See notes to financial statements.
See notes to financial
statements.
Opinion
on the Financial Statements
We have audited the accompanying statement of assets and liabilities
of BNY Mellon Strategic Municipals, Inc. (the “Fund”), including the statement of investments, as
of September 30, 2022, 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 September 30, 2022, 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 September 30, 2022, by correspondence with the custodian, brokers and others; when replies were not
received from brokers and others, we performed other audit 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
November
22, 2022
45
ADDITIONAL
INFORMATION (Unaudited)
Dividend
Reinvestment and Cash Purchase Plan
Under the fund’s Dividend Reinvestment
and Cash Purchase Plan (the “Plan”), a holder of Common Stock who has fund shares registered in his
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 shareholder elects to receive cash as provided below. If market price is equal to or exceeds
net asset value, shares will be issued at net asset value. If net asset value exceeds market price or
if a cash dividend only is declared, the Administrator, as agent for the Plan participants, will buy
fund shares in the open market. A Plan participant is not relieved of any income tax that may be payable
on such dividends or distributions.
A Common Shareholder who owns fund shares
registered in nominee name through his 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 broker/dealer in
additional shares of the fund if such service is provided by the broker/dealer; otherwise such dividends
and distributions will be treated like any other cash dividend.
A Common Shareholder
who has fund shares registered in his or her name may elect to withdraw from the Plan at any time for
a $2.50 fee and thereby elect to receive cash in lieu of shares of the fund. Changes in elections must
be in writing, sent to The Bank of New York Mellon, c/o Computershare Inc., P.O. Box 30170, College Station,
TX 77842-3170, should include the Common Shareholder’s name and address as they appear on the Administrator’s
records and will be effective only if received more than fifteen days prior to the record date for any
distribution.
A Plan participant who has fund shares in his name has the
option of making additional cash payments to the Administrator, semi-annually, in any amount from $1,000
to $10,000, for investment in the fund’s shares in the open market on or about January 15 and July
15. Any voluntary cash payments received more than 30 days prior to these dates will be returned by the
Administrator, and interest will not be paid on any uninvested cash payments. A participant may withdraw
a voluntary cash payment by written notice, if the notice is received by the Administrator not less than
48 hours before the payment is to be invested. A Common Shareholder who owns fund shares registered in
street name should consult his broker/dealer to determine whether an additional cash purchase option
is available through his broker/dealer.
The Administrator maintains all Common
Shareholder accounts in the Plan and furnishes written confirmations of all transactions in the account.
Shares in the account of each Plan participant will be held by the Administrator in non-certificated
form in the name of the participant, and each such participant’s proxy will include those shares purchased
pursuant to the Plan. The fund pays the Administrator’s fee for reinvestment of dividends and distributions.
Plan participants pay a pro rata share of brokerage commissions incurred with respect to the Administrator’s
open market purchases and
46
purchases from voluntary cash payments, and a $1.25 fee for each purchase made
from a voluntary cash payment.
The fund reserves the right to amend or terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to 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 times pay out more or less than the entire amount
of net investment income earned in any particular month and may at times in any month pay out any 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 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 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
47
ADDITIONAL
INFORMATION (Unaudited) (continued)
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 50% 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. Investment grade bonds are those rated in the four highest rating
categories of Moody’s, S&P or Fitch. The fund may invest the remainder of its assets in municipal
obligations considered below investment grade by Moody’s, S&P and Fitch, including those rated
no lower than C, but it currently is the intention of the fund to invest such remainder of its assets
primarily in bonds rated no lower than Ba by Moody’s and BB by S&P and Fitch. Bonds rated 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. The fund’s ability to invest in lower rated municipal obligations
may be limited as a condition to S&P’s “AAA” rating of the fund’s APS.
From
time to time, the fund may invest more than 25% of the value of its total assets in industrial development
bonds which, although issued by industrial development authorities, may be backed only by the assets
and revenues of the non-governmental users. Interest on certain municipal obligations (including certain
industrial development bonds) which are specific private activity bonds, while exempt from federal income
tax, is a preference item for the purpose of the federal alternative minimum tax. If the fund, as a regulated
investment company, receives such interest, a proportionate share of any exempt-interest dividend paid
by the fund will be treated as a preference item to an investor. The fund may invest without limitation
in such municipal obligations if the Adviser determines that their purchase is consistent with the fund’s
investment objective.
Under normal market conditions, the weighted average maturity
of the fund’s portfolio is expected to exceed ten years.
