PGIM High Yield Bond Fund, Inc. 49
PGIM High Yield Bond Fund, Inc. 51
PGIM High Yield Bond Fund, Inc. 53
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
Funds fiscal and tax year changed from an annual reporting period that ends May 31 to one that ends July 31. This change is not expected to have any impact on the way the Fund is managed. Shareholders will receive future annual and
semi-annual reports on the new fiscal year end schedule.
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 is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform to U.S.
generally accepted accounting principles (GAAP). The Fund consistently follows such policies in the preparation of its financial statements.
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.
Common or preferred stocks,
exchange-traded funds and derivative instruments, if applicable, that are traded on a national securities exchange are valued at the last sale price as of the close of trading on the applicable exchange where the security principally trades.
Securities traded via NASDAQ are valued at the NASDAQ official closing price. To the extent these securities are valued at the last sale price or NASDAQ official closing price, they are classified as Level 1 in the fair value hierarchy. In the
event that no sale or official closing price on valuation date exists, these securities are generally valued at the mean between the last reported bid and ask prices, or at the last bid price in the absence of an ask price. These securities are
classified as Level 2 in the fair value hierarchy.
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.
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. Altering one or
more unobservable inputs may result in a significant change to a Level 3 securitys fair value measurement.
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.
(i) market value of investment securities, other assets and liabilities at the current rates of exchange;
(ii) purchases and sales of investment securities, income and expenses at the rates of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not generally isolate that
portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of long-term portfolio securities held at the end of the period. Similarly, the Fund
does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of long-term portfolio securities sold during the period. Accordingly, holding period realized foreign currency gains
(losses) are included in the reported net realized gains (losses) on investment transactions. Notwithstanding the above, the Fund does isolate the effect of fluctuations in foreign currency exchange rates when determining the gain (loss) upon the
sale or maturity of foreign currency denominated debt obligations; such amounts are included in net realized gains (losses) on foreign currency transactions.
Additionally, net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from the disposition of holdings of foreign
currencies, currency gains (losses) realized between the trade and settlement dates on investment transactions, and the difference between the amounts of interest, dividends and foreign withholding taxes recorded on the Funds books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) arise from valuing foreign currency denominated assets and liabilities (other than investments) at period end exchange rates.
rate and credit risk in excess of the amounts reflected on the Statement of Assets and Liabilities. The Funds maximum risk of loss from counterparty credit risk is the net value of the cash
flows to be received from the counterparty at the end of the contracts life. A cross currency contract is a forward contract where a specified amount of one foreign currency will be exchanged for a specified amount of another foreign currency.
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 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.
The Fund is subject to risk exposures associated with the referenced asset in the normal course of pursuing its investment
objectives. The Fund entered into total return swaps to manage its exposure to a security or an index. The Funds maximum risk of loss from counterparty credit risk is the change in the value of the security, in the Funds favor, from the
point of entering into the contract.
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.
Short sales and OTC contracts, including forward foreign currency exchange contracts, swaps, forward rate agreements and written options involve elements of both market
and credit risk in excess of the amounts reflected on the Statement of Assets and Liabilities, if applicable. Such risks may be mitigated by engaging in master netting arrangements.
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.
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.
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 and PGIM, Inc. has entered into
a sub-subadvisory agreement with PGIM Limited (each a subadviser and collectively the subadvisers).
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, PGIM Limited and PGIM, Inc. are indirect, wholly-owned
subsidiaries of Prudential Financial, Inc. (Prudential).
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. PGIM Investments and/or its affiliates are paid fees or reimbursed for providing their services to the Core Fund. 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/trustees, and/or common officers. For the reporting period ended July 31, 2021, 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 July 31, 2021, were $48,859,832 and $67,558,038, respectively.
A summary of the cost of purchases and proceeds from sales of shares of an affiliated
mutual fund for the reporting period ended July 31, 2021, 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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Short-Term Investments - Affiliated Mutual Fund:
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PGIM Core Ultra Short Bond Fund (1)(wb)
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$20,682,185
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$40,056,465
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$25,002,613
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$
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$
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$35,736,037
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35,736,037
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$5,259
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(1)
|
The Fund did not have any capital gain distributions during the reporting period.
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(wb)
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PGIM Investments LLC, the manager of the Fund, also serves as manager of the PGIM Core Ultra Short Bond Fund.
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6.
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Distributions and Tax Information
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Distributions to shareholders, which are determined in accordance with federal income tax regulations and which may differ from GAAP, are recorded on the ex-date.
