Notes to Financial Statements
(unaudited)
PGIM High Yield Bond 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 investment objective of the Fund is to provide a high level of current income.
1. Accounting Policies
The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB)
Accounting Standard Codification (ASC) 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 Funds 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). Pursuant to the Boards delegation, the Manager has established a Valuation
Committee responsible for supervising the fair 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 Committees actions is subject to the Boards review, approval, and ratification at
its next regularly scheduled quarterly meeting.
For the fiscal reporting
period-end, securities and other assets and liabilities were fair valued at the close of the last U.S. business day. Trading in certain foreign securities may occur when the NYSE is closed (including weekends and holidays). Because such foreign
securities trade in markets that are open on weekends and U.S. holidays, the values of some of the Funds foreign investments may change on days when investors cannot purchase or redeem Fund shares.
Various inputs determine how the Funds 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 and referred to herein as the fair value hierarchy in accordance with FASB ASC Topic 820 - Fair Value Measurements and
Disclosures.
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 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 transaction prices for identical securities that have been used in excess of five business days. 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 in excess of five business days are classified as Level 3 in the fair value hierarchy.
OTC and centrally cleared 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 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 derivative price is based on evaluating observable inputs, including but not limited to, underlying asset prices, indices, spreads, interest rates and exchange rates. Certain 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.
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PGIM High Yield Bond Fund, Inc.
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41
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Notes to Financial Statements (unaudited) (continued)
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 issuers financial condition and the markets in which it does business; the cost of the investment; the size of the holding and the capitalization of the issuer; the prices
of any recent transactions or bids/offers for such securities or any comparable securities; any available analyst media or other reports or information deemed reliable by the 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 securitys most recent closing price and from the price used by other unaffiliated mutual funds to calculate their net asset values.
Illiquid Securities: Subject to guidelines adopted by the Board, the Fund may
invest without limit in illiquid securities. Illiquid securities are those that, because of the absence of a readily available market or due to legal or contractual restrictions on resale, may not reasonably be expected to be sold or disposed of in
current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. The Fund may find it difficult to sell illiquid securities at the time considered most advantageous
by its subadviser and may incur transaction costs that would not be incurred in the sale of securities that were freely marketable.
Restricted Securities: Securities acquired in unregistered, private sales from the issuing company or from an affiliate of the issuer are considered
restricted as to disposition under federal securities law (restricted securities). Such restricted securities are valued pursuant to the valuation procedures noted above. Restricted securities that would otherwise be considered illiquid
investments 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. Therefore, these Rule 144A securities, as well as commercial paper that is
sold in private placements under Section 4(2) of the Securities Act of 1933, may be deemed liquid by the Funds subadviser under the guidelines adopted by the Directors. However, the liquidity of the Funds investments in restricted
securities could be impaired if trading does not develop or declines.
Bank Loans: The Fund invested 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 acquired 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 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.
Swap Agreements: The Fund entered into certain types of swap agreements detailed
in the disclosures below. A swap agreement is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Swap agreements are negotiated in the OTC market and may be executed either directly with a
counterparty (OTC-traded) or through a central clearing facility, such as a registered exchange. Swap agreements are valued daily at current market value and any change in value is included in the net unrealized appreciation
(depreciation) on swap agreements. Centrally cleared swaps pay or receive an amount known as variation margin, based on daily changes in the valuation of the swap contract. Any upfront premiums paid and received are shown as swap
premiums paid and swap premiums received in the Statement of Assets and Liabilities. Risk of loss may exceed amounts recognized on the Statement of Assets and Liabilities. Swap agreements outstanding at period end, if any, are listed on the Schedule
of Investments. The cash amounts pledged for centrally cleared swap agreements are considered restricted cash and are included in deposit with broker for centrally cleared/exchange-traded derivatives in the Statement of Assets and Liabilities.
Credit Default Swaps (CDS): CDS involve one party (the
protection buyer) making a stream of payments to another party (the protection seller) in exchange for the right to receive a specified payment in the event of a default or as a result of a default (collectively a credit event) for the
referenced entity (typically corporate issues or sovereign issues of an emerging country) on its obligation; or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a
credit index.
