[Federal Register Volume 68, Number 208 (Tuesday, October 28, 2003)]
[Notices]
[Pages 61486-61494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27088]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26229; File No. 812-12989]


Merrill Lynch Life Insurance Company, et al.; Notice of 
Application

October 22, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application (the ``Application'') for an order 
pursuant to Section 26(c) of the Investment Company Act of 1940 (the 
``1940 Act'') approving a substitution of securities and an order of 
exemption pursuant to Section 17(b) of the 1940 Act from Section 17(a) 
of the 1940 Act.

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Applicants: Merrill Lynch Life Insurance Company (``MLLIC''), Merrill 
Lynch Variable Life Separate Account (``Separate Account 1''), Merrill 
Lynch Life Variable Life Separate Account II (``Separate Account 2''), 
Merrill Lynch Life Variable Annuity Separate Account A (``Separate 
Account 3''), ML Life Insurance Company of New York (``MLNY''), ML of 
New York Variable Life Separate Account (``Separate Account 4''), ML of 
New York Variable Life Separate Account II (``Separate Account 5''), ML 
of New York Variable Annuity Separate Account A (``Separate Account 
6''), and, only for the purpose of seeking an order of exemption 
pursuant to Section 17(b) of the 1940 Act, MLIG Variable Insurance 
Trust (``MLIG Trust'') (except for MLLIC, MLNY, and MLIG Trust, each a 
``Separate Account;'' Separate Accounts 1 through 6 collectively 
referred to herein as the ``Separate Accounts'') (all foregoing 
parties, with the exception of MLIG Trust, collectively referred to 
herein as the ``Applicants'') (all foregoing parties, with the 
inclusion of MLIG Trust, collectively referred to herein as the 
``Section 17(b) Applicants'').

Summary of Application: The Applicants request an order pursuant to 
Section 26(c) of the 1940 Act to permit certain registered unit 
investment trusts to substitute shares of certain portfolios of the 
MLIG Trust (the ``Replacement Portfolios'') for shares of certain 
portfolios of the AllianceBernstein Variable Products Series Fund, Inc. 
(``AllianceBernstein Fund''), the Delaware VIP Trust (``Delaware 
Trust''), and the MFS[reg] Variable Insurance Trust\SM\ (``MFS Trust'') 
(collectively, the ``Substituted Portfolios'') currently held by those 
unit investment trusts. The Section 17(b) Applicants request an order 
of the Commission pursuant to Section 17(b) of the 1940 Act exempting 
them from Section 17(a) of the 1940 Act to the extent necessary to 
permit MLLIC and MLNY to carry out substitutions by redeeming shares 
issued by AllianceBernstein Fund, Delaware Trust, and MFS Trust in-kind 
and using the proceeds to purchase shares issued by MLIG Trust.

Filing Date: The Application was filed on July 18, 2003 and was amended 
and restated on October 9, 2003.

Hearing or Notification of Hearing: An order granting the Application 
will be issued unless the Commission orders a hearing. Interested 
person may request a hearing by writing to the Secretary of the 
Commission and serving Applicants (including Section 17(b) 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 November 12, 2003, 
and should be accompanied by proof of service on Applicants (including 
Section 17(b) 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 Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants (including Section 
17(b) Applicants), c/o Edward W. Diffin, Jr., Esq., Merrill Lynch 
Insurance Group, Inc., 1300 Merrill Lynch Drive, 2nd Floor, Pennington, 
New Jersey 08534. Copies to Stephen E. Roth, Esq. and Mary E. Thornton, 
Esq., Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Ave., NW., 
Washington, DC 20004.

FOR FURTHER INFORMATION CONTACT: H. Yuna Peng, at (202) 942-0676, or 
Lorna J. MacLeod, Branch Chief, at (202) 942-0670, Office of Insurance 
Products, Division of Investment Management.

[[Page 61487]]