For the two months ended July 31, 2021, the tax character of dividends paid by the Fund were $5,937,281 of ordinary
income and $1,046,631 of tax return of capital. For the year ended May 31, 2021, the tax character of dividends paid by the Fund were $37,167,898 of ordinary income and $4,735,574 of tax return of capital. For the year ended May 31, 2020,
the tax character of dividends paid by the Fund were $40,696,044 of ordinary income and $708,577 of tax return of capital.
As of July 31, 2021, there were no
accumulated undistributed earnings on a tax basis.
The United States federal income tax basis of the Funds investments and the net unrealized appreciation as
of July 31, 2021 were as follows:
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Tax Basis
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Gross
Unrealized
Appreciation
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|
Gross
Unrealized
Depreciation
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|
Net
Unrealized
Appreciation
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$725,714,968
|
|
$46,728,862
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$(19,199,381)
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$27,529,481
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The difference between book basis and tax basis was primarily attributable to deferred losses on wash sales, swaps, differences in the
treatment of premium amortization for book and tax purposes, defaulted securities and other book to tax differences.
For federal income tax purposes, the Fund had a
capital loss carryforward as of July 31, 2021 of approximately $82,097,000 which can be carried forward for an unlimited period. The Fund utilized approximately $2,694,000 of its capital loss carryforward to offset net taxable gains realized in
the fiscal year ended July 31, 2021. 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
PGIM High Yield Bond Fund, Inc.
65
Notes to Financial Statements (continued)
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 July 31,
2021 are subject to such review.
There are 1 billion shares of $0.001 par value common stock authorized. As of July 31, 2021, Prudential, through its affiliated entities, including affiliated
funds (if applicable), owned shares of the Fund as follows:
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Number of
Shares
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Percentage of
Outstanding Shares
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11,138
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0.03%
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At the reporting period end, the number of shareholders holding greater than 5% of the Fund are as follows:
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Affiliated
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Unaffiliated
|
Number of
Shareholders
|
|
Percentage of
Outstanding Shares
|
|
Number of
Shareholders
|
|
Percentage of
Outstanding Shares
|
|
|
%
|
|
6
|
|
53.0%
|
For the reporting period ended July 31, 2021, 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
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The Fund has entered into a committed credit facility agreement (the Credit Facility) with The Bank of Nova Scotia (the Financial Institution),
pursuant to which the Fund may borrow up to a maximum commitment amount of $240 million. The Fund will pay interest in the amount of 0.75% plus the 1-month U.S. Dollar London Interbank Offered Rate
(LIBOR) on the amount outstanding. Such interest expenses, as well as fees for the Credit Facility (including commitment fees for any portion of the Credit Facility not drawn upon at any time during the period), are disclosed in the Statement of
Operations under Interest and Miscellaneous expense, respectively. The Funds obligations under the Credit Facility are secured by the assets of the Fund segregated for the purpose of securing the amount borrowed and are indicated in the
Schedule of Investments. The purpose of the Credit Facility is to provide the Fund with portfolio leverage and to meet its general cash flow requirements. If the Fund fails to meet certain requirements or maintain other financial covenants required
under the Credit Facility, the Fund may be required to repay immediately, in part or in full, the loan balance outstanding.
The Fund utilized the credit facility
during the reporting period ended July 31, 2021. The average daily outstanding loan balance for the 61 days that the Fund utilized the facility
66
during the reporting period was $185,573,770, borrowed at a weighted average interest rate of 0.84%. The maximum loan balance outstanding during the reporting period was $190,000,000. At
July 31, 2021, the Fund had an outstanding loan balance of $181,000,000.
Re-hypothecation: The credit facility
permits, subject to certain conditions, the Financial Institution to re-hypothecate, a portion of the 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 interest expense on borrowings. Such earnings are disclosed in the Statement of Operations under
Interest income. For the reporting period ended July 31, 2021, there were no earnings to be disclosed.
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.
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.
Cyber Security Risk: Failures or
breaches of the electronic systems of the Fund, the Funds manager, subadviser and other service providers, or the issuers of securities in which the Fund invests have the ability to cause disruptions and negatively impact the Funds
business operations, potentially resulting in financial losses to the Fund and its shareholders. While the Fund has established business continuity plans and risk management systems seeking to address system breaches or failures, there are inherent
limitations in such plans and
PGIM High Yield Bond Fund, Inc.
67
Notes to Financial Statements (continued)
systems. Furthermore, the Fund cannot control the cyber security plans and systems of the Funds service providers or issuers of securities in which the Fund invests.
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 derivatives 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
over-the-counter derivative instruments will not have liquidity beyond the counterparty to the instrument. Over-the-counter derivative instruments also involve the risk that the other party will not meet its obligations to the Fund.
