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 | 811-07123 | |||||
BNY Mellon Advantage Funds, Inc. | ||||||
(Exact name of Registrant as specified in charter) | ||||||
c/o BNY Mellon Investment Adviser, Inc. 240 Greenwich Street New York, New York 10286 | ||||||
(Address of principal executive offices) (Zip code) | ||||||
Deirdre Cunnane, Esq. 240 Greenwich Street New York, New York 10286 | ||||||
(Name and address of agent for service) | ||||||
Registrant's telephone number, including area code: | (212) 922-6400 | |||||
Date of fiscal year end:
| 08/31 | |||||
Date of reporting period: | 08/31/2021
| |||||
The following N-CSR relates only to the Registrant's series listed below and does not relate to any series of the Registrant with a different fiscal year end and, therefore, different N-CSR reporting requirements. A separate N-CSR will be filed for any series with a different fiscal year end, as appropriate.
BNY Mellon Dynamic Value Fund
BNY Mellon Opportunistic Midcap Value Fund
BNY Mellon Opportunistic Small Cap Fund
BNY Mellon Structured Midcap Fund
BNY Mellon Technology Growth Fund
BNY Mellon Dynamic Value Fund
ANNUAL REPORT August 31, 2021 |
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.im.bnymellon.com and sign up for eCommunications. It’s simple and only takes a few minutes. |
The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds. |
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value |
Contents
THE FUND
FOR MORE INFORMATION
Back Cover
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from September 1, 2020 through August 31, 2021, as provided by Brian C. Ferguson, John C. Bailer and David S. Intoppa, Portfolio Managers
Market and Fund Performance Overview
For the 12-month period ended August 31, 2021, BNY Mellon Dynamic Value Fund’s Class A shares produced a total return of 47.60%, Class C shares returned 46.48%, Class I shares returned 47.97% and Class Y shares returned 48.06%.1 The fund’s benchmark, the Russell 1000® Value Index (the “Index”), produced a total return of 36.44% for the same period.2
Stocks gained ground as government-mandated lockdowns were lifted, COVID-19 vaccines were approved, and the global economy continued to recover. The fund outperformed the Index, with value being added in all sectors.
The Fund’s Investment Approach
The fund seeks capital appreciation. To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in stocks. The fund may invest up to 30% of its assets in foreign securities. We identify potential investments through extensive quantitative and fundamental research. We focus on individual stock selection (a “bottom-up” approach), emphasizing three key factors: value, sound business fundamentals and positive business momentum.
Stocks Rise Despite Concerns about Economic Recovery
During the reporting period, the global economy continued to show signs of recovery as government-mandated lockdowns were eased, and COVID-19 vaccines were approved. Growth-oriented stocks performed well early in the period, but with the approval of multiple COVID-19 vaccines late in November 2020, performance in the market broadened, and more cyclically oriented stocks began to perform better. This rotation continued through March 2021.
Returns were supported by interest rates, which remained low, as well as fiscal stimulus, which bolstered consumers, small businesses and the economy generally. Investors also began to factor the likelihood of infrastructure spending and other additional stimulus into their calculations.
Early in 2021, concerns about inflation arose, and interest rates began to rise. This took a toll on more growth-oriented stocks whose valuations had soared. In some emerging markets, central banks raised rates to combat rising prices, but generally central banks have been tolerant of pricing pressures.
With the emergence of the delta variant of COVID-19 midway through 2021, questions about whether the economic recovery would stall caused the market to pivot somewhat to more defensive and growth-oriented stocks. Nevertheless, markets were supported by strong corporate earnings worldwide, but especially in the U.S.
Mixed economic data weighed on markets later in the period, as did signals from the Federal Reserve, which suggested that policies might not be as supportive in the future. Nevertheless, the slowing of the recovery may benefit stocks worldwide as it may extend the recovery.
While valuations were low early in the period, they have largely recovered, helped in part by stronger corporate earnings. Earnings have been more favorable for cyclical companies hurt by the pandemic, but results from growth stocks have been favorable as well.
Performance Helped by Asset Allocation and Stock Selections
The fund’s outperformance versus the Index was helped by stock selections in all sectors. Selections in the financial materials and information technology sectors were the primary contributors. In the financial sector, the fund’s large overweight position was advantageous, as were holdings of Goldman
2
Sachs Group and Morgan Stanley, both of which climbed 105%, respectively. Both companies benefited from robust equity, fixed income and FX trading and Mergers and Acquisitions (M&A) activity. Capital One Financial, a consumer finance company, also performed well, benefiting from federal COVID-19 relief programs. Ally Financial also contributed positively. In the materials sector, the fund’s overweight position was advantageous, as were shares of Freeport-McMoRan, a mining company, which rose 134% on strong demand for copper. In addition, shares of Mosaic, a fertilizer company, rose 61% as the economy continued to recover. In the information technology sector, an underweight position in information technology services was beneficial. Shares of Applied Materials, a semiconductor capital equipment company, and NXP Semiconductors, a chipmaker, also added to performance.
On a less positive note, performance in the real estate and consumer discretionary sectors was muted, though slightly positive. In real estate, the fund had very little exposure, selling Weyerhaeuser, a timber REIT, during the period. In the consumer discretionary sector, the fund had an underweight position, which was beneficial, but stock selections lagged.
Value Stocks Appear Relatively Attractive
We remain optimistic about the prospects for cyclical, income-oriented stocks. The extraordinary amount of fiscal stimulus that is in the works will benefit the economy and more cyclical, value-oriented stocks, which should benefit even if the economic recovery is slower and shallower than expected a few months ago. The economy continues to be supported by positive trends, and the Federal Reserve is unlikely to tighten monetary policy in the near term, while rising interest rates should benefit value-oriented securities. Strong earnings will help support valuations, which remain attractive.
September 15, 2021
1 DUE TO RECENT MARKET VOLATILITY, CURRENT PERFORMANCE MAY BE DIFFERENT THAN THE FIGURES SHOWN. Investors should note that the fund’s short-term performance is highly unusual, in part due to unusually favorable market conditions, and is unlikely to be repeated or consistently achieved in the future. Total return includes reinvestment of dividends and any capital gains paid and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charges imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. 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 returns reflect the absorption of certain fund expenses by BNY Mellon Investment Adviser, Inc. pursuant to an agreement in effect through December 31, 2021, at which time it may be extended, terminated or modified. Had these expenses not been absorbed, the fund’s returns would have been lower.
2 Source: Lipper Inc. — The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies that are considered more value-oriented relative to the overall market, as defined by Russell’s leading style methodology. The Russell 1000® Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The index is completely reconstituted annually to ensure new and growing equities are included, and that the represented companies continue to reflect value characteristics. 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.
The fund’s performance will be influenced by political, social and economic factors affecting investments in foreign companies. Special risks associated with investments in foreign companies include exposure to currency fluctuations, less liquidity, less developed or less efficient trading markets, lack of comprehensive company information, political instability and differing auditing and legal standards. These risks are enhanced in emerging market countries. Please read the prospectus for further discussion of these risks.
Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others. To the extent the fund may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase the fund’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.
3
FUND PERFORMANCE (Unaudited)
Comparison of change in value of a $10,000 investment in Class A shares, Class C shares and Class I shares of BNY Mellon Dynamic Value Fund with a hypothetical investment of $10,000 in the Russell 1000® Value Index (the “Index”)
† Source: Lipper Inc.
Past performance is not predictive of future performance.
The above graph compares a hypothetical $10,000 investment made in each of the Class A shares, Class C shares and Class I shares of BNY Mellon Dynamic Value Fund on 8/31/11 to a hypothetical investment of $10,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account the maximum initial sales charge on Class A shares and all other applicable fees and expenses on Class A shares, Class C shares, and Class I shares. The Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies that are considered more value-oriented relative to the overall market as defined by Russell’s leading style methodology. The Russell 1000® Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics. 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.
4
Comparison of change in value of a $1,000,000 investment in Class Y shares of BNY Mellon Dynamic Value Fund with a hypothetical investment of $1,000,000 in the Russell 1000® Value Index (the “Index”)
† Source: Lipper Inc.
†† The total return figures presented for Class Y shares of the fund reflect the performance of the fund’s Class A shares for the period prior to 7/1/13 (the inception date for Class Y shares), not reflecting the applicable sales charges for Class A shares.
Past performance is not predictive of future performance.
The above graph compares a hypothetical $1,000,000 investment made in Class Y shares of BNY Mellon Dynamic Value Fund on 8/31/11 to a hypothetical investment of $1,000,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account all applicable fees and expenses on Class Y shares. The Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies that are considered more value-oriented relative to the overall market as defined by Russell’s leading style methodology. The Russell 1000® Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics. 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 8/31/2021 | |||||||
Inception | |||||||
|
| Date | 1 Year | 5 Years | 10 Years | ||
Class A shares | |||||||
with maximum sales charge (5.75%) without sales charge | 9/29/95 | 39.11% | 12.01% | 12.92% | |||
9/29/95 | 47.60% | 13.35% | 13.59% | ||||
Class C shares | |||||||
with applicable redemption charge † | 5/31/01 | 45.48% | 12.50% | 12.74% | |||
without redemption | 5/31/01 | 46.48% | 12.50% | 12.74% | |||
Class I shares | 5/31/01 | 47.97% | 13.64% | 13.87% | |||
Class Y shares | 7/1/13 | 48.06% | 13.68% | 13.86%†† | |||
Russell 1000® Value Index | 36.44% | 11.68% | 13.03% |
† The maximum contingent deferred sales charge for Class C shares is 1% for shares redeemed within one year of the date of purchase.
†† The total return performance figures presented for Class Y shares of the fund reflect the performance of the fund’s Class A shares for the period prior to 7/1/13 (the inception date for Class Y shares), not reflecting the applicable sales charges for Class A shares.
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 performance shown in the graphs and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. In addition to the performance of Class A shares shown with and without a maximum sales charge, the fund’s performance shown in the table takes into account all other applicable fees and expenses on all classes.
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) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in BNY Mellon Dynamic Value Fund from March 1, 2021 to August 31, 2021. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment |
| |||||
Assume actual returns for the six months ended August 31, 2021 |
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| Class A | Class C | Class I | Class Y |
|
Expenses paid per $1,000† | $5.06 | $9.12 | $3.70 | $3.43 |
| |
Ending value (after expenses) | $1,157.30 | $1,153.00 | $1,158.60 | $1,159.20 |
|
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 August 31, 2021 |
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| Class A | Class C | Class I | Class Y |
|
Expenses paid per $1,000† | $4.74 | $8.54 | $3.47 | $3.21 |
| |
Ending value (after expenses) | $1,020.52 | $1,016.74 | $1,021.78 | $1,022.03 |
| |
† | Expenses are equal to the fund’s annualized expense ratio of .93% for Class A, 1.68% for Class C, .68% for Class I and .63% for Class Y, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
7
STATEMENT OF INVESTMENTS
August 31, 2021
Description | Shares | Value ($) | |||||
Common Stocks - 98.8% | |||||||
Automobiles & Components - .5% | |||||||
General Motors | 157,639 | a | 7,725,887 | ||||
Banks - 3.9% | |||||||
JPMorgan Chase & Co. | 189,223 | 30,266,219 | |||||
U.S. Bancorp | 148,286 | 8,510,134 | |||||
Wells Fargo & Co. | 621,680 | 28,410,776 | |||||
67,187,129 | |||||||
Capital Goods - 10.6% | |||||||
Carrier Global | 374,082 | 21,547,123 | |||||
Eaton | 160,107 | 26,955,615 | |||||
Howmet Aerospace | 655,832 | 20,822,666 | |||||
Hubbell | 82,611 | 17,026,953 | |||||
Ingersoll Rand | 425,693 | a | 22,570,243 | ||||
L3Harris Technologies | 89,227 | 20,790,783 | |||||
Northrop Grumman | 55,714 | 20,486,038 | |||||
Quanta Services | 161,934 | 16,533,461 | |||||
The Boeing Company | 64,840 | a | 14,232,380 | ||||
180,965,262 | |||||||
Commercial & Professional Services - .5% | |||||||
CACI International, Cl. A | 33,132 | a | 8,532,815 | ||||
Consumer Services - 1.9% | |||||||
Booking Holdings | 7,857 | a | 18,068,507 | ||||
Expedia Group | 95,895 | a | 13,856,828 | ||||
31,925,335 | |||||||
Diversified Financials - 15.3% | |||||||
Ameriprise Financial | 133,053 | 36,311,494 | |||||
Berkshire Hathaway, Cl. B | 176,611 | a | 50,470,126 | ||||
Capital One Financial | 234,434 | 38,909,011 | |||||
Equitable Holdings | 284,597 | 8,825,353 | |||||
LPL Financial Holdings | 88,022 | 13,014,053 | |||||
Morgan Stanley | 295,439 | 30,852,695 | |||||
The Charles Schwab | 562,614 | 40,986,430 | |||||
The Goldman Sachs Group | 26,843 | 11,099,849 | |||||
Voya Financial | 468,595 | 30,449,303 | |||||
260,918,314 | |||||||
Energy - 7.2% | |||||||
Devon Energy | 920,991 | 27,215,284 | |||||
EQT | 768,739 | a | 14,090,986 | ||||
Exxon Mobil | 599,448 | 32,681,905 | |||||
Hess | 293,343 | 20,167,331 | |||||
Marathon Petroleum | 483,567 | 28,661,016 | |||||
122,816,522 |
8
Description | Shares | Value ($) | |||||
Common Stocks - 98.8% (continued) | |||||||
Food, Beverage & Tobacco - 1.8% | |||||||
Philip Morris International | 288,759 | 29,742,177 | |||||
Health Care Equipment & Services - 15.4% | |||||||
Alcon | 213,855 | 17,636,622 | |||||
Becton Dickinson & Co. | 55,531 | 13,977,153 | |||||
Centene | 300,448 | a | 18,922,215 | ||||
CVS Health | 207,216 | 17,901,390 | |||||
Danaher | 97,248 | 31,523,912 | |||||
Dentsply Sirona | 271,478 | 16,750,193 | |||||
HCA Healthcare | 52,449 | 13,268,548 | |||||
Laboratory Corp. of America Holdings | 58,258 | a | 17,674,312 | ||||
McKesson | 84,523 | 17,254,525 | |||||
Medtronic | 361,037 | 48,191,219 | |||||
UnitedHealth Group | 79,404 | 33,053,503 | |||||
Zimmer Biomet Holdings | 106,214 | 15,979,896 | |||||
262,133,488 | |||||||
Insurance - 5.5% | |||||||
Aon, Cl. A | 77,342 | 22,186,326 | |||||
Assurant | 256,418 | 43,619,266 | |||||
Principal Financial Group | 132,400 | 8,845,644 | |||||
Willis Towers Watson | 87,692 | 19,355,378 | |||||
94,006,614 | |||||||
Materials - 4.0% | |||||||
Alcoa | 330,879 | a | 14,681,101 | ||||
CF Industries Holdings | 491,981 | 22,345,777 | |||||
Freeport-McMoRan | 456,492 | 16,611,744 | |||||
Martin Marietta Materials | 37,493 | 14,294,206 | |||||
67,932,828 | |||||||
Media & Entertainment - 5.3% | |||||||
Alphabet, Cl. A | 22,048 | a | 63,805,810 | ||||
Comcast, Cl. A | 427,903 | 25,965,154 | |||||
89,770,964 | |||||||
Pharmaceuticals Biotechnology & Life Sciences - 7.4% | |||||||
AbbVie | 246,616 | 29,786,281 | |||||
Biogen | 20,482 | a | 6,941,555 | ||||
Elanco Animal Health | 382,458 | a | 12,766,448 | ||||
Eli Lilly & Co. | 127,946 | 33,047,172 | |||||
Horizon Therapeutics | 84,913 | a | 9,178,246 | ||||
Organon & Co. | 511,374 | 17,330,465 | |||||
United Therapeutics | 41,528 | a | 8,923,537 | ||||
Viatris | 595,183 | 8,707,527 | |||||
126,681,231 | |||||||
Semiconductors & Semiconductor Equipment - 2.2% | |||||||
Applied Materials | 126,365 | 17,075,702 |
9
STATEMENT OF INVESTMENTS (continued)
Description | Shares | Value ($) | |||||
Common Stocks - 98.8% (continued) | |||||||
Semiconductors & Semiconductor Equipment - 2.2% (continued) | |||||||
Qualcomm | 143,744 | 21,085,807 | |||||
38,161,509 | |||||||
Software & Services - 1.7% | |||||||
Dolby Laboratories, Cl. A | 171,230 | 16,970,605 | |||||
Fiserv | 106,610 | a | 12,557,592 | ||||
29,528,197 | |||||||
Technology Hardware & Equipment - 6.2% | |||||||
Ciena | 284,240 | a | 16,238,631 | ||||
Cisco Systems | 709,152 | 41,854,151 | |||||
Corning | 401,458 | 16,054,305 | |||||
F5 Networks | 79,766 | a | 16,237,965 | ||||
Nokia, ADR | 2,687,185 | a | 16,015,623 | ||||
106,400,675 | |||||||
Telecommunication Services - .8% | |||||||
Vodafone Group, ADR | 798,617 | 13,632,392 | |||||
Transportation - 1.7% | |||||||
FedEx | 47,139 | 12,524,361 | |||||
Union Pacific | 74,424 | 16,138,100 | |||||
28,662,461 | |||||||
Utilities - 6.9% | |||||||
Clearway Energy, Cl. C | 454,103 | 14,254,293 | |||||
Exelon | 953,830 | 46,756,747 | |||||
NextEra Energy Partners | 228,706 | 18,280,471 | |||||
PPL | 522,071 | 15,322,784 | |||||
The AES | 924,967 | 22,078,962 | |||||
116,693,257 | |||||||
Total Common Stocks (cost $1,298,102,456) | 1,683,417,057 | ||||||
Exchange-Traded Funds - .7% | |||||||
Registered Investment Companies - .7% | |||||||
iShares Russell 1000 Value ETF | 77,652 | 12,664,265 |
10
Description | 1-Day | Shares | Value ($) | ||||
Investment Companies - .2% | |||||||
Registered Investment Companies - .2% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 0.06 | 3,021,168 | b | 3,021,168 | |||
Total Investments (cost $1,313,481,109) | 99.7% | 1,699,102,490 | |||||
Cash and Receivables (Net) | .3% | 4,597,830 | |||||
Net Assets | 100.0% | 1,703,700,320 |
ADR—American Depository Receipt
ETF—Exchange-Traded Fund
a Non-income producing security.
b Investment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.
Portfolio Summary (Unaudited) † | Value (%) |
Financials | 24.8 |
Health Care | 22.8 |
Industrials | 12.8 |
Information Technology | 10.2 |
Energy | 7.2 |
Utilities | 6.9 |
Communication Services | 6.1 |
Materials | 4.0 |
Consumer Discretionary | 2.3 |
Consumer Staples | 1.7 |
Investment Companies | .9 |
99.7 |
† Based on net assets.
See notes to financial statements.
11
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS
Investment Companies | Value | Purchases ($)† | Sales ($) | Value | Net | Dividends/ |
Registered Investment Companies; | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | - | 241,539,960 | (238,518,792) | 3,021,168 | .2 | 2,180 |
Investment of Cash Collateral for Securities Loaned:†† | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 20,489,252 | 12,329,559 | (32,818,811) | - | - | 5,114††† |
Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares | - | 37,517,491 | (37,517,491) | - | - | 11,311††† |
Total | 20,489,252 | 291,387,010 | (308,855,094) | 3,021,168 | .2 | 18,605 |
† Includes reinvested dividends/distributions.
†† Effective November 9, 2020, cash collateral for securities lending was transferred from Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares to Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares.
††† Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.
See notes to financial statements.
12
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2021
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| Cost |
| Value |
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Assets ($): |
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Investments in securities—See Statement of Investments |
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Unaffiliated issuers | 1,310,459,941 |
| 1,696,081,322 |
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Affiliated issuers |
| 3,021,168 |
| 3,021,168 |
| |
Receivable for shares of Common Stock subscribed |
| 3,719,374 |
| |||
Dividends receivable |
| 2,688,507 |
| |||
Tax reclaim receivable—Note 1(b) |
| 4,580 |
| |||
Prepaid expenses |
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| 53,231 |
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| 1,705,568,182 |
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Liabilities ($): |
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Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
| 1,068,129 |
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Payable for shares of Common Stock redeemed |
| 575,424 |
| |||
Directors’ fees and expenses payable |
| 31,389 |
| |||
Other accrued expenses |
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| 192,920 |
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| 1,867,862 |
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Net Assets ($) |
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| 1,703,700,320 |
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Composition of Net Assets ($): |
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Paid-in capital |
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| 1,064,112,068 |
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Total distributable earnings (loss) |
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| 639,588,252 |
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Net Assets ($) |
|
| 1,703,700,320 |
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Net Asset Value Per Share | Class A | Class C | Class I | Class Y |
|
Net Assets ($) | 881,741,093 | 7,011,299 | 476,539,631 | 338,408,297 |
|
Shares Outstanding | 18,430,763 | 160,074 | 9,900,660 | 7,043,296 |
|
Net Asset Value Per Share ($) | 47.84 | 43.80 | 48.13 | 48.05 |
|
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
|
13
STATEMENT OF OPERATIONS
Year Ended August 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Income: |
|
|
|
| ||
Cash dividends (net of $17,468 foreign taxes withheld at source): |
| |||||
Unaffiliated issuers |
|
| 26,467,373 |
| ||
Affiliated issuers |
|
| 2,180 |
| ||
Income from securities lending—Note 1(c) |
|
| 16,425 |
| ||
Total Income |
|
| 26,485,978 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
| 8,745,314 |
| ||
Shareholder servicing costs—Note 3(c) |
|
| 2,752,964 |
| ||
Professional fees |
|
| 108,468 |
| ||
Directors’ fees and expenses—Note 3(d) |
|
| 94,378 |
| ||
Registration fees |
|
| 73,241 |
| ||
Prospectus and shareholders’ reports |
|
| 61,566 |
| ||
Distribution fees—Note 3(b) |
|
| 56,710 |
| ||
Loan commitment fees—Note 2 |
|
| 48,162 |
| ||
Custodian fees—Note 3(c) |
|
| 30,930 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
| 14,319 |
| ||
Interest expense—Note 2 |
|
| 1,492 |
| ||
Miscellaneous |
|
| 51,492 |
| ||
Total Expenses |
|
| 12,039,036 |
| ||
Less—reduction in expenses due to undertaking—Note 3(a) |
|
| (195,505) |
| ||
Net Expenses |
|
| 11,843,531 |
| ||
Investment Income—Net |
|
| 14,642,447 |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments and foreign currency transactions | 288,628,473 |
| ||||
Net change in unrealized appreciation (depreciation) on investments | 248,196,725 |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
| 536,825,198 |
| ||
Net Increase in Net Assets Resulting from Operations |
| 551,467,645 |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Investment income—net |
|
| 14,642,447 |
|
|
| 20,060,398 |
| |
Net realized gain (loss) on investments |
| 288,628,473 |
|
|
| 34,853,067 |
| ||
Net change in unrealized appreciation |
| 248,196,725 |
|
|
| (69,024,430) |
| ||
Net Increase (Decrease) in Net Assets | 551,467,645 |
|
|
| (14,110,965) |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
| (19,041,891) |
|
|
| (25,395,218) |
| |
Class C |
|
| (200,903) |
|
|
| (440,390) |
| |
Class I |
|
| (10,550,171) |
|
|
| (16,654,035) |
| |
Class Y |
|
| (7,275,644) |
|
|
| (8,883,603) |
| |
Total Distributions |
|
| (37,068,609) |
|
|
| (51,373,246) |
| |
Capital Stock Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
| 34,136,670 |
|
|
| 23,294,794 |
| |
Class C |
|
| 1,211,874 |
|
|
| 692,588 |
| |
Class I |
|
| 92,552,281 |
|
|
| 98,524,788 |
| |
Class Y |
|
| 99,963,364 |
|
|
| 41,059,106 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
| 17,758,659 |
|
|
| 23,607,957 |
| |
Class C |
|
| 181,276 |
|
|
| 334,420 |
| |
Class I |
|
| 9,954,922 |
|
|
| 15,707,496 |
| |
Class Y |
|
| 3,943,366 |
|
|
| 5,418,388 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
| (94,142,782) |
|
|
| (96,480,564) |
| |
Class C |
|
| (6,489,264) |
|
|
| (7,613,430) |
| |
Class I |
|
| (110,915,218) |
|
|
| (196,500,842) |
| |
Class Y |
|
| (64,179,793) |
|
|
| (74,590,633) |
| |
Increase (Decrease) in Net Assets | (16,024,645) |
|
|
| (166,545,932) |
| |||
Total Increase (Decrease) in Net Assets | 498,374,391 |
|
|
| (232,030,143) |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
| 1,205,325,929 |
|
|
| 1,437,356,072 |
| |
End of Period |
|
| 1,703,700,320 |
|
|
| 1,205,325,929 |
|
15
STATEMENT OF CHANGES IN NET ASSETS (continued)
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Class Aa,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 828,410 |
|
|
| 713,315 |
| |
Shares issued for distributions reinvested |
|
| 474,450 |
|
|
| 651,629 |
| |
Shares redeemed |
|
| (2,361,065) |
|
|
| (2,915,370) |
| |
Net Increase (Decrease) in Shares Outstanding | (1,058,205) |
|
|
| (1,550,426) |
| |||
Class Ca,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 29,579 |
|
|
| 21,874 |
| |
Shares issued for distributions reinvested |
|
| 5,261 |
|
|
| 9,995 |
| |
Shares redeemed |
|
| (181,276) |
|
|
| (247,262) |
| |
Net Increase (Decrease) in Shares Outstanding | (146,436) |
|
|
| (215,393) |
| |||
Class Ib |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 2,186,641 |
|
|
| 3,063,057 |
| |
Shares issued for distributions reinvested |
|
| 264,829 |
|
|
| 431,877 |
| |
Shares redeemed |
|
| (2,784,415) |
|
|
| (6,262,171) |
| |
Net Increase (Decrease) in Shares Outstanding | (332,945) |
|
|
| (2,767,237) |
| |||
Class Yb |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 2,380,906 |
|
|
| 1,400,714 |
| |
Shares issued for distributions reinvested |
|
| 105,128 |
|
|
| 149,267 |
| |
Shares redeemed |
|
| (1,575,676) |
|
|
| (2,329,883) |
| |
Net Increase (Decrease) in Shares Outstanding | 910,358 |
|
|
| (779,902) |
| |||
|
|
|
|
|
|
|
|
|
|
a | During the period ended August 31, 2021, 2,948 Class C shares representing $108,123 were automatically converted to 2,710 Class A shares and during the period ended August 31, 2020, 3,386 Class C shares representing $103,287 were automatically converted to 3,116 Class A shares. | ||||||||
b | During the period ended August 31, 2021, 33,586 Class Y shares representing $1,451,558 were exchanged for 33,526 Class I shares, 2,071 Class Y shares representing $78,874 were exchanged for 2,081 Class A shares, 173 Class C shares representing $7,212 were exchanged for 158 Class I shares and 103 Class A shares representing $4,595 were exchanged for 102 Class I shares. During the period ended August 31, 2020, 32,083 Class Y shares representing $1,118,637 were exchanged for 32,028 Class I shares, 8,359 Class A shares representing $258,938 were exchanged for 8,318 Class I shares, and 1,512 Class A shares representing $54,664 were exchanged for 1,506 Class Y shares. | ||||||||
See notes to financial statements. |
16
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. These figures have been derived from the fund’s financial statements.
Year Ended August 31, | |||||||
Class A Shares | 2021 | 2020 | 2019 | 2018 | 2017 | ||
Per Share Data ($): | |||||||
Net asset value, beginning of period | 33.28 | 34.61 | 42.18 | 40.12 | 36.08 | ||
Investment Operations: | |||||||
Investment income—neta | .36 | .47 | .57 | .49 | .37 | ||
Net realized and unrealized gain | 15.20 | (.56) | (2.67) | 5.86 | 4.72 | ||
Total from Investment Operations | 15.56 | (.09) | (2.10) | 6.35 | 5.09 | ||
Distributions: | |||||||
Dividends from investment | (.22) | (.57) | (.63) | (.39) | (.49) | ||
Dividends from net realized gain | (.78) | (.67) | (4.84) | (3.90) | (.56) | ||
Total Distributions | (1.00) | (1.24) | (5.47) | (4.29) | (1.05) | ||
Net asset value, end of period | 47.84 | 33.28 | 34.61 | 42.18 | 40.12 | ||
Total Return (%)b | 47.60 | (.55) | (4.40) | 16.68 | 14.26 | ||
Ratios/Supplemental Data (%): | |||||||
Ratio of total expenses to | .95 | .97 | .96 | .95 | 1.07 | ||
Ratio of net expenses to | .93 | .93 | .93 | .93 | .97 | ||
Ratio of net investment income to | .88 | 1.42 | 1.58 | 1.19 | .95 | ||
Portfolio Turnover Rate | 108.10 | 103.12 | 97.03 | 105.82 | 96.39 | ||
Net Assets, end of period ($ x 1,000) | 881,741 | 648,545 | 728,146 | 856,213 | 818,085 |
a Based on average shares outstanding.
b Exclusive of sales charge.
See notes to financial statements.
17
FINANCIAL HIGHLIGHTS (continued)
Year Ended August 31, | ||||||||||
Class C Shares | 2021 | 2020 | 2019 | 2018 | 2017 | |||||
Per Share Data ($): | ||||||||||
Net asset value, beginning of period | 30.58 | 31.84 | 39.20 | 37.52 | 33.81 | |||||
Investment Operations: |
|
|
|
| ||||||
Investment income—neta | .04 | .20 | .27 | .17 | .07 | |||||
Net realized and unrealized gain | 13.96 | (.53) | (2.48) | 5.48 | 4.42 | |||||
Total from Investment Operations | 14.00 | (.33) | (2.21) | 5.65 | 4.49 | |||||
Distributions: |
|
| ||||||||
Dividends from investment | - | (.26) | (.31) | (.07) | (.22) | |||||
Dividends from net realized gain | (.78) | (.67) | (4.84) | (3.90) | (.56) | |||||
Total Distributions | (.78) | (.93) | (5.15) | (3.97) | (.78) | |||||
Net asset value, end of period | 43.80 | 30.58 | 31.84 | 39.20 | 37.52 | |||||
Total Return (%)b | 46.48 | (1.29) | (5.12) | 15.86 | 13.39 | |||||
Ratios/Supplemental Data (%): |
|
| ||||||||
Ratio of total expenses to | 1.73 | 1.73 | 1.71 | 1.71 | 1.84 | |||||
Ratio of net expenses to | 1.68 | 1.68 | 1.68 | 1.68 | 1.72 | |||||
Ratio of net investment income to | .11 | .66 | .83 | .45 | .20 | |||||
Portfolio Turnover Rate | 108.10 | 103.12 | 97.03 | 105.82 | 96.39 | |||||
Net Assets, end of period ($ x 1,000) | 7,011 | 9,372 | 16,615 | 29,482 | 42,611 |
a Based on average shares outstanding.
b Exclusive of sales charge.
See notes to financial statements.
18
Year Ended August 31, | ||||||||
Class I Shares | 2021 | 2020 | 2019 | 2018 | 2017 | |||
Per Share Data ($): | ||||||||
Net asset value, beginning of period | 33.47 | 34.80 | 42.33 | 40.25 | 36.16 | |||
Investment Operations: |
|
|
| |||||
Investment income—neta | .47 | .56 | .66 | .59 | .48 | |||
Net realized and unrealized gain | 15.28 | (.56) | (2.68) | 5.88 | 4.73 | |||
Total from Investment Operations | 15.75 | (.00)b | (2.02) | 6.47 | 5.21 | |||
Distributions: |
|
| ||||||
Dividends from investment | (.31) | (.66) | (.67) | (.49) | (.56) | |||
Dividends from net realized gain | (.78) | (.67) | (4.84) | (3.90) | (.56) | |||
Total Distributions | (1.09) | (1.33) | (5.51) | (4.39) | (1.12) | |||
Net asset value, end of period | 48.13 | 33.47 | 34.80 | 42.33 | 40.25 | |||
Total Return (%) | 47.97 | (.30) | (4.16) | 16.99 | 14.58 | |||
Ratios/Supplemental Data (%): |
|
| ||||||
Ratio of total expenses to | .70 | .71 | .71 | .72 | .84 | |||
Ratio of net expenses to | .68 | .68 | .68 | .68 | .72 | |||
Ratio of net investment income to | 1.13 | 1.67 | 1.83 | 1.44 | 1.21 | |||
Portfolio Turnover Rate | 108.10 | 103.12 | 97.03 | 105.82 | 96.39 | |||
Net Assets, end of period ($ x 1,000) | 476,540 | 342,508 | 452,432 | 510,020 | 751,934 |
a Based on average shares outstanding.
b Amount represents less than $.01 per share.
See notes to financial statements.
19
FINANCIAL HIGHLIGHTS (continued)
Year Ended August 31, | |||||||||
Class Y Shares | 2021 | 2020 | 2019 | 2018 | 2017 | ||||
Per Share Data ($): | |||||||||
Net asset value, beginning of period | 33.41 | 34.74 | 42.35 | 40.25 | 36.16 | ||||
Investment Operations: | |||||||||
Investment income—neta | .49 | .57 | .67 | .62 | .48 | ||||
Net realized and unrealized gain | 15.25 | (.56) | (2.68) | 5.87 | 4.73 | ||||
Total from Investment Operations | 15.74 | .01 | (2.01) | 6.49 | 5.21 | ||||
Distributions: |
|
| |||||||
Dividends from investment | (.32) | (.67) | (.76) | (.49) | (.56) | ||||
Dividends from net realized gain | (.78) | (.67) | (4.84) | (3.90) | (.56) | ||||
Total Distributions | (1.10) | (1.34) | (5.60) | (4.39) | (1.12) | ||||
Net asset value, end of period | 48.05 | 33.41 | 34.74 | 42.35 | 40.25 | ||||
Total Return (%) | 48.06 | (.27) | (4.13) | 17.05 | 14.58 | ||||
Ratios/Supplemental Data (%): |
|
| |||||||
Ratio of total expenses to | .64 | .65 | .65 | .64 | .75 | ||||
Ratio of net expenses to | .64 | .65 | .65 | .64 | .71 | ||||
Ratio of net investment income to | 1.18 | 1.70 | 1.84 | 1.50 | 1.22 | ||||
Portfolio Turnover Rate | 108.10 | 103.12 | 97.03 | 105.82 | 96.39 | ||||
Net Assets, end of period ($ x 1,000) | 338,408 | 204,901 | 240,163 | 529,206 | 177,876 |
a Based on average shares outstanding.
See notes to financial statements.
20
NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
BNY Mellon Dynamic Value Fund (the “fund”) is a separate diversified series of BNY Mellon Advantage Funds, Inc. (the “Company”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering nine series, including the fund. The fund’s investment objective is to seek 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. Effective September 1, 2021 (the “Effective Date”), the Adviser has engaged its affiliate, Newton Investment Management North America, LLC (“Newton US”) as the fund’s sub-investment adviser pursuant to a sub-investment advisory agreement between the Adviser and Newton US. As the fund’s sub-adviser, Newton US provides the day-to-day management of the fund’s investments, subject to the Adviser’s supervision and approval. The Adviser (and not the fund) pays Newton US for its sub-advisory services. As of the Effective Date, portfolio managers responsible for managing the fund’s investments who were employees of Mellon Investments Corporation (“Mellon”) in a dual employment arrangement with the Adviser, have become employees of Newton US and are no longer employees of Mellon.
BNY Mellon Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Adviser, is the distributor of the fund’s shares. The fund is authorized to issue 800 million shares of $.001 par value Common Stock. The fund currently has authorized four classes of shares: Class A (300 million shares authorized), Class C (100 million shares authorized), Class I (250 million shares authorized), and Class Y (150 million shares authorized). Class A and Class C shares are sold primarily to retail investors through financial intermediaries and bear Distribution and/or Shareholder Services Plan fees. Class A shares generally are subject to a sales charge imposed at the time of purchase. Class A shares bought without an initial sales charge as part of an investment of $1 million or more may be charged a contingent deferred sales charge (“CDSC”) of 1.00% if redeemed within one year. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class C shares automatically convert to Class A shares eight years after the date of purchase, without the imposition of a sales charge. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of the Adviser, and its affiliates), acting on behalf of customers having a qualified trust or an investment account or relationship
21
NOTES TO FINANCIAL STATEMENTS (continued)
at such institution, and bear no Distribution or Shareholder Services Plan fees. Class Y shares are sold at net asset value per share generally to institutional investors, and bear no Distribution or Shareholder Services Plan fees. Class I and Class Y shares are offered without a front-end sales charge or CDSC. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs, and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-Investment Companies. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown. The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly.
