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BNY Mellon Appreciation Fund

Filed: 1 Sep 20, 1:32pm

 

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

811-03081

 

 

 

BNY Mellon Appreciation 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:

 

12/31

 

Date of reporting period:

06/30/2020

 

 

       

 

 

 

 


 

FORM N-CSR

Item 1.          Reports to Stockholders.

 


 

BNY Mellon Appreciation Fund, Inc.

 

SEMIANNUAL REPORT

June 30, 2020

 

 

 

Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.bnymellonim.com/us and sign up for eCommunications. It’s simple and only takes a few minutes.

 

The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds.

 

Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value

 

Contents

THE FUND

FOR MORE INFORMATION

 

Back Cover

 

    
 


BNY Mellon Appreciation Fund, Inc.

 

The Fund

A LETTER FROM THE PRESIDENT OF BNY MELLON INVESTMENT ADVISER, INC.

Dear Shareholder:

We are pleased to present this semiannual report for BNY Mellon Appreciation Fund, Inc., covering the six-month period from January 1, 2020 through June 30, 2020. For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.

After a positive end to 2019, investors were optimistic. Expectations for robust economic growth, accommodative policies from the U.S. Federal Reserve (the “Fed”) and healthy U.S. consumer spending helped support equity valuations in the U.S. well into January and February of 2020. However, the euphoria was short-lived, as concerns over the spread of COVID-19 began to roil markets. Early signs of market turmoil began in China and adjacent areas of the Pacific Rim, which were heavily affected by the virus early in 2020. As the virus spread across the globe, concerns about the economic effects of a widespread quarantine worked to depress equity valuations. U.S. stocks began to show signs of volatility in March 2020 and posted historic losses during that month. Global central banks and governments worked to enact emergency stimulus measures to support their respective economies, and equity valuations began to rebound, trending upward in April, May and June 2020.

In fixed-income markets, interest rates were heavily influenced by changes in Fed policy and investor concern over COVID-19. When the threat posed by COVID-19 began to emerge, a flight-to-quality ensued and rates fell significantly. March 2020 brought extreme volatility and risk-asset spread widening. The Fed cut rates twice in March, resulting in an overnight lending target rate of nearly zero, and the government launched a large stimulus package. Both actions worked to support bond valuations throughout April, May and June 2020.

We believe the near-term outlook for the U.S. will be challenging, as the country contends with the spread of COVID-19 and determines a path forward for recovery. However, we are confident that once the economic effects of the virus have been mitigated, the economy will rebound. As always, we will monitor relevant data for signs of change. We encourage you to discuss the risks and opportunities in today’s investment environment with your financial advisor.

Thank you for your continued confidence and support.

Sincerely,

Renee LaRoche-Morris
President
BNY Mellon Investment Adviser, Inc.
July 15, 2020

2

 

DISCUSSION OF FUND PERFORMANCE (Unaudited)

For the period from January 1, 2020 through June 30, 2020, as provided by portfolio manager Fayez Sarofim of Fayez Sarofim & Co., Sub-Investment Adviser

Market and Fund Performance Overview

For the six-month period ended June 30, 2020, BNY Mellon Appreciation Fund, Inc.’s Investor shares produced a total return of 1.31%, its Class I shares returned 1.42%, and its Class Y shares returned 1.48%.1 In comparison, the fund’s benchmark, the S&P 500® Index (the “Index”), produced a total return of -3.07% for the same period.2

U.S. stocks declined during the reporting period as efforts to contain the COVID-19 resulted in a sharp drop in economic activity. The fund outperformed its benchmark, largely due to sector allocation and stock selections in several sectors, including financials, industrials and information technology.

The Fund’s Investment Approach

The fund seeks long-term capital growth consistent with the preservation of capital. Its secondary goal is current income. To pursue its goals, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in common stocks. The fund focuses on blue chip companies with total market capitalizations of more than $5 billion at the time of purchase, including multinational companies. These are established companies that have demonstrated sustained patterns of profitability, strong balance sheets, an expanding global presence and the potential to achieve predictable, above-average earnings growth.

In choosing stocks, first the fund’s portfolio managers identify economic sectors they believe will expand over the next three to five years or longer. Using fundamental analysis, the fund’s portfolio managers then seek companies within these sectors that have proven track records and dominant positions in their industries. The fund employs a “buy-and-hold” investment strategy, which generally has resulted in an annual portfolio turnover rate of below 15%. A low portfolio turnover rate helps reduce the fund’s trading costs and can help limit the distribution of capital gains generated due to portfolio turnover.3

Stocks Rebound as Economic Data Improves

With the spread of COVID-19, subsequent government shutdowns and emerging economic recovery, it was a tale of two quarters for the Index. In the first quarter of 2020, the Index fell from a mid-February 2020 peak of 3,386 to a bottom of 2,237 toward the end of March 2020. Returns on the Index amounted to -8.2% in February 2020 and -12.4% in March 2020, with every sector showing declines.

But in the second quarter, the Index delivered a 20.5% return, nearly reversing the drop in the first quarter. Two sectors finished the period in positive territory, information technology and consumer discretionary.

