Prudential Short Duration High Yield Fund, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

 

Investment Company Act file number:    811-22632
Exact name of registrant as specified in charter:    Prudential Short Duration High Yield Fund, Inc.
Address of principal executive offices:    655 Broad Street, 17th Floor
   Newark, New Jersey 07102
Name and address of agent for service:    Deborah A. Docs
   655 Broad Street, 17th Floor
   Newark, New Jersey 07102
Registrant’s telephone number, including area code:    973-367-7521
Date of fiscal year end:    5/31/2017
Date of reporting period:    11/30/2016


Item 1      Reports to Stockholders


PRUDENTIAL INVESTMENTS, A PGIM BUSINESS  |  CLOSED-END FUNDS

 

     Prudential Short Duration High Yield Fund, Inc.

 

 

SEMIANNUAL REPORT   NOVEMBER 30, 2016

 

LOGO

 

To enroll in e-delivery, go to

prudentialfunds.com/edelivery

 

  LOGO


Objective: High level of current income

 

Highlights

 

PRUDENTIAL SHORT DURATION HIGH YIELD FUND, INC.

 

 

Relative to the Bloomberg Barclays US High Yield Ba/B 1-5 Year 1% Issuer Constrained Index (the Index), the Fund’s underweight to the banking sector and overweights to the industrial and consumer non-cyclical sectors added to performance. (For a complete list of holdings, refer to the Portfolio of Investments section of this report.)

 

 

Security selection in the industrial, building materials & home construction, gaming/lodging/leisure and technology sectors added to performance.

 

 

Sector allocation was the largest detractor from performance over the period. The Fund’s overweight to the struggling health care & pharmaceutical sector hurt performance the most. Underweights to the rebounding upstream (exploration and production) energy and metals & mining sectors also limited results.

 

 

 

The views expressed in this report and information about the Fund’s portfolio holdings are for the period covered by this report and are subject to change thereafter.

 

PGIM Fixed Income is a unit of PGIM, Inc. (PGIM), a registered investment adviser. PGIM is a Prudential Financial Company. © 2017 Prudential Financial, Inc. and its related entities. The Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

 

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Letter from the President

 

LOGO

 

Dear Shareholder:

 

We hope you find the semiannual report for Prudential Short Duration High Yield Fund, Inc. informative and useful. The report covers performance for the six-month period ended November 30, 2016.

 

Since market conditions change over time, we believe it is important to maintain a diversified portfolio of funds consistent with your tolerance for risk, time horizon, and financial goals.

 

Your financial advisor can help you create a diversified investment plan that may include funds covering all the basic asset classes and that reflects your personal investor profile and risk tolerance. Keep in mind, however, that diversification and asset allocation strategies do not assure a profit or protect against loss in declining markets.

 

Prudential Investments® is dedicated to helping you solve your toughest investment challenges—whether it’s capital growth, reliable income, or protection from market volatility and other risks. We offer the expertise of Prudential Financial’s affiliated asset managers that strive to be leaders in a broad range of funds to help you stay on course to the future you envision. They also manage money for major corporations and pension funds around the world, which means you benefit from the same expertise, innovation, and attention to risk demanded by today’s most sophisticated investors.

 

Thank you for choosing the Prudential Investments family of funds.

 

Sincerely,

 

LOGO

 

Stuart S. Parker, President

Prudential Short Duration High Yield Fund, Inc.

January 17, 2017

 

Prudential Short Duration High Yield Fund, Inc.     3   


Your Fund’s Performance (unaudited)

 

Performance data quoted represent past performance and assume the reinvestment of all dividends. Past performance does not guarantee future results. An investor may obtain performance data as of the most recent month-end by visiting our website at www.prudentialfunds.com.

 

Investment Objective

The Fund seeks to provide a high level of current income by investing primarily in higher-rated, below-investment-grade fixed income instruments.* The Fund seeks to maintain a weighted average portfolio duration of three years or less and a weighted average maturity of five years or less.

 

*There can be no guarantee the Fund will achieve its objective. Higher-rated high yield bonds, commonly referred to as “junk bonds,” are below investment grade and are considered speculative. They are rated Ba, B by Moody’s Investors Service, Inc. (Moody’s); BB, B by Standard & Poor’s Ratings Services (S&P) and Fitch, Inc. (Fitch); or comparably rated by another nationally recognized statistical rating organization (NRSRO), or if unrated, are considered by PGIM Fixed Income to be of comparable quality.

 

Performance Snapshot as of 11/30/16
Price Per Share   Total Return For
Six Months Ended
11/30/16
$16.67 (NAV)   3.11%
$15.14 (Market Price)   1.18%

 

Total returns are based on changes in net asset value (NAV) or market price, respectively. NAV total return assumes the reinvestment of all distributions, including returns of capital, if any, at NAV. Market Price total return assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Fund’s Dividend Reinvestment Plan.

 

Source: Prudential Investments LLC.

 

Key Fund Statistics as of 11/30/16          
Duration    2.5 years        Average Maturity    3.2 years

 

Duration shown includes the impact of leverage. Duration measures investment risk that takes into account both a bond’s interest payments and its value to maturity. Average Maturity is the average number of years to maturity of the Fund’s bonds.

 

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Credit Quality expressed as a percentage of total investments as of 11/30/16 (%)  
BBB     9.6   
BB     49.9   
B     33.4   
CCC     5.1   
C     0.0   
Cash/Cash Equivalents     2.0   
Total Investments     100.0   

 

Source: PGIM Fixed Income

 

Credit ratings reflect the highest rating assigned by a NRSRO such as Moody’s, S&P or Fitch. Credit ratings reflect the common nomenclature used by both S&P and Fitch. Where applicable, ratings are converted to the comparable S&P/Fitch rating tier nomenclature. These rating agencies are independent, and are widely used. The Not Rated category consists of securities that have not been rated by an NRSRO. Credit ratings are subject to change. Values may not sum to 100.0% due to rounding.

 

Yield and Dividends as of 11/30/16     
Total Monthly Dividends
Paid per Share for Period
  Current Monthly Dividend
Paid per Share
   Yield at Market Price
as of 11/30/16
$0.638   $0.1025    8.12%

 

Yield at market price is the annualized rate determined by dividing current monthly dividend paid per share by the market price per share as of November 30, 2016.

 

Prudential Short Duration High Yield Fund, Inc.     5   


Strategy and Performance Overview

 

How did the Fund perform?

For the six-month reporting period that ended November 30, 2016, the Prudential Short Duration High Yield Fund’s NAV per share decreased by $0.12 from $16.79 to $16.67. The Fund generated a positive NAV return of 3.11%, underperforming both the 4.70% return of the Bloomberg Barclays US High Yield Ba/B 1-5 Year 1% Issuer Constrained Index (the Index) and the 8.13% return of the Lipper High Current Yield Funds (Leveraged) Average. The Fund’s market price decreased by $0.44 from $15.58 to $15.14, and the Fund’s market price total return, including the reinvestment of distributions, was 1.18% for the reporting period.

 

What were conditions like in the short-term US high yield corporate bond market?

 

For the reporting period the short duration, higher quality portion of the high yield market, as measured by the Index returned 4.70%, underperforming the broader high yield market as represented by the Bloomberg Barclays High Yield Index by 173 bps (A basis point is one hundredth of a percentage point).

 

 

The period began with the surprising UK vote to leave the European Union, commonly known as Brexit. While the broader Brexit reaction was initially viewed as a risk-off event, the general sentiment following the vote was that the US and European leveraged finance markets remained more resilient than anticipated. The uncertainty in Europe supported the relative stability in US assets, and both sectors were said to be bolstered by the limited options for investors seeking attractive yields and spreads. Although buyers emerged as both markets encountered pressure following the vote, there was very little trading at lower prices given the general lack of forced sellers.

 

 

Much of the rest of the period was focused on the uncertainty surrounding the US presidential election. An election surprise reshaped consensus views for inflation, federal deficits, and growth that led to steepening of the yield curve. The US 10 Year Treasury yield climbed 56 basis points in November, the largest month over month increase since January of 2009. Oil prices were volatile leading up to the OPEC decision on production cuts, which finally came on the last day of November, driving oil prices up about 10%.

 

 

Commodities, particularly the metals & mining, chemicals, and energy sectors, outperformed the broad market and remained amongst the top three performing sectors for the six-month period.

 

 

While the performance of these sectors has been notable, the vast majority of all default activity recorded during the period emerged from the energy and metals & mining sectors. The par-weighted US High Yield default rate ended the period at 3.58%, near the long-term historical average. Excluding commodities the default rate was just .55%. Recovery rates over the last 12 months were below their historical averages. On the surface this would be expected with commodity sectors accounting for the majority of defaults and those industries having lower recovery rates.

 

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What strategies proved most beneficial to the Fund’s performance?

 

The Fund’s underweight to the banking sector and overweights to the industrial and consumer non-cyclical sectors added to performance.

 

 

Security selection in the industrial, building materials & home construction, gaming/lodging/leisure and technology sectors added to performance.

 

 

In individual company selection, the Fund’s overweights to Unifrax (industrial), Beazer Homes (building materials & home construction), Scientific Games (gaming) and BMC Software (technology) contributed to performance.

 

What strategies detracted most from the Fund’s performance?

 

Sector allocation was the largest detractor from performance over the period. The Fund’s overweight to the struggling health care & pharmaceutical sector hurt performance the most. Underweights to the rebounding upstream (exploration and production) energy and metals & mining sectors also limited results.

 

 

Security selection in the electric & water, health care & pharmaceutical and retailers & restaurants sectors hindered the Fund’s performance.

 

 

Overweights to issuers in the health care sector including Community Health Systems and Kindred Healthcare detracted from performance. Overweights to NRG Energy (electric & water) and Claire’s (retailers) were also negative.

 

How did the Fund’s borrowing (leverage) strategy affect its performance?

The Fund’s use of leverage contributed positively to results as the returns of the securities purchased was in excess of the cost of borrowing. As of November 30, 2016, the Fund had borrowed $205 million and was about 27.0% leveraged. During the reporting period, the average amount of leverage utilized by the Fund was about 26.8%.

 

Did the Fund use derivatives and how did they affect performance?

The Fund used derivatives, specifically currency forwards to hedge the currency risk from modest exposure to non-dollar denominated bonds. The derivatives help immunize any impact from fluctuating currencies. As the Euro sold off during the period, the positive return from holding the derivatives offset the negative currency return from holding non-dollar denominated bonds. Therefore, the Fund’s derivatives holdings had a negligible effect on performance.

 

Current outlook

PGIM Fixed Income has a positive long term outlook for high yield with demand for the asset class supported by a thirst for yield as interest rates are low due to low inflation and central bank support, albeit waning somewhat. Default rates outside of the energy and basic materials sectors should remain benign through 2018. Mergers & Acquisitions (M&A)

 

Prudential Short Duration High Yield Fund, Inc.     7   


Strategy and Performance Overview (continued)

 

has generally been positive for high yield credits and will be expected to increase under Republican oversight. Potential tax cuts under a Trump administration would help the bottom line of many corporations while increased government spending could promote top line growth for certain companies and industries.

