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 | 811-04906 | |||||
BNY Mellon State Municipal Bond Funds | ||||||
(Exact name of Registrant as specified in charter) | ||||||
c/o BNY Mellon Investment Adviser, Inc. 240 Greenwich Street New York, New York 10286 | ||||||
(Address of principal executive offices) (Zip code) | ||||||
Deirdre Cunnane, Esq. 240 Greenwich Street New York, New York 10286 | ||||||
(Name and address of agent for service) | ||||||
Registrant's telephone number, including area code: | (212) 922-6400 | |||||
Date of fiscal year end:
| 04/30 | |||||
Date of reporting period: | 10/31/22
| |||||
FORM N-CSR
Item 1. | Reports to Stockholders. |
BNY Mellon State Municipal Bond Funds, BNY Mellon Connecticut Fund
SEMI-ANNUAL REPORT October 31, 2022 |
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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
Information About the Renewal | |
FOR MORE INFORMATION
Back Cover
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from May 1, 2022, through October 31, 2022, as provided by Daniel Barton and Jeffrey Burger, Portfolio Managers of Insight North America, LLC, sub-adviser.
Market and Fund Performance Overview
For the six-month period ended October 31, 2022, Class A shares of BNY Mellon Connecticut Fund (the “fund”), a series of BNY Mellon Municipal Bond Funds, produced a total return of −5.73%, Class C shares returned −6.14%, Class I shares returned −5.69%, Class Y shares returned −5.75% and Class Z shares returned −5.60%.1 In comparison, the Bloomberg U.S. Municipal Bond Index (the “Index”), the fund’s benchmark index, which is comprised of bonds issued nationally and not solely within Connecticut, achieved a total return of −4.43% for the same period.2
Municipal bonds were hindered by inflation and monetary policy concerns. The fund underperformed the Index, mainly due to long-duration positioning versus the Index and an overweight to revenue bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and from Connecticut state income tax, without undue risk. To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in municipal bonds that provide income exempt from federal and Connecticut state income taxes. The fund invests at least 70% of its assets in municipal bonds rated, at the time of purchase, investment grade (Baa/BBB or higher) or the unrated equivalent as determined by the fund’s sub-adviser. For additional yield, the fund may invest up to 30% of its assets in municipal bonds rated below investment grade (“high yield” or “junk” bonds) or the unrated equivalent as determined by the fund’s sub-adviser. The dollar-weighted, average maturity of the fund’s portfolio normally exceeds 10 years, but the fund may invest without regard to maturity.
The portfolio managers focus on identifying undervalued sectors and securities and minimize the use of interest-rate forecasting. The portfolio managers select municipal bonds for the fund’s portfolio by using fundamental credit analysis to estimate the relative value and attractiveness of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market, and by actively trading among various sectors, such as pre-refunded, general obligation and revenue, based on their apparent relative values. The fund seeks to invest in several of these sectors and does not seek to overweight any particular sector but may do so depending on each sector’s relative value at a given time.
Volatility and Fund Outflows Hinder the Market
The municipal bond market continued to experience volatility driven by economic uncertainty, rising inflation and geopolitical risk. While employment remains strong, the outcome of the Federal Reserve’s (the “Fed”) tightening policy is uncertain, with investors fearing that an economic slowdown is likely.
Inflation measures stayed near multi-decade highs during the reporting period, fueled in part by high oil prices. In response, the Fed continued to implement increases in the federal funds rate, raising it in May, June, July, September and early November, bringing the target rate to between 3.75% and 4.00% at the end of the reporting period. Despite these hikes, the economy, which had earlier posted two-consecutive quarters of contraction, rebounded in the third quarter, with GDP growing at a 2.6% annualized rate.
The persistence of higher-than-expected inflation, combined with interest-rate hikes by the Fed and rising Treasury yields, led to volatility in the municipal bond market through much of the year. Significant outflows from municipal bond mutual funds have added to the turmoil as fund managers sold positions to meet redemptions.
2
Despite the sell-off, credit fundamentals in the municipal market have remained strong, assisted by healthy tax revenues and federal support. In addition, turmoil has resulted in more attractive valuations in many segments of the market, creating the potential for outperformance in the future.
Duration and Asset Allocation Drove Performance
The fund’s performance was driven primarily by its relatively long duration versus the Index. Bonds with longer maturities were hurt more as Treasury yields rose during the period. The fund’s overweight positions in 15- and 20-year bonds in particular were detrimental. An overweight to revenue bonds also hampered relative returns as those sold off more than did general obligation bonds. Overweights in hospital, housing and education bonds were especially detrimental. An overweight to lower-quality bonds, especially those rated A and BBB, was also disadvantageous.
On a more positive note, an overweight position in water & sewer bonds and an underweight in transportation bonds added to relative performance. Also, Connecticut bonds in general added to relative returns versus the national Index as the state remained fiscally disciplined and saw improved tax revenues, enabling it to reduce the underfunded status of its pension plan. The fund did not make use of derivatives during the reporting period.
Optimistic about Rates and Inflation
Although volatility could continue in the short term as the market responds to continued Fed tightening, we remain sanguine about the market. It appears that inflation has begun to ease, and we believe it may have peaked, allowing the Fed to ease up on its tightening policy. Nevertheless, we expect to have more clarity on inflation and monetary policy as we move into the new year. Municipal bonds typically perform well at the end of a monetary tightening cycle, and we are beginning to see more interest from retail investors, given the attractive yields.
We plan to keep the fund’s duration slightly long versus the Index, but with a possible recession on the horizon, we will remain cautious on credit quality. Nevertheless, the sell-off has created opportunities, and we will take advantage of these where credit quality remains sound.
November 15, 2022
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. Class I, Class Y and Class Z shares are not subject to any initial or deferred sales charge. Past performance is no guarantee of future results. Share price, yield and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. Income may be subject to state and local taxes, and some income may be subject to the federal alternative minimum tax (AMT) for certain investors. Capital gains, if any, are taxable. 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 1, 2023, 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 Bloomberg U.S. Municipal Bond Index covers the U.S.-dollar-denominated, long-term, tax-exempt bond market. Investors cannot invest directly in any index.
Bonds are subject generally to interest-rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
The amount of public information available about municipal bonds is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund’s investments in municipal bonds. Other factors include the general conditions of the municipal bond market, the size of the particular offering, the maturity of the obligation and the rating of the issue. Changes in economic, business or political conditions relating to a particular municipal project, municipality or state in which the fund invests may have an impact on the fund’s share price.
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.
3
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 State Municipal Bond Funds, BNY Mellon Connecticut Fund from May 1, 2022 to October 31, 2022. 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 October 31, 2022 |
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| Class A | Class C | Class I | Class Y | Class Z |
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Expenses paid per $1,000† | $4.65 | $8.70 | $3.38 | $3.33 | $3.28 |
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Ending value (after expenses) | $942.70 | $938.60 | $943.10 | $942.50 | $944.00 |
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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 October 31, 2022 |
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| Class A | Class C | Class I | Class Y | Class Z |
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Expenses paid per $1,000† | $4.84 | $9.05 | $3.52 | $3.47 | $3.41 |
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Ending value (after expenses) | $1,020.42 | $1,016.23 | $1,021.73 | $1,021.78 | $1,021.83 |
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† | Expenses are equal to the fund’s annualized expense ratio of .95% for Class A, 1.78% for Class C, .69% for Class I, .68% for Class Y and .67% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
4
STATEMENT OF INVESTMENTS
October 31, 2022 (Unaudited)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 98.9% | |||||||||
Connecticut - 96.6% | |||||||||
Connecticut, GO, Refunding, Ser. E | 5.00 | 9/15/2034 | 1,000,000 | 1,050,731 | |||||
Connecticut, GO, Ser. 2021 A | 5.00 | 1/15/2041 | 2,050,000 | 2,127,697 | |||||
Connecticut, GO, Ser. C | 4.00 | 6/1/2028 | 1,000,000 | 1,014,598 | |||||
Connecticut, GO, Ser. E | 5.00 | 10/15/2034 | 1,120,000 | 1,159,359 | |||||
Connecticut, Revenue Bonds, Ser. A | 4.00 | 5/1/2037 | 2,500,000 | 2,361,253 | |||||
Connecticut, Revenue Bonds, Ser. A | 4.00 | 9/1/2035 | 5,000,000 | 4,784,302 | |||||
Connecticut, Revenue Bonds, Ser. A | 4.00 | 5/1/2036 | 1,000,000 | 953,081 | |||||
Connecticut, Revenue Bonds, Ser. A | 5.00 | 5/1/2034 | 1,500,000 | 1,605,350 | |||||
Connecticut, Revenue Bonds, Ser. A | 5.00 | 9/1/2031 | 2,615,000 | 2,676,400 | |||||
Connecticut, Revenue Bonds, Ser. A | 5.00 | 8/1/2034 | 3,000,000 | 3,089,202 | |||||
Connecticut, Revenue Bonds, Ser. A | 5.00 | 9/1/2029 | 1,280,000 | 1,348,605 | |||||
Connecticut Bradley International Airport, Revenue Bonds (Ground Transportation Center) | 5.00 | 7/1/2049 | 2,500,000 | 2,287,817 | |||||
Connecticut Clean Water Fund - State Revolving Fund, Revenue Bonds (Green Bond) Ser. A | 4.00 | 2/1/2035 | 2,125,000 | 2,084,404 | |||||
Connecticut Clean Water Fund - State Revolving Fund, Revenue Bonds (Green Bond) Ser. A | 5.00 | 3/1/2029 | 2,600,000 | 2,695,191 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Church Home of Hartford Project) Ser. A | 5.00 | 9/1/2053 | 1,500,000 | a | 1,257,322 | ||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Church Home of Hartford Project) Ser. A | 5.00 | 9/1/2046 | 1,000,000 | a | 862,659 | ||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Covenant Home Inc.) Ser. B | 5.00 | 12/1/2040 | 4,020,000 | 3,804,271 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Fairfield University) Ser. Q1 | 5.00 | 7/1/2046 | 1,000,000 | 1,012,571 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Fairfield University) Ser. U | 4.00 | 7/1/2052 | 2,000,000 | 1,566,082 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Hartford HealthCare Obligated Group) | 5.00 | 7/1/2045 | 2,500,000 | 2,431,251 |
5
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 98.9% (continued) | |||||||||
Connecticut - 96.6% (continued) | |||||||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Hartford HealthCare Obligated Group) Ser. E | 5.00 | 7/1/2027 | 3,265,000 | 3,317,866 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Hartford HealthCare Project) Ser. A | 4.00 | 7/1/2046 | 945,000 | 796,000 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Hartford University) Ser. P | 5.38 | 7/1/2052 | 1,000,000 | 905,591 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (Mary Wade Home Obligated Group) Ser. A1 | 5.00 | 10/1/2054 | 2,000,000 | a | 1,722,125 | ||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (The Greenwich Academy) Ser. G | 4.00 | 3/1/2041 | 1,170,000 | 1,056,314 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds (The Stamford Hospital Obligated Group) Ser. K | 4.00 | 7/1/2046 | 2,000,000 | 1,587,278 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Connecticut College) Ser. L1 | 4.00 | 7/1/2046 | 2,000,000 | 1,637,356 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Fairfield University) Ser. R | 5.00 | 7/1/2032 | 1,000,000 | 1,041,311 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Nuvance Health Obligated Group) Ser. A | 4.00 | 7/1/2041 | 2,250,000 | 1,819,253 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Quinnipiac University) Ser. L | 5.00 | 7/1/2045 | 3,000,000 | 2,999,975 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Quinnipiac University) Ser. L | 5.00 | 7/1/2036 | 5,000,000 | 5,073,005 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Quinnipiac University) Ser. M | 5.00 | 7/1/2036 | 200,000 | 202,989 |
6
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 98.9% (continued) | |||||||||
Connecticut - 96.6% (continued) | |||||||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Sacred Heart University) Ser. I1 | 5.00 | 7/1/2042 | 2,000,000 | 2,005,242 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (The Choate Rosemary Hall Foundation) Ser. F | 4.00 | 7/1/2042 | 1,110,000 | 1,011,892 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (The Greenwich Academy) (Insured; Assured Guaranty Municipal Corp.) Ser. E | 5.25 | 3/1/2032 | 6,880,000 | 7,577,666 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (The Loomis Institute) (Insured; American Municipal Bond Assurance Corp.) Ser. F | 5.25 | 7/1/2028 | 1,760,000 | 1,891,637 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (The Stamford Hospital Obligated Group) Ser. L1 | 4.00 | 7/1/2029 | 500,000 | 476,659 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (The Stamford Hospital Obligated Group) Ser. L1 | 4.00 | 7/1/2030 | 865,000 | 814,926 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (The University of Hartford) | 5.00 | 7/1/2034 | 425,000 | 403,415 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Trinity College) Ser. R | 4.00 | 6/1/2045 | 2,300,000 | 1,930,069 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Trinity Health Corp. Obligated Group) | 5.00 | 12/1/2045 | 7,500,000 | 7,321,503 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (University of New Haven) | 5.00 | 7/1/2036 | 1,000,000 | 931,339 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Yale New Haven Health Obligated Group) Ser. E | 5.00 | 7/1/2027 | 3,960,000 | 4,040,131 |
7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 98.9% (continued) | |||||||||
Connecticut - 96.6% (continued) | |||||||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding, Ser. S | 4.00 | 6/1/2051 | 1,000,000 | 814,352 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding, Ser. S | 4.00 | 6/1/2046 | 2,250,000 | 1,874,920 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Ser. A | 4.00 | 7/1/2040 | 500,000 | 434,811 | |||||
Connecticut Health & Educational Facilities Authority, Revenue Bonds, Ser. A | 5.00 | 7/1/2027 | 750,000 | 782,191 | |||||
Connecticut Higher Education Supplement Loan Authority, Revenue Bonds (Chesla Loan Program) Ser. A | 5.00 | 11/15/2022 | 1,000,000 | 1,000,601 | |||||
Connecticut Higher Education Supplement Loan Authority, Revenue Bonds (Chesla Loan Program) Ser. A | 5.00 | 11/15/2023 | 1,400,000 | 1,422,872 | |||||
Connecticut Higher Education Supplement Loan Authority, Revenue Bonds (Chesla Loan Program) Ser. B | 3.25 | 11/15/2036 | 1,400,000 | 1,126,600 | |||||
Connecticut Housing Finance Authority, Revenue Bonds, Refunding, Ser. A1 | 3.65 | 11/15/2032 | 1,455,000 | 1,417,228 | |||||
Connecticut Housing Finance Authority, Revenue Bonds, Refunding, Ser. C1 | 3.25 | 5/15/2044 | 2,010,000 | 1,920,096 | |||||
Connecticut Housing Finance Authority, Revenue Bonds, Refunding, Ser. C1 | 4.00 | 11/15/2047 | 2,025,000 | 2,002,874 | |||||
Connecticut Housing Finance Authority, Revenue Bonds, Refunding, Ser. D1 | 3.00 | 5/15/2051 | 3,210,000 | 3,022,446 | |||||
Connecticut Municipal Electric Energy Cooperative, Revenue Bonds, Refunding, Ser. A | 5.00 | 1/1/2038 | 1,550,000 | 1,554,713 | |||||
Connecticut University, Revenue Bonds, Ser. A | 5.25 | 11/15/2047 | 4,000,000 | 4,192,052 | |||||
Greater New Haven Water Pollution Control Authority, Revenue Bonds, Refunding (Insured; National Public Finance Guarantee Corp.) Ser. A | 5.00 | 8/15/2035 | 25,000 | 25,014 | |||||
Greenwich, GO, Refunding | 5.00 | 1/15/2025 | 2,000,000 | 2,075,473 |
8
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 98.9% (continued) | |||||||||
Connecticut - 96.6% (continued) | |||||||||
Harbor Point Infrastructure Improvement District, Tax Allocation Bonds, Refunding (Harbor Point Project) | 5.00 | 4/1/2039 | 4,000,000 | a | 3,721,188 | ||||
Hartford County Metropolitan District Clean Water Project, Revenue Bonds (Clean Water Project) Ser. A | 5.00 | 10/1/2031 | 1,050,000 | 1,153,806 | |||||
Hartford County Metropolitan District Clean Water Project, Revenue Bonds, Refunding (Green Bond) Ser. A | 5.00 | 11/1/2024 | 1,000,000 | b | 1,033,847 | ||||
New Haven, GO (Insured; Assured Guaranty Municipal Corp.) Ser. A | 5.00 | 8/1/2039 | 3,000,000 | 3,131,566 | |||||
New Haven, GO, Refunding (Insured; Build America Mutual) Ser. B | 5.00 | 8/15/2026 | 610,000 | 632,312 | |||||
New Haven, GO, Refunding (Insured; Build America Mutual) Ser. B | 5.00 | 8/15/2027 | 750,000 | 777,088 | |||||
New Haven, GO, Ser. A | 5.25 | 8/1/2027 | 1,740,000 | 1,844,460 | |||||
Norwalk, GO, Ser. A | 3.00 | 7/15/2037 | 1,070,000 | 862,222 | |||||
South Central Connecticut Regional Water Authority, Revenue Bonds, Refunding, Ser. B | 5.00 | 8/1/2038 | 3,500,000 | 3,598,488 | |||||
South Central Connecticut Regional Water Authority, Revenue Bonds, Refunding, Ser. B | 5.00 | 8/1/2037 | 3,430,000 | 3,531,645 | |||||
South Central Connecticut Regional Water Authority, Revenue Bonds, Refunding, Ser. B1 | 5.00 | 8/1/2041 | 2,445,000 | 2,534,623 | |||||
The Metropolitan District, GO, Refunding | 5.00 | 7/15/2034 | 1,065,000 | 1,133,160 | |||||
The Metropolitan District, GO, Refunding, Ser. A | 4.00 | 9/1/2039 | 4,000,000 | 3,656,984 | |||||
The Metropolitan District, GO, Ser. A | 4.00 | 7/15/2035 | 1,275,000 | 1,221,496 | |||||
Waterbury, GO, Ser. A | 4.00 | 2/1/2045 | 5,750,000 | 4,928,815 | |||||
Waterbury, GO, Ser. A | 5.00 | 11/15/2038 | 2,500,000 | 2,580,839 | |||||
150,744,470 |
9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 98.9% (continued) | |||||||||
U.S. Related - 2.3% | |||||||||
Children's Trust Fund, Revenue Bonds, Refunding, Ser. A | 0.00 | 5/15/2050 | 12,000,000 | c | 2,068,033 | ||||
Puerto Rico Highway & Transportation Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. CC | 5.25 | 7/1/2034 | 1,500,000 | 1,459,671 | |||||
3,527,704 | |||||||||
Total Investments (cost $172,265,537) | 98.9% | 154,272,174 | |||||||
Cash and Receivables (Net) | 1.1% | 1,719,463 | |||||||
Net Assets | 100.0% | 155,991,637 |
a Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2022, these securities were valued at $7,563,294 or 4.85% of net assets.
b These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on the municipal issue and to retire the bonds in full at the earliest refunding date.
c Security issued with a zero coupon. Income is recognized through the accretion of discount.
