Opinion on the Financial Statements
We have audited the
accompanying statement of assets and liabilities of BNY Mellon Strategic Municipal Bond Fund, Inc. (the
“Fund”), including the statement of investments, as of November 30, 2021, and the related statements
of operations and cash flows for the year then ended, the statements of changes in net assets for each
of the two years in the period then ended, the financial highlights for each of the five years in the
period then ended and the related notes (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 at November 30, 2021, the results of its operations and its cash flows for the year then
ended, the changes in its net assets for each of the two years in the period then ended and its financial
highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Basis for Opinion
These financial statements
are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the
Fund’s financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent
with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits 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. The Fund is not required to have, nor were we
engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our
audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over
financial reporting. Accordingly, we express no such opinion.
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 procedures included confirmation of securities owned as of November 30, 2021, by correspondence with
the custodian and others or by other appropriate auditing procedures where replies from others were not
received. 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. We believe
that our audits provide a reasonable basis for our opinion.
We have served as the
auditor of one or more investment companies in the BNY Mellon Family of Funds since at least 1957, but
we are unable to determine the specific year.
New York, New York
January 24, 2022
42
ADDITIONAL
INFORMATION (Unaudited)
Dividend
Reinvestment Plan
Under the fund’s Dividend Reinvestment Plan (the “Plan”),
a Common Shareholder who has fund shares registered in his or her name will have all dividends and distributions
reinvested automatically by Computershare Trust Company, N.A., as Plan administrator (the “Administrator”),
in additional shares of the fund at the lower of prevailing market price or net asset value (but not
less than 95% of market value at the time of valuation) unless such Common Shareholder elects to receive
cash as provided below. If market price is equal to or exceeds net asset value, shares will be issued
at net asset value. If net asset value exceeds market price or if a cash dividend only is declared, the
Administrator, as agent for the Plan participants, will buy fund shares in the open market. A Plan participant
is not relieved of any income tax that may be payable on such dividends or distributions.
A
Common Shareholder who owns fund shares registered in nominee name through his or her broker/dealer (i.e.,
in “street name”) may not participate in the Plan, but may elect to have cash dividends and distributions
reinvested by his or her broker/dealer in additional shares of the fund if such service is provided by
the broker/dealer; otherwise such dividends and distributions will be treated like any other cash dividend.
A Common Shareholder who has fund shares registered in his or her name may elect
to withdraw from the Plan at any time for a $5.00 fee and thereby elect to receive cash in lieu of shares
of the fund. Changes in elections must be in writing, sent to The Bank of New York Mellon, c/o Computershare
Inc., P.O. Box 30170, College Station, TX 77842-3170, should include the Common Shareholder’s name
and address as they appear on the Administrator’s records and will be effective only if received more
than fifteen days prior to the record date for any distribution.
The Administrator maintains
all Common Shareholder accounts in the Plan and furnishes written confirmations of all transactions in
the account. Shares in the account of each Plan participant will be held by the Administrator in non-certificated
form in the name of the participant, and each such participant’s proxy will include those shares purchased
pursuant to the Plan.
The fund pays the Administrator’s fee for reinvestment of
dividends and distributions. Plan participants pay a pro rata share of brokerage commissions incurred
with respect to the Administrator’s open market purchases in connection with the reinvestment of dividends
or distributions.
The fund reserves the right to amend or terminate the Plan
as applied to any dividend or distribution paid subsequent to written notice of the change sent to Plan
participants at least 90 days before the record date for such dividend or distribution. The Plan also
may be amended or terminated by the Administrator on at least 90 days’ written notice to Plan participants.
Level
Distribution Policy
The fund’s dividend policy is to distribute substantially
all of its net investment income to its shareholders on a monthly basis. In order to provide shareholders
with a more consistent yield to the current trading price of shares of Common Stock of the fund, the
fund may at
43
ADDITIONAL
INFORMATION (Unaudited) (continued)
times pay out less than the entire amount of net investment income earned in any
particular month and may at times in any month pay out such accumulated but undistributed income in addition
to net investment income earned in that month. As a result, the dividends paid by the fund for any particular
month may be more or less than the amount of net investment income earned by the fund during such month.
Investment
Objective and Principal Investment Strategies
Investment Objective. The fund’s investment
objective is to seek to maximize current income exempt from federal income tax to the extent believed
by the Adviser to be consistent with the preservation of capital. The fund’s
investment objective is fundamental and may not be changed without the affirmative vote of the holders
of a majority (as defined in the Act) of the fund’s outstanding voting securities. No assurance can
be given that the fund will achieve its investment objective.
Fundamental
Investment Policy. The fund ordinary invests all of its net assets in municipal
obligations that provide income exempt from federal income tax, and has adopted a fundamental investment
policy to invest, under normal market conditions, at least 80% of its
net assets in municipal obligations. As with the fund’s investment objective, this investment policy
may not be changed without the affirmative vote of the holders of a majority (as defined in the Act)
of the fund’s outstanding voting securities.
Municipal obligations
are debt obligations issued by states, territories and possessions of the United States and the District
of Columbia and their political subdivisions, agencies and instrumentalities, or multi-state agencies
or authorities, that provide income exempt from federal income tax. Municipal obligations are classified
as general obligation bonds, revenue bonds and notes. General obligation bonds are secured by the issuer’s
pledge of its faith, credit and taxing power for the payment of principal and interest. Revenue bonds
are payable from the revenue derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source, but not from the general taxing
power. Notes are short term instruments which are obligations of the issuing municipalities or agencies
and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. The fund
may purchase floating and variable rate obligations, municipal derivatives, such as custodial receipt
programs created by financial intermediaries, tender option bonds, and participations in municipal obligations.
Non-Fundamental
Investment Policies. Under normal market conditions, the fund invests at least 80% of its net assets
in municipal obligations considered investment grade by Moody’s, S&P or Fitch or the unrated equivalent
as determined by the Adviser in the case of bonds, and in the two highest rating categories of Moody’s,
S&P or Fitch or the unrated equivalent as determined by the Adviser in the case of short term obligations
having or deemed to have maturities of less than one year. The fund may invest the remainder of its assets
in municipal obligations considered below investment grade by Moody’s, S&P and Fitch, including
those rated no lower than C, but it currently is the intention of the fund to invest such remainder of
its assets primarily in bonds rated no lower than Ba by Moody’s and BB by S&P and Fitch. Bonds
rated
44
below investment grade and short term obligations rated below the two highest
rating categories of Moody’s, S&P and Fitch will be purchased only if the Adviser determines that
the purchase is consistent with the fund’s investment objective. Investment grade bonds are those rated
in the four highest rating categories of Moody’s, S&P or Fitch. The fund also may invest in taxable
investments to the extent and of the quality described below. At least 65% of the value of the fund’s
net assets (except when maintaining a temporary defensive position) will be invested in bonds and debentures.
