[Federal Register Volume 67, Number 151 (Tuesday, August 6, 2002)]
[Notices]
[Pages 50965-50972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19782]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25690; File No. 812-12767]


American United Life Insurance Company, et al.; Notice of 
Application July 31, 2002.

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

ACTION: Notice of Application for an order pursuant to section 26(c) of 
the Investment Company Act of 1940, as amended (``1940 Act''), 
approving certain substitutions of securities, and pursuant to section 
17(b) of the 1940 Act exempting related transactions from section 17(a) 
of the 1940 Act.

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

Applicants: American United Life Insurance Company (``AUL''), AUL 
American Unit Trust (``AUL Account''), AUL American Individual Unit 
Trust (``AUL Individual Account'') and, with respect only to the relief 
requested pursuant to section 17(b), OneAmerica Funds, Inc. 
(``OneAmerica''). AUL, the AUL Account, the AUL Individual Account and 
OneAmerica are together referred to herein as the ``Applicants.''

Summary of Application: Applicants request an order to permit certain 
registered unit investment trusts to substitute (i) shares of common 
stock issued by OneAmerica Asset Director Portfolio (``Asset Director 
Portfolio''), a series of OneAmerica for shares of common stock issued 
by OneAmerica Tactical Asset Allocation Portfolio (``Tactical Asset 
Allocation Portfolio''), also a series of OneAmerica; and (ii) Investor 
Class shares issued by American Century Strategic Allocation: 
Conservative Fund (``Strategic Allocation: Conservative Fund''), 
American Century Strategic Allocation: Moderate Fund (``Strategic 
Allocation: Moderate Fund''), and American Century Strategic 
Allocation: Aggressive Fund (``Strategic Allocation: Aggressive Fund'' 
and, together with the Strategic Allocation: Conservative Fund and the 
Strategic Allocation: Moderate Fund, the ``Strategic Allocation 
Funds''), each a series of American Century Strategic Asset 
Allocations, Inc. (``American Century Strategic'') for shares of common 
stock issued by the OneAmerica Conservative Investor Portfolio 
(``Conservative Investor Portfolio''), OneAmerica Moderate Investor 
Portfolio (``Moderate Investor Portfolio''), and OneAmerica Aggressive 
Investor Portfolio (``Aggressive Investor Portfolio'' and, together 
with the Conservative Investor Portfolio and the Moderate Investor 
Portfolio, the ``Lifestyle Portfolios''), each a series of OneAmerica, 
respectively, currently held by those unit investment trusts, and to 
permit in-kind purchases and redemptions of portfolio securities in 
connection with the proposed substitution transactions relating to the 
Tactical Asset Allocation Portfolio and the Asset Director Portfolio 
(``In-Kind Transactions'').

Filing Date: The application was filed on January 28, 2002, and amended 
and restated on July 26, 2002 (``Amended and Restated Application'').

Hearing or Notification of Hearing: An order granting the Application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the SEC by 5:30 p.m. on 
August 26, 2002, 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 
who wish to be notified of a hearing may request notification 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 United Life Insurance Company, One American 
Square, Indianapolis, Indiana 46282. Copies to: Keith T. Robinson, 
Dechert, 1775 Eye Street, NW, Washington, DC 20006-2401.

FOR FURTHER INFORMATION CONTACT: Patrick F. Scott, Attorney, or Lorna 
J. MacLeod, Branch Chief, Office of Insurance Products, Division of 
Investment Management, at (202) 942-0670.

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, (202) 942-8090.

Applicants' Representations

    1. AUL is an Indiana stock insurance company. AUL is the depositor 
and sponsor of the AUL Account and the AUL Individual Account, each a 
separate investment account established under Indiana law.
    2. The AUL Account and the AUL Individual Account are each 
registered with the Commission under the 1940 Act as a unit investment 
trust. The assets of the AUL Account and the AUL Individual Account 
support certain individual and group variable annuity contracts 
(collectively, the ``Contracts''). The individual variable annuity 
contracts include Contracts for which premiums may vary in amount and 
frequency, subject to certain limitations and Contracts for which 
premiums may vary in amount and frequency during