Portfolio Summary (Unaudited) † | Value (%) |
Education | 24.4 |
General Obligation | 18.1 |
Medical | 15.3 |
Transportation | 11.7 |
Water | 10.0 |
Nursing Homes | 4.9 |
Single Family Housing | 4.1 |
General | 2.4 |
Student Loan | 2.3 |
Airport | 1.5 |
Tobacco Settlement | 1.3 |
Multifamily Housing | 1.3 |
Power | 1.0 |
Prerefunded | .6 |
Pollution | .0 |
98.9 |
† Based on net assets.
See notes to financial statements.
10
Summary of Abbreviations (Unaudited) | |||
ABAG | Association of Bay Area Governments | AGC | ACE Guaranty Corporation |
AGIC | Asset Guaranty Insurance Company | AMBAC | American Municipal Bond Assurance Corporation |
BAN | Bond Anticipation Notes | BSBY | Bloomberg Short-Term Bank Yield Index |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | DRIVERS | Derivative Inverse Tax-Exempt Receipts |
EFFR | Effective Federal Funds Rate | FGIC | Financial Guaranty Insurance Company |
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage Corporation | FNMA | Federal National Mortgage Association |
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National Mortgage Association | GO | General Obligation |
IDC | Industrial Development Corporation | LIBOR | London Interbank Offered Rate |
LOC | Letter of Credit | LR | Lease Revenue |
NAN | Note Anticipation Notes | MFHR | Multi-Family Housing Revenue |
MFMR | Multi-Family Mortgage Revenue | MUNIPSA | Securities Industry and Financial Markets Association Municipal Swap Index Yield |
OBFR | Overnight Bank Funding Rate | PILOT | Payment in Lieu of Taxes |
PRIME | Prime Lending Rate | PUTTERS | Puttable Tax-Exempt Receipts |
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RIB | Residual Interest Bonds | SFHR | Single Family Housing Revenue |
SFMR | Single Family Mortgage Revenue | SOFR | Secured Overnight Financing Rate |
TAN | Tax Anticipation Notes | TRAN | Tax and Revenue Anticipation Notes |
U.S. T-BILL | U.S. Treasury Bill Money Market Yield | XLCA | XL Capital Assurance |
See notes to financial statements.
11
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2022 (Unaudited)
|
|
|
|
|
|
|
|
|
| Cost |
| Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments | 172,265,537 |
| 154,272,174 |
| ||
Interest receivable |
| 2,209,425 |
| |||
Receivable for shares of Beneficial Interest subscribed |
| 9,199 |
| |||
Prepaid expenses |
|
|
|
| 89,958 |
|
|
|
|
|
| 156,580,756 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
| 92,949 |
| |||
Cash overdraft due to Custodian |
|
|
|
| 22,618 |
|
Payable for shares of Beneficial Interest redeemed |
| 364,877 |
| |||
Reorganization expense payable—Note 5 |
| 57,355 |
| |||
Trustees’ fees and expenses payable |
| 1,426 |
| |||
Other accrued expenses |
|
|
|
| 49,894 |
|
|
|
|
|
| 589,119 |
|
Net Assets ($) |
|
| 155,991,637 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
| 174,983,112 |
|
Total distributable earnings (loss) |
|
|
|
| (18,991,475) |
|
Net Assets ($) |
|
| 155,991,637 |
|
Net Asset Value Per Share | Class A | Class C | Class I | Class Y | Class Z |
|
Net Assets ($) | 80,597,815 | 777,722 | 20,086,881 | 8,901 | 54,520,318 |
|
Shares Outstanding | 7,892,439 | 76,258 | 1,966,900 | 872 | 5,339,921 |
|
Net Asset Value Per Share ($) | 10.21 | 10.20 | 10.21 | 10.21 | 10.21 |
|
|
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
|
|
12
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2022 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Interest Income |
|
| 2,548,702 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
| 479,044 |
| ||
Shareholder servicing costs—Note 3(c) |
|
| 149,668 |
| ||
Reorganization expense—Note 5 |
|
| 61,442 |
| ||
Professional fees |
|
| 42,304 |
| ||
Registration fees |
|
| 31,223 |
| ||
Trustees’ fees and expenses—Note 3(d) |
|
| 9,678 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
| 7,963 |
| ||
Prospectus and shareholders’ reports |
|
| 6,295 |
| ||
Distribution fees—Note 3(b) |
|
| 4,327 |
| ||
Loan commitment fees—Note 2 |
|
| 2,044 |
| ||
Custodian fees—Note 3(c) |
|
| 1,916 |
| ||
Miscellaneous |
|
| 10,006 |
| ||
Total Expenses |
|
| 805,910 |
| ||
Less—reduction in expenses due to undertaking—Note 3(a) |
|
| (87,100) |
| ||
Less—reduction in fees due to earnings credits—Note 3(c) |
|
| (1,429) |
| ||
Net Expenses |
|
| 717,381 |
| ||
Net Investment Income |
|
| 1,831,321 |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments | (328,781) |
| ||||
Net change in unrealized appreciation (depreciation) on investments | (11,431,328) |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
| (11,760,109) |
| ||
Net (Decrease) in Net Assets Resulting from Operations |
| (9,928,788) |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
13
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Year Ended |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Net investment income |
|
| 1,831,321 |
|
|
| 3,910,733 |
| |
Net realized gain (loss) on investments |
| (328,781) |
|
|
| (183,383) |
| ||
Net change in unrealized appreciation |
| (11,431,328) |
|
|
| (18,040,652) |
| ||
Net Increase (Decrease) in Net Assets | (9,928,788) |
|
|
| (14,313,302) |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
| (891,692) |
|
|
| (1,986,607) |
| |
Class C |
|
| (6,552) |
|
|
| (15,817) |
| |
Class I |
|
| (262,484) |
|
|
| (428,543) |
| |
Class Y |
|
| (1,093) |
|
|
| (3,147) |
| |
Class Z |
|
| (675,067) |
|
|
| (1,466,478) |
| |
Total Distributions |
|
| (1,836,888) |
|
|
| (3,900,592) |
| |
Beneficial Interest Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
| 3,621,145 |
|
|
| 2,440,672 |
| |
Class C |
|
| 900 |
|
|
| 106,724 |
| |
Class I |
|
| 10,169,973 |
|
|
| 7,839,076 |
| |
Class Y |
|
| - |
|
|
| 388,807 |
| |
Class Z |
|
| 299,263 |
|
|
| 1,079,779 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
| 715,760 |
|
|
| 1,600,825 |
| |
Class C |
|
| 6,552 |
|
|
| 15,666 |
| |
Class I |
|
| 261,952 |
|
|
| 426,678 |
| |
Class Z |
|
| 514,147 |
|
|
| 1,113,474 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
| (8,924,186) |
|
|
| (11,788,280) |
| |
Class C |
|
| (494,648) |
|
|
| (360,384) |
| |
Class I |
|
| (8,201,330) |
|
|
| (4,273,721) |
| |
Class Y |
|
| (347,894) |
|
|
| - |
| |
Class Z |
|
| (3,752,571) |
|
|
| (3,723,668) |
| |
Increase (Decrease) in Net Assets | (6,130,937) |
|
|
| (5,134,352) |
| |||
Total Increase (Decrease) in Net Assets | (17,896,613) |
|
|
| (23,348,246) |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
| 173,888,250 |
|
|
| 197,236,496 |
| |
End of Period |
|
| 155,991,637 |
|
|
| 173,888,250 |
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Year Ended |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Class Aa,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 333,898 |
|
|
| 205,188 |
| |
Shares issued for distributions reinvested |
|
| 67,091 |
|
|
| 135,268 |
| |
Shares redeemed |
|
| (843,860) |
|
|
| (1,002,375) |
| |
Net Increase (Decrease) in Shares Outstanding | (442,871) |
|
|
| (661,919) |
| |||
Class Ca |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 84 |
|
|
| 8,872 |
| |
Shares issued for distributions reinvested |
|
| 613 |
|
|
| 1,326 |
| |
Shares redeemed |
|
| (47,038) |
|
|
| (29,935) |
| |
Net Increase (Decrease) in Shares Outstanding | (46,341) |
|
|
| (19,737) |
| |||
Class Ib |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 939,793 |
|
|
| 666,229 |
| |
Shares issued for distributions reinvested |
|
| 24,562 |
|
|
| 36,153 |
| |
Shares redeemed |
|
| (775,036) |
|
|
| (377,589) |
| |
Net Increase (Decrease) in Shares Outstanding | 189,319 |
|
|
| 324,793 |
| |||
Class Yb |
|
|
|
|
|
|
|
| |
Shares sold |
|
| - |
|
|
| 32,400 |
| |
Shares redeemed |
|
| (32,400) |
|
|
| - |
| |
Net Increase (Decrease) in Shares Outstanding | (32,400) |
|
|
| 32,400 |
| |||
Class Z |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 27,790 |
|
|
| 92,536 |
| |
Shares issued for distributions reinvested |
|
| 48,188 |
|
|
| 94,171 |
| |
Shares redeemed |
|
| (354,871) |
|
|
| (318,991) |
| |
Net Increase (Decrease) in Shares Outstanding | (278,893) |
|
|
| (132,284) |
| |||
|
|
|
|
|
|
|
|
|
|
a | During the period ended October 31, 2022, 487 Class C shares representing $5,339 were automatically converted to 486 Class A shares. | ||||||||
b | During the period ended April 30, 2022, 32,349 Class A shares representing $388,807 were exchanged for 32,401 Class Y shares. | ||||||||
See notes to financial statements. |
15
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
October 31, 2022 | Year Ended April 30, | |||||
Class A Shares | (Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 10.95 | 12.07 | 11.43 | 11.62 | 11.35 | 11.68 |
Investment Operations: | ||||||
Net investment incomea | .11 | .23 | .27 | .28 | .29 | .30 |
Net realized and unrealized | (.74) | (1.12) | .64 | (.19) | .27 | (.32) |
Total from Investment Operations | (.63) | (.89) | .91 | .09 | .56 | (.02) |
Distributions: | ||||||
Dividends from net | (.11) | (.23) | (.27) | (.28) | (.29) | (.31) |
Net asset value, end of period | 10.21 | 10.95 | 12.07 | 11.43 | 11.62 | 11.35 |
Total Return (%)b | (5.73)c | (7.62) | 7.97 | .71 | 4.98 | (.24) |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | 1.05d | .97 | .97 | .95 | .95 | .94 |
Ratio of net expenses | .95d | .87 | .87 | .89 | .95 | .94 |
Ratio of net investment income | 1.98d | 1.91 | 2.22 | 2.37 | 2.53 | 2.61 |
Portfolio Turnover Rate | 2.96c | 18.54 | 6.37 | 19.22 | 4.84 | 10.71 |
Net Assets, end of period ($ x 1,000) | 80,598 | 91,235 | 108,582 | 110,498 | 118,062 | 127,921 |
a Based on average shares outstanding.
b Exclusive of sales charge.
c Not annualized.
d Annualized.
See notes to financial statements.
16
Six Months Ended | ||||||
October 31, 2022 | Year Ended April 30, | |||||
Class C Shares | (Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 10.93 | 12.05 | 11.41 | 11.61 | 11.33 | 11.66 |
Investment Operations: | ||||||
Net investment incomea | .06 | .13 | .17 | .19 | .20 | .21 |
Net realized and unrealized | (.73) | (1.12) | .64 | (.20) | .28 | (.33) |
Total from Investment Operations | (.67) | (.99) | .81 | (.01) | .48 | (.12) |
Distributions: | ||||||
Dividends from net | (.06) | (.13) | (.17) | (.19) | (.20) | (.21) |
Net asset value, end of period | 10.20 | 10.93 | 12.05 | 11.41 | 11.61 | 11.33 |
Total Return (%)b | (6.14)c | (8.32) | 7.10 | (.17) | 4.23 | (1.02) |
Ratios/Supplemental Data (%): |
| |||||
Ratio of total expenses | 1.88d | 1.81 | 1.78 | 1.76 | 1.75 | 1.71 |
Ratio of net expenses | 1.78d | 1.71 | 1.68 | 1.69 | 1.75 | 1.70 |
Ratio of net investment income | 1.15d | 1.07 | 1.42 | 1.58 | 1.72 | 1.82 |
Portfolio Turnover Rate | 2.96c | 18.54 | 6.37 | 19.22 | 4.84 | 10.71 |
Net Assets, end of period ($ x 1,000) | 778 | 1,340 | 1,715 | 2,784 | 3,712 | 4,507 |
a Based on average shares outstanding.
b Exclusive of sales charge.
c Not annualized.
d Annualized.
See notes to financial statements.
17
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||
October 31, 2022 | Year Ended April 30, | |||||
Class I Shares | (Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 10.95 | 12.07 | 11.43 | 11.62 | 11.35 | 11.68 |
Investment Operations: | ||||||
Net investment incomea | .12 | .26 | .29 | .31 | .31 | .33 |
Net realized and unrealized | (.74) | (1.12) | .65 | (.19) | .27 | (.33) |
Total from Investment Operations | (.62) | (.86) | .94 | .12 | .58 | .00b |
Distributions: | ||||||
Dividends from net | (.12) | (.26) | (.30) | (.31) | (.31) | (.33) |
Net asset value, end of period | 10.21 | 10.95 | 12.07 | 11.43 | 11.62 | 11.35 |
Total Return (%) | (5.69)c | (7.30) | 8.24 | .97 | 5.22 | .00d |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | .79e | .72 | .72 | .71 | .72 | .70 |
Ratio of net expenses | .69e | .62 | .62 | .64 | .72 | .70 |
Ratio of net investment income | 2.24e | 2.15 | 2.46 | 2.62 | 2.76 | 2.84 |
Portfolio Turnover Rate | 2.96c | 18.54 | 6.37 | 19.22 | 4.84 | 10.71 |
Net Assets, end of period ($ x 1,000) | 20,087 | 19,458 | 17,534 | 13,544 | 9,869 | 9,629 |
a Based on average shares outstanding.
b Amount represents less than $.01 per share.
c Not annualized.
d Amount represents less than .01%.
e Annualized.
See notes to financial statements.
18
Six Months Ended | ||||||
October 31, 2022 | Year Ended April 30, | |||||
Class Y Shares | (Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 10.94 | 12.07 | 11.42 | 11.62 | 11.35 | 11.68 |
Investment Operations: | ||||||
Net investment incomea | .12 | .24 | .30 | .31 | .32 | .34 |
Net realized and unrealized | (.74) | (1.13) | .61 | (.20) | .27 | (.33) |
Total from Investment Operations | (.62) | (.89) | .91 | .11 | .59 | .01 |
Distributions: | ||||||
Dividends from net | (.11) | (.24) | (.26) | (.31) | (.32) | (.34) |
Net asset value, end of period | 10.21 | 10.94 | 12.07 | 11.42 | 11.62 | 11.35 |
Total Return (%) | (5.75)b | (7.47) | 7.99 | .91 | 5.26 | .03 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | .78c | .71 | .98 | .68 | .68 | .66 |
Ratio of net expenses | .68c | .60 | .88 | .61 | .68 | .66 |
Ratio of net investment income | 2.25c | 2.17 | 2.21 | 2.65 | 2.79 | 2.87 |
Portfolio Turnover Rate | 2.96b | 18.54 | 6.37 | 19.22 | 4.84 | 10.71 |
Net Assets, end of period ($ x 1,000) | 9 | 364 | 11 | 369 | 380 | 437 |
a Based on average shares outstanding.
b Not annualized.
c Annualized.
See notes to financial statements.
19
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||
October 31, 2022 | Year Ended April 30, | |||||
Class Z Shares | (Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 10.94 | 12.07 | 11.43 | 11.62 | 11.35 | 11.68 |
Investment Operations: | ||||||
Net investment incomea | .12 | .26 | .29 | .31 | .31 | .33 |
Net realized and unrealized | (.73) | (1.13) | .65 | (.19) | .27 | (.33) |
Total from Investment Operations | (.61) | (.87) | .94 | .12 | .58 | .00b |
Distributions: | ||||||
Dividends from net | (.12) | (.26) | (.30) | (.31) | (.31) | (.33) |
Net asset value, end of period | 10.21 | 10.94 | 12.07 | 11.43 | 11.62 | 11.35 |
Total Return (%) | (5.60)c | (7.37) | 8.24 | .94 | 5.21 | .07 |
Ratios/Supplemental Data (%): |
|
| ||||
Ratio of total expenses | .77d | .72 | .75 | .73 | .75 | .70 |
Ratio of net expenses | .67d | .62 | .65 | .67 | .75 | .70 |
Ratio of net investment income | 2.25d | 2.17 | 2.47 | 2.59 | 2.74 | 2.83 |
Portfolio Turnover Rate | 2.96c | 18.54 | 6.37 | 19.22 | 4.84 | 10.71 |
Net Assets, end of period ($ x 1,000) | 54,520 | 61,491 | 69,394 | 68,446 | 72,725 | 78,274 |
a Based on average shares outstanding.
b Amount represents less than $.01 per share.
c Not annualized.
d Annualized.
