(b) MBC's business reasons for the transaction; (c) required regulatory approvals; (d) post-merger regulation; (e) federal securities and banking law issues; (f) risk of depositor/investor confusion and the need for particular and focused disclosure;

(g) conflicts of interest; and (h) legally enforceable

safeguards.

CHANGES IN THE FINANCIAL SERVICES INDUSTRY

The transaction between MBC and Dreyfus takes place within the context of a generation of sweeping changes in the financial services sector and a steadily growing involvement of banks with mutual funds, precipitated in significant measure by changes in consumers' savings and investing patterns.

MBC believes that this transaction responds to consumer demand for a wider range of financial services easily accessed at convenient locations. It is also responsive to the massive outflow of bank deposits into mutual funds and to the relationship between increased fee income and the safety and soundness of the banking industry in the context of: slow growth in total bank loans; the demonstrated past impact of credit risk; and the volatility of interest rate margins.

By the end of 1980, there were 564 mutual funds with 11 million customer accounts and assets of $146.1 billion. Twelve years later, at the end of 1992, there were 3,848 mutual funds with 76

million customer accounts and assets of $1.7 trillion. During that 12-year period, mutual fund assets increased at an annual growth rate of 23 percent. At year-end 1993, in fact, new investments flowing into mutual funds were approaching new deposits in banks for the first time ever.

The growth in mutual funds has taken place to a large degree at the expense of bank deposits

While mutual fund assets have been growing at a dramatic 23 percent annual rate, bank deposits have been expanding at a much slower rate. Since 1980, bank deposits have grown at one-quarter the rate of mutual funds.

Moreover, annual deposit growth has

been at an even lower rate in the last five years, and non

interest-bearing deposits have declined sharply.

First Manhattan Consulting Group (FMCG), which advises many major United States banks, has analyzed the relative growth of bank deposits and mutual funds within the broader context of total household financial resources. Projecting to the year 2000 the various components of household financial resources, FMCG concluded that bank deposits will grow at 4 percent per year while mutual funds will grow at 15 percent per year.

The increased competition for traditional bank loans has created a greater need for bank fee income

Banks are, and are intended to be, a significant source of credit for households and businesses in the United States. Their unique role as supplier of credit to small businesses is especially important given the expectation that small businesses are expected to be the leading source of new jobs creation in the economic recovery.

Between 1980 and 1992, bank loans only modestly increased. This modest rate of growth took place within the context of rapid expansion of other credit facilities outside the banking industry. For example, the commercial paper market grew

fourfold, from $124 billion at the end of 1980 to $531 billion at the end of 1991. Further, the credit risk involved in bank loans increased sharply during this period.

Banks involvement with mutual funds has increased

Until the mid 1980s, very few banks offered customers mutual funds or advised mutual funds. As a direct result, however, of the rapid growth in mutual funds, banks began to provide both services, frequently in conjunction, in order to meet their customers' needs.

At the end of 1993, Lipper Analytical Services, Inc. listed 1,256 bank-related mutual funds. The assets of bank-related mutual

funds now approximate $200 billion.

Annex A lists more than 75

institutions that offer their own advised funds, so-called

proprietary funds.

As the number of bank-advised mutual funds has expanded, so has the range of activities that banks perform in relation to those mutual funds.

In May, 1993, Wilmington Trust Co. became the first bank in the country to assume the role of "distributor" for its own mutual fund after receiving an opinion letter from the Federal Deposit Insurance Corp. expressing "no objection" to the action.

In November, the American Banker reported that "The boom in fund sales at banks over the past two years has accelerated many banks' development in the field, making marketing firms less important... big banks increasingly are choosing to manage investment-product sales programs on their own."

Earlier, in September, the American Banker reported that "administrators and distributors of bank-related mutual funds could face competition from their own clients: the biggest banks... Some banking giants [are] eyeing ways of doing more fund servicing in house." Banks cited in these and other articles included Bank America, Wells Fargo and Chase Manhattan

Bank.

It

Thus, bank-related mutual funds--and the banks' performance of not only investment advice but a variety of other services for those mutual funds--is no longer a new or untried concept. reflects the needs of consumers and the desire of banks to respond to those needs in the most efficient and effective way. And clearly, it continues to find growing acceptance among consumers who find attractive the ability to access mutual funds through their banks.

STRUCTURE OF THE MERGER

On December 6, 1993, MBC and Dreyfus announced that their respective boards of directors had unanimously adopted and approved a merger agreement. A copy of the merger agreement has been previously furnished to the Subcommittee. As a result of

the merger, each share of common stock of Dreyfus will be converted into the right to receive 0.88017 shares of common stock of MBC. Closing of the merger is subject to approval of the shareholders of both Mellon and Dreyfus, certain regulatory approvals (discussed below) and approval of continuation of the investment advisory contracts by the directors and shareholders of the mutual funds advised by Dreyfus ("Dreyfus funds").

Pursuant to the merger agreement, a wholly-owned subsidiary of Mellon Bank will be merged with and into Dreyfus. Consequently, Dreyfus will be the surviving corporation in the merger and will