22
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 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
23
NOTES TO FINANCIAL STATEMENTS (continued)
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 Company’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.
The following is a summary of the inputs used as of August 31, 2021 in valuing the fund’s investments:
Level 1-Unadjusted Quoted Prices | Level 2- Other Significant Observable Inputs | Level 3-Significant Unobservable Inputs | Total | |||
Assets ($) | ||||||
Investments In Securities:† | ||||||
Equity Securities - Common Stocks | 1,683,417,057 | - | - | 1,683,417,057 | ||
Exchange-Traded Funds | 12,664,265 | - | - | 12,664,265 | ||
Investment Companies | 3,021,168 | - | - | 3,021,168 |
† See Statement of Investments for additional detailed categorizations, if any.
(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
24
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 August 31, 2021, if any, are disclosed in the fund’s Statement of Assets and Liabilities.
(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
Pursuant to a securities lending agreement with The Bank of New York Mellon, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Adviser, or U.S. Government and Agency securities. The fund is entitled to receive all dividends, interest and distributions on securities loaned, in addition to income earned as a result of the lending transaction. Should a borrower fail to return the securities in a timely manner, The Bank of New York Mellon is required to replace the securities for the benefit of the fund or credit the fund with the market value of the unreturned securities and is subrogated to the fund’s rights against the borrower and the collateral. Additionally, the contractual maturity of security lending transactions are on an overnight and continuous basis. During the period ended August 31, 2021, The Bank of New York Mellon earned $2,384 from the lending of the fund’s portfolio securities, pursuant to the securities lending agreement.
(d) Affiliated issuers: Investments in other investment companies advised by the Adviser are considered “affiliated” under the Act.
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NOTES TO FINANCIAL STATEMENTS (continued)
(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.
(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 August 31, 2021, 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
26
expense in the Statement of Operations. During the period ended August 31, 2021, the fund did not incur any interest or penalties.
Each tax year in the four-year period ended August 31, 2021 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At August 31, 2021, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $94,056,294, undistributed capital gains $177,960,874 and unrealized appreciation $367,571,084.
The tax character of distributions paid to shareholders during the fiscal periods ended August 31, 2021 and August 31, 2020 were as follows: ordinary income $9,311,148 and $28,709,302, and long-term capital gains $27,757,461 and $22,663,944, respectively.
During the period ended August 31, 2021, as a result of permanent book to tax differences, primarily due to the tax treatment for treating a portion of the proceeds from redemptions as a distribution for tax purposes, the fund decreased total distributable earnings (loss) by $14,322,592 and increased paid-in capital by the same amount. Net assets and net asset value per share were not affected by this reclassification.
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. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
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NOTES TO FINANCIAL STATEMENTS (continued)
The average amount of borrowings outstanding under the Facilities during the period ended August 31, 2021 was approximately $120,822 with a related weighted average annualized interest rate of 1.23%.
NOTE 3—Management Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Adviser the management fee is computed at the annual rate of .60% of the value of the fund’s average daily net assets and is payable monthly. The Adviser has contractually agreed, from September 1, 2020 through December 31, 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 commissions, commitment fees on borrowings and extraordinary expenses) exceed .68% of the value of the fund’s average daily net assets. On or after December 31, 2021, the Adviser may terminate this expense limitation agreement at any time. The reduction in expenses, pursuant to the undertaking amounted to $195,505 during the period ended August 31, 2021.
Effective as of the Effective Date, pursuant to a sub-investment advisory agreement between the Adviser and Newton US, the Adviser pays Newton US a monthly fee at an annual rate of .288% of the value of the fund’s average daily net assets.
During the period ended August 31, 2021, the Distributor retained $12,321 from commissions earned on sales of the fund’s Class A shares and $67 from CDSC fees on redemptions of the fund’s Class C shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of its average daily net assets. The Distributor may pay one or more Service Agents in respect of advertising, marketing and other distribution services, and determines the amounts, if any, to be paid to Service Agents and the basis on which such payments are made. During the period ended August 31, 2021, Class C shares were charged $56,710 pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or
28
other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended August 31, 2021, Class A and Class C shares were charged $1,939,546 and $18,903, respectively, 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 August 31, 2021, the fund was charged $161,721 for transfer agency services, inclusive of earnings credit, if any. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended August 31, 2021, the fund was charged $30,930 pursuant to the custody agreement.
During the period ended August 31, 2021, the fund was charged $14,319 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 $855,677, Distribution Plan fees of $4,439, Shareholder Services Plan fees of $186,754, custodian fees of $10,800, Chief Compliance Officer fees of $6,286 and transfer agency fees of $26,357, which are offset against an expense reimbursement currently in effect in the amount of $22,184.
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NOTES TO FINANCIAL STATEMENTS (continued)
(d) Each Board member also serves as a Board member of other funds in the BNY Mellon Family of Funds complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended August 31, 2021, amounted to $1,552,612,733 and $1,597,312,503, respectively.
At August 31, 2021, the cost of investments for federal income tax purposes was $1,331,531,378 accordingly, accumulated net unrealized appreciation on investments was $367,571,112, consisting of $393,371,965 gross unrealized appreciation and $25,800,853 gross unrealized depreciation.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of BNY Mellon Dynamic Value Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of BNY Mellon Dynamic Value Fund (the “Fund”) (one of the funds constituting BNY Mellon Advantage Funds, Inc.), including the statements of investments and investments in affiliated issuers, as of August 31, 2021, 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 (one of the funds constituting BNY Mellon Advantage Funds, Inc.) at August 31, 2021, 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 August 31, 2021, 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
October 22, 2021
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IMPORTANT TAX INFORMATION (Unaudited)
For federal tax purposes, the fund hereby reports 99.96% of the ordinary dividends paid during the fiscal year ended August 31, 2021 as qualifying for the corporate dividends received deduction. Also certain dividends paid by the fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the distributions paid during the fiscal year, $9,307,997 represents the maximum amount that may be considered qualified dividend income. The fund also hereby reports $.7814 per share as a long-term capital gain distribution paid on December 8, 2020. Shareholders will receive notification in early 2022 of the percentage applicable to the preparation of their 2021 income tax returns.
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Directors held on March 8-9, 2021 (the “15(c) Meeting”), the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”). The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of the fund (the “Independent Directors”), were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser. In considering the renewal of the Agreement, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the 15(c) 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. 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 (1) the performance of the fund’s Class I shares with the performance of a group of institutional multi-cap value funds selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all retail and institutional multi-cap value funds (the “Performance Universe”), all for various periods ended December 31, 2020, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of all
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
institutional multi-cap value funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser the results of the comparisons and considered that the fund’s total return performance was above the Performance Group and the Performance Universe medians for all periods, except the four-year period when it was one point below the Performance Group median. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index, and it was noted that the fund’s returns were above the returns of the index in seven of the ten calendar years shown.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management services provided by the Adviser. In addition, the Board reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year, which included reductions for a fee waiver arrangement in place that reduced the management fee paid to the Adviser. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons.
The Board considered that the fund’s contractual management fee was lower than the Expense Group median contractual management fee, the fund’s actual management fee was lower than the Expense Group median and the Expense Universe median actual management fee and the fund’s total expenses were lower than the Expense Group median and the Expense Universe median total expenses.
Representatives of the Adviser stated that the Adviser has contractually agreed, until December 31, 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 services fees, taxes, interest, brokerage commissions, commitment fees on borrowings and extraordinary expenses) exceed 0.68% of the fund’s average daily net assets.
Representatives of the Adviser reviewed with the Board the management or investment advisory fees paid to the Adviser, or the primary employer of the fund’s primary portfolio manager(s) that is affiliated with the Adviser, 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
34
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. Representatives of the Adviser noted that there were no other funds advised or administered by the Adviser that are in the same Lipper category as the fund.
Analysis of Profitability and Economies of Scale. Representatives of the Adviser reviewed the expenses allocated and profit received by the Adviser and its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to the Adviser and its affiliates for managing the funds in the BNY Mellon fund complex, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not excessive, given the services rendered and service levels provided by the Adviser and its affiliates. The Board also considered the expense limitation arrangement and its effect on the profitability of the Adviser and its affiliates. The Board also had been provided with information prepared by an independent consulting firm regarding the Adviser’s approach to allocating costs to, and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation of whether the fees under the Agreement, considered in relation to the mix of services provided by the Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreement and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser stated that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that the Adviser may have realized any economies of scale would be less. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser from acting as investment adviser and took into consideration the soft dollar arrangements in effect for trading the fund’s investments.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser are adequate and appropriate.
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
· The Board was satisfied with the fund’s performance.
· The Board concluded that the fee paid to the Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates, of the Adviser and the services provided to the fund by the Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreement for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreement.
*********************************************
At a meeting of the fund’s Board of Directors held on May 11, 2021 (the “Meeting”), the Board discussed with representatives of the Adviser plans to realign Mellon Investments Corporation’s (“Mellon”) equities and multi-asset capabilities with Newton Investment Management North America, LLC (“Newton US”) (the “Firm Realignment”), with such realignment scheduled to occur, subject to regulatory requirements, in the third quarter of 2021 (the “Effective Date”). The Adviser noted that, as a result of the Firm Realignment, the portfolio managers who are currently responsible for managing the investments of the fund as employees of Mellon in a dual employment arrangement with the Adviser, will become employees of Newton US as of the Effective Date. Consequently, the Adviser proposed to engage Newton US to serve as the fund’s sub-investment adviser, pursuant to a sub-investment advisory agreement between the Adviser and Newton US (the “New Sub-Advisory Agreement”), to be effective on the Effective Date. In addition, the Adviser proposed amending the fund’s current management agreement (the “Current Management Agreement”) to reflect the
36
engagement of Newton US as sub-investment adviser to the fund (as proposed to be amended, the “Amended Management Agreement”), to be effective on the Effective Date.
At the Meeting, the Adviser recommended the approval of the New Sub-Advisory Agreement, pursuant to which Newton US would serve as sub-investment adviser to the fund, and the Amended Management Agreement. The recommendation for the approval of the New Sub-Advisory Agreement and the Amended Management Agreement was based on the following considerations, among others: (i) approval of the New Sub-Advisory Agreement and the Amended Management Agreement would permit the fund’s current portfolio managers to continue to be responsible for the day-to-day management of the fund’s portfolio after the Effective Date as employees of Newton US; (ii) there will be no material changes to the fund’s investment objective, strategies or policies, no reduction in the nature or level of services provided to the fund, and no increases in the management fee payable by the fund as a result of the proposed changes to the investment advisory arrangements; and (iii) the Adviser (and not the fund) will pay Newton US for its sub-investment advisory services. The Board also considered the fact that the Adviser stated that it believes there are no material changes to the information the Board had previously considered at the 15(c) Meeting, at which the Board re-approved the Current Management Agreement for the ensuing year, other than the information about the Firm Realignment and Newton US.
At the Meeting, the Board members considered and approved the New Sub-Advisory Agreement and the Amended Management Agreement. In determining whether to approve the New Sub-Advisory Agreement and the Amended Management Agreement, the Board considered the materials prepared by the Adviser received in advance of the Meeting and other information presented at the Meeting, which included: (i) a form of the New Sub-Advisory Agreement and a form of the Amended Management Agreement; (ii) information regarding the Firm Realignment and how it is expected to enhance investment capabilities; (iii) information regarding Newton US; and (iv) an opinion of counsel that the proposed changes to the investment advisory arrangements would not result in an “assignment” of the Current Management Agreement under the 1940 Act and the Investment Advisers Act of 1940, as amended, and, therefore, do not require the approval of fund shareholders. The Board also considered the substance of discussions with representatives of the Adviser at the Meeting and the 15(c) Meeting.
Nature, Extent and Quality of Services to be Provided. In examining the nature, extent and quality of the services that were expected to be provided by Newton US to the fund under the New Sub-Advisory Agreement, the Board considered: (i) Newton US’s organization, qualification and background, as well as the qualifications of its personnel; (ii) the expertise of the personnel providing portfolio management services, which would remain the same after the Effective Date; and (iii) the investment strategy for the fund, which would remain the same after the Effective Date. The Board also considered the review process undertaken by the Adviser and the Adviser’s favorable assessment of the nature and quality of the sub-investment advisory services expected to be provided to the fund by Newton US after the Effective Date. Based on their consideration and
37
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
review of the foregoing information, the Board concluded that the nature, extent and quality of the sub-investment advisory services to be provided by Newton US under the New Sub-Advisory Agreement, as well as Newton US’s ability to render such services based on its resources and the experience of the investment team, which will include the fund’s current portfolio managers, were adequate and appropriate for the fund in light of the fund’s investment objective, and supported a decision to approve the New Sub-Advisory Agreement. The Board also considered, as it related to the Amended Management Agreement, that the nature, extent and quality of the services that are provided by the Adviser are expected to remain the same, including the Adviser’s extensive administrative, accounting and compliance infrastructures, as well as the Adviser’s supervisory activities over the fund’s portfolio management personnel.
Investment Performance. The Board had considered the fund’s investment performance and that of the investment team managing the fund’s portfolio at the 15(c) Meeting (including comparative data provided by Broadridge Financial Solutions, Inc.). The Board considered the performance and that the same investment professionals would continue to manage the fund’s assets after the Effective Date, as factors in evaluating the services to be provided by Newton US under the New Sub-Advisory Agreement after the Effective Date, and determined that these factors, when viewed together with the other factors considered by the Board, supported a decision to approve the New Sub-Advisory Agreement and the Amended Management Agreement.
Costs of Services to be Provided and Profitability. The Board considered the proposed fee payable under the New Sub-Advisory Agreement, noting that the proposed fee would be paid by the Adviser and, thus, would not impact the fees paid by the fund or the Adviser’s profitability. The Board considered the fee payable to Newton US in relation to the fee paid to the Adviser by the fund and the respective services provided by Newton US and the Adviser. The Board recognized that, because Newton US’s fee would be paid by the Adviser, and not the fund, an analysis of profitability was more appropriate in the context of the Board’s consideration of the fund’s Current Management Agreement, and that the Board had received and considered a profitability analysis of the Adviser and its affiliates, including Newton US, at the 15(c) Meeting. The Board concluded that the proposed fee payable to Newton US by the Adviser was appropriate and the Adviser’s profitability was not excessive in light of the nature, extent and quality of the services to be provided to the fund by the Adviser under the Amended Management Agreement and Newton US under the New Sub-Advisory Agreement.
Economies of Scale to be Realized. The Board recognized that, because the fee payable to Newton US would be paid by the Adviser, and not the fund, an analysis of economies of scale was more appropriate in the context of the Board’s consideration of the Current Management Agreement, which had been done at the 15(c) Meeting. At the 15(c) Meeting, 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 Current Management Agreement and that, to the extent in the
38
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.
The Board also considered whether there were any ancillary benefits that would accrue to Newton US as a result of its relationship with the fund, and such ancillary benefits, if any, were determined to be reasonable.
In considering the materials and information described above, the Independent Directors received assistance from, and met separately with, their independent legal counsel, and were provided with a written description of their statutory responsibilities and the legal standards that are applicable to the approval of investment advisory and sub-investment advisory agreements.
After full consideration of the factors discussed above, with no single factor identified as being of paramount importance, the Board members, all of whom are Independent Directors, with the assistance of independent legal counsel, approved the New Sub-Advisory Agreement and Amended Management Agreement for the fund effective as of the Effective Date.
39
LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)
Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.
The rule requires the fund to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.
The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.
Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the Board. Furthermore, the Board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.
Assessment of Program
In the opinion of the Program Administrator, the Program approved by the Board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.
During the period from January 1, 2020 to December 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.
Under normal expected foreseeable fund redemption forecasts and foreseeable stressed fund redemption forecasts, the Program Administrator believes that the fund maintains sufficient highly liquid assets to meet expected fund redemptions.
40
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: 97
———————
Peggy C. Davis (78)
Board Member (2006)
Principal Occupation During Past 5 Years:
· Shad Professor of Law, New York University School of Law (1983-Present)
No. of Portfolios for which Board Member Serves: 35
———————
Gina D. France (63)
Board Member (2019)
Principal Occupation During Past 5 Years:
· France Strategic Partners, a strategy and advisory firm serving corporate clients across the United States, Founder, President and Chief Executive Officer (2003-Present)
Other Public Company Board Memberships During Past 5 Years:
· Huntington Bancshares, a bank holding company headquartered in Columbus, Ohio, Director (2016-Present)
· Cedar Fair, L.P., a publicly-traded partnership that owns and operates amusement parks and hotels in the U.S. and Canada, Director (2011-Present)
· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (2015-Present)
· FirstMerit Corporation, a diversified financial services company, Director (2004-2016)
No. of Portfolios for which Board Member Serves: 25
———————
Joan Gulley (73)
Board Member (2017)
Principal Occupation During Past 5 Years:
· Nantucket Atheneum, public library, Chair (2018-June 2021) and Director (2015-June 2021)
· Orchard Island Club, golf and beach club, Governor (2016-Present)
No. of Portfolios for which Board Member Serves: 43
———————
41
BOARD MEMBERS INFORMATION (Unaudited) (continued)
INDEPENDENT BOARD MEMBERS (continued)
Robin A. Melvin (57)
Board Member (2012)
Principal Occupation During Past 5 Years:
· Westover School, a private girls’ boarding school in Middlebury, Connecticut, Trustee (2019-Present)
· Mentor Illinois, a non-profit organization dedicated to increasing the quality of mentoring services in Illinois. Co-Chair (2014–2020); Board Member, Mentor Illinois (2013-2020)
· JDRF, a non-profit juvenile diabetes research foundation, Board Member (June 2021-Present)
Other Public Company Board Memberships During Past 5 Years:
· HPS Corporate Lending Fund, a closed-end management investment company regulated as a business development company, Trustee (August 2021-Present)
No. of Portfolios for which Board Member Serves: 76
———————
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.
David P. Feldman, Emeritus Board Member
Ehud Houminer, Emeritus Board Member
Lynn Martin, Emeritus Board Member
Dr. Martin Peretz, Emeritus Board Member
Philip L. Toia, Emeritus Board Member
42
OFFICERS OF THE FUND (Unaudited)
DAVID DIPETRILLO, President since January 2021.
Vice President and Director of the Adviser since February 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; He is an officer of 56 investment companies (comprised of 106 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 43 years old and has been an employee of BNY Mellon since 2005.
JAMES WINDELS, Treasurer since November 2001.
Vice President of the Adviser since September 2020, Director-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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.
PETER M. SULLIVAN, Chief Legal Officer since July 2021 and Vice President and Assistant Secretary since March 2019.
Chief Legal Officer of the Adviser since July 2021, Associate General Counsel of BNY Mellon since July 2021; Senior Managing Counsel of BNY Mellon from December 2020 to July 2021; Managing Counsel of BNY Mellon from March 2009 to December 2020, and an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of BNY Mellon since April 2004.
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 57 investment companies (comprised of 128 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 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. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 31 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 57 investment companies (comprised of 128 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 57 investment companies (comprised of 128 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 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 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of the Adviser since June 2019.
43
OFFICERS OF THE FUND (Unaudited) (continued)
NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.
Chief Compliance Officer (since August 2021) and Vice President and Assistant Secretary (since February 2020) of BNY Mellon ETF Investment Adviser, LLC; Chief Compliance Officer (since August 2021) and Vice President (since February 2020) of BNY Mellon ETF Trust; Managing Counsel (December 2019 to August 2021) and Counsel (May 2016 to December 2019) of BNY Mellon; Assistant Secretary of the Adviser from April 2018 to August 2021. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of BNY Mellon since May 2016.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 April 1991.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 June 1989.
ROBERT SVAGNA, Assistant Treasurer since December 2002.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since 2004, CCO of the Adviser from 2004 until June 2021 (56 investment companies, comprised of 119 portfolios). He is 64 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. She is an officer of 50 investment companies (comprised of 121 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 53 years old and has been an employee of the Distributor since 1997.
44
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45
BNY Mellon Dynamic Value Fund
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
North America, LLC
BNY Mellon Center
201 Washington Place
Boston, MA 02108
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
BNY Mellon Transfer, Inc.
240 Greenwich Street
New York, NY 10286
Distributor
BNY Mellon Securities Corporation
240 Greenwich Street
New York, NY 10286
Ticker Symbols: | Class A:DAGVX Class C:DCGVX Class I:DRGVX Class Y:DRGYX |
Telephone Call your financial representative or 1-800-373-9387
Mail The BNY Mellon Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
E-mail Send your request to info@bnymellon.com
Internet Information can be viewed online or downloaded at www.im.bnymellon.com
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2021 BNY Mellon Securities Corporation |
BNY Mellon Opportunistic Midcap Value Fund
ANNUAL REPORT August 31, 2021 |
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.im.bnymellon.com and sign up for eCommunications. It’s simple and only takes a few minutes. |
The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds. |
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value |
Contents
THE FUND
FOR MORE INFORMATION
Back Cover
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from September 1, 2020 through August 31, 2021, as provided by R. Patrick Kent, lead portfolio manager, and James Boyd, portfolio manager.
Market and Fund Performance Overview
For the 12-month period ended August 31, 2021, BNY Mellon Opportunistic Midcap Value Fund’s Class A Shares produced a total return of 33.88%, Class C shares returned 32.86%, Class I shares returned 34.17% and Class Y shares returned 34.33%.1 In comparison, the fund’s benchmark, the Russell Midcap® Value Index (the “Index”), produced a 44.50% total return for the same period.2
Mid-cap stocks gained ground over the reporting period as government-mandated lockdowns were lifted, and the economy continued to recover. The fund lagged the Index due to unfavorable asset allocation and security selection.
The Fund’s Investment Approach
The fund seeks to surpass the performance of the Index. The fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of mid-cap companies. The fund currently considers mid-cap companies to be those with market capitalizations, at the time of purchase, within the market capitalization range of companies comprising the Index. As of November 30, 2020, the market capitalizations of the largest and smallest companies included in the index were approximately $48 billion and $654 million, respectively, and the weighted average and median market capitalizations of the index were approximately $17 billion and $8 billion, respectively.
The fund’s portfolio managers identify potential investments through extensive fundamental and quantitative research. The fund focuses on individual stock selection (a “bottom-up” approach), emphasizing three key factors: relative value, business health and business momentum.
The fund’s portfolio managers use an opportunistic value approach to identify stocks whose current market prices trade at a large discount to their intrinsic value, as calculated by the portfolio managers. The opportunistic value style attempts to benefit from valuation inefficiencies and underappreciated, fundamental prospects present in the marketplace. The portfolio managers use mid-cycle estimates, growth prospects, the identification of a revaluation catalyst and competitive advantages as some of the factors in the valuation assessment.
Stocks Rise Despite Concerns about Economic Recovery
During the reporting period, the economy continued to show signs of recovery as government-mandated lockdowns were eased, and COVID-19 vaccines were approved. Technology and other growth stocks performed particularly early in the period, but with the approval of multiple COVID-19 vaccines late in November 2020, performance in the market broadened, and more cyclically oriented stocks began to perform better.
Returns were supported by interest rates, which remained low, while the stimulus package approved by Congress continued to bolster consumers, small businesses and the economy
2
generally. Investors also began to factor the likelihood of infrastructure spending into their calculations.
Early in 2021, concerns about inflation arose, and interest rates began to rise. This took a toll on more growth-oriented stocks whose valuations had soared. But with the re-emergence of COVID-19, questions about whether the economic recovery would stall caused the market to pivot back to more defensive and growth-oriented stocks. Mixed economic data also weighed on markets later in the period, as did signals from the Federal Reserve, which suggested that policies might not be as supportive in the future.
Asset Allocation and Security Selection Hampered Performance
The fund underperformed the Index over the reporting period as a result of unfavorable asset allocation and security selection. The primary asset allocation decision that detracted from performance was an overweight position in the health care sector, which lagged the Index. Stock selections in this sector also detracted from performance. Shares of Neurocrine Biosciences lagged as the company’s results were hurt by lower prescription activity due to the pandemic. A position in Sarepta Therapeutics, a gene therapy company, also detracted when it announced disappointing research data on one of its products in development. Zimmer Biomet Holdings, a maker of orthopedic implants, also hindered returns because of a slowdown in sales due to the pandemic. Shares of Clarivate Analytics, a provider of data related to intellectual property, also hampered performance, as did shares of Lyft, which experienced a slowdown as a result of the pandemic.
On a more positive note, an overweight position in the materials sector contributed positively to performance, as did underweight positions in the real estate and industrial sectors, which lagged the Index. Stock selections in the information technology sector were also advantageous. These included Nuance Communications, a voice recognition company, which was purchased by Microsoft. Selections in the consumer finance industry, including Capital One Financial, were beneficial as these shares performed well on improving fundamentals. In the materials sector, Freeport-McMoRan, a copper mining company, was supported by higher copper prices.
Seeing Value in Mid Cap Stocks
The fund continues to pivot toward companies that are likely to benefit from the full reopening of the global economy that is expected in 2021. We also continue to see more value in mid cap companies than in the large cap segment of the market. The fund will continue to look for stocks that offer discounts to their intrinsic value and are likely to
3
DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)
perform well over a 12- to18-month period. These include stocks in cyclical industries as well as in industries that have been especially hard-hit by the pandemic.
September 15, 2021
1 DUE TO RECENT MARKET VOLATILITY, CURRENT PERFORMANCE MAY BE DIFFERENT THAN THE FIGURES SHOWN. Investors should note that the fund’s short-term performance is highly unusual, in part to unusually favorable market conditions, and is unlikely to be repeated or consistently achieved in the future. Total return includes reinvestment of dividends and any capital gains paid and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Past performance is no guarantee of future results. Share price and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost.
2 Source: Lipper Inc. — The Russell Midcap® Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap® Index companies that are considered more value-oriented relative to the overall market, as defined by Russell’s leading style methodology. The Index is constructed to provide a comprehensive and unbiased barometer of the mid-cap value market. The Index is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true mid-cap value market. 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 to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees. Investing in foreign denominated and/or domiciled securities involves special risks, including changes in currency exchange rates, political, economic, and social instability, limited company information, differing auditing and legal standards, and less market liquidity. These risks generally are greater with emerging market countries.
Stocks of small- and/or mid-cap companies often experience sharper price fluctuations than stocks of large-cap companies.
Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others. To the extent the fund may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase the fund’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.
4
FUND PERFORMANCE (Unaudited)
Comparison of change in value of a $10,000 investment in Class A shares, Class C shares and Class I shares of BNY Mellon Opportunistic Midcap Value Fund with a hypothetical investment of $10,000 in the Russell Midcap® Value Index (the “Index”)
† Source: Lipper Inc.
Past performance is not predictive of future performance.
The above graph compares a hypothetical $10,000 investment made in each of the Class A shares, Class C shares, and Class I shares of BNY Mellon Opportunistic Midcap Value Fund on 8/31/11 to a hypothetical investment of $10,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account the maximum initial sales charge on Class A shares and all other applicable fees and expenses on Class A shares, Class C shares, and Class I shares. The Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap® Index companies that are considered more value-oriented relative to the overall market as defined by Russell’s leading style methodology. The Index is constructed to provide a comprehensive and unbiased barometer of the mid-cap value market. The Index is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true mid-cap value market. 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)
Comparison of change in value of a $1,000,000 investment in Class Y shares of BNY Mellon Opportunistic Midcap Value Fund with a hypothetical investment of $1,000,000 in the Russell Midcap® Value Index (the “Index”)
† Source: Lipper Inc.
†† The total return figures presented for Class Y shares of the fund reflect the performance of the fund’s Class A shares for the period prior to 7/1/13 (the inception date for Class Y shares), not reflecting the applicable sales charges for Class A shares.
Past performance is not predictive of future performance.
The above graph compares a hypothetical $1,000,000 investment made in Class Y shares of BNY Mellon Opportunistic Midcap Value Fund on 8/31/11 to a hypothetical investment of $1,000,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account all applicable fees and expenses on Class Y shares. The Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap® Index companies that are considered more value-oriented relative to the overall market as defined by Russell’s leading style methodology. The Index is constructed to provide a comprehensive and unbiased barometer of the mid-cap value market. The Index is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true mid-cap value market. 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.
6
Average Annual Total Returns as of 8/31/2021 | ||||||
|
| Inception Date | 1 Year | 5 Years | 10 Years | |
Class A shares | ||||||
with maximum sales charge (5.75%) | 9/29/95 | 26.20% | 10.61% | 11.74% | ||
without sales charge | 9/29/95 | 33.88% | 11.93% | 12.40% | ||
Class C shares | ||||||
with applicable redemption charge † | 5/30/08 | 31.86% | 11.07% | 11.54% | ||
without redemption | 5/30/08 | 32.86% | 11.07% | 11.54% | ||
Class I shares | 5/30/08 | 34.17% | 12.20% | 12.67% | ||
Class Y shares | 7/1/13 | 34.33% | 12.32% | 12.71%†† | ||
Russell Midcap® Value Index | 44.50% | 11.52% | 13.26% |
† The maximum contingent deferred sales charge for Class C shares is 1% for shares redeemed within one year of the date of purchase.
†† The total return performance figures presented for Class Y shares of the fund reflect the performance of the fund’s Class A shares for the period prior to 7/1/13 (the inception date for Class Y shares), not reflecting the applicable sales charges for Class A shares.
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 performance shown in the graphs and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. In addition to the performance of Class A shares shown with and without a maximum sales charge, the fund’s performance shown in the table takes into account all other applicable fees and expenses on all classes.
7
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in BNY Mellon Opportunistic Midcap Value Fund from March 1, 2021 to August 31, 2021. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment |
| |||||
Assume actual returns for the six months ended August 31, 2021 |
| |||||
|
|
|
|
|
|
|
|
| Class A | Class C | Class I | Class Y |
|
Expenses paid per $1,000† | $5.90 | $10.00 | $4.80 | $4.28 |
| |
Ending value (after expenses) | $1,069.90 | $1,066.10 | $1,071.20 | $1,071.80 |
|
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (“SEC”) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment |
| |||||
Assuming a hypothetical 5% annualized return for the six months ended August 31, 2021 |
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| Class A | Class C | Class I | Class Y |
|
Expenses paid per $1,000† | $5.75 | $9.75 | $4.69 | $4.18 |
| |
Ending value (after expenses) | $1,019.51 | $1,015.53 | $1,020.57 | $1,021.07 |
| |
† | Expenses are equal to the fund’s annualized expense ratio of 1.13% for Class A, 1.92% for Class C, .92% for Class I and .82% for Class Y, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
8
STATEMENT OF INVESTMENTS
August 31, 2021
Description | Shares | Value ($) | |||||
Common Stocks - 97.3% | |||||||
Automobiles & Components - 1.0% | |||||||
Thor Industries | 47,724 | a | 5,413,333 | ||||
Banks - 4.0% | |||||||
Huntington Bancshares | 630,903 | 9,797,924 | |||||
Popular | 143,166 | 10,872,026 | |||||
20,669,950 | |||||||
Capital Goods - 5.4% | |||||||
CNH Industrial | 665,221 | 10,969,494 | |||||
Colfax | 163,677 | b | 7,884,321 | ||||
Quanta Services | 87,595 | 8,943,449 | |||||
27,797,264 | |||||||
Commercial & Professional Services - 4.9% | |||||||
ADT | 559,853 | a | 4,792,342 | ||||
Clarivate | 353,419 | b | 8,902,625 | ||||
Ritchie Bros Auctioneers | 180,617 | 11,304,818 | |||||
24,999,785 | |||||||
Consumer Durables & Apparel - 6.5% | |||||||
Hasbro | 86,744 | 8,527,803 | |||||
Newell Brands | 279,937 | 7,113,199 | |||||
Skechers USA, CI. A | 234,041 | b | 11,802,688 | ||||
Under Armour, Cl. A | 253,887 | b | 5,874,945 | ||||
33,318,635 | |||||||
Consumer Services - 5.7% | |||||||
Aramark | 251,798 | 8,760,052 | |||||
Expedia Group | 73,816 | b | 10,666,412 | ||||
Norwegian Cruise Line Holdings | 386,737 | a,b | 9,993,284 | ||||
29,419,748 | |||||||
Diversified Financials - 7.5% | |||||||
Ares Management, Cl. A | 116,788 | 9,013,698 | |||||
Capital One Financial | 62,616 | 10,392,377 | |||||
LPL Financial Holdings | 53,134 | 7,855,862 | |||||
Voya Financial | 175,832 | a | 11,425,563 | ||||
38,687,500 | |||||||
Energy - 4.2% | |||||||
EQT | 365,485 | b | 6,699,340 | ||||
Pioneer Natural Resources | 53,112 | 7,949,273 | |||||
Valero Energy | 101,796 | 6,750,093 | |||||
21,398,706 | |||||||
Food, Beverage & Tobacco - 2.8% | |||||||
Conagra Brands | 225,722 | 7,475,913 | |||||
Molson Coors Beverage, Cl. B | 149,777 | 7,118,901 | |||||
14,594,814 |
9
STATEMENT OF INVESTMENTS (continued)
Description | Shares | Value ($) | |||||
Common Stocks - 97.3% (continued) | |||||||
Health Care Equipment & Services - 7.9% | |||||||
Alcon | 99,316 | a | 8,190,590 | ||||
Centene | 152,692 | b | 9,616,542 | ||||
Encompass Health | 69,124 | 5,422,778 | |||||
Laboratory Corp. of America Holdings | 21,215 | b | 6,436,207 | ||||
Zimmer Biomet Holdings | 72,241 | 10,868,658 | |||||
40,534,775 | |||||||
Insurance - 2.8% | |||||||
Arch Capital Group | 159,846 | b | 6,569,671 | ||||
Reinsurance Group of America | 69,854 | 8,090,490 | |||||
14,660,161 | |||||||
Materials - 7.3% | |||||||
Eagle Materials | 45,194 | 7,088,227 | |||||
Freeport-McMoRan | 271,004 | 9,861,836 | |||||
Newmont | 157,218 | 9,117,072 | |||||
The Mosaic Company | 354,532 | 11,408,840 | |||||
37,475,975 | |||||||
Media & Entertainment - 2.8% | |||||||
Activision Blizzard | 116,096 | 9,562,827 | |||||
Zillow Group, Cl. C | 49,369 | b | 4,728,069 | ||||
14,290,896 | |||||||
Pharmaceuticals Biotechnology & Life Sciences - 7.6% | |||||||
Elanco Animal Health | 283,038 | b | 9,447,808 | ||||
Neurocrine Biosciences | 74,661 | b | 7,107,727 | ||||
Sarepta Therapeutics | 74,102 | b | 5,788,848 | ||||
United Therapeutics | 40,974 | b | 8,804,493 | ||||
Viatris | 529,936 | 7,752,964 | |||||
38,901,840 | |||||||
Real Estate - 7.3% | |||||||
Alexandria Real Estate Equities | 39,075 | c | 8,063,908 | ||||
CBRE Group, Cl. A | 100,309 | b | 9,659,757 | ||||
Digital Realty Trust | 55,965 | c | 9,173,223 | ||||
Equity Residential | 128,717 | c | 10,821,238 | ||||
37,718,126 | |||||||
Retailing - 1.5% | |||||||
Dollar Tree | 87,606 | b | 7,931,847 | ||||
Semiconductors & Semiconductor Equipment - 2.2% | |||||||
First Solar | 27,670 | b | 2,600,980 | ||||
Skyworks Solutions | 47,350 | 8,686,831 | |||||
11,287,811 | |||||||
Software & Services - 5.9% | |||||||
Euronet Worldwide | 83,348 | b | 11,104,454 | ||||
Global Payments | 64,443 | 10,481,009 |
10
Description | Shares | Value ($) | |||||
Common Stocks - 97.3% (continued) | |||||||
Software & Services - 5.9% (continued) | |||||||
Splunk | 57,257 | b | 8,752,878 | ||||
30,338,341 | |||||||
Technology Hardware & Equipment - 3.4% | |||||||
Nokia, ADR | 1,250,056 | b | 7,450,334 | ||||
Western Digital | 157,937 | b | 9,981,618 | ||||
17,431,952 | |||||||
Transportation - 2.0% | |||||||
Lyft, Cl. A | 221,793 | b | 10,559,565 | ||||
Utilities - 4.6% | |||||||
Exelon | 189,533 | 9,290,908 | |||||
PPL | 280,036 | 8,219,057 | |||||
Vistra Energy | 330,668 | 6,312,452 | |||||
23,822,417 | |||||||
Total Common Stocks (cost $391,704,998) | 501,253,441 | ||||||
Exchange-Traded Funds - 1.0% | |||||||
Registered Investment Companies - 1.0% | |||||||
SPDR S&P MidCap 400 ETF Trust | 10,335 | a | 5,191,064 | ||||
Private Equity - .5% | |||||||
Software & Services - .5% | |||||||
Databricks | 10,881 | d | 2,398,743 | ||||
1-Day | |||||||
Investment Companies - 1.2% | |||||||
Registered Investment Companies - 1.2% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 0.06 | 6,397,314 | e | 6,397,314 |
11
STATEMENT OF INVESTMENTS (continued)
Description | 1-Day | Shares | Value ($) | ||||
Investment of Cash Collateral for Securities Loaned - 3.1% | |||||||
Registered Investment Companies - 3.1% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares | 0.02 | 15,821,183 | e | 15,821,183 | |||
Total Investments (cost $421,457,663) | 103.1% | 531,061,745 | |||||
Liabilities, Less Cash and Receivables | (3.1%) | (16,111,402) | |||||
Net Assets | 100.0% | 514,950,343 |
ADR—American Depository Receipt
ETF—Exchange-Traded Fund
SPDR—Standard & Poor's Depository Receipt
a Security, or portion thereof, on loan. At August 31, 2021, the value of the fund’s securities on loan was $40,019,251 and the value of the collateral was $40,794,458, consisting of cash collateral of $15,821,183 and U.S. Government & Agency securities valued at $24,973,275.
b Non-income producing security.
c Investment in real estate investment trust within the United States.
d The fund held Level 3 securities at August 31, 2021. These securities were valued at $2,398,743 or ..47% of net assets.
e Investment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.
