[Federal Register Volume 59, Number 148 (Wednesday, August 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18825]
[[Page Unknown]]
[Federal Register: August 3, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20431; 812-9090]
The Gabelli Equity Trust Inc., et al.; Application
July 28, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1994 (the ``Act'').
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APPLICANTS: The Gabelli Equity Trust Inc. (the ``Trust''), the Gabelli
Global Multimedia Trust Inc. (``Multimedia''), and Gabelli Funds, Inc.
(``GFI'').
RELEVANT ACT SECTIONS: Exemption requested under section 17(b) from
section 17(a) and pursuant to section 17(d) and rule 17d-1.
SUMMARY OF APPLICATION: Applicants seek an order to permit the Trust to
transfer a portion of its assets to Multimedia, a newly formed, wholly-
owned subsidiary that is a registered investment company and to
distribute to the Trust's shareholders the stock of the subsidiary
received in exchange for the transfer of assets.
FILING DATES: The application was filed on July 1, 1994.
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 August 24, 1994,
and should be accompanied by proof of service on the 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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants, One Corporate Center, Rye, New York 10580.
FOR FURTHER INFORMATION CONTACT:
James M. Curtis, Senior Counsel, at (202) 942-0563 or Barry D. Miller,
Senior Special Counsel, at (202) 942-056 (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
SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is a non-diversified, closed-end management investment
company. GFI is the investment adviser to the Trust. The Trust seeks
long-term growth of capital primarily through investment in equity
securities. Income is a secondary objective of the Trust. When the
Trust commenced operations, it stated in its prospectus that, as a non-
diversified investment company, the Trust could concentrate investments
in individual issues to a greater degree than a diversified investment
company.
2. The Board of Directors of the Trust has taken several steps in
order to seek to reduce any discount between the trading price of the
Trust's shares and the Trust's net asset value. The Board of Directors
of the Trust has authorized the purchase of Trust shares in the open
market whenever a discount of 10% or more exists. Additionally, the
Board has adopted a ``10% payout'' policy.\1\ while the Board of
Directors of the Trust believes that the adoption of this policy has
ameliorated the discount at which the Trust's shares trade, GFI, in
managing the Trust's assets with a view toward assuring that the Trust
will be able to meet its 10% payout policy on a consistent basis, has
diversified the Trust's investments to a greater extent than required
under the Act and the Internal Revenue Code of 1986, as amended.
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\1\Pursuant to this policy, the Trust makes quarterly
distributions of $0.25 per share following each of the first three
calendar quarters of each year and an adjusting distribution in
December equal to the sum of 2.5% of the net asset value of the
Trust as of the last day of the four preceding calendar quarters
less the aggregate distribution of $0.75 per share for the most
recent calendar quarters.
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3. Multimedia was incorporated on March 31, 1994 and filed a
notification of registration on Form N-8A on April 8, 1994 to register
under the Act as a non-diversified closed-end management investment
company. Multimedia filed a registration statement under the Act on
Form N-2 on July 8, 1994. The Trust owns 10,000 shares of Multimedia's
common stock, constituting all the issued and outstanding shares of the
common stock of Multimedia.\2\ These shares were issued in respect of
the Trust's contribution to Multimedia of $100,000 of initial capital.
The person who currently serve as directors of the Trust are the
directors of Multimedia, and the principle executive officers of the
Trust hold the same officers with Multimedia.
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\2\Applicants received a non-action letter with respect to
section 12(d)91). See The Gabelli Equity Trust, (pub. avail. April
1, 1994).
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4. Multimedia's primary investment objective is long-term growth of
capital. However, unlike the Trust, which attempts to achieve this
objective by investing primarily in a portfolio of equity securities of
companies in a wide variety of industries, Multimedia will concentrate
its investments in common stock and other securities of foreign and
domestic companies in telecommunications, entertainment, media, and
publishing industries.
