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:    5/31/2018
Date of reporting period:    11/30/2017

 


Item 1      Reports to Stockholders

 


LOGO

 

     PRUDENTIAL SHORT DURATION HIGH YIELD FUND, INC.

 

 

SEMIANNUAL REPORT

NOVEMBER 30, 2017

 

LOGO

LOGO

 

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Objective: High level of current income

 

Highlights (unaudited)

 

 

 

Issue selection within the telecom and technology sectors were some of the largest positive contributors to performance.

 

 

Overall sector allocation modestly detracted from returns.

 

 

 

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. © 2018 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 the Prudential Short Duration High Yield Fund, Inc. informative and useful. The report covers performance for the six-month period ended November 30, 2017.

 

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. However, diversification and asset allocation strategies do not assure a profit or protect against loss in declining markets.

 

At PGIM Investments, we consider it a great privilege and responsibility to help investors participate in opportunities across global markets while meeting their toughest investment challenges. We’re part of PGIM, a top-10 global investment manager with more than $1 trillion in assets under management. This investment expertise allows us to deliver actively managed funds and strategies to meet the needs of investors around the globe.

 

Thank you for choosing our family of funds.

 

Sincerely,

 

LOGO

 

Stuart S. Parker, President

Prudential Short Duration High Yield Fund, Inc.

January 16, 2018

 

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.pgiminvestments.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 S&P Global Ratings (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 11/30/17
Price per Share   Total Return for
Six Months Ended
11/30/17
$16.55 (NAV)     1.60%
$14.75 (Market Price)   –1.88%

 

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: PGIM Investments LLC

 

Key Fund Statistics as of 11/30/17          
Duration    2.3 years        Average Maturity    3.7 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 11/30/17 (%)  
BBB     6.6  
BB     49.0  
B     36.7  
CCC     4.5  
Not Rated    
1.2
 
Cash/Cash Equivalents     1.9  
Total Investments     100.0  

 

Source: PGIM Fixed Income

 

Credit ratings reflect the highest rating assigned by an 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 11/30/17     
Total Monthly Dividends
Paid per Share for Period
  Current Monthly Dividend
Paid per Share
   Yield at Market Price
as of 11/30/17
$0.5550   $0.0925    7.53%

 

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, 2017.

 

Prudential Short Duration High Yield Fund, Inc.     5  


Strategy and Performance Overview (unaudited)

 

How did the Fund perform?

The Prudential Short Duration High Yield Fund, Inc. returned 1.60% on a net basis for the six-month reporting period ended November 30, 2017, underperforming the 1.82% return of its benchmark, the Bloomberg Barclays US High Yield Ba/B 1-5 Year 1% Issuer Constrained Index (the Index). While also underperforming the 2.01% return of the Lipper High Yield Funds (Leveraged) average, the Fund outperformed its benchmark on a gross basis.

 

What were market conditions?

 

The short duration, higher quality high yield corporate bond market, as represented by the Index, generated positive returns during the reporting period, but underperformed the broader high yield corporate bond market, as represented by the Bloomberg Barclays High Yield Index, by 46 basis points. (A basis point is  1/100th of a percent.) The Index’s yield to worst ended the period at 4.47%, 39 basis points higher than it was at the beginning of the period. The yield to worst is the lowest potential yield that can be received on a portfolio of bonds without the issuers actually defaulting.

 

 

Overall, the performance of high yield bonds continued the positive trend that had begun after the November 2016 US election, which had sparked a rally in the global capital markets.

 

 

Although lower taxes, regulatory rollbacks, and increased infrastructure spending were expected to drive US economic growth, volatility in oil prices and interest rates dampened investor sentiment in June 2017, when the current fiscal period began. Nevertheless, high yield bonds closed the month with a positive total return.

 

 

In the third quarter, high yield bonds generated solid returns on the back of record high equity prices, improving commodity prices, a manageable new-issue calendar, and investors’ ongoing search for yield. That said, the high yield bond market was not completely immune to the impact of various global events, including geopolitical tensions between the US and North Korea, the terror attack in Barcelona, and the effects of Hurricanes Harvey and Irma.

 

 

In October, high yield bonds continued to perform well, supported by a “reflation trade” in the stock market, the firmer backdrop for energy bonds, and optimism about both the Republicans’ tax plan and third-quarter corporate earnings. In a reflation trade, investors generally favor assets that might benefit from rising economic growth and inflation.

 

 

High yield bond performance wavered during the first half of November, when the market experienced a sharp sell-off amid heavy retail mutual fund withdrawals, shocks from a handful of companies, and sector-based selling. Valuations dropped approximately 1.4%, testing the resolve of investors, who had experienced only three down months (in which losses were less than 0.4% in each instance) during the previous 20-month period. In the second half of November, high yield bonds regained much lost ground due to surprising progress on US tax reform and rallying oil and stock prices.

 

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The top-performing industries in the high yield bond market during the period were electric utilities, metals & mining, and financials. The electric utilities industry was the leading performer, driven by attractive valuations, positive merger and acquisition trends (most notably Vistra Energy’s acquisition of Dynegy), and continued improvement in the fundamentals of independent power producers. The worst performers were those that posted negative total returns, including food & drug retail, telecommunications, consumer products, and cable. Food and drug retail was the weakest-performing industry as the market assessed the impact of Amazon’s acquisition of Whole Foods Market and the potential squeeze on traditional grocers’ profit margins. Telecommunications companies came under pressure because of lackluster earnings from CenturyLink and Frontier Communications, as well as news that Sprint and T-Mobile were calling off merger talks.

 

 

According to Moody’s, the trailing 12-month US speculative-grade issuer default rate was 3.4% on November 30th, a modest up tick from the end of the third quarter. In 2017, most defaults were by issuers in the oil & gas and retail sectors. Looking ahead, Moody’s expects the advertising, printing, and publishing sector to contribute most to default activity during the next 12 months.

 

What worked?

 

The Fund’s underweight to telecommunications and overweight to electric utilities bolstered relative performance.

 

 

Security selection in the telecommunications, technology, upstream energy, and consumer non-cyclical sectors added value.

 

 

Within individual security selection, the Fund’s positioning in Dynegy (electric utilities), Claire’s (retail), Windstream Holdings and Altice (telecommunications), and Valeant Pharmaceuticals (health care & pharmaceutical) contributed positively to results.

 

What didn’t work?

 

Sector allocations detracted modestly from the Fund’s relative returns. An overweight position in the health care & pharmaceutical sector hurt performance most during the period. The Fund’s underweights in the rebounding upstream energy sector, coupled with its underweights in finance & insurance and transportation & environmental services, also limited results.

 

 

The Fund was hindered by security selection in the health care & pharmaceutical, electric utilities, and midstream energy sectors.

 

 

Among individual issues, overweight positions in the health care sector, including Community Health Systems and Tenet Healthcare, detracted from performance. An overweight in retailer PetSmart was also negative.

 

Prudential Short Duration High Yield Fund, Inc.     7  


Strategy and Performance Overview (continued)

 

 

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 were in excess of the cost of borrowing.

 

 

As of November 30, 2017, the Fund had borrowed $170 million and was about 23.6% leveraged. During the reporting period, the average amount of leverage utilized by the Fund was approximately 24.2%.

 

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

 

The Fund used derivatives, specifically currency forwards, to hedge the currency risk from owning non-US dollar-denominated bonds. The Fund also used US Treasury futures to hedge interest rate risk relative to the Index.

 

 

During the reporting period, the use of these derivatives helped mitigate the impact of fluctuating currencies and interest rates on the Fund.

 

Current Outlook

 

In the near term, PGIM Fixed Income favors high yield corporate bonds because of improving fundamentals and favorable market technicals (supply/demand dynamics).

 

 

Despite elevated risks in some sectors like retail, health care, and commodities, default rates should remain low. PGIM Fixed Income’s main concern is a recession triggered by an unanticipated development. However, such a scenario is likely to result in less spread widening than in previous recessions given the relative caution currently exhibited by issuers and investors.

 

 

At the end of the reporting period, key positioning themes were continued underweights in the energy, finance & insurance, and banking sectors. Sector overweights included technology, building materials & construction, health care & pharmaceutical, and cable.

 

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 Yield Funds (Leveraged) Average—The Lipper High Yield Funds (Leveraged) Average (Lipper Average) represent Funds that aim at high (relative) current yield from fixed income securities, have no quality or maturity restrictions, and tend to invest in lower-grade debt issues. These funds can be leveraged via the use of debt, preferred equity, and/or reverse repurchase agreements.

 

Investors cannot invest directly in an index or average.

 

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Looking for additional information?

The Fund is traded under the symbol “ISD” and its closing market price is available in most financial websites 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.pgiminvestments.com.

 

In a continuing effort to provide information concerning the Fund, shareholders may go to www.pgiminvestments.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.

