Credit Suisse High Yield Bond Fund
Statement of Assets and Liabilities
October 31, 2021
|
|
|
|
|
|
|
Assets
|
|
|
Investments at value, including collateral for securities on loan of $2,422,925
(Cost $364,347,820)
(Note 2)
|
|
$
|
358,320,253
|
1
|
|
Foreign currency at value (Cost $68,972)
|
|
|
69,225
|
|
|
Interest receivable
|
|
|
4,625,022
|
|
|
Receivable for investments sold
|
|
|
1,319,892
|
|
|
Unrealized appreciation on forward foreign currency contracts (Note 2)
|
|
|
9,090
|
|
|
Prepaid expenses and other assets
|
|
|
1,258
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
364,344,740
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
Investment advisory fee payable (Note 3)
|
|
|
241,443
|
|
|
Administrative services fee payable (Note 3)
|
|
|
25,316
|
|
|
Loan payable (Note 4)
|
|
|
82,000,000
|
|
|
Payable for investments purchased
|
|
|
15,929,345
|
|
|
Payable upon return of securities loaned (Note 2)
|
|
|
2,422,925
|
|
|
Trustees’ fee payable
|
|
|
38,416
|
|
|
Interest payable
|
|
|
21,655
|
|
|
Unrealized depreciation on forward foreign currency contracts (Note 2)
|
|
|
6,379
|
|
|
Accrued expenses
|
|
|
145,344
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
100,830,823
|
|
|
|
|
|
|
|
|
Net Assets
|
|
|
Applicable to 103,513,735 shares outstanding
|
|
$
|
263,513,917
|
|
|
|
|
|
|
|
|
Net Assets
|
|
|
Capital stock, $.001 par value (Note 6)
|
|
|
103,514
|
|
|
Paid-in capital (Note 6)
|
|
|
295,776,309
|
|
|
Total distributable earnings (loss)
|
|
|
(32,365,906
|
)
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
263,513,917
|
|
|
|
|
|
|
|
|
Net Asset Value Per Share ($263,513,917 / 103,513,735)
|
|
|
$2.55
|
|
|
|
|
|
|
|
|
Market Price Per Share
|
|
|
$2.50
|
|
|
|
|
|
|
|
|
1
|
Includes $2,371,352 of securities on loan.
|
See Accompanying Notes to Financial Statements.
22
Credit Suisse High Yield Bond Fund
Statement of Operations
For the Year Ended
October 31, 2021
|
|
|
|
|
|
|
Investment Income
|
|
|
Interest
|
|
$
|
21,286,912
|
|
|
Dividends
|
|
|
795
|
|
|
Securities lending (net of rebates)
|
|
|
15,620
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
21,303,327
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
Investment advisory fees (Note 3)
|
|
|
3,227,591
|
|
|
Administrative services fees (Note 3)
|
|
|
78,286
|
|
|
Interest expense (Note 4)
|
|
|
756,298
|
|
|
Trustees’ fees
|
|
|
126,776
|
|
|
Commitment fees (Note 4)
|
|
|
121,454
|
|
|
Legal fees
|
|
|
59,079
|
|
|
Printing fees
|
|
|
56,030
|
|
|
Custodian fees
|
|
|
47,280
|
|
|
Audit and tax fees
|
|
|
38,353
|
|
|
Stock exchange listing fees
|
|
|
33,209
|
|
|
Transfer agent fees (Note 3)
|
|
|
25,361
|
|
|
Insurance expense
|
|
|
8,849
|
|
|
Miscellaneous expense
|
|
|
10,382
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,588,948
|
|
|
Less: fees waived and expenses reimbursed (Note 3)
|
|
|
(424,999
|
)
|
|
|
|
|
|
|
|
Net expenses
|
|
|
4,163,949
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
17,139,378
|
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gain (Loss) from Investments, Foreign Currency and Forward Foreign
Currency Contracts
|
|
|
|
|
|
Net realized loss from investments
|
|
|
(2,156,755
|
)
|
|
Net realized loss from foreign currency transactions
|
|
|
(5,974
|
)
|
|
Net realized loss from forward foreign currency contracts
|
|
|
(72,476
|
)
|
|
Net change in unrealized appreciation (depreciation) from investments
|
|
|
21,250,934
|
|
|
Net change in unrealized appreciation (depreciation) from foreign currency translations
|
|
|
811
|
|
|
Net change in unrealized appreciation (depreciation) from forward foreign currency contracts
|
|
|
(9,048
|
)
|
|
|
|
|
|
|
|
Net realized and unrealized gain from investments, foreign currency and forward foreign currency
contracts
|
|
|
19,007,492
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
36,146,870
|
|
|
|
|
|
|
|
See Accompanying Notes to Financial
Statements.
23
Credit Suisse High Yield Bond Fund
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
Ended
October 31, 2021
|
|
|
For the Year
Ended
October 31, 2020
|
|
|
From Operations
|
|
|
Net investment income
|
|
$
|
17,139,378
|
|
|
$
|
19,879,612
|
|
|
Net realized gain (loss) from investments, foreign currency transactions and forward foreign currency
contracts
|
|
|
(2,235,205
|
)
|
|
|
780,797
|
|
|
Net change in unrealized appreciation (depreciation) from investments, foreign currency transations
and forward foreign currency contracts
|
|
|
21,242,697
|
|
|
|
(15,477,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
|
36,146,870
|
|
|
|
5,182,980
|
|
|
|
|
|
|
|
|
|
|
|
|
From Distributions
|
|
|
From distributable earnings
|
|
|
(17,670,818
|
)
|
|
|
(20,010,630
|
)
|
|
Return of Capital
|
|
|
(1,995,687
|
)
|
|
|
(742,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in net assets resulting from distributions
|
|
|
(19,666,505
|
)
|
|
|
(20,753,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
From Capital Share Transactions (Note 6)
|
|
|
Reinvestment of dividends
|
|
|
16,212
|
|
|
|
19,719
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets from capital share transactions
|
|
|
16,212
|
|
|
|
19,719
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets
|
|
|
16,496,577
|
|
|
|
(15,550,387
|
)
|
|
Net Assets
|
|
|
Beginning of year
|
|
|
247,017,340
|
|
|
|
262,567,727
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
263,513,917
|
|
|
$
|
247,017,340
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Financial
Statements.
24
Credit Suisse High Yield Bond Fund
Statement of Cash Flows
October 31, 2021
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Increase in Net Assets from Operations to Net Cash Provided by Operating
Activities
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
|
|
|
|
$
|
36,146,870
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Provided by
Operating Activities
|
|
|
|
|
|
|
|
|
|
Decrease in interest receivable
|
|
$
|
304,013
|
|
|
|
|
|
|
Decrease in accrued expenses
|
|
|
(33,288
|
)
|
|
|
|
|
|
Decrease in payable upon return of securities loaned
|
|
|
(598,360
|
)
|
|
|
|
|
|
Decrease in interest payable
|
|
|
(31,012
|
)
|
|
|
|
|
|
Decrease in prepaid expenses and other assets
|
|
|
8,255
|
|
|
|
|
|
|
Increase in investment advisory fee payable
|
|
|
8,929
|
|
|
|
|
|
|
Net amortization of a premium and accretion of a discount on investments
|
|
|
(104,098
|
)
|
|
|
|
|
|
Purchases of long-term securities, net of change in payable for investments purchased
|
|
|
(165,976,069
|
)
|
|
|
|
|
|
Sales of long-term securities, net of change in receivable for investments sold
|
|
|
170,942,436
|
|
|
|
|
|
|
Net proceeds from sales (purchases) of short-term securities
|
|
|
(11,567,334
|
)
|
|
|
|
|
|
Net change in unrealized (appreciation) depreciation from investments and forward foreign currency
contracts
|
|
|
(21,241,886
|
)
|
|
|
|
|
|
Net realized loss from investments
|
|
|
2,156,755
|
|
|
|
|
|
|
Total adjustments
|
|
|
|
|
|
|
(26,131,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities1
|
|
|
|
|
|
$
|
10,015,211
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit facility
|
|
|
20,250,000
|
|
|
|
|
|
|
Repayments of credit facility
|
|
|
(25,000,000
|
)
|
|
|
|
|
|
Cash dividends paid
|
|
|
(19,650,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(24,400,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
|
|
|
|
(14,385,082
|
)
|
|
Cash — beginning of year
|
|
|
|
|
|
|
14,454,307
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash — end of year
|
|
|
|
|
|
$
|
69,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Activity:
|
|
|
|
|
|
|
|
|
|
Issuance of shares through dividend reinvestments
|
|
|
|
|
|
$
|
16,212
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Included in operating expenses is cash of $787,310 paid for interest on borrowings.
|
See Accompanying Notes to Financial Statements.