 

However, many macroeconomic concerns could weigh on the market including uncertainty in China, the Middle East, Europe and the Fed. While pro-business, Donald Trump’s anti-globalization policies and his unpredictable positions should elevate risk premiums. Populism, nationalism and isolationism are on the rise globally, which is negative for economic growth.

 

Key positioning themes continue to be underweights in the energy, finance & insurance and banking sectors. Overweights include gaming/lodging/leisure, cable & satellite and health care & pharmaceuticals.

 

Benchmark Definitions

 

Bloomberg Barclays US High Yield Ba/B 1-5 Year 1% Issuer Constrained Index—The Bloomberg Barclays US High Yield Ba/B 1-5 Year 1% Issuer Constrained Index is an unmanaged index which represents performance of US higher-rated short duration high yield bonds.

 

Source: Bloomberg Barclays.

 

Lipper High Current Yield Funds (Leveraged) Average—The Lipper High Current Yield Funds (Leveraged) Average (Lipper Average) represents returns based on an average return of 35 funds in the Closed-End High Current Yield Funds (Leveraged) category.

 

Investors cannot invest directly in an index or average.

 

Looking for additional information?

The Fund is traded under the symbol “ISD” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available online under the symbol “XISDX” on most financial websites. Barron’s and The Wall Street Journal’s Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund issues press releases that can be found on most major financial websites as well as on www.prudentialfunds.com.

 

In a continuing effort to provide information concerning the Fund, shareholders may go to www.prudentialfunds.com or call (800) 451-6788 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Fund’s current NAV, market price, and other information.

 

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Portfolio of Investments (unaudited)

as of November 30, 2016

 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

LONG-TERM INVESTMENTS    132.9%

       

BANK LOANS(a)    5.5%

       

Chemicals    1.1%

                               

Axalta Coating Systems US Holdings, Inc.

    3.750     02/01/20        778      $ 780,111   

MacDermid, Inc.

    5.000        06/07/23        2,888        2,904,671   

MacDermid, Inc.

    5.500        06/07/20        2,426        2,429,036   
       

 

 

 
          6,113,818   
       

 

 

 

Healthcare - Services    0.2%

                               

CHS/Community Health Systems, Inc.

    4.165        12/31/18        1,000        965,694   

Home Builders    0.1%

                               

Beazer Homes USA, Inc.(b)

    6.750        03/11/18        491        486,161   

Lodging    0.2%

                               

Golden Nugget, Inc.

    4.500        11/21/19        960        969,107   

Media & Entertainment    1.3%

                               

Lions Gate Entertainment Corp.(b)

    5.000        03/17/22        3,300        3,349,500   

LSC Communications, Inc.(b)

    7.000        09/30/22        4,100        4,079,500   
       

 

 

 
          7,429,000   
       

 

 

 

Mining    0.1%

                               

Freeport-McMoRan, Inc.

    3.110        05/31/18        336        335,003   

Packaging    0.2%

                               

Coveris Holdings SA (Luxembourg)

    4.500        05/08/19        1,396        1,389,428   

Retail    0.3%

                               

Rite Aid Corp.

    4.875        06/21/21        1,700        1,703,825   

Technology    2.0%

                               

BMC Software Finance, Inc.

    5.000        09/10/20        4,122        4,025,411   

Dell International LLC

    2.854        12/31/18        4,500        4,489,686   

First Data Corp.

    4.881        03/24/21        948        951,078   

Greeneden US Holdings II LLC

    (c)      12/01/23        1,625        1,629,740   
       

 

 

 
          11,095,915   
       

 

 

 

TOTAL BANK LOANS
(cost $29,978,277)

          30,487,951   
       

 

 

 

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     9   


Portfolio of Investments (unaudited) (continued)

as of November 30, 2016

 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS    127.4%

       

Aerospace/Defense    0.6%

                               

Arconic. Inc., Sr. Unsec’d. Notes(d)

    6.750 %       07/15/18        3,000      $ 3,191,250   

Agriculture    0.4%

                               

Vector Group Ltd., Gtd. Notes

    7.750        02/15/21        2,000        2,085,000   

Airlines    2.0%

                               

Continental Airlines, Inc.,
Series 2012-3, Class C, Pass-Through Certificates(d)

    6.125        04/29/18        7,900        8,196,250   

United Airlines Pass-Through Trust,
Series 2007-1, Class A, Pass-Through Certificates(d)

    6.636        01/02/24        2,939        3,122,940   
       

 

 

 
          11,319,190   

Apparel    0.2%

                               

Levi Strauss & Co., Sr. Unsec’d. Notes

    6.875        05/01/22        975        1,023,750   

Auto Manufacturers    0.5%

                               

Fiat Chrysler Automobiles NV (United Kingdom), Sr. Unsec’d. Notes

    4.500        04/15/20        1,050        1,063,125   

Jaguar Land Rover Automotive PLC (United Kingdom), Gtd. Notes, 144A

    4.250        11/15/19        1,600        1,640,000   
       

 

 

 
          2,703,125   

Auto Parts & Equipment    1.5%

                               

American Axle & Manufacturing, Inc.

       

Gtd. Notes

    5.125        02/15/19        1,415        1,425,613   

Gtd. Notes(d)

    7.750        11/15/19        3,020        3,344,650   

IHO Verwaltungs GmbH (Germany), Sr. Sec’d. Notes, PIK, 144A

    4.125        09/15/21        2,200        2,222,000   

Meritor, Inc., Gtd. Notes

    6.750        06/15/21        1,200        1,209,000   

ZF North America Capital, Inc. (Germany), Gtd. Notes, 144A

    4.000        04/29/20        250        258,750   
       

 

 

 
          8,460,013   

Beverages    1.1%

                               

Constellation Brands, Inc., Gtd. Notes(d)

    3.875        11/15/19        2,025        2,111,468   

Cott Beverages, Inc. (Canada), Gtd. Notes(d)

    6.750        01/01/20        3,875        4,010,625   
       

 

 

 
          6,122,093   

 

See Notes to Financial Statements.

 

10  


 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

       

Biotechnology    0.2%

                               

Concordia International Corp. (Canada), Sr. Sec’d. Notes, 144A

    9.000 %       04/01/22        1,300      $ 1,202,500   

Building Materials    2.1%

                               

Cemex Finance LLC (Mexico),

       

First Lien, RegS

    9.375        10/12/22        750        813,750   

Sr. Sec’d. Notes, 144A

    9.375        10/12/22        2,000        2,170,000   

Standard Industries, Inc., Sr. Unsec’d.
Notes, 144A(e)

    5.125        02/15/21        675        702,000   

Summit Materials LLC/Summit Materials Finance Corp., Gtd. Notes

    8.500        04/15/22        1,750        1,927,188   

USG Corp.

       

Gtd. Notes, 144A

    5.875        11/01/21        788        822,719   

Sr. Unsec’d. Notes(d)

    8.250 (a)      01/15/18        5,000        5,275,000   
       

 

 

 
          11,710,657   

Chemicals    3.5%

                               

Ashland LLC, Gtd. Notes

    4.750        08/15/22        1,950        2,006,062   

CF Industries, Inc., Gtd. Notes

    7.125        05/01/20        3,250        3,510,000   

Chemtura Corp., Gtd. Notes

    5.750        07/15/21        2,369        2,463,760   

Unifrax I LLC/Unifrax Holding Co., Gtd.
Notes, 144A(d)(e)

    7.500        02/15/19        7,488        7,151,040   

W.R. Grace & Co., Gtd. Notes, 144A

    5.125        10/01/21        2,107        2,212,350   

Westlake Chemical Corp., Gtd. Notes, 144A

    4.625        02/15/21        2,000        2,080,000   
       

 

 

 
          19,423,212   

Commercial Services    2.5%

                               

Hertz Corp. (The)

       

Gtd. Notes(d)

    4.250        04/01/18        3,875        3,865,312   

Gtd. Notes

    6.750        04/15/19        367        369,635   

Laureate Education, Inc., Gtd. Notes, 144A(d)

    10.000        09/01/19        3,875        3,724,844   

Service Corp. International, Sr. Unsec’d. Notes(d)

    7.625        10/01/18        5,403        5,997,330   
       

 

 

 
          13,957,121   

Computers    0.7%

                               

Diamond 1 Finance Corp./Diamond 2 Finance Corp., Gtd. Notes, 144A(d)

    5.875        06/15/21        3,650        3,844,322   

Distribution/Wholesale

                               

Rexel SA (France), Sr. Unsec’d. Notes, 144A

    5.250        06/15/20        248        256,163   

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     11   


Portfolio of Investments (unaudited) (continued)

as of November 30, 2016

 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

       

Diversified Financial Services    4.3%

                               

Ally Financial, Inc., Sub. Notes(d)

    8.000     12/31/18        2,975      $ 3,235,312   

CIT Group, Inc., Sr. Unsec’d. Notes(d)

    5.000        08/15/22        4,175        4,347,219   

FBM Finance, Inc., Sr. Sec’d. Notes, 144A

    8.250        08/15/21        850        879,750   

International Lease Finance Corp.

       

Sr. Unsec’d. Notes

    3.875        04/15/18        1,350        1,376,325   

Sr. Unsec’d. Notes

    6.250        05/15/19        425        457,428   

Sr. Unsec’d. Notes(d)

    8.875        09/01/17        4,000        4,200,000   

KCG Holdings, Inc., Sr. Sec’d. Notes, 144A

    6.875        03/15/20        1,050        1,034,250   

Navient Corp.

       

Sr. Unsec’d. Notes,

    6.625        07/26/21        525        547,969   

Sr. Unsec’d. Notes, MTN

    8.000        03/25/20        425        466,969   

Sr. Unsec’d. Notes, MTN(d)

    8.450        06/15/18        4,550        4,902,625   

OneMain Financial Holdings, Inc., Gtd. Notes, 144A (original cost $2,602,563; purchased 12/08/14 - 09/09/15)(d)(e)(f)

    6.750        12/15/19        2,575        2,620,062   
       

 

 

 
          24,067,909   

Electric    5.2%

                               

AES Corp., Sr. Unsec’d. Notes(d)

    7.375        07/01/21        1,250        1,371,875   

DPL, Inc.

       

Sr. Unsec’d. Notes(d)

    6.750        10/01/19        3,160        3,239,000   

Sr. Unsec’d. Notes(d)

    7.250        10/15/21        1,850        1,900,875   

Dynegy, Inc.

       

Gtd. Notes(d)

    6.750        11/01/19        3,500        3,535,000   

Gtd. Notes(d)

    7.375        11/01/22        5,925        5,628,750   

GenOn Energy, Inc.

       

Sr. Unsec’d. Notes

    7.875        06/15/17        750        538,125   

Sr. Unsec’d. Notes

    9.500        10/15/18        2,625        1,830,938   

Sr. Unsec’d. Notes

    9.875        10/15/20        1,400        931,000   

Mirant Mid-Atlantic LLC, Series B, Pass-Through Trust, Pass-Through Certificates(d)(e)

    9.125        06/30/17        1,485        1,299,147   

NRG Energy, Inc., Gtd. Notes(d)

    7.625        01/15/18        6,850        7,295,250   

NRG REMA LLC

       

Series B, Pass-Through Certificates(e)

    9.237        07/02/17        915        732,180   

Series C, Pass-Through Certificates(d)(e)

    9.681        07/02/26        1,100        726,000   
       

 

 

 
          29,028,140   

Electronics    0.7%

                               

Jabil Circuit, Inc.