The Fund is subject to credit risk in the normal course of
pursuing its investment objectives, and as such, has entered into CDS contracts to provide a measure of protection against defaults or to take an active long or short position with respect to the likelihood of a particular issuers default or
the reference entitys credit soundness. CDS contracts generally trade based on a spread which represents the cost a protection buyer has to pay the protection seller. The protection buyer is said to be short the credit as the value of the
contract rises the more the credit deteriorates. The value of the CDS contract increases for the protection buyer if the spread increases. The Funds maximum risk of loss from
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PGIM High Yield Bond Fund, Inc.
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43
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Notes to Financial Statements
(unaudited) (continued)
counterparty
credit risk for purchased CDS is the inability of the counterparty to honor the contract up to the notional value due to a credit event.
As a seller of protection on credit default swap agreements, the Fund generally receives an agreed upon payment from the buyer of protection throughout the term of
the swap, provided no credit event occurs. As the seller, the Fund effectively increases its investment risk because, in addition to its total net assets, the Fund may be subject to investment exposure on the notional amount of the swap.
The maximum amount of the payment that the Fund, as a seller of protection, could be
required to make under a credit default swap agreement would be equal to the notional amount of the underlying security or index contract as a result of a credit event. This potential amount will be partially offset by any recovery values of the
respective referenced obligations, or net amounts received from the settlement of buy protection credit default swap agreements which the Fund entered into for the same referenced entity or index. As a buyer of protection, the Fund generally
receives an amount up to the notional value of the swap if a credit event occurs.
Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements where the Fund is the seller of protection as of period end are disclosed in the
footnotes to the Schedule of Investments, if applicable. These spreads serve as indicators of the current status of the payment/performance risk and represent the likelihood of default risk for the credit derivative. The implied credit spread of a
particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit spreads and increased market value in absolute terms, when compared to the notional
amount of the swap, represent a deterioration of the referenced entitys credit soundness and a greater likelihood of risk of default or other credit event occurring as defined under the terms of the agreement.
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 all or a portion of the Fund. A master netting arrangement between the Fund and the counterparty permits
the Fund to offset amounts payable by the Fund to the same counterparty against amounts to be received; and by the receipt of collateral from the counterparty by the Fund to cover the Funds 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
International Swaps and Derivatives Association, Inc. (ISDA) 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 Funds 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 Funds 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 Funds net position with each counterparty. Termination events applicable to the Fund may occur upon a decline in the Funds net assets below a
specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterpartys 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 Funds counterparties to elect early termination could impact the Funds future derivative activity.
In addition to each instruments primary underlying risk exposure (e.g. interest
rate, credit, equity or foreign exchange, etc.), swap agreements involve, to varying degrees, elements of credit, market and documentation risk. Such risks involve the possibility that no liquid market for these agreements will exist, the
counterparty to the agreement may default on its obligation to perform or disagree on the contractual terms of the agreement, and changes in net interest rates will be unfavorable. In connection with these agreements, securities in the portfolio may
be identified or received as collateral from the counterparty in accordance with the terms of the respective swap agreements to provide or receive assets of value and to serve as recourse in the event of default or bankruptcy/insolvency of either
party. Such OTC derivative agreements include conditions which, when materialized, give the counterparty the right to cause an early termination of the transactions under those agreements. Any election by the counterparty for early termination of
the contract(s) may impact the amounts reported on financial statements.
As
of November 30, 2019, the Fund has not met conditions under such agreements which give the counterparty the right to call for an early termination.
Forward currency contracts, forward rate agreements, written options, short sales, swaps and financial futures contracts involve elements of both market and credit
risk in excess of
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PGIM High Yield Bond Fund, Inc.
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45
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Notes to Financial Statements
(unaudited) (continued)
the amounts reflected on the Statement of Assets and Liabilities. Such risks may be
mitigated by engaging in master netting arrangements.
Payment-In-Kind:
The Fund invested 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.
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, or for certain foreign securities, when the Fund becomes aware of such dividends. 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 Funds 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 investment 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 Funds 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.
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 total
distributable earnings (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 subadvisers performance of such services. 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 costs and
expenses.
The management fee paid to the Manager is accrued daily and
payable monthly, at an annual rate of 0.80% of the average daily value of the Funds 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 invest its overnight sweep cash in the PGIM
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. Through the Funds investments in the mentioned underlying funds, PGIM
Investments and/or its affiliates are paid fees or reimbursed for
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PGIM High Yield Bond Fund, Inc.
