EAM
: Montie L. Weisenberger, Travis Prentice, Joshua Moss, Frank Hurst, Derek Gaertner,
Byron Roth and CR Financial Holdings, Inc.
Geneva
: Amy S. Croen, William A. Priebe, Michelle Picard, Kris Amborn,
William S. Priebe, Lindsay K. Priebe, Linda J. Priebe, William S. Priebe and Lindsay K. Priebe Living
Trust dated 01/27/06 (William S. Priebe and Lindsay K. Priebe, Trustees) and Priebe Living Trust dated
04/01/98 (William A. Priebe and Linda J. Priebe, Trustees)
Granite
: Geoffrey Edelstein, Robert Foran, Bradley Slocum, Gary Rolle', Joshua Shaskan,
Jeffrey Hoo, Edward Han, Peter Lopez, Douglas Morse, Richard Passafiume and Erik Rolle'
Hamon
:
Hugh Simon, Hamon Investment Holdings Limited, Hamon Investment Holdings Ltd., Simon Associates Ltd.
and The Hamon Investment Group Pte Limited; Hamon also is an affiliate of BNY Mellon
Iridian
: David L. Cohen, Harold
J. Levy, Jeffrey Elliott, Lane Steven Bucklan, Arovid Associates LLC, Alhero LLC and LLMD LLC
Kayne
: Stephen Rigali, Robert
Schwartzkopf, Jeannine Vanian, Douglas Foreman, Virtus Partners, Inc. and Virtus Investment Partners,
Inc. ("Virtus")
Lombardia
:
George Castro, Leslie Waite, Fernando Inzunza, Alvin Marley, Kelly Ko, Wendell Williams, Alvin Polit
and Lombardia Capital Partners, Inc.
Neuberger Berman
: Robert Conti, Joseph Amato, Bradley Tank, Jason
Ainsworth, James Dempsey, Neuberger Berman Holdings LLC, Lehman Brothers Holdings Inc., Neuberger Berman
Group LLC and NBSH Acquisition, LLC
Nicholas
: Catherine C. Somhegyi Nicholas, Arthur E. Nicholas and Nicholas
Investment Partners, LLC
Owl
Creek
: Jeffrey A. Altman, Daniel E. Krueger, Jeffrey F. Lee and Daniel J. Sapadin.
Perella
: Daniel J. Arbess,
Tarek F. Abdel-Meguid, Sandra M. Haas, Aaron F. Hood, Joseph R. Perella, Andrew N. Siegel, Perella Weinberg
Partners Capital Management GP LLC, Perella Weinberg Partners Group LP, Perella Weinberg Partners LLC,
PWP Group GP LLC, PWP MC LP and NoCo A L.P.
RHJ
:
Thomas McDowell, Carl Obeck, Thuong-Thao Buu-Hoan, Timothy Todaro and Cara Thome
Riverbridge
: Andrew Turner,
Mark A. Thompson, Rick Moulton, Jonathan Little, Richard Potter, Colin Sharp, Ernesto Bertarelli, Donata
Bertarelli, Northill US Holdings, Inc., Northill Jersey Holdings LP, Northill Capital (Jersey) LP, Northill
Capital Holdings Limited, Donata Bertarelli Northill Discretionary Trust, NCT Limited, Ernesto Bertarelli
Northill Discretionary Trust, Northill Purpose Trust, NC PT Limited, Landmark LP and LM (GP) Limited
Sarofim &
Co.
: Fayez S. Sarofim, Raye White, Christopher Sarofim and The Sarofim Group, Inc.
Sirios
: John F. Brennan, Jr.
and Sirios Associates, L.L.C.
TOBAM
:
David Bellaiche, Yves Choueifaty, Tristan A. Froidure, Maylis Lhotellier, Christophe Roehri, TOBAM Holding
Company and TOBEMP
TS&W
:
Horace Whitworth, Cheryl Mounce, Lawrence Gibson, Herbert Thomson, Frank Reichel, Lori Anderson, Jessica
Thompson, Aidan Riordan, Old Mutual (US) Holdings, Inc., OM Group (UK) Limited, Old Mutual plc and TS&W
Investment GP LLC
III-77
Union Point
:
The principal owner of Union Point Advisors, LLC is Christopher Aristides, who owns his interests indirectly
through one or more intermediate entities.
Walthausen
: John B. Walthausen
Portfolio
Allocation Manager
EACM, a wholly-owned subsidiary of BNY Mellon, has been engaged as the Portfolio Allocation
Manager for certain funds as described in the prospectus. EACM is responsible for evaluating and recommending
Sub-Advisers for these funds. It is expected that differences in investment returns among the portions
of a fund managed by different Sub-Advisers will cause the actual percentage of the fund's assets managed
by each Sub-Adviser to vary over time.
Portfolio Managers
and Portfolio Manager Compensation
See the prospectus to determine which portions of the information
provided below apply to your fund.
