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of the Subsidiaries will serve as a director, officer or employee of any of the Dreyfus family of mutual funds.

The Subsidiaries will be subject to substantial regulatory requirements under the federal securities laws, applicable state laws and the Rules of Fair Practice of the National Association of Securities Dealers, Inc. ("NASD"). In particular, The Dreyfus Corporation and Dreyfus Management, Inc. will continue as registered investment advisors under the Investment Advisors Act of 1940 and under all applicable state investment advisory laws. Dreyfus Service Corporation will continue as a registered broker-dealer under the Securities Exchange Act of 1934 and under all applicable state broker-dealer laws. It also will continue as a member in good standing of the NASD. In addition, as national bank operating subsidiaries, the Subsidiaries will be subject to examination and supervision by the OCC.

Under the Bank's proposal, the Subsidiaries will engage in the current activities of Dreyfus, with various exceptions. The primary business of Dreyfus is the provision of investment advisory and administrative services to registered open-end investment companies (mutual funds). Dreyfus provides services to approximately 130 of its own mutual funds (the "Dreyfus Funds" or "Funds"), which have approximately $80 billion in assets. Approximately 54% of the assets are in money market funds, 34% in bond funds and 12% in equity funds. Dreyfus also provides investment advisory services to closed-end funds, individuals and institutional investors.

Each of the Dreyfus Funds is registered as an investment company under the Investment Company Act of 1940 (*1940 Act") and under state securities laws, as applicable. Each Fund is governed by a board of directors consisting of a minimum of three directors subject to 1940 Act requirements concerning independence. Shares of each Fund are registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 as

committee. The Bank represents that Dreyfus will establish an Executive Committee responsible for Dreyfus' operations, which will be composed of two representatives from MBC and two from Dreyfus. The current Chief Executive Officer and President of Dreyfus will remain in place during the two year period. The current membership of the Dreyfus Board of Directors will remain the same.

'As provided in the Bank's notice, Dreyfus also has seventeen financial service centers located throughout the United States. These centers provide various services, including selling shares of Dreyfus Funds solely on an agency basis. The Subsidiaries will continue these activities after the acquisition.

• Section 10 of the 1940 Act basically provides that at least forty percent of the directors on the board must be independent, unless certain affiliated relationships exist in which case a majority of the directors must be independent. See 15 U.S.C. § 80a-10. The Bank represents that the Dreyfus Funds will have boards of directors independent from the Bank and the Subsidiaries.

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required. All disclosure and marketing materials relating to the Funds, including each Fund's prospectus, will comply with applicable requirements under the 1940 Act, the Securities Act of 1933, applicable state securities laws and federal banking laws.

The Subsidiaries will continue to provide investment advisory services to the Dreyfus Funds as well as to, among others, corporate retirement plans, individuals, foundations and endowments. One or more of the Subsidiaries will act as direct advisor to the Dreyfus Funds. While Dreyfus currently acts as distributor of the Funds, prior to the time the acquisition is consummated Dreyfus will resign as distributor. The respective boards of directors of the Funds will contract with an independent third party to act as distributor.'

In conjunction, with the advisory services, the Subsidiaries will provide various administrative services to the Dreyfus Funds. For example, such services may include maintaining and preserving Fund records, computing net asset value and other performance information regarding the Funds, preparing and filing with the SEC and state securities regulators registration statements and other required materials; preparing and filing tax returns, providing office facilities for the Funds, and coordinating communications and activities between the investment advisor and other service providers. The Bank represents that these are normal administrative services substantially similar to those recently approved by the Federal Reserve Board in connection with the Mellon Bank Corporation's acquisition of The Boston Company. See Mellon Bank Corporation, 79 Fed. Res. Bull. 626 (1993). The Subsidiaries will receive a fee for providing the advisory and administrative services consistent with 1940 Act requirements and general industry practices.