The rebound in the market came as a result of the policy response of the government and the Federal Reserve (the “Fed”) and the subsequent economic improvement.

3

 

DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)

Government authorities implemented travel restrictions, business closures and stay-at-home mandates. In addition, Congress passed the bipartisan Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 trillion stimulus package that included direct payments to individuals and emergency lending facilities for small businesses, corporations and states. The Fed cut the federal funds rate twice, bringing it to 0.00%-0.25%. The Fed also increased bond purchases and launched lending facilities to maintain liquidity in the markets.

As a result of these measures, economic activity picked up. Retail sales rebounded by 17.7% in May 2020 versus the previous month. Manufacturing also improved dramatically as indicated by the June 2020 Purchasing Managers Index, which rose by 9.5% over May 2020. Job creation also surged in May and June 2020, beating economist expectations as nonfarm payrolls rose by more than 2.7 million and 4.8 million, respectively. Unemployment fell from 14.7% in April 2020 to 13.3% in May 2020 and to 11.1% in June 2020.

Sector Allocation and Stock Selection Drove Fund Performance

The fund outperformance versus the Index was driven primarily by the impact of stock selection. The fund maintained its outperformance through both the first quarter’s volatility as well as the second quarter’s rebound. Strong stock selection contributed positively to results, particularly in the financials sector. The portfolio benefited from overweighting the capital markets subsector and underweighting the challenged banking subsector. In the industrial sector, an underweight allocation and superior stock selection also contributed positively to results. Similarly, an overweight allocation and advantageous stock selection in the information technology sector contributed positively to returns, driven by holdings in software, hardware and semiconductor equipment industries. The top stock selections that contributed positively to relative returns included Microsoft, Amazon.com, Apple, ASML Holding and Facebook.

On a less positive note, an overweight allocation to the consumer staples sector hampered fund returns for the period. In this sector, positions in the beverage and tobacco industries were especially detrimental. The fund’s allocation to the energy sector was also a modest detractor from relative returns as the sector significantly underperformed the Index. The top detractors from relative performance included JPMorgan Chase & Co., Exxon Mobil, Raytheon Technologies, Coca-Cola and Berkshire Hathaway.

Industry Leaders May Withstand Uncertain Economic Conditions

Despite the market’s shift to a positive outlook, we remain cautious. Improving sentiment must be balanced with uncertainty about a potential second wave of COVID-19 infections. Unemployment remains near record highs, and extended business closures may result in long-lasting damage to the economy. In addition, tensions with China will continue to add to economic uncertainty. We expect continued volatility if shutdowns are extended, resulting in reduced expectations for revenue and earnings.

4

 

We believe that the fund is well-positioned to withstand periods of market stress. We focus on industry leaders with solid balance sheets, a geographically diverse revenue stream and the potential to consistently deliver revenue and earnings growth across business cycles.

July 15, 2020

1  Total return includes reinvestment of dividends and any capital gains paid. Past performance is no guarantee of future results. Share price and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost.

2  Source: Lipper Inc. — The S&P 500® Index is widely regarded as the best single gauge of large-cap U.S. equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Investors cannot invest directly in any index.

3  Achieving tax efficiency is not a part of the fund’s investment objective, and there can be no guarantee that the fund will achieve any particular level of taxable distributions in future years. In periods when the manager has to sell significant amounts of securities (e.g., during periods of significant net redemptions or changes in index components), funds can be expected to be less tax efficient than during periods of more stable market conditions and asset flows.

Please note: the position in any security highlighted with italicized typeface was sold during the reporting period.

Equities are subject generally to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund’s prospectus.

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

5

 

UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)

As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in BNY Mellon Appreciation Fund, Inc. from January 1, 2020 to June 30, 2020. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

      

Expenses and Value of a $1,000 Investment

 

Assume actual returns for the six months ended June 30, 2020

 

 

 

 

 

 

 

 

 

Investor Shares

Class I

Class Y

 

Expense paid per $1,000

$4.50

$3.36

$2.96

 

Ending value (after expenses)

$1,013.10

$1,014.20

$1,014.80

 

COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS
(Unaudited)

Using the SEC’s method to compare expenses

The Securities and Exchange Commission (“SEC”) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

      

Expenses and Value of a $1,000 Investment

 

Assuming a hypothetical 5% annualized return for the six months ended June 30, 2020

 

 

 

 

 

 

 

 

 

Investor Shares

Class I

Class Y

 

Expense paid per $1,000

$4.52

$3.37

$2.97

 

Ending value (after expenses)

$1,020.39

$1,021.53

$1,021.93

 

Expenses are equal to the fund’s annualized expense ratio of .90% for Investor Shares, .67% for Class I and .59% for Class Y, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).

6

 

STATEMENT OF INVESTMENTS

June 30, 2020 (Unaudited)

        
 

Description

   

Shares

 

Value ($)

 

Common Stocks - 99.0%

     

Banks - 2.0%

     

JPMorgan Chase & Co.