 

Prudential Short Duration High Yield Fund, Inc.     9  


Schedule of Investments (unaudited)

as of November 30, 2017

 

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

LONG-TERM INVESTMENTS    126.8%

       

BANK LOANS    8.4%

       

Aerospace & Defense    0.2%

                               

StandardAero Aviation Holdings, Inc., Initial Term Loan, 1 Month LIBOR + 3.750%^

    5.100 %(c)      07/07/22       900     $ 904,500  

Commercial Services    1.0%

                               

Laureate Education, Inc., Series 2024 Term Loan, 1 Month LIBOR + 4.500%

    5.850 (c)      04/26/24       3,924       3,940,222  

LSC Communications, Inc., First Lien Term B Loan, 1 Month LIBOR + 5.500%

    6.838 (c)      09/30/22       1,626       1,630,215  
       

 

 

 
          5,570,437  

Food    0.6%

                               

CEC Entertainment, Inc., First Lien Term B Loan, 1 Month LIBOR + 3.000%

    4.350 (c)      02/15/21       3,222       3,114,422  

Non-Captive Finance    0.4%

                               

Exela Intermediate LLC, First Lien Term B Loan, 3 Month LIBOR + 7.500%

    8.678 (c)      06/30/23       2,000       1,886,250  

Packaging & Containers    0.3%

                               

Coveris Holdings SA (Luxembourg), USD Term B-1 Loan, 3 Month LIBOR + 4.250%^

    5.583 (c)      06/29/22       1,382       1,380,324  

Retail    1.1%

                               

Academy, Ltd., Initial Term Loan, 1 Month LIBOR + 4.000%

    5.306 (c)      07/01/22       2,613       2,109,947  

Rite Aid Corp., Tranche 2 Term Loan (Second Lien), 1 Month LIBOR + 3.875%

    5.085 (c)      06/21/21       1,700       1,700,000  

Sally Holdings LLC, Term B-2 Loan

    4.500       07/05/24       2,475       2,468,812  
       

 

 

 
          6,278,759  

Software    1.1%

                               

BMC Software Finance, Inc., Initial B-1 US Term Loans, 1 Month LIBOR + 3.750%

    5.100 (c)      09/10/22       3,559       3,565,020  

Symantec Corp., Term A-5 Loan, 2 Month LIBOR + 1.750%^

    3.030 (c)      08/01/21       2,564       2,560,897  
       

 

 

 
          6,125,917  

Technology    1.8%

                               

Evergreen Skills Lux Sarl, First Lien Initial Term Loan, 1 Month LIBOR + 4.750%

    6.100 (c)      04/28/21       1,900       1,824,000  

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     11  


Schedule of Investments (unaudited) (continued)

as of November 30, 2017

 

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

BANK LOANS (Continued)

       

Technology (cont’d.)

                               

Informatica Corp., Dollar Term Loan, 3 Month LIBOR + 3.500%

    4.833 %(c)      08/05/22       1,741     $ 1,746,300  

McAfee LLC,

       

First Lien Closing Date USD Term Loan, 3 Month LIBOR + 4.500%

    5.833 (c)      09/30/24       4,650       4,667,759  

Second Lien Initial Loan, 3 Month LIBOR + 8.500%

    9.833 (c)      09/29/25       1,850       1,868,500  
       

 

 

 
          10,106,559  

Telecommunications    1.4%

                               

Frontier Communications Corp., Term B-1 Loan, 1 Month LIBOR + 3.750%

    5.090 (c)      06/17/24       3,716       3,521,940  

West Corp., First Lien Term B Loan, 1 Month LIBOR + 4.000%

    5.350 (c)      10/10/24       4,100       4,092,313  
       

 

 

 
          7,614,253  

Wireless    0.5%

                               

Digicel International Finance Ltd., First Lien Initial Term B Loan, 1 Month LIBOR + 3.750%

    5.080 (c)      05/27/24       2,400       2,403,000  

Xplornet Communications, Inc. (Canada), Term B Loan, 3 Month LIBOR + 4.750%

    6.083 (c)      09/09/21       572       577,485  
       

 

 

 
          2,980,485  
       

 

 

 

TOTAL BANK LOANS
(cost $45,616,660)

          45,961,906  
       

 

 

 

CORPORATE BONDS    118.4%

       

Auto Manufacturers    0.3%

                               

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

    4.250       11/15/19       1,600       1,632,000  

Auto Parts & Equipment    1.1%

                               

American Axle & Manufacturing, Inc.,

       

Gtd. Notes

    5.125       02/15/19       1,415       1,415,000  

Gtd. Notes(aa)

    7.750       11/15/19       2,500       2,728,125  

IHO Verwaltungs GmbH (Germany), Sr. Sec’d. Notes, Cash coupon 4.125% or PIK 4.875%, 144A

    4.125       09/15/21       2,200       2,235,222  
       

 

 

 
          6,378,347  

Banks    0.8%

                               

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

    5.000       08/15/22       4,175       4,462,031  

 

See Notes to Financial Statements.

 

12  


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

CORPORATE BONDS (Continued)

       

Beverages    0.2%

                               

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

    5.375     07/01/22       1,300     $ 1,352,000  

Building Materials    0.8%

                               

Griffon Corp., Gtd. Notes

    5.250       03/01/22       1,708       1,740,537  

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

    5.125       02/15/21       675       695,162  

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

    8.500       04/15/22       1,750       1,944,688  
       

 

 

 
          4,380,387  

Chemicals    6.3%

                               

A. Schulman, Inc., Gtd. Notes

    6.875       06/01/23       1,250       1,309,375  

Ashland LLC, Gtd. Notes

    4.750       08/15/22       1,650       1,720,125  

CF Industries, Inc., Gtd. Notes(aa)

    7.125       05/01/20       3,970       4,352,112  

Chemours Co. (The),

       

Gtd. Notes(aa)

    6.625       05/15/23       6,480       6,852,600  

Gtd. Notes

    7.000       05/15/25       1,035       1,132,031  

Hexion, Inc., Sr. Sec’d. Notes, 144A(aa)

    10.375       02/01/22       735       676,421  

NOVA Chemicals Corp. (Canada), Sr. Unsec’d. Notes, 144A(aa)

    4.875       06/01/24       4,350       4,404,375  

Platform Specialty Products Corp., Sr. Unsec’d. Notes, 144A

    6.500       02/01/22       1,145       1,183,644  

PQ Corp., Sr. Sec’d. Notes, 144A

    6.750       11/15/22       800       862,000  

PQ Corp./Eco Finance Corp., Gtd. Notes, 144A

    8.500       11/01/22       555       580,669  

Rain CII Carbon LLC/CII Carbon Corp., Sec’d. Notes, 144A(aa)

    8.250       01/15/21       4,770       4,901,175  

Tronox Finance LLC, Gtd. Notes, 144A(aa)

    7.500       03/15/22       3,985       4,164,325  

W.R. Grace & Co., Gtd. Notes, 144A(aa)

    5.125       10/01/21       2,540       2,689,225  
       

 

 

 
          34,828,077  

Commercial Services    2.1%

                               

Jaguar Holding Co. II/Pharmaceutical Product Development LLC, Gtd. Notes, 144A(aa)

    6.375       08/01/23       4,450       4,583,500  

Nielsen Co. Luxembourg SARL (The), Gtd. Notes, 144A

    5.500       10/01/21       2,215       2,278,681  

Nielsen Finance LLC/Nielsen Finance Co.,

       

Gtd. Notes

    4.500       10/01/20       325       328,656  

Gtd. Notes, 144A

    5.000       04/15/22       1,500       1,544,025  

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

    7.625       10/01/18       2,603       2,710,374  
       

 

 

 
          11,445,236  

Computers    3.3%

                               

Dell International LLC/EMC Corp., Gtd. Notes, 144A(aa)

    5.875       06/15/21       5,150       5,356,024  

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     13  


Schedule of Investments (unaudited) (continued)

as of November 30, 2017

 

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

CORPORATE BONDS (Continued)

       

Computers (cont’d.)

                               

NCR Corp.,

       

Gtd. Notes

    4.625     02/15/21       1,075     $ 1,080,375  

Gtd. Notes

    5.000       07/15/22       1,882       1,910,230  

Gtd. Notes(aa)

    5.875       12/15/21       2,685       2,759,911  

Gtd. Notes

    6.375       12/15/23       1,850       1,949,438  

Western Digital Corp.,

       

Gtd. Notes

    10.500       04/01/24       1,694       1,967,581  

Sr. Sec’d. Notes, 144A(aa)

    7.375       04/01/23       2,850       3,099,375  
       

 

 

 
          18,122,934  

Distribution/Wholesale    0.1%

                               

Global Partners LP/GLP Finance Corp., Gtd. Notes

    7.000       06/15/23       500       512,500  

Diversified Financial Services    2.8%

                               

Alliance Data Systems Corp.,

       

Gtd. Notes, 144A

    5.375       08/01/22       2,545       2,583,175  

Gtd. Notes, 144A

    6.375       04/01/20       2,500       2,517,500  

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

    8.250       08/15/21       850       907,375  

Navient Corp.,

       

Sr. Unsec’d. Notes(aa)

    6.500       06/15/22       4,965       5,213,250  

Sr. Unsec’d. Notes

    6.625       07/26/21       525       555,188  

Sr. Unsec’d. Notes, MTN

    8.000       03/25/20       425       463,250  

OneMain Financial Holdings LLC, Gtd. Notes, 144A(aa)

    6.750       12/15/19       2,575       2,658,687  

VFH Parent LLC/Orchestra Co-Issuer, Inc., Sec’d. Notes, 144A

    6.750       06/15/22       325       340,844  
       

 

 

 
          15,239,269  

Electric    6.6%

                               

AES Corp., Sr. Unsec’d. Notes

    7.375       07/01/21       1,250       1,406,250  

Calpine Corp.,

       

Sr. Sec’d. Notes, 144A

    5.875       01/15/24       550       567,875  

Sr. Unsec’d. Notes

    5.375       01/15/23       1,375       1,369,844  

Sr. Unsec’d. Notes

    5.500       02/01/24       1,475       1,425,219  

DPL, Inc.,

       

Sr. Unsec’d. Notes(aa)

    6.750       10/01/19       3,160       3,310,100  

Sr. Unsec’d. Notes(aa)

    7.250       10/15/21       2,325       2,574,937  

Dynegy, Inc.,

       

Gtd. Notes(aa)

    7.375       11/01/22       8,925       9,538,594  

Gtd. Notes

    7.625       11/01/24       1,350       1,469,813  

Gtd. Notes

    8.034       02/02/24       775       817,625  

 

See Notes to Financial Statements.

