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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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VARIABLE UNIVERSAL LIFE INSURANCE POLICY
ISSUED BY
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550
(409) 763-4661
This Prospectus describes a variable universal life insurance policy ("Policy")
offered by American National Insurance Company ("American National"), a stock
life insurance company. The Policy is designed to provide lifetime insurance
protection to age 95 and at the same time provide flexibility to vary the
frequency and amount of premium payments and to increase or decrease the level
of death benefits payable under the Policy.
The Policy guarantees a death benefit payable at the Insured's death for as long
as the Policy remains in force. The policyowner ("Policyowner") may choose
either death benefit Option A (generally, a level benefit that equals the
Specified Amount of the Policy) or Option B (a variable benefit that generally
equals the Specified Amount plus the Policy's accumulation value). The minimum
Specified Amount for a Policy is $50,000, and the Policy is available only to
persons who have an age last birthday of 75 or less at the time the Policy is
purchased. The Policy provides for a surrender value that can be obtained by
surrender of the Policy, or by policy loans. There is no minimum guaranteed
accumulation value.
You have the right to examine the Policy and return it for a refund within 45
days after the application is signed, within 10 days after you receive the
Policy, or 10 days after American National delivers a notice concerning
cancellation, whichever is later (the "Refund Period"). (See "Refund Privilege",
page 11.)
Premium payments made under the Policy are paid to American National. The amount
of each such premium payment is subject to the deduction of a sales charge of
4%, a transaction charge of $2.00 and a state premium tax deduction which
currently ranges from 0% to 4% depending upon the Policyowner's state of
residence (See "Premium Charges", page 24). The amount of the initial premium
payment remaining after such deductions ("Net Initial Premium") will be
allocated to the money market portfolio of the Variable Insurance Products Fund,
as of the issue date, for the first 15 days of the Refund Period. After the
expiration of such 15 day period, each Net Initial Premium, together with
investment gains thereon, and all subsequent premium payments, net of such
deductions, will be allocated among the fourteen subaccounts ("Subaccounts") of
the American National Variable Life Separate Account ("Separate Account") and/or
the Fixed Account as directed by the Policyowner. The amount of the Policy's
accumulation value, the duration of the death benefit and, if Option B is
selected, the amount of the death benefit above the Specified Amount, will vary
with the investment experience of the selected Subaccounts, and the rate of
interest being paid on the amount allocated to the Fixed Account.
In addition to the charges deducted from premium payments, certain fees and
charges are deducted from the Policy's accumulation value. A daily asset charge
of .90% of the net asset value of each Subaccount on an annual basis will be
deducted. This charge compensates American National for the risk that mortality
experience or expenses will exceed those anticipated. A monthly administrative
charge will also be deducted. During the first twelve (12) policy months, such
monthly administrative charge will range from a maximum of $2.50 plus $0.0632
per $1,000 of Specified Amount at age 0 to a maximum of $2.50 plus $2.59 per
$1,000 of Specified Amount at age 75. Thereafter, such monthly administrative
charge shall be a maximum of $2.50, plus $0.025 per $1,000 of Specified Amount.
Such monthly administrative charge is intended to reimburse American National
for the ordinary, ongoing administrative costs of the Policy. American National
does not intend to make a profit on this monthly administrative charge. In
addition, the monthly cost of insurance and any optional insurance benefits will
also be deducted.
Generally, the Policy will continue in force so long as the accumulation value
is sufficient to pay certain monthly charges imposed in connection with the
Policy. However, American National agrees to keep the Policy in force during the
first two years ("Guaranteed Coverage Benefit") so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not generate positive surrender values, after
payment of insurance and other charges, during the first several policy months.
The assets of each Subaccount of the Separate Account are invested in shares of
a corresponding portfolio of the American National Investments Accounts, Inc.
(the "American National Fund"), Variable Insurance Products Fund and Variable
Insurance Products Fund II. The Variable Insurance Products Fund and the
Variable Insurance Products Fund II will sometimes be referred to, collectively,
as the "Fidelity Funds". The portfolios of the American National Fund and the
portfolios of the Fidelity Funds that are available for investment will
sometimes be referred to, individually, as an "Eligible Portfolio" and,
collectively, as the "Eligible Portfolios". The American National Fund and the
Fidelity Funds are open-end, diversified, series mutual funds. The American
National Fund currently has four portfolios, all of which are Eligible
Portfolios: the AN Money Market Portfolio, the AN Growth Portfolio, the Balanced
Portfolio and the Managed Portfolio. The Fidelity Funds currently have ten
portfolios which are Eligible Portfolios: the Investment Grade Bond, Asset
Manager, the Index 500, the FID Money Market, the Equity-Income, the High
Income, the FID Growth, the Overseas, the Contrafund and the Asset Manager:
Growth Subaccounts. The accompanying prospectuses for the American National Fund
and the Fidelity Funds describe the investment objectives and policies and the
risks of each of the Eligible Portfolios. The Separate Account is organized as a
unit investment trust.
Replacing existing insurance with a Policy or purchasing a Policy as a means of
obtaining additional insurance protection if the purchaser already owns another
variable universal life insurance policy may not be advantageous.
This Prospectus is valid only when accompanied by
Current Prospectuses For the American National Investment Accounts, Inc.,
Variable Insurance Products Fund and Variable Insurance Products Fund II
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE SECURITIES REGULATORY AUTHORITY, NOR HAS
THE COMMISSION, OR ANY STATE SECURITIES REGULATORY AUTHORITY, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1996.
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TABLE OF CONTENTS
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Definitions....................................................... 5
Summary........................................................... 7
The Policy...................................................... 7
The Issuer...................................................... 8
Policy Benefits................................................. 8
Flexibility to Adjust Death Benefits............................ 9
Premiums........................................................ 9
Charges......................................................... 10
Distribution of the Policy...................................... 11
Tax Treatment of the Policy..................................... 11
Refund Privilege................................................ 11
American National Insurance Company and the Separate Account...... 12
American National Insurance Company............................. 12
The Separate Account............................................ 12
The Funds....................................................... 12
Addition, Deletion or Substitution of Investments............... 14
Fixed Account..................................................... 14
Policy Benefits................................................... 15
Purposes of the Policy.......................................... 15
Death Benefit Proceeds.......................................... 15
Death Benefit Options........................................... 15
Accumulation Value.............................................. 18
Benefits at Maturity............................................ 19
Payment of Policy Benefits...................................... 19
General Provisions for Settlement Options......................... 20
Policy Rights..................................................... 20
Loan Benefits................................................... 20
Surrenders...................................................... 21
Transfers....................................................... 22
</TABLE>
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Refund Privilege................................................ 22
Right to Exchange a Policy
for a Fixed-Benefit Insurance Policy............................. 22
Payment and Allocation of Premiums................................ 22
Issuance of a Policy............................................ 22
Premiums........................................................ 22
Allocation of Premiums and Accumulation Value................... 23
Policy Lapse and Reinstatement.................................. 24
Grace Period.................................................... 24
Charges and Deductions............................................ 24
Premium Charges................................................. 24
Charges from Accumulation Value................................. 25
Daily Charges Against the Separate Account...................... 26
General Provisions................................................ 26
The Contract.................................................... 26
Control of Policy............................................... 26
Beneficiary..................................................... 26
Change of Beneficiary........................................... 26
Change in Policyowner or Assignment............................. 27
Payment of Proceeds............................................. 27
Incontestability................................................ 27
Misstatement of Age or Sex...................................... 27
Suicide......................................................... 27
Postponement of Payments........................................ 27
Additional Insurance Benefits (Riders).......................... 27
Distribution of the Policies...................................... 28
Federal Tax Matters............................................... 28
Safekeeping of the Separate Account's Asset....................... 30
Voting Rights..................................................... 30
State Regulations of American National............................ 31
</TABLE>
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DEFINITIONS
Accumulation Value - The total amount that a Policy provides for investment at
any time. It is equal to the total of the accumulation value held in the
Separate Account, the Fixed Account, and the accumulation value held in American
National's General Account which secures policy loans.
Age at Issue - The age at the Insured's last birthday preceding the Policy Date.
American National Fund - The American National Investment Account, Inc., a
series mutual fund.
Attained Age - The Age at Issue of the Insured plus the number of complete
policy years that the Policy has been in force.
Beneficiary - The beneficiary is designated by the Policyowner in the
application. If changed, the beneficiary is as shown in the latest change filed
and recorded with American National. If no beneficiary survives the Insured, the
Insured's estate will be the beneficiary. The interest of any beneficiary is
subject to that of any assignee.
Coverage Premium - The amount specified on the Policy Data Page as the "Coverage
Premium".
Daily Asset Charge - A charge equal to an annual rate of .90% of the average
daily net asset value of each Subaccount of the Separate Account.
Date of Issue - The date of issue set forth in the Policy and any riders thereto
that is used to determine policy anniversary dates, policy years and Monthly
Deduction Date. Policy anniversaries are one-year periods measured from the date
of issue and each succeeding policy anniversary date.
Declared Rates - American National guarantees that it will credit interest in
the Fixed Account at an effective annual rate of at least 4.0%. American
National may, at its discretion, declare higher interest rates for amounts
allocated or transferred to the Fixed Account.
Death Benefit - The amount of insurance coverage provided under the selected
death benefit option of the Policy.
Death Benefit Proceeds - The proceeds payable to the Beneficiary upon receipt by
American National of the proof of the death of the Insured while the Policy is
in force equal to: (1) the Death Benefit; plus (2) any additional life insurance
proceeds provided by any riders; minus (3) any Policy Debt; minus (4) any
Monthly Deduction that may apply to that period, including the deduction for the
month of death.
Eligible Portfolio - A Portfolio of American National Investment Accounts, Inc.,
Fidelity Investments Variable Insurance Product Fund and Fidelity Investments
Variable Insurance Product Fund II which corresponds to and in which a
Subaccount can be invested.
Fidelity Funds - The Variable Insurance Products Fund and the Variable Insurance
Products Fund II, series mutual funds.
Fixed Account - An account that is a part of American National's General Account
to which all or a portion of Net Premiums and transfers may be allocated for
accumulation at fixed rates of interest.
General Account - The general account of American National which includes all of
American National's assets except those assets segregated into its separate
accounts.
Guaranteed Coverage Benefit - American National's agreement to keep the Policy
in force during the first two years if the Guaranteed Coverage Premium is paid
and all other Policy provisions are met.
Guaranteed Coverage Premium - A specified premium which, if paid in advance on a
monthly or yearly basis, will cause American National to keep the Policy in
force during the first two years so long as other Policy provisions are met,
even if the Surrender Value is zero or less.
Insured - The person upon whose life the Policy is issued.
Maturity Date - The later of the date American National pays any Surrender
Value, if the Insured is still living, or the policy anniversary date next
following the Insured's 95th birthday.
Monthly Deduction - The sum of the cost of insurance charge, a charge for any
riders and the administrative charge specified on the policy data page.
Monthly Deduction Date - The same date in each succeeding month as the Date of
Issue except that whenever the Monthly Deduction falls on a date other than a
Valuation Date, the monthly deduction date will be deemed the next Valuation
Date.
Net Premium - The premium less the sales load charge, premium tax charge and
transaction charge.
Planned Periodic Premiums - A selected scheduled premium of a level amount at a
fixed interval. The Policyowner is not required to follow this schedule and
following this schedule does not necessarily ensure that the Policy will remain
in force unless the payments meet the requirements of the Guaranteed Coverage
Premium.
Policy - The variable universal life insurance policy offered by American
National and described in the Prospectus.
Policy Date - The date that all financial, contractual and administrative
requirements have been met and processed for the Policy and any supplements
thereto. This date is the effective date for all coverage applied for in the
original application and any supplemental applications.
Policy Debt - The sum of all unpaid Policy loans and accrued interest thereon.
Policy Exchange Option - The Insured's right, during the first two Policy Years,
to exchange the Policy for a fixed benefit policy on the life of the Insured.
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Policyowner - The owner of the Policy, as designated in the application or as
subsequently changed. If a Policy has been absolutely assigned, the assignee is
the Policyowner. A collateral assignee is not the Policyowner.
Policy Year - The period from one Policy anniversary date until the next Policy
anniversary date.
Satisfactory Proof of Death - Means all of the following must be submitted:
(1) A certified copy of the death certificate;
(2) A claimant statement;
(3) The Policy; and
(4) Any other information that American National may reasonably require to
establish the validity of the claim.
Separate Account - American National Variable Life Separate Account, a separate
account created by American National to receive and invest Net Premiums
allocated by the Policyowner to the Separate Account.
Specified Amount - The minimum death benefit under the Policy so long as the
Policy remains in force. The specified amount is an amount selected by the
policyowner(s) which must be $50,000 or more at Date of Issue.
Subaccount - A subdivision of the Separate Account. Each subaccount invests
exclusively in the shares of a corresponding Eligible Portfolio of the Fund.
Surrender Premium - The amount shown on the Policy Data Page, as changed by
subsequent endorsements, which is used to calculate surrender charges. Such
Surrender Premium does not exceed the Securities and Exchange Commission Annual
Guideline Premium.
Surrender Value - The Policy Accumulation Value on the date of surrender, less
any Policy Debt, and surrender charges.
Valuation Date - A valuation date is each day on which the New York Stock
Exchange is open for trading.
Valuation Period - The period between two successive Valuation Dates, commencing
at the close of the New York Stock Exchange ("NYSE") on one Valuation Date and
ending at the close of the NYSE on the next succeeding Valuation Date.
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SUMMARY
THE FOLLOWING SUMMARY OF THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN
CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, THE DESCRIPTION OF THE POLICY CONTAINED
IN THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN EFFECT AND THAT THERE IS NO
POLICY DEBT. A DIAGRAM DEPICTING HOW A PREMIUM FLOWS THROUGH THE POLICY AND ITS
INVESTMENT PORTFOLIOS, AND HOW EXPENSES, CHARGES AND FEES ARE DEDUCTED IS
INCLUDED IN THE PROSPECTUS APPENDIX AT PAGE 70.
THE POLICY
This variable universal life insurance policy ("Policy") allows the Policyowner,
subject to certain limitations, to make premium payments in any amount and at
any frequency. So long as the Policy remains in force, it will provide for (1)
life insurance coverage on the named Insured up to age 95; (2) Accumulation
Value; (3) surrender rights (including partial and total surrenders); (4) policy
loan privileges; and (5) a variety of optional benefits and riders that may be
added to the Policy for an additional charge.
The Policy is a flexible premium policy because, unlike traditional insurance
policies, there is no fixed schedule for premium payments. The Policyowner may
establish a schedule of premium payments ("Planned Periodic Premiums") which,
during the first two Policy Years, may include the Coverage Premium. The
Policyowner is not required to pay such Planned Periodic Premiums. As explained
further below, the Policyowner's Payment or nonpayment of such Planned Periodic
Premiums will not necessarily keep the Policy in effect or cause the Policy to
lapse.
American National agrees to provide a Guaranteed Coverage Benefit during the
first two Policy Years so long as the Guaranteed Coverage Premium is paid even
though, in certain instances, such payment may not, after deduction of the
Monthly Deduction, generate positive Surrender Values during the first several
Policy months. After the first two Policy Years, the Policy will lapse at any
time the Surrender Value (which is the Policy's Accumulation Value less Policy
Debt and Surrender Charges) is insufficient to pay the Monthly Deductions and a
grace period expires without sufficient additional payment. Such lapse could
occur even if Planned Periodic Premiums are being paid if the Policy's
Accumulation Value has been sufficiently reduced by unfavorable investment
experience.
The Policy is a variable policy because, unlike the fixed benefits of a
conventional life insurance policy, the Death Benefit under the Policy may, and
the Accumulation Value will, if so invested, reflect the investment performance
of the selected Subaccounts of the Separate Account supporting the Policy, as
well as other factors. (See Death Benefit Proceeds, page 15 and Accumulation
Value, page 18.) Accordingly, the Policyowner benefits from any appreciation in
value and bears the investment risk of any depreciation in value of the
underlying assets. The amount and/or duration of the life insurance coverage
provided by the Policy is not guaranteed except under its Guaranteed Coverage
Benefit provision. Further, the Accumulation Values of the Policy are not
guaranteed except in the Fixed Account, and may increase or decrease depending
upon the investment experience of the Subaccounts supporting the Policy.
Net Premiums are allocated by the Policyowner to one or more of these
Subaccounts or to the Fixed Account. The assets of the various Subaccounts are
invested in an Eligible Portfolio.
The American National Investment Account, Inc. is a series mutual fund which
currently has four separate investment portfolios, each of which is an Eligible
Portfolio intended to pursue different investment objectives. The objectives of
these Eligible Portfolios are described in more detail in the accompanying
prospectus for the American National Fund.
The American National Fund's current portfolios and respective investment
objectives are as follows:
The AN Money Market Portfolio seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The Money
Market Portfolio will invest only in money market instruments of high quality as
determined by the American National Fund's investment adviser. This Money Market
Portfolio of the American National Fund shall be referred to herein as "AN Money
Market Portfolio."
The AN Growth Portfolio seeks to achieve capital appreciation, normally through
the purchase of common stocks (although the portfolio's investments are not
restricted to any one type of security). Capital appreciation may also be sought
in other types of securities, including bonds and preferred stocks. This Growth
Portfolio of the American National Fund is referred to herein as the "AN Growth
Portfolio."
The Balanced Portfolio seeks to provide conservation of principal, reasonable
current income and long-term capital appreciation by investing in a balanced
portfolio of fixed-income securities such as bonds, preferred stock and short-
term obligations combined with common stocks and securities convertible into
common stocks.
The Managed Portfolio seeks to achieve growth of capital and/or current income
by investing in a diversified portfolio consisting of, at the American National
Fund's investment adviser's discretion, money market instruments, debt
securities, stock or a combination thereof. It is anticipated that over longer
periods a larger portion of the portfolio will consist of equity securities.
The Fidelity Funds are series mutual funds which currently have a total of ten
separate investment portfolios, all of which are Eligible Portfolios. Each of
such Eligible Portfolios is intended to pursue different investment objectives.
The objectives of these Eligible Portfolios are described in more detail in the
accompanying prospectuses for the Fidelity Funds.
The Fidelity Funds' current Eligible Portfolios and their respective investment
objectives are as follows:
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Investment Grade Bond Portfolio ... seeks as high a level of current income
as is consistent with the preservation of capital by investing in a broad range
of investment-grade fixed-income securities. The Investment Grade Bond
Portfolio will maintain a dollar-weighted average portfolio maturity of ten
years or less.
Asset Manager Portfolio ... seeks high total return with reduced risk over
the long-term by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
Index 500 Portfolio ... seeks to provide investment results that correspond
to the total return (i.e., the combination of capital charges and income) of
common stocks publicly traded in the United States. In seeking this objective,
the Index 500 Portfolio attempts to duplicate the composition and total return
of the Standard & Poor's 500 Composite Stock Price Index while keeping
transaction cost and other expense low. The Index 500 Portfolio is designed as
a long-term investment option.
FID Money Market Portfolio ... seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The
Money Market Portfolio will invest only in high quality U.S. dollar denominated
money market securities of domestic and foreign issuers. The Money Market
Portfolio of the Fidelity Funds shall be referred to herein as "FID Money
Market".
Equity-Income Portfolio ... seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the
Equity-Income Portfolio will also consider the potential for capital
appreciation. The Equity-Income Portfolio's goal is to achieve a yield which
exceeds the composite yield on the securities comprising the Standard & Poor's
500 Composite Stock Price Index.
High Income Portfolio ... seeks to obtain a high level of current income by
investing primarily in high-yielding, high-risk, lower-rated, fixed-income
securities, commonly known as "junk bonds", while also considering growth of
capital.
FID Growth Portfolio ... seeks to achieve capital appreciation. The FID
Growth Portfolio normally purchases common stocks, although its investments are
not restricted to any one type of security. Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks. This
Growth Portfolio of the Fidelity Funds shall be referred to herein as "FID
Growth".
Overseas Portfolio ... seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
Contrafund Portfolio ... seeks capital appreciation by investing in
companies Fidelity Management & Research Company ("FMR") believes to be
undervalued due to an overly pessimistic appraisal by the public. In pursuit
of the fund's goal, FMR looks for companies with the following characteristics:
(i) unpopular, but improvements seem possible due to developments such as
a change in management, a new product line, or an improved balance sheet, (ii)
recently popular, but temporarily out of favor due to short-term or one-time
factors, or (iii) undervalued compared to other companies in the same industry.
Asset Manager: Growth Portfolio ... seeks to maximize total return over the
long term by allocating its assets among stocks, bonds, and short-term
instruments. Allocating among different types of investments allows the fund
to take advantage of opportunities wherever they may occur, but also subjects
the fund to the risks of a given investment type.
There is no assurance that these investment objectives will be met. The
Policyowner bears the entire investment risk of amounts allocated to the
Subaccounts of the Separate Account.
Fixed Account ... Policyholders may also allocate their Net Premiums or
transfer monies to the Fixed Account where they will earn interest. (See Fixed
Account, page 14.)
THE ISSUER
The Policy is issued by American National Insurance Company ("American
National"), which is a Texas stock life insurance company chartered in 1905.
American National established American National Variable Life Separate Account
("Separate Account") to hold the assets supporting the Policy. The Separate
Account currently has fourteen subaccounts which correspond to and are invested
exclusively in, the Eligible Portfolios discussed just above.
For more detailed information about American National and the Separate
Account, see American National and the Separate Account, page 12. The financial
statements for American National can be found beginning on page 49. The
Financial Statements for the Separate Account can be found beginning on page
38.
POLICY BENEFITS
Death Benefit Proceeds and Death Benefit Options. So long as the Policy
remains in force, American National will pay the proceeds provided by the
Policy, less Policy Debt, upon receipt of proof of death of the Insured. The
proceeds may be paid in a lump sum or in accordance with an optional payment
plan.
The Policy provides for two Death Benefit options. Under either option, so
long as the Policy remains in force, the Death Benefit will not be less than
the current Specified Amount of the Policy reduced by any Policy Debt. The
Death Benefit may, however, exceed the Specified Amount, depending upon the
investment experience of the Policy. Death Benefit Option A provides for a
level benefit equal to the current Specified Amount of the Policy, unless the
accumulation value of the Policy on the date of the Insured's death multiplied
by the applicable corridor percentage set forth in the Policy is greater, in
which case the Death Benefit is equal to that larger amount. Death Benefit
Option B provides for a variable benefit equal to the current Specified Amount
of the Policy, reduced by any Policy Debt, plus the Policy's Accumulation Value
on the date of the Insured's death, or if greater, the Accumulation Value of the
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Policy on the date of the Insured's death multiplied by the applicable
corridor percentage set forth in the Policy (See Death Benefit Options, page
15.)
Optional Insurance Benefits. At issue, certain additional optional benefits
may be obtained for an extra premium. These benefits will be described in what
is known as a "rider" to the Policy. The cost of any riders will be deducted as
part of the Monthly Deductions.
An example of such optional benefit is a rider which pays an additional
amount if the Insured dies in an accident.
More detailed information concerning such riders may be obtained from the
agent selling the Policy.
Benefits at Maturity. On the Maturity Date of the Policy, if the Insured is
still living, the policyowner will be paid the Accumulation Value of the Policy
less any Policy Debt.
Accumulation Value Benefits. The Policy's Accumulation Value in the Separate
Account will reflect the amount and frequency of premium payments, the
investment experience of the selected Subaccounts and the interest paid on the
Fixed Account, policy loans, any partial surrenders, and any charges imposed in
connection with the Policy. The entire investment risk of the Separate Account
is borne by the Policyowner. American National does not guarantee a minimum
Accumulation Value in the Separate Account. (See Accumulation Value, page 18.)
The Policyowner may at any time effect a full surrender of the Policy and
receive its Surrender Value. Subject to certain limitations, the Policyowner
may also partially surrender the Policy at any time prior to the Maturity Date
and obtain a portion of the Surrender Value. Partial surrenders will reduce
both the Accumulation Value and the Death Benefit payable under the Policy.
(See Partial Surrenders, page 21.) A charge will be deducted from the amount
paid upon partial surrender. (See Partial Surrender Charge, page 26.) American
National reserves the right to limit the number of partial surrenders permitted
in a Policy year. The minimum amount of any partial surrender is $100.
Policy Loans. So long as the Policy remains in effect, a Policyowner may
borrow money from American National using the Policy as the only security for
the loan. The minimum amount which may be borrowed is $100. The maximum loan
amount during the first two (2) years is 75% of the Surrender Value at the end
of the Valuation Period during which the loan request is received less three
Monthly Deductions. After the first two (2) years the maximum loan amount is
90% of the Surrender Value less three (3) Monthly Deductions. Policyowners in
certain states may borrow 100% of the Surrender Value less three (3) Monthly
Deductions.
Interest on Policy loans accrues on a daily basis at an annual rate of eight
percent (8%). Interest is due and payable on each Policy anniversary date, and
any interest not paid when due becomes part of the Policy loan and will bear
interest at the same rate. The amount of any loans outstanding plus any accrued
interest equals the Policy Debt. When the loan is made or when interest is not
paid when due, an amount sufficient to secure the Policy Debt will
be transferred out of the Separate Account and/or the Fixed Account and into
American National's General Account as security for the loan and will earn
interest at the annual rate of 4%, credited on the Policy anniversary. The
transfer will be made in the proportion designated by the Policyowner or if no
designation is made, the transfers will be made in proportion to the relative
size of the Policy Accumulation Values in the various Subaccounts and/or the
Fixed Account used by the Policyowner(s). Upon partial or full loan repayment,
the portion of the Accumulation Value in the General Account securing the
repaid portion of the Policy loan will be transferred to the Separate Account
and/or the Fixed Account in the same proportion as premiums are allocated,
unless otherwise designated. Any loan transaction will permanently affect the
values of the Policy. If the Policy Debt exceeds the Policy's Accumulation
Value less any surrender charge, the excess must be repaid within the time
period specified in the Policy or the Policy will terminate without value. (See
Loan Benefits, page 20.) Policy loans may have tax consequences. If the Policy
lapses while the loan is outstanding, the Policyowner must include in his or
her taxable income, for the year of lapse, the entire gain under the Policy
(including the loan proceeds in the computation of such gain. Should the
Policy become a modified endowment contract, loans (including loans to pay loan
interest) will generate taxable income to the extent of any gain under the
Policy. Further, a 10% penalty tax also applies to the taxable portion of any
distribution prior to the Insured's age 59-1/2 (See Federal Tax Matters, page
28.).
FLEXIBILITY TO ADJUST DEATH BENEFITS
The Death Benefit option and adjust the Death Benefit by increasing or
decreasing the Specified Amount of the Policy. A change in the Specified Amount
and a change in the Death Benefit option are subject to certain limitations. The
minimum amount of an increase or decrease of the Specified Amount is $5,000, and
no change will be allowed if the resulting Specified Amount is less than
$50,000. Increases in the Specified Amount will require satisfactory evidence of
insurability. Further, an increase in the Specified Amount may not be made if
the Insured's Attained Age is over 75. No decreases in Specified Amount may be
made during the first two (2) Policy Years. (See Change in Death Benefit Option,
and Change in Specified Amount, page 17.)
PREMIUMS
Amounts. The initial premium for the Policy shown on the Policy data page is
due on the Date of Issue and must be paid in order to put the Policy in force.
After the initial premium is paid, unscheduled premiums may be paid in any
amount and at any frequency, subject only to American National's right to
require evidence of insurability and to limit the number and amount of such
payments and the maximum limitations set by federal income tax law. A
Policyowner may also choose a Planned PeriodicPremium which is a selected
schedule of premiums of a level amount at a fixed interval. The Planned
Periodic Premium may include the amount of the Coverage Premium. The amounts
and frequency of the Planned Periodic Premium may be changed at any time
subject to American National's right to limit the amount of such payments.
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Any premium received in an amount different from the Planned Periodic Premium
will be considered an unscheduled premium.
A Policy will lapse when the Surrender Value is insufficient to pay the Monthly
Deduction. A period of 61 days from the date written notice of lapse is mailed
to the Policyowner's last known address will be allowed for the Policyowner to
make sufficient payment to keep the Policy in force for the Policyowner (grace
period).
Therefore, this Policy differs in two important respects from a conventional
life insurance policy. First, the failure to pay a Planned Periodic Premium
will not in itself cause the Policy to lapse. Second, a Policy can lapse even
if Planned Periodic Premiums have been paid unless, during the first two years,
the Guaranteed Coverage Benefit requirements have been met by payment of the
Guaranteed Coverage Premium. (See Payment and Allocation of Premiums, page 22.)
Allocation of Net Premiums. Premium payments received by American National
prior to the Date of Issue are held in its General Account without interest
until the Date of Issue.
Net Premiums received during the 15-day period after the Date of Issue are
allocated to the Subaccount for the Money Market Portfolio of the Fidelity
Funds. Thereafter, such amount allocated to the FID Money Market Account and
Net Premiums paid are allocated as directed by the Policyowner. The Policyowner
may change the allocation instructions for premiums and may also make a special
designation for unscheduled premiums. Subject to certain charges and
restrictions, a Policyowner may transfer amounts among the Subaccounts. (See
Allocation of Premiums and Accumulation Value, page 23.)
CHARGES
Premium Charges. The following sales, premium tax and transaction charges
will be deducted from each premium before placing any amount in a Subaccount or
the Fixed Account.
Sales Charges. A charge of 4% of each premium will be deducted to compensate
American National for its expenses associated with distributing the Policy.
Premium Tax Charges. A percentage of each premium will be deducted to
compensate American National for the actual amount of premium taxes paid to the
various states and other entities charging taxes based on premiums. The current
premium tax rates range from 0% to 4%. (See Premium Charges, page 24.)
Transaction Charges. A charge of $2.00 will be deducted from each premium
payment to compensate American National for billing and confirmations.
Charges from Accumulation Value. The Accumulation Value of the Policy will
be reduced by certain Monthly Deductions and daily asset charges as follows:
a. On each Monthly Deduction Date, the Accumulation Value will be reduced by
the Monthly Deduction, which is equal to:
1. A monthly cost of insurance charge for the current policy month, which
compensates American National for the insurance benefits provided under
the Policy, plus
2. A charge for the cost of any riders, (See Additional Insurance Benefits
(Riders), page 27), plus
3. A monthly administrative charge which, during the first 12 policy months
(and the first 12 policy months with respect to an increase in the
Specified Amount other than from an option change) will range from a
maximum of $2.50 plus $0.0632 per $1,000 of Specified Amount at age 0 to a
maximum of $2.50 plus $2.59 per $1,000 of Specified Amount at age 75, and
shall thereafter be a maximum of $2.50 plus $0.025 per $1,000 of Specified
Amount. This administrative charge reimburses American National for the
ordinary ongoing administrative costs of the Policy. American National
does not intend to make a profit on this charge.
b. On each Valuation Date that American National is open for business, the
Accumulation Value will be reduced by a daily asset charge not to exceed .90%
annually of the average daily net asset value of each Subaccount, but not the
Fixed Account, to compensate American National for mortality and expense
risks incurred in connection with the Policy. (See Daily Charges Against the
Separate Account, page 26.)
