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Registration Number 333-51035
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Post-Effective Amendment No. 2
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Registrant)
AMERICAN NATIONAL INSURANCE COMPANY
(Exact Name of Depositor)
One Moody Plaza
Galveston, Texas 77550
(Complete Address of Depositor's Principal Executive Offices)
Rex D. Hemme With copy to:
Vice President, Actuary -------------
American National Jerry L. Adams
Insurance Company Greer, Herz & Adams, L.L.P.
One Moody Plaza One Moody Plaza, 18th Floor
Galveston, Texas 77550 Galveston, Texas 77550
(Name and Address of Agent for Service)
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Declaration Required By Rule 24f-2(a)(1): An indefinite number of securities of
the Registrant has been registered under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940. Notice required by Rule
24f-2(b)(1) has been filed in the Office of the Securities and Exchange
Commission on March 31, 1999 for the Registrant's fiscal year ending
December 31, 1998.
=================================================================
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of securities being registered: Variable Life Insurance Policies
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WEALTHQUEST(TM) SHIELD VARIABLE LIFE
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
HOME OFFICE ONE MOODY PLAZA GALVESTON TEXAS 77550
PROSPECTUS MAY 1, 1999 1-800-306-2959
This prospectus describes a variable life insurance policy offered by American
National Insurance Company. The policy provides life insurance protection with
cash value that can be obtained by surrendering the policy or requesting a
policy loan. The death benefits available under your policy can increase if the
value of the policy increases.
Generally, the policy will be a Modified Endowment Contract for federal income
tax purposes. Therefore, all policy loans, assignments and surrenders are
treated first as distributions of taxable income and then as a return of your
basis or investment in the policy. In addition, prior to your reaching age
59 1/2, these distributions generally would be subject to a 10% penalty tax.
The minimum initial premium is $10,000. Additional premiums may be paid, subject
to certain limitations. The value of your policy will vary with the investment
performance of investment options you choose. You can choose to have your net
premium payments (premium payments less applicable charges) allocated to
subaccounts of the American National Variable Life Separate Account and to our
general account. Each subaccount invests in a corresponding portfolio of
American National Investment Accounts, Inc., Variable Insurance Products Fund
II, Variable Insurance Products Fund III, T. Rowe Price International Series,
Inc., T. Rowe Price Equity Series, Inc., T. Rowe Price Fixed Income Series, MFS
Variable Insurance Trust, Van Eck Worldwide Insurance Trust, Federated Insurance
Series, and Lazard Retirement Series, Inc. The portfolios currently available
for purchase by the subaccounts are:
. AN Money Market . MFS Emerging Growth Series
. AN Growth . MFS Research Series
. AN Balanced . MFS Growth With Income Series
. AN Managed . Van Eck Hard Assets
. T. Rowe Price Equity Income . Van Eck Worldwide Emerging Markets
. T. Rowe Price Mid-Cap Growth . Federated Utility Fund II
. T. Rowe Price International Stock . Federated Growth Strategies Fund II
. T. Rowe Price Limited-Term Bond . Federated Fund for U.S.
. VIP Contrafund . Government Securities II
. VIP Asset Manager: Growth . Federated High Income Bond Fund II
. VIP Asset Manager . Federated Equity Income Fund II
. VIP Index 500 . Lazard Retirement Emerging Markets
. VIP Growth Opportunities . Lazard Retirement Small Cap
. MFS Capital Opportunities Series
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
POLICY OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK, NOR IS IT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THE POLICY INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
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TABLE OF CONTENTS
Definitions......................................................... 4
Summary............................................................. 6
The Policy........................................................ 6
Issuance of a Policy.............................................. 6
Allocation of Premiums............................................ 6
Policy Benefits and Rights........................................ 7
Liquidity Considerations.......................................... 8
Charges........................................................... 8
Taxes............................................................. 10
Policy Benefits..................................................... 11
Purposes of the Policy............................................ 11
Death Benefit Proceeds............................................ 11
Death Benefit..................................................... 11
Duration of the Policy............................................ 12
Accumulation Value................................................ 12
Payment of Policy Benefits........................................ 13
Policy Rights....................................................... 15
Loan Benefits..................................................... 15
Surrenders........................................................ 16
Transfers......................................................... 17
Refund Privilege.................................................. 17
Dollar Cost Averaging............................................. 18
Asset Allocation.................................................. 18
Payment and Allocation of Premiums.................................. 19
Issuance of a Policy.............................................. 19
Premiums.......................................................... 19
Premium Flexibility............................................... 19
Allocation of Premiums and Accumulation Value..................... 20
Grace Period and Reinstatement.................................... 20
Charges and Deductions.............................................. 21
Premium Charges................................................... 21
Charges from Accumulation Value................................... 21
Exceptions to Charges............................................. 23
American National Insurance Company, The Separate Account,
The Funds and the Fixed Account.................................... 23
American National Insurance Company............................... 23
The Separate Account.............................................. 24
The Funds......................................................... 26
Fixed Account..................................................... 29
Federal Tax Matters................................................. 30
Introduction...................................................... 30
Tax Status of the Policy.......................................... 30
Tax Treatment of Policy Proceeds.................................. 31
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American National's Income Taxes.................................. 33
Other Information................................................... 34
Sale of the Policy................................................ 34
Year 2000......................................................... 34
The Contract...................................................... 34
Dividends......................................................... 36
Legal Matters....................................................... 37
Legal Proceedings................................................... 37
Registration Statement.............................................. 37
Experts............................................................. 37
Senior Executive Officers and Directors of American National
Insurance Company.................................................. 38
Financial Statements................................................ 44
Appendix............................................................ 67
Illustrations of Death Benefits, Accumulation Values and Surrender
Values............................................................. 69
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DEFINITIONS
ACCUMULATION VALUE. The total amount that a Policy provides for investment at
any time.
AGE AT ISSUE. The age at the Insured's last birthday before the Date of Issue.
AMERICAN NATIONAL FUND. American National Investment Accounts, Inc.
ATTAINED AGE. Age at Issue plus the number of complete Policy Years.
BENEFICIARY. The Beneficiary designated in the application or the late change,
if any, filed and recorded with us.
DAILY ASSET CHARGE. A charge equal to an annual rate of 1.25% of the average
daily Accumulation Value of each subaccount.
DATE OF ISSUE. The Date of Issue in the Policy.
DEATH BENEFIT. The amount of insurance coverage provided under the selected
Death Benefit option.
DEATH BENEFIT PROCEEDS. The proceeds payable upon death of the Insured.
DECLARED RATE. The rate at which interest is credited in the Fixed Account.
EFFECTIVE DATE. The later of the Date of Issue or the date on which:
. the first premium, as shown on the Policy Data Page, has been paid; and
. the Policy has been delivered during the Insured's lifetime and good health.
Any increase in Specified Amount or reinstatement of coverage will take effect
on the Monthly Deduction Date which coincides with or next follows the date we
approve an application for such increase or for reinstatement of the Policy.
ELIGIBLE PORTFOLIO. A Portfolio of the portfolio companies in which a subaccount
can be invested.
FEDERATED FUND. Federated Insurance Series.
FIDELITY FUNDS. Variable Insurance Products Fund II and Variable Insurance
Products Fund III.
FIXED ACCOUNT. A part of our General Account which accumulates interest at a
fixed rate.
GENERAL ACCOUNT. Includes all of our assets except assets segregated into
separate accounts.
INSURED. The person upon whose life the Policy is issued.
LAZARD FUND. Lazard Retirement Series, Inc.
MFS FUND. MFS Variable Insurance Trust
MONTHLY DEDUCTION. The sum of (1) cost of insurance charge and (2) expense
charge shown on the Policy Data Page.
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MONTHLY DEDUCTION DATE. The same date in each succeeding month as the Date
of Issue, except that whenever the Monthly Deduction Date falls on a date other
than a Valuation Date, the Monthly Deduction Date will be deemed to be the next
Valuation Date. The Date of Issue is the first Monthly Deduction Date.
NET AMOUNT AT RISK. Your Death Benefit minus your Accumulation Value.
NET PREMIUM. Premium less any premium charge.
POLICY. The variable life insurance policy described in this prospectus.
POLICY DATA PAGE. The pages of the Policy so titled.
POLICY DEBT. The sum of all unpaid Policy loans and accrued interest thereon.
POLICYOWNER ("You"). 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.
PORTFOLIO COMPANIES. American National Fund, Fidelity Funds, T. Rowe Price
Funds, MFS Fund, Federated Fund, Van Eck Fund and Lazard Fund.
SATISFACTORY PROOF OF DEATH. Submission of the following:
. a certified copy of the death certificate;
. a claimant statement;
. the Policy; and
. any other information that we may reasonably require to establish the validity
of the claim.
SPECIFIED AMOUNT. The minimum Death Benefit under the Policy. The Specified
Amount is an amount you select in accordance with Policy requirements.
SURRENDER PREMIUM. Surrender Premium is calculated separately for the initial
Specified Amount and each increase in Specified Amount. Surrender Premium will
equal the initial premium required to issue the Policy and the initial premium,
if any, required to effect increases in Specified Amount. The Surrender Premium
is shown on the Policy Data Page, or as changed by subsequent endorsements for
increases in Specified Amount.
SURRENDER VALUE. The Accumulation Value less Policy Debt and surrender charges.
T. ROWE PRICE FUNDS. T. Rowe Price International Series, Inc., T. Rowe Price
Fixed Income Series and T. Rowe Price Equity Series, Inc.
VALUATION DATE. Each day the New York Stock Exchange is open for regular
trading.
VALUATION PERIOD. The close of business on one Valuation Date to the close of
business on another.
VAN ECK FUND. Van Eck Worldwide Insurance Trust.
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SUMMARY
The Policy is not available in some states. You should rely only on the
information contained or incorporated by reference in this prospectus. We have
not authorized anyone to provide you with information that is different.
You should read the following summary in conjunction with the detailed
information appearing elsewhere in this prospectus. Unless otherwise indicated,
the description of the Policy assumes that the Policy is in effect and there is
no Policy Debt.
THE POLICY
The Policy is a flexible premium variable life insurance policy.
The Death Benefit under the Policy may, and the Accumulation Value will,
reflect the investment performance of the investments you choose. (See "Death
Benefit," page 11 and "Accumulation Value," page 12). You benefit from any
increase in value and bear the risk that your chosen investment options may
decrease in value. The amount and duration of the life insurance coverage
provided by the Policy is not guaranteed. Further, the Accumulation Value is not
guaranteed, except in the Fixed Account.
ISSUANCE OF A POLICY
In order to purchase a Policy, you must submit an application to us. We review
the application to determine whether the Policy can be issued in accordance with
our underwriting standards. Once the underwriting process is completed, the Date
of Issue is designated. You, however, must submit your initial premium for the
Policy to have an Effective Date. Accordingly, the Date of Issue may be before
the Effective Date. If the underwriting process is not completed within 45 days
after you submit your application and initial premium, we will refund your
premium. Your initial premium can be re-submitted if the underwriting review of
the application is later completed.
ALLOCATION OF PREMIUMS
You can allocate premiums to one or more of the subaccounts and to the Fixed
Account. (See "The Separate Account," page 24 and "Fixed Account," page 29).
The assets of the various subaccounts are invested in Eligible Portfolios. The
prospectuses or prospectus profiles for the Eligible Portfolios accompany this
prospectus.
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Premium payments received before the Date of Issue are held in our General
Account without interest. On the Date of Issue, premiums received on or before
that date are allocated to the subaccount for the AN Money Market Portfolio.
Premium payments received within 15 days after the Date of Issue are also
allocated to the AN Money Market Portfolio. After the 15 day period, premium
payments and Accumulation Value are allocated among the Eligible Portfolios in
accordance with your instructions as contained in the application. The minimum
amount that you can allocate to any one subaccount or to the Fixed Account is
the greater of:
. 1% of Net Premium (for premium allocations) or Accumulation Value, or
. $500.
POLICY BENEFITS AND RIGHTS
Death Benefit. The Death Benefit is at least equal to the Specified Amount. (See
"Death Benefit," page 11.) The Death Benefit Proceeds may be paid in a lump
sum or in accordance with an optional payment plan. (See "Payment of Policy
Benefits," page 13.)
Adjustments to Death Benefit. You can adjust the Death Benefit by increasing the
Specified Amount. Changes in the Specified Amount are subject to certain
limitations. (See "Increase in Specified Amount," page 12).
Accumulation Value and Surrender Value. The Accumulation Value reflects the
investment performance of the chosen subaccounts, the rate of interest paid on
the Fixed Account, premiums paid, and charges deducted from the Policy. There
is no guaranteed minimum Accumulation Value. You can withdraw the entire
Surrender Value. We may charge a surrender charge. (See "Surrenders," page
16). Surrenders may have tax consequences. (See "Federal Tax Matters," page 30).
Policy Loans. After the first Policy Year, you can borrow money from us using
the Policy as security for the loan. (See "Loan Benefits," page 15). Policy
Loans may have tax consequences. (See "Federal Tax Matters," page 30).
Free Look Period. You have a free look period in which to examine a Policy and
return it for a refund. The length of the free look period varies among
different states, but generally runs for 10 days after you receive your Policy.
The date you receive your Policy will not necessarily be the date you submit
your premium. (See "Refund Privilege," page 17.)
Policy Lapse. The Policy will lapse at any time the Surrender Value is
insufficient to pay the Monthly Deductions and the grace period expires without
sufficient additional premium payment. The grace period starts when written
notice of lapse is mailed to your last known address and expires 61 days later.
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LIQUIDITY CONSIDERATIONS
No partial surrenders are permitted under the Policy. Therefore, this Policy has
a limited amount of liquidity. After the first Policy Year, you can, subject to
certain limitations, access a portion of your Accumulation Value through Policy
loans. Loan may have an impact on other Policy benefits. (See "Loan Benefits,"
page 15.)
CHARGES
Premium Charges. After the first Policy Year, any premiums will be reduced by
a 4% premium charge before being allocated in the subaccounts or the Fixed
Account.
Charges from Accumulation Value. The Accumulation Value of the Policy will
be reduced by certain Monthly Deductions and Expense Charges as follows:
. On each Monthly Deduction Date by:
. Cost of Insurance Charge. The maximum cost of insurance charge is Net Amount
at Risk times the guaranteed cost of insurance rate. The guaranteed cost of
insurance is shown on your Policy Data Page.
. Expense Charge. The expense charge is 0.40% of Accumulation Value attributable
to premium paid in the first Policy Year.
. On each Valuation Date, by a Daily Asset Charge not to exceed 1.25% annually
of the average daily Accumulation Value in each subaccount. (See "Charges and
Deductions," page 21.)
Eligible Portfolio Expenses. The values of the units in each subaccount will
reflect the net asset value of shares in the corresponding Eligible Portfolios.
The net asset value of those shares is reduced by the Eligible Portfolios'
expenses.
See the prospectuses for the Portfolio Companies for more detailed information
about the Eligible Portfolios' fees and expenses.
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ELIGIBLE PORTFOLIO ANNUAL EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER PORTFOLIO
FEES EXPENSES EXPENSES MANAGEMENT OTHER EXP. TOTAL EXP.
WITH WITH 12B-1 WITH FEES W/O W/O W/O
REDUCTION REDUCTION FEES REDUCTION REDUCTION REDUCTION REDUCTION
<S> <C> <C> <C> <C> <C> <C> <C>
ANIA Balanced/1/ 0.44 % 0.74% 1.18% 0.50% 0.74% 1.24%
ANIA Growth/1/ 0.36% 0.51% 0.87% 0.50% 0.51% 1.01%
ANIA Managed/1/ 0.16% 0.49% 0.65% 0.50% 0.49% 0.99%
ANIA Money Market/1/ 0.00% 0.87% 0.87% 0.50% 0.87% 1.37%
VIP Asset Manager/2/ 0.54% 0.10% 0.64% 0.54% 0.24% 0.78%
VIP Index 500 0.24% 0.04% 0.28% 0.24% 0.11% 0.35%
VIP Contrafund/2/ 0.59% 0.11% 0.70% 0.59% 0.21% 0.80%
VIP Asset Manager: Growth/2/ 0.59% 0.14% 0.73% 0.59% 0.30% 0.89%
VIP Growth Opportunities/2/ 0.59% 0.12% 0.71% 0.59% 0.21% 0.80%
T. Rowe Price Equity Income/3/ 0.85% 0.00% 0.85%
T. Rowe Price International Stock/3/ 1.05% 0.00% 1.05%
T. Rowe Price Mid-Cap Growth/3/ 0.85% 0.00% 0.85%
T. Rowe Price Limited-Term Bond/3/ 0.70% 0.00% 0.70%
MFS Capital Opportunities Series 0.75% 0.27% 1.02% 0.75% 0.36% 1.11%
MFS Emerging Growth Series 0.75% 0.10% 0.85%
MFS Research Series 0.75% 0.11% 0.86%
MFS Growth With Income Series 0.75% 0.13% 0.88%
Van Eck Worldwide Hard Assets 1.00% 0.16% 1.16% 1.00% 0.20% 1.20%
Van Eck Worldwide Emerging Markets 1.00% 0.50% 1.50% 1.00% 0.61% 1.61%
Federated Utility Fund II 0.68% 0.25% 0.93% 0.75% 0.50% 1.25%
Federated Growth Strategies Fund II 0.44% 0.42% 0.86% 0.75% 0.42% 1.17%
Federated Fund for U.S. Government
Securities II 0.52% 0.33% 0.85% 0.60% 0.58% 1.18%
Federated High Income Bond Fund II 0.60% 0.18% 0.78%
Federated Equity Income Fund II 0.32% 0.61% 0.93% 0.75% 0.61% 1.36%
Lazard Retirement Emerging Markets/4,5/ 1.00% 0.55% 0.25% 1.80%
Lazard Retirement Small Cap/4,5/ 0.75% 0.50% 0.25% 1.50%
</TABLE>
1. 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, 2000, pursuant to which
SM&R has agreed to reimburse the ANIA Money Market Portfolio and the ANIA
Growth Portfolio for expenses in excess of 0.87%; the ANIA Balanced Portfolio
for expenses in excess of 1.18% and the ANIA Managed Portfolio for expenses
in excess of 0.65%, 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.
2. 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 whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses.