 

14  


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

CORPORATE BONDS (Continued)

       

Electric (cont’d.)

                               

GenOn Energy, Inc.,

       

Sr. Unsec’d. Notes(d)

    7.875     06/15/17       750     $ 540,000  

Sr. Unsec’d. Notes(d)

    9.500       10/15/18       2,625       1,863,750  

Sr. Unsec’d. Notes(d)

    9.875       10/15/20       1,400       994,000  

NRG Energy, Inc.,

       

Gtd. Notes(aa)

    6.250       07/15/22       3,325       3,462,156  

Gtd. Notes

    6.250       05/01/24       2,575       2,723,062  

Gtd. Notes(aa)

    6.625       03/15/23       2,800       2,903,880  

NRG REMA LLC, Series C, Pass-Through Certificates(aa)

    9.681       07/02/26       1,100       742,170  

Red Oak Power LLC, Series B, Sr. Sec’d. Notes

    9.200       11/30/29       375       423,750  
       

 

 

 
          36,133,025  

Electronics    0.6%

                               

Jabil, Inc.,

       

Sr. Unsec’d. Notes

    5.625       12/15/20       690       736,575  

Sr. Unsec’d. Notes(aa)

    8.250       03/15/18       2,700       2,737,935  
       

 

 

 
          3,474,510  

Entertainment    6.2%

                               

AMC Entertainment Holdings, Inc., Gtd. Notes(aa)

    5.875       02/15/22       1,000       1,017,500  

Carmike Cinemas, Inc, Sec’d. Notes, 144A(aa)

    6.000       06/15/23       2,250       2,362,500  

CCM Merger, Inc., Sr. Unsec’d. Notes, 144A (original cost $3,200,000; purchased 03/08/17)(aa)(f)

    6.000       03/15/22       3,200       3,288,000  

Churchill Downs, Inc., Gtd. Notes(aa)

    5.375       12/15/21       4,740       4,870,350  

Eldorado Resorts, Inc., Gtd. Notes

    7.000       08/01/23       2,200       2,362,250  

GLP Capital LP/GLP Financing II, Inc., Gtd. Notes(aa)

    4.375       11/01/18       3,175       3,206,750  

International Game Technology PLC, Sr. Sec’d. Notes, 144A(aa)

    6.250       02/15/22       3,150       3,437,437  

Jacobs Entertainment, Inc., Sec’d. Notes, 144A

    7.875       02/01/24       600       645,000  

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

    5.000       08/01/18       4,550       4,550,000  

National CineMedia LLC, Sr. Sec’d. Notes(aa)

    6.000       04/15/22       2,630       2,662,875  

Scientific Games International, Inc.,

       

Gtd. Notes(aa)

    6.625       05/15/21       1,975       2,034,250  

Gtd. Notes

    10.000       12/01/22       500       550,625  

Sr. Sec’d. Notes, 144A(aa)

    7.000       01/01/22       2,925       3,085,875  
       

 

 

 
          34,073,412  

Environmental Control    0.5%

                               

Clean Harbors, Inc., Gtd. Notes(aa)

    5.125       06/01/21       2,600       2,632,500  

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     15  


Schedule of Investments (unaudited) (continued)

as of November 30, 2017

 

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

CORPORATE BONDS (Continued)

       

Food    2.5%

                               

Hearthside Group Holdings LLC/Hearthside Finance Co., Gtd. Notes, 144A(aa)

    6.500     05/01/22       925     $ 949,281  

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

    7.750       10/28/20       1,500       1,537,500  

JBS USA LUX SA/JBS USA Finance, Inc. (Brazil),

       

Gtd. Notes, 144A(aa)

    7.250       06/01/21       4,600       4,700,648  

Gtd. Notes, 144A

    7.250       06/01/21       1,050       1,072,974  

Gtd. Notes, 144A

    8.250       02/01/20       275       276,719  

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

    9.000       11/01/19       3,325       3,399,813  

SUPERVALU, Inc.,

       

Sr. Unsec’d. Notes

    6.750       06/01/21       1,700       1,644,750  

Sr. Unsec’d. Notes

    7.750       11/15/22       225       218,250  
       

 

 

 
          13,799,935  

Forest Products & Paper    0.8%

                               

Cascades, Inc. (Canada), Gtd. Notes, 144A

    5.500       07/15/22       1,982       2,043,938  

Mercer International, Inc. (Canada), Sr. Unsec’d. Notes

    7.750       12/01/22       2,360       2,501,600  
       

 

 

 
          4,545,538  

Hand/Machine Tools    0.1%

                               

Apex Tool Group LLC, Gtd. Notes, 144A

    7.000       02/01/21       850       805,375  

Healthcare-Products    0.7%

                               

Avantor, Inc., Sr. Sec’d. Notes, 144A

    6.000       10/01/24       375       375,234  

Mallinckrodt International Finance SA/Mallinckrodt CB LLC,

       

Gtd. Notes, 144A(aa)

    4.875       04/15/20       2,460       2,373,900  

Gtd. Notes, 144A

    5.750       08/01/22       1,540       1,420,650  
       

 

 

 
          4,169,784  

Healthcare-Services    9.2%

                               

Acadia Healthcare Co., Inc.,

       

Gtd. Notes

    5.125       07/01/22       500       499,445  

Gtd. Notes

    5.625       02/15/23       1,575       1,582,875  

Centene Corp., Sr. Unsec’d. Notes

    5.625       02/15/21       2,375       2,452,188  

CHS/Community Health Systems, Inc.,

       

Gtd. Notes

    6.875       02/01/22       2,175       1,310,438  

Gtd. Notes

    7.125       07/15/20       1,375       1,072,500  

Gtd. Notes(aa)

    8.000       11/15/19       3,950       3,540,187  

Sr. Sec’d. Notes

    6.250       03/31/23       1,600       1,496,000  

 

See Notes to Financial Statements.

 

16  


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

CORPORATE BONDS (Continued)

       

Healthcare-Services (cont’d.)

                               

HCA Healthcare, Inc., Sr. Unsec’d. Notes(aa)

    6.250     02/15/21       1,750     $ 1,874,688  

HCA, Inc.,

       

Gtd. Notes

    5.875       05/01/23       100       106,000  

Gtd. Notes

    7.500       02/15/22       1,225       1,381,188  

Sr. Sec’d. Notes(aa)

    3.750       03/15/19       3,075       3,113,437  

Sr. Sec’d. Notes

    4.250       10/15/19       1,625       1,667,656  

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

    8.000       01/15/20       5,775       5,818,312  

LifePoint Health, Inc., Gtd. Notes

    5.500       12/01/21       3,125       3,160,156  

MEDNAX, Inc., Gtd. Notes, 144A

    5.250       12/01/23       500       512,500  

Molina Healthcare, Inc., Gtd. Notes(aa)

    5.375       11/15/22       2,250       2,351,250  

Select Medical Corp., Gtd. Notes(aa)

    6.375       06/01/21       2,500       2,565,625  

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

    8.875       04/15/21       2,450       2,468,375  

Tenet Healthcare Corp.,

       

Sr. Sec’d. Notes

    4.375       10/01/21       175       175,000  

Sr. Sec’d. Notes

    4.750       06/01/20       1,525       1,555,958  

Sr. Sec’d. Notes, 144A(aa)

    4.625       07/15/24       3,375       3,324,375  

Sr. Unsec’d. Notes

    6.750       02/01/20       475       479,750  

Sr. Unsec’d. Notes

    6.750       06/15/23       4,775       4,464,529  

Sr. Unsec’d. Notes

    8.125       04/01/22       2,150       2,128,500  

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

    4.750       08/01/22       1,325       1,358,125  
       

 

 

 
          50,459,057  

Home Builders    9.0%

                               

Ashton Woods USA LLC/Ashton Woods Finance Co., Sr. Unsec’d. Notes, 144A(aa)

    6.875       02/15/21       3,225       3,297,562  

AV Homes, Inc., Gtd. Notes

    6.625       05/15/22       1,475       1,543,278  

Beazer Homes USA, Inc.,

       

Gtd. Notes

    5.750       06/15/19       717       754,643  

Gtd. Notes(aa)

    8.750       03/15/22       2,800       3,069,500  

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

    6.500       12/15/20       2,765       2,816,844  

Brookfield Residential Properties, Inc./Brookfield Residential US Corp. (Canada), Gtd. Notes, 144A

    6.125       07/01/22       750       783,038  

CalAtlantic Group, Inc.,

       

Gtd. Notes

    6.250       12/15/21       350       385,000  

Gtd. Notes(aa)

    8.375       05/15/18       4,200       4,300,800  

KB Home,

       

Gtd. Notes(aa)

    4.750       05/15/19       3,609       3,685,691  

Gtd. Notes(aa)

    7.250       06/15/18       2,000       2,047,500  

Lennar Corp.,

       

Gtd. Notes(aa)

    4.125       01/15/22       2,600       2,658,500  

Gtd. Notes

    4.500       11/15/19       1,000       1,026,250  

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     17  


Schedule of Investments (unaudited) (continued)

as of November 30, 2017

 

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

CORPORATE BONDS (Continued)

       

Home Builders (cont’d.)

