<PAGE>
Registration No. 333 - 47321
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Pre-effective Amendment Number 1
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
AMERICAN NATIONAL INSURANCE COMPANY
(Exact Name of Depositor)
One Moody Plaza
Galveston, Texas 77550
(Complete Address of Depositor's Principal Executive Offices)
Rex D. Hemme Jerry L. Adams
Vice President, Actuary Greer, Herz & Adams, L.L.P.
American National With copy to: One Moody Plaza, 18th Floor
Insurance Company Galveston, Texas 77550
One Moody Plaza
Galveston, Texas 77550
(Name and Address of Agent for Service)
===============================================================================
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
Securities being offered: Variable Universal Life Insurance Policies.
===============================================================================
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[X] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
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AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
CROSS REFERENCE SHEET
---------------------
Item Number in Form N-8B-2 Caption in Prospectus
- -------------------------- ---------------------
1 Cover Page
2 Cover Page
3 Safekeeping of the Separate Account's Assets
4 Distribution of the Policies
5 American National Insurance Company and the
Separate Account
6 American National Insurance Company and the
Separate Account
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 American National Insurance Company and the
Separate Account; Policy Rights; Charges and
Deductions; General Provisions; Voting Rights
11 American National Insurance Company and the
Separate Account; Fixed Account
12 American National Insurance Company and the
Separate Account
13 Summary; Charges and Deductions
i
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14 Payment and Allocation of Premiums
15 Payment and Allocation of Premiums
16 Payment and Allocation of Premiums
17 Policy Rights
18 American National Insurance Company and the
Separate Account; Fixed Account; Policy Rights;
Payment and Allocation of Premiums
19 Safekeeping of the Separate Account's Assets
20 Not Applicable
21 Policy Rights
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 American National Insurance Company and the
Separate Account
26 American National Insurance Company and the
Separate Account; Charges and Deductions
27 American National Insurance Company and the
Separate Account
28 American National Insurance Company and the
Separate Account; Senior Executive Officers and
Directors American National Insurance Company
29 American National Insurance Company and the
Separate Account
30 American National Insurance Company and the
Separate Account
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 American National Insurance Company and the
Separate Account
36 Not Applicable
37 Not Applicable
38 Distribution of the Policies
39 Distribution of the Policies
40 American National Insurance Company and the
Separate Account; Distribution of the Policies
41 Distribution of the Policies
42 Not Applicable
43 Not Applicable
44 Payment and Allocation of Premiums
45 Not Applicable
46 Payment and Allocation of Premiums
47 American National Insurance Company and the
Separate Account; Payment and Allocation of
Premiums
ii
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48 Safekeeping of the Separate Account's Assets
49 Not Applicable
50 American National Insurance Company and the
Separate Account
51 Policy Benefits; Payment and Allocation of
Premiums; Charges and Deductions
52 American National Insurance Company and the
Separate Account
53 Federal Tax Matters
54 Not Applicable
55 Appendix - Illustration of Death Benefits and
Accumulation Values
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
iii
<PAGE>
INVESTRAC
ADVANTAGE
VARIABLE
UNIVERSAL
LIFE
PROSPECTUS FOR
VARIABLE UNIVERSAL LIFE INSURANCE II
ISSUED BY
AMERICAN NATIONAL
INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
1-800-306-2959
DISTRIBUTOR
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550-7999
[LOGO CUSTODIAN
APPEARS American National Insurance Company
HERE] One Moody Plaza
Galveston, Texas 77550-7999
INSURER
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
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.
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 and at the same time provide flexibility, within limits,
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, until age 95 a level benefit that
equals the Specified Amount of the Policy) or option B (a variable benefit that
until age 95 generally equals the Specified Amount plus the Policy's
Accumulation Value). Under either Death Benefit option, the Death Benefit at age
95 and thereafter equals the Accumulation Value. The Policy is available only to
persons who have an age last birthday of 80 or less at the time the Policy is
purchased. The minimum Specified Amount is currently $100,000 for preferred risk
classification and $50,000 for all other risk classifications. Determination of
insured risk classifications is made in accordance with American National's
underwriting guidelines. The Policy provides for a Surrender Value that can be
obtained with a partial or total surrender of the Policy, or with a Policy loan.
There is no minimum guaranteed Accumulation Value.
You have the right to examine the Policy and return it for a refund within 10
days after you receive the Policy (the "Refund Period"). (See "Refund
Privilege", page 8.)
Premium payments made under the Policy are paid to American National. The
amount of any initial premium payment received with the application will be
allocated to the money market portfolio of the American National Fund, as of the
issue date, for the first 15 days of the Refund Period. After the expiration of
such 15 day period, the initial premium, together with investment gains thereon,
and all subsequent premium payments, will be allocated among the twenty
subaccounts ("Subaccounts") of the American National Variable Life Separate
Account ("Separate Account") available under the Policy and/or the Fixed Account
as directed by the Policyowner. The Separate Account is organized as a unit
investment trust. The amount of the PolicyOs 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.
Certain fees and charges are deducted from the Policy's Accumulation Value. A
Daily Asset Charge of 1.25% of the Accumulation Value of each Subaccount on an
annual basis will be deducted. A monthly policy charge will also be deducted.
Such monthly policy charge, which will vary by Age at Issue and risk class will
range from a maximum of $7.50 plus $.01892 per $1,000 of Specified Amount to a
maximum of $7.50 plus $.31034 per $1,000 of Specified Amount. 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 for the
period stipulated under the Guaranteed Coverage Benefit so long as the
Guaranteed Coverage Premium is paid and other policy provisions are met even
though, in certain instances, the minimum payment allowed by the contract will
not generate positive Surrender Value, after payment of Monthly Deductions, at
one or more points during such period.
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"), the Variable Insurance Products Fund ("VIP"),
the Variable Insurance Products Fund II ("VIP II") and the Variable Insurance
Products Fund III ("VIP III") (collectively the "Fidelity Funds"), and the T.
Rowe Price International Series, Inc., and the T. Rowe Price Equity Series, Inc.
(the "T. Rowe Price Funds"). The portfolios of the American National Fund, the
Fidelity Funds and the T. Rowe Price 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, the
Fidelity Funds and the T. Rowe Price 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 AN Balanced Portfolio and the AN Managed Portfolio. The Fidelity
Funds currently have thirteen portfolios which are Eligible Portfolios: the VIP
II Investment Grade Bond, The VIP II Asset Manager, the VIP II Index 500, The
VIP Money Market, the VIP Equity-Income, the VIP High Income, the VIP Growth,
the VIP Overseas, the VIP II Contrafund, the VIP II Asset Manager: Growth, the
VIP III Growth Opportunities, the VIP III Balanced and the VIP III Growth and
Income. The T. Rowe Price Funds currently have three portfolios which are
Eligible Portfolios: Equity Income, the International Stock and the Mid-Cap
Growth. The accompanying prospectuses for the American National Fund, the
Fidelity Funds and the T. Rowe Price Funds describe the investment objectives
and policies and the risks of each of the Eligible Portfolios. Fees and charges
are also deducted from the assets of the Eligible Portfolios.
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.
The Policy is not a deposit or obligation of, nor guaranteed or endorsed by
any bank, credit union, broker-dealer or any other financial institution. The
Policy is not federally insured by the Federal Reserve Board, or any other
agency; and involves investment risks, including the loss or principal.
This Prospectus is valid only when accompanied by Current Prospectuses or
Prospectus Profiles 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 AUGUST __ , 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
Definitions......................................... 3
Summary............................................. 5
The Policy.......................................... 5
Policy Benefits and Rights.......................... 5
Flexibility to Adjust Death Benefits................ 6
Premiums............................................ 6
Policy Lapse........................................ 6
Charges............................................. 6
Eligible Portfolio Annual Expenses.................. 7
Fees and Expenses Incurred by Eligible Portfolios... 8
Tax Treatment of the Policy......................... 8
Unisex Policies..................................... 8
Refund Privilege.................................... 8
American National Insurance Company
and the Separate Account............................ 8
American National Insurance Company................. 8
The Separate Account................................ 9
The Funds........................................... 9
Addition, Deletion or Substitution of Investments... 11
Resolving Material Conflicts........................ 11
Fixed Account....................................... 12
Policy Benefits..................................... 12
Purposes of the Policy.............................. 12
Death Benefit Proceeds.............................. 12
Death Benefit Options............................... 12
Change in Specified Amount.......................... 14
Methods of Affecting Insurance Protection........... 15
Duration of the Policy.............................. 15
Accumulation Value.................................. 15
Payment of Policy Benefits.......................... 16
General Provisions for Settlement Options........... 17
Policy Rights....................................... 18
Loan Benefits....................................... 18
Surrenders.......................................... 18
Transfers........................................... 19
Refund Privilege.................................... 19
Dollar Cost Averaging............................... 19
PAGE
Policy Lapse, Grace Period and Reinstatement........ 21
Charges and Deductions.............................. 22
Premium Charges..................................... 22
Charges from Accumulation Value..................... 22
Surrender Charge.................................... 23
Transfer Charge..................................... 23
Partial Surrender Charge............................ 23
Daily Charges Against the Separate Account.......... 23
Fees and Expenses Incurred by Eligible Portfolios... 23
Taxes............................................... 24
Exceptions to Charges............................... 24
General Provisions.................................. 24
The Contract........................................ 24
Control of Policy................................... 24
Beneficiary......................................... 24
Change of Beneficiary............................... 24
Change in Policyowner or Assignment................. 24
Payment of Proceeds................................. 25
Incontestability.................................... 25
Misstatement of Age or Sex.......................... 25
Suicide............................................. 25
Postponement of Payments............................ 25
Additional Insurance Benefits (Riders).............. 25
Dividends........................................... 25
Distribution of the Policies........................ 25
Federal Income Tax Considerations................... 26
Tax Status of the Policy............................ 26
Tax Treatment of Policy Benefits.................... 26
Possible Charges for American National Taxes........ 28
Possible Legislative Changes........................ 28
Safekeeping of the Separate Account's Assets........ 28
Voting Rights....................................... 28
State Regulations of American National.............. 29
Preparing for Year 2000............................. 29
Senior Executive Officers and Directors
American National Insurance Company................. 30
Legal Matters....................................... 33
Legal Proceedings................................... 33
Experts............................................. 33
Additional Information.............................. 33
Financial Statements................................ 33
Appendix-Illustrations of Death Benefits,
Accumulation Values and Surrender Values............ 51
2
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DEFINITIONS
Accumulation Value - The total amount that a Policy provides for investment at
any time. The determination of Accumulation Value is described on page 15.
Age at Issue - The age at the Insured's last birthday preceding the Policy
Date.
American National Fund - The American National Investment Accounts, 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
InsuredOs estate will be the Beneficiary. The interest of any Beneficiary is
subject to that of any assignee.
Daily Asset Charge - A charge equal to an annual rate of 1.25% of the average
daily Accumulation 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.
Declared Rates - American National guarantees that it will credit interest in
the Fixed Account at an effective annual rate of at least 3.0%. 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 Satisfactory Proof of 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 unpaid Monthly Deduction that may apply during a grace period.
Effective Date - The Policy takes effect on the Date of Issue shown on the
Policy Data Page upon:
(1) payment of the first premium, as shown on the Policy Data Page; and
(2) Policy delivery during the Insured's lifetime and good health.
Any increase in Specified Amount, addition of a benefit rider, or
reinstatement of coverage will take effect on the Monthly Deduction Date which
coincides with or next follows the date American National approves an
application for such change or for reinstatement of the Policy.
Eligible Portfolio - A Portfolio of American National Investment Accounts,
Inc., Variable Insurance Products Fund, Variable Insurance Products Fund II,
Variable Insurance Products Fund III, T. Rowe Price International Series, Inc.,
and T. Rowe Price Equity Series, Inc., which corresponds to and in which a
Subaccount can be invested.
Fidelity Funds - The Variable Insurance Products Fund, the Variable Insurance
Products Fund II, and Variable Insurance Products Fund III, series mutual funds.
Fixed Account - An account that is a part of American National's General
Account to which all or a portion of 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 if the Guaranteed Coverage Premium is paid and other Policy provisions
are met. The Guaranteed Coverage Benefit period ranges from three to seven years
based on the Age at Issue.
Age at Issue Policy Years
0 - 20 First 7 Years
21 - 30 First 6 Years
31 - 40 First 5 Years
41 - 50 First 4 Years
50 + First 3 Years
Guaranteed Coverage Premium - A specified premium which, if paid in advance as
required, will cause American National to keep the Policy in force 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.
Monthly Deduction - The sum of the cost of insurance charge, applicable charge
for any riders and the monthly policy 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. The Date of Issue is the first Monthly Deduction Date.
Planned Periodic Premiums - A scheduled premium of a level amount at a fixed
interval selected by the Policyowner. 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 requirements of the Guaranteed Coverage
Benefit are met.
Policy - The variable universal life insurance policy offered by American
National and described in the Prospectus.
3
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Policy Data Page - The pages of the Policy so titled.
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.
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 premiums
allocated by the Policyowner to the Separate Account and premiums allocated by
policyowners of other variable life insurance policies American National issues.
Specified Amount - The minimum Death Benefit under the Policy until the
Insured reaches Attained Age of 95. The Specified Amount is an amount selected
by the Policyowner(s) in accordance with Policy requirements.
Subaccount - A subdivision of the Separate Account. Each Subaccount invests
exclusively in the shares of a corresponding Eligible Portfolio.
Surrender Value - The Policy Accumulation Value less any Policy Debt and
surrender charges.
T. Rowe Price Funds - The T. Rowe Price International Series, Inc. and the T.
Rowe Price Equity Series, Inc., series mutual funds.
Valuation Date - A Valuation Date is each day on which the New York Stock
Exchange ("NYSE") and American National are open for trading. American National
will be closed on each national holiday on which the NYSE is closed, and will be
closed on Friday, November 27, 1998 and on Thursday, December 24, 1998. The
Policyowner will not have access to the Accumulation Value on days when the NYSE
is open for business but American National is closed for business.
Valuation Period - The period commencing at the close of regular trading on
the NYSE on one Valuation Date and ending at the close of regular trading on the
NYSE on the next succeeding Valuation Date.
4
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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.
THE POLICY
The Policy is a variable universal life insurance policy that 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 life insurance coverage on the named Insured and 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 Planned Periodic Premiums. 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 so long as
the Guaranteed Coverage Premium is paid and other Policy provisions are met even
though, in certain instances, such payment may not, after deduction of the
Monthly Deduction, generate positive Surrender Value at one or more points
during such period. After the Guaranteed Coverage Benefit period, the Policy
will lapse at any time the Surrender Value 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.
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 Policy Benefits-Death Benefit Proceeds, page 12 and
Policy Benefits-Accumulation Value, page 15.) 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.
Premiums are allocated by the Policyowner to one or more of these Subaccounts
and to the Fixed Account. The Fixed Account will earn interest as established by
American National. (See Fixed Account, page 12.) The assets of the various
Subaccounts are invested in an Eligible Portfolio.
Each Eligible Portfolio pursues different investment objectives. 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. (See American National Insurance Company and the Separate
Account, page 8.)
POLICY BENEFITS AND RIGHTS
Death Benefit Proceeds and Death Benefit Options. So long as the Policy
remains in force, American National will pay the Death Benefit Proceeds upon
receipt of Satisfactory Proof of Death of the Insured. The Death Benefit
Proceeds may be paid in a lump sum or in accordance with an optional payment
plan.
The Policy provides for two Death Benefit options. Until age 95, under either
option, the Death Benefit will not be less than the current Specified Amount of
the Policy. The Death Benefit may, however, exceed the Specified Amount,
depending upon the investment experience of the Policy. Until age 95, Death
Benefit Option A provides for a Death Benefit equal to the current Specified
Amount of the Policy, or if greater, the Accumulation Value at the end of the
Valuation Period that includes the date of the Insured's death multiplied by the
applicable corridor percentage set forth in the Policy. Until age 95, Death
Benefit Option B provides for a Death Benefit equal to the current Specified
Amount plus the Policy's Accumulation Value at the end of the Valuation Period
that includes the date of the Insured's death, or if greater, the Accumulation
Value at the end of the Valuation Period that includes the date of the Insured's
death multiplied by the applicable corridor percentage set forth in the Policy.
Under either Death Benefit option, the Death Benefit at age 95 and thereafter
equals the Accumulation Value. (See Policy Benefits-Death Benefit Options, page
12.)
Optional Insurance Benefits. At issue, certain additional optional benefits
may be obtained. 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.
Accumulation Value. The value attributable to the Policy 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 premiums paid, any partial surrenders, and the charges
assessed 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. (See Policy Benefits-Accumulation Value,
page 15.)
Surrenders. 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 and obtain a
portion of the Surrender Value. Partial surrenders will reduce both the
Accumulation Value and the Death Benefit payable under the Policy. A charge will
be deducted from the amount paid upon partial surrender. (See Charges and
Deduction-Partial Surrender Charge, page 23. See Policy Rights-Surrenders, page
18.) Surrenders may have tax consequences. (See Federal Income Tax
Considerations, page 26.)
5
<PAGE>
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 subject to certain limitations.
Interest on Policy loans accrues on a daily basis at an annual rate of 5%, 3%
on preferred loans. 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. 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. Amounts held in the General Account as
security for loans will earn interest at the annual rate of 3%, credited on the
Policy anniversary. 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 Policy Rights-Loan
Benefits, page 18.) Policy loans may have tax consequences. (See Federal Income
Tax Considerations, page 26.)
FLEXIBILITY TO ADJUST DEATH BENEFITS
The Policyowner has flexibility to adjust the Death Benefit by changing the
Death Benefit option and 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. Increases in the Specified Amount
will require satisfactory evidence of insurability. No decreases in Specified
Amount may be made during the first three (3) Policy Years. (See Policy
Benefits-Death Benefit Options, page 12 and Change in Specified Amount, page
14.)
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.
Subject to certain limitations, premiums may be paid in any amount and at any
frequency. (See Payment and Allocation of Premiums, page 20.)
Allocation of 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.
Premium payments received on or before the Date of Issue and premiums received
during the 15-day period after the Date of Issue are allocated to the Subaccount
for the AN Money Market Portfolio. Thereafter, the Accumulation Value allocated
to the AN Money Market Account and subsequent 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 Payment and Allocation of
Premiums-Allocation of Premiums and Accumulation Value, page 21.)
POLICY LAPSE
A Policy will lapse when the Surrender Value is insufficient to pay the
Monthly Deduction or Policy Debt exceeds the Accumulation Value less any
surrender charge, and a grace period expires without sufficient payment. 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 (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 the Guaranteed Coverage Benefit
requirements have been met. (See Payment and Allocation of Premiums, page 20.)
CHARGES
Premium Charges. No sales, premium tax and transaction charges will be
deducted from each premium before allocating any amount to a Subaccount or the
Fixed Account.
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, plus
2. A charge for the cost of any riders, (See General Provisions-Additional
Insurance Benefits (Riders), page 25), plus
3. A monthly policy charge.
b. On each Valuation Date, the Accumulation Value will be reduced by a Daily
Asset Charge not to exceed 1.25% annually of the average daily Accumulation
Value of each Subaccount, but not the Fixed Account. (See Charges and
Deductions, page 22.)
Surrender Charge. If a Policy is surrendered, American National will assess a
surrender charge. 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
14th anniversary of the Policy and for each increase in Specified Amount,
including an increase due to a change in Death Benefit option, for 14 years
after the effective date of such increase. Thereafter, there is no surrender
charge.
The surrender charge is assessed based on a rate per $1,000 of initial or
increase in Specified Amount. This rate is the same for the first five years
since issue or increase, as applicable, grading to zero after fourteen years.
If a partial surrender results in a decrease in Specified Amount, a partial
surrender charge is made against the amount of Accumulation Value which is
surrendered. (See Charges and Deductions-Partial Surrender Charge, page 23.) A
surrender charge will be assessed upon decreases in the Specified Amount of the
Policy or upon Death Benefit option changes that result in decreases in
Specified Amount.
6
<PAGE>
ELIGIBLE PORTFOLIO ANNUAL EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS
<TABLE>
<CAPTION>
MANAGEMENT OTHER
FEES EXPENSES TOTAL
<S> <C> <C> <C>
AN Money Market Portfolio /1,5/ 0.14% 0.73% 0.87%
AN Growth Portfolio /2,5/ 0.28% 0.59% 0.87%
AN Balanced Portfolio /3,5/ 0.10% 0.80% 0.90%
AN Managed Portfolio /4,5/ 0.33% 0.60% 0.93%
VIP High Income /7/ 0.59% 0.12% 0.71%
VIP II Investment Grade Bond Portfolio 0.44% 0.14% 0.58%
VIP II Asset Manager Portfolio /7/ 0.55% 0.10% 0.65%
VIP II Index 500 Portfolio /6/ 0.24% 0.04% 0.28%
VIP Money Market Portfolio 0.21% 0.10% 0.31%
VIP Equity-Income Portfolio /7/ 0.50% 0.08% 0.58%
VIP Growth Portfolio /7/ 0.60% 0.09% 0.69%
VIP Overseas Portfolio /7/ 0.75% 0.17% 0.92%
VIP II Contrafund Portfolio /7/ 0.60% 0.11% 0.71%
VIP II Asset Manager: Growth Portfolio /7/ 0.60% 0.17% 0.77%
VIP III Balanced Portfolio /7/ 0.45% 0.16% 0.61%
VIP III Growth and Income Portfolio /7/ 0.49% 0.21% 0.70%
VIP III Growth Opportunities Portfolio /7/ 0.60% 0.14% 0.74%
T. Rowe Price Equity Income Portfolio /8/ 0.85% 0.00% 0.85%
T. Rowe Price Mid-Cap Growth Portfolio /8/ 0.85% 0.00% 0.85%
T. Rowe Price International Stock Portfolio /8/ 1.05% 0.00% 1.05%
</TABLE>
Note: The Eligible Portfolio Annual Expenses are expenses for the most recent
fiscal year. The above table is intended to assist you in understanding the fund
expenses that you will bear, directly or indirectly; however such table is based
upon historical information and it is not a guarantee or prediction of future
performance. Actual Eligible Portfolio Expenses for future years may be more or
less than those shown in this table. For a more complete description of these
expenses, see the Prospectuses for the Eligible Portfolios that accompany this
Prospectus.
/1/ Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.23%.
/2/ Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.09%.
/3/ Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.30%.
/4/ Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.10%.
/5/ Under its Administrative Service Agreement with the American National Fund,
Securities Management and Research, Inc. ("SM&R"), the American National Fund's
investment advisor and manager, has agreed to pay (or to reimburse each
portfolio for) each portfolio's expenses (including the advisory fee and
administrative services fee paid to SM&R, but exclusive of interest,
commissions and other expenses incidental to portfolio transactions) in excess
of 1.50% per year of such portfolio's average daily net assets. In addition,
SM&R has entered into a separate undertaking with the American National Fund
effective May 1, 1994 until April 30, 1999, pursuant to which SM&R has agreed
to reimburse the AN Money Market Portfolio and the AN Growth Portfolio for
expense in excess of 0.87%; the AN Balanced Portfolio for expenses in excess of
0.90% and the AN Managed Portfolio for expenses in excess of 0.93%, of each of
such portfolio's average daily net assets during such period. SM&R is under no
obligation to renew this undertaking for any portfolio at the end of such
period.
