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 | |||||
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BNY Mellon State Municipal Bond Funds |
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(Exact name of Registrant as specified in charter) |
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c/o BNY Mellon Investment Adviser, Inc. 240 Greenwich Street New York, New York 10286 |
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(Address of principal executive offices) (Zip code) |
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Bennett A. MacDougall, Esq. 240 Greenwich Street New York, New York 10286 |
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(Name and address of agent for service) |
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Registrant's telephone number, including area code: |
(212) 922-6400 | |||||
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Date of fiscal year end:
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04/30 |
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Date of reporting period: |
10/31/2020
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FORM N-CSR
Item 1. Reports to Stockholders.
BNY Mellon State Municipal Bond Funds, BNY Mellon Connecticut Fund
SEMIANNUAL REPORT October 31, 2020 |
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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
BNY Mellon Investment Adviser, Inc. |
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With Those of Other Funds |
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the Fund’s Management Agreement |
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FOR MORE INFORMATION
Back Cover
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The Fund |
A LETTER FROM THE PRESIDENT OF BNY MELLON INVESTMENT ADVISER, INC.
Dear Shareholder:
We are pleased to present this semiannual report for BNY Mellon Connecticut Fund, covering the six-month period from May 1, 2020 through October 31, 2020. For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Equities rallied for much of the period, fueled by continued accommodative rate policies by the U.S. Federal Reserve (the “Fed”), as well as emergency stimulus measures enacted by global central banks and governments in response to the COVID-19 pandemic and resulting economic lockdown. Stocks trended upward through the early fall. Volatility reentered the picture in September 2020 and continued through October as concerns over rising COVID-19 infection rates, continued trade tensions, the U.S. Congress’ failure to pass additional financial assistance and anxiety over the upcoming U.S. election constrained equity valuations.
Fixed-income market prices were also heavily influenced by emergency actions taken by the Fed prior to the start of the period. Severe rate cuts and a financial support package, combined with a resurgence of economic activity and the Fed’s commitment to a “lower-for-longer” rate policy, helped risk-asset prices to rise throughout the first several months of the period. Bond indices generally rose until September 2020, when investment-grade instrument prices stalled. Yields in the intermediate and long portions of the Treasury curve rose during October, further constraining prices.
We believe the near-term outlook for the U.S. will be challenging, as the country continues to battle COVID-19. As always, we will monitor relevant data for meaningful developments. We encourage you to discuss the risks and opportunities in today’s investment environment with your financial advisor.
Thank you for your continued confidence and support.
Sincerely,
Renee LaRoche-Morris
President
BNY Mellon Investment Adviser, Inc.
November 16, 2020
2
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from May 1, 2020 through October 31, 2020, as provided by Daniel Barton and Jeffrey Burger, Portfolio Managers
Market and Fund Performance Overview
For the six-month period ended October 31, 2020, Class A shares of BNY Mellon State Municipal Bond Funds, Connecticut Fund, a series of BNY Mellon Municipal Bond Funds, produced a total return of 5.48%, Class C shares returned 5.06%, Class I shares returned 5.61%, Class Y shares returned 5.51% and Class Z shares returned 5.52%.1 In comparison, the Bloomberg Barclays 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 4.99% for the same period.2
Municipal bonds benefited from support programs launched by the Federal Reserve (the “Fed”) in response to the COVID-19 crisis. The fund outperformed the Index, mainly due to the outperformance of Connecticut issues and an overweight position in lower-quality 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 (i.e., Baa/BBB or higher) or the unrated equivalent as determined by BNY Mellon Investment Adviser, Inc. 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 BNY Mellon Investment Adviser, Inc. 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.
Policy Support and Economic Recovery Aid Market Recovery
The municipal bond market recovered from unprecedented volatility that occurred earlier in 2020, when the COVID-19 virus spread and government shutdowns caused the economy to slow dramatically. Yields on municipal bonds during this period rose in response to large outflows from municipal bond mutual funds and to some illiquidity.
In response to the pandemic, the Federal Reserve made two emergency interest-rate cuts in March 2020 and launched a $500 billion Municipal Liquidity Facility (MLF) to purchase short-term municipal securities. This program, combined with the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, dramatically changed investor sentiment, which helped the municipal bond market to bounce back relatively quickly.
3
DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)
While new issuance dried up during the height of the crisis in the first quarter of 2020, it rebounded along with bond prices, as issuers sought to take advantage of record-low funding costs. Much of the new issuance was in taxable bonds, as low yields have made taxable issuance, which provides greater flexibility with respect to use of proceeds, attractive to issuers. New issuance also increased because state and local governments sought to avoid the uncertainty associated with the election. The flood of new issues produced a somewhat negative effect on performance as it created a glut of supply. While lower-risk bonds outperformed prior to the reporting period during the height of the crisis, lower-quality bonds rebounded strongly once monetary and fiscal policy measures were put in place.
Connecticut’s generally higher yields were attractive to investors through much of the reporting period, and the state outperformed the Index during the reporting period. Although the state continues to struggle with pension problems and a high debt burden, its large “rainy day” fund helped to offset those factors at a time when many other states were not as well-prepared for the economic slowdown resulting from COVID-19. In addition, tax revenues came in stronger than expected. This came in part from a rise in real estate transfer tax revenues resulting from a surge in moves by residents of New York City to the Connecticut suburbs. The state’s tax revenues also benefited from strong inflows from capital gains taxes, which increased as a result of a rebounding stock market.
Lower Quality Bonds Boosted Fund Results
The fund’s relative performance versus the Index was driven by the returns of Connecticut bonds generally versus the Index. Yields on municipal bonds from the state tend to be of slightly lower quality due to the state’s weak fiscal condition, and lower rated bonds rebounded strongly during the reporting period. In addition, the fund had an overweight position to revenue bonds, and this sector outperformed general obligation bonds. Within the revenue bond sector, the fund’s overweight positions to the hospital and industrial development segments were also beneficial. The fund’s slightly longer duration also contributed positively to performance.
On a less positive note, not all positions in the revenue sector contributed positively to returns. The fund’s overweight to education bonds detracted from returns, as did the underweight position in transportation.
Positioned Cautiously
The outlook for the municipal bond market has brightened, but some uncertainties remain. Although a coronavirus vaccine has been developed, how effective it will prove to be remains unclear. In addition, until the vaccine is widely distributed, additional economic shutdowns are likely, which could hurt state tax revenues. We believe the state’s fundamentals will remain stable over the short term, though certain issues, including pension funding, bear watching over the long term.
The impact of the November 2020 elections, which could result in a divided federal government, is likely to be neutral. It means that meaningful tax reform is unlikely, so higher taxes on higher-income households, which would have benefited municipal bonds because it would have made tax-exempt bonds more attractive, are unlikely. However, we expect the cap on the deductibility of state and local taxes to remain in place, and that should continue to benefit the municipal market. On the other hand, the fiscal stimulus package is likely to be smaller than expected. However, this may not hurt Connecticut municipal bonds, given the state’s already large reserves.
We have avoided segments of the market most harmed by COVID-19, and, therefore, we believe there are no credit default concerns in the portfolio. We expect to keep the fund’s duration
4
slightly long versus the benchmark. As the market improves, we believe longer-duration bonds are likely to benefit. We believe the fund is well-positioned for the future.
November 16, 2020
1 Total return includes reinvestment of dividends and any capital gains paid and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Class I shares, Class Y shares, 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, 2021, 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 Barclays 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.
5
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, 2020 to October 31, 2020. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment |
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Assume actual returns for the six months ended October 31, 2020 |
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Class A |
Class C |
Class I |
Class Y |
Class Z |
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Expense paid per $1,000† |
$4.45 |
$8.58 |
$3.16 |
$4.30 |
$3.16 |
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Ending value (after expenses) |
$1,054.80 |
$1,050.60 |
$1,056.10 |
$1,055.10 |
$1,055.20 |
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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, 2020 |
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Class A |
Class C |
Class I |
Class Y |
Class Z |
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Expense paid per $1,000† |
$4.38 |
$8.44 |
$3.11 |
$4.23 |
$3.11 |
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Ending value (after expenses) |
$1,020.87 |
$1,016.84 |
$1,022.13 |
$1,021.02 |
$1,022.13 |
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† Expenses are equal to the fund’s annualized expense ratio of .86% for Class A, 1.66% for Class C, .61% for Class I, .83% for Class Y and .61% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2020 (Unaudited)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
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Long-Term Municipal Investments - 98.4% |
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Connecticut - 96.6% |
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Connecticut, GO, Ser. A |
5.00 |
3/1/2026 |
5,000,000 |
5,719,700 |
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Connecticut, GO, Ser. D |
5.00 |
11/1/2031 |
2,500,000 |
2,598,450 |
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Connecticut, GO, Ser. D |
5.00 |
11/1/2028 |
5,000,000 |
5,207,600 |
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Connecticut, GO, Ser. D |
5.00 |
11/1/2027 |
3,500,000 |
3,648,540 |
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Connecticut, Revenue Bonds, Ser. A |
4.00 |
9/1/2035 |
5,000,000 |
5,536,550 |
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Connecticut, Revenue Bonds, Ser. A |
5.00 |
8/1/2034 |
3,000,000 |
3,533,130 |
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Connecticut Bradley International Airport, Revenue Bonds, Ser. A |
5.00 |
7/1/2049 |
2,500,000 |
2,916,375 |
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Connecticut Clean Water Fund - State Revolving Fund, Revenue Bonds (Green Bond) Ser. A |
4.00 |
2/1/2035 |
2,125,000 |
2,552,869 |
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Connecticut Clean Water Fund - State Revolving Fund, Revenue Bonds (Green Bond) Ser. A |
5.00 |
3/1/2029 |
2,600,000 |
3,108,040 |
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Connecticut Development Authority, Revenue Bonds (Aquarion Water Project) |
5.50 |
4/1/2021 |
4,500,000 |
4,582,260 |
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Connecticut Development Authority, Revenue Bonds, Refunding (The Connecticut Light & Power Company Project) Ser. A |
4.38 |
9/1/2028 |
3,900,000 |
4,010,448 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds (Church Home of Hartford Project) Ser. A |
5.00 |
9/1/2053 |
1,500,000 |
a |
1,527,975 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds (Church Home of Hartford Project) Ser. A |
5.00 |
9/1/2046 |
1,000,000 |
a |
1,024,800 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds (Covenant Home Retirement Communities Obligated Group) Ser. B |
5.00 |
12/1/2040 |
4,020,000 |
4,654,959 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds (Fairfield University) Ser. Q1 |
5.00 |
7/1/2046 |
1,000,000 |
1,124,630 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds (Hartford HealthCare Obligated Group) |
5.00 |
7/1/2045 |
2,500,000 |
2,839,450 |
7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
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Long-Term Municipal Investments - 98.4% (continued) |
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Connecticut - 96.6% (continued) |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds (Hartford HealthCare Obligated Group) Ser. E |
5.00 |
7/1/2027 |
3,265,000 |
3,750,865 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds (Mary Wade Home Obligated Group) Ser. A1 |
5.00 |
10/1/2054 |
2,000,000 |
a |
2,003,800 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds (The Stamford Hospital Obligated Group) Ser. K |
4.00 |
7/1/2046 |
2,000,000 |
2,100,540 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding |
5.00 |
7/1/2025 |
1,490,000 |
1,533,478 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Connecticut College) Ser. L1 |
4.00 |
7/1/2046 |
2,000,000 |
2,143,580 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Fairfield University) Ser. R |
5.00 |
7/1/2032 |
1,000,000 |
1,194,930 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Nuvance Health Obligated Group) Ser. A |
4.00 |
7/1/2041 |
2,250,000 |
2,419,852 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Quinnipiac University) Ser. L |
5.00 |
7/1/2045 |
3,000,000 |
3,342,120 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Quinnipiac University) Ser. L |
5.00 |
7/1/2036 |
5,000,000 |
5,656,250 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Quinnipiac University) Ser. M |
5.00 |
7/1/2036 |
200,000 |
230,988 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Sacred Heart University) Ser. I1 |
5.00 |
7/1/2042 |
2,000,000 |
2,325,520 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (The Choate Rosemary Hall Foundation) Ser. F |
4.00 |
7/1/2042 |
1,110,000 |
1,322,831 |
8
Description |
Coupon |
Maturity |
Principal |
Value ($) |
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Long-Term Municipal Investments - 98.4% (continued) |
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Connecticut - 96.6% (continued) |
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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 |
9,214,934 |
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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 |
2,246,059 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (The Stamford Hospital Obligated Group) Ser. I |
5.00 |
7/1/2030 |
6,750,000 |
6,891,345 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (The University of Hartford) |
5.00 |
7/1/2034 |
425,000 |
462,647 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Trinity College) Ser. R |
4.00 |
6/1/2045 |
2,300,000 |
2,576,368 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Trinity Health Obligated Group) |
5.00 |
12/1/2045 |
7,500,000 |
8,669,100 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (University of New Haven) |
5.00 |
7/1/2036 |
1,000,000 |
1,068,520 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Refunding (Yale New Haven Health Obligated Group) Ser. E |
5.00 |
7/1/2027 |
3,960,000 |
4,541,566 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Ser. A |
4.00 |
7/1/2040 |
500,000 |
565,130 |
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Connecticut Health & Educational Facilities Authority, Revenue Bonds, Ser. A |
5.00 |
7/1/2027 |
750,000 |
942,188 |
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Connecticut Higher Education Supplement Loan Authority, Revenue Bonds, Ser. A |
5.00 |
11/15/2023 |
1,400,000 |
1,536,192 |
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Connecticut Higher Education Supplement Loan Authority, Revenue Bonds, Ser. A |
5.00 |
11/15/2021 |
1,450,000 |
1,502,287 |
9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.4% (continued) |
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Connecticut - 96.6% (continued) |
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Connecticut Higher Education Supplement Loan Authority, Revenue Bonds, Ser. A |
5.00 |
11/15/2022 |
1,400,000 |
1,495,200 |
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Connecticut Higher Education Supplement Loan Authority, Revenue Bonds, Ser. B |
3.25 |
11/15/2036 |
1,400,000 |
1,400,630 |
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Connecticut Housing Finance Authority, Revenue Bonds, Refunding, Ser. A1 |
3.65 |
11/15/2032 |
5,470,000 |
5,946,218 |
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Connecticut Housing Finance Authority, Revenue Bonds, Refunding, Ser. C1 |
3.25 |
5/15/2044 |
2,500,000 |
2,764,975 |
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Connecticut Housing Finance Authority, Revenue Bonds, Refunding, Ser. C1 |
4.00 |
11/15/2047 |
3,865,000 |
4,162,334 |
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Connecticut Municipal Electric Energy Cooperative, Revenue Bonds, Refunding, Ser. A |
5.00 |
1/1/2038 |
3,000,000 |
3,251,250 |
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Connecticut Transmission Municipal Electric Energy Cooperative, Revenue Bonds, Refunding, Ser. A |
5.00 |
1/1/2042 |
3,000,000 |
3,134,100 |
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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 |
25,090 |
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Greater New Haven Water Pollution Control Authority, Revenue Bonds, Refunding, Ser. B |
5.00 |
8/15/2026 |
450,000 |
524,264 |
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Harbor Point Infrastructure Improvement District, Tax Allocation Bonds, Refunding (Harbor Point Project) |
5.00 |
4/1/2039 |
4,000,000 |
a |
4,291,880 |
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New Haven, GO (Insured; Assured Guaranty Municipal Corp.) Ser. A |
5.00 |
8/1/2039 |
3,000,000 |
3,632,970 |
|||||
New Haven, GO, Refunding (Insured; Build America Mutual) Ser. B |
5.00 |
8/15/2027 |
750,000 |
872,850 |
|||||
New Haven, GO, Refunding (Insured; Build America Mutual) Ser. B |
5.00 |
8/15/2026 |
610,000 |
712,376 |
|||||
New Haven, GO, Ser. A |
5.25 |
8/1/2027 |
1,740,000 |
2,062,335 |
|||||
South Central Connecticut Regional Water Authority, Revenue Bonds, Refunding, Ser. B |
5.00 |
8/1/2038 |
3,500,000 |
4,198,635 |
|||||
South Central Connecticut Regional Water Authority, Revenue Bonds, Refunding, Ser. B |
5.00 |
8/1/2037 |
3,430,000 |
4,123,066 |
10
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.4% (continued) |
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Connecticut - 96.6% (continued) |
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South Central Connecticut Regional Water Authority, Revenue Bonds, Refunding, Ser. B1 |
5.00 |
8/1/2041 |
2,445,000 |
2,986,934 |
|||||
The Metropolitan District, GO, Refunding |
5.00 |
7/15/2034 |
1,065,000 |
1,318,374 |
|||||
The Metropolitan District, GO, Ser. A |
4.00 |
7/15/2035 |
1,275,000 |
1,485,375 |
|||||
The Metropolitan District, Revenue Bonds (Clean Water Project) Ser. A |
5.00 |
10/1/2031 |
2,050,000 |
2,760,796 |
|||||
The Metropolitan District, Revenue Bonds, Refunding (Green Bond) Ser. A |
5.00 |
11/1/2042 |
2,000,000 |
2,280,620 |
|||||
The Metropolitan District, Revenue Bonds, Refunding, Ser. A |
5.00 |
4/1/2022 |
1,510,000 |
b |
1,611,412 |
||||
University of Connecticut, Revenue Bonds, Ser. A |
5.25 |
11/15/2047 |
4,000,000 |
4,869,120 |
|||||
Waterbury, GO, Ser. A |
4.00 |
2/1/2045 |
5,000,000 |
5,674,750 |
|||||
Waterbury, GO, Ser. A |
5.00 |
11/15/2038 |
2,500,000 |
3,026,150 |
|||||
191,438,570 |
|||||||||
U.S. Related - 1.8% |
|||||||||
Children's Trust Fund, Revenue Bonds, Refunding, Ser. A |
0.00 |
5/15/2050 |
12,000,000 |
c |
1,815,240 |
||||
Puerto Rico Highway & Transportation Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. CC |
5.25 |
7/1/2034 |
1,500,000 |
1,734,240 |
|||||
3,549,480 |
|||||||||
Total Investments (cost $186,143,108) |
98.4% |
194,988,050 |
|||||||
Cash and Receivables (Net) |
1.6% |
3,254,608 |
|||||||
Net Assets |
100.0% |
198,242,658 |
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, 2020, these securities were valued at $8,848,455 or 4.46% 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.