Portfolio Summary (Unaudited) † | Value (%) |
Health Care | 15.4 |
Consumer Discretionary | 14.8 |
Financials | 14.4 |
Industrials | 12.3 |
Information Technology | 11.5 |
Real Estate | 7.3 |
Materials | 7.3 |
Investment Companies | 5.3 |
Utilities | 4.6 |
Energy | 4.1 |
Consumer Staples | 2.8 |
Communication Services | 2.8 |
Technology | .5 |
103.1 |
† Based on net assets.
See notes to financial statements.
12
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS
Investment Companies | Value | Purchases ($)† | Sales ($) | Value | Net | Dividends/ |
Registered Investment Companies: | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Class | 7,687,707 | 135,936,031 | (137,226,424) | 6,397,314 | 1.2 | 6,332 |
Investment of Cash Collateral for Securities Loaned:†† | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 11,305,965 | 24,555,592 | (35,861,557) | - | - | 8,364††† |
Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares | - | 138,873,391 | (123,052,208) | 15,821,183 | 3.1 | 48,918††† |
Total | 18,993,672 | 299,365,014 | (296,140,189) | 22,218,497 | 4.3 | 63,614 |
† Includes reinvested dividends/distributions.
†† Effective November 9, 2020, cash collateral for securities lending was transferred from Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares to Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares.
††† Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.
See notes to financial statements.
13
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2021
|
|
|
|
|
|
|
|
|
| Cost |
| Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments |
|
|
| |||
Unaffiliated issuers | 399,239,166 |
| 508,843,248 |
| ||
Affiliated issuers |
| 22,218,497 |
| 22,218,497 |
| |
Dividends and securities lending income receivable |
| 549,155 |
| |||
Receivable for shares of Common Stock subscribed |
| 151,674 |
| |||
Tax reclaim receivable—Note 1(b) |
| 2,484 |
| |||
Prepaid expenses |
|
|
|
| 47,448 |
|
|
|
|
|
| 531,812,506 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
| 433,645 |
| |||
Liability for securities on loan—Note 1(c) |
| 15,821,183 |
| |||
Payable for shares of Common Stock redeemed |
| 459,537 |
| |||
Directors’ fees and expenses payable |
| 6,878 |
| |||
Other accrued expenses |
|
|
|
| 140,920 |
|
|
|
|
|
| 16,862,163 |
|
Net Assets ($) |
|
| 514,950,343 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
| 353,228,599 |
|
Total distributable earnings (loss) |
|
|
|
| 161,721,744 |
|
Net Assets ($) |
|
| 514,950,343 |
|
Net Asset Value Per Share | Class A | Class C | Class I | Class Y |
|
Net Assets ($) | 347,689,521 | 15,034,787 | 146,591,768 | 5,634,267 |
|
Shares Outstanding | 9,713,851 | 515,129 | 4,111,627 | 157,824 |
|
Net Asset Value Per Share ($) | 35.79 | 29.19 | 35.65 | 35.70 |
|
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
|
14
STATEMENT OF OPERATIONS
Year Ended August 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Income: |
|
|
|
| ||
Cash dividends (net of $43,078 foreign taxes withheld at source): |
| |||||
Unaffiliated issuers |
|
| 5,793,737 |
| ||
Affiliated issuers |
|
| 6,332 |
| ||
Income from securities lending—Note 1(c) |
|
| 57,282 |
| ||
Interest |
|
| 1,986 |
| ||
Total Income |
|
| 5,859,337 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
| 3,720,065 |
| ||
Shareholder servicing costs—Note 3(c) |
|
| 1,329,871 |
| ||
Distribution fees—Note 3(b) |
|
| 130,443 |
| ||
Professional fees |
|
| 105,912 |
| ||
Registration fees |
|
| 66,411 |
| ||
Prospectus and shareholders’ reports |
|
| 44,795 |
| ||
Directors’ fees and expenses—Note 3(d) |
|
| 30,146 |
| ||
Loan commitment fees—Note 2 |
|
| 17,147 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
| 14,319 |
| ||
Custodian fees—Note 3(c) |
|
| 12,152 |
| ||
Miscellaneous |
|
| 24,552 |
| ||
Total Expenses |
|
| 5,495,813 |
| ||
Investment Income—Net |
|
| 363,524 |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments and foreign currency transactions | 90,716,902 |
| ||||
Net change in unrealized appreciation (depreciation) on investments | 48,898,801 |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
| 139,615,703 |
| ||
Net Increase in Net Assets Resulting from Operations |
| 139,979,227 |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
15
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Investment income—net |
|
| 363,524 |
|
|
| 769,249 |
| |
Net realized gain (loss) on investments |
| 90,716,902 |
|
|
| 13,720,130 |
| ||
Net change in unrealized appreciation |
| 48,898,801 |
|
|
| 35,147,037 |
| ||
Net Increase (Decrease) in Net Assets | 139,979,227 |
|
|
| 49,636,416 |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
| (335,026) |
|
|
| (901,623) |
| |
Class C |
|
| - |
|
|
| (238) |
| |
Class I |
|
| (401,771) |
|
|
| (732,913) |
| |
Class Y |
|
| (23,223) |
|
|
| (48,476) |
| |
Total Distributions |
|
| (760,020) |
|
|
| (1,683,250) |
| |
Capital Stock Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
| 17,721,154 |
|
|
| 17,711,916 |
| |
Class C |
|
| 376,749 |
|
|
| 715,583 |
| |
Class I |
|
| 23,586,709 |
|
|
| 20,935,087 |
| |
Class Y |
|
| 630,980 |
|
|
| 941,882 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
| 314,931 |
|
|
| 847,239 |
| |
Class C |
|
| - |
|
|
| 210 |
| |
Class I |
|
| 385,156 |
|
|
| 700,605 |
| |
Class Y |
|
| 19,430 |
|
|
| 36,142 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
| (51,928,896) |
|
|
| (104,233,826) |
| |
Class C |
|
| (8,939,738) |
|
|
| (14,341,047) |
| |
Class I |
|
| (38,679,440) |
|
|
| (111,672,519) |
| |
Class Y |
|
| (1,830,903) |
|
|
| (5,550,332) |
| |
Increase (Decrease) in Net Assets | (58,343,868) |
|
|
| (193,909,060) |
| |||
Total Increase (Decrease) in Net Assets | 80,875,339 |
|
|
| (145,955,894) |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
| 434,075,004 |
|
|
| 580,030,898 |
| |
End of Period |
|
| 514,950,343 |
|
|
| 434,075,004 |
|
16
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Class Aa,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 544,119 |
|
|
| 726,839 |
| |
Shares issued for distributions reinvested |
|
| 10,265 |
|
|
| 33,185 |
| |
Shares redeemed |
|
| (1,631,235) |
|
|
| (4,229,157) |
| |
Net Increase (Decrease) in Shares Outstanding | (1,076,851) |
|
|
| (3,469,133) |
| |||
Class Ca,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 14,183 |
|
|
| 38,096 |
| |
Shares issued for distributions reinvested |
|
| - |
|
|
| 13 |
| |
Shares redeemed |
|
| (337,997) |
|
|
| (701,770) |
| |
Net Increase (Decrease) in Shares Outstanding | (323,814) |
|
|
| (663,661) |
| |||
Class Ib |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 739,518 |
|
|
| 912,034 |
| |
Shares issued for distributions reinvested |
|
| 12,620 |
|
|
| 27,583 |
| |
Shares redeemed |
|
| (1,207,871) |
|
|
| (4,593,325) |
| |
Net Increase (Decrease) in Shares Outstanding | (455,733) |
|
|
| (3,653,708) |
| |||
Class Yb |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 19,168 |
|
|
| 39,010 |
| |
Shares issued for distributions reinvested |
|
| 636 |
|
|
| 1,422 |
| |
Shares redeemed |
|
| (57,365) |
|
|
| (226,571) |
| |
Net Increase (Decrease) in Shares Outstanding | (37,561) |
|
|
| (186,139) |
| |||
|
|
|
|
|
|
|
|
|
|
a | During the period ended August 31, 2021, 3,680 Class C shares representing $97,484 were automatically converted to 3,015 Class A shares and during the period ended August 31, 2020, 3,983 Class C shares representing $78,518 were automatically converted to 3,287 Class A shares. | ||||||||
b | During the period ended August 31, 2021, 1,375 Class Y shares representing $41,097 were exchanged for 1,373 Class A shares. During the period ended August 31, 2020, 22,839 Class A shares representing $506,750 were exchanged to 22,943 Class I shares and 1,066 Class C shares representing $23,892 were exchanged to 883 Class I shares. | ||||||||
See notes to financial statements. |
17
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. These figures have been derived from the fund’s financial statements.
Year Ended August 31, | |||||||
Class A Shares | 2021 | 2020 | 2019 | 2018 | 2017 | ||
Per Share Data ($): | |||||||
Net asset value, | 26.76 | 24.10 | 35.32 | 34.37 | 31.72 | ||
Investment Operations: | |||||||
Investment income (loss)—neta | .01 | .03 | .03 | (.03) | .03 | ||
Net realized and unrealized gain | 9.05 | 2.70 | (4.32) | 5.35 | 4.13 | ||
Total from Investment Operations | 9.06 | 2.73 | (4.29) | 5.32 | 4.16 | ||
Distributions: | |||||||
Dividends from investment | (.03) | (.07) | - | - | (.01) | ||
Dividends from net realized gain | - | - | (6.93) | (4.37) | (1.50) | ||
Total Distributions | (.03) | (.07) | (6.93) | (4.37) | (1.51) | ||
Net asset value, end of period | 35.79 | 26.76 | 24.10 | 35.32 | 34.37 | ||
Total Return (%)b | 33.88 | 11.34 | (10.64) | 16.44 | 13.28 | ||
Ratios/Supplemental Data (%): | |||||||
Ratio of total expenses to | 1.14 | 1.18 | 1.15 | 1.16 | 1.17 | ||
Ratio of net investment income | .04 | .13 | .12 | (.08) | .10 | ||
Portfolio Turnover Rate | 63.23 | 91.55 | 98.59 | 100.55 | 104.51 | ||
Net Assets, | 347,690 | 288,719 | 343,673 | 484,169 | 509,761 |
a Based on average shares outstanding.
b Exclusive of sales charge.
See notes to financial statements.
18
Year Ended August 31, | ||||||||
Class C Shares | 2021 | 2020 | 2019 | 2018 | 2017 | |||
Per Share Data ($): | ||||||||
Net asset value, beginning of period | 21.97 | 19.89 | 30.80 | 30.70 | 28.68 | |||
Investment Operations: | ||||||||
Investment (loss)—neta | (.20) | (.13) | (.14) | (.25) | (.19) | |||
Net realized and unrealized gain | 7.42 | 2.21 | (3.84) | 4.72 | 3.71 | |||
Total from Investment Operations | 7.22 | 2.08 | (3.98) | 4.47 | 3.52 | |||
Distributions: | ||||||||
Dividends from investment | - | (.00)b | - | - | - | |||
Dividends from net realized gain | - | - | (6.93) | (4.37) | (1.50) | |||
Total Distributions | - | (.00)b | (6.93) | (4.37) | (1.50) | |||
Net asset value, end of period | 29.19 | 21.97 | 19.89 | 30.80 | 30.70 | |||
Total Return (%)c | 32.86 | 10.46 | (11.34) | 15.55 | 12.44 | |||
Ratios/Supplemental Data (%): | ||||||||
Ratio of total expenses to | 1.94 | 1.97 | 1.91 | 1.91 | 1.92 | |||
Ratio of net investment (loss) | (.75) | (.64) | (.65) | (.84) | (.65) | |||
Portfolio Turnover Rate | 63.23 | 91.55 | 98.59 | 100.55 | 104.51 | |||
Net Assets, end of period ($ x 1,000) | 15,035 | 18,431 | 29,892 | 50,210 | 62,608 |
a Based on average shares outstanding.
b Amount is less than $.00 per share.
c Exclusive of sales charge.
See notes to financial statements.
19
FINANCIAL HIGHLIGHTS (continued)
Year Ended August 31, | |||||||
Class I Shares | 2021 | 2020 | 2019 | 2018 | 2017 | ||
Per Share Data ($): | |||||||
Net asset value, beginning of period | 26.65 | 24.00 | 35.14 | 34.27 | 31.64 | ||
Investment Operations: | |||||||
Investment income—neta | .08 | .09 | .11 | .07 | .14 | ||
Net realized and unrealized gain | 9.01 | 2.68 | (4.32) | 5.32 | 4.11 | ||
Total from Investment Operations | 9.09 | 2.77 | (4.21) | 5.39 | 4.25 | ||
Distributions: | |||||||
Dividends from investment | (.09) | (.12) | (.00)b | (.15) | (.12) | ||
Dividends from net realized gain | - | - | (6.93) | (4.37) | (1.50) | ||
Total Distributions | (.09) | (.12) | (6.93) | (4.52) | (1.62) | ||
Net asset value, end of period | 35.65 | 26.65 | 24.00 | 35.14 | 34.27 | ||
Total Return (%) | 34.17 | 11.55 | (10.42) | 16.74 | 13.63 | ||
Ratios/Supplemental Data (%): | |||||||
Ratio of total expenses to | .94 | .96 | .90 | .89 | .90 | ||
Ratio of net investment income | .24 | .35 | .40 | .19 | .42 | ||
Portfolio Turnover Rate | 63.23 | 91.55 | 98.59 | 100.55 | 104.51 | ||
Net Assets, end of period ($ x 1,000) | 146,592 | 121,710 | 197,290 | 507,298 | 501,821 |
a Based on average shares outstanding.
b Amount is less than $.00 per share.
See notes to financial statements.
20
Year Ended August 31, | |||||||
Class Y Shares | 2021 | 2020 | 2019 | 2018 | 2017 | ||
Per Share Data ($): | |||||||
Net asset value, beginning of period | 26.69 | 24.05 | 35.22 | 34.34 | 31.72 | ||
Investment Operations: | |||||||
Investment income—neta | .12 | .12 | .12 | .10 | .15 | ||
Net realized and unrealized gain | 9.02 | 2.69 | (4.31) | 5.33 | 4.13 | ||
Total from Investment Operations | 9.14 | 2.81 | (4.19) | 5.43 | 4.28 | ||
Distributions: | |||||||
Dividends from investment | (.13) | (.17) | (.05) | (.18) | (.16) | ||
Dividends from net realized gain | - | - | (6.93) | (4.37) | (1.50) | ||
Total Distributions | (.13) | (.17) | (6.98) | (4.55) | (1.66) | ||
Net asset value, end of period | 35.70 | 26.69 | 24.05 | 35.22 | 34.34 | ||
Total Return (%) | 34.33 | 11.71 | (10.34) | 16.84 | 13.71 | ||
Ratios/Supplemental Data (%): | |||||||
Ratio of total expenses to | .83 | .84 | .81 | .79 | .80 | ||
Ratio of net investment income to average net assets | .36 | .47 | .45 | .30 | .49 | ||
Portfolio Turnover Rate | 63.23 | 91.55 | 98.59 | 100.55 | 104.51 | ||
Net Assets, end of period ($ x 1,000) | 5,634 | 5,215 | 9,176 | 15,538 | 9,137 |
a Based on average shares outstanding.
See notes to financial statements.
21
NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
BNY Mellon Opportunistic Midcap Value Fund (the “fund”) is a separate diversified series of BNY Mellon Advantage Funds, Inc. (the “Company”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering nine series, including the fund. The fund’s investment objective is to seek to surpass the performance of the Russell Midcap® Value Index. 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. Effective September 1, 2021 (the “Effective Date”), the Adviser has engaged its affiliate, Newton Investment Management North America, LLC (“Newton US”) as the fund’s sub-investment adviser pursuant to a sub-investment advisory agreement between the Adviser and Newton US. As the fund’s sub-adviser, Newton US provides the day-to-day management of the fund’s investments, subject to the Adviser’s supervision and approval. The Adviser (and not the fund) pays Newton US for its sub-advisory services. As of the Effective Date, portfolio managers responsible for managing the fund’s investments who were employees of Mellon Investments Corporation (“Mellon”) in a dual employment arrangement with the Adviser, have become employees of Newton US, which, like Mellon, is an affiliate of the Adviser, and are no longer employees of Mellon.
BNY Mellon Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Adviser, is the distributor of the fund’s shares. The fund is authorized to issue 800 million shares of $.001 par value Common Stock. The fund currently has authorized four classes of shares: Class A (350 million shares authorized), Class C (125 million shares authorized), Class I (175 million shares authorized) and Class Y (150 million shares authorized). Class A and Class C shares are sold primarily to retail investors through financial intermediaries and bear Distribution and/or Shareholder Services Plan fees. Class A shares generally are subject to a sales charge imposed at the time of purchase. Class A shares bought without an initial sales charge as part of an investment of $1 million or more may be charged a contingent deferred sales charge (“CDSC”) of 1.00% if redeemed within one year. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class C shares automatically convert to Class A shares eight years after the date of purchase, without the imposition of a sales charge. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon
22
and an affiliate of the Adviser, and its affiliates), acting on behalf of customers having a qualified trust or an investment account or relationship at such institution, and bear no Distribution or Shareholder Services Plan fees. Class Y shares are sold at net asset value per share generally to institutional investors, and bear no Distribution or Shareholder Services Plan fees. Class I and Class Y shares are offered without a front-end sales charge or CDSC. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs, and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-Investment Companies. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown. The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
23
NOTES TO FINANCIAL STATEMENTS (continued)
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 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
24
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 Company’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.
Investment in private equity securities will be fair valued by the Board in accordance with valuation procedures approved by the Board. Those portfolio valuations will be based on unobservable inputs and certain assumptions about how market participants would price the instrument. The fund expects that inputs into the determination of fair value of those investments will require significant management judgment or estimation. Because valuations may fluctuate over short periods of time and may be based on estimates, fair value determinations may differ materially from the value received in an actual transaction. Additionally, valuations of private companies are inherently uncertain. The fund’s net asset value could be adversely affected if the fund’s determinations regarding the fair value of those investments were materially higher or lower than the values that it ultimately realized upon the disposal of such investments. These securities are categorized within level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of August 31, 2021 in valuing the fund’s investments:
25
NOTES TO FINANCIAL STATEMENTS (continued)
Level 1-Unadjusted Quoted Prices | Level 2- Other Significant Observable Inputs | Level 3-Significant Unobservable Inputs | Total | |||
Assets ($) | ||||||
Investments In Securities:† | ||||||
Equity Securities - Common Stocks | 501,253,441 | - | - | 501,253,441 | ||
Equity Securities - Private Equity | - | - | 2,398,743 | 2,398,743 | ||
Exchange-Traded Funds | 5,191,064 | - | - | 5,191,064 | ||
Investment Companies | 22,218,497 | - | - | 22,218,497 |
† See Statement of Investments for additional detailed categorizations, if any.
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Equity Securities-Common Stocks ($) | |
Balance as of 8/31/2020 | - |
Realized Gain (Loss) | - |
Change in unrealized appreciation (depreciation) | - |
Purchases/Issuances | 2,398,743 |
Sales/Dispositions | - |
Transfers into Level 3 | - |
Transfer out of Level 3 | - |
Balances as of 8/31/2021† | 2,398,743 |
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to investments still held at 8/31/2021 | - |
† Securities deemed as Level 3 due to the lack of observable inputs by management assessment.
The following table summarizes the significant unobservable inputs the fund used to value its investment categorized within Level 3 as of August 31, 2021. In addition to the techniques and inputs noted in the table below, according to the fund’s valuation policy, other valuation techniques and methodologies when determining the fund’s fair value measurements may be used. The below table is not intended to be all-inclusive, but rather provide information on the significant unobservable inputs as they are to the fund’s determination of fair values.
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Asset Category | Value (%) | Valuation | Unobservable | Range | Weighted |
Private Equity | 2,398,743 | Recent | Recent | 220.45 | 220.45 |
(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 August 31, 2021, if any, are disclosed in the fund’s Statement of Assets and Liabilities.
(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
Pursuant to a securities lending agreement with The Bank of New York Mellon, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of
27
NOTES TO FINANCIAL STATEMENTS (continued)
foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Adviser, or U.S. Government and Agency securities. The fund is entitled to receive all dividends, interest and distributions on securities loaned, in addition to income earned as a result of the lending transaction. Should a borrower fail to return the securities in a timely manner, The Bank of New York Mellon is required to replace the securities for the benefit of the fund or credit the fund with the market value of the unreturned securities and is subrogated to the fund’s rights against the borrower and the collateral. Additionally, the contractual maturity of security lending transactions are on an overnight and continuous basis. During the period ended August 31, 2021, The Bank of New York Mellon earned $8,023 from the lending of the fund’s portfolio securities, pursuant to the securities lending agreement.
(d) Affiliated issuers: Investments in other investment companies advised by the Adviser are considered “affiliated” under the Act.
(e) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies world-wide. Recent examples include pandemic risks related to COVID-19 and aggressive measures taken world-wide in response by governments, including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines of large populations, and by businesses, including changes to operations and reducing staff. To the 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
28
any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(g) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended August 31, 2021, 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 August 31, 2021, the fund did not incur any interest or penalties.
Each tax year in the four-year period ended August 31, 2021 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At August 31, 2021, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $361,579, undistributed capital gains $53,746,356 and unrealized appreciation $107,613,809.
The tax character of distributions paid to shareholders during the fiscal periods ended August 31, 2021 and August 31, 2020 were as follows: ordinary income $760,020 and $1,683,250, respectively.
During the period ended August 31, 2021, as a result of permanent book to tax differences, primarily due to the tax treatment for treating a portion of the proceeds from redemptions as a distribution for tax purposes, the fund decreased total distributable earnings (loss) by $2,603,053 and increased paid-in capital by the same amount. Net assets and net asset value per share were not affected by this reclassification.
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
29
NOTES TO FINANCIAL STATEMENTS (continued)
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. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended August 31, 2021, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Adviser, the management fee is computed at the annual rate of .75% of the value of the fund's average daily net assets and is payable monthly.
Effective as of the Effective Date, pursuant to a sub-investment advisory agreement between the Adviser and Newton US, the Adviser pays Newton US a monthly fee at an annual rate of .36% of the value of the fund’s average daily net assets.
During the period ended August 31, 2021, the Distributor retained $4,682 from commissions earned on sales of the fund’s Class A shares and $861 from CDSC fees on redemptions of the fund’s Class C shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of its average daily net assets. The Distributor may pay one or more Service Agents in respect of advertising, marketing and other distribution services, and determines the amounts, if any, to be paid to Service Agents and the basis on which such payments are made. During the period ended August 31, 2021, Class C shares were charged $130,443 pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund, and services related to
30
the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended August 31, 2021, Class A and Class C shares were charged $830,249 and $43,481, respectively, 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 August 31, 2021, the fund was charged $64,862 for transfer agency services, inclusive of earnings credit, if any. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended August 31, 2021, the fund was charged $12,152 pursuant to the custody agreement.
During the period ended August 31, 2021, the fund was charged $14,319 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 $328,107, Distribution Plan fees of $9,641, Shareholder Services Plan fees of $77,072, custodian fees of $4,000, Chief Compliance Officer fees of $6,286 and transfer agency fees of $8,539.
31
NOTES TO FINANCIAL STATEMENTS (continued)
(d) Each Board member also serves as a Board member of other funds in the BNY Mellon Family of Funds complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended August 31, 2021, amounted to $304,408,487 and $361,725,386, respectively.
At August 31, 2021, the cost of investments for federal income tax purposes was $423,447,921; accordingly, accumulated net unrealized appreciation on investments was $107,613,824, consisting of $118,013,819 gross unrealized appreciation and $10,399,995 gross unrealized depreciation.
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of BNY Mellon Opportunistic Midcap Value Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of BNY Mellon Opportunistic Midcap Value Fund (the “Fund”) (one of the funds constituting BNY Mellon Advantage Funds, Inc.), including the statements of investments and investments in affiliated issuers, as of August 31, 2021, 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 (one of the funds constituting BNY Mellon Advantage Funds, Inc.) at August 31, 2021, 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 August 31, 2021, 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
October 22, 2021
33
IMPORTANT TAX INFORMATION (Unaudited)
For federal tax purposes, the fund hereby reports 100% of the ordinary dividends paid during the fiscal year ended August 31, 2021 as qualifying for the corporate dividends received deduction. Also, certain dividends paid by the fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the distributions paid during the fiscal year, $760,020 represents the maximum amount that may be considered qualified dividend income. Shareholders will receive notification in early 2022 of the percentage applicable to the preparation of their 2021 income tax returns.
34
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Directors held on March 8-9, 2021 (the “15(c) Meeting”), the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”). The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of the fund (the “Independent Directors”), were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser. In considering the renewal of the Agreement, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the 15(c) 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. 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 (1) the performance of the fund’s Class I shares with the performance of a group of institutional mid-cap core funds and one mid-cap value fund selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all retail and institutional mid-cap core funds (the “Performance Universe”), all for various periods ended December 31, 2020, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds in the Performance Group (the “Expense Group”) and with a
35
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
broader group of all institutional mid-cap core and mid-cap value funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser the results of the comparisons and considered that the fund’s total return performance was above the Performance Group and the Performance Universe medians for all periods (ranking highest in the Performance Group, and in the first quartile of the Performance Universe, for the one- and two-year periods). The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management services provided by the Adviser. In addition, the Board reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons.
The Board considered that the fund’s contractual management fee was lower than the Expense Group median contractual management fee, the fund’s actual management fee was lower than the Expense Group median and higher than the Expense Universe median actual management fee and the fund’s total expenses were slightly higher than the Expense Group median and higher than the Expense Universe median total expenses.
Representatives of the Adviser reviewed with the Board the management or investment advisory fees paid to the Adviser, or the primary employer of the fund’s primary portfolio manager(s) that is affiliated with the Adviser, 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. Representatives of the Adviser noted that there were no other funds advised or administered by the Adviser that are in the same Lipper category as the fund.
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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 Agreement, considered in relation to the mix of services provided by the Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreement and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser stated that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that the Adviser may have realized any economies of scale would be less. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser from acting as investment adviser and took into consideration the soft dollar arrangements in effect for trading the fund’s investments.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser are adequate and appropriate.
· The Board was satisfied with the fund’s performance.
· The Board concluded that the fee paid to the Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
37
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates, of the Adviser and the services provided to the fund by the Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreement for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreement.
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At a meeting of the fund’s Board of Directors held on May 11, 2021 (the “Meeting”), the Board discussed with representatives of the Adviser plans to realign Mellon Investments Corporation’s (“Mellon”) equities and multi-asset capabilities with Newton Investment Management North America, LLC (“Newton US”) (the “Firm Realignment”), with such realignment scheduled to occur, subject to regulatory requirements, in the third quarter of 2021 (the “Effective Date”). The Adviser noted that, as a result of the Firm Realignment, the portfolio managers who are currently responsible for managing the investments of the fund as employees of Mellon in a dual employment arrangement with the Adviser, will become employees of Newton US as of the Effective Date. Consequently, the Adviser proposed to engage Newton US to serve as the fund’s sub-investment adviser, pursuant to a sub-investment advisory agreement between the Adviser and Newton US (the “New Sub-Advisory Agreement”), to be effective on the Effective Date. In addition, the Adviser proposed amending the fund’s current management agreement (the “Current Management Agreement”) to reflect the engagement of Newton US as sub-investment adviser to the fund (as proposed to be amended, the “Amended Management Agreement”), to be effective on the Effective Date.
38
At the Meeting, the Adviser recommended the approval of the New Sub-Advisory Agreement, pursuant to which Newton US would serve as sub-investment adviser to the fund, and the Amended Management Agreement. The recommendation for the approval of the New Sub-Advisory Agreement and the Amended Management Agreement was based on the following considerations, among others: (i) approval of the New Sub-Advisory Agreement and the Amended Management Agreement would permit the fund’s current portfolio managers to continue to be responsible for the day-to-day management of the fund’s portfolio after the Effective Date as employees of Newton US; (ii) there will be no material changes to the fund’s investment objective, strategies or policies, no reduction in the nature or level of services provided to the fund, and no increases in the management fee payable by the fund as a result of the proposed changes to the investment advisory arrangements; and (iii) the Adviser (and not the fund) will pay Newton US for its sub-investment advisory services. The Board also considered the fact that the Adviser stated that it believes there are no material changes to the information the Board had previously considered at the 15(c) Meeting, at which the Board re-approved the Current Management Agreement for the ensuing year, other than the information about the Firm Realignment and Newton US.
At the Meeting, the Board members considered and approved the New Sub-Advisory Agreement and the Amended Management Agreement. In determining whether to approve the New Sub-Advisory Agreement and the Amended Management Agreement, the Board considered the materials prepared by the Adviser received in advance of the Meeting and other information presented at the Meeting, which included: (i) a form of the New Sub-Advisory Agreement and a form of the Amended Management Agreement; (ii) information regarding the Firm Realignment and how it is expected to enhance investment capabilities; (iii) information regarding Newton US; and (iv) an opinion of counsel that the proposed changes to the investment advisory arrangements would not result in an “assignment” of the Current Management Agreement under the 1940 Act and the Investment Advisers Act of 1940, as amended, and, therefore, do not require the approval of fund shareholders. The Board also considered the substance of discussions with representatives of the Adviser at the Meeting and the 15(c) Meeting.
Nature, Extent and Quality of Services to be Provided. In examining the nature, extent and quality of the services that were expected to be provided by Newton US to the fund under the New Sub-Advisory Agreement, the Board considered: (i) Newton US’s organization, qualification and background, as well as the qualifications of its personnel; (ii) the expertise of the personnel providing portfolio management services, which would remain the same after the Effective Date; and (iii) the investment strategy for the fund, which would remain the same after the Effective Date. The Board also considered the review process undertaken by the Adviser and the Adviser’s favorable assessment of the nature and quality of the sub-investment advisory services expected to be provided to the fund by Newton US after the Effective Date. Based on their consideration and review of the foregoing information, the Board concluded that the nature, extent and quality of the sub-investment advisory services to be provided by Newton US under the New Sub-Advisory Agreement, as well as Newton US’s ability to render such services based on its resources and the experience of the investment team,
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
which will include the fund’s current portfolio managers, were adequate and appropriate for the fund in light of the fund’s investment objective, and supported a decision to approve the New Sub-Advisory Agreement. The Board also considered, as it related to the Amended Management Agreement, that the nature, extent and quality of the services that are provided by the Adviser are expected to remain the same, including the Adviser’s extensive administrative, accounting and compliance infrastructures, as well as the Adviser’s supervisory activities over the fund’s portfolio management personnel.
Investment Performance. The Board had considered the fund’s investment performance and that of the investment team managing the fund’s portfolio at the 15(c) Meeting (including comparative data provided by Broadridge Financial Solutions, Inc.). The Board considered the performance and that the same investment professionals would continue to manage the fund’s assets after the Effective Date, as factors in evaluating the services to be provided by Newton US under the New Sub-Advisory Agreement after the Effective Date, and determined that these factors, when viewed together with the other factors considered by the Board, supported a decision to approve the New Sub-Advisory Agreement and the Amended Management Agreement.
Costs of Services to be Provided and Profitability. The Board considered the proposed fee payable under the New Sub-Advisory Agreement, noting that the proposed fee would be paid by the Adviser and, thus, would not impact the fees paid by the fund or the Adviser’s profitability. The Board considered the fee payable to Newton US in relation to the fee paid to the Adviser by the fund and the respective services provided by Newton US and the Adviser. The Board recognized that, because Newton US’s fee would be paid by the Adviser, and not the fund, an analysis of profitability was more appropriate in the context of the Board’s consideration of the fund’s Current Management Agreement, and that the Board had received and considered a profitability analysis of the Adviser and its affiliates, including Newton US, at the 15(c) Meeting. The Board concluded that the proposed fee payable to Newton US by the Adviser was appropriate and the Adviser’s profitability was not excessive in light of the nature, extent and quality of the services to be provided to the fund by the Adviser under the Amended Management Agreement and Newton US under the New Sub-Advisory Agreement.
Economies of Scale to be Realized. The Board recognized that, because the fee payable to Newton US would be paid by the Adviser, and not the fund, an analysis of economies of scale was more appropriate in the context of the Board’s consideration of the Current Management Agreement, which had been done at the 15(c) Meeting. At the 15(c) Meeting, 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 Current Management Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
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The Board also considered whether there were any ancillary benefits that would accrue to Newton US as a result of its relationship with the fund, and such ancillary benefits, if any, were determined to be reasonable.
In considering the materials and information described above, the Independent Directors received assistance from, and met separately with, their independent legal counsel, and were provided with a written description of their statutory responsibilities and the legal standards that are applicable to the approval of investment advisory and sub-investment advisory agreements.
After full consideration of the factors discussed above, with no single factor identified as being of paramount importance, the Board members, all of whom are Independent Directors, with the assistance of independent legal counsel, approved the New Sub-Advisory Agreement and Amended Management Agreement for the fund effective as of the Effective Date.
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LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)
Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.
The rule requires the fund to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.
The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.
Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the Board. Furthermore, the Board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.
Assessment of Program
In the opinion of the Program Administrator, the Program approved by the Board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.
During the period from January 1, 2020 to December 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.
Under normal expected foreseeable fund redemption forecasts and foreseeable stressed fund redemption forecasts, the Program Administrator believes that the fund maintains sufficient highly liquid assets to meet expected fund redemptions.
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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: 97
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Peggy C. Davis (78)
Board Member (2006)
Principal Occupation During Past 5 Years:
· Shad Professor of Law, New York University School of Law (1983-Present)
No. of Portfolios for which Board Member Serves: 35
———————
Gina D. France (63)
Board Member (2019)
Principal Occupation During Past 5 Years:
· France Strategic Partners, a strategy and advisory firm serving corporate clients across the United States, Founder, President and Chief Executive Officer (2003-Present)
Other Public Company Board Memberships During Past 5 Years:
· Huntington Bancshares, a bank holding company headquartered in Columbus, Ohio, Director (2016-Present)
· Cedar Fair, L.P., a publicly-traded partnership that owns and operates amusement parks and hotels in the U.S. and Canada, Director (2011-Present)
· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (2015-Present)
· FirstMerit Corporation, a diversified financial services company, Director (2004-2016)
No. of Portfolios for which Board Member Serves: 25
———————
Joan Gulley (73)
Board Member (2017)
Principal Occupation During Past 5 Years:
· Nantucket Atheneum, public library, Chair (2018-June 2021) and Director (2015-June 2021)
· Orchard Island Club, golf and beach club, Governor (2016-Present)
No. of Portfolios for which Board Member Serves: 43
———————
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BOARD MEMBERS INFORMATION (Unaudited) (continued)
INDEPENDENT BOARD MEMBERS (continued)
Robin A. Melvin (57)
Board Member (2012)
Principal Occupation During Past 5 Years:
· Westover School, a private girls’ boarding school in Middlebury, Connecticut, Trustee (2019-Present)
· Mentor Illinois, a non-profit organization dedicated to increasing the quality of mentoring services in Illinois. Co-Chair (2014–2020); Board Member, Mentor Illinois (2013-2020)
· JDRF, a non-profit juvenile diabetes research foundation, Board Member (June 2021-Present)
Other Public Company Board Memberships During Past 5 Years:
· HPS Corporate Lending Fund, a closed-end management investment company regulated as a business development company, Trustee (August 2021-Present)
No. of Portfolios for which Board Member Serves: 76
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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.