Monthly and daily charges will be deducted from the Subaccount(s) and the
Fixed Account on a pro rata basis in proportion to the Accumulation Value of
the Policy held in each Subaccount or the Fixed Account. (See Monthly Deduction
page 25.)
Surrender Charge. If a Policy is surrendered, American National will assess
a surrender charge based upon the amount of premiums paid on the Policy and the
amount of the Surrender Premium shown on the Policy Data Page. Surrender
charges are calculated separately for the original Specified Amount and for
each increase in Specified Amount.
The surrender charge for the initial Specified Amount is applicable until
the 10th anniversary of the Policy and for each increase in Specified Amount
for ten years after the effective date of such increase. Thereafter, there is
no surrender charge.
The surrender charge for issue ages 0-64 is 26% of premiums paid up to the
amount of the Surrender Premium, plus 5% of additional premiums paid up to an
amount equal to nine times the amount of the Surrender Premium.
The surrender charge for issue ages 65-70 is 26% of premiums paid up to the
amount of the Surrender Premium, plus 5% of
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additional premiums paid up to an amount equal to five times the amount of
the Surrender Premium.
The surrender charge for issue ages 71-75 is 26% of premiums paid up to the
amount of the Surrender Premium, plus 5% of additional premiums paid up to an
amount equal to three times the amount of the Surrender Premium.
A table showing the calculation of the surrender charge at various issue
ages and based upon payment of two assumed premium levels is included in the
Prospectus Appendix at page 71.
A partial surrender charge is made against the amount of Accumulation Value
which is surrendered. The charge is in proportion to the charge that would
apply to a full surrender. (See Partial Surrender Charge, page 26.)
No surrender charge will be assessed upon decreases in the Specified Amount
of the Policy. Because the surrender charge may be significant upon early
surrender, prospective Policyowners should purchase a Policy only if they do
not intend to surrender the Policy for a substantial period. (See Surrender
Charge, page 25.)
The surrender charge will not exceed the maximum amount permitted under
applicable law.
Transfer Charge. The first four transfers per Policy Year will be permitted
free of charge. Thereafter, a transfer charge of $25 will be assessed for each
transfer of Accumulation Value among Subaccounts and/or the Fixed Account to
compensate American National for administrative costs in handling the transfer.
The transfer charge will be deducted from the amount transferred. (See Transfer
Charge, page 25.)
No charges are currently imposed upon American National and made against the
Separate Account for federal, state or local taxes other than state premium
taxes. If any such other taxes are imposed upon American National in the
future, American National under federal, state or local tax laws, American
National will make deductions from the Separate Account to pay those taxes.
(See Taxes, page 26.)
In addition, because the Separate Account purchases shares of Eligible
Portfolios, the value of the units in each Subaccount will reflect the net
asset value of shares of Eligible Portfolios held therein, and therefore, the
investment advisory fee and other expenses incurred by the American National
Fund and the Fidelity Funds, as the case may be. (See the Funds, page 12.)
DISTRIBUTION OF THE POLICY
The Policy will be distributed by Securities Management and Research, Inc.
("SM&R") which acts as the principal underwriter of the Policy. SM&R is
registered as a broker-dealer with the Securities and Exchange Commission and
is a member of the National Association of Securities Dealers, Inc. It will
distribute the Policy through its registered representatives and through other
registered broker-dealers with which it has entered into written sales
agreements. (See Distribution of the Policies, page 28.)
TAX TREATMENT OF THE POLICY
The Internal Revenue Code of 1986 ("the Code") defines a modified endowment
insurance contract ("MEC") as one where the cumulative amount paid under the
contract at any time during the first seven contract years exceeds the sum of
the net level premiums which would have been paid on or before that time if the
Policy was paid up after the payment of seven level annual premiums. One may
avoid a Policy becoming an MEC by, among other things, not making excessive
payments or reducing benefits. If American National determines that excessive
premium payments have been made during a Policy Year, it will notify the
Policyowner that the Policy may be treated as an MEC, explain the tax
consequences of such treatment and give the Policyowner the option to have the
excessive Premiums refunded. If requested by the Policyowner, American National
will make such refund. Should one deposit excessive premiums during a Policy
Year, that portion that is returned by the insurance company within 60 days
after the Policy anniversary will reduce premiums paid during the Policy Year
to avoid the Policy becoming an MEC. Should the Policy become an MEC, partial
or full surrenders, assignments and loans (including loans to pay loan
interest) under or secured by the Policy will be taxable to the Policyowner to
the extent of any gain under the Policy. A 10% penalty tax also applies to the
taxable portion of any distribution prior to the Insured reaching age 59-1/2 The
10% penalty tax does not apply if the Insured is disabled as defined under the
Code or if the distribution is paid out in the form of a life annuity on the
life of the Insured or the joint lives of the Insured and Beneficiary.
Like death benefits payable under conventional life insurance policies, life
insurance proceeds payable under a Policy should be completely excludable from
the gross income of the Beneficiary. As a result, the Beneficiary generally
will not be taxed on these proceeds. (See Federal Tax Matters, page 28.)
REFUND PRIVILEGE
The Policyowner is granted a period of time (a "free look period") to
examine a Policy and return it for a refund. The Policyowner may cancel the
Policy within 45 days after the application is signed, within 10 days after the
Policyowner receives the Policy, or 10 days after American National delivers a
notice concerning cancellation, whichever is later. The amount of the refund
will be the amount of the premiums paid adjusted by investment gains during the
15-day period such premiums have been allocated to the FID Money Market
Portfolio and by investment gains and losses thereafter. (See Refund Privilege,
page 22.)
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AMERICAN NATIONAL INSURANCE COMPANY AND
THE SEPARATE ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
American National is a stock life insurance company chartered in 1905 in the
State of Texas. It is licensed to do life insurance business in 49 states, the
District of Columbia, Puerto Rico and Guam. American National's home office is
located at the American National Insurance Building, One Moody Plaza,
Galveston, Texas 77550. The Moody Foundation (the "Foundation"), a charitable
foundation established for charitable and educational purposes, owns
approximately 23.7% of American National's common stock and the Libbie S. Moody
Trust, a private trust, owns approximately 37.6% of such shares. Robert L.
Moody ("RLM"), Chairman of the board and a director of American National, RLM's
son, Ross R. Moody, and Frances Moody Newman, RLM's mother, are trustees of the
Foundation.
The Moody National Bank of Galveston (the "Bank") is trustee of the Libbie
S. Moody Trust. RLM is President of the Bank and of Moody Bank Holding Company,
Inc. ("MBHC"), the Bank's controlling stockholder. RLM is also Chairman of the
Board and President of Moody Bancshares, Inc. ("Bancshares"), MBHC's sole
shareholder. The Three R Trusts, trusts established by RLM for the benefit of
his children, own 100% of Bancshare's Class B stock (which elects a majority of
Bancshares' directors) and 47.5% of its Class A Stock. The trustee of the Three
R Trusts is Irwin M. Herz, Jr., a partner in Greer, Herz & Adams, 18th Floor,
One Moody Plaza, Galveston, Texas, General Counsel to American National, the
Bank, Bancshares, MBHC, the American National Fund and SM&R.
American National's total assets on December 31, 1995 were $5,770,926,692 on
a statutory basis.
American National writes life, health and accident insurance and annuities.
American National's Financial Statements appear on pages 49 through 64.
THE SEPARATE ACCOUNT
The Separate Account was established by American National on July 30, 1987
pursuant to the insurance laws of the State of Texas. American National is the
depositor of the Separate Account. Under Texas law, the assets of the Separate
Account are held exclusively for the benefit of Policyowners and persons
entitled to payments under the Policies. At present the Separate Account is
used only to support variable universal life insurance policies. American
National is the legal holder of the assets in the Separate Account and will at
all times maintain assets in the Separate Account with a total market value at
least equal to the reserve and other contract liabilities for the Separate
Account. The assets of the Separate Account attributable to the Policies are
not chargeable with liabilities arising out of any other business which
American National may conduct. Income, as well as both realized and unrealized
gains or losses from the assets of the Separate Account, is credited to or
charged against the Separate Account without regard to income, gains or losses
arising out of any other business that American National may
conduct. Nevertheless, these assets shall be available to cover the liabilities
of American National's General Account, but only to the extent that the Separate
Account's assets exceed its liabilities arising under the Policies supported by
it. In addition to these assets, the Separate Account assets may include
accumulations of the charges American National makes against Policies
participating in the Separate Account. From time to time, any such assets due
American National may be transferred in cash to American National's General
Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust, which is a type of investment company. Such registration does
not or practices of the Separate Account. For state law purposes, the Separate
Account is treated as a division of American National. There are currently
fourteen Subaccounts within the Separate Account available to Policyowners and
each invests only in corresponding portfolios of the American National and
Fidelity Funds. The Separate Account Financial Statements appear on pages 38
through 46.
THE FUNDS
Each Subaccount of the Separate Account will only invest in the shares of a
corresponding Eligible Portfolio. The American National Fund and the Fidelity
Funds are registered with the SEC under the 1940 Act as open-end diversified,
series management investment companies.
The Separate Account will purchase and redeem shares of the Eligible
Portfolios at net asset value. Shares will be redeemed to the extent necessary
for American National to collect charges under the Policy, to pay the Surrender
Value upon full or partial surrenders of the contracts, to make policy loans,
to provide benefits under the Policy, or to transfer assets from one Subaccount
to another, or to the Fixed Account, as requested by Policyowners. Any
dividend or capital gain distribution received from an Eligible Portfolio will
be reinvested immediately at net asset value in shares of that Eligible
Portfolio and retained as assets of the corresponding subaccount.
The investment objectives and policies of each Eligible Portfolio are
summarized on page 13. There is no assurance that any of the Eligible
Portfolios will achieve their stated objectives. More detailed information,
including a description of investment objectives, restrictions, expenses and
risks, is in the prospectuses for the American National Fund and Fidelity Funds
which must accompany or precede this Prospectus and which should be read
carefully together with this Prospectus and retained.
Each Policyowner should periodically consider the allocation among the
Subaccounts and the Fixed Account in light of current market conditions and the
investment risks attendant to investing in the various Eligible Portfolios.
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The American National Fund currently has an AN Money Market, an AN Growth, a
Balanced Portfolio, and a Managed Portfolio.
The AN Money Market Portfolio seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The AN
Money Market Portfolio will invest only in money market instruments of high
quality as determined by the American National Fund's adviser.
The AN Growth Portfolio seeks to achieve capital appreciation, normally
through the purchase of common stocks (although the portfolio's investments are
not restricted to any one type of security). Capital appreciation may also be
sought in other types of securities, including bonds and preferred stocks.
The Balanced Portfolio seeks to provide conservation of principal, reasonable
current income and long-term capital appreciation by investing in a balanced
portfolio of fixed-income securities such as bonds, preferred stock and short-
term obligations combined with common stocks and securities convertible into
common stocks.
The Managed Portfolio seeks to achieve growth of capital and/or current
income by investing in a diversified portfolio consisting of, at the American
National Fund's investment adviser's discretion, money market instruments, debt
securities, stock or a combination thereof. It is anticipated that over longer
periods a larger portion of the portfolio will consist of equity securities.
SM&R is the investment adviser and manager of the American National Fund. It
also provides investment advisory and portfolio management services to American
National and other clients. It maintains a staff of experienced investment
personnel and related support facilities. The combined investment advisory and
management and administrative services fees that the American National Funds
pay SM&R exceed the industry average for advisory and administrative fees.
Detailed information about the American National Funds' fees is in the American
National Funds Prospectus.
The Fidelity Fund's current Eligible Portfolios are the Investment Grade
Bond Portfolio, the Asset Manager Portfolio, the Index 500 Portfolio, the FID
Money Market Portfolio, the Equity-Income Portfolio, High Income Portfolio, FID
Growth Portfolio, Overseas Portfolio, Contrafund Portfolio and the Asset
Manager: Growth Portfolio and their respective investment objectives are as
follows:
Investment Grade Bond Portfolio ... seeks as high a level of current income
as is consistent with the preservation of capital by investing in a broad range
of investment-grade fixed-income securities. The Investment Grade Bond
Portfolio will maintain a dollar-weighted average portfolio maturity of ten
years or less.
Asset Manager Portfolio ... seeks high total return with reduced risk over
the long-term by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
Index 500 Portfolio ... seeks to provide investment results that correspond
to the total return (i.e., the combination of capital charges and income) of
common stocks publicly traded in the United States. In seeking this objective,
the Index 500 Portfolio attempts to duplicate the composition and total return
of the Standard & Poor's 500 Composite Stock Price Index while keeping
transaction cost and other expense low. The Index 500 Portfolio is designed as
a long-term investment option.
FID Money Market Portfolio ... seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The
FID Money Market Portfolio will invest only in high quality U.S. dollar
denominated money market securities of domestic and foreign issuers.
Equity-Income Portfolio ... seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the
Equity-Income Portfolio will also consider the potential for capital
appreciation. The Equity-Income Portfolio's goal is to achieve a yield which
exceeds the composite yield on the securities comprising the Standard & Poor's
500 Composite Stock Price Index.
High Income Portfolio ... seeks to obtain a high level of current income by
investing primarily in high-yielding, high-risk, lower-rated, fixed-income
securities, commonly known as "junk bonds", while also considering growth of
capital.
FID Growth Portfolio ... seeks to achieve capital appreciation. The FID
Growth Portfolio normally purchases common stocks, although its investments are
not restricted to any one type of security. Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks.
Overseas Portfolio ... seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
Contrafund Portfolio ... seeks capital appreciation by investing in
companies FMR believes to be undervalued due to an overly pessimistic appraisal
by the public. In pursuit of the fund's goal, FMR looks for companies with the
following characteristics: (i) unpopular, but improvements seem possible due to
developments such as a change in management, a new product line, or an improved
balance sheet, (ii) recently popular, but temporarily out of favor due to
short-term or one-time factors, or (iii) undervalued compared to other
companies in the same industry.
Asset Manager: Growth Portfolio ... seeks to maximize total return over the
long term by allocating its assets among stocks, bonds, and short-term
instruments. Allocating among different types of investments allows the fund
to take advantage of opportunities wherever they may occur, but also subjects
the fund to the risks of a given investment type.
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FMR, the Fidelity Funds' investment advisor, was founded in 1946. FMR
provides a number of mutual funds and other clients with investment research
and portfolio management services. It maintains a large staff of experienced
investment personal and a full compliment of related support facilities.
Fidelity Management & Research (U.K.) Inc. ("FMR U.K.") and Fidelity Management
and Research (Far East) Inc. ("FMR Far East") are wholly owned subsidiaries of
FMR that provide research with respect to foreign securities. FMR U.K. and FMR
Far East maintain their principal business offices in London and Tokyo,
respectively. As of December 31, 1995, FMR advised funds having more than 22
million shareholder accounts with a total value of more than $270 billion.
Fidelity Distributors Corporation distributes shares for the Fidelity Funds.
FMR Corp. is the holding company for the Fidelity companies. Through ownership
of voting common stock, Edward C. Johnson 3d, President and a Trustee of the
Fidelity Funds, and various trusts for the benefit of Johnson family members
form a controlling group with respect to FMR Corp.
Each such Eligible Portfolio's total operating expenses will include fees
for management, shareholder services and other expenses, such as custodial,
legal, and other miscellaneous fees.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
American National reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Separate Account or that the Separate Account may purchase. If the shares of
an Eligible Portfolio are no longer available for investment or if in American
National's judgement further investment in any Eligible Portfolio should become
inappropriate in view of the purposes of the Separate Account, American National
may redeem the shares, if any, of that Eligible Portfolio, and substitute shares
of another registered open-end management company. American National will not
substitute any shares attributable to a Policyowner's interest in a Subaccount
of the Separate Account without notice and prior approval of the SEC and
possibly state insurance authorities, to the extent required by the 1940 Act or
other applicable law. The Separate Account may, to the extent permitted by laws,
purchase other securities for other contracts or permit a conversion between
contracts upon request by the Policyowners.
American National also reserves the right to establish additional Subaccounts of
the Separate Account, each of which would invest in shares corresponding to a
new portfolio of the American National Fund, the Fidelity Funds or in shares of
another investment company having a specified investment objective. American
National may, in its sole discretion, establish new Subaccounts or eliminate one
or more Subaccounts if marketing needs, tax considerations or investment
conditions warrant. Any new Subaccounts may be made available to existing
Policyowners on a basis to be determined by American National.
If any of these substitutions or changes are made, American National may by
appropriate endorsement change the Policy to reflect the substitution or
change. If American National deems it to be in the best interest of
Policyowners, and subject to any approvals that may be required under
applicable law, the Separate Account may be operated as a management company
under the 1940 Act, it may be de-registered under that Act if registration is
no longer required, or it may be combined with other American National separate
accounts. To the extent permitted by applicable law, American National may also
transfer the assets of the Separate Account associated with the Policies to
another separate account. In addition, American National may, when permitted by
law, restrict or eliminate any voting rights as to the Separate Account.
The Policyowner will be notified of any material change in the investment
policy of any portfolio in which the owner has an interest.
FIXED ACCOUNT
Policyowners may elect to allocate all or a portion of their Net Premium
payments to the Fixed Account and, subject to certain limitations, they may
also transfer monies from the Separate Account to the Fixed Account or from the
Fixed Account to the Separate Account. (See Transfers, page 22.)
Payments allocated to the Fixed Account and transfers from the Separate Account
to the Fixed Account are placed in the General Account of American National
which supports insurance and annuity obligations. The General Account includes
all of American National's assets, except those assets segregated in its
separate accounts. American National has the sole discretion to invest the
assets of its General Account, subject to applicable law. American National
bears an investment risk for all amounts allocated or transferred to the Fixed
Account and interest credited thereto, less any deduction for charges and
expenses, whereas the Policyowner bears the investment risk that the Declared
Rate described below, will fall to a lower rate after the expiration of a
Declared Rate period. Because of exemptive and exclusionary provisions,
interests in the General Account have not been registered under the Securities
Act of 1933 (the "1933 Act") nor is the General Account registered as an
investment company under the 1940 Act. Accordingly, neither the General Account
nor any interest therein is generally subject to the provisions of the 1933 or
1940 Act. We understand that the staff of the SEC has not reviewed the
disclosures in this Prospectus relating to the Fixed Account portion of the
Contract; however, disclosures regarding the Fixed Account portion of the
Contract may be subject to generally applicable provisions of the federal
securities
14
<PAGE>
laws regarding the accuracy and completeness of statements made in prospectuses.
American National guarantees that it will credit interest to the Fixed Account
at an effective annual rate of at least 4.0% compounded daily. American National
may, at its discretion, declare higher interest rate(s) for amounts allocated or
transferred to the Fixed Account ("Declared Rate(s)"). Each month American
National will establish the Declared Rate and the Policyowner will earn interest
established by American National for each month.
POLICY BENEFITS
PURPOSES OF THE POLICY
The Policy is designed to provide the Policyowner with both lifetime
insurance protection to the Policy anniversary after the Insured's 95th
birthday and flexibility in connection with the amount and frequency of premium
payments and with the level of life insurance proceeds payable under the
Policy. Unlike traditional life insurance, the Policyowner is not required to
pay scheduled premiums to keep a Policy in force, but may, subject to certain
limitations, vary the frequency and amount of premium payments. The Policyowner
may elect to pay the Guaranteed Coverage Premium necessary to cause the
Guaranteed Coverage Benefit provision to remain in effect. Moreover, the Policy
allows a Policyowner to adjust the level of Death Benefits payable under the
Policy without having to purchase a new policy by increasing (with evidence of
insurability) or decreasing the Specified Amount. An increase in the Specified
Amount during the first two years will increase the Guaranteed Coverage Premium
required. Thus, as insurance needs or financial conditions change, the
Policyowner has the flexibility to adjust life insurance benefits and vary
premium payments.
The Policy varies from conventional fixed benefit life insurance in a number
of additional respects. Because the Death Benefit may, and the Accumulation
Value will, vary with the investment experience of the chosen Subaccounts of
the Separate Account, the Policyowner benefits from any appreciation in value
of the underlying assets, but bears the investment risk of any depreciation in
value. The Policy will lapse at any time after the first two (2) Policy Years
that its Surrender Value (which is the Policy's Accumulation Value less Policy
Debt and Surrender Charges) is insufficient to pay the Monthly Deductions and a
grace period expires without sufficient additional payment. As a result,
whether or not a Policy continues in force may depend in part upon the
investment experience of the chosen Subaccounts. The failure to pay a Planned
Periodic Premium will not necessarily cause the Policy to lapse, but the Policy
could lapse even if Planned Periodic Premiums have been paid if the Policy's
Accumulation Value has been sufficiently reduced by unfavorable investment
experience. American National agrees to keep the Policy in force during the
first two years and provide a Guaranteed Coverage Benefit during that period so
long as the Guaranteed Coverage Premium is paid even though, in certain
instances, the minimum payment allowed by contract will not, after the payment
of monthly insurance and administrative charges, generate positive Surrender
Values during the first several policy months.
DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, American National will, upon of a Policy
in accordance with the Death Benefit option in effect at the time determined at
the end of the Valuation Period during which the Insured's death occurred. The
Death Benefit Proceeds may be paid in a lump sum or under one or more of the
payment options set forth in the Policy. (See Optional Methods of Payment, page
19.)
Subject to the rights of any assignee, Death Benefit Proceeds will be paid
to the surviving Beneficiary or Beneficiaries specified in the application or
as subsequently changed. If no Beneficiary is chosen, the proceeds will be paid
to the Insured's estate.
DEATH BENEFIT OPTIONS
The Policy provides two Death Benefit options and the Policyowner selects
one of such options in the application. The Death Benefit under either option
will never be less than the current Specified Amount of the Policy less Policy
Debt as long as the Policy remains in force. (See Policy Lapse and
Reinstatement, page 24.) The minimum initial Specified Amount currently is
$50,000.
Option A. Under Option A, the Death Benefit is the current Specified Amount
of the Policy or, if greater, the applicable percentage of Accumulation Value
on the date of death. The applicable percentage is 250% for Insureds with an
attained age 40 or younger on the Policy anniversary prior to the date of
death. For Insureds with an attained age over 40 on that Policy anniversary,
the percentage declines as shown in the Corridor Percentage Table below.
Accordingly, under Option A the Death Benefit will remain level at the
Specified Amount unless the applicable percentage of Accumulation Value exceeds
the current Specified Amount, in which case the amount of the Death Benefit
will vary as the Accumulation Value varies. Policyowners who prefer to have
favorable investment performance, if any, reflected in higher Accumulation
Value, rather than increased insurance coverage, generally should select Option
A.
OPTION A EXAMPLE. For purposes of this example, assume that the Insured's
attained age is between 0 and 40 and that there is no Policy Debt. Under Option
A, a Policy with a $50,000 Specified Amount will generally pay $50,000 in Death
Benefits. However, because the Death Benefit must be equal to or greater
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<PAGE>
than 250% of Accumulation Value, anytime the Accumulation Value of the
Policy exceeds $20,000, the Death Benefit will exceed the $50,000 Specified
Amount. Each additional dollar added to Accumulation Value above $20,000 will
increase the Death Benefit by $2.50. Thus, if the Accumulation Value exceeds
$20,000 and increases by $100 because of investment performance or premium
payments, the Death Benefit will increase by $250. A Policy with an
Accumulation Value of $30,000 will provide a Death Benefit of $75,000 ($30,000
x 250%); an Accumulation Value of $40,000 will provide a Death Benefit of
$100,000 ($40,000 x 250%); and, an Accumulation Value of $50,000 will provide a
Death Benefit of $125,000 ($50,000 x 250%).
Similarly, so long as Accumulation Value exceeds $20,000 each dollar taken
out of Accumulation Value will reduce the Death Benefit by $2.50. If, for
example, the Accumulation Value is reduced from $25,000 to $20,000 because of
partial withdrawals, charges or negative investment performance, the Death
Benefit will be reduced from $62,500 to $50,000. If at any time, however, the
Accumulation Value multiplied by the applicable percentage is less than the
Specified Amount, the Death Benefit will equal the current Specified Amount of
the Policy.
The applicable corridor percentage becomes lower as the Insured's attained
age increases. If the attained age of the Insured at the beginning of the
Policy Year in the example above were, for example, 50 (rather than between 0
and 40), the applicable percentage would be 185%. The Death Benefit would not
exceed the $50,000 Specified Amount unless the accumulation value exceeded
approximately $27,028 (rather than $20,000), and each $1 then added to or taken
from the Accumulation Value would change the Death Benefit by $1.85 (rather
than $2.50).
Option B. Under Option B, the Death Benefit is equal to the current Specified
Amount plus the Accumulation Value of the Policy or, if greater, the applicable
corridor percentage of the Accumulation Value on the date of death. The
applicable corridor percentage is the same as under Option A: 250% for Insureds
with an attained age 40 or younger on the Policy anniversary prior to the date
of death, and for Insureds with an attained age over 40 on that Policy
anniversary the percentage declines as shown in the Corridor Percentage Table.
Accordingly, under Option B the amount of the Death Benefit will always vary as
the Accumulation Value varies (but will never be less than the Specified
Amount).
Policyowners who prefer to have favorable investment performance, if any,
reflected in increased insurance coverage, rather than higher Accumulation
Values, generally should select Option B.
OPTION B EXAMPLE. For purposes of this example, assume that the Insured is
age 40 or younger and that there is no Policy Debt. Under Option B, a Policy
with a Specified Amount of $50,000 will generally provide a Death Benefit of
$50,000 plus Accumulation value. Thus, for example, a Policy with an
Accumulation Value of $5,000 will have a Death Benefit of $55,000 ($50,000 +
$5,000); an Accumulation Value of $10,000 will provide a Death Benefit of
$60,000 ($50,000 + $10,000). The Death Benefit, however, must be at least 250%
of Accumulation Value. As a result, if the Accumulation Value of the Policy
exceeds $33,334, the Death Benefit will be greater than the Specified Amount
plus Accumulation Value. Each additional dollar of Accumulation Value above
$33,334 will increase the Death Benefit by $2.50. Thus, if the Accumulation
Value exceeds $33,334 and increases by $100 because of investment performance
or premium payments, the Death Benefit will increase by $250. A Policy with an
Accumulation Value of $20,000 will provide a Death Benefit of $70,000 (Specified
Amount $50,000 plus $20,000 Accumulation Value); an Accumulation Value of
$30,000 will provide a Death Benefit of $80,000 ($50,000 plus $30,000); and an
Accumulation Value of $50,000 will provide a Death Benefit of $125,000 ($50,000
x 250% is greater than $50,000 plus $50,000).
Similarly, any time Accumulation Value exceeds $33,334, each dollar taken
out of Accumulation Value will reduce the Death
- --------------------------------------------------------------------------------
CORRIDOR PERCENTAGE TABLE
Attained Age Corridor Percentage Attained Age Corridor Percentage
40 or younger 250 50 185
41 243 51 178
42 236 52 171
43 229 53 164
44 222 54 157
45 215 55 150
46 209 56 146
47 203 57 142
48 197 58 138
49 191 59 134
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Attained Age Corridor Percentage
60 130
61 128
62 126
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
73 109
74 107
75 to 90 105
91 104
92 103
93 102
94 101
95 100
Benefit by $2.50. If, for example, the Accumulation Value is reduced from
$40,000 to $35,000 because of partial surrenders, charges, or negative
investment performance, the Death Benefit will be reduced from $100,000 to
$87,500. If at any time, however, the Accumulation Value multiplied by the
applicable corridor percentage is less than the Specified Amount plus the
Accumulation Value, then the Death Benefit will be the current Specified Amount
plus the Accumulation Value of the Policy.
The applicable percentage becomes lower as the Insured's attained age
increases. If the attained age of the Insured in the example above were, for
example, 50 (rather than 40 or younger), the applicable percentage would be
185%. Assuming a Specified Amount of $50,000 the amount of the Death Benefit
would be the sum of the Accumulation Value plus $50,000 unless the Accumulation
Value exceeded $58,824 (rather than $33,334), and each $1 then added to or
taken from the Accumulation Value would change the Death Benefit by $1.85
(rather than $2.50).
Change in Death Benefit Option. The Death Benefit option in effect may be
changed at any time by sending American National a written request for change.
The effective date of such a change will be the Monthly Deduction Date on or
following the date the change is approved by American National. A change may
have Federal Tax consequences.
If the Death Benefit option is changed from Option A to Option B, the
Specified Amount after the change will equal the Specified Amount before the
change minus the Accumulation Value on the effective date of the change. If the
Death Benefit option is changed from Option B to Option A, the Specified Amount
under Option A after the change will equal the Death Benefit under Option B on
the effective date of change.
No charges will be imposed upon a change in Death Benefit option, nor will
such a change in and of itself result in an immediate change in the amount of a
Policy's Accumulation Value. However, a change in the Death Benefit option may
affect the monthly cost of insurance charge since this charge varies with the
net amount at risk, which is the amount by which the Death Benefit that would
be payable on a Monthly Deduction Date exceeds the Accumulation Value on that
date. Changing from Option B to Option A will generally decrease in the future
the net amount at risk, and therefore the cost of insurance charges. Changing
from Option A to Option B generally will not change the net amount at risk.
Such a change, however, will result in an increase in the cost of insurance
charges over time, since the cost of insurance rates increase with the
Insured's age. If, however, the change was from Option A to Option B, the cost
of insurance rate may be different for the increased Death Benefit. (See
Charges and Deductions-Cost of Insurance, page 25 and Federal Tax Matters, page
28.)
Change in Specified Amount. Subject to certain limitations, a Policyowner
may increase the Specified Amount of a Policy at any time and may decrease the
Specified Amount at any time after the first two (2) Policy Years. A change in
Specified Amount may affect the cost of insurance rate and the net amount at
risk, both of which may affect a Policyowner's cost of insurance charge and
have Federal Tax consequences. (See Charges and Deductions-Cost of Insurance,
page 25 and Federal Tax Matters, page 28.)
An increase or decrease in the Specified Amount will become effective on the
Monthly Deduction Date on or following the date a written request is approved
by American National. American National may limit the number and size of
changes in a Policy Year.
The Specified Amount remaining in force after any requested decrease may not
be less than $50,000. In addition, if following the decrease in Specified
Amount, the Policy would not comply with the maximum premium limitations
required by federal tax law, the decrease may be limited or Accumulation Value
may be returned to the Policyowner at the Policyowner's election, to the extent
necessary to meet these requirements. For purposes of determining the cost of
insurance rate, a decrease in the Specified Amount will reduce the Specified
Amount in the following order:
(a) The Specified Amount provided by the most recent increase;
(b) The next most recent increases successively; and
(c) The initial Specified Amount.