       

Sr. Unsec’d. Notes

    5.625        12/15/20        690        733,125   

Sr. Unsec’d. Notes(d)

    8.250        03/15/18        2,700        2,902,095   
       

 

 

 
          3,635,220   

 

See Notes to Financial Statements.

 

12  


 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

  

Engineering & Construction    0.1%

                               

SBA Communications Corp., Sr. Unsec’d. Notes

    4.875 %       07/15/22        500      $ 500,415   

Entertainment    8.2%

                               

CCM Merger, Inc., Gtd. Notes, 144A(e)

    9.125        05/01/19        2,776        2,880,100   

Cedar Fair LP/Canada’s Wonderland Co./Magnum Management Corp., Gtd. Notes(d)

    5.250        03/15/21        2,600        2,688,400   

Churchill Downs, Inc.

       

Gtd. Notes

    5.375        12/15/21        2,025        2,095,875   

Gtd. Notes, 144A

    5.375        12/15/21        2,715        2,810,025   

GLP Capital LP/GLP Financing II, Inc.,

       

Gtd. Notes

    4.375        04/15/21        1,325        1,366,406   

Gtd. Notes(d)

    4.375        11/01/18        3,175        3,286,125   

Gtd. Notes

    4.875        11/01/20        1,275        1,338,750   

Greektown Holdings LLC/Greektown Mothership Corp., Sec’d. Notes, 144A(d)

    8.875        03/15/19        3,310        3,463,087   

Isle of Capri Casinos, Inc.

       

Gtd. Notes

    5.875        03/15/21        2,480        2,580,750   

Gtd. Notes(d)

    8.875        06/15/20        8,160        8,568,000   

NAI Entertainment Holdings/NAI Entertainment Holdings Finance Corp., Sr. Sec’d.
Notes, 144A(d)(e)

    5.000        08/01/18        4,550        4,595,500   

National CineMedia LLC, Sr. Sec’d. Notes

    6.000        04/15/22        1,310        1,349,300   

Penn National Gaming, Inc., Sr. Unsec’d. Notes

    5.875        11/01/21        1,900        1,971,250   

Scientific Games Corp., Gtd. Notes(d)

    8.125        09/15/18        6,275        6,314,219   
       

 

 

 
          45,307,787   

Environmental Control    0.6%

                               

Clean Harbors, Inc.

       

Gtd. Notes

    5.125        06/01/21        2,400        2,448,000   

Gtd. Notes

    5.250        08/01/20        850        869,125   

Covanta Holding Corp., Sr. Unsec’d. Notes

    7.250        12/01/20        200        205,750   
       

 

 

 
          3,522,875   

Food    2.9%

                               

JBS Investments GmbH (Brazil), Gtd. Notes, 144A

    7.750        10/28/20        2,000        2,085,000   

JBS USA LLC/JBS USA Finance, Inc. (Brazil),

       

Gtd. Notes, 144A(e)

    7.250        06/01/21        4,150        4,274,500   

Gtd. Notes, 144A(e)

    7.250        06/01/21        600        618,000   

Gtd. Notes, 144A(e)

    8.250        02/01/20        1,000        1,027,500   

Shearer’s Foods LLC/Chip Finance Corp., Sr. Sec’d.
Notes, 144A(d)

    9.000        11/01/19        3,325        3,466,312   

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     13   


Portfolio of Investments (unaudited) (continued)

as of November 30, 2016

 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

  

Food (cont’d)

  

Smithfield Foods, Inc.

       

Sr. Unsec’d. Notes

    6.625 %       08/15/22        500      $ 526,875   

Sr. Unsec’d. Notes, 144A

    5.250        08/01/18        1,058        1,068,580   

Sr. Unsec’d. Notes, 144A

    5.875        08/01/21        950        986,813   

SUPERVALU, Inc., Sr. Unsec’d. Notes

    6.750        06/01/21        2,050        2,029,500   
       

 

 

 
          16,083,080   

Food Service

                               

Aramark Services, Inc., Gtd. Notes

    5.750        03/15/20        240        245,400   

Forest Products & Paper    0.3%

                               

Mercer International, Inc. (Canada), Gtd. Notes

    7.000        12/01/19        1,675        1,725,250   

Gas    0.2%

                               

NGL Energy Partners LP/NGL Energy Finance Corp.,
Gtd. Notes, 144A

    7.500        11/01/23        975        972,563   

Hand/Machine Tools    0.1%

                               

Apex Tool Group LLC, Gtd. Notes, 144A(e)

    7.000        02/01/21        850        765,000   

Healthcare - Products    1.4%

                               

ConvaTec Healthcare E SA (Luxembourg), Gtd. Notes, 144A

    10.500        12/15/18        4,115        4,128,580   

Mallinckrodt International Finance SA/Mallinckrodt CB LLC, Gtd. Notes, 144A(d)

    4.875        04/15/20        3,775        3,699,500   
       

 

 

 
          7,828,080   

Healthcare - Services    8.3%

                               

Centene Corp., Sr. Unsec’d. Notes

    5.625        02/15/21        2,375        2,446,250   

CHS/Community Health Systems, Inc.

       

Gtd. Notes

    7.125        07/15/20        300        211,500   

Gtd. Notes(d)

    8.000        11/15/19        8,875        6,989,062   

HCA Holdings, Inc., Sr. Unsec’d. Notes

    6.250        02/15/21        1,750        1,836,625   

HCA, Inc.

       

Gtd. Notes(d)

    8.000        10/01/18        1,855        2,012,675   

Sr. Sec’d. Notes(d)

    3.750        03/15/19        3,075        3,144,188   

Sr. Sec’d. Notes

    4.250        10/15/19        1,625        1,673,750   

Kindred Healthcare, Inc., Gtd. Notes(d)

    8.000        01/15/20        7,350        7,000,875   

LifePoint Health, Inc., Gtd. Notes(d)

    5.500        12/01/21        2,400        2,454,000   

Select Medical Corp., Gtd. Notes(d)

    6.375        06/01/21        3,600        3,453,732   

Surgery Center Holdings, Inc., Gtd. Notes, 144A

    8.875        04/15/21        1,200        1,254,000   

 

See Notes to Financial Statements.

 

14  


 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

  

Healthcare - Services (cont’d)

  

Tenet Healthcare Corp.

       

Sec’d. Notes, 144A

    7.500 %       01/01/22        175      $ 179,922   

Sr. Sec’d. Notes

    4.750        06/01/20        1,525        1,507,844   

Sr. Sec’d. Notes(d)

    6.250        11/01/18        3,875        4,039,687   

Sr. Unsec’d. Notes(d)

    5.000 (a)      03/01/19        4,775        4,524,312   

Sr. Unsec’d. Notes

    6.750        02/01/20        925        867,188   

Sr. Unsec’d. Notes

    8.000        08/01/20        1,000        958,125   

Universal Health Services, Inc., Sr. Sec’d. Notes, 144A

    4.750        08/01/22        1,325        1,338,250   
       

 

 

 
          45,891,985   

Holding Companies - Diversified    0.7%

                               

Carlson Travel Holdings, Inc.,
Sr. Unsec’d. Notes, PIK, 144A(d)(e)

    7.500        08/15/19        3,800        3,743,000   

Home Builders    10.4%

                               

Beazer Homes USA, Inc.

       

Gtd. Notes

    5.750        06/15/19        2,550        2,626,500   

Gtd. Notes, 144A

    8.750        03/15/22        2,300        2,443,750   

Brookfield Residential Properties, Inc. (Canada), Gtd. Notes, 144A(d)

    6.500        12/15/20        2,765        2,806,475   

CalAtlantic Group, Inc.

       

Gtd. Notes

    6.250        12/15/21        350        374,500   

Gtd. Notes(d)

    8.375        05/15/18        4,200        4,557,000   

D.R. Horton, Inc., Gtd. Notes(d)

    4.750        05/15/17        3,000        3,046,500   

KB Home

       

Gtd. Notes(d)

    4.750        05/15/19        5,659        5,729,737   

Gtd. Notes

    7.250        06/15/18        2,000        2,115,000   

Lennar Corp.

       

Gtd. Notes(d)

    4.500        06/15/19        2,600        2,678,000   

Gtd. Notes

    4.500        11/15/19        1,000        1,036,250   

Gtd. Notes(d)

    4.750        12/15/17        5,075        5,171,425   

M/I Homes, Inc., Gtd. Notes

    6.750        01/15/21        2,075        2,158,000   

Meritage Homes Corp., Gtd. Notes(d)

    4.500        03/01/18        3,900        3,978,000   

PulteGroup, Inc., Gtd. Notes

    4.250        03/01/21        1,850        1,882,375   

Taylor Morrison Communities, Inc./Monarch Communities, Inc., Gtd. Notes, 144A(d)

    5.250        04/15/21        3,400        3,476,500   

Toll Brothers Finance Corp., Gtd. Notes(d)

    8.910        10/15/17        1,600        1,692,000   

TRI Pointe Group, Inc., Gtd. Notes

    4.875        07/01/21        2,400        2,442,000   

WCI Communities, Inc., Gtd. Notes(d)

    6.875        08/15/21        5,250        5,512,500   

William Lyon Homes, Inc.

       

Gtd. Notes

    5.750        04/15/19        1,350        1,363,500   

Gtd. Notes

    8.500        11/15/20        2,300        2,392,000   
       

 

 

 
          57,482,012   

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     15   


Portfolio of Investments (unaudited) (continued)

as of November 30, 2016

 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

  

Iron/Steel    2.0%

                               

ArcelorMittal (Luxembourg),

       

Sr. Unsec’d. Notes(d)

    6.125 %       06/01/18        7,200      $ 7,560,000   

Sr. Unsec’d. Notes

    10.850 (a)      06/01/19        980        1,151,500   

BlueScope Steel Finance Ltd./BlueScope Steel Finance USA LLC (Australia), Gtd. Notes, 144A

    6.500        05/15/21        2,020        2,126,050   
       

 

 

 
          10,837,550   

Leisure Time    1.2%

                               

NCL Corp. Ltd.

       

Sr. Unsec’d. Notes, 144A

    4.625        11/15/20        1,725        1,746,563   

Sr. Unsec’d. Notes, 144A(d)

    5.250        11/15/19        3,475        3,527,125   

Viking Cruises Ltd., Sr. Unsec’d. Notes, 144A(e)

    8.500        10/15/22        1,475        1,504,500   
       

 

 

 
          6,778,188   

Lodging    5.1%

                               

Caesars Entertainment Resort Properties LLC/Caesars Entertainment Resort Properties Finance, Inc., Sr. Sec’d. Notes(d)

    8.000        10/01/20        3,450        3,605,250   

Golden Nugget Escrow, Inc., Sr. Unsec’d. Notes, 144A (original cost $2,371,063; purchased 03/08/16 - 07/27/16)(e)(f)

    8.500        12/01/21        2,350        2,461,625   

Jack Ohio Finance LLC/Jack Ohio Finance 1 Corp.