5. The Board of Directors of the Trust has approved, subject to
exemptive relief and subsequent shareholder approval, the contribution
of up to 10% of the Trust's net assets (but in any event not less than
$60 million in order to satisfy the listing requirements of the New
York Stock Exchange) to Multimedia. It is anticipated that the
contributed assets will consist largely or exclusively of cash and
short-term fixed income instruments. All the shares of the common stock
of Multimedia then will be distributed by the Trust as a dividend to
its shareholders at a rate of one share of Multimedia Trust common
stock for every ten shares held of the Trust. The contribution of the
Trust assets to Multimedia and the subsequent distribution of
Multimedia shares to the Trust shareholders is referred to herein as
the ``Transaction.'' Application will be made to list Multimedia's
shares for trading on the New York Stock Exchange.
6. GFI will serve as investment adviser to Multimedia. The advisory
fee structure for Multimedia will be the same as that approved by the
Trust shareholders at the Trust's 1994 annual meeting of shareholders
held on June 27, 1994.\3\
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\3\Under the investment advisory agreement between Multimedia
and GFI, GFI will manage the portfolio of Multimedia and also
oversee the administration of all aspects of Multimedia's business.
The investment advisory agreement will provide that Multimedia will
pay GFI a fee computed weekly and paid monthly at an annual rate of
1.00% of Multimedia average weekly net assets.
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7. The Board of Directors of the Trust believes that the
Transaction will result in the following benefits to Trust
shareholders: (a) Shareholders will receive shares of an investment
company with a more concentrated portfolio and a different risk-return
profile than the Trust; (b) shareholders will acquire Multimedia shares
at a much lower cost than is typically the case for a newly-organized
closed-end equity fund since there will be no underwriting discounts or
commissions; and (c) Multimedia will distribute substantially all of
its annual net income and capital gains to shareholders at year end,
and consequently Multimedia may be more fully invested in equity
securities than the Trust. Multimedia does not intend to adopt a
dividend policy similar to the Trust's 10% payout policy. The Board of
Directors believes that the benefits of the Transaction outlined above
outweigh the costs of the Transaction.
8. The Trust does not expect that it will recognize significant
taxable gain on its contribution of cash and securities to Multimedia
in exchange for shares of Multimedia. Multimedia has been advised by
counsel that the distribution of shares of Multimedia to Trust
shareholders likely will be a taxable event for Trust shareholders and,
under certain circumstances, will be a taxable event for the Trust.
However, the Transaction is not expected to increase significantly the
total amount of taxable distributions received by Trust shareholders
for the year in which the Transaction is consummated and is not
expected to result in the recognition of significant taxable gain by
the Trust.
9. The costs of organizing Multimedia and effecting the
distribution of Multimedia's shares to the Trust's shareholders,
including the fees and expense of counsel and accountants and printing,
listing, and registration fees, are estimated to be approximately
$250,000 and will be borne by Multimedia. The Trust will bear the costs
of soliciting its shareholders' approval of the Transaction. The costs
incurred in connection with the application for exemptive relief will
be allocated between the Trust and Multimedia on the basis of their net
assets, after giving effect to the Transaction. Costs incurred in
connection with the organization of Multimedia will be amortized on a
straight-line basis for a five-year period beginning at the
commencement of operations of Multimedia. In addition, Multimedia will
incur operating expenses on an ongoing basis, including legal,
auditing, transfer agency, and custodian expenses that, when aggregated
with the fees payable by the Trust for similar services after the
distribution, will likely exceed the fees currently payable by the
Trust for those services. It is not expected that the Transaction will
have significant effect on the annual expenses of the Trust as a
percentage of its assets.
Applicants' Legal Analysis
1. The Trust may be viewed as an affiliated person of Multimedia
under section 2(a)(3) of the Act since the Trust will own 100 percent
of Multimedia's voting securities until the consummation of the
Transaction. Multimedia may similarly be considered an affiliated
person of the Trust since 100 percent of Multimedia's voting securities
will be owned by the Trust. The Trust and Multimedia also may be viewed
as affiliated persons of each other to the extent that they may be
deemed to be under the common control of GFI.
2. Section 17(a)(1) of the Act makes it unlawful, among other
things, for any affiliated person of a registered investment company to
sell any securities or other property to the registered company.
Section 17(a)(2) of the Act makes it unlawful, among other things, for
such an affiliated person to purchase securities or other property from
the registered company.
