[Federal Register: September 25, 2006 (Volume 71, Number 185)]
[Notices]
[Page 55812-55814]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se06-54]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27485; 812-13302]
Northwestern Mutual Series Fund, Inc. and Mason Street Advisors,
LLC; Notice of Application
September 19, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 15(a) of
the Act and rule 18-2 under the Act, as well as certain disclosure
requirements.
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Summary of Application: Applicants request an order that would permit
them to enter into and materially amend sub-advisory agreements without
shareholder approval and would grant relief from certain disclosure
requirements.
Applicants: Northwestern Mutual Series Fund, Inc. (the ``Company'') and
Mason Street Advisors, LLC (the ``Adviser'').
Filing Dates: The application was filed on June 14, 2006, and amended
on September 8, 2006.
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 October 16, 2006, 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 may request notification of a hearing by writing to
the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants, c/o Randy Pavlick,
Esq., Northwestern Mutual Series Fund, Inc., 720 East Wisconsin Avenue,
Milwaukee, WI 53202.
FOR FURTHER INFORMATION CONTACT: Stacy L. Fuller, Branch Chief, at
(202)
[[Page 55813]]
551-6821 (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
Commission's Public Reference Desk, 100 F Street, NE., Washington DC
20549-0102 (tel. 202-551-5850).
Applicants' Representations
1. The Company is organized as a Maryland corporation and is
registered under the Act as an open-end management investment company.
The Company is organized as a series investment company and currently
consists of eighteen series (``Portfolios''), each with separate
investment objectives, policies, and restrictions. The Adviser, a
Delaware limited liability company, is registered as an investment
adviser under the Investment Advisers Act of 1940 (``Advisers Act'')
and serves as an investment adviser to each Portfolio pursuant to an
investment advisory agreement with the Company (``Advisory
Agreement'').\1\ The Advisory Agreement has been approved by the
Company's board of directors (``Board''), including a majority of the
directors who are not ``interested persons,'' as defined in section
2(a)(19) of the Act, of the Company (``Independent Directors''), as
well as by each applicable Portfolio's shareholders.\2\
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\1\ Applicants also request that any relief granted pursuant to
the application extend to future series of the Company and any other
existing or future registered open-end management investment company
or series thereof that: (a) Is advised by the Adviser or a person
controlling, controlled by or under common control with the Adviser
(included in the term Adviser); (b) uses the management structure
described in the application; and (c) complies with the terms and
conditions of the Application (together with the Portfolios that
meet these requirements, the ``Funds''). The only existing
registered open-end management investment company that currently
intends to rely on the requested order is named as an applicant. If
the name of any Fund contains the name of a Sub-Adviser (as defined
below), the name of the Adviser that serves as the primary adviser
to the Fund will precede the name of the Sub-Adviser.
\2\ The term ``shareholders'' includes variable life insurance
policy and variable annuity contract owners that are unitholders of
any separate account for which a Portfolio serves as a funding
vehicle.
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2.Under the Advisory Agreement, the Adviser manages each
Portfolio's investments, subject to oversight by the Board. The
Advisory Agreement permits the Adviser to enter into a separate sub-
advisory agreement (``Sub-Advisory Agreement'') with one or more
investment sub-advisers (each, a ``Sub-Adviser'') to provide investment
management services for the Funds. Each Sub-Adviser is registered under
the Advisers Act. The Adviser evaluates the Sub-Advisers and makes
recommendations to the Board regarding their hiring, retention and
termination. The shareholders and the Board, including a majority of
the Independent Directors, approve the Sub-Advisory Agreements. The
Adviser pays an investment advisory fee to each Sub-Adviser out of the
fee paid to the Adviser under the Advisory Agreement.
3.Applicants request relief to permit the Adviser to enter into and
materially amend Sub-Advisory Agreements for the Funds without
shareholder approval. The requested relief will not extend to any Sub-
Adviser that is an ``affiliated person,'' as defined in section 2(a)(3)
of the Act, of the Company or the Adviser, other than by reason of
serving as a Sub-Adviser to one or more of the Funds (``Affiliated Sub-
Adviser''). None of the current Sub-Advisers is an Affiliated Sub-
Adviser.
4.Applicants also request an exemption from the various disclosure
provisions described below that may require the Funds to disclose the
fees paid by the Adviser to the Sub-Advisers. An exemption is requested
to permit a Fund to disclose (as both a dollar amount and as a
percentage of its net assets): (a) The aggregate fees paid to the
Adviser and any Affiliated Sub-Advisers, and (b) the aggregate fees
paid to Sub-Advisers other than Affiliated Sub-Advisers (collectively,
``Aggregate Fee Disclosure''). If a Fund employs an Affiliated Sub-
Adviser, the Fund will provide separate disclosure of any fees paid to
the Affiliated Sub-Adviser.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to act as an investment adviser to a registered
investment company except under a written contract that has been
approved by the vote of a majority of the company's outstanding voting
securities. Rule 18f-2 under the Act provides that each series or class
of stock in a series company affected by a matter must approve such
matter if the Act requires shareholder approval.
2. Form N-1A is the registration statement used by open-end
investment companies. Item 14(a)(3) of Form N-1A requires an open-end
fund to disclose the method and amount of the investment adviser's
compensation.
3. Rule 20a-1 under the Act requires proxies solicited with respect
to an investment company to comply with Schedule 14A under the
Securities Exchange Act of 1934 (``Exchange Act''). Items 22(c)(1)(ii),
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together,
require a proxy statement for a shareholder meeting at which the
advisory contract will be voted upon to include the ``rate of
compensation of the investment adviser,'' the ``aggregate amount of the
investment adviser's fees,'' a description of the ``terms of the
contract to be acted upon,'' and, if a change in the advisory fee is
proposed, the existing and proposed fees and the difference between the
two fees.
