See
notes to financial statements.
NOTE
1—Significant Accounting Policies:
BNY Mellon Municipal Bond Infrastructure
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 provide as high a level of current income exempt from regular federal income
tax as is 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”), a wholly-owned subsidiary
of BNY Mellon and an affiliate of the Adviser, serves as the fund’s sub-adviser. The fund’s common
stock (“Common Stock”) trades on the New York Stock Exchange (the “NYSE”) under the ticker symbol
DMB.
The fund has outstanding 750 shares of Remarketable Variable Rate MuniFund Term
Preferred Shares (“RVMTPS”). The fund is subject to certain restrictions relating to the RVMTPS.
Failure to comply with these restrictions could preclude the fund from declaring any distributions to
shareholders of Common Stock (“Common Shareholders”) or repurchasing shares of Common Stock and/or
could trigger the mandatory redemption of RVMTPS at their liquidation value (i.e., $100,000 per share).
Thus, redemptions of RVMTPS may be deemed to be outside of the control of the fund.
The
RVMTPS have a mandatory redemption date of October 16, 2049, and are subject to mandatory tender upon
each 42 month anniversary of October 16, 2020 or upon the end of a Special Terms Period (as defined in
the fund’s articles supplementary) (each an Early Term Redemption Date (as defined in the fund’s
articles supplementary)), subject to the option of the holders to retain the RVMTPS. RVMTPS that are
neither retained by the holder nor successfully remarketed by the Early Term Redemption Date will be
redeemed by the fund. The fund is subject to a Tender and Paying Agent Agreement with BNY Mellon, with
respect to the RVMTPS.
The holders of RVMTPS, voting as a separate class, have the
right to elect at least two directors. The holders of RVMTPS will vote as a separate class on certain
other matters, as required by law. The fund’s Board of Directors (the “Board”) has designated Nathan
Leventhal and Benaree Pratt Wiley as directors to be elected by the holders of RVMTPS.
Dividends on RVMTPS
are normally declared daily and paid monthly. The Dividend Rate on the RVMTPS is, except as otherwise
provided, equal to the rate per annum that results from the sum of (1) the
Index Rate plus (2)
25
NOTES
TO FINANCIAL STATEMENTS (Unaudited) (continued)
the Applicable Spread as determined for the RVMTPS 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 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.
26
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:
On August 3, 2022 the
Board approved, effective September 8, 2022, 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 adopted all other updates pursuant to Rule 2A-5.
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 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.
27
NOTES
TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 August
31, 2022 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 | - | 346,255,239 | | - | 346,255,239 | |
Liabilities ($) | | |
Other Financial Instruments: | | |
Inverse
Floater Notes†† | - | (47,060,000) | | - | (47,060,000) | |
RVMTPS†† | - | (75,000,000) | | - | (75,000,000) | |
† 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 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) 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 world-wide. Recent
28
examples include pandemic risks related to COVID-19 and aggressive measures taken
world-wide in response by governments, including closing borders, restricting international and domestic
travel, and the imposition of prolonged quarantines of large populations, and by businesses, including
changes to operations and reducing staff. The effects of COVID-19 have contributed to increased volatility
in global markets and will likely affect certain countries, companies, industries and market sectors
more dramatically than others. The COVID-19 pandemic has had, and any other outbreak of an infectious
disease or other serious public health concern could have, a significant negative impact on economic
and market conditions and could trigger a prolonged period of global economic slowdown. To the extent
the fund may overweight its investments in certain countries, companies, industries or market sectors,
such positions will increase the fund’s exposure to risk of loss from adverse developments affecting
those countries, companies, industries or sectors.
(d) Dividends and distributions to Common
Shareholders: 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
Shareholders will have their distributions reinvested in additional shares of the fund, unless such Common
Shareholders 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 August 2, 2022, the Board declared a cash dividend of $.053
per share from net investment income, payable on September 1, 2022, to Common Shareholders of record
as of the close of business on August 17, 2022. The ex-dividend date was August 16, 2022.
(e) Dividends and distributions
to shareholders of RVMTPS: Dividends on RVMTPS are normally declared daily and paid
monthly. The Dividend Rate on the RVMTPS is, except as otherwise provided, equal to
29
NOTES
TO FINANCIAL STATEMENTS (Unaudited) (continued)
the rate per annum that results from the sum of (1) the Index Rate plus (2) the
Applicable Spread as determined for the RVMTPS on the Rate Determination Date immediately preceding such
Subsequent Rate Period plus (3) the Failed Remarketing Spread. The Applicable Rate of the RVMTPS was
equal to the sum of 1.20% per annum plus the Securities Industry and Financial Markets Association Municipal
Swap Index rate of 1.67% on August 31, 2022. The dividend rate as of August 31, 2022 for the RVMTPS was
2.87% (all defined 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 August 31, 2022, 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 August 31, 2022, the fund did not incur any interest or penalties.