Under normal market conditions, the weighted average maturity of the fund’s
portfolio is expected to exceed ten years. The fund emphasizes investments in municipal obligations with
long term maturities, but the degree of such emphasis depends upon market conditions existing at the
time of investment. Under normal market conditions, long term municipal obligations generally provide
a higher yield than short term municipal obligations. The fund, however, may invest in short term municipal
obligations when their yields are greater than yields available on long term municipal obligations, for
temporary defensive purposes and after the closing of this offering as the fund selects longer term municipal
obligations to purchase for its portfolio.
From time to time, the fund may invest
more than 25% of the value of its total assets in industrial development bonds which, although issued
by industrial development authorities, may be backed only by the assets and revenues of the non-governmental
users. Interest on certain municipal obligations (including certain industrial development bonds) which
are specific private activity bonds, while exempt from federal income tax, is a preference item for the
purpose of the federal alternative minimum tax. If the fund, as a regulated investment company, receives
such interest, a proportionate share of any exempt-interest dividend paid by the fund will be treated
as a preference item to an investor. The fund may invest without limitation in such municipal obligations
if the Adviser determines that their purchase is consistent with the fund’s investment objective.
Taxable Investments and other Investment Techniques.
The
fund may employ, among others, the investment techniques described below. Use of certain of these techniques
may give rise to taxable income.
Temporary Investments. From time to time,
on a temporary basis other than for temporary defensive purposes (but not to exceed 20% of the fund’s
net assets) or for temporary defensive purposes without limitation, the fund may invest in taxable short
term investments (“Taxable Investments”) consisting of: notes of issuers having, at the time of purchase,
a quality rating within the two highest grades of Moody’s, S&P or Fitch; obligations of the U.S.
Government, its agencies or instrumentalities; commercial paper rated at least P-2 by Moody’s or at
least A-2 by S&P or Fitch; certificates of deposit of U.S. domestic banks, including foreign branches
of domestic banks, with assets of $1 billion or more; bankers’ acceptances; time deposits; and repurchase
agreements in respect of any of the foregoing. Dividends paid by the fund that are attributable to interest
earned from Taxable Investments will be taxable to investors. Under normal
45
ADDITIONAL
INFORMATION (Unaudited) (continued)
market conditions, the fund anticipates that not more than 5% of its total assets
will be invested in any of the foregoing categories of Taxable Investments.
When-Issued Securities.
New issues of municipal obligations usually are offered on a when-issued basis, which means that delivery
and payment for such municipal obligations normally take place within 45 days after the date of the commitment
to purchase. The payment obligation and the interest rate that will be received on the municipal obligations
are fixed at the time the buyer enters into the commitment. The fund will make commitments to purchase
such municipal obligations only with the intention of actually acquiring the securities, but the fund
may sell these securities before the settlement date if it is deemed advisable, although any gain realized
on such sale would be taxable. The fund will not accrue income with respect to a when-issued security
before its stated delivery date. No additional when-issued commitments will be made if more than 20%
of the fund’s net assets would be so committed.
Stand-By Commitments. The fund may acquire
“stand-by commitments” with respect to municipal obligations held in its portfolio. Under a stand-by
commitment the fund obligates a broker, dealer or bank to repurchase, at the fund’s option, specified
securities at a specified price and, in this respect, stand-by commitments are comparable to put options.
The exercise of a stand-by commitment, therefore, is subject to the ability of the seller to make payment
on demand. The fund will acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes. The fund anticipates that stand-by
commitments will be available from brokers, dealers and banks without the payment of any direct or indirect
consideration. The fund may pay for stand-by commitments if such action is deemed necessary, thus increasing
to a degree the cost of the underlying municipal obligation and similarly decreasing such security’s
yield to investors.
Use of Derivatives. The fund may invest in, or enter into, certain types of
derivatives, such as futures, options and swap transactions, including interest rate swaps, interest
rate locks, caps, collars and floors, for a variety of reasons, including to increase current income,
reduce fluctuations in net asset value and protect against a decline in the value of municipal obligations
held by the fund or an increase in the price of municipal obligations the fund proposes to purchase in
the future. The fund’s ability to engage in certain derivative transactions may be limited as a condition
to S&P’s “AAA” rating of the fund’s APS. The fund will limit its use of derivatives that
do not constitute municipal obligations to 20% of the its net assets.
The fund may purchase
call and put options and may write (i.e., sell) covered call and put option contracts
on specific municipal obligations. The fund generally would purchase these call options to protect the
fund from the issuer of the related municipal obligation redeeming, or other holder of the call option
from calling away, the municipal obligation before maturity. The sale by the fund of a call option it
owns on a specific municipal obligation could result in the receipt of taxable income by the fund.
A futures contract is an agreement between two parties to buy and sell a security
for a set price on a future date. These contracts are traded on exchanges, so that, in most
46
cases, either party can close out its position on the exchange for cash, without
delivering the security. An option on a futures contract gives the holder of the option the right to
buy from or sell to the writer of the option a position in a futures contract at a specified price on
or before a specified expiration date. The fund may invest in futures contracts and options on futures
contracts, including those with respect to interest rates, securities, and security indexes. The fund
may enter into futures contracts and options thereon in U.S. domestic markets. Futures contracts may
be based on various debt securities and securities indexes (such as the Municipal Bond Index traded on
the Chicago Board of Trade).
The fund may enter into interest rate swaps and interest rate
locks and purchase and sell interest rate caps, collars and floors. Swap transactions may be individually
negotiated and include exposure to a variety of different interest rates. Swaps involve two parties exchanging
a series of cash flows at specified intervals. In the case of an interest rate swap, the parties exchange
interest payments based upon an agreed upon principal amount (referred to as the “notional principal
amount”). Under the most basic scenario, Party A would pay a fixed rate on the notional principal amount
to Party B, which would pay a floating rate on the same notional principal amount to Party A. Swap agreements
can take many forms and are known by a variety of names.
In a typical cap or
floor agreement, one party agrees to make payments only under specified circumstances, usually in return
for payment of a fee by the other party. An interest rate collar combines elements of buying a cap and
selling a floor. In a typical interest rate lock transaction, if Party A desires to lock in a particular
interest rate on a given date it may enter into an agreement to pay, or receive a payment from, Party
B based on the yield of a reference index or security. At the maturity of the term of the agreement,
one party makes a payment to the other party as determined by the relative change in the yield of the
reference index or security. An interest rate lock transaction may be terminated prior to its stated
maturity date by calculating the payment due as of the termination date, which generally differs from
the make-whole provisions for an early termination of an interest rate swap transaction in which the
party terminating the swap early is required to give its counterparty the economic benefit of the transaction.
Depending on the circumstances, gains from a swap transaction will be treated
either as ordinary income or as short- or long-term capital gains. The fund currently intends to enter
into swap transactions on a “forward settlement” basis (settlement set out several months) and to
close-out such transactions before the settlement date. This methodology should result in there being
no exchange of income and, therefore, no taxable income to report. Any principal gain or loss at settlement
would be a capital gain or loss.
