[Federal Register Volume 75, Number 150 (Thursday, August 5, 2010)]
[Notices]
[Pages 47320-47323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-19248]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29375; File No. 812-13709-01]
Millington Securities, Inc., et al.; Notice of Application
July 30, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 12(d)(1)(J) of
the Investment Company Act of 1940 (``Act'') for an exemption from
sections 12(d)(1)(A), (B) and (C) of the Act, and under sections 6(c)
and 17(b) of the Act for an exemption from section 17(a) of the Act.
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Summary of the Application: Millington Securities, Inc., (the
``Depositor''), and Millington Unit Investment Trusts (the ``Trust''),
on behalf of itself and any future series, and any future registered
unit investment trust (``UIT'') sponsored by the Depositor (or an
entity controlling, controlled by or under common control with the
Depositor) and their respective series (the future UITs, together with
the Trust, are collectively the ``Trusts,'' the series of the Trusts
are the ``Series,'' and the Trusts together with the Depositor are
collectively, the (``Applicants''), request an order to permit each
Series to acquire shares of registered investment companies or series
thereof (the ``Funds'') both within and outside the same group of
investment companies.
Applicants: The Depositor and the Trust.
Filing Dates: The application was filed on October 2, 2009, and amended
on November 20, 2009, December 2, 2009, April 26, 2010, and July 7,
2010.
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 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 24, 2010, 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 who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090; Applicants: c/o Millington Securities,
Inc., 222 S. Mill Street, Naperville, Illinois 60540.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at
(202) 551-6868, or Julia Kim Gilmer, Branch Chief, at (202) 551-6821
(Office of Investment Company Regulation, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust is a UIT registered under the Act. Each Series will be
a series of a Trust and will offer units for sale to the public
(``Units'').\1\ Each Series will be created pursuant to a trust
agreement which will incorporate by reference a master trust agreement
between the Depositor and a financial institution that satisfies the
criteria in section 26(a) of the Act (the ``Trustee''). The Depositor
is a broker dealer registered under the Securities Exchange Act of 1934
and member of the Financial Industry Regulatory Authority, Inc.
(``FINRA'').
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\1\ All existing Trusts that currently intend to rely on the
requested order are named as applicants. Any other Trust that relies
on the order in the future will comply with the terms and conditions
of the application.
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2. Applicants request relief to permit a Series to invest in
registered investment companies or series thereof (``Funds'') that are
(a) part of the same
[[Page 47321]]
``group of investment companies'' (as that term is defined in section
12(d)(1)(G) of the Act) as the Series (``Affiliated Funds''), and (b)
not part of the same group of investment companies as the Series
(``Unaffiliated Funds''). An Unaffiliated Fund that is a UIT is
referred to as an ``Unaffiliated Underlying Trust.'' An Unaffiliated
Fund that is a closed-end or open-end management investment company is
referred to as an ``Unaffiliated Underlying Fund.'' Certain of the
Funds may be registered as an open-end investment company or a UIT, but
have received exemptive relief in order that their shares may be traded
at ``negotiated prices'' on a national securities exchange in the same
manner as other equity securities (the ``Exchange Funds''). Shares of
Exchange Funds and closed-end Funds will be deposited in a Series at
prices which are based on the market value of the securities, as
determined by an evaluator. The Depositor does not have discretion as
to when portfolio securities of a Series will be sold, except that the
Depositor is authorized to sell securities in extremely limited
circumstances described in the Series' prospectus.
3. Applicants state that the requested relief will provide
investors with a practical, cost-efficient means of investing in a
professionally selected, diversified portfolio of securities of
investment companies.
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter and
any broker or dealer from selling the shares of the investment company
to another investment company if the sale will cause the acquiring
company to own more than 3% of the acquired company's voting stock, or
if the sale will cause more than 10% of the acquired company's voting
stock to be owned by investment companies generally. Section
12(d)(1)(C) prohibits an investment company, other investment companies
having the same investment adviser, and companies controlled by such
investment companies, from acquiring more than 10% of the outstanding
voting stock of a registered closed-end management investment company.