David P. Feldman, Emeritus Board Member
Ehud Houmier, Emeritus Board Member
Lynn Martin, Emeritus Board Member
Dr. Martin Peretz, Emeritus Board Member
Philip L. Toia, Emeritus Board Member
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OFFICERS OF THE FUND (Unaudited)
DAVID DIPETRILLO, President since January 2021.
Vice President and Director of the Adviser since February 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; He is an officer of 56 investment companies (comprised of 106 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 43 years old and has been an employee of BNY Mellon since 2005.
JAMES WINDELS, Treasurer since November 2001.
Vice President of the Adviser since September 2020, Director-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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.
PETER M. SULLIVAN, Chief Legal Officer since July 2021 and Vice President and Assistant Secretary since March 2019.
Chief Legal Officer of the Adviser since July 2021, Associate General Counsel of BNY Mellon since July 2021; Senior Managing Counsel of BNY Mellon from December 2020 to July 2021; Managing Counsel of BNY Mellon from March 2009 to December 2020, and an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of BNY Mellon since April 2004.
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 57 investment companies (comprised of 128 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 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. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 31 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 57 investment companies (comprised of 128 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 57 investment companies (comprised of 128 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 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 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of the Adviser since June 2019.
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OFFICERS OF THE FUND (Unaudited) (continued)
NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.
Chief Compliance Officer (since August 2021) and Vice President and Assistant Secretary (since February 2020) of BNY Mellon ETF Investment Adviser, LLC; Chief Compliance Officer (since August 2021) and Vice President (since February 2020) of BNY Mellon ETF Trust; Managing Counsel (December 2019 to August 2021) and Counsel (May 2016 to December 2019) of BNY Mellon; Assistant Secretary of the Adviser from April 2018 to August 2021. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of BNY Mellon since May 2016.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 April 1991.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 June 1989.
ROBERT SVAGNA, Assistant Treasurer since December 2002.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since 2004, CCO of the Adviser from 2004 until June 2021 (56 investment companies, comprised of 119 portfolios). He is 64 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. She is an officer of 50 investment companies (comprised of 121 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 53 years old and has been an employee of the Distributor since 1997.
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BNY Mellon Opportunistic Midcap Value Fund
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
North America, LLC
BNY Mellon Center
201 Washington Place
Boston, MA 02108
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
BNY Mellon Transfer, Inc.
240 Greenwich Street
New York, NY 10286
Distributor
BNY Mellon Securities Corporation
240 Greenwich Street
New York, NY 10286
Ticker Symbols: | Class A: DMCVX Class C: DVLCX Class I: DVLIX Class Y: DMCYX |
Telephone Call your financial representative or 1-800-373-9387
Mail The BNY Mellon Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
E-mail Send your request to info@bnymellon.com
Internet Information can be viewed online or downloaded at www.im.bnymellon.com
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2021 BNY Mellon Securities Corporation |
BNY Mellon Opportunistic Small Cap Fund
ANNUAL REPORT August 31, 2021 |
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.im.bnymellon.com and sign up for eCommunications. It’s simple and only takes a few minutes. |
The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds. |
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value |
Contents
THE FUND
FOR MORE INFORMATION
Back Cover
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from September 1, 2020 through August 31, 2021, as provided by R. Patrick Kent, lead portfolio manager, and James Boyd, portfolio manager.
Market and Fund Performance Overview
For the 12-month period ended August 31, 2021, BNY Mellon Opportunistic Small Cap Fund’s Investor shares achieved a total return of 39.58%, Class I shares returned 39.80% and Class Y shares returned 39.97%.1 In comparison, the fund’s benchmark, the Russell 2000® Index (the “Index”), produced a total return of 47.08% for the same period.2
Small-cap stocks gained over the reporting period as the economy continued to open up, and the approval of multiple COVID-19 vaccines was announced. The fund underperformed the Index, mainly due to unfavorable stock selections.
The Fund’s Investment Approach
The fund seeks capital appreciation. The fund normally invests at least 80% of its assets in the stocks of small-cap companies. The fund currently considers small-cap companies to be those companies with market capitalizations that fall within the range of companies in the Index. Stocks are selected for the fund’s portfolio based primarily on bottom-up, fundamental analysis. The fund’s team of portfolio managers uses a disciplined investment process that relies, in general, on proprietary fundamental research and valuation. Generally, elements of the process include analysis of mid-cycle business prospects, estimation of the intrinsic value of the company and the identification of a revaluation trigger. The fund’s portfolio managers invest in securities and sectors that they perceive to be attractive from a valuation and fundamental standpoint.
Stocks Rise Despite Concerns about Economic Recovery
During the reporting period, the economy continued to show signs of recovery as government-mandated lockdowns were eased, and COVID-19 vaccines were approved. Technology and other growth stocks performed particularly early in the period, but with the approval of multiple COVID-19 vaccines late in November 2020, performance in the market broadened, and more cyclically oriented stocks began to perform better.
Returns were supported by interest rates, which remained low, while the stimulus package approved by Congress continued to bolster consumers, small businesses and the economy generally. Investors also began to factor the likelihood of infrastructure spending into their calculations.
Early in 2021, concerns about inflation arose, and interest rates began to rise. This took a toll on more growth-oriented stocks whose valuations had soared. But with the re-emergence of COVID-19, questions about whether the economic recovery would stall caused the market to pivot back to more defensive and growth-oriented stocks. Mixed economic data also weighed on markets later in the period, as did signals from the Federal Reserve, which suggested that policies might not be as supportive in the future.
Performance Hindered by Stock Selections
The fund’s underperformance versus the benchmark stemmed primarily from certain stock selections. Shares of EverQuote, an online insurance marketing company, fell despite strong
2
results because investors have questioned the competitive dynamics of the company’s business model. A position in Alamos Gold, a gold mining company, hampered performance as shares were hurt by weak gold prices. Shares of certain companies were hurt by the market’s rotation from growth-oriented companies to cyclical and value-oriented companies. These included Clarivate, a provider of data related to intellectual property.
On a more positive note, overweight allocations to the materials and industrial sectors were beneficial as these outperformed the benchmark. An underweight position in the health care sector was also beneficial. Certain stock selections were also advantageous. A position in Houghton Mifflin Harcourt, a textbook publisher, rose 500% as the company’s turnaround efforts began to take effect. Shares of MP Materials, a mining company, also made a positive contribution as it benefited from onshoring of the extraction of rare earth elements. Shares of Invitae, a medical diagnostic company, were also additive. Shares rose on the acquisition that the market viewed positively. Darling Ingredients, a biodiesel company, also contributed positively as the company posted positive operational results.
Seeing Value in Small Cap Companies
The fund continues to pivot toward companies that are likely to benefit from the full reopening of the global economy that is expected in 2021. We also continue to see more value in small cap companies than in the large cap segment of the market. The fund will continue to look for stocks that offer discounts to their intrinsic value and are likely to perform well over a 12- to 18-month period. These include stocks in cyclical industries as well as in industries that have been especially hard-hit by the pandemic.
September 15, 2021
1 DUE TO RECENT MARKET VOLATILITY, CURRENT PERFORMANCE MAY BE DIFFERENT THAN THE FIGURES SHOWN. Investors should note that the fund’s short-term performance is highly unusual, in part to unusually favorable market conditions, and is unlikely to be repeated or consistently achieved in the future. Total return includes reinvestment of dividends and any capital gains paid. Past performance is no guarantee of future results. Share price and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost.
2 Source: Lipper Inc. — The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 is constructed to provide a comprehensive and unbiased, small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. 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.
Stocks of small- and/or mid-cap companies often experience sharper price fluctuations than stocks of large-cap companies.
Investing in foreign denominated and/or domiciled securities involves special risks, including changes in currency exchange rates, political, economic, and social instability, limited company information, differing auditing and legal standards, and less market liquidity. These risks generally are greater with emerging market countries.
Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others. To the extent the fund may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase the fund's exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.
3
FUND PERFORMANCE (Unaudited)
Comparison of change in value of a $10,000 investment in Investor shares and Class I shares of BNY Mellon Opportunistic Small Cap Fund with a hypothetical investment of $10,000 in the Russell 2000® Index (the “Index’)
† Source: Lipper Inc.
†† The total return figures presented for Class I shares of the fund reflect the performance of the fund’s Investor shares for the period prior to 9/30/16 (the inception date for Class I shares).
Past performance is not predictive of future performance.
The above graph compares a hypothetical $10,000 investment made in each of the Investor shares and Class I shares of BNY Mellon Opportunistic Small Cap Fund on 8/31/11 to a hypothetical investment of $10,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account all applicable fees and expenses on Investor shares and Class I shares. The Index measures the performance of the small-cap segment of the U.S. equity universe. The Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. 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.
4
Comparison of change in value of a $1,000,000 investment in Class Y shares of BNY Mellon Opportunistic Small Cap Fund with a hypothetical investment of $1,000,000 in the Russell 2000® Index (the “Index’)
† Source: Lipper Inc.
†† The total return figures presented for Class Y shares of the fund reflect the performance of the fund’s Investor shares for the period prior to 9/30/16 (the inception date for Class Y shares).
Past performance is not predictive of future performance.
The above graph compares a hypothetical $1,000,000 investment made in Class Y shares of BNY Mellon Opportunistic Small Cap Fund on 8/31/11 to a hypothetical investment of $1,000,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account all applicable fees and expenses on Class Y shares. The Index measures the performance of the small-cap segment of the U.S. equity universe. The Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. 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 8/31/2021 | ||||
| Inception | 1 Year | 5 Years | 10 Years |
Investor shares | 11/16/1993 | 39.58% | 13.24% | 13.36% |
Class I shares | 9/30/2016 | 39.80% | 13.45%† | 13.46%† |
Class Y shares | 9/30/2016 | 39.97% | 13.56%† | 13.52%† |
Russell 2000® Index | 47.08% | 14.38% | 13.62% |
† The total return performance figures presented for Class I shares of the fund reflect the performance of the fund’s Investor shares for the period prior to 9/30/16 (the inception date for Class I shares).
The total return performance figures presented for Class Y shares of the fund reflect the performance of the fund’s Investor shares for the period prior to 9/30/16 (the inception date for Class Y shares).
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 performance shown in the graphs 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) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in BNY Mellon Opportunistic Small Cap Fund from March 1, 2021 to August 31, 2021. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment |
| ||||
Assume actual returns for the six months ended August 31, 2021 |
| ||||
|
|
|
|
|
|
|
| Investor Shares | Class I | Class Y |
|
Expenses paid per $1,000† | $5.64 | $4.67 | $4.16 |
| |
Ending value (after expenses) | $1,034.90 | $1,035.70 | $1,036.50 |
|
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (“SEC”) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment |
| ||||
Assuming a hypothetical 5% annualized return for the six months ended August 31, 2021 |
| ||||
|
|
|
|
|
|
|
| Investor Shares | Class I | Class Y |
|
Expenses paid per $1,000† | $5.60 | $4.63 | $4.13 |
| |
Ending value (after expenses) | $1,019.66 | $1,020.62 | $1,021.12 |
| |
† | Expenses are equal to the fund’s annualized expense ratio of 1.10% for Investor Shares, .91% for Class I and .81% for Class Y, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
7
STATEMENT OF INVESTMENTS
August 31, 2021
Description | Shares | Value ($) | |||||
Common Stocks - 97.3% | |||||||
Automobiles & Components - .5% | |||||||
Thor Industries | 23,865 | 2,707,007 | |||||
Banks - 9.5% | |||||||
BankUnited | 214,979 | 9,035,567 | |||||
Essent Group | 160,313 | 7,547,536 | |||||
First Bancorp | 752,577 | 9,580,305 | |||||
First Interstate BancSystem, Cl. A | 141,458 | 6,232,639 | |||||
First Merchants | 122,965 | 5,060,010 | |||||
Silvergate Capital, Cl. A | 30,834 | a | 3,483,625 | ||||
Synovus Financial | 184,342 | 7,945,140 | |||||
48,884,822 | |||||||
Capital Goods - 16.2% | |||||||
Array Technologies | 409,600 | a,b | 7,811,072 | ||||
EnerSys | 83,156 | 7,034,166 | |||||
Fluor | 390,891 | a | 6,512,244 | ||||
Gibraltar Industries | 81,492 | a | 6,084,193 | ||||
GrafTech International | 740,013 | 8,191,944 | |||||
Matrix Service | 309,879 | a | 3,495,435 | ||||
Maxar Technologies | 190,491 | 6,055,709 | |||||
Rexnord | 143,355 | 8,710,250 | |||||
Terex | 86,934 | 4,437,981 | |||||
Titan Machinery | 137,479 | a | 3,948,397 | ||||
Valmont Industries | 24,669 | 6,139,127 | |||||
Wabash National | 392,613 | 6,101,206 | |||||
WESCO International | 72,850 | a | 8,524,907 | ||||
83,046,631 | |||||||
Commercial & Professional Services - 2.2% | |||||||
The Brink's Company | 70,419 | 5,503,949 | |||||
U.S. Ecology | 159,693 | a | 5,724,994 | ||||
11,228,943 | |||||||
Consumer Durables & Apparel - 1.9% | |||||||
Callaway Golf | 217,152 | a | 6,093,285 | ||||
GoPro, Cl. A | 369,640 | a | 3,685,311 | ||||
9,778,596 | |||||||
Consumer Services - 7.0% | |||||||
Bloomin‘ Brands | 262,195 | a,b | 7,024,204 | ||||
Cracker Barrel Old Country Store | 15,370 | 2,206,825 | |||||
Houghton Mifflin Harcourt | 1,214,145 | a,b | 16,354,533 | ||||
OneSpaWorld Holdings | 210,980 | a,b | 2,215,290 | ||||
Papa John's International | 62,534 | 7,974,961 | |||||
35,775,813 |
8
Description | Shares | Value ($) | |||||
Common Stocks - 97.3% (continued) | |||||||
Diversified Financials - 1.4% | |||||||
PJT Partners, Cl. A | 88,326 | 6,975,987 | |||||
Energy - 3.4% | |||||||
CNX Resources | 543,090 | a | 6,169,502 | ||||
PBF Energy, Cl. A | 597,691 | a | 6,215,986 | ||||
Viper Energy Partners | 286,985 | 5,314,962 | |||||
17,700,450 | |||||||
Food & Staples Retailing - 1.3% | |||||||
The Chefs' Warehouse | 218,033 | a | 6,591,138 | ||||
Health Care Equipment & Services - 9.6% | |||||||
Acadia Healthcare | 111,099 | a | 7,345,866 | ||||
Apria | 272,049 | a | 9,703,988 | ||||
Health Catalyst | 157,559 | a,b | 8,604,297 | ||||
Innovage Holding | 136,227 | a | 2,047,492 | ||||
ModivCare | 27,971 | a | 5,517,559 | ||||
NuVasive | 76,852 | a | 4,775,583 | ||||
Privia Health Group | 170,053 | a,b | 5,069,280 | ||||
R1 RCM | 186,425 | a | 3,676,301 | ||||
SOC Telemed | 1,051,483 | a | 2,849,519 | ||||
49,589,885 | |||||||
Household & Personal Products - .6% | |||||||
Spectrum Brands Holdings | 40,876 | 3,190,781 | |||||
Insurance - 2.5% | |||||||
BRP Group, Cl. A | 177,095 | a | 6,667,627 | ||||
The Hanover Insurance Group | 43,235 | 6,109,538 | |||||
12,777,165 | |||||||
Materials - 6.4% | |||||||
Alamos Gold, Cl. A | 1,083,217 | b | 8,557,414 | ||||
IAMGOLD | 1,110,119 | a,b | 2,642,083 | ||||
Largo Resources | 250,978 | a | 3,450,948 | ||||
MP Materials | 194,250 | a,b | 6,520,973 | ||||
Summit Materials, Cl. A | 181,452 | a | 6,109,489 | ||||
Tronox Holdings, Cl. A | 273,205 | 5,772,822 | |||||
33,053,729 | |||||||
Media & Entertainment - 3.5% | |||||||
Cardlytics | 41,411 | a,b | 3,759,291 | ||||
Eventbrite, Cl. A | 449,116 | a,b | 7,940,371 | ||||
EverQuote, Cl. A | 172,081 | a | 3,388,275 | ||||
TrueCar | 720,670 | a | 3,026,814 | ||||
18,114,751 | |||||||
Pharmaceuticals Biotechnology & Life Sciences - 5.2% | |||||||
Alkermes | 294,102 | a | 9,193,629 | ||||
Arena Pharmaceuticals | 63,637 | a | 3,367,670 | ||||
Generation Bio | 96,345 | a,b | 2,408,625 |
9
STATEMENT OF INVESTMENTS (continued)
Description | Shares | Value ($) | |||||
Common Stocks - 97.3% (continued) | |||||||
Pharmaceuticals Biotechnology & Life Sciences - 5.2% (continued) | |||||||
PTC Therapeutics | 26,473 | a | 1,155,546 | ||||
Ultragenyx Pharmaceutical | 36,019 | a | 3,468,270 | ||||
uniQure | 51,266 | a,b | 1,486,714 | ||||
Xenon Pharmaceuticals | 231,165 | a | 4,080,062 | ||||
Zogenix | 105,098 | a | 1,556,501 | ||||
26,717,017 | |||||||
Real Estate - 3.5% | |||||||
Colliers International Group | 65,740 | 9,187,165 | |||||
CoreSite Realty | 43,874 | c | 6,509,585 | ||||
Pebblebrook Hotel Trust | 101,376 | c | 2,233,313 | ||||
17,930,063 | |||||||
Retailing - 1.6% | |||||||
Party City Holdco | 1,192,497 | a,b | 8,120,905 | ||||
Semiconductors & Semiconductor Equipment - 3.2% | |||||||
Diodes | 87,824 | a | 8,503,998 | ||||
MaxLinear | 147,924 | a | 7,726,071 | ||||
16,230,069 | |||||||
Software & Services - 8.2% | |||||||
ChannelAdvisor | 446,932 | a | 11,450,398 | ||||
Everbridge | 57,659 | a,b | 9,050,733 | ||||
Paya Holdings | 1,029,434 | a,b | 9,934,038 | ||||
Vonage Holdings | 195,586 | a | 2,757,763 | ||||
Zuora, Cl. A | 530,628 | a | 9,010,063 | ||||
42,202,995 | |||||||
Technology Hardware & Equipment - 3.6% | |||||||
ADTRAN | 424,064 | 8,761,162 | |||||
Arlo Technologies | 471,960 | a | 2,926,152 | ||||
Extreme Networks | 559,947 | a | 6,064,226 | ||||
Ondas Holdings | 142,839 | a,b | 1,021,299 | ||||
18,772,839 | |||||||
Transportation - 2.3% | |||||||
SkyWest | 254,460 | a | 11,870,559 | ||||
Utilities - 3.7% | |||||||
Clearway Energy, Cl. C | 300,339 | 9,427,641 | |||||
NextEra Energy Partners | 119,417 | 9,545,001 | |||||
18,972,642 | |||||||
Total Common Stocks (cost $410,853,561) | 500,232,787 |
10
Description | Shares | Value ($) | |||||
Exchange-Traded Funds - .8% | |||||||
Registered Investment Companies - .8% | |||||||
iShares Russell 2000 ETF | 17,197 | b | 3,885,146 | ||||
1-Day | |||||||
Investment Companies - 2.0% | |||||||
Registered Investment Companies - 2.0% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 0.06 | 10,163,658 | d | 10,163,658 | |||
Investment of Cash Collateral for Securities Loaned - .9% | |||||||
Registered Investment Companies - .9% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares | 0.02 | 4,538,966 | d | 4,538,966 | |||
Total Investments (cost $429,366,719) | 101.0% | 518,820,557 | |||||
Liabilities, Less Cash and Receivables | (1.0%) | (4,903,361) | |||||
Net Assets | 100.0% | 513,917,196 |
ETF—Exchange-Traded Fund
a Non-income producing security.
b Security, or portion thereof, on loan. At August 31, 2021, the value of the fund’s securities on loan was $44,524,711 and the value of the collateral was $45,292,036, consisting of cash collateral of $4,538,966 and U.S. Government & Agency securities valued at $40,753,070.
c Investment in real estate investment trust within the United States.
d Investment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.
Portfolio Summary (Unaudited) † | Value (%) |
Industrials | 20.6 |
Information Technology | 15.0 |
Health Care | 14.9 |
Financials | 13.4 |
Consumer Discretionary | 11.0 |
Materials | 6.4 |
Utilities | 3.7 |
Investment Companies | 3.7 |
Communication Services | 3.5 |
Real Estate | 3.5 |
Energy | 3.4 |
Consumer Staples | 1.9 |
101.0 |
† Based on net assets.
See notes to financial statements.
11
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS
Investment Companies | Value | Purchases($)† | Sales ($) | Value | Net | Dividends/ |
Registered Investment Companies; | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 7,279,944 | 163,947,649 | (161,063,935) | 10,163,658 | 2.0 | 7,232 |
Investment of Cash Collateral | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 25,843,586 | 32,546,971 | (58,390,557) | - | - | 43,452††† |
Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares | - | 183,297,929 | (178,758,963) | 4,538,966 | .9 | 402,211††† |
Total | 33,123,530 | 379,792,549 | (398,213,455) | 14,702,624 | 2.9 | 452,895 |
† Includes reinvested dividends/distributions.
†† Effective November 9, 2020, cash collateral for securities lending was transferred from Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares to Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares.
††† Represents securities lending income earned from reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.
See notes to financial statements.
12
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2021
|
|
|
|
|
|
|
|
|
| Cost |
| Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments |
|
|
| |||
Unaffiliated issuers | 414,664,095 |
| 504,117,933 |
| ||
Affiliated issuers |
| 14,702,624 |
| 14,702,624 |
| |
Cash |
|
|
|
| 32,282 |
|
Dividends and securities lending income receivable |
| 314,692 |
| |||
Receivable for shares of Common Stock subscribed |
| 46,369 |
| |||
Prepaid expenses |
|
|
|
| 31,211 |
|
|
|
|
|
| 519,245,111 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(b) |
| 410,579 |
| |||
Liability for securities on loan—Note 1(c) |
| 4,538,966 |
| |||
Payable for shares of Common Stock redeemed |
| 170,139 |
| |||
Payable for investment securities purchased |
| 96,975 |
| |||
Directors’ fees and expenses payable |
| 9,972 |
| |||
Other accrued expenses |
|
|
|
| 101,284 |
|
|
|
|
|
| 5,327,915 |
|
Net Assets ($) |
|
| 513,917,196 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
| 382,336,358 |
|
Total distributable earnings (loss) |
|
|
|
| 131,580,838 |
|
Net Assets ($) |
|
| 513,917,196 |
|
Net Asset Value Per Share | Investor Shares | Class I | Class Y |
|
Net Assets ($) | 318,463,568 | 25,046,543 | 170,407,085 |
|
Shares Outstanding | 8,387,656 | 654,727 | 4,446,949 |
|
Net Asset Value Per Share ($) | 37.97 | 38.25 | 38.32 |
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
13
STATEMENT OF OPERATIONS
Year Ended August 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Income: |
|
|
|
| ||
Cash dividends (net of $32,169 foreign taxes withheld at source): |
| |||||
Unaffiliated issuers |
|
| 3,091,417 |
| ||
Affiliated issuers |
|
| 7,232 |
| ||
Income from securities lending—Note 1(c) |
|
| 445,663 |
| ||
Total Income |
|
| 3,544,312 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
| 3,576,653 |
| ||
Shareholder servicing costs—Note 3(b) |
|
| 931,858 |
| ||
Professional fees |
|
| 103,180 |
| ||
Registration fees |
|
| 51,525 |
| ||
Directors’ fees and expenses—Note 3(c) |
|
| 30,194 |
| ||
Prospectus and shareholders’ reports |
|
| 28,035 |
| ||
Loan commitment fees—Note 2 |
|
| 18,946 |
| ||
Custodian fees—Note 3(b) |
|
| 14,740 |
| ||
Chief Compliance Officer fees—Note 3(b) |
|
| 14,319 |
| ||
Interest expense—Note 2 |
|
| 123 |
| ||
Miscellaneous |
|
| 29,002 |
| ||
Total Expenses |
|
| 4,798,575 |
| ||
Investment (Loss)—Net |
|
| (1,254,263) |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments | 126,212,004 |
| ||||
Net change in unrealized appreciation (depreciation) on investments | 26,960,087 |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
| 153,172,091 |
| ||
Net Increase in Net Assets Resulting from Operations |
| 151,917,828 |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Investment income (loss)—net |
|
| (1,254,263) |
|
|
| 1,101,764 |
| |
Net realized gain (loss) on investments |
| 126,212,004 |
|
|
| (28,062,005) |
| ||
Net change in unrealized appreciation |
| 26,960,087 |
|
|
| 60,356,865 |
| ||
Net Increase (Decrease) in Net Assets | 151,917,828 |
|
|
| 33,396,624 |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Investor Shares |
|
| (585,218) |
|
|
| (488,150) |
| |
Class I |
|
| (71,129) |
|
|
| (130,530) |
| |
Class Y |
|
| (733,824) |
|
|
| (1,251,443) |
| |
Total Distributions |
|
| (1,390,171) |
|
|
| (1,870,123) |
| |
Capital Stock Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Investor Shares |
|
| 9,667,030 |
|
|
| 7,295,543 |
| |
Class I |
|
| 9,734,445 |
|
|
| 6,522,699 |
| |
Class Y |
|
| 16,528,564 |
|
|
| 30,488,985 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Investor Shares |
|
| 560,659 |
|
|
| 471,182 |
| |
Class I |
|
| 69,780 |
|
|
| 127,615 |
| |
Class Y |
|
| 207,731 |
|
|
| 378,484 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Investor Shares |
|
| (33,023,283) |
|
|
| (65,006,607) |
| |
Class I |
|
| (13,279,057) |
|
|
| (15,634,714) |
| |
Class Y |
|
| (36,556,621) |
|
|
| (110,254,028) |
| |
Increase (Decrease) in Net Assets | (46,090,752) |
|
|
| (145,610,841) |
| |||
Total Increase (Decrease) in Net Assets | 104,436,905 |
|
|
| (114,084,340) |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
| 409,480,291 |
|
|
| 523,564,631 |
| |
End of Period |
|
| 513,917,196 |
|
|
| 409,480,291 |
|
15
STATEMENT OF CHANGES IN NET ASSETS (continued)
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Investor Sharesa |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 278,948 |
|
|
| 330,667 |
| |
Shares issued for distributions reinvested |
|
| 17,565 |
|
|
| 17,336 |
| |
Shares redeemed |
|
| (1,012,715) |
|
|
| (2,590,456) |
| |
Net Increase (Decrease) in Shares Outstanding | (716,202) |
|
|
| (2,242,453) |
| |||
Class Ia |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 268,612 |
|
|
| 269,889 |
| |
Shares issued for distributions reinvested |
|
| 2,173 |
|
|
| 4,668 |
| |
Shares redeemed |
|
| (397,350) |
|
|
| (619,659) |
| |
Net Increase (Decrease) in Shares Outstanding | (126,565) |
|
|
| (345,102) |
| |||
Class Ya |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 482,243 |
|
|
| 1,399,059 |
| |
Shares issued for distributions reinvested |
|
| 6,461 |
|
|
| 13,828 |
| |
Shares redeemed |
|
| (1,124,816) |
|
|
| (4,555,417) |
| |
Net Increase (Decrease) in Shares Outstanding | (636,112) |
|
|
| (3,142,530) |
| |||
|
|
|
|
|
|
|
|
|
|
a | During the period ended August 31, 2021, 58,589 Class Y shares representing $2,130,493 were exchanged for 58,671 Class I shares and 3,802 Investor shares representing $142,499 were exchanged for 3,772 Class Y shares. During the period ended August 31, 2020, 87,903 Class Y shares representing $2,248,248 were exchanged for 88,901 Class I shares and 718 Class Y shares representing $14,052 were exchanged for 724 Investor shares. | ||||||||
See notes to financial statements. |
16
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. These figures have been derived from the fund’s financial statements.
Investor Shares | Year Ended August 31, | ||||||||
2021 | 2020 | 2019 | 2018 | 2017a | |||||
Per Share Data ($): | |||||||||
Net asset value, beginning of period | 27.26 | 25.18 | 40.10 | 36.53 | 29.66 | ||||
Investment Operations: | |||||||||
Investment income (loss)—netb | (.13) | .03 | .03 | (.16) | (.15) | ||||
Net realized and unrealized gain | 10.91 | 2.10 | (8.16) | 8.29 | 7.16 | ||||
Total from Investment Operations | 10.78 | 2.13 | (8.13) | 8.13 | 7.01 | ||||
Distributions: | |||||||||
Dividends from | (.07) | (.05) | - | - | - | ||||
Dividends from net realized | - | - | (6.79) | (4.56) | (.14) | ||||
Total Distributions | (.07) | (.05) | (6.79) | (4.56) | (.14) | ||||
Net asset value, end of period | 37.97 | 27.26 | 25.18 | 40.10 | 36.53 | ||||
Total Return (%) | 39.58 | 8.44 | (19.47) | 23.51 | 23.67 | ||||
Ratios/Supplemental Data (%): | |||||||||
Ratio of total expenses | 1.11 | 1.13 | 1.13 | 1.09 | 1.10 | ||||
Ratio of net investment income | (.37) | .11 | .12 | (.43) | (.44) | ||||
Portfolio Turnover Rate | 85.56 | 95.32 | 83.97 | 74.02 | 84.96 | ||||
Net Assets, end of period ($ x 1,000) | 318,464 | 248,201 | 285,688 | 635,221 | 488,507 |
a On September 30, 2016, the fund redesignated existing shares as Investor shares.
b Based on average shares outstanding.
See notes to financial statements.
17
FINANCIAL HIGHLIGHTS (continued)
Class I Shares | Year Ended August 31, | ||||||
2021 | 2020 | 2019 | 2018 | 2017a | |||
Per Share Data ($): | |||||||
Net asset value, beginning of period | 27.45 | 25.38 | 40.28 | 36.60 | 30.62 | ||
Investment Operations: | |||||||
Investment income (loss)—netb | (.07) | .08 | .08 | (.08) | (.07) | ||
Net realized and unrealized gain | 10.98 | 2.11 | (8.19) | 8.32 | 6.19 | ||
Total from Investment Operations | 10.91 | 2.19 | (8.11) | 8.24 | 6.12 | ||
Distributions: | |||||||
Dividends from | (.11) | (.12) | - | - | - | ||
Dividends from net realized | - | - | (6.79) | (4.56) | (.14) | ||
Total Distributions | (.11) | (.12) | (6.79) | (4.56) | (.14) | ||
Net asset value, end of period | 38.25 | 27.45 | 25.38 | 40.28 | 36.60 | ||
Total Return (%) | 39.80 | 8.63 | (19.31) | 23.78 | 20.02c | ||
Ratios/Supplemental Data (%): | |||||||
Ratio of total expenses | .93 | .96 | .93 | .87 | .95d | ||
Ratio of net investment income | (.19) | .30 | .26 | (.20) | (.23)d | ||
Portfolio Turnover Rate | 85.56 | 95.32 | 83.97 | 74.02 | 84.96 | ||
Net Assets, end of period ($ x 1,000) | 25,047 | 21,448 | 28,586 | 72,845 | 53,194 |
a From September 30, 2016 (commencement of initial offering) to August 31, 2017.
b Based on average shares outstanding.
c Not annualized.
d Annualized.
See notes to financial statements.
18
Class Y Shares | Year Ended August 31, | ||||||
2021 | 2020 | 2019 | 2018 | 2017a | |||
Per Share Data ($): | |||||||
Net asset value, beginning of period | 27.51 | 25.44 | 40.32 | 36.60 | 30.62 | ||
Investment Operations: | |||||||
Investment income (loss)—netb | (.03) | .11 | .11 | (.04) | (.01) | ||
Net realized and unrealized gain | 11.00 | 2.13 | (8.20) | 8.32 | 6.13 | ||
Total from Investment Operations | 10.97 | 2.24 | (8.09) | 8.28 | 6.12 | ||
Distributions: | |||||||
Dividends from | (.16) | (.17) | - | - | - | ||
Dividends from net realized | - | - | (6.79) | (4.56) | (.14) | ||
Total Distributions | (.16) | (.17) | (6.79) | (4.56) | (.14) | ||
Net asset value, end of period | 38.32 | 27.51 | 25.44 | 40.32 | 36.60 | ||
Total Return (%) | 39.97 | 8.81 | (19.23) | 23.90 | 20.02c | ||
Ratios/Supplemental Data (%): | |||||||
Ratio of total expenses | .82 | .83 | .81 | .79 | .81d | ||
Ratio of net investment income | (.08) | .45 | .38 | (.12) | (.03)d | ||
Portfolio Turnover Rate | 85.56 | 95.32 | 83.97 | 74.02 | 84.96 | ||
Net Assets, end of period ($ x 1,000) | 170,407 | 139,832 | 209,291 | 585,686 | 467,673 |
a From September 30, 2016 (commencement of initial offering) to August 31, 2017.
b Based on average shares outstanding.
c Not annualized.
d Annualized.
See notes to financial statements.
19
NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
BNY Mellon Opportunistic Small Cap Fund (the “fund”) is a separate diversified series of BNY Mellon Advantage Funds, Inc. (the “Company”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering nine series, including the fund. The fund’s investment objective is to seek 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. Effective September 1, 2021 (the “Effective Date”), the Adviser has engaged its affiliate, Newton Investment Management North America, LLC (“Newton US”) as the fund’s sub-investment adviser pursuant to a sub-investment advisory agreement between the Adviser and Newton US. As the fund’s sub-adviser, Newton US provides the day-to-day management of the fund’s investments, subject to the Adviser’s supervision and approval. The Adviser (and not the fund) pays Newton US for its sub-advisory services. As of the Effective Date, portfolio managers responsible for managing the fund’s investments who were employees of Mellon Investments Corporation (“Mellon”) in a dual employment arrangement with the Adviser, have become employees of Newton US, and are no longer employees of Mellon.
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 400 million shares of $.001 par value Common Stock. The fund currently has authorized three classes of shares: Investor (200 million shares authorized), Class I (100 million shares authorized) and Class Y shares (100 million shares authorized). Investor shares are sold primarily to retail investors through financial intermediaries and bear Shareholder Services Plan fees. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of the Adviser, and its affiliates), acting on behalf of customers having a qualified trust or an investment account or relationship at such institution, and bear no Shareholder Services Plan fees. Class Y shares are sold at net asset value per share generally to institutional investors, and bear no Shareholder Services Plan fees. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs, and certain voting rights. Income, expenses (other than
20
expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-Investment Companies. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown. The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
21
NOTES TO FINANCIAL STATEMENTS (continued)
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 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 Company’s Board of Directors (the “Board”). Certain factors may be considered when
22
fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. These securities are either categorized within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
For securities where observable inputs are limited, assumptions about market activity and risk are used and such securities are generally categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of August 31, 2021 in valuing the fund’s investments:
Level 1-Unadjusted Quoted Prices | Level 2- Other Significant Observable Inputs | Level 3-Significant Unobservable Inputs | Total | |||
Assets ($) | ||||||
Investments In Securities:† | ||||||
Equity Securities - Common Stocks | 500,232,787 | - | - | 500,232,787 | ||
Exchange-Traded Funds | 3,885,146 | - | - | 3,885,146 | ||
Investment Companies | 14,702,624 | - | - | 14,702,624 |
† See Statement of Investments for additional detailed categorizations, if any.
(b) 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 August 31, 2021, if any, are disclosed in the fund’s Statement of Assets and Liabilities.
(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
23
NOTES TO FINANCIAL STATEMENTS (continued)
Pursuant to a securities lending agreement with The Bank of New York Mellon, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Adviser, or U.S. Government and Agency securities. The fund is entitled to receive all dividends, interest and distributions on securities loaned, in addition to income earned as a result of the lending transaction. Should a borrower fail to return the securities in a timely manner, The Bank of New York Mellon is required to replace the securities for the benefit of the fund or credit the fund with the market value of the unreturned securities and is subrogated to the fund’s rights against the borrower and the collateral. Additionally, the contractual maturity of security lending transactions are on an overnight and continuous basis. During the period ended August 31, 2021, The Bank of New York Mellon earned $58,373 from the lending of the fund’s portfolio securities, pursuant to the securities lending agreement.
(d) Affiliated issuers: Investments in other investment companies advised by the Adviser are considered “affiliated” under the Act.
(e) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies 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.
24
(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.
(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 August 31, 2021, 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 August 31, 2021, the fund did not incur any interest or penalties.
