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 Fund was incorporated as a Maryland corporation on November 14, 2011.
The investment objective of the Fund is to provide a high level of current income.
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 (GAAP). 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 funds (other than exchange-traded 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
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49
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Notes to Financial Statements
(unaudited) (continued)
approach. During
the reporting period, there were no changes to report with respect to the valuation approach and/or valuation techniques discussed above.
Securities and other assets that cannot be priced according to the methods described above are valued based on pricing methodologies approved by the Board. In the
event that unobservable inputs are used when determining such valuations, the securities will be classified as Level 3 in the fair value hierarchy.
When determining the fair value of securities, some of the factors influencing the valuation include: the nature of any restrictions on disposition of the
securities; assessment of the general liquidity of the securities; the 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.
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 acquires
interests in loans directly (by way of assignment from the selling institution) and/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 or 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. For OTC-traded, 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 swaps contracts 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 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
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51
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Notes to Financial Statements
(unaudited) (continued)
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.
Payment-In-Kind: The Fund invested in the open market or received 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 GAAP, 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.
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).
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PGIM High Yield Bond Fund, Inc.
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53
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Notes to Financial Statements
(unaudited) (continued)
4.
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Other Transactions with Affiliates
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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 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 Securities and Exchange Commission (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, 2020, no 17a-7 transactions were entered into by the Fund.
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, 2020, were $183,303,906 and $191,373,713, respectively.
A summary of the cost of purchases and proceeds from sales of shares of an affiliated investment for the reporting period ended November 30, 2020, is presented as follows:
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Value,
Beginning
of
Period
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Cost of
Purchases
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Proceeds
from Sales
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Change in
Unrealized
Gain
(Loss)
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Realized
Gain
(Loss)
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Value,
End of
Period
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Shares,
End
of
Period
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Income
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PGIM Core Ultra Short Bond Fund*
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$
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9,071,604
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$
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106,297,442
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$
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93,664,648
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$
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$
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$
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21,704,398
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21,704,398
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$
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35,593
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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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The United States federal income tax basis of the Funds investments and the net unrealized appreciation as of November 30, 2020 were as follows:
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Tax Basis
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$
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717,749,838
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Gross Unrealized Appreciation
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40,334,786
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Gross Unrealized Depreciation
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(34,051,634
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)
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Net Unrealized Appreciation
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$
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6,283,152
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The GAAP 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, 2020 of approximately $80,888,000 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 Fund
utilized approximately $7,055,000 of its capital loss carryforward to offset net taxable gains realized in the fiscal year ended May 31, 2020.
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, 2020 are subject to such review.
There are 1 billion shares of $0.001 par value common stock authorized. As of November 30, 2020, Prudential owned 10,556 shares of the Fund.
For the period ended November 30, 2020, the Fund did not issue any shares of
common stock in connection with the Funds dividend reinvestment plan.
8.
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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, 2020. 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
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PGIM High Yield Bond Fund, Inc.
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55
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Notes to Financial Statements
(unaudited) (continued)
0.91%. The maximum loan balance outstanding during the period was $180,000,000. At
November 30, 2020, the Fund had an outstanding loan balance of $180,000,000.
Re-hypothecation: The credit facility permits, subject to certain conditions, the financial institution to re-hypothecate, up
to approximately 95% of the amount outstanding under the facility, portfolio securities segregated by the Fund as collateral. The Fund continues to receive interest on re-hypothecated securities. The Fund also
has the right under the agreement to recall the re-hypothecated securities from the financial institution on demand. If the financial institution fails to deliver the recalled security in a timely manner, the
Fund will be compensated by the financial institution for any fees or losses related to the failed delivery or, in the event a recalled security will not be returned by the financial institution, the Fund, upon notice to the financial institution,
may reduce the loan balance outstanding by the value of the recalled security failed to be returned plus accrued interest. The Fund will receive a portion of the fees earned by the financial institution in connection with the re-hypothecation of portfolio securities which reduces the loan interest expense on borrowings. For the reporting period ended November 30, 2020, the financial institution
re-hypothecated certain portfolio securities segregated as collateral by the Fund.
9.
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Risks of Investing in the Fund
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The Funds risks include, but are not limited to, some or all of the risks discussed below. For further information on the Funds risks, please refer to
the Funds Prospectus and Statement of Additional Information.
Bond
Obligations Risk: As with credit risk, market risk and interest rate 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 lose income.
