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Registration Number 33-36525
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. 12
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 Jerry L. Adams
Vice President, Actuary Greer, Herz & Adams, L.L.P.
American National With copy to: One Moody Plaza, 18th Floor
Insurance Company ------------ Galveston, Texas 77550
One Moody Plaza
Galveston, Texas 77550
(Name and Address of Agent for Service)
===============================================================
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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INVESTRAC GOLD VARIABLE UNIVERSAL 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 universal life insurance policy offered by
American National Insurance Company. The policy provides life insurance
protection with flexibility to vary the amount and timing of premium payments
and the level of death benefit. The death benefits available under your policy
can increase if the value of the policy increases.
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, Variable Insurance Products
Fund II, Variable Insurance Products Fund III, T. Rowe Price International
Series, Inc. or T. Rowe Price Equity Series, Inc. The portfolios currently
available for purchase by the subaccounts are:
AMERICAN NATIONAL FUND . VIP Equity-Income
. AN Money Market . VIP High Income
. AN Growth . VIP Growth
. AN Balanced . VIP Overseas
. AN Managed . VIP Contrafund
. VIP Asset Manager: Growth
T. ROWE PRICE FUNDS . VIP Investment Grade Bond
. T. Rowe Price Equity Income . VIP Asset Manager
. T. Rowe Price Mid-Cap Growth . VIP Index 500
. T. Rowe Price International Stock . VIP Balanced
. VIP Growth and Income
FIDELITY FUNDS . VIP Mid Cap
. VIP Money Market . VIP Growth Opportunities
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.
Form 5427 Rev. 5-99
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TABLE OF CONTENTS
Page
Definitions.................................................................. 4
Summary...................................................................... 6
The Policy................................................................. 6
Issuance of a Policy....................................................... 6
Allocation of Premiums..................................................... 6
Policy Benefits and Rights................................................. 7
Charges.................................................................... 8
Taxes...................................................................... 11
Policy Benefits.............................................................. 11
Purposes of the Policy..................................................... 11
Death Benefit Proceeds..................................................... 12
Benefits at Maturity....................................................... 12
Death Benefit Options...................................................... 12
Guaranteed Coverage Benefit................................................ 16
Duration of the Policy..................................................... 16
Accumulation Value......................................................... 16
Payment of Policy Benefits................................................. 17
Policy Rights................................................................ 19
Loan Benefits.............................................................. 19
Surrenders................................................................. 20
Transfers.................................................................. 22
Refund Privilege........................................................... 22
Right to Exchange for a Universal Life Policy.............................. 23
Payment and Allocation of Premiums........................................... 23
Issuance of a Policy....................................................... 23
Premiums................................................................... 23
Premium Flexibility........................................................ 23
Allocation of Premiums and Accumulation Value.............................. 24
Grace Period and Reinstatement............................................. 24
Charges and Deductions....................................................... 25
Premium Charges............................................................ 25
Charges from Accumulation Value............................................ 25
Monthly Deduction........................................................ 25
Cost of Insurance........................................................ 26
Surrender Charge......................................................... 26
Transfer Charge.......................................................... 27
Partial Surrender Charge................................................. 27
Daily Charges Against the Separate Account............................... 27
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Fees and Expenses Incurred by Eligible Portfolios........................ 27
Taxes.................................................................... 27
Exceptions to Charges...................................................... 27
American National Insurance Company, the Separate
Account, the Funds and the Fixed Account................................. 28
American National Insurance Company........................................ 28
The Separate Account....................................................... 28
The Funds.................................................................. 31
Fixed Account.............................................................. 33
Federal Tax Matters.......................................................... 34
Introduction............................................................... 34
Tax Status of the Policy................................................... 34
Tax Treatment of Policy Proceeds........................................... 35
American National's Income Taxes........................................... 38
Other Information............................................................ 38
Sale of the Policy......................................................... 38
Year 2000.................................................................. 39
The Contract............................................................... 39
Dividends.................................................................. 41
Legal Matters.............................................................. 41
Legal Proceedings.......................................................... 41
Registration Statement..................................................... 41
Experts.................................................................... 41
Senior Executive Officers and Directors of
American National Insurance Company...................................... 42
Financial Statements......................................................... 48
Appendix..................................................................... 84
Illustrations of Death Benefits,
Accumulation Values and Surrender Values............................... 86
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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 latest change,
if any, filed and recorded with us.
DAILY ASSET CHARGE. A charge equal to an annual rate of 0.90% of the average
daily Accumulation Value of each subaccount.
DATE OF ISSUE. The Date of Issue in the Policy and any riders to 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, addition of a benefit rider, or reinstatement
of coverage will take effect on the Monthly Deduction Date which coincides with
or next follows the date we approve an application for such change or for
reinstatement of the Policy.
ELIGIBLE PORTFOLIO. A Portfolio of American National Investment Accounts, Inc.,
Variable Insurance Products Fund, Variable Insurance Products Fund II, Variable
Insurance Products Fund III, T. Rowe Price International Series, Inc., and T.
Rowe Price Equity Series, Inc., in which a subaccount can be invested.
FIDELITY FUNDS. Variable Insurance Products Fund, 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.
GUARANTEED COVERAGE BENEFIT. Our agreement to keep the Policy in force if the
Guaranteed Coverage Premium is paid and other Policy provisions are met.
GUARANTEED COVERAGE PREMIUM. A specified premium which, if paid in advance as
required, will keep the Policy in force so long as other Policy provisions are
met.
INSURED. The person upon whose life the Policy is issued.
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MONTHLY DEDUCTION. The sum of (1) cost of insurance charge, (2) charge for any
riders, and (3) administrative charge shown on the Policy Data Page.
MONTHLY DEDUCTION DATE. The same date in each succeeding month as the Date of
Issue, except that whenever the Monthly Deduction 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 premium charges (sales load charge, premium tax charge
and transaction charge).
PLANNED PERIODIC PREMIUMS. Scheduled premiums selected by you.
POLICY. The variable universal 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.
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 until the Insured
reaches Attained Age of 95. The Specified Amount is an amount you select in
accordance with Policy requirements.
SURRENDER VALUE. The Accumulation Value less Policy Debt and surrender charges.
T. ROWE PRICE FUNDS. T. Rowe Price International Series, Inc. 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.
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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 universal life insurance policy.
You do not have a fixed schedule for premium payments. You can establish a
schedule of Planned Periodic Premiums, but you are not required to follow such
schedule. (See "Premium Flexibility," page 23.)
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 7 and "Accumulation Value," page 16). 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, except under the Guaranteed Coverage Benefit
provision. Further, the Accumulation Value is not guaranteed, except in the
Fixed Account.
ISSURANCE 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 28 and "Fixed Account," page 33). The
assets of the various subaccounts are invested in Eligible Portfolios. The
prospectuses or prospectus profiles for the Eligible Portfolios accompany this
prospectus.
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 VIP Money Market Portfolio.
Premium payments received within 15 days after the Date of Issue are also
allocated to the VIP Money Market Portfolio. After the 15 day period, premium
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payments and Accumulation Value are allocated among the Eligible Portfolios in
accordance with your instructions as contained in the application. The minimum
percentage that you may allocate to any one subaccount or to the Fixed Account
is 10% of the premium, and fractional percentages may not be used.
POLICY BENEFITS AND RIGHTS
Death Benefit. The Death Benefit is available in two options. (See "Death
Benefit Options," page 12.) 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 17.)
Adjustments to Death Benefit. You can adjust the Death Benefit by changing the
Death Benefit option and by increasing or deceasing the Specified Amount.
Changes in the Specified Amount or the Death Benefit option are subject to
certain limitations. (See "Death Benefit Options," page 12 and "Change in
Specified Amount," page 15).
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, partial surrenders, and charges deducted from
the Policy. There is no guaranteed minimum Accumulation Value. You can withdraw
the entire Surrender Value. Subject to certain limitations, you can also
withdraw a portion of the Surrender Value. Partial surrenders reduce both the
Accumulation Value and the Death Benefit payable under the Policy. A surrender
charge will be deducted from the amount paid upon a partial withdrawal. (See
"Partial Surrender Charge," page 27. See "Surrenders," page 20). Surrenders may
have tax consequences. (See "Federal Tax Matters," page 34).
Policy Loans. You can borrow money from us using the Policy as security for the
loan. (See "Loan Benefits," page 19). Policy loans may have tax consequences.
(See Federal Tax Matters," page 34).
Free Look Period. You have a free look period in which to examine a Policy and
return it for a refund. The free look period runs until the later of:
. 45 days after the application is signed
. 10 days after you receive the Policy
. 10 days after we deliver a notice concerning cancellation
The date you receive your Policy will not necessarily be the date you submit
your premium.
(See "Refund Privilege," page 22.)
Policy Lapse and Guaranteed Coverage Benefit. During the first two Policy Years,
we will provide a Guaranteed Coverage Benefit so long as the Guaranteed Coverage
Premium is paid and other Policy provisions are met. After the Guaranteed
Coverage Benefit period, 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
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later. Unless the Guaranteed Coverage Benefit requirements have been met, lapse
can occur even if Planned Periodic Premiums are paid. (See "Payment and
Allocation of Premiums," page 23.)
CHARGES
Premium Charges. Your premiums will be reduced by the following charges before
being allocated in the subaccounts or the Fixed Account:
. a sales charge of 4% of each premium, plus
. premium taxes, which vary among the states and range from 0% to 4%; plus
. a transaction charge of $2.00.
Charges from Accumulation Value. The Accumulation Value of the Policy will be
reduced by certain Monthly Deductions and Daily Asset Charges as follows:
. On each Monthly Deduction Date by:
. Cost of Insurance Charge. Because the cost of insurance depends upon several
variables, the cost can vary from month to month. We will determine the
monthly cost of insurance charges by multiplying the applicable cost of
insurance rate by the Net Amount at Risk, as of the Monthly Deduction Date,
for each Policy month.
The monthly cost of insurance rate is based on the Insured's sex (if Policy
is issued on a sex distinct basis), Attained Age, Specified Amount and
underwriting risk class. The rate may vary if the Insured is a tobacco user
or tobacco non-user, if the Insured is in a preferred or standard risk
classification, or if the Insured is in a substandard risk classification
and rated with a tabular extra rating.
. Charge for the Cost of any Riders.
. Monthly Administrative Charge. During the first 12 Policy months and during
the first 12 Policy months following an increase in Specified Amount (other
than increases caused by a change in Death Benefit option), an
administrative charge will be deducted from the Accumulation Value. The
administrative charge ranges from $2.50 plus $0.0632 per $1,000 of Specified
Amount at age 0 to $2.50 plus $2.59 per $1,000 of Specified Amount at age
75, and thereafter $2.50 plus $0.025 per $1,000 of Specified Amount.
. On each Valuation Date, by a Daily Asset Charge not to exceed 0.90%
annually of the average daily Accumulation Value in each subaccount. (See
"Charges and Deductions," page 25.)
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.
