UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number | 811-00524 | |||||
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| BNY Mellon Investment Funds III |
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| (Exact name of Registrant as specified in charter) |
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c/o BNY Mellon Investment Adviser, Inc. 240 Greenwich Street New York, New York 10286 |
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| (Address of principal executive offices) (Zip code) |
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| Bennett A. MacDougall, Esq. 240 Greenwich Street New York, New York 10286 |
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| (Name and address of agent for service) |
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Registrant's telephone number, including area code: | (212) 922-6400 | |||||
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Date of fiscal year end:
| 05/31 |
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Date of reporting period: | 05/31/20
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The following N-CSR relates only to the Registrant's series listed below and does not relate to any series of the Registrant with a different fiscal year end and, therefore, different N-CSR reporting requirements. A separate N-CSR will be filed for any series with a different fiscal year end, as appropriate.
BNY Mellon Equity Income Fund
FORM N-CSR
Item 1. Reports to Stockholders.
BNY Mellon Equity Income Fund
ANNUAL REPORT May 31, 2020 |
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Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.bnymellonim.com/us and sign up for eCommunications. It’s simple and only takes a few minutes. |
The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds. |
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value |
Contents
THE FUND
BNY Mellon Investment Adviser, Inc. | |
With Those of Other Funds | |
in Affiliated Issuers | |
Public Accounting Firm | |
the Fund’s Management Agreement | |
FOR MORE INFORMATION
Back Cover
| The Fund |
A LETTER FROM THE PRESIDENT OF BNY MELLON INVESTMENT ADVISER, INC.
Dear Shareholder:
We are pleased to present this annual report for BNY Mellon Equity Income Fund (formerly, Dreyfus Equity Income Fund), covering the 12-month period from June 1, 2019 through May 31, 2020. For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Early in the reporting period, equity markets benefited from the U.S. Federal Reserve’s (the “Fed”) more accommodative stance on interest rates. Trade tensions between the U.S. and China emerged at times, which disrupted markets. Despite the disruption, the pace of the U.S. economy remained steady, and stocks rose in mid-2019. Volatility subsequently returned when investors grew more concerned about the state of the global economy. However, stocks eventually rebounded, rallying through the end of 2019 due to supportive interest rate cuts and the announcement of a trade deal between the U.S. and China. Early in 2020, as COVID-19 spread across the globe, concerns about the economic effects of a widespread quarantine worked to depress equity valuations. Stocks posted historic losses in March 2020, but regained ground in April and May.
Fixed-income markets benefited from Fed interest rate cuts and investor concerns about an economic slowdown. Responding to global economic concerns, the Fed reduced rates in July, September and October 2019. As stocks subsequently rallied, Treasury bonds declined, and rates across much of the yield curve rose until early in 2020, when the potential threat posed by COVID-19 began to emerge. A flight-to-quality ensued, and rates fell significantly. March 2020 brought high volatility and risk-asset spread widening. The Fed cut rates twice in March, resulting in an overnight lending target rate of nearly zero, and the government launched a large stimulus package. In April and May 2020, risk-assets began to recover. Investment-grade bonds generally posted positive returns for the period.
We believe the near-term outlook for the U.S. will be challenging, as the country curbs the spread of COVID-19 and determines a path forward for recovery. However, we are confident that once the economic effects of the virus have been mitigated, the economy will rebound. As always, we will monitor relevant data for any signs of a change. We encourage you to discuss the risks and opportunities in today’s investment environment with your financial advisor.
Thank you for your continued confidence and support.
Sincerely,
Renee LaRoche-Morris
President
BNY Mellon Investment Adviser, Inc.
June 15, 2020
2
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from June 1, 2019 through May 31, 2020, as provided by Peter D. Goslin, CFA, Syed A. Zamil, CFA and Chris Yao, CFA, Portfolio Managers
Market and Fund Performance Overview
For the 12-month period ended May 31, 2020, BNY Mellon Equity Income Fund (formerly, Dreyfus Equity Income Fund) Class A shares produced a total return of 1.06%, Class C shares returned 0.36%, Class I shares returned 1.32% and Class Y shares returned 1.39%.1 In comparison, the fund’s benchmark, the S&P 500® Index (the “Index”), provided a total return of 12.83% for the same period.2
U.S. stocks gained ground during the period despite pockets of significant volatility. The fund underperformed the Index, due primarily to a dividend and value tilt within the portfolio.
The Fund’s Investment Approach
The fund seeks total return (consisting of capital appreciation and income). To pursue its goal, the fund invests primarily in dividend-paying equity securities with attractive fundamentals.
We evaluate stocks through a disciplined investment process that combines quantitative modeling techniques, fundamental analysis and risk management. We use a proprietary computer model to identify and rank stocks, based on their value, growth and financial profiles.
Based on the fundamental analysis, we select the most attractive of the higher-ranked securities and manage risk by diversifying across companies and industries. We may invest in stocks with either value or growth characteristics.
Trade, Pandemic and Central Bank Activity Drive Markets
Continuing trade tensions between the U.S. and China were a key influencer of investor sentiment for much of 2019. Alternating signs of progress and deterioration in the trade dispute between the two nations persistently fueled equity volatility. Concerns over slowing global growth also drove valuations during the summer months of 2019. The Federal Reserve (the “Fed”) cut interest rates three times to support markets. Equities gained over the end of 2019 as sentiment was bolstered by encouraging economic data releases and the announcement that a “phase-one” U.S./China trade deal would be signed in early 2020.
In early 2020, markets rapidly gave way to extreme risk aversion, as the global scope of the COVID-19 pandemic, and its alarming humanitarian and economic implications, became apparent. Financial markets also contended with a second major exogenous shock in the form of an oil-price war between Saudi Arabia and Russia. Central bank response ramped up dramatically in March 2020, as the crisis intensified, and financial markets became progressively more distressed. Governments were also on the proactive and launched an unprecedented array of fiscal initiatives that sought to offset the economic impact of
3
DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)
widespread lockdown measures. Lifted by intermittent optimism and significant fiscal and monetary policy stimulus, U.S. equity markets bounced back, continuing an upward trajectory during the final months of the period.
Over the 12 months, growth stocks handily outperformed value stocks. Dividend-paying and value- oriented securities significantly trailed their growth counterparts during the period.
Value and Dividend Tilt Drove Fund Performance
The fund’s relative results were constrained by the portfolio’s emphasis on high dividend-paying stocks, many of which can be characterized as value stocks. During the period, investors rewarded growth stocks, while punishing high dividend-paying and value securities. Based on the Russell large-cap family of indices, growth outperformed value by over 20 percentage points. The fund underperformed the benchmark, which has a tilt toward growth stocks. In addition to the value tilt, stock selection within information technology and communication services also provided a headwind to results. Among the leading individual detractors was consumer electronics company Xerox, which saw its price slide in 2020 on declining revenue and supply chain disruptions. The stock continues to score well within our model’s criteria for behavioral characteristics and dividend yield. Communication services company AT&T also weighed on results, as it lagged the broader sector during the period. The stock continues to have an attractive dividend yield, according to our model. Within the energy sector, integrated oil company Chevron was also among the leading detractors. The stock came under pressure during the spring 2020 oil price collapse.
Conversely, many of the fund’s security selection efforts benefited results. Stock decisions in the industrials sector provided a tailwind. A lack of exposure to several industrials companies that heavily underperformed the broader market, such as Boeing, General Electric, Raytheon and Delta Airlines, bolstered returns. Elsewhere in the market, active positions in pharmaceutical companies AbbVie and Gilead Sciences also worked to benefit relative results. The stock price of AbbVie rose during the period on investor optimism that the company may play a role in developing a COVID-19 treatment. Our model rates the stock favorably on valuation and quality criteria. The stock also continues to offer an attractive dividend yield. Gilead Sciences also rose on development of a possible COVID-19 therapy. The stock ranks highly for value, quality and behavioral characteristics, according to our model.