Each tax year in the four-year period ended August 31, 2021 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At August 31, 2021, the components of accumulated earnings on a tax basis were as follows: undistributed capital gains $45,168,619 and unrealized appreciation $87,524,863. In addition, the fund deferred for tax purposes late year ordinary losses of $1,112,644 to the first day of the following fiscal year.
The tax character of distributions paid to shareholders during the fiscal periods ended August 31, 2021 and August 31, 2020 were as follows: ordinary income $1,386,206 and $1,870,123 and long-term capital gains $3,965 and $0, respectively.
During the period ended August 31, 2021, as a result of permanent book to tax differences, primarily due to the tax treatment for net operating losses, the fund increased total distributable earnings (loss) by $141,617 and decreased paid-in capital by the same amount. Net assets and net asset value per share were not affected by this reclassification.
25
NOTES TO FINANCIAL STATEMENTS (continued)
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. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended August 31, 2021 was approximately $10,137 with a related weighted average annualized interest rate of 1.21%.
NOTE 3—Management Fee, Sub–Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Adviser, the management fee is computed at the annual rate of .75% of the value of the fund’s average daily net assets and is payable monthly.
Effective as of the Effective Date, pursuant to a sub-investment advisory agreement between the Adviser and Newton US, the Adviser pays Newton US a monthly fee at an annual rate of .36% of the value of the fund’s average daily net assets.
(b) Under the Shareholder Services Plan, Investor shares pay the Distributor at an annual rate of .25% of the value of its average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During
26
the period ended August 31, 2021, the fund was charged $731,936 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 August 31, 2021, the fund was charged $72,037 for transfer agency services, inclusive of earnings credit, if any. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended August 31, 2021, the fund was charged $14,740 pursuant to the custody agreement.
During the period ended August 31, 2021, the fund was charged $14,319 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 $322,307, Shareholder Services Plan fees of $66,604, custodian fees of $5,312, Chief Compliance Officer fees of $6,286 and transfer agency fees of $10,070.
(c) Each Board member also serves as a Board member of other funds in the BNY Mellon Family of Funds complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
27
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended August 31, 2021, amounted to $395,129,080 and $442,033,519, respectively.
At August 31, 2021, the cost of investments for federal income tax purposes was $431,295,694; accordingly, accumulated net unrealized appreciation on investments was $87,524,863, consisting of $117,902,315 gross unrealized appreciation and $30,377,452 gross unrealized depreciation.
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of BNY Mellon Opportunistic Small Cap Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of BNY Mellon Opportunistic Small Cap Fund (the “Fund”) (one of the funds constituting BNY Mellon Advantage Funds, Inc.), including the statements of investments and investments in affiliated issuers, as of August 31, 2021, 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 (one of the funds constituting BNY Mellon Advantage Funds, Inc.) at August 31, 2021, 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 August 31, 2021, 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
October 22, 2021
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IMPORTANT TAX INFORMATION (Unaudited)
For federal tax purposes, the fund hereby reports 100% of the ordinary dividends paid during the fiscal year ended August 31, 2021 as qualifying for the corporate dividends received deduction. Also, certain dividends paid by the fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the distributions paid during the fiscal year, $1,386,206 resents the maximum amount that may be considered qualified dividend income. Shareholders will receive notification in early 2022 of the percentage applicable to the preparation of their 2021 income tax returns.
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Directors held on March 8-9, 2021 (the “15(c) Meeting”), the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”). The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of the fund (the “Independent Directors”), were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser. In considering the renewal of the Agreement, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the 15(c) 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. 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 (1) the performance of the fund’s Investor Class shares with the performance of a group of retail no-load small-cap core funds selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all retail and institutional small-cap core funds (the “Performance Universe”), all for various periods ended December 31, 2020, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
funds in the Performance Group (the “Expense Group”) and with a broader group of all retail no-load small-cap core funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser the results of the comparisons and considered that the fund’s total return performance was at or above the Performance Group and the Performance Universe medians for all periods, except the ten-year period when it was below the Performance Group median and the three-year period when it was below the Performance Universe median. The Board considered the relative proximity of the fund’s performance to the Performance Group or Performance Universe medians in the periods when performance was below median. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management services provided by the Adviser. In addition, the Board reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons.
The Board considered that the fund’s contractual management fee was lower than the Expense Group median contractual management fee, the fund’s actual management fee was lower than the Expense Group median and the Expense Universe median actual management fee and the fund’s total expenses were approximately equal to the Expense Group median and lower than the Expense Universe median total expenses.
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 primary employer of the fund’s primary portfolio manager(s) that is affiliated with the Adviser, 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.
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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 Agreement, considered in relation to the mix of services provided by the Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreement and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser stated that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that the Adviser may have realized any economies of scale would be less. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser from acting as investment adviser and took into consideration the soft dollar arrangements in effect for trading the fund’s investments.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser are adequate and appropriate.
· The Board was satisfied with the fund’s performance.
· The Board concluded that the fee paid to the Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates, of the Adviser and the services provided to the fund by the Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreement for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreement.
************
At a meeting of the fund’s Board of Directors held on May 11, 2021 (the “Meeting”), the Board discussed with representatives of the Adviser plans to realign Mellon Investments Corporation’s (“Mellon”) equities and multi-asset capabilities with Newton Investment Management North America, LLC (“Newton US”) (the “Firm Realignment”), with such realignment scheduled to occur, subject to regulatory requirements, in the third quarter of 2021 (the “Effective Date”). The Adviser noted that, as a result of the Firm Realignment, the portfolio managers who are currently responsible for managing the investments of the fund as employees of Mellon in a dual employment arrangement with the Adviser, will become employees of Newton US as of the Effective Date. Consequently, the Adviser proposed to engage Newton US to serve as the fund’s sub-investment adviser, pursuant to a sub-investment advisory agreement between the Adviser and Newton US (the “New Sub-Advisory Agreement”), to be effective on the Effective Date. In addition, the Adviser proposed amending the fund’s current management agreement (the “Current Management Agreement”) to reflect the engagement of Newton US as sub-investment adviser to the fund (as proposed to be amended, the “Amended Management Agreement”), to be effective on the Effective Date.
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At the Meeting, the Adviser recommended the approval of the New Sub-Advisory Agreement, pursuant to which Newton US would serve as sub-investment adviser to the fund, and the Amended Management Agreement. The recommendation for the approval of the New Sub-Advisory Agreement and the Amended Management Agreement was based on the following considerations, among others: (i) approval of the New Sub-Advisory Agreement and the Amended Management Agreement would permit the fund’s current portfolio managers to continue to be responsible for the day-to-day management of the fund’s portfolio after the Effective Date as employees of Newton US; (ii) there will be no material changes to the fund’s investment objective, strategies or policies, no reduction in the nature or level of services provided to the fund, and no increases in the management fee payable by the fund as a result of the proposed changes to the investment advisory arrangements; and (iii) the Adviser (and not the fund) will pay Newton US for its sub-investment advisory services. The Board also considered the fact that the Adviser stated that it believes there are no material changes to the information the Board had previously considered at the 15(c) Meeting, at which the Board re-approved the Current Management Agreement for the ensuing year, other than the information about the Firm Realignment and Newton US.
At the Meeting, the Board members considered and approved the New Sub-Advisory Agreement and the Amended Management Agreement. In determining whether to approve the New Sub-Advisory Agreement and the Amended Management Agreement, the Board considered the materials prepared by the Adviser received in advance of the Meeting and other information presented at the Meeting, which included: (i) a form of the New Sub-Advisory Agreement and a form of the Amended Management Agreement; (ii) information regarding the Firm Realignment and how it is expected to enhance investment capabilities; (iii) information regarding Newton US; and (iv) an opinion of counsel that the proposed changes to the investment advisory arrangements would not result in an “assignment” of the Current Management Agreement under the 1940 Act and the Investment Advisers Act of 1940, as amended, and, therefore, do not require the approval of fund shareholders. The Board also considered the substance of discussions with representatives of the Adviser at the Meeting and the 15(c) Meeting.
Nature, Extent and Quality of Services to be Provided. In examining the nature, extent and quality of the services that were expected to be provided by Newton US to the fund under the New Sub-Advisory Agreement, the Board considered: (i) Newton US’s organization, qualification and background, as well as the qualifications of its personnel; (ii) the expertise of the personnel providing portfolio management services, which would remain the same after the Effective Date; and (iii) the investment strategy for the fund, which would remain the same after the Effective Date. The Board also considered the review process undertaken by the Adviser and the Adviser’s favorable assessment of the nature and quality of the sub-investment advisory services expected to be provided to the fund by Newton US after the Effective Date. Based on their consideration and review of the foregoing information, the Board concluded that the nature, extent and quality of the sub-investment advisory services to be provided by Newton US under the New Sub-Advisory Agreement, as well as Newton US’s ability to render such services based on its resources and the experience of the investment team, which will include the
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
fund’s current portfolio managers, were adequate and appropriate for the fund in light of the fund’s investment objective, and supported a decision to approve the New Sub-Advisory Agreement. The Board also considered, as it related to the Amended Management Agreement, that the nature, extent and quality of the services that are provided by the Adviser are expected to remain the same, including the Adviser’s extensive administrative, accounting and compliance infrastructures, as well as the Adviser’s supervisory activities over the fund’s portfolio management personnel.
Investment Performance. The Board had considered the fund’s investment performance and that of the investment team managing the fund’s portfolio at the 15(c) Meeting (including comparative data provided by Broadridge Financial Solutions, Inc.). The Board considered the performance and that the same investment professionals would continue to manage the fund’s assets after the Effective Date, as factors in evaluating the services to be provided by Newton US under the New Sub-Advisory Agreement after the Effective Date, and determined that these factors, when viewed together with the other factors considered by the Board, supported a decision to approve the New Sub-Advisory Agreement and the Amended Management Agreement.
Costs of Services to be Provided and Profitability. The Board considered the proposed fee payable under the New Sub-Advisory Agreement, noting that the proposed fee would be paid by the Adviser and, thus, would not impact the fees paid by the fund or the Adviser’s profitability. The Board considered the fee payable to Newton US in relation to the fee paid to the Adviser by the fund and the respective services provided by Newton US and the Adviser. The Board recognized that, because Newton US’s fee would be paid by the Adviser, and not the fund, an analysis of profitability was more appropriate in the context of the Board’s consideration of the fund’s Current Management Agreement, and that the Board had received and considered a profitability analysis of the Adviser and its affiliates, including Newton US, at the 15(c) Meeting. The Board concluded that the proposed fee payable to Newton US by the Adviser was appropriate and the Adviser’s profitability was not excessive in light of the nature, extent and quality of the services to be provided to the fund by the Adviser under the Amended Management Agreement and Newton US under the New Sub-Advisory Agreement.
Economies of Scale to be Realized. The Board recognized that, because the fee payable to Newton US would be paid by the Adviser, and not the fund, an analysis of economies of scale was more appropriate in the context of the Board’s consideration of the Current Management Agreement, which had been done at the 15(c) Meeting. At the 15(c) Meeting, 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 Current Management Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
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The Board also considered whether there were any ancillary benefits that would accrue to Newton US as a result of its relationship with the fund, and such ancillary benefits, if any, were determined to be reasonable.
In considering the materials and information described above, the Independent Directors received assistance from, and met separately with, their independent legal counsel, and were provided with a written description of their statutory responsibilities and the legal standards that are applicable to the approval of investment advisory and sub-investment advisory agreements.
After full consideration of the factors discussed above, with no single factor identified as being of paramount importance, the Board members, all of whom are Independent Directors, with the assistance of independent legal counsel, approved the New Sub-Advisory Agreement and Amended Management Agreement for the fund effective as of the Effective Date.
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LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)
Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.
The rule requires the fund to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.
The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.
Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the Board. Furthermore, the Board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.
Assessment of Program
In the opinion of the Program Administrator, the Program approved by the Board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.
During the period from January 1, 2020 to December 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.
Under normal expected foreseeable fund redemption forecasts and foreseeable stressed fund redemption forecasts, the Program Administrator believes that the fund maintains sufficient highly liquid assets to meet expected fund redemptions.
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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: 97
———————
Peggy C. Davis (78)
Board Member (2006)
Principal Occupation During Past 5 Years:
· Shad Professor of Law, New York University School of Law (1983-Present)
No. of Portfolios for which Board Member Serves: 35
———————
Gina D. France (63)
Board Member (2019)
Principal Occupation During Past 5 Years:
· France Strategic Partners, a strategy and advisory firm serving corporate clients across the United States, Founder, President and Chief Executive Officer (2003-Present)
Other Public Company Board Memberships During Past 5 Years:
· Huntington Bancshares, a bank holding company headquartered in Columbus, Ohio, Director (2016-Present)
· Cedar Fair, L.P., a publicly-traded partnership that owns and operates amusement parks and hotels in the U.S. and Canada, Director (2011-Present)
· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (2015-Present)
· FirstMerit Corporation, a diversified financial services company, Director (2004-2016)
No. of Portfolios for which Board Member Serves: 25
———————
Joan Gulley (73)
Board Member (2017)
Principal Occupation During Past 5 Years:
· Nantucket Atheneum, public library, Chair (2018-June 2021) and Director (2015-June 2021)
· Orchard Island Club, golf and beach club, Governor (2016-Present)
No. of Portfolios for which Board Member Serves: 43
———————
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BOARD MEMBERS INFORMATION (Unaudited) (continued)
INDEPENDENT BOARD MEMBERS (continued)
Robin A. Melvin (57)
Board Member (2012)
Principal Occupation During Past 5 Years:
· Westover School, a private girls’ boarding school in Middlebury, Connecticut, Trustee (2019-Present)
· Mentor Illinois, a non-profit organization dedicated to increasing the quality of mentoring services in Illinois. Co-Chair (2014–2020); Board Member, Mentor Illinois (2013-2020)
· JDRF, a non-profit juvenile diabetes research foundation, Board Member (June 2021-Present)
Other Public Company Board Memberships During Past 5 Years:
· HPS Corporate Lending Fund, a closed-end management investment company regulated as a business development company, Trustee (August 2021-Present)
No. of Portfolios for which Board Member Serves: 76
———————
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.
David P. Feldman, Emeritus Board Member
Ehud Houminer, Emeritus Board Member
Lynn Martin, Emeritus Board Member
Dr. Martin Peretz, Emeritus Board Member
Philip L. Toia, Emeritus Board Member
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OFFICERS OF THE FUND (Unaudited)
DAVID DIPETRILLO, President since January 2021.
Vice President and Director of the Adviser since February 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; He is an officer of 56 investment companies (comprised of 106 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 43 years old and has been an employee of BNY Mellon since 2005.
JAMES WINDELS, Treasurer since November 2001.
Vice President of the Adviser since September 2020, Director-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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.
PETER M. SULLIVAN, Chief Legal Officer since July 2021 and Vice President and Assistant Secretary since March 2019.
Chief Legal Officer of the Adviser since July 2021, Associate General Counsel of BNY Mellon since July 2021; Senior Managing Counsel of BNY Mellon from December 2020 to July 2021; Managing Counsel of BNY Mellon from March 2009 to December 2020, and an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of BNY Mellon since April 2004.
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 57 investment companies (comprised of 128 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 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. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 31 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 57 investment companies (comprised of 128 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 57 investment companies (comprised of 128 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 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 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of the Adviser since June 2019.
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OFFICERS OF THE FUND (Unaudited) (continued)
NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.
Chief Compliance Officer (since August 2021) and Vice President and Assistant Secretary (since February 2020) of BNY Mellon ETF Investment Adviser, LLC; Chief Compliance Officer (since August 2021) and Vice President (since February 2020) of BNY Mellon ETF Trust; Managing Counsel (December 2019 to August 2021) and Counsel (May 2016 to December 2019) of BNY Mellon; Assistant Secretary of the Adviser from April 2018 to August 2021. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of BNY Mellon since May 2016.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 April 1991.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 June 1989.
ROBERT SVAGNA, Assistant Treasurer since December 2002.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since 2004, CCO of the Adviser from 2004 until June 2021 (56 investment companies, comprised of 119 portfolios). He is 64 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. She is an officer of 50 investment companies (comprised of 121 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 53 years old and has been an employee of the Distributor since 1997.
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BNY Mellon Opportunistic Small Cap Fund
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
North America, LLC
BNY Mellon Center
201 Washington Place
Boston, MA 02108
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
BNY Mellon Transfer, Inc.
240 Greenwich Street
New York, NY 10286
Distributor
BNY Mellon Securities Corporation
240 Greenwich Street
New York, NY 10286
Ticker Symbols: | Investor: DSCVX Class I: DOPIX Class Y: DSCYX |
Telephone Call your financial representative or 1-800-373-9387
Mail The BNY Mellon Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
E-mail Send your request to info@bnymellon.com
Internet Information can be viewed online or downloaded at www.im.bnymellon.com
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2021 BNY Mellon Securities Corporation |
BNY Mellon Structured Midcap Fund
ANNUAL REPORT August 31, 2021 |
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The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds. |
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value |
Contents
THE FUND
FOR MORE INFORMATION
Back Cover
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from September 1, 2020 through August 31, 2021, as provided by the fund’s primary portfolio managers, Adam Logan, CFA, Peter D. Goslin, CFA, Sub-Investment Adviser
Market and Fund Performance Overview
For the 12-month period ended August 31, 2021, BNY Mellon Structured Midcap Fund’s Class A shares produced a total return of 45.54%, Class C shares returned 44.47%, Class I shares returned 45.90% and Class Y shares returned 45.89%.1 In comparison, the fund’s benchmark, the S&P MidCap 400® Index (the “Index”), posted a total return of 44.77% for the same period.2
Mid-cap stocks generally rose over the reporting period, supported by accommodative central bank policies and improving investor sentiment. The fund provided mixed returns compared to the Index, with relatively strong security selection in some sectors and shortfalls in others.
The Fund’s Investment Approach
The fund seeks long-term capital growth. To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in the stocks of companies included in the Index or the Russell Midcap® Index.
The portfolio managers select stocks through a “bottom-up” structured approach that seeks to identify undervalued securities using a quantitative ranking process. When selecting securities, we choose stocks through a disciplined investment process that combines quantitative modeling techniques, fundamental analysis and risk management, and we may invest in stocks with either value or growth characteristics. In selecting securities, we use a proprietary stock-selection model to identify and rank stocks within an industry or sector, based on their value, growth and financial profiles. Based on the fundamental analysis, we generally select the most attractive of the higher ranked securities and manage risk by diversifying across companies and industries. The fund seeks to maintain a portfolio that has exposure to industries and market capitalizations that are generally similar to those of the Index. Finally, within each sector and style subset, the fund will seek to overweight the most attractive stocks and underweight or not hold the stocks that have been ranked least attractive.
Risk Assets Rally on Economic Reopening
After a strong summer rally, volatility crept back into equity markets in September 2020 as increasing COVID-19 infection rates and a variety of other geopolitical uncertainties began to concern investors. However, resolution in the U.S. presidential election and promising progress toward a COVID-19 vaccine during the month of November 2020 helped stocks resume their upward momentum. A strong risk-on rally ensued, particularly in areas of the market that were hard hit by the pandemic, such as travel and leisure names, and low-quality and distressed debt. In this environment, small- and mid-cap shares handily outperformed their large-cap counterparts.
The U.S. Treasury yield curve steepened in early 2021 with rates on intermediate- and long-dated debt rising as investors anticipated economic reopening, and concerns surfaced about potential increases in inflation. Stocks continued to broadly gain through April. However, risk appetites diminished during the closing months of the period due to concerns over increasing inflationary pressures, weakening consumer confidence, disappointing employment numbers and the spread of the Delta variant. While largecap stocks continued to advance, small- and mid-cap issues traded sideways from the beginning of May through the end of period.
Returns Reflect the Positive Investment Environment
While the fund generally participated in the market rally, some stock-selection factors enhanced performance relative to the Index while others detracted. Generally, investors rewarded value and quality, and penalized pure growth and momentum. From a sector perspective, the fund’s stock
2
selections in industrials and health care generally bolstered relative performance. Top holdings included residential and industrial generator maker Generac, pharmaceutical research tool and support services provider Charles River Laboratories International, and independent oil and gas producer Murphy Oil.
On the negative side, stock selections in the real estate and utility sectors tended to detract from relative returns, with some holdings producing double-digit returns that nonetheless lagged the Index. One prominent example was warehouse REIT First Industrial Realty Trust, which failed to keep pace with benchmark returns due to the COVID-19-related industrial slowdown. Another, integrated electric utility IDACORP, trailed the benchmark along with most other lower-growth, higher-yielding REITs.
Focusing on Strong Fundamentals and Improving Earnings Momentum
As a result of our disciplined, bottom-up investment process, the fund ended the period modestly overweight to health care, consumer discretionary, technology and communications services, and modestly underweight to industrials, materials and real estate. The fund continues to own a broad set of securities that exhibit both attractive valuations and improving fundamentals. The portfolio is risk controlled from the perspectives of sector and market capitalization versus the benchmark. We believe the fund is well positioned to benefit from the current market environment as increasing visibility leads investors to shift their focus from top-line growth to a more balanced view of quality, value, price and momentum.
September 15, 2021
1 DUE TO RECENT MARKET VOLATILITY, CURRENT PERFORMANCE MAY BE DIFFERENT THAN THE FIGURES SHOWN. Investors should note that the fund’s short-term performance is highly unusual, in part due to unusually favorable market conditions, and is unlikely to be repeated or consistently achieved in the future. Total return includes reinvestment of dividends and any capital gains paid and does not take into consideration the maximum initial sales charge in the case of Class A shares or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Past performance is no guarantee of future results. Share price, yield and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. The fund’s return reflects the absorption of certain fund expenses by BNY Mellon Investment Adviser, Inc. pursuant to an agreement in effect through December 31, 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 MidCap 400® Index provides investors with a benchmark for midsized companies. The Index measures the performance of midsized companies, reflecting the distinctive risk and return characteristics of this market segment. Investors cannot invest directly in any index.
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.
Stocks of small- and/or mid-cap companies often experience sharper price fluctuations than stocks of large-cap companies.
3
FUND PERFORMANCE (Unaudited)
Comparison of change in value of a $10,000 investment in Class A shares, Class C shares and Class I shares of BNY Mellon Structured Midcap Fund with a hypothetical investment of $10,000 in the S&P MidCap 400® Index (the “Index”).
† Source: Lipper Inc.
Past performance is not predictive of future performance.
The above graph compares a hypothetical $10,000 investment made in each of the Class A shares, Class C shares and Class I shares of BNY Mellon Structured Midcap Fund on 8/31/11 to a hypothetical investment of $10,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account the maximum initial sales charge on Class A shares and all other applicable fees and expenses on all classes. The Index provides investors with a benchmark for mid-sized companies. The Index measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. 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.
4
Comparison of change in value of a $1,000,000 investment in class Y shares of BNY Mellon Structured Midcap Fund with a hypothetical investment of $1,000,000 in the S&P MidCap 400® Index (the “Index”).
† Source: Lipper Inc.
†† The total return figures presented for Class Y shares of the fund reflect the performance of the fund’s Class A shares for the period prior to 7/1/13 (the inception date for Class Y shares), not reflecting the applicable sales charges for Class A shares.
Past performance is not predictive of future performance.
The above graph compares a hypothetical $1,000,000 investment made in Class Y shares of BNY Mellon Structured Midcap Fund on 8/31/11 to a hypothetical investment of $1,000,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account all other applicable fees and expenses on Class Y shares. The Index provides investors with a benchmark for mid-sized companies. The Index measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. 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 8/31/2021 | ||||
Inception | 1 Year | 5 Years | 10 Years | |
Class A shares | ||||
with maximum sales charge (5.75%) | 6/29/01 | 37.19% | 9.40% | 11.43% |
without sales charge | 6/29/01 | 45.54% | 10.70% | 12.09% |
Class C shares | ||||
with applicable redemption charge † | 6/29/01 | 43.47% | 9.89% | 11.26% |
without redemption | 6/29/01 | 44.47% | 9.89% | 11.26% |
Class I shares | 6/29/01 | 45.90% | 10.99% | 12.36% |
Class Y shares | 7/1/13 | 45.89% | 11.06% | 12.57%†† |
S & P MidCap 400® Index | 44.77% | 13.74% | 13.90% |
† The maximum contingent deferred sales charge for Class C shares is 1% for shares redeemed within one year of the date of purchase.
†† The total return performance figures presented for Class Y shares of the fund reflect the performance of the fund’s Class A shares for the period prior to 7/1/13 (the inception date for Class Y shares), not reflecting the applicable sales charges for Class A shares.
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 performance shown in the graphs and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. In addition to the performance of Class A shares shown with and without a maximum sales charge, the fund’s performance shown in the table takes into account all other applicable fees and expenses on all classes.
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) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in BNY Mellon Structured Midcap Fund from March 1, 2021 to August 31, 2021. 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 August 31, 2021 |
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| Class A | Class C | Class I | Class Y |
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Expenses paid per $1,000† | $7.42 | $11.22 | $6.03 | $5.65 |
| |
Ending value (after expenses) | $1,134.10 | $1,130.10 | $1,135.40 | $1,135.60 |
|
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 August 31, 2021 |
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| Class A | Class C | Class I | Class Y |
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Expenses paid per $1,000† | $7.02 | $10.61 | $5.70 | $5.35 |
| |
Ending value (after expenses) | $1,018.25 | $1,014.67 | $1,019.56 | $1,019.91 |
| |
† | Expenses are equal to the fund’s annualized expense ratio of 1.38% for Class A, 2.09% for Class C, 1.12% for Class I and 1.05% for Class Y, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
7
STATEMENT OF INVESTMENTS
August 31, 2021
Description | Shares | Value ($) | |||||
Common Stocks - 99.3% | |||||||
Automobiles & Components - 1.9% | |||||||
Adient | 8,560 | a | 336,750 | ||||
Dana | 13,790 | 320,755 | |||||
Fox Factory Holding | 1,670 | a | 256,629 | ||||
Gentex | 11,730 | 361,284 | |||||
Harley-Davidson | 7,290 | 288,174 | |||||
The Goodyear Tire & Rubber Company | 27,210 | a | 431,006 | ||||
Visteon | 1,320 | a | 139,498 | ||||
2,134,096 | |||||||
Banks - 6.3% | |||||||
Associated Banc-Corp | 15,075 | 310,847 | |||||
BancorpSouth Bank | 9,915 | 290,807 | |||||
BOK Financial | 2,570 | 226,289 | |||||
Cathay General Bancorp | 29,955 | 1,191,610 | |||||
Commerce Bancshares | 3,325 | 235,144 | |||||
Essent Group | 2,490 | 117,229 | |||||
First Horizon | 28,650 | 469,573 | |||||
Fulton Financial | 19,945 | 316,128 | |||||
Hancock Whitney | 5,690 | 261,512 | |||||
MGIC Investment | 27,980 | 427,255 | |||||
New York Community Bancorp | 36,120 | 452,222 | |||||
PacWest Bancorp | 6,620 | 281,681 | |||||
Regions Financial | 29,040 | 593,287 | |||||
Sterling Bancorp | 22,660 | 518,687 | |||||
Trustmark | 11,085 | 350,508 | |||||
UMB Financial | 9,965 | 912,595 | |||||
Webster Financial | 2,660 | 134,383 | |||||
7,089,757 | |||||||
Capital Goods - 11.8% | |||||||
A.O. Smith | 1,900 | 138,168 | |||||
AECOM | 5,550 | a | 363,858 | ||||
AGCO | 4,970 | 683,971 | |||||
Allegion | 1,510 | 217,425 | |||||
Axon Enterprise | 1,030 | a | 187,326 | ||||
Carlisle | 1,010 | 212,847 | |||||
Crane | 5,350 | 544,469 | |||||
Donaldson | 13,920 | 943,080 | |||||
Dycom Industries | 3,120 | a | 235,030 | ||||
EMCOR Group | 7,925 | 962,887 | |||||
Fortune Brands Home & Security | 2,480 | 241,478 | |||||
GATX | 3,510 | 321,797 | |||||
Generac Holdings | 450 | a | 196,641 |
8
Description | Shares | Value ($) | |||||
Common Stocks - 99.3% (continued) | |||||||
Capital Goods - 11.8% (continued) | |||||||
Huntington Ingalls Industries | 915 | 186,816 | |||||
Kennametal | 9,355 | 347,819 | |||||
Lennox International | 2,915 | 977,050 | |||||
Lincoln Electric Holdings | 2,720 | 379,739 | |||||
MasTec | 5,135 | a | 469,544 | ||||
MSC Industrial Direct, Cl. A | 965 | 81,263 | |||||
nVent Electric | 10,400 | 357,344 | |||||
Owens Corning | 5,210 | 497,815 | |||||
Pentair | 2,110 | 162,808 | |||||
Quanta Services | 1,800 | 183,780 | |||||
Regal Beloit | 3,950 | 590,209 | |||||
Simpson Manufacturing | 1,150 | 130,123 | |||||
Stanley Black & Decker | 2,090 | 403,934 | |||||
Sunrun | 3,500 | a | 154,875 | ||||
Terex | 11,530 | 588,606 | |||||
The Middleby | 2,810 | a | 514,061 | ||||
The Timken Company | 8,130 | 597,880 | |||||
The Toro Company | 6,255 | 687,675 | |||||
Valmont Industries | 610 | 151,805 | |||||
Woodward | 4,900 | 592,606 | |||||
13,304,729 | |||||||
Commercial & Professional Services - 2.7% | |||||||
ASGN | 4,120 | a | 462,223 | ||||
CACI International, Cl. A | 1,210 | a | 311,623 | ||||
Clean Harbors | 4,980 | a | 511,048 | ||||
Healthcare Services Group | 2,240 | 58,598 | |||||
Herman Miller | 3,660 | 153,830 | |||||
Insperity | 2,560 | 282,470 | |||||
KAR Auction Services | 8,720 | a | 147,455 | ||||
ManpowerGroup | 3,270 | 397,043 | |||||
Tetra Tech | 3,120 | 448,781 | |||||
The Brink's Company | 2,950 | 230,572 | |||||
3,003,643 | |||||||
Consumer Durables & Apparel - 5.9% | |||||||
Brunswick | 4,780 | 463,039 | |||||
Capri Holdings | 7,340 | a | 414,783 | ||||
Carter's | 1,925 | 197,082 | |||||
Columbia Sportswear | 1,975 | 201,470 | |||||
Crocs | 2,060 | a | 294,209 | ||||
Deckers Outdoor | 2,650 | a | 1,108,892 | ||||
Leggett & Platt | 3,090 | 149,525 | |||||
Mattel | 22,465 | a | 479,628 | ||||
Peloton Interactive, Cl. A | 2,560 | a | 256,486 |
9
STATEMENT OF INVESTMENTS (continued)
Description | Shares | Value ($) | |||||
Common Stocks - 99.3% (continued) | |||||||
Consumer Durables & Apparel - 5.9% (continued) | |||||||
Polaris | 4,770 | 571,255 | |||||
PulteGroup | 2,700 | 145,422 | |||||
Tempur Sealy International | 14,430 | 645,021 | |||||
Toll Brothers | 4,140 | 265,208 | |||||
TopBuild | 2,130 | a | 466,023 | ||||
Tri Pointe Homes | 20,420 | a | 485,383 | ||||
YETI Holdings | 4,870 | a | 483,786 | ||||
6,627,212 | |||||||
Consumer Services - 3.8% | |||||||
Boyd Gaming | 5,410 | a | 332,012 | ||||
Chipotle Mexican Grill | 240 | a | 456,799 | ||||
Churchill Downs | 1,010 | 212,605 | |||||
Graham Holdings, Cl. B | 580 | 357,750 | |||||
Grand Canyon Education | 3,780 | a | 336,949 | ||||
H&R Block | 5,930 | 152,105 | |||||
Jack in the Box | 3,885 | 411,655 | |||||
Planet Fitness, Cl. A | 3,840 | a | 312,192 | ||||
Scientific Games | 3,565 | a | 257,928 | ||||
Service Corp. International | 13,540 | 849,770 | |||||
Texas Roadhouse | 1,090 | 103,550 | |||||
The Wendy's Company | 5,485 | 126,265 | |||||
Wyndham Hotels & Resorts | 5,095 | 370,406 | |||||
4,279,986 | |||||||
Diversified Financials - 3.1% | |||||||
Affiliated Managers Group | 3,220 | 547,754 | |||||
Evercore, Cl. A | 2,335 | 326,059 | |||||
FactSet Research Systems | 660 | 250,945 | |||||
Interactive Brokers Group, Cl. A | 2,880 | 186,163 | |||||
Janus Henderson Group | 8,520 | 369,427 | |||||
Jefferies Financial Group | 13,000 | 480,480 | |||||
OneMain Holdings | 3,940 | 227,850 | |||||
PROG Holdings | 6,960 | 329,347 | |||||
Stifel Financial | 10,650 | 735,915 | |||||
3,453,940 | |||||||
Energy - 2.1% | |||||||
Antero Midstream | 14,435 | 138,720 | |||||
ChampionX | 13,020 | a | 303,757 | ||||
Cimarex Energy | 4,480 | 287,706 | |||||
CNX Resources | 9,000 | a | 102,240 | ||||
Continental Resources | 5,860 | 230,181 | |||||
EQT | 4,335 | a | 79,461 | ||||
Equitrans Midstream | 20,270 | 176,957 | |||||
Marathon Oil | 50,115 | 588,851 |
10
Description | Shares | Value ($) | |||||
Common Stocks - 99.3% (continued) | |||||||
Energy - 2.1% (continued) | |||||||
Murphy Oil | 12,655 | 269,045 | |||||
NOV | 5,725 | a | 75,398 | ||||
Targa Resources | 1,865 | 81,911 | |||||
2,334,227 | |||||||
Food & Staples Retailing - .9% | |||||||
BJ's Wholesale Club Holdings | 7,970 | a | 451,580 | ||||
Casey's General Stores | 1,445 | 295,589 | |||||
Sprouts Farmers Market | 12,200 | a | 303,780 | ||||
1,050,949 | |||||||
Food, Beverage & Tobacco - 2.0% | |||||||
Darling Ingredients | 8,375 | a | 623,937 | ||||
Flowers Foods | 23,540 | 568,020 | |||||
Pilgrim's Pride | 14,915 | a | 415,234 | ||||
Sanderson Farms | 1,575 | 309,488 | |||||
The Hain Celestial Group | 7,710 | a | 288,431 | ||||
2,205,110 | |||||||
Health Care Equipment & Services - 6.8% | |||||||
Acadia Healthcare | 7,450 | a | 492,594 | ||||
Amedisys | 2,500 | a | 458,625 | ||||
Cerner | 4,020 | 306,927 | |||||
Chemed | 1,860 | 886,662 | |||||
Dentsply Sirona | 2,250 | 138,825 | |||||
Envista Holdings | 8,820 | a | 377,408 | ||||
Globus Medical, Cl. A | 2,040 | a | 166,464 | ||||
HealthEquity | 1,710 | a | 109,731 | ||||
Hill-Rom Holdings | 4,955 | 721,349 | |||||
ICU Medical | 2,330 | a | 464,485 | ||||
Integra LifeSciences Holdings | 10,220 | a | 768,851 | ||||
LHC Group | 2,420 | a | 451,959 | ||||
LivaNova | 3,715 | a | 307,193 | ||||
Molina Healthcare | 2,280 | a | 612,796 | ||||
NuVasive | 2,955 | a | 183,624 | ||||
Patterson Companies | 4,010 | 122,866 | |||||
STAAR Surgical | 2,490 | a | 384,630 | ||||
Teladoc Health | 1,450 | a | 209,409 | ||||
Tenet Healthcare | 6,100 | a | 459,635 | ||||
7,624,033 | |||||||
Household & Personal Products - .3% | |||||||
Nu Skin Enterprises, Cl. A | 6,450 | 326,499 | |||||
Insurance - 5.7% | |||||||
Alleghany | 590 | a | 399,247 | ||||
American Financial Group | 4,070 | 561,416 | |||||
CNA Financial | 3,790 | 168,087 |
11
STATEMENT OF INVESTMENTS (continued)
Description | Shares | Value ($) | |||||
Common Stocks - 99.3% (continued) | |||||||
Insurance - 5.7% (continued) | |||||||
Everest Re Group | 900 | 238,410 | |||||
First American Financial | 7,240 | 510,637 | |||||
Globe Life | 4,725 | 453,931 | |||||
Kinsale Capital Group | 1,940 | 352,789 | |||||
Mercury General | 2,460 | 146,887 | |||||
Old Republic International | 24,140 | 627,640 | |||||
Primerica | 5,050 | 772,347 | |||||
Reinsurance Group of America | 5,835 | 675,810 | |||||
RLI | 3,140 | 342,982 | |||||
Selective Insurance Group | 6,750 | 564,097 | |||||
The Hanover Insurance Group | 2,555 | 361,047 | |||||
The Hartford Financial Services Group | 3,035 | 204,013 | |||||
6,379,340 | |||||||
Materials - 5.3% | |||||||
CF Industries Holdings | 5,090 | 231,188 | |||||
Cleveland-Cliffs | 23,525 | a | 552,132 | ||||
Commercial Metals | 5,805 | 189,359 | |||||
Eagle Materials | 4,490 | 704,212 | |||||
Ingevity | 7,230 | a | 581,220 | ||||
Louisiana-Pacific | 4,940 | 313,394 | |||||
Minerals Technologies | 5,670 | 445,889 | |||||
Olin | 7,040 | 350,874 | |||||
Reliance Steel & Aluminum | 5,535 | 830,471 | |||||
RPM International | 4,205 | 346,029 | |||||
The Chemours Company | 11,030 | 369,615 | |||||
The Mosaic Company | 4,900 | 157,682 | |||||
U.S.Steel | 11,510 | 307,893 | |||||
Westlake Chemical | 2,030 | 177,321 | |||||
WestRock | 4,505 | 234,440 | |||||
Worthington Industries | 3,655 | 211,807 | |||||
6,003,526 | |||||||
Media & Entertainment - 2.2% | |||||||
Cable One | 150 | 314,939 | |||||
Cinemark Holdings | 4,935 | a | 87,991 | ||||
Fox, Cl. A | 2,105 | 78,811 | |||||
John Wiley & Sons, Cl. A | 6,680 | 388,108 | |||||
The Interpublic Group of Companies | 11,020 | 410,275 | |||||
The New York Times Company, Cl. A | 12,770 | 648,461 | |||||
World Wrestling Entertainment, Cl. A | 4,430 | 230,847 | |||||
Yelp | 7,295 | a | 280,930 | ||||
2,440,362 | |||||||
Pharmaceuticals Biotechnology & Life Sciences - 4.4% | |||||||
Bio-Rad Laboratories, Cl. A | 360 | a | 289,735 |
12
Description | Shares | Value ($) | |||||
Common Stocks - 99.3% (continued) | |||||||
Pharmaceuticals Biotechnology & Life Sciences - 4.4% (continued) | |||||||
Bio-Techne | 720 | 359,381 | |||||
Bruker | 2,315 | 204,438 | |||||
Charles River Laboratories International | 695 | a | 308,483 | ||||
Emergent BioSolutions | 2,220 | a | 140,038 | ||||
Exelixis | 11,340 | a | 217,388 | ||||
Halozyme Therapeutics | 5,870 | a | 246,481 | ||||
Jazz Pharmaceuticals | 2,090 | a | 275,274 | ||||
Medpace Holdings | 1,480 | a | 269,878 | ||||
Neurocrine Biosciences | 2,065 | a | 196,588 | ||||
Repligen | 3,890 | a | 1,100,792 | ||||
Royalty Pharma, CI. A | 5,880 | 227,262 | |||||
Sage Therapeutics | 1,890 | a | 87,337 | ||||
Seagen | 1,630 | a | 273,188 | ||||
Syneos Health | 4,750 | a | 440,705 | ||||
United Therapeutics | 1,590 | a | 341,659 | ||||
4,978,627 | |||||||
Real Estate - 9.1% | |||||||
Brixmor Property Group | 15,215 | b | 356,792 | ||||
Camden Property Trust | 2,110 | b | 316,584 | ||||
First Industrial Realty Trust | 28,245 | b | 1,581,438 | ||||
Healthcare Realty Trust | 34,225 | b | 1,027,777 | ||||
Highwoods Properties | 10,300 | b | 470,607 | ||||
Jones Lang LaSalle | 1,880 | a | 455,768 | ||||
Kilroy Realty | 5,190 | b | 340,724 | ||||
Kimco Realty | 26,160 | b | 570,026 | ||||
Lamar Advertising, Cl. A | 5,330 | b | 606,714 | ||||
Life Storage | 4,590 | b | 571,180 | ||||
National Retail Properties | 22,875 | b | 1,089,079 | ||||
National Storage Affiliates Trust | 9,865 | b | 564,771 | ||||
Omega Healthcare Investors | 10,710 | b | 359,106 | ||||
PS Business Parks | 5,945 | b | 934,732 | ||||
SL Green Realty | 4,820 | b | 337,786 | ||||
Urban Edge Properties | 22,710 | b | 430,127 | ||||
VEREIT | 3,940 | b | 199,088 | ||||
10,212,299 | |||||||
Retailing - 4.6% | |||||||
American Eagle Outfitters | 5,230 | 159,620 | |||||
AutoNation | 3,460 | a | 377,451 | ||||
Dick's Sporting Goods | 4,470 | 629,421 | |||||
Five Below | 3,250 | a | 691,632 | ||||
Foot Locker | 4,990 | 282,883 | |||||
Kohl's | 10,320 | 592,368 |
13
STATEMENT OF INVESTMENTS (continued)
Description | Shares | Value ($) | |||||
Common Stocks - 99.3% (continued) | |||||||
Retailing - 4.6% (continued) | |||||||
Lithia Motors | 1,190 | 394,247 | |||||
Murphy USA | 1,420 | 220,498 | |||||
Ollie's Bargain Outlet Holdings | 2,420 | a | 175,160 | ||||
RH | 465 | a | 325,812 | ||||
Urban Outfitters | 6,405 | a | 211,493 | ||||
Wayfair, Cl. A | 1,200 | a | 336,900 | ||||
Williams-Sonoma | 4,160 | 776,672 | |||||
5,174,157 | |||||||
Semiconductors & Semiconductor Equipment - 3.9% | |||||||
Brooks Automation | 4,545 | 386,143 | |||||
Cirrus Logic | 2,550 | a | 213,359 | ||||
CMC Materials | 1,860 | 246,673 | |||||
First Solar | 2,000 | a | 188,000 | ||||
Lattice Semiconductor | 7,695 | a | 478,013 | ||||
MKS Instruments | 2,180 | 320,852 | |||||
Monolithic Power Systems | 1,145 | 566,695 | |||||
ON Semiconductor | 3,200 | a | 141,952 | ||||
Qorvo | 790 | a | 148,544 | ||||
Semtech | 8,350 | a | 583,832 | ||||
SolarEdge Technologies | 1,960 | a | 567,969 | ||||
Teradyne | 1,910 | 231,950 | |||||
Universal Display | 1,540 | 321,229 | |||||
4,395,211 | |||||||
Software & Services - 6.5% | |||||||
ACI Worldwide | 7,460 | a | 240,436 | ||||
Alliance Data Systems | 4,200 | 412,062 | |||||
Aspen Technology | 1,025 | a | 132,738 | ||||
Cerence | 1,530 | a | 165,913 | ||||
Commvault Systems | 1,080 | a | 87,448 | ||||
Concentrix | 2,550 | a | 442,144 | ||||
DocuSign | 1,180 | a | 349,563 | ||||
Fair Isaac | 1,360 | a | 625,246 | ||||
Genpact | 7,160 | 371,461 | |||||
HubSpot | 720 | a | 492,818 | ||||
Manhattan Associates | 2,890 | a | 471,041 | ||||
Medallia | 9,480 | a | 320,140 | ||||
NCR | 11,520 | a | 489,370 | ||||
Nuance Communications | 6,730 | a | 370,486 | ||||
Palo Alto Networks | 940 | a | 433,378 | ||||
PTC | 5,040 | a | 663,566 | ||||
Qualys | 2,335 | a | 274,082 | ||||
Splunk | 1,820 | a | 278,223 | ||||
Teradata | 7,820 | a | 427,676 |
14
Description | Shares | Value ($) | |||||
Common Stocks - 99.3% (continued) | |||||||
Software & Services - 6.5% (continued) | |||||||
WEX | 1,130 | a | 207,434 | ||||
7,255,225 | |||||||
Technology Hardware & Equipment - 5.0% | |||||||
Arrow Electronics | 3,290 | a | 398,814 | ||||
Avnet | 11,490 | 464,885 | |||||
Belden | 4,490 | 257,053 | |||||
Ciena | 6,690 | a | 382,200 | ||||
Cognex | 8,475 | 751,054 | |||||
Corning | 7,310 | 292,327 | |||||
II-VI | 6,450 | a | 406,221 | ||||
Jabil | 2,670 | 164,953 | |||||
Littelfuse | 2,945 | 840,503 | |||||
Lumentum Holdings | 3,780 | a | 327,499 | ||||
NETSCOUT Systems | 5,030 | a | 137,923 | ||||
SYNNEX | 1,970 | 250,328 | |||||
Trimble | 3,650 | a | 343,903 | ||||
Vontier | 9,300 | 338,241 | |||||
Xerox Holdings | 13,660 | 307,487 | |||||
5,663,391 | |||||||
Telecommunication Services - .3% | |||||||
Iridium Communications | 7,950 | a | 353,854 | ||||
Transportation - .9% | |||||||
Avis Budget Group | 2,035 | a | 184,676 | ||||
Kansas City Southern | 370 | 103,848 | |||||
Old Dominion Freight Line | 1,040 | 300,269 | |||||
Ryder System | 1,930 | 153,416 | |||||
Werner Enterprises | 1,820 | 85,831 | |||||
XPO Logistics | 2,690 | a | 233,788 | ||||
1,061,828 | |||||||
Utilities - 3.8% | |||||||
ALLETE | 5,475 | 369,124 | |||||
Black Hills | 10,640 | 748,311 | |||||
DTE Energy | 1,345 | 161,857 | |||||
Hawaiian Electric Industries | 4,790 | 208,844 | |||||
IDACORP | 6,815 | 717,960 | |||||
MDU Resources Group | 15,965 | 513,594 | |||||
New Jersey Resources | 11,475 | 428,476 | |||||
NorthWestern | 4,690 | 298,284 | |||||
ONE Gas | 6,580 | 472,576 | |||||
Public Service Enterprise Group | 3,220 | 205,887 | |||||
UGI | 4,460 | 206,543 | |||||
4,331,456 | |||||||
Total Common Stocks (cost $87,864,441) | 111,683,457 |
15
STATEMENT OF INVESTMENTS (continued)
Description | 1-Day | Shares | Value ($) | ||||
Investment Companies - .5% | |||||||
Registered Investment Companies - .5% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 0.06 | 505,234 | c | 505,234 | |||
Total Investments (cost $88,369,675) | 99.8% | 112,188,691 | |||||
Cash and Receivables (Net) | .2% | 246,579 | |||||
Net Assets | 100.0% | 112,435,270 |
a Non-income producing security.