/6/ The portfolio's expenses were voluntarily reduced by the portfolio's
investment advisor. Absent reimbursement, management fee, other expenses and
total expenses would have been 0.27%, 0.13% and 0.40%, respectively.
/7/ A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent where by interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented in
the table would have been 0.75% for the VIP II Asset Manager Portfolio, 0.81%
for the VIP II Contrafund Portfolio, 0.87% for the VIP II Asset Manager: Growth
Portfolio, 0.79% for the VIP Growth Portfolio, 0.68% for the VIP Equity-Income
Portfolio, 1.02% for the VIP Overseas Portfolio, 0.81% for the VIP High Income
Portfolio, 0.71% for the VIP III Balanced Portfolio, 0.80% for the VIP III
Growth and Income Portfolio, and 0.84% for the VIP III Growth Opportunities
Portfolio.
/8/ T. Rowe Price Equity Income and Mid-Cap Growth Portfolios pay T. Rowe Price
an annual all-inclusive fee of 0.85% based on its average daily net assets. The
T. Rowe Price International Stock Portfolio pays Rowe-Price-Fleming
International, Inc. an annual all-inclusive fee of 1.05% based on its average
daily net assets. These fees pay for investment management services and other
operating costs of the Portfolios.
7
<PAGE>
Because the surrender charge may be significant upon decrease or early
surrender, prospective Policyowners should purchase a Policy only if they do not
intend to decrease or surrender the Policy for a substantial period. (See
Charges and Deductions-Surrender Charge, page 23.)
Transfer Charge. The first twelve transfers per Policy Year will be permitted
free of charge. Thereafter, a transfer charge of $10 will be assessed for each
transfer of Accumulation Value among Subaccounts or to 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 Charges
and Deductions-Transfer Charge, page 23.)
FEES AND EXPENSES INCURRED BY ELIGIBLE PORTFOLIOS
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 its corresponding Eligible Portfolio held therein, and
therefore, the investment advisory fees and other expenses incurred by the
American National Fund, the Fidelity Funds and the T. Rowe Price Funds, as the
case may be. A table of Eligible Portfolio Annual Expenses is found on the
previous page. (See American National Insurance Company and the Separate
Account-The Funds, page 9.)
TAX TREATMENT OF THE POLICY
American National believes (based upon Notice 88-128 and the proposed
Regulations under Section 7702, issued on July 5, 1991) that a Policy issued on
a standard premium class basis generally should meet the Section 7702 definition
of a life insurance contract. With respect to a Policy issued on an extra
rating (i.e., substandard) basis, there is insufficient guidance to determine if
such a Policy would satisfy the Section 7702 definition of a life insurance
contract, particularly if the Policyowner pays the full amount of premiums
permitted under such a Policy. Assuming that a Policy qualifies as a life
insurance contract for Federal income tax purposes, a Policyowner should not be
deemed to be in constructive receipt of the Accumulation Value under a Policy
until there is a distribution from the Policy. Moreover, Death Benefits payable
under a Policy should be completely excludable from the gross income of the
Beneficiary. As a result, the Beneficiary generally should not be taxed on
these proceeds. (See Tax Status of the Policy, Page 26.)
Under certain circumstances, a Policy may be treated as a "Modified Endowment
Contract." If the Policy is a Modified Endowment Contract, then all pre-death
distributions, including Policy loans, will be treated first as a distribution
of taxable income and then as a return of basis or investment in the contract.
In addition, prior to age 59 1/2 any such distributions generally will be
subject to a 10% penalty tax. (For further discussion on the circumstances under
which a Policy will be treated as a Modified Endowment Contract, See Tax
Treatment of Policy Benefits, Page 26.)
If the Policy is not a Modified Endowment Contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Moreover, loans will not be treated as
distributions. Finally, neither distributions nor loans from a Policy that is
not a Modified Endowment Contract are subject to the 10% penalty tax. (See
Distributions from Policies Not Classified as Modified Endowment Contracts, Page
27.)
UNISEX POLICIES
Policies issued in states that require "unisex" policies (currently Montana)
provide for Policy values that do not vary by the sex of the Insured. In
addition, Policies issued in conjunction with employee benefit plans provide for
Policy values that do not vary by the sex of the Insured. (See Cost of
Insurance, Page 22.) Thus, references in this Prospectus to sex-distinct and any
values that vary by the sex of the Insured are not applicable to Policies issued
in states that require "unisex" policies or to Policies issued in conjunction
with employee benefit plans. Illustrations of the effect of these unisex rates
on premiums, Accumulation Values and Death Benefits are available from American
National on request.
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 10 days after receiving the Policy. 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 AN Money Market Portfolio and by
investment gains and losses thereafter. (See Policy Rights-Refund Privilege,
page 19.)
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, Guam and American Samoa. 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, President and Chief Executive Officer 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 and Chief Executive Officer of the Bank and a
Director and President of Moody Bank Holding Company, Inc. ("MBHC"), the Bank's
controlling stockholder. RLM is also a Director and President of Moody
Bancshares, Inc. ("Bancshares"), MBHC's sole shareholder. The Three R Trusts,
trusts
8
<PAGE>
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 49.6% of
its Class A Stock. The trustee of the Three R Trusts is Irwin M. Herz, Jr., a
partner in Greer, Herz & Adams, L.L.P., 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, 1997 were $6,911,337,624 on a
statutory basis.
American National writes life, health and accident insurance and annuities.
American National's financial statements appear on pages 34 through 50.
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 of and persons
entitled to payments under variable life policies issued by American National.
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 involve any SEC supervision of the management or investment policies or
practices of the Separate Account. For state law purposes, the Separate Account
is treated as a division of American National. There are currently twenty
Subaccounts within the Separate Account available to Policyowners and each
invests only in a corresponding portfolio of the American National Fund,
Fidelity Funds or T. Rowe Price Funds.
THE FUNDS
Each Subaccount of the Separate Account will only invest in the shares of a
corresponding Eligible Portfolio. The American National Fund, the Fidelity Funds
and the T. Rowe Price 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 Policy, 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 below. There is no assurance that any of the Eligible Portfolios will
achieve their stated objectives. 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. More detailed
information, including a description of investment objectives, restrictions,
expenses and risks, is in the prospectuses for the American National Fund,
Fidelity Funds and T. Rowe Price 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.
The American National Fund's current Eligible 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 AN
Money Market Portfolio will invest only in money market instruments of high
quality as determined by SM&R, 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 AN 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 AN Managed Portfolio seeks to achieve growth of capital and/or current
income by investing in a diversified portfolio consisting of, at the discretion
of SM&R, 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
9
<PAGE>
maintains a staff of experienced investment personnel and related support
facilities.
The Fidelity Funds' current Eligible Portfolios and respective investment
objectives are as follows:
VIP II 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 VIP II Investment Grade
Bond Portfolio will maintain a dollar-weighted average portfolio maturity of ten
years or less.
VIP II 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.
VIP II Index 500 Portfolio ... seeks to provide investment results that
correspond to the total return (i.e., the combination of capital changes and
income) of common stocks publicly traded in the United States. In seeking this
objective, the VIP II Index 500 Portfolio attempts to duplicate the composition
and total return of the Standard & Poor's 500 Composite Stock Price Index while
keeping transaction costs and other expenses low. The VIP II Index 500
Portfolio is designed as a long-term investment option.
VIP Money Market Portfolio ... seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The
VIP Money Market Portfolio will invest only in high quality U.S. dollar
denominated money market securities of domestic and foreign issuers.
VIP Equity-Income Portfolio ... seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the VIP
Equity-Income Portfolio will also consider the potential for capital
appreciation. The VIP 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.
VIP 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. The risks of investing in "junk bonds" are described in the prospectus
for VIP High Income Portfolio, which should be read carefully before investing.
VIP Growth Portfolio ... seeks to achieve capital appreciation. The VIP
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.
VIP Overseas Portfolio ... seeks long term growth of capital primarily through
investments in foreign securities. VIP Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
VIP II 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.
VIP II 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.
VIP III Balanced Portfolio ... seeks both income and growth of capital by
investing in a diversified portfolio of equity and fixed-income securities. The
VIP III Balanced Portfolio is designed to seek a combination of growth and
income from equity and some bond investments.
VIP III Growth and Income Portfolio ... seeks high return through a
combination current income and capital appreication by investing in equity
securities of companies that pay current dividends and offer potential earnings
growth and some bond investments.
VIP III Growth Opportunities Portfolio ... seeks to ride out stock market
fluctuations in pursuit of potentially high long-term returns. The VIP III
Growth Opportunities Portfolio is designed for investors who want to be invested
in the stock market for its long term growth potential.
FMR 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, 1997, FMR advised funds
having more than 29 million shareholder accounts with a total value of more than
$432 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.
The T. Rowe Price Funds' current Eligible Portfolios and respective investment
objectives are as follows:
T. Rowe Price Equity Series, Inc.:
T. Rowe Price Equity Income Portfolio ... seeks to provide substantial
dividend income and also capital appreciation by investing primarily in
dividend-paying common stocks particularly of established companies with
favorable prospects for both increasing dividends and capital appreciation.
10
<PAGE>
T. Rowe Price Mid-Cap Growth Portfolio ... seeks to provide long term capital
appreciation by investing primarily in common stocks of medium-sized (mid-cap)
growth companies. The focus is on companies with superior earnings growth
potential that are no longer considered new or emerging, but are not yet well
established. Mid-cap growth company stocks are generally more volatile than
stocks of large, well-established companies, but they offer the possibility of
more rapid growth.
T. Rowe Price International Series, Inc.:
T. Rowe Price International Stock Portfolio ... seeks a total return on its
assets from long-term growth of capital and income, by investing substantially
all of its assets in common stocks of established non-U.S. companies. The
Portfolio will not purchase any debt security which at the time of purchase is
rated below investment grade. This would not prevent the Portfolio from
retaining a security downgraded to below investment grade after purchase.
T. Rowe Price Associates, Inc. is responsible for selection and management of
the portfolio investments of T. Rowe Price Equity Series, Inc. Rowe Price-
Fleming International, Inc., incorporated in 1979 as a joint venture between T.
Rowe Price Associates, Inc. and Robert Fleming Holdings Limited, is responsible
for selection and management of the portfolio investments of T. Rowe Price
International Series, Inc.
American National has entered into or may enter into agreements with Funds
pursuant to which the adviser or distributor pays American National a fee based
upon an annual percentage of the average net assets amount invested by American
National on behalf of the Separate Account and other separate accounts of
American National, when average net assets exceed certain thresholds. These
percentages may differ, and American National may be paid a greater percentage
by some advisers or distributors than other advisers or distributors. These
agreements reflect administrative services provided by American National.
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.
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, the T. Rowe
Price 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.
RESOLVING MATERIAL CONFLICTS
The Eligible Portfolios presently serve as the investment medium for the
Policy. In addition, the Eligible Portfolios (other than the portfolios of the
American National Fund) are available to registered separate accounts funding
other insurance contracts and, in some cases, certain retirement plans.
We do not currently foresee any disadvantages to you resulting from the
Eligible Portfolios selling shares to fund products other than the Policy.
However, there is a possibility that a material conflict of interest may arise
between Policyowners whose Accumulation Value is allocated to the Separate
Account and the owners of variable life insurance policies and variable annuity
contracts issued by American National or other companies whose values are
allocated to one or more other separate accounts investing in any one of the
Eligible Portfolios. Shares of certain Eligible Portfolios may also be sold to
certain qualified pension and retirement plans. As a result, there is a
possibility that a material conflict may arise between the interests of
Policyowners or owners of other contracts (including contracts issued by other
companies), and such retirement plans or participants in such retirement plans.
In the event of a material conflict, American National will take any necessary
steps, including removing the Eligible Portfolio from the Separate Account, to
resolve the matter. The Board of Directors of each Eligible Portfolio will
monitor events in order to identify any material conflicts that may arise and
determine what action, if any, should be taken in response to those events or
conflicts. See the accompanying prospectuses for the Eligible Portfolios for
more information.
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<PAGE>
FIXED ACCOUNT
Policyowners may elect to allocate all or a portion of their 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 Policy Rights-Transfers, page 19.)
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 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 3.0% 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 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 Guaranteed Coverage Benefit period 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.
After the Guaranteed Coverage Benefit period expires, the Policy will lapse at
any time that its Surrender Value is insufficient to pay the Monthly Deductions
or Policy Debt exceeds Accumulation Value less any surrender charge 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. American National agrees
to keep the Policy in force and provide a Guaranteed Coverage Benefit so long as
the Guaranteed Coverage Premium is paid and other Policy provisions are met,
even though, in certain instances, the minimum payment allowed by contract will
not, after the payment of Monthly Deductions, generate positive Surrender Value
at one or more points during such period.
DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, American National will, upon
Satisfactory Proof of Death of the Insured, pay the Death Benefit Proceeds of a
Policy in accordance with the Death Benefit option in effect at the time of the
Insured's death. The amount of the Death Benefits payable will be 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 Payment of Policy Benefits, page
16.)
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. Until age 95, the Death Benefit under either
option will never be less than the current Specified Amount of the Policy. (See
Payment and Allocation of Premiums-Policy Lapse, Grace Period and Reinstatement,
page 21.)
Option A. Until age 95, under Option A the Death Benefit is the current
Specified Amount of the Policy or, if greater, the applicable corridor
percentage of Accumulation Value at the end of the Valuation Period that
includes the date of death. The applicable percentage is
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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 on page 14. Accordingly, before age 95, 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. The
Death Benefit at age 95 and thereafter equals the Accumulation Value.
Policyowners who prefer to have favorable investment performance, if any,
reflected in higher Accumulation Value and not 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. 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 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. Until age 95, under Option B the Death Benefit is equal to the
current Specified Amount plus the Accumulation Value or, if greater, the
applicable corridor percentage of the Accumulation Value at the end of the
Valuation Period that includes 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, before age 95,
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. The
Death Benefit at age 95 and thereafter equals the Accumulation Value.
Policyowners who prefer to have favorable investment performance, if any,
reflected in increased insurance coverage, as well as 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. 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 approximately $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 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 approximately $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 written request is received by American National. A
change may have Federal Tax consequences. (See Federal Income Tax
Considerations, page 26.)
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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. A change in Death Benefit option will not be
allowed if the Specified Amount remaining in force after the change is 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
The minimum Specified Amount for an Insured to maintain a preferred risk
classification if $100,000.
An increase in Specified Amount due to a Death Benefit option change will
result in certain increases in the Monthly Deduction and the Guaranteed Coverage
Premium. A change in Death Benefit option may effect surrender charge. (See
Charges and Deductions-Surrender Charge, page 23.)
A change in the Death Benefit option may affect subsequent cost of insurance
charges since this charge varies with the net amount at risk. In addition, a
change may affect subsequent monthly policy charges. (See Charges and
Deductions, page 22.)
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 three (3) 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 22 and Federal Income Tax
Considerations, page 26.)
The Specified Amount remaining in force after a decrease may not be less than
the minimum Specified Amount shown in the following schedule:
DURING MINIMUM
POLICY YEAR SPECIFIED AMOUNT
4 35,000
Thereafter 25,000
The minimum Specified Amount for an Insured to maintain a preferred risk
classification is $100,000.
CORRIDOR PERCENTAGE TABLE
ATTAINED AGE CORRIDOR PERCENTAGE
40 or younger 250
41 243
42 236
43 229
44 222
45 215
46 209
47 203
48 197
49 191
50 185
51 178
52 171
53 164
54 157
55 150
56 146
57 142
58 138
59 134
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 and thereafter 100
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. 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.
If there is a decrease in Specified Amount, American National will deduct a
surrender charge from the Accumulation Value. Such deduction will be the sum of
surrender charges computed separately for each reduction in Specified Amount as
required in (a) - (c) above. The surrender charge for each reduction is a pro
rata portion of any surrender charge applicable to a full surrender of the
related increase or initial Specified Amount. This portion will be based on the
percentage
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reduction in the related increase or initial Specified Amount. The surrender
charges applicable to each increase or the initial Specified Amount remaining in
force will be reduced on a pro rata basis. No decrease in Specified Amount can
be made if the Insured's Attained Age exceeds 94. A decrease in Specified Amount
will take effect on the Monthly Deduction Date which coincides with or next
follows the date American National receives the written request from the
Policyowner.
For an increase in the Specified Amount, a written supplemental application
must be submitted. American National may also require additional evidence of
insurability. As a result, the underwriting risk classification for the initial
Specified Amount and each increase in Specified Amount may be different.
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 Payment and Allocation of Premiums-Premiums Upon
Increase in Specified Amount, page 21.) The minimum amount of any increase is
$5,000, and an increase cannot be made if the Insured's Attained Age is over 80.
An increase in the Specified Amount will result in certain increased charges,
which will be deducted from the Accumulation Value 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
requirement. (See Charges and Deductions, page 22.)
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 Policy Rights-Refund
Privilege, page 19.) The Policyowner may cancel the increase in Specified Amount
within 10 days after receiving the Policy as increased. The amount of the refund
is premiums paid attributable to such increase in Specified Amount 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.
(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, if Death Benefit Option A is in effect. 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, it only affects
the amount of pure insurance protection 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.
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 and any Policy Debt is less than the Accumulation Value
less any surrender charge. The tax consequences associated with continuing the
Policy beyond age 100 are unclear and a tax advisor should be consulted. 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 Payment and Allocation of
Premiums-Policy Lapse, Grace Period and Reinstatement, page 21.) American
National agrees to keep the Policy in force for the period stipulated under the
Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium is paid
and other Policy provisions are met even though, in certain instances, the
minimum payment allowed by contract will not, after the payment of Monthly
Deductions, generate positive Surrender Value at one or more points during such
period. The Guaranteed Coverage Benefit is based on Age at Issue. See Guaranteed
Coverage Benefit definition on page 3. An increase in the Specified Amount does
not start a new Guaranteed Coverage Benefit period, although an increase in
Specified Amount will increase the Guaranteed Coverage Premium for the remainder
of the Guaranteed Coverage Benefit period. A subsequent decrease in Specified
Amount will not decrease the Guaranteed Coverage Premium.
ACCUMULATION VALUE
The value attributable to the Policy in the Separate Account and the Fixed
Account will reflect the investment performance of the chosen Subaccounts of the
Separate Account and the rate of interest paid on the Fixed Account, the
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. No Policy transactions will be processed on days other than a
Valuation Date. On the Date of Issue, Accumulation Value will equal the premium,
reduced by the Monthly Deduction. Thereafter, on each Valuation Date, the
Accumulation Value of a Policy will equal:
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(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 premiums to be processed on that Valuation Date; less
(e) Any partial surrender, and its charge, to be processed on that Valuation
Date; less
(f) Any Monthly Deduction to be processed 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 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) the Daily Asset Charge; and (iii) dividing the result by the total number
of units held in the Subaccount on the Valuation Date, after any transfers among
Subaccounts, or the Fixed Account (and deduction of transfer charges), but
before any other Policy transactions.
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 General
Provisions-Postponement of Payments, page 25.) 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. If no election is made,
American National will pay the benefits in a lump sum.
When Death Benefit Proceeds 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 the Policy paid under any of
the payment options described below. (See General Provisions for Settlement
Options, page 17.)
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.
Any amounts under the supplemental contact remaining payable after the death
of the Beneificary 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.
The four optional methods of payment are:
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 2.5% 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 as
long as the payee lives.
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 2.5% 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 proceeds at
interest. Interest will be paid at the effective rate of 2.5% 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.
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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
2.5% 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; and/or
(2) reduce the number of installments.
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. The effective interest
rate used to compute discounted present value equals the interest rate used in
computing the settlement option plus 1%.
If the payee dies, under Option 1 or 2 American National will pay the
discounted present value of any unpaid fixed-period installments to the payee's
estate except Option 2 lifetime. 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.
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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. Except as otherwise
required by applicable state law or regulation, the maximum amount that may be
borrowed during the first three Policy Years is 75% of the Surrender Value at
the end of the Valuation Period during which the loan request is received. After
the first three years the maximum loan amount is 90% of the Surrender Value.
Preferred loans are available after the seventh Policy Year. Determination of
whether a loan is preferred occurs at the time the loan is made. Subject to the
aforementioned maximum loan amount, the amount available as a preferred loan is
equal to the Accumulation Value less Policy Debt and less premiums paid
(adjusted by partial surrenders). The tax consequences associated with a
preferred loan are unclear and a tax advisor should be consulted before
effecting such a loan. The loan may be completely or partially repaid at any
time while the Insured is living. Each loan repayment must be at least $10 or
the full amount of Policy Debt, if less. Loans usually are funded within seven
days after receipt of a written request. (See General Provisions-Postponement of
Payments, page 25.) Loans may have tax consequences. (See Federal Income Tax
Considerations, page 26.)
Interest. Loans will accrue interest on a daily basis at a rate of 5.0% per
year, 3% on preferred loans. Interest is due and payable on each Policy
anniversary date or when the loan is paid back if that occurs first. If unpaid
when due, interest will be added to the amount of the loan and bear interest at
the same rate.
Amounts held in the General Account to secure Policy loans will earn interest
at the annual rate of 3.0% credited on the Policy anniversary. This interest
will be allocated to the Subaccounts and the Fixed Account on each Policy
anniversary in the same proportion that premiums are being allocated to those
Subaccounts and the Fixed Account at that time.
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 the Fixed Account to American National's General Account as
security for the indebtedness. The Accumulation Value transferred out will be
deducted from the Subaccounts and 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 Subaccount or the Fixed Account as a result of a
loan is $100. In the event no allocation instructions are provided, the loan
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
prior to the loan bears to the total. In the event the allocation instructions
conflict with the $100 minimum described above, American National reserves the
right to allocate the loan among the Subaccounts and the Fixed Account in the
same proportion as the Accumulation Value in each Subaccount and the Fixed
Account prior to the loan bears to the total. American National will also
transfer Accumulation Value from the Subaccounts and the Fixed Account to the
General Account to secure indebtedness if loan interest is not paid when due in
any Policy Year. American National will allocate this deduction among the
Subaccounts and the Fixed Account as described above. No charge will be imposed
for these transfers. A Policy loan may have tax consequences. (See Federal
Income Tax Considerations, page 26.)
A Policy loan may permanently affect the Accumulation Value of a Policy, even
if the loan is repaid. The effect could be favorable or unfavorable depending on
whether the investment performance of the Subacccount(s)/Fixed Account 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)/Fixed Account, and greater if the General
Account interest rate is higher than the investment performance of the
Subaccount(s)/Fixed Account. A Policy Loan may affect the amount of the Death
Benefit, even if the loan is repaid.