See notes to financial statements.
20
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
BNY Mellon Connecticut Fund (the “fund”) is a separate diversified series of BNY Mellon State Municipal Bond Funds (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 three series, including the fund. The fund’s investment objective is to seek to maximize current income exempt from federal income tax and from Connecticut state income tax, without undue risk. BNY Mellon Investment Adviser, Inc. (the “Adviser”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. Insight North America LLC (the “Sub-Adviser”), a wholly-owned subsidiary of BNY Mellon and an affiliate of the Adviser, serves as the fund’s sub-adviser.
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, Class Y and Class Z. 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 A shares bought without an initial sales charge as part of an investment of $1 million or more may be charged a contingent deferred sales charge (“CDSC”) of 1.00% if redeemed within one year. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class C shares automatically convert to Class A shares eight 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 BNY Mellon and its affiliates), acting on behalf of customers having a qualified trust or an investment account or relationship 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 Z shares are sold at net asset value per share to certain shareholders of the fund. Class Z shares generally are not available for new accounts and bear Shareholder Services Plan fees. Class I, Class Y and Class Z 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
21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
As of October 31, 2022, MBC Investments Corporation, an indirect subsidiary of BNY Mellon, held all of the outstanding Class Y shares of the fund.
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 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 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.
22
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
The Trust’s Board of Trustees (the “Board”), has designated the Adviser as the fund’s valuation designee, effective September 8, 2022, to make all fair value determinations with respect to the fund’s portfolio investments, subject to the Board’s oversight and pursuant to Rule 2a-5 under the Act.
Investments in municipal securities are valued each business day by an independent pricing service (the “Service”) approved by the Board. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Municipal investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. The Service is engaged under the general oversight of the Board. All of the preceding securities are generally categorized within Level 2 of the fair value hierarchy.
When market quotations or official closing prices are not readily available, or are determined not to accurately reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the fund calculates its net asset value, the fund may value these
23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 October 31, 2022 in valuing the fund’s investments:
Level 1-Unadjusted Quoted Prices | Level 2- Other Significant Observable Inputs | Level 3-Significant Unobservable Inputs | Total | |||
Assets ($) | ||||||
Investments in Securities:† | ||||||
Municipal Securities | - | 154,272,174 | - | 154,272,174 |
† 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. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed delivery basis may be settled a month or more after the trade date.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(c) Market Risk: The value of the securities in which the fund invests may be affected by political, regulatory, economic and social developments, and developments that impact specific economic sectors, industries or segments of the market. The value of a security may also decline due to general market conditions that are not specifically related to a particular company or industry, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes
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in interest or currency rates, changes to inflation, adverse changes to credit markets or adverse investor sentiment generally. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies world-wide. Recent 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.
Municipal Securities Risk: The amount of public information available about municipal securities is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund's investments in municipal securities. Other factors include the general conditions of the municipal securities market, the size of the particular offering, the maturity of the obligation and the rating of the issue. Changes in economic, business or political conditions relating to a particular municipal project, municipality, or state, territory or possession of the United States in which the fund invests may have an impact on the fund's share price. As an example, elevated costs or shortfalls in revenue associated with the spread of the COVID-19 outbreak could affect the ability of municipal issuers to make payments on debt obligations when due. Any such credit impairment could adversely impact the value of their bonds, which could negatively impact the performance of the fund.
(d) Dividends and distributions to shareholders: It is the policy of the fund to declare dividends daily from net investment income. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax-exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 31, 2022, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended October 31, 2022, the fund did not incur any interest or penalties.
Each tax year in the three-year period ended April 30, 2022 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund is permitted to carry forward capital losses for an unlimited period. Furthermore, capital loss carryovers retain their character as either short-term or long-term capital losses.
The fund has an unused capital loss carryover of $1,087,837 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to April 30, 2022. The fund has $961,302 of short-term capital losses and $126,535 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 year ended April 30, 2022 was as follows: tax-exempt income $3,900,592. The tax character of current year distributions will be determined at the end of the current fiscal year.
(f) New accounting pronouncements: In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), and in January 2021, the FASB issued Accounting Standards Update 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the LIBOR and other interbank offered rates as of the end of 2021. The temporary relief provided by ASU 2020-04 and ASU 2021-01 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022 (“FASB Effective Date”). Management had evaluated the impact of ASU 2020-04 and ASU 2021-01 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the
26
Reference Rate Reform. Management will be adopting ASU 2020-04 and ASU 2021-01 on FASB Effective Date or if amended ASU 2020-04 new extended FASB Effective Date, if any. Management will continue to work with other financial institutions and counterparties to modify contracts as required by applicable regulation and within the regulatory deadlines. As of October 31, 2022, management believes these accounting standards have no impact on the fund and does not have any concerns of adopting the regulations by FASB Effective Date.
NOTE 2—Bank Lines of Credit:
The fund participates with other long-term open-end funds managed by the Adviser in a $823.5 million unsecured credit facility led by Citibank, N.A. (the “Citibank Credit Facility”) and a $300 million unsecured credit facility provided by BNY 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 $688.5 million and is available to all long-term open-ended funds, including the fund, and (ii) Tranche B is an amount equal to $135 million and is available only to BNY Mellon Floating Rate Income Fund, a series of BNY Mellon Investment Funds IV, Inc. 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. During the period ended October 31, 2022, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Advisory 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 .55% of the value of the fund’s average daily net assets and is payable monthly. The Adviser has contractually agreed, from May 1, 2022 through September 1, 2023, to waive receipt of a portion of its management fee, in the amount of .10% of the value of the fund’s average daily net assets. On or after September 1, 2023, the Adviser may terminate this waiver agreement at any time. In addition, the Adviser has contractually agreed, from May 1, 2022 through September 1, 2023, to assume the direct expenses of Class Y so that the direct expenses of Class Y do not exceed the direct expenses of Class I. On or after September 1, 2023, the Adviser may terminate this expense limitation agreement for Class Y at any time. The reduction in expenses, pursuant to the undertaking, amounted to $87,100 during the period ended October 31, 2022.
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Pursuant to a sub-investment advisory agreement between the Adviser and the Sub-Adviser, the Adviser pays the Sub-Adviser a monthly fee at an annual rate of .264% of the value of the fund’s average daily net assets.
During the period ended October 31, 2022, the Distributor retained $151 from commissions earned on sales of the fund’s Class A 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. The Distributor may pay one or more Service Agents in respect of advertising, marketing and other distribution services, and determines the amounts, if any, to be paid to Service Agents and the basis on which such payments are made. During the period ended October 31, 2022, Class C shares were charged $4,327 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 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 October 31, 2022, Class A and Class C shares were charged $112,102 and $1,442, respectively, pursuant to the Shareholder Services Plan.
Under the Shareholder Services Plan, Class Z shares reimburse the Distributor at an amount not to exceed an annual rate of .25% of the value of Class Z shares’ average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class Z shares, and services related to the maintenance of shareholder accounts. During the period ended October 31, 2022, Class Z shares were charged $0 pursuant to the Shareholder Services Plan.
The fund has arrangements with BNY Mellon Transfer, Inc., (the “Transfer Agent”) and The Bank of New York Mellon (the “Custodian”), both a subsidiary of BNY Mellon and an affiliate of the Adviser, whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and custody fees. For financial reporting purposes, the fund includes transfer agent net earnings
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credits, if any, and custody net earnings credits, if any, as an expense offset in the Statement of Operations.
The fund compensates the Transfer Agent, under a transfer agency agreement, for providing transfer agency and cash management services for the fund. The majority of Transfer Agent 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 October 31, 2022, the fund was charged $17,086 for transfer agency services. These fees are included in Shareholder servicing costs in the Statement of Operations. These fees were partially offset by earnings credits of $1,133.
The fund compensates the Custodian, under a custody agreement, for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended October 31, 2022, the fund was charged $1,916 pursuant to the custody agreement. These fees were partially offset by earnings credits of $296.
The fund compensates the Custodian, under a shareholder redemption draft processing agreement, for providing certain services related to the fund’s check writing privilege. During the period ended October 31, 2022, the fund was charged $922 pursuant to the agreement, which is included in Shareholder servicing costs in the Statement of Operations.
During the period ended October 31, 2022, the fund was charged $7,963 for services performed by the fund’s Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.
The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: management fee of $75,770, Distribution Plan fees of $549, Shareholder Services Plan fees of $17,947, Custodian fees of $1,573, Chief Compliance Officer fees of $5,078 and Transfer Agent fees of $5,785, which are offset against an expense reimbursement currently in effect in the amount of $13,753.
(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 October 31, 2022, amounted to $4,966,265 and $9,783,275, respectively.
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
At October 31, 2022, accumulated net unrealized depreciation on investments was $17,993,363, consisting of $296,832 gross unrealized appreciation and $18,290,195 gross unrealized depreciation.
At October 31, 2022, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Plan of Reorganization:
The Board of the fund, a series of the Trust, has approved with shareholder approval, an Agreement and Plan of Reorganization (the “Agreement”) providing for the transfer of the fund’s assets to BNY Mellon AMT-Free Municipal Bond Fund (the “Acquiring Fund”) in a tax-free exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the fund’s stated liabilities, the distribution of such shares of the Acquiring Fund to fund shareholders and the subsequent termination of the fund. At a Shareholder Meeting held on November 17, 2022 (See Proxy Results), shareholders of the fund approved the Agreement which provides for the transfer of all of the assets of the fund to the Acquiring Fund in exchange solely for Class A, Class C, Class I, Class Y and Class Z shares of the Acquiring Fund, having an aggregate net asset value equal to the value of the fund’s net assets, and the assumption by the Acquiring Fund of the fund’s stated liabilities (the “Reorganization”) on or about January 27, 2023. As of the end of the reporting period, total reorganization costs were estimated to be approximately $117,125 of which $61,442 was accrued by the fund as of October 31, 2022.
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PROXY RESULTS (Unaudited)
A special meeting of the fund’s shareholders was held on November 17, 2022. The proposal considered at the meeting and the results were as follows:
Shares | ||||
For | Against | Abstain | ||
To approve an Agreement and Plan of Reorganization providing for the transfer of all of the assets of the Fund to BNY Mellon AMT-Free Municipal Bond Fund (BAMB), in exchange solely for Class A, C, I, Y and Z shares, as applicable, of BAMB having an aggregate net asset value equal to the value of the Fund’s net assets and the assumption by BAMB of the Fund’s stated liabilities. Holders of Class A, C, I, Y, and Z shares, as applicable, of the Fund would receive Class A, C, I, Y and Z shares, respectively, of BAMB. | 6,983,936 | 921,185 | 826,826 |
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INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited)
At a meeting of the fund’s Board of Trustees held on July 27, 2022, 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, and the Sub-Investment Advisory Agreement (together with the Management Agreement, the “Agreements”), pursuant to which Insight North America LLC (the “Sub-Adviser”) provides day-to-day management of the fund’s investments. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser and the Sub-Adviser. In considering the renewal of the Agreements, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the meeting and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser 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, as well as the Adviser’s supervisory activities over the Sub-Adviser.
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board reviewed reports prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data based on classifications provided by Thomson Reuters Lipper, which included information comparing (1) the performance of the fund’s Class I shares with the performance of a group of institutional “other states” municipal debt funds (i.e., single state municipal debt funds, including states other than Connecticut) selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all retail and institutional “other states” municipal debt funds (the “Performance Universe”), all for various periods ended June, 30, 2022, and (2) the fund’s actual and contractual management fees and total expenses with those of the
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same group of funds in the Performance Group (the “Expense Group”) and with a broader group of all institutional “other states” municipal debt funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board also noted the limited size of the Performance Group. The Board discussed with representatives of the Adviser and the Sub-Adviser the results of the comparisons and considered that the fund’s total return performance was at or above the Performance Group median for all periods and was above the Performance Universe median for all periods, except for the ten-year period when the fund’s total return performance was just below the Performance Universe median. The Board also considered that the fund’s yield performance was below the Performance Group median for all ten one-year periods ended June 30th and at or above the Performance Universe median for five of the ten one-year periods ended June 30th. The Board considered the relative proximity of the fund’s yield performance to the Performance Universe median in the periods when performance was below the median. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management services and the sub-advisory services provided by the Adviser and the Sub-Adviser, respectively. In addition, the Board reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year, which included reductions for a fee waiver arrangement in place that reduced the management fee paid to the Adviser. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons.
The Board considered that the fund’s contractual management fee was equal to the Expense Group median contractual management fee, the fund’s actual management fee was lower than the Expense Group median and lower than the Expense Universe median actual management fee and the fund’s total expenses were at the Expense Group median and slightly higher than the Expense Universe median total expenses. The Board noted the limited size of the Expense Group.
Representatives of the Adviser stated that the Adviser has contractually agreed, until September 1, 2023, to waive receipt of a portion of the management fee in the amount of .10% of the fund’s average daily net assets. In addition, representatives of the Adviser stated that the Adviser has contractually agreed, until September 1, 2023, to assume the
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INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
direct expenses of Class Y so that the direct expenses of Class Y do not exceed the direct expenses of Class I.
Representatives of the Adviser noted that there were no other funds advised or administered by the Adviser that are in the same Lipper category as the fund or separate accounts and/or other types of client portfolios advised by the Adviser or the Sub-Adviser that are considered to have similar investment strategies and policies as the fund.
The Board considered the fee payable to the Sub-Adviser in relation to the fee payable to the Adviser by the fund and the respective services provided by the Sub-Adviser and the Adviser. The Board also took into consideration that the Sub-Adviser’s fee is paid by the Adviser, out of its fee from the fund, and not the fund.
Analysis of Profitability and Economies of Scale. Representatives of the Adviser reviewed the expenses allocated and profit received by the Adviser and its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to the Adviser and its affiliates for managing the funds in the BNY Mellon fund complex, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not excessive, given the services rendered and service levels provided by the Adviser and its affiliates. The Board also considered the fee waiver and expense reimbursement 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 Agreements, considered in relation to the mix of services provided by the Adviser and the Sub-Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreements and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser stated that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that the Adviser may have realized any economies of scale would be less. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser and the Sub-Adviser from acting as investment adviser and sub-investment adviser, respectively, and took into consideration that there were no soft dollar arrangements in effect for trading the fund’s investments.
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At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreements. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser and the Sub-Adviser are adequate and appropriate.
· The Board generally was satisfied with the fund’s overall performance.
· The Board concluded that the fees paid to the Adviser and the Sub-Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Management Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreements, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates and the Sub-Adviser, of the Adviser and the Sub-Adviser and the services provided to the fund by the Adviser and the Sub-Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreements, including information on the investment performance of the fund in comparison to similar 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 Agreements for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on its consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreements.
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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 fund 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 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 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 January 1, 2021 to December 31, 2021, 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.
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.
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BNY Mellon State Municipal Bond Funds, BNY Mellon Connecticut Fund
240 Greenwich Street
New York, NY 10286
Adviser
BNY Mellon Investment Adviser, Inc.
240 Greenwich Street
New York, NY 10286
Sub-Adviser
Insight North America LLC
200 Park Avenue, 7th Floor
New York, NY 10166
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: PSCTX Class C: PMCCX Class I: DTCIX Class Y: DPMYX Class Z: DPMZX |
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.im.bnymellon.com
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.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2022 BNY Mellon Securities Corporation |
BNY Mellon State Municipal Bond Funds, BNY Mellon Massachusetts Fund
SEMI-ANNUAL REPORT October 31, 2022 |
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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
Information About the Renewal | |
FOR MORE INFORMATION
Back Cover
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from May 1, 2022, through October 31, 2022, as provided by Daniel Rabasco and Thomas Casey, Portfolio Managers employed by the fund’s sub-adviser, Insight North America LLC.
Market and Fund Performance Overview
For the six-month period ended October 31, 2022, Class A shares of BNY Mellon Massachusetts Fund (the “fund”), a series of BNY Mellon State Municipal Bond Funds, produced a total return of −5.17%, Class C shares returned −6.67% and Class Z shares returned −5.04%.1 In comparison, the Bloomberg U.S. Municipal Bond Index (the “Index”), the fund’s benchmark index, which is comprised of bonds issued nationally and not solely within Massachusetts, achieved a total return of −4.43% for the same period.2
Municipal bonds lost ground during the reporting period due to concerns about inflation and rising interest rates. The fund underperformed the Index due to unfavorable exposure to longer and lower-rated bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and from Massachusetts state income tax, without assuming undue risk. To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in municipal bonds that provide income exempt from federal and Massachusetts state income taxes. The fund invests at least 70% of its assets in municipal bonds rated, at the time of purchase, investment grade (Baa/BBB or higher) or the unrated equivalent as determined by Insight North America LLC (“INA”), the fund’s sub-adviser. For additional yield, the fund may invest up to 30% of its assets in municipal bonds rated below investment grade (“high yield” or “junk” bonds) or the unrated equivalent as determined by INA. The dollar-weighted, average maturity of the fund’s portfolio normally exceeds 10 years, but the fund may invest without regard to maturity.
The portfolio managers focus on identifying undervalued sectors and securities and minimize the use of interest-rate forecasting. The portfolio managers select municipal bonds for the fund’s portfolio by using fundamental credit analysis to estimate the relative value and attractiveness of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market, and by actively trading among various sectors and securities, including pre-refunded, general obligation and revenue bonds, based on their apparent relative values. The fund seeks to invest in several of these sectors and does not seek to overweight any particular sector but may do so depending on each sector’s relative value at a given time.
Volatility and Fund Outflows Hinder the Market
The municipal bond market continued to experience volatility driven by economic uncertainty, rising inflation and geopolitical risk. While employment remains strong, the outcome of the tightening policy of the Federal Reserve (the “Fed”) is uncertain, with investors fearing that an economic slowdown is likely.
Inflation measures stayed near multi-decade highs during the reporting period, fueled in part by high oil prices. In response, the Fed continued to implement increases in the federal funds rate, raising it in May, June, July, September and early November, bringing the target
2
rate to between 3.75% and 4.00%. Despite these hikes, the economy, which had earlier posted two-consecutive quarters of contraction, rebounded in the third quarter, with GDP growing at a 2.6% annualized rate.