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47
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Notes to Financial Statements
(unaudited) (continued)
providing their services. In addition to the realized and unrealized gains on investments in the Core Fund, earnings from such investments are disclosed on the
Statement of Operations as Affiliated dividend income.
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 subject to certain conditions, 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. Pursuant to the Rule 17a-7 procedures
and consistent with guidance issued by the SEC, the Funds Chief Compliance Officer (CCO) prepares a quarterly summary of all such transactions for submission to the Board, together with the CCOs written representation that
all such 17a-7 transactions were effected in accordance with the Funds Rule 17a-7 procedures. For the reporting period ended November 30, 2019, no 17a-7 transactions were entered into by the Fund.
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 reporting period ended November 30, 2019, were $183,361,984 and $195,736,050, respectively.
A summary of the cost of purchases and proceeds from sales of shares of an affiliated
investment for the reporting period ended November 30, 2019, is presented as follows:
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Value,
Beginning
of
Period
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Cost of
Purchases
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Proceeds
from Sales
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Change in
Unrealized
Gain
(Loss)
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Realized
Gain
(Loss)
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Value,
End of
Period
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Shares,
End
of
Period
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Income
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PGIM Core Ultra Short Bond Fund*
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$
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20,416,725
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$
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139,654,966
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$
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121,630,411
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$
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$
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$
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38,441,280
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38,441,280
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$
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131,309
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*
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The Fund did not have any capital gain distributions during the reporting period.
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5. Tax Information
The United States federal income tax basis of the Funds investments and the net unrealized appreciation as of November 30,
2019 were as follows:
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Tax Basis
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$
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720,331,294
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Gross Unrealized Appreciation
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27,035,027
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Gross Unrealized Depreciation
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(21,089,693
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)
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Net Unrealized Appreciation
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$
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5,945,334
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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, 2019 of approximately $87,943,000 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.
The Manager has analyzed the Funds 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 Funds financial statements for the current reporting period. Since tax authorities can examine previously filed tax returns,
the Funds U.S. federal and state tax returns for each of the four fiscal years up to the most recent fiscal year ended May 31, 2019 are subject to such review.
6. Capital and Ownership
There are 1 billion shares of $0.001 par value common stock authorized. As of
November 30, 2019, Prudential owned 9,640 shares of the Fund.
For the
period ended November 30, 2019, the Fund did not issue any shares of common stock in connection with the Funds dividend reinvestment plan.
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 Funds 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 reporting period ended November 30, 2019. The average daily outstanding loan balance for the 183 days that the
Fund utilized the facility during the period was $180,000,000, borrowed at a weighted average interest rate of 2.84%. The maximum loan balance outstanding during the period was $180,000,000. At November 30, 2019, the Fund had an outstanding
loan balance of $180,000,000.
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
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49
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Notes to Financial Statements
(unaudited) (continued)
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. As of November 30, 2019, there
were no earnings to be disclosed.
8. Risks of Investing in the Fund
The Funds risks include, but are not limited to, some or all of
the risks discussed below:
Bond Obligations Risk: The Funds
holdings, share price, yield and total return may fluctuate in response to bond market movements. The value of bonds may decline for issuer-related reasons, including management performance, financial leverage and reduced demand for the
issuers goods and services. Certain types of fixed-income obligations also may be subject to call and redemption risk, which is the risk that the issuer may call a bond held by the Fund for redemption before it matures and the Fund
may not be able to reinvest at the same level and therefore would earn less income.
Derivatives Risk: Derivatives involve special risks and costs and may result in losses to the Fund. The successful use of derivatives requires sophisticated management, and, to the extent that derivatives
are used, the Fund will depend on the subadvisers ability to analyze and manage derivative transactions. The prices of derivatives may move in unexpected ways, especially in abnormal market conditions. Some derivatives are
leveraged and therefore may magnify or otherwise increase investment losses to the Fund. Other risks arise from the potential inability to terminate or sell derivatives positions. A liquid secondary market may not always exist for the
Funds derivatives positions. In fact, many OTC derivative instruments will not have liquidity beyond the counterparty to the instrument. OTC derivative instruments also involve the risk that the other party will not meet its obligations to the
Fund.
