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- 05877

 

 

 

BNY Mellon Strategic Municipal Bond Fund, Inc.

 

 

(Exact name of Registrant as specified in charter)

 

 

 

 

 

 

c/o BNY Mellon Investment Adviser, Inc.

240 Greenwich Street

New York, New York  10286

 

 

(Address of principal executive offices)        (Zip code)

 

 

 

 

 

Bennett A. MacDougall, Esq.

240 Greenwich Street

New York, New York  10286

 

 

(Name and address of agent for service)

 

 

Registrant's telephone number, including area code: 

(212) 922-6400

 

 

Date of fiscal year end:

 

11/30

 

Date of reporting period:

11/30/2020

 

 

 

 

             

 

 

 


 

FORM N-CSR

Item 1.             Reports to Stockholders.

 


 

BNY Mellon Strategic Municipal Bond Fund, Inc.

 

ANNUAL REPORT

November 30, 2020

 

 

 

BNY Mellon Strategic Municipal Bond Fund, Inc.

Protecting Your Privacy
Our Pledge to You

THE FUND IS COMMITTED TO YOUR PRIVACY. On this page, you will find the fund’s policies and practices for collecting, disclosing, and safeguarding “nonpublic personal information,” which may include financial or other customer information. These policies apply to individuals who purchase fund shares for personal, family, or household purposes, or have done so in the past. This notification replaces all previous statements of the fund’s consumer privacy policy, and may be amended at any time. We’ll keep you informed of changes as required by law.

YOUR ACCOUNT IS PROVIDED IN A SECURE ENVIRONMENT. The fund maintains physical, electronic and procedural safeguards that comply with federal regulations to guard nonpublic personal information. The fund’s agents and service providers have limited access to customer information based on their role in servicing your account.

THE FUND COLLECTS INFORMATION IN ORDER TO SERVICE AND ADMINISTER YOUR ACCOUNT. The fund collects a variety of nonpublic personal information, which may include:

 Information we receive from you, such as your name, address, and social security number.

 Information about your transactions with us, such as the purchase or sale of fund shares.

 Information we receive from agents and service providers, such as proxy voting information.

THE FUND DOES NOT SHARE NONPUBLIC PERSONAL INFORMATION WITH ANYONE, EXCEPT AS PERMITTED BY LAW.

Thank you for this opportunity to serve you.

 

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

FOR MORE INFORMATION

 

Back Cover

 

DISCUSSION OF FUND PERFORMANCE (Unaudited)

For the period of December 1, 2019 through November 30, 2020, as provided by Daniel Rabasco and Jeffrey Burger, Portfolio Managers

Fund and Market Performance Overview

For the 12-month period ended November 30, 2020, BNY Mellon Strategic Municipal Bond Fund, Inc. achieved a total return of 4.16% on a net-asset-value basis and a total return of -1.87% on a market price basis.1 Over the same period, the fund provided aggregate income dividends of $0.36 per share, which reflects a distribution rate of 4.70%.2

During the reporting period, municipal bonds bounced back from the market turmoil resulting from COVID-19 and the government efforts to contain it. The fund’s performance was driven by its duration and yield curve positioning, and its asset allocation and security selection decisions.

The Fund’s Investment Approach

The fund seeks to maximize current income exempt from federal income tax to the extent believed by BNY Mellon Investment Adviser, Inc. to be consistent with the preservation of capital. In pursuing this goal, the fund invests at least 80% of its assets in municipal bonds. Under normal market conditions, the weighted average maturity of the fund’s portfolio is expected to exceed 10 years. Under normal market conditions, the fund invests at least 80% of its net assets in municipal bonds considered investment grade or the unrated equivalent as determined by BNY Mellon Investment Adviser, Inc.

The fund also has issued auction-rate preferred stock (ARPS), a percentage of which remains outstanding from its initial public offering, and has invested the proceeds in a manner consistent with its investment objective. This, along with the fund’s participation in secondary, inverse floater structures, has the effect of “leveraging” the portfolio, which can magnify gain and loss potential depending on market conditions.

Over time, many of the fund’s older, higher-yielding bonds have matured or were redeemed by their issuers. We have attempted to replace those bonds with investments consistent with the fund’s investment policies. We have also sought to upgrade the fund with newly issued bonds that, in our opinion, have better structural or income characteristics than existing holdings. When such opportunities arise, we usually look to sell bonds that are close to their optional redemption date or maturity.

Market Continues to Recover

Early in the reporting period, the municipal bond market benefited from strong demand resulting from concerns about economic momentum. Demand was also driven by investors in states with high income-tax rates who moved into municipal bonds as a way to reduce their federal income tax liability, which rose as a result of the cap on the federal deductibility of state and local taxes in the Tax Cuts and Jobs Act of 2017.

Actions by the Federal Reserve (the “Fed”) prior to the period, including an October 2019 rate cut, also helped the municipal bond market. This contributed to a decline in yields across the municipal bond yield curve.

The municipal bond market experienced unprecedented volatility later in the reporting period, as the COVID-19 virus spread, and government shutdowns caused the economy to slow dramatically. Yields on municipal bonds had reached record lows when the pandemic hit, but

2

 

large outflows from municipal bond mutual funds, combined with illiquidity, caused yields to soar.

In response to COVID-19, the Fed made two emergency interest rate reductions in March 2020 and also launched a $500 billion Municipal Liquidity Facility (MLF) to purchase short-term municipal securities. This, 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.

While new issuance dried up during the height of the crisis in the first quarter of 2020, it rebounded along with the market, 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. Late in the reporting period, issuers sought to secure financing ahead of the November 2020 election. The market softened somewhat as a result, before recovering late in the period on robust reinvestment demand.

For the entire period, with the pandemic and its economic slowdown as a backdrop, higher-quality bonds outperformed; the investment-grade market outperformed the high-yield market; general obligation bonds outperformed revenue bonds; and AAA and AA rated bonds outperformed those with lower ratings. Demand remained strong late in the period, as both retail and institutional investors continued to find the yields attractive.

Asset Allocation and Yield Curve Positioning Hampered Fund Results

The fund’s performance was hindered by an overweight position in revenue bonds, as investors moved into higher quality general obligation bonds during the COVID-19-related turmoil. In addition, certain lower-rated general obligation bonds in the fund underperformed significantly, including those issued by the state of Illinois and the city of Chicago. Security selection overall was a negative for fund performance results as healthcare, special tax and education bonds lagged. The fund implemented a hedge by shorting long-term Treasury yields, and this also detracted from performance. The hedge was subsequently removed during the spring of 2020.

On the other hand, the fund’s performance was supported by its duration and yield curve positioning. The fund maintained a longer duration, aided by leverage, which benefited returns when interest rates declined. Also, yield curve positioning added to performance, as the fund had an overweight position in shorter bonds, and those outperformed longer bonds. In addition, security selections in the tobacco, housing and water and sewer segments did well, especially Buckeye Ohio Tobacco bonds and Phoenix, Arizona Charter Schools.

An Optimistic Investment Posture

We are relatively optimistic about the municipal bond market in the short-to-medium term. The fiscal condition of states and municipalities is better than projected, and they also have the ability to raise tax rates and implement fees, which should further support their fiscal health. Further out, we believe that widespread distribution of vaccines will lead to further opening of the economy, which will support continued recovery in the market over the long term.

The election results could also support the market. An increase in infrastructure spending could be beneficial, and states and municipalities are likely to receive more financial support under a Biden administration. In addition, if individual and corporate tax rates are raised, the tax-exempt income offered by municipal bonds could become even more attractive. At this time, we anticipate no significant change to the cap on deductibility of state and local taxes implemented in 2018, which should contribute to strong demand. The supply of tax-exempt municipal bonds should remain manageable, as a significant portion of new issuance is likely to be in taxable

3

 

DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)

municipals. We will continue to emphasize revenue bonds possessing strong fundamentals which provide attractive incremental yield to the Fund.

We expect to maintain the level of leverage in the fund and to keep the fund’s duration slightly long versus the benchmark, and we will continue to overweight revenue bonds and look for opportunities to add incremental yield.

December 15, 2020

1 Total return includes reinvestment of dividends and any capital gains paid, based upon net asset value per share or market price per share, as applicable. Past performance is no guarantee of future results. 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 fully taxable. Return figures provided reflect the absorption of certain fund expenses by BNY Mellon Investment Adviser, Inc. pursuant to an undertaking in effect through May 31, 2021, at which time it may be extended, terminated or modified. Had these expenses not been absorbed, the fund’s returns would have been lower.

2 Distribution rate per share is based upon dividends per share paid from net investment income during the period, divided by the market price per share at the end of the period, adjusted for any capital gain distributions.

Bonds are subject generally to interest-rate, credit, liquidity and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.

High-yield bonds are subject to increased credit risk and are considered speculative in terms of the issuer’s perceived ability to continue making interest payments on a timely basis and to repay principal upon maturity.

The use of leverage may magnify the fund’s gains or losses. For derivatives with a leveraging component, adverse changes in the value or level of the underlying asset can result in a loss that is much greater than the original investment in the derivative.

The fund may, but is not required to, use derivative instruments. A small investment in derivatives could have a potentially large impact on the fund’s performance. The use of derivatives involves risks different from, or possibly greater than, the risks associated with investing directly in the underlying assets.

Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others. To the extent the fund may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase the fund’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.

4

 

SELECTED INFORMATION
November 30, 2020 (Unaudited)

                             

Market Price per share November 30, 2020

 

$ 7.66

   

Shares Outstanding November 30, 2020

 

49,421,511

   

New York Stock Exchange Ticker Symbol

 

DSM

   

MARKET PRICE (NEW YORK STOCK EXCHANGE)

 

 

 

Fiscal Year Ended November 30, 2020

 

 

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Ended

 

Ended

 

Ended

 

Ended

 

February 29, 2020

 

May 31, 2020

 

August 31, 2020

 

November 30, 2020

High

$8.31

 

$8.18

 

$7.78

 

$7.66

Low

7.95

 

5.83

 

7.17

 

7.23

Close

7.95

 

7.17

 

7.52

 

7.66

PERCENTAGE GAIN (LOSS) based on change in Market Price

November 22, 1989 (commencement of operations)

through November 30, 2020

483.98%

December 1, 2010 through November 30, 2020

78.56

December 1, 2015 through November 30, 2020

26.89

December 1, 2019 through November 30, 2020

(1.87)

March 1, 2020 through November 30, 2020

(0.03)

June 1, 2020 through November 30, 2020

9.45

September 1, 2020 through November 30, 2020

3.10

         

NET ASSET VALUE PER SHARE

 

November 22, 1989 (commencement of operations)

$9.32

November 30, 2019

8.30

February 29, 2020

   

8.62

May 31, 2020

7.73

August 31, 2020

8.14

November 30, 2020

8.24

PERCENTAGE GAIN (LOSS) based on change in Net Asset Value

 

November 22, 1989 (commencement of operations)

through November 30, 2020

574.03%

December 1, 2010 through November 30, 2020

93.78

December 1, 2015 through November 30, 2020

26.33

December 1, 2019 through November 30, 2020

4.16

March 1, 2020 through November 30, 2020

(0.82)

June 1, 2020 through November 30, 2020

9.21

September 1, 2020 through November 30, 2020

2.46

With dividends reinvested.

 

5

 

STATEMENT OF INVESTMENTS
November 30, 2020

                   
 

Description

Coupon
Rate (%)

 

Maturity
Date

 

Principal
Amount ($)

 

Value ($)

 

Bonds and Notes - .3%

         

Collateralized Municipal-Backed Securities - .3%

         

Arizona Industrial Development Authority, Revenue Bonds, Ser. 2019-2
(cost $1,400,890)

 

3.63

 

5/20/2033

 

1,276,332

 

1,350,615

 
                 

Long-Term Municipal Investments - 147.5%

         

Alabama - 5.3%

         

Alabama Special Care Facilities Financing Authority, Revenue Bonds (Methodist Home for the Aging Obligated Group)

 

5.50

 

6/1/2030

 

1,800,000

 

1,889,478

 

Alabama Special Care Facilities Financing Authority, Revenue Bonds (Methodist Home for the Aging Obligated Group)

 

5.75

 

6/1/2045

 

1,250,000

 

1,278,913

 

Alabama Special Care Facilities Financing Authority, Revenue Bonds (Methodist Home for the Aging Obligated Group)

 

6.00

 

6/1/2050

 

1,500,000

 

1,548,060

 

Jefferson County, Revenue Bonds, Refunding, Ser. F

 

7.75

 

10/1/2046

 

6,000,000

a

6,048,600

 

The Lower Alabama Gas District, Revenue Bonds, Ser. A

 

5.00

 

9/1/2046

 

5,000,000

 

7,432,650

 

University of Alabama at Birmingham, Revenue Bonds, Ser. B

 

4.00

 

10/1/2036

 

2,745,000

 

3,302,400

 
 

21,500,101

 

Arizona - 7.1%

         

Arizona Industrial Development Authority, Revenue Bonds (Equitable School Revolving Fund Obligated Group) Ser. A

 

4.00

 

11/1/2050

 

1,500,000

 

1,730,280

 

Arizona Industrial Development Authority, Revenue Bonds (Legacy Cares Project) Ser. A

 

7.75

 

7/1/2050

 

4,305,000

b

4,353,776

 

Arizona Industrial Development Authority, Revenue Bonds (Phoenix Children's Hospital Obligated Group)

 

4.00

 

2/1/2050

 

1,500,000

 

1,703,070

 

Arizona Industrial Development Authority, Revenue Bonds, Refunding (BASIS Schools Projects) Ser. A

 

5.25

 

7/1/2047

 

1,500,000

b

1,655,160

 

6

 

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Arizona - 7.1% (continued)

         

Glendale Industrial Development Authority, Revenue Bonds, Refunding (Sun Health Services Obligated Group) Ser. A

 

5.00

 

11/15/2054

 

1,500,000

 

1,680,645

 

Maricopa County Industrial Development Authority, Revenue Bonds, Refunding (Legacy Traditional Schools Project)

 

5.00

 

7/1/2049

 

1,775,000

b

1,976,392

 

Salt Verde Financial Corp., Revenue Bonds

 

5.00

 

12/1/2037

 

1,345,000

 

1,903,269

 

Tender Option Bond Trust Receipts (Series 2018-XF2537), (Salt Verde Financial Corporation, Revenue Bonds) Recourse, Underlying Coupon Rate (%) 5.00

 

17.37

 

12/1/2037

 

4,550,000

b,c,d

6,345,409

 

The Phoenix Industrial Development Authority, Revenue Bonds (Legacy Traditional Schools Project) Ser. A

 

6.75

 

7/1/2044

 

1,000,000

b

1,136,580

 

The Phoenix Industrial Development Authority, Revenue Bonds, Refunding (BASIS Schools Projects) Ser. A

 

5.00

 

7/1/2046

 

3,000,000

b

3,228,300

 

The Pima County Industrial Development Authority, Revenue Bonds (American Leadership Academy Project)

 

5.00

 

6/15/2047

 

3,000,000

b

3,050,040

 
 

28,762,921

 

California - 7.4%

         

California, GO

 

6.00

 

3/1/2033

 

545,000

 

545,087

 

Golden State Tobacco Securitization Corp., Revenue Bonds, Refunding, Ser. A1

 

5.00

 

6/1/2047

 

1,000,000

 

1,032,110

 

Jefferson Union High School District, COP (Teacher & Staff Housing Project) (Insured; Build America Mutual)

 

4.00

 

8/1/2055

 

1,500,000

 

1,729,545

 

San Buenaventura, Revenue Bonds (Community Memorial Health System)

 

7.50

 

12/1/2041

 

1,500,000

 

1,588,140

 

Tender Option Bond Trust Receipts (Series 2016-XM0379), (Los Angeles Department of Water & Power, Revenue Bonds, Refunding) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.97

 

7/1/2043

 

5,000,000

b,c,d

5,349,650

 

7

 

STATEMENT OF INVESTMENTS (continued)

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

California - 7.4% (continued)

         

Tender Option Bond Trust Receipts (Series 2016-XM0387), (Los Angeles Department of Airports, Revenue Bonds (Los Angeles International Airport)) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.88

 

5/15/2038

 

6,000,000

b,c,d

6,514,605

 

Tender Option Bond Trust Receipts (Series 2016-XM0390), (The Regents of the University of California, Revenue Bonds, Refunding) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.97

 

5/15/2036

 

6,260,000

b,c,d

6,917,738

 

Tender Option Bond Trust Receipts (Series 2020-XF2876), (San Francisco California City & County Airport Commission, Revenue Bonds, Refunding) Ser. E, Recourse, Underlying Coupon Rate (%) 5.00