[[Page 50966]]

the first year. The group variable annuity 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 either 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 sixty-two (62) sub-
accounts referred to as Investment Accounts. Each Investment Account, 
in turn, invests exclusively in shares of an underlying fund or in 
shares of specific series thereof. 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. AUL may in the future establish additional Investment 
Accounts of the AUL Account which may invest in other securities, 
mutual funds or investment vehicles.
    4. The AUL Individual Account is currently divided into nineteen 
(19) sub-accounts also referred to as Investment Accounts. Each 
Investment Account in turn, invests exclusively in shares of an 
underlying fund or in shares of specific series thereof. Premiums may 
be allocated to one or more Investment Accounts available under a 
Contract. AUL may in the future establish additional Investment 
Accounts of the AUL Individual Account which may invest in other 
securities, mutual funds or investment vehicles.
    5. OneAmerica is organized as a Maryland corporation and is 
registered as an open-end management investment company under the 1940 
Act. OneAmerica is a series investment company, as defined by Rule 18f-
2 under the 1940 Act, and currently offers shares of eight (8) separate 
series. Only five (5) such series would be involved in the proposed 
substitutions. The Conservative Investor Portfolio, the Moderate 
Investor Portfolio, the Aggressive Investor Portfolio and the Tactical 
Asset Allocation Portfolio are herein referred to as the Removed 
Portfolios. The Asset Director Portfolio is one of the Substituted 
Portfolios, as defined in paragraph nine (9).
    6. Effective May 1, 2002, OneAmerica's name was changed from ``AUL 
American Series Fund, Inc.'' to ``OneAmerica Funds, Inc.'' In addition, 
the names of the various series of OneAmerica involved in the proposed 
Substitutions, were changed effective May 1, 2002 as follows:

------------------------------------------------------------------------
                Former name                           New name
------------------------------------------------------------------------
AUL American Tactical Asset Allocation      OneAmerica Tactical Asset
 Portfolio.                                  Allocation Portfolio.
AUL American Managed Portfolio............  OneAmerica Asset Director
                                             Portfolio.
AUL American Conservative Investor          OneAmerica Conservative
 Portfolio.                                  Investor Portfolio.
AUL American Moderate Investor Portfolio..  OneAmerica Moderate Investor
                                             Portfolio.
AUL American Aggressive Investor Portfolio  OneAmerica Aggressive
                                             Investor Portfolio.
------------------------------------------------------------------------

    7. AUL, an investment adviser registered under the Investment 
Advisers Act of 1940, as amended (``Advisers Act''), currently serves 
as the investment adviser for each of the OneAmerica Portfolios 
pursuant to an investment advisory agreement between AUL and 
OneAmerica, on behalf of the OneAmerica Portfolios, dated March 8, 1990 
(``Investment Advisory Agreement''). Pursuant to the Investment 
Advisory Agreement, and subject to the overall supervision of the Board 
of Directors of OneAmerica, AUL exercises overall responsibility for 
the investment and reinvestment of the assets of each OneAmerica 
Portfolio. AUL currently manages the day-to-day investment operations 
and the composition of all of the assets of each of the OneAmerica 
Portfolios.
    8. Until May 1, 2002, Credit Suisse Asset Management, LLC 
(``CSAM''), another investment adviser registered under the Advisers 
Act, was responsible for managing the growth-oriented equity and 
international equity portions of the Conservative Investor Portfolio, 
the Moderate Investor Portfolio and the Aggressive Investor Portfolio 
(together, the ``Lifestyle Portfolios''), pursuant to a sub-advisory 
agreement (``CSAM Sub-Advisory Agreement''). On October 30, 2001, CSAM 
notified AUL and the Lifestyle Portfolios that it intended to terminate 
the CSAM Sub-Advisory Agreement effective May, 1, 2002. Consequently, 
AUL assumed responsibility for managing all of the assets of the 
Lifestyle Portfolios on May 1, 2002.
    9. Dean Investment Associates (``Dean''), a division of C.H. Dean 
and Associates, Inc., served as the sub-adviser for the Tactical Asset 
Allocation Portfolio from May 15, 1995 to November 10, 2001 pursuant to 
a sub-advisory agreement (``Dean Sub-Advisory Agreement''). On 
September 7, 2001, AUL gave notice to Dean that it intended to 
terminate the Dean Sub-Advisory Agreement, effective November 10, 2001. 
AUL assumed the investment management duties for the Tactical Asset 
Allocation Portfolio on November 10, 2001.
    10. American Century Strategic is organized as a Maryland 
corporation and is registered as an open-end management investment 
company under the 1940 Act. American Century Strategic is a series 
investment company, as defined by Rule 18f-2 under the 1940 Act, and 
currently offers shares of three separate series, the Strategic 
Allocation: Conservative Fund; the Strategic Allocation: Moderate Fund; 
and the Strategic Allocation: Aggressive Fund (together with the Asset 
Director Portfolio, the ``Substituted Portfolios'').
    11. The prospectuses for both the AUL Account and the AUL 
Individual Account state that ``AUL reserves the right, subject to 
compliance with the law as then in effect, to make additions to, 
deletions from, substitutions for, or combinations of the securities 
that are held by the Variable Account or any Investment Account or that 
the Variable Account or any Investment Account may purchase.'' 
Comparable language appears in the Contracts.
    12. With the exceptions noted below, neither the AUL Account nor 
the AUL Individual Account imposes any limitations on the number of 
transfers between variable investment accounts available under a 
Contract or the fixed account or imposes charges on transfers. With 
respect to the AUL Individual Account, the minimum transfer amount from 
any one Investment Account or from the fixed account is $500. Under 
certain circumstances, amounts transferred from the fixed account to an 
Investment Account during any given year may not exceed 20% of the 
fixed account's value as of the beginning of that year. AUL reserves 
the right, however, at a future date, to impose a different minimum or 
maximum transfer amount, to assess transfer charges, to change the 
limit on remaining balances, to limit the number and frequency of 
transfers, and to suspend the transfer privilege or the telephone 
authorization, interactive voice response, or internet based transfers.
    13. Applicants propose to substitute (i) shares of common stock 
issued by the Tactical Asset Allocation Portfolio currently held by the 
AUL Account and the AUL Individual Account for shares of common stock 
issued by the Asset Director Portfolio; and (ii) shares of common stock 
issued by each of the Lifestyle Portfolios currently held by the

