circumstances, the fund may take an equity position in a company it lends to. The fund also may invest in second lien, senior unsecured, mezzanine and other collateralized and uncollateralized subordinated loans (“Subordinated Loans”). Subordinated Loans sit below the senior secured debt in a company’s capital structure, but have priority over the company’s bonds and equity securities. The fund, from time to time, also may seek to participate in the upside gain of a business through the exercise of warrants or other equity securities acquired in connection with its investment in a Subordinated Loan.
As of and during the period ended September 30, 2019, 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 September 30, 2019, the fund did not incur any interest or penalties.
Board. Each tender offer would be made, and shareholders would be notified, in accordance with the requirements of the Act and the Securities Exchange Act of 1934, as amended. If the fund were to conduct a tender offer, shareholders should read carefully the tender offer documents once they are filed with the SEC and become available, as they will contain important information about the offer.
NOTE 2—Borrowings:
The fund has a $132,000,000 Revolving Credit and Security Agreement (the “Agreement”), which continues until September 3, 2021. Under the terms of the Agreement, the fund may borrow “Advances” (including Eurodollar Rate Advances). The interest to be paid by the fund on such Advances is determined with reference to the principal amount of each Advance (and/or Eurodollar Rate Advance) outstanding from time to time. The fund also pays additional fees pursuant to the Agreement. During the period ended September 30, 2019, total fees pursuant to the Agreement amounted to $5,544.
The average amount of borrowings outstanding under the Agreement during the period ended September 30, 2019 was $468,750, with a related weighted average annualized interest rate of 3.38%. The fund’s borrowings under the Agreement are secured by its portfolio holdings.
NOTE 3—Investment Management Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates:
(a)Pursuant to an Investment Management Agreement with the Adviser, the management fee is computed at the annual rate of 1.25% of the value of the fund’s “Managed Assets” determined as of the last day of each quarter, and is payable quarterly in arrears. “Managed Assets” of the fund means the total assets of the fund, including any assets attributable to leverage (i.e., any loans from certain financial institutions and/or the issuance of debt securities (collectively, “Borrowings”), preferred stock or other similar preference securities (“Preferred Shares”), or the use of derivative instruments that have the economic effect of leverage), minus the fund’s accrued liabilities, other than any liabilities or obligations attributable to leverage obtained through (i) indebtedness of any type (including, without limitation, Borrowings), (ii) the issuance of Preferred Shares, and/or (iii) any other means, all as determined in accordance with generally accepted accounting principles.
Pursuant to a sub-investment advisory agreement between the Adviser and the Sub-Adviser, the Adviser pays the Sub-Adviser a fee at the annual rate of .625% of the value of the fund’s Managed Assets determined as of the last day of each quarter, and payable quarterly in arrears.
31
NOTES TO FINANCIAL STATEMENTS (Unaudited)(continued)
(b)The fund compensates The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of the Adviser, 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 September 30, 2019,the fund was charged $2,250pursuant to the custody agreement.
The fund has an arrangement with the custodian whereby the fund will receive interest income or overdraft fees when cash balances are maintained. These fees, if any, are included in interest income in the Statement of Operations.
During the period ended September 30, 2019, the fund was charged $1,351 for services performed by the Chief Compliance Officer and his staff. These fees are included in Miscellaneous 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 fees of $290,944, custodian fees of $2,250 and Chief Compliance Officer fees of $1,351.
(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 4—Securities Transactions:
The aggregate amount of purchases and sales (including paydowns) of investment securities, excluding short-term securities and forward contracts, during the period ended September 30, 2019, amounted to $261,940,545 and $2,124,568, respectively.
Floating Rate Loan Interests: Floating rate instruments are loans and other securities with interest rates that adjust or “float” periodically. Floating rate loans are made by banks and other financial institutions to their corporate clients. The rates of interest on the loans adjust periodically by reference to a base lending rate, such as the LIBOR plus a premium or credit spread. Floating rate loans reset on periodic set dates, typically 30 to 90 days, but not to exceed one year. The fund may invest in multiple series or tranches of a loan. A different series or tranche may have varying terms and carry different associated risks.
The fund may enter into certain credit agreements all or a portion of which may be unfunded. The fund is obligated to fund these commitments at the borrower’s discretion. The commitments are disclosed in the accompanying Statement of Investments. At September 30, 2019, the fund had sufficient cash and/or securities to cover these commitments.
32
Derivatives: A derivative is a financial instrument whose performance is derived from the performance of another asset. The fund enters into International Swaps and Derivatives Association, Inc. Master Agreements or similar agreements (collectively, “Master Agreements”) with its over-the-counter (“OTC”) derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under a Master Agreement, the fund may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment in the event of default or termination.
Each type of derivative instrument that was held by the fund during the period ended September 30, 2019 is discussed below.
