DBJXX Dreyfus Muni Fds (MM)

UNITED STATES OF AMERICA

BEFORE THE

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

 

 

 

 

 

 

UNITED STATES OF AMERICA

BEFORE THE

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

 

 

Consistent with its fiduciary obligations under the 1940 Act, each Related Fund of Fund's board of directors or trustees will review any advisory fees charged by the Related Fund of Fund's investment adviser to ensure that they are based on services provided that are in addition to, rather than duplicative of, services provided pursuant to the advisory agreement of any investment company in which the Related Fund of Funds may invest.

 

I.       BACKGROUND

 

A.             The Companies and the Underlying Funds

 

 

B.             The Investment Adviser and Distributor

 

 

The Adviser is a New York corporation registered with the Commission as an investment adviser under Section 203 of the Investment Advisers Act of 1940, as amended (the " Advisers Act ").  The Adviser (or a division thereof in the case of BNY Mellon Funds Trust) serves as investment adviser to each Company pursuant to a management agreement with the Company (the " Advisory Agreement ").  Under the terms of the Advisory Agreement, the Adviser provides a Company with investment management, research and supervision, and furnishes a program of investment, evaluation and, if appropriate, sale and reinvestment of such Company's assets.  For the investment management services it provides to each Company, the Adviser receives from the Company the fee specified in the Advisory Agreement.  The fee is payable monthly at an annual rate based on the average daily net assets of the Company.

 

 

E.             Proposed Transactions – Investments in Other Investments by Related Funds of Funds

 

Each Related Fund of Funds may invest in certain Underlying Funds as set forth in its prospectus.  Applicants propose that, subject to the terms and conditions set forth in this Application, the Related Funds of Funds be permitted to invest in Other Investments.  The opportunity to invest in Other Investments will allow the Related Funds of Funds greater flexibility to meet their investment objectives than is possible through the more limited kinds of investments expressly permitted by Rule 12d1-2(a)(2) under the 1940 Act ( e.g. , stocks, bonds and other securities that are not issued by an investment company) (" Permitted Securities Investments ").  There may be times when using certain derivatives or other permissible financial instruments may allow a Related Fund of Funds to invest in eligible asset classes with greater efficiency and lower cost than is possible through investment in an Underlying Fund or other Permitted Securities Investments.  Each Related Fund of Funds would use Other Investments for a purpose that is consistent with its investment objectives, policies, strategies and limitations.  The Adviser believes that its ability to use the fund of funds structure in combination with direct investments in securities and Other Investments will allow it to create better investment products that are suitable for a wide variety of mutual fund investors.

 

 

 

II.       LEGAL ANALYSIS

 

A.             Section 12(d)(1) of the 1940 Act

 

1.             Applicable Law

 

Section 12(d)(1)(A) of the 1940 Act prohibits, in relevant part, a registered investment company (" acquiring company ") from acquiring shares of an investment company (" acquired company ") if the securities represent more than 3% of the total outstanding voting stock of the acquired company, more than 5% of the total assets of the acquiring company, or, together with the securities of any other investment companies, more than 10% of the total assets of the acquiring company.  Section 12(d)(1)(B) of the 1940 Act prohibits a registered open-end investment company, its principal underwriter and any Broker from knowingly selling shares of the investment company 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 generally.

 

However, the Unrelated Funds of Funds, including Unrelated Funds of Funds sub-advised by the Adviser or its affiliates, will not be considered part of the same "group of investment companies," and, therefore, would not be able to rely on Section 12(d)(1)(G) to acquire shares of the Underlying Funds in excess of the limitations of Sections 12(d)(1)(A) and (B).

 

In 1996, Congress also added Section 12(d)(1)(J) of the 1940 Act, which provides that the Commission may exempt any person, security or transaction, or any class or classes of persons, securities or transactions, from any provision of Section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors.  The legislative history of Section 12(d)(1)(J) indicates that when granting relief under Section 12(d)(1)(J), the Commission should consider, among other things, "the extent to which a proposed arrangement is subject to conditions that are designed to address conflicts of interest and overreaching by a participant in the arrangement, so that the abuses that gave rise to the initial adoption of the 1940 Act's restrictions against investment companies investing in other investment companies are not repeated." 3

 

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3	H.R. Rep. No. 622, 104th Cong., 2d Sess., at 43-44.

 

2.             Basis for Relief Under Section 12(d)(l)(J)

 

Applicants agree to conditions, described herein, that adequately address the concerns underlying the applicable limits in Sections 12(d)(1)(A) and (B) of the 1940 Act.  As such, Applicants believe that the requested exemption is consistent with the public interest and the protection of investors.  Applicants also submit that the proposed arrangements are consistent with Congressional intent that the Commission grant exemptions under Section 12(d)(l)(J) of the 1940 Act in a "progressive manner." 4

 

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4

Id.