[[Page 50967]]

AUL Account for the Investor Class shares issued by the corresponding 
Strategic Allocation Funds (the ``Substitutions'').
    14. As shown in the chart below, the Tactical Asset Allocation 
Portfolio has investment objectives, investment strategies and 
anticipated risks that are compatible, although not identical, to those 
of the Asset Director Portfolio.

------------------------------------------------------------------------
                                Removed portfolio        Substituted
---------------------------------------------------       portfolio
                                                   ---------------------
                                 Tactical asset        Asset director
                              allocation portfolio        portfolio
------------------------------------------------------------------------
Investment objective........  Preservation of       High total return
                               capital and           consistent with
                               competitive           prudent investment
                               investment returns.   risk.
Investment Strategies.......  Primary Investment    Primary Investment
                               Strategy: To          Strategy: The
                               achieve this          investments of the
                               objective, the        portfolio are not
                               portfolio invests     limited to one type
                               primarily in          of investment, and
                               stocks, United        it purchases
                               States Treasury       publicly traded
                               issues, corporate     common stocks, debt
                               bonds, and other      securities, and
                               debt securities.      money market
                               When markets are      instruments. The
                               favorable, the        makeup of the
                               portfolio             portfolio changes
                               concentrates on       based on AUL's
                               peformance; in        evaluation of
                               declining markets,    economic and market
                               the portfolio will    trends and the
                               have less equities    expected total
                               in its portfolio it   return from a
                               an effort to          particular type of
                               protect its assets.   security.
                                                     Therefore, up to
                                                     100% of the
                                                     portfolio may be
                                                     invested in any one
                                                     type of investment
                                                     such as common
                                                     stocks, debt
                                                     securities, or
                                                     money market
                                                     instruments.
                              Types of Securities:  Types of Securities:
                               The portfolio will    The portfolio may
                               normally invest at    buy common stocks
                               least 65% of its      listed on a
                               equity assets in      national securities
                               the common or         exchange or traded
                               preferred stocks of   over-the-counter
                               companies listed on   and debt
                               a national exchange   securities,
                               or traded over-the-   including
                               counter. The focus    investment grade
                               is generally on       corporate bonds,
                               high quality,         U.S. government
                               liquid, undervalued   securities,
                               stocks of small,      convertible bonds
                               medium and large      and mortgage-backed
                               capitalization        securities. The
                               companies. When       portfolio can
                               market conditions     invest up to 10% of
                               require a more        its assets in debt
                               defensive position,   securities that are
                               the portfolio         rated below-
                               invests more of its   investment grade
                               assets in             (``junk bonds'').
                               investment grade      The portfolio also
                               corporate debt        may buy high
                               securities, U.S.      quality money
                               government            market instruments.
                               securities and
                               money market
                               instruments.
------------------------------------------------------------------------

    15. Applicants represent it is also the case that: (i) the 
management fees with respect to the Asset Director Portfolio were lower 
than the management fees applicable to the Tactical Asset Allocation 
Portfolio as of December 31, 2001; and (ii) the total expense ratio 
with respect to the Asset Director Portfolio was lower than the total 
expense ratio of the Tactical Asset Allocation Portfolio as of December 
31, 2001. The chart below shows the management fees, operating expenses 
and total expenses for the Tactical Asset Allocation Portfolio and the 
Asset Director Portfolio for the year ended December 31, 2001. The fees 
and expenses in the chart are presented as a percentage of average 
daily net assets.