   

367,790

 

34,594,327

 

Capital Goods - 1.0%

     

Otis Worldwide

   

99,270

 

5,644,492

 

Raytheon Technologies

   

198,540

 

12,234,035

 
    

17,878,527

 

Commercial & Professional Services - 1.0%

     

Verisk Analytics

   

101,025

 

17,194,455

 

Consumer Durables & Apparel - 3.6%

     

Hermes International

   

11,400

 

9,514,703

 

LVMH Moet Hennessy Louis Vuitton

   

71,425

 

31,284,071

 

NIKE, Cl. B

   

217,675

 

21,343,034

 
    

62,141,808

 

Consumer Services - 1.5%

     

McDonald's

   

140,655

 

25,946,628

 

Diversified Financials - 8.4%

     

Berkshire Hathaway, Cl. A

   

114

a

30,472,200

 

BlackRock

   

76,205

 

41,462,378

 

Intercontinental Exchange

   

284,695

 

26,078,062

 

S&P Global

   

139,445

 

45,944,339

 
    

143,956,979

 

Energy - 1.5%

     

Chevron

   

286,220

 

25,539,411

 

Food, Beverage & Tobacco - 8.7%

     

Altria Group

   

520,895

 

20,445,129

 

Nestle, ADR

   

290,190

 

32,048,584

 

PepsiCo

   

231,575

 

30,628,109

 

Philip Morris International

   

486,650

 

34,094,699

 

The Coca-Cola Company

   

743,650

 

33,226,282

 
    

150,442,803

 

Health Care Equipment & Services - 6.1%

     

Abbott Laboratories

   

371,125

 

33,931,959

 

Intuitive Surgical

   

33,000

a

18,804,390

 

Masimo

   

37,725

a

8,600,923

 

UnitedHealth Group

   

146,800

 

43,298,660

 
    

104,635,932

 

Household & Personal Products - 2.8%

     

The Estee Lauder Companies, Cl. A

   

258,720

 

48,815,290

 

Insurance - 2.8%

     

Chubb

   

166,735

 

21,111,986

 

The Progressive

   

347,000

 

27,798,170

 
    

48,910,156

 

7

 

STATEMENT OF INVESTMENTS (Unaudited) (continued)

        
 

Description

   

Shares

 

Value ($)

 

Common Stocks - 99.0% (continued)

     

Materials - 3.9%

     

Air Products & Chemicals

   

197,465

 

47,679,899

 

The Sherwin-Williams Company

   

33,200

 

19,184,620

 
    

66,864,519

 

Media & Entertainment - 12.7%

     

Alphabet, Cl. C

   

53,307

a

75,355,308

 

Comcast, Cl. A

   

885,790

 

34,528,094

 

Facebook, Cl. A

   

400,480

a

90,936,993

 

The Walt Disney Company

   

153,270

a

17,091,138

 
    

217,911,533

 

Pharmaceuticals Biotechnology & Life Sciences - 5.4%

     

AbbVie

   

223,735

 

21,966,302

 

Johnson & Johnson

   

108,815

 

15,302,653

 

Novo Nordisk, ADR

   

461,155

 

30,196,429

 

Roche Holding, ADR

   

595,025

 

25,812,184

 
    

93,277,568

 

Retailing - 5.8%

     

Amazon.com

   

36,035

a

99,414,079

 

Semiconductors & Semiconductor Equipment - 5.6%

     

ASML Holding

   

117,360

 

43,192,001

 

Texas Instruments

   

416,705

 

52,909,034

 
    

96,101,035

 

Software & Services - 16.8%

     

Adobe

   

40,800

a

17,760,648

 

Automatic Data Processing

   

61,190

 

9,110,579

 

Broadridge Financial Solutions

   

54,900

 

6,927,831

 

Intuit

   

60,000

 

17,771,400

 

Mastercard, Cl. A

   

60,000

 

17,742,000

 

Microsoft

   

729,990

 

148,560,265

 

Visa, Cl. A

   

373,145

b

72,080,420

 
    

289,953,143

 

Technology Hardware & Equipment - 6.9%

     

Apple

   

325,975

 

118,915,680

 

Transportation - 2.5%

     

Canadian Pacific Railway

   

116,965

 

29,865,843

 

Union Pacific

   

72,725

 

12,295,616

 
    

42,161,459

 

Total Common Stocks (cost $628,705,283)

   

1,704,655,332

 

8

 

        
 

Description

 

1-Day
Yield (%)

 

Shares

 

Value ($)

 

Investment Companies - 1.0%

     

Registered Investment Companies - 1.0%

     

Dreyfus Institutional Preferred Government Plus Money Market Fund
(cost $16,488,518)

 

0.22

 

16,488,518

c

16,488,518

 

Total Investments (cost $645,193,801)

 

100.0%

 

1,721,143,850

 

Liabilities, Less Cash and Receivables

 

(.0%)

 

(115,761)

 

Net Assets

 

100.0%

 

1,721,028,089

 

ADR—American Depository Receipt

a Non-income producing security.

b Security, or portion thereof, on loan. At June 30, 2020, the value of the fund’s securities on loan was $57,310,448 and the value of the collateral was $57,919,221, consisting of U.S. Government & Agency securities.

c Investment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.

