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RESPONSE OF TRËOFFÎCË-Ötf"'" "ÓûJ::Rêf. No. 97-132-CC
 

CHIEF COUNSEL, DIVISION OF The Dessauer Global Equity Fund
 INVSTMNT MAAGEMNT File Nos. 811-7691: 333-7543 

Your letter dated April 3, 1997, requests our assurance that 

we would not recommend enforcement action to the Commssion under 

Section 13 (a) (1) of the Investment Comany Act of 1940 (the "1940 Act-i against Guinness Flight Investment Magement Limted of . 

London, England and Pasadena, California ("Guinness Flight"), 

Dessauer Asset Management Company ("DAMCO"), or The Dessauer Global Equity Fud (the "Fund") if, upon the occurrence of 

certain events described in the Fund's prospectus, the Fund
 

converts from a closed-end to an open-end investment company
 

without seeking and obtaining authorization of the holders of a
 

majority of the Fund's outstanding voting securities.
 

Facts 

The Fund is a closed-end investment company that has filed a
 

registration statement on Form N-2 with the Commission. The Fund
 

will be managed jointly by Guinness Flight and DAMCO, both
 

registered investment advisers. The Fund's investment objective
 

is to seek capital growth through investments in companies
 

organized in countries 'around the world.
 

You state that the Fund's Declaration of Trust includes a
 

provision that requires the Fund to convert. automatically from a
 

closed-end to an open-end fund upon the occurrence of certain
 

events (the "Automatic Conversion Provision") . 11 Specifically,
 

the Automatic Conversion Provision provides that the Fund will
 

convert to an open-end fund if, at any time after the Fund has
 

been in operation for 18 months, the Fund's shares trade at more
 

than a specified discount to net asset value as calculated on the
 

last business day of any week and for each of the next 14
 

business days thereafter. The Automatic Conversion Provision
 

does not require that the Fud seek and obtain the authorization'
 of the Fund's shareholders. ál . ' .
 

You represent that, if and when the events specified by the
 

Automatic Conversion Provision occur, the Fund's officers and
 

trustees promptly will take all necessary steps to conve~t, the
 

1.1	 You represent that the Automatic Conversion Provision is 

consistent with business trust law in the state in which the 

Fund is organized. \ 

2J	 You also represent that the Fund's Declaration of Trust 

'provides that the Automatic Conversion Provision may be
 

amended only upon approval of 80l or more of the Fund's
 

outstanding voting securities.
 
, 

)

Fund to an open-end investment company.~1 The disclosure in
 

the Fund's registration statement on Form N-1A relating to the
 

Fund's investment objective and policies will be substantially
 

identical to the disclosure in the Fund's registration statement
 

on Form N - 2 . You further represent that conversion of the Fund
 

into an open-end investment company will not disadvatage the
 

Fund or its shareholders because the Fund's investment operations
 

prior to the conversion will be entirely consistent with the
 

operations of an open-end investment company.~1
 

Analysis . 

Section 5 (a) of the 1940 Act classifies all management
 

investment companies as either "open-end" or "closed-end"
 

companies. Section 5 (a) (1) defines an "open-end company" as "a
 

management company which is offering for sale or has outstanding
 

any redeemale security of which it is the issuer." Section
 

5 (a) (2) defines a "closed-end company" as "any management company
 other than an open-end company." Section 13 (a) (1) of the 1940 

Act prohibits a management investment company from changing its
 subclassification as defined in Section 5 (a) (1) or 5 (a) (2) of the 

1940 Act unless authorized by a vote of a maj ority of its
 

outstanding voting securities.
 

Section 8 (b) of the 1940 Act provides,' in relevant part:
 

Every registered investment company shall tile with the
 

Commission . . . a registratio~ statement . . .
 

containing . . . (1) a recital of, the policy of the
 

registrant . . . consisting of a statement whether the
 

registrant reserves freedom of action to engage in
 

activities of such type, and if such freedom of action
 

"JI	 You represent that the conversion will be effected even if 

the Fund ceases to trade at a discount before the date the 

conversion is completed. Promptly after the Automatic 

Conversion Provision is triggered, a press release will be 

issued to announce that the Fund will convert as soon as 

reasonably possible to an open-end investment company, and 

to disclose the proj ected conversion date. You represent 

that the Fund promptly will take all steps necessary to 

convert to an open-end investment company, including the 

filing of a registration statement on Form N-1A. 

