

[Federal Register: October 13, 2005 (Volume 70, Number 197)]
[Notices]               
[Page 59783-59789]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13oc05-140]                         


[[Page 59783]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27112; File No. 812-13229]

 
New York Life Insurance and Annuity Corporation, et al.; Notice 
of Application

October 5, 2005.

AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').

ACTION: Notice of Application for an order pursuant to Section 26(c) of 
the Investment Company Act of 1940, as amended, approving certain 
substitutions of securities.

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

    Applicants: New York Life Insurance and Annuity Corporation 
(``NYLIAC'') and its NYLIAC Variable Annuity Separate Account--III 
(``SA-III,'' together, the ``Applicants'').
    Summary of Application: Applicants request an order of the SEC, 
pursuant to Section 26(c) of the Act, approving the substitutions (the 
``Substitutions'') by SA-III of its subaccounts' shares of the AmSouth 
Enhanced Market Fund, AmSouth International Equity Fund, AmSouth Large 
Cap Fund, and AmSouth Mid Cap Fund (the ``Replaced Funds''), each 
separate portfolios of the Variable Insurance Funds, with shares of 
certain series of the MainStay VP S&P 500 Index Portfolio, MainStay VP 
International Equity Portfolio, MainStay VP Value Portfolio (``MainStay 
Replacing Funds''), and Fidelity[supreg] VIP Mid Cap Portfolio (``VIP 
Fund,'' together with the MainStay Replacing Funds, the ``Replacing 
Funds''). The MainStay Replacing Funds are separate portfolios of the 
MainStay VP Series Fund, Inc. (the ``MainStay VP Fund''). The 
Fidelity[supreg] VIP Mid Cap Portfolio is a portfolio of the Variable 
Insurance Products Fund.
    Filing Date: The Application was filed on August 12, 2005 and 
amended and restated on October 3, 2005 (``Application'').
    Hearing or Notification of Hearing: An order granting the 
Application will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the SEC 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the SEC by 5:30 p.m. on 
October 28, 2005, and should be accompanied by proof of service on 
Applicants in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the requester's 
interest, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 100 F Street, NE., Washington, DC 20549. 
Applicants, c/o New York Life Insurance and Annuity Corporation, 1 
Rockwood Road, Sleepy Hollow, NY 10591, Attn: Judy Bartlett, Esq. Copy 
to Foley & Lardner, LLP, 3000 K Street, NW., Suite 500, Washington, DC 
20007, Attn: Richard T. Choi and Chip Lunde.

FOR FURTHER INFORMATION CONTACT: Patrick F. Scott, Esq., Senior 
Counsel, or Zandra Y. Bailes, Esq., Branch Chief, Office of Insurance 
Products, Division of Investment Management (tel. (202) 551-6795).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
Application. The complete Application may be obtained for a fee from 
the SEC's Public Reference Branch, 100 F Street, NE., Room 1580, 
Washington, DC 20549 (tel. (202) 551-8090).

Applicants' Representations

    1. NYLIAC is a Delaware stock life insurance company that is 
wholly-owned by New York Life Insurance Company, a New York mutual life 
insurance company. NYLIAC is licensed to sell life, accident and health 
insurance and annuities in the District of Columbia and all States.
    2. SA-III is a segregated asset account of NYLIAC established 
pursuant to a resolution of its Board of Directors on November 30, 1994 
under Delaware law to fund variable annuity policies issued by NYLIAC. 
SA-III is registered under the Act as a unit investment trust. The 
variable annuity policies funded by SA-III that are affected by the 
Application are the AmSouth Premium Plus Variable Annuity and the 
AmSouth Premium Plus II Variable Annuity (each, a ``Policy''; together, 
the ``Policies''), interests under which are registered on Form N-4 
under the 1933 Act (File No. 333-30706).
    3. Purchase payments under the Policies are allocated to one or 
more subaccounts (``Subaccounts'') of SA-III. Income, gains, and 
losses, whether or not realized, from assets allocated to SA-III are, 
as provided in the Policies, credited to or charged against the 
Separate Account without regard to other income, gains or losses of 
NYLIAC. The assets maintained in SA-III will not be charged with any 
liabilities arising out of any other business conducted by NYLIAC. 
Nevertheless, all of the obligations of NYLIAC arising under the 
Policies, including its commitment to make cash value payments, annuity 
payments, or death benefit payments, are general corporate obligations 
of NYLIAC. Accordingly, all of the assets of NYLIAC are available to 
meet its obligations under its Policies. SA-III meets the definition of 
``separate account'' contained in Section 2(a)(37) of the Act.
    4. Each Policy permits its owner to allocate the Policy's 
accumulated value among numerous available Subaccounts, each of which 
invests in a different investment portfolio of an underlying mutual 
fund. Each Policy has 20 different Subaccounts (and corresponding 
investment portfolios) that are currently available for this purpose.
    5. Each Policy permits its owner to transfer the Policy's 
accumulated value from one Subaccount to another Subaccount of SA-III 
at any time, subject to certain potential restrictions. NYLIAC reserves 
the right to charge up to $30 per transfer for each transfer in excess 
of 12 in any one policy year.
    6. NYLIAC reserves the right to make certain changes, including the 
right to substitute, for the shares held in any Subaccount, the shares 
of another underlying mutual fund, as stated in the prospectus for the 
Policies contained in the registration statement.
    7. Each of the Replaced Funds is managed by AmSouth Asset 
Management, Inc. (``AAMI''). AAMI is a separate, wholly-owned 
subsidiary of AmSouth Bank (``AmSouth Bank''), which is owned by 
AmSouth Bancorporation. As discussed below, AmSouth Bancorporation 
recently informed NYLIAC that it has agreed to sell its mutual fund 
management business to Pioneer Investment Management, Inc., and that it 
plans to liquidate the Replaced Funds no later than October 31, 2005. 
OakBrook Investments, LLC (``OakBrook'') serves as the investment sub-
adviser of the AmSouth Enhanced Market Fund and the AmSouth Mid Cap 
Fund. OakBrook is 49% owned by AmSouth Bank. Dimensional Fund Advisors 
(``Dimensional'') serves as the investment sub-adviser of the AmSouth 
International Equity Fund.
    8. Each of the MainStay Replacing Funds is managed by New York Life 
Investment Management LLC (``NYLIM''). NYLIM is a subsidiary of New 
York Life Insurance Company (``New York Life''). MacKay Shields LLC 
(``MacKay Shields'') serves as the investment sub-adviser of the 
MainStay VP Value and MainStay VP International Equity Portfolios. 
MacKay Shields is a wholly-owned but autonomously managed subsidiary of 
New York Life. MacKay Shields became a Delaware limited liability 
company in 1999. As of December 31, 2004, MacKay

[[Page 59784]]

Shields managed approximately $39,208 million in assets. The 
Fidelity[supreg] VIP Mid Cap Portfolio is managed by Fidelity 
Management and Research Company (``FMR''). FMR Co. Inc. (``FMRC'') 
serves as sub-adviser to the Fidelity VIP Mid Cap Portfolio. FMRC has 
day-to-day responsibility for choosing investments for the Portfolio. 
The following affiliates of FMR and FMRC assist with foreign 
investments of the Fidelity[supreg] VIP Mid Cap Portfolio: Fidelity 
Management & Research (U.K.) Inc., Fidelity Management & Research (Far 
East) Inc., Fidelity Investments Japan Limited, Fidelity International 
Investment Advisors, Fidelity International Investment Advisors (U.K.) 
Limited. Neither FMR nor any of the Fidelity[supreg] VIP Mid Cap 
Portfolio's sub-advisers is affiliated with NYLIAC. No Replaced Fund or 
Replacing Fund is operated by its investment manager or adviser under a 
``manager of managers'' exemption from certain requirements of Section 
15 of the Act.
    9. AmSouth Bancorporation recently informed NYLIAC that it is 
selling its mutual fund management business to Pioneer Investment 
Management, Inc., and intends to liquidate the Replaced Funds and 
terminate their operations, and that the Board of Directors of the 
Variable Insurance Funds has approved a plan of liquidation.
    10. In addition, Applicants contend, the Replaced Funds have not 
achieved the success in NYLIAC's products that has been hoped for. 
Since NYLIAC first made the Replaced Funds available with its products, 
they have together garnered only approximately $36,981,551 of 
accumulated value under the Policies as of July 31, 2005. The Policies 
are the only variable contracts that offer the Replaced Funds as 
underlying investment options. Partly as a result of the Replaced 
Funds' small asset size, the Replaced Funds have experienced higher 
operating expenses relative to the Replacing Funds.
    11. Against the foregoing background, Applicants state, NYLIAC has 
determined that its resources would be better spent, and the interests 
of Policy owners better served, if it terminates its relationship with 
the Replaced Funds, via the Substitutions described herein. In 
selecting Replacing Funds for the affected Policy owners, Applicants 
concluded that the assets in question could be most efficiently and 
effectively managed as part of the Replacing Funds. Applicants 
evaluated the investment options available in other variable contracts 
issued by SA-III and believe that the Replacing Funds are the best 
choices based on their investment programs and their expense levels.
    12. In addition, in view of the foregoing considerations, NYLIAC 
ceased offering new Policies effective September 16, 2005.
    13. Applicants submit that the investment characteristics of each 
Replacing Fund are substantially similar to those of the corresponding 
Replaced Fund. The investment objectives of each Replacing Fund and 
corresponding Replaced Fund, as described in their prospectuses, are as 
follows:

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

------------------------------------------------------------------------
AmSouth Large Cap                    MainStay VP Value
------------------------------------
Long term capital appreciation by    Maximum long-term total return from
 investing in equity securities of    a combination of capital growth
 large-cap U.S. companies.            and income.
------------------------------------
AmSouth Enhanced Market              MainStay VP S&P 500 Index
------------------------------------
Long-term capital growth by          Investment results that correspond
 investing primarily in a             to the total return performance
 diversified portfolio of common      (and reflect reinvestment of
 stocks that are representative of    dividends) of publicly traded
 the U.S. stock market.               common stocks represented by the
                                      S&P 500[supreg] Index.
------------------------------------
AmSouth Mid Cap                      Fidelity[supreg] VIP Mid Cap
------------------------------------
Capital appreciation by investing    Long-term growth of capital.
 in equity securities of mid-cap
 companies.
------------------------------------
AmSouth International Equity         MainStay VP International Equity
------------------------------------
Capital appreciation by investing    Long-term growth of capital by
 in equity securities of large        investing in a portfolio
 foreign companies.                   consisting primarily of non-U.S.
                                      equity securities. Current income
                                      is a secondary objective.
------------------------------------------------------------------------

    14. Applicants represents in the Application that the principal 
investment strategies of each Replacing Fund and corresponding Replaced 
Fund are as follows:

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

------------------------------------------------------------------------
AmSouth Large Cap                    MainStay VP Value
------------------------------------
Under normal market conditions, the  The Portfolio normally invests at
 Fund will invest at least 80% of     least 65% of its total assets in
 its assets in equity securities of   common stocks that MacKay Shields
 U.S. companies having $1 billion     believes were ``undervalued''
 or more in market capitalization,    (selling below their value) when
 and will primarily invest in         purchased; typically pay
 companies that AAMI believes have    dividends, although there may be
 the potential to provide capital     non-dividend paying stocks if they
 appreciation. AAMI seeks to          meet the ``undervalued'' criteria;
 diversify the Fund's portfolio       and are listed on a national
 within industries that AAMI          securities exchange or are traded
 believes to be among the fastest     in the over-the-counter market.
 growing segments of the U.S.        The Portfolio normally invests in
 economy. A portion of the Fund's     U.S. common stocks that:
 assets may be invested in            MacKay Shields believes
 preferred stocks or bonds            are ``undervalued'' (selling below
 convertible into common stocks.      their value) when purchased,
                                        Typically pay dividends,
                                        although there may be non-
                                        dividend paying stocks if they
                                        meet the ``undervalued''
                                        criterion, and
                                      Are listed on a national
                                      securities exchange or are traded
                                      in the over-the-counter market.
------------------------------------

[[Page 59785]]


AmSouth Enhanced Market              MainStay VP S&P 500 Index
------------------------------------
Under normal market conditions, the  The Portfolio normally invests at
 Fund will invest primarily in a      least 80% of its total assets in
 broadly diversified portfolio of     stocks in the S&P 500[supreg]
 securities represented in the S&P    Index in the same proportion, to
 500[supreg] Index, overweighting     the extent feasible, as they are
 relative to their index weights      represented in the S&P 500[supreg]
 those that OakBrook believes to be   Index.
 undervalued compared to others in   NYLIM uses statistical techniques
 the S&P 500[supreg] Index. The       to determine which stocks are to
 Fund seeks to maintain risk          be purchased or sold to replicate
 characteristics similar to those     the S&P 500[supreg] Index to the
 of the S&P 500[supreg] Index.        extent feasible. From time to
 OakBrook's stock selection process   time, adjustments may be made in
 utilizes computer-aided              the Portfolio's holdings because
 quantitative analysis. OakBrook's    of changes in the composition of
 computer models use many types of    the S&P 500[supreg] Index. The
 data, but emphasize technical data   correlation between the
 such as price and volume             performance of the Portfolio and
 information. Applying these models   the S&P 500[supreg] Index is
 to stocks within the S&P             expected to be at least 0.95,
 500[supreg] Index, OakBrook          before fees and expenses, on an
 attempts to generate more capital    annual basis. A correlation of
 growth than that of the S&P          1.00 would indicate perfect
 500[supreg] Index.                   correlation, which would be
                                      achieved when the net asset value
                                      of the Portfolio, including the
                                      value of its dividend and capital
                                      gains distributions, increases or
                                      decreases in exact proportion to
                                      changes in the S&P 500[supreg]
                                      Index.
                                     The Portfolio's investments also
                                      include S&P 500[supreg] Index
                                      futures that are used for cash
                                      management purposes.
------------------------------------
AmSouth Mid Cap Fund                 Fidelity[supreg] VIP Mid Cap
------------------------------------
Under normal market conditions, the  The Portfolio's principal
 Fund will invest at least 80% of     investment strategies include:
 its assets in a broadly              Normally investing
 diversified portfolio of             primarily in common stocks.
 securities issued by medium          Normally investing at
 capitalization companies drawn       least 80% of assets in securities
 from the Standard & Poor's Mid Cap   of companies with medium market
 400[supreg] Index (``S&P Mid Cap     capitalizations (which, for
 400[supreg] Index''),                purposes of this fund, are those
 overweighting relative to their      companies with market
 index weights those that OakBrook    capitalizations similar to
 believes to be undervalued           companies in the Russell
 compared to others in the S&P Mid    Midcap[supreg] Index or the
 Cap 400[supreg] Index. The Fund      Standard & Poor's[supreg] MidCap
 seeks to maintain risk               400 Index (S&P[supreg] MidCap
 characteristics similar to those     400)).
 of the S&P Mid Cap 400[supreg]       Potentially investing in
 Index.                               companies with smaller or larger
                                      market capitalizations.
                                      Investing in domestic and
                                      foreign issuers.
                                      Investing in either
                                      ``growth'' stocks or ``value''
                                      stocks or both.
                                      Using fundamental analysis
                                      of each issuer's financial
                                      condition and industry position
                                      and market and economic conditions
                                      to select investments.
------------------------------------
OakBrook's stock selection process
 utilizes computer-aided
 quantitative analysis. Stringent
 risk controls at the style,
 industry and individual stock
 levels help ensure the Fund
 maintains risk characteristics
 similar to those of the S&P Mid
 Cap 400[supreg] Index. OakBrook's
 computer models use many types of
 data, but emphasize technical data
 such as price and volume
 information. Applying these models
 to securities comprising the S&P
 Mid Cap 400[supreg] Index,
 OakBrook hopes to generate more
 capital growth than that of the
 S&P Mid Cap 400[supreg] Index.
------------------------------------
AmSouth International Equity Fund    MainStay VP International Equity
------------------------------------
Under normal market conditions, the  The Portfolio normally invests at
 Fund will invest at least 80% of     least 80% of its assets in equity
 its assets in equity securities of   securities, and invests primarily
 large foreign companies. The Fund    in a diversified portfolio of
 intends to invest primarily in       equity securities of issuers,
 companies in economically            wherever organized, who do
 developed countries whose stocks     business mainly outside the United
 Dimensional believes are             States. Investments will be made
 undervalued at the time of           in a variety of countries, with a
 investment. While Dimensional may    minimum of five countries other
 consider other factors,              than the United States. This
 Dimensional generally determines     includes countries with
 that a stock is undervalued if it    established economies as well as
 has a high book value in relation    emerging market countries that
 to its market value.                 MacKay Shields believes present
                                      favorable opportunities.
                                     The Portfolio's subadvisor seeks to
                                      identify investment opportunities
                                      by pursuing a bottom up, stock
                                      selection investment discipline.
                                      Proprietary, quantitative and
                                      qualitative tools are used to
                                      identify attractive companies. In-
                                      depth, original, fundamental
                                      research is performed on
                                      identified companies to assess
                                      their business and investment
                                      prospects. In conducting the
                                      research, particular attention is
                                      paid to the generation and
                                      utilization of cash flows, the
                                      returns on invested capital and
                                      the overall track record of
                                      management in creating shareholder
                                      value.
                                     Portfolios are constructed by
                                      combining securities with low
                                      correlation. Quantitative tools
                                      are used for risk control at the
                                      portfolio level. Country
                                      allocations in the Portfolio are a
                                      result of the bottom up, stock
                                      selection process. To reduce risk,
                                      an attempt is made at the
                                      portfolio level to stay within a
                                      reasonable range of the key
                                      constituents of the benchmark,
                                      unless the stock selection process
                                      strongly argues against it.

[[Page 59786]]


                                     The Portfolio may buy and sell
                                      currency on a spot basis and enter
                                      into foreign currency forward
                                      contracts for hedging purposes. In
                                      addition, the Portfolio may buy or
                                      sell foreign currency options,
                                      securities and securities index
                                      options and enter into swap
                                      agreements and futures contracts
                                      and related options. These
                                      techniques may be used for any
                                      legally permissible purpose,
                                      including to increase the
                                      Portfolio's return.
                                     The subadvisor may sell a security
                                      if it no longer believes the
                                      security will contribute to
                                      meeting the objective of the
                                      Portfolio. In considering whether
                                      to sell a security, the subadvisor
                                      may evaluate, among other things,
                                      the condition of foreign economies
                                      and meaningful changes in the
                                      issuer's financial condition and
                                      competitiveness.
------------------------------------------------------------------------

    15. With respect to the principal investment risks of each 
Replacing Fund compared to each and corresponding Replaced Fund, 
Applicants submit that they are substantially similar, and that they 
are as follows:

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

------------------------------------------------------------------------
AmSouth Large Cap                    MainStay VP Value
------------------------------------
Investment risk, market risk         Changing economic, stock market,
 (including those particular to       industry and company conditions,
 large cap growth stocks), interest   the risks inherent in management's
 rate risk, credit risk, and active   ability to anticipate such changes
 trading risk.                        that can adversely affect the
                                      value of the Portfolio's holdings,
                                      and the risks associated with
                                      value stocks. The Portfolio also
                                      may experience high portfolio
                                      turnover.
------------------------------------
AmSouth Enhanced Market              MainStay VP S&P 500 Index
------------------------------------
Investment risk, market risk         Changing economic, stock market,
 (including those particular to       industry and company conditions
 large capitalization companies       which can adversely affect the
 represented in the S&P 500 Index,    value of the Portfolio's holdings,
 growth stocks and value stocks),     risks associated with the value of
 interest rate risk, credit risk,     the S&P 500 [supreg] Index, and
 derivatives risk and active          the potential inability to mirror
 trading risk.                        the S&P 500 [supreg] Index. In
                                      addition, the Portfolio is subject
                                      to the risks associated with
                                      derivatives instruments.
------------------------------------
    AmSouth Mid Cap                  Fidelity[supreg] VIP Mid Cap
------------------------------------
Investment risk, market risk         Stock market volatility, foreign
 (including those particular to       exposure, issuer-specific changes,
 growth stocks, value stocks and      and mid cap investing.
 mid cap companies), interest rate
 risk credit risk, derivatives risk
 and active trading risk.
------------------------------------
AmSouth International Equity         MainStay VP International Equity
------------------------------------
Investment risk, market risk,        Changing economic, stock market,
 credit risk, derivatives risk and    industry and company conditions
 active trading risk. The Fund also   and the risks inherent in
 is subject to foreign securities     management's ability to anticipate
 risk.                                such changes that can adversely
                                      affect the value of the
                                      Portfolio's holdings. The
                                      Portfolio also is subject to
                                      foreign securities risk and
                                      emerging markets risk. In
                                      addition, the Portfolio is subject
                                      to the risks associated with
                                      derivatives instruments. The
                                      Portfolio also may experience high
                                      portfolio turnover.
------------------------------------------------------------------------

    16. The table below compares fees and expenses of each Replaced 
Fund and each corresponding Replacing Fund as of December 31, 2004. As 
the table shows, the total expenses of each Replaced Fund are higher 
than the total expenses of the corresponding Replacing Fund.

----------------------------------------------------------------------------------------------------------------
                                                                             Replacing funds  MainStay VP Value
                                             Replaced funds  AmSouth Large                (percent)
                                                     Cap  (percent)        -------------------------------------
                                                                              Initial Class      Service Class
----------------------------------------------------------------------------------------------------------------
Management Fee.............................  0.70.........................               0.36               0.36
Shareholder Service Fee....................  0.25.........................               None               None
Rule 12b-1 Fee.............................  None.........................               None               0.25
Other Expenses.............................  0.70.........................               0.29               0.29
Gross Operating Expenses...................  1.65.........................               0.65               0.90
Net (After Waiver) Expenses................  1.05.........................               0.65               0.90
                                                AmSouth Enhanced Market           MainStay VP S&P 500 Index
                                                                                Initial Class      Service Class
Management Fee.............................  0.45.........................               0.10               0.10
Shareholder Service Fee....................  0.25.........................               None               None
Rule 12b-1 Fee.............................  None.........................               None               0.25
Other Expenses.............................  0.93.........................               0.29               0.29
Gross Operating Expenses...................  1.63.........................               0.39               0.64
Net (After Waiver) Expenses................  1.01.........................               0.39               0.64
                                                    AmSouth Mid Cap             Fidelity[supreg] VIP Mid Cap
                                                                                       Service Class 2

[[Page 59787]]


Management Fee.............................  0.90.........................                  0.57
Shareholder Service Fee....................  0.25.........................                  None
Rule 12b-1 Fee.............................  None.........................                  0.25
Other Expenses.............................  1.08.........................                  0.14
Gross Operating Expenses...................  2.23.........................                  0.96
Net (After Waiver) Expenses................  1.25.........................                  0.96
                                              AmSouth International Equity    MainStay VP International Equity
                                                                                Initial Class      Service Class
Management Fee.............................  1.00.........................               0.60               0.60
Shareholder Service Fee....................  0.25.........................               None               None
Rule 12b-1 Fee.............................  None.........................               None               0.25
Other Expenses.............................  0.79.........................               0.39               0.39
Gross Operating Expenses...................  2.04.........................               0.99               1.24
Net (After Waiver) Expenses................  1.43.........................               0.99               1.24
----------------------------------------------------------------------------------------------------------------

    In each case, the class of Replaced Funds available under the 
Policies impose an asset-based shareholder service fee equal to 0.25% 
per annum of the Fund's average daily net assets. In each case, the 
service class of the MainStay Replacing Funds that will be available 
under the Policies issued on or after June 2, 2003, and the service 
class 2 of the Fidelity[supreg] VIP Mid Cap Portfolio, impose an asset-
based sales charge pursuant to Rule 12b-1 under the Act (``Rule 12b-1 
fee'') equal to 0.25% per annum of the Fund's average daily net assets. 
In each case, the initial class of the MainStay Replacing Funds that 
will be available under Policies issued prior to June 2, 2003, do not 
impose any Rule 12b-1 fee.
    17. The Application indicates that, the net assets of each Fund as 
of July 31, 2005 were as follows (in thousands):

------------------------------------------------------------------------
           Replaced fund                        Replacing fund
------------------------------------------------------------------------
AmSouth Enhanced Market Fund--       MainStay VP S&P 500 Index
 $7,744                               Portfolio--$1,457,870
AmSouth International Equity Fund--  MainStay VP International Equity
 $13,546                              Portfolio--$282,428
AmSouth Large Cap Fund--$8,852       MainStay VP Value Portfolio--
                                      $630,226
AmSouth Mid Cap Fund--$6,839         Fidelity[supreg] VIP Mid Cap
                                      Portfolio--$4,964,945
------------------------------------------------------------------------

    Applicants state that, the table above demonstrates that each 
Replacing Fund has a significantly greater asset size than the Replaced 
Fund to which it corresponds, and that the principal potential 
advantages of size in the circumstances presented here would be 
economies of scale and ease of diversification.
    18. Each Substitution will take place at the applicable Funds' 
relative per share net asset values determined on the date of the 
Substitution in accordance with Section 22 of the Act and Rule 22c-1 
thereunder. Accordingly, Applicants state, the Substitutions will have 
no financial impact on any Policy owner. Each Substitution will be 
effected by having each Subaccount that invests in a Replaced Fund 
redeem its shares of the Replaced Fund at the net asset value 
calculated on the date of the Substitution and purchase shares of the 
appropriate class of the appropriate Replacing Fund at the net asset 
value calculated on the same date. Proceeds of AmSouth Large Cap Fund, 
AmSouth Enhanced Market Fund and AmSouth International Equity Fund 
shares applicable to Policies purchased prior to June 2, 2003 will be 
used to purchase initial class shares of the MainStay VP S&P 500 Index 
Portfolio, MainStay VP International Equity Portfolio and MainStay VP 
Value Portfolio, respectively. Proceeds of AmSouth Large Cap Fund, 
AmSouth Enhanced Market Fund and AmSouth International Equity Fund 
shares applicable to Policies purchased on or after June 2, 2003 will 
be used to purchase service class shares of the MainStay VP S&P 500 
Index Portfolio, MainStay VP International Equity Portfolio and 
MainStay VP Value Portfolio, respectively. Proceeds of AmSouth Mid Cap 
Fund shares will be used to purchase service class 2 shares of the 
Fidelity[supreg] VIP Mid Cap Portfolio.
    19. To the extent that NYLIAC imposes any limit on the number of 
subaccounts that may be used over the life of a Policy, no Substitution 
will be counted as giving rise to use of a new Subaccount for such 
purpose.
    20. The Applicants state that, NYLIAC will pay all expenses and 
transaction costs of the Substitutions, including all legal, 
accounting, and brokerage expenses relating to the Substitutions, the 
below described disclosure documents, and the Application. No costs 
will be borne directly or indirectly by Policy owners. Affected Policy 
owners will not incur any fees or charges as a result of the 
Substitutions. Nor will their rights or the obligations of NYLIAC under 
the Policies be altered in any way. The Substitutions will not cause 
the fees and charges under the Policies currently being paid by Policy 
owners to be greater after the Substitutions than before the 
Substitutions.
    21. The prospectuses for all of the Policies have disclosed that 
the issuing insurance company has the right to substitute any other 
mutual fund shares for the shares in which a Subaccount is investing at 
any time.
    22. Applicants state that, the Substitutions requested in the 
Application were described in supplements to the applicable 
prospectuses for the Policies filed with the Commission or in other 
supplemental disclosure documents (collectively, ``Supplements'') and 
mailed to all affected Policy owners. Each Supplement gave the relevant 
Policy owners notice of the Substitution that would affect their 
Policies and described the reasons for engaging in that Substitution. 
The Supplements also informed existing Policy owners with values 
allocated to a Subaccount

[[Page 59788]]

investing in a Replaced Fund that no additional amounts may be 
allocated to the Subaccounts that invest in that Fund on or after the 
date of Substitution. In addition, the Supplements informed these 
affected Policy owners that they will have an opportunity to reallocate 
their accumulated value:
     Prior to a Substitution, from the Subaccount investing in 
the Replaced Fund to one or more Subaccounts investing in other Funds 
available under the applicable Policy or the fixed account without the 
imposition of any transfer charge or limitation (except potentially 
harmful transfers) \1\ and without diminishing the number of free 
transfers that otherwise may be made in a given Policy year, or
---------------------------------------------------------------------------

    \1\ The exception for potentially harmful transfers refers to 
NYLIAC's procedures designed to limit potentially harmful transfers 
such as market timing as described under ``Limits on Transfers'' in 
the prospectus contained in the Policy Registration Statement.
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     For 30 days after a Substitution, from a Subaccount 
investing in the Replacing Fund to one or more Subaccounts investing in 
other Funds available under the applicable Policy or the fixed account 
without the imposition of any transfer charge or limitation (except 
potentially harmful transfers) and without diminishing the number of 
free transfers that otherwise may be made in a given Policy year.
    23. Applicants aver that each affected Policy owner was provided 
with a prospectus for each relevant Replacing Fund, which accompanied 
the Supplement discussed above. Within five days after a Substitution, 
NYLIAC will send to its affected Policy owners written confirmation 
that the Substitutions have occurred. The confirmations will also 
identify the shares of the Replaced Funds that have been eliminated and 
the shares of the Replacing Funds that have been substituted. That 
confirmation will reiterate the free transfer rights disclosed in the 
Supplements that such owners will have previously received.

Applicants' Legal Analysis

    1. Section 26(c) of the Act makes it unlawful for any depositor or 
trustee of a registered unit investment trust holding the security of a 
single issuer to substitute another security for such security unless 
the Commission approves the substitution. Section 26(c) of the Act 
provides the Commission will issue an order approving such a 
substitution if the evidence establishes that it is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act.
    2. Section 26(c) of the Act (then denominated as Section 26(b)) was 
enacted as part of the Investment Company Act Amendments of 1970. 
Section 26(a)(4)(B) of the Act had theretofore required only that the 
trust instrument of a unit investment trust require that the sponsor or 
trustee notify the trust's shareholders within five days after a 
substitution of underlying securities. The legislative history of 
Section 26(c) describes its underlying purpose as follows:

    The proposed amendment recognizes that in the case of a unit 
investment trust holding the securities of a single issuer 
notification to shareholders does not provide adequate protection 
since the only relief available to the shareholders, if 
dissatisfied, would be to redeem their shares. A shareholder who 
redeems and reinvests the proceeds in another unit investment trust 
or in an open-end company would under most circumstances be subject 
to a new sales load. The proposed amendment would close this gap in 
shareholder protection by providing for Commission approval of the 
substitution. The Commission would be required to issue an order 
approving the substitution if it finds the substitution consistent 
with the protection of investors and the purposes fairly intended by 
the policy and provisions of the Act.

    3. The legislative history makes it clear that the purpose of 
Section 26(c) is to protect the expectation of investors in a unit 
investment trust that the unit investment trust will accumulate shares 
of a particular issuer by preventing unscrutinized substitutions, which 
might, in effect, force shareholders dissatisfied with the substituted 
security to redeem their shares, thereby possibly incurring either a 
loss of the sales load deducted from initial premium payments, an 
additional sales load upon reinvestment of the redemption proceeds, or 
both. Moreover, a Policy owner forced to redeem may suffer adverse tax 
consequences. Section 26(c) affords this protection to investors by 
preventing a depositor or trustee of a unit investment trust that holds 
shares of one issuer from substituting for those shares the shares of 
another issuer, unless the Commission approves that substitution.
    4. Applicants assert that the purposes, terms, and conditions of 
the Substitutions are consistent with the principles and purposes of 
Section 26(c) and do not entail any of the abuses that Section 26(c) is 
designed to prevent. The Substitutions are necessary and appropriate 
because, for the reasons discussed above, continuing to use the 
Replaced Funds as a funding medium for the Policies is no longer 
consistent with, or possible under, the business plan that Applicants 
are now pursuing in order to enhance the success of the Policies and 
the benefits to Policy owners. Moreover, as also noted above, each 
Policy has reserved to the issuing insurance company the right to make 
such substitutions, and each such company has specifically disclosed 
this reserved right in the prospectuses for its Policies.
    5. Applicants contend that the Substitutions will not result in the 
type of costly forced redemption that Section 26(c) was intended to 
guard against and, for the following reasons, are consistent with the 
protection of investors and the purposes fairly intended by the Act.
    6. The MainStay VP Value Portfolio is an appropriate Fund to which 
to move the accumulated values of Policy owners with values allocated 
to the AmSouth Large Cap Fund, because its investment program, like 
that of the AmSouth Large Cap Fund, involves seeking long-term total 
return. The MainStay VP S&P 500 Index Portfolio is an appropriate Fund 
to which to move the accumulated values of Policy owners with values 
allocated to the AmSouth Enhanced Market Fund, because its investment 
program, like that of the AmSouth Enhanced Market Fund, involves 
investing in a diversified selection of common stocks represented by 
the S&P 500 Index. The Fidelity [supreg] VIP Mid Cap Portfolio is an 
appropriate Fund to which to move the accumulated values of Policy 
owners with values allocated to the AmSouth Mid Cap Fund, because its 
investment objective, like that of the AmSouth Mid Cap Fund, involves 
growth of capital by investing, primarily, in companies with market 
capitalizations that, at the time of investment, are similar to the 
companies in the S&P MidCap 400 [supreg] Index. The MainStay VP 
International Equity Portfolio is an appropriate Fund to which to move 
the accumulated values of Policy owners with values allocated to the 
AmSouth International Equity Fund, because its investment program, like 
that of the AmSouth International Equity Fund, involves seeking growth 
of capital by investing in a portfolio consisting primarily of non-US 
equity securities.
    7. The costs of the Substitutions (including brokerage, legal, 
accounting, and other expenses) will be borne by NYLIAC and will not be 
borne by Policy owners. No charges will be assessed to the Policy 
owners to effect the Substitutions. It is expected that each 
Substitution will be effected by redeeming shares of the Replaced Fund 
for cash and using the cash to purchase shares of the corresponding 
Replacing Fund.

[[Page 59789]]

    8. For each fiscal period (not to exceed a fiscal quarter) during 
the 24 months following the date of the Substitutions, NYLIAC will, as 
a condition of any Commission order approving the Substitutions, for 
each Policy outstanding on the date of the Substitution, adjust the 
Policy values to the extent necessary to effectively reimburse Policy 
owners invested in a MainStay Replacing Fund for their proportionate 
share of any amount by which the annual rate of the MainStay Replacing 
Fund's total operating expenses (after any expense waivers or 
reimbursements) for that fiscal period, as a percentage of the Fund's 
average daily net assets, plus the annual rate of any asset-based 
charges (excluding any such charges that are for premium taxes, or for 
Policy riders added after December 31, 2004) deducted under the terms 
of the owner's Policy for that fiscal period, exceed the sum of:
    (a) The annualized rate of the corresponding Replaced Fund's total 
operating expenses, as a percentage of such Replaced Fund's average 
daily net assets, for the twelve months ended December 31, 2004; plus
    (b) The annual rate of any asset-based charges (excluding any such 
charges that are for premium taxes), deducted under that Policy for 
such twelve months.
    9. NYLIAC represents that the substitution and the selection of the 
Fidelity [supreg] VIP Mid Cap Portfolio was not motivated by any 
financial consideration paid or to be paid to NYLIAC or its affiliates 
by the Fidelity [supreg] VIP Mid Cap Portfolio, its advisor or 
underwriter, or their respective affiliates. In connection with assets 
held under Policies affected by the Substitutions, NYLIAC will not 
receive, for 36 months following the Substitution, any direct or 
indirect benefits from the Fidelity [supreg] VIP Mid Cap Portfolio, or 
its advisor or underwriter (or their affiliates), at a rate higher than 
that which they had received from the AmSouth Mid Cap Fund, its advisor 
or underwriter (or their affiliates), including without limitation Rule 
12b-1, shareholder service, administration, or other service fees, or 
revenue sharing or other arrangements.
    10. All affected Policy owners will be given notice of the 
Substitutions prior to the Substitutions, and will have an opportunity 
to make the following transfers of their accumulated value without the 
imposition of any charge or limitation (except potentially harmful 
transfers, as described above) and without diminishing the number of 
charge-free transfers that otherwise may be made in a Policy year:
     Transfers of accumulated value from a Subaccount investing 
in a Replaced Fund to one or more Subaccounts investing in other Funds 
available under the applicable Policy or the fixed account, from the 
date of notice until the date of Substitution, and
     Transfers of accumulated value from a Subaccount investing 
in a Replacing Fund as a result of a Substitution to one or more 
Subaccounts investing in other Funds available under the applicable 
Policy or the fixed account, for 30 days after a Substitution.
    11. Within five days after each substitution, NYLIAC will send to 
the affected Policy owners written confirmation that the Substitutions 
have occurred and identify the shares of the Replaced Funds that have 
been eliminated and the shares of the Replacing Funds that have been 
substituted.
    12. The Substitutions will in no way alter the insurance benefits 
to Policy owners or the contractual obligations of NYLIAC. The 
Substitutions will in no way alter the tax treatment of owners in 
connection with their Policies, and no tax liability will arise for 
Policy owners as a result of the Substitutions.

Conclusion

    Applicants request an order of the Commission pursuant to Section 
26(c) of the Act approving the proposed Substitutions under the terms 
and subject to the conditions set forth herein. Section 26(c), in 
pertinent part, provides that the Commission shall issue an order 
approving a substitution of securities if the evidence establishes that 
it is consistent with the protection of investors and the purposes 
fairly intended by the policy and provisions of the Act. For the 
reasons and upon the facts set forth above, Applicants respectfully 
submit that the Substitutions meet the standards set forth in Section 
26(c) and that the approval requested therefore, should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E5-5598 Filed 10-12-05; 8:45 am]

BILLING CODE 8010-01-P