 

17.52

 

5/1/2050

 

5,190,000

b,c,d

6,338,212

 

30,015,087

Colorado - 6.5%

         

Belleview Station Metropolitan District No. 2, GO, Refunding

 

5.13

 

12/1/2046

 

2,375,000

 

2,433,995

 

Colorado Educational & Cultural Facilities Authority, Revenue Bonds, Refunding (Johnson & Wales University) Ser. B

 

5.00

 

4/1/2031

 

2,685,000

 

2,895,611

 

Colorado Health Facilities Authority, Revenue Bonds, Refunding (Covenant Living Communities & Services Obligated Group) Ser. A

 

4.00

 

12/1/2050

 

4,000,000

 

4,415,400

 

Denver City & County Airport System, Revenue Bonds, Refunding, Ser. A

 

5.00

 

12/1/2048

 

2,300,000

 

2,755,216

 

Dominion Water & Sanitation District, Revenue Bonds

 

6.00

 

12/1/2046

 

3,145,000

 

3,284,386

 

Sterling Ranch Community Authority Board, Revenue Bonds (Insured; Municipal Government Guaranteed) Ser. A

 

5.00

 

12/1/2047

 

1,250,000

 

1,289,225

 

Tender Option Bond Trust Receipts (Series 2016-XM0385), (Board of Governors of the Colorado State University, Revenue Bonds) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.91

 

3/1/2038

 

4,960,000

b,c,d

5,246,924

 

8

 

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Colorado - 6.5% (continued)

         

Tender Option Bond Trust Receipts (Series 2020-XM0829), (Colorado Health Facilities Authority, Revenue Bonds, Refunding (CommonSpirit Health Obligated Group)) Ser. A1, Recourse, Underlying Coupon Rate (%) 4.00

 

16.92

 

8/1/2044

 

3,260,000

b,c,d

4,329,630

 

26,650,387

Connecticut - .9%

         

Connecticut, Special Tax Bonds, Ser. A

 

5.00

 

5/1/2038

 

1,000,000

 

1,306,020

 

Connecticut Housing Finance Authority, Revenue Bonds, Refunding, Ser. A1

 

3.65

 

11/15/2032

 

2,000,000

 

2,198,720

 
 

3,504,740

 

District of Columbia - 4.2%

         

Metropolitan Washington Airports Authority, Revenue Bonds, Refunding, Ser. B

 

4.00

 

10/1/2049

 

1,000,000

 

1,117,070

 

Tender Option Bond Trust Receipts (Series 2016-XM0437), (District of Columbia, Revenue Bonds) Recourse, Underlying Coupon Rate (%) 5.00

 

17.89

 

12/1/2035

 

14,834,680

b,c,d

16,065,955

 

17,183,025

Florida - 8.8%

         

Alachua County Health Facilities Authority, Revenue Bonds (Shands Teaching Hospital & Clinics Obligated Group)

 

4.00

 

12/1/2049

 

1,600,000

 

1,790,112

 

Atlantic Beach, Revenue Bonds (Fleet Landing Project) Ser. A

 

5.00

 

11/15/2048

 

2,500,000

 

2,703,600

 

Florida Higher Educational Facilities Financial Authority, Revenue Bonds (Ringling College Project)

 

5.00

 

3/1/2049

 

2,000,000

 

2,179,820

 

Greater Orlando Aviation Authority, Revenue Bonds, Ser. A

 

4.00

 

10/1/2044

 

1,500,000

 

1,717,395

 

Lee County Industrial Development Authority, Revenue Bonds (Shell Point/Waterside Health Project)

 

5.00

 

11/15/2049

 

1,540,000

 

1,680,587

 

Mid-Bay Bridge Authority, Revenue Bonds, Ser. A

 

7.25

 

10/1/2021

 

1,800,000

e

1,904,472

 

Palm Beach County Health Facilities Authority, Revenue Bonds (ACTS Retirement-Life Communities Obligated Group)

 

5.00

 

11/15/2045

 

5,775,000

 

6,570,506

 

9

 

STATEMENT OF INVESTMENTS (continued)

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Florida - 8.8% (continued)

         

Palm Beach County Health Facilities Authority, Revenue Bonds (Lifespace Communities Obligated Group) Ser. B

 

4.00

 

5/15/2053

 

2,000,000

 

2,010,440

 

Seminole County Industrial Development Authority, Revenue Bonds, Refunding (Legacy Pointe at UCF Project)

 

5.75

 

11/15/2054

 

1,000,000

 

940,680

 

Tender Option Bond Trust Receipts (Series 2019-XF0813), (Fort Myers Florida Utility, Revenue Bonds) Non-recourse, Underlying Coupon Rate (%) 4.00

 

14.11

 

10/1/2049

 

2,980,000

b,c,d

3,463,907

 

Tender Option Bond Trust Receipts (Series 2019-XM0782), (Palm Beach County Florida Health Facilities Authority, Revenue Bonds, Refunding (Baptist Health South Florida Obligated Group)) Recourse, Underlying Coupon Rate (%) 4.00

 

13.98

 

8/15/2049

 

5,535,000

b,c,d

6,280,019

 

Tender Option Bond Trust Receipts (Series 2020-XF2877), (Greater Orlando Aviation Authority, Revenue Bonds) Ser. A, Recourse, Underlying Coupon Rate (%) 4.00

 

13.91

 

10/1/2049

 

4,065,000

b,c,d

4,602,605

 

35,844,143

Georgia - 5.4%

         

Atlanta Water & Wastewater, Revenue Bonds, Ser. D

 

3.50

 

11/1/2028

 

800,000

b

871,952

 

Tender Option Bond Trust Receipts (Series 2016-XM0435), (Private Colleges & Universities Authority, Revenue Bonds, Refunding (Emory University)) Recourse, Underlying Coupon Rate (%) 5.00

 

17.89

 

10/1/2043

 

6,000,000

b,c,d

6,600,960

 

Tender Option Bond Trust Receipts (Series 2019-XF2847), (Municipal Electric Authority of Georgia, Revenue Bonds (Plant Vogtle Unis 3&4 Project)) Ser. A, Recourse, Underlying Coupon Rate (%) 5.00

 

17.71

 

1/1/2056

 

2,720,000

b,c,d

3,243,131

 

Tender Option Bond Trust Receipts (Series 2020-XM0825), (Brookhaven Development Authority, Revenue Bonds (Children's Healthcare of Atlanta)) Ser. A, Recourse, Underlying Coupon Rate (%) 4.00

 

15.38

 

7/1/2044

 

4,220,000

b,c,d

5,265,199

 

10

 

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Georgia - 5.4% (continued)

         

The Atlanta Development Authority, Revenue Bonds, Ser. A1

 

5.25

 

7/1/2040

 

1,000,000

 

1,106,490

 

The Burke County Development Authority, Revenue Bonds, Refunding (Oglethorpe Power Corp.) Ser. D

 

4.13

 

11/1/2045

 

4,200,000

 

4,718,028

 
 

21,805,760

 

Hawaii - .7%

         

Hawaii Department of Budget & Finance, Revenue Bonds, Refunding (Hawaiian Electric Co.)

 

4.00

 

3/1/2037

 

2,500,000

 

2,684,200

 

Illinois - 14.5%

         

Chicago Board of Education, GO, Refunding, Ser. A

 

5.00

 

12/1/2033

 

1,250,000

 

1,358,063

 

Chicago Board of Education, GO, Refunding, Ser. B

 

5.00

 

12/1/2031

 

500,000

 

552,160

 

Chicago Board of Education, GO, Refunding, Ser. B

 

5.00

 

12/1/2032

 

400,000

 

438,820

 

Chicago II, GO, Refunding, Ser. A

 

6.00

 

1/1/2038

 

3,000,000

 

3,388,200

 

Chicago II, GO, Refunding, Ser. C

 

5.00

 

1/1/2024

 

1,265,000

 

1,341,064

 

Chicago II, GO, Ser. A

 

5.00

 

1/1/2044

 

3,000,000

 

3,195,150

 

Chicago II Wastewater Transmission, Revenue Bonds, Refunding, Ser. C

 

5.00

 

1/1/2039

 

2,330,000

 

2,658,344

 

Chicago O'Hare International Airport, Revenue Bonds

 

5.63

 

1/1/2035

 

580,000

 

582,558

 

Chicago O'Hare International Airport, Revenue Bonds, Refunding, Ser. A

 

5.00

 

1/1/2048

 

4,000,000

 

4,787,760

 

Chicago Transit Authority, Revenue Bonds, Refunding, Ser. A

 

5.00

 

12/1/2045

 

1,000,000

 

1,206,280

 

Illinois, GO, Refunding, Ser. A

 

5.00

 

10/1/2029

 

1,000,000

 

1,112,000

 

Illinois, GO, Refunding, Ser. A

 

5.00

 

10/1/2028

 

2,000,000

 

2,242,400

 

Illinois, GO, Ser. A

 

5.00

 

5/1/2038

 

2,850,000

 

3,066,315

 

Illinois, GO, Ser. B

 

5.00

 

11/1/2030

 

1,500,000

 

1,676,175

 

Illinois, GO, Ser. D

 

5.00

 

11/1/2028

 

3,000,000

 

3,287,400

 

Illinois Finance Authority, Revenue Bonds, Refunding (Plymouth Place Obligated Group)

 

5.25

 

5/15/2045

 

1,000,000

 

1,034,420

 

Metropolitan Pier & Exposition Authority, Revenue Bonds (McCormick Place Expansion Project)

 

5.00

 

6/15/2057

 

2,500,000

 

2,737,075

 

11

 

STATEMENT OF INVESTMENTS (continued)

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Illinois - 14.5% (continued)

         

Metropolitan Pier & Exposition Authority, Revenue Bonds (McCormick Place Project) (Insured; National Public Finance Guarantee Corp.) Ser. A

 

0.00

 

12/15/2036

 

2,500,000

f

1,462,450

 

Metropolitan Pier & Exposition Authority, Revenue Bonds, Refunding (McCormick Place Project) Ser. B

 

5.00

 

12/15/2028

 

2,500,000

 

2,603,975

 

Metropolitan Pier & Exposition Authority, Revenue Bonds, Refunding (McCormick Place Project) Ser. B

 

5.00

 

6/15/2052

 

3,550,000

 

3,637,401

 

Railsplitter Tobacco Settlement Authority, Revenue Bonds

 

6.00

 

6/1/2021

 

3,600,000

e

3,704,256

 

Sales Tax Securitization Corp., Revenue Bonds, Refunding, Ser. A

 

4.00

 

1/1/2039

 

2,250,000

 

2,483,212

 

Tender Option Bond Trust Receipts (Series 2017-XM0492), (Illinois Finance Authority, Revenue Bonds, Refunding (The University of Chicago)) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.91

 

10/1/2040

 

9,000,000

b,c,d

10,475,392

 
 

59,030,870

 

Indiana - 2.1%

         

Indiana Finance Authority, Revenue Bonds (Green Bond) (RES Polyflow Indiana)

 

7.00

 

3/1/2039

 

4,575,000

b

4,414,783

 

Indiana Finance Authority, Revenue Bonds (Parkview Health System Obligated Group) Ser. A

 

5.00

 

11/1/2043

 

3,500,000

 

4,319,385

 
 

8,734,168

 

Iowa - 1.4%

         

Iowa Finance Authority, Revenue Bonds, Refunding (Iowa Fertilizer Co. Project)

 

5.25

 

12/1/2025

 

5,125,000

 

5,573,027

 

Kentucky - 1.5%

         

Christian County, Revenue Bonds, Refunding (Jennie Stuart Medical Center Obligated Group)

 

5.50

 

2/1/2044

 

2,800,000

 

3,126,760

 

Kentucky Public Energy Authority, Revenue Bonds, Ser. A1

 

4.00

 

6/1/2025

 

2,560,000

 

2,916,966

 
 

6,043,726

 

12

 

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Louisiana - 3.0%

         

Louisiana Local Government Environmental Facilities & Community Development Authority, Revenue Bonds, Refunding (Westlake Chemical Project)

 

3.50

 

11/1/2032

 

2,400,000

 

2,629,728

 

Tender Option Bond Trust Receipts (Series 2018-XF2584), (Louisiana Public Facilities Authority, Revenue Bonds (Franciscan Missionaries of Our Lady Health System Project)) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.51

 

7/1/2047

 

8,195,000

b,c,d

9,576,331

 

12,206,059

Maine - .5%

         

Maine Health & Higher Educational Facilities Authority, Revenue Bonds (Maine General Medical Center Obligated Group)

 

7.50

 

7/1/2032

 

2,000,000

 

2,053,280

 

Maryland - 2.0%

         

Maryland Health & Higher Educational Facilities Authority, Revenue Bonds (Adventist Healthcare Obligated Group) Ser. A

 

5.50

 

1/1/2046

 

3,250,000

 

3,703,407

 

Tender Option Bond Trust Receipts (Series 2016-XM0391), (Mayor & City Council of Baltimore, Revenue Bonds, Refunding (Water Projects)) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.91

 

7/1/2042

 

4,000,000

b,c,d

4,570,680

 
 

8,274,087

 

Massachusetts - 8.7%

         

Massachusetts Development Finance Agency, Revenue Bonds, Refunding (UMass Memorial Health Care Obligated Group) Ser. K

 

5.00

 

7/1/2038

 

2,130,000

 

2,494,422

 

Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. A

 

5.00

 

7/1/2029

 

1,000,000

 

1,244,070

 

Massachusetts Development Finance Agency, Revenue Bonds, Refunding, Ser. I

 

7.25

 

1/1/2021

 

505,000

e

507,873

 

13

 

STATEMENT OF INVESTMENTS (continued)

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Massachusetts - 8.7% (continued)

         

Tender Option Bond Trust Receipts (Series 2016-XM0368), (Massachusetts Development Finance Agency, Revenue Bonds, Refunding (Harvard University)) Non-recourse, Underlying Coupon Rate (%) 5.25

 

18.93

 

2/1/2021

 

10,000,000

b,c,d

10,081,950

 

Tender Option Bond Trust Receipts (Series 2016-XM0372), (Massachusetts, GO) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.91

 

4/1/2027

 

6,400,000

b,c,d

6,500,176

 

Tender Option Bond Trust Receipts (Series 2016-XM0386), (University of Massachusetts Building Authority, Revenue Bonds, Refunding) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.89

 

5/1/2043

 

7,409,991

b,c,d

8,224,280

 

Tender Option Bond Trust Receipts (Series 2018-XF0610), (Massachusetts Transportation Fund, Revenue Bonds (Rail Enhancement & Accelerated Bridge Programs)) Non-recourse, Underlying Coupon Rate (%) 5.00

 

18.21

 

6/1/2047

 

5,250,000

b,c,d

6,396,009

 

35,448,780

Michigan - 6.4%

         

Detroit Water Supply System, Revenue Bonds, Ser. A

 

5.00

 

7/1/2021

 

3,290,000

e

3,382,745

 

Detroit Water Supply System, Revenue Bonds, Ser. A

 

5.00

 

7/1/2021

 

2,280,000

e

2,344,273

 

Great Lakes Water Authority Sewage Disposal System, Revenue Bonds, Refunding, Ser. C

 

5.00

 

7/1/2036

 

2,000,000

 

2,403,400

 

Michigan Building Authority, Revenue Bonds, Refunding

 

4.00

 

4/15/2054

 

2,500,000

 

2,869,950

 

Michigan Finance Authority, Revenue Bonds, Refunding (Insured; National Public Finance Guarantee Corp.) Ser. D6

 

5.00

 

7/1/2036

 

1,000,000

 

1,135,120

 

Michigan Strategic Fund, Revenue Bonds (AMT-I-75 Improvement Project)

 

5.00

 

6/30/2048

 

5,000,000

 

5,880,650

 

Pontiac School District, GO

 

4.00

 

5/1/2050

 

3,000,000

 

3,453,150

 

14

 

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Michigan - 6.4% (continued)

         

Tender Option Bond Trust Receipts (Series 2019-XF2837), (Michigan State Finance Authority, Revenue Bonds (Henry Ford Health System)) Recourse, Underlying Coupon Rate (%) 4.00

 

13.83

 

11/15/2050

 

3,900,000

b,c,d

4,456,745

 

25,926,033

Minnesota - 1.1%

         

Duluth Economic Development Authority, Revenue Bonds, Refunding (Essentia Health Obligated Group) Ser. A

 

5.00

 

2/15/2058

 

4,000,000

 

4,668,520

 

Missouri - 2.3%

         

Missouri Health & Educational Facilities Authority, Revenue Bonds (Lutheran Senior Services Projects) Ser. A

 

5.00

 

2/1/2042

 

1,000,000

 

1,105,030

 

Missouri Health & Educational Facilities Authority, Revenue Bonds (Lutheran Senior Services Projects) Ser. B

 

2.88

 

2/1/2022

 

1,365,000

 

1,365,027

 

Missouri Health & Educational Facilities Authority, Revenue Bonds, Refunding (Lutheran Senior Services Projects)

 

5.00

 

2/1/2046

 

1,200,000

 

1,318,188

 

St. Louis Land Clearance for Redevelopment Authority, Revenue Bonds

 

5.13

 

6/1/2046

 

4,845,000

 

5,451,642

 
 

9,239,887

 

Multi-State - .7%

         

Federal Home Loan Mortgage Corp. Multifamily Variable Rate Certificates, Revenue Bonds, Ser. M048

 

3.15

 

1/15/2036

 

2,450,000

b

2,803,878

 

Nevada - 1.6%

         

Clark County School District, GO (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

4.00

 

6/15/2039

 

950,000

 

1,125,399

 

Reno, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.)