3. T. Rowe Price Equity Income and Mid-Cap Growth Portfolios pay T. Rowe Price
an annual all-inclusive fee of 0.85% based on such Portfolios' average daily
net assets. T. Rowe Price Limited-Term Bond Portfolio pays T. Rowe Price an
annual all-inclusive fee of 0.70% based on such Portfolio's average daily net
assets. T. Rowe Price International Stock Portfolio pays Rowe-Price-Fleming
International, Inc. an all-inclusive fee of 1.05% based on such Portfolio's
average daily net assets. These fees pay for investment management services
and other operating costs of the Portfolios.
4. Shares of the Lazard Retirement Portfolios are subject to a Distribution and
Servicing Plan which is a so-called "12b-1 plan" adopted pursuant to Rule
12b-1 under the 1940 Act. Under the Distribution and Servicing Plan, each
Portfolio pays Lazard Freres & Co. LLC ("Lazard Freres"), the distributor for
the Portfolio's shares, for advertising, marketing, and distributing the
Portfolio's shares and for the provision of certain services to Policyowners
with amounts invested in the Portfolios at an annual rate of 0.25% of the
Portfolio's average daily assets. Lazard Freres may, in turn, make payments
to insurance companies such as American National (or affiliates of such
insurance companies) that use the Portfolios to fund their variable annuity
and variable life insurance policies, for providing services to Policyowners
or to certain financial institutions, securities dealers, and other industry
professionals for providing services to participants in qualified pension and
retirement plans that invest in the Portfolios. The fees payable by each
Portfolio to Lazard Freres under the Distribution and Servicing Plan for its
services and for payments to insurance companies and other third parties are
payable without regard to actual expenses incurred. For a more complete
description of the Distribution and Servicing Plan, see the prospectus for
the Lazard Retirement Series.
5. Other expenses are based on estimated amounts for the current fiscal year.
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Surrender Charges. If you surrender your Policy, a surrender charge will be
assessed. The surrender charge for a surrender is assessed based on the amount
of premiums paid and the amount of surrender premium shown on the Policy Data
Page, with the charges being calculated separately for the original Specified
Amount and each increase, if any, in Specified Amount. (See " Surrender Charge,"
page 22.) There are no surrender charges on Premiums in excess of the total
Surrender Premium. The surrender premium is multiplied by the following
percentages:
NUMBER OF YEARS
SINCE SURRENDER
PREMIUM ISSUE/INCREASE ISSUE/INCREASE ISSUE/INCREASE
WAS PAID AGE 0 - 65 AGE 66 - 75 AGE 76 - 90
1 9.00% 8.00% 6.00%
2 8.50% 7.50% 5.50%
3 8.00% 7.00% 5.00%
4 7.00% 6.00% 4.00%
5 6.00% 5.00% 3.00%
6 5.00% 4.00% 2.00%
7 4.00% 3.00% 1.75%
8 3.00% 2.00% 1.50%
9 2.00% 1.75% 1.25%
10 or more 0.00% 0.00% 0.00%
Transfer Charge. The first 12 transfers of Accumulation Value in a Policy Year
are free. Thereafter, a transfer charge of $10 will be deducted from the amount
transferred. (See "Transfer Charge," page 22.)
Annual Fee. A $35 fee will be charged on the first Monthly Deduction Date of
each Policy Year.
TAXES
We intend for the Policy to satisfy the definition of life insurance under the
Internal Revenue Code. Therefore, the Death Benefit Proceeds generally should be
excludible from the gross income of the recipient. Similarly, you should not be
taxed on increases in the Accumulation Value until there is a distribution from
the Policy.
In most cases, the Policy will be a Modified Endowment Contract. If so, all pre-
death distributions, including Policy loans, will be treated first as
distributions of taxable income and then as a return of basis or investment in
the policy. In addition, prior to age 59 1/2 any such distributions generally
will be subject to a 10% penalty tax.
See "Federal Tax Matters," page 30, for a discussion of when distributions, such
as surrenders and loans, could be subject to federal income tax.
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POLICY BENEFITS
Purposes of the Policy
The Policy is designed to provide you:
. life insurance protection, and
. Death Benefits which may and Accumulation Value which will vary with
performance of your chosen investment options.
DEATH BENEFIT PROCEEDS
We will, upon Satisfactory Proof of Death, pay the Death Benefit Proceeds. The
amount of the Death Benefit will be determined at the end of the Valuation
Period in which the Insured dies. Death Benefit Proceeds equal:
. the Death Benefit; minus
. Policy Debt; minus
. unpaid Monthly Deduction.
Subject to the rights of any assignee, we will pay the Death Benefit Proceeds
to:
. the Beneficiary or Beneficiaries, or
. if no Beneficiary survives the Insured, the Insured's estate will receive the
proceeds.
The Death Benefit Proceeds may be paid to the Beneficiary in a lump sum or under
one or more of the payment options in the Policy. (See "Payment of Policy
Benefits," page 13.)
DEATH BENEFIT
Until age 100, the Death Benefit is the Specified Amount or, if greater, the
corridor percentage of Accumulation Value at the end of the Valuation Period
that includes the date of death. The Death Benefit at age 100 and thereafter
equals the Accumulation Value. The applicable percentage declines as the age of
the Insured increases as shown in the following Corridor Percentage Table:
CORRIDOR PERCENTAGE TABLE
ATTAINED CORRIDOR ATTAINED CORRIDOR ATTAINED CORRIDOR
AGE PERCENT AGE PERCENT AGE PERCENT
40 or younger 250 54 157 68 117
41 243 55 150 69 116
42 236 56 146 70 115
43 229 57 142 71 113
44 222 58 138 72 111
45 215 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75 to 90 105
48 197 62 126 91 104
49 191 63 124 92 103
50 185 64 122 93 102
51 178 65 120 94 101
52 171 66 119 95 and thereafter 100
53 164 67 118
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EXAMPLE. Assume that the Insured's Attained Age is between 0 and 40. A
Policy with a $50,000 Specified Amount will generally pay $50,000 in Death
Benefits. However, the Death Benefit will be the greater of $50,000 or 250% of
Accumulation Value. Anytime the Accumulation Value 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. 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 decrease
in 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 charges
or negative investment performance, the Death Benefit will be reduced from
$62,500 to $50,000.
Increase in Specified Amount. Subject to certain limitations, you may increase
the Specified Amount of your Policy. A change in Specified Amount may affect
the cost of insurance charge and have Federal Tax consequences. (See "Cost of
Insurance," page 21 and "Federal Tax Matters," page 30.)
If you want to increase the Specified Amount, you must submit a written
supplemental application and provide evidence of insurability. An additional
premium is required. The minimum additional premium is $5,000. You cannot
increase the Specified Amount if the Insured's Attained Age is over 90. We may
refuse an increase or limit the size or number of increases in a Policy Year.
(See "Charges and Deductions," page 21.)
You have a "free look period" for each increase in Specified Amount. The free
look period will apply only to the increase in Specified Amount. (See "Refund
Privilege," page 17.)
DURATION OF THE POLICY
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, the Policy will lapse and terminate without value. (See "Grace Period
and Reinstatement," page 20.)
ACCUMULATION VALUE
Determination of Accumulation Value. On each Valuation Date, Accumulation
Value is determined as follows:
. the aggregate of the value in each subaccount, determined by multiplying a
subaccount's unit value by the number of units in the subaccount; plus
. the value in the Fixed Account; plus
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. Net Premiums received on the Valuation Date, less
. Accumulation Value securing Policy Debt; less
. any Monthly Deduction processed on that Valuation Date; less
. any federal or state income taxes.
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 on the Valuation Date.
Determination of Unit Value. The unit value of each subaccount is equal to:
. the per share net asset value of the corresponding Eligible Portfolio on the
Valuation Date, multiplied by
. the number of shares held by the subaccount, after the purchase or redemption
of any shares on that date, minus
. the Daily Asset Charge, and divided by
. the total number of units held in the subaccount on the Valuation Date, after
any transfers among subaccounts, or the Fixed Account (and deduction of
transfer charges), but before any other Policy transactions.
PAYMENT OF POLICY BENEFITS
Death Benefit Proceeds will usually be paid within seven days after we receive
Satisfactory Proof of Death. Policy loans and surrenders will ordinarily be paid
within seven days after receipt of your written request. We may defer payment of
any surrender, refund or Policy loan until a premium payment made by check
clears the banking system. Payments may also be postponed in certain other
circumstances. (See "Postponement of Payments," page 36.) You can decide how
benefits will be paid. During the Insured's lifetime, you may arrange for the
Death Benefit Proceeds or surrenders 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. When Death Benefit Proceeds are payable
in a lump sum and no election of an optional payment method is in force at the
death of the Insured, the Beneficiary may select one or more of the optional
payment methods. If you or the Beneficiary do not elect one of these options, we
will pay the benefits in a lump sum.
An election or change of method of payment must be in writing. A change in
Beneficiary revokes any previous election. Further, if the Policy is assigned,
any amount due to the assignee will be paid first in a lump 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
the following four methods:
. Option 1 - Equal Installments for a Fixed Number of Years -- Installments will
include interest at the effective rate of 2.5% per year or at a higher rate,
as our option.
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. Option 2 - Installments for Life with the Option to Choose a Period Certain --
The fixed period may be 10 or 20 years.
. Option 3- Equal Installments of a Fixed Amount Payable Annually, semi-
annually, quarterly, or monthly -- The sum of the installments paid in one
year must be at least $40.00 for each $1,000.00 of proceeds. Installments will
be paid until the total of the following amount is exhausted: (1) the net sum
payable; plus (2) interest at the effective rate of 2.5% per year; plus (3)
any additional interest that we may elect to pay. The final installment will
be the balance of the proceeds payable plus interest.
. Option 4 - Interest Only -- We will hold the proceeds and pay interest at the
effective rate of 2.5% per year or at a higher rate, at our option. On
interest due dates, the payee may withdraw an amount of at least $100.00 from
the amount held.
Any amount left with us for payment under a settlement option will be
transferred to our General Account and will not be affected by the investment
performance associated with the Separate Account. We may make other options
available in the future.
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.
Amounts under the supplemental contact remaining payable after the Beneficiary's
death will be paid to the estate of the Beneficiary or in any other manner
provided for in the supplementary contract or as otherwise provided under
applicable law.
General Provisions for Settlement Options. If the amount held falls below
$2,000.00, we will pay the entire amount to the payee. The first installment
under Option 1, 2 or 3 will be paid the date the proceeds are available. With
our consent, the first installment may be postponed for up to ten years. If
payment is postponed, the proceeds will accumulate with compound interest at the
effective rate of 2.5% per year.
To avoid paying installments of less than $20.00 each, we will:
. change the installments to a quarterly, semi-annual or annual basis; and/or
. reduce the number of installments.
If you elect an option, you may restrict the Beneficiary's right to assign,
encumber, or obtain the discounted present value of any unpaid amount.
Except as permitted by law, unpaid amounts are not subject to claims of a
Beneficiary's creditors.
At our option, a Beneficiary may be permitted to receive the discounted present
value of installments, except under option 2. If the payee dies, under Option 1
or 2 we will pay the discounted present value of any unpaid fixed-period
installments to the payee's estate except Option 2 lifetime. Under Option 3 or
4, we will pay any balance to the payee's estate. The effective interest rate
used to
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compute discounted present value is equal to the rate used in computing the
settlement option plus 1%. With our consent, the option elected may provide for
payment in another manner.
Limitations. You must obtain our consent to have an option under which proceeds
are payable to:
. joint or successive payees, or
. other than a natural person.
POLICY RIGHTS
Loan Benefits
Loan Privileges. After the first Policy Year, you can borrow money from us using
your Policy as security for the loan. The minimum loan amount is $100. Except as
otherwise required by applicable state law or regulation, you can borrow up to
90% of the Surrender Value, as calculated at the end of the Valuation Period
during which your loan request is received. In addition, an amount equal to 10%
of premiums paid is available each year for preferred Policy loans. This amount
does not cumulate. In other words, if you pay $50,000 in initial premium and do
not take out a Policy loan until year 4, only $5,000 is available under this
option for preferred loans. You can, however, take out $5,000 in year 4 and then
another $5,000 in year 5.
Preferred loans accrue interest at a lower rate. We determine whether a loan is
preferred at the time the loan is made. The amount available for a preferred
loan is equal to the lesser of:
. the above-mentioned loan limits, or
. the Accumulation Value less Policy Debt and less premiums paid.
The loan may be repaid in whole or in part during the Insured's lifetime. Loans
generally are funded within seven days after receipt of a written request. (See
"Postponement of Payments," page 36.) Loans may have tax consequences. (See
"Federal Tax Matters," page 30.)
Interest. Loans will accrue interest on a daily basis at a rate of 5.0% per
year. Interest is due and payable on each Policy anniversary date or when a loan
payment is made if earlier. If unpaid, interest will be added to the amount of
the loan and bear interest at the same rate.
Amounts held to secure Policy loans will earn interest at the annual rate of
3.0%, or 5.0% on preferred loans, credited on the Policy anniversary. We will
allocate interest to the subaccounts and the Fixed Account on each Policy
anniversary in the same proportion that premiums are being allocated to those
subaccounts and the Fixed Account at that time.
Effect of Policy Loans. When a loan is made, we transfer Accumulation Value
equal to the loan amount from the Separate Account and the Fixed Account to
our General Account as security for the Policy Debt. The Accumulation Value
transferred will be deducted from the subaccounts and the Fixed Account in
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accordance with your instructions. The minimum amount which can remain in a
subaccount or the Fixed Account as a result of a loan is $100. If you do not
provide allocation instructions, the Accumulation Value transferred will be
allocated among the subaccounts and the Fixed Account pro-rata. If allocation
instructions conflict with the $100 minimum described above, we may allocate
the Accumulation Value transferred among the subaccounts and the Fixed Account
pro-rata. We will also transfer Accumulation Value from the subaccounts
and the Fixed Account to the General Account to secure unpaid loan interest. We
will allocate this transfer among the subaccounts and the Fixed Account as
described above. We will not impose a charge for these transfers. A Policy loan
may have tax consequences. (See "Federal Tax Matters," page 30.)
A Policy loan may permanently affect the Accumulation Value, even if repaid. The
effect could be favorable or unfavorable depending on whether the investment
performance of the subacccount(s)/Fixed Account chosen by you is greater or less
than the interest rate credited to the Accumulation Value held in the General
Account to secure the loan. In comparison to a Policy under which no loan was
made, the Accumulation Value will be lower if the General Account interest rate
is less than the investment performance of the subaccount(s)/Fixed Account, and
greater if the General Account interest rate is higher than the investment
performance of the subaccount(s)/Fixed Account. Since your Death Benefit may be
affected by Accumulation Value, a Policy loan may also affect the amount of the
Death Benefit, even if repaid.
Policy Debt. Policy Debt reduces Death Benefit Proceeds and Surrender Value. If
the Policy Debt exceeds the Accumulation Value less any surrender charge, you
must pay the excess or your Policy will lapse. We will notify you of the amount
which must be paid. (See "Grace Period and Reinstatement," page 20.)
Repayment of Policy Debt. If we receive payments while a Policy loan is
outstanding, unless you designate otherwise in writing, those payments are
treated in the following order:
. repayment of loan interest;
. repayment of loans;
. additional premium.
Payments received as repayment of loans are first applied to non-preferred
loans. As Policy Debt is repaid, we will transfer Accumulation Value equal to
the loan amount repaid from the General Account to the subaccounts and the Fixed
Account. We will allocate the transfers among the subaccounts and the Fixed
Account in the same proportion that premiums are being allocated at the time of
repayment. We will make the allocation at the end of the Valuation Period during
which the repayment is received. If you do not repay the Policy Debt, we will
deduct the amount of the Policy Debt from any amount payable under the Policy.
SURRENDERS
During the life of the Insured, you can surrender the Policy by sending us a
written request. The amount available for surrender is the Surrender Value at
the end of the Valuation Period during which the surrender request is received
at our
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Home Office. Surrenders will generally be paid within seven days of receipt of
the written request. (See "Postponement of Payments," page 36.) Any proceeds
payable upon surrender shall be paid in one sum unless an optional method of
payment is elected. (See "Payment of Policy Benefits," page 13.) Surrenders may
have tax consequences. (See "Federal Tax Matters," page 30.)
You must return the Policy form to us with your request for a surrender.
Coverage under the Policy will terminate as of the date of surrender. We may
deduct a surrender charge. (See "Surrender Charge," page 22.)
If you make a surrender request without providing us a written election not to
have federal and state income taxes withheld, we are required by law to withhold
those taxes from the surrender and to remit those withholdings to the federal
and/or state government.
TRANSFERS
You can transfer Accumulation Value among the subaccounts or from the
subaccounts to the Fixed Account as often as you like. You can make transfers in
person, by mail, or, if a telephone transfer authorization form is on file, by
telephone. The minimum transfer from a subaccount is $250, or the balance of the
subaccount, if less. The minimum that may remain in a subaccount after a
transfer is $100. We will make transfers and determine all values in connection
with transfers on the later of the end of the Valuation Period which includes
the requested transfer date or during which the transfer request is received.
Accumulation Value on the date of a transfer will not be affected except to the
extent of the transfer charge, if applicable. The first 12 transfers in a Policy
Year will be free. We will charge $10 for each additional transfer. Such charge
will be deducted from the amount transferred. (See "Transfer Charge," page 22.)
Transfers resulting from Policy loans, the dollar cost averaging program or the
asset allocation program will not be subject to a transfer charge or be counted
for purposes of determining the number of free transfers.
The minimum amount you can transfer from the Fixed Account to the subaccounts in
a Policy month is the greater of:
. ten percent of the amount in the Fixed Account, or
. $1,000.
We will employ reasonable procedures to confirm that the transfer instructions
communicated by telephone are genuine. These procedures may include some form of
personal identification before acting, providing you written confirmation of the
transaction, and making a tape recording of the telephoned instructions.
REFUND PRIVILEGE
Under state law, you have a free look period in which to examine a Policy and
return it for a refund. The length of the free look period varies among
different states, but generally runs for 10 days after your receipt of the
Policy. If the Policy is canceled during the free look period, you will receive
a refund equal to premiums paid adjusted by investment gains during the 15-day
period such premiums
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have been allocated to the AN Money Market Portfolio. (See "Allocation of
Premiums," page 6.) A free look period also applies to any increase in Specified
Amount. If you cancel the increase, you will receive the amount of premiums
paid attributable to such increase in Specified Amount adjusted by investment
gains or losses.