11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Portfolio Summary (Unaudited) † |
Value (%) |
Education |
22.5 |
General Obligation |
18.1 |
Water |
13.7 |
Medical |
13.0 |
Transportation |
5.5 |
Nursing Homes |
4.7 |
Single Family Housing |
4.4 |
Student Loan |
3.0 |
General |
2.9 |
Multifamily Housing |
2.1 |
Development |
2.0 |
Power |
1.7 |
Utilities |
1.6 |
Airport |
1.5 |
Tobacco Settlement |
.9 |
Prerefunded |
.8 |
Pollution |
.0 |
98.4 |
† 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 |
CIFG |
CDC Ixis Financial Guaranty |
COP |
Certificate of Participation |
CP |
Commercial Paper |
DRIVERS |
Derivative Inverse Tax-Exempt Receipts |
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 |
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, 2020 (Unaudited)
|
|
|
|
|
|
|
|
|
|
Cost |
|
Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments |
186,143,108 |
|
194,988,050 |
| ||
Cash |
|
|
|
|
1,034,478 |
|
Interest receivable |
|
2,478,519 |
| |||
Receivable for shares of Beneficial Interest subscribed |
|
97,575 |
| |||
Prepaid expenses |
|
|
|
|
30,651 |
|
|
|
|
|
|
198,629,273 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
|
115,561 |
| |||
Payable for shares of Beneficial Interest redeemed |
|
220,884 |
| |||
Trustees’ fees and expenses payable |
|
2,767 |
| |||
Other accrued expenses |
|
|
|
|
47,403 |
|
|
|
|
|
|
386,615 |
|
Net Assets ($) |
|
|
198,242,658 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
|
190,202,236 |
|
Total distributable earnings (loss) |
|
|
|
|
8,040,422 |
|
Net Assets ($) |
|
|
198,242,658 |
|
Net Asset Value Per Share |
Class A |
Class C |
Class I |
Class Y |
Class Z |
|
Net Assets ($) |
110,103,927 |
2,138,631 |
15,396,360 |
10,385 |
70,593,355 |
|
Shares Outstanding |
9,240,857 |
179,741 |
1,292,093 |
872 |
5,925,855 |
|
Net Asset Value Per Share ($) |
11.91 |
11.90 |
11.92 |
11.91 |
11.91 |
|
|
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
|
|
14
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2020 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Interest Income |
|
|
3,133,913 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
|
554,124 |
| ||
Shareholder servicing costs—Note 3(c) |
|
|
183,653 |
| ||
Professional fees |
|
|
45,724 |
| ||
Registration fees |
|
|
29,615 |
| ||
Prospectus and shareholders’ reports |
|
|
9,448 |
| ||
Trustees’ fees and expenses—Note 3(d) |
|
|
9,382 |
| ||
Distribution fees—Note 3(b) |
|
|
9,344 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
|
6,796 |
| ||
Loan commitment fees—Note 2 |
|
|
3,963 |
| ||
Custodian fees—Note 3(c) |
|
|
2,209 |
| ||
Miscellaneous |
|
|
13,896 |
| ||
Total Expenses |
|
|
868,154 |
| ||
Less—reduction in expenses due to undertaking—Note 3(a) |
|
|
(100,200) |
| ||
Less—reduction in fees due to earnings credits—Note 3(c) |
|
|
(2,209) |
| ||
Net Expenses |
|
|
765,745 |
| ||
Investment Income—Net |
|
|
2,368,168 |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments |
873,298 |
| ||||
Net change in unrealized appreciation (depreciation) on investments |
7,419,432 |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
|
8,292,730 |
| ||
Net Increase in Net Assets Resulting from Operations |
|
10,660,898 |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
15
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Year Ended |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Investment income—net |
|
|
2,368,168 |
|
|
|
5,047,696 |
| |
Net realized gain (loss) on investments |
|
873,298 |
|
|
|
819,710 |
| ||
Net change in unrealized appreciation |
|
7,419,432 |
|
|
|
(4,116,469) |
| ||
Net Increase (Decrease) in Net Assets |
10,660,898 |
|
|
|
1,750,937 |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
|
(1,280,781) |
|
|
|
(2,756,646) |
| |
Class C |
|
|
(18,267) |
|
|
|
(52,791) |
| |
Class I |
|
|
(180,977) |
|
|
|
(333,260) |
| |
Class Y |
|
|
(147) |
|
|
|
(10,113) |
| |
Class Z |
|
|
(896,218) |
|
|
|
(1,873,307) |
| |
Total Distributions |
|
|
(2,376,390) |
|
|
|
(5,026,117) |
| |
Beneficial Interest Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
|
1,138,432 |
|
|
|
3,333,309 |
| |
Class C |
|
|
47,394 |
|
|
|
434,976 |
| |
Class I |
|
|
2,554,061 |
|
|
|
7,433,579 |
| |
Class Y |
|
|
10,000 |
|
|
|
- |
| |
Class Z |
|
|
550,607 |
|
|
|
1,384,129 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
|
1,037,991 |
|
|
|
2,195,474 |
| |
Class C |
|
|
15,226 |
|
|
|
40,309 |
| |
Class I |
|
|
178,501 |
|
|
|
325,794 |
| |
Class Z |
|
|
674,756 |
|
|
|
1,402,137 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
|
(7,245,357) |
|
|
|
(11,254,858) |
| |
Class C |
|
|
(826,095) |
|
|
|
(1,369,612) |
| |
Class I |
|
|
(1,454,485) |
|
|
|
(3,795,427) |
| |
Class Y |
|
|
(370,210) |
|
|
|
(5,000) |
| |
Class Z |
|
|
(1,992,676) |
|
|
|
(5,957,428) |
| |
Increase (Decrease) in Net Assets |
(5,681,855) |
|
|
|
(5,832,618) |
| |||
Total Increase (Decrease) in Net Assets |
2,602,653 |
|
|
|
(9,107,798) |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
|
195,640,005 |
|
|
|
204,747,803 |
| |
End of Period |
|
|
198,242,658 |
|
|
|
195,640,005 |
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Year Ended |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Class Aa,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
95,494 |
|
|
|
279,682 |
| |
Shares issued for distributions reinvested |
|
|
87,209 |
|
|
|
185,254 |
| |
Shares redeemed |
|
|
(611,029) |
|
|
|
(952,439) |
| |
Net Increase (Decrease) in Shares Outstanding |
(428,326) |
|
|
|
(487,503) |
| |||
Class Cb |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
4,016 |
|
|
|
36,686 |
| |
Shares issued for distributions reinvested |
|
|
1,281 |
|
|
|
3,407 |
| |
Shares redeemed |
|
|
(69,497) |
|
|
|
(115,940) |
| |
Net Increase (Decrease) in Shares Outstanding |
(64,200) |
|
|
|
(75,847) |
| |||
Class Ia |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
214,930 |
|
|
|
630,113 |
| |
Shares issued for distributions reinvested |
|
|
14,996 |
|
|
|
27,493 |
| |
Shares redeemed |
|
|
(122,890) |
|
|
|
(321,547) |
| |
Net Increase (Decrease) in Shares Outstanding |
107,036 |
|
|
|
336,059 |
| |||
Class Y |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
872 |
|
|
|
- |
| |
Shares redeemed |
|
|
(32,276) |
|
|
|
(426) |
| |
Net Increase (Decrease) in Shares Outstanding |
(31,404) |
|
|
|
(426) |
| |||
Class Z |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
46,351 |
|
|
|
116,131 |
| |
Shares issued for distributions reinvested |
|
|
56,706 |
|
|
|
118,328 |
| |
Shares redeemed |
|
|
(167,658) |
|
|
|
(501,637) |
| |
Net Increase (Decrease) in Shares Outstanding |
(64,601) |
|
|
|
(267,178) |
| |||
|
|
|
|
|
|
|
|
|
|
a During the period ended October 31, 2020, 32,875 Class A shares representing $390,180 were exchanged for 32,908 Class I shares. |
|||||||||
b During the period ended April 30, 2019, 766 Class C shares representing $8,703 were automatically converted to 766 Class A shares. |
|||||||||
See notes to financial statements. |
17
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund’s financial statements.
Six Months Ended |
||||||
October 31, 2020 |
Year Ended April 30, | |||||
Class A Shares |
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 |
Per Share Data ($): |
||||||
Net asset value, beginning of period |
11.43 |
11.62 |
11.35 |
11.68 |
12.10 |
11.88 |
Investment Operations: |
||||||
Investment income—neta |
.13 |
.28 |
.29 |
.30 |
.32 |
.34 |
Net realized and unrealized |
.49 |
(.19) |
.27 |
(.32) |
(.42) |
.21 |
Total from Investment Operations |
.62 |
.09 |
.56 |
(.02) |
(.10) |
.55 |
Distributions: |
||||||
Dividends from investment |
(.14) |
(.28) |
(.29) |
(.31) |
(.32) |
(.33) |
Net asset value, end of period |
11.91 |
11.43 |
11.62 |
11.35 |
11.68 |
12.10 |
Total Return (%)b |
5.48c |
.71 |
4.98 |
(.24) |
(.87) |
4.75 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses |
.96d |
.95 |
.95 |
.94 |
.93 |
.91 |
Ratio of net expenses |
.86d |
.89 |
.95 |
.94 |
.93 |
.91 |
Ratio of net investment income |
2.25d |
2.37 |
2.53 |
2.61 |
2.66 |
2.82 |
Portfolio Turnover Rate |
4.87c |
19.22 |
4.84 |
10.71 |
9.93 |
9.75 |
Net Assets, end of period ($ x 1,000) |
110,104 |
110,498 |
118,062 |
127,921 |
145,523 |
167,984 |
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 |
||||||
October 31, 2020 |
Year Ended April 30, | |||||
Class C Shares |
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 |
Per Share Data ($): |
||||||
Net asset value, beginning of period |
11.41 |
11.61 |
11.33 |
11.66 |
12.08 |
11.86 |
Investment Operations: |
||||||
Investment income—neta |
.09 |
.19 |
.20 |
.21 |
.23 |
.24 |
Net realized and unrealized |
.49 |
(.20) |
.28 |
(.33) |
(.43) |
.22 |
Total from Investment Operations |
.58 |
(.01) |
.48 |
(.12) |
(.20) |
.46 |
Distributions: |
||||||
Dividends from investment |
(.09) |
(.19) |
(.20) |
(.21) |
(.22) |
(.24) |
Net asset value, end of period |
11.90 |
11.41 |
11.61 |
11.33 |
11.66 |
12.08 |
Total Return (%)b |
5.06c |
(.17) |
4.23 |
(1.02) |
(1.63) |
3.96 |
Ratios/Supplemental Data (%): |
||||||
Ratio of total expenses |
1.76d |
1.76 |
1.75 |
1.71 |
1.69 |
1.68 |
Ratio of net expenses |
1.66d |
1.69 |
1.75 |
1.70 |
1.69 |
1.68 |
Ratio of net investment income |
1.46d |
1.58 |
1.72 |
1.82 |
1.89 |
2.06 |
Portfolio Turnover Rate |
4.87c |
19.22 |
4.84 |
10.71 |
9.93 |
9.75 |
Net Assets, end of period ($ x 1,000) |
2,139 |
2,784 |
3,712 |
4,507 |
10,653 |
11,919 |
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 |
||||||
October 31, 2020 |
Year Ended April 30, | |||||
Class I Shares |
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 |
Per Share Data ($): |
||||||
Net asset value, beginning of period |
11.43 |
11.62 |
11.35 |
11.68 |
12.10 |
11.88 |
Investment Operations: |
||||||
Investment income—neta |
.15 |
.31 |
.31 |
.33 |
.34 |
.36 |
Net realized and unrealized |
.49 |
(.19) |
.27 |
(.33) |
(.42) |
.22 |
Total from Investment Operations |
.64 |
.12 |
.58 |
.00b |
(.08) |
.58 |
Distributions: |
||||||
Dividends from investment |
(.15) |
(.31) |
(.31) |
(.33) |
(.34) |
(.36) |
Net asset value, end of period |
11.92 |
11.43 |
11.62 |
11.35 |
11.68 |
12.10 |
Total Return (%) |
5.61d |
.97 |
5.22 |
.00c |
(.64) |
5.01 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses |
.71e |
.71 |
.72 |
.70 |
.69 |
.67 |
Ratio of net expenses |
.61e |
.64 |
.72 |
.70 |
.69 |
.67 |
Ratio of net investment income |
2.49e |
2.62 |
2.76 |
2.84 |
2.90 |
3.06 |
Portfolio Turnover Rate |
4.87d |
19.22 |
4.84 |
10.71 |
9.93 |
9.75 |
Net Assets, end of period ($ x 1,000) |
15,396 |
13,544 |
9,869 |
9,629 |
12,555 |
9,794 |
a Based on average shares outstanding.
b Amount represents less than $.01 per share.
c Amount represents less than .01% per share.
d Not annualized.
e Annualized.