For funds other than money market funds, an Affiliated Entity or
the Sub-Adviser(s), as applicable, provide the funds with portfolio managers who are authorized by the
board to execute purchases and sales of securities. For the TBCAM Stock Funds, portfolio managers are
employed by the Manager. Portfolio managers are compensated by the company that employs them, and are
not compensated by the funds. Each fund's portfolio managers are listed in Part I of this SAI.
The
following provides information about the compensation policies for portfolio managers.
Alcentra
. Alcentra's compensation
arrangements include a fixed salary, discretionary cash bonus and a number of long term incentive plans
that are structured to align an employee's interest with the firm's longer term goals. Portfolio managers
are compensated in line with portfolio performance, rather than the growth of assets under management.
Other factors that may be taken into consideration include asset selection and trade execution and management
of portfolio risk.
ARX
.
A portfolio manager's cash compensation is comprised primarily of a market-based base salary and variable
incentives paid (biannually) from ARX's profits. The primary objectives of ARX's compensation structure
are to motivate and reward continued growth and profitability and to attract and retain high-performing
individuals. ARX evaluates portfolio managers not only for their direct performance results, but also
for their contribution to ARX.
CCM
.
Through Andrew Cupps' ownership of the firm, he participates directly in the revenue of the firm, which
is determined by the performance of the firm's accounts, including the relevant funds, and the assets
under management by the firm. He also is compensated with a base salary.
CenterSquare
. The portfolio
managers' compensation is comprised of a market-based salary and incentive compensation, including both
annual and long-term retention incentive awards. Portfolio managers' incentive opportunities are 100%
discretionary and are pre-established for each individual based upon competitive industry compensation
benchmarks.
In addition to annual incentives, portfolio managers also are eligible to participate
in CenterSquare's Long Term Incentive Cash Award Plan. This plan provides for an annual award, payable
to participants (generally to senior level executives) 50% in deferred cash and 50% in BNY Mellon Restricted
Stock. These awards have a three-year cliff vest, with the participant becoming 100% vested on the third
anniversary of the grant date, provided the employee remains an employee of the company. The deferred
cash portion is generally invested by CenterSquare in affiliated mutual funds.
EACM
. Employees at EACM, including
investment professionals (
e.g
.,
portfolio managers), generally receive two forms of compensation: a base salary and a discretionary annual
bonus (based on the firm's profitability and their performance). The discretionary bonus is based upon
an individual's overall performance, with as much emphasis (for the relevant personnel) on contribution
to the risk monitoring and quality control areas as there is on generating superior performance. Personal
performance and firm performance are roughly equally weighted. As part of
III-78
EACM's
retention plan for key management personnel, a portion of each annual bonus pool also is invested in
an offshore fund of hedge funds managed by EACM and vests over a period of three years.
EAM
. Portfolio managers
at EAM are paid a base salary in line with industry benchmarks and participate in EAM's revenue share
plan. Portfolio managers also are compensated by distribution of profits based on ownership.
Geneva
.
Total compensation for the portfolio management team, in which each member is a principal of the firm,
includes a base salary plus a fixed percentage of Geneva's profits based on ownership. Geneva believes
that its compensation plan allows for the portfolio management team to focus on delivering long-term
performance for its clients. Geneva also offers eligible employees the opportunity to participate in
a company sponsored 401(k) retirement plan.
Granite
.
Compensation of portfolio managers at Granite includes base compensation and revenue-based and
performance-based compensation for each team (Small Cap and Large Cap) and, if principals, a profits
interest in Granite. The overall compensation structure is reviewed annually for market competitiveness
with an objective of offering compensation structures in the top third as compared to industry peers.
Portfolio managers, and other key investment personnel, have membership interests in Granite and are
evaluated on an annual basis to determine additional allocations of membership interests. Such interests
entitle the members to distribution of profits as well as certain liquidity features. The interests
effectively vest over a determined time period so as to provide a retention incentive.
Hamon
. Portfolio manager compensation
is comprised of a market-based salary and an annual incentive plan. Under the annual incentive plan,
portfolio managers may receive a bonus of up to two times their annual salary, at the discretion of management.
In determining the amount of the bonus, significant consideration is given to the portfolio manager's
investment portfolio performance over a one-year period (weighted 75%) and a three-year period (weighted
25%) compared to peer groups and relevant indexes. Other factors considered are individual qualitative
performance, asset size and revenue growth of the product and funds managed by the portfolio manager.
Iridian
.
Iridian's compensation structure includes the following components: base salary, 401(k) retirement
plan, and annual bonus if warranted by the overall financial success of the firm. Bonuses are based
on performance.
Kayne
.
Kayne's compensation structure
includes a base salary, an incentive bonus opportunity and a benefits package.