Policy Debt. The Policy Debt equals the total of all Policy loans and accrued
interest thereon. Policy Debt reduces the amount of Death Benefit Proceeds and
Surrender Value. 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 Payment and Allocation of Premiums-Policy Lapse, Grace Period
and Reinstatement, page 21.)
Repayment of Policy Debt. Payments received by American National while a
Policy loan is outstanding are treated as repayment of Policy Debt and not
premiums only if the Policyowner so requests. As Policy Debt is repaid,
Accumulation Value equal to the loan amount repaid will be transferred from the
General Account to the Subaccounts and the Fixed Account. Such transfer will be
allocated among the Subaccounts and the Fixed Account in the same proportion
that 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 while the Policy is in
force, the Policyowner may partially or totally surrender the Policy by sending
a written request to American National. The maximum 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
General Provisions-Postponement of Payments, page 25.) Surrenders may have tax
consequences. (See Federal Income Tax Considerations, page 26.)
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.
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Partial Surrenders. Partial surrenders are irrevocable. The amount of a
partial surrender may not exceed the Surrender Value at the end of the Valuation
Period during which the request is received less an amount sufficient to cover
Monthly Deductions for three months. The minimum partial surrender is $100.
The Accumulation Value will be reduced by the sum of the amount of partial
surrender, a $25 fee for each partial surrender and any applicable partial
surrender charge. (See Charges and Deductions-Partial Surrender Charge, page
23.) This amount will be deducted from the Policy's Accumulation Value, and
values in connection therewith determined, at the end of the Valuation Period
during which the request is received. The deduction will be allocated to the
Subaccounts and 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. In the event no
allocation instructions are provided, the partial surrender 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 prior to the partial
surrender bears to the total. In the event the allocation instructions conflict
with the $100 minimum described above, American National reserves the right to
allocate the partial surrender among the Subaccounts and the Fixed Account in
the same proportion as the Accumulation Value in each Subaccount and the Fixed
Account prior to the partial surrender bears to the total.
The Death Benefit will be reduced by the amount by which the Accumulation
Value is reduced due to 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 increase 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 Charges and Deductions - Cost of Insurance, page 22; Policy
Benefits - Methods of Affecting Insurance Protection, page 15.) 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
The minimum Specified Amount for an Insured to maintain a preferred risk class
is $100,000.
The amount of any partial surrender will generally be paid within seven (7)
days after receipt of the Policyowner's written request therefor. (See General
Provisions-Postponement of Payments, page 25.)
TRANSFERS
Accumulation Value may be transferred among the Subaccounts or from the
Subaccounts to the Fixed Account as often as desired. The transfers may be
ordered in person, by mail, or by telephone. The total amount of each transfer
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 therefrom is $100.
American National will effectuate transfers and determine all values in
connection with transfers on the later of the end of the Valuation Period which
includes the transfer date designated in the request or 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. The first twelve transfers per Policy Year will be
permitted free of charge. A $10 transfer charge will be imposed each additional
time amounts are transferred and will be deducted from the amount transferred.
(See Charges and Deductions-Transfer Charge, page 23.) Transfers resulting from
Policy loans, the dollar cost averaging program or the rebalancing program will
not be subject to a transfer charge. In addition, such transfers will not be
counted for purposes of determining the number of transfers allowed without
charge in each year.
Once each Policy Year, and only during the thirty day period beginning on the
Policy anniversary, transfers may be made from the Fixed Account to the
Subaccounts. This transfer is without charge. The maximum amount which may be
transferred from the Fixed Account to the Subaccounts is the greater of twenty-
five percent of the amount in the Fixed Account or $1,000. Such transfer request
received prior to the Policy anniversary will be effected at the end of the
Valuation Period during which the Policy anniversary occurs. Transfer request
received within the 30 day period beginning on the Policy anniversary will be
effective as of the end of the Valuation Period in which a proper transfer
request is received.
American National will employ reasonable procedures to confirm that the
transfer instructions communicated by telephone are genuine. The procedures
American National will follow for telephone transfers may include some form of
personal identification prior to acting on instructions received by telephone,
providing written confirmation of the transaction, and making a tape recording
of the instructions given by telephone.
REFUND PRIVILEGE
The Policyowner may cancel the Policy within 10 days after receiving the
Policy. If the 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 AN 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 General Provisions-Postponement of
Payments, page 25.)
DOLLAR COST AVERAGING
Under the dollar cost averaging program, the Policyowner can instruct American
National to automatically transfer, on a periodic
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basis, a predetermined amount or percentage specified by the Policyowner from
any one Subaccount or Fixed Account, to any Subaccount(s) or Fixed Account. The
automatic transfers can occur monthly, quarterly, semi-annually or annually, and
the amount transferred each time must be at least $1,000 in total. The minimum
transfer to each Subaccount must be at least $100. At the time the program
begins, there must be at least $10,000 of Accumulation Value in the Policy.
Transfers under dollar cost averaging will be effectuated, and values in
connection therewith determined, at the end of the Valuation Period that
includes the transfer date designated in the instructions.
Dollar cost averaging results in the purchase of more units when the unit
value is low, and fewer units when the unit value is high. However, there is no
guarantee that the dollar cost averaging program will result in higher
Accumulation Value or otherwise be successful.
The Policyowner can request participation in the dollar cost averaging program
when applying for the Policy or after the Policy's Date of Issue. Transfers will
begin as specified by the Policyowner. The Policyowner can specify that only a
certain number of transfers will be made, in which case the program will
terminate when that number of transfers has been made. Otherwise, the program
will terminate, if on a transfer date, the Accumulation Value is less than
$5,000.
The Policyowner can increase or decrease the amount of transfers or
discontinue the program by sending written notice to American National or by the
telephone, if a telephone transfer authorization form is on file. There is no
charge for participation in this program. In addition, transfers made pursuant
to this program will not be counted in determining the number of transfers
allowed without charge each year.
REBALANCING
American National will rebalance a Policy by allocating premiums and
transferring Accumulation Value among the Subaccounts and the Fixed Account to
ensure conformity with current allocation instructions. Rebalancing will be
performed on a calendar quarter, semi-annual or annual basis as specified by the
Policyowner. Rebalancing will be effectuated, and values in connection therewith
determined, at the end of the Valuation Period that includes the rebalancing
date designated in the request. There is no charge for participation in this
program. In addition, transfers of Accumulation Value made pursuant to this
program will not be counted in determining the number of transfers allowed
without charge each year. At the time the program begins, there must be at least
$10,000 of Accumulation Value under the Policy. The program will be discontinued
if, on a rebalancing date, the Accumulation Value is less than $5,000.
The Policyowner can request participation in the rebalancing program when
applying for the Policy or after the Policy's Date of Issue. The Policyowner can
discontinue the program by sending written notice or calling American National
by telephone.
SPECIALIZED USES OF THE POLICY
The Policy provides Accumulation Value and Death Benefits. The Policy can be
used for various individuals and business financial planning purposes.
Purchasing the Policy in part for such purposes entails certain risks.
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 80 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 Date of Issue is used to determine Policy anniversary dates, Policy Years
and Policy months.
The Policy 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 AN Money Market
Portfolio, 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 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. 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
Guaranteed Coverage Benefit period. Thereafter, unless the Policyowner has paid
sufficient premiums to pay the Monthly Deduction, the Policy may have no
Surrender Value and will lapse.
American National agrees to keep the Policy in force and provide a Guaranteed
Coverage Benefit during the Guaranteed Coverage Benefit period so long as the
Guaranteed Coverage Premium is paid and other Policy provisions are met even
though, in certain instances, these minimum premiums will not, after payment of
the Monthly Deduction, generate positive Surrender Value at one or more points
during such period.
Premium Flexibility. A Policyowner may make unscheduled premium
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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 amount of additional or unscheduled premium
payments.
Planned Periodic Premiums. At the time the Policy is issued each Policyowner
may determine a Planned Periodic Premium schedule. During the Guaranteed
Coverage Benefit period the Planned Periodic Premium schedule must 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 in order to
comply with applicable federal tax law. 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 Policy Benefits-Duration of the Policy, page
15.) 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 or Policy Debt
exceeds the Accumulation Value less any surrender charge, 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 Premiums. In the application for a Policy, the Policyowner
allocates premiums to one or more Subaccounts of the Separate Account and to the
Fixed Account. Thereafter, 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 premium, and fractional percentages may
not be used. The allocations must total 100%. The allocation for future 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 revised allocation instructions will apply to future premiums
received by American National on or after the date proper notification is
received.
Premium payments received within 15 days after the Date of Issue are allocated
to the Subaccount for the AN Money Market Portfolio. Any initial premium payment
received with the application will be allocated to the AN Money Market
Portfolio as of the Date of Issue, for 15 days. After the expiration of such
period, the Accumulation Value will be allocated to the Subaccounts and 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. Premiums received by
American National sixteen (16) or more days after the Date of Issue are
allocated to the selected Subaccounts and 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.
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, GRACE PERIOD AND REINSTATEMENT
Policy 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 Benefit is in effect, lapse will occur when the
Surrender Value is insufficient to cover the Monthly Deduction, or Policy Debt
exceeds the Accumulation Value less any surrender charge, and a grace period
expires without a sufficient payment.
Grace Period. A grace period is granted for the payment of a premium
sufficient to cover the Monthly Deduction if the Surrender Value is insufficient
or the excess of Policy Debt over Accumulation Value less any surrender charge.
The grace period begins on the date Surrender Value is insufficient to cover the
Monthly Deduction or the date Policy Debt exceeds the Accumulation Value less
any surrender charge. 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 be
paid. The grace period ends 61 days after the notice is mailed. 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 Death Benefit Proceeds.
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Reinstatement. A lapsed Policy may be reinstated any time within five years
after the date coverage is terminated. A Policy cannot be reinstated if it was
surrendered. 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 or repayment of any Policy Debt;
c. Payment of the amount of any Monthly Deductions not collected during the
grace period;
d. Payment of the premium sufficient to pay the Monthly Deduction for three
months after the date of reinstatement; and
e. The surrender charge schedule will be restored as of the Date of Issue
and for any increase in Specified Amount as of the date of increase.
The original Date of Issue, and the Effective Dates of increases in
Specified Amount (if applicable), will be used for purposes of calculating
Monthly Deductions and the surrender charge. If any Policy Debt was reinstated,
the amount thereof will be held in American National's General Account.
Accumulation Value will then be calculated as described under Policy
Benefits-Accumulation Value on page 15. The Effective 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. Routine Policy administration
includes premium billings, record keeping, processing Death Benefit claims,
surrenders, policy changes, and preparing and mailing reports. Risks assumed by
American National in connection with the Policy include mortality risk and
expense risk. 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 assumed will be paid. The expense risk is that expenses
incurred in issuing and administering the Policies will exceed those assumed
would be paid. The nature and amount of these charges are described more fully
below.
PREMIUM CHARGES
No charges will be deducted from any premium payment before allocating such
premiums among the Subaccounts and the Fixed Account.
CHARGES FROM ACCUMULATION VALUE
Monthly Deduction. The Monthly Deduction is the sum of the cost of
insurance charge, applicable charge for any riders, and the monthly policy
charge. The Monthly Deduction will be deducted from the Accumulation Value as of
the Date of Issue and on each Monthly Deduction Date thereafter if current. It
will be allocated among the Subaccount and the Fixed Account in the same
proportion as the Accumulation Value in each Subaccount and the Fixed Account
bears to the total on that date. The cost of insurance and the monthly policy
charge are 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.
Monthly Policy Charge. The Monthly Deduction includes a monthly policy
charge. Such charge, which will vary by Age at Issue and risk class, with a
maximum of $7.50 plus $.31034 per $1,000 of Specified Amount. The monthly policy
charge is determined when the policy is issued. American National is currently
charging less than the maximum monthly policy charges. American National
reserves the right to reduce or increase the monthly policy charge. Any change
will be on a uniform basis for all insureds with this Policy, for the same
Specified Amount, and that have been enforce for the same amount of time. A
change in health or other risk factors after the Date of Issue will not effect
any change in the monthly policy charge. American National will not reduce or
increase the monthly policy charge more often than once each Policy Year.
American National will notify the Policyowner with a written notice before the
new monthly policy charge is effective.
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 on that Monthly Deduction Date exceeds the Accumulation
Value after deduction of the monthly policy charge and the applicable charge for
any riders.
The monthly cost of insurance rate is based on the Insured's sex (if Policy
is issued on a sex distinct basis), Attained Age, Specified Amount and
underwriting risk class. The rate may vary if the Insured is a tobacco user or
tobacco non-user, is considered a preferred or standard risk classification, 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 in the Schedule of Monthly Guaranteed Maximum Cost of Insurance
Rates shown on the Policy Data Page.
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These guaranteed rates are based on the Insured's age last birthday. The current
rates range between 24% and 68% of the guaranteed rates. Any change in the
current cost of insurance rates will apply to all persons of the same age, sex,
risk class and Specified Amount.
Guaranteed maximum cost of insurance rates for issue or increase ages 15
and above are calculated based on the 1980 Commissioners Standard Ordinary (CSO)
Smoker or Nonsmoker Mortality Tables (Age Last Birthday). For issue or increase
ages 0-14, the 1980 CSO Mortality Table (Age Last Birthday) was used through
attained age 14 and the 1980 CSO Nonsmoker Mortality Table (Age Last Birthday)
for attained ages 15 and above.
Guaranteed maximum cost of insurance rates for Policies issued on a non-sex
distinct basis are calculated based on the 1980 CSO-SB the 1980 CSO-NB Mortality
Tables (Age Last Birthday) for issue or increase ages 15 and above. For issue or
increase ages 0-14, the 1980 CSO-B Mortality Table (Age Last Birthday) was used
through attained age 14 and the 1980 CSO-NB Mortality Table (Age Last Birthday)
for attained ages 15 and above.
The underwriting risk class for the initial Specified Amount and the
Specified Amount for any increase may be different. As a result the cost of
insurance rate for the initial Specified Amount and each increase in Specified
Amount may be different. Decreases will also be reflected in the cost of
insurance rate. (See Policy Benefits-Change in Specified Amount, page 14.)
The actual charges made during the Policy Year will be shown in the annual
report delivered to Policyowners.
The rate class of an Insured may affect the cost of insurance rate.
American National currently places insureds into either a preferred rate class,
standard rate class, or substandard rate class that involves a higher mortality
risk. In an otherwise identical Policy, an Insured in the standard rate class
will typically have a lower cost of insurance than an Insured in a substandard
rate class. Similarly, in an otherwise identical Policy, an Insured in a
preferred rate class typically has a lower cost of insurance than one in a
standard class. If a Policy is rated at issue with a tabular extra rating, the
guaranteed rate is generally 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 1/12 of any annualized flat extra cost will be deducted as part of
the Monthly Deduction on each Monthly Deduction Date.
SURRENDER CHARGE
If a Policy is surrendered, American National may assess a surrender
charge. Surrender charges are calculated separately for the initial Specified
Amount and for each increase in Specified Amount. The surrender charge for the
initial Specified Amount is applicable until the 14th Policy anniversary. For an
increase in Specified Amount, the surrender charge is applicable for 14 years
after the Effective Date of such increase. Thereafter, there is no surrender
charge.
The surrender charge is assessed based on a rate per $1,000 of initial or
increase in Specified Amount, which varies by Age at Issue and risk class. In
the first Policy Year, such surrender charge shall range from $14.07 per $1,000
of Specified Amount to $49.04 per $1,000 of Specified Amount. This rate is the
same for the five years since issue or increase, as applicable, grading to zero
after fourteen years.
A surrender charge may be assessed upon decreases in Specified Amount or
upon Death Benefit option changes that result in a decrease in Specified Amount.
(See Policy Benefits-Change in Specified Amount, page 14.)
Because the surrender charge may be significant upon early surrender,
prospective Policyowners should purchase a Policy only if they do not intend to
surrender it for a substantial period.
The surrender charge will not exceed the maximum amount permitted under
applicable law.
TRANSFER CHARGE
A transfer charge of $10 will be imposed for each additional transfer among
the Subaccounts or from the Subaccounts to the Fixed Account after twelve per
Policy Year to compensate American National for the costs of effecting the
transfer. 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,
the dollar cost averaging program, or the rebalancing program. In addition, such
transfers will not be counted for purposes of determining the number of
transfers allowed without charge in each year. The amount of the transfer charge
is guaranteed not to be increased.
PARTIAL SURRENDER CHARGE
A $25 fee will be imposed for each partial surrender. In addition, if Death
Benefit Option A is in effect, a partial surrender charge will be assessed
consistent with the method for a decrease in Specified Amount. (See Policy
Benefits-Change in Specified Amount, page 14.)
DAILY CHARGES AGAINST THE SEPARATE ACCOUNT
On each Valuation Date, a Daily Asset Charge will be deducted from the
Separate Account. This charge is to compensate American National for mortality
and expense risks assumed in connection with the Policy. (See Charges and
Deductions, page 22.) Such charge shall not exceed 1.25% annually of the average
daily Accumulation Value of each Subaccount, but not the Fixed Account. The
daily charge will be deducted from the Accumulation Value of the Separate
Account, and therefore the Subaccounts, on each Valuation Date. The deduction on
each Valuation Date will be calculated using a rate derived by dividing the
1.25% annual rate by 365 and multiplying the result by the number of days since
the last Valuation Date. No Daily Asset Charge will be deducted from the Fixed
Account.
FEES AND EXPENSES INCURRED BY ELIGIBLE PORTFOLIOS
In addition to the charges by American National against the Separate
Account described just above, SM&R, FMR and T. Rowe Price Associates will assess
certain fees against the amount invested in the various Eligible Portfolios. In
addition, certain other expenses will be incurred by the American National Fund,
the
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Fidelity Funds and the T. Rowe Price Funds. (See the American National Fund's,
Fidelity Funds' and T. Rowe Price Funds' Prospectuses.)
For managing the investments and business affairs of the Eligible
Portfolios of the T. Rowe Price Funds, each such Eligible Portfolio pays T. Rowe
Price Associates, Inc. a monthly fee. Detailed information about such fee is in
the T. Rowe Price 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 amounts 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 tax, 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. American National would not realize a
profit on such tax charges with respect to the Policies.
EXCEPTIONS TO CHARGES
The surrender charges, monthly policy charge, cost of insurance and daily
asset charges may be reduced for, or additional amounts credited on, sales of
Policies to a trustee, employer, or similar entity representing a group where
American National determines that such sales result in savings of sales or
administrative expenses. In addition, directors, officers and bona fide full-
time employees (and their spouses and minor children) of SM&R and American
National may be permitted to purchase Policies with substantial reduction of the
surrender charges, monthly policy charge, cost of insurance or daily asset
charges.
The Policies may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of American
National and its affiliated companies, and spouses and immediate family members
(i.e., children, siblings, parents, and grandparents) of the foregoing, and to
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Policies, and spouses and immediate family
member of the foregoing. If sold under these circumstances, a Policy may be
credited with in part or in whole any cost savings resulting from the Policy
being sold directly, rather than through an agent with an associated commission,
but only if such credit will not be unfairly discriminatory to any person.
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. Any changes must be approved in writing by the
President, Vice President or Secretary of 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 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 Policyowner 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.
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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 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 as provided for in
the Policy.
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
reinstatement.
POSTPONEMENT OF PAYMENTS
Payment of any amount upon refund, full surrender, partial surrender,
Policy loans, benefits payable at death, and transfers, which require valuation
of a Subaccount, 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 Accumulation Value. 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. 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. Riders in force during the time the Guaranteed Coverage Benefit is
in effect will increase the Guaranteed Coverage Premium requirement.
DIVIDENDS
The Policy is non participating. This means the Policy is not eligible for
dividends and does not participate in any distribution of American National's
surplus.
DISTRIBUTION OF THE POLICIES
SM&R, a wholly-owned 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's 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 Representative will equal, at most, 10% of
the total premium contribution in Policy Years one through five. In years six
and thereafter the Registered Representative will receive renewal commissions at
an annual rate of at most .25% of the Accumulation Value. 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 their Registered Representatives to sell the Policies subject
to applicable law.
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FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisors should be consulted for more
complete information. 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 Internal Revenue Service.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
sets forth a definition of a life insurance contract for Federal tax purposes.
Although the Secretary of the Treasury (the "Treasury") is authorized to
prescribe regulations implementing Section 7702, while proposed regulations and
other interim guidance has been issued, final regulations have not been adopted.
Guidance as to how Section 7702 is to be applied is limited. If a Policy were
determined not to be a life insurance contract for purposes of Section 7702,
such Policy would not provide the tax advantages normally provided by a life
insurance policy.
With respect to a Policy issued on the basis of a standard premium class,
American National believes (largely in reliance on IRS Notice 88-128 and the
proposed regulations under Section 7702, issued on July 5, 1991) that such a
Policy should meet the Section 7702 definition of a life insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a
premium class with extra rating involving higher than standard mortality risk),
there is less guidance, in particular as to how the mortality and other expense
requirements of Section 7702 are to be applied in determining whether such a
Policy meets the Section 7702 definition of a life insurance contract. Thus, it
is not clear whether or not such a Policy would satisfy Section 7702,
particularly if the Policyowner pays the full amount of premiums permitted under
the Policy.
If it is subsequently determined that a Policy does not satisfy Section
7702, American National may take whatever steps are appropriate and reasonable
to attempt to cause such a Policy to comply with Section 7702. For these
reasons, American National reserves the right to restrict Policy transactions as
necessary to attempt to qualify it as a life insurance contract under Section
7702.
Section 817(h) of the Code requires that the investments of each of the
Subaccounts must be "adequately diversified" in accordance with Treasury
regulations in order for the Policy to qualify as a life insurance contract
under Section 7702 of the Code (discussed above). The Subaccounts, through the
Eligible Portfolios, intend to comply with the diversification requirements
prescribed in Treas. Reg. (S)1.817-5, which affect how an Eligible Portfolio's
assets are to be invested. American National believes that the Subaccounts
will, thus, meet the diversification requirement, and American National will
monitor continued compliance with this requirement.
In certain circumstances, owners of variable life insurance contracts may
be considered the owners, for federal income tax purposes, of the assets of the
Subaccounts used to support their contracts. In those circumstances, income and
gains from the Subaccount assets would be includible in the variable contract
owner's gross income. The IRS has stated in published rulings that a variable
contract owner will be considered the owner of Subaccount assets if the contract
owner possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. The Treasury Department has also
announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of subaccount assets. For example,
the Policyowner has additional flexibility in allocating premium payments and
Policy values and the investment objective of certain Eligible Portfolios may be
narrower. These differences could result in a Policyowner being treated as the
owner of a pro rata portion of the assets of the Subaccounts. In addition,
American National does not know what standards will be set forth, if any, in the
regulations or rulings that the Treasury Department has stated it expects to
issue. American National therefore reserves the right to modify the Policy as
necessary to attempt to prevent a Policyowner from being considered the owner of
a pro rata share of the assets of the Subaccounts.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
In General. American National believes that the proceeds and Accumulation
Value increases of a Policy should be treated in manner consistent with a fixed-
benefit life insurance policy for Federal income tax purposes. Thus, the Death
Benefit under the Policy should be excludable from the gross income of the
Beneficiary under Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option (i.e., a change from Death Benefit Option A to
Death Benefit Option B or vice versa), a Policy loan, a partial surrender, a
full surrender, the addition of an Accelerated Death Benefit Rider, the receipt
of an Accelerated Death Benefit, the continuation of the Policy beyond the
Insured's 100th birthday, a change in ownership, or an assignment of the Policy
may have Federal income tax consequences. In addition, Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Policyowner or Beneficiary.