Forward Foreign Currency Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions or as a part of its investment strategy. When executing forward contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward contracts, the fund incurs a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward contracts, the fund incurs a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates. Any realized or unrealized gains or losses which occurred during the period are reflected in the Statement of Operations. The fund is exposed to foreign currency risk as a result of changes in value of underlying financial instruments. The fund is also exposed to credit risk associated with counterparty nonperformance on these forward contracts, which is generally limited to the unrealized gain on each open contract. This risk may be mitigated by Master Agreements, if any, between the fund and the counterparty and the posting of collateral, if any, by the counterparty to the fund to cover the fund’s exposure to the counterparty. Forward Contracts open at September 30, 2019 are set forth in the Statement of Forward Foreign Currency Exchange Contracts.
The provisions of ASC Topic 210 “Disclosures about Offsetting Assets and Liabilities” require disclosure on the offsetting of financial assets and liabilities. These disclosures are required for certain investments, including derivative financial instruments subject to Master Agreements which are
33
NOTES TO FINANCIAL STATEMENTS (Unaudited)(continued)
eligible for offsetting in the Statement of Assets and Liabilities and require the fund to disclose both gross and net information with respect to such investments. For financial reporting purposes, the fund does not offset derivative assets and derivative liabilities that are subject to Master Agreements in the Statement of Assets and Liabilities.
At September 30, 2019, derivative assets and liabilities (by type) on a gross basis are as follows:
| | | | | | |
Derivative Financial Instruments: | | Assets ($) | | Liabilities ($) | |
Forward contracts | | 1,167,416 | | - | |
Total gross amount of derivative | | | | | |
assets and liabilities in the | | | | | |
Statement of Assets and Liabilities | | 1,167,416 | | - | |
Derivatives not subject to | | �� | | | |
Master Agreements | | - | | - | |
Total gross amount of assets | | | | | |
and liabilities subject to | | | | | |
Master Agreements | | 1,167,416 | | - | |
The following table presents derivative assets net of amounts available for offsetting under Master Agreements and net of related collateral received or pledged, if any, as of September 30, 2019:
| | | | | | | |
| | | Financial | | | |
| | | Instruments | | | |
| | | and Derivatives | | | |
| Gross Amount of | | Available | Collateral | | Net Amount of |
Counterparty | Assets ($) | 1 | for Offset ($) | Received ($) | | Assets ($) |
Goldman Sachs
International | 1,167,416 | | - | - | | 1,167,416 |
| | | | | | |
| | | | | | |
1Absent a default event or early termination, OTC derivative assets and liabilities are presented at gross amounts and are not offset in the Statement of Assets and Liabilities. |
The following summarizes the average market value of derivatives outstanding duringthe period ended September 30, 2019:
| | | |
| | Average Market Value ($) |
Forward contracts | | 5,775,993 |
| | |
At September 30, 2019, accumulated net unrealized appreciation on investments inclusive of derivative contracts was $1,288,703, consisting of $2,656,729 gross unrealized appreciation and $1,368,026 gross unrealized depreciation.
34
At September 30, 2019, the cost of investments inclusive of derivative contracts for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
35
INFORMATION ABOUT THE APPROVAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited)
At a meeting of the fund’s Board of Directors held on April 24-25, 2019, the Board considered the approval of the fund’s Management Agreement, pursuant to which the Adviser will provide the fund with investment advisory and administrative services (the “Agreement”), and the Sub-Investment Advisory Agreement (together, the “Agreements”), pursuant to which Alcentra NY, LLC (the “Subadviser”), an affiliate of the Adviser, will provide day-to-day management of the fund’s investments. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser and the Subadviser. In considering the approval of the Agreements, the Board considered all 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.
The Board also considered research support expected to be available to, and portfolio management capabilities of, the fund’s proposed portfolio management personnel and that the Adviser also would provide oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board also considered the Adviser’s extensive administrative, accounting, and compliance infrastructures, as well as the Adviser’s supervisory activities over the Subadviser.
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. As the fund had not yet commenced operations, the Board was not able to review the fund’s performance. The Board discussed with representatives of the Adviser and the Subadviser the proposed portfolio management team and the investment strategies to be employed in the management of the fund’s assets.
The Board reviewed comparisons of the fund’s proposed management fee and anticipated expense ratio to the management fees and expense ratios of a group of funds independently prepared by Broadridge Financial Solutions, Inc. (“Broadridge”) (the “Comparison Group”) and to the management fees of funds in the fund’s anticipated Lipper category. The Board considered that the fund’s contractual management fee and total expenses, based on common assets alone and together with assets obtained through leverage, were above the Comparison Group and category averages and medians. The Board also considered that the fund’s contractual management fee and total expenses, based on common assets alone and together with assets obtained through leverage, were within the range of those of the funds in a supplemental comparison group provided by representatives of the Adviser, comprised of other non-listed closed-end funds with similar investment strategies.
36
Representatives of the Adviser reviewed with the Board the management or investment advisory fees (1) paid by any funds advised or administered by the Adviser that are in the same Lipper category as the fund and (2) paid to the Adviser or the Subadviser or its affiliates for advising any separate accounts and/or other types of client portfolios that are considered to have similar investment strategies and policies as the fund (the “Similar Clients”), and explained the nature of the Similar Clients. 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. The Board considered the relevance of the fee information provided for the Similar Clients to evaluate the appropriateness of the fund’s proposed management fee.
