The Western National Life Insurance Company, et al.; Notice of Application

The following is a summary of the application. The complete application is available for a fee from the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 20549 (tel. (202) 942-8090).

Applicants' Representations

1. Western National, a stock life insurance company incorporated in Texas, is a wholly-owned subsidiary of Western National Corporation. American General Life Insurance Company (``AG Life''), a Missouri- domiciled life insurer, owns approximately 40% of Western National Corporation. In turn, AG Life is a wholly-owned subsidiary of American General Corporation, also a Texas corporation. Western National is the depositor of the Account. 2. The Board of Directors of Western National authorized the Account on November 9, 1994. The Account is registered under the 1940 Act as a unit investment trust for the purpose of funding the Contracts. Security interests under the Contracts have been registered under the Securities Act of 1933 (``Securities Act'') (File No. 33- 86464). The Account currently is divided into eight sub-accounts, each of which reflects the investment performance of a corresponding portfolio of WNL Series Trust (the ``Trust''). 3. The Trust was organized as a Massachusetts business trust on December 12, 1994. It is registered under the 1940 Act as an open-end management investment company. The

Trust is a series investment company that is currently comprised of eight portfolios, two of which are the BlackRock and Salomon Portfolios. WNL Investment Advisory Services, Inc. (``WNL Advisory''), a subsidiary of Western National Corporation, is the investment adviser to the Trust. 4. WNL Advisory has engaged sub-advisors for each of the portfolios of the Trust. The Sub-Advisor for the BlackRock Portfolio is BlackRock Financial Management. The Sub-Adviser for the Salomon Portfolio is Salomon Brothers Asset Management, Inc. 5. The BlackRock Portfolio seeks to provide a high total return consistent with moderate risk of capital and maintenance of liquidity by investing primarily in the broad sector of the fixed-income market, including U.S. government and agency securities, corporate securities, private placements, and asset-backed and mortgage-related securities, including residential and commercial mortgage-backed securities. The Salomon Portfolio seeks a high level of current income by investing a substantial portion of its assets in debt obligations and mortgage- backed securities issued or guaranteed by the U.S. government and its agencies or instrumentalities and collateralized mortgage obligations backed by such securities. 6. Since their inception, WNL Advisory has voluntarily waived all or a portion of its advisory fees from the BlackRock and Salomon Portfolios. Currently, until May 1, 1998, WNL Advisory has undertaken to waive those portions of its advisory fees which are in excess of the amounts payable by it to the Sub-Advisors for the BlackRock and Salomon Portfolios. In addition, since inception, Western National has reimbursed portions of the expenses of the BlackRock and Salomon Portfolios. Currently, Western National has undertaken to bear until May 1, 1998, all operating expenses of both portfolios, excluding the compensation of WNL Advisory, that exceed .12% of the portfolios' average daily net assets. WNL Advisory is under no legal obligation to continue waiving its advisory fees nor is Western National under any obligation to continue reimbursing expenses. State Street Bank and Trust Company, the Trust's custodian and sub-administrator, also has waived certain fees with respect to both portfolios. 7. As a result of these fee waivers and expense limitation agreements, the expense ratio (annualized) for the BlackRock Portfolio for the year ending December 31, 1996 (from the date of inception of January 2) was .28%. In the absence of these waivers and expense limitation agreements, the expense ratio would have been 3.93%. For the six-month period ended June 30, 1997, the expense ratio (annualized) was .42%. In the absence of the waivers and expense limitation agreements, it would have been 4.38%. The (non-annualized) total returns for the BlackRock Portfolio for these twelve-month and six- month periods were 3.76% and 3.20%, respectively. In the absence of the fee waivers and expense limitation agreements, the total returns would have been lower. 8. As a result of the fee waivers and expense limitation agreements, the expense ratio (annualized) for the Salomon Portfolio for the year ending December 31, 1996 (from the date of inception of February 6) was .22%. In the absence of the fee waivers and expense limitation agreements, it would have been 5.26%. For the six-month period ended June 30, 1997, the expense ratio (annualized) was .35%. In the absence of these waivers and expense limitation agreements, it would have been 5.59%. The (non-annualized) total returns for the Salomon Portfolio for these twelve-month and six-month periods were 3.40% and 3.35%, respectively. These numbers would have been lower absent the fee waivers and expense limitation agreements. 9. As of June 30, 1997, the BlackRock Portfolio and Salomon Portfolio had $3.6 million and $2.5 million in net assets, respectively. 10. Applicants state that the BlackRock Portfolio is quite small when compared with many other similar investment portfolios of open-end management companies available as investment vehicles for variable annuity contracts. Furthermore, after experiencing slow sales, management of Western National determined that it was unlikely that the BlackRock Portfolio would grow to a sufficient size to promote consistent investment performance or to absorb operating expenses. As of September 30, 1997, shares of the BlackRock Portfolio were no longer available for sale and no transfers could be made into the BlackRock Portfolio Sub-Account (however, dollar cost averaging transfers to the BlackRock Portfolio Sub-Account will be permitted until the date of substitution). 11. Applicants propose that Western National substitute shares of the Salomon Portfolio for shares of the BlackRock Portfolio, by redeeming shares of the BlackRock Portfolio in cash and purchasing with the proceeds shares of the Salomon Portfolio. 12. The proposed substitution will take place at relative net asset value with no change in the amount of any Contract owner's Contract value or in the dollar value of his or her investment in the Account. Contract owners will not incur any fees or charges as a result of the proposed substitution nor will their rights or Western National's obligations under the Contracts be altered in any way. All expenses incurred in connection with the proposed substitution, including legal, accounting and other fees and expenses, will be paid by Western National. In addition, the proposed substitution will not result in the imposition of any tax liability on Contract owners. The proposed substitution will cause the Contract fees and charges currently being paid by existing Contract owners to be greater after the proposed substitution than before the proposed substitution. 13. By supplements to the prospectus for the Account dated September 25, 1997, all owners and prospective owners were notified of the Applicants' intention to take the necessary actions, including seeking the order requested by the Applicants, to affect the substitution described herein. The supplement also apprised Contract owners that, from the date of the supplement until the date of the proposed substitution, owners may transfer any or all of their Contract value under a Contract invested in the Sub-Account for the BlackRock Portfolio to another Sub-Account of the Account, without that transfer counting as one of a limited number of transfers permitted in a Contract year free of charge. In addition, the supplement will inform Contract owners that for a period of 30 days following the proposed substitution, Western National will permit transfers of the cash value under a Contract invested in the Sub-Account for the Salomon Portfolio to any other Sub-Account of the Account without any limitation or charge being imposed. 14. In addition to the prospectus supplements distributed to owners and prospective owners of Contracts, within 5 days after the proposed substitution, all owners who were affected by the substitution will be sent a written notice informing them that the substitution was carried out and reiterating their right to make transfers from the Sub-Account for the Salomon Portfolio to any other Sub-Account of the Account for a period of 30 days without any limitation or charge being imposed.

