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INVE$TRAC
GOLD
VARIABLE
UNIVERSAL
LIFE
Prospectus for
Variable Universal Life Insurance
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
CUSTODIAN
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
INVESTMENT MANAGER
SECURITIES MANAGEMENT AND RESEARCH, INC.
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 to age 95 and at the same time provide flexibility to vary
the frequency and amount of premium payments and to increase or decrease the
level of death benefits payable under the Policy.
The Policy guarantees a death benefit payable at the Insured's death for as
long as the Policy remains in force. The policyowner ("Policyowner") may choose
either death benefit Option A (generally, a level benefit that equals the
Specified Amount of the Policy) or Option B (a variable benefit that generally
equals the Specified Amount plus the Policy's accumulation value). The minimum
Specified Amount for a Policy is $50,000, and the Policy is available only to
persons who have an age last birthday of 75 or less at the time the Policy is
purchased. The Policy provides for a surrender value that can be obtained by
surrender of the Policy, or by policy loans. There is no minimum guaranteed
accumulation value.
You have the right to examine the Policy and return it for a refund within 45
days after the application is signed, within 10 days after you receive the
Policy, or 10 days after American National delivers a notice concerning
cancellation, whichever is later (the "Refund Period"). (See "Refund Privilege",
page 9.)
Premium payments made under the Policy are paid to American National. The
amount of each such premium payment is subject to the deduction of a sales
charge of 4%, a transaction charge of $2.00 and a state premium tax deduction
which currently ranges from 0% to 4% depending upon the Policyowner's state of
residence (See "Premium Charges", page 25). The amount of the initial premium
payment remaining after such deductions ("Net Initial Premium") will be
allocated to the money market portfolio of the Variable Insurance Products Fund,
as of the issue date, for the first 15 days of the Refund Period. After the
expiration of such 15 day period, each Net Initial Premium, together with
investment gains thereon, and all subsequent premium payments, net of such
deductions, will be allocated among the fourteen subaccounts ("Subaccounts") of
the American National Variable Life Separate Account ("Separate Account") and/or
the Fixed Account as directed by the Policyowner. The amount of the Policy's
accumulation value, the duration of the death benefit and, if Option B is
selected, the amount of the death benefit above the Specified Amount, will vary
with the investment experience of the selected Subaccounts, and the rate of
interest being paid on the amount allocated to the Fixed Account.
In addition to the charges deducted from premium payments, certain fees and
charges are deducted from the Policy's accumulation value. A daily asset charge
of .90% of the net asset value of each Subaccount on an annual basis will be
deducted. This charge compensates American National for the risk that mortality
experience or expenses will exceed those anticipated. A monthly administrative
charge will also be deducted. During the first twelve (12) policy months, such
monthly administrative charge will range from a maximum of $2.50 plus $0.0632
per $1,000 of Specified Amount at age 0 to a maximum of $2.50 plus $2.59 per
$1,000 of Specified Amount at age 75. Thereafter, such monthly administrative
charge shall be a maximum of $2.50, plus $0.025 per $1,000 of Specified Amount.
Such monthly administrative charge is intended to reimburse American National
for the ordinary, ongoing administrative costs of the Policy. American National
does not intend to make a profit on this monthly administrative charge. In
addition, the monthly cost of insurance and any optional insurance benefits will
also be deducted.
Generally, the Policy will continue in force so long as the accumulation value
is sufficient to pay certain monthly charges imposed in connection with the
Policy. However, American National agrees to keep the Policy in force during the
first two years ("Guaranteed Coverage Benefit") so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not generate positive surrender values, after
payment of insurance and other charges, during the first several policy months.
The assets of each Subaccount of the Separate Account are invested in shares
of a corresponding portfolio of the American National Investments Accounts, Inc.
(the "American National Fund"), Variable Insurance Products Fund and Variable
Insurance Products Fund II. The Variable Insurance Products Fund ("VIP") and the
Variable Insurance Products Fund II ("VIP II") will sometimes be referred to,
collectively, as the "Fidelity Funds". The portfolios of the American National
Fund and the portfolios of the Fidelity Funds that are available for investment
will sometimes be referred to, individually, as an "Eligible Portfolio" and,
collectively, as the "Eligible Portfolios". The American National Fund and the
Fidelity Funds are open-end, diversified, series mutual funds. The American
National Fund currently has four portfolios, all of which are Eligible
Portfolios: the AN Money Market Portfolio, the AN GroTABLE OF CONTENTSwth
Portfolio, the AN Balanced Portfolio and the AN Managed Portfolio. The Fidelity
Funds currently have ten 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 and the VIP II Asset Manager: Growth
Subaccounts. The accompanying prospectuses for the American National Fund and
the Fidelity Funds describe the investment objectives and policies and the risks
of each of the Eligible Portfolios. The prospectuses for the Fidelity Funds
include certain portfolios which are not Eligible Portfolios and therefore not
available for investment under the Policy. The Separate Account is organized as
a unit investment trust.
Replacing existing insurance with a Policy or purchasing a Policy as a means
of obtaining additional insurance protection if the purchaser already owns
another variable universal life insurance policy may not be advantageous.
This Prospectus is valid only when accompanied by Current Prospectuses 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 APRIL 30, 1998.
Form 5427 * 5 4 2 7 * 4-98
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TABLE OF CONTENTS
PAGE
Definitions........................................................ 3
Summary............................................................ 5
The Policy........................................................ 5
The Issuer........................................................ 6
Policy Benefits................................................... 6
Flexibility to Adjust Death Benefits.............................. 7
Premiums.......................................................... 7
Charges........................................................... 8
Distribution of the Policy........................................ 9
Tax Treatment of the Policy....................................... 9
Refund Privilege.................................................. 9
American National Insurance Company
and the Separate Account.......................................... 11
American National Insurance Company.............................. 11
The Separate Account............................................. 11
The Funds......................................................... 11
Addition, Deletion or Substitution of Investments................. 13
Resolving Material Conflicts....................................... 13
Fixed Account...................................................... 14
Policy Benefits.................................................... 14
Purposes of the Policy............................................ 14
Death Benefit Proceeds............................................ 15
Death Benefit Options............................................. 15
Accumulation Value................................................ 17
Benefits at Maturity.............................................. 18
Payment of Policy Benefits........................................ 18
General Provisions for Settlement Options.......................... 19
Policy Rights...................................................... 19
Loan Benefits..................................................... 19
Surrenders........................................................ 20
Transfers......................................................... 21
Refund Privilege.................................................. 21
Right to Exchange a Policy
for a Fixed-Benefit Insurance Policy............................ 21
Payment and Allocation of Premiums................................. 21
Issuance of a Policy.............................................. 21
Premiums.......................................................... 22
Allocation of Premiums and Accumulation Value..................... 22
Policy Lapse and Reinstatement.................................... 23
Grace Period...................................................... 23
Charges and Deductions............................................. 23
Premium Charges................................................... 23
Charges from Accumulation Value................................... 24
Daily Charges Against the Separate Account........................ 25
General Provisions................................................. 25
The Contract...................................................... 25
Control of Policy................................................. 25
Beneficiary....................................................... 25
Change of Beneficiary............................................. 25
Change in Policyowner or Assignment............................... 25
Payment of Proceeds............................................... 26
Incontestability.................................................. 26
Misstatement of Age or Sex........................................ 26
Suicide........................................................... 26
Postponement of Payments.......................................... 26
Additional Insurance Benefits (Riders)............................ 26
Dividends......................................................... 26
Distribution of the Policies....................................... 26
Federal Tax Matters................................................ 27
Possible Legislative Changes...................................... 28
Safekeeping of the Separate Account's Asset........................ 28
Voting Rights...................................................... 29
State Regulations of American National............................. 29
Preparing for Year 2000........................................... 29
Legal Matters...................................................... 30
Legal Proceedings.................................................. 30
Experts............................................................ 30
Additional Information............................................. 30
Financial Statements............................................... 30
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DEFINITIONS
Accumulation Value - The total amount that a Policy provides for investment at
any time. It is equal to the total of the accumulation value held in the
Separate Account, the Fixed Account, and the accumulation value held in American
National's General Account which secures policy loans.
Age at Issue - The age at the Insured's last birthday preceding the Policy
Date.
American National Fund - The American National Investment Account, Inc., a
series mutual fund.
Attained Age - The Age at Issue of the Insured plus the number of complete
policy years that the Policy has been in force.
Beneficiary - The beneficiary is designated by the Policyowner in the
application. If changed, the beneficiary is as shown in the latest change filed
and recorded with American National. If no beneficiary survives the Insured, the
Insured's estate will be the beneficiary. The interest of any beneficiary is
subject to that of any assignee.
Coverage Premium - The amount specified on the Policy Data Page as the
"Coverage Premium".
Daily Asset Charge - A charge equal to an annual rate of .90% of the average
daily net asset value of each Subaccount of the Separate Account.
Date of Issue - The date of issue set forth in the Policy and any riders
thereto that is used to determine policy anniversary dates, policy years and
Monthly Deduction Date. Policy anniversaries are one-year periods measured from
the date of issue and each succeeding policy anniversary date.
Declared Rates - American National guarantees that it will credit interest in
the Fixed Account at an effective annual rate of at least 4.0%. American
National may, at its discretion, declare higher interest rates for amounts
allocated or transferred to the Fixed Account.
Death Benefit - The amount of insurance coverage provided under the selected
death benefit option of the Policy.
Death Benefit Proceeds - The proceeds payable to the Beneficiary upon receipt
by American National of the proof of the death of the Insured while the Policy
is in force equal to: (1) the Death Benefit; plus (2) any additional life
insurance proceeds provided by any riders; minus (3) any Policy Debt; minus (4)
any Monthly Deduction that may apply to that period, including the deduction for
the month of death.
Eligible Portfolio - A Portfolio of American National Investment Accounts,
Inc., Fidelity Investments Variable Insurance Product Fund and Fidelity
Investments Variable Insurance Product Fund II which corresponds to and in which
a Subaccount can be invested.
Fidelity Funds - The Variable Insurance Products Fund and the Variable
Insurance Products Fund II, series mutual funds.
Fixed Account - An account that is a part of American National's General
Account to which all or a portion of Net Premiums and transfers may be allocated
for accumulation at fixed rates of interest.
General Account - The general account of American National which includes all
of American National's assets except those assets segregated into its separate
accounts.
Guaranteed Coverage Benefit - American National's agreement to keep the Policy
in force during the first two years if the Guaranteed Coverage Premium is paid
and all other Policy provisions are met.
Guaranteed Coverage Premium - A specified premium which, if paid in advance on
a monthly or yearly basis, will cause American National to keep the Policy in
force during the first two years so long as other Policy provisions are met,
even if the Surrender Value is zero or less.
Insured - The person upon whose life the Policy is issued.
Maturity Date - The later of the date American National pays any Surrender
Value, if the Insured is still living, or the policy anniversary date next
following the Insured's 95th birthday.
Monthly Deduction - The sum of the cost of insurance charge, a charge for any
riders and the administrative charge specified on the policy data page.
Monthly Deduction Date - The same date in each succeeding month as the Date of
Issue except that whenever the Monthly Deduction falls on a date other than a
Valuation Date, the monthly deduction date will be deemed the next Valuation
Date.
Net Premium - The premium less the sales load charge, premium tax charge and
transaction charge.
Planned Periodic Premiums - A selected scheduled premium of a level amount at
a fixed interval. The Policyowner is not required to follow this schedule and
following this schedule does not necessarily ensure that the Policy will remain
in force unless the payments meet the requirements of the Guaranteed Coverage
Premium.
Policy - The variable universal life insurance policy offered by American
National and described in the Prospectus.
Policy Date - The date that all financial, contractual and administrative
requirements have been met and processed for the Policy and any supplements
thereto. This date is the effective date for all coverage applied for in the
original application and any supplemental applications.
Policy Debt - The sum of all unpaid Policy loans and accrued interest thereon.
Policy Exchange Option - The Insured's right, during the first two Policy
Years, to exchange the Policy for a fixed benefit policy on the life of the
Insured.
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Policyowner - The owner of the Policy, as designated in the application or as
subsequently changed. If a Policy has been absolutely assigned, the assignee is
the Policyowner. A collateral assignee is not the Policyowner.
Policy Year - The period from one Policy anniversary date until the next
Policy anniversary date.
Satisfactory Proof of Death - Means all of the following must be submitted:
(1) A certified copy of the death certificate;
(2) A claimant statement;
(3) The Policy; and
(4) Any other information that American National may reasonably require to
establish the validity of the claim.
Separate Account - American National Variable Life Separate Account, a
separate account created by American National to receive and invest Net Premiums
allocated by the Policyowner to the Separate Account and premiums allocated by
policyowners of other variable life insurance policies American National issues.
Specified Amount - The minimum death benefit under the Policy so long as the
Policy remains in force. The specified amount is an amount selected by the
policyowner(s) which must be $50,000 or more at Date of Issue.
Subaccount - A subdivision of the Separate Account. Each subaccount invests
exclusively in the shares of a corresponding Eligible Portfolio of the Fund.
Surrender Premium - The amount shown on the Policy Data Page, as changed by
subsequent endorsements, which is used to calculate surrender charges. Such
Surrender Premium does not exceed the Securities and Exchange Commission Annual
Guideline Premium.
Surrender Value - The Policy Accumulation Value on the date of surrender, less
any Policy Debt, and surrender charges.
Valuation Date - A valuation date is each day on which the New York Stock
Exchange 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.
Valuation Period - The period between two successive Valuation Dates,
commencing at the close of the New York Stock Exchange ("NYSE") on one Valuation
Date and ending at the close of the NYSE on the next succeeding Valuation Date.
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SUMMARY
THE FOLLOWING SUMMARY OF THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN
CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, THE DESCRIPTION OF THE POLICY CONTAINED
IN THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN EFFECT AND THAT THERE IS NO
POLICY DEBT. A DIAGRAM DEPICTING HOW A PREMIUM FLOWS THROUGH THE POLICY AND ITS
INVESTMENT PORTFOLIOS, AND HOW EXPENSES, CHARGES AND FEES ARE DEDUCTED IS
INCLUDED IN THE PROSPECTUS APPENDIX AT PAGE 64.
THE POLICY
This variable universal life insurance policy ("Policy") allows the
Policyowner, subject to certain limitations, to make premium payments in any
amount and at any frequency. So long as the Policy remains in force, it will
provide for (1) life insurance coverage on the named Insured up to age 95; (2)
Accumulation Value; (3) surrender rights (including partial and total
surrenders); (4) policy loan privileges; and (5) a variety of optional benefits
and riders that may be added to the Policy for an additional charge.
The Policy is a flexible premium policy because, unlike traditional insurance
policies, there is no fixed schedule for premium payments. The Policyowner may
establish a schedule of premium payments ("Planned Periodic Premiums") which,
during the first two Policy Years, may include the Coverage Premium. The
Policyowner is not required to pay such Planned Periodic Premiums. As explained
further below, the Policyowner's payment or nonpayment of such Planned Periodic
Premiums will not necessarily keep the Policy in effect or cause the Policy to
lapse.
American National agrees to provide a Guaranteed Coverage Benefit during the
first two Policy Years so long as the Guaranteed Coverage Premium is paid even
though, in certain instances, such payment may not, after deduction of the
Monthly Deduction, generate positive Surrender Values during the first several
Policy months. After the first two Policy Years, the Policy will lapse at any
time the Surrender Value (which is the Policy's Accumulation Value less Policy
Debt and Surrender Charges) is insufficient to pay the Monthly Deductions and a
grace period expires without sufficient additional payment. Such lapse could
occur even if Planned Periodic Premiums are being paid if the Policy's
Accumulation Value has been sufficiently reduced by unfavorable investment
experience.
The Policy is a variable policy because, unlike the fixed benefits of a
conventional life insurance policy, the Death Benefit under the Policy may, and
the Accumulation Value will, if so invested, reflect the investment performance
of the selected Subaccounts of the Separate Account supporting the Policy, as
well as other factors. (See Death Benefit Proceeds, page 15 and Accumulation
Value, page 17.) Accordingly, the Policyowner benefits from any appreciation in
value and bears the investment risk of any depreciation in value of the
underlying assets. The amount and/or duration of the life insurance coverage
provided by the Policy is not guaranteed except under its Guaranteed Coverage
Benefit provision. Further, the Accumulation Values of the Policy are not
guaranteed except in the Fixed Account, and may increase or decrease depending
upon the investment experience of the Subaccounts supporting the Policy.
Net Premiums are allocated by the Policyowner to one or more of these
Subaccounts or to the Fixed Account. The assets of the various Subaccounts are
invested in an Eligible Portfolio.
The American National Fund is a series mutual fund which currently has four
separate investment portfolios, each of which is an Eligible Portfolio intended
to pursue different investment objectives. The objectives of these Eligible
Portfolios are described in more detail in the accompanying prospectus for the
American National Fund.
The American National Fund's current portfolios and respective investment
objectives are as follows:
The AN Money Market Portfolio seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The AN
Money Market Portfolio will invest only in money market instruments of high
quality as determined by the American National Fund's investment adviser. This
Money Market Portfolio of the American National Fund shall be referred to herein
as "AN Money Market Portfolio."
The AN Growth Portfolio seeks to achieve capital appreciation, normally
through the purchase of common stocks (although the portfolio's investments are
not restricted to any one type of security). Capital appreciation may also be
sought in other types of securities, including bonds and preferred stocks. This
Growth Portfolio of the American National Fund is referred to herein as the "AN
Growth Portfolio."
The 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 American
National Fund's investment adviser's discretion, money market instruments, debt
securities, stock or a combination thereof. It is anticipated that over longer
periods a larger portion of the portfolio will consist of equity securities.
The Fidelity Funds are series mutual funds which currently have a total of
thirteen separate investment portfolios, ten of which are Eligible Portfolios.
Each of such Eligible Portfolios is intended to pursue different investment
objectives. The objectives of these Eligible Portfolios are described in more
detail in the accompanying prospectuses for the Fidelity Funds.
The Fidelity Funds' current Eligible Portfolios and their respective
investment objectives are as follows:
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
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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 charges and
income) of common stocks publicly traded in the United States. In seeking this
objective, the Index 500 Portfolio attempts to duplicate the composition and
total return of the Standard & Poor's 500 Composite Stock Price Index while
keeping transaction cost and other expense low. The 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.
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.
There is no assurance that these investment objectives will be met. The
Policyowner bears the entire investment risk of amounts allocated to the
Subaccounts of the Separate Account.
Fixed Account ... Policyholders may also allocate their Net Premiums or
transfer monies to the Fixed Account where they will earn interest. (See Fixed
Account, page 14.)
THE ISSUER
The Policy is issued by American National Insurance Company ("American
National"), which is a Texas stock life insurance company chartered in 1905.
American National established American National Variable Life Separate Account
("Separate Account") to hold the assets supporting the Policy. The Separate
Account currently has fourteen subaccounts which correspond to and are invested
exclusively in, the Eligible Portfolios discussed just above.
For more detailed information about American National and the Separate
Account, see American National and the Separate Account, page 11. The financial
statements for American National can be found beginning on page 48. The
Financial Statements for the Separate Account can be found beginning on page 34.
POLICY BENEFITS
Death Benefit Proceeds and Death Benefit Options. So long as the Policy
remains in force, American National will pay the proceeds provided by the
Policy, less Policy Debt, upon receipt of proof of death of the Insured. The
proceeds may be paid in a lump sum or in accordance with an optional payment
plan.
The Policy provides for two Death Benefit options. Under either option, so
long as the Policy remains in force, the Death Benefit will not be less than the
current Specified Amount of the Policy reduced by any Policy Debt. The Death
Benefit may, however, exceed the Specified Amount, depending upon the investment
experience of the Policy. Death Benefit Option A provides for a level benefit
equal to the current Specified Amount of the Policy, unless the accumulation
value of the Policy on the date of the Insured's death multiplied by the
applicable corridor percentage set forth in the Policy is greater, in which case
the Death Benefit is equal to that larger amount. Death Benefit Option B
provides for a variable benefit equal to the current Specified Amount of the
Policy, reduced by any Policy Debt, plus the Policy's Accumulation Value on the
date of the Insured's death, or if greater, the Accumulation Value of the Policy
on the date of the Insured's death multiplied by the applicable corridor
percentage set forth in the Policy (See Death Benefit Options, page 15.)