The persistence of higher-than-expected inflation, combined with interest-rate hikes by the Fed and rising Treasury yields, led to volatility in the municipal bond market through much of the year. Significant outflows from municipal bond mutual funds have added to the turmoil as fund managers sold positions to meet redemptions.
Despite the sell-off, credit fundamentals in the municipal market have remained strong, assisted by healthy tax revenues and federal support. Massachusetts remains in healthy fiscal condition, bolstered by robust tax revenues. In addition, turmoil has resulted in more attractive valuations in many segments of the market, creating the potential for outperformance in the future.
Longer and Lower-Rated Bonds Drove Fund Results
The fund’s underperformance was driven by unfavorable returns at the long end of the yield curve, specifically in the 20 year area of the curve. An overweight to lower-quality bonds, especially those rated A and BBB, also detracted from relative returns. Positions in the airport, hospital and tobacco segments were particularly detrimental. The fund did not use derivatives during the reporting period.
On a more positive note, the fund’s shorter duration positioning contributed positively to results. The fund’s overweight in revenue bonds was also beneficial, especially in the public power, special tax and water & sewer segments. Exposure to the seven- to 10-year portion of the yield curve was beneficial as well.
3
DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)
A Cautious Outlook
We continue to expect that the Fed will maintain an upward bias on rates through at least the first quarter of 2023, that higher rates of inflation will persist, and that the market will see some volatility as a result. A U.S. recession has also become more likely, given the difficulty the Fed will face in tamping down inflation without hurting economic growth. Geopolitical concerns could also add to the uncertainties surrounding the market, as the war in Ukraine continues to affect prices and availability of oil and other commodities, potentially hurting economic stability in Europe. The election results appear likely to result in gridlock in Washington, which could be beneficial to the municipal bond market. Given this environment, we expect to remain overweight to revenue bonds, especially in essential services, which are less cyclical than other segments.
November 15, 2022
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. Class Z is not subject to any initial or deferred sales charge. Past performance is no guarantee of future results. Share price, yield and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. Income may be subject to state and local taxes, and some income may be subject to the federal alternative minimum tax (AMT) for certain investors. Capital gains, if any, are taxable.
2 Source: Lipper Inc. — The Bloomberg U.S. Municipal Bond Index covers the U.S. dollar-denominated, long-term, tax-exempt bond market. Investors cannot invest directly in any index.
Bonds are subject generally to interest-rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
The amount of public information available about municipal bonds is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund’s investments in municipal bonds. Other factors include the general conditions of the municipal bond market, the size of the particular offering, the maturity of the obligation and the rating of the issue. Changes in economic, business or political conditions relating to a particular municipal project, municipality or state in which the fund invests may have an impact on the fund’s share price.
References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations.
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.
4
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 State Municipal Bond Funds, BNY Mellon Massachusetts Fund from May 1, 2022 to October 31, 2022. 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 October 31, 2022 |
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| Class A | Class C | Class Z |
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Expenses paid per $1,000† | $5.70 | $21.44 | $4.42 |
| |
Ending value (after expenses) | $948.30 | $933.30 | $949.60 |
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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 October 31, 2022 |
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| Class A | Class C | Class Z |
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Expenses paid per $1,000† | $5.90 | $22.21 | $4.58 |
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Ending value (after expenses) | $1,019.36 | $1,003.02 | $1,020.67 |
| |
† | Expenses are equal to the fund’s annualized expense ratio of 1.16% for Class A, 4.40% for Class C and .90% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
5
STATEMENT OF INVESTMENTS
October 31, 2022 (Unaudited)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.1% | |||||||||
Massachusetts - 93.1% | |||||||||
Lowell Collegiate Charter School, Revenue Bonds | 5.00 | 6/15/2039 | 1,000,000 | 909,374 | |||||
Martha's Vineyard Land Bank, Revenue Bonds, Refunding (Green Bond) (Insured; Build America Mutual) | 5.00 | 5/1/2033 | 500,000 | 523,497 | |||||
Massachusetts, GO, Refunding (Insured; American Municipal Bond Assurance Corp.) Ser. A | 5.50 | 8/1/2030 | 1,750,000 | 1,985,866 | |||||
Massachusetts, GO, Ser. A | 5.00 | 4/1/2047 | 3,250,000 | 3,315,964 | |||||
Massachusetts, GO, Ser. C | 3.00 | 3/1/2047 | 1,350,000 | 962,499 | |||||
Massachusetts, GO, Ser. C | 5.25 | 10/1/2052 | 2,000,000 | 2,114,873 | |||||
Massachusetts Bay Transportation Authority, Revenue Bonds, Ser. A | 5.00 | 7/1/2040 | 2,000,000 | 2,036,747 | |||||
Massachusetts College Building Authority, Revenue Bonds (Insured; National Public Finance Guarantee Corp.) Ser. A | 0.00 | 5/1/2026 | 5,385,000 | a | 4,754,721 | ||||
Massachusetts College Building Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Corp.) Ser. B | 5.50 | 5/1/2028 | 1,450,000 | 1,551,602 | |||||
Massachusetts Development Finance Agency, Revenue Bonds (Baystate Medical Center Obligated Group) Ser. N | 5.00 | 7/1/2034 | 1,475,000 | 1,485,479 | |||||
Massachusetts Development Finance Agency, Revenue Bonds (Caregroup) Ser. J1 | 5.00 | 7/1/2043 | 1,295,000 | 1,281,518 | |||||
Massachusetts Development Finance Agency, Revenue Bonds (Dana-Farber Cancer Institute Obligated Group) Ser. N | 5.00 | 12/1/2046 | 2,000,000 | 1,953,067 | |||||
Massachusetts Development Finance Agency, Revenue Bonds (Dana-Farber Cancer Institute Obligated Group) Ser. N | 5.00 | 12/1/2041 | 1,000,000 | 1,000,593 | |||||
Massachusetts Development Finance Agency, Revenue Bonds (Equitable School Revolving Fund LLC Obligated Group) Ser. C | 4.00 | 11/1/2046 | 2,265,000 | 1,894,467 | |||||
Massachusetts Development Finance Agency, Revenue Bonds (Linden Ponds) | 5.13 | 11/15/2046 | 1,500,000 | b | 1,440,668 |
6
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.1% (continued) | |||||||||
Massachusetts - 93.1% (continued) | |||||||||
Massachusetts Development Finance Agency, Revenue Bonds (North Hill Communities Inc. Obligated Group) Ser. A | 6.50 | 11/15/2023 | 400,000 | b,c | 411,890 | ||||
Massachusetts Development Finance Agency, Revenue Bonds (Seven Hills Foundation & Affiliates Obligated Group) Ser. A | 5.00 | 9/1/2045 | 1,500,000 | 1,375,680 | |||||
Massachusetts Development Finance Agency, Revenue Bonds (Suffolk University Project) | 4.00 | 7/1/2046 | 500,000 | 396,820 | |||||
Massachusetts Development Finance Agency, Revenue Bonds (Trustees of Boston University) Ser. BB1 | 4.00 | 10/1/2046 | 2,000,000 | 1,730,811 | |||||
Massachusetts Development Finance Agency, Revenue Bonds (Worcester Polytechnic Institute) | 5.00 | 9/1/2049 | 1,500,000 | 1,483,020 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Atrius Health Obligated Group) Ser. A | 4.00 | 6/1/2029 | 1,500,000 | c | 1,552,894 | ||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Beth Israel Lahey Health Obligated Group) | 5.00 | 7/1/2032 | 500,000 | 519,228 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Boston Medical Center Corp. Obligated Group) Ser. E | 5.00 | 7/1/2037 | 1,000,000 | 995,173 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Brandeis University) Ser. S1 | 5.00 | 10/1/2035 | 1,000,000 | 1,040,540 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Caregroup) Ser. I | 5.00 | 7/1/2037 | 1,500,000 | 1,524,663 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (College of the Holy Cross Trustees) Ser. A | 5.00 | 9/1/2041 | 800,000 | 825,039 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Lasell University) | 4.00 | 7/1/2050 | 1,000,000 | 693,524 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (NewBridge Charles Inc. Obligated Group) | 5.00 | 10/1/2057 | 1,500,000 | b | 1,506,416 |
7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.1% (continued) | |||||||||
Massachusetts - 93.1% (continued) | |||||||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (NewBridge Charles Inc. Obligated Group) | 5.00 | 10/1/2047 | 1,000,000 | b | 1,008,621 | ||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Northeastern University) Ser. A | 5.00 | 10/1/2035 | 1,000,000 | 1,062,345 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Orchard Cove Inc. Obligated Group) | 5.00 | 10/1/2049 | 700,000 | 660,473 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Partners Healthcare System) | 5.00 | 7/1/2047 | 1,500,000 | 1,450,976 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Salem Community Corp. Obligated Group) | 5.25 | 1/1/2050 | 1,000,000 | 847,030 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (South Shore Hospital Inc. Obligated Group) Ser. I | 5.00 | 7/1/2041 | 1,000,000 | 966,644 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Suffolk University Project) | 5.00 | 7/1/2036 | 450,000 | 447,301 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Suffolk University) | 5.00 | 7/1/2036 | 755,000 | 752,683 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Suffolk University) | 5.00 | 7/1/2035 | 1,000,000 | 999,675 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Suffolk University) Ser. A | 4.00 | 7/1/2045 | 1,250,000 | 1,000,735 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (The Broad Institute Inc.) | 5.00 | 4/1/2037 | 1,000,000 | 1,042,079 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Trustees of Boston College) Ser. T | 5.00 | 7/1/2042 | 1,000,000 | 1,026,061 |
8
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.1% (continued) | |||||||||
Massachusetts - 93.1% (continued) | |||||||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (UMass Memorial Health Care Obligated Group) | 5.00 | 7/1/2031 | 1,000,000 | 1,034,911 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (UMass Memorial Health Care Obligated Group) Ser. I | 5.00 | 7/1/2046 | 1,000,000 | 947,971 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (WGBH Educational Foundation) | 5.00 | 1/1/2040 | 1,000,000 | 1,024,776 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. A | 5.00 | 7/1/2044 | 1,000,000 | 923,748 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. F | 5.00 | 8/15/2040 | 2,000,000 | 2,015,318 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. G | 4.00 | 7/1/2046 | 1,000,000 | 796,005 | |||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. H1 | 5.00 | 7/1/2033 | 500,000 | 510,416 | |||||
Massachusetts Educational Financing Authority, Revenue Bonds | 5.00 | 1/1/2025 | 1,500,000 | 1,530,126 | |||||
Massachusetts Educational Financing Authority, Revenue Bonds | 5.00 | 7/1/2026 | 1,125,000 | 1,155,816 | |||||
Massachusetts Housing Finance Agency, Revenue Bonds, Refunding (Insured; GNMA, FNMA, FHLMC) Ser. 220 | 3.00 | 12/1/2050 | 1,815,000 | 1,725,672 | |||||
Massachusetts Housing Finance Agency, Revenue Bonds, Refunding, Ser. 218 | 3.00 | 12/1/2050 | 1,300,000 | 1,239,044 | |||||
Massachusetts Municipal Wholesale Electric Co., Revenue Bonds (Project 2015-A) Ser. A | 4.00 | 7/1/2051 | 1,000,000 | 807,337 | |||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. A | 5.00 | 7/1/2042 | 1,000,000 | 985,803 | |||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. A | 5.00 | 7/1/2035 | 1,055,000 | 1,088,289 | |||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. B | 4.00 | 7/1/2046 | 2,500,000 | 2,085,942 |
9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.1% (continued) | |||||||||
Massachusetts - 93.1% (continued) | |||||||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. B | 5.00 | 7/1/2040 | 1,215,000 | 1,219,094 | |||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. C | 5.00 | 7/1/2044 | 2,000,000 | 1,973,299 | |||||
Massachusetts Port Authority, Revenue Bonds, Ser. B | 5.00 | 7/1/2045 | 1,000,000 | 977,705 | |||||
Massachusetts Port Authority, Revenue Bonds, Ser. E | 5.00 | 7/1/2040 | 1,000,000 | 1,003,369 | |||||
Massachusetts Transportation Fund, Revenue Bonds | 5.00 | 6/1/2049 | 1,265,000 | 1,300,109 | |||||
Massachusetts Transportation Fund, Revenue Bonds | 5.00 | 6/1/2050 | 1,000,000 | 1,034,079 | |||||
Massachusetts Transportation Fund, Revenue Bonds, Ser. A | 5.00 | 6/1/2041 | 1,500,000 | 1,536,318 | |||||
Massachusetts Transportation Trust Fund Metropolitan Highway System, Revenue Bonds, Refunding, Ser. A | 5.00 | 1/1/2034 | 2,000,000 | 2,124,523 | |||||
Springfield Water & Sewer Commission, Revenue Bonds, Ser. C | 5.00 | 4/15/2037 | 650,000 | 674,746 | |||||
University of Massachusetts Building Authority, Revenue Bonds, Ser. 1 | 5.00 | 11/1/2050 | 1,220,000 | 1,261,004 | |||||
83,506,676 | |||||||||
U.S. Related - 2.0% | |||||||||
Children's Trust Fund, Revenue Bonds, Refunding, Ser. A | 0.00 | 5/15/2050 | 5,000,000 | a | 861,681 | ||||
Puerto Rico Highway & Transportation Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. CC | 5.25 | 7/1/2033 | 1,000,000 | 979,330 | |||||
1,841,011 | |||||||||
Total Investments (cost $93,964,792) | 95.1% | 85,347,687 | |||||||
Cash and Receivables (Net) | 4.9% | 4,385,651 | |||||||
Net Assets | 100.0% | 89,733,338 |
a Security issued with a zero coupon. Income is recognized through the accretion of discount.
b Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2022, these securities were valued at $4,367,595 or 4.87% of net assets.
c These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on the municipal issue and to retire the bonds in full at the earliest refunding date.
10
Portfolio Summary (Unaudited) † | Value (%) |
Education | 24.3 |
Medical | 20.9 |
Transportation | 14.9 |
General Obligation | 9.3 |
Nursing Homes | 6.1 |
General | 4.0 |
Airport | 3.3 |
Single Family Housing | 3.3 |
Student Loan | 3.0 |
Prerefunded | 2.2 |
Development | 1.2 |
Tobacco Settlement | 1.0 |
Power | .9 |
Water | .7 |
95.1 |
† Based on net assets.
See notes to financial statements.
11
Summary of Abbreviations (Unaudited) | |||
ABAG | Association of Bay Area Governments | AGC | ACE Guaranty Corporation |
AGIC | Asset Guaranty Insurance Company | AMBAC | American Municipal Bond Assurance Corporation |
BAN | Bond Anticipation Notes | BSBY | Bloomberg Short-Term Bank Yield Index |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | DRIVERS | Derivative Inverse Tax-Exempt Receipts |
EFFR | Effective Federal Funds Rate | FGIC | Financial Guaranty Insurance Company |
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage Corporation | FNMA | Federal National Mortgage Association |
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National Mortgage Association | GO | General Obligation |
IDC | Industrial Development Corporation | LIBOR | London Interbank Offered Rate |
LOC | Letter of Credit | LR | Lease Revenue |
NAN | Note Anticipation Notes | MFHR | Multi-Family Housing Revenue |
MFMR | Multi-Family Mortgage Revenue | MUNIPSA | Securities Industry and Financial Markets Association Municipal Swap Index Yield |
OBFR | Overnight Bank Funding Rate | PILOT | Payment in Lieu of Taxes |
PRIME | Prime Lending Rate | PUTTERS | Puttable Tax-Exempt Receipts |
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RIB | Residual Interest Bonds | SFHR | Single Family Housing Revenue |
SFMR | Single Family Mortgage Revenue | SOFR | Secured Overnight Financing Rate |
TAN | Tax Anticipation Notes | TRAN | Tax and Revenue Anticipation Notes |
U.S. T-BILL | U.S. Treasury Bill Money Market Yield | XLCA | XL Capital Assurance |
See notes to financial statements.