       

Sec’d. Notes, 144A

    10.250        11/15/22        975        965,250   

Sr. Sec’d. Notes, 144A

    6.750        11/15/21        1,125        1,127,813   

MGM Resorts International, Gtd. Notes(d)

    8.625        02/01/19        10,805        11,993,550   

Station Casinos LLC, Gtd. Notes(d)

    7.500        03/01/21        4,491        4,704,322   

Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp., Sr. Sec’d.
Notes, 144A(e)

    6.375        06/01/21        3,425        3,407,875   
       

 

 

 
          28,265,685   

Machinery - Construction & Mining    0.4%

                               

Terex Corp.

       

Gtd. Notes

    6.000        05/15/21        525        531,563   

Gtd. Notes

    6.500        04/01/20        1,425        1,446,375   
       

 

 

 
          1,977,938   

Machinery - Diversified    1.7%

                               

Cleaver-Brooks, Inc., Sr. Sec’d.Notes, 144A(d)(e)

    8.750        12/15/19        1,425        1,471,313   

CNH Industrial Capital LLC, Gtd. Notes(d)

    4.375        11/06/20        1,900        1,931,350   

Zebra Technologies Corp., Sr. Unsec’d. Notes(d)

    7.250        10/15/22        5,380        5,817,609   
       

 

 

 
          9,220,272   

 

See Notes to Financial Statements.

 

16  


 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

  

Media    14.9%

                               

Cablevision Systems Corp.

       

Sr. Unsec’d. Notes(d)

    7.750 %       04/15/18        2,250      $ 2,365,312   

Sr. Unsec’d. Notes(d)

    8.625        09/15/17        8,625        8,970,000   

CCO Holdings LLC/CCO Holdings Capital Corp.

       

Sr. Unsec’d. Notes

    5.250        03/15/21        1,030        1,067,338   

Sr. Unsec’d. Notes(d)

    5.250        09/30/22        4,360        4,523,500   

Sr. Unsec’d. Notes(d)

    6.625        01/31/22        5,600        5,796,000   

Cequel Communications Holdings I LLC/Cequel Capital Corp.

       

Sr. Unsec’d. Notes, 144A(d)

    5.125        12/15/21        3,845        3,787,325   

Sr. Unsec’d. Notes, 144A(d)

    6.375        09/15/20        9,490        9,679,800   

Clear Channel Worldwide Holdings, Inc.

       

Gtd. Notes

    6.500        11/15/22        1,159        1,135,820   

Gtd. Notes

    6.500        11/15/22        385        388,850   

Series A, Gtd. Notes

    7.625        03/15/20        215        201,025   

Series B, Gtd. Notes

    7.625        03/15/20        660        650,925   

Cogeco Communications, Inc. (Canada), Gtd. Notes, 144A(d)

    4.875        05/01/20        2,500        2,575,000   

DISH DBS Corp.

       

Gtd. Notes(d)

    4.250        04/01/18        4,590        4,681,800   

Gtd. Notes

    4.625        07/15/17        1,800        1,818,000   

Gtd. Notes

    5.125        05/01/20        1,875        1,926,562   

Gtd. Notes(d)

    7.875        09/01/19        1,000        1,107,500   

Entercom Radio LLC, Gtd. Notes

    10.500        12/01/19        4,000        4,105,000   

Mediacom Broadband LLC/Mediacom Broadband Corp., Sr. Unsec’d. Notes

    5.500        04/15/21        1,800        1,854,000   

Mediacom LLC/Mediacom Capital Corp., Sr. Unsec’d. Notes(d)

    7.250        02/15/22        4,525        4,683,375   

Midcontinent Communications/Midcontinent Finance Corp., Gtd. Notes, 144A(d)

    6.250        08/01/21        4,175        4,357,656   

Nexstar Broadcasting, Inc., Gtd. Notes, 144A

    6.125        02/15/22        1,035        1,055,700   

Nielsen Finance LLC/Nielsen Finance Co., Gtd. Notes

    4.500        10/01/20        325        330,688   

Sinclair Television Group, Inc.

       

Gtd. Notes

    5.375        04/01/21        2,585        2,662,550   

Gtd. Notes

    6.125        10/01/22        1,225        1,270,938   

TEGNA, Inc.

       

Gtd. Notes

    5.125        10/15/19        650        666,465   

Gtd. Notes, 144A

    4.875        09/15/21        3,030        3,117,112   

Univision Communications, Inc.,
Sr. Sec’d. Notes, 144A(d)(e)

    6.750        09/15/22        5,640        5,844,450   

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     17   


Portfolio of Investments (unaudited) (continued)

as of November 30, 2016

 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

  

Media (cont’d)

  

UPCB Finance VI Ltd. (Netherlands),
Sr. Sec’d. Notes, 144A

    6.875 %       01/15/22        1,798      $ 1,869,504   

Videotron Ltd. (Canada), Gtd. Notes

    5.000        07/15/22        345        351,900   
       

 

 

 
          82,844,095   

Mining    5.7%

                               

Alamos Gold, Inc. (Canada), Sec’d. Notes, 144A(d)

    7.750        04/01/20        1,500        1,567,500   

Freeport-McMoRan, Inc.

       

Gtd. Notes

    2.150        03/01/17        750        748,125   

Gtd. Notes(d)

    2.300        11/14/17        10,175        10,149,562   

International Wire Group, Inc., Sec’d.
Notes, 144A(e)

    10.750        08/01/21        1,500        1,400,625   

Kinross Gold Corp. (Canada), Gtd. Notes

    5.125        09/01/21        915        919,575   

Lundin Mining Corp. (Canada),
Sr. Sec’d. Notes, 144A(d)

    7.500        11/01/20        4,075        4,343,950   

New Gold, Inc. (Canada), Gtd. Notes, 144A

    7.000        04/15/20        2,125        2,183,438   

Teck Resources Ltd. (Canada),

       

Gtd. Notes(d)

    3.000        03/01/19        2,941        2,918,942   

Gtd. Notes

    4.500        01/15/21        2,124        2,163,825   

Gtd. Notes, 144A(d)

    8.000        06/01/21        4,900        5,382,160   
       

 

 

 
          31,777,702   

Miscellaneous Manufacturing    1.7%

                               

Bombardier, Inc. (Canada),

       

Sr. Unsec’d. Notes, 144A

    7.500        03/15/18        2,633        2,827,842   

Sr. Unsec’d. Notes, 144A

    8.750        12/01/21        2,375        2,357,187   

Koppers, Inc., Gtd. Notes(d)

    7.875        12/01/19        4,249        4,291,490   
       

 

 

 
          9,476,519   

Oil & Gas    2.2%

                               

Antero Resources Corp., Gtd. Notes

    5.375        11/01/21        550        564,437   

Endeavor Energy Resources LP/EER Finance, Inc., Sr. Unsec’d. Notes, 144A

    7.000        08/15/21        1,600        1,640,000   

Sunoco LP/Sunoco Finance Corp.

       

Gtd. Notes

    5.500        08/01/20        850        854,250   

Gtd. Notes

    6.250        04/15/21        2,750        2,779,205   

Tesoro Corp., Gtd. Notes(d)

    4.250        10/01/17        3,675        3,734,719   

Western Refining, Inc., Gtd. Notes

    6.250        04/01/21        876        911,653   

WPX Energy, Inc., Sr. Unsec’d. Notes

    7.500        08/01/20        1,525        1,608,875   
       

 

 

 
          12,093,139   

 

See Notes to Financial Statements.

 

18  


 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

  

Oil & Gas Services    1.0%

                               

Freeport-McMoran Oil & Gas LLC/FCX Oil & Gas, Inc.,

       

Gtd. Notes

    6.500 %       11/15/20        2,000      $ 2,059,000   

Gtd. Notes

    6.625        05/01/21        1,110        1,134,131   

PHI, Inc., Gtd. Notes

    5.250        03/15/19        700        656,250   

SESI LLC, Gtd. Notes

    6.375        05/01/19        1,790        1,767,625   
       

 

 

 
          5,617,006   

Packaging & Containers    4.6%

                               

AEP Industries, Inc., Sr. Unsec’d. Notes(d)

    8.250        04/15/19        3,252        3,321,105   

Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc. (Ireland),

       

Gtd. Notes, 144A

    6.250        01/31/19        650        660,563   

Gtd. Notes, 144A

    6.750        01/31/21        1,600        1,630,000   

Coveris Holdings SA (Luxembourg), Gtd. Notes, 144A (original cost $3,148,750; purchased
12/16/15 - 11/10/16)(e)(f)

    7.875        11/01/19        3,250        3,193,125   

Greif, Inc.

       

Sr. Unsec’d. Notes(d)

    6.750        02/01/17        1,200        1,207,500   

Sr. Unsec’d. Notes(d)

    7.750        08/01/19        6,050        6,677,687   

PaperWorks Industries, Inc.,
Sr. Sec’d. Notes, 144A(d)

    9.500        08/15/19        3,000        2,460,000   

Plastipak Holdings, Inc., Sr. Unsec’d.
Notes, 144A(d)(e)

    6.500        10/01/21        2,950        3,082,750   

Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer LU (New Zealand), Sr. Sec’d. Notes

    5.750        10/15/20        1,900        1,954,625   

Sealed Air Corp., Gtd. Notes, 144A(d)

    6.500        12/01/20        1,045        1,182,156   
       

 

 

 
          25,369,511   

Pharmaceuticals    2.7%

                               

Allergan, Inc., Gtd. Notes(d)

    1.350        03/15/18        2,240        2,222,848   

Capsugel SA, Sr. Unsec’d. Notes, PIK, 144A

    7.000        05/15/19        2,878        2,879,180   

NBTY, Inc., Sr. Unsec’d. Notes, 144A
(original cost $3,612,375; purchased 04/21/16 - 10/27/16)(d)(e)(f)

    7.625        05/15/21        3,600        3,550,500   

Valeant Pharmaceuticals International, Inc.

