[Federal Register Volume 66, Number 154 (Thursday, August 9, 2001)]
[Notices]
[Pages 41916-41919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19930]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25099; 812-12084]


The Dreyfus Fund Incorporated, et al.; Notice of Application

August 2, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 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 under the act to permit certain 
joint transactions.

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SUMMARY: Applicants request an order to permit certain registered 
investment companies (a) to use cash collateral received in connection 
with a securities lending program and uninvested cash to purchase 
shares of certain affiliated money market funds and (b) to pay an 
affiliated lending agent fees based on a share of the revenue generated 
from securities lending transactions.

APPLICANTS: The Dreyfus Fund Incorporated, Dreyfus Growth and Value 
Funds, Inc., Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus 
Stock Index Fund), Dreyfus Index Funds, Inc., Peoples S&P MidCap Index 
Fund, Inc. (d/b/a Dreyfus MidCap Index Fund), Dreyfus Life Time 
Portfolios, Inc., Dreyfus Liquid Assets, Inc., Dreyfus Worldwide Dollar 
Money Market Fund, Inc., Dreyfus Institutional Short Term Treasury 
Fund, Dreyfus Investment Grade Bond Funds, Inc., Dreyfus Short-
Intermediate Municipal Bond Fund, Dreyfus Short-Intermediate Government 
Fund, Dreyfus Municipal Income, Inc., Dreyfus California Municipal 
Income, Inc., Dreyfus New York Municipal Income, Inc., Dreyfus 
California Tax Exempt Money Market Fund, Dreyfus Insured Municipal Bond 
Fund, Inc., Dreyfus Municipal Money Market Fund, Inc., Dreyfus New 
Leaders Fund, Inc., Dreyfus Strategic Municipals Inc., Dreyfus 
Strategic Municipal Bond Fund, Inc., The Dreyfus/Laurel Funds, Inc., 
The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Tax-Free Municipal 
Funds, Dreyfus High Yield Strategies Fund, Dreyfus BASIC U.S. 
Government Money Market Fund, Inc., Dreyfus BASIC Money Market Fund, 
Inc., Dreyfus California Intermediate Municipal Bond Fund, Dreyfus 
Connecticut Intermediate Municipal Bond Fund, Dreyfus Debt and Equity 
Funds, Dreyfus Massachusetts Intermediate Municipal Bond Fund, Dreyfus 
New Jersey Intermediate Municipal Bond Fund, Dreyfus Pennsylvania 
Intermediate Municipal Bond Fund, Dreyfus Premier Value Equity Funds 
(collectively, the ``Funds''); The Dreyfus Corporation (``Dreyfus ''); 
and Mellon Bank, N.A. (``Mellon'').

FILING DATE: The application was filed on April 28, 2000 and amended on 
May 22, 2001. Applicants have agreed to file an amendment during the 
notice period, the substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on August 27, 2001, and should be accompanied by proof of service 
on applicants, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549-0609. Applicants: Funds and Dreyfus, 200 Park Avenue, New 
York, New York 10166; Mellon, One Mellon Bank Center, Pittsburgh, 
Pennsylvania 15258.

FOR FURTHER INFORMATION CONTACT: Stacy L. Fuller, Staff Attorney, at 
(202) 942-0553, or Michael W. Mundt, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0101, (202) 942-8090.

Applicant's Representations

    1. Each of the Funds is an open-end or closed-end management 
investment company registered under the Act. Dreyfus is registered as 
an investment adviser under the Investment Advisers Act of 1940 and 
serves as the investment adviser to the Funds. Dreyfus is a wholly 
owned subsidiary of Mellon, a national banking association. Applicants 
request that the relief apply to any existing or future registered 
management investment company or series of such registered management 
investment company for which Dreyfus, or any person controlling by or 
under common control with Dreyfus (The ``Adviser'') serves as 
investment adviser.\1\
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    \1\ All existing entities currently intending to rely on the 
requested order have been named as applicants. Any existing or 
future entity will rely on such order only in compliance with the 
representations and conditions contained in the application.
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    2. The Funds propose to participate in a securities lending program 
(the ``Lending Program'') in which Mellon or any person controlling, 
controlled by or under common control with Mellon will act as lending 
agent (the ``Lending Agent'') and administer the Lending Program 
pursuant to a securities lending agreement (a ``Lending 
Agreement'').\2\ Each of the Funds participating in the Lending Program 
(the ``Lending Funds'') will be permitted by its operating policies to 
lend its portfolio securities,