Optional Insurance Benefits. At issue, certain additional optional benefits
may be obtained for an extra premium. These benefits will be described in what
is known as a "rider" to the Policy. The cost of any riders will be deducted as
part of the Monthly Deductions.
An example of such optional benefit is a rider which pays an additional amount
if the Insured dies in an accident.
More detailed information concerning such riders may be obtained from the
agent selling the Policy.
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Benefits at Maturity. On the Maturity Date of the Policy, if the Insured is
still living, the policyowner will be paid the Accumulation Value of the Policy
less any Policy Debt.
Accumulation Value Benefits. The Policy's Accumulation Value in the Separate
Account will reflect the amount and frequency of premium payments, the
investment experience of the selected Subaccounts and the interest paid on the
Fixed Account, policy loans, any partial surrenders, and any charges imposed in
connection with the Policy. The entire investment risk of the Separate Account
is borne by the Policyowner. American National does not guarantee a minimum
Accumulation Value in the Separate Account. (See Accumulation Value, page 17.)
The Policyowner may at any time effect a full surrender of the Policy and
receive its Surrender Value. Subject to certain limitations, the Policyowner may
also partially surrender the Policy at any time prior to the Maturity Date and
obtain a portion of the Surrender Value. Partial surrenders will reduce both the
Accumulation Value and the Death Benefit payable under the Policy. (See Partial
Surrenders, page 20.) A charge will be deducted from the amount paid upon
partial surrender. (See Partial Surrender Charge, page 24.) American National
reserves the right to limit the number of partial surrenders permitted in a
Policy year. The minimum amount of any partial surrender is $100.
Policy Loans. So long as the Policy remains in effect, a Policyowner may
borrow money from American National using the Policy as the only security for
the loan. The minimum amount which may be borrowed is $100. The maximum loan
amount during the first two (2) policy years is 75% of the Surrender Value at
the end of the Valuation Period during which the loan request is received less
three Monthly Deductions. After the first two (2) policy years the maximum loan
amount is 90% of the Surrender Value less three (3) Monthly Deductions.
Policyowners in certain states may borrow 100% of the Surrender Value less three
(3) Monthly Deductions. Preferred loans are available after the seventh policy
year. The amount available as a preferred loan is equal to the Accumulation
Value less Policy Debt and less premiums paid (adjusted by partial surrender).
Interest on Policy loans accrues on a daily basis at an annual rate of six
percent (6%). Interest is due and payable on each Policy anniversary date, and
any interest not paid when due becomes part of the Policy loan and will bear
interest at the same rate. The amount of any loans outstanding plus any accrued
interest equals the Policy Debt. When the loan is made or when interest is not
paid when due, an amount sufficient to secure the Policy Debt will be
transferred out of the Separate Account and/or the Fixed Account and into
American National's General Account as security for the loan and will earn
interest at the annual rate of 4.5%, credited on the Policy anniversary.
Preferred loans will earn interest at the rate of 6%, credited on the policy
anniversary. The transfer will be made in the proportion designated by the
Policyowner or if no designation is made, the transfers will be made in
proportion to the relative size of the Policy Accumulation Values in the various
Subaccounts and/or the Fixed Account used by the Policyowner(s). Upon partial or
full loan repayment, the portion of the Accumulation Value in the General
Account securing the repaid portion of the Policy loan will be transferred to
the Separate Account and/or the Fixed Account in the same proportion as premiums
are allocated, unless otherwise designated. Any loan transaction will
permanently affect the values of the Policy. If the Policy Debt exceeds the
Policy's Accumulation Value less any surrender charge, the excess must be repaid
within the time period specified in the Policy or the Policy will terminate
without value. (See Loan Benefits, page 19.) Policy loans may have tax
consequences. If the Policy lapses while the loan is outstanding, the
Policyowner must include in his or her taxable income, for the year of lapse,
the entire gain under the Policy (including the loan proceeds in the computation
of such gain.) Should the Policy become a modified endowment contract, loans
(including loans to pay loan interest) will generate taxable income to the
extent of any gain under the Policy. Further, a 10% penalty tax also applies to
the taxable portion of any distribution prior to the Insured's age 59 1/2. (See
Federal Tax Matters, page 27.)
FLEXIBILITY TO ADJUST DEATH BENEFITS
The Policyowner has flexibility to adjust the Death Benefit by changing the
Death Benefit option and adjust the Death Benefit by increasing or decreasing
the Specified Amount of the Policy. A change in the Specified Amount and a
change in the Death Benefit option are subject to certain limitations. The
minimum amount of an increase or decrease of the Specified Amount is $5,000, and
no change will be allowed if the resulting Specified Amount is less than
$50,000. Increases in the Specified Amount will require satisfactory evidence of
insurability. Further, an increase in the Specified Amount may not be made if
the Insured's Attained Age is over 75. No decreases in Specified Amount may be
made during the first two (2) Policy Years. (See Change in Death Benefit Option,
page 16 and Change in Specified Amount, page 16.)
PREMIUMS
Amounts. The initial premium for the Policy shown on the Policy data page is
due on the Date of Issue and must be paid in order to put the Policy in force.
After the initial premium is paid, unscheduled premiums may be paid in any
amount and at any frequency, subject only to American National's right to
require evidence of insurability and to limit the number and amount of such
payments and the maximum limitations set by federal income tax law. A
Policyowner may also choose a Planned PeriodicPremium which is a selected
schedule of premiums of a level amount at a fixed interval. The Planned Periodic
Premium may include the amount of the Coverage Premium. The amounts and
frequency of the Planned Periodic Premium may be changed at any time subject to
American National's right to limit the amount of such payments.
Any premium received in an amount different from the Planned Periodic Premium
will be considered an unscheduled premium.
A Policy will lapse when the Surrender Value is insufficient to pay the
Monthly Deduction. A period of 61 days from the date written notice of lapse is
mailed to the Policyowner's last known address will be allowed for the
Policyowner to make sufficient payment to keep the Policy in force for the
Policyowner (grace period).
Therefore, this Policy differs in two important respects from a
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conventional life insurance policy. First, the failure to pay a Planned Periodic
Premium will not in itself cause the Policy to lapse. Second, a Policy can lapse
even if Planned Periodic Premiums have been paid unless, during the first two
years, the Guaranteed Coverage Benefit requirements have been met by payment of
the Guaranteed Coverage Premium. (See Payment and Allocation of Premiums, page
21.)
Allocation of Net Premiums. Premium payments received by American National
prior to the Date of Issue are held in its General Account without interest
until the Date of Issue.
Net Premiums received during the 15-day period after the Date of Issue are
allocated to the Subaccount for the Money Market Portfolio of the Fidelity
Funds. Thereafter, such amount allocated to the VIP Money Market Account and Net
Premiums paid are allocated as directed by the Policyowner. The Policyowner may
change the allocation instructions for premiums and may also make a special
designation for unscheduled premiums. Subject to certain charges and
restrictions, a Policyowner may transfer amounts among the Subaccounts. (See
Allocation of Premiums and Accumulation Value, page 22.)
CHARGES
Premium Charges. The following sales, premium tax and transaction charges will
be deducted from each premium before placing any amount in a Subaccount or the
Fixed Account.
Sales Charges. A charge of 4% of each premium will be deducted to compensate
American National for its expenses associated with distributing the Policy.
Premium Tax Charges. A percentage of each premium will be deducted to
compensate American National for the actual amount of premium taxes paid to the
various states and other entities charging taxes based on premiums. The current
premium tax rates range from 0% to 4%. (See Premium Charges, page 23.)
Transaction Charges. A charge of $2.00 will be deducted from each premium
payment to compensate American National for billing and confirmations.
Charges from Accumulation Value. The Accumulation Value of the Policy will be
reduced by certain Monthly Deductions and daily asset charges as follows:
a. On each Monthly Deduction Date, the Accumulation Value will be reduced by the
Monthly Deduction, which is equal to:
1. A monthly cost of insurance charge for the current policy month, which
compensates American National for the insurance benefits provided under the
Policy, plus
2. A charge for the cost of any riders, (See Additional Insurance Benefits
(Riders), page 26), plus
3. A monthly administrative charge which, during the first 12 policy months
(and the first 12 policy months with respect to an increase in the
Specified Amount other than from an option change) will range from a
maximum of $2.50 plus $0.0632 per $1,000 of Specified Amount at age 0 to a
maximum of $2.50 plus $2.59 per $1,000 of Specified Amount at age 75, and
shall thereafter be a maximum of $2.50 plus $0.025 per $1,000 of Specified
Amount. This administrative charge reimburses American National for the
ordinary ongoing administrative costs of the Policy. American National does
not intend to make a profit on this charge.
b. On each Valuation Date that American National is open for business, the
Accumulation Value will be reduced by a daily asset charge not to exceed .90%
annually of the average daily net asset value of each Subaccount, but not the
Fixed Account, to compensate American National for mortality and expense
risks incurred in connection with the Policy. (See Daily Charges Against the
Separate Account, page 25.)
Monthly and daily charges will be deducted from the Subaccount(s) and the
Fixed Account on a pro rata basis in proportion to the Accumulation Value of the
Policy held in each Subaccount or the Fixed Account. (See Monthly Deduction,
page 24.)
Surrender Charge. If a Policy is surrendered, American National will assess a
surrender charge based upon the amount of premiums paid on the Policy and the
amount of the Surrender Premium shown on the Policy Data Page. Surrender charges
are calculated separately for the original Specified Amount and for each
increase in Specified Amount.
The surrender charge for the initial Specified Amount is applicable until the
10th anniversary of the Policy and for each increase in Specified Amount for ten
years after the effective date of such increase. Thereafter, there is no
surrender charge.
The surrender charge for issue ages 0-64 is 26% of premiums paid up to the
amount of the Surrender Premium, plus 5% of additional premiums paid up to an
amount equal to nine times the amount of the Surrender Premium.
The surrender charge for issue ages 65-70 is 26% of premiums paid up to the
amount of the Surrender Premium, plus 5% of additional premiums paid up to an
amount equal to four times the amount of the Surrender Premium.
The surrender charge for issue ages 71-75 is 26% of premiums paid up to the
amount of the Surrender Premium, plus 5% of additional premiums paid up to an
amount equal to two times the amount of the Surrender Premium.
A table showing the calculation of the surrender charge at various issue ages
and based upon payment of two assumed premium levels is included in the
Prospectus Appendix at page 64.
A partial surrender charge is made against the amount of Accumulation Value
which is surrendered. The charge is in proportion to the charge that would apply
to a full surrender. (See Partial Surrender Charge, page 24.)
No surrender charge will be assessed upon decreases in the Specified Amount of
the Policy. Because the surrender charge may be significant upon early
surrender, prospective Policyowners
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should purchase a Policy only if they do not intend to surrender the Policy for
a substantial period. (See Surrender Charge, page 24.)
The surrender charge will not exceed the maximum amount permitted under
applicable law.
Transfer Charge. The first four transfers per Policy Year will be permitted
free of charge. Thereafter, a transfer charge of $25 will be assessed for each
transfer of Accumulation Value among Subaccounts and/or the Fixed Account to
compensate American National for administrative costs in handling the transfer.
The transfer charge will be deducted from the amount transferred. (See Transfer
Charge, page 24.)
No charges are currently imposed upon American National and made against the
Separate Account for federal, state or local taxes other than state premium
taxes. If any such other taxes are imposed upon American National in the future,
under federal, state or local tax laws, American National will make deductions
from the Separate Account to pay those taxes. (See Taxes, page 25.)
In addition, because the Separate Account purchases shares of Eligible
Portfolios, the value of the units in each Subaccount will reflect the net asset
value of shares of Eligible Portfolios held therein, and therefore, the
investment advisory fee and other expenses incurred by the American National
Fund and the Fidelity Funds, as the case may be (See the table Eligible
Portfolio Annual Expenses on page 10.)
DISTRIBUTION OF THE POLICY
The Policy will be distributed by Securities Management and Research, Inc.
("SM&R") which acts as the principal underwriter of the Policy. SM&R is
registered as a broker-dealer with the Securities and Exchange Commission and is
a member of the National Association of Securities Dealers, Inc. It will
distribute the Policy through its registered representatives and through other
registered broker-dealers with which it has entered into written sales
agreements. (See Distribution of the Policies, page 26.)
TAX TREATMENT OF THE POLICY
The Internal Revenue Code of 1986 ("the Code") defines a modified endowment
insurance contract ("MEC") as one where the cumulative amount paid under the
contract at any time during the first seven contract years exceeds the sum of
the net level premiums which would have been paid on or before that time if the
Policy was paid up after the payment of seven level annual premiums. One may
avoid a Policy becoming an MEC by, among other things, not making excessive
payments or reducing benefits. If American National determines that excessive
premium payments have been made during a Policy Year, it will notify the
Policyowner that the Policy may be treated as an MEC, explain the tax
consequences of such treatment and give the Policyowner the option to have the
excessive Premiums refunded. If requested by the Policyowner, American National
will make such refund. Should one deposit excessive premiums during a Policy
Year, that portion that is returned by the insurance company within 60 days
after the Policy anniversary will reduce premiums paid during the Policy Year to
avoid the Policy becoming an MEC. Should the Policy become an MEC, partial or
full surrenders, assignments and loans (including loans to pay loan interest)
under or secured by the Policy will be taxable to the Policyowner to the extent
of any gain under the Policy. A 10% penalty tax also applies to the taxable
portion of any distribution prior to the Insured reaching age 59 1/2 The 10%
penalty tax does not apply if the Insured is disabled as defined under the Code
or if the distribution is paid out in the form of a life annuity on the life of
the Insured or the joint lives of the Insured and Beneficiary.
Like death benefits payable under conventional life insurance policies, life
insurance proceeds payable under a Policy should be completely excludable from
the gross income of the Beneficiary. As a result, the Beneficiary generally will
not be taxed on these proceeds. (See Federal Tax Matters, page 27.)
REFUND PRIVILEGE
The Policyowner is granted a period of time (a "free look period") to examine a
Policy and return it for a refund. The Policyowner may cancel the Policy within
45 days after the application is signed, within 10 days after the Policyowner
receives the Policy, or 10 days after American National delivers a notice
concerning cancellation, whichever is later. The amount of the refund will be
the amount of the premiums paid adjusted by investment gains during the 15-day
period such premiums have been allocated to the VIP Money Market Portfolio and
by investment gains and losses thereafter. (See Refund Privilege, page 21.)
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ELIGIBLE PORTFOLIO ANNUAL EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS
MANAGEMENT OTHER
FEES EXPENSES TOTAL
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%
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 .50% and the total
portfolio annual expense would have been 1.23%.
/2/ Without reimbursement, management fees would have been .50% and the total
portfolio annual expense would have been 1.09%.
/3/ Without reimbursement, management fees would have been .50% and the total
portfolio annual expense would have been 1.30%.
/4/ Without reimbursement, management fees would have been .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 and 0.81 for the VIP High
Income Portfolio.
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AMERICAN NATIONAL INSURANCE COMPANY AND THE SEPARATE ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
American National is a stock life insurance company chartered in 1905 in the
State of Texas. It is licensed to do life insurance business in 49 states, the
District of Columbia, Puerto Rico, 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 and 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 Chief Executive Officer of the Bank and 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 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 48 through 63.
THE SEPARATE ACCOUNT
The Separate Account was established by American National on July 30, 1987
pursuant to the insurance laws of the State of Texas. American National is the
depositor of the Separate Account. Under Texas law, the assets of the Separate
Account are held exclusively for the benefit of Policyowners and persons
entitled to payments under the 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 fourteen
Subaccounts within the Separate Account available to Policyowners and each
invests only in corresponding portfolios of the American National and Fidelity
Funds. The Separate Account Financial Statements appear on pages 34 through 46.
THE FUNDS
Each Subaccount of the Separate Account will only invest in the shares of a
corresponding Eligible Portfolio. The American National Fund and the Fidelity
Funds are registered with the SEC under the 1940 Act as open-end diversified,
series management investment companies.
The Separate Account will purchase and redeem shares of the Eligible
Portfolios at net asset value. Shares will be redeemed to the extent necessary
for American National to collect charges under the Policy, to pay the Surrender
Value upon full or partial surrenders of the contracts, to make policy loans, to
provide benefits under the Policy, or to transfer assets from one Subaccount to
another, or to the Fixed Account, as requested by Policyowners. Any dividend or
capital gain distribution received from an Eligible Portfolio will be reinvested
immediately at net asset value in shares of that Eligible Portfolio and retained
as assets of the corresponding subaccount.
The investment objectives and policies of each Eligible Portfolio are
summarized below. There is no assurance that any of the Eligible Portfolios will
achieve their stated objectives. More detailed information, including a
description of investment objectives, restrictions, expenses and risks, is in
the prospectuses for the American National Fund and Fidelity Funds which must
accompany or precede this Prospectus and which should be read carefully together
with this Prospectus and retained.
Each Policyowner should periodically consider the allocation among the
Subaccounts and the Fixed Account in light of current market conditions and the
investment risks attendant to investing in the various Eligible Portfolios.
The American National Fund currently has an AN Money Market, an AN Growth, an
AN Balanced Portfolio, and an AN Managed Portfolio.
The AN Money Market Portfolio seeks to obtain as high a level of current
income as is consistent with preserving capital and providing
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<PAGE>
liquidity. The AN Money Market Portfolio will invest only in money market
instruments of high quality as determined by the American National Fund's
adviser.
The AN Growth Portfolio seeks to achieve capital appreciation, normally
through the purchase of common stocks (although the portfolio's investments are
not restricted to any one type of security). Capital appreciation may also be
sought in other types of securities, including bonds and preferred stocks.
The 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 American
National Fund's investment adviser's discretion, money market instruments, debt
securities, stock or a combination thereof. It is anticipated that over longer
periods a larger portion of the portfolio will consist of equity securities.
SM&R is the investment adviser and manager of the American National Fund. It
also provides investment advisory and portfolio management services to American
National and other clients. It maintains a staff of experienced investment
personnel and related support facilities. The combined investment advisory and
management and administrative services fees that the American National Funds pay
SM&R exceed the industry average for advisory and administrative fees. Detailed
information about the American National Funds' fees is in the American National
Funds Prospectus.
The Fidelity Fund's current Eligible Portfolios are the VIP II Investment
Grade Bond Portfolio, the VIP II Asset Manager Portfolio, the VIP II Index 500
Portfolio, the VIP Money Market Portfolio, the VIP Equity-Income Portfolio, VIP
High Income Portfolio, VIP Growth Portfolio, VIP Overseas Portfolio, VIP II
Contrafund Portfolio and the VIP II Asset Manager: Growth Portfolio and their
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 charges 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 cost and other expense 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 risk of investing in "junk bonds" are described in the prospectus
for VIP High Income Portfolio, which should be read 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 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.
FMR, the Fidelity Funds' investment advisor, was founded in 1946. FMR provides
a number of mutual funds and other clients with investment research and
portfolio management services. It maintains a large staff of experienced
investment personal and a full compliment of related support facilities.
Fidelity Management & Research (U.K.) Inc. ("FMR U.K.") and Fidelity Management
and Research (Far East) Inc. ("FMR Far East") are wholly owned subsidiaries of
FMR that provide research with respect to foreign securities. FMR U.K. and FMR
Far East maintain their principal business offices in London and Tokyo,
respectively. As of December
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<PAGE>
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.
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.
The Eligible Portfolios and the investment companies of which they are a part
are offered and sold only to registered separate accounts of insurance companies
offering variable annuity and variable life insurance contracts, and, in some
cases, to certain qualified pension and retirement plans. The Eligible
Portfolios and investment companies are not offered or sold to the general
public and should not be mistaken for other investment companies that may be
offered by the same sponsor and/or that may have similar names.