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ELIGIBLE PORTFOLIO ANNUAL EXPENSES
(as a percentage of average net assets)
Management Other
Fees Expenses Total
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AN Money Market Portfolio /1//5/ 0.00% 0.87% 0.87%
AN Growth Portfolio/2//5/ 0.36% 0.51% 0.87%
AN Balanced Portfolio/3//5 0.44% 0.74% 1.18%
AN Managed Portfolio/4//5/ 0.16% 0.49% 0.65%
VIP High Income Portfolio/7/ 0.58% 0.12% 0.70%
VIP Investment Grade Bond Portfolio 0.43% 0.14% 0.57%
VIP Asset Manager Portfolio/7/ 0.54% 0.10% 0.64%
VIP Index 500 Portfolio/6/ 0.24% 0.04% 0.28%
VIP Money Market Portfolio 0.20% 0.10% 0.30%
VIP Equity-Income Portfolio/7/ 0.49% 0.09% 0.58%
VIP Growth Portfolio/7/ 0.59% 0.09% 0.68%
VIP Overseas Portfolio/7/ 0.74% 0.17% 0.91%
VIP Contrafund Portfolio/7/ 0.59% 0.11% 0.70%
VIP Asset Manager: Growth Portfolio/7/ 0.59% 0.14% 0.73%
VIP Balanced Portfolio/7/ 0.44% 0.15% 0.59%
VIP Growth and Income Portfolio/7/ 0.49% 0.12% 0.61%
VIP Growth Opportunities Portfolio/7/ 0.59% 0.12% 0.71%
VIP Mid-Cap Portfolio 0.56% 0.30% 0.86%
T. Rowe Price Equity Income Portfolio/8/ 0.85% 0.00% 0.85%
T. Rowe Price Mid-Cap Growth Portfolio/8/ 0.85% 0.00% 0.85%
T. Rowe Price International Stock Portfolio/8/ 1.05% 0.00% 1.05%
Note: The Eligible Portfolio Annual Expenses are expenses for the most recent
fiscal year. The above table is intended to assist you in understanding the fund
expenses that you will bear, directly or indirectly; however such table is based
upon historical information and it is not a guarantee or prediction of future
performance. Actual Eligible Portfolio Expenses for future years may be more or
less than those shown in this table. For a more complete description of these
expenses, see the Prospectuses for the Eligible Portfolios that accompany this
Prospectus.
/1/ Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 1.37%.
/2/ Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 1.01%.
/3/ Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 1.24%.
/4/ Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 0.99%.
/5/ Under its Administrative Service Agreement with the American National Fund,
Securities Management and Research, Inc. ("SM&R"), the American National
Fund's investment advisor and manager, has agreed to pay (or to reimburse
each portfolio for) each portfolio's expenses (including the advisory fee
and administrative services fee paid to SM&R, but exclusive of interest,
commissions and other expenses incidental to portfolio transactions) in
excess of 1.50% per year of such portfolio's average daily net assets. In
addition, SM&R has entered into a separate undertaking with the American
National
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Fund effective May 1, 1994 until April 30, 2000, pursuant to which SM&R has
agreed to reimburse the AN Money Market Portfolio and the AN Growth
Portfolio for expense in excess of 0.87%; the AN Balanced Portfolio for
expenses in excess of 1.18% and the AN 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.
/6/ The portfolio's expenses were voluntarily reduced by the portfolio's
investment advisor. Absent reimbursement, management fee, other expenses and
total expenses would have been 0.24%, 0.11% and 0.35%, respectively.
/7/ A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into arrange-
ments with their custodian and transfer agent where by interest earned on
uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented
in the table would have been 0.78% for the VIP Asset Manager Portfolio,
0.80% for the VIP Contrafund Portfolio, 0.89% for the VIP Asset Manager:
Growth Portfolio, 0.80% for the VIP Growth Portfolio, 0.68% for the VIP
Equity-Income Portfolio, 1.01% for the VIP Overseas Portfolio, 0.82% for the
VIP High Income Portfolio, 0.70% for the VIP Balanced Portfolio, 0.71% for
the VIP Growth and Income Portfolio, 0.80% for the VIP Growth Opportunities
Portfolio, and 0.96% for the VIP Mid-Cap Portfolio.
/8/ T. Rowe Price Equity Income and Mid-Cap Growth Portfolios pay T. Rowe Price
an annual all-inclusive fee of 0.85% based on such portfolios' average daily
net assets. The T. Rowe Price International Stock Portfolio pays Rowe-Price-
Fleming International, Inc. an annual all-inclusive fee of 1.05% based on
such portfolio's average daily net assets. These fees pay for investment
management services and other operating costs of the Portfolios.
See the prospectuses for American National Investment Accounts, Inc., Variable
Insurance Products Fund, Variable Insurance Products Fund II, Variable Insurance
Products Fund III, T. Rowe Price International Series, Inc. and T. Rowe Price
Equity Series, Inc. for more detailed information about the Eligible
Portfolios' fees and expenses.
Surrender Charges. If you surrender all or a portion of your Policy, a surrender
charge will be assessed. The surrender charge for a full 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. If you
surrender your Policy before the 10th Policy anniversary or within 10 years
after an increase in Specified Amount, we will deduct a surrender charge. The
surrender charge is 26% of premiums paid up to the amount of surrender premium,
plus 5% of the additional premiums paid up to:
. for issue (or increase) ages 0-64, an amount equal to nine times the amount of
surrender premium
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. for issue (or increase) ages 65-70, an amount equal to five times the amount
of surrender premium
. for issue (or increase) ages 71-75, an amount equal to three times the amount
of surrender premium
(See "Surrender Charge," page 26.) A partial surrender charge is made against
the Accumulation Value being withdrawn and is proportional to the charge for a
full surrender. In addition, we will charge $25 for each partial surrender. (See
"Partial Surrender Charge," page 27).
Transfer Charge. The first 4 transfers of Accumulation Value in a Policy Year
are free. Thereafter, a transfer charge of $25 will be deducted from the amount
transferred. (See "Transfer Charge," page 27.)
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.
Under certain circumstances, a Policy could 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.
If the Policy is not a Modified Endowment Contract, distributions generally will
be treated first as a return of basis or investment in the policy and then as
distributing taxable income. Moreover, loans will not be treated as
distributions and neither distributions nor loans are subject to the 10% penalty
tax.
See "Federal Tax Matters," page 34, for a discussion of when distributions,
such as surrenders and loans, could be subject to federal income tax.
POLICY BENEFITS
PURPOSES OF THE POLICY
The Policy is designed to provide you:
. life insurance protection,
. Death Benefits which may and Accumulation Value which will vary with
performance of your chosen investment options,
. flexibility in the amount and frequency of premium payments,
. flexibility in the level of life insurance protection, subject to certain
limitations, and
. a Guaranteed Coverage Benefit, if you pay the Guaranteed Coverage Premium
and meet the other Policy requirements.
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DEATH BENEFIT PROCEEDS
We will, upon Satisfactory Proof of Death, pay the Death Benefit Proceeds in
accordance with the Death Benefit option in effect when the Insured dies. 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; plus
. additional life insurance proceeds provided by riders; 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 17.)
BENEFITS AT MATURITY
The Policy will mature on the Policy anniversary after the Insured's 95 th
birthday, if Insured is living. Upon maturity of the Policy, we will pay you the
Accumulation Value less Policy Debt.
DEATH BENEFIT OPTIONS
You choose one of two Death Benefit options in the application. The Death
Benefit under either option will equal or exceed the current Specified Amount of
the Policy.
Option A. Under Option A 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 applicable percentage
declines as the age of the Insured increases as shown in the following Corridor
Percentage Table:
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CORRIDOR PERCENTAGE TABLE
Attained Corridor Attained Corridor Attained Corridor
Age Percentage Age Percentage Age Percentage
- --------------------------------------------------------------------------------
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
53 164 67 118
OPTION A 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 partial
withdrawals, charges or negative investment performance, the Death Benefit will
be reduced from $62,500 to $50,000.
Option B. The Death Benefit is the Specified Amount plus the Accumulation Value
or, if greater, the applicable corridor percentage of the Accumulation Value at
the end of the Valuation Period that includes the Insured's date of death. The
corridor percentage is the same as under Option A: 250% at Attained Age 40 or
younger on the Policy anniversary before the date of death, and for an Attained
Age over 40 on that Policy anniversary the percentage declines as shown in the
Corridor Percentage Table. The amount of the Death Benefit will always vary as
the Accumulation Value varies but will never be less than the Specified Amount.
OPTION B EXAMPLE. Assume that the Insured is age 40 or younger. A Policy with a
Specified Amount of $50,000 will generally provide a Death Benefit of $50,000
plus Accumulation Value. For example, for a Policy with Accumulation Value of
$5,000, the Death Benefit will be $55,000 ($50,000 + $5,000); for an
Accumulation Value of $10,000, the Death Benefit will be $60,000 ($50,000 +
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$10,000). The Death Benefit, however, must be at least 250% of Accumulation
Value. As a result, if the Accumulation Value exceeds approximately $33,334, the
Death Benefit will be greater than the Specified Amount plus Accumulation Value.
Each additional dollar of Accumulation Value above $33,334 will increase the
Death Benefit by $2.50. If the Accumulation Value exceeds $33,334 and increases
by $100 because of investment performance or premium payments, the Death Benefit
will increase by $250. For a Policy with Accumulation Value of $20,000, the
Death Benefit will be $70,000 (Specified Amount $50,000 plus $20,000
Accumulation Value); for an Accumulation Value of $30,000, the Death Benefit
will be $80,000 ($50,000 plus $30,000); and for an Accumulation Value of
$50,000, the Death Benefit will be $125,000 ($50,000 x 250% is greater than
$50,000 plus $50,000).
Similarly, any time Accumulation Value exceeds $33,334, each dollar taken out of
Accumulation Value will reduce the Death Benefit by $2.50. If, for example, the
Accumulation Value is reduced from $40,000 to $35,000 because of partial
surrenders, charges, or negative investment performance, the Death Benefit will
be reduced from $100,000 to $87,500. If at any time, however, the Accumulation
Value multiplied by the applicable corridor percentage is less than the
Specified Amount plus the Accumulation Value, the Death Benefit will be the
Specified Amount plus the Accumulation Value.
If you want favorable investment performance to:
. increase your Death Benefit, you should:
. choose Option A if your Accumulation Value times corridor percentage is
greater than your Specified Amount, or
. choose Option B if:
- your Accumulation Value times corridor percentage is less than your
Specified Amount, or
- your Accumulation Value times corridor percentage is greater than your
Specified Amount plus Accumulation Value
. keep your cost of insurance charges to a minimum, you should:
. choose Option A if your Accumulation Value times corridor percentage is
less than your Specified Amount, or
. choose Option B if your Accumulation Value times corridor percentage is
greater than your Specified Amount.
Change in Death Benefit Option. You may change the Death Benefit option at any
time by sending us a written request. The effective date of a change will be the
Monthly Deduction Date on or following the date we receive the written request.
A change may have Federal Tax consequences. (See "Federal Tax Matters,"
page 34.)
If you change from Option A to Option B, the Specified Amount will equal the
Specified Amount before the change minus the Accumulation Value on the effective
date of the change. If you change from Option B to Option A, the Specified
Amount after the change will equal the Death Benefit under Option B
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on the effective date of change. You cannot change your Death Benefit option if
the Specified Amount remaining in force after the change would be less than
$50,000.
An increase in Specified Amount due to a Death Benefit option change will
increase the Monthly Deduction and the Guaranteed Coverage Premium. A change in
the Death Benefit option may affect subsequent cost of insurance charges which
vary with our Net Amount at Risk. In addition, a change may affect subsequent
monthly policy charges. (See "Charges and Deductions," page 25.)
Change in Specified Amount. Subject to certain limitations, you may increase the
Specified Amount of your Policy at any time and may decrease the Specified
Amount at any time after the first two Policy Years. A change in Specified
Amount may affect the cost of insurance rate and our Net Amount at Risk, both of
which may affect your cost of insurance charge and have Federal Tax
consequences. (See "Cost of Insurance," page 26 and "Federal Tax Matters,"
page 34.)
The Specified Amount after a decrease may not be less than $50,000.
If following the decrease in Specified Amount, the Policy would not comply with
the maximum premium limitations required by federal tax law, the decrease may be
limited or a portion of Accumulation Value may be returned to you at your
election, to the extent necessary to meet these requirements.
You cannot decrease the Specified Amount if the Insured's Attained Age exceeds
94. A decrease in Specified Amount will take effect on the Monthly Deduction
Date which coincides with or next follows the date we receive your written
request.
If you want to increase the Specified Amount, you must submit a written
supplemental application and provide evidence of insurability. You may have a
differ-ent underwriting risk classification for the initial Specified Amount and
each increase in Specified Amount. (See "Charges from Accumulation Value," page
25.) An additional premium may be required. (See "Premiums Upon Increase in
Specified Amount," page 24.) The minimum amount of any increase is $5,000. You
cannot increase the Specified Amount if the Insured's Attained Age is over 75.