2. Section 12(d)(1)(G) provides, in relevant part, that section
12(d)(1) will not apply to securities of a registered open-end
investment company or UIT acquired by a registered UIT if the acquired
company and the acquiring company are part of the same group of
investment companies, provided that certain other requirements
contained in section 12(d)(1)(G) are met. Applicants state that they
may not rely on section 12(d)(1)(G) because a Series will invest in
Unaffiliated Funds and other securities in addition to Affiliated
Funds.
3. Section 12(d)(1)(J) of the Act provides that the Commission may
exempt any person, security, or transaction, or any class or classes of
persons, securities or transactions, from any provision of section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors. Applicants seek an exemption under section
12(d)(1)(J) to permit a Series to acquire shares of a Fund and to
permit a Fund to sell its shares to a Series beyond the limits set
forth in sections 12(d)(1)(A), (B), and (C).
4. Applicants state that the proposed arrangement will not give
rise to the policy concerns underlying sections 12(d)(1)(A), (B), and
(C), which include concerns about undue influence by a fund of funds
over underlying funds, excessive layering of fees, and overly complex
fund structures. Accordingly, Applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
5. Applicants state that the concern about undue control does not
arise with respect to a Series' investment in Affiliated Funds, as
reflected in section 12(d)(1)(G) of the Act. Applicants also state that
the proposed arrangement will not result in undue influence by a Series
or its affiliates over Unaffiliated Funds. Applicants have agreed that
(a) the Depositor, (b) any person controlling, controlled by or under
common control with the Depositor, and (c) any investment company and
any issuer that would be an investment company but for section 3(c)(1)
or 3(c)(7) of the Act, sponsored or advised by the Depositor (or any
person controlling, controlled by or under common control with the
Depositor) (collectively, the ``Group'') will not control (individually
or in the aggregate) an Unaffiliated Fund within the meaning of section
2(a)(9) of the Act. Applicants also note that conditions 2, 3, 5 and 6
set forth below will address the concern about undue influence with
respect to the Unaffiliated Funds.
6. As an additional assurance that an Unaffiliated Underlying Fund
understands the implications of an investment by a Series under the
requested order, prior to a Series' investment in the Unaffiliated
Underlying Fund in excess of the limit in Section 12(d)(1)(A)(i), the
Series and the Unaffiliated Underlying Fund will execute an agreement
stating, without limitation, that the Depositor and Trustee and the
board of directors or trustees to the Unaffiliated Underlying Fund and
the investment adviser(s) to the Unaffiliated Underlying Fund,
understand the terms and conditions of the order and agree to fulfill
their responsibilities under the order (``Participation Agreement'').
Applicants note that an Unaffiliated Underlying Fund, including a
closed-end Fund or an Exchange Fund, may choose to reject an investment
from the Series by declining to execute the Participation Agreement.
7. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. Applicants state that any sales
charges and/or service fees (as those terms are defined in Rule 2830 of
the Conduct Rules of the NASD, Inc. (``NASD Conduct Rules'') charged
with respect to Units of a Series will not exceed the limits applicable
to a fund of funds as set forth in Rule 2830 of the NASD Conduct
Rules.\2\ In addition, the Trustee or Depositor will waive fees
otherwise payable to it by the Series in an amount at least equal to
any compensation (including fees paid pursuant to any plan adopted by
an Unaffiliated Underlying Fund under rule 12b-1 under the Act)
received from an Unaffiliated Fund by the Trustee or Depositor, or an
affiliated person of the Trustee or Depositor, other than any advisory
fees paid to the Trustee or Depositor or its affiliated person by an
Unaffiliated Underlying Fund, in connection with the investment by the
Series in the Unaffiliated Fund.
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\2\ With respect to purchasing closed-end Funds or Exchange Fund
shares, a Series may incur the customary brokerage commissions
associated with purchasing any equity security on the secondary
market.
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8. Applicants state that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A). Applicants also represent
that a Series' prospectus and sales literature will contain concise,
``plain
[[Page 47322]]
English'' disclosure designed to inform investors of the unique
characteristics of the trust of funds structure, including, but not
limited to, its expense structure and the additional expenses of
investing in Funds.