[[Page 41917]]

and its prospectus or statement of additional information will disclose 
that it may engage in securities lending.
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    \2\ Personnel of the Lending Agent that provide day-to-day 
lending agency services to the Lending Funds do not and will not 
provide investment advisory services to the Lending Funds, or 
participate in any way in the selection of portfolio securities or 
other aspects of the management of the Lending Funds.
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    3. Under the Lending Program, the Lending Agent will enter into 
agreements to lend securities of the Lending Funds to certain 
unaffiliated borrowers that have been approved by the respective 
Lending Funds (``Borrowers''). In exchange for the securities, the 
Lending Agent will be authorized to accept cash collateral (``Cash 
Collateral'') and, upon consent of the Lending Fund, U.S. Government 
securities or other collateral. Collateral will have a market value at 
least equal to the market value of the securities loaned to the 
Borrower.
    4. Each Lending Agreement will authorize and instruct the Lending 
Agent to invest Cash Collateral on behalf of the respective Lending 
Fund in accordance with specific written parameters established by the 
Lending Fund, including a list of eligible investments. Permissible 
investments will include repurchase agreements or other short-term 
money market instruments, as well as one or more registered money 
market funds that comply with rule 2a-7 under the Act and are advised 
by the Adviser (``Investment Funds'').
    5. When loans are collateralized by cash, the Borrowers will be 
entitled to receive a cash collateral fee, and the Lending Fund will be 
compensated based on the spread between the net amount earned on the 
investment of the Cash Collateral and the Borrower's fee. In the case 
of collateral other than cash, the Borrower will pay a loan fee to the 
Lending Fund. For its services to the Lending Funds, the Lending Agent 
will receive fees based on a share of the revenue generated from the 
securities lending transactions.
    6. In addition to Cash Collateral, Funds may have uninvested cash 
(``Uninvested Cash'') resulting from a variety of sources including 
dividends or interest received on portfolio securities, unsettled 
securities transactions, reserved held for investment strategy 
purposes, scheduled maturity of investments, liquidation of portfolio 
securities to meet anticipated redemptions or dividend payments, or 
from new monies received from investors.
    7. Applicants seek an order to permit: (a) Funds to invest Cash 
Collateral and Uninvested Cash (together, ``Cash Balances'') in shares 
of Investment Funds (Funds that purchase shares of the Investment 
Funds, ``Acquiring Funds''). and (b) Lending Funds to pay the Lending 
Agent fees based on a share of the proceeds derived from securities 
lending activities.

Applicant's Legal Analysis

A. Investment of Cash Balances in the Investment Funds

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another registered 
investment company if such securities represent more than 3% of the 
acquired company's voting stock, more than 5% of the acquiring 
company's total assets, or if such securities, together with the 
securities of any other acquired investment companies, represent more 
than 10% of the acquiring company's outstanding total assets. Section 
12(d)(1)(B) of the Act provides that no registered open-end investment 
company may sell its securities to another investment company if the 
sale will cause the acquiring company to own more than 3% of the 
acquired company's voting stock, or if the sale will cause more than 
10% of the acquired company's voting stock to be owned by investment 
companies.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person or transaction from any provision of section 12(d)(1) 
if and to the extent that such exemption is consistent with the public 
interest and the protection of investors. Applicants request relief 
under section 12(d)(1)(J) to permit the Acquiring Funds to invest Cash 
Balances in the Investment Funds in excess of the limits in section 
12(d)(1)(A), provided however that in no case will an Acquiring Fund's 
aggregate investment of Uninvested Cash in shares of the Investment 
Funds exceed 25% of the Acquiring Fund's total assets. Applicants also 
request relief to permit the Investment Funds to sell their shares to 
the Acquiring Funds in excess of the percentage limitations in section 
12(d)(1)(B).
    3. Applicants state that the proposed arrangement will not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that because all of the Funds are advised by 
the Adviser, there is no potential for undue influence by an Acquiring 
Fund over an Investment Fund. Applicants state that the arrangements 
will not result in layering of fees because no sales load, redemption 
fee, distribution fee adopted in accordance with rule 12b-1 under the 
Act, or service fee (as defined in rule 2830(b)(9) of the Conduct Rules 
of the National Association of Securities Dealers (``NASD Conduct 
Rules'')) will be imposed in connection with the purchase or sale of 
shares of the Investment Funds. In addition, the Adviser will waive its 
advisory fee payable by an Acquiring Fund in an amount that offsets the 
amount of advisory fees of the Investment Fund incurred by the 
Acquiring Fund as a result of the investment of Uninvested Cash in the 
Investment Fund. If an Investment Fund offers more than one class of 
shares, each Acquiring Fund will invest Cash Balances only in the class 
with the lowest expense ratio at the time of investment. Applicants 
also believe that the proposed arrangement will not create an overly 
complex fund structure because the Investment Funds will be prohibited 
from acquiring securities of any investment company in excess of the 
limits contained in section 12(d)(1)(A) of the Act.
    4. Sections 17(a)(1) and (2) of the Act make it unlawful for any 
affiliated person of or principal underwriter for a registered 
investment company, or any affiliated person of such a person or 
principal underwriter, acting as principal, to sell any security to, or 
purchase any security from, such registered investment company. Section 
2(a)(3) of the Act defines an ``affiliated person'' of another person 
to include: Any person directly or indirectly owning, controlling, or 
holding with power to vote 5% or more of the outstanding voting 
securities of the other person; any person directly or indirectly 
controlling, controlled by, or under common control with, the other 
person; and in the case of an investment company, its investment 
adviser.
    5. Because the Acquiring Funds and the Investment Funds are advised 
by a common investment adviser, applicants state that the Acquiring 
Funds and the Investment Funds may be affiliated persons. In addition, 
if an Acquiring Fund owns 5% or more of the shares of an Investment 
Fund, applicants state that the Investment Fund may be deemed to be an 
affiliated person of the Acquiring Fund. Accordingly, applicants state 
that section 17(a) would prohibit the sale of shares of an Investment 
Fund to the Acquiring Funds and the redemption of such shares by the 
Investment Fund.
    6. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the Act if 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 if the proposed transaction is consistent with 
the policy of each registered investment company concerned and with the 
general purposes of the Act. Section 6(c) of the Act permits the 
Commission to exempt any person or transaction from any provision of 
the Act, if such exemption