American National has entered into arrangements with either the investment
advisor or distributor for certain of the Eligible Portfolios pursuant to which
the advisor or distributor pays American National a fee based upon an annual
percentage of the average aggregate net amount invested by American National on
behalf of the Portfolio. These percentages differ, and American National is paid
a greater percentage by some investment advisors or distributors than other
advisors or distributors. These agreements reflect administrative and other
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 or permit a conversion between
contracts upon request by the Policyowners.
American National also reserves the right to establish additional Subaccounts
of the Separate Account, each of which would invest in shares corresponding to a
new portfolio of the American National Fund, the Fidelity Funds or in shares of
another investment company having a specified investment objective. American
National may, in its sole discretion, establish new Subaccounts or eliminate one
or more Subaccounts if marketing needs, tax considerations or investment
conditions warrant. Any new Subaccounts may be made available to existing
Policyowners on a basis to be determined by American National.
If any of these substitutions or changes are made, American National may by
appropriate endorsement change the Policy to reflect the substitution or change.
If American National deems it to be in the best interest of Policyowners, and
subject to any approvals that may be required under applicable law, the Separate
Account may be operated as a management company under the 1940 Act, it may be
de-registered under that Act if registration is no longer required, or it may be
combined with other American National separate accounts. To the extent permitted
by applicable law, American National may also transfer the assets of the
Separate Account associated with the Policies to another separate account. In
addition, American National may, when permitted by law, restrict or eliminate
any voting rights as to the Separate Account.
The Policyowner will be notified of any material change in the investment policy
of any portfolio in which the owner has an interest.
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 plan. 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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FIXED ACCOUNT
Policyowners may elect to allocate all or a portion of their Net Premium
payments to the Fixed Account and, subject to certain limitations, they may also
transfer monies from the Separate Account to the Fixed Account or from the Fixed
Account to the Separate Account. (See Transfers, page 21.)
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 4.0% compounded daily. American
National may, at its discretion, declare higher interest rate(s) for amounts
allocated or transferred to the Fixed Account ("Declared Rate(s)"). Each month
American National will establish the Declared Rate and the Policyowner will earn
interest established by American National for each month.
POLICY BENEFITS
PURPOSES OF THE POLICY
The Policy is designed to provide the Policyowner with both lifetime insurance
protection to the Policy anniversary after the Insured's 95th birthday and
flexibility in connection with the amount and frequency of premium payments and
with the level of life insurance proceeds payable under the Policy. Unlike
traditional life insurance, the Policyowner is not required to pay scheduled
premiums to keep a Policy in force, but may, subject to certain limitations,
vary the frequency and amount of premium payments. The Policyowner may elect to
pay the Guaranteed Coverage Premium necessary to cause the Guaranteed Coverage
Benefit provision to remain in effect. Moreover, the Policy allows a Policyowner
to adjust the level of Death Benefits payable under the Policy without having to
purchase a new policy by increasing (with evidence of insurability) or
decreasing the Specified Amount. An increase in the Specified Amount during the
first two years will increase the Guaranteed Coverage Premium required. Thus, as
insurance needs or financial conditions change, the Policyowner has the
flexibility to adjust life insurance benefits and vary premium payments.
The Policy varies from conventional fixed benefit life insurance in a number
of additional respects. Because the Death Benefit may, and the Accumulation
Value will, vary with the investment experience of the chosen Subaccounts of the
Separate Account, the Policyowner benefits from any appreciation in value of the
underlying assets, but bears the investment risk of any depreciation in value.
The Policy will lapse at any time after the first two (2) Policy Years that its
Surrender Value (which is the Policy's Accumulation Value less Policy Debt and
Surrender Charges) is insufficient to pay the Monthly Deductions and a grace
period expires without sufficient additional payment. As a result, whether or
not a Policy continues in force may depend in part upon the investment
experience of the chosen Subaccounts. The failure to pay a Planned Periodic
Premium will not necessarily cause the Policy to lapse, but the Policy could
lapse even if Planned Periodic Premiums have been paid if the Policy's
Accumulation Value has been sufficiently reduced by unfavorable investment
experience. American National agrees to keep the Policy in force during the
first two years and provide a Guaranteed Coverage Benefit during that period so
long as the Guaranteed Coverage Premium is paid even though, in certain
instances, the minimum payment allowed by contract will not, after the payment
of monthly insurance and administrative charges, generate positive Surrender
Values during the first several policy months.
Because the Policy provides for an accumulation of Surrender Value as well as
a Death Benefit, the Policy can be used for various individual and business
financial planning purposes. Purchasing the Policy in part for such purposes
entails certain risks. For example, if the investment performance of the
Subaccounts to which Accumulation Value is allocated is poorer than expected,
the Policy may lapse or may not accumulate sufficient Accumulation Value or
Surrender Value to fund the purpose for which the Policy was purchased. Partial
surrenders and Policy loans may significantly affect current and future policy
Accumulation Value, Surrender Value, or Death Benefit Proceeds. Depending upon
Subaccount investment performance and the amount of a Policy loan, a loan may
cause a Policy to lapse. Because the Policy is designed to provide benefits on a
long-term basis, before purchasing a Policy for a specialized purpose a
purchaser should consider whether the long-term nature of the Policy is
consistent with the purpose for which it is being considered. Using a Policy for
a specialized purpose may have tax consequences. (See "Federal Tax Matters" on
page 27.)
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DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, American National will, upon
satisfactory proof of the Insured's death, 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 Optional Methods of Payment, page
18.)
Subject to the rights of any assignee, Death Benefit Proceeds will be paid to
the surviving Beneficiary or Beneficiaries specified in the application or as
subsequently changed. If no Beneficiary is chosen, the proceeds will be paid to
the Insured's estate.
DEATH BENEFIT OPTIONS
The Policy provides two Death Benefit options and the Policyowner selects one
of such options in the application. The Death Benefit under either option will
never be less than the current Specified Amount of the Policy less Policy Debt
as long as the Policy remains in force. (See Policy Lapse and Reinstatement,
page 23.) The minimum initial Specified Amount currently is $50,000.
Option A. Under Option A, the Death Benefit is the current Specified Amount of
the Policy or, if greater, the applicable percentage of Accumulation Value on
the date of death. The applicable percentage is 250% for Insureds with an
attained age 40 or younger on the Policy anniversary prior to the date of death.
For Insureds with an attained age over 40 on that Policy anniversary, the
percentage declines as shown in the Corridor Percentage Table below.
Accordingly, under Option A the Death Benefit will remain level at the Specified
Amount unless the applicable percentage of Accumulation Value exceeds the
current Specified Amount, in which case the amount of the Death Benefit will
vary as the Accumulation Value varies. Policyowners who prefer to have favorable
investment performance, if any, reflected in higher Accumulation Value, rather
than increased insurance coverage, generally should select Option A.
OPTION A EXAMPLE. For purposes of this example, assume that the Insured's
attained age is between 0 and 40 and that there is no Policy Debt. Under Option
A, a Policy with a $50,000 Specified Amount will generally pay $50,000 in Death
Benefits. However, because the Death Benefit must be equal to or greater than
250% of Accumulation Value, anytime the Accumulation Value of the Policy exceeds
$20,000, the Death Benefit will exceed the $50,000 Specified Amount. Each
additional dollar added to Accumulation Value above $20,000 will increase the
Death Benefit by $2.50. Thus, if the Accumulation Value exceeds $20,000 and
increases by $100 because of investment performance or premium payments, the
Death Benefit will increase by $250. A Policy with an Accumulation Value of
$30,000 will provide a Death Benefit of $75,000 ($30,000 x 250%); an
Accumulation Value of $40,000 will provide a Death Benefit of $100,000 ($40,000
x 250%); and, an Accumulation Value of $50,000 will provide a Death Benefit of
$125,000 ($50,000 x 250%).
Similarly, so long as Accumulation Value exceeds $20,000 each dollar taken out
of Accumulation Value will reduce the Death Benefit by $2.50. If, for example,
the Accumulation Value is reduced from $25,000 to $20,000 because of partial
withdrawals, charges or negative investment performance, the Death Benefit will
be reduced from $62,500 to $50,000. If at any time, however, the Accumulation
Value multiplied by the applicable percentage is less than the Specified Amount,
the Death Benefit will equal the current Specified Amount of the Policy.
The applicable corridor percentage becomes lower as the Insured's attained age
increases. If the attained age of the Insured at the beginning of the Policy
Year in the example above were, for example, 50 (rather than between 0 and 40),
the applicable percentage would be 185%. The Death Benefit would not exceed the
$50,000 Specified Amount unless the accumulation value exceeded approximately
$27,028 (rather than $20,000), and each $1 then added to or taken from the
Accumulation Value would change the Death Benefit by $1.85 (rather than $2.50).
Option B. Under Option B, the Death Benefit is equal to the current Specified
Amount plus the Accumulation Value of the Policy or, if greater, the applicable
corridor percentage of the Accumulation Value on the date of death. The
applicable corridor percentage is the same as under Option A: 250% for Insureds
with an attained age 40 or younger on the Policy anniversary prior to the date
of death, and for Insureds with an attained age over 40 on that Policy
anniversary the percentage declines as shown in the Corridor Percentage Table.
Accordingly, under Option B the
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
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amount of the Death Benefit will always vary as the Accumulation Value varies
(but will never be less than the Specified Amount).
ATTAINED AGE CORRIDOR PERCENTAGE
60 130
61 128
62 126
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
73 109
74 107
75 to 90 105
91 104
92 103
93 102
94 101
95 100
Policyowners who prefer to have favorable investment performance, if any,
reflected in increased insurance coverage, rather than higher Accumulation
Values, generally should select Option B.
OPTION B EXAMPLE. For purposes of this example, assume that the Insured is age
40 or younger and that there is no Policy Debt. Under Option B, a Policy with a
Specified Amount of $50,000 will generally provide a Death Benefit of $50,000
plus Accumulation value. Thus, for example, a Policy with an Accumulation Value
of $5,000 will have a Death Benefit of $55,000 ($50,000 + $5,000); an
Accumulation Value of $10,000 will provide a Death Benefit of $60,000 ($50,000 +
$10,000). The Death Benefit, however, must be at least 250% of Accumulation
Value. As a result, if the Accumulation Value of the Policy exceeds $33,334, the
Death Benefit will be greater than the Specified Amount plus Accumulation Value.
Each additional dollar of Accumulation Value above $33,334 will increase the
Death Benefit by $2.50. Thus, if the Accumulation Value exceeds $33,334 and
increases by $100 because of investment performance or premium payments, the
Death Benefit will increase by $250. A Policy with an Accumulation Value of
$20,000 will provide a Death Benefit of $70,000 (Specified Amount $50,000 plus
$20,000 Accumulation Value); an Accumulation Value of $30,000 will provide a
Death Benefit of $80,000 ($50,000 plus $30,000); and an Accumulation Value of
$50,000 will provide a Death Benefit of $125,000 ($50,000 x 250% is greater than
$50,000 plus $50,000).
Similarly, any time Accumulation Value exceeds $33,334, each dollar taken out
of Accumulation Value will reduce the Death Benefit by $2.50. If, for example,
the Accumulation Value is reduced from $40,000 to $35,000 because of partial
surrenders, charges, or negative investment performance, the Death Benefit will
be reduced from $100,000 to $87,500. If at any time, however, the Accumulation
Value multiplied by the applicable corridor percentage is less than the
Specified Amount plus the Accumulation Value, then the Death Benefit will be the
current Specified Amount plus the Accumulation Value of the Policy.
The applicable percentage becomes lower as the Insured's attained age
increases. If the attained age of the Insured in the example above were, for
example, 50 (rather than 40 or younger), the applicable percentage would be
185%. Assuming a Specified Amount of $50,000 the amount of the Death Benefit
would be the sum of the Accumulation Value plus $50,000 unless the Accumulation
Value exceeded $58,824 (rather than $33,334), and each $1 then added to or taken
from the Accumulation Value would change the Death Benefit by $1.85 (rather than
$2.50).
Change in Death Benefit Option. The Death Benefit option in effect may be
changed at any time by sending American National a written request for change.
The effective date of such a change will be the Monthly Deduction Date on or
following the date the change is received by American National. A change may
have Federal Tax consequences.
If the Death Benefit option is changed from Option A to Option B, the
Specified Amount after the change will equal the Specified Amount before the
change minus the Accumulation Value on the effective date of the change. If the
Death Benefit option is changed from Option B to Option A, the Specified Amount
under Option A after the change will equal the Death Benefit under Option B on
the effective date of change.
No charges will be imposed upon a change in Death Benefit option, nor will
such a change in and of itself result in an immediate change in the amount of a
Policy's Accumulation Value. However, a change in the Death Benefit option may
affect the monthly cost of insurance charge since this charge varies with the
net amount at risk, which is the amount by which the Death Benefit that would be
payable on a Monthly Deduction Date exceeds the Accumulation Value on that date.
Changing from Option B to Option A will generally decrease in the future the net
amount at risk, and therefore the cost of insurance charges. Changing from
Option A to Option B generally will not change the net amount at risk. Such a
change, however, will result in an increase in the cost of insurance charges
over time, since the cost of insurance rates increase with the Insured's age.
If, however, the change was from Option A to Option B, the cost of insurance
rate may be different for the increased Death Benefit. (See Charges and
Deductions-Cost of Insurance, page 24 and Federal Tax Matters, page 27.)
Change in Specified Amount. Subject to certain limitations, a Policyowner may
increase the Specified Amount of a Policy at any time and may decrease the
Specified Amount at any time after the first two (2) Policy Years. A change in
Specified Amount may affect the cost of insurance rate and the net amount at
risk, both of which may affect a Policyowner's cost of insurance charge and have
Federal Tax consequences. (See Charges and Deductions-Cost of Insurance, page 24
and Federal Tax Matters, page 27.)
An increase or decrease in the Specified Amount will become
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<PAGE>
effective on the Monthly Deduction Date on or following the date a written
request is approved by American National. American National may limit the number
and size of changes in a Policy Year.
The Specified Amount remaining in force after any requested decrease may not
be less than $50,000. In addition, if following the decrease in Specified
Amount, the Policy would not comply with the maximum premium limitations
required by federal tax law, the decrease may be limited or Accumulation Value
may be returned to the Policyowner at the Policyowner's election, to the extent
necessary to meet these requirements. For purposes of determining the cost of
insurance rate, a decrease in the Specified Amount will reduce the Specified
Amount in the following order:
(a) The Specified Amount provided by the most recent increase;
(b) The next most recent increases successively; and
(c) The initial Specified Amount.
For an increase in the Specified Amount, a written supplemental application
must be submitted. American National may also require additional evidence of
insurability. Although an increase need not necessarily be accompanied by an
additional premium, in certain cases an additional premium will be required to
effect the requested increase. (See Premiums Upon Increase in Specified Amount,
page 22.) The minimum amount of any increase is $5,000, and an increase cannot
be made if the Insured's attained age is over 75. An increase in the Specified
Amount will result in certain increased charges, which will be deducted from the
Accumulation Value of the Policy on each Monthly Deduction Date. An increase in
the Specified Amount may also increase surrender charges. An increase in the
Specified Amount during the time the Guaranteed Coverage Benefit provision is in
effect will increase the Guaranteed Coverage Premium requirements. (See Charges
and Deductions, page 23.)
Each Policyowner who elects to increase the Specified Amount of a Policy will
have a "free look period", which right will apply only to the increase in
Specified Amount and not the entire Policy. These rights are comparable to the
rights afforded to a purchaser of a new Policy. (See Refund Privilege, page 21.)
The Policyowner may cancel the increase in Specified Amount within 45 days after
the application for the increase is signed, within ten (10) days after the
Policyowner has received the Policy as increased, or ten (10) days after
American National delivers a notice concerning cancellation, whichever is later.
The amount of the refund is the greater of Premiums paid attributable to such
increase in Specified Amount or the amount of such Premiums paid adjusted by
investment gains or losses.
Methods of Affecting Insurance Protection. A Policyowner may increase or
decrease the pure insurance protection provided by a Policy--the difference
between the Death Benefit and the Accumulation Value--in several ways as
insurance needs change. These ways include increasing or decreasing the
Specified Amount of insurance, changing the level of premium payments, and
making a partial surrender of the Policy. Certain changes may have Federal Tax
consequences. Although the consequences of each of these methods will depend
upon the individual circumstances, they may be generally summarized as follows:
(a) A decrease in the Specified Amount will, subject to the applicable corridor
percentage limitations, decrease the insurance protection and the cost of
insurance charges under the Policy without reducing the Accumulation Value.
(b) An increase in the Specified Amount may increase the amount of pure
insurance protection, depending on the amount of Accumulation Value and the
resultant applicable corridor percentage limitation. If the insurance
protection is increased, the Policy charges generally will increase as well.
(c) An increased level of premium payments may reduce the pure insurance
protection, until the applicable corridor percentage of Accumulation Value
exceeds the Specified Amount if Option A is in effect. Increased premiums
should also increase the amount of funds available to keep the Policy in
force.
(d) A reduced level of premium payments generally will increase the amount of
pure insurance protection, depending on the applicable corridor percentage
limitations. It may also result in a reduced amount of Accumulation Value
and will increase the possibility that the Policy will lapse.
(e) A partial surrender will reduce the Death Benefit. However, under Option A,
it only affects the amount of pure insurance protection and charges under
the Policy if the percentage from the Corridor Percentage Table is
applicable in determining the Death Benefit. Otherwise, the decrease in the
Death Benefit is offset by the amount of Accumulation Value withdrawn. The
primary use of a partial surrender is to withdraw Accumulation Value.
(f) A change in the Death Benefit Option may result in an increase or decrease
in the net amount at risk, depending on the circumstances of the Policy.
Duration of the Policy. The duration of the Policy generally depends upon the
Accumulation Value. The Policy will remain in force so long as the Surrender
Value is sufficient to pay the Monthly Deduction. Where, however, the Surrender
Value is insufficient to pay the Monthly Deduction and the grace period expires
without an adequate payment by the Policyowner, the Policy will lapse and
terminate without value. (See Policy Lapse and Reinstatement, page 23.) American
National agrees to keep the Policy in force during the first two years and
provide a Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium
is paid even though, in certain instances, the minimum payment allowed by
contract will not, after the payment of Monthly Deductions, generate positive
Surrender Values during its first several policy months.
ACCUMULATION VALUE
The Policy's Accumulation Value in the Separate Account or the Fixed Account
will reflect the investment performance of the chosen Subaccounts of the
Separate Account or the rate of interest paid on the Fixed Account, the net
premiums paid, any partial surrenders, and the charges assessed in connection
with
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<PAGE>
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 Net
Premium, reduced by the Monthly Deductions. Thereafter, on each Valuation Date,
the Accumulation Value of a Policy will equal:
(a) The aggregate of the values attributable to the Policy in each of the
Subaccounts on the Valuation Date, determined for each Subaccount by
multiplying the Subaccount's unit value by the number of units allocated to
the Policy; plus
(b) The value attributable to the Policy in the Fixed Account; plus
(c) Any Accumulation Value impaired by Policy Debt held in the General Account;
plus
(d) Any Net Premiums received on that Valuation Date; less
(e) Any partial surrender, and its charge, made on that Valuation Date; less
(f) Any Monthly Deduction to be made on that Valuation Date; less
(g) Any federal or state income taxes charged against the Accumulation Value.
In computing the Policy's Accumulation Value, the number of Subaccount units
allocated to the Policy is determined after any transfers among Subaccounts, or
the Fixed Account, (and deduction of transfer charges) but before any other
Policy transactions, such as receipt of net premiums and partial surrenders, on
the Valuation Date. Because the Accumulation Value is dependent upon a number of
variables, including the investment performance of the chosen Subaccounts, the
frequency and amount of premium payments, transfers, partial surrenders, loans,
and charges assessed in connection with the Policy, a Policy's Accumulation
Value cannot be predetermined.