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
48
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 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
49
ADDITIONAL
INFORMATION (Unaudited) (continued)
with comparable credit quality, coupon, call provisions and maturity. These securities
usually permit the investor to convert the floating-rate to a fixed- rate (normally adjusted downward),
and this optional conversion feature may provide a partial hedge against rising rates if exercised at
an opportune time.
Use of Leverage. The fund utilizes leverage to seek to enhance the yield
and net asset value of its Common Stock. These objectives cannot be achieved in all interest rate environments.
To leverage, the fund issues APS and floating rate certificate securities, which pay dividends or interest
at prevailing short-term interest rates, and invests the proceeds in long-term municipal bonds. The interest
earned on these investments is paid to Common Shareholders in the form of dividends, and the value of
these portfolio holdings is reflected in the per share net asset value of the fund’s Common Stock.
In order for either of these forms of leverage to benefit Common Shareholders, the yield curve must be
positively sloped: that is, short-term interest rates must be lower than long-term interest rates. At
the same time, a period of generally declining interest rates will benefit Common Shareholders. When
either of these conditions change along with other factors that may have an effect on APS dividends or
floating rate certificate securities, then the risk of leveraging will begin to outweigh the benefits.
Principal
Risk Factors
The fund is a diversified, closed-end management investment
company designed primarily as a long-term investment and not as a short-term trading vehicle. The fund
is not intended to be a complete investment program and, due to the uncertainty inherent in all investments,
there can be no assurance that the fund will achieve its investment 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.
50
In addition, the fund may invest up to 50% 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
51
ADDITIONAL
INFORMATION (Unaudited) (continued)
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. 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. 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%.
Tax Risk.
To be tax-exempt, municipal obligations generally must meet certain regulatory requirements. Although
the fund will invest in municipal obligations that pay income that is exempt, in the opinion of counsel
to the issuer (or on the basis of other authority believed by the Adviser to be reliable), from regular
federal income tax, if any such municipal obligation fails to meet these regulatory requirements, the
income received by the fund from its investment in such obligations and distributed by the fund to Common
Shareholders will be taxable. Changes or proposed changes in federal tax laws may cause the prices of
municipal obligations to fall. In addition, the federal income tax treatment of payments in respect of
certain derivatives contracts is unclear. Common Shareholders may receive distributions that are attributable
to derivatives contracts that are treated as ordinary income for federal income tax purposes.
Liquidity
Risk. When there is little or no active trading market for specific types of securities,
it can become more difficult to sell the securities in a timely manner at or near their perceived value.
In such a market, the value of such securities and the fund’s net asset value per share of Common Stock
may fall dramatically, even during periods of declining interest rates. Other market developments can
adversely affect fixed-income securities markets. Regulations and business practices, for example, have
led some financial intermediaries to curtail their capacity to engage in trading (i.e., “market making”)
activities for certain fixed-income securities, which could have the potential to decrease liquidity
and increase volatility in the fixed-income securities markets. The secondary market for certain municipal
obligations tends to be less well developed or liquid than many other securities markets, which may adversely
affect the fund’s ability to sell such municipal obligations at attractive prices. Investments that
are illiquid or that trade in lower volumes may be more difficult to value. Liquidity can decline unpredictably
in response to overall economic conditions or credit tightening. Increases
52
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.
Leverage Risk. Leverage is a speculative technique and
there are special risks and costs associated with leveraging. There is no assurance that leveraging strategy
will be successful. Leverage involves risks and special considerations for Common Shareholders, including:
the likelihood of greater volatility of net asset value, market price and dividend rate of Common Stock
than a comparable portfolio without leverage; the risk that fluctuations in the interest or dividend
rates that the fund must pay on any leverage will reduce the return to Common Shareholders; the effect
of leverage in a declining market, which is likely to cause a greater decline in the net asset value
of Common Stock than if the fund were not leveraged, which may result in a greater decline in the market
price of Common Stock.
Market Risk. The value of the securities in which the fund invests may
be affected by political, regulatory, economic and social developments, and developments that impact
specific economic sectors, industries or segments of the market. In addition, turbulence in financial
markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many
issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly
interconnected, and conditions and events in one country, region or financial market may adversely impact
issuers in a different country, region or financial market. These risks may be magnified if certain events
or developments adversely interrupt the global supply chain; in these and other circumstances, such risks
might affect companies worldwide. Recent examples include pandemic risks related to COVID-19 and aggressive
measures taken worldwide in response by governments, including closing borders, restricting international
and domestic travel, and the imposition of prolonged quarantines of large populations, and by businesses,
including changes to operations and reducing staff.
