UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-05877
   
  BNY Mellon Strategic Municipal Bond Fund, Inc.  
  (Exact name of Registrant as specified in charter)  
     
 

 

c/o BNY Mellon Investment Adviser, Inc.

240 Greenwich Street

New York, New York 10286

 
  (Address of principal executive offices)        (Zip code)  
     
 

Deirdre Cunnane, Esq.

240 Greenwich Street

New York, New York 10286

 
  (Name and address of agent for service)  
 
Registrant's telephone number, including area code:   (212) 922-6400
   

Date of fiscal year end:

 

11/30  
Date of reporting period:

11/30/23

 

 

 

 
             

 

 

 
 

FORM N-CSR

Item 1. Reports to Stockholders.

 

BNY Mellon Strategic Municipal Bond Fund, Inc.

 

ANNUAL REPORT

November 30, 2023

 

 

 

BNY Mellon Strategic Municipal Bond Fund, Inc.

Protecting Your Privacy
Our Pledge to You

THE FUND IS COMMITTED TO YOUR PRIVACY. On this page, you will find the fund’s policies and practices for collecting, disclosing, and safeguarding “nonpublic personal information,” which may include financial or other customer information. These policies apply to individuals who purchase fund shares for personal, family, or household purposes, or have done so in the past. This notification replaces all previous statements of the fund’s consumer privacy policy, and may be amended at any time. We’ll keep you informed of changes as required by law.

YOUR ACCOUNT IS PROVIDED IN A SECURE ENVIRONMENT. The fund maintains physical, electronic and procedural safeguards that comply with federal regulations to guard nonpublic personal information. The fund’s agents and service providers have limited access to customer information based on their role in servicing your account.

THE FUND COLLECTS INFORMATION IN ORDER TO SERVICE AND ADMINISTER YOUR ACCOUNT. The fund collects a variety of nonpublic personal information, which may include:

 Information we receive from you, such as your name, address, and social security number.

 Information about your transactions with us, such as the purchase or sale of fund shares.

 Information we receive from agents and service providers, such as proxy voting information.

THE FUND DOES NOT SHARE NONPUBLIC PERSONAL INFORMATION WITH ANYONE, EXCEPT AS PERMITTED BY LAW.

Thank you for this opportunity to serve you.

 

The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds.

 

Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value

 

Contents

THE FUND

  

Discussion of Fund Performance

2

Fund Performance
and Distribution Information

5

Selected Information

8

Statement of Investments

9

Statement of Assets and Liabilities

28

Statement of Operations

29

Statement of Cash Flows

30

Statement of Changes in Net Assets

31

Financial Highlights

32

Notes to Financial Statements

34

Report of Independent Registered
Public Accounting Firm

44

Additional Information

45

Important Tax Information

55

Information About the Renewal of
the Fund’s Investment Advisory,
Administration and Sub-Investment
Advisory Agreements

56

Board Members Information

61

Officers of the Fund

64

Officers and Directors

69

FOR MORE INFORMATION

 

Back Cover

 
 

Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.im.bnymellon.com and sign up for eCommunications. It’s simple and only takes a few minutes.

 

DISCUSSION OF FUND PERFORMANCE (Unaudited)

For the period of December 1, 2022, through November 30, 2023, as provided by portfolio managers, Daniel Rabasco and Jeffrey Burger of Insight North America LLC, sub-investment adviser.

Fund and Market Performance Overview

For the 12-month period ended November 30, 2023, BNY Mellon Strategic Municipal Bond Fund, Inc. (the “fund”) achieved a total return of 2.88% on a net-asset-value basis and −4.48% on a market-price basis.1 Over the same period, the fund provided aggregate income dividends of $.248 per share, which reflect a distribution rate of 4.58%. In comparison, the Bloomberg U.S. Municipal Bond Index (the “Index”), the fund’s benchmark, posted a total return of 4.28% for the same period.2

During the reporting period, municipal bonds posted gains as inflation fears subsided, and interest-rate hikes eased. The fund’s performance was driven primarily by its security selection.

The Fund’s Investment Approach

The fund seeks to maximize current income exempt from federal income tax to the extent believed by BNY Mellon Investment Adviser, Inc. to be consistent with the preservation of capital. In pursuing this goal, the fund invests at least 80% of its assets in municipal bonds. Under normal market conditions, the weighted average maturity of the fund’s portfolio is expected to exceed 10 years. Under normal market conditions, the fund invests at least 80% of its net assets in municipal bonds considered investment grade or the unrated equivalent as determined by Insight North America LLC, the fund’s Sub-adviser.

The fund also has issued Variable Rate MuniFund Term Preferred Shares (“VMTPS”) and has invested the proceeds in a manner consistent with its investment objective. This, along with the fund’s participation in secondary, inverse-floater structures, has the effect of “leveraging” the portfolio, which can magnify gain-and-loss potential depending on market conditions.3,4

Over time, many of the fund’s older, higher-yielding bonds have matured or were redeemed by their issuers. We have attempted to replace those bonds with investments consistent with the fund’s investment policies. We have bought newly issued bonds that have better structural or income characteristics than previous holdings. When such opportunities arise, we usually look to sell bonds that are close to their optional redemption date or maturity.

Market Rebounds Late in the Period

The municipal bond market remained roughly flat through the first half of the reporting period, but the U.S. Federal Reserve’s (the “Fed”) rate hike in July 2023, a rise in inflation in August and the Fed’s reiteration of its “higher-for-longer” stance caused the market to decline. But the market rebounded strongly in November 2023 as investors increasingly began to anticipate the end of the Fed’s tightening cycle, capitalizing on attractive yields.

Early in the period, the municipal bond market experienced volatility driven by economic uncertainty, high inflation and geopolitical risk. While employment remained strong, the outcome of the Fed’s tightening policy was uncertain, with investors fearing that an economic slowdown was becoming more likely. The Fed raised the federal funds rates five times between December 1, 2022 and November 30, 2023, bringing the federal funds target rate from 3.75%–4.00% to 5.25%–5.50%. Though inflation eased during the period, it remained above the Fed’s 2% target rate.

2

 

Despite the rate increases, the U.S. economy surprised investors by continuing to avoid a long-anticipated recession. The economic growth of 2022 continued into 2023, expanding by 2.2% in the first quarter, 2.1% in the second quarter and 5.2% in the third quarter.

As a result of higher-than-expected inflation early in the period and the Fed’s efforts to combat it, municipal bond mutual funds experienced significant outflows through much of the reporting period. The need for fund managers to meet redemptions only added to the downward momentum. For a time, the stalemate in Congress over the federal debt ceiling also gave investors pause as the outcome appeared uncertain. Nevertheless, the normal seasonal decline in supply, combined with the seasonal reinvestment of maturing bonds, buoyed the market.

Finally, after a few difficult months, the municipal bond market rallied strongly in November 2023 as both institutional and retail investors increasingly recognized the market’s solid fundamentals and attractive yields. Historically, the municipal bond market has performed well when the Fed has ended a tightening cycle, and that appeared to be driving the market again. In addition, constrained supply and a flight to quality resulting from an uncertain geopolitical environment also provided support.

Security Selection Hindered Results

The fund’s performance was driven primarily by unfavorable security selection. Selection was particularly detrimental in the education, health care, industrial development, special tax and water & sewer sectors. Positions in Colorado Health, University of Chicago and certain Texas school districts were especially notable. An overweight position in continuing care retirement communities (“CCRCs”) also hampered relative returns.

On the other hand, the fund’s performance was helped by an overweight to revenue bonds, especially in the airport, prepaid gas and tobacco sectors. Strong selections in certain sectors were also advantageous, including in transportation, tobacco, housing, prepaid gas and public power. Leading contributors included California state general obligation bonds, Iowa tobacco bonds, New York transportation (LaGuardia Airport) and the Municipal Electric Authority of Georgia. The fund’s longer duration also produced a positive effect. The fund did not make use of derivatives during the period.

A Favorable Environment

A range of factors bode well for the municipal bond market. Historically, the market has performed well when the Fed has ended a rate-hiking cycle, and the market appears to be at that point again. The Fed opted not to raise rates late in 2023 as inflation continued to decline, and the Fed’s “dot plot” showing the future path of the federal funds rate indicates a reduction in rates could occur in mid-2024. Also favoring the market are the solid fundamentals, which have helped fuel the recent rebound. State and local issuers generally remain flush with cash, assisted by robust tax revenues stemming from a relatively strong economy and resilient residential real estate values. Finally, should the economy weaken in the near term, municipal bonds are likely to benefit if the stock market weakens.

As for the fund, we have positioned it to withstand a potential economic slowdown. While general obligation bonds are positively correlated with the economy, revenue bonds tend to be less cyclical. Accordingly, we remain well-diversified across the revenue bond sector and are positioned to benefit from its relative resilience if a downturn occurs. In that event, we also believe the market will benefit as investors again see the diversification advantages of an allocation to the municipal bond market. In addition to maintaining the fund’s duration and leverage, we will be looking to add yield, especially as opportunities arise among revenue bonds.

3

 

DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)

We will also be considering opportunities in longer bonds in order to capitalize on the likelihood of falling rates and produce a favorable total return.

December 15, 2023

1 Total return includes reinvestment of dividends and any capital gains paid, based upon net asset value per share or market price per share, as applicable. Past performance is no guarantee of future results. Market price per share, net asset value per share and investment return fluctuate. Income may be subject to state and local taxes, and some income may be subject to the federal alternative minimum tax (AMT) for certain investors. Capital gains, if any, are fully taxable. Return figures provided reflect the waiver of a portion of the management fee by BNY Mellon Investment Adviser, Inc. pursuant to an undertaking in effect through May 31, 2024, at which time it may be extended, terminated or modified. Had a portion of the management fee not been waived, the fund’s returns would have been lower.

2 Source: Lipper, Inc. ---The Bloomberg U.S. Municipal Bond Index (the “Index”) covers the U.S. dollar-denominated long-term tax-exempt bond market. Unlike a fund, the Index is not subject to fees and other expenses. Investors cannot invest directly in any index. Distribution rate per share is based upon dividends per share paid from net investment income during the period, annualized and divided by the market price per share at the end of the period, adjusted for any capital gain distributions.

3 VMTPS is a type of preferred stock where the dividends issued will vary with Securities Industry and Financial Markets Association Municipal Swap Index. The value of the dividend from the preferred share is set by a predetermined formula to move with rates.

4 The fund participates in secondary inverse floater structures in which fixed-rate, tax-exempt municipal bonds are transferred to a trust (the “Inverse Floater Trust”). The Inverse Floater Trust typically issues two variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds.

Bonds are subject generally to interest-rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.

High yield bonds are subject to increased credit risk and are considered speculative in terms of the issuer’s perceived ability to continue making interest payments on a timely basis and to repay principal upon maturity.

The use of leverage may magnify the fund’s gains or losses. For derivatives with a leveraging component, adverse changes in the value or level of the underlying asset can result in a loss that is much greater than the original investment in the derivative.

4

 

FUND PERFORMANCE (Unaudited)

Comparison of change in value of a $10,000 investment in BNY Mellon Strategic Municipal Bond Fund, Inc. with a hypothetical investment of $10,000 in the Bloomberg U.S. Municipal Bond Index (the “Index”).

 Source: Lipper Inc.

Past performance is not predictive of future performance.

The above graph compares a hypothetical $10,000 investment made in BNY Mellon Strategic Municipal Bond Fund, Inc. on 11/30/13 to a hypothetical investment of $10,000 made in the Index on that date. All figures for the fund are based on market price. All dividends and capital gain distributions are reinvested.

The fund invests primarily in municipal securities and its performance shown in the line graph takes into account fees and expenses. The Index covers the U.S. dollar-denominated long-term tax-exempt bond market. Unlike a fund, the Index is not subject to charges, fees and other expenses. Investors cannot invest directly in any index. Further information relating to fund performance, including expense reimbursements, if applicable, is contained in the Financial Highlights within this report and elsewhere in this report.