The Unit Value. The unit value of each Subaccount reflects the investment
performance of that Subaccount. The unit value of each Subaccount shall be
calculated by (i) multiplying the per share net asset value of the corresponding
Eligible Portfolio on the Valuation Date times the number of shares held by the
Subaccount, after the purchase or redemption of any shares on that date; minus
(ii) a charge not exceeding an annual rate of .90% for mortality and expense
risk; and (iii) dividing the result by the total number of units held in the
Subaccount on the Valuation Date, before the purchase or redemption of any units
on that date.
Valuation Date and Valuation Period. A Valuation Date is each day on which the
New York Stock Exchange ("NYSE") is open for trading. A Valuation Period is the
period between two successive Valuation Dates, commencing at the close of the
NYSE on each Valuation Date and ending at the close of the NYSE on the next
succeeding Valuation Date.
BENEFITS AT MATURITY
If the Insured is living, American National will pay the Accumulation Value of
the Policy, less Policy Debt, to the Policyowner on the Maturity Date. The
Policy will mature on the Policy anniversary after the Insured's 95th birthday,
if living.
PAYMENT OF POLICY BENEFITS
Death Benefit proceeds under the Policy will usually be paid within seven days
after American National receives Satisfactory Proof of Death. Accumulation Value
benefits will ordinarily be paid within seven days of receipt of a written
request. American National reserves the right to defer payment of any partial
and full Surrenders, refunds or Policy Loans which would be derived from a
Premium payment made by a check which has not cleared the banking system.
Payments may also be postponed in certain circumstances. (See Postponement of
Payments, page 26.) The Policyowner may decide the form in which the benefits
will be paid. During the Insured's lifetime, the Policyowner may arrange for the
Death Benefit proceeds to be paid in a lump sum or under one or more of the
optional methods of payment described below. These choices are also available if
the Policy is surrendered or matures. If no election is made, American National
will pay the benefits in a lump sum.
When Death Benefits are payable in a lump sum and no election of an optional
method of payment is in force at the death of the Insured, the Beneficiary may
select one or more of the optional methods of payment.
An election or change of method of payment must be in writing. A change in
Beneficiary revokes any previous settlement election. Further, if the Policy is
assigned, any amount due to the assignee will first be paid in one sum. The
balance, if any, may be applied under any payment option. Once payments have
begun, the payment option may not be changed.
Optional Methods of Payment. In addition to a lump sum payment of benefits
under the Policy, any proceeds to be paid under the Policy may be paid in any of
four methods. Any amount left with American National for payment under a
settlement option will be transferred to its General Account and will not be
affected by the investment performance associated with the Separate Account.
American National may make other options available in the future.
The Policyowner may elect to have the proceeds of this Policy paid under any
of the payment options described below.
When proceeds become payable in accordance with a settlement option, the
Policy will be exchanged for a supplementary contract specifying all rights and
benefits. The effective date will be the date of the Insured's death or other
termination of the Policy.
Should the Beneficiary die before all proceeds have been paid, the remaining
proceeds will be paid either to the estate of the Beneficiary or in any other
manner provided for in the supplementary contract or as otherwise provided for
under applicable law.
OPTION 1. Installments for a Fixed Period. Equal installments will be paid for
a fixed number of years. Installments will include interest at the effective
rate of 3 1/2% per year. At American National's option, additional interest may
be paid.
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OPTION 2. Installments for a Fixed Period and Life Thereafter. Equal monthly
installments will be paid for as long as the payee lives with installments
certain for a fixed period. The fixed period may be 10 years, 20 years, or until
the sum of all the installments equals the net sum payable.
OPTION 3. Installments of a Fixed Amount. Equal annual, semi- annual,
quarterly, or monthly installments will be paid. The sum of the installments
paid in one year must be at least $40.00 for each $1,000.00 of proceeds.
Installments will be paid until the total of the following amount is exhausted:
(1) the net sum payable; plus (2) interest at the effective rate of 3 1/2% per
year; plus (3) any additional interest that American National may elect to pay.
The final installment shall be the balance of the proceeds payable plus
interest, and may be more or less than the other installments.
OPTION 4. Interest Payment. American National will hold the proceeds at
interest. Interest will be paid at the effective rate of 3 1/2% per year.
Additional interest may be paid at American National's option. On interest due
dates, an amount of at least $100.00 may be withdrawn from the amount held. If
the amount held falls below $2,000.00, American National will pay the entire
amount held to the payee.
GENERAL PROVISIONS FOR SETTLEMENT OPTIONS
The first installment under Option 1, 2 or 3 will be paid as of the date the
proceeds are available. The first installment may be postponed for up to ten
(10) years, but only with American National's consent. If it is postponed, the
proceeds payable will accumulate with compound interest at the effective rate of
3 1/2% per year.
To avoid paying installments of less than $20.00 each, American National may:
(1) change the installments to a quarterly, semi-annual or annual basis; 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. An effective interest
rate of 3 1/2% per year will be used to compute discounted present value.
The payee under any option may die after payments under the option have
started. If so, under Option 1 or 2 American National will pay the discounted
present value of any unpaid fixed-period installments to the payee's estate.
Under Option 3 or 4, American National will pay any balance held by American
National to the payee's estate. With American National's consent, the option
elected may provide for payment in another manner.
Limitations. Election of an option by written request may be made only with
the consent of American National if:
(1) Proceeds are to joint or successive payees, or
(2) proceeds are payable to other than a natural person.
POLICY RIGHTS
LOAN BENEFITS
Loan Privileges. So long as the Policy remains in effect, the Policyowner may
borrow money from American National using the Policy as the only security for
the loan. The minimum amount which may be borrowed is $100. The maximum amount
that may be borrowed during the first two Policy Years is 75% of the Policy
Surrender Value at the end of the Valuation Period during which the loan request
is received, less three Monthly Deductions. After the first two years the
maximum loan amount is 90% of the Surrender Value less three Monthly Deductions.
Policyowner's in certain states may borrow 100% of the Surrender Value less
three (3) Monthly Deductions. Preferred loans are available after the seventh
policy year. 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 loan may be completely or partially repaid at any time while
the Insured is living, prior to the Maturity Date. Loans usually are funded
within seven days after receipt of a written request. Loans may have a tax
consequence. (See Federal Tax Matters, page 27.)
Interest. Loans will accrue interest on a daily basis at a rate of 6.0% per
year. If unpaid when due, interest will be added to the amount of the loan and
bear interest at the same rate. The Policyowner earns 4.5% interest on the
Accumulation Values securing the loans.
Effect of Policy Loans. When a loan is made, Accumulation Value equal to the
amount of the loan will be transferred from the Accumulation Value in the
Separate Account and/or the Fixed Account to American National's General Account
as security for the indebtedness and will earn interest at the annual rate of
4.5% credited on the Policy anniversary, 6% on preferred loans. The Accumulation
Value transferred out of the Separate Account will
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be allocated among the Subaccounts or the Fixed Account in accordance with the
instructions given by the Policyowner when the loan is requested. The minimum
amount which can remain in a Sub-account or the Fixed Account as a result of a
loan is $100. In the event no allocation instructions are provided or the
allocation instructions conflict with this minimum, the loan will be allocated
among the Subaccounts or the Fixed Account, in the same proportion as the
Accumulation Value in each Subaccount or the Fixed Account prior to the loan
bears to the total Accumulation Value in all Subaccounts and the Fixed Account.
American National will transfer Accumulation Value from the Subaccounts and the
Fixed Account to secure indebtedness on the date of the policy loan and, if loan
interest is not paid when due in any Policy Year, or on the Policy anniversary
thereafter, American National will allocate the amount transferred to secure the
Policy Debt among the Subaccounts and the Fixed Account in the same proportion
as the Accumulation Value in each Subaccount or the Fixed Account bears to the
total Accumulation Value in all Subaccounts and the Fixed Account or as
instructed. No charge will be imposed for these transfers.
A Policy loan will permanently affect the Accumulation Value of a Policy, and
may permanently affect the amount of the Death Benefits, even if the loan is
repaid. The effect could be favorable or unfavorable depending on whether the
investment performance of the Subaccount(s) selected by the Policyowner is less
than or greater than the interest rate credited to the Accumulation Value held
in the General Account to secure the loan. In comparison to a Policy under which
no loan was made, the Accumulation Value will be lower if the General Account
interest rate is less than the investment performance of the Subaccount(s), and
greater if the General Account interest rate is higher than the investment
performance of the Subaccount(s).
Interest earned on amounts held in the General Account will be allocated to
the Subaccounts and the Fixed Account on each Policy anniversary in the same
proportion that Net Premiums are being allocated to those Subaccounts and the
Fixed Account at the time. Upon repayment of Policy Debt, the portion of the
repayment allocated in accordance with the repayment of indebtedness provision
(see below) will be transferred to increase the Accumulation Value in that
Subaccount or the Fixed Account.
Policy Debt. The Policy Debt equals the total of all Policy loans and accrued
interest on Policy loans. If the Policy Debt exceeds the Accumulation Value less
any surrender charge, the Policyowner must pay the excess. American National
will send a notice of the amount which must be paid. If the Policyowner does not
make the required payment within the 61 days after American National sends the
notice, the Policy will terminate without value. A lapsed Policy may later be
reinstated. (See Policy Lapse and Reinstatement, page 23.)
Repayment of Policy Debt. Unscheduled premiums paid while a Policy loan is
outstanding are treated as repayment of Policy Debt only if the Policyowner so
requests. As Policy Debt is repaid, the Accumulation Value in the General
Account securing the Policy Debt repaid will be allocated among the Subaccounts
and the Fixed Account in the same proportion that Net Premiums are being
allocated at the time of repayment. The repayment of Policy Debt will be
allocated at the end of the Valuation Period during which the repayment is
received. If not repaid, American National will deduct Policy Debt from any
amount payable under the Policy.
SURRENDERS
At any time during the lifetime of the Insured and prior to the Maturity Date,
the Policyowner may partially or totally surrender the Policy by sending a
written request to American National. The amount available for surrender is the
Surrender Value at the end of the Valuation Period during which the surrender
request is received at American National's Home Office. Surrenders will
generally be paid within seven days of receipt of the written request. (See
Postponement of Payments, page 26.) Surrenders may have tax consequences. (See
Tax Treatment of Policy Proceeds, page 28.)
Full Surrenders. If the Policy is being fully surrendered, the actual Policy
form must be returned to American National along with the request. American
National will pay the Surrender Value. Coverage under the Policy will terminate
as of the date of a full surrender.
Partial Surrenders. Partial surrenders are irrevocable. The amount of a
partial surrender may not exceed the Surrender Value on the date the request is
received and may not be less than $100.
The amount paid will be deducted from the Policy's Accumulation Value at the
end of the Valuation Period during which the request is received. The amount
will be deducted from the Subaccounts or the Fixed Account according to the
instructions of the Policyowner when the withdrawal is requested, provided that
the minimum amount remaining in a Subaccount as a result of the allocation is
$100. If no instructions are given, or if there is not sufficient value in any
Subaccount or the Fixed Account, the amount will be allocated in the same
proportion that the Accumulation Value in each bears to the total Accumulation
Value in all Subaccounts and the Fixed Account, on the date the request for the
partial surrender is received by American National.
The Death Benefit will be reduced by the amount of any partial surrender. If
Option A is in effect, the Specified Amount will be reduced. Where increases in
the Specified Amount occurred previously, a partial surrender will reduce the
last increase first, and then each other increases, in order of the more recent
increase first, and finally the initial Specified Amount. Thus, partial
surrenders may affect the cost of insurance charge and the amount of pure
insurance protection under the Policy. (See Monthly Deduction - Cost of
Insurance, page 24; Death Benefit Options - Methods of Affecting Insurance
Protection, page 17.) 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:
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DURING MINIMUM
POLICY YEAR SPECIFIED AMOUNT
1 50,000
2 45,000
3 40,000
4 35,000
Thereafter 25,000
The amount of any partial surrender will be paid within seven (7) days after
receipt of the Policyowner's written request therefor. A $25 administrative
service fee will be charged at the time of each partial surrender. It is not
American National's intention to make a profit on this charge.
TRANSFERS
Accumulation Value may be transferred among the Subaccounts of the Separate
Account or to the Fixed Account as often as desired. The transfers may be
ordered in person, by mail, or by telephone. The total amount transferred each
time must be at least $250, or the balance of the Subaccount, if less. The
minimum amount that may remain in a Subaccount after a transfer is $100.
American National will effectuate transfers and determine all values in
connection with transfers on the later of the date designated in the request or
at the end of the Valuation Period during which the transfer request is
received. Accumulation Value on the date of a transfer will not be affected
except to the extent of the transfer charge, if applicable. Once each Policy
Year during the thirty day period beginning on the Policy anniversary, transfers
may be made from the Fixed Account to the Subaccounts. The maximum amount which
may be transferred from the Fixed Account to the Subaccounts is the greater of
(a) twenty-five percent of the amount in the Fixed Account, or (b) $1,000.
The first four transfers per Policy Year will be permitted free of charge. A
$25 transfer charge will be imposed each additional time amounts are transferred
and will be deducted from the amount transferred. (See Transfer Charge, page
24.) Transfers resulting from Policy loans or exercise of the exchange privilege
will not be subject to a transfer charge. In addition, such transfers will not
be counted for purposes of the limitation on the number of transfers allowed in
each year. American National may at any time revoke or modify the transfer
privilege, including the number and minimum amount transferable.
REFUND PRIVILEGE
The Policyowner may cancel the Policy within the later of 10 days after the
Policyowner receives it, within 10 days after American National delivers a
notice of the Policyowners right of cancellation, or within 45 days of
completing and executing the application whichever is later. If a policy is
canceled within this time period a refund will be paid. The amount of the refund
will be the amount of the premiums paid adjusted by investment gains during the
15-day period such premiums have been allocated to the VIP Money Market
Portfolio and by investment gains and losses thereafter.
To cancel the Policy, the Policyowner should mail or deliver the actual Policy
form to American National at the Home Office or to the office of one of its
agents. A refund of premiums paid by check may be delayed until the check has
cleared the Policyowner's bank. (See Postponement of Payments, page 26.)
RIGHT TO EXCHANGE A POLICY FOR A FIXED-BENEFIT INSURANCE POLICY
At any time during the first two Policy Years that the Policy is in effect,
the Policyowner may exchange the Policy for a fixed-benefit, universal life
insurance policy issued by American National. No evidence of insurability will
be required to make an exchange. The net amount at risk or Death Benefit, at the
option of the Policyowner, will be the same as the original Policy's on the date
of exchange. The new policy will have a current Date of Issue and same premium
class, Attained Age and sex as this Policy. Any rider in force with the Policy
will be issued with the new policy. The amount of the new policy may be the
Death Benefit on the date of the exchange, less Policy Debt (Option A) or the
Death Benefit minus the Accumulation Value on the date of the exchange less
Policy Debt (Option B). (See Death Benefit Options, page 15.)
The new policy will become effective on the date of exchange if the Insured is
then living. The date of exchange will be the date American National has
received a written request therefor accompanied by the actual Policy form and
all financial, contractual and administrative requirements have been met and
processed.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application and
submit it to American National's Home Office, American National Building, One
Moody Plaza, Galveston, Texas 77550. A Policy will generally be issued only to
individuals 75 years of age or less on their last birthday who supply
satisfactory evidence of insurability to American National. Acceptance is
subject to American National's underwriting rules.
The Policy Date is the effective date of coverage for all cover- age applied
for in the original application. The Date of Issue is used to determine Policy
anniversary dates, Policy Years and Policy months.
The Policy Date is the date that all financial, contractual and administrative
requirements have been met and processed for the Policy and any supplements
thereto. This date is the effective date for all coverage applied for in the
original application and any supplemental applications.
The initial premium payment will be allocated to the VIP Money Market
Portfolio of the Fidelity Fund, as of the Date of Issue, for 15 days. After the
expiration of this period, the Accumulation Value will be allocated to the
Subaccounts or the Fixed Account as selected by the Policyowner.
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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 of the Policy. Subject to certain limitations, a Policyowner has
flexibility in determining the frequency and amount of premiums since the
Planned Periodic Premium schedule is not binding on the Policyowner. However,
the Planned Periodic Premium must include the Guaranteed Coverage Premium during
the first two (2) Policy Years. Thereafter, unless the Policyowner has paid
sufficient premiums to pay the Monthly Deduction and mortality and expense risk
charges, the Policy may have a zero Surrender Value and will lapse.
American National agrees to keep the Policy in force during the first two
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, these minimum
premiums will not, after payment of the amount of the Monthly Deduction and
mortality and expense risk charges, generate positive Surrender Values during
the first several Policy months.
Premium Flexibility. A Policyowner may make unscheduled premium payments at
any time in any amount, or skip premium payments, subject to the premium
limitations described herein. Therefore, unlike conventional insurance policies,
this Policy does not obligate the Policyowner to pay premiums in accordance with
a rigid and inflexible premium schedule. American National reserves the right to
limit the number and amount of additional or unscheduled premium payments.
Planned Periodic Premiums. At the time the Policy is issued each Policyowner
shall determine a Planned Periodic Premium schedule that provides for the
payment of level premiums at selected intervals. The Planned Periodic Premium
schedule may include the Guaranteed Coverage Premium. The Policyowner is not
required to pay premiums in accordance with this schedule. The Policyowner has
considerable flexibility to alter the amount and frequency of premiums paid.
Policyowners can also change the frequency and amount of Planned Periodic
Premiums by sending a written request to American National's Home Office,
although American National reserves the right to limit any increase. Premium
payment notices will be sent annually, semi-annually, quarterly or monthly
depending upon the frequency of the Planned Periodic Premiums. Payment of the
Planned Periodic Premiums does not guarantee that the Policy will remain in
force unless the Guaranteed Coverage Benefit provision is in effect. Instead,
the duration of the Policy depends upon the Policy's Surrender Value. (See
Duration of the Policy, page 17.) Unless the Guaranteed Coverage Benefit
provision is in effect, even if Planned Periodic Premiums are paid by the
Policyowner, the Policy will lapse any time Surrender Value is insufficient to
pay the Monthly Deduction and mortality and expense risk charges, and a grace
period expires without a sufficient payment.
Any premium received in an amount different from the Planned Periodic Premium
will be considered an unscheduled premium.
Premium Limitations. In no event may the total of all premiums paid, both
planned and unscheduled, exceed the current maximum premium limitations
established by federal tax laws. If at any time a premium is paid which would
result in total premiums exceeding such current maximum premium limitations,
American National will only accept that portion of the premium which will make
total premiums equal the maximum. Any part of the premium in excess of that
amount will be returned or applied as otherwise agreed and no further premiums
will be accepted until allowed by the current maximum premium limitations
prescribed by law. American National may require additional evidence of
insurability if any premium payment would result in an increase in the Policy's
net amount at risk on the date the premium is received. American National may
also establish a minimum acceptable premium amount.
Premiums Upon Increase in Specified Amount. Depending upon the Accumulation
Value of the Policy at the time of an increase in the Specified Amount of the
Policy and the amount of the increase requested by the Policyowner, an
additional premium payment may be required. American National will notify the
Policyowner of any premium required to fund the increase.
ALLOCATION OF PREMIUMS AND ACCUMULATION VALUE
Allocation of Net Premiums. In the application for a Policy, the Policyowner
allocates Net Premiums to one or more Subaccounts of the Account or to the Fixed
Account. Thereafter, the amount in such account and Net Premiums are allocated
as directed by the Policyowner. The minimum percentage that may be allocated to
any one Subaccount or to the Fixed Account is 10% of the Net Premium, and
fractional percentages may not be used. The allocations must total 100%. The
allocation for future Net Premiums may be changed without charge by providing
proper notification to the Home Office. The notice must include the policy
number to which the instructions apply. The reallocation will apply to future
premiums received by American National on or after the date the change is
received.