                               

M/I Homes, Inc., Gtd. Notes(aa)

    6.750     01/15/21       3,175     $ 3,294,062  

Mattamy Group Corp. (Canada), Sr. Unsec’d. Notes, 144A

    6.875       12/15/23       1,225       1,286,311  

Meritage Homes Corp., Gtd. Notes(aa)

    4.500       03/01/18       3,900       3,909,750  

New Home Co. Inc., (The), Gtd. Notes

    7.250       04/01/22       1,525       1,578,375  

PulteGroup, Inc., Gtd. Notes

    4.250       03/01/21       1,850       1,918,635  

Taylor Morrison Communities, Inc./Taylor Morrison Holdings II, Inc.,

       

Gtd. Notes, 144A(aa)

    5.250       04/15/21       4,300       4,379,894  

Gtd. Notes, 144A

    5.625       03/01/24       700       728,000  

TRI Pointe Group, Inc., Gtd. Notes

    4.875       07/01/21       2,400       2,514,000  

William Lyon Homes, Inc.,

       

Gtd. Notes(aa)

    5.750       04/15/19       2,950       2,972,125  

Gtd. Notes

    7.000       08/15/22       400       413,000  
       

 

 

 
          49,362,758  

Internet    0.5%

                               

TIBCO Software, Inc., Sr. Unsec’d. Notes, 144A

    11.375       12/01/21       2,500       2,718,750  

Iron/Steel    2.3%

                               

ArcelorMittal (Luxembourg), Sr. Unsec’d. Notes

    6.125       06/01/18       7,200       7,336,800  

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

    6.500       05/15/21       3,405       3,549,712  

Signode Industrial Group LUX SA/Signode Industrial Group US, Inc., Gtd. Notes, 144A

    6.375       05/01/22       1,950       2,006,063  
       

 

 

 
          12,892,575  

Leisure Time    0.2%

                               

NCL Corp. Ltd., Sr. Unsec’d. Notes, 144A

    4.750       12/15/21       1,125       1,164,375  

Lodging    4.4%

                               

Boyd Gaming Corp., Gtd. Notes

    6.875       05/15/23       300       319,500  

Caesars Entertainment Resort Properties LLC/Caesars Entertainment Resort Properties, Sr. Sec’d. Notes

    8.000       10/01/20       10,700       10,940,750  

Jack Ohio Finance LLC/Jack Ohio Finance 1 Corp.,

       

Sec’d. Notes, 144A

    10.250       11/15/22       975       1,071,281  

Sr. Sec’d. Notes, 144A

    6.750       11/15/21       2,125       2,244,531  

MGM Resorts International, Gtd. Notes(aa)

    8.625       02/01/19       8,880       9,445,656  
       

 

 

 
          24,021,718  

 

See Notes to Financial Statements.

 

18  


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

CORPORATE BONDS (Continued)

       

Machinery-Diversified    1.1%

                               

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

    8.750     12/15/19       1,425     $ 1,464,188  

CNH Industrial Capital LLC, Gtd. Notes(aa)

    4.375       11/06/20       1,900       1,978,850  

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

    7.250       10/15/22       2,584       2,724,828  
       

 

 

 
          6,167,866  

Media    14.7%

                               

AMC Networks, Inc., Gtd. Notes

    4.750       12/15/22       1,203       1,231,090  

Cablevision Systems Corp., Sr. Unsec’d. Notes(aa)

    7.750       04/15/18       2,250       2,289,375  

CCO Holdings LLC/CCO Holdings Capital Corp.,

       

Sr. Unsec’d. Notes

    5.250       03/15/21       150       153,375  

Sr. Unsec’d. Notes(aa)

    5.250       09/30/22       10,455       10,742,512  

Sr. Unsec’d. Notes, 144A

    4.000       03/01/23       1,690       1,688,944  

Cequel Communications Holdings I LLC/Cequel Capital Corp.,

       

Sr. Unsec’d. Notes, 144A(aa)

    5.125       12/15/21       4,595       4,612,231  

Sr. Unsec’d. Notes, 144A

    5.125       12/15/21       2,160       2,161,339  

Sr. Unsec’d. Notes, 144A(aa)

    6.375       09/15/20       6,586       6,676,557  

Clear Channel Worldwide Holdings, Inc.,

       

Series A, Gtd. Notes(aa)

    6.500       11/15/22       3,090       3,109,312  

Series A, Gtd. Notes

    7.625       03/15/20       465       453,375  

Series B, Gtd. Notes

    6.500       11/15/22       1,385       1,405,775  

Series B, Gtd. Notes

    7.625       03/15/20       985       975,150  

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

    4.875       05/01/20       2,500       2,531,250  

CSC Holdings LLC, Sr. Unsec’d. Notes

    7.875       02/15/18       880       886,600  

DISH DBS Corp.,

       

Gtd. Notes(aa)

    5.125       05/01/20       2,875       2,954,063  

Gtd. Notes(aa)

    6.750       06/01/21       5,643       6,009,795  

Mediacom Broadband LLC/Mediacom Broadband Corp.,

       

Sr. Unsec’d. Notes

    5.500       04/15/21       1,800       1,827,000  

Sr. Unsec’d. Notes(aa)

    6.375       04/01/23       6,819       7,040,617  

Midcontinent Communications/Midcontinent Finance Corp., Gtd. Notes, 144A

    6.875       08/15/23       250       265,625  

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

    6.125       02/15/22       1,035       1,071,225  

Quebecor Media, Inc. (Canada), Sr. Unsec’d. Notes

    5.750       01/15/23       400       427,000  

SFR Group SA (France), Sr. Sec’d. Notes, 144A(aa)

    6.000       05/15/22       3,500       3,528,455  

Sinclair Television Group, Inc.,

       

Gtd. Notes(aa)

    5.375       04/01/21       2,585       2,643,163  

Gtd. Notes

    6.125       10/01/22       2,975       3,086,563  

Sirius XM Radio, Inc., Gtd. Notes, 144A

    3.875       08/01/22       450       453,465  

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     19  


Schedule of Investments (unaudited) (continued)

as of November 30, 2017

 

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

CORPORATE BONDS (Continued)

       

Media (cont’d.)

                               

TEGNA, Inc.,

       

Gtd. Notes

    5.125     10/15/19       346     $ 350,758  

Gtd. Notes, 144A(aa)

    4.875       09/15/21       3,030       3,090,600  

Tribune Media Co., Gtd. Notes(aa)

    5.875       07/15/22       4,045       4,125,900  

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

    6.750       09/15/22       4,768       4,946,800  

Videotron Ltd. (Canada), Gtd. Notes

    5.000       07/15/22       345       363,544  
       

 

 

 
          81,101,458  

Mining    3.5%

                               

First Quantum Minerals Ltd. (Zambia), Gtd. Notes, 144A

    7.000       02/15/21       1,365       1,416,188  

FMG Resources August 2006 Pty Ltd. (Australia), Sr. Sec’d. Notes,
144A(aa)

    9.750       03/01/22       4,164       4,632,450  

Freeport-McMoRan, Inc.,

       

Gtd. Notes

    2.375       03/15/18       1,419       1,417,226  

Gtd. Notes

    3.550       03/01/22       650       641,063  

Gtd. Notes

    6.500       11/15/20       2,000       2,039,600  

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

    10.750       08/01/21       1,500       1,368,750  

Kinross Gold Corp. (Canada), Gtd. Notes

    5.125       09/01/21       840       886,200  

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

    6.250       11/15/22       3,505       3,618,912  

Teck Resources Ltd. (Canada), Gtd. Notes(aa)

    4.500       01/15/21       3,124       3,229,435  
       

 

 

 
          19,249,824  

Miscellaneous Manufacturing    2.7%

                               

Bombardier, Inc. (Canada),

       

Sr. Unsec’d. Notes, 144A

    7.500       12/01/24       6,850       6,907,540  

Sr. Unsec’d. Notes, 144A(aa)

    8.750       12/01/21       6,525       7,218,347  

EnPro Industries, Inc., Gtd. Notes

    5.875       09/15/22       500       520,000  
       

 

 

 
          14,645,887  

Oil & Gas    6.8%

                               

Antero Resources Corp.,

       

Gtd. Notes

    5.125       12/01/22       275       281,875  

Gtd. Notes

    5.375       11/01/21       925       948,125  

Ascent Resources Utica Holdings LLC/ARU Finance Corp., Sr. Unsec’d. Notes, 144A(aa)

    10.000       04/01/22       4,558       4,956,825  

Citgo Holding, Inc., Sr. Sec’d. Notes, 144A(aa)

    10.750       02/15/20       3,000       3,172,500  

CNX Resources Corp.,

       

Gtd. Notes(aa)

    5.875       04/15/22       5,008       5,120,680  

Gtd. Notes

    8.000       04/01/23       814       868,945  

 

See Notes to Financial Statements.