  

Portfolio Summary (Unaudited)

Value (%)

Information Technology

29.2

Financials

13.2

Communication Services

12.7

Consumer Staples

11.6

Health Care

11.5

Consumer Discretionary

10.9

Industrials

4.5

Materials

3.9

Energy

1.5

Investment Companies

1.0

 

100.0

 Based on net assets.

See notes to financial statements.

9

 

STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS (Unaudited)

       

Investment Companies

Value
12/31/19($)

Purchases($)

Sales ($)

Value
6/30/20($)

Net
Assets(%)

Dividends/
Distributions($)

Registered

Investment
Companies;

    

Dreyfus Institutional Preferred Government Plus Money Market Fund

11,311,190

64,419,702

(59,242,374)

16,488,518

1.0

56,806

Investment
of Cash
Collateral
for Securities
Loaned;

  

Dreyfus Institutional Preferred Government Plus Money Market Fund

-

79,115,131

(79,115,131)

-

-

-

Total

11,311,190

143,534,833

(138,357,505)

16,488,518

1.0

56,806

 Includes reinvested dividends/distributions.

See notes to financial statements.

10

 

STATEMENT OF ASSETS AND LIABILITIES

June 30, 2020 (Unaudited)

       

 

 

 

 

 

 

 

 

 

 

Cost

 

Value

 

Assets ($):

 

 

 

 

Investments in securities—See Statement of Investments
(including securities on loan, valued at $57,310,448)—Note 1(c):

 

 

 

Unaffiliated issuers

628,705,283

 

1,704,655,332

 

Affiliated issuers

 

16,488,518

 

16,488,518

 

Cash denominated in foreign currency

 

 

90,396

 

93,249

 

Receivable for investment securities sold

 

7,730,288

 

Dividends and securities lending income receivable

 

2,117,094

 

Receivable for shares of Common Stock subscribed

 

1,569,785

 

Tax reclaim receivable

 

884,739

 

Prepaid expenses

 

 

 

 

85,038

 

 

 

 

 

 

1,733,624,043

 

Liabilities ($):

 

 

 

 

Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(b)

 

840,262

 

Due to Fayez Sarofim & Co.

 

 

 

 

304,829

 

Cash overdraft due to Custodian

 

 

 

 

272,697

 

Payable for investment securities purchased

 

9,568,166

 

Payable for shares of Common Stock redeemed

 

1,420,652

 

Directors’ fees and expenses payable

 

3,995

 

Other accrued expenses

 

 

 

 

185,353

 

 

 

 

 

 

12,595,954

 

Net Assets ($)

 

 

1,721,028,089

 

Composition of Net Assets ($):

 

 

 

 

Paid-in capital

 

 

 

 

583,586,320

 

Total distributable earnings (loss)

 

 

 

 

1,137,441,769

 

Net Assets ($)

 

 

1,721,028,089

 

     

Net Asset Value Per Share

Investor Shares

Class I

Class Y

 

Net Assets ($)

1,499,241,004

147,114,523

74,672,562

 

Shares Outstanding

44,820,743

4,428,071

2,242,022

 

Net Asset Value Per Share ($)

33.45

33.22

33.31

 

 

 

 

 

 

See notes to financial statements.

 

 

 

 

11

 

STATEMENT OF OPERATIONS

Six Months Ended June 30, 2020 (Unaudited)

       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Income ($):

 

 

 

 

Income:

 

 

 

 

Cash dividends (net of $315,012 foreign taxes withheld at source):

 

Unaffiliated issuers

 

 

14,986,869

 

Affiliated issuers

 

 

55,228

 

Interest

 

 

92,327

 

Income from securities lending—Note 1(c)

 

 

45,310

 

Total Income

 

 

15,179,734

 

Expenses:

 

 

 

 

Investment advisory fee—Note 3(a)

 

 

2,687,212

 

Shareholder servicing costs—Note 3(b)

 

 

2,317,596

 

Sub-investment advisory fee—Note 3(a)

 

 

1,757,801

 

Directors’ fees and expenses—Note 3(c)

 

 

58,632

 

Professional fees

 

 

55,619

 

Registration fees

 

 

43,844

 

Prospectus and shareholders’ reports

 

 

37,302

 

Custodian fees—Note 3(b)

 

 

32,540

 

Loan commitment fees—Note 2

 

 

15,379

 

Chief Compliance Officer fees—Note 3(b)

 

 

8,595

 

Miscellaneous

 

 

15,776

 

Total Expenses

 

 

7,030,296

 

Investment Income—Net

 

 

8,149,438

 

Realized and Unrealized Gain (Loss) on Investments—Note 4 ($):

 

 

Net realized gain (loss) on investments and foreign currency transactions

59,787,463

 

Net realized gain (loss) on forward foreign currency exchange contracts

257

 

Capital gain distributions from affiliated issuers

1,578

 

Net Realized Gain (Loss)

 

 

59,789,298

 

Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions

(47,904,451)

 

Net Realized and Unrealized Gain (Loss) on Investments

 

 

11,884,847

 

Net Increase in Net Assets Resulting from Operations

 

20,034,285

 

 

 

 

 

 

 

 

See notes to financial statements.