Premium payments received within 15 days after the Date of Issue are allocated
to the Subaccount for the Money Market portfolio of the Fidelity Funds. The
initial premium payment will be allocated to the Money Market portfolio of the
Fidelity Funds, as of the Date of Issue, for 15 days. After the expiration of
such period, the Accumulation Value will be allocated to the Subaccounts or the
Fixed Account as selected by the Policyowner. Premium payments received by
American National prior to the Date of Issue are held in American National's
General Account, without interest, until the Date of Issue. Net Premiums
received by American National after fifteen (15) days after the Date of Issue
are allocated to the selected Subaccounts or the Fixed Account. If there is any
Policy Debt at the time of payment, American National will treat the payment as
a premium payment unless otherwise instructed in proper written notice.
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
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risk. This will affect the Policy's Accumulation Value, and may affect the Death
Benefit as well. Policyowners should periodically review their allocations of
premiums and values in light of market conditions and overall financial planning
requirements.
POLICY LAPSE AND REINSTATEMENT
Lapse. Unlike conventional life insurance policies, the failure to make a
Planned Periodic Premium payment will not itself cause the Policy to lapse.
Unless the Guaranteed Coverage provision is in effect, lapse will occur when the
Surrender Value is insufficient to cover the Monthly Deduction and a grace
period expires without a sufficient payment.
GRACE PERIOD
The grace period is 61 days from the date American National mails a notice
that the grace period has begun. American National will notify the Policyowner
at the beginning of the grace period by mail addressed to the last known address
on file with American National. The notice will specify the premium required to
keep the Policy in force. Failure to pay the required amount within the grace
period will result in lapse of the Policy. If the Insured dies during the grace
period, any overdue Monthly Deductions and Policy Debt will be deducted from the
proceeds.
If the Surrender Value is insufficient to cover the Monthly Deduction, the
Policyowner must pay a premium during the grace period sufficient to cover the
Monthly Deductions for the three Policy months after commencement of the grace
period to avoid lapse.
Reinstatement. A lapsed Policy may be reinstated any time within five years
after the end of the grace period, but before the Maturity Date if the Policy
was not surrendered for its Surrender Value. Reinstatement will be effected
based on the Insured's underwriting classification at the time of the
reinstatement.
Reinstatement is subject to the following:
a. Evidence of insurability of the Insured satisfactory to American National
(including evidence of insurability of any person covered by a rider to
reinstate the rider);
b. Reinstatement of any Policy Debt, with interest due and accrued;
c. Payment of the amount of any Monthly Deductions not paid during the grace
period; and
d. Payment of the amount necessary to pay sales load and premium taxes on the
premiums paid and the Monthly Deduction for the next three months.
The Policy cannot be reinstated if it has been surrendered for its full
Surrender Value.
The original Date of Issue, and the Dates of Issues of increases in Specified
Amount (if applicable), will be used for purposes of calculating the surrender
charge. If any Policy Debt was reinstated, the amount thereof will be held in
American National's General Account. Accumulation Value calculations will then
proceed as described under "Accumulation Value" on page 17. The Policy Date of
reinstatement will be the first Monthly Deduction Date on or next following the
date of approval by American National of the application for reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate American
National for: (1) providing the insurance benefits set forth in the Policy and
any optional insurance benefits added by rider; (2) administering the Policy;
(3) assuming certain risks in connection with the Policy; and (4) incurring
expenses in distributing the Policy. The nature and amount of these charges are
described more fully below.
PREMIUM CHARGES
Prior to allocation of premium payments among the Sub-accounts or the Fixed
Account, premiums paid will be reduced by a 4% sales charge to compensate
American National for expenses associated with distributing the Policy, plus any
amount necessary to reimburse American National for premium taxes. In addition,
a $2.00 transaction charge will be deducted to reimburse American National for
billings and confirmations.
Sales Charges. Sales charges, generally called the "sales load," will be
deducted to compensate American National for the cost of selling the Policy.
This cost includes agents' commissions, the printing of Prospectuses and sales
literature, and advertising.
The sales charges in any Policy Year are not necessarily related to actual
distribution expenses incurred in that year. Instead, American National expects
to incur the majority of distribution expenses in the early Policy Years and to
recover amounts to pay such expenses over the life of the Policy. To the extent
that sales and distribution expenses exceed sales loads (both front-end and
deferred) in any year, American National will pay them from its other assets or
surplus in its General Account, which include amounts derived from mortality and
expense risk charges, and other charges made under the Policy. American National
believes that this distribution financing arrangement will benefit the Separate
Account and the Policyowner.
Applicable Tax Charges. All states and certain jurisdictions (cities,
counties, municipalities) tax premium payments and some levy additional charges.
Taxes currently range up to 4%. We deduct the applicable Tax from each premium
payment. This is a tax to American National, so you cannot deduct it on your
income tax return. The amount of the tax will vary depending on the jurisdiction
in which the Insured resides. Since taxes on premium payments are a percentage
of the premium, the amount of that tax will also vary with the amount of the
premium.
This tax charge will be increased or decreased to reflect any changes in the
Applicable Tax based on premiums. In addition, if
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an Insured changes his or her place of residence, the charge will be changed to
the tax rate of the new jurisdiction. You should notify us if the Insured
changes residence. American National will not make a profit from the premium tax
charge.
CHARGES FROM ACCUMULATION VALUE
Monthly Deduction. On each Monthly Deduction Date, the Monthly Deduction will
be deducted from the Accumulation Value of the Policy to compensate American
National for the insurance provided, the cost of any riders and for
administrative expenses. The Monthly Deduction will be deducted as of the Policy
Date and on each Monthly Deduction Date thereafter if current. It will be
allocated among the Subaccounts, and the Fixed Account, in the same proportion
as the Accumulation Value in each Subaccount and the Fixed Account, bears to the
total Accumulation Value on that date. Each of these charges is described in
more detail below. Because portions of the Monthly Deduction, such as the cost
of insurance, can vary from month to month, the Monthly Deduction itself may
vary in amount from month to month.
Administrative Charge. To compensate American National for the ordinary
administrative expenses expected to be incurred in connection with a Policy, the
Monthly Deduction includes an administrative expense charge. Such charge, during
the first 12 Policy months (and the first 12 Policy months with respect to an
increase in the Specified Amount other than from an option change), shall range
from a maximum of $2.50 plus $0.0632 per $1,000 of Specified Amount at age 0 to
a maximum of $2.50 plus $2.59 per $1,000 of Specified Amount at age 75, and
shall thereafter be a maximum of $2.50 plus $0.025 per $1,000 of Specified
Amount. These ordinary administrative expenses include premium billing;
recordkeeping; processing Death Benefit claims, surrenders, and Policy changes;
preparing and mailing reports, and overhead costs. This charge is levied
throughout the life of the Policy. American National does not expect to make any
profit from the monthly administrative charge.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy month can vary from month to month. American
National will determine the monthly cost of insurance charges by multiplying the
applicable cost of insurance rate by the net amount at risk for each Policy
month. The net amount at risk on any Monthly Deduction Date is the amount by
which the Death Benefit which would be payable on that Monthly Deduction Date
exceeds the Accumulation Value.
The monthly cost of insurance rate is based on the Insured's sex, Attained
Age, Specified Amount, and risk class. The rate will vary if the Insured is a
smoker or non-smoker or is considered a substandard risk classification and
rated with a tabular extra rating. For the initial Specified Amount, the cost of
insurance rate will not exceed those shown in the Schedule of Monthly Guaranteed
Maximum Cost of Insurance Rates shown on the Policy Data Page. These guaranteed
rates are based on the Insured's age last birthday and are equal to the 1980
Insurance Commissioners Standard Ordinary Smoker or Non-Smoker, Male or Female
Mortality Tables. The current rates range between 60% and 100% of the rates
based on the 1980 Commissioners Standard Ordinary Tables, based on American
National's own mortality experience. Policies issued on a non-sex distinct basis
are based upon the 1980 Insurance Commissioner's Standard Ordinary Table B
assuming 80 male and 20 female lives. Any change in the cost of insurance rates
will apply to all persons of the same age, sex, Specified Amount and risk class.
If the underwriting class for any increase in the Specified Amount or for any
increase in Death Benefit resulting from a change in Death Benefit option from A
to B is not the same as the underwriting class at issue, the cost of insurance
rate used after such increase will be a composite rate based upon a weighted
average of the rates of the different underwriting classes. Decreases will also
be reflected in the cost of insurance rate as discussed earlier.
The actual charges made during the Policy Year will be shown in the annual
report delivered to Policyowners.
Rate Class. The rate class of an Insured may affect the cost of insurance
rate. American National currently places insureds into both standard rate
classes and substandard rate classes that involve a higher mortality risk. In an
otherwise identical Policy, an Insured in the standard rate class will have a
lower cost of insurance than an Insured in a substandard rate class. If a Policy
is rated at issue with a tabular extra rating, the guaranteed rate is a multiple
of the guaranteed rate for a standard issue.
Insureds may also be assigned a flat extra rating to reflect certain
additional risks. The flat extra rating will not impact the cost of insurance
rate but 1/2 of any flat extra cost will be deducted as part of the Monthly
Deduction on each Monthly Deduction Date.
Surrender Charge. If a Policy is surrendered prior to the 10th Policy
anniversary, American National will assess a surrender charge based upon the
amount of premiums paid on the Policy and the amount of the Surrender Premium.
No surrender charge will be assessed upon decreases in the Specified Amount of
the Policy. Because the surrender charge may be significant upon early
surrender, prospective Policyowners should purchase a Policy only if they do not
intend to surrender the Policy for a substantial period of time.
Transfer Charge. A transfer charge of $25.00 will be imposed for each
additional transfer among the Subaccounts after four per Policy Year to
compensate American National for the costs of effecting the transfer. Since the
charge reimburses American National for the cost of effecting the transfer only,
American National does not expect to make any profit from the transfer charge.
This charge will be deducted from the amount transferred. The transfer charge
will not be imposed on transfers that occur as a result of Policy loans or the
exercise of exchange rights. The amount of the transfer charge is guaranteed not
to be increased.
Partial Surrender Charge. A charge will be imposed for each partial surrender
to compensate American National for the administrative costs in effecting the
requested payment and in making necessary calculations of any reductions in
Specified Amount which may be required by reason of the partial surrender.
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Such charge is in proportion to the charge that would apply to a full surrender.
The proportion is computed by dividing the amount of Accumulation Value
surrendered by the total Surrender Value. When a partial surrender is made,
future surrender charges will be reduced in the same proportions. American
National does not expect to make any profit from the partial surrender charge.
The current charge made will be $25. The charge will be deducted from the amount
of the surrender.
DAILY CHARGES AGAINST THE SEPARATE ACCOUNT
On each Valuation Date that American National is open for business, a daily
asset charge will be deducted from the Accumulation Value. Such charge shall not
exceed .90% annually of the average daily net asset value of each Subaccount,
but not the Fixed Account, and is to compensate American National for mortality
and expense risks assumed in connection with the Policy. The daily charge will
be deducted from the net asset value of the Separate Account, and therefore the
Subaccounts, on each Valuation Date. Where the previous day or days was not a
Valuation Date, the deduction on the Valuation Date will be .00246% (calculated
by dividing the .90% annual rate by 365) multiplied by the number of days since
the last Valuation Date. No mortality and expense charges will be deducted from
the amounts in the Fixed Account.
American National believes that this level of charge is within the range of
industry practice for comparable variable universal life policies.
The mortality risk assumed by American National is that Insureds may live for
a shorter time than assumed, and that an aggregate amount of Death Benefits
greater than that assumed will be paid. The expense risk assumed is that
expenses incurred in issuing and administering the Policies will exceed the
administrative charges provided in the Policies.
In addition to the charges by American National against the Separate Account
described just above, SM&R and FMR will assess certain annual or monthly fees
against the amount invested in the various Eligible Portfolios. (See the
American National Fund's and the Fidelity Funds' Prospectuses)
For managing the investments and business affairs of the Eligible Portfolios
of the Fidelity Funds, each such Eligible Portfolio pays FMR a monthly fee.
Detailed information about such fee is in the Fidelity Funds' Prospectuses.
No portfolio fees will be assessed against amount placed in the Fixed Account.
Taxes. Currently, no charge will be made against the Separate Account for
federal, state or local income taxes. American National may, however, make such
a charge in the future if income or gains within the Separate Account will incur
any Federal, or any significant state or local tax treatment of American
National changes. Charges for such taxes, if any, would be deducted from the
Separate Account and/or the Fixed Account.
GENERAL PROVISIONS
THE CONTRACT
The Policy, the application, any supplemental applications, and any riders,
amendments or endorsements make up the entire contract. All statements made by
the Insured in the application, in the absence of fraud, are considered
representations and not warranties. Only statements in the application that is
attached to the Policy and any supplemental applications made a part of the
Policy when a change in coverage went into effect can be used to contest a claim
or the validity of the Policy. Only the President, Vice President or Secretary
can modify the Policy. Any changes must be made in writing and approved by
American National. No agent has the authority to alter or modify any of the
terms, conditions or agreements of the Policy or to waive any of its provisions.
CONTROL OF POLICY
The Policyowner is as shown in the application or subsequent written
endorsement. Subject to the rights of any irrevocable Beneficiary and any
assignee of record, all rights, options, and privileges belong to the
Policyowner, if living; otherwise to any contingent owner or owners, if living;
otherwise to the estate of the last Policyowner to die. If the Policyowner is a
minor, first the Applicant, then the Beneficiary, if living and legally
competent, may exercise all rights of ownership.
BENEFICIARY
The Policyowner may name both primary and contingent beneficiaries. The
Beneficiary(ies) and their designated class are specified in the application.
Payments will be shared equally among Beneficiaries of the same class unless
otherwise stated. If a Beneficiary dies before the Insured, payments will be
made to any surviving Beneficiaries of the same class; otherwise to any
Beneficiary(ies) of the next class; otherwise to the estate of the Insured.
CHANGE OF BENEFICIARY
The Policyowner may change the Beneficiary by written request on a Change of
Beneficiary form at any time during the Insured's ifetime unless otherwise
provided in the previous designation of Beneficiary. American National, at its
option, may require that the actual Policy form be returned to the Home Office
for endorsement of any change, or that other forms be completed. The change will
take effect as of the date the change is recorded at the Home Office. American
National will not be liable for any payment made or action taken before the
change is recorded. No limit is placed on the number of changes that may be
made.
CHANGE IN POLICYOWNER OR ASSIGNMENT
In order to change the owner of the Policy or assign Policy rights,
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an assignment of the Policy must be made in writing and filed with American
National at its Home Office. The change will take effect as of the date the
change is recorded at the Home Office, and American National will not be liable
for any payment made or action taken before the change is recorded. Payment of
proceeds is subject to the rights of any assignee of record. No partial or
contingent assignment of the Policy will be permitted. A collateral assignment
is not a change of ownership.
PAYMENT OF PROCEEDS
The proceeds are subject first to any Policy Debt and then to the interest of
any assignee of record. Payments to satisfy any such Policy Debt and to any
assignee shall each be paid in one sum. The balance of any Death Benefit
proceeds shall be paid in one sum to the designated Beneficiary unless an
optional method of payment is selected. If no Beneficiary survives the Insured,
the proceeds shall be paid in one sum to the estate of the Insured. Any proceeds
payable on the Maturity Date or upon full surrender shall be paid in one sum
unless an Optional Method of Payment is elected.
INCONTESTABILITY
The Policy is incontestable after it has been in force for two years from the
Date of Issue during the lifetime of the Insured. An increase in the Specified
Amount or addition of a rider after the Date of Issue shall be incontestable
after such increase or addition has been in force for two years from its Policy
Date during the lifetime of the Insured. However, this two year provision shall
not apply to riders that provide disability or accidental Death Benefits. Any
reinstatement of a Policy shall be incontestable during the lifetime of the
Insured only after having been in force for two years after the Policy Date of
the reinstatement.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured or any person insured by rider has been
misstated, the amount of the Death Benefit will be adjusted. The Death Benefit
will be adjusted in proportion to the correct and incorrect cost of insurance
rates.
SUICIDE
Suicide within two years of the Date of Issue is not covered by the Policy
unless otherwise provided by a state's insurance law. If the Insured, while sane
or insane, commits suicide within two years after the Date of Issue, American
National will pay only the premiums received less any partial surrenders and
Policy Debt. If the Insured, while sane or insane, commits suicide within two
years after the Policy Date of any increase in the Specified Amount, American
National's liability with respect to such increase will only be its total cost
of insurance applied to the increase. If the Insured, while sane or insane,
commits suicide within two years from the Policy Date of reinstatement, American
National's liability with respect to such reinstatement will only be for the
return of cost of insurance and expenses, if any, paid on or after the
reinstatement.
POSTPONEMENT OF PAYMENTS
Payment of any amount upon full surrender, partial surrender, Policy loans,
benefits payable at death or maturity, and transfers may be postponed whenever:
(i) the New York Stock Exchange is closed other than customary week-end and
holiday closings, or trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission ("Commission"); (ii) the
Commission by order permits postponement for the protection of Policyowners; or
(iii) an emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Separate Account's net assets.
Surrenders, loans or partial surrenders from the Fixed Account may be deferred
for up to 6 months from the date of written request.
ADDITIONAL INSURANCE BENEFITS (RIDERS)
Subject to certain requirements, certain additional optional benefits may be
obtained at the issuance of the Policy for an extra premium. The cost of any
such additional insurance benefits, which will be provided by "riders" to the
Policy, will be deducted as part of the Monthly Deduction.
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
Prospectus.)
Registered Representatives of SM&R who sell the Policy will receive commissions
from SM&R based upon a commission schedule. After issuance of the Policy,
commissions to the Registered Representatives will equal, at most, 50% of the
Guaranteed Coverage Premium, plus the first year cost of any riders, and any
premium paid in excess, will receive a maximum commission of 4.0%. In years
thereafter, Registered Representatives will receive a maximum commission of 3.0%
per Policy Year on any premiums paid. Upon any subsequent increase in Specified
Amount or any subsequent increase in riders, commissions will also be paid based
on the amount of the increase in Specified Amount or increase in rider. Further,
American National may pay Registered Representatives who meet certain production
standards additional compensation, and may pay managers bonuses with respect to
the Policies. SM&R will pay overriding commissions to managers with respect to
the Policies. SM&R and American National may authorize other registered
broker/dealers and its Registered Representatives to sell the Policies subject
to applicable law.
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FEDERAL TAX MATTERS
The following discussion provides a general description of the federal income
tax considerations associated with the Policy. This discussion is not intended
as tax advice. Any person concerned about these tax implications should consult
a competent tax advisor. This discussion is based upon American National's
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service (the "Service"). No representation
is made as to the likelihood of continuation of the present federal income tax
laws or of the current interpretations by the Service. The following summary
does not purport to be complete or to cover all situations. Special rules not
described in this Prospectus may be applicable in certain situations. Moreover,
no attempt has been made to consider in detail any applicable state or other tax
(except premium taxes, see discussion "Premium Taxes," page 8) laws. Counsel and
other competent advisors should be consulted for more complete information
before a Policy is purchased.
(a) Taxation of American National. After American National issues the Policies,
American National believes it will be taxed as a life insurance company
under Part I of Subchapter L of the Code. At that time, since the Separate
Account is not an entity separate from American National, and its operations
form a part of American National, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Net
investment income and realized net capital gains on the assets of the
Separate Account are reinvested and are taken into account in determining
the Death Benefit and Accumulation Value of the Policy. As a result, such
net investment income and realized net capital gains are automatically
retained as part of the reserves under the Policy. American National
believes that the Separate Account net investment income and realized net
capital gains will not be taxable to the extent that such income and gains
are retained as reserves under the Policy.
American National does not currently expect to incur any federal income tax
liability attributable to the Separate Account with respect to the sale of the
Policies. Accordingly, no charge is being made currently to the Separate
Account for federal income taxes. If, however, American National determines
that it may incur such taxes attributable to the Separate Account, it may
assess a charge for such taxes against the Separate Account.
