[Federal Register Volume 59, Number 34 (Friday, February 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3704]


[[Page Unknown]]

[Federal Register: February 18, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20069; No. 812-8576]

 

New York Life MFA Series Fund, Inc., et al.

February 10, 1994.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (``1940 Act'').

-----------------------------------------------------------------------

APPLICANTS: New York Life MFA Series Fund, Inc. (the ``Fund''); New 
York Life Insurance and Annuity Corporation (``NYLIAC''); and NYLIAC's 
separate accounts, MFA Separate Account I (``MFA I''), NYLIAC MFA 
Separate Account II (``MFA II''), NYLIAC Variable Annuity Separate 
Account I (``NYLIAC I''), NYLIAC Variable Annuity Separate Account II 
(``NYLIAC II''), New York Life Insurance and Annuity Corporation VLI 
Separate Account (``NYLIAC VLI''), NYLIAC Variable Universal Life 
Separate Account I (``NYLIAC VUL I''), and NYLIAC Variable Universal 
Life Separate Account II (``NYLIAC VUL II'') (together, ``Separate 
Accounts''); (collectively, ``Applicants'').

RELEVANT 1940 ACT SECTION: Order requested under section 17(b) granting 
exemptions from the provisions of section 17(a) of the 1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order that would permit the 
Fund's Money Market Portfolio to merge into the Fund's Cash Management 
Portfolio.

FILING DATE: The application was filed on September 15, 1993 and 
amended and restated on January 7, 1994.

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 Applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on March 8, 1994, and should be accompanied by proof of service on 
Applicant in the form of an affidavit or, for lawyers, a certificate of 
service. Hearing requests should state the nature of the requestor's 
interest, the reasons for the request, and the issues contested. 
Persons may request notification of a hearing by writing to the 
Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, NW., Washington, DC 20549. Applicant, 1740 Broadway, New York, 
10019.

FOR FURTHER INFORMATION CONTACT: Yvonne M. Hunold, Senior Counsel (202) 
272-2676, or Michael V. Wible, Special Counsel (202) 272-2060, Office 
of Insurance Products (Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application; the complete application is available for a fee from the 
Commission's Public Reference Branch.

Applicant's Representations

    1. NYLIAC, a stock life insurance company, is a wholly-owned 
subsidiary of New York Life Insurance Company (``New York Life''), a 
mutual life insurance company. NYLIAC is licensed to sell insurance and 
annuities in all states and in the District of Columbia.
    2. The Fund is an open-end, diversified management investment 
company, organized as a series investment company as defined by Rule 
18f-2 under the 1940 Act. The Fund currently is comprised of eight 
portfolios: Capital Appreciation, Government, Indexed Equity, Bond, 
Total Return, Cash Management, Money Market, and Common Stock 
Portfolios (collectively, ``Portfolios''). Fund shares have been sold 
only to Separate Accounts established by NYLIAC to fund its variable 
life insurance and variable annuity contracts. Fund shares also will be 
sold in the future to other separate accounts of NYLIAC or its 
affiliates, or separate accounts of unaffiliated insurance companies.
    3. MFA I, MFA II, NYLIAC I, and NYLIAC II are the Separate Accounts 
that fund NYLIAC's variable annuity contracts, while NYLIAC VLI, NYLIAC 
VUL I and NYLIAC VUL II fund NYLIAC's variable life insurance contracts 
(together, ``Contracts''). Each Separate Account is a registered unit 
investment trust under the 1940 Act. Contract owners may elect to have 
their investment allocated among the Separate Accounts' investment 
divisions (``Divisions''), which correspond to the Fund's eight 
portfolios. Presently, MFA I and II and NYLIAC VLI invest in the Money 
Market, Common Stock and Bond Portfolios, while NYLIAC I and II, and 
NYLIAC VUL I and II invest in the Cash Management, Indexed Equity, 
Capital Appreciation, Total Return, and Government Portfolios. As of 
December 15, 1993, NYLIAC I and II also made available the Common Stock 
and Bond Portfolios as investment options.
    4. Two of the Fund's eight Portfolios, the Money Market and Cash 
Management Portfolios, are proposed to be merged. Money Market 
Portfolio shares currently are held only by MFA I, MFA II and NYLIAC 
VLI shareholders. New Contracts which invest in the Money Market 
Portfolio are being sold by MFA I and MFA II in only one state, and 
only until NYLIAC's new variable annuity is approved in that state. 
Sales of variable life insurance contracts funded by NYLIAC VLI ceased 
on July 1, 1988. The Cash Management Portfolio is currently available 
to present and future shareholders of NYLIAC I, NYLIAC II, NYLIAC VUL 
I, and NYLIAC VUL II.
    5. The Money Market and Cash Management Portfolios' investment 
objectives are nearly identical: ``maximum current income consistent 
with preservation of capital and maintenance of liquidity'' for the 
Money Market Portfolio, and ``as high a level of current income as is 
considered consistent with the preservation of capital and liquidity'' 
for the Cash Management Portfolio.
    6. Net assets as of June 30, 1993 and November 30, 1993, were 
$19,196,617 and $23,701,649, respectively, for the Cash Management 
Portfolio, and $45,853,329 and $41,114,420, respectively, for the Money 
Market Portfolio. As of June 30, 1993, the combined pro forma assets 
were $65,049,946, giving effect to the proposed reorganization at the 
then net asset value per share.
    7. Both the Money Market and the Cash Management Portfolios rely on 
Rule 2a-7 under the 1940 Act to value their portfolio securities on the 
amortized cost basis. Rule 2a-7 requires, among other things, that all 
portfolio securities have at the time of purchase a maximum remaining 
maturity of 13 months and that a portfolio maintain a dollar weighted 
portfolio maturity of not more than 90 days. As of June 30, 1993, the 
dollar weighted portfolio maturities were 27.13 days for the Money 
Market Portfolio and 60.53 days for the Cash Management Portfolio. For 
the 7-day period ending June 30, 1993, the yields on an annual basis 
before expenses, including investment advisory and other expenses, were 
3.17% for the Money Market Portfolio and 3.23% for the Cash Management 
Portfolio. After payment of such expenses, the yields were 2.90% and 
2.61%, respectively, with an expense reimbursement (applicable only to 
the Cash Management Portfolio), and would have been 2.90% and 2.11%, 
respectively, without reimbursement. The rates of return for the Money 
Market Portfolio for the past 5 years are as follows:

------------------------------------------------------------------------
                                                                Rate of 
                                                                 return 
                                                               (percent)
------------------------------------------------------------------------
Eleven Months Ending 11/30/93................................       2.62
Year Ending 1992.............................................       3.49
Year Ending 1991.............................................       5.74
Year Ending 1990.............................................       7.95
Year Ending 1989.............................................       8.93
Year Ending 1988.............................................       7.36
------------------------------------------------------------------------

The rate of return for the Cash Management Portfolio for the ten month, 
one day period from January 29, 1993 (inception) to November 30, 1993, 
is 2.17%.
    8. New York Life provides investment advice and related services to 
the Money Market Portfolio under an investment advisory agreement 
approved on October 23, 1984, for a fee equal on an annual basis to 
0.25% of the average daily value of the aggregate net assets of the 
Portfolios. The Money Market Portfolio also must pay certain additional 
operating expenses, which amounted to .01% during 1992. For years ended 
December 31, 1990, 1991, and 1992, the Money Market Portfolio's ratio 
of expenses to average net assets was 0.26% in each year. The Money 
Market Portfolio is not subject to an expense reimbursement agreement.
    9. MacKay-Shields Financial Corporation (``MacKay-Shields''), an 
indirect wholly-owned subsidiary of New York Life, is the investment 
adviser to the Cash Management Portfolio, for which it is paid a fee 
equal to 0.25% annually of the average daily net assets. NYLIAC is the 
administrator of the Cash Management Portfolio and is paid an annual 
fee for its services equal to 0.20% of the Portfolio's average daily 
net assets. NYLIAC has entered into an expense reimbursement agreement 
effective through the earlier of (1) December 31, 1996, or (ii) such 
time as the Cash Management Portfolio has $250 million in assets, 
limiting to 0.17% annually the ``other expenses'' of the Cash 
Management Portfolio (i.e., expense incurred in addition to the 
investment advisory and administration fees). The total expense ratio 
for the Cash Management Portfolio, for the period from inception of the 
Portfolio on January 29, 1993 and ending June 30, 1993, would have 
equaled 1.24% before reimbursement and was .62% after reimbursement. 
The combined total expense ratio for the Cash Management and Money 
Market Portfolios, absent reimbursement, would have been 1.062%, if the 
merger had taken place at the beginning of the year.
    10. Applicants submit that the total fees paid by the Money Market 
Portfolio are at lower rates than the current industry standard for 
similar products and lower than the fees paid by the Cash Management 
Portfolio because insurance related investment products represented a 
new direction for New York Life when shares of the Money Market 
Portfolio were initially offered. New York Life has since delegated 
most of its advisory functions to its subsidiary, MacKay-Shields. New 
York Life also has determined that it will only manage new insurance 
related investment products at a fee which is similar to the rates 
charged by it to most of the other investment companies in the NYLIAC 
group of funds.
    11. The Applicants propose to merge the Money Market and Cash 
Management Portfolios under a Plan of Merger (``Plan'') that was 
unanimously approved by the Fund's Board of Directors (``Board''), 
including a majority who are not interested persons of the Fund of 
NYLIAC. The stated principal purposes of the merger are to eliminate 
the redundancy caused by the similarity of the Money Market and Cash 