3. As a result of the affiliation between the Trust and Multimedia,
section 17(a)(1) would prohibit the Trust's ``sale'' to Multimedia of a
portion of the Trust's assets and Multimedia's ``sale'' to the Trust of
securities issued by Multimedia, although the latter transaction
arguably may be excepted by section 17(a)(1)(B). Section 17(a)(2) would
prohibit Multimedia's ``purchase'' from the Trust of such portion of
the Trust's assets. It is also possible that section 17(a) may apply
with respect to the Trust's pro rata distribution of Multimedia
securities to any Trust shareholder holding more than 5% of Trust
shares.
4. Applicants request an exemption pursuant to section 17(b) of the
Act from the provisions of section 17(a) of the Act in order to permit
the Trust to effect the Transaction. Section 17(b) authorizes the SEC
to issue such an exemptive order if certain conditions are met.
5. Applicants also seek an order under section 17(d) and rule 17d-1
thereunder. Section 17(d) and rule 17d-1 thereunder generally prohibit,
among other things, transactions in which a registered investment
company and any affiliated person of such a company may be deemed to be
acting jointly. Applicants request an order pursuant to rule 17d-1 to
the extent that the participation of the applicants in the Transaction
may be deemed to constitute a prohibited joint transaction.
6. Applicants assert that the terms of the Transaction, including
the consideration to be paid or received, are fair and reasonable and
involve no element of overreaching. Applicants state that the proposed
sale by the Trust of a portion of its assets to Multimedia in exchange
for the securities of Multimedia will be based on the fair value of
those assets as computed on the day of the proposed transfer.
Applicants further state that such assets are anticipated to consist
largely or exclusively of cash and short-term fixed income instruments
and thus will likely pose few, if any, issued with respect to
valuation. Similarly, applicants assert that Multimedia stock
distributed by the Trust in the Transaction will be valued based on the
value of Multimedia's assets. ``Value'' for those purposes will be
determined in accordance with the provisions of section 2(a)(41) of the
Act and rule 2a-4 thereunder.
7. Applicants state that the Transaction will be consistent with
stated investment policies of the Trust and Multimedia as fully
disclosed to shareholders. The distribution of Multimedia shares will
not change the position of the Trust's shareholders with respect to the
underlying investments that they then own; such investments simply will
be held through two closed-end non-diversified investment companies
with the same investment objectives rather than one. Thus, the effect
of the Transaction is consistent with the information contained in past
disclosure documents of the Trust. A proxy statement/prospectus of the
Trust and Multimedia will be used, following the issuance of the
exemptive relief, to solicit the approval of the Trust shareholders of
the Transaction. Moreover, the Trust's shareholders will have the
opportunity to vote on the Transaction after having received extensive
disclosure concerning the Transaction.
8. Applicants state that the Transactions will not place any of the
Trust, Multimedia, or existing shareholders of the Trust in a position
less advantageous than that of any other of such persons. The Trust's
assets transferred to Multimedia (and the shares received in return)
will be based on their fair value as computed on the day of the
transfer in accordance with the requirements of the Act. The shares of
Multimedia will be distributed as a dividend to the shareholders in the
same investment posture immediately following the Transaction as
before.
9. Applicants also assert that the Transaction comports with the
policies underlying rule 17a-8, which exempts from section 17(a) a
merger, consolidation, or purchase or sale of substantially all of the
assets involving registered companies which may be affiliated persons,
or affiliated persons of an affiliated person, solely by reason of
having a common investment adviser, common directors, and/or common
officers. While the Trust and Multimedia will be affiliated briefly
because of the Trust's ownership of Multimedia, the only potential
affiliation after the distribution will be a commonality of investment
adviser, directors, and certain officers. The Trust's Board of
Directors, including a majority of the directors who are not interested
persons of the Trust, have made the following findings required by rule
17a-8: (a) that participation in the Transaction is in the best
interests of the Trust; and (b) that the interests of the existing
shareholders of the Trust will not be diluted as a result of its
effecting the transactions. In addition, as required by rule 17a-8,
such findings, and the basis upon which the findings were made, will be
recorded fully in the minute book of the Trust.
10. Accordingly, applicants believe that the standards of sections
17(b) and 17(d) and rule 17d-1 thereunder are met.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18825 Filed 8-2-94; 8:45 am]
BILLING CODE 8010-01-M