The US Government and foreign governments have adopted (and may adopt further) regulations governing derivatives markets, including mandatory clearing of certain
derivatives, margin and reporting requirements, and risk exposure limitations. The ultimate impact of the regulations remains unclear. Additional regulation of derivatives may make derivatives more costly, limit their availability or utility, or
otherwise adversely affect their performance or disrupt markets.
Emerging Markets Risk: The risks of foreign investments are greater for investments in or
exposed to emerging markets. Emerging market countries typically have economic and political systems that are less fully developed, and can be expected to be less stable, than those of more developed countries. For example, the economies of such
countries can be subject to rapid and unpredictable rates of inflation or deflation. Low trading volumes may result in a lack of liquidity and price volatility. Emerging market countries may have policies that restrict investment by non-US investors, or that prevent non-US investors from withdrawing their money at will.
The Fund may invest in some emerging markets that subject it to risks such as those associated with illiquidity, custody of assets, different settlement and clearance
procedures and asserting legal title under a developing legal and regulatory regime to a greater degree than in developed markets or even in other emerging markets.
Foreign Securities Risk: Investments in securities of non-US issuers (including those denominated in US dollars) generally
involve more risk than investing in securities of US issuers. Foreign political, economic and legal systems, especially those in developing and emerging market countries, may be less stable and more volatile than in the US. Foreign
68
legal systems generally have fewer regulatory requirements than the US legal system. In general, less information is publicly available about non-US
companies than about US companies. Non-US companies generally are not subject to the same accounting, auditing, and financial reporting standards as are US companies. Additionally, the changing value of
foreign currencies and changes in exchange rates could also affect the value of the assets the Fund holds and the Funds performance. Certain foreign countries may impose restrictions on the ability of issuers of foreign securities to make
payment of principal and interest or dividends to investors located outside the country, due to blockage of foreign currency exchanges or otherwise. Investments in emerging markets are subject to greater volatility and price declines.
In addition, the Funds investments in non-US securities may be subject to the risks of nationalization or expropriation of
assets, imposition of currency exchange controls or restrictions on the repatriation of non-US currency, confiscatory taxation and adverse diplomatic developments. Special US tax considerations may apply.
Interest Rate Risk: The value of your 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. For example, a fixed income security with a duration of three years is expected to decrease in value by approximately 3% if interest rates increase by 1%. This is referred to as duration risk. 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 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 have lower market liquidity 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 shares 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.
PGIM High Yield Bond Fund, Inc.
69
Notes to Financial Statements (continued)
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. Over the course of the last several years, global regulators have indicated an intent to phase out the use of LIBOR and similar
interbank offering rates (IBOR). There still remains uncertainty regarding the nature of any replacement rates for LIBOR and the other IBORs as well as around fallback approaches for instruments extending beyond the any phase-out of these reference rates. The lack of consensus around replacement rates and the uncertainty of the phase out of LIBOR and other IBORs may result in increased volatility in corporate or governmental debt,
bank loans, derivatives and other instruments invested in by the Fund as well as loan facilities used by the Fund.
The potential effect of a transition away from
LIBOR on the Fund or the financial instruments in which the Fund invests 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. Certain proposed replacement rates to LIBOR, such
as the Secured Overnight Financing Rate (SOFR), are materially different from LIBOR, and changes in the applicable spread for instruments previously linked to LIBOR will need to be made in order for instruments to pay similar rates.
Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead
to reduced coupons on debt held by the Fund, higher rates required to be paid by the Fund on bank lines of credit due to increases in spreads, increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of
LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Funds performance. 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 and
the other IBORs as benchmarks could deteriorate during the transition period, these effects could begin to be experienced by the end of 2021 and beyond until the anticipated discontinuance date in 2023 for the majority of the LIBOR rates.
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 trade in lower volumes may be more
70
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 order 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.
Management Risk: The value of your investment may decrease if judgments by the subadviser about the attractiveness, value or market trends affecting a particular
security, industry or sector or about market movements are incorrect.
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 outbreak of COVID-19 globally in 2020 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
PGIM High Yield Bond Fund, Inc.
71
Notes to Financial Statements (continued)
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.
Risk of Market Price Discount from Net Asset
Value: Shares of closed-end funds frequently trade at a discount from their net asset value. This characteristic is a risk separate and distinct from the risk that net asset value could decrease as a
result of investment activities.
10.
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Recent Accounting Pronouncement and Regulatory Developments
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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 took effect on March 8, 2021, with a compliance date of September 8, 2022. Management is currently evaluating the Rule
and its impact to the Fund.