For an increase in the Specified Amount, a written supplemental application
must be submitted. American National may also require additional evidence of
insurability. Although an increase need not necessarily be accompanied by an
additional premium, in certain cases an additional premium will be required to
effect the requested increase. (See Premiums Upon Increase in Specified Amount,
page 23.) The minimum amount of any increase is
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<PAGE>
$5,000, and an increase cannot be made if the Insured's attained age is over
75. An increase in the Specified Amount will result in certain increased
charges, which will be deducted from the Accumulation Value of the Policy on
each Monthly Deduction Date. An increase in the Specified Amount may also
increase surrender charges. An increase in the Specified Amount during the time
the Guaranteed Coverage Benefit provision is in effect will increase the
Guaranteed Coverage Premium requirements. (See Charges and Deductions, page 24.)
Each Policyowner who elects to increase the Specified Amount of a Policy
will have a "free look period", which right will apply only to the increase in
Specified Amount and not the entire Policy. These rights are comparable to the
rights afforded to a purchaser of a new Policy. (See Refund Privilege, page
22.) The Policyowner may cancel the increase in Specified Amount within 45 days
after the application for the increase is signed, within ten (10) days after
the Policyowner has received the Policy as increased, or ten (10) days after
American National delivers a notice concerning cancellation, whichever is
later. The amount of the refund is the greater of Premiums paid attributable to
such increase in Specified Amount or the amount of such Premiums paid adjusted
by investment gains or losses.
Methods of Affecting Insurance Protection. A Policyowner may increase or
decrease the pure insurance protection provided by a Policy--the difference
between the Death Benefit and the Accumulation Value--in several ways as
insurance needs change. These ways include increasing or decreasing the
Specified Amount of insurance, changing the level of premium payments, and
making a partial surrender of the Policy. Certain changes may have Federal Tax
consequences. Although the consequences of each of these methods will depend
upon the individual circumstances, they may be generally summarized as follows:
(a) A decrease in the Specified Amount will, subject to the applicable corridor
percentage limitations, decrease the insurance protection and the cost of
insurance charges under the Policy without reducing the Accumulation Value.
(b) An increase in the Specified Amount may increase the amount of pure
insurance protection, depending on the amount of Accumulation Value and the
resultant applicable corridor percentage limitation. If the insurance
protection is increased, the Policy charges generally will increase as well.
(c) An increased level of premium payments may reduce the pure insurance
protection, until the applicable corridor percentage of Accumulation Value
exceeds the Specified Amount if Option A is in effect. Increased premiums
should also increase the amount of funds available to keep the Policy in
force.
(d) A reduced level of premium payments generally will increase the amount of
pure insurance protection, depending on the applicable corridor percentage
limitations. It may also result in a reduced amount of Accumulation Value
and will increase the possibility that the Policy will lapse.
(e) A partial surrender will reduce the Death Benefit. However, under Option A,
it only affects the amount of pure insurance protection and charges under
the Policy if the percentage from the Corridor Percentage Table is
applicable in determining the Death Benefit. Otherwise, the decrease in the
Death Benefit is offset by the amount of Accumulation Value withdrawn. The
primary use of a partial surrender is to withdraw Accumulation Value.
(f) A change in the Death Benefit Option may result in an increase or decrease
in the net amount at risk, depending on the circumstances of the Policy.
Duration of the Policy. The duration of the Policy generally depends upon
the Accumulation Value. The Policy will remain in force so long as the
Surrender Value is sufficient to pay the Monthly Deduction. Where, however, the
Surrender Value is insufficient to pay the Monthly Deduction and the grace
period expires without an adequate payment by the Policyowner, the Policy will
lapse and terminate without value. (See Policy Lapse and Reinstatement, page
24.) American National agrees to keep the Policy in force during the first two
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payment
allowed by contract will not, after the payment of Monthly Deductions, generate
positive Surrender Values during its first several policy months.
ACCUMULATION VALUE
The Policy's Accumulation Value in the Separate Account or the Fixed Account
will reflect the investment performance of the chosen Subaccounts of the
Separate Account or the rate of interest paid on the Fixed Account, the net
premiums paid, any partial surrenders, and the charges assessed in connection
with the Policy. A Policyowner may at any time surrender the Policy and receive
the Policy's Surrender Value. There is no guaranteed minimum Accumulation Value.
Determination of Accumulation Value. Accumulation Value is determined on
each Valuation Date. On the Date of Issue, Accumulation Value will equal the
Net Premium, reduced by the Monthly Deductions. Thereafter, on each Valuation
Date, the Accumulation Value of a Policy will equal:
(a) The aggregate of the values attributable to the Policy in each of the
Subaccounts on the Valuation Date, determined for each Subaccount by
multiplying the Subaccount's unit value by the number of units allocated to
the Policy; plus
(b) The value attributable to the Policy in the Fixed Account; plus
(c) Any Accumulation Value impaired by Policy Debt held in the General
Account; plus
(d) Any Net Premiums received on that Valuation Date; less
(e) Any partial surrender, and its charge, made on that Valuation Date; less
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<PAGE>
(f) Any Monthly Deduction to be made on that Valuation Date; less
(g) Any federal or state income taxes charged against the Accumulation Value.
In computing the Policy's Accumulation Value, the number of Subaccount units
allocated to the Policy is determined after any transfers among Subaccounts, or
the Fixed Account, (and deduction of transfer charges) but before any other
Policy transactions, such as receipt of net premiums and partial surrenders, on
the Valuation Date. Because the Accumulation Value is dependent upon a number
of variables, including the investment performance of the chosen Subaccounts,
the frequency and amount of premium payments, transfers, partial surrenders,
loans, and charges assessed in connection with the Policy, a Policy's
Accumulation Value cannot be predetermined.
The Unit Value. The unit value of each Subaccount reflects the investment
performance of that Subaccount. The unit value of each Subaccount shall be
calculated by (i) multiplying the per share net asset value of the
corresponding Eligible Portfolio on the Valuation Date times the number of
shares held by the Subaccount, after the purchase or redemption of any shares
on that date; minus (ii) a charge not exceeding an annual rate of .90% for
mortality and expense risk; and (iii) dividing the result by the total number
of units held in the Subaccount on the Valuation Date, before the purchase or
redemption of any units on that date.
Valuation Date and Valuation Period. A Valuation Date is each day on which
the New York Stock Exchange ("NYSE") is open for trading. A Valuation Period is
the period between two successive Valuation Dates, commencing at the close of
the NYSE on each Valuation Date and ending at the close of the NYSE on the next
succeeding Valuation Date.
BENEFITS AT MATURITY
If the Insured is living, American National will pay the Accumulation Value
of the Policy, less Policy Debt, to the Policyowner on the Maturity Date. The
Policy will mature on the Policy anniversary after the Insured's 95th birthday,
if living.
PAYMENT OF POLICY BENEFITS
Death Benefit proceeds under the Policy will usually be paid within seven days
after American National receives Satisfactory Proof of Death. Accumulation Value
benefits will ordinarily be paid within seven days of receipt of a written
request. American National reserves the right to defer payment of any partial
and full Surrenders, refunds or Policy Loans which would be derived from a
Premium payment made by a check which has not cleared the banking system.
Payments may also be postponed in certain circumstances. (See Postponement of
Payments, page 27.) The Policyowner may decide the form in which the benefits
will be paid. During the Insured's lifetime, the Policyowner may arrange for the
Death Benefit proceeds to be paid in a lump sum or under one or more of the
optional methods of payment described below. These choices are also available if
the Policy is surrendered or matures. If no election is made, American National
will pay the benefits in a lump sum.
When Death Benefits are payable in a lump sum and no election of an optional
method of payment is in force at the death of the Insured, the Beneficiary may
select one or more of the optional methods of payment.
An election or change of method of payment must be in writing. A change in
Beneficiary revokes any previous settlement election. Further, if the Policy is
assigned, any amount due to the assignee will first be paid in one sum. The
balance, if any, may be applied under any payment option. Once payments have
begun, the payment option may not be changed.
Optional Methods of Payment. In addition to a lump sum payment of benefits
under the Policy, any proceeds to be paid under the Policy may be paid in any
of four methods. Any amount left with American National for payment under a
settlement option will be transferred to its General Account and will not be
affected by the investment performance associated with the Separate Account.
American National may make other options available in the future.
The Policyowner may elect to have the proceeds of this Policy paid under any
of the payment options described below.
When proceeds become payable in accordance with a settlement option, the
Policy will be exchanged for a supplementary contract specifying all rights and
benefits. The effective date will be the date of the Insured's death or other
termination of the Policy.
Should the Beneficiary die before all proceeds have been paid, the remaining
proceeds will be paid either to the estate of the Beneficiary or in any other
manner provided for in the supplementary contract or as otherwise provided for
under applicable law.
OPTION 1. Installments for a Fixed Period. Equal installments will be paid
for a fixed number of years. Installments will include interest at the
effective rate of 3-1/2% per year. At American National's option, additional
interest may be paid.
OPTION 2. Installments for a Fixed Period and Life Thereafter. Equal monthly
installments will be paid for as long as the payee lives with installments
certain for a fixed period. The fixed period may be 10 years, 20 years, or
until the sum of all the installments equals the net sum payable.
OPTION 3. Installments of a Fixed Amount. Equal annual, semi- annual,
quarterly, or monthly installments will be paid. The sum of the installments
paid in one year must be at least $40.00 for each $1,000.00 of proceeds.
Installments will be paid until the total of the following amount is exhausted:
(1) the net sum payable; plus (2) interest at the effective rate of 3-1/2% per
year; plus (3) any additional interest that American National may elect to pay.
The final installment shall be the balance of the proceeds payable plus
interest, and may be more or less than the other installments.
OPTION 4. Interest Payment. American National will hold the
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proceeds at interest. Interest will be paid at the effective rate of 3-1/2% per
year. Additional interest may be paid at American National's option. On interest
due dates, an amount of at least $100.00 may be withdrawn from the amount held.
If the amount held falls below $2,000.00, American National will pay the entire
amount held to the payee.
GENERAL PROVISIONS FOR SETTLEMENT OPTIONS
The first installment under Option 1, 2 or 3 will be paid as of the date the
proceeds are available. The first installment may be postponed for up to ten
(10) years, but only with American National's consent. If it is postponed, the
proceeds payable will accumulate with compound interest at the effective rate
of 3-1/2% per year.
To avoid paying installments of less than $20.00 each, American National may:
(1) change the installments to a quarterly, semi-annual or annual basis;
(2) reduce the number of installments; or
(3) do both.
If the Policyowner elects an option, the Policyowner may restrict the
Beneficiary's right to assign, encumber, or obtain the discounted present value
of any unpaid amount.
Except to the extent permitted by law, unpaid amounts are not subject to any
claims of a Beneficiary's creditors. In no case may a Beneficiary receive the
discounted present value of installments payable under Option 2. At American
National's option, a Beneficiary may be permitted to receive the discounted
present value of installments under the other options. An effective interest
rate of 3-1/2% per year will be used to compute discounted present value.
The payee under any option may die after payments under the option have
started. If so, under Option 1 or 2 American National will pay the discounted
present value of any unpaid fixed-period installments to the payee's estate.
Under Option 3 or 4, American National will pay any balance held by American
National to the payee's estate. With American National's consent, the option
elected may provide for payment in another manner.
Limitations. Election of an option by written request may be made only with
the consent of American National if:
(1) Proceeds are to joint or successive payees, or
(2) proceeds are payable to other than a natural person.
POLICY RIGHTS
LOAN BENEFITS
Loan Privileges. So long as the Policy remains in effect, the Policyowner
may borrow money from American National using the Policy as the only security
for the loan. The minimum amount which may be borrowed is $100. The maximum
amount that may be borrowed during the first two Policy Years is 75% of the
Policy Surrender Value at the end of the Valuation Period during which the loan
request is received, less three Monthly Deductions. After the first two years
the maximum loan amount is 90% of the Surrender Value less three Monthly
Deductions. Policyowner's in certain states may borrow 100% of the Surrender
Value less three (3) Monthly Deductions. The loan may be completely or
partially repaid at any time while the Insured is living, prior to the Maturity
Date. Loans usually are funded within seven days after receipt of a written
request. Loans may have a tax consequence. (See Federal Tax Matters, page 28.)
Interest. Loans will accrue interest on a daily basis at a rate of 8% per
year. If unpaid when due, interest will be added to the amount of the loan and
bear interest at the same rate. The Policyowner earns 4.0% interest on the
Accumulation Values securing the loans.
Effect of Policy Loans. When a loan is made, Accumulation Value equal to the
amount of the loan will be transferred from the Accumulation Value in the
Separate Account and/or the Fixed Account to American National's General
Account as security for the indebtedness and will earn interest at the annual
rate of 4.0% credited on the Policy anniversary. The Accumulation Value
transferred out of the Separate Account will be allocated among the Subaccounts
or the Fixed Account in accordance with the instructions given by the
Policyowner when the loan is requested. The minimum amount which can remain in
a Sub-account or the Fixed Account as a result of a loan is $100. In the event
no allocation instructions are provided or the allocation instructions conflict
with this minimum, the loan will be allocated among the Subaccounts or the
Fixed Account, in the same proportion as the Accumulation Value in each
Subaccount or the Fixed Account prior to the loan bears to the total
Accumulation Value in all Subaccounts and the Fixed Account. American National
will transfer Accumulation Value from the Subaccounts and the Fixed Account to
secure indebtedness on the date of the policy loan and, if loan interest is not
paid when due in any Policy Year, or on the Policy anniversary thereafter,
American National will allocate
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<PAGE>
the amount transferred to secure the Policy Debt among the Subaccounts and
the Fixed Account in the same proportion as the Accumulation Value in each
Subaccount or the Fixed Account bears to the total Accumulation Value in all
Subaccounts and the Fixed Account or as instructed. No charge will be imposed
for these transfers.
A Policy loan will permanently affect the Accumulation Value of a Policy,
and may permanently affect the amount of the Death Benefits, even if the loan
is repaid. The effect could be favorable or unfavorable depending on whether
the investment performance of the Subaccount(s) selected by the Policyowner is
less than or greater than the interest rate credited to the Accumulation Value
held in the General Account to secure the loan. In comparison to a Policy under
which no loan was made, the Accumulation Value will be lower if the General
Account interest rate is less than the investment performance of the
Subaccount(s), and greater if the General Account interest rate is higher than
the investment performance of the Subaccount(s).
Interest earned on amounts held in the General Account will be allocated to
the Subaccounts and the Fixed Account on each Policy anniversary in the same
proportion that Net Premiums are being allocated to those Subaccounts and the
Fixed Account at the time. Upon repayment of Policy Debt, the portion of the
repayment allocated in accordance with the repayment of indebtedness provision
(See below.) will be transferred to increase the Accumulation Value in that
Subaccount or the Fixed Account.
Policy Debt. The Policy Debt equals the total of all Policy loans and
accrued interest on Policy loans. If the Policy Debt exceeds the Accumulation
Value less any surrender charge, the Policyowner must pay the excess. American
National will send a notice of the amount which must be paid. If the
Policyowner does not make the required payment within the 61 days after
American National sends the notice, the Policy will terminate without value. A
lapsed Policy may later be reinstated. (See Policy Lapse and Reinstatement,
page 24.)
Repayment of Policy Debt. Unscheduled premiums paid while a Policy loan is
outstanding are treated as repayment of Policy Debt only if the Policyowner so
requests. As Policy Debt is repaid, the Accumulation Value in the General
Account securing the Policy Debt repaid will be allocated among the Subaccounts
and the Fixed Account in the same proportion that Net Premiums are being
allocated at the time of repayment. The repayment of Policy Debt will be
allocated at the end of the Valuation Period during which the repayment is
received. If not repaid, American National will deduct Policy Debt from any
amount payable under the Policy.
SURRENDERS
At any time during the lifetime of the Insured and prior to the Maturity Date,
the Policyowner may partially or totally surrender the Policy by sending a
written request to American National. The amount available for surrender is the
Surrender Value at the end of the Valuation Period during which the surrender
request is received at American National's Home Office. Surrenders will
generally be paid within seven days of receipt of the written request. (See
Postponement of Payments, page 27.) Surrenders may have tax consequences. (See
Tax Treatment of Policy Proceeds, page 29.)
Full Surrenders. If the Policy is being fully surrendered, the actual Policy
form must be returned to American National along with the request. American
National will pay the Surrender Value. Coverage under the Policy will terminate
as of the date of a full surrender.
Partial Surrenders. Partial surrenders are irrevocable. The amount of a
partial surrender may not exceed the Surrender Value on the date the request is
received and may not be less than $100.
The amount paid will be deducted from the Policy's Accumulation Value at the
end of the Valuation Period during which the request is received. The amount
will be deducted from the Subaccounts or the Fixed Account according to the
instructions of the Policyowner when the withdrawal is requested, provided that
the minimum amount remaining in a Subaccount as a result of the allocation is
$100. If no instructions are given, or if there is not sufficient value in any
Subaccount or the Fixed Account, the amount will be allocated in the same
proportion that the Accumulation Value in each bears to the total Accumulation
Value in all Subaccounts and the Fixed Account, on the date the request for the
partial surrender is received by American National.
The Death Benefit will be reduced by the amount of any partial surrender. If
Option A is in effect, the Specified Amount will be reduced. Where increases in
the Specified Amount occurred previously, a partial surrender will reduce the
last increase first, and then each other increases, in order of the more recent
increase first, and finally the initial Specified Amount. Thus, partial
surrenders may affect the cost of insurance charge and the amount of pure
insurance protection under the Policy. (See Monthly Deduction - Cost of
Insurance, page 25; Death Benefit Options - Methods of Affecting Insurance
Protection, page 18.) If Option B is in effect, the Specified Amount will not
change, but the Accumulation Value will be reduced.
The Specified Amount remaining in force after a partial surrender may not be
less than the minimum Specified Amount shown in the following schedule:
DURING MINIMUM
POLICY YEAR SPECIFIED AMOUNT
1 50,000
2 45,000
3 40,000
4 35,000
Thereafter 25,000
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The amount of any partial surrender will be paid within seven (7) days after
receipt of the Policyowner's written request therefor. A $25 administrative
service fee will be charged at the time of each partial surrender. It is not
American National's intention to make a profit on this charge.
TRANSFERS
Accumulation Value may be transferred among the Subaccounts of the Separate
Account or to the Fixed Account as often as desired. The transfers may be
ordered in person, by mail, or by telephone. The total amount transferred each
time must be at least $250, or the balance of the Subaccount, if less. The
minimum amount that may remain in a Subaccount after a transfer is $100.
American National will effectuate transfers and determine all values in
connection with transfers on the later of the date designated in the request or
at the end of the Valuation Period during which the transfer request is
received. Accumulation Value on the date of a transfer will not be affected
except to the extent of the transfer charge, if applicable. Once each Policy
Year during the thirty day period beginning on the Policy anniversary,
transfers may be made from the Fixed Account to the Subaccounts. The maximum
amount which may be transferred from the Fixed Account to the Subaccounts is
the greater of (a) twenty-five percent of the amount in the Fixed Account, or
(b) $1,000.
The first four transfers per Policy Year will be permitted free of charge. A
$25 transfer charge will be imposed each additional time amounts are
transferred and will be deducted from the amount transferred. (See Transfer
Charge, page 25.) Transfers resulting from Policy loans or exercise of the
exchange privilege will not be subject to a transfer charge. In addition, such
transfers will not be counted for purposes of the limitation on the number of
transfers allowed in each year. American National may at any time revoke or
modify the transfer privilege, including the number and minimum amount
transferable.
REFUND PRIVILEGE
The Policyowner may cancel the Policy within the later of 10 days after the
Policyowner receives it, within 10 days after American National delivers a
notice of the Policyowners right of cancellation, or within 45 days of
completing and executing the application whichever is later. If a policy is
canceled within this time period a refund will be paid. The amount of the refund
will be the amount of the premiums paid adjusted by investment gains during the
15-day period such premiums have been allocated to the FID Money Market
Portfolio and by investment gains and losses thereafter.
To cancel the Policy, the Policyowner should mail or deliver the actual
Policy form to American National at the Home Office or to the office of one of
its agents. A refund of premiums paid by check may be delayed until the check
has cleared the Policyowner's bank. (See Postponement of Payments, page 27.)
Right to Exchange a Policy for a Fixed-Benefit Insurance Policy
At any time during the first two Policy Years that the Policy is in effect,
the Policyowner may exchange the Policy for a fixed-benefit, universal life
insurance policy issued by American National. No evidence of insurability will
be required to make an exchange. The net amount at risk or Death Benefit, at
the option of the Policyowner, will be the same as the original Policy's on the
date of exchange. The new policy will have a current Date of Issue and same
premium class, Attained Age and sex as this Policy. Any rider in force with the
Policy will be issued with the new policy. The amount of the new policy may be
the Death Benefit on the date of the exchange, less Policy Debt (Option A) or
the Death Benefit minus the Accumulation Value on the date of the exchange less
Policy Debt (Option B). (See Death Benefit Options, page 15.)
The new policy will become effective on the date of exchange if the Insured
is then living. The date of exchange will be the date American National has
received a written request therefor accompanied by the actual Policy form and
all financial, contractual and administrative requirements have been met and
processed.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application and
submit it to American National's Home Office, American National Building, One
Moody Plaza, Galveston, Texas 77550. A Policy will generally be issued only to
individuals 75 years of age or less on their last birthday who supply
satisfactory evidence of insurability to American National. Acceptance is
subject to American National's underwriting rules.
The Policy Date is the effective date of coverage for all cover- age applied
for in the original application. The Date of Issue is used to determine Policy
anniversary dates, Policy Years and Policy months.
The Policy Date is the date that all financial, contractual and administrative
requirements have been met and processed for the Policy and any supplements
thereto. This date is the effective date for all coverage applied for in the
original application and any supplemental applications.
The initial premium payment will be allocated to the FID Money Market
Portfolio of the Fidelity Fund, as of the Date of Issue, for 15 days. After the
expiration of this period, the Accumulation Value will be allocated to the
Subaccounts or the Fixed Account as selected by the Policyowner.
PREMIUMS
The initial premium is due no later than the Policy Date. No
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insurance will take effect before the initial premium is paid. The initial
premium must be at least 1/12 of the first year Guaranteed Coverage Premium.
The initial premium and all other premiums are payable at American National's
Home Office. The amounts and frequency of the Planned Periodic Premiums are
shown on the Policy Data Page of the Policy. Subject to certain limitations, a
Policyowner has flexibility in determining the frequency and amount of premiums
since the Planned Periodic Premium schedule is not binding on the Policyowner.
However, the Planned Periodic Premium must include the Guaranteed Coverage
Premium during the first two (2) Policy Years. Thereafter, unless the
Policyowner has paid sufficient premiums to pay the Monthly Deduction and
mortality and expense risk charges, the Policy may have a zero Surrender Value
and will lapse.
American National agrees to keep the Policy in force during the first two
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, these minimum
premiums will not, after payment of the amount of the Monthly Deduction and
mortality and expense risk charges, generate positive Surrender Values during
the first several Policy months.
Premium Flexibility. A Policyowner may make unscheduled premium payments at
any time in any amount, or skip premium payments, subject to the premium
limitations described herein. Therefore, unlike conventional insurance
policies, this Policy does not obligate the Policyowner to pay premiums in
accordance with a rigid and inflexible premium schedule. American National
reserves the right to limit the number and amount of additional or unscheduled
premium payments.
Planned Periodic Premiums. At the time the Policy is issued each Policyowner
shall determine a Planned Periodic Premium schedule that provides for the
payment of level premiums at selected intervals. The Planned Periodic Premium
schedule may include the Guaranteed Coverage Premium. The Policyowner is not
required to pay premiums in accordance with this schedule. The Policyowner has
considerable flexibility to alter the amount and frequency of premiums paid.
Policyowners can also change the frequency and amount of Planned Periodic
Premiums by sending a written request to American National's Home Office,
although American National reserves the right to limit any increase. Premium
payment notices will be sent annually, semi-annually, quarterly or monthly
depending upon the frequency of the Planned Periodic Premiums. Payment of the
Planned Periodic Premiums does not guarantee that the Policy will remain in
force unless the Guaranteed Coverage Benefit provision is in effect. Instead,
the duration of the Policy depends upon the Policy's Surrender Value. (See
Duration of the Policy, page 18.) Unless the Guaranteed Coverage Benefit
provision is in effect, even if Planned Periodic Premiums are paid by the
Policyowner, the Policy will lapse any time Surrender Value is insufficient to
pay the Monthly Deduction and mortality and expense risk charges, and a grace
period expires without a sufficient payment.
Any premium received in an amount different from the Planned Periodic
Premium will be considered an unscheduled premium.
Premium Limitations. In no event may the total of all premiums paid, both
planned and unscheduled, exceed the current maximum premium limitations
established by federal tax laws. If at any time a premium is paid which would
result in total premiums exceeding such current maximum premium limitations,
American National will only accept that portion of the premium which will make
total premiums equal the maximum. Any part of the premium in excess of that
amount will be returned or applied as otherwise agreed and no further premiums
will be accepted until allowed by the current maximum premium limitations
prescribed by law. American National may require additional evidence of
insurability if any premium payment would result in an increase in the Policy's
net amount at risk on the date the premium is received. American National may
also establish a minimum acceptable premium amount.
Premiums Upon Increase in Specified Amount. Depending upon the Accumulation
Value of the Policy at the time of an increase in the Specified Amount of the
Policy and the amount of the increase requested by the Policyowner, an
additional premium payment may be required. American National will notify the
Policyowner of any premium required to fund the increase.
ALLOCATION OF PREMIUMS AND ACCUMULATION VALUE
Allocation of Net Premiums. In the application for a Policy, the Policyowner
allocates Net Premiums to one or more Subaccounts of the Account or to the
Fixed Account. Thereafter, the amount in such account and Net Premiums are
allocated as directed by the Policyowner. The minimum percentage that may be
allocated to any one Subaccount or to the Fixed Account is 10% of the Net
Premium, and fractional percentages may not be used. The allocations must total
100%. The allocation for future Net Premiums may be changed without charge by
providing proper notification to the Home Office. The notice must include the
policy number to which the instructions apply. The reallocation will apply to
future premiums received by American National on or after the date the change
is received.
Premium payments received within 15 days after the Date of Issue are
allocated to the Subaccount for the Money Market portfolio of the Fidelity
Funds. The initial premium payment will be allocated to the Money Market
portfolio of the Fidelity Funds, as of the Date of Issue, for 15 days. After
the expiration of such period, the Accumulation Value will be allocated to the
Subaccounts or the Fixed Account as selected by the Policyowner. Premium
payments received by American National prior to the Date of Issue are held in
American National's General Account, without interest, until the Date of Issue.
Net Premiums received by American National after fifteen (15) days after the
Date of Issue are allocated to the selected Subaccounts or the Fixed Account.
If there is any Policy Debt at the time of payment, American National will
treat the payment as a premium payment unless otherwise instructed in proper
written notice.
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Accumulation Value. The value of amounts allocated to Subaccounts of the
Separate Account will vary with the investment performance of these Subaccounts
and the Policyowner bears the entire investment risk. This will affect the
Policy's Accumulation Value, and may affect the Death Benefit as well.
Policyowners should periodically review their allocations of premiums and
values in light of market conditions and overall financial planning
requirements.
POLICY LAPSE AND REINSTATEMENT
Lapse. Unlike conventional life insurance policies, the failure to make a
Planned Periodic Premium payment will not itself cause the Policy to lapse.
Unless the Guaranteed Coverage provision is in effect, lapse will occur when
the Surrender Value is insufficient to cover the Monthly Deduction and a grace
period expires without a sufficient payment.
GRACE PERIOD
The grace period is 61 days from the date American National mails a notice
that the grace period has begun. American National will notify the Policyowner
at the beginning of the grace period by mail addressed to the last known
address on file with American National. The notice will specify the premium
required to keep the Policy in force. Failure to pay the required amount within
the grace period will result in lapse of the Policy. If the Insured dies during
the grace period, any overdue Monthly Deductions and Policy Debt will be
deducted from the proceeds.
If the Surrender Value is insufficient to cover the Monthly Deduction, the
Policyowner must pay a premium during the grace period sufficient to cover the
Monthly Deductions for the three Policy months after commencement of the grace
period to avoid lapse.
Reinstatement. A lapsed Policy may be reinstated any time within five years
after the end of the grace period, but before the Maturity Date if the Policy
was not surrendered for its Surrender Value. Reinstatement will be effected
based on the Insured's underwriting classification at the time of the
reinstatement.
Reinstatement is subject to the following:
a. Evidence of insurability of the Insured satisfactory to American National
(including evidence of insurability of any person covered by a rider to
reinstate the rider);
b. Reinstatement of any Policy Debt, with interest due and accrued;
c. Payment of the amount of any Monthly Deductions not paid during the grace
period; and
d. Payment of the amount necessary to pay sales load and premium taxes on the
premiums paid and the Monthly Deduction for the next three months.
The Policy cannot be reinstated if it has been surrendered for its full
Surrender Value.
The original Date of Issue, and the Dates of Issues of increases in
Specified Amount (if applicable), will be used for purposes of calculating the
surrender charge. If any Policy Debt was reinstated, the amount thereof will be
held in American National's General Account. Accumulation Value calculations
will then proceed as described under "Accumulation Value" on page 18. The
Policy Date of reinstatement will be the first Monthly Deduction Date on or
next following the date of approval by American National of the application for
reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate
American National for: (1) providing the insurance benefits set forth in the
Policy and any optional insurance benefits added by rider; (2) administering
the Policy; (3) assuming certain risks in connection with the Policy; and (4)
incurring expenses in distributing the Policy. The nature and amount of these
charges are described more fully below.
PREMIUM CHARGES
Prior to allocation of premium payments among the Sub-accounts or the Fixed
Account, premiums paid will be reduced by a 4% sales charge to compensate
American National for expenses associated with distributing the Policy, plus
any amount necessary to reimburse American National for premium taxes. In
addition, a $2.00 transaction charge will be deducted to reimburse American
National for billings and confirmations.
Sales Charges. Sales charges, generally called the "sales load," will be
deducted to compensate American National for the cost of selling the Policy.
This cost includes agents' commissions, the printing of Prospectuses and sales
literature, and advertising.
The sales charges in any Policy Year are not necessarily related to actual
distribution expenses incurred in that year. Instead, American National expects
to incur the majority of distribution expenses in the early Policy Years and to
recover amounts to pay such expenses over the life of the Policy. To the extent
that sales and distribution expenses exceed sales loads (both front-end and
deferred) in any year, American National will pay them from its other assets or
surplus in its General Account, which include amounts derived from mortality
and expense risk charges, and other charges made under the Policy. American
National believes that this distribution financing arrangement will benefit the
Separate Account and the Policyowner.
Applicable Tax Charges. All states and certain jurisdictions (cities, counties,
municipalities) tax premium payments and some levy additional charges. Taxes
currently range up to 4%. We deduct the applicable Tax from each premium
payment. This is a
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tax to American National, so you cannot deduct it on your income tax return.
The amount of the tax will vary depending on the jurisdiction in which the
Insured resides. Since taxes on premium payments are a percentage of the
premium, the amount of that tax will also vary with the amount of the premium.
