[Federal Register Volume 66, Number 144 (Thursday, July 26, 2001)]
[Notices]
[Pages 39062-39064]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18639]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25070; 812-11992]


The Gabelli Equity Trust Inc., et al.; Notice of Application

July 20, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 19(b) of the Act and rule 19b-1 under the Act.

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SUMMARY: Applicants request an order to permit certain registered 
closed-end management investment companies to make periodic 
distributions of long-term capital gains, as often as monthly, on their 
outstanding common stock and as often as distributions are specified in 
the terms of any preferred stock outstanding. The order would supersede 
a prior order (``Prior Order'').\1\
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    \1\ Gabelli Equity Trust Inc., et al., Investment Company Act 
Release Nos. 23051 (Feb. 27, 1998) (notice) and 23072 (Mar. 23, 
1998) (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''), The Gabelli Utility Trust (``GUT'' 
and together with GET, GGMT and GCSF, the ``Existing Funds''), Gabelli 
Funds, LLC (``Gabelli''), and each registered closed-end management 
investment company advised in the future by Gabelli (including an 
successor in interest,\2\ or by an entity controlling, controlled by, 
or under common control (within the meaning of section 2(a)(9) of the 
Act) with Gabelli (the ``Future Funds'' and together with the Existing 
Funds, the ``Funds'').\3\
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    \2\ A successor in interest is limited to entities that result 
from a reorganization into another jurisdiction or a change in the 
type of business organization.
    \3\ All existing registered closed-end management investment 
companies that currently intend to rely on the requested order are 
named as applicants and any Future Fund that may rely on the order 
in the future will comply with the terms and conditions of the 
application.
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    Filing Dates: The application was filed on February 22, 2000 and 
amended on June 22, 2001 and July 18, 2001.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving the applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on August 14, 2001 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549. Applicants, c/o Richard T. Prins, Esq., Skaden, Arps, Slate, 
Meagher & Flom LLP, Four Times Square, New York, New York 10036-6522.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Mary Kay Frech, Branch Chief, 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 Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549 (telephone (202) 942-8090).

Applicants' Representations

    1. GET, GGMT and GUT are non-diversified, closed-end management 
investment companies registered under the Act. GCSF is a diversified, 
closed-end management investment company registered under the Act. GET, 
GGMT and GCSF are organized as Maryland corporations. GUT is organized 
as a Delaware business trust. GET's primary investment objective is to 
seek long-term growth of capital by investing at least 65% of its total 
assets in a portfolio of equity securities. GGMT's investment objective 
is long-term growth of capital by investing in securities of foreign 
and domestic companies in the telecommunications, media, publishing and 
entertainment industries. GCSF's investment objective is to seek a high 
level of total return on its assets by investing primarily in 
convertible securities. GUT's investment objective is long-term growth 
of capital and income, primarily through investing in equity securities 
of companies in the utility industry. GET's GGMT's and GCSF's common 
and preferred stock, and GUT's common stock, are listed and traded on 
the New York Stock Exchange. Gabelli, an investment adviser registered 
under the Investment Advisers Act of 1940, serves as each Existing 
Fund's investment adviser.
    2. On November 15, 2000, the board of directors of each Existing 
Fund (``Board''), including a majority of the members who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``disinterested directors''), of such Fund, concluded that the 
distribution policy of such Fund would be in the best interests of the 
Fund's shareholders (``Distribution Policy'').\4\ The Distribution 
Policy would permit each Fund to make periodic long-term capital gains 
distributions as often as monthly with respect to its common stock and 
as often as distributions are specified in the terms of its preferred 
stock, so long as it maintains in effect a Distribution Policy (a) with 
regards to its common stock of at least a minimum fixed percentage per 
year of the net asset value (``NAV'') or market price per share of its 
common stock or at least a

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minimum fixed dollar amount per year, and (b) with regards to each 
series of its preferred stock of a specified percentage of liquidation 
preference, whether such specified percentage is determined at the time 
the preferred stock is initially, pursuant to periodic remarketing or 
auctions or otherwise. Applicants believe that the discount at which 
each Fund's common stock may trade may be reduced if the Funds are 
permitted to pay capital gains dividends more frequently than permitted 
under rule 19b-1 under the Act. In addition, applicants state that to 
the extent that any of the Fund's preferred stock pays dividends less 
frequently than investors in that type of preferred stock would expect, 
such Fund is at a competitive disadvantage and, consequently, is likely 
to be required to pay a higher dividend rate on its preferred stock 
than issuers who pay at the desired frequency.
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    \4\ Applicants state that the Board of each Future Fund 
intending to rely on the requested order, including a majority of 
its disinterested directors, will make a similar finding prior to 
implementing a distribution policy in reliance on the order.
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    3. Applicants state that the Distribution Policy with respect to 
preferred stock of the Funds and the Distribution Policy with respect 
to common stock of the Funds will not be related to one another in any 
way. Applicants state that the Distribution Policy with respect to each 
Fund's common stock will be initially established and reviewed at least 
annually in light of the Fund's performance by the Board of the Fund.
    4. Applicants request relief to permit each Fund, so long as it 
maintains in effect a Distribution Policy, to make periodic long-term 
capital gains distributions, as often as monthly, on its outstanding 
common stock and as specified by the terms of any preferred stock 
outstanding. The requested order would supersede the Prior Order that 
permitted the Funds to make quarterly distributions of long-term 
capital gains.