SUPPLEMENTARY INFORMATION: The following is a summary of the 
Application; the complete Application may be obtained for a fee from 
the Public Reference Branch of the Commission, 450 5th Street, NW., 
Washington, DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. MLLIC is a stock life insurance company that is domiciled in 
Arkansas. Its operations include both life insurance and annuity 
products. MLLIC was incorporated under the laws of the State of 
Washington on January 27, 1986 and redomesticated to the State of 
Arkansas on August 31, 1991. As of December 31, 2002, MLLIC had assets 
of approximately $13.1 billion. MLLIC is authorized to operate as a 
life insurance company in forty-nine states, the District of Columbia, 
the U.S. Virgin Islands, Guam, and Puerto Rico. MLLIC is a wholly owned 
subsidiary of Merrill Lynch Insurance Group, Inc. (``MLIG, Inc.''). 
MLLIC is an indirect wholly owned subsidiary of Merrill Lynch & Co., 
Inc., a publicly held company whose shares are traded on the New York 
Stock Exchange. MLLIC is the depositor and sponsor of Separate Accounts 
1 through 3.
    2. Separate Account 1 is a separate investment account of MLLIC and 
is registered under the 1940 Act as a unit investment trust. Separate 
Account 1 serves as a funding vehicle for certain variable life 
insurance contracts issued by MLLIC (the ``Second Generation MLLIC VLI 
Contracts''). Under the Second Generation MLLIC VLI Contracts and in 
the prospectuses for the Second Generation MLLIC VLI Contracts, MLLIC 
reserves the right to substitute shares of one portfolio for shares of 
another, including a portfolio of a different investment company. 
Separate Account 1 is a ``separate account'' as defined in Section 
2(a)(37) of the 1940 Act.
    3. Separate Account 2 is a separate investment account of MLLIC and 
is registered under the 1940 Act as a unit investment trust. Separate 
Account 2 serves as a funding vehicle for certain variable life 
insurance contracts issued by MLLIC (the ``First Generation MLLIC VLI 
Contracts''). Under the First Generation MLLIC VLI Contracts and in the 
prospectuses for the First Generation MLLIC VLI Contracts, MLLIC 
reserves the right to substitute shares of one portfolio for shares of 
another, including a portfolio of a different investment company. 
Separate Account 2 is a ``separate account'' as defined in Section 
2(a)(37) of the 1940 Act.
    4. Separate Account 3 is a separate investment account of MLLIC and 
is registered under the 1940 Act as a unit investment trust. Separate 
Account 3 serves as a funding vehicle for variable annuity contracts 
issued by MLLIC (the ``MLLIC Annuity Contracts''). Under the MLLIC 
Annuity Contracts and in the prospectuses for the MLLIC Annuity 
Contracts, MLLIC reserves the right to substitute shares of one 
portfolio for shares of another, including a portfolio of a different 
investment company. Separate Account 3 is a ``separate account'' as 
defined in Section 2(a)(37) of the 1940 Act.
    5. MLNY is a stock life insurance company that is organized under 
the laws of the State of New York. MLNY is a wholly owned subsidiary of 
MLIG, Inc. MLNY is also an indirect wholly owned subsidiary of Merrill 
Lynch & Co., Inc. MLNY had approximately $1.1 billion of assets under 
management as of December 31, 2002. MLNY is authorized to sell life 
insurance and annuities in nine states. MLNY is the depositor and 
sponsor of Separate Accounts 4 through 6.
    6. Separate Account 4 is a separate investment account of MLNY and 
is registered under the 1940 Act as a unit investment trust. Separate 
Account 4 serves as a funding vehicle for certain variable life 
insurance contracts issued by MLNY (the ``First Generation MLNY VLI 
Contracts''). Under the First Generation MLNY VLI Contracts and in the 
prospectuses for the First Generation MLNY VLI Contracts, MLNY reserves 
the right to substitute shares of one portfolio for shares of another, 
including a portfolio of a different investment company. Separate 
Account 4 is a ``separate account'' as defined in Section 2(a)(37) of 
the 1940 Act.
    7. Separate Account 5 is a separate investment account of MLNY and 
is registered under the 1940 Act as a unit investment trust. Separate 
Account 5 serves as a funding vehicle for certain variable life 
insurance contracts issued by MLNY (the ``Second Generation MLNY VLI 
Contracts''). Under the Second Generation MLNY VLI Contracts and in the 
prospectuses for the Second Generation MLNY VLI Contracts, MLNY 
reserves the right to substitute shares of one portfolio for shares of 
another, including a portfolio of a different investment company. 
Separate Account 5 is a ``separate account'' as defined in Section 
2(a)(37) of the 1940 Act.
    8. Separate Account 6 is a separate investment account of MLNY and 
is registered under the 1940 Act as a unit investment trust. Separate 
Account 6 serves as a funding vehicle for variable annuity contracts 
issued by MLNY (the ``MLNY Annuity Contracts''). Under the MLNY Annuity 
Contracts and in the prospectuses for the MLNY Annuity Contracts, MLNY 
reserves the right to substitute shares of one portfolio for shares of 
another, including a portfolio of a different investment company. 
Separate Account 6 is a ``separate account'' as defined in Section 
2(a)(37) of the 1940 Act.
    9. Merrill Lynch, Pierce, Fenner & Smith Incorporated (``MLPF&S'') 
serves as principal underwriter and distributor for the Variable 
Contracts. MLPF&S was organized in 1958 under the laws of the State of 
Delaware and is registered as a broker-dealer under the Securities 
Exchange Act of 1934 (the ``1934 Act''). It is a member of the NASD. 
MLPF&S may enter into selling agreements with other broker-dealers 
registered under the 1934 Act whose representatives are authorized by 
applicable law to sell the Variable Contracts.
    10. AllianceBernstein Variable Products Series Fund, Inc. 
(``AllianceBernstein Fund'') is registered as an open-end management 
investment company under the 1940 Act and currently offers 19 separate 
investment portfolios, one of which would be involved in the proposed 
substitutions. The AllianceBernstein Fund issues a separate series of 
shares of common stock in connection with each portfolio, and has 
registered such shares under the Securities Act of 1933 (``1933 Act'') 
on Form N-1A. Each separate series offers only two classes of shares, 
Class A shares and Class B shares. The distinction between Class A 
shares and Class B shares is the imposition of a distribution fee of an 
annual rate of 0.25% (capped at a maximum annual rate of 0.50%) of each 
series' average daily net assets attributable to the Class B shares 
pursuant to Rule 12b-1 under the 1940 Act. Shareholders that would be 
affected by the proposed substitutions are currently invested in Class 
A shares of the Substituted Portfolio. Alliance Capital Management, 
L.P. (``Alliance'') serves as the investment adviser to each portfolio 
of the AllianceBernstein Fund. Alliance Capital Management Corporation, 
the sole general partner of Alliance, is an indirect wholly owned 
subsidiary of The Equitable Life Assurance Society of the United 
States, which is in turn a wholly owned subsidiary of AXA Financial, 
Inc., a holding company which is controlled by AXA. Alliance receives 
an investment advisory fee from each portfolio it manages.
    11. Delaware VIP Trust (``Delaware Trust'') is registered as an 
open-end management investment company under the 1940 Act and currently 
offers

[[Page 61488]]

