[Federal Register Volume 61, Number 61 (Thursday, March 28, 1996)]
[Notices]
[Pages 13896-13898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7502]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21839/812-9886]
Dreyfus Massachusetts Municipal Money Market Fund, et al.; Notice
of Application
March 21, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Dreyfus Massachusetts Municipal Money Market Fund (the
``Acquiring Fund'') and The Dreyfus/Laurel Tax-Free Municipal Fund (the
``Trust'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
that would exempt applicants from section 12(d)(1) of the Act, under
section 17(b) of the Act for an exemption from section 17(a) of the
Act, and under section 17(d) of the Act and rule 17d-1 thereunder
permitting certain joint transactions.
SUMMARY OF APPLICATION: Applicants request an order to permit the
combination of one class (the ``Investor shares'') of the Dreyfus/
Laurel Massachusetts Tax-Free Money Fund (the ``Transferring Fund''), a
series of the Trust, and the existing single class of the Acquiring
Fund. The Transferring Fund thereafter would operate as a single class
fund offering its other existing class of shares (the ``Class R
shares'').
FILING DATE: The application was filed on November 30, 1995 and amended
on March 5, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on April 15, 1996,
and should be accompanied by proof of service on applicant, in the form
of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, 200 Park Avenue, New York, New York 10166.
FOR FURTHER INFORMATION CONTACT:
David W. Grim, Staff Attorney, at (202) 942-0571, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Acquiring Fund is a business trust organized under the laws
of the Commonwealth of Massachusetts. The Acquiring Fund is registered
under the Act as an open-end management
[[Page 13897]]
investment company and offers a single class of its shares. The
Acquiring Fund operates as a money market fund complying with rule 2a-7
under the Act, and seeks to provide a high level of current income
exempt from federal and Massachusetts income taxes to the extent
consistent with the preservation of capital and the maintenance of
liquidity.
2. The Transferring Fund is one of seven series of the Trust, a
business trust organized under the laws of Massachusetts and registered
under the Act as an open-end management investment company. The
Transferring Fund operates as a money market fund complying with rule
2a-7 under the Act, and seeks to provide a high level of current income
exempt from federal income taxes and Massachusetts personal income
taxes for resident shareholders of Massachusetts. The Transferring Fund
issues two classes of shares, Investor shares and Class R shares, and
operates as a multiple class fund under a plan adopted pursuant to rule
18f-3 under the Act. Investor shares and Class R shares are identical,
except as to the services offered and the expenses borne by each class.
Investor shares are sold primarily to retail investors, while Class R
shares are sold primarily to bank trust departments and other financial
service providers.
3. The Dreyfus Corporation (``Dreyfus'') serves as the investment
adviser to the Acquiring Fund and the Transferring Fund. Dreyfus is a
wholly-owned subsidiary of Mellon Bank, N.A. (``Mellon Bank''), which
in turn is a wholly-owned subsidiary of Mellon Bank Corporation
(``Mellon'').
4. The Acquiring Fund and the Trust, on behalf of the Transferring
Fund, have entered into an Agreement and Plan of Reorganization dated
as of November 1, 1995 (the ``Plan''), to effectuate a proposed
reorganization (the ``Reorganization''). Under the Plan, the Acquiring
Fund will acquire a portion of the Transferring Fund's assets having a
value equal to the aggregate net asset value of the Investor shares of
the Transferring Fund at noon on the closing date, presently expected
to occur on or about May 8, 1996 (the ``Closing Date''). The assets
will be transferred at 4 p.m. on the Closing Date and will consist of
as nearly a pro rata portion of each asset of the Transferring Fund as
is reasonably practicable. In exchange for such assets, the
Transferring Fund will receive shares of the Acquiring Fund having an
aggregate value at noon on the Closing Date equal to the value of the
assets transferred. As soon after the closing as is conveniently
possible, the Transferring Fund will redeem the Investor shares held of
a record as of noon on the Closing Date by distributing in kind pro
rata to holders of such Investor shares the shares of the Acquiring
Fund received by the Transferring Fund in the Reorganization.
5. Prior to the Closing Date, the Transferring Fund will endeavor
to discharge all of its known liabilities and obligations attributable
to Investor shares. In addition, at the closing the Acquiring Fund and
the Transferring Fund will enter into an agreement whereby the
Acquiring Fund will same that portion of unknown or contingent
liabilities, and acquire that portion of unknown or contingent assets,
of the Transferring Fund proportionate to the aggregate net asset value
of all Investor shares compared to the aggregate net asset value of all
shares of the Transferring Fund (the ``Supplemental Agreement''). The
Supplemental Agreement will cover unknown or contingent assets or
liabilities at noon on the Closing Date that are identified within one
year of the Closing Date.