B. Section 17(a) of the Act
1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and any
affiliated person of the company. Section 2(a)(3) of the Act defines an
``affiliated person'' of another person to include (a) any person
directly or indirectly owning, controlling, or holding with power to
vote, 5% or more of the outstanding voting securities of the other
person; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote by the other person; and (c) any person directly or
indirectly controlling, controlled by, or under common control with the
other person.
2. Applicants state that a Series and an Affiliated Fund might be
deemed to be under the common control of the Depositor or an entity
controlling, controlled by, or under common control with the Depositor.
Applicants also state that a Series and a Fund might become
``affiliated persons'' if the Series acquires more than 5% of the
Fund's outstanding voting securities. The sale or redemption by a Fund
of its shares to or from a Series therefore could be deemed to be a
principal transaction prohibited by Section 17(a) of the Act.\3\
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\3\ Applicants note that shares of an Exchange Fund would be
purchased and sold generally through secondary market transactions
at market prices rather than through principal transactions with the
Exchange Fund at net asset value. Applicants will not rely on the
requested relief from section 17(a) for such secondary market
transactions.
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3. Section 17(b) of the Act authorizes the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
it finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act. Section
6(c) of the Act permits the Commission to exempt any person or
transactions from any provision of the Act 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.
4. Applicants submit that the proposed transactions satisfy the
standards for relief under sections 17(b) and 6(c) of the Act.
Applicants state that the terms of the proposed transactions are fair
and reasonable and do not involve overreaching. Applicants note that
the consideration paid for the sale and redemption of shares of the
open-end Funds and Funds that are UITs will be based on the net asset
values of the Funds. Further, Applicants state that shares of Exchange
Funds and closed-end Funds will be purchased at market prices. Finally,
Applicants state that the proposed transactions will be consistent with
the policies of each Series and Fund, and with the general purposes of
the Act.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. The members of the Group will not control (individually or in
the aggregate) an Unaffiliated Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a decrease in the outstanding
voting securities of an Unaffiliated Fund, the Group, in the aggregate,
becomes a holder of more than 25% of the outstanding voting securities
of the Unaffiliated Fund, the Group will vote its shares of the
Unaffiliated Fund in the same proportion as the vote of all other
holders of the Unaffiliated Fund's shares.
2. No Series or its Depositor, promoter, principal underwriter, or
any person controlling, controlled by, or under common control with any
of those entities (each, a ``Series Affiliate'') will cause any
existing or potential investment by the Series in an Unaffiliated Fund
to influence the terms of any services or transactions between the
Series or Series Affiliate and the Unaffiliated Fund or its investment
adviser(s), sponsor, promoter, principal underwriter, or any person
controlling, controlled by, or under common control with any of those
entities.
3. Once an investment by a Series in the securities of an
Unaffiliated Underlying Fund exceeds the limit in section
12(d)(1)(A)(i) of the Act, the board of directors or trustees of the
Unaffiliated Underlying Fund, including a majority of the disinterested
board members, will determine that any consideration paid by the
Unaffiliated Underlying Fund to the Series or Series Affiliate in
connection with any services or transactions: (a) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Unaffiliated Underlying Fund; (b) is within
the range of consideration that the Unaffiliated Underlying Fund would
be required to pay to another unaffiliated entity in connection with
the same services or transactions; and (c) does not involve
overreaching on the part of any person concerned. This condition does
not apply with respect to any services or transactions between an
Unaffiliated Underlying Fund and its investment adviser(s), or any
person controlling, controlled by, or under common control with such
investment adviser(s).
4. The Trustee or Depositor will waive fees otherwise payable to it
by the Series, in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by an
Unaffiliated Underlying Fund under rule 12b-1 under the Act) received
from an Unaffiliated Fund by the Trustee or Depositor, or an affiliated
person of the Trustee or Depositor, other than any advisory fees paid
to the Trustee or Depositor or its affiliated person by an Unaffiliated
Underlying Fund, in connection with the investment by a Series in the
Unaffiliated Fund.