b Investment in real estate investment trust within the United States.
c Investment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.
Portfolio Summary (Unaudited) † | Value (%) |
Consumer Discretionary | 16.1 |
Industrials | 15.4 |
Information Technology | 15.4 |
Financials | 15.1 |
Health Care | 11.2 |
Real Estate | 9.1 |
Materials | 5.3 |
Utilities | 3.9 |
Consumer Staples | 3.2 |
Communication Services | 2.5 |
Energy | 2.1 |
Investment Companies | .5 |
99.8 |
† Based on net assets.
See notes to financial statements.
16
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS
Investment Companies | Value | Purchases($)† | Sales ($) | Value | Net | Dividends/ |
Registered Investment Companies; | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 360,413 | 18,110,299 | (17,965,478) | 505,234 | .5 | 265 |
Investment of Cash Collateral for Securities Loaned:†† | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 1,189,990 | 1,742,361 | (2,932,351) | - | - | 2,198††† |
Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares | - | 3,250,115 | (3,250,115) | - | - | 8,923††† |
Total | 1,550,403 | 23,102,775 | (24,147,944) | 505,234 | .5 | 11,386 |
† Includes reinvested dividends/distributions.
†† Effective November 9, 2020, cash collateral for securities lending was transferred from Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares to Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares.
††† Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securitites.
See notes to financial statements.
17
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2021
|
|
|
|
|
|
|
|
|
| Cost |
| Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments |
|
|
| |||
Unaffiliated issuers | 87,864,441 |
| 111,683,457 |
| ||
Affiliated issuers |
| 505,234 |
| 505,234 |
| |
Receivable for investment securities sold |
| 364,790 |
| |||
Dividends receivable |
| 105,634 |
| |||
Receivable for shares of Common Stock subscribed |
| 4,421 |
| |||
Prepaid expenses |
|
|
|
| 50,855 |
|
|
|
|
|
| 112,714,391 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
| 74,527 |
| |||
Reorganization expense payable—Note 5 |
| 99,270 |
| |||
Payable for shares of Common Stock redeemed |
| 12,720 |
| |||
Directors’ fees and expenses payable |
| 1,794 |
| |||
Other accrued expenses |
|
|
|
| 90,810 |
|
|
|
|
|
| 279,121 |
|
Net Assets ($) |
|
| 112,435,270 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
| 69,942,025 |
|
Total distributable earnings (loss) |
|
|
|
| 42,493,245 |
|
Net Assets ($) |
|
| 112,435,270 |
|
Net Asset Value Per Share | Class A | Class C | Class I | Class Y |
|
Net Assets ($) | 79,177,835 | 2,397,097 | 30,626,860 | 233,478 |
|
Shares Outstanding | 2,277,353 | 82,360 | 859,062 | 6,590.67 |
|
Net Asset Value Per Share ($) | 34.77 | 29.11 | 35.65 | 35.43 |
|
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
|
18
STATEMENT OF OPERATIONS
Year Ended August 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Income: |
|
|
|
| ||
Cash dividends (net of $52 foreign taxes withheld at source): |
| |||||
Unaffiliated issuers |
|
| 1,509,570 |
| ||
Affiliated issuers |
|
| 265 |
| ||
Income from securities lending—Note 1(c) |
|
| 11,121 |
| ||
Total Income |
|
| 1,520,956 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
| 805,454 |
| ||
Shareholder servicing costs—Note 3(c) |
|
| 439,903 |
| ||
Reorganization expense—Note 5 |
|
| 240,000 |
| ||
Professional fees |
|
| 97,037 |
| ||
Registration fees |
|
| 61,160 |
| ||
Custodian fees—Note 3(c) |
|
| 42,020 |
| ||
Distribution fees—Note 3(b) |
|
| 20,709 |
| ||
Prospectus and shareholders’ reports |
|
| 18,403 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
| 14,319 |
| ||
Directors’ fees and expenses—Note 3(d) |
|
| 6,547 |
| ||
Loan commitment fees—Note 2 |
|
| 3,840 |
| ||
Miscellaneous |
|
| 21,910 |
| ||
Total Expenses |
|
| 1,771,302 |
| ||
Less—reduction in expenses due to undertaking—Note 3(a) |
|
| (349,963) |
| ||
Net Expenses |
|
| 1,421,339 |
| ||
Investment Income—Net |
|
| 99,617 |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments | 21,814,716 |
| ||||
Net change in unrealized appreciation (depreciation) on investments | 17,733,801 |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
| 39,548,517 |
| ||
Net Increase in Net Assets Resulting from Operations |
| 39,648,134 |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
19
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Investment income—net |
|
| 99,617 |
|
|
| 567,064 |
| |
Net realized gain (loss) on investments |
| 21,814,716 |
|
|
| (481,029) |
| ||
Net change in unrealized appreciation |
| 17,733,801 |
|
|
| (1,664,345) |
| ||
Net Increase (Decrease) in Net Assets | 39,648,134 |
|
|
| (1,578,310) |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
| (293,326) |
|
|
| (3,461,274) |
| |
Class C |
|
| - |
|
|
| (286,033) |
| |
Class I |
|
| (201,605) |
|
|
| (1,839,840) |
| |
Class Y |
|
| (5,262) |
|
|
| (174,801) |
| |
Total Distributions |
|
| (500,193) |
|
|
| (5,761,948) |
| |
Capital Stock Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
| 2,975,613 |
|
|
| 4,166,953 |
| |
Class C |
|
| 45,099 |
|
|
| 128,111 |
| |
Class I |
|
| 2,108,401 |
|
|
| 9,171,526 |
| |
Class Y |
|
| 73,513 |
|
|
| 1,938,347 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
| 267,798 |
|
|
| 3,209,481 |
| |
Class C |
|
| - |
|
|
| 243,578 |
| |
Class I |
|
| 191,900 |
|
|
| 1,748,107 |
| |
Class Y |
|
| 4,667 |
|
|
| 163,186 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
| (13,528,443) |
|
|
| (17,181,368) |
| |
Class C |
|
| (1,998,188) |
|
|
| (3,050,517) |
| |
Class I |
|
| (12,198,274) |
|
|
| (28,309,089) |
| |
Class Y |
|
| (941,417) |
|
|
| (3,933,273) |
| |
Increase (Decrease) in Net Assets | (22,999,331) |
|
|
| (31,704,958) |
| |||
Total Increase (Decrease) in Net Assets | 16,148,610 |
|
|
| (39,045,216) |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
| 96,286,660 |
|
|
| 135,331,876 |
| |
End of Period |
|
| 112,435,270 |
|
|
| 96,286,660 |
|
20
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Class Aa,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 98,982 |
|
|
| 176,744 |
| |
Shares issued for distributions reinvested |
|
| 9,429 |
|
|
| 121,339 |
| |
Shares redeemed |
|
| (455,982) |
|
|
| (722,327) |
| |
Net Increase (Decrease) in Shares Outstanding | (347,571) |
|
|
| (424,244) |
| |||
Class Ca |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 1,756 |
|
|
| 6,098 |
| |
Shares issued for distributions reinvested |
|
| - |
|
|
| 10,904 |
| |
Shares redeemed |
|
| (83,366) |
|
|
| (151,447) |
| |
Net Increase (Decrease) in Shares Outstanding | (81,610) |
|
|
| (134,445) |
| |||
Class Ib |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 69,145 |
|
|
| 365,933 |
| |
Shares issued for distributions reinvested |
|
| 6,602 |
|
|
| 64,698 |
| |
Shares redeemed |
|
| (404,388) |
|
|
| (1,118,849) |
| |
Net Increase (Decrease) in Shares Outstanding | (328,641) |
|
|
| (688,218) |
| |||
Class Y |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 2,539 |
|
|
| 72,049 |
| |
Shares issued for distributions reinvested |
|
| 162 |
|
|
| 6,132 |
| |
Shares redeemed |
|
| (29,310) |
|
|
| (160,317) |
| |
Net Increase (Decrease) in Shares Outstanding | (26,609) |
|
|
| (82,136) |
| |||
|
|
|
|
|
|
|
|
|
|
a | During the period ended August 31, 2021, 3,396 Class C shares representing $84,821 were automatically converted to 2,854 Class A shares and during the period ended August 31, 2020, 1,114 Class C shares representing $21,497 were automatically converted to 940 Class A shares. | ||||||||
b | During the period ended August 31, 2020, 3,301 Class A shares representing $84,527 were exchanged for 3,224 Class I shares. | ||||||||
See notes to financial statements. |
21
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. These figures have been derived from the fund’s financial statements.
Class A Shares | Year Ended August 31, | |||||||
2021 | 2020 | 2019 | 2018 | 2017 | ||||
Per Share Data ($): | ||||||||
Net asset value, beginning of period | 23.99 | 25.33 | 32.17 | 31.03 | 27.43 | |||
Investment Operations: | ||||||||
Investment income—neta | .01 | .11 | .08 | .02 | .04 | |||
Net realized and unrealized | 10.89 | (.25) | (3.92) | 4.23 | 3.78 | |||
Total from Investment Operations | 10.90 | (.14) | (3.84) | 4.25 | 3.82 | |||
Distributions: | ||||||||
Dividends from | (.12) | (.10) | (.01) | (.02) | (.22) | |||
Dividends from net realized | - | (1.10) | (2.99) | (3.09) | - | |||
Total Distributions | (.12) | (1.20) | (3.00) | (3.11) | (.22) | |||
Net asset value, end of period | 34.77 | 23.99 | 25.33 | 32.17 | 31.03 | |||
Total Return (%)b | 45.54 | (1.01) | (11.12) | 13.96 | 13.95 | |||
Ratios/Supplemental Data (%): | ||||||||
Ratio of total expenses | 1.76 | 1.55 | 1.36 | 1.42 | 1.32 | |||
Ratio of net expenses | 1.38 | 1.21 | 1.25 | 1.25 | 1.25 | |||
Ratio of net investment income | .03 | .47 | .29 | .07 | .13 | |||
Portfolio Turnover Rate | 85.98 | 85.49 | 78.15 | 66.61 | 63.25 | |||
Net Assets, end of period ($ x 1,000) | 79,178 | 62,966 | 77,249 | 105,934 | 98,978 |
a Based on average shares outstanding.
b Exclusive of sales charge.
See notes to financial statements.
22
Class C Shares | Year Ended August 31, | |||||||
2021 | 2020 | 2019 | 2018 | 2017 | ||||
Per Share Data ($): | ||||||||
Net asset value, beginning of period | 20.15 | 21.52 | 28.06 | 27.59 | 24.42 | |||
Investment Operations: | ||||||||
Investment (loss)—neta | (.16) | (.06) | (.10) | (.17) | (.16) | |||
Net realized and unrealized | 9.12 | (.21) | (3.45) | 3.73 | 3.37 | |||
Total from Investment Operations | 8.96 | (.27) | (3.55) | 3.56 | 3.21 | |||
Distributions: | ||||||||
Dividends from | - | - | - | - | (.04) | |||
Dividends from net realized | - | (1.10) | (2.99) | (3.09) | - | |||
Total Distributions | - | (1.10) | (2.99) | (3.09) | (.04) | |||
Net asset value, end of period | 29.11 | 20.15 | 21.52 | 28.06 | 27.59 | |||
Total Return (%)b | 44.47 | (1.82) | (11.76) | 13.14 | 13.14 | |||
Ratios/Supplemental Data (%): | ||||||||
Ratio of total expenses | 2.40 | 2.13 | 2.09 | 1.99 | 1.98 | |||
Ratio of net expenses | 2.09 | 1.96 | 2.00 | 1.97 | 1.97 | |||
Ratio of net investment (loss) | (.66) | (.30) | (.44) | (.62) | (.59) | |||
Portfolio Turnover Rate | 85.98 | 85.49 | 78.15 | 66.61 | 63.25 | |||
Net Assets, end of period ($ x 1,000) | 2,397 | 3,304 | 6,422 | 10,949 | 25,077 |
a Based on average shares outstanding.
b Exclusive of sales charge.
See notes to financial statements.
23
FINANCIAL HIGHLIGHTS (continued)
Class I Shares | Year Ended August 31, | ||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | |||||||
Per Share Data ($): | |||||||||||
Net asset value, beginning of period | 24.59 | 25.95 | 32.90 | 31.67 | 28.02 | ||||||
Investment Operations: | |||||||||||
Investment income—neta | .09 | .17 | .15 | .10 | .12 | ||||||
Net realized and unrealized | 11.15 | (.26) | (4.00) | 4.32 | 3.87 | ||||||
Total from Investment Operations | 11.24 | (.09) | (3.85) | 4.42 | 3.99 | ||||||
Distributions: | |||||||||||
Dividends from | (.18) | (.17) | (.11) | (.10) | (.34) | ||||||
Dividends from net realized | - | (1.10) | (2.99) | (3.09) | - | ||||||
Total Distributions | (.18) | (1.27) | (3.10) | (3.19) | (.34) | ||||||
Net asset value, end of period | 35.65 | 24.59 | 25.95 | 32.90 | 31.67 | ||||||
Total Return (%) | 45.90 | (.80) | (10.88) | 14.24 | 14.28 | ||||||
Ratios/Supplemental Data (%): | |||||||||||
Ratio of total expenses | 1.33 | 1.10 | 1.01 | 1.06 | 1.03 | ||||||
Ratio of net expenses | 1.12 | .96 | 1.00 | 1.00 | .99 | ||||||
Ratio of net investment income | .30 | .70 | .55 | .31 | .39 | ||||||
Portfolio Turnover Rate | 85.98 | 85.49 | 78.15 | 66.61 | 63.25 | ||||||
Net Assets, end of period ($ x 1,000) | 30,627 | 29,205 | 48,674 | 80,835 | 64,572 |
a Based on average shares outstanding.
See notes to financial statements.
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�� | ||||||||
Class Y Shares | Year Ended August 31, | |||||||
2021 | 2020 | 2019 | 2018 | 2017 | ||||
Per Share Data ($): | ||||||||
Net asset value, beginning of period | 24.44 | 25.89 | 32.86 | 31.62 | 28.02 | |||
Investment Operations: | ||||||||
Investment income—neta | .14 | .17 | .19 | .15 | .16 | |||
Net realized and unrealized | 11.03 | (.27) | (4.02) | 4.32 | 3.86 | |||
Total from Investment Operations | 11.17 | (.10) | (3.83) | 4.47 | 4.02 | |||
Distributions: | ||||||||
Dividends from | (.18) | (.25) | (.15) | (.14) | (.42) | |||
Dividends from net realized | - | (1.10) | (2.99) | (3.09) | - | |||
Total Distributions | (.18) | (1.35) | (3.14) | (3.23) | (.42) | |||
Net asset value, end of period | 35.43 | 24.44 | 25.89 | 32.86 | 31.62 | |||
Total Return (%) | 45.89 | (.77) | (10.82) | 14.43 | 14.39 | |||
Ratios/Supplemental Data (%): | ||||||||
Ratio of total expenses | 1.17 | .96 | .90 | .86 | .86 | |||
Ratio of net expenses | 1.05 | .96 | .90 | .86 | .86 | |||
Ratio of net investment income | .45 | .70 | .66 | .47 | .52 | |||
Portfolio Turnover Rate | 85.98 | 85.49 | 78.15 | 66.61 | 63.25 | |||
Net Assets, end of period ($ x 1,000) | 233 | 811 | 2,986 | 4,851 | 15,265 |
a Based on average shares outstanding.
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
BNY Mellon Structured Midcap Fund (the “fund”) is a separate diversified series of BNY Mellon Advantage Funds, Inc. (the “Company”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering nine series, including the fund. The fund’s investment objective is to seek long-term capital growth. 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. Prior to September 1, 2021, Mellon Investments Corporation (“Mellon”), a wholly-owned subsidiary of BNY Mellon and an affiliate of the Adviser, served as the fund’s sub-investment adviser. Effective September 1, 2021 (the “Effective Date”), Newton Investment Management North America LLC (“Newton US”), a wholly-owned subsidiary of BNY Mellon and an affiliate of the Adviser, serves as the fund’s sub-investment adviser. As the fund’s sub-adviser, Newton US provides the day-to-day management of the fund’s investments, subject to the Adviser’s supervision and approval. As was the case under the sub-investment advisory agreement between the Adviser and Mellon, the Adviser (and not the fund) pays Newton US for its sub-advisory services. The rate of sub-investment advisory fee payable by the Adviser to Newton US is the same as was paid by the Adviser to Mellon pursuant to the respective sub-investment advisory agreements. As of the Effective Date, portfolio managers responsible for managing the fund’s investments as employees of Mellon became employees of Newton US and are no longer employees of Mellon.
BNY Mellon Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Adviser, is the distributor of the fund’s shares. The fund is authorized to issue 700 million shares of $.001 par value Common Stock. The fund currently has authorized four classes of shares: Class A (200 million shares authorized), Class C (100 million shares authorized), Class I (250 million shares authorized), and Class Y (150 million shares authorized). Class A and Class C shares are sold primarily to retail investors through financial intermediaries and bear Distribution and/or Shareholder Services Plan fees. Class A shares generally are subject to a sales charge imposed at the time of purchase. Class A shares bought without an initial sales charge as part of an investment of $1 million or more may be charged a contingent deferred sales charge (“CDSC”) of 1.00% if redeemed within one year. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class C shares automatically convert to Class A shares eight years after the date of
26
purchase, without the imposition of a sales charge. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of the Adviser, and its affiliates), acting on behalf of customers having a qualified trust or an investment account or relationship at such institution, and bear no Distribution or Shareholder Services Plan fees. Class Y shares are sold at net asset value per share generally to institutional investors, and bear no Distribution or Shareholder Services Plan fees. Class I and Class Y shares are offered without a front-end sales charge or CDSC. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs, and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-Investment Companies. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown. The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in
27
NOTES TO FINANCIAL STATEMENTS (continued)
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 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
28
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 Company’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.
The following is a summary of the inputs used as of August 31, 2021 in valuing the fund’s investments:
Level 1-Unadjusted Quoted Prices | Level 2- Other Significant Observable Inputs | Level 3-Significant Unobservable Inputs | Total | |||
Assets ($) | ||||||
Investments In Securities:† | ||||||
Equity Securities - Common Stocks | 111,683,457 | - | - | 111,683,457 | ||
Investment Companies | 505,234 | - | - | 505,234 |
† See Statement of Investments for additional detailed categorizations, if any.
(b) 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 August 31, 2021, if any, are disclosed in the fund’s Statement of Assets and Liabilities.
29
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.
Pursuant to a securities lending agreement with The Bank of New York Mellon, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Adviser, or U.S. Government and Agency securities. The fund is entitled to receive all dividends, interest and distributions on securities loaned, in addition to income earned as a result of the lending transaction. Should a borrower fail to return the securities in a timely manner, The Bank of New York Mellon is required to replace the securities for the benefit of the fund or credit the fund with the market value of the unreturned securities and is subrogated to the fund’s rights against the borrower and the collateral. Additionally, the contractual maturity of security lending transactions are on an overnight and continuous basis. During the period ended August 31, 2021, The Bank of New York Mellon earned $1,568 from the lending of the fund’s portfolio securities, pursuant to the securities lending agreement.
(d) Affiliated issuers: Investments in other investment companies advised by the Adviser are considered “affiliated” under the Act.
(e) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies worldwide. Recent examples include pandemic risks related to COVID-19
30
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.
(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 August 31, 2021, 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 August 31, 2021, the fund did not incur any interest or penalties.
Each tax year in the four-year period ended August 31, 2021 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At August 31, 2021, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $4,187,937, undistributed capital gains $14,655,460 and unrealized appreciation $23,649,848.
The tax character of distributions paid to shareholders during the fiscal periods ended August 31, 2021 and August 31, 2020 were as follows: ordinary income $500,193 and $595,743, and long-term capital gains $0 and $5,166,205, respectively.
31
NOTES TO FINANCIAL STATEMENTS (continued)
During the period ended August 31, 2021, as a result of permanent book to tax differences, primarily due to the tax treatment for treating a portion of the proceeds from redemptions as a distribution for tax purposes, the fund decreased total distributable earning (loss) by $1,480,260, and increased paid-in capital by the same amount. Net assets and net asset value per share were not affected by this reclassification.
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. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended August 31, 2021, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Adviser, the management fee is computed at the annual rate of .75% of the value of the fund’s average daily net assets and is payable monthly. The Adviser, has contractually agreed, from September, 1, 2020 through December 31, 2021, to waive receipt of its fees and/or assume the direct expenses of the fund, so that direct expenses of none of the classes (excluding Rule 12b-1 Distribution Plan fees, Shareholder Services Plan fees, taxes, interest expense, brokerage commissions, commitment fees on borrowings and extraordinary expenses) exceed .90% of the fund’s average daily net assets. On or after December 31, 2021, the Adviser may terminate this expense limitation agreement at any time. The reduction in expenses, pursuant to the undertaking, amounted to $349,963 during the period ended August 31, 2021.
32
Prior to the Effective Date, pursuant to a sub-investment advisory agreement between the Adviser and Mellon, the Adviser paid Mellon a monthly fee based upon the value of the fund’s average daily net assets, computed at the following annual rates. Effective as of the Effective Date, pursuant to a sub-investment advisory agreement between the Adviser and Newton US, the Adviser pays Newton US a monthly fee based upon the value of the fund's average daily net assets, computed at the following annual rates:
Average Net Assets
0 up to $100 million .25%
$100 million up to $1 billion .20%
$1 billion up to $1.5 billion .16%
In excess of $1.5 billion .10%
During the period ended August 31, 2021, the Distributor retained $561 from commissions earned on sales of the fund’s Class A shares and $77 from CDSC fees on redemptions of the fund’s Class C shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of its average daily net assets. The Distributor may pay one or more Service Agents in respect of advertising, marketing and other distribution services, and determines the amounts, if any, to be paid to Service Agents and the basis on which such payments are made. During the period ended August 31, 2021, Class C shares were charged $20,709 pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended August 31, 2021, Class A and Class C shares were charged $183,317 and $6,903, respectively, 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
33
NOTES TO FINANCIAL STATEMENTS (continued)
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 August 31, 2021, the fund was charged $29,024 for transfer agency services, inclusive of earnings credit, if any. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended August 31, 2021, the fund was charged $42,020 pursuant to the custody agreement.
During the period ended August 31, 2021, the fund was charged $14,319 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 $71,040, Distribution Plan fees of $1,526, Shareholder Services Plan fees of $17,184, custodian fees of $10,000, Chief Compliance Officer fees of $6,286 and transfer agency fees of $3,925, which are offset against an expense reimbursement currently in effect in the amount of $35,434.
(d) Each Board member also serves as a Board member of other funds in the BNY Mellon Family of Funds complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended August 31, 2021, amounted to $90,894,157 and $114,624,395, respectively.
34
At August 31, 2021, the cost of investments for federal income tax purposes was $88,538,843; accordingly, accumulated net unrealized appreciation on investments was $23,649,848, consisting of $25,151,935 gross unrealized appreciation and $1,502,087 gross unrealized depreciation.
NOTE 5—Plan of Reorganization:
The Board of Company and the shareholder of the fund have approved an Agreement and Plan of Reorganization (the “Agreement”) between the Company, on behalf of the fund, and BNY Mellon Investment Funds I, on behalf of BNY Mellon Small/Mid Cap Growth Fund (the “Acquiring Fund”). The Agreement provides for the transfer of the fund’s assets to the Acquiring Fund in a tax-free exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the fund’s stated liabilities, the distribution of such shares of the Acquiring Fund to fund shareholders and the subsequent termination of the fund as a series of the Company (the “Reorganization”). It is currently anticipated that the Reorganization will occur on or about November 5, 2021. As of the end of the reporting period, reorganization costs were estimated to be approximately $240,000 and paid by the fund.
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of BNY Mellon Structured Midcap Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of BNY Mellon Structured Midcap Fund (the “Fund”) (one of the funds constituting BNY Mellon Advantage Funds, Inc.), including the statements of investments and investments in affiliated issuers, as of August 31, 2021, 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 (one of the funds constituting BNY Mellon Advantage Funds, Inc.) at August 31, 2021, 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 August 31, 2021, 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
October 22, 2021
36
IMPORTANT TAX INFORMATION (Unaudited)
For federal tax purposes, the fund hereby reports 97.92% of the ordinary dividends paid during the fiscal year ended August 31, 2021 as qualifying for the corporate dividends received deduction. Also certain dividends paid by the fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the distributions paid during the fiscal year, $489,794 represents the maximum amount that may be considered qualified dividend income. Shareholders will receive notification in early 2022 of the percentage applicable to the preparation of their 2021 income tax returns.
37
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Directors held on March 8-9, 2021 (the “15(c) Meeting”), 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 Mellon Investments Corporation (“Mellon” or the “Subadviser”) provides day-to-day management of the fund’s investments. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of the fund (the “Independent Directors”), 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 15(c) 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 (1) the performance of the fund’s Class I shares with the performance of a group of institutional small-cap core funds selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all
38
retail and institutional small-cap core funds (the “Performance Universe”), all for various periods ended December 31, 2020, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of all institutional small-cap core funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser and the Subadviser the results of the comparisons and considered that the fund’s total return performance was above the Performance Group median for the one-, four- and ten-year periods (ranking in the first quartile in the one- and ten-year periods), and below the median for the two-, three- and five-year periods, and below the Performance Universe median for all periods, except the ten-year period when it was above the median. It was noted that the fund’s performance ranked in the third quartile of the Performance Group or Performance Universe in nearly all periods when performance was below median. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index, and it was noted that the fund’s returns were above the returns of the index in five of the ten calendar years shown.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management 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, which included reductions for a fee waiver arrangement in place that reduced the investment advisory fee paid to the Adviser. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons.
The Board considered that the fund’s contractual management fee was lower than the Expense Group median contractual management fee, the fund’s actual management fee was lower than the Expense Group median and the Expense Universe median actual management fee and the fund’s total expenses were lower than the Expense Group median and Expense Universe median total expenses.
Representatives of the Adviser stated that the Adviser has contractually agreed, until December 31, 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 services fees, taxes, interest, brokerage commissions, commitment fees on
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
borrowings and extraordinary expenses) exceed 0.90% of the fund’s average daily net assets.
Representatives of the Adviser reviewed with the Board the management or investment advisory fees paid by funds advised or administered by the Adviser that are in the same Lipper category as the fund (the “Similar Funds”), and explained the nature of the Similar Funds. They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors. The Board considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness of the fund’s management fee. Representatives of the Adviser noted that there were no separate accounts and/or other types of client portfolios advised by the Adviser or the Subadviser that are considered to have similar investment strategies and policies as the fund.