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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.
    7. Applicants request an order under sections 6(c) and 17(b) of the 
Act to permit the Investment Funds to sell shares to, and redeem shares 
from, the Acquiring Funds in connection with the investment of Cash 
Balances. Applicants submit that the terms of the proposed transactions 
are fair and reasonable and do not involve overreaching. Applicants 
state that shares of the Investment Funds will be purchased and 
redeemed at their net asset value. Applicants state that each Acquiring 
Fund will be treated identically to all other investors in the 
Investment Funds. Applicants submit that the investment of Cash 
Balances in the Investment Funds will be consistent with the policies 
of each Acquiring Fund and each Investment Fund. Applicants state that 
the investment of the Cash Collateral will be in accordance with the 
Commission staff's securities lending guidelines.
    8. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of or principal underwriter for a registered 
investment company, or any affiliated person of such person, acting as 
principal, from participating in or effecting any transaction in 
connection with any joint enterprise or joint arrangement in which the 
investment company participates, unless the Commission has approved the 
transaction. Applicants state that by engaging in the proposed 
transactions, applicants may be deemed to be participants in a joint 
transaction under section 17(d) of the Act and rule 17d-1 under the 
Act.
    9. Rule 17d-1 permits the Commission to approve a proposed joint 
transaction covered by the terms of section 17(d). In considering 
whether to approve a joint transaction under rule 17d-1, the Commission 
considers whether the proposed transaction is consistent with the 
provisions, policies, and purposes of the Act, and the extent to which 
the participation of the investment companies is on a basis different 
from or less advantageous than that of the other participants. 
Applicants submit that the Acquiring Funds will participate in the 
proposed transactions on a basis no different from or less advantageous 
than that of any other participant, and that the transactions will be 
consistent with the Act.