12
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2022 (Unaudited)
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| Cost |
| Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments | 93,964,792 |
| 85,347,687 |
| ||
Cash |
|
|
|
| 2,921,621 |
|
Interest receivable |
| 1,161,554 |
| |||
Receivable for shares of Beneficial Interest subscribed |
| 434,888 |
| |||
Prepaid expenses |
|
|
|
| 72,585 |
|
|
|
|
|
| 89,938,335 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
| 57,768 |
| |||
Payable for shares of Beneficial Interest redeemed |
| 58,617 |
| |||
Reorganization expense payable—Note 5 |
| 43,860 |
| |||
Trustees’ fees and expenses payable |
| 963 |
| |||
Other accrued expenses |
|
|
|
| 43,789 |
|
|
|
|
|
| 204,997 |
|
Net Assets ($) |
|
| 89,733,338 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
| 99,185,189 |
|
Total distributable earnings (loss) |
|
|
|
| (9,451,851) |
|
Net Assets ($) |
|
| 89,733,338 |
|
Net Asset Value Per Share | Class A | Class C | Class Z |
|
Net Assets ($) | 18,193,093 | 8,492 | 71,531,753 |
|
Shares Outstanding | 1,820,908 | 882 | 7,159,378 |
|
Net Asset Value Per Share ($) | 9.99 | 9.63 | 9.99 |
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See notes to financial statements. |
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13
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2022 (Unaudited)
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Investment Income ($): |
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Interest Income |
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| 1,602,474 |
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Expenses: |
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Management fee—Note 3(a) |
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| 279,719 |
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Reorganization expense—Note 5 |
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| 54,361 |
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Shareholder servicing costs—Note 3(c) |
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| 53,648 |
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Professional fees |
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| 42,614 |
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Registration fees |
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| 22,108 |
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Chief Compliance Officer fees—Note 3(c) |
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| 7,963 |
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Trustees’ fees and expenses—Note 3(d) |
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| 5,857 |
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Prospectus and shareholders’ reports |
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| 5,157 |
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Custodian fees—Note 3(c) |
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| 1,231 |
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Loan commitment fees—Note 2 |
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| 1,176 |
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Distribution fees—Note 3(b) |
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| 34 |
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Miscellaneous |
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| 12,180 |
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Total Expenses |
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| 486,048 |
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Less—reduction in fees due to earnings credits—Note 3(c) |
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| (1,207) |
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Net Expenses |
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| 484,841 |
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Net Investment Income |
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| 1,117,633 |
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Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
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Net realized gain (loss) on investments | (1,128,212) |
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Net change in unrealized appreciation (depreciation) on investments | (4,945,273) |
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Net Realized and Unrealized Gain (Loss) on Investments |
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| (6,073,485) |
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Net (Decrease) in Net Assets Resulting from Operations |
| (4,955,852) |
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See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
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| Six Months Ended |
| Year Ended |
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Operations ($): |
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Net investment income |
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| 1,117,633 |
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| 2,395,964 |
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Net realized gain (loss) on investments |
| (1,128,212) |
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| 673,311 |
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Net change in unrealized appreciation |
| (4,945,273) |
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| (12,615,609) |
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Net Increase (Decrease) in Net Assets | (4,955,852) |
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| (9,546,334) |
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Distributions ($): |
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Distributions to shareholders: |
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Class A |
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| (199,148) |
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| (712,078) |
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Class C |
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| (2) |
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| (132) |
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Class Z |
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| (916,741) |
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| (3,147,667) |
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Total Distributions |
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| (1,115,891) |
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| (3,859,877) |
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Beneficial Interest Transactions ($): |
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Net proceeds from shares sold: |
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Class A |
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| 645,306 |
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| 939,719 |
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Class Z |
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| 305,798 |
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| 1,972,866 |
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Distributions reinvested: |
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Class A |
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| 151,885 |
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| 555,691 |
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Class Z |
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| 741,126 |
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| 2,599,241 |
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Cost of shares redeemed: |
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Class A |
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| (2,320,703) |
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| (3,359,950) |
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Class C |
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| - |
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| (3,927) |
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Class Z |
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| (9,001,042) |
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| (11,902,344) |
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Increase (Decrease) in Net Assets | (9,477,630) |
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| (9,198,704) |
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Total Increase (Decrease) in Net Assets | (15,549,373) |
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| (22,604,915) |
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Net Assets ($): |
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Beginning of Period |
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| 105,282,711 |
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| 127,887,626 |
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End of Period |
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| 89,733,338 |
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| 105,282,711 |
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Capital Share Transactions (Shares): |
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Class Aa |
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Shares sold |
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| 64,199 |
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| 79,533 |
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Shares issued for distributions reinvested |
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| 14,519 |
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| 47,454 |
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Shares redeemed |
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| (222,312) |
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| (285,531) |
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Net Increase (Decrease) in Shares Outstanding | (143,594) |
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| (158,544) |
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Class C |
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Shares redeemed |
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| - |
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| (332) |
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Net Increase (Decrease) in Shares Outstanding | - |
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| (332) |
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Class Za |
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Shares sold |
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| 29,066 |
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| 167,119 |
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Shares issued for distributions reinvested |
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| 70,834 |
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| 222,050 |
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Shares redeemed |
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| (866,611) |
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| (1,016,890) |
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Net Increase (Decrease) in Shares Outstanding | (766,711) |
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| (627,721) |
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a | During the period ended October 31, 2022, 1,944 Class Z shares representing $20,000 were exchanged for 1,944 Class A share. | ||||||||
See notes to financial statements. |
15
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||
October 31, 2022 | Year Ended April 30, | |||||||||
Class A Shares | (Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | ||||
Per Share Data ($): | ||||||||||
Net asset value, beginning of period | 10.64 | 11.98 | 11.31 | 11.51 | 11.27 | 11.48 | ||||
Investment Operations: | ||||||||||
Net investment incomea | .10 | .21 | .23 | .26 | .28 | .29 | ||||
Net realized and unrealized | (.64) | (1.19) | .70 | (.20) | .24 | (.21) | ||||
Total from Investment Operations | (.54) | (.98) | .93 | .06 | .52 | .08 | ||||
Distributions: | ||||||||||
Dividends from net investment | (.11) | (.21) | (.23) | (.26) | (.28) | (.29) | ||||
Dividends from net realized | − | (.15) | (.03) | − | − | − | ||||
Total Distributions | (.11) | (.36) | (.26) | (.26) | (.28) | (.29) | ||||
Net asset value, end of period | 9.99 | 10.64 | 11.98 | 11.31 | 11.51 | 11.27 | ||||
Total Return (%)b | (5.17)c | (8.48) | 8.25 | .46 | 4.72 | .65 | ||||
Ratios/Supplemental Data (%): | ||||||||||
Ratio of total expenses to | 1.16d | 1.04 | 1.03 | 1.01 | .99 | 1.00 | ||||
Ratio of net expenses to | 1.16d | 1.04 | 1.03 | 1.01 | .99 | .99 | ||||
Ratio of net investment income to | 1.98d | 1.78 | 1.90 | 2.22 | 2.51 | 2.47 | ||||
Portfolio Turnover Rate | 4.55c | 8.34 | 13.31 | 16.48 | 4.67 | 10.68 | ||||
Net Assets, end of period ($ x 1,000) | 18,193 | 20,910 | 25,427 | 21,847 | 23,396 | 24,569 |
a Based on average shares outstanding.
b Exclusive of sales charge.
c Not annualized.
d Annualized.
See notes to financial statements.
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Six Months Ended | ||||||
October 31, 2022 | Year Ended April 30, | |||||
Class C Shares | (Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 10.32 | 11.83 | 11.31 | 11.52 | 11.27 | 11.49 |
Investment Operations: | ||||||
Net investment income (loss)a | (.06) | (.12) | .04 | .15 | .18 | .19 |
Net realized and unrealized | (.63) | (1.24) | .53 | (.22) | .25 | (.22) |
Total from Investment Operations | (.69) | (1.36) | .57 | (.07) | .43 | (.03) |
Distributions: | ||||||
Dividends from net investment | (.00)b | (.00)b | (.02) | (.14) | (.18) | (.19) |
Dividends from net realized | − | (.15) | (.03) | − | − | − |
Total Distributions | (.00)b | (.15) | (.05) | (.14) | (.18) | (.19) |
Net asset value, end of period | 9.63 | 10.32 | 11.83 | 11.31 | 11.52 | 11.27 |
Total Return (%)c | (6.67)d | (11.63) | 5.08 | (.64) | 3.83 | (.22) |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses to | 4.40e | 3.89 | 2.61 | 1.99 | 1.93 | 1.81 |
Ratio of net expenses to | 4.40e | 3.89 | 2.61 | 1.99 | 1.93 | 1.80 |
Ratio of net investment income to | (1.25)e | (1.08) | .32 | 1.27 | 1.57 | 1.63 |
Portfolio Turnover Rate | 4.55d | 8.34 | 13.31 | 16.48 | 4.67 | 10.68 |
Net Assets, end of period ($ x 1,000) | 8 | 9 | 14 | 109 | 330 | 367 |
a Based on average shares outstanding.
b Amount represents less than $.01 per share.
c Exclusive of sales charge.
d Not annualized.
e Annualized.
See notes to financial statements.
17
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | |||||||||
October 31, 2022 | Year Ended April 30, | ||||||||
Class Z Shares | (Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||
Per Share Data ($): | |||||||||
Net asset value, beginning of period | 10.64 | 11.98 | 11.31 | 11.51 | 11.27 | 11.48 | |||
Investment Operations: | |||||||||
Net investment incomea | .12 | .24 | .26 | .29 | .31 | .31 | |||
Net realized and unrealized | (.65) | (1.19) | .70 | (.20) | .24 | (.21) | |||
Total from Investment Operations | (.53) | (.95) | .96 | .09 | .55 | .10 | |||
Distributions: | |||||||||
Dividends from net investment | (.12) | (.24) | (.26) | (.29) | (.31) | (.31) | |||
Dividends from net realized | − | (.15) | (.03) | − | − | − | |||
Total Distributions | (.12) | (.39) | (.29) | (.29) | (.31) | (.31) | |||
Net asset value, end of period | 9.99 | 10.64 | 11.98 | 11.31 | 11.51 | 11.27 | |||
Total Return (%) | (5.04)b | (8.23) | 8.54 | .69 | 4.96 | .95 | |||
Ratios/Supplemental Data (%): | |||||||||
Ratio of total expenses to | .91c | .77 | .76 | .78 | .76 | .78 | |||
Ratio of net expenses to | .90c | .77 | .76 | .78 | .76 | .77 | |||
Ratio of net investment income to | 2.25c | 2.04 | 2.17 | 2.45 | 2.74 | 2.69 | |||
Portfolio Turnover Rate | 4.55b | 8.34 | 13.31 | 16.48 | 4.67 | 10.68 | |||
Net Assets, end of period ($ x 1,000) | 71,532 | 84,364 | 102,446 | 100,923 | 112,958 | 118,120 |
a Based on average shares outstanding.
b Not annualized.
c Annualized.
See notes to financial statements.
18
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
BNY Mellon Massachusetts Fund (the “fund”) is a separate non-diversified series of BNY Mellon State Municipal Bond Funds (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 three series, including the fund. The fund’s investment objective is to seek to maximize current income exempt from federal income tax and from Massachusetts state income tax, without undue risk. BNY Mellon Investment Adviser, Inc. (the “Adviser”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. Insight North America LLC (the “Sub-Adviser”), a wholly-owned subsidiary of BNY Mellon and an affiliate of the Adviser, serves as the fund’s sub-adviser.
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 and Class Z. 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 A shares bought without an initial sales charge as part of an investment of $1 million or more may be charged a contingent deferred sales charge (“CDSC”) of 1.00% if redeemed within one year. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class C shares automatically convert to Class A shares eight years after the date of purchase, without the imposition of a sales charge. Class Z shares are sold at net asset value per share to certain shareholders of the fund. Class Z shares generally are not available for new accounts and bear Shareholder Services Plan fees. Class Z 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.
As of October 31, 2022, MBC Investments Corporation, an indirect subsidiary of BNY Mellon, held all of outstanding Class C shares of the fund.
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 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 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.
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Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
The Trust’s Board of Trustees (the “Board”) has designated the Adviser as the fund’s valuation designee, effective September 8, 2022, to make all fair value determinations with respect to the fund’s portfolio investments, subject to the Board’s oversight and pursuant to Rule 2a-5 under the Act.
Investments in municipal securities are valued each business day by an independent pricing service (the “Service”) approved by the Board. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Municipal investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. The Service is engaged under the general oversight of the Board. All of the preceding securities are generally categorized within Level 2 of the fair value hierarchy.
When market quotations or official closing prices are not readily available, or are determined not to accurately reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers.
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
These securities are either categorized within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
For securities where observable inputs are limited, assumptions about market activity and risk are used and such securities are generally categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2022 in valuing the fund’s investments:
Level 1-Unadjusted Quoted Prices | Level 2- Other Significant Observable Inputs | Level 3-Significant Unobservable Inputs | Total | |||
Assets ($) | ||||||
Investments in Securities:† | ||||||
Municipal Securities | - | 85,347,687 | - | 85,347,687 |
† 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. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed delivery basis may be settled a month or more after the trade date.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(c) Market Risk: The value of the securities in which the fund invests may be affected by political, regulatory, economic and social developments, and developments that impact specific economic sectors, industries or segments of the market. The value of a security may also decline due to general market conditions that are not specifically related to a particular company or industry, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, changes to inflation, adverse changes to credit markets or adverse investor sentiment generally. 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,
22
region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies world-wide. Recent 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.
Municipal Securities Risk: The amount of public information available about municipal securities is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund’s investments in municipal securities. Other factors include the general conditions of the municipal securities market, the size of the particular offering, the maturity of the obligation and the rating of the issue. Changes in economic, business or political conditions relating to a particular municipal project, municipality, or state, territory or possession of the United States in which the fund invests may have an impact on the fund’s share price. As an example, elevated costs or shortfalls in revenue associated with the spread of the COVID-19 outbreak could affect the ability of municipal issuers to make payments on debt obligations when due. Any such credit impairment could adversely impact the value of their bonds, which could negatively impact the performance of the fund.
Non-Diversification Risk: The fund is non-diversified, which means that the fund may invest a relatively high percentage of its assets in a limited number of issuers. Therefore, the fund’s performance may be more vulnerable to changes in the market value of a single issuer or group of issuers and more susceptible to risks associated with a single economic, political or regulatory occurrence than a diversified fund.
(d) Dividends and distributions to shareholders: It is the policy of the fund to declare dividends daily from net investment income. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax-exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 31, 2022, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended October 31, 2022, the fund did not incur any interest or penalties.
Each tax year in the three-year period ended April 30, 2022 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2022 was as follows: tax exempt income $2,383,369 and long-term capital gains $1,476,508. The tax character of current year distributions will be determined at the end of the current fiscal year.
(f) New accounting pronouncements: In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), and in January 2021, the FASB issued Accounting Standards Update 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the LIBOR and other interbank offered rates as of the end of 2021. The temporary relief provided by ASU 2020-04 and ASU 2021-01 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022 (“FASB Effective Date”). Management had evaluated the impact of ASU 2020-04 and ASU 2021-01 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the Reference Rate Reform. Management will be adopting ASU 2020-04 and ASU 2021-01 on FASB Effective Date or if amended ASU 2020-04 new extended FASB Effective Date, if any. Management will continue to work with other financial institutions and counterparties to modify contracts as required by applicable regulation and within the regulatory deadlines. As of October 31, 2022, management believes these accounting standards have no impact on the fund and does not have any concerns of adopting the regulations by FASB Effective Date.
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NOTE 2—Bank Lines of Credit:
The fund participates with other long-term open-end funds managed by the Adviser in a $823.5 million unsecured credit facility led by Citibank, N.A. (the “Citibank Credit Facility”) and a $300 million unsecured credit facility provided by BNY 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 $688.5 million and is available to all long-term open-ended funds, including the fund, and (ii) Tranche B is an amount equal to $135 million and is available only to BNY Mellon Floating Rate Income Fund, a series of BNY Mellon Investment Funds IV, Inc. 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. During the period ended October 31, 2022, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Advisory 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 .55% of the value of the fund’s average daily net assets and is payable monthly.
Pursuant to a sub-investment advisory agreement between the Adviser and the Sub-Adviser, the Adviser pays the Sub-Adviser a monthly fee at an annual rate of .264% of the value of the fund’s average daily net assets.
(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. The Distributor may pay one or more Service Agents in respect of advertising, marketing and other distribution services, and determines the amounts, if any, to be paid to Service Agents and the basis on which such payments are made. During the period ended October 31, 2022, Class C shares were charged $34 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 services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or
25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2022, Class A and Class C shares were charged $25,151 and $11, respectively, pursuant to the Shareholder Services Plan.
Under the Shareholder Services Plan, Class Z shares reimburse the Distributor at an amount not to exceed an annual rate of .25% of the value of Class Z shares’ average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class Z shares, and services related to the maintenance of shareholder accounts. During the period ended October 31, 2022, Class Z shares were charged $5,000 pursuant to the Shareholder Services Plan.
The fund has arrangements with BNY Mellon Transfer, Inc., (the “Transfer Agent”) and The Bank of New York Mellon (the “Custodian”), both a subsidiary of BNY Mellon and an affiliate of the Adviser, whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and custody fees. For financial reporting purposes, the fund includes transfer agent net earnings credits, if any, and custody net earnings credits, if any, as an expense offset in the Statement of Operations.
The fund compensates the Transfer Agent, under a transfer agency agreement, for providing transfer agency and cash management services for the fund. The majority of Transfer Agent 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 October 31, 2022, the fund was charged $14,558 for transfer agency services. These fees are included in Shareholder servicing costs in the Statement of Operations. These fees were partially offset by earnings credits of $975.
The fund compensates the Custodian, under a custody agreement, for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended October 31, 2022, the fund was charged $1,231 pursuant to the custody agreement. These fees were partially offset by earnings credits of $232.
The fund compensates the Custodian, under a shareholder redemption draft processing agreement, for providing certain services related to the fund’s check writing privilege. During the period ended October 31, 2022,
26
the fund was charged $824 pursuant to the agreement, which is included in Shareholder servicing costs in the Statement of Operations.
During the period ended October 31, 2022, the fund was charged $7,963 for services performed by the fund’s Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.
The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: management fee of $42,699, Distribution Plan fees of $5, Shareholder Services Plan fees of $3,868, Custodian fees of $1,133, Chief Compliance Officer fees of $5,078 and Transfer Agent fees of $4,985.
(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 October 31, 2022, amounted to $4,484,235 and $17,855,305, respectively.
At October 31, 2022, accumulated net unrealized depreciation on investments was $8,617,105, consisting of $458,410 gross unrealized appreciation and $9,075,515 gross unrealized depreciation.
At October 31, 2022, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Plan of Reorganization:
The Board of the fund, a series of the Trust, has approved with shareholder approval, an Agreement and Plan of Reorganization (the “Agreement”) providing for the transfer of the fund’s assets to BNY Mellon AMT-Free Municipal Bond Fund (the “Acquiring Fund”) in a tax-free exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the fund’s stated liabilities, the distribution of such shares of the Acquiring Fund to fund shareholders and the subsequent termination of the fund. At a Shareholder Meeting held on November 17, 2022 (See Proxy Results), shareholders of the fund approved the Agreement which provides for the transfer of all of the assets of the fund to the Acquiring Fund in exchange solely for Class A, Class C and Class Z shares of the Acquiring Fund, having an aggregate net asset value equal to the value of the fund’s net assets, and the assumption by the Acquiring
27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Fund of the fund’s stated liabilities (the “Reorganization”) on or about January 27, 2023. As of the end of the reporting period, total reorganization costs were estimated to be approximately $103,625 of which $54,361 was accrued by the fund as of October 31, 2022.