See notes to financial statements.
20
Six Months Ended |
||||||
October 31, 2020 |
Year Ended April 30, | |||||
Class Y Shares |
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 |
Per Share Data ($): |
||||||
Net asset value, beginning of period |
11.42 |
11.62 |
11.35 |
11.68 |
12.10 |
11.88 |
Investment Operations: |
||||||
Investment income—neta |
.02 |
.31 |
.32 |
.34 |
.34 |
.37 |
Net realized and unrealized |
.61 |
(.20) |
.27 |
(.33) |
(.41) |
.22 |
Total from Investment Operations |
.63 |
.11 |
.59 |
.01 |
(.07) |
.59 |
Distributions: |
||||||
Dividends from investment |
(.14) |
(.31) |
(.32) |
(.34) |
(.35) |
(.37) |
Net asset value, end of period |
11.91 |
11.42 |
11.62 |
11.35 |
11.68 |
12.10 |
Total Return (%) |
5.51b |
.91 |
5.26 |
.03 |
(.60) |
5.04 |
Ratios/Supplemental Data (%): |
||||||
Ratio of total expenses |
.93c |
.68 |
.68 |
.66 |
.65 |
.64 |
Ratio of net expenses |
.83c |
.61 |
.68 |
.66 |
.65 |
.64 |
Ratio of net investment income |
1.62c |
2.65 |
2.79 |
2.87 |
2.93 |
3.11 |
Portfolio Turnover Rate |
4.87b |
19.22 |
4.84 |
10.71 |
9.93 |
9.75 |
Net Assets, end of period ($ x 1,000) |
10 |
369 |
380 |
437 |
813 |
1,614 |
a Based on average shares outstanding.
b Not annualized.
c Annualized.
See notes to financial statements.
21
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended |
||||||
October 31, 2020 |
Year Ended April 30, | |||||
Class Z Shares |
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 |
Per Share Data ($): |
||||||
Net asset value, beginning of period |
11.43 |
11.62 |
11.35 |
11.68 |
12.10 |
11.87 |
Investment Operations: |
||||||
Investment income—neta |
.15 |
.31 |
.31 |
.33 |
.34 |
.36 |
Net realized and unrealized |
.48 |
(.19) |
.27 |
(.33) |
(.42) |
.23 |
Total from Investment Operations |
.63 |
.12 |
.58 |
.00 |
(.08) |
.59 |
Distributions: |
||||||
Dividends from investment |
(.15) |
(.31) |
(.31) |
(.33) |
(.34) |
(.36) |
Net asset value, end of period |
11.91 |
11.43 |
11.62 |
11.35 |
11.68 |
12.10 |
Total Return (%) |
5.52b |
.94 |
5.21 |
.07 |
(.74) |
5.05 |
Ratios/Supplemental Data (%): |
||||||
Ratio of total expenses |
.71c |
.73 |
.75 |
.70 |
.71 |
.71 |
Ratio of net expenses |
.61c |
.67 |
.75 |
.70 |
.71 |
.71 |
Ratio of net investment income |
2.51c |
2.59 |
2.74 |
2.83 |
2.88 |
3.03 |
Portfolio Turnover Rate |
4.87b |
19.22 |
4.84 |
10.71 |
9.93 |
9.75 |
Net Assets, end of period ($ x 1,000) |
70,593 |
68,446 |
72,725 |
78,274 |
86,696 |
94,240 |
a Based on average shares outstanding.
b Not annualized.
c Annualized.
See notes to financial statements.
22
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
BNY Mellon Connecticut Fund (the “fund”) is a separate non-diversified series of BNY Mellon State Municipal Bond Funds (the “Company”), 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.
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 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 ten years after the date of purchase, without the imposition of a sales charge. Class I and Class Y shares are sold at net asset value per share generally to institutional investors. 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. 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, 2020, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held all of the outstanding Class Y shares of the fund.
The Company 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
23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-Investment Companies. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Company 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.).
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.
24
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
Investments in 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). Debt 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. All of the preceding securities are generally categorized within Level 2 of the fair value hierarchy.
The Service is engaged under the general oversight of the Board.
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.
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, 2020 in valuing the fund’s investments:
25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Level 1 - Unadjusted Quoted Prices |
Level 2 - Other Significant Observable Inputs |
Level 3 -Significant Unobservable Inputs |
Total | |
Assets ($) |
|
|
|
|
Investments in Securities: † |
||||
Municipal Securities |
- |
194,988,050 |
- |
194,988,050 |
† 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) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies 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. 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.
26
(d) Dividends and distributions to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. 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, 2020, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended October 31, 2020, the fund did not incur any interest or penalties.
Each tax year in the three-year period ended April 30, 2020 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 $1,677,885 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to April 30, 2020. These short-term capital losses can be carried forward for an unlimited period.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2020 was as follows: tax-exempt income $5,003,528 and ordinary income $22,589. 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”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types
27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
of modifications due to the planned discontinuation of the London Interbank Offered Rate (“LIBOR”) and other IBOR-based reference rates (change to “other interbank offered rates”) as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform. Management is also currently actively working with other financial institutions and counterparties to modify contracts as required by applicable regulation and within the regulatory deadlines.
NOTE 2—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 The Bank of New York Mellon (the “BNYM Credit Facility”), a subsidiary of BNY Mellon and an affiliate of the Adviser, 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. Prior to September 30, 2020, the Citibank Credit Facility was $927 million with Tranche A available in an amount equal to $747 million and Tranche B available in an amount equal to $180 million. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2020, the fund did not borrow under the Facilities.
NOTE 3—Management Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Adviser, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly. The Adviser has contractually agreed, from May 1, 2020 through September 1, 2021, 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,
28
2021, the Adviser may terminate this waiver agreement at any time. The reduction in expenses, pursuant to the undertaking, amounted to $100,200 during the period ended October 31, 2020.
During the period ended October 31, 2020, the Distributor retained $653 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. During the period ended October 31, 2020, Class C shares were charged $9,344 pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2020, Class A and Class C shares were charged $141,535 and $3,115, 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 the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class Z shares and providing reports and other information, and services related to the maintenance of shareholder accounts. During the period ended October 31, 2020, Class Z shares were charged $2,174 pursuant to the Shareholder Services Plan.
The fund has arrangements with the transfer agent and the custodian 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 net earnings credits, if any, as an expense offset in the Statement of Operations.
The fund compensates BNY Mellon Transfer, Inc., a wholly-owned subsidiary of the Adviser, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account
29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended October 31, 2020, the fund was charged $17,534 for transfer agency services. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended October 31, 2020, the fund was charged $2,209 pursuant to the custody agreement. These fees were offset by earnings credits of $2,209.
The fund compensates The Bank of New York Mellon 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, 2020, the fund was charged $877 pursuant to the agreement, which is included in Shareholder servicing costs in the Statement of Operations.
During the period ended October 31, 2020, the fund was charged $6,796 for services performed by the Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.
The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: management fees of $92,887, Distribution Plan fees of $1,367, Shareholder Services Plan fees of $25,963, custodian fees of $1,048, Chief Compliance Officer fees of $4,546 and transfer agency fees of $6,099, which are offset against an expense reimbursement currently in effect in the amount of $16,349.
(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, 2020, amounted to $9,573,429 and $14,822,027, respectively.
At October 31, 2020, accumulated net unrealized depreciation on investments was $8,844,942, consisting of $9,280,953 gross unrealized appreciation and $436,011 gross unrealized depreciation.
30
At October 31, 2020, 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).
31
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on July 30, 2020, the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”). The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser. In considering the renewal of the Agreement, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the meeting and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. The Adviser also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the BNY Mellon fund complex (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or the Adviser) and the Adviser’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that the Adviser also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board also considered the Adviser’s extensive administrative, accounting and compliance infrastructures.
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 two other institutional “other states” 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 “other states” municipal debt funds (the “Performance Universe”), all for various periods ended June 30, 2020, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of all other institutional “other states” lower municipal debt funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from
32
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 the results of the comparisons and considered that the fund’s total return performance was at the Performance Group median and above the Performance Universe median for all periods except for the one- three- and four-year periods when it was below the Performance Universe median. The Board also considered that the fund’s yield performance was below the Performance Group for all ten one-year periods ended June 30th and above the Performance Universe medians for eight of the ten one-year periods ended June 30th. The Board considered the relative proximity of the fund’s performance to the Performance Group and/or Performance Universe medians in certain periods when performance was below median. It was noted that there were only two other funds in the Performance Group. 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 provided by the Adviser. 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 slightly higher than the Expense Universe median actual management fee and the fund’s total expenses were equal to the Expense Group median and higher than the Expense Universe median total expenses.
Representatives of the Adviser stated that the Adviser has contractually agreed, until September 1, 2021, to waive receipt of a portion of its management fees, 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 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 that are considered to have similar investment strategies and policies as 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
33
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued)
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 Agreement, considered in relation to the mix of services provided by the Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreement and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser 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 from acting as investment adviser 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 Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser are adequate and appropriate.
· The Board generally was satisfied with the fund’s overall relative performance, particularly considering that the other fund in the Performance Group and the Performance Universe were comprised of “other states” municipal debt funds.
· The Board concluded that the fee paid to the Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
34
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates, of the Adviser and the services provided to the fund by the Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreement for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreement.
35
LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)
Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.
The rule requires the funds to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.
The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.
Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the fund’s board. Furthermore, the board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.
Assessment of Program
In the opinion of the Program Administrator, the Program approved by the fund board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.
During the period from June 1, 2019 to March 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.
36
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.
37
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
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.bnymellonim.com/us
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.bnymellonim.com/us and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2020 BNY Mellon Securities Corporation |
|
BNY Mellon State Municipal Bond Funds, BNY Mellon Massachusetts Fund
SEMIANNUAL REPORT October 31, 2020 |
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.bnymellonim.com/us and sign up for eCommunications. It’s simple and only takes a few minutes. |
The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds. |
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value |
Contents
THE FUND
BNY Mellon Investment Adviser, Inc. |
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With Those of Other Funds |
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the Fund’s Management Agreement |
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FOR MORE INFORMATION
Back Cover
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The Fund |
A LETTER FROM THE PRESIDENT OF BNY MELLON INVESTMENT ADVISER, INC.
Dear Shareholder:
We are pleased to present this semiannual report for BNY Mellon Massachusetts Fund, covering the six-month period from May 1, 2020 through October 31, 2020. For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Equities rallied for much of the period, fueled by continued accommodative rate policies by the U.S. Federal Reserve (the “Fed”), as well as emergency stimulus measures enacted by global central banks and governments in response to the COVID-19 pandemic and resulting economic lockdown. Stocks trended upward through the early fall. Volatility reentered the picture in September 2020 and continued through October as concerns over rising COVID-19 infection rates, continued trade tensions, the U.S. Congress’ failure to pass additional financial assistance and anxiety over the upcoming U.S. election constrained equity valuations.
Fixed-income market prices were also heavily influenced by emergency actions taken by the Fed prior to the start of the period. Severe rate cuts and a financial support package, combined with a resurgence of economic activity and the Fed’s commitment to a “lower-for-longer” rate policy, helped risk-asset prices to rise throughout the first several months of the period. Bond indices generally rose until September 2020, when investment-grade instrument prices stalled. Yields in the intermediate and long portions of the Treasury curve rose during October, further constraining prices.
We believe the near-term outlook for the U.S. will be challenging, as the country continues to battle COVID-19. As always, we will monitor relevant data for meaningful developments. We encourage you to discuss the risks and opportunities in today’s investment environment with your financial advisor.
Thank you for your continued confidence and support.
Sincerely,
Renee LaRoche-Morris
President
BNY Mellon Investment Adviser, Inc.
November 16, 2020
2
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from May 1, 2020 through October 31, 2020, as provided by Daniel Rabasco and Thomas Casey, Portfolio Managers
Market and Fund Performance Overview
For the six-month period ended October 31, 2020, Class A shares of BNY Mellon Massachusetts Fund, a series of BNY Mellon State Municipal Bond Funds, produced a total return of 5.56%, Class C shares returned 4.34%, and Class Z shares returned 5.701 In comparison, the Bloomberg Barclays 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 4.99% for the same period.2
Municipal bonds encountered turmoil during the reporting period due to the spread of the COVID-19 virus and the efforts to contain it. While Class C shares underperformed the Index, Class A and Z shares outperformed due to the fund’s slightly longer duration versus the Index and to yield-curve positioning and sector allocations.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and from Massachusetts 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 Massachusetts state income taxes. The fund invests at least 70% of its assets in municipal bonds rated, at the time of purchase, investment grade (i.e., Baa/BBB or higher) or the unrated equivalent as determined by BNY Mellon Investment Adviser, Inc. 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 BNY Mellon Investment Adviser, Inc. 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.
Policy Support and Economic Recovery Aid Market Recovery
The municipal bond market recovered from unprecedented volatility that occurred earlier in 2020, when the COVID-19 virus spread, and government shutdowns caused the economy to slow dramatically. Yields on municipal bonds during this period rose in response to large outflows from municipal bond mutual funds and to some illiquidity.
In response to the pandemic, the Federal Reserve made two emergency interest-rate cuts in March 2020 and launched a $500 billion Municipal Liquidity Facility (MLF) to purchase short-term municipal securities. This, combined with the $2 trillion Coronavirus Aid, Relief,
3
DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)
and Economic Security (CARES) Act, dramatically changed investor sentiment, which helped the municipal bond market to bounce back relatively quickly.
