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 | 811-07044 | |||||
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| BNY Mellon Sustainable U.S. Equity Portfolio, Inc. |
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| (Exact name of Registrant as specified in charter) |
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c/o BNY Mellon Investment Adviser, Inc. 240 Greenwich Street New York, New York 10286 |
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| (Address of principal executive offices) (Zip code) |
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| Bennett A. MacDougall, Esq. 240 Greenwich Street New York, New York 10286 |
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| (Name and address of agent for service) |
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Registrant's telephone number, including area code: | (212) 922-6400 | |||||
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Date of fiscal year end:
| 12/31 |
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Date of reporting period: | 12/31/2020
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FORM N-CSR
Item 1. Reports to Stockholders.
BNY Mellon Sustainable U.S. Equity Portfolio, Inc.
ANNUAL REPORT December 31, 2020 |
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
With Those of Other Funds | |
in Affiliated Issuers | |
Currency Exchange Contracts | |
Public Accounting Firm | |
of the Fund’s Management and | |
Sub-Investment Advisory Agreements | |
FOR MORE INFORMATION
Back Cover
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from January 1, 2020 through December 31, 2020, as provided by portfolio managers Jeff Munroe and Yuko Takano of Newton Investment Management Limited, Sub-Investment Adviser
Market and Fund Performance Overview
For the 12-month period ended December 31, 2020, BNY Mellon Sustainable U.S. Equity Portfolio, Inc.’s, Initial shares produced a total return of 24.14%, and the fund’s Service shares returned 23.86%.1 In comparison, the fund’s benchmark, the S&P 500® Index (the “Index”), produced a total return of 18.40% for the same period.2
U.S. equities posted gains over the reporting period, bolstered by supportive central bank policies during the COVID-19 pandemic. The fund outperformed the Index, mainly due to allocation decisions within the energy, information technology and consumer discretionary sectors, as well as successful stock selection within the consumer discretionary, financials and materials sectors.
The Fund’s Investment Approach
The fund seeks long-term capital appreciation. To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of U.S. companies that demonstrate attractive investment attributes and sustainable business practices and have no material, unresolvable, environmental, social and governance (ESG) issues. The fund invests principally in common stocks, focusing on companies with market capitalizations of $5 billion or more at the time of purchase. The fund may invest up to 20% of its assets in the stocks of foreign companies, including up to 10% in the stocks of companies in emerging-market countries.
We use quantitative and qualitative fundamental analyses to identify attractively priced companies with good products, strong management and strategic direction that have adopted, or are making progress toward, a sustainable business approach. We employ an investment process that combines investment themes with fundamental research and analysis to select stocks for the fund’s portfolio.
Central Bank Policy and COVID-19 Influence Markets
After an optimistic end to 2019, markets gave way to extreme risk aversion in early 2020, as the global scope of the COVID-19 pandemic became apparent. Equity valuations in the U.S. remained robust throughout January and February 2020, while markets in areas that experienced the virus earlier, such as China, began to experience volatility closer to the start of the calendar year. Financial markets also had to contend with a second major shock in the form of an oil-price war between Saudi Arabia and Russia, which caused oil prices to fall precipitously in March 2020. Worldwide, governments and central banks launched an unprecedented array of fiscal initiatives that sought to offset the economic impact of widespread lockdown measures and bolster asset prices. The intervention provided comfort to investors, and indices began to rally towards the end of March 2020. Supported by the intervention, equities generally went on to stage a recovery that lasted through August 2020. However, the recovery was company and sector specific, as several industries that remained affected by COVID-19 prevention procedures did not fully participate.
In September, volatility crept back into equity markets, as increasing COVID-19 infection rates began to concern investors. By October, several countries had begun to reinstitute some degree of behavioral restriction among residents in order to stem the spread of the virus. In addition, mounting political rhetoric in the U.S. due to the election, renewed trade difficulties between the U.S. and China, and other geopolitical events stoked investor anxiety. However, resolution in the
2
U.S. presidential election and promising progress towards a COVID-19 vaccine during the month of November 2020 helped stocks resurrect their upward momentum. December 2020 brought vaccine approvals and passage of another U.S. fiscal stimulus package, both of which helped to support the rally which lasted through the end of the year.
Allocation Decisions and Security Selections Drive Fund Performance
A void in energy aided relative performance, as oil production cuts failed to adequately compensate for the demand destruction arising from the pandemic. Overweight positioning in information technology and consumer discretionary also aided relative returns, as did a void in real estate. Meanwhile, stock selection was strong in consumer discretionary, financials and materials. From an individual contributor perspective, chipmaker Qualcomm benefited, as investors grew increasingly appreciative of its exposure to a 5G cycle that can see the company’s chip business return to peak profitability. Shares surged after the chipmaker posted strong revenue projections and announced a long-term licensing deal with China’s Huawei. The stock received a further boost, as a U.S. appeals court reversed an earlier antitrust ruling against the chipmaker in a case brought by the Federal Trade Commission. Elsewhere in the market, positive sentiment around companies in the electric vehicle (EV) supply chain extended to lithium miner Albemarle. The stock rose strongly following a victory for Joe Biden in the U.S. presidential election, given the potential for more favorable EV-related policy.
Conversely, stock picking constrained performance in health care and industrials. In the latter sector, General Electric fell, as investors took fright at the global downturn in airline activity. With airlines moving into survival mode, following substantial declines in air traffic brought about by the imposition of virus-related travel restrictions, the aircraft engine manufacturer was not immune to such disruption. Indeed, first-quarter earnings came in below expectations, with GE Aviation witnessing a sharp decline in orders. We subsequently exited the small holding over the third quarter, acknowledging that a high exposure to aerospace brought significant uncertainties to the company’s cash flows, and that organizational change over the coming years may be slowed. We felt it prudent to reallocate the proceeds to areas offering more secure growth in the longer term. Elsewhere, mortgage REIT Redwood Trust was also a significant detractor, hit hard over the start of the year, as investors considered the extent to which its ability to generate returns in a zero-rate environment had been impaired. Having struggled to develop our conviction in the company’s business model and the risks that it entails, we exited the residual position in the stock during the fourth quarter, given our strong preference for the other financials held in the portfolio.
Maintaining a Long-Term Focus in an Uncertain Environment
Although the adoption of increasingly stringent lockdown restrictions across Europe offers a stark reminder that the path of COVID-19 remains distinctly unpredictable, we retain a constructive view on U.S. equity markets into the start of the year. Plenty of policy support remains in place, and we anticipate that investors will remain cautiously optimistic about the prospects of economic recovery in 2021, following positive vaccine developments. However, we note that a certain amount of such a recovery is likely to have been built into valuations already and, in this context, our long-term thematic framework continues to serve as a valuable guide to our stock picking.