An increase in the Specified Amount will increase certain charges. Those charges
will be deducted from the Accumulation Value on each Monthly Deduction Date. An
increase in the Specified Amount during the time the Guaranteed Coverage Benefit
provision is in effect will increase the Guaranteed Coverage Premium
requirement. (See "Charges and Deductions," page 25.)
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 22.)
Methods of Affecting Insurance Protection. Your "pure insurance protection" will
be the difference between your Death Benefit and your Accumulation Value. You
may increase or decrease the pure insurance protection provided by a Policy as
your insurance needs change. You can change the pure insurance protection by
increasing or decreasing the Specified Amount, changing the level of pre-
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mium payments, or making a partial surrender of the Policy. Some of these
changes may have federal tax consequences. Although the consequences of each
change will depend upon individual circumstances, they can be summarized as
follows:
. A decrease in Specified Amount will, subject to the applicable corridor
percentage limitations, decrease insurance protection and cost of insurance
charges.
. An increase in Specified Amount may increase pure insurance protection,
depending on the amount of Accumulation Value and the corridor percentage
limitation. If insurance protection is increased, the Policy charges generally
increase as well.
. If Option A is in effect, increased premium payments may reduce pure insurance
protection, until the corridor percentage of Accumulation Value exceeds the
Specified Amount. Increased premiums should also increase the amount of funds
available to keep the Policy in force.
. If Option A is in effect, reduced premium payments generally will increase the
amount of pure insurance protection, depending on the corridor percentage
limitations. Reducing premium payments may also result in a reduced amount of
Accumulation Value and increase the possibility that the Policy will lapse.
. A partial surrender will reduce the Death Benefit. However, a partial
surrender only affects the amount of pure insurance protection if the
percentage from the Corridor Percentage Table is applicable in determining the
Death Benefit. Otherwise, the decrease in Death Benefit is offset by the
amount of Accumulation Value withdrawn. The primary use of a partial surrender
is to withdraw Accumulation Value.
GUARANTEED COVERAGE BENEFIT
We will keep the Policy in force for the first two Policy Years so long as the
sum of premiums paid at any time during such period is at least:
. the sum of Guaranteed Coverage Premium for each month from the start of
the period, including the current month, and
. partial surrenders and Policy Debt.
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 24.)
ACCUMULATION VALUE
Determination of Accumulation Value. On each Valuation Date, Accumulation Value
is determined as follows:
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. 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
. Net Premiums received on the Valuation Date, plus
. Accumulation Value securing Policy Debt; less
. partial surrenders, and related charges, processed on that Valuation Date;
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 40.) You can decide how
benefits will be paid. During the Insured's lifetime, you may arrange for the
Death Benefit Proceeds to be paid in a lump sum or under one or more of the
optional methods of payment described below. These choices are also available if
the Policy is surrendered. 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.
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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 3.5% per year or at a higher rate, as
our option.
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 3.5% 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 3.5% 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 held 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 3.5% 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.
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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 compute discounted present value is 3.5%. 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. 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:
. during the first two Policy Years, you cannot borrow more than 75% of the
Surrender Value, as calculated at the end of the Valuation Period during which
your loan request is received
. after the first two Policy years, 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
Preferred loans accrue interest at a lower rate. You cannot obtain a preferred
loan until after the seventh Policy Year. 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 (adjusted by
partial surrenders).
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 40.) Loans may have tax consequences. (See
"Federal Tax Matters," page 34.)
Interest. Loans will accrue interest on a daily basis at a rate of 6.0% 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
4.5%, or 6.0% on preferred loans, credited on the Policy anniversary. We will
allocate interest to the subaccounts and the Fixed Account on each Policy
anniversary in
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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
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 34.)
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 24.)
Repayment of Policy Debt. If we receive payments while a Policy loan is
outstanding, those payments are treated as additional premiums, unless you
request otherwise. 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 in whole or in part
by sending us a written request. The maximum amount available for surrender is
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the Surrender Value at the end of the Valuation Period during which the
surrender request is received at our Home Office. Surrenders will generally be
paid within seven days of receipt of the written request. (See "Postponement of
Payments," page 40.) Any proceeds payable upon full surrender shall be paid in
one sum unless an optional method of payment is elected. (See "Payment of Policy
Benefits," page 17.) Surrenders may have tax consequences. (See "Federal Tax
Matters," page 34.)
Full Surrenders. If the Policy is being fully surrendered, you must return the
Policy to us with your request. Coverage under the Policy will terminate as of
the date of a full surrender. We may deduct a surrender charge. (See "Surrender
Charge," page 26.)
Partial Surrenders. The amount of a partial surrender may not exceed the
Surrender Value at the end of the Valuation Period during which the request is
received less an amount sufficient to cover Monthly Deductions for three months.
The minimum partial surrender is $100.
The Accumulation Value will be reduced by the amount of partial surrender and
any applicable partial surrender charge. (See "Partial Surrender Charge," page
27.) This amount will be deducted from the Accumulation Value at the end of the
Valuation Period during which the request is received. The deduction will be
allocated to the subaccounts and the Fixed Account according to your
instructions, provided that the minimum amount remaining in a subaccount as a
result of the allocation is $100. If you do not provide allocation instructions
or if your allocation instructions conflict with the $100 minimum described
above, we will allocate the partial surrender among the subaccounts and the
Fixed Account pro-rata.
Partial surrenders reduce the Death Benefit by the amount the Accumulation Value
is reduced. If Option A is in effect, the Specified Amount will be reduced by
the amount of the partial surrender. Where increases in Specified Amount
occurred, a partial surrender will reduce the increases in order of the more
recent increase first, and finally the initial Specified Amount. Thus, partial
surrenders may affect the cost of insurance charge and the Net Amount at Risk.
(See "Cost of Insurance," page 26; "Methods of Affecting Insurance Protection,"
page 15.) If Option B is in effect, the Specified Amount will not change, but
the Accumulation Value will be reduced.
The Specified Amount remaining in force after a partial surrender may not be
less than the minimum Specified Amount shown in the following table:
MINIMUM SPECIFIED AMOUNT TABLE
DURING POLICY YEAR MINIMUM SPECIFIED AMOUNT
---------------------------------------------------
1 $ 50,000
2 $ 45,000
3 $ 40,000
4 $ 35,000
Thereafter $ 25,000
The amount of any partial surrender will generally be paid within seven (7) days
after receipt of your written request. (See "Postponement of Payments,"
page 40.)
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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 four transfers in a
Policy Year will be free. We will charge $25 for each additional transfer. Such
charge will be deducted from the amount transferred. (See "Transfer Charge,"
page 27 .) Transfers resulting from Policy loans will not be subject to a
transfer charge or be counted for purposes of determining the number of free
transfers.
During the thirty day period beginning on the Policy anniversary, you may make
one transfer from the Fixed Account to the subaccounts. This transfer is free.
The maximum amount you can transfer from the Fixed Account to the subaccounts is
the greater of:
. twenty-five percent of the amount in the Fixed Account, or
. $1,000.
If we receive a request to transfer funds out of the Fixed Account before the
Policy anniversary, the transfer will be made at the end of the Valuation Period
during which the Policy anniversary occurs. If we receive a proper transfer
request within 30 days after the Policy anniversary, the transfer will be made
as of the end of the Valuation Period in which we received the transfer request.
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
You have a free look period in which to examine a Policy and return it for a
refund. 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 have been allocated to the VIP Money Market Portfolio and
by investment gains and losses thereafter. (See "Allocation of Premiums," page
24.) A free look period also applies to any increase in Specified Amount. If you
cancel the increase, you will receive the amount 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 40.)
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RIGHT TO EXCHANGE FOR A UNIVERSAL LIFE POLICY
During the first two Policy years, you can exchange the Policy for a universal
life policy we issue. No evidence of insurability will be required for the
exchange. The new policy will have the same Date of Issue and premium class as
the Policy. Any rider in force with the Policy will be issued with the new
policy. You can have the specified amount of the new policy equal:
. if under Death Benefit option A, the Death Benefit less Policy Debt, or
. if under Death Benefit option B, the Death Benefit minus Accumulation Value
less Policy Debt.
The new policy will become effective when:
. we have received a written request for the exchange,
. we have received the Policy, and
. all financial contractual and administrative requirements have been met and
processed.
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 75 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 for the Policy to be in force. The initial
premium must be at least 1/12 of the first year Guaranteed Coverage Premium.
The initial premium and all other premiums are payable at 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 unscheduled premium payments at any time in any amount, subject to
the premium limitations described herein.
Planned Periodic Premiums. At the time the Policy is issued, you can determine a
Planned Periodic Premium schedule. The amounts and frequency of the Planned
Periodic Premiums will be shown on the Policy Data Page. During the Guaranteed
Coverage Benefit period, the Planned Periodic Premium must be at least the
Guaranteed Coverage Premium. You are not required to pay premiums in accordance
with this schedule.
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You can change the frequency and amount of Planned Periodic Premiums by sending
a written request to our Home Office. We may limit any increase in premium to
comply with applicable federal tax law. We will send premium payment notices
annually, semi-annually, quarterly or monthly depending upon the frequency of
the Planned Periodic Premiums. Payment of the Planned Periodic Premiums does not
guarantee that the Policy will remain in force unless the Guaranteed Coverage
Benefit provision is in effect.
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.
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 25.) 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. If the Insured dies during the
grace period, any overdue Monthly Deductions and Policy Debt will be deducted
from the Death Benefit Proceeds.
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Reinstatement. A 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.
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. During the lapse period,
Policy Debt will accrue interest at a rate of 6%. Accumulation Value will then
be calculated as described under "Accumulation Value" on page 16. 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.
CHARGES AND DEDUCTIONS
PREMIUM CHARGES
Your premiums will be reduced by a sales charge, premium taxes and a transaction
charge before being allocated in the subaccounts or the Fixed Account.
Sales Charge. The sales charge compensates us for the costs of selling the
Policy. These costs include agents' commissions, printing prospectuses and sales
literature and advertising.
Premium Taxes. States and certain other jurisdictions tax premium payments and
levy other charges. The level of the tax varies based upon the jurisdiction in
which the Insured resides. Accordingly, you should notify us if the Insured
moves. The taxes are charges against the Company, so you cannot deduct the tax
payments on your income tax return.
Transaction Charge. The transaction charge compensates us for the costs of
sending premium bills and transaction confirmations to you.
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, applicable charge for any riders, and the administrative 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
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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.
Cost of Insurance. For the initial Specified Amount, the cost of insurance rate
will not exceed those in the Schedule of Monthly Guaranteed Maximum Cost of
Insurance Rates shown on the Policy Data Page. These guaranteed rates are
based on the Insured's age last birthday. The current rates range between 60%
and 100% of the guaranteed rates. Any change in the current cost of insurance
rates will apply to all persons of the same age, sex, risk class and Specified
Amount.
Guaranteed Maximum Cost of Insurance Rates are equal to the 1980 Insurance
Commissioners Standard Ordinary Smoker or Non-Smoker, Male or Female
Mortality Tables. Policies issued on a non-sex distinct basis are based upon the
1980 Insurance Commissioner's Standard Ordinary Table B assuming 80 male
and 20 female lives.
These rates are the maximum that may be charged. The administrative charge
compensates us for the costs of premium billing, record keeping, processing
Death Benefit claims, surrenders and Policy changes, and preparing and mailing
reports. We do not expect to make a profit on the administrative charges.
The underwriting risk class for the initial Specified Amount and the Specified
Amount for any increase may be different. As a result the cost of insurance rate
for the initial Specified Amount and each increase in Specified Amount may be
different. Decreases will also be reflected in the cost of insurance rate. (See
"Change in Specified Amount," page 15.)