B. Lending Agent Fees

    1. As noted above, section 17(d) of the Act and rule 17d-1 under 
the Act generally prohibit joint transactions involving registered 
investment companies and certain of their affiliates unless the 
Commission has approved the transaction. As also noted above, section 
2(a)(3) of the Act defines an affiliated person of an investment 
company to include its investment adviser. Applicants state that the 
Adviser is an affiliated person of the Lending Funds, and that the 
Lending Agent, as the parent company of the Adviser, is an affiliated 
person of an affiliated person of the Lending Funds. Because a fee 
arrangement between the Lending Agent and a Lending Fund under which 
compensation is based on a percentage of the revenue generated by 
securities lending transactions may be a joint enterprise or other 
joint arrangement or profit sharing plan within the meaning of section 
17(d) and rule 17d-1, applicants request an order to permit each 
Lending Fund to pay, and the Lending Agent to accept, such fees in 
connection with services provided by the Lending Agent to a Lending 
Fund.
    2. Applicants state that each Lending Fund will adopt the following 
procedures to ensure that the proposed fee arrangement and other terms 
governing the relationship with the Lending Agent will meet the 
standards of rule 17d-1:
    (a) In connection with the approval of a Lending Agent for a 
Lending Fund and implementation of the proposed fee arrangement, a 
majority of the board of directors of the Lending Fund (``Board''), 
including a majority of the directors who are not ``interested 
persons'' as defined in section 2(a)(19) of the Act (``Disinterested 
Directors''), will determine that: (i) The contract with the Lending 
Agent is in the best interests of the Lending Fund and its 
shareholders; (ii) the services to be performed by the Lending Agent 
are appropriate for the Lending Fund; (iii) the nature and quality of 
the services provided by the Lending Agent are at least equal to those 
provided by others offering the same or similar services for similar 
compensation; and (iv) the fees for the Lending Agent's services are 
fair and reasonable in light of the usual and customary charges imposed 
by others for services of the same nature and quality.
    (b) The Lending Agreement will be reviewed annually by each Board 
and will be approved for continuation only if a majority of the Board 
(including a majority of the Disinterested Directors) makes the 
findings referred to in paragraph (a) above.
    (c) In connection with the initial implementation of the proposed 
fee arrangement under which the Lending Agent will be compensated as 
lending agent based on a percentage of the revenue generated by a 
Lending Fund's participation in the Lending Program, the Adviser, on 
behalf of the Board, will obtain competing quotes with respect to 
lending agent fees from at least three independent lending agents to 
assist the Board in making the findings referred to in paragraph (a) 
above.
    (d) The Board, including a majority of the Disinterested Directors, 
will (i) determine at each regular quarterly meeting that the loan 
transactions during the prior quarter were effected in compliance with 
the conditions and procedures set forth in the application and (ii) 
review no less frequently than annually the conditions and procedures 
set forth in the application for continuing appropriateness.
    (e) Each Lending Fund will (i) maintain and preserve permanently in 
aneasily accessible place a written copy of the procedures and 
conditions described in the application and (ii) maintain and preserve 
for a period not less than six years from the end of the fiscal year in 
which any loan transaction pursuant to the Lending Program occurred, 
the first two years in an easily accessible place, a written record of 
each such loan transaction setting forth a description of the security 
loaned, the identity of the Borrower, the terms of the loan 
transaction, and the information or materials upon which the 
determination was made that each loan was made in accordance with the 
procedures set forth above and the conditions to the application.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

A. General

    1. Each Acquiring Fund and Investment Fund that relies on the 
requested order will be advised by the Adviser.
    2. The Lending Program will comply with all present and future 
applicable Commission and staff positions regarding securities lending 
arrangements.
    3. Approval of the Fund's board of directors, including a majority 
of the Disinterested Directors, shall be required for the initial and 
subsequent approvals of the Lending Agency as lending agent for a Fund, 
for the institution of all procedures relating to

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the Lending Program, and for any periodic review of loan transactions 
for which the Lending Agent acted as lending agent.
    4. Before a Fund may participate in the Lending Program, a majority 
of its board of directors, including a majority of the Disinterested 
Directors, will approve the Fund's participation in the Lending 
Program. The board of directors will evaluate the securities lending 
arrangement and its results no less frequently than annually and a 
majority of the board, including a majority of the Disinterested 
Directors, will determine that any investment of Cash Collateral in the 
Investment Funds is in the best interests of the shareholders of the 
Fund.

B. Investment of Cash Balances in the Investments Funds

    1. No Investment Fund will acquire securities of any other 
investment company in excess of the limits in section 12(d)(1)(A) of 
the Act.
    2. Shares of the Investment Funds sold to and redeemed by the 
Acquiring Funds will not be subject to a sales load, redemption fee, 
distribution fee under a plan adopted in accordance with rule 12b-1 
under the Act, or service fee (as defined in rule 2830(b)(9) of the 
NASD Conduct Rules).
    3. Investment in shares of the Investment Funds will be in 
accordance with each Acquiring Fund's respective investment 
restrictions and will be consistent with such Acquiring Fund's policies 
as set forth in its registration statement.
    4. Each of the Acquiring Funds will invest Uninvested Cash in, and 
hold shares of the Investment Funds only to the extent the Acquiring 
Fund's aggregate investment of Uninvested Cash in the Investment Funds 
does not exceed 25% of the Acquiring Fund's total assets. For purposes 
of this limitation, each Acquiring Fund or series thereof will be 
treated as a separate investment company.
    5. The Adviser to the Acquiring Fund will waive its advisory fee 
payable by the Acquiring Fund in an amount that offsets the amount of 
advisory fees of the Investment Fund incurred by the Acquiring Fund as 
a result of the investment of its Uninvested Cash in the Investment 
Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-19930 Filed 8-8-01; 8:45 am]
BILLING CODE 8010-01-M