 

4.00

 

6/1/2058

 

5,000,000

 

5,359,100

 
 

6,484,499

 

New Jersey - 4.4%

         

New Jersey, GO, Ser. A

 

4.00

 

6/1/2031

 

1,000,000

 

1,220,240

 

New Jersey Housing & Mortgage Finance Agency, Revenue Bonds, Refunding, Ser. D

 

4.00

 

10/1/2024

 

2,370,000

 

2,624,325

 

15

 

STATEMENT OF INVESTMENTS (continued)

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

New Jersey - 4.4% (continued)

         

New Jersey Transportation Trust Fund Authority, Revenue Bonds

 

5.00

 

6/15/2046

 

1,365,000

 

1,571,879

 

New Jersey Transportation Trust Fund Authority, Revenue Bonds

 

5.25

 

6/15/2043

 

1,500,000

 

1,778,940

 

South Jersey Port Corp., Revenue Bonds, Ser. B

 

5.00

 

1/1/2042

 

2,025,000

 

2,268,445

 

Tender Option Bond Trust Receipts (Series 2018-XF2538), (New Jersey Economic Development Authority, Revenue Bonds) Recourse, Underlying Coupon Rate (%) 5.25

 

18.38

 

6/15/2040

 

4,250,000

b,c,d

4,758,761

 

Tobacco Settlement Financing Corp., Revenue Bonds, Refunding, Ser. A

 

5.25

 

6/1/2046

 

1,500,000

 

1,810,320

 

Tobacco Settlement Financing Corp., Revenue Bonds, Refunding, Ser. B

 

5.00

 

6/1/2046

 

1,670,000

 

1,924,224

 

17,957,134

New York - 11.0%

         

Monroe County Industrial Development Corp., Revenue Bonds, Refunding (University of Rochester Project) Ser. A

 

4.00

 

7/1/2050

 

1,500,000

 

1,748,070

 

New York City, GO, Ser. D1

 

4.00

 

3/1/2050

 

2,500,000

 

2,892,625

 

New York City Educational Construction Fund, Revenue Bonds, Ser. A

 

6.50

 

4/1/2028

 

2,785,000

 

2,841,229

 

New York Convention Center Development Corp., Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) Ser. B

 

0.00

 

11/15/2049

 

5,600,000

f

2,179,968

 

New York Liberty Development Corp., Revenue Bonds, Refunding (Class 1-3 World Trade Center Project)

 

5.00

 

11/15/2044

 

3,400,000

b

3,524,372

 

New York State Dormitory Authority, Revenue Bonds, Refunding (Montefiore Obligated Group) Ser. A

 

4.00

 

9/1/2045

 

1,000,000

 

1,101,790

 

New York Transportation Development Corp., Revenue Bonds (LaGuardia Airport Terminal B Redevelopment Project) Ser. A

 

5.25

 

1/1/2050

 

3,000,000

 

3,295,140

 

New York Transportation Development Corp., Revenue Bonds, Refunding (JFK International Air Terminal) Ser. A

 

5.00

 

12/1/2035

 

1,100,000

 

1,355,805

 

16

 

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

New York - 11.0% (continued)

         

Niagara Area Development Corp., Revenue Bonds, Refunding (Covanta Holding Project) Ser. A

 

4.75

 

11/1/2042

 

1,000,000

b

1,027,820

 

Port Authority of New York & New Jersey, Revenue Bonds (JFK International Air Terminal Project)

 

6.00

 

12/1/2036

 

4,710,000

 

4,740,615

 

Tender Option Bond Trust Receipts (Series 2016-XM0436), (New York City Municipal Water Finance Authority, Revenue Bonds, Refunding) Recourse, Underlying Coupon Rate (%) 5.00

 

17.89

 

6/15/2044

 

12,600,000

b,c,d

13,173,111

 

Tender Option Bond Trust Receipts (Series 2020-XM0826), (Metropolitan Transportation Authority, Revenue Bonds, Refunding (Green Bond) (Insured; Assured Guaranty Municipal Corp.)) Ser. C, Non-recourse, Underlying Coupon Rate (%) 4.00

 

13.87

 

11/15/2046

 

6,100,000

b,c,d

6,835,563

 

44,716,108

North Carolina - .4%

         

North Carolina Turnpike Authority, Revenue Bonds (Insured; Assured Guaranty Municipal Corp.)

 

4.00

 

1/1/2055

 

1,500,000

 

1,713,855

 

Ohio - 4.0%

         

Buckeye Tobacco Settlement Financing Authority, Revenue Bonds, Refunding, Ser. A2

 

4.00

 

6/1/2048

 

1,250,000

 

1,413,288

 

Buckeye Tobacco Settlement Financing Authority, Revenue Bonds, Refunding, Ser. B2

 

5.00

 

6/1/2055

 

10,750,000

 

12,089,665

 

Centerville, Revenue Bonds, Refunding (Graceworks Lutheran Services Obligated Group)

 

5.25

 

11/1/2047

 

1,500,000

 

1,552,635

 

Cuyahoga County, Revenue Bonds, Refunding (The MetroHealth System)

 

5.00

 

2/15/2052

 

1,000,000

 

1,130,750

 

16,186,338

Oregon - .3%

         

Medford Hospital Facilities Authority, Revenue Bonds, Refunding (Asante Project) Ser. A

 

4.00

 

8/15/2039

 

1,000,000

 

1,176,480

 

Pennsylvania - 4.0%

         

Allentown School District, GO, Refunding (Insured; Build America Mutual) Ser. B

 

5.00

 

2/1/2031

 

1,510,000

 

1,948,112

 

17

 

STATEMENT OF INVESTMENTS (continued)

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Pennsylvania - 4.0% (continued)

         

Crawford County Hospital Authority, Revenue Bonds, Refunding (Meadville Medical Center Project) Ser. A

 

6.00

 

6/1/2046

 

1,000,000

 

1,094,230

 

Franklin County Industrial Development Authority, Revenue Bonds (Menno-Haven Project)

 

5.00

 

12/1/2054

 

1,000,000

 

1,044,880

 

Pennsylvania Higher Educational Facilities Authority, Revenue Bonds, Refunding (University of Sciences)

 

5.00

 

11/1/2033

 

2,805,000

 

3,002,500

 

Pennsylvania Housing Finance Agency, Revenue Bonds, Refunding, Ser. 114A

 

3.35

 

10/1/2026

 

2,000,000

 

2,037,820

 

Philadelphia Water & Wastewater, Revenue Bonds, Ser. A

 

5.00

 

11/1/2050

 

1,500,000

 

1,917,975

 

Tender Option Bond Trust Receipts (Series 2016-XM0373), (Geisinger Authority, Revenue Bonds (Geisinger Health System)) Non-recourse, Underlying Coupon Rate (%) 5.13

 

18.24

 

6/1/2041

 

3,000,000

b,c,d

3,051,855

 

The Philadelphia School District, GO (Insured; State Aid Withholding) Ser. A

 

4.00

 

9/1/2039

 

2,000,000

 

2,298,420

 

16,395,792

Rhode Island - .1%

         

Providence Public Building Authority, Revenue Bonds (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

5.00

 

9/15/2037

 

500,000

 

625,825

 

South Carolina - 3.1%

         

South Carolina Jobs-Economic Development Authority, Revenue Bonds (Bishop Gadsden Episcopal Retirement Community Obligated Group)

 

5.00

 

4/1/2054

 

1,000,000

 

1,095,190

 

Tender Option Bond Trust Receipts (Series 2016-XM0384), (South Carolina Public Service Authority, Revenue Bonds, Refunding (Santee Cooper)) Non-recourse, Underlying Coupon Rate (%) 5.13

 

13.57

 

12/1/2043

 

10,200,000

b,c,d

11,348,724

 

12,443,914

18

 

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Tennessee - .8%

         

Tender Option Bond Trust Receipts (Series 2016-XM0388), (Metropolitan Government of Nashville & Davidson County, Revenue Bonds, Refunding) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.67

 

7/1/2040

 

3,000,000

b,c,d

3,294,180

 

Texas - 11.4%

         

Central Texas Regional Mobility Authority, Revenue Bonds

 

5.00

 

1/1/2048

 

2,500,000

 

3,004,975

 

Central Texas Regional Mobility Authority, Revenue Bonds, Ser. A

 

5.00

 

1/1/2045

 

1,500,000

 

1,711,170

 

Clifton Higher Education Finance Corp., Revenue Bonds (Uplift Education) Ser. A

 

4.50

 

12/1/2044

 

2,500,000

 

2,615,050

 

Clifton Higher Education Finance Corp., Revenue Bonds, Ser. A

 

5.75

 

8/15/2045

 

2,500,000

 

2,841,625

 

Clifton Higher Education Finance Corp., Revenue Bonds, Ser. D

 

6.13

 

8/15/2048

 

3,000,000

 

3,455,100

 

Grand Parkway Transportation Corp., Revenue Bonds, Refunding

 

4.00

 

10/1/2049

 

2,000,000

 

2,349,460

 

Harris County-Houston Sports Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

0.00

 

11/15/2051

 

7,500,000

f

1,971,450

 

Love Field Airport Modernization Corp., Revenue Bonds (Southwest Airlines Co. Project)

 

5.00

 

11/1/2028

 

1,000,000

 

1,073,850

 

Tarrant County Cultural Education Facilities Finance Corp., Revenue Bonds (Buckingham Senior Living Community Project)

 

5.50

 

11/15/2045

 

3,000,000

g

1,950,000

 

Tarrant County Cultural Education Facilities Finance Corp., Revenue Bonds, Refunding (MRC Stevenson Oaks Project)

 

6.75

 

11/15/2051

 

1,000,000

 

1,060,940

 

Tender Option Bond Trust Receipts (Series 2016-XM0377), (San Antonio, Revenue Bonds) Non-recourse, Underlying Coupon Rate (%) 5.00

 

17.91

 

2/1/2043

 

12,450,000

b,c,d

13,681,484

 

Texas Private Activity Bond Surface Transportation Corp., Revenue Bonds (Segment 3C Project)

 

5.00

 

6/30/2058

 

6,150,000

 

7,278,156

 

Texas Private Activity Bond Surface Transportation Corp., Revenue Bonds, Refunding (LBJ Infrastructure Group)

 

4.00

 

6/30/2040

 

1,350,000

 

1,554,269

 

19

 

STATEMENT OF INVESTMENTS (continued)

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Texas - 11.4% (continued)

         

Texas Private Activity Bond Surface Transportation Corp., Revenue Bonds, Refunding (LBJ Infrastructure Group)

 

4.00

 

6/30/2039

 

1,500,000

 

1,732,995

 
 

46,280,524

 

U.S. Related - 1.2%

         

Puerto Rico, GO, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

5.00

 

7/1/2035

 

2,500,000

 

2,623,500

 

Puerto Rico Highway & Transportation Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.) Ser. CC

 

5.25

 

7/1/2034

 

2,000,000

 

2,366,020

 
 

4,989,520

 

Utah - .5%

         

Utah Infrastructure Agency, Revenue Bonds, Refunding, Ser. A

 

5.00

 

10/15/2037

 

2,000,000

 

2,241,020

 

Virginia - 5.6%

         

Chesterfield County Economic Development Authority, Revenue Bonds, Refunding (Brandermill Woods Project)

 

5.13

 

1/1/2043

 

700,000

 

703,878

 

Henrico County Economic Development Authority, Revenue Bonds, Refunding (Insured; Assured Guaranty Municipal Corp.)

 

11.33

 

8/23/2027

 

4,700,000

c

6,573,702

 

Tender Option Bond Trust Receipts (Series 2018-XM0593), (Hampton Roads Transportation Accountability Commission, Revenue Bonds) Non-recourse, Underlying Coupon Rate (%) 5.50

 

20.26

 

7/1/2057

 

7,500,000

b,c,d

9,403,294

 

Virginia College Building Authority, Revenue Bonds (Green Bond) (Marymount University Project)

 

5.00

 

7/1/2045

 

1,000,000

b

1,005,650

 

Virginia Small Business Financing Authority, Revenue Bonds (Transform 66 P3 Project)

 

5.00

 

12/31/2052

 

4,350,000

 

4,968,918

 

22,655,442

Washington - 6.4%

         

King County School District No. 210, GO (Insured; School Bond Guaranty)

 

4.00

 

12/1/2034

 

2,000,000

 

2,382,600

 

Port of Seattle, Revenue Bonds

 

4.00

 

4/1/2044

 

1,000,000

 

1,100,570

 

20

 

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Washington - 6.4% (continued)

         

Tender Option Bond Trust Receipts (Series 2017-XF2423), (King County, Revenue Bonds, Refunding) Recourse, Underlying Coupon Rate (%) 5.00

 

18.03

 

1/1/2029

 

8,575,000

b,c,d

8,608,634

 

Tender Option Bond Trust Receipts (Series 2018-XM0680), (Washington Convention Center Public Facilities District, Revenue Bonds) Non-recourse, Underlying Coupon Rate (%) 5.00

 

9.02

 

7/1/2058

 

10,000,000

b,c,d

11,311,600

 

Washington Higher Education Facilities Authority, Revenue Bonds (Seattle University Project)

 

4.00

 

5/1/2050

 

1,200,000

 

1,315,980

 

Washington Housing Finance Commission, Revenue Bonds (Transforming Age Project) Ser. A

 

5.00

 

1/1/2055

 

1,465,000

b

1,520,831

 

26,240,215

Wisconsin - 2.2%

         

Public Finance Authority, Revenue Bonds (Appalachian State University Project) (Insured; Assured Guaranty Municipal Corp.) Ser. A

 

4.00

 

7/1/2055

 

1,750,000

 

1,898,768

 

Public Finance Authority, Revenue Bonds (CHF - Wilmington) (Insured; Assured Guaranty Municipal Corp.)

 

5.00

 

7/1/2058

 

3,665,000

 

4,265,510

 

Public Finance Authority, Revenue Bonds (Gannon University Project)

 

5.00

 

5/1/2042

 

750,000

 

802,103

 

Public Finance Authority, Revenue Bonds, Refunding (Mary's Woods At Marylhurst Project)

 

5.25

 

5/15/2042

 

750,000

b

797,603

 

21

 

STATEMENT OF INVESTMENTS (continued)

                   
 

Description

Coupon
Rate (%)

 

Maturity Date

 

Principal Amount ($)

 

Value ($)

 

Long-Term Municipal Investments - 147.5% (continued)

         

Wisconsin - 2.2% (continued)

         

Wisconsin Health & Educational Facilities Authority, Revenue Bonds, Refunding (St. Camillus Health System Obligated Group)

 

5.00

 

11/1/2054

 

1,250,000

 

1,268,813

 
 

9,032,797

 

Total Long-Term Municipal Investments
(cost $557,115,664)

 

600,386,322

 

Total Investments (cost $558,516,554)

 

147.8%

601,736,937

 

Liabilities, Less Cash and Receivables

 

(35.7%)

(145,347,724)

 

Preferred Stock, at redemption value

 

(12.1%)

(49,300,000)

 

Net Assets Applicable to Common Shareholders

 

100.0%

407,089,213

 


a
 Zero coupon until a specified date at which time the stated coupon rate becomes effective until maturity.

b Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At November 30, 2020, these securities were valued at $263,679,850 or 64.77% of net assets.

c The Variable Rate shall be determined by the Remarketing Agent in its sole discretion based on prevailing market conditions and may, but need not, be established by reference to one or more financial indices.

d Collateral for floating rate borrowings. The coupon rate given represents the current interest rate for the inverse floating rate security.

e 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.

f Security issued with a zero coupon. Income is recognized through the accretion of discount.

g Non-income producing—security in default.