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The Policy may also be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to consult a qualified tax
advisor regarding the tax attributes of the particular arrangement. Moreover, in
recent years, Congress has adopted new rules relating to corporate owned life
insurance. Any business contemplating the purchase of a new life insurance
contract or a change in an existing contract should consult a tax advisor.
Generally, the Policyowner will not be deemed to be in constructive receipt
of the Policy Accumulation Value, including increments thereof, until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by, a Policy depend on whether the Policy is classified as a
"Modified Endowment Contract." Whether a Policy is or is not a Modified
Endowment Contract, upon a complete surrender or lapse of a Policy, if the
amount received plus the amount of indebtedness exceeds the total investment in
the Policy, the excess will generally be treated as ordinary income subject to
tax.
Modified Endowment Contracts. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts".
Due to the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven Policy Years exceeds the sum of the net level
premiums that would have been paid on or before such time if the Policy provided
for paid-up future benefits after the payment of seven level annual premiums. A
Policy can also become a Modified Endowment Contract if it is materially
changed. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
Death Benefit and Policy Accumulation Value at the time of such change and the
additional premiums paid in the seven years following the material change. At
the time a premium is credited that in American National's view would cause the
Policy to become a Modified Endowment Contract, American National will notify
the Policyowner that unless a refund of the excess premium is requested by the
Policyowner, the Policy will become a Modified Endowment Contract. The
Policyowner will have 30 days after receiving such notification to request the
refund.
The rules relating to whether a Policy will be treated as a Modified
Endowment Contract are complex and cannot be fully described in the limited
confines of this summary. For example, a Policy can also become a Modified
Endowment Contract in the event of certain reductions in Policy benefits.
Therefore, a current or prospective Policyowner should consult with a competent
tax advisor to determine whether a Policy transaction will cause the Policy to
be treated as a Modified Endowment Contract.
Distributions from Policies Classified as Modified Endowment Contracts.
Policies classified as Modified Endowment Contract will be subject to the
following tax rules: First, all distributions, including distributions upon
surrender and partial surrenders from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Accumulation Value immediately before the distribution over the
investment in the Policy (described below) at such time. Second, loans taken
from or secured by such a Policy are treated as distributions from such a Policy
and taxed accordingly. Past due loan interest that is added to the loan amount
will be treated as a loan. Third, a 10 percent additional income tax is imposed
on the portion of any distribution from, or loan taken from or secured by, such
a Policy that is included in income except where the distribution or loan is
made on or after the Policyowner attains age 59 1/2, is attributable to the
Policyowner's becoming disabled, or is part of a series of substantially equal
periodic payments for the life (or life expectancy) of the Policyowner or the
joint lives (or joint life expectancies) of the Policyowner and the
Policyowner's Beneficiary.
If a Policy becomes a Modified Endowment Contract after it is issued,
distributions made during the Policy Year in which it becomes a Modified
Endowment Contract, distributions in any subsequent Policy Year and
distributions within two years before the Policy becomes a Modified Endowment
Contract will be subject to the tax treatment described above. This means that a
distribution from a Policy that is not a Modified Endowment Contract could later
become taxable as a distribution from a Modified Endowment Contract.
Distributions From Policies Not Classified as Modified Endowment Contracts.
Distributions from a Policy that is not a Modified Endowment Contract are
generally treated as first recovering the investment in the Policy (described
below) and then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's Death Benefit or any other change that
reduces benefits under the Policy in the first 15 years after the 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 limits. Such
a cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment
Contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the Policyowner.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10 percent additional tax.
Policy Loan Interest. Interest paid on any loan under a Policy generally is
not deductible. A Policyowner should consult a tax advisor before deducting any
Policy loan interest.
Investment in the Policy.Investment in the Policy means: (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount of distributions received under the Policy that is excluded
from gross income of the Policyowner (except that the amount of any loan from,
or secured by, a Policy that is a Modified Endowment Contract, to the extent
such amount is
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excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by, a Policy that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the Policyowner.
Multiple Policies. All Modified Endowment Contracts that are issued by
American National (or its affiliates) to the same Policyowner during any
calendar year are treated as one Modified Endowment Contract for purposes of
determining the amount includible in the gross income under Section 72(e) of the
Code.
POSSIBLE CHARGE FOR AMERICAN NATIONAL'S TAXES
At the present time, American National makes no charge for any Federal,
state or local taxes that it incurs that may be attributable to the Subaccounts
or to the Policies. American National however, reserves the right in the future
to make additional charges for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Subaccounts or to the Policies. If any tax charges are made
in the future, they will be accumulated daily and transferred from the
applicable Subaccount to American National's General Account. Any investment
earnings on tax charges accumulated in a Subaccount will be retained by American
National.
POSSIBLE LEGISLATIVE CHANGES
The President's Budget Proposal has recommended legislation in 1998 that,
if enacted, would adversely modify the federal taxation of certain insurance and
annuity contracts. For example, one proposal would tax transfers among
investment options and tax exchanges involving variable contracts. A second
proposal would reduce the "investment in the contract" under cash value life
insurance and certain annuity contracts, thereby increasing the amount of income
for purposes of computing gain. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or other means. Moreover, it is also possible
that any change could be retroactive (that is, effective prior to the date of
change). You should consult a qualified tax adviser with respect to legislative
developments and their effect on the Policy.
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 and Accumulation Value held in the General
Account securing Policy loans. 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, the Fidelity Funds and the
T. Rowe Price 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, the Fidelity Funds or the T. Rowe Price 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, the Fidelity Funds or the T. Rowe
Price 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
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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.
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, refund
provisions, surrender charges or other provisions which are more favorable to a
Policyowner than provisions in a Policy offered in other states.
PREPARING FOR YEAR 2000
Like all financial services providers, American National utilizes systems
that may be affected by Year 2000 transition issues and it relies on service
providers, including the Eligible Portfolios, that may also be affected.
American National has developed, and is in the process of implementing, a Year
2000 transition plan, and is confirming that its service providers are also so
engaged. The resources that are being devoted to the effort are substantial. It
is difficult to predict with precision whether the amount of resources
ultimately devoted, or the outcome of these efforts, will have any negative
impact on American National. However, as of the date of this Prospectus, it is
not anticipated that Policyowners will experience negative effects on their
Accumulation Value, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. American National currently
anticipates that its systems will be Year 2000 compliant on or about January 1,
1999, but there can be no assurance that American National will be successful,
or that interaction with other service providers will not impair American
National's services at that time.
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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 President, January 1996 to present, Chairman
CHAIRMAN OF THE BOARD, DIRECTOR, of the Board, April 1982 to present, Chief
PRESIDENT AND Executive Officer, July 1991 to present, and
CHIEF EXECUTIVE OFFICER 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. Chairman of the Board
and Director of Transitional Learning
Community at Galveston; Chairman of the Board
and Director of The Moody Endowment.
G.R. FERDINANDTSEN Senior Executive Vice President and Chief
SENIOR EXECUTIVE VICE PRESIDENT Operating Officer, April 1997 to present,
AND CHIEF OPERATING OFFICER Senior Executive Vice President and Chief
Administrative Officer, April 1996 to April
1997. Senior Vice President, Health Insurance
Operations, April 1993 to April 1996, 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. Director, 1995 to
present, Pacific P & C, Inc. Director,
January 1996 to present, Standard Life and
Accident Insurance Company.
IRWIN M. HERZ, JR. Director, 1984 to present, American National.
DIRECTOR 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, June 1992 to present,
Garden State Life Insurance Company. Director
of American National Property and Casualty
Company.
R. EUGENE LUCAS Director, April 1981 to present, American
DIRECTOR 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, April 1982 to present, American
DIRECTOR 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 August 1996, Seal Fleet, Inc.
Director, 1995 to present, Pacific Property
and Casualty, Inc.
E. DOUGLAS MCLEOD Director, April 1984 to present, American
DIRECTOR 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.
30
<PAGE>
FRANCES ANNE MOODY Director, April 1987 to present, American
DIRECTOR National. Executive Director, January 1998 to
present, and Regional Grants Advisor,
September 1996 to present, The Moody
Foundation. Director, 1990 to present,
National Western Life Insurance Company.
Executive Director, 1991 to present, The
Moody Endowment. Investments, Dallas, Texas.
RUSSELL S. MOODY Director, April 1986 to present, American
DIRECTOR National. Director, 1988 to March 1996,
National Western Life Insurance Company.
Director, 1981 to present, Gal-Tex Hotel
Corporation. Director, 1982 to 1996, Seal
Fleet, Inc.
WILLIAM L. MOODY IV Director, March 1951 to present, American
DIRECTOR National. Director, January 1969 to March
1996, Advisory Director, March 1996 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, April 1992 to present, American
DIRECTOR National. Sheriff, 1980 to present, Galveston
County, Texas. Director and President, 1988
to present, Moody Gardens, Inc. Director,
1985 to present, Transitional Learning
Community at Galveston. 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.
R.A. FRUEND Executive Vice President, Director of
EXECUTIVE VICE PRESIDENT 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, Director of Home
EXECUTIVE VICE PRESIDENT 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-Investments, 1995 to
EXECUTIVE VICE PRESIDENT 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.
J.E. POZZI Executive Vice President, Independent
EXECUTIVE VICE PRESIDENT Markets, April 1996 to present. Senior Vice
President, Corporate Planning and
Development, June 1992 to April 1996,
American National. Vice President, April 1993
to present, American National Life Insurance
Company of Texas.
31
<PAGE>
R.J. WELCH Executive Vice President and Chief Actuary,
EXECUTIVE VICE PRESIDENT April 1996 to present. Senior Vice President
and Chief Actuary, April 1986 to April 1996,
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.
C.H. ADDISON Senior Vice President, Systems Planning and
SENIOR VICE PRESIDENT 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.
A.L. AMATO Senior Vice President, Life Policy
SENIOR VICE PRESIDENT 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.
G.C. LANGLEY Senior Vice President, Human Resources,
SENIOR VICE PRESIDENT November 1995 to present. Vice President,
Assistant Personnel Director, April 1983 to
November 1995. Assistant Vice President,
Equal Employment Opportunity/Affirmative
Action Program Coordinator, April 1976 to
April 1983, and Assistant Vice President,
Personnel Placement Director, April 1969 to
April 1976, American National.
G.L. NOELLE Senior Vice President, Health Operations,
SENIOR VICE PRESIDENT April 1996 to present, American National.
Executive Vice President, February 1994 to
April 1996, Philadelphia American Life
Insurance Company. Senior Vice President,
October 1992 to January 1994, Accel
International.
S.E. PAVLICEK Senior Vice President and Controller, April
SENIOR VICE PRESIDENT AND 1996 to present, Vice President and
CONTROLLER Controller, 1994 to April 1996, 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.
J.R. THOMASON Senior Vice President, Credit Insurance
SENIOR VICE PRESIDENT Services, April 1987 to present, American
National.
G.W. TOLMAN Senior Vice President, Corporate Affairs,
SENIOR VICE PRESIDENT April 1996 to present, and Vice President,
Corporate Affairs, April 1976 to April 1996,
American National.
V.E. SOLER, JR. Vice President, Secretary and Treasurer, 1994
VICE PRESIDENT, SECRETARY AND to present, and Vice President and
TREASURER 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.
The principal business address of each person
listed above is American National Insurance
Company, One Moody Plaza, Galveston, Texas
77550-7999.
32
<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 Separate Account is a party or
to which the assets of the Separate 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 Separate Account.
EXPERTS
The consolidated financial statements of American National Insurance
Company and subsidiaries as of December 31, 1997 and 1996, and for the years
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 reports.
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 Separate 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 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
Separate Account.
33
<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, 1997 and 1996,
and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended.
These consolidated financial statements (pages 35 through 50)
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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 audits provide 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, 1997 and 1996, and the results
of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 17, 1998
34
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
PREMIUMS AND OTHER REVENUE
Life and annuity premiums $ 349,073 $ 329,937
Accident and health premiums 378,521 364,198
Property and casualty premiums 312,987 257,845
Other policy revenues 99,930 82,911
Net investment income 472,895 435,691
Gain from sale of investments 103,320 58,001
Other income 23,178 21,416
---------- ----------
Total revenues 1,739,904 1,549,999
---------- ----------
BENEFITS AND EXPENSES
Death and other benefits:
Life and annuity 382,696 363,035
Accident and health 279,348 261,942
Property and casualty 233,887 206,120
Increase (decrease) in liability for future policy benefits:
Life and annuity 50,995 37,988
Accident and health (4,843) (1,570)
Commissions for acquiring and servicing policies 239,633 267,305
Other operating costs and expenses 167,079 156,128
Increase in deferred policy acquisition costs, net of amortization (12,267) (73,880)
Taxes, licenses and fees 39,687 38,234
---------- ----------
Total benefits and expenses 1,376,215 1,255,302
---------- ----------
INCOME FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES AND FEDERAL INCOME TAXES 363,689 294,697
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES 9,333 10,764
---------- ----------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES 373,022 305,461
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current 134,271 90,103
Deferred (9,606) (237)
---------- ----------
NET INCOME $ 248,357 $ 215,595
========== ==========
NET INCOME PER COMMON SHARE - BASIC & DILUTED $ 9.38 $ 8.14
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Investments, other than investments in unconsolidated affiliates
Debt securities:
Bonds held-to-maturity, at amortized cost $3,605,927 $3,430,726
Bonds available-for-sale, at market 600,380 528,306
Marketable equity securities, at market:
Preferred stocks 40,744 51,625
Common stocks 882,864 754,039
Mortgage loans on real estate 1,103,333 1,098,583
Policy loans 300,574 303,336
Investment real estate, net of accumulated depreciation
of $100,298 and $108,974 258,210 323,826
Short-term investments 126,732 5,470
Other invested assets 63,135 70,064
---------- ----------
Total investments 6,981,899 6,565,975
Cash 5,497 13,545
Investments in unconsolidated affiliates 100,888 95,836
Accrued investment income 102,361 97,883
Reinsurance ceded receivables 48,193 42,695
Prepaid reinsurance premiums 140,791 109,965
Premiums due and other receivables 85,945 70,922
Deferred policy acquisition costs 748,341 739,023
Property and equipment 32,142 26,455
Other assets 57,889 73,713
Separate account assets 179,027 152,533
---------- ----------
TOTAL ASSETS $8,482,973 $7,988,545
========== ==========
LIABILITIES
Policyholder funds
Future policy benefits:
Life and annuity $1,990,978 $1,939,926
Accident and health 101,550 106,555
Policy account balances 2,422,828 2,353,245
Policy and contract claims 326,182 289,846
Other policyholder funds 419,736 356,456
---------- ----------
Total policyholder liabilities 5,261,274 5,046,028
Current federal income taxes 14,340 17,810
Deferred federal income taxes 215,606 196,712
Other liabilities 107,309 101,556
Separate account liabilities 179,027 152,533
---------- ----------
TOTAL LIABILITIES 5,777,556 5,514,639
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock 30,832 30,832
Additional paid-in capital 211 211
Net unrealized gains on securities 215,883 163,352
Retained earnings 2,561,218 2,382,238
Treasury stock, at cost (102,727) (102,727)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,705,417 2,473,906
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,482,973 $7,988,545
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
36
<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, 1995 $ 30,832 $ 211 $158,898 $2,233,899 $(102,727) $2,321,113
Net income 215,595 215,595
Dividends to stockholders
($2.54 per share) (67,256) (67,256)
Increase in unrealized gains on
marketable securities, net of
applicable federal income taxes 4,454 4,454
- -------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 30,832 211 163,352 2,382,238 (102,727) 2,473,906
Net income 248,357 248,357
Dividends to stockholders
($2.62 per share) (69,377) (69,377)
Increase in unrealized gains on
marketable securities, net of
applicable federal income taxes 52,531 52,531
- -------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $ 30,832 $ 211 $215,883 $2,561,218 $(102,727) $2,705,417
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 248,357 $ 215,595
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in liabilities for policyholders' funds 145,663 103,946
Charges to policy account balances (99,625) (81,651)
Interest credited to policy account balances 135,478 121,689
Deferral of policy acquisition costs (151,891) (182,124)
Amortization of deferred policy acquisition costs 138,710 108,017
Deferred federal income tax expense (benefit) (9,606) (237)
Depreciation 20,454 20,104
Accrual and amortization of discounts and premiums (34,416) (7,959)
Gain from sale of investments (103,320) (58,001)
Equity in earnings of unconsolidated affiliates (9,333) (10,764)
Decrease (increase) in premiums receivable (15,023) 3,093
Increase in accrued investment income (4,478) (15,342)
Capitalization of interest on policy and mortgage loans (14,475) (14,338)
Other changes, net (26,937) (36,969)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 219,558 165,059
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds 196,807 201,485
Stocks 331,679 191,284
Real estate 89,448 26,528
Other invested assets 5,706 1,112
Principal payments received on:
Mortgage loans 168,603 56,352
Policy loans 40,207 37,645
Purchases of investments:
Bonds (424,721) (725,070)
Stocks (279,690) (120,441)
Real estate (1,537) (7,696)
Mortgage loans (151,471) (218,019)
Policy loans (23,023) (25,137)
Other invested assets (15,250) (74,259)
Decrease (increase) in short-term investments, net (121,262) 9,596
Decrease (increase) in investment in unconsolidated affiliates, net (4,281) 13,718
Increase in property and equipment, net (3,173) (2,867)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (191,958) (635,769)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances 391,607 756,727
Policyholders' withdrawals from policy account balances (357,878) (219,161)
Dividends to stockholders (69,377) (67,256)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (35,648) 470,310
- ----------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (8,048) (400)
Cash:
Beginning of the year 13,545 13,945
- ----------------------------------------------------------------------------------------------------------------------------
End of the year $ 5,497 $ 13,545
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
American National Insurance Company (American National) is a multiple line
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 and American Samoa. American National is also authorized to sell its
products to American military personnel in Western Europe. Various distribution
systems are utilized, including home service, multiple line 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,
American National General Insurance Company and American National Lloyds
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,
primarily 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 companies,
differs from the basis of accounting followed in reporting to insurance
regulatory authorities. (See Note 12.)
Certain reclassifications have been made to the 1996 financial information to
conform to the 1997 presentation.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from reported results using
those estimates.
ACCOUNTING CHANGES
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF--Effective January 1, 1996, American National adopted
Statement of Financial Accounting Standards (FAS) No. 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 undiscounted cash flows to be
received. If the sum of the expected future undiscounted cash flows is less than
the carrying value, an analysis of the investment's fair value compared with its
carrying value is performed. If the fair value is less than the carrying value,
an impairment loss is recognized as a charge to current earnings. As American
National used similar methods to calculate valuation reserves on investment real
estate in prior years, the adoption of this new standard did not have a material
effect on American National's consolidated financial position or results of
operations.
FAS No. 121 also requires that long-lived assets to be disposed of be carried
at the lower of book value or the expected amount to be received on sale, less
the cost to sell. Prior to January 1, 1996, American National's real estate
acquired in satisfaction of debt (foreclosed real estate) was carried at cost
less accumulated depreciation and reserves for possible losses. Upon the
adoption of FAS No. 121, American National determined that all of its foreclosed
real estate was held for sale and should therefore be held at the lower of book
value or the expected amount to be received on sale, less the cost to sell,
without any further allowance for depreciation. Since all of the book values for
foreclosed real estate were below the expected amount to be received on sale,
less the cost to sell, the adoption of this new standard did not have a material
effect on American National's consolidated financial position or results of
operations. EARNINGS PER SHARE--As of December 31, 1997, American National
adopted FAS No. 128 "Earnings per Share." This statement establishes standards
for computing and presenting earnings per share. As American National has a
simple capital structure, the adoption of this new standard did not have any
effect on the calculation of earnings per share.
NEW ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME--FAS No. 130, "Reporting Comprehensive Income,"
is effective for years beginning after December 15, 1997. This statement
establishes standards for reporting and display of comprehensive income and its
components in a financial statement that are displayed with the same prominence
as the rest of the financial statements in a report.
American National will adopt FAS No. 130 on January 1, 1998. Management
believes that the adoption of FAS No. 130 will have no effect on American
National's financial position or results from operations.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION--FAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," is
effective for years beginning after December 15, 1997. This statement
establishes standards for the way information is reported about operating
segments in financial statements. The statement requires disclosure of
information on operating segments that are evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and assess
performance. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
American National will adopt FAS No. 131 on January 1, 1998. The adoption of
this standard will require American National to
39
<PAGE>
change the way it reports segment information to match more closely the way the
business is analyzed by management. Upon adoption, applicable prior period
results will be revised to reflect the new disclosure. However, management
believes that the adoption of FAS No. 131 will have no effect on American
National's financial position or results from operations.
INVESTMENTS
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 held as available-for-sale are carried at market.
PREFERRED STOCKS--All preferred stocks are classified as available-for-sale
and are carried at market.
COMMON STOCKS--All common stocks are classified as available-for-sale and are
carried at market.
UNREALIZED GAINS--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 valuation impairments.
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 allowances 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.
POLICY LOANS--Policy loans are carried at cost.
INVESTMENT REAL ESTATE--Investment real estate is carried at cost, less
allowances for depreciation and valuation impairments. Depreciation is provided
over the estimated useful lives of the properties (15 to 50 years) using
straight-line and accelerated methods.
American National's real estate portfolio is closely monitored through the
review of operating information and periodic inspections. 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, if there is
any indication of an adverse change in the economic condition of a property, a
complete cash flow analysis is performed to determine whether or not an
impairment allowance is necessary. If a possible impairment is indicated, the
fair market value of the property is estimated using a variety of techniques,
including cash flow analysis, appraisals and comparison to the values of similar
properties. If the book value is greater than the estimated fair market value,
an impairment allowance is established.
SHORT-TERM INVESTMENTS--Short-term investments (primarily commercial paper)
are carried at amortized cost.
OTHER INVESTED ASSETS--Other invested assets are carried at cost, less
allowance for valuation impairments. Valuation allowances for other invested
assets are considered on an individual basis in accordance with the same
procedures as used for investment real estate.
INVESTMENT VALUATION ALLOWANCES AND IMPAIRMENTS--Investment valuation
allowances are established for other than temporary impairments of mortgage
loans, real estate and other assets in accordance with the policies established
for each class of invested asset. The increase in the valuation allowances is
reflected in current period income as a realized loss.
Management believes that the valuation allowances are adequate. However, it is
possible that a significant change in economic conditions in the near term could
result in losses exceeding the amounts established.
CASH AND CASH EQUIVALENTS--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).