With the pandemic serving as an accelerator of change, businesses are responding rapidly in order to become more adaptive. We hold positions in companies that are benefiting from this shift, supported by our ‘Net Effects’ and ‘Smart Revolution’ themes, alongside businesses with more leverage to an eventual recovery in a range of industries. As ever, we retain a focus on companies
3
DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)
that have an exposure to attractive structural growth trends and possess strong, robust business models. We also have a favorable view on those companies that pay keen attention to ESG considerations in order to enhance their long-term positions.
January 15, 2021
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. The fund’s return reflects the absorption of certain fund expenses by BNY Mellon Investment Adviser, Inc. pursuant to an agreement in effect through May 1, 2021, at which time it may be extended, modified or terminated. Had these expenses not been absorbed, returns would have been lower.
2 Source: Lipper Inc. — The S&P 500® Index is widely regarded as the best single gauge of large-cap U.S. equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Investors cannot invest directly in any index.
Please note: the position in any security highlighted with italicized typeface was sold during the reporting period.
Equities are subject generally to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund’s prospectus.
Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others. To the extent the fund may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase the fund’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.
The fund’s consideration of ESG issues in the securities selection process may cause the fund to perform differently from funds that do not integrate consideration of ESG issues when selecting investments.
The fund is only available as a funding vehicle under variable life insurance policies or variable annuity contracts issued by insurance companies. Individuals may not purchase shares of the fund directly. A variable annuity is an insurance contract issued by an insurance company that enables investors to accumulate assets on a tax-deferred basis for retirement or other long-term goals. The investment objective and policies of BNY Mellon Sustainable U.S. Equity Portfolio, Inc., made available through insurance products, may be similar to those of other funds managed by BNY Mellon Investment Adviser, Inc. However, the investment results of the fund may be higher or lower than, and may not be comparable to, those of any other BNY Mellon Investment Adviser, Inc. fund.
4
FUND PERFORMANCE (Unaudited)
Comparison of change in value of a $10,000 investment in Initial shares and Service shares of BNY Mellon Sustainable U.S. Equity Portfolio, Inc. with a hypothetical investment of $10,000 in the S&P 500® Index (the “Index”)
† Source: Lipper Inc.
Past performance is not predictive of future performance. The fund’s performance does not reflect the deduction of additional charges and expenses imposed in connection with investing in variable insurance contracts which will reduce returns.
The above graph compares a hypothetical $10,000 investment made in Initial shares and Service shares of BNY Mellon Sustainable U.S. Equity Portfolio, Inc. on 12/31/10 to a hypothetical investment of $10,000 made in the Index on that date.
The fund’s performance shown in the line graph above takes into account all applicable fund fees and expenses for Initial shares and Service shares (after any expense reimbursements). The Index is widely regarded as the best single gauge of large-cap U.S. equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Unlike a mutual fund, the Index is not subject to charges, fees and other expenses. Investors cannot invest directly in any index. Further information relating to fund performance, including expense reimbursements, if applicable, is contained in the Financial Highlights section of the prospectus and elsewhere in this report.
5
FUND PERFORMANCE (Unaudited) (continued)
Average Annual Total Returns as of 12/31/2020 | |||
| 1 Year | 5 Years | 10 Years |
Initial shares | 24.14% | 15.21% | 12.96% |
Service shares | 23.86% | 14.92% | 12.68% |
S&P 500® Index | 18.40% | 15.21% | 13.87% |
The performance data quoted represents past performance, which is no guarantee of future results. Share price and investment return fluctuate and an investor’s shares may be worth more or less than original cost upon redemption. Current performance may be lower or higher than the performance quoted. Go to www.im.bnymellon.com for the fund’s most recent month-end returns.
The fund’s Initial shares are not subject to a Rule 12b-1 fee. The fund’s Service shares are subject to a 0.25% annual Rule 12b-1 fee. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the graph and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
6
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), redemption fees and expenses associated with variable annuity or insurance contracts, 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 Sustainable U.S. Equity Portfolio, Inc. from July 1, 2020 to December 31, 2020. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment |
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Assume actual returns for the six months ended December 31, 2020 |
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| Initial Shares | Service Shares |
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Expense paid per $1,000† | $3.79 | $5.18 |
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Ending value (after expenses) | $1,217.20 | $1,215.80 |
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COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (“SEC”) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment |
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Assuming a hypothetical 5% annualized return for the six months ended December 31, 2020 |
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| Initial Shares | Service Shares |
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Expense paid per $1,000† | $3.46 | $4.72 |
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Ending value (after expenses) | $1,021.72 | $1,020.46 |
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† Expenses are equal to the fund’s annualized expense ratio of .68% for Initial Shares and .93% for Service Shares, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
7
STATEMENT OF INVESTMENTS
December 31, 2020
Description | Shares | Value ($) | |||||
Common Stocks - 98.9% | |||||||
Banks - 6.5% | |||||||
Citigroup | 192,906 | 11,894,584 | |||||
First Republic Bank | 50,453 | 7,413,059 | |||||
19,307,643 | |||||||
Capital Goods - 1.7% | |||||||
Ferguson | 40,865 | 4,969,630 | |||||
Consumer Durables & Apparel - 5.1% | |||||||
Lennar, Cl. A | 73,690 | 5,617,389 | |||||
NIKE, Cl. B | 67,345 | 9,527,297 | |||||
15,144,686 | |||||||
Diversified Financials - 3.6% | |||||||
The Goldman Sachs Group | 40,551 | 10,693,704 | |||||
Food & Staples Retailing - 2.3% | |||||||
Costco Wholesale | 18,063 | 6,805,777 | |||||
Food, Beverage & Tobacco - 3.2% | |||||||
Beyond Meat | 7,211 | a | 901,375 | ||||
PepsiCo | 58,494 | 8,674,660 | |||||
9,576,035 | |||||||
Health Care Equipment & Services - 6.4% | |||||||
Abbott Laboratories | 83,206 | 9,110,225 | |||||
Medtronic | 83,140 | 9,739,020 | |||||
18,849,245 | |||||||
Insurance - 2.5% | |||||||
Intact Financial | 63,309 | 7,496,215 | |||||
Materials - 4.4% | |||||||
Albemarle | 46,986 | 6,931,375 | |||||
Ecolab | 13,082 | 2,830,422 | |||||
International Flavors & Fragrances | 31,154 | 3,390,801 | |||||
13,152,598 | |||||||
Media & Entertainment - 4.6% | |||||||
Alphabet, Cl. A | 7,701 | a | 13,497,081 | ||||
Pharmaceuticals Biotechnology & Life Sciences - 2.6% | |||||||
Merck & Co. | 92,483 | 7,565,109 | |||||
Retailing - 11.4% | |||||||
Amazon.com | 6,018 | a | 19,600,205 | ||||
Dollar General | 31,674 | 6,661,042 | |||||
eBay | 146,336 | 7,353,384 | |||||
33,614,631 | |||||||
Semiconductors & Semiconductor Equipment - 8.3% | |||||||
Applied Materials | 84,028 | 7,251,616 | |||||
Qualcomm | 74,654 | 11,372,790 |
8
Description | Shares | Value ($) | |||||
Common Stocks - 98.9% (continued) | |||||||
Semiconductors & Semiconductor Equipment - 8.3% (continued) | |||||||