Management Portfolios' investment objectives, to counter the effects of 
the anticipated decline in premium payments received under Contracts 
which permit allocation to the Money Market Portfolio, reduce 
management and transaction costs and improve investment performance.
    12. The Board has determined that the interests of Contract owners 
indirectly invested in the Money Market and Cash Management Portfolios 
will not be diluted and that the proposed merger is in the best 
interests of each affected Portfolio and its shareholders. The Board 
unanimously concluded that the benefits of the merger to Contract 
owners who can currently allocate premiums to the Money Market 
Portfolio outweigh the benefit of the lower fee currently assessed on 
the Money Market Portfolio (compared to the higher fees of the Cash 
Management Portfolio) because of expected economies of scale and cost 
savings which will be reflected in improved future performance of the 
Cash Management Portfolio. Because shares of the Money Market Portfolio 
are no longer being sold, the assets in that Portfolio, absent the 
merger, would decline as a result of surrenders and annuitizations. The 
merger allows new monies from the sale of shares of the Cash Management 
Portfolio to be combined with the existing Money Market Portfolio 
assets resulting in economies of scale. The investment adviser also 
will be better equipped to make investment decisions and manage cash 
flows where the size of the Portfolio is larger and where monies are 
flowing in, as well as out, of the fund. Additionally, certain expenses 
incurred by each Portfolio will be reduced on a percentage basis as the 
funds are combined.
    13. The Plan was approved at a Special Meeting of Fund shareholders 
held on December 14, 1993, with 77.6% voting in favor, 15.6% opposing 
and 6.8% abstaining. The affirmative vote of two-thirds of the 
outstanding shares of the Money Market Portfolio was required to 
approve the transaction. Contract owners with cash value in the 
Divisions of the Separate Accounts that invest in the Money Market 
Portfolio as of the record date were sent a proxy statement containing 
information relating to the proposed Merger and related transactions 
and were asked to vote on the proposed Merger.
    14. Under the Plan, on the closing date (December 14, 1993, or such 
later date as may be agreed upon by the parties), the Cash Management 
Portfolio would acquire all the assets and liabilities of the Money 
Market Portfolio in exchange for issuance of shares of the Cash 
Management Portfolio. Each shareholder of the Money Market Portfolio 
will receive shares of the Cash Management Portfolio equal in net asset 
value at the date of the exchange to the net asset value of the 
shareholder's Money Market Portfolio shares then outstanding. 
Thereafter, expenses paid by such shareholders will be those applicable 
to the Cash Management Portfolio, which are higher than those of the 
Money Market Portfolio. The shares of the Cash Management Portfolio 
issued under the Plan have been registered under the 1933 Act.
    15. The future cash value of Contracts indirectly invested in the 
Money Market Portfolio will reflect the investment performance and 
expenses of the Cash Management Portfolio. Otherwise, the proposed 
merger will have no economic impact on Contract values, fees or charges 
under these Contracts or the rights or interest of owners. The proposed 
merger also will not have adverse tax consequences for the Contract 
owners. No gain or loss will be recognized by the Money Market or Cash 
Management Portfolios or the shareholders thereof as a result of 
consummation of the merger. Applicants will receive an opinion of tax 
counsel as to these representations. The holding period and tax basis 
of the shares of the Cash Management Portfolio received by a 
shareholder will be the same as the holding period and tax basis of the 
shareholder's shares of the Money Market Portfolio.