The fund is operated by the Adviser in
reliance on an exclusion, granted to operators of registered investment companies such as the fund, from
registration as a “commodity pool operator” with respect to the fund under the Commodity Exchange
Act (“CEA”) and, therefore is not subject to registration or regulation with respect to the fund
under the CEA. The fund may be limited in its ability to use commodity futures or options thereon, engage
in certain swap transactions or make certain other investments if the
47
ADDITIONAL
INFORMATION (Unaudited) (continued)
Adviser continues to claim the exclusion from the definition of “commodity pool
operator” with respect to the fund.
Inverse Floating Rate Securities. The fund may invest
in residual interest municipal obligations whose interest rates bear an inverse relationship to the interest
rate on another security or the value of an index (“inverse floaters”). An investment in inverse
floaters may involve greater risk than an investment in a fixed-rate bond. Because changes in the interest
rate on the other security or index inversely affect the residual interest paid on the inverse floater,
the value of an inverse floater is generally more volatile than that of a fixed-rate bond. Inverse floaters
have interest rate adjustment formulas which generally reduce or, in the extreme, eliminate the interest
paid to the fund when short term interest rates rise, and increase the interest paid to the fund when
short term interest rates fall. Inverse floaters have varying degrees of liquidity, and the market for
these securities is relatively volatile. These securities tend to underperform the market for fixed-rate
bonds in a rising interest rate environment, but tend to outperform the market for fixed-rate bonds when
interest rates decline. Shifts in long term interest rates may, however, alter this tendency. Although
volatile, inverse floaters typically offer the potential for yields exceeding the yields available on
fixed-rate bonds with comparable credit quality, coupon, call provisions and maturity. These securities
usually permit the investor to convert the floating-rate to a fixed- rate (normally adjusted downward),
and this optional conversion feature may provide a partial hedge against rising rates if exercised at
an opportune time.
Investments in Investment Companies. The fund may invest in securities of
other investment companies to the extent permitted under the Act.
Use of Leverage.
The fund utilizes leverage to seek to enhance the yield and net asset value of its Common Stock. These
objectives cannot be achieved in all interest rate environments. To leverage, the fund issues APS and
floating rate certificate securities, which pay dividends or interest at prevailing short-term interest
rates, and invests the proceeds in long-term municipal bonds. The interest earned on these investments
is paid to Common Shareholders in the form of dividends, and the value of these portfolio holdings is
reflected in the per share net asset value of the fund’s Common Stock. In order for either of these
forms of leverage to benefit Common Shareholders, the yield curve must be positively sloped: that is,
short-term interest rates must be lower than long-term interest rates. At the same time, a period of
generally declining interest rates will benefit Common Shareholders. If either of these conditions change
along with other factors that may have an effect on APS dividends or floating rate certificate securities,
then the risk of leveraging will begin to outweigh the benefits.
Principal Risk Factors
The fund is a diversified, closed-end management investment company designed primarily
as a long-term investment and not as a short-term trading vehicle. 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
48
objective. Different risks may be more significant at different times depending
on market conditions.
Municipal Obligations Risk. The amount of public information available
about municipal obligations is generally less than that for corporate equities or bonds. Special factors,
such as legislative changes, and state and local economic and business developments, may adversely affect
the yield and/or value of the fund’s investments in municipal obligations. Other factors include the
general conditions of the municipal obligations market, the size of the particular offering, and the
maturity of the obligation and the rating of the issue. The municipal obligations market can be susceptible
to increases in volatility and decreases in liquidity. Liquidity can decline unpredictably in response
to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity
may be caused by a rise in interest rates (or the expectation of a rise in interest rates), which are
at or near historic lows in the United States. During periods of reduced market liquidity, the fund may
not be able to readily sell municipal obligations at prices at or near their perceived value. Changes
in economic, business or political conditions relating to a particular municipal project, municipality,
or state, territory or possession of the United States in which the fund invests may have an impact on
the fund’s net asset value per share of Common Stock. A credit rating downgrade relating to, default
by, or insolvency or bankruptcy of, one or several municipal security issuers of a state, territory or
possession of the United States in which the fund invests could affect the market values and marketability
of many or all municipal securities of such state, territory or possession.
In
addition, the fund may invest up to 20% of its net assets in below investment grade municipal obligations.
Below investment grade municipal obligations (commonly referred to as “high yield” or “junk”
bonds) involve substantial risk of loss and are considered predominantly speculative with respect to
the issuer’s or obligor’s ability to pay interest and repay principal and are susceptible to default
or decline in market value due to adverse economic and business developments. The market values for high
yield municipal obligations tend to be very volatile, and those bonds are less liquid than investment
grade municipal obligations.
Because there is no established retail secondary market for
many of these municipal obligations, it may be anticipated that such obligations could be sold only to
a limited number of dealers or institutional investors. To the extent a secondary trading market for
these obligations does exist, it generally is not as liquid as the secondary market for higher-rated
municipal obligations. The lack of a liquid secondary market may have an adverse impact on market price
and yield and the fund’s ability to dispose of particular issues in response to a specific economic
event such as a deterioration in the creditworthiness of the issuer. The lack of a liquid secondary market
for certain municipal obligations also may make it more difficult for the fund to obtain accurate market
quotations for purposes of valuing the fund’s portfolio and calculating its net asset value. In such
cases, the Adviser’s judgment may play a greater role in valuation because less reliable, objective
data may be available.
49
ADDITIONAL
INFORMATION (Unaudited) (continued)
Call
Risk.
Some municipal obligations give the issuer the option to “call,” or prepay, the securities before
their maturity date. If interest rates fall, it is possible that issuers of callable bonds with high
interest coupons will call their bonds. If a call were exercised by the issuer of a bond held by the
fund during a period of declining interest rates, the fund is likely to replace such called bond with
a lower yielding bond. If that were to happen, it could decrease the fund’s distributions and possibly
could affect the market price of the Common Stock. Similar risks exist when the fund invests the proceeds
from matured, traded or prepaid bonds at market interest rates that are below the fund’s current earnings
rate. A decline in income could affect the market price or overall return of the Common Stock. During
periods of market illiquidity or rising interest rates, prices of “callable” issues are subject to
increased price fluctuation.
Credit Risk. Credit risk is the risk that one or more
municipal bonds in the fund’s portfolio will decline in price, or the issuer or obligor thereof will
fail to pay interest or repay principal when due, because the issuer or obligor experiences a decline
or there is a perception of a decline in its financial status. Below investment grade municipal obligations
involve greater credit risk than investment grade municipal obligations. In addition, sizable investments
by the fund in revenue obligations could involve an increased risk to the fund should any of the related
facilities experience financial difficulties.
Interest Rate Risk. Prices of municipal
obligations and other fixed-income securities tend to move inversely with changes in interest rates.