 

20  


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

CORPORATE BONDS (Continued)

       

Oil & Gas (cont’d.)

                               

Endeavor Energy Resources LP/EER Finance, Inc.,

       

Sr. Unsec’d. Notes, 144A

    5.500     01/30/26       1,925     $ 1,949,063  

Sr. Unsec’d. Notes, 144A

    7.000       08/15/21       2,500       2,587,500  

Sr. Unsec’d. Notes, 144A

    8.125       09/15/23       700       752,500  

Extraction Oil & Gas, Inc./Extraction Finance Corp., Gtd. Notes,
144A(aa)

    7.875       07/15/21       3,275       3,463,312  

MEG Energy Corp. (Canada), Gtd. Notes, 144A

    6.375       01/30/23       3,750       3,435,937  

Noble Holding International Ltd. (United Kingdom), Gtd. Notes

    7.750       01/15/24       950       821,750  

Range Resources Corp., Gtd. Notes

    5.875       07/01/22       1,000       1,027,500  

RSP Permian, Inc., Gtd. Notes

    6.625       10/01/22       1,375       1,447,188  

Sunoco LP/Sunoco Finance Corp.,

       

Gtd. Notes

    5.500       08/01/20       850       873,800  

Gtd. Notes(aa)

    6.250       04/15/21       2,750       2,853,125  

Teine Energy Ltd. (Canada), Sr. Unsec’d. Notes, 144A

    6.875       09/30/22       1,500       1,545,000  

WPX Energy, Inc.,

       

Sr. Unsec’d. Notes

    6.000       01/15/22       225       231,750  

Sr. Unsec’d. Notes

    7.500       08/01/20       1,021       1,107,785  
       

 

 

 
          37,445,160  

Packaging & Containers    3.5%

                               

Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc. (Ireland), Sr. Sec’d. Notes, 144A

    4.250       09/15/22       2,300       2,351,463  

Coveris Holdings SA (Luxembourg), Gtd. Notes, 144A(aa)

    7.875       11/01/19       4,375       4,385,937  

Greif, Inc., Sr. Unsec’d. Notes(aa)

    7.750       08/01/19       6,050       6,503,750  

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

    5.750       10/15/20       4,775       4,855,578  

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

    6.500       12/01/20       1,045       1,149,500  
       

 

 

 
          19,246,228  

Pharmaceuticals    1.4%

                               

Allergan, Inc., Gtd. Notes(aa)

    1.350       03/15/18       2,240       2,236,959  

Endo Finance LLC, Gtd. Notes, 144A

    5.750       01/15/22       175       145,687  

Endo Finance LLC/Endo Finco, Inc.,

       

Gtd. Notes, 144A

    5.375       01/15/23       1,000       780,000  

Gtd. Notes, 144A

    7.250       01/15/22       1,500       1,305,000  

Valeant Pharmaceuticals International, Inc.,

       

Gtd. Notes, 144A

    5.375       03/15/20       2,250       2,227,500  

Gtd. Notes, 144A

    7.500       07/15/21       150       148,125  

Sr. Sec’d. Notes, 144A

    6.500       03/15/22       775       813,750  
       

 

 

 
          7,657,021  

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     21  


Schedule of Investments (unaudited) (continued)

as of November 30, 2017

 

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

CORPORATE BONDS (Continued)

       

Pipelines    2.0%

                               

DCP Midstream Operating LP, Gtd. Notes, 144A

    4.750     09/30/21       1,000     $ 1,027,500  

Genesis Energy LP/Genesis Energy Finance Corp., Gtd. Notes

    6.000       05/15/23       3,050       3,095,750  

NGPL PipeCo LLC, Sr. Unsec’d. Notes, 144A

    4.375       08/15/22       1,200       1,230,000  

Rockies Express Pipeline LLC,

       

Sr. Unsec’d. Notes, 144A

    5.625       04/15/20       1,600       1,676,000  

Sr. Unsec’d. Notes, 144A(aa)

    6.000       01/15/19       2,150       2,219,230  

Sr. Unsec’d. Notes, 144A

    6.850       07/15/18       1,900       1,935,625  
       

 

 

 
          11,184,105  

Real Estate    1.0%

                               

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

    8.875       10/15/21       2,037       2,164,312  

Greystar Real Estate Partners LLC, Sr. Sec’d. Notes, 144A

    8.250       12/01/22       1,693       1,797,763  

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

    5.250       12/01/21       1,425       1,482,000  
       

 

 

 
          5,444,075  

Real Estate Investment Trusts (REITs)    1.9%

                               

CyrusOne LP/CyrusOne Finance Corp., Gtd. Notes, 144A

    5.000       03/15/24       700       728,000  

FelCor Lodging LP, Gtd. Notes

    6.000       06/01/25       2,150       2,284,375  

RHP Hotel Properties LP/RHP Finance Corp.,

       

Gtd. Notes

    5.000       04/15/21       1,150       1,170,125  

Gtd. Notes(aa)

    5.000       04/15/23       500       513,750  

Sabra Health Care LP/Sabra Capital Corp., Gtd. Notes(aa)

    5.500       02/01/21       2,625       2,707,031  

SBA Communications Corp.,

       

Sr. Unsec’d. Notes

    4.875       07/15/22       500       517,500  

Sr. Unsec’d. Notes, 144A

    4.000       10/01/22       2,400       2,412,000  
       

 

 

 
          10,332,781  

Retail    5.2%

                               

CEC Entertainment, Inc., Gtd. Notes

    8.000       02/15/22       800       764,000  

Claire’s Stores, Inc.,

       

Sr. Sec’d. Notes, 144A

    6.125       03/15/20       400       224,000  

Sr. Sec’d. Notes, 144A

    9.000       03/15/19       1,700       1,034,875  

Ferrellgas LP/Ferrellgas Finance Corp.,

       

Gtd. Notes

    6.750       06/15/23       725       672,438  

Sr. Unsec’d. Notes

    6.750       01/15/22       675       635,344  

 

See Notes to Financial Statements.

 

22  


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

CORPORATE BONDS (Continued)

       

Retail (cont’d.)

                               

Ferrellgas Partners LP/Ferrellgas Partners Finance Corp.,

       

Sr. Unsec’d. Notes

    8.625     06/15/20       900     $ 796,500  

Sr. Unsec’d. Notes

    8.625       06/15/20       2,350       2,079,750  

Hot Topic, Inc., Sr. Sec’d. Notes, 144A

    9.250       06/15/21       1,530       1,139,850  

L Brands, Inc.,

       

Gtd. Notes

    5.625       10/15/23       1,545       1,662,806  

Gtd. Notes(aa)

    6.625       04/01/21       3,325       3,657,866  

Gtd. Notes

    7.000       05/01/20       1,175       1,286,625  

Gtd. Notes

    8.500       06/15/19       975       1,059,094  

Men’s Wearhouse, Inc. (The), Gtd. Notes

    7.000       07/01/22       825       793,031  

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

    8.000       10/15/21       1,312       747,840  

PetSmart, Inc., Gtd. Notes, 144A(aa)

    7.125       03/15/23       3,375       2,463,750  

PF Chang’s China Bistro, Inc., Gtd. Notes, 144A

    10.250       06/30/20       1,100       968,000  

Rite Aid Corp.,

       

Gtd. Notes

    9.250       03/15/20       1,200       1,221,000  

Gtd. Notes, 144A(aa)

    6.125       04/01/23       3,500       3,237,500  

Ruby Tuesday, Inc., Gtd. Notes

    7.625       05/15/20       1,125       1,144,687  

Tops Holding LLC/Tops Markets II Corp., Sr. Sec’d. Notes, 144A

    8.000       06/15/22       725       413,250  

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

    3.875       11/01/20       2,400       2,448,000  
       

 

 

 
          28,450,206  

Semiconductors    1.2%

                               

NXP BV/NXP Funding LLC (Netherlands),

       

Gtd. Notes, 144A

    3.875       09/01/22       1,500       1,528,125  

Gtd. Notes, 144A(aa)

    4.125       06/15/20       2,900       2,980,656  

Gtd. Notes, 144A

    4.125       06/01/21       2,200       2,261,864  
       

 

 

 
          6,770,645  

Software    3.9%

                               

BMC Software Finance, Inc., Sr. Unsec’d. Notes, 144A

    8.125       07/15/21       2,735       2,768,340  

First Data Corp., Gtd. Notes, 144A(aa)

    7.000       12/01/23       9,250       9,805,000  

Infor US, Inc., Sr. Sec’d. Notes, 144A(aa)

    5.750       08/15/20       5,340       5,491,869  

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

    5.375       08/15/20       3,380       3,427,320  
       

 

 

 
          21,492,529  

Telecommunications    6.9%

                               

Aegis Merger Sub, Inc., Sr. Unsec’d. Notes, 144A

    10.250       02/15/23       2,000       2,175,000  

Anixter, Inc., Gtd. Notes(aa)

    5.625       05/01/19       1,500       1,552,500  

CenturyLink, Inc., Series S, Sr. Unsec’d. Notes(aa)

    6.450       06/15/21       4,825       4,800,875  

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     23  


Schedule of Investments (unaudited) (continued)

as of November 30, 2017

 

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

CORPORATE BONDS (Continued)

       

Telecommunications (cont’d.)