Texas Instruments | 36,648 | 6,015,036 | |||||
24,639,442 | |||||||
Software & Services - 20.6% | |||||||
Accenture, Cl. A | 42,582 | 11,122,844 | |||||
Fidelity National Information Services | 36,657 | 5,185,499 | |||||
Intuit | 20,276 | 7,701,839 | |||||
Mastercard, Cl. A | 25,432 | 9,077,698 | |||||
Microsoft | 92,959 | 20,675,941 | |||||
salesforce.com | 31,950 | a | 7,109,834 | ||||
60,873,655 | |||||||
Technology Hardware & Equipment - 8.7% | |||||||
Apple | 159,780 | 21,201,208 | |||||
TE Connectivity | 37,516 | a | 4,542,062 | ||||
25,743,270 | |||||||
Telecommunication Services - 1.9% | |||||||
Verizon Communications | 93,823 | 5,512,101 | |||||
Transportation - 1.2% | |||||||
Norfolk Southern | 15,193 | 3,610,009 | |||||
Utilities - 3.9% | |||||||
CMS Energy | 58,943 | 3,596,113 | |||||
Eversource Energy | 90,367 | 7,817,649 | |||||
11,413,762 | |||||||
Total Common Stocks (cost $176,689,974) | 292,464,593 | ||||||
1-Day | |||||||
Investment Companies - 1.2% | |||||||
Registered Investment Companies - 1.2% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 0.09 | 3,426,748 | b | 3,426,748 | |||
Total Investments (cost $180,116,722) | 100.1% | 295,891,341 | |||||
Liabilities, Less Cash and Receivables | (.1%) | (196,855) | |||||
Net Assets | 100.0% | 295,694,486 |
aNon-income producing security.
bInvestment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.
9
STATEMENT OF INVESTMENTS (continued)
Portfolio Summary (Unaudited) † | Value (%) |
Information Technology | 37.6 |
Consumer Discretionary | 16.5 |
Financials | 12.7 |
Health Care | 8.9 |
Communication Services | 6.4 |
Consumer Staples | 5.5 |
Materials | 4.5 |
Utilities | 3.9 |
Industrials | 2.9 |
Investment Companies | 1.2 |
100.1 |
† Based on net assets.
See notes to financial statements.
10
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS
Investment Companies | Value | Purchases($)† | Sales($) | Value | Net | Dividends/ |
Registered Investment Companies; | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund | 4,052,203 | 45,576,496 | (46,201,951) | 3,426,748 | 1.2 | 30,270 |
† Includes reinvested dividends/distributions.
See notes to financial statements.
11
STATEMENT OF FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS December 31, 2020
Counterparty/ Purchased | Purchased Currency | Currency | Sold | Settlement Date | Unrealized (Depreciation) ($) |
Barclays Capital | |||||
United States Dollar | 35,024 | Canadian Dollar | 44,665 | 1/4/2021 | (66) |
Gross Unrealized Depreciation | (66) |
See notes to financial statements.
12
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2020
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| Cost |
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Assets ($): |
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Investments in securities—See Statement of Investments |
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Unaffiliated issuers | 176,689,974 |
| 292,464,593 |
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Affiliated issuers |
| 3,426,748 |
| 3,426,748 |
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Cash denominated in foreign currency |
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| 35,009 |
| 35,089 |
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Dividends receivable |
| 216,744 |
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Receivable for shares of Common Stock subscribed |
| 43,905 |
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Prepaid expenses |
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| 6,568 |
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| 296,193,647 |
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Liabilities ($): |
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Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
| 159,068 |
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Payable for shares of Common Stock redeemed |
| 273,117 |
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Directors’ fees and expenses payable |
| 5,598 |
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Unrealized depreciation on forward foreign |
| 66 |
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Other accrued expenses |
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| 61,312 |
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| 499,161 |
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Net Assets ($) |
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| 295,694,486 |
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Composition of Net Assets ($): |
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Paid-in capital |
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| 170,375,644 |
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Total distributable earnings (loss) |
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| 125,318,842 |
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Net Assets ($) |
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| 295,694,486 |
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Net Asset Value Per Share | Initial Shares | Service Shares |
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Net Assets ($) | 277,555,142 | 18,139,344 |
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Shares Outstanding | 5,875,320 | 389,772 |
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Net Asset Value Per Share ($) | 47.24 | 46.54 |
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See notes to financial statements. |
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13
STATEMENT OF OPERATIONS
Year Ended December 31, 2020
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Investment Income ($): |
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Income: |
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Cash dividends (net of $26,214 foreign taxes withheld at source): |
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Unaffiliated issuers |
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| 4,199,733 |
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Affiliated issuers |
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| 29,646 |
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Interest |
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| 815 |
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Total Income |
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| 4,230,194 |
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Expenses: |
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Management fee—Note 3(a) |
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| 1,537,902 |
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Professional fees |
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| 101,410 |
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Prospectus and shareholders’ reports |
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| 46,499 |
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Distribution fees—Note 3(b) |
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| 35,017 |
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Chief Compliance Officer fees—Note 3(c) |
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| 13,982 |
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Directors’ fees and expenses—Note 3(d) |
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| 11,408 |
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Loan commitment fees—Note 2 |
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| 9,592 |
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Custodian fees—Note 3(c) |
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| 6,398 |
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Shareholder servicing costs—Note 3(c) |
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| 5,676 |
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Registration fees |
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| 149 |
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Miscellaneous |
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| 18,745 |
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Total Expenses |
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| 1,786,778 |
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Investment Income—Net |
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| 2,443,416 |