This tax charge will be increased or decreased to reflect any changes in the
Applicable Tax based on premiums. In addition, if an Insured changes his or her
place of residence, the charge will be changed to the tax rate of the new
jurisdiction. You should notify us if the Insured changes residence. American
National will not make a profit from the premium tax charge.
CHARGES FROM ACCUMULATION VALUE
Monthly Deduction. On each Monthly Deduction Date, the Monthly Deduction
will be deducted from the Accumulation Value of the Policy to compensate
American National for the insurance provided, the cost of any riders and for
administrative expenses. The Monthly Deduction will be deducted as of the
Policy Date and on each Monthly Deduction Date thereafter if current. It will
be allocated among the Subaccounts, and the Fixed Account, in the same
proportion as the Accumulation Value in each Subaccount and the Fixed Account,
bears to the total Accumulation Value on that date. Each of these charges is
described in more detail below. Because portions of the Monthly Deduction, such
as the cost of insurance, can vary from month to month, the Monthly Deduction
itself may vary in amount from month to month.
Administrative Charge. To compensate American National for the ordinary
administrative expenses expected to be incurred in connection with a Policy,
the Monthly Deduction includes an administrative expense charge. Such charge,
during the first 12 Policy months (and the first 12 Policy months with respect
to an increase in the Specified Amount other than from an option change), shall
range from a maximum of $2.50 plus $0.0632 per $1,000 of Specified Amount at
age 0 to a maximum of $2.50 plus $2.59 per $1,000 of Specified Amount at age
75, and shall thereafter be a maximum of $2.50 plus $0.025 per $1,000 of
Specified Amount. These ordinary administrative expenses include premium
billing; recordkeeping; processing Death Benefit claims, surrenders, and Policy
changes; preparing and mailing reports, and overhead costs. This charge is
levied throughout the life of the Policy. American National does not expect to
make any profit from the monthly administrative charge.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy month can vary from month to month.
American National will determine the monthly cost of insurance charges by
multiplying the applicable cost of insurance rate by the net amount at risk for
each Policy month. The net amount at risk on any Monthly Deduction Date is the
amount by which the Death Benefit which would be payable on that Monthly
Deduction Date exceeds the Accumulation Value.
The monthly cost of insurance rate is based on the Insured's sex, Attained Age,
Specified Amount, and risk class. The rate will vary if the Insured is a smoker
or non-smoker or is considered a substandard risk classification and rated with
a tabular extra rating. For the initial Specified Amount, the cost of insurance
rate will not exceed those shown in the Schedule of Monthly Guaranteed Maximum
Cost of Insurance Rates shown on the Policy Data Page. These guaranteed rates
are based on the Insured's age last birthday and are equal to the 1980 Insurance
Commissioners Standard Ordinary Smoker or Non-Smoker, Male or Female Mortality
Tables. The current rates range between 60% and 100% of the rates based on the
1980 Commissioners Standard Ordinary Tables, based on American National's own
mortality experience. Policies issued on a non-sex distinct basis are based upon
the 1980 Insurance Commissioner's Standard Ordinary Table B assuming 80 male and
20 female lives. Any change in the cost of insurance rates will apply to all
persons of the same age, sex, Specified Amount and risk class.
If the underwriting class for any increase in the Specified Amount or for
any increase in Death Benefit resulting from a change in Death Benefit option
from A to B is not the same as the underwriting class at issue, the cost of
insurance rate used after such increase will be a composite rate based upon a
weighted average of the rates of the different underwriting classes. Decreases
will also be reflected in the cost of insurance rate as discussed earlier.
The actual charges made during the Policy Year will be shown in the annual
report delivered to Policyowners.
Rate Class. The rate class of an Insured may affect the cost of insurance
rate. American National currently places insureds into both standard rate
classes and substandard rate classes that involve a higher mortality risk. In
an otherwise identical Policy, an Insured in the standard rate class will have
a lower cost of insurance than an Insured in a substandard rate class. If a
Policy is rated at issue with a tabular extra rating, the guaranteed rate is a
multiple of the guaranteed rate for a standard issue.
Insureds may also be assigned a flat extra rating to reflect certain
additional risks. The flat extra rating will not impact the cost of insurance
rate but 1/2 of any flat extra cost will be deducted as part of the Monthly
Deduction on each Monthly Deduction Date.
Surrender Charge. If a Policy is surrendered prior to the 10th Policy
anniversary, American National will assess a surrender charge based upon the
amount of premiums paid on the Policy and the amount of the Surrender Premium.
No surrender charge will be assessed upon decreases in the Specified Amount
of the Policy. Because the surrender charge may be significant upon early
surrender, prospective Policyowners should purchase a Policy only if they do
not intend to surrender the Policy for a substantial period of time.
Transfer Charge. A transfer charge of $25.00 will be imposed for each
additional transfer among the Subaccounts after four per Policy Year to
compensate American National for the costs of effecting the transfer. Since the
charge reimburses American National for the cost of effecting the transfer
only, American National does not expect to make any profit from the transfer
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charge. This charge will be deducted from the amount transferred. The
transfer charge will not be imposed on transfers that occur as a result of
Policy loans or the exercise of exchange rights. The amount of the transfer
charge is guaranteed not to be increased.
Partial Surrender Charge. A charge will be imposed for each partial
surrender to compensate American National for the administrative costs in
effecting the requested payment and in making necessary calculations of any
reductions in Specified Amount which may be required by reason of the partial
surrender. Such charge is in proportion to the charge that would apply to a
full surrender. The proportion is computed by dividing the amount of
Accumulation Value surrendered by the total Surrender Value. When a partial
surrender is made, future surrender charges will be reduced in the same
proportions. American National does not expect to make any profit from the
partial surrender charge. The current charge made will be $25. The charge will
be deducted from the amount of the surrender.
DAILY CHARGES AGAINST THE SEPARATE ACCOUNT
On each Valuation Date that American National is open for business, a daily
asset charge will be deducted from the Accumulation Value. Such charge shall not
exceed .90% annually of the average daily net asset value of each Subaccount,
but not the Fixed Account, and is to compensate American National for mortality
and expense risks assumed in connection with the Policy. The daily charge will
be deducted from the net asset value of the Separate Account, and therefore the
Subaccounts, on each Valuation Date. Where the previous day or days was not a
Valuation Date, the deduction on the Valuation Date will be .00246% (calculated
by dividing the .90% annual rate by 365) multiplied by the number of days since
the last Valuation Date. No mortality and expense charges will be deducted from
the amounts in the Fixed Account.
American National believes that this level of charge is within the range of
industry practice for comparable variable universal life policies.
The mortality risk assumed by American National is that Insureds may live
for a shorter time than assumed, and that an aggregate amount of Death Benefits
greater than that assumed will be paid. The expense risk assumed is that
expenses incurred in issuing and administering the Policies will exceed the
administrative charges provided in the Policies.
In addition to the charges by American National against the Separate Account
described just above, SM&R and FMR will assess certain annual or monthly fees
against the amount invested in the various Eligible Portfolios. (See the
American National Fund's and the Fidelity Funds' Prospectuses)
For managing the investments and business affairs of the Eligible Portfolios
of the Fidelity Funds, each such Eligible Portfolio pays FMR a monthly fee.
Detailed information about such fee is in the Fidelity Funds' Prospectuses.
No portfolio fees will be assessed against amount placed in the Fixed
Account.
Taxes. Currently, no charge will be made against the Separate Account for
federal, state or local income taxes. American National may, however, make such
a charge in the future if income or gains within the Separate Account will
incur any Federal, or any significant state or local tax treatment of American
National changes. Charges for such taxes, if any, would be deducted from the
Separate Account and/or the Fixed Account.
GENERAL PROVISIONS
THE CONTRACT
The Policy, the application, any supplemental applications, and any riders,
amendments or endorsements make up the entire contract. All statements made by
the Insured in the application, in the absence of fraud, are considered
representations and not warranties. Only statements in the application that is
attached to the Policy and any supplemental applications made a part of the
Policy when a change in coverage went into effect can be used to contest a
claim or the validity of the Policy. Only the President, Vice President or
Secretary can modify the Policy. Any changes must be made in writing and
approved by American National. No agent has the authority to alter or modify
any of the terms, conditions or agreements of the Policy or to waive any of its
provisions.
CONTROL OF POLICY
The Policyowner is as shown in the application or subsequent written
endorsement. Subject to the rights of any irrevocable Beneficiary and any
assignee of record, all rights, options, and privileges belong to the
Policyowner, if living; otherwise to any contingent owner or owners, if living;
otherwise to the estate of the last Policyowner to die. If the Policyowner is a
minor, first the Applicant, then the Beneficiary, if living and legally
competent, may exercise all rights of ownership.
BENEFICIARY
The Policyowner may name both primary and contingent beneficiaries. The
Beneficiary(ies) and their designated class are specified in the application.
Payments will be shared equally among Beneficiaries of the same class unless
otherwise stated. If a Beneficiary dies before the Insured, payments will be
made to any surviving Beneficiaries of the same class; otherwise to any
Beneficiary(ies) of the next class; otherwise to the estate of the Insured.
CHANGE OF BENEFICIARY
The Policyowner may change the Beneficiary by written request on a Change of
Beneficiary form at any time during the Insured's
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lifetime unless otherwise provided in the previous designation of
Beneficiary. American National, at its option, may require that the actual
Policy form be returned to the Home Office for endorsement of any change, or
that other forms be completed. The change will take effect as of the date the
change is recorded at the Home Office. American National will not be liable for
any payment made or action taken before the change is recorded. No limit is
placed on the number of changes that may be made.
CHANGE IN POLICYOWNER OR ASSIGNMENT
In order to change the owner of the Policy or assign Policy rights, an
assignment of the Policy must be made in writing and filed with American
National at its Home Office. The change will take effect as of the date the
change is recorded at the Home Office, and American National will not be liable
for any payment made or action taken before the change is recorded. Payment of
proceeds is subject to the rights of any assignee of record. No partial or
contingent assignment of the Policy will be permitted. A collateral assignment
is not a change of ownership.
PAYMENT OF PROCEEDS
The proceeds are subject first to any Policy Debt and then to the interest
of any assignee of record. Payments to satisfy any such Policy Debt and to any
assignee shall each be paid in one sum. The balance of any Death Benefit
proceeds shall be paid in one sum to the designated Beneficiary unless an
optional method of payment is selected. If no Beneficiary survives the Insured,
the proceeds shall be paid in one sum to the estate of the Insured. Any
proceeds payable on the Maturity Date or upon full surrender shall be paid in
one sum unless an Optional Method of Payment is elected.
INCONTESTABILITY
The Policy is incontestable after it has been in force for two years from
the Date of Issue during the lifetime of the Insured. An increase in the
Specified Amount or addition of a rider after the Date of Issue shall be
incontestable after such increase or addition has been in force for two years
from its Policy Date during the lifetime of the Insured. However, this two year
provision shall not apply to riders that provide disability or accidental Death
Benefits. Any reinstatement of a Policy shall be incontestable during the
lifetime of the Insured only after having been in force for two years after the
Policy Date of the reinstatement.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured or any person insured by rider has been
misstated, the amount of the Death Benefit will be adjusted. The Death Benefit
will be adjusted in proportion to the correct and incorrect cost of insurance
rates.
SUICIDE
Suicide within two years of the Date of Issue is not covered by the Policy
unless otherwise provided by a state's Insurance law. If the Insured, while
sane or insane, commits suicide within two years after the Date of Issue,
American National will pay only the premiums received less any partial
surrenders and Policy Debt. If the Insured, while sane or insane, commits
suicide within two years after the Policy Date of any increase in the Specified
Amount, American National's liability with respect to such increase will only
be its total cost of insurance applied to the increase. If the Insured, while
sane or insane, commits suicide within two years from the Policy Date of
reinstatement, American National's liability with respect to such reinstatement
will only be for the return of cost of insurance and expenses, if any, paid on
or after the reinstatement.
POSTPONEMENT OF PAYMENTS
Payment of any amount upon full surrender, partial surrender, Policy loans,
benefits payable at death or maturity, and transfers may be postponed whenever:
(i) the New York Stock Exchange is closed other than customary week-end and
holiday closings, or trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission ("Commission"); (ii) the
Commission by order permits postponement for the protection of Policyowners; or
(iii) an emergency exists, as determined by the Commission, as a result of
which disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of the Separate Account's net
assets. Surrenders, loans or partial surrenders from the Fixed Account may be
deferred for up to 6 months from the date of written request.
ADDITIONAL INSURANCE BENEFITS (RIDERS)
Subject to certain requirements, certain additional optional benefits may be
obtained at the issuance of the Policy for an extra premium. The cost of any
such additional insurance benefits, which will be provided by "riders" to the
Policy, will be deducted as part of the Monthly Deduction.
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DISTRIBUTION OF THE POLICIES
SM&R, a wholly-owned indirect subsidiary of American National will act as
the principal underwriter of the Policies pursuant to a Distribution and
Administrative Services Agreement between itself and American National. SM&R
was organized under the laws of the State of Florida in 1964, and is a
registered broker/dealer pursuant to the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers. (See the American
National Fund Prospectus.)
Registered Representatives of SM&R who sell the Policy will receive commissions
from SM&R based upon a commission schedule. After issuance of the Policy,
commissions to the Registered Representatives will equal, at most, 50% of the
Guaranteed Coverage Premium, plus the first year cost of any riders, and any
premium paid in excess, will receive a maximum commission of 4.0%. In years
thereafter, Registered Representatives will receive a maximum commission of 3.0%
per Policy Year on any premiums paid. Upon any subsequent increase in Specified
Amount or any subsequent increase in riders, commissions will also be paid based
on the amount of the increase in Specified Amount or increase in rider. Further,
American National may pay Registered Representatives who meet certain production
standards additional compensation, and may pay managers bonuses with respect to
the Policies. SM&R will pay overriding commissions to managers with respect to
the Policies. SM&R and American National may authorize other registered
broker/dealers and its Registered Representatives to sell the Policies subject
to applicable law.
FEDERAL TAX MATTERS
The following discussion provides a general description of the federal
income tax considerations associated with the Policy. This discussion is not
intended as tax advice. Any person concerned about these tax implications
should consult a competent tax advisor. This discussion is based upon American
National's understanding of the present federal income tax laws as they are
currently interpreted by the Internal Revenue Service (the "Service"). No
representation is made as to the likelihood of continuation of the present
federal income tax laws or of the current interpretations by the Service. The
following summary does not purport to be complete or to cover all situations.
Special rules not described in this Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider in detail any
applicable state or other tax (except premium taxes, see discussion "Premium
Taxes," page 10) laws. Counsel and other competent advisors should be consulted
for more complete information before a Policy is purchased.
(a) Taxation of American National. After American National issues the Policies,
American National believes it will be taxed as a life insurance company
under Part I of Subchapter L of the Code. At that time, since the Separate
Account is not an entity separate from American National, and its operations
form a part of American National, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Net
investment income and realized net capital gains on the assets of the
Separate Account are reinvested and are taken into account in determining
the Death Benefit and Accumulation Value of the Policy. As a result, such
net investment income and realized net capital gains are automatically
retained as part of the reserves under the Policy. American National
believes that the Separate Account net investment income and realized net
capital gains will not be taxable to the extent that such income and gains
are retained as reserves under the Policy. American National does not
currently expect to incur any federal income tax liability attributable to
the Separate Account with respect to the sale of the Policies. Accordingly,
no charge is being made currently to the Separate Account for federal income
taxes. If, however, American National determines that it may incur such
taxes attributable to the Separate Account, it may assess a charge for such
taxes against the Separate Account.
American National may also incur state and local taxes (in addition to
premium taxes for which a deduction from premiums is currently made) in
various states. At present, these taxes are not significant. If there is a
material change in state or local tax laws, charges for such taxes
attributable to the Separate Account, if any, may be assessed against the
Separate Account.
(b) Tax Status of the Policy. The Code (section 7702) includes a definition of a
life insurance contract for federal tax purposes, which places limitations
on the amount of premiums that may be paid for the Policy and the
relationship of the Accumulation Value to the Death Benefit. American
National believes that the Policy meets the statutory definition of a life
insurance contract. If the Death Benefit of a Policy is increased or
decreased, the applicable definitional limitations may change. In the case
of a decrease in the Death Benefit, a partial surrender, a change from
Option B to Option A, or any other such change that reduces future benefits
under the Policy during the first 15 years after a Policy is issued and that
results in a cash distribution to the Policyowner in order for the Policy to
continue complying with the section 7702 definitional limitations on
premiums and Accumulation Values, the Policyowner will be taxed as ordinary
income (to the extent of any gain in the Policy) on certain amounts
prescribed in section 7702 which are so distributed.
28
<PAGE>
The Code (section 7702A) also defines a "modified endowment contract" for
federal tax purposes which causes distributions to be taxed as ordinary income
to the extent of any gain. This Policy will become a "modified endowment
contract" if the premiums paid into the Policy fail to meet a 7-pay premium
test as outlined in Section 7702A of the Code.
Certain benefits the Insured may elect under this Policy may be material
changes affecting the 7-pay premium test. These include changes in Death
Benefits and changes in the Policy amount. Should the Policy become an MEC,
partial or full surrenders, assignments and loans (including loans to pay loan
interest) under or secured by the Policy will be taxable to the Policyowner to
the extent of any gain under the Policy. A 10% penalty tax also applies to the
taxable portion of any distribution prior to the Insured's age 59-1/2. The 10%
penalty tax does not apply if the Insured is disabled as defined under the Code
or if the distribution is paid out in the form of a life annuity on the life of
the Insured or the joint lives of the Insured and Beneficiary. One may avoid a
Policy becoming a modified endowment contract by, among other things, not
making excessive payments or reducing benefits. If American National determines
that excessive premium payments have been made during a Policy Year, it will
notify the Policyowner that the Policy may be treated as an MEC, explain the
tax consequences of such treatment and give the Policyowner the option to have
the excessive premiums refunded. If requested by the Policyowner within thirty
(30) days after receipt of such notice, American National will make such
refund. Should one deposit excessive premiums during a Policy Year, that
portion that is returned by the insurance company within 60 days after the
policy anniversary will reduce the premiums paid to avoid the Policy becoming a
Modified Endowment Contract.
The Code (section 817(h)) also authorizes the Secretary of the Treasury
(the "Treasury") to set standards by regulation or otherwise for the
investments of the Account to be "adequately diversified" in order for the
Policy to be treated as a life insurance contract for federal
Separate Account, through the American National Fund and the Fidelity Funds,
intends to comply with the diversification requirements prescribed by the
Treasury in temporary regulations published in the Federal Register on
September 15, 1986, which affect how such Funds' assets may be invested.
However, American National believes that the American National Fund and the
Fidelity Funds will meet the diversification requirements and American National
will monitor compliance with this requirement. Thus, American National believes
that the Policy will be treated as a life insurance contract for federal tax
purposes.
In connection with the issuance of temporary regulations relating to the
diversification requirements, the Treasury announced that such regulations do
not provide guidance concerning the extent to which Policyowners may direct
their investments to particular divisions of a Separate Account.
Regulations in this regard are expected in the near future. It is not clear
what these regulations will provide nor whether they will be prospective only.
It is possible that when regulations are issued, the Policy may need to be
modified to comply with such regulations. For these reasons, American National
reserves the right to modify the Policy as necessary to prevent the Policyowner
from being considered the owner of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal tax purposes.
(c) Tax Treatment of Policy Proceeds. American National believes that the Policy
will be treated in a manner consistent with a fixed benefit life insurance
policy for federal income tax purposes. Thus, American National believes
that the Death Benefit payable under either Death Benefit option under the
Policy will be excludable from the gross income of the Beneficiary under
section 101(a)(1) of the Code and the Policyowner will not be deemed to be
in constructive receipt of the Accumulation Value under the Policy until its
actual surrender. However, in the event of certain cash distributions under
the Policy resulting from any change which reduces future benefits under the
Policy, the distribution will be taxed in whole or in part as ordinary
income (to the extent of gain in the Policy). See discussion on page 28,
"Tax Status of the Policy".
American National also believes that loans received under a Policy will be
treated as Policy Debt of the Policyowner and that no part of any loan under
a Policy will constitute income to the Policyowner so long as the Policy
remains in force, unless the Policy becomes a Modified Endowment Contract.
However, if the Policy lapses while the loan is outstanding, the loan
proceeds will be included in the Policyowner's taxable income, in the year
of lapse, to the extent the proceeds constitute gain under the Policy.
Generally, interest paid on any loan under a Policy owned by an individual
will not be tax-deductible.
In addition, interest on any loan under a Policy owned by a taxpayer and
covering the life of any individual who is an officer or is financially
interested in the business carried on by that taxpayer will not be tax-
deductible to the extent the aggregate amount of such loans with respect to
Policies covering such individual exceeds $50,000. Further, even as to
interest on loans up to $50,000 per such individual, such interest would not
be deductible if the Policy were deemed for federal tax purposes to be a
single premium life insurance contract. Policyowners should consult a
competent tax advisor as to whether the Policy would be so deemed.
The right to change owners, and the provision for partial surrenders may
have tax consequences depending on the circumstances of such exchange,
change, or surrender. Upon
29
<PAGE>
full surrender or when maturity benefits are paid, if the amount received
plus any Policy Debt exceeds the total premiums paid, the "basis," that are
not treated as previously withdrawn by the Policyowner, the excess generally
will be taxed as ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on applicable
law and the circumstances of each Policyowner or Beneficiary. In addition,
if the Policy is used in connection with tax-qualified retirement plans,
certain limitations prescribed by the Service on, and rules with respect to
the taxation of, life insurance protection provided through such plans may
apply.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
American National holds the assets of the Separate Account. The assets are kept
physically segregated and held separate and apart from the General Account
assets, except for the Fixed Account. American National maintains records of all
purchases and redemptions of shares of Eligible Portfolios by each of the
Subaccounts.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Separate Account will be
invested in shares of the corresponding Eligible Portfolios. American National
is the legal holder of those shares and as such has the right to vote to elect
the Board of Directors of the American National Fund and the Fidelity Funds, to
vote upon certain matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund, and to vote upon any other
matter that may be voted upon at a shareholder's meeting. To the extent
required by law, American National will vote all shares of the Eligible
Portfolios held in the Separate Account at regular and special shareholders'
meetings in accordance with instructions received from Policyowners. The number
of votes for which each Policyowner has the right to provide instructions will
be determined as of the record date selected by the Board of Directors of the
American National Fund and the Fidelity Funds, as the case may be. American
National will furnish Policyowners with the proper forms, materials and reports
to enable them to give it these instructions.
The number of shares of an Eligible Portfolio in a Subaccount for which
instructions may be given by a Policyowner is determined by dividing the
Policy's Accumulation Value held in that Subaccount by the net asset value of
one share in the corresponding Eligible Portfolio. Fractional shares will be
counted. Eligible Portfolio shares held in each Subaccount for which no timely
instructions from Policyowners are received and shares held in each Subaccount
which do not support Policyowner interests will be voted by American National in
the same proportion as those shares in that Subaccount for which timely
instructions are received. Voting instructions to abstain on any item to be
voted will be applied on a pro rata basis to reduce the votes eligible to be
cast. Should applicable federal securities laws or regulations permit, American
National may elect to vote shares of the American National Fund or Fidelity
Funds in its own right.
Matters on which Policyowners may give voting instructions include the
following: (1) election of Boards of Directors, (2) ratification of independent
accountants (3) approval of investment advisory agreements for the Eligible
Portfolio(s) corresponding to the Policyowner's selected Subaccount; (4) any
change in the fundamental investment Policies of the Eligible Portfolio(s)
corresponding to the Policyowner's selected Subaccount(s); and (5) any other
matter requiring a vote of the shareholders under the 1940 Act.
Disregard of Voting Instruction. American National may, if required by state
insurance officials, disregard voting instructions if those instructions would
require shares to be voted to cause a change in the subclassification or
investment objectives or policies of one or more of the Eligible Portfolios, or
to approve or disapprove an investment adviser or principal underwriter for the
Eligible Portfolios. In addition, American National itself may disregard
voting instructions that would require changes in the investment objectives or
policies of any Eligible Portfolio or in an investment adviser or principal
underwriter for the Eligible Portfolios, if American National reasonably
disapproves those changes in accordance with applicable federal regulations. If
American National does disregard voting instructions, it will advise
Policyowners of that action and its reasons for the action in the next annual
report or proxy statement to Policyowners.
30
<PAGE>
STATE REGULATIONS OF AMERICAN NATIONAL
American National, a stock life insurance company organized under the laws
of Texas, is subject to regulation by the Texas Department of Insurance. On or
before March 1 of each year an NAIC convention blank covering the operations
and reporting on the financial condition of American National and the Separate
Account as of December 31 of the preceding year must be filed with the Texas
Department of Insurance. Periodically, the Texas Department of Insurance
examines the liabilities and reserves of American National and the Separate
Account and certifies their adequacy. A full examination of American
National's operations is also conducted periodically by the National
Association of Insurance Commissioners.
In addition, American National is subject to the insurance laws and
regulations of other states within which it is licensed or may become licensed
to operate. The Policies offered by the Prospectus are available in the various
states as approved. Generally, the Insurance Department of any other state
applies the laws of the state of domicile in determining permissible
investment. However, differences in state laws may require American National to
offer a Policy in one or more states which has suicide, incontestability and
refund provisions which are more favorable to a Policyowner than provisions in
a Policy offered in other states.
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<PAGE>
SENIOR EXECUTIVE OFFICERS AND DIRECTORS
AMERICAN NATIONAL INSURANCE COMPANY
NAME AND POSITION(S) WITH PRINCIPAL OCCUPATIONS LAST FIVE YEARS
AMERICAN NATIONAL INSURANCE COMPANY AND OTHER POSITIONS HELD
- --------------------------------------------------------------------------------
ROBERT L. MOODY
CHAIRMAN OF THE BOARD, DIRECTOR, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
President, January 1996 to present, Chairman of the Board, April 1982 to
present, Chief Executive Officer, July 1991 to present, and Director, March
1960 to present, American National. Director, September 1985 to present, ANREM
Corporation. Director and President, 1982 to present, Moody Bancshares, Inc..
Director and President, 1988 to present, Moody Bank Holding Company, Inc.
President, 1980 to 1993, Chairman of the Board, Director and Chief Executive
Officer, 1980 to present, The Moody National Bank of Galveston. Chairman of the
Board and Director, 1971 to present, National Western Life Insurance Company.
Trustee, 1955 to present, The Moody Foundation. Director, 1954 to present,
Gal-Tex Hotel Corporation.
CARL R. ROBERTSON
SENIOR EXECUTIVE VICE PRESIDENT
Senior Executive Vice President, April 1986 to present, American National.
Director, March 1978 until company was merged in December 1994, and President
and Chief Executive Officer, March 1987 until company was merged in December
1994, Commonwealth Life and Accident Insurance Company. Chairman of the Board,
January 1996 to present, Director, April 1976 to present, and Assistant
Secretary, April 1976 to January 1996, Standard Life and Accident Insurance
Company. Chairman of the Board and President, January 1996 to present,
Director, April 1977 to 1995, and Executive Vice President, August 1978 to
1995, American National Life Insurance Company of Texas. Director, April 1977
to present, American National Property and Casualty Company. Director, November
1981 to present, American National General Insurance Company. Director,
December 1968 to present, and Vice President, September 1983 to present, ANREM
Corporation. Director, March 1973 until company was dissolved in November 1995,
and Chairman of the Board, March 1985 until company was dissolved in November
1995, American Printing Company. Director, November 1981 to present, Securities
Management and Research, Inc. Director, June 1992 to December 1993, and
Advisory Director, December 1993 to present, Garden State Life Insurance
Company. Director, 1995 to present, Pacific P & C Inc.
IRWIN M. HERZ, JR.
DIRECTOR
Director, 1984 to present, American National. Partner, March 1980 to
present, Greer, Herz & Adams, L.L.P., General Counsel to American National.
Trustee, April 1971 to present, Three R Trusts. Director, April 1983 until
company was merged in December 1994, Commonwealth Life and Accident Insurance
Company. Director, October 1983 to present, The Westcap Corporation. Director,
June 1992 to present, Garden State Life Insurance Company.
R. EUGENE LUCAS
DIRECTOR
Director, April 1981 to present, American National. President and Director,
March 1971 to present, Gal-Tex Hotel Corporation. President and Director,
March 1971 to present, Gal-Tenn Hotel Corporation. President and Director, May
1985 to present, Gal-Tex Management Company. President and Director, November
1995 to present, Gal-Tex Woodstock, Inc. Director, November 1982 to present,
Securities Management and Research, Inc. Director, September 1982 to present,
ANREM Corporation. Director, March 1985 to present, Colonel Museum, Inc.
HAROLD C. MacDONALD
DIRECTOR
Director, April 1982 to present, American National. Comptroller, December
1962 to present, The Moody Foundation. Director, November 1982 to present,
American National Property and Casualty Company. Director, November 1982 to
present, American National General Insurance Company. Director, March 1981 to
present, Seal Fleet, Inc. Director, 1995 to present, Pacific P & C, Inc.
E. DOUGLAS McLEOD
DIRECTOR
Director, April 1984 to present, American National. Director, 1986 to
present, ANREM Corporation. Director, October 1979 to present, National Western
Life Insurance Company. Director, June 1984 to present, Independent County
Mutual Fire Insurance Company of Texas. Attorney. Director of Development, May
1982 to present, The Moody Foundation. Owner of McLeod Properties. Past Member
of State House of Representatives of the State of Texas. Chairman and Director,
1988 to present, Moody Gardens, Inc. Vice President and Director, 1985 to
present, Colonel Museum, Inc. Director, 1983 to present, Center for
Transportation and Commerce.
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<PAGE>
FRANCES ANNE MOODY
DIRECTOR
Director, April 1987 to present, American National. Director, 1990 to
present, National Western Life Insurance Company. Director, 1991 to present,
Transitional Learning Center, Inc. Investments, Dallas, Texas.
RUSSELL S. MOODY
DIRECTOR
Director, April 1986 to present, American National. Director, 1988 to
present, National Western Life Insurance Company. Director, 1981 to present,
Gal-Tex Hotel Corporation. Director, 1982 to 1992, Seal Fleet, Inc.
WILLIAM L. MOODY IV
DIRECTOR
Director, March 1951 to present, American National. Director, January 1969
to present, The Moody National Bank of Galveston. President and Director, May
1959 to present, Moody Ranches, Inc. Director, November 1969 to present,
American National Life Insurance Company of Texas. Board of Trustees, 1970 to
present, Rosenberg Library. Director, 1970 to present, University of Texas
Medical Branch Development Board.
JOE MAX TAYLOR
DIRECTOR
Director, April 1992 to present, American National. Sheriff, 1980 to
present, Galveston County, Texas. Director and President, 1988 to present,
Moody Gardens, Inc. Director, 1985 to present, Transitional Learning Center,
Inc. President and Director, 1982 to 1992, Lone Star Historical Drama
Association. President, 1981 to present, Galveston County Bail-Bond Board.