22

 

   

Portfolio Summary (Unaudited)

Value (%)

General

25.5

Education

22.1

Medical

15.8

Water

14.0

Transportation

13.5

Nursing Homes

11.6

General Obligation

8.1

Airport

7.5

Development

6.7

Power

4.7

Tobacco Settlement

4.5

Utilities

3.4

School District

3.3

Prerefunded

2.9

Single Family Housing

1.7

Housing

1.5

Multifamily Housing

1.0

 

147.8


 Based on net assets.

See notes to financial statements.

23

 

       
 

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.

24

 

STATEMENT OF ASSETS AND LIABILITIES
November 30, 2020

             

 

 

 

 

 

 

 

 

 

 

Cost

 

Value

 

Assets ($):

 

 

 

 

Investments in securities—See Statement of Investments

558,516,554

 

601,736,937

 

Cash

 

 

 

 

525,498

 

Interest receivable

 

8,461,110

 

Prepaid expenses

 

 

 

 

12,746

 

 

 

 

 

 

610,736,291

 

Liabilities ($):

 

 

 

 

Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 2(b)

 

243,315

 

Payable for floating rate notes issued—Note 3

 

152,184,671

 

Payable for investment securities purchased

 

1,346,345

 

Interest and expense payable related to
floating rate notes issued—Note 3

 

414,410

 

Commissions payable—Note 1

 

36,000

 

Directors’ fees and expenses payable

 

25,569

 

Dividends payable to Preferred Shareholders

 

1,014

 

Other accrued expenses

 

 

 

 

95,754

 

 

 

 

 

 

154,347,078

 

Auction Preferred Stock, Series A, B and C, par value $.001 per share (1,972 shares issued and outstanding at $25,000 per share liquidation value)—Note 1

 

49,300,000

 

Net Assets Applicable to Common Shareholders ($)

 

 

407,089,213

 

Composition of Net Assets ($):

 

 

 

 

Common Stock, par value, $.001 per share
(49,421,511 shares issued and outstanding)

 

 

 

 

49,422

 

Paid-in capital

 

 

 

 

368,326,701

 

Total distributable earnings (loss)

 

 

 

 

38,713,090

 

Net Assets Applicable to Common Shareholders ($)

 

 

407,089,213

 

         

Shares Outstanding

 

 

(110 million shares authorized)

49,421,511

 

Net Asset Value Per Share of Common Stock ($)

 

8.24

 

 

 

 

 

 

See notes to financial statements.

 

 

 

 

25

 

STATEMENT OF OPERATIONS
Year Ended November 30, 2020

             

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Income ($):

 

 

 

 

Interest Income

 

 

25,549,097

 

Expenses:

 

 

 

 

Investment advisory fee—Note 2(a)

 

 

2,237,092

 

Interest and expense related to floating rate notes issued—Note 3

 

 

2,378,505

 

Administration fee—Note 2(a)

 

 

1,118,546

 

Professional fees

 

 

118,333

 

Commission fees—Note 1

 

 

102,268

 

Directors’ fees and expenses—Note 2(c)

 

 

76,318

 

Shareholders’ reports

 

 

48,728

 

Registration fees

 

 

48,262

 

Shareholder servicing costs

 

 

12,628

 

Custodian fees—Note 2(b)

 

 

9,152

 

Chief Compliance Officer fees—Note 2(b)

 

 

8,474

 

Miscellaneous

 

 

38,021

 

Total Expenses

 

 

6,196,327

 

Less—reduction in expenses due to undertaking—Note 2(a)

 

 

(447,418)

 

Less—reduction in fees due to earnings credits—Note 2(b)

 

 

(9,152)

 

Net Expenses

 

 

5,739,757

 

Investment Income—Net

 

 

19,809,340

 

Realized and Unrealized Gain (Loss) on Investments—Note 3 ($):

 

 

Net realized gain (loss) on investments

(4,086,754)

 

Net realized gain (loss) on futures

(2,936,039)

 

Net Realized Gain (Loss)

 

 

(7,022,793)

 

Net change in unrealized appreciation (depreciation) on investments

2,712,134

 

Net change in unrealized appreciation (depreciation) on futures

(83,498)

 

Net Change in Unrealized Appreciation (Depreciation)

 

 

2,628,636

 

Net Realized and Unrealized Gain (Loss) on Investments

 

 

(4,394,157)

 

Dividends to Preferred Shareholders

 

 

(592,434)

 

Net Increase in Net Assets Applicable to Common
Shareholders Resulting from Operations

 

14,822,749

 

 

 

 

 

 

 

 

See notes to financial statements.

         

26

 

STATEMENT OF CASH FLOWS
Year Ended November 30, 2020

             

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities ($):

 

 

 

 

 

Purchases of portfolio securities

 

(118,124,489)

 

 

 

Proceeds from sales of portfolio securities

119,685,805

 

 

 

Net purchase (sales) of short-term securities

30,367,003

 

 

 

Dividends paid to Preferred Shareholders

(601,696)

 

 

 

Interest paid

 

(3,988,516)

 

 

 

Paid to BNY Mellon Investment Adviser, Inc.

 

(2,916,727)

 

 

 

Operating expenses paid

 

(447,029)

 

 

 

Net Realized and Unrealized Gain (Loss) on futures

 

(2,984,193)

 

 

 

Net Cash Provided (or Used) in Operating Activities

 

 

 

20,990,158

 

Cash Flows from Financing Activities ($):

 

 

 

 

 

Dividends paid to Shareholders

 

(17,705,542)

 

 

 

Interest and expense related to floating

 

 

 

 

 

 

rate notes issued paid

 

(3,043,202)

 

 

 

Net Cash Provided (or Used) in Financing Activities

 

(20,748,744)

 

Net Increase (Decrease) in cash

 

241,414

 

Cash at beginning of period††

 

284,084

 

Cash at end of period

 

525,498

 

Reconciliation of Net Increase (Decrease) in Net Assets Applicable to

 

 

 

 

Common Shareholders Resulting from Operations to

 

 

 

 

Net Cash Provided (or Used) in Operating Activities ($):

 

 

 

Net Increase in Net Assets Resulting From Operations

 

14,822,749

 

Adjustments to reconcile net increase in net assets

 

 

 

 

applicable to Common Shareholder resulting from

 

 

 

 

operations to net cash provided (or Used) in operating activities ($):

 

 

 

Decrease in investments in securities at cost

 

36,473,149

 

Decrease in interest receivable

 

352,132

 

Increase in prepaid expenses

 

(85)

 

Decrease in Due to BNY Mellon Investment Adviser, Inc. and affiliates

 

(8,507)

 

Decrease in payable for investment securities purchased

 

(286,900)

 

Net change in unrealized appreciation (depreciation) on futures

 

(48,154)

 

Decrease in payable for floating rate notes issued

 

(29,889,745)

 

Interest and expense related to floating rate notes issued

 

2,378,505

 

Decrease in dividends payable to Preferred Shareholders

 

(9,262)

 

Increase in Directors' fees and expenses payable

 

13,483

 

Decrease in commissions payable and other accrued expenses

 

(7,395)

 

Net change in unrealized (appreciation) depreciation on investments

 

(2,628,636)

 

Net amortization of premiums on investments

 

(171,176)

 

Net Cash Provided (or Used) in Operating Activities

 

20,990,158

 

Supplemental Disclosure Cash Flow Information ($):

 

 

 

Non-cash financing activities:

 

 

 

Reinvestment of dividends

 

86,478

 

 

 

 

 

 

 

 

†  Includes change in variation margin from beginning of period.

††  Includes deposits held as collateral by broker.

See notes to financial statements.

         

27

 

STATEMENT OF CHANGES IN NET ASSETS

                   

 

 

 

 

Year Ended November 30,

 

 

 

 

2020

 

2019

 

Operations ($):

 

 

 

 

 

 

 

 

Investment income—net

 

 

19,809,340

 

 

 

20,409,325

 

Net realized gain (loss) on investments

 

(7,022,793)

 

 

 

6,928

 

Net change in unrealized appreciation
(depreciation) on investments

 

2,628,636

 

 

 

20,865,906

 

Dividends to Preferred Shareholders

 

 

(592,434)

 

 

 

(1,268,558)

 

Net Increase (Decrease) in Net Assets Applicable
to Common Shareholders Resulting from
Operations

14,822,749

 

 

 

40,013,601

 

Distributions ($):

 

Distributions to Common Shareholders

 

 

(17,792,020)

 

 

 

(20,738,800)

 

Capital Stock Transactions ($):

 

Distributions reinvested

 

 

86,478

 

 

 

347,279

 

Increase (Decrease) in Net Assets
from Capital Stock Transactions

86,478

 

 

 

347,279

 

Total Increase (Decrease) in Net Assets
Applicable to Common Shareholders

(2,882,793)

 

 

 

19,622,080

 

Net Assets Applicable to Common Shareholders ($):

 

Beginning of Period

 

 

409,972,006

 

 

 

390,349,926

 

End of Period

 

 

407,089,213

 

 

 

409,972,006

 

Capital Share Transactions (Common Shares):

 

Shares issued for distributions reinvested

 

 

10,449

 

 

 

41,603

 

Net Increase (Decrease) in Shares Outstanding

10,449

 

 

 

41,603

 

 

 

 

 

 

 

 

 

 

 

See notes to financial statements.

               

28

 

FINANCIAL HIGHLIGHTS

The following table describes the performance for the fiscal periods indicated. Market price total return is calculated assuming an initial investment made at the market price at the beginning of the period, reinvestment of all dividends and distributions at market price during the period, and sale at the market price on the last day of the period. These figures have been derived from the fund’s financial statements, and with respect to common stock, market price data for the fund’s common shares.

               
     
 

Year Ended November 30,

 

2020

2019

2018

2017

2016

Per Share Data ($):

           

Net asset value, beginning of period

 

8.30

7.91

8.29

8.19

8.59

Investment Operations:

           

Investment income—neta

 

.40

.41

.47

.49

.50

Net realized and unrealized
gain (loss) on investments

 

(.09)

.43

(.43)

.13

(.39)

Dividends to Preferred Shareholders
from investment income—net

 

(.01)

(.03)

(.03)

(.02)

(.01)

Total from Investment Operations

 

.30

.81

.01

.60

.10

Distributions to Common Shareholders:

           

Dividends from investment
income—net

 

(.36)

(.42)

(.43)

(.50)

(.50)

Net asset value resulting from Auction
Preferred Stock tender as a discount

 

-

-

.04

-

-

Net asset value, end of period

 

8.24

8.30

7.91

8.29

8.19

Market value, end of period

 

7.66

8.19

7.13

8.40

8.07

Market Price Total Return (%)

 

(1.87)

21.12

(10.14)

10.46

7.55

29

 

FINANCIAL HIGHLIGHTS (continued)

               
     
 

Year Ended November 30,

 

2020

2019

2018

2017

2016

Ratios/Supplemental Data (%):

           

Ratio of total expenses to
average net assets
applicable to Common Stockb

 

1.56

1.86

1.73

1.41

1.24

Ratio of net expenses to
average net assets
applicable to Common Stockb

 

1.44

1.75

1.62

1.28

1.12

Ratio of interest and expense related to
floating rate notes issued to average net
assets applicable to Common Stockb

 

.60

.90

.72

.35

.21

Ratio of net investment income to
average net assets
applicable to Common Stockb

 

4.98

5.05

5.78

5.87

5.67

Ratio of total expenses to
total average net assets

 

1.38

1.66

1.51

1.15

1.02

Ratio of net expenses to
total average net assets

 

1.28

1.56

1.41

1.05

.92

Ratio of interest and expense related to
floating rate notes issued to
total average net assets

 

.53

.80

.63

.29

.17

Ratio of net investment income to
total average net assets

 

4.43

4.50

5.02

4.79

4.66

Portfolio Turnover Rate

 

26.56

41.28

24.57

11.20

12.90

Asset Coverage of Preferred Stock,
end of period

 

926

932

892

540

533

Net Assets, applicable to
Common Shareholders,
end of period ($ x 1,000)

 

407,089

409,972

390,350

409,095

402,531

Preferred Stock Outstanding,
end of period ($ x 1,000)

 

49,300

49,300

49,300

93,000

93,000

Floating Rate Notes Outstanding,
end of period ($ x 1,000)

 

152,185

182,074

162,357

109,669

93,369


a
 Based on average common shares outstanding.

b Does not reflect the effect of dividends to Preferred Shareholders.

See notes to financial statements.

30

 

NOTES TO FINANCIAL STATEMENTS

NOTE 1—Significant Accounting Policies:

BNY Mellon Strategic Municipal Bond Fund, Inc. (the “fund”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), is a diversified closed-end management investment company. The fund’s investment objective is to seek to maximize current income exempt from federal income tax to the extent consistent with the preservation of capital. BNY Mellon Investment Adviser, Inc. (the “Adviser”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. The fund’s Common Stock trades on the New York Stock Exchange (the “NYSE”) under the ticker symbol DSM.

The fund has outstanding 698 Series A shares, 662 Series B shares and 612 Series C shares, Auction Preferred Stock (“APS”), with a liquidation preference of $25,000 per share (plus an amount equal to accumulated but unpaid dividends upon liquidation). APS dividend rates are determined pursuant to periodic auctions or by reference to a market rate. Deutsche Bank Trust Company America, as the Auction Agent, receives a fee from the fund for its services in connection with such auctions. The fund also compensates broker-dealers generally at an annual rate of .15%-.25% of the purchase price of shares of APS.

The fund is subject to certain restrictions relating to the APS. Failure to comply with these restrictions could preclude the fund from declaring any distributions to shareholders of Common Stock (“Common Shareholders”) or repurchasing shares of Common Stock and/or could trigger the mandatory redemption of APS at liquidation value. Thus, redemptions of APS may be deemed to be outside of the control of the fund.

The holders of APS, voting as a separate class, have the right to elect at least two directors. The holders of APS will vote as a separate class on certain other matters, as required by law. The fund’s Board of Directors (the “Board”) has designated Joni Evans and Robin A. Melvin as director to be elected by the holders of APS.

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-

31

 

NOTES TO FINANCIAL STATEMENTS (continued)

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 fund 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.

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

32

 

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 November 30, 2020 in valuing the fund’s investments:

33

 

NOTES TO FINANCIAL STATEMENTS (continued)

         

Assets ($)

Level 1 - Unadjusted Quoted Prices

Level 2 - Other Significant Observable Inputs

Level 3 -Significant Unobservable Inputs

Total

Investments in Securities:

 

 

 

 

Collateralized Municipal-Backed
Securities

-

1,350,615

-

1,350,615

Municipal Securities

-

600,386,322

-

600,386,322

Liabilities ($)

       

Floating Rate Notes††

-

(152,184,671)

-

(152,184,671)


 See Statement of Investments for additional detailed categorizations, if any.

†† Certain of the fund’s liabilities are held at carrying amount, which approximates fair value for financial reporting purposes.

(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.

(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 worldwide. Recent examples include pandemic risks related to COVID-19 and aggressive measures taken world-wide in response by governments, including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines of large populations, and by businesses, including changes to operations and reducing staff. To the extent the fund may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase the fund’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.

34

 

(d) Dividends and distributions to Common Shareholders: Dividends and distributions are recorded on the ex-dividend date. Dividends from investment income-net are normally declared and 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.

Common Shareholders will have their distributions reinvested in additional shares of the fund, unless such Common Shareholders elect to receive cash, at the lower of the market price or net asset value per share (but not less than 95% of the market price). If market price is equal to or exceeds net asset value, shares will be issued at net asset value. If net asset value exceeds market price, Computershare Inc., the transfer agent for the fund’s Common Stock, will buy fund shares in the open market and reinvest those shares accordingly.

On November 27, 2020, the Board declared a cash dividend of $.030 per share from investment income-net, payable on December 31, 2020 to Common shareholders of record as of the close of business on December 14, 2020. The ex-dividend date was December 11, 2020. .

(e) Dividends and distributions to shareholders of APS: Dividends, which are cumulative, are generally reset every 7 days for each Series of APS pursuant to a process specified in related fund charter documents. Dividend rates as of November 30, 2020, for each Series of APS were as follows: Series A-0.173%, Series B-0.173% and Series C-0.173%. These rates reflect the “maximum rates” under the governing instruments as a result of “failed auctions” in which sufficient clearing bids are not received. The average dividend rates for the period ended November 30, 2020 for each Series of APS were as follows: Series A-1.197%, Series B-1.209% and Series C-1.199%.