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Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
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Net realized gain (loss) on investments and foreign currency transactions | 7,392,394 |
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Net realized gain (loss) on forward foreign currency exchange contracts | 2,041 |
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Capital gain distributions from affiliated issuers | 624 |
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Net Realized Gain (Loss) |
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| 7,395,059 |
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Net change in unrealized appreciation (depreciation) on investments | 48,215,445 |
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Net change in unrealized appreciation (depreciation) on | (66) |
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Net Change in Unrealized Appreciation (Depreciation) |
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| 48,215,379 |
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Net Realized and Unrealized Gain (Loss) on Investments |
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| 55,610,438 |
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Net Increase in Net Assets Resulting from Operations |
| 58,053,854 |
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See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
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| Year Ended December 31, | |||||
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| 2020 |
| 2019 |
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Operations ($): |
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Investment income—net |
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| 2,443,416 |
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| 2,608,860 |
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Net realized gain (loss) on investments |
| 7,395,059 |
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| 3,521,403 |
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Net change in unrealized appreciation |
| 48,215,379 |
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| 60,872,324 |
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Net Increase (Decrease) in Net Assets | 58,053,854 |
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| 67,002,587 |
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Distributions ($): |
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Distributions to shareholders: |
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Initial Shares |
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| (5,450,358) |
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| (10,343,539) |
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Service Shares |
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| (278,338) |
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| (486,656) |
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Total Distributions |
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| (5,728,696) |
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| (10,830,195) |
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Capital Stock Transactions ($): |
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Net proceeds from shares sold: |
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Initial Shares |
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| 13,185,483 |
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| 5,230,323 |
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Service Shares |
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| 5,892,682 |
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| 1,887,862 |
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Distributions reinvested: |
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Initial Shares |
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| 5,450,358 |
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| 10,343,539 |
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Service Shares |
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| 278,338 |
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| 486,656 |
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Cost of shares redeemed: |
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Initial Shares |
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| (27,686,362) |
|
|
| (25,290,229) |
| |
Service Shares |
|
| (4,001,592) |
|
|
| (1,528,245) |
| |
Increase (Decrease) in Net Assets | (6,881,093) |
|
|
| (8,870,094) |
| |||
Total Increase (Decrease) in Net Assets | 45,444,065 |
|
|
| 47,302,298 |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
| 250,250,421 |
|
|
| 202,948,123 |
| |
End of Period |
|
| 295,694,486 |
|
|
| 250,250,421 |
| |
Capital Share Transactions (Shares): |
| ||||||||
Initial Shares |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 337,739 |
|
|
| 149,660 |
| |
Shares issued for distributions reinvested |
|
| 195,143 |
|
|
| 311,834 |
| |
Shares redeemed |
|
| (695,969) |
|
|
| (721,929) |
| |
Net Increase (Decrease) in Shares Outstanding | (163,087) |
|
|
| (260,435) |
| |||
Service Shares |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 145,537 |
|
|
| 53,810 |
| |
Shares issued for distributions reinvested |
|
| 10,096 |
|
|
| 14,864 |
| |
Shares redeemed |
|
| (100,741) |
|
|
| (44,378) |
| |
Net Increase (Decrease) in Shares Outstanding | 54,892 |
|
|
| 24,296 |
| |||
|
|
|
|
|
|
|
|
|
|
See notes to financial statements. |
15
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. The fund’s total returns do not reflect expenses associated with variable annuity or insurance contracts. These figures have been derived from the fund’s financial statements.
Year Ended December 31, | ||||||||
Initial Shares | 2020 | 2019 | 2018 | 2017 | 2016 | |||
Per Share Data ($): | ||||||||
Net asset value, beginning of period | 39.30 | 30.73 | 40.27 | 37.86 | 38.56 | |||
Investment Operations: | ||||||||
Investment income—neta | .39 | .40 | .41 | .38 | .44 | |||
Net realized and unrealized gain | 8.47 | 9.85 | (1.69) | 5.14 | 3.15 | |||
Total from Investment Operations | 8.86 | 10.25 | (1.28) | 5.52 | 3.59 | |||
Distributions: | ||||||||
Dividends from | (.44) | (.52) | (.71) | (.46) | (.50) | |||
Dividends from net realized | (.48) | (1.16) | (7.55) | (2.65) | (3.79) | |||
Total Distributions | (.92) | (1.68) | (8.26) | (3.11) | (4.29) | |||
Net asset value, end of period | 47.24 | 39.30 | 30.73 | 40.27 | 37.86 | |||
Total Return (%) | 24.14 | 34.36 | (4.41) | 15.33 | 10.38 | |||
Ratios/Supplemental Data (%): | ||||||||
Ratio of total expenses | .68 | .68 | .74 | .80 | .86 | |||
Ratio of net expenses | .68 | .68 | .70 | .77 | .86 | |||
Ratio of net investment income | .97 | 1.14 | 1.19 | .99 | 1.21 | |||
Portfolio Turnover Rate | 24.81 | 25.43 | 51.68 | 119.51 | 60.67 | |||
Net Assets, end of period ($ x 1,000) | 277,555 | 237,287 | 193,538 | 226,078 | 221,172 |
a Based on average shares outstanding.
See notes to financial statements.
16
Year Ended December 31, | ||||||||
Service Shares | 2020 | 2019 | 2018 | 2017 | 2016 | |||
Per Share Data ($): | ||||||||
Net asset value, beginning of period | 38.71 | 30.30 | 39.80 | 37.46 | 38.19 | |||
Investment Operations: | ||||||||
Investment income—neta | .29 | .31 | .32 | .28 | .34 | |||
Net realized and unrealized gain | 8.38 | 9.71 | (1.66) | 5.08 | 3.12 | |||
Total from Investment Operations | 8.67 | 10.02 | (1.34) | 5.36 | 3.46 | |||
Distributions: | ||||||||
Dividends from | (.36) | (.45) | (.61) | (.37) | (.40) | |||
Dividends from net realized | (.48) | (1.16) | (7.55) | (2.65) | (3.79) | |||
Total Distributions | (.84) | (1.61) | (8.16) | (3.02) | (4.19) | |||
Net asset value, end of period | 46.54 | 38.71 | 30.30 | 39.80 | 37.46 | |||
Total Return (%) | 23.86 | 34.01 | (4.64) | 15.04 | 10.08 | |||
Ratios/Supplemental Data (%): | ||||||||
Ratio of total expenses | .93 | .93 | .99 | 1.05 | 1.11 | |||
Ratio of net expenses | .93 | .93 | .95 | 1.02 | 1.11 | |||
Ratio of net investment income | .72 | .88 | .95 | .74 | .96 | |||
Portfolio Turnover Rate | 24.81 | 25.43 | 51.68 | 119.51 | 60.67 | |||
Net Assets, end of period ($ x 1,000) | 18,139 | 12,964 | 9,410 | 10,274 | 10,884 |
a Based on average shares outstanding.