While new issuance dried up during the height of the crisis in the first quarter of 2020, it rebounded along with bond prices as issuers sought to take advantage of record-low funding costs. Much of the new issuance was in taxable bonds as low yields have made taxable issuance attractive to issuers. New issuance also increased because state and local governments sought to avoid the uncertainty associated with the election. The flood of new issues produced a somewhat negative effect on performance as it created a glut of supply. While lower-risk bonds outperformed prior to the reporting period during the height of the crisis, lower-quality bonds rebounded strongly once monetary and fiscal policy measures were put in place.
Like most states, the finances of the Commonwealth of Massachusetts have been impacted by the coronavirus. Although the state benefits from a diverse economy, strong wealth indicators, and prudent fiscal management, it does have large pension and OPEB (other post-employment benefits) liabilities, high fixed costs, and an aging demographic base. While the state’s economy has remained somewhat resilient, heavy concentrations in healthcare, education, and financial sectors are notable.
Duration, Yield Curve Positioning and Asset Allocation Bolstered Fund Results
The fund’s slightly longer duration versus the Index contributed positively to returns, as did its yield-curve positioning. Bonds in the five- to seven-year portion of the curve and in the 20-year portion performed particularly well. In addition, the fund’s overweight to revenue bonds was beneficial. Overweight positions in the health care/hospital, education and housing segments were especially advantageous.
On a less positive note, the fund’s relative performance was hindered by its exposure to the transportation segment of the market. Although the fund maintained an underweight allocation, the segment was broadly hurt by the pandemic and related shutdowns, which hurt revenues for airports, toll roads and the like. The fund did not use derivatives during the reporting period.
Outlook Brightens
With the November 2020 election largely resolved, we remain constructive on the municipal market. We anticipate that a divided government will be beneficial to the market as no major changes to tax or fiscal policy are likely. A hike in tax rates for higher-income households is possible, but this would likely benefit the municipal bond market. The cap on the deductibility of state and local taxes may also remain, which would also likely spur demand for municipal bonds. The coming year could also see an increase in environmental and infrastructure spending at the federal level, which could be a boon, and the development of a COVID-19 vaccine should also boost the economy and tax revenues. We anticipate an
4
increase in supply in 2021, and this is also likely to benefit the market as it indicates that issuers are able to access capital markets to address any budget shortfalls.
November 16, 2020
1 Total return includes reinvestment of dividends and any capital gains paid and does not take into consideration the maximum initial sales charge in the case of Class A shares or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. 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 Barclays 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.
5
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, 2020 to October 31, 2020. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment |
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Assume actual returns for the six months ended October 31, 2020 |
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Class A |
Class C |
Class Z |
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Expense paid per $1,000† |
$5.23 |
$12.46 |
$3.73 |
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Ending value (after expenses) |
$1,055.60 |
$1,043.40 |
$1,057.00 |
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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, 2020 |
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Class A |
Class C |
Class Z |
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Expense paid per $1,000† |
$5.14 |
$12.28 |
$3.67 |
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Ending value (after expenses) |
$1,020.11 |
$1,013.01 |
$1,021.58 |
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† Expenses are equal to the fund’s annualized expense ratio of 1.01% for Class A, 2.42% for Class C and .72% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2020 (Unaudited)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.5% |
|||||||||
Massachusetts - 97.0% |
|||||||||
Boston Housing Authority, Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) |
5.00 |
4/1/2024 |
1,885,000 |
1,892,163 |
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Collegiate Charter School of Lowell, Revenue Bonds |
5.00 |
6/15/2039 |
1,000,000 |
1,058,580 |
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Martha's Vineyard Land Bank, Revenue Bonds, Refunding (Green Bond) (Insured; Build America Mutual) |
5.00 |
5/1/2033 |
500,000 |
610,475 |
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Massachusetts, GO, Refunding (Insured; American Municipal Bond Assurance Corp.) Ser. A |
5.50 |
8/1/2030 |
1,750,000 |
2,450,122 |
|||||
Massachusetts, GO, Refunding, Ser. A, 3 Month LIBOR x.67 +.55% |
0.72 |
11/1/2025 |
5,000,000 |
a |
4,995,150 |
||||
Massachusetts, GO, Refunding, Ser. C |
5.00 |
5/1/2030 |
2,500,000 |
3,384,125 |
|||||
Massachusetts, GO, Ser. A |
5.00 |
4/1/2047 |
3,250,000 |
3,906,175 |
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Massachusetts, GO, Ser. C |
3.00 |
3/1/2047 |
1,350,000 |
1,435,320 |
|||||
Massachusetts, GO, Ser. D |
4.00 |
5/1/2034 |
1,000,000 |
1,208,030 |
|||||
Massachusetts Bay Transportation Authority, Revenue Bonds |
7.00 |
3/1/2021 |
145,000 |
148,219 |
|||||
Massachusetts Bay Transportation Authority, Revenue Bonds, Refunding (Insured; National Public Finance Guarantee Corp.) Ser. B |
5.50 |
7/1/2027 |
3,000,000 |
3,946,530 |
|||||
Massachusetts Bay Transportation Authority, Revenue Bonds, Ser. A |
5.00 |
7/1/2040 |
2,000,000 |
2,328,000 |
|||||
Massachusetts Clean Energy Cooperative Corp., Revenue Bonds |
5.00 |
7/1/2024 |
2,580,000 |
2,879,203 |
|||||
Massachusetts College Building Authority, Revenue Bonds (Insured; National Public Finance Guarantee Corp.) Ser. A |
0.00 |
5/1/2026 |
5,385,000 |
b |
5,207,780 |
||||
Massachusetts College Building Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Corp.) Ser. B |
5.50 |
5/1/2028 |
1,450,000 |
1,821,693 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds (Baystate Medical Center Obligated Group) Ser. N |
5.00 |
7/1/2034 |
1,475,000 |
1,638,710 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds (Boston University) Ser. BB1 |
4.00 |
10/1/2046 |
2,000,000 |
2,169,680 |
7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.5% (continued) |
|||||||||
Massachusetts - 97.0% (continued) |
|||||||||
Massachusetts Development Finance Agency, Revenue Bonds (Dana-Farber Cancer Institute Obligated Group) Ser. N |
5.00 |
12/1/2041 |
1,000,000 |
1,160,130 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds (Dana-Farber Cancer Institute Obligated Group) Ser. N |
5.00 |
12/1/2046 |
2,000,000 |
2,302,000 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds (Linden Ponds Obligated Group) |
5.13 |
11/15/2046 |
1,500,000 |
c |
1,596,915 |
||||
Massachusetts Development Finance Agency, Revenue Bonds (North Hill Communities Obligated Group) Ser. A |
6.50 |
11/15/2023 |
2,000,000 |
c,d |
2,370,140 |
||||
Massachusetts Development Finance Agency, Revenue Bonds (Seven Hills Foundation & Affiliates Obligated Group) Ser. A |
5.00 |
9/1/2045 |
1,500,000 |
1,635,255 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds (The Children's Hospital Corp. Obligated Group) Ser. P |
5.00 |
10/1/2033 |
4,000,000 |
4,508,200 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds (Worcester Polytechnic Institute) |
5.00 |
9/1/2049 |
1,500,000 |
1,793,895 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Atrius Health Obligated Group) Ser. A |
4.00 |
6/1/2049 |
1,500,000 |
1,600,095 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Beth Israel Lahey Health Obligated Group) |
5.00 |
7/1/2032 |
500,000 |
631,750 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Boston College) Ser. T |
5.00 |
7/1/2042 |
1,000,000 |
1,193,360 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Boston Medical Center Corp. Obligated Group) Ser. E |
5.00 |
7/1/2037 |
1,000,000 |
1,137,870 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Brandeis University) Ser. S1 |
5.00 |
10/1/2035 |
1,000,000 |
1,236,230 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (College of the Holy Cross) Ser. A |
5.00 |
9/1/2041 |
800,000 |
943,368 |
8
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.5% (continued) |
|||||||||
Massachusetts - 97.0% (continued) |
|||||||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Lahey Clinic Obligated Group) Ser. F |
5.00 |
8/15/2040 |
2,000,000 |
2,271,180 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (NewBridge Charles Obligated Group) |
5.00 |
10/1/2057 |
1,500,000 |
c |
1,591,605 |
||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (NewBridge Charles Obligated Group) |
5.00 |
10/1/2047 |
1,000,000 |
c |
1,066,860 |
||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Northeastern University) Ser. A |
5.00 |
10/1/2035 |
1,000,000 |
1,309,180 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Orchard Cove Obligated Group) |
5.00 |
10/1/2049 |
700,000 |
750,974 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Partners Healthcare System) |
5.00 |
7/1/2047 |
1,500,000 |
1,741,455 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Partners Healthcare System) Ser. O2 |
5.00 |
7/1/2025 |
3,570,000 |
d |
4,342,369 |
||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (South Shore Hospital) Ser. I |
5.00 |
7/1/2041 |
1,000,000 |
1,124,810 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Suffolk University Project) |
5.00 |
7/1/2036 |
450,000 |
527,783 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Suffolk University) |
5.00 |
7/1/2035 |
1,000,000 |
1,138,150 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Suffolk University) |
5.00 |
7/1/2036 |
755,000 |
858,035 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Suffolk University) Ser. A |
4.00 |
7/1/2045 |
1,250,000 |
1,305,138 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (The Broad Institute) |
5.00 |
4/1/2037 |
1,000,000 |
1,225,950 |
9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.5% (continued) |
|||||||||
Massachusetts - 97.0% (continued) |
|||||||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Umass Memorial Health Care Obligated Group) |
5.00 |
7/1/2031 |
1,000,000 |
1,194,730 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Umass Memorial Health Care Obligated Group) Ser. H |
5.50 |
7/1/2031 |
25,000 |
25,642 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Umass Memorial Health Care Obligated Group) Ser. I |
5.00 |
7/1/2046 |
1,000,000 |
1,130,250 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding (WGBH Educational Foundation) |
5.00 |
1/1/2040 |
1,000,000 |
1,181,110 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. A |
5.00 |
7/1/2044 |
1,000,000 |
1,148,080 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. H1 |
5.00 |
7/1/2033 |
500,000 |
576,375 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. I |
5.00 |
7/1/2037 |
1,500,000 |
1,754,415 |
|||||
Massachusetts Development Finance Agency, Revenue Bonds, Ser. J1 |
5.00 |
7/1/2043 |
1,295,000 |
1,526,468 |
|||||
Massachusetts Educational Financing Authority, Revenue Bonds |
5.00 |
1/1/2025 |
1,500,000 |
1,707,255 |
|||||
Massachusetts Educational Financing Authority, Revenue Bonds, Refunding, Ser. K |
5.25 |
7/1/2029 |
865,000 |
907,013 |
|||||
Massachusetts Housing Finance Agency, Revenue Bonds, Refunding, Ser. 218th |
3.00 |
12/1/2050 |
1,500,000 |
1,643,850 |
|||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. A |
5.00 |
7/1/2035 |
2,055,000 |
2,452,786 |
|||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. A |
5.00 |
7/1/2042 |
1,000,000 |
1,172,860 |
|||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. B |
4.00 |
7/1/2046 |
2,500,000 |
2,694,500 |
|||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. B |
5.00 |
7/1/2025 |
1,500,000 |
1,612,650 |
10
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.5% (continued) |
|||||||||
Massachusetts - 97.0% (continued) |
|||||||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. C |
5.00 |
7/1/2044 |
2,000,000 |
2,408,760 |
|||||
Massachusetts Port Authority, Revenue Bonds, Refunding, Ser. C |
5.00 |
7/1/2025 |
1,000,000 |
1,161,210 |
|||||
Massachusetts Port Authority, Revenue Bonds, Ser. B |
5.00 |
7/1/2045 |
1,000,000 |
1,128,640 |
|||||
Massachusetts School Building Authority, Revenue Bonds, Refunding, Ser. C |
5.00 |
8/15/2037 |
3,000,000 |
3,576,540 |
|||||
Massachusetts School Building Authority, Revenue Bonds, Ser. A |
5.00 |
8/15/2045 |
2,000,000 |
2,562,940 |
|||||
Massachusetts Transportation Fund, Revenue Bonds |
5.00 |
6/1/2049 |
1,990,000 |
2,483,719 |
|||||
Massachusetts Transportation Fund, Revenue Bonds, Ser. A |
5.00 |
6/1/2041 |
1,500,000 |
1,779,975 |
|||||
Massachusetts Transportation Trust Fund Metropolitan Highway System, Revenue Bonds, Refunding, Ser. A |
5.00 |
1/1/2034 |
2,000,000 |
2,510,640 |
|||||
Metropolitan Boston Transit Parking Corp., Revenue Bonds, Refunding |
5.00 |
7/1/2024 |
1,320,000 |
1,359,587 |
|||||
Springfield Water & Sewer Commission, Revenue Bonds, Ser. C |
5.00 |
4/15/2037 |
650,000 |
788,359 |
|||||
University of Massachusetts Building Authority, Revenue Bonds, Ser. 1 |
5.00 |
11/1/2050 |
1,220,000 |
1,519,071 |
|||||
124,450,077 |
|||||||||
U.S. Related - 1.5% |
|||||||||
Children's Trust Fund, Revenue Bonds, Refunding, Ser. A |
0.00 |
5/15/2050 |
5,000,000 |
b |
756,350 |
11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.5% (continued) |
|||||||||
U.S. Related - 1.5% (continued) |
|||||||||
Puerto Rico Highway & Transportation Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. CC |
5.25 |
7/1/2033 |
1,000,000 |
1,151,460 |
|||||
1,907,810 |
|||||||||
Total Investments (cost $118,485,479) |
98.5% |
126,357,887 |
|||||||
Cash and Receivables (Net) |
1.5% |
1,899,211 |
|||||||
Net Assets |
100.0% |
128,257,098 |
a Variable rate security—rate shown is the interest rate in effect at period end.
b Security issued with a zero coupon. Income is recognized through the accretion of discount.
c 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, 2020, these securities were valued at $6,625,520 or 5.17% of net assets.
d 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.
Portfolio Summary (Unaudited) † |
Value (%) |
Education |
22.0 |
Medical |
21.1 |
Transportation |
14.3 |
General Obligation |
13.5 |
General |
6.3 |
Prerefunded |
5.2 |
Nursing Homes |
3.9 |
Power |
2.2 |
Student Loan |
2.0 |
Airport |
1.9 |
Multifamily Housing |
1.5 |
Single Family Housing |
1.3 |
Facilities |
1.1 |
Development |
1.0 |
Water |
.6 |
Tobacco Settlement |
.6 |
98.5 |
† Based on net assets.
See notes to financial statements.