     

12

 

STATEMENT OF CHANGES IN NET ASSETS

          

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30, 2020 (Unaudited)

 

Year Ended
December 31, 2019

 

Operations ($):

 

 

 

 

 

 

 

 

Investment income—net

 

 

8,149,438

 

 

 

16,246,133

 

Net realized gain (loss) on investments

 

59,789,298

 

 

 

130,530,443

 

Net change in unrealized appreciation
(depreciation) on investments

 

(47,904,451)

 

 

 

336,329,291

 

Net Increase (Decrease) in Net Assets
Resulting from Operations

20,034,285

 

 

 

483,105,867

 

Distributions ($):

 

Distributions to shareholders:

 

 

 

 

 

 

 

 

Investor Shares

 

 

(25,442,492)

 

 

 

(154,046,791)

 

Class I

 

 

(2,455,288)

 

 

 

(14,170,844)

 

Class Y

 

 

(1,181,352)

 

 

 

(6,367,030)

 

Total Distributions

 

 

(29,079,132)

 

 

 

(174,584,665)

 

Capital Stock Transactions ($):

 

Net proceeds from shares sold:

 

 

 

 

 

 

 

 

Investor Shares

 

 

57,435,781

 

 

 

54,242,215

 

Class I

 

 

34,701,966

 

 

 

25,443,032

 

Class Y

 

 

18,937,494

 

 

 

4,081,446

 

Distributions reinvested:

 

 

 

 

 

 

 

 

Investor Shares

 

 

24,176,066

 

 

 

146,503,110

 

Class I

 

 

1,667,658

 

 

 

9,581,260

 

Class Y

 

 

1,180,590

 

 

 

6,362,931

 

Cost of shares redeemed:

 

 

 

 

 

 

 

 

Investor Shares

 

 

(100,397,897)

 

 

 

(229,292,061)

 

Class I

 

 

(20,614,284)

 

 

 

(46,817,539)

 

Class Y

 

 

(4,998,225)

 

 

 

(17,711,015)

 

Increase (Decrease) in Net Assets
from Capital Stock Transactions

12,089,149

 

 

 

(47,606,621)

 

Total Increase (Decrease) in Net Assets

3,044,302

 

 

 

260,914,581

 

Net Assets ($):

 

Beginning of Period

 

 

1,717,983,787

 

 

 

1,457,069,206

 

End of Period

 

 

1,721,028,089

 

 

 

1,717,983,787

 

13

 

STATEMENT OF CHANGES IN NET ASSETS (continued)

          

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30, 2020 (Unaudited)

 

Year Ended
December 31, 2019

 

Capital Share Transactions (Shares):

 

Investor Sharesa

 

 

 

 

 

 

 

 

Shares sold

 

 

1,831,905

 

 

 

1,658,538

 

Shares issued for distributions reinvested

 

 

856,698

 

 

 

4,509,794

 

Shares redeemed

 

 

(3,207,534)

 

 

 

(7,148,829)

 

Net Increase (Decrease) in Shares Outstanding

(518,931)

 

 

 

(980,497)

 

Class Ia

 

 

 

 

 

 

 

 

Shares sold

 

 

1,105,725

 

 

 

818,274

 

Shares issued for distributions reinvested

 

 

59,128

 

 

 

297,103

 

Shares redeemed

 

 

(668,049)

 

 

 

(1,476,790)

 

Net Increase (Decrease) in Shares Outstanding

496,804

 

 

 

(361,413)

 

Class Y

 

 

 

 

 

 

 

 

Shares sold

 

 

602,976

 

 

 

128,882

 

Shares issued for distributions reinvested

 

 

41,619

 

 

 

197,187

 

Shares redeemed

 

 

(159,013)

 

 

 

(554,386)

 

Net Increase (Decrease) in Shares Outstanding

485,582

 

 

 

(228,317)

 

 

 

 

 

 

 

 

 

 

 

aDuring the period ended December 31, 2019, 261 Investor shares representing $8,309 were exchanged for 262 Class I shares.

 

See notes to financial statements.

        

14

 

FINANCIAL HIGHLIGHTS

The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund’s financial statements.

            
       
 

Six Months Ended

 

Investor Shares

June 30, 2020

Year Ended December 31,

(Unaudited)

2019

2018

2017

2016

2015

Per Share Data ($):

      

Net asset value, beginning of period

33.69

27.72

36.07

33.43

39.96

53.91

Investment Operations:

      

Investment income—neta

.16

.31

.40

.42

.56

.80

Net realized and unrealized
gain (loss) on investments

.18

9.20

(2.74)

8.06

2.18

(2.00)

Total from Investment Operations

.34

9.51

(2.34)

8.48

2.74

(1.20)

Distributions:

      

Dividends from
investment income—net

(.15)

(.32)

(.41)

(.43)

(.57)

(.88)

Dividends from net realized
gain on investments

(.43)

(3.22)

(5.60)

(5.41)

(8.70)

(11.87)

Total Distributions

(.58)

(3.54)

(6.01)

(5.84)

(9.27)

(12.75)

Net asset value, end of period

33.45

33.69

27.72

36.07

33.43

39.96

Total Return (%)

1.31b

35.14

(6.38)

26.65

7.23

(2.51)

Ratios/Supplemental Data (%):

      

Ratio of total expenses
to average net assets

.90c

.89

.90

.91

.94

.92

Ratio of net investment income
to average net assets

.98c

.97

1.14

1.18

1.48

1.55

Portfolio Turnover Rate

7.73b

4.73

5.12

3.52

6.43

5.69

Net Assets,
end of period ($ x 1,000)

1,499,241

1,527,482

1,283,979

1,634,721

1,816,298

2,579,331

a Based on average shares outstanding.

b Not annualized.

c Annualized.