Interest Rate Risk: The value of an investment may go down
when interest rates rise. A rise in rates tends to have a greater impact on the prices of longer term or duration securities. When interest rates fall, the issuers of debt obligations may prepay principal more quickly than expected, and the Fund may
be required to reinvest the proceeds at a lower interest rate. This is referred to as prepayment risk. When interest rates rise, debt obligations may be repaid more slowly than expected, and the value of the Funds holdings may fall
sharply. This is referred to as extension risk. The Fund may face a heightened level of interest rate risk as a result of the U.S. Federal Reserve Boards policies. The Funds investments may lose value if short-term or long-term
interest rates rise sharply or in a manner not anticipated by the subadviser.
Leverage Risk: The Fund may seek to enhance the level of its current distributions to holders of common stock
through the use of leverage. The Fund may use leverage through borrowings, including loans from certain financial institutions. The Fund may borrow in amounts up to 331/3% (as determined immediately after borrowing) of the Funds investable
assets. The use of leverage can create special risks. There can be no assurance that any leveraging strategy the Fund employs will be successful during any period in which it is employed.
Liquidity Risk: The Fund may invest in instruments that trade in lower volumes and are less liquid than other investments.
Liquidity risk exists when particular investments made by the Fund are difficult to purchase or sell. Liquidity risk includes the risk that the Fund may make investments that may become less liquid in response to market developments or adverse
investor perceptions. Investments that are illiquid or that trade in lower volumes may be more difficult to value. If the Fund is forced to sell these investments to pay redemption proceeds or for other reasons, the Fund may lose money. In addition,
when there is no willing buyer and investments may not reasonably be expected to be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the
investment, the Fund may incur higher transaction costs when executing trade orders of a given size. The reduction in dealer market-making capacity in the fixed-income markets that has occurred in recent years also has the potential to reduce
liquidity. An inability to sell a portfolio position can adversely affect the Funds value or prevent the Fund from being able to take advantage of other investment opportunities.
Market and Credit Risk: Securities markets may be volatile and the market prices of the Funds securities may decline.
Securities fluctuate in price based on changes in an issuers financial condition and overall market and economic conditions. If the market prices of the securities owned by the Fund fall, the value of an investment in the Fund will decline.
Additionally, the Fund may also be exposed to credit risk in the event that an issuer or guarantor fails to perform or that an institution or entity with which the Fund has unsettled or open transactions defaults.
Risks of Investments in Bank Loans: The Funds ability to receive payments
of principal and interest and other amounts in connection with loans (whether through participations, assignments or otherwise) will depend primarily on the financial condition of the borrower. The failure by the Funds scheduled interest or
principal payments on a loan because of a default, bankruptcy or any other reason would adversely affect the income of the Fund and would likely reduce the value of its assets. Even with loans secured by collateral, there is the risk that the value
of the collateral may decline, may be insufficient to meet the obligations of the borrower, or be difficult to liquidate. In the event of a default, the Fund may have difficulty collecting on any collateral and would not have the ability to collect
on any collateral for an uncollateralized loan. Further, the Funds access to collateral, if any, may be limited by bankruptcy laws.
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PGIM High Yield Bond Fund, Inc.
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Notes to Financial Statements
(unaudited) (continued)
9.
Recent Accounting Pronouncements and Reporting Updates
In August 2018,
the FASB issued Accounting Standards Update (ASU) No. 2018-13, which changes certain fair value measurement disclosure requirements. The new ASU, in addition to other modifications and additions, removes the requirement to disclose
the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and the Funds policy for the timing of transfers between levels. The amendments are effective for financial statements issued for fiscal years
beginning after December 15, 2019, and interim periods within those fiscal years. The Manager has evaluated the implications of certain provisions of the ASU and has determined to early adopt aspects related to the removal and modification of
certain fair value measurement disclosures under the ASU effective immediately. The Manager continues to evaluate certain other provisions of the ASU and does not expect a material impact to financial statement disclosures.
10. Subsequent Event
Dividends to Shareholders: On November 26, 2019, the Fund declared monthly dividends of $0.105 per share payable on
December 31, 2019, January 6, 2020 and February 28, 2020, respectively, to shareholders of record on December 13, 2019, December 27, 2019 and February 14, 2020, respectively. The ex-dates are December 12,
2019, December 26, 2019 and February 13, 2020, respectively.