Director, 1981 to present, Fifty Club Board of Galveston. Director, 1992 to
present, Landry's Seafood Restaurants, Inc. Pre-Trial Release Board of
Galveston County 1982 to present. Chairman, 1993 to present, Juvenile Crime
Prevention-Intervention Task Force. President's Cabinet, 1994 to present,
University of Texas Medical Branch. Director, 1988 to 1992, Commonwealth Life
and Accident Insurance Company.
R.A. FRUEND
EXECUTIVE VICE PRESIDENT
Executive Vice President, Director of Ordinary Agencies, April 1989 to
present, American National. Director and Vice President, April 1989 to present,
American National Life Insurance Company of Texas. Director, November 1979 to
present, American National Property and Casualty Insurance Company. Director,
November 1981 to present, American National General Insurance Company.
Director, November 1988 to present, Securities Management and Research, Inc.
Director, 1995 to present, Pacific P & C, Inc. Director, November 1988 to
present, American National Insurance Service Company. Director, December 1995
to present, ANPAC Lloyds Insurance Management, Inc. Director, December 1995 to
present, American National Lloyds Insurance Company.
B.J. GARRISON
EXECUTIVE VICE PRESIDENT
Executive Vice President, Director of Home Service Division, April 1991 to
present, American National. Director, February 1993 until company was merged in
December 1994, Commonwealth Life and Accident Insurance Company.
M.W. McCROSKEY
EXECUTIVE VICE PRESIDENT
Executive Vice President-Investments, 1995 to present, and Senior Vice
President-Real Estate and Mortgage Loans, 1986 to 1995, American National.
Director, June 1977 to present, and President, October 1986 to present, ANREM
Corporation. Assistant Secretary, December 1986 to present, American National
Life Insurance Company of Texas. Vice President, May 1988 to present, Standard
Life and Accident Insurance Company. President and Director, 1995 to present,
ANTAC, Inc. President, Chief Executive Officer and Director, 1994 to present,
Securities Management and Research, Inc. President and Director, 1994 to
present, American National Funds Group. President and Director, 1994 to
present, SM&R Capital Funds, Inc. President and Director, 1994 to present,
American National Investment Accounts, Inc. Vice President, 1995 to present,
Pacific P & C, Inc. Vice President, May 1994 to present, Garden State Life
Insurance Company. Vice President, June 1994 to present, American National
Property and Casualty Company. Vice President, June 1994 to present, American
National General Insurance Company.
C.H. ADDISON
SENIOR VICE PRESIDENT
Senior Vice President, Systems Planning and Computing, April 1978 to
present, American National. Director, November 1981 to present, American
National Property and Casualty Company. Director, November 1981 to present,
American National General Insurance Company. Director, 1995 to present, Pacific
P & C, Inc. Director, January 1996 to present, Standard Life and Accident
Insurance Company.
33
<PAGE>
A.L. AMATO
SENIOR VICE PRESIDENT
Senior Vice President, Life Policy Administration, April 1994 to present,
Vice President, Life Policy Administration, April 1984 to April 1994, American
National. Vice President, May 1984 to present, American National Life Insurance
Company of Texas. Vice President, August 1992 to present, Director, August 1992
to December 1993, and Advisory Director, December 1993 to present, Garden State
Life Insurance Company. Director, August 1992 until company was merged in
December 1994, Commonwealth Life and Accident Insurance Company. Director,
August 1990 to April 1992, Appalachian National Life Insurance Company.
W.J. DAVIS
SENIOR VICE PRESIDENT
Senior Vice President, Claims, April 1974 to present, American National.
Vice President, June 1992 to present, Garden State Life Insurance Company.
Director, April 1985 to present, and Vice President, April 1978 to present,
American National Life Insurance Company of Texas.
G.R. FERDINANDTSEN
SENIOR VICE PRESIDENT
Senior Vice President, Health Insurance Operations, April 1993 to present,
Senior Vice President, Director of Group Insurance, July 1990 to April 1993,
American National. Vice President, Health Insurance Operations, April 1993 to
present, American National Life Insurance Company of Texas. Director, November
1992 to present, American National Property and Casualty Company. Director,
November 1992 to present, American National General Insurance Company.
Director, April 1978 to present, McMarr Properties (formerly American
Securities Company). Director, April 1992 to present, McCreless Foundation.
Director, January 1985 to present, United Land. Director, June 1993 until
company was merged in December 1994, Commonwealth Life and Accident Insurance
Company. Underwriter, March 1994 to present, American National Lloyds Insurance
Company. President and Chief Operating Officer, March 1988 to April 1992,
Appalachian National Life Insurance Company. Director, 1995 to present, Pacific
P & C, Inc. Director, January 1996 to present, Standard Life and Accident
Insurance Company.
J.E. POZZI
SENIOR VICE PRESIDENT
Senior Vice President, Corporate Planning and Development, June 1992 to
present, and Vice President and Actuary, April 1986 to June 1992, American
National. Vice President, April 1993 to present, American National Life
Insurance Company of Texas.
J.R. THOMASON
SENIOR VICE PRESIDENT
Senior Vice President, Credit Insurance Services, April 1987 to present,
American National.
R.J. WELCH
SENIOR VICE PRESIDENT
Senior Vice President and Chief Actuary, April 1986 to present, American
National. Director, December 1987 to present, Standard Life and Accident
Insurance Company. Director, November 1987 to present, American National
Property and Casualty Company. Director, November 1987 to present, American
National General Insurance Company. Director, November 1986 to present,
Actuary, April 1980 to present, and Senior Vice President, April 1990 to
present, American National Life Insurance Company of Texas. Vice President,
until company was merged in December 1994, Commonwealth Life and Accident
Insurance Company. Chairman of the Board and Director, June 1992 to present,
Garden State Life Insurance Company. Director, 1995 to present, Pacific P & C,
Inc. Director, December 1995 to present, American National Insurance Service
Company.
V.E. SOLER, JR.
VICE PRESIDENT, SECRETARY AND
TREASURER
Vice President, Secretary and Treasurer, 1994 to present, and Vice President
and Controller, March, 1984 to 1994, American National. Treasurer, October 1984
to present, ANREM Corporation. Treasurer, April 1984 to present, Controller,
April 1984 to August 1994, and Secretary, August 1994 to present, American
National Life Insurance Company of Texas. Assistant Secretary, January 1996 to
present, Standard Life and Accident Insurance Company. Secretary, 1995 to
present, ANTAC, Inc. Secretary and Treasurer, August 1994 to present, Garden
State Life Insurance Company. Assistant Secretary, August 1994 to present,
American National Property and Casualty Company. Assistant Secretary, American
National General Insurance Company.
S.E. PAVLICEK
VICE PRESIDENT AND CONTROLLER
Vice President and Controller, 1994 to present, and Assistant Vice President
- - Financial Reports, 1983 to 1994, American National. Assistant Treasurer,
1995 to present, ANTAC, Inc. Controller, June 1992 to present, Garden State
Life Insurance Company. Controller, August 1994 to present, American National
Life Insurance Company of Texas.
The principal business address of each person listed above is American
National Insurance Company, One Moody Plaza, Galveston, Texas 77550-7999.
34
<PAGE>
LEGAL MATTERS
All matters of Texas law pertaining to the Policy, including the validity of the
Policy and American National's right to issue the Policy under Texas Insurance
Law, have been passed upon by Greer, Herz and Adams, L.L.P., General Counsel.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Account is a party or to which the
assets of the Account are subject. American National is not involved in any
litigation that is of material importance in relation to its total assets or
that relates to the Account.
EXPERTS
The consolidated financial statements of American National Insurance Company
and subsidiaries as of December 31, 1995, and for the year then ended, and the
financial statements of American National Variable Life Separate Account as of
December 31, 1995, and for the year then ended, included in this prospectus
and elsewhere in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said report.
The consolidated financial statements of American National Insurance Company and
subsidiaries as of December 31, 1994, and for the year then ended, and the
financial statements of American National Variable Life Separate Account as of
December 31, 1994, and for each of the years of the two year period then ended,
included in this prospectus and elsewhere in the registration statement have
been audited by KPMG Peat Marwick LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
Actuarial matters included in the Prospectus have been examined by Rex D.
Hemme, as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Account, American National and the Policy offered
hereby. Statements contained in this Prospectus as to the contents of the Policy
and other legal instruments are summaries. For a complete statement of the terms
thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of American National which are included in this
Prospectus should be distinguished from the financial statements of the Separate
Account and should be considered only as bearing on the ability of American
National to meet its obligations under the Policies. They should not be
considered as bearing on the investment performance of the assets held in the
Account.
35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Contract Owners of American National Variable
Life Separate Account:
We have audited the accompanying statement of net assets of the American
National Variable Life Separate Account (comprised of American National (AN)
Growth, AN Money Market, AN Balanced, AN Managed, Fidelity VIP Money Market,
Fidelity VIP High Income, Fidelity VIP Equity Income, Fidelity VIP Growth,
Fidelity VIP Overseas, Fidelity VIP Investment Grade Bond, Fidelity VIP Asset
Manager, Fidelity VIP Index 500, Fidelity VIP Contra and Fidelity VIP Asset
Manager Growth Portfolio Subaccounts) as of December 31, 1995, the related
statement of operations and changes in net assets for the year then ended, and
the condensed financial information for the year ended December 31, 1995. These
financial statements and condensed financial information are the responsibility
of the Account's management. Our responsibility is to express an opinion on
these financial statements and condensed financial information based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995 by
correspondence with the custodians. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the American National
Variable Life Separate Account (comprised of American National (AN) Growth, AN
Money Market, AN Balanced, AN Managed, Fidelity VIP Money Market, Fidelity VIP
High Income, Fidelity VIP Equity Income, Fidelity VIP Growth, Fidelity VIP
Overseas, Fidelity VIP Investment Grade Bond, Fidelity VIP Asset Manager,
Fidelity VIP Index 500, Fidelity VIP Contra and Fidelity VIP Asset Manager
Growth Portfolio Subaccounts) as of December 31, 1995 and the results of
operations, changes in net assets and condensed financial information for the
year then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 16, 1996
36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Contract Owners of American National Variable
Life Separate Account
We have audited the accompanying statements of operations and changes in net
assets of the American National (AN) Growth, AN Money Market, AN Balanced, AN
Managed, Fidelity VIP Money Market, Fidelity VIP High Income, Fidelity VIP
Equity Income, Fidelity VIP Growth, Fidelity VIP Overseas, Fidelity VIP
Investment Grade Bond, Fidelity VIP Asset Manager, and Fidelity VIP Index 500
Portfolio Subaccounts of American National Variable Life Separate Account for
each of the years in the two year period ended December 31, 1994, and the
condensed financial information for the periods from February 20, 1991 to
December 31, 1994 presented in Note 6. These financial statements and condensed
financial information are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Investments
owned at December 31, 1994 were verified by examination of the underlying
portfolios of the American National Funds or through confirmation for the
Fidelity Funds. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations, changes in net assets and
condensed financial information of the American National (AN) Growth, AN Money
Market, AN Balanced, AN Managed, Fidelity VIP Money Market, Fidelity VIP High
Income, Fidelity VIP Equity Income, Fidelity VIP Growth, Fidelity VIP Overseas,
Fidelity VIP Investment Grade Bond, Fidelity VIP Asset Manager, and Fidelity
VIP Index 500 Portfolio Subaccounts of American National Variable Life Separate
Account for the periods stated in the first paragraph above, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
February 15, 1995
37
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands, Except For Share and Unit Information)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
SUBACCOUNTS
-------------------------------------------------------------------------------------
ASSETS FIDELITY FIDELITY
AN FIDELITY VIP VIP
AN MONEY AN AN VIP HIGH EQUITY
GROWTH MARKET BALANCED MANAGED MONEY INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO MARKET FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Investment in shares of mutual
funds at net asset value $ 3,982 $ 2,019 $ 2,974 $ 3,299 $ 49 $ 161 $ 451
====================================================================================================================================
NET ASSETS, representing
Equity of contract owners $ 1,131 $ 35 $ 426 $ 560 $ 49 $ 161 $ 451
Equity of sponsor 2,851 2,056 2,548 2,739 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3,982 $ 2,091 $ 2,974 $ 3,299 $ 49 $ 161 $ 451
====================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION
Number of Shares 3,135,373 2,091,154 2,520,086 2,726,550 49,025 13,365 23,380
Cost $ 3,327 $ 2,091 $ 2,580 $ 2,813 $ 49 $ 145 $ 397
POLICY UNIT INFORMATION
Number of units held by contract owners 724,184 31,356 300,056 376,409 45,001 142,673 325,005
Net asset value per unit $1.562 $1.107 $1.419 $1.487 $1.089 $1.129 $1.386
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP FIDELITY FIDELITY FIDELITY VIP
FIDELITY FIDELITY INVESTMENT VIP VIP VIP ASSET
VIP VIP GRADE ASSET INDEX CONTRA MANAGER
GROWTH OVERSEAS BOND MANAGER 500 FUND GRWOTH
<S> <C> <C> <C> <C> <C> <C> <C>
Investment in shares of mutual
funds at net asset value $ 1,031 $ 266 $ 15 $ 403 $ 228 $ 55 $ 6
====================================================================================================================================
NET ASSETS, representing
Equity of contract owners $ 1,031 $ 266 $ 15 $ 403 $ 228 $ 55 $ 6
Equity of sponsor -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,031 $ 266 $ 15 $ 403 $ 228 $ 55 $ 6
====================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION
Number of Shares 35,303 15,625 1,214 25,543 3,009 3,978 503
Cost $ 900 $ 249 $ 14 $ 365 $ 208 $ 55 $ 6
POLICY UNIT INFORMATION
Number of units held by contract owners 795,944 257,859 13,555 380,380 169,496 47,195 5,488
Net asset value per unit $1.295 $1.033 $1.118 $1.060 $1.344 $1.161 $1.079
</TABLE>
See accompanying notes to financial statements
38
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
SUBACCOUNTS
-------------------------------------------------------------------------------------
FIDELITY FIDELITY
AN FIDELITY VIP VIP
AN MONEY AN AN VIP HIGH EQUITY
GROWTH MARKET BALANCED MANAGED MONEY INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO MARKET FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 66 $ 102 $ 86 $ 74 $ 4 $ 5 $ 6
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (184) (19) (69) (65) (49) (40) (103)
====================================================================================================================================
NET INVESTMENT INCOME (LOSS) $ (118) $ 83 $ 17 $ 9 $ (45) $ (35) $ (97)
REALIZED GAINS (LOSSES) ON SALES OF
INVESTMENTS
Proceeds from sales 50 329 37 60 747 17 43
Cost of investments sold (45) (329) (38) (58) (747) (16) (37)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5 $ -- $ (1) $ 2 $ -- $ 1 $ 6
CAPITAL GAINS DISTRIBUTIONS RECEIVED 128 -- -- 85 -- -- 5
UNREALIZED INVESTMENT GAINS (LOSSES) 616 -- 429 548 -- 16 53
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 631 $ 83 $ 445 $ 644 $ (45) $ (18) $ (33)
TRANSFERS TO SPONSOR FOR BENEFITS AND
TERMINATIONS (42) -- (7) (26) -- (5) (9)
PREMIUM PAYMENTS AND OTHER OPERATING
TRANSFERS* 698 3 158 214 93 120 402
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS $ 1,287 $ 86 $ 596 $ 832 $ 48 $ 97 $ 360
NET ASSETS
Beginning of period 2,695 2,005 2,378 2,467 1 64 91
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $ 3,982 $ 2,091 $ 2,974 $ 3,299 $ 49 $ 161 $ 451
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP FIDELITY FIDELITY FIDELITY VIP
FIDELITY FIDELITY INVESTMENT VIP VIP VIP ASSET
VIP VIP GRADE ASSET INDEX CONTRA MANAGER
GROWTH OVERSEAS BOND MANAGER 500 FUND GRWOTH
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 1 $ 1 $ -- $ 5 $ 1 $ -- $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (230) (87) (4) (138) (40) (7) (1)
====================================================================================================================================
NET INVESTMENT INCOME (LOSS) $ (229) $ (86) $ (4) $ (133) $ (39) $ (7) $ (1)
REALIZED GAINS (LOSSES) ON SALES OF
INVESTMENTS
Proceeds from sales 37 76 2 91 50 2 1
Cost of investments sold (29) (77) (2) (88) (42) (2) (1)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 8 $ (1) $ -- $ 3 $ 8 $ -- $ --
CAPITAL GAINS DISTRIBUTIONS RECEIVED -- -- -- -- -- 1 --
UNREALIZED INVESTMENT GAINS (LOSSES) 125 22 1 43 20 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (96) $ (65) $ (3) $ (87) $ (11) $ (6) $ (1)
TRANSFERS TO SPONSOR FOR BENEFITS AND
TERMINATIONS (14) (9) -- (8) (2) (2) --
PREMIUM PAYMENTS AND OTHER OPERATING
TRANSFERS* 931 201 15 323 211 63 7
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS $ 821 $ 127 $ 12 $ 228 $ 198 $ 55 $ 6
NET ASSETS
Beginning of period 210 139 3 175 30 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $ 1,031 $ 266 $ 15 $ 403 $ 228 $ 55 $ 6
===================================================================================================================================
</TABLE>
* Includes transfer activity from (to) other portfolios
See accompanying notes to financial statements
39
<PAGE>
American National Variable Life Separate Account
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
SUBACCOUNTS
-----------------------------------------------------------------------------------
FIDELITY FIDELITY
AN FIDELITY VIP VIP
AN MONEY AN AN VIP HIGH EQUITY
GROWTH MARKET BALANCED MANAGED MONEY INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO MARKET FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 49 $ 64 $ 75 $ 56 $ -- $ -- $ 1
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (139) (34) (82) (59) (1) (14) (21)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (90) $ 30 $ (7) $ (3) $ (1) $ (14) $ (20)
REALIZED GAINS (LOSSES) ON SALES OF
INVESTMENTS
Proceeds from sales 81 420 56 79 -- 14 6
Cost of investments sold (78) (420) (58) (75) -- (14) (6)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3 $ -- $ (2) $ 4 $ -- $ -- $ --
CAPITAL GAINS DISTRIBUTIONS RECEIVED 221 -- 85 218 -- -- --
UNREALIZED INVESTMENT GAINS (LOSSES) (101) -- (132) (269) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 33 $ 30 $ (56) $ (50) $ (1) $ (14) $ (20)
TRANSFERS TO SPONSOR FOR BENEFITS AND
TERMINATIONS (38) (1) (30) (20) -- (1) --
PREMIUM PAYMENTS AND OTHER OPERATING
TRANSFERS* 258 53 177 100 2 79 111
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS $ 253 $ 82 $ 91 $ 30 $ 1 $ 64 $ 91
NET ASSETS
Beginning of period 2,442 1,923 2,287 2,437 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $ 2,695 $ 2,005 $ 2,378 $ 2,467 $ 1 $ 64 $ 91
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
VIP FIDELITY FIDELITY
FIDELITY FIDELITY INVESTMENT VIP VIP
VIP VIP GRADE ASSET INDEX
GROWTH OVERSEAS BOND MANAGER 500
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ -- $ -- $ -- $ -- $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (53) (30) (2) (28) (5)
- --------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (53) $ (30) $ (2) $ (28) $ (5)
REALIZED GAINS (LOSSES) ON SALES OF
INVESTMENTS
Proceeds from sales 15 15 -- 18 5
Cost of investments sold (16) (15) -- (18) (5)
- --------------------------------------------------------------------------------------------------------------
$ (1) $ -- $ -- $ -- $ --
CAPITAL GAINS DISTRIBUTIONS RECEIVED -- -- -- -- --
UNREALIZED INVESTMENT GAINS (LOSSES) 6 (4) -- (5) --
- --------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (48) $ (34) $ (2) $ (33) $ (5)
TRANSFERS TO SPONSOR FOR BENEFITS AND
TERMINATIONS -- (1) -- (1) (1)
PREMIUM PAYMENTS AND OTHER OPERATING
TRANSFERS* 258 174 5 209 36
- --------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS $ 210 $ 139 $ 3 $ 175 $ 30
NET ASSETS
Beginning of period -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
End of period $ 210 $ 139 $ 3 $ 175 $ 30
==============================================================================================================
</TABLE>
40
<PAGE>
American National Variable Life Separate Account
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the year ended December 31, 1993
(In thousands)
<TABLE>
<CAPTION>
SUB ACCOUNTS
-------------------------------------------
AN
AN Money AN AN
Growth Market Balanced Managed
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 49 $ 39 $ 58 $ 67
EXPENSES
Charges to contract owners for
assuming mortality and expense
risks (124) (18) (64) (50)
----------------------------------------
NET INVESTMENT INCOME (LOSS) $ (75) $ 21 $ (6) $ 17
REALIZED GAINS ON SALES OF
INVESTMENTS
Proceeds from sales 172 -- 23 32
Cost of investments sold (164) -- (21) (29)
----------------------------------------
$ 8 $ -- $ 2 $ 3
CAPITAL GAINS DISTRIBUTIONS
RECEIVED 93 -- 63 48
UNREALIZED INVESTMENT GAINS
(LOSSES) 15 -- (23) 120
----------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 41 $ 21 $ 36 $ 188
TRANSFER TO SPONSOR FOR BENEFITS
AND TERMINATIONS (111) (1) (8) (11)
PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS* 306 34 172 137
----------------------------------------
INCREASE IN NET ASSETS $ 236 $ 54 $ 200 $ 314
NET ASSETS:
Beginning of period 2,206 1,869 2,087 2,123
----------------------------------------
End of period $2,442 $1,923 $2,287 $2,437
========================================
</TABLE>
* Includes transfer activity from (to) other portfolios.
See accompanying notes to financial statements.
41
<PAGE>
American National Variable Life Separate Account
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General ... American National Variable Life Separate Account (Separate
Account) was established on July 30,1987 under Texas law as a separate
investment account of American National Insurance Company (the Sponsor). The
Separate Account began operations on February 20, 1991. The assets of the
Separate Account are segregated from the Sponsor's other assets and are used
only to support variable life products issued by the Sponsor.
The Separate Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. There are currently fourteen
subaccounts within the Separate Account, each of which is invested only in a
corresponding portfolio of the American National (AN) or Fidelity Funds. The
American National Funds were organized and are managed for a fee by Securities
Management & Research, Inc. (SM&R) which is a wholly-owned subsidiary of the
Sponsor. The Fidelity Funds were organized and are managed for a fee by
Fidelity Management & Research Co. ("FMR")
Basis of Presentation ... The financial statements of the Separate Account
have been prepared on an accrual basis in accordance with generally accepted
accounting principles.
Federal Taxes ... The operations of the Separate Account form a part of, and
are taxed with, the operations of the Sponsor. Under the Internal Revenue
Code, all ordinary income and capital gains allocated to the contract owners
are not taxed to the Sponsor. As a result, the net asset values of the
subaccounts are not affected by federal income taxes on distributions received
by subaccounts. Accordingly, no provision for income taxes is required in the
accompanying financial statements.
Use of Estimates ... The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of income and expenses during the period. Operating results in the future could
vary from the amounts derived from management's estimates.
(2) SPONSOR'S INVESTMENT
On March 1, 1991 the Sponsor made a $7,000,000 initial investment in the
Separate Account. This investment had a total market value of $10,194,000 at
December 31, 1995. This initial investment may be withdrawn at the discretion
of the Sponsor without penalty.
(3) INVESTMENT INFORMATION
Investments in shares of the separate investment portfolios are stated at
market value which is the net asset value per share as determined by the
respective portfolios on a daily basis. Dividends received from the portfolios
are reinvested daily in additional shares of the portfolios and are recorded as
dividend income on the record date.
The Separate Account's purchases of the separate investment portfolios,
including reinvestment of dividend distributions, were as follows during the
years ended December 31, 1995 (period from April 30, 1995 to December 31, 1995
for the Fidelity VIP Contra and Asset Manager Growth Funds), 1994 (period from
April 19, 1994 to December 31, 1994 for the Fidelity Funds) and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
AN Growth Portfolio $ 716,486 $ 432,296 $ 384,569
AN Money Market Portfolio $ 415,180 $ 502,272 $ 228,902
AN Balanced Portfolio $ 204,839 $ 280,338 $ 244,113
AN Managed Portfolio $ 341,748 $ 374,030 $ 223,270
Fidelity VIP Money Market $ 795,204 $ 1,130 $ --
Fidelity VIP High Income Fund $ 97,187 $ 78,804 $ --
Fidelity VIP Equity Income Fund $ 343,729 $ 96,781 $ --
Fidelity VIP Growth $ 724,663 $ 220,173 $ --
Fidelity VIP Overseas $ 183,109 $ 158,368 $ --
Fidelity VIP Investment Grade Bond $ 12,216 $ 3,726 $ --
Fidelity VIP Asset Manager $ 273,318 $ 196,885 $ --
Fidelity VIP Index 500 $ 220,175 $ 34,516 $ --
Fidelity VIP Contra Fund $ 56,199 $ -- $ --
Fidelity VIP Asset Manager Growth $ 7,398 $ -- $ --
</TABLE>
42
<PAGE>
(4) CHARGES AND DEDUCTIONS FOR THE SEPARATE ACCOUNT INCLUDE THE FOLLOWING:
Monthly Administrative Charges ... A monthly administrative charge is
deducted from each policy. During the first twelve (12) policy months, this
charge will be $2.50 plus a fee ranging from $0.0632 to $2.59 per $1,000 of
the policyowner's death benefit from age 0 to 75, respectively. Thereafter,
such monthly administrative charge shall be a maximum of $2.50, plus $0.025 per
$1,000 of the policyowner's death benefit. These charges are deducted through
termination of units of interest from applicable contract owners' accounts.
Surrender Charge ... A surrender charge is imposed upon the surrender of
variable life insurance contracts to compensate the Sponsor for sales and other
marketing expenses. The amount of any surrender charge will depend on the
number of years that have elapsed since the contract was issued. No surrender
charge will be imposed on death benefits.
Transfer Charge ... A $25 transfer charge is imposed after the first four
transfers in any one policy year for transfers made among the subaccounts.
Premium Charges ... Premiums paid will be reduced by a 4% sales charge to
compensate the Sponsor for expenses associated with distributing the policy.
In addition, a $2.00 transaction charge will be deducted to reimburse the
Sponsor for billings and confirmations. Premium taxes for certain
jurisdictions are deducted from premiums paid at rates ranging from zero to 4%.
Mortality and Expense Risk Charges ... The mortality risk and expense risk
charges, at an effective annual rate of up to 0.90%, are applied daily against
the net assets representing equity of contract owners held in each subaccount.
The total of cash value charges for each subaccount for the years ended
December 31, 1995 (period from April 30, 1995 to December 31, 1995 for the
Fidelity VIP Contra and Asset Manager Growth Funds), 1994 (period from April
19, 1994 to December 31, 1994 for the Fidelity Fund subaccounts) and 1993 are
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
AN Growth Portfolio $ 6,635 $ 5,634 $ 2,915
AN Money Market Portfolio $ 366 $ 565 $ 217
AN Balanced Portfolio $ 2,977 $ 3,389 $ 1,421
AN Managed Portfolio $ 3,843 $ 4,155 $ 2,348
Fidelity VIP Money Market $ 621 $ 4 $ --
Fidelity VIP High Income Fund $ 1,117 $ 390 $ --
Fidelity VIP Equity Income Fund $ 2,196 $ 516 $ --
Fidelity VIP Growth $ 5,257 $ 1,052 $ --
Fidelity VIP Overseas $ 1,965 $ 848 $ --
Fidelity VIP Investment Grade Bond $ 65 $ 21 $ --
Fidelity VIP Asset Manager $ 2,773 $ 1,056 $ --
Fidelity VIP Index 500 $ 864 $ 60 $ --
Fidelity VIP Contra Fund $ 108 $ -- $ --
Fidelity VIP Asset Manager Growth $ 11 $ -- $ --
</TABLE>
43
<PAGE>
Notes to Variable Life Separate Account Financial Statements continued ...