41	 For exaple, in accordance with the Commission's position on 

illiquid investments by open-end investment companies, you 

represent that the Fund's registration statement will state

that the Fund may not invest more than 15l of its net 
 assets

(at the time of investment) in illiquid assets. Revisions
 

of Guidelines to Form N-IA, Investment Company Act Release
 

No. 18612 (Mar. 12, 1992); Guide 4 to Form N-1A.
 

2 I 
is reserved, a statement briefly indicating, insofar as
 is practicable i. the extent to which the registrant 

intends to engage therein: (A) the classification and
 

subclassifications, as defined in sections 4 and 5,
 

wi thin which the registrant proposes to operate ....
 

The legislative history of the 1940 Act suggests that
 

Congress intended Sections 8 and 13 to require a fund to make
 

adequate disclosure of its fundamental policies, and not change
 

those policies without the approval of a majority of the fund's
 

shareholders.ll Section 8 (b) was intended "to apprise the
 

prospective purchaser of the investment company's security of
 

(sic) the nature of its activities. w~i The language of Section
 8 (b) (1) (A) indicates that Congress intended to permit funds to 

retain a degree of flexibility with respect to their .
 

subclassifications, so long as the fund discloses all material
 

facts with respect to its proposed activities, and the
 

circumtances under which the flexibility will be exercised. 71
 

Congress enacted Section 13 (a) to prevent an investment company
 

from changing fundamental investment or management policies
 

~i S. Rep. No. 1775, 76th Cong., 3d Sess. 13 (1940).
 

~i Investment Trusts and Investment Companies: Hearings on S.
 3580' before the Senate Subcomi. on. Baning and Currency, 

76th Cong., 3d Sess., Part I, 188 '(1940) ("Hearings on S.
 

3580") -(statement of David Schenker of the Securitie's and
 

,Exchange Commission). Mr. Schenker's testimony also
 referred to the requirements of Sections 5, 8 (b) (1) and 13 

as "integrally interrelated n so as to meet the - "problem of
 

disclosure to stockholders." Id. See also PaineWebber
 

Series Trust (pub. avail. Nov. 12, 1987).
 

1.1 Cf. American Research and Dev. Corp. ("AR"), 23 S.E.C. 481
 (1946). AR involved a closed-end fund that disclosed its

intention to operate as a nondiversified company; pending
 

the full investment of its assets, however, the fund would
 

in fact be a diversified company. Once fully invested, the
 fund would automatically convert to the status 'of a 

nondiversified company. The Commssion found that despite
 

the requirement in Section 13 (a) that shareholders approve
 

changes to a fund's subclassification, such approval would
 

not be necessary because the fund would be operating within
 the subclassification "which the registrant propose (d) , to operate," as required by Section 8 (b) (1). AR at 490,

quoting Section 8 (b) (1). The Commssion determned that

apprising investors as to how the registrant intended to


operate met the statutory purposes of Section 13 (a) (1) of 

the 1940 Act because, if fully disclosed, there would be no
 

substantial injury to the fund's shareholders.
 ) 3
 \
without the knowledge and authorization of its shareholders .~I
 

You represent that, in accordance with Section 8 (b) (1) (A) of the 1940 Act, the Fund will disclose prominently in ,its 

prospectus the existence, term and implications of the Automatic


Conversion Provision. The Fud's prospectus also will 
 explain

clearly the differences between an open-end company and a closed-


end company, including the differences in methods of distributing
 

and redeeming shares of the Fund, and will disclose prominently
 

any new fees that may be imposed on the Fund or its shareholders
 

after the Conversion Date.
 