See notes to financial statements.
17
NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
BNY Mellon Sustainable U.S. Equity Portfolio, 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 is only offered to separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. The fund’s investment objective is to seek long-term capital appreciation. 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. Newton Investment Management Limited (the “Sub-Adviser”), a wholly-owned subsidiary of BNY Mellon and an affiliate of the 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 without a sales charge. The fund is authorized to issue 150 million shares of $.001 par value Common Stock in each of the following classes of shares: Initial and Service. Initial shares are subject to a Shareholder Services Plan fee and Service shares are subject to a Distribution Plan fee. Each class of shares has identical rights and privileges, except with respect to the Distribution Plan, Shareholder Services Plan 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 (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 American Depository Receipts 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.
Forward foreign currency exchange contracts (“forward contracts”) are valued at the forward rate and are generally categorized within Level 2 of the fair value hierarchy.
The following is a summary of the inputs used as of December 31, 2020 in valuing the fund’s investments:
20
Assets ($) | Level 1 - Unadjusted Quoted Prices | Level 2 - Other Significant Observable Inputs | Level 3 -Significant Unobservable Inputs | Total | |
Investments in Securities:† |
|
|
| ||
Equity Securities - Common Stocks | 287,494,963 | 4,969,630 | †† | - | 292,464,593 |
Investment Companies | 3,426,748 | - | - | 3,426,748 | |
Liabilities ($) | |||||
Other Financial Instruments: | |||||
Forward Foreign Currency Exchange Contracts††† | - | (66) | - | (66) |
† 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.
††† Amount shown represents unrealized appreciation (depreciation) at period end, but only variation margin on exchanged traded and centrally cleared derivatives, if any, are reported in the Statement of Assets and Liabilities.
(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 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 Statement of Operations, if applicable. Foreign taxes payable or deferred or those subject to reclaims as of December 31, 2020, if any, are disclosed in the fund’s Statement of Assets and Liabilities.
21
NOTES TO FINANCIAL STATEMENTS (continued)
(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 amortization of premium on investments, is recognized on the accrual basis.
(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 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.
(f) Dividends and distributions to shareholders: Dividends and distributions are recorded on the ex-dividend date. Dividends from investment income-net and 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.
22
(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 December 31, 2020, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended December 31, 2020, the fund did not incur any interest or penalties.
Each tax year in the four-year period ended December 31, 2020 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At December 31, 2020, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $5,197,320, undistributed capital gains $4,520,669 and unrealized appreciation $115,600,853.
The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2020 and December 31, 2019 were as follows: ordinary income $3,974,173 and $3,355,073, and long-term capital gains $1,754,523 and $7,475,122, respectively.
NOTE 2—Bank Lines of Credit:
The fund participates with other long-term open-end funds managed by the Adviser in a $823.5 million unsecured credit facility led by Citibank, N.A. (the “Citibank Credit Facility”) and a $300 million unsecured credit facility provided by The Bank of New York Mellon (the “BNYM Credit Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions (each, a “Facility”). The Citibank Credit Facility is available in two tranches: (i) Tranche A is in an amount equal to $688.5 million and is available to all long-term open-ended funds, including the fund, and (ii) Tranche B is an amount equal to $135 million and is available only to BNY Mellon Floating Rate Income Fund, a series of BNY Mellon Investment Funds IV, Inc. Prior to September 30, 2020, the Citibank Credit Facility was $927 million with Tranche A available in an amount equal to $747 million and Tranche B available in an amount equal to $180 million. 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
23
NOTES TO FINANCIAL STATEMENTS (continued)
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 December 31, 2020, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to the management agreement with the Adviser, the management fee is computed at an annual rate of .60% of the value of the fund’s average daily net assets and is payable monthly. The Adviser has contractually agreed, from January 1, 2020 through May 1, 2021, to waive receipt of its fees and/or assume the direct expenses of the fund, so that the direct expenses of none of the classes (excluding Rule 12b-1 Distribution Plan fees, Shareholder Services Plan fees, taxes, interest expense, brokerage commission, commitment fees on borrowings and extraordinary expenses) exceed .70% of the value of the fund’s average daily net assets. On or after May 1, 2021, the Adviser may terminate this expense limitation agreement at any time. During the period ended December 31, 2020, there was no expense reimbursement pursuant to the undertaking.
Pursuant to a sub-investment advisory agreement between the Adviser and the Sub-Adviser, the Sub-Adviser serves as the fund’s sub-investment adviser responsible for the day-to-day management of the fund’s portfolio. The Adviser pays the sub-investment adviser a monthly fee at an annual percentage of the value of the fund’s average daily net assets. The Adviser has obtained an exemptive order from the SEC (the “Order”), upon which the fund may rely, to use a manager of managers approach that permits the Adviser, subject to certain conditions and approval by the Board, to enter into and materially amend sub-investment advisory agreements with one or more sub-investment advisers who are either unaffiliated with the Adviser or are wholly-owned subsidiaries (as defined under the Act) of the Adviser’s ultimate parent company, BNY Mellon, without obtaining shareholder approval. The Order also allows the fund to disclose the sub-investment advisory fee paid by the Adviser to any unaffiliated sub-investment adviser in the aggregate with other unaffiliated sub-investment advisers in documents filed with the SEC and provided to shareholders. In addition, pursuant to the Order, it is not necessary to disclose the sub-investment advisory fee payable by the Adviser separately to a sub-investment adviser that is a wholly-owned subsidiary of BNY Mellon in documents filed with the SEC and provided to shareholders; such fees are to be aggregated with fees payable to the Adviser. The Adviser has ultimate
24
responsibility (subject to oversight by the Board) to supervise any sub-investment adviser and recommend the hiring, termination, and replacement of any sub-investment adviser to the Board.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Service shares pay the Distributor for distributing its shares, for servicing and/or maintaining Service shares’ shareholder accounts and for advertising and marketing for Service shares. The Distribution Plan provides for payments to be made at an annual rate of .25% of the value of the Service shares’ average daily net assets. The Distributor may make payments to Participating Insurance Companies and to brokers and dealers acting as principal underwriter for their variable insurance products. The fees payable under the Distribution Plan are payable without regard to actual expenses incurred. During the period ended December 31, 2020, Service shares were charged $35,017 pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Initial shares reimburse the Distributor at an amount not to exceed an annual rate of .25% of the value of its average daily net assets for certain allocated expenses with respect to servicing and/or maintaining Initial shares’ shareholder accounts. During the period ended December 31, 2020, Initial shares were charged $3,845 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 shareholder servicing costs in the Statement of Operations.