(f) 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 November 30, 2020, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes

35

 

NOTES TO FINANCIAL STATEMENTS (continued)

interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended November 30, 2020, the fund did not incur any interest or penalties.

Each tax year in the four-year period ended November 30, 2020 remains subject to examination by the Internal Revenue Service and state taxing authorities.

At November 30, 2020, the components of accumulated earnings on a tax basis were as follows: undistributed tax-exempt income $2,847,474, accumulated capital losses $7,728,781 and unrealized appreciation $43,595,411.

The fund is permitted to carry forward capital losses for an unlimited period. Furthermore, capital loss carryovers retain their character as either short-term or long-term capital losses.

The accumulated capital loss carryover is available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to November 30, 2020. The fund has $6,836,233 of short-term capital losses and $892,548 of long-term capital losses which can be carried forward for an unlimited period.

The tax character of distributions paid to shareholders during the fiscal periods ended November 30, 2020 and November 30, 2019 were as follows: tax-exempt income $18,180,918 and $22,007,358, and ordinary income $203,536 and $0, respectively.

During the period ended November 30, 2020, as a result of permanent book to tax differences, primarily due to the tax treatment for amortization adjustments, the fund increased total distributable earnings (loss) by $2,051,952 and decreased paid-in capital by the same amount. Net assets and net asset value per share were not affected by this reclassification.

(g) 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 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

36

 

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—Investment Advisory Fee, Administration Fee and Other Transactions with Affiliates:

(a) Pursuant to an investment advisory agreement with the Adviser, the management fee is computed at the annual rate of .50% of the value of the fund’s average weekly net assets, inclusive of the outstanding APS, and is payable monthly. The fund also has an administration agreement with the Adviser and a custody agreement with The Bank of New York Mellon (the “Custodian”), a subsidiary of BNY Mellon and an affiliate of the Adviser. The fund pays in the aggregate for administration, custody and transfer agency services, a monthly fee based on an annual rate of .25% of the value of the fund’s average weekly net assets, inclusive of the outstanding APS. All out-of-pocket transfer agency and custody expenses, including custody transaction expenses, are paid separately by the fund.

The Adviser has currently undertaken, from December 1, 2019 through May 31, 2021, to waive receipt of a portion of the fund’s investment advisory fee, in the amount of .10% of the value of the fund’s average weekly net assets (including net assets representing APS outstanding). The reduction in expenses, pursuant to the undertaking, amounted to $447,418 during the period ended November 30, 2020.

(b) The fund compensates the Custodian under a custody agreement for providing custodial services for the fund. These fees are determined based on transaction activity. During the period ended November 30, 2020, the fund was charged $9,152 for out-of-pocket and custody transaction expenses, pursuant to the custody agreement. These fees were offset by earnings credits of the amount of $9,152.

The fund has an arrangement with the Custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.

During the period ended November 30, 2020, the fund was charged $8,474 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.

37

 

NOTES TO FINANCIAL STATEMENTS (continued)

The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees of $185,150, Administration fees of $92,575, Custodian fees of $2,688 and Chief Compliance Officer fees of $1,161, which are offset against an expense reimbursement currently in effect in the amount of $38,259.

(c) Each Board member also serves as a Board member of other funds in the BNY Mellon Family of Funds complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.

NOTE 3—Securities Transactions:

The aggregate amount of purchases and sales (including paydowns) of investment securities, excluding short-term securities and futures, during the period ended November 30, 2020, amounted to $117,906,266 and $117,754,423, respectively.

Inverse Floater Securities: The fund participates in secondary inverse floater structures in which fixed-rate, tax-exempt municipal bonds are transferred to a trust (the “Inverse Floater Trust”). The Inverse Floater Trust typically issues two variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One of these variable rate securities pays interest based on a short-term floating rate set by a remarketing agent at predetermined intervals (“Trust Certificates”). A residual interest tax-exempt security is also created by the Inverse Floater Trust, which is transferred to the fund, and is paid interest based on the remaining cash flows of the Inverse Floater Trust, after payment of interest on the other securities and various expenses of the Inverse Floater Trust. An Inverse Floater Trust may be collapsed without the consent of the fund due to certain termination events such as bankruptcy, default or other credit event.

The fund accounts for the transfer of bonds to the Inverse Floater Trust as secured borrowings, with the securities transferred remaining in the fund’s investments, and the Trust Certificates reflected as fund liabilities in the Statement of Assets and Liabilities.

The fund may invest in inverse floater securities on either a non-recourse or recourse basis. These securities are typically supported by a liquidity facility provided by a bank or other financial institution (the “Liquidity Provider”) that allows the holders of the Trust Certificates to tender their certificates in exchange for payment from the Liquidity Provider of par plus accrued interest on any business day prior to a termination event. When the fund invests in inverse floater securities on a non-recourse basis, the Liquidity Provider is required to make a payment under the liquidity

38

 

facility due to a termination event to the holders of the Trust Certificates. When this occurs, the Liquidity Provider typically liquidates all or a portion of the municipal securities held in the Inverse Floater Trust. A liquidation shortfall occurs if the Trust Certificates exceed the proceeds of the sale of the bonds in the Inverse Floater Trust (“Liquidation Shortfall”). When a fund invests in inverse floater securities on a recourse basis, the fund typically enters into a reimbursement agreement with the Liquidity Provider where the fund is required to repay the Liquidity Provider the amount of any Liquidation Shortfall. As a result, a fund investing in a recourse inverse floater security bears the risk of loss with respect to any Liquidation Shortfall.

The average amount of borrowings outstanding under the inverse floater structure during the period ended November 30, 2020 was approximately $170,270,676, with a related weighted average annualized interest rate of 1.40%.

Derivatives: A derivative is a financial instrument whose performance is derived from the performance of another asset. Each type of derivative instrument that was held by the fund during the period ended November 30, 2020 is discussed below.

Futures: In the normal course of pursuing its investment objective, the fund is exposed to market risk, including interest rate risk as a result of changes in value of underlying financial instruments. The fund invests in futures in order to manage its exposure to or protect against changes in the market. A futures contract represents a commitment for the future purchase or a sale of an asset at a specified date. Upon entering into such contracts, these investments require initial margin deposits with a counterparty, which consist of cash or cash equivalents. The amount of these deposits is determined by the exchange or Board of Trade on which the contract is traded and is subject to change. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses which are recorded in the Statement of Operations. When the contracts are closed, the fund recognizes a realized gain or loss which is reflected in the Statement of Operations. There is minimal counterparty credit risk to the fund with futures since they are exchange traded, and the exchange guarantees the futures against default. At November 30, 2020, there were no futures outstanding.

The following summarizes the average market value of derivatives outstanding during the period ended November 30, 2020:

     

 

 

Average Market Value ($)

Interest rate futures

 

5,213,046

 

 

 

39

 

NOTES TO FINANCIAL STATEMENTS (continued)

At November 30, 2020, the cost of investments for federal income tax purposes was $405,956,855; accordingly, accumulated net unrealized appreciation on investments was $43,595,411, consisting of $45,418,460 gross unrealized appreciation and $1,823,049 gross unrealized depreciation.

40

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of BNY Mellon Strategic Municipal Bond Fund, Inc.

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of BNY Mellon Strategic Municipal Bond Fund, Inc. (the “Fund”), including the statement of investments, as of November 30, 2020, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund at November 30, 2020, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 2020, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the BNY Mellon Family of Funds since at least 1957, but we are unable to determine the specific year.

New York, New York
January 27, 2021

41

 

ADDITIONAL INFORMATION (Unaudited)

Dividend Reinvestment Plan

Under the fund’s Dividend Reinvestment Plan (the “Plan”), a Common Shareholder who has fund shares registered in his or her name will have all dividends and distributions reinvested automatically by Computershare Trust Company, N.A., as Plan administrator (the “Administrator”), in additional shares of the fund at the lower of prevailing market price or net asset value (but not less than 95% of market value at the time of valuation) unless such Common Shareholder elects to receive cash as provided below. If market price is equal to or exceeds net asset value, shares will be issued at net asset value. If net asset value exceeds market price or if a cash dividend only is declared, the Administrator, as agent for the Plan participants, will buy fund shares in the open market. A Plan participant is not relieved of any income tax that may be payable on such dividends or distributions.

A Common Shareholder who owns fund shares registered in nominee name through his or her broker/dealer (i.e., in “street name”) may not participate in the Plan, but may elect to have cash dividends and distributions reinvested by his or her broker/dealer in additional shares of the fund if such service is provided by the broker/dealer; otherwise such dividends and distributions will be treated like any other cash dividend.

A Common Shareholder who has fund shares registered in his or her name may elect to withdraw from the Plan at any time for a $5.00 fee and thereby elect to receive cash in lieu of shares of the fund. Changes in elections must be in writing, sent to The Bank of New York Mellon, c/o Computershare Inc., P.O. Box 30170, College Station, TX 77842-3170, should include the Common Shareholder’s name and address as they appear on the Administrator’s records and will be effective only if received more than fifteen days prior to the record date for any distribution.

The Administrator maintains all Common Shareholder accounts in the Plan and furnishes written confirmations of all transactions in the account. Shares in the account of each Plan participant will be held by the Administrator in non-certificated form in the name of the participant, and each such participant’s proxy will include those shares purchased pursuant to the Plan.

The fund pays the Administrator’s fee for reinvestment of dividends and distributions. Plan participants pay a pro rata share of brokerage commissions incurred with respect to the Administrator’s open market purchases in connection with the reinvestment of dividends or distributions.

The fund reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the change sent to Plan participants at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by the Administrator on at least 90 days’ written notice to Plan participants.

Level Distribution Policy

The fund’s dividend policy is to distribute substantially all of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more consistent yield to the current trading price of shares of Common Stock of the fund, the fund may at

42

 

times pay out less than the entire amount of net investment income earned in any particular month and may at times in any month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the fund for any particular month may be more or less than the amount of net investment income earned by the fund during such month.

Investment Objective and Principal Investment Strategies

Investment Objective. The fund’s investment objective is to seek to maximize current income exempt from federal income tax to the extent believed by the Adviser to be consistent with the preservation of capital. The fund’s investment objective is fundamental and may not be changed without the affirmative vote of the holders of a majority (as defined in the Act) of the fund’s outstanding voting securities. No assurance can be given that the fund will achieve its investment objective.

Fundamental Investment Policy. The fund ordinary invests all of its net assets in municipal obligations that provide income exempt from federal income tax, and has adopted a fundamental investment policy to invest, under normal market conditions, at least 80% of its net assets in municipal obligations. As with the fund’s investment objective, this investment policy may not be changed without the affirmative vote of the holders of a majority (as defined in the Act) of the fund's outstanding voting securities.

Municipal obligations are debt obligations issued by states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, or multi-state agencies or authorities, that provide income exempt from federal income tax. Municipal obligations are classified as general obligation bonds, revenue bonds and notes. General obligation bonds are secured by the issuer’s pledge of its faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenue derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, but not from the general taxing power. Notes are short term instruments which are obligations of the issuing municipalities or agencies and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. The fund may purchase floating and variable rate obligations, municipal derivatives, such as custodial receipt programs created by financial intermediaries, tender option bonds, and participations in municipal obligations.

Non-Fundamental Investment Policies. Under normal market conditions, the fund invests at least 80% of its net assets in municipal obligations considered investment grade by Moody's, S&P or Fitch or the unrated equivalent as determined by the Adviser in the case of bonds, and in the two highest rating categories of Moody's, S&P or Fitch or the unrated equivalent as determined by the Adviser in the case of short term obligations having or deemed to have maturities of less than one year. The fund may invest the remainder of its assets in municipal obligations considered below investment grade by Moody's, S&P and Fitch, including those rated no lower than C, but it currently is the intention of the fund to invest such remainder of its assets primarily in bonds rated no lower than Ba by Moody’s and BB by S&P and Fitch. Bonds rated

43

 

ADDITIONAL INFORMATION (Unaudited) (continued)

below investment grade and short term obligations rated below the two highest rating categories of Moody’s, S&P and Fitch will be purchased only if the Adviser determines that the purchase is consistent with the fund’s investment objective. Investment grade bonds are those rated in the four highest rating categories of Moody’s, S&P or Fitch. The fund also may invest in taxable investments to the extent and of the quality described below. At least 65% of the value of the fund’s net assets (except when maintaining a temporary defensive position) will be invested in bonds and debentures.

Under normal market conditions, the weighted average maturity of the fund’s portfolio is expected to exceed ten years. The fund emphasizes investments in municipal obligations with long term maturities, but the degree of such emphasis depends upon market conditions existing at the time of investment. Under normal market conditions, long term municipal obligations generally provide a higher yield than short term municipal obligations. The fund, however, may invest in short term municipal obligations when their yields are greater than yields available on long term municipal obligations, for temporary defensive purposes and after the closing of this offering as the fund selects longer term municipal obligations to purchase for its portfolio.

From time to time, the fund may invest more than 25% of the value of its total assets in industrial development bonds which, although issued by industrial development authorities, may be backed only by the assets and revenues of the non-governmental users. Interest on certain municipal obligations (including certain industrial development bonds) which are specific private activity bonds, while exempt from federal income tax, is a preference item for the purpose of the federal alternative minimum tax. If the fund, as a regulated investment company, receives such interest, a proportionate share of any exempt-interest dividend paid by the fund will be treated as a preference item to an investor. The fund may invest without limitation in such municipal obligations if the Adviser determines that their purchase is consistent with the fund's investment objective.

Taxable Investments and other Investment Techniques.

The fund may employ, among others, the investment techniques described below. Use of certain of these techniques may give rise to taxable income.

Temporary Investments. From time to time, on a temporary basis other than for temporary defensive purposes (but not to exceed 20% of the fund’s net assets) or for temporary defensive purposes without limitation, the fund may invest in taxable short term investments (“Taxable Investments”) consisting of: notes of issuers having, at the time of purchase, a quality rating within the two highest grades of Moody’s, S&P or Fitch; obligations of the U.S. Government, its agencies or instrumentalities; commercial paper rated at least P-2 by Moody’s or at least A-2 by S&P or Fitch; certificates of deposit of U.S. domestic banks, including foreign branches of domestic banks, with assets of $1 billion or more; bankers’ acceptances; time deposits; and repurchase agreements in respect of any of the foregoing. Dividends paid by the fund that are attributable to interest earned from Taxable Investments will be taxable to investors. Under normal

44

 

market conditions, the fund anticipates that not more than 5% of its total assets will be invested in any of the foregoing categories of Taxable Investments.

When-Issued Securities. New issues of municipal obligations usually are offered on a when-issued basis, which means that delivery and payment for such municipal obligations normally take place within 45 days after the date of the commitment to purchase. The payment obligation and the interest rate that will be received on the municipal obligations are fixed at the time the buyer enters into the commitment. The fund will make commitments to purchase such municipal obligations only with the intention of actually acquiring the securities, but the fund may sell these securities before the settlement date if it is deemed advisable, although any gain realized on such sale would be taxable. The fund will not accrue income with respect to a when-issued security before its stated delivery date. No additional when-issued commitments will be made if more than 20% of the fund’s net assets would be so committed.

Stand-By Commitments. The fund may acquire “stand-by commitments” with respect to municipal obligations held in its portfolio. Under a stand-by commitment the fund obligates a broker, dealer or bank to repurchase, at the fund’s option, specified securities at a specified price and, in this respect, stand-by commitments are comparable to put options. The exercise of a stand-by commitment, therefore, is subject to the ability of the seller to make payment on demand. The fund will acquire stand-by commitments solely to facilitate portfolio liquidity and does not intend to exercise its rights thereunder for trading purposes. The fund anticipates that stand-by commitments will be available from brokers, dealers and banks without the payment of any direct or indirect consideration. The fund may pay for stand-by commitments if such action is deemed necessary, thus increasing to a degree the cost of the underlying municipal obligation and similarly decreasing such security's yield to investors.

Use of Derivatives. The fund may invest in, or enter into, certain types of derivatives, such as futures, options and swap transactions, including interest rate swaps, interest rate locks, caps, collars and floors, for a variety of reasons, including to increase current income, reduce fluctuations in net asset value and protect against a decline in the value of municipal obligations held by the fund or an increase in the price of municipal obligations the fund proposes to purchase in the future. The fund's ability to engage in certain derivative transactions may be limited as a condition to S&P’s “AAA” rating of the fund's APS. The fund will limit its use of derivatives that do not constitute municipal obligations to 20% of the its net assets.