You acknowledge that, upon the occurrence of certain


specified events, the Fund's subclassification under Section 5 (a) 

would ch~nge without shareholder approval. You maintain,
 

however " that this change would not occur in violation of


Section 13 (a) (1), but rather would be in accordance with the 

Fund's policy on its subclassification, as disclosed in the
 

prospectus. You therefore maintain that, because the Fud is not
 

changing its disclosed policies regarding its subclassification,
 

no shareholder vote should be required. You also state that,
 

because no material change in the investment operations of the
 

Fund will occur as a result of or in connection with a conversion
 to open-end status, the concerns underlying Section 13 (a) are not implicated. 

We would not recommend enforcement action to the Commission
 

under Section 13 (a) (1) of the 1940 Act if the Fund converts from 

a closed-end to an open-end company upon the occurrence of the
 

events specified in the Automatic Conversion Provision without
 

the authorization of the majority of the Fund's outstanding
 

voting securities. This response is based on the representations
 

made in your letter, particularly the following:
 

(1) the Fund's investment operations will not be changed in
 

any material. respect as a result of or in connection with
 

the conversion;
 

(2) the events that will trigger the conversion are entirely
 

objective and readily verifiable;
 

~I See, e.g., Hearings on S. 3580 at 234 and 421. Prior to the
 

enactment of the 1940 Act, there was no legal requirement
 

for a management investment company to adhere to any
 

announced investment policies or purposes. Such 'policies
 

frequently were changed radically without shareholder
 

approval and even without their knowledge. The shareholders
 

of the company had no assurance of the stability of any
 

announced investment policies and no vote in management's
 

determination to change the company's existing policies.


S. Rep. No. 1775, 76th Congo 3d Sess. 7-8 (1940). 

4 
(3) the Automatic Conversion Provision will be included in
 

the Fund's initial governing documents;
 

(4) the Fund's prospectus prominently will describe the
 

Automatic Conversion Provision and the events that will
 

trigger a conversion;
 

(5) the Automatic Conversion Provision may be amended only
 

as specified in the Fund's prospectus; and
 

(6) the Fund's advertisements and sales, literature,
 

including dealer- only sales material, used to market shares
 

of the Fund will discuss the 
 Automatic Conversion Provision
 

and the events that will trigger a conversion.
 

You should note that different facts or representations may
 

require a different conclusion.~1
 

tJu441;f//¿ 

Wendy Finck Friedlander
 

Senior Counsel
 

~I	 This response is limited to the conversion of a fund from 

closed-end to open-end status, and expressly does not 

address any other instances in which shareholder approval is 

required by the 1940 Act. 

5 
KRAMER, LEVIN, NAFTALIS & FRANKEL
 

919 THIRD AVENUE 

NEW YORK. N.Y. 10022 - 3852 FAX 

(2121715 - 9100 12121715-80 

WRTER'S DIRECT NUMBER
 

(2121715,7514 

Apri 3, 1997
 

Wendy Friedlander, Esq.
 

Division of Investment Mangement
 

U. S. Securities and Exchage Commssion 

450 Fift Street, N. W.
 

Washigton, DC 20549 

Dear Wendy: 

On behalf of our client, Guinss Flight Investment Mangement Limited of 

London, England and Pasadena, Californa ("Guiness Flight"), and Dessauer Asset 

Management Company ("DAMCO"), each a registere investment adviser, and The Dessauer 

Global Equity Fund, a closed-end investment company organ as a Delaware Business 

Trust (the "Fund"), we request tht the staff tae a no-action position on the issue herein 

discussed, which pertin to Sections 13(a)(I), 8(b)(1) and 5(a)(I) and (2) of the Investment 

Company Act of 1940, as amended (the "1940 Act"). 

The Fund med a registrtion statement on Form N-2 with the Securities and 

Exchage Commission ("SEC") on July'3, 1996 (a copy of which is attched hereto). The 

Fund's investment objective is to seek loiìg-term capita appreiation. The Fund wil seek to 

achieve its investment objective by investing priy in the seurties of issuers tht it 

believes are positioned to benefit from growt in the global economy. Generally, the 

companies in which the Fund intends to invest wil be trded in the markets of, or wil derive 

a substatial portion of their revenues from, business activities with Nort America (the 

U.S. and Canda), Western Euope, Asia and Japan. Under norml maket conditions, the 

Fund wil invest at-least 65% of its tota assets _in a portolio of eqity seurities of
 

companes locate in at least th different countres. The Fund wil be maged jointly by 

DAMCO and Guiness Flight. 