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 that 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. The effect on
the deferred policy acquisition costs that would result from realization of
unrealized gains (losses) is recognized with an offset to net unrealized gains
(losses) in consolidated stockholders' equity as of the balance sheet date. It
is possible that a change in interest rates could have a significant impact on
the deferred policy acquisition costs calculated for these contracts.
Deferred policy acquisition costs associated with property and
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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.
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. 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 actually paid 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 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, 1997. However, it is possible that the ultimate liabilities may
vary significantly from these estimated amounts.
PARTICIPATING INSURANCE POLICIES--The allocation of dividends to participating
policyowners 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
2.6% of the life insurance in force at December 31, 1997, and 4.5% of life
premiums in 1997.
FEDERAL INCOME TAXES--American National and all but one of its subsidiaries file
a consolidated life/non-life federal income tax return. Garden State Life
Insurance Company 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 represent funds maintained to meet the investment objectives of
contract holders who bear the investment risk. The investment income and
investment gains and losses from these separate funds accrue directly to the
contract holders of the policies supported by the separate accounts. The assets
of each separate account are legally segregated and are not subject to claims
that arise out of any other business of American National. 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 COMMON SHARE--Net income per common share is based on the
weighted average number of shares outstanding (26,479,165 shares for 1997 and
1996).
41
<PAGE>
(3) INVESTMENTS
The amortized cost and estimated market values of investments in held-to-
maturity and available-for-sale securities are shown below (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997:
Debt securities
Bonds held-to-maturity:
U. S. Government and agencies $ 180,156 $ 5,662 $ (220) $ 185,598
States and political subdivisions 11,367 261 (15) 11,613
Foreign governments 121,643 7,147 -- 128,790
Public utilities 1,198,814 39,353 (2,374) 1,235,793
All other corporate bonds 1,885,700 85,963 (1,925) 1,969,738
Mortgage-backed securities 208,247 12,809 (2) 221,054
- --------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,605,927 151,195 (4,536) 3,752,586
- --------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. Government and agencies 49,990 1,348 -- 51,338
Foreign governments 47,141 4,328 -- 51,469
Public utilities 185,078 12,330 -- 197,408
All other corporate bonds 280,860 19,311 (6) 300,165
- --------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale 563,069 37,317 (6) 600,380
- --------------------------------------------------------------------------------------------------------------
Total debt securities 4,168,996 188,512 (4,542) 4,352,966
- --------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,313 1,510 (79) 40,744
Common stock 575,058 331,280 (23,474) 882,864
- --------------------------------------------------------------------------------------------------------------
Total marketable equity securities 614,371 332,790 (23,553) 923,608
- --------------------------------------------------------------------------------------------------------------
Total investments in securities $4,783,367 $521,302 $(28,095) $5,276,574
==============================================================================================================
- --------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996:
Debt securities
Bonds held-to-maturity:
U. S. Government and agencies $ 174,399 $ 3,911 $ (506) $ 177,804
States and political subdivisions 14,185 216 (39) 14,362
Foreign governments 107,573 4,257 (133) 111,697
Public utilities 1,142,072 19,654 (22,213) 1,139,513
All other corporate bonds 1,698,451 46,039 (17,584) 1,726,906
Mortgage-backed securities 294,046 13,527 (11) 307,562
- --------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,430,726 87,604 (40,486) 3,477,844
- --------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. Government and agencies 26,062 559 (75) 26,546
Foreign governments 41,594 2,961 (10) 44,545
Public utilities 184,677 7,267 (222) 191,722
All other corporate bonds 252,053 13,826 (386) 265,493
- --------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale 504,386 24,613 (693) 528,306
- --------------------------------------------------------------------------------------------------------------
Total debt securities 3,935,112 112,217 (41,179) 4,006,150
- --------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 50,546 1,563 (484) 51,625
Common stock 517,385 249,796 (13,142) 754,039
- --------------------------------------------------------------------------------------------------------------
Total marketable equity securities 567,931 251,359 (13,626) 805,664
- --------------------------------------------------------------------------------------------------------------
Total investments in securities $4,503,043 $363,576 $(54,805) $4,811,814
==============================================================================================================
</TABLE>
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
DEBT SECURITIES:
The amortized cost and estimated market value, by contractual maturity of
debt securities at December 31, 1997, are shown below (in thousands). 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- BONDS-AVAILABLE-
TO-MATURITY FOR-SALE
- ---------------------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year
or less $ 40,881 $ 41,139 $ -- $ --
Due after one year
through five years 433,567 457,505 136,408 146,007
Due after five years
through ten years 2,893,187 3,000,519 421,661 448,609
Due after ten years 30,045 32,369 5,000 5,764
- ---------------------------------------------------------------------------------------------------------
3,397,680 3,531,532 563,069 600,380
Without single
maturity date 208,247 221,054 -- --
- ---------------------------------------------------------------------------------------------------------
$3,605,927 $3,752,586 $563,069 $600,380
=========================================================================================================
</TABLE>
Proceeds from sales of investments in securities classified as
available-for-sale (bonds and stock) were $331,679,000 for 1997. Gross gains of
$118,985,000 and gross losses of $12,301,000 were realized on those sales. Bonds
were called by the issuers during 1997, which resulted in proceeds from the
disposal of $11,442,000. Gross gains of $531,000 were realized on those
disposals.
Proceeds from sales of investments in securities classified as
available-for-sale (bonds and stocks) were $190,636,000 for 1996. Gross gains of
$71,768,000 and gross losses of $227,000 were realized on those sales. Bonds
were called by the issuers during 1996, which resulted in proceeds of
$40,126,000 from disposal. Gross gains of $54,000 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 $116,062,000 and
$87,561,000 for 1997 and 1996, respectively.
The change in the net unrealized gains on investments for the years ended
December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------
<S> <C> <C>
Bonds available-for-sale $ 13,391 $(22,725)
Preferred stocks 352 (262)
Common stock 71,152 40,718
Amortization of deferred
policy acquisition costs (3,863) (10,740)
- ----------------------------------------------------------
81,032 6,991
Provision for federal
income taxes (28,501) (2,537)
- ----------------------------------------------------------
$ 52,531 $ 4,454
==========================================================
</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, 1997, mortgage loans have both fixed rates from 5.25% to 13% and
variable rates from 7% to 10.25%. The majority of the mortgage loan contracts
require periodic payments of both principal and interest, and have amortization
periods of 3 to 31 years.
American National has investments in first lien mortgage loans on real estate
with carried value of $1,103,300,000 and $1,098,583,000 at December 31, 1997 and
1996, respectively. Problem loans, on which impairment allowances were
established, totaled $6,493,900 and $14,602,000 at December 31, 1997 and 1996,
respectively.
POLICY LOANS:
Policy loans have interest rates ranging from 2.5% to 8%. Approximately 99% of
the policy loan portfolio carried interest rates of 5% to 8% at December 31,
1997.
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
- ------------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $303,426 $281,780 $ 530 $ 172
Preferred stocks 3,173 3,372 21 13
Common stocks 18,977 17,649 106,662 71,410
Mortgage loans 109,165 94,823 (1,277) (4,212)
Real estate 84,344 85,810 (5,977) (7,249)
Other invested assets 26,872 23,399 (83) (93)
Investment in
unconsolidated
affiliates -- -- (79) 864
- ------------------------------------------------------------------------------
545,957 506,833 99,797 60,905
Investment expenses (73,062) (71,142) -- --
Decrease (increase) in
valuation allowances -- -- 3,523 (2,904)
- -------------------------------------------------------------------------------
$472,895 $435,691 $103,320 $58,001
===============================================================================
</TABLE>
43
<PAGE>
(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>
1997 1996
- ------------------------------------
<S> <C> <C>
AAA 8% 14%
AA 13% 6%
A 56% 54%
BBB & below 23% 26%
- ------------------------------------
100% 100%
====================================
</TABLE>
COMMON STOCK:
American National's stock portfolio by market sector distribution at December
31 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------
<S> <C> <C>
Basic materials 8% 8%
Capital goods 10% 9%
Consumer goods 18% 20%
Energy 7% 7%
Finance 9% 6%
Technology 12% 13%
Health care 21% 21%
Miscellaneous 15% 16%
- ----------------------------------------
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
- ---------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Office buildings 21% 21% 19% 30%
Shopping centers 56% 56% 40% 30%
Commercial 3% 4% 15% 16%
Apartments 2% 1% 3% 2%
Hotels/motels 3% 3% 16% 13%
Industrial 12% 12% 4% 4%
Residential -- 1% -- --
Other 3% 2% 3% 5%
- ---------------------------------------------------------
100% 100% 100% 100%
=========================================================
</TABLE>
American National has a well diversified portfolio of mortgage loans and real
estate properties. Mortgage loans and real estate investments by geographic
distribution at December 31 are as follows:
<TABLE>
<CAPTION>
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- ----------------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas 18% 15% 45% 53%
South Central, except Texas 2% 2% 1% --
California 11% 14% 7% 10%
Western, except California 6% 6% 4% 4%
Southeastern 10% 13% 22% 16%
North Central U.S. 10% 10% 14% 11%
North Eastern U.S. 43% 40% 7% 6%
- ----------------------------------------------------------------------
100% 100% 100% 100%
======================================================================
</TABLE>
For discussion of other off-balance sheet risks, see Note 15.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated market values of financial instruments have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in developing the estimates of fair value.
Accordingly, these estimates are not necessarily indicative of the amounts that
could be realized in a current market exchange or the amounts that may
ultimately be realized. The use of different market assumptions or estimating
methodologies may have a material effect on the estimated market values.
DEBT SECURITIES:
The estimated market values for bonds represent quoted market values from
published sources or bid prices obtained from securities dealers.
MARKETABLE EQUITY SECURITIES:
Market values for preferred and common stocks represent quoted market prices
obtained from independent pricing services.
MORTGAGE LOANS:
The market value for mortgage loans is estimated using discounted cash flow
analyses based on interest rates currently being offered for comparable loans.
Loans with similar characteristics are aggregated for purposes of the analyses.
POLICY LOANS:
The carrying amount for policy loans approximates their market value.
SHORT-TERM INVESTMENTS:
The carrying amount for short-term investments approximates their market
value.
INVESTMENT CONTRACTS:
The market value of investment contract liabilities is estimated using a
discounted cash flow model, assuming the companies' current interest rates on
new products. The carrying value for these contracts approximates their market
value.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
INVESTMENT COMMITMENTS:
American National's investment commitments are all short-term in duration, and
the market value was not significant at December 31, 1997 or 1996.
The carrying amounts and estimated market values of financial instruments at
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Bonds:
Held-to-maturity $3,605,927 $3,752,586 $3,430,726 $3,477,844
Available-for-sale 600,380 600,380 528,306 528,306
Preferred stock 40,744 40,744 51,625 51,625
Common Stock 882,864 882,864 754,039 754,039
Mortgage loans on
real estate 1,103,333 1,229,078 1,098,583 1,195,053
Policy loans 300,574 300,574 303,336 303,336
Short-term
investments 126,732 126,732 5,470 5,470
Financial liabilities:
Investment contracts 1,867,233 1,867,233 1,821,715 1,821,715
- --------------------------------------------------------------------------
</TABLE>
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended December
31, 1997 and 1996, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
LIFE ACCIDENT PROPERTY &
& ANNUITY & HEALTH CASUALTY TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1995 $562,393 $106,528 $ 6,735 $ 675,656
- -------------------------------------------------------------------------------
Additions 143,046 17,847 21,004 181,897
Amortization (70,786) (17,311) (19,920) (108,017)
Effect of change in
unrealized gains on
available-for-sale
securities (10,740) (10,740)
- -------------------------------------------------------------------------------
Net change 61,520 536 1,084 63,140
Acquisitions 99 128 -- 227
- -------------------------------------------------------------------------------
Balance at
December 31, 1996 624,012 107,192 7,819 739,023
- -------------------------------------------------------------------------------
Additions 105,268 21,373 24,336 150,977
Amortization (92,830) (23,553) (22,327) (138,710)
Effect of change in
unrealized gains on
available-for-sale
securities (3,863) (3,863)
- -------------------------------------------------------------------------------
Net change 8,575 (2,180) 2,009 8,404
Acquisitions 752 162 -- 914
- -------------------------------------------------------------------------------
Balance at
December 31, 1997 $633,339 $105,174 $ 9,828 $ 748,341
===============================================================================
1997 Premiums $349,073 $378,521 $312,987 $1,040,581
===============================================================================
1996 Premiums $329,937 $364,198 $257,845 $ 951,980
===============================================================================
</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.
(7) 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--
1996-1997 7.5% for years 1 through 5, graded to 5.5%
at the end of year 25, and level thereafter 1%
1981-1995 8% for years 1 through 5, graded to 6% at
the end of year 25, and level thereafter 19%
1976-1981 7% for years 1 through 5, graded to 5% at
the end of year 25, and level thereafter 22%
1972-1975 6% for years 1 though 5, graded to 4% at
the end of year 25, and level thereafter 9%
1969-1971 6% for years 1 through 5, graded to 3.5%
at the end of year 30, and level thereafter 7%
1962-1968 4.5% for years 1 through 5, graded to 3.5%
at the end of year 15, and level thereafter 14%
1948-1961 4% for years 1 through 5, graded to 3.5%
at the end of year 10, and level thereafter 14%
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 6%
1947 and prior Statutory rates of 3% 6%
- --------------------------------------------------------------------------------
100%
================================================================================
</TABLE>
Future policy benefits for universal life are calculated from the current
account value.
Future policy benefits 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.
45
<PAGE>
(8) 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 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $222,996 $214,599
Less reinsurance recoverables 2,439 1,346
- ----------------------------------------------------------------------
Net balance at January 1 220,557 213,253
- ----------------------------------------------------------------------
Incurred related to:
Current year 515,202 482,988
Prior years (1,098) (13,820)
- ----------------------------------------------------------------------
Total incurred 514,104 469,168
- ----------------------------------------------------------------------
Paid related to:
Current year 343,333 332,305
Prior years 144,256 129,559
- ----------------------------------------------------------------------
Total paid 487,589 461,864
- ----------------------------------------------------------------------
Net balance at December 31 247,072 220,557
Plus reinsurance recoverables 2,567 2,439
- ----------------------------------------------------------------------
Balance at December 31 $249,639 $222,996
======================================================================
</TABLE>
The balances at December 31 are included in policy and contract claims on the
consolidated statement of financial position.
(9) 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 managing 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.
The company 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,
1997, amounts recoverable from reinsurers with a carrying value of $89,232,000
were associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos. The company
holds collateral related to these credit reinsurers totaling $70,760,000. 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>
1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Direct premiums $1,135,094 $1,032,072
Reinsurance premiums assumed
from other companies 25,146 20,052
Reinsurance premiums ceded
to other companies (119,659) (100,144)
- -------------------------------------------------------------------
Net premiums $1,040,581 $ 951,980
===================================================================
Reinsurance recoveries $ 56,535 $ 54,871
===================================================================
</TABLE>
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Direct life insurance in force $43,143,187 $41,945,640
Reinsurance risks assumed
from other companies 662,171 583,853
- ------------------------------------------------------------------------------
Total life insurance in force 43,805,358 42,529,493
Reinsurance risks ceded to
other companies (6,985,956) (6,007,905)
- ------------------------------------------------------------------------------
Net life insurance in force $36,819,402 $36,521,588
==============================================================================
</TABLE>
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(10) 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, 1997 and 1996 (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>
1997
- ----
Individual life insurance $ 501,812 $ 85,210 $2,608,582
Individual accident and
health insurance 191,840 (77) 108,731
Annuities 218,719 6,965 1,962,252
Group life & health insurance 181,034 (11,211) 49,234
Credit insurance 58,254 2,208 136,520
Property and casualty insurance 325,419 28,524 343,280
- ------------------------------------------------------------------------------
Total insurance lines 1,477,078 111,619 5,208,599
Capital and surplus 151,187 146,917 3,206,487
Non-insurance 8,319 1,833 67,887
- ------------------------------------------------------------------------------
1,636,584 260,369 8,482,973
Gain from sale of investments 103,320 103,320 --
- ------------------------------------------------------------------------------
$1,739,904 $363,689 $8,482,973
==============================================================================
1996
- ----
Individual life insurance $ 496,571 $ 79,076 $2,564,102
Individual accident and
health insurance 199,982 (4,943) 108,922
Annuities 167,226 5,783 1,870,659
Group life & health insurance 159,004 811 42,844
Credit insurance 53,411 1,978 123,508
Property and casualty insurance 269,519 15,052 292,113
- ------------------------------------------------------------------------------
Total insurance lines 1,345,713 97,757 5,002,148
Capital and surplus 137,573 138,781 2,912,340
Non-insurance 8,712 158 74,057
- ------------------------------------------------------------------------------
1,491,998 236,696 7,988,545
Gain from sale of investments 58,001 58,001 --
- ------------------------------------------------------------------------------
$1,549,999 $294,697 $7,988,545
==============================================================================
</TABLE>
Net investment income from fixed income assets (bonds and mortgage loans on
real estate) is allocated to insurance lines. It is 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 $391,607,000 in 1997 and $756,727,000 in 1996.
The majority of these deposits were in the annuity line, which totaled
$281,287,000 and $648,234,000 in 1997 and 1996, respectively.
A significant portion of American National's insurance business is written
through one third-party marketing organization. During 1997, approximately 18%
of the total premium and policy account deposits were written through that
organization. This compares with 35% in 1996. Of the total business written by
this one organization, the majority was annuities.
(11) 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):
1997 1996
- -------------------------------------------------------------------------------
Amount Rate Amount Rate
- -------------------------------------------------------------------------------
Income tax on pre-tax income $130,558 35.00 % $106,911 35.00 %
Tax-exempt investment income (383) (0.10)% (384) (0.13)%
Dividend exclusion (3,046) (0.82)% (3,303) (1.08)%
Tax refund -- -- (7,360) (2.41)%
Prior year reserve method change -- -- (3,994) (1.31)%
Miscellaneous tax credits, net (1,238) (0.33)% (1,350) (0.44)%
Other items, net (1,226) (0.33)% (654) (0.21)%
- -------------------------------------------------------------------------------
$124,665 33.42 % $ 89,866 29.42 %
===============================================================================
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and December 31, 1996 are as follows (in thousands):
1997 1996
- -------------------------------------------------------------------------------
Deferred tax assets:
Investment in bonds, real estate and
other invested assets, principally due to
investment valuation allowances $ 11,858 $ 12,943
Policyowner funds, principally
due to policy reserve discount 81,935 86,282
Policyowner funds, principally
due to unearned premium reserve 9,527 7,294
Other assets 6,701 7,375
- -------------------------------------------------------------------------------
Total gross deferred tax assets 110,021 113,894
Less valuation allowance (3,000) (3,000)
- -------------------------------------------------------------------------------
Net deferred tax assets 107,021 110,894
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Marketable equity securities, principally
due to net unrealized gains on stock (107,767) (90,526)
Investment in bonds, principally
due to accrual of discount on bonds (16,312) (14,283)
Deferred policy acquisition costs, due to
difference between GAAP and tax (185,903) (188,725)
Property, plant and equipment, principally
due to difference between GAAP
and tax depreciation methods (12,563) (12,445)
Other liabilities (82) (1,627)
- -------------------------------------------------------------------------------
Net deferred tax liabilities (322,627) (307,606)
- -------------------------------------------------------------------------------
Total deferred tax $ (215,606) $ (196,712)
===============================================================================
47
<PAGE>
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 is
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, 1996 and December 31, 1997, and
the cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $136,212,000 and $83,475,000 were
paid to the Internal Revenue Service in 1997 and 1996, respectively. The statute
of limitations for the examination of federal income tax returns through 1993
for American National and its subsidiaries by the Internal Revenue Service has
expired. All prior year deficiencies have been paid or provided for, and
American National has filed appropriate claims for refunds through 1994. In the
opinion of management, adequate provision has been made for any tax deficiencies
that may be sustained.
(12) 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, as of and for the years ended
December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Statutory net income of insurance companies $ 207,998 $ 146,100
Net gain (loss) of non-insurance companies 2,592 750
- -----------------------------------------------------------------------------------------------
Combined net income 210,590 146,850
Increases (decreases):
Deferred policy acquisition costs 12,267 73,880
Policyholder funds 7,963 (16,323)
Deferred federal income tax benefit 9,606 237
Premiums deferred and other receivables 602 5,549
Gain on sale of investments 79 1,102
Change in interest maintenance reserve 1,532 (463)
Asset valuation allowances 3,524 (2,904)
Other adjustments, net 2,218 7,711
Consolidating eliminations and adjustments (24) (44)
- -----------------------------------------------------------------------------------------------
Net income reported herein $ 248,357 $ 215,595
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Statutory capital and
surplus of insurance companies $2,011,016 $1,784,692
Stockholders' equity
of non-insurance companies 77,725 79,316
- -----------------------------------------------------------------------------------------------
Combined capital and surplus 2,088,741 1,864,008
Increases (decreases):
Deferred policy acquisition costs 748,341 739,023
Policyholder funds 135,262 126,925
Deferred federal income taxes (215,606) (196,712)
Premiums deferred and other receivables (77,629) (78,231)
Reinsurance in "unauthorized companies" 34,010 30,506
Statutory asset valuation reserve 370,102 326,336
Statutory interest maintenance reserve 7,989 6,457
Asset valuation allowances (44,899) (47,518)
Investment market value adjustments 39,050 25,414
Non-admitted assets and
other adjustments, net 258,191 257,617
Consolidating eliminations and adjustments (638,135) (579,919)
- -----------------------------------------------------------------------------------------------
Stockholders' equity reported herein $2,705,417 $2,473,906
===============================================================================================
</TABLE>
In accordance with various government and state regulations, American National
and its insurance subsidiaries had bonds with an amortized value of $73,790,000
on deposit with appropriate regulatory authorities.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(13) STOCKHOLDERS' EQUITY
American National has only one class of common stock, no preferred stock and
no options which could be converted into common or preferred stock. At December
31, 1997 and 1996, American National had 50,000,000 authorized shares of $1.00
par value common stock. At December 31, 1997 and 1996, issued shares were
30,832,449; treasury shares were 4,353,284; and outstanding shares were
26,479,165.
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 that can transfer in the form of dividends,
loans, or advances to the parent company.
At December 31, 1997, approximately $529,692,000 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.
(14) RETIREMENT BENEFITS
American National and its subsidiaries have one tax-qualified pension plan,
which has three separate programs. One of the programs is contributory and
covers home service agents and managers. The other two programs are
noncontributory, with one covering salaried and management employees and the
other covering home office clerical employees subject to a collective bargaining
agreement. 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 career average earnings and years of service. American National also
sponsors two non-tax-qualified pension plans for key executives that restore
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 (before income taxes) produced a
pension debit of $2,474,000 for 1997 and $902,000 for 1996.