The fund may purchase call and put options and may write (i.e., sell) covered call and put option contracts on specific municipal obligations. The fund generally would purchase these call options to protect the fund from the issuer of the related municipal obligation redeeming, or other holder of the call option from calling away, the municipal obligation before maturity. The sale by the fund of a call option it owns on a specific municipal obligation could result in the receipt of taxable income by the fund.

A futures contract is an agreement between two parties to buy and sell a security for a set price on a future date. These contracts are traded on exchanges, so that, in most

45

 

ADDITIONAL INFORMATION (Unaudited) (continued)

cases, either party can close out its position on the exchange for cash, without delivering the security. An option on a futures contract gives the holder of the option the right to buy from or sell to the writer of the option a position in a futures contract at a specified price on or before a specified expiration date. The fund may invest in futures contracts and options on futures contracts, including those with respect to interest rates, securities, and security indexes. The fund may enter into futures contracts and options thereon in U.S. domestic markets. Futures contracts may be based on various debt securities and securities indexes (such as the Municipal Bond Index traded on the Chicago Board of Trade).

The fund may enter into interest rate swaps and interest rate locks and purchase and sell interest rate caps, collars and floors. Swap transactions may be individually negotiated and include exposure to a variety of different interest rates. Swaps involve two parties exchanging a series of cash flows at specified intervals. In the case of an interest rate swap, the parties exchange interest payments based upon an agreed upon principal amount (referred to as the “notional principal amount”). Under the most basic scenario, Party A would pay a fixed rate on the notional principal amount to Party B, which would pay a floating rate on the same notional principal amount to Party A. Swap agreements can take many forms and are known by a variety of names.

In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. An interest rate collar combines elements of buying a cap and selling a floor. In a typical interest rate lock transaction, if Party A desires to lock in a particular interest rate on a given date it may enter into an agreement to pay, or receive a payment from, Party B based on the yield of a reference index or security. At the maturity of the term of the agreement, one party makes a payment to the other party as determined by the relative change in the yield of the reference index or security. An interest rate lock transaction may be terminated prior to its stated maturity date by calculating the payment due as of the termination date, which generally differs from the make-whole provisions for an early termination of an interest rate swap transaction in which the party terminating the swap early is required to give its counterparty the economic benefit of the transaction.

Depending on the circumstances, gains from a swap transaction will be treated either as ordinary income or as short- or long-term capital gains. The fund currently intends to enter into swap transactions on a “forward settlement” basis (settlement set out several months) and to close-out such transactions before the settlement date. This methodology should result in there being no exchange of income and, therefore, no taxable income to report. Any principal gain or loss at settlement would be a capital gain or loss.

The fund is operated by the Adviser in reliance on an exclusion, granted to operators of registered investment companies such as the fund, from registration as a “commodity pool operator” with respect to the fund under the Commodity Exchange Act (“CEA”) and, therefore is not subject to registration or regulation with respect to the fund under the CEA. The fund may be limited in its ability to use commodity futures or options thereon, engage in certain swap transactions or make certain other investments if the

46

 

Adviser continues to claim the exclusion from the definition of “commodity pool operator” with respect to the fund.

Inverse Floating Rate Securities. The fund may invest in residual interest municipal obligations whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index (“inverse floaters”). An investment in inverse floaters may involve greater risk than an investment in a fixed-rate bond. Because changes in the interest rate on the other security or index inversely affect the residual interest paid on the inverse floater, the value of an inverse floater is generally more volatile than that of a fixed-rate bond. Inverse floaters have interest rate adjustment formulas which generally reduce or, in the extreme, eliminate the interest paid to the fund when short term interest rates rise, and increase the interest paid to the fund when short term interest rates fall. Inverse floaters have varying degrees of liquidity, and the market for these securities is relatively volatile. These securities tend to underperform the market for fixed-rate bonds in a rising interest rate environment, but tend to outperform the market for fixed-rate bonds when interest rates decline. Shifts in long term interest rates may, however, alter this tendency. Although volatile, inverse floaters typically offer the potential for yields exceeding the yields available on fixed-rate bonds with comparable credit quality, coupon, call provisions and maturity. These securities usually permit the investor to convert the floating-rate to a fixed- rate (normally adjusted downward), and this optional conversion feature may provide a partial hedge against rising rates if exercised at an opportune time.

Investments in Investment Companies. The fund may invest in securities of other investment companies to the extent permitted under the Act.

Use of Leverage. The fund utilizes leverage to seek to enhance the yield and net asset value of its Common Stock. These objectives cannot be achieved in all interest rate environments. To leverage, the fund issues APS and floating rate certificate securities, which pay dividends or interest at prevailing short-term interest rates, and invests the proceeds in long-term municipal bonds. The interest earned on these investments is paid to Common Shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share net asset value of the fund's Common Stock. In order for either of these forms of leverage to benefit Common Shareholders, the yield curve must be positively sloped: that is, short-term interest rates must be lower than long-term interest rates. At the same time, a period of generally declining interest rates will benefit Common Shareholders. If either of these conditions change along with other factors that may have an effect on APS dividends or floating rate certificate securities, then the risk of leveraging will begin to outweigh the benefits.

Principal Risk Factors

The fund is a diversified, closed-end management investment company designed primarily as a long-term investment and not as a short-term trading vehicle. The fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the fund will achieve its investment

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ADDITIONAL INFORMATION (Unaudited) (continued)

objective. Different risks may be more significant at different times depending on market conditions.

Municipal Obligations Risk. The amount of public information available about municipal obligations is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund's investments in municipal obligations. Other factors include the general conditions of the municipal obligations market, the size of the particular offering, and the maturity of the obligation and the rating of the issue. The municipal obligations market can be susceptible to increases in volatility and decreases in liquidity. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the expectation of a rise in interest rates), which are at or near historic lows in the United States. During periods of reduced market liquidity, the fund may not be able to readily sell municipal obligations at prices at or near their perceived value. Changes in economic, business or political conditions relating to a particular municipal project, municipality, or state, territory or possession of the United States in which the fund invests may have an impact on the fund’s net asset value per share of Common Stock. A credit rating downgrade relating to, default by, or insolvency or bankruptcy of, one or several municipal security issuers of a state, territory or possession of the United States in which the fund invests could affect the market values and marketability of many or all municipal securities of such state, territory or possession.

In addition, the fund may invest up to 20% of its net assets in below investment grade municipal obligations. Below investment grade municipal obligations (commonly referred to as “high yield” or "junk" bonds) involve substantial risk of loss and are considered predominantly speculative with respect to the issuer's or obligor's ability to pay interest and repay principal and are susceptible to default or decline in market value due to adverse economic and business developments. The market values for high yield municipal obligations tend to be very volatile, and those bonds are less liquid than investment grade municipal obligations.

Because there is no established retail secondary market for many of these municipal obligations, it may be anticipated that such obligations could be sold only to a limited number of dealers or institutional investors. To the extent a secondary trading market for these obligations does exist, it generally is not as liquid as the secondary market for higher-rated municipal obligations. The lack of a liquid secondary market may have an adverse impact on market price and yield and the fund's ability to dispose of particular issues in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. The lack of a liquid secondary market for certain municipal obligations also may make it more difficult for the fund to obtain accurate market quotations for purposes of valuing the fund’s portfolio and calculating its net asset value. In such cases, the Adviser’s judgment may play a greater role in valuation because less reliable, objective data may be available.

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Call Risk. Some municipal obligations give the issuer the option to “call,” or prepay, the securities before their maturity date. If interest rates fall, it is possible that issuers of callable bonds with high interest coupons will call their bonds. If a call were exercised by the issuer of a bond held by the fund during a period of declining interest rates, the fund is likely to replace such called bond with a lower yielding bond. If that were to happen, it could decrease the fund's distributions and possibly could affect the market price of the Common Stock. Similar risks exist when the fund invests the proceeds from matured, traded or prepaid bonds at market interest rates that are below the fund’s current earnings rate. A decline in income could affect the market price or overall return of the Common Stock. During periods of market illiquidity or rising interest rates, prices of “callable” issues are subject to increased price fluctuation.

Credit Risk. Credit risk is the risk that one or more municipal bonds in the fund’s portfolio will decline in price, or the issuer or obligor thereof will fail to pay interest or repay principal when due, because the issuer or obligor experiences a decline or there is a perception of a decline in its financial status. Below investment grade municipal obligations involve greater credit risk than investment grade municipal obligations. In addition, sizable investments by the fund in revenue obligations could involve an increased risk to the fund should any of the related facilities experience financial difficulties.

Interest Rate Risk. Prices of municipal obligations and other fixed-income securities tend to move inversely with changes in interest rates. Typically, a rise in rates will adversely affect fixed-income securities and, accordingly, will cause the value of the fund’s investments in these securities to decline. During periods of very low interest rates, which occur from time to time due to market forces or actions of governments and/or their central banks, including the Board of Governors of the Federal Reserve System in the U.S., the fund may be subject to a greater risk of principal decline from rising interest rates. When interest rates fall, the values of already-issued fixed-income securities generally rise. However, when interest rates fall, the fund’s investments in new securities may be at lower yields and may reduce the fund's income. The magnitude of these fluctuations in the market price of fixed-income securities is generally greater for securities with longer effective maturities and durations because such instruments do not mature, reset interest rates or become callable for longer periods of time. The change in the value of a fixed-income security or portfolio can be approximated by multiplying its duration by a change in interest rates. For example, the market price of a fixed-income security with a duration of three years would be expected to decline 3% if interest rates rose 1%. Conversely, the market price of the same security would be expected to increase 3% if interest rates fell 1%. Interest rates in the United States currently are at or near historic lows due to market forces and actions of the Board of Governors of the Federal Reserve System in the U.S., primarily in response to the novel coronavirus (COVID-19) pandemic and resultant market disruptions. Changing interest rates, including rates that fall below zero, may have unpredictable effects on markets, may result in heightened market volatility and may detract from fund performance.

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ADDITIONAL INFORMATION (Unaudited) (continued)

Tax Risk. To be tax-exempt, municipal obligations generally must meet certain regulatory requirements. Although the fund will invest in municipal obligations that pay income that is exempt, in the opinion of counsel to the issuer (or on the basis of other authority believed by the Adviser to be reliable), from regular federal income tax, if any such municipal obligation fails to meet these regulatory requirements, the income received by the fund from its investment in such obligations and distributed by the fund to Common Shareholders will be taxable. Changes or proposed changes in federal tax laws may cause the prices of municipal obligations to fall. In addition, the federal income tax treatment of payments in respect of certain derivatives contracts is unclear. Common Shareholders may receive distributions that are attributable to derivatives contracts that are treated as ordinary income for federal income tax purposes

Liquidity Risk. When there is little or no active trading market for specific types of securities, it can become more difficult to sell the securities in a timely manner at or near their perceived value. In such a market, the value of such securities and the fund's net asset value per share of Common Stock may fall dramatically, even during periods of declining interest rates. Other market developments can adversely affect fixed-income securities markets. Regulations and business practices, for example, have led some financial intermediaries to curtail their capacity to engage in trading (i.e., “market making”) activities for certain fixed-income securities, which could have the potential to decrease liquidity and increase volatility in the fixed-income securities markets. The secondary market for certain municipal obligations tends to be less well developed or liquid than many other securities markets, which may adversely affect the fund’s ability to sell such municipal obligations at attractive prices. Investments that are illiquid or that trade in lower volumes may be more difficult to value. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the expectation of a rise in interest rates).

When-Issued Securities Risk. When purchasing a security on a forward commitment basis, the fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations. Because the fund is not required to pay for these securities until the delivery date, these risks are in addition to the risks associated with the fund’s other investments. Securities purchased on a forward commitment, when-issued or delayed-delivery basis are subject to changes in value (generally appreciating when interest rates decline and depreciating when interest rates rise) based upon the public’s perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. Securities purchased on a forward commitment, when-issued or delayed-delivery basis may expose the fund to risks because they may experience such fluctuations prior to their actual delivery.

Use of Derivatives Risk. Derivatives can be volatile and involve various types and degrees of risk, depending upon the characteristics of the particular derivative and the portfolio as a whole. Derivatives may entail investment exposures that are greater than their cost would suggest, meaning that a small investment in derivatives could have a large potential impact on the fund's performance. If the fund invests in derivatives at

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inopportune times or judges market conditions incorrectly, such investments may lower the fund's return or result in a loss. The fund also could experience losses if its derivatives were poorly correlated with the underlying instruments or the fund's other investments, or if the fund were unable to liquidate its position because of an illiquid secondary market. The market for many derivatives is, or suddenly can become, illiquid. Although the fund intends to purchase or sell futures contracts or options only if there is an active market for such contracts or options, no assurance can be given that a liquid market will exist for any particular contract or option at any particular time. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices for derivatives. Additionally, some derivatives the fund may use may involve economic leverage, which may increase the volatility of these instruments as they may increase or decrease in value more quickly than the underlying security, index, futures contract, or other economic variable.

Derivatives may be purchased on established exchanges or through privately negotiated transactions referred to as over-the-counter derivatives. Exchange-traded derivatives, such as futures contracts and certain options, generally are guaranteed by the clearing agency that is the issuer or counterparty to such derivatives. This guarantee usually is supported by a daily variation margin system operated by the clearing agency in order to reduce overall credit risk. As a result, unless the clearing agency defaults, there is relatively little counterparty credit risk associated with derivatives purchased on an exchange. In contrast, no clearing agency guarantees over-the-counter derivatives, including some options and most swap agreements, and, therefore, there is a risk the counterparty will default. Accordingly, the Adviser will consider the creditworthiness of counterparties to over-the-counter derivatives in the same manner as it would review the credit quality of a security to be purchased by the fund. If there were a default by the other party to such transaction the fund would have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreement relating to the transaction. Over-the-counter derivatives are less liquid than exchange-traded derivatives since the other party to the transaction may be the only investor with sufficient understanding of the derivative to be interested in bidding for it. In addition, mandatory margin requirements have been imposed on over-the-counter derivative instruments, which will add to the costs of such transactions.

Options and futures contracts prices can diverge from the prices of their underlying instruments. Options and futures contracts prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect the prices of the underlying instruments in the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. If price changes in the fund's options or futures positions used for hedging purposes are poorly correlated with the investments the fund is attempting to hedge, the options or futures positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments.

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ADDITIONAL INFORMATION (Unaudited) (continued)

Engaging in futures transactions involves risk of loss to the fund which could adversely affect the fund's net asset value. No assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially leading to substantial losses.

The use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. Depending on the state of interest rates in general, the fund's use of interest rate swaps or caps could enhance or harm the overall performance of the fund. To the extent there is a decline in interest rates, the value of the interest rate swap or cap could decline, and could result in a decline in the fund's net asset value. In addition, if short-term interest rates are lower than the fund's rate of payment on the interest rate swap, this will reduce the performance of the fund. If, on the other hand, short-term interest rates are higher than the fund's rate of payment on the interest rate swap, this will enhance the performance of the fund.

It is possible that developments in the derivatives markets, including potential government regulation, could adversely affect the ability to terminate existing derivatives positions or to realize amounts to be received in such transactions. In particular, prior to the recent global financial crisis, the swaps market was largely an unregulated market. It is possible that developments in the swaps market, including new regulatory requirements, could limit or prevent the fund's ability to utilize swap agreements or options on swaps as part of its investment strategy, terminate existing swap agreements or realize amounts to be received under such agreements, which could negatively affect the fund. In particular, the Dodd-Frank Act resulted in new clearing and exchange-trading requirements for swaps and other over-the-counter derivatives. The Dodd-Frank Act also requires the Commodities Futures Trading Commission (“CFTC”) and/or the SEC, in consultation with banking regulators, to establish capital requirements for swap dealers and major swap participants as well as requirements for margin on over-the-counter derivatives, including swaps. Many provisions of the Dodd-Frank Act have either already been implemented through rulemaking by the CFTC and/or the SEC or must be implemented through future rulemaking by those and other federal agencies, and all regulatory or legislative activity may not necessarily have a direct, immediate effect upon the fund. However, compliance with these rules could potentially limit or completely restrict the ability of the fund to use certain derivatives as a part of its investment strategy, increase the cost of entering into derivatives transactions or require more assets of the fund to be used for collateral in support of those derivatives than is currently the case. Limits or restrictions applicable to the counterparties with which the fund engages in derivative transactions also could prevent the fund from using derivatives or affect the pricing or other factors relating to these transactions, or may change the availability of certain derivatives.