 

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a.

Layering of Fees and Expenses

 

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6	Id. at 319-20.

 

7	Id. at 318.

 

Applicants submit that the concerns in the PPI Report with respect to the layering of fees and expenses are not present in the case of the proposed fund of funds arrangement.

 

 

c.

Complex Structures

 

 

 

the 1940 Act in excess of the limits contained in Section 12(d)(1)(A) of the 1940 Act, except in certain circumstances identified in Condition 12 below.

 

B.             Sections 17(a), 17(b) and 6(c) of the 1940 Act

 

1.             Applicable Law

 

Section 17(a)(1) of the 1940 Act, in relevant part, prohibits any affiliated person of a registered investment company, or any affiliated person of such a person, acting as principal, from knowingly selling any security or other property to that company.  Section 17(a)(2) of the 1940 Act generally prohibits the same persons, acting as principals, from knowingly purchasing any security or other property from the registered investment company.

 

Section 2(a)(3) of the 1940 Act defines the term "affiliated person" of another person, in relevant part, as:

 

(A) any person directly or indirectly owning, controlling, or holding with power to vote, 5 per centum or more of the outstanding voting securities of such other person; [and] (B) any person 5 per centum or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other person.

 

Section 17(b) of the 1940 Act provides that the Commission may, upon application, issue an order exempting any proposed transaction from the provisions of Section 17(a) if evidence establishes that:  (1) 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;  (2) the proposed transaction is consistent with the policy of each registered investment company concerned, as recited in its registration statement and reports filed under the 1940 Act; and (3) the proposed transaction is consistent with the general purposes of the 1940 Act.

 

2.             Basis for Relief Under Sections 6(c) and 17(b)

 

The Applicants also request that the Commission issue an order under Sections 6(c) and 17(b) of the 1940 Act exempting them from the provisions of Section 17(a) of the 1940 Act to the extent necessary to permit the proposed investments by Unrelated Funds of Funds in shares of the Underlying Funds. 10

 

Applicants request this order because an Unrelated Fund of Funds relying on the requested order could potentially own more than 5% of the outstanding voting securities of an Underlying Fund and, therefore, the Underlying Fund could be deemed to be an affiliated person of the Unrelated Fund of Funds, and vice-versa. If the Underlying Fund were deemed to be an affiliated person of the Unrelated

 

 

C.             Rule 12d1-2(a) under the 1940 Act

 

1.             Applicable Law

 

In 2006, the Commission adopted Rule 12d1-2 under the 1940 Act. 12   That rule permits a registered open-end investment company or a registered unit investment trust relying on Section 12(d)(1)(G) of the 1940 Act to acquire:  (1) securities issued by an investment company, other than securities issued by another registered investment company that is in the same group of investment companies, when the acquisition is in reliance on Section 12(d)(1)(A) or 12(d)(1)(F) of the 1940 Act; (2) securities (other than securities issued by an investment company); and (3) securities issued by a money market fund, when the acquisition is in reliance on Rule 12d1-1.

 

For the purposes of Rule 12d1-2, the term "securities" means any security as that term is defined in Section 2(a)(36) of the 1940 Act. 13   The Commission noted in the Adopting Release that permitting an affiliated fund of funds to invest, consistent with the fund's investment policies, directly in stocks, bonds, and other types of securities "would allow an acquiring fund greater flexibility in meeting investment objectives that may not be met as well by investments in other funds in the same fund group, while not presenting any additional concerns that Section 12(d)(1)(G) was intended to address." 14   The passage of the Rule also reflects the Commission's response to Congress' expectation "that the Commission will use this authority set forth in Section 12(d)(1)(J) to adopt rules and process exemptive applications in the fund of funds area in a progressive way as the fund of funds concept continues to evolve over time." 15

 

 

Applicants submit that the proposed arrangement would comply with the provisions of Rule 12d1-2 under the 1940 Act, but for the fact that the Related Funds of Funds may invest a portion of their assets in Other Investments.  Applicants submit that the requested exemption offers potential benefits, as detailed above, and is "consistent with the public interest and the protection of investors," and, therefore, meets the standards for relief set forth in Section 6(c) of the 1940 Act.  As indicated below, the Commission has already granted to a number of other applicants relief similar to that requested in this Application.

 

III.       Precedent

 

B.             Relief for Other Investments by Related Funds of Funds

 

IV.       APPLICANTS' CONDITIONS

 

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

 

Other Investments by Related Funds of Funds

 

13.            The Applicants will comply with all provisions of Rule 12d1-2 under the 1940 Act, except for paragraph (a)(2) to the extent that it restricts any Related Fund of Funds from investing in Other Investments as described in the Application.