25
Credit Suisse High Yield Bond Fund
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended October 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
Per share operating performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$
|
2.39
|
|
|
$
|
2.54
|
|
|
$
|
2.57
|
|
|
$
|
2.80
|
|
|
$
|
2.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income1
|
|
|
0.17
|
|
|
|
0.19
|
|
|
|
0.20
|
|
|
|
0.21
|
|
|
|
0.23
|
|
|
Net gain (loss) on investments, foreign currency transactions and forward foreign currency contracts
(both realized and unrealized)
|
|
|
0.18
|
|
|
|
(0.14
|
)
|
|
|
(0.00
|
)2
|
|
|
(0.19
|
)
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment activities
|
|
|
0.35
|
|
|
|
0.05
|
|
|
|
0.20
|
|
|
|
0.02
|
|
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS DIVIDENDS AND DISTRIBUTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from net investment income
|
|
|
(0.17
|
)
|
|
|
(0.19
|
)
|
|
|
(0.19
|
)
|
|
|
(0.21
|
)
|
|
|
(0.22
|
)
|
|
Return of capital
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.04
|
)
|
|
|
(0.04
|
)
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions
|
|
|
(0.19
|
)
|
|
|
(0.20
|
)
|
|
|
(0.23
|
)
|
|
|
(0.25
|
)
|
|
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase to net asset value due to shares issued through at-the-market offerings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.00
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
2.55
|
|
|
$
|
2.39
|
|
|
$
|
2.54
|
|
|
$
|
2.57
|
|
|
$
|
2.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share market value, end of year
|
|
$
|
2.50
|
|
|
$
|
2.07
|
|
|
$
|
2.53
|
|
|
$
|
2.35
|
|
|
$
|
2.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENT RETURN3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value
|
|
|
15.33
|
%
|
|
|
3.43
|
%
|
|
|
8.54
|
%
|
|
|
0.68
|
%
|
|
|
17.90
|
%
|
|
Market value
|
|
|
30.55
|
%
|
|
|
(10.07
|
)%
|
|
|
18.23
|
%
|
|
|
(9.23
|
)%
|
|
|
28.40
|
%
|
|
|
|
|
|
|
|
|
RATIOS AND SUPPLEMENTAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000s omitted)
|
|
$
|
263,514
|
|
|
$
|
247,017
|
|
|
$
|
262,568
|
|
|
$
|
266,232
|
|
|
$
|
287,967
|
|
|
Ratio of expenses to average net assets
|
|
|
1.58
|
%
|
|
|
2.00
|
%
|
|
|
2.70
|
%
|
|
|
2.59
|
%
|
|
|
2.14
|
%
|
|
Ratio of expenses to average net assets excluding interest expense
|
|
|
1.29
|
%
|
|
|
1.37
|
%
|
|
|
1.37
|
%
|
|
|
1.41
|
%
|
|
|
1.38
|
%
|
|
Ratio of net investment income to average net assets
|
|
|
6.49
|
%
|
|
|
8.10
|
%
|
|
|
7.60
|
%
|
|
|
7.81
|
%
|
|
|
8.19
|
%
|
|
Decrease reflected in above operating expense ratios due to waivers/reimbursements
|
|
|
0.16
|
%
|
|
|
0.18
|
%
|
|
|
0.16
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
Average debt per share
|
|
$
|
0.80
|
|
|
$
|
0.93
|
|
|
$
|
1.06
|
|
|
$
|
1.20
|
|
|
$
|
1.13
|
|
|
Asset Coverage per $1,000 of Indebtedness
|
|
$
|
4,214
|
|
|
$
|
3,847
|
|
|
$
|
3,854
|
|
|
$
|
3,147
|
|
|
$
|
3,482
|
|
|
Portfolio turnover rate4
|
|
|
49
|
%
|
|
|
33
|
%
|
|
|
32
|
%
|
|
|
42
|
%
|
|
|
65
|
%
|
|
1
|
Per share information is calculated using the average shares outstanding method.
|
|
2
|
This amount represents less than $0.01 or $(0.01) per share.
|
|
3
|
Total investment return at net asset value is based on the change in the net asset value of Fund shares and assumes
reinvestment of dividends and distributions, if any, at actual prices pursuant to the Fund’s dividend reinvestment program. Total investment return at market value is based on the change in the market price at which the Fund’s shares
traded on the stock exchange during the period and assumes reinvestment of dividends and distributions, if any, at actual prices pursuant to the Fund’s dividend reinvestment program. Because the Fund’s shares trade in the stock market
based on investor demand, the Fund may trade at a price higher or lower than its NAV. Therefore, returns are calculated based on NAV and market price.
|
|
4
|
Portfolio turnover is calculated by dividing the lesser of total purchases or sales of portfolio securities for the
reporting period by the monthly average of portfolio securities owned during the reporting period. Excluded from both the numerator and denominator are amounts relating to derivatives and securities whose maturities or expiration dates at the time
of acquisition were one year or less.
|
See
Accompanying Notes to Financial Statements.
26
Credit Suisse High Yield Bond Fund
Notes to Financial Statements
October 31, 2021
Note 1. Organization
Credit Suisse High
Yield Bond Fund (the “Fund”) is a business trust organized under the laws of the State of Delaware on April 30, 1998. The Fund is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund’s principal investment objective is to seek high current income. The Fund
also will seek capital appreciation as a secondary objective, to the extent consistent with its objective of seeking high current income.
Note 2.
Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation
of its financial statements. The policies are in accordance with generally accepted accounting principles in the United States of America (“GAAP”). 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. The Fund is considered an investment company for financial reporting purposes under GAAP and follows the
accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies.
A) SECURITY VALUATION — The Board of Trustees (the “Board”) is responsible for the Fund’s valuation process. The Board has
delegated the supervision of the daily valuation process to Credit Suisse Asset Management, LLC, the Fund’s investment adviser (“Credit Suisse” or the “Adviser”), who has established a Pricing Committee which, pursuant to
the policies adopted by the Board, is responsible for making fair valuation determinations and overseeing the Fund’s pricing policies. The net asset value of the Fund is determined daily as of the close of regular trading on the New York Stock
Exchange, Inc. (the “Exchange”) on each day the Exchange is open for business. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized
mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation
techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar
securities. These pricing services generally price fixed income securities assuming orderly transactions of an institutional “round lot” size, but some trades occur in smaller “odd lot” sizes which may be effected at lower prices
than institutional round lot trades. Structured note agreements are valued in accordance with a dealer-supplied valuation based on changes in the value of the underlying index. Futures contracts are valued daily at the settlement price established
by the board of trade or exchange on which they are traded. Forward contracts are valued at the London closing spot rates and the London closing forward point rates on a daily basis. The currency forward contract pricing model derives the
differential in point rates to the expiration date of the forward and calculates its present value. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary
market or exchange on which they trade. The Fund may utilize a service provided by an independent third party which has been approved by the Board to fair value certain securities. When fair value pricing is employed, the prices of securities used
by the Fund to calculate its net asset value may differ from quoted or published prices for the same securities. If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed
by the investment adviser to be unreliable, the market price may be determined by the investment adviser using quotations from one or more brokers/dealers or at the transaction price if the security has recently been purchased and no value has yet
been obtained from
27
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 2. Significant Accounting Policies (continued)
a pricing service or pricing broker. When reliable prices are not readily available, such as when the value
of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, these securities will be fair valued in good faith by
the Pricing Committee, in accordance with procedures adopted by the Board.
The Fund uses valuation techniques to measure fair value that
are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or
comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP
established a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at each measurement date. These inputs are summarized in the three broad levels listed below:
|
|
•
|
|
Level 1 — quoted prices in active markets for identical investments
|
|
|
•
|
|
Level 2 — other significant observable inputs (including quoted prices for similar investments, interest
rates, prepayment speeds, credit risk, etc.)
|
|
|
•
|
|
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair
value of investments)
|
The inputs or methodologies used to value securities are not necessarily an indication of the risk
associated with investing in those securities.