       

Gtd. Notes, 144A(d)

    5.375        03/15/20        4,025        3,381,000   

Gtd. Notes, 144A

    6.375        10/15/20        900        765,000   

Gtd. Notes, 144A

    7.500        07/15/21        2,250        1,901,250   
       

 

 

 
          14,699,778   

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     19   


Portfolio of Investments (unaudited) (continued)

as of November 30, 2016

 

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

  

Pipelines    1.6%

                               

Rockies Express Pipeline LLC

       

Sr. Unsec’d. Notes, 144A(e)

    5.625 %       04/15/20        1,600      $ 1,660,000   

Sr. Unsec’d. Notes, 144A(d)(e)

    6.000        01/15/19        2,150        2,236,000   

Sr. Unsec’d. Notes, 144A(e)

    6.850        07/15/18        1,900        1,995,000   

Tesoro Logistics LP/Tesoro Logistics Finance Corp., Gtd. Notes

    6.125        10/15/21        2,875        3,007,969   
       

 

 

 
          8,898,969   

Real Estate    0.4%

                               

Crescent Communities LLC/Crescent Venture, Inc., Sr. Sec’d. Notes, 144A

    8.875        10/15/21        675        668,250   

Realogy Group LLC/Realogy Co-Issuer Corp., Gtd. Notes, 144A

    5.250        12/01/21        1,425        1,457,063   
       

 

 

 
          2,125,313   

Real Estate Investment Trusts (REITs)    2.5%

  

               

CyrusOne LP/CyrusOne Finance Corp., Gtd. Notes

    6.375        11/15/22        709        742,678   

DuPont Fabros Technology LP, Gtd. Notes(d)

    5.875        09/15/21        4,826        5,037,137   

Equinix, Inc., Sr. Unsec’d. Notes

    4.875        04/01/20        3,000        3,075,000   

MPT Operating Partnership LP/MPT Finance Corp., Gtd. Notes

    6.375        02/15/22        1,500        1,539,375   

RHP Hotel Properties LP/RHP Finance Corp., Gtd. Notes

    5.000        04/15/21        1,150        1,167,250   

Sabra Health Care LP/Sabra Capital Corp., Gtd. Notes

    5.500        02/01/21        2,125        2,180,781   
       

 

 

 
          13,742,221   

Retail    3.8%

                               

1011778 BC ULC/New Red Finance, Inc. (Canada), Sec’d. Notes, 144A

    6.000        04/01/22        1,200        1,251,000   

Claire’s Stores, Inc.

       

Sr. Sec’d. Notes, 144A(e)

    6.125        03/15/20        400        182,000   

Sr. Sec’d. Notes, 144A

    9.000        03/15/19        4,200        2,037,000   

Dollar Tree, Inc., Gtd. Notes

    5.250        03/01/20        700        722,750   

Ferrellgas Partners LP/Ferrellgas Partners Finance Corp., Sr. Unsec’d. Notes

    8.625        06/15/20        900        879,750   

L Brands, Inc.

       

Gtd. Notes

    6.625        04/01/21        800        886,000   

Gtd. Notes

    8.500        06/15/19        975        1,120,031   

Neiman Marcus Group Ltd. LLC, Gtd. Notes, 144A

    8.000        10/15/21        2,490        1,954,650   

Rite Aid Corp., Gtd. Notes, 144A

    6.375        04/01/23        2,150        2,298,135   

 

See Notes to Financial Statements.

 

20  


Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

  

Retail (cont’d)

  

Sally Holdings LLC/Sally Capital, Inc., Gtd. Notes

    5.750 %       06/01/22        2,900      $ 3,005,125   

THOM Europe SAS (France), Sr. Sec’d. Notes, 144A

    7.375        07/15/19      EUR          4,000        4,462,137   

Yum! Brands, Inc., Sr. Unsec’d. Notes(d)

    3.875        11/01/20        2,400        2,436,000   
       

 

 

 
          21,234,578   

Semiconductors    1.2%

                               

NXP BV/NXP Funding LLC (Netherlands),

       

Gtd. Notes, 144A(d)

    4.125     06/15/20        2,900        3,016,000   

Gtd. Notes, 144A

    4.125        06/01/21        2,200        2,293,500   

Sr. Unsec’d. Notes, 144A

    3.875        09/01/22        1,500        1,537,500   
       

 

 

 
          6,847,000   

Software    4.7%

                               

BMC Software, Inc., Sr. Unsec’d. Notes

    7.250        06/01/18        1,350        1,358,438   

Change Healthcare Holdings, Inc., Gtd. Notes(d)

    11.000        12/31/19        8,000        8,280,000   

First Data Corp., Sr. Sec’d. Notes, 144A(d)

    6.750        11/01/20        5,823        6,041,362   

Infor U.S., Inc., Sr. Sec’d. Notes, 144A(d)(e)

    5.750        08/15/20        5,340        5,593,650   

Nuance Communications, Inc., Gtd. Notes, 144A(d)

    5.375        08/15/20        4,445        4,545,012   
       

 

 

 
          25,818,462   

Telecommunications    10.9%

                               

Anixter, Inc., Gtd. Notes(d)

    5.625        05/01/19        1,500        1,571,250   

Clearwire Communications LLC/Clearwire Finance, Inc., Sr. Sec’d. Notes, 144A

    14.750        12/01/16        5,950        5,950,000   

CommScope, Inc.

       

Gtd. Notes, 144A

    5.000        06/15/21        2,305        2,333,813   

Sr. Sec’d. Notes, 144A(d)

    4.375        06/15/20        3,975        4,064,438   

Frontier Communications Corp., Sr. Unsec’d. Notes

    8.125        10/01/18        1,775        1,892,700   

Intelsat Jackson Holdings SA (Luxembourg), Gtd. Notes

    7.250        04/01/19        1,710        1,342,350   

Level 3 Financing, Inc., Gtd. Notes(d)

    6.125        01/15/21        5,350        5,537,250   

Qwest Capital Funding, Inc., Gtd. Notes

    6.500        11/15/18        1,000        1,066,240   

Sprint Communications, Inc.

       

Gtd. Notes, 144A(e)

    7.000        03/01/20        400        430,248   

Gtd. Notes, 144A(e)

    9.000        11/15/18        6,080        6,680,400   

Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/ Sprint Spectrum Co. III LLC,
Sr. Sec’d. Notes, 144A

    3.360        03/20/23        4,250        4,260,625   

T-Mobile USA, Inc.

       

Gtd. Notes

    6.250        04/01/21        2,145        2,236,163   

Gtd. Notes

    6.464        04/28/19        825        838,406   

Gtd. Notes

    6.542        04/28/20        1,150        1,187,016   

Gtd. Notes

    6.625        11/15/20        2,050        2,096,125   

Gtd. Notes

    6.731        04/28/22        3,425        3,578,611   

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     21   


Portfolio of Investments (unaudited) (continued)

as of November 30, 2016

Description   Interest
Rate
    Maturity
Date
    Principal
Amount (000)#
    Value (Note 1)  

CORPORATE BONDS (Continued)

       

Telecommunications (cont’d)

                               

Telecom Italia Capital SA (Italy), Gtd. Notes

    6.999     06/04/18        2,060      $ 2,196,042   

Telesat Canada/Telesat LLC (Canada), Gtd. Notes, 144A

    6.000        05/15/17        3,845        3,841,924   

West Corp., Sr. Sec’d. Notes, 144A(d)

    4.750        07/15/21        2,580        2,631,600   

Wind Acquisition Finance SA (Italy),

       

Sec’d. Notes, 144A

    7.375        04/23/21        2,500        2,550,000   

Sr. Sec’d. Notes, 144A(d)

    6.500        04/30/20        3,800        3,958,080   
       

 

 

 
          60,243,281   

Textiles    0.4%

                               

Springs Industries, Inc., Sr. Sec’d. Notes

    6.250        06/01/21        2,325        2,388,240   
       

 

 

 

TOTAL CORPORATE BONDS
(cost $712,686,413)

          706,352,559   
       

 

 

 
               

Shares

       

COMMON STOCK

       

Oil, Gas & Consumable Fuels

                               

Pacific Exploration and Production Corp. (Colombia)*
(cost $46,830)

        1,101        43,029   
       

 

 

 

TOTAL LONG-TERM INVESTMENTS
(cost $742,711,520)

          736,883,539   
       

 

 

 

SHORT-TERM INVESTMENT    2.3%

       

AFFILIATED MUTUAL FUND

       

Prudential Investment Portfolios 2 -
Prudential Ultra Short Bond Fund
(cost $12,679,486)(Note 3)(g)

        12,679,486        12,679,486   
       

 

 

 

TOTAL INVESTMENTS    135.2%
(cost $755,391,006) (Note 5)

          749,563,025   

Liabilities in excess of other assets(h)    (35.2)%

  

    (195,310,368
       

 

 

 

NET ASSETS    100.0%

        $ 554,252,657   
       

 

 

 

 

The following abbreviations are used in the semi-annual report:

144A—Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. Unless otherwise noted, 144A securities are deemed to be liquid.

EUR—Euro

L2—Level 2

L3—Level 3

 

See Notes to Financial Statements.

 

22  


LIBOR—London Interbank Offered Rate

MTN—Medium Term Note

OTC—Over-the-counter

PIK—Payment-in-Kind

RegS—Regulation S. Security was purchased pursuant to Regulation S and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.

REITs—Real Estate Investment Trust

# Principal amount is shown in U.S. dollars unless otherwise stated.
* Non-income producing security.
(a) Variable rate instrument. The interest rate shown reflects the rate in effect at November 30, 2016.
(b) Indicates a Level 3 security. The aggregate value of Level 3 securities is $7,915,161 and 1.4% of net assets.
(c) Interest rate not available as of November 30, 2016.
(d) Represents security, or a portion thereof, with aggregate value of $429,128,236 segregated as collateral for amount of $205,000,000 borrowed and outstanding as of November 30, 2016. Of such securities, securities in the amount of $33,208,795 have been loaned for which, the amount borrowed serves as collateral. Securities on loan are subject to contractual netting arrangements.
(e) Indicates a security that has been deemed illiquid.
(f) Indicates a restricted security; the aggregate original cost of such securities is $11,734,751. The aggregate value of $11,825,312 is approximately 2.1% of net assets.
(g) Prudential Investments LLC, the manager of the Fund, also serves as manager of the Prudential Investment Portfolios 2 - Prudential Core Ultra Short Bond Fund.
(h) Includes net unrealized appreciation (depreciation) on the following derivative contracts held at reporting period end:

 

Forward foreign currency exchange contracts outstanding at November 30, 2016:

 

Purchase Contracts

  Counterparty   Notional
Amount
(000)
    Value at
Settlement
Date
    Current
Value
    Unrealized
Appreciation
(Depreciation)
 

OTC forward foreign currency exchange contracts:

  

       

Euro,

           

Expiring 12/02/2016

  Goldman Sachs & Co.     EUR        4,065      $ 4,304,998      $ 4,308,452      $ 3,454   
       

 

 

   

 

 

   

 

 

 

 

Sale Contracts

  Counterparty   Notional
Amount
(000)
    Value at
Settlement
Date
    Current
Value
    Unrealized
Appreciation
(Depreciation)
 

OTC forward foreign currency exchange contracts:

  

       

Euro,

           

Expiring 12/02/2016

  Goldman Sachs & Co.     EUR        4,065      $ 4,448,620      $ 4,308,452      $ 140,168   

Expiring 02/02/2017

  Goldman Sachs & Co.     EUR        4,065        4,319,327        4,323,283        (3,956
       

 

 

   

 

 

   

 

 

 
  $ 8,767,947      $ 8,631,735        136,212   
       

 

 

   

 

 

   

 

 

 
    $ 139,666   
           

 

 

 

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     23   


Portfolio of Investments (unaudited) (continued)

as of November 30, 2016

 

 

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below.

 

Level 1—quoted prices generally in active markets for identical securities.