A Disciplined Approach to Stock Picking
Our quantitative models have continued to identify what we believe to be attractive investment opportunities across a broad range of dividend-paying companies in a variety of industry groups. We continue to own a broad set of securities that exhibit both attractive valuation and improving fundamentals. The portfolio is risk-controlled from a perspective of sector and market capitalization versus the fund’s benchmark. What this means is that the fund holds several index constituents, such as Facebook, Alphabet and Amazon.com, despite the fact they may not meet all the criteria of our stock selection model, such as paying dividends. We believe inclusion of these securities within the portfolio continues to benefit investors by providing a smoother ride versus the benchmark and gives us a potential
4
edge over other income-oriented funds, which may not hold these non-dividend paying positions. We believe the portfolio is well positioned to benefit from the current market environment.
Given our investment methods, as of the end of the period we were modestly overweight the communication services, energy, utilities and consumer staples sectors. We were mildly underweight industrials, consumer discretionary and real estate.
June 15, 2020
1 Total return includes reinvestment of dividends and any capital gains paid and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Past performance is no guarantee of future results. Share price and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. The fund’s return reflects the absorption of certain fund expenses by BNY Mellon Investment Adviser, Inc. pursuant to an agreement in effect through September 30, 2020, at which time it may be extended, modified or terminated. Had these expenses not been absorbed, returns would have been lower.
2 Source: Lipper Inc. — The S&P 500® Index is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Investors cannot invest directly in any index.
Please note: the position in any security highlighted with italicized typeface was sold during the reporting period.
Equities are subject generally to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund’s prospectus.
Recent market risks include pandemic risks related to COVID-19. 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. 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.
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FUND PERFORMANCE (Unaudited)
Comparison of change in value of a $10,000 investment in Class A shares, Class C shares and Class I shares of BNY Mellon Equity Income Fund with a hypothetical investment of $10,000 in the S&P 500® Index (the “Index”)
† Source: Lipper Inc.
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in each of the Class A shares, Class C shares and Class I shares of BNY Mellon Equity Income Fund on 5/31/10 to a hypothetical investment of $10,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account the maximum initial sales charge on Class A shares and all other applicable fees and expenses on all classes. The Index is widely regarded as the best single gauge of large-cap U.S. equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Unlike a mutual fund, the Index is not subject to charges, fees and other expenses. Investors cannot invest directly in any index. Further information relating to fund performance, including expense reimbursements, if applicable, is contained in the Financial Highlights section of the prospectus and elsewhere in this report.
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Comparison of change in value of a $1,000,000 investment in Class Y shares of BNY Mellon Equity Income Fund with a hypothetical investment of $1,000,000 in the S&P 500® Index (the “Index”)
† Source: Lipper Inc.
†† The total return figures presented for Class Y shares of the fund reflect the performance of the fund’s Class A shares for the period prior to 7/1/13 (the inception date for Class Y shares), not reflecting the applicable sales load for Class A shares.
Past performance is not predictive of future performance.
The above graph compares a hypothetical investment of $1,000,000 made in Class Y shares of BNY Mellon Equity Income Fund on 5/31/10 to a hypothetical investment of $1,000,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account all applicable fees and expenses of the fund’s Class Y shares. The Index is widely regarded as the best single gauge of large-cap U.S. equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Unlike a mutual fund, indices are not subject to charges, fees and other expenses. Investors cannot invest directly in any index. Further information relating to fund performance, including expense reimbursements, if applicable, is contained in the Financial Highlights section of the prospectus and elsewhere in this report.
7
FUND PERFORMANCE (Unaudited) (continued)
Average Annual Total Returns as of 5/31/2020 | ||||
Inception | ||||
| Date | 1 Year | 5 Years | 10 Years |
Class A shares | ||||
with maximum sales charge (5.75%) | 7/5/06 | -4.77% | 4.39% | 9.88% |
without sales charge | 7/5/06 | 1.06% | 5.63% | 10.53% |
Class C shares | ||||
with applicable redemption charge† | 7/5/06 | -0.62% | 4.86% | 9.72% |
without redemption | 7/5/06 | 0.36% | 4.86% | 9.72% |
Class I shares | 7/5/06 | 1.32% | 5.91% | 10.81% |
Class Y shares | 7/1/13 | 1.39% | 6.06% | 10.82%†† |
S&P 500® Index | 12.83% | 9.86% | 13.14% | |
† The maximum contingent deferred sales charge for Class C shares is 1% for shares redeemed within one year of the date of purchase.
†† The total return performance figures presented for Class Y shares of the fund reflect the performance of the fund’s Class A shares for the period prior to 7/1/13 (the inception date for Class Y shares), not reflecting the applicable sales load for Class A shares.
The performance data quoted represents past performance, which is no guarantee of future results. Share price and investment return fluctuate and an investor’s shares may be worth more or less than original cost upon redemption. Current performance may be lower or higher than the performance quoted. Go to www.bnymellonim.com/us for the fund’s most recent month-end returns.
The fund’s performance shown in the graphs and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. In addition to the performance of Class A shares shown with and without a maximum sales charge, the fund���s performance shown in the table takes into account all other applicable fees and expenses on all classes.
8
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in BNY Mellon Equity Income Fund from December 1, 2019 to May 31, 2020. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment |
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Assume actual returns for the six months ended May 31, 2020 |
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Expense paid per $1,000† | $4.82 | $8.32 | $3.66 | $3.56 |
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Ending value (after expenses) | $873.10 | $870.30 | $874.40 | $874.70 |
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COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (“SEC”) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment |
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Assuming a hypothetical 5% annualized return for the six months ended May 31, 2020 |
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| Class A | Class C | Class I | Class Y |
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Expense paid per $1,000† | $5.20 | $8.97 | $3.94 | $3.84 |
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Ending value (after expenses) | $1,019.85 | $1,016.10 | $1,021.10 | $1,021.20 |
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†Expenses are equal to the fund’s annualized expense ratio of 1.03% for Class A, 1.78% for Class C, .78% for Class I and .76% for Class Y, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). | ||||||
9
STATEMENT OF INVESTMENTS
May 31, 2020
Description | Shares | Value ($) | |||||
Common Stocks - 98.8% | |||||||
Banks - 5.8% | |||||||
Associated Banc-Corp | 105,550 | 1,478,756 | |||||
Bank of America | 288,650 | 6,962,238 | |||||
Citizens Financial Group | 67,250 | 1,620,725 | |||||