The following is a summary of the inputs used as of October 31, 2021 in valuing the
Fund’s assets and liabilities carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Investments in Securities
|
|
|
Corporate Bonds
|
|
$
|
—
|
|
|
$
|
235,257,621
|
|
|
$
|
21,167
|
|
|
$
|
235,278,788
|
|
|
Bank Loans
|
|
|
—
|
|
|
|
79,807,767
|
|
|
|
11,031,015
|
|
|
|
90,838,782
|
|
|
Asset Backed Securities
|
|
|
—
|
|
|
|
15,154,189
|
|
|
|
—
|
|
|
|
15,154,189
|
|
|
Common Stocks
|
|
|
547,497
|
|
|
|
1,723,143
|
|
|
|
189,235
|
|
|
|
2,459,875
|
|
|
Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
0
|
(1)
|
|
|
0
|
(1)
|
|
Short-term Investments
|
|
|
12,165,694
|
|
|
|
2,422,925
|
|
|
|
—
|
|
|
|
14,588,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,713,191
|
|
|
$
|
334,365,645
|
|
|
$
|
11,241,417
|
|
|
$
|
358,320,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Instruments*
|
|
|
|
|
|
|
Forward Foreign Currency Contracts
|
|
$
|
—
|
|
|
$
|
9,090
|
|
|
$
|
—
|
|
|
$
|
9,090
|
|
|
|
|
|
|
|
|
Liabilities
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Other Financial Instruments*
|
|
|
|
|
|
|
Forward Foreign Currency Contracts
|
|
$
|
—
|
|
|
$
|
6,379
|
|
|
$
|
—
|
|
|
$
|
6,379
|
|
|
|
*
|
Other financial instruments include unrealized appreciation (depreciation) on forward foreign currency
contracts.
|
|
|
(1)
|
Includes zero valued securities.
|
28
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 2. Significant Accounting Policies (continued)
The following is a reconciliation of investments as of October 31, 2021 for which
significant unobservable inputs were used in determining fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Bonds
|
|
|
Bank
Loans
|
|
|
Common
Stocks
|
|
|
Warrants
|
|
|
Total
|
|
|
Balance as of October 31, 2020
|
|
$
|
124,711
|
|
|
$
|
14,090,592
|
|
|
$
|
1,605,750
|
|
|
$
|
0
|
(1)
|
|
$
|
15,821,053
|
|
|
Accrued discounts (premiums)
|
|
|
—
|
|
|
|
(24,070
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(24,070
|
)
|
|
Purchases
|
|
|
18,529
|
|
|
|
6,742,201
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,760,730
|
|
|
Sales
|
|
|
(296,529
|
)
|
|
|
(9,574,208
|
)
|
|
|
(2,155,552
|
)
|
|
|
—
|
|
|
|
(12,026,289
|
)
|
|
Realized gain (loss)
|
|
|
—
|
|
|
|
66,062
|
|
|
|
1,030,074
|
|
|
|
—
|
|
|
|
1,096,136
|
|
|
Change in unrealized appreciation (depreciation)
|
|
|
174,456
|
|
|
|
511,954
|
|
|
|
(2,468
|
)
|
|
|
—
|
|
|
|
683,942
|
|
|
Transfers into Level 3
|
|
|
—
|
|
|
|
3,200,867
|
|
|
|
1,116
|
|
|
|
—
|
|
|
|
3,201,983
|
|
|
Transfers out of Level 3
|
|
|
—
|
|
|
|
(3,982,383
|
)
|
|
|
(289,685
|
)
|
|
|
—
|
|
|
|
(4,272,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2021
|
|
$
|
21,167
|
|
|
$
|
11,031,015
|
|
|
$
|
189,235
|
|
|
$
|
0
|
(1)
|
|
$
|
11,241,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation) from investments still held as of
October 31, 2021
|
|
$
|
17,500
|
|
|
$
|
396,649
|
|
|
$
|
(199,309
|
)
|
|
$
|
—
|
|
|
$
|
214,840
|
|
|
|
(1)
|
Includes zero valued securities.
|
Quantitative Disclosure About Significant Unobservable Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class
|
|
Fair Value
At 10/31/2021
|
|
|
Valuation
Technique
|
|
|
Unobservable
Input
|
|
|
Range
(Weighted Average)*
|
|
Bank Loans
|
|
$
|
11,031,015
|
|
|
|
Vendor pricing
|
|
|
|
Single Broker Quote
|
|
|
$0.02 - $1.09 ($0.96)
|
|
Common Stocks
|
|
$
|
3,070
|
|
|
|
Income Approach
|
|
|
|
Expected Remaining Distribution
|
|
|
$0.00 - $5.22 ($1.71)
|
|
|
|
$
|
186,165
|
|
|
|
Market Approach
|
|
|
|
EBITDA Multiples
|
|
|
7.4 (N/A)
|
|
Corporate Bonds
|
|
$
|
3,667
|
|
|
|
Income Approach
|
|
|
|
Expected Remaining Distribution
|
|
|
$0.01 (N/A)
|
|
|
|
$
|
17,500
|
|
|
|
Vendor pricing
|
|
|
|
Single Broker Quote
|
|
|
$0.01 (N/A)
|
|
Warrants
|
|
$
|
0
|
|
|
|
Income Approach
|
|
|
|
Expected Remaining Distribution
|
|
|
$0.00 (N/A)
|
|
|
*
|
Weighted by relative fair value
|
Each fair value determination is based on a consideration of relevant factors, including both observable and unobservable inputs. Observable
and unobservable inputs that Credit Suisse considers may include (i) the existence of any contractual restrictions on the disposition of securities; (ii) information obtained from the company, which may include an analysis of the
company’s financial statements, the company’s products or intended markets or the company’s technologies; (iii) the price of the same or similar security negotiated at arm’s length in an issuer’s completed subsequent
round of financing; (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies; or (v) a probability and time value adjusted analysis of contractual term. Where available and appropriate,
multiple valuation methodologies are applied to confirm fair value. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, determining fair value requires more judgment. Because of the
inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree of judgment exercised by the Fund in
determining fair value is greatest for investments categorized in Level 3. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value
measurement is categorized in its entirety in the fair value hierarchy based on the least observable input that is significant to the fair value measurement. Additionally, changes in the market environment and other events that may occur over the
life of the investments may cause the gains or losses ultimately realized on these investments to be different from the valuations used at the date of these financial statements.
29
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 2. Significant Accounting Policies (continued)
For the year ended October 31, 2021, $3,201,983 was transferred from Level 2 to
Level 3 due to a lack of a pricing source supported by observable inputs and $4,272,068 was transferred from Level 3 to Level 2 as a result of the availability of a pricing source supported by observable inputs. All transfers, if any,
are assumed to occur at the end of the reporting period.
B) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES — The Fund adopted
amendments to authoritative guidance on disclosures about derivative instruments and hedging activities which require that a fund disclose (a) how and why an entity uses derivative instruments, (b) how derivative instruments and hedging
activities are accounted for and (c) how derivative instruments and related hedging activities affect a fund’s financial position, financial performance and cash flows.
The following table presents the fair value and the location of derivatives within the Statement of Assets and Liabilities at October 31,
2021 and the effect of these derivatives on the Statement of Operations for the year ended October 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Underlying Risk
|
|
Derivative
Assets
|
|
|
Derivative
Liabilities
|
|
|
Realized
Gain (Loss)
|
|
|
Change in Unrealized
Appreciation(Depreciation)
|
|
|
Foreign currency exchange rate forward contracts
|
|
$
|
9,090
|
|
|
$
|
6,379
|
|
|
$
|
(72,476
|
)
|
|
$
|
(9,048
|
)
|
For the year ended October 31, 2021, the Fund held an average monthly value on a net basis of $3,399,503
in forward foreign currency contracts.
The Fund is a party to International Swap and Derivatives Association, Inc. (“ISDA”)
Master Agreements (“Master Agreements”) with certain counterparties that govern over-the-counter derivative (including Total Return, Credit Default and
Interest Rate Swaps) and foreign exchange contracts entered into by the Fund. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements,
events of default and early termination. 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.
The following table presents by counterparty the Fund’s derivative assets, net of related collateral held by the Fund, at October 31,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Gross Amount of
Derivative
Assets Presented in
the Consolidated
Statement of Assets
and Liabilities(a)
|
|
|
Financial
Instruments
and Derivatives
Available for Offset
|
|
|
Non-Cash
Collateral
Received
|
|
|
Cash
Collateral
Received
|
|
|
Net Amount
of Derivative
Assets
|
|
|
Deutsche Bank
|
|
$
|
9,090
|
|
|
$
|
(6,379
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents by counterparty the Fund’s derivative liabilities, net of related collateral
pledged by the Fund, at October 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Gross Amount of
Derivative
Liabilities Presented in
the Consolidated
Statement of Assets
and
Liabilities(a)
|
|
|
Financial
Instruments
and Derivatives
Available for Offset
|
|
|
Non-Cash
Collateral
Pledged
|
|
|
Cash
Collateral
Pledged
|
|
|
Net Amount
of Derivative
Liabilities
|
|
|
Deutsche Bank
|
|
$
|
6,379
|
|
|
$
|
(6,379
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Forward foreign currency contracts are included.
|
30
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 2. Significant Accounting Policies (continued)
C) FOREIGN CURRENCY TRANSACTIONS — The books and records of the Fund are maintained in
U.S. dollars. Transactions denominated in foreign currencies are recorded at the current prevailing exchange rates. All assets and liabilities denominated in foreign currencies, including purchases and sales of investments, and income and expenses,
are translated into U.S. dollar amounts on the date of those transactions.