5

 

FUND PERFORMANCE (Unaudited) (continued)

    

Average Annual Total Returns as of 11/30/2023

 

1 Year

5 Years

10 Years

BNY Mellon Strategic Municipal Bond Fund, Inc.-Market Price

-4.48%

-.66%

2.54%

BNY Mellon Strategic Municipal Bond Fund, Inc.-Net Asset Value

2.88%

.84%

3.52%

Bloomberg U.S. Municipal Bond Index

4.28%

2.03%

2.77%

The performance data quoted represents past performance, which is no guarantee of future results. Share price and investment return fluctuate and an investor’s shares may be worth more or less than original cost upon sale of the shares. Current performance may be lower or higher than the performance quoted. Go to www.im.bnymellon.com for the fund’s most recent month-end returns.

The fund’s performance shown in the graph and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares.

6

 

DISTRIBUTION INFORMATION

The following information regarding the fund’s distributions is current as of November 30, 2023, the fund’s fiscal year end. The fund’s returns during the period were sufficient to meet fund distributions.

The fund’s distribution policy is intended to provide shareholders with stable, but not guaranteed, cash flow, independent of the amount or timing of income earned or capital gains realized by the fund. The fund intends to distribute all or substantially all of its net investment income through its regular monthly distribution and to distribute realized capital gains at least annually. In addition, in any monthly period, in order to try to maintain a level distribution amount, the fund may pay out more or less than its net investment income during the period. As a result, distributions sources may include net investment income, realized gains and return of capital. You should not draw any conclusions about the fund’s investment performance from the amount of the distribution or from the terms of the level distribution program. A return of capital is a non-taxable distribution of a portion of a fund’s capital. A return of capital distribution does not necessarily reflect a fund’s investment performance and should not be confused with “yield” or “income.”

The amounts and sources of distributions reported below are for financial reporting purposes and are not being provided for tax reporting purposes. The actual amounts and character of the distributions for tax reporting purposes will be reported to shareholders on Form 1099-DIV, which will be sent to shareholders shortly after calendar year-end. Because distribution source estimates are updated throughout the current fiscal year based on the fund’s performance, those estimates may differ from both the tax information reported to you in your fund’s 1099 statement, as well as the ultimate economic sources of distributions over the life of your investment. The figures in the table below provide the sources of distributions and may include amounts attributed to realized gains and/or returns of capital. 

        

Distributions

 

Current Month
Percentage of Distributions

Fiscal Year Ended
Per Share Amounts

 

Net Investment Income

Realized Gains

Return of Capital

Total Distributions

Net Investment Income

Realized Gains

Return of Capital

BNY Mellon Strategic Municipal Bond Fund, Inc.

100.00%

.00%

.00%

$.25

$.25

$.00

$.00

7

 

SELECTED INFORMATION

November 30, 2023 (Unaudited)

               

Market Price per share November 30, 2023

 

$ 5.41

  

Shares Outstanding November 30, 2023

 

49,428,691

  

New York Stock Exchange Ticker Symbol

 

DSM

  

MARKET PRICE (NEW YORK STOCK EXCHANGE)

 

 

 

Fiscal Year Ended November 30, 2023

 

 

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Ended

 

Ended

 

Ended

 

Ended

 

February 28, 2023

 

May 31, 2023

 

August 31, 2023

 

November 30, 2023

High

$6.12

 

$6.02

 

$5.77

 

$5.42

Low

5.63

 

5.50

 

5.37

 

4.72

Close

5.74

 

5.58

 

5.42

 

5.41

PERCENTAGE GAIN (LOSS) based on change in Market Price

November 22, 1989 (commencement of operations)

through November 30, 2023

375.41%

December 1, 2013 through November 30, 2023

28.45

December 1, 2018 through November 30, 2023

(3.24)

December 1, 2022 through November 30, 2023

(4.48)

March 1, 2023 through November 30, 2023

(2.59)

June 1, 2023 through November 30, 2023

(0.93)

September 1, 2023 through November 30, 2023

0.89

     

NET ASSET VALUE PER SHARE

 

November 22, 1989 (commencement of operations)

$9.32

November 30, 2022

6.57

February 28, 2023

  

6.51

May 31, 2023

6.54

August 31, 2023

6.39

November 30, 2023

6.47

PERCENTAGE GAIN (LOSS) based on change in Net Asset Value 

 

November 22, 1989 (commencement of operations)

through November 30, 2023

509.72%

December 1, 2013 though November 30, 2023

41.35

December 1, 2018 through November 30, 2023

4.25

December 1, 2022 through November 30, 2023

2.88

March 1, 2023 through November 30, 2023

2.66

June 1, 2023 through November 30, 2023

1.04

September 1, 2023 through November 30, 2023

2.28

With dividends reinvested.

 

8

 

STATEMENT OF INVESTMENTS

November 30, 2023

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8%

     

Alabama - 5.0%

     

Alabama Special Care Facilities Financing Authority, Revenue Bonds (Methodist Home for the Aging Obligated Group)

 

5.50

 

6/1/2030

 

1,800,000

 

1,706,794

 

Alabama Special Care Facilities Financing Authority, Revenue Bonds (Methodist Home for the Aging Obligated Group)

 

6.00

 

6/1/2050

 

2,710,000

 

2,283,015

 

Black Belt Energy Gas District, Revenue Bonds, Refunding (Gas Project) Ser. D1

 

5.50

 

2/1/2029

 

4,625,000

a 

4,851,668

 

Black Belt Energy Gas District, Revenue Bonds, Refunding, Ser. D1

 

4.00

 

6/1/2027

 

1,000,000

a 

995,626

 

Jefferson County, Revenue Bonds, Refunding, Ser. F

 

7.75

 

10/1/2046

 

6,000,000

 

6,309,967

 
 

16,147,070

 

Alaska - .8%

     

Northern Tobacco Securitization Corp., Revenue Bonds, Refunding, Ser. A

 

4.00

 

6/1/2050

 

2,900,000

 

2,570,084

 

Arizona - 5.6%

     

Arizona Industrial Development Authority, Revenue Bonds (Legacy Cares Project) Ser. A

 

7.75

 

7/1/2050

 

4,305,000

b,c 

258,300

 

Arizona Industrial Development Authority, Revenue Bonds (Sustainable Bond) (Equitable School Revolving Fund Obligated Group) Ser. A

 

4.00

 

11/1/2045

 

1,500,000

 

1,368,111

 

Arizona Industrial Development Authority, Revenue Bonds, Refunding (BASIS Schools Projects) Ser. A

 

5.25

 

7/1/2047

 

2,000,000

b 

1,864,374

 

Glendale Industrial Development Authority, Revenue Bonds, Refunding (Sun Health Services Obligated Group) Ser. A

 

5.00

 

11/15/2054

 

1,500,000

 

1,417,025

 

La Paz County Industrial Development Authority, Revenue Bonds (Harmony Public Schools) Ser. A

 

5.00

 

2/15/2048

 

1,550,000

 

1,460,849

 

Maricopa County Industrial Development Authority, Revenue Bonds, Refunding (Legacy Traditional Schools Project)

 

5.00

 

7/1/2049

 

1,775,000

b 

1,617,601

 

9

 

STATEMENT OF INVESTMENTS (continued)

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Arizona - 5.6% (continued)

     

Salt Verde Financial Corp., Revenue Bonds

 

5.00

 

12/1/2037

 

1,345,000

 

1,428,065

 

Tender Option Bond Trust Receipts (Series 2018-XF2537), (Salt Verde Financial Corporation, Revenue Bonds) Recourse, Underlying Coupon Rate 5.00%

 

7.07

 

12/1/2037

 

4,550,000

b,d,e 

4,830,963

 

The Phoenix Arizona Industrial Development Authority, Revenue Bonds (Legacy Traditional Schools Project) Ser. A

 

6.75

 

7/1/2044

 

1,000,000

b 

1,007,994

 

The Phoenix Arizona Industrial Development Authority, Revenue Bonds, Refunding (BASIS Schools Projects) Ser. A

 

5.00

 

7/1/2046

 

3,000,000

b 

2,713,873

 
 

17,967,155

 

Arkansas - .6%

     

Arkansas Development Finance Authority, Revenue Bonds (Sustainable Bond) (U.S. Steel Corp.)

 

5.70

 

5/1/2053

 

1,900,000

 

1,903,296

 

California - 7.7%

     

California Community Choice Financing Authority, Revenue Bonds (Sustainable Bond) (Clean Energy Project)

 

5.25

 

10/1/2031

 

1,500,000

a 

1,546,630

 

California Housing Finance Agency, Revenue Bonds, Ser. A

 

3.25

 

8/20/2036

 

1,647,744

 

1,513,563

 

California Municipal Finance Authority, Revenue Bonds (United Airlines Project)

 

4.00

 

7/15/2029

 

1,000,000

 

968,304

 

California Municipal Finance Authority, Revenue Bonds, Ser. A

 

4.00

 

2/1/2051

 

1,500,000

 

1,292,300

 

Golden State Tobacco Securitization Corp., Revenue Bonds, Refunding, Ser. B

 

5.00

 

6/1/2051

 

1,000,000

 

1,026,574

 

Jefferson Union High School District, COP (Teacher & Staff Housing Project) (Insured; Build America Mutual)

 

4.00

 

8/1/2055

 

1,500,000

 

1,450,659

 

San Diego County Regional Airport Authority, Revenue Bonds, Ser. B

 

5.00

 

7/1/2051

 

5,250,000

 

5,382,391

 

Tender Option Bond Trust Receipts (Series 2022-XF3024), (San Francisco City & County, Revenue Bonds, Refunding, Ser. A) Recourse, Underlying Coupon Rate 5.00%

 

8.59

 

5/1/2044

 

5,280,000

b,d,e 

5,413,381

 

10

 

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

California - 7.7% (continued)

     

Tender Option Bond Trust Receipts (Series 2023-XM1114), (Long Beach Finance Authority, Revenue Bonds) Non-recourse, Underlying Coupon Rate 4.00%

 

4.51

 

8/1/2053

 

6,400,000

b,d,e 

6,116,867

 
 

24,710,669

 

Colorado - 5.2%

     

Colorado Health Facilities Authority, Revenue Bonds (CommonSpirit Health Obligated Group)

 

5.25

 

11/1/2052

 

1,000,000

 

1,031,927

 

Colorado Health Facilities Authority, Revenue Bonds, Refunding (Covenant Living Communities & Services Obligated Group) Ser. A

 

4.00

 

12/1/2050

 

4,000,000

 

3,224,620

 

Colorado High Performance Transportation Enterprise, Revenue Bonds (C-470 Express Lanes System)

 

5.00

 

12/31/2056

 

1,000,000

 

995,149

 

Dominion Water & Sanitation District, Revenue Bonds, Refunding

 

5.88

 

12/1/2052

 

2,750,000

 

2,665,231

 

Tender Option Bond Trust Receipts (Series 2020-XM0829), (Colorado Health Facilities Authority, Revenue Bonds, Refunding (CommonSpirit Health Obligated Group) Ser. A1) Recourse, Underlying Coupon Rate 4.00%

 

7.50

 

8/1/2044

 

3,260,000

b,d,e 

3,561,418

 

Tender Option Bond Trust Receipts (Series 2023-XM1124), (Colorado Health Facilities Authority, Revenue Bonds (Adventist Health System/Sunbelt Obligated Group) Ser. A) Recourse, Underlying Coupon Rate 4.00%

 

4.67

 

11/15/2048

 

5,535,000

b,d,e 

5,139,287

 
 

16,617,632

 

Connecticut - .2%

     

Connecticut Housing Finance Authority, Revenue Bonds, Refunding, Ser. A1

 

3.65

 

11/15/2032

 

530,000

 

497,889

 

Delaware - 1.1%

     

Delaware Economic Development Authority, Revenue Bonds (ACTS Retirement-Life Communities Inc Obligated Group)

 

5.00

 

11/15/2048

 

3,700,000

 

3,508,051

 

11

 

STATEMENT OF INVESTMENTS (continued)

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

District of Columbia - .3%

     

Metropolitan Washington Airports Authority, Revenue Bonds, Refunding (Dulles Metrorail) Ser. B

 

4.00

 

10/1/2049

 

1,000,000

 

898,153

 