The actual charges made during the Policy Year will be shown in the annual
report delivered to you.
The rate class of an Insured may affect the cost of insurance rate. We currently
place insureds into either a preferred rate class, standard rate class, or
substandard rate class that involves a higher mortality risk. In an otherwise
identical Policy, an Insured in the standard rate class will typically have a
lower cost of insurance than an Insured in a substandard rate class. Similarly,
in an otherwise identical Policy, an Insured in a preferred rate class typically
has a lower cost of insurance than one in a standard class. If a Policy is rated
at issue with a tabular extra rating, the guaranteed rate is generally a
multiple of the guaranteed rate for a standard issue.
Insureds may also be assigned a flat extra rating to reflect certain additional
risks. The flat extra rating will not impact the cost of insurance rate but
1/12 of any annualized flat extra cost will be deducted as part of the Monthly
Deduction.
Surrender Charge. The surrender charge is to compensate us for the costs of
distributing the Policy. The charge is based upon the amount of premiums paid on
the Policy and the amount of the surrender premium which is shown on the Policy
Data Page. The surrender premium does not exceed the Securities and Exchange
Commission's Annual Guideline Premium.
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No surrender charge will be charged for decreases in Specified Amount.
The surrender charge is more substantial in early Policy Years. Accordingly, the
Policy is more suitable for long-term purposes.
Transfer Charge. We will make the first four transfers of Accumulation Value in
any Policy Year without a transfer charge. A charge of $25 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.
Partial Surrender Charge. A charge will be deducted from each partial surrender.
The partial surrender charge compensates us for the administrative costs of
processing the surrender. The charge is in proportion to the charge that would
apply to a full surrender. The proportion is calculated by dividing the
Accumulation Value withdrawn by the total Surrender Value. In addition, we
impose a $25 fee for each partial surrender. We do not expect to make a profit
on partial surrender charges.
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 Policies will exceed our estimates.
Such charge shall not exceed 0.90% 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 0.90% 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, 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, monthly policy 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
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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.
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
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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, openend management company.
We may also establish additional subaccounts. Each new subaccount would
correspond to a portfolio of a registered, openend management company. We would
establish the terms upon which existing Policyowners could purchase shares in
such portfolios.
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,
. deregister the Separate Account if registration is no longer required,
. combine the Separate Account with other separate accounts,
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. 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 American National Fund, the Fidelity Funds or the T. Rowe Price Funds, as
the case may be. 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 American National Fund, the
Fidelity Funds or the T. Rowe Price Funds 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 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
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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-one 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 American National Fund,
the Fidelity Funds and the T. Rowe Price Funds 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.
. The Fidelity Funds' current Eligible Portfolios and respective investment
objectives are as follows:
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. VIP MONEY MARKET PORTFOLIO ... seeks as high a level of current income as
is consistent with the preservation of capital and liquidity.
. VIP INVESTMENT GRADE BOND PORTFOLIO ... seeks as high a level of current
income as is consistent with the preservation of capital.
. VIP HIGH INCOME PORTFOLIO ... seeks a high level of current income while
also considering growth of capital.
. 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 BALANCED PORTFOLIO ... seeks both income and growth of capital.
. VIP EQUITY-INCOME PORTFOLIO ... seeks reasonable income. The fund will
also consider the potential for capital appreciation. The fund seeks a yield
which exceeds the composite yield on the securities comprising the S&P 500.
. 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 AND INCOME PORTFOLIO ... seeks high total return through a
combination of current income and capital appreciation.
. VIP MID CAP PORTFOLIO ... seeks long-term growth of capital.
. VIP GROWTH OPPORTUNITIES PORTFOLIO ... seeks to provide capital growth.
. VIP CONTRAFUND PORTFOLIO ... seeks long-term capital appreciation.
. VIP GROWTH PORTFOLIO ... seeks capital appreciation.
. VIP OVERSEAS PORTFOLIO ... seeks long-term growth of capital.
Fidelity Management and Reseach 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
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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.
T. Rowe Price Associates, Inc. is responsible for selection and management of
the portfolio investments of T. Rowe Price Equity Series, Inc. Rowe Price-
Fleming International, Inc., incorporated in 1979 as a joint venture between T.
Rowe Price Associates, Inc. and Robert Fleming Holdings Limited, is responsible
for selection and management of the portfolio investments of T. Rowe Price
International Series, Inc.
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 22.)
We establish the Declared Rate and may adjust the rate each month; however, we
guarantee an effective annual rate of at least 4.0% 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.
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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 Contract; however, disclosures regarding the
Fixed Account portion of the Contract may be subject to generally applicable
provisions of the federal securities laws regarding the accuracy and
completeness of statements made in prospectuses.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT TAX ADVICE.
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 Policies issued on
a standard or preferred basis should satisfy the applicable requirements. There
is less guidance, however, with respect to Policies issued on a sub-standard
basis and it is not clear whether such Policies will in all cases 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
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be taxed on income and gains attributable to separate account assets. There is
little guidance in this area, and some features of the Policies, such as the
flexibility of a Policyowner to allocate premium payments and transfer
Accumulation Value, have not been explicitly addressed in published rulings.
While we believe that the Policies do not give Policyowners investment control
over Separate Account assets, we reserve the right to modify the Policies 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 Policies to be treated as life
insurance contracts 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.
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."
Modified Endowment Contracts. 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. The rules for determining whether a
Policy is a Modified Endowment Contract are extremely complex. In general,
however, a 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 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.
The manner in which the premium limitation and material change rules should be
applied to certain features of the Policy is unclear. If we determine that a
Policyowner has made excessive premium payments which will cause a Policy to be
considered a Modified Endowment Contract, we will notify the Policyowner
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of the tax consequences and give the Policyowner the option of having the
excessive premiums refunded. If the Policyowner requests a refund within 30 days
after receipt of such notice, we will refund the excessive premium payments to
prevent the Policy from becoming a Modified Endowment Contract.
Due to the Policy's flexibility, classification of a Policy as a Modified
Endowment Contract will depend upon the individual circumstances of each Policy.
Accordingly, a prospective Policyowner should contact a qualified tax advisor
before purchasing a Policy to determine the circumstances under which the Policy
would be a Modified Endowment Contract. In addition, a Policyowner should
contact a tax advisor before making any change to a Policy, exchanging a Policy,
or reducing Policy benefits, to determine whether such change would cause the
Policy (or the new Policy in the case of an exchange) to be treated as a
Modified Endowment Contract.
If a Policy becomes a Modified Endowment Contract, distributions such as partial
surrenders and 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 or when benefits are paid at its
Maturity Date, 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.
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 partial
or full 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
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(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. 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 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.
Investment in the Policy. "Investment in the policy" means:
(a) the aggregate amount of any premium payments or other consideration
paid for a Policy; minus
(b) the aggregate amount of distributions received under the Policy which 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.
Businesses can use the Policies 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. If you are purchasing the
37
<PAGE>
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
the future to make a charge for any such tax that we determine to be properly
attributable to the Separate Account or to the Policies.
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. In Policy year one, the commissions
to the registered representatives will not exceed 50% of the Guaranteed Coverage
Premium plus the first year cost of any riders. The registered representatives
will receive a maximum commission of 4% on any premiums paid in excess of the
Guaranteed Coverage Premium plus the cost of any riders. In later years , the
registered representatives will receive renewal commissions which will not
exceed 3.00% of any premiums paid. Commissions will also be paid upon any
increase in Specified Amount or any increases in riders. We may pay registered
representatives who meet certain production standards additional
38
<PAGE>
compensation. SM&R will pay overriding commissions to managers and we may pay
bonuses to the managers for the sale of the Policy. SM&R and the Company may
also authorize other registered broker-dealers and their registered
representatives to sell the Policy.
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
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.
39
<PAGE>
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 or addition of a rider after the Date of Issue shall be
incontestable after such increase or addition has been in force for two years
from its Policy Date during the lifetime of the Insured. However, this two year
provision shall not apply to riders that provide disability or accidental death
benefits. Any reinstatement of a Policy shall be incontestable during the
lifetime of the Insured only after having been in force for two years after the
Policy Date of the reinstatement.
Misstatement of Age or Sex. If the age or sex of the Insured or any person
insured by rider has been misstated, the amount of the Death Benefit will be
adjusted as provided for in the Policy.
Suicide. Suicide within two years 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 insane, commits suicide within two years after the Date of Issue,
we will pay only the premiums received less any partial surrenders and Policy
Debt. If the Insured, while sane or insane, commits suicide within two years
after the Policy Date of any increase in the Specified Amount, 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,
partial 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
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<PAGE>
Value. Surrenders, loans or partial surrenders from the Fixed Account may be
deferred for up to 6 months from the date of written request.
Additional Insurance Benefits (Riders). Subject to certain requirements, certain
additional optional benefits may be obtained. The cost of any such additional
insurance benefits, which will be provided by "riders" to the Policy, will be
deducted as part of the Monthly Deduction. Riders in force during the time the
Guaranteed Coverage Benefit is in effect will increase the Guaranteed Coverage
Premium requirement.
DIVIDENDS
The Policy is non-participating and therefore is not eligible for dividends and
does not participate in any distribution of our surplus.
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, and
the statements of net assets of American National Variable Life Separate Account
as of December 31, 1998, and the related statements of operations and statements
of changes in net assets for each of the three years in the period then ended,
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
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.
41
<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: Director, January 1985
to present. Commonwealth Life and Accident Insurance
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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.
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<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. American National General Insurance Company: Chairman
of the Board; and Director, November 1981 to present. Securities
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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.
45
<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
46
<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.
47
<PAGE>
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:
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 performance of the assets held in the Separate Account.
48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Contract Owners of American National
Variable Life Separate Account:
We have audited the accompanying statements of net assets of the American
National Variable Life Separate Account (comprised of American National (AN)
Growth, AN Money Market, AN Balanced, AN Managed, Fidelity VIP II Investment
Grade Bond, Fidelity VIP II Asset Manager, Fidelity VIP II Index 500, Fidelity
VIP Money Market, Fidelity VIP Equity Income, Fidelity VIP High Income, Fidelity
VIP Growth, Fidelity VIP Overseas, Fidelity VIP II Contra Fund, and Fidelity VIP
II Asset Manager Growth Portfolio Subaccounts) (collectively, the Account) as of
December 31, 1998, and the related statements of operations and the statements
of changes in net assets for each of the three years in the period then ended.