Reported net realized gain (loss) from foreign currency
transactions arises from sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; and the difference between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net change in unrealized gains and losses on translation of assets and liabilities denominated in foreign currencies arises from changes in
the fair values of assets and liabilities, other than investments, at the end of the period, resulting from changes in exchange rates.
The
Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of investments held. Such fluctuations are included with
net realized and unrealized gain or loss from investments in the Statement of Operations.
D) SECURITY TRANSACTIONS AND INVESTMENT
INCOME/EXPENSE — Security transactions are accounted for on a trade date basis. Interest income/expense is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts using the effective interest method. Dividend
income/expense is recorded on the ex-dividend date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. To the extent
any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
E) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS — The Fund declares and pays dividends on a monthly basis and records them on ex-dividend
date. Distributions of net realized capital gains, if any, are declared and paid at least annually. However, to the extent that a net realized capital gain can be reduced by a capital loss carryforward, such gain will not be distributed. Dividends
and distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with federal income tax regulations, which may differ from GAAP.
The Fund’s dividend policy is to distribute substantially all of its net investment income to its shareholders on a monthly basis.
However, in order to provide shareholders with a more consistent yield to the current trading price of shares of common stock of the Fund, the Fund may at times pay out less than the entire amount of net investment income earned in any particular
month and may at times in any month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the Fund for any particular month may be more or less than the amount
of net investment income earned by the Fund during such month.
F) FEDERAL AND OTHER TAXES — No provision is made for federal taxes as
it is the Fund’s intention to continue to qualify as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”), and to make the requisite distributions to its shareholders, which
will be sufficient to relieve it from federal income and excise taxes.
In order to qualify as a RIC under the Code, the Fund must meet
certain requirements regarding the source of its income, the diversification of its assets and the distribution of its income. One of these requirements is that the
31
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 2. Significant Accounting Policies (continued)
Fund derive at least 90% of its gross income for each taxable year from dividends, interest, payments with
respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, other income derived with respect to its business of investing in such stock, securities or currencies or net income derived
from interests in certain publicly-traded partnerships (“Qualifying Income”).
The Fund adopted the authoritative guidance for
uncertainty in income taxes and recognizes a tax benefit or liability from an uncertain position only if it is more likely than not that the position is sustainable based solely on its technical merits and consideration of the relevant taxing
authority’s widely understood administrative practices and procedures. The Fund has reviewed its current tax positions and has determined that no provision for income tax is required in the Fund’s financial statements. The
Fund’s federal and state 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.
G) CASH — The Fund’s uninvested cash balance is held in an interest bearing variable rate demand deposit account at State Street Bank
and Trust Company (“SSB”), the Fund’s custodian.
H) CASH FLOW INFORMATION — Cash, as used in the Statement of Cash
Flows, is the amount reported in the Statement of Assets and Liabilities, including domestic and foreign currencies. The Fund invests in securities and distributes dividends from net investment income and net realized gains, if any (which are either
paid in cash or reinvested at the discretion of shareholders). These activities are reported in the Statement of Changes in Net Assets. Information on cash payments is presented in the Statement of Cash Flows. Accounting practices that do not affect
reporting activities on a cash basis include unrealized gain or loss on investment securities and accretion or amortization income/expense recognized on investment securities.
I) FORWARD FOREIGN CURRENCY CONTRACTS — A forward foreign currency exchange contract (“forward currency contract”) is a
commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. The Fund will enter into forward currency contracts primarily for hedging foreign currency risk. Forward currency contracts are valued at the
prevailing forward exchange rate of the underlying currencies and unrealized gain/loss is recorded daily. On the settlement date of the forward currency contract, the Fund records a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value of the contract at the time it was closed. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their
contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund forgoes the opportunity to profit from favorable
exchange rate movements during the term of the contract. The Fund’s open forward currency contracts at October 31, 2021 are disclosed in the Schedule of Investments.
J) UNFUNDED LOAN COMMITMENTS — The Fund enters into certain agreements, all or a portion of which may be unfunded. The Fund is obligated
to fund these loan commitments at the borrowers’ discretion. Funded and unfunded portions of credit agreements are presented in the Schedule of Investments. As of October 31, 2021, the fund has no unfunded loan commitments.
Unfunded loan commitments and funded portions of credit agreements are marked to market daily and any unrealized appreciation or depreciation
is included in the Statement of Assets and Liabilities and the Statement of Operations.
32
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 2. Significant Accounting Policies (continued)
K) SECURITIES LENDING — The initial collateral received by the Fund is required to have
a value of at least 102% of the market value of domestic securities on loan (including any accrued interest thereon) and 105% of the market value of foreign securities on loan (including any accrued interest thereon). The collateral is maintained
thereafter at a value equal to at least 102% of the current market value of the securities on loan. The market value of loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered
to the Fund, or excess collateral returned by the Fund, on the next business day. Cash collateral received by the Fund in connection with securities lending activity may be pooled together with cash collateral for other funds/portfolios advised by
Credit Suisse and may be invested in a variety of investments, including funds advised by SSB, the Fund’s securities lending agent, or money market instruments. However, in the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal proceedings. The remaining maturities of the securities lending transactions are considered overnight and continuous. Loans are subject to termination by the Fund or the borrower
at any time.
SSB has been engaged by the Fund to act as the Fund’s securities lending agent. As of October 31, 2021, the Fund
had outstanding loans of securities to certain approved brokers for which the Fund received collateral:
|
|
|
|
|
|
|
|
|
|
|
|
Market Value of
Loaned Securities
|
|
|
Market Value of
Cash Collateral
|
|
|
Total Collateral
|
|
|
$
|
2,371,352
|
|
|
$
|
2,422,925
|
|
|
$
|
2,422,925
|
|
The following table presents financial instruments that are subject to enforceable netting arrangements as of
October 31, 2021.
Gross Amounts Not Offset in the Statement of Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Gross Asset Amounts
Presented in Statement of
Assets and Liabilities(a)
|
|
|
Collateral
Received(b)
|
|
|
Net Amount
(not less than $0)
|
|
|
$
|
2,371,352
|
|
|
$
|
(2,371,352
|
)
|
|
$
|
—
|
|
|
|
(a)
|
Represents market value of loaned securities at year end.
|
|
|
(b)
|
The actual collateral received is greater than the amount shown here due to collateral requirements of the
security lending agreement.
|
The Fund’s securities lending arrangement provides that the Fund and SSB will share the
net income earned from securities lending activities. Securities lending income is accrued as earned. During the year ended October 31, 2021, total earnings from the Fund’s investment in cash collateral received in connection with
securities lending arrangements was $20,844. The Fund retained $15,620 in income from the cash collateral investment, and SSB, as lending agent, was paid $5,224.
L) OTHER — Lower-rated debt securities (commonly known as “junk bonds”) possess speculative characteristics and are subject to
greater market fluctuations and risk of lost income and principal than higher-rated debt securities for a variety of reasons. Also, during an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience
financial stress which would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals and to obtain additional financing.
In July 2017, the Financial Conduct Authority, the United Kingdom’s financial regulatory body, announced a desire to phase out the use of
LIBOR by the end of 2021. The FCA and ICE Benchmark Administrator have since announced that most LIBOR settings will no longer be published after December 31, 2021 and a majority
33
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 2. Significant Accounting Policies (continued)
of U.S. dollar LIBOR settings will cease publication after June 30, 2023. It is possible that a subset
of LIBOR settings will be published after these dates on a “synthetic” basis, but any such publications would be considered non-representative of the underlying market. The U.S. Federal Reserve,
based on the recommendations of the New York Federal Reserve’s Alternative Reference Rate Committee (comprised of major derivative market participants and their regulators), has begun publishing the Secured Overnight Financing Rate
(“SOFR”) that is intended to replace U.S. dollar LIBOR. Proposals for alternative reference rates for other currencies have also been announced or have already begun publication. Markets are slowly developing in response to these new
reference rates. Uncertainty related to the liquidity impact of the change in rates, and how to appropriately adjust these rates at the time of transition, poses risks for the Fund. The effect of any changes to, or discontinuation of, LIBOR on the
Fund will depend on, among other things, (1) existing fallback or termination provisions in individual contracts and (2) whether, how, and when industry participants develop and adopt new reference rates and fallbacks for both legacy and
new instruments and contracts. In addition, there are obstacles to converting certain longer-term securities and transactions to a new reference rate or rates and the effectiveness of one alternative reference rate versus multiple alternative
reference rates in new or existing financial instruments and products has not been determined.