The Board considered the fee to be paid to the Subadviser in relation to the fee to be paid to the Adviser by the fund and the respective services to be provided by the Subadviser and the Adviser. The Board also took into consideration that the Subadviser’s fee will be paid by the Adviser (out of its fee from the fund) and not the fund.
Analysis of Profitability and Economies of Scale. As the fund had not yet commenced operations, representatives of the Adviser were not able to review the dollar amount of expenses allocated and profit received by the Adviser, or any economies of scale. The Board considered potential benefits to the Adviser and the Subadviser from acting as investment adviser and sub-investment adviser, respectively. The Board also considered that due to the uncertainty of the estimated asset levels, that the fund is a closed-end fund without daily inflows and outflows of capital and that the fund intends to conduct quarterly tender offers of its common shares then outstanding (which will have the effect of reducing assets), it would be unlikely that there would be significant economies of scale to be realized by the Adviser in managing the fund’s assets over time, although economies of scale would be evaluated at each renewal of the Agreements.
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 approval 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 to be provided by the Adviser and the Subadviser are adequate and appropriate.
· The Board concluded that since the fund had not yet commenced operations, its performance could not be measured and was not a factor.
· The Board concluded that the fees to be paid to the Adviser and the Subadviser were appropriate in light of the totality of the services to be provided as discussed above.
· The Board determined that, because the Fund is a closed-end fund and for the reasons discussed above, there were not at this time significant economies of scale expected to be realized by the Adviser.
37
INFORMATION ABOUT THE APPROVAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
In evaluating the Agreements, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates and the Subadviser, of the Adviser and the Subadviser and the services proposed to be provided to the fund by the Adviser and the Subadviser. In addition, the Board’s consideration of the contractual fee arrangements for this fund had the benefit of a number of years of reviews of substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to approve the Agreements.
38
OFFICERS AND DIRECTORS
BNY Mellon Alcentra Global Multi-Strategy Credit Fund, Inc.
240 Greenwich Street
New York, NY 10286
| | | | |
Directors | | Officers (continued) | |
Joseph S. DiMartino, Chairman | | Assistant Treasurers (continued) | |
Francine J. Bovich | | Robert Svagna | |
Andrew J. Donohue | | Robert Salviolo | |
Kenneth A. Himmel | | Chief Compliance Officer | |
Stephen J. Lockwood | | Joseph W. Connolly | |
Roslyn M. Watson | | | |
Benaree Pratt Wiley | | Portfolio Managers | |
| | | Chris Barris | |
Officers | | Kevin Cronk | |
President | | Leland Hart | |
Renee-Laroche-Morris | | Hiram Hamilton | |
Chief Legal Officer | | Vijay Rajguru | |
Bennett A. MacDougall | | Suhail Shaikh | |
Vice President and Secretary | | Adviser | |
James Bitetto | | BNY Mellon Investment Adviser, Inc. | |
Vice Presidents and Assistant Secretaries | | Sub-Investment Adviser | |
Sonalee Cross | | Alcentra NY, LLC | |
Deirdre Cunnane | | Custodian | |
Sarah S. Kelleher | | The Bank of New York Mellon | |
Jeff Prusnofsky | | Counsel | |
Peter M. Sullivan | | Proskauer Rose LLP | |
Natalya Zelensky | | Transfer Agent, | |
Vice President | | Dividend Disbursing Agent | |
David DiPetrillo | | Computershare Inc. | |
Treasurer | | Initial SEC Effective Date | |
James Windels | | 8/28/2019 | |
Assistant Treasurers | | | |
Gavin C. Reilly | | | |
Robert S. Robol | | | |
| | | | |
| | | | |
| |
| |
39
BNY Mellon Alcentra Global Multi-Strategy Credit Fund, Inc.
240 Greenwich Street
New York, NY 10286
Adviser
BNY Mellon Investment Adviser, Inc.
240 Greenwich Street
New York, NY 10286
Sub-Adviser
Alcentra NY, LLC
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Transfer Agent &
Registrar
Computershare Inc.
480 Washington Boulevard
Jersey City, NJ 07310
Dividend Disbursing Agent
Computershare Inc.
P.O. Box 30170
College Station, TX 77842
For more information about the fund visitwww.bnymellonim.com/us. Here you will find the fund’s daily and most recently available quarterly net asset values, press releases, quarterly fact sheets and portfolio manager commentary, distribution information, the fund’s Top 10 portfolio holdings and other information about the fund. The information posted on the fund’s website is subject to change without notice.
The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT will be available on the SEC’s website atwww.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 will be available atwww.bnymellonim.com/usand on the SEC’s website atwww.sec.gov and without charge, upon request, by calling 1-800-373-9387.
| | |
0816SA0919
| 
|