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PROXY RESULTS (Unaudited)
A special meeting of the fund’s shareholders was held on November 17, 2022. The proposal considered at the meeting and the results were as follows:
Shares | |||
For | Against | Abstain | |
To approve an Agreement and Plan of Reorganization providing for the transfer of all of the assets of the Fund to BNY Mellon AMT-Free Municipal Bond Fund (BAMB), in exchange solely for Class A,C and Z shares, as applicable, of BAMB having an aggregate net asset value equal to the value of the Fund's net assets and the assumption by BAMB of the Fund's stated liabilities. Holders of Class A, C and Z shares, as applicable, of the Fund would receive Class A, C and Z shares, respectively, of BAMB. | 3,442,118 | 1,015,052 | 641,850 |
29
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited)
At a meeting of the fund’s Board of Trustees held on July 27, 2022, 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, and the Sub-Investment Advisory Agreement (together with the Management Agreement, the “Agreements”), pursuant to which Insight North America LLC (the “Sub-Adviser”) provides day-to-day management of the fund’s investments. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser and the Sub-Adviser. In considering the renewal of the Agreements, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the meeting and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser 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, as well as the Adviser’s supervisory activities over the Sub-Adviser.
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board reviewed reports prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data based on classifications provided by Thomson Reuters Lipper, which included information comparing (1) the performance of the fund’s Class Z shares with the performance of a group of retail front-end load and no-load Massachusetts municipal debt funds selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all retail and institutional Massachusetts municipal debt funds (the “Performance Universe”), all for various periods ended June, 30, 2022, and (2) the fund’s actual and contractual management fees and total expenses with those
30
of the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of all retail front-end load and no-load Massachusetts municipal debt funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser and the Sub-Adviser the results of the comparisons and considered that the fund’s total return performance was at or above the Performance Group and Performance Universe medians for all periods, except the ten-year period when total return performance was slightly below the Performance Group and Performance Universe medians. The Board also considered that the fund’s yield performance was below the Performance Group and Performance Universe medians for eight of the ten one-year periods ended June 30th. The Board considered the relative proximity of the fund’s yield performance to the Performance Group and/or Performance Universe medians in certain periods when the yield performance was below the 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 noted that the fund had a four star rating from Morningstar for the three-year period based on Morningstar’s risk-adjusted return measures.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management services and the sub-advisory services provided by the Adviser and the Sub-Adviser, respectively. In addition, the Board reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year. 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 higher than the Expense Group median and higher than the Expense Universe median actual management fee and the fund’s total expenses were equal to the Expense Group median and slightly higher than the Expense Universe median total expenses.
Representatives of the Adviser noted that there were no other funds advised by the Adviser that are in the same Lipper category as the fund or separate accounts and/or other types of client portfolios advised by the Adviser or the Sub-Adviser that are considered to have similar investment strategies and policies as the fund.
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INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
The Board considered the fee payable to the Sub-Adviser in relation to the fee payable to the Adviser by the fund and the respective services provided by the Sub-Adviser and the Adviser. The Board also took into consideration that the Sub-Adviser’s fee is paid by the Adviser, out of its fee from the fund, and not the fund.
Analysis of Profitability and Economies of Scale. Representatives of the Adviser reviewed the expenses allocated and profit received by the Adviser and its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to the Adviser and its affiliates for managing the funds in the BNY Mellon fund complex, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not excessive, given the services rendered and service levels provided by the Adviser and its affiliates. The Board also 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 Agreements, considered in relation to the mix of services provided by the Adviser and the Sub-Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreements and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser stated that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that the Adviser may have realized any economies of scale would be less. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser and the Sub-Adviser from acting as investment adviser and sub-investment adviser, respectively, and took into consideration that there were no soft dollar arrangements in effect for trading the fund’s investments.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreements. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser and the Sub-Adviser are adequate and appropriate.
· The Board generally was satisfied with the fund’s overall performance.
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· The Board concluded that the fees paid to the Adviser and the Sub-Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Management Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreements, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates and the Sub-Adviser, of the Adviser and the Sub-Adviser and the services provided to the fund by the Adviser and the Sub-Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreements, including information on the investment performance of the fund in comparison to similar 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 Agreements for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on its consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreements.
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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 fund 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 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 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 January 1, 2021 to December 31, 2021, 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.
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.
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LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited) (continued)
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BNY Mellon State Municipal Bond Funds, BNY Mellon Massachusetts Fund
240 Greenwich Street
New York, NY 10286
Adviser
BNY Mellon Investment Adviser, Inc.
240 Greenwich Street
New York, NY 10286
Sub-Adviser
Insight North America LLC
200 Park Avenue, 7th Floor
New York, NY 10166
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: PSMAX Class C: PCMAX Class Z: PMAZX |
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.im.bnymellon.com
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.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2022 BNY Mellon Securities Corporation |
BNY Mellon State Municipal Bond Funds, BNY Mellon Pennsylvania Fund
SEMI-ANNUAL REPORT October 31, 2022 |
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.im.bnymellon.com and sign up for eCommunications. It’s simple and only takes a few minutes. |
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
Information About the Renewal | |
FOR MORE INFORMATION
Back Cover
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from May 1, 2022, through October 31, 2022, as provided by Daniel Rabasco and Thomas Casey, Portfolio Managers employed by the fund’s sub-adviser, Insight North America LLC.
Market and Fund Performance Overview
For the six-month period ended October 31, 2022, Class A shares of BNY Mellon Pennsylvania Fund, a series of BNY Mellon State Municipal Bond Funds, produced a total return of −6.17%, Class C shares returned −6.67% and Class Z shares returned −6.05%.1 In comparison, the Bloomberg U.S. Municipal Bond Index (the “Index”), the fund’s benchmark index, which is comprised of bonds issued nationally and not solely within Pennsylvania, achieved a total return of −4.43% for the same period.2
Municipal bonds lost ground during the reporting period due to concerns about inflation and rising interest rates. The fund underperformed the Index due to unfavorable exposure to longer and lower-rated bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and from Pennsylvania state income tax, without assuming undue risk. To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in municipal bonds that provide income exempt from federal and Pennsylvania state income taxes. The fund invests at least 70% of its assets in municipal bonds rated, at the time of purchase, investment grade (Baa/BBB or higher) or the unrated equivalent as determined by the fund’s sub-adviser, Insight North America LLC (“INA”). For additional yield, the fund may invest up to 30% of its assets in municipal bonds rated below investment grade (“high yield” or “junk” bonds) or the unrated equivalent as determined by INA. The dollar-weighted average maturity of the fund’s portfolio normally exceeds 10 years, but the fund may invest without regard to maturity.
The portfolio managers focus on identifying undervalued sectors and securities and minimize the use of interest-rate forecasting. The portfolio managers select municipal bonds for the fund’s portfolio by using fundamental credit analysis to estimate the relative value and attractiveness of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market, and by actively trading among various sectors and securities, including pre-refunded, general obligation and revenue bonds, based on their apparent relative values. The fund seeks to invest in several of these sectors and does not seek to
overweight any particular sector but may do so depending on each sector’s relative value at a given time.
Volatility and Fund Outflows Hinder the Market
The municipal bond market continued to experience volatility driven by economic uncertainty, rising inflation and geopolitical risk. While employment remains strong, the
2
outcome of the tightening policy of the Federal Reserve (the “Fed”) is uncertain, with investors fearing that an economic slowdown is likely.
Inflation measures stayed near multi-decade highs during the reporting period, fueled in part by high oil prices. In response, the Fed continued to implement increases in the federal funds rate, raising it in May, June, July, September (and early November), bringing the target rate to between 3.75% and 4.00%. Despite these hikes, the economy, which had earlier posted two-consecutive quarters of contraction, rebounded in the third quarter, with GDP growing at a 2.6% annualized rate.
The persistence of higher-than-expected inflation, combined with interest-rate hikes by the Fed and rising Treasury yields, led to volatility in the municipal bond market through much of the year. Significant outflows from municipal bond mutual funds have added to the turmoil as fund managers sold positions to meet redemptions.
Despite the sell-off, credit fundamentals in the municipal market have remained strong, assisted by healthy tax revenues and federal support. Pennsylvania remains in healthy fiscal condition, bolstered by robust tax revenues. In addition, turmoil has resulted in more attractive valuations in many segments of the market, creating the potential for outperformance in the future.
Longer and Lower-Rated Bonds Hampered Performance
The fund’s relative performance was hindered primarily by its exposure to longer bonds, especially those of 20-year maturities. Positions among lower-quality bonds, especially those rated A and BBB, also were a drag on relative returns. Revenue bonds detracted from performance, especially in the hospital, airport and transportation segments.
On the other hand, the fund’s short duration versus the Index was advantageous as longer bonds were hurt most by rising rates. Holdings in the seven- to 10-year portion of the municipal bond curve also benefited relative returns. Overweight positioning in the water & sewer, special tax and public power segments also contributed positively to relative performance. The fund did not use derivatives during the reporting period.
A Cautious Outlook
We continue to expect that the Fed will maintain an upward bias on rates through at least the first quarter of 2023, that higher rates of inflation will persist, and that the market will see some volatility as a result. A U.S. recession has also become more likely, given the difficulty the Fed will face in tamping down inflation without hurting economic growth. Geopolitical concerns could also add to the uncertainties surrounding the market, as the war in Ukraine continues to affect prices and availability of oil and other commodities, potentially hurting economic stability in Europe. The election results appear likely to result in gridlock in Washington, which could be beneficial to the municipal bond market. Given this
3
DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)
environment, we expect to remain overweight to revenue bonds, especially in essential services, which are less cyclical than other segments.
November 15, 2022
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. Class Z is not subject to any initial or deferred sales charge. Past performance is no guarantee of future results. Share price, yield and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. Income may be subject to state and local taxes, and some income may be subject to the federal alternative minimum tax (AMT) for certain investors. Capital gains, if any, are taxable. The fund’s returns reflect the absorption of certain fund expenses by BNY Mellon Investment Advisor, Inc. pursuant to an agreement in effect through September 1, 2023, at which time it may be extended, terminated or modified. The fund performance returns stated reflect the fee waiver, without which, the returns would have been lower.
2 Source: Lipper Inc. — The Bloomberg U.S. Municipal Bond Index covers the U.S. dollar-denominated, long-term, tax-exempt bond market. Investors cannot invest directly in any index.
Bonds are subject generally to interest-rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
The amount of public information available about municipal bonds is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund’s investments in municipal bonds. Other factors include the general conditions of the municipal bond market, the size of the particular offering, the maturity of the obligation and the rating of the issue. Changes in economic, business or political conditions relating to a particular municipal project, municipality or state in which the fund invests may have an impact on the fund’s share price.
References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations.
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.
4
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 State Municipal Bond Funds, BNY Mellon Pennsylvania Fund from May 1, 2022 to October 31, 2022. 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 October 31, 2022 |
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| Class A | Class C | Class Z |
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Expenses paid per $1,000† | $5.13 | $10.14 | $3.91 |
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Ending value (after expenses) | $938.30 | $933.30 | $939.50 |
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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 October 31, 2022 |
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| Class A | Class C | Class Z |
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Expenses paid per $1,000† | $5.35 | $10.56 | $4.08 |
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Ending value (after expenses) | $1,019.91 | $1,014.72 | $1,021.17 |
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† | Expenses are equal to the fund’s annualized expense ratio of 1.05% for Class A, 2.08% for Class C and .80% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
5
STATEMENT OF INVESTMENTS
October 31, 2022 (Unaudited)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.7% | |||||||||
Pennsylvania - 94.6% | |||||||||
Allegheny County Hospital Development Authority, Revenue Bonds, Refunding (Allegheny Health Network Obligated Group) Ser. A | 5.00 | 4/1/2031 | 2,000,000 | 2,058,222 | |||||
Allegheny County Hospital Development Authority, Revenue Bonds, Refunding (UPMC Obligated Group) Ser. A | 4.00 | 7/15/2035 | 1,000,000 | 911,642 | |||||
Allentown Neighborhood Improvement Zone Development Authority, Revenue Bonds (City Center Project) | 5.00 | 5/1/2033 | 500,000 | a | 464,687 | ||||
Allentown Neighborhood Improvement Zone Development Authority, Revenue Bonds (City Center Project) | 5.00 | 5/1/2042 | 1,000,000 | a | 857,712 | ||||
Allentown School District, GO (Insured; Build America Mutual) Ser. C | 5.00 | 2/1/2037 | 1,600,000 | 1,675,738 | |||||
Berks County Industrial Development Authority, Revenue Bonds, Refunding (Highlands at Wyomissing Obligated Group) | 5.00 | 5/15/2038 | 415,000 | 393,503 | |||||
Berks County Industrial Development Authority, Revenue Bonds, Refunding (Highlands at Wyomissing Obligated Group) | 5.00 | 5/15/2043 | 500,000 | 460,786 | |||||
Berks County Industrial Development Authority, Revenue Bonds, Refunding (Highlands at Wyomissing Obligated Group) | 5.00 | 5/15/2042 | 500,000 | 449,396 | |||||
Berks County Industrial Development Authority, Revenue Bonds, Refunding (Highlands at Wyomissing Obligated Group) | 5.00 | 5/15/2047 | 600,000 | 533,275 | |||||
Chester County Health & Education Facilities Authority, Revenue Bonds (Main Line Health System Obligated Group) Ser. A | 4.00 | 9/1/2050 | 1,000,000 | 819,824 | |||||
Clairton Municipal Authority, Revenue Bonds, Refunding, Ser. B | 5.00 | 12/1/2037 | 2,000,000 | 2,000,182 | |||||
Commonwealth Financing Authority, Revenue Bonds | 5.00 | 6/1/2034 | 1,000,000 | 1,027,425 |