Base Salary
. Kayne pays each of its portfolio managers
a fixed base salary, which is designed to be competitive in light of the individual's experience and
responsibilities. Kayne management uses compensation survey results of investment industry compensation
conducted by an independent third party in evaluating competitive market compensation for its investment
management professionals.
Incentive Bonus
.
Incentive bonus pools at Kayne are based upon individual firm profits and in some instances overall
Virtus profitability. Individual payments are assessed using comparisons of actual investment performance
with specific peer group or index measures established at the beginning of each calendar year. Performance
of a fund managed is measured over one-, three and five-year periods. Generally, an individual manager's
participation is based on the performance of the funds/accounts managed as weighted roughly by total
assets in each of these funds/accounts. In certain instances, comparison of portfolio risk factors to
peer or index risk factors, as well as achievement of qualitative goals, also may be components of the
individual payment potential. The short-term incentive payment is generally paid in cash, but a portion
may be made in Virtus Restricted Stock Units.
Other
Benefits
. Portfolio managers at Kayne also are eligible to participate in broad-based plans offered
generally to employees of Virtus and its affiliates, including 401(k), health and other employee benefit
plans. While portfolio manager compensation contains a performance component, this component is adjusted
by Kayne to reward investment personnel for managing within the stated framework and for not taking unnecessary
risk.
Lombardia
.
Lombardia's compensation packages for its portfolio managers are comprised of base salaries and performance
bonuses. For performance bonuses, each investment professional is evaluated by Lombardia's compensation
committee using a combination of quantitative and subjective factors. The quantitative weight is 65%
and the subjective weight is 35%. The quantitative measure is based on an internal attribution report
broken down
III-79
by
analyst and focused on stock selection. Given that each of Lombardia's products has a stock picking
strategy, Lombardia believes that this is the best measure of added value. Lombardia's compensation
committee then considers three factors: (i) new idea generation, (ii) teamwork and (iii) work ethic.
New idea generation is intended to capture the quality and frequency of new idea generation. This factor
credits or penalizes ideas that do not make it into the portfolios. Teamwork and work ethic will be
measured both within individual teams and across the organization. The compensation of Alvin W. Marley,
a 25% owner of the firm, also is based on overall firm profitability.
Mellon Capital
. The primary
objectives of the Mellon Capital compensation plans are to:
·
Motivate
and reward superior investment and business performance
·
Motivate
and reward continued growth and profitability
·
Attract
and retain high-performing individuals critical to the on-going success of Mellon Capital
·
Create an ownership mentality for all
plan participants
Cash compensation is comprised primarily of a market-based base salary and (variable)
incentives (cash and deferred). Base salary is determined by the employees' experience and performance
in the role, taking into account the ongoing compensation benchmark analyses. Base salary is generally
a fixed amount that may change as a result of an annual review, upon assumption of new duties, or when
a market adjustment of the position occurs. Funding for the Mellon Capital Annual and Long Term Incentive
Plan is through a pre-determined fixed percentage of overall Mellon Capital profitability. Therefore,
all bonus awards are based initially on Mellon Capital's financial performance. Annual incentive opportunities
are pre-established for each individual, expressed as a percentage of base salary ("target awards").
These targets are derived based on a review of competitive market data for each position annually.
Annual awards are determined by applying multiples to this target award. Awards are 100% discretionary.
Factors considered in awards include individual performance, team performance, investment performance
of the associated portfolio(s) (including both short and long term returns) and qualitative behavioral
factors. Other factors considered in determining the award are the asset size and revenue growth/retention
of the products managed (if applicable). Awards are paid partially in cash with the balance deferred
through the Long Term Incentive Plan.
Participants in the Long Term Incentive Plan have a high level of
accountability and a large impact on the success of the business due to the position's scope and overall
responsibility. This plan provides for an annual award, payable in cash after a three-year cliff vesting
period, as well as a grant of BNY Mellon Restricted Stock for senior level roles.
The same methodology described
above is used to determine portfolio manager compensation with respect to the management of mutual funds
and other accounts. Mutual fund portfolio managers are also eligible for the standard retirement benefits
and health and welfare benefits available to all Mellon Capital employees. Certain portfolio managers
may be eligible for additional retirement benefits under several supplemental retirement plans that Mellon
Capital provides to restore dollar-for-dollar the benefits of management employees that had been cut
back solely as a result of certain limits due to tax laws. These plans are structured to provide the
same retirement benefits as the standard retirement benefits. In addition, mutual fund portfolio managers
whose compensation exceeds certain limits may elect to defer a portion of their salary and/or bonus under
the BNY Mellon Deferred Compensation Plan for Employees.