Comerica | 60,000 | 2,181,000 | |||||
JPMorgan Chase & Co. | 177,855 | 17,307,070 | |||||
KeyCorp | 341,850 | 4,050,922 | |||||
New York Community Bancorp | 205,350 | 2,063,768 | |||||
Regions Financial | 717,508 | 8,115,015 | |||||
Zions Bancorp | 53,000 | 1,743,965 | |||||
45,523,459 | |||||||
Capital Goods - 3.7% | |||||||
Dover | 49,400 | 4,804,150 | |||||
Eaton | 59,350 | 5,038,815 | |||||
Emerson Electric | 32,900 | 2,007,558 | |||||
Hubbell | 17,450 | 2,136,229 | |||||
Lockheed Martin | 25,450 | 9,885,798 | |||||
PACCAR | 27,350 | 2,020,071 | |||||
The Timken Company | 65,100 | 2,769,354 | |||||
28,661,975 | |||||||
Consumer Durables & Apparel - .5% | |||||||
Garmin | 10,400 | 937,768 | |||||
Whirlpool | 25,200 | 3,069,864 | |||||
4,007,632 | |||||||
Consumer Services - 1.2% | |||||||
H&R Block | 90,350 | 1,535,950 | |||||
McDonald's | 42,900 | 7,993,128 | |||||
9,529,078 | |||||||
Diversified Financials - 1.8% | |||||||
AGNC Investment | 164,600 | a | 2,129,924 | ||||
Ameriprise Financial | 13,250 | 1,855,928 | |||||
Discover Financial Services | 20,500 | 973,955 | |||||
Morgan Stanley | 70,750 | 3,127,150 | |||||
Synchrony Financial | 185,850 | 3,785,764 | |||||
The Goldman Sachs Group | 13,450 | 2,642,791 | |||||
14,515,512 | |||||||
Energy - 3.5% | |||||||
ConocoPhillips | 45,550 | 1,921,299 | |||||
Exxon Mobil | 168,010 | 7,639,415 | |||||
Helmerich & Payne | 44,050 | 886,727 | |||||
HollyFrontier | 42,000 | 1,320,900 | |||||
Kinder Morgan | 96,800 | 1,529,440 | |||||
10
Description | Shares | Value ($) | |||||
Common Stocks - 98.8% (continued) | |||||||
Energy - 3.5% (continued) | |||||||
Phillips 66 | 13,950 | 1,091,727 | |||||
Schlumberger | 249,850 | 4,614,729 | |||||
The Williams Companies | 346,450 | 7,077,973 | |||||
Valero Energy | 24,300 | 1,619,352 | |||||
27,701,562 | |||||||
Food, Beverage & Tobacco - 6.7% | |||||||
Altria Group | 605,870 | 23,659,223 | |||||
Campbell Soup | 154,300 | 7,866,214 | |||||
Philip Morris International | 291,690 | 21,398,378 | |||||
52,923,815 | |||||||
Health Care Equipment & Services - .2% | |||||||
UnitedHealth Group | 4,700 | 1,432,795 | |||||
Household & Personal Products - 3.4% | |||||||
Kimberly-Clark | 101,500 | 14,356,160 | |||||
The Clorox Company | 9,200 | 1,897,500 | |||||
The Procter & Gamble Company | 91,350 | 10,589,292 | |||||
26,842,952 | |||||||
Insurance - 2.3% | |||||||
MetLife | 180,750 | 6,508,807 | |||||
Principal Financial Group | 172,750 | 6,671,605 | |||||
Prudential Financial | 24,705 | 1,506,017 | |||||
Unum Group | 220,200 | 3,336,030 | |||||
18,022,459 | |||||||
Materials - 2.1% | |||||||
CF Industries Holdings | 68,650 | 2,016,251 | |||||
FMC | 34,850 | 3,429,588 | |||||
International Paper | 48,550 | 1,653,128 | |||||
LyondellBasell Industries, Cl. A | 97,950 | 6,245,292 | |||||
PPG Industries | 29,050 | 2,953,514 | |||||
16,297,773 | |||||||
Media & Entertainment - 5.8% | |||||||
Alphabet, Cl. A | 9,400 | b | 13,475,088 | ||||
Alphabet, Cl. C | 9,300 | b | 13,288,956 | ||||
Facebook, Cl. A | 58,150 | b | 13,088,983 | ||||
Netflix | 14,000 | b | 5,876,220 | ||||
45,729,247 | |||||||
Pharmaceuticals Biotechnology & Life Sciences - 14.7% | |||||||
AbbVie | 249,880 | 23,156,380 | |||||
Amgen | 58,000 | 13,322,600 | |||||
Bristol-Myers Squibb | 391,350 | 23,371,422 | |||||
Eli Lilly & Co. | 23,400 | 3,579,030 | |||||
Gilead Sciences | 168,300 | 13,098,789 | |||||
Johnson & Johnson | 80,000 | 11,900,000 | |||||
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STATEMENT OF INVESTMENTS (continued)
Description | Shares | Value ($) | |||||
Common Stocks - 98.8% (continued) | |||||||
Pharmaceuticals Biotechnology & Life Sciences - 14.7% (continued) | |||||||
Merck & Co. | 313,660 | 25,318,635 | |||||
Pfizer | 45,107 | 1,722,636 | |||||
115,469,492 | |||||||
Real Estate - 2.8% | |||||||
Brandywine Realty Trust | 39,750 | a | 383,588 | ||||
Brixmor Property Group | 144,550 | a | 1,613,178 | ||||
CoreCivic | 249,150 | a | 2,997,274 | ||||
EPR Properties | 28,950 | a | 913,952 | ||||
Iron Mountain | 98,050 | a,c | 2,525,768 | ||||
Medical Properties Trust | 253,850 | a | 4,589,608 | ||||
Omega Healthcare Investors | 100,800 | a,c | 3,138,912 | ||||
Service Properties Trust | 86,240 | a | 582,120 | ||||
Simon Property Group | 27,850 | a | 1,606,945 | ||||
SITE Centers | 166,075 | a | 941,645 | ||||
Spirit Realty Capital | 53,750 | a | 1,528,113 | ||||
Tanger Factory Outlet Centers | 140,050 | a,c | 861,308 | ||||
21,682,411 | |||||||
Retailing - 4.4% | |||||||
Amazon.com | 14,200 | b | 34,681,654 | ||||
Semiconductors & Semiconductor Equipment - 6.1% | |||||||
Broadcom | 56,000 | 16,311,120 | |||||
Intel | 295,545 | 18,598,647 | |||||
Maxim Integrated Products | 40,861 | 2,356,862 | |||||
Qualcomm | 135,200 | 10,934,976 | |||||
48,201,605 | |||||||
Software & Services - 9.2% | |||||||
International Business Machines | 95,540 | 11,932,946 | |||||
Microsoft | 247,885 | 45,424,926 | |||||
The Western Union Company | 736,800 | 14,750,736 | |||||
72,108,608 | |||||||
Technology Hardware & Equipment - 10.0% | |||||||
Apple | 144,070 | 45,805,616 | |||||
Cisco Systems | 200,450 | 9,585,519 | |||||
Hewlett Packard Enterprise | 504,050 | 4,894,325 | |||||
NetApp | 79,900 | 3,558,746 | |||||
Seagate Technology | 150,550 | 7,985,172 | |||||
Xerox Holdings | 428,700 | 6,807,756 | |||||
78,637,134 | |||||||
Telecommunication Services - 7.1% | |||||||
AT&T | 1,037,960 | 32,031,446 | |||||
Verizon Communications | 414,120 | 23,762,206 | |||||
55,793,652 | |||||||
12
Description | Shares | Value ($) | |||||
Common Stocks - 98.8% (continued) | |||||||
Transportation - 2.0% | |||||||
United Parcel Service, Cl. B | 155,620 | 15,516,870 | |||||
Utilities - 5.5% | |||||||
FirstEnergy | 150,600 | 6,364,356 | |||||
OGE Energy | 193,067 | 6,046,858 | |||||
Pinnacle West Capital | 28,850 | 2,247,415 | |||||
PPL | 294,950 | 8,240,903 | |||||
Public Service Enterprise Group | 194,600 | 9,932,384 | |||||
The AES | 813,950 | 10,166,235 | |||||
42,998,151 | |||||||
Total Common Stocks (cost $705,560,071) | 776,277,836 | ||||||
Limited Partnerships - .0% | |||||||
Real Estate - .0% | |||||||
Brookfield Property Partners LP | 6,546 | b,c | 67,817 | ||||
1-Day | |||||||
Investment Companies - .0% | |||||||
Registered Investment Companies - .0% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund | 0.21 | 22,995 | d | 22,995 | |||
Investment of Cash Collateral for Securities Loaned - .1% | |||||||
Registered Investment Companies - .1% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund | 0.21 | 928,355 | d | 928,355 | |||
Total Investments (cost $706,629,496) | 98.9% | 777,297,003 | |||||
Cash and Receivables (Net) | 1.1% | 8,500,220 | |||||
Net Assets | 100.0% | 785,797,223 | |||||
LP—Limited Partnership
aInvestment in real estate investment trust within the United States.
bNon-income producing security.
cSecurity, or portion thereof, on loan. At May 31, 2020, the value of the fund’s securities on loan was $2,549,190 and the value of the collateral was $2,659,666, consisting of cash collateral of $928,355 and U.S. Government & Agency securities valued at $1,731,311.
dInvestment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.
13
STATEMENT OF INVESTMENTS (continued)
Portfolio Summary (Unaudited) † | Value (%) |
Information Technology | 25.3 |
Health Care | 14.9 |
Communication Services | 12.9 |
Consumer Staples | 10.2 |
Financials | 9.9 |
Consumer Discretionary | 6.1 |
Industrials | 5.6 |
Utilities | 5.5 |
Energy | 3.5 |
Real Estate | 2.8 |
Materials | 2.1 |
Investment Companies | .1 |
98.9 |
† Based on net assets.
See notes to financial statements.
14
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS
Investment Companies | Value | Purchases ($) | Sales ($) | Value | Net | Dividends/ |
Registered Investment Companies: | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund | 7,313,070 | 159,735,118 | (167,025,193) | 22,995 | .0 | 63,663 |
Investment of Cash Collateral for Securities Loaned: | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund | 369,101 | 36,639,592 | (36,080,338) | 928,355 | .1 | - |
Total | 7,682,171 | 196,374,710 | (203,105,531) | 951,350 | .1 | 63,663 |
See notes to financial statements.