These financial statements are the responsibility of the Account's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998 by correspondence with
the custodians. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998 and the results of its operations and the changes in net assets for each of
the three years in the period then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 12, 1999
49
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 10,349 $ 2,392 $ 5,029 $ 7,321
==========================================================================================================================
LIABILITIES:
Contract owner reserves $ 5,533 $ 33 $ 1,069 $ 2,750
Equity of sponsor 4,816 2,359 3,960 4,571
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 10,349 $ 2,392 $ 5,029 $ 7,321
==========================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 5,717,510 2,391,923 3,265,764 4,183,711
Cost $ 7,535 $ 2,392 $ 3,663 $ 5,122
==========================================================================================================================
STATEMENTS OF NET ASSETS
December 31, 1998
(In thousands, except for number of shares)
FIDELITY
VIP II FIDELITY FIDELITY FIDELITY
INVESTMENT VIP II VIP II VIP
GRADE ASSET INDEX MONEY
BOND MANAGER 500 MARKET
- --------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 96 $ 1,076 $ 6,886 $ 120
==========================================================================================================================
LIABILITIES:
Contract owner reserves $ 96 $ 1,076 $ 6,886 $ 120
==========================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 7,393 59,228 48,752 120,020
Cost $ 93 $ 952 $ 5,303 $ 120
==========================================================================================================================
</TABLE>
50
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP VIP
EQUITY HIGH FIDELITY FIDELITY
INCOME INCOME VIP VIP
FUND FUND GROWTH OVERSEAS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 3,219 $ 451 $ 5,825 $ 812
==========================================================================================================================
LIABILITIES:
Contract owner reserves 3,219 451 5,825 812
==========================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 126,631 39,110 129,822 40,489
Cost $ 2,770 $ 485 $ 4,206 $ 743
==========================================================================================================================
STATEMENTS OF NET ASSETS
December 31, 1998
(In thousands, except for number of shares)
Fidelity
Fidelity VIP II
VIP II Asset
Contra- Manager
Fund Growth
ASSETS:
Investment in shares of mutual funds, at market $ 1,937 $ 562
==========================================================================================================================
LIABILITIES:
Contract owner reserves 1,937 562
==========================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 79,253 33,023
Cost $ 1,510 $ 505
==========================================================================================================================
</TABLE>
51
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AN GROWTH PORTFOLIO AN MONEY MARKET PORTFOLIO AN BALANCED PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 88 $ 111 $ 81 $ 107 $ 104 $ 96 $ 121 $ 129 $ 101
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (41) (26) (13) -- -- -- (9) (6) (5)
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 47 $ 85 $ 68 $ 107 $ 104 $ 96 $ 112 $ 123 $ 96
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments $ 89 $ 26 $ 27 $ -- $ -- $ -- $ 29 $ 24 $ 8
Capital gains distributions from mutual funds 329 541 93 -- -- -- 116 203 43
Net unrealized appreciation
of investments during the period 1,119 461 579 -- -- -- 445 304 224
- ----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $1,537 $ 1,028 $ 699 $ -- $ -- $ -- $ 590 $ 531 $ 275
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,584 $ 1,113 $ 767 $ 107 $ 104 $ 96 $ 702 $ 654 $ 371
============================================================================================================================
STATEMENTS OF OPERATIONS
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II FIDELITY VIP II
AN MANAGED PORTFOLIO INVESTMENT GRADE BOND ASSET MANAGER
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend from mutual funds $ 88 $ 94 $ 78 $ 2 $ 1 $ 1 $ 27 $ 22 $ 15
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (20) (13) (7) (1) -- -- (9) (7) (5)
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 68 $ 81 $ 71 $ 1 $ 1 $ 1 $ 18 $ 15 $ 10
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on investments $ 42 $ 29 $ 13 $ 2 $ -- $ -- $ 26 $ 16 $ 5
Capital gains distributions from mutual funds 125 303 81 -- -- -- 81 56 12
Net unrealized appreciation (depreciation)
of investments during the period 704 572 438 1 1 (1) 3 44 38
- ----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS $ 871 $ 904 $ 532 $ 3 $ 1 $ (1) $110 $ 116 $ 55
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 939 $ 985 $ 603 $ 4 $ 2 $ -- $128 $ 131 $ 65
============================================================================================================================
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II FIDELITY VIP FIDELITY VIP
INDEX 500 MONEY MARKET EQUITY INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 43 $ 14 $ 3 $ 6 $ 10 $ 6 $ 33 $ 22 $ 1
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (46) (19) (5) (1) (2) (1) (25) (15) (7)
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (3) $ (5) $ (2) $ 5 $ 8 $ 5 $ 8 $ 7 $ (6)
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments 123 $ 51 $ 12 $ -- $ -- $ -- $ 73 $ 42 $ 14
Capital gains distributions from mutual funds 100 29 8 -- -- -- 119 109 22
Net unrealized appreciation
of investments during the period 1,022 443 99 -- -- -- 82 231 82
- ----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $1,245 $ 523 $ 119 $ -- $ -- $ -- $ 274 $ 382 $ 118
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,242 $ 518 $ 117 $ 5 $ 8 $ 5 $ 282 $ 389 $ 112
============================================================================================================================
STATEMENTS OF OPERATIONS
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
HIGH INCOME FUND FIDELITY VIP GROWTH FIDELITY VIP OVERSEAS
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend from mutual funds $ 27 $ 20 $ 13 $ 20 $ 17 $ 3 $ 13 $ 7 $ 3
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (4) (3) (2) (42) (28) (15) (7) (5) (3)
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 23 $ 17 $ 11 $ (22) $ (11) $ (12) $ 6 $ 2 $ --
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on investments $ 9 $ 17 $ 2 $ 125 $ 104 $ 27 $ 15 $ 12 $ 3
Capital gains distributions from mutual funds 17 2 2 516 76 76 38 30 4
Net unrealized appreciation (depreciation)
of investments during the period (75) 14 11 948 433 106 18 1 33
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS $ (49) $ 33 $ 15 $1,589 $ 613 $ 209 $ 71 $ 43 $ 40
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (26) $ 50 $ 26 $1,567 $ 602 $ 197 $ 77 $ 45 $ 40
=============================================================================================================================
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II CONTRA FUND FIDELITY VIP II ASSET MANAGER GROWTH
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 8 $ 3 $ -- $ 7 $ -- $ 1
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (13) (6) (1) (4) (2) --
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (5) $ (3) $ (1) $ 3 $ (2) $ 1
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments $ 48 $ 30 $ 1 $ 11 $ 6 $ 1
Capital gains distributions from mutual funds 58 9 1 33 -- 1
Net unrealized appreciation
of investments during the period 294 99 34 23 32 3
- ----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $ 400 $ 138 $ 36 $ 67 $ 38 $ 5
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 395 $ 135 $ 35 $ 70 $ 36 $ 6
============================================================================================================================
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
- ----------------------------------------------------------------------------------------------------------------------------------
AN GROWTH PORTFOLIO AN MONEY MARKET PORTFOLIO AN BALANCED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------- --------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 47 $ 85 $ 68 $ 107 $ 104 $ 96 $ 112 $ 123 $ 96
Net realized gain on
investments 89 26 27 -- -- -- 29 24 8
Capital gains distributions
from mutual funds 329 541 93 -- -- -- 116 203 43
Net unrealized appreciation
of investments during
the year 1,119 461 579 -- -- -- 445 304 224
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from
operations $ 1,584 $ 1,113 $ 767 $ 107 $ 104 $ 96 $ 702 $ 654 $ 371
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and other
transfers $ 2,085 $ 1,803 $ 1,119 $ 15 $ (4) $ 7 $ 261 $ 188 $ 287
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (997) (676) (431) (12) (5) (7) (166) (128) (114)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets resulting
from policy related
transactions $ 1,088 $ 1,127 $ 688 $ 3 $ (9) $ -- $ 95 $ 60 $ 173
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 2,672 $ 2,240 $ 1,455 $ 110 $ 95 $ 96 $ 797 $ 714 $ 544
NET ASSETS, BEGINNING OF PERIOD 7,677 5,437 3,982 2,282 2,187 2,091 4,232 3,518 2,974
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 10,349 $ 7,677 $ 5,437 $ 2,392 $ 2,282 $ 2,187 $ 5,029 $ 4,232 $ 3,518
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning
of year 1,685,437 1,135,752 724,184 23,789 31,620 31,356 447,269 417,080 300,056
Purchase payments 982,414 1,055,430 764,538 14,500 17,314 16,986 158,715 207,226 231,309
Policy withdrawals
and charges (520,849) (505,745) (352,970) (11,779) (25,145) (16,722) (110,433) (177,037) (114,285)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end
of year 2,147,002 1,685,437 1,135,752 26,510 23,789 31,620 495,551 447,269 417,080
===================================================================================================================================
Accumulation unit value $ 2.577 $ 2.191 $ 1.826 $ 1.259 $ 1.191 $ 1.147 $ 2.157 $ 1.867 $ 1.578
===================================================================================================================================
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II
AN MANAGED PORTFOLIO INVESTMENT GRADE BOND FIDELITY VIP II ASSET MANAGER
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------- --------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 68 $ 81 $ 71 $ 1 $ 1 $ 1 $ 18 $ 15 $ 10
Net realized gain on
investments 42 29 13 2 -- -- 26 16 5
Capital gains distributions
from mutual funds 125 303 81 -- -- -- 81 56 12
Net unrealized appreciation
(depreciation) of
investments during
the year 704 572 438 1 1 (1) 3 44 38
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from
operations $ 939 $ 985 $ 603 $ 4 $ 2 $ -- $ 128 $ 131 $ 65
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and
other transfers $ 1,060 $ 821 $ 500 $ 62 $ 34 $ 11 $ 298 $ 259 $ 300
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (440) (269) (177) (10) (13) (9) (200) (174) (134)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from policy
related transactions $ 620 $ 552 $ 323 $ 52 $ 21 $ 2 $ 98 $ 85 $ 166
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 1,559 $ 1,537 $ 926 $ 56 $ 23 $ 2 $ 226 $ 216 $ 231
NET ASSETS, BEGINNING OF PERIOD 5,762 4,225 3,299 40 17 15 850 634 403
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 7,321 $ 5,762 $ 4,225 $ 96 $ 40 $ 17 $ 1,076 $ 850 $ 634
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units
beginning of year 863,138 577,332 376,409 32,256 15,113 13,555 590,100 526,795 380,380
Purchase payments 508,472 512,013 375,307 68,764 30,889 18,249 212,164 246,245 314,527
Policy withdrawals
and charges (233,488) (226,207) (174,384) (29,132) (13,746) (16,691) (148,970) (182,940) (168,112)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units
end of year 1,138,122 863,138 577,332 71,888 32,256 15,113 653,294 590,100 526,795
===================================================================================================================================
Accumulation unit
value $ 2.416 $ 2.104 $ 1.734 $ 1.333 $ 1.236 $ 1.143 $ 1.646 $ 1.440 $ 1.204
===================================================================================================================================
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II INDEX 500 FIDELITY VIP MONEY MARKET FIDELITY VIP EQUITY INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------- --------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (3) $ (5) $ (2) $ 5 $ 8 $ 5 $ 8 $ 7 $ (6)
Net realized gain on
investments 123 51 12 -- -- -- 73 42 14
Capital gains distributions
from mutual funds 100 29 8 -- -- -- 119 109 22
Net unrealized appreciation
of investments during
the year 1,022 443 99 -- -- -- 82 231 82
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from operations $ 1,242 $ 518 $ 117 $ 5 $ 8 $ 5 $ 282 $ 389 $ 112
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and
other transfers $ 3,534 $ 2,489 $ 959 $ 128 $ 184 $ 182 $ 1,126 $ 1,245 $ 908
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (1,252) (773) (176) (131) (198) (112) (533) (532) (229)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease)
in net assets resulting
from policy related
transactions $ 2,282 $ 1,716 $ 783 $ (3) $ (14) $ 70 $ 593 $ 713 $ 679
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS $ 3,524 $ 2,234 $ 900 $ 2 $ (6) $ 75 $ 875 $ 1,102 $ 791
NET ASSETS, BEGINNING OF PERIOD 3,362 1,128 228 118 124 49 2,344 1,242 451
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 6,886 $ 3,362 $ 1,128 $ 120 $ 118 $ 124 $ 3,219 $ 2,344 $ 1,242
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning
of year 1,564,744 689,690 169,496 99,306 108,971 45,001 1,175,683 791,383 325,005
Purchase payments 1,677,279 1,392,020 684,812 2,144,418 2,808,229 2,587,084 647,393 779,052 703,798
Policy withdrawals and charges (723,401) (516,966) (164,618) (2,147,110) (2,817,894)(2,523,114) (366,203) (394,752) (237,420)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end
of year 2,518,622 1,564,744 689,690 96,614 99,306 108,971 1,456,873 1,175,683 791,383
===================================================================================================================================
Accumulation unit value $ 2.734 $ 2.149 $ 1.636 $ 1.242 $ 1.189 $ 1.138 $ 2.210 $ 1.993 $ 1.570
===================================================================================================================================
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP HIGH INCOME FUND FIDELITY VIP GROWTH FIDELITY VIP OVERSEAS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------- --------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 23 $ 17 $ 11 $ (22) $ (11) $ (12) $ 6 $ 2 $ --
Net realized gain on
investments 9 17 2 125 104 27 15 12 3
Capital gains distributions
from mutual funds 17 2 2 516 76 76 38 30 4
Net unrealized appreciation
(depreciation) of investments
during the year (75) 14 11 948 433 106 18 1 33
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets resulting from
operations $ (26) $ 50 $ 26 $ 1,567 $ 602 $ 197 $ 77 $ 45 $ 40
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and
other transfers $ 195 $ 131 $ 162 $ 1,363 $ 1,692 $ 1,725 $ 247 $ 301 $ 196
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (80) (112) (56) (884) (928) (540) (136) (137) (87)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from policy