The pension debit is made up of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Service cost--benefits earned during period $ 5,402 $ 5,040
Interest cost on projected benefit obligation 7,221 6,735
Actual return on plan assets (9,927) (6,542)
Net amortization and deferral (222) (4,331)
- --------------------------------------------------------------------------
Total pension debit $ 2,474 $ 902
==========================================================================
</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>
1997 1996
- -------------------------------------------------------------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefit obligation $(71,811) $(22,468) $(66,688) $(16,029)
====================================================================================
Accumulated benefit
obligation $(75,492) $(22,468) $(70,303) $(16,029)
====================================================================================
Projected benefit obligation $(92,422) $(22,616) $(85,891) $(20,975)
Plan assets at fair value
(long-term securities) 129,380 -- 125,068 --
- ------------------------------------------------------------------------------------
Plan assets in excess of
projected benefit
obligation 36,958 (22,616) 39,177 (20,975)
Unrecognized net loss 8,305 2,614 7,842 3,519
Prior service cost not yet
recognized in periodic
pension cost -- 1,505 18 1,902
Unrecognized net transition
asset at January 1 being
recognized over 15 years (10,477) -- (13,097) --
Adjustment required to
recognize additional
liability -- -- -- (513)
- ------------------------------------------------------------------------------------
Prepaid pension cost
included in other assets $ 34,786 $(18,497) $33,940 $(16,067)
====================================================================================
</TABLE>
Assumptions used at December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted-average discount rate
on benefit obligation 6.50% 6.50%
Rate of increase in compensation levels 4.80% 4.50%
Expected long-term rate of return on plan assets 7.00% 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
49
<PAGE>
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 contributed by the
retirees.
The accrued post-retirement benefit obligation, included in other liabilities,
was $12,970,000 and $13,007,000 at December 31, 1997 and 1996, 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.
(15) 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, 1997 were approximately $6,315,000.
In the ordinary course of their operations, the companies also had commitments
outstanding at December 31, 1997 to purchase, expand or improve real estate, and
to fund mortgage loans aggregating $74,522,000, all of which are expected to be
funded in 1998. Of the commitment amount, $54,138,000 of mortgage loan
commitments have interest rates that are fixed.
The companies are defendants in various lawsuits concerning alleged failure to
honor certain loan commitments, alleged breach of certain agency and real estate
contracts, various employment matters, allegedly deceptive insurance sales and
marketing practices, and other litigation arising in the ordinary course of
operations. Certain of these lawsuits include claims for compensatory and
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.
However, these lawsuits are in various stages of development and future facts
and circumstances could result in management changing its conclusions.
In 1995 a series of fires occurred at a warehouse, located in Houston, Texas,
which American National owns. American National leased the warehouse to a
company that, in turn, rented out space to various other parties to store
materials. As a result of these fires, 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 as a defendant in several lawsuits concerning
alleged damages related to the fires. After reviewing this situation with legal
counsel, management believes that American National has meritorious defenses
against these lawsuits. The company also has meritorious grounds to recover any
damages from the third parties who actually owned the materials that caused the
fires. Therefore, no specific reserves for this matter have been recorded in the
consolidated financial statements. However, if the defenses and recoveries are
not resolved in the manner that management anticipates, it is possible that the
resulting liability could have a material impact on the consolidated financial
results.
In 1996, American National was named as a defendant in a purported nationwide
class action lawsuit, filed in the state of Alabama, in which the plaintiffs
allege that American National and a third party marketing and administration
organization engaged in improper sales practices in connection with a group
annuity. This litigation is still in the discovery stage, and management
believes that American National has meritorious defenses to class certification
and the substantive allegations in the complaint. Because the ultimate outcome
of this litigation is not foreseeable, no estimate of potential loss, if any, is
possible. Therefore, no provision for this matter has been recorded in the
consolidated financial statements. However, if the defenses are not successful
and a nationwide class is certified, it is possible that the resulting liability
could have a material impact on the consolidated financial results.
50
<PAGE>
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, ACCUMULATION VALUES AND SURRENDER VALUES
THE PURPOSE OF THE TABLES ON PAGES 52 THROUGH 55 IS TO ILLUSTRATE HOW THE
ACCUMULATION VALUE, SURRENDER VALUE AND DEATH BENEFIT OF A POLICY (THE "VALUES")
MAY CHANGE WITH THE INVESTMENT EXPERIENCE OF THE AMERICAN NATIONAL FUND, THE
FIDELITY FUNDS AND THE T. ROWE PRICE FUNDS. THESE ILLUSTRATIONS ARE HYPOTHETICAL
AND MAY NOT BE USED TO PROJECT OR PREDICT INVESTMENT RESULTS.
The tables illustrate how the Values of a Policy issued to an Insured of a
given age and specified underwriting risk classification who pays the given
premium at the beginning of each Policy Year would vary over time if, in each
Policy Year, the gross annual investment rate of return (i.e. investment income
and capital gains and losses, realized and unrealized) on the assets held in
each Eligible Portfolio equaled a hypothetical annual rate of 0%, 6% or 12%. The
tables illustrate a Policy of $100,000 Specified Amount issued to a male, age
45, under a preferred tobacco non-user underwriting risk classification. The
Values would be different from those shown if the gross annual investment rates
of return averaged 0%, 6% or 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 or
otherwise varies the amount, frequency, or timing of premium payments.
The second column of the tables shows the value of the premiums paid
accumulated at a 5% annual interest rate. Other columns show the Death Benefit,
Accumulation Value and Surrender Value. The tables on pages 52 and 54 are based
on the current schedule of Monthly Deductions. These reflect the basis on which
American National currently sells its policies. This is not to be construed as
guarantees or estimates of amounts to be paid in the future. American National
reserves the right to change the current schedule of Monthly Deductions at any
time and for any reason. The Values shown in the tables on pages 53 and 55 are
based on the assumption that the maximum allowable Monthly Deductions are made
throughout the life of the Policy.
The Values illustrated reflect the fact that the net investment return of each
Subaccount is lower than the gross return of the assets held in its
corresponding Eligible Portfolio as a result of investment advisory fees,
management fees and other expenses incurred by the Eligible Portfolios and
charges levied against the Subaccounts. Illustrations assume investment advisory
and management fees and other expenses equivalent to a hypothetical annual rate
of .73% of net assets for each Eligible Portfolio. The investment advisory and
management fees and other expenses assumption equals a simple average, for all
Eligible Portfolios, of the total of "Management Fees" and "Other Expenses",
indicated for each Eligible Portfolio in the table "Eligible Portfolio Annual
Expenses" in this Prospectus. Certain fee waiver and expense reimbursement
arrangements exist and are reflected in this average. Excluding the effect of
these arrangements, the simple average of the "Management Fees" and "Other
Expenses" would equal .84%. Illustrations also reflect the Daily Asset Charge,
which is levied against each Subaccount at an annual rate of 1.25% of average
daily Accumulation Value. After adjustment to reflect these amounts, the
illustrated hypothetical gross annual investment rates of return of 0%, 6% and
12% correspond to approximate hypothetical net annual rates of -1.96%, 3.96% and
9.89%, respectively.
The illustrations 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 Values illustrated. (See Federal Income Tax Considerations, page 26.)
The tables illustrate the Values that would result based upon the
hypothetical investment rates of return if premiums are paid as indicated, if
all premiums are allocated to the Separate Account, and if no Policy loans have
been made. If a Policy Loan is effectuated, both Surrender Value and Death
Benefit Proceeds will be reduced by the amount of outstanding Policy Debt. Even
if repaid, Policy Debt may permanently affect the Policy's Values. The effect
could be favorable or unfavorable depending on whether the investment
performance of the Subaccount(s)/Fixed Account 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. The tables are also based on the
assumption that the Policyowner has not requested an increase or decrease in the
Specified Amount, that no partial surrenders have been made, no riders have been
added, there have been no transfers to the Fixed Account, and that no more than
twelve transfers among Subaccounts have been made in any Policy Year so that no
transfer charges have been incurred. If a partial surrender is effectuated, it
will immediately reduce the Policy Values by the sum of the amount of the
partial surrender, a $25 fee for each partial surrender and any applicable
surrender charge. If the Policy is surrendered, a surrender charge may be
imposed and it is possible the Policyowner may receive less than the total
premium paid. In the illustrations, the difference between the Accumulation
Value and the Surrender Value in any year is the surrender charge. A surrender
charge may also be assessed if a decrease in Specified Amount, a change in Death
Benefit option that results in a decrease in Specified Amount, or a partial
surrender is effectuated. In addition, a $25 partial surrender fee is assessed
on each partial surrender. Each Policy Year, the first twelve transfers among
the Subaccounts or from the Subaccounts to the Fixed Account are free of charge.
A $10 charge is imposed each additional time such transfers are made each Policy
Year. Illustrated Values would be different if the proposed Insured were female
(unless the Policy is not issued on a sex distinct basis), tobacco user, in a
standard or substandard risk classification or another Age at Issue; or if a
higher or lower premium was illustrated or another Specified Amount was
selected.
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.
51
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE II
DEATH BENEFIT OPTION A; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
CURRENT SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,800 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ---------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ---------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 1,542 0 100,000 1,641 0 100,000 1,741 0 100,000
2 3,875 3,043 0 100,000 3,337 212 100,000 3,643 518 100,000
3 5,958 4,503 1,378 100,000 5,089 1,964 100,000 5,723 2,598 100,000
4 8,146 5,923 2,798 100,000 6,898 3,773 100,000 7,996 4,871 100,000
5 10,443 7,301 4,176 100,000 8,766 5,641 100,000 10,481 7,356 100,000
6 12,856 8,637 5,824 100,000 10,693 7,880 100,000 13,199 10,386 100,000
7 15,388 9,928 7,428 100,000 12,679 10,179 100,000 16,171 13,671 100,000
8 18,048 11,174 8,986 100,000 14,726 12,538 100,000 19,421 17,233 100,000
9 20,840 12,372 10,497 100,000 16,833 14,958 100,000 22,976 21,101 100,000
10 23,772 13,520 11,957 100,000 19,001 17,438 100,000 26,865 25,302 100,000
15 40,783 18,522 18,522 100,000 30,858 30,858 100,000 52,750 52,750 100,000
20 62,495 22,134 22,134 100,000 44,653 44,653 100,000 94,540 94,540 115,338
25 90,204 23,831 23,831 100,000 60,800 60,800 100,000 161,159 161,159 186,944
30 125,569 22,579 22,579 100,000 80,318 80,318 100,000 266,841 266,841 285,520
AGE 65 62,495 22,134 22,134 100,000 44,653 44,653 100,000 94,540 94,540 115,338
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,260
Until age 95, under Death Benefit Option A the Death Benefit is the current
Specified Amount of the Policy or, if greater, the applicable corridor
percentage of Accumulation Value at the end of the Valuation Period that
includes the date of the Insured's death. Corridor percentages are specified in
the Policy. The Death Benefit at age 95 and thereafter equals the Accumulation
Value.
American National agrees to keep the Policy in force for the period stipulated
under the Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium
is paid and other Policy provisions are met even though, in certain instances,
the minimum payment allowed by the Policy will not, after the payment of Monthly
Deductions, generate positive Surrender Value at one or more points during such
period.
Accumulation Value, Surrender Value and Death Benefit may be different if
premiums are paid with a different frequency or timing or if of different
amounts. Illustration assumes no Policy loan or partial surrender has been made.
Zero values in the Death Benefit column indicate Policy lapse in the absence of
sufficient additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED. 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 A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, 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 POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
52
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE II
DEATH BENEFIT OPTION A; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
GUARANTEED SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,800 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ---------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ---------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 1,167 0 100,000 1,254 0 100,000 1,342 0 100,000
2 3,875 2,287 0 100,000 2,534 0 100,000 2,793 0 100,000
3 5,958 3,361 236 100,000 3,841 716 100,000 4,363 1,238 100,000
4 8,146 4,387 1,262 100,000 5,173 2,048 100,000 6,062 2,937 100,000
5 10,443 5,363 2,238 100,000 6,529 3,404 100,000 7,903 4,778 100,000
6 12,856 6,287 3,474 100,000 7,906 5,093 100,000 9,895 7,082 100,000
7 15,388 7,153 4,653 100,000 9,302 6,802 100,000 12,053 9,553 100,000
8 18,048 7,959 5,771 100,000 10,712 8,524 100,000 14,387 12,199 100,000
9 20,840 8,697 6,822 100,000 12,130 10,255 100,000 16,913 15,038 100,000
10 23,772 9,363 7,800 100,000 13,553 11,990 100,000 19,649 18,086 100,000
15 40,783 11,445 11,445 100,000 20,593 20,593 100,000 37,302 37,302 100,000
20 62,495 10,628 10,628 100,000 26,835 26,835 100,000 64,990 64,990 100,000
25 90,204 4,762 4,762 100,000 30,584 30,584 100,000 110,897 110,897 128,641
30 125,569 0 0 0 28,165 28,165 100,000 183,561 183,561 196,410
AGE 65 62,495 10,628 10,628 100,000 26,835 26,835 100,000 64,990 64,990 100,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,260
Until age 95, under Death Benefit Option A the Death Benefit is the current
Specified Amount of the Policy or, if greater, the applicable corridor
percentage of Accumulation Value at the end of the Valuation Period that
includes the date of the Insured's death. Corridor percentages are specified in
the Policy. The Death Benefit at age 95 and thereafter equals the Accumulation
Value.
American National agrees to keep the Policy in force for the period stipulated
under the Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium
is paid and other Policy provisions are met even though, in certain instances,
the minimum payment allowed by the Policy will not, after the payment of Monthly
Deductions, generate positive Surrender Value at one or more points during such
period.
Accumulation Value, Surrender Value and Death Benefit may be different if
premiums are paid with a different frequency or timing or if of different
amounts. Illustration assumes no Policy loan or partial surrender has been made.
Zero values in the Death Benefit column indicate Policy lapse in the absence of
sufficient additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED. 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 A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, 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 POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
53
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE II
DEATH BENEFIT OPTION B; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
CURRENT SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,800 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ---------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ---------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 1,540 0 101,540 1,639 0 101,639 1,739 0 101,739
2 3,875 3,037 0 103,037 3,331 206 103,331 3,637 512 103,637
3 5,958 4,492 1,367 104,492 5,076 1,951 105,076 5,707 2,582 105,707
4 8,146 5,903 2,278 105,903 6,874 3,749 106,874 7,967 4,842 107,967
5 10,443 7,269 4,144 107,269 8,726 5,601 108,726 10,432 7,307 110,432
6 12,856 8,589 5,776 108,589 10,631 7,818 110,631 13,120 10,307 113,120
7 15,388 9,860 7,360 109,860 12,589 10,089 112,589 16,051 13,551 116,051
8 18,048 11,081 8,893 111,081 14,597 12,409 114,597 19,243 17,055 119,243
9 20,840 12,248 10,373 112,248 16,654 14,779 116,654 22,719 20,844 122,719
10 23,772 13,357 11,794 113,357 18,757 17,194 118,757 26,502 24,939 126,502
15 40,783 18,032 18,032 118,032 29,973 29,973 129,973 51,136 51,136 151,136
20 62,495 20,989 20,989 120,989 42,129 42,129 142,129 88,931 88,931 188,931
25 90,204 21,477 21,477 121,477 54,375 54,375 154,375 146,602 146,602 246,602
30 125,569 18,212 18,212 118,212 65,001 65,001 165,001 234,151 234,151 334,151
AGE 65 62,495 20,989 20,989 120,989 42,129 42,129 142,129 88,931 88,931 188,931
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,260
Until age 95, under Death Benefit Option B the Death Benefit is the current
Specified Amount plus the Accumulation Value of the Policy or, if greater, the
applicable corridor percentage of Accumulation Value at the end of the Valuation
Period that includes the date of the Insured's death. Corridor percentages are
specified in the Policy. The Death Benefit at age 95 and thereafter equals the
Accumulation Value.
American National agrees to keep the Policy in force for the period stipulated
under the Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium
is paid and other Policy provisions are met even though, in certain instances,
the minimum payment allowed by the Policy will not, after the payment of Monthly
Deductions, generate positive Surrender Value at one or more points during such
period.
Accumulation Value, Surrender Value and Death Benefit may be different if
premiums are paid with a different frequency or timing or if of different
amounts. Illustration assumes no Policy loan or partial surrender has been made.
Zero values in the Death Benefit column indicate Policy lapse in the absence of
sufficient additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED. 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 A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, 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 POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
54
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE II
DEATH BENEFIT OPTION B; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
GUARANTEED SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,800 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ---------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ---------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 1,162 0 101,162 1,249 0 101,249 1,336 0 101,336
2 3,875 2,272 0 102,272 2,518 0 102,518 2,775 0 102,775
3 5,958 3,332 207 103,332 3,807 682 103,807 4,324 1,199 104,324
4 8,146 4,337 1,212 104,337 5,113 1,988 105,113 5,992 2,867 105,992
5 10,443 5,288 2,163 105,288 6,434 3,309 106,434 7,786 4,661 107,786
6 12,856 6,178 3,365 106,178 7,766 4,953 107,766 9,714 6,901 109,714
7 15,388 7,005 4,505 107,005 9,101 6,601 109,101 11,784 9,284 111,784
8 18,048 7,761 5,573 107,761 10,434 8,246 110,434 14,000 11,812 114,000
9 20,840 8,441 6,566 108,441 11,757 9,882 111,757 16,370 14,495 116,370
10 23,772 9,039 7,476 109,039 13,060 11,497 113,060 18,902 17,339 118,902
15 40,783 10,592 10,592 110,592 18,988 18,988 118,988 34,281 34,281 134,281
20 62,495 8,883 8,883 108,883 22,616 22,616 122,616 54,834 54,834 154,834
25 90,204 1,994 1,994 101,994 20,881 20,881 120,881 80,717 80,717 180,717
30 125,569 0 0 0 8,420 8,420 108,420 110,339 110,339 210,339
AGE 65 62,495 8,883 8,883 108,883 22,616 22,616 122,616 54,834 54,834 154,834
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,260
Until age 95, under Death Benefit Option B the Death Benefit is the current
Specified Amount plus the Accumulation Value of the Policy or, if greater, the
applicable corridor percentage of Accumulation Value at the end of the Valuation
Period that includes the date of the Insured's death. Corridor percentages are
specified in the Policy. The Death Benefit at age 95 and thereafter equals the
Accumulation Value.
American National agrees to keep the Policy in force for the period stipulated
under the Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium
is paid and other Policy provisions are met even though, in certain instances,
the minimum payment allowed by the Policy will not, after the payment of Monthly
Deductions, generate positive Surrender Value at one or more points during such
period.
Accumulation Value, Surrender Value and Death Benefit may be different if
premiums are paid with a different frequency or timing or if of different
amounts. Illustration assumes no Policy loan or partial surrender has been made.
Zero values in the Death Benefit column indicate Policy lapse in the absence of
sufficient additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED. 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 A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, 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 POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
55
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF
AMERICAN
NATIONAL
APPEARS PURCHASER SUITABILITY FORM
HERE] This form must accompany all applications for American National Variable Universal Life and Variable Annuity products.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. NEW PURCHASER INFORMATION
Name________________________________________________________________________________________ Date _____________________________
Address_________________________________________________________________________________________________________________________
Social Security or Tax I.D. Number______________________________________________________________________________________________
If Purchaser is a corporation, partnership or other legal entity, names of any persons authorized to transact business on behalf of
entity:
___________________________________________________________________________________________________________________________________
2. PURCHASER'S OCCUPATION
Name and Address of Employer____________________________________________________________________________________________________
Business Phone__________________________________________________________________________________________________________________
3. IS THE PURCHASER EMPLOYED BY OR ASSOCIATED WITH A MEMBER OF THE NASD OR NYSE?
[_] Yes [_] No If yes, provide the name, address and phone number of the firm:______________________________________________
_____________________________________________________________________________________________________________
4. TAX STATUS
[_] Single [_] Head of Household [_] Married filing separate returns
[_] Married filing joint return or qualifying widow(er) with dependent child [_] Corporation [_] Other___________________
5. MARITAL STATUS
[_] Married [_] Single [_] Widowed
6. DEPENDENTS
[_] Spouse [_] Children: Ages____________________________ [_] Other_____________________________________________________
INVESTOR SUITABILITY INFORMATION (the information requested applies to the Applicant/Policy Owner if different from the Proposed
Insured)
To be completed by Purchaser or Registered Representative.
NASD rules require Registered Representatives to have reasonable grounds for believing the recommended purchase is suitable for the
customer. Therefore, representatives are required to make inquiries concerning the financial condition of a proposed purchaser of
any of American National's Variable products. You are urged to supply such information so that the representative can make an
informed judgment as to the suitability of your investment selection(s). However, you are not required to divulge such information.
If you choose not to do so, you must sign at the section provided below indicating refusal and acknowledging that the representative
did request the suitability information.
1. SOURCES OF FUNDS FOR INVESTMENT
A. [_] Current Earnings C. [_] Gift or Inheritance E. [_] Insurance Benefit
B. [_] Savings D. [_] Sale of Assets F. [_] Maturity Proceeds G. [_]_______________________
2. PRIMARY PURPOSE OF INVESTMENT
A. [_] Education C. [_] Savings E. [_] Retirement G. [_] Estate Planning
B. [_] Tax Shelter D. [_] Business Purposes F. [_] Current Income H. [_]_______________________
3. INVESTMENT PROFILE
(a) What is your current investment preference?
[_] Aggressive Growth [_] Growth [_] Growth & Current Income
[_] Current Income [_] Maximum safety, even if modest return
(b) What is your risk comfort level?
[_] High [_] High/Moderate [_] Moderate [_] Moderate/Limited [_] Low
(c) What is your financial goal time horizon?
[_] 1-5 years [_] 5-10 years [_] 10 years and beyond
(d) What is your age range?
[_] 21-40 [_] 41-59 [_] 60 +
(e) What is your tax bracket?
[_] 15% [_] 28% [_] 28% +
(f) What is your estimated annual family income?
[_] (less than) $15,000 [_] $15,000-$30,000 [_] $30,000-$50,000
[_] $50,000-$100,000 [_] Over $100,000
(g) What is your estimated net worth (exclude home, furnishings and automobiles)?
[_] (less than) $25,000 [_] $25,000-$50,000 [_] $50,000-$100,000 [_] Over $100,000
(h) Are you responsible for the financial welfare of anyone other than your immediate family (i.e. alimony, child or parental
support,etc.)? [_] Yes [_] No
(i) Do you own other securities? [_] Yes [_] No
Types: [_] Stocks [_] Bonds [_] Mutual Funds [_] Variable Products [_] Other
I (we) furnished the above suitability information and it has been accurately recorded.
_________________________________________________________ __________________________________________________________
Purchaser Signature Joint Owner Signature
continued on reverse side
</TABLE>
56
<PAGE>
STATEMENT OF REFUSAL TO PROVIDE FINANCIAL INFORMATION
I (we) fully understand that the Registered Representative, acting on behalf of
American National Insurance Company and Securities Management & Research, Inc.,
has requested the above suitability information to determine whether my (our)
purchase of American National's Variable products is an appropriate investment
considering my (our) financial situation. I (we) refuse to provide the requested
information and acknowledge and understand that such refusal prevents an
evaluation of the suitability of the variable product for my financial
needs.