Risk of Market Price Discount from Net
Asset Value. Shares of closed-end funds frequently trade at a market price that is below their
net asset value. This is commonly referred to as “trading at a discount.” This characteristic of
shares of closed-end funds is a risk separate and distinct from the risk that the fund’s net asset
value may decrease.
53
ADDITIONAL
INFORMATION (Unaudited) (continued)
Whether Common Shareholders will realize a gain or loss upon the sale of Common
Stock will depend upon whether the market value of Common Stock at the time of sale is above or below
the price the Common Shareholder paid, taking into account transaction costs, for Common Stock and is
not directly dependent upon the fund’s net asset value. Because the market value of Common Stock will
be determined by factors such as the relative demand for and supply of Common Stock in the market, general
market conditions and other factors beyond the control of the fund, the fund cannot predict whether its
Common Stock will trade at, below or above net asset value, or below or above the initial offering price
for such Common Stock.
Management Risk. The fund is subject to management risk because the Adviser
actively manages the fund. 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.
Cybersecurity Risk. The fund and its service
providers are susceptible to operational and information security risks due to cybersecurity incidents.
In general, cybersecurity incidents can result from deliberate attacks or unintentional events. Cybersecurity
attacks include, but are not limited to, gaining unauthorized access to digital systems (e.g.,
through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive
information, corrupting data or causing operational disruption. Cyber attacks also may be carried out
in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks
on websites (i.e., efforts to make services unavailable to intended users). Cybersecurity incidents affecting
the Adviser or other service providers, as well as financial intermediaries, have the ability to cause
disruptions and impact business operations, potentially resulting in financial losses, including by interference
with the fund’s ability to calculate its net asset value; impediments to trading for the fund’s portfolio;
the inability of Common Shareholders to transact business with the fund; violations of applicable privacy,
data security or other laws; regulatory fines and penalties; reputational damage; reimbursement or other
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.
54
Recent
Changes
During the period ended September 30, 2022, 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.
55
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 September 30, 2022 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 2022 calendar year
on Form 1099-DIV, which will be mailed in early 2023.
56
BOARD
MEMBERS INFORMATION (Unaudited)
Independent
Board Members
Joseph S. DiMartino (78)
Chairman
of the Board (1995)
Current term expires in 2025.
Principal
Occupation During Past 5 Years:
· Director
and Trustee of funds in the BNY Mellon Family of Funds and certain other entities (as described in the
fund’s Statement of Additional Information) (1995-Present)
Other Public Company
Board Memberships During Past 5 Years:
· CBIZ,
Inc., a public company providing professional business services, products and solutions, Director
(1997-Present)
No. of Portfolios for which Board Member Serves: 94
———————
Joni Evans (80)
Board Member (2007)
Current term expires in 2025.
Principal Occupation
During Past 5 Years:
· www.wowOwow.com,
an online community dedicated to women’s conversations and publications, Chief Executive Officer
(2007-2019)
· Joni
Evans Ltd. publishing, Principal (2006-2019)
No. of Portfolios for which Board Member
Serves: 17
———————
Joan
Gulley (75)
Board Member (2017)
Current term expires in
2024.
Principal Occupation During Past 5 Years:
· Nantucket Atheneum, public library, Chair (2018-June 2021) and
Director
(2015-June 2021)
· Orchard
Island Club, golf and beach club, Governor (2016-Present)
No. of Portfolios for
which Board Member Serves: 40
———————
58
Alan H. Howard (63)
Board Member (2018)
Current term expires in 2023.
Principal Occupation
During Past 5 Years:
· Heathcote
Advisors LLC, a financial advisory services firm, Managing Partner (2008-Present)
· Dynatech/MPX
Holdings LLC, a global supplier and service provider of military aircraft parts, President
(2012-2019); and Board Member of its two operating subsidiaries, Dynatech International
LLC and Military Parts Exchange LLC (2012-2019), including Chief Executive Officer of an operating subsidiary,
Dynatech International LLC (2013-2019)
· Rossoff
& Co., an independent investment banking firm, Senior Advisor (2013-June 2021)
Other Public Company Board Memberships During Past 5 Years:
· Movado Group, Inc., a public company that designs, sources,
markets and distributes watches, Director (1997-Present)
· Diamond Offshore Drilling, Inc., a public company that provides
contract drilling services, Director (March 2020-April 2021)
No. of Portfolios for
which Board Member Serves: 17
———————
Robin A. Melvin (59)
Board Member (1995)
Current term expires in 2023.