The fund has an arrangement with the custodian whereby the fund will receive interest income or be charged an overdraft fees when cash balances are maintained. For financial reporting purposes, the fund includes this interest income and overdraft fees, if any, as interest income in the Statement of Operations.
The fund compensates BNY Mellon Transfer, Inc., a wholly-owned subsidiary of the Adviser, under a transfer agency agreement for providing transfer agency and cash management services inclusive of earnings credits, if any, 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 December 31, 2020, the fund was charged $1,584 for transfer agency services, inclusive of earnings credit, if any. These fees are included in Shareholder servicing costs in the Statement of Operations.
25
NOTES TO FINANCIAL STATEMENTS (continued)
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 December 31, 2020, the fund was charged $6,398 pursuant to the custody agreement.
During the period ended December 31, 2020, the fund was charged $13,982 for services performed by the Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.
The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: management fees of $147,900, Distribution Plan fees of $3,778, Shareholder Service Plan fees of $1,832, custodian fees of $2,304, Chief Compliance Officer fees of $2,903 and transfer agency fees of $351.
(d) Each Board member also serves as a Board member of other funds in the BNY Mellon Family of Funds complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward contracts, during the period ended December 31, 2020, amounted to $62,158,197 and $71,396,927, 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-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 December 31, 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
26
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. Forward Contracts open at December 31, 2020 are set forth in the Statement of Forward Foreign Currency Exchange Contracts.
The provisions of ASC Topic 210 “Disclosures about Offsetting Assets and Liabilities” require disclosure on the offsetting of financial assets and liabilities. These disclosures are required for certain investments, including derivative financial instruments subject to Master Agreements which are eligible for offsetting in the Statement of Assets and Liabilities and require the fund to disclose both gross and net information with respect to such investments. For financial reporting purposes, the fund does not offset derivative assets and derivative liabilities that are subject to Master Agreements in the Statement of Assets and Liabilities.
At December 31, 2020, derivative assets and liabilities (by type) on a gross basis are as follows:
Derivative Financial Instruments: |
| Assets ($) |
| Liabilities ($) |
|
Forward contracts |
| - |
| (66) |
|
Total gross amount of derivative |
|
|
|
|
|
assets and liabilities in the |
|
|
|
|
|
Statement of Assets and Liabilities |
| - |
| (66) |
|
Derivatives not subject to |
|
|
|
|
|
Master Agreements |
| - |
| - |
|
Total gross amount of assets |
|
|
|
|
|
and liabilities subject to |
|
|
|
|
|
Master Agreements |
| - |
| (66) |
|
27
NOTES TO FINANCIAL STATEMENTS (continued)
The following table presents derivative liabilities net of amounts available for offsetting under Master Agreements and net of related collateral received or pledged, if any, as of December 31, 2020:
|
|
|
|
|
|
|
|
|
| Financial |
|
|
|
|
|
| Instruments |
|
|
|
|
|
| and Derivatives |
|
|
|
| Gross Amount of |
| Available | Collateral |
| Net Amount of |
Counterparty | Liabilities ($) | 1 | for Offset ($) | Pledged ($) |
| Liabilities ($) |
Barclays Capital | (66) |
| - | - |
| (66) |
|
|
|
|
|
|
|
1 Absent a default event or early termination, OTC derivative assets and liabilities are presented at gross amounts and are not offset in the Statement of Assets and Liabilities. |
The following summarizes the average market value of derivatives outstanding during the period ended December 31, 2020:
|
| Average Market Value ($) |
Forward contracts |
| 5,622 |
|
|
|
At December 31, 2020, the cost of investments for federal income tax purposes was $180,290,502; accordingly, accumulated net unrealized appreciation on investments inclusive of derivative contracts was $115,600,773, consisting of $117,578,519 gross unrealized appreciation and $1,977,746 gross unrealized depreciation.
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of BNY Mellon Sustainable U.S. Equity Portfolio, Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of BNY Mellon Sustainable U.S. Equity Portfolio, Inc. (the “Fund”), including the statements of investments, investments in affiliated issuers and forward foreign currency exchange contracts, as of December 31, 2020, and the related statement of operations 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 December 31, 2020, the results of its operations 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 December 31, 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
February 9, 2021
29
IMPORTANT TAX INFORMATION (Unaudited)
For federal tax purposes, the portfolio hereby reports 99.94% of the ordinary dividends paid during the fiscal year ended December 31, 2020 as qualifying for the corporate dividends received deduction. Shareholders will receive notification in early 2021 of the percentage applicable to the preparation of their 2020 income tax returns. Also, the portfolio hereby reports $0.2790 per share as a long-term capital gain distribution and $0.1974 per share as a short-term capital gain distribution paid on March 23, 2020.
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INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited)
At a meeting of the fund’s Board of Directors held on July 20-21, 2020, the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”), and the Sub-Investment Advisory Agreement (together, the “Agreements”), pursuant to which Newton Investment Management Limited (the “Subadviser”) provides day-to-day management of the fund’s investments. 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 and the Subadviser. In considering the renewal of the Agreements, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the meeting and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. The Adviser also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the BNY Mellon fund complex (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or the Adviser) and the Adviser’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that the Adviser also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board also considered the Adviser’s extensive administrative, accounting and compliance infrastructures, as well as the Adviser’s supervisory activities over the Subadviser. The Board also considered portfolio management’s brokerage policies and practices (including policies and practices regarding soft dollars) and the standards applied in seeking best execution.
