
[Federal Register: December 4, 2009 (Volume 74, Number 232)]
[Notices]               
[Page 63804-63806]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04de09-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29064; 812-13712]

 
Strategic Funds, Inc., et al.; Notice of Application

November 30, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act, as well as from certain 
disclosure requirements.

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    Summary of Application: Applicants request an order that would 
permit them to enter into and materially amend subadvisory agreements 
without shareholder approval and would grant relief from certain 
disclosure requirements.
    Applicants: Strategic Funds, Inc. (the ``Company'') and The Dreyfus 
Corporation (the ``Adviser'').
    Filing Dates: The application was filed on November 2, 2009, and 
amended on November 24, 2009.
    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 December 22, 2009, 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, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090; Applicants: The Dreyfus 
Corporation, 200 Park Avenue, New York, NY 10166.

FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at 
(202) 551-6826, or Julia Kim Gilmer, Branch Chief, at (202) 551-6821 
(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 via the 
Commission's

[[Page 63805]]

Web site by searching for the file number, or an applicant using the 
Company name box, at http://www.sec.gov/search/search.htm or by calling 
(202) 551-8090.

Applicants' Representations

    1. Strategic Funds, Inc., a Maryland corporation, is registered 
under the Act as an open-end management investment company and 
currently offers five series employing one or more investment 
subadvisers (``Subadvisers''), each with separate investment 
objectives, policies and restrictions (each, a ``Fund'' and 
collectively, the ``Funds'').\1\ The Adviser, the primary mutual fund 
business of The Bank of New York Mellon Corporation, is registered as 
an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). The Adviser serves as investment adviser to each 
Fund under an investment advisory agreement with the Company 
(``Advisory Agreement'') that has been approved by the shareholders of 
each Fund and by the board of directors of the Company (``Board''), 
including a majority of the directors who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, of the Company or 
the Adviser (``Independent Board Members'').
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    \1\ Applicants also request relief with respect to future Funds 
and any other existing or future registered open-end management 
investment company or series thereof that: (a) Is advised by the 
Adviser or a person controlling, controlled by, or under common 
control with the Adviser (included in the term ``Adviser''); (b) 
uses the manager of managers structure described in the application; 
and (c) complies with the terms and conditions of the application 
(included in the term ``Funds''). The only existing registered open-
end management investment company that currently intends to rely on 
the requested order is named as an applicant. If the name of any 
Fund contains the name of a Subadviser, the name of the Adviser will 
precede the name of the Subadviser.
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    2. Under the terms of the Advisory Agreement, the Adviser provides 
a Fund with investment management, research and supervision, and 
furnishes a program of investment, evaluation and, if appropriate, sale 
and reinvestment of such Fund's assets. For the investment management 
services that it provides to each Fund, the Adviser receives the fee 
specified in the Advisory Agreement from the Fund. The Advisory 
Agreement also permits the Adviser to enter into investment subadvisory 
agreements (``Subadvisory Agreements'') with one or more Subadvisers. 
Pursuant to its authority under the Advisory Agreement, the Adviser 
(having obtained appropriate Board and shareholder approval) has 
entered into Subadvisory Agreements with various Subadvisers to provide 
investment advisory services to certain Funds. Each Subadviser is, and 
every future Subadviser will be, registered as an investment adviser 
under the Advisers Act. The Adviser will evaluate, allocate assets to, 
and oversee the Subadvisers, and make recommendations about their 
hiring, termination and replacement to the Board, at all times subject 
to the authority of the Board.\2\ Subadvisers recommended to the Board 
by the Adviser will be selected and approved by the Board, including a 
majority of the Independent Board Members. Each Subadviser will have 
discretionary authority to invest all or a portion of the assets of a 
particular Fund, subject to the general supervision of the Adviser and 
the Board. The Adviser will compensate each Subadviser out of the fees 
paid to the Adviser by the Fund.
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    \2\ The Adviser has entered into an agreement with its 
affiliate, EACM Advisors LLC (``EACM''), which is registered as an 
investment adviser under the Advisers Act, (the ``Consultant 
Agreement'') to assist the Adviser with the Dreyfus Select Managers 
Small Cap Value Fund. Pursuant to the Consultant Agreement, EACM 
assists the Adviser in evaluating and recommending Subadvisers, and 
recommending the portion of portfolio assets to be managed by each 
Subadviser, as well as monitoring and evaluating the performance of 
Subadvisers and recommending whether a Subadviser should be 
terminated. EACM may provide similar services for other Funds. 
However, it is the Adviser's responsibility to select, subject to 
the review and approval of the Board, Subadvisers to manage all or 
part of a Fund's assets and review their performance.
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    3. Applicants request an order to permit the Adviser, subject to 
Board approval, to enter into and materially amend Subadvisory 
Agreements without obtaining shareholder approval. The requested relief 
will not extend to EACM or to any Subadviser who is an affiliated 
person, as defined in section 2(a)(3) of the Act, of the Company or the 
Adviser, other than by reason of serving as a Subadviser to one or more 
of the Funds (``Affiliated Subadviser'').
    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require the Funds to disclose fees 
paid by the Adviser to each Subadviser. An exemption is requested to 
permit a Fund to disclose (as both a dollar amount and as a percentage 
of the Fund's net assets): (a) The aggregate fees paid to the Adviser 
and any Affiliated Subadvisers; and (b) the aggregate fees paid to 
Subadvisers other than Affiliated Subadvisers (``Aggregate Fee 
Disclosure''). Any Fund that employs an Affiliated Subadviser will 
provide separate disclosure of any fees paid to the Affiliated 
Subadviser. Each Fund also will provide separate disclosure of any fees 
paid to EACM.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series company affected by a matter must approve such 
matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 14(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.\3\
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    \3\ Form N-1A was recently amended by the Commission, effective 
March 31, 2009, and Item 14(a)(3) should be read to refer to Item 
19(a)(3) for each Fund when that Fund begins using the revised form.
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    3. Item 22 of Schedule 14A under the Securities Exchange Act of 
1934 (``1934 Act''), through the application of rule 20a-1 under the 
Act, sets forth the information that must be included in an investment 
company proxy statement. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) 
and 22(c)(9) of Schedule 14A, taken together, require a proxy statement 
for a shareholder meeting at which the advisory contract will be voted 
upon to include the ``rate of compensation of the investment adviser,'' 
the ``aggregate amount of the investment adviser's fees,'' a 
description of the ``terms of the contract to be acted upon,'' and, if 
a change in the advisory fee is proposed, the existing and proposed 
fees and the difference between the two fees.
    4. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
their investment advisers, including the Subadvisers.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    6. Section 6(c) of the Act 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 the Act, or 
from any rule thereunder, if and