Applicants' Legal Analysis

1. Section 26(b) of the 1940 Act provides in pertinent part 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.'' The legislative history of Section 26(b) provides that the Commission will approve a substitution if it is consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. The purpose of Section 26(b) is to protect the expectation of investors in a unit investment trust that the unit investment trust will accumulate the shares of a particular issuer, and to prevent unscrutinized substitutions which might, in effect, force shareholders dissatisfied with the substituted security to redeem their shares, thereby incurring either a loss of the sales load deducted from initial proceeds, an additional sales load upon reinvestment of the redemption proceeds, or both. Section 26(b) affords protection to investors by preventing a depositor or trustee of a unit investment trust holding shares of one issuer from substituting for those shares the shares of another issuer, unless the Commission approves that substitution. 2. Applicants state that Western Life has reserved the right to substitute securities held by the Sub-Accounts of the Account and that this right is disclosed in the Contracts and prospectus for the Contracts. 3. Applicants represent that the Salomon Portfolio is a suitable and appropriate investment vehicle for Contract owners. Applicants assert that the Salomon Portfolio has a lower advisory fee and a lower expense ratio than the BlackRock Portfolio. Applicants also assert that the Salomon Portfolio has a similar investment objective, and to date has experienced an investment return comparable to the BlackRock Portfolio. Applicants anticipate that after the proposed substitution, the Salomon Portfolio will provide Contract owners with comparable or more favorable investment results than would be the case if the proposed substitution did not take place. 4. Applicants represent that the Salomon Portfolio has similar investment policies to the BlackRock Portfolio, with each investing in many of the same types of fixed income securities. 5. Applicants generally submit that the proposed substitution meets the standards that the Commission and its staff have applied to substitutions that have been approved by the Commission.

Conclusion

Applicants submit that, for the reasons summarized above, the proposed substitution is consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the 1940 Act.

For the Commission, by the Division of Investment Management, pursuant to delegated authority. Jonathan G. Katz, Secretary. [FR Doc. 97-31396 Filed 11-28-97; 8:45 am] BILLING CODE 8010-01-M