6. the Plan was unanimously approved by the Board of trustees of
the Acquiring Fund, including the non-interested trustees, on November
1, 1995, and by the board of trustees of the Trust, including the
independent trustees, on October 25, 1995.
7. In assessing the Reorganization and the terms of the Plan, the
factors considered by the board of the Acquiring Fund included: (a) the
future prospects of the Fund, both under circumstances where it does
not acquire assets of the Transferring Fund and where it does acquire
such assets; (b) the compatibility of the investment objectives,
policies and restrictions of the Acquiring Fund and the Transferring
Fund; (c) the expected favorable impact of the Reorganization on the
expense ratios of the Acquiring Fund, potential future cost savings and
economies of sale, and the commitment by Dreyfus to limit total
expenses of the Acquiring Fund, for a period of one year following the
Reorganization, to .60% of average daily net assets; (d) the fact that,
although the Reorganization will constitute a taxable transaction, it
will have no adverse tax impact on the Acquiring Fund; and (e) the fact
that the expenses associated with the Reorganization would be borne by
Dreyfus.
8. In making such an assessment with respect to the Transferring
Fund, the board of the Trust considered a number of factors, including
the anticipated impact of the Reorganization on both Investor and Class
R shareholders of the Transferring Fund. The factors included: (a) the
future prospects of both Funds, both under circumstances where the
Reorganization occurred and where it did not; (b) the compatibility of
the investment objectives, policies and restrictions of the Acquiring
Fund and the Transferring Fund; (c) the effect of the Reorganization on
the expense ratios borne by holders of Investor shares; (d) the
relative performance of the Funds; (e) whether any future efficiencies
in operations could be achieved by the Reorganization; (f) the fact
that, although the Reorganization will constitute a taxable
transaction, it will have no adverse tax impact on the Acquiring Fund;
(g) the fact that the expenses associated with the Reorganization would
be borne by Dreyfus; and (h) alternatives to the Reorganization.
9. Consummation of the Reorganization is contingent upon receipt of
the affirmative vote of the holders of at least a majority of the
outstanding shares of the Transferring Fund and of each class of the
Transferring Fund. This vote will take place at a meeting of the
shareholders of the Transferring Fund, expected to be held on April 16,
1996. In addition to shareholder approval, the consummation of the
reorganization is conditioned upon receipt from the SEC of the order
requested herein.
Applicants' Legal Analysis
1. Section 12(d)(1)(A) of the Act places limitations on the ability
of a registered investment company to acquire the securities of any
other investment company and on the ability of any investment company
to acquire the securities of a registered investment company. Section
12(d)(1)(B) of the Act similarly limits the ability of a registered
open-end investment company or certain other persons to sell its
securities to another investment company. The proposed Reorganization
may be viewed as technically violating section 12(d)(1) even though the
Transferring Fund will own the securities of the Acquiring Fund for
only a momentary period of time. At the moment that the Transferring
Fund transfers to the Acquiring Fund the portion of the assets of the
Transferring Fund having a value equal to the aggregate net asset value
of the Investor shares, the Transferring Fund will hold shares of the
Acquiring Fund in excess of the limitations of section 12(d)(1).
2. Section 12(d)(1)(D) of the Act excepts from the restrictions
otherwise imposed by section 12(d)(1) any securities received as a
result of a plan of reorganization of a company. Although the
transaction is the type
[[Page 13898]]
contemplated by section 12(d)(1)(D), it technically does not qualify as
a ``reorganization,'' as that term is defined in section 2(a)(33) of
the Act, thereby rendering section 12(d)(1)(D) unavailable.
3. Section 6(c) provides that the SEC may exempt any person or
transaction from any provision of the Act or any rule thereunder to the
extent that such exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
4. Applicants submit that the requested exemption from section
12(d)(1) meets the section 6(c) standards. Section 12(d)(1) was
intended to mitigate or eliminate actual or potential abuses which
might arise when one investment company acquires shares of another
investment company. These abuses include the acquiring fund imposing
undue influence over the management of the acquired funds through the
threat of large-scale redemptions, the acquisition by the acquiring
company of voting control of the acquired company, the layering of
sales charges, advisory fees, and administrative costs, and the
creation of a complex pyramidal structure which may be confusing to
investors. The Reorganization implicates none of these concerns. The
Transferring Fund's ownership of the Acquiring Fund's shares will exist
for only an instant, as the Transferring Fund will only hold such
shares in order to use those shares to redeem in kind the Investor
shares of the Transferring Fund. The Transferring Fund will not have
the opportunity to redeem, to vote, or to take other action with
respect to the Acquiring Fund's shares, and will hold the shares for
only a brief period during which neither their value nor the layering
of fees could be an issue. Furthermore, the Reorganization is similar
to the types of transactions that Congress specifically exempted from
section 12(d)(1) through the enactment of subsection (D) thereof.