Typically, a rise in rates will adversely affect fixed-income securities and, accordingly, will cause
the value of the fund’s investments in these securities to decline. During periods of very low interest
rates, which occur from time to time due to market forces or actions of governments and/or their central
banks, including the Board of Governors of the Federal Reserve System in the U.S., the fund may be subject
to a greater risk of principal decline from rising interest rates. When interest rates fall, the values
of already-issued fixed-income securities generally rise. However, when interest rates fall, the fund’s
investments in new securities may be at lower yields and may reduce the fund’s income. The magnitude
of these fluctuations in the market price of fixed-income securities is generally greater for securities
with longer effective maturities and durations because such instruments do not mature, reset interest
rates or become callable for longer periods of time. The change in the value of a fixed-income security
or portfolio can be approximated by multiplying its duration by a change in interest rates. For example,
the market price of a fixed-income security with a duration of three years would be expected to decline
3% if interest rates rose 1%. Conversely, the market price of the same security would be expected to
increase 3% if interest rates fell 1%. Interest rates in the United States currently are at or near historic
lows due to market forces and actions of the Board of Governors of the Federal Reserve System in the
U.S., primarily in response to the novel coronavirus (COVID-19) pandemic and resultant market disruptions.
Changing interest rates, including rates that fall below zero, may have unpredictable effects on markets,
may result in heightened market volatility and may detract from fund performance.
50
Tax
Risk. To be tax-exempt, municipal obligations generally must meet certain regulatory
requirements. Although the fund will invest in municipal obligations that pay income that is exempt,
in the opinion of counsel to the issuer (or on the basis of other authority believed by the Adviser to
be reliable), from regular federal income tax, if any such municipal obligation fails to meet these regulatory
requirements, the income received by the fund from its investment in such obligations and distributed
by the fund to Common Shareholders will be taxable. Changes or proposed changes in federal tax laws may
cause the prices of municipal obligations to fall. In addition, the federal income tax treatment of payments
in respect of certain derivatives contracts is unclear. Common Shareholders may receive distributions
that are attributable to derivatives contracts that are treated as ordinary income for federal income
tax purposes
Liquidity Risk. When there is little or no active trading market for specific
types of securities, it can become more difficult to sell the securities in a timely manner at or near
their perceived value. In such a market, the value of such securities and the fund’s net asset value
per share of Common Stock may fall dramatically, even during periods of declining interest rates. Other
market developments can adversely affect fixed-income securities markets. Regulations and business practices,
for example, have led some financial intermediaries to curtail their capacity to engage in trading (i.e.,
“market making”) activities for certain fixed-income securities, which could have the potential to
decrease liquidity and increase volatility in the fixed-income securities markets. The secondary market
for certain municipal obligations tends to be less well developed or liquid than many other securities
markets, which may adversely affect the fund’s ability to sell such municipal obligations at attractive
prices. Investments that are illiquid or that trade in lower volumes may be more difficult to value.
Liquidity can decline unpredictably in response to overall economic conditions or credit tightening.
Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the
expectation of a rise in interest rates).
When-Issued Securities Risk. When purchasing a security
on a forward commitment basis, the fund assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations. Because the fund is not required to pay for these securities
until the delivery date, these risks are in addition to the risks associated with the fund’s other
investments. Securities purchased on a forward commitment, when-issued or delayed-delivery basis are
subject to changes in value (generally appreciating when interest rates decline and depreciating when
interest rates rise) based upon the public’s perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a forward commitment, when-issued
or delayed-delivery basis may expose the fund to risks because they may experience such fluctuations
prior to their actual delivery.
Use of Derivatives Risk. Derivatives can be
volatile and involve various types and degrees of risk, depending upon the characteristics of the particular
derivative and the portfolio as a whole. Derivatives may entail investment exposures that are greater
than their cost would suggest, meaning that a small investment in derivatives could have a large potential
impact on the fund’s performance. If the fund invests in derivatives at
51
ADDITIONAL
INFORMATION (Unaudited) (continued)
inopportune times or judges market conditions incorrectly, such investments may
lower the fund’s return or result in a loss. The fund also could experience losses if its derivatives
were poorly correlated with the underlying instruments or the fund’s other investments, or if the fund
were unable to liquidate its position because of an illiquid secondary market. The market for many derivatives
is, or suddenly can become, illiquid. Although the fund intends to purchase or sell futures contracts
or options only if there is an active market for such contracts or options, no assurance can be given
that a liquid market will exist for any particular contract or option at any particular time. Changes
in liquidity may result in significant, rapid and unpredictable changes in the prices for derivatives.
Additionally, some derivatives the fund may use may involve economic leverage, which may increase the
volatility of these instruments as they may increase or decrease in value more quickly than the underlying
security, index, futures contract, or other economic variable.
Derivatives may be
purchased on established exchanges or through privately negotiated transactions referred to as over-the-counter
derivatives. Exchange-traded derivatives, such as futures contracts and certain options, generally are
guaranteed by the clearing agency that is the issuer or counterparty to such derivatives. This guarantee
usually is supported by a daily variation margin system operated by the clearing agency in order to reduce
overall credit risk. As a result, unless the clearing agency defaults, there is relatively little counterparty
credit risk associated with derivatives purchased on an exchange. In contrast, no clearing agency guarantees
over-the-counter derivatives, including some options and most swap agreements, and, therefore, there
is a risk the counterparty will default. Accordingly, the Adviser will consider the creditworthiness
of counterparties to over-the-counter derivatives in the same manner as it would review the credit quality
of a security to be purchased by the fund. If there were a default by the other party to such transaction
the fund would have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency
or similar laws) pursuant to the agreement relating to the transaction. Over-the-counter derivatives
are less liquid than exchange-traded derivatives since the other party to the transaction may be the
only investor with sufficient understanding of the derivative to be interested in bidding for it. In
addition, mandatory margin requirements have been imposed on over-the-counter derivative instruments,
which will add to the costs of such transactions.
Options and futures contracts prices can
diverge from the prices of their underlying instruments. Options and futures contracts prices are affected
by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying
instrument, and the time remaining until expiration of the contract, which may not affect the prices
of the underlying instruments in the same way. Imperfect correlation may also result from differing levels
of demand in the options and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of daily price fluctuation limits
or trading halts. If price changes in the fund’s options or futures positions used for hedging purposes
are poorly correlated with the investments the fund is attempting to hedge, the options or futures positions
may fail to produce anticipated gains or result in losses that are not offset by gains in other investments.
52
Engaging in futures transactions involves risk of loss to the fund which could
adversely affect the fund’s net asset value. No assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made that day at a price beyond
that limit or trading may be suspended for specified periods during the trading day. Futures contract
prices could move to the limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially leading to substantial losses.
The use of interest rate swaps and caps is a highly specialized activity that
involves investment techniques and risks different from those associated with ordinary portfolio security
transactions. Depending on the state of interest rates in general, the fund’s use of interest rate
swaps or caps could enhance or harm the overall performance of the fund. To the extent there is a decline
in interest rates, the value of the interest rate swap or cap could decline, and could result in a decline
in the fund’s net asset value. In addition, if short-term interest rates are lower than the fund’s
rate of payment on the interest rate swap, this will reduce the performance of the fund. If, on the other
hand, short-term interest rates are higher than the fund’s rate of payment on the interest rate swap,
this will enhance the performance of the fund.