12
STATEMENT OF INVESTMENTS
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 |
CIFG |
CDC Ixis Financial Guaranty |
COP |
Certificate of Participation |
CP |
Commercial Paper |
DRIVERS |
Derivative Inverse Tax-Exempt Receipts |
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 |
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, 2020 (Unaudited)
|
|
|
|
|
|
|
|
|
|
Cost |
|
Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments |
118,485,479 |
|
126,357,887 |
| ||
Cash |
|
|
|
|
610,005 |
|
Interest receivable |
|
1,440,938 |
| |||
Receivable for shares of Beneficial Interest subscribed |
|
4,913 |
| |||
Prepaid expenses |
|
|
|
|
20,781 |
|
|
|
|
|
|
128,434,524 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
|
75,568 |
| |||
Payable for shares of Beneficial Interest redeemed |
|
58,089 |
| |||
Trustees’ fees and expenses payable |
|
1,770 |
| |||
Other accrued expenses |
|
|
|
|
41,999 |
|
|
|
|
|
|
177,426 |
|
Net Assets ($) |
|
|
128,257,098 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
|
120,065,419 |
|
Total distributable earnings (loss) |
|
|
|
|
8,191,679 |
|
Net Assets ($) |
|
|
128,257,098 |
|
Net Asset Value Per Share |
Class A |
Class C |
Class Z |
|
Net Assets ($) |
23,660,718 |
14,300 |
104,582,080 |
|
Shares Outstanding |
2,001,773 |
1,214 |
8,848,018 |
|
Net Asset Value Per Share ($) |
11.82 |
11.78 |
11.82 |
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
14
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2020 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Interest Income |
|
|
1,925,514 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
|
355,832 |
| ||
Shareholder servicing costs—Note 3(c) |
|
|
54,406 |
| ||
Professional fees |
|
|
45,579 |
| ||
Registration fees |
|
|
21,737 |
| ||
Prospectus and shareholders’ reports |
|
|
7,986 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
|
6,796 |
| ||
Trustees’ fees and expenses—Note 3(d) |
|
|
5,959 |
| ||
Loan commitment fees—Note 2 |
|
|
2,515 |
| ||
Custodian fees—Note 3(c) |
|
|
1,473 |
| ||
Distribution fees—Note 3(b) |
|
|
252 |
| ||
Miscellaneous |
|
|
1,096 |
| ||
Total Expenses |
|
|
503,631 |
| ||
Less—reduction in fees due to earnings credits—Note 3(c) |
|
|
(1,473) |
| ||
Net Expenses |
|
|
502,158 |
| ||
Investment Income—Net |
|
|
1,423,356 |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments |
(36,444) |
| ||||
Net change in unrealized appreciation (depreciation) on investments |
5,624,158 |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
|
5,587,714 |
| ||
Net Increase in Net Assets Resulting from Operations |
|
7,011,070 |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
15
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Year Ended |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Investment income—net |
|
|
1,423,356 |
|
|
|
3,262,775 |
| |
Net realized gain (loss) on investments |
|
(36,444) |
|
|
|
977,067 |
| ||
Net change in unrealized appreciation |
|
5,624,158 |
|
|
|
(3,363,706) |
| ||
Net Increase (Decrease) in Net Assets |
7,011,070 |
|
|
|
876,136 |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
|
(231,753) |
|
|
|
(520,159) |
| |
Class C |
|
|
(174) |
|
|
|
(3,281) |
| |
Class Z |
|
|
(1,196,963) |
|
|
|
(2,731,151) |
| |
Total Distributions |
|
|
(1,428,890) |
|
|
|
(3,254,591) |
| |
Beneficial Interest Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
|
1,310,764 |
|
|
|
1,819,045 |
| |
Class C |
|
|
42 |
|
|
|
466 |
| |
Class Z |
|
|
2,815,188 |
|
|
|
2,801,669 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
|
178,668 |
|
|
|
404,275 |
| |
Class C |
|
|
56 |
|
|
|
2,325 |
| |
Class Z |
|
|
918,566 |
|
|
|
2,103,068 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
|
(669,798) |
|
|
|
(3,351,971) |
| |
Class C |
|
|
(100,041) |
|
|
|
(228,603) |
| |
Class Z |
|
|
(4,658,072) |
|
|
|
(14,975,594) |
| |
Increase (Decrease) in Net Assets |
(204,627) |
|
|
|
(11,425,320) |
| |||
Total Increase (Decrease) in Net Assets |
5,377,553 |
|
|
|
(13,803,775) |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
|
122,879,545 |
|
|
|
136,683,320 |
| |
End of Period |
|
|
128,257,098 |
|
|
|
122,879,545 |
| |
Capital Share Transactions (Shares): |
| ||||||||
Class A |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
111,650 |
|
|
|
154,933 |
| |
Shares issued for distributions reinvested |
|
|
15,132 |
|
|
|
34,456 |
| |
Shares redeemed |
|
|
(56,824) |
|
|
|
(289,989) |
| |
Net Increase (Decrease) in Shares Outstanding |
69,958 |
|
|
|
(100,600) |
| |||
Class C |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
3 |
|
|
|
40 |
| |
Shares issued for distributions reinvested |
|
|
5 |
|
|
|
198 |
| |
Shares redeemed |
|
|
(8,433) |
|
|
|
(19,234) |
| |
Net Increase (Decrease) in Shares Outstanding |
(8,425) |
|
|
|
(18,996) |
| |||
Class Z |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
240,461 |
|
|
|
238,401 |
| |
Shares issued for distributions reinvested |
|
|
77,801 |
|
|
|
179,226 |
| |
Shares redeemed |
|
|
(394,304) |
|
|
|
(1,307,159) |
| |
Net Increase (Decrease) in Shares Outstanding |
(76,042) |
|
|
|
(889,532) |
| |||
|
|
|
|
|
|
|
|
|
|
See notes to financial statements. |
16
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund’s financial statements.
Six Months Ended |
||||||||||
October 31, 2020 |
Year Ended April 30, | |||||||||
Class A Shares |
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 |
||||
Per Share Data ($): |
||||||||||
Net asset value, beginning of period |
11.31 |
11.51 |
11.27 |
11.48 |
11.94 |
11.69 |
||||
Investment Operations: |
||||||||||
Investment income—neta |
.12 |
.26 |
.28 |
.29 |
.29 |
.31 |
||||
Net realized and unrealized |
.51 |
(.20) |
.24 |
(.21) |
(.46) |
.25 |
||||
Total from Investment Operations |
.63 |
.06 |
.52 |
.08 |
(.17) |
.56 |
||||
Distributions: |
||||||||||
Dividends from investment |
(.12) |
(.26) |
(.28) |
(.29) |
(.29) |
(.31) |
||||
Dividends from net realized |
− |
− |
− |
− |
(.00)b |
− |
||||
Total Distributions |
(.12) |
(.26) |
(.28) |
(.29) |
(.29) |
(.31) |
||||
Net asset value, end of period |
11.82 |
11.31 |
11.51 |
11.27 |
11.48 |
11.94 |
||||
Total Return (%)c |
5.56d |
.46 |
4.72 |
.65 |
(1.40) |
4.84 |
||||
Ratios/Supplemental Data (%): |
||||||||||
Ratio of total expenses to |
1.01e |
1.01 |
.99 |
1.00 |
.96 |
.95 |
||||
Ratio of net expenses to |
1.01e |
1.01 |
.99 |
.99 |
.96 |
.95 |
||||
Ratio of net investment income to |
1.97e |
2.22 |
2.51 |
2.47 |
2.48 |
2.64 |
||||
Portfolio Turnover Rate |
6.28d |
16.48 |
4.67 |
10.68 |
11.70 |
12.60 |
||||
Net Assets, end of period ($ x 1,000) |
23,661 |
21,847 |
23,396 |
24,569 |
26,487 |
34,121 |
a Based on average shares outstanding.
b Amount represents less than $.01 per share.
c Exclusive of sales charge.
d Not annualized.
e Annualized.
See notes to financial statements.
17
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended |
||||||||||
October 31, 2020 |
Year Ended April 30, | |||||||||
Class C Shares |
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 |
||||
Per Share Data ($): |
||||||||||
Net asset value, beginning of period |
11.31 |
11.52 |
11.27 |
11.49 |
11.95 |
11.70 |
||||
Investment Operations: |
||||||||||
Investment income—neta |
.02 |
.15 |
.18 |
.19 |
.20 |
.22 |
||||
Net realized and unrealized |
.47 |
(.22) |
.25 |
(.22) |
(.46) |
.24 |
||||
Total from Investment Operations |
.49 |
(.07) |
.43 |
(.03) |
(.26) |
.46 |
||||
Distributions: |
||||||||||
Dividends from investment |
(.02) |
(.14) |
(.18) |
(.19) |
(.20) |
(.21) |
||||
Dividends from net realized |
− |
− |
− |
− |
(.00)b |
− |
||||
Total Distributions |
(.02) |
(.14) |
(.18) |
(.19) |
(.20) |
(.21) |
||||
Net asset value, end of period |
11.78 |
11.31 |
11.52 |
11.27 |
11.49 |
11.95 |
||||
Total Return (%)c |
4.34d |
(.64) |
3.83 |
(.22) |
(2.27) |
4.01 |
||||
Ratios/Supplemental Data (%): |
||||||||||
Ratio of total expenses to |
2.42e |
1.99 |
1.93 |
1.81 |
1.76 |
1.75 |
||||
Ratio of net expenses to |
2.42e |
1.99 |
1.93 |
1.80 |
1.76 |
1.75 |
||||
Ratio of net investment income to |
.27e |
1.27 |
1.57 |
1.63 |
1.69 |
1.84 |
||||
Portfolio Turnover Rate |
6.28d |
16.48 |
4.67 |
10.68 |
11.70 |
12.60 |
||||
Net Assets, end of period ($ x 1,000) |
14 |
109 |
330 |
367 |
1,472 |
1,478 |
a Based on average shares outstanding.
b Amount represents less than $.01 per share.
c Exclusive of sales charge.
d Not annualized.
e Annualized.
See notes to financial statements.
18
Six Months Ended |
||||||||||
October 31, 2020 |
Year Ended April 30, | |||||||||
Class Z Shares |
(Unudited) |
2020 |
2019 |
2018 |
2017 |
2016 |
||||
Per Share Data ($): |
||||||||||
Net asset value, beginning of period |
11.31 |
11.51 |
11.27 |
11.48 |
11.94 |
11.69 |
||||
Investment Operations: |
||||||||||
Investment income—neta |
.13 |
.29 |
.31 |
.31 |
.32 |
.33 |
||||
Net realized and unrealized |
.51 |
(.20) |
.24 |
(.21) |
(.46) |
.25 |
||||
Total from Investment Operations |
.64 |
.09 |
.55 |
.10 |
(.14) |
.58 |
||||
Distributions: |
||||||||||
Dividends from investment |
(.13) |
(.29) |
(.31) |
(.31) |
(.32) |
(.33) |
||||
Dividends from net realized |
− |
− |
− |
− |
(.00)b |
− |
||||
Total Distributions |
(.13) |
(.29) |
(.31) |
(.31) |
(.32) |
(.33) |
||||
Net asset value, end of period |
11.82 |
11.31 |
11.51 |
11.27 |
11.48 |
11.94 |
||||
Total Return (%) |
5.70c |
.69 |
4.96 |
.95 |
(1.26) |
5.07 |
||||
Ratios/Supplemental Data (%): |
||||||||||
Ratio of total expenses to |
.72d |
.78 |
.76 |
.78 |
.73 |
.73 |
||||
Ratio of net expenses to |
.72d |
.78 |
.76 |
.77 |
.72 |
.73 |
||||
Ratio of net investment income to |
2.25d |
2.45 |
2.74 |
2.69 |
2.72 |
2.85 |
||||
Portfolio Turnover Rate |
6.28c |
16.48 |
4.67 |
10.68 |
11.70 |
12.60 |
||||
Net Assets, end of period ($ x 1,000) |
104,582 |
100,923 |
112,958 |
118,120 |
125,381 |
143,453 |
a Based on average shares outstanding.
b Amount represents less than $.01 per share.
c Not annualized.
d Annualized.
See notes to financial statements.
19
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 “Company”), 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.
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 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 ten 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. 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 Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under
20
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 Company 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.).
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.
21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Company’s Board of Trustees (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). Debt 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. All of the preceding securities are generally categorized within Level 2 of the fair value hierarchy.
The Service is engaged under the general oversight of the Board.
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.
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, 2020 in valuing the fund’s investments:
22
Level 1 - Unadjusted Quoted Prices |
Level 2 - Other Significant Observable Inputs |
Level 3 -Significant Unobservable Inputs |
Total | ||
Assets ($) |
|||||
Investments in Securities;† |
|||||
Municipal Securities |
- |
126,357,887 |
- |
126,357,887 |
† 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) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies 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. 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.
23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) Dividends and distributions to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. 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, 2020, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended October 31, 2020, the fund did not incur any interest or penalties.
Each tax year in the three-year period ended April 30, 2020 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, 2020 was as follows: tax-exempt income $3,254,591. 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”), 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 London Interbank Offered Rate (“LIBOR”) and other IBOR-based reference rates (change to “other interbank offered rates”) as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications
24
as a result of the reference rate reform. Management is also currently actively working with other financial institutions and counterparties to modify contracts as required by applicable regulation and within the regulatory deadlines.
NOTE 2—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 The Bank of New York Mellon (the “BNYM Credit Facility”), a subsidiary of BNY Mellon and an affiliate of the Adviser, 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. Prior to September 30, 2020, the Citibank Credit Facility was $927 million with Tranche A available in an amount equal to $747 million and Tranche B available in an amount equal to $180 million. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2020, the fund did not borrow under the Facilities.
NOTE 3—Management Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Adviser, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
During the period ended October 31, 2020, the Distributor retained $63 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. During the period ended October 31, 2020, Class C shares were charged $252 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
25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2020, Class A and Class C shares were charged $29,264 and $84, 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 the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class Z shares and providing reports and other information, and services related to the maintenance of shareholder accounts. During the period ended October 31, 2020, Class Z shares were charged $0 pursuant to the Shareholder Services Plan.
The fund has arrangements with the transfer agent and the custodian 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 net earnings credits, if any, as an expense offset in the Statement of Operations.
The fund compensates BNY Mellon Transfer, Inc., a wholly-owned subsidiary of the Adviser, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended October 31, 2020, the fund was charged $14,447 for transfer agency services. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended October 31, 2020, the fund was charged $1,473 pursuant to the custody agreement. These fees were offset by earnings credits of $1,473.
The fund compensates The Bank of New York Mellon under a shareholder redemption draft processing agreement for providing certain
26
services related to the fund’s check writing privilege. During the period ended October 31, 2020, the fund was charged $763 pursuant to the agreement, which is included in Shareholder servicing costs in the Statement of Operations.
During the period ended October 31, 2020, the fund was charged $6,796 for services performed by the Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.
The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: management fees of $60,123, Distribution Plan fees of $11, Shareholder Services Plan fees of $5,029, custodian fees of $779, Chief Compliance Officer fees of $4,546 and transfer agency fees of $5,080.
(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, 2020, amounted to $8,029,039 and $7,908,808, respectively.
At October 31, 2020, accumulated net unrealized appreciation on investments was $7,872,408, consisting of $8,049,035 gross unrealized appreciation and $176,627 gross unrealized depreciation.