Florida - 6.6%

     

Atlantic Beach, Revenue Bonds (Fleet Landing Project) Ser. A

 

5.00

 

11/15/2053

 

2,500,000

 

2,135,786

 

Greater Orlando Aviation Authority, Revenue Bonds, Ser. A

 

4.00

 

10/1/2049

 

4,065,000

 

3,696,363

 

Hillsborough County Port District, Revenue Bonds (Tampa Port Authority Project) Ser. B

 

5.00

 

6/1/2046

 

2,500,000

 

2,514,549

 

Lee Memorial Health System, Revenue Bonds, Refunding, Ser. A1

 

4.00

 

4/1/2049

 

1,600,000

 

1,455,536

 

Palm Beach County Health Facilities Authority, Revenue Bonds (ACTS Retirement-Life Communities Obligated Group)

 

5.00

 

11/15/2045

 

2,075,000

 

1,994,746

 

Palm Beach County Health Facilities Authority, Revenue Bonds (Lifespace Communities Obligated Group) Ser. B

 

4.00

 

5/15/2053

 

2,000,000

 

1,252,340

 

Seminole County Industrial Development Authority, Revenue Bonds, Refunding (Legacy Pointe at UCF Project)

 

5.75

 

11/15/2054

 

1,000,000

 

769,246

 

Tender Option Bond Trust Receipts (Series 2023-XM1122), (Miami-Dade FL County Water & Sewer System, Revenue Bonds, Refunding, Ser. B) Recourse, Underlying Coupon Rate 4.00%

 

4.43

 

10/1/2049

 

7,500,000

b,d,e 

7,162,544

 
 

20,981,110

 

Georgia - 6.9%

     

Atlanta Water & Wastewater, Revenue Bonds (Proctor Creek Watershed) Ser. D

 

3.50

 

11/1/2028

 

500,000

b 

504,762

 

Georgia Municipal Electric Authority, Revenue Bonds (Plant Vogtle Units 3&4 Project) Ser. A

 

5.00

 

7/1/2052

 

2,500,000

 

2,551,326

 

Main Street Natural Gas, Revenue Bonds, Ser. A

 

5.00

 

6/1/2030

 

1,000,000

a 

1,033,088

 

12

 

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Georgia - 6.9% (continued)

     

Tender Option Bond Trust Receipts (Series 2016-XM0435), (Private Colleges & Universities Authority, Revenue Bonds, Refunding (Emory University)) Recourse, Underlying Coupon Rate 5.00%

 

8.45

 

10/1/2043

 

6,000,000

b,d,e 

6,000,937

 

Tender Option Bond Trust Receipts (Series 2020-XM0825), (Brookhaven Development Authority, Revenue Bonds (Children's Healthcare of Atlanta) Ser. A) Recourse, Underlying Coupon Rate 4.00%

 

5.94

 

7/1/2044

 

4,220,000

b,d,e 

4,397,309

 

Tender Option Bond Trust Receipts (Series 2023-XF3183), (Municipal Electric Authority of Georgia, Revenue Bonds (Plant Vogtle Units 3 & 4 Project) Ser. A) Recourse, Underlying Coupon Rate 5.00%

 

8.25

 

1/1/2059

 

2,720,000

b,d,e 

2,727,690

 

The Atlanta Development Authority, Revenue Bonds, Ser. A1

 

5.25

 

7/1/2040

 

1,000,000

 

1,017,261

 

The Burke County Development Authority, Revenue Bonds, Refunding (Oglethorpe Power Corp.) Ser. D

 

4.13

 

11/1/2045

 

4,200,000

 

3,676,612

 
 

21,908,985

 

Hawaii - 1.4%

     

Hawaii Airports System, Revenue Bonds, Ser. A

 

5.00

 

7/1/2047

 

2,500,000

 

2,594,814

 

Hawaii Department of Budget & Finance, Revenue Bonds, Refunding (Hawaiian Electric Co.)

 

4.00

 

3/1/2037

 

2,500,000

 

1,759,177

 
 

4,353,991

 

Illinois - 13.7%

     

Chicago Board of Education, GO, Refunding, Ser. A

 

5.00

 

12/1/2033

 

1,250,000

 

1,273,253

 

Chicago Board of Education, GO, Refunding, Ser. B

 

5.00

 

12/1/2031

 

500,000

 

512,855

 

Chicago Board of Education, GO, Refunding, Ser. B

 

5.00

 

12/1/2032

 

400,000

 

409,673

 

Chicago II, GO, Refunding, Ser. A

 

6.00

 

1/1/2038

 

3,000,000

 

3,123,637

 

Chicago II, GO, Ser. A

 

5.00

 

1/1/2044

 

3,000,000

 

3,023,941

 

Chicago II Wastewater Transmission, Revenue Bonds, Refunding, Ser. C

 

5.00

 

1/1/2039

 

2,330,000

 

2,334,976

 

Chicago Transit Authority, Revenue Bonds, Refunding, Ser. A

 

5.00

 

12/1/2057

 

1,000,000

 

1,000,761

 

13

 

STATEMENT OF INVESTMENTS (continued)

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Illinois - 13.7% (continued)

     

Chicago Transit Authority, Revenue Bonds, Refunding, Ser. A

 

5.00

 

12/1/2045

 

1,000,000

 

1,030,042

 

Illinois, GO, Ser. A

 

5.00

 

5/1/2038

 

2,850,000

 

2,956,566

 

Illinois, GO, Ser. B

 

5.00

 

11/1/2030

 

1,500,000

 

1,605,205

 

Illinois, GO, Ser. D

 

5.00

 

11/1/2028

 

3,000,000

 

3,177,960

 

Metropolitan Pier & Exposition Authority, Revenue Bonds (McCormick Place Expansion Project)

 

5.00

 

6/15/2057

 

2,500,000

 

2,519,153

 

Metropolitan Pier & Exposition Authority, Revenue Bonds (McCormick Place Project) (Insured; National Public Finance Guarantee Corp.) Ser. A

 

0.00

 

12/15/2036

 

2,500,000

f 

1,440,922

 

Sales Tax Securitization Corp., Revenue Bonds, Refunding, Ser. A

 

4.00

 

1/1/2039

 

2,250,000

 

2,233,273

 

Tender Option Bond Trust Receipts (Series 2017-XM0492), (Illinois Finance Authority, Revenue Bonds, Refunding (The University of Chicago)) Non-recourse, Underlying Coupon Rate 5.00%

 

8.32

 

4/1/2025

 

3,880,000

b,d,e 

3,948,891

 

Tender Option Bond Trust Receipts (Series 2023-XF1623), (Regional Transportation Authority Illinois, Revenue Bonds, Ser. B) Non-Recourse, Underlying Coupon Rate 4.00%

 

4.26

 

6/1/2048

 

2,625,000

b,d,e 

2,538,567

 

Tender Option Bond Trust Receipts (Series 2023-XM1112), (Chicago IL Water Works, Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) Ser. A) Non-recourse, Underlying Coupon Rate 5.25%

 

8.87

 

11/1/2053

 

10,000,000

b,d,e 

10,689,802

 
 

43,819,477

 

Indiana - 1.4%

     

Indiana Finance Authority, Revenue Bonds (Sustainable Bond)

 

7.00

 

3/1/2039

 

4,225,000

b 

3,088,917

 

Indianapolis Local Public Improvement Bond Bank, Revenue Bonds (Insured; Build America Mutual) Ser. F1

 

5.25

 

3/1/2067

 

1,250,000

 

1,295,403

 
 

4,384,320

 

Iowa - 1.5%

     

Iowa Finance Authority, Revenue Bonds, Refunding (Iowa Fertilizer Co. Project)

 

5.00

 

12/1/2050

 

2,195,000

 

2,166,172

 

14

 

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Iowa - 1.5% (continued)

     

Iowa Finance Authority, Revenue Bonds, Refunding (Lifespace Communities Obligated Group) Ser. A

 

4.00

 

5/15/2053

 

1,000,000

 

626,170

 

Iowa Student Loan Liquidity Corp., Revenue Bonds, Ser. B

 

5.00

 

12/1/2032

 

1,000,000

 

1,079,163

 

Iowa Tobacco Settlement Authority, Revenue Bonds, Refunding, Ser. B1

 

4.00

 

6/1/2049

 

815,000

 

792,127

 
 

4,663,632

 

Kentucky - 2.5%

     

Christian County, Revenue Bonds, Refunding (Jennie Stuart Medical Center Obligated Group)

 

5.50

 

2/1/2044

 

2,800,000

 

2,826,632

 

Kentucky Public Energy Authority, Revenue Bonds, Ser. A1

 

4.00

 

6/1/2025

 

2,560,000

a 

2,548,879

 

Kentucky Public Energy Authority, Revenue Bonds, Ser. A1

 

4.00

 

8/1/2030

 

2,680,000

a 

2,625,283

 
 

8,000,794

 

Louisiana - 3.6%

     

Louisiana Local Government Environmental Facilities & Community Development Authority, Revenue Bonds, Refunding (Westlake Chemical Project)

 

3.50

 

11/1/2032

 

2,400,000

 

2,233,749

 

New Orleans Aviation Board, Revenue Bonds (General Airport-N Terminal Project) Ser. A

 

5.00

 

1/1/2048

 

1,000,000

 

1,018,221

 

Tender Option Bond Trust Receipts (Series 2018-XF2584), (Louisiana Public Facilities Authority, Revenue Bonds (Franciscan Missionaries of Our Lady Health System Project)) Non-recourse, Underlying Coupon Rate 5.00%

 

8.16

 

7/1/2047

 

8,195,000

b,d,e 

8,243,499

 
 

11,495,469

 

Maryland - 3.4%

     

Maryland Economic Development Corp., Revenue Bonds (Sustainable Bond) Ser. B

 

5.25

 

6/30/2055

 

2,575,000

 

2,610,683

 

Maryland Health & Higher Educational Facilities Authority, Revenue Bonds (Adventist Healthcare Obligated Group) Ser. A

 

5.50

 

1/1/2046

 

3,250,000

 

3,282,333

 

15

 

STATEMENT OF INVESTMENTS (continued)

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Maryland - 3.4% (continued)

     

Maryland Health & Higher Educational Facilities Authority, Revenue Bonds, Refunding (Stevenson University Project)

 

4.00

 

6/1/2051

 

1,000,000

 

882,552

 

Tender Option Bond Trust Receipts (Series 2016-XM0391), (Mayor & City Council of Baltimore, Revenue Bonds, Refunding (Water Projects)) Non-recourse, Underlying Coupon Rate 5.00%

 

6.22

 

1/1/2024

 

4,000,000

b,d,e 

4,004,945

 
 

10,780,513

 

Massachusetts - 3.7%

     

Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Boston Medical Center Corp. Obligated Group)

 

5.25

 

7/1/2052

 

1,000,000

 

1,043,881

 

Massachusetts Development Finance Agency, Revenue Bonds, Refunding (UMass Memorial Health Care Obligated Group) Ser. K

 

5.00

 

7/1/2038

 

2,130,000

 

2,170,978

 

Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. A

 

5.00

 

7/1/2029

 

1,000,000

 

1,025,827

 

Massachusetts Educational Financing Authority, Revenue Bonds, Ser. B

 

5.00

 

7/1/2030

 

1,000,000

 

1,064,953

 

Tender Option Bond Trust Receipts (Series 2023-XF1604), (Massachusetts State Transportation Fund, Revenue Bonds, Ser. B) Non-recourse, Underlying Coupon Rate 5.00%

 

8.70

 

6/1/2053

 

6,000,000

b,d,e 

6,450,469

 
 

11,756,108

 

Michigan - 4.4%

     

Great Lakes Water Authority Sewage Disposal System, Revenue Bonds, Refunding, Ser. C

 

5.00

 

7/1/2036

 

2,000,000

 

2,056,308

 

Michigan Building Authority, Revenue Bonds, Refunding

 

4.00

 

10/15/2049

 

2,500,000

 

2,398,395

 

Michigan Finance Authority, Revenue Bonds, Refunding

 

4.00

 

4/15/2042

 

1,000,000

 

961,643

 