Principal Occupation
During Past 5 Years:
· Westover
School, a private girls’ boarding school in Middlebury, Connecticut, Trustee
(2019-Present)
· Mentor
Illinois, a non-profit organization dedicated to increasing the quantity and quality of mentoring services
in Illinois. Co-Chair (2014–2020); Board Member, Mentor Illinois (2013-2020)
Other Public Company Board Memberships During Past 5 Years:
· HPS Corporate Lending Fund, a closed-end management investment
company regulated as a business development company, Trustee (August 2021-Present)
No.
of Portfolios for which Board Member Serves: 72
———————
Burton N. Wallack (71)
Board Member (2006)
Current term expires in 2024.
Principal Occupation
During Past 5 Years:
Wallack Management Company, a real estate management company,
President
and Co-owner (1987-Present)
Other Public Company Board Memberships
During Past 5 Years:
Mount Sinai Hospital Urology Board Member
(2017-Present)
No. of Portfolios for which Board Member Serves: 17
———————
59
BOARD
MEMBERS INFORMATION (Unaudited) (continued)
Benaree Pratt Wiley (76)
Board Member (1989)
Current term expires in 2024.
Principal Occupation
During Past 5 Years:
· The
Wiley Group, a firm specializing in strategy and business development. Principal
(2005-Present)
Other Public Company Board Memberships During Past 5 Years:
· CBIZ,
Inc., a public company providing professional business services, products and solutions, Director
(2008-Present)
· Blue
Cross-Blue Shield of Massachusetts, Director (2004-2020)
No. of Portfolios for
which Board Member Serves: 61
———————
Gordon J. Davis (81)
Advisory Board Member (2021)
Principal Occupation During Past 5 Years:
· Venable LLP, a law firm, Partner (2012-Present)
Other Public Company Board Memberships During Past 5 Years:
· BNY Mellon Family of Funds (53 funds), Board Member
(1995-August 2021)
No. of Portfolios for which Advisory Board Member Serves: 39
———————
The address of the Board Members and Officers is c/o BNY Mellon Investment Adviser,
Inc., 240 Greenwich Street, New York, New York 10286.
60
OFFICERS
OF THE FUND (Unaudited)
DAVID
DIPETRILLO, President since January 2021.
Vice President and Director
of the Adviser since February 2021; Head of North America Product, BNY Mellon Investment Management since
January 2018; and Director of Product Strategy, BNY Mellon Investment Management from January 2016 to
December 2017. He is an officer of 55 investment companies (comprised of 108 portfolios) managed by the
Adviser or an affiliate of the Adviser. He is 44 years old and has been an employee of BNY Mellon since
2005.
JAMES
WINDELS, Treasurer since November 2001.
Vice President of the
Adviser since September 2020; and Director–BNY Mellon Fund Administration. He is an officer of 56 investment
companies (comprised of 129 portfolios) managed by the Adviser or an affiliate of the Adviser. He is
64 years old and has been an employee of the Adviser since April 1985.
PETER M. SULLIVAN, Chief
Legal Officer since July 2021 and Vice President and Assistant Secretary since March 2019.
Chief
Legal Officer of the Adviser and Associate General Counsel of BNY Mellon since July 2021;
Senior
Managing Counsel of BNY Mellon from December 2020 to July 2021; and Managing Counsel of BNY Mellon from
March 2009 to December 2020. He is an officer of 56 investment companies (comprised of 129 portfolios)
managed by the Adviser or an affiliate of the Adviser. He is 54 years old and has been an employee of
BNY Mellon since April 2004.
JAMES BITETTO, Vice President since August 2005 and Secretary
since February 2018.
Senior Managing Counsel of BNY Mellon since
December 2019; Managing Counsel of BNY Mellon from April 2014 to December 2019; and Secretary of the
Adviser. He is an officer of 56 investment companies (comprised of 129 portfolios) managed by the Adviser
or an affiliate of the Adviser. He is 56 years old and has been an employee of the Adviser since December
1996.
DEIRDRE CUNNANE, Vice President and Assistant Secretary since March 2019.
