officer and Secretary, PIMS
David R. Odenath, Officer-in-Charge, President, Officer-in-Charge, President, Chief Executive
Jr. Chief Executive Officer and Officer and Chief Operating Officer, PIFM; Senior
Chief Operating Officer Vice President, The Prudential Insurance Company of
America (Prudential)
Stephen Pelletier Executive Vice President Executive Vice President, PIFM
Judy A. Rice Executive Vice President Executive Vice President, PIFM
Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
</TABLE>
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Investment Adviser" in the Prospectus
constituting Part A of this Post-Effective Amendment to the Registration
Statement and "Investment Advisory and Other Services--Investment Advisers" in
the Statement of Additional Information constituting Part B of this
Post-Effective Amendment to the Registration Statement.
The business and other connections of PIC's directors and executive officers
within the last two fiscal years are as set forth below. The address of each
person is Prudential Plaza, Newark, New Jersey 07102-4077.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<S> <C> <C>
John R. Strangfeld, Jr. Chairman of the Board, President of Prudential Global Asset Management Group
President and Chief of Prudential; Senior Vice President of Prudential;
Executive Officer and Chairman of the Board, President, Chief Executive
Director Officer and Director, PIC
Bernard Winograd Senior Vice President and Chief Executive Officer, Prudential Real Estate
Director Investors; Senior Vice President and Director, PIC
</TABLE>
C-4
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITER.
(a) Prudential Investment Management Services LLC (PIMS)
Prudential Investment Management Services LLC is distributor for Prudential
Government Securities Trust, The Target Portfolio Trust, Cash Accumulation
Trust, COMMAND Government Fund, COMMAND Money Fund, COMMAND Tax-Free Fund,
Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund), Prudential Balanced Fund, Prudential California Municipal
Fund, Prudential Diversified Bond Fund, Inc., Prudential Diversified Funds,
Prudential Emerging Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential
Europe Growth Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential
Global Total Return Fund, Inc., Prudential High Yield Fund, Inc., Prudential
Index Series Fund, Prudential MoneyMart Assets Inc., Prudential Natural
Resources Fund, Inc., Prudential Government Income Fund, Inc., Prudential High
Yield Total Return Fund, Inc., Prudential International Bond Fund, Inc.,
Prudential Institutional Liquidity Portfolio, Inc., The Prudential Investment
Portfolios, Inc., Prudential Mid-Cap Value Fund, Prudential Municipal Bond Fund,
Prudential Municipal Series Fund, Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Real Estate Securities Fund,
Prudential Sector Funds, Inc., Prudential Small-Cap Quantum Fund, Inc.,
Prudential Small Company Fund, Inc., Prudential Special Money Market Fund, Inc.,
Prudential Short-Term Corporate Bond Fund, Inc., Prudential Tax-Free Money Fund,
Inc., Prudential Tax-Managed Funds, Prudential 20/20, Focus Fund, Prudential
Value Fund, Prudential World Fund, Inc., Strategic Partners Series and Target
Funds.
(b) Information concerning the Directors and officers of PIMS is set forth
below:
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME(1) WITH UNDERWRITER REGISTRANT
------- --------------------- -------------
<S> <C> <C>
Margaret Deverell..... Vice President and Chief Financial Officer None
Kevin Frawley......... Senior Vice President and Chief Compliance Officer None
Robert F. Gunia....... President Vice President
and Director
William V. Healey..... Senior Vice President, Secretary and Chief Legal Assistant Secretary
Officer
John R. Strangfeld, Advisory Board Member President and
Jr.................... Director
</TABLE>
(1) The address of each named is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey, the Registrant, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and Prudential Mutual Fund
Services LLC, 194 Wood Avenue South, Iselin, New Jersey, 08853. Documents
required by Rules 31a-1(b)(4), (5), (6), (7), (9), (10) and (11) and 31a-1(d)
and (f) will be kept at Gateway Center Three, and the remaining accounts, books
and other documents required by such other pertinent provisions of
Section 31(a) and the Rules promulgated thereunder will be kept by State Street
Bank and Trust Company and Prudential Mutual Fund Services LLC.
ITEM 29. MANAGEMENT SERVICES.
Other than as set forth under the captions "How the Fund is Managed--Manager"
and "How the Fund is Managed--Distributor" in the Prospectus and the caption
"Investment Advisory and Other Services" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Post-Effective
Amendment to the Registration Statement, Registrant is not a party to any
management-related service contract.
ITEM 30. UNDERTAKINGS.
None.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 10th day of October, 2000.