To cancel the Policy, you should mail or deliver the Policy to our Home Office
or to the office of one of our agents. We may delay paying a refund of premiums
paid by check until the check has cleared your bank. (See "Postponement of
Payments," page 36.)
DOLLAR COST AVERAGING
Under the dollar cost averaging program, you can instruct us to automatically
transfer, on a periodic basis, a predetermined amount or percentage from any one
subaccount or Fixed Account, to any subaccount(s) or Fixed Account. The
automatic transfers can occur monthly, quarterly, semi-annually or annually. The
amount transferred each time must be at least $1,000. The minimum transfer to
each subaccount must be at least $100. At the time the program begins, you must
have at least $10,000 Accumulation Value. Transfers under dollar cost averaging
will be made, and values resulting from the transfers determined, at the end of
the Valuation Period that includes the transfer date designated in your
instructions.
Using dollar cost averaging, you purchase more units when the unit value is low,
and fewer units when the unit value is high. There is no guarantee that the
dollar cost averaging program will result in higher Accumulation Value or
otherwise be successful.
You can specify that only a certain number of transfers will be made, in which
case the program will terminate when that number of transfers has been made. In
addition, the program will terminate if Accumulation Value is less than $5,000
on a transfer date.
You can increase or decrease the amount of transfers or discontinue the program
by sending us written notice or, if a telephone transfer authorization form is
on file, notifying us by phone. There is no charge for this program and
transfers made pursuant to this program will not be counted in determining the
number of free transfers.
ASSET ALLOCATION
Because the subaccounts and the Fixed Account may have different investment
results, your Accumulation Value may not stay in the same percentages as your
initial allocation instructions. At your request, we will rebalance your
Accumulation Value by allocating premiums and transferring Accumulation Value to
ensure conformity with your allocation instructions. We will rebalance your
allocation on a calendar quarter, semi-annual or annual basis according to your
instructions. We will rebalance, and determine any values resulting from the
rebalancing, at the end of the Valuation Period that includes the rebalancing
date in your request. There is no charge for this program and transfers made
pursuant to this program will not be counted in determining the number of free
transfers. At the time the
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program begins, you must have at least $10,000 of Accumulation Value. If the
Accumulation Value is less than $5,000 on a rebalancing date, the program will
be discontinued.
You can request participation in the asset allocation program at any time. You
can discontinue the program by sending us written notice or, if a telephone
transfer authorization form is on file, by calling by telephone.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
If you want to purchase a Policy, you must complete an application and submit it
to our Home Office. We will only issue a Policy to individuals 90 years of age
or less on their last birthday who supply satisfactory evidence of insurability.
Acceptance is subject to our underwriting rules.
The Date of Issue is used to determine Policy anniversary dates, Policy Years
and Policy months.
PREMIUMS
You must pay the initial premium of at least $10,000 for the Policy to be in
force. The initial premium and all other premiums are payable at our Home
Office. Subject to certain limitations, you have flexibility in determining the
frequency and amount of premiums since the Planned Periodic Premium schedule is
not binding on you.
PREMIUM FLEXIBILITY
You may make subsequent premium payments of at least $5,000 at any time, subject
to the premium limitations described herein.
Premium Limitations. Total premiums paid cannot exceed the current maximum
premium limitations established by federal tax laws. If a premium is paid which
would cause total premiums to exceed such maximum premium limitations, we
will only accept that portion of the premium equal to the maximum. We will
return any part of the premium in excess of that amount or apply it as otherwise
agreed. No further premiums will be accepted until permitted under the laws
prescribing maximum premium limitations. We may refuse to accept a premium
or require additional evidence of insurability if the premium would increase Net
Amount at Risk. We may also establish a minimum acceptable premium amount.
Premiums Upon Increase in Specified Amount. If you request an increase in the
Specified Amount, we will notify you if any additional premium is required.
Whether additional premium will be required will depend upon
. the Accumulation Value of the Policy at the time of the increase, and
. the amount of the increase you request.
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ALLOCATION OF PREMIUMS AND ACCUMULATION VALUE
Allocation of Premiums. After deduction of premium charges, premiums are
allocated according to your instructions. (See "Charges and Deductions," page
21.) You can change the allocation without charge by providing proper
notification to our Home Office. Your notice must include the policy number to
which the instructions apply. Your revised allocation instructions will apply to
premiums received by us on or after the date proper notification is received.
Accumulation Value. The value of subaccounts will vary with the investment
performance of these subaccounts and the you bear the risk that those
investments might actually lose money. The performance of these investments
affects the Policy's Accumulation Value, and may affect the Death Benefit as
well.
GRACE PERIOD AND REINSTATEMENT
Grace Period. If the Surrender Value is insufficient to pay the Monthly
Deduction, you have a grace period of sixty-one days to pay an additional
premium. The grace period begins on the date Surrender Value is insufficient to
cover the Monthly Deduction. At the beginning of the grace period, we will mail
you notice to your last known address we have on file advising you of the
necessary additional premium. If you do not pay the additional premium during
the grace period, the Policy will terminate. Policy termination may have adverse
tax consequences. If the Insured dies during the grace period, any overdue
Monthly Deductions and Policy Debt will be deducted from the Death Benefit
Proceeds.
Reinstatement. A Policy may be reinstated any time within five years after
termination. A Policy cannot be reinstated if it was surrendered. Reinstatement
will be effected based on the Insured's underwriting classification at the time
of the reinstatement.
Reinstatement is subject to the following:
. evidence of insurability satisfactory to us;
. reinstatement or repayment of Policy Debt;
. payment of Monthly Deductions not collected during the grace period;
. payment of the premium sufficient to pay the Monthly Deduction for three
months after the date of reinstatement; and
. payment of the premium charge.
The original Date of Issue, and the Effective Dates of increases in Specified
Amount (if applicable), will be used for purposes of calculating Monthly
Deductions and the surrender charge. If any Policy Debt was reinstated, the
amount of the debt will be held in our General Account. Accumulation Value will
then be calculated as described under "Accumulation Value" on page 12. The
Effective Date of reinstatement will be the first Monthly Deduction Date on or
next following the date of we approve the application for reinstatement.
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CHARGES AND DEDUCTIONS
PREMIUM CHARGES
After the first Policy year, any premiums will be reduced by a 4% charge before
being allocated to the subaccounts or the Fixed Account. This charge compensates
us for the cost and risk associated with issuing, maintaining and distributing
the Policy.
CHARGES FROM ACCUMULATION VALUE
We will deduct the following charges from the Accumulation Value:
Monthly Deduction. The Monthly Deduction is the sum of the cost of insurance
charge and the expense charge. The Monthly Deduction compensates us for
providing the insurance benefits and administering the Policy. We deduct the
Monthly Deduction as of the Date of Issue and on each Monthly Deduction Date
thereafter. We will allocate the deduction among the subaccounts and the Fixed
Account pro-rata. The cost of insurance and the administrative charge are
described in more detail below. Because portions of the Monthly Deduction, such
as the cost of insurance, can vary from month to month, the Monthly Deduction
itself may vary in amount from month to month.
The expense charge is guaranteed not to exceed an annual rate 0.40% of the
Accumulation Value attributable to Premium paid in the first Policy Year. The
Accumulation Value attributable to Premium paid in the first Policy Year is
calculated as the first year premium percentage times the Accumulation Value on
the Monthly Deduction Date. The first year premium percentage is recalculated
every time Premium is paid. During the first Policy Year and prior to receiving
any Premium after the first Policy Year, the first year premium percentage
equals:
PP x [1 - (AP/AV)]
where PP is the first year premium percentage immediate prior to the addition of
the new premium, AP is the additional premium and AV is the Accumulation Value
including the new premium.
For example, assume you paid $10,000 of Premium in initial premium and $5,000 on
the first Policy anniversary when the Accumulation Value was $10,500. The first
year premium percentage with the new premium would be 67.74% (100% x
(5,000/15,500)).
Currently, there is no expense charge after the tenth policy year. The expense
charge compensates us for the cost and risk associated with issuing, maintaining
and distributing the Policy.
Cost of Insurance. Currently, the cost of insurance charge for a Policy is a
percentage of the Accumulation Value on the Monthly Deduction Date. The charge
is based on the duration of the insurance and is determined separately for the
Specified Amount at issue and for any increase in Specified Amount. To determine
the cost of insurance, Accumulation Value will be allocated proportionately
based on the original Specified Amount and any increases. We may change the cost
of insurance charges; however, the cost of insurance charge is guaranteed not
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to exceed the guaranteed cost of insurance rates set forth in the current Policy
Data Page. The guaranteed cost of insurance rate depends on the Insured's sex
(except in Montana) and age on the first day of a Policy Year.
The cost of insurance is deducted until Attained Age 100. The cost of insurance
charge compensates us for providing insurance protection under the Policy.
Surrender Charge. If a Policy is surrendered, we may assess a surrender charge
based upon the amount of Premium withdrawn and the amount of the surrender
premium shown on the Policy Data Page. Surrender premiums are calculated
separately for the original Specified Amount and for each increase in Specified
Amount. The surrender charge will never exceed $56.65 per $1000 of Specified
Amount. There are no surrender charges on Premiums in excess of the total
Surrender Premium. The surrender charge compensates us for the costs of
distributing the Policy.
The surrender charge is more substantial in early Policy Years. Accordingly, the
Policy is more suitable for long-term purposes.
Annual Fee. An annual fee of $35 will be assessed each Policy Year. Currently,
if the Accumulation Value exceeds $50,000, the annual fee is waived. The annual
fee compensates us for the cost and risk associated with issuing, maintaining
and distributing the Policy.
Transfer Charge. We will make the first 12 transfers of Accumulation Value in
any Policy Year without a transfer charge. A charge of $10 will be deducted from
the amount transferred for each additional transfer among the subaccounts or
from the subaccounts to the Fixed Account. This charge compensates us for the
costs of effecting the transfer. The transfer charge cannot be increased.
Daily Charges Against the Separate Account. On each Valuation Date, we will
deduct a Daily Asset Charge from the Separate Account. This charge is to
compensate us for mortality and expense risks. The mortality risk is that
Insureds may live for a shorter time than we assumed. If so, we will have to pay
Death Benefits greater than we estimated. The expense risk is that expenses
incurred in issuing and administering the Policy will exceed our estimates. Such
charge shall not exceed 1.25% annually of the average daily Accumulation Value
of each subaccount, but not the Fixed Account. We will deduct the daily charge
from the Accumulation Value of the Separate Account on each Valuation Date.
The deduction will equal the 1.25% annual rate divided by 365 and multiplying
the result by the number of days since the last Valuation Date. We will not
deduct a Daily Asset Charge from the Fixed Account.
Fees and Expenses Incurred by Eligible Portfolios. In addition, the managers of
the Eligible Portfolios will charge certain fees and expenses against the
Eligible Portfolios. (See "Eligible Portfolio Annual Expenses," page 9. Also,
see the funds' prospectuses.) No portfolio fees or expenses will be charged from
the Fixed Account.
Taxes. Currently, we will not make a charge against the Separate Account for
federal, state or local income taxes. We may, however, make such a charge in the
future if income or gains within the Separate Account will incur any Federal
tax,
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or any significant state or local tax treatment of our Company changes. We would
deduct such charges, if any, from the Separate Account and/or the Fixed Account.
We would not realize a profit on such tax charges with respect to the Policy.
EXCEPTIONS TO CHARGES
We may reduce the surrender charge, premium charge, expense charge, cost of
insurance and daily asset charge for, or credit additional amounts on, sales of
the Policy to a trustee, employer, or similar entity where we determine that
such sales result in savings of sales or administrative expenses. In addition,
directors, officers and bona fide full-time employees (and their spouses and
minor children) of the Company or Securities Management and Research, Inc. may
be permitted to purchase the Policy with substantial reductions of surrender
charge, monthly policy charge, cost of insurance or daily asset charge.
The Policy may be sold directly, without compensation, to: (1) a registered
representative, (2) employees, officers, directors, and trustees of our Company
and its affiliated companies, and spouses and immediate family members (i.e.,
children, siblings, parents, and grandparents) of the foregoing, and (3)
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Policy, and spouses and immediate family
member of the foregoing. If sold under these circumstances, a Policy may be
credited in part or in whole with any cost savings resulting from the sale being
direct, rather than through an agent with an associated commission, but only if
such credit will not be unfairly discriminatory to any person.
AMERICAN NATIONAL INSURANCE COMPANY
THE SEPARATE ACCOUNT, THE FUNDS AND THE FIXED ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
We are a stock life insurance company chartered under Texas law in 1905. We
write life, health and accident insurance and annuities and are licensed to do
life insurance business in 49 states, the District of Columbia, Puerto Rico,
Guam and American Samoa. Our home office is located at the American National
Insurance Building, One Moody Plaza, Galveston, Texas 77550. The Moody
Foundation, a charitable foundation established for charitable and educational
purposes, owns approximately 23.7% of our stock and the Libbie S. Moody Trust, a
private trust, owns approximately 37.6%.
We are subject to regulation by the Texas Department of Insurance. In addition,
we are subject to the insurance laws and regulations of other states within
which we are licensed to operate. On or before March 1 of each year we must
submit to the Texas Department of Insurance a filing describing our operations
and reporting on our financial condition and that of the Separate Account as of
December 31 of the preceding year. Periodically, the Department examines our
liabilities and reserves and those of the Separate Account and certifies their
adequacy. A full examination of our operations is also conducted periodically by
the National Association of Insurance Commissioners.
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THE SEPARATE ACCOUNT
We established the Separate Account under Texas law on July 30, 1987. The assets
of the Separate Account are held exclusively for your benefit and the benefit of
other people entitled to payments under variable life policies we issue. We are
the legal holder of the Separate Account's assets. The assets are held separate
and apart from the General Account assets. We maintain records of all purchases
and redemptions of shares of Eligible Portfolios by each of the subaccounts. We
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 of the
Separate Account. Liabilities arising out of other aspects of our business
cannot be charged against the assets of the Separate Account. Income, as well as
both realized and unrealized gains or losses from the Separate Account's assets,
are credited to or charged against the Separate Account without regard to
income, gains or losses arising out of other aspects of our business. If,
however, the Separate Account's assets exceed its liabilities, the excess shall
be available to cover the liabilities of our General Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") 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.
The Separate Account will purchase and redeem shares of the Eligible Portfolios
at net asset value. The net asset value of a share is equal to the total assets
of the portfolio less the total liabilities of the portfolio divided by the
number of shares outstanding.
We will redeem shares in the Eligible Portfolios as needed to:
. collect charges,
. pay the Surrender Value,
. secure Policy loans,
. provide benefits, or
. transfer assets from one subaccount to another, or to the Fixed Account.
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 Separate Account may include other subaccounts that are not available under
the Policy. We may from time to time discontinue the availability of some of the
subaccounts. If the availability of a subaccount is discontinued, we may redeem
any shares in the corresponding Eligible Portfolio and substitute shares of
another registered, open-end management company.
We may also establish additional subaccounts. Each new subaccount would
correspond to a portfolio of a registered, open-end management company. We would
establish the terms upon which existing Policyowners could purchase shares in
such portfolios.
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If any of these substitutions or changes are made, we may change the Policy by
sending an endorsement. We may:
. operate the Separate Account as a management company,
. de-register the Separate Account if registration is no longer required,
. combine the Separate Account with other separate accounts,
. restrict or eliminate any voting rights associated with the Separate Account,
or
. transfer the assets of the Separate Account relating to the Policies to
another separate account.
We would, of course, not make any changes to the menu of Eligible Portfolios or
to the Separate Account without complying with applicable laws and regulations.
Such laws and regulations may require notice to and approval from the
Policyholders, the SEC and state insurance regulatory authorities.
Since we are the legal holder of the Eligible Portfolio shares held by the
Separate Account, we can vote on any matter that may be voted upon at a
shareholders' meeting. To the extent required by law, we will vote all shares of
the Eligible Portfolios held in the Separate Account at shareholders' meetings
in accordance with instructions we receive from you and other 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 applicable Portfolio Company. We will furnish Policyowners with the proper
forms, materials and reports to enable them to give us these instructions. We
will vote 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 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, we may vote shares of the applicable
Portfolio Company in our own right. We 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, we 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
we reasonably disapprove those changes in accordance with applicable federal
regulations. If we do disregard voting instructions, we will advise Policyowners
of that action and our reasons for the action in the next annual report or proxy
statement to Policyowners.
The Separate Account is not the only separate account that invests in the
Eligible Portfolios. Other separate accounts, including those funding other
variable life policies, variable annuity contracts, other insurance contracts
and retirement plans, invest in certain of the Eligible Portfolios. We do not
currently see 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
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conflict of interest may arise between the Policyowners and the owners of
variable life insurance policies and the owners of variable annuity contracts
whose values are allocated to another separate account investing in the Eligible
Portfolios. In addition, there is a possibility that a material conflict may
arise between the interests of Policyowners or owners of other contracts and the
retirement plans which invest in the Eligible Portfolios or those plans
participants. If a material conflict arises, we 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.
THE FUNDS
Each of the twenty-six subaccounts of the Separate Account will invest in shares
of a corresponding Eligible Portfolio.
The investment objectives and policies of each Eligible Portfolio are summarized
below. The Eligible Portfolios may not achieve their stated objectives. You will
be notified of any material change in the investment policy of any portfolio in
which you have an interest.
Each 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 prospectuses for the Portfolio Companies
contain more detailed information about the Eligible Portfolios, including a
description of investment objectives, restrictions, expenses and risks. You
should carefully read those prospectuses and retain them for future reference.
You should periodically review your allocation to make sure that your investment
choices are still appropriate in light of any market developments or changes in
your personal financial situation.
. The AMERICAN NATIONAL FUND'S current Eligible Portfolios and respective
investment objectives are as follows:
. The AN MONEY MARKET PORTFOLIO seeks the highest current income
consistent with the preservation of capital and maintenance of liquidity.
. The AN GROWTH PORTFOLIO seeks to achieve capital appreciation.
. The AN BALANCED PORTFOLIO seeks to conserve principal, produce
reasonable current income, and achieve long-term capital appreciation.
. The AN MANAGED PORTFOLIO seeks to achieve growth of capital and/or
current income.
