[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