(5) UNIT ACTIVITY FROM POLICY TRANSACTIONS
Transactions in units for each subaccount for the American National Funds
for the years ended December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION> AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNIT ACTIVITY FROM POLICY TRANSACTIONS
Units outstanding December 31, 1992 248,806 13,816 94,729 196,973
Policy purchase payments 289,933 198,111 156,614 132,756
Deductions for policy withdrawals and charges (221,637) (184,197) (68,037) (63,660)
Units outstanding December 31, 1993 317,102 27,730 183,306 266,069
Policy purchase payments 263,064 575,330 169,773 132,590
Deductions for policy withdrawals and charges (191,966) (557,562) (113,559) (111,944)
Units outstanding December 31, 1994 388,200 45,498 239,520 286,715
Policy purchase payments 561,234 521,864 168,293 209,511
Deductions for policy withdrawals and charges (225,250) (536,006) (107,757) (119,817)
Units outstanding December 31, 1995 724,184 31,356 300,056 376,409
</TABLE>
Transactions in units for each subaccount for the Fidelity Funds for the
year ended December 31, 1995 and for the period from April 19, 1994 to December
31, 1994 were as follows:
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
VIP VIP VIP FIDELITY
MONEY HIGH EQUITY VIP
MARKET INCOME FUND INCOME FUND GROWTH
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding April 19, 1994 -- -- -- --
Policy purchase payments 1,321 83,008 108,576 275,012
Deductions for policy withdrawals and charges (264) (14,890) (20,829) (57,142)
Units outstanding December 31, 1994 1,057 68,118 87,747 217,870
Policy purchase payments 1,153,659 125,033 382,366 881,338
Deductions for policy withdrawals and charges (1,109,715) (50,478) (145,108) (303,264)
Units outstanding December 31, 1995 45,001 142,673 325,005 795,944
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
FIDELITY VIP VIP VIP
VIP INVESTMENT ASSET INDEX
OVERSEAS GRADE BOND MANAGER 500
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding April 19, 1994 -- -- -- --
Policy purchase payments 181,320 5,033 224,771 35,849
Deductions for policy withdrawals and charges (35,145) (1,421) (33,738) (5,742)
Units outstanding December 31, 1994 146,175 3,612 191,033 30,107
Policy purchase payments 315,300 15,889 458,340 223,570
Deductions for policy withdrawals and charges (203,616) (5,946) (268,993) (84,181)
Units outstanding December 31, 1995 257,859 13,555 380,380 169,496
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
FIDELITY VIP
VIP ASSET MANAGER
CONTRA FUND GROWTH
- -----------------------------------------------------------------------------------
<S> <C> <C>
Units outstanding April 30, 1995 -- --
Policy purchase payments 54,937 7,100
Deductions for policy withdrawals and charges (7,742) (1,612)
Units outstanding December 31, 1995 47,195 5,488
</TABLE>
44
<PAGE>
(6) CONDENSED FINANCIAL INFORMATION
The following tables for each subaccount show selected data for an
accumulation unit outstanding during the periods indicated (per unit
information is based on the average of the beginning and ending units for each
period):
<TABLE>
<CAPTION>
02/20/91
1995 1994 1993 1992 TO 12/31/91
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AN GROWTH PORTFOLIO
Investment income $ 0.033 $ 0.025 $ 0.026 $ 0.014 $ 0.029
Expenses (0.331) (0.392) (0.438) (0.478) (0.112)
- ------------------------------------------------------------------------------------------------------------------
Investment income (loss)- net (0.298) (0.367) (0.412) (0.464) (0.083)
Net realized and unrealized
gains (losses) on investments 0.633 0.436 0.479 0.420 0.218
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unit value 0.335 0.069 0.067 (0.044) 0.135
Beginning of year 1.227 1.158 1.091 1.135 1.000
- ------------------------------------------------------------------------------------------------------------------
End of year $ 1.562 $ 1.227 $ 1.158 $ 1.091 $ 1.135
==================================================================================================================
AN MONEY MARKET PORTFOLIO
Investment income $ 0.539 $ 0.933 $ 0.873 $ 0.384 $ 0.307
Expenses (0.494) (0.908) (0.861) (0.371) (0.295)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unit value 0.045 0.025 0.012 0.013 0.012
Beginning of year 1.062 1.037 1.025 1.012 1.000
- ------------------------------------------------------------------------------------------------------------------
End of year $ 1.107 $ 1.062 $ 1.037 $ 1.025 $ 1.012
==================================================================================================================
AN BALANCED PORTFOLIO
Investment income $ 0.045 $ 0.042 $ 0.039 $ 0.049 $ 0.063
Expenses (0.256) (0.384) (0.459) (0.423) (0.115)
- ------------------------------------------------------------------------------------------------------------------
Investment income (loss)- net (0.211) (0.342) (0.420) (0.374) (0.052)
Net realized and unrealized
gains (losses) on investments 0.452 0.345 0.461 0.344 0.216
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unit value 0.241 0.003 0.041 (0.030) 0.164
Beginning of year 1.178 1.175 1.134 1.164 1.000
- ------------------------------------------------------------------------------------------------------------------
End of year $ 1.419 $ 1.178 $ 1.175 $ 1.134 $ 1.164
==================================================================================================================
AN MANAGED PORTFOLIO
Investment income $ 0.037 $ 0.027 $ 0.037 $ 0.022 $ 0.033
Expenses (0.196) (0.213) (0.218) (0.288) (0.134)
- ------------------------------------------------------------------------------------------------------------------
Investment income (loss)-net (0.159) (0.186) (0.181) (0.266) (0.101)
Net realized and unrealized
gains (losses) on investments 0.478 0.179 0.288 0.222 0.213
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unit value 0.319 (0.007) 0.107 (0.044) 0.112
Beginning of year 1.168 1.175 1.068 1.112 1.000
- ------------------------------------------------------------------------------------------------------------------
End of year $ 1.487 $ 1.168 $ 1.175 $ 1.068 $ 1.112
==================================================================================================================
</TABLE>
The tables for the Fidelity Funds show selected data for an accumulation unit
outstanding for the year ended December 31, 1995 (period from April 30, 1995 to
December 31, 1995 for the Fidelity VIP Contra and Asset Manager Growth Funds)
and for the period of April 19, 1994 to December 31, 1994.
<TABLE>
<CAPTION>
04/19/94
1995 TO 12/31/94
- ------------------------------------------------------------------
<S> <C> <C>
FIDELITY VIP MONEY MARKET
Investment income $ 2.177 $ 0.547
Expenses (2.128) (0.507)
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.049 0.040
Beginning of period 1.040 1.000
- ------------------------------------------------------------------
End of period $ 1.089 $ 1.040
==================================================================
</TABLE>
<TABLE>
<CAPTION>
04/19/94
1995 TO 12/31/94
- ------------------------------------------------------------------
<S> <C> <C>
FIDELITY VIP HIGH INCOME FUND
Investment income $ 0.048 $ --
Expenses (0.380) (0.391)
- ------------------------------------------------------------------
Investment income (loss)- net (0.332) (0.391)
Net realized and unrealized
gains (losses) on investments 0.521 0.331
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.189 (0.060)
Beginning of period 0.940 1.000
- ------------------------------------------------------------------
End of period $ 1.129 $ 0.940
==================================================================
</TABLE>
45
<PAGE>
Notes to Variable Life Separate Account Financial Statements continued ...
<TABLE>
<CAPTION>
04/19/94
1995 TO 12/31/94
- ------------------------------------------------------------------
<S> <C> <C>
FIDELITY VIP EQUITY INCOME FUND
Investment income $ 0.030 $ 0.024
Expenses 0.499 0.465
- ------------------------------------------------------------------
Investment income (loss)- net (0.469) (0.441)
Net realized and unrealized
gains (losses) on investments 0.815 0.481
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.346 0.040
Beginning of period 1.040 1.000
- ------------------------------------------------------------------
End of period $ 1.386 $ 1.040
==================================================================
</TABLE>
<TABLE>
<CAPTION>
04/19/94
1995 TO 12/31/94
- ------------------------------------------------------------------
<S> <C> <C>
FIDELITY VIP OVERSEAS
Investment income $ 0.003 $ --
Expenses (0.431) (0.407)
- ------------------------------------------------------------------
Investment income (loss)- net (0.428) (0.407)
Net realized and unrealized
gains (losses) on investments 0.511 0.357
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.083 (0.050)
Beginning of period 0.950 1.000
- ------------------------------------------------------------------
End of period $ 1.033 $ 0.950
==================================================================
</TABLE>
<TABLE>
<CAPTION>
04/19/94
1995 TO 12/31/94
- ------------------------------------------------------------------
<S> <C> <C>
FIDELITY VIP ASSET MANAGER
Investment income $ 0.017 $ 0.001
Expenses (0.483) (0.291)
- ------------------------------------------------------------------
Investment income (loss)- net (0.466) (0.290)
Net realized and unrealized
gains (losses) on investments 0.616 0.200
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.150 (0.090)
Beginning of period 0.910 1.000
- ------------------------------------------------------------------
End of period $ 1.060 $ 0.910
==================================================================
</TABLE>
<TABLE>
<CAPTION>
04/19/94
1995 TO 12/31/94
- ------------------------------------------------------------------
<S> <C> <C>
FIDELITY VIP GROWTH
Investment income $ 0.003 $ --
Expenses (0.454) (0.481)
- ------------------------------------------------------------------
Investment income (loss)- net (0.451) (0.481)
Net realized and unrealized
gains (losses) on investments 0.776 0.451
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.325 (0.030)
Beginning of period 0.970 1.000
- ------------------------------------------------------------------
End of period $ 1.295 $ 0.970
==================================================================
</TABLE>
<TABLE>
<CAPTION>
04/19/94
1995 TO 12/31/94
- ------------------------------------------------------------------
<S> <C> <C>
FIDELITY VIP INVESTMENT GRADE BOND
Investment income $ 0.015 $ --
Expenses (0.466) (0.746)
- ------------------------------------------------------------------
Investment income (loss)- net (0.451) (0.746)
Net realized and unrealized
gains (losses) on investments 0.609 0.706
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.158 (0.040)
Beginning of period 0.960 1.000
- ------------------------------------------------------------------
End of period $ 1.118 $ 0.960
==================================================================
</TABLE>
<TABLE>
<CAPTION>
04/19/94
1995 TO 12/31/94
- ------------------------------------------------------------------
<S> <C> <C>
FIDELITY VIP INDEX 500
Investment income $ 0.004 $ --
Expenses (0.401) (0.301)
- ------------------------------------------------------------------
Investment income (loss)- net (0.397) (0.301)
Net realized and unrealized
gains (losses) on investments 0.751 0.291
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.354 (0.010)
Beginning of period 0.990 1.000
- ------------------------------------------------------------------
End of period $ 1.344 $ 0.990
==================================================================
</TABLE>
<TABLE>
<CAPTION>
04/28/95
TO 12/31/95
- ------------------------------------------------------------------
<S> <C>
FIDELITY VIP CONTRA FUND
Investment income $ 0.009
Expenses (0.297)
- ------------------------------------------------------------------
Investment income (loss)- net (0.288)
Net realized and unrealized
gains (losses) on investments 0.449
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.161
Beginning of period 1.000
- ------------------------------------------------------------------
End of period $ 1.161
==================================================================
</TABLE>
<TABLE>
<CAPTION>
04/28/95
TO 12/31/95
- ------------------------------------------------------------------
<S> <C>
FIDELITY VIP ASSET MANAGER GROWTH
Investment income $ 0.019
Expenses (0.364)
- ------------------------------------------------------------------
Investment income (loss)- net 0.383
Net realized and unrealized
gains (losses) on investments (0.304)
- ------------------------------------------------------------------
Net increase (decrease) in unit value 0.079
Beginning of period 1.000
- ------------------------------------------------------------------
End of period $ 1.079
==================================================================
</TABLE>
46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company
We have audited the accompanying consolidated statement of financial
position of American National Insurance Company and subsidiaries (the Company)
as of December 31, 1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the year then ended. These
consolidated financial statements (pages 49 through 64) are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
National Insurance Company and subsidiaries as of December 31, 1995 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 16, 1996
47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company
We have audited the accompanying consolidated statements of financial
position of American National Insurance Company and subsidiaries (the Company)
as of December 31, 1994, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the year then ended. These
consolidated financial statements (pages 49 through 64) are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
National Insurance Company and subsidiaries at December 31, 1994, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," in 1994.
KPMG PEAT MARWICK LLP
Houston, Texas
February 15, 1995
48
<PAGE>
American National Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------
<S> <C> <C>
PREMIUMS AND OTHER REVENUE
Life and annuity premiums $ 308,949 $ 289,099
Accident and health premiums 360,420 384,703
Property and casualty premiums 233,512 202,160
Other policy revenues 78,260 70,499
Net investment income 386,910 333,312
Gain from sale of investments 76,335 92,361
Other income 26,576 23,304
- -----------------------------------------------------------------------
$1,470,962 $1,395,438
- -----------------------------------------------------------------------
BENEFITS AND EXPENSES
Death and other benefits:
Life and annuity $ 312,018 $ 266,412
Accident and health 243,560 253,458
Property and casualty 193,453 150,922
Increase (decrease) in liability for
future policy benefits:
Life and annuity 32,582 18,420
Accident and health (2,558) 1,057
Commissions for acquiring and
servicing policies 287,506 242,963
Increase in deferred policy acquisition
costs, net of amortization (98,285) (61,978)
Other operating costs and expenses 159,185 170,979
Taxes, licenses and fees 39,394 37,688
- -----------------------------------------------------------------------
$1,166,855 $1,079,921
- -----------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE EQUITY IN
EARNINGS OF UNCONSOLIDATED AFFILIATES
AND FEDERAL INCOME TAXES $ 304,107 $ 315,517
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATES 2,170 407
- -----------------------------------------------------------------------
GAIN FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES $ 306,277 $ 315,924
PROVISION (BENEFIT) FOR FEDERAL
INCOME TAXES
Current $ 109,471 $ 103,598
Deferred (9,558) (2,761)
- -----------------------------------------------------------------------
NET INCOME $ 206,364 $ 215,087
=======================================================================
NET INCOME PER SHARE $ 7.79 $ 8.12
=======================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
49
<PAGE>
American National Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, other than investments in
unconsolidated affiliates:
Debt securities:
Bonds held-to-maturity, at amortized cost $2,966,939 $2,477,090
Bonds available-for-sale, at market 482,687 99,511
Redeemable preferred stocks, at amortized cost -- 7,881
Marketable equity securities, at market:
Preferred stocks 53,983 29,717
Common stocks 710,717 623,709
Mortgage loans on real estate 925,581 930,840
Policy loans 301,589 300,068
Investment real estate, net of accumulated
depreciation of $105,082 and $94,872 330,684 313,435
Short-term investments 15,066 12,620
Other invested assets 33,739 16,569
- --------------------------------------------------------------------------------
$5,820,985 $4,811,440
Cash 13,945 2,857
Investments in unconsolidated affiliates 98,790 103,670
Accrued investment income 82,541 71,007
Reinsurance ceded receivables 38,436 30,510
Prepaid reinsurance premiums 84,648 70,652
Premiums due and other receivables 74,015 73,152
Deferred policy acquisition costs 675,656 576,801
Property and equipment 31,357 34,682
Other assets 77,052 65,003
Separate account assets 142,608 121,420
- --------------------------------------------------------------------------------
TOTAL ASSETS $7,140,033 $5,961,194
- --------------------------------------------------------------------------------
LIABILITIES
Policyowner funds
Future policy benefits:
Life and annuity $1,905,547 $1,873,104
Accident and health 108,128 110,756
Policy account balances 1,775,641 1,016,057
Policy and contract claims 278,228 263,022
Other policyowner funds 296,934 256,901
- --------------------------------------------------------------------------------
$4,364,478 $3,519,840
Deferred federal income taxes 194,412 146,289
Notes payable 10,382 12,423
Other liabilities 107,040 88,914
Separate account liabilities 142,608 121,420
- --------------------------------------------------------------------------------
TOTAL LIABILITIES $4,818,920 $3,888,886
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock $ 30,832 $ 30,832
Additional paid-in capital 211 211
Net unrealized gains on securities 158,898 52,907
Retained earnings 2,233,899 2,091,085
Treasury stock, at cost (102,727) (102,727)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $2,321,113 $2,072,308
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $7,140,033 $5,961,194
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
50
<PAGE>
American National Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Additional Unrealized Total
Capital Paid-In Gains On Retained Treasury Stockholders'
Stock Capital Securities Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1993 $30,832 $211 $ 98,084 $1,935,310 $(102,727) $1,961,710
Net income 215,087 215,087
Dividends to stockholders
($2.24 per share) (59,312) (59,312)
Decrease in unrealized gains on
marketable securities, net of
applicable federal income taxes (45,177) (45,177)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994 $30,832 $211 $ 52,907 $2,091,085 $(102,727) $2,072,308
Net income 206,364 206,364
Dividends to stockholders
($2.40 per share) (63,550) (63,550)
Increase in unrealized gains on
marketable securities, net of
applicable federal income taxes 105,991 105,991
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 $30,832 $211 $158,898 $2,233,899 $(102,727) $2,321,113
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
51
<PAGE>
American National Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 206,364 $ 215,087
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in liabilities for policyholders' funds 85,054 64,103
Charges to policy account balances (61,454) (67,296)
Interest credited to policy account balances 86,051 46,685
Deferral of policy acquisition costs (195,253) (151,206)
Amortization of deferred policy acquisition costs 96,398 88,727
Deferred federal income tax benefit (9,558) (2,761)
Depreciation 19,378 19,222
Accrual and amortization of discounts (6,713) (8,914)
Gain from sale of investments (76,335) (92,361)
Equity in earnings of unconsolidated affiliates (2,170) (407)
Decrease (increase) in premiums receivable (863) 5,106
Increase in accrued investment income (11,534) (11,654)
Capitalization of interest on policy and
mortgage loans (14,335) (15,078)
Other changes, net (20,060) (19,019)
- --------------------------------------------------------------------------------
Net cash provided by operating activities $ 94,970 $ 70,234
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds $ 269,704 $ 228,288
Stocks 215,684 221,032
Real estate 12,556 32,874
Other invested assets 12,456 9,524
Principal payments received on:
Mortgage loans 137,545 96,607
Policy loans 37,296 39,245
Purchases of investments:
Bonds (1,087,283) (772,530)
Stocks (120,699) (137,160)
Real estate (25,187) (23,085)
Mortgage loans (152,856) (113,282)
Policy loans (24,615) (23,780)
Other invested assets (28,776) (7,402)
Decrease (increase) in short-term investments, net (2,446) 35,519
Decrease (increase) in investment in
unconsolidated affiliates, net 7,050 (277)
Increase in property and equipment, net (3,706) (3,909)
- --------------------------------------------------------------------------------
Net cash used in investing activities $ (753,277) $(418,336)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances $ 867,077 $ 455,380
Policyholders' withdrawals from policy
account balances (132,091) (50,096)
Dividends to stockholders (63,550) (59,312)
Net decrease in notes payable (2,041) (11,754)
- --------------------------------------------------------------------------------
Net cash provided by financing activities $ 669,395 $ 334,218
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH $ 11,088 $ (13,884)
Cash:
Beginning of the year 2,857 16,741
- --------------------------------------------------------------------------------
End of the year $ 13,945 $ 2,857
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
52
<PAGE>
Notes to Consolidated Financial Statements
(1) NATURE OF OPERATIONS
American National Insurance Company (American National) is a multiline
insurance company offering a broad line of insurance coverages, including
individual and group life, health, and annuities; personal lines property and
casualty; and credit insurance. In addition, through subsidiaries, American
National also offers mutual funds and real estate management services. The
majority (99%) of revenues are generated by the insurance business. With the
exception of New York, business is conducted in all states, as well as Puerto
Rico, Guam, American Samoa and Western Europe. Various distribution systems are
utilized, including home service, multiline ordinary, group brokerage, credit
and independent third party marketing organizations.
American National's insurance subsidiaries are American National Life
Insurance Company of Texas, Garden State Life Insurance Company, Standard Life
and Accident Insurance Company, American National Property and Casualty Company
and American National General Insurance Company. The major non-insurance
subsidiaries are Securities Management & Research, Inc. and ANREM Corporation.
As part of its investment portfolio, American National also owns interests in
unconsolidated affiliates, including several real estate joint ventures and
partnerships.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Principles of consolidation and basis of presentation--The consolidated
financial statements include the accounts of American National Insurance
Company and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Investments in
unconsolidated affiliates are shown at cost plus equity in undistributed
earnings since the dates of acquisition.
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles which, for the insurance subsidiaries,
differs from the basis of accounting followed in reporting to insurance
regulatory authorities. (See Note 11.) The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect:
1) The reported amounts of assets and liabilities
2) The disclosure of contingent assets and liabilities at the date of the
financial statements
3) The reported amounts of revenues and expenses during the reporting period
Actual results could differ from those estimates. Future events, which could
impact the estimates used in these financial statements, include changes in the
levels of mortality, morbidity and interest rates.
Investments
FASB 115--Effective January 1, 1994, American National adopted FASB Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
This statement requires that all securities be classified into one of three
categories :
Held-to-maturity securities - Securities which the company intends and is
able to hold to maturity are carried at amortized value.
Trading securities - Securities purchased with the intent of selling them in
the near term are classified as trading securities and are reported at fair
market value, with the unrealized gains and losses included in earnings.
(American National had no securities classified in the trading category at
December 31, 1995 or 1994.)
Available-for-sale securities - Securities which are not classified in one
of the other categories are held as available-for-sale and are reported at fair
market value, with the unrealized gains and losses reported as a separate
component of stockholders' equity, net of tax.
The adoption of FASB 115 did not have a significant effect on American
National's financial position or results from operations.
Debt securities--Bonds which are intended to be held-to-maturity are carried
at amortized cost. The carrying value of these debt securities is expected to
be realized due to American National's ability and intent to hold these
securities until maturity.
Bonds which are held as available-for-sale are carried at market.
The market values for debt securities represent quoted market values from
published sources or bid prices obtained from securities dealers. The bond
portfolio is generally rated by external rating agencies. The bond portfolio at
December 31, 1995 included less than 1% of investments that are considered
"below investment grade," defined as securities that carry a rating of BB and
lower.
Bonds with an amortized value of $95,913,000 at December 31, 1995 were on
deposit with various state insurance departments, as required by law.
Preferred stocks--At December 31, 1994, redeemable preferred stocks were
classified as held-to-maturity and were carried at amortized cost.
Non-redeemable (equity) preferred stocks were classified as available-for-sale
and were carried at market.
At December 31, 1995 all preferred stocks are classified as
available-for-sale and are carried at market.
53
<PAGE>
Notes to Consolidated Financial Statements continued
Common stocks--Common stocks are carried at market.
Unrealized gains and losses--For all investments carried at market, the
unrealized gains or losses (differences between amortized cost and market), net
of applicable federal income taxes, are reflected in stockholders' equity.
Mortgage loans--Mortgage loans on real estate are carried at amortized cost,
less allowance for possible losses. Interest is not accrued on mortgage loans
or bonds for which principal or interest payments are determined to be
uncollectible.
The fair market value of mortgage loans is estimated using discounted cash
flow analyses based on interest rates currently being offered for similar
loans. Loans with similar characteristics are aggregated for purposes of the
calculations. The fair market value of these loans may not represent the
amounts that would be realized upon sale.
The mortgage loan portfolio is closely monitored through the review of loan
and property information such as debt service coverage, annual operating
statements and property inspection reports. This information is evaluated in
light of current economic conditions and other factors, such as geographic
location and property type. As a result of this review, impaired loans are
identified and valuation reserves are established. Impaired loans are loans
where, based on current information and events, it is probable that American
National will be unable to collect all amounts due according to the contractual
terms of the loan agreement.
Effective January 1, 1995, American National adopted FASB Statement No. 114,
"Accounting by Creditors for Impairment of a Loan" and the statement which
amended it, FASB Statement No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures." These two statements require that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's observable
market price, or the fair value of the collateral if the loan is
collateral-dependent. When the measure of the impaired loan is less than the
recorded investment, the impairment is recorded as a valuation reserve. As
American National utilized similar methods to calculate valuation reserves in
prior years, the adoption of these new standards did not have a material effect
on American National's consolidated financial position or results of operations.
Policy loans--Policy loans are carried at cost. The carrying amount in the
consolidated statements of financial position for policy loans approximates
their fair value.
Investment real estate--Investment real estate is carried at cost, less
allowances for depreciation and reserves for possible losses. Depreciation is
provided over the estimated useful lives of the properties (15 to 50 years)
using straight-line and accelerated methods.
American National maintains a valuation reserve for real estate investments
to reflect any amounts considered unrecoverable upon future sale. American
National calculates the valuation reserve based upon the historical loss
experience of its real estate portfolio. For real estate considered to be
"non-performing," a specific reserve is established.
"Non-performing" real estate is defined as investments which possess
marginal yields or values considered to be permanently impaired.
Short-term investments--Short-term investments are carried at amortized cost.
The carrying amounts for short-term investments approximate fair market value.
Other invested assets--Other invested assets are carried at cost, less
allowance for possible losses. Valuation reserves for other invested assets are
considered on an individual basis in accordance with management's analysis of
current information.
Investment valuation reserves and impairments--Investment valuation reserves
are established for mortgage loans, real estate and other invested assets in
accordance with the policies established for each class of invested asset. The
increase or decrease in the valuation reserves is reflected in the gain from
sale of investments.
When an investment has been determined to have an other than temporary
impairment, the asset is written down to fair value and the amount of the
write-down is reflected in income in the current period as a realized loss.
Management believes that the valuation reserves are adequate. However, it is
reasonably possible that a significant change in economic conditions in the
near term could result in losses exceeding the amount reserved.
Cash--American National considers cash on hand and in banks as cash for
purposes of the consolidated statements of cash flows.
Investments in unconsolidated affiliates--These assets are primarily
investments in real estate joint ventures, and are accounted for under the
equity method of accounting.
Property and equipment--These assets consist of buildings occupied by the
companies, electronic data processing equipment, and furniture and equipment.
These assets are carried at cost, less accumulated depreciation. Depreciation
is provided using straight-line and accelerated methods over the estimated
useful lives of the assets (3 to 50 years).
54
<PAGE>
Insurance specific assets and liabilities
Deferred policy acquisition costs--Certain costs of acquiring new insurance
business have been deferred. For life, annuity and accident and health
business, such costs consist of inspection report and medical examination fees,
commissions, related fringe benefit costs, and the cost of insurance in force
gained through acquisitions. The amount of commissions deferred includes
first-year commissions and certain subsequent year commissions which are in
excess of ultimate level commission rates.
The deferred policy acquisition costs on traditional life and health
products are amortized with interest over the anticipated premium-paying period
of the related policies, in proportion to the ratio of annual premium revenue
to be received over the life of the policies. Expected premium revenue is
estimated by using the same mortality and withdrawal assumptions used in
computing liabilities for future policy benefits. The amount of deferred policy
acquisition costs is reduced by a provision for possible inflation of
maintenance and settlement expenses in the determination of such amounts by
means of grading interest rates.
Costs deferred on universal life, limited pay and investment type contracts
are amortized as a level percentage of the present value of anticipated gross
profits from investment yields, mortality, and surrender charges. In the near
term it is reasonably possible that a change in interest rates could have a
significant impact on the deferred acquisition costs calculated for these
contracts.
Deferred policy acquisition costs associated with property and casualty
insurance business consist principally of commissions, underwriting and issue
costs. These costs are amortized over the coverage period of the related
policies, in relation to premium revenue recognized.
Future policy benefits--For traditional products, liabilities for future
policy benefits have been provided on a net level premium method based on
estimated investment yields, withdrawals, mortality and other assumptions which
were appropriate at the time the policies were issued. Estimates used are based
on the companies' experience, as adjusted to provide for possible adverse
deviation. These estimates are periodically reviewed and compared with actual
experience. When it is determined that future expected experience differs
significantly from the assumed, the estimates are revised for current and
future issues.
Future policy benefits for universal life and investment-type contracts
reflect the current account value before applicable surrender charges. In the
near term, it is possible that a change in interest rates could have a
significant impact on the values calculated for these contracts.
Investment contracts--Investment contracts are defined as long-duration
contracts which do not subject the company to risks arising from policyholder
mortality or morbidity. The fair market value of investment contract
liabilities is estimated using a discounted cash flow model, assuming the
companies' current interest rates on new products. The estimated fair market
value for these investment contracts approximates the carrying values of
$1,271,041,000 and $537,825,000 at December 31, 1995 and 1994, respectively. A
significant change in the prevailing interest rates in the near term could have
an effect on the interest credited to these policies and, therefore, to the
carrying and market values.
Recognition of premium revenue and policy benefits
Traditional ordinary life and health--Life and accident and health premium is
recognized as revenue when due. Benefits and expenses are associated with
earned premiums to result in recognition of profits over the life of the policy
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
Annuities--Revenues from annuity contracts represent amounts assessed against
contract holders. Such assessments are principally surrender charges and, in
the case of variable annuities, administrative fees. Policy account balances
for annuities represent the premiums received plus accumulated interest, less
applicable accumulated administrative fees. In the near term it is possible
that a change in interest rates could have a significant impact on the values
calculated for these contracts.
Universal life and single premium whole life--Revenues from universal life
policies and single premium whole life policies represent amounts assessed
against policyholders. Included in such assessments are mortality charges,
surrender charges and earned policy service fees. Policyholder account balances
consist of the premiums received plus credited interest, less accumulated
policyholder assessments. Amounts included in expense represent benefits in
excess of account balances returned to policyholders.
Property and casualty--Property and casualty premiums are recognized as
revenue proportionately over the contract period. Policy benefits consist of
actual claims and the change in reserves for losses and loss adjustment
expenses. The reserves for losses and loss adjustment expenses are estimates of
future payments of reported and unreported claims and the related expenses with
respect to insured events that have occurred. These reserves are calculated
using case basis estimates for reported losses and historical experience for
claims incurred but not reported. These loss reserves are reported net of an
allowance for salvage and subrogation. Management believes that American
National's reserves have been appropriately calculated based on available
information as of December 31, 1995. However, it is reasonably possible that
the ultimate liabilities may vary significantly from these estimated amounts.
55
<PAGE>
Notes to Consolidated Financial Statements continued
Participating insurance policies--The allocation of dividends to
participating policyholders is based upon a comparison of experience rates of
mortality, interest and expense, as determined periodically for representative
plans of insurance, issue ages and policy durations, with the corresponding
rates assumed in the calculation of premiums. Participating business comprised
approximately 2.7% of the life insurance in force at December 31, 1995, and
4.6% of life premiums in 1995.
Federal income taxes--American National and its subsidiaries file a
consolidated life/non-life federal income tax return, except for Garden State
Life Insurance Company, which files a separate return.
Deferred federal income tax assets and liabilities have been recognized to
reflect the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Realization of the deferred tax assets is dependent on generating sufficient
taxable income in the future. Management believes that it is more likely than
not that sufficient income will be generated to realize the net deferred tax
assets.
Separate account assets and liabilities--The separate account assets and
liabilities reflected in the consolidated financial statements represent funds
which are separately administered. American National maintains three separate
accounts. The first administers assets primarily for certain of the company's
own employee benefit plans. The second administers assets deposited by contract
holders of American National's variable universal life policies. The third
administers assets deposited by contract holders of American National's
variable annuity policies.
The investment income and investment gains and losses from these separate
funds accrue directly to, and investment risk is borne by, the contract holders
of the policies supported by the separate accounts. The assets of these
accounts are carried at market value. Deposits, net investment income and
realized investment gains and losses for these accounts are excluded from
revenues, and related liability increases are excluded from benefits and
expenses in this report.
Net income per share--Net income per share is based on the weighted average
number of shares outstanding (26,479,165 shares for 1995 and 1994).
Fair value disclosures--The fair value disclosures for various assets and
liabilities are shown at the references as given below:
Investment contracts Footnote 2
All applicable invested assets Footnote 3
Mortgage loan commitments Footnote 14
Planned accounting changes--FASB 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." This statement
requires that long-lived assets be reviewed for impairment whenever
circumstances indicate that the carrying value may not be recoverable. The
review must be done by estimating future cash flows to be received, or by
determining the fair value of the asset. If the sum of the expected future cash
flows or the fair value of the asset is less than the carrying value, an
impairment loss is recognized.
American National will adopt FASB 121 on January 1, 1996. Management
believes that the adoption of FASB 121 will not have a significant effect on
American National's financial position or results from operations.
Reclassifications--Certain items in the 1994 consolidated financial
statements have been reclassified to conform with the 1995 presentation.