The transition away from LIBOR might lead
to increased volatility and illiquidity in markets for instruments whose terms currently reference LIBOR, reduced values of LIBOR-related investments, reduced effectiveness of hedging strategies, increased costs for certain LIBOR-related
instruments, increased difficulty in borrowing or refinancing, and prolonged adverse market conditions for the Fund. Furthermore, the risks associated with the expected discontinuation of LIBOR and related transition may be exacerbated if the work
necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner.
In the normal course of
business the Fund trades financial instruments and enters into financial transactions for which risk of potential loss exists due to changes in the market (market risk) or failure of the other party to a transaction to perform (credit risk). Similar
to credit risk, the Fund may be exposed to counterparty risk, including securities lending, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default. The potential loss could exceed the
value of the financial assets recorded in the financial statements. Financial assets, which potentially expose the Fund to credit risk, consist principally of cash due from counterparties and investments. The extent of the Fund’s exposure to
credit and counterparty risks in respect to these financial assets approximates their carrying value as recorded in the Fund’s Statement of Assets and Liabilities.
In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices of lower-rated debt
securities and the Fund’s net asset value.
Note 3. Transactions with Affiliates and Related Parties
Credit Suisse serves as investment adviser for the Fund. For its investment advisory services, Credit Suisse is entitled to receive a fee from
the Fund at an annualized rate of 1.00% of the first $250 million of the average weekly value of the Fund’s total assets minus the sum of liabilities (other than aggregate indebtedness constituting leverage) and 0.75% of the average weekly
value of the Fund’s total assets minus the sum of liabilities (other than aggregate indebtedness constituting leverage) greater than $250 million. Effective January 1, 2011, Credit Suisse has agreed to waive 0.15% of the fees payable
under the Advisory Agreement up to $200 million and 0.25% of the fees payable under the Advisory Agreement on the next $50 million. For the year ended
34
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 3. Transactions with Affiliates and Related Parties (continued)
October 31, 2021, investment advisory fees earned and voluntarily waived were $3,227,591 and $424,999,
respectively. These fee waivers and expense reimbursements are voluntary and may be discontinued by Credit Suisse at any time.
SSB serves
as Accounting and Administrative Agent for the Fund. For its administrative services, SSB receives a fee, exclusive of out-of-pocket expenses, calculated in total for
all the Credit Suisse funds/portfolios co-administered by SSB and allocated based upon the relative average net assets of each fund/portfolio, subject to an annual minimum fee. For the year ended
October 31, 2021, administrative services fees earned by SSB (including out-of-pocket expenses) with respect to the Fund were $78,286.
The Fund from time to time purchases or sells loan investments in the secondary market through Credit Suisse or its affiliates acting in the
capacity as broker-dealer. Credit Suisse or its affiliates may have acted in some type of agent capacity to the initial loan offering prior to such loan trading in the secondary market.
Note 4. Line of Credit
The Fund has a
line of credit provided by SSB primarily to leverage its investment portfolio (the “Agreement”). The Fund may borrow the lesser of: a) $130,000,000; b) an amount that is no greater than 33 1/3% of the Fund’s total assets minus the sum
of liabilities (other than aggregate indebtedness constituting leverage); and c) the Borrowing Base as defined in the Agreement. Under the terms of the Agreement, the Fund pays a commitment fee on the unused amount. In addition, the Fund pays
interest on borrowings at LIBOR plus a spread. At October 31, 2021, the Fund had loans outstanding under the Agreement of $82,000,000. The Agreement was renewed on November 19, 2021 with a new termination date of November 18, 2022.
During the year ended October 31, 2021, the Fund had borrowings under the Agreement as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily
Loan Balance
|
|
|
Weighted Average
Interest Rate %
|
|
|
Maximum Daily
Loan Outstanding
|
|
|
Interest
Expense
|
|
|
Number of
Days Outstanding
|
|
|
$
|
83,006,849
|
|
|
|
0.90
|
%
|
|
$
|
92,000,000
|
|
|
$
|
756,298
|
|
|
|
365
|
|
The use of leverage by the Fund creates an opportunity for increased net income and capital appreciation for
the Fund, but, at the same time, creates special risks, and there can be no assurance that a leveraging strategy will be successful during any period in which it is employed. The Fund intends to utilize leverage to provide the shareholders with a
potentially higher return. Leverage creates risks for shareholders including the likelihood of greater volatility of net asset value and market price of the Fund’s shares and the risk that fluctuations in interest rates on borrowings and
short-term debt may affect the return to shareholders. To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund’s return will be greater than if
leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage, the return to the Fund will be less than if leverage had not been used, and
therefore the amount available for distribution to shareholders as dividends and other distributions will be reduced. In the latter case, Credit Suisse in its best judgment nevertheless may determine to maintain the Fund’s leveraged position if
it deems such action to be appropriate under the circumstances. During periods in which the Fund is utilizing leverage, the management fee will be higher than if the Fund did not utilize a leveraged capital structure because the fee is calculated as
a percentage of the managed assets including those purchased with leverage.
Certain types of borrowings by the Fund may result in the Fund
being subject to covenants in credit agreements, including those relating to asset coverage and portfolio composition requirements. The securities held by the Fund are subject to a lien granted to the lender, to the extent of the borrowing
outstanding and any
35
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 4. Line of Credit (continued)
additional expenses. The Fund’s lenders may establish guidelines for borrowing which may impose asset
coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. There is no guarantee that the Fund’s borrowing arrangements or other arrangements for obtaining leverage will continue to be available,
or if available, will be available on terms and conditions acceptable to the Fund. Expiration or termination of available financing for leveraged positions can result in adverse effects to the Fund’s access to liquidity and its ability to
maintain leverage positions, and may cause the Fund to incur losses. Unfavorable economic conditions also could increase funding costs, limit access to the capital markets or result in a decision by lenders not to extend credit to the Fund. In
addition, a decline in market value of the Fund’s assets may have particular adverse consequences in instances where the Fund has borrowed money based on the market value of those assets. A decrease in market value of those assets may result in
the lender requiring the Fund to sell assets at a time when it may not be in the Fund’s best interest to do so.
Note 5. Purchases and Sales of
Securities
For the year ended October 31, 2021, purchases and sales of investment securities (excluding short-term investments)
and U.S. Government and Agency Obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities
|
|
|
U.S. Government/
Agency Obligations
|
|
|
Purchases
|
|
|
Sales
|
|
|
Purchases
|
|
|
Sales
|
|
|
$
|
174,050,130
|
|
|
$
|
164,285,002
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Note 6. Fund Shares
The Fund offers a Dividend Reinvestment Plan (the “Plan”) to its common stockholders. By participating in the Plan, dividends and
distributions will be promptly paid to stockholders in additional shares of common stock of the Fund. The number of shares to be issued will be determined by dividing the total amount of the distribution payable by the greater of (i) the net
asset value per share (“NAV”) of the Fund’s common stock on the payment date, or (ii) 95% of the market price per share of the Fund’s common stock on the payment date. If the NAV of the Fund’s common stock is greater than
the market price (plus estimated brokerage commissions) on the payment date, Computershare (or a broker-dealer selected by Computershare) shall endeavor to apply the amount of such distribution to purchase shares of Fund common stock in the open
market.
The Fund has one class of shares of beneficial interest, par value $.001 per share; an unlimited number of shares are authorized.
Transactions in shares of beneficial interest of the Fund were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
October 31, 2021
|
|
|
For the Year Ended
October 31, 2020
|
|
|
Shares issued through reinvestment of dividends
|
|
|
6,333
|
|
|
|
7,794
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
6,333
|
|
|
|
7,794
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. Shelf Offering
Prior to July 18, 2020, the Fund had an effective “shelf” registration statement. Effective July 18, 2020, the Fund no
longer has an effective registration statement or current prospectus. The shelf registration statement enabled the Fund to issue up to $90,000,000 in proceeds through one or more public offerings. Shares were able to be offered at prices and terms
to be set forth in one or more supplements to the Fund’s prospectus included in the shelf registration statement. For the fiscal years of ended October 31, 2021 and October 31, 2020, no common shares of beneficial interest were issued
in the shelf offering.