At October 31, 2020, 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).
27
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on July 30, 2020, the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”). The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser. In considering the renewal of the Agreement, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the meeting and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. The Adviser also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the BNY Mellon fund complex (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or the Adviser) and the Adviser’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that the Adviser also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board also considered the Adviser’s extensive administrative, accounting and compliance infrastructures.
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 no-load and front-end 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, 2020, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of all other retail no-load and front-end load Massachusetts municipal debt funds, excluding outliers (the “Expense Universe”), the information for which was
28
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 the results of the comparisons and considered that the fund’s total return performance was below the Performance Group median for all periods, except the two- and three-year periods when it was at the median, and was at or above the Performance Universe median for all periods, except the one-, four- and ten-year periods when it was below the 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 below the Performance Universe median for nine of the ten one-year periods ended June 30th. The Board considered the relative proximity of the fund’s performance to the Performance Group and/or Performance Universe medians in certain periods when performance was below 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 provided by the Adviser. 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 and the Expense Universe actual management fee medians and the fund’s total expenses were lower than the Expense Group and Expense Universe total expenses medians.
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 that are considered to have similar investment strategies and policies as 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
29
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued)
regarding the Adviser’s approach to allocating costs to, and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation of whether the fees under the Agreement, considered in relation to the mix of services provided by the Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreement and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser 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 from acting as investment adviser 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 Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser are adequate and appropriate.
· The Board generally was satisfied with the fund’s overall performance.
· The Board concluded that the fee paid to the Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and
30
other interactions with the Adviser and its affiliates, of the Adviser and the services provided to the fund by the Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreement for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreement.
31
LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)
Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.
The rule requires the funds to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.
The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.
Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the fund’s board. Furthermore, the board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.
Assessment of Program
In the opinion of the Program Administrator, the Program approved by the fund board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.
During the period from June 1, 2019 to March 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.
32
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.
33
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
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.bnymellonim.com/us
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.bnymellonim.com/us and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2020 BNY Mellon Securities Corporation |
|
BNY Mellon State Municipal Bond Funds, BNY Mellon Pennsylvania Fund
SEMIANNUAL REPORT October 31, 2020 |
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.bnymellonim.com/us and sign up for eCommunications. It’s simple and only takes a few minutes. |
The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds. |
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value |
Contents
THE FUND
BNY Mellon Investment Adviser, Inc. |
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With Those of Other Funds |
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the Fund’s Management Agreement |
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FOR MORE INFORMATION
Back Cover
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The Fund |
A LETTER FROM THE PRESIDENT OF BNY MELLON INVESTMENT ADVISER, INC.
Dear Shareholder:
We are pleased to present this semiannual report for BNY Mellon Pennsylvania Fund, covering the six-month period from May 1, 2020 through October 31, 2020. For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Equities rallied for much of the period, fueled by continued accommodative rate policies by the U.S. Federal Reserve (the “Fed”), as well as emergency stimulus measures enacted by global central banks and governments in response to the COVID-19 pandemic and resulting economic lockdown. Stocks trended upward through the early fall. Volatility reentered the picture in September 2020 and continued through October as concerns over rising COVID-19 infection rates, continued trade tensions, the U.S. Congress’ failure to pass additional financial assistance and anxiety over the upcoming U.S. election constrained equity valuations.
Fixed-income market prices were also heavily influenced by emergency actions taken by the Fed prior to the start of the period. Severe rate cuts and a financial support package, combined with a resurgence of economic activity and the Fed’s commitment to a “lower-for-longer” rate policy, helped risk-asset prices to rise throughout the first several months of the period. Bond indices generally rose until September 2020, when investment-grade instrument prices stalled. Yields in the intermediate and long portions of the Treasury curve rose during October, further constraining prices.
We believe the near-term outlook for the U.S. will be challenging, as the country continues to battle COVID-19. As always, we will monitor relevant data for meaningful developments. We encourage you to discuss the risks and opportunities in today’s investment environment with your financial advisor.
Thank you for your continued confidence and support.
Sincerely,
Renee LaRoche-Morris
President
BNY Mellon Investment Adviser, Inc.
November 16, 2020
2
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from May 1, 2020 through October 31, 2020, as provided by Daniel Rabasco and Thomas Casey, Portfolio Managers
Market and Fund Performance Overview
For the six-month period ended October 31, 2020, Class A shares of BNY Mellon Pennsylvania Fund, a series of BNY Mellon State Municipal Bond Funds, produced a total return of 5.70%, Class C shares returned 5.25%, and Class Z shares returned 5.85%.1 In comparison, the Bloomberg Barclays 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 4.99% for the same period.2
Municipal bonds recovered from pandemic-related turmoil during the reporting period, with support from monetary and fiscal policy. The fund outperformed the Index, mainly due to sector allocation and security selection.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and from Pennsylvania 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 Pennsylvania state income taxes. The fund invests at least 70% of its assets in municipal bonds rated, at the time of purchase, investment grade (i.e., Baa/BBB or higher) or the unrated equivalent as determined by BNY Mellon Investment Adviser, Inc. 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 BNY Mellon Investment Adviser, Inc. 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.
Policy Support and Economic Recovery Aid Market Recovery
The municipal bond market recovered from unprecedented volatility that occurred earlier in 2020, when the COVID-19 virus spread, and government shutdowns caused the economy to slow dramatically. Yields on municipal bonds during this
3
DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)
period rose in response to large outflows from municipal bond mutual funds and to some illiquidity.
In response to the pandemic, the Federal Reserve (the “Fed”) made two emergency interest-rate cuts in March 2020 and launched a $500 billion Municipal Liquidity Facility (MLF) to purchase short-term municipal securities. This, combined with the $2 trillion Coronavirus Assistance, Relief, and Economic Security (CARES) Act, dramatically changed investor sentiment, which helped the municipal bond market to bounce back relatively quickly.
While new issuance dried up during the height of the crisis in the first quarter of 2020, it rebounded along with bond prices as issuers sought to take advantage of record-low funding costs. Much of the new issuance was in taxable bonds as low yields have made taxable issuance attractive to issuers. New issuance also increased because state and local governments sought to avoid the uncertainty associated with the election. The flood of new issues produced a somewhat negative effect on performance as it created a glut of supply. While lower-risk bonds outperformed prior to the reporting period during the height of the crisis, lower-quality bonds rebounded strongly once monetary and fiscal policy measures were put in place.
Like most states, Pennsylvania finances have been impacted by the coronavirus. Although the state benefits from a diverse economy and above average wealth levels, reserve levels remain low and large debt and pension liabilities leave the state vulnerable to sustained economic weakness.
Security Selection and Allocation Boosted Results
The fund’s relative performance was helped by its security selection and asset allocation strategies. Security selection in the health care/hospital segment of the market was particularly strong. As for asset allocation, the fund benefited from an overweight to revenue bonds, especially in the health care/hospital, housing and education segments. The fund’s slightly longer duration versus the Index and its yield-curve positioning, especially in intermediate bonds, also contributed positively.
On the other hand, the fund’s performance was hampered by its exposure to the transportation segment of the market. Although the fund maintained an underweight position to this segment, positions in toll road bonds and in an Altoona School District bond detracted from performance. The fund did not use derivatives during the reporting period.
Outlook Brightens
With the November 2020 election largely resolved, we remain constructive on the municipal market. We anticipate that a divided government will be beneficial to the market as no major changes to tax or fiscal policy are likely. A hike in tax rates for higher-income households is possible, but this would likely benefit the municipal bond market. The cap on the deductibility of state and local taxes may also remain,
4
which would also likely spur demand for municipal bonds. The coming year could also see an increase in environmental and infrastructure spending at the federal level, which could be a boon, and the development of a COVID-19 vaccine should also boost the economy and tax revenues. We anticipate an increase in supply in 2021, and this is also likely to benefit the market as it indicates that issuers are able to access capital markets to address any budget shortfalls.
November 16, 2020
1 Total return includes reinvestment of dividends and any capital gains paid and does not take into consideration the maximum initial sales charge in the case of Class A shares or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. 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, 2021, 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 Barclays 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.
High yield bonds involve increased credit and liquidity risk than higher-rated bonds and are considered speculative in terms of the issuer’s ability to pay interest and repay principal on a timely basis.
5
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, 2020 to October 31, 2020. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment |
| ||||
Assume actual returns for the six months ended October 31, 2020 |
| ||||
|
|
|
|
|
|
|
|
Class A |
Class C |
Class Z |
|
Expense paid per $1,000† |
$4.67 |
$9.05 |
$3.37 |
| |
Ending value (after expenses) |
$1,057.00 |
$1,052.50 |
$1,058.50 |
|
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 |
| ||||
Assuming a hypothetical 5% annualized return for the six months ended October 31, 2020 |
| ||||
|
|
|
|
|
|
|
|
Class A |
Class C |
Class Z |
|
Expense paid per $1,000† |
$4.58 |
$8.89 |
$3.31 |
| |
Ending value (after expenses) |
$1,020.67 |
$1,016.38 |
$1,021.93 |
| |
† Expenses are equal to the fund’s annualized expense ratio of .90% for Class A, 1.75% for Class C and .65% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2020 (Unaudited)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.1% |
|||||||||
Pennsylvania - 97.1% |
|||||||||
Allegheny County, GO, Ser. C74 |
5.00 |
12/1/2034 |
1,000,000 |
1,162,800 |
|||||
Allegheny County Hospital Development Authority, Revenue Bonds, Refunding (Allegheny Health Network Obligated Group) Ser. A |
5.00 |
4/1/2031 |
2,000,000 |
2,442,820 |
|||||
Allegheny County Hospital Development Authority, Revenue Bonds, Refunding (UPMC Obligated Group) Ser. A |
4.00 |
7/15/2035 |
1,000,000 |
1,141,770 |
|||||
Allentown Neighborhood Improvement Zone Development Authority, Revenue Bonds (City Center Project) |
5.00 |
5/1/2033 |
500,000 |
a |
531,880 |
||||
Allentown Neighborhood Improvement Zone Development Authority, Revenue Bonds (City Center Project) |
5.00 |
5/1/2042 |
1,000,000 |
a |
1,041,590 |
||||
Allentown School District, GO (Insured; Build America Mutual) Ser. C |
5.00 |
2/1/2037 |
1,600,000 |
1,994,432 |
|||||
Berks County Industrial Development Authority, Revenue Bonds, Refunding (Highlands at Wyomissing Obligated Group) |
5.00 |
5/15/2038 |
415,000 |
442,730 |
|||||
Berks County Industrial Development Authority, Revenue Bonds, Refunding (Highlands at Wyomissing Obligated Group) |
5.00 |
5/15/2043 |
500,000 |
529,375 |
|||||
Berks County Industrial Development Authority, Revenue Bonds, Refunding (Highlands at Wyomissing Obligated Group) |
5.00 |
5/15/2042 |
500,000 |
530,260 |
|||||
Berks County Industrial Development Authority, Revenue Bonds, Refunding (Highlands at Wyomissing Obligated Group) |
5.00 |
5/15/2047 |
600,000 |
632,778 |
|||||
Boyertown Area School District, GO (Insured; State Aid Withholding) |
5.00 |
10/1/2037 |
1,050,000 |
1,153,215 |
|||||
Centre County Hospital Authority, Revenue Bonds, Refunding (Mount Nittany Medical Center Project) Ser. A |
5.00 |
11/15/2041 |
750,000 |
848,722 |
7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.1% (continued) |
|||||||||
Pennsylvania - 97.1% (continued) |
|||||||||
Chester County Health & Education Facilities Authority, Revenue Bonds (Main Line Health System Obligated Group) Ser. A |
4.00 |
9/1/2050 |
1,000,000 |
1,129,480 |
|||||
Clairton Municipal Authority, Revenue Bonds, Refunding, Ser. B |
5.00 |
12/1/2037 |
2,000,000 |
2,129,920 |
|||||
Commonwealth Financing Authority, Revenue Bonds |
5.00 |
6/1/2034 |
1,000,000 |
1,237,910 |
|||||
Cumberland County Municipal Authority, Revenue Bonds, Refunding (Diakon Lutheran Social Ministries Project) |
5.00 |
1/1/2038 |
1,000,000 |
1,064,750 |
|||||
Dauphin County General Authority, Revenue Bonds (Pinnacle Health System Project) |