5. No Series or Series Affiliate (except to the extent it is acting
in its capacity as an investment adviser to an Unaffiliated Underlying
Fund or sponsor to an Unaffiliated Underlying Trust) will cause an
Unaffiliated Fund to purchase a security in an offering of securities
during the existence of any underwriting or selling syndicate of which
a principal underwriter is the Depositor or a person of which the
Depositor is an affiliated person (each, an ``Underwriting Affiliate,''
except any person whose relationship to the Unaffiliated Fund is
covered by section 10(f) of the Act is not an Underwriting Affiliate).
An offering of securities during the existence of an underwriting or
selling syndicate of which a principal underwriter is an Underwriting
Affiliate is an ``Affiliated Underwriting.''
6. The board of an Unaffiliated Underlying Fund, including a
majority of the disinterested board members, will adopt procedures
reasonably designed to monitor any purchases of securities by the
Unaffiliated Underlying Fund in an Affiliated Underwriting once an
investment by a Series in the securities of the Unaffiliated Underlying
Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including
any purchases made directly from an Underwriting Affiliate. The board
of the Unaffiliated Underlying Fund will review these purchases
periodically, but no less frequently than annually, to
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determine whether the purchases were influenced by the investment by
the Series in the Unaffiliated Underlying Fund. The board of the
Unaffiliated Underlying Fund will consider, among other things: (a)
Whether the purchases were consistent with the investment objectives
and policies of the Unaffiliated Underlying Fund; (b) how the
performance of securities purchased in an Affiliated Underwriting
compares to the performance of comparable securities purchased during a
comparable period of time in underwritings other than Affiliated
Underwritings or to a benchmark such as a comparable market index; and
(c) whether the amount of securities purchased by the Unaffiliated
Underlying Fund in Affiliated Underwritings and the amount purchased
directly from an Underwriting Affiliate have changed significantly from
prior years. The board of the Unaffiliated Underlying Fund will take
any appropriate actions based on its review, including, if appropriate,
the institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interests of
shareholders.
7. An Unaffiliated Underlying Fund will maintain and preserve
permanently in an easily accessible place a written copy of the
procedures described in the preceding condition, and any modifications
to such procedures, and will maintain and preserve for a period of not
less than six years from the end of the fiscal year in which any
purchase in an Affiliated Underwriting occurred, the first two years in
an easily accessible place, a written record of each purchase of
securities in Affiliated Underwritings once an investment by a Series
in the securities of the Unaffiliated Underlying Fund exceeds the limit
of section 12(d)(1)(A)(i) of the Act, setting forth from whom the
securities were acquired, the identity of the underwriting syndicate's
members, the terms of the purchase, and the information or materials
upon which the determinations of the board of the Unaffiliated
Underlying Fund were made.
8. Before investing in an Unaffiliated Underlying Fund in excess of
the limit in section 12(d)(1)(A)(i), each Series and the Unaffiliated
Underlying Fund will execute a Participation Agreement stating, without
limitation, that the Depositor and Trustee, and the board of directors
or trustees of the Unaffiliated Underlying Fund and the investment
adviser(s) to the Unaffiliated Underlying Fund, understand the terms
and conditions of the order and agree to fulfill their responsibilities
under the order. At the time of its investment in shares of an
Unaffiliated Underlying Fund in excess of the limit in section
12(d)(1)(A)(i), a Series will notify the Unaffiliated Underlying Fund
of the investment. At such time, the Series also will transmit to the
Unaffiliated Underlying Fund a list of the names of each Series
Affiliate and Underwriting Affiliate. The Series will notify the
Unaffiliated Underlying Fund of any changes to the list of names as
soon as reasonably practicable after a change occurs. The Unaffiliated
Underlying Fund and the Series will maintain and preserve a copy of the
order, the Participation Agreement, and the list with any updated
information for the duration of the investment, and for a period of not
less than six years thereafter, the first two years in an easily
accessible place.
9. Any sales charges and/or service fees charged with respect to
Units of a Series will not exceed the limits applicable to a fund of
funds as set forth in Rule 2830 of the Conduct Rules of the NASD.
10. No Fund will acquire securities of any other investment company
or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess
of the limits contained in section 12(d)(1)(A) of the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-19248 Filed 8-4-10; 8:45 am]
BILLING CODE 8010-01-P