See notes to financial statements.

15

 

FINANCIAL HIGHLIGHTS (continued)

          
      
 

Six Months Ended

   

Class I Shares

June 30, 2020

Year Ended December 31,

(Unaudited)

2019

2018

2017

2016a

Per Share Data ($):

     

Net asset value, beginning of period

33.47

27.55

35.89

33.39

38.54

Investment Operations:

     

Investment income—netb

.19

.39

.49

.52

.18

Net realized and unrealized
gain (loss) on investments

.18

9.15

(2.73)

8.02

.30

Total from Investment Operations

.37

9.54

(2.24)

8.54

.48

Distributions:

     

Dividends from
investment income—net

(.19)

(.40)

(.50)

(.63)

(.30)

Dividends from net realized
gain on investments

(.43)

(3.22)

(5.60)

(5.41)

(5.33)

Total Distributions

(.62)

(3.62)

(6.10)

(6.04)

(5.63)

Net asset value, end of period

33.22

33.47

27.55

35.89

33.39

Total Return (%)

1.42c

35.50

(6.16)

26.91

1.23c

Ratios/Supplemental Data (%):

     

Ratio of total expenses
to average net assets

.67d

.65

.66

.74

.67d

Ratio of net investment income
to average net assets

1.21d

1.21

1.38

1.47

1.91d

Portfolio Turnover Rate

7.73c

4.73

5.12

3.52

6.43

Net Assets,
end of period ($ x 1,000)

147,115

131,573

118,283

172,475

25,547

a From August 31, 2016 (commencement of initial offering) to December 31, 2016.

b Based on average shares outstanding.

c Not annualized.

d Annualized.

See notes to financial statements.

16

 

          
       
 

Six Months Ended

 

Class Y Shares

June 30, 2020

Year Ended December 31,

(Unaudited)

2019

2018

2017

2016

2015

Per Share Data ($):

      

Net asset value, beginning of period

33.55

27.61

35.96

33.43

39.96

53.92

Investment Operations:

      

Investment income—neta

.20

.41

.53

.52

.66

.97

Net realized and unrealized
gain (loss) on investments

.19

9.17

(2.75)

8.07

2.21

(2.01)

Total from Investment Operations

.39

9.58

(2.22)

8.59

2.87

(1.04)

Distributions:

      

Dividends from
investment income—net

(.20)

(.42)

(.53)

(.65)

(.70)

(1.05)

Dividends from net realized
gain on investments

(.43)

(3.22)

(5.60)

(5.41)

(8.70)

(11.87)

Total Distributions

(.63)

(3.64)

(6.13)

(6.06)

(9.40)

(12.92)

Net asset value, end of period

33.31

33.55

27.61

35.96

33.43

39.96

Total Return (%)

1.48b

35.58

(6.10)

27.03

7.63

(2.22)

Ratios/Supplemental Data (%):

      

Ratio of total expenses
to average net assets

.59c

.59

.59

.62

.65

.57

Ratio of net investment income
to average net assets

1.28c

1.28

1.50

1.45

1.95

1.89

Portfolio Turnover Rate

7.73b

4.73

5.12

3.52

6.43

5.69

Net Assets,
end of period ($ x 1,000)

74,673

58,929

54,808

188,851

59,875

8,703

a Based on average shares outstanding.

b Not annualized.

c Annualized.

See notes to financial statements.

17

 

NOTES TO FINANCIAL STATEMENTS (Unaudited)

NOTE 1—Significant Accounting Policies:

BNY Mellon Appreciation Fund, Inc. (the “fund”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), is a diversified open-end management investment company. The fund’s investment objective is to seek long-term capital growth 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. Fayez Sarofim & Co. (the “Sub-Adviser”), serves as the fund’s sub-investment adviser.

BNY Mellon Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Adviser, is the distributor of the fund’s shares, which are sold to the public without a sales charge. The fund is authorized to issue 500 million shares of $.001 par value Common Stock. The fund currently has authorized three classes of shares: Investor (300 million shares authorized), Class I (100 million shares authorized) and Class Y (100 million shares authorized). Investor shares are sold primarily to retail investors through financial intermediaries and bear Shareholder Services Plan fees. Class I and Y shares are sold at net asset value per share generally to institutional investors. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs, and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-Investment Companies. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.

The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown. The

18

 

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 equity securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. For open short positions, asked prices are used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset

19

 

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

value. All of the preceding securities are generally categorized within Level 1 of the fair value hierarchy.

Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices. These securities are generally categorized within Level 2 of the fair value hierarchy.

Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures. Utilizing these techniques may result in transfers between Level 1 and Level 2 of the fair value hierarchy.

When market quotations or official closing prices are not readily available, or are determined not to accurately reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the fund’s Board of Directors (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.

Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange.

The following is a summary of the inputs used as of June 30, 2020 in valuing the fund’s investments:

20

 

      
 

Level 1 - Unadjusted Quoted Prices

Level 2 - Other Significant Observable Inputs

Level 3 -Significant Unobservable Inputs

Total

Assets ($)

   

Investments in Securities:

   

Equity Securities - Common Stocks

1,663,856,558

40,798,774††

-

1,704,655,332

Investment Companies

16,488,518

-

-

16,488,518

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

†† Securities classified within Level 2 at period end as the values were determined pursuant to the fund’s fair valuation procedures.

(b) Foreign currency transactions: The fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized on securities transactions between trade and settlement date, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments resulting from changes in exchange rates. Foreign currency gains and losses on foreign currency transactions are also included with net realized and unrealized gain or loss on investments.

Foreign Taxes: The fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, stock dividends, realized and unrealized capital gains on investments or certain foreign currency transactions. Foreign taxes are recorded in accordance with the fund’s understanding of the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the fund invests. These foreign taxes, if any, are paid by the fund and are reflected in the Statements of Operations. Foreign taxes payable or deferred as of June 30, 2020, if any, are disclosed in the fund’s Statements of Assets and Liabilities.

(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and

21

 

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

amortization of premium on investments, is recognized on the accrual basis.

Pursuant to a securities lending agreement with The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of the Adviser, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Adviser, or U.S. Government and Agency securities. The fund is entitled to receive all dividends, interest and distributions on securities loaned, in addition to income earned as a result of the lending transaction. Should a borrower fail to return the securities in a timely manner, The Bank of New York Mellon is required to replace the securities for the benefit of the fund or credit the fund with the market value of the unreturned securities and is subrogated to the fund’s rights against the borrower and the collateral. Additionally, the contractual maturity of security lending transactions are on an overnight and continuous basis. During the period ended June 30, 2020, The Bank of New York Mellon earned $9,820 from the lending of the fund’s portfolio securities, pursuant to the securities lending agreement.

(d) Affiliated issuers: Investments in other investment companies advised by the Adviser are considered “affiliated” under the Act.

(e) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies world-wide.  Recent examples include pandemic risks related to COVID-19 and aggressive measures taken world-wide in response by governments, including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines of large populations, and by businesses, including changes to operations and reducing staff. To the

22

 

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.

(f) Dividends and distributions to shareholders: Dividends and distributions are recorded on the ex-dividend date. Dividends from investment income-net are normally declared and paid quarterly. 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.

(g) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.

As of and during the period ended June 30, 2020, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended June 30, 2020, the fund did not incur any interest or penalties.

Each tax year in the three-year period ended December 31, 2019 remains subject to examination by the Internal Revenue Service and state taxing authorities.

The tax character of distributions paid to shareholders during the fiscal year ended December 31, 2019 was as follows: ordinary income $16,800,390 and long-term capital gains $157,784,275. The tax character of current year distributions will be determined at the end of the current fiscal year.

NOTE 2—Bank Lines of Credit:

The fund participates with other long-term open-end funds managed by the Adviser in a $927 million unsecured credit facility led by Citibank, N.A. (the “Citibank Credit Facility”) and a $300 million unsecured credit facility provided by The Bank of New York Mellon (the “BNYM Credit Facility”),

23

 

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions (each, a “Facility”). The Citibank Credit Facility is available in two tranches: (i) Tranche A is in an amount equal to $747 million and is available to all long-term open-ended funds, including the fund, and (ii) Tranche B is an amount equal to $180 million and is available only to BNY Mellon Floating Rate Income Fund, a series of BNY Mellon Investment Funds IV, Inc. Prior to March 11, 2020, the Citibank Credit Facility was $1.030 billion with Tranche A available in an amount equal to $830 million and Tranche B available in an amount equal to $200 million. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended June 30, 2020, the fund did not borrow under the Facilities.

NOTE 3—Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates:

(a) Pursuant to an investment advisory agreement with the Adviser, the investment advisory fee is computed at the annual rate of .3325% of the value of the fund’s average daily net assets. Pursuant to a sub-investment advisory agreement with the Sub-Adviser, the fund pays the Sub-Adviser a monthly sub-investment advisory fee at the annual rate of .2175% of the value of the fund’s average daily net assets. Both fees are payable monthly.

(b) Under the Shareholder Services Plan, Investor shares pay the Distributor at an annual rate of .25% of the value of its average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts, such as recordkeeping and sub-accounting services. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended June 30, 2020, the fund was charged $1,781,898 pursuant to the Shareholder Services Plan.

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

24

 

The fund has an arrangement with the custodian whereby the fund will receive interest income or be charged an overdraft fees when cash balances are maintained. For financial reporting purposes, the fund includes this interest income and overdraft fees, if any, as interest income in the Statements of Operations.