Applicants' Legal Analysis

    1. The Applicants request that the Commission issue an order under 
section 17(b) of the 1940 Act exempting the proposed Plan from the 
provisions of section 17(a) of the Act to the extent necessary to 
permit the Cash Management Portfolio to acquire substantially all of 
the assets of the Money Market Portfolio in exchange for shares of the 
Cash Management Portfolio.
    2. Section 17(a)(1) of the 1940 Act prohibits any affiliated person 
of a registered investment company, or any affiliated person of such 
person acting as principal, from knowingly selling any security or 
other property to that company. Section 17(a)(2) of the 1940 Act 
generally prohibits such affiliated persons from knowingly purchasing 
any security or other property from the registered investment company.
    3. The proposed Merger may result in transactions prohibited by 
section 17(a) because of potential affiliations among the Portfolios. 
NYLIAC, through the Separate Accounts, technically owns 100% of the 
outstanding shares of each Portfolio and, thus, may be considered a 
``5% affiliate'' of each Portfolio, as defined in section 2(a)(3) of 
the 1940 Act.\1\ Each Portfolio consequently would be an affiliated 
person of an affiliated person (i.e., NYLIAC), and transactions between 
the Portfolios thus may be subject to the prohibitions of Section 
17(a).
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    \1\Section 2(a)(3) of the 1940 Act defines the term ``affiliated 
person,'' in relevant part, as: (A) Any person directly or 
indirectly owning, controlling, or holding with power to vote, 5 per 
centum or more of the outstanding voting securities of such other 
person; (B) any person 5 per centum or more of whose outstanding 
voting securities are directly or indirectly owned, controlled, or 
held with power to vote, by such person; (C) any person directly or 
indirectly controlling, controlled by, or under common control with, 
such other persons; * * *
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    An affiliation between the Portfolios also may arise if they are 
considered to be under the ``common control'' of NYLIAC. As part of the 
same Fund, the Portfolios each have common directors and officers as 
well as a common investment adviser. Because NYLIAC organized the Fund, 
each Portfolio also could be deemed under NYLIAC's common control. If 
the Portfolios are considered under common control, they would be 
affiliated persons of one another.
    4. Section 17(b) of the 1940 Act requires the Commission to grant 
an order, upon application, exempting proposed transactions otherwise 
prohibited by section 17(a), if evidence establishes that:

    (1) The terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned;
    (2) The proposed transaction is consistent with the policies of 
each registered investment company concerned, as recited in its 
registration statements and reports filed under the 1940 Act; and
    (3) The proposed transaction is consistent with the general 
purposes of the 1940 Act.

The Applicants represent that the Plan and the proposed transactions 
satisfy these tests.
    5. The Fund's Board, including a majority of the disinterested 
Directors, reviewed, evaluated and approved the terms of the proposed 
merger, including the consideration to be paid or received by all 
parties. The Board determined that the Plan will be in the best 
interests of the shareholders of, and of Contractowners indirectly 
invested in, each affected Portfolio. The Board also determined that 
the consummation of the proposed Plan will not result in the dilution 
of the current interests of any such shareholder or Contractowner.
    6. The Board considered the following factors, among others: 
expense ratios and published information regarding the fees and 
expenses of the affected Portfolios and of similar funds; the 
comparative investment performance of the Money Market and Cash 
Management Portfolios; the terms and conditions of the proposed Plan 
and whether it would result in a dilution of shareholder interests; 
costs incurred by the Portfolios as a result of the proposed 
transactions; and tax consequences of the proposed Plan. The Board 
noted, in particular: (a) The potential benefits to shareholders and 
owners; (b) the virtual indistinguishable investment objectives, 
policies, restrictions and investment holdings of the affected 
Portfolios; (c) the terms and conditions of the proposed Plan which 
might affect the price of shares (or owner interests) to be exchanged; 
and (d) direct or indirect costs to be incurred by the affected 
Portfolios or shareholders or owners invested in such Portfolios.
    7. As noted above, the Money Market Portfolios is available for 
allocation by owners of variable annuities funded by MFA I and MFA II 
and by owners of variable life insurance contracts funded by NYLIAC 
VLI. Sales of flexible premium annuity contracts commenced on January 
23, 1984 and ceased on September 1, 1989. Sales of the single premium 
annuity contracts are being suspended on a state-by-state basis as 
variable annuities issued out of NYLIAC I and NYLIAC II are introduced. 
Sales of such Contracts are currently being made in only one state. 
Premiums received under new contracts and additional premiums under old 
contracts have been at the following levels during the past three and 
one-half years: 

