[Federal Register Volume 63, Number 44 (Friday, March 6, 1998)]
[Notices]
[Pages 11318-11320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5773]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23051; 812-10832]
The Gabelli Equity Trust Inc., et al.; Notice of Application
February 27, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
section 19(b) and rule 19b-1 under the Act.
-----------------------------------------------------------------------
Summary of the Application: Applicants request an order to permit
certain registered closed-end management investment companies to make
periodic distributions of long-term capital gains in any one taxable
year, so long as they maintain in effect distribution policies (a) with
respect to their preferred stock calling for periodic dividends of a
specified percentage of the liquidation preference of the preferred
stock or (b) with respect to their common stock calling for periodic
distribution of an amount equal to a fixed percentage of the net asset
value or the market price per share of common stock or a fixed dollar
amount. The order would supersede a prior order.\1\
---------------------------------------------------------------------------
\1\ Gabelli Equity Trust, Inc., Investment Company Act Release
Nos. 22223 (Sept. 16, 1997) (notice) and 22282 (October 15, 1997)
(order).
---------------------------------------------------------------------------
Applicants: The Gabelli Equity Trust Inc. (``GET''), the Gabelli
Global Multimedia Trust Inc. (``GGMT''), The Gabelli Convertible
Securities Fund, Inc. (``GCSF''), and each registered closed-end
management investment company advised in the future by Gabelli Funds,
Inc. (``Gabelli'') or by an entity controlling, controlled by, or under
common control (within the meaning of section 2(a)(9) of the Act) with
Gabelli (``Future Funds'') (Future Funds, together with GET, GGMT, and
GCSF, the ``Funds'').\2\
---------------------------------------------------------------------------
\2\ All existing registered closed-end management investment
companies that currently intend to rely on the requested order are
named as applicants and any registered closed-end management
investment company that may rely on the order in the future will
comply with the terms and conditions of the application.
FILING DATES: The application was filed on October 29, 1997. Applicants
have agreed to file an amendment, the substance of which is
incorporated in this notice, during the notice period.
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 applicants with a copy of the request, personally or by mail.
Hearing requests should be received by the SEC by 5:30 p.m. on March
20, 1998 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, One Corporate Center, Rye, NY 10580, Attention:
Bruce N. Alpert.
FOR FURTHER INFORMATION CONTACT:
Kathleen L. Knisely, Staff Attorney, at (202) 942-0517, or Nadya B.
Roytblat, Assistant Director, 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 from
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington,
D.C. 20549 (tel. 202-942-8090).
Applicants' Representations
1. Each Fund is a closed-end management investment company
organized as a Maryland corporation and registered under the Act. Each
Fund issues common stock. GGMT and GCSF also issue preferred stock.
GET's and GGMT's investment objective is to seek long-term growth of
capital by investing in a portfolio of equity securities. GCSF's
investment objective is to seek a high level of total return on its
assets. Gabelli is the investment adviser to the Funds and is
registered under the Investment Advisers Act of 1940.
2. The Funds wish to institute dividend payment policies with
respect to the GGMT cumulative preferred stock, the GCSF cumulative
preferred stock, and any other preferred stock that may be issued by
the Funds calling for periodic dividends in an amount equal to a
specified percentage of the liquidation preference of the Fund's
preferred stock (``Preferred Dividends
[[Page 11319]]
Policy''). The specified percentage may be determined at the time the
preferred stock is initially issued, pursuant to periodic remarketings
or auctions, or otherwise. Under the requested relief, the periodic
payments may include long-term capital gains so long as a Fund
maintains in effect the Preferred Dividend Policy.
3. The Funds also wish to be able to institute distribution
policies with respect to their common stock calling for periodic
distributions of an amount equal to a fixed percentage of the Fund's
average net asset value over a specified period of time or market price
per share of common stock at or about the time of the distribution or
payout or of a fixed dollar amount (``Common Stock Policy''). Periodic
payments pursuant to the Common Stock Policy may be made no more
frequently than quarterly, except that a Fund may elect to pay an
additional dividend pursuant to section 855 of the Internal Revenue
Code of 1986, as amended (the ``Code''). Under the requested relief,
these payments may include long-term capital gains so long as a Fund
maintains in effect the Common Stock Policy.
4. The frequency of the periodic payments under the Preferred
Dividends Policy and the Common Stock Policy will not be related to one
another in any way. The Common Stock Policy will be initially
established and reviewed at least annually by each Fund's board of
directors (the ``Board'') and will be changeable at the discretion of
the Fund's Board. The annual distribution rate under the Common Stock
Policy generally will be independent of the Fund's performance in any
of the first three quarters of the Fund's fiscal year. The rate may be
adjusted in the fourth quarter in light of the Fund's performance for
the fiscal year and to enable the Fund to comply with the requirement
of the Code, for the year.