Securities Management and Research, Inc. ("SM&R") is the investment adviser and
manager of the American National Fund. SM&R also provides investment advisory
and portfolio management services to our Company and other clients. SM&R
maintains a staff of experienced investment personnel and related support
facilities.
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. The FIDELITY FUNDS' current Eligible Portfolios and respective investment
objectives are as follows:
. VIP ASSET MANAGER PORTFOLIO ... seeks high total return with reduced risk over
the long-term by allocating its assets among stocks, bonds and short-term
instruments.
. VIP ASSET MANAGER: GROWTH PORTFOLIO ... seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments, and other
investments.
. VIP INDEX 500 PORTFOLIO ... seeks investment results that correspond to the
total return of common stocks publicly traded in the United States, as
represented by the S&P 500.
. VIP GROWTH OPPORTUNITIES PORTFOLIO ... seeks to provide capital growth.
. VIP CONTRAFUND PORTFOLIO ... seeks long-term capital appreciation.
Fidelity Management and Research Company ("FMR"), the Fidelity Funds' investment
adviser, was founded in 1946. FMR provides a number of mutual funds and other
clients with investment research and portfolio management services. It maintains
a large staff of experienced investment personal and a full compliment of
related support facilities. Fidelity Management & Research (U.K.) Inc. ("FMR
U.K.") and Fidelity Management and Research (Far East) Inc. ("FMR Far East") are
wholly owned subsidiaries of FMR that provide research with respect to foreign
securities. FMR U.K. and FMR Far East maintain their principal business offices
in London and Tokyo, respectively. As of December 31, 1998, FMR advised funds
having more than 39 million shareholder accounts with a total value of more than
$694 billion. Fidelity Distributors Corporation distributes shares for the
Fidelity Funds. FMR Corp. is the holding company for the Fidelity companies.
Through ownership of voting common stock, Edward C. Johnson 3d, President and a
Trustee of the Fidelity Funds, and various trusts for the benefit of Johnson
family members form a controlling group with respect to FMR Corp.
. The T. ROWE PRICE FUNDS' current Eligible Portfolios and respective investment
objectives are as follows:
T. ROWE PRICE INTERNATIONAL SERIES, INC.
. T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ... seeks to provide long-term
growth of capital through investments primarily in common stocks of
established non-U.S. companies.
T. ROWE PRICE EQUITY SERIES, INC.
. T. ROWE PRICE MID-CAP GROWTH PORTFOLIO ... seeks to provide long-term capital
appreciation by investing in mid-cap stocks with potential for above-average
earnings growth.
. T. ROWE PRICE EQUITY INCOME PORTFOLIO ... seeks to provide substantial
dividend income as well as long-term growth of capital through investments in
common stocks of established companies.
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T. ROWE PRICE FIXED INCOME SERIES, INC.
. T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO ... seeks a high level of income
consistent with modest price fluctuation by investing primarily in investment
grade debt securities.
T. Rowe Price Associates, Inc. is responsible for selection and management of
the portfolio investments of T. Rowe Price Equity Series, Inc. and T. Rowe Price
Fixed Income Series, Inc. Rowe Price-Fleming International, Inc., incorporated
in 1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings Limited, is responsible for selection and management of the
portfolio investments of T. Rowe Price International Series, Inc.
. The MFS FUND current Eligible Portfolios and respective investment objectives
are as follows:
. MFS VALUE SERIES PORTFOLIO ... seeks capital appreciation.
. MFS EMERGING GROWTH SERIES PORTFOLIO ... seeks to provide long-term growth of
capital.
. MFS RESEARCH SERIES PORTFOLIO ... seeks to provide long-term growth of capital
and future income.
. MFS GROWTH WITH INCOME SERIES PORTFOLIO ... seeks to provide reasonable
current income and long-term growth and income.
Massachusetts Financial Service Company is responsible for selection and
management of the portfolio investments of the MFS Fund.
. The VAN ECK FUND current Eligible Portfolios and respective investment
objectives are as follows:
. VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO ... seeks long-term capital
appreciation by investing primarily in "hard asset securities." Income is a
secondary consideration.
. VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO ...seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
Van Eck Associates Corporation serves as investment advisor and manages the
investment operations of the Van Eck Fund and furnishes the fund's portfolios
with a continuous investment program which includes determining which securities
should be brought, sold or held.
. The FEDERATED FUND current Eligible Portfolios and respective investment
objectives are as follows:
. FEDERATED UTILITY FUND II PORTFOLIO ... seeks to achieve high current income
and moderate capital appreciation.
. FEDERATED GROWTH STRATEGIES PORTFOLIO ... seeks capital appreciation.
. FEDERATED U.S. GOVERNMENT BOND PORTFOLIO ... seeks current income by investing
in a diversified portfolio limited to U.S. government securities.
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. FEDERATED HIGH INCOME BOND II PORTFOLIO ... seeks high current income.
. FEDERATED EQUITY INCOME FUND II PORTFOLIO ... seeks to provide above average
income and capital appreciation.
Federated Advisors makes all investment decisions for the Federated Fund,
subject to direction by the fund's trustees.
. The LAZARD FUND current Eligible Portfolios and respective investment
objectives are as follows:
. LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO ... seeks capital appreciation.
. LAZARD RETIREMENT SMALL CAP PORTFOLIO ... seeks capital appreciation.
Lazard Freres Asset Management serves as investment advisor and continually
furnishes an investment program for each portfolio in the Lazard Fund consistent
with its investment objectives and policies, including the purchase, retention
and disposition of securities.
We have entered into or may enter into agreements with the investment advisor or
distributor for certain of the Eligible Portfolios. These agreements require us
to provide administrative and other services. In return, we receive a fee based
upon an annual percentage of the average net assets amount we invested on behalf
of the Separate Account and our other separate accounts. Some advisors or
distributors may pay us a greater percentage than others.
FIXED ACCOUNT
You can allocate some or all of your premium payments to the Fixed Account. You
can also, subject to certain limitations, transfer amounts from the Separate
Account to the Fixed Account or from the Fixed Account to the Separate Account.
(See "Transfers," page 17.)
We establish the Declared Rate and may adjust the rate each month; however, we
guarantee an effective annual rate of at least 3.0% compounded daily.
Payments allocated to the Fixed Account and transfers from the Separate Account
to the Fixed Account are placed in our General Account which supports insurance
and annuity obligations. The General Account includes all of our assets, except
those assets segregated in our separate accounts. We have discretion over the
investment of assets of the General Account, subject to applicable law. We bear
the risk that the investments in the General Account will lose money. You bear
the risk that the Declared Rate will fall to a lower rate.
Interests in the General Account have not been registered with the SEC as
securities and the General Account has not been registered as an investment
company. Accordingly, neither the General Account nor any interest in the
General Account is generally subject to the provisions of federal securities
laws. The SEC has not reviewed the disclosures in this prospectus relating to
the Fixed Account portion of the Policy; however, disclosures regarding the
Fixed Account portion of the Policy may be subject to generally applicable
provisions of the federal securities laws regarding the accuracy and
completeness of statements made in prospectuses.
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FEDERAL TAX MATTERS
INTRODUCTION
The following summary provides a general description of the federal income tax
considerations relating to the Policy. This summary is based upon our
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service ("IRS"). Because of the complexity
of such laws and the fact that tax results will vary according to the factual
status of the specific Policy involved, tax advice from a qualified tax advisor
may be needed by a person contemplating the purchase of a Policy or the exercise
of certain elections under the Policy. These comments concerning federal income
tax consequences are not an exhaustive discussion of all tax questions that
might arise under the Policy. Further, these comments do not take into account
any federal estate tax and gift, state, or local tax considerations which may be
involved in the purchase of a Policy or the exercise of certain elections under
the Policy. For complete information on such federal and state tax
considerations, a qualified tax advisor should be consulted. We do not make any
guarantee regarding the tax status of any Policy, and the following summary is
not tax advice.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for federal income tax purposes
and to receive the tax treatment normally accorded life insurance contracts
under federal tax law, a Policy must satisfy certain requirements which are set
forth in the Internal Revenue Code (the "Code"). Guidance as to how these
requirements apply is limited. Nevertheless, we believe that the Policy should
satisfy the applicable requirements. We reserve the right to restrict Policy
transactions and to make other modifications in order to bring the Policy into
compliance with such requirements.
In certain circumstances, owners of variable life insurance contracts may be
considered for federal income tax purposes to be the owners of the assets of the
separate account supporting their contracts due to their ability to exercise
investment control over those assets. Where this is the case, the contract
owners would be taxed on income and gains attributable to separate account
assets. There is little guidance in this area, and some features of the Policy,
such as the flexibility of a Policyowner to allocate Premiums and transfer
Accumulation Value, have not been explicitly addressed in published rulings.
While we believe that the Policy does not give Policyowners investment control
over Separate Account assets, we reserve the right to modify the Policy as
necessary to prevent a Policyowner from being treated as the owner of the
Separate Account assets.
In addition, the Code requires that the investments of the Separate Account be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for federal income tax purposes. It is intended that the
Separate Account, through the Eligible Portfolios, will satisfy these
diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
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TAX TREATMENT OF POLICY PROCEEDS
In General. We believe that the Death Benefit Proceeds under a Policy will be
excludable from the gross income of the Beneficiary.
Generally, the Policyowner will not be deemed to be in constructive receipt of
the Accumulation Value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified Endowment
Contract."
Depending on the circumstances, a Policy loan, a surrender, the continuation of
the Policy beyond the Insured's 100th birthday, a change in ownership, or an
assignment of the Policy may have federal income tax consequences.
Modified Endowment Contracts. While classification as a Modified Endowment
Contract depends on the individual circumstances of each Policyowner, in almost
all cases the Policy will be classified as a Modified Endowment Contract.
Whether a Policy is treated as a Modified Endowment Contract depends upon the
amount of premiums paid in relation to the Death Benefit provided under the
Policy. In general, a life insurance policy will be considered to be a Modified
Endowment Contract if the accumulated premium payments made at any time
during the first seven policy years exceed the sum of the net level premiums
which would have been paid on or before such time if the life insurance policy
provided for paid-up future benefits after the payment of seven level annual
premium payments.
In addition, if a Policy is "materially changed," it may cause such Policy to be
treated as a Modified Endowment Contract. The material change rules for
determining whether a Policy is a Modified Endowment Contract are also extremely
complex. In general, however, the determination of whether a Policy will be a
Modified Endowment Contract after a material change depends upon (i) the
relationship of the Death Benefit at the time of change to the Accumulation
Value at the time of such change, and (ii) the additional premiums paid in the
seven Policy Years following the date on which the material change occurs.
If a Policy becomes a Modified Endowment Contract, distributions such as Policy
loans that occur during the Policy Year it becomes a Modified Endowment Contract
and any subsequent Policy Year will be taxed as distributions from a Modified
Endowment Contract. In addition, distributions from a Policy within two years
before it becomes a Modified Endowment Contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a Modified
Endowment Contract could later become taxable as a distribution from a Modified
Endowment Contract.
Whether a Policy is or is not a Modified Endowment Contract, upon a complete
surrender or a lapse or termination of a Policy, if the amount received plus the
amount of any indebtedness exceeds the total investment in the policy (described
below), the excess will generally be treated as ordinary income subject to tax.
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Distributions Other Than Death Benefit Proceeds from Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts will be subject
to the following tax rules:
(1) All distributions from such a Policy (including distributions upon surrender
and benefits paid at maturity) are treated as ordinary income subject to tax
up to the amount equal to the excess (if any) of the Accumulation Value
immediately before the distribution over the investment in the policy at
such time.
(2) Loans taken from (or secured by) such a Policy are treated as distributions
from such a Policy and taxed accordingly. This includes unpaid loan interest
that is added to the principal of a loan.
(3) A 10 percent penalty tax is imposed on the portion of any distribution from
such a Policy that is included in income. This includes any loan taken from
or secured by such a Policy. This penalty tax does not apply if the
distribution or loan:
(a) is made on or after the Policyowner reaches actual age 59 1/2;
(b) is attributable to the Policyowner's becoming disabled; or
(c) is part of a series of substantially equal periodic payments for (i) the
life (or life expectancy) of the Policyowner, or (ii) the joint lives (or
joint life expectancies) of the Policyowner and the Beneficiary
Distributions Other Than Death Benefit Proceeds from Policies that are not
Modified Endowment Contracts. Distributions other than Death Benefit Proceeds
from a Policy that is not classified as a Modified Endowment Contract generally
are treated first as a recovery of the Policyowner's investment in the policy.
After the recovery of all investment in the policy, additional amounts
distributed are taxable income. However, certain distributions which must be
made in order to enable the Policy to continue to qualify as a life insurance
contract for federal income tax purposes if Policy benefits are reduced during
the first 15 Policy Years may be treated in whole or in part as ordinary income
subject to tax.
Policy Loans. Loans from a Policy (or secured by a Policy) that is not a
Modified Endowment Contract are generally not treated as distributions. Instead,
such loans are treated as indebtedness of the Policyowner. However, the tax
consequences associated with Policy loans that are outstanding after the first
15 Policy Years are less clear and a tax adviser should be consulted about such
loans. Interest paid on a Policy loan generally is not be tax-deductible. The
Policyowner should consult a tax advisor regarding the deductibility of interest
paid on a Policy loan.
Finally, neither distributions from nor loans from (or secured by) a Policy that
is not a Modified Endowment Contract are subject to the 10 percent additional
income tax.
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Investment in the Policy. "Investment in the policy" means:
(a) the aggregate amount of any Premiums or other consideration paid for a
Policy; minus
(b) the aggregate amount of distributions received under a Policy that is
excluded from the gross income of the Policyowner (except that the amount of
any loan from, or secured by, a Policy that is a Modified Endowment
Contract, to the extent such amount is excluded from gross income, will be
disregarded); plus
(c) the amount of any loan from, or secured by, a Policy that is a Modified
Endowment Contract to the extent that such amount is included in the gross
income of the Policyowner.
Multiple Policies. All Modified Endowment Contracts that are issued by us (or
our affiliates) to the same Policyowner during any calendar year are treated as
one Modified Endowment Contract. This applies to determining the amount
includible in the Policyowner's income when a taxable distribution occurs.
Other Policyowner Tax Matters. The tax consequences of continuing the Policy
beyond the Insured's 100th year are unclear. You should consult a tax advisor if
you intend to keep the Policy in force beyond the Insured's 100th year.
Businesses can use the Policy in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, tax exempt and nonexempt welfare benefit plans, retiree
medical benefit plans and others. The tax consequences of such plans may vary
depending on the particular facts and circumstances of each individual
arrangement. If you are purchasing the Policy for any arrangement the value of
which depends in part on its tax consequences, you should consult a qualified
tax adviser. In recent years, moreover, Congress has adopted new rules relating
to life insurance owned by businesses. Any business contemplating the purchase
of a new Policy or a change in an existing Policy should consult a tax adviser.
Federal, state and local estate, inheritance, transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. A tax advisor should be
consulted on these consequences.
Possible Tax Law Changes. 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 otherwise. Moreover, it is possible that any
change could be retroactive (that is, effective prior to the date of change).
Consult a tax adviser with respect to legislative developments and their effect
on the Policy.
AMERICAN NATIONAL'S INCOME TAXES
American National is taxed as a life insurance company under the Code. Under
current federal income tax law, American National is not taxed on the Separate
Account's operations. Thus, we currently do not deduct a charge from the
Separate Account for federal income taxes. Nevertheless, we reserve the right in
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the future to make a charge for any such tax that we determine to be properly
attributable to the Separate Account or to the Policy.
Under current laws in some states, we may incur state and local taxes (in
addition to premium taxes for which a deduction from premium payments is
currently made). At present, these taxes are not significant and we are not
currently charging for them. However, we may deduct charges for such taxes in
the future.
OTHER INFORMATION
SALE OF THE POLICY
SM&R, one of our wholly-owned subsidiaries, is the principal underwriter of the
Policy. SM&R was organized December 15, 1964 under the laws of the State of
Florida. SM&R is a registered broker-dealer and a member of the National
Association of Securities Dealers. (See the American National Fund's
prospectus.)
SM&R will pay commissions to its registered representatives who sell the
Policies based upon a commission schedule. SM&R and the Company may also
authorize other registered broker-dealers and their registered representatives
to sell the Policy. Registered representatives will receive sales commissions no
greater than 8.0% of Surrender Premium on any sales of the Policy or increases
in Surrender Premium.
YEAR 2000
Many of the services provided to the Separate Account and Policyowners depend on
the smooth functioning of computer systems. Many computer software systems in
use today cannot distinguish the year 2000 from the year 1900 because of the way
dates are encoded and calculated, referred to as the "Year 2000 Problem." The
Year 2000 Problem could have a negative impact on handling securities trades,
payment of interest and dividends, pricing and account services. Like all
financial services providers, we utilize systems that may be affected by Year
2000 Problems and we rely on service providers, including the Eligible
Portfolios, that may also be affected. We have developed, and are continuing to
implement, a Year 2000 transition plan, and we are confirming that our service
providers are doing the same. It is difficult to predict with precision whether
the outcome of these efforts will have any negative impact on our Company. As of
the date of this prospectus, we do not anticipate that you will experience any
negative effects on your Accumulation Value, or on the services provided in
connection with your Policy, as a result of Year 2000 Problems. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Separate Account or the Policyowners.
THE CONTRACT
The Policy, the application, any supplemental applications, and any riders,
amendments or endorsements make up the entire contract. Only statements in the
application attached to the Policy and any supplemental applications made a part
of the Policy can be used to contest a claim or the validity of the Policy. Any
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changes must be approved in writing by the President, Vice President or
Secretary of American National. No agent has the authority to alter or modify
any of the terms, conditions or agreements of the Policy or to waive any of its
provisions. Differences in state laws may require us to offer a Policy in a
state which has suicide, incontestability, refund provisions, surrender charges
or other provisions more favorable than provisions in other states.
Control of Policy. Subject to the rights of any irrevocable Beneficiary and
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. You can name primary and contingent beneficiaries. Initial
Beneficiary(ies) 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. Unless the Beneficiary designation is irrevocable, you
can change the Beneficiary by written request on a Change of Beneficiary form at
any time during the Insured's lifetime. We may require that the Policy 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. We will not be liable for any payment made or action taken
before the change is recorded. There is no limit on the number of changes that
may be made.