It is possible that developments in the derivatives markets,
including potential government regulation, could adversely affect the ability to terminate existing derivatives
positions or to realize amounts to be received in such transactions. In particular, prior to the recent
global financial crisis, the swaps market was largely an unregulated market. It is possible that developments
in the swaps market, including new regulatory requirements, could limit or prevent the fund’s ability
to utilize swap agreements or options on swaps as part of its investment strategy, terminate existing
swap agreements or realize amounts to be received under such agreements, which could negatively affect
the fund. In particular, the Dodd-Frank Act resulted in new clearing and exchange-trading requirements
for swaps and other over-the-counter derivatives. The Dodd-Frank Act also requires the Commodities Futures
Trading Commission (“CFTC”) and/or the SEC, in consultation with banking regulators, to establish
capital requirements for swap dealers and major swap participants as well as requirements for margin
on over-the-counter derivatives, including swaps. Many provisions of the Dodd-Frank Act have either already
been implemented through rulemaking by the CFTC and/or the SEC or must be implemented through future
rulemaking by those and other federal agencies, and all regulatory or legislative activity may not necessarily
have a direct, immediate effect upon the fund. However, compliance with these rules could potentially
limit or completely restrict the ability of the fund to use certain derivatives as a part of its investment
strategy, increase the cost of entering into derivatives transactions or require more assets of the fund
to be used for collateral in support of those derivatives than is currently the case. Limits or restrictions
applicable to the counterparties with which the fund engages in derivative transactions also could prevent
53
ADDITIONAL
INFORMATION (Unaudited) (continued)
the fund from using derivatives or affect the pricing or other factors relating
to these transactions, or may change the availability of certain derivatives.
Some derivatives may
involve leverage (e.g., an instrument linked to the value of a securities index
may return income calculated as a multiple of the price movement of the underlying index). This economic
leverage will increase the volatility of these instruments as they may increase or decrease in value
more quickly than the underlying security, index, futures contract, currency or other economic variable.
Currently, the fund may segregate permissible liquid assets, or engage in other measures approved by
the SEC or its staff, to “cover” the fund’s obligations relating to its transactions in derivatives.
Where permitted, by setting aside assets equal to only its net obligations under cash-settled derivatives,
the fund may employ leverage to a greater extent than if the fund were required to segregate assets equal
to the full notional value of such contracts. These coverage practices also might impair the fund’s
ability to sell a portfolio security, meet current obligations or make an investment at a time when it
would otherwise be favorable to do so, or require that the fund sell a portfolio security at a disadvantageous
time.
The SEC recently adopted Rule 18f-4 under the Act, which will
regulate the use of derivatives by the fund and is effective in August 2022. Under the new rule, the
fund may be required to establish a comprehensive derivatives risk management program, to comply with
certain value-at-risk based leverage limits, to appoint a derivatives risk manager and to provide additional
disclosure both publicly and to the SEC regarding its derivatives positions. Compliance with the new
rule by the fund could, among other things, make derivatives more costly, limit their availability or
utility or otherwise adversely affect their performance. The new rule may limit the fund’s ability
to use derivatives as part of its investment strategy. In addition, in connection with the adoption of
Rule 18f-4, the SEC also eliminated the asset segregation framework for covering derivatives and certain
financial instruments arising from SEC and staff guidance. As the fund transitions into reliance on Rule
18f-4, its approach to asset segregation and coverage requirements may be impacted.
Use of Leverage Risk.
Leverage is a speculative technique and there are special risks and costs associated with leveraging.
There is no assurance that leveraging strategy will be successful. Leverage involves risks and special
considerations for Common Shareholders, including: the likelihood of greater volatility of net asset
value, market price and dividend rate of Common Stock than a comparable portfolio without leverage; the
risk that fluctuations in the interest or dividend rates that the fund must pay on any leverage will
reduce the return to Common Shareholders; the effect of leverage in a declining market, which is likely
to cause a greater decline in the net asset value of Common Stock than if the fund were not leveraged,
which may result in a greater decline in the market price of Common Stock.
Market Risk.
The value of the securities in which the fund invests may be affected by political, regulatory, economic
and social developments, and developments that impact specific economic sectors, industries or segments
of the market. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or
fixed income markets
54
may negatively affect many issuers, which could adversely affect the fund. Global
economies and financial markets are becoming increasingly interconnected, and conditions and events in
one country, region or financial market may adversely impact issuers in a different country, region or
financial market. These risks may be magnified if certain events or developments adversely interrupt
the global supply chain; in these and other circumstances, such risks might affect companies worldwide.
Recent examples include pandemic risks related to COVID-19 and aggressive measures taken worldwide in
response by governments, including closing borders, restricting international and domestic travel, and
the imposition of prolonged quarantines of large populations, and by businesses, including changes to
operations and reducing staff. The effects of COVID-19 have contributed to increased volatility in global
markets and will likely affect certain countries, companies, industries and market sectors more dramatically
than others. The COVID-19 pandemic has had, and any other outbreak of an infectious disease or other
serious public health concern could have, a significant negative impact on economic and market conditions
and could trigger a prolonged period of global economic slowdown. To the extent the fund may overweight
its investments in certain countries, companies, industries or market sectors, such positions will increase
the fund’s exposure to risk of loss from adverse developments affecting those countries, companies,
industries or sectors.
Risk of Market Price Discount from Net Asset Value. Shares of closed-end
funds, such as the fund, 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. The fund cannot predict whether its Common Stock will trade at, above or below net asset
value.
Management Risk. The fund is subject to management risk because the Adviser
actively manages the fund. The Adviser and the fund’s portfolio managers will apply investment techniques
and risk analyses in making investment decisions for the fund, but there can be no guarantee that these
will produce the desired results.
Cybersecurity Risk. The fund and its service providers are
susceptible to operational and information security risks due to cybersecurity incidents. In general,
cybersecurity incidents can result from deliberate attacks or unintentional events. Cybersecurity attacks
include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking”
or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting
data or causing operational disruption. Cyber attacks also may be carried out in a manner that does not
require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts
to make services unavailable to intended users). Cybersecurity incidents affecting the Adviser or other
service providers, as well as financial intermediaries, have the ability to cause disruptions and impact
business operations, potentially resulting in financial losses, including by interference with the fund’s
ability to calculate its net asset value; impediments to trading for the fund’s portfolio; the inability
of Common Shareholders to transact business with the fund; violations of applicable privacy, data security
or other laws; regulatory fines and penalties; reputational damage; reimbursement or other
55
ADDITIONAL
INFORMATION (Unaudited) (continued)
compensation or remediation costs; legal fees; or additional compliance costs.
Similar adverse consequences could result from cybersecurity incidents affecting issuers of securities
in which the fund invests, counterparties with which the fund engages in transactions, governmental and
other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers,
insurance companies and other financial institutions and other parties. While information risk management
systems and business continuity plans have been developed which are designed to reduce the risks associated
with cybersecurity, there are inherent limitations in any cybersecurity risk management systems or business
continuity plans, including the possibility that certain risks have not been identified.