Dividends to shareholders: On August 31, 2021, the Fund declared monthly dividends of $0.105 per share payable on September 30, 2021, October 29,
2021 and November 30, 2021, respectively, to shareholders of record on September 17, 2021, October 15, 2021 and November 12, 2021, respectively. The ex-dates are September 16, 2021,
October 14, 2021 and November 10, 2021, respectively.
72
Report of Independent Registered Public Accounting Firm
To the Board of Directors of PGIM High Yield Bond Fund, Inc. and Shareholders of PGIM
High Yield Bond Fund, Inc.
Opinions on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of PGIM High Yield Bond Fund, Inc. (the
Fund) as of July 31, 2021, the related statements of operations, of changes in net assets and of cash flows for the period from June 1, 2021 through July 31, 2021 and the year ended May 31, 2021, including the related notes,
and the financial highlights for the period from June 1, 2021 through July 31, 2021 and the year ended May 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 July 31, 2021, and the results of its operations, changes in its net assets and its cash flows for the period from June 1, 2021 through July 31, 2021 and the year ended May 31,
2021, and the financial highlights for the period from June 1, 2021 through July 31, 2021 and the year ended May 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 May 31, 2020 and the
financial highlights for each of the periods ended on or prior to May 31, 2020 (not presented herein, other than the statement of changes in net assets and the financial highlights) were audited by other auditors whose report dated July 20, 2020
expressed an unqualified opinion on those financial statements and financial highlights.
Basis for Opinions
These financial statements are the responsibility of the Funds management. Our
responsibility is to express an opinion on the Funds 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 July 31, 2021 by correspondence with the custodian, transfer agent
and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.
/s/PricewaterhouseCoopers LLP
New York, New York
September 20, 2021
We have served as the auditor of one or more investment companies in the PGIM Retail
Funds complex since 2020.
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Tax Information
(unaudited)
For the period ended July 31, 2021, the Fund reports the maximum amount allowable but not less than 81.80% as interest related dividends in accordance with
Section 871(k)(1) and 881(e)(1) of the Internal Revenue Code.
In
January 2022, you will be advised on IRS Form 1099-DIV or substitute 1099-DIV as to the federal tax status of distributions received by you in calendar year 2021.
Other Information
(unaudited)
Investment Objective and Policies
There have been no material changes to the investment objectives, policies and restrictions since the Funds Annual Report for the fiscal year ended
May 31, 2021 that have not been approved by stockholders.
Investment
Objective. The Funds investment objective is to provide a high level of current income. The Funds investment objective is non-fundamental and may be changed without stockholder approval.
Investment Policies. Under normal market conditions, the Fund will invest
at least 80% of its investable assets in a diversified portfolio of high yield fixed income instruments that are rated below investment grade with varying maturities and other investments (including derivatives) with similar economic
characteristics. This 80% investment policy is a non-fundamental policy and may be changed by the Board of Directors of the Fund without stockholder approval and after providing holders of Common Stock with at
least 60 days prior written notice of any change as required by the rules under the Investment Company Act of 1940, as amended (the 1940 Act). The term investable assets refers to the total assets of the Fund (including
any assets attributable to money borrowed, including as a result of any shares of preferred stock or notes or other debt securities that may be issued by the Fund) minus the sum of (i) accrued liabilities of the Fund (other than liabilities for
money borrowed, including the liquidation preference of any outstanding preferred stock, and principal on notes and other debt securities issued by the Fund), (ii) any accrued and unpaid interest on money borrowed and (iii) accumulated
dividends on any outstanding shares of Common Stock and preferred stock issued by the Fund.
The Funds investments in derivatives will be included under the 80% investment policy noted above so long as the underlying assets of such derivatives are based on one or more high yield fixed income
instruments that are rated below investment grade. Such derivative investments are subject to the Funds limit of investing up to 20% of its investable assets in derivatives.
The Fund may not invest in municipal debt obligations (except for temporary defensive
measures), asset-backed securities (including collateralized debt obligations and collateralized loan obligations), and mortgage-backed securities (including securities issued by the U.S. government and agencies as well as privately). The Fund
defines the term asset-backed security as a type of pass through instrument that pays interest based upon the cash flow of an underlying pool of assets, such as automobile loans or credit card receivables.
Foreign Instruments. Under normal market conditions, the Fund may invest up to 20% of
its investable assets in U.S. currency denominated and/or foreign currency denominated fixed income instruments issued by foreign issuers.
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Other Information
(unaudited) (continued)
Investment Grade
Investments. Under normal market conditions, the Fund may invest up to 20% of its investable assets in fixed income instruments that are rated investment grade (Baa3 or higher by Moodys, BBB- or higher
by S&P or Fitch, or comparably rated by another NRSRO) or, if unrated, are considered by the subadviser to be of comparable quality.