Change in Policyowner or Assignment. In order to change the Policyowner or
assign Policy rights, an assignment of the Policy must be made in writing and
filed at our Home Office. The change will take effect as of the date the change
is recorded at our Home Office, and we 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.
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 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. Any reinstatement of a Policy shall be
incontestable during the lifetime of the Insured only after having been in force
for two years after the Policy Date of the reinstatement.
Misstatement of Age or Sex. If the age or sex of the Insured or any person
insured by rider has been misstated, the amount of the Death Benefit will be
adjusted as provided for in the Policy.
Suicide. Suicide within two years after Date of Issue is not covered by the
Policy unless otherwise provided by a state's insurance law. If the Insured,
while sane or
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insane, commits suicide within two years after the Date of Issue, we will pay
only the premiums received less any 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, our liability with respect to such increase will only
be the 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, our 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 refund, full surrender,
Policy loans, benefits payable at death, and transfers, which require valuation
of a subaccount, may be postponed whenever: (1) 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 SEC; (2) the SEC by order
permits postponement for the protection of Policyowners; or (3) an emergency
exists, as determined by the SEC, as a result of which disposal of securities is
not reasonably practicable or it is not reasonably practicable to determine the
value of the Separate Account's Accumulation Value. Surrenders or loans from the
Fixed Account may be deferred for up to 6 months from the date of written
request.
DIVIDENDS
The Policy is non-participating and therefore is not eligible for dividends and
does not participate in any distribution of our surplus.
36
<PAGE>
LEGAL MATTERS
Greer, Herz and Adams, L.L.P., our general counsel, has reviewed various matters
of Texas law pertaining to the Policy, including the validity of the Policy and
our right to issue the Policy.
LEGAL PROCEEDINGS
The Company 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, we believe that at the present
time no lawsuits are pending or threatened that reasonably likely to have a
material adverse impact on the Separate Account or us.
REGISTRATION STATEMENT
We filed a registration statement covering information about the Policy with the
SEC. The registration statement, and its subsequent amendments, included this
prospectus, but it also contained additional information. This prospectus is
simply a summary of the contents of the Policy and related legal instruments. If
you want more complete information regarding any of the matters described in
this prospectus, you should consult the registration statement.
EXPERTS
The consolidated financial statements of American National Insurance Company and
subsidiaries as of December 31, 1998 and 1997, and for the years then ended,
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
As stated in his opinion which was filed as an exhibit to the registration
statement, Rex D. Hemme has examined the actuarial matters included in this
prospectus.
37
<PAGE>
SENIOR EXECUTIVE OFFICERS AND
DIRECTORS OF
AMERICAN NATIONAL INSURANCE COMPANY
NAME
POSITION(S) WITH AMERICAN NATIONAL INSURANCE COMPANY
Principal Occupations Last Five Years and Other Positions Held
- --------------------------------------------------------------------------------
ROBERT L. MOODY
CHAIRMAN OF THE BOARD, DIRECTOR, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
American National: President, January 1996 to present; Chairman of the Board,
April 1982 to present; Chief Executive Officer, July 1991 to present; and
Director, March 1960 to present.
ANREM Corporation: Director, September 1985 to present. Moody Bancshares, Inc.:
Director and President, 1982 to present. Moody Bank Holding Company, Inc.:
Director and President, 1988 to present. Moody National Bank of Galveston:
President, 1980 to 1993; Chairman of the Board, Director and Chief Executive
Officer, 1980 to present. National Western Insurance Company: Chairman of the
Board, Director and Chief Executive Officer, 1971 to present. The Moody
Foundation: Trustee, 1955 to present. Gal-Tex Hotel Corporation: Chairman of the
Board and Director, 1954 to present. Gal-Tenn Hotel Corporation: Director. GTG
Corporation: Director. Gal-Tex Management Co.: Director. Gal-Tex Woodstock,
Inc.: Director. New Paxton Hotel Corporation: Director. Transitional Learning
Community at Galveston: Chairman of the Board and Director. The Moody Endowment:
Chairman of the Board and Director.
G. RICHARD FERDINANDTSEN
DIRECTOR, SENIOR EXECUTIVE VICE PRESIDENT AND
CHIEF OPERATING OFFICER
American National: Director, 1998 to present; Senior Executive Vice President
and Chief Operating Officer, April 1997 to present; Senior Executive Vice
President and Chief Administrative Officer, April 1996 to April 1997; Senior
Vice President, Health Insurance Operations, April 1993 to April 1996; Senior
Vice President, Director of Group Insurance, July 1990 to April 1993. American
National Life Insurance Company of Texas: Chairman of the Board, President and
Director, 1998 to present; and Vice President, Health Insurance Operations,
April 1993 to 1998. American National Property and Casualty Company: Director,
November 1992 to present; and Vice Chairman of the Board, 1998 to present.
American National General Insurance Company: Director, November 1992 to present;
and Vice Chairman of the Board, 1998 to present. McMarr Properties (formerly
American Securities Company): Director, April 1978 to present. McCreless
Foundation: Director, April 1992 to present. United Land:
38
<PAGE>
Director, January 1985 to present. Commonwealth Life and Accident Insurance
Company: Director, June 1993 until company was merged in December 1994. American
National Lloyds Insurance Company: Underwriter, March 1994 to present. Pacific P
& C, Inc.: Director, 1995 to present; and Vice Chairman of the Board. Standard
Life and Accident Insurance Company: Director, January 1996 to present; Chairman
of the Board, President and Chief Executive Officer, 1998 to present. Garden
State Life Insurance Company: Director. Securities Management & Research, Inc.:
Director. Comprehensive Investment Services, Inc.: Director. Alternative Benefit
Management, Inc.: Director, President and Chief Executive Officer. ANMEX
International Services, Inc.: Director and President. ANMEX International, Inc.:
Director and President.
IRWIN M. HERZ, JR.
DIRECTOR
American National: Director: 1984 to present. Greer, Herz & Adams, L.L.P.:
Partner, March 1980 to present, General Counsel to American National. Three R
Trust: Trustee, April 1971 to present. Commonwealth Life and Accident Insurance
Company: Director, April 1983 until company was merged in December 1994. Garden
State Life Insurance Company: Director, June 1992 to present. American National
Property and Casualty Company: Director. American National General Insurance
Company: Director. Pacific P & C, Inc.: Director.
R. EUGENE LUCAS
DIRECTOR
American National: Director, April 1981 to present. Gal-Tex Hotel Corporation:
President and Director, March 1971 to present. Gal-Tenn Hotel Corporation:
President and Director, March 1971 to present. Gal-Tex Management Company:
President and Director, May 1985 to present. Gal-Tex Woodstock, Inc.: President
and Director, November 1995 to present. New Paxton Hotel Corporation: President
and Director. Securities Management and Research, Inc.: Director, November 1982
to present. ANREM Corporation: Director, September 1982 to present. Colonel
Museum, Inc.: Director, March 1985 to present.
E. DOUGLAS MCLEOD
DIRECTOR
American National: Director, April 1984 to present. ANREM Corporation: Director,
October 1979 to present. National Western Life Insurance Company: Director, 1986
to present. Independent County Mutual Fire Insurance Company of Texas: Director,
June 1984 to present. Attorney. The Moody Foundation: Director of Development,
May 1982 to present. McLeod Properties: Owner. Texas State House of
Representatives: Past Member. Moody Gardens, Inc.: Chairman and Director, 1988
to present. Colonel Museum, Inc.: Vice President and Director, 1985 to present.
Center for Transportation and Commerce: Director, 1983 to present.
39
<PAGE>
FRANCES ANNE MOODY
DIRECTOR
American National: Director, April 1987 to present. The Moody Foundation:
Executive Director, January 1998 to present and Regional Grants Advisor,
September 1996 to present. National Western Life Insurance Company: Director,
1990 to present. The Moody Endowment: Director, 1991 to present. Investments,
Dallas, Texas.
RUSSELL S. MOODY
DIRECTOR
American National: Director, April 1986 to present. National Western Life
Insurance Company: Director, 1988 to March 1996. Gal-Tex Hotel Corporation:
Director, 1981 to 1997. Seal Fleet, Inc.: Director, 1982 to 1996.
WILLIAM L. MOODY IV
DIRECTOR
American National: Director, March 1951 to present. Moody National Bank of
Galveston: Director, January 1969 to March 1996, and Advisory Director, March
1996 to present. Moody Ranches, Inc.: President and Director, May 1959 to
present. American National Life Insurance Company of Texas: Director, November
1969 to present. Rosenberg Library: Board of Trustees, 1970 to present.
University of Texas Medical Branch Development Board: Director, 1970 to present.
JOE MAX TAYLOR
DIRECTOR
American National: Director, April 1992 to present. County of Galveston, Texas:
Sheriff, 1980 to present. Moody Gardens, Inc.: Director and President, 1988 to
present. Transitional Learning Community at Galveston: Director, 1985 to
present. Galveston County Bail-Bond Board: President, 1981 to present. Fifty
Club Board of Galveston: Director, 1981 to present. Landry's Seafood
Restaurants, Inc.: Director, 1992 to present. Pre-Trial Release Board of
Galveston County: 1982 to present. Juvenile Crime Prevention-Intervention Task
Force: Chairman, 1993 to present. University of Texas Medical Branch:
President's Cabinet, 1994 to present.
ROBERT A. FRUEND
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President, Director of Multiple Line
Marketing, April 1989 to present. American National Life Insurance Company of
Texas: Director and Vice President, April 1989 to present. American National
Property and Casualty Insurance Company: Chairman of the Board; and Director,
November 1979 to present.
40
<PAGE>
American National General Insurance Company: Chairman of the Board; and
Director, November 1981 to present. Securities Management and Research, Inc.:
Director, November 1988 to present: Pacific P & C, Inc.: Director, 1995 to
present; and Chairman of the Board. American National Insurance Service Company:
Director, November 1988 to present. ANPAC Lloyds Insurance Management, Inc.:
Director, December 1995 to present. American National Lloyds Insurance Company:
Director, December 1995 to present.
BILL J. GARRISON
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President, Director of Home Service Division,
April 1991 to present. ANMEX International Services, Inc.: Vice President. ANMEX
International, Inc.: Vice President. Commonwealth Life and Accident Insurance
Company: Director, February 1993 until company was merged in December 1994.
MICHAEL W. McCROSKEY
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President-Investments, 1995 to present; and
Senior Vice President-Real Estate and Mortgage Loans, 1986 to 1995. ANREM
Corporation: Director, June 1977 to present; and President, October 1986 to
present. American National Life Insurance Company of Texas: Assistant Secretary,
December 1986 to present. Standard Life and Accident Insurance Company: Vice
President, May 1988 to present. ANTAC, Inc.: President and Director, 1995 to
present. Securities Management and Research, Inc.: President, Chief Executive
Officer and Director, 1994 to present. American National Funds Group: President
and Director, 1994 to present. SM&R Investments, Inc. (formerly SM&R Capital
Funds, Inc.): Chief Executive Officer; President and Director, 1994 to present.
American National Investment Accounts, Inc.: President and Director, 1994 to
present. Pacific P & C, Inc.: Vice President, 1995 to present. Garden State Life
Insurance Company: Vice President, May 1994 to present. American National
Property and Casualty Company Vice President: June 1994 to present. American
National General Insurance Company: Vice President, June 1994 to present. SM&R
Growth Fund, Inc.: Director and President. SM&R Equity Income Fund, Inc.:
Director and President. SM&R Balanced Fund, Inc.: Director and President. ANDV
`97: Director and President. Comprehensive Investment Services, Inc.: Director.
JAMES E. POZZI
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President, Independent Markets, April 1996
to present; and Senior Vice President, Corporate Planning and Development,
June 1992 to April 1996. American National Life Insurance Company of Texas:
Vice President, April 1993 to present.
41
<PAGE>
RONALD J. WELCH
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President and Chief Actuary, April 1996 to
present; and Senior Vice President and Chief Actuary, April 1986 to April 1996.
Standard Life and Accident Insurance Company: Director, December 1987 to
present. American National Property and Casualty Company: Director, November
1987 to present. American National General Insurance Company: Director, November
1987 to present. American National Life Insurance Company of Texas: Director,
November 1986 to present, Actuary, April 1980 to present, and Senior Vice
President, April 1990 to present. Commonwealth Life and Accident Insurance
Company: Vice President, until company was merged in December 1994. Garden State
Life Insurance Company: Chairman of the Board and Director, June 1992 to
present: Pacific P & C, Inc.: Director, 1995 to present. American National
Insurance Service Company: Director, December 1995 to present. Securities,
Research & Management, Inc.: Director. ANMEX International Services, Inc.:
Director and Vice President. ANMEX International, Inc.: Director and Vice
President. Alternative Benefit Management, Inc.: Director.
CHARLES H. ADDISON
SENIOR VICE PRESIDENT
American National: Senior Vice President, Systems Planning and Computing, April
1978 to present. American National Property and Casualty Company: Director,
November 1981 to present. American National General Insurance Company: Director,
November 1981 to present. Pacific P & C, Inc.: Director, 1995 to present.
Standard Life and Accident Insurance Company: Director, January 1996 to present.
ALBERT L. AMATO
SENIOR VICE PRESIDENT
American National: Senior Vice President, Life Policy Administration, April 1994
to present; and Vice President, Life Policy Administration, April 1984 to April
1994. American National Life Insurance Company of Texas: Vice President, May
1984 to present. Garden State Life Insurance Company: Vice President, August
1992 to present, Director, August 1992 to December 1993, and Advisory Director,
December 1993 to present. Standard Life and Accident Insurance Company: Vice
President, Life Policy Administration. Alternative Benefit Management, Inc.:
Director and Senior Vice President. Commonwealth Life and Accident Insurance
Company: Director, August 1992 until company was merged in December 1994.
GLENN C. LANGLEY
SENIOR VICE PRESIDENT
American National: Senior Vice President, Human Resources, November 1995 to
present; Vice President, Assistant Personnel Director, April 1983 to November
1995; Assistant Vice President, Equal Employment Opportunity/Affirmative
42
<PAGE>
Action Program Coordinator, April 1976 to April 1983; and Assistant Vice
President, Personnel Placement Director, April 1969 to April 1976. Standard Life
and Accident Insurance Company: Vice President, Director of Human Resources.
STEPHEN E. PAVLICEK
SENIOR VICE PRESIDENT AND CONTROLLER
American National: Senior Vice President and Controller, April 1996 to present;
Vice President and Controller, 1994 to April 1996; and Assistant Vice President-
Financial Reports, 1983 to 1994. ANTAC, Inc.: Assistant Treasurer, 1995 to
present. Garden State Life Insurance Company: Controller, June 1992 to present.
American National Life Insurance Company of Texas: Controller, August 1994 to
present. ANREM Corporation: Director. American National Property and Casualty
Company: Director. American National General Insurance Company: Director.
Pacific P & C, Inc.: Director. Standard Life and Accident Insurance Company:
Vice President, Controller and Director. ANDV `97: Assistant Treasurer. ANMEX
International Services, Inc.: Controller. ANMEX International, Inc.: Controller.
Alternative Benefit Management, Inc.: Senior Vice President, Controller and
Director.
STEVEN H. SCHOUWEILER
SENIOR VICE PRESIDENT
American National: Senior Vice President, Health Insurance Operations, May 1998
to present. Standard Life and Accident Insurance Company: Vice President,
Claims, May 1998 to present. American National Life Insurance Company of Texas:
Director and Senior Vice President, May 1998 to present. Alternative Benefit
Management, Inc.: Chief Administrative Officer, Senior Vice President and
Director. Galveston Health Network, Inc.: President. Conseco Group Risk
Management: President and Chief Executive Officer, December 1989 to April 1998.
JAMES R. THOMASON
SENIOR VICE PRESIDENT
American National: Senior Vice President, Credit Insurance Services, April 1987
to present.
GARETH W. TOLMAN
SENIOR VICE PRESIDENT
American National: Senior Vice President, Corporate Affairs, April 1996 to
present; and Vice President, Corporate Affairs, April 1976 to April 1996.
VINCENT E. SOLER, JR.
VICE PRESIDENT, SECRETARY AND TREASURER
American National: Vice President, Secretary and Treasurer, 1994 to present; and
Vice President and Controller, March, 1984 to 1994. ANREM Corporation:
43
<PAGE>
Treasurer, October 1984 to present. American National Life Insurance Company of
Texas: Treasurer, April 1984 to present; Controller, April 1984 to August 1994;
and Secretary, August 1994 to present. Standard Life and Accident Insurance
Company: Secretary and Treasurer, 1998 to present; Assistant Secretary, January
1996 to 1998. ANTAC, Inc.: Secretary, 1995 to present. Garden State Life
Insurance Company: Secretary and Treasurer, August 1994 to present. American
National Property and Casualty Company: Assistant Secretary, August 1994 to
present. American National General Insurance Company: Assistant Secretary.
Pacific P & C, Inc.: Assistant Secretary. Galveston Health Network, Inc.:
Secretary. ANDV `97: Secretary. ANMEX International Services, Inc.: Secretary
and Treasurer. ANMEX International, Inc.: Secretary and Treasurer. Comprehensive
Investment Services, Inc.: Secretary. Alternative Benefit Management, Inc.:
Secretary and Treasurer.
The principal business address of each person listed above is American National
Insurance Company, One Moody Plaza, Galveston, Texas 77550-7999.
FINANCIAL STATEMENTS
Our financial statements which are included in this prospectus should be
considered only as bearing on our ability to meet our obligations under the
Policy. Our financial statements should not be considered as bearing on the
investment.