Given
the risks described above, an investment in Common Stock may not be appropriate for all investors. You
should carefully consider your ability to assume these risks before making an investment in the fund.
Recent
Changes
The following information in this annual report is a summary of certain changes
since November 30, 2020. This information may not reflect all of the changes that have occurred since
you purchased the fund.
The fund has updated its derivatives risk factor to reflect
certain risks associated with new Rule 18f-4 under the 1940 Act.
During the period ended
November 30, 2021, except as noted above, there were: (i) no material changes in the fund’s investment
objectives or policies that have not been approved by shareholders, (ii) no changes in the fund’s charter
or by-laws that would delay or prevent a change of control of the fund that have not been approved by
shareholders, (iii) no material changes to the principal risk factors associated with investment in the
fund, and (iv) no change in the persons primarily responsible for the day-to-day management of the fund’s
portfolio.
56
IMPORTANT
TAX INFORMATION (Unaudited)
In accordance with federal tax law, the fund hereby reports all the dividends
paid from investment income-net during its fiscal year ended November 30, 2021 as “exempt-interest
dividends” (not generally subject to regular federal income tax). Where required by federal tax law
rules, shareholders will receive notification of their portion of the fund’s taxable ordinary dividends
(if any), capital gains distributions (if any) and tax-exempt dividends paid for the 2021 calendar year
on Form 1099-DIV, which will be mailed in early 2022.
57
INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY
AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited)
At
a meeting of the fund’s Board of Directors held on November 1-2, 2021, the Board considered the renewal
of
the fund’s Investment Advisory Agreement and Administration Agreement, pursuant to which the Adviser
provides the fund with investment advisory services and administrative services (together, the “Agreement”),
and the Sub-Investment Advisory Agreement (together with the Agreement, the “Agreements”), pursuant
to which Insight North America LLC (the “Subadviser”) provides day-to-day management of the fund’s
investments. The Board members, none of whom are “interested persons” (as defined in the Investment
Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel
and met with counsel in executive session separate from representatives of the Adviser and the Subadviser.
In considering the renewal of the Agreements, the Board considered several factors that it believed to
be relevant, including those discussed below. The Board did not identify any one factor as dispositive,
and each Board member may have attributed different weights to the factors considered.
Analysis of Nature,
Extent, and Quality of Services Provided to the Fund. The Board considered information provided
to it at the meeting and in previous presentations from representatives of the Adviser regarding the
nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including
the fund. The Adviser noted that the fund is a closed-end fund without daily inflows and outflows of
capital and provided the fund’s asset size.
The Board also considered
research support available to, and portfolio management capabilities of, the fund’s portfolio management
personnel and that the Adviser also provides oversight of day-to-day fund operations, including fund
accounting and administration and assistance in meeting legal and regulatory requirements. The Board
also considered the Adviser’s extensive administrative, accounting and compliance infrastructures,
as well as the Adviser’s supervisory activities over the Subadviser.
Comparative Analysis
of the Fund’s Performance and Management Fee and Expense Ratio. The Board reviewed
reports prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider
of investment company data based on classifications provided by Thomson Reuters Lipper, which included
information comparing (1) the fund’s performance with the performance of a group of leveraged closed-end
general and insured municipal debt funds selected by Broadridge as comparable to the fund (the “Performance
Group”) and with a broader group of funds consisting of all leveraged closed-end general and insured
municipal debt funds (the “Performance Universe”), all for various periods ended September 30, 2021,
and (2) the fund’s actual and contractual management fees and total expenses with those of the same
group of funds in the Performance Group (the “Expense Group”) and with a broader group of funds consisting
of all leveraged closed-end general and insured municipal debt funds, excluding outliers (the “Expense
Universe”), the information for which was derived in part from fund financial statements available
to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a
58
description of the methodology Broadridge used to select the Performance Group
and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of
the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors,
including different investment limitations and policies and the extent and manner in which leverage is
employed that may be applicable to the fund and comparison funds and the end date selected. The Board
discussed with representatives of the Adviser and the Subadviser the results of the comparisons and considered
that the fund’s total return performance, on a net asset value basis, was below the Performance Group
and Performance Universe medians for all periods except the one-year period when it was above the Performance
Group and Performance Universe medians and the ten-year period when it was at the Performance Group median.
The Board also considered that the fund’s total return performance, on a market price basis, was below
the Performance Group and Performance Universe medians for all periods except the one-year period when
it was above the Performance Group and Performance Universe medians. The Board also considered that the
fund’s yield performance, on a net asset value basis, was at or above the Performance Group and Performance
Universe medians for nine of the ten one-year periods ended September 30th
and, on a market price basis, was at or above the Performance Group medians for all of the ten one-year
periods ended September 30th and above the Performance Universe medians
for nine of the ten one-year periods ended September 30th. The Board considered
the relative proximity of the fund’s performance to the relevant Performance Group and/or Performance
Universe medians in certain periods when performance was below median. The Adviser also provided a comparison
of the fund’s calendar year total returns, on a net asset value basis, to the returns of the fund’s
benchmark index, and it was noted that the fund’s returns were above the returns of the index in seven
of the ten calendar years shown.
Management Fee and Expense Ratio Comparisons. The Board reviewed
and considered the contractual management fee rate (i.e., the aggregate of
the investment advisory and administration fees pursuant to the Agreement) payable by the fund to the
Adviser in light of the nature, extent and quality of the management services and the sub-advisory services
provided by the Adviser and the Subadviser, respectively. In addition, the Board reviewed and considered
the actual management fee rate paid by the fund over the fund’s last fiscal year which included reductions
for a fee waiver arrangement in place that reduced the management fee paid to the Adviser. The Board
also reviewed the range of actual and contractual management fees and total expenses as a percentage
of average net assets of the Expense Group and Expense Universe funds and discussed the results of the
comparisons.
The Board considered that, based on common assets alone, the
fund’s contractual management fee was higher than the Expense Group median contractual management fee
and the fund’s actual management fee was lower than the Expense Group median and the Expense Universe
median actual management fee and the fund’s total expenses were lower than the Expense Group median
and the Expense Universe median total expenses. The Board also considered that, based on common and leveraged
assets
59
INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY
AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
together, the fund’s actual management fee was higher than the Expense Group
median and the Expense Universe median actual management fee and the fund’s total expenses were lower
than the Expense Group median and the Expense Universe median total expenses.
Representatives
of the Adviser stated that the Adviser has contractually agreed, until May 31, 2022, to waive receipt
of a portion of its management fee from the fund in the amount of .10% of the value of the fund’s average
weekly net assets (including net assets representing auction preferred stock outstanding).