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
By: /s/ John R. Strangfeld, Jr.
-----------------------------------------------
JOHN R. STRANGFELD, JR., PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Delayne D. Gold Director October 10, 2000
------------------------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Director and Vice President October 10, 2000
------------------------------------
ROBERT F. GUNIA
/s/ Robert E. LaBlanc Director October 10, 2000
------------------------------------
ROBERT E. LABLANC
/s/ David R. Odenath, Jr. Director October 10, 2000
------------------------------------
DAVID R. ODENATH, JR.
/s/ Robin B. Smith Director October 10, 2000
------------------------------------
ROBIN B. SMITH
/s/ Stephen D. Stoneburn Director October 10, 2000
------------------------------------
STEPHEN D. STONEBURN
/s/ John R. Strangfeld, Jr. Director and President October 10, 2000
------------------------------------
JOHN R. STRANGFELD, JR.
/s/ Nancy H. Teeters Director October 10, 2000
------------------------------------
NANCY H. TEETERS
/s/ Clay T. Whitehead Director October 10, 2000
------------------------------------
CLAY T. WHITEHEAD
/s/ Grace C. Torres Treasurer and Principal October 10, 2000
------------------------------------ Financial and Accounting
GRACE C. TORRES Officer
</TABLE>
<PAGE>
EXHIBIT INDEX
(a).Articles of Amendment and Restatement. Incorporated by reference to
Exhibit No. 1 to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A filed via EDGAR on August 26, 1997 (File
No. 33-31603).
(b).By-Laws of the Registrant, as Amended and Restated on
November 18, 1999.*
(c).(i) Specimen stock certificate of the Registrant, $.001 par value per
share. Incorporated by reference to Exhibit No. 4 to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on August 26, 1997 (File No. 33-31603).
(ii) Instruments defining rights of security holders.*
(d).(i) Management Agreement between the Registrant (with respect to the
Money Market Series) and Prudential Mutual Fund Management, Inc.
Incorporated by reference to Exhibit No. 5(a) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on August 26, 1997 (File No. 33-31603).
(ii) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation with respect to the
Money Market Series. Incorporated by reference to Exhibit No. 5(b) to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
(iii) Amendment dated November 1, 2000 to Subadvisory Agreement
between Prudential Investments Fund Management LLC and the Prudential
Investment Corporation.*
(e).(i) Distribution Agreement, amended and restated as of April 12,
1995, between the Registrant and Prudential Mutual Fund
Distributors, Inc. Incorporated by reference to Exhibit No. 6 to
Post-Effective Amendment No. 8 to the Registration Statement on Form
N-1A filed via EDGAR on August 29, 1995 (File No. 33-31603).
(ii) Amendment to Distribution Agreement. Incorporated by reference
to Exhibit 6(b) to Post-Effective Amendment No. 9 to the Registration
Statement on Form N-1A filed via EDGAR on August 27, 1996 (File
No. 33-31603).
(iii) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC. Incorporated by reference to
Exhibit No. 6(c) to Post-Effective Amendment No. 11 filed via EDGAR
on August 31, 1998 (File No. 33-31603).
(iv) Form of Dealer Agreement. Incorporated by reference to Exhibit
No. 6(d) to Post-Effective Amendment No. 11 filed via EDGAR on August
31, 1998 (File No. 33-31603).
(f).Not applicable.
(g).(i) Custodian Agreement, dated January 12, 1990, between the
Registrant and State Street Bank and Trust Company. Incorporated by
reference to Exhibit No. 8 to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A filed via EDGAR on August 26,
1997 (File No. 33-31603).
(ii) Amendment dated February 22, 1999 to Custodian Contract.*
(h).(i) Transfer Agency and Service Agreement, dated January 12, 1990,
between the Registrant and Prudential Mutual Fund Services, Inc.
Incorporated by reference to Exhibit No. 9 to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on August 26, 1997 (File No. 33-31603).
(ii) Amendment dated August 24, 1999 to Transfer Agency and Service
Agreement between the Registrant and Prudential Mutual Fund Services
LLC.*
(i).Opinion of counsel. Incorporated by reference to Exhibit No. 10 to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
(j).Consent of Independent Accountants.*
(k).Not applicable.
(l).Not applicable.
(m).Not applicable.
(n).Not applicable.
(o).Reserved.
<PAGE>
(p).(i) Code of Ethics of the Registrant.*
(ii) Code of Ethics of Prudential Investment Corporation, Prudential
Investments Fund Management LLC and Prudential Investment Management
Services LLC.*
------------------------
*Filed herewith.