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Some derivatives may involve leverage (e.g., an instrument linked to the value of a securities index may return income calculated as a multiple of the price movement of the underlying index). This economic leverage will increase the volatility of these instruments as they may increase or decrease in value more quickly than the underlying security, index, futures contract, currency or other economic variable. Currently, the fund may segregate permissible liquid assets, or engage in other measures approved by the SEC or its staff, to “cover” the fund’s obligations relating to its transactions in derivatives. Where permitted, by setting aside assets equal to only its net obligations under cash-settled derivatives, the fund may employ leverage to a greater extent than if the fund were required to segregate assets equal to the full notional value of such contracts. These coverage practices also might impair the fund's ability to sell a portfolio security, meet current obligations or make an investment at a time when it would otherwise be favorable to do so, or require that the fund sell a portfolio security at a disadvantageous time.

The SEC recently adopted Rule 18f-4 under the Act, which will regulate the use of derivatives by the fund and is effective in August 2022. Under the new rule, the fund may be required to establish a comprehensive derivatives risk management program, to comply with certain value-at-risk based leverage limits, to appoint a derivatives risk manager and to provide additional disclosure both publicly and to the SEC regarding its derivatives positions. Compliance with the new rule by the fund could, among other things, make derivatives more costly, limit their availability or utility or otherwise adversely affect their performance. The new rule may limit the fund's ability to use derivatives as part of its investment strategy.

Use of Leverage Risk. Leverage is a speculative technique and there are special risks and costs associated with leveraging. There is no assurance that leveraging strategy will be successful. Leverage involves risks and special considerations for Common Shareholders, including: the likelihood of greater volatility of net asset value, market price and dividend rate of Common Stock than a comparable portfolio without leverage; the risk that fluctuations in the interest or dividend rates that the fund must pay on any leverage will reduce the return to Common Shareholders; the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of Common Stock than if the fund were not leveraged, which may result in a greater decline in the market price of Common Stock.

Market Risk. The value of the securities in which the fund invests may be affected by political, regulatory, economic and social developments, and developments that impact specific economic sectors, industries or segments of the market. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies worldwide. Recent examples

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ADDITIONAL INFORMATION (Unaudited) (continued)

include pandemic risks related to COVID-19 and aggressive measures taken worldwide in response by governments, including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines of large populations, and by businesses, including changes to operations and reducing staff. 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. The COVID-19 pandemic has had, and any other outbreak of an infectious disease or other serious public health concern could have, a significant negative impact on economic and market conditions and could trigger a prolonged period of global economic slowdown. 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.

Risk of Market Price Discount from Net Asset Value. Shares of closed-end funds, such as the fund, frequently trade at a discount from their net asset value. This characteristic is a risk separate and distinct from the risk that net asset value could decrease as a result of investment activities. The fund cannot predict whether its Common Stock will trade at, above or below net asset value.

Management Risk. The fund is subject to management risk because the Adviser actively manages the fund. The Adviser and the fund's portfolio managers will apply investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that these will produce the desired results.

Cybersecurity Risk. The fund and its service providers are susceptible to operational and information security risks due to cybersecurity incidents. In general, cybersecurity incidents can result from deliberate attacks or unintentional events. Cybersecurity attacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption. Cyber attacks also may be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make services unavailable to intended users). Cybersecurity incidents affecting the Adviser or other service providers, as well as financial intermediaries, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, including by interference with the fund’s ability to calculate its net asset value; impediments to trading for the fund's portfolio; the inability of Common Shareholders to transact business with the fund; violations of applicable privacy, data security or other laws; regulatory fines and penalties; reputational damage; reimbursement or other compensation or remediation costs; legal fees; or additional compliance costs. Similar adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the fund invests, counterparties with which the fund engages in transactions, governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers, insurance companies and other financial institutions and other parties. While information risk management systems and

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business continuity plans have been developed which are designed to reduce the risks associated with cybersecurity, there are inherent limitations in any cybersecurity risk management systems or business continuity plans, including the possibility that certain risks have not been identified.

Given the risks described above, an investment in Common Stock may not be appropriate for all investors. You should carefully consider your ability to assume these risks before making an investment in the fund.

Supplemental Information

During the period ended November 30, 2020, there were (i) no material changes in the fund’s investment objectives or fundamental investment policies, and (ii) no changes in the fund’s charter or by-laws that would delay or prevent a change of control of the fund, and (iii) no change in the persons primarily responsible for the day-to day management of the fund’s portfolio.

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IMPORTANT TAX INFORMATION (Unaudited)

In accordance with federal tax law, the fund hereby reports all the dividends paid from investment income-net during its fiscal year ended November 30, 2020 as “exempt-interest dividends” (not generally subject to regular federal income tax), except $203,536 that is being reported as an ordinary income distribution for reporting purposes. Where required by federal tax law rules, shareholders will receive notification of their portion of the fund’s taxable ordinary dividends (if any), capital gains distributions (if any) and tax-exempt dividends paid for the 2020 calendar year on Form 1099-DIV, which will be mailed in early 2021.

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INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT (Unaudited)

At a meeting of the fund’s Board of Directors held on November 2-3, 2020, the Board considered the renewal of the fund’s Investment Advisory Agreement and Administration Agreement, pursuant to which the Adviser provides the fund with investment advisory services and administrative services (together, the “Agreement”). The Board members, a majority of whom are not “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. Representatives of the Adviser noted that the fund is a closed-end fund without daily inflows and outflows of capital and provided the fund’s asset size.

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 with the performance of a group of leveraged closed-end general and insured municipal debt funds selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all leveraged closed-end general and insured municipal debt funds (the “Performance Universe”), all for various periods ended September 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 funds consisting of all leveraged closed-end general and insured municipal debt funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.

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INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT (Unaudited) (continued)

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. They also considered that performance generally should be considered over longer periods of time, although it is possible that long-term performance can be adversely affected by even one period of significant underperformance so that a single investment decision or theme has the ability to affect disproportionately long-term performance. The Board discussed with representatives of the Adviser and/or its affiliates the results of the comparisons and considered that the fund’s total return performance on a net asset value basis was below the Performance Group and Performance Universe medians for all periods. The Board also considered that the fund’s total return performance was below the Performance Group and Performance Universe medians for all periods. The Board also considered that the fund’s yield performance on a net asset value basis was at or above the Performance Group medians for nine of the ten one-year periods ended September 30th and above the Performance Universe medians for all ten one-year periods; and on a market price basis the fund’s yield performance was above the Performance Group medians for seven of the ten one-year periods ended September 30th and above the Performance Universe medians for eight of the ten one-year periods. The Adviser also provided a comparison of the fund’s calendar year total returns (on a net asset basis) 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 seven of the ten calendar years shown.

Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate (which included the advisory and administration fees combined) payable by the fund to the Adviser in light of the nature, extent and quality of the advisory and administration 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 investment advisory fee paid to the Adviser.

The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons. The Board considered that, based on common assets alone, the fund’s contractual management fee was higher than the Expense Group median and the fund’s actual management fee and total expenses were lower than the Expense Group and Expense Universe medians. The Board also considered that, based on common and leveraged assets together, the fund’s actual management fee and total expenses were higher than the Expense Group and Expense Universe medians. Representatives of the Adviser stated that the Adviser has agreed to extend its agreement to waive receipt of a portion of the fund’s investment advisory fee, in the amount of .10% of the value of the fund’s average weekly net assets (including the net assets representing auction preferred stock outstanding), through May 31, 2021.

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Representatives of the Adviser reviewed with the Board the management or investment advisory fees paid by funds advised or administered by the Adviser that are in the same Lipper category as the fund (the “Similar Funds”), and explained the nature of the Similar Funds. They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors, noting that the fund is a closed-end fund. The Board considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness of the fund’s management fee. Representatives of the Adviser noted that there were no 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 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 because the fund is a closed-end fund without daily inflows and outflows of capital, there were not at this time significant economies of scale to be realized by the Adviser in managing the fund’s assets. 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

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INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT (Unaudited) (continued)

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, subject to review no later than the next renewal consideration.

· 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 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 Investment Advisory Agreement and Administration Agreement.

60

 

BOARD MEMBERS INFORMATION (Unaudited)
INDEPENDENT BOARD MEMBERS

Joseph S. DiMartino (77)
Chairman of the Board (1995)
Current term expires in 2021.

Principal Occupation During Past 5 Years:

· Director and Trustee of funds in the BNY Mellon Family of Funds and certain other entities (as described in the fund’s Statement of Additional Information) (1995-Present)

Other Public Company Board Memberships During Past 5 Years:

· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (1997-Present)

No. of Portfolios for which Board Member Serves: 110

———————

Joni Evans (78)
Board Member (2006)
Current term expires in 2021.

Principal Occupation During Past 5 Years:

· Chief Executive Officer, www.wowOwow.com, an online community dedicated to women’s conversations and publications (2007-Present)

· Principal, Joni Evans Ltd. (publishing) (2006-Present)

No. of Portfolios for which Board Member Serves: 18

———————

Joan Gulley (73)

Board Member (2017)

Current term expires in 2023.

Principal Occupation During Past 5 Years:

· PNC Financial Services Group, Inc.(1993-2014), Executive Vice President and Chief Human Resources Officer and Executive Committee Member (2008-2014)

· Director, Nantucket Library (2015-Present)

No. of Portfolios for which Board Member Serves: 43

———————

61

 

BOARD MEMBERS INFORMATION (Unaudited) (continued)
INDEPENDENT BOARD MEMBERS (continued)

Alan H. Howard (61)

Board Member (2018)

Current term expires in 2022.

Principal Occupation During Past 5 Years:

· Managing Partner of Heathcote Advisors LLC, a financial advisory services firm (2008 – Present)

· President of Dynatech/MPX Holdings LLC (2012 – 2019), a global supplier and service provider of military aircraft parts, including Board Member of two operating subsidiaries, Dynatech International LLC and Military Parts Exchange LLC (2012-2019); Chief Executive Officer of an operating subsidiary, Dynatech International LLC (2013 – 2019)

· Senior Advisor, Rossoff & Co., an independent investment banking firm (2013 – Present)

Other Public Company Board Memberships During Past 5 Years:

· Diamond Offshore Drilling, Inc., a public company that provides contract drilling services, Director (2020-Present)

· Movado Group, Inc., a public company that designs, sources, markets and distributes watches, Director (1997-Present)

No. of Portfolios for which Board Member Serves: 18

———————

Robin A. Melvin (57)
Board Member (1995)
Current term expires in 2022.

Principal Occupation During Past 5 Years:

· Trustee, Westover School, a private girls’ boarding school in Middlebury, Connecticut (2019 – Present)

· Co-chairman, Mentor Illinois, a non-profit organization dedicated to increasing the quality of mentoring services in Illinois (2014 – 2020); Board member, Mentor Illinois (2013 – 2020)

No. of Portfolios for which Board Member Serves: 88

———————

Burton N. Wallack (70)
Board Member (2006)
Current term expires in 2023.

Principal Occupation During Past 5 Years:

President and Co-owner of Wallack Management Company, a real estate management company (1987-Present)

Mount Sinai Hospital Urology Board Member (2017-Present)

No. of Portfolios for which Board Member Serves: 18

———————

62

 

Benaree Pratt Wiley (74)
Board Member (1998)
Current term expires in 2023.

Principal Occupation During Past 5 Years:

· Principal, The Wiley Group, a firm specializing in strategy and business development (2005-Present)

Other Public Company Board Memberships During Past 5 Years:

· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (2008-Present)

· Blue Cross Blue Shield of Massachusetts Director (2004-Present)

No. of Portfolios for which Board Member Serves: 72

———————

63

 

BOARD MEMBERS INFORMATION (Unaudited) (continued)
INTERESTED BOARD MEMBER

Gordon J. Davis (79)
Board Member (2006)
Current term expires in 2022.

Principal Occupation During Past 5 Years:

· Partner in the law firm of Venable LLP (2012-Present)

No. of Portfolios for which Board Member Serves: 50

Gordon J. Davis is deemed to be an “interested person” (as defined under the Act) of the fund as a result of his affiliation with Venable LLP, which provides legal services to the fund.

———————

The address of the Board Members and Officers is c/o BNY Mellon Investment Adviser, Inc. 240 Greenwich Street, New York, New York 10286.

William Hodding Carter III, Emeritus Board Member
Ehud Houminer, Emeritus Board Member
Hans C. Mautner, Emeritus Board Member

64

 

OFFICERS OF THE FUND (Unaudited)

DAVID DIPETRILLO, President since January 2021.

Head of North America Product, BNY Mellon Investment Management since January 2018, Director of Product Strategy, BNY Mellon Investment Management from January 2016 to December 2017; Head of US Retail Product and Channel Marketing, BNY Mellon Investment Management from January 2014 to December 2015. He is an officer of 62 investment companies (comprised of 118 portfolios) managed by Adviser or an affiliate of Adviser. He is 42 years old and has been an employee of BNY Mellon since 2005.

JAMES WINDELS, Treasurer since November 2001.

Director-BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. He is 62 years old and has been an employee of Adviser since April 1985.

BENNETT A. MACDOUGALL, Chief Legal Officer since October 2015.

Chief Legal Officer of the Adviser and Associate General Counsel and Managing Director of BNY Mellon since June 2015; Director and Associate General Counsel of Deutsche Bank–Asset & Wealth Management Division from June 2005 to June 2015, and as Chief Legal Officer of Deutsche Investment Management Americas Inc. from June 2012 to May 2015. He is an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. He is 49 years old and has been an employee of Adviser since June 2015.

JAMES BITETTO, Vice President since August 2005 and Secretary since February 2018.

Senior Managing Counsel of BNY Mellon since December 2019; Managing Counsel of BNY Mellon from April 2014 to December 2019; Secretary of the Adviser, and an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. He is 54 years old and has been an employee of Adviser since December 1996.

DEIRDRE CUNNANE, Vice President and Assistant Secretary since March 2019.

Counsel of BNY Mellon since August 2018; Senior Regulatory Specialist at BNY Mellon Investment Management Services from February 2016 to August 2018; Trustee Associate at BNY Mellon Trust Company (Ireland) Limited from August 2013 to February 2016. She is an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. She is 30 years old and has been an employee of Adviser since August 2018.

SARAH S. KELLEHER, Vice President and Assistant Secretary since April 2014.

Managing Counsel of BNY Mellon since December 2017, Senior Counsel of BNY Mellon from March 2013 to December 2017. She is an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. She is 45 years old and has been an employee of Adviser since March 2013.

JEFF PRUSNOFSKY, Vice President and Assistant Secretary since August 2005.

Senior Managing Counsel of BNY Mellon, and an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. He is 55 years old and has been an employee of Adviser since October 1990.

AMANDA QUINN, Vice President and Assistant Secretary since March 2020.

Counsel of BNY Mellon since June 2019; Regulatory Administration Manager at BNY Mellon Investment Management Services from September 2018 to May 2019; Senior Regulatory Specialist at BNY Mellon Investment Management Services from April 2015 to August 2018. She is an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. She is 35 years old and has been an employee of Adviser since June 2019.

PETER M. SULLIVAN, Vice President and Assistant Secretary since March 2019.

Managing Counsel of BNY Mellon since March 2009, Senior Counsel of BNY Mellon from April 2004 to March 2009, and an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. He is 52 years old and has been an employee of Adviser since January 2019.

65

 

OFFICERS OF THE FUND (Unaudited) (continued)

NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.

Managing Counsel of BNY Mellon since December 2019; Counsel of BNY Mellon from May 2016 to December 2019; Attorney at Wildermuth Endowment Strategy Fund/Wildermuth Advisory, LLC from November 2015 to May 2016 and Assistant General Counsel at RCS Advisory Services from July 2014 to November 2015. She is an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. She is 35 years old and has been an employee of Adviser since May 2016.

GAVIN C. REILLY, Assistant Treasurer since December 2005.

Tax Manager-BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. He is 52 years old and has been an employee of Adviser since April 1991.

ROBERT S. ROBOL, Assistant Treasurer since August 2005.

Senior Accounting Manager-BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. He is 56 years old and has been an employee of Adviser since October 1988.

ROBERT SALVIOLO, Assistant Treasurer since May 2007.

Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. He is 53 years old and has been an employee of Adviser since June 1989.

ROBERT SVAGNA, Assistant Treasurer since August 2005.

Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 141 portfolios) managed by Adviser or an affiliate of Adviser. He is 53 years old and has been an employee of Adviser since November 1990.

JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.

Chief Compliance Officer of the Adviser, the BNY Mellon Family of Funds and BNY Mellon Funds Trust (62 investment companies, comprised of 133 portfolios). He is 63 years old and has served in various capacities with Adviser since 1980, including manager of the firm’s Fund Accounting Department from 1997 through October 2001.