                    Premiums Received Under Contracts                   
                       [In thousands of dollars]                        
------------------------------------------------------------------------
                                              New       Old      Total  
------------------------------------------------------------------------
Year Ending 12/31/90......................   $42,979   $39,468   $82,447
Year Ending 12/31/91......................    34,926    35,074    70,000
Year Ending 12/31/92......................    55,821    34,009    89,830
Six Months Ending 06/30/93................    23,259    21,165   44,424 
------------------------------------------------------------------------

Sales of variable life insurance policies commenced on February 1, 1984 
and ceased on July 1, 1988. Additional premiums received under old 
policies have been at the following levels during the past three and 
one-half years: 

                    Premiums Received Under Controls                    
------------------------------------------------------------------------
                                           New                          
                                                    Old         Total   
------------------------------------------------------------------------
Year Ending 12/31/90.....................  N/A   $6,207,877   $6,207,877
Year Ending 12/31/91.....................  N/A    5,623,161    5,623,161
Year Ending 12/31/92.....................  N/A    5,059,180    5,059,180
Six Months Ending 06/30/93...............  N/A    2,330,924   2,330,924 
------------------------------------------------------------------------

    8. The Board considered the recent trend of premium payments and 
expectations of future premium payments under the Contracts offering 
the Money Market Portfolio as an investment option. The Board concluded 
that action is necessary to provide Contract owners certain benefits 
and avoid certain adverse impact on these owners. The Board believes 
that less money will be allocated to the Money Market Portfolio as new 
premiums decline and existing contracts are surrendered. Consequently, 
Contract owners invested in the Money Market Portfolio would be 
adversely affected because a smaller portfolio cannot achieve the 
portfolio diversification and other management efficiencies associated 
with a larger portfolio. In contrast, a merger of the Money Market and 
Cash Management Portfolios, together with the expectation of additional 
premiums being allocated to the Cash Management Portfolio through 
receipt of new premiums under old Contracts, and sales of new contracts 
which permit allocation to that portfolio, should result in a larger 
portfolio which can be managed more effectively.
    9. As noted above, the expense ratio of the Cash Management 
Portfolio currently is higher than that of the Money Market Portfolio. 
The Board believes, however, that this small detriment is outweighed by 
the benefits of having a larger portfolio. Moreover, New York Life 
provides advisory services and bears almost all of the expenses of the 
Money Market Portfolio under an advisory agreement which it can 
terminate without penalty on 60 days notice. Although the Board has no 
reason to believe that New York Life intends to do so, if the proposed 
merger is not consummated and New York Life terminates the current 
advisory agreement, the Board will consider such alternative advisory 
arrangements as are deemed appropriate and submit their recommendations 
to the shareholders of the Money Market Portfolio.
    10. As noted above, the investment objectives of the Portfolios to 
be merged, although not the same, are, in the opinion of the Board, for 
all intent and purposes, identical as are the expected rates of return. 
For the seven-day period ending June 30, 1993, the annualized gross 
yields (excluding investment advisory and other expenses) were 3.17% 
for the Money Market Portfolio, and 3.23% for the Cash Management 
Portfolio.
    11. The proposed merger will not affect the price of outstanding 
shares of the Cash Management Portfolio, or the Contract values or 
interests of Contract owners indirectly invested therein. The transfer 
of Money Market Portfolio assets to the Cash Management Portfolio in 
exchange for issuance of Cash Management Portfolio shares will be made 
at relative net asset values of the Portfolios on the closing date. The 
aggregate value of shares to be issued to the Money Market Divisions 
will equal the aggregate value of shares held by those Divisions 
immediately prior to the proposed merger. Thus, the aggregate value of 
outstanding units of interest of the Money Market Division will not 
change on the closing date as a result of the share exchange phase of 
the proposed merger. Further, the aggregate value of such units 
supporting the cash value of each Contractowner invested in those 
Divisions immediately prior to the merger will remain unchanged 
immediately after the share exchange phase of the merger. The share 
exchange phase of the proposed merger will impose no tax liability upon 
any shareholders or Contract owners and will not dilute the interests 
of shareholders or Contract owners currently invested in the Money 
Market or Cash Management Portfolios.