Managing Counsel of BNY Mellon since December 2021, Counsel of BNY Mellon from
August 2018 to December 2021; and Senior Regulatory Specialist at BNY Mellon Investment Management Services
from February 2016 to August 2018. She is an officer of 56 investment companies (comprised of 129 portfolios)
managed by the Adviser or an affiliate of the Adviser. She is 32 years old and has been an employee of
the Adviser since August 2018.
SARAH S. KELLEHER, Vice President and Assistant Secretary since April 2014.
Vice President of BNY Mellon ETF Investment Adviser; LLC since February 2020;
Senior Managing Counsel of BNY Mellon since September 2021; Managing Counsel of BNY Mellon from December
2017 to September 2021; and Senior Counsel of BNY Mellon from March 2013 to December 2017. She is an
officer of 56 investment companies (comprised of 129 portfolios) managed by the Adviser or an affiliate
of the Adviser. She is 47 years old and has been an employee of the Adviser since March 2013.
JEFF PRUSNOFSKY, Vice President
and Assistant Secretary since August 2005.
Senior Managing Counsel
of BNY Mellon. He is an officer of 56 investment companies (comprised of 129 portfolios) managed by the
Adviser or an affiliate of the Adviser. He is 57 years old and has been an employee of the Adviser since
October 1990.
AMANDA
QUINN, Vice President and Assistant Secretary since March 2020.
Counsel
of BNY Mellon since June 2019; Regulatory Administration Manager at BNY Mellon Investment Management
Services from September 2018 to May 2019; and Senior Regulatory Specialist at BNY Mellon Investment Management
Services from April 2015 to August 2018. She is an officer of 56 investment companies (comprised of 129
portfolios) managed by the Adviser or an affiliate of the Adviser. She is 37 years old and has been
an employee of the Adviser since June 2019.
61
OFFICERS
OF THE FUND (Unaudited) (continued)
NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.
Chief Compliance Officer since August 2021 and Vice President since February 2020
of BNY Mellon ETF Investment Adviser, LLC; Chief Compliance Officer since August 2021 and Vice President
and Assistant Secretary since February 2020 of BNY Mellon ETF Trust; Managing Counsel of BNY Mellon from
December 2019 to August 2021; Counsel of BNY Mellon from May 2016 to December 2019; and Assistant Secretary
of the Adviser from April 2018 to August 2021. She is an officer of 55 investment companies (comprised
of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 37 years old and has
been an employee of BNY Mellon since May 2016.
DANIEL
GOLDSTEIN, Vice President since March 2022.
Vice President and Head of Product Development of North America Product, BNY Mellon
Investment Management since January 2018; Co-Head of Product Management, Development & Oversight
of North America Product, BNY Mellon Investment Management from January 2010 to January 2018; and Senior
Vice President, Development & Oversight of North America Product, BNY Mellon Investment Management
since 2010. He is an officer of 55 investment companies (comprised of 108 portfolios) managed by the
Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of the Distributor
since 1991.
JOSEPH MARTELLA, Vice President since
March 2022.
Vice President and Head of Product Management
of North America Product, BNY Mellon Investment Management since January 2018; Director of Product Research
and Analytics of North America Product, BNY Mellon Investment Management from January 2010 to January
2018; and Senior Vice President of North America Product, BNY Mellon Investment Management since 2010.
He is an officer of 55 investment companies (comprised of 108 portfolios) managed by the Adviser or an
affiliate of the Adviser. He is 45 years old and has been an employee of the Distributor since 1999.
GAVIN
C. REILLY, Assistant Treasurer since December 2005.
Tax
Manager–BNY Mellon Fund Administration. He is an officer of 56 investment companies (comprised of 129
portfolios) managed by the Adviser or an affiliate of the Adviser. He is 54 years old and has been an
employee of the Adviser since April 1991.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager–BNY Mellon Fund Administration. He is an officer of
56 investment companies (comprised of 129 portfolios) managed by the Adviser or an affiliate of the Adviser.
He is 55 years old and has been an employee of the Adviser since June 1989.
ROBERT SVAGNA, Assistant
Treasurer since December 2002.
Senior Accounting Manager–BNY Mellon
Fund Administration. He is an officer of 56 investment companies (comprised of 129 portfolios) managed
by the Adviser or an affiliate of the Adviser. He is 55 years old and has been an employee of the Adviser
since November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief
Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since 2004; and Chief
Compliance Officer of the Adviser from 2004 until June 2021. He is an officer of 55 investment companies
(comprised of 115 portfolios) managed by the Adviser. He is 65 years old.
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