5.00 |
6/1/2042 |
3,030,000 |
3,183,379 |
|||||
Delaware County Authority, Revenue Bonds (Villanova University) |
5.00 |
8/1/2040 |
1,000,000 |
1,134,620 |
|||||
Delaware County Authority, Revenue Bonds, Refunding (Cabrini University) |
5.00 |
7/1/2042 |
1,000,000 |
1,046,340 |
|||||
Delaware River Joint Toll Bridge Commission, Revenue Bonds |
5.00 |
7/1/2032 |
1,000,000 |
1,241,610 |
|||||
Delaware River Port Authority, Revenue Bonds |
5.00 |
1/1/2037 |
3,000,000 |
3,345,720 |
|||||
Delaware Valley Regional Finance Authority, Revenue Bonds, Ser. B, 1 Month MUNIPSA +.42% |
0.54 |
9/1/2022 |
2,000,000 |
b |
1,988,440 |
||||
Dover Area School District, GO (Insured; Build America Mutual) |
5.00 |
4/1/2036 |
800,000 |
969,448 |
|||||
Dover Area School District, GO (Insured; Build America Mutual) |
5.00 |
4/1/2035 |
1,000,000 |
1,219,030 |
|||||
East Hempfield Township Industrial Development Authority, Revenue Bonds, Refunding (Willow Valley Communities Project) |
5.00 |
12/1/2039 |
600,000 |
665,358 |
|||||
Franklin County Industrial Development Authority, Revenue Bonds (Menno-Haven Project) |
5.00 |
12/1/2049 |
500,000 |
517,785 |
|||||
Franklin County Industrial Development Authority, Revenue Bonds, Refunding (Menno-Haven Project) |
5.00 |
12/1/2048 |
1,000,000 |
1,036,260 |
|||||
Geisinger Authority, Revenue Bonds, Refunding (Geisinger Health System Obligated Group) |
5.00 |
4/1/2030 |
1,000,000 |
1,290,630 |
8
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.1% (continued) |
|||||||||
Pennsylvania - 97.1% (continued) |
|||||||||
Geisinger Authority, Revenue Bonds, Refunding (Geisinger Health System Obligated Group) Ser. A |
5.00 |
6/1/2041 |
2,500,000 |
2,780,650 |
|||||
Lancaster County Hospital Authority, Revenue Bonds, Refunding (Brethren Village Project) |
5.13 |
7/1/2037 |
1,000,000 |
1,054,990 |
|||||
Lancaster County Hospital Authority, Revenue Bonds, Refunding (Masonic Villages of the Grand Lodge) |
5.00 |
11/1/2035 |
1,000,000 |
1,100,290 |
|||||
Lancaster County Hospital Authority, Revenue Bonds, Refunding (The University of Pennsylvania Health System Obligated Group) |
5.00 |
8/15/2042 |
1,800,000 |
2,103,048 |
|||||
Luzerne County Industrial Development Authority, Revenue Bonds, Refunding (Pennsylvania-American Water Co.) |
2.45 |
12/3/2029 |
1,750,000 |
1,887,042 |
|||||
Montgomery County Higher Education & Health Authority, Revenue Bonds, Refunding (Philadelphia Presbytery Homes Project) |
5.00 |
12/1/2047 |
1,000,000 |
1,064,890 |
|||||
Montgomery County Higher Education & Health Authority, Revenue Bonds, Refunding (Thomas Jefferson University Project) |
4.00 |
9/1/2034 |
1,000,000 |
1,110,990 |
|||||
Montgomery County Industrial Development Authority, Revenue Bonds, Refunding (ACTS Retirement-Life Communities Obligated Group) |
5.00 |
11/15/2036 |
3,200,000 |
3,647,360 |
|||||
Montgomery County Industrial Development Authority, Revenue Bonds, Refunding (Meadowood Senior Living Project) Ser. A |
5.00 |
12/1/2048 |
1,000,000 |
1,064,250 |
|||||
Montgomery County Industrial Development Authority, Revenue Bonds, Refunding (Waverly Heights Project) |
5.00 |
12/1/2049 |
500,000 |
550,640 |
|||||
Pennsylvania, COP, Refunding, Ser. A |
5.00 |
7/1/2034 |
1,000,000 |
1,232,360 |
|||||
Pennsylvania, GO |
4.00 |
3/1/2037 |
1,525,000 |
1,760,323 |
|||||
Pennsylvania Economic Development Financing Authority, Revenue Bonds (Greed Bond) (Covanta Project) |
3.25 |
8/1/2039 |
850,000 |
a |
788,775 |
9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.1% (continued) |
|||||||||
Pennsylvania - 97.1% (continued) |
|||||||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (Drexel University) |
5.00 |
5/1/2035 |
1,750,000 |
2,024,977 |
|||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (Drexel University) |
5.00 |
5/1/2041 |
1,000,000 |
1,173,880 |
|||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (Thomas Jefferson University Obligated Group) Ser. A |
5.00 |
9/1/2030 |
1,170,000 |
1,337,848 |
|||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (Thomas Jefferson University Obligated Group) Ser. A |
5.00 |
9/1/2045 |
1,500,000 |
1,665,645 |
|||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (University of Sciences) |
5.00 |
11/1/2031 |
1,000,000 |
1,070,550 |
|||||
Pennsylvania Housing Finance Agency, Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) Ser. A |
5.00 |
12/1/2025 |
1,210,000 |
1,214,320 |
|||||
Pennsylvania Turnpike Commission, Revenue Bonds, Refunding |
5.00 |
12/1/2036 |
3,000,000 |
3,558,660 |
|||||
Pennsylvania Turnpike Commission, Revenue Bonds, Refunding, Ser. A |
5.00 |
12/1/2032 |
3,000,000 |
3,650,850 |
|||||
Pennsylvania Turnpike Commission, Revenue Bonds, Ser. B |
5.00 |
12/1/2036 |
1,605,000 |
1,868,734 |
|||||
Pennsylvania Turnpike Commission, Revenue Bonds, Ser. B |
5.25 |
12/1/2048 |
1,000,000 |
1,204,040 |
|||||
Pennsylvania Turnpike Commission, Revenue Bonds, Ser. C |
5.00 |
12/1/2043 |
600,000 |
655,308 |
|||||
Philadelphia Airport, Revenue Bonds, Refunding, Ser. A |
5.00 |
6/15/2035 |
2,000,000 |
2,250,720 |
|||||
Philadelphia Airport, Revenue Bonds, Refunding, Ser. B |
5.00 |
7/1/2047 |
1,500,000 |
1,696,320 |
|||||
Philadelphia Gas Works, Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) Ser. A |
4.00 |
8/1/2045 |
1,000,000 |
1,135,360 |
|||||
Philadelphia Gas Works, Revenue Bonds, Refunding |
5.00 |
8/1/2031 |
1,000,000 |
1,171,150 |
|||||
Philadelphia Gas Works, Revenue Bonds, Refunding |
5.00 |
8/1/2032 |
1,000,000 |
1,170,140 |
10
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.1% (continued) |
|||||||||
Pennsylvania - 97.1% (continued) |
|||||||||
Philadelphia Housing Authority, Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) Ser. A |
5.00 |
12/1/2021 |
1,685,000 |
1,691,049 |
|||||
Philadelphia Industrial Development Authority, Revenue Bonds (Children's Hospital of Philadelphia Project) Ser. A |
5.00 |
7/1/2042 |
3,000,000 |
3,333,420 |
|||||
Philadelphia Industrial Development Authority, Revenue Bonds (Housing-University Square Apartments Project) |
5.00 |
12/1/2037 |
1,250,000 |
1,436,562 |
|||||
Philadelphia Industrial Development Authority, Revenue Bonds, Refunding (St. Joseph's University) |
4.00 |
11/1/2045 |
1,000,000 |
1,084,170 |
|||||
Philadelphia Industrial Development Authority, Revenue Bonds, Refunding (Thomas Jefferson University Obligated Group) Ser. A |
5.00 |
9/1/2047 |
1,000,000 |
1,134,040 |
|||||
Philadelphia Industrial Development Authority, Revenue Bonds, Refunding, Ser. 2015 |
5.00 |
4/1/2045 |
1,500,000 |
1,682,940 |
|||||
Philadelphia Water & Wastewater, Revenue Bonds, Ser. A |
5.00 |
11/1/2050 |
1,000,000 |
1,250,250 |
|||||
Pittsburgh, GO (Insured; Build America Mutual) |
5.00 |
9/1/2024 |
1,585,000 |
c |
1,868,303 |
||||
Pittsburgh Urban Redevelopment Authority, Revenue Bonds (West Park Court Housing) (Insured; Government National Mortgage Association) |
4.90 |
11/20/2047 |
1,130,000 |
1,131,898 |
|||||
Pittsburgh Water & Sewer Authority, Revenue Bonds, Refunding (Insured: Assured Guaranty Municipal Corp.) Ser. B |
4.00 |
9/1/2034 |
1,305,000 |
1,535,385 |
|||||
Pittsburgh Water & Sewer Authority, Revenue Bonds, Refunding (Insured: Assured Guaranty Municipal Corp.) Ser. B |
5.00 |
9/1/2033 |
500,000 |
693,090 |
|||||
Quaker Valley School District, GO, Refunding (Insured; State Aid Withholding) |
5.00 |
10/1/2033 |
330,000 |
436,006 |
|||||
Quaker Valley School District, GO, Refunding (Insured; State Aid Withholding) |
5.00 |
10/1/2034 |
400,000 |
527,044 |
|||||
Quaker Valley School District, GO, Refunding (Insured; State Aid Withholding) |
5.00 |
10/1/2035 |
350,000 |
459,221 |
11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.1% (continued) |
|||||||||
Pennsylvania - 97.1% (continued) |
|||||||||
Southcentral Pennsylvania General Authority, Revenue Bonds, Refunding (WellSpan Health Obligated Group) |
5.00 |
6/1/2044 |
1,000,000 |
1,214,150 |
|||||
State Public School Building Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. A |
5.00 |
12/1/2032 |
1,525,000 |
1,828,444 |
|||||
State Public School Building Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. A |
5.00 |
12/1/2026 |
475,000 |
c |
603,450 |
||||
State Public School Building Authority, Revenue Bonds, Refunding (Montgomery County Community College) |
5.00 |
5/1/2038 |
1,115,000 |
1,228,641 |
|||||
Susquehanna Area Regional Airport Authority, Revenue Bonds, Refunding, Ser. B |
4.00 |
1/1/2033 |
1,300,000 |
1,289,561 |
|||||
The Canonsburg-Houston Joint Authority, Revenue Bonds, Ser. A |
5.00 |
12/1/2040 |
2,000,000 |
2,348,480 |
|||||
The Philadelphia School District, GO (Insured; State Aid Withholding) Ser. A |
5.00 |
9/1/2044 |
1,000,000 |
1,208,210 |
|||||
The Philadelphia School District, GO (Insured; State Aid Withholding) Ser. B |
5.00 |
9/1/2043 |
1,000,000 |
1,189,740 |
|||||
The Philadelphia School District, GO, Refunding (Insured; State Aid Withholding) Ser. F |
5.00 |
9/1/2038 |
1,000,000 |
1,180,630 |
|||||
Westmoreland County Municipal Authority, Revenue Bonds, Refunding (Insured; Build America Mutual) |
5.00 |
8/15/2042 |
1,000,000 |
1,170,360 |
|||||
Wilkes-Barre Finance Authority, Revenue Bonds, Refunding (University of Scranton) Ser. A |
5.00 |
11/1/2034 |
1,000,000 |
1,145,970 |
|||||
115,318,176 |
12
Description |
Coupon |
Maturity |
Principal |
Value ($) |
|||||
Long-Term Municipal Investments - 98.1% (continued) |
|||||||||
U.S. Related - 1.0% |
|||||||||
Puerto Rico Highway & Transportation Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. CC |
5.25 |
7/1/2034 |
1,000,000 |
1,156,160 |
|||||
Total Investments (cost $110,930,203) |
98.1% |
116,474,336 |
|||||||
Cash and Receivables (Net) |
1.9% |
2,276,829 |
|||||||
Net Assets |
100.0% |
118,751,165 |
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, 2020, these securities were valued at $2,362,245 or 1.99% of net assets.
b Variable rate security—rate shown is the interest rate in effect at period end.
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.
Portfolio Summary (Unaudited) † |
Value (%) |
Medical |
18.3 |
Transportation |
14.0 |
Education |
13.8 |
Nursing Homes |
11.7 |
School District |
8.7 |
Water |
7.5 |
Utilities |
4.7 |
Multifamily Housing |
4.6 |
Airport |
4.4 |
General Obligation |
2.5 |
General |
2.4 |
Prerefunded |
2.1 |
Facilities |
1.7 |
Tobacco Settlement |
1.0 |
Development |
.7 |
98.1 |
† Based on net assets.
See notes to financial statements.
13
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 |
CIFG |
CDC Ixis Financial Guaranty |
COP |
Certificate of Participation |
CP |
Commercial Paper |
DRIVERS |
Derivative Inverse Tax-Exempt Receipts |
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 |
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.
14
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2020 (Unaudited)
|
|
|
|
|
|
|
|
|
|
Cost |
|
Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments |
110,930,203 |
|
116,474,336 |
| ||
Cash |
|
|
|
|
989,114 |
|
Interest receivable |
|
1,625,989 |
| |||
Receivable for shares of Beneficial Interest subscribed |
|
840 |
| |||
Prepaid expenses |
|
|
|
|
13,575 |
|
|
|
|
|
|
119,103,854 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
|
75,872 |
| |||
Payable for shares of Beneficial Interest redeemed |
|
234,460 |
| |||
Trustees’ fees and expenses payable |
|
1,671 |
| |||
Other accrued expenses |
|
|
|
|
40,686 |
|
|
|
|
|
|
352,689 |
|
Net Assets ($) |
|
|
118,751,165 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
|
112,261,721 |
|
Total distributable earnings (loss) |
|
|
|
|
6,489,444 |
|
Net Assets ($) |
|
|
118,751,165 |
|
Net Asset Value Per Share |
Class A |
Class C |
Class Z |
|
Net Assets ($) |
84,883,563 |
1,261,505 |
32,606,097 |
|
Shares Outstanding |
5,194,134 |
77,161 |
1,995,607 |
|
Net Asset Value Per Share ($) |
16.34 |
16.35 |
16.34 |
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
15
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2020 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Interest Income |
|
|
1,968,409 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
|
335,433 |
| ||
Shareholder servicing costs—Note 3(c) |
|
|
137,975 |
| ||
Professional fees |
|
|
43,997 |
| ||
Registration fees |
|
|
17,156 |
| ||
Prospectus and shareholders’ reports |
|
|
8,436 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
|
6,796 |
| ||
Trustees’ fees and expenses—Note 3(d) |
|
|
5,660 |
| ||
Distribution fees—Note 3(b) |
|
|
4,947 |
| ||
Loan commitment fees—Note 2 |
|
|
2,376 |
| ||
Custodian fees—Note 3(c) |
|
|
1,413 |
| ||
Miscellaneous |
|
|
11,844 |
| ||
Total Expenses |
|
|
576,033 |
| ||
Less—reduction in expenses due to undertaking—Note 3(a) |
|
|
(60,658) |
| ||
Less—reduction in fees due to earnings credits—Note 3(c) |
|
|
(1,413) |
| ||
Net Expenses |
|
|
513,962 |
| ||
Investment Income—Net |
|
|
1,454,447 |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments |
370,424 |
| ||||
Net change in unrealized appreciation (depreciation) on investments |
4,923,407 |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
|
5,293,831 |
| ||
Net Increase in Net Assets Resulting from Operations |
|
6,748,278 |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
16
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Year Ended |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Investment income—net |
|
|
1,454,447 |
|
|
|
3,153,330 |
| |
Net realized gain (loss) on investments |
|
370,424 |
|
|
|
1,318,515 |
| ||
Net change in unrealized appreciation |
|
4,923,407 |
|
|
|
(3,500,382) |
| ||
Net Increase (Decrease) in Net Assets |
6,748,278 |
|
|
|
971,463 |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
|
(1,014,278) |
|
|
|
(2,825,729) |
| |
Class C |
|
|
(9,733) |
|
|
|
(39,909) |
| |
Class Z |
|
|
(431,444) |
|
|
|
(1,167,331) |
| |
Total Distributions |
|
|
(1,455,455) |
|
|
|
(4,032,969) |
| |
Beneficial Interest Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
|
3,464,415 |
|
|
|
3,067,668 |
| |
Class C |
|
|
3,080 |
|
|
|
11,182 |
| |
Class Z |
|
|
704,430 |
|
|
|
1,878,425 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
|
880,716 |
|
|
|
2,456,575 |
| |
Class C |
|
|
9,589 |
|
|
|
38,942 |
| |
Class Z |
|
|
348,568 |
|
|
|
956,167 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
|
(6,856,030) |
|
|
|
(9,277,452) |
| |
Class C |
|
|
(282,905) |
|
|
|
(465,212) |
| |
Class Z |
|
|
(1,974,982) |
|
|
|
(3,787,717) |
| |
Increase (Decrease) in Net Assets |
(3,703,119) |
|
|
|
(5,121,422) |
| |||
Total Increase (Decrease) in Net Assets |
1,589,704 |
|
|
|
(8,182,928) |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
|
117,161,461 |
|
|
|
125,344,389 |
| |
End of Period |
|
|
118,751,165 |
|
|
|
117,161,461 |
|
17
STATEMENT OF CHANGES IN NET ASSETS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Year Ended |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Class Aa,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
214,240 |
|
|
|
186,921 |
| |
Shares issued for distributions reinvested |
|
|
54,011 |
|
|
|
150,345 |
| |
Shares redeemed |
|
|
(419,073) |
|
|
|
(567,694) |
| |
Net Increase (Decrease) in Shares Outstanding |
(150,822) |
|
|
|
(230,428) |
| |||
Class Cb |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
187 |
|
|
|
690 |
| |
Shares issued for distributions reinvested |
|
|
588 |
|
|
|
2,382 |
| |
Shares redeemed |
|
|
(17,694) |
|
|
|
(28,482) |
| |
Net Increase (Decrease) in Shares Outstanding |
(16,919) |
|
|
|
(25,410) |
| |||
Class Za |
|
|
|
|
|
|
|
| |
Shares sold |
|
|
43,310 |
|
|
|
115,093 |
| |
Shares issued for distributions reinvested |
|
|
21,380 |
|
|
|
58,528 |
| |
Shares redeemed |
|
|
(121,268) |
|
|
|
(232,933) |
| |
Net Increase (Decrease) in Shares Outstanding |
(56,578) |
|
|
|
(59,312) |
| |||
|
|
|
|
|
|
|
|
|
|
a During the period ended April 30, 2020, 2,719 Class A shares representing $44,863 were exchanged for 2,722 Class Z shares. |
|||||||||
b During the period ended October 31, 2020, 4,621 Class C shares representing $73,148 were automatically converted to 4,621 Class A shares and during the period ended April 30, 2020, 6,340 Class C shares representing $104,538 were automatically converted to 6,346 Class A shares. |
|||||||||
See notes to financial statements. |
18
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund’s financial statements.