    12. NYLIAC will pay all of the direct and indirect expenses of the 
proposed Plan. Although MacKay-Shields, New York Life and NYLIAC may 
derive some benefits as a result of the proposed Plan, the expenses of 
that Plan will not dilute investors' interests.
    13. Notwithstanding the prohibitions of section 17(a), Rule 17a-8 
under the 1940 Act permits mergers, consolidations or purchases or 
sales of substantially all of the assets involving registered 
investment companies which may be affiliated persons, or affiliated 
persons of affiliated persons, solely by reason of having a common 
investment adviser, common directors and/or common officers. The 
exemption provided by Rule 17a-8 is conditioned upon a determination by 
a majority of Directors who are not interested persons that (a) 
participation in the transaction is in the best interests of that 
registered investment company, and (b) the interests of the existing 
shareholders of that registered investment company will not be diluted 
as a result of the transaction.
    14. Given the potential affiliations described above, the 
Portfolios may be deemed to be affiliated persons of one another for 
reasons other than that they have a common investment adviser, common 
directors, and/or common officers. The Portfolios each may be an 
affiliated person of an affiliated person because NYLIAC may be a 5% 
affiliate of each Portfolio. Further, the Portfolios may be direct 
affiliates of each other if they are considered under the common 
control of NYLIAC. Because of these potential affiliations, the Fund 
and the Portfolios may not be able to rely on Rule 17a-8. Nevertheless, 
the Board evaluated the relevant considerations and determined that the 
Plan will comply with the conditions that Rule 17a-8 requires for the 
protection of investment companies and their shareholders. Applicants 
believe that the Plan more closely resembles the situations encompassed 
by Rule 17a-8, rather than other situations which the Rule deliberately 
excludes, because NYLIAC does not have voting control of any shares 
and, therefore, the share exchange phase of the proposed merger is no 
more susceptible to overreaching or to the taking of unfair advantage 
of investors than is any transaction covered by Rule 17a-8.
    15. The Fund submits that the share exchange phase of the Plan will 
comply with all of the conditions that Rule 17a-8 requires for the 
protection of investment companies and their shareholders and agrees to 
the grant of the order requested herein being specifically conditioned 
on the Fund's Board having made the requisite determinations that the 
participation of the Money Market and Cash Management Portfolios in the 
proposed Plan is in the best interests of each Portfolio and that such 
participation will not dilute the interests of shareholders or owners 
invested in the affected Portfolios. The basis of these findings will 
be recorded in the Fund's minute book.
    16. For the reasons set forth above, the merger, which has been 
approved by the shareholders and Contract owners invested in the Money 
Market Portfolio, will be consistent with the policies of the Money 
Market and Cash Management Portfolios as recited in the Fund's 
registration statement and reports filed under the 1940 Act. Further, 
the Plan is consistent with the general purposes of the 1940 Act as 
stated in the Findings and Declaration of Policy in Section 1 of the 
1940 Act. The merger does not present any of the conditions or abuses 
that the 1940 Act was designed to mitigate or eliminate. In particular, 
Section 1(b)(6) of the 1940 Act states that the national public 
interest and the interest of investors are adversely affected when 
investment companies are reorganized without the consent of their 
security holders. The proposed merger, as noted above, has been 
approved by the owners of two-thirds of the outstanding shares of the 
Money Market Portfolio. Contract owners with cash value in the Money 
Market Divisions received a proxy statement containing all material 
disclosures, including a description of all material aspects of the 
merger and copies thereof. The shares of the Money Market Portfolio 
held by MFA I and II, and NYLIAC VLI, will be replaced with shares of 
the Cash Management Portfolio simultaneously with the proposed merger 
of the two Portfolios. The share exchange phase of the proposed merger 
is, thus, consistent with the general purposes of the 1940 Act.

Conclusion

    1. Applicants represent that the terms of the proposed merger, 
including the consideration to be paid and received, are reasonable and 
fair and do not involve overreaching on the part of any person 
concerned. In particular, the share exchange phase will not dilute the 
interests of shareholders or Contract owners currently invested in any 
of the Portfolios involved in the merger. Further, the merger will 
result in no tax liability to Contract owners.
    2. Applicants also represent that the proposed merger will be 
consistent with the policies of the Separate Accounts as recited in 
their current registration statements and reports filed under the 1940 
Act and with the general purposes of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3704 Filed 2-17-94; 8:45 am]
BILLING CODE 8010-01-M