6
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.7% (continued) | |||||||||
Pennsylvania - 94.6% (continued) | |||||||||
Cumberland County Municipal Authority, Revenue Bonds, Refunding (Diakon Lutheran Social Ministries Obligated Group) | 5.00 | 1/1/2038 | 495,000 | 495,469 | |||||
Cumberland County Municipal Authority, Revenue Bonds, Refunding (Diakon Lutheran Social Ministries Obligated Group) | 5.00 | 1/1/2025 | 100,000 | b | 103,541 | ||||
Delaware County Authority, Revenue Bonds (Villanova University) | 5.00 | 8/1/2040 | 1,000,000 | 1,022,092 | |||||
Delaware County Authority, Revenue Bonds, Refunding (Cabrini University) | 5.00 | 7/1/2042 | 1,000,000 | 874,419 | |||||
Dover Area School District, GO (Insured; Build America Mutual) | 5.00 | 4/1/2036 | 800,000 | 843,175 | |||||
Dover Area School District, GO (Insured; Build America Mutual) | 5.00 | 4/1/2035 | 1,000,000 | 1,054,735 | |||||
East Hempfield Township Industrial Development Authority, Revenue Bonds, Refunding (Willow Valley Communities Project) | 5.00 | 12/1/2039 | 600,000 | 606,548 | |||||
Franklin County Industrial Development Authority, Revenue Bonds (Menno-Haven Project) | 5.00 | 12/1/2049 | 500,000 | 389,260 | |||||
Franklin County Industrial Development Authority, Revenue Bonds, Refunding (Menno-Haven Project) | 5.00 | 12/1/2048 | 1,000,000 | 783,536 | |||||
Geisinger Authority, Revenue Bonds, Refunding (Geisinger Health System Obligated Group) | 5.00 | 4/1/2030 | 1,000,000 | c | 1,049,184 | ||||
Geisinger Authority, Revenue Bonds, Refunding (Geisinger Health System Obligated Group) Ser. A | 5.00 | 6/1/2041 | 2,500,000 | 2,500,548 | |||||
Lancaster County Hospital Authority, Revenue Bonds, Refunding (Brethren Village Project) | 5.13 | 7/1/2037 | 1,000,000 | 902,707 | |||||
Lancaster County Hospital Authority, Revenue Bonds, Refunding (Masonic Villages of the Grand Lodge of Pennsylvania) | 5.00 | 11/1/2035 | 1,000,000 | 1,000,637 | |||||
Lancaster County Hospital Authority, Revenue Bonds, Refunding (The University of Pennsylvania Health System Obligated Group) | 5.00 | 8/15/2042 | 1,800,000 | 1,822,464 |
7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.7% (continued) | |||||||||
Pennsylvania - 94.6% (continued) | |||||||||
Lehigh County General Purpose Authority, Revenue Bonds (Lehigh Valley Academy Regional Charter School) | 4.00 | 6/1/2052 | 1,000,000 | 771,910 | |||||
Luzerne County Industrial Development Authority, Revenue Bonds, Refunding (Pennsylvania-American Water Co.) | 2.45 | 12/3/2029 | 1,750,000 | c | 1,487,582 | ||||
Montgomery County Higher Education & Health Authority, Revenue Bonds, Refunding (Philadelphia Presbytery Homes Project) | 5.00 | 12/1/2047 | 1,000,000 | 913,352 | |||||
Montgomery County Higher Education & Health Authority, Revenue Bonds, Refunding (Thomas Jefferson University Project) | 4.00 | 9/1/2034 | 1,000,000 | 931,312 | |||||
Montgomery County Industrial Development Authority, Revenue Bonds, Refunding (ACTS Retirement-Life Communities Inc. Obligated Group) | 5.00 | 11/15/2036 | 3,200,000 | 3,087,298 | |||||
Montgomery County Industrial Development Authority, Revenue Bonds, Refunding (Meadowood Senior Living Project) Ser. A | 5.00 | 12/1/2048 | 1,000,000 | 929,821 | |||||
Montgomery County Industrial Development Authority, Revenue Bonds, Refunding (Waverly Heights Project) | 5.00 | 12/1/2049 | 500,000 | 502,132 | |||||
Pennsylvania, COP, Refunding, Ser. A | 5.00 | 7/1/2034 | 1,000,000 | 1,055,158 | |||||
Pennsylvania, GO, Ser. 1st | 4.00 | 3/1/2037 | 1,525,000 | 1,408,871 | |||||
Pennsylvania Economic Development Financing Authority, Revenue Bonds (Greed Bond) (Covanta Project) | 3.25 | 8/1/2039 | 850,000 | a | 600,831 | ||||
Pennsylvania Economic Development Financing Authority, Revenue Bonds, Refunding (Presbyterian Homes Obligated Group) | 4.00 | 7/1/2033 | 1,750,000 | 1,569,020 | |||||
Pennsylvania Economic Development Financing Authority, Revenue Bonds, Refunding (UPMC Obligated Group) Ser. A | 4.00 | 10/15/2041 | 275,000 | 232,073 |
8
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.7% (continued) | |||||||||
Pennsylvania - 94.6% (continued) | |||||||||
Pennsylvania Economic Development Financing Authority, Revenue Bonds, Refunding (UPMC Obligated Group) Ser. A | 5.00 | 10/15/2036 | 1,250,000 | 1,286,459 | |||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (Drexel University) | 5.00 | 5/1/2041 | 1,000,000 | 1,004,708 | |||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (Drexel University) | 5.00 | 5/1/2035 | 1,750,000 | 1,771,929 | |||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (Thomas Jefferson University Obligated Group) Ser. A | 5.00 | 9/1/2045 | 1,500,000 | 1,468,394 | |||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (Thomas Jefferson University Obligated Group) Ser. A | 5.00 | 9/1/2030 | 1,000,000 | 1,021,057 | |||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (University of Sciences) | 5.00 | 11/1/2031 | 1,000,000 | 1,016,639 | |||||
Pennsylvania Turnpike Commission, Revenue Bonds, Refunding, Ser. C | 5.00 | 12/1/2032 | 900,000 | 971,285 | |||||
Pennsylvania Turnpike Commission, Revenue Bonds, Ser. B | 5.00 | 12/1/2036 | 1,305,000 | 1,348,056 | |||||
Pennsylvania Turnpike Commission Oil Franchise, Revenue Bonds, Refunding, Ser. A | 5.00 | 12/1/2046 | 3,000,000 | 2,986,895 | |||||
Pennsylvania Turnpike Commission Oil Franchise, Revenue Bonds, Ser. B | 5.25 | 12/1/2048 | 1,000,000 | 1,000,036 | |||||
Philadelphia, GO, Ser. A | 4.00 | 5/1/2042 | 1,500,000 | 1,333,002 | |||||
Philadelphia Airport, Revenue Bonds, Refunding | 5.00 | 7/1/2031 | 1,000,000 | 1,021,995 | |||||
Philadelphia Airport, Revenue Bonds, Refunding, Ser. A | 5.00 | 6/15/2035 | 2,000,000 | 1,961,112 | |||||
Philadelphia Airport, Revenue Bonds, Refunding, Ser. B | 5.00 | 7/1/2047 | 1,500,000 | 1,423,133 | |||||
Philadelphia Gas Works Co., Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) Ser. A | 4.00 | 8/1/2045 | 1,000,000 | 869,402 | |||||
Philadelphia Gas Works Co., Revenue Bonds, Refunding | 5.00 | 8/1/2031 | 1,000,000 | 1,024,442 |
9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.7% (continued) | |||||||||
Pennsylvania - 94.6% (continued) | |||||||||
Philadelphia Gas Works Co., Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. B | 4.00 | 8/1/2037 | 1,290,000 | 1,208,312 | |||||
Philadelphia Industrial Development Authority, Revenue Bonds (Housing-University Square Apartments Project) | 5.00 | 12/1/2037 | 1,250,000 | 1,268,998 | |||||
Philadelphia Industrial Development Authority, Revenue Bonds, Refunding (St. Joseph's University) | 4.00 | 11/1/2045 | 1,000,000 | 817,318 | |||||
Philadelphia Industrial Development Authority, Revenue Bonds, Refunding (Thomas Jefferson University Obligated Group) Ser. A | 5.00 | 9/1/2047 | 1,000,000 | 979,453 | |||||
Philadelphia Industrial Development Authority, Revenue Bonds, Refunding, Ser. 2015 | 5.00 | 4/1/2045 | 1,500,000 | 1,514,079 | |||||
Philadelphia Water & Wastewater, Revenue Bonds, Ser. A | 5.00 | 11/1/2050 | 1,000,000 | 1,009,450 | |||||
Philadelphia Water & Wastewater, Revenue Bonds, Ser. C | 5.50 | 6/1/2052 | 2,000,000 | 2,094,829 | |||||
Pittsburgh & Allegheny County Sports & Exhibition Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. A | 5.00 | 2/1/2035 | 1,000,000 | 1,047,391 | |||||
Pittsburgh Water & Sewer Authority, Revenue Bonds, Refunding (Insured: Assured Guaranty Municipal Corp.) Ser. B | 4.00 | 9/1/2034 | 1,305,000 | 1,291,915 | |||||
Quaker Valley School District, GO, Refunding (Insured; State Aid Withholding) | 5.00 | 10/1/2035 | 350,000 | 378,076 | |||||
Southcentral Pennsylvania General Authority, Revenue Bonds, Refunding (WellSpan Health Obligated Group) | 5.00 | 6/1/2044 | 1,000,000 | 1,000,402 | |||||
State Public School Building Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. A | 5.00 | 12/1/2032 | 1,525,000 | 1,563,287 | |||||
State Public School Building Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. A | 5.00 | 12/1/2026 | 475,000 | b | 504,250 |
10
Description | Coupon | Maturity Date | Principal Amount ($) |
| Value ($) | ||||
Long-Term Municipal Investments - 95.7% (continued) | |||||||||
Pennsylvania - 94.6% (continued) | |||||||||
Susquehanna Area Regional Airport Authority, Revenue Bonds, Refunding, Ser. B | 4.00 | 1/1/2033 | 1,300,000 | 1,212,212 | |||||
The Canonsburg-Houston Joint Authority, Revenue Bonds, Ser. A | 5.00 | 12/1/2040 | 2,000,000 | 2,068,264 | |||||
The Philadelphia School District, GO (Insured; State Aid Withholding) Ser. A | 5.00 | 9/1/2044 | 1,000,000 | 1,001,536 | |||||
The Philadelphia School District, GO (Insured; State Aid Withholding) Ser. B | 5.00 | 9/1/2043 | 1,000,000 | 1,003,371 | |||||
The Philadelphia School District, GO, Refunding (Insured; State Aid Withholding) Ser. F | 5.00 | 9/1/2038 | 995,000 | 1,010,620 | |||||
The Philadelphia School District, GO, Refunding (Insured; State Aid Withholding) Ser. F | 5.00 | 9/1/2026 | 5,000 | b | 5,300 | ||||
Westmoreland County Municipal Authority, Revenue Bonds, Refunding (Insured; Build America Mutual) | 5.00 | 8/15/2042 | 1,000,000 | 1,015,790 | |||||
Wilkes-Barre Finance Authority, Revenue Bonds, Refunding (University of Scranton) Ser. A | 5.00 | 11/1/2034 | 1,000,000 | 1,015,742 | |||||
83,109,206 | |||||||||
U.S. Related - 1.1% | |||||||||
Puerto Rico Highway & Transportation Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. CC | 5.25 | 7/1/2034 | 1,000,000 | 973,114 | |||||
Total Investments (cost $94,051,482) | 95.7% | 84,082,320 | |||||||
Cash and Receivables (Net) | 4.3% | 3,784,695 | |||||||
Net Assets | 100.0% | 87,867,015 |
a Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2022, these securities were valued at $1,923,230 or 2.19% of net assets.
b These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on the municipal issue and to retire the bonds in full at the earliest refunding date.
c These securities have a put feature; the date shown represents the put date and the bond holder can take a specific action to retain the bond after the put date.
11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Portfolio Summary (Unaudited) † | Value (%) |
Medical | 18.3 |
Nursing Homes | 14.8 |
Education | 12.9 |
Water | 10.2 |
Transportation | 8.3 |
School District | 7.9 |
Airport | 6.4 |
Utilities | 5.8 |
General | 3.9 |
General Obligation | 3.1 |
Multifamily Housing | 1.5 |
Tobacco Settlement | 1.2 |
Prerefunded | .7 |
Development | .7 |
95.7 |
† Based on net assets.
See notes to financial statements.
12
Summary of Abbreviations (Unaudited) | |||
ABAG | Association of Bay Area Governments | AGC | ACE Guaranty Corporation |
AGIC | Asset Guaranty Insurance Company | AMBAC | American Municipal Bond Assurance Corporation |
BAN | Bond Anticipation Notes | BSBY | Bloomberg Short-Term Bank Yield Index |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | DRIVERS | Derivative Inverse Tax-Exempt Receipts |
EFFR | Effective Federal Funds Rate | FGIC | Financial Guaranty Insurance Company |
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage Corporation | FNMA | Federal National Mortgage Association |
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National Mortgage Association | GO | General Obligation |
IDC | Industrial Development Corporation | LIBOR | London Interbank Offered Rate |
LOC | Letter of Credit | LR | Lease Revenue |
NAN | Note Anticipation Notes | MFHR | Multi-Family Housing Revenue |
MFMR | Multi-Family Mortgage Revenue | MUNIPSA | Securities Industry and Financial Markets Association Municipal Swap Index Yield |
OBFR | Overnight Bank Funding Rate | PILOT | Payment in Lieu of Taxes |
PRIME | Prime Lending Rate | PUTTERS | Puttable Tax-Exempt Receipts |
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RIB | Residual Interest Bonds | SFHR | Single Family Housing Revenue |
SFMR | Single Family Mortgage Revenue | SOFR | Secured Overnight Financing Rate |
TAN | Tax Anticipation Notes | TRAN | Tax and Revenue Anticipation Notes |
U.S. T-BILL | U.S. Treasury Bill Money Market Yield | XLCA | XL Capital Assurance |
See notes to financial statements.
13
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2022 (Unaudited)
|
|
|
|
|
|
|
|
|
| Cost |
| Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments | 94,051,482 |
| 84,082,320 |
| ||
Cash |
|
|
|
| 2,590,426 |
|
Interest receivable |
| 1,354,314 |
| |||
Receivable for shares of Beneficial Interest subscribed |
| 30,567 |
| |||
Prepaid expenses |
|
|
|
| 67,097 |
|
|
|
|
|
| 88,124,724 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
| 58,578 |
| |||
Payable for shares of Beneficial Interest redeemed |
| 108,376 |
| |||
Reorganization expense payable—Note 5 |
| 45,450 |
| |||
Trustees’ fees and expenses payable |
| 925 |
| |||
Other accrued expenses |
|
|
|
| 44,380 |
|
|
|
|
|
| 257,709 |
|
Net Assets ($) |
|
| 87,867,015 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
| 98,115,972 |
|
Total distributable earnings (loss) |
|
|
|
| (10,248,957) |
|
Net Assets ($) |
|
| 87,867,015 |
|
Net Asset Value Per Share | Class A | Class C | Class Z |
|
Net Assets ($) | 63,132,977 | 289,675 | 24,444,363 |
|
Shares Outstanding | 4,565,296 | 20,935 | 1,767,903 |
|
Net Asset Value Per Share ($) | 13.83 | 13.84 | 13.83 |
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
14
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2022 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Interest Income |
|
| 1,551,017 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
| 266,498 |
| ||
Shareholder servicing costs—Note 3(c) |
|
| 112,409 |
| ||
Reorganization expense—Note 5 |
|
| 55,195 |
| ||
Professional fees |
|
| 38,673 |
| ||
Registration fees |
|
| 17,159 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
| 7,963 |
| ||
Trustees’ fees and expenses—Note 3(d) |
|
| 5,545 |
| ||
Prospectus and shareholders’ reports |
|
| 5,441 |
| ||
Custodian fees—Note 3(c) |
|
| 1,267 |
| ||
Distribution fees—Note 3(b) |
|
| 1,201 |
| ||
Loan commitment fees—Note 2 |
|
| 1,098 |
| ||
Miscellaneous |
|
| 11,585 |
| ||
Total Expenses |
|
| 524,034 |
| ||
Less—reduction in expenses due to undertaking—Note 3(a) |
|
| (48,454) |
| ||
Less—reduction in fees due to earnings credits—Note 3(c) |
|
| (883) |
| ||
Net Expenses |
|
| 474,697 |
| ||
Net Investment Income |
|
| 1,076,320 |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments | (862,076) |
| ||||
Net change in unrealized appreciation (depreciation) on investments | (6,095,199) |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
| (6,957,275) |
| ||
Net (Decrease) in Net Assets Resulting from Operations |
| (5,880,955) |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
15
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Year Ended |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Net investment income |
|
| 1,076,320 |
|
|
| 2,490,982 |
| |
Net realized gain (loss) on investments |
| (862,076) |
|
|
| 1,135,409 |
| ||
Net change in unrealized appreciation |
| (6,095,199) |
|
|
| (12,174,911) |
| ||
Net Increase (Decrease) in Net Assets | (5,880,955) |
|
|
| (8,548,520) |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
| (744,743) |
|
|
| (2,362,542) |
| |
Class C |
|
| (1,740) |
|
|
| (13,274) |
| |
Class Z |
|
| (327,164) |
|
|
| (979,826) |
| |
Total Distributions |
|
| (1,073,647) |
|
|
| (3,355,642) |
| |
Beneficial Interest Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
| 429,761 |
|
|
| 2,934,932 |
| |
Class C |
|
| - |
|
|
| 210 |
| |
Class Z |
|
| 794,162 |
|
|
| 1,592,196 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
| 660,677 |
|
|
| 2,100,595 |
| |
Class C |
|
| 1,736 |
|
|
| 13,059 |
| |
Class Z |
|
| 278,612 |
|
|
| 828,315 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
| (5,391,562) |
|
|
| (12,551,369) |
| |
Class C |
|
| (41,988) |
|
|
| (456,187) |
| |
Class Z |
|
| (3,857,884) |
|
|
| (2,321,254) |
| |
Increase (Decrease) in Net Assets | (7,126,486) |
|
|
| (7,859,503) |
| |||
Total Increase (Decrease) in Net Assets | (14,081,088) |
|
|
| (19,763,665) |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
| 101,948,103 |
|
|
| 121,711,768 |
| |
End of Period |
|
| 87,867,015 |
|
|
| 101,948,103 |
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Year Ended |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Class Aa |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 29,031 |
|
|
| 179,407 |
| |
Shares issued for distributions reinvested |
|
| 45,456 |
|
|
| 128,900 |
| |
Shares redeemed |
|
| (368,627) |
|
|
| (781,457) |
| |
Net Increase (Decrease) in Shares Outstanding | (294,140) |
|
|
| (473,150) |
| |||
Class Ca |
|
|
|
|
|
|
|
| |
Shares sold |
|
| - |
|
|
| 13 |
| |
Shares issued for distributions reinvested |
|
| 119 |
|
|
| 797 |
| |
Shares redeemed |
|
| (2,837) |
|
|
| (28,679) |
| |
Net Increase (Decrease) in Shares Outstanding | (2,718) |
|
|
| (27,869) |
| |||
Class Z |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 54,009 |
|
|
| 96,688 |
| |
Shares issued for distributions reinvested |
|
| 19,162 |
|
|
| 50,914 |
| |
Shares redeemed |
|
| (262,200) |
|
|
| (143,695) |
| |
Net Increase (Decrease) in Shares Outstanding | (189,029) |
|
|
| 3,907 |
| |||
|
|
|
|
|
|
|
|
|
|
a | During the period ended April 30, 2022, 2,761 Class C shares representing $45,487 were automatically converted to 2,763 Class A shares. | ||||||||
See notes to financial statements. |
17
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||
Class A Shares | October 31, 2022 | Year Ended April 30, | ||||||||
(Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||
Per Share Data ($): | ||||||||||
Net asset value, beginning of period | 14.91 | 16.59 | 15.64 | 16.06 | 15.84 | 16.15 | ||||
Investment Operations: | ||||||||||
Net investment incomea | .16 | .34 | .37 | .41 | .42 | .43 | ||||
Net realized and unrealized | (1.08) | (1.56) | 1.08 | (.30) | .35 | (.03) | ||||
Total from Investment Operations | (.92) | (1.22) | 1.45 | .11 | .77 | .40 | ||||
Distributions: | ||||||||||
Dividends from | (.16) | (.34) | (.37) | (.41) | (.42) | (.43) | ||||
Dividends from net realized | - | (.12) | (.13) | (.12) | (.13) | (.28) | ||||
Total Distributions | (.16) | (.46) | (.50) | (.53) | (.55) | (.71) | ||||
Net asset value, end of period | 13.83 | 14.91 | 16.59 | 15.64 | 16.06 | 15.84 | ||||
Total Return (%)b | (6.17)c | (7.65) | 9.34 | .55 | 4.97 | 2.44 | ||||
Ratios/Supplemental Data (%): | ||||||||||
Ratio of total expenses | 1.15d | 1.03 | 1.02 | 1.01 | 1.00 | .98 | ||||
Ratio of net expenses | 1.05d | .93 | .92 | .94 | 1.00 | .98 | ||||
Ratio of net investment income | 2.15d | 2.06 | 2.24 | 2.48 | 2.65 | 2.62 | ||||
Portfolio Turnover Rate | 2.44c | 15.23 | 4.78 | 14.71 | 8.53 | 15.24 | ||||
Net Assets, end of period ($ x 1,000) | 63,133 | 72,433 | 88,464 | 83,598 | 89,527 | 92,964 |
a Based on average shares outstanding.
b Exclusive of sales charge.
c Not annualized.
d Annualized.
See notes to financial statements.
