In a recent speech to the Exchequer Club of Washington, Richard Y. Roberts, a member of the Securities and Exchange Commission, outlined some concerns about Mellon Bank Corp.'s plan to acquire Dreyfus Corp.

He maintained that the Office of the Comptroller of the Currency, in a recent letter approving the transaction, left open the possibility of exempting the Dreyfus Funds from full examination by the SEC. Experts follow.

The conditions of the letter permitting the Mellon-Dreyfus merger appear to me to address responsibly many of the commission's concerns. Overall, I am pleased, and I commend the comptroller for the leadership that he has exhibited in this area.

However, I continue to be troubled by the fact that the advisers to the Dreyfus funds will no longer be required to register under the Investment Advisers Act of 1940.

Of course, the advisers act excludes banks from commission registration and regulation as investment advisers. I understand that the drafters of the advisers act believed that this exception, written in 1940, was appropriate because the Glass-Steagall Act prohibited banks from entering into the securities business.

Rationale Seen as Invalid

This exception was intended to allow bank trust departments to continue to advise trust accounts, which also are excluded from commission regulation. As banks now are permitted to advise mutual funds, the rationale for this board exception no longer appears to be valid.

In fact, the result is that commission stasff can inspect bank-advised funds, but not -- absent their voluntary registration - the advisers who run the funds.

I am inclined to favor a more narrow bank exclusion that would except only those banks that provide investment advice in the capacity of trustee, executor, administrator, or guardian, or that advise their own common or collective trust funds.

Dreyfus to Be Independent

As an example to this circumstance, as a condition of the comptroller's approval, Mellon, among other things, has represented that Dreyfus will operate as an independent entity for at least two years after the acquisition.

After that time, Mellow Bank could assume Dreyfus' advisory functions and deregister Dreyfus. Mellon Bank then would be the adviser to the Dreyfus Funds, but would not be required to register because, as I mentioned, banks are nto required to register withthe commission as investment advisers.

If Dreyfus deregistered, the commission would be able to inspect the books and records of the Dreyfus funds, but not the books and records of the Dreyfus investment adviser.

I am of the view that this circumstance impairs the ability of the commission to enforce compliance with the federal securities laws in the mutual fund area, which, of course, is a very important area.

Mellon has adopted a policy statement on mutual funds which, among other things, addresses this registration issue. The policy statement says that "for so long as any Mellon company is defined as an "investment adviser' under the Investment Advisers Act of 1940... such company will continue to be maintained as a separate company, registered with the commission and subject to the Advisers Act."

Definitation of Adviser

However, banks are excluded from the definition of investment adviser; therefore, strictly speaking, Mellon would not be required to maintain Dreyfus as a registered adviser if Mellon were to become the adviser in their place.

I do not find this language in the policy statement to be reassuring, and it reinforces my opinion that bank advisers to publicly sold mutual funds should be expressly subject to commission registration requirements.

Another of the commission's concerns with respect to his proposed acquisition was that Dreyfus shares could be sold by bank employees who are not required to comply with National Association of Securities Dealers training requirements or to be subject to the NASD's disciplinary process.

Risk of Confusion

In addition, the commission was concerned that sales of fund share through a back pose a risk of customer confusion about the uninsured nature of mutual funds. That risk would be heightened when bank employees act as sales agents. Certain representations by Mellon incorporated into the approval letter have alleviated some of these concerns.

Mellon's policy apparently is the Mellon employees who recommend and sell funds must be registered with the NASD as a representative of a broker-dealer.

In addition, Mellon has agreed to prersent the disclosure requieed by banking regulators regarding the lack of deposit insurance for fund shares, the risk of loss, the relationship between Mellon and Dreyfus, and the existence of any deferred sales charges on fund sharers. This disclosure is required when a customer purchases shares or opens an investment account at Mellon, as well as on sales literature, account statements, and confirmations.

Bank to Post Sign on Funds

Mellon also apparently will post a sign in the bank stating that mutual fund shares are nto insured. Tellers will not sell or recommend mutual funds, and any referral fees they receive will not be basaed on the success of a sale to a customer. I was certainly pleased to see these representations.

Another potential conflict exists when a fund purchases securities in an underwriting to benefit fund insiders, rather than its shareholders.

The Investment Company Act generally prohibits these purchases, because a fund insider with an interest in the issuer could cause the fund to buy securities; and if the securities are bad, the fund's shareholders would be harmed.

The potential problem with a bank-advised fund is that the adviser could cause the fund to buy securities in an underwriting because the issuer owes money to the bank. The issuer would then use the proceeds to retire its debt to the bank. If the issuer or underwriter is not a fund insider, the Investment Company Act would not expressly prohibit that purchase.

'Actual Knowledge'

Mellon has represented that the Dreyfus funds will not purchase securities in an underwriting if an employee of the adviser of the funds has "actual knowledge" that the issuer will use the proceeds to retire its debt to Mellon.

This condition is weaker than the comparable Investment Company Act standard, in my view. The corresponding provision in the current version of the Dingell banking bill does not contain any knowledge standard.

I would prefer to see all bank-advised funds excluded from purchasing securities in an underwriting where the issuer owes money to the bank, with some de minimis exceptions.

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