related transactions $ 115 $ 19 $ 106 $ 479 $ 764 $ 1,185 $ 111 $ 164 $ 109
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 89 $ 69 $ 132 $ 2,046 $ 1,366 $ 1,382 $ 188 $ 209 $ 149
NET ASSETS, BEGINNING OF PERIOD 362 293 161 3,779 2,413 1,031 624 415 266
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 451 $ 362 $ 293 $ 5,825 $ 3,779 $ 2,413 $ 812 $ 624 $ 415
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning
of year 243,238 229,426 142,673 2,097,171 1,639,026 795,944 486,951 358,029 257,859
Purchase payments 166,392 150,869 149,948 872,710 1,226,338 1,377,553 192,519 277,039 224,939
Policy withdrawals and charges (89,961) (137,057) (63,195) (634,005) (768,193) (534,471) (112,599) (148,117) (124,769)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end
of year 319,669 243,238 229,426 2,335,876 2,097,171 1,639,026 566,871 486,951 358,029
===================================================================================================================================
Accumulation unit value $ 1.411 $ 1.487 $ 1.276 $ 2.494 $ 1.802 $ 1.472 $ 1.432 $ 1.282 $ 1.570
===================================================================================================================================
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II ASSET
FIDELITY VIP II CONTRA FUND MANAGER GROWTH
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- ---------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (5) $ (3) $ (1) $ 3 $ (2) $ 1
Net realized gain on
investments 48 30 1 11 6 1
Capital gains distributions
from mutual funds 58 9 1 33 -- 1
Net unrealized appreciation
of investments during the
year 294 99 34 23 32 3
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from
operations $ 395 $ 135 $ 35 $ 70 $ 36 $ 6
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and
other transfers $ 907 $ 888 $ 370 $ 265 $ 295 $ 103
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees 421 (341) (86) (101) (60) (58)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from policy
related transactions $ 486 $ 547 $ 284 $ 164 $ 235 $ 45
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 881 $ 682 $ 319 $ 234 $ 271 $ 51
NET ASSETS, BEGINNING OF PERIOD 1,056 374 55 328 57 6
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 1,937 $ 1,056 $ 374 $ 562 $ 328 $ 57
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning
of year 615,183 268,243 47,195 207,403 44,756 5,488
Purchase payments 503,143 643,516 317,208 174,100 216,107 108,188
Policy withdrawals and charges (242,491) (296,576) (96,160) (76,524) (53,460) (68,920)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end
of year 875,835 615,183 268,243 304,979 207,403 44,756
===================================================================================================================================
Accumulation unit value $ 2.212 $ 1.717 $ 1.395 $ 1.844 $ 1.583 $ 1.277
===================================================================================================================================
</TABLE>
59
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL...American National Variable Life Separate Account (Separate
Account) was established on July 30,1987 under Texas law as a separate
investment account of American National Insurance Company (the Sponsor). The
Separate Account began operations on February 20, 1991. The assets of the
Separate Account are segregated from the Sponsor's other assets and are used
only to support variable life products issued by the Sponsor. The Separate
Account is registered under the Investment Company Act of 1940, as amended, as a
unit investment trust.
These financial statements report the results of the subaccounts for the
Variable Universal Life Insurance. There are currently fourteen subaccounts
within the Separate Account which are active for the Variable Universal Life
Insurance. Each of the subaccounts is invested only in a corresponding portfolio
of the American National (AN) or Fidelity Funds. The American National Funds
were organized and are managed for a fee by Securities Management & Research,
Inc. (SM&R) which is a wholly-owned subsidiary of the Sponsor.
BASIS OF PRESENTATION...The financial statements of the Separate Account have
been prepared on an accrual basis in accordance with generally accepted
accounting principles.
INVESTMENTS...Investments in shares of the separate investment portfolios are
stated at market value which is the net asset value per share as determined by
the respective portfolios. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the basis
of identified cost. Capital gain distributions from mutual funds are recorded
and reinvested upon receipt. Dividends received from mutual funds are reinvested
daily in additional shares of the portfolios and are recorded as dividend income
on the record date.
FEDERAL TAXES...The operations of the Separate Account form a part of, and are
taxed with, the operations of the Sponsor. Under the Internal Revenue Code, all
ordinary income and capital gains allocated to the contract owners are not taxed
to the Sponsor. As a result, the net asset values of the subaccounts are not
affected by federal income taxes on distributions received by the subaccounts.
Accordingly, no provision for income taxes is required in the accompanying
financial statements.
USE OF ESTIMATES...The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and the reported amounts of income and
expenses during the period. Operating results in the future could vary from the
amounts derived from management's estimates.
RECLASSIFICATIONS...Certain items in the 1997 and 1996 financial statements
have been reclassified to conform with the 1998 presentation.
(2) SPONSOR'S INVESTMENT
On March 1, 1991 the Sponsor made a $7,000,000 initial investment in the
Separate Account. This investment had a total market value of $15,707,000 at
December 31, 1998. This initial investment may be withdrawn at the discretion of
the Sponsor without penalty.
60
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
(3) SECURITY PURCHASES AND SALES
The aggregate cost of purchases (including reinvestment of dividend
distributions) and proceeds from sales of investments in the mutual fund
portfolios, for the years ended December 31, were as follows (in thousands):
1998 1997 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
Purchases Sales Purchases Sales Purchases Sales
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AN Growth Portfolio $ 1,700 $ 236 $ 1,827 $ 74 $ 968 $ 119
AN Money Market Portfolio 621 509 122 27 110 13
AN Balanced Portfolio 423 102 524 138 368 56
AN Managed Portfolio 923 109 1,035 100 546 71
Fidelity VIPII Investment Grade Bond 91 37 32 11 13 11
Fidelity VIPII Asset Manager 339 141 254 99 240 52
Fidelity VIPII Index 500 2,660 280 1,924 184 834 44
Fidelity VIP Money Market 1,384 1,381 1,623 1,629 1,820 1,745
Fidelity VIP Equity Income Fund 992 271 1,005 177 756 61
Fidelity VIP High Income Fund 240 84 142 105 144 25
Fidelity VIP Growth 1,349 375 1,139 310 1,340 91
Fidelity VIP Overseas 220 65 259 62 150 37
Fidelity VIPII Contra Fund 692 152 668 115 295 11
Fidelity VIPII Asset Manager Growth 272 72 262 28 66 18
- ------------------------------------------------------------------------------------------------------------------------------------
Totals $ 11,906 $ 3,814 $ 10,816 $ 3,059 $ 7,650 $ 2,354
====================================================================================================================================
</TABLE>
(4) POLICY CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGES...The mortality risk and expense risk
charges, at an effective annual rate of up to 0.90%, are applied daily against
the net assets representing equity of contract owners held in each subaccount.
MONTHLY ADMINISTRATIVE CHARGES...A monthly administrative charge is deducted
from each policy. During the first twelve (12) policy months, this charge will
be $2.50 plus a fee ranging from $0.0632 to $2.59 per $1,000 of the
policyowner's death benefit from age 0 to 75, respectively. Thereafter, such
monthly administrative charge shall be a maximum of $2.50, plus $0.025 per
$1,000 of the policyowner's death benefit.
SURRENDER CHARGE...A surrender charge is imposed upon the surrender of
variable life insurance contracts to compensate the Sponsor for sales and other
marketing expenses. The amount of any surrender charge will depend on the number
of years that have elapsed since the contract was issued. No surrender charge
will be imposed on death benefits.
TRANSFER CHARGE... A $25 transfer charge is imposed after the first four
transfers in any one policy year for transfers made among the subaccounts.
PREMIUM CHARGES...Premiums paid will be reduced by a 4% sales charge to
compensate the Sponsor for expenses associated with distributing the policy. In
addition, a $2.00 transaction charge will be deducted to reimburse the Sponsor
for billings and confirmations. Premium taxes for certain jurisdictions are
deducted from premiums paid at rates ranging from zero to 4%.
61
<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 63 through 83) 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
62
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
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.
63
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
December 31,
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
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.
64
<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>
65
<PAGE>
American National Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
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
================================================================================
See accompanying notes to consolidated financial statements.
66
<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 (AN-PAC 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.
67
<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.
68
<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 received plus accumulated interest
less applicable accumulated administrative fees. It is possible that a change in
69
<PAGE>
American National Insurance Company and Subsidiaries
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).
70
<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>
71
<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.
Bonds-Held- Bonds-Available-
to-Maturity for-Sale
- ------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
- ------------------------------------------------------------------------
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
========================================================================
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 creditworthiness. 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.
72
<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):
Investment Gains (Losses) from
Income Disposals of Investments
- -------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------
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
===============================================================================
(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%
========================================================================
73
<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):
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------
Estimated Estimated
Carrying Market Carrying Market
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------
</TABLE>
74
<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:
<TABLE>
<CAPTION>
Percentage of
Future Policy
Policy Issue Interest Benefits
Year Rate So Valued
- -----------------------------------------------------------------------------------
<S> <C> <C>
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%
===================================================================================
</TABLE>
Future policy benefits for universal life are calculated from the current
account value.
Future policy benefits for other policies have been calculated using level
interest rates principally as follows: annuities at 6% and group at 4%.
Mortality and withdrawal assumptions are based on American National's
experience.
HEALTH INSURANCE:
Interest assumptions used for future policy benefits on health policies are
calculated using a level interest rate of 6%.
Morbidity and termination assumptions are based on American National's
experience.
75
<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):
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------
<S> <C> <C>
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
==========================================================
</TABLE>
The balances at December 31 are included in policy and contract claims on
the consolidated statement of financial position.
(9) REINSURANCE
As is customary in the insurance industry, the companies reinsure portions
of certain insurance policies they write, thereby providing a greater
diversification of risk and managing exposure on larger risks. The maximum
amount that would be retained by one company (American National) would be
$700,000 individual life, $250,000 individual accidental death, $100,000 group
life and $125,000 credit life (total $1,175,000). If individual, group and
credit were in force in all companies at the same time, the maximum risk on any
one life could be $1,875,000.
The companies remain contingently liable with respect to any reinsurance
ceded, and would become actually liable if the assuming companies were unable to
meet their obligations under any reinsurance treaties.
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):
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------
<S> <C> <C>
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
=========================================================
</TABLE>
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------
<S> <C> <C>
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
=========================================================
</TABLE>
(10) FEDERAL INCOME TAXES
The federal income tax provisions vary from the amounts computed when
applying the statutory federal income tax rate. A reconciliation of the
effective tax rate of the companies to the statutory federal income tax rate
follows (in thousands, except percentages):
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------
Amount Rate Amount Rate
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 %
=========================================================================
</TABLE>
76
<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):
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
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)
========================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
Federal
Income Net of
Before Tax Federal
Federal Expense Income
Tax (Benefit) Tax
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
77
<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 outstanding shares were
26,479,165.
American National's payment of dividends to stockholders is restricted by
statutory regulations. Generally, the restrictions require life insurance
companies to maintain minimum amounts of capital and surplus, and limit the
payment of dividends to statutory net gain from operations on an annual,
noncumulative basis in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of stockholders' equity, as
determined on a GAAP basis over that determined on a statutory basis.
Generally, the same restrictions apply to American National's insurance
subsidiaries regarding amounts that can transfer in the form of dividends,
loans, or advances to the parent company.
At December 31, 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 reallocated 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.