Loan Participations and Assignments. Under normal market conditions, the Fund may invest up to 20% of its investable assets in loan participations and assignments.
Derivatives. The Fund is permitted to invest up to 20% of its investable
assets in derivatives but expects to maintain derivatives exposure of below 20% under normal market conditions. The Funds investments in derivatives may be for hedging, investment or leverage purposes, or to manage interest rates or the
duration of the Funds portfolio. Although the Fund is not limited in the types of derivatives it can use, the Fund currently expects that its derivatives use will consist primarily of the following instruments and transactions: futures
contracts, foreign currency forward contracts, U.S. Treasury swaps, interest rate swaps, credit default swaps on individual securities or groups or indices of securities (including high yield fixed income instruments) and credit-linked notes.
Investment Restrictions.
Fundamental Investment Restrictions
The following are fundamental investment restrictions of the Fund and, prior to the issuance of any preferred stock, may not be changed without the approval of the
holders of a majority of the Funds outstanding shares of Common Stock. Subsequent to the issuance of a class of preferred stock, the following investment restrictions may not be changed without the approval of a majority of the outstanding
shares of Common Stock and of preferred stock, voting together as a class, and the approval of a majority of the outstanding shares of preferred stock, voting separately by class. In each case, a majority of the Funds outstanding shares of
Common Stock and/or preferred stock, as applicable, for this purpose and under the 1940 Act means the lesser of (i) 67% of the shares of Common Stock and/or preferred stock, as applicable, represented at a meeting at which more than 50% of such
shares are represented or (ii) more than 50% of the outstanding shares of Common Stock and/or preferred stock, as applicable. The Fund may not:
1. Purchase the securities of any issuer if, as a result, the Fund would fail to be a diversified company within the meaning of the 1940 Act, and the rules and
regulations promulgated thereunder, as each may be amended from time to time, except to the extent that the Fund may be permitted to do so by exemptive order, SEC release, no-action letter or similar relief or
interpretations (collectively, the 1940 Act Laws, Interpretations and Exemptions).
2. Issue senior securities or borrow money or pledge its assets, except as permitted by the 1940 Act Laws, Interpretations and Exemptions.
3. Buy or sell real estate, except that investment in securities of issuers that invest in real estate and investments
in mortgage-backed securities, mortgage participations or other instruments supported or secured by interests in real estate are not subject to this limitation, and except that the Fund may exercise rights relating to such securities, including the
right to enforce security interests and to hold real estate acquired by reason of such enforcement until that real estate can be liquidated in an orderly manner.
4. Buy or sell physical commodities or contracts involving physical commodities. The
Fund may purchase and sell (i) derivative, hedging and similar instruments such as financial futures contracts and options thereon, and (ii) securities or instruments backed by, or the return from which is linked to, physical commodities
or currencies, such as forward currency exchange contracts, and the Fund may exercise rights relating to such instruments, including the right to enforce security interests and to hold physical commodities and contracts involving physical
commodities acquired as a result of the Funds ownership of instruments supported or secured thereby until they can be liquidated in an orderly manner.
5. Engage in the underwriting of securities except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 (the Securities
Act) in disposing of a portfolio security.
6. Purchase any security
if as a result 25% or more of the Funds total assets would be invested in the securities of issuers having their principal business activities in the same industry or group of industries, except for temporary defensive purposes, and except
that this limitation does not apply to securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
7. Make loans, except as permitted by the 1940 Act Laws, Interpretations and Exemptions. The acquisition of credit instruments, including without limitation, bonds,
debentures, repurchase agreements, other debt securities or instruments, or participations or other interests therein and investments in government obligations, commercial paper, certificates of deposit, bankers acceptances or instruments
similar to any of the foregoing will not be considered the making of a loan, and is permitted if consistent with the Funds investment objective and strategies.
For purposes of Investment Restriction 5, a technical provision of the Securities Act
deems certain persons to be underwriters if they purchase a security from an issuer and later sell it to the public. Although it is not believed that the application of this Securities Act provision would cause the Fund to be engaged in
the business of underwriting, the policy set forth in Investment Restriction 5 will be interpreted not to prevent the Fund from engaging in transactions involving the acquisition or disposition of portfolio securities,
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Other Information (unaudited)
(continued)
regardless of whether the Fund may be considered to be an underwriter under the Securities Act. Under the Securities Act, an underwriter may be liable for material omissions or misstatements in an issuers
registration statement or prospectus.
For purposes of Investment
Restriction 7, the Fund may currently lend up to 33 1/3% of the value of its total assets.
Non-Fundamental Investment Restrictions
Although not fundamental, the Fund has the following additional investment restrictions which may be changed by the Board of Directors without stockholder approval.
