

[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