The party specifically identified as the distributor will serve as the intermediary between the Funds and purchasers of Fund shares. The independent distributor will be a "principal underwriter" for purposes of the 1940 Act. As provided by the Bank, the independent distributor likely will be responsible for (1) entering into distribution agreements with the Dreyfus Funds; (2) being named as the distributor in all Fund prospectuses and sales literature; (3) confirming to investors or broker-dealers all sales of Dreyfus Funds shares with a confirmation complying with Rule 10b-10 under the 1940 Act; (4) providing the required seed money for any new funds; (5) entering into agreements with broker-dealers selling the Dreyfus Funds; (6) collecting front end sales charges from broker-dealers or investors; (7) advancing commissions to broker-dealers; (8) receiving and transmitting that portion of 12b-1 payments that will be paid to broker-dealers as sales and maintenance commissions, and entering into 12b-1 agreements with broker-dealers, banks and others as contemplated by Rule 12b-1; (9) collecting back-end sales charges from redeeming shareholders; (10) paying the costs of printing and distributing prospectuses to potential investors; and (11) providing other regulatory/administrative services that are typical for a distributor. The distributor will receive a fee for its distribution activities consistent with industry practice.

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Similar to current Dreyfus activities, the Subsidiaries also will engage in securities brokerage activities on behalf of their clients. The Subsidiaries may provide shareholder services and sell Fund shares, solely on an agency basis, at financial service centers throughout the United States. The Bank represents that the Subsidiaries will not engage in underwriting or dealing. The Subsidiaries also will not sponsor or organize new mutual funds for the Dreyfus Funds family.10 The compensation received by the Subsidiaries for brokerage services will be consistent with that customarily received by an agent and not that of a principal or dealer."

In an effort to minimize any potential safety and soundness concerns, address consumer protection issues and prevent conflicts of interest, the Bank represents that the Bank and its subsidiaries will adopt a Policy Statement on Mutual Funds prior to the acquisition." The Policy Statement builds upon the Bank's existing comprehensive policies governing sales of nondeposit investment products. Specific areas covered by the Policy Statement include suitability requirements, procedures to ensure that the customer understands that mutual funds are not FDIC-insured or bank obligations, differentiation between names of mutual funds and the Bank's name, use of signs to illustrate the differences between bank obligations and mutual fund shares, and independence of the Funds and the Funds' boards of directors. As provided in the Policy Statement, all transactions between the Bank and the Subsidiaries will be subject to Sections 23A and 238 of the Federal Reserve Act without giving effect to the exemption for bank subsidiaries. See 12 U.S.C. § 371c(b)(2)(A)." The Bank has acknowledged that the voluntary commitments set forth in the Policy Statement

10 The independent distributor may organize new mutual funds which the Subsidiaries subsequently may advise or administer. The Bank represents that it will not provide seed capital to fund these new mutual funds.

"The Bank anticipates that trades for the Dreyfus Funds will be cxecuted through broker-dealers not affiliated with the Bank or the Subsidiaries. Broker-dealers will be selected to ensure best execution of such trades. These trades currently are executed for the Dreyfus Funds by unaffiliated broker-dealers. In the event an affiliated broker-dealer were used, the relationship would be governed by Section 17(e) of the 1940 Act and Rule 17e-1 concerning transactions between affiliated parties.

12 The Bank represents that the Policy Statement will apply to Dreyfus as of the date Dreyfus becomes an operating subsidiary of the Bank.

13 We also note that under Sections 23A and 23B of the Federal Reserve Act, the Bank considers the Funds "affiliates" of the Bank and thus subject to various requirements enacted to protect banks from potential abuses in financial transactions with affiliated companies. See 12 U.S.C. § § 371c and 371c-1.

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could be formal conditions enforceable by the OCC." See Letter from Mellon Banking Corporation and The Dreyfus Corporation to The Honorable John D. Dingell, Committee on Energy and Commerce dated February 18, 1994. Compliance with the Policy Statement is imposed as a condition of regulatory approval in the "Conclusion" section and a copy of the Statement is attached to this letter for reference. In addition, the Bank and the Subsidiaries are subject to the Interagency Statement on sales of nondeposit investment products which is discussed in the subsection of this letter entitled "Application of the Interagency Statement."