American National may also incur state and local taxes (in addition to premium
taxes for which a deduction from premiums is currently made) in various
states. At present, these taxes are not significant. If there is a material
change in state or local tax laws, charges for such taxes attributable to the
Separate Account, if any, may be assessed against the Separate Account.
(b) Tax Status of the Policy. The Code (section 7702) includes a definition of a
life insurance contract for federal tax purposes, which places limitations
on the amount of premiums that may be paid for the Policy and the
relationship of the Accumulation Value to the Death Benefit. American
National believes that the Policy meets the statutory definition of a life
insurance contract. If the Death Benefit of a Policy is increased or
decreased, the applicable definitional limitations may change. In the case
of a decrease in the Death Benefit, a partial surrender, a change from
Option B to Option A, or any other such change that reduces future benefits
under the Policy during the first 15 years after a Policy is issued and that
results in a cash distribution to the Policyowner in order for the Policy to
continue complying with the section 7702 definitional limitations on
premiums and Accumulation Values, the Policyowner will be taxed as ordinary
income (to the extent of any gain in the Policy) on certain amounts
prescribed in section 7702 which are so distributed.
The Code (section 7702A) also defines a "modified endowment contract" for
federal tax purposes which causes distributions to be taxed as ordinary income
to the extent of any gain. This Policy will become a "modified endowment
contract" if the premiums paid into the Policy fail to meet a 7-pay premium
test as outlined in Section 7702A of the Code.
Certain benefits the Insured may elect under this Policy may be material
changes affecting the 7-pay premium test. These include changes in Death
Benefits and changes in the Policy amount. Should the Policy become an MEC,
partial or full surrenders, assignments and loans (including loans to pay loan
interest) under or secured by the Policy will be taxable to the Policyowner to
the extent of any gain under the Policy. A 10% penalty tax also applies to the
taxable portion of any distribution prior to the Insured's age 59 1/2. The
10% penalty tax does not apply if the Insured is disabled as defined under the
Code or if the distribution is paid out in the form of a life annuity on the
life of the Insured or the joint lives of the Insured and Beneficiary. One may
avoid a Policy becoming a modified endowment contract by, among other things,
not making excessive payments or reducing benefits. If American National
determines that excessive premium payments have been made during a Policy
Year, it will notify the Policyowner that the Policy may be treated as an MEC,
explain the tax consequences of such treatment and give the Policyowner the
option to have the excessive premiums refunded. If requested by the
Policyowner within thirty (30) days after receipt of such notice, American
National will make such refund. Should one deposit excessive premiums during a
Policy Year, that portion that is returned by the insurance company within 60
days after the policy anniversary will reduce the premiums paid to avoid the
Policy becoming a Modified Endowment Contract.
The Code (section 817(h)) also authorizes the Secretary of the Treasury (the
"Treasury") to set standards by regulation or otherwise for the investments of
the Account to be "adequately diversified" in order for the Policy to be
treated as a life insurance contract for federal tax purposes. The Separate
Account, through the American National Fund and the Fidelity Funds, intends to
comply with the diversification requirements prescribed by the Treasury in
temporary regulations published
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in the Federal Register on September 15, 1986, which affect how such Funds'
assets may be invested.
However, American National believes that the American National Fund and the
Fidelity Funds will meet the diversification requirements and American
National will monitor compliance with this requirement. Thus, American
National believes that the Policy will be treated as a life insurance contract
for federal tax purposes.
In connection with the issuance of temporary regulations relating to the
diversification requirements, the Treasury announced that such regulations do
not provide guidance concerning the extent to which Policyowners may direct
their investments to particular divisions of a Separate Account.
Regulations in this regard are expected in the near future. It is not clear
what these regulations will provide nor whether they will be prospective only.
It is possible that when regulations are issued, the Policy may need to be
modified to comply with such regulations. For these reasons, American National
reserves the right to modify the Policy as necessary to prevent the
Policyowner from being considered the owner of the assets of the Separate
Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal tax purposes.
(c) Tax Treatment of Policy Proceeds. American National believes that the Policy
will be treated in a manner consistent with a fixed benefit life insurance
policy for federal income tax purposes. Thus, American National believes
that the Death Benefit payable under either Death Benefit option under the
Policy will be excludable from the gross income of the Beneficiary under
section 101(a)(1) of the Code and the Policyowner will not be deemed to be
in constructive receipt of the Accumulation Value under the Policy until its
actual surrender. However, in the event of certain cash distributions under
the Policy resulting from any change which reduces future benefits under the
Policy, the distribution will be taxed in whole or in part as ordinary
income (to the extent of gain in the Policy). See discussion on page 27,
"Tax Status of the Policy".
American National also believes that loans received under a Policy will be
treated as Policy Debt of the Policyowner and that no part of any loan under a
Policy will constitute income to the Policyowner so long as the Policy remains
in force, unless the Policy becomes a Modified Endowment Contract. However, if
the Policy lapses while the loan is outstanding, the loan proceeds will be
included in the Policyowner's taxable income, in the year of lapse, to the
extent the proceeds constitute gain under the Policy. Generally, interest paid
on any loan under a Policy owned by an individual will not be tax-deductible.
In addition, interest on any loan under a Policy owned by a taxpayer and
covering the life of any individual who is an officer or is financially
interested in the business carried on by that taxpayer will not be tax-
deductible to the extent the aggregate amount of such loans with respect to
Policies covering such individual exceeds $50,000. Further, even as to
interest on loans up to $50,000 per such individual, such interest would not
be deductible if the Policy were deemed for federal tax purposes to be a
single premium life insurance contract. Policyowners should consult a
competent tax advisor as to whether the Policy would be so deemed.
The right to change owners, and the provision for partial surrenders may have
tax consequences depending on the circumstances of such exchange, change, or
surrender. Upon full surrender or when maturity benefits are paid, if the
amount received plus any Policy Debt exceeds the total premiums paid, the
"basis," that are not treated as previously withdrawn by the Policyowner, the
excess generally will be taxed as ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on applicable
law and the circumstances of each Policyowner or Beneficiary. In addition, if
the Policy is used in connection with tax-qualified retirement plans, certain
limitations prescribed by the Service on, and rules with respect to the
taxation of, life insurance protection provided through such plans may apply.
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. American National maintains records of all
purchases and redemptions of shares of Eligible Portfolios by each of the
Subaccounts.
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VOTING RIGHTS
All of the assets held in the Subaccounts of the Separate Account will be
invested in shares of the corresponding Eligible Portfolios. American National
is the legal holder of those shares and as such has the right to vote to elect
the Board of Directors of the American National Fund and the Fidelity Funds, to
vote upon certain matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund, and to vote upon any other matter
that may be voted upon at a shareholder's meeting. To the extent required by
law, American National will vote all shares of the Eligible Portfolios held in
the Separate Account at regular and special shareholders' meetings in accordance
with instructions received from Policyowners. The number of votes for which each
Policyowner has the right to provide instructions will be determined as of the
record date selected by the Board of Directors of the American National Fund or
the Fidelity Funds, as the case may be. American National will furnish
Policyowners with the proper forms, materials and reports to enable them to give
it these instructions.
The number of shares of an Eligible Portfolio in a Subaccount for which
instructions may be given by a Policyowner is determined by dividing the
Policy's Accumulation Value held in that Subaccount by the net asset value of
one share in the corresponding Eligible Portfolio. Fractional shares will be
counted. Eligible Portfolio shares held in each Subaccount for which no timely
instructions from Policyowners are received and shares held in each Subaccount
which do not support Policyowner interests will be voted by American National in
the same proportion as those shares in that Subaccount for which timely
instructions are received. Voting instructions to abstain on any item to be
voted will be applied on a pro rata basis to reduce the votes eligible to be
cast. Should applicable federal securities laws or regulations permit, American
National may elect to vote shares of the American National Fund or Fidelity
Funds in its own right.
Matters on which Policyowners may give voting instructions include the
following: (1) election of Boards of Directors, (2) ratification of independent
accountants (3) approval of investment advisory agreements for the Eligible
Portfolio(s) corresponding to the Policyowner's selected Subaccount; (4) any
change in the fundamental investment Policies of the Eligible Portfolio(s)
corresponding to the Policyowner's selected Subaccount(s); and (5) any other
matter requiring a vote of the shareholders under the 1940 Act.
Disregard of Voting Instruction. American National may, if required by state
insurance officials, disregard voting instructions if those instructions would
require shares to be voted to cause a change in the subclassification or
investment objectives or policies of one or more of the Eligible Portfolios, or
to approve or disapprove an investment adviser or principal underwriter for the
Eligible Portfolios. In addition, American National itself may disregard voting
instructions that would require changes in the investment objectives or policies
of any Eligible Portfolio or in an investment adviser or principal underwriter
for the Eligible Portfolios, if American National reasonably disapproves those
changes in accordance with applicable federal regulations. If American National
does disregard voting instructions, it will advise Policyowners of that action
and its reasons for the action in the next annual report or proxy statement to
Policyowners.
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 and surrender charges 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 this 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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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
American National and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/ or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, American National believes that
at the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Separate Account or
American National.
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,
and the statements of net assets of American National Variable Life Separate
Account as of December 31, 1997, and the related statements of operations and
statements of changes in net assets for each of the three years in the period
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 distinguished from the financial statements of the Separate
Account and should be considered only as bearing on the ability of American
National to meet its obligations under the Policies. They should not be
considered as bearing on the investment performance of the assets held in the
Separate Account.
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<TABLE>
<CAPTION>
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
___________________________________________________________________________________________________________________________
<S> <C>
ROBERT L. MOODY President, January 1996 to present, Chairman of the Board, April 1982 to
CHAIRMAN OF THE BOARD, DIRECTOR, present, Chief Executive Officer, July 1991 to present, and Director, March 1960
PRESIDENT AND CHIEF EXECUTIVE OFFICER 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 Operating Officer, April 1997 to
SENIOR EXECUTIVE VICE PRESIDENT present. Senior Executive Vice President and Chief Administrative Officer, April
AND CHIEF OPERATING OFFICER 1996 to April 1997. Senior Vice President, Health Insurance Operations, April
DIRECTOR 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. Partner, March 1980 to present,
DIRECTOR 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 National. President and Director,
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 National. Comptroller, December 1962
DIRECTOR 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 National. Director, 1986 to present,
DIRECTOR 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.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FRANCES ANNE MOODY Director, April 1987 to present, American National. Director, 1990 to present,
DIRECTOR National Western Life Insurance Company. Executive Director, 1991 to present,
The Moody Endowment. Investments, Dallas, Texas. Executive Director, January
1998 to present, and Regional Grants Advisor, September 1996 to December 1997,
The Moody Foundation.
RUSSELL S. MOODY Director, April 1986 to present, American National. Director, 1988 to March
DIRECTOR 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 National. Director, January 1969 to
DIRECTOR 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 National. Sheriff, 1980 to present,
DIRECTOR 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 Ordinary Agencies, April 1989 to present,
EXECUTIVE VICE PRESIDENT 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 Service Division, April 1991 to
EXECUTIVE VICE PRESIDENT 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 present, and Senior Vice
EXECUTIVE VICE PRESIDENT 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. Director, Comprehensive Investment Services, Inc.
J.E. POZZI Executive Vice President, Independent Markets, April 1996 to present. Senior
EXECUTIVE VICE PRESIDENT 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.
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
R.J. WELCH Executive Vice President and Chief Actuary, April 1996 to present. Senior Vice
EXECUTIVE VICE PRESIDENT 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 Computing, April 1978 to present,
SENIOR VICE PRESIDENT 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 Administration, April 1994 to present, Vice
SENIOR VICE PRESIDENT President, Life Policy Administration, April 1984 to April 1994, American
National. Vice President, May 1984 to present, American National Life Insurance
Company of Texas. Vice President, August 1992 to present, Director, August 1992
to December 1993, and Advisory Director, December 1993 to present, Garden State
Life Insurance Company. Director, August 1992 until company was merged in
December 1994, Commonwealth Life and Accident Insurance Company. Director,
August 1990 to April 1992, Appalachian National Life Insurance Company.
G.C. LANGLEY Senior Vice President, Human Resources, November 1995 to present. Vice
SENIOR VICE PRESIDENT 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, April 1996 to present, American
SENIOR VICE PRESIDENT 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 1996 to present, Vice President and
SENIOR VICE PRESIDENT AND Controller, 1994 to April 1996, and Assistant Vice President - Financial
CONTROLLER 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 Services, April 1987 to present,
SENIOR VICE PRESIDENT American National.
G.W. TOLMAN Senior Vice President, Corporate Affairs, April 1996 to present, and Vice
SENIOR VICE PRESIDENT President, Corporate Affairs, April 1976 to April 1996, American National.
V.E. SOLER, JR. Vice President, Secretary and Treasurer, 1994 to present, and Vice President and
VICE PRESIDENT, SECRETARY AND Controller, March, 1984 to 1994, American National. Treasurer, October 1984 to
TREASURER 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.
</TABLE>
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Contract Owners of American
National Variable Life Separate Account:
We have audited the accompanying statements of net assets of
the American National Variable Life Separate Account (comprised
of American National (AN) Growth, AN Money Market, AN Balanced,
AN Managed, Fidelity VIP II Investment Grade Bond, Fidelity VIP
II Asset Manager, Fidelity VIP II Index 500, Fidelity VIP Money
Market, Fidelity VIP Equity Income, Fidelity VIP High Income,
Fidelity VIP Growth, Fidelity VIP Overseas, Fidelity VIP II
Contra Fund and Fidelity VIP II Asset Manager Growth Portfolio
Subaccounts) as of December 31, 1997, and the related
statements of operations and the statements of changes in net
assets for the three years in the period then ended. These
financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on
these 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. Our
procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodians. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of the American National Variable Life Separate
Account (comprised of American National (AN) Growth, AN Money
Market, AN Balanced, AN Managed, Fidelity VIP II Investment
Grade Bond, Fidelity VIP II Asset Manager, Fidelity VIP II
Index 500, Fidelity VIP Money Market, Fidelity VIP Equity
Income, Fidelity VIP High Income, Fidelity VIP Growth, Fidelity
VIP Overseas, Fidelity VIP II Contra Fund and Fidelity VIP II
Asset Manager Growth Portfolio Subaccounts) as of December 31,
1997 and the results of its operations and changes in net
assets for each of the three years in the period then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 19, 1998
34
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 7,677 $ 2,282 $ 4,232 $ 5,762
==============================================================================================================
LIABILITIES:
Contract owner reserves $ 3,693 $ 28 $ 835 $ 1,816
Equity of sponsor 3,984 2,254 3,397 3,946
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 7,677 $ 2,282 $ 4,232 $ 5,762
==============================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 4,845,700 2,282,310 3,044,803 3,693,885
Cost $ 5,982 $ 2,282 $ 3,311 $ 4,267
==============================================================================================================
STATEMENTS OF NET ASSETS
December 31, 1997
(In thousands, except for number of shares)
- --------------------------------------------------------------------------------------------------------------
FIDELITY
VIP II FIDELITY FIDELITY FIDELITY
INVESTMENT VIP II VIP II VIP
GRADE ASSET INDEX MONEY
BOND MANAGER 500 MARKET
- --------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 40 $ 850 $ 3,362 $ 118
==============================================================================================================
LIABILITIES:
Contract owner reserves $ 40 $ 850 $ 3,362 $ 118
==============================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 3,173 47,186 29,391 118,072
Cost $ 39 $ 729 $ 2,801 $ 118
==============================================================================================================
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY
VIP VIP
EQUITY HIGH FIDELITY FIDELITY
INCOME INCOME VIP VIP
FUND FUND GROWTH OVERSEAS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 2,344 $ 362 $ 3,779 $ 624
==============================================================================================================
LIABILITIES:
Contract owner reserves $ 2,344 $ 362 $ 3,779 $ 624
==============================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 96,515 26,642 101,849 32,502
Cost $ 1,977 $ 321 $ 3,108 $ 573
==============================================================================================================
STATEMENTS OF NET ASSETS
December 31, 1997
(In thousands, except for number of shares)
- -----------------------------------------------------------------------------------
FIDELITY
FIDELITY VIP II
VIP II ASSET
CONTRA MANAGER
FUND GROWTH
- -----------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 1,056 $ 328
===================================================================================
LIABILITIES:
Contract owner reserves $ 1,056 $ 328
===================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 52,966 20,063
Cost $ 923 $ 293
===================================================================================
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
AN GROWTH PORTFOLIO AN MONEY MARKET PORTFOLIO AN BALANCED PORTFOLIO
----------------------- ------------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------- -----------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 111 $ 81 $ 66 $ 104 $ 96 $ 102 $ 129 $ 101 $ 86
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (26) (13) (7) -- -- -- (6) (5) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 85 $ 68 $ 59 $ 104 $ 96 $ 102 $ 123 $ 96 $ 83
- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments $ 26 $ 27 $ 5 $ -- $ -- $ -- $ 24 $ 8 $ (1)
Capital gains distributions from
mutual funds 541 93 128 -- -- -- 203 43 --
Net unrealized appreciation
of investments during the period 461 579 616 -- -- -- 304 224 429
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $1,028 $ 699 $ 749 $ -- $ -- $ -- $ 531 $ 275 $ 428
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,113 $ 767 $ 808 $ 104 $ 96 $ 102 $ 654 $ 371 $ 511
==================================================================================================================================
STATEMENTS OF OPERATIONS
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II FIDELITY VIP II
AN MANAGED PORTFOLIO INVESTMENT GRADE BOND ASSET MANGER
----------------------- ------------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------- -----------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 94 $ 78 $ 74 $ 1 $ 1 $ -- $ 22 $ 15 $ 5
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (13) (7) (4) -- -- -- (7) (5) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 81 $ 71 $ 70 $ 1 $ 1 $ -- $ 15 $ 10 $ 2
- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on investments $ 29 $ 13 $ 2 $ -- $ -- $ -- $ 16 $ 5 $ 3
Capital gains distributions from
mutual funds 303 81 85 -- -- -- 56 12 --
Net unrealized appreciation (depreciation)
of investments during the period 572 438 548 1 (1) 1 44 38 43
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS $ 904 $ 532 $ 635 $ 1 $ (1) $ 1 $ 116 $ 55 $ 46
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 985 $ 603 $ 705 $ 2 $ -- $ 1 $ 131 $ 65 $ 48
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP EQUITY
INDEX 500 FIDELITY VIP MONEY MARKET INCOME FUND
----------------------- ------------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------- -----------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 14 $ 3 $ 1 $ 10 $ 6 $ 4 $ 22 $ 1 $ 6
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (19) (5) (1) (2) (1) (1) (15) (7) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (5) $ (2) $ -- $ 8 $ 5 $ 3 $ 7 $ (6) $ 4
- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments $ 51 $ 12 $ 8 $ -- $ -- $ -- $ 42 $ 14 $ 6
Capital gains distributions from
mutual funds 29 8 -- -- -- -- 109 22 5
Net unrealized appreciation of investments
during the period 443 99 20 -- -- -- 231 82 53
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS $ 523 $ 119 $ 28 $ -- $ -- $ -- $ 382 $ 118 $ 64
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 518 $ 117 $ 28 $ 8 $ 5 $ 3 $ 389 $ 112 $ 68
==================================================================================================================================
STATEMENTS OF OPERATIONS
(In thousands)
FIDELITY VIP
HIGH INCOME FUND FIDELITY VIP GROWTH FIDELITY VIP OVERSEAS
----------------------- ------------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------- -----------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 20 $ 13 $ 5 $ 17 $ 3 $ 1 $ 7 $ 3 $ 1