78
<PAGE>
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>
Operations
Gain from 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>
79
<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):
<TABLE>
<CAPTION>
Total Revenues (including interest income)
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.
80
<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 thirdparty 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 gover nment 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
81
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
and management employees and the other covering home office clerical employees
subject to a collective bargaining agreement. The program covering salaried and
management employees provides pension benefits that are based on years of
service and the employee's compensation during the five years before retirement.
The programs covering hourly employees and agents generally provide benefits
that are based on the employee's career average earnings and years of service.
American National also sponsors two non-tax-qualified pension plans for key
executives. 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:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
=================================================================================================
</TABLE>
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.
82
<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.
83
<PAGE>
APPENDIX
Illustrations of Death Benefits, Accumulation Values and Surrender Values
The tables on pages 86 through 89 illustrate 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 45,
. the Policy is issued under a preferred tobacco non-user underwriting risk
classification,
. the premium is paid at the beginning of each Policy Year,
. all Accumulation Value is allocated to the Separate Account,
. no Policy Loans are made,
. no changes in the Specified Amount,
. no partial surrenders
. no riders
. 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
0.72% 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 0.83%).
The Accumulation Value, Surrender Value and Death Benefit shown in the
illustrations may be different if any of the above assumptions changed.
The second column of the tables shows the value of the premiums paid
accumulated at a 5% annual interest rate.
The tables on pages 86 and 88 are 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 tables on pages 87 and 89 are based on the assumption that the maximum
allowable Monthly Deductions are made throughout the life of the Policy.
84
<PAGE>
The tables show that the net investment return of each subaccount is lower than
the gross return of the assets held in its corresponding Eligible Portfolio
because of the charges against the subaccounts.
Illustrations also reflect the Daily Asset Charge, which is levied against each
Subaccount at an annual rate of 0.90% 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 -1.62%, 4.38% and 10.38%.
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 34.)
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.
If a partial surrender is made, the surrender will immediately reduce the values
by the amount of the partial surrender, a $25 fee for each partial surrender and
any applicable surrender charge. If the Policy is surrendered, a surrender
charge may be imposed and the Policyowner may receive less than the total
premium paid. In the illustrations, the difference between the Accumulation
Value and the Surrender Value in any year is the surrender charge.
Upon request, we will provide a comparable illustration based upon the proposed
Insured's age, sex and underwriting classification, the Specified Amount, the
Death Benefit option, and Planned Periodic Premium schedule and any available
riders requested.
85
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE
DEATH BENEFIT OPTION A; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
CURRENT SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,842 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,934 941 470 100,000 1,020 549 100,000 1,100 629 100,000
2 3,965 2,228 1,665 100,000 2,459 1,896 100,000 2,700 2,136 100,000
3 6,097 3,475 2,820 100,000 3,941 3,286 100,000 4,447 3,792 100,000
4 8,336 4,680 3,933 100,000 5,467 4,720 100,000 6,355 5,607 100,000
5 10,687 5,839 5,000 100,000 7,035 6,196 100,000 8,437 7,598 100,000
6 13,156 6,946 6,015 100,000 8,639 7,708 100,000 10,706 9,774 100,000
7 15,747 7,996 6,972 100,000 10,277 9,253 100,000 13,177 12,153 100,000
8 18,469 8,988 7,873 100,000 11,950 10,834 100,000 15,874 14,759 100,000
9 21,326 9,924 8,716 100,000 13,660 12,452 100,000 18,823 17,616 100,000
10 24,327 10,801 9,520 100,000 15,408 14,127 100,000 22,053 20,772 100,000
15 41,735 14,319 14,319 100,000 24,825 24,825 100,000 43,773 43,773 100,000
20 63,953 16,182 16,182 100,000 35,560 35,560 100,000 79,983 79,983 100,000
25 92,309 15,581 15,581 100,000 47,797 47,797 100,000 140,207 140,207 162,640
30 128,499 8,269 8,269 100,000 60,471 60,471 100,000 236,982 236,982 253,571
AGE 65 63,953 16,182 16,182 100,000 35,560 35,560 100,000 79,983 79,983 100,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
Premium Tax Charges will vary by state of residence. This illustration assumes
2.0%
American National agrees to keep the policy in force during the first 2 policy
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not, after the payment of monthly insurance and
administrative charges, generate positive surrender values during such period.
Values would be different if premiums are paid with a different frequency or if
of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH VALUE WOULD BE
DIFFERENT FROM THOSE SHOWN ABOVE.
86
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE
DEATH BENEFIT OPTION A; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
GUARANTEED SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,842 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,934 931 460 100,000 1,010 539 100,000 1,089 618 100,000
2 3,965 2,204 1,641 100,000 2,433 1,870 100,000 2,673 2,110 100,000
3 6,097 3,432 2,777 100,000 3,894 3,239 100,000 4,396 3,741 100,000
4 8,336 4,613 3,866 100,000 5,394 4,647 100,000 6,274 5,527 100,000
5 10,687 5,747 4,908 100,000 6,931 6,092 100,000 8,320 7,481 100,000
6 13,156 6,830 5,899 100,000 8,505 7,574 100,000 10,550 9,619 100,000
7 15,747 7,858 6,834 100,000 10,113 9,089 100,000 12,981 11,958 100,000
8 18,469 8,826 7,710 100,000 11,751 10,635 100,000 15,630 14,515 100,000
9 21,326 9,728 8,520 100,000 13,416 12,208 100,000 18,519 17,311 100,000
10 24,327 10,560 9,279 100,000 15,105 13,825 100,000 21,670 20,389 100,000
15 41,735 13,498 13,498 100,000 23,825 23,825 100,000 42,537 42,537 100,000
20 63,953 13,604 13,604 100,000 32,575 32,575 100,000 76,751 76,751 100,000
25 92,309 8,803 8,803 100,000 40,313 40,313 100,000 133,825 133,825 155,237
30 128,499 0 0 0 45,059 45,059 100,000 225,162 225,162 240,923
AGE 65 63,953 13,604 13,604 100,000 32,575 32,575 100,000 76,751 76,751 100,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
Premium Tax Charges will vary by state of residence. This illustration assumes
2.0%
American National agrees to keep the policy in force during the first 2 policy
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not, after the payment of monthly insurance and
administrative charges, generate positive surrender values during such period.
Values would be different if premiums are paid with a different frequency or if
of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH VALUE WOULD BE
DIFFERENT FROM THOSE SHOWN ABOVE.
87
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE
DEATH BENEFIT OPTION B; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
CURRENT SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,842 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,934 936 465 100,936 1,015 544 101,015 1,095 624 101,095
2 3,965 2,215 1,652 102,215 2,444 1,881 102,444 2,683 2,120 102,683
3 6,097 3,448 2,793 103,448 3,910 3,255 103,910 4,411 3,756 104,411
4 8,336 4,633 3,886 104,633 5,411 4,664 105,411 6,288 5,541 106,288
5 10,687 5,766 4,927 105,766 6,944 6,105 106,944 8,325 7,485 108,325
6 13,156 6,839 5,907 106,839 8,501 7,570 108,501 10,529 9,597 110,529
7 15,747 7,846 6,822 107,846 10,076 9,052 110,076 12,909 11,886 112,909
8 18,469 8,786 7,671 108,786 11,668 10,552 111,668 15,484 14,368 115,484
9 21,326 9,659 8,451 109,659 13,276 12,068 113,276 18,270 17,062 118,270
10 24,327 10,463 9,182 110,463 14,898 13,617 114,898 21,286 20,006 121,286
15 41,735 13,434 13,434 113,434 23,178 23,178 123,178 40,701 40,701 140,701
20 63,953 14,387 14,387 114,387 31,376 31,376 131,376 70,136 70,136 170,136
25 92,309 12,418 12,418 112,418 38,280 38,280 138,280 114,647 114,647 214,647
30 128,499 3,197 3,197 103,197 38,370 38,370 138,370 177,919 177,919 277,919
AGE 65 63,953 14,387 14,387 114,387 31,376 31,376 131,376 70,136 70,136 170,136
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
Premium Tax Charges will vary by state of residence. This illustration assumes
2.0%
American National agrees to keep the policy in force during the first 2 policy
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not, after the payment of monthly insurance and
administrative charges, generate positive surrender values during such period.
Values would be different if premiums are paid with a different frequency or if
of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH VALUE WOULD BE
DIFFERENT FROM THOSE SHOWN ABOVE.
88
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE
DEATH BENEFIT OPTION B; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
GUARANTEED SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,842 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,934 926 455 100,926 1,005 534 101,005 1,084 613 101,084
2 3,965 2,190 1,627 102,190 2,418 1,855 102,418 2,656 2,093 102,656
3 6,097 3,404 2,748 103,404 3,862 3,207 103,862 4,359 3,704 104,359
4 8,336 4,564 3,817 104,564 5,335 4,588 105,335 6,204 5,457 106,204
5 10,687 5,671 4,831 105,671 6,836 5,997 106,836 8,203 7,363 108,203
6 13,156 6,718 5,787 106,718 8,361 7,429 108,361 10,365 9,434 110,365
7 15,747 7,702 6,678 107,702 9,903 8,880 109,903 12,702 11,678 112,702
8 18,469 8,616 7,500 108,616 11,458 10,342 111,458 15,224 14,108 115,224
9 21,326 9,453 8,245 109,453 13,017 11,809 113,017 17,942 16,734 117,942
10 24,327 10,207 8,927 110,207 14,573 13,292 114,573 20,869 19,588 120,869
15 41,735 12,529 12,529 112,529 22,019 22,019 122,019 39,163 39,163 139,163
20 63,953 11,529 11,529 111,529 27,640 27,640 127,640 65,003 65,003 165,003
25 92,309 5,222 5,222 105,222 28,404 28,404 128,404 100,210 100,210 200,210
30 128,499 0 0 0 18,896 18,896 118,896 145,915 145,915 245,915
AGE 65 63,953 11,529 11,529 111,529 27,640 27,640 127,640 65,003 65,003 165,003
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,273.00
SURRENDER PREMIUM $1,803.96
Premium Tax Charges will vary by state of residence. This illustration assumes
2.0%
American National agrees to keep the policy in force during the first 2 policy
years and provide a Guaranteed Coverage Benefit so long as the Guaranteed
Coverage Premium is paid even though, in certain instances, the minimum payments
allowed by the contract will not, after the payment of monthly insurance and
administrative charges, generate positive surrender values during such period.
Values would be different if premiums are paid with a different frequency or if
of different amounts.
Assumes that no policy loans have been made. Excessive loans or partial
surrenders may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS THE DEATH BENEFIT AND CASH VALUE WOULD BE
DIFFERENT FROM THOSE SHOWN ABOVE.
89
<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 89 pages.
Undertaking to file reports.
Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
Signatures.
Written Consents
<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 in
post-effective amendment no. 8 on April 26, 1996)
Exhibit 2 ....... Not Applicable
Exhibit 3(a) .... Distribution and Administrative Services Agreement
(previously filed in post-effective no. 8 on April 26, 1996)
Exhibit 3(b) .... Not Applicable
Exhibit 3(c) .... Schedule of Sales Commissions (previously filed in post-
effective amendment no. 8 on April 26, 1996)
Exhibit 4 ....... Not Applicable
Exhibit 5 ....... Flexible Premium Variable Life Insurance Policy (previously
filed in post-effective amendment no. 8 on April 26, 1996)
Exhibit 6(1) .... Articles of Incorporation of American National Insurance
Company (previously filed in post-effective amendment no. 8
on April 26, 1996)
Exhibit 6(2) .... By-laws of American National Insurance Company (previously
filed in post-effective amendment no. 8 on April 26, 1996)
Exhibit 7 ....... Not Applicable
Exhibit 8(1) .... Form of American National Investment Accounts, Inc. Fund
Participation Agreement (previously filed in post-effective
amendment no. 8 on April 26, 1996)
Exhibit 8(2) .... Form of Variable Insurance Products Fund Fund Participation
Agreement (previously filed in post-effective amendment no.