------------------------------------------------------------------------
                                                  Removed    Substituted
-----------------------------------------------  portfolio    portfolio
                                               -------------------------
                                                  Tactical
                                                   asset        Asset
                                                 allocation    director
                                                 portfolio    portfolio
                                                    (%)          (%)
------------------------------------------------------------------------
Management Fee................................         0.80         0.50
12b-1 Fee.....................................         0.00         0.00
Other Expenses................................         0.20         0.14
Gross Total Annual Operating Expenses.........         1.00         0.64
------------------------------------------------------------------------

    16. As shown in the chart below, each Lifestyle Portfolio has 
investment objectives, investment strategies and anticipated risks that 
are substantially similar to those of the corresponding Strategic 
Allocation Fund.

------------------------------------------------------------------------
                                Removed portfolio        Substituted
                             ----------------------       portfolio
                                                   ---------------------
                                  Conservative            Strategic
                               investor portfolio        allocation:
                                                      Conservative Fund
------------------------------------------------------------------------
Investment Objective          High current income,  Highest level of
                               with opportunities    total return
                               for capital           consistent with its
                               appreciation.         asset mix.
Investment Strategies         Primary Investment    Primary Investment
                               Strategy: To          Strategy: Seeks
                               achieve its           regular income
                               objective, the        through its
                               portfolio invests     emphasis on bonds
                               in a strategically    and cash-equivalent
                               allocatted            securities. It also
                               portfolio,            has the potential
                               primarily of bond     for moderate long-
                               and money market      term total return
                               instruments, with     as a result of its
                               the balance of the    stake in equity
                               portfolio in          securities.
                               equities.

[[Page 50968]]

 
                              Types of Securities:  Types of Securities:
                               The portfolio         The fund may invest
                               invests in a mix of   in any type of U.S.
                               equity securities,    or foreign equity
                               bonds and money       security that meets
                               market instruments.   certain fundamental
                               Within each asset     and technical
                               class, the            standards. The fund
                               portfolio's           managers draw on
                               holdings are          growth, value and
                               invested across a     quantitative
                               diversified group     investment
                               of industries and     techniques in
                               issuers based on      managing the equity
                               AUL's investment      portion the fund's
                               criteria. AUL         portfolio and they
                               regularly reviews     diversify the
                               the portfolio's       fund's equity
                               investments and       investments among
                               allocations and may   small, medium and
                               make changes in the   large companies.
                               particular            The fund also
                               securities or in      invests in a
                               the asset mix         variety of debt
                               (within defined       securities payable
                               operating ranges)     in both U.S. and
                               to favor              foreign currencies.
                               investments that it   The fund primarily
                               believes will help    invests in
                               achieve the           investment grade
                               portfolio's           securities, that
                               objective.            is, securities
                                                     rated in the four
                                                     highest categories
                                                     by independent
                                                     rating
                                                     organizations.
                              Neutral Mix:          Neutral Mix:
                                Equity: 35%           Equity: 45%
                                Debt: 50%             Debt: 45%
                                Cash: 15%             Cash: 10%
 
                                Moderate Investor         Strategic
                                    Portfolio            Allocation:
                                                        Moderate Fund
 
Investment Objective          Blend of capital      Highest level of
                               appreciation income.  total return
                                                     consistent with its
                                                     asset mix.
Investment Strategies         Primary Investment    Primary Investment
                               Strategy: To          Strategy: Seeks
                               achieve its           long-term capital
                               objective, the        growth with some
                               portfolio invests     regular income. It
                               in a strategically    emphasizes
                               allocated portfolio   investments in
                               of equities, bonds    equity securities
                               and money market      but maintains a
                               instruments with a    sizeable stake in
                               weighting that is     bonds and cash-
                               normally slightly     equivalent
                               heavier in equities.  securities.
                              Type of Securities:   Type of Securities:
                               Same as               Same as the
                               Conservative          Strategic
                               Investor Portfolio.   Allocation:
                                                     Conservative Fund.
                                                     The fund may invest
                                                     up to 5% of its
                                                     assets in below
                                                     investment-grade
                                                     (high-yield)
                                                     securities.
                              Neutral Mix:          Neutral Mix:
                                Equity: 55%           Equity: 63%
                                Debit: 35%            Debt: 31%
                                Cash: 10%             Cash: 6%
 
                               Aggressive Investor        Strategic
                                    Portfolio            Allocation:
                                                       Aggressive Fund
 
Investment Objective          Long-term capital     Highest level of
                               appreciation.         total return
                                                     consistent with its
                                                     asset mix.
Investment Strategies         Primary Investment    Primary Investment
                               Strategy: To          Strategy: Seeks
                               achieve its           long-term capital
                               objective, the        growth with a small
                               portfolio invests     amount of regular
                               in a strategically    income. It
                               allocated portfolio   emphasizes
                               consisting            investments in
                               primarily of          equity securities
                               equities. Current     but maintains a
                               income is not a       portion of its
                               major consideration.  assets in bonds and
                                                     cash-equivalent
                                                     securities.
                              Types of Securities:  Types of Securities:
                               Same as               Same as the
                               Conservative          Strategic
                               Investor Portfolio.   Allocation:
                                                     Conservative Fund.
                                                     The fund may invest
                                                     up to 10% of its
                                                     assets in below
                                                     investment-grade
                                                     (high-yield)
                                                     securities.
                              Neutral Mix:          Neutral Mix:
                                Equity: 80%           Equity: 78%
                                Debt: 20%             Debt: 20%
                                Cash: 0%              Cash: 2%
------------------------------------------------------------------------