18
Six Months Ended | ||||||||||
Class C Shares | October 31, 2022 | Year Ended April 30, | ||||||||
(Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||
Per Share Data ($): | ||||||||||
Net asset value, beginning of period | 14.91 | 16.60 | 15.65 | 16.06 | 15.84 | 16.15 | ||||
Investment Operations: | ||||||||||
Net investment incomea | .08 | .19 | .23 | .27 | .29 | .30 | ||||
Net realized and unrealized | (1.07) | (1.57) | 1.08 | (.29) | .35 | (.03) | ||||
Total from Investment Operations | (.99) | (1.38) | 1.31 | (.02) | .64 | .27 | ||||
Distributions: | ||||||||||
Dividends from | (.08) | (.19) | (.23) | (.27) | (.29) | (.30) | ||||
Dividends from net realized | - | (.12) | (.13) | (.12) | (.13) | (.28) | ||||
Total Distributions | (.08) | (.31) | (.36) | (.39) | (.42) | (.58) | ||||
Net asset value, end of period | 13.84 | 14.91 | 16.60 | 15.65 | 16.06 | 15.84 | ||||
Total Return (%)b | (6.67)c | (8.48) | 8.39 | (.22) | 4.12 | 1.63 | ||||
Ratios/Supplemental Data (%): | ||||||||||
Ratio of total expenses | 2.18d | 1.93 | 1.87 | 1.84 | 1.82 | 1.76 | ||||
Ratio of net expenses | 2.08d | 1.83 | 1.77 | 1.77 | 1.82 | 1.76 | ||||
Ratio of net investment income | 1.12d | 1.16 | 1.39 | 1.66 | 1.83 | 1.83 | ||||
Portfolio Turnover Rate | 2.44c | 15.23 | 4.78 | 14.71 | 8.53 | 15.24 | ||||
Net Assets, end of period ($ x 1,000) | 290 | 353 | 855 | 1,472 | 1,920 | 2,511 |
a Based on average shares outstanding.
b Exclusive of sales charge.
c Not annualized.
d Annualized.
See notes to financial statements.
19
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||
Class Z Shares | October 31, 2022 | Year Ended April 30, | ||||||||
(Unaudited) | 2022 | 2021 | 2020 | 2019 | 2018 | |||||
Per Share Data ($): | ||||||||||
Net asset value, beginning of period | 14.90 | 16.59 | 15.64 | 16.05 | 15.83 | 16.15 | ||||
Investment Operations: | ||||||||||
Net investment incomea | .18 | .38 | .41 | .44 | .45 | .46 | ||||
Net realized and unrealized gain | (1.07) | (1.57) | 1.08 | (.29) | .35 | (.04) | ||||
Total from Investment Operations | (.89) | (1.19) | 1.49 | .15 | .80 | .42 | ||||
Distributions: | ||||||||||
Dividends from | (.18) | (.38) | (.41) | (.44) | (.45) | (.46) | ||||
Dividends from net realized | - | (.12) | (.13) | (.12) | (.13) | (.28) | ||||
Total Distributions | (.18) | (.50) | (.54) | (.56) | (.58) | (.74) | ||||
Net asset value, end of period | 13.83 | 14.90 | 16.59 | 15.64 | 16.05 | 15.83 | ||||
Total Return (%) | (6.05)b | (7.41) | 9.63 | .82 | 5.18 | 2.66 | ||||
Ratios/Supplemental Data (%): | ||||||||||
Ratio of total expenses | .90c | .78 | .76 | .80 | .82 | .76 | ||||
Ratio of net expenses | .80c | .68 | .66 | .73 | .82 | .76 | ||||
Ratio of net investment income | 2.40c | 2.31 | 2.50 | 2.69 | 2.85 | 2.83 | ||||
Portfolio Turnover Rate | 2.44b | 15.23 | 4.78 | 14.71 | 8.53 | 15.24 | ||||
Net Assets, end of period ($ x 1,000) | 24,444 | 29,163 | 32,392 | 32,091 | 33,898 | 35,676 |
a Based on average shares outstanding.
b Not annualized.
c Annualized.
See notes to financial statements.
20
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
BNY Mellon Pennsylvania Fund (the “fund”) is a separate diversified series of BNY Mellon State Municipal Bond Funds (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 three series, including the fund. The fund’s investment objective is to seek to maximize current income exempt from federal income tax and from Pennsylvania state income tax, without undue risk. BNY Mellon Investment Adviser, Inc. (the “Adviser”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. Insight North America LLC (the “Sub-Adviser”), a wholly-owned subsidiary of BNY Mellon and an affiliate of the Adviser, serves as the fund’s sub-adviser.
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 and Class Z. 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 A shares bought without an initial sales charge as part of an investment of $1 million or more may be charged a contingent deferred sales charge (“CDSC”) of 1.00% if redeemed within one year. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class C shares automatically convert to Class A shares eight years after the date of purchase, without the imposition of a sales charge. Class Z shares are sold at net asset value per share to certain shareholders of the fund. Class Z shares generally are not available for new accounts and bear Shareholder Services Plan fees. Class Z 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
21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 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 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.).
22
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
The Trust’s Board of Trustees (the “Board”) has designated the Adviser as the fund’s valuation designee, effective September 8, 2022, to make all fair value determinations with respect to the fund’s portfolio investments, subject to the Board’s oversight and pursuant to Rule 2a-5 under the Act.
Investments in municipal securities are valued each business day by an independent pricing service (the “Service”) approved by the Board. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Municipal investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. The Service is engaged under the general oversight of the Board. All of the preceding securities are generally categorized within Level 2 of the fair value hierarchy.
When market quotations or official closing prices are not readily available, or are determined not to accurately reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. These securities are either categorized within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 October 31, 2022 in valuing the fund’s investments:
Level 1-Unadjusted Quoted Prices | Level 2- Other Significant Observable Inputs | Level 3-Significant Unobservable Inputs | Total | |||
Assets ($) | ||||||
Investments in Securities:† | ||||||
Municipal Securities | - | 84,082,320 | - | 84,082,320 |
† 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. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed delivery basis may be settled a month or more after the trade date.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(c) Market Risk: The value of the securities in which the fund invests may be affected by political, regulatory, economic and social developments, and developments that impact specific economic sectors, industries or segments of the market. The value of a security may also decline due to general market conditions that are not specifically related to a particular company or industry, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, changes to inflation, adverse changes to credit markets or adverse investor sentiment generally. 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
24
events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies world-wide. 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.
Municipal Securities Risk: The amount of public information available about municipal securities is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund’s investments in municipal securities. Other factors include the general conditions of the municipal securities market, the size of the particular offering, the maturity of the obligation and the rating of the issue. Changes in economic, business or political conditions relating to a particular municipal project, municipality, or state, territory or possession of the United States in which the fund invests may have an impact on the fund’s share price. As an example, elevated costs or shortfalls in revenue associated with the spread of the COVID-19 outbreak could affect the ability of municipal issuers to make payments on debt obligations when due. Any such credit impairment could adversely impact the value of their bonds, which could negatively impact the performance of the fund.
(d) Dividends and distributions to shareholders: It is the policy of the fund to declare dividends daily from net investment income. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax-exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 31, 2022, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income
25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
tax expense in the Statement of Operations. During the period ended October 31, 2022, the fund did not incur any interest or penalties.
Each tax year in the three-year period ended April 30, 2022 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2022 was as follows: tax-exempt income $2,489,439 and long-term capital gains $866,203. The tax character of current year distributions will be determined at the end of the current fiscal year.
(f) New accounting pronouncements: In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), and in January 2021, the FASB issued Accounting Standards Update 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the LIBOR and other interbank offered rates as of the end of 2021. The temporary relief provided by ASU 2020-04 and ASU 2021-01 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022 (“FASB Effective Date”). Management had evaluated the impact of ASU 2020-04 and ASU 2021-01 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the Reference Rate Reform. Management will be adopting ASU 2020-04 and ASU 2021-01 on FASB Effective Date or if amended ASU 2020-04 new extended FASB Effective Date, if any. Management will continue to work with other financial institutions and counterparties to modify contracts as required by applicable regulation and within the regulatory deadlines. As of October 31, 2022, management believes these accounting standards have no impact on the fund and does not have any concerns of adopting the regulations by FASB Effective Date.
NOTE 2—Bank Lines of Credit:
The fund participates with other long-term open-end funds managed by the Adviser in a $823.5 million unsecured credit facility led by Citibank, N.A. (the “Citibank Credit Facility”) and a $300 million unsecured credit facility provided by BNY 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 $688.5
26
million and is available to all long-term open-ended funds, including the fund, and (ii) Tranche B is an amount equal to $135 million and is available only to BNY Mellon Floating Rate Income Fund, a series of BNY Mellon Investment Funds IV, Inc. 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. During the period ended October 31, 2022, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Advisory 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 .55% of the value of the fund’s average daily net assets and is payable monthly. The Adviser has contractually agreed, from May 1, 2022 through September 1, 2023, to waive receipt of a portion of its management fee, in the amount of .10% of the value of the fund’s average daily net assets. On or after September 1, 2023, the Adviser may terminate this waiver agreement at any time. The reduction in management fees, pursuant to the undertaking, amounted to $48,454 during the period ended October 31, 2022.
Pursuant to a sub-investment advisory agreement between the Adviser and the Sub-Adviser, the Adviser pays the Sub-Adviser a monthly fee at an annual rate of .264% of the value of the fund’s average daily net assets.
During the period ended October 31, 2022, the Distributor retained $19 from commissions earned on sales of the fund’s Class A 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. The Distributor may pay one or more Service Agents in respect of advertising, marketing and other distribution services, and determines the amounts, if any, to be paid to Service Agents and the basis on which such payments are made. During the period ended October 31, 2022, Class C shares were charged $1,201 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 services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or
27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2022, Class A and Class C shares were charged $86,620 and $400, respectively, pursuant to the Shareholder Services Plan.
Under the Shareholder Services Plan, Class Z shares reimburse the Distributor at an amount not to exceed an annual rate of .25% of the value of Class Z shares’ average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class Z shares, and services related to the maintenance of shareholder accounts. During the period ended October 31, 2022, Class Z shares were charged $0 pursuant to the Shareholder Services Plan.
The fund has arrangements with BNY Mellon Transfer, Inc., (the “Transfer Agent”) and The Bank of New York Mellon (the “Custodian”), both a subsidiary of BNY Mellon and an affiliate of the Adviser, whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and custody fees. For financial reporting purposes, the fund includes transfer agent net earnings credits, if any, and custody net earnings credits, if any, as an expense offset in the Statement of Operations.
The fund compensates the Transfer Agent, under a transfer agency agreement, for providing transfer agency and cash management services for the fund. The majority of Transfer Agent 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 October 31, 2022, the fund was charged $12,171 for transfer agency services. These fees are included in Shareholder servicing costs in the Statement of Operations. These fees were partially offset by earnings credits of $789.
The fund compensates the Custodian, under a custody agreement, for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended October 31, 2022, the fund was charged $1,267 pursuant to the custody agreement. These fees were partially offset by earnings credits of $94.
The fund compensates the Custodian, under a shareholder redemption draft processing agreement, for providing certain services related to the fund’s check writing privilege. During the period ended October 31, 2022,
28
the fund was charged $660 pursuant to the agreement, which is included in Shareholder servicing costs in the Statement of Operations.
During the period ended October 31, 2022, the fund was charged $7,963 for services performed by the fund’s Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.
The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: management fee of $41,802, Distribution Plan fees of $187, Shareholder Services Plan fees of $13,724, Custodian fees of $1,220, Chief Compliance Officer fees of $5,078 and Transfer Agent fees of $4,135, which are offset against an expense reimbursement currently in effect in the amount of $7,568.
(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 October 31, 2022, amounted to $2,298,640 and $10,958,660, respectively.
At October 31, 2022, accumulated net unrealized depreciation on investments was $9,969,162, consisting of $2,457 gross unrealized appreciation and $9,971,619 gross unrealized depreciation.
At October 31, 2022, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Plan of Reorganization:
The Board of the fund, a series of the Trust, has approved with shareholder approval, an Agreement and Plan of Reorganization (the “Agreement”) providing for the transfer of the fund’s assets to BNY Mellon AMT-Free Municipal Bond Fund (the “Acquiring Fund”) in a tax-free exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the fund’s stated liabilities, the distribution of such shares of the Acquiring Fund to fund shareholders and the subsequent termination of the fund. At a Shareholder Meeting held on November 17, 2022 (See Proxy Results), shareholders of the fund approved the Agreement which provides for the transfer of all of the assets of the fund to the Acquiring Fund in exchange solely for Class A, Class C and Class Z shares of the Acquiring Fund, having an aggregate net asset value equal to
29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
the value of the fund’s net assets, and the assumption by the Acquiring Fund of the fund’s stated liabilities (the “Reorganization”) on or about January 27, 2023. As of the end of the reporting period, total reorganization costs were estimated to be approximately $105,215 of which $55,195 was accrued by the fund as of October 31, 2022.
30
PROXY RESULTS (Unaudited)
A special meeting of the fund’s shareholders was held on November 17, 2022. The proposal considered at the meeting and the results were as follows:
Shares | |||
For | Against | Abstain | |
To approve an Agreement and Plan of Reorganization providing for the transfer of all of the assets of the Fund to BNY Mellon AMT-Free Municipal Bond Fund (BAMB), in exchange solely for Class A, C and Z shares, as applicable, of BAMB having an aggregate net asset value equal to the value of the Fund’s net assets and the assumption by BAMB of the Fund’s stated liabilities. Holders of Class A, C and Z shares, as applicable, of the Fund would receive Class A, C and Z shares, respectively, of BAMB. | 3,027,525 | 230,874 | 233,235 |
31
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited)
At a meeting of the fund’s Board of Trustees held on July 27, 2022, 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, and the Sub-Investment Advisory Agreement (together with the Management Agreement, the “Agreements”), pursuant to which Insight North America LLC (the “Sub-Adviser”) provides day-to-day management of the fund’s investments. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser and the Sub-Adviser. In considering the renewal of the Agreements, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the meeting and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser 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, as well as the Adviser’s supervisory activities over the Sub-Adviser.
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board reviewed reports prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data based on classifications provided by Thomson Reuters Lipper, which included information comparing (1) the performance of the fund’s Class Z shares with the performance of a group of retail front-end load and no-load Pennsylvania municipal debt funds selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all retail and institutional Pennsylvania municipal debt funds (the “Performance Universe”), all for various periods ended June 30, 2022, 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
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a broader group of all retail front-end load and no-load Pennsylvania municipal debt, funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser and the Sub-Adviser the results of the comparisons and considered that the fund’s total return performance was at or above the Performance Group and the Performance Universe medians for all periods. The Board also considered that the fund’s yield performance was at or above the Performance Group median for six of the ten one-year periods ended June 30th and above the Performance Universe median for two of the ten one-year periods ended June 30th. The Board considered the relative proximity of the fund’s yield performance to the Performance Group and/or Performance Universe medians in certain periods when the performance was below the median. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management services and the sub-advisory services provided by the Adviser and the Sub-Adviser, respectively. In addition, the Board reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year, which included reductions for a fee waiver arrangement in place that reduced the management fee paid to the Adviser. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons.
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 slightly higher than the Expense Group median and slightly higher than the Expense Universe median actual management fee and the fund’s total expenses were lower than the Expense Group median and lower than the Expense Universe median total expenses.
Representatives of the Adviser stated that the Adviser has contractually agreed, until September 1, 2023, to waive receipt of a portion of the management fee in the amount of .10% of the fund’s average daily net assets.
Representatives of the Adviser noted that there were no other funds advised by the Adviser that are in the same Lipper category as the fund or separate accounts and/or
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INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
other types of client portfolios advised by the Adviser or the Sub-Adviser that are considered to have similar investment strategies and policies as the fund.
The Board considered the fee payable to the Sub-Adviser in relation to the fee payable to the Adviser by the fund and the respective services provided by the Sub-Adviser and the Adviser. The Board also took into consideration that the Sub-Adviser’s fee is paid by the Adviser, out of its fee from the fund, and not the fund.
Analysis of Profitability and Economies of Scale. Representatives of the Adviser reviewed the expenses allocated and profit received by the Adviser and its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to the Adviser and its affiliates for managing the funds in the BNY Mellon fund complex, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not excessive, given the services rendered and service levels provided by the Adviser and its affiliates. The Board also considered the fee waiver arrangement and its effect on the profitability of the Adviser and its affiliates. The Board also had been provided with information prepared by an independent consulting firm regarding the Adviser’s approach to allocating costs to, and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation of whether the fees under the Agreements, considered in relation to the mix of services provided by the Adviser and the Sub-Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreements and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser stated that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that the Adviser may have realized any economies of scale would be less. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser and the Sub-Adviser from acting as investment adviser and sub-investment adviser, respectively, and took into consideration that there were no soft dollar arrangements in effect for trading the fund’s investments.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreements. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
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· The Board concluded that the nature, extent and quality of the services provided by the Adviser and the Sub-Adviser are adequate and appropriate.
· The Board generally was satisfied with the fund’s overall performance.
· The Board concluded that the fees paid to the Adviser and the Sub-Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Management Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreements, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates and the Sub-Adviser, of the Adviser and the Sub-Adviser and the services provided to the fund by the Adviser and the Sub-Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreements, including information on the investment performance of the fund in comparison to similar 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 Agreements for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on its consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreements.
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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 fund 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 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 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 January 1, 2021 to December 31, 2021, 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.
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.
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BNY Mellon State Municipal Bond Funds, BNY Mellon Pennsylvania Fund
240 Greenwich Street
New York, NY 10286
Adviser
BNY Mellon Investment Adviser, Inc.
240 Greenwich Street
New York, NY 10286
Sub-Adviser
Insight North America LLC
200 Park Avenue, 7th Floor
New York, NY 10166
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: PTPAX Class C: PPACX Class Z: DPENX |
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.im.bnymellon.com
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.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2022 BNY Mellon Securities Corporation |
Item 2. | Code of Ethics. |
Not applicable.
Item 3. | Audit Committee Financial Expert. |
Not applicable.
Item 4. | Principal Accountant Fees and Services. |
Not applicable.
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. |
(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 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) Not applicable.
(a)(3) Not applicable.
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 State Municipal Bond Funds
By: /s/ David J. DiPetrillo
David J. DiPetrillo
President (Principal Executive Officer)
Date: December 20, 2022
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/ David J. DiPetrillo
David J. DiPetrillo
President (Principal Executive Officer)
Date: December 20, 2022
By: /s/ James Windels
James Windels
Treasurer (Principal Financial Officer)
Date: December 21, 2022
EXHIBIT INDEX
(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)