Neuberger Berman
. Neuberger Berman's compensation
philosophy is one that focuses on rewarding performance and incentivizing its employees. Neuberger Berman
also is focused on creating a compensation process that is fair, transparent, and competitive with the
market. Compensation for portfolio managers is more heavily weighted on the variable portion of total
compensation and reflects individual performance, overall contribution to the team, collaboration with
colleagues across Neuberger Berman and, most importantly, overall investment performance. The bonus
for a portfolio manager is determined by using a formula which may or may not contain a discretionary
component. The discretionary component is determined on the basis of a variety of criteria including
investment performance (including the pre-tax three-year track record in order to emphasize long-term
performance), utilization of central resources (including research, sales and operations/support), business
building to further the longer term
III-80
sustainable
success of the investment team, effective team/people management and overall contribution to the success
of Neuberger Berman. In addition, compensation of portfolio managers at other comparable firms is considered,
with an eye toward remaining competitive with the market. The terms of long-term retention incentives
at Neuberger Berman are as follows:
Employee-Owned
Equity
. An integral part
of the management buyout of Neuberger Berman in 2009 was implementing an equity ownership structure which
embodies the importance of incentivizing and retaining key investment professionals. The senior portfolio
managers on the mutual fund teams are key shareholders in the equity ownership structure. On a yearly
basis over the subsequent five years, the equity ownership allocations will be re-evaluated and re-allocated
based on performance and other key metrics. A set percentage of employee equity and preferred stock
is subject to vesting.
Contingent Compensation
Plan
. Neuberger Berman also has established the Neuberger Berman Group Contingent Compensation
Plan pursuant to which a certain percentage of an employee's compensation is deemed contingent and vests
over a three-year period. Under the plan, most participating employees who are members of mutual fund
investment teams will receive a cash return on their contingent compensation with a portion of such return
being determined based on the team's investment performance, as well as the performance of a portfolio
of other investment funds managed by Neuberger Berman Group investment professionals.
Restrictive Covenants
. Portfolio managers who have received
equity interests have agreed to certain restrictive covenants, which impose obligations and restrictions
with respect to confidential information and employee and client solicitation.
Certain portfolio managers
may manage products other than mutual funds, such as high-net-worth separate accounts. For the management
of these accounts, a portfolio manager may generally receive a percentage of pre-tax revenue determined
on a monthly basis less certain deductions (
e.g.
,
a "finder's fee" or "referral fee" paid to a third party). The percentage of revenue a portfolio manager
receives will vary based on certain revenue thresholds.
Newton
. Portfolio manager compensation is primarily
comprised of a market-based salary, annual cash bonus and participation in the Newton Long Term Incentive
Plan. The level of variable compensation (annual cash bonus and Newton Long Term Incentive Plan) ranges
from 0% of base salary to in excess of 200% of base salary, depending upon corporate profits, team performance
and individual performance. The annual cash bonus is discretionary. Portfolio manager awards are heavily
weighted towards their investment performance relative to both benchmarks and peer comparisons and individual
qualitative performance. Awards also are reviewed against market data from industry compensation consultants
such as McLagan Partners to ensure comparability with competitors. The portfolio managers also are eligible
to participate, at the discretion of management, in the Newton Long Term Incentive Plan. This plan provides
for an annual cash award that vests after four years. The value of the award may change during the vesting
period based upon changes in Newton's operating income. Portfolio managers also are eligible to join
the BNY Mellon Group Personal Pension Plan. Employer contributions are invested in individual member
accounts. The value of the fund is not guaranteed and fluctuates based on market factors.
Nicholas
. Portfolio managers
are partners of the firm. Nicholas' compensation structure for its portfolio managers specifically aligns
their goals with that of Nicholas' clients, rewards investment performance and promotes teamwork through
their partnership in the firm. Portfolio managers typically receive a base salary and, as partners of
the firm, proportionately share in the aggregate profits of Nicholas. In addition to cash compensation,
portfolio managers receive a benefit package.
Owl Creek
. Partner compensation includes a base salary plus an allocation
of a partnership interest. Seventy percent of this allocation is available when earned, and the remaining
30% is invested in funds managed by Owl Creek, vesting 50% at the end of each of the following two 12-month
periods. Partners also receive a portion of the management fee allocation and are eligible for discretionary
bonuses. A significant amount of the principals' and other partners' investments in certain funds managed
by Owl Creek is invested through a deferred fee, which is locked up until 2017.
Perella
. Members of the investment
team are compensated primarily from the net revenues they generate. Individual compensation is determined
by the portfolio manager in conjunction with the head of Asset Management.
III-81
Generally,
investment team members are paid a base salary and a discretionary bonus that is dependent upon performance
and other factors. All partners are given an equity interest in the adviser.
RHJ
.
Compensation of portfolio managers at RHJ includes base
compensation and bonus. In addition, Messrs. Holtz and Lipsker participate in revenues generated by
the strategies they manage.
Riverbridge
.
Riverbridge has three levels of compensation for investment team members. Investment team members are
compensated with a base compensation believed to be industry competitive relative to their level of responsibility.