[[Page 63806]]

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. 
Applicants believe that their requested relief meets this standard.
    7. Applicants state that the shareholders expect the Adviser and 
the Board to select the Subadviser for a Fund that is best suited to 
achieve the Fund's investment objective. Applicants assert that, from 
the perspective of the investor, the role of the Subadvisers is 
substantially equivalent to the role of the individual portfolio 
managers employed by traditional investment company advisory firms. 
Applicants believe that permitting the Adviser to perform those duties 
for which shareholders of the Funds are paying the Adviser without 
incurring unnecessary delay or expense would be appropriate in the 
interests of Fund shareholders and would allow the Funds to operate 
more efficiently. Applicants note that the Advisory Agreement, the 
Consultant Agreement and any Affiliated Subadviser's Subadvisory 
Agreement would remain fully subject to the requirements of section 
15(a) of the Act and rule 18f-2 under the Act, including the 
requirement for shareholder voting.
    8. Applicants assert that many Subadvisers use a ``posted'' rate 
schedule to set their fees. Applicants state that while Subadvisers are 
willing to negotiate fees that are lower than those posted on the 
schedule, they are reluctant to do so where the fees are disclosed to 
other prospective and existing customers. Applicants submit that the 
requested relief will allow the Adviser to negotiate more effectively 
with each Subadviser.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Fund may rely on the order requested in the 
application, the operation of the Fund in the manner described in the 
application will be approved by a majority of the Fund's outstanding 
voting securities, as defined in the Act, or, in the case of a Fund 
whose public shareholders purchase shares on the basis of a prospectus 
containing the disclosure contemplated by condition 2 below, by the 
sole initial shareholder before offering the Fund's shares to the 
public.
    2. The prospectus for each Fund will disclose the existence, 
substance, and effect of any order granted pursuant to the application. 
Each Fund will hold itself out to the public as employing the manager 
of managers structure described in the application. The prospectus will 
prominently disclose that the Adviser has ultimate responsibility 
(subject to oversight by the Board) to oversee the Subadvisers and 
recommend their hiring, termination, and replacement.
    3. Within 90 days of the hiring of a new Subadviser, the affected 
Fund shareholders will be furnished all information about the new 
Subadviser that would be included in a proxy statement, except as 
modified to permit Aggregate Fee Disclosure. This information will 
include Aggregate Fee Disclosure and any change in such disclosure 
caused by the addition of the new Subadviser. To meet this obligation, 
the Fund will provide shareholders within 90 days of the hiring of a 
new Subadviser with an information statement meeting the requirements 
of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the 
1934 Act, except as modified by the order to permit Aggregate Fee 
Disclosure.
    4. The Adviser will not enter into a Subadvisory Agreement with any 
Affiliated Subadviser without that agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    5. At all times, at least a majority of the Board will be 
Independent Board Members, and the nomination of new or additional 
Independent Board Members will be placed within the discretion of the 
then existing Independent Board Members.
    6. When a Subadviser change is proposed for a Fund with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Board Members, will make a separate finding, reflected in 
the applicable Board minutes, that such change is in the best interests 
of the Fund and its shareholders and does not involve a conflict of 
interest from which the Adviser or the Affiliated Subadviser derives an 
inappropriate advantage.
    7. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Board Members. 
The selection of such counsel will be within the discretion of the then 
existing Independent Board Members.
    8. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per-Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Subadviser during the 
applicable quarter.
    9. Whenever a Subadviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    10. The Adviser will provide general management services to each 
Fund, including overall supervisory responsibility for the general 
management and investment of the Fund's assets and, subject to review 
and approval of the Board, will (a) set each Fund's overall investment 
strategies; (b) evaluate, select and recommend Subadvisers to manage 
all or a part of a Fund's assets; (c) when appropriate, allocate and 
reallocate a Fund's assets among multiple Subadvisers; (d) monitor and 
evaluate the performance of Subadvisers; and (e) implement procedures 
reasonably designed to ensure that the Subadvisers comply with each 
Fund's investment objective, policies and restrictions.
    11. No director or officer of the Company, or director or officer 
of the Adviser, will own directly or indirectly (other than through a 
pooled investment vehicle that is not controlled by such person) any 
interest in a Subadviser, except for (a) ownership of interests in the 
Adviser or any entity that controls, is controlled by, or is under 
common control with the Adviser; or (b) ownership of less than 1% of 
the outstanding securities of any class of equity or debt of a publicly 
traded company that is either a Subadviser or an entity that controls, 
is controlled by or is under common control with a Subadviser.
    12. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    13. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that in the order requested 
in the application, the requested order will expire on the effective 
date of that rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-28977 Filed 12-3-09; 8:45 am]

BILLING CODE 8011-01-P