44
<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, 1998 and 1997, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the years then ended. These
consolidated financial statements (pages 46 through 60) 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, 1998 and 1997, 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 22, 1999
45
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREMIUMS AND OTHER REVENUE
Life and annuity premiums $ 340,286 $ 348,973
Accident and health premiums 393,602 378,621
Property and casualty premiums 354,820 312,987
Other policy revenue 105,041 99,930
Net investment income 475,242 472,895
Gain from sale of investments 49,768 103,320
Other income 25,906 23,178
- ------------------------------------------------------------------------------------------------------------------
Total revenue 1,744,665 1,739,904
- ------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Death and other benefits:
Life and annuity 259,010 246,855
Accident and health 289,553 280,376
Property and casualty 280,036 233,887
Increase/(decrease) in liability for future policy benefits:
Life and annuity 162,049 185,827
Accident and health (262) (4,862)
Commissions for acquiring and servicing policies 247,015 239,633
Other operating costs and expenses 199,294 176,988
Decrease/(increase) in deferred policy acquisition costs, net of amortization 9,795 (12,267)
Taxes, licenses and fees 32,334 29,778
- ------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,478,824 1,376,215
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES AND FEDERAL INCOME TAXES 265,841 363,689
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES 8,048 9,333
- ------------------------------------------------------------------------------------------------------------------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES 273,889 373,022
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current 77,707 134,271
Deferred (1,216) (9,606)
- ------------------------------------------------------------------------------------------------------------------
NET INCOME $ 197,398 $ 248,357
==================================================================================================================
NET INCOME PER COMMON SHARE - BASIC & DILUTED $ 7.45 $ 9.38
==================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
46
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, other than investments in unconsolidated affiliates
Debt securities:
Bonds held-to-maturity, at amortized cost $ 3,565,974 $ 3,605,927
Bonds available-for-sale, at market 720,818 600,380
Marketable equity securities, at market:
Preferred stocks 41,664 40,744
Common stocks 1,051,926 882,864
Mortgage loans on real estate 1,025,683 1,103,333
Policy loans 296,109 300,574
Investment real estate, net of
accumulated depreciation of $109,415 and $100,298 238,714 258,210
Short-term investments 90,368 126,786
Other invested assets 112,207 63,081
- ------------------------------------------------------------------------------------------------------------------------
Total investments 7,143,463 6,981,899
Cash 22,228 5,497
Investments in unconsolidated affiliates 120,098 100,888
Accrued investment income 104,405 102,361
Reinsurance ceded receivables 65,667 49,499
Prepaid reinsurance premiums 171,116 141,270
Premiums due and other receivables 91,518 84,275
Deferred policy acquisition costs 731,703 748,341
Property and equipment 40,860 32,142
Other assets 94,302 58,577
Separate account assets 230,292 179,027
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 8,815,652 $ 8,483,776
========================================================================================================================
LIABILITIES
Policyholder funds
Future policy benefits:
Life and annuity $ 2,029,396 $ 1,993,723
Accident and health 60,113 60,589
Policy account balances 2,324,310 2,422,828
Policy and contract claims 359,953 326,985
Other policyholder funds 510,130 457,952
- ------------------------------------------------------------------------------------------------------------------------
Total policyholder liabilities 5,283,902 5,262,077
Current federal income taxes (20,515) 14,340
Deferred federal income taxes 259,243 215,606
Other liabilities 148,118 107,309
Separate account liabilities 230,292 179,027
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,901,040 5,778,359
- ------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock 30,832 30,832
Additional paid-in capital 211 211
Accumulated other comprehensive income 299,176 215,883
Retained earnings 2,687,120 2,561,218
Treasury stock, at cost (102,727) (102,727)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,914,612 2,705,417
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,815,652 $ 8,483,776
========================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
47
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
CAPITAL PAID-IN COMPREHENSIVE RETAINED TREASURY
STOCK CAPITAL INCOME EARNINGS STOCK TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ 30,832 $ 211 $ 163,352 $ 2,382,238 $ (102,727) $ 2,473,906
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income (net of taxes):
Net income 248,357 248,357
Unrealized gains on marketable securities 52,531 52,531
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income 300,888
Dividends to stockholders
($2.62 per share) (69,377) (69,377)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $ 30,832 $ 211 $ 215,883 $ 2,561,218 $ (102,727) $ 2,705,417
Comprehensive income (net of taxes):
Net income 197,398 197,398
Unrealized gains on marketable securities 83,293 83,293
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income 280,691
Dividends to stockholders
($2.70 per share) (71,496) (71,496)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 $ 30,832 $ 211 $ 299,176 $ 2,687,120 $ (102,727) $ 2,914,612
=======================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
48
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 197,398 $ 248,357
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in liabilities for policyholders' funds 121,016 145,663
Charges to policy account balances (104,059) (99,625)
Interest credited to policy account balances 126,914 135,478
Deferral of policy acquisition costs (140,707) (151,891)
Amortization of deferred policy acquisition costs 149,116 138,710
Deferred federal income tax benefit (1,216) (9,606)
Depreciation 19,073 20,454
Accrual and amortization of discounts (69,760) (34,416)
Gain from sale of investments (49,768) (103,320)
Equity in earnings of unconsolidated affiliates (8,048) (9,333)
Increase in premiums receivable (7,243) (15,023)
Increase in accrued investment income (2,044) (4,478)
Capitalization of interest on policy and mortgage loans (16,750) (14,475)
Other changes, net (52,366) (26,937)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 161,556 219,558
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds 316,067 196,807
Stocks 247,951 331,679
Real estate 33,186 89,448
Other invested assets 171 5,706
Principal payments received on:
Mortgage loans 154,333 168,603
Policy loans 40,069 40,207
Purchases of investments:
Bonds (373,401) (424,721)
Stocks (237,868) (279,690)
Real estate (7,462) (1,537)
Mortgage loans (35,420) (151,471)
Policy loans (21,988) (23,023)
Other invested assets (79,081) (15,250)
Decrease (increase) in short-term investments, net 36,418 (121,262)
Decrease in investment in unconsolidated affiliates, net (19,210) (4,281)
Increase in property and equipment, net (5,721) (3,173)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 48,044 (191,958)
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances 288,984 391,607
Policyholders' withdrawals from policy account balances (410,357) (357,878)
Dividends to stockholders (71,496) (69,377)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (192,869) (35,648)
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 16,731 (8,048)
Cash:
Beginning of the year 5,497 13,545
- ------------------------------------------------------------------------------------------------------------------
End of the year $ 22,228 $ 5,497
==================================================================================================================
</TABLE>
49
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(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 is 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 (ANTEX), Garden State Life Insurance Company,
Standard Life and Accident Insurance Company, American National Property and
Casualty Company (ANPAC), American National General Insurance Company (ANGIC)
and American National Lloyds Insurance Company (ANPAC Lloyds). The major non-
insurance subsidiaries are Securities Management and Research, Inc.;
Comprehensive Investment Services, Inc.; Alternative Benefit Management, Inc.;
ANTAC, 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 14.)
Certain reclassifications have been made to the 1997 financial information
to conform to the 1998 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 PRONOUNCEMENTS
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.
REPORTING COMPREHENSIVE INCOME--Effective January 1, 1998, American National
adopted FAS No. 130, "Reporting Comprehensive Income." This statement
establishes standards for presenting comprehensive income and its components
prominently in the financial statements. American National has elected to
display comprehensive income as part of the consolidated statements of changes
in stockholders' equity. Additional information regarding the components of
comprehensive income is reported in Note 11.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION--
Effective January 1, 1998, American National adopted FAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
establishes standards for presenting information 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. The adoption of this new standard required
the restatement of prior period segment disclosures to conform with the new
format, but had no effect on American National's financial position or results
from operations. The segment disclosures are presented in Note 13.
50
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
PENSION AND OTHER POSTRETIREMENT BENEFIT DISCLOSURES--As of December 31,
1998, American National adopted FAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement establishes revised
standards for disclosures about pensions and other postretirement benefit plans.
The adoption of this new standard required the restatement of prior period
disclosures to conform with the new requirements, but had no effect on American
National's financial position or results from operations. The retirement
benefits disclosures are presented in Note 15.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS--FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," is effective for all quarters
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statement requires that entities recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value.
American National will adopt FAS No. 133 on July 1, 1999. Management
believes that the adoption of FAS No. 133 will not have a significant effect on
American National's financial position or results from operations.
INVESTMENTS
DEBT SECURITIES--Bonds that are intended to be held-to-maturity are carried
at amortized cost. American National has the 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 value), net of
applicable federal income taxes, are reflected in stockholders' equity as a
component of accumulated other comprehensive income.
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
allowance 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 used for investment real estate.
INVESTMENT VALUATION ALLOWANCES AND IMPAIRMENTS--Investment valuation
allowances are established for 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.
51
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
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 (three 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, 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 that
were appropriate at the time that 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
52
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
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
proportionately as revenue 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, 1998. 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 experienced rates of
mortality, interest and expenses, as determined periodically for representative
plans of insurance, issue ages and policy durations, with the corresponding
rates assumed in the calculation of premiums. Participating business comprised
approximately 2.7% of the life insurance in force at December 31, 1998 and 5.1%
of life premiums in 1998.
FEDERAL INCOME TAXES--American National and all but one of its subsidiaries
will file a consolidated life/non-life federal income tax return for 1998.
Alternative Benefit Management, Inc files a separate return. In 1997, Garden
State Life Insurance Company filed 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.
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 1998 and
1997).
53
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(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, 1998
- -----------------
Debt securities
Bonds held-to-maturity:
U. S. government and agencies $ 166,206 $ 5,503 $ -- $ 171,709
States and political subdivisions 39,427 692 (24) 40,095
Foreign governments 106,924 9,436 -- 116,360
Public utilities 1,210,677 73,784 (135) 1,284,326
All other corporate bonds 1,914,950 132,731 (491) 2,047,190
Mortgage-backed securities 127,790 8,344 (1) 136,133
- ------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,565,974 230,490 (651) 3,795,813
- ------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. government and agencies 71,579 1,368 -- 72,947
Foreign governments 42,780 4,758 -- 47,538
Public utilities 230,534 16,738 -- 247,272
All other corporate bonds 328,132 25,310 (381) 353,061
- ------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale 673,025 48,174 (381) 720,818
- ------------------------------------------------------------------------------------------------------------
Total debt securities 4,238,999 278,664 (1,032) 4,516,631
- ------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,264 2,427 (27) 41,664
Common stock 619,197 473,099 (40,370) 1,051,926
- ------------------------------------------------------------------------------------------------------------
Total marketable equity securities 658,461 475,526 (40,397) 1,093,590
- ------------------------------------------------------------------------------------------------------------
Total investments in securities $4,897,460 $754,190 $(41,429) $5,610,221
============================================================================================================
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
============================================================================================================
</TABLE>
54
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
DEBT SECURITIES--The amortized cost and estimated market value, by
contractual maturity of debt securities at December 31, 1998, are shown below
(in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
BONDS-HELD- BONDS-AVAILABLE-
TO-MATURITY FOR-SALE
- ------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 20,555 $ 20,665 $ -- $ --
Due after one year through five years 781,869 823,428 198,820 212,534
Due after five years through ten years 2,600,777 2,780,095 448,940 481,640
Due after ten years 34,984 35,494 25,265 26,644
- ------------------------------------------------------------------------------------------
3,438,185 3,659,682 673,025 720,818
Without single maturity date 127,789 136,131 -- --
- ------------------------------------------------------------------------------------------
$ 3,565,974 $3,795,813 $673,025 $720,818
- ------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments in securities classified as available-
for-sale (bonds and stocks) were $317,556,000 for 1998. Gross gains of
$71,935,000 and gross losses of $36,975,000 were realized on those sales.
Included in the proceeds from sales of available-for-sale securities are
$40,454,000 of proceeds from the sale of bonds that had been reclassified from
bonds held-to-maturity. The bonds had been reclassified due to evidence of a
significant deterioration in the issuer's credit-worthiness. The net gain from
the sale of these bonds was $1,073,000.
Bonds were called by the issuers during 1998, which resulted in proceeds of
$89,205,000 from the disposal. Gross gains of $747,000 were realized on those
disposals.
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.
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 stockholders' equity
section of the consolidated statements of financial position, are net of
deferred tax liabilities of $160,912,000 and $116,062,000 for 1998 and 1997,
respectively.
The change in the net unrealized gains on investments for the years ended
December 31 are summarized as follows (in thousands):
1998 1997
- --------------------------------------------------------------------------
Bonds available-for-sale $ 10,482 $ 13,391
Preferred stocks 969 352
Common stocks 124,923 71,152
Amortization of deferred
policy acquisition costs (8,229) (3,863)
- --------------------------------------------------------------------------
128,145 81,032
Provision for federal
income taxes (44,852) (28,501)
- --------------------------------------------------------------------------
$ 83,293 $ 52,531
==========================================================================
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, 1998, mortgage loans have both fixed rates
from 5.75% to 12.5% and variable rates from 6.25% 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 $1,025,683,000 and $1,103,333,000 at December 31,
1998 and 1997, respectively. Problem loans, on which impairment allowances were
established, totaled $2,995,000 and $6,493,900 at December 31, 1998 and 1997,
respectively.
POLICY LOANS--Policy loans have interest rates ranging from 2.75% to 8%.
Approximately 99% of the policy loan portfolio carried interest rates of 5% to
8% at December 31, 1998.
55
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
INVESTMENT INCOME AND REALIZED GAINS (LOSSES)--Investment income and
realized gains (losses) from disposals of investments, before federal income
taxes, for the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
INVESTMENT GAINS (LOSSES) FROM
INCOME DISPOSALS OF INVESTMENTS
- --------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $317,481 $303,426 $ 2,614 $ 530
Preferred stocks 2,584 3,173 1 21
Common stocks 16,774 18,977 33,092 106,662
Mortgage loans 97,871 109,165 1,248 (1,277)
Real estate 80,138 84,344 1,338 (5,977)
Other invested assets 29,123 26,872 (564) (83)
Investment in unconsolidated affiliates -- -- 29 (79)
- --------------------------------------------------------------------------------------------------------
543,971 545,957 37,758 99,797
Investment expenses (68,729) (73,062) -- --
Decrease in valuation allowances -- -- 12,010 3,523
- --------------------------------------------------------------------------------------------------------
$475,242 $472,895 $49,768 $103,320
========================================================================================================
</TABLE>
(4) 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:
1998 1997
- ----------------------------------------------------
AAA 9% 8%
AA 14% 13%
A 55% 56%
BBB & below 22% 23%
- ----------------------------------------------------
100% 100%
====================================================
COMMON STOCK:
American National's stock portfolio by market sector distribution at
December 31 is summarized as follows:
1998 1997
- ----------------------------------------------------
Basic materials 4% 8%
Capital goods 7% 10%
Consumer goods 18% 18%
Energy 5% 7%
Finance 11% 9%
Technology 16% 12%
Health care 24% 21%
Miscellaneous 15% 15%
- ----------------------------------------------------
100% 100%
====================================================
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:
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- -------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------
Office buildings 21% 21% 19% 19%
Shopping centers 56% 56% 40% 40%
Commercial 3% 3% 14% 15%
Apartments 1% 2% 3% 3%
Hotels/motels 3% 3% 16% 16%
Industrial 13% 12% 4% 4%
Other 3% 3% 4% 3%
- -------------------------------------------------------------------
100% 100% 100% 100%
===================================================================
56
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
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:
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- --------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------
Texas 18% 18% 41% 45%
South Central, except Texas 2% 2% 1% 1%
California 11% 11% 8% 7%
Western, except California 7% 6% 4% 4%
Southeastern 9% 10% 22% 22%
North Central U.S. 8% 10% 15% 14%
North Eastern U.S. 45% 43% 9% 7%
- --------------------------------------------------------------------
100% 100% 100% 100%
====================================================================
(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 amounts for policy loans approximates their market value.
SHORT-TERM INVESTMENTS:
The carrying amounts 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.
INVESTMENT COMMITMENTS:
American National's investment commitments are all short-term in duration,
and the market value was not significant at December 31, 1998 or 1997.
VALUES:
The carrying amounts and estimated market values of financial instruments at
December 31 are as follows (in thousands):
1998 1997
- --------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------
Financial assets:
Bonds:
Held-to-maturity $ 3,565,974 $ 3,795,813 $ 3,605,927 $ 3,752,586
Available-for-sale 720,818 720,818 600,380 600,380
Preferred stock 41,664 41,664 40,744 40,744
Common stock 1,051,926 1,051,926 882,864 882,864
Mortgage loans on real estate 1,025,683 1,158,033 1,103,333 1,229,078
Policy loans 296,109 296,109 300,574 300,574
Short-term investments 90,368 90,368 126,786 126,786
Financial liabilities:
Investment contracts 1,736,223 1,736,223 1,867,233 1,867,233
- --------------------------------------------------------------------------------
57
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended
December 31, 1998 and 1997, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
LIFE ACCIDENT PROPERTY &
& ANNUITY & HEALTH CASUALTY TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------
Additions 87,660 25,897 25,764 139,321
Amortization (98,017) (26,940) (24,159) (149,116)
Effect of change in unrealized gains on
available-for-sale securities (8,229) (8,229)
- ------------------------------------------------------------------------------------------
Net change (18,586) (1,043) 1,605 (18,024)
Acquisitions 782 604 -- 1,386
- ------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 615,535 $ 104,735 $ 11,433 $ 731,703
==========================================================================================
1998 premiums $ 340,286 $ 393,602 $354,820 $1,088,708
==========================================================================================
1997 premiums $ 348,973 $ 378,621 $312,987 $1,040,581
==========================================================================================
</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:
PERCENTAGE OF
FUTURE POLICY
POLICY ISSUE INTEREST BENEFITS
YEAR RATE SO VALUED
- ---------------------------------------------------------------------------
ORDINARY--
1996-1998 7.5% for years 1 through 5, graded to 5.5% at the
end of year 25, and level thereafter 2%
1981-1995 8% for years 1 through 5, graded to 6% at the end
of year 25, and level thereafter 20%
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 13%
1948-1961 4% for years 1 through 5,graded to 3.5% at the
end of year 10, and level thereafter 13%
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%
===========================================================================
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>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(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):
1998 1997
- ------------------------------------------------------------------
Balance at January 1 $ 249,639 $ 222,996
Less reinsurance recoverables 2,567 2,439
- ------------------------------------------------------------------
Net balance at January 1 247,072 220,557
- ------------------------------------------------------------------
Incurred related to:
Current year 598,681 515,202
Prior years (6,592) (1,098)
- ------------------------------------------------------------------
Total incurred 592,089 514,104
- ------------------------------------------------------------------
Paid related to:
Current year 411,352 343,333
Prior years 158,879 144,256
- ------------------------------------------------------------------
Total paid 570,231 487,589
- ------------------------------------------------------------------
Net balance at December 31 268,930 247,072
Plus reinsurance recoverables 11 2,567
- ------------------------------------------------------------------
Balance at December 31 $ 268,941 $ 249,639
==================================================================
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.