The second level of compensation is predicated on the overall performance of the investment team and
individual contributions to the team. The chief investment officer makes a qualitative evaluation of
the performance of the individual team member that contemplates contributions made for the current year
and considers contributions made during the course of the last several years. Evaluation factors include,
but are not limited to, the performance of the relevant funds and other accounts managed relative to
expectations for how those funds and accounts should have performed, given their objective, policies,
strategies and limitations, and the market environment during the measurement period. This performance
factor is not based on the value of assets held in the portfolio strategy. Additional factors considered
include quality of research conducted, contributions made to the overall betterment of the investment
team and contribution to the betterment of the firm. The actual variable compensation may be more or
less than the target amount, based on how well the individual satisfies the objectives stated above.
Multi-year time periods are used to evaluate the individual performance of investment team members.
Riverbridge stresses superior long-term performance and accordingly benchmarks portfolio managers' performance
against comparable peer managers and the appropriate strategy benchmark. The third level of compensation
is ownership in the firm. Riverbridge also has adopted a 401(k) Safe Harbor Plan that allows employees
to contribute the maximum amount allowed by law. Generally, all employees are eligible to participate
in the plan. Riverbridge matches annually the employee's contribution in an amount equal to 100% of
the elective deferrals up to 3% of each employee's compensation, and an additional 50% on deferrals on
the next 2% of each employee's compensation.
Sarofim & Co
. The portfolio managers are compensated
through (i) payment of a fixed annual salary and discretionary annual bonus that may be based on a number
of factors, including fund performance, the performance of other accounts and the overall performance
of Sarofim & Co. over various time frames, including one-year, two-year and three-year periods, and
(ii) the possible issuance of stock options and incentive stock options. The fixed annual salary amounts
and the discretionary annual bonus amounts constitute the largest component of the portfolio managers'
compensation, and these amounts are determined annually through a comprehensive review process pursuant
to which executive officers and the members of Sarofim & Co.'s board of directors review and consider
the accomplishments and development of each portfolio manager, especially with respect to those client
accounts involving the portfolio manager. A lesser component of the portfolio managers' compensation
results from the possible issuance of stock options and incentive stock options. Portfolio managers
are sometimes granted stock options and incentive stock options to acquire shares of the capital stock
of The Sarofim Group, Inc., the ultimate corporate parent of Sarofim & Co. The decisions as to whether
to issue such options and to whom the options are to be issued are made in conjunction with the annual
salary and bonus review process, and the options are issued pursuant to a stock option plan adopted by
The Sarofim Group, Inc. The options are not based on the particular performance or asset value of any
particular client account or of all client accounts as a group, but rather the performance and accomplishments
of the individual to whom the option is to be granted. There are various aspects of the review process
that are designed to provide objectivity, but, in the final analysis, the evaluation is a subjective
one that is based upon a collective overall assessment. There are, however, no specified formulas or
benchmarks tied to the particular performance or asset value of any particular client account or of all
client accounts as a group.
Sirios
. Investment professionals receive a fixed base salary and a
discretionary bonus based on individual and overall performance. In addition, senior investment professionals
may receive a percentage of the incentive fee paid by certain clients.
Standish
. The portfolio managers'
compensation is comprised primarily of a market-based salary and an incentive compensation plan (annual
and long-term). Funding for the Standish Incentive Plan is through a pre-determined fixed percentage
of overall company profitability. Therefore, all bonus awards are based initially on Standish's overall
performance as opposed to the performance of a single product or group. All investment professionals
are eligible to receive incentive awards. Cash awards are payable in the February month end pay of the
following year. Most of the awards granted have some portion deferred for three years in the form of
deferred cash, BNY Mellon
III-82
equity,
interests in investment vehicles (consisting of investments in a range of Standish products), or a combination
of the above. Individual awards for portfolio managers are discretionary, based on both individual and
multi-sector product risk adjusted performance relative to both benchmarks and peer comparisons over
one year, three year and five year periods. Also considered in determining individual awards are team
participation and general contributions to Standish. Individual objectives and goals are also established
at the beginning of each calendar year and are taken into account. Portfolio managers whose compensation
exceeds certain levels may elect to defer portions of their base salaries and/or incentive compensation
pursuant to BNY Mellon's Elective Deferred Compensation Plan.
TBCAM
. TBCAM's rewards program was designed to
be market competitive and align its compensation with the goals of its clients. This alignment is achieved
through an emphasis on deferred awards which incentivizes its investment personnel to focus on long-term
alpha generation. The following factors encompass its investment professional awards program: base
salary, annual cash bonus, long-term incentive plan, deferred cash, BNY Mellon restricted stock, TBCAM
restricted shares and a franchise dividend pool (
i.e
.,
if a team meets a pre-established contribution margin, any excess contribution is shared by the team
and TBCAM and is paid out in both cash and long-term incentives).