5. Section 17(a) of the Act, in pertinent part, prohibits an
affiliated person of a registered investment company, acting as
principal, from selling to or purchasing from such registered company,
any security or other property. Section 17(b) provides that the SEC may
exempt a transaction from section 17(a) if evidence establishes that
the terms of the proposed transaction, including the consideration to
be paid or received, are reasonable and fair and do not involve
overreaching on the part of any person concerned, and that the proposed
transaction is consistent with the policy of the registered investment
company concerned and with the general purposes of the Act.
6. Rule 17a-8 under the Act exempts from the prohibitions of
section 17(a) mergers, consolidations, or purchases or sales of
substantially all the assets involving registered investment companies
that may be affiliated persons solely by reason of having a common
investment adviser, common directors/trustees and/or common officers
provided that certain conditions are satisfied.
7. The proposed reorganization may not be exempt from the
prohibitions of section 17(a) by reason of rule 17a-8. Under the
proposed Reorganization, the Transferring Fund will transfer to the
Acquiring Fund all of that portion of the assets of the Transferring
Fund having a value equal to the aggregate net asset value of the
Investor shares, but will not transfer that portion of the assets of
the Transferring Fund representing the aggregate net asset value of the
Class R shares. Therefore, the proposed Reorganization technically may
not be a merger, consolidation, or purchase or sale of substantially
all of the assets involving registered investment companies under rule
17a-8. In addition, Mellon, directly or through subsidiaries, holds
with power to vote approximately 63% of the Class R shares of the
Transferring Fund. As a result, the Transferring Fund would be deemed
to be an affiliated person of Mellon and, arguably, of Dreyfus as its
wholly-owned subsidiary. Therefore, the Transferring Fund may be deemed
an affiliated person of an affiliated person of the Acquiring Fund for
reasons not based solely on their common adviser.
8. Applicants believe that the terms of the reorganization satisfy
the standards of section 17(b). Each Fund's board, including the non-
interested trustees, has reviewed the terms of the Reorganization and
have found that participation in the Reorganization as contemplated by
the Plan is in the best interests of the respective Fund, and that the
interests of existing shareholders of each Fund will not be diluted as
a result of the Reorganization. Each Fund's board, including its non-
interested trustees, also has concluded that any potential benefits to
Dreyfus, Mellon, and their affiliates as a result of the Reorganization
are on balance not inappropriate in light of the commitments of Dreyfus
to bear the expenses of the Reorganization and to limit total fees of
the Acquiring fund to .60 of 1% of average daily net assets for a
period of one year following the Reorganization,the potential benefits
of the Reorganization to each Fund and its shareholders, and all
applicable factors. The investment objectives of the Acquiring Fund,
moreover, are consistent with those of the Transferring Fund.
Accordingly, the Reorganization will be consistent with the policies of
each Fund.
9. Section 17(d) prohibits any affiliated person of a registered
investment company, acting as principal, from effecting any transaction
in which such registered investment company is a joint participant with
such person in contravention of SEC rules and regulations. Rule 17d-1
provides that no joint transaction may be consummated unless the SEC
approves the transaction after considering whether the participation of
the investment company is consistent with the provisions, policies, and
purposes of the Act and the extent to which the participation is on a
basis different from or less advantageous than that of other
participants.
10. The Supplemental Agreement between the Acquiring Fund and the
Transferring Fund could be characterized as a joint enterprise or
transaction within the meaning of section 17(d) and rule 17d-1
thereunder. The Supplemental Agreement provides that the holders of the
respective Class R shares and the Investor shares of the Transferring
Fund, and of shares of the Acquiring Fund, are treated equitable by
allocating the unknown or contingent assets and liabilities of the
Transferring Fund between the parties of the Reorganization. Applicants
submit that the Supplemental Agreement thus meets the standards of rule
17d-1.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-7502 Filed 3-27-96; 8:45 am]
BILLING CODE, 8010-01-M