American National evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. At December 31,
1998, amounts recoverable from reinsurers, with a carrying value of $93,551,000,
were associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos. American
National holds collateral related to these credit reinsurers totaling
$71,554,000. This collateral is in the form of custodial accounts controlled by
American National, 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):
1998 1997
- -----------------------------------------------------------------------
Direct premiums $1,201,189 $1,134,615
Reinsurance premiums assumed
from other companies 42,403 25,146
Reinsurance premiums ceded
to other companies (154,884) (119,180)
- -----------------------------------------------------------------------
Net premiums $1,088,708 $1,040,581
=======================================================================
Reinsurance recoveries $ 88,240 $ 56,535
=======================================================================
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
1998 1997
- ----------------------------------------------------------------------
Direct life insurance in force $ 44,134,974 $ 43,143,187
Reinsurance risks assumed
from other companies 713,200 662,171
- ----------------------------------------------------------------------
Total life insurance in force 44,848,174 43,805,358
Reinsurance risks ceded to
other companies (7,965,042) (6,985,956)
- ----------------------------------------------------------------------
Net life insurance in force $ 36,883,132 $ 36,819,402
======================================================================
(10) FEDERAL INCOME TAXES
The federal income tax provisions vary from the amounts computed when
applying the statutory federal income tax rate. A reconciliation of the
effective tax rate of the companies to the statutory federal income tax rate
follows (in thousands, except percentages):
1998 1997
- --------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE
- --------------------------------------------------------------------
Income tax on pre-tax income $ 95,861 35.00 % $ 130,558 35.00 %
Tax-exempt investment income (971) (0.35)% (383) (0.10)%
Dividend exclusion (5,044) (1.84)% (3,046) (0.82)%
Exempted losses on
sale of assets (9,856) (3.60)% -- -- %
Miscellaneous tax credits, net (1,467) (0.54)% (1,238) (0.33)%
Other items, net (2,032) (0.74)% (1,226) (0.33)%
- --------------------------------------------------------------------
$ 76,491 27.93 % $ 124,665 33.42 %
====================================================================
59
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and December 31, 1997 are as follows (in thousands):
1998 1997
- -------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Investment in bonds, real estate and
other invested assets, principally due to
investment valuation allowances $ 10,656 $ 11,858
Policyowner funds, principally
due to policy reserve discount 78,279 81,935
Policyowner funds, principally
due to unearned premium reserve 10,020 9,527
Other assets 2,649 6,701
- -------------------------------------------------------------------------------
Total gross deferred tax assets $ 101,604 $ 110,021
Less valuation allowance (3,000) (3,000)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 98,604 $ 107,021
- -------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Marketable equity securities, principally
due to net unrealized gains on stock $ (151,396) $ (107,767)
Investment in bonds, principally
due to accrual of discount on bonds (17,390) (16,312)
Deferred policy acquisition costs, due to
difference between GAAP and tax (177,057) (185,903)
Property, plant and equipment, principally
due to difference between GAAP
and tax depreciation methods (12,004) (12,563)
Other liabilities -- (82)
- -------------------------------------------------------------------------------
Net deferred tax liabilities $ (357,847) $ (322,627)
- -------------------------------------------------------------------------------
Total deferred tax $ (259,243) $ (215,606)
===============================================================================
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, 1997 and December 31, 1998, and
the cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $111,465,000 and $136,212,000
were paid to the Internal Revenue Service in 1998 and 1997, respectively. The
statute of limitations for examination by the Internal Revenue Service of
federal income tax returns through 1994 for American National and its
subsidiaries has expired. All prior year deficiencies have been paid or provided
for, and American National has filed appropriate claims for refunds through
1995. In the opinion of management, adequate provision has been made for any tax
deficiencies that may be sustained.
(11) COMPONENTS OF COMPREHENSIVE INCOME
The only item included in comprehensive income, other than net income, is
unrealized gains. The details on the unrealized gains included in comprehensive
income, and the related tax effects thereon are as follows:
FEDERAL
INCOME NET OF
BEFORE TAX FEDERAL
FEDERAL EXPENSE INCOME
TAX (BENEFIT) TAX
- -------------------------------------------------------------------------
DECEMBER 31, 1998
- -----------------
Unrealized gains 163,103 57,086 106,017
Less: reclassification adjustment for
gains realized in net income (34,960) (12,236) (22,724)
- -------------------------------------------------------------------------
Net unrealized gains component of
comprehensive income 128,143 44,850 83,293
DECEMBER 31, 1997
- -----------------
Unrealized gains 187,501 65,625 121,876
Less: reclassification adjustment for
gains realized in net income (106,684) (37,339) (69,345)
- -------------------------------------------------------------------------
Net unrealized gains component of
comprehensive income 80,817 28,286 52,531
=========================================================================
60
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(12) 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, 1998 and 1997, American National had 50,000,000 authorized shares of $1.00
par value common stock. At December 31, 1998 and 1997, issued shares were
30,832,449; treasury shares were 4,353,284; and out-standing shares were
26,479,165.
American National's payment of dividends to stock-holders 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, 1998, approximately $571,986,000 of American National's
consolidated stockholders' equity represents net assets of its insurance
subsidiaries. Any transfer of these net assets to American National would be
subject to statutory restrictions and approval.
(13) SEGMENT INFORMATION
American National and its subsidiaries are engaged principally in the
insurance business. Management organizes the business around its marketing
distribution channels. Separate management of each segment is required because
each business unit is subject to different marketing strategies. There are eight
operating segments based on the company's marketing distribution channels.
The operating segments are as follows:
MULTIPLE LINE MARKETING -- This segment derives its revenues from the sale
of individual life, annuity, accident and health, and property and casualty
products marketed through American National Insurance Company, ANTEX, ANPAC,
ANGIC, and ANPAC Lloyds.
HOME SERVICE DIVISION -- This segment derives its revenues from the sale of
individual life, annuity, and accident and health insurance using a system where
the agents collect the premiums.
INDEPENDENT MARKETING -- This segment derives its revenues mainly from the
sale of life and annuity lines marketed through independent marketing
organizations.
HEALTH DIVISION -- This segment derives its revenues primarily from the
sale of accident and health insurance, plus group life insurance marketed
through group brokers and third party marketing organizations.
CREDIT INSURANCE DIVISION -- This segment derives its revenues principally
from the sale of credit life and credit accident and health insurance.
SENIOR AGE MARKETING -- This segment derives its revenues primarily from
the sale of Medicare supplement plans, individual life, annuities, and accident
and health insurance marketed through Standard Life and Accident Insurance
Company.
DIRECT MARKETING -- This segment derives its revenues principally from the
sale of individual life insurance, marketed through Garden State Life Insurance
Company, using direct selling methods.
CAPITAL AND SURPLUS -- This segment derives its revenues principally from
investment instruments.
ALL OTHER -- This category comprises segments that are too small to show
individually. This category includes non-insurance, reinsurance assumed, and
retirement benefits.
All income and expense amounts specifically attributable to policy
transactions are recorded directly to the appropriate line of business within
each segment. Income and expenses, which are not specifically attributable to
policy transactions, are allocated to the lines within each segment as follows:
Net investment income from fixed income assets (bonds and mortgage loans on
real estate) is allocated 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 all other assets is allocated to
capital and surplus to arrive at an underwriting gain from operations. A portion
of the income allocated to capital and surplus is then re-allocated to the other
segments in accordance with the amount of equity invested in each segment.
Expenses are allocated to the lines based upon various factors, including
premium and commission ratios within the respective operating segments.
61
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
Gain or loss on the sale of investments and equity in earnings of
unconsolidated affiliates is allocated to capital and surplus.
Federal income taxes have been applied to the net earnings of each segment,
based on a fixed tax rate. Any difference between the amount allocated to the
segments and the total federal income tax amount is allocated to capital and
surplus.
The following tables summarize net income and various components of net
income by operating segment for the years ended December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
GAIN FROM
OPERATIONS
INVESTMENT BEFORE FEDERAL
PREMIUM EXPENSES INCOME EQUITY IN FEDERAL INCOME TAX
AND OTHER INTEREST AND GAIN FROM ON UNCONSOLIDATED INCOME EXPENSES
REVENUE REVENUE BENEFITS OPERATIONS EQUITY AFFILIATES TAXES (BENEFIT) NET INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
- ----
Multiple Line Marketing $ 452,146 $ 72,110 $ 488,842 $ 35,414 $ 22,953 $ -- $ 58,367 $ 19,261 $ 39,106
Home Service 203,975 88,759 252,445 40,289 33,429 -- 73,718 24,327 49,391
Independent Marketing 69,714 109,604 184,655 (5,337) 12,675 -- 7,338 2,422 4,916
Health 211,249 3,175 240,194 (25,770) 4,674 -- (21,096) (6,962) (14,134)
Credit Insurance 57,727 5,743 61,181 2,289 9,472 -- 11,761 3,881 7,880
Senior Age Marketing 162,161 10,132 169,929 2,364 7,628 -- 9,992 3,297 6,695
Direct Marketing 26,619 3,050 24,035 5,634 539 -- 6,173 2,037 4,136
Capital and Surplus 81,471 123,520 761 204,230 (96,272) 8,048 116,006 24,390 91,616
All other 38,851 24,659 56,782 6,728 4,902 -- 11,630 3,838 7,792
- ----------------------------------------------------------------------------------------------------------------------------------
$1,303,913 $440,752 $1,478,824 $265,841 $ -- $8,048 $273,889 $76,491 $197,398
==================================================================================================================================
1997
- ----
Multiple Line Marketing $ 408,184 $ 72,259 $ 427,132 $ 53,311 $ 21,229 $ -- $74,540 $ 24,598 $ 49,942
Home Service 209,082 89,638 249,127 49,593 33,064 -- 82,657 27,277 55,380
Independent Marketing 70,590 112,032 178,419 4,203 13,604 -- 17,807 5,876 11,931
Health 185,057 3,088 200,797 (12,652) 3,966 -- (8,686) (2,866) (5,820)
Credit Insurance 54,363 5,677 57,847 2,193 8,895 -- 11,088 3,659 7,429
Senior Age Marketing 168,685 15,030 182,914 801 8,298 -- 9,099 3,003 6,096
Direct Marketing 26,615 2,972 26,712 2,875 542 -- 3,417 1,128 2,289
Capital and Surplus 145,403 109,104 3,430 251,077 (94,679) 9,333 165,731 56,258 109,473
All other 36,859 25,266 49,837 12,288 5,081 -- 17,369 5,732 11,637
- ----------------------------------------------------------------------------------------------------------------------------------
$1,304,838 $435,066 $1,376,215 $363,689 $ -- $9,333 $373,022 $124,665 $248,357
==================================================================================================================================
</TABLE>
62
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
There were no significant non-cash items to report. Substantially all of the
Company's revenues are derived in the U.S.
The majority of the operating segments provide essentially the same types of
products. The following tables provide revenues within each segment by line of
business for the years ended December 31, 1998 and 1997 (in thousands):
TOTAL REVENUES (INCLUDING INTEREST INCOME)
<TABLE>
<CAPTION>
ACCIDENT & PROPERTY & ALL TOTAL
LIFE ANNUITY HEALTH CASUALTY CREDIT OTHER REVENUES
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
- ----
Multiple Line Marketing $121,829 $ 16,826 $ 20,232 $365,369 $ -- $ -- $ 524,256
Home Service 279,531 4,410 8,793 -- -- -- 292,734
Independent Marketing 5,328 173,990 -- -- -- -- 179,318
Health Insurance 3,802 -- 210,622 -- -- -- 214,424
Credit Insurance -- -- -- -- 63,470 -- 63,470
Senior Age Marketing 32,821 1,583 137,889 -- -- -- 172,293
Direct Marketing 29,042 165 462 -- -- -- 29,669
Capital and Surplus -- -- -- -- -- 204,991 204,991
All other 31,996 18,962 1,977 -- -- 10,575 63,510
- ----------------------------------------------------------------------------------------------------------------------------------
$504,349 $215,936 $379,975 $365,369 $63,470 $215,566 $1,744,665
==================================================================================================================================
1997
- ----
Multiple Line Marketing $120,083 $ 16,728 $ 20,008 $323,624 $ -- $ -- $ 480,443
Home Service 284,698 4,675 9,347 -- -- -- 298,720
Independent Marketing 3,525 179,097 -- -- -- -- 182,622
Health Insurance 3,224 -- 184,920 -- -- -- 188,144
Credit Insurance -- -- -- -- 60,040 -- 60,040
Senior Age Marketing 34,583 1,549 147,583 -- -- -- 183,715
Direct Marketing 28,901 176 510 -- -- -- 29,587
Capital and Surplus -- -- -- -- -- 254,507 254,507
All other 33,331 17,684 2,791 -- -- 8,319 62,125
- ----------------------------------------------------------------------------------------------------------------------------------
$508,345 $219,909 $365,159 $323,624 $60,040 $262,826 $1,739,903
==================================================================================================================================
</TABLE>
Within all operating segments, to the extent required for reserves, fixed
income assets and policy loans have been directly assigned to the insurance
lines. Equity type assets, such as stocks, real estate and other invested
assets, have been allocated to the segments, based on the equity invested in
each. Assets of the non-insurance companies are specifically associated with
those companies in the "All other" segment. Any assets not allocated are
assigned to Capital and Surplus.
63
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The following table summarizes assets by operating segment for the years
ended December 31, 1998 and 1997 (in thousands):
1998 1997
- -------------------------------------------------------------
Multiple Line Marketing $1,513,396 $1,425,919
Home Service 1,760,415 1,741,155
Independent Marketing 1,761,832 1,874,000
Health 170,301 140,179
Credit Insurance 372,787 355,789
Senior Age Marketing 330,631 326,235
Direct Marketing 83,759 76,939
Capital and surplus 2,232,612 2,066,779
All other 589,919 476,781
- -------------------------------------------------------------
Total assets $8,815,652 $8,483,776
=============================================================
The net assets of the Capital and Surplus segment include investments in
unconsolidated affiliates. Substantially all of the company's assets are located
in the U.S.
The amount of each segment item reported is the measure reported to the
chief operating decision maker for purposes of making decisions about allocating
resources to the segment and assessing its performance. Adjustments and
eliminations made in preparing the financial statements and allocations of
revenues, expenses and gains or losses have been included in determining
reported segment profit or loss.
The reported measures are determined in accordance with the measurement
principles most consistent with those used in measuring the corresponding
amounts in the consolidated financial statements.
The results of the operating segments of the business are affected by
economic conditions and customer demands. A significant portion of American
National's insurance business is written through one third-party marketing
organization. During 1998, approximately 11% of the total premium revenues and
policy account deposits were written through that organization, which is
included in the Independent Marketing operating segment. This compares with 18%
in 1997. Of the total business written by this one organization, the majority
was annuities.
(14) 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):
1998 1997
- ----------------------------------------------------------------------
Statutory net income of insurance companies $ 155,368 $ 207,998
Net gain of non-insurance companies 15,240 2,592
- ----------------------------------------------------------------------
Combined net income 170,608 210,590
Increases/(decreases):
Deferred policy acquisition costs (9,795) 12,267
Policyholder funds 18,702 7,963
Deferred federal income tax benefit 1,216 9,606
Premiums deferred and other receivables (84) 602
Gain (loss) on sale of investments (292) 79
Change in interest maintenance reserve 2,773 1,532
Asset valuation allowances 11,492 3,524
Other adjustments, net 2,854 2,218
Consolidating eliminations and adjustments (76) (24)
- ----------------------------------------------------------------------
Net income reported herein $ 197,398 $ 248,357
======================================================================
1998 1997
- -----------------------------------------------------------------------
Statutory capital and surplus of insurance
companies $2,163,593 $2,011,016
Stockholders equity
of non-insurance companies 305,920 77,725
- -----------------------------------------------------------------------
Combined capital and surplus 2,469,513 2,088,741
Increases/(decreases):
Deferred policy acquisition costs 731,703 748,341
Policyholder funds 154,445 135,262
Deferred federal income taxes (259,243) (215,606)
Premiums deferred and other receivables (78,139) (77,629)
Reinsurance in "unauthorized companies" 38,748 34,010
Statutory asset valuation reserve 344,926 370,102
Statutory interest maintenance reserve 10,762 7,989
Asset valuation allowances (28,489) (44,899)
Investment market value adjustments 48,656 39,050
Non-admitted assets and other adjustments, net 173,877 135,680
Consolidating eliminations and adjustments (692,147) (515,624)
- -----------------------------------------------------------------------
Stockholders' equity reported herein $2,914,612 $2,705,417
=======================================================================
In accordance with various government and state regulations, American
National and its insurance subsidiaries had bonds with an amortized value of
$74,021,000 on deposit with appropriate regulatory authorities.
(15) 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
64
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
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.
These plans 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 $3,051,000 for 1998 and $2,474,000 for 1997.
The pension debit is made up of the following (in thousands):
1998 1997
- ----------------------------------------------------------------------
Service cost--benefits earned during period $ 5,629 $ 5,402
Interest cost on projected benefit obligation 7,661 7,221
Expected return on plan assets (8,887) (8,795)
Amortization of past service cost 473 490
Amortization of transition asset (2,619) (2,619)
Amortization of actuarial loss 794 775
- ----------------------------------------------------------------------
Total pension debit $ 3,051 $ 2,474
======================================================================
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:
1998 1997
- --------------------------------------------------------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
- -------------------------------------------------------------------------------
Vested benefit obligation $(76,916) $(19,136) $(71,811) $(22,468)
===============================================================================
Accumulated benefit obligation $(79,405) $(19,136) $(75,492) $(22,468)
===============================================================================
Projected benefit obligation $(96,812) $(26,340) $(92,422) $(22,616)
Plan assets at fair value
(long-term securities) 137,543 -- 129,380 --
- -------------------------------------------------------------------------------
Funded status:
Plan assets in excess of
projected benefit obligation 40,731 (26,340) 36,958 (22,616)
Unrecognized net loss 2,341 3,729 8,305 2,614
Prior service cost not yet
recognized in periodic
pension cost -- 1,028 -- 1,505
Unrecognized net transition asset
at January 1 being recognized
over 15 years (7,858) -- (10,477) --
- -------------------------------------------------------------------------------
Prepaid pension cost included
in other assets or other
liabilities $ 35,214 $ (21,583) $ 34,786 $ (18,497)
===============================================================================
Assumptions used at December 31:
1998 1997
- ----------------------------------------------------------------------
Weighted average discount rate on
benefit obligation 6.50% 6.50%
Rate of increase in compensation levels 4.80% 4.80%
Expected long-term rate of return on plan assets 7.00% 7.00%
OTHER BENEFITS
Under American National and its subsidiaries' various group benefit plans
for active employees, a $2,500 paid-up life insurance certificate is provided
upon retirement for eligible participants who meet certain age and length of
service requirements.