Incentive compensation awards are generally subject
to management discretion and pool funding availability. Funding for TBCAM annual and long-term incentive
plans is through a pre-determined fixed percentage of overall TBCAM profitability. Awards are paid in
cash on an annual basis; however, some portfolio managers may receive a portion of their annual incentive
award in deferred vehicles.
Awards for select senior portfolio managers are based on a two-stage model: an opportunity
range based on the current level of business and an assessment of long-term business value. A significant
portion of the opportunity awarded is structured and based upon the one-, three- and five-year (three-year
and five-year weighted more heavily) pre-tax performance of the portfolio manager's accounts relative
to the performance of the appropriate peer groups.
TOBAM
. The salary of each employee is determined
by his or her background and seniority in the firm. Bonuses are based on the contribution of the employee
to the firm's annual results. Once a year, after an individual performance review, the monthly salary
is revised, and bonuses are decided by the executive committee. All employees with at least six months
of seniority have the opportunity to become shareholders of the firm and, as such, are directly concerned
with the profits of the firm and the dividends distributed. All primary portfolio managers are shareholders
of TOBAM.
TS&W
. For each portfolio manager, TS&W's
compensation structure includes the following components: base salary, annual bonus, deferred profit
sharing and the ability to participate in a voluntary income deferral plan.
Base Salary
. Each portfolio manager is paid a fixed base salary, which varies among portfolio
managers depending on the experience and responsibilities of the portfolio manager as well as the strength
or weakness of the employment market at the time the portfolio manager is hired or upon any renewal period
.
Bonus
. Each portfolio manager is eligible to receive an annual bonus.
Targeted bonus amounts vary among portfolio managers based on the experience level and responsibilities
of the portfolio manager. Bonus amounts are discretionary and tied to overall performance versus individual
objectives. Performance versus peer groups and benchmarks are taken into consideration. For capacity
constrained products, like small cap value, the small cap portfolio manager has an incentive program
tied to the revenue generated in that product area.
Deferred Profit Sharing
. All employees are eligible to receive annual profit sharing contributions under
a qualified profit sharing plan, subject to IRS limitations. Discretionary contributions are made on
an annual basis at the sole discretion of TS&W.
Deferred Compensation Plan
. Portfolio managers meeting certain requirements also are eligible to participate
in a voluntary, nonqualified deferred compensation plan that allows participants to defer a portion of
their income on a pre-tax basis and potentially earn tax-deferred returns.
III-83
Equity Plan
. Key employees may
be awarded deferred TS&W equity grants. In addition, key employees may purchase TS&W equity
directly.
Union Point
:
Union Point compensation can include a combination of salary, bonus and equity ownership of the firm
which may be determined based on performance and other factors.
Walter Scott
.
Compensation generally consists of a competitive base salary and entitlement to annual profit
share. In addition, all staff qualify for retirement benefits, life assurance and health insurance.
All staff are eligible to participate in the firm's annual profit share, which is a fixed percentage
of pre-incentive operating profits. This is the sole source of incentive compensation. Investment,
operations, compliance and client service staff are all focused upon the same goals of providing superior
performance and service to clients. Success in these goals drives the firm's profits and therefore the
profit share.
For senior staff, the majority of annual compensation is the profit share. An element
of this is deferred via a long-term incentive plan, largely invested in a long-term global equity fund
for which Walter Scott is the investment adviser and in BNY Mellon stock. Both have a deferral period
which vests on a pro-rata basis over four years.
Walter Scott's compensation structure is designed to promote fair
and equal treatment of all clients. The remuneration and nominations committee of Walter Scott's governing
board determines the salary and profit share allocation based on the overall performance of the firm.
Walthausen
.
All members of Walthausen have common stock ownership in the firm. This is a founding principle of
the firm, which Walthausen believes maximizes the alignment of goals for the firm and its clients. As
the firm grows, Walthausen intends to expand ownership to new team members after an initial review period.
Walthausen's compensation structure consists of base salary, bonus and profit sharing. Each member
of the investment team receives a base salary which is commensurate with past experience and role within
the firm. Bonuses are similarly awarded based on team performance and firm profitability. As the firm
grows, Walthausen intends to allocate profits across ownership levels.
Certain Conflicts of Interest with Other Accounts
Portfolio managers may manage multiple accounts
for a diverse client base, including mutual funds, separate accounts (assets managed on behalf of private
clients or institutions such as pension funds, insurance companies and foundations), private funds, bank
collective trust funds or common trust accounts and wrap fee programs that invest in securities in which
a fund may invest or that may pursue a strategy similar to a fund's component strategies ("Other Accounts").