56
<PAGE>
(3) INVESTMENTS
Carrying values:
The following tables present information on the values of investments
(amortized cost is net of depreciation, amortization of premium, or accrual of
discount where applicable) as of December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
Investment Gross Gross Estimated
Amortized Valuation Unrealized Unrealized Market Carrying
Cost Reserves Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995:
Debt securities
Bonds held-to-maturity:
U.S. government and agencies $ 176,345 $ -- $ 10,317 $ (33) $ 186,629 $ 176,345
States and political subdivisions 22,542 -- 1,293 (75) 23,760 22,542
Foreign governments 94,727 -- 8,178 -- 102,905 94,727
Public utilities 1,001,988 -- 45,204 (1,956) 1,045,236 1,001,988
All other corporate bonds 1,258,303 -- 90,154 (808) 1,347,649 1,258,303
Mortgage-backed securities 413,034 -- 24,526 (85) 437,475 413,034
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity $2,966,939 $ -- $179,672 $ (2,957) $3,143,654 $2,966,939
Bonds available-for-sale:
U.S. government and agencies 21,568 -- 1,512 -- 23,080 23,080
Foreign governments 42,839 -- 5,089 -- 47,928 47,928
Public utilities 168,890 -- 15,526 -- 184,416 184,416
All other corporate bonds 202,745 -- 24,518 -- 227,263 227,263
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale $ 436,042 $ -- $ 46,645 $ -- $ 482,687 $ 482,687
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities $3,402,981 $ -- $226,317 $ (2,957) $3,626,341 $3,449,626
Marketable equity securities
Preferred stock 52,642 -- 1,716 (375) 53,983 53,983
Common stock 514,781 -- 217,092 (21,156) 710,717 710,717
- ------------------------------------------------------------------------------------------------------------------------------------
Total marketable equity securities $ 567,423 $ -- $218,808 $ (21,531) $ 764,700 $ 764,700
Mortgage loans on real estate 938,405 (12,824) 160,059 (1,198) 1,084,442 925,581
Policy loans 301,589 -- -- -- 301,589 301,589
Investment real estate 369,477 (38,793) -- -- XXX 330,684
Short-term investments 15,066 -- -- -- 15,066 15,066
Other invested assets 33,739 -- -- -- XXX 33,739
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments $5,628,680 $(51,617) $605,184 $ (25,686) XXXXXX $5,820,985
====================================================================================================================================
Investment Gross Gross Estimated
Amortized Valuation Unrealized Unrealized Market Carrying
Cost Reserves Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994:
Debt securities
Bonds held-to-maturity:
U.S. government and agencies $ 29,093 $ -- $ 303 $ (774) $ 28,622 $ 29,093
States and political subdivisions 56,560 -- 430 (2,969) 54,021 56,560
Foreign governments 126,694 -- 29 (6,281) 120,442 126,694
Public utilities 783,192 -- 768 (79,317) 704,643 783,192
All other corporate bonds 972,850 -- 8,120 (31,087) 949,883 972,850
Mortgage-backed securities 508,701 -- 8,531 (9,286) 507,946 508,701
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity $2,477,090 $ -- $ 18,181 $(129,714) $2,365,557 $2,477,090
Bonds available-for-sale:
States and political subdivisions 24,996 -- 59 (33) 25,022 25,022
Foreign governments 9,384 -- -- (363) 9,021 9,021
Public utilities 26,639 -- -- (1,257) 25,382 25,382
All other corporate bonds 42,135 -- -- (2,049) 40,086 40,086
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale $ 103,154 $ -- $ 59 $ (3,702) $ 99,511 $ 99,511
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds $2,580,244 $ -- $ 18,240 $(133,416) $2,465,068 $2,576,601
Redeemable preferred stock:
Corporate securities 7,881 -- 19 (646) 7,254 7,881
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities $2,588,125 $ -- $ 18,259 $(134,062) $2,472,322 $2,584,482
Marketable equity securities 569,321 -- 129,784 (45,679) 653,426 653,426
Mortgage loans on real estate 940,127 (9,287) 35,196 (11,290) 954,746 930,840
Policy loans 300,068 -- -- -- 300,068 300,068
Investment real estate 346,323 (32,888) -- -- XXX 313,435
Short-term investments 12,620 -- -- -- 12,620 12,620
Other invested assets 16,569 -- -- -- XXX 16,569
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments $4,773,153 $(42,175) $183,239 $(191,031) XXXXXX $4,811,440
====================================================================================================================================
</TABLE>
57
<PAGE>
Notes to Consolidated Financial Statements continued
Additional information on investments is as follows:
Debt securities:
The amortized cost and estimated market value of debt securities at December
31, 1995 by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Bonds Held-to-Maturity Bonds Available-for-Sale
- ------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 61,767 $ 62,771 $ 2,343 $ 2,591
Due after one year through
five years 239,148 253,975 10,940 11,735
Due after five years
through ten years 2,019,616 2,133,156 373,895 412,902
Due after ten years 231,795 254,560 48,864 55,459
- ------------------------------------------------------------------------------
$2,552,326 $2,704,462 $436,042 $482,687
Without single maturity
date 414,613 439,192
- ------------------------------------------------------------------------------
$2,966,939 $3,143,654 $436,042 $482,687
==============================================================================
</TABLE>
As of November 30, 1995, management determined that it would be advantageous
to have a larger percentage of the bond portfolio classified as
available-for-sale. As a result, bonds with an amortized cost of $340,171,000
were reclassified from held-to-maturity to available-for-sale. Unrealized
gains of $29,576,000 and unrealized losses of $2,703,000 were recognized in
stockholders' equity at the time of the transfer. This transfer was done in
conjunction with the onetime reassessment allowed by the FASB Special Report "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities."
Proceeds from sales of investments in securities classified as
available-for-sale (bonds and stocks) were $251,800,000 for 1995. Gross gains
of $89,912,000 and gross losses of $7,155,000 were realized on those sales.
Bonds were called by the issuers during 1995, which resulted in proceeds from
the disposal of $105,489,000. Gross gains of $1,575,000 and gross losses of
$4,000 were realized on those disposals.
Proceeds from sales of investments in securities classified as
available-for-sale (bonds and stocks) were $223,909,000 for 1994. Gross gains
of $91,413,000 and gross losses of $3,213,000 were realized on those sales.
Bonds were called by the issuers during 1994 which resulted in proceeds from
the disposal of $104,669,000. Gross gains of $1,369,000 and gross losses of
$81,000 were realized on those disposals.
All gains and losses were determined using specific identification of the
securities sold.
Unrealized gains on securities:
Unrealized gains on marketable equity securities and bonds
available-for-sale, presented in the stockholder's equity section of the
consolidated statements of financial position, are net of deferred tax
liabilities of $85,024,000 and $27,555,000 for 1995 and 1994, respectively.
The changes in the net unrealized gains on investments for the years ended
December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Bonds available-for-sale $ 50,288 $ (3,643)
Preferred stocks $ 5,792 $ (5,742)
Common stocks 107,380 (59,826)
- ------------------------------------------------------------------
$163,460 $(69,211)
Benefit (provision) for federal
income taxes (57,469) 24,034
- ------------------------------------------------------------------
$105,991 $(45,177)
==================================================================
</TABLE>
Mortgage loans:
In general, mortgage loans are secured by first liens on income-producing
real estate. The loans are expected to be repaid from the cash flows or
proceeds from the sale of real estate. American National generally allows a
maximum loan-to-collateral-value ratio of 75% to 90% on newly funded mortgage
loans. As of December 31, 1995, mortgage loans have both fixed rates from 5.25%
to 13% and variable rates from 7.04% to 10.48%. The majority of the mortgage
loan contracts require periodic payments of both principal and interest and
have amortization periods of 2 to 31 years.
American National has investments in first lien mortgage loans on real
estate with carrying values of $925,581,000 and $930,840,000 at December 31,
1995 and 1994, respectively. In addition, included in the other invested assets
category are second lien mortgage loans with carrying values of $28,097,000 and
$15,573,000 at December 31, 1995 and 1994, respectively. Impaired loans, on
which specific valuation reserves were established, totaled $7,950,000 and
$36,389,000 at December 31, 1995 and 1994, respectively.
58
<PAGE>
Policy loans:
Policy loans have interest rates ranging from 2.5% to 12%. Approximately 98%
of the policy loan portfolio carried interest rates of 5% to 8% at December 31,
1995.
Investment income and realized gains (losses):
Investment income and realized gains (losses) from disposals of investments
before federal income taxes for the years ended December 31 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Gains (Losses) from
Investment Income Disposals of Investments
- ------------------------------------------------------------------------------
1995 1994 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 238,262 $ 183,043 $ (900) $ 1,183
Preferred stocks 3,419 3,138 23 (4)
Common stocks 18,737 21,905 85,205 88,309
Mortgage loans 89,152 88,999 1,301 (8,438)
Real estate 73,304 69,709 648 10,209
Other invested assets 27,566 27,736 2,153 (89)
Investment in
unconsolidated
affiliates -- -- (1,236) --
- ------------------------------------------------------------------------------
$ 450,440 $ 394,530 $ 87,194 $ 91,170
Investment expenses (63,530) (61,218) -- --
Decrease (increase) in
valuation reserves -- -- (10,859) 1,191
- ------------------------------------------------------------------------------
$ 386,910 $ 333,312 $ 76,335 $ 92,361
==============================================================================
</TABLE>
Notes payable:
At December 31, there were various notes payable, primarily related to
investment real estate, totaling $382,000 for 1995 and $2,423,000 for 1994. In
addition, a $10,000,000 note payable related to investment in unconsolidated
affiliates was outstanding at December 31, 1995 and 1994. These notes are due
at various dates after December 31, 1995 and are carried at a value which
approximates fair market value.
(4) OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK ON INVESTMENTS
American National employs a strategy to invest funds at the highest return
possible commensurate with sound and prudent underwriting practices to ensure a
well diversified investment portfolio.
Bonds:
American National's bond portfolio is of high investment quality and is well
diversified. The bond portfolio, distributed by quality rating at December 31,
is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------
<S> <C> <C>
AAA 15% 23%
AA 11% 7%
A 51% 47%
BBB & below 18% 21%
Not rated 5% 2%
- -----------------------------
100% 100%
=============================
</TABLE>
Common stock:
American National's stock portfolio by market sector distribution at
December 31 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------
<S> <C> <C>
Consumer non-durables 32% 35%
Capital goods 16% 16%
Energy 6% 6%
Information systems 7% 6%
Chemicals 4% 5%
Merchandising 3% 5%
Publishing 4% 4%
Miscellaneous 28% 23%
- -------------------------------------
100% 100%
=====================================
</TABLE>
Mortgage loans and investment real estate:
American National invests primarily in the commercial sector in areas that
offer the potential for property value appreciation. Generally, mortgage loans
are secured by first liens on income-producing real estate.
Mortgage loans and investment real estate by property type distribution at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
Investment
Mortgage Real
Loans Estate
- ------------------------------------------------------
1995 1994 1995 1994
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Office buildings 25% 26% 31% 28%
Shopping centers 52% 49% 26% 29%
Commercial 5% 5% 15% 17%
Apartments 1% 3% 6% 3%
Hotels/motels 3% 4% 12% 11%
Industrial 12% 11% 4% 4%
Residential 1% 1% -- --
Other 1% 1% 6% 8%
- ------------------------------------------------------
100% 100% 100% 100%
======================================================
</TABLE>
Although American National has a diversified portfolio, a substantial
portion of its mortgage loans and real estate properties are dependent upon the
stability of the Texas and California economies. Mortgage loans and real estate
investments by geographic distribution at December 31 are as follows:
<TABLE>
<CAPTION>
Investment
Mortgage Real
Loans Estate
- ------------------------------------------------------------
1995 1994 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas 18% 22% 55% 55%
South Central, except Texas 3% 3% 2% 2%
California 17% 17% 10% 11%
Western, except California 6% 8% 4% 4%
Southeastern 11% 13% 13% 12%
North Central 8% 8% 10% 10%
Northeastern 37% 29% 6% 6%
- ------------------------------------------------------------
100% 100% 100% 100%
============================================================
</TABLE>
For discussion of other off-balance sheet risks see Note 14.
59
<PAGE>
Notes to Consolidated Financial Statements continued
(5) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended December
31, 1995 and 1994, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Life Accident Property
& Annuity & Health & Casualty Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1993 $ 405,559 $ 104,047 $ 4,716 $ 514,322
- -------------------------------------------------------------------------------
Additions $ 109,374 $ 22,683 $ 18,648 $ 150,705
Amortization (50,384) (20,420) (17,923) (88,727)
- -------------------------------------------------------------------------------
Net change $ 58,990 $ 2,263 $ 725 $ 61,978
Acquisitions $ 479 $ 22 $ -- $ 501
- -------------------------------------------------------------------------------
Balance at
December 31, 1994 $ 465,028 $ 106,332 $ 5,441 $ 576,801
- -------------------------------------------------------------------------------
Additions $ 154,688 $ 20,052 $ 19,943 $ 194,683
Amortization (57,774) (19,976) (18,648) (96,398)
- -------------------------------------------------------------------------------
Net change $ 96,914 $ 76 $ 1,295 $ 98,285
Acquisitions $ 451 $ 120 $ (1) $ 570
- -------------------------------------------------------------------------------
Balance at
December 31, 1995 $ 562,393 $ 106,528 $ 6,735 $ 675,656
===============================================================================
1995 Premiums $ 308,949 $ 360,420 $ 233,512 $ 902,881
===============================================================================
1994 Premiums $ 289,099 $ 384,703 $ 202,160 $ 875,962
===============================================================================
</TABLE>
Commissions comprise the majority of the additions to deferred policy
acquisition costs for each year.
Acquisitions relate to the acquisition of various insurance portfolios under
assumption reinsurance agreements.
(6) FUTURE POLICY BENEFITS
Life insurance:
Interest assumptions used in the calculation of future policy benefits for
life policies are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
FUTURE POLICY
POLICY ISSUE INTEREST BENEFITS
YEAR RATE SO VALUED
- --------------------------------------------------------------------------------
<S> <C> <C>
Ordinary--
1981-1995 8% for years 1 through 5, graded to 6% at the
end of year 25, and level thereafter........... 13%
1976-1981 7% for years 1 through 5, graded to 5% at the
end of year 25, and level thereafter........... 23%
1972-1975 6% for years 1 through 5, graded to 4% at the
end of year 25, and level thereafter........... 10%
1969-1971 6% for years 1 through 5, graded to 3.5% at the
end of year 30, and level thereafter........... 8%
1962-1968 4.5% for years 1 through 5, graded to 3.5% at the
end of year 15, and level thereafter........... 15%
1948-1961 4% for years 1 through 5, graded to 3.5% at the
end of year 10, and level thereafter........... 15%
1947 and prior Statutory rates of 3% or 3.5%.................. 2%
Industrial--
1948-1967 4% for years 1 through 5, graded to 3.5% at the
end of year 10, and level thereafter........... 8%
1947 and prior Statutory rates of 3%.......................... 6%
- --------------------------------------------------------------------------------
100%
================================================================================
</TABLE>
Future policy benefit liabilities for universal life are calculated from the
current account value.
Future policy benefit liabilities for other policies have been calculated
using level interest rates principally as follows: annuities at 6% and group at
4%.
Mortality and withdrawal assumptions are based on American National's
experience.
HEALTH INSURANCE:
Interest assumptions used for future policy benefits on health policies are
calculated using a level interest rate of 6%.
Morbidity and termination assumptions are based on American National's
experience.
(7) LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for accident and health, and property and casualty
unpaid claims and claim adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
================================================================================
<S> <C> <C>
Balance at January 1 $213,406 $219,452
Less reinsurance recoverables 1,741 2,669
- --------------------------------------------------------------------------------
Net balance at January 1 $211,665 $216,783
- --------------------------------------------------------------------------------
Incurred related to:
Current year 456,721 417,491
Prior years (19,587) (5,765)
- --------------------------------------------------------------------------------
Total incurred $437,134 $411,726
- --------------------------------------------------------------------------------
Paid related to:
Current year 337,421 280,196
Prior years 98,125 136,648
- --------------------------------------------------------------------------------
Total paid $435,546 $416,844
- --------------------------------------------------------------------------------
Net balance at December 31 213,253 211,665
Plus reinsurance recoverables 1,346 1,741
- --------------------------------------------------------------------------------
Balance at December 31 $214,599 $213,406
================================================================================
</TABLE>
The balances at December 31 are included in policy and contract claims on
the consolidated statements of financial position.
(8) REINSURANCE
As is customary in the insurance industry, the companies reinsure portions
of certain insurance policies they write, thereby providing a greater
diversification of risk and minimizing exposure on larger risks. The maximum
amount that would be retained by one company (American National) would be
$700,000 individual life, $250,000 individual accidental death, $100,000 group
life and $125,000 credit life (total $1,175,000). If individual, group and
credit were in force in all companies at the same time, the maximum risk on any
one life could be $1,875,000.
The companies remain contingently liable with respect to any reinsurance
ceded, and would become actually liable if the assuming companies were unable
to meet their obligations under any reinsurance treaties.
60
<PAGE>
American National evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. At December 31,
1995, amounts recoverable from reinsurers with a carrying value of $57,416,000
were associated with various auto dealer credit insurance program reinsurers
located in the Turks & Caicos Islands. The company holds collateral related to
these credit reinsurers totaling $48,863,000. This collateral is in the form of
custodial accounts controlled by the company, which can be drawn on for amounts
that remain unpaid for more than 120 days. American National believes that the
failure of any single reinsurer to meet its obligations would not have a
significant effect on its financial position or results of operations.
Premiums, premium-related reinsurance amounts and reinsurance recoveries for
the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
================================================================================
<S> <C> <C>
Direct premiums $962,190 $922,635
Reinsurance premiums assumed
from other companies 24,109 20,853
Reinsurance premiums ceded to
other companies (83,418) (67,526)
- --------------------------------------------------------------------------------
Net premiums $902,881 $875,962
================================================================================
Reinsurance recoveries $ 53,849 $ 33,197
================================================================================
</TABLE>
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
================================================================================
<S> <C> <C>
Direct life insurance in force $40,940,321 $39,592,367
Reinsurance risks assumed from
other companies 549,337 477,192
- --------------------------------------------------------------------------------
Total life insurance in force $41,489,658 $40,069,559
Reinsurance risks ceded to
other companies (5,359,378) (4,606,300)
- --------------------------------------------------------------------------------
Net life insurance in force $36,130,280 $35,463,259
================================================================================
</TABLE>
(9) SEGMENT INFORMATION
American National and its subsidiaries are engaged principally in the
insurance business, and operate primarily in six segments (lines of business)
within the insurance industry.
The following table summarizes the premiums and other revenue, gain (loss)
from operations before equity in earnings of unconsolidated affiliates and
federal income taxes, and assets by line of business for the years ended
December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
Gain (Loss) Before
Applicable
Federal
Premiums Income Taxes
and Other and Other
Line of business: Revenue Items Assets
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1995
Individual life insurance $ 502,160 $ 77,817 $ 2,523,463
Individual accident and
health insurance 212,062 3,642 111,862
Annuities 96,716 627 1,309,626
Group life and health insurance 146,579 8,011 38,344
Credit insurance 48,616 1,679 103,382
Property and casualty insurance 243,933 10,361 258,346
- ----------------------------------------------------------------------------
Total insurance lines $ 1,250,066 $ 102,137 $ 4,345,023
Capital and surplus 124,403 125,899 2,709,441
Non-insurance 20,158 (264) 85,569
- ----------------------------------------------------------------------------
$ 1,394,627 $ 227,772 $ 7,140,033
Gain from sale of investments 76,335 76,335 --
- ----------------------------------------------------------------------------
$ 1,470,962 $ 304,107 $ 7,140,033
============================================================================
1994
Individual life insurance $ 491,946 $ 78,561 $ 2,482,313
Individual accident and
health insurance 231,178 10,822 116,542
Annuities 43,153 457 591,876
Group life and health insurance 157,799 7,086 31,083
Credit insurance 36,606 1,395 80,954
Property and casualty insurance 210,702 11,569 227,104
- ----------------------------------------------------------------------------
Total insurance lines $ 1,171,384 $ 109,890 $ 3,529,872
Capital and surplus 111,644 113,635 2,337,777
Non-insurance 20,049 (369) 93,545
- ----------------------------------------------------------------------------
$ 1,303,077 $ 223,156 $ 5,961,194
Gain from sale of investments 92,361 92,361 --
- ----------------------------------------------------------------------------
$ 1,395,438 $ 315,517 $ 5,961,194
============================================================================
</TABLE>
Net investment income from fixed income assets (bonds and mortgage loans on
real estate) is allocated to insurance lines based on the funds generated by
each line at the average yield available from these fixed income assets at the
time such funds become available. Net investment income from policy loans is
allocated to the insurance lines according to the amount of loans made by each
line. Net investment income from all other assets is allocated to capital and
surplus.
Identifiable commissions and expenses are charged directly to the
appropriate line of business. The remaining expenses are allocated to the lines
based upon various factors, including premium and commission ratios within the
respective lines.
Fixed-income assets and policy loans have been directly assigned to the
insurance lines to the extent required for reserves. Equity-type assets, such
as stocks and real estate and all other assets not required for the insurance
lines, have been assigned to capital and surplus.
Policy account deposits totaled $867,077,000 in 1995 and $455,380,000 in
1994. The majority of these deposits were in the annuity line which totaled
$763,049,000 and $354,508,000 in 1995 and 1994, respectively. The large
increase in annuity deposits resulted in the significant increase in assets for
that line of business.
61
<PAGE>
Notes to Consolidated Financial Statements continued
A significant portion of American National's insurance business is written
through one third-party marketing organization. Approximately 35% in 1995 and
22% in 1994 of the total premium revenues and policy account deposits were
written through that organization. Of the total business written by this one
organization, the majority was annuities.
(10) FEDERAL INCOME TAXES
The federal income tax provisions vary from the amounts computed when
applying the statutory federal income tax rate. A reconciliation of the
effective tax rate of the companies to the statutory federal income tax rate
follows (in thousands, except percentages):
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
Amount Rate Amount Rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax on pre-tax income $ 107,197 35.00 % $ 110,573 35.00 %
Tax-exempt investment income (465) (0.15)% (568) (0.18)%
Dividend exclusion (4,031) (1.32)% (4,075) (1.29)%
Tax refund (2,225) (0.73)% (1,368) (0.43)%
Prior year reserve method change -- -- % (3,500) (1.11)%
Other items, net (563) (0.18)% (225) (0.07)%
- --------------------------------------------------------------------------------
$ 99,913 32.62 % $ 100,837 31.92 %
================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and December 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Investment in real estate and
other invested assets, principally
due to allowance for losses $ 18,066 $ 14,761
Policyowner funds, principally
due to policy reserve discount 73,361 41,129
Policyowner funds, principally
due to unearned premium reserve 6,794 5,790
Other assets 6,225 9,039
- ---------------------------------------------------------------------
Total gross deferred tax assets $ 104,446 $ 70,719
Less valuation allowance (3,000) (3,000)
- ---------------------------------------------------------------------
Net deferred tax assets $ 101,446 $ 67,719
- ---------------------------------------------------------------------
Deferred tax liabilities:
Marketable equity securities, principally
due to net unrealized gains on stock $ (85,024) $ (25,160)
Investment in bonds, principally
due to accrual of discount on bonds (12,223) (10,953)
Deferred policy acquisition costs, due to
difference between GAAP and tax (175,250) (150,845)
Property, plant and equipment, principally
due to difference between GAAP
and tax depreciation methods (14,329) (16,196)
Prepaid pensions, principally due to
difference between GAAP and tax (7,038) (6,756)
Other liabilities (1,994) (4,098)
- ---------------------------------------------------------------------
Net deferred tax liabilities $ (295,858) $ (214,008)
- ---------------------------------------------------------------------
Total deferred tax $ (194,412) $ (146,289)
=====================================================================
</TABLE>
Management believes that a sufficient level of taxable income will be
achieved to utilize the net deferred tax assets.
Through 1983, under the provision of the Life Insurance Company Income Tax
Act of 1959, life insurance companies were permitted to defer from taxation a
portion of their income (within certain limitations) until and unless it was
distributed to stockholders, at which time it was taxed at regular corporate
tax rates. No provision for deferred federal income taxes applicable to such
untaxed income has been made because management is of the opinion that no
distributions of such untaxed income (designated by federal law as
"policyholders' surplus") will be made in the foreseeable future. There was no
change in the "policyholders' surplus" between December 31, 1994 and December
31, 1995, and the cumulative balance was approximately $63,000,000 at both
dates.
Federal income taxes totaling approximately $101,243,000 and $108,850,000
were paid to the Internal Revenue Service in 1995 and 1994, respectively.
Federal income tax returns for American National and its subsidiaries have been
examined by the Internal Revenue Service through 1991. All deficiencies have
been paid or provided for, and American National has filed appropriate claims
for refunds through 1991. In the opinion of management, adequate provision has
been made for any tax deficiencies that may be sustained.
(11) RECONCILIATION TO STATUTORY ACCOUNTING
American National and its insurance subsidiaries are required to file
statutory financial statements with state insurance regulatory authorities.
Accounting principles used to prepare these statutory financial statements
differ from those used to prepare financial statements on the basis of
generally accepted accounting principles.
Reconciliations of statutory net income and capital and surplus, as
determined using statutory accounting principles, to the amounts included in
the accompanying consolidated financial statements, for the years ended
December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Statutory net income of insurance
subsidiaries $131,866 $175,362
Net loss of non-insurance subsidiaries (4,455) (517)
- ------------------------------------------------------------------
Combined net income $127,411 $174,845
Increases/(decreases):
Deferred policy acquisition costs 98,285 61,978
Policyholder funds (33,461) (26,853)
Deferred federal income tax benefit 9,558 2,761
Premiums deferred and other receivables (1,444) (4,114)
Gain on sale of investments 2,886 2,688
Change in interest maintenance reserve 291 413
Allowance for losses on investments (4,764) 1,191
Statutory realized loss on subsidiary -- 11,607
Dividend income from subsidiaries (1,577) (16,043)
Other adjustments, net 6,979 4,354
Consolidating eliminations and adjustments 2,200 2,260
- ------------------------------------------------------------------
Net income reported herein $206,364 $215,087
==================================================================
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Statutory capital and surplus of insurance
subsidiaries $1,639,304 $1,456,188
Stockholders equity of non-insurance
subsidiaries 89,856 100,900
- --------------------------------------------------------------------------
Combined capital and surplus $1,729,160 $1,557,088
Increases/(decreases):
Deferred policy acquisition costs 675,656 576,801
Policyholder funds 142,991 171,485
Deferred federal income taxes (194,412) (146,289)
Premiums deferred and other receivables (83,781) (82,337)
Reinsurance in "unauthorized companies" 16,542 12,975
Asset valuation reserve 305,655 259,755
Interest maintenance reserve 6,922 6,630
Investment valuation reserves (44,668) (43,032)
Non-admitted assets and other adjustments, net 320,301 271,668
Consolidating eliminations and adjustments (553,253) (512,436)
- ---------------------------------------------------------------------------
Stockholders' equity reported herein $2,321,113 $2,072,308
===========================================================================
</TABLE>
(12) STOCKHOLDERS' EQUITY
At December 31, 1995 and 1994 American National had 50,000,000 authorized
shares of $1.00 par value common stock. At December 31, 1995 and 1994, issued
shares were 30,832,449; treasury shares were 4,353,284; and outstanding shares
were 26,479,165.
American National has a qualified stock option plan for key employees. For
this plan, American National is permitted to purchase shares of stock which
have been previously issued. A total of 1,000,000 shares may be optioned under
this plan. No option shall be granted to an employee who would own more than 5%
of the voting stock of American National. Options cannot be exercised during
the first two years, are exercisable to the extent of one-third of the optioned
shares for each of the next three years, and expire after five years. The
purchase price of the shares optioned shall not be less than the greater of
fair market or par value of the shares on the date the option is granted. At
December 31, 1995 and 1994, there were no options outstanding and 971,000
shares were available for grant.
American National's payment of dividends to stockholders is restricted by
statutory regulations. Generally, the restrictions require life insurance
companies to maintain minimum amounts of capital and surplus, and limit the
payment of dividends to statutory net gain from operations on an annual,
noncumulative basis in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of stockholders' equity as
determined on a GAAP basis over that determined on a statutory basis.
Generally, the same restrictions apply to American National's insurance
subsidiaries regarding amounts which can transfer in the form of dividends,
loans or advances to the parent company.
At December 31, 1995, approximately $464,445,000 of American National's
consolidated stockholders' equity represents net assets of its insurance
subsidiaries. Any transfer of these net assets to American National would be
subject to statutory restrictions and approval.
(13) RETIREMENT BENEFITS
American National and its subsidiaries have one tax-qualified pension plan,
which has three separate programs. Two of the programs are contributory, and
cover substantially all hourly employees and home service agents. The third
program is noncontributory, and covers salaried and management employees. The
program covering salaried and management employees provides pension benefits
that are based on years of service and the employee's compensation during the
five years before retirement. The programs covering hourly employees and agents
generally provide benefits that are based on the employee's average monthly
compensation during the five highest compensated years within the last ten
years before retirement, or career average earnings, as applicable, and years
of service. American National also sponsors a non-tax-qualified pension plan
for key executives that restores benefits that would otherwise be curtailed by
statutory limits on qualified plan benefits.
The companies' funding policy for the pension plans is to make annual
contributions in accordance with the minimum funding standards of the Employee
Retirement Income Security Act of 1974.
Actuarial computations of pension expense produced a pension debit of
$15,000 for 1995 and $1,973,000 for 1994.
The pension debit comprised (in thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Service cost--benefits earned during period $ 4,515 $ 5,233
Interest cost on projected benefit obligation 6,168 5,508
Actual return on plan assets (14,988) 65
Net amortization and deferral 4,320 (8,833)
- --------------------------------------------------------------------------
Total pension debit $ 15 $ 1,973
==========================================================================
</TABLE>
The following table sets forth the funded status and amounts recognized in
the consolidated statements of financial position at December 31 for the
companies' pension plans.
Actuarial present value of benefit obligation:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ (78,098) $(67,957)
========================================================================
Accumulated benefit obligation $ (82,018) $(71,578)
========================================================================
Projected benefit obligation $(100,436) $(90,448)
Plan assets at fair value (long-term securities) 126,591 116,654
- ------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation $ 26,155 $ 26,206
Unrecognized net loss 6,437 8,421
Prior service cost not yet recognized
in periodic pension cost 2,412 3,011
Unrecognized net transition asset at
January 1 being recognized over 15 years (15,716) (18,336)
Adjustment required to recognize additional
liability (1,279) (1,168)
- ------------------------------------------------------------------------
Prepaid pension cost included in other assets $ 18,009 $ 18,134
========================================================================
</TABLE>
63
<PAGE>
Notes to Consolidated Financial Statements continued
Assumptions used at December 31:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Weighted-average discount rate on benefit obligation 6.40% 6.50%
Rate of increase in compensation levels 4.80% 5.00%
Expected long-term rate of return on plan assets 8.00% 8.00%
</TABLE>
Under American National and its subsidiaries' various group benefit plans
for active employees, a $2,500 paid up life insurance certificate is provided
upon retirement for eligible participants who meet certain age and length of
service requirements.
American National has one retiree health benefit plan for retirees of all
companies in the consolidated group, with the exception of Standard Life and
Accident Insurance Company (Standard). The retirees of Standard are covered
under a separate health plan. Participation in either of these plans is limited
to current retirees and their dependents, and those employees and their
dependents who met certain age and length of service requirements as of
December 31, 1993. No new participants will be added to these plans in the
future.
The retiree health benefit plans provide major medical benefits for
participants under the age of 65 and Medicare supplemental benefits for those
over 65. Prescription drug benefits are provided to both age groups. The plans
are contributory, with the company's contribution limited to $80 per month for
retirees and spouses under the age of 65 and $40 per month for retirees and
spouses over the age of 65. All additional contributions necessary, over the
amount to be contributed by the companies, are to be made by the retirees.