Applicants' Legal Analysis
1. Section 19(b) of the Act provides that registered investment
companies may not, in contravention of such rules, regulations, or
orders as the SEC may prescribe, distribute long-term capital gains
more often then once every twelve months. Rule 19b-1 under the Act
limits the number of capital gains distributions, as defined in section
852(b)(3)(C) of the Code, that the Funds may make with respect to any
one taxable year to one, plus a supplemental distribution made pursuant
to section 855 of the Code not exceeding 10% of the total amount
distributed for the year, and one additional log-term capital gains
distribution made to avoid the excise tax under section 4982 of the
Code. In addition, Revenue Ruling 89-81 takes the position that if a
regulated investment company has two classes of shares, it may not
designate distributions made to either class in any year as consisting
of more than the class's proportionate share of particular types of
income, such as capital gains.
2. Applicants state that, under rule 19b-1, to the extent net
investment income and realized short-term capital gains are
insufficient to cover the periodic payments under the Preferred
Dividends Policy and Common Stock Policy, the remaining amount must be
treated as a return of capital even though net realized long-term
capital gains would otherwise be available. The net long-term capital
gains in excess of the periodic distributions permitted by the rule
then must either be added as an ``extra'' on one of the permitted
capital gains distributions on the common stock, thus exceeding the
total annual amount called for by the Common Stock Policy or be
retained by the Funds (with the Funds paying taxes on those amounts).
Applicants further state that because of the Revenue Ruling 89-81, any
``extra'' payments of long-term capital gains to holders of common
stock require proportionate allocations of the ``extra'' long-term
capital gains to the preferred stock, which applicants argue to be
difficult to do.
3. Applicants believe that granting the requested relief would help
the Funds avoid these tax consequence. Applicants also state that the
discount at which each Fund's shares of common stock currently trade
will be reduced if the Funds institute the Common Stock Policy.
4. Applicants note that one of the concerns leading to the adoption
of section 19(b) and rule 19b-1 was that shareholders might be unable
to distinguish between frequent distributions of capital gains and
dividends from investment income. In the case of preferred stock,
applicants state that investor confusion is unlikely since all an
investor expects to receive is the specified dividend distribution for
any particular dividend period, and no more. Applicants also state that
in accordance with rule 19b-1 under the Act, a separate statement
showing the net investment income component of the distribution will
accompany each preferred stock dividend, and a statement provided near
the end of the last dividend period in a year will indicate the source
or sources of each distribution that was made during the year.
Applicants state that a similar separate statement showing the source
of the distribution will accompany each common stock distribution (or
the confirmation of reinvestment under the Funds' dividend reinvestment
plan). In addition, for both the common and preferred stock, the amount
and source or sources of distributions received during the year will be
included in each Fund's IRS Form 1099-DIV reports sent to each
shareholder who received distributions during the year (including
shareholders who sold shares during the year). This information on an
aggregate basis will also be included in the Funds' annual report to
shareholders.
5. Applicants state that another concern that led to the adoption
of section 19(b) and rule 19b-1 was that frequent capital gains
distributions could facilitate improper fund distribution practices,
including in particular the practice of urging an investor to purchase
fund shares on the basis of an upcoming dividend (``selling the
dividend''), where the dividend results in an immediate corresponding
reduction in net asset value and is in effect a return of the
investor's capital. Applicants believe that this concern does not arise
with regard to closed-end investment companies, such as the Funds,
which do not continuously distribute their shares.
6. Applicants note that the Funds have completed and intend to make
transferable rights offerings of additional shares of common stock to
shareholder, subject to conditions in the requested order. Applicants
represent that, in a rights offering, shares will be offered during a
one-month interval prior to the declaration of the dividend; thus the
``selling of the dividend'' abuse would not occur as a matter of
timing.
7. Section 6(c) provides that the SEC may exempt any person,
security, or transaction, or any class or classes of persons,
securities, or transactions, from any provisions of the Act, if, and to
the extent 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. For
the reasons stated above, applicants believe that the requested
exemption meets the standards set forth in section 6(c).
Applicants' Condition
Applicants agree that the order granting the requested relief with
respect to the Funds' common stock shall terminate with respect to a
Fund upon the effective date of a registration statement under the
Securities Act of 1933, as amended, for any future public offering of
common stock of the Fund other than:
(i) A rights offering to shareholders of such Fund, provided that
(a) such
[[Page 11320]]
offering does not include the payment of solicitation fees to brokers
in excess of 3% of the subscription price per share or the payment of
any other commissions or underwriting fees in connection with the
offering or exercise of the rights, (b) the rights will not be
exercisable between the date a dividend to such Fund's common stock
holders is declared and the record state of such dividend and (c) such
Fund has not engaged in more than one rights offering during any given
calendar year or (ii) an offering in connection with a merger,
consolidation, acquisition, spin-off or reorganization; unless such
Applicant has received from the staff of the SEC written assurance that
the order will remain in effect.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-5773 Filed 3-5-98; 8:45 am]
BILLING CODE 8010-01-M