    17. It is expected that the net total annual operating expenses 
with respect to certain of the Strategic Allocation Funds may be higher 
than the net total annual operating expenses currently applicable to 
the corresponding Lifestyle Portfolios, even though the gross total 
annual operating expenses of each Strategic Allocation Fund are lower 
than those of the corresponding Lifestyle Portfolios. The chart below 
shows: (i) the management fees, operating expenses and total annual 
operating expenses (both gross and net of applicable fee waivers and 
reimbursements) for the shares of common stock of each Lifestyle 
Portfolio for the year ended December 31, 2001; and (ii) the current 
total operating expenses of the Investor Class shares of each Strategic 
Allocation Fund. The fees and expenses in the chart are presented as a 
percentage of average daily net assets.

----------------------------------------------------------------------------------------------------------------
                                                                                       Substituted portfolios
                                                     Removed portfolios (percent)            (percent)
----------------------------------------------------------------------------------------------------------------
                                                                                ConservatiStrategic Allocation:
                                                                       Portfolio                               Conservative Fund
----------------------------------------------------------------------------------------------------------------
Management Fee....................................                          0.70                           1.00
12b-1 Fee.........................................                          0.00                           0.00
Other Expenses....................................                          0.83                           0.00
Gross Total Annual Operating Expenses.............                          1.53                           1.00
Applicable Waiver or Reimbursements...............                          0.53                           0.00
Net Total Annual Operating Expenses...............                          1.00                           1.00
----------------------------------------------------------------------------------------------------------------
 

[[Page 50969]]

 
                                                     Moderate Investor Portfolio          Strategic Allocation:
                                                                                                  Moderate Fund
----------------------------------------------------------------------------------------------------------------
 
Management Fee....................................                          0.70                           1.10
12b-1 Fee.........................................                          0.00                           0.00
Other Expenses....................................                          0.80                           0.00
Gross Total Annual Operating Expenses.............                          1.50                           1.10
Applicable Waiver or Reimbursements...............                          0.50                           0.00
Net Total Annual Operating Expenses...............                          1.00                           1.10
----------------------------------------------------------------------------------------------------------------
 
                                                    Aggressive Investor Portfolio         Strategic Allocation:
                                                                                                Aggressive Fund
----------------------------------------------------------------------------------------------------------------
 
Management Fee....................................                          0.70                           1.20
12b-1 Fee.........................................                          0.00                           0.00
Other Expenses....................................                          0.81                           0.00
Gross Total Annual Operating Expenses.............                          1.51                           1.20
Applicable Waiver or Reimbursements...............                          0.51                           0.00
Net Total Annual Operating Expenses...............                          1.00                           1.20
----------------------------------------------------------------------------------------------------------------