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68

 

OFFICERS AND DIRECTORS
BNY Mellon Strategic Municipal Bond Fund, Inc.

240 Greenwich Street
New York, NY 10286

       

Directors

 

Officers (continued)

 

Joseph S. DiMartino, Chairman

 

Assistant Treasurers (continued)

 

Gordon J. Davis

 

Robert Salviolo

 

Joni Evans††

 

Robert Svagna

 

Joan Gulley

 

Chief Compliance Officer

 

Alan H. Howard

 

Joseph W. Connolly

 

Robin A. Melvin ††

 

Portfolio Managers

 

Burton N. Wallack

 

Daniel A. Rabasco

 

Benaree Pratt Wiley

 

Jeffrey B. Burger

 

Interested Board Member

     

†† Elected by APS Holders

     

Officers

 

Investment Adviser and Administrator

 

President

 

BNY Mellon Investment Adviser, Inc.

 

David DiPetrillo

 

Custodian

 

Chief Legal Officer

 

The Bank of New York Mellon

 

Bennett A. MacDougall

 

Counsel

 

Vice President and Secretary

 

Proskauer Rose LLP

 

James Bitetto

 

Transfer Agent,

 

Vice President and Secretaries

 

Dividend -Paying Agent

 

Deirdre Cunnane

 

Disbursing Agent and Registrar

 

Sarah S. Kelleher

 

Computershare Inc.

 

Jeff Prusnofsky

 

(Common Stock)

 

Peter M. Sullivan

 

Deutsche Bank Trust Company America

 

Amanda Quinn

 

(Auction Preferred Stock)

 

Natalya Zelensky

 

Auction Agent

 
   

Deutsche Bank Trust Company America

 

Treasurer

 

(Auction Preferred Stock)

 

James Windels

 

Stock Exchange Listing

 

Assistant Treasurers

 

NYSE Symbol: DSM

 

Gavin C. Reilly

 

Initial SEC Effective Date

 

Robert S. Robol

 

11/22/89

 
       
       

The fund’s net asset value per share appears in the following publications: Barron’s, Closed-End Bond Funds section under the heading “Municipal Bond Funds” every Monday; and The Wall Street Journal, Mutual Funds section under the heading “Closed-End Funds” every Monday.

Notice is hereby given in accordance with Section 23(c) of the Act that the fund may purchase shares of its Common Stock in the open market when it can do so at prices below the then current net asset value per share.

69

 

For More Information

BNY Mellon Strategic Municipal Bond Fund, Inc.
240 Greenwich Street
New York, NY 10286

Adviser and Administrator
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 &
Registrar (Common Stock)
Computershare Inc.
480 Washington Boulevard
Jersey City, NJ 07310

Dividend Disbursing Agent (Common Stock)
Computershare Inc.
P.O. Box 30170
College Station, TX 77842

   

Ticker Symbol:

DSM

For more information about the fund, visit https://im.bnymellon.com/us/en/products/closed-end-funds.jsp. Here you will find the fund’s most recently available quarterly fact sheets and other information about the fund. The information posted on the fund’s website is subject to change without notice.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.

A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.

   


0852AR1120

 


 

 

Item 2.             Code of Ethics.

The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  There have been no amendments to, or waivers in connection with, the Code of Ethics during the period covered by this Report.

Item 3.             Audit Committee Financial Expert.

The Registrant's Board has determined Alan Howard, a member of the Audit Committee of the Board, is an audit committee financial expert as defined by the Securities and Exchange Commission (the "SEC").  Alan Howard is "independent" as defined by the SEC for purposes of audit committee financial expert determinations.

Item 4.             Principal Accountant Fees and Services.

 

(a)  Audit Fees.  The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant (the "Auditor") for the audit of the Registrant's annual financial statements or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $38,144 in 2019 and $36,686 in 2020.

 

(b)  Audit-Related Fees. The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item 4 were $33,088 in 2019 and $33,331 in 2020.  These services consisted of one or more of the following: (i) agreed upon procedures related to compliance with Internal Revenue Code section 817(h), (ii) security counts required by Rule 17f-2 under the Investment Company Act of 1940, as amended, (iii) advisory services as to the accounting or disclosure treatment of Registrant transactions or events and (iv) advisory services to the accounting or disclosure treatment of the actual or potential impact to the Registrant of final or proposed rules, standards or interpretations by the Securities and Exchange Commission, the Financial Accounting Standards Boards or other regulatory or standard-setting bodies.

 

The aggregate fees billed in the Reporting Periods for non-audit assurance and related services by the Auditor to the Registrant's investment adviser (not including any sub-investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant ("Service Affiliates"), that were reasonably related to the performance of the annual audit of the Service Affiliate, which required pre-approval by the Audit Committee were $0 in 2019 and $0 in 2020.

 

(c)  Tax Fees.  The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice, and tax planning ("Tax Services") were $3,653 in 2019 and $3,104 in 2020. These services consisted of: (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments; (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held, and (iv) determination of Passive Foreign Investment Companies. The aggregate fees billed in the Reporting Periods for Tax Services by the Auditor to Service Affiliates, which required pre-approval by the Audit Committee were $0 in 2019 and $0 in 2020. 

 


 

(d)  All Other Fees.  The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2019 and $0 in 2020. These services consisted of a review of the Registrant's anti-money laundering program.

 

The aggregate fees billed in the Reporting Periods for Non-Audit Services by the Auditor to Service Affiliates, other than the services reported in paragraphs (b) through (c) of this Item, which required pre-approval by the Audit Committee, were $0 in 2019 and $0 in 2020. 

 

(e)(1) Audit Committee Pre-Approval Policies and Procedures. The Registrant's Audit Committee has established policies and procedures (the "Policy") for pre-approval (within specified fee limits) of the Auditor's engagements for non-audit services to the Registrant and Service Affiliates without specific case-by-case consideration. The pre-approved services in the Policy can include pre-approved audit services, pre-approved audit-related services, pre-approved tax services and pre-approved all other services.  Pre-approval considerations include whether the proposed services are compatible with maintaining the Auditor's independence.  Pre-approvals pursuant to the Policy are considered annually.

(e)(2) Note. None of the services described in paragraphs (b) through (d) of this Item 4 were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

 

(f) None of the hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.

Non-Audit Fees. The aggregate non-audit fees billed by the Auditor for services rendered to the Registrant, and rendered to Service Affiliates, for the Reporting Periods were $700,014 in 2019 and $1,174,149 in 2020. 

 

Auditor Independence. The Registrant's Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Auditor's independence.

 

Item 5.             Audit Committee of Listed Registrants.

                        The Registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a) (58) (A) of the Securities Exchange Act of 1934, consisting of all of the non-interested Board members, who are:   Joseph S. DiMartino,  Joni Evans, Joan Gulley, Alan Howard, Robin A. Melvin, Burton N. Wallack, and Benaree P. Wiley.            

Item 6.             Investments.

(a)                    Not applicable.

Item 7.             Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

                        The board has delegated to BNY Mellon Investment Adviser, Inc. ("BNYM Investment Adviser") the authority to vote proxies of companies held in the fund's portfolio.

Information regarding how the fund's proxies were voted during the most recent 12-month period ended June 30th is available on BNYM Investment Adviser's website, by the following August 31st, at www.im.bnymellon.com and on the SEC's website at http://www.sec.gov on the fund's Form N-PX.

Proxy Voting By BNYM Investment Adviser


 

BNYM Investment Adviser, through its participation in The Bank of New York Mellon Corporation's ("BNY Mellon") Proxy Voting and Governance Committee (the "Proxy Voting Committee"), applies detailed, pre-determined, written proxy voting guidelines for specific types of proposals and matters commonly submitted to shareholders (the "BNY Mellon Voting Guidelines").  This includes guidelines for proxy voting with respect to open-end registered investment company shares (other than securities of a registered investment company over which BNY Mellon and its direct and indirect subsidiaries, including BNYM Investment Adviser ("BNYM") has proxy voting authority). 

Securities Out on Loan.  It is BNYM Investment Adviser's policy to seek to vote all proxies for securities held in the funds' portfolios for which BNYM Investment Adviser has voting authority.  However, situations may arise in which the Proxy Voting Committee cannot, or has adopted a policy not to, vote certain proxies, such as refraining from securities out on loan in instances in which the costs are believed to outweigh the benefits, such as when the matters presented are not likely to have a material impact on shareholder value or clients' voting will not impact the outcome of the vote.

Securities Out on Loan.  For securities that the fund has loaned to another party, any voting rights that accompany the loaned securities generally pass to the borrower of the securities, but the fund retains the right to recall a security and may then exercise the security's voting rights.  In order to vote the proxies of securities out on loan, the securities must be recalled prior to the established record date.  The fund may recall the loan to vote proxies if a material issue affecting the fund's investment is to be voted upon.

Material Conflicts of Interest.  BNYM Investment Adviser seeks to avoid material conflicts of interest between the fund and fund shareholders, on the one hand, and BNYM Investment Adviser, the Distributor, or any affiliated person of the fund, BNYM Investment Adviser or the Distributor, on the other, through its participation in the Proxy Voting Committee.  The BNY Mellon Proxy Voting Policy states that the Proxy Voting Committee seeks to avoid material conflicts of interest through the establishment of the committee structure, which applies the BNY Mellon Voting Guidelines in an objective and consistent manner across client accounts, based on internal and external research and recommendations provide by third party proxy advisory services (including Institutional Shareholder Services, Inc. and Glass Lewis & Co., LLC (the "Proxy Advisers")) and without consideration of any client relationship factors.  The Proxy Voting Committee utilizes the research services of the Proxy Advisers most frequently in connection with proposals that may be controversial or require a case-by-case analysis in accordance with the BNY Mellon Proxy Voting Guidelines.  In addition, the BNY Mellon Proxy Voting Policy states that the Proxy Voting Committee engages a third party as an independent fiduciary to vote all proxies for securities of BNY Mellon or securities of a registered investment company over which BNYM has proxy voting authority and may engage an independent fiduciary to vote proxies of other issuers at the Proxy Voting Committee's discretion. 

Item 8.             Portfolio Managers of Closed-End Management Investment Companies.

(a)(1) The following information is as of November 30, 2020:

Daniel Rabasco, CFA and Jeffrey Burger of Mellon Investments Corporation (“Mellon”), an affiliate of BNYM Investment Adviser, are primarily responsible for the day-to-day management of the registrant’s portfolio.

Mr. Burger, a portfolio manager for tax-sensitive strategies at Mellon, has served as a primary portfolio manager of the fund since July 2014.  He has been employed as a portfolio manager and analyst at Mellon since 2006.

Mr. Rabasco, a managing director and the head of municipal bonds at Mellon, has served as a primary portfolio manager of the fund since July 2016.  He has been employed at Mellon since 1998.


 

(a)(2) Information about the other accounts managed by the fund’s primary portfolio managers is provided below.

Primary

Portfolio

Manager

Registered Investment Companies

Total Assets Managed

Other Pooled Investment Vehicles

 

Total Assets Managed

 

Other Accounts

 

Total Assets Managed

    Jeffrey Burger

14

$5.7 billion

1

$586M

446

$1.7 billion

    Daniel Rabasco

14

$7.1 billion

0

N/A

54

$2.6 billion

 

None of the funds or accounts are subject to a performance-based advisory fee.

Portfolio managers may manage multiple accounts for a diverse client base, including mutual funds, separate accounts (assets managed on behalf of institutions such as pension funds, insurance companies and foundations), bank common trust accounts and wrap fee programs ("Other Accounts").

Potential conflicts of interest may arise because of BNYM Investment Adviser's management of the Fund and Other Accounts.  For example, conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities, as BNYM Investment Adviser may be perceived as causing accounts it manages to participate in an offering to increase BNYM Investment Adviser's overall allocation of securities in that offering, or to increase BNYM Investment Adviser's ability to participate in future offerings by the same underwriter or issuer.  Allocations of bunched trades, particularly trade orders that were only partially filled due to limited availability and allocation of investment opportunities generally, could raise a potential conflict of interest, as BNYM Investment Adviser may have an incentive to allocate securities that are expected to increase in value to preferred accounts.  Initial public offerings, in particular, are frequently of very limited availability.  Additionally, portfolio managers may be perceived to have a conflict of interest if there are a large number of Other Accounts, in addition to the Fund, that they are managing on behalf of BNYM Investment Adviser.   BNYM Investment Adviser periodically reviews each portfolio manager's overall responsibilities to ensure that he or she is able to allocate the necessary time and resources to effectively manage the Fund.  In addition, BNYM Investment Adviser could be viewed as having a conflict of interest to the extent that BNYM Investment Adviser or its affiliates and/or portfolios managers have a materially larger investment in Other Accounts than their investment in the Fund.

Other Accounts may have investment objectives, strategies and risks that differ from those of the Fund.  For these or other reasons, the portfolio manager may purchase different securities for the Fund and the Other Accounts, and the performance of securities purchased for the Fund may vary from the performance of securities purchased for Other Accounts.  The portfolio manager may place transactions on behalf of Other Accounts that are directly or indirectly contrary to investment decisions made for the Fund, which could have the potential to adversely impact the Fund, depending on market conditions.

A potential conflict of interest may be perceived to arise if transactions in one account closely follow related transactions in another account, such as when a purchase increases the value of securities previously purchased by the other account, or when a sale in one account lowers the sale price received in a sale by a second account. 

Conflicts of interest similar to those described above arise when portfolio managers are employed by a sub-investment adviser or are dual employees of the Manager and an affiliated entity and such portfolio managers also manage other accounts.

BNYM Investment Adviser's goal is to provide high quality investment services to all of its clients, while meeting BNYM Investment Adviser's fiduciary obligation to treat all clients fairly.  BNYM Investment Adviser has adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, that it believes address the conflicts associated with managing multiple accounts for multiple clients.  In addition, BNYM Investment Adviser monitors a variety of areas, including compliance with Fund guidelines, the allocation of IPOs, and compliance with the firm's Code of Ethics.  Furthermore, senior investment and business personnel at BNYM Investment Adviser periodically review the performance of BNYM Investment Adviser's portfolio managers.


 

(a)(3) Portfolio Manager Compensation.  The portfolio managers' compensation is comprised primarily of a market-based salary and an incentive compensation plan (annual and long-term).  Funding for the Mellon Incentive Plan is through a pre-determined fixed percentage of overall company profitability.  Therefore, all bonus awards are based initially on Mellon's overall performance as opposed to the performance of a single product or group.  All investment professionals are eligible to receive incentive awards.  Cash awards are payable in the February month end pay of the following year. Most of the awards granted have some portion deferred for three years in the form of deferred cash, BNY Mellon equity, interests in investment vehicles (consisting of investments in a range of Mellon products), or a combination of the above. Individual awards for portfolio managers are discretionary, based on both individual and multi-sector product risk adjusted performance relative to both benchmarks and peer comparisons over one year, three year and five year periods.  Also considered in determining individual awards are team participation and general contributions to Mellon.  Individual objectives and goals are also established at the beginning of each calendar year and are taken into account. Portfolio managers whose compensation exceeds certain levels may elect to defer portions of their base salaries and/or incentive compensation pursuant to BNY Mellon's Elective Deferred Compensation Plan.

(a)(4) The dollar range of Fund shares beneficially owned by the primary portfolio manager is as follows as of the end of the Fund's fiscal year:

Primary Portfolio Manager

Fund

Dollar Range of Fund Shares Beneficially Owned

Daniel Rabasco

BNY Mellon Strategic Municipal Bond Fund, Inc.

None

Jeffrey Burger

BNY Mellon Strategic Municipal Bond Fund, Inc.

None

 

(b)        Not applicable

Item 9.             Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.

                        None. 

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.

The fund did not participate in a securities lending program during this period.

Item 13.           Exhibits.

(a)(1)    Code of ethics referred to in Item 2.

(a)(2)    Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.

(a)(3)    Not applicable.

(b)        Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.


 

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 Strategic Municipal Bond Fund, Inc.

By:       /s/ David DiPetrillo

            David DiPetrillo

            President (Principal Executive Officer)

 

Date:    January 26, 2021

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

By:       /s/ David DiPetrillo

            David DiPetrillo

            President (Principal Executive Officer)

 

Date:    January 26, 2021

 

By:       /s/ James Windels

            James Windels

            Treasurer (Principal Financial Officer)

 

Date:    January 26, 2021

 

 

 


 

EXHIBIT INDEX

(a)(1)    Code of ethics referred to in Item 2.

(a)(2)    Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.  (EX-99.CERT)

(b)        Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.  (EX-99.906CERT)

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