36
Credit Suisse High Yield Bond Fund
Notes to Financial Statements (continued)
October 31, 2021
Note 8. Income Tax Information and Distributions to Shareholders
Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from GAAP.
The tax character of dividends paid by the Fund during the fiscal years ended October 31, 2021 and 2020, respectively, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Income
|
|
|
Return of Capital
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
$
|
17,670,818
|
|
|
$
|
20,010,630
|
|
|
$
|
1,995,687
|
|
|
$
|
742,456
|
|
The tax basis components of distributable earnings differ from book basis by temporary book/tax differences.
These differences are primarily due to differing treatments of wash sales, premium amortization adjustments, defaulted bond accruals, grantor trust basis adjustments, and marked to market of forward contracts.
At October 31, 2021, the components of distributable earnings on a tax basis were as follows:
|
|
|
|
|
|
|
Accumulated net realized loss
|
|
$
|
(25,776,555
|
)
|
|
Unrealized depreciation
|
|
|
(6,589,353
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(32,365,908
|
)
|
|
|
|
|
|
|
At October 31, 2021, the Fund had $25,776,555 of unlimited long-term capital loss carryforwards available
to offset possible future capital gains.
At October 31, 2021, the cost and net unrealized appreciation (depreciation) of investments
and derivatives for income tax purposes were as follows:
|
|
|
|
|
|
|
Cost of Investments
|
|
$
|
364,912,336
|
|
|
|
|
|
|
|
|
Unrealized appreciation
|
|
$
|
8,480,736
|
|
|
Unrealized depreciation
|
|
|
(15,070,109
|
)
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation)
|
|
$
|
(6,589,373
|
)
|
|
|
|
|
|
|
To adjust for current period permanent book/tax differences which arose principally from differing book/tax
treatment of defaulted bond and premium amortization adjustments, return of capital distributions and foreign currency gain (loss), paid-in capital was charged $1,995,687 and distributable earnings/loss was
credited $1,995,687. Net assets were not affected by this reclassification.
Note 9. Contingencies
In the normal course of business, the Fund may provide general indemnifications pursuant to certain contracts and organizational documents. The
Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote.
Note 10. Subsequent Events
In preparing
the financial statements as of October 31, 2021, management considered the impact of subsequent events for potential recognition or disclosure in these financial statements through the date of release of this report. No such events requiring
recognition or disclosure were identified through the date of the release of this report.
37
Credit Suisse High Yield Bond Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Credit Suisse High Yield Bond Fund
Opinion on the Financial Statements
We have audited the
accompanying statement of assets and liabilities, including the schedule of investments, of Credit Suisse High Yield Bond Fund (the “Fund”) as of October 31, 2021, the related statements of operations and cash flows for the
year ended October 31, 2021, the statement of changes in net assets for each of the two years in the period ended October 31, 2021, including the related notes, and the financial highlights for each of the two years in the period ended October 31,
2021 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations and
its cash flows for the year then ended, and the changes in its net assets and the financial highlights for each of the two years in the period ended October 31, 2021 in conformity with accounting principles generally accepted in the United States of
America.
The financial statements of the Fund as of and for the year ended October 31, 2019 and the financial highlights for the years ended October
31, 2019, 2018 and 2017 (not presented herein, other than the financial highlights) were audited by other auditors whose report dated December 20, 2019 expressed an unqualified opinion on those financial statements and financial highlights.
Basis for Opinion
These financial statements are the
responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. Our procedures included confirmation of securities owned as of October 31, 2021 by correspondence with the custodian, transfer agent, agent banks and brokers; when replies were not received from agent banks and brokers,
we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
New York, New York
December 29, 2021
We have served as the auditor of one or more investment companies in Credit Suisse Asset Management, LLC investment companies since 2020.
38
Credit Suisse High Yield Bond Fund
Fund Investment Objectives, Policies and Risks (unaudited)
October 31, 2021
Recent Changes
The following information is a summary of certain changes since October 31, 2020. This information may not reflect all of the changes
that have occurred since you purchased the Fund.
During the Fund’s most recent fiscal year, there were no material changes in the
Fund’s investment objectives or policies that have not been approved by shareholders or in the principal risk factors associated with investment in the Fund.
Investment Objectives and Policies
The
Fund’s primary investment objective is to seek high current income. The Fund also will seek capital appreciation as a secondary objective, to the extent consistent with its objective of seeking high current income. The Fund is designed for
investors willing to assume additional risk in return for the potential for high current income and capital appreciation. The Fund is not intended to be a complete investment program and there can be no assurance that the Fund will achieve its
objectives.
Under normal market conditions, the Fund will invest at least 80% of its total assets in fixed income securities of U.S.
issuers rated below investment grade quality (lower than Baa by Moody’s Investors Service, Inc. (“Moody’s”) or lower than BBB by Standard & Poor’s, a subsidiary of The McGraw-Hill Companies, Inc.
(“S&P”) or comparably rated by another nationally recognized rating agency), or in unrated fixed income securities that Credit Suisse Asset Management, LLC, the Fund’s investment adviser (“Credit Suisse” or the
“Investment Adviser”), determines to be of comparable quality. Securities rated lower than Baa by Moody’s and lower than BBB by S&P are commonly known as “junk bonds.” The Fund will generally not invest in securities
rated at the time of investment in the lowest rating categories (Ca or below for Moody’s and CC or below for S&P) but may continue to hold securities which are subsequently downgraded. However, it has authority to invest in securities rated
as low as C and D by Moody’s and S&P, respectively.
As a component of the Fund’s investment in “junk bonds,” the
Fund may also invest up to 20% of its total assets in securities of issuers that are the subject of bankruptcy proceedings or in securities otherwise in default or in significant risk of being in default (“Distressed Securities”). The Fund
may invest up to 30% of its total assets in securities of issuers domiciled outside the United States or that are denominated in various foreign currencies or multinational currency units.
In selecting investments for the Fund’s portfolio, the Fund’s portfolio managers:
|
|
•
|
|
analyze individual companies, including their financial condition, cash flow and borrowing requirements, value of
assets in relation to cost, strength of management, responsiveness to business conditions, credit standing and anticipated results of operations;
|
|
|
•
|
|
analyze business conditions affecting investments, including:
|
|
|
¡
|
|
changes in economic activity and interest rates;
|
|
|
¡
|
|
availability of new investment opportunities;
|
|
|
¡
|
|
economic outlook for specific industries;
|
|
|
•
|
|
seek to moderate risk by investing among a variety of industry sectors and issuers.
|
The portfolio managers may sell securities for a variety of reasons, such as to realize profits, limit losses or take advantage of better
investment opportunities.
39
Credit Suisse High Yield Bond Fund
Fund Investment Objectives, Policies and Risks (unaudited) (continued)
October 31, 2021
The Fund currently utilizes and in the future expects to continue to
utilize leverage through borrowings, including the issuance of debt securities, or through other transactions, such as reverse repurchase agreements, which have the effect of leverage. The Fund currently is leveraged through borrowings from a credit
facility with State Street Bank and Trust Company. The Fund may use leverage up to 33 1/3% of its total assets (including the amount obtained through leverage). There can be no guarantee that the Fund will be able to accurately predict when the use
of leverage will be beneficial. Use of leverage creates an opportunity for increased income and capital appreciation for shareholders but, at the same time, creates special risks, and there can be no assurance that a leveraging strategy will be
successful during any period in which it is employed.
The Fund will seek its secondary objective of capital appreciation by investing in
securities that Credit Suisse expects may appreciate in value as a result of favorable developments affecting the business or prospects of the issuer which may improve the issuer’s financial condition and credit rating or as a result of
declines in long-term interest rates.
There can be no assurance the Fund’s strategies will be successful.
The Fund invests primarily in bonds, debentures, notes, senior loans (sometimes referred to as bank loans), convertible bonds and preferred
stocks. The Fund’s portfolio securities may have fixed or variable rates of interest and may include zero coupon securities, payment-in-kind securities, preferred
stock, convertible debt obligations and convertible preferred stock, units consisting of debt or preferred stock with warrants or other equity features, secured floating rate loans and loan participations, government securities, stripped securities,
commercial paper and other short-term debt obligations. The issuers of the Fund’s portfolio securities may include domestic and foreign corporations, partnerships, trusts or similar entities, and governmental entities or their political
subdivisions, agencies or instrumentalities. The Fund may invest in companies in, or governments of, developing countries. In connection with its investments in corporate debt securities, or restructuring of investments owned by the Fund, the Fund
may receive warrants or other non-income producing equity securities. The Fund may retain such securities, including equity shares received upon conversion of convertible securities, until Credit Suisse
determines it is appropriate in light of current market conditions to dispose of such securities.