The fund compensates BNY Mellon Transfer, Inc., a wholly-owned subsidiary of the Adviser, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended June 30, 2020, the fund was charged $135,685 for transfer agency services. These fees are included in Shareholder servicing costs in the Statement of Operations.

The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended June 30, 2020, the fund was charged $32,540 pursuant to the custody agreement.

During the period ended June 30, 2020, the fund was charged $8,595 for services performed by the Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.

The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees of $466,003, Shareholder Services Plan fees of $305,821, custodian fees of $12,000, Chief Compliance Officer fees of $4,695 and transfer agency fees of $51,743.

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

NOTE 4—Securities Transactions:

The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward foreign currency exchange contracts (“forward contracts”), during the period ended June 30, 2020, amounted to $124,788,601 and $137,103,530, respectively.

Derivatives: A derivative is a financial instrument whose performance is derived from the performance of another asset. The fund enters into International Swaps and Derivatives Association, Inc. Master Agreements or similar agreements (collectively, “Master Agreements”) with its over-

25

 

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

the-counter (“OTC”) derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under a Master Agreement, the fund may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment in the event of default or termination.

Each type of derivative instrument that was held by the fund during the period ended June 30, 2020 is discussed below.

Forward Foreign Currency Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions or as a part of its investment strategy. When executing forward contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward contracts, the fund incurs a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward contracts, the fund incurs a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates. Any realized or unrealized gains or losses which occurred during the period are reflected in the Statement of Operations. The fund is exposed to foreign currency risk as a result of changes in value of underlying financial instruments. The fund is also exposed to credit risk associated with counterparty nonperformance on these forward contracts, which is generally limited to the unrealized gain on each open contract. This risk may be mitigated by Master Agreements, if any, between the fund and the counterparty and the posting of collateral, if any, by the counterparty to the fund to cover the fund’s exposure to the counterparty. At June 30, 2020, there were no forward contracts outstanding.

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

   

 

 

Average Market Value ($)

Forward contracts

 

23,552

 

 

 

26

 

At June 30, 2020, accumulated net unrealized appreciation on investments was $1,075,950,049, consisting of $1,076,160,347 gross unrealized appreciation and $210,298 gross unrealized depreciation.

At June 30, 2020, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).

27

 

LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)

Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.

The rule requires the funds to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.

The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.

Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the fund’s board. Furthermore, the board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.

Assessment of Program

In the opinion of the Program Administrator, the Program approved by the fund board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.

During the period from June 1, 2019 to March 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.

28

 

Under normal expected foreseeable fund redemption forecasts and foreseeable stressed fund redemption forecasts, the Program Administrator believes that the fund maintains sufficient highly liquid assets to meet expected fund redemptions.

29

 

For More Information

BNY Mellon Appreciation Fund, Inc.

240 Greenwich Street
New York, NY 10286

Adviser

BNY Mellon Investment Adviser, Inc.
240 Greenwich Street
New York, NY 10286

Sub-Adviser

Fayez Sarofim & Co.
Two Houston Center
Suite 2907
Houston, TX 77010

Custodian

The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286

Transfer Agent &
Dividend Disbursing Agent

BNY Mellon Transfer, Inc.
240 Greenwich Street
New York, NY 10286

Distributor

BNY Mellon Securities Corporation
240 Greenwich Street
New York, NY 10286

  

Ticker Symbols:

Investor: DGAGX Class I: DGIGX Class Y: DGYGX

Telephone Call your financial representative or 1-800-373-9387

Mail The BNY Mellon Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144

E-mail Send your request to info@bnymellon.com

Internet Information can be viewed online or downloaded at www.bnymellonim.com/us

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

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

  

© 2020 BNY Mellon Securities Corporation
0141SA0620

 


 

 

Item 2.          Code of Ethics.

                      Not applicable.

Item 3.          Audit Committee Financial Expert.

                      Not applicable.

Item 4.          Principal Accountant Fees and Services.

                      Not applicable.

Item 5.          Audit Committee of Listed Registrants.

                      Not applicable.

Item 6.          Investments.

(a)                 Not applicable.

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

                      Not applicable.

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

Not applicable.

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

                      Not applicable.

Item 10.        Submission of Matters to a Vote of Security Holders.

                      There have been no material changes to the procedures applicable to Item 10.

Item 11.        Controls and Procedures.

(a)          The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b)          There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.


 

Item 12.        Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

Not applicable.

Item 13.        Exhibits.

(a)(1)     Not applicable.

(a)(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 Appreciation Fund, Inc.

By:         /s/ Renee LaRoche-Morris

              Renee LaRoche-Morris

              President (Principal Executive Officer)

 

Date:      August 21, 2020

 

 

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

 

By:         /s/ Renee LaRoche-Morris

              Renee LaRoche-Morris

              President (Principal Executive Officer)

 

Date:      August 21, 2020

 

 

By:         /s/ James Windels

              James Windels

              Treasurer (Principal Financial Officer)

 

Date:      August 20, 2020

 

 

 


 

EXHIBIT INDEX

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

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