15
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2020
|
|
|
|
|
|
|
|
|
| Cost |
| Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments |
|
|
| |||
Unaffiliated issuers | 705,678,146 |
| 776,345,653 |
| ||
Affiliated issuers |
| 951,350 |
| 951,350 |
| |
Receivable for investment securities sold |
| 8,460,956 |
| |||
Receivable for shares of Beneficial Interest subscribed |
| 3,793,469 |
| |||
Dividends and securities lending income receivable |
| 1,733,834 |
| |||
Prepaid expenses |
|
|
|
| 66,417 |
|
|
|
|
|
| 791,351,679 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
| 523,850 |
| |||
Note payable—Note 2 |
| 3,000,000 |
| |||
Liability for securities on loan—Note 1(b) |
| 928,355 |
| |||
Payable for shares of Beneficial Interest redeemed |
| 915,316 |
| |||
Trustees’ fees and expenses payable |
| 9,638 |
| |||
Interest payable—Note 2 |
| 439 |
| |||
Other accrued expenses |
|
|
|
| 176,858 |
|
|
|
|
|
| 5,554,456 |
|
Net Assets ($) |
|
| 785,797,223 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
| 788,099,387 |
|
Total distributable earnings (loss) |
|
|
|
| (2,302,164) |
|
Net Assets ($) |
|
| 785,797,223 |
| ||
Net Asset Value Per Share | Class A | Class C | Class I | Class Y |
|
Net Assets ($) | 206,842,257 | 57,966,882 | 518,436,292 | 2,551,792 |
|
Shares Outstanding | 11,605,360 | 3,299,882 | 29,023,242 | 142,087 |
|
Net Asset Value Per Share ($) | 17.82 | 17.57 | 17.86 | 17.96 |
|
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
|
16
STATEMENT OF OPERATIONS
Year Ended May 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Income: |
|
|
|
| ||
Cash dividends: |
| |||||
Unaffiliated issuers |
|
| 35,365,827 |
| ||
Affiliated issuers |
|
| 63,663 |
| ||
Income from securities lending—Note 1(b) |
|
| 111,989 |
| ||
Interest |
|
| 28,407 |
| ||
Total Income |
|
| 35,569,886 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
| 6,901,851 |
| ||
Shareholder servicing costs—Note 3(c) |
|
| 1,611,120 |
| ||
Distribution fees—Note 3(b) |
|
| 513,370 |
| ||
Registration fees |
|
| 116,666 |
| ||
Professional fees |
|
| 115,734 |
| ||
Trustees’ fees and expenses—Note 3(d) |
|
| 94,872 |
| ||
Prospectus and shareholders’ reports |
|
| 58,026 |
| ||
Loan commitment fees—Note 2 |
|
| 24,929 |
| ||
Custodian fees—Note 3(c) |
|
| 24,226 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
| 14,781 |
| ||
Interest expense—Note 2 |
|
| 8,782 |
| ||
Miscellaneous |
|
| 31,758 |
| ||
Total Expenses |
|
| 9,516,115 |
| ||
Less—reduction in expenses due to undertaking—Note 3(a) |
|
| (519,417) |
| ||
Net Expenses |
|
| 8,996,698 |
| ||
Investment Income—Net |
|
| 26,573,188 |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments | (51,186,075) |
| ||||
Net change in unrealized appreciation (depreciation) on investments | 53,127,636 |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
| 1,941,561 |
| ||
Net Increase in Net Assets Resulting from Operations |
| 28,514,749 |
| |||
|
|
|
|
|
|
|
See notes to financial statements. | ||||||
17
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
| Year Ended May 31, | |||||
|
|
|
| 2020 |
| 2019 |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Investment income—net |
|
| 26,573,188 |
|
|
| 22,081,662 |
| |
Net realized gain (loss) on investments |
| (51,186,075) |
|
|
| (14,453,980) |
| ||
Net change in unrealized appreciation |
| 53,127,636 |
|
|
| (50,722,378) |
| ||
Net Increase (Decrease) in Net Assets | 28,514,749 |
|
|
| (43,094,696) |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
| (6,383,874) |
|
|
| (10,389,075) |
| |
Class C |
|
| (1,341,709) |
|
|
| (2,075,266) |
| |
Class I |
|
| (19,907,852) |
|
|
| (27,285,576) |
| |
Class Y |
|
| (78,479) |
|
|
| (54,195) |
| |
Total Distributions |
|
| (27,711,914) |
|
|
| (39,804,112) |
| |
Beneficial Interest Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
| 39,087,867 |
|
|
| 91,779,621 |
| |
Class C |
|
| 7,679,881 |
|
|
| 52,043,145 |
| |
Class I |
|
| 219,233,173 |
|
|
| 799,826,763 |
| |
Class Y |
|
| 670,205 |
|
|
| 2,944,015 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
| 5,623,138 |
|
|
| 9,415,374 |
| |
Class C |
|
| 964,039 |
|
|
| 1,604,391 |
| |
Class I |
|
| 16,916,261 |
|
|
| 24,248,564 |
| |
Class Y |
|
| 75,756 |
|
|
| 53,216 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
| (69,784,004) |
|
|
| (47,658,096) |
| |
Class C |
|
| (18,452,528) |
|
|
| (10,033,109) |
| |
Class I |
|
| (475,706,014) |
|
|
| (239,787,458) |
| |
Class Y |
|
| (761,381) |
|
|
| (192,083) |
| |
Increase (Decrease) in Net Assets | (274,453,607) |
|
|
| 684,244,343 |
| |||
Total Increase (Decrease) in Net Assets | (273,650,772) |
|
|
| 601,345,535 |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
| 1,059,447,995 |
|
|
| 458,102,460 |
| |
End of Period |
|
| 785,797,223 |
|
|
| 1,059,447,995 |
| |
18
|
|
|
| Year Ended May 31, | |||||
|
|
|
| 2020 |
| 2019 |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Class Aa,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 2,016,579 |
|
|
| 4,770,683 |
| |
Shares issued for distributions reinvested |
|
| 299,081 |
|
|
| 492,558 |
| |
Shares redeemed |
|
| (3,734,945) |
|
|
| (2,494,721) |
| |
Net Increase (Decrease) in Shares Outstanding | (1,419,285) |
|
|
| 2,768,520 |
| |||
Class Ca,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 410,340 |
|
|
| 2,736,462 |
| |
Shares issued for distributions reinvested |
|
| 52,121 |
|
|
| 85,465 |
| |
Shares redeemed |
|
| (1,001,189) |
|
|
| (540,219) |
| |
Net Increase (Decrease) in Shares Outstanding | (538,728) |
|
|
| 2,281,708 |
| |||
Class Ib |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 11,748,879 |
|
|
| 41,248,445 |
| |
Shares issued for distributions reinvested |
|
| 893,345 |
|
|
| 1,267,405 |
| |
Shares redeemed |
|
| (25,048,781) |
|
|
| (12,614,234) |
| |
Net Increase (Decrease) in Shares Outstanding | (12,406,557) |
|
|
| 29,901,616 |
| |||
Class Y |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 35,135 |
|
|
| 151,282 |
| |
Shares issued for distributions reinvested |
|
| 3,997 |
|
|
| 2,791 |
| |
Shares redeemed |
|
| (41,053) |
|
|
| (10,071) |
| |
Net Increase (Decrease) in Shares Outstanding | (1,921) |
|
|
| 144,002 |
| |||
|
|
|
|
|
|
|
|
|
|
aDuring the period ended May 31, 2020, 2,339 Class C shares representing $45,355 were automatically converted to 2,306 Class A shares and during the period ended May 31, 2019, 2,365 Class C shares representing $46,356 were automatically converted to 2,334 Class A shares. | |||||||||
bDuring the period ended May 31, 2020, 4,214 Class C shares representing $86,178 were exchanged for 4,146 Class I shares and 1,095 Class A shares representing $18,373 were exchanged for 1,092 Class I shares. During the period ended May 31, 2019, 1,083 Class A shares representing $21,165 were exchanged for 1,081 Class I shares. | |||||||||
See notes to financial statements. | |||||||||
19
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund’s financial statements.