Risk Factors
This section contains a discussion of the general risks of investing in the Fund. The net asset value and market price of, and dividends paid
on, the Fund’s common shares of beneficial interest (the “Shares”) will fluctuate with and be affected by, among other things, the risks more fully described below. As with any fund, there can be no guarantee that the Fund will meet
its investment objectives or that the Fund’s performance will be positive for any period of time.
Investment and Market Risk.
An investment in the Shares is subject to investment risk, including the possible loss of the entire principal amount that you invest. Your investment in Shares represents an indirect investment in the securities owned by the Fund.
The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably, and these fluctuations
are likely to have a greater impact on the value of the Shares during periods in which the Fund utilizes a leveraged capital structure. The value of the securities in which the Fund invests will affect the value of the Shares. Your Shares at any
point in time may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions.
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Fund Investment Objectives, Policies and Risks (unaudited) (continued)
October 31, 2021
Lower Grade Securities Risk. Lower grade securities are regarded
as being predominantly speculative as to the issuer’s ability to make payments of principal and interest. Investment in such securities involves substantial risk. Issuers of lower grade securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks associated with acquiring the securities of such issuers generally are greater than is the case with higher-rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, issuers of lower grade securities may be more likely to experience financial stress, especially if such issuers are highly leveraged. During periods of economic downturn, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer’s ability to service its debt obligations also may be adversely affected by specific issuer developments, the issuer’s inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due to default by the issuer is significantly greater for the holders of lower grade securities because such securities may be unsecured and may be subordinate to other
creditors of the issuer. Other than with respect to Distressed Securities, discussed below, the lower grade securities in which the Fund may invest do not include instruments which, at the time of investment, are in default or the issuers of which
are in bankruptcy. However, there can be no assurance that such events will not occur after the Fund purchases a particular security, in which case the Fund may experience losses and incur costs.
Distressed Securities Risk. As a component of the Fund’s investment in “junk bonds,” the Fund may invest up to 20% of its
total assets in Distressed Securities. Such securities are the subject of bankruptcy proceedings or otherwise in default as to the repayment of principal and/or payment of interest at the time of acquisition by the Fund or are rated in the lower
rating categories (Ca or lower by Moody’s and CC or lower by S&P) or which, if unrated, are in the judgment of Credit Suisse of equivalent quality. Investment in Distressed Securities is speculative and involves significant risk. Distressed
Securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment. Therefore, to the extent the Fund pursues its secondary objective
of capital appreciation through investment in Distressed Securities, the Fund’s ability to achieve current income for shareholders may be diminished.
Credit Risk. Credit risk is the risk that one or more of the Fund’s investments in debt securities or other instruments will
decline in price, or fail to pay interest, liquidation value or principal when due, because the issuer of the obligation or the issuer of a reference security experiences an actual or perceived decline in its financial status. In addition to the
credit risks associated with high yield securities, the Fund could also lose money if the issuer of other debt obligations, or the counterparty to a derivatives contract, repurchase agreement, loan of portfolio securities or other obligation, is, or
is perceived to be, unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The downgrade of a security may further decrease its value.
Interest Rate Risk. Generally, when market interest rates rise, the prices of debt obligations fall, and vice versa. Interest rate risk
is the risk that debt obligations and other instruments in the Fund’s portfolio will decline in value because of increases in market interest rates. The Fund may be subject to a greater risk of rising interest rates due to the recent period of
historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives. The prices of long-term debt obligations generally fluctuate more than prices of short-term debt obligations
as interest rates change. During periods of rising interest rates, the average life of certain types of securities may be extended due to slower than expected payments. This may lock in a below market yield, increase the security’s duration and
reduce the security’s value. The Fund’s use of leverage will tend to increase interest rate risk.
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Fund Investment Objectives, Policies and Risks (unaudited) (continued)
October 31, 2021
Investments in floating rate debt instruments, although generally less
sensitive to interest rate changes than longer duration fixed rate instruments, may nevertheless decline in value in response to rising interest rates if, for example, the rates at which they pay interest do not rise as much, or as quickly, as
market interest rates in general. Conversely, floating rate instruments will not generally increase in value if interest rates decline. Inverse floating rate debt securities also may exhibit greater price volatility than a fixed rate debt obligation
with similar credit quality. To the extent the Fund holds floating rate instruments, a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from such
securities and the net asset value of the Fund’s common shares.
Leverage Risk. The Fund currently leverages through borrowings
from a credit facility. The use of leverage, which can be described as exposure to changes in price at a ratio greater than the amount of equity invested, through borrowings or other forms of market exposure, magnifies both the favorable and
unfavorable effects of price movements in the investments made by the Fund. Insofar as the Fund continues to employ leverage in its investment operations, the Fund will be subject to greater risk of loss than if it had not employed leverage.
Therefore, if the market value of the Fund’s investment portfolio declines, any leverage will result in a greater decrease in net asset
value to common shareholders than if the Fund were not leveraged. Such greater net asset value decrease will also tend to cause a greater decline in the market price for the common shares. Further, if at any time while the Fund has leverage
outstanding it does not meet applicable asset coverage requirements (as discussed below), it may be required to suspend distributions to common shareholders until the requisite asset coverage is restored. Any such suspension might impair the ability
of the Fund to meet the regulated investment company distribution requirements and to avoid Fund-level U.S. federal income and/or excise taxes.
Foreign Securities Risk. Investing in securities of foreign entities and securities denominated in foreign currencies involves certain
risks not involved in domestic investments, including, but not limited to, fluctuations in foreign exchange rates, future foreign political and economic developments, different legal and accounting systems and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. Securities prices in different countries are subject to different economic, financial, political and social factors. Since the Fund may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange rates may affect the value of securities in the Fund and the unrealized appreciation or depreciation of investments. Currencies of certain countries may be volatile and
therefore may affect the value of securities denominated in such currencies. The Fund may, but is not obligated to, engage in certain transactions to hedge the currency-related risks of investing in non-U.S.
dollar denominated securities. In addition, with respect to certain foreign countries, there is the possibility of expropriation of assets, confiscatory taxation, difficulty in obtaining or enforcing a court judgment, economic, political or social
instability or diplomatic developments that could affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of payments position. Certain foreign investments also may be subject to foreign withholding taxes. These risks often are heightened for investments in smaller, emerging
capital markets.
Counterparty Risk. The Fund will be subject to credit risk with respect to the counterparties to the derivative
contracts purchased or sold by the Fund. Recently, several broker-dealers and other financial institutions have experienced extreme financial difficulty, sometimes resulting in bankruptcy of the institution. Although the Investment Adviser monitors
the creditworthiness of the Fund’s counterparties, there can be no assurance that the Fund’s counterparties will not experience similar difficulties, possibly resulting in losses to the Fund. If a
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Fund Investment Objectives, Policies and Risks (unaudited) (continued)
October 31, 2021
counterparty becomes bankrupt, or otherwise fails to perform its obligations under a
derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or
may obtain no recovery in such circumstances.
Illiquid Securities Risk. The Fund may invest in securities for which no readily
available market exists or are otherwise considered illiquid. The Fund may not be able readily to dispose of such securities at prices that approximate those at which the Fund could sell such securities if they were more widely traded and, as result
of such illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. Over recent years, regulatory changes have led to reduced liquidity in the marketplace, and the
capacity of dealers to make markets in fixed income securities has been outpaced by the growth in the size of the fixed income markets. Liquidity risk may be magnified in a rising interest rate environment or when investor redemptions from fixed
income funds may be higher than normal, due to the increased supply in the market that would result from selling activity. Illiquid securities generally trade at a discount.
Prepayment Risk. If interest rates fall, the principal on bonds and loans held by the Fund may be paid earlier than expected. If this
happens, the proceeds from a prepaid security may be reinvested by the Fund in securities bearing lower interest rates, resulting in a possible decline in the Fund’s income and distributions to shareholders.
Preferred Stock Risk. Preferred stocks are unique securities that combine some of the characteristics of both common stocks and
bonds. Preferred stocks generally pay a fixed rate of return and are sold on the basis of current yield, like bonds. However, because they are equity securities, preferred stocks provide equity ownership of a company, and the income is paid in the
form of dividends. Preferred stocks typically have a yield advantage over common stocks as well as comparably-rated fixed income investments. Preferred stocks are typically subordinated to bonds and other debt instruments in a company’s capital
structure, in terms of priority to corporate income, and therefore will be subject to greater credit risk than those debt instruments. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the
issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Senior Loans
Risk. The Fund’s investments in senior loans are expected to typically be below investment grade. These investments are considered speculative because of the credit risk of their issuers. Such companies are more likely to default on their
payments of interest and principal owed to the Fund, and such defaults could reduce the Fund’s net asset value and income distributions. An economic downturn generally leads to a higher non-payment rate,
and a debt obligation may lose significant value before a default occurs. Moreover, any specific collateral used to secure a loan may decline in value or become illiquid, which would adversely affect the loan’s value.