 

V.       CONCLUSION

 

For the foregoing reasons, Applicants respectfully request that the Commission issue an order under Sections 6(c), 12(d)(1)(J) and 17(b) of the 1940 Act granting the exemptive order sought in this Application.  Applicants submit that the exemption is necessary or appropriate in the public interest, consistent with the protection of investors, and consistent with the purposes fairly intended by the policy and provisions of the 1940 Act.

 

VI.     PROCEDURAL MATTERS

 

Pursuant to the requirements of Rule 0-2(f) under the 1940 Act, Applicants hereby state that their address is:

 

The Dreyfus Corporation

200 Park Avenue

New York, New York  10166

Applicants further state that all communications or questions concerning this Application should be directed to:

David Stephens, Esq.

Stroock & Stroock & Lavan LLP

180 Maiden Lane

New York, New York  10038

(212) 806-6138

With copies to:

Jeff Prusnofsky, Esq.

The Dreyfus Corporation

200 Park Avenue

New York, New York  10166

Pursuant to Rule 0-2(c)(1) under the 1940 Act, each Applicant hereby states that the officer signing and filing this Application on behalf of each Applicant is fully authorized to do so.  Under the provisions of each Applicant's governing document and bylaws, responsibility for the management of the affairs and business of the Applicant is vested in its board of directors or trustees, as applicable.  Resolutions duly adopted by the relevant board authorizing the preparation and filing on behalf of the Companies of the Application, are filed as an exhibit to this Application, and the undersigned officer of the Adviser and the Distributor is fully authorized under the certificate of incorporation and bylaws of the Adviser and the Distributor, respectively, to prepare or cause to be prepared and to execute and file with the Commission this Application and any amendments hereto.  Each Applicant has complied with all requirements for the execution and filing of this Application in the name and on behalf of each Applicant.

 

The verifications required by Rule 0-2(d) under the 1940 Act are attached to this Amendment to the Application.

 

Applicants request that the Commission issue an order without a hearing pursuant to Rule 0-5 under the 1940 Act.

 

IN WITNESS WHEREOF, each Applicant has caused this Application to be duly executed this 11th day of May, 2012.

 

 

 

	By: /s/ Jeff Prusnofsky
	Name:  Jeff Prusnofsky
	Title:    Vice President

	THE DREYFUS CORPORATION
	By: /s/ James Bitetto
	Name:  James Bitetto
	Title:    Secretary
	MBSC SECURITIES CORPORATION
	By:  /s/ James Bitetto
	Name:  James Bitetto
	Title:    Assistant Secretary

 

 

EXHIBIT INDEX

 

		PAGE NUMBER
Exhibit A-1	Resolutions of Boards of the Companies	A-1
Exhibit B-1	Verification of Companies	B-1
Exhibit B-2	Verification of The Dreyfus Corporation	B-2
Exhibit B-3	Verification of MBSC Securities Corporation	B-3

 

EXHIBIT A-1

 

 

 

RESOLUTIONS ADOPTED BY EACH BOARD

 

RESOLVED , that the Company's Board, including the Board members who are not "interested persons" (as defined in the Investment Company Act of 1940, as amended (the " 1940 Act ")) of the Company, hereby authorizes and directs the officers of the Company, with the assistance of legal counsel, to prepare and file with the Securities and Exchange Commission (the " Commission ") an application for an order under Section 12(d)(l)(J) of the 1940 Act for an exemption from Sections 12(d)(1)(A) and 12(d)(1)(B) of the 1940 Act, under Sections 6(c) and 17(b) of the 1940 Act for an exemption from Sections 17(a)(1) and 17(a)(2) of the 1940 Act and under Section 6(c) of the 1940 Act for an exemption from

 

 

 Rule 12d1-2(a) under the 1940 Act (the " Application "), and any and all amendments thereto; and it was further

 

RESOLVED , that the Company may rely on relief received pursuant to the Application in an order of the Commission at the discretion of the Company 's officers; and it was further

 

RESOLVED , that each appropriate officer of the Company, acting alone, hereby is authorized, empowered and directed, acting with such advice of counsel as such officer shall deem necessary, to take such actions, and to prepare, execute and file, in the name of and on behalf of the Company, any and all documents, agreements, certificates, or instruments which such officer deems necessary, appropriate or convenient to carry out the intent and purposes of the foregoing resolutions.

 

 

 

 

EXHIBIT B-1

VERIFICATION

 

 

	/s/ Jeff Prusnofsky
	Jeff Prusnofsky
	Vice President

 

 

 

 

 

VERIFICATION

 

	/s/ James Bitetto
	James Bitetto
	Secretary

 

 

 

 

 

 

VERIFICATION

 

 

	/s/ James Bitetto
	James Bitetto
	Assistant Secretary