Michigan Finance Authority, Revenue Bonds, Refunding (Insured; National Public Finance Guarantee Corp.) Ser. D6

 

5.00

 

7/1/2036

 

1,000,000

 

1,004,485

 

16

 

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Michigan - 4.4% (continued)

     

Michigan Strategic Fund, Revenue Bonds (AMT-I-75 Improvement Project)

 

5.00

 

12/31/2043

 

5,000,000

 

5,052,219

 

Pontiac School District, GO (Insured; Qualified School Board Loan Fund)

 

4.00

 

5/1/2045

 

2,700,000

 

2,616,125

 
 

14,089,175

 

Minnesota - 1.2%

     

Duluth Economic Development Authority, Revenue Bonds, Refunding (Essentia Health Obligated Group) Ser. A

 

5.00

 

2/15/2058

 

4,000,000

 

3,968,411

 

Missouri - 4.5%

     

Missouri Health & Educational Facilities Authority, Revenue Bonds, Refunding (Lutheran Senior Services Projects)

 

5.00

 

2/1/2046

 

1,200,000

 

1,103,444

 

St. Louis Land Clearance for Redevelopment Authority, Revenue Bonds

 

5.13

 

6/1/2046

 

4,665,000

 

4,674,004

 

Tender Option Bond Trust Receipts (Series 2023-XM1116), (Jackson County Missouri Special Obligation, Revenue Bonds, Refunding, Ser. A) Non-recourse, Underlying Coupon Rate 4.25%

 

4.64

 

12/1/2053

 

6,000,000

b,d,e 

5,800,476

 

The Missouri Health & Educational Facilities Authority, Revenue Bonds (Lutheran Senior Services Projects) Ser. A

 

5.00

 

2/1/2042

 

1,000,000

 

946,254

 

The Missouri Health & Educational Facilities Authority, Revenue Bonds (Mercy Health)

 

4.00

 

6/1/2053

 

2,000,000

 

1,824,788

 
 

14,348,966

 

Multi-State - .6%

     

Federal Home Loan Mortgage Corp. Multifamily Variable Rate Certificates, Revenue Bonds, Ser. M048

 

3.15

 

1/15/2036

 

2,360,000

b 

2,020,430

 

Nevada - 2.3%

     

Clark County School District, GO (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

4.25

 

6/15/2041

 

2,770,000

 

2,833,516

 

Reno, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.)

 

4.00

 

6/1/2058

 

5,000,000

 

4,389,758

 
 

7,223,274

 

17

 

STATEMENT OF INVESTMENTS (continued)

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

New Hampshire - .9%

     

New Hampshire Business Finance Authority, Revenue Bonds (University of Nevada Reno Project) (Insured; Build America Mutual) Ser. A

 

5.25

 

6/1/2051

 

1,500,000

 

1,620,856

 

New Hampshire Business Finance Authority, Revenue Bonds, Refunding (Springpoint Senior Living Obligated Group)

 

4.00

 

1/1/2051

 

1,500,000

 

1,104,028

 
 

2,724,884

 

New Jersey - 6.4%

     

New Jersey Health Care Facilities Financing Authority, Revenue Bonds (RWJ Barnabas Health Obligated Group)

 

4.00

 

7/1/2051

 

1,250,000

 

1,190,550

 

New Jersey Housing & Mortgage Finance Agency, Revenue Bonds, Refunding, Ser. D

 

4.00

 

10/1/2024

 

2,170,000

 

2,170,251

 

New Jersey Transportation Trust Fund Authority, Revenue Bonds

 

5.00

 

6/15/2044

 

1,500,000

 

1,599,170

 

New Jersey Transportation Trust Fund Authority, Revenue Bonds

 

5.25

 

6/15/2043

 

1,500,000

 

1,573,348

 

New Jersey Transportation Trust Fund Authority, Revenue Bonds

 

5.50

 

6/15/2050

 

2,000,000

 

2,172,359

 

New Jersey Turnpike Authority, Revenue Bonds, Ser. A

 

4.00

 

1/1/2048

 

2,400,000

 

2,343,788

 

South Jersey Port Corp., Revenue Bonds, Ser. B

 

5.00

 

1/1/2042

 

2,025,000

 

2,060,330

 

Tender Option Bond Trust Receipts (Series 2018-XF2538), (New Jersey Economic Development Authority, Revenue Bonds) Recourse, Underlying Coupon Rate 5.25%

 

8.94

 

6/15/2040

 

4,250,000

b,d,e 

4,390,809

 

Tobacco Settlement Financing Corp., Revenue Bonds, Refunding, Ser. A

 

5.25

 

6/1/2046

 

1,500,000

 

1,530,010

 

Tobacco Settlement Financing Corp., Revenue Bonds, Refunding, Ser. B

 

5.00

 

6/1/2046

 

1,555,000

 

1,559,330

 
 

20,589,945

 

New York - 9.9%

     

New York Convention Center Development Corp., Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) Ser. B

 

0.00

 

11/15/2052

 

6,400,000

f 

1,425,548

 

New York Liberty Development Corp., Revenue Bonds, Refunding (Class 1-3 World Trade Center Project)

 

5.00

 

11/15/2044

 

3,400,000

b 

3,313,744

 

18

 

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

New York - 9.9% (continued)

     

New York State Dormitory Authority, Revenue Bonds, Refunding (Montefiore Obligated Group) Ser. A

 

4.00

 

9/1/2045

 

1,000,000

 

872,671

 

New York Transportation Development Corp., Revenue Bonds

 

5.63

 

4/1/2040

 

1,000,000

 

1,038,466

 

New York Transportation Development Corp., Revenue Bonds (JFK International Air Terminal)

 

5.00

 

12/1/2040

 

3,050,000

 

3,153,805

 

New York Transportation Development Corp., Revenue Bonds (LaGuardia Airport Terminal B Redevelopment Project) Ser. A

 

5.00

 

7/1/2046

 

3,000,000

 

2,974,033

 

New York Transportation Development Corp., Revenue Bonds (Sustainable Bond) (JFK International Airport Terminal One Project) (Insured; Assured Guaranty Municipal Corp.)

 

5.13

 

6/30/2060

 

1,000,000

 

1,007,132

 

New York Transportation Development Corp., Revenue Bonds, Refunding (JFK International Air Terminal) Ser. A

 

5.00

 

12/1/2035

 

1,100,000

 

1,157,252

 

Niagara Area Development Corp., Revenue Bonds, Refunding (Covanta Project) Ser. A

 

4.75

 

11/1/2042

 

1,000,000

b 

804,521

 

Tender Option Bond Trust Receipts (Series 2022-XM1004), (Metropolitan Transportation Authority, Revenue Bonds, Refunding (Sustainable Bond) (Insured; Assured Guaranty Municipal Corp.) Ser. C) Non-recourse, Underlying Coupon Rate 4.00%

 

4.16

 

11/15/2047

 

5,400,000

b,d,e 

5,038,170

 

Tender Option Bond Trust Receipts (Series 2023-XF1638), (New York City Transitional Finance Authority, Revenue Bonds, Ser. E1) Non-recourse, Underlying Coupon Rate 4.00%

 

4.34

 

2/1/2049

 

10,000,000

b,d,e 

9,666,286

 

19

 

STATEMENT OF INVESTMENTS (continued)

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

New York - 9.9% (continued)

     

Westchester County Local Development Corp., Revenue Bonds, Refunding (Purchase Senior Learning Community Obligated Group)

 

5.00

 

7/1/2046

 

1,650,000

b 

1,337,300

 
 

31,788,928

 

North Carolina - .9%

     

North Carolina Medical Care Commission, Revenue Bonds, Refunding (Lutheran Services for the Aging Obligated Group)

 

4.00

 

3/1/2051

 

2,000,000

 

1,342,558

 

North Carolina Turnpike Authority, Revenue Bonds (Insured; Assured Guaranty Municipal Corp.)

 

4.00

 

1/1/2055

 

1,500,000

 

1,399,275

 
 

2,741,833

 

Ohio - 3.3%

     

Buckeye Tobacco Settlement Financing Authority, Revenue Bonds, Refunding, Ser. B2

 

5.00

 

6/1/2055

 

9,350,000

 

8,261,116

 

Centerville, Revenue Bonds, Refunding (Graceworks Lutheran Services Obligated Group)

 

5.25

 

11/1/2047

 

1,500,000

 

1,296,711

 

Cuyahoga County, Revenue Bonds, Refunding (The MetroHealth System)

 

5.00

 

2/15/2052

 

1,000,000

 

993,086

 
 

10,550,913

 

Oklahoma - 3.0%

     

Tender Option Bond Trust Receipts (Series 2023-XF1572), (Oklahoma Water Resources Board State Loan Program, Revenue Bonds, Ser. B) Non-recourse, Underlying Coupon Rate 4.13%

 

4.89

 

10/1/2053

 

10,000,000

b,d,e 

9,599,390

 

Oregon - 1.3%

     

Medford Hospital Facilities Authority, Revenue Bonds, Refunding (Asante Project) Ser. A

 

4.00

 

8/15/2039

 

1,000,000

 

979,921

 

Port of Portland, Revenue Bonds, Refunding, Ser. 28

 

4.00

 

7/1/2047

 

2,720,000

 

2,504,096

 

Yamhill County Hospital Authority, Revenue Bonds, Refunding (Friendsview Retirement Community) Ser. A

 

5.00

 

11/15/2046

 

1,000,000

 

770,350

 
 

4,254,367

 

20

 

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Pennsylvania - 9.4%

     

Allentown School District, GO, Refunding (Insured; Build America Mutual) Ser. B

 

5.00

 

2/1/2031

 

1,510,000

 

1,627,466

 

Crawford County Hospital Authority, Revenue Bonds, Refunding (Meadville Medical Center Project) Ser. A

 

6.00

 

6/1/2046

 

1,000,000

 

1,010,922

 

Franklin County Industrial Development Authority, Revenue Bonds, Refunding (Menno-Haven Project)

 

5.00

 

12/1/2053

 

1,000,000

 

752,563

 

Pennsylvania Economic Development Financing Authority, Revenue Bonds

 

6.00

 

6/30/2061

 

2,000,000

 

2,197,960

 

Pennsylvania Economic Development Financing Authority, Revenue Bonds, Refunding (Presbyterian Senior Living)

 

4.00

 

7/1/2046

 

1,000,000

 

810,704

 

Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (University of Sciences in Philadelphia)

 

5.00

 

11/1/2033

 

2,805,000

 

2,851,200

 

Pennsylvania Turnpike Commission, Revenue Bonds, Ser. A

 

4.00

 

12/1/2050

 

1,500,000

 

1,408,461

 

Tender Option Bond Trust Receipts (Series 2022-XF1408), (Pennsylvania State Turnpike Commission, Revenue Bonds, Refunding, Ser. A) Non-recourse, Underlying Coupon Rate 4.00%

 

4.28

 

12/1/2051

 

10,000,000

b,d,e 

9,396,051

 

Tender Option Bond Trust Receipts (Series 2023-XF1525), (Pennsylvania Economic Development Financing Authority UPMC, Revenue Bonds, Ser. A) Recourse, Underlying Coupon Rate 4.00%

 

4.08

 

5/15/2053

 

3,440,000

b,d,e 

3,108,219

 

Tender Option Bond Trust Receipts (Series 2023-XM1133), (Philadelphia Water & Wastewater, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. B) Non-recourse, Underlying Coupon Rate 5.50%

 

10.48

 

9/1/2053

 

4,380,000

b,d,e 

4,868,097

 

The Philadelphia School District, GO (Insured; State Aid Withholding) Ser. A

 

4.00

 

9/1/2039

 

2,000,000

 

1,984,124

 
 

30,015,767

 

21

 

STATEMENT OF INVESTMENTS (continued)

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Rhode Island - 2.0%

     

Providence Public Building Authority, Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

5.00

 

9/15/2037

 

500,000

 

524,662

 

Tender Option Bond Trust Receipts (Series 2023-XM1117), (Rhode Island Infrastructure Bank State Revolving Fund, Revenue Bonds, Ser. A) Non-recourse, Underlying Coupon Rate 4.25%