Like other debt instruments, senior loans are subject to the risk of non-payment of scheduled interest
or principal. Such non-payment would result in a reduction of income to the Fund, a reduction in the value of the investment and a potential decrease in the net asset value per share of the Fund. There can be
no assurance that the liquidation of any collateral securing a loan would satisfy the borrower’s obligation in the event of non-payment of scheduled interest or principal payments, or that such collateral
could be readily liquidated. This is particularly the case where a senior loan is not backed by collateral or sufficient collateral at the time such senior loan is issued. In the event of bankruptcy of a borrower, the Fund could experience delays or
limitations with respect to its ability to realize the benefits of the collateral securing a senior loan. The collateral securing a senior loan may lose all or substantially all of its value in the event of bankruptcy of a borrower. Some senior
loans are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws, could
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Fund Investment Objectives, Policies and Risks (unaudited) (continued)
October 31, 2021
subordinate such senior loans to presently existing or future indebtedness of the
borrower or take other action detrimental to the holders of senior loans including, in certain circumstances, invalidating such senior loans or causing interest previously paid to be refunded to the borrower. If interest were required to be
refunded, it could negatively affect the Fund’s performance.
Transactions in senior loans may settle on a delayed basis, resulting in
the proceeds from the sale of senior loans not being readily available to make additional investments or to meet the Fund’s redemption obligations. To the extent the extended settlement process gives rise to short-term liquidity needs, the Fund
may hold cash, sell investments or temporarily borrow from banks or other lenders.
Second Lien and Other Secured Loans Risk.
Second lien loans and other secured loans are subject to the same risks associated with investment in senior loans and bonds rated below investment grade. However, because second lien loans are second in right of payment to one or more senior
loans of the related borrower, and other secured loans rank lower in right of payment to second lien loans, they are subject to the additional risk that the cash flow of the borrower and any property securing the loan may be insufficient to meet
scheduled payments after giving effect to the more senior secured obligations of the borrower. This risk is generally higher for subordinated unsecured loans or debt, which are not backed by a security interest in any specific collateral. Second
lien loans and other secured loans are also expected to have greater price volatility than senior loans and may be less liquid. There is also a possibility that originators will not be able to sell participations in second lien loans and other
secured loans, which would create greater credit risk exposure.
Zero Coupon Bond and Payment-In-Kind Securities Risk. Investments in zero-coupon and
payment-in-kind securities are subject to certain risks, including that market prices of zero-coupon and payment-in-kind securities generally are more volatile than the prices of securities that pay interest periodically and in cash, and are likely to respond to changes in
interest rates to a greater degree than other types of debt securities with similar maturities and credit quality. Because zero-coupon securities bear no interest, their prices are especially volatile. And
because zero-coupon bondholders do not receive interest payments, the prices of zero-coupon securities generally fall more dramatically than those of bonds that pay
interest on a current basis when interest rates rise. However, when interest rates fall, the prices of zero-coupon securities generally rise more rapidly in value than those of similar interest paying bonds.
Under many market and other conditions, the market for zero-coupon and payment-in-kind securities may suffer decreased liquidity
making it difficult for the Fund to dispose of them or to determine their current value. In addition, as these securities may not pay cash interest, the Fund’s investment exposure to these securities and their risks, including credit risk, will
increase during the time these securities are held in the Fund’s portfolio. Further, to maintain its qualification for treatment as a registered investment company and to avoid Fund-level U.S. federal income and/or excise taxes, the Fund is
required to distribute to its shareholders any income it is deemed to have received in respect of such investments, notwithstanding that cash has not been received currently, and the value of paid-in-kind interest. Consequently, the Fund may have to dispose of portfolio securities under disadvantageous circumstances to generate the cash, or may have to leverage itself by borrowing the cash to
satisfy this distribution requirement. The required distributions, if any, would result in an increase in the Fund’s exposure to these securities.
Valuation Risk. Unlike publicly traded common stock which trades on national exchanges, there is no central place or exchange for
bond trading. Bonds generally trade on an “over-the-counter” market which may be anywhere in the world where buyer and seller can settle on a price. Due to the
lack of centralized information and trading, the valuation of bonds may carry more risk than that of common stock. Uncertainties in the conditions of the financial market, unreliable reference data, lack of transparency and inconsistency of
valuation models and
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Fund Investment Objectives, Policies and Risks (unaudited) (continued)
October 31, 2021
processes may lead to inaccurate asset pricing. As a result, the Fund may be subject to
the risk that when a security is sold in the market, the amount received by the Fund is less than the value of such security carried on the Fund’s books.
Non-Diversified Status. The Fund is classified as a
“non-diversified” management investment company under the Investment Company Act of 1940, as amended, which means that the Fund may invest a greater portion of its assets in a limited number of
issuers than would be the case if the Fund were classified as a “diversified” management investment company. Accordingly, the Fund may be subject to greater risk with respect to its portfolio securities than a management investment company
that is “diversified” because changes in the financial condition or market assessment of a single issuer may cause greater fluctuations in the net asset value of the Shares.
Market Price, Discount and Net Asset Value of Shares. As with any stock, the price of the Fund’s Shares fluctuates with market
conditions and other factors. Shares of the Fund, a closed-end investment company, may trade in the market at a discount from their net asset value.
Potential Yield Reduction. An offering of Shares is expected to present the opportunity to invest in high yielding securities. This
expectation is based on the current market environment for high yield debt securities, which could change in response to interest rate levels, general economic conditions, specific industry conditions and other factors. If the market environment for
high yield debt securities changes in a manner that adversely affects the yield of such securities, the offering of Shares could cause the Fund to invest in securities that are lower yielding than those in which it is currently invested. In
addition, even if the market for high yield debt securities continues to present attractive investment opportunities, there is no assurance that the Fund will be able to invest the proceeds of an offering of Shares in high yielding securities or
that other potential benefits of the offering will be realized. An offering of Shares could reduce the Fund’s current dividend yield if the Fund is unable to invest the proceeds of the offering in securities that provide a yield at least equal
to the current dividend yield.
Market Risk. The market value of an instrument may fluctuate, sometimes rapidly and unpredictably.
These fluctuations, which are often referred to as “volatility,” may cause an instrument to be worth less than it was worth at an earlier time. Market risk may affect a single issuer, industry, commodity, sector of the economy, or the
market as a whole. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on a fund and its
investments. Market risk is common to most investments — including stocks, bonds and commodities — and the mutual funds that invest in them. The performance of “value” stocks and “growth” stocks may rise or decline
under varying market conditions — for example, value stocks may perform well under circumstances in which growth stocks in general have fallen.
Bonds and other fixed income securities generally involve less market risk than stocks and commodities. However, the risk of bonds can vary
significantly depending upon factors such as the issuer’s creditworthiness and a bond’s maturity. The bonds of some companies may be riskier than the stocks of others.
An outbreak of respiratory disease caused by a novel coronavirus (sometimes referred to as
“COVID-19”) was first detected in China in December 2019 and has developed into a global pandemic. This pandemic has resulted in closed borders, enhanced health screenings, disruption of, and
delays in, the provision of healthcare services, quarantines, cancellations of events and product orders, disruptions to supply chains and customer activity, as well as general concern and uncertainty. The pandemic, and other pandemics and epidemics
that may arise in the future, could affect the economies of many nations, individual companies and the market in general in ways that
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Fund Investment Objectives, Policies and Risks (unaudited) (continued)
October 31, 2021
cannot necessarily be foreseen at the present time. In addition, the effect of
infectious diseases in developing or emerging market countries may be greater due to less established health care systems. Health crises caused by the novel coronavirus pandemic may exacerbate other
pre-existing political, social and economic risks in certain countries. As a result, the extent to which the pandemic may negatively affect a fund’s performance or the duration of any potential
business disruption is uncertain.
Anti-Takeover Provisions. The Fund’s Agreement and Declaration of Trust (the
“Declaration of Trust”) contains provisions limiting (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Fund’s freedom to engage in certain transactions, and (iii) the ability of the
Board or shareholders to amend the Declaration of Trust. These provisions of the Declaration of Trust may be regarded as “anti-takeover” provisions. These provisions could have the effect of depriving the shareholders of opportunities to
sell their Shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction.
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Credit Suisse High Yield Bond Fund