    18. With respect to the Management Fee for the Strategic Allocation 
Funds listed in the table above, Applicants state that, out of this 
fee, American Century Investment Management, Inc. (``American 
Century''), the investment adviser to the Strategic Allocation Funds, 
pays all the ordinary expenses of managing and operating the portfolio, 
except brokerage expenses, taxes, interest, and fees and expenses of 
the independent directors (including legal counsel fees). This fee does 
not apply to extraordinary expenses as determined under generally 
accepted accounting principles. In other words, American Century pays 
substantially all of the ordinary operating expenses that would 
normally be shown under ``Other Expenses'' out of the management fee. 
This management fee may not be raised without a shareholder vote. A 
breakpoint in the management fee will apply to each Strategic 
Allocation Fund when it reaches $1 billion. In that case, assets in 
excess of $1 billion will incur a management fee that is 10 basis 
points lower than that shown in the table.
    19. With respect to the Gross Total Annual Operating Expenses for 
the Conservative Investor Portfolio, Moderate Investor Portfolio and 
Aggressive Investor Portfolio listed in the table above, Applicants 
state that AUL has currently agreed to waive its advisory fee if the 
ordinary expenses of the portfolio exceed 1% and, to the extent 
necessary, assume any expenses in excess of its advisory fee so that 
the expenses of the portfolio, including the advisory fee but excluding 
extraordinary expenses, will not exceed 1% of the portfolio's average 
daily net asset value per year. AUL may terminate the policy of 
reducing its fee and/or assuming fund expenses upon 30 days written 
notice to the portfolio and such policy will be terminated 
automatically by the termination of the investment advisory agreement 
between AUL and the portfolio.
    20. Applicants represent that the unified management fee structure 
employed by the Strategic Allocation Funds has the practical effect of 
locking in a specific expense ratio for shareholders. AUL's policy of 
reducing its fee and/or assuming expenses of the Lifestyle Portfolios 
may be terminated unilaterally by AUL upon thirty (30) days written 
notice to the portfolio. In comparison, the unified management fees for 
each of the Strategic Allocation Funds may only be changed by a vote of 
shareholders.
    21. Applicants represent that AUL has determined that it is not 
feasible to maintain the Lifestyle Portfolios for an extended period of 
the time following the resignation of CSAM, or to maintain the Tactical 
Asset Allocation Portfolio for an extended period of time following the 
resignation of Dean. CSAM was originally hired for its expertise in 
growth equity and foreign investing--areas in which AUL has little 
expertise. However, the Lifestyle Portfolios are strategically managed 
and, as a result, would need to be able to invest in these markets. In 
addition, Dean was retained in order to provide a process-driven asset 
allocation program that relies on proprietary forecasting models. AUL 
has determined that it will not be cost effective to hire internal 
managers to attempt to provide a comparable model-driven asset 
allocation program or to manage the small amount of assets that would 
be invested in the growth equity and foreign equity markets.
    22. Applicants assert that finding replacement sub-advisers would 
not be feasible due to the relatively small size of the Tactical 
Allocation Portfolio and each of the Lifestyle Portfolios. Management 
of funds the size of the Removed Portfolios simply is not cost-
effective, as demonstrated by AUL's substantial subsidization of the 
Lifestyle Portfolios, and many investment advisers are not interested 
in managing registered investment companies of this size. Moreover, 
since each of these Portfolios is so small, allocating the assets among 
asset classes can be difficult and inefficient.
    23. Applicants respresent that Contract Owners and Participants who 
have allocated contract values to one or more of the Removed Portfolios 
have been provided with a detailed notice (in the form of a prospectus 
or prospectus supplement) disclosing the Substitutions (``First 
Notice''), which described the relevant Substituted Portfolio(s), 
identified the relevant Removed Portfolio(s), disclosed the impact of 
the Substitutions on fees and expenses at the underlying fund level, 
and disclosed that AUL will not impose any fee, charge or restriction 
that might otherwise be imposed through a date at least thirty (30) 
days after the effective date of the proposed Substitutions 
(``Substitution Date'').
    24. Applicants represent that, following Commission approval of the 
Amended and Restated Application, Applicants will send Contract Owners 
and Participants who have allocated Contract values to one or more of 
the Removed Portfolios further detailed notice concerning the proposed 
Substitutions (``Second Notice''). The Second Notice will inform 
affected Contract Owners and Participants that the substitutions will 
be carried out, identify the anticipated date of the

[[Page 50970]]