Year Ended May 31, | |||||||
Class A Shares | 2020 | 2019 | 2018 | 2017 | 2016 | ||
Per Share Data ($): | |||||||
Net asset value, | 18.12 | 19.62 | 18.48 | 16.59 | 18.01 | ||
Investment Operations: | |||||||
Investment income—net<a | .50 | .48 | .47 | .51 | .52 | ||
Net realized and unrealized | (.29) | (1.11) | 2.24 | 1.98 | (.37) | ||
Total from Investment Operations | .21 | (.63) | 2.71 | 2.49 | .15 | ||
Distributions: | |||||||
Dividends from | (.51) | (.45) | (.45) | (.47) | (.50) | ||
Dividends from net realized | - | (.42) | (1.12) | (.13) | (1.07) | ||
Total Distributions | (.51) | (.87) | (1.57) | (.60) | (1.57) | ||
Net asset value, end of period | 17.82 | 18.12 | 19.62 | 18.48 | 16.59 | ||
Total Return (%)b | 1.06 | (3.36) | 15.15 | 15.18 | 1.54 | ||
Ratios/Supplemental Data (%): | |||||||
Ratio of total expenses | 1.14 | 1.14 | 1.18 | 1.22 | 1.21 | ||
Ratio of net expenses | 1.03 | 1.03 | 1.03 | 1.10 | 1.10 | ||
Ratio of net investment income | 2.57 | 2.46 | 2.47 | 2.88 | 3.12 | ||
Portfolio Turnover Rate | 51.48 | 29.56 | 55.90 | 61.60 | 65.19 | ||
Net Assets, end of period ($ x 1,000) | 206,842 | 235,973 | 201,272 | 182,705 | 206,929 | ||
a Based on average shares outstanding.
b Exclusive of sales charge.
See notes to financial statements.
20
Year Ended May 31, | |||||||
Class C Shares | 2020 | 2019 | 2018 | 2017 | 2016 | ||
Per Share Data ($): | |||||||
Net asset value, | 17.86 | 19.36 | 18.25 | 16.36 | 17.79 | ||
Investment Operations: | |||||||
Investment income—neta | .35 | .32 | .32 | .36 | .39 | ||
Net realized and unrealized | (.27) | (1.09) | 2.22 | 1.96 | (.37) | ||
Total from Investment Operations | .08 | (.77) | 2.54 | 2.32 | .02 | ||
Distributions: | |||||||
Dividends from | (.37) | (.31) | (.31) | (.30) | (.38) | ||
Dividends from net realized | - | (.42) | (1.12) | (.13) | (1.07) | ||
Total Distributions | (.37) | (.73) | (1.43) | (.43) | (1.45) | ||
Net asset value, end of period | 17.57 | 17.86 | 19.36 | 18.25 | 16.36 | ||
Total Return (%)b | .36 | (4.10) | 14.26 | 14.35 | .80 | ||
Ratios/Supplemental Data (%): | |||||||
Ratio of total expenses | 1.82 | 1.83 | 1.86 | 1.91 | 1.92 | ||
Ratio of net expenses | 1.78 | 1.78 | 1.78 | 1.84 | 1.85 | ||
Ratio of net investment income | 1.82 | 1.70 | 1.71 | 2.07 | 2.39 | ||
Portfolio Turnover Rate | 51.48 | 29.56 | 55.90 | 61.60 | 65.19 | ||
Net Assets, end of period ($ x 1,000) | 57,967 | 68,562 | 30,148 | 24,465 | 18,222 | ||
a Based on average shares outstanding.
b Exclusive of sales charge.
See notes to financial statements.
21
FINANCIAL HIGHLIGHTS (continued)
Year Ended May 31, | |||||||
Class I Shares | 2020 | 2019 | 2018 | 2017 | 2016 | ||
Per Share Data ($): | |||||||
Net asset value, | 18.16 | 19.66 | 18.51 | 16.65 | 18.08 | ||
Investment Operations: | |||||||
Investment income—neta | .55 | .52 | .51 | .50 | .54 | ||
Net realized and unrealized | (.29) | (1.10) | 2.26 | 2.04 | (.36) | ||
Total from Investment Operations | .26 | (.58) | 2.77 | 2.54 | .18 | ||
Distributions: | |||||||
Dividends from | (.56) | (.50) | (.50) | (.55) | (.54) | ||
Dividends from net realized | - | (.42) | (1.12) | (.13) | (1.07) | ||
Total Distributions | (.56) | (.92) | (1.62) | (.68) | (1.61) | ||
Net asset value, end of period | 17.86 | 18.16 | 19.66 | 18.51 | 16.65 | ||
Total Return (%) | 1.32 | (3.12) | 15.41 | 15.55 | 1.80 | ||
Ratios/Supplemental Data (%): | |||||||
Ratio of total expenses | .82 | .83 | .85 | .92 | .92 | ||
Ratio of net expenses | .78 | .78 | .78 | .84 | .85 | ||
Ratio of net investment income | 2.83 | 2.70 | 2.69 | 2.82 | 3.32 | ||
Portfolio Turnover Rate | 51.48 | 29.56 | 55.90 | 61.60 | 65.19 | ||
Net Assets, end of period ($ x 1,000) | 518,436 | 752,284 | 226,683 | 142,128 | 24,525 | ||
a Based on average shares outstanding.
See notes to financial statements.
22
Year Ended May 31, | ||||||
Class Y Shares | 2020 | 2019 | 2018 | 2017 | 2016 | |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 18.25 | 19.72 | 18.55 | 16.63 | 18.04 | |
Investment Operations: | ||||||
Investment income—neta | .55 | .51 | .52 | .54 | .56 | |
Net realized and unrealized | (.28) | (1.06) | 2.27 | 2.06 | (.36) | |
Total from Investment Operations | .27 | (.55) | 2.79 | 2.60 | .20 | |
Distributions: | ||||||
Dividends from | (.56) | (.50) | (.50) | (.55) | (.54) | |
Dividends from net realized | - | (.42) | (1.12) | (.13) | (1.07) | |
Total Distributions | (.56) | (.92) | (1.62) | (.68) | (1.61) | |
Net asset value, end of period | 17.96 | 18.25 | 19.72 | 18.55 | 16.63 | |
Total Return (%) | 1.39 | (2.94) | 15.49 | 15.93 | 1.85 | |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | .76 | .77 | .80 | .84 | .84 | |
Ratio of net expenses | .76 | .77 | .78 | .84 | .84 | |
Ratio of net investment income | 2.85 | 2.69 | 2.75 | 3.10 | 3.37 | |
Portfolio Turnover Rate | 51.48 | 29.56 | 55.90 | 61.60 | 65.19 | |
Net Assets, end of period ($ x 1,000) | 2,552 | 2,629 | 0b | 2,258 | 2,221 | |
a Based on average shares outstanding.
b Amount represents less than $1,000.
See notes to financial statements.
23
NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
BNY Mellon Equity Income Fund (the “fund”) is a separate diversified series of BNY Mellon Investment Funds III (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering four series, including the fund. The fund’s investment objective is to seek total return (consisting of capital appreciation and income). 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.
The Trust’s Board of Trustees (the “Board”) approved, effective December 31, 2019 (the “Effective Date”), the termination of the fund’s authorized Class T shares. Prior to the Effective Date, the fund did not offer such Class T shares for purchase.
Effective June 3, 2019, the fund changed its name from Dreyfus Equity Income Fund to BNY Mellon Equity Income Fund and the Trust changed its name from The Dreyfus/Laurel Funds Trust to BNY Mellon Investment Funds III. In addition, The Dreyfus Corporation, the fund’s investment adviser, changed its name to “BNY Mellon Investment Adviser, Inc.”, MBSC Securities Corporation, the fund’s distributor, changed its name to “BNY Mellon Securities Corporation” and Dreyfus Transfer, Inc., the fund’s transfer agent, changed its name to “BNY Mellon Transfer, Inc.”
BNY Mellon Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Adviser, is the distributor of the fund’s shares. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A, Class C, Class I and Class Y. Class A and Class C shares are sold primarily to retail investors through financial intermediaries and bear Distribution and/or Shareholder Services Plan fees. Class A shares generally are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. Class C shares automatically convert to Class A shares ten years after the date of purchase, without the imposition of a sales charge. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of the Adviser, and its affiliates), acting on behalf of customers having a qualified trust or an investment account or relationship
24
at such institution, and bear no Distribution or Shareholder Services Plan fees. Class Y shares are sold at net asset value per share generally to institutional investors, and bear no Distribution or Shareholder Services Plan fees. Class I and Class Y shares are offered without a front-end sales charge or CDSC. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs, and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
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 Trust 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
25
NOTES TO FINANCIAL STATEMENTS (continued)
such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
Investments in equity securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. For open short positions, asked prices are used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value. All of the preceding securities are generally categorized within Level 1 of the fair value hierarchy.
Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices. These securities are generally categorized within Level 2 of the fair value hierarchy.
Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depositary Receipts and futures. Utilizing these techniques may result in transfers between Level 1 and Level 2 of the fair value hierarchy.
26
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 (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. These securities are either categorized within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
For securities where observable inputs are limited, assumptions about market activity and risk are used and such securities are generally categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of May 31, 2020 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:† | ||||
Equity Securities - Common Stocks | 776,277,836 | - | - | 776,277,836 |
Investment Companies | 951,350 | - | - | 951,350 |
Limited Partnerships | 67,817 | - | - | 67,817 |
† See Statement of Investments for additional detailed categorizations, if any.
(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. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
Pursuant to a securities lending agreement with The Bank of New York Mellon, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at
27
NOTES TO FINANCIAL STATEMENTS (continued)
least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Adviser, or U.S. Government and Agency securities. The fund is entitled to receive all dividends, interest and distributions on securities loaned, in addition to income earned as a result of the lending transaction. Should a borrower fail to return the securities in a timely manner, The Bank of New York Mellon is required to replace the securities for the benefit of the fund or credit the fund with the market value of the unreturned securities and is subrogated to the fund’s rights against the borrower and the collateral. Additionally, the contractual maturity of security lending transactions are on an overnight and continuous basis. During the period ended May 31, 2020, The Bank of New York Mellon earned $23,802 from the lending of the fund’s portfolio securities, pursuant to the securities lending agreement.
(c) Affiliated issuers: Investments in other investment companies advised by the Adviser are considered “affiliated” under the Act.
(d) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. 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 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. 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.
(e) Dividends and distributions to shareholders: Dividends and distributions are recorded on the ex-dividend date. Dividends from
28
investment income-net are normally declared and paid on a monthly basis. 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.
(f) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable 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 May 31, 2020, 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 May 31, 2020, the fund did not incur any interest or penalties.
Each tax year in the four-year period ended May 31, 2020 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At May 31, 2020, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $1,281,799, accumulated capital losses $68,613,868 and unrealized appreciation $65,029,905.
The fund is permitted to carry forward capital losses for an unlimited period. Furthermore, capital loss carryovers retain their character as either short-term or long-term capital losses.
The accumulated capital loss carryover is available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to May 31, 2020. The fund has $50,877,648 of short-term capital losses and $17,736,220 of long-term capital losses which can be carried forward for an unlimited period.
The tax character of distributions paid to shareholders during the fiscal periods ended May 31, 2020 and May 31, 2019 were as follows: ordinary income $27,711,914 and $29,574,120, and long-term capital gains $0 and $10,229,992, respectively.
29
NOTES TO FINANCIAL STATEMENTS (continued)
(g) New Accounting Pronouncements: Effective June 1, 2019, the fund adopted Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The update provides guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. The adoption of ASU 2018-13 had no impact on the operations of the fund for the period ended May 31, 2020.
NOTE 2—Bank Lines of Credit:
The fund participates with other long-term open-end funds managed by the Adviser in a $927 million unsecured credit facility led by Citibank, N.A. (the “Citibank Credit Facility”) and a $300 million unsecured credit facility provided by The Bank of New York Mellon (the “BNYM Credit Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions (each, a “Facility”). The Citibank Credit Facility is available in two tranches: (i) Tranche A is in an amount equal to $747 million and is available to all long-term open-ended funds, including the fund, and (ii) Tranche B is an amount equal to $180 million and is available only to BNY Mellon Floating Rate Income Fund, a series of BNY Mellon Investment Funds IV, Inc. Prior to March 11, 2020, the Citibank Credit Facility was $1.030 billion with Tranche A available in an amount equal to $830 million and Tranche B available in an amount equal to $200 million. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended May 31, 2020 was approximately $375,137 with a related weighted average annualized interest rate of 2.34%.
NOTE 3—Management Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Adviser, the management fee is computed at the annual rate of .70% of the value of the fund’s average daily net assets and is payable monthly. The Adviser has contractually agreed, from June 1, 2019 through September 30, 2020, to waive receipt of its fees and/or assume the direct expenses of the fund, so that the total annual fund operating expenses of none of the classes (excluding Rule 12b-1 Distribution Plan fees, Shareholder Services Plan fees, taxes, interest expense, brokerage commissions, commitment fees on
30
borrowings and extraordinary expenses) exceed .78% of the value of the fund’s average daily net assets. On or after September 30, 2020, the Adviser may terminate this expense limitation at any time. The reduction in expenses, pursuant to the undertaking, amounted to $519,417 during the period ended May 31, 2020.
During the period ended May 31, 2020, the Distributor retained $20,022, from commissions earned on sales of the fund’s Class A shares and $17,161 from CDSC fees on redemptions of the fund’s Class C shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of its average daily net assets. During the period ended May 31, 2020, Class C shares were charged $513,370 pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended May 31, 2020, Class A and Class C shares were charged $596,881 and $171,123, respectively, pursuant to the Shareholder Services Plan.
Under its terms, the Distribution Plan and Shareholder Services Plan shall remain in effect from year to year, provided such continuance is approved annually by a vote of a majority of those Trustees who are not “interested persons” of the Trust and who have no direct or indirect financial interest in the operation of or in any agreement related to the Distribution Plan or Shareholder Services Plan.
The fund has an arrangement with the transfer agent whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency fees. For financial reporting purposes, the fund includes net earnings credits, if any, as an expense offset in the Statement of Operations.
The fund has an arrangement with the custodian whereby the fund will receive interest income or be charged an overdraft fees when cash balances are maintained. For financial reporting purposes, the fund includes this
31
NOTES TO FINANCIAL STATEMENTS (continued)
interest income and overdraft fees, if any, as interest income in the Statements of Operations.
The fund compensates BNY Mellon Transfer, Inc., a wholly-owned subsidiary of the Adviser, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended May 31, 2020, the fund was charged $62,756 for transfer agency services. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended May 31, 2020, the fund was charged $24,226 pursuant to the custody agreement.
During the period ended May 31, 2020, the fund was charged $14,781 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 fees of $452,867, Distribution Plan fees of $35,802, Shareholder Services Plan fees of $54,422, custodian fees of $10,000, Chief Compliance Officer fees of $3,130 and transfer agency fees of $13,544, which are offset against an expense reimbursement currently in effect in the amount of $45,915.
(d) 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 of investment securities, excluding short-term securities, during the period ended May 31, 2020, amounted to $499,935,627 and $777,378,943, respectively.
At May 31, 2020, the cost of investments for federal income tax purposes was $712,267,098; accordingly, accumulated net unrealized appreciation on investments was $65,029,905, consisting of $141,904,826 gross unrealized appreciation and $76,874,921 gross unrealized depreciation.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of the Fund and Board of Trustees
BNY Mellon Investment Funds III:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of BNY Mellon Equity Income Fund (the “Fund”), a series of BNY Mellon Investment Funds III, including the statement of investments, as of May 31, 2020, and the statement of investments in affiliated issuers as of and for the year end then ended, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the related notes (collectively, the financial statements), and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of May 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, 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 and financial highlights. Such procedures also included confirmation of securities owned as of May 31, 2020, by correspondence with the custodian and brokers or by other appropriate auditing procedures when replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more BNY Mellon Investment Adviser, Inc. investment companies since 1994.
New York, New York
July 24, 2020
33
IMPORTANT TAX INFORMATION (Unaudited)
For federal tax purposes the fund reports the maximum amount allowable but not less than 100% of ordinary income dividends paid during the fiscal year ended May 31, 2020 as eligible for the corporate dividends received deduction provided under Section 243 of the Internal Revenue Code in accordance with Section 854(b)(1)(A) of the Internal Revenue Code. Also, the fund reports the maximum amount allowable but not less than $27,711,914 as ordinary income dividends paid during the fiscal year ended May 31, 2020 as qualified dividend income in accordance with Section 854(b)(1)(B) of the Internal Revenue Code. Shareholders will receive notification in early 2021 of the percentage applicable to the preparation of their 2020 income tax returns.