 

4.91

 

10/1/2053

 

6,000,000

b,d,e 

5,916,439

 
 

6,441,101

 

South Carolina - 5.0%

     

South Carolina Jobs-Economic Development Authority, Revenue Bonds (Bishop Gadsden Episcopal Retirement Community Obligated Group)

 

5.00

 

4/1/2054

 

1,000,000

 

854,837

 

South Carolina Jobs-Economic Development Authority, Revenue Bonds, Refunding (Bon Secours Mercy Health)

 

4.00

 

12/1/2044

 

3,500,000

 

3,283,866

 

South Carolina Public Service Authority, Revenue Bonds, Refunding (Santee Cooper) Ser. A

 

4.00

 

12/1/2055

 

2,000,000

 

1,753,451

 

Tender Option Bond Trust Receipts (Series 2016-XM0384), (South Carolina Public Service Authority, Revenue Bonds, Refunding (Santee Cooper)) Non-recourse, Underlying Coupon Rate 5.13%

 

7.07

 

12/1/2043

 

10,200,000

b,d,e 

10,194,968

 
 

16,087,122

 

South Dakota - 1.0%

     

Tender Option Bond Trust Receipts (Series 2022-XF1409), (South Dakota Heath & Educational Facilities Authority, Revenue Bonds, Refunding (Avera Health Obligated Group)) Non-recourse, Underlying Coupon Rate 5.00%

 

8.84

 

7/1/2046

 

3,200,000

b,d,e 

3,229,718

 

Texas - 9.6%

     

Arlington Higher Education Finance Corp., Revenue Bonds (Uplift Education) (Insured; Permanent School Fund Guarantee Program) Ser. A

 

4.25

 

12/1/2048

 

1,500,000

 

1,431,219

 

Clifton Higher Education Finance Corp., Revenue Bonds (IDEA Public Schools) Ser. A

 

4.00

 

8/15/2051

 

2,000,000

 

1,621,688

 

22

 

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Texas - 9.6% (continued)

     

Clifton Higher Education Finance Corp., Revenue Bonds (International Leadership of Texas) Ser. A

 

5.75

 

8/15/2045

 

2,500,000

 

2,418,580

 

Clifton Higher Education Finance Corp., Revenue Bonds (International Leadership of Texas) Ser. D

 

6.13

 

8/15/2048

 

3,000,000

 

3,015,750

 

Clifton Higher Education Finance Corp., Revenue Bonds (Uplift Education) Ser. A

 

4.50

 

12/1/2044

 

2,500,000

 

2,327,631

 

Grand Parkway Transportation Corp., Revenue Bonds, Refunding

 

4.00

 

10/1/2049

 

2,000,000

 

1,931,234

 

Harris County-Houston Sports Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

0.00

 

11/15/2051

 

7,500,000

f 

1,733,065

 

Houston Airport System, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

4.50

 

7/1/2053

 

1,700,000

 

1,643,733

 

Houston Airport System, Revenue Bonds, Refunding, Ser. A

 

4.00

 

7/1/2046

 

1,000,000

 

919,624

 

Lamar Consolidated Independent School District, GO

 

4.00

 

2/15/2053

 

1,000,000

 

931,685

 

Love Field Airport Modernization Corp., Revenue Bonds (Southwest Airlines Co. Project)

 

5.00

 

11/1/2028

 

850,000

 

850,095

 

Mission Economic Development Corp., Revenue Bonds, Refunding (Natgasoline Project)

 

4.63

 

10/1/2031

 

1,000,000

b 

971,483

 

Tarrant County Cultural Education Facilities Finance Corp., Revenue Bonds (Baylor Scott & White Health Obligated Group)

 

5.00

 

11/15/2051

 

1,500,000

 

1,559,089

 

Tarrant County Cultural Education Facilities Finance Corp., Revenue Bonds, Refunding (MRC Stevenson Oaks Project)

 

6.75

 

11/15/2051

 

1,000,000

 

883,234

 

Tender Option Bond Trust Receipts (Series 2023-XM1125), (Medina Valley Independent School District, GO (Insured; Permanent School Fund Guarantee Program)) Non-recourse, Underlying Coupon Rate 4.00%

 

4.59

 

2/15/2053

 

6,000,000

b,d,e 

5,788,641

 

23

 

STATEMENT OF INVESTMENTS (continued)

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Texas - 9.6% (continued)

     

Texas Private Activity Bond Surface Transportation Corp., Revenue Bonds, Refunding (LBJ Infrastructure Group)

 

4.00

 

12/31/2039

 

1,345,000

 

1,315,873

 

Texas Private Activity Bond Surface Transportation Corp., Revenue Bonds, Refunding (LBJ Infrastructure Group)

 

4.00

 

6/30/2039

 

1,500,000

 

1,468,239

 
 

30,810,863

 

U.S. Related - 1.4%

     

Puerto Rico, GO, Ser. A

 

0.00

 

7/1/2024

 

35,840

f 

34,984

 

Puerto Rico, GO, Ser. A

 

0.00

 

7/1/2033

 

284,274

f 

173,422

 

Puerto Rico, GO, Ser. A1

 

4.00

 

7/1/2037

 

170,415

 

152,671

 

Puerto Rico, GO, Ser. A1

 

4.00

 

7/1/2041

 

231,699

 

200,637

 

Puerto Rico, GO, Ser. A1

 

4.00

 

7/1/2046

 

240,964

 

200,832

 

Puerto Rico, GO, Ser. A1

 

4.00

 

7/1/2035

 

198,557

 

182,081

 

Puerto Rico, GO, Ser. A1

 

4.00

 

7/1/2033

 

220,898

 

206,645

 

Puerto Rico, GO, Ser. A1

 

5.38

 

7/1/2025

 

246,018

 

250,371

 

Puerto Rico, GO, Ser. A1

 

5.63

 

7/1/2029

 

2,489,835

 

2,635,300

 

Puerto Rico, GO, Ser. A1

 

5.63

 

7/1/2027

 

243,790

 

254,791

 

Puerto Rico, GO, Ser. A1

 

5.75

 

7/1/2031

 

232,950

 

250,993

 
 

4,542,727

 

Utah - 1.7%

     

Salt Lake City, Revenue Bonds, Ser. A

 

5.00

 

7/1/2048

 

2,000,000

 

2,029,365

 

Salt Lake City, Revenue Bonds, Ser. A

 

5.00

 

7/1/2042

 

1,265,000

 

1,290,575

 

Utah Infrastructure Agency, Revenue Bonds, Refunding, Ser. A

 

5.00

 

10/15/2037

 

2,000,000

 

1,973,197

 
 

5,293,137

 

Virginia - 5.9%

     

Henrico County Economic Development Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.)

 

4.01

 

8/23/2027

 

3,200,000

d 

3,585,367

 

Tender Option Bond Trust Receipts (Series 2018-XM0593), (Hampton Roads Transportation Accountability Commission, Revenue Bonds) Non-recourse, Underlying Coupon Rate 5.50%

 

10.51

 

7/1/2057

 

7,500,000

b,d,e 

8,315,132

 

Virginia College Building Authority, Revenue Bonds (Green Bond) (Marymount University Project)

 

5.00

 

7/1/2045

 

1,000,000

b 

904,476

 

Virginia Small Business Financing Authority, Revenue Bonds (Transform 66 P3 Project)

 

5.00

 

12/31/2052

 

4,350,000

 

4,365,348

 

24

 

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Virginia - 5.9% (continued)

     

Virginia Small Business Financing Authority, Revenue Bonds, Refunding (95 Express Lanes)

 

4.00

 

1/1/2048

 

1,000,000

 

883,995

 

Williamsburg Economic Development Authority, Revenue Bonds (William & Mary Project) (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

4.13

 

7/1/2058

 

1,000,000

 

953,354

 
 

19,007,672

 

Washington - .3%

     

Washington Housing Finance Commission, Revenue Bonds, Refunding (Presbyterian Retirement Communities Northwest Obligated Group) Ser. A

 

5.00

 

1/1/2051

 

1,465,000

b 

1,090,146

 

Wisconsin - 3.6%

     

Public Finance Authority, Revenue Bonds (CHF - Wilmington) (Insured; Assured Guaranty Municipal Corp.)

 

5.00

 

7/1/2058

 

3,665,000

 

3,729,533

 

Public Finance Authority, Revenue Bonds (Cone Health) Ser. A

 

5.00

 

10/1/2052

 

1,000,000

 

1,037,989

 

Public Finance Authority, Revenue Bonds (EMU Campus Living) (Insured; Build America Mutual) Ser. A1

 

5.50

 

7/1/2052

 

1,500,000

 

1,627,260

 

Public Finance Authority, Revenue Bonds (EMU Campus Living) (Insured; Build America Mutual) Ser. A1

 

5.63

 

7/1/2055

 

1,650,000

 

1,803,092

 

Public Finance Authority, Revenue Bonds (Gannon University Project)

 

5.00

 

5/1/2042

 

750,000

 

730,440

 

Public Finance Authority, Revenue Bonds, Refunding (Mary's Woods at Marylhurst Project)

 

5.25

 

5/15/2042

 

750,000

b 

680,730

 

Wisconsin Health & Educational Facilities Authority, Revenue Bonds (Bellin Memorial Hospital Obligated Group)

 

5.50

 

12/1/2052

 

1,000,000

 

1,069,785

 

25

 

STATEMENT OF INVESTMENTS (continued)

          
 

Description

Coupon
Rate (%)

 

Maturity

Date

 

Principal

Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 149.8% (continued)

     

Wisconsin - 3.6% (continued)

     

Wisconsin Health & Educational Facilities Authority, Revenue Bonds, Refunding (St. Camillus Health System Obligated Group)

 

5.00

 

11/1/2046

 

1,250,000

 

974,902

 
 

11,653,731

 

Total Investments (cost $491,411,235)

 

149.8%

479,036,898

 

Liabilities, Less Cash and Receivables

 

(49.8%)

(159,288,077)

 

Net Assets Applicable to Common Stockholders

 

100.0%

319,748,821

 

a These securities have a put feature; the date shown represents the put date and the bond holder can take a specific action to retain the bond after the put date.

b Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At November 30, 2023, these securities were valued at $188,717,616 or 59.02% of net assets.

c Non-income producing—security in default.

d The Variable Rate is determined by the Remarketing Agent in its sole discretion based on prevailing market conditions and may, but need not, be established by reference to one or more financial indices.

e Collateral for floating rate borrowings. The coupon rate given represents the current interest rate for the inverse floating rate security.

f Security issued with a zero coupon. Income is recognized through the accretion of discount.

  

Portfolio Summary (Unaudited)

Value (%)

General

26.0

Medical

18.9

Water

17.9

Transportation

17.5

Education

12.3

Nursing Homes

11.4

Airport

10.9

Development

6.9

Power

6.5

General Obligation

5.8

School District

5.6

Tobacco Settlement

4.9

Housing

2.2

Multifamily Housing

1.1

Single Family Housing

.8

Student Loan

.7

Bond Bank

.4

 

149.8

 Based on net assets.

See notes to financial statements.