Substitutions and inform Contract Owners and Participants that AUL will 
not impose any fee, charge or restriction that might otherwise be 
imposed through a date at least thirty (30) days after the Substitution 
Date. Together with this disclosure, affected Contract Owners and 
Participants also will be sent a prospectus for the applicable 
Substituted Portfolio(s). New purchasers of Contracts also will be 
provided with the Contract prospectuses, the Second Notice, and a 
prospectus for the applicable Substituted Portfolio(s).
    25. Applicants will effect the Substitutions by redeeming the 
contributions and premium payments invested in the shares of common 
stock of the Removed Portfolios and purchasing shares of common stock 
of the Asset Director Portfolio or Investor Class shares of the 
Strategic Allocation Funds, as applicable, with the proceeds of that 
distribution.
    26. Redemptions from the Lifestyle Portfolios will be made in cash, 
as will the corresponding purchases of Investor Class shares of the 
Strategic Allocation Funds.
    27. In the case of the Tactical Asset Allocation Portfolio, the 
redemptions will take the form of a distribution of that portion of the 
Tactical Asset Allocation Portfolio's gross assets attributable to the 
AUL Account and the AUL Individual Account along with the assumption of 
a corresponding portion of the Tactical Asset Allocation Portfolio's 
liabilities. Assets to be distributed and liabilities to be assumed may 
include rights, obligations and liabilities associated with the 
Tactical Asset Allocation Portfolio's pending trade transactions and 
over-the-counter positions. All assets and liabilities will be valued 
based on the normal valuation procedures of the Tactical Asset 
Allocation Portfolio and the Asset Director Portfolio (which are 
identical), as set forth in OneAmerica's registration statement. The 
Substitutions of shares of the Asset Director Portfolio for shares of 
the Tactical Asset Allocation Portfolio are expected to be performed 
wholly on an in-kind basis.
    28. Confirmation of the Substitutions will be mailed to affected 
Contract Owners and Participants within five (5) days after the 
Substitution Date. The confirmation will disclose (i) that the 
substitution was carried out and (ii) that Contract Owners and 
Participants may transfer assets from the Substituted Portfolios to 
another investment option available under their Contract without the 
imposition of any fee, charge or restriction that might otherwise be 
imposed through a date at least thirty (30) days after the Substitution 
Date.
    29. Applicants represent that the significant terms of the proposed 
Substitution described above and in the Amended and Restated 
Application include:
    a. Each Substituted Portfolio will have investment objectives, 
investment strategies, and anticipated risks that are substantially 
similar, or at least comparable, in all material respects to those of 
the corresponding Removed Portfolio.
    b. Contract Owners and Participants who have allocated Contract 
values to one or more of the Removed Portfolios may transfer assets 
from a Removed Portfolio or a Substituted Portfolio to another 
investment option 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 (30) 
days following the Substitution Date.
    c. The Substitutions, in all cases, will be effected at the 
relative net asset values of the respective shares of the Removed 
Portfolios and the corresponding Substituted Portfolios 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 of any Contract Owner's or Participant's investment 
in such Contract.
    d. 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 proposed seed 
capital redemptions as well as the Substitutions and related filings 
and notices, including brokerage, 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.
    e. Redemptions in-kind and contributions in-kind will be done in a 
manner consistent with the investment objectives, policies and 
diversification requirements of both the Tactical Asset Allocation 
Portfolio and the Asset Director Portfolio. 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.
    f. The Substitutions will not be counted as new investment 
selections in determining the limit, if any, on the total number of 
Investment Accounts that Contract Owners or Participants can select 
during the life of a Contract.
    g. The Substitutions will not alter in any way the tax benefits, 
insurance and other Contract benefits, or any Contract obligations of 
the Applicants, under the Contracts.
    h. 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.
    i. Contract Owners and Participants affected by the Substitutions 
will be sent written confirmation of the Substitutions that identify 
each Substitution transaction made on behalf of that Contract Owner or 
Participant within five (5) days following the Substitution Date.
    j. AUL will waive its management fee with respect to the Asset 
Director Portfolio and/or reimburse ordinary expenses incurred by the 
Asset Director Portfolio during the twenty-four (24) months following 
the Substitution Date to the extent necessary to ensure that the total 
operating expenses for any period (not to exceed a fiscal quarter) of 
the Asset Director Portfolio do not exceed 1.00% (the total annual 
operating expenses, net of fee waivers and/or expense reimbursements, 
for the Tactical Asset Allocation Portfolio for the year ended December 
31, 2001) of the Asset Director Portfolio's average daily net assets on 
an annualized basis.
    k. In addition, for all Contract Owners and Participants with 
contract values allocated to the Tactical Asset Allocation Portfolio as 
of the Substitution Date, AUL will not increase sub-account or Contract 
expenses for a period of twenty-four (24) months following the 
Substitution Date.
    l. AUL does not receive, and will not receive for three (3) years 
following the Substitution Date, any direct or indirect benefits from 
the Strategic Allocation Funds or their investment adviser or 
underwriter (or their affiliates), in connection with assets 
representing contract values of Contracts affected by the Substitution, 
at a higher contractual rate than it had been entitled to receive from 
the Lifestyle Portfolios or their investment adviser or underwriter (or 
their affiliates), including, without limitation: 12b-1 fees; 
shareholder service fees; administration or other service fees; revenue 
sharing; or other arrangements in connection with such assets.
    m. The Substitution and the selection of the Strategic Allocation 
Funds were

[[Page 50971]]

not motivated by any financial consideration paid or to be paid to AUL, 
or its affiliates, by the Strategic Allocation Funds, their investment 
adviser or underwriter, or their respective affiliates.
    n. AUL agrees that if the total operating expenses for a Strategic 
Allocation Fund (taking into account any fee waivers and/or 
reimbursements) (``Strategic Allocation Fund Expenses'') for any fiscal 
quarter during the one (1) year period following the Substitution Date 
exceed on an annualized basis the expense ratio for the corresponding 
Lifestyle Portfolio (taking into account any fee waivers and/or expense 
reimbursements) as a percentage of average daily net assets for the 
fiscal year ended December 31, 2001 (``Lifestyle Portfolio Expenses''), 
AUL will waive separate account fees and/or reimburse separate account 
expenses applicable to the Investment Account that invests in the 
relevant Strategic Allocation Fund for those Contract Owners who were 
Contract Owners on the Substitution Date, such that the Strategic 
Allocation Fund Expenses, together with Investment Account expenses 
paid during that period, will not exceed, on an annualized basis, the 
corresponding Lifestyle Portfolio Expenses and Investment Account 
expenses prior to the Substitution Date.
    30. Applicants submit that they will not complete the Substitutions 
as described in the Amended and Restated Application unless all of the 
following conditions are met:
    a. The Commission will have issued an order approving the 
Substitutions under section 26(c) of the 1940 Act.
    b. The Commission will have issued an order exempting the In-Kind 
Transactions from the provisions of section 17(a) of the 1940 Act, to 
the extent necessary to carry out the Substitutions as described herein 
with respect to the Tactical Asset Allocation Portfolio and the Asset 
Director Portfolio.
    c. The amendments to the registration statements for the Contracts 
describing the Substitutions shall have become effective.
    d. Each Contract Owner and Participant who has allocated Contract 
values to the Removed Portfolios will have been mailed the First 
Notice, the Second Notice and current prospectuses for the Contracts 
and the applicable Substituted Portfolio(s).
    e. 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 the Amended and Restated 
Application, and that the Substitution transactions can be consummated, 
as described herein, under applicable insurance laws and under the 
Contracts.
    f. 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.