 

Level 2—quoted prices for similar securities, interest rates and yield curves, prepayment speeds, foreign currency exchange rates and other observable inputs.

 

Level 3—unobservable inputs for securities valued in accordance with Board approved fair valuation procedures.

 

The following is a summary of the inputs used as of November 30, 2016 in valuing such portfolio securities:

 

    Level 1     Level 2     Level 3  

Investments in Securities

     

Bank Loans

  $      $ 22,572,790      $ 7,915,161   

Corporate Bonds

           706,352,559          

Common Stock

    43,029                 

Affiliated Mutual Fund

    12,679,486                 

Other Financial Instruments*

     

OTC Forward Foreign Currency Exchange Contracts

           139,666          
 

 

 

   

 

 

   

 

 

 

Total

  $ 12,722,515      $ 729,065,015      $ 7,915,161   
 

 

 

   

 

 

   

 

 

 

 

During the period, there were no transfers between Level 1 and Level 2 to report.

 

The following is a reconciliation of assets in which unobservable inputs (Level 3) were used in determining fair value:

 

    Bank
Loans
    Corporate
Bonds
 

Balance as of 05/31/16

  $ 3,253,958      $ 2,020,706   

Realized gain (loss)

    41,092          

Change in unrealized appreciation (depreciation)**

    69,203          

Purchases

    7,367,625          

Sales

    (2,111,342       

Accrued discount/premium

    8,006          

Transfers into Level 3

             

Transfers out of Level 3

    (713,381     (2,020,706
 

 

 

   

 

 

 

Balance as of 11/30/16

  $ 7,915,161      $   
 

 

 

   

 

 

 

 

* Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and centrally cleared swap contracts, which are recorded at the unrealized appreciation (depreciation) on the instrument, and OTC swap contracts which are recorded at fair value.

 

** Of which, $(55,157) was relating to securities held at the reporting period end.

 

See Notes to Financial Statements.

 

24  


Level 3 securities as presented in the table above are being fair valued using pricing methodologies approved by Board, which contain unobservable inputs as follows:

 

Level 3 Securities

  Fair Value as of
November 30, 2016
    Valuation
Methodology
    Unobservable Inputs  

Bank Loans

  $ 7,915,161        Market Approach        Single Broker Indicative Quote   

 

It is the Fund’s policy to recognize transfers in and transfers out at the fair value as of the beginning of period. At the reporting period end, securities transferred levels as follows:

 

Investments in Securities

  Amount
Transferred
    Level
Transfer
    Logic

Bank Loans

  $ 713,381        L3 to L2      Single Broker Indicative Quote to Multiple Broker Quotes

Corporate Bonds

  $ 2,020,706        L3 to L2      Single Broker Indicative Quote to Evaluated Bid

 

The industry classification of investments and liabilities in excess of other assets shown as a percentage of net assets as of November 30, 2016 were as follows:

 

 

Media

    14.9

Telecommunications

    10.9   

Home Builders

    10.5   

Healthcare-Services

    8.5   

Entertainment

    8.2   

Mining

    5.8   

Lodging

    5.3   

Electric

    5.2   

Software

    4.7   

Chemicals

    4.6   

Packaging & Containers

    4.6   

Diversified Financial Services

    4.3   

Retail

    4.1   

Food

    2.9   

Pharmaceuticals

    2.7   

Commercial Services

    2.5   

Real Estate Investment Trusts (REITs)

    2.5   

Affiliated Mutual Fund

    2.3   

Oil & Gas

    2.2   

Building Materials

    2.1   

Airlines

    2.0   

Technology

    2.0   

Iron/Steel

    2.0   

Miscellaneous Manufacturing

    1.7   

Machinery-Diversified

    1.7   

Pipelines

    1.6   

Auto Parts & Equipment

    1.5   

Healthcare-Products

    1.4   

Media & Entertainment

    1.3

Semiconductors

    1.2   

Leisure Time

    1.2   

Beverages

    1.1   

Oil & Gas Services

    1.0   

Computers

    0.7   

Holding Companies—Diversified

    0.7   

Electronics

    0.7   

Environmental Control

    0.6   

Aerospace/Defense

    0.6   

Auto Manufacturers

    0.5   

Textiles

    0.4   

Real Estate

    0.4   

Agriculture

    0.4   

Machinery-Construction & Mining

    0.4   

Forest Products & Paper

    0.3   

Packaging

    0.2   

Biotechnology

    0.2   

Apparel

    0.2   

Gas

    0.2   

Hand/Machine Tools

    0.1   

Engineering & Construction

    0.1   
 

 

 

 
    135.2   

Liabilities in excess of other assets

    (35.2
 

 

 

 
    100.0
 

 

 

 

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     25   


Portfolio of Investments (unaudited) (continued)

as of November 30, 2016

 

 

The Fund invested in derivative instruments during the reporting period. The primary type of risk associated with these derivative instruments is foreign exchange risk. The effect of such derivative instruments on the Fund’s financial position and financial performance as reflected in the Statement of Assets and Liabilities and Statement of Operations is presented in the summary below.

 

Fair values of derivative instruments as of November 30, 2016 as presented in the Statement of Assets and Liabilities:

 

Derivatives not accounted

for as hedging instruments,

carried at fair value

  

Asset Derivatives

    

Liability Derivatives

 
  

Balance
Sheet Location

   Fair
Value
    

Balance
Sheet Location

   Fair
Value
 
Foreign exchange contracts    Unrealized appreciation on OTC forward foreign currency exchange contracts    $ 143,622       Unrealized depreciation on OTC forward foreign currency exchange contracts    $ 3,956   
     

 

 

       

 

 

 

 

The effects of derivative instruments on the Statement of Operations for the six months ended November 30, 2016 are as follows:

 

Amount of Realized Gain (Loss) on Derivatives Recognized in Income

 

Derivatives not accounted

for as hedging instruments,

carried at fair value

  Forward
Currency
Contracts*
 

Foreign exchange contracts

  $ 186,611   
 

 

 

 

 

* Included in net realized gain (loss) on foreign currency transactions in the Statement of Operations.

 

Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income

 

Derivatives not accounted

for as hedging instruments,

carried at fair value

  Forward
Currency
Contracts*
 

Foreign exchange contracts

  $ 62,043   
 

 

 

 

 

* Included in net change in unrealized appreciation (depreciation) on foreign currencies in the Statement of Operations.

 

For the six months ended November 30, 2016, the Fund’s average volume of derivative activities is as follows:

 

Forward Foreign
Currency Exchange
Contracts—Purchased(1)
    Forward Foreign
Currency Exchange
Contracts—Sold(1)
 
$ 4,474,149      $ 8,991,103   

 

(1) Value at Settlement Date

 

See Notes to Financial Statements.

 

26  


Offsetting of OTC derivative assets and liabilities:

 

The Fund invested in OTC derivatives during the reporting period that are either offset in accordance with current requirements or are subject to enforceable master netting arrangements or similar agreements that permit offsetting. The information about offsetting and related netting arrangements for OTC derivatives, where the legal right to set-off exists, is presented in the summary below.

 

Counterparty

  Gross
amounts of
recognized
assets(1)
    Gross
amounts
available
for offset
    Collateral
Received
    Net
Amount
 

Goldman Sachs & Co.

  $ 143,622      $ (3,956   $  —      $ 139,666   
 

 

 

       

Counterparty

  Gross
amounts of
recognized
liabilities(2)
    Gross
amounts
available
for offset
    Collateral
Pledged
    Net
Amount
 

Goldman Sachs & Co.

  $ (3,956   $ 3,956      $      $   
 

 

 

       

 

(1) Includes unrealized appreciation on swaps and forwards, premiums paid on swap agreements and market value of purchased options.
(2) Includes unrealized depreciation on swaps and forwards, premiums received on swap agreements and market value of written options.

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     27   


Statement of Assets & Liabilities (unaudited)

as of November 30, 2016

 

Assets

        

Investments at value, including securities on loan of $33,208,795

  

Unaffiliated investments (cost $742,711,520)

   $ 736,883,539   

Affiliated investments (cost $12,679,486)

     12,679,486   

Cash

     31,837   

Foreign currency, at value (cost $162,857)

     155,941   

Dividends and interest receivable

     12,198,216   

Receivable for investments sold

     830,667   

Unrealized appreciation on OTC forward foreign currency exchange contracts

     143,622   

Prepaid expenses

     4,994   
  

 

 

 

Total Assets

     762,928,302   
  

 

 

 

Liabilities

        

Loan payable

     205,000,000   

Payable for investments purchased

     2,708,559   

Management fee payable

     499,882   

Loan interest payable

     255,594   

Accrued expenses and other liabilities

     97,328   

Dividends payable

     74,827   

Deferred directors’ fees

     35,499   

Unrealized depreciation on OTC forward foreign currency exchange contracts

     3,956   
  

 

 

 

Total Liabilities

     208,675,645   
  

 

 

 

Net Assets

   $ 554,252,657   
  

 

 

 
          

Net assets were comprised of:

  

Common stock, at par

   $ 33,257   

Paid-in capital in excess of par

     633,874,484   
  

 

 

 
     633,907,741   

Distributions in excess of net investment income

     (1,095,697

Accumulated net realized loss on investment and foreign currency transactions

     (72,859,041

Net unrealized depreciation on investments and foreign currencies

     (5,700,346
  

 

 

 

Net assets, November 30, 2016

   $ 554,252,657   
  

 

 

 

Net asset value per share
($554,252,657 ÷ 33,256,724 shares of common stock issued and outstanding)

   $ 16.67   
  

 

 

 

 

See Notes to Financial Statements.

 

28  


Statement of Operations (unaudited)

Six Months Ended November 30, 2016

 

Net Investment Income (Loss)

        

Income

  

Interest income

   $ 21,189,981   

Affiliated dividend income

     54,466   
  

 

 

 

Total income

     21,244,447   
  

 

 

 

Expenses

  

Management fee

     3,072,955   

Loan interest expense

     1,362,972   

Legal fees and expenses

     49,000   

Custodian and accounting fees (net of $3,600 fee credit)

     41,000   

Shareholders’ reports

     35,000   

Audit fee

     21,000   

Directors’ fees

     20,000   

Registration fees

     17,000   

Transfer agent’s fees and expenses

     10,000   

Insurance expenses

     3,000   

Miscellaneous

     6,973   
  

 

 

 

Total expenses

     4,638,900   
  

 

 

 

Net investment income (loss)

     16,605,547   
  

 

 

 

Realized And Unrealized Gain (Loss) On Investment And Foreign Currency Transactions

        

Net realized gain (loss) on:

  

Investment transactions

     (735,412

Foreign currency transactions

     184,953   
  

 

 

 
     (550,459
  

 

 

 

Net change in unrealized appreciation (depreciation) on:

  

Investments

     944,978   

Foreign currencies

     50,609   
  

 

 

 
     995,587   
  

 

 

 

Net gain (loss) on investment and foreign currency transactions

     445,128   
  

 

 

 

Net Increase (Decrease) In Net Assets Resulting From Operations

   $ 17,050,675   
  

 

 

 

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     29   


Statement of Changes in Net Assets (unaudited)

 

     Six Months
Ended
November 30, 2016
     Year
Ended
May 31, 2016
 

Increase (Decrease) in Net Assets

                 

Operations

     

Net investment income (loss)

   $ 16,605,547       $ 35,256,102   

Net realized gain (loss) on investment and foreign currency transactions

     (550,459      (21,149,978

Net change in unrealized appreciation (depreciation) on investments and foreign currencies

     995,587         (3,722,120
  

 

 

    

 

 

 

Net increase (decrease) in net assets resulting from operations

     17,050,675         10,384,004   
  

 

 

    

 

 

 

Dividends from net investment income (Note 1)

     (21,201,162      (45,146,003
  

 

 

    

 

 

 

Total increase (decrease)

     (4,150,487      (34,761,999

Net Assets:

                 

Beginning of period

     558,403,144         593,165,143   
  

 

 

    

 

 

 

End of period

   $ 554,252,657       $ 558,403,144   
  

 

 

    

 

 

 

(a) Includes undistributed net investment income of:

   $       $ 3,499,918   
  

 

 

    

 

 

 

 

See Notes to Financial Statements.