26

 

    
 

Summary of Abbreviations (Unaudited)

 

ABAG

Association of Bay Area Governments

AGC

ACE Guaranty Corporation

AGIC

Asset Guaranty Insurance Company

AMBAC

American Municipal Bond Assurance Corporation

BAN

Bond Anticipation Notes

BSBY

Bloomberg Short-Term Bank Yield Index

CIFG

CDC Ixis Financial Guaranty

COP

Certificate of Participation

CP

Commercial Paper

DRIVERS

Derivative Inverse Tax-Exempt Receipts

EFFR

Effective Federal Funds Rate

FGIC

Financial Guaranty Insurance Company

FHA

Federal Housing Administration

FHLB

Federal Home Loan Bank

FHLMC

Federal Home Loan Mortgage Corporation

FNMA

Federal National Mortgage Association

GAN

Grant Anticipation Notes

GIC

Guaranteed Investment Contract

GNMA

Government National Mortgage Association

GO

General Obligation

IDC

Industrial Development Corporation

LIBOR

London Interbank Offered Rate

LOC

Letter of Credit

LR

Lease Revenue

NAN

Note Anticipation Notes

MFHR

Multi-Family Housing Revenue

MFMR

Multi-Family Mortgage Revenue

MUNIPSA

Securities Industry and Financial Markets Association Municipal Swap Index Yield

OBFR

Overnight Bank Funding Rate

PILOT

Payment in Lieu of Taxes

PRIME

Prime Lending Rate

PUTTERS

Puttable Tax-Exempt Receipts

RAC

Revenue Anticipation Certificates

RAN

Revenue Anticipation Notes

RIB

Residual Interest Bonds

SFHR

Single Family Housing Revenue

SFMR

Single Family Mortgage Revenue

SOFR

Secured Overnight Financing Rate

TAN

Tax Anticipation Notes

TRAN

Tax and Revenue Anticipation Notes

TSFR

Term Secured Overnight
Financing Rate

U.S. T-BILL

U.S. Treasury Bill Money Market Yield

XLCA

XL Capital Assurance

VMTPS

Variable Rate MuniFund Term Preferred Shares

    

See notes to financial statements.

27

 

STATEMENT OF ASSETS AND LIABILITIES

November 30, 2023

       

 

 

 

 

 

 

 

 

 

 

Cost

 

Value

 

Assets ($):

 

 

 

 

Investments in securities—See Statement of Investments

491,411,235

 

479,036,898

 

Cash

 

 

 

 

722,872

 

Interest receivable

 

7,352,256

 

Prepaid expenses

 

 

 

 

24,065

 

 

 

 

 

 

487,136,091

 

Liabilities ($):

 

 

 

 

Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 2(b)

 

193,501

 

Payable for inverse floater notes issued—Note 3

 

113,555,000

 

VMTPS at liquidation value—Note 1 ($49,300,000 face amount, respectively,
report net of unamortized VMTPS deferred offering cost
of $247,614)—Note 1(g)

 

49,052,386

 

Payable for investment securities purchased

 

2,204,767

 

Interest and expense payable related to
inverse floater notes issued—Note 3

 

1,359,841

 

Dividends payable to Common Stockholders

 

889,716

 

Directors’ fees and expenses payable

 

23,036

 

Other accrued expenses

 

 

 

 

109,023

 

 

 

 

 

 

167,387,270

 

Net Assets Applicable to Common Stockholders ($)

 

 

319,748,821

 

Composition of Net Assets ($):

 

 

 

 

Common Stock, par value, $.001 per share
(49,428,691 shares issued and outstanding)

 

 

 

 

49,429

 

Paid-in capital

 

 

 

 

368,386,722

 

Total distributable earnings (loss)

 

 

 

 

(48,687,330)

 

Net Assets Applicable to Common Stockholders ($)

 

 

319,748,821

 

     

Shares Outstanding

 

 

(110 million shares authorized)

49,428,691

 

Net Asset Value Per Share of Common Stock ($)

 

6.47

 

 

 

 

 

 

See notes to financial statements.

 

 

  

 

28

 

STATEMENT OF OPERATIONS

Year Ended November 30, 2023

       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Income ($):

 

 

 

 

Interest Income

 

 

20,427,716

 

Expenses:

 

 

 

 

Management fee—Note 2(a)

 

 

1,847,026

 

Interest and expense related to inverse
floater notes issued—Note 3

 

 

4,205,348

 

Administration fee—Note 2(a)

 

 

923,513

 

VMTPS interest expense—Note 1(g)

 

 

874,893

 

Professional fees

 

 

110,111

 

Directors’ fees and expenses—Note 2(c)

 

 

59,874

 

Shareholders’ reports

 

 

56,957

 

Commission fees—Note 1 and Redemption
and Paying Agent fees—Note 2(b)

 

 

56,065

 

Registration fees

 

 

40,117

 

Amortization of VMTPS offering costs—Note 1(g)

 

 

33,221

 

Chief Compliance Officer fees—Note 2(b)

 

 

12,426

 

Shareholder servicing costs

 

 

5,184

 

Custodian fees—Note 2(b)

 

 

3,797

 

Miscellaneous

 

 

38,934

 

Total Expenses

 

 

8,267,466

 

Less—reduction in expenses due to undertaking—Note 2(a)

 

 

(369,405)

 

Less—reduction in fees due to earnings credits—Note 2(b)

 

 

(3,797)

 

Net Expenses

 

 

7,894,264

 

Net Investment Income

 

 

12,533,452

 

Realized and Unrealized Gain (Loss) on Investments—Note 3 ($):

 

 

Net realized gain (loss) on investments

(15,440,055)

 

Net change in unrealized appreciation (depreciation) on investments

11,997,957

 

Net Realized and Unrealized Gain (Loss) on Investments

 

 

(3,442,098)

 

Dividends to Preferred Stockholders

 

 

(1,747,418)

 

Net Increase in Net Assets Applicable to Common
Stockholders Resulting from Operations

 

7,343,936

 

 

 

 

 

 

 

 

See notes to financial statements.

     

29

 

STATEMENT OF CASH FLOWS

Year Ended November 30, 2023

       

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities ($):

 

 

 

 

 

Purchases of portfolio securities

 

(190,647,086)

 

 

 

Proceeds from sales of portfolio securities

195,071,451

 

 

 

Dividends paid to Preferred Stockholders

(1,768,134)

 

 

 

Interest income received

 

20,737,001

 

 

 

Interest and expense related to inverse floater notes issued

 

(3,710,854)

 

 

 

VMTPS interest expense

 

(874,893)

 

 

 

VMTPS offering costs paid

 

(280,835)

 

 

 

Expenses paid to BNY Mellon Investment
Adviser, Inc. and affiliates

 

(2,426,189)

 

 

 

Operating expenses paid

 

(395,706)

 

 

 

Net Cash Provided (or Used) in Operating Activities

 

 

 

15,704,755

 

Cash Flows from Financing Activities ($):

 

 

 

 

 

Net proceeds from VMTPS sold

 

49,300,000

 

 

 

Dividends paid to Common Stockholders

 

(12,456,029)

 

 

 

Cost of Auction Preferred Stock shares redeemed

(49,300,000)

 

 

 

Decrease in payable for inverse floater notes issued

 

(2,859,671)

 

 

 

Net Cash Provided (or Used) in Financing Activities

 

(15,315,700)

 

Net Increase (Decrease) in Cash

 

389,055

 

Cash at beginning of period

 

333,817

 

Cash at End of Period

 

722,872

 

Reconciliation of Net Increase (Decrease) in Net Assets Applicable to

 

 

 

 

Common Stockholders Resulting from Operations to

 

 

 

 

Net Cash Provided (or Used) in Operating Activities ($):

 

 

 

Net Increase in Net Assets Resulting From Operations

 

7,343,936

 

Adjustments to Reconcile Net Increase (Decrease) in Net Assets

 

 

 

 

Applicable to Common Stockholders Resulting from

 

 

 

 

Operations to Net Cash Provided (or Used) in Operating Activities ($):

 

 

 

Decrease in investments in securities at cost

 

17,659,653

 

Decrease in interest receivable

 

309,285

 

Increase in unamortization deferred VMTPS offering costs

 

(247,614)

 

Increase in prepaid expenses

 

(7,460)

 

Decrease in Due to BNY Mellon Investment Adviser, Inc. and affiliates

 

(2,629)

 

Increase in payable for investment securities purchased

 

2,204,767

 

Increase in interest and expense payable related to inverse floater notes issued

 

494,494

 

Decrease in dividends payable to Preferred Stockholders

 

(20,716)

 

Decrease in Directors' fees and expenses payable

 

(10,304)

 

Decrease in commissions payable and other accrued expenses

 

(20,700)

 

Net change in unrealized (appreciation) depreciation on investments

 

(11,997,957)

 

Net Cash Provided (or Used) in Operating Activities

 

15,704,755

 

 

 

 

 

 

 

 

See notes to financial statements.

     

30

 

STATEMENT OF CHANGES IN NET ASSETS

          

 

 

 

 

Year Ended November 30,

 

 

 

 

2023

 

2022

 

Operations ($):

 

 

 

 

 

 

 

 

Net investment income

 

 

12,533,452

 

 

 

16,503,441

 

Net realized gain (loss) on investments

 

(15,440,055)

 

 

 

(12,630,458)

 

Net change in unrealized appreciation
(depreciation) on investments

 

11,997,957

 

 

 

(75,322,418)

 

Dividends to Preferred Stockholders

 

 

(1,747,418)

 

 

 

(810,577)

 

Net Increase (Decrease) in Net Assets Applicable
to Common Stockholders Resulting from
Operations

7,343,936

 

 

 

(72,260,012)

 

Distributions ($):

 

Distributions to stockholders

 

 

(12,258,315)

 

 

 

(17,398,684)

 

Distributions to Common Stockholders

 

 

(12,258,315)

 

 

 

(17,398,684)

 

Capital Stock Transactions ($):

 

Net proceeds from VMTPS sold

49,300,000

 

 

 

-

 

Distributions reinvested

 

 

-

 

 

 

60,028

 

Cost of Auction Preferred Stock shares redeemed

(49,300,000)

 

 

 

-

 

Increase (Decrease) in Net Assets
from Capital Stock Transactions

-

 

 

 

60,028

 

Total Increase (Decrease) in Net Assets
Applicable to Common Stockholders

(4,914,379)

 

 

 

(89,598,668)

 

Net Assets Applicable to Common Stockholders ($):

 

Beginning of Period

 

 

324,663,200

 

 

 

414,261,868

 

End of Period

 

 

319,748,821

 

 

 

324,663,200

 

Capital Share Transactions (Common Shares):

 

Shares issued for distributions reinvested

 

 

-

 

 

 

7,180

 

Net Increase (Decrease) in Shares Outstanding

-

 

 

 

7,180

 

 

 

 

 

 

 

 

 

 

 

See notes to financial statements.

        

31

 

FINANCIAL HIGHLIGHTS

The following table describes the performance for the fiscal periods indicated. Market price total return is calculated assuming an initial investment made at the market price at the beginning of the period, reinvestment of all dividends and distributions at market price during the period, and sale at the market price on the last day of the period. These figures have been derived from the fund’s financial statements, and with respect to common stock, market price data for the fund’s common shares.

        
   
 

Year Ended November 30,

 

2023a

2022b

2021c

2020d

2019e

Per Share Data ($):

      

Net asset value, beginning of period

 

6.57

8.38

8.24

8.30

7.91

Investment Operations:

      

Net investment incomef

 

.25

.33

.37

.40

.41

Net realized and unrealized
gain (loss) on investments

 

(.06)

(1.77)

.13

(.09)

.43

Dividends to Preferred Stockholders
from net investment income

 

(.04)

(.02)

(.00)g

(.01)

(.03)

Total from Investment Operations

 

.15

(1.46)

.50

.30

.81

Distributions to Common Stockholders:

      

Dividends from net investment
income

 

(.25)

(.35)

(.36)

(.36)

(.42)

Net asset value, end of period

 

6.47

6.57

8.38

8.24

8.30

Market value, end of period

 

5.41

5.92

8.24

7.66

8.19

Market Price Total Return (%)

 

(4.48)

(24.21)

12.46

(1.87)

21.12

32

 

        
   
 

Year Ended November 30,

 

2023a

2022b

2021c

2020d

2019e

Ratios/Supplemental Data (%):

      

Ratio of total expenses to
average net assets

 

2.58

1.54

1.20

1.56

1.86

Ratio of net expenses to
average net assets

 

2.47

1.43

1.09

1.44

1.75

Ratio of interest and expense related to
inverse floater notes issued, VMTPS
interest expense to average net assets

 

1.59

.56

.25

.60

.90

Ratio of net investment income to
average net assets

 

3.92

4.64

4.39

4.98

5.05

Portfolio Turnover Rate

 

34.88

30.58

9.10

26.56

41.28

Asset Coverage of VMTPS and Preferred Stock, end of period

 

749

759

940

926

932

Net Assets, applicable to
Common Stockholders,
end of period ($ x 1,000)

 

319,749

324,663

414,262

407,089

409,972

VMTPS and Preferred Stock Outstanding,
end of period ($ x 1,000)

 

49,300

49,300

49,300

49,300

49,300

Floating Rate Notes Outstanding,
end of period ($ x 1,000)

 

113,555

116,415

138,705

152,185

182,074

a The ratios based on total average net assets including equity to Preferred Stockholders are as follows: total expense ratio of 2.36%, a net expense ratio of 2.25%, an interest expense related to floating rate notes issued ratio of 1.45% and a net investment income of 3.58%.

b The ratios based on total average net assets including equity to Preferred Stockholders are as follows: total expense ratio of 1.35%, a net expense ratio of 1.25%, an interest expense related to floating rate notes issued ratio of .49% and a net investment income of 4.07%.

c The ratios based on total average net assets including equity to Preferred Stockholders are as follows: total expense ratio of 1.07%, a net expense ratio of .97%, an interest expense related to floating rate notes issued ratio of .23% and a net investment income of 3.92%.

d The ratios based on total average net assets including equity to Preferred Stockholders are as follows: total expense ratio of 1.38%, a net expense ratio of 1.28%, an interest expense related to floating rate notes issued ratio of .53% and a net investment income of 4.43%.

e The ratios based on total average net assets including equity to Preferred Stockholders are as follows: total expense ratio of 1.66%, a net expense ratio of 1.56%, an interest expense related to floating rate notes issued ratio of .80% and a net investment income of 4.50%

f Based on average common shares outstanding.

g Amount represents less than $.01 per share.