The Fund may not:
1. Invest in securities of other investment companies, except as permitted under the
1940 Act Laws, Interpretations and Exemptions.
Compliance with any policy,
investment restriction or limitation of the Fund that is expressed as a percentage of assets is determined at the time of investment. The policy will not be violated if these limitations are exceeded because of changes in the market value or
investment rating of the Funds assets. The Fund interprets its policies with respect to borrowing and lending to permit such activities as may be lawful for the Fund, to the full extent permitted by the 1940 Act Laws, Interpretations and
Exemptions.
Charter or Bylaws Amendment
There have not been changes in the Funds charter or by-laws that would delay or prevent a change of control of the Fund that have not been approved by stockholders since the Funds Annual Report dated May 31, 2021.
Principal Risk Factors
There have been no material changes to the principal risk factors since the
Funds Annual Report dated May 31, 2021.
The Fund is not intended
to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objective.
The following is a summary description of principal risks of investing in the Fund. The
Funds risks include, but are not limited to, some or all of the risks discussed below. Different risks may be more significant at different times depending on market conditions. The order of the below risk factors does not indicate the
significance of any particular risk factor.
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.
Cyber Security Risk. Failures or breaches of the electronic systems of the Fund, the Funds manager, subadviser and other service
providers, or the issuers of securities in which the Fund invests have the ability to cause disruptions and negatively impact the Funds business operations, potentially resulting in financial losses to the Fund and its stockholders. While the
Fund has established business continuity plans and risk management systems seeking to address system breaches or failures, there are inherent limitations in such plans and systems. Furthermore, the Fund cannot control the cyber security plans and
systems of the Funds service providers or issuers of securities in which the Fund invests.
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 derivatives 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 stockholders. 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 over-the-counter derivative instruments
will not have liquidity beyond the counterparty to the instrument. Over-the-counter derivative instruments also involve the risk that the other party will not meet its
obligations to the Fund.
The US Government and foreign governments have
adopted (and may adopt further) regulations governing derivatives markets, including mandatory clearing of certain derivatives, margin and reporting requirements, and risk exposure limitations. The ultimate
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Other Information (unaudited)
(continued)
impact of the regulations remains unclear. Additional regulation of derivatives may make derivatives more costly, limit their availability or utility, or otherwise adversely affect their performance or disrupt
markets.
Emerging Markets Risk. The risks of foreign investments are
greater for investments in or exposed to emerging markets. Emerging market countries typically have economic and political systems that are less fully developed, and can be expected to be less stable, than those of more developed countries. For
example, the economies of such countries can be subject to rapid and unpredictable rates of inflation or deflation. Low trading volumes may result in a lack of liquidity and price volatility. Emerging market countries may have policies that restrict
investment by non-US investors, or that prevent non-US investors from withdrawing their money at will.
The Fund may invest in some emerging markets that subject it to risks such as those associated with illiquidity, custody of assets,
different settlement and clearance procedures and asserting legal title under a developing legal and regulatory regime to a greater degree than in developed markets or even in other emerging markets.
Foreign Securities Risk. Investments in securities of
non-US issuers (including those denominated in US dollars) generally involve more risk than investing in securities of US issuers. Foreign political, economic and legal systems, especially those in developing
and emerging market countries, may be less stable and more volatile than in the US. Foreign legal systems generally have fewer regulatory requirements than the US legal system. In general, less information is publicly available about non-US companies than about US companies. Non-US companies generally are not subject to the same accounting, auditing, and financial reporting standards as are US companies.
Additionally, the changing value of foreign currencies and changes in exchange rates could also affect the value of the assets the Fund holds and the Funds performance. Certain foreign countries may impose restrictions on the ability of
issuers of foreign securities to make payment of principal and interest or dividends to investors located outside the country, due to blockage of foreign currency exchanges or otherwise. Investments in emerging markets are subject to greater
volatility and price declines.
In addition, the Funds investments in non-US securities may be subject to the risks of nationalization or expropriation of assets, imposition of currency exchange controls or restrictions on the repatriation of
non-US currency, confiscatory taxation and adverse diplomatic developments. Special US tax considerations may apply.
Interest Rate Risk. The value of your 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. For example, a fixed income security with a duration of three years is expected
to decrease in value by approximately 3% if interest rates increase by 1%. This is referred to as duration risk. 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 lose money if short-term or long-term interest rates rise sharply or in a manner not anticipated by the subadviser.