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (3) (2) (1) (28) (15) (5) (5) (3) (2)
NET INVESTMENT INCOME (LOSS) $ 17 $ 11 $ 4 $ (11) $ (12) $ (4) $ 2 $ -- $ (1)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments $ 17 $ 2 $ 1 $ 104 $ 27 $ 8 $ 12 $ 3 $ (1)
Capital gains distributions from
mutual funds 2 2 -- 76 76 -- 30 4 --
Net unrealized appreciation of
investments during the period 14 11 16 433 106 125 1 33 22
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $ 33 $ 15 $ 17 $ 613 $ 209 $ 133 $ 43 $ 40 $ 21
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 50 $ 26 $ 21 $ 602 $ 197 $ 129 $ 45 $ 40 $ 20
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
FIDELITY VIP II CONTRA FUND FIDELITY VIP II ASSET MANAGER GROWTH
- --------------------------------------------------------------------------------------------------------------------
Year Ended April 28 to Year Ended April 28 to
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- -------------- --------------- --------------
1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividend from mutual funds $ 3 $ -- $ -- $ -- $ 1 $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (6) (1) -- (2) -- --
- --------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (3) $ (1) $ -- $ (2) $ 1 $ --
- --------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments $ 30 $ 1 $ -- $ 6 $ 1 $ --
Capital gains distributions from
mutual funds 9 1 1 -- 1 --
Net unrealized appreciation of
investments during the period 99 34 -- 32 3 --
- --------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $ 138 $ 36 $ 1 $ 38 $ 5 $ --
- --------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 135 $ 35 $ 1 $ 36 $ 6 $ --
====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
<TABLE>
<CAPTION>
AN GROWTH PORTFOLIO AN MONEY MARKET PORTFOLIO AN BALANCED PORTFOLIO
---------------------------- --------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- --------------------------- ----------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 85 $ 68 $ 59 $ 104 $ 96 $ 102 $ 123 $ 96 $ 83
Net realized gain (loss)
on investments 26 27 5 -- -- -- 24 8 (1)
Capital gains distributions
from mutual funds 541 93 128 -- -- -- 203 43 --
Net unrealized appreciation
of investments during the year 461 579 616 -- -- -- 304 224 429
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from operations 1,113 $ 767 $ 808 $ 104 $ 96 $ 102 $ 654 $ 371 $ 511
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and
other transfers $ 1,803 $ 1,119 $ 698 $ (4) $ 7 $ 3 $ 188 $ 287 $ 158
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (676) (431) (219) (5) (7) (19) (128) (114) (73)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets resulting from
policy related
transactions $ 1,127 $ 688 $ 479 $ (9) $ -- $ (16) $ 60 $ 173 $ 85
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 2,240 $ 1,455 $ 1,287 $ 95 $ 96 $ 86 $ 714 $ 544 $ 596
NET ASSETS, BEGINNING OF PERIOD 5,437 3,982 2,695 2,187 2,091 2,005 3,518 2,974 2,378
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 7,677 $ 5,437 $ 3,982 $ 2,282 $ 2,187 $ 2,091 $ 4,232 $ 3,518 $ 2,974
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning
of year 1,135,752 724,184 388,200 31,620 31,356 45,498 417,080 300,056 239,520
Purchase payments 1,055,430 764,538 561,234 17,314 16,986 521,864 207,226 231,309 168,293
Policy withdrawals and
charges (505,745) (352,970) (225,250) (25,145) (16,722) (536,006) (177,037) (114,285) (107,757)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 1,685,437 1,135,752 724,184 23,789 31,620 31,356 447,269 417,080 300,056
===================================================================================================================================
Accumulation unit value $ 2.191 $ 1.826 $ 1.562 $ 1.191 $ 1.147 $ 1.107 $ 1.867 $ 1.578 $ 1.419
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
<TABLE>
<CAPTION>
FIDELITY VIP II INVESTMENT
AN MANAGED PORTFOLIO GRADE BOND FIDELITY VIP II ASSET MANAGER
---------------------------- --------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- --------------------------- ----------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 81 $ 71 $ 70 $ 1 $ 1 $ -- $ 15 $ 10 $ 2
Net realized gain on
investments 29 13 2 -- -- -- 16 5 3
Capital gains distributions
from mutual funds 303 81 85 -- -- -- 56 12 --
Net unrealized appreciation
(depreciation) of
investments during
the period 572 438 548 1 (1) 1 44 38 43
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from
operations $ 985 $ 603 $ 705 $ 2 $ -- $ 1 $ 131 $ 65 $ 48
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and
other transfers $ 821 $ 500 $ 214 $ 34 $ 11 $ 15 $ 259 $ 300 $ 323
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (269) (177) (87) (13) (9) (4) (174) (134) (143)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from policy
related transactions $ 552 $ 323 $ 127 $ 21 $ 2 $ 11 $ 85 $ 166 $ 180
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 1,537 $ 926 $ 832 $ 23 $ 2 $ 12 $ 216 $ 231 $ 228
NET ASSETS, BEGINNING OF PERIOD 4,225 3,299 2,467 17 15 3 634 403 175
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 5,762 $ 4,225 $ 3,299 $ 40 $ 17 $ 15 $ 850 $ 634 $ 403
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units
beginning of year 577,332 376,409 286,715 15,113 13,555 3,612 526,795 380,380 191,033
Purchase payments 512,013 375,307 209,511 30,889 18,249 15,889 246,245 314,527 458,340
Policy withdrawals and charges (226,207) (174,384) (119,817) (13,746) (16,691) (5,946) (182,940) (168,112) (268,993)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 863,138 577,332 376,409 32,256 15,113 13,555 590,100 526,795 380,380
===================================================================================================================================
Accumulation unit value $ 2.104 $ 1.734 $ 1.487 $ 1.236 $ 1.143 $ 1.118 $ 1.440 $ 1.204 $ 1.060
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
41
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
<TABLE>
<CAPTION>
FIDELITY VIP EQUITY
FIDELITY VIP II INDEX 500 FIDELITY VIP MONEY MARKET INCOME FUND
---------------------------- --------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- --------------------------- ----------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (5) $ (2) $ -- $ 8 $ 5 $ 3 $ 7 $ (6) $ 4
Net realized gain on
investments 51 12 8 -- -- -- 42 14 6
Capital gains distributions
from mutual funds 29 8 -- -- -- -- 109 22 5
Net unrealized appreciation of
investments during the period 443 99 20 -- -- -- 231 82 53
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from
operations $ 518 $ 117 $ 28 $ 8 $ 5 $ 3 $ 389 $ 112 $ 68
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and
other transfers $ 2,489 $ 959 $ 211 $ 184 $ 182 $ 93 $ 1,245 $ 908 $ 402
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (773) (176) (41) (198) (112) (48) (532) (229) (110)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets resulting
from policy related
transactions $ 1,716 $ 783 $ 170 $ (14) $ 70 $ 45 $ 713 $ 679 $ 292
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS $ 2,234 $ 900 $ 198 $ (6) $ 75 $ 48 $ 1,102 $ 791 $ 360
NET ASSETS, BEGINNING OF PERIOD 1,128 228 30 124 49 1 1,242 451 91
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 3,362 $ 1,128 $ 228 $ 118 $ 124 $ 49 $ 2,344 $ 1,242 $ 451
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning
of year 689,690 169,496 30,107 108,971 45,001 1,057 791,383 325,005 87,747
Purchase payments 1,392,020 684,812 223,570 2,808,229 2,587,084 1,153,659 779,052 703,798 382,366
Policy withdrawals
and charges (516,966) (164,618) (84,181)(2,817,894)(2,523,114) (1,109,715) (394,752) (237,420) (145,108)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end
of year 1,564,744 689,690 169,496 99,306 108,971 45,001 1,175,683 791,383 325,005
===================================================================================================================================
Accumulation unit value $ 2.149 $ 1.636 $ 1.344 $ 1.189 $ 1.138 $ 1.089 $ 1.993 $ 1.570 $ 1.386
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
42
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
<TABLE>
<CAPTION>
FIDELITY VIP HIGH INCOME FUND FIDELITY VIP GROWTH FIDELITY VIP OVERSEAS
----------------------------- --------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------- --------------------------- ----------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 17 $ 11 $ 4 $ (11) $ (12) $ (4) $ 2 $ -- $ (1)
Net realized gain (loss)
on investments 17 2 1 104 27 8 12 3 (1)
Capital gains distributions
from mutual funds 2 2 -- 76 76 -- 30 4 --
Net unrealized appreciation of
investments during the period 14 11 16 433 106 125 1 33 22
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from
operations $ 50 $ 26 $ 21 $ 602 $ 197 $ 129 $ 45 $ 40 $ 20
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and
other transfers $ 131 $ 162 $ 120 $ 1,692 $ 1,725 $ 931 $ 301 $ 196 $ 201
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (112) (56) (44) (928) (540) (239) (137) (87) (94)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from
policy related
transactions $ 19 $ 106 $ 76 $ 764 $ 1,185 $ 692 $ 164 $ 109 $ 107
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 69 $ 132 $ 97 $ 1,366 $ 1,382 $ 821 $ 209 $ 149 $ 127
NET ASSETS, BEGINNING OF
PERIOD 293 161 64 2,413 1,031 210 415 266 139
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 362 $ 293 $ 161 $ 3,779 $ 2,413 $ 1,031 $ 624 $ 415 $ 266
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units
beginning of year 229,426 142,673 68,118 1,639,026 795,944 217,870 358,029 257,859 146,175
Purchase payments 150,869 149,948 125,033 1,226,338 1,377,553 881,338 277,039 224,939 315,300
Policy withdrawals and charges (137,057) (63,195) (50,478) (768,193) (534,471) (303,264) (148,117) (124,769) (203,616)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 243,238 229,426 142,673 2,097,171 1,639,026 795,944 486,951 358,029 257,859
===================================================================================================================================
Accumulation unit value $ 1.487 $ 1.276 $ 1.129 $ 1.802 $ 1.472 $ 1.295 $ 1.282 $ 1.159 $ 1.033
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
FIDELITY VIP II CONTRA FUND FIDELITY VIP II ASSET MANAGER GROWTH
- --------------------------------------------------------------------------------------------------------------------
Year Ended April 28 to Year Ended April 28 to
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------- -------------- --------------- --------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (3) $ (1) $ -- $ (2) $ 1 $ --
Net realized gain on investments 30 1 -- 6 1 --
Capital gains distributions from
mutual funds 9 1 1 -- 1 --
Net unrealized appreciation of
investments during the period 99 34 -- 32 3 --
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting
from operations $ 135 $ 35 $ 1 $ 36 $ 6 $ --
- ----------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and other transfers $ 888 $ 370 $ 63 $ 295 $ 103 $ 7
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees (341) (86) (9) (60) (58) (1)
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 547 $ 284 $ 54 $ 235 $ 45 $ 6
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 682 $ 319 $ 55 $ 271 $ 51 $ 6
NET ASSETS, BEGINNING OF PERIOD 374 55 -- 57 6 --
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 1,056 $ 374 $ 55 $ 328 $ 57 $ 6
======================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year 268,243 47,195 -- 44,756 5,488 --
Purchase payments 643,516 317,208 54,937 216,107 108,188 7,100
Policy withdrawals and charges (296,576) (96,160) (7,742) (53,460) (68,920) (1,612)
- ----------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 615,183 268,243 47,195 207,403 44,756 5,488
======================================================================================================================
Accumulation unit value $ 1.717 $ 1.395 $ 1.161 $ 1.583 $ 1.277 $ 1.079
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
44
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL ... American National Variable Life Separate Account (Separate
Account) was established on July 30,1987 under Texas law as a separate
investment account of American National Insurance Company (the Sponsor). The
Separate Account began operations on February 20, 1991. The assets of the
Separate Account are segregated from the Sponsor's other assets and are used
only to support variable life products issued by the Sponsor.
The Separate Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. There are currently fourteen
subaccounts within the Separate Account, each of which is invested only in a
corresponding portfolio of the American National (AN) or Fidelity Funds. The
American National Funds were organized and are managed for a fee by Securities
Management & Research, Inc. (SM&R) which is a wholly-owned subsidiary of the
Sponsor. The Fidelity Funds were organized and are managed for a fee by
Fidelity Management & Research Co. ("FMR")
BASIS OF PRESENTATION...The financial statements of the Separate Account have
been prepared on an accrual basis in accordance with generally accepted
accounting principles.
INVESTMENTS...Investments in shares of the separate investment portfolios are
stated at market value which is the net asset value per share as determined by
the respective portfolios. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the
basis of identified cost. Capital gain distributions from mutual funds are
recorded and reinvested upon receipt. Dividends received from mutual funds are
reinvested daily in additional shares of the portfolios and are recorded as
dividend income on the record date.
FEDERAL TAXES... The operations of the Separate Account form a part of, and
are taxed with, the operations of the Sponsor. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the contract owners are not
taxed to the Sponsor. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on distributions received by the
subaccounts. Accordingly, no provision for income taxes is required in the
accompanying financial statements.
USE OF ESTIMATES...The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and the reported amounts of income and
expenses during the period. Operating results in the future could vary from the
amounts derived from management's estimates.
RECLASSIFICATIONS...Certain items in the 1996 and 1995 financial statements
have been reclassified to conform with the 1997 presentation.
(2) SPONSOR'S INVESTMENT
On March 1, 1991 the Sponsor made a $7,000,000 initial investment in the
Separate Account. This investment had a total market value of $13,581,000 at
December 31, 1997. This initial investment may be withdrawn at the discretion
of the Sponsor without penalty.
45
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT CONTINUED
(3) SECURITY PURCHASES AND SALES
The aggregate cost of purchases (including reinvestment of dividend
distributions) and proceeds from sales of investments in the mutual fund
portfolios, for the years ended December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES
AN Growth Portfolio $ 1,827 $ 74 $ 968 $ 119 $ 717 $ 50
AN Money Market Portfolio 122 27 110 13 415 329
AN Balanced Portfolio 524 138 368 56 205 37
AN Managed Portfolio 1,035 100 546 71 342 60
Fidelity VIPII Investment Grade Bond 32 11 13 11 12 2
Fidelity VIPII Asset Manager 254 99 240 52 273 91
Fidelity VIPII Index 500 1,924 184 834 44 220 50
Fidelity VIP Money Market 1,623 1,629 1,820 1,745 795 747
Fidelity VIP Equity Income Fund 1,005 177 756 61 344 43
Fidelity VIP High Income Fund 142 105 144 25 97 17
Fidelity VIP Growth 1,139 310 1,340 91 725 37
Fidelity VIP Overseas 259 62 150 37 183 76
Fidelity VIPII Contra Fund 668 115 295 11 56 2
Fidelity VIPII Asset Manager Growth 262 28 66 18 7 1
- --------------------------------------------------------------------------------------------------
Totals $10,816 $3,059 $7,650 $2,354 $4,391 $1,542
==================================================================================================
</TABLE>
(4) POLICY CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGES...The mortality risk and expense risk
charges, at an effective annual rate of up to 0.90%, are applied daily against
the net assets representing equity of contract owners held in each subaccount.
MONTHLY ADMINISTRATIVE CHARGES ...A monthly administrative charge is deducted
from each policy. During the first twelve (12) policy months, this charge will
be $2.50 plus a fee ranging from $0.0632 to $2.59 per $1,000 of the
policyowner's death benefit from age 0 to 75, respectively. Thereafter, such
monthly administrative charge shall be a maximum of $2.50, plus $0.025 per
$1,000 of the policyowner's death benefit.
SURRENDER CHARGE...A surrender charge is imposed upon the surrender of
variable life insurance contracts to compensate the Sponsor for sales and other
marketing expenses. The amount of any surrender charge will depend on the
number of years that have elapsed since the contract was issued. No surrender
charge will be imposed on death benefits.
TRANSFER CHARGE... A $25 transfer charge is imposed after the first four
transfers in any one policy year for transfers made among the subaccounts.
PREMIUM CHARGES...Premiums paid will be reduced by a 4% sales charge to
compensate the Sponsor for expenses associated with distributing the policy. In
addition, a $2.00 transaction charge will be deducted to reimburse the Sponsor
for billings and confirmations. Premium taxes for certain jurisdictions are
deducted from premiums paid at rates ranging from zero to 4%.
46
<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 48 through 63)
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 19, 1998
47
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------
PREMIUMS AND OTHER REVENUE
<S> <C> <C>
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.
48
<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.
49
<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.
50
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
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.
51
<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 Standard (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
52
<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 casualty
insurance business consist principally of commissions,
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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).
54
<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>
55
<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.
BONDS-HELD- BONDS-AVAILABLE-
TO-MATURITY FOR-SALE
- -----------------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- -----------------------------------------------------------------------------
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
=============================================================================
Proceeds from sales of investments in securities classified as available-for-
sale (bonds and stocks) 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 the
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):
1997 1996
- -------------------------------------------------------
Bonds available-for-sale $ 13,391 $(22,725)
Preferred stocks 352 (262)
Common stocks 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
=======================================================
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 values 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):
GAINS (LOSSES) FROM
INVESTMENT INCOME DISPOSALS OF INVESTMENTS
- --------------------------------------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
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
===============================================================================
56
<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.
57
<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 through 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.
58
<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>
59
<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):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------
Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)%
=========================================================================================
</TABLE>
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):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C>
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)
================================================================================
</TABLE>
60
<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.
61
<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:
1997 1996
- --------------------------------------------------------------------------------
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%
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
62
<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.
63
<PAGE>
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS AND ACCUMULATION VALUES
The following tables illustrate how the Accumulation Values, Surrender Values
and Death Benefits of a Policy may change with the investment experience of the
American National Fund and the Fidelity Funds. The tables show how the
Accumulation Values, Surrender Values and Death Benefits of a Policy issued to
an Insured of a given age and specified underwriting risk classification who
pays the given premium annually would vary over time if the investment return on
the assets held in each Eligible Portfolio of the American National and Fidelity
Funds were a uniform, gross, after-tax annual rate of 0%, 6% or 12%. The tables
on pages 65 through 68 illustrate a Policy issued to a male, age 45, under a
standard rate non-smoker underwriting risk classification. The Accumulation
Values, Surrender Values and Death Benefits would be different from those shown
if the gross annual investment rates of return averaged 0%, 6% and 12% over a
period of years, but fluctuated above and below those averages for individual
policy years, or if the Insured were assigned to a different underwriting risk
classification, or if the Policyowner elects to stop paying premiums or makes
unscheduled premium payments.
The second column of the tables shows the accumulated value of the premiums
paid at five percent. The following columns show the Death Benefits, Surrender
Values and the Accumulation Values for uniform hypothetical rates of return
shown in these tables. The tables on pages 65 and 67 are based on the current
cost of insurance rates, current expense deductions and current premium charges.
These reflect the basis on which American National currently sells its policies.
The maximum cost of insurance rates allowable under the Policy are based upon
the 1980 Commissioner's Standard Ordinary Smoker and Non-smoker, Male and Female
Mortality Tables. Since these are recent tables and are split to reflect smoking
habits and sex, the current cost of insurance rates used by American National
are at this time equal to the guaranteed cost of insurance rates for some ages.
American National's current cost of insurance rates as applied are intended to
reflect its current mortality experience. Should American National's mortality
risk improve with experience, American National anticipates reflecting the
improvement in the rates actually applied. American National also anticipates
reflecting any future improvements in expenses incurred by applying lower
percent of premiums of loads and other expense deductions. The Death Benefits,
Surrender Values and Accumulation Values shown in the tables on pages 66 and 68
are based on the assumption that the maximum allowable cost of insurance rates
as described above ("guaranteed cost") and maximum allowable expense deductions
are made throughout the life of the Policy.
The amounts shown for the Death Benefits, Surrender Values and Accumulation
Values reflect the fact that the net investment return of the Subaccounts is
lower than the gross, after-tax return of the assets held in the American
National and Fidelity Funds as a result of expenses paid by the American
National and Fidelity Funds and charges levied against the Subaccount. The
values shown take into account an average of the daily investment advisory fee
and management fee paid by each Eligible Portfolio of the American National and
Fidelity Funds, the expenses incurred by the American National and Fidelity
Funds (0), and the daily charge by American National to each Subaccount for
assuming mortality and expense risks (which is equivalent to a charge at an
annual rate of 0.9% for all Policy Years). The advisory fees, management fees
and American National and Fidelity Funds expenses were estimated. SM&R has
agreed to reimburse each Portfolio of the American National Fund by the amount,
if any, that its total operating expenses (exclusive of interest expense, taxes,
brokerage fees and commissions and extraordinary expenses) exceed, on a pro rata
basis, 1.5% of the average daily net assets of such Portfolio. These
reimbursement agreements will continue in force in future years. As long as this
reimbursement continues for an Eligible Portfolio, it will lower such Eligible
Portfolio's expense ratio and increase its yield. The illustrated gross annual
investment rates of return of 0%, 6% and 12% were computed after deducting these
amounts and correspond to approximate net annual rates of -1.65%, 4.35% and
10.35%.