See notes to financial statements.

33

 

NOTES TO FINANCIAL STATEMENTS

NOTE 1—Significant Accounting Policies:

BNY Mellon Strategic Municipal Bond Fund, Inc. (the “fund”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), is a diversified closed-end management investment company. The fund’s investment objective is to seek to maximize current income exempt from federal income tax to the extent consistent with the preservation of capital. BNY Mellon Investment Adviser, Inc. (the “Adviser”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. Insight North America LLC (the “Sub-Adviser”), an indirect wholly-owned subsidiary of BNY Mellon and an affiliate of the Adviser, serves as the fund’s sub-adviser. The fund’s Common Stock trades on the New York Stock Exchange (the “NYSE”) under the ticker symbol DSM.

Prior to July 12, 2023, the fund had outstanding 698 Series A shares, 662 Series B shares and 612 series C shares for a total of 1,972 shares of Auction Preferred Stock (“APS”), with a liquidation preference of $25,000 per share (plus an amount equal to accumulated but unpaid dividends upon liquidation). APS dividend rates were determined pursuant to periodic auctions or by reference to a market rate. Deutsche Bank Trust Company America, was the Auction Agent, which received a fee from the fund for its services in connection with such auctions. The fund had also compensated broker-dealers generally at an annual rate of .15%-.25% of the purchase price of shares of APS.

On July 12, 2023 (the “VMTP Shares Effective Date”), the fund announced the successful redemption of APS and the sale of $49,300,000 of Variable Rate MuniFund Term Preferred Shares (“VMTPS”) to a qualified institutional buyer (as defined in Rule 144A under the Securities Act), pursuant to an offering exempt from registration under the Securities Act.

The fund has outstanding 1,972 shares of VMTPS. As with the APS, the fund is subject to certain restrictions relating to the VMTPS. Failure to comply with these restrictions could preclude the fund from declaring any distributions to holders of the fund’s Common Stock (“Common Stockholders”) or repurchasing shares of Common Stock and/or could trigger the mandatory redemption of VMTPS at their liquidation value (i.e., $25,000 per share). Thus, redemptions of VMTPS may be deemed to be outside of the control of the fund.

The VMTPS have a mandatory redemption date of July 14, 2053, and are subject to an initial early redemption date of July 13, 2026, subject to the option of the holders to retain the VMTPS. VMTPS that are neither

34

 

retained by the holder nor successfully remarketed by the early redemption date will be redeemed by the fund.

As of the VMTPS Effective Date, the fund entered into a Redemption and Paying Agent Agreement with The Bank of New York Mellon with respect to the VMTPS. Under the Redemption and Paying Agreement, The Bank of New York Mellon provides certain transfer agency and payment services with respect to the VMTPS for the fund.

The holders of VMTPS, voting as a separate class, have the right to elect at least two directors. The holders of VMTPS will vote as a separate class on certain other matters, as required by law. The same directors that were designated for election by holders of the APS are designated for election by holders of VMTPS. The fund’s Board of Directors (the “Board”) has designated Joni Evans and Robin A. Melvin as directors to be elected by the holders of VMTPS.

Dividends on VMTPS are normally declared daily and paid monthly. The Dividend Rate on the VMTPS is, except as otherwise provided, equal to the rate per annum that results from the sum of (1) the Index Rate plus (2) the Applicable Spread as determined for the VMTPS on the Rate Determination Date immediately preceding such Subsequent Rate Period plus (3) the Failed Remarketing Spread (all defined terms as defined in the fund’s articles supplementary).

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-Investment Companies. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.

The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown. The fund does not anticipate recognizing any loss related to these arrangements.

(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement

35

 

NOTES TO FINANCIAL STATEMENTS (continued)

date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.

Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:

Level 1—unadjusted quoted prices in active markets for identical investments.

Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).

Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:

The Board has designated the Adviser as the fund’s valuation designee to make all fair value determinations with respect to the fund’s portfolio investments, subject to the Board’s oversight and pursuant to Rule 2a-5 under the Act.

Investments in municipal securities are valued each business day by an independent pricing service (the “Service”) approved by the Board. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Municipal investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on

36

 

methods which include consideration of the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. The Service is engaged under the general oversight of the Board. All of the preceding securities are generally categorized within Level 2 of the fair value hierarchy.

When market quotations or official closing prices are not readily available, or are determined not to accurately reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. These securities are either categorized within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.

For securities where observable inputs are limited, assumptions about market activity and risk are used and such securities are generally categorized within Level 3 of the fair value hierarchy.

The following is a summary of the inputs used as of November 30, 2023 in valuing the fund’s investments:

       
 

Level 1-Unadjusted Quoted Prices

Level 2- Other Significant Observable Inputs

 

Level 3-Significant Unobservable Inputs

Total

 

Assets ($) 

  

Investments in Securities:

  

Municipal Securities

-

479,036,898

 

-

479,036,898

 

Liabilities ($)

  

Other Financial Instruments:

  

Inverse Floater Notes††

-

(113,555,000)

 

-

(113,555,000)

 

VMTPS††

-

(49,300,000)

 

-

(49,300,000)

 

 See Statement of Investments for additional detailed categorizations, if any.

†† Certain of the fund’s liabilities are held at carrying amount, which approximates fair value for financial reporting purposes.

(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses

37

 

NOTES TO FINANCIAL STATEMENTS (continued)

from securities transactions are recorded on the identified cost basis. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed delivery basis may be settled a month or more after the trade date.

(c) 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. The value of a security may also decline due to general market conditions that are not specifically related to a particular company or industry, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, changes to inflation, adverse changes to credit markets or adverse investor sentiment generally.

Additional Information section within this annual report provides more details about the fund’s principal risk factors.

(d) Dividends and distributions to Common Stockholders: Dividends and distributions are recorded on the ex-dividend date. Dividends from net investment income are normally declared and paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.

Common Stockholders will have their distributions reinvested in additional shares of the fund, unless such Common Stockholders elect to receive cash, at the lower of the market price or net asset value per share (but not less than 95% of the market price). 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, Computershare Inc., the transfer agent for the fund’s Common Stock, will buy fund shares in the open market and reinvest those shares accordingly.

On November 29, 2023, the Board declared a cash dividend of $.018 per share from net investment income, payable on December 29, 2023 to Common Stockholders of record as of the close of business on December 14, 2023. The ex-dividend date was December 13, 2023.

38

 

(e) Dividends and distributions to stockholders of APS: Prior to July 12, 2023, dividends, which were cumulative, were generally reset every seven days for each series of APS pursuant to a process specified in related fund charter documents. These rates reflected the “maximum rates” under the governing instruments as a result of “failed auctions” in which sufficient clearing bids were not received. The average dividend rates for the period ended July 10, 2023 for each series of APS were as follows: Series A-5.774%, Series B-5.849% and Series C-5.866%. During the period ended November 30, 2023, Dividends to Preferred Stockholders paid was $1,747,418 which is in Statement of Operations and Statement of Changes In Net Assets.

Dividends to stockholders of VMTPS: Dividends on VMTPS are normally declared daily and paid monthly. The Dividend Rate on the VMTPS is, except as otherwise provided, equal to the rate per annum that results from the sum of (1) the Index Rate plus (2) the Applicable Spread as determined for the VMTPS on the Rate Determination Date immediately preceding such Subsequent Rate Period plus (3) the Failed Remarketing Spread. The Applicable Rate of the VMTPS was equal to the sum of .95% per annum plus the Securities Industry and Financial Markets Association Municipal Swap Index rate of 3.30% on November 30, 2023. The dividend rate as of November 30, 2023 for the VMTPS was 4.25% (all terms as defined in the fund’s articles supplementary).

(f) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax-exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.

As of and during the period ended November 30, 2023, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended November 30, 2023, the fund did not incur any interest or penalties.

Each tax year in the four-year period ended November 30, 2023 remains subject to examination by the Internal Revenue Service and state taxing authorities.

At November 30, 2023, the components of accumulated earnings on a tax basis were as follows: undistributed tax-exempt income $986,655, accumulated capital losses $36,720,085 and unrealized depreciation $12,064,184.

39

 

NOTES TO FINANCIAL STATEMENTS (continued)

The fund is permitted to carry forward capital losses for an unlimited period. Furthermore, capital loss carryovers retain their character as either short-term or long-term capital losses.

The accumulated capital loss carryover is available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to November 30, 2023. The fund has $16,199,661 of short-term capital losses and $20,520,424 of long-term capital losses which can be carried forward for an unlimited period.

The tax character of distributions paid to Common Stockholders during the fiscal years ended November 30, 2023 and November 30, 2022 were as follows: tax-exempt income $14,005,733 and $18,209,261, respectively.

(g) VMTPS: The fund’s VMTPS aggregate liquidation preference is shown as a liability since they have a stated mandatory redemption date of July 14, 2053. Dividends paid on VMTPS are treated as interest expense and recorded on the accrual basis. Costs directly related to the issuance of the VMTPS are considered debt issuance costs which have been deferred and are being amortized into expense over 36 months from VMTP Shares Effective Date.

During the period ended November 30, 2023, the fund was charged $874,893 for VMTPS interest expense. These fees are included in VMTPS interest expense in the Statement of Operations.

The average amount of borrowings outstanding for the VMTPS from July 12, 2023 through November 30, 2023 was approximately $49,300,000, with a related weighted average annualized interest rate of 4.59%.

NOTE 2—Management Fee, Sub-Advisory Fee, Administration Fee, and Other Transactions with Affiliates:

(a) Pursuant to an investment advisory agreement with the Adviser, the management fee is computed at the annual rate of .50% of the value of the fund’s average weekly net assets (including, net assets representing APS outstanding until July 11, 2023 and, effective July 12, 2023, liabilities representing VMTPS outstanding) and is payable monthly. The fund also has an administration agreement with the Adviser and a custody agreement with The Bank of New York Mellon (the “Custodian”), a subsidiary of BNY Mellon and an affiliate of the Adviser. The fund pays in the aggregate for administration, custody and transfer agency services, a monthly fee based on an annual rate of .25% of the value of the fund’s average weekly net assets (including, net assets representing APS outstanding until July 11, 2023 and, effective July 12, 2023, liabilities representing VMTPS

40

 

outstanding). All out-of-pocket transfer agency and custody expenses, including custody transaction expenses, are paid separately by the fund.

The Adviser has undertaken, from December 1, 2022 through May 31, 2024, to waive receipt of a portion of the fund’s management fee, in the amount of .10% of the value of the fund’s average weekly net assets (including, net assets representing APS outstanding until July 11, 2023 and, effective July 12, 2023, liabilities representing VMTPS outstanding). The reduction in expenses, pursuant to the undertaking, amounted to $369,405 during the period ended November 30, 2023.