Although the Fund is classified as a close-end investment company, its 

Declaration of Trust includes a provision tht reuirs the Fun to convert under certin
 

circumstaces to an open-end investment company ("Automatic Conversion Provision"). 

The Declaration of Trust (including the above-mentioned provision) wil be approved by the 

Board of Trustes at the Fund's organtiona meetig. Delaware statutory law does not
 

require approval by shaeholders of a chage of an investment company's status. Thus, at 

the time of conversion the Fund's curent shaeholders wil not be asked to vote on the 

Fund's change from a closed-end to an open-end investment company. 

KL:13740,S 
Wendy Friedlander, Esq. 

April 3, 1997
 

Page 2
 

The Declaration of Trot provides tht beging aftr 18 month from the 

date of the intial public offerig, the Fun wil automaticaly convert into an open-end 

investment company if its shares close at a 5 % or grter discunt from the net asset value of
 

the Fund as calculate on the last business day of any week an for each of the next 14 

business days thereafter. A business day is any day tht the New York Stock Exchage is 

opeii. Ths provision may be amended only by the affirmative vote of at least 80% of the 

Fund's outstading voting seurities. On the Automatic Conversion Provision is trggered,
 

the Fund may not continue as a closed-end investment company even if the Fund cees to 

trade at a discount. With one week thereaftr, the Fund wil me a registration statement 

on Form N-IA. The disclosure concern the Fund's investment policies contained in the 

registration statement on Form N-IA wil be substatially identical to the disclosure 

contained in the current registration statement on Form N-2. 

The purpose of ths letter is to request tht the staff agree to tae no 

enforcement action if the Fund reserves the from of action pursuat to Section 8(b)(1) of
 

the 1940 Act to convert from a closed-end investment company to an open-end investment 

company under the above describe cirumtaces.
 

BacklZround . 

Generally, shaes of open-end investment comp~es are redeemed by the 

issuer at net asset value, Shaes of closed-end investment companes, on the other had, are 

traded in secondary markets either on exchages or over-the-counter and are not redeemed 

by the issuer. The market price of closed-end investment company shaes can be 

significantly discounted from the net asset value of the shaes. Accordingly, shaeholders of 

closed-end investment companes who sell their shaes in a seonda maket may find tht 

the price of their shares does not reflect the net asset value of the investment company. 

To entice. investors to purchase shas, may close-end investment companes , 

disclose in their prospetus tht certin actions may be taen to min the discount of the. 

shaes, including, but not limte to, convertg to an open-end investment company.
 

However, may of these fuds which mae ths claim never do convert to open-end status. 

Recently the staff of the Division of Investment Mangement ha recived 

complaints from investors who allege tht they have ben miled in connection with the
 

disclosure by closed-end investment companes which imply tht they wil convert to openend status under certin circumtaces. In a lettr to the Investment Company Institute dated
 

February 15, 1996, the staff state tht it believes tht "vague references to the conditional
 

or discretiona nature of the actions to be taen (to minimi7.. a discount) may be misleading
 

to investors." In ths regard, the staff has underten to conduct an exaintion of the 

disclosure practices of closed-end investment companes regarding steps tht may be taen to 

reduce unwieldy trading discounts. 

KL:137408.5 
Wendy Friedlander, Esq. 

April 3, 1997
 

Page 3
 

In light - of these curnt developments, the Fund has propose an Automatic 

Conversion Provision which would be trggere by the ocUrence of certin events. The


Automatic Conversion Provision does not provide 
 either Guinss Flight or DAMCO with

the discretion to determe whether the Fund should convert to an open-end investment 

company and is not subject to chage by vote of curnt shaeholders (except by an 

amendment to the Declaration of Trost upon approval of 80% or more of the Fund's 

outstanding voting seurties).
 