19 separate investment portfolios, one of which would be involved in 
the proposed substitutions. Delaware Trust issues a separate series of 
shares of common stock in connection with each portfolio, and has 
registered such shares under the 1933 Act on Form N-1A. Each separate 
series offers only two classes of shares, Standard Class shares and 
Service Class shares. The distinction between Standard Class shares and 
Service Class shares is the imposition of a distribution fee of an 
annual rate of 0.25% (capped at a maximum annual rate of 0.50%) of each 
series' average daily net assets attributable to the Service Class 
shares pursuant to Rule 12b-1 under the 1940 Act. Shareholders that 
would be affected by the proposed substitutions are currently invested 
in Standard Class shares of the Substituted Portfolio. Delaware 
Management Company (``DMC'') serves as the investment adviser to each 
portfolio of Delaware Trust. DMC is a series of Delaware Management 
Business Trust, which is an indirect, wholly owned subsidiary of 
Delaware Management Holdings, Inc. DMC is paid fees by the Delaware VIP 
Trend Series.
    12. MFS[reg] Variable Insurance TrustSM (``MFS Trust'') 
is registered as an open-end management investment company under the 
1940 Act and currently offers 15 separate investment portfolios, two of 
which would be involved in the proposed substitutions. MFS Trust issues 
a separate series of shares of common stock in connection with each 
portfolio, and has registered such shares under the 1933 Act on Form N-
1A. Each separate series offers only two classes of shares, Initial 
Class shares and Service Class shares. The distinction between Initial 
Class shares and Service Class shares is the imposition of a 
distribution fee of an annual rate of 0.25% of each series' average 
daily net assets attributable to the Service Class shares pursuant to 
Rule 12b-1 under the 1940 Act. Shareholders that would be affected by 
the proposed substitutions are currently invested in Initial Class 
shares of the Substituted Portfolios. Massachusetts Financial Services 
Company (``MFS'') serves as the investment adviser to each of the 
portfolios of the MFS Trust. MFS is a subsidiary of Sun Life of Canada 
(U.S.) Financial Services Holdings, Inc., which, in turn, is a indirect 
wholly owned subsidiary of Sun Life Assurance Company of Canada. MFS is 
paid fees by each of the MFS Trust portfolios for its services.
    13. MLIG Variable Insurance Trust (``MLIG Trust'') is registered as 
an open-end management investment company under the 1940 Act and 
currently offers 24 separate investment portfolios, two of which would 
be involved in the proposed substitutions. MLIG Trust issues a separate 
series of shares of common stock in connection with each portfolio, and 
has registered such shares under the 1933 Act on Form N-1A. Each 
separate series offers only one class of shares, and has not adopted a 
plan pursuant to Rule 12b-1 under the 1940 Act. Roszel Advisors, LLC 
(``Roszel Advisors'') serves as the investment manager of the MLIG 
Trust and each of the portfolios therein. Roszel Advisors is a wholly 
owned subsidiary of MLIG, Inc. Roszel Advisors receives management fees 
from each of the portfolios. DMC is the subadviser to the Roszel/
Delaware Trend Portfolio. PIMCO Advisors Retail Holdings LLC and 
Cadence Capital Management LLC (``PIMCO'' and ``Cadence,'' 
respectively) are the subadvisers to the Roszel/PIMCO CCM Capital 
Appreciation Portfolio.
    14. The MLIG Trust and Roszel Advisors obtained an order from the 
Commission pursuant to Section 6(c) of the 1940 Act exempting them from 
Section 15(a) of the 1940 Act and Rule 18f-2 under the 1940 Act, with 
respect to subadvisory agreements (the ``Manager of Managers Order''). 
The Manager of Managers Order permits the MLIG Trust and Roszel 
Advisors to enter into and materially amend investment subadvisory 
agreements without obtaining shareholder approval. The relief granted 
in the Manager of Managers Order extends to all of the portfolios of 
the MLIG Trust that will be involved in the proposed substitutions.
    15. The following chart sets out the investment objectives and 
certain policies of each Substituted Portfolio and each Replacement 
Portfolio, as stated in their respective prospectuses and statements of 
additional information.

----------------------------------------------------------------------------------------------------------------
                 Substituted portfolios                                   Replacement portfolios
----------------------------------------------------------------------------------------------------------------
AllianceBernstein Quasar Portfolio of the                Roszel/Delaware Trend Portfolio of the MLIG Trust.
 AllianceBernstein Fund.
Investment Objective--To seek growth of capital by       Investment Objective--To seek long-term capital
 pursuing aggressive investment policies. The portfolio   appreciation.
 treats current income as incidental to its objective.
Investment Policies--Generally, the portfolio invests    Investment Policies--The portfolio invests at least 65%
 in a widely diversified mix of equity securities         of total assets in small cap equities of companies
 across many industries that offer the possibility of     believed to have potential for high earnings growth.
 above-average earnings growth. Currently, the            The portfolio's investment adviser seeks small
 portfolio's investment adviser emphasizes investing in   companies that offer substantial opportunities for
 small cap companies, and it invests both in well-known   long-term price appreciation because they are poised
 and established companies and in new and unseasoned      to benefit from changing and dominant social and
 companies. The portfolio may invest in any securities    political trends. The portfolio's investment adviser
 with the potential for capital appreciation. In          evaluates company management, product development and
 choosing securities, the portfolio's investment          sales and earnings, and it seeks market leaders,
 adviser considers the economic and political outlook,    strongproduct cycles, innovative concepts, and
 management capabilities and practices, and trends in     industry trends. Also considered are a company's price-
 the determinants of corporate profits, among others.     to-earning ratio, estimated growth rates, market cap,
 The portfolio may also invest in non-convertible         and cash flows to determine the company's
 bonds, preferred stocks, and foreign securities.         attractiveness. To reduce the risk of investing in
                                                          small cap companies, the portfolio invests in a well-
                                                          diversified portfolio of different stocks representing
                                                          a wide array of industries. The portfolio uses the
                                                          Russell 2500 Growth Index as a performance benchmark.
                                                          The portfolio may invest up to 25% of total assets in
                                                          foreign securities.
Delaware VIP Trend Series of the Delaware Trust.
Investment Objective--To seek long-term capital
 appreciation.