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INFORMATION ABOUT THE RENEWAL OF THE FUND'S MANAGEMENT AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on February 26-27, 2020, the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”). 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. In considering the renewal of the Agreement, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the meeting and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. The Adviser also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the BNY Mellon fund complex (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or the Adviser) and the Adviser’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that the Adviser also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board also considered the Adviser’s extensive administrative, accounting and compliance infrastructures. The Board also considered portfolio management’s brokerage policies and practices (including policies and practices regarding soft dollars) and the standards applied in seeking best execution.
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board reviewed reports prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data, which included information comparing (1) the fund’s performance with the performance of a group of institutional equity income funds (the “Performance Group”) and with a broader group of retail and institutional equity income funds (the “Performance Universe”), all for various periods ended December 31, 2019, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of institutional equity income funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a
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INFORMATION ABOUT THE RENEWAL OF THE FUND'S MANAGEMENT AGREEMENT (Unaudited) (continued)
description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds. The Board discussed with representatives of the Adviser the results of the comparisons and considered that the fund’s total return performance was above the Performance Group and Performance Universe medians for all periods except for the one-year period when it was slightly below the Performance Universe median. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser over the fund’s last fiscal year in light of the nature, extent and quality of the management services provided by the Adviser. In addition, the Board also reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year which included reductions for a fee waiver arrangement in place that reduced the investment advisory fee paid to the Adviser. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons. The Board considered that the fund’s contractual management fee was higher than the Expense Group median contractual management fee, the fund’s actual management fee was lower than the Expense Group median and higher than the Expense Universe median actual management fee and the fund’s total expenses were slightly lower than the Expense Group median and the Expense Universe median total expenses.
Representatives of the Adviser stated that the Adviser has contractually agreed, until September 30, 2020, to waive receipt of its fees and/or assume the direct expenses of the fund so that the direct expenses of none of its classes (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, commitment fees on borrowings and extraordinary expenses) exceed .78% of the fund’s average daily net assets.
Representatives of the Adviser reviewed with the Board the management or investment advisory fees paid by funds advised or administered by the Adviser that are in the same Lipper category 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 management fee.
Analysis of Profitability and Economies of Scale. Representatives of the Adviser reviewed the expenses allocated and profit received by the Adviser and its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to the Adviser and its affiliates for managing the funds in the
36
BNY Mellon fund complex, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not excessive, given the services rendered and service levels provided by the Adviser and its affiliates. The Board also considered the expense limitation arrangement and its effect on the profitability of the Adviser and its affiliates. The Board also had been provided with information prepared by an independent consulting firm regarding the Adviser’s approach to allocating costs to, and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation of whether the fees under the Agreement, considered in relation to the mix of services provided by the Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreement and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser from acting as investment adviser and took into consideration the soft dollar arrangements in effect for trading the fund’s investments.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser are adequate and appropriate.
· The Board was satisfied with the fund’s performance.
· The Board concluded that the fee paid to the Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and
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INFORMATION ABOUT THE RENEWAL OF THE FUND'S MANAGEMENT AGREEMENT (Unaudited) (continued)
other interactions with the Adviser and its affiliates, of the Adviser and the services provided to the fund by the Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreement for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreement.
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LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)
Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.
The rule requires the funds to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.
The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.
Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the fund’s board. Furthermore, the board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.
Assessment of Program
In the opinion of the Program Administrator, the Program approved by the fund board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.
During the period from June 1, 2019 to March 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.
39
LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited) (continued)
Under normal expected foreseeable fund redemption forecasts and foreseeable stressed fund redemption forecasts, the Program Administrator believes that the fund maintains sufficient highly liquid assets to meet expected fund redemptions.
40
BOARD MEMBERS INFORMATION (Unaudited)
INDEPENDENT BOARD MEMBERS
Joseph S. DiMartino (76)
Chairman of the Board (1999)
Principal Occupation During Past 5 Years:
· Director or Trustee of funds in the BNY Mellon Family of Funds and certain other entities (as described in the fund’s Statement of Additional Information) (1995-Present)
Other Public Company Board Memberships During Past 5 Years:
· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (1997-Present)
No. of Portfolios for which Board Member Serves: 114
———————
Francine J. Bovich (68)
Board Member (2012)
Principal Occupation During Past 5 Years:
· Trustee, The Bradley Trusts, private trust funds (2011-Present)
Other Public Company Board Memberships During Past 5 Years:
· Annaly Capital Management, Inc., a real estate investment trust, Director (2014-Present)
No. of Portfolios for which Board Member Serves: 68
———————
Andrew J. Donohue (69)
Board Member (2019)
Principal Occupation During Past 5 Years:
· Of Counsel, Shearman & Sterling LLP (2017-2019)
· Chief of Staff to the Chair of the SEC (2015-2017)
· Managing Director and Investment Company General Counsel of Goldman Sachs (2012-2015)
Other Public Company Board Memberships During Past 5 Years:
· Oppenheimer Funds (58 funds), Director (2017-2019)
No. of Portfolios for which Board Member Serves: 54
———————
41
BOARD MEMBERS INFORMATION (Unaudited) (continued)
INDEPENDENT BOARD MEMBERS (continued)
Kenneth A. Himmel (74)
Board Member (1994)
Principal Occupation During Past 5 Years:
· Managing Partner, Gulf Related, an international real estate development company (2010-Present)
· President and CEO, Related Urban Development, a real estate development company (1996-Present)
· President and CEO, Himmel & Company, a real estate development company (1980-Present)
· CEO, American Food Management, a restaurant company (1983-Present)
No. of Portfolios for which Board Member Serves: 22
———————
Stephen J. Lockwood (73)
Board Member (1994)
Principal Occupation During Past 5 Years:
· Chairman of the Board, Stephen J. Lockwood and Company LLC, a real estate investment company (2000-Present)
No. of Portfolios for which Board Member Serves: 22
———————
Roslyn M. Watson (70)
Board Member (1994)
Principal Occupation During Past 5 Years:
· Principal, Watson Ventures, Inc., a real estate investment company (1993-Present)
Other Public Company Board Memberships During Past 5 Years:
· American Express Bank, FSB, Director (1993-2018)
No. of Portfolios for which Board Member Serves: 54
———————
42
Benaree Pratt Wiley (74)
Board Member (1994)
Principal Occupation During Past 5 Years:
· Principal, The Wiley Group, a firm specializing in strategy and business development (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 (2004-Present)
No. of Portfolios for which Board Member Serves: 74
———————
Once elected all Board Members serve for an indefinite term, but achieve Emeritus status upon reaching age 80. The address of the Board Members and Officers is c/o BNY Mellon Investment Adviser, Inc. 240 Greenwich Street, New York, New York 10286. Additional information about the Board Members is available in the fund’s Statement of Additional Information which can be obtained from the Adviser free of charge by calling this toll free number: 1-800-373-9387.
James M. Fitzgibbons, Emeritus Board Member
43
OFFICERS OF THE FUND (Unaudited)
RENEE LAROCHE-MORRIS, President since May 2019.
President and a director of BNY Mellon Investment Adviser, Inc. since January 2018. She is an officer of 62 investment companies (comprised of 114 portfolios) managed by the Adviser. She is 48 years old and has been an employee of BNY Mellon since 2003.
JAMES WINDELS, Treasurer since November 2001.
Director-BNY Mellon Fund Administration, and an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 61 years old and has been an employee of the Adviser since April 1985.
BENNETT A. MACDOUGALL, Chief Legal Officer since October 2015.
Chief Legal Officer of the Adviser and Associate General Counsel and Managing Director of BNY Mellon since June 2015; Director and Associate General Counsel of Deutsche Bank–Asset & Wealth Management Division from June 2005 to June 2015, and as Chief Legal Officer of Deutsche Investment Management Americas Inc. from June 2012 to May 2015. He is an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 48 years old and has been an employee of the Adviser since June 2015.
DAVID DIPETRILLO, Vice President since May 2019.