The Board considered the fee payable to the Subadviser in relation to the fee payable 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 considered the expense limitation arrangement and its effect on the profitability of the Adviser and its affiliates. The Board also had been provided with information prepared by an independent consulting firm regarding the Adviser’s approach to allocating costs to, and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation of whether the fees under the Agreements, considered in relation to the mix of services provided by the Adviser and the 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 stated that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that the Adviser may have realized any economies of scale would be less. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the
40
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 Subadviser from acting as investment adviser and sub-investment adviser, respectively, and took into consideration the 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 agreed to closely monitor performance and determined to approve renewal of the Agreements only through September 30, 2021.
· 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, subject to review no later than the next renewal consideration.
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the 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
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
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 through September 30, 2021.
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At a meeting of the fund’s Board of Directors held on May 11, 2021 (the “Meeting”), the Board discussed with representatives of the Adviser plans to realign Mellon equities and multi-asset capabilities with Newton Investment Management North America, LLC (“Newton US”) (the “Firm Realignment”), with such realignment scheduled to occur, subject to regulatory requirements, in the third quarter of 2021 (the “Effective Date”). The Adviser noted that, as a result of the Firm Realignment, the portfolio managers who are currently responsible for managing the investments of the fund as employees of Mellon as a sub-investment adviser pursuant to a sub-investment advisory agreement with the Adviser (the “Current Sub-Advisory Agreement”), will become employees of Newton US as of the Effective Date. Consequently, the Adviser proposed to engage Newton US to serve as the fund’s sub-investment adviser, pursuant to a sub-investment advisory agreement between the Adviser and Newton US (the “New Sub-Advisory Agreement”), to be effective on the Effective Date. In addition, the Adviser proposed amending the fund’s current management agreement (the “Current Management Agreement”) to reflect the engagement of Newton US as sub-investment adviser to the fund (as proposed to be amended, the “Amended Management Agreement”), to be effective on the Effective Date.
At the Meeting, the Adviser recommended the approval of the New Sub-Advisory Agreement, pursuant to which Newton US would serve as sub-investment adviser to the fund, and the Amended Management Agreement. The recommendation for the approval of the New Sub-Advisory Agreement and the Amended Management Agreement was based on the following considerations, among others: (i) approval of the New Sub-Advisory Agreement and the Amended Management Agreement would permit the fund’s current portfolio managers to continue to be responsible for the day-to-day management of the fund’s portfolio after the Effective Date as employees of Newton US; (ii) there will be no material changes to the fund’s investment objective, strategies or policies, no reduction in the nature or level of services provided to the fund, and no increases in the management fee payable by the fund as a result of the proposed changes to the investment advisory arrangements; and (iii) the rate of the sub-investment advisory fee payable by the Adviser to Newton US under the New Sub-Advisory Agreement will be the same as that currently payable by the Adviser to Mellon under the Current Sub-Advisory Agreement and all material terms and conditions of the New Sub-Advisory Agreement are substantially identical to those of the Current Sub-Advisory Agreement, and the Adviser (and not the fund) will pay Newton US for its sub-investment advisory services. The Board also considered the fact that the Adviser stated that it believes there are no material changes to the information the Board had previously considered at the 15(c) Meeting, at which the Board re-approved the Current Sub-Advisory Agreement and the Current Management Agreement through September 30, 2021, other than the information about the Firm Realignment and Newton US.
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At the Meeting, the Board members considered and approved the New Sub-Advisory Agreement and the Amended Management Agreement. In determining whether to approve the New Sub-Advisory Agreement and the Amended Management Agreement, the Board considered the materials prepared by the Adviser received in advance of the Meeting and other information presented at the Meeting, which included: (i) a form of the New Sub-Advisory Agreement and a form of the Amended Management Agreement; (ii) information regarding the Firm Realignment and how it is expected to enhance investment capabilities; (iii) information regarding Newton US; and (iv) an opinion of counsel that the proposed changes to the investment advisory arrangements would not result in an “assignment” of the Current Sub-Advisory Agreement or the Current Management Agreement under the 1940 Act and the Investment Advisers Act of 1940, as amended, and, therefore, do not require the approval of fund shareholders. The Board also considered the substance of discussions with representatives of the Adviser at the Meeting and the 15(c) Meeting.
Nature, Extent and Quality of Services to be Provided. In examining the nature, extent and quality of the services that were expected to be provided by Newton US to the fund under the New Sub-Advisory Agreement, the Board considered: (i) Newton US’s organization, qualification and background, as well as the qualifications of its personnel; (ii) the expertise of the personnel providing portfolio management services, which would remain the same after the Effective Date; and (iii) the investment strategy for the fund, which would remain the same after the Effective Date. The Board also considered the review process undertaken by the Adviser and the Adviser’s favorable assessment of the nature and quality of the sub-investment advisory services expected to be provided to the fund by Newton US after the Effective Date. Based on their consideration and review of the foregoing information, the Board concluded that the nature, extent and quality of the sub-investment advisory services to be provided by Newton US under the New Sub-Advisory Agreement, as well as Newton US’s ability to render such services based on its resources and the experience of the investment team, which will include the fund’s current portfolio managers, were adequate and appropriate for the fund in light of the fund’s investment objective, and supported a decision to approve the New Sub-Advisory Agreement. The Board also considered, as it related to the Amended Management Agreement, that the nature, extent and quality of the services that are provided by the Adviser are expected to remain the same, including the Adviser’s extensive administrative, accounting and compliance infrastructures, as well as the Adviser’s supervisory activities over the fund’s portfolio management personnel.
Investment Performance. The Board had considered the fund’s investment performance and that of the investment team managing the fund’s portfolio at the 15(c) Meeting (including comparative data provided by Broadridge). The Board considered the performance and that the same investment professionals would continue to manage the fund’s assets after the Effective Date, as factors in evaluating the services to be provided by Newton US under the New Sub-Advisory Agreement after the Effective Date, and determined that these factors, when viewed together with the other factors considered by the Board, supported a decision to approve the New Sub-Advisory Agreement and the Amended Management Agreement.
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
Costs of Services to be Provided and Profitability. The Board considered the proposed fee payable under the New Sub-Advisory Agreement (which was the same as that payable under the Current Sub-Advisory Agreement and had been considered at the 15(c) Meeting), noting that the proposed fee would be paid by the Adviser and, thus, would not impact the fees paid by the fund or the Adviser’s profitability. The Board considered the fee payable to Newton US in relation to the fee paid to the Adviser by the fund and the respective services provided by Newton US and the Adviser. The Board recognized that, because Newton US’s fee would be paid by the Adviser, and not the fund, an analysis of profitability was more appropriate in the context of the Board’s consideration of the fund’s Current Management Agreement, and that the Board had received and considered a profitability analysis of the Adviser and its affiliates, including Newton US, at the 15(c) Meeting. The Board concluded that the proposed fee payable to Newton US by the Adviser was appropriate and the Adviser’s profitability was not excessive in light of the nature, extent and quality of the services to be provided to the fund by the Adviser under the Amended Management Agreement and Newton US under the New Sub-Advisory Agreement.
Economies of Scale to be Realized. The Board recognized that, because the fee payable to Newton US would continue to be paid by the Adviser, and not the fund, an analysis of economies of scale was more appropriate in the context of the Board’s consideration of the Current Management Agreement, which had been done at the 15(c) Meeting. At the 15(c) Meeting, 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 Current Management Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board also considered whether there were any ancillary benefits that would accrue to Newton US as a result of its relationship with the fund, and such ancillary benefits, if any, were determined to be reasonable.
In considering the materials and information described above, the Independent Directors received assistance from, and met separately with, their independent legal counsel, and were provided with a written description of their statutory responsibilities and the legal standards that are applicable to the approval of investment advisory and sub-investment advisory agreements.
After full consideration of the factors discussed above, with no single factor identified as being of paramount importance, the Board members, all of whom are Independent Directors, with the assistance of independent legal counsel, approved the New Sub-Advisory Agreement and Amended Management Agreement for the fund effective as of the Effective Date.
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At a meeting of the fund’s Board of Directors held on August 17, 2021, the Board considered the renewal of the fund’s Management Agreement pursuant to which the
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Adviser provides the fund with investment advisory and administrative services (the “Agreement”), and the Sub-Investment Advisory Agreement (together, the “Agreements”), pursuant to which Mellon Investments Corporation (the “Subadviser”) provides day-to-day management of the fund’s investments. The Board members, none of whom are Independent Directors, 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.
The Board noted that, at a Board meeting in May 2021, the Adviser had recommended, and the Board had unanimously approved, a proposal to reorganize the fund into the BNY Mellon Small/Mid Cap Growth Fund and that a meeting of fund shareholders was scheduled for August 23, 2021 for the purpose of voting on the proposal.
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board reviewed reports prepared by Broadridge, which included information comparing (1) the performance of the fund’s Class I shares with the performance of a group of institutional small-cap core and small-cap value funds selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all retail and institutional small-cap core funds (the “Performance Universe”), all for various periods ended June 30, 2021, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
in the Performance Group (the “Expense Group”) and with a broader group of all institutional small-cap core funds and small-cap value funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser and the Subadviser the results of the comparisons and considered that the fund’s total return performance was below the Performance Group and Performance Universe medians for all periods except the two- and ten-year periods when performance was above the Performance Group medians. It was noted that the fund’s performance ranked in the third quartile of the Performance Group in nearly all periods when performance was below median and in the third quartile of the Performance Universe in the majority of the periods. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index, and it was noted that the fund’s returns were above the returns of the index in five of the ten calendar years shown.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management 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, which included reductions for a fee waiver arrangement in place that reduced the management fee paid to the Adviser. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons.
The Board considered that the fund’s contractual management fee was lower than the Expense Group median contractual management fee, the fund’s actual management fee was lower than the Expense Group median and Expense Universe median actual management fee and the fund’s total expenses were lower than the Expense Group median and Expense Universe median total expenses.
Representatives of the Adviser stated that the Adviser has contractually agreed, until December 31, 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 services fees, taxes, interest, brokerage commissions, commitment fees on borrowings and extraordinary expenses) exceed 0.90% of the fund’s average daily net assets.
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Representatives of the Adviser reviewed with the Board the management or investment advisory fees paid by funds advised or administered by the Adviser that are in the same Lipper category as the fund (the “Similar Funds”), and explained the nature of the Similar Funds. They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors. The Board considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness of the fund’s management fee. Representatives of the Adviser noted that there were no separate accounts and/or other types of client portfolios advised by the Adviser or the Subadviser that are considered to have similar investment strategies and policies as the fund.
The Board considered the fee payable to the Subadviser in relation to the fee payable 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 considered the expense limitation arrangement and its effect on the profitability of the Adviser and its affiliates. The Board also had been provided with information prepared by an independent consulting firm regarding the Adviser’s approach to allocating costs to, and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation of whether the fees under the Agreements, considered in relation to the mix of services provided by the Adviser and the 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 Subadviser from acting as investment adviser and sub-investment adviser, respectively,
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
and took into consideration the 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 reviewed the fund’s performance, but noted the pending proposal for the fund to be reorganized into the BNY Mellon Small/Mid Cap Growth Fund as discussed above.
· 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 for the remainder of the one-year term.
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LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)
Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.
The rule requires the fund to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.
The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.
Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the Board. Furthermore, the Board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.
Assessment of Program
In the opinion of the Program Administrator, the Program approved by the Board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.
During the period from January 1, 2020 to December 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.
Under normal expected foreseeable fund redemption forecasts and foreseeable stressed fund redemption forecasts, the Program Administrator believes that the fund maintains sufficient highly liquid assets to meet expected fund redemptions.
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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: 97
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Peggy C. Davis (78)
Board Member (2006)
Principal Occupation During Past 5 Years:
· Shad Professor of Law, New York University School of Law (1983-Present)
No. of Portfolios for which Board Member Serves: 35
———————
Gina D. France (63)
Board Member (2019)
Principal Occupation During Past 5 Years:
· France Strategic Partners, a strategy and advisory firm serving corporate clients across the United States, Founder, President and Chief Executive Officer (2003-Present)
Other Public Company Board Memberships During Past 5 Years:
· Huntington Bancshares, a bank holding company headquartered in Columbus, Ohio, Director (2016-Present)
· Cedar Fair, L.P., a publicly-traded partnership that owns and operates amusement parks and hotels in the U.S. and Canada, Director (2011-Present)
· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (2015-Present)
· FirstMerit Corporation, a diversified financial services company, Director (2004-2016)
No. of Portfolios for which Board Member Serves: 25
———————
Joan Gulley (73)
Board Member (2017)
Principal Occupation During Past 5 Years:
· Nantucket Atheneum, public library, Chair (2018-June 2021) and Director (2015-June 2021)
· Orchard Island Club, golf and beach club, Governor (2016-Present)
No. of Portfolios for which Board Member Serves: 43
———————
50
Robin A. Melvin (57)
Board Member (2012)
Principal Occupation During Past 5 Years:
· Westover School, a private girls’ boarding school in Middlebury, Connecticut, Trustee (2019-Present)
· Mentor Illinois, a non-profit organization dedicated to increasing the quality of mentoring services in Illinois. Co-Chair (2014–2020); Board Member, Mentor Illinois (2013-2020)
· JDRF, a non-profit juvenile diabetes research foundation, Board Member (June 2021-Present)
Other Public Company Board Memberships During Past 5 Years:
· HPS Corporate Lending Fund, a closed-end management investment company regulated as a business development company, Trustee (August 2021-Present)
No. of Portfolios for which Board Member Serves: 76
———————
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.
David P. Feldman, Emeritus Board Member
Ehud Houminer, Emeritus Board Member
Lynn Martin, Emeritus Board Member
Dr. Martin Peretz, Emeritus Board Member
Philip L. Toia, Emeritus Board Member
51
OFFICERS OF THE FUND (Unaudited)
DAVID DIPETRILLO, President since January 2021.
Vice President and Director of the Adviser since February 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; He is an officer of 56 investment companies (comprised of 106 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 43 years old and has been an employee of BNY Mellon since 2005.
JAMES WINDELS, Treasurer since November 2001.
Vice President of the Adviser since September 2020, Director-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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.
PETER M. SULLIVAN, Chief Legal Officer since July 2021 and Vice President and Assistant Secretary since March 2019.
Chief Legal Officer of the Adviser since July 2021, Associate General Counsel of BNY Mellon since July 2021; Senior Managing Counsel of BNY Mellon from December 2020 to July 2021; Managing Counsel of BNY Mellon from March 2009 to December 2020, and an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of BNY Mellon since April 2004.
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 57 investment companies (comprised of 128 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 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. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 31 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 57 investment companies (comprised of 128 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 57 investment companies (comprised of 128 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 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 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of the Adviser since June 2019.
52
NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.
Chief Compliance Officer (since August 2021) and Vice President and Assistant Secretary (since February 2020) of BNY Mellon ETF Investment Adviser, LLC; Chief Compliance Officer (since August 2021) and Vice President (since February 2020) of BNY Mellon ETF Trust; Managing Counsel (December 2019 to August 2021) and Counsel (May 2016 to December 2019) of BNY Mellon; Assistant Secretary of the Adviser from April 2018 to August 2021. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of BNY Mellon since May 2016.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 April 1991.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 June 1989.
ROBERT SVAGNA, Assistant Treasurer since December 2002.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since 2004, CCO of the Adviser from 2004 until June 2021 (56 investment companies, comprised of 119 portfolios). He is 64 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. She is an officer of 50 investment companies (comprised of 121 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 53 years old and has been an employee of the Distributor since 1997.
53
BNY Mellon Structured Midcap Fund
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
North America, LLC
BNY Mellon Center
201 Washington Place
Boston, MA 02108
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
BNY Mellon Transfer, Inc.
240 Greenwich Street
New York, NY 10286
Distributor
BNY Mellon Securities Corporation
240 Greenwich Street
New York, NY 10286
Ticker Symbols: | Class A: DPSAX Class C: DPSCX Class I: DPSRX Class Y: DPSYX |
Telephone Call your financial representative or 1-800-373-9387
Mail The BNY Mellon Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
E-mail Send your request to info@bnymellon.com
Internet Information can be viewed online or downloaded at www.im.bnymellon.com
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2021 BNY Mellon Securities Corporation |
BNY Mellon Technology Growth Fund
ANNUAL REPORT August 31, 2021 |
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.im.bnymellon.com and sign up for eCommunications. It’s simple and only takes a few minutes. |
The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds. |
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value |
Contents
THE FUND
FOR MORE INFORMATION
Back Cover
DISCUSSION OF FUND PERFORMANCE (Unaudited)
For the period from September 1, 2020 through August 31, 2021, as provided by Erik Swords, and Justin Sumner, CFA, Portfolio Managers.
Market and Fund Performance Overview
For the 12-month period ended August 31, 2021, BNY Mellon Technology Growth Fund’s Class A shares produced a total return of 25.06%, Class C shares returned 24.07%, Class I shares returned 25.33% and Class Y shares returned 25.43%.1 In comparison, the fund’s benchmarks, the NYSE® Technology Index and the S&P 500® Index, produced total returns of 32.58% and 31.16%, respectively, over the same period.2,3
Equities gained ground as the economy continued to recover, and COVID-19 vaccines were approved. The fund underperformed the NYSE® Technology Index and S&P 500® Index primarily due to overweight positions in industries that lagged the benchmark and to a need to reduce exposure to a high performing stock. Certain other stock selections also detracted from returns.
The Fund’s Investment Approach
The fund seeks capital appreciation. To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in the stocks of growth companies of any size that BNY Mellon Investment Adviser, Inc. believes to be leading producers or beneficiaries of technological innovation. Up to 25% of the fund’s assets may be invested in foreign securities. In choosing stocks, the fund looks for technology companies with the potential for strong earnings or revenue growth rates. The fund’s investment process centers on a multidimensional approach that looks for opportunities across emerging growth, cyclical or stable growth companies.
Technology Stocks Produced Strong Returns
During the reporting period, the market continued to benefit from strong demand for technology stocks resulting from the COVID-19 pandemic and government shutdown programs. Prior to the reporting period, the pandemic generated strong demand for products and services in a wide range of technology segments, including artificial intelligence, blockchain (a digital ledger of transactions across a computer network), connectivity, cloud computing and the Internet of Things (the interconnection via the internet of computing devices embedded in everyday objects).
The pandemic, in effect, made certain trends, such as e-commerce and working from home, a permanent feature of the economy, bringing demand forward. Now, with these new products and services in place, demand for them and related products and services has persisted even as the pandemic has eased.
With the approval of multiple COVID-19 vaccines late in 2020, performance in the market broadened, and more cyclically oriented stocks began to perform better, and this persisted into 2021. Returns were supported by interest rates, which remained low, while the stimulus package approved by Congress continued to bolster consumers, small businesses and the economy generally.
Concerns about restrictions on semiconductor manufacturing in China also weighed on the performance of certain sectors, such as semiconductor capital equipment. But the effect of the restrictions proved to be more benign than feared. In addition, government stimulus programs to assist in the local manufacturing of semiconductors also benefitted this sector.
Long-term interest rates rose early in 2021 in response to inflation concerns, and this produced some volatility. A pullback occurred among some growth-oriented stocks that had elevated valuations. While this hindered some technology stocks, others that are more cyclical benefitted.
Stock Selections Drove Performance
Returns were hindered by certain allocations and stock selections. The fund’s performance was hindered primarily by an overweight to the software and services industry, which lagged, and by an
2
underweight position in the semiconductor capital equipment industry, which performed better than expected. The performance of software industry shares was hurt by a market rotation to more traditional, cyclical and value-oriented stocks that occurred when the COVID-19 vaccines were approved, and it became clear the economy would begin to return to normal. In the semiconductor capital equipment industry, the restrictions placed on sales to Chinese companies were less harmful than expected. In addition, semiconductor capital equipment companies benefitted as the United States and other governments began to put in place programs that would bolster the production of semiconductors outside of China.
The fund’s position in Tesla was also a detractor from returns, but this was due largely to its strong performance, which necessitated trimming the holding to avoid concentrating too much of the fund in one stock. As a result of this trimming, the fund’s position in Tesla was much smaller than the stock’s share of the Index, causing the fund’s performance to lag as Tesla’s stock price continued to rise. While the holding contributed positively to performance on an absolute basis, it detracted from performance on a relative basis.
On a more positive note, the fund’s performance was helped by a variety of positions. Underweight positions in Chinese internet companies were beneficial, as these shares largely underperformed due to concerns about government actions and future regulations. Shares of Snap, a social media company, contributed positively to returns as the company continued to accelerate its ad revenues. The fund’s positions in the fintech space were also advantageous, including its holding of Square, a payments processor. In the semiconductor industry, NVIDIA performed well, as it continues to gain from its exposure to artificial intelligence, gaming and accelerated computing. Similarly, shares of Marvell Technology Group, which specializes in networking products, added to returns.
Long-Term Trends in Technology Should Continue
The pandemic accelerated many long-term technological trends that had been driving the performance of technology companies. We believe that even as the pandemic wanes, all businesses will find it increasingly necessary to accelerate the digital transformation of their operations, and trends such as the internet of things, electric vehicles, data analytics and 5G telecommunications will continue to drive demand. More broadly, these technologies are infiltrating all industries worldwide, suggesting that a strong pace of growth will continue.
September 15, 2021
1 DUE TO RECENT MARKET VOLATILITY, CURRENT PERFORMANCE MAY BE DIFFERENT THAN THE FIGURES SHOWN. Total return includes reinvestment of dividends and any capital gains paid and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Past performance is no guarantee of future results. Share price, yield and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost.
2 Source: Bloomberg L.P. — The NYSE® Technology Index is an equal-dollar-weighted index designed to objectively represent the technology sector by holding 35 of the leading U.S. technology-related companies. Investors cannot invest directly in any index.
3 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.
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.
The technology sector has been among the most volatile sectors of the stock market. Technology companies involve greater risk because their revenue and/or earnings tend to be less predictable, and some companies may be experiencing significant losses.
Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others. To the extent the fund may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase the fund’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.
3
FUND PERFORMANCE (Unaudited)
Comparison of change in value of a $10,000 investment in Class A shares, Class C shares and Class I shares of BNY Mellon Technology Growth Fund with a hypothetical investment of $10,000 in the NYSE® Technology Index and S&P 500® Index.
† Source: Bloomberg L.P.
†† Source: Lipper Inc.
Past performance is not predictive of future performance.
The above graph compares a hypothetical $10,000 investment made in each of the Class A shares, Class C shares and Class I shares of BNY Mellon Technology Growth Fund on 8/31/11 to a hypothetical investment of $10,000 made in each of the NYSE® Technology Index and S&P 500® Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account the maximum initial sales charge on Class A shares and all other applicable fees and expenses on Class A shares, Class C shares and Class I shares. The NYSE® Technology Index is an equal-dollar weighted index designed to objectively represent the technology sector by holding 35 of the leading U.S. technology-related companies. 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. Unlike a mutual fund, the indices are 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.
4
Comparison of change in value of a $1,000,000 investment in Class Y shares of BNY Mellon Technology Growth Fund with a hypothetical investment of $1,000,000 in the NYSE® Technology Index and S&P 500® Index.
† Source: Bloomberg L.P.
†† Source: Lipper Inc.
††† The total return figures presented for Class Y shares of the fund reflect the performance of the fund’s Class I shares for the period prior to 9/30/16 (the inception date for Class Y shares).
Past performance is not predictive of future performance.
The above graph compares a hypothetical $1,000,000 investment made in Class Y shares of BNY Mellon Technology Growth Fund on 8/31/11 to a hypothetical investment of $1,000,000 made in each of the NYSE® Technology Index and S&P 500® Index on that date. All dividends and capital gain distributions are reinvested.
The fund’s performance shown in the line graph above takes into account all applicable fees and expenses on Class Y shares. The NYSE® Technology Index is an equal-dollar weighted index designed to objectively represent the technology sector by holding 35 of the leading U.S. technology-related companies. 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. Unlike a mutual fund, the indices are 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 8/31/2021 | ||||
Inception Date | 1 Year | 5 Years | 10 Years | |
Class A shares | ||||
with maximum sales charge (5.75%) | 10/13/1997 | 17.87% | 25.90% | 19.47% |
without sales charge | 10/13/1997 | 25.06% | 27.40% | 20.17% |
Class C shares | ||||
with applicable redemption charge† | 4/15/1999 | 23.07% | 26.43% | 19.23% |
without redemption | 4/15/1999 | 24.07% | 26.43% | 19.23% |
Class I shares | 4/15/1999 | 25.33% | 27.70% | 20.48% |
Class Y shares | 9/30/2016 | 25.43% | 27.83%†† | 20.54%†† |
NYSE® Technology Index | 32.58% | 30.83% | 23.44% | |
S&P 500® Index | 31.16% | 18.01% | 16.33% |
† The maximum contingent deferred sales charge for Class C shares is 1% for shares redeemed within one year of the date of purchase.
†† The total return performance figures presented for Class Y shares of the fund reflect the performance of the fund’s Class I shares for the period prior to 9/30/16 (the inception date for Class Y shares).
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 performance shown in the graphs and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. In addition to the performance of Class A shares shown with and without a maximum sales charge, the fund’s performance shown in the table takes into account all other applicable fees and expenses on all classes.
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) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in BNY Mellon Technology Growth Fund from March 1, 2021 to August 31, 2021. 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 August 31, 2021 |
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| Class A | Class C | Class I | Class Y |
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Expenses paid per $1,000† | $6.04 | $10.26 | $4.93 | $4.46 |
| |
Ending value (after expenses) | $1,103.10 | $1,098.60 | $1,104.30 | $1,104.80 |
|
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (“SEC”) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment |
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Assuming a hypothetical 5% annualized return for the six months ended August 31, 2021 |
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| Class A | Class C | Class I | Class Y |
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Expenses paid per $1,000† | $5.80 | $9.86 | $4.74 | $4.28 |
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Ending value (after expenses) | $1,019.46 | $1,015.43 | $1,020.52 | $1,020.97 |
| |
† | Expenses are equal to the fund’s annualized expense ratio of 1.14% for Class A, 1.94% for Class C, .93% for Class I and .84% for Class Y, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
7
STATEMENT OF INVESTMENTS
August 31, 2021
Description | Shares | Value ($) | |||||
Common Stocks - 97.5% | |||||||
Application Software - 12.0% | |||||||
Adobe | 24,987 | a | 16,583,872 | ||||
Datadog, Cl. A | 52,775 | a,b | 7,272,395 | ||||
HubSpot | 9,671 | a | 6,619,509 | ||||
salesforce.com | 72,223 | a | 19,158,595 | ||||
Zoom Video Communications, CI. A | 39,827 | a | 11,529,916 | ||||
61,164,287 | |||||||
Automobile Manufacturers - 2.1% | |||||||
Tesla | 14,627 | a | 10,761,376 | ||||
Communications Equipment - 1.7% | |||||||
Nokia, ADR | 1,435,425 | a | 8,555,133 | ||||
Data Processing & Outsourced Services - 5.6% | |||||||
PayPal Holdings | 33,862 | a | 9,774,605 | ||||
Square, Cl. A | 33,092 | a,b | 8,870,972 | ||||
Visa, Cl. A | 42,576 | b | 9,754,162 | ||||
28,399,739 | |||||||
Holding Companies-Divers - 1.3% | |||||||
Figure Acquisition | 538,856 | a | 5,399,337 | ||||
Ribbit LEAP | 142,489 | a | 1,467,637 | ||||
6,866,974 | |||||||
Interactive Home Entertainment - 1.0% | |||||||
ROBLOX, CI. A | 62,258 | a,b | 5,108,269 | ||||
Interactive Media & Services - 13.1% | |||||||
Alphabet, Cl. C | 7,585 | a | 22,066,585 | ||||
Facebook, Cl. A | 60,094 | a | 22,798,462 | ||||
Pinterest, Cl. A | 44,700 | a | 2,483,979 | ||||
Snap, Cl. A | 251,715 | a | 19,158,029 | ||||
66,507,055 | |||||||
Internet & Direct Marketing Research - 8.2% | |||||||
Amazon.com | 4,760 | a | 16,520,960 | ||||
JD.com, ADR | 133,716 | a | 10,504,729 | ||||
MercadoLibre | 7,803 | a | 14,571,712 | ||||
41,597,401 | |||||||
Internet Services & Infrastructure - 5.3% | |||||||
Shopify, Cl. A | 7,232 | a | 11,027,209 | ||||
Snowflake, Cl. A | 30,970 | a | 9,425,719 | ||||
Twilio, Cl. A | 18,447 | a | 6,584,841 | ||||
27,037,769 | |||||||
Movies & Entertainment - .7% | |||||||
Roku | 10,131 | a | 3,570,164 | ||||
Semiconductor Equipment - 7.9% | |||||||
Applied Materials | 129,639 | 17,518,118 |
8
Description | Shares | Value ($) | |||||
Common Stocks - 97.5% (continued) | |||||||
Semiconductor Equipment - 7.9% (continued) | |||||||
Lam Research | 37,219 | 22,510,796 | |||||
40,028,914 | |||||||
Semiconductors - 23.2% | |||||||
Diodes | 55,645 | a | 5,388,105 | ||||
Marvell Technology | 267,379 | 16,360,921 | |||||
Microchip Technology | 67,874 | 10,680,653 | |||||
Micron Technology | 87,847 | 6,474,324 | |||||
NVIDIA | 125,295 | 28,047,286 | |||||
NXP Semiconductors | 40,845 | 8,786,985 | |||||
Qualcomm | 128,408 | 18,836,170 | |||||
Taiwan Semiconductor Manufacturing, ADR | 196,596 | 23,396,890 | |||||
117,971,334 | |||||||
Systems Software - 8.8% | |||||||
CrowdStrike Holdings, CI. A | 32,890 | a | 9,242,090 | ||||
Microsoft | 57,854 | 17,464,966 | |||||
ServiceNow | 28,368 | a | 18,258,780 | ||||
44,965,836 | |||||||
Technology Hardware, Storage & Equipment - 4.5% | |||||||
Apple | 152,691 | 23,183,075 | |||||
Trucking - 2.1% | |||||||
Uber Technologies | 273,544 | a | 10,706,512 | ||||
Total Common Stocks (cost $271,550,066) | 496,423,838 | ||||||
Private Equity - .5% | |||||||
Software - .5% | |||||||
Databricks | 10,628 | c | 2,342,968 |
9
STATEMENT OF INVESTMENTS (continued)
Description | 1-Day | Shares | Value ($) | ||||
Investment Companies - 2.1% | |||||||
Registered Investment Companies - 2.1% | |||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 0.06 | 10,798,404 | d | 10,798,404 | |||
Total Investments (cost $284,691,438) | 100.1% | 509,565,210 | |||||
Liabilities, Less Cash and Receivables | (.1%) | (624,263) | |||||
Net Assets | 100.0% | 508,940,947 |
ADR—American Depository Receipt
a Non-income producing security.
b Security, or portion thereof, on loan. At August 31, 2021, the value of the fund’s securities on loan was $29,528,762 and the value of the collateral was $30,273,847, consisting of U.S. Government & Agency securities.
c The fund held Level 3 securities at August 31, 2021. These securities were valued at $2,342,968 or .46% of net assets.
d Investment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.
Portfolio Summary (Unaudited) † | Value (%) |
Information Technology | 69.0 |
Communication Services | 14.8 |
Consumer Discretionary | 10.3 |
Investment Companies | 2.1 |
Industrials | 2.1 |
Diversified | 1.3 |
Technology | .5 |
100.1 |
† Based on net assets.
See notes to financial statements.
10
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS
Investment Companies | Value | Purchases ($)† | Sales ($) | Value | Net | Dividends/ |
Registered Investment Companies; | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Class | 10,242,835 | 111,165,007 | (110,609,438) | 10,798,404 | 2.1 | 5,386 |
Investment of Cash Collateral for Securities Loaned:†† | ||||||
Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares | 4,698,453 | 20,885,269 | (25,583,722) | - | - | - |
Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares | - | 45,857,914 | (45,857,914) | - | - | 25,557††† |
Total | 14,941,288 | 177,908,190 | (182,051,074) | 10,798,404 | 2.1 | 30,943 |
† Includes reinvested dividends/distributions.
†† Effective November 9, 2020, cash collateral for securities lending was transferred from Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares to Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares.
††† Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.
See notes to financial statements.
11
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2021
|
|
|
|
|
|
|
|
|
| Cost |
| Value |
|
Assets ($): |
|
|
|
| ||
Investments in securities—See Statement of Investments |
|
|
| |||
Unaffiliated issuers | 273,893,034 |
| 498,766,806 |
| ||
Affiliated issuers |
| 10,798,404 |
| 10,798,404 |
| |
Cash denominated in foreign currency |
|
| 46,345 |
| 46,638 |
|
Receivable for shares of Common Stock subscribed |
| 149,943 |
| |||
Dividends and securities lending income receivable |
| 108,559 |
| |||
Prepaid expenses |
|
|
|
| 50,576 |
|
|
|
|
|
| 509,920,926 |
|
Liabilities ($): |
|
|
|
| ||
Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(c) |
| 441,240 |
| |||
Payable for shares of Common Stock redeemed |
| 419,470 |
| |||
Directors’ fees and expenses payable |
| 5,797 |
| |||
Other accrued expenses |
|
|
|
| 113,472 |
|
|
|
|
|
| 979,979 |
|
Net Assets ($) |
|
| 508,940,947 |
| ||
Composition of Net Assets ($): |
|
|
|
| ||
Paid-in capital |
|
|
|
| 204,014,626 |
|
Total distributable earnings (loss) |
|
|
|
| 304,926,321 |
|
Net Assets ($) |
|
| 508,940,947 |
|
Net Asset Value Per Share | Class A | Class C | Class I | Class Y |
|
Net Assets ($) | 462,897,147 | 5,532,815 | 40,112,068 | 398,917 |
|
Shares Outstanding | 6,306,866 | 123,178 | 463,127 | 4,574 |
|
Net Asset Value Per Share ($) | 73.40 | 44.92 | 86.61 | 87.21 |
|
|
|
|
|
|
|
See notes to financial statements. |
|
|
|
|
|
12
STATEMENT OF OPERATIONS
Year Ended August 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income ($): |
|
|
|
| ||
Income: |
|
|
|
| ||
Cash dividends (net of $95,983 foreign taxes withheld at source): |
| |||||
Unaffiliated issuers |
|
| 1,374,130 |
| ||
Affiliated issuers |
|
| 5,386 |
| ||
Income from securities lending—Note 1(c) |
|
| 25,557 |
| ||
Total Income |
|
| 1,405,073 |
| ||
Expenses: |
|
|
|
| ||
Management fee—Note 3(a) |
|
| 3,457,350 |
| ||
Shareholder servicing costs—Note 3(c) |
|
| 1,429,405 |
| ||
Professional fees |
|
| 108,026 |
| ||
Registration fees |
|
| 68,899 |
| ||
Prospectus and shareholders’ reports |
|
| 66,091 |
| ||
Distribution fees—Note 3(b) |
|
| 47,149 |
| ||
Directors’ fees and expenses—Note 3(d) |
|
| 29,168 |
| ||
Custodian fees—Note 3(c) |
|
| 18,584 |
| ||
Loan commitment fees—Note 2 |
|
| 18,196 |
| ||
Chief Compliance Officer fees—Note 3(c) |
|
| 14,319 |
| ||
Miscellaneous |
|
| 22,648 |
| ||
Total Expenses |
|
| 5,279,835 |
| ||
Investment (Loss)—Net |
|
| (3,874,762) |
| ||
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |
|
| ||||
Net realized gain (loss) on investments and foreign currency transactions | 93,006,161 |
| ||||
Net realized gain (loss) on forward foreign currency exchange contracts | (365) |
| ||||
Net Realized Gain (Loss) |
|
| 93,005,796 |
| ||
Net change in unrealized appreciation (depreciation) on investments | 14,639,401 |
| ||||
Net Realized and Unrealized Gain (Loss) on Investments |
|
| 107,645,197 |
| ||
Net Increase in Net Assets Resulting from Operations |
| 103,770,435 |
| |||
|
|
|
|
|
|
|
See notes to financial statements. |
13
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Operations ($): |
|
|
|
|
|
|
|
| |
Investment (loss)—net |
|
| (3,874,762) |
|
|
| (868,317) |
| |
Net realized gain (loss) on investments |
| 93,005,796 |
|
|
| 22,462,955 |
| ||
Net change in unrealized appreciation |
| 14,639,401 |
|
|
| 153,013,846 |
| ||
Net Increase (Decrease) in Net Assets | 103,770,435 |
|
|
| 174,608,484 |
| |||
Distributions ($): |
| ||||||||
Distributions to shareholders: |
|
|
|
|
|
|
|
| |
Class A |
|
| (22,761,811) |
|
|
| (39,504,163) |
| |
Class C |
|
| (606,583) |
|
|
| (1,756,487) |
| |
Class I |
|
| (1,615,487) |
|
|
| (2,647,199) |
| |
Class Y |
|
| (16,077) |
|
|
| (22,507) |
| |
Total Distributions |
|
| (24,999,958) |
|
|
| (43,930,356) |
| |
Capital Stock Transactions ($): |
| ||||||||
Net proceeds from shares sold: |
|
|
|
|
|
|
|
| |
Class A |
|
| 23,783,218 |
|
|
| 20,794,708 |
| |
Class C |
|
| 841,821 |
|
|
| 904,566 |
| |
Class I |
|
| 15,003,209 |
|
|
| 7,311,730 |
| |
Class Y |
|
| - |
|
|
| 29,250 |
| |
Distributions reinvested: |
|
|
|
|
|
|
|
| |
Class A |
|
| 20,884,849 |
|
|
| 36,473,417 |
| |
Class C |
|
| 598,396 |
|
|
| 1,442,943 |
| |
Class I |
|
| 1,577,915 |
|
|
| 2,584,614 |
| |
Class Y |
|
| 15,280 |
|
|
| 21,032 |
| |
Cost of shares redeemed: |
|
|
|
|
|
|
|
| |
Class A |
|
| (45,834,633) |
|
|
| (47,818,771) |
| |
Class C |
|
| (4,206,089) |
|
|
| (5,482,762) |
| |
Class I |
|
| (11,470,025) |
|
|
| (13,475,812) |
| |
Increase (Decrease) in Net Assets | 1,193,941 |
|
|
| 2,784,915 |
| |||
Total Increase (Decrease) in Net Assets | 79,964,418 |
|
|
| 133,463,043 |
| |||
Net Assets ($): |
| ||||||||
Beginning of Period |
|
| 428,976,529 |
|
|
| 295,513,486 |
| |
End of Period |
|
| 508,940,947 |
|
|
| 428,976,529 |
|
14
|
|
|
| Year Ended August 31, | |||||
|
|
|
| 2021 |
| 2020 |
| ||
Capital Share Transactions (Shares): |
| ||||||||
Class Aa,b |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 366,719 |
|
|
| 466,068 |
| |
Shares issued for distributions reinvested |
|
| 326,888 |
|
|
| 963,121 |
| |
Shares redeemed |
|
| (705,564) |
|
|
| (1,126,535) |
| |
Net Increase (Decrease) in Shares Outstanding | (11,957) |
|
|
| 302,654 |
| |||
Class Cb |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 20,641 |
|
|
| 33,024 |
| |
Shares issued for distributions reinvested |
|
| 15,215 |
|
|
| 59,406 |
| |
Shares redeemed |
|
| (104,060) |
|
|
| (187,940) |
| |
Net Increase (Decrease) in Shares Outstanding | (68,204) |
|
|
| (95,510) |
| |||
Class Ia |
|
|
|
|
|
|
|
| |
Shares sold |
|
| 197,587 |
|
|
| 139,490 |
| |
Shares issued for distributions reinvested |
|
| 20,963 |
|
|
| 58,539 |
| |
Shares redeemed |
|
| (153,833) |
|
|
| (268,118) |
| |
Net Increase (Decrease) in Shares Outstanding | 64,717 |
|
|
| (70,089) |
| |||
Class Y |
|
|
|
|
|
|
|
| |
Shares sold |
|
| - |
|
|
| 595 |
| |
Shares issued for distributions reinvested |
|
| 201 |
|
|
| 474 |
| |
Net Increase (Decrease) in Shares Outstanding | 201 |
|
|
| 1,069 |
| |||
|
|
|
|
|
|
|
|
|
|
a | During the period ended August 31, 2020, 1,831 Class A shares representing $97,980 were exchanged for 1,574 Class I shares. | ||||||||
b | During the period ended August 31, 2021, 7,003 Class C shares representing $273,943 were automatically converted to 4,393 Class A shares and during the period ended August 31, 2020, 1,354 Class C shares representing $39,993 were automatically converted to 938 Class A shares. | ||||||||
See notes to financial statements. |
15
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. These figures have been derived from the fund’s financial statements.