                               

CommScope, Inc., Gtd. Notes, 144A(aa)

    5.000     06/15/21       5,940     $ 6,087,757  

Frontier Communications Corp.,

       

Sr. Unsec’d. Notes

    6.250       09/15/21       475       351,500  

Sr. Unsec’d. Notes

    8.125       10/01/18       1,775       1,761,688  

Sr. Unsec’d. Notes

    8.500       04/15/20       235       214,878  

Sr. Unsec’d. Notes

    9.250       07/01/21       750       603,285  

Intelsat Jackson Holdings SA (Luxembourg), Sr. Sec’d. Notes, 144A

    9.500       09/30/22       590       679,975  

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

    6.125       01/15/21       6,022       6,127,385  

Qwest Capital Funding, Inc., Gtd. Notes

    6.500       11/15/18       1,000       1,037,050  

Sprint Corp.,

       

Gtd. Notes

    7.250       09/15/21       2,390       2,545,350  

Gtd. Notes(aa)

    7.875       09/15/23       4,635       4,994,212  

T-Mobile USA, Inc.,

       

Gtd. Notes

    6.000       03/01/23       875       918,028  

Gtd. Notes

    6.125       01/15/22       1,000       1,035,000  

Gtd. Notes

    6.625       04/01/23       2,750       2,877,188  
       

 

 

 
          37,761,671  

Textiles    0.7%

                               

Springs Industries, Inc., Sr. Sec’d. Notes(aa)

    6.250       06/01/21       3,875       3,962,188  

Transportation    0.2%

                               

XPO Logistics, Inc., Gtd. Notes, 144A

    6.500       06/15/22       925       966,625  

Trucking & Leasing    0.3%

                               

DAE Funding LLC (United Arab Emirates), Gtd. Notes, 144A

    4.500       08/01/22       1,475       1,467,625  
       

 

 

 

TOTAL CORPORATE BONDS
(cost $654,061,171)

          651,951,987  
       

 

 

 
               

Shares

       

COMMON STOCK    0.0%

       

Oil, Gas & Consumable Fuels

                               

Frontera Energy Corp. (Colombia)*
(cost $43,940)

        1,033       30,050  
       

 

 

 

TOTAL LONG-TERM INVESTMENTS
(cost $699,721,771)

          697,943,943  
       

 

 

 

 

See Notes to Financial Statements.

 

24  


Description              

Shares

    Value  

SHORT-TERM INVESTMENT    2.8%

       

AFFILIATED MUTUAL FUND

       

Prudential Investment Portfolios 2 - Prudential Core Ultra Short Bond Fund
(cost $15,672,673)(w)

        15,672,673     $ 15,672,673  
       

 

 

 

TOTAL INVESTMENTS    129.6%
(cost $715,394,444)

          713,616,616  

Liabilities in excess of other assets(z)    (29.6)%

          (163,091,519
       

 

 

 

NET ASSETS    100.0%

        $ 550,525,097  
       

 

 

 

 

The following abbreviations are used in the semiannual 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

LIBOR—London Interbank Offered Rate

MTN—Medium Term Note

OTC—Over-the-counter

PIK—Payment-in-Kind

# Principal amount is shown in U.S. dollars unless otherwise stated.
* Non-income producing security.
^ Indicates a Level 3 security. The aggregate value of Level 3 securities is $4,845,721 and 0.9% of net assets.
(aa) Represents security, or a portion thereof, with aggregate value of $367,419,096 segregated as collateral for amount of $170,000,000 borrowed and outstanding as of November 30, 2017. Of such securities, securities in the amount of $5,715,643 have been loaned for which, the amount borrowed serves as collateral.
(c) Variable rate instrument. The interest rate shown reflects the rate in effect at November 30, 2017.
(d) Represents issuer in default on interest payments and/or principal repayment. Non-income producing security. Such securities may be post-maturity.
(f) Indicates a restricted security; the original cost of such security is $3,200,000. The value of $3,288,000 is 0.6% of net assets.
(w) PGIM Investments LLC, the manager of the Fund, also serves as manager of the Prudential Investment Portfolios 2 - Prudential Core Ultra Short Bond Fund.
(z) Includes net unrealized appreciation (depreciation) on the following derivative contracts held at reporting period end:

 

Forward foreign currency exchange contracts outstanding at November 30, 2017:

 

Purchase Contracts

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

OTC forward foreign currency exchange contracts:

 

Euro,

         

Expiring 12/04/17

  Citigroup Global Markets   EUR  217     $ 259,378     $ 258,642     $ (736

Expiring 12/04/17

  Goldman Sachs & Co.   EUR  217       259,182       258,641       (541
     

 

 

   

 

 

   

 

 

 
      $ 518,560     $ 517,283       (1,277
     

 

 

   

 

 

   

 

 

 

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     25  


Schedule of Investments (unaudited) (continued)

as of November 30, 2017

 

Forward foreign currency exchange contracts outstanding at November 30, 2017 (continued):

 

Sale Contracts

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

OTC forward foreign currency exchange contracts:

 

   

Euro,

         

Expiring 12/04/17

  Citigroup Global Markets   EUR 217     $ 255,351     $ 258,642     $ (3,291

Expiring 12/04/17

  Goldman Sachs & Co.   EUR 217       255,022       258,642       (3,620

Expiring 02/02/18

  Citigroup Global Markets   EUR 217       260,411       259,692       719  

Expiring 02/02/18

  Goldman Sachs & Co.   EUR  217       260,214       259,692       522  
     

 

 

   

 

 

   

 

 

 
      $ 1,030,998     $ 1,036,668       (5,670
     

 

 

   

 

 

   

 

 

 
          $ (6,947
         

 

 

 

 

Fair Value Measurements:

 

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—unadjusted 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, 2017 in valuing such portfolio securities:

 

    Level 1     Level 2     Level 3  

Investments in Securities

     

Bank Loans

  $     $ 41,116,185     $ 4,845,721  

Corporate Bonds

          651,951,987        

Common Stock

    30,050              

Affiliated Mutual Fund

    15,672,673              

Other Financial Instruments*

     

OTC Forward Foreign Currency Exchange Contracts

          (6,947      
 

 

 

   

 

 

   

 

 

 

Total

  $ 15,702,723     $ 693,061,225     $ 4,845,721  
 

 

 

   

 

 

   

 

 

 

 

* Other financial instruments are derivative instruments not reflected in the Schedule 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.

 

During the period, there were no transfers between Level 1, Level 2 and Level 3 to report.

 

See Notes to Financial Statements.

 

26  


Industry Classification:

 

The industry classification of investments and liabilities in excess of other assets shown as a percentage of net assets as of November 30, 2017 were as follows:

 

Media

    14.7

Healthcare-Services

    9.2  

Home Builders

    9.0  

Telecommunications

    8.3  

Oil & Gas

    6.8  

Electric

    6.6  

Chemicals

    6.3  

Retail

    6.3  

Entertainment

    6.2  

Software

    5.0  

Lodging

    4.4  

Packaging & Containers

    3.8  

Mining

    3.5  

Computers

    3.3  

Commercial Services

    3.1  

Food

    3.1  

Affiliated Mutual Fund

    2.8  

Diversified Financial Services

    2.8  

Miscellaneous Manufacturing

    2.7  

Iron/Steel

    2.3  

Pipelines

    2.0  

Real Estate Investment Trusts (REITs)

    1.9  

Technology

    1.8  

Pharmaceuticals

    1.4  

Semiconductors

    1.2  

Auto Parts & Equipment

    1.1  

Machinery-Diversified

    1.1

Real Estate

    1.0  

Forest Products & Paper

    0.8  

Banks

    0.8  

Building Materials

    0.8  

Healthcare-Products

    0.7  

Textiles

    0.7  

Electronics

    0.6  

Wireless

    0.5  

Internet

    0.5  

Environmental Control

    0.5  

Non-Captive Finance

    0.4  

Auto Manufacturers

    0.3  

Trucking & Leasing

    0.3  

Beverages

    0.2  

Leisure Time

    0.2  

Transportation

    0.2  

Aerospace & Defense

    0.2  

Hand/Machine Tools

    0.1  

Distribution/Wholesale

    0.1  

Oil, Gas & Consumable Fuels

    0.0
 

 

 

 
    129.6  

Liabilities in excess of other assets

    (29.6
 

 

 

 
    100.0
 

 

 

 

 

* Less than +/- 0.05%

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     27  


Schedule of Investments (unaudited) (continued)

as of November 30, 2017

 

 

Effects of Derivative Instruments on the Financial Statements and Primary Underlying Risk Exposure:

 

The Fund invested in derivative instruments during the reporting period. The primary type of risk associated with these derivative instruments is foreign exchange contracts 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, 2017 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    $ 1,241      Unrealized depreciation on OTC forward foreign currency exchange contracts    $ 8,188  
     

 

 

       

 

 

 

 

The effects of derivative instruments on the Statement of Operations for the six months ended November 30, 2017 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

  $ (299,997
 

 

 

 

 

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

  $ 108,685  
 

 

 

 

 

See Notes to Financial Statements.