Head of North America Product, BNY Mellon Investment Management since January 2018, Director of Product Strategy, BNY Mellon Investment Management from January 2016 to December 2017; Head of US Retail Product and Channel Marketing, BNY Mellon Investment Management from January 2014 to December 2015. He is an officer of 63 investment companies (comprised of 122 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 42 years old and has been an employee of BNY Mellon since 2005.
JAMES BITETTO, Vice President since August 2005 and Secretary since February 2018.
Senior Managing Counsel of BNY Mellon since December 2019; Managing Counsel of BNY Mellon from April 2014 to December 2019; Secretary of the Adviser, and an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of the Adviser since December 1996.
SONALEE CROSS, Vice President and Assistant Secretary since March 2018.
Counsel of BNY Mellon since October 2016; Associate at Proskauer Rose LLP from April 2016 to September 2016; Attorney at EnTrust Capital from August 2015 to February 2016; Associate at Sidley Austin LLP from September 2013 to August 2015. She is an officer of 64 investment companies (comprised of 145 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 October 2016.
DEIRDRE CUNNANE, Vice President and Assistant Secretary since March 2019.
Counsel of BNY Mellon since August 2018; Senior Regulatory Specialist at BNY Mellon Investment Management Services from February 2016 to August 2018; Trustee Associate at BNY Mellon Trust Company (Ireland) Limited from August 2013 to February 2016. She is an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 29 years old and has been an employee of the Adviser since August 2018.
SARAH S. KELLEHER, Vice President and Assistant Secretary since April 2014.
Managing Counsel of BNY Mellon since December 2017, Senior Counsel of BNY Mellon from March 2013 to December 2017. She is an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 44 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, and an officer of 64 investment companies (comprised of 145 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 October 1990.
PETER M. SULLIVAN, Vice President and Assistant Secretary since March 2019.
Managing Counsel of BNY Mellon since March 2009, Senior Counsel of BNY Mellon from April 2004 to March 2009, and an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 52 years old and has been an employee of the Adviser since January 2019.
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AMANDA QUINN, Vice President and Assistant Secretary since March 2020.
Counsel of BNY Mellon since June 2019; Regulatory Administration Manager at BNY Mellon Investment Management Services from September 2018 to May 2019; Senior Regulatory Specialist at BNY Mellon Investment Management Services from April 2015 to August 2018. She is an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 35 years old and has been an employee of the Adviser since June 2019.
NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.
Managing Counsel of BNY Mellon since December 2019; Counsel of BNY Mellon from May 2016 to December 2019; Attorney at Wildermuth Endowment Strategy Fund/Wildermuth Advisory, LLC from November 2015 to May 2016 and Assistant General Counsel at RCS Advisory Services from July 2014 to November 2015. She is an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 35 years old and has been an employee of the Adviser since May 2016.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager-BNY Mellon Fund Administration, and an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 51 years old and has been an employee of the Adviser since April 1991.
ROBERT S. ROBOL, Assistant Treasurer since August 2002.
Senior Accounting Manager-BNY Mellon Fund Administration, and an officer of 64 investment companies (comprised of 145 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 October 1988.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 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, and an officer of 64 investment companies (comprised of 145 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 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 Adviser, the BNY Mellon Family of Funds and BNY Mellon Funds Trust (63 investment companies, comprised of 137 portfolios). He is 63 years old and has served in various capacities with the Adviser since 1980, including manager of the firm’s Fund Accounting Department from 1997 through October 2001.
CARIDAD M. CAROSELLA, Anti-Money Laundering Compliance Officer since January 2016.
Anti-Money Laundering Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since January 2016; from May 2015 to December 2015, Interim Anti-Money Laundering Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust and the Distributor; from January 2012 to May 2015, AML Surveillance Officer of the Distributor. She is an officer of 57 investment companies (comprised of 138 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 51 years old and has been an employee of the Distributor since 1997.
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BNY Mellon Equity Income Fund
240 Greenwich Street
New York, NY 10286
Adviser
BNY Mellon Investment Adviser, Inc.
240 Greenwich Street
New York, NY 10286
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
BNY Mellon Transfer, Inc.
240 Greenwich Street
New York, NY 10286
Distributor
BNY Mellon Securities Corporation
240 Greenwich Street
New York, NY 10286
Ticker Symbols: | Class A: DQIAX Class C: DQICX Class I: DQIRX Class Y: DQIYX |
Telephone Call your financial representative or 1-800-373-9387
Mail The BNY Mellon Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
E-mail Send your request to info@bnymellon.com
Internet Information can be viewed online or downloaded at www.bnymellonim.com/us
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.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 is available at www.bnymellonim.com/us and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2020 BNY Mellon Securities Corporation |
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Item 2. Code of Ethics.
The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. There have been no amendments to, or waivers in connection with, the Code of Ethics during the period covered by this Report.
Item 3. Audit Committee Financial Expert.
The Registrant's Board has determined that Joseph S. DiMartino, a member of the Audit Committee of the Board, is an audit committee financial expert as defined by the Securities and Exchange Commission (the "SEC"). Mr. DiMartino is "independent" as defined by the SEC for purposes of audit committee financial expert determinations.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant (the "Auditor") for the audit of the Registrant's annual financial statements or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $36,230 in 2019 and $34,230 in 2020.
(b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item 4 were $4,790 in 2019 and $4,790 in 2020. These services consisted of one or more of the following: (i) agreed upon procedures related to compliance with Internal Revenue Code section 817(h), (ii) security counts required by Rule 17f-2 under the Investment Company Act of 1940, as amended, (iii) advisory services as to the accounting or disclosure treatment of Registrant transactions or events and (iv) advisory services to the accounting or disclosure treatment of the actual or potential impact to the Registrant of final or proposed rules, standards or interpretations by the Securities and Exchange Commission, the Financial Accounting Standards Boards or other regulatory or standard-setting bodies.
The aggregate fees billed in the Reporting Periods for non-audit assurance and related services by the Auditor to the Registrant's investment adviser (not including any sub-investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant ("Service Affiliates"), that were reasonably related to the performance of the annual audit of the Service Affiliate, which required pre-approval by the Audit Committee were $0 in 2019 and $0 in 2020.
(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice, and tax planning ("Tax Services") were $2,690 in 2019 and $2,730 in 2020. These services consisted of review or preparation of U.S. federal, state, local and excise tax returns. The aggregate fees billed in the Reporting Periods for Tax Services by the Auditor to Service Affiliates, which required pre-approval by the Audit Committee were $0 in 2019 and $0 in 2020.
(d) All Other Fees. The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2019 and $0 in 2020.
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The aggregate fees billed in the Reporting Periods for Non-Audit Services by the Auditor to Service Affiliates, other than the services reported in paragraphs (b) through (c) of this Item, which required pre-approval by the Audit Committee, were $0 in 2019 and $0 in 2020.
(e)(1) Audit Committee Pre-Approval Policies and Procedures. The Registrant's Audit Committee has established policies and procedures (the "Policy") for pre-approval (within specified fee limits) of the Auditor's engagements for non-audit services to the Registrant and Service Affiliates without specific case-by-case consideration. The pre-approved services in the Policy can include pre-approved audit services, pre-approved audit-related services, pre-approved tax services and pre-approved all other services. Pre-approval considerations include whether the proposed services are compatible with maintaining the Auditor's independence. Pre-approvals pursuant to the Policy are considered annually.
(e)(2) Note. None of the services described in paragraphs (b) through (d) of this Item 4 were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) None of the hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
Non-Audit Fees. The aggregate non-audit fees billed by the Auditor for services rendered to the Registrant, and rendered to Service Affiliates, for the Reporting Periods were $331,000 in 2019 and $463,000 in 2020.
Auditor Independence. The Registrant's Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Auditor's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures applicable to Item 10.
Item 11. Controls and Procedures.
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(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) Code of ethics referred to in Item 2.
(a)(3) Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BNY Mellon Investment Funds III
By: /s/ Renee LaRoche-Morris
Renee LaRoche-Morris
President (Principal Executive Officer)
Date: July 27, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Renee LaRoche-Morris
Renee LaRoche-Morris
President (Principal Executive Officer)
Date: July 27, 2020
By: /s/ James Windels
James Windels
Treasurer (Principal Financial Officer)
Date: July 24, 2020
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EXHIBIT INDEX
(a)(1) Code of ethics referred to in Item 2.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940. (EX-99.CERT)
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940. (EX-99.906CERT)
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