Each
tax year in the three-year period ended February 28, 2022 remains subject to examination by the Internal
Revenue Service and state taxing authorities.
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 fund has an unused capital loss carryover
of $30,422,900 available for federal income tax purposes to be applied against future net realized capital
gains, if any, realized subsequent to February 28, 2022. These short-term capital losses can be carried
forward for an unlimited period.
The tax character of distributions paid
to shareholders during the fiscal year ended February 28, 2022 was as follows: tax-exempt income of $11,678,686
and ordinary income of $20,568. The tax character of current year distributions will be determined at
the end of the current fiscal year.
(g) RVMTPS: The fund’s RVMTPS aggregate liquidation
preference is shown as a liability, if any, since they have stated mandatory redemption date of October
16, 2049. Dividends paid to RVMTPS are treated as interest expense and recorded on the accrual basis.
Costs directly related to the issuance of the RVMTPS are considered debt issuance costs which have been
fully amortized into the expense over the life of the RVMTPS.
30
(h)
New accounting pronouncements: In March 2020, the FASB issued Accounting Standards Update
2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (“ASU 2020-04”), and in January 2021, the FASB issued Accounting Standards Update 2021-01,
Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which provides optional, temporary relief
with respect to the financial reporting of contracts subject to certain types of modifications due to
the planned discontinuation of the LIBOR and other interbank offered rates as of the end of 2021. The
temporary relief provided by ASU 2020-04 and ASU 2021-01 is effective for certain reference rate-related
contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management
is evaluating the impact of ASU 2020-04 and ASU 2021-01 on the fund’s investments,
derivatives, debt and other contracts that will undergo reference rate-related modifications as a result
of the reference rate reform. Management is also currently actively working with other financial institutions
and counterparties to modify contracts as required by applicable regulation and within the regulatory
deadlines.
NOTE 2—Management Fee, Sub-Advisory Fee and Other Transactions with Affiliates:
(a)
Pursuant
to a management agreement (the “Agreement”) with the Adviser, the management fee is computed at the
annual rate of .65% of the value of the fund’s daily total assets, including any assets attributable
to effective leverage, minus certain defined accrued liabilities (the “Managed Assets”) and is payable
monthly.
Pursuant to a sub-investment advisory agreement between the
Adviser and the Sub-Adviser, the Adviser pays the Sub-Adviser a monthly fee at the annual rate of .27%
of the value of the fund’s average daily Managed Assets.
(b) The fund has an arrangement
with The Bank of New York Mellon (the “Custodian”), a subsidiary of BNY Mellon and an affiliate of
the Adviser, whereby the fund will receive interest income or be charged overdraft fees when cash balances
are maintained. For financial reporting purposes, the fund includes this interest income and overdraft
fees, if any, as interest income 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 and transaction activity. During the period ended August 31, 2022,
the
fund was charged $3,311 pursuant to the custody agreement.
31
NOTES
TO FINANCIAL STATEMENTS (Unaudited) (continued)
These fees were partially offset by the Custodian from an earnings credit of $215.
The
fund compensates BNY Mellon under a Tender and Paying Agent Agreement for providing certain transfer
agency and payment services with respect to the RVMTPS. During the period ended August 31, 2022,
the
fund was charged $3,975 for the services provided by the Tender and Paying Agent.
During
the period ended August 31, 2022, the fund was charged $5,292 for services performed by the 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 $194,941, Custodian fees of
$2,500, Tender and Paying Agent fees of $8,613 and Chief Compliance Officer fees of $1,523.
(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 August 31, 2022, amounted to $61,202,464
and $52,828,504, 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
32
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 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 August 31, 2022
was approximately $48,121,685, with a related weighted average annualized interest rate of 1.49%.
RVMTPS:
During the period ended August 31, 2022, total fees pursuant to RVMTPS amounted to $833,977 inclusive
of $759,308 of interest expense and $74,669 of amortized deferred cost fees. These fees are included
in RVMTPS interest expense and fees in the Statement of Operations.
The
average amount of borrowings outstanding for the RVMTPS during the period ended August 31, 2022 was approximately
$75,000,000, with a related weighted average annualized interest rate of 2.01%.
At
August 31, 2022, accumulated net unrealized depreciation on investments was $5,702,030, consisting of
$7,131,461 gross unrealized appreciation and $12,833,491 gross unrealized depreciation.
At
August 31, 2022, the cost of investments for federal income tax purposes was substantially the same as
the cost for financial reporting purposes (see the Statement of Investments).
33