Six Months Ended |
||||||||||
Class A Shares |
October 31, 2020 |
Year Ended April 30, | ||||||||
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 | |||||
Per Share Data ($): |
||||||||||
Net asset value, beginning of period |
15.64 |
16.06 |
15.84 |
16.15 |
16.74 |
16.34 | ||||
Investment Operations: |
||||||||||
Investment income—neta |
.19 |
.41 |
.42 |
.43 |
.47 |
.51 | ||||
Net realized and unrealized |
.70 |
(.30) |
.35 |
(.03) |
(.50) |
.40 | ||||
Total from Investment Operations |
.89 |
.11 |
.77 |
.40 |
(.03) |
.91 | ||||
Distributions: |
||||||||||
Dividends from |
(.19) |
(.41) |
(.42) |
(.43) |
(.46) |
(.51) | ||||
Dividends from net realized |
- |
(.12) |
(.13) |
(.28) |
(.10) |
- | ||||
Total Distributions |
(.19) |
(.53) |
(.55) |
(.71) |
(.56) |
(.51) | ||||
Net asset value, end of period |
16.34 |
15.64 |
16.06 |
15.84 |
16.15 |
16.74 | ||||
Total Return (%)b |
5.70c |
.55 |
4.97 |
2.44 |
(.16) |
5.66 | ||||
Ratios/Supplemental Data (%): |
||||||||||
Ratio of total expenses |
1.00d |
1.01 |
1.00 |
.98 |
.96 |
.95 | ||||
Ratio of net expenses |
.90d |
.94 |
1.00 |
.98 |
.96 |
.95 | ||||
Ratio of net investment income |
2.32d |
2.48 |
2.65 |
2.62 |
2.82 |
3.13 | ||||
Portfolio Turnover Rate |
3.12c |
14.71 |
8.53 |
15.24 |
20.97 |
12.49 | ||||
Net Assets, end of period ($ x 1,000) |
84,884 |
83,598 |
89,527 |
92,964 |
100,228 |
107,889 |
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 C Shares |
October 31, 2020 |
Year Ended April 30, | ||||||||
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 | |||||
Per Share Data ($): |
||||||||||
Net asset value, beginning of period |
15.65 |
16.06 |
15.84 |
16.15 |
16.75 |
16.34 | ||||
Investment Operations: |
||||||||||
Investment income—neta |
.12 |
.27 |
.29 |
.30 |
.34 |
.39 | ||||
Net realized and unrealized |
.70 |
(.29) |
.35 |
(.03) |
(.51) |
.40 | ||||
Total from Investment Operations |
.82 |
(.02) |
.64 |
.27 |
(.17) |
.79 | ||||
Distributions: |
||||||||||
Dividends from |
(.12) |
(.27) |
(.29) |
(.30) |
(.33) |
(.38) | ||||
Dividends from net realized |
- |
(.12) |
(.13) |
(.28) |
(.10) |
- | ||||
Total Distributions |
(.12) |
(.39) |
(.42) |
(.58) |
(.43) |
(.38) | ||||
Net asset value, end of period |
16.35 |
15.65 |
16.06 |
15.84 |
16.15 |
16.75 | ||||
Total Return (%)b |
5.25c |
(.22) |
4.12 |
1.63 |
(.98) |
4.93 | ||||
Ratios/Supplemental Data (%): |
||||||||||
Ratio of total expenses |
1.85d |
1.84 |
1.82 |
1.76 |
1.73 |
1.72 | ||||
Ratio of net expenses |
1.75d |
1.77 |
1.82 |
1.76 |
1.73 |
1.72 | ||||
Ratio of net investment income |
1.47d |
1.66 |
1.83 |
1.83 |
2.05 |
2.36 | ||||
Portfolio Turnover Rate |
3.12c |
14.71 |
8.53 |
15.24 |
20.97 |
12.49 | ||||
Net Assets, end of period ($ x 1,000) |
1,262 |
1,472 |
1,920 |
2,511 |
4,445 |
4,913 |
a Based on average shares outstanding.
b Exclusive of sales charge.
c Not annualized.
d Annualized.
See notes to financial statements.
20
Six Months Ended |
||||||||||
Class Z Shares |
October 31, 2020 |
Year Ended April 30, | ||||||||
(Unaudited) |
2020 |
2019 |
2018 |
2017 |
2016 | |||||
Per Share Data ($): |
||||||||||
Net asset value, beginning of period |
15.64 |
16.05 |
15.83 |
16.15 |
16.74 |
16.33 | ||||
Investment Operations: |
||||||||||
Investment income—neta |
.21 |
.44 |
.45 |
.46 |
.50 |
.55 | ||||
Net realized and unrealized gain |
.70 |
(.29) |
.35 |
(.04) |
(.49) |
.40 | ||||
Total from Investment Operations |
.91 |
.15 |
.80 |
.42 |
.01 |
.95 | ||||
Distributions: |
||||||||||
Dividends from |
(.21) |
(.44) |
(.45) |
(.46) |
(.50) |
(.54) | ||||
Dividends from net realized |
- |
(.12) |
(.13) |
(.28) |
(.10) |
- | ||||
Total Distributions |
(.21) |
(.56) |
(.58) |
(.74) |
(.60) |
(.54) | ||||
Net asset value, end of period |
16.34 |
15.64 |
16.05 |
15.83 |
16.15 |
16.74 | ||||
Total Return (%) |
5.85b |
.82 |
5.18 |
2.66 |
.01 |
5.95 | ||||
Ratios/Supplemental Data (%): |
||||||||||
Ratio of total expenses |
.75c |
.80 |
.82 |
.76 |
.73 |
.74 | ||||
Ratio of net expenses |
.65c |
.73 |
.82 |
.76 |
.73 |
.74 | ||||
Ratio of net investment income |
2.58c |
2.69 |
2.85 |
2.83 |
3.05 |
3.34 | ||||
Portfolio Turnover Rate |
3.12b |
14.71 |
8.53 |
15.24 |
20.97 |
12.49 | ||||
Net Assets, end of period ($ x 1,000) |
32,606 |
32,091 |
33,898 |
35,676 |
49,560 |
51,559 |
a Based on average shares outstanding.
b Not annualized.
c Annualized.
See notes to financial statements.
21
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
BNY Mellon Pennsylvania Fund (the “fund”) is a separate non-diversified series of BNY Mellon State Municipal Bond Funds (the “Company”), 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.
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 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 ten 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. 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 Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under
22
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 Company 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.).
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.
23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Company’s Board of Trustees (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). Debt 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. All of the preceding securities are generally categorized within Level 2 of the fair value hierarchy.
The Service is engaged under the general oversight of the Board.
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.
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, 2020 in valuing the fund’s investments:
24
Level 1 - Unadjusted Quoted Prices |
Level 2 - Other Significant Observable Inputs |
Level 3 -Significant Unobservable Inputs |
Total | |
Assets ($) |
||||
Investments in Securities: † |
||||
Municipal Securities |
- |
116,474,336 |
- |
116,474,336 |
† 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) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies 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. 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.
25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) Dividends and distributions to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. 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, 2020, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended October 31, 2020, the fund did not incur any interest or penalties.
Each tax year in the three-year period ended April 30, 2020 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, 2020 was as follows: tax-exempt income $3,149,964 and long-term capital gains $883,005. 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”), 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 London Interbank Offered Rate (“LIBOR”) and other IBOR-based reference rates (change to “other interbank offered rates”) as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications
26
as a result of the reference rate reform. Management is also currently actively working with other financial institutions and counterparties to modify contracts as required by applicable regulation and within the regulatory deadlines.
NOTE 2—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 The Bank of New York Mellon (the “BNYM Credit Facility”), a subsidiary of BNY Mellon and an affiliate of the Adviser, 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. Prior to September 30, 2020, the Citibank Credit Facility was $927 million with Tranche A available in an amount equal to $747 million and Tranche B available in an amount equal to $180 million. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2020, the fund did not borrow under the Facilities.
NOTE 3—Management Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Adviser, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly. The Adviser has contractually agreed, from May 1, 2020 through September 1, 2021, 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, 2021, the Adviser may terminate this waiver agreement at any time. The reduction in management fees, pursuant to the undertaking, amounted to $60,658 during the period ended October 31, 2020.
During the period ended October 31, 2020, the Distributor retained $322 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
27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
annual rate of .75% of the value of its average daily net assets. During the period ended October 31, 2020, Class C shares were charged $4,947 pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2020, Class A and Class C shares were charged $109,169 and $1,649, 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 the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class Z shares and providing reports and other information, and services related to the maintenance of shareholder accounts. During the period ended October 31, 2020, Class Z shares were charged $0 pursuant to the Shareholder Services Plan.
The fund has arrangements with the transfer agent and the custodian 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 net earnings credits, if any, as an expense offset in the Statement of Operations.
The fund compensates BNY Mellon Transfer, Inc., a wholly-owned subsidiary of the Adviser, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended October 31, 2020, the fund was charged $12,570 for transfer agency services. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity.
28
During the period ended October 31, 2020, the fund was charged $1,413 pursuant to the custody agreement. These fees were offset by earnings credits of $1,413.
The fund compensates The Bank of New York Mellon 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, 2020, the fund was charged $632 pursuant to the agreement, which is included in Shareholder servicing costs in the Statement of Operations.
During the period ended October 31, 2020, the fund was charged $6,796 for services performed by the Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.
The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: management fees of $55,772, Distribution Plan fees of $804, Shareholder Services Plan fees of $19,393, custodian fees of $748, Chief Compliance Officer fees of $4,546 and transfer agency fees of $4,429, which are offset against an expense reimbursement currently in effect in the amount of $9,820.
(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, 2020, amounted to $3,698,910 and $7,512,286, respectively.
At October 31, 2020, accumulated net unrealized appreciation on investments was $5,544,133, consisting of $5,793,068 gross unrealized appreciation and $248,935 gross unrealized depreciation.
At October 31, 2020, 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).
29
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on July 30, 2020, the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”). The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser. In considering the renewal of the Agreement, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the meeting and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. The Adviser also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the BNY Mellon fund complex (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or the Adviser) and the Adviser’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that the Adviser also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board also considered the Adviser’s extensive administrative, accounting and compliance infrastructures.
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 retail front-end 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, 2020, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of all other retail front-end 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
30
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 the results of the comparisons and considered that the fund’s total return performance was below the Performance Group median for all periods except the five-year period when it was above the median, and was above the Performance Universe median for all periods except the one-year period when it was below the median. The Board also considered that the fund’s yield performance was below the Performance Group median for nine of the ten one-year periods ended June 30th and below the Performance Universe median for seven of the ten one-year periods ended June 30th. The Board considered the relative proximity of the fund’s performance to the Performance Group and/or Performance Universe medians in certain periods when performance was below median. It was noted that there were only three other funds in the Performance Group (two other funds in the ten year period). The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index, and it was noted that the fund’s returns were above the returns of the index in five of the ten calendar years shown.
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 provided by the Adviser. 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 slightly higher than the Expense Group median contractual management fee, the fund’s actual management fee was slightly higher than the Expense Group and the Expense Universe actual management fee medians and the fund’s total expenses were slightly higher 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, 2021, to waive receipt of a portion of its management fees, 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 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 that are considered to have similar investment strategies and policies as the fund.
31
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued)
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 Agreement, considered in relation to the mix of services provided by the Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreement and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser 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 from acting as investment adviser 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 Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser are adequate and appropriate.
· The Board generally was satisfied with the fund’s overall performance.
· The Board concluded that the fee paid to the Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
32
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates, of the Adviser and the services provided to the fund by the Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreement for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreement.
33
LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)
Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.
The rule requires the funds to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.
The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.
Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the fund’s board. Furthermore, the board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.
Assessment of Program
In the opinion of the Program Administrator, the Program approved by the fund board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.
During the period from June 1, 2019 to March 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.
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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
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.bnymellonim.com/us
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.bnymellonim.com/us and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2020 BNY Mellon Securities Corporation |
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Item 2. Code of Ethics.
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 second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) 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/ Renee LaRoche-Morris
Renee LaRoche-Morris
President (Principal Executive Officer)
Date: December 22, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Renee LaRoche-Morris
Renee LaRoche-Morris
President (Principal Executive Officer)
Date: December 22, 2020
By: /s/ James Windels
James Windels
Treasurer (Principal Financial Officer)
Date: December 22, 2020
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)
[EX-99.CERT]—Exhibit (a)(2)
SECTION 302 CERTIFICATION
I, Renee LaRoche-Morris, certify that:
1. I have reviewed this report on Form N-CSR of BNY Mellon State Municipal Bond Funds;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
By: /s/ Renee LaRoche-Morris
Renee LaRoche-Morris
President (Principal Executive Officer)
Date: December 22, 2020
SECTION 302 CERTIFICATION
I, James Windels, certify that:
1. I have reviewed this report on Form N-CSR of BNY Mellon State Municipal Bond Funds;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
By: /s/ James Windels
James Windels
Treasurer (Principal Financial Officer)
Date: December 22, 2020
[EX-99.906CERT]
Exhibit (b)
SECTION 906 CERTIFICATIONS
In connection with this report on Form N-CSR for the Registrant as furnished to the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
By: /s/ Renee LaRoche-Morris
Renee LaRoche-Morris
President
(Principal Executive Officer)
Date: December 22, 2020
By: /s/ James Windels
James Windels
Treasurer (Principal Financial Officer)
Date: December 22, 2020
This certificate is furnished pursuant to the requirements of Form N-CSR and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.