Pursuant to a sub-investment advisory agreement between the Adviser and the Sub-Adviser, the Adviser pays the Sub-Adviser a monthly fee at an annual rate of .24% of the value of the fund’s average weekly net assets (including, net assets representing APS outstanding until July 11, 2023 and, effective July 12, 2023, liabilities representing VMTPS outstanding).

(b) The fund has an arrangement with the Custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset Custodian fees. For financial reporting purposes, the fund includes custody net earnings credits as an expense offset in the Statement of Operations.

The fund compensates the Custodian, under a custody agreement, for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended November 30, 2023, the fund was charged $3,797 pursuant to the custody agreement. These fees were offset by earnings credits of $3,797.

The fund compensates The Bank of New York Mellon under a Redemption and Paying Agent Agreement for providing certain transfer agency and payment services with respect to the VMTPS. During the period ended November 30, 2023, the fund was charged $10,000 for the services provided by the Redemption and Paying Agent (the “Redemption and Payment Agent”).

During the period ended November 30, 2023, the fund was charged $12,426 for services performed by the fund’s Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.

The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: management fee of $145,309, Administration fee of $72,654, the Redemption and Paying Agent fees of $2,500 and Chief Compliance Officer fees of $2,063,

41

 

NOTES TO FINANCIAL STATEMENTS (continued)

which are offset against an expense reimbursement currently in effect in the amount of $29,025.

(c) Each board member also serves as a board member of other funds in the BNY Mellon Family of Funds complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.

NOTE 3—Securities Transactions:

The aggregate amount of purchases and sales (including paydowns) of investment securities, excluding short-term securities, during the period ended November 30, 2023, amounted to $129,481,759 and $127,040,352, respectively.

Inverse Floater Securities: The fund participates in secondary inverse floater structures in which fixed-rate, tax-exempt municipal bonds are transferred to a trust (the “Inverse Floater Trust”). The Inverse Floater Trust typically issues two variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One of these variable rate securities pays interest based on a short-term floating rate set by a remarketing agent at predetermined intervals (“Trust Certificates”). A residual interest tax-exempt security is also created by the Inverse Floater Trust, which is transferred to the fund, and is paid interest based on the remaining cash flows of the Inverse Floater Trust, after payment of interest on the other securities and various expenses of the Inverse Floater Trust. An Inverse Floater Trust may be collapsed without the consent of the fund due to certain termination events such as bankruptcy, default or other credit event.

The fund accounts for the transfer of bonds to the Inverse Floater Trust as secured borrowings, with the securities transferred remaining in the fund’s investments, and the Trust Certificates reflected as fund liabilities in the Statement of Assets and Liabilities.

The fund may invest in inverse floater securities on either a non-recourse or recourse basis. These securities are typically supported by a liquidity facility provided by a bank or other financial institution (the “Liquidity Provider”) that allows the holders of the Trust Certificates to tender their certificates in exchange for payment from the Liquidity Provider of par plus accrued interest on any business day prior to a termination event. When the fund invests in inverse floater securities on a non-recourse basis, the Liquidity Provider is required to make a payment under the liquidity facility due to a termination event to the holders of the Trust Certificates. When this occurs, the Liquidity Provider typically liquidates all or a portion of the municipal securities held in the Inverse Floater Trust. A liquidation shortfall occurs if the Trust Certificates exceed the proceeds of the sale of

42

 

the bonds in the Inverse Floater Trust (“Liquidation Shortfall”). When a fund invests in inverse floater securities on a recourse basis, the fund typically enters into a reimbursement agreement with the Liquidity Provider where the fund is required to repay the Liquidity Provider the amount of any Liquidation Shortfall. As a result, a fund investing in a recourse inverse floater security bears the risk of loss with respect to any Liquidation Shortfall.

The average amount of borrowings outstanding under the inverse floater structure during the period ended November 30, 2023 was approximately $106,309,311, with a related weighted average annualized interest rate of 3.96%.

At November 30, 2023, the cost of investments for federal income tax purposes was $377,546,082; accordingly, accumulated net unrealized depreciation on investments was $12,064,184, consisting of $9,738,838 gross unrealized appreciation and $21,803,022 gross unrealized depreciation.

43

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of BNY Mellon Strategic Municipal Bond Fund, Inc.

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, 2023, 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, 2023, 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, 2023, by correspondence with the custodian, brokers and others; when replies were not received from brokers and others, we performed other auditing procedures. 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 22, 2024

44

 

ADDITIONAL INFORMATION (Unaudited)

Dividend Reinvestment Plan

Under the fund’s Dividend Reinvestment Plan (the “Plan”), a Common Stockholder 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 Stockholder 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 Stockholder 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 Stockholder 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 Stockholder’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 Stockholder 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

45

 

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 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 ordinarily invests all of its net assets in municipal obligations that provide income exempt from federal personal 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 Sub-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 Sub-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

46

 

primarily in bonds rated no lower than Ba by Moody’s and BB by S&P and Fitch. Bonds rated 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 Sub-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 and for temporary defensive purposes.

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 Sub-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

47

 

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 35 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.

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

48

 

downward), and this optional conversion feature may provide a partial hedge against rising rates if exercised at an opportune time.

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 issued VMTPS and issues 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 Stockholders 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 Stockholders, 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 Stockholders. If either of these conditions change along with other factors that may have an effect on VMTPS 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 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). 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.

49

 

ADDITIONAL INFORMATION (Unaudited) (continued)

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 Sub-Adviser’s judgment may play a greater role in valuation because less reliable, objective data may be available.

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. A wide variety of market factors can cause

50

 

interest rates to rise, including central bank monetary policy, rising inflation and changes in general economic conditions. 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, however, have been rising and are expected to continue to increase in the future. Changing interest rates may have unpredictable effects on markets, may result in heightened market volatility and may detract from fund performance.

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 Stockholders 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 Stockholders 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

51

 

ADDITIONAL INFORMATION (Unaudited) (continued)

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 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 Stockholders, 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 Stockholders; 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 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. A widespread outbreak of an infectious disease, such as COVID-19, and efforts to contain its spread, may result in market volatility, inflation, reduced liquidity or disruption in the trading of certain financial instruments, and systemic economic weakness. To the extent the fund may overweight its investments in certain regions, companies, industries or market sectors, such positions will increase the fund’s exposure to risk of loss from adverse developments affecting those regions, 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

52

 

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 fund is actively managed. The Sub-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.

Risk of Mandatory and Optional Redemptions of VMTP Shares. The fund may be forced to redeem VMTP Shares to meet regulatory or rating agency requirements, or requirements under the fund’s articles supplementary, or may voluntarily redeem VMTP Shares at any time. The fund would have to sell portfolio securities to raise the cash necessary to redeem the VMTP Shares. Such sale could occur under unfavorable market conditions adversely effecting the net asset value per share of the fund’s Common Stock.

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 Stockholders to transact business with the fund; violations of applicable privacy, data security or other laws; regulatory fines and penalties; reputational damage; reimbursement or other 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.

53

 

ADDITIONAL INFORMATION (Unaudited) (continued)

Recent Changes

During the period ended November 30, 2023, 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.

54

 

IMPORTANT TAX INFORMATION (Unaudited)

In accordance with federal tax law, the fund hereby reports all the dividends paid from net investment income during its fiscal year ended November 30, 2023 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 2023 calendar year on Form 1099-DIV, which will be mailed in early 2024.

55

 

INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY, ADMINISTRATION AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited)

At a meeting of the fund’s Board of Directors (the “Board”) held on October 30-31, 2023, 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 and administrative services, respectively, and the Sub-Investment Advisory Agreement (together with the Investment Advisory Agreement and Administration Agreement, the “Agreements”), pursuant to which Insight North America LLC (the “Sub-Adviser”) 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 Sub-Adviser. 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 Sub-Adviser.

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 (“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 August 31, 2023, 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

56

 

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. They also considered that performance generally should be considered over longer periods of time, although it is possible that long-term performance can be adversely affected by even one period of significant underperformance so that a single investment decision or theme has the ability to affect disproportionately long-term performance. The Board also considered the fund’s performance in light of overall financial market conditions. The Board discussed with representatives of the Adviser and the Sub-Adviser 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 and the fund’s total return performance, on a market price basis, was below the Performance Group and Performance Universe medians for all periods. The Board also considered that the fund’s yield performance, on a net asset value basis, was above or at the Performance Group and Performance Universe medians for nine of the ten of the one-year periods ended August 31st, and, on a market price basis, was above or at the Performance Group median for nine of the ten one-year periods ended August 31st and above the Performance Universe medians for eight of the ten one-year periods ended August 31st. The Board discussed with representatives of the Adviser and the Sub-Adviser the reasons for the fund’s underperformance versus the Performance Group and Performance Universe during certain periods under review and noted that the portfolio managers are very experienced with an impressive long-term track record and continued to apply a consistent investment strategy. The Adviser also provided a comparison of the fund’s calendar year total returns 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 six 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 Investment Advisory Agreement and Administration 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 Sub-Adviser, 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.

57

 

INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY, ADMINISTRATION AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)

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, the fund’s actual management fee was lower than the Expense Group median and lower than the Expense Universe median actual management fee, and the fund’s total expense were lower than the Expense Group median and slightly lower than the Expense Universe median total expenses, and that, based on common assets and leveraged assets together, the fund’s contractual management fee was higher than the Expense Group median contractual management fee, based on common assets and leveraged assets together, the fund’s actual management fee was higher than the Expense Group median and higher than the Expense Universe median actual management fee, and the fund’s total expenses were higher than the Expense Group median and higher than the Expense Universe median total expenses.

Representatives of the Adviser stated that the Adviser has agreed, until May 31, 2024, 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.

Representatives of the Adviser reviewed with the Board the management or investment advisory fees paid by funds advised 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 Sub-Adviser that are considered to have similar investment strategies and policies as the fund.

The Board considered the fee payable to the Sub-Adviser in relation to the fee payable to the Adviser by the fund and the respective services provided by the Sub-Adviser and the Adviser. The Board also took into consideration that the Sub-Adviser’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.

58

 

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 Sub-Adviser, 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 scale for the benefit of fund shareholders. 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 Sub-Adviser 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 Sub-Adviser are adequate and appropriate.

· The Board generally was satisfied with the fund’s long-term relative performance compared to the fund’s benchmark index and determined to continue to monitor the fund’s performance.

· The Board concluded that the fees paid to the Adviser and the Sub-Adviser 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 Investment Advisory Agreement and Administration 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 Sub-Adviser, of the Adviser and the Sub-Adviser and the services provided to the fund by the Adviser and the

59

 

INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY, ADMINISTRATION AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)

Sub-Adviser. 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 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 its 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.

60

 

BOARD MEMBERS INFORMATION (Unaudited)

Independent Board Members

Joseph S. DiMartino (80)

Chairman of the Board (1995)

Current term expires in 2024.

Principal Occupation During Past 5 Years:

· Director or 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-May 2023)

No. of Portfolios for which Board Member Serves: 86

———————

Joni Evans (81)

Board Member (2006)

Current term expires in 2024.

Principal Occupation During Past 5 Years:

· www.PureWow.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: 17

———————

Joan Gulley (76)

Board Member (2017)

Current term expires in 2026.

Principal Occupation During Past 5 Years:

· Nantucket Atheneum, public library, Chair (June 2018-June 2021) and Director (2015-June 2021)

· Orchard Island Club, golf and beach club, Governor (2016-Present) and President (February 2023-Present)

No. of Portfolios for which Board Member Serves: 39

———————

61

 

BOARD MEMBERS INFORMATION (Unaudited) (continued)

Alan H. Howard (64)

Board Member (2018)

Current term expires in 2025.

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-May 2019); and Board Member of its two operating subsidiaries, Dynatech International LLC and Military Parts Exchange LLC (2012-December 2019), including Chief Executive Officer of an operating subsidiary, Dynatech International LLC (2013-May 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: 17

———————

Robin A. Melvin (60)

Board Member (1995)

Current term expires in 2025.

Principal Occupation During Past 5 Years:

· Westo