 

30  


Statement of Cash Flows (unaudited)

For Six Months Ended November 30, 2016

 

Increase (Decrease) in Cash

        

Cash flows from operating activities:

  

Interest and dividends paid (excluding discount and premium amortization of $(3,553,390))

   $ 25,216,611   

Operating expenses paid

     (3,266,049

Loan interest paid

     (1,334,620

Purchases of long-term portfolio investments

     (228,594,318

Proceeds from disposition of long-term portfolio investments

     221,494,887   

Net purchases and sales of short-term investments

     15,776,515   

Increase in receivable for investments sold

     (270,667

Decrease in payable for investments purchased

     (7,988,532

Increase in prepaid expenses

     (3,827

Net cash received from foreign currency transactions

     184,953   

Effect of exchange rate changes

     (11,434
  

 

 

 

Net cash provided from operating activities

     21,203,519   
  

 

 

 

Cash flows from financing activities:

  

Cash dividends paid

     (21,223,153
  

 

 

 

Net cash used in financing activities

     (21,223,153
  

 

 

 

Net increase (decrease) in cash

     (19,634

Cash at beginning of period, including foreign currency

     207,412   
  

 

 

 

Cash at end of period, including foreign currency

   $ 187,778   
  

 

 

 

Reconciliation of Net Decrease in Net Assets to Net Cash Provided from Operating Activities

        

Net increase in net assets resulting from operations

   $ 17,050,675   
  

 

 

 

Decrease in investments

     12,230,474   

Net realized loss on investment transactions

     550,459   

Increase in net unrealized appreciation on investments

     (995,587

Net cash received from foreign currency transactions

     184,953   

Effect of exchange rate changes

     (11,434

Decrease in interest and dividends receivable

     418,774   

Increase in receivable for investments sold

     (270,667

Increase in prepaid expenses

     (3,827

Decrease in payable for investments purchased

     (7,988,532

Increase in loan interest payable

     28,352   

Increase in management fee payable and accrued expenses and other liabilities

     4,815   

Increase in deferred directors’ fees

     5,064   
  

 

 

 

Total adjustments

     4,152,844   
  

 

 

 

Net cash provided from operating activities

   $ 21,203,519   
  

 

 

 

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     31   


Notes to Financial Statements (unaudited)

 

Prudential Short Duration High Yield Fund, Inc. (the “Fund”) is a diversified, closed-end management investment company, registered under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund was incorporated as a Maryland corporation on November 14, 2011.

 

The Fund’s investment objective is to provide a high level of current income.

 

Note 1. Accounting Policies

 

The Fund follows investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. The following accounting policies conform to U.S. generally accepted accounting principles. The Fund consistently follows such policies in the preparation of its financial statements.

 

Securities Valuation: The Fund holds securities and other assets that are fair valued at the close of each day (generally, 4:00 PM Eastern time) the New York Stock Exchange (“NYSE”) is open for trading. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Board of Directors (the “Board”) has adopted Valuation Procedures for security valuation under which fair valuation responsibilities have been delegated to Prudential Investments LLC (“PI” or “Manager”). Under the current Valuation Procedures, the established Valuation Committee is responsible for supervising the valuation of portfolio securities and other assets. The Valuation Procedures permit the Fund to utilize independent pricing vendor services, quotations from market makers, and alternative valuation methods when market quotations are either not readily available or not deemed representative of fair value. A record of the Valuation Committee’s actions is subject to the Board’s review, approval, and ratification at its next regularly-scheduled quarterly meeting.

 

Various inputs determine how the Fund’s investments are valued, all of which are categorized according to the three broad levels (Level 1, 2, or 3) detailed in the table following the Portfolio of Investments.

 

Investments in open-end, non-exchange-traded mutual funds are valued at their net asset values as of the close of the NYSE on the date of valuation. These securities are classified as Level 1 in the fair value hierarchy since they may be purchased or sold at their net asset values on the date of valuation.

 

Fixed income securities traded in the OTC market are generally valued at prices provided by approved independent pricing vendors. The pricing vendors provide these prices after evaluating observable inputs including, but not limited to yield curves, yield spreads, credit

 

32  


ratings, deal terms, tranche level attributes, default rates, cash flows, prepayment speeds, broker/dealer quotations, and reported trades. Securities valued using such vendor prices are classified as Level 2 in the fair value hierarchy.

 

Bank loans are generally valued at prices provided by approved independent pricing vendors. The pricing vendors utilize broker/dealer quotations and provide prices based on the average of such quotations. Bank loans valued using such vendor prices are generally classified as Level 2 in the fair value hierarchy.

 

OTC derivative instruments are generally valued using pricing vendor services, which derive the valuation based on inputs such as underlying asset prices, indices, spreads, interest rates, and exchange rates. These instruments are categorized as Level 2 in the fair value hierarchy.

 

Centrally cleared swaps listed or traded on a multilateral or trade facility platform, such as a registered exchange, are generally valued at the daily settlement price determined by the respective exchange. These securities are classified as Level 2 in the fair value hierarchy, as the daily settlement price is not public.

 

Securities and other assets that cannot be priced according to the methods described above are valued based on pricing methodologies approved by the Board. In the event that unobservable inputs are used when determining such valuations, the securities will be classified as Level 3 in the fair value hierarchy.

 

When determining the fair value of securities, some of the factors influencing the valuation include: the nature of any restrictions on disposition of the securities; assessment of the general liquidity of the securities; the issuer’s financial condition and the markets in which it does business; the cost of the investment; the size of the holding and the capitalization of the issuer; the prices of any recent transactions or bids/offers for such securities or any comparable securities; any available analyst media or other reports or information deemed reliable by the investment adviser regarding the issuer or the markets or industry in which it operates. Using fair value to price securities may result in a value that is different from a security’s most recent closing price and from the price used by other mutual funds to calculate their net asset values.

 

Restricted and Illiquid Securities: Subject to guidelines adopted by the Board, the Fund may invest without limit in illiquid securities, including those which are restricted as to disposition under securities law (“restricted securities”). Restricted securities are valued pursuant to the valuation procedures noted above. Illiquid securities are those that, because of the absence of a readily available market or due to legal or contractual restrictions on resale, cannot be sold within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the investment. Therefore, the Fund may find it difficult to sell illiquid securities at the time considered most advantageous by its subadviser and may incur expenses that would not be incurred in the sale of securities that were freely marketable. Certain securities that would otherwise be

 

Prudential Short Duration High Yield Fund, Inc.     33   


Notes to Financial Statements (unaudited) (continued)

 

considered illiquid because of legal restrictions on resale to the general public may be traded among qualified institutional buyers under Rule 144A of the Securities Act of 1933. These Rule 144A securities, as well as commercial paper that is sold in private placements under Section 4(a)(2) of the Securities Act, may be deemed liquid by the Fund’s subadviser under the guidelines adopted by the Directors of the Fund. However, the liquidity of the Fund’s investments in Rule 144A securities could be impaired if trading does not develop or declines.

 

Forward Currency Contracts: A forward currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The Fund enters into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings or specific receivables and payables denominated in a foreign currency. The contracts are valued daily at current exchange rates and any unrealized gain (loss) is included in net unrealized appreciation or depreciation on foreign currencies. Gain (loss) is realized on the settlement date of the contract equal to the difference between the settlement value of the original and negotiated forward contracts. This gain (loss), if any, is included in net realized gain (loss) on foreign currency transactions. Risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. Forward currency contracts involve risks from currency exchange rate and credit risk in excess of the amounts reflected on the Statement of Assets and Liabilities. The Fund’s maximum risk of loss from counterparty credit risk is the net value of the cash flows to be received from the counterparty at the end of the contract’s life.

 

Master Netting Arrangements: The Fund is subject to various Master Agreements, or netting arrangements, with select counterparties. These are agreements which a subadviser may have negotiated and entered into on behalf of the Fund. A master netting arrangement between the Fund and the counterparty permits the Fund to offset amounts payable by the Fund to the same counterparty against amounts to be received; and by the receipt of collateral from the counterparty by the Fund to cover the Fund’s exposure to the counterparty. However, there is no assurance that such mitigating factors are easily enforceable. In addition to master netting arrangements, the right to set-off exists when all the conditions are met such that each of the parties owes the other determinable amounts, the reporting party has the right to set-off the amount owed with the amount owed by the other party, the reporting party intends to set-off and the right of set-off is enforceable by law. During the reporting period, there was no intention to settle on a net basis and all amounts are presented on a gross basis on the Statement of Assets and Liabilities.

 

The Fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements with certain counterparties that govern OTC derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions

 

34  


regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the Fund is held in a segregated account by the Fund’s custodian and with respect to those amounts which can be sold or re-pledged, is presented in the Portfolio of Investments. Collateral pledged by the Fund is segregated by the Fund’s custodian and identified in the Portfolio of Investments. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the Fund and the applicable counterparty. Collateral requirements are determined based on the Fund’s net position with each counterparty. Termination events applicable to the Fund may occur upon a decline in the Fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the Fund’s counterparties to elect early termination could impact the Fund’s future derivative activity.

 

Loan Participations: The Fund may invest in loan participations. When the Fund purchases a loan participation, the Fund typically enters into a contractual relationship with the lender or third party selling such participations (“Selling Participant”), but not the borrower. As a result, the Fund assumes the credit risk of the borrower, the Selling Participant and any other persons interpositioned between the Fund and the borrower. The Fund may not directly benefit from the collateral supporting the senior loan in which it has purchased the loan participation.

 

Payment In Kind Securities: The Fund may invest in the open market or receive pursuant to debt restructuring, securities that pay in kind (PIK) the interest due on such debt instruments. The PIK interest, computed at the contractual rate specified, is added to the existing principal balance of the debt when issued bonds have same terms as the bond or recorded as a separate bond when terms are different from the existing debt, and is recorded as interest income.

 

Cash Flow Information: The Fund invests in securities and distributes dividends from net investment income, which are paid in cash or are reinvested at the discretion of stockholders. These activities are reported in the Statement of Changes in Net Assets and additional information on cash receipts and cash payments is presented in the Statement of Cash Flows.