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board reviewed reports prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data based on classifications provided by Thomson Reuters Lipper, which included information comparing, all for various periods ended May 31, 2020, (1) the performance of the fund’s Initial shares with the performance of a group of large-cap core funds underlying variable insurance products (“VIPs”) selected by Broadridge as comparable to the fund
31
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
(the “Performance Group 1”) and with a broader group of funds consisting of all large-cap core funds underlying VIPs (the “Performance Universe”); (2) at the request of the Adviser, the fund’s performance with the performance of a second group of large-cap core funds underlying VIPs with an above average Morningstar ESG (environmental, social and governance) Sustainable Ranking (“Performance Group 2”); and (3) the fund’s actual and contractual management fees and total expenses with those of two groups of comparable funds, one identical to Performance Group 1 (“Expense Group 1”) and the other identical to Performance Group 2 (“Expense Group 2”), and with a broader group of large-cap core funds underlying VIPs with similar 12b-1/non-12b-1 structures, 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 Groups and Performance Universe and the Expense Groups and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser and the Subadviser the results of the comparisons and considered that the fund’s total return performance was above the Performance Group 1, Performance Group 2 and Performance Universe medians for all periods except the five-year period when the total return performance was equal to the Performance Group 2 median and slightly below the Performance Universe median. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management and sub-advisory services provided by the Adviser and the Subadviser, respectively. In addition, the Board reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons. The Board considered that the fund’s contractual management fee was below the Expense Groups 1 and 2 contractual management fee medians, the fund’s actual management fee was equal to the Expense Group 1 median, below the Expense Group 2 median and less than one basis point above the Expense Universe median actual management fee and the fund’s total expenses were below the Expense Groups 1 and 2 medians and below the Expense Universe median total expenses.
Representatives of the Adviser stated that the Adviser has contractually agreed, until May 1, 2021, to waive receipt of its fees and/or assume the direct expenses of the fund so that the direct expenses of none of its classes (excluding Rule 12b-1 fees, shareholder
32
services fees, taxes, interest, brokerage commissions, commitment fees on borrowings and extraordinary expenses) exceed .70% of the fund’s average daily net assets.
Representatives of the Adviser reviewed with the Board the management or investment advisory fees (1) paid by funds advised or administered by the Adviser that are in the same Lipper category as the fund and (2) paid to the Adviser or the Subadviser or its affiliates for advising any separate accounts and/or other types of client portfolios that are considered to have similar investment strategies and policies as the fund (the “Similar Clients”), and explained the nature of the Similar Clients. They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors. The Board considered the relevance of the fee information provided for the Similar Clients to evaluate the appropriateness of the fund’s management fee.
The Board considered the fee to the Subadviser in relation to the fee paid to the Adviser by the fund and the respective services provided by the Subadviser and the Adviser. The Board also took into consideration that the Subadviser’s fee is paid by the Adviser (out of its fee from the fund) and not the fund.
Analysis of Profitability and Economies of Scale. Representatives of the Adviser reviewed the expenses allocated and profit received by the Adviser and its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to the Adviser and its affiliates for managing the funds in the BNY Mellon fund complex, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not excessive, given the services rendered and service levels provided by the Adviser and its affiliates. The Board also had been provided with information prepared by an independent consulting firm regarding the Adviser’s approach to allocating costs to, and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation of whether the fees under the Agreements, considered in relation to the mix of services provided by the Adviser and the Subadviser, including the nature, extent and quality of such services, supported the renewal of the Agreements and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Since the Adviser, and not the fund, pays the Subadviser pursuant to the Sub-Investment Advisory Agreement, the Board did not consider the Subadviser’s profitability to be relevant to its deliberations. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser and the
33
INFORMATION ABOUT THE RENEWAL OF THE FUND’S MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
Subadviser from acting as investment adviser and sub-investment adviser, respectively, and took into consideration that there were no soft dollar arrangements in effect for trading the fund’s investments.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreements. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser and the Subadviser are adequate and appropriate.
· The Board was satisfied with the fund’s performance.
· The Board concluded that the fees paid to the Adviser and the Subadviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreements, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates and the Subadviser, of the Adviser and the Subadviser and the services provided to the fund by the Adviser and the Subadviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreements, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreements for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on 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 Agreements.
34
BOARD MEMBERS INFORMATION (Unaudited)
INDEPENDENT BOARD MEMBERS
Joseph S. DiMartino (77)
Chairman of the Board (1995)
Principal Occupation During Past 5 Years:
· Director or Trustee of funds in the BNY Mellon Family of Funds and certain other entities (as described in the fund’s Statement of Additional Information) (1995-Present)
Other Public Company Board Memberships During Past 5 Years:
· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (1997-Present)
No. of Portfolios for which Board Member Serves: 109
———————
Francine J. Bovich (69)
Board Member (2015)
Principal Occupation During Past 5 Years:
· Trustee, The Bradley Trusts, private trust funds (2011-Present)
Other Public Company Board Memberships During Past 5 Years:
· Annaly Capital Management, Inc., a real estate investment trust, Director (2014-Present)
No. of Portfolios for which Board Member Serves: 66
———————
J. Charles Cardona (65)
Board Member (2014)
Principal Occupation During Past 5 Years:
· BNY Mellon Liquidity Funds, Director (2004-Present) and Chairman (since 2019)
· President and Director of the Adviser (2008-2016)
· Chief Executive Officer of Dreyfus Cash Investment Strategies, a division of the Adviser (2009-2016)
· Chairman (2013 – 2016) Director (2005-2016) and Executive Vice President (2006-2015) of the Distributor
Other Public Company Board Memberships During Past 5 Years:
· BNY Mellon ETF Trust, Chairman and Trustee (2020-Present)
No. of Portfolios for which Board Member Serves: 38
———————
Gordon J. Davis (79)
Board Member (2012)
Principal Occupation During Past 5 Years:
· Partner in the law firm of Venable LLP (2012-Present)
No. of Portfolios for which Board Member Serves: 48
———————
35
BOARD MEMBERS INFORMATION (Unaudited) (continued)
INDEPENDENT BOARD MEMBERS (continued)
Andrew J. Donohue (70)
Board Member (2019)
Principal Occupation During Past 5 Years:
· Of Counsel, Shearman & Sterling LLP (2017-2019)
· Chief of Staff to the Chair of the SEC (2015-2017)
· Managing Director and Investment Company General Counsel of Goldman Sachs (2012-2015)
· Attorney, Solo Law Practice (2019-Present)
Other Public Company Board Memberships During Past 5 Years:
· Oppenheimer Funds (58 funds), Director (2017-2019)
No. of Portfolios for which Board Member Serves: 52
———————
Isabel P. Dunst (73)
Board Member (2014)
Principal Occupation During Past 5 Years:
· Hogan Lovells LLP, a law firm, Senior Counsel (2018-2019); Of Counsel (2015-2018); Partner (1990-2014)
· Member of the Board of Governors, Hebrew Union College Jewish Institute of Religion (2015-Present)
· Board Member, Bend the ARC, a civil rights organization, (2016- Present)
No. of Portfolios for which Board Member Serves: 30
———————
Nathan Leventhal (77)
Board Member (2009)
Principal Occupation During Past 5 Years:
· President Emeritus of Lincoln Center for the Performing Arts (2001-Present)
· President of the Palm Beach Opera (2016-Present)
Other Public Company Board Memberships During Past 5 Years:
· Movado Group, Inc., a public company that designs, sources, markets and distributes watches Director (2003-Present)
No. of Portfolios for which Board Member Serves: 44
———————
36
Robin A. Melvin (57)
Board Member (2014)
Principal Occupation During Past 5 Years:
· Co-Chair, Mentor Illinois, a non-profit organization dedicated to increasing the quality of mentoring services in Illinois (2014 - 2020); Board member, Mentor Illinois (2013-2020)
· Trustee, Westover School, a private girls' boarding school in Middlebury, Connecticut (2019-Present)
No. of Portfolios for which Board Member Serves: 87
———————
Roslyn M. Watson (71)
Board Member (2014)
Principal Occupation During Past 5 Years:
· Principal, Watson Ventures, Inc., a real estate investment company (1993-Present)
Other Public Company Board Memberships During Past 5 Years:
· American Express Bank, FSB, Director (1993-2018)
No. of Portfolios for which Board Member Serves: 52
———————
Benaree Pratt Wiley (74)
Board Member (2009)
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: 70
———————
Once elected all Board Members serve for an indefinite term, but achieve Emeritus status upon reaching age 80. The address of the Board Members and Officers is c/o BNY Mellon Investment Adviser, Inc. 240 Greenwich Street, New York, New York 10286. Additional information about the Board Members is available in the fund’s Statement of Additional Information which can be obtained from the Adviser free of charge by calling this toll free number: 1-800-373-9387.