Legal Anlysis 

Section 8(b)(1) of the 1940 Act requires the registrtion statement of an
 

investment company to recite its policy with respet to classification as a closed-end or openend investment company. Ths recital should consist of a statement whether the investment 

company reserves the freedom of action to engage in certin activitiçs, and if such freedom 

of action is reserved, a statement briefly indicating the extent to which the investment 

company intends to engage therein. Section 13(a)(1) of the 1940 Act prohibits a registered 

investment company from changing its subclassification as an open-end or closed-end 

majority of its outstading voting securities. These 

sections were promulgated to protect shaeholders by preventing mangement from makg 

changes in the basic character of an investment company which are contr to the 

reasonable' expectations of shaeholders. (3 Franel, Regulation of Monev Managers § 26.1 

investment company without a vote of a 


at 217-218) 

The concern addressed by Congress in promulgating Sections 8(b)( 1) and 

13(a) of the 1940 Act wil not be subvert by the Automatic Conversion Provision.
 

Guiness Flight and DAMCO wil promiently disclose in the Fund's Prospetus and in its 

marketing material that it is a closed-end investment company with the possibilty of 

becoming an open-end investment company, thereby avoiding any surises to shaeholders
 

of the Fund in converting to an open-end investment company. The Fund's prosptus wil 

prominently disclose the details of the Automatic Conversion Provision and wil explain the 

differences between an open-end investment - company an a close-end investment company 

including a discussion concerng the reemption of shaes. Shaholders wil be assured

tht the Fund's investment objectives, policies and tehnques wil not 
 be chaged. Any new

fees (such as Rule 12b-1 distrbution fees) tht may be incur by shaeholders of an openend investment company wil be disclose.
 

The Fund's advertisements and sales literatu (including dealer-only sales 

material) wil also describe the Automatic Conversion Provision, thereby providing potential 

investors (including those tht purchase shaes in a seonda maket) with inonnation 

concerng the mechansm for open-ending the Fund. Brokers selling shaes of the Fund wil 

be inonned of and encouraged to discuss the Automatic Conversion Provision with their 

KL:137408,5 
Wendy Friedlander, Esq. 

April 3, 1997
 

Page 4 

clients. In addition, once the Automatic Conversion Provision is trggered, a press release 

wil be issued that inorms the public tht, in fact, the Fund wil shorty convert to an openend investment company. 

We believe that the shaholders' best interests wil be protete by permtting 

the Fund to automatically convert to an open-end investment company when a spcified 

discount is reached and maintained for a' speified number of trding days. Investors who 

purchase shaes of a closed-end investment company in its intial public ,offerig are exposed 

to a market risk because the shaes of close-end investment company tyically trade at a 

discount to the net asset value of their portfolios. . A conversion of a closed-end investment 

company to an open-end investment company would elimte ths discount. In addition, a 

shareholder of an open-end investment company can reeem at any time at net asset value. 

Based on the above, it is. our view tht the spirt of Sections 8(b)(1) and
 

13(a)(1) wil not be violated by the Fund's automatic conversion to an open-end investment 

company. Shareholders wil be fully inormed tht the Fund is a closed-end investment 

company tht wil convert to an open-end investment company if certin spcifed events
 

occur. The existing investment objective and policies of the Fund wil contiue aftr 

conversion to' open-end status. The Fund wil be maged by the same persons and in 

substantially the same maner. Any differences in the distrbution methods of the Fund wil be fully. disclose~ in the prospetus. ' 

In conclusion, the Automatic Conversion Provision would be meangless if 

an intervenig event, were required prior to the Fund's conversion to an open-end investment
 

company. Shareholders' interests are best protete by prohibiting any taperig by
 

mangement or other shaeholders. We believe the interests of shaeholders and the 

concern of the staff wil be addressed by the Automatic Conversion Provision of the Fund
 

and ask that the staff concur in our anlysis. 

If you have any questions or reir any additiona inormtion pleas do not
 

hesitate to call the undersigned at (212) 715-7514 or Louis Citron at (212) 715-751L. 

Very tnly your,
 

Ox t_ ~VtW1 

A viva L. Grossma 

KL:13740.S