_______________________________________ ______________________________________
Purchaser Signature Joint Owner Signature
REGISTERED REPRESENTATIVE NOTICE - Should the Purchaser sign the above Statement
of Refusal to Provide Financial Information, it is still an NASD requirement
that you have reasonable grounds to recommend the purchase of this investment as
suitable. Therefore, you must complete the suitability information to the best
of your knowledge and certify that you have done so when signing the Registered
Representative's Statement below.
REGISTERED REPRESENTATIVE STATEMENT & SIGNATURE
Check appropriate boxes.
[_] Application attached.
[_] Suitability Information was provided by the Purchaser(s) and the
Purchaser(s) signed acknowledgment that information was accurately
recorded.
or,
[_] Refusal to Provide Financial Information Statement signed by
Purchaser(s). I provided the suitability information to the best of my
knowledge and have reasonable grounds to recommend the purchase of this
investment as suitable for the Investor.
_____________________________________ _______________________________________
Registered Representative Signature Registered Representative Personal Code
_____________________________________ _______________________________________
Registered Representative Name (print) Date Branch Office # PSO#
- --------------------------------------------------------------------------------
Home Office Approval:__________________________________________
Date Received:_______________________________
57
<PAGE>
[LOGO OF AMERICAN NATIONAL APPEARS HERE]
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
American National Insurance Company hereby represents that the fees and
charges deducted under the contracts described in this pre-effective amendment
are, in the aggregate, reasonable in relationship to the services rendered, the
expenses expected to be incurred, an the risks assumed by American National
Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and
documents:
The facing sheet.
The cross reference sheet.
The prospectus consisting of __ pages.
Undertaking to file reports.
Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
Signatures.
Written Consents.
The following exhibits, corresponding to those required by the
instructions as to exhibits in Form N-8B-2:
<PAGE>
(1) Resolution of the Board of
Directors of American National
Insurance Company authorizing
establishment of American National
Variable Life Separate Account.......... Filed with the Registrant's
Original Registration Statement
on March 4, 1998
(2) Not Applicable
(3) (a) Distribution and Administrative
Services Agreement................. Filed with Registrant's
Original Registration Statement
on March 4, 1998
(b) Not Applicable
(c) Schedule of Sales Commissions...... Filed with Registrant's
Original Registration Statement
on March 4, 1998
(4) Not Applicable
(5) Flexible Premium Variable Life
Insurance Policy....................... Filed with Registrant's
Original Registration Statement
on March 4, 1998
(6) Articles of Incorporation of
American National Insurance Company.... Filed with Registrant's
Original Registration Statement
on March 4, 1998
By-Laws of American National
Insurance Company...................... Filed with Registrant's
Original Registration Statement
on March 4, 1998
(7) Not Applicable
(8) American National Investment
Accounts, Inc. Fund Participation
Agreement.............................. Filed with Registrant's
Original Registration Statement
on March 4, 1998
Variable Insurance Products Fund
Fund Participation Agreement........... Filed with Registrant's
Original Registration Statement
on March 4, 1998
<PAGE>
Variable Insurance Products Fund II
Fund Participation Agreement........... Filed with Registrant's
Original Registration Statement
on March 4, 1998
Variable Insurance Products Fund III
Fund Participation Agreement........... Filed with Registrant's
Original Registration Statement
on March 4, 1998
T. Rowe Price Fund
Participation Agreement................ Filed with Registrant's
Original Registration Statement
on March 4, 1998
(9) Not Applicable
(10) Application Form....................... Filed with Registrant's
Original Registration Statement
on March 4, 1998
(11) Independent Auditors' Consent.......... Attached hereto as Exhibit "11"
(12) Opinion of Counsel..................... Attached hereto as Exhibit "12"
(13) Consent of Counsel..................... Attached hereto as Exhibit "12"
(14) Actuarial Opinion...................... Attached hereto as Exhibit "14"
(15) Actuarial Basis of Payment and cash
value adjustment pursuant to Rule
6e-3(T)(b)(V)(B)....................... Attached hereto as Exhibit "15"
(16) Procedures Memorandum Pursuant to
Rule 6e-3(T)(b)(12)(iii)............... Attached hereto as Exhibit "15"
(27) Financial Data Schedule................ Filed with Registrant's
Original Registration Statement
on March 4, 1998
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant has caused
this Pre-Effective Amendment Number 1 to the Registration Statement to be signed
on its behalf, in the City of Galveston, and the State of Texas on the 5th day
of August, 1998.
AMERICAN NATIONAL VARIABLE LIFE SEPARATE
ACCOUNT
(Registrant)
By: AMERICAN NATIONAL INSURANCE
COMPANY
By: /s/ Robert L. Moody
___________________________________
Robert L. Moody, Chairman of the Board,
President and Chief Executive Officer
AMERICAN NATIONAL INSURANCE COMPANY
(Depositor)
By: /s/ Robert L. Moody
_________________________________________
Robert L. Moody, Chairman of the Board,
President and Chief Executive Officer
ATTEST:
/s/ Vincent E. Soler, Jr.,
_______________________________________
Vincent E. Soler, Jr.,
Vice President, Secretary and Treasurer
As required by the Securities Act of 1933, this Pre-Effective Amendment
Number 1 to the Registration Statement has been signed by the following persons
in their capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Michael W. McCroskey
________________________ Executive Vice President- August 5, 1998
Michael W. McCroskey Investments (Principal Financial
Officer)
/s/ Stephen E. Pavlicek
________________________ Senior Vice President and Controller August 5, 1998
Stephen E. Pavlicek (Principal Accounting Officer)
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert L. Moody
_____________________________ Chairman of the Board, August 5, 1998
Robert L. Moody Director, President and Chief
Executive Officer
/s/ G. Richard Ferdinandtsen
_____________________________ Director August 5, 1998
G. Richard Ferdinandtsen
/s/ Irwin M. Herz, Jr.
_____________________________ Director August 5, 1998
Irwin M. Herz, Jr.
/s/ R. Eugene Lucas
_____________________________ Director August 5, 1998
R. Eugene Lucas
/s/ E. Douglas McLeod
_____________________________ Director August 5, 1998
E. Douglas McLeod
_____________________________ Director ___________
Frances Anne Moody
_____________________________ Director ___________
Russell S. Moody
_____________________________ Director ___________
W. L. Moody IV
_____________________________ Director ___________
Joe Max Taylor
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made part of this
registration statement.
ARTHUR ANDERSEN LLP
- -------------------
ARTHUR ANDERSEN LLP
Houston, Texas
August 5, 1998
<PAGE>
EXHIBIT 12
Law Offices
Greer, Herz & Adams, L.L.P.
a registered limited liability partnership
including professional corporations
One Moody Plaza
Galveston, Texas 77550
Galveston (409) 765-5525
Houston (713) 480-5278
Telecopier (409) 766-6424
August 5, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Judicial Plaza
Washington, D.C. 20549
RE: American National Variable Life Separate Account ("Separate Account")
Pre-Effective Amendment No. 1 to Form S-6; 333-47321; Opinion and
Consent of Counsel
- --------------------------------------------------------------------------------
Gentlemen:
We are counsel to American National Insurance Company ("ANICO"), the
depositor of the Separate Account. As such, we participated in the formation of
the Separate Account and the registration of such separate account with the
Securities and Exchange Commission ("Commission"). Accordingly, we are familiar
with the corporate records, certificates, and consents of officers of ANICO as
we have deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and our consideration of such other matters of
fact and questions of law as we have deemed necessary and proper in the
circumstances, we are of the opinion that:
1. ANICO is a duly organized and existing corporation under the laws of
the State of Texas and that its principal business is to be an insurer.
2. The Separate Account is a duly organized and existing separate account
of ANICO under the laws of the State of Texas and is registered as a unit
investment trust under the Investment Company Act of 1940.
<PAGE>
3. The Variable Life Insurance Contracts registered by this Registration
Statement under the Securities Act of 1933 (File No. 333-47321) will, upon
issuance thereof, be validly authorized and issued.
We hereby consent to the use of our opinion of counsel in the Pre-Effective
Amendment No. 1 to Form S-6 Registration Statement (File No. 333-47321) filed on
behalf of the Separate Account. We further consent to the statements made
regarding us and to the use of our name under the caption "Legal Matters" in the
prospectus constituting a part of such Pre-Effective Amendment No. 1 to such
Registration Statement.
Yours very truly,
GREER, HERZ & ADAMS, L.L.P.
/s/ JERRY L. ADAMS
-------------------------------
Jerry L. Adams
<PAGE>
EXHIBIT 14
American National
REX D. HEMME, FSA, MAAA
Vice President and Actuary
Life Product Development
August 5, 1998
Securities and Exchange Commission
450 Fifth Street, N W
Washington D C 20549
Dear Sir:
This opinion is furnished in connection with the Form S-6 Registration Statement
under the Securities Act of 1933, as amended ("Securities Act"), of a certain
Variable Universal Life II insurance policy (the "Policy") that will be offered
and sold by American National Insurance Company and certain units of interest to
be issued in connection with the Policy.
The hypothetical illustrations of the Policy used in the Form S-6 Registration
Statement accurately reflect reasonable estimates of projected performance of
the Policy under the stipulated rates of investment return, the contractual
expense deductions and guaranteed cost-of-insurance rates, and utilizing a
reasonable estimation for expected fund operating expenses.
I hereby consent to the use of this opinion as an exhibit to the Form S-6
Registration Statement and to the reference to my name under the heading
"Experts" in the Prospectus included as a part of such Form S-6 Registration
Statement.
Very truly yours,
/s/ REX D. HEMME
- -------------------------------
Rex D. Hemme, FSA, MAAA
Vice President and Actuary
Life Product Development
American National Insurance Company
One Moody Plaza
Galveston, TX 77550
(409) 766-6627
(409) 766-6933 Fax
<PAGE>
EXHIBIT 15
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
PURSUANT TO RULE 6e-3(T)(b)(12)(iii)
OF THE INVESTMENT COMPANY ACT OF 1940
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
TABLE OF CONTENTS
INTRODUCTION.................................................................1
I. ISSUANCE OF POLICIES......................................................1
A. Insurance Underwriting Standards and Application Processing...........1
B. Rate Structure for Guaranteed Coverage Premium, Monthly Deductions
and Surrender Charge..................................................2
C. Premium Processing....................................................3
D. Reinstatement.........................................................4
E. Misstatement of Age or Sex............................................5
F. Preferred Risk Classification.........................................5
G. Increase in Specified Amount..........................................5
H. Change in Death Benefit Option........................................6
I. Riders................................................................7
J. Repayment of Policy Debt..............................................7
II. REDEMPTION OF POLICIES AND TRANSFERS....................................8
A. Guaranteed Coverage Benefit...........................................8
B. Policy Lapse and Grace Period.........................................8
C. Surrenders............................................................9
D. Policy Loans.........................................................10
E. Death Benefits and Death Benefit Proceeds............................12
F. Decrease in Specified Amount.........................................13
G. Transfers............................................................14
H. Refund Privilege.....................................................14
I. Dollar Cost Averaging................................................15
J. Rebalancing..........................................................15
K. Monthly Deduction....................................................16
L. Daily Asset Charge...................................................16
M. Postponement of Payments.............................................17
III. COMMUNICATIONS.........................................................17
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
INTRODUCTION
------------
This document sets forth, as required by Rule 6e-3(T)(b)(12)(iii) of the
Investment Company Act of 1940, the administrative procedures to be followed by
American National Insurance Company ("American National" or "the Company") in
connection with its issuance of Variable Universal Life II Insurance Policies,
the transfer of assets held thereunder, and the redemption by Policyowners of
their interests in the Policies. Capitalized terms used but not defined herein
have the same meaning as in the prospectus for the Policies that is included in
the current registration statement for the Policies as filed with the Securities
and Exchange Commission ("SEC").
I. ISSUANCE OF POLICIES
-----------------------
A. INSURANCE UNDERWRITING STANDARDS AND APPLICATION PROCESSING
Individuals wishing to purchase a Policy must complete an application and submit
it to American National's home office. American National reserves the right to
reject an application. Acceptance of the application and issuance of a Policy
are subject to American National's underwriting rules. The underwriting
procedures followed entail an evaluation of risks designed to determine whether
the proposed Insured is insurable and if so, the appropriate underwriting risk
classification. Such procedures will be in accordance with American National's
established underwriting standards and state insurance laws. This process may
involve verification procedures including, but not limited to, medical
examinations and may require that further information be provided by the
proposed Insured or applicant or obtained from third parties, such as the
Medical Information Bureau or inspection reports. A Policy will not be issued
until this underwriting process is complete.
Differences in state laws may require American National to offer a Policy in one
or more states which has suicide, incontestability, refund, or other provisions
which are more favorable to a Policyowner than provisions in a Policy offered in
other states.
At issue, the minimum Specified Amount is $100,000 for preferred risk
classification and $50,000 otherwise. Age at Issue is determined on the
Insured's age last birthday as of the Policy Date. The Policy is only available
on proposed Insured who have an age last birthday of 80 or less at the time the
Policy is purchased.
A minimum (initial) premium is required to effectuate the Policy. It must be at
least one-twelfth of the Guaranteed Coverage Premium. In general, if this
minimum premium is submitted with the application and each of the following 4
conditions are satisfied fully, the conditional receipt provided to the
Policyowner in connection with the application grants that insurance as provided
by the terms and conditions of the
Page 1
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Policy will become effective on the latest of (a) the date of completion of the
application, (b) the date of completion of all medical exams and tests required
by American National, or (c) if the application requests a Policy Date which is
later than the date of the conditional receipt given at time of application, the
Policy Date requested by the applicant. In no event will the total liability of
American National under all conditional receipts with the Company on the life of
the proposed Insured exceed $250,000. The 4 conditions that must be satisfied
fully are:
1. The payment received with the application must equal the minimum
initial premium for the amount of insurance applied for and for the
mode of premium payment selected;
2. All medical examinations and tests required under American
National's initial application requirements must be completed and
the reports of those medical examinations and tests must be received
at the Company's home office within 45 days after the days of the
conditional receipt;
3. On the effective date (as defined above) all persons proposed for
insurance must be insurable at standard premium rates for the plan
and amount of insurance requested in the application, and in good
health; and
4. There is no material misrepresentation in the application.
If one or more of the above conditions have not been satisfied fully within 45
days of the date of the conditional receipt, American National's liability is
limited to a refund of the amount paid.
If the minimum (initial) premium is not submitted with the application or any
of the requirements for coverage as provided under the conditional receipt are
not satisfied fully, then the Effective Date is generally the Date of Issue of
the Policy upon:
1. Payment of the minimum premium, as shown on the Policy Data Page;
and
2. Policy delivery during the Insured's lifetime and good health.
Insurance coverage may also begin on any other date mutually agreeable to
American National and the Policyowner as long as such date complies with all
applicable state and federal laws and regulation.
B. RATE STRUCTURE FOR GUARANTEED COVERAGE PREMIUM, MONTHLY DEDUCTIONS AND
SURRENDER CHARGE
The Policies will be offered and sold pursuant to American National's
established underwriting standards and in accordance with state insurance laws.
State laws prohibit unfair discrimination among Policyowners but recognize that
premiums and insurance charges and deductions are based upon factors such as
age, sex, health and occupation.
Rates used to compute Guaranteed Coverage Premium, Monthly Deductions and
surrender charge will not necessarily be the same for all Policyowners.
Insurance is based on the principle of pooling and distribution of risks, which
assumes each
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
policyowner pays premium and insurance charges and deductions commensurate with
the insured's mortality risk as actuarially determined utilizing factors such as
the specified amount of the policy and the insured's age, sex, health and
occupation. Accordingly, while rates used to compute Guaranteed Coverage
Premium, Monthly Deductions and surrender charge will not necessarily be the
same for all Policies, there will be uniform rates for all Policies of the same
Specified Amount and Insureds of the same Age at Issue, Attained Age, sex (for
Policies issued on a sex distinct basis), and underwriting risk classification.
C. PREMIUM PROCESSING
The Policy is a flexible premium policy since, subject to the limitations given
below, there is no fixed schedule of required premium payments.
All premiums are payable at American National's home office. The initial premium
is due no later than the Policy Date. It must be at least one-twelfth of the
Guaranteed Coverage Premium. Premium payments received within 15 days after the
Date of Issue are allocated to the Subaccount for the AN Money Market Portfolio.
Any initial premium payment received with the application will be allocated to
the AN Money Market Portfolio as of the Date of Issue, for 15 days. Upon
expiration of such period, the Accumulation Value of the Subaccount for the AN
Money Market Portfolio will be allocated to the Subaccounts and the Fixed
Account as selected by the Policyowner. Premium payments received prior to the
Date of Issue are held in the General Account, without interest, until the Date
of Issue, at which time they are allocated to the Subaccount for the AN Money
Market Portfolio. Premiums received 16 or more days after the Date of Issue are
allocated to the Subaccounts and the Fixed Account as selected by the
Policyowner. If there is any Policy Debt at the time of a payment, the payment
will be treated as a premium payment, and not repayment of Policy Debt, unless
otherwise instructed by the Policyowner by proper written notice.
No charges will be deducted from any premium payment before allocating it among
the Subaccounts and the Fixed Account. The Policyowner specifies the premium
allocation desired in the Policy application. The minimum percentage of a
premium payment that may be allocated to any one Subaccount or the Fixed Account
is 10%, and fractional percentages may not be used. The allocation percentages
must total 100%. The allocation for future premiums may be changed by providing
proper notice to American National's home office. There is no charge for
changing the allocation. The revised allocation instructions will apply to
future premiums received on or after the day the notice is received.
The Policyowner may determine a Planned Periodic Premium schedule. During the
period the Guaranteed Coverage Benefit is in effect the Planned Periodic Premium
must be no less than the Guaranteed Coverage Premium. Premium payment notices
will be periodically sent to the Policyowner based upon the frequency selected
for Planned Periodic Premiums. The Policyowner can change the frequency and
amount of Planned Periodic Premiums by written request. American National
reserves the right to limit any increase in the Planned Periodic Premium in
order to comply with
Page 3
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
applicable federal tax law. The Policyowner is not required to pay premiums in
accordance with this schedule. Failure to pay a Planned Periodic Premium will
not necessarily cause a Policy to lapse but, unless the Guaranteed Coverage
Benefit provision is in effect, the Policy could lapse even if Planned Periodic
Premiums have been paid. Payment of the Guaranteed Coverage Premium is required
to maintain the Guaranteed Coverage Benefit. (See Section II.A.)
Any premium received in an amount different that the Planned Periodic Premium
will be considered an unscheduled premium. A Policyowner may make unscheduled
premium payments at any time in any amount, or skip premium payments, subject to
the guideline premium limitations described below.
In no event may the total of all premium paid exceed the current maximum premium
limitation under federal tax law (guideline premium limitation). If at any time
a premium is paid which would result in total premiums exceeding such
limitation, only the portion making total premiums equal to the limitation will
be accepted. Any part of the premium in excess of that amount will be returned
to the Policyowner or applied as otherwise agreed and no further premiums will
be accepted until allowed under the limitation.
American National may require additional evidence of insurability if any premium
payment results in an increase in the Policy's net amount at risk on the date
the premium is received. American National also reserves the right to establish
a minimum acceptable premium amount.
D. REINSTATEMENT
A lapsed Policy may be reinstated any time within 5 years after the date
coverage is terminated. A Policy cannot be reinstated if it was surrendered.
Reinstatement will be effected based on the Insured's underwriting
classification at the time of the reinstatement. An application for
reinstatement must be submitted to American National. Reinstatement is subject
to the following:
. Evidence of insurability (including evidence of insurability of any person
covered by a rider to reinstate the rider);
. Reinstatement or repayment of any Policy Debt, with interest due and accrued
assessed as allowed by state law;
. Payment of the amount of any Monthly Deductions not collected during the grace
period;
. Payment of premium sufficient to pay the Monthly Deduction for 3 months after
the date of reinstatement; and
. The surrender charge will be restored as of the Date of Issue and for any
increase in Specified Amount as of the date of increase.
The original Date of Issue, and the Effective Dates of increases in Specified
Amount (if applicable), will be used for purposes of calculating Monthly
Deductions and the
Page 4
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
surrender charge. If any Policy Debt is reinstated, the amount thereof will be
held in the General Account. The Effective 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.
E. MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex (if the Policy is issued on a sex distinct basis)
has been stated incorrectly, the Death Benefit will be that which could have
been purchased by the most recent cost of insurance charge at the correct age
and sex.
F. PREFERRED RISK CLASSIFICATION
At issue, a minimum Specified Amount of $100,000 is required to be considered
for a preferred risk classification. At all times while in force, the total
Specified Amount of a Policy must remain at least $100,000 to maintain a
preferred classification. Therefore, if for any reason (e.g. a decrease in
Specified Amount, a partial surrender, or a Death Benefit Option change), the
Specified Amount falls below $100,000 the risk classification associated with
the initial Specified Amount and all prior increases in Specified Amount will be
changed from preferred to standard. If an in force Policy is not currently
classified as preferred but the Policyowner requests an increase in Specified
Amount such that the total Specified Amount of the increased Policy is at least
$100,000, the increase, subject to underwriting, can be issued preferred. If the
increase is issued preferred, the underwriting class of the initial and any
previous increase in Specified Amount may be changed to preferred. (See Section
I.G., "Increase in Specified Amount".) Such change would affect future (but not
previous) Policy deductions. Alternatively, if an in force Policy is currently
classified as preferred and the Policyowner requests an increase in Specified
Amount that is not classified as preferred, the preferred underwriting class of
the initial and any previous increase in Specified Amount will not be changed.
G. INCREASE IN SPECIFIED AMOUNT
The Policyowner can increase the Specified Amount of the Policy at any time,
subject to certain limitations including American National's right to evidence
of insurability. A written application for an increase in Specified Amount must
be submitted. The minimum amount of any increase is $5,000, and an increase
cannot be made if the Insured's Attained Age is over 80. An increase during the
time the Guaranteed Coverage Benefit is in effect will increase the Guaranteed
Coverage Premium requirement. In certain instances American National can require
an additional premium payment to effect the requested increase. The amount of
such required
Page 5
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
premium payment, if any, would depend upon the Accumulation Value at the time of
increase and the amount of increase requested.
The underwriting risk classification will be determined separately for the
initial Specified Amount and each increase in Specified Amount. As a result, the
underwriting risk classification for the initial Specified Amount and each
increase may be different. An increase in Specified Amount may increase
surrender charges as well as certain charges deducted from the Accumulation
Value on each Monthly Deduction Date. An increase in Specified Amount may affect
the rates at which charges and deductions are assessed against the Policy. The
monthly cost of insurance, the monthly load per $1,000 of Specified Amount, and
surrender charge will be calculated separately for the initial Specified Amount
and each increase in Specified Amount. American National's current practice is
that the underwriting risk classification of the initial Specified Amount and
each previous increase may be changed to the classification of the latest
increase if such change is advantageous to the Policyowner. Such change would
affect future (but not previous) Policy deductions. A change in the risk
classification of the initial Specified Amount or any previous increase in
Specified Amount to a less advantageous classification cannot currently be made.