[[Page 61489]]

 
Investment Policies--The Series invests mainly in
 stocks of small, growth-oriented or emerging companies
 that the portfolio's investment adviser believes are
 responsive to changes in the marketplace and have
 prospects for continued growth. The portfolio's
 investment adviser looks for market leaders, strong
 product cycles, innovative concepts, and industry
 trends, and also examines price-to-earnings ratios,
 estimated growth rates, market caps, and cash flow
 when it selects stocks for investment.
MFS Research Series of the MFS Trust...................  Roszel/PIMCO CCM Capital Appreciation Portfolio of the
                                                          MLIG Trust.
Investment Objective--To seek long-term growth of        Investment Objective--To seek long-term capital
 capital and future income.                               appreciation.
Investment Policies--Normally, the Series invests at     Investment Policies--The portfolio invests at least 65%
 least 80% of its net assets in common stocks and         of total assets in large cap stocks of companies
 related securities (preferred stocks, convertible        believed to have potential for high earnings growth.
 securities and depositary receipts for those             These companies are generally well-established issuers
 securities), and focuses on companies, regardless of     with strong business franchises and favorable long-
 size, believed to have favorable prospects for long-     term growth prospects. The portfolio's investment
 term growth, attractive valuations based on current      adviser seeks to achieve a consistent, favorable
 and expected earnings or cash flow, dominant or          balance of growth and value with stocks of companies
 growing market share, and superior management. The       in the Russell 1000 and the S&P 500 Indexes. In
 Series may also invest in junk bonds and in foreign      choosing companies to invest in, the portfolio's
 securities(including emerging markets securities). The   investment adviser first looks at dividend growth,
 Series' assets are allocated among various industries.   earnings growth, relative growth of earnings over
                                                          time, the company's history of meeting earnings
                                                          targets, and price-to-earnings ratios and other ratios
                                                          that reveal value. The most promising companies are
                                                          then evaluated on the basis of management strength,
                                                          competitiveness in their industries, business
                                                          prospects, and profitability. The portfolio sells
                                                          stocks when their price declines relative to other
                                                          stocks invested in by the portfolio or to other
                                                          companies in the same business industry or when the
                                                          issuer's earnings decline. The portfolio may invest up
                                                          to 10% of total assets in foreign securities. The
                                                          portfolio uses the S&P 500 Index as a benchmark index.
MFS Investors Trust Series of the MFS Trust.
Investment Objective--To provide long-term growth of
 capital, with reasonable current income as a secondary
 objective.
Investment Policies--Normally, the Series invests at
 least 65% of net assets in common stocks and related
 securities (preferred stocks, convertible securities
 and depositary receipts for those securities). The
 portfolio's investment adviser generally focuses on
 companies with larger market caps(although it may
 invest in companies of any size) believed to have
 sustainable growth prospects and attractive valuations
 based on current and expected earnings or cash flow.
 The portfolio's investment adviser will attempt to
 generate gross current income equal to about 90% of
 the dividend yield on the Standard & Poor's 500
 Composite Stock Index. The portfolio's investment
 adviser selects securities by analyzing earnings, cash
 flows, competitive position and management's
 abilities. The Series may invest in foreign equity
 securities.
----------------------------------------------------------------------------------------------------------------

    16. The following chart describes the fees payable for advisory 
services (before any waivers and reimbursements) for the year ending 
December 31, 2002, expressed as an annual percentage of average daily 
net assets, by each Substituted Portfolio and each Replacement 
Portfolio.

----------------------------------------------------------------------------------------------------------------
             Substituted portfolios               Percent             Replacement portfolios             Percent
----------------------------------------------------------------------------------------------------------------
AllianceBernstein Quasar Portfolio, Annual           1.00  Roszel/Delaware Trend Portfolio, Annual          0.85
 Advisory Fees.                                             Advisory Fees.
Delaware VIP Trend Series, Annual Advisory Fees      0.75                                               ........
MFS Research Series, Annual Advisory Fees......      0.75  Roszel/PIMCO CCM Capital Appreciation            0.80
                                                            Portfolio, Annual Advisory Fees.
MFS Investors Trust Series, Annual Advisory          0.75  ...........................................
 Fees.
----------------------------------------------------------------------------------------------------------------

    17. The following charts compare the total operating expenses 
(before and after any waivers and reimbursements) for the year ended 
December 31, 2002, expressed as an annual percentage of average daily 
net assets, of each Substituted Portfolio and each Replacement 
Portfolio. None of the relevant classes of shares of the Replacement 
Portfolios have adopted a plan pursuant to Rule 12b-1 under the 1940 
Act.

[[Page 61490]]



----------------------------------------------------------------------------------------------------------------
                             Substituted portfolios (in percent)                                  Replacement
----------------------------------------------------------------------------------------------   portfolios (in
                                                                                                    percent)
                                                         AllianceBernstein     Delaware VIP   ------------------
                                                          Quasar Portfolio     Trend series     Roszel/Delaware
                                                                                                Trend Portfolio
----------------------------------------------------------------------------------------------------------------
Management fees........................................               1.00               0.75               0.85
12b-1 fees.............................................                N/A                N/A                N/A
Other expenses.........................................               0.25               0.09               0.97
                                                        --------------------
    Total operating expenses...........................               1.25               0.84               1.82
Less expense waivers and reimbursements................                N/A                N/A             (0.67)
                                                        --------------------
    Net operating expenses.............................               1.25               0.84               1.15


----------------------------------------------------------------------------------------------------------------
                                                                                                Roszel/PIMCO CCM
                                                            MFS Research      MFS Investors         Capital
                                                               series          Trust series       Appreciation
                                                                                                   Portfolio
----------------------------------------------------------------------------------------------------------------
Management Fees........................................               0.75               0.75               0.80
12b-1 fees.............................................                N/A                N/A                N/A
Other expenses.........................................               0.12               0.13               0.97
                                                        --------------------
    Total operating expenses...........................               0.87               0.88               1.77
Less expense waivers and reimbursements................                N/A                N/A             (0.67)
                                                        --------------------
    Net operating expenses.............................               0.87               0.88               1.10
----------------------------------------------------------------------------------------------------------------