Representatives
of the Adviser reviewed with the Board the contractual management fee paid by funds advised or administered
by the Adviser that are in the same Lipper category as the fund (the “Similar Funds”), and explained
the nature of the Similar Funds. They discussed differences in fees paid and the relationship of the
fees paid in light of any differences in the services provided and other relevant factors, noting that
the fund is a closed-end fund. The Board considered the relevance of the fee information provided for
the Similar Funds to evaluate the appropriateness of the fund’s management fee. Representatives of
the Adviser noted that there were no separate accounts and/or other types of client portfolios advised
by the Adviser or the Subadviser that are considered to have similar investment strategies and policies
as the fund.
The Board considered the fee payable to the Subadviser in
relation to the fee payable to the Adviser by the fund and the respective services provided by the Subadviser
and the Adviser. The Board also took into consideration that the Subadviser’s fee is paid by the Adviser,
out of its fee from the fund, and not the fund.
Analysis of Profitability and Economies of Scale.
Representatives of the Adviser reviewed the expenses allocated and profit received by the Adviser and
its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability
percentage to the Adviser and its affiliates for managing the funds in the BNY Mellon fund complex, and
the method used to determine the expenses and profit. The Board concluded that the profitability results
were not excessive, given the services rendered and service levels provided by the Adviser and its affiliates.
The Board also considered the fee waiver arrangement and its effect on the profitability of the Adviser
and its affiliates. The Board also had been provided with information prepared by an independent consulting
firm regarding the Adviser’s approach to allocating costs to, and determining the profitability of,
individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where
any economies of scale might emerge in connection with the management of a fund.
The
Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation
of whether the fees under the Agreements, considered in relation to the mix of services provided by the
Adviser and the Subadviser, including the nature, extent and quality of such services, supported the
renewal of the Agreements and (2) in light of the relevant circumstances for the fund and the extent
to which economies of scale would be realized if the fund grows and whether fee levels reflect these
economies of
60
scale for the benefit of fund shareholders. Since the Adviser, and not the fund,
pays the Subadviser pursuant to the Sub-Investment Advisory Agreement, the Board did not consider the
Subadviser’s profitability to be relevant to its deliberations. Representatives of the Adviser stated
that, because the fund is a closed-end fund without daily inflows and outflows of capital, there were
not significant economies of scale at this time to be realized by the Adviser in managing the fund’s
assets. Representatives of the Adviser also stated that, as a result of shared and allocated costs among
funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on
the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets
can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite
direction from, changes in the fund’s asset level. The Board also considered potential benefits to
the Adviser and the Subadviser from acting as investment adviser and sub-investment adviser, respectively,
and took into consideration that there were no soft dollar arrangements in effect for trading the fund’s
investments.
At the conclusion of these discussions, the Board agreed that
it had been furnished with sufficient information to make an informed business decision with respect
to the renewal of the Agreements. Based on the discussions and considerations as described above, the
Board concluded and determined as follows.
· The
Board concluded that the nature, extent and quality of the services provided by the Adviser and the Subadviser
are adequate and appropriate.
· The
Board generally was satisfied with the fund’s improved overall performance.
· The Board concluded that the fees paid to the Adviser and
the Subadviser continued to be appropriate under the circumstances and in light of the factors and the
totality of the services provided as discussed above.
· The Board determined that the economies of scale which may
accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately
considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement
and that, to the extent in the future it were determined that material economies of scale had not been
shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreements, the Board considered these conclusions and determinations
and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser
and its affiliates and the Subadviser, of the Adviser and the Subadviser and the services provided to
the fund by the Adviser and the Subadviser. The Board also relied on information received on a routine
and regular basis throughout the year relating to the operations of the fund and the investment management
and other services provided under the Agreements, including information on the investment performance
of the fund in comparison to similar funds and benchmark performance indices; general market outlook
as applicable to the fund; and
61
INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY
AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
compliance reports. In addition, the Board’s consideration of the contractual
fee arrangements for the fund had the benefit of a number of years of reviews of the Agreements for the
fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during
which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects
of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions
may be based, in part, on their consideration of the fund’s arrangements, or substantially similar
arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined
to renew the Agreements.
62
BOARD
MEMBERS INFORMATION (Unaudited)
Independent
Board Members
Joseph S. DiMartino (78)
Chairman
of the Board (1995)
Current term expires in 2024.
Principal
Occupation During Past 5 Years:
· Director
and Trustee of funds in the BNY Mellon Family of Funds and certain other entities (as described in the
fund’s Statement of Additional Information) (1995-Present)
Other Public Company
Board Memberships During Past 5 Years:
· CBIZ,
Inc., a public company providing professional business services, products and solutions, Director
(1997-Present)
No. of Portfolios for which Board Member Serves: 97
———————
Joni Evans (79)
Board Member (2006)
Current term expires in 2024.
Principal Occupation
During Past 5 Years:
· www.wowOwow.com,
an online community dedicated to women’s conversations and publications, Chief Executive Officer
(2007-2019)
· Joni
Evans Ltd. publishing, Principal (2006-2019)
No. of Portfolios for which Board Member
Serves: 18
———————
Joan
Gulley (74)
Board Member (2017)
Current
term expires in 2023.
Principal Occupation During Past 5 Years:
· Nantucket Atheneum, public library, Chair (2018-June 2021) and
Director
(2015-June 2021)
· Orchard
Island Club, golf and beach club, Governor (2016-Present)
No. of Portfolios for
which Board Member Serves: 42
———————
63
BOARD
MEMBERS INFORMATION (Unaudited) (continued)
Alan H. Howard (62)
Board Member (2018)
Current term expires in 2024.
Principal Occupation
During Past 5 Years:
· Heathcote
Advisors LLC, a financial advisory services firm, Managing Partner (2008-Present)
· Dynatech/MPX
Holdings LLC, a global supplier and service provider of military aircraft parts, President
(2012-2019); and Board Member of its two operating subsidiaries, Dynatech International
LLC and Military Parts Exchange LLC (2012-2019), including Chief Executive Officer of an operating subsidiary,
Dynatech International LLC (2013-2019)
· Rossoff
& Co., an independent investment banking firm, Senior Advisor (2013-June 2021)
Other Public Company Board Memberships During Past 5 Years:
· Movado Group, Inc., a public company that designs, sources,
markets and distributes watches, Director (1997-Present)
· Diamond Offshore Drilling, Inc., a public company that provides
contract drilling services, Director (March 2020-April 2021)
No. of Portfolios for
which Board Member Serves: 18
———————
Robin A. Melvin (58)
Board Member (1995)
Current term expires in 2022.
Principal Occupation
During Past 5 Years:
· Westover
School, a private girls’ boarding school in Middlebury, Connecticut, Trustee
(2019-Present)
· Mentor
Illinois, a non-profit organization dedicated to increasing the quality of mentoring services in Illinois.
Co-Chair
(2014–2020); Board Member, Mentor Illinois (2013-2020)
· JDRF, a non-profit juvenile diabetes research foundation,
Board
Member (June 2021-Present)
Other Public Company Board Memberships
During Past 5 Years:
· HPS
Corporate Lending Fund, a closed-end management investment company regulated as a business development
company, Trustee (August 2021-Present)
No. of Portfolios for
which Board Member Serves: 75
———————
Burton N. Wallack (71)
Board Member (2006)
Current term expires in 2023.