The hypothetical values shown in the tables do not reflect any charges for
federal income tax burden attributable to the Separate Account, since American
National is not currently making such charges. However, such charges may be made
in the future, and in that event, the gross annual investment rate of return
would have to exceed 0%, 6% or 12% by an amount sufficient to cover the tax
charges in order to produce the Death Benefits and values demonstrated. (See
Federal Tax Matters, page 26.)
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid as indicated, if
all Net Premiums are allocated to the Separate Account, and if no Policy loans
have been made. The tables are also based on the assumptions that the
Policyowner has not requested an increase or decrease in the Specified Amount,
that no partial Surrenders have been made, and that no more than four transfers
have been made in any Policy Year so that no transfer charges have been
incurred. Illustrated values would be different if the proposed Insured were
female, a smoker, in substandard risk classification, or were another age, or if
a higher or lower premium was illustrated.
Upon request, American National will provide a comparable illustration based
upon the proposed Insured's age, sex and underwriting classification, the
Specified Amount, the Death Benefit option, and Planned Periodic Premium
schedule requested, and any available riders requested.
64
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE
ENDOWMENT AT 95
OPTION A SPECIFIED AMOUNT INCLUSIVE OF POLICY VALUE
MALE ISSUE AGE 45
TOBACCO NON-USER
CURRENT SCHEDULE OF CHARGES
HYPOTHETICAL RATES OF RETURN
PLANNED PERIODIC PREMIUM OF $1,842 ANNUALLY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
0% GROSS 6% GROSS 12% GROSS
- -------------------------------------------------------------------------------------------------
END OF PREMIUMS CASH CASH CASH
POLICY ACCUMULATED SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,934 477 100,000 556 100,000 636 100,000
2 3,965 1,627 100,000 1,906 100,000 2,147 100,000
3 6,097 2,830 100,000 3,296 100,000 3,802 100,000
4 8,336 3,939 100,000 4,726 100,000 5,614 100,000
5 10,687 4,998 100,000 6,194 100,000 7,596 100,000
6 13,156 6,005 100,000 7,698 100,000 9,763 100,000
7 15,747 6,954 100,000 9,234 100,000 12,131 100,000
8 18,469 7,847 100,000 10,804 100,000 14,723 100,000
9 21,326 8,634 100,000 12,410 100,000 17,565 100,000
10 24,327 9,459 100,000 14,054 100,000 20,685 100,000
15 41,735 14,177 100,000 24,645 100,000 43,535 100,000
20 63,953 15,188 100,000 34,495 100,000 78,962 100,000
25 92,309 12,776 100,000 44,842 100,000 137,821 159,872
30 128,499 3,865 100,000 55,181 100,000 232,409 248,678
AGE 65 63,953 15,188 100,000 34,495 100,000 78,962 100,000
- -------------------------------------------------------------------------------------------------
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
</TABLE>
Premium Tax Charges will vary by state of residence. This illustration assumes
2.0%
American National agrees to keep the policy in force during the first 2 policy
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not, after the payment of monthly insurance and
administrative charges, generate positive surrender values during such period.
Values would be different if premiums are paid with a different frequency or if
of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH VALUE WOULD BE
DIFFERENT FROM THOSE SHOWN ABOVE.
65
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE
ENDOWMENT AT 95
OPTION A SPECIFIED AMOUNT INCLUSIVE OF POLICY VALUE
MALE ISSUE AGE 45
TOBACCO NON-USER
GUARANTEED SCHEDULE OF CHARGES
HYPOTHETICAL RATES OF RETURN
PLANNED PERIODIC PREMIUM OF $1,842 ANNUALLY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
0% GROSS 6% GROSS 12% GROSS
- ----------------------------------------------------------------------------------------------
END OF PREMIUMS CASH CASH CASH
POLICY ACCUMULATED SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,934 452 100,000 531 100,000 610 100,000
2 3,965 1,625 100,000 1,853 100,000 2,091 100,000
3 6,097 2,753 100,000 3,212 100,000 3,711 100,000
4 8,336 3,834 100,000 4,609 100,000 5,483 100,000
5 10,687 4,867 100,000 6,043 100,000 7,422 100,000
6 13,156 5,849 100,000 7,512 100,000 9,542 100,000
7 15,747 6,775 100,000 9,013 100,000 11,861 100,000
8 18,469 7,641 100,000 10,545 100,000 14,394 100,000
9 21,326 8,442 100,000 12,101 100,000 17,164 100,000
10 24,327 9,172 100,000 13,681 100,000 20,192 100,000
15 41,735 13,357 100,000 23,586 100,000 42,121 100,000
20 63,953 13,404 100,000 32,160 100,000 75,850 100,000
25 92,309 8,535 100,000 39,610 100,000 132,131 153,272
30 128,499 0 100,000 43,830 100,000 222,108 237,655
AGE 65 63,953 13,404 100,000 32,160 100,000 75,850 100,000
- ----------------------------------------------------------------------------------------------
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
</TABLE>
Premium Tax Charges will vary by state of residence. This illustration assumes
2.0%
American National agrees to keep the policy in force during the first 2 policy
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not, after the payment of monthly insurance and
administrative charges, generate positive surrender values during such period.
Values would be different if premiums are paid with a different frequency or if
of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH VALUE WOULD BE
DIFFERENT FROM THOSE SHOWN ABOVE.
66
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE
ENDOWMENT AT 95
OPTION B SPECIFIED AMOUNT IN ADDITION TO POLICY VALUE
MALE ISSUE AGE 45
TOBACCO NON-USER
CURRENT SCHEDULE OF CHARGES
HYPOTHETICAL RATES OF RETURN
PLANNED PERIODIC PREMIUM OF $4,034 ANNUALLY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
0% GROSS 6% GROSS 12% GROSS
- ------------------------------------------------------------------------------------------------
END OF PREMIUMS CASH CASH CASH
POLICY ACCUMULATED SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,236 2,389 102,969 2,591 103,172 2,794 103,375
2 8,683 5,461 106,243 6,065 106,847 6,693 107,475
3 13,353 8,451 109,435 9,668 110,652 10,986 111,970
4 18,256 11,357 112,543 13,406 114,592 15,712 116,898
5 23,405 14,175 115,562 17,277 118,664 20,908 122,295
6 28,811 16,902 118,491 21,282 122,871 26,619 128,208
7 34,487 19,531 121,322 25,419 127,210 32,889 134,680
8 40,447 22,064 124,057 29,694 131,686 39,776 141,769
9 46,705 24,500 126,694 34,109 136,304 47,342 149,536
10 53,276 26,837 129,233 38,669 141,065 55,652 158,048
15 91,400 40,382 140,382 67,138 167,138 114,664 214,664
20 140,057 47,984 147,984 96,334 196,334 203,780 303,780
25 202,158 51,079 151,079 127,969 227,969 344,439 444,439
30 281,415 47,156 147,156 159,344 259,344 565,701 665,701
AGE 65 140,057 47,984 147,984 96,334 196,334 203,780 303,780
- ------------------------------------------------------------------------------------------------
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
</TABLE>
Premium Tax Charges will vary by state of residence. This illustration assumes
2.0%
American National agrees to keep the policy in force during the first 2 policy
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not, after the payment of monthly insurance and
administrative charges, generate positive surrender values during such period.
Values would be different if premiums are paid with a different frequency or if
of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH VALUE WOULD BE
DIFFERENT FROM THOSE SHOWN ABOVE.
67
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE
ENDOWMENT AT 95
OPTION B SPECIFIED AMOUNT IN ADDITION TO POLICY VALUE
MALE ISSUE AGE 45
TOBACCO NON-USER
GUARANTEED SCHEDULE OF CHARGES
HYPOTHETICAL RATES OF RETURN
PLANNED PERIODIC PREMIUM OF $4,034 ANNUALLY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
0% GROSS 6% GROSS 12% GROSS
- --------------------------------------------------------------------------------------------------
END OF PREMIUMS CASH CASH CASH
POLICY ACCUMULATED SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,236 2,365 102,945 2,566 103,147 2,769 103,349
2 8,683 5,412 106,194 6,013 106,795 6,638 107,420
3 13,353 8,376 109,360 9,586 110,570 10,897 111,881
4 18,256 11,255 112,440 13,291 114,476 15,583 116,768
5 23,405 14,047 115,434 17,128 118,515 20,736 122,123
6 28,811 16,748 118,337 21,098 122,687 26,400 127,989
7 34,487 19,355 121,146 25,202 126,993 32,621 134,412
8 40,447 21,862 123,855 29,437 131,430 39,450 141,442
9 46,705 24,263 126,457 33,802 135,996 46,940 149,134
10 53,276 26,551 128,947 38,294 140,690 55,153 157,549
15 91,400 39,523 139,523 65,987 165,987 113,058 213,058
20 140,057 46,118 146,118 93,683 193,683 199,752 299,752
25 202,158 46,805 146,805 121,754 221,754 334,482 434,482
30 281,415 38,333 138,333 146,036 246,036 542,962 642,962
AGE 65 140,057 46,118 146,118 93,683 193,683 199,752 299,752
- --------------------------------------------------------------------------------------------------
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
</TABLE>
Premium Tax Charges will vary by state of residence. This illustration assumes
2.0%
American National agrees to keep the policy in force during the first 2 policy
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not, after the payment of monthly insurance and
administrative charges, generate positive surrender values during such period.
Values would be different if premiums are paid with a different frequency or if
of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH VALUE WOULD BE
DIFFERENT FROM THOSE SHOWN ABOVE.
68
<PAGE>
DIAGRAM OF POLICY
This diagram is a summary of certain policy provisions. It should be read in
connection with the prospectus.
- --------------------------------------------------------------------------------
PREMIUM PAYMENTS
. $1,842.00 Annually
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUMS
. Sales charge - 4% $ 73.68
. Premium Tax Charge - 2% 36.84
. Transaction Charge - $2 2.00
-------
$112.52
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET PREMIUMS
1,842 - 112.52 = 1,729.48
ALLOCATION:
(20%) AN Growth Fund $345.90 (40%) AN Money Market Fund $691.79
(30%) AN Managed Fund $518.84 (00%) AN Balanced Fund $000.00
(10%) Fixed Account $172.95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONTHLY DEDUCTIONS
Cost of Insurance $26.26
Administrative Charge 2.50 + (.3447 x 100) = $36.97
------
$63.23
Deducted pro rata from funds and fixed account
Resulting Fund Values
(20%) AN Growth Fund $333.26 (40%) AN Money Market Fund $666.50
(30%) AN Managed Fund $499.86 ( 0%) AN Balanced Fund $ 0.00
(10%) Fixed Account $166.63
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMOUNTS ALLOCATED TO FUNDS THEN PURCHASE SHARES
VALUE - UNIT VALUE = UNITS PURCHASED
AN Growth Fund $333.26 2.15 155.00
AN Managed Fund 499.86 1.75 285.63
AN Money Market Fund 666.50 1.50 444.33
AN Balanced Fund 000.00 1.61 0.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
END OF EACH VALUATION DATE DAILY ASSET CHARGE ASSESSED
AND UNIT VALUES UPDATED.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF SURRENDERED, A CHARGE OF $ 470.93 WILL BE ASSESSED.
Premiums Paid: 1,842.00
Surrender Premium: 1,803.96
THEREFORE
(.26 x 1,803.96) + ((1,842.00 -1,803.96) x .05) = 470.93
- --------------------------------------------------------------------------------
69
<PAGE>
SURRENDER CHARGE CALCULATION
ILLUSTRATION 1a
Male Issue Age 45
TOBACCO NON-USER
Planned Periodic Premium: $001,787
SURRENDER PREMIUM: $001,804
SPECIFIED AMOUNT: $100,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C> <C>
1 1787 1787 (.26) x (1787) + 0 = 464.62
2 1787 3574 (.26) x (1804) + (.05) x ( 3574 - 1804) = 557.54
3 1787 5361 (.26) x (1804) + (.05) x ( 5361 - 1804) = 646.89
4 1787 7148 (.26) x (1804) + (.05) x ( 7148 - 1804) = 736.24
5 1787 8935 (.26) x (1804) + (.05) x ( 8935 - 1804) = 825.53
6 1787 10722 (.26) x (1804) + (.05) x (10722 - 1804) = 914.94
7 1787 12509 (.26) x (1804) + (.05) x (12509 - 1804) = 1004.29
8 1787 14296 (.26) x (1804) + (.05) x (14296 - 1804) = 1093.64
9 1787 16083 (.26) x (1804) + (.05) x (16083 - 1804) = 1182.99
10 1787 17870 (.26) x (1804) + (.05) x (17870 - 1804) = 1272.34
</TABLE>
ILLUSTRATION 1B
Male Issue Age 45
Tobacco Non-user
Planned Periodic Premium: $002,261
SURRENDER PREMIUM: $001,804
SPECIFIED AMOUNT: $100,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C> <C>
1 2261 2261 (.26) x (1804) + (.05) x ( 2261 - 1804) = 491.89
2 2261 4522 (.26) x (1804) + (.05) x ( 4522 - 1804) = 604.94
3 2261 6783 (.26) x (1804) + (.05) x ( 6783 - 1804) = 717.99
4 2261 9044 (.26) x (1804) + (.05) x ( 9044 - 1804) = 831.04
5 2261 11305 (.26) x (1804) + (.05) x (11305 - 1804) = 944.09
6 2261 13566 (.26) x (1804) + (.05) x (13566 - 1804) = 1057.14
7 2261 15827 (.26) x (1804) + (.05) x (15827 - 1804) = 1170.19
8 2261 18088 (.26) x (1804) + (.05) x (18088 - 1804) = 1280.84
9 2261 20349 (.26) x (1804) + (.05) x (18040 - 1804) = 1280.84
10 2261 22610 (.26) x (1804) + (.05) x (18040 - 1804) = 1280.84
</TABLE>
70
<PAGE>
ILLUSTRATION 2A
MALE ISSUE AGE 66
TOBACCO NON-USER
Planned Periodic Premium: $02,750
SURRENDER PREMIUM: $02,994
SPECIFIED AMOUNT: $50,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 2750 2750 (.26) x (2750) + 0 = 715.00
2 2750 5500 (.26) x (2994) + (.05) x ( 5500 - 2994) = 903.74
3 2750 8250 (.26) x (2994) + (.05) x ( 4250 - 2994) = 1041.24
4 2750 11000 (.26) x (2994) + (.05) x (11000 - 2994) = 1178.74
5 2750 13750 (.26) x (2994) + (.05) x (13750 - 2994) = 1316.24
6 2750 16500 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
7 2750 19250 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
8 2750 22000 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
9 2750 24750 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
10 2750 27500 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
</TABLE>
ILLUSTRATION 2B
MALE ISSUE AGE 66
TOBACCO NON-USER
Planned Periodic Premium: $03,200
SURRENDER PREMIUM: $02,994
SPECIFIED AMOUNT: $50,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 3200 3200 (.26) x (2994) + (.05) x ( 3200 - 2994) = 788.74
2 3200 6400 (.26) x (2994) + (.05) x ( 6400 - 2994) = 948.74
3 3200 9600 (.26) x (2994) + (.05) x ( 9600 - 2994) = 1108.74
4 3200 12800 (.26) x (2994) + (.05) x (12800 - 2994) = 1268.74
5 3200 16000 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
6 3200 19200 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
7 3200 22400 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
8 3200 25600 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
9 3200 28800 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
10 3200 32000 (.26) x (2994) + (.05) x (14970 - 2994) = 1377.24
</TABLE>
71
<PAGE>
ILLUSTRATION 3A
MALE ISSUE AGE 72
TOBACCO NON-USER
Planned Periodic Premium: $04,200
SURRENDER PREMIUM: $04,367
SPECIFIED AMOUNT: $50,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 4200 4200 (.26) x (4200) + 0 = 1092.00
2 4200 8400 (.26) x (4367) + (.05) x ( 8400 - 4367) = 1337.07
3 4200 12600 (.26) x (4367) + (.05) x (12600 - 4367) = 1547.07
4 4200 16800 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
5 4200 21000 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
6 4200 25200 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
7 4200 29400 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
8 4200 33600 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
9 4200 37800 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
10 4200 42000 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
</TABLE>
ILLUSTRATION 3B
MALE ISSUE AGE 72
TOBACCO NON-USER
Planned Periodic Premium: $04,450
SURRENDER PREMIUM: $04,367
SPECIFIED AMOUNT: $50,000
Death Benefit: Option A
<TABLE>
<CAPTION>
TOTAL SURRENDER
YEAR PREMIUM PREMIUM SURRENDER CHARGE CALCULATION CHARGE
<S> <C> <C> <C> <C>
1 4450 4450 (.26) x (4367) + (.05) x ( 4450 - 4367) = 1139.57
2 4450 8900 (.26) x (4367) + (.05) x ( 8900 - 4367) = 1362.07
3 4450 13350 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
4 4450 17800 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
5 4450 22250 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
6 4450 26700 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
7 4450 31150 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
8 4450 35600 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
9 4450 40050 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
10 4450 44500 (.26) x (4367) + (.05) x (13101 - 4367) = 1572.12
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF
AMERICAN
NATIONAL
APPEARS PURCHASER SUITABILITY FORM & ARBITRATION AGREEMENT
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>
73
<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 by my (our) signature(s) below agree not to seek rescission of
the applicable variable product issued or damages based on its unsuitability.
________________________________________ ______________________________________
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.
PURCHASER AGREEMENT TO ARBITRATION
(THIS SECTION IS NOT APPLICABLE TO MISSOURI RESIDENTS)
The following conditions are agreed to by all parties to this agreement.
1. Arbitration is final and binding on the parties.
2. The parties are waiving their right to seek remedies in court, including the
right to a jury trial.
3. Pre-arbitration discovery is generally more limited and different from court
proceedings.
4. The arbitrators' award is not required to include factual findings or legal
reasoning and any party's right to appeal or to seek modification of rulings
by arbitrators is strictly limited.
5. The panel of arbitrators will typically include a minority of arbitrators who
were or are affiliated with the securities industry.
By signature below, I (we) understand that I (we) have the right to any dispute
between us arising under the federal securities laws to be resolved through
litigation in the courts. In lieu of using the courts, I (we) may agree, after
any such dispute has arisen, to settle it by arbitration before an appropriate
group of arbitrators. However, I (we) understand that any other dispute between
us arising out of any transaction or this agreement shall be settled by
arbitration before the National Association of Securities Dealer, Inc., which
must be commenced by a written notice of intent to arbitrate. Judgment upon any
award may be entered in any appropriate court.
I (we) further understand that we may not bring a punitive or certified class
action to arbitration, nor seek to enforce any pre-dispute arbitration agreement
against anyone who has initiated in court a punitive class action; or who is a
member of a punitive class action until (1) the class action certification is
denied; or (2) the class is decertified; or (3) I (we) are excluded from the
class action by the court. Such forbearance to enforce an agreement to arbitrate
shall not constitute a waiver of any right under this agreement except to the
extent stated herein.
________________________________________ ______________________________________
Purchaser Signature Joint Owner Signature
REGISTERED REPRESENTATIVE STATEMENT & SIGNATURE
Check appropriate boxes.
[ ] Application attached.
[ ] Signed Arbitration Agreement
[ ] 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: _________________________
74
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[LOGO OF AMERICAN NATIONAL APPEARS HERE]
Form 5427 * 5 4 2 7 * 4-98
75