    18. ``Other Expenses'' for the Roszel/Delaware Trend Portfolio and 
the Roszel/PIMCO CCM Capital Appreciation Portfolio are based on 
estimates for the fiscal year ended December 31, 2003. In addition, 
MLIG Trust has entered into an expense limitation arrangement with 
Roszel Advisors whereby Roszel Advisors will reimburse the Roszel/
Delaware Trend Portfolio and the Roszel/PIMCO CCM Capital Appreciation 
Portfolio to the extent total operating expenses (excluding interest, 
taxes, brokerage commissions, expenses in the form of fees paid to the 
Trust service providers by brokers in connection with directed 
brokerage arrangements, other expenditures that are capitalized in 
accordance with generally accepted accounting principles, and other 
extraordinary expenses not incurred in the ordinary course of each 
Portfolio's business) exceed certain limits. The expense limitation 
agreement is effective through April 30, 2004, and is expected to 
continue from year to year, conditioned upon approval for continuance 
by the board of trustees of the MLIG Trust. Net Operating Expenses for 
the AllianceBernstein Quasar Portfolio do not reflect fees waived or 
expenses assumed by Alliance during the year ended December 31, 2002. 
Such waivers and assumption of expenses were made on a voluntary basis, 
and Alliance has discontinued this waiver. During the fiscal year ended 
December 31, 2002, Alliance waived management fees totaling 0.12% and 
other expenses totaling 0.02% for the AllianceBernstein Quasar 
Portfolio. After considering such reimbursements, actual Net Operating 
Expenses were 1.11%. DMC, the adviser to the Series, has contracted to 
waive fees and pay expenses through April 30, 2004 in order to prevent 
the Series' total operating expenses (excluding any 12b-1 fees, taxes, 
interest, brokerage fees, and extraordinary expenses) from exceeding 
0.95% of average daily net assets.
    19. Pursuant to their authority under the respective Variable 
Contracts and the prospectuses describing the same, and subject to the 
approval of the Commission under Section 26(c) of the 1940 Act, MLLIC 
and MLNY propose to substitute shares of the Replacement Portfolios for 
shares of the Substituted Portfolios in the Separate Accounts (the 
``Substitutions'').
    20. The Substitutions are part of an overall business plan 
involving the management of MLLIC and MLNY to make their respective 
products, including the Variable Contracts, more competitive (both in 
terms of new sales, as well as with regard to the retention of existing 
blocks of business) and more efficient to administer and oversee. The 
proposed Substitutions are consistent with this business plan and 
involve mutual funds with similar investment objectives.
    21. Over the past several years, MLLIC and MLNY have engaged in a 
thorough review of the efficiencies and structures of all of the 
investment options they offer under the Variable Contracts. As part of 
this ongoing effort to make the Variable Contracts more competitive, 
the Applicants engaged in certain substitutions on May 1, 2002. Based 
on their continuing evaluation of the available investment options, 
MLLIC and MLNY believe that more concentrated and streamlined 
operations for investment options could result in increased operational 
and administrative efficiencies and economies of scale for the 
Companies. More specifically, MLLIC and MLNY feel that streamlining the 
number of nonproprietary fund families available through the Variable 
Contracts and altering the available portfolios will simplify the 
administration of the Variable Contracts, particularly with regard to 
communications with the fund families and the preparation of various 
reports and disclosure documents. This streamlining will allow them to 
enhance their communication efforts to Variable Contract owners and 
sales representatives regarding the available portfolios, and may 
provide for more enhanced and timely reporting to MLLIC and MLNY from 
fund families and therefore from MLLIC and MLNY to Variable Contract 
owners. Furthermore, reducing the number of nonproprietary fund 
families also will provide MLLIC and MLNY with more control over fund 
changes that affect their Variable Contracts, allowing for appropriate 
long-term strategic planning.
    22. During this continuing evaluation of the available investment 
options, MLLIC and MLNY also have engaged in a thorough review of the 
quality of all of the investment options offered under the Variable 
Contracts. This due diligence review involved an evaluation of the 
investment performance, the investment process, and the investment

[[Page 61491]]