Clifford L. Alexander, Jr., Emeritus Board Member
Whitney I. Gerard, Emeritus Board Member
George L. Perry, Emeritus Board Member
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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 117 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 42 years old and has been an employee of BNY Mellon since 2005.
JAMES WINDELS, Treasurer since November 2001.
Director-BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 62 years old and has been an employee of the Adviser since April 1985.
BENNETT A. MACDOUGALL, Chief Legal Officer since October 2015.
Chief Legal Officer of the Adviser and Associate General Counsel and Managing Director of BNY Mellon since June 2015; Director and Associate General Counsel of Deutsche Bank–Asset & Wealth Management Division from June 2005 to June 2015, and as Chief Legal Officer of Deutsche Investment Management Americas Inc. from June 2012 to May 2015. He is an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 49 years old and has been an employee of the 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 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 54 years old and has been an employee of the 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 140 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 30 years old and has been an employee of the Adviser since August 2018.
SARAH S. KELLEHER, Vice President and Assistant Secretary since April 2014.
Managing Counsel of BNY Mellon since December 2017, Senior Counsel of BNY Mellon from March 2013 to December 2017. She is an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 45 years old and has been an employee of the Adviser since March 2013.
JEFF PRUSNOFSKY, Vice President and Assistant Secretary since August 2005.
Senior Managing Counsel of BNY Mellon, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 55 years old and has been an employee of the Adviser since October 1990.
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 140 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 35 years old and has been an employee of the Adviser since June 2019.
PETER M. SULLIVAN, Vice President and Assistant Secretary since March 2019.
Senior Managing Counsel of BNY Mellon since December 2020; Managing Counsel of BNY Mellon from March 2009 to December 2020, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the the Adviser or an affiliate of the the Adviser. He is 52 years old and has been an employee of the BNY Mellon since April 2004.
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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; Assistant Secretary of the Adviser since 2018; 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 140 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 35 years old and has been an employee of the Adviser since May 2016.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager-BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 52 years old and has been an employee of the Adviser since April 1991.
ROBERT S. ROBOL, Assistant Treasurer since August 2002.
Senior Accounting Manager-BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 141 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 56 years old and has been an employee of the Adviser since October 1988.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of the Adviser since June 1989.
ROBERT SVAGNA, Assistant Treasurer since December 2002.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of the Adviser since November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief Compliance Officer of the Adviser, the BNY Mellon Family of Funds and BNY Mellon Funds Trust (62 investment companies, comprised of 132 portfolios). He is 63 years old and has served in various capacities with the Adviser since 1980, including manager of the firm’s Fund Accounting Department from 1997 through October 2001.
CARIDAD M. CAROSELLA, Anti-Money Laundering Compliance Officer since January 2016.
Anti-Money Laundering Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since January 2016; from May 2015 to December 2015, Interim Anti-Money Laundering Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust and the Distributor; from January 2012 to May 2015, AML Surveillance Officer of the Distributor. She is an officer of 56 investment companies (comprised of 133 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 52 years old and has been an employee of the Distributor since 1997.
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BNY Mellon Sustainable U.S. Equity Portfolio, Inc.
240 Greenwich Street
New York, NY 10286
Adviser
BNY Mellon Investment Adviser, Inc.
240 Greenwich Street
New York, NY 10286
Sub-Adviser
Newton Investment Management Limited
160 Queen Victoria Street
London, EC4V, 4LA, UK
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
Telephone 1-800-258-4260 or 1-800-258-4261
Mail The BNY Mellon Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144 Attn: Institutional Services Department
E-mail Send your request to info@bnymellon.com
Internet Information can be viewed online or downloaded at www.im.bnymellon.com
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
Printed on recycled paper. | ||
© 2021 BNY Mellon Securities Corporation |
Item 2. Code of Ethics.
The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. There have been no amendments to, or waivers in connection with, the Code of Ethics during the period covered by this Report.
Item 3. Audit Committee Financial Expert.
The Registrant's Board has determined that Joseph S. DiMartino, a member of the Audit Committee of the Board, is an audit committee financial expert as defined by the Securities and Exchange Commission (the "SEC"). Joseph S. DiMartino is "independent" as defined by the SEC for purposes of audit committee financial expert determinations.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant (the "Auditor") for the audit of the Registrant's annual financial statements or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $36,338 in 2019 and $34,853 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 $9,193 in 2019 and $10,485 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 $3,099 in 2019 and $3,233 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 $31 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 $605,259 in 2019 and $1,264,899 in 2020.
Auditor Independence. The Registrant's Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Auditor's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures applicable to Item 10.
Item 11. Controls and Procedures.
(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) Code of ethics referred to in Item 2.
(a)(3) Not applicable.
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 Sustainable U.S. Equity Portfolio, Inc.
By: /s/ David DiPetrillo
David DiPetrillo
President (Principal Executive Officer)
Date: February 8, 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: February 8, 2021
By: /s/ James Windels
James Windels
Treasurer (Principal Financial Officer)
Date: February 8, 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)