Potential
conflicts of interest may arise because of an Adviser's or portfolio manager's management of a fund and
Other Accounts. For example, conflicts of interest may arise with both the aggregation and allocation
of securities transactions and allocation of limited investment opportunities, as an Adviser may be perceived
as causing accounts it manages to participate in an offering to increase the Adviser's overall allocation
of securities in that offering, or to increase the Adviser's ability to participate in future offerings
by the same underwriter or issuer. Allocations of bunched trades, particularly trade orders that were
only partially filled due to limited availability, and allocation of investment opportunities generally,
could raise a potential conflict of interest, as an Adviser may have an incentive to allocate securities
that are expected to increase in value to preferred accounts. IPOs, in particular, are frequently of
very limited availability. A potential conflict of interest may be perceived to arise if transactions
in one account closely follow related transactions in a different account, such as when a fund purchase
increases the value of securities previously purchased by the Other Account or when a sale in one account
lowers the sale price received in a sale by a second account. Conflicts of interest may also exist with
respect to portfolio managers who also manage performance-based fee accounts, which could give the portfolio
managers an incentive to favor such Other Accounts over the corresponding funds such as deciding which
securities to allocate to a fund versus the performance-based fee account. Additionally, portfolio managers
may be perceived to have a conflict of interest if there are a large number of Other Accounts, in addition
to a fund, that they are managing on behalf of an Adviser. The Advisers periodically review each portfolio
manager's overall responsibilities to ensure that he or she is able to allocate the necessary time and
resources to effectively manage the fund. In addition, an Adviser could be viewed as having a conflict
of interest to the extent that the Adviser or its affiliates and/or portfolio managers have a materially
larger
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investment
in Other Accounts than their investment in the fund.
Other Accounts may have investment objectives,
strategies and risks that differ from those of the relevant fund. In addition, the funds, as registered
investment companies, are subject to different regulations than certain of the Other Accounts and, consequently,
may not be permitted to engage in all the investment techniques or transactions, or to engage in such
techniques or transactions to the same degree, as the Other Accounts. For these or other reasons, the
portfolio managers may purchase different securities for the fund and the Other Accounts, and the performance
of securities purchased for the fund may vary from the performance of securities purchased for Other
Accounts. The portfolio managers may place transactions on behalf of Other Accounts that are directly
or indirectly contrary to investment decisions made for the fund, which could have the potential to adversely
impact the fund, depending on market conditions. In addition, if a fund's investment in an issuer is
at a different level of the issuer's capital structure than an investment in the issuer by Other Accounts,
in the event of credit deterioration of the issuer, there may be a conflict of interest between the fund's
and such Other Accounts' investments in the issuer. If an Adviser sells securities short, it may be
seen as harmful to the performance of any funds investing "long" in the same or similar securities whose
market values fall as a result of short-selling activities.
BNY Mellon and its affiliates, including the
Manager, Sub-Advisers affiliated with the Manager and others involved in the management, sales, investment
activities, business operations or distribution of the funds, are engaged in businesses and have interests
other than that of managing the funds. These activities and interests include potential multiple advisory,
transactional, financial and other interests in securities, instruments and companies that may be directly
or indirectly purchased or sold by the funds or the funds' service providers, which may cause conflicts
that could disadvantage the funds.
BNY Mellon and its affiliates may have deposit, loan and commercial
banking or other relationships with the issuers of securities purchased by the funds. BNY Mellon has
no obligation to provide to the Adviser or the funds, or effect transactions on behalf of the funds in
accordance with, any market or other information, analysis, or research in its possession. Consequently,
BNY Mellon (including, but not limited to, BNY Mellon's central Risk Management Department) may have
information that could be material to the management of the funds and may not share that information
with relevant personnel of the Adviser. Accordingly, in making investment decisions for a fund, the
Adviser does not seek to obtain or use material inside information that BNY Mellon may possess with respect
to such issuers. However, because an Adviser, in the course of investing fund assets in loans, may have
access to material non-public information regarding a Borrower, the ability of a fund or funds advised
by such Adviser to purchase or sell publicly-traded securities of such Borrowers may be restricted.
Code
of Ethics
. The funds, the Manager, the Sub-Advisers and the Distributor each have adopted a Code
of Ethics that permits its personnel, subject to such respective Code of Ethics, to invest in securities,
including securities that may be purchased or held by a fund. The Code of Ethics subjects the personal
securities transactions of employees to various restrictions to ensure that such trading does not disadvantage
any fund. In that regard, portfolio managers and other investment personnel employed by the Manager
or an Affiliated Entity or a Sub-Adviser affiliated with the Manager must preclear and report their personal
securities transactions and holdings, which are reviewed for compliance with the Code of Ethics and also
are subject to the oversight of BNY Mellon's Investment Ethics Committee. Portfolio managers and other
investment personnel may be permitted to purchase, sell or hold securities which also may be or are held
in fund(s) they manage or for which they otherwise provide investment advice.
Distributor
The Distributor, a wholly-owned subsidiary of Dreyfus, located at 200 Park Avenue, New
York, New York 10166, serves as each fund's distributor on a best efforts basis pursuant to an agreement,
renewable annually, with the fund or the corporation or trust of which it is a part. The Distributor
also serves as distributor for the other funds in the Dreyfus Family of Funds and BNY Mellon Funds Trust.