American National has one retiree health benefit plan for retirees of all
companies in the consolidated group, with the exception of Standard Life and
Accident Insurance Company (Standard). The retirees of Standard are covered
under a separate health plan. Participation in either of these plans is limited
to current retirees and their dependents and those employees and their
dependents who met certain age and length of service requirements as of December
31, 1993. No new participants will be added to these plans in the future.
65
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
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 $12,989,000 and $12,970,000 at December 31, 1998 and 1997,
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.
(16) 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, 1998 were approximately $5,620,000.
In the ordinary course of their operations, the companies also had
commitments outstanding at December 31, 1998 to purchase, expand or improve real
estate, and to fund mortgage loans aggregating $120,922,000, all of which are
expected to be funded in 1999. As of December 13, 1998, all of the 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.
66
<PAGE>
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, ACCUMULATION VALUES AND SURRENDER VALUES
The table on pages 69 and 70 illustrates how Accumulation Value, Surrender
Value and Death Benefit of a Policy may change with the investment performance
of the Eligible Portfolios. These illustrations are hypothetical and may not
be used to project or predict investment results. The illustrations assume:
. a gross annual investment rate of return (i.e. investment income and capital
gains and losses) of 0%, 6% or 12%,
. a $100,000 Specified Amount,
. the Insured is a male, age 65,
. $10,000 initial premium is paid,
. all Accumulation Value is allocated to the Separate Account,
. no Policy Loans are made,
. no transfers to the Fixed Account,
. no more than twelve transfers among Subaccounts, and
. fees and expenses for the Eligible Portfolios at a hypothetical annual rate of
0.92% of net assets (the rate is a simple average, for all Eligible
Portfolios, of the "Management Fees" and "Other Expenses", indicated for each
Eligible Portfolio in the Eligible Portfolio Annual Expenses table. Certain
fee waiver and expense reimbursement arrangements exist and are reflected in
this average. Excluding the effect of these arrangements, the simple average
of the "Management Fees" and "Other Expenses" would be 1.05%).
The Accumulation Value, Surrender Value and Death Benefit shown in the
illustrations may be different if any of the above assumptions changed.
The table on page 69 is based on the current schedule of Monthly Deductions.
We may, however, change the current schedule of Monthly Deductions at any
time and for any reason. Accordingly, you should not construe the tables as
guarantees or estimates of amounts to be paid in the future.
The table on page 70 is based on the assumption that the maximum allowable
Monthly Deductions are made throughout the life of the Policy.
Illustrations also reflect the Daily Asset Charge, which is levied against each
Subaccount at an annual rate of 1.25% of average daily Accumulation Value.
After adjustment to reflect the Daily Asset Charge and the average Eligible
Portfolio Annual Expenses, the illustrated hypothetical gross annual investment
rates of return of 0%, 6% and 12% correspond to approximate hypothetical net
annual rates of -2.17%, 3.83% and 9.83%.
67
<PAGE>
The illustrations do not reflect any charges for federal income tax burden
attributable to the Separate Account, since we are not currently making such
charges. However, such charges may be made in the future, and, in that event,
the gross annual investment rate of return would have to exceed 0%, 6% or
12% by an amount sufficient to cover the tax charges in order to produce the
values illustrated. (See "Federal Tax Matters," page 30.)
If a Policy Loan is made, both Surrender Value and Death Benefit Proceeds will
be reduced by the amount of outstanding Policy Debt. Even if repaid, Policy Debt
may permanently affect the Policy's values. The effect could be favorable or
unfavorable depending on whether the investment performance of the
subaccount(s)/Fixed Account you selected is less than or greater than the
interest rate credited to the Accumulation Value held to secure the loan.
Upon request, we will provide a comparable illustration based upon the proposed
Insured's age, sex and underwriting.
68
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE LIFE INSURANCE
ILLUSTRATION OF DEATH BENEFITS AND POLICY VALUES
CURRENT CHARGES AND DEDUCTIONS *
Male Issue Age 65
Initial Premium at Issue = $10,000
<TABLE>
<CAPTION>
VALUES ASSUMING A HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
----------------------------------------------------------------------------------------------------------
0% 6% 12%
----------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,650 8,750 17,791 10,234 9,334 17,791 10,818 9,918 17,791
2 11,025 9,310 8,460 17,791 10,474 9,624 17,791 11,707 10,857 17,791
3 11,576 8,982 8,182 17,791 10,721 9,921 17,791 12,671 11,871 17,791
4 12,155 8,663 7,963 17,791 10,974 10,274 17,791 13,718 13,018 17,791
5 12,763 8,355 7,755 17,791 11,234 10,634 17,791 14,855 14,255 17,791
6 13,401 8,057 7,557 17,791 11,502 11,002 17,791 16,090 15,590 18,181
7 14,071 7,768 7,368 17,791 11,776 11,376 17,791 17,437 17,037 19,355
8 14,775 7,488 7,188 17,791 12,058 11,758 17,791 18,908 18,608 20,610
9 15,513 7,217 7,017 17,791 12,347 12,147 17,791 20,517 20,317 21,953
10 16,289 6,955 6,955 17,791 12,644 12,644 17,791 22,282 22,282 23,396
11 17,103 6,734 6,734 17,791 13,015 13,015 17,791 24,322 24,322 25,538
12 17,959 6,520 6,520 17,791 13,397 13,397 17,791 26,543 26,543 27,870
13 18,856 6,311 6,311 17,791 13,791 13,791 17,791 28,960 28,960 30,408
14 19,799 6,108 6,108 17,791 14,198 14,198 17,791 31,588 31,588 33,167
15 20,789 5,910 5,910 17,791 14,618 14,618 17,791 34,443 34,443 36,166
16 21,829 5,717 5,717 17,791 15,052 15,052 17,791 37,544 37,544 39,421
17 22,920 5,530 5,530 17,791 15,500 15,500 17,791 40,925 40,925 42,971
18 24,066 5,348 5,348 17,791 15,962 15,962 17,791 44,613 44,613 46,844
19 25,270 5,170 5,170 17,791 16,438 16,438 17,791 48,638 48,638 51,070
20 26,533 4,998 4,998 17,791 16,930 16,930 17,791 53,030 53,030 55,681
25 33,864 ** ** ** ** ** ** 81,994 81,994 86,094
30 43,219 ** ** ** ** ** ** 126,999 126,999 126,999
</TABLE>
* (See "CHARGES AND DEDUCTIONS" on page 20.)
** The Policy is lapsed.
The Death Benefit at age 100 and thereafter equals the Accumulation Value.
The illustration assumes no Policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6% OR
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
69
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE LIFE INSURANCE
ILLUSTRATION OF DEATH BENEFITS AND POLICY VALUES
GUARANTEED CHARGES AND DEDUCTIONS*
Male Issue Age 65
Initial Premium at Issue = $10,000
<TABLE>
<CAPTION>
VALUES ASSUMING A HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
----------------------------------------------------------------------------------------------------------
0% 6% 12%
----------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,498 8,598 17,791 10,087 9,187 17,791 10,676 9,776 17,791
2 11,025 8,973 8,123 17,791 10,158 9,308 17,791 11,415 10,565 17,791
3 11,576 8,422 7,622 17,791 10,213 9,413 17,791 12,230 11,430 17,791
4 12,155 7,838 7,138 17,791 10,248 9,548 17,791 13,134 12,434 17,791
5 12,763 7,214 6,614 17,791 10,260 9,660 17,791 14,141 13,541 17,791
6 13,401 6,542 6,042 17,791 10,243 9,743 17,791 15,273 14,773 17,791
7 14,071 5,808 5,408 17,791 10,192 9,792 17,791 16,543 16,143 18,363
8 14,775 4,999 4,699 17,791 10,097 9,797 17,791 17,937 17,637 19,551
9 15,513 4,093 3,893 17,791 9,948 9,748 17,791 19,461 19,261 20,823
10 16,289 3,071 3,071 17,791 9,735 9,735 17,791 21,133 21,133 22,190
11 17,103 1,907 1,907 17,791 9,443 9,443 17,791 22,974 22,974 24,123
12 17,959 573 573 17,791 9,056 9,056 17,791 24,969 24,969 26,218
13 18,856 ** ** ** 8,556 8,556 17,791 27,132 27,132 28,488
14 19,799 ** ** ** 7,917 7,917 17,791 29,473 29,473 30,947
15 20,789 ** ** ** 7,103 7,103 17,791 32,007 32,007 33,607
16 21,829 ** ** ** 6,065 6,065 17,791 34,746 34,746 36,483
17 22,920 ** ** ** 4,731 4,731 17,791 37,703 37,703 39,588
18 24,066 ** ** ** 3,003 3,003 17,791 40,891 40,891 42,935
19 25,270 ** ** ** 741 741 17,791 44,322 44,322 46,538
20 26,533 ** ** ** ** ** ** 48,010 48,010 50,410
25 33,864 ** ** ** ** ** ** 70,779 70,779 74,318
30 43,219 ** ** ** ** ** ** 105,276 105,276 105,276
</TABLE>
* (See "CHARGES AND DEDUCTIONS" on page 20.)
** The Policy is lapsed.
The Death Benefit at age 100 and thereafter equals the Accumulation Value.
The illustration assumes no Policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6% OR
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
70
<PAGE>
[LOGO OF AMERICAN NATIONAL INSURANCE COMPANY APPEARS HERE]
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
Form 7684 Rev. 4-99
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
American National Insurance Company hereby represents that the fees and
charges deducted under the contracts described in this pre-effective amendment
are, in the aggregate, reasonable in relationship to the services rendered, the
expenses expected to be incurred, and the risks assumed by American National
Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 70 pages.
Undertaking to file reports.
Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
Signatures.
Written Consents
II-1
<PAGE>
The following exhibits, corresponding to those required by the instructions
as to exhibits in Form N-8B-2:
Exhibit 1 Resolution of the Board of Directors of American National
Insurance Company authorizing establishment of American
National Variable Life Separate Account (previously filed on
April 24, 1998)
Exhibit 2 Not Applicable
Exhibit 3(a) Distribution and Administrative Services Agreement (previously
filed on April 24, 1998)
Exhibit 3(b) Not Applicable
Exhibit 3(c) Schedule of Sales Commissions (previously filed on April 24,
1998)
Exhibit 4 Not Applicable
Exhibit 5 Flexible Premium Variable Life Insurance Policy (previously
filed on April 24, 1998)
Exhibit 6(1) Articles of Incorporation of American National Insurance
Company (previously filed on April 24, 1998)
Exhibit 6(2) By-laws of American National Insurance Company (previously
filed on April 24, 1998)
Exhibit 7 Not Applicable
Exhibit 8(1) Form of American National Investment Accounts, Inc. Fund
Participation Agreement (previously filed on April 24, 1998)
Exhibit 8(2) Form of Variable Insurance Products Fund Fund Participation
Agreement (previously filed on April 24, 1998)
Exhibit 8(3) Form of Variable Insurance Products Fund II Fund
Participation Agreement (previously filed on April 24, 1998)
Exhibit 8(4) Form of Variable Insurance Products Fund III Fund
Participation Agreement (previously filed on April 24, 1998)
Exhibit 8(5) Form of T. Rowe Price Fund Participation Agreement
(previously filed on April 24, 1998)
II-2
<PAGE>
Exhibit 8(6) Form of MFS Variable Insurance Trust Participation Agreement
(previously filed on April 24, 1998)
Exhibit 8(7) Form of Federated Insurance Series Participation Agreement
(previously filed on April 24, 1998)
Exhibit 8(8) Form of Van Eck Worldwide Insurance Trust Participation
Agreement (previously filed on April 24, 1998)
Exhibit 8(9) Form of Lazard Retirement Series, Inc. Participation
Agreement (previously filed on April 24, 1998)
Exhibit 9 Not Applicable
Exhibit 10 Application Form (previously filed in post-effective
amendment no. 8 on April 26, 1996)
Exhibit 11 Independent Auditors' Consent
Exhibit 12 Opinion of Counsel
Exhibit 13 Consent of Counsel (included in Exhibit 12)
Exhibit 14 Actuarial Opinion
Exhibit 15 Actuarial Basis of Payment and Cash Value Adjustment Pursuant
to Rule 6e-3(T)(b)(V)(B) (previously filed on January 15, 1999)
Exhibit 16 Procedures Memorandum Pursuant to Rule 6e-3(T)(b)(12)(iii)
(previously filed on January 15, 1999)
Exhibit 27 Financial Data Schedule (not applicable)
II-3
<PAGE>
As required by the Securities Act of 1933, the Registrant certifies that it
meets all of the requirements of Securities Act Rule 485(b) for effectiveness of
this Post-Effective Amendment and has caused this amended registration statement
to be signed on its behalf, in the City of Galveston, and the State of Texas on
the 30/th/ day of April, 1999.
American National Variable Life Separate Account
(Registrant)
By: American National Insurance Company
By:/s/ Robert L. Moody
-------------------------------------
Robert L. Moody, Chairman of the Board,
President and Chief Executive Officer
American National Insurance Company
(Depositor)
By: /s/ Robert L. Moody
----------------------------------------
Robert L. Moody, Chairman of the Board,
President and Chief Executive Officer
attest:
/s/ Vincent E. Soler, Jr.
- -------------------------
Vincent E. Soler, Jr.,
Vice President,
Secretary and Treasurer
As required by the Securities Act of 1933, this amended registration
statement has been signed by the following persons in their capacities and on
the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Michael W. McCroskey Executive Vice President - April 30, 1999
- ------------------------- Investments (Principal
Michael W. McCroskey Financial Officer)
/s/ Stephen E. Pavlicek Senior Vice President and April 30, 1999
- ------------------------- Controller (Principal
Stephen E. Pavlicek Accounting Officer)
II-4
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert L. Moody Chairman of the Board, April 30, 1999
- ---------------------------- Director, President and
Robert L. Moody Chief Executive Officer
/s/ G. Richard Ferdinandtsen Director April 30, 1999
- ----------------------------
G. Richard Ferdinandtsen
/s/ Irwin M. Herz, Jr. Director April 30, 1999
- ----------------------------
Irwin M. Herz, Jr.
/s/ Eugene Lucas Director April 30, 1999
- ----------------------------
R. Eugene Lucas
Director
- ----------------------------
E. Douglas McLeod
Director
- ----------------------------
Frances Anne Moody
Director
- ----------------------------
Russell S. Moody
Director
- ----------------------------
W.L. Moody, IV
/s/ Joe Max Taylor Director April 30, 1999
- ----------------------------
Joe Max Taylor
II-5
<PAGE>
EXHIBIT 99.B11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
-------------------
Houston, Texas
April 30, 1999
<PAGE>
EXHIBIT 99.B12
Law Offices
Greer, Herz & Adams, L.L.P.
a registered limited liability partnership
including professional corporations
One Moody Plaza
Galveston, Texas 77550
Galveston (409) 765-5525
Houston (713) 480-5278
Telecopier (409) 766-6424
April 30, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Judicial Plaza
Washington, D.C. 20549
RE: American National Variable Life Separate Account ("Separate Account")
Post-Effective Amendment No. 2 to Form S-6; File No. 333-51035; Opinion and
Consent of Counsel
- -----------------------------
Gentlemen:
We are counsel to American National Insurance Company ("ANICO"), the
depositor of the Separate Account. As such, we participated in the formation of
the Separate Account and the registration of such separate account with the
Securities and Exchange Commission ("Commission"). Accordingly, we are familiar
with the corporate records, certificates, and consents of officers of ANICO as
we have deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and our consideration of such other matters of
fact and questions of law as we have deemed necessary and proper in the
circumstances, we are of the opinion that:
1. ANICO is a duly organized and existing corporation under the laws of
the State of Texas and that its principal business is to be an insurer.
<PAGE>
2. The Separate Account is a duly organized and existing separate account
of ANICO under the laws of the State of Texas and is registered as a unit
investment trust under the Investment Company Act of 1940.
3. The Variable Life Insurance Contracts registered by this Registration
Statement under the Securities Act of 1933 (File No. 333-51035) will, upon
issuance thereof, be validly authorized and issued.
We hereby consent to the use of our opinion of counsel in the Post-
Effective Amendment No. 2 to Form S-6 Registration Statement (File No.
333-51035) filed on behalf of the Separate Account. We further consent to the
statements made regarding us and to the use of our name under the caption "Legal
Matters" in the prospectus constituting a part of such Post-Effective Amendment
No. 2 to such Registration Statement.
Yours very truly,
GREER, HERZ & ADAMS, L.L.P.
/s/ Jerry L. Adams
------------------------------
Jerry L. Adams
<PAGE>
EXHIBIT 99.B14
American National Insurance Company
REX D. HEMME, FSA, MAAA
Vice President and Actuary
Life Product Development
April 30, 1999
Securities and Exchange Commission
450 Fifth Street, N W
Washington, D.C. 20549
Dear Sir:
This opinion is furnished in connection with the filing of a Post-Effective
Amendment No. 2 to Registration Statement No. 333-51035 on Form S-6 Registration
Statement (the "Registration Statement"). The prospectus included in the
Registration Statement describes a certain Variable Life insurance policy (the
"Policy") that will be offered and sold by American National Insurance Company.
I am familiar with the Registration Statement, as amended, and the exhibits
thereto. In my opinion:
(1) The hypothetical illustrations of the Policy used in the Registration
Statement accurately reflect reasonable estimates of projected
performance of the Policy under the stipulated rates of investment
return, the contractual expense deductions and guaranteed cost-of-
insurance rates, and utilizing a reasonable estimation for expected
fund operating expenses.
(2) The rate structure of the Policy has not been designed so as to make
the relationship between premiums and benefits, as shown in the
illustrations referred to in (2) above, appear more favorable to a
prospective purchaser of a Policy meeting the criteria shown in the
illustrations, than to prospective purchasers of Policies for males at
other ages or underwriting classes or for females.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus included as a part of such Registration Statement.
Very truly yours,
Rex D. Hemme
- ----------------------------
Rex D. Hemme, FSA, MAAA
Vice President and Actuary Life Product Development