Applicants' Legal Analysis

    1. Section 26(c) 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(c) 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(c) of the 
1940 Act approving the Substitutions. Applicants represent that the 
purposes, terms, and conditions of the Substitution are consistent with 
the protections for which Section 26(c) was designed.
    3. Applicants state that Contract Owners and Participants who do 
not want their assets allocated to the Substituted Portfolios would be 
able to transfer assets to any one of the other Investment Accounts 
available under their Contract without any transfer charge until thirty 
(30) days after the Substitution Date.
    4. Applicants represent that the Substitution and related 
redemptions 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. 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. Furthermore, 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.
    5. For these reasons, Applicants assert that the proposed 
Substitutions are consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act.
    6. Section 17(a)(1) of the 1940 Act prohibits an affiliated person 
or an affiliate of an affiliated person, of a registered investment 
company, from selling any security or other property to such registered 
investment company. Section 17(a)(2) of the 1940 Act prohibits such 
affiliated persons from purchasing any security or other property from 
such registered investment company.
    7. Section 17(b) of the 1940 Act authorizes the Commission to issue 
an order exempting a proposed transaction from Section 17(a) if: (a) 
The terms of the proposed transaction are fair and reasonable and do 
not involve overreaching on the part of any person concerned; (b) the 
proposed transaction is consistent with the policy of each registered 
investment company concerned; and (c) the proposed transaction is 
consistent with the general purposes of the 1940 Act.
    8. The Applicants request an order pursuant to section 17(b) of the 
1940 Act exempting them from the provisions of Section 17(a) to the 
extent necessary to permit them to carry out the In-Kind Transactions.
    9. The Applicants assert that the In-Kind Transactions, 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 
In-Kind Transactions will be effected at the respective net asset 
values of the Tactical Asset Allocation Portfolio and the Asset 
Director Portfolio, as determined in accordance with the procedures 
disclosed in the registration statement for OneAmerica and as required 
by Rule 22c-1 under the 1940 Act. The In-Kind Transactions will not 
change the dollar value of any Participant's or Contract Owner's 
investment in the AUL Account or the AUL Individual Account, the value 
of any Contract, the accumulation value or other value credited to any 
Contract, or the death benefit payable under any Contract. After the 
proposed In-Kind Transactions, the value of the AUL Account's or AUL 
Individual Account's investments in the Asset Director Portfolio will 
equal the value of its investment in the Tactical Asset Allocation 
Portfolio (together with the value of any pre-existing investment in 
the Asset Director Portfolio) before the In-Kind Transactions.

[[Page 50972]]

    10. The Applicants also state that the transactions will conform 
substantially to the conditions of Rule 17a-7. To the extent that the 
In-Kind Transactions do not comply fully with the provisions of 
paragraphs (a) and (b) of Rule 17a-7, the Applicants assert that the 
terms of the In-Kind Transactions provide the same degree of protection 
to the participating companies and their shareholders as if the In-Kind 
Transactions satisfied all of the conditions enumerated in Rule 17a-7. 
The Applicants also assert that the proposed In-Kind Transactions by 
the Applicants does not involve overreaching on the part of any person 
concerned. Furthermore, the Applicants represent that the proposed In-
Kind Transactions will be consistent with the policies of the Tactical 
Asset Allocation Portfolio and the Asset Director Portfolio, as recited 
in OneAmerica's current registration statement.
    11. The Applicants assert that the In-Kind Transactions are 
consistent with the general purposes of the 1940 Act and that the In-
Kind Transactions do not present any of the conditions or abuses that 
the 1940 Act was designed to prevent.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
Commission should grant the requested order approving the Substitutions 
and the In-Kind Transactions.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-19782 Filed 8-5-02; 8:45 am]
BILLING CODE 8010-01-P