Credit Risk: This is the risk that the issuer, the guarantor or the insurer of a fixed income security, or the counterparty to a contract, may be unable or unwilling to make timely principal and interest
payments, or to otherwise honor its obligations. Additionally, fixed income securities could lose value due to a loss of confidence in the ability of the issuer, guarantor, insurer or counterparty to pay back debt. The longer the maturity and the
lower the credit quality of a bond, the more sensitive it is to credit risk.
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. The
Funds use of derivatives may also increase the amount of taxes payable by shareholders. 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 debt 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 rate-setting policies. The Fund may lose money if short-term or
long-term interest rates rise sharply or in a manner not anticipated by the subadviser.
Junk Bonds Risks: High-yield, high-risk bonds have predominantly speculative characteristics, including particularly high credit risk. Junk bonds tend to be less liquid than higher-rated securities. The
liquidity of particular issuers or industries within a particular investment category may shrink or disappear suddenly and without warning. The non-investment grade bond market can experience sudden and sharp
price swings and become illiquid due to a variety of factors, including changes in economic forecasts, stock market activity, large sustained sales by major investors, a high profile default or a change in the markets psychology.
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 33 1/3% (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.
LIBOR Risk: Many financial instruments use or may use a floating rate based on
the London Interbank Offered Rate, or LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. On July 27, 2017, the Financial Conduct Authority announced a desire to phase out the use
of LIBOR by the end of 2023. There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate. As such, the potential impact of a transition away from LIBOR on the
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57
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Notes to Financial Statements
(unaudited) (continued)
Fund or the financial instruments in which the Fund invest cannot yet be determined.
The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to
those reference rates, which may adversely affect the Funds performance and/or net asset value. Furthermore, the risks associated with the expected discontinuation of LIBOR and 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. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2023.
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 for any reason, 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. 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 Disruption and Geopolitical
Risks: International wars or conflicts and geopolitical developments in foreign countries, along with instability in regions such as Asia, Eastern Europe, and the Middle East, possible terrorist attacks in the United States or around the world,
public health epidemics such as the outbreak of infectious diseases like the recent outbreak of coronavirus globally or the 20142016 outbreak in West Africa of the Ebola virus, and other similar events could adversely affect the U.S. and
foreign financial markets, including increases in market volatility, reduced liquidity in the securities markets and government intervention, and may cause further long-term economic uncertainties in the United States and worldwide generally. The
coronavirus pandemic and the related governmental and public responses have had and may continue to have an impact on the Funds investments and net asset value and have led and may continue to lead to increased market volatility and the
potential for illiquidity in certain classes of securities and sectors of the market. Preventative or protective actions that governments may take in respect of pandemic or epidemic diseases may result in periods of business disruption, business
closures, inability to obtain raw materials, supplies and component parts, and reduced or disrupted operations for the issuers in which the Fund invests. Government intervention in markets may impact interest rates, market volatility and security
pricing. The occurrence, reoccurrence and pendency of such diseases could adversely affect the economies
(including through changes in business activity and increased unemployment) and financial markets either in specific countries or worldwide.
Market 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 your
investment in the Fund will decline.
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.
10. Recent Accounting Pronouncement and Regulatory Developments
In March 2020, the FASB issued Accounting Standard Update (ASU) No. 2020-04,
which provides optional guidance for applying GAAP to contract modifications, hedging relationships and other transactions affected by the reference rate reform if certain criteria are met. ASU 2020-04 is
elective and is effective on March 12, 2020 through December 31, 2022. At this time, management is evaluating the implications of certain provisions of the ASU and any impact on the financial statement disclosures has not yet been
determined.
On December 3, 2020, the SEC announced that it voted to
adopt a new rule that establishes an updated regulatory framework for fund valuation practices (the Rule). The Rule, in part, provides (i) a framework for determining fair value in good faith and (ii) provides for a fund
Boards assignment of its responsibility for the execution of valuation-related activities to a funds investment adviser. Further, the SEC is rescinding previously issued guidance on related issues. The Rule will become effective 60 days
after publication in the Federal Register, and will have a compliance date 18 months following the effective date. Management is currently evaluating the Rule and its impact to the Funds.
11. Subsequent Event
Dividends to Shareholders: On November 30, 2020, the Fund declared monthly dividends of $0.105 per share payable on December 31, 2020,
January 4, 2021, February 26, 2021, respectively, to shareholders of record on December 11, 2020, December 29, 2020, February 12, 2021, respectively. The ex-dates are December 10,
2020, December 28, 2020, February 11, 2021, respectively.
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PGIM High Yield Bond Fund, Inc.
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