Junk Bonds Risk. High-yield, high-risk bonds have predominantly speculative
characteristics, including particularly high credit risk. Junk bonds tend to have lower market liquidity 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. Over the course of the last several years, global regulators have indicated an intent to phase out the use of LIBOR and similar interbank offering rates (IBOR). There still
remains uncertainty regarding the nature of any replacement rates for LIBOR and the other IBORs as well as around fallback approaches for instruments extending beyond the any phase-out of these reference
rates. The lack of consensus around replacement rates and the uncertainty of the phase out of LIBOR and other IBORs may result in increased volatility in corporate or governmental debt, bank loans, derivatives and other instruments invested in by
the Fund as well as loan facilities used by the Fund.
The potential effect
of a transition away from LIBOR on the Fund or the financial instruments in which the Fund invests cannot yet be determined. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or
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(continued)
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. Certain proposed replacement rates to LIBOR, such as the Secured Overnight Financing Rate (SOFR), are materially different from LIBOR, and changes in the applicable spread for instruments previously linked to LIBOR will
need to be made in order for instruments to pay similar rates. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently,
the transition away from LIBOR to other reference rates may lead to reduced coupons on debt held by the Fund, higher rates required to be paid by the Fund on bank lines of credit due to increases in spreads, increased volatility and illiquidity in
markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely
affecting the Funds performance. 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 and the other IBORs as benchmarks could deteriorate during the transition period, these effects could begin to be experienced by the end of 2021 and beyond until the anticipated
discontinuance date in 2023 for the majority of the LIBOR rates.
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.
Management Risk. The value of your investment may decrease if judgments by the subadviser about the attractiveness, value or market trends affecting a particular security, industry or sector or about market
movements are incorrect.
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 outbreak of COVID-19 globally in 2020 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.
Risk of Market Price Discount from Net Asset Value. Shares of closed-end funds frequently trade at a discount from their net
asset value. This characteristic is a risk separate and distinct from the risk that net asset value could decrease as a result of investment activities.
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Portfolio Management. Robert Cignarella, Robert Spano, Ryan Kelly, Brian Clapp, and Daniel Thorogood of PGIM Fixed Income are primarily responsible for management of the Fund. There have been no changes to
the Funds portfolio managers who are responsible for the day-to-day management of the Fund since the Funds Annual Report dated May 31, 2021.
Dividend Reinvestment Plan. Unless a holder of common stock elects to receive
cash by contacting Computershare Trust Company, N.A. (the Plan Administrator), all dividends declared on common stock will be automatically reinvested by the Plan Administrator pursuant to the Funds Automatic Dividend Reinvestment
Plan (the Plan), in additional common stock. The holders of common stock who elect not to participate in the Plan will receive all dividends and other distributions (together, a Dividend) in cash paid by check mailed directly
to the stockholder of record (or, if the common stock is held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the Dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared Dividend. Such
notice will be effective with respect to a particular Dividend. Some brokers may automatically elect to receive cash on behalf of the holders of common stock and may re-invest that cash in additional common
stock.
The Plan Administrator will open an account for each common
stockholder under the Plan in the same name in which such common stockholders common stock is registered. Whenever the Fund declares a Dividend payable in cash, non-participants in the Plan will receive
cash and participants in the Plan will receive the equivalent in common stock. The common stock will be acquired by the Plan Administrator for the participants accounts, depending upon the circumstances described below, either (i) through
receipt of additional unissued but authorized common stock from the Fund (Newly Issued common stock) or (ii) by purchase of outstanding common stock on the open market (Open-Market Purchases) on the NYSE or elsewhere.
If, on the payment date for any Dividend, the closing market price of the common stock plus per share fees (as defined below) is equal to or greater than the NAV per share of common stock (such condition being referred to as market
premium), the Plan Administrator will invest the Dividend amount in Newly Issued common stock on behalf of the participants. The number of Newly Issued common stock to be credited to each participants account will be determined by
dividing the dollar amount of the Dividend by the NAV per share of common stock on the payment date, provided that, if the NAV per share of common stock is less than or equal to 95% of the closing market price per share of common stock on the
payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per common stock on the payment date. If, on the payment date for any Dividend, the NAV per share of common stock is greater
than the closing market value per share of common stock plus per share fees (such condition being referred to as market discount), the Plan Administrator will invest the Dividend
amount in shares of common stock acquired on behalf of the participants in Open-Market Purchases.