teams responsible for the management of the Substituted Portfolios. 
Ultimately, MLLIC and MLNY concluded that the Substituted Portfolios 
offered under the Variable Contracts warrant replacement and that it 
would be preferable to make alternative investment options available to 
both current and future Variable Contract owners. Consequently, MLLIC 
and MLNY identified certain investment options (i.e., the Replacement 
Portfolios) that MLLIC and MLNY feel would be more competitive and more 
attractive to Variable Contract owners. In fact, under certain of the 
Variable Contracts (where administratively feasible), MLLIC and MLNY 
closed the subaccounts investing in the Substituted Portfolios to the 
allocation of premium and contract value on May 1, 2003, and 
simultaneously added new investment options that invest in the 
Replacement Portfolios.
    23. MLLIC and MLNY also feel that these options would better 
promote their goals of increasing administrative efficiency of, and 
control over, their Variable Contracts if they were a part of their 
affiliated fund families. For example, one of the proposed 
Substitutions involves the Roszel/Delaware Trend Portfolio, which is 
modeled on one of its corresponding Substituted Portfolios, the 
Delaware VIP Trend Series; this Replacement Portfolio also shares an 
identical investment objective and substantially similar policies, 
restrictions, and risks as this Substituted Portfolio. In addition, as 
the Replacement Portfolios operate pursuant to the Manager of Managers 
Order, the Substitutions would provide protection to Variable Contract 
owners by giving Roszel Advisors the agility and flexibility to change 
the subadvisers of the Replacement Portfolios should such a change 
become warranted or advisable.
    24. MLLIC and MLNY will effect the Substitutions as soon as 
practicable following the issuance of the requested order as follows. 
As of the effective date of the Substitutions (``Effective Date''), 
each Separate Account will redeem shares of the applicable Substituted 
Portfolios in-kind. The proceeds of such redemptions will then be used 
to purchase shares of the corresponding Replacement Portfolios, with 
each subaccount of the applicable Separate Account investing the 
proceeds of its redemption from the Substituted Portfolios in the 
applicable Replacement Portfolios. Following these transactions, 
certain Separate Accounts may have two subaccounts holding shares of 
the Replacement Portfolios. Each Separate Account will combine the two 
subaccounts holding shares of each Replacement Portfolio by 
transferring shares on the same date from one of the subaccounts 
holding shares of the Replacement Portfolio to the other subaccount 
holding shares of the Replacement Portfolio. The net effect of the 
Substitutions will be to eliminate the subaccount in each Separate 
Account relating to the Substituted Portfolios.
    25. Redemption requests and purchase orders will be placed 
simultaneously so that contract values will remain fully invested at 
all times. All redemptions of shares of the Substituted Portfolios and 
purchases of shares of the Replacement Portfolios will be effected in 
accordance with Rule 22c-1 of the 1940 Act.
    26. The Substitutions will take place at relative net asset value 
with no change in the amount of any Variable Contract owner's contract 
value or death benefit or in the dollar value of his or her investments 
in any of the subaccounts. Variable Contract owners will not incur any 
additional fees or charges as a result of the Substitutions, nor will 
their rights or MLLIC's and MLNY's obligations under the Variable 
Contracts be altered in any way (although Variable Contract owners will 
lose their right to vote on whether the MLIG Trust and Roszel Advisors 
may enter into and materially amend investment subadvisory agreements 
relating to the Replacement Portfolios, pursuant to the Manager of 
Managers Order described above). All expenses incurred in connection 
with the Substitutions, including legal, accounting, transactional, and 
other fees and expenses, including brokerage commissions, will be paid 
by MLLIC or MLNY. In addition, the Substitutions will not impose any 
tax liability on Variable Contract owners. The Substitutions will not 
cause the Variable Contract fees and charges currently paid by existing 
Variable Contract owners to be greater after the Substitutions than 
before the Substitutions. Neither MLLIC nor MLNY will exercise any 
right it may have under the Variable Contracts to impose restrictions 
on transfers under the Variable Contracts for a period of at least 
thirty days following the Substitutions. To the extent that the total 
operating expenses of either of the Replacement Portfolios (taking into 
account any expense waiver or reimbursement), for each fiscal quarter 
during the twenty-four months following the Substitutions, exceed on an 
annualized basis the net expense level of the corresponding Substituted 
Portfolio for the fiscal year ended December 31, 2002, MLLIC and MLNY 
will, for each Variable Contract outstanding on the date of the 
Substitutions, make a corresponding reduction in Separate Account 
expenses on the last day of such fiscal quarter, such that the amount 
of the Replacement Portfolio's net expenses, together with those of the 
corresponding Separate Account will, on an annualized basis, be no 
greater than the sum of the net expenses of the corresponding 
Substituted Portfolio and the expenses of the Separate Account for the 
2002 fiscal year. In addition, for twenty-four months following the 
Substitutions, MLLIC and MLNY will not increase asset-based fees or 
charges for Variable Contracts outstanding on the day of the 
Substitutions. Thereafter, expenses of the Replacement Portfolios will 
vary from year to year and may exceed those of their corresponding 
Substituted Portfolios. The procedures to be implemented are sufficient 
to assure that each Variable Contract owner's cash values immediately 
after the Substitutions shall be equal to the cash value immediately 
before the Substitutions, and that the Substitutions will not affect 
the value of the interests of those owners of other MLLIC and MLNY 
variable contracts (other than the Variable Contracts) who currently 
have contract value allocated to any of the portfolios of the 
AllianceBernstein Fund, the Delaware Trust, the MFS Trust, or the MLIG 
Trust.
    27. Variable Contract owners have been notified of the Application 
by means of a supplement to the prospectus for each of the Variable 
Contracts that discloses that the Applicants have filed the Application 
and seek approval for the Substitutions (``Pre-Substitution Notice''). 
The Pre-Substitution Notice set forth the anticipated Effective Date 
and advised Variable Contract owners that contract values attributable 
to investments in the Substituted Portfolios will be transferred to the 
Replacement Portfolios, without charge (including sales charges or 
surrender charges) and without counting toward the number of transfers 
permitted without charge, on the Effective Date. The Pre-Substitution 
Notice stated that, from the date the initial application was filed 
with the Commission through the date thirty (30) days after the 
Substitutions, Variable Contract owners may make one transfer of 
contract value from the subaccounts investing in the Substituted 
Portfolios (before the Substitutions) or the Replacement Portfolios 
(after the Substitutions) to any other subaccount without charge 
(including sales charges or surrender charges) and without that 
transfer counting toward the number

[[Page 61492]]

permitted without charge under the Variable Contract.
    28. In addition, MLLIC will solicit approval of the proposed 
Substitutions from MLLIC Variable Contract owners and MLNY will solicit 
approval of the proposed Substitutions from MLNY Variable Contract 
owners. Such approval will be sought from the owners of First 
Generation MLLIC VLI Contracts, Second Generation MLLIC VLI Contracts, 
MLLIC Annuity Contracts, First Generation MLNY VLI Contracts, Second 
Generation MLNY VLI Contracts, and MLNY Annuity Contracts, each voting 
as a separate group. This solicitation will make clear that approval of 
the proposed Substitutions signifies approval of the Replacement 
Portfolios' reliance on the Manager of Managers Order described above. 
If MLLIC and MLNY do not receive approval for the Substitutions (and in 
effect, the Replacement Portfolios' reliance on the Manager of Managers 
Order) for all groups of Contracts, MLLIC and MLNY may decide to effect 
the Substitutions only for some or all of those groups whose owners 
approve them. Similarly, if MLLIC and MLNY do not receive approval for 
all of the Substitutions, MLLIC and MLNY may decide to effect only 
those Substitutions that were approved by Variable Contract owners. 
Neither MLLIC nor MLNY will effect any proposed Substitution for any 
group of Contracts that has not approved that Substitution. Approval 
will be obtained by the affirmative vote of the lesser of: (1) A 
majority of the outstanding interests in each applicable subaccount 
investing in the relevant Substituted Portfolio (measured by the dollar 
value of accumulation units), or (2) 67% of such outstanding interests 
voted, if votes received represent a majority of such interests. MLLIC 
and MLNY will solicit approval of Variable Contract owners by sending 
them written voting forms accompanied by a voting information statement 
and other disclosure documents in a manner generally consistent with 
applicable requirements of Regulation 14A under the 1934 Act 
(collectively, ``voting materials''). In particular, the relevant 
information statement will disclose, in substance, the information 
required by applicable items of Form N-14. Any beneficial financial 
interest that MLLIC or MLNY may have in any of the Separate Accounts is 
immaterial in relation to the interests of Variable Contract owners and 
neither MLLIC nor MLNY will cast any votes. Pursuant to Rule 20a-1 
under the 1940 Act, the voting materials have been filed with the 
Commission as proxy materials. Applicants anticipate that voting 
materials will be sent to Variable Contract owners on October 10, 2003. 
Unless extended by either MLLIC or MLNY, votes must be received by 
November 7, 2003 to be counted.
    29. All Variable Contract owners will have received a copy of the 
most recent Replacement Portfolio prospectuses prior to the 
Substitutions.
    30. Finally, within five (5) days after the Substitutions, Variable 
Contract owners will be notified, by means of a supplement to the 
prospectus for each of the Variable Contracts, that the Substitutions 
were carried out (``Post-Substitution Notice''). The Post-Substitution 
Notice will restate the information set forth in the Pre-Substitution 
Notice (e.g., advising Variable Contract owners of the ``free'' 
transfer right).