Principal Occupation
During Past 5 Years:
Wallack Management Company, a real estate management company,
President
and Co-owner (1987-Present)
Other Public Company Board Memberships
During Past 5 Years:
Mount Sinai Hospital Urology Board Member
(2017-Present)
No. of Portfolios for which Board Member Serves: 18
———————
64
Benaree Pratt Wiley (75)
Board Member (1998)
Current term expires in 2023.
Principal Occupation
During Past 5 Years:
· The
Wiley Group, a firm specializing in strategy and business development. Principal
(2005-Present)
Other Public Company Board Memberships During Past 5 Years:
· CBIZ,
Inc., a public company providing professional business services, products and solutions, Director
(2008-Present)
· Blue
Cross Blue Shield of Massachusetts Director (2004-2020)
No. of Portfolios for
which Board Member Serves: 63
———————
Gordon J. Davis (80)
Advisory Board Member (2021)
Principal Occupation During Past 5 Years:
· Venable LLP, a law firm Partner (2012-Present)
No. of Portfolios for which Advisory Board Member Serves: 41
———————
The address of the Board Members and Officers is c/o BNY Mellon Investment Adviser,
Inc. 240 Greenwich Street, New York, New York 10286.
William Hodding Carter III, Emeritus Board
Member
Ehud Houminer, Emeritus Board Member
Hans C. Mautner, Emeritus Board Member
65
OFFICERS
OF THE FUND (Unaudited)
DAVID
DIPETRILLO, President since January 2021.
Vice President and Director
of Adviser since February 2021; Head of North America Product, BNY Mellon Investment Management since
January 2018; Director of Product Strategy, BNY Mellon Investment Management from January 2016 to December
2017. He is an officer of 57 investment companies (comprised of 107 portfolios) managed by Adviser or
an affiliate of Adviser. He is 43 years old and has been an employee of BNY Mellon since 2005.
JAMES
WINDELS, Treasurer since November 2001.
Vice President of Adviser
since September 2020; Director–BNY Mellon Fund Administration, and an officer of 58 investment companies
(comprised of 129 portfolios) managed by Adviser or an affiliate of Adviser. He is 63 years old and has
been an employee of Adviser since April 1985.
PETER M. SULLIVAN, Chief Legal Officer since July 2021 and Vice
President and Assistant Secretary since March 2019.
Chief Legal Officer
of Adviser since July 2021; Associate General Counsel of BNY Mellon since July 2021; Senior Managing Counsel
of BNY Mellon from December 2020 to July 2021; Managing Counsel of BNY Mellon from March 2009 to December
2020, and an officer of 58 investment companies (comprised of 129 portfolios) managed by Adviser or an
affiliate of Adviser. He is 53 years old and has been an employee of BNY Mellon since April 2004.
JAMES
BITETTO, Vice President since August 2005 and Secretary since February 2018.
Senior
Managing Counsel of BNY Mellon since December 2019; Managing Counsel of BNY Mellon from April 2014 to
December 2019; Secretary of Adviser, and an officer of 58 investment companies (comprised of 129 portfolios)
managed by Adviser or an affiliate of Adviser. He is 55 years old and has been an employee of Adviser
since December 1996.
DEIRDRE CUNNANE, Vice President and Assistant Secretary since
March 2019.
Counsel of BNY Mellon since August 2018; Senior Regulatory
Specialist at BNY Mellon Investment Management Services from February 2016 to August 2018. She is an
officer of 58 investment companies (comprised of 129 portfolios) managed by Adviser or an affiliate of
Adviser. She is 31 years old and has been an employee of Adviser since August 2018.
SARAH S. KELLEHER, Vice
President and Assistant Secretary since April 2014.
Vice
President since February 2020 of BNY Mellon ETF Investment Adviser; LLC; Senior Managing Counsel of BNY
Mellon since September 2021; Managing Counsel from December 2017 to September 2021; Senior Counsel of
BNY Mellon from March 2013 to December 2017. She is an officer of 58 investment companies (comprised
of 129 portfolios) managed by Adviser or an affiliate of Adviser. She is 46 years old and has been an
employee of Adviser since March 2013.
JEFF PRUSNOFSKY, Vice President and Assistant Secretary since
August 2005.
Senior Managing Counsel of BNY Mellon, and an officer of 58
investment companies (comprised of 129 portfolios) managed by Adviser or an affiliate of Adviser. He
is 56 years old and has been an employee of Adviser since October 1990.
AMANDA QUINN, Vice President
and Assistant Secretary since March 2020.
Counsel of BNY Mellon
since June 2019; Regulatory Administration Manager at BNY Mellon Investment Management Services from
September 2018 to May 2019; Senior Regulatory Specialist at BNY Mellon Investment Management Services
from April 2015 to August 2018. She is an officer of 58 investment companies (comprised of 129 portfolios)
managed by Adviser or an affiliate of Adviser. She is 36 years old and has been an employee of Adviser
since June 2019.
NATALYA ZELENSKY, Vice President and Assistant Secretary since
March 2017.
Chief Compliance Officer since August 2021 and Vice President
since February 2020 of BNY Mellon ETF Investment Adviser, LLC; Chief Compliance Officer since August
2021 and Vice President and Assistant Secretary since February 2020 of BNY Mellon ETF Trust; Managing
Counsel from December 2019 to August 2021 of BNY Mellon; Counsel from May 2016 to December 2019 of BNY
Mellon; Assistant Secretary of Adviser from April 2018 to August 2021. She is an officer of 57 investment
companies (comprised of 128 portfolios) managed by Adviser or an affiliate of Adviser. She is 36 years
old and has been an employee of BNY Mellon since May 2016.
GAVIN C. REILLY, Assistant Treasurer since
December 2005.
Tax Manager–BNY Mellon Fund Administration, and an officer
of 58 investment companies (comprised of 129 portfolios) managed by Adviser or an affiliate of Adviser.
He is 53 years old and has been an employee of Adviser since April 1991.
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ROBERT
SALVIOLO, Assistant Treasurer since May 2007.
Senior Accounting Manager–BNY
Mellon Fund Administration, and an officer of 58 investment companies (comprised of 129 portfolios) managed
by Adviser or an affiliate of Adviser. He is 54 years old and has been an employee of Adviser since June
1989.
ROBERT
SVAGNA, Assistant Treasurer since August 2005.
Senior Accounting Manager–BNY
Mellon Fund Administration, and an officer of 58 investment companies (comprised of 129 portfolios) managed
by Adviser or an affiliate of Adviser. He is 54 years old and has been an employee of Adviser since November
1990.
JOSEPH
W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief
Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since 2004; Chief Compliance
Officer of Adviser from 2004 until June 2021. He is an officer of 57 investment companies (comprised
of 119 portfolios) managed by Adviser. He is 64 years old.
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