8 on April 26, 1996)
Exhibit 8(3) .... Form of Variable Insurance Products Fund II Fund
Participation Agreement (previously filed in post-effective
amendment no. 8 on April 26, 1996)
Exhibit 8(4) .... Form of T. Rowe Price Fund Participation Agreement
<PAGE>
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 in post-
effective amendment no. 8 on April 26, 1996)
Exhibit 16 ...... Procedures Memorandum Pursuant to Rule 6e-3(T)(b)(12)(iii)
(previously filed in post-effective amendment no. 8 on April
26, 1996)
Exhibit 27 ...... Financial Data Schedule
<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 30th 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 Financial --------------
Michael W. McCroskey Officer)
/s/ Stephen E. Pavlicek Senior Vice President and Controller April 30, 1999
- -------------------------- (Principal Accounting Officer) --------------
Stephen E. Pavlicek
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert L. Moody Chairman of the Board, April 30, 1999
- ---------------------------- Director, President and Chief --------------
Robert L. Moody 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/ R. 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
<PAGE>
EXHIBIT 8(4)
PARTICIPATION AGREEMENT
- -----------------------
AMONG
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE FIXED INCOME SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
AND
AMERICAN NATIONAL LIFE
THIS AGREEMENT, made and entered into as of this ________ day of
________________________, 1997 by and among American National Life (hereinafter,
the "Company"), a Texas insurance company, on its own behalf and on behalf of
each segregated asset account of the Company set forth on Schedule A hereto as
may be amended from time to time (each account hereinafter referred to as the
"Account"), and the undersigned funds, each, a corporation organized under the
laws of Maryland (hereinafter referred to as the "Fund") and T. Rowe Price
Investment Services, Inc. (hereinafter the "Underwriter"), a Maryland
corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund
<PAGE>
shall use its best efforts to calculate such net asset value on each day which
the New York Stock Exchange is open for trading. Notwithstanding the foregoing,
the Board of Directors of the Fund (hereinafter the "Board") may refuse to sell
shares of any Designated Portfolio to any person, or suspend or terminate the
offering of shares of any Designated Portfolio if such action is required by law
or by regulatory authorities having jurisdiction, or is, in the sole discretion
of the Board acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, necessary in the best interests of the
shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day after
receipt of an order to purchase Fund shares. Payment shall be in federal funds
transmitted by wire by 4:00 p.m. Baltimore time. If payment in Federal Funds
for any purchase is not received or is received by the Fund after 4:00 p.m.
Baltimore time on such Business Day, the Company shall promptly, upon the Fund's
request, reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or borrowings
or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. For purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund
of the federal funds so wired, such funds shall cease to be the
<PAGE>
responsibility of the Company and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions. The Fund shall use its best efforts to
furnish advance notice of the day such dividends and distributions are expected
to be paid.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies, provided,
however, that (a) such other investment company, or series thereof, has
investment objectives or policies that are different from the investment
objectives and policies of the Fund; or (b) the Company gives the Fund and the
Underwriter 45 days written notice of its intention to make such other
investment company available as a funding vehicle for the Contracts; or (c) such
other investment company was available as a funding vehicle for the Contracts
prior to the date of this Agreement and the Company so informs the Fund and
Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents to the use of such other investment company, such consent
not to be unreasonably withheld.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Texas insurance laws and has
<PAGE>
registered or, prior to any issuance or sale of the Contracts, will register the
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Texas and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Texas to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Texas and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Texas and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket
<PAGE>
fidelity bond or similar coverage for the benefit of the Fund in an amount not
less than the minimum coverage as required currently by Rule 17g-1 of the 1940
Act or related provisions as may be promulgated from time to time. The aforesaid
bond shall include coverage for larceny and embezzlement and shall be issued by
a reputable bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund. The Company agrees to make all reasonable efforts to see
that this bond or another bond containing these provisions is always in effect,
and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies. The Company agrees to exercise its best efforts to
ensure that other individuals/entities not employed or controlled by the Company
and dealing with the money and/or securities of the Fund maintain a similar bond
or coverage in a reasonable amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
at the Fund's expense) and other assistance as is reasonably necessary in order
for the Company once each year (or more frequently if the prospectus for the
Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document.
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4 The Company shall:
<PAGE>
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Designated Portfolio for which
instructions have been received, so long as and to the extent that the SEC
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners or to the extent otherwise required by law. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least fifteen calendar days prior
to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within fifteen calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
<PAGE>
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
fifteen calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within fifteen calendar days after
receipt of such material. The Company reserves the right to reasonably object
to the continued use of such material and no such material shall be used if the
Company so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC or other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
<PAGE>
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's prospectus
(in accordance with 3.1) and of distributing the Fund's prospectus, proxy
materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 Subject to the Company's maintaining the treatment of the Contracts as
life insurance, endowment, or annuity contracts under applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder (or any successor provisions), the Fund will invest its assets
in such a manner as to ensure that the Contracts will be treated as annuity,
endowment, or life insurance contracts, whichever is appropriate, under the Code
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, the Fund will comply with Section 817(h) of
the Code and Treasury Regulation (S)1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify
<PAGE>
the Company immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
6.3 Subject to the Fund's compliance with Section 817(h) of the Code and
Treasury Regulation (S)1.817-5, and any Treasury interpretations thereof,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts, any amendments or other modifications or successor
provisions to such Sections or Regulations, the Company represents that the
Contracts are currently, and at the time of issuance shall be, treated as life
insurance, endowment contracts, or annuity insurance contracts, under applicable
provisions of the Code, and that it will make every effort to maintain such
treatment, and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing the Contracts have ceased to be so
treated or that they might not be so treated in the future. The Company agrees
that any prospectus offering a contract that is a "modified endowment contract"
as that term is defined in Section 7702A of the Code (or any successor or
similar provision), shall identify such contract as a modified endowment
contract.
ARTICLE VII. Potential Conflicts. The following provisions apply effective
upon investment in the Fund by a separate account of a Participating Insurance
Company supporting variable life insurance contracts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as
<PAGE>
determined by a majority of the disinterested Board members), take whatever
steps are necessary to remedy or eliminate the irreconcilable material conflict,
up to and including: (1), withdrawing the assets allocable to some or all of
the separate accounts from the Fund or any Portfolio and reinvesting such assets
in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2), establishing a new registered management investment
company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six month period the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6)
<PAGE>
months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested members of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration Statement,
prospectus, or statement of additional information for the Contracts or
contained in the Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to the Company by or on behalf of the Fund for use in the Registration
Statement, prospectus or statement of additional information for the Contracts
or in the Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
<PAGE>
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by the
Company or persons under its control) or wrongful conduct of the Company or
persons under its authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
<PAGE>
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
prospectus or SAI or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the Fund or
Underwriter or persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or
<PAGE>
statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Fund;
or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements specified in Article VI
of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action and to settle the claim at its own expense;
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Underwriter to such
party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
<PAGE>
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements specified in Article VI
of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their
<PAGE>
conduct. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party, for any reason with respect to some or
all Designated Portfolios, by six (6) months' advance written notice delivered
to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio based upon the Company's
determination that shares of the Fund are not reasonably available to meet the
requirements of the Contracts; provided that such termination shall apply only
to the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and the
Underwriter in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that formal
administrative proceedings are instituted against the Company by the NASD, the
SEC, the
<PAGE>
Insurance Commissioner or like official of any state or any other regulatory
body regarding the Company's duties under this Agreement or related to the sale
of the Contracts, the operation of any Account, or the purchase of the Fund
shares, provided, however, that the Fund or Underwriter determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Company to perform its
obligations under this Agreement; or
(e) termination by the Company in the event that formal administrative
proceedings are instituted against the Fund or Underwriter by the NASD, the SEC,
or any state securities or insurance department or any other regulatory body,
provided, however, that the Company determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have a material
adverse effect upon the ability of the Fund or Underwriter to perform its
obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio in the event that such
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to the
Company in the event that the Contracts fail to meet the qualifications
specified in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
(i) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment exercised in
good faith, that the Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity; or
(j) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter the written
notice specified in Section 1.11 hereof and at the time such notice was given
there was no notice of termination outstanding under any other provision of this
Agreement; provided, however, any termination under this Section 10.1(j) shall
be effective sixty days after the notice specified in Section 1.11 was given.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the
<PAGE>
Fund and the Underwriter shall, at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, the owners of the Existing Contracts may be permitted to
reallocate investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply to any
termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund and the Underwriter
the opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
10.5 Any successor by law of the parties hereto shall be entitled to the
benefits of the indemnification provisions contained in Article VIII.
<PAGE>
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: John Cammack
Copy to: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the enforcement
of any claims against the Fund. The parties agree that neither the Board,
officers, agents or shareholders assume any personal liability or responsibility
for obligations entered into by or on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except
<PAGE>
as permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as such information may
come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Texas Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Texas
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: AMERICAN NATIONAL LIFE
By its authorized officer
By:__________________________
Title:_______________________
Date:________________________
FUND: T. ROWE PRICE INTERNATIONAL
SERIES, INC.
By its authorized officer
By:__________________________
Title:_______________________
Date:________________________
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By:__________________________
Title:_______________________
Date:________________________
<PAGE>
FUND: T. ROWE PRICE FIXED INCOME SERIES, INC.
By its authorized officer
By:__________________________
Title:_______________________
Date:________________________
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By:__________________________
Title:_______________________
Date:________________________
<PAGE>
SCHEDULE A
- ----------
Name of Separate Account and Contracts Funded by
Date Established by Board of Directors Separate Account Designated Portfolios
- --------------------------------------- ---------------- ---------------------
T. Rowe Price International Series, Inc.
----------------------------------------
T. Rowe Price International Stock
Portfolio
T. Rowe Price Equity Series, Inc.
---------------------------------
T. Rowe Price Equity Income Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Fixed Income Series, Inc.
---------------------------------------
T. Rowe Price Limited-Term Bond Portfolio
<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. 12 to Form S-6; File No. 33-36525;
Opinion and Consent of Counsel
- -----------------------------------------
Gentlemen:
We are counsel to American National Insurance Company ("ANICO"), the
depositor of the Separate Account. As such, we participated in the formation of
the Separate Account and the registration of such separate account with the
Securities and Exchange Commission ("Commission"). Accordingly, we are familiar
with the corporate records, certificates, and consents of officers of ANICO as
we have deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and our consideration of such other matters of
fact and questions of law as we have deemed necessary and proper in the
circumstances, we are of the opinion that:
1. ANICO is a duly organized and existing corporation under the laws of
the State of Texas and that its principal business is to be an insurer.
2. The Separate Account is a duly organized and existing separate account
of ANICO under the laws of the State of Texas and is registered as a unit
investment trust under the Investment Company Act of 1940.
<PAGE>
3. The Variable Life Insurance Contracts registered by this Registration
Statement under the Securities Act of 1933 (File No. 33-36525) 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. 12 to Form S-6 Registration Statement (File No. 33-
36525) 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. 12 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. 12 to Registration Statement No. 33-36525 on Form S-6 Registration
Statement (the "Registration Statement"). The prospectus included in the
Registration Statement describes a certain Variable Universal 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,
/s/ Rex D. Hemme
- ----------------------------
Rex D. Hemme, FSA, MAAA
Vice President and Actuary Life Product Development
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
NATIONAL VARIABLE LIFE SEPARATE ACCOUNT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 35,399
<INVESTMENTS-AT-VALUE> 46,075
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,075
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 46,075
<DIVIDEND-INCOME> 590
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,532
<EXPENSES-NET> 222
<NET-INVESTMENT-INCOME> 1,900
<REALIZED-GAINS-CURRENT> 592
<APPREC-INCREASE-CURRENT> 4,584
<NET-CHANGE-FROM-OPS> 7,076
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 13,259
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