The Policyowner will have a "free look period" which will apply only to the
increase in Specified Amount and not the entire Policy. The rights under this
free look are comparable to the rights afforded a purchaser of a new Policy. The
Policyowner may cancel the increase in Specified Amount within 10 days after
receiving the Policy as increased. Except as otherwise required by state law or
regulation, if so canceled, the amount of refund is premiums paid attributable
to such increase in Specified Amount adjusted by investment gains and losses.
Any increase in Specified Amount will take effect on the Monthly Deduction Date
which coincides with or next follows the date American National approves an
application for such change.
H. CHANGE IN DEATH BENEFIT OPTION
The Death Benefit option in effect may be changed at any time by the
Policyowner's written request. The effective date of such a change will be the
Monthly Deduction Date on or next following the date the written request is
received by American National. No evidence of insurability will be required by
American National before effectuating a change in Death Benefit option.
A change in Death Benefit option will not result in an immediate change in the
amount of Accumulation Value. However, such change may affect subsequent Monthly
Deductions and surrender charges.
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. The resultant
decrease in Specified Amount due to the Death Benefit option change will be
allocated to the initial and any previous increase in Specified Amount
consistent with the method used
Page 6
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
when a Policyowner requests a decrease in Specified Amount. A surrender charge
may also be assessed, consistent with that for a decrease in Specified Amount.
(See Section II.F.) The minimum Specified Amount to maintain a preferred risk
classification after a change in Death Benefit option is $100,000. A change in
Death Benefit option will not be allowed if the Specified Amount remaining in
force after the change is less than the minimum shown in the following table. A
decrease in Specified Amount due to a Death Benefit option change during the
time the Guaranteed Coverage Benefit is in effect will not change the Guaranteed
Coverage Premium requirement.
During Minimum
Policy Year Specified Amount
1 50,000
2 45,000
3 40,000
4 35,000
Thereafter 25,000
If the Death Benefit option is changed from Option B to Option A, the Specified
Amount after the change will equal the Death Benefit under Option B on the
effective date of the change. Such increase in Specified Amount will be
allocated to the most recent increase in Specified Amount insurance segment. If
there has been no prior increase, it will be allocated to the initial Specified
Amount segment. An increase in Specified Amount due to a Death Benefit option
change will generally increase subsequent Monthly Deductions and surrender
charge. If such increase in Specified Amount occurs during the time the
Guaranteed Coverage Benefit is in effect, the Guaranteed Coverage Premium
requirement will increase.
I. RIDERS
Subject to certain requirements, American National may provide certain
additional optional benefits. Such optional benefits will be provided by riders
to the Policy. The cost of any such riders will be deducted as part of the
Monthly Deduction. American National reserves the right to change the selection
of riders that may be added to a Policy. Riders in force during the time the
Guaranteed Coverage Benefit is in effect will increase the Guaranteed Coverage
Premium requirement.
J. REPAYMENT OF POLICY DEBT
See Section II.D., "Policy Loan".
Page 7
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
II. REDEMPTION OF POLICIES AND TRANSFERS
A. GUARANTEED COVERAGE BENEFIT
American National agrees to keep the Policy in force during the period after the
Date of Issue as stated on the Policy Data Page and provide a Guaranteed
Coverage Benefit during that period so long as certain Policy provisions are met
even though, in certain instances, the Policy may not have positive Surrender
Value at one or more points during such period. The Policy provisions that must
be met include:
. On each Monthly Deduction Date within the period, the sum of premiums paid
equals or exceeds the sum of 1. and 2.:
1. the sum of Guaranteed Coverage Premium for each month from the start
of the period, including the current month and
2. any partial surrenders and any increase in Policy Debt since the start
of the period.
. The Guaranteed Coverage Premium must be paid in advance to keep the Policy
in force, even if the Surrender Value is zero or less.
The Guaranteed Coverage Benefit is applicable only for the number of years from
issue as stated on the Policy Data Page. An increase in the Specified Amount
does not start a new Guaranteed Coverage Benefit period, although an increase in
Specified Amount during the period the Guaranteed Coverage Benefit is in effect
will increase the Guaranteed Coverage Premium for the remainder of such period.
A decrease in Specified Amount during the Guaranteed Coverage Benefit period,
including a decrease due to a Death Benefit option change or a partial
surrender, will not decrease the Guaranteed Coverage Premium. The Guaranteed
Coverage Premium will be increased for the remainder of the Guaranteed Coverage
Benefit period if a rider is added or increased during such period. Increases in
Specified Amount or rider additions made after the end of the Guaranteed
Coverage Benefit period will not have the Guaranteed Coverage Benefit.
B. POLICY LAPSE AND GRACE PERIOD
Unless the Guaranteed Coverage Benefit is in effect, lapse will occur when the
Surrender Value is insufficient to cover the Monthly Deduction or Policy Debt
exceeds Accumulation Value less any surrender charge, and a grace period expires
without a sufficient payment. The grace period begins on the date the Surrender
Value is insufficient to cover the Monthly Deduction or the date Policy Debt
exceeds the Accumulation Value less any surrender charge. American National will
notify the
Page 8
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Policyowner and any assignee on record at the Company's home office, at the
beginning of the grace period, by mail addressed to the last known address on
file with the Company. The notice will specify the premium required to be paid,
which will be sufficient to cover the Monthly Deduction if the Surrender Value
is insufficient or the excess of Policy Debt over Accumulation Value less any
surrender charge. The grace period ends 61 days after the notice is mailed.
Failure to pay the required amount within the grace period results 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 Death Benefit Proceeds.
C. SURRENDERS
At any time during the lifetime of the Insured and while the Policy is in force,
the Policyowner may partially or totally surrender the Policy by sending written
notice to American National and submitting the Policy. Except for the provision
for postponement of payments as, for a full surrender, described in Section
II.M., full and partial surrenders are generally paid within 7 days after
receipt of a written request at American National's home office. In addition,
payment of surrenders which would be derived from a premium payment made by
check which has not cleared the banking system may also be deferred.
Full Surrender:
On a full surrender, American National will pay the Surrender Value,
determined at the end of the Valuation Period during which the surrender
request is received. Coverage under the Policy will terminate as of the date
of a full surrender.
If the Policy is surrendered, a surrender charge may be assessed. Surrender
charges are calculated separately for the initial Specified Amount and for
each increase in Specified Amount. The surrender charge for the initial
Specified Amount is applicable under the 14th Policy anniversary. For an
increase in Specified Amount, the surrender charge is applicable for 14
years after the Effective Date of such increase. Thereafter, there is no
surrender charge.
The surrender charge is assessed based on a rate per $1,000 of initial or
increase in Specified Amount. This rate is the same for the first 5 years
since issue or increase, as applicable, grading to zero after 14 years.
Proceeds payable upon full surrender are generally paid in one sum. However,
American National currently allows the Policyowner to elect to have such
proceeds paid under the provision for settlement options set forth in the
Policy.
Partial Surrender:
Partial surrenders are irrevocable. The amount of a partial surrender may
not exceed the Surrender Value at the end of the Valuation Period during
which the request is received less an amount sufficient to cover Monthly
Deductions for 3 months. The minimum partial surrender is $100.
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DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
The Accumulation Value will be reduced by the sum of the amount of the partial
surrender, a $25 fee for each partial surrender and, if Death Benefit Option A
is in effect, a partial surrender charge. This amount will be deducted from the
Accumulation Value, and values in connection therewith determined, at the end of
the Valuation Period during which the request is received. The deduction will be
allocated to the Subaccounts and the Fixed Account according to Policyowner
instructions, provided the minimum amount remaining in a Subaccount as a result
of the allocation is $100. In the event no allocation instructions are provided,
the partial surrender 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 prior to the partial surrender bears to the total. In the
event the allocation instructions conflict with the $100 minimum described
above, American National reserves the right to allocate the partial surrender
among the Subaccounts and the Fixed Account in the same proportion as the
Accumulation Value in each Subaccount and the Fixed Account prior to the partial
surrender bears to the total. The partial surrender charge will be assessed
consistent with the method for a decrease in Specified Amount. (See Section
II.F.).
The Death Benefit will be reduced by the amount by which the Accumulation Value
is reduced due to 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 increase in order of the more recent first, and finally the initial
Specified Amount. If Option B is in effect, the Specified Amount will not
change. A partial surrender will not be effectuated if the Specified Amount
remaining in force after the partial surrender would be less than the minimum
set forth in the following table. In addition, the minimum Specified Amount to
maintain a preferred risk classification after a partial surrender is $100,000.
A decrease in Specified Amount due to a partial surrender during the time the
Guaranteed Coverage Benefit is in effect will not change the Guaranteed Coverage
Premium requirement.
During Minimum
Policy Year Specified Amount
1 50,000
2 45,000
3 40,000
4 35,000
Thereafter 25,000
D. POLICY LOANS
At any time while the Policy is in force, the Policyowner can borrow from
American National using the Policy as security for the loan. The minimum amount
which may be borrowed is $100. Except as otherwise required by applicable state
law or regulation, the maximum amount may be borrowed during the first 3 Policy
Years is 75% of
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DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
the Surrender Value at the end of the Valuation Period during which the loan
request is received. After the first 3 years, the maximum loan amount is 90% of
the Surrender Value at the end of the Valuation Period during which the loan
request is received. Preferred loans are available after the seventh Policy
Year. Determination of whether a loan is preferred occurs at the time the loan
is made. Subject to the aforementioned maximum loan amount, the amount available
as a preferred loan equals the Accumulation Value less Policy Debt and less
premiums paid (adjusted as partial surrenders). The loan may be completely or
partially repaid at any time while the Insured is living.
Except for the provision for postponement of payments as described in Section
II.M., loans are generally paid within 7 days after receipt of a written
request. In addition, payment of loans which would be derived from a premium
payment made by check which has not cleared the banking system may also be
deferred.
Loans accrue interest on a daily basis at a rate of 5.0% per year, 3.0% for
preferred loans. Interest is due and payable on each Policy anniversary. If
unpaid when due, interest will be added to the amount of the loan and bear
interest at the same rate.
Amounts held in the General Account to secure Policy loans will earn interest at
an annual rate of 3.0% credited on the Policy anniversary. This interest will be
allocated to the Subaccounts and the Fixed Account on each Policy anniversary in
the same proportion that premiums are being allocated at that time.
When a loan is made, Accumulation Value equal to the amount of the loan will be
transferred from the Separate Account and the Fixed Account to the General
Account as security for the indebtedness. The Accumulation Value transferred out
will be deducted from the Subaccounts and the Fixed Account in accordance with
Policyowner instructions. The minimum amount that can remain in a Subaccount or
the Fixed Account as a result of a loan is $100. In the event no allocation
instructions are provided, the loan 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 prior to the loan bears to the total. In the
event the allocation instructions conflict with the $100 minimum described
above, American National reserves the right to allocate the loan among the
Subaccounts and the Fixed Account in the same proportion as the Accumulation
Value in each Subaccount and the Fixed Account prior to the loan bears to the
total. In addition, Accumulation Value will be transferred from the Subaccounts
and the Fixed Account to the General Account to secure indebtedness if loan
interest is not paid when due in any Policy Year. This deduction will be
allocated among the Subaccounts and the Fixed Account using the same method
described above for the funding of loans. No charge is imposed for these
transfers.
Policy Debt equals the total of all Policy loans and accrued interest thereon.
Policy Debt may be totally or partially repaid at any time while the Insured is
still living. Payments received by American National while a Policy loan is
outstanding are treated as repayment of Policy Debt (and not premiums) only if
the Policyowner so requests. Each loan repayment amount must be at least $10 or
the full amount of Policy Debt, if less. As Policy Debt is repaid, Accumulation
Value equal to the loan amount repaid will be transferred from the General
Account to the Subaccounts and the Fixed
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DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Account. Such transfer will be allocated among the Subaccounts and the Fixed
Account at the end of the Valuation Period during which the repayment is
received. The allocation will be in the same proportion that premiums are being
allocated at the time of repayment.
Whenever Policy Debt exceeds the Accumulation Value less any surrender charge,
the Policy's grace period provision will apply. (See Section II.B.)
E. DEATH BENEFITS AND DEATH BENEFIT PROCEEDS
The Policy provides life insurance coverage as long as it remains in force. The
Policyowner selects one or two Death Benefit options. Until age 95, the Death
Benefit under either option will never be less than the current Specified
Amount. Under Option A, until age 95 the Death Benefit is the current Specified
Amount or, if greater, the applicable corridor percentage of the Accumulation
Value at the end of the Valuation Period that includes the date of death. Under
Option B, until age 95 the Death Benefit is the current Specified Amount plus
the Accumulation Value or, if greater, the applicable corridor percentage of the
Accumulation Value at the end of the Valuation Period that includes the date of
death. The applicable corridor percentages are listed in the Policy. Under
either Death Benefit option, the Death Benefit at age 95 and thereafter equals
the Accumulation Value.
Except for the provison for postponement of payments described in Section II.M.,
Death Benefit Proceeds are generally paid within 7 days after American National
receives Satisfactory Proof of Death and all other applicable requirements are
met. 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 provided for in the Policy's settlement options provison. If
no election is made, American National will pay the Death Benefit Proceeds in a
lump sum. When Death Benefit Proceeds are payable in a lump sum and no election
of an optional method of payment is in force at the date of death of the
Insured, the Beneficiary may select one or more of the optional methods of
payment. Any amount left with American National for payment under a settlement
option will be transferred to the General Account and will not be affected by
the investment performance associated with the Separate Account. Once payments
have begun, the payment option may not be changed. American National reserves
the right to make other payment options available.
An election or change of method of payment of Death Benefit Proceeds must be in
writing. A Change in Beneficiary revokes any previous settlement election.
Further, if a Policy is assigned, any amount due to the assignee will first be
paid in one sum. The balance, if any, will be paid in one sum to the designated
Beneficiary unless an optional method of payment is elected.
If the Insured dies during the grace period, any unpaid Monthly Deductions that
may apply and Policy Debt will be deducted from the Death Benefit Proceeds.
Contestability of the Policy is as provided under Policy Provisions. American
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DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
National's liability may also be affected if the Insured commits suicide, as
provided for under Policy provisions.
F. DECREASE IN SPECIFIED AMOUNT
Subject to certain limitations, the Policyowner can decrease the Specified
Amount at any time after the first 3 Policy Years. (No decrease in Specified
Amount is allowed during the first 3 Policy Years). A written request from the
Policyowner is required for a decrease in Specified Amount. The minimum amount
of a decrease is $5,000. No decrease in Specified Amount can be made if the
Insured's Attained Age exceeds 94. The Specified Amount remaining in force may
not be less than the minimum shown in the following table. In addition, the
minimum Specified Amount to maintain a preferred risk classification after a
decrease in Specified Amount is $100,000. A decrease in Specified Amount may
affect the rates at which charges and deductions are assessed against the
Policy.
During Minimum
Policy Year Specified Amount
4 35,000
Thereafter 25,000
If following the decrease in Specified Amount the Policy would not comply with
the guideline premium limitation under federal tax law, the decrease may be
limited or Accumulation Value returned, at the Policyowner's election, to the
extent necessary to meet this requirement. A decrease 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.
A surrender charge will be deducted from the Accumulation Value for each
decrease in Specified Amount. Such deduction will be the sum of surrender
charges computed separately for each reduction in Specified Amount as required
by (a)-(c) above. The surrender charge for each reduction is a pro rata portion
of any surrender charge applicable to a full surrender of the related increase
or initial Specified Amount. This portion will be based on the percentage
reduction in the related increase or initial Specified Amount. The surrender
charges applicable to each increase or the initial Specified Amount remaining in
force will be reduced on a pro rata basis.
Any decrease in Specified Amount will take effect on the Monthly Deduction Date
which coincides with or next follows the date American National receives the
written request from the Policyowner.
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<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
G. TRANSFERS
The Policyowner may transfer Accumulation Value among the Subaccounts or from
the Subaccounts to the Fixed Accounts as often as desired. Transfers may be
ordered in person, by mail, or by telephone. The total amount of each transfer
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 therefrom is $100.
Transfers will be effected, and values in connection therewith determined, on
the later of the end of the Valuation Period which includes the transfer date
designated in the request or the end of the Valuation Period during which the
transfer request is received. The first 12 transfers per Policy Year will be
permitted free of charge. A $10 transfer charge will be imposed each additional
time amounts are transferred during the year. This charge will be deducted from
the amount transferred. Transfers resulting from Policy loans, the dollar cost
averaging program or the rebalancing program will not be subject to a transfer
charge. In addition, such transfers will not be counted for purposes of
determining the number of transfers allowed without charge in each year.
Once each Policy Year, and only during the 30 day period beginning on the Policy
anniversary, transfers may be made from the Fixed Account to the Subaccounts.
This transfer is without charge. The maximum amount which may be transferred
from the Fixed Account to the Subaccounts is the greater of 25% of the amount in
the Fixed Account or $1,000. Transfer requests received prior to the Policy
anniversary will be effected at the end of the Valuation Period during which the
Policy anniversary occurs. Transfer requests received within the 30 day period
beginning on the Policy anniversary will be effected as of the end of the
Valuation Period in which a proper transfer is received.
American National will employ reasonable procedures to confirm the transfer
instructions communicated by telephone are genuine. The procedures American
National will follow for telephone transfers may include some form of personal
identification prior to acting on instructions received by telephone, providing
written confirmation or the transaction, and making a tape recording of the
instructions given by telephone.
H. REFUND PRIVILEGE
The Policyowner may cancel the Policy within 10 days after receiving it. If a
Policy is canceled within this time period a refund will be paid. Except as
otherwise required by state law or regulation, 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 AN 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's home office
or to the office of one of its agents.
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<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Payment of refunds may be delayed as per the provision for postponement of
payments described in Section II.M. In addition, payment of refunds which would
be derived from a premium payment made by check which has not cleared the
banking system may also be deferred.
I. DOLLAR COST AVERAGING
Under the dollar cost averaging program, the Policyowner can instruct American
National to automatically transfer, on a periodic basis, a predetermined amount
or percentage from any one Subaccount or the Fixed Account, to any Subaccount(s)
or the Fixed Account. The automatic transfers can occur monthly, quarterly,
semi-annually or annually, and the amount transferred each time must be at least
$1,000 in total. The minimum transfer to each Subaccount must be at least $100.
At the time the program begins, there must be at least $10,000 of Accumulation
Value. Transfers under dollar cost averaging will be affected, and values in
connection therewith determined, at the end of the Valuation Period that
includes the transfer date designated in the instructions.
The Policyowner can request participation in the dollar cost averaging program
when applying for the Policy or after the Date of Issue. Transfers will begin as
specified by the Policyowner. The Policyowner can specify that only a certain
number of transfers will be made, in which case the program will terminate when
that number of transfers has been made. Otherwise, the program will terminate,
if on a transfer date, the Accumulation Value is less than $5,000.
The Policyowner can increase or decrease the amount of transfers or discontinue
the program by sending written notice to American National or by the telephone,
if a telephone transfer authorization form is on file. There is no charge for
participation in this program. In addition, transfers made pursuant to this
program will not be counted in determining the number of transfers allowed
without charge each year.
J. REBALANCING
American National will rebalance a Policy by allocating premiums and
transferring Accumulation Value among the Subaccounts and the Fixed Account to
ensure conformity with current allocation instructions. Rebalancing will be
performed on a calendar quarter, semi-annual or annual basis as specified by the
Policyowner. Rebalancing will be effected, and values in connection therewith
determined, at the end of the Valuation Period that includes the rebalancing
date designated in the request. There is no charge for participation in this
program. In addition, transfers of Accumulation Value made pursuant to this
program will not be counted in determining the number of transfers allowed
without charge each year. At the time the program begins, there must be at least
$10,000 of Accumulation Value. The program will be discontinued if, on a
rebalancing date, the Accumulation Value is less than $5,000.
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DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
The Policyowner can request participation in the rebalancing program when
applying for the Policy or after the Date of Issue. The Policyowner can
discontinue the program by giving written notice or calling American National by
telephone.
K. MONTHLY DEDUCTION
The Monthly Deduction is the sum of the:
. cost of insurance charge,
. applicable charge for any riders, and
. monthly policy charge.
The Monthly Deduction will be deducted from the Accumulation Value as of the
Date of Issue and on each Monthly Deduction Date thereafter. 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 on that date.
The cost of insurance charge equals the cost of insurance rate multiplied by the
net amount at risk. The net amount at risk equals the excess, as of the Monthly
Deduction Date, of the Death Benefit over the Accumulation Value after deduction
of the monthly policy charge and the applicable charge for any riders.
The monthly policy charge equals the sum of the monthly per policy load and the
monthly load per $1,000 of Specified Amount.
The monthly cost of insurance charge and the monthly load per $1,000 of
Specified Amount will be calculated separately for the initial and each increase
in Specified Amount (i.e. for each segment). The sum of the amount calculated
for each segment equals the total for the Policy for the month.
L. DAILY ASSET CHARGE
A Daily Asset Charge will be deducted from the Separate Account. Such charge
will equal 1.25% annually of the average daily Accumulation Value of the
Separate Account, and therefore each Subaccount. The Daily Asset Charge will be
deducted from the Accumulation Value of the Subaccounts on each Valuation Date.
The deduction on each Valuation Date will be calculated using a rate derived by
dividing the 1.25% annual rate by 365 and multiplying the result by the number
of days since the last Valuation Date. No Daily Asset Charge will be deducted
from the Fixed Account.
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<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE II INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
M. POSTPONEMENT OF PAYMENTS
Payment of any amount upon refund, full surrender, partial surrender, Policy
loan, benefits payable at death and transfers, which require valuation of a
Subaccount, may be postponed whenever;
. the New York Stock Exchange (NYSE) is closed other than customary week-end
and holiday closings, or trading on the NYSE is restricted as determined
by the SEC,
. the SEC by order permits postponement for the protection of Policyowners,
or
. an emergency exists, as determined by the SEC, 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
Accumulation Value.
Full or partial surrender or Policy loans from the Fixed Account may be deferred
up to 6 months from the date of written request.
III. COMMUNICATIONS
American National may from time to time update or otherwise revise procedures,
requirements and specifications for receiving (and sending) communications
regarding the issuance of the Policies, payment of premiums, surrenders,
transfers, changes in Specified Amount or Death Benefit option, loans, or other
matters. Current requirements for "written" notice or other "written"
communications may, at American National's sole option, be changed to permit
some or all such communications to be made by facsimile, e-mail or other
Internet type transmissions, voice mail, recorded telephone conversations, or
other means. Current requirements that communications must be sent to and/or
received at American National's "home office" may be changed, at American
National's sole option, to permit or require that some or all communications be
sent to and/or received at one or more other locations or facilities designated
by American National.
Page 17