 

28  


For the six months ended November 30, 2017, 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)
 
$ 3,396,940     $ 5,171,607  

 

(1) Value at Settlement Date.

 

Financial Instruments/Transactions—Summary of Offsetting and Netting Arrangements:

 

The Fund invested in OTC derivatives and entered into financial instruments/transactions 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 and financial instruments/transactions, where the legal right to set-off exists, is presented in the summary below.

 

Offsetting of financial instrument/transaction assets and liabilities:

 

Description

  Gross Market
Value of
Recognized
Assets/(Liabilities)
    Collateral
Pledged/(Received)(2)
    Net Amount  

Securities on Loan

  $ 5,715,643     $ (5,715,643   $   —  
 

 

 

     

 

Offsetting of OTC derivative assets and liabilities:

 

Counterparty

  Gross
Amounts of
Recognized
Assets(1)
    Gross
Amounts of
Recognized
Liabilities(1)
    Net
Amounts of
Recognized
Assets/
(Liabilities)
    Collateral
Pledged/
(Received)(2)
    Net
Amount
 

Citigroup Global Markets

  $ 719     $ (4,027   $ (3,308   $     $ (3,308

Goldman Sachs & Co.

    522       (4,161     (3,639           (3,639
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,241     $ (8,188   $ (6,947   $   —     $ (6,947
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes unrealized appreciation/(depreciation) on swaps and forwards, premiums paid/(received) on swap agreements and market value of purchased and written options, as represented on the Statement of Assets and Liabilities.
(2) Collateral amount disclosed by the Fund is limited to the market value of financial instruments/transactions and the Fund’s OTC derivative exposure by counterparty.

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     29  


Statement of Assets & Liabilities (unaudited)

as of November 30, 2017

 

Assets

        

Investments at value, including securities on loan of $5,715,643

  

Unaffiliated investments (cost $699,721,771)

   $ 697,943,943  

Affiliated investments (cost $15,672,673)

     15,672,673  

Cash

     30,849  

Foreign currency, at value (cost $475,277)

     510,347  

Dividends and interest receivable

     11,273,481  

Receivable for investments sold

     750,139  

Unrealized appreciation on OTC forward foreign currency exchange contracts

     1,241  

Prepaid expenses

     4,436  
  

 

 

 

Total Assets

     726,187,109  
  

 

 

 

Liabilities

        

Loan payable

     170,000,000  

Payable for investments purchased

     4,670,862  

Management fee payable

     474,278  

Loan interest payable

     301,688  

Accrued expenses and other liabilities

     103,471  

Dividends payable

     57,732  

Deferred directors’ fees

     45,793  

Unrealized depreciation on OTC forward foreign currency exchange contracts

     8,188  
  

 

 

 

Total Liabilities

     175,662,012  
  

 

 

 

Net Assets

   $ 550,525,097  
  

 

 

 
          

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

     (631,279

Accumulated net realized loss on investment and foreign currency transactions

     (81,001,660

Net unrealized depreciation on investments and foreign currencies

     (1,749,705
  

 

 

 

Net assets, November 30, 2017

   $ 550,525,097  
  

 

 

 

Net asset value per share
($550,525,097 ÷ 33,256,724 shares of common stock issued and outstanding)

   $ 16.55  
  

 

 

 

 

See Notes to Financial Statements.

 

30  


Statement of Operations (unaudited)

Six Months Ended November 30, 2017

 

Net Investment Income (Loss)

        

Income

  

Interest income

   $ 20,162,044  

Affiliated dividend income

     108,297  

Other income

     39,157  
  

 

 

 

Total income

     20,309,498  
  

 

 

 

Expenses

  

Management fee

     2,941,698  

Loan interest expense

     1,773,700  

Custodian and accounting fees

     63,318  

Shareholders’ reports

     35,075  

Legal fees and expenses

     27,674  

Audit fee

     22,030  

Directors’ fees

     20,808  

Registration fees

     17,047  

Transfer agent’s fees and expenses

     10,539  

Miscellaneous

     8,136  
  

 

 

 

Total expenses

     4,920,025  
  

 

 

 

Net investment income (loss)

     15,389,473  
  

 

 

 

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

        

Net realized gain (loss) on:

  

Investment transactions

     680,566  

Forward currency contract transactions

     (299,997

Foreign currency transactions

     (729,074
  

 

 

 
     (348,505
  

 

 

 

Net change in unrealized appreciation (depreciation) on:

  

Investments

     (6,252,377

Forward currency contracts

     108,685  

Foreign currencies

     16,094  
  

 

 

 
     (6,127,598
  

 

 

 

Net gain (loss) on investment and foreign currency transactions

     (6,476,103
  

 

 

 

Net Increase (Decrease) In Net Assets Resulting From Operations

   $ 8,913,370  
  

 

 

 

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     31  


Statement of Changes in Net Assets (unaudited)

     Six Months
Ended
November 30, 2017
     Year
Ended
May 31, 2017
 

Increase (Decrease) in Net Assets

                 

Operations

     

Net investment income (loss)

   $ 15,389,473      $ 32,671,530  

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

     (348,505      (425,244

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

     (6,127,598      11,073,826  
  

 

 

    

 

 

 

Net increase (decrease) in net assets resulting from operations

     8,913,370        43,320,112  
  

 

 

    

 

 

 

Dividends from net investment income

     (18,457,482      (41,654,047
  

 

 

    

 

 

 

Total increase (decrease)

     (9,544,112      1,666,065  

Net Assets:

                 

Beginning of period

     560,069,209        558,403,144  
  

 

 

    

 

 

 

End of period(a)

   $ 550,525,097      $ 560,069,209  
  

 

 

    

 

 

 

(a) Includes undistributed/(distributions in excess of)
net investment income of:

   $ (631,279    $ 2,436,730  
  

 

 

    

 

 

 

 

See Notes to Financial Statements.

 

32  


Statement of Cash Flows

For Six Months Ended November 30, 2017

 

Increase (Decrease) in Cash

        

Cash flows from operating activities:

  

Interest and dividends paid (excluding discount and premium amortization of $(2,273,669))

   $ 22,760,067  

Operating expenses paid

     (3,137,576

Loan interest paid

     (1,777,598

Purchases of long-term portfolio investments

     (247,214,323

Proceeds from disposition of long-term portfolio investments

     263,586,170  

Net purchases and sales of short-term investments

     3,719,387  

Increase in receivable for investments sold

     (750,139

Decrease in payable for investments purchased

     (8,167,347

Increase in prepaid expenses

     (3,182

Net cash received from foreign currency transactions

     (289,243

Effect of exchange rate changes

     16,093  
  

 

 

 

Net cash provided from operating activities

     28,742,309  
  

 

 

 

Cash flows from financing activities:

  

Cash dividends paid

     (18,477,793

Decrease in borrowings

     (10,000,000
  

 

 

 

Net cash used in financing activities

     (28,477,793
  

 

 

 

Net increase (decrease) in cash

     264,516  

Cash at beginning of period, including foreign currency

     276,680  
  

 

 

 

Cash at end of period, including foreign currency

   $ 541,196  
  

 

 

 

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

        

Net increase in net assets resulting from operations

   $ 8,913,370  
  

 

 

 

Increase in investments

     22,364,903  

Net realized loss on investment and foreign currency transactions

     348,505  

Decrease in net unrealized depreciation on investments and foreign currencies

     6,127,598  

Net cash paid from foreign currency transactions

     (289,243

Effect of exchange rate changes

     16,093  

Decrease in interest and dividends receivable

     176,900  

Increase in receivable for investments sold

     (750,139

Increase in prepaid expenses

     (3,182

Decrease in payable for investments purchased

     (8,167,347

Decrease in loan interest payable

     (3,898

Increase in management fee payable and accrued expenses and other liabilities

     3,570  

Increase in deferred directors’ fees

     5,179  
  

 

 

 

Total adjustments

     19,828,939  
  

 

 

 

Net cash provided from operating activities

   $ 28,742,309  
  

 

 

 

 

See Notes to Financial Statements.

 

Prudential Short Duration High Yield Fund, Inc.     33  


Notes to Financial Statements (unaudited)

 

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

 

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

 

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 and liabilities 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 PGIM Investments LLC (“PGIM Investments” or “the Manager”). Under the current valuation procedures, the Valuation Committee is responsible for supervising the valuation of portfolio securities and other assets and liabilities. 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 Schedule 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 classified as Level 2 in the fair value hierarchy. Such fixed income securities are typically valued using the market

 

34  


approach which generally involves obtaining data from an approved independent third-party vendor source. The Fund utilizes the market approach as the primary method to value securities when market prices of identical or comparable instruments are available. The third-party vendors’ valuation techniques used to derive the evaluated bid price are based on evaluating observable inputs, including but not limited to, yield curves, yield spreads, credit ratings, deal terms, tranche level attributes, default rates, cash flows, prepayment speeds, broker/dealer quotations and reported trades. Certain Level 3 securities are also valued using the market approach when obtaining a single broker quote or when utilizing recent transaction prices for identical or comparable securities. During the reporting period, there were no changes to report with respect to the valuation approach and/or valuation techniques discussed above.

 

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. Bank loans valued based on a single broker quote or at the original transaction price are classified as Level 3 in the fair value hierarchy.