The accrued post-retirement benefit obligation, included in other
liabilities, was $13,105,000 and $13,214,000 at December 31, 1995 and 1994,
respectively. These amounts were approximately equal to the unfunded
accumulated post-retirement benefit obligation. Since the companies'
contributions to the cost of the retiree benefit plans are fixed, the health
care cost trend rate will have no effect on the future expense or the
accumulated post-retirement benefit obligation.
(14) COMMITMENTS AND CONTINGENCIES
American National and its subsidiaries lease office space in various cities
for their insurance sales offices. The long-term lease commitments at December
31, 1995 are approximately $6,203,000.
In the ordinary course of their operations, the companies also had
commitments outstanding at December 31, 1995 to purchase, expand or improve
real estate, and to fund mortgage loans aggregating $83,070,000, all of which
is expected to be funded in 1996. Of the commitment amount, $72,470,000 of
mortgage loan commitments have interest rates that are fixed. The fair market
value of these commitments is not significant at December 31, 1995.
The companies are defendants in various lawsuits concerning alleged failure
to honor certain loan commitments, alleged breach of certain agency and real
estate contracts, and in other litigation arising in the ordinary course of
operations. Several of these lawsuits include claims for punitive damages.
Management is of the opinion, after reviewing the above matters with legal
counsel, that the ultimate liability, if any, resulting from any of or all of
the above matters would not have a material adverse effect on the companies'
consolidated financial position or results of operations.
In the summer of 1995 there was a series of fires in Houston, Texas at a
warehouse which American National owns. American National leased the warehouse
to a company which in turn rented out space to various other parties to store
materials. As a result of the fire, some of the materials stored in the
warehouse caused damage at the warehouse site. As the owner of the warehouse,
American National is now named in numerous lawsuits concerning alleged damages
arising from the fire. After reviewing this situation with legal counsel,
management believes that American National has meritorious defenses against
these lawsuits and also has a cause to recover any damages from the third
parties who actually owned the materials which caused the fire. Therefore, no
provision for this matter has been recorded in the financial statements. Since
the outcome of this situation is not foreseeable, no estimate of any potential
loss is possible. However, if the defenses and recoveries do not work out in
the manner which management anticipates, it is possible that the resulting
liability could have a material impact on the consolidated financial results.
64
<PAGE>
- -------------------------------------------------------------------------------
APPENDIX
Illustrations of Death Benefits and Accumulation Values
The following tables illustrate how the Accumulation Values, Surrender
Values and Death Benefits of a Policy may change with the investment experience
of the American National Fund and the Fidelity Funds. The tables show how the
Accumulation Values, Surrender Values and Death Benefits of a Policy issued to
an Insured of a given age and specified underwriting risk classification who
pays the given premium annually would vary over time if the investment return
on the assets held in each Eligible Portfolio of the American National and
Fidelity Funds were a uniform, gross, after-tax annual rate of 0%, 6% or 12%.
The tables on pages 66 through 69 illustrate a Policy issued to a male, age 45,
under a standard rate non-smoker underwriting risk classification. The
Accumulation Values, Surrender Values and Death Benefits would be different
from those shown if the gross annual investment rates of return averaged 0%, 6%
and 12% over a period of years, but fluctuated above and below those averages
for individual policy years, or if the Insured were assigned to a different
underwriting risk classification, or if the Policyowner elects to stop paying
premiums or makes unscheduled premium payments.
The second column of the tables shows the accumulated value of the premiums
paid at five percent. The following columns show the Death Benefits, Surrender
Values and the Accumulation Values for uniform hypothetical rates of return
shown in these tables. The tables on pages 66 and 68 are based on the current
cost of insurance rates, current expense deductions and current premium
charges. These reflect the basis on which American National currently sells its
policies. The maximum cost of insurance rates allowable under the Policy are
based upon the 1980 Commissioner's Standard Ordinary Smoker and Non-Smoker,
Male and Female Mortality Tables. Since these are recent tables and are split
to reflect smoking habits and sex, the current cost of insurance rates used by
American National are at this time equal to the guaranteed cost of insurance
rates for some ages. American National's current cost of insurance rates as
applied are intended to reflect its current mortality experience. Should
American National's mortality risk improve with experience, American National
anticipates reflecting the improvement in the rates actually applied. American
National also anticipates reflecting any future improvements in expenses
incurred by applying lower percent of premiums of loads and other expense
deductions. The Death Benefits, Surrender Values and Accumulation Values shown
in the tables on pages 67 and 69 are based on the assumption that the maximum
allowable cost of insurance rates as described above ("guaranteed cost") and
maximum allowable expense deductions are made throughout the life of the
Policy.
The amounts shown for the Death Benefits, Surrender Values and
Values reflect the fact that the net investment return of the Subaccounts is
lower than the gross, after-tax return of the assets held in the American
National and Fidelity Funds as a result of expenses paid by the American
National and Fidelity Funds and charges levied against the Subaccount. The
values shown take into account an average of the daily investment advisory fee
and management fee paid by each Eligible Portfolio of the American National and
Fidelity Funds, the expenses incurred by the American National and Fidelity
Funds (0), and the daily charge by American National to each Subaccount for
assuming mortality and expense risks (which is equivalent to a charge at an
annual rate of 0.9% for all Policy Years). The advisory fees, management fees
and American National and Fidelity Funds expenses were estimated. SM&R has
agreed to reimburse each Portfolio of the American National Fund by the amount,
if any, that its total operating expenses (exclusive of interest expense, taxes,
brokerage fees and commissions and extraordinary expenses) exceed, on a pro rata
basis, 1.5% of the average daily net assets of such Portfolio. These
reimbursement agreements will continue in force in future years. As long as this
reimbursement continues for an Eligible Portfolio, it will lower such Eligible
Portfolio's expense ratio and increase its yield. The illustrated gross annual
investment rates of return of 0%, 6% and 12% were computed after deducting these
amounts and correspond to approximate net annual rates of -1.65%, 4.35% and
10.35%.
The hypothetical values shown in the tables do not reflect any charges for
federal income tax burden attributable to the Separate Account, since American
National is not currently making such charges. However, such charges may be
made in the future, and in that event, the gross annual investment rate of
return would have to exceed 0%, 6% or 12% by an amount sufficient to cover the
tax charges in order to produce the Death Benefits and values demonstrated.
(See Federal Tax Matters, page 23.)
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid as indicated, if
all Net Premiums are allocated to the Separate Account, and if no Policy loans
have been made. The tables are also based on the assumptions that the
Policyowner has not requested an increase or decrease in the Specified Amount,
that no partial Surrenders have been made, and that no more than four transfers
have been made in any Policy Year so that no transfer charges have been
incurred. Illustrated values would be different if the proposed Insured were
female, a smoker, in substandard risk classification, or were another age, or
if a higher or lower premium was illustrated.
Upon request, American National will provide a comparable illustration based
upon the proposed Insured's age, sex and underwriting classification, the
Specified Amount, the Death Benefit option, and Planned Periodic Premium
schedule requested, and any available riders requested.
65
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550
VARIABLE UNIVERSAL LIFE INSURANCE
ENDOWMENT AT 95
OPTION A SPECIFIED AMOUNT INCLUSIVE OF POLICY VALUE
MALE ISSUE AGE 45
TOBACCO NON-USER
CURRENT SCHEDULE OF CHARGES
HYPOTHETICAL RATES OF RETURN
PLANNED PERIODIC PREMIUM OF $1,842 ANNUALLY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
0% GROSS 6% GROSS 12% GROSS
- ------------------------------------------------------------------------------------------
END OF PREMIUMS CASH CASH CASH
POLICY ACCUMULATED SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,934 477 100,000 556 100,000 636 100,000
2 3,965 1,627 100,000 1,906 100,000 2,147 100,000
3 6,097 2,830 100,000 3,296 100,000 3,802 100,000
4 8,336 3,939 100,000 4,726 100,000 5,614 100,000
5 10,687 4,998 100,000 6,194 100,000 7,596 100,000
6 13,156 6,005 100,000 7,698 100,000 9,763 100,000
7 15,747 6,954 100,000 9,234 100,000 12,131 100,000
8 18,469 7,847 100,000 10,804 100,000 14,723 100,000
9 21,326 8,634 100,000 12,410 100,000 17,565 100,000
10 24,327 9,459 100,000 14,054 100,000 20,685 100,000
15 41,735 14,177 100,000 24,645 100,000 43,535 100,000
20 63,953 15,188 100,000 34,495 100,000 78,962 100,000
25 92,309 12,776 100,000 44,842 100,000 137,821 159,872
30 128,499 3,865 100,000 55,181 100,000 232,409 248,678
AGE 65 63,953 15,188 100,000 34,495 100,000 78,962 100,000
- ------------------------------------------------------------------------------------------
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
</TABLE>
Premium Tax Charges will vary by state of residence. This illustration
assumes 2.0%
American National agrees to keep the policy in force during the first 2
policy years and provide a Guaranteed Coverage Benefit so long as the
Guaranteed Coverage Premium is paid even though, in certain instances, the
minimum payments allowed by the contract will not, after the payment of monthly
insurance and administrative charges, generate positive surrender values during
such period.
Values would be different if premiums are paid with a different frequency or
if of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND
RATES OF INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY
AVERAGE 0%, 6%, or 12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH
VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
66
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550
VARIABLE UNIVERSAL LIFE INSURANCE
ENDOWMENT AT 95
OPTION A SPECIFIED AMOUNT INCLUSIVE OF POLICY VALUE
MALE ISSUE AGE 45
TOBACCO NON-USER
GUARANTEED SCHEDULE OF CHARGES
HYPOTHETICAL RATES OF RETURN
PLANNED PERIODIC PREMIUM OF $1,842 ANNUALLY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
0% GROSS 6% GROSS 12% GROSS
- ------------------------------------------------------------------------------------------
END OF PREMIUMS CASH CASH CASH
POLICY ACCUMULATED SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,934 452 100,000 531 100,000 610 100,000
2 3,965 1,625 100,000 1,853 100,000 2,091 100,000
3 6,097 2,753 100,000 3,212 100,000 3,711 100,000
4 8,336 3,834 100,000 4,609 100,000 5,483 100,000
5 10,687 4,867 100,000 6,043 100,000 7,422 100,000
6 13,156 5,849 100,000 7,512 100,000 9,542 100,000
7 15,747 6,775 100,000 9,013 100,000 11,861 100,000
8 18,469 7,641 100,000 10,545 100,000 14,394 100,000
9 21,326 8,442 100,000 12,101 100,000 17,164 100,000
10 24,327 9,172 100,000 13,681 100,000 20,192 100,000
15 41,735 13,357 100,000 23,586 100,000 42,121 100,000
20 63,953 13,404 100,000 32,160 100,000 75,850 100,000
25 92,309 8,535 100,000 39,610 100,000 132,131 153,272
30 128,499 0 100,000 43,830 100,000 222,108 237,655
AGE 65 63,953 13,404 100,000 32,160 100,000 75,850 100,000
- ------------------------------------------------------------------------------------------
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
</TABLE>
Premium Tax Charges will vary by state of residence. This illustration
assumes 2.0%
American National agrees to keep the policy in force during the first 2
policy years and provide a Guaranteed Coverage Benefit so long as the
Guaranteed Coverage Premium is paid even though, in certain instances, the
minimum payments allowed by the contract will not, after the payment of monthly
insurance and administrative charges, generate positive surrender values during
such period.
Values would be different if premiums are paid with a different frequency or
if of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND
RATES OF INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY
AVERAGE 0%, 6%, or 12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH
VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
67
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550
VARIABLE UNIVERSAL LIFE INSURANCE
ENDOWMENT AT 95
OPTION B SPECIFIED AMOUNT IN ADDITION TO POLICY VALUE
MALE ISSUE AGE 45
TOBACCO NON-USER
CURRENT SCHEDULE OF CHARGES
HYPOTHETICAL RATES OF RETURN
PLANNED PERIODIC PREMIUM OF $4,034 ANNUALLY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
0% GROSS 6% GROSS 12% GROSS
- ------------------------------------------------------------------------------------------
END OF PREMIUMS CASH CASH CASH
POLICY ACCUMULATED SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,236 2,389 102,969 2,591 103,172 2,794 103,375
2 8,683 5,461 106,243 6,065 106,847 6,693 107,475
3 13,353 8,451 109,435 9,668 110,652 10,986 111,970
4 18,256 11,357 112,543 13,406 114,592 15,712 116,898
5 23,405 14,175 115,562 17,277 118,664 20,908 122,295
6 28,811 16,902 118,491 21,282 122,871 26,619 128,208
7 34,487 19,531 121,322 25,419 127,210 32,889 134,680
8 40,447 22,064 124,057 29,694 131,686 39,776 141,769
9 46,705 24,500 126,694 34,109 136,304 47,342 149,536
10 53,276 26,837 129,233 38,669 141,065 55,652 158,048
15 91,400 40,382 140,382 67,138 167,138 114,664 214,664
20 140,057 47,984 147,984 96,334 196,334 203,780 303,780
25 202,158 51,079 151,079 127,969 227,969 344,439 444,439
30 281,415 47,156 147,156 159,344 259,344 565,701 665,701
AGE 65 140,057 47,984 147,984 96,334 196,334 203,780 303,780
- ------------------------------------------------------------------------------------------
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
</TABLE>
Premium Tax Charges will vary by state of residence. This illustration
assumes 2.0%
American National agrees to keep the policy in force during the first 2
policy years and provide a Guaranteed Coverage Benefit so long as the
Guaranteed Coverage Premium is paid even though, in certain instances, the
minimum payments allowed by the contract will not, after the payment of monthly
insurance and administrative charges, generate positive surrender values during
such period.
Values would be different if premiums are paid with a different frequency or
if of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND
RATES OF INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY
AVERAGE 0%, 6%, or 12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH
VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
68
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550
VARIABLE UNIVERSAL LIFE INSURANCE
ENDOWMENT AT 95
OPTION B SPECIFIED AMOUNT IN ADDITION TO POLICY VALUE
MALE ISSUE AGE 45
TOBACCO NON-USER
GUARANTEED SCHEDULE OF CHARGES
HYPOTHETICAL RATES OF RETURN
PLANNED PERIODIC PREMIUM OF $4,034 ANNUALLY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
0% GROSS 6% GROSS 12% GROSS
- ------------------------------------------------------------------------------------------
END OF PREMIUMS CASH CASH CASH
POLICY ACCUMULATED SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,236 2,365 102,945 2,566 103,147 2,769 103,349
2 8,683 5,412 106,194 6,013 106,795 6,638 107,420
3 13,353 8,376 109,360 9,586 110,570 10,897 111,881
4 18,256 11,255 112,440 13,291 114,476 15,583 116,768
5 23,405 14,047 115,434 17,128 118,515 20,736 122,123
6 28,811 16,748 118,337 21,098 122,687 26,400 127,989
7 34,487 19,355 121,146 25,202 126,993 32,621 134,412
8 40,447 21,862 123,855 29,437 131,430 39,450 141,442
9 46,705 24,263 126,457 33,802 135,996 46,940 149,134
10 53,276 26,551 128,947 38,294 140,690 55,153 157,549
15 91,400 39,523 139,523 65,987 165,987 113,058 213,058
20 140,057 46,118 146,118 93,683 193,683 199,752 299,752
25 202,158 46,805 146,805 121,754 221,754 334,482 434,482
30 281,415 38,333 138,333 146,036 246,036 542,962 642,962
AGE 65 140,057 46,118 146,118 93,683 193,683 199,752 299,752
- ------------------------------------------------------------------------------------------
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
</TABLE>
Premium Tax Charges will vary by state of residence. This illustration
assumes 2.0%
American National agrees to keep the policy in force during the first 2
policy years and provide a Guaranteed Coverage Benefit so long as the
Guaranteed Coverage Premium is paid even though, in certain instances, the
minimum payments allowed by the contract will not, after the payment of monthly
insurance and administrative charges, generate positive surrender values during
such period.
Values would be different if premiums are paid with a different frequency or
if of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND
RATES OF INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY
AVERAGE 0%, 6%, or 12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH
VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
69
<PAGE>
DIAGRAM OF POLICY
This diagram is a summary of certain policy provisions. It should be read in
connection with the prospectus.
- --------------------------------------------------------------------------------
Premium Payments
. $1,842.00 Annually
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Deductions from Premiums
. Sales charge - 4% $ 73.68
. Premium Tax Charge - 2% 36.84
. Transaction Charge - $2 2.00
--------
$ 112.52
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Premiums
1,842 - 112.52 = 1,729.48
Allocation:
(20%) AN Growth Fund $345.90 (40%) AN Money Market Fund $691.79
(30%) Managed Fund $518.84 (00%) Balanced Fund $000.00
(10%) Fixed Account $172.95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Monthly Deductions
Cost of Insurance $26.26
Administrative Charge 2.50 + (.3447 x 100) = $36.97
------
$63.23
Deducted pro rata from funds and fixed account
Resulting Fund Values
(20%) AN Growth Fund $333.26 (40%) AN Money Market Fund $666.50
(30%) Managed Fund $499.86 (00%) Balanced Fund $ 0.00
(10%) Fixed Account $166.63
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Amounts allocated to funds then purchase shares
Value - Unit Value = Units Purchased
AN Growth Fund $333.25 2.15 155.00
Managed Fund 499.86 1.75 285.63
AN Money Market Fund 666.50 1.50 444.33
Balanced Fund 000.00 1.61 0.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
End of each valuation date daily asset charge assessed
and unit values updated.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If surrendered, a charge of $ 470.93 will be assessed.
Premiums Paid: 1,842.00
Surrender Premium: 1,803.96
therefore
(.26 x 1,803.96) + ((1,842.00 -1,803.96) x .05) = 470.93
- --------------------------------------------------------------------------------
70
<PAGE>
SURRENDER CHARGE CALCULATION
ILLUSTRATION 1a
Male Issue Age 45
Tobacco Non-user
Planned Periodic Premium: $ 1,787
Surrender Premium: $ 1,804
Specified Amount: $100,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 1787 1787 (.26) x (1787) + 0 = 464.62
2 1787 3574 (.26) x (1804) + (.05) x ( 3574 - 1804) = 557.54
3 1787 5361 (.26) x (1804) + (.05) x ( 5361 - 1804) = 646.89
4 1787 7148 (.26) x (1804) + (.05) x ( 7148 - 1804) = 736.24
5 1787 8935 (.26) x (1804) + (.05) x ( 8935 - 1804) = 825.53
6 1787 10722 (.26) x (1804) + (.05) x (10722 - 1804) = 914.94
7 1787 12509 (.26) x (1804) + (.05) x (12509 - 1804) = 1004.29
8 1787 14296 (.26) x (1804) + (.05) x (14296 - 1804) = 1093.64
9 1787 16083 (.26) x (1804) + (.05) x (16083 - 1804) = 1182.99
10 1787 17870 (.26) x (1804) + (.05) x (17870 - 1804) = 1272.34
</TABLE>
ILLUSTRATION 1b
Male Issue Age 45
Tobacco Non-user
Planned Periodic Premium: $ 2,261
Surrender Premium: $ 1,804
Specified Amount: $100,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 2261 2261 (.26) x (1804) + (.05) x ( 2261 - 1804) = 491.89
2 2261 4522 (.26) x (1804) + (.05) x ( 4522 - 1804) = 604.94
3 2261 6783 (.26) x (1804) + (.05) x ( 6783 - 1804) = 717.99
4 2261 9044 (.26) x (1804) + (.05) x ( 9044 - 1804) = 831.04
5 2261 11305 (.26) x (1804) + (.05) x (11305 - 1804) = 944.09
6 2261 13566 (.26) x (1804) + (.05) x (13566 - 1804) = 1057.14
7 2261 15827 (.26) x (1804) + (.05) x (15827 - 1804) = 1170.19
8 2261 18088 (.26) x (1804) + (.05) x (18088 - 1804) = 1280.84
9 2261 20349 (.26) x (1804) + (.05) x (18040 - 1804) = 1280.84
10 2261 22610 (.26) x (1804) + (.05) x (18040 - 1804) = 1280.84
</TABLE>
71
<PAGE>
ILLUSTRATION 2a
Male Issue Age 66
Tobacco Non-user
Planned Periodic Premium: $ 2,750
Surrender Premium: $ 2,994
Specified Amount: $50,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 2750 2750 (.26) x (2750) + 0 = 715.00
2 2750 5500 (.26) x (2994) + (.05) x ( 5500 - 2994) = 903.74
3 2750 8250 (.26) x (2994) + (.05) x ( 4250 - 2994) = 1041.24
4 2750 11000 (.26) x (2994) + (.05) x (11000 - 2994) = 1178.74
5 2750 13750 (.26) x (2994) + (.05) x (13750 - 2994) = 1316.24
6 2750 16500 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
7 2750 19250 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
8 2750 22000 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
9 2750 24750 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
10 2750 27500 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
</TABLE>
ILLUSTRATION 2b
Male Issue Age 66
Tobacco Non-user
Planned Periodic Premium: $ 3,200
Surrender Premium: $ 2,994
Specified Amount: $50,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 3200 3200 (.26) x (2994) + (.05) x ( 3200 - 2994) = 788.74
2 3200 6400 (.26) x (2994) + (.05) x ( 6400 - 2994) = 948.74
3 3200 9600 (.26) x (2994) + (.05) x ( 9600 - 2994) = 1108.74
4 3200 12800 (.26) x (2994) + (.05) x (12800 - 2994) = 1268.74
5 3200 16000 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
6 3200 19200 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
7 3200 22400 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
8 3200 25600 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
9 3200 28800 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
10 3200 32000 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
</TABLE>
72
<PAGE>
ILLUSTRATION 3a
Male Issue Age 72
Tobacco Non-user
Planned Periodic Premium: $ 4,200
Surrender Premium: $ 4,367
Specified Amount: $50,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 4200 4200 (.26) x (4200) + 0 = 1092.00
2 4200 8400 (.26) x (4367) + (.05) x ( 8400 - 4367) = 1337.07
3 4200 12600 (.26) x (4367) + (.05) x (12600 - 4367) = 1547.07
4 4200 16800 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
5 4200 21000 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
6 4200 25200 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
7 4200 29400 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
8 4200 33600 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
9 4200 37800 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
10 4200 42000 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
</TABLE>
ILLUSTRATION 3b
Male Issue Age 72
Tobacco Non-user
Planned Periodic Premium: $ 4,450
Surrender Premium: $ 4,367
Specified Amount: $50,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 4450 4450 (.26) x (4367) + (.05) x ( 4450 - 4367) = 1139.57
2 4450 8900 (.26) x (4367) + (.05) x ( 8900 - 4367) = 1362.07
3 4450 13350 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
4 4450 17800 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
5 4450 22250 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
6 4450 26700 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
7 4450 31150 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
8 4450 35600 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
9 4450 40050 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
10 4450 44500 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
</TABLE>
73
<PAGE>
[Logo of American PURCHASER SUITABILITY FORM
National appears here] NEW ACCOUNT INFORMATION & ARBITRATION AGREEMENT
This form must accompany all applications to
establish new accounts in American National's Variable
products, American National Investment Accounts, Inc.,
Variable Insurance Products Fund and Variable Insurance
Products Fund II.
Article III, Sections 2 & 21 of the Rules of Fair
Practice require a Representative to obtain the
information contained in this form in order to accept a
new account in the American National Variable products.
Date Registered Representative
- -------------------- -------------------------------------------------------
A. SECURITIES REGISTRATION OF CUSTOMER
Name(s) and Age(s)
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
Social Security No. (Individual, Joint Taxpayer ID No. (Trust, Estate,
Accounts, Custodial Accounts for Minors) Pension Trust, Corporation,
Partnership, etc.)
- -------------------------------------------------------------------------------
B. IS THE PURCHASER OR PROPOSED INSURED EMPLOYED BY OR ASSOCIATED WITH A MEMBER
OF THE NASD OR NYSE?
[ ] Yes [ ] No If he/she is, provide the name, address and phone
number of the firm:
- -------------------------------------------------------------------------------
If yes, provide the name, address and phone number of the firm:
- -------------------------------------------------------------------------------
C. DOES CUSTOMER HAVE OTHER SECURITIES HOLDINGS? [ ] Yes [ ] No
[ ] Stocks [ ] Bonds [ ] Mutual Funds [ ] Variable Products [ ] Other
Are they redeeming other mutual fund shares and/or variable products to make
this purchase? [ ] Yes [ ] No
- --------------------------------------------------------------------------------
D. PERTINENT ADDITIONAL INFORMATION (CHECK APPROPRIATE BOXES)
[ ] Application Attached [ ] Check Attached Payable To:
[ ] Signed Arbitration Agreement ------------------------------
[ ] Signed Statement of Refusal to [ ] Other
Provide Financial Information if
Applicable ------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------- --------------------------------------
Registered Representative's Name (print) Representative's Personal Code
- ---------------------------------------- -------------------------------------
Registered Representative's Signature Date
- ---------------------------------------- -------------------------------------
B/O# PSO# Home Office Approval Date Received
SIGNATURE REQUIRED ON THE REVERSE SIDE
INVESTMENT SUITABILITY To be completed by Registered Representative and
Purchaser
NASD rules require the Registered Representative to have reasonable grounds for
believing that any sale is suitable for the customer. Therefore, Registered
Representatives are required to make inquiries concerning the financial
condition of a proposed purchaser (the "Purchaser") of American National's
Variable products. Purchasers are urged to supply such information so that the
representative can make an informed judgment as to the suitability for a
particular Purchaser of variable products. However, Purchasers are not required
to divulge such information. If the Purchaser chooses not to do so, the
Purchaser must execute the signature line on the reverse side signifying his/her
refusal and acknowledge that the representative requested the suitability
information.
- --------------------------------------------------------------------------------
INVESTMENT SUITABILITY CONTINUED To be completed by Registered Representative
and Purchaser
1. OCCUPATION: Phone No. Employer
------------------------------ ----------------
Name and Address Employer:
-----------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2. TAX STATUS [ ] Single [ ] Head of Household [ ] Married filing separate
[ ] Married filing [ ] Corporation returns
joint return or [ ] Other
Qualifying widow(er) -------------------------------------------
with dependent child
CONTINUED ON THE REVERSE SIDE
74
<PAGE>
3. MARITAL STATUS
A. [ ] Married B. [ ] Single C. [ ] Widowed
4. DEPENDENTS
A. [ ] Spouse B. Children: Ages C. [ ]
------ --------
5. SOURCES OF FUNDS FOR INVESTMENT
<TABLE>
<S> <C> <C>
A. [ ] Current Earnings D. [ ] Sale of Assets G. [ ] Other Policy Proceeds
B. [ ] Savings E. [ ] Death Benefit H. [ ]
C. [ ] Gift or Inheritance F. [ ] Maturity Proceeds ----------------------
6. PRIMARY PURPOSE OF INVESTMENT:
INDIVIDUAL BUSINESS
A. [ ] Education D. [ ] Tax Shelter A. [ ] Retirement Plan D. [ ] Buy-Sell
B. [ ] Savings E. [ ] B. [ ] Key Man E. [ ] Depreciation Reserve
C. [ ] Estate Plan C. [ ] Deferred Compensation F. [ ]
----------------------
</TABLE>
7. INVESTMENT PROFILE:
1. What is your current investment preference?
[ ] High Growth Potential [ ] Income Growth Potential [ ] Maximum Safety/
Modest Return
2. What is your Risk comfort level?
[ ] High [ ] Moderate [ ] Limited
3. What is your financial goal time horizon?
[ ] 1-5 Years [ ] 5-10 Years [ ] 10 Years and Beyond
4. What is your age range?
[ ] 21-40 [ ] 41-59 [ ] 60+
5. What is tax bracket?
[ ] 15% [ ] 28% [ ] 28%+
6. Are you concerned with having adequate income during retirement:
[ ] Yes [ ] No
7. Are you responsible for the financial welfare of anyone other than your
immediate family (i.e. alimony, child, parental support, etc.)
[ ] Yes [ ] No
- -------------------------------------------------------------------------------
Estimated Annual *Estimated Net Life Insurance Is the applicant a
Income Worth Face Amount policyholder of American
National?
$ $ $ [ ] Yes [ ] No
- -------------------------------------------------------------------------------
*Net Worth is exclusive of home furnishings and automobile.
- -------------------------------------------------------------------------------
STATEMENT OF REFUSAL TO PROVIDE FINANCIAL INFORMATION
I fully understand that the Registered Representative, acting on behalf of
American National Insurance Company and Securities Management and Research,
Inc., has requested the above suitability information to determine whether my
purchase of American National's Variable products is an appropriate investment
considering my financial condition. I refuse to provide the requested
information and by my/our signature(s) below agree not to seek rescission of the
applicable variable product issued or damages based on its unsuitability.
- --------------------------------------- ---------------------------------------
Signature Purchaser Signature Joint Owner (Must Sign)
REPRESENTATIVE EXPLANATION OF CUSTOMERS REFUSAL TO PROVIDE INFORMATION ON THIS
FORM
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PURCHASER AGREEMENT TO ARBITRATION
THIS SECTION IS NOT APPLICABLE TO MISSOURI RESIDENTS!
The following conditions are agreed to by all parties to this agreement.
1. Arbitration is final and binding on the parties.
2. The parties are waiving their right to seek remedies in court, including the
right to jury trial.
3. Pre-arbitration discovery is generally more limited and different from court
proceedings.
4. The arbitrators' award is not required to include factual findings or legal
reasoning and any party's right to appeal or to seek modification of rulings
by arbitrators is strictly limited.
5. The panel of arbitrators will typically include a minority of arbitrators who
were or are affiliated with the securities industry.
By signature below, I (we) understand that I (we) have the right to any
dispute between us arising under the federal securities laws to be resolved
through litigation in the courts. In lieu of using the courts, I (we) may agree,
after any such dispute has arisen, to settle it by arbitration before an
appropriate group of arbitrators. However, I (we) understand that any other
dispute between us arising out of any transaction or this agreement shall be
settled by arbitration before the National Association of Securities Dealers,
Inc., which must be commenced by a written notice of intent to arbitrate.
Judgment upon any award rendered may be entered in any appropriate court.
I (we) further understand that we may not bring a punitive or certified class
action to arbitration, nor seek to enforce any pre-dispute arbitration agreement
against anyone who has initiated in court a punitive class action; or who is a
member of a punitive class action until (1) the class action certification is
denied; or (2) the class is decertified; or (3) I (we) are excluded from the
class action by the court. Such forbearance to enforce an agreement to arbitrate
shall not constitute a waiver of any rights under this agreement except to the
extent stated herein.
- --------------------------------------- ---------------------------------------
Signature Purchaser Signature Joint Owner (Must Sign)
75
<PAGE>
Distributor
Securities Management & Research, Inc.
One Moody Plaza
Galveston, Texas 77550-7999
Custodian
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
Investment Manager
Securities Management & Research, Inc.
One Moody Plaza
Galveston, Texas 77550-7999
Insurer
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
[LOGO OF AMERICAN NATIONAL APPEARS HERE]
[BAR CODE APPEARS HERE]
Form 5427 4-96
76