 

Accounting practices that do not affect reporting activities on a cash basis include carrying investments at value, accruing income on PIK (payment-in-kind) securities and accreting discounts and amortizing premiums on debt obligations.

 

Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains (losses) from investment and currency transactions are

 

Prudential Short Duration High Yield Fund, Inc.     35   


Notes to Financial Statements (unaudited) (continued)

 

calculated on the identified cost basis. Dividend income is recorded on the ex-date. Interest income, including amortization of premium and accretion of discount on debt securities, as required, is recorded on an accrual basis. Expenses are recorded on an accrual basis, which may require the use of certain estimates by management that may differ from actual.

 

Dividends and Distributions: The Fund intends to make a level dividend distribution each month to the holders of Common Stock. The level dividend rate may be modified by the Board from time to time, and will be based upon the past and projected performance and expenses of the Fund. The Fund intends to also make a distribution during or with respect to each calendar year (which may be combined with a regular monthly distribution), which will generally include any net investment income and net realized capital gain for the year not otherwise distributed.

 

PI has received an order from the Securities and Exchange Commission granting the Fund an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder to permit certain closed-end funds managed by PI to include realized long-term capital gains as a part of their respective regular distributions to the holders of Common Stock more frequently than would otherwise be permitted by the 1940 Act (generally once per taxable year). The Fund intends to rely on this exemptive order. The Board may, at the request of PI, adopt a managed distribution policy.

 

Dividends and distributions to stockholders, which are determined in accordance with federal income tax regulations and may differ from generally accepted accounting principles, are recorded on the ex-date. Permanent book/tax differences relating to income and gains are reclassified amongst undistributed net investment income (loss), accumulated net realized gain (loss) and paid-in capital in excess of par, as appropriate.

 

Taxes: For federal income tax purposes, it is the Fund’s policy 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 and capital gains, if any, to its stockholders. Therefore, no federal income tax provision is required. However, due to the timing of when distributions are made by the Fund, the Fund may be subject to an excise tax of 4% of the amount by which 98% of the Fund’s annual taxable income for the calendar year and 98.2% of its net capital gains for a one-year period ending on October 31 exceed the distributions from such taxable income and net capital gains for the calendar year.

 

Estimates: The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

 

36  


Note 2. Agreements

 

The Fund has a management agreement with PI. Pursuant to this agreement, PI has responsibility for all investment advisory services and supervises the subadviser’s performance of such services. PI has entered into a subadvisory agreement PGIM, Inc., which provides subadvisory services to the Fund through its PGIM Fixed Income (“PFI”) unit. The subadvisory agreement provides that PFI will furnish investment advisory services in connection with the management of the Fund. In connection therewith, PFI is obligated to keep certain books and records of the Fund. PI pays for the services of PFI, the cost of compensation of officers of the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears all other cost and expenses.

 

The management fee paid to PI is computed daily and payable monthly, at an annual rate of .80% of the average daily value of the Fund’s investable assets. “Investable assets” refers to the net assets attributable to the outstanding Common Stock of the Fund plus the liquidation preference of any outstanding preferred stock issued by the Fund, the principal amount of any borrowings and the principal on any debt securities issued by the Fund.

 

PI and PGIM, Inc. are indirect, wholly-owned subsidiaries of Prudential Financial, Inc. (“Prudential”).

 

Note 3. Other Transactions with Affiliates

 

The Fund may enter into certain securities purchase or sale transactions under Board approved Rule 17a-7 procedures. Rule 17a-7 is an exemptive rule under the 1940 Act, that permits purchase and sale transactions among affiliated investment companies, or between an investment company and a person that is affiliated solely by reason of having a common (or affiliated) investment adviser, common directors, and/or common officers. Such transactions are subject to ratification by the Board.

 

The Fund invests its overnight sweep cash in the Prudential Core Ultra Short Bond Fund, (the “Core Fund”), a portfolio of the Prudential Investment Portfolios 2, registered under 1940 Act, and managed by PI. Earnings from the Core Fund are disclosed on the Statement of Operations as “Affiliated dividend income”.

 

Note 4. Portfolio Securities

 

The cost of purchases and proceeds from sales of portfolio securities, other than short-term investments, for the year ended November 30, 2016, aggregated $231,241,068 and $220,907,341, respectively.

 

Prudential Short Duration High Yield Fund, Inc.     37   


Notes to Financial Statements (unaudited) (continued)

 

 

Note 5. Tax Information

 

The United States federal income tax basis of the Fund’s investments and the net unrealized depreciation as of November 30, 2016 were as follows:

 

Tax Basis

   $ 767,714,555   
  

 

 

 

Appreciation

     7,249,827   

Depreciation

     (25,401,357
  

 

 

 

Net Unrealized Depreciation

   $ (18,151,530
  

 

 

 

 

The book basis may differ from tax basis due to certain tax-related adjustments.

 

For federal income tax purposes, the Fund had a capital loss carryforward as of May 31, 2016 of approximately $36,008,000 which can be carried forward for an unlimited period. No capital gains distributions are expected to be paid to shareholders until net gains have been realized in excess of such losses.

 

In accordance with the provision of Subchapter M of the Internal Revenue Code and the excise tax requirements, the Fund elected to treat post-October capital losses of approximately $23,670,000 as having been incurred in the following fiscal year (May 31, 2017).

 

Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years and has concluded that no provision for income tax is required in the Fund’s financial statements for the current reporting period. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

 

Note 6. Capital

 

There are 1 billion shares of $0.001 par value common stock authorized. Prior to commencement of operations on April 30, 2012, the Fund issued 5,240 shares of common stock to Prudential at an aggregate purchase price of $100,084. As of November 30, 2016, Prudential owned 7,666 shares of the Fund.

 

For the six months ended November 30, 2016, the Fund did not issue shares in connection with the Fund’s dividend reinvestment plan.

 

Note 7. Borrowings and Re-hypothecation

 

The Fund currently is a party to a committed credit facility (the “credit facility”) with a financial institution. The credit facility provides for a maximum commitment of $300 million.

 

38  


Interest on any borrowings under the credit facility is payable at the negotiated rates. The Fund’s obligations under the credit facility are secured by the assets of the Fund segregated for the purpose of securing the amount borrowed. The purpose of the credit facility is to provide the Fund with portfolio leverage and meet its general cash flow requirements.

 

During the six months ended November 30, 2016, the Fund utilized the credit facility and had an average daily outstanding loan balance of $205,000,000 during the 183 day period that the facility was utilized, at an average interest rate of 1.31%. The maximum amount of loan outstanding during the period was $205,000,000. There was a balance of $205,000,000 outstanding at November 30, 2016.

 

Re-hypothecation: The credit facility agreement permits, subject to certain conditions, the financial institution to re-hypothecate, up to the amount outstanding under the facility, portfolio securities segregated by the Fund as collateral. The Fund continues to receive interest on re-hypothecated securities. The Fund also has the right under the agreement to recall the re-hypothecated securities from the financial institution on demand. If the financial institution fails to deliver the recalled security in a timely manner, the Fund will be compensated by the financial institution for any fees or losses related to the failed delivery or, in the event a recalled security will not be returned by the financial institution, the Fund, upon notice to the financial institution, may reduce the loan balance outstanding by the value of the recalled security failed to be returned plus accrued interest. The Fund will receive a portion of the fees earned by the financial institution in connection with the re-hypothecation of portfolio securities. Such earnings are disclosed in the statement of operations under Other Income. As of November 30, 2016, there were no such earnings to be disclosed.

 

Note 8. Subsequent Event

 

Dividends and Distributions: On November 28, 2016 the Fund declared monthly dividends of $0.1025 per share payable on December 30, 2016, January 9, 2017 and February 28, 2017, respectively, to shareholders of record on December 16, 2016, December 30, 2016 and February 17, 2017, respectively. The ex-dates were December 14, 2016, December 28, 2016 and February 15, 2017, respectively.

 

Note 9. Recent Accounting Pronouncements and Reporting Updates

 

In December 2016, the FASB released an Accounting Standards Update (“ASU”) that makes technical changes to various sections of the Accounting Standards Codification (“ASC”), including Topic 820, Fair Value Measurement. The changes to Topic 820 are intended to clarify the difference between a valuation approach and a valuation technique. The changes to ASC 820-10-50-2 require a reporting entity to disclose, for Level 2 and Level 3 fair value measurements, a change in either or both a valuation approach and a valuation technique and the reason(s) for the change. The changes to Topic 820 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. At this time, management is evaluating the implications of the ASU and its impact on the financial statements and disclosures has not yet been determined.

 

Prudential Short Duration High Yield Fund, Inc.     39   


Notes to Financial Statements (unaudited) (continued)

 

 

On October 13, 2016, the Securities and Exchange Commission (the “SEC”) adopted new rules and forms and amended existing rules and forms which are intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to improve the quality of information that funds provide to investors, including modifications to Regulation S-X which would require standardized, enhanced disclosure about derivatives in investment company financial statements. The new rules also enhance disclosure regarding fund liquidity and redemption practices. The compliance dates of the modifications to Regulation S-X are August 1, 2017 and other amendments and rules are generally June 1, 2018 and December 1, 2018. Management is currently evaluating the impacts to the financial statement disclosures, if any.

 

In January 2016, the FASB issued ASU No. 2016-01 regarding “Recognition and Measurement of Financial Assets and Financial Liabilities”. The new guidance is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. At this time, management is evaluating the implications of ASU No. 2016-01 and its impact on the financial statements and disclosures has not yet been determined.

 

40  


Financial Highlights (unaudited)

 

     Six Months
Ended
November 30,
           Year Ended May 31,           

April 30,
2012(a)
through
May 31,

 
     2016(b)            2016(b)     2015(b)     2014(b)     2013(b)            2012  
Per Share Operating Performance:                                                                
Net Asset Value, Beginning Of Period     $16.79                $17.84        $18.82        $19.18        $18.75                $19.10
Income (loss) from investment operations:                                                                
Net investment income (loss)     .50                1.06        1.20        1.22        1.24                .07   
Net realized and unrealized gain (loss) on investment transactions     .02                (.75     (.59     .02        .74                (.38
Total from investment operations     .52                .31        .61        1.24        1.98                (.31
Less Dividends:                                                                
Dividends from net investment income     (.64             (1.36     (1.59     (1.60     (1.57             -   
Fund share transactions:                                                                
Common stock offering costs charged to paid-in capital in excess of par     -                -        -        -        - (g)              (.04
Accretion to net asset value from the exercise of the underwriters over-allotment option     -                -        -        -        .02                -   
Total of share transactions     -                -        -        -        .02                (.04
Net asset value, end of period     $16.67                $16.79        $17.84        $18.82        $19.18                $18.75   
Market price, end of period     $15.14                $15.58        $15.75        $17.84        $19.45                $20.09   
Total Return(c):     1.18%                8.23%        (2.92)%        .24%        4.97%                .35%   
               
Ratios/Supplemental Data:                                                
Net assets, end of period (000)     $554,253                $558,403        $593,165        $626,021        $637,704