4. Form N-SAR is the semi-annual report filed with the Commission
by registered investment companies. Item 48 of Form N-SAR requires a
registered investment company to disclose the rate schedule for fees
paid to investment advisers, which may include Sub-Advisers.
5. Regulation S-X sets forth the requirements for financial
statements required to be included as part of investment company
registration statements and shareholder reports filed with the
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require
registered investment companies to include in their financial
statements information about investment advisory fees.
6. Section 6(c) 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 the 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. Applicants believe that the requested relief meets this standard
for the reasons discussed below.
7. Applicants assert that permitting the Adviser to select,
supervise and evaluate Sub-Advisers without incurring unnecessary delay
or expense is appropriate in the interests of Fund shareholders and
will allow the Funds to operate more efficiently. Applicants state that
Fund shareholders will look to the Adviser to select Sub-Adviser(s)
well-suited to achieve the Fund's investment objectives. Applicants
compare the role of the Sub-Advisers to that of individual portfolio
managers employed by traditional investment advisory firms. Applicants
note that the Advisory Agreement will continue to be subject to the
shareholder approval requirements of section 15(a) of the Act and rule
18f-2 under the Act.
8. Applicants assert that many investment advisers charge their
customers for advisory services according to a ``posted'' fee schedule.
Applicants state that while investment advisers typically are willing
to
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negotiate fees lower than those posted in the rate schedule, they are
reluctant to do so where the fees are disclosed to other prospective
and existing customers. Applicants submit that the relief would allow
the Adviser to negotiate more effectively with each individual Sub-
Adviser.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Fund may rely on the requested order, the operation of
the Fund in the manner described in the application will be approved by
a majority of the Fund's outstanding voting securities, as defined in
the Act, or, in the case of a Fund whose public shareholders purchased
shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the sole initial shareholder
before offering the Fund's shares to the public.
2. Each Fund will disclose in its prospectus the existence,
substance, and effect of any order granted pursuant to this
application. Each Fund will hold itself out to the public as employing
the management structure described in the application. The prospectus
will prominently disclose that the Adviser has ultimate responsibility,
subject to oversight by the Board, for the investment performance of a
Fund due to its responsibility to oversee Sub-Advisers and recommend
their hiring, termination and replacement.
3. Within 90 days of the hiring of a new Sub-Adviser, the affected
Fund's shareholders will be furnished all the information about the new
Sub-Adviser that would be included a proxy statement, except as
modified to permit the Aggregate Fee Disclosure. This information will
include Aggregate Fee Disclosure and any change in such disclosure
caused by the addition of a new Sub-Adviser. To meet this condition,
the affected Fund will provide Fund shareholders within 90 days of the
hiring of a new Sub-Adviser, with an Information Statement meeting the
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule
14A under the Exchange Act, except as modified by the order to permit
Aggregate Fee Disclosure.
4. The Adviser will not enter into a Sub-Advisory Agreement with
any Affiliated Sub-Adviser without such agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
5. At all times, a majority of the Board will be Independent
Directors, and the nomination of new or additional Independent
Directors will be at the discretion of the then-existing Independent
Directors.
6. Whenever a Sub-Adviser change is proposed for a Fund with an
Affiliated Sub-Adviser, the Board, including a majority of the
Independent Directors, will make a separate finding, reflected in the
Board minutes, that the change is in the best interests of the Fund and
its shareholders and does not involve a conflict of interest from which
the Adviser or the Affiliated Sub-Adviser derives an inappropriate
advantage.
7. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act, will be engaged to represent the Independent Directors. The
selection of such counsel will be within the discretion of the then
existing Independent Directors.
8. The Adviser will provide the Board, no less frequently than
quarterly, with information about the profitability of the Adviser on a
per-Fund basis. The information will reflect the impact on
profitability of the hiring or termination of any Sub-Adviser during
the applicable quarter.
9. Whenever a Sub-Adviser is hired or terminated, the Adviser will
provide the Board with information showing the expected impact on the
profitability of the Adviser.
10. The Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of the Fund's assets, and, subject to review
and approval by the Board, will: (a) Set each Fund's overall investment
strategies, (b) evaluate, select and recommend Sub-Advisers to manage
all or a part of a Fund's, (c) allocate and, when appropriate,
reallocate a Fund's assets among Sub-Advisers, (d) monitor and evaluate
the performance of the Sub-Advisers, and (e) implement procedures
reasonably designed to ensure that the Sub-Advisers comply with the
relevant Fund's investment objective, policies and restrictions.
11. No director or officer of the Company, or director or officer
of the Adviser, will own directly or indirectly (other than through a
pooled investment vehicle that is not controlled by such person), any
interest in a Sub-Adviser, except for (a) ownership of interests in the
Adviser or any entity that controls, is controlled by, or is under
common control with the Adviser, or (b) ownership of less than 1% of
the outstanding securities of any class of equity or debt of a publicly
traded company that is either a Sub-Adviser or an entity that controls,
is controlled by, or is under common control with a Sub-Adviser.
12. Each Fund will disclose in its registration statement the
Aggregate Fee Disclosure.
13. The requested order will expire on the effective date of rule
15a-5 under the Act, if adopted.
For the Commission, by the Division of Investment Management,
under delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. 06-8140 Filed 9-22-06; 8:45 am]
BILLING CODE 8010-01-P