[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] ----------------------------------------------------------------------- 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''). ----------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \2\Applicants received a non-action letter with respect to section 12(d)91). See The Gabelli Equity Trust, (pub. avail. April 1, 1994). --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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