[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]


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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.

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    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\
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    \1\ Gabelli Equity Trust, Inc., Investment Company Act Release 
Nos. 22223 (Sept. 16, 1997) (notice) and 22282 (October 15, 1997) 
(order).
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    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\
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    \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