Depending
on your fund's distribution arrangements and share classes offered, not all of the language below may
be applicable to your fund (see the prospectus and "How to Buy Shares" in Part II of this SAI to determine
your fund's arrangements and share classes).
III-85
The
Distributor compensates from its own assets certain Service Agents for selling Class A shares subject
to a CDSC and Class C shares at the time of purchase. The proceeds of the CDSCs and fees pursuant to
a fund's 12b-1 Plan, in part, are used to defray the expenses incurred by the Distributor in connection
with the sale of the applicable class of a fund's shares. The Distributor also may act as a Service
Agent and retain sales loads and CDSCs and 12b-1 Plan fees. For purchases of Class A shares subject
to a CDSC and Class C shares, the Distributor generally will pay Service Agents on new investments made
through such Service Agents a commission of up to 1% of the NAV of such shares purchased by their clients.
The
Distributor may pay Service Agents that have entered into agreements with the Distributor a fee based
on the amount invested in fund shares through such Service Agents by employees participating in Retirement
Plans, or other programs. Generally, the Distributor may pay such Service Agents a fee of up to 1% of
the amount invested through the Service Agents. The Distributor, however, may pay Service Agents a higher
fee and reserves the right to cease paying these fees at any time. The Distributor will pay such fees
from its own funds, other than amounts received from a fund, including past profits or any other source
available to it. Sponsors of such Retirement Plans or the participants therein should consult their
Service Agent for more information regarding any such fee payable to the Service Agent.
Dreyfus or the Distributor
may provide additional cash payments out of its own resources to financial intermediaries that sell shares
of a fund or provide other services (other than Class Y shares). Such payments are separate from any
sales charges, 12b-1 fees and/or shareholder services fees or other expenses paid by the fund to those
intermediaries. Because those payments are not made by you or the fund, the fund's total expense ratio
will not be affected by any such payments. These additional payments may be made to Service Agents,
including affiliates, that provide shareholder servicing, sub-administration, recordkeeping and/or sub-transfer
agency services, marketing support and/or access to sales meetings, sales representatives and management
representatives of the Service Agent. Cash compensation also may be paid from Dreyfus' or the Distributor's
own resources to Service Agents for inclusion of a fund on a sales list, including a preferred or select
sales list or in other sales programs. These payments sometimes are referred to as "revenue sharing."
From time to time, Dreyfus or the Distributor also may provide cash or non-cash compensation to Service
Agents in the form of: occasional gifts; occasional meals, tickets or other entertainment; support for
due diligence trips; educational conference sponsorships; support for recognition programs; technology
or infrastructure support; and other forms of cash or non-cash compensation permissible under broker-dealer
regulations. In some cases, these payments or compensation may create an incentive for a Service Agent
to recommend or sell shares of a fund to you. In addition, the Distributor may provide additional and
differing compensation from its own assets to certain of its employees who promote the sale of select
funds to certain Service Agents, who in turn may recommend such funds to their clients. In some cases,
these payments may create an incentive for the employees of the Distributor to promote a fund for which
the Distributor provides a higher level of compensation. Please contact your Service Agent for details
about any payments it may receive in connection with the sale of fund shares or the provision of services
to a fund.
Transfer and Dividend Disbursing Agent and Custodian
The
Transfer Agent, a wholly-owned subsidiary of Dreyfus, located at 200 Park Avenue, New York, New York
10166, is each fund's transfer and dividend disbursing agent. Pursuant to a transfer agency agreement
with the funds, the Transfer Agent arranges for the maintenance of shareholder account records for the
funds, the handling of certain communications between shareholders and the funds and the payment of dividends
and distributions payable by the funds. For these services, the Transfer Agent receives a monthly fee
computed on the basis of the number of shareholder accounts it maintains for each fund during the month,
and is reimbursed for certain out-of-pocket expenses. The funds, other than the Index Funds, also may
make payments to certain financial intermediaries, including affiliates, who provide sub-administration,
recordkeeping and/or sub-transfer agency services to beneficial owners of fund shares.
The Custodian, an affiliate
of the Manager, located at One Wall Street, New York, New York 10286, serves as custodian for the investments
of the funds. The Custodian has no part in determining the investment policies of the funds or which
securities are to be purchased or sold by the funds. Pursuant to a custody agreement applicable to each
fund, the Custodian holds each fund's securities and keeps all necessary accounts and records. For its
custody services, the Custodian receives a monthly fee based on the market value of each fund's assets
held in custody and receives certain securities transaction charges.
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Funds' Compliance Policies and Procedures
The funds have adopted compliance
policies and procedures pursuant to Rule 38a-1 under the 1940 Act that cover, among other matters, certain
compliance matters relevant to the management and operations of the funds.