broker-dealer competency standards, supervision requirements, suitability and sales practice rules, and financial

responsibility requirements to banks and bank employees involved in securities sales. The legislation would address the conflicts of interest between banks and their affiliated investment companies described in Part II.B. In general, by eliminating the unconditional bank exclusions in the federal securities laws, H.R. 3447 would promote consistent, functional regulation of all market participants that offer the same products and perform the same functions.

The Mellon/Dreyfus merger provides fresh proof that legislation addressing bank securities activities could enhance investor protections and rationalize federal securities regulation. H.R. 3447, in particular, would bring significant improvement to the regulation of bank securities activities by regulating all participants in our securities markets according to the functions they perform, rather than according to their industry classifications. However, the Commission and the federal banking regulators can take steps to improve the regulation of bank securities activities while awaiting legislative action. In particular, joint inspection programs and enhanced information sharing between the federal banking regulators and the Commission would allow for coordinated monitoring and responses to developing problems.

An important step toward better cooperation and coordination between the Commission and the federal banking regulators has been taken in recent weeks with the commencement of a joint effort to assess investor attitudes regarding mutual funds advised or distributed by banks. Following a preliminary survey of mutual fund investors conducted on behalf of the SEC in November of last year that suggested significant confusion about bank mutual funds, SEC staff, at the direction of Chairman Levitt, contacted the staff of the Office of the Comptroller of the Currency ("OCC") to initiate a broader, more comprehensive research project that would be conducted as a joint effort. project is currently underway. Its results will be available in the near future and are expected to assist in developing the appropriate regulatory and/or legislative steps that may be warranted to address this specific issue.

This

Pursuant to Rules X and XI of the Rules of the U.S. House of Representatives, and our continuing oversight of securities and exchanges, we are investigating the facts and circumstances surrounding the proposed merger between the Dreyfus Corporation (Dreyfus) and Mellon Bank Corporation (MBC) whereby Dreyfus will be acquired by Mellon Bank, N.A. (Mellon Bank) as a separate operating subsidiary.

As a starting point, we have reviewed the copy of the Notice of the transaction and supporting documentation that was delivered by MBC to the Committee on Energy and Commerce on January 3, 1994, as well as the responses of MBC and Dreyfus, the Securities and Exchange Commission (SEC), and the Comptroller of the Currency (OCC), responding to the December 10, 1993 GonzalezDingell letter, and the response of MBC and Dreyfus to this Subcommittee's January 28, 1994 letter. In order to assist the Subcommittee in its investigation and in preparation for upcoming hearings, your cooperation is requested in providing the following information and responses by the close of business on Tuesday, March 1, 1994.

1.

The Subcommittee asked MBC, Mellon Bank, and Dreyfus
whether they had any enforcement actions filed against
them during the past 10 years, and whether these
entities had entered into any agreements with their
respective regulators concerning compliance-related
matters. A copy of the index to their response is
enclosed. Please review it and advise the Subcommittee
of any material omissions with respect to matters under
your agency's jurisdiction. Also please advise us of
any patterns involving compliance problems or
violations about which we should be aware.

The Honorable Arthur Levitt, Jr.
Page 2

2.

3.

4.

In December, Heine Securities Corporation (HSC) filed a
Schedule 13D with the SEC in connection with the
purchase of the common stock, par value $0.10 per share
of the Dreyfus Corporation. HSC's response to Item 4
thereof states that: "Based upon HSC's review of the
available public information concerning the Issuer, the
prospective acquiror, the terms of the proposed merger
and the process leading to the proposed merger, HSC is
not convinced that the merger consideration fully
reflects the underlying value of the Issuer." Please
provide us with copies of any information or analyses
in your possession that raise questions about the
impact of this transaction on the shareholders of
Dreyfus or otherwise indicates that the transaction
might not be in their best interests. If such
information or analyses are not currently in your
possession, please take such steps as may be necessary
to obtain any such material from the parties of the
Mellon-Dreyfus transaction.

Last month, several shareholders in mutual funds
marketed as part of the Dreyfus Funds filed an
application with your agency pursuant to 17 CFR 270.0-5
for an order by the Commission that the "independent"
directors of the Dreyfus Family of Funds are in fact
"interested persons" under the Act. As we understand
it, the crux of their complaint is that these directors
have a disqualifying entanglement because their
directorship of (and compensation by) other funds
constitutes a prohibited material business relationship
with other investment companies having the same
investment adviser. Therefore, the application states
that "Applicants and the other Dreyfus Fund
shareholders have not and will not receive sufficient
representation and protection in the negotiation and
consummation of the acquisition of Dreyfus by [MBC] "
and, "[a]s a result, Applicants and other Dreyfus Funds
shareholders will be injured by the acquisition."
Please advise the Subcommittee of the status of this
application, whether it states an appropriate cause of
action, and whether and under what circumstances
compensation can have an impact on the independence of

fund directors.

The OCC letter of January 12, 1994 states (p. 9, para. 1) that "Dreyfus would be required to comply with all laws applicable to national banks and would be subject to Banking Circular 274." How do you envision that conflicts between requirements of the banking laws and requirements of the securities laws will be resolved? Please advise us of any discussions between the SEC and OCC on this subject. What

The Honorable Arthur Levitt, Jr.
Page 3

specific progress has been made between the SEC and OCC in coordinating your regulatory responsibilities with respect to entities that are subject both to the federal banking laws and the federal securities laws? Do you presently and do you anticipate in the future engaging in (i) coordinated or (ii) duplicate examination and/or enforcement actions?

In your letter to us dated February 23, 1994, you asked several questions about, and requested certain information with respect to, the merger of Mellon Bank Corporation and Dreyfus Corporation. In response to your request, I asked the Commission's staff to prepare the enclosed memorandum.

I hope this memorandum satisfactorily responds to your questions. If you have any further questions, or need additional information, please do not hesitate to contact me.

Enclosure

Sincerely,

Arthur Levitt
Chairman

450 5TH ST. NW • WASHINGTON, D.C. 20549 • TEL (202) 272-2000 FAX (202) 272-3912