[Federal Register Volume 62, Number 230 (Monday, December 1, 1997)]
[Notices]
[Pages 63574-63576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31396]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22901; File No. 812-10788]


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

November 21, 1997.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order under Section 26(b) of the 
Investment Company Act of 1940 (``1940 Act'') approving the proposed 
substitution of securities.

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SUMMARY OF APPLICATION: Applicants request an order approving the 
substitution of shares of the Salomon Brothers U.S. Government 
Securities Portfolio of WNL Series Trust (the ``Salomon Portfolio'') 
for shares of the Black Rock Managed Bond Portfolio of WNL Series Trust 
(the ``BlackRock Portfolio'') to fund individual fixed and variable 
deferred annuity contracts (the ``Contracts'') issued by Western 
National Life Insurance Company (``Western National'').

APPLICANTS: Western National and WNL Separate Account A (the 
``Account'').

FILING DATE: The application was filed on September 17, 1997.

HEARING OR NOTIFICATION OF HEARING: And 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 16, 1997, and 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 may request notification of a hearing by writing to 
the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Raymond A. O'Hara 
III, Esq., Blazzard, Grodd & Hasenauer, PC., 943 Post Road East, 
Westport, Connecticut 06880.

FOR FURTHER INFORMATION CONTACT:
Laura A. Novack, Senior Attorney, or Kevin M. Kirchoff, 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 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

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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

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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