Applicants' Legal Analysis

    1. Section 26(c) of the 1940 Act prohibits any depositor or trustee 
of a unit investment trust that invests exclusively in the securities 
of a single issuer from substituting the securities of another issuer 
without the approval of the Commission. Section 26(c) provides that 
such approval shall be granted by order of the Commission, if the 
evidence establishes that the substitution is consistent with the 
protection of investors and the purposes of the 1940 Act.
    2. Section 26(c) was intended to provide for Commission scrutiny of 
proposed substitutions which could, in effect, force shareholders 
dissatisfied with the substitute security to redeem their shares, 
thereby possibly incurring a loss of the sales load deducted from 
initial purchase payments, an additional sales load upon reinvestment 
of the proceeds of redemption, or both. The section was designed to 
forestall the ability of a depositor to present holders of interest in 
a unit investment trust with situations in which a holder's only choice 
would be to continue an investment in an unsuitable underlying 
security, or to elect a costly and, in effect, forced redemption. The 
Applicants submit that the Substitutions meet the standards set forth 
in Section 26(c) and that, if implemented, the Substitutions would not 
raise any of the aforementioned concerns that Congress intended to 
address when the 1940 Act was amended to include this provision. In 
addition, the Applicants submit that the proposed Substitutions meet 
the standards that the Commission and its Staff have applied to 
substitutions that have been approved in the past.
    3. The replacement of the Substituted Portfolios with the 
Replacement Portfolios is consistent with the protection of Variable 
Contract owners and the purposes fairly intended by the policy and 
provisions of the 1940 Act and, thus, meets the standards necessary to 
support an order pursuant to Section 26(c) of the 1940 Act. The 
Substitutions will provide Variable Contract owners with comparable 
investment vehicles.
    4. Although not always identical, the investment objectives, 
policies, and strategies of the Replacement Portfolios are comparable 
to those of their respective Substituted Portfolios.
    5. In each proposed Substitution, the types of investment advisory 
and administrative services provided to the Replacement Portfolios by 
their various investment advisers are comparable to the types of 
investment advisory and administrative services provided to the 
Substituted Portfolios by their respective investment advisers. 
Variable Contract owners invested in the Delaware VIP Trend Series (one 
of the Substituted Portfolios) will enjoy continuity of their 
investment adviser due to the ``manager of managers'' approach employed 
by Roszel Advisors, the investment adviser to the corresponding 
Replacement Portfolio. The Replacement Portfolio will be managed 
overall by Roszel Advisors, but much of the day-to-day management 
activity will be handled by the subadviser, DMC, the investment adviser 
currently managing the Delaware VIP Trend Series. While Variable 
Contract owners invested in the AllianceBernstein Quasar Portfolio, 
whose investment adviser is currently Alliance, would be managed by a 
new investment adviser and a new subadviser, as stated above, the types 
of investment advisory and administrative services provided after the 
Substitution will be comparable to those received before the 
Substitution. Similarly, the same will be true of the Substitution of 
shares of the Roszel/PIMCO CCM Capital Appreciation Portfolio (the 
Replacement Portfolio), whose investment adviser will be Roszel 
Advisors and whose subadvisers will be PIMCO and Cadence, for shares of 
the MFS Research Series and MFS Investors Trust Series, whose 
investment adviser is MFS.
    6. Although the Delaware VIP Trend Series' advisory fee and total 
operating expenses are lower than those of the Roszel/Delaware Trend 
Portfolio (before any waivers and reimbursements), the 
AllianceBernstein Quasar Portfolio's advisory fee and total operating 
expenses are higher than those of the Roszel/Delaware Trend Portfolio 
(before

[[Page 61493]]

any waivers and reimbursements). Moreover, the proposed Substitutions 
will be effected only with the approval of Variable Contract owners. 
Finally, MLLIC and MLNY will agree that, for two years from the date of 
the Substitutions, they will reduce Separate Account expenses to the 
extent the annualized expenses for either Replacement Portfolio for any 
fiscal quarter exceed the 2002 net expense level of its corresponding 
Substituted Portfolio. Similarly, although the advisory fee and total 
operating expenses of the MFS Research Series and the MFS Investors 
Trust Series are lower than those of the Roszel/PIMCO CCM Capital 
Appreciation Portfolio (before any waivers and reimbursements), MLLIC 
and MLNY will effect the proposed Substitutions only if Variable 
Contract owner approval is received. And, MLLIC and MLNY will agree 
that, for two years from the date of the Substitutions, they will 
reduce Separate Account expenses to the extent the annualized expenses 
for either Replacement Portfolio for any fiscal quarter exceed the 2002 
net expense level of its corresponding Substituted Portfolio.
    7. Although not always identical, the investment risks of the 
Replacement Portfolios are comparable to those of their respective 
Substituted Portfolios.
    8. The Section 17(b) Applicants also request that the Commission 
issue an order pursuant to Section 17(b) of the 1940 Act exempting them 
from Section 17(a) of the 1940 Act to the extent necessary to permit 
MLLIC and MLNY to carry out the Substitutions by redeeming shares 
issued by AllianceBernstein Fund, Delaware Trust, and MFS Trust in-kind 
and using the distributed securities to purchase shares issued by MLIG 
Trust.
    9. Section 17(a)(1) and (a)(2) of the 1940 Act generally prohibit 
any affiliated person of a registered investment company, or any 
affiliated person of an affiliated person, from selling any security or 
other property to such registered investment company and from 
purchasing any security or other property from such registered 
investment company. MLLIC and MLNY anticipate that the Substitutions 
will be done (in whole or in part) by redeeming shares of the 
Substituted Portfolios in-kind rather than in cash and then using those 
assets to purchase shares of the Replacement Portfolios. Redemptions 
and purchases in-kind involve the purchase of property from a 
registered investment company and the sale of property to a registered 
investment company by MLLIC, MLNY, and the MLIG Trust, each arguably an 
affiliated person of those investment companies.
    10. Pursuant to Section 17(a)(1) of the 1940 Act, the Section 17(b) 
Applicants may be considered affiliates of one or more of the funds 
involved in the Substitutions, based upon the definition of 
``affiliated person'' under Section 2(a)(3) of the 1940 Act. Because 
the Substitutions may be effected, in whole or in part, by means of in-
kind redemptions and subsequent purchases of shares, and also by means 
of in-kind transactions, the Substitutions may be deemed to involve one 
or more purchases or sales of securities or property between 
affiliates.
    11. Any in-kind redemptions and purchases for purposes of the 
Substitutions will be effected in a manner consistent with the 
investment objectives and policies of the Substituted Portfolios and 
the Replacement Portfolios. Subject to the oversight of Roszel 
Advisors, DMC will review the securities holdings of the 
AllianceBernstein Quasar Portfolio and the Delaware VIP Trend Series, 
and PIMCO and Cadence will review the securities holdings of the MFS 
Research Series and the MFS Investors Trust Series, and determine which 
of these Substituted Portfolio holdings would be suitable investments 
for the Roszel/Delaware Trend Portfolio and the Roszel/PIMCO CCM 
Capital Appreciation Portfolio, respectively, in the overall context of 
the Replacement Portfolios' investment objectives and policies and 
consistent with their management of the Replacement Portfolios. The 
Section 17(b) Applicants state that securities to be paid out as 
redemption proceeds and subsequently contributed to the Replacement 
Portfolios to effect the contemplated in-kind purchases of shares will 
be valued based on the normal valuation procedures of the redeeming and 
purchasing portfolios. The redeeming and purchasing values will be the 
same. Consistent with Rule 17a-7(d) under the 1940 Act, no brokerage 
commissions, fees, or other remuneration will be paid in connection 
with the in-kind transactions. If Roszel Advisors declines to accept 
particular portfolio securities of any of the Substituted Portfolios 
for purchase in-kind of shares of any of the Replacement Portfolios, 
those positions will be liquidated by the applicable Substituted 
Portfolio and shares of the corresponding Replacement Portfolio will be 
purchased with cash.
    12. Section 17(b) of the 1940 Act provides that the Commission may, 
upon application, grant an order exempting any transaction from the 
prohibitions of Section 17(a) if the 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 policy of each registered investment 
company concerned, as recited in its registration statement and records 
filed under the 1940 Act; and (3) the proposed transaction is 
consistent with the general purposes of the 1940 Act.
    13. The Section 17(b) Applicants submit that the terms of the 
Substitutions, including the consideration to be paid and received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned. The Section 17(b) Applicants also submit that the 
Substitutions are consistent with the policies of AllianceBernstein 
Fund, Delaware Trust, MFS Trust, and MLIG Trust, and their portfolios, 
as recited in the current registration statements and reports filed by 
each under the 1940 Act. Finally, the Section 17(b) Applicants submit 
that the proposed Substitutions are consistent with the general 
purposes of the 1940 Act.

Applicants' Conditions

    For purposes of the approval sought pursuant to Section 26(c) of 
the 1940 Act, the Substitutions described in the Application will not 
be completed unless all of the following conditions are met.
    1. The Commission shall have issued an order (i) approving the 
Substitutions under Section 26(c) of the 1940 Act as necessary to carry 
out the transactions described in the Application; and (ii) exempting 
any in-kind redemptions and purchases from the provisions of Section 
17(a) of the 1940 Act as necessary to carry out the transactions 
described in the Application.
    2. Each Variable Contract owner will have been sent (i) prior to 
the Effective Date, a copy of the effective prospectus relating to the 
relevant Replacement Portfolio, (ii) prior to the Effective Date, a 
Pre-Substitution Notice describing the terms of the Substitutions and 
the rights of the Variable Contract owners in connection with the 
Substitutions, and (iii) a Post-Substitution Notice within five days 
after the Substitutions informing them that the Substitutions were 
carried out and restating the information set forth in the Pre-
Substitution Notice.
    3. MLLIC and MLNY shall have satisfied themselves that (i) the 
Variable Contracts allow the substitution of portfolios in the manner 
contemplated by the Substitutions and related

[[Page 61494]]

transactions described herein, (ii) the transactions can be consummated 
as described in the Application under applicable insurance laws, and
    (iii) that any applicable regulatory requirements in each 
jurisdiction where the Variable Contracts are qualified for sale have 
been complied with to the extent necessary to complete the transaction.


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27088 Filed 10-27-03; 8:45 am]
BILLING CODE 8010-01-P