Applicants' Legal Analysis

    1. Section 19(b) of the Act provides that a registered investment 
company may not, in contravention of such rules, regulations, or orders 
at the Commission may prescribe, distribute long-term capital gains 
more often than once every twelve months. Rule 19b-1(a) under the Act 
permits a registered investment company, with respect to any one 
taxable year, to make one capital gains distribution, as defined in 
section 852(b)(3)(c) of the Internal Revenue Code of 1986, as amended 
(the ``Code''). Rule 19b-1(a) also permits a supplemental distribution 
to be made pursuant to section 855 of the Code not exceeding 10% of the 
total amount distributed for the year. Rule 19b-1(f) permits one 
additional long-term capital gains distribution to be made to avoid the 
excise tax under section 4982 of the Code.
    2. Applicants assert that rule 19b-1 under the Act, by limiting the 
number of net long-term capital gains distributions that the Funds may 
make with respect to any one year, would prevent implementation of the 
Funds' proposed Distribution Policy. Applicants state that because each 
Fund expects to realize net long-term capital gains as often as every 
month, the combination of Revenue Ruling 89-81 and the accounting 
interpretation relating to rule 19b-1 would cause each Fund to treat a 
portion of such net long-term capital gains as being distributed each 
time it has incremental or undistributed long-term capital gains for 
the current distribution period. Applicants state that 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 such class's proportionate 
share of particular types of income, such as capital gains. 
Consequently, applicants state that any payments of long-term capital 
gains to holders of common stock require proportionate allocations of 
such long-term capital gains to the preferred stock, which can be 
extremely difficult to do.
    3. Applicants submit that one of the concerns leading to the 
enactment of section 19(b) and the adoption of the rule was that 
shareholders might be unable to distinguish between frequent 
distributions of capital gains and dividends from net investment 
income. Applicants state that the Distribution Policies, including the 
fact that the distributions called for by the policies may include 
returns of capital to the extent that a Fund's net investment income 
and net capital gains are insufficient to meet the fixed dividend, have 
been fully described in the Funds' periodic communications to their 
shareholders, including the periodic report to shareholders following 
the institution of any such policy. Applicants state that, in 
accordance with rule 19a-1 under the Act, a statement showing the 
source or sources of the distribution accompanies and will accompany 
each distribution (or the confirmation of the reinvestment thereof 
under a Fund's common stock distribution reinvestment plan). Applicants 
state that, for both the common stock and the preferred stock, the 
amount and sources of distributions received during the year has been 
or will be included on each Fund's IRS Form 1099-DIV reports of 
distributions during the year, which will be sent to each shareholder 
who received distributions (including shareholders who have sold shares 
during the year). Applicants state that this information, on an 
aggregate basis, also has been, or will be, included in each Fund's 
annual report to shareholders.
    4. Another concern underlying section 19(b) and rule 19b-1 is that 
frequent capital gains distributions could facilitate improper 
distribution practices, including, in particular, the practice of 
urging an investor to purchase fund shares on the basis of an upcoming 
distribution (``selling the divided'') where the dividend results in an 
immediate corresponding reduction in NAV and would be, in effect, a 
return of the investor's capital. Applicants submit that this concern 
does not apply to closed-end investment companies, such as the Funds, 
which do not continuously distribute their shares. Applicants also 
assert that by paying out periodically any capital gains that have 
occurred, at least up to the fixed periodic payout amount, the Funds' 
Distribution Policies help avoid the buildup of end-of-the-year 
distributions and accordingly actually help avoid the scenario in which 
an investor acquires shares in the open market that are subject to a 
large upcoming capital gains dividend. Applicants also state that the 
``selling the dividend'' concern is not applicable to preferred stock, 
which entitles a holder to a specific period dividend and, like a debt 
security, is initially sold at a price based on its liquidation 
preference, credit quality, dividend rate and frequency of payment. In 
addition, applicants state that any rights offering will be timed so 
that shares issuable upon exercise of the rights will be issued only in 
the 15-day period immediately following the record date for the 
declaration of a monthly dividend, or in the six-week period 
immediately following the record date of a quarterly dividend. Thus, 
applicants state that, in a rights offering, the abuse of selling the 
dividend could not occur as a matter of timing. Any rights offering 
also will comply with all relevant Commission and staff guidelines. In 
determining compliance with these guidelines, a Fund's Board will 
consider, among other things, the brokerage commissions that would be 
paid in connection with the offering. Any offering by a Fund of 
transferable rights will comply with any applicable National 
Association of Securities Dealers, Inc. rules regarding the fairness of 
compensation.
    5. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or class or classes of any persons, 
securities, or transactions from any provision of the

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Act, or from any rule thereunder, if 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 relief satisfies this standard.

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 after the date of the requested order and 
after the Fund's initial public offering other than:
    (i) A rights offering to shareholders of such Fund, provided that 
(a) shares are issued only within the 15-day period immediately 
following the record date of a monthly dividend, or within the six-week 
period following the record date of a quarterly dividend; (b) the 
prospectus for such rights offering makes it clear that common 
shareholders exercising rights will not be entitled to receive such 
dividend with respect to shares issued pursuant to such rights 
offering; 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 the Fund has received 
from the staff of the Commission 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. 01-18639 Filed 7-25-01; 8:45 am]
BILLING CODE 8010-01-M