 

OTC derivative instruments are generally classified as Level 2 in the fair value hierarchy. Such derivative instruments are typically valued using the market approach and/or income approach which generally involves obtaining data from an approved independent third-party vendor source. The Fund utilizes the market approach when quoted prices in broker-dealer markets are available but also includes consideration of alternative valuation approaches, including the income approach. In the absence of reliable market quotations, the income approach is typically utilized for purposes of valuing OTC derivatives such as interest rate swaps based on a discounted cash flow analysis whereby the value of the instrument is equal to the present value of its future cash inflows or outflows. Such analysis includes projecting future cash flows and determining the discount rate (including the present value factors that affect the discount rate) used to discount the future cash flows. In addition, the third-party vendors’ valuation techniques used to derive the evaluated OTC derivative price is based on evaluating observable inputs, including but not limited to, underlying asset prices, indices, spreads, interest rates and exchange rates. Certain OTC derivatives may be classified as Level 3 when valued using the market approach by obtaining a single broker quote or when utilizing unobservable inputs in the income approach. During the reporting period, there were no changes to report with respect to the valuation approach and/or valuation techniques discussed above.

 

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

 

Prudential Short Duration High Yield Fund, Inc.     35  


Notes to Financial Statements (unaudited) (continued)

 

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 manager 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 unaffiliated 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 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(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.

 

Foreign Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:

 

(i) market value of investment securities, other assets and liabilities—at the current rates of exchange;

 

(ii) purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such transactions.

 

Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not generally isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of long-term portfolio securities held at the end of the period. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of long-term portfolio securities sold during the period. Accordingly, holding period realized

 

36  


foreign currency gains (losses) are included in the reported net realized gains (losses) on investment transactions. Notwithstanding the above, the Fund does isolate the effect of fluctuations in foreign currency exchange rates when determining the gain (loss) upon the sale or maturity of foreign currency denominated debt obligations; such amounts are included in net realized gains (losses) on foreign currency transactions.

 

Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from the disposition of holdings of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amounts of interest, dividends and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities (other than investments) at period end exchange rates are reflected as a component of net unrealized appreciation (depreciation) on foreign currencies.

 

Concentration of Risk: The ability of debt securities issuers (other than those issued or guaranteed by the U.S. Government) held by the Fund to meet their obligations may be affected by the economic or political developments in a specific industry, region or country. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin as a result of, among other factors, the possibility of political or economic instability or the level of governmental supervision and regulation of foreign securities markets.

 

Forward and Cross 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 and to gain exposure to certain currencies. The contracts are valued daily at current forward exchange rates and any unrealized gain (loss) is included in net unrealized appreciation (depreciation) on investments and 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 forward and cross currency contract 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. A cross currency contract is a forward contract where a specified amount of one foreign currency will be exchanged for a specified amount of another foreign currency.

 

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

 

Prudential Short Duration High Yield Fund, Inc.     37  


Notes to Financial Statements (unaudited) (continued)

 

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 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 Schedule of Investments. Collateral pledged by the Fund is segregated by the Fund’s custodian and identified in the Schedule 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.

 

Bank Loans: The Fund may invest in bank loans. Bank loans include fixed and floating rate loans that are privately negotiated between a corporate borrower and one or more financial institutions, including, but not limited to, term loans, revolvers, and other instruments issued in the bank loan market. The Fund may acquire interests in loans directly (by way of assignment from the selling institution) or indirectly (by way of the purchase of a participation interest from the selling institution). Under a bank loan assignment, the Fund generally will succeed to all the rights and obligations of an assigning lending institution and

 

38  


becomes a lender under the loan agreement with the relevant borrower in connection with that loan. Under a bank loan participation, the Fund generally will have a contractual relationship only with the lender, not with the relevant borrower. As a result, the Fund generally will have the right to receive payments of principal, interest, and any fees to which it is entitled only from the lender selling the participation and only upon receipt by the lender of the payments from the relevant borrower. The Fund may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund will assume the credit risk of both the borrower and the institution selling the participation to the Fund.

 

Payment-In-Kind: 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 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 calculated on the specific identification method. 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 the accrual basis. Expenses are recorded on an accrual basis, which may require the use of certain estimates by management that may differ from actual.

 

Taxes: 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. Withholding taxes on foreign dividends, interest and capital gains, if any, are recorded, net of reclaimable amounts, at the time the related income is earned. 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.

 

Prudential Short Duration High Yield Fund, Inc.     39  


Notes to Financial Statements (unaudited) (continued)

 

 

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.

 

PGIM Investments has received an order from the Securities and Exchange Commission (the “SEC”) 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 PGIM Investments 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 PGIM Investments, adopt a managed distribution policy.

 

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

 

Estimates: The preparation of 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.

 

2. Agreements

 

The Fund has a management agreement with PGIM Investments. Pursuant to this agreement, PGIM Investments has responsibility for all investment advisory services and supervises the subadviser’s performance of such services. In addition, under the management agreement, PGIM Investments provides all of the administrative functions necessary for the organization, operation and management of the Fund. PGIM Investments administers the corporate affairs of the Fund and, in connection therewith, furnishes the Fund with office facilities, together with those ordinary clerical and bookkeeping services which are not being furnished by, the Fund’s custodian (the Custodian), and the Fund’s transfer agent. PGIM Investments is also responsible for the staffing and management of dedicated groups of legal, marketing, compliance and related personnel necessary for the operation of the Fund. The legal, marketing, compliance and related personnel are also responsible for the management and oversight of the various service providers to the Fund, including, but not limited to, the custodian, transfer agent, and accounting agent.

 

40  


PGIM Investments has entered into a subadvisory agreement with PGIM, Inc., which provides subadvisory services to the Fund through its PGIM Fixed Income unit. The subadvisory agreement provides that PGIM, Inc. will furnish investment advisory services in connection with the management of the Fund. In connection therewith, PGIM, Inc. is obligated to keep certain books and records of the Fund. PGIM Investments pays for the services of PGIM, Inc., 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 PGIM Investments is accrued daily and payable monthly, at an annual rate of 0.80% 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.

 

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

 

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. For the reporting period ended November 30, 2017 no such transactions were entered into by the Fund.

 

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

 

4. Portfolio Securities

 

The aggregate cost of purchases and proceeds from sales of portfolio securities (excluding short-term investments and U.S. Government securities) for the six months ended November 30, 2017, were $247,214,323 and $262,954,146, respectively.

 

On June 14, 2017, GenOn Energy, Inc. and its subsidiaries filed for bankruptcy under Chapter 11. In connection with the Chapter 11 plan for reorganization (the “GenOn Reorganization Plan”) GenOn Energy, Inc. and its subsidiaries will issue a 144A high yield bond offering for the exit financing of the bankruptcy. As part of the GenOn Reorganization Plan and restructuring of the existing bond, PGIM, Inc. had agreed to participate in a backstop

 

Prudential Short Duration High Yield Fund, Inc.     41  


Notes to Financial Statements (unaudited) (continued)

 

commitment of $5,230,000 for the new bond offering. Under the commitment agreement, the Fund would have been obligated to purchase all of the unsubscribed shares of the bond offering. The Fund received a backstop fee of $261,500 in conjunction with this commitment. As of November 17, 2017, the commitment agreement was terminated and PGIM, Inc. was not obligated to purchase any unsubscribed shares of the bond offering.

 

5. Tax Information

 

The United States federal income tax basis of the Fund’s investments and the net unrealized depreciation as of November 30, 2017 were as follows:

 

Tax Basis

   $ 722,061,804  
  

 

 

 

Gross Unrealized Appreciation

     7,356,042  

Gross Unrealized Depreciation

     (15,808,177
  

 

 

 

Net Unrealized Depreciation

   $ (8,452,135
  

 

 

 

 

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, 2017 of approximately $72,087,000 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.

 

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.

 

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, 2017, Prudential owned 8,271 shares of the Fund.

 

For the six months ended November 30, 2017, the Fund did not issue any shares of common stock in connection with the Fund’s dividend reinvestment plan.

 

42  


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 $240 million. 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 to meet its general cash flow requirements.

 

The Fund utilized the credit facility during the six months ended November 30, 2017. The average daily outstanding loan balance for the 183 days that the Fund utilized the facility during the period was $177,322,404, borrowed at a weighted average interest rate of 1.97%. The maximum loan balance outstanding during the period was $180,000,000. At November 30, 2017, the Fund had an outstanding loan balance of $170,000,000.

 

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 rehypothecation of portfolio securities. Such earnings are disclosed in the Statement of Operations under Other income.

 

8. Subsequent Event

 

Dividends and Distributions: On November 30, 2017 the Fund declared monthly dividends of $0.0925 per share payable on December 29, 2017, January 8, 2018 and February 28, 2018, respectively, to shareholders of record on December 15, 2017, December 29, 2017 and February 16, 2018, respectively. The ex-dates were determined to be December 14, December 28, 2017 and February 15, 2018, respectively.

 

Prudential Short Duration High Yield Fund, Inc.     43  


Financial Highlights (unaudited)

 

    

Six Months

Ended

November 30,

           Year Ended May 31,  
     2017            2017     2016     2015     2014     2013  
Per Share Operating Performance(a):                                                  
Net Asset Value, Beginning of Period     $16.84               $16.79       $17.84       $18.82       $19.18       $18.75  
Income (loss) from investment operations: