[Federal Register Volume 65, Number 238 (Monday, December 11, 2000)]
[Notices]
[Pages 77396-77399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31381]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24784; File No. 812-12090]


American United Life Insurance Company, et al.

December 4, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order pursuant to Section 26(b) of 
the Investment Company Act of 1940 (the ``1940 Act'') approving certain 
substitutions of securities.

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    Applicants: American United Life Insurance Company (``AUL'') and 
AUL American Unit Trust (``AUL Account'') (collectively referred to 
herein as the ``Applicants'').
SUMMARY OF APPLICATION: Applicants request an order to permit a 
registered unit investment trust to substitute shares of the State 
Street Equity 500 Index Fund (``State Street 500 Fund''), a series of 
State Street Institutional Investment Trust (``State Street Trust''), 
for shares of the Index 500 Portfolio (``Fidelity 500 Portfolio''), a 
series of Variable Insurance Products Fund II (``VIP II'') currently 
held by that unit investment trust.
    Filing Date: The application was filed on May 5, 2000, and amended 
and restated on November 30, 2000.
    Hearing Or Notification Of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Secretary of 
the Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on December 26, 2000, 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 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: c/o Richard A. 
Wacker, Esq., American Untied Life Insurance Company, One American 
Square, Indianapolis, Indiana 46282. Copies to: Ruth S. Epstein, Esq., 
Dechert, 1775 Eye Street, NW., Washington, DC 20006-2401.

FOR FURTHER INFORMATION CONTACT: Lorna MacLeod, Branch Chief, at (202) 
942-0684, Office of Insurance Products, Division of Investment 
Management.

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 Fifth Street, NW., 
Washington, DC 20549-0102, (tel. (202) 942-8090).

Applicant's Representations

    1. AUL is an Indiana mutual life insurance company. AUL is the 
depositor and sponsor of the AUL

[[Page 77397]]

Account, a separate investment account established under Indiana law.
    2. The AUL Account is registered with the Commission under the 1940 
Act as a unit investment trust. The assets of the AUL Account support 
certain group annuity contracts (collectively, the ``Contracts''). 
Certain Contracts may allow ongoing contributions that can vary in 
amount and frequency, while other Contracts may allow only a single 
contribution to be made. All of the Contracts provide for the 
accumulation of values on a variable basis, a fixed basis, or both. The 
Contracts also provide several options for fixed annuity payments to 
begin on a future date.
    3. The AUL Account is currently divided into thirty-five (35) sub-
accounts referred to as Investment Accounts. Each Investment Account 
invests exclusively in shares of AUL American Series Fund, Inc., Alger 
American Fund, American Century Mutual Funds, Inc., American Century 
Quantitative Equity Funds, American Century Variable Portfolios, Inc., 
American Century World Mutual Funds, Inc., Calvert Variable Series, 
Variable Insurance Products Fund, VIP II, Invesco Dynamics Fund, Inc., 
Janus Aspen Series, PBHG Insurance Series Fund, Inc., SAFECO Resource 
Series Trust, State Street Trust, T. Rowe Price Equity Series, Inc., 
and Vanguard Explorer Fund, Inc. (collectively, ``Funds'') or in shares 
of specific series of a Fund. Contributions may be allocated to one or 
more Investment Accounts available under a Contract. Not all of the 
Investment Accounts may be available under a particular Contract and 
some of the Investment Accounts are not available for certain types of 
Contracts.
    4. VIP II is organized as a Massachusetts business trust and is 
registered as an open-end management investment company under the 1940 
Act. VIP II is a series investment company, as defined by Rule 18f-2 
under the 1940 Act, and currently offers shares of fourteen separate 
series. Only the Fidelity 500 Portfolio would be involved in the 
proposed substitution.
    5. State Street Trust is organized as a Massachusetts business 
trust and is registered as an open-end management investment company 
under the 1940 Act. As of the date of this application, it has not 
commenced operations. State Street Trust is a series investment 
company, as defined by Rule 18f-2 under the 1940 Act, and currently 
intends to offer five separate series of shares (each, a ``Feeder''). 
Each Feeder currently intends to invest all of its assets in a 
corresponding series of State Street Master Funds (each, a ``Master'') 
that has the same investment objective as, and investment policies that 
are substantially similar to those of, the corresponding Feeder. As 
long as a Feeder remains completely invested in a Master (or any other 
investment company), State Street Bank and Trust Company (``State 
Street''), acting through its division, State Street Global Advisors 
(the ``Adviser'') is not entitled to receive any investment advisory 
fee with respect to the Feeder. A Feeder may withdraw its investment 
from the related Master at any time if State Street Trust's Board of 
Trustees determines that it is in the best interests of the Feeder and 
its shareholders to do so. State Street Trust has retained the Adviser 
as investment adviser to manage a Feeder's assets in the event that the 
Feeder withdraws its investment from its corresponding Master. Only the 
State Street 500 Fund would be involved in connection with the 
substitution transactions described below.
    6. Each of the Contracts expressly reserves to the Applicants the 
right, subject to compliance with applicable law, to change or add 
investment companies. The prospectuses describing the Contracts contain 
appropriate disclosure of this right.
    7. The AUL Account imposes no limitations on the number of 
transfers between investment accounts available under a contract or the 
fixed account and no charges on transfers. AUL reserves the right, 
however, at a future date, to assess transfer charges and to limit the 
number and frequency of transfers.
    8. Applicants propose to substitute Class A shares issued by the 
State Street 500 Fund for the Initial Class shares issued by the 
Fidelity 500 Portfolio (the ``Substitution'').
    9. The chart below shows the investment objectives of the State 
Street 500 Fund and the Fidelity 500 Portfolio.

----------------------------------------------------------------------------------------------------------------
         Removed portfolio             Investment objective     Substituted portfolio     Investment objective
----------------------------------------------------------------------------------------------------------------
Fidelity 500 Portfolio............  Seeks investment results    State Street 500 Fund  Seeks to provide an
                                     that correspond to the                             investment return
                                     total return of common                             matching, as closely as
                                     stocks publicly traded in                          possible before
                                     the United States, as                              expenses, the
                                     represented by the                                 performance of the S&P
                                     Standard & Poor's 500                              500.
                                     Composite Stock Price
                                     Index (``S&P 500'').
----------------------------------------------------------------------------------------------------------------

    10. The chart below shows: (1) the management fees, operating 
expenses and total expenses for Initial Class shares of the Fidelity 
500 Portfolio for the year ending December 31, 1999; and (b) the 
estimated management fees, 12b-1 fees, operating expenses and total 
expenses of Class A shares of the State Street 500 Fund following the 
proposed substitutions. The fees and expenses in the chart are 
presented as a percentage of average daily net assets.

------------------------------------------------------------------------
                                                            Sustituted
                                          Replaced fund--   fund--state
                                           fidelity 500   street 500 \1\
                                             (percent)       (percent)
------------------------------------------------------------------------
Management Fee..........................            0.24           0.045
Distribution and Service (12b-1) Fee....            0.00           0.150
Other Expenses..........................            0.10           0.050
Total Annual Operating Expenses:
      (Before Expense waivers and                   0.34            0.25
       reimbursements)..................
      Minus expense waivers or                      0.06           0.000
       reimbursements...................
Total Annual Operating Expenses:

[[Page 77398]]

 
      (After expense waivers and                \2\ 0.28          0.245
       reimbursements)..................
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\1\ The feeder fund imposes a Rule 12b-1 fee of 15 basis points and
  estimates other expenses of 5 basis points. The master imposes an
  annual unitary management fee of 4.5 basic points, which compensates
  State Street for its services as adviser, custodian and transfer
  agent, and for assuming ordinary operating expenses, including
  ordinary legal and audit expenses. By investing in the master fund,
  the feeder pays a pro rata share of the master fund expenses, based on
  the net asset value of its investment in the master. In other words,
  the State Street 500 Fund will pay the fee with respect to its pro
  rata share of the total assets invested in the State Street 500
  Master.
\2\ Effective April 18, 1998, FMR has voluntarily agreed to reimburse
  Initial Class Shares of the Fidelity 500 Portfolio to the extent that
  total operating expenses (excluding interest, taxes, securities
  lending costs, brokerage commissions and extraordinary expenses), as a
  percentage of average net assets, exceed 0.28%. This arrangement can
  be discontinued by FMR at any time.

    11. Applicants provided, or will provide, a notice of the 
Substitution (the ``First Notice'') to Contract Owners and 
Participants, which describes the proposed substitution and discloses 
that AUL will not exercise any rights reserved under the contract to 
impose additional restrictions on transfers until at least thirty (30) 
days after the date of the substitution.
    12. Upon effectiveness of the registration statement of State 
Street Trust, and approval of this application by the Commission, the 
Applicants will send Contract Owners further detailed notice concerning 
the proposed substitutions (the ``Second Notice''). The Second Notice 
will inform Contract Owners and Participants that the substitutions 
will be carried out, identify the anticipated date of the substitutions 
and inform Contract Owners and Participants that AUL will not exercise 
any rights reserved under the Contract to impose additional 
restrictions on transfers until at least thirty (30) days after the 
date of the substitution. Together with this disclosure, all such 
existing Contract Owners and Participants also will be sent to 
prospectus for the State Street 500 Fund. New purchasers of Contracts 
also will be provided with the Contract prospectuses, the Second 
Notice, and a prospectus for the State Street 500 Fund.
    13. Applicants will mail a confirmation of the substitutions to 
affected Contract Owners within five days after the substitutions are 
affected. The Confirmation will disclose (a) that the substitution was 
carried out and (b) that AUL will not exercise any rights reserved 
under the contract to impose additional restrictions on transfers until 
at least thirty (30) days after the date of the substitution.
    14. Applicants make the following representations regarding the 
significant terms of the Substitution:
    a. The State Street 500 Fund has investment objectives, investment 
strategies, and anticipated risks that are substantially similar in all 
material respects to those of the Fidelity 500 Portfolio.
    b. At the time of the substitution, the aggregate fees and expenses 
of the State Street 500 Fund will be lower than those of the Fidelity 
500 Portfolio. Applicants agree that AUL will not increase total 
separate account charges (net of any waivers or reimbursements) of the 
Investment Account that invests in the State Street Fund for those 
Contract Owners who were Contract Owners on the Substitution Date for a 
period of two years from the Substitution Date. Applicants further 
agree that if the total operating expenses for the State Street 500 
Fund (taking into account expense waivers and reimbursements) (``State 
Street Expenses'') for any fiscal quarter during the two-year period 
following the Substitution Date exceed on an annualized basis 0.28% of 
average daily net assets (the expense ratio for the Fidelity 500 
Portfolio for the fiscal year ended December 31, 1999), AUL will make 
adjustments to the separate account charges of the Investment Account 
that invests in the State Street Fund for those Contract Owners who 
were Contract Owners on the Substitution Date, such that the State 
Street Expenses together with separate account expenses paid during 
that period will not exceed, on an annualized basis, 0.28% of average 
daily net assets plus the separate account expenses for the 
corresponding Investment Account during the fiscal year ending December 
31, 1999.
    c. Contract Owners and Participants may transfer assets from one 
Investment Account to another Investment Account available under their 
Contract without the imposition of any fee, charge or other penalty 
that might otherwise be imposed from the date of the First Notice 
through a date at least thirty days following the Substitution Date.
    d. The substitutions, in all cases, will be affected at the net 
asset value of the respective shares of the Fidelity 500 Portfolio and 
the State Street 500 Fund in conformity with Section 22(c) of the 1940 
Act and Rule 22c-1 thereunder, without the imposition of any transfer 
or similar charge by the Applicants, and with no change in the amount 
of any Contract Owner's Contract value or in the dollar value any 
Contract Owner's or Participant's investment in such Contract.
    e. Contract Owners and Participants will not incur any fees or 
charges as a result of the proposed substitutions, nor will their 
rights or AUL's obligations under the Contracts be altered in any way. 
AUL will bear all expenses incurred in connection with the proposed 
substitutions and related filings and notices, including legal, 
accounting and other fees and expenses. The proposed substitutions will 
not cause the Contract fees and charges currently being paid by 
existing Contract Owners or Participants to be greater after the 
proposed substitutions than before the proposed substitutions.
    f. Redemptions in-kind and contributions in-kind will be done in a 
manner consistent with the investment objectives, policies and 
diversification requirements of the Fidelity 500 Portfolio and State 
Street 500 Fund. Consistent with Rule 17a-7(d) under the 1940 Act, no 
brokerage commissions, fees (except customary transfer fees) or other 
remuneration will be paid in connection with the in-kind transactions.
    g. The substitutions will not be counted as new investment 
selections in determining the limit, if any, on the total number of 
Funds that Contract Owners or Participants can select during the life 
of a Contract.
    h. The substitutions will not alter in any way the tax benefits, 
life insurance and other Contracts benefits, or any Contract 
obligations of the Applicants, under the Contracts.
    i. Contract Owners and Participants may withdraw amounts under the 
Contracts or terminate their interest in a Contract, under the 
conditions that currently exist, including payment of any applicable 
withdrawal or surrender charge.

[[Page 77399]]

    j. Contract Owners and Participants affected by the substitutions 
will be sent written confirmation of the substitutions that identify 
each substitution made on behalf of that Contract Owner or Participant 
within five days following the Substitution Date.

Applicants' Legal Analysis And Conditions

    1. Section 26(b) of the 1940 Act provides that it shall be 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 shall have approved such 
substitution; and the Commission shall issue an order approving such 
substitution if the evidence establishes that it is consistent with the 
protection of investors and the purposes fairly intended by the 
policies and provisions of the 1940 Act. Section 26(b) protects the 
expectation of investors that the unit investment trust will accumulate 
shares of a particular issuer and is intended to insure that 
unnecessary or burdensome sales loads, additional reinvestment costs or 
other charges will not be incurred due to unapproved substitutions of 
securities.
    2. Applicants request an order pursuant to Section 26(b) of the 
1940 Act approving the Substitution. Applicants assert that the 
purposes, terms, and conditions of the Substitution are consistent with 
the protections for which Section 26(b) was designed. The Applicants 
assert the Substitution will benefit Contract Owners because the State 
Street 500 Fund will enjoy lower expenses than the Fidelity 500 
Portfolio. Given the similarities in investment strategies between the 
Fidelity 500 Portfolio and the State Street 500 Fund, Applicants assert 
that the lower expense ratio of the State Street 500 Fund is likely to 
result in higher investment returns than those obtained by the Fidelity 
500 Portfolio.
    3. Contract Owners and Participants who do not want their assets 
allocated to the State Street 500 Fund will be able to transfer assets 
to any one of the other Investment Accounts available under their 
Contract without any transfer charge.
    4. Applicants represent that the Substitution and related 
redemptions in kind and purchases will not result in any change in the 
amount of any Contract Owner's or participant's Contract value or in 
the dollar value of his or her investment in such Contract, or the life 
benefits, tax benefits or any contractual obligation of the Applicants 
under the Policies. Contract Owners will not incur any fees, expenses 
or charges as a result of the proposed transactions. Furthermore, the 
proposed transactions will not result in any change to the Contract 
fees and charges currently being paid by existing Contract Owners.
    5. The Applicants will not complete the Substitution as described 
in the application unless all of the following conditions are met:
    a. The Commission will have issued an order approving the 
Substitution under Section 26(b) of the 1940 Act.
    b. The registration statement for State Street Trust shall have 
become effective.
    c. Each Contract Owner and Participant will have been mailed the 
First Notice, the Second Notice and effective prospectuses for the 
Contracts and the State Street 500 Fund.
    d. The Applicants will have satisfied themselves, based on advice 
of counsel familiar with insurance laws, that the Contracts allow the 
substitution of portfolios as described in this application, and the 
transactions can be consummated as described herein under applicable 
insurance laws and under the Contracts.
    e. The Applicants will have complied with any regulatory 
requirements they believe are necessary to complete the transactions in 
each jurisdiction where the Contracts have been qualified for sale.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
requested order approving the Substitution should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-31381 Filed 12-8-00; 8:45 am]
BILLING CODE 8010-01-M