Per share fees include any applicable brokerage commissions the Plan Administrator is required to pay. In the event of a market discount on the payment date for any Dividend, the Plan Administrator will
have until the last business day before the next date on which the common stock trades on an ex-dividend basis or 30 days after the payment date for such Dividend, whichever is sooner (the
Last Purchase Date), to invest the Dividend amount in common stock acquired in Open-Market Purchases on behalf of participants. If, before the Plan Administrator has completed its Open-Market Purchases, the market price per share of
common stock exceeds the NAV per share of common stock, the average per share purchase price paid by the Plan Administrator for common stock may exceed the NAV per share of the common stock, resulting in the acquisition of fewer shares of common
stock than if the Dividend had been paid in Newly Issued common stock on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the
full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested
portion of the Dividend amount in Newly Issued common stock at the NAV per share of common stock at the close of business on the Last Purchase Date, provided that, if the NAV is less than or equal to 95% of the then current market price per share of
common stock, the dollar amount of the Dividend will be divided by 95% of the market price on the payment date for purposes of determining the number of shares issuable under the Plan.
The Plan Administrator maintains all stockholder accounts in the Plan and furnishes written confirmation of all transactions in the
accounts, including information needed by stockholders for tax records. Common stock in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant, and each stockholder proxy will include those
shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants.
In the case of the holders of common stock such as banks, brokers or
nominees that hold shares of common stock for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of shares of common stock certified from time to time by the record stockholders
name and held for the account of beneficial owners who participate in the Plan.
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PGIM High Yield Bond Fund, Inc.
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85
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Other Information (unaudited)
(continued)
The Plan Administrators service fee, if any, and expenses for administering the plan will be paid for by the Fund. If a participant elects by written, Internet or telephonic notice to the Plan Administrator
to have the Plan Administrator sell part or all of the shares held by the Plan Administrator in the participants account and remit the proceeds to the participant, the Plan Administrator is authorized to deduct a $15.00 transaction fee plus a
$0.12 per share fee. If a participant elects to sell his or her shares of common stock, the Plan Administrator will process all sale instructions received no later than five business days after the date on which the order is received by the Plan
Administrator, assuming the relevant markets are open and sufficient market liquidity exists (and except where deferral is required under applicable federal or state laws or regulations). Such sale will be made through the Plan Administrators
broker on the relevant market and the sale price will not be determined until such time as the broker completes the sale. In every case the price to the participant shall be the weighted average sale price obtained by the Plan Administrators
broker net of fees for each aggregate order placed by the participant and executed by the broker. To maximize cost savings, the Plan Administrator will seek to sell shares in round lot transactions. For this purpose the Plan Administrator may
combine a participants shares with those of other selling participants.
There will be no brokerage charges with respect to shares of common stock issued directly by the Fund. However, each participant will pay a pro rata share of
brokerage commissions incurred in connection with Open-Market Purchases. Each participant will be charged a per share fee (currently $0.05 per share) on all Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants
of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends. Participants that request a sale of common stock through the Plan Administrator are subject to brokerage commissions.
Each participant may terminate the participants account under the Plan by so
notifying the Plan Administrator via the Plan Administrators website at www.computershare.com/investor, by filling out the transaction request form located at the bottom of the participants Statement and sending it to the Plan
Administrator or by calling the Plan Administrator. Such termination will be effective immediately if the participants notice is received by the Plan Administrator prior to any dividend or distribution record date. Upon any withdrawal or
termination, the Plan Administrator will cause to be delivered to each terminating participant a statement of holdings for the appropriate number of the Funds whole book-entry shares of common stock and a check for the cash adjustment of any
fractional share at the market value of the Funds shares of common stock as of the close of business on the date the termination is effective less any applicable fees. In the event a participants notice of termination is on or after a
record date (but before payment date) for an account whose dividends are reinvested, the Plan Administrator, in its sole discretion, may either distribute such dividends in cash or reinvest them in shares of common stock on behalf of the terminating
participant. In the event reinvestment is made, the Plan Administrator will
process the termination as soon as
practicable, but in no event later than five business days after the reinvestment is completed. The Plan may be terminated by the Fund upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any
dividend or distribution by the Fund.
The Fund reserves the right to amend
or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.
All correspondence or questions concerning the Plan should be directed to the Plan
Administrator, Computershare Trust Company, N.A., P.O. Box 505000, Louisville, KY 40233-5000, by calling (toll free) 800-451-6788 or through the Plan
Administrators website www.computerhsare.com/investor.
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PGIM High Yield Bond Fund, Inc.
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87
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Management of the Fund
(unaudited)
Information about the Directors (or Board Members) and Officers of the Fund is set forth below. Directors who are not deemed to be interested
persons of the Fund, as defined in the Investment Company Act of 1940 (the 1940 Act), are referred to as Independent Directors. Directors who are deemed to be interested persons of the Fund are referred to
as Interested Directors. The Directors are responsible for the overall supervision of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Board in turn elects
the Officers, who are responsible for administering the day-to-day operations of the Fund.