In addition to the mutual fund-related activities discussed, the Subsidiaries also will engage in several other activities generally permissible for national banks and their operating subsidiaries. Certain Dreyfus subsidiaries being acquired by the Bank currently engage in these activities. These other activities include: investing and selling certain precious metals to customers; holding loans; receiving and passing payments to the parent corporation; and selling variable annuities as agent from a place of under 5000 inhabitants.

We expect that the Bank and the Subsidiaries will conduct their operations in accordance with all applicable laws and regulations and in a prudent manner, consistent with safe and sound banking practices.

Permissible Banking Activities

Legality of Proposed Activities

The National Bank Act provides that national banks shall have the power:

To exercise... all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of title 62 of the Revised Statutes.

"The Bank represents that it will not make any changes in the Policy Statement without prior notice to the OCC and the Federal Reserve Board. The Bank states it will not make the change if notified of objections by either agency within thirty days of the notification.

15 As provided in the Bank's notice, however, two of the subsidiaries being acquired currently are inactive: Dreyfus Personal Management, Inc., which offers discretionary advisory services primarily to individuals, and Lion Management Inc., which acts as a commodity pool operator and commodity trading advisor for limited partnerships. While these activities generally are permissible, the Bank agrees it will give advance notice to the OCC of any decision to activate these subsidiaries after the acquisition. The Bank should submit a notice pursuant to 12 C.F.R. § 5.34.

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12 U.S.C. § 24(Seventh). The OCC has taken the position that Section 24(Seventh) grants broad powers for banks to engage in the business of banking, including the specifically recited powers and such other incidental powers that are reasonably necessary to perform the business of banking as a whole. See Interpretive Letter No. 494 (December 20, 1989), reprinted in [1989-90 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,083 (extensive analysis concluding that such a broad view is supported by statutory construction, legislative history, case law, general circumstances, and commentators)." The courts have used various tests to determine whether banking activities are within the intended scope of Section 24(Seventh) and have found that permissible incidental activities include those that are similar to an express power, relate to an express power, resemble traditional banking functions or constitute financial activities. See Letter No. 494, supra, at 11-16. The five enumerated powers are examples of banking powers, but not the exclusive list. Many other activities, including those proposed by the Bank, also are inherent parts of the business of banking." We find that the proposed activities for the Subsidiaries are within the scope of banking activities previously considered and found permissible by the OCC, other regulatory agencies and the courts. 18

16 As one commentator has noted:

whatever may be the legal rule as to business corporations, or municipal corporations, it seems clear that National Banks are not confined to the powers specified in the National Bank Act and those necessary to carry out those specific powers; and that in the case of National Banks... the test is not whether a power is necessarily incident to one of the specific powers granted, but whether it is properly implied from all of the terms used, in light of the general intent and purpose of the statute.

Trimble, The Implied Power of National Banks to Issue Letter of Credit and Accept Bills, 58 Yale L.J. 713, 721 (1949).

17 See New York State Ass'n of Life Underwriters v. New York State Banking Dept., 598 N.Y.S. 2d 824 (N.Y. App. Div., 1993), aff'd, – N.Y. – (March 30, 1994) (court found similar incidental powers clause of New York banking law permitted banks to expand banking services over time consistent with evolving business practices and customers' needs).

18 In addition, the OCC has long recognized its authority to establish operating subsidiaries as an inherent part of the business of banking. See 31 Fed. Reg. 11459 (Aug. 31, 1966). Operating subsidiaries enable banks to use a different organizational structure to conduct permissible activities. The OCC has provided by regulation that national berl ́s may choose to engage in permissible activities by means of an operating subsidiary. 12 C.F.R. § 5.34. The operating subsidiary is subject to OCC examination and supervision and to the same banking laws and regulations as the parent bank unless otherwise provided by statute or regulation. Id. Thus the Bank has the authority to establish the Subsidiaries to engage in the proposed activities as long as the activities are permissible.