Year Ended August 31, | ||||||
Class A Shares | 2021 | 2020 | 2019 | 2018 | 2017 | |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 62.07 | 43.75 | 59.03 | 49.66 | 42.56 | |
Investment Operations: | ||||||
Investment (loss)—neta | (.56) | (.12) | (.07) | (.18) | (.18) | |
Net realized and unrealized | 15.57 | 25.25 | (3.93) | 14.40 | 11.13 | |
Total from Investment Operations | 15.01 | 25.13 | (4.00) | 14.22 | 10.95 | |
Distributions: | ||||||
Dividends from net realized | (3.68) | (6.81) | (11.28) | (4.85) | (3.85) | |
Net asset value, end of period | 73.40 | 62.07 | 43.75 | 59.03 | 49.66 | |
Total Return (%)b | 25.06 | 67.36 | (4.38) | 30.67 | 28.34 | |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | 1.15 | 1.20 | 1.20 | 1.22 | 1.26 | |
Ratio of net investment (loss) | (.85) | (.28) | (.15) | (.34) | (.40) | |
Portfolio Turnover Rate | 54.26 | 70.24 | 69.92 | 49.14 | 58.27 | |
Net Assets, end of period ($ x 1,000) | 462,897 | 392,204 | 263,227 | 310,110 | 246,693 |
a Based on average shares outstanding.
b Exclusive of sales charge.
See notes to financial statements.
16
Year Ended August 31, | ||||||
Class C Shares | 2021 | 2020 | 2019 | 2018 | 2017 | |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 39.59 | 30.51 | 45.44 | 39.52 | 34.92 | |
Investment Operations: | ||||||
Investment (loss)—neta | (.65) | (.30) | (.29) | (.47) | (.43) | |
Net realized and unrealized | 9.66 | 16.19 | (3.36) | 11.24 | 8.88 | |
Total from Investment Operations | 9.01 | 15.89 | (3.65) | 10.77 | 8.45 | |
Distributions: | ||||||
Dividends from net realized | (3.68) | (6.81) | (11.28) | (4.85) | (3.85) | |
Net asset value, end of period | 44.92 | 39.59 | 30.51 | 45.44 | 39.52 | |
Total Return (%)b | 24.07 | 66.16 | (5.10) | 29.74 | 27.30 | |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | 1.94 | 1.96 | 1.92 | 1.96 | 2.07 | |
Ratio of net investment (loss) | (1.64) | (1.03) | (.88) | (1.14) | (1.21) | |
Portfolio Turnover Rate | 54.26 | 70.24 | 69.92 | 49.14 | 58.27 | |
Net Assets, end of period ($ x 1,000) | 5,533 | 7,576 | 8,754 | 13,692 | 24,060 |
a Based on average shares outstanding.
b Exclusive of sales charge.
See notes to financial statements.
17
FINANCIAL HIGHLIGHTS (continued)
Year Ended August 31, | ||||||
Class I Shares | 2021 | 2020 | 2019 | 2018 | 2017 | |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 72.48 | 49.88 | 65.30 | 54.34 | 46.09 | |
Investment Operations: | ||||||
Investment income (loss)—neta | (.49) | (.03) | .04 | (.07) | (.06) | |
Net realized and unrealized | 18.30 | 29.44 | (4.18) | 15.88 | 12.16 | |
Total from Investment Operations | 17.81 | 29.41 | (4.14) | 15.81 | 12.10 | |
Distributions: | ||||||
Dividends from net realized | (3.68) | (6.81) | (11.28) | (4.85) | (3.85) | |
Net asset value, end of period | 86.61 | 72.48 | 49.88 | 65.30 | 54.34 | |
Total Return (%) | 25.33 | 67.73 | (4.16) | 30.97 | 28.69 | |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | .93 | .98 | .96 | .99 | 1.00 | |
Ratio of net investment | (.62) | (.05) | .08 | (.11) | (.13) | |
Portfolio Turnover Rate | 54.26 | 70.24 | 69.92 | 49.14 | 58.27 | |
Net Assets, end of period ($ x 1,000) | 40,112 | 28,877 | 23,367 | 34,742 | 19,572 |
a Based on average shares outstanding.
See notes to financial statements.
18
Year Ended August 31, | ||||||
Class Y Shares | 2021 | 2020 | 2019 | 2018 | 2017a | |
Per Share Data ($): | ||||||
Net asset value, beginning of period | 72.90 | 50.08 | 65.48 | 54.40 | 46.16 | |
Investment Operations: | ||||||
Investment income (loss)—netb | (.43) | .03 | .14 | .01 | .00c | |
Net realized and unrealized | 18.42 | 29.60 | (4.26) | 15.92 | 12.09 | |
Total from Investment Operations | 17.99 | 29.63 | (4.12) | 15.93 | 12.09 | |
Distributions: | ||||||
Dividends from net realized | (3.68) | (6.81) | (11.28) | (4.85) | (3.85) | |
Net asset value, end of period | 87.21 | 72.90 | 50.08 | 65.48 | 54.40 | |
Total Return (%) | 25.43 | 67.91 | (4.11) | 31.16 | 28.63d | |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | .85 | .88 | .89 | .85 | .89e | |
Ratio of net investment income | (.55) | .05 | .26 | .02 | .01e | |
Portfolio Turnover Rate | 54.26 | 70.24 | 69.92 | 49.14 | 58.27 | |
Net Assets, end of period ($ x 1,000) | 399 | 319 | 165 | 14 | 12 |
a From September 30, 2016 (commencement of initial offering) to August 31, 2017.
b Based on average shares outstanding.
c Amount represents less than $.01 per share.
d Not annualized.
e Annualized.
See notes to financial statements.
19
NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
BNY Mellon Technology Growth Fund (the “fund”) is a separate diversified series of BNY Mellon Advantage Funds, Inc. (the “Company”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering nine series, including the fund. The fund’s investment objective is to seek 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. Effective September 1, 2021 (the “Effective Date”), the Adviser has engaged its affiliate, Newton Investment Management North America, LLC (“Newton US”) as the fund’s sub-investment adviser pursuant to a sub-investment advisory agreement between the Adviser and Newton US. As the fund’s sub-adviser, Newton US provides the day-to-day management of the fund’s investments, subject to the Adviser’s supervision and approval. The Adviser (and not the fund) pays Newton US for its sub-advisory services. As of the Effective Date, portfolio managers responsible for managing the fund’s investments who were employees of Mellon Investments Corporation (“Mellon”) in a dual employment arrangement with the Adviser, have become employees of Newton US and are no longer employees of Mellon.
BNY Mellon Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Adviser, is the distributor of the fund’s shares. The fund is authorized to issue 700 million shares of $.001 par value Common Stock. The fund currently has authorized four classes of shares: Class A (200 million shares authorized), Class C (100 million shares authorized), Class I (250 million shares authorized), and Class Y (150 million shares authorized). Class A and Class C shares are sold primarily to retail investors through financial intermediaries and bear Distribution and/or Shareholder Services Plan fees. Class A shares generally are subject to a sales charge imposed at the time of purchase. Class A shares bought without an initial sales charge as part of an investment of $1 million or more may be charged a contingent deferred sales charge (“CDSC”) of 1.00% if redeemed within one year. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class C shares automatically convert to Class A shares eight years after the date of purchase, without the imposition of a sales charge. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon
20
and an affiliate of the Adviser, and its affiliates), acting on behalf of customers having a qualified trust or an investment account or relationship at such institution, and bear no Distribution or Shareholder Services Plan fees. Class Y shares are sold at net asset value per share generally to institutional investors, and bear no Distribution or Shareholder Services Plan fees. Class I and Class Y shares are offered without a front-end sales charge or CDSC. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-Investment Companies. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown. The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
21
NOTES TO FINANCIAL STATEMENTS (continued)
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 value. All of the preceding securities are generally categorized within Level 1 of the fair value hierarchy.
Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices. These securities are generally categorized within Level 2 of the fair value hierarchy.
Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and
22
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 Company’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.
Investment in private equity securities will be fair valued by the Board in accordance with valuation procedures approved by the Board. Those portfolio valuations will be based on unobservable inputs and certain assumptions about how market participants would price the instrument. The fund expects that inputs into the determination of fair value of those investments will require significant management judgment or estimation. Because valuations may fluctuate over short periods of time and may be based on estimates, fair value determinations may differ materially from the value received in an actual transaction. Additionally, valuations of private companies are inherently uncertain. The fund’s net asset value could be adversely affected if the fund’s determinations regarding the fair value of those investments were materially higher or lower than the values that it ultimately realized upon the disposal of such investments. These securities are categorized within level 3 of the fair value hierarchy.
Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange.
The following is a summary of the inputs used as of August 31, 2021 in valuing the fund’s investments:
23
NOTES TO FINANCIAL STATEMENTS (continued)
Level 1-Unadjusted Quoted Prices | Level 2- Other Significant Observable Inputs | Level 3-Significant Unobservable Inputs | Total | |||
Assets ($) | ||||||
Investments In Securities:† | ||||||
Equity Securities - Common Stocks | 496,423,838 | - | - | 496,423,838 | ||
Equity Securities - Private Equity | - | - | 2,342,968 | 2,342,968 | ||
Investment Companies | 10,798,404 | - | - | 10,798,404 |
† See Statement of Investments for additional detailed categorizations, if any.
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Equity Securities-Private Equity ($) | |
Balance as of 8/31/2020 | - |
Realized Gain (Loss) | - |
Change in unrealized appreciation (depreciation) | - |
Purchases/Issuances | 2,342,968 |
Sales/Dispositions | - |
Transfers into Level 3 | - |
Transfers out of Level 3 | - |
Balances as of 8/31/2021† | 2,342,968 |
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to investments still held at 8/31/2021 | - |
† Securities deemed as Level 3 due to the lack of observable inputs by management assessment.
The following table summarizes the significant unobservable inputs the fund used to value its investment categorized within Level 3 as of August 31, 2021. In addition to the techniques and inputs noted in the table below, according to the fund’s valuation policy, other valuation techniques and methodologies when determining the fund’s fair value measurements may be used. The below table is not intended to be all-inclusive, but rather provide information on the significant unobservable inputs as they are to the fund’s determination of fair values.
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Asset Category | Value ($) | Valuation | Unobservable | Range | Weighted |
Private Equity | 2,342,968 | Recent | Recent | 220.45 | 220.45 |
(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 August 31, 2021, if any, are disclosed in the fund’s Statement of Assets and Liabilities.
(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
Pursuant to a securities lending agreement with The Bank of New York Mellon, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at
25
NOTES TO FINANCIAL STATEMENTS (continued)
least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Adviser, or U.S. Government and Agency securities. The fund is entitled to receive all dividends, interest and distributions on securities loaned, in addition to income earned as a result of the lending transaction. Should a borrower fail to return the securities in a timely manner, The Bank of New York Mellon is required to replace the securities for the benefit of the fund or credit the fund with the market value of the unreturned securities and is subrogated to the fund’s rights against the borrower and the collateral. Additionally, the contractual maturity of security lending transactions are on an overnight and continuous basis. During the period ended August 31, 2021, The Bank of New York Mellon earned $3,089 from the lending of the fund’s portfolio securities, pursuant to the securities lending agreement.
(d) Affiliated issuers: Investments in other investment companies advised by the Adviser are considered “affiliated” under the Act.
(e) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies 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
26
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.
(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 August 31, 2021, 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 August 31, 2021, the fund did not incur any interest or penalties.
Each tax year in the four-year period ended August 31, 2021 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At August 31, 2021, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $32,094,665, undistributed capital gains $48,508,853 and unrealized appreciation $224,322,803.
The tax character of distributions paid to shareholders during the fiscal periods ended August 31, 2021 and August 31, 2020 were as follows: long-term capital gains $24,999,958 and $43,930,356.
During the period ended August 31, 2021, as a result of permanent book to tax differences, primarily due to the tax treatment for treating a portion of the proceeds from redemptions as a distribution for tax purposes, the fund decreased total distributable earnings (loss) by $5,675,916 and increased paid-in capital by the same amount. Net assets and net asset value per share were not affected by this reclassification.
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
27
NOTES TO FINANCIAL STATEMENTS (continued)
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. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended August 31, 2021, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Adviser, the management fee is computed at the annual rate of .75% of the value of the fund’s average daily net assets and is payable monthly.
Effective as of the Effective Date, pursuant to a sub-investment advisory agreement between the Adviser and Newton US, the Adviser pays Newton US a monthly fee at an annual rate of .36% of the value of the fund’s average daily net assets.
During the period ended August 31, 2021, the Distributor retained $22,720 from commissions earned on sales of the fund’s Class A shares and $1,119 from CDSC fees on redemptions of the fund’s Class C shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of its average daily net assets. The Distributor may pay one or more Service Agents in respect of advertising, marketing and other distribution services, and determines the amounts, if any, to be paid to Service Agents and the basis on which such payments are made. During the period ended August 31, 2021, Class C shares were charged $47,149 pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as
28
answering shareholder inquiries regarding the fund, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended August 31, 2021, Class A and Class C shares were charged $1,048,396 and $15,716, respectively, 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 August 31, 2021, the fund was charged $100,043 for transfer agency services, inclusive of earnings credit, if any. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended August 31, 2021, the fund was charged $18,584 pursuant to the custody agreement.
During the period ended August 31, 2021, the fund was charged $14,319 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 $318,042, Distribution Plan fees of $3,457, Shareholder Services
29
NOTES TO FINANCIAL STATEMENTS (continued)
Plan fees of $97,629, custodian fees of $4,000, Chief Compliance Officer fees of $6,286 and transfer agency fees of $11,826.
(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 foreign currency exchange contracts (“forward contracts”), during the period ended August 31, 2021, amounted to $245,285,198 and $273,262,346, 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 August 31, 2021 is discussed below.
Forward Foreign Currency Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions or as a part of its investment strategy. When executing forward contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward contracts, the fund incurs a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward contracts, the fund incurs a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates. Any realized or unrealized gains or losses which occurred during the period are reflected in the Statement of Operations. The fund is exposed to foreign currency risk as a result of changes in value of underlying financial instruments. The fund is also
30
exposed to credit risk associated with counterparty nonperformance on these forward contracts, which is generally limited to the unrealized gain on each open contract. This risk may be mitigated by Master Agreements, if any, between the fund and the counterparty and the posting of collateral, if any, by the counterparty to the fund to cover the fund’s exposure to the counterparty. At August 31, 2021, there were no forward contracts outstanding.
The following summarizes the average market value of derivatives outstanding during the period ended August 31, 2021:
|
| Average Market Value ($) |
Forward contracts |
| 15,792 |
At August 31, 2021, the cost of investments for federal income tax purposes was $285,242,700; accordingly, accumulated net unrealized appreciation on investments was $224,322,510, consisting of $232,833,489 gross unrealized appreciation and $8,510,979 gross unrealized depreciation.
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of BNY Mellon Technology Growth Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of BNY Mellon Technology Growth Fund (the “Fund”) (one of the funds constituting BNY Mellon Advantage Funds, Inc.), including the statements of investments and investments in affiliated issuers, as of August 31, 2021, 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 (one of the funds constituting BNY Mellon Advantage Funds, Inc.) at August 31, 2021, 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 August 31, 2021, 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
October 22, 2021
32
IMPORTANT TAX INFORMATION (Unaudited)
The fund hereby reports $3.6766 per share as a long-term capital gain distribution paid on December 8, 2020.
33
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Directors held on March 8-9, 2021 (the “15(c) Meeting”), the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”). The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of the fund (the “Independent Directors”), were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser. In considering the renewal of the Agreement, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the 15(c) 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. 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 (1) the performance of the fund’s Class I shares with the performance of a group of institutional science and technology funds selected by Broadridge as comparable to the fund (the “Performance Group”) and with a broader group of funds consisting of all retail and institutional science and technology funds (the “Performance Universe”), all for various periods ended December 31, 2020, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of
34
all institutional science and technology funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser the results of the comparisons and considered that the fund’s total return performance was at or above the Performance Group and the Performance Universe medians for all periods, except the two- and five-year periods when it was below the Performance Group median and the ten-year period when it was below the Performance Universe median. The Board considered the relative proximity of the fund’s performance to the Performance Group or Performance Universe medians in the periods when performance was below median. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management services provided by the Adviser. In addition, the Board reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons.
The Board considered that the fund’s contractual management fee was lower than the Expense Group median contractual management fee, the fund’s actual management fee was lower than the Expense Group median and Expense Universe median actual management fee and the fund’s total expenses were lower than the Expense Group median and approximately equal to the Expense Universe median total expenses.
Representatives of the Adviser noted that there were no other funds advised or administered by the Adviser that are in the same Lipper category as the fund or separate accounts and/or other types of client portfolios advised by the Adviser that are considered to have similar investment strategies and policies as the fund.
Analysis of Profitability and Economies of Scale. Representatives of the Adviser reviewed the expenses allocated and profit received by the Adviser and its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to the Adviser and its affiliates for managing the funds in the BNY Mellon fund complex, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not excessive, given the services rendered and service levels provided by the Adviser and its affiliates. The Board also
35
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
had been provided with information prepared by an independent consulting firm regarding the Adviser’s approach to allocating costs to, and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation of whether the fees under the Agreement, considered in relation to the mix of services provided by the Adviser, including the nature, extent and quality of such services, supported the renewal of the Agreement and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser from acting as investment adviser and took into consideration the soft dollar arrangements in effect for trading the fund’s investments.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of the services provided by the Adviser are adequate and appropriate.
· The Board was satisfied with the fund’s performance.
· The Board concluded that the fee paid to the Adviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.
· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates, of the Adviser and the services provided to the fund by the Adviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement,
36
including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreement for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreement.
***********************************************
At a meeting of the fund’s Board of Directors held on May 11, 2021 (the “Meeting”), the Board discussed with representatives of the Adviser plans to realign Mellon Investments Corporation’s (“Mellon”) equities and multi-asset capabilities with Newton Investment Management North America, LLC (“Newton US”) (the “Firm Realignment”), with such realignment scheduled to occur, subject to regulatory requirements, in the third quarter of 2021 (the “Effective Date”). The Adviser noted that, as a result of the Firm Realignment, the portfolio managers who are currently responsible for managing the investments of the fund as employees of Mellon in a dual employment arrangement with the Adviser, will become employees of Newton US as of the Effective Date. Consequently, the Adviser proposed to engage Newton US to serve as the fund’s sub-investment adviser, pursuant to a sub-investment advisory agreement between the Adviser and Newton US (the “New Sub-Advisory Agreement”), to be effective on the Effective Date. In addition, the Adviser proposed amending the fund’s current management agreement (the “Current Management Agreement”) to reflect the engagement of Newton US as sub-investment adviser to the fund (as proposed to be amended, the “Amended Management Agreement”), to be effective on the Effective Date.
At the Meeting, the Adviser recommended the approval of the New Sub-Advisory Agreement, pursuant to which Newton US would serve as sub-investment adviser to the fund, and the Amended Management Agreement. The recommendation for the approval of the New Sub-Advisory Agreement and the Amended Management Agreement was based on the following considerations, among others: (i) approval of the New Sub-Advisory Agreement and the Amended Management Agreement would permit the fund’s current portfolio managers to continue to be responsible for the day-to-day management of the fund’s portfolio after the Effective Date as employees of Newton US; (ii) there will be no material changes to the fund’s investment objective, strategies or policies, no reduction in the nature or level of services provided to the fund, and no increases in the management fee payable by the fund as a result of the proposed changes to the investment advisory arrangements; and (iii) the Adviser (and not the fund) will pay Newton US for its sub-investment advisory services. The Board also considered the fact that the Adviser stated that it believes there are no material
37
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND'S MANAGEMENT AGREEMENT AND APPROVAL OF SUB-INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
changes to the information the Board had previously considered at the 15(c) Meeting, at which the Board re-approved the Current Management Agreement for the ensuing year, other than the information about the Firm Realignment and Newton US.
At the Meeting, the Board members considered and approved the New Sub-Advisory Agreement and the Amended Management Agreement. In determining whether to approve the New Sub-Advisory Agreement and the Amended Management Agreement, the Board considered the materials prepared by the Adviser received in advance of the Meeting and other information presented at the Meeting, which included: (i) a form of the New Sub-Advisory Agreement and a form of the Amended Management Agreement; (ii) information regarding the Firm Realignment and how it is expected to enhance investment capabilities; (iii) information regarding Newton US; and (iv) an opinion of counsel that the proposed changes to the investment advisory arrangements would not result in an “assignment” of the Current Management Agreement under the 1940 Act and the Investment Advisers Act of 1940, as amended, and, therefore, do not require the approval of fund shareholders. The Board also considered the substance of discussions with representatives of the Adviser at the Meeting and the 15(c) Meeting.
Nature, Extent and Quality of Services to be Provided. In examining the nature, extent and quality of the services that were expected to be provided by Newton US to the fund under the New Sub-Advisory Agreement, the Board considered: (i) Newton US’s organization, qualification and background, as well as the qualifications of its personnel; (ii) the expertise of the personnel providing portfolio management services, which would remain the same after the Effective Date; and (iii) the investment strategy for the fund, which would remain the same after the Effective Date. The Board also considered the review process undertaken by the Adviser and the Adviser’s favorable assessment of the nature and quality of the sub-investment advisory services expected to be provided to the fund by Newton US after the Effective Date. Based on their consideration and review of the foregoing information, the Board concluded that the nature, extent and quality of the sub-investment advisory services to be provided by Newton US under the New Sub-Advisory Agreement, as well as Newton US’s ability to render such services based on its resources and the experience of the investment team, which will include the fund’s current portfolio managers, were adequate and appropriate for the fund in light of the fund’s investment objective, and supported a decision to approve the New Sub-Advisory Agreement. The Board also considered, as it related to the Amended Management Agreement, that the nature, extent and quality of the services that are provided by the Adviser are expected to remain the same, including the Adviser’s extensive administrative, accounting and compliance infrastructures, as well as the Adviser’s supervisory activities over the fund’s portfolio management personnel.
Investment Performance. The Board had considered the fund’s investment performance and that of the investment team managing the fund’s portfolio at the 15(c) Meeting (including comparative data provided by Broadridge Financial Solutions, Inc.). The Board considered the performance and that the same investment professionals would continue to manage the fund’s assets after the Effective Date, as factors in evaluating the services to be provided by Newton US under the New Sub-Advisory Agreement
38
after the Effective Date, and determined that these factors, when viewed together with the other factors considered by the Board, supported a decision to approve the New Sub-Advisory Agreement and the Amended Management Agreement.
Costs of Services to be Provided and Profitability. The Board considered the proposed fee payable under the New Sub-Advisory Agreement, noting that the proposed fee would be paid by the Adviser and, thus, would not impact the fees paid by the fund or the Adviser’s profitability. The Board considered the fee payable to Newton US in relation to the fee paid to the Adviser by the fund and the respective services provided by Newton US and the Adviser. The Board recognized that, because Newton US’s fee would be paid by the Adviser, and not the fund, an analysis of profitability was more appropriate in the context of the Board’s consideration of the fund’s Current Management Agreement, and that the Board had received and considered a profitability analysis of the Adviser and its affiliates, including Newton US, at the 15(c) Meeting. The Board concluded that the proposed fee payable to Newton US by the Adviser was appropriate and the Adviser’s profitability was not excessive in light of the nature, extent and quality of the services to be provided to the fund by the Adviser under the Amended Management Agreement and Newton US under the New Sub-Advisory Agreement.
Economies of Scale to be Realized. The Board recognized that, because the fee payable to Newton US would be paid by the Adviser, and not the fund, an analysis of economies of scale was more appropriate in the context of the Board’s consideration of the Current Management Agreement, which had been done at the 15(c) Meeting. At the 15(c) Meeting, 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 Current Management Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board also considered whether there were any ancillary benefits that would accrue to Newton US as a result of its relationship with the fund, and such ancillary benefits, if any, were determined to be reasonable.
In considering the materials and information described above, the Independent Directors received assistance from, and met separately with, their independent legal counsel, and were provided with a written description of their statutory responsibilities and the legal standards that are applicable to the approval of investment advisory and sub-investment advisory agreements.
After full consideration of the factors discussed above, with no single factor identified as being of paramount importance, the Board members, all of whom are Independent Directors, with the assistance of independent legal counsel, approved the New Sub-Advisory Agreement and Amended Management Agreement for the fund effective as of the Effective Date.
39
LIQUIDITY RISK MANAGEMENT PROGRAM (Unaudited)
Effective June 1, 2019, the fund adopted a liquidity risk management program (the “Liquidity Risk Management Program”) pursuant to the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended. Rule 22e-4 requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish liquidity risk management programs in order to effectively manage fund liquidity and shareholder redemptions. The rule is designed to mitigate the risk that a fund could not meet redemption requests without significantly diluting the interests of remaining investors.
The rule requires the fund to assess, manage and review their liquidity risk at least annually considering applicable factors such as investment strategy and liquidity during normal and foreseeable stressed conditions, including whether the strategy is appropriate for an open-end fund and whether the fund has a relatively concentrated portfolio or large positions in particular issuers. The fund must also assess its use of borrowings and derivatives, short-term and long-term cash flow projections in normal and stressed conditions, holdings of cash and cash equivalents, and borrowing arrangements and other funding sources.
The rule also requires the fund to classify its investments as highly liquid, moderately liquid, less liquid or illiquid based on the number of days the fund expects it would take to liquidate the investment, and to review these classifications at least monthly or more often under certain conditions. The periods range from three or fewer business days for a highly liquid investment to greater than seven calendar days for settlement of a less liquid investment. Illiquid investments are those a fund does not expect to be able to sell or dispose of within seven calendar days without significantly changing the market value. The fund is prohibited from acquiring an investment if, after the acquisition, its holdings of illiquid assets will exceed 15% of its net assets. In addition, if a fund permits redemptions in-kind, the rule requires the fund to establish redemption in-kind policies and procedures governing how and when it will engage in such redemptions.
Pursuant to the rule’s requirements, the Liquidity Risk Management Program has been reviewed and approved by the Board. Furthermore, the Board has received a written report prepared by the Program’s Administrator that addresses the operation of the Program, assesses its adequacy and effectiveness and describes any material changes made to the Program.
Assessment of Program
In the opinion of the Program Administrator, the Program approved by the Board continues to be adequate for the fund and the Program has been implemented effectively. The Program Administrator has monitored the fund’s liquidity risk and the liquidity classification of the securities held by the fund and has determined that the Program is operating effectively.
During the period from January 1, 2020 to December 31, 2020, there were no material changes to the Program and no material liquidity events that impacted the fund. During the period, the fund held sufficient highly liquid assets to meet fund redemptions.
Under normal expected foreseeable fund redemption forecasts and foreseeable stressed fund redemption forecasts, the Program Administrator believes that the fund maintains sufficient highly liquid assets to meet expected fund redemptions.
40
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: 97
———————
Peggy C. Davis (78)
Board Member (2006)
Principal Occupation During Past 5 Years:
· Shad Professor of Law, New York University School of Law (1983-Present)
No. of Portfolios for which Board Member Serves: 35
———————
Gina D. France (63)
Board Member (2019)
Principal Occupation During Past 5 Years:
· France Strategic Partners, a strategy and advisory firm serving corporate clients across the United States, Founder, President and Chief Executive Officer (2003-Present)
Other Public Company Board Memberships During Past 5 Years:
· Huntington Bancshares, a bank holding company headquartered in Columbus, Ohio, Director (2016-Present)
· Cedar Fair, L.P., a publicly-traded partnership that owns and operates amusement parks and hotels in the U.S. and Canada, Director (2011-Present)
· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (2015-Present)
· FirstMerit Corporation, a diversified financial services company, Director (2004-2016)
No. of Portfolios for which Board Member Serves: 25
———————
Joan Gulley (73)
Board Member (2017)
Principal Occupation During Past 5 Years:
· Nantucket Atheneum, public library, Chair (2018-June 2021) and Director (2015-June 2021)
· Orchard Island Club, golf and beach club, Governor (2016-Present)
No. of Portfolios for which Board Member Serves: 43
———————
41
BOARD MEMBERS INFORMATION (Unaudited) (continued)
INDEPENDENT BOARD MEMBERS (continued)
Robin A. Melvin (57)
Board Member (2012)
Principal Occupation During Past 5 Years:
· Westover School, a private girls’ boarding school in Middlebury, Connecticut, Trustee (2019-Present)
· Mentor Illinois, a non-profit organization dedicated to increasing the quality of mentoring services in Illinois. Co-Chair (2014–2020); Board Member, Mentor Illinois (2013-2020)
· JDRF, a non-profit juvenile diabetes research foundation, Board Member (June 2021-Present)
Other Public Company Board Memberships During Past 5 Years:
· HPS Corporate Lending Fund, a closed-end management investment company regulated as a business development company, Trustee (August 2021-Present)
No. of Portfolios for which Board Member Serves: 76
———————
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.
David P. Feldman, Emeritus Board Member
Ehud Houminer, Emeritus Board Member
Lynn Martin, Emeritus Board Member
Dr. Martin Peretz, Emeritus Board Member
Philip L. Toia, Emeritus Board Member
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OFFICERS OF THE FUND (Unaudited)
DAVID DIPETRILLO, President since January 2021.
Vice President and Director of the Adviser since February 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; He is an officer of 56 investment companies (comprised of 106 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 43 years old and has been an employee of BNY Mellon since 2005.
JAMES WINDELS, Treasurer since November 2001.
Vice President of the Adviser since September 2020, Director-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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.
PETER M. SULLIVAN, Chief Legal Officer since July 2021 and Vice President and Assistant Secretary since March 2019.
Chief Legal Officer of the Adviser since July 2021, Associate General Counsel of BNY Mellon since July 2021; Senior Managing Counsel of BNY Mellon from December 2020 to July 2021; Managing Counsel of BNY Mellon from March 2009 to December 2020, and an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of BNY Mellon since April 2004.
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 57 investment companies (comprised of 128 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 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. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 31 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 57 investment companies (comprised of 128 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 57 investment companies (comprised of 128 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 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 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of the Adviser since June 2019.
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OFFICERS OF THE FUND (Unaudited) (continued)
NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.
Chief Compliance Officer (since August 2021) and Vice President and Assistant Secretary (since February 2020) of BNY Mellon ETF Investment Adviser, LLC; Chief Compliance Officer (since August 2021) and Vice President (since February 2020) of BNY Mellon ETF Trust; Managing Counsel (December 2019 to August 2021) and Counsel (May 2016 to December 2019) of BNY Mellon; Assistant Secretary of the Adviser from April 2018 to August 2021. She is an officer of 57 investment companies (comprised of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 36 years old and has been an employee of BNY Mellon since May 2016.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager-BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 April 1991.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 June 1989.
ROBERT SVAGNA, Assistant Treasurer since December 2002.
Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 57 investment companies (comprised of 128 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 November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since 2004, CCO of the Adviser from 2004 until June 2021 (56 investment companies, comprised of 119 portfolios). He is 64 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. She is an officer of 50 investment companies (comprised of 121 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 53 years old and has been an employee of the Distributor since 1997.
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BNY Mellon Technology Growth Fund
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
North America, LLC
BNY Mellon Center
201 Washington Place
Boston, MA 02108
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
BNY Mellon Transfer, Inc.
240 Greenwich Street
New York, NY 10286
Distributor
BNY Mellon Securities Corporation
240 Greenwich Street
New York, NY 10286
Ticker Symbols: | Class A: DTGRX Class C: DTGCX Class I: DGVRX Class Y: DTEYX |
Telephone Call your financial representative or 1-800-373-9387
Mail The BNY Mellon Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
E-mail Send your request to info@bnymellon.com
Internet Information can be viewed online or downloaded at www.im.bnymellon.com
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
© 2021 BNY Mellon Securities Corporation |
FORM N-CSR
Item 1. Reports to Stockholders.
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 Gina France, 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"). Ms. France 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 $174,265 in 2020 and $174,265 in 2021.
(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 $35,333 in 2020 and $35,400 in 2021. 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 2020 and $0 in 2021.
(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 $13,078 in 2020 and $30,622 in 2021. 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 2020 and $0 in 2021.
(d) All Other Fees. The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2020 and $9,941 in 2021. 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 2020 and $0 in 2021.
(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 $671,818 in 2020 and $2,692,122 in 2021.
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 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 Advantage Funds, Inc.
By: /s/ David DiPetrillo
David DiPetrillo
President (Principal Executive Officer)
Date: October 20, 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: October 20, 2021
By: /s/ James Windels
